UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM10-Q
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended SeptemberJune 30, 20172019
or
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period fromto
Commission file number001-36895
FRANKLIN FINANCIAL NETWORK, INC.
(Exact name of registrant as specified in its charter)
Tennessee | ||
20-8839445 | ||
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
722 Columbia Avenue Franklin, Tennessee | 37064 | |
(Address of principal executive offices) | (Zip Code) |
615-236-2265
(Registrant’s telephone number, including area code)
N/A
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Securities registered pursuant to Section 12(b) of the Act.
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, no par value | FSB | New York Stock Exchange |
Indicate by check mark whether the registrant:registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of RegulationS-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☒ | |||||
Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |||||
Emerging growth company | ☒ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act). Yes ☐ No ☒
The number of shares outstanding of the registrant’s common stock, no par value per share, as of November 7, 2017,August 1, 2019, was 13,215,564.14,624,960.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form10-Q contains “forward-looking statements” as defined under U.S. federal securities laws. These statements reflect management’s current knowledge, assumptions, beliefs, estimates, and expectations and express management’s current views of future performance, results, and trends and may be identified by their use of terms such as “may,” “likely,” “would,” “could,” “should,” “will,” “expect,” “anticipate,” “predict,” “project,” “potential,” “continue,” “contemplate,” “seek,” “assume,” “believe,” “intend,” “plan,” “forecast,” “goal,” and “estimate,” and other similar terms. Forward-looking statements are subject to a number of risks and uncertainties that could cause our actual results to differ materially from those described in the forward-looking statements. Readers should not place undue reliance on forward-looking statements. Such statements are made as of the date of this Quarterly Report on Form10-Q, and we undertake no obligation to update such statements after this date.date, unless otherwise required by law.
Risks and uncertainties that could cause our actual results to differ materially from those described in forward-looking statements include those discussed in our filings with the Securities and Exchange Commission (“SEC”), including those described in Item 1A of Part I of our Annual Report on Form10-K for the year ended December 31, 2016.2018.
ITEM 1. CONSOLIDATED FINANCIAL INFORMATIONSTATEMENTS
FRANKLIN FINANCIAL NETWORK, INC.
(Dollar amounts in thousands, except share and per share data)
September 30, 2017 | December 31, 2016 |
| June 30, 2019 |
|
| December 31, 2018 |
| |||||||||
(Unaudited) |
| (Unaudited) |
|
|
|
|
| |||||||||
ASSETS |
|
|
|
|
|
|
|
| ||||||||
Cash and due from financial institutions | $ | 155,842 | $ | 90,927 |
| $ | 150,721 |
|
| $ | 280,212 |
| ||||
Certificates of deposit at other financial institutions | 2,365 | 1,055 |
|
| 3,840 |
|
|
| 3,594 |
| ||||||
Securities available for sale | 980,737 | 754,755 |
|
| 715,132 |
|
|
| 1,030,668 |
| ||||||
Securities held to maturity (fair value 2017—$220,089 and 2016—$227,892) | 217,312 | 228,894 | ||||||||||||||
Securities held to maturity (fair value 2019—$120,809 and 2018—$118,955) |
|
| 118,963 |
|
|
| 121,617 |
| ||||||||
Loans held for sale, at fair value | 11,823 | 23,699 |
|
| 27,093 |
|
|
| 11,103 |
| ||||||
Loans | 2,115,930 | 1,773,592 | ||||||||||||||
Loans held for investment |
|
| 2,880,433 |
|
|
| 2,665,399 |
| ||||||||
Allowance for loan losses | (19,944 | ) | (16,553 | ) |
|
| (27,443 | ) |
|
| (23,451 | ) | ||||
|
| |||||||||||||||
Net loans | 2,095,986 | 1,757,039 |
|
| 2,852,990 |
|
|
| 2,641,948 |
| ||||||
|
| |||||||||||||||
Restricted equity securities, at cost | 18,472 | 11,843 |
|
| 24,842 |
|
|
| 21,831 |
| ||||||
Premises and equipment, net | 11,217 | 9,551 |
|
| 12,948 |
|
|
| 12,371 |
| ||||||
Accrued interest receivable | 11,156 | 9,931 |
|
| 14,281 |
|
|
| 13,337 |
| ||||||
Bank owned life insurance | 23,732 | 23,267 |
|
| 55,989 |
|
|
| 55,239 |
| ||||||
Deferred tax asset | 13,592 | 15,013 |
|
| 10,451 |
|
|
| 13,189 |
| ||||||
Foreclosed assets | 1,503 | — | ||||||||||||||
Servicing rights, net | 3,639 | 3,621 |
|
| 3,299 |
|
|
| 3,403 |
| ||||||
Goodwill | 9,124 | 9,124 |
|
| 18,176 |
|
|
| 18,176 |
| ||||||
Core deposit intangible, net | 1,117 | 1,480 |
|
| 675 |
|
|
| 952 |
| ||||||
Other assets | 7,663 | 2,990 |
|
| 62,571 |
|
|
| 21,799 |
| ||||||
|
| |||||||||||||||
Total assets | $ | 3,565,278 | $ | 2,943,189 |
| $ | 4,071,971 |
|
| $ | 4,249,439 |
| ||||
|
| |||||||||||||||
LIABILITIES AND EQUITY |
|
|
|
|
|
|
|
| ||||||||
Deposits |
|
|
|
|
|
|
|
| ||||||||
Non-interest bearing | $ | 257,177 | $ | 233,781 |
| $ | 334,802 |
|
| $ | 290,580 |
| ||||
Interest bearing | 2,567,648 | 2,158,037 |
|
| 2,811,843 |
|
|
| 3,141,227 |
| ||||||
|
| |||||||||||||||
Total deposits | 2,824,825 | 2,391,818 |
|
| 3,146,645 |
|
|
| 3,431,807 |
| ||||||
Federal Home Loan Bank advances | 337,000 | 132,000 |
|
| 396,500 |
|
|
| 368,500 |
| ||||||
Federal funds purchased and repurchase agreements | 32,862 | 83,301 | ||||||||||||||
Subordinated notes, net | 58,470 | 58,337 |
|
| 58,782 |
|
|
| 58,693 |
| ||||||
Accrued interest payable | 2,597 | 1,924 |
|
| 4,312 |
|
|
| 4,700 |
| ||||||
Other liabilities | 5,827 | 5,448 |
|
| 72,123 |
|
|
| 12,906 |
| ||||||
|
| |||||||||||||||
Total liabilities | 3,261,581 | 2,672,828 |
|
| 3,678,362 |
|
|
| 3,876,606 |
| ||||||
Commitments and Contingencies (Note 9) |
|
|
|
|
|
|
|
| ||||||||
Equity |
|
|
|
|
|
|
|
| ||||||||
Preferred stock, no par value: 1,000,000 shares authorized; no shares outstanding at September 30, 2017 and December 31, 2016 | — | — | ||||||||||||||
Common stock, no par value: 30,000,000 and 20,000,000 shares authorized at September 30, 2017 and December 31, 2016, respectively; 13,209,055 and 13,036,954 issued at September 30, 2017 and December 31, 2016, respectively | 221,642 | 218,354 | ||||||||||||||
Preferred stock, no par value: 1.0 million shares authorized; no shares outstanding at June 30, 2019 and December 31, 2018 |
|
| — |
|
|
| — |
| ||||||||
Common stock, no par value: 30.0 million authorized; 14.6 million and 14.5 million issued and outstanding at June 30, 2019 and December 31, 2018, respectively |
|
| 268,505 |
|
|
| 264,905 |
| ||||||||
Retained earnings | 85,075 | 59,386 |
|
| 127,840 |
|
|
| 123,176 |
| ||||||
Accumulated other comprehensive loss | (3,123 | ) | (7,482 | ) |
|
| (2,829 | ) |
|
| (15,341 | ) | ||||
|
| |||||||||||||||
Total shareholders’ equity | 303,594 | 270,258 |
|
| 393,516 |
|
|
| 372,740 |
| ||||||
Noncontrolling interest in consolidated subsidiary | 103 | 103 | ||||||||||||||
|
| |||||||||||||||
Non-controlling interest in consolidated subsidiary |
|
| 93 |
|
|
| 93 |
| ||||||||
Total equity | $ | 303,697 | $ | 270,361 |
|
| 393,609 |
|
|
| 372,833 |
| ||||
|
| |||||||||||||||
Total liabilities and equity | $ | 3,565,278 | $ | 2,943,189 |
| $ | 4,071,971 |
|
| $ | 4,249,439 |
| ||||
|
|
See accompanying notes to consolidated financial statements.
FRANKLIN FINANCIAL NETWORK, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollar amounts in thousands, except share and per share data)
(Unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, |
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| |||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 |
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| |||||||||||||||||
Interest income and dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Loans, including fees | $ | 25,973 | $ | 20,192 | $ | 73,195 | $ | 56,864 |
| $ | 40,202 |
|
| $ | 32,312 |
|
| $ | 78,540 |
|
| $ | 61,105 |
| ||||||||
Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Taxable | 5,041 | 3,889 | 16,358 | 11,402 |
|
| 4,614 |
|
|
| 6,905 |
|
|
| 11,008 |
|
|
| 13,016 |
| ||||||||||||
Tax-Exempt | 2,217 | 1,457 | 6,449 | 3,776 |
|
| 1,410 |
|
|
| 1,929 |
|
|
| 2,880 |
|
|
| 3,844 |
| ||||||||||||
Dividends on restricted equity securities | 269 | 133 | 663 | 354 |
|
| 350 |
|
|
| 329 |
|
|
| 684 |
|
|
| 603 |
| ||||||||||||
Federal funds sold and other | 280 | 53 | 667 | 175 |
|
| 877 |
|
|
| 661 |
|
|
| 1,864 |
|
|
| 1,615 |
| ||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Total interest income | 33,780 | 25,724 | 97,332 | 72,571 |
|
| 47,453 |
|
|
| 42,136 |
|
|
| 94,976 |
|
|
| 80,183 |
| ||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Deposits | 7,311 | 3,683 | 19,118 | 10,118 |
|
| 16,679 |
|
|
| 12,604 |
|
|
| 33,669 |
|
|
| 23,247 |
| ||||||||||||
Federal funds purchased and repurchase agreements | 92 | 69 | 309 | 237 |
|
| 90 |
|
|
| 131 |
|
|
| 162 |
|
|
| 227 |
| ||||||||||||
Federal Home Loan Bank advances | 968 | 215 | 2,228 | 511 | ||||||||||||||||||||||||||||
Subordinated notes and other borrowings | 1,083 | 1,082 | 3,239 | 1,820 | ||||||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Federal Home Loan Bank advances and other borrowings |
|
| 2,237 |
|
|
| 1,414 |
|
|
| 4,196 |
|
|
| 2,524 |
| ||||||||||||||||
Subordinated notes |
|
| 1,082 |
|
|
| 1,082 |
|
|
| 2,164 |
|
|
| 2,164 |
| ||||||||||||||||
Total interest expense | 9,454 | 5,049 | 24,894 | 12,686 |
|
| 20,088 |
|
|
| 15,231 |
|
|
| 40,191 |
|
|
| 28,162 |
| ||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Net interest income | 24,326 | 20,675 | 72,438 | 59,885 |
|
| 27,365 |
|
|
| 26,905 |
|
|
| 54,785 |
|
|
| 52,021 |
| ||||||||||||
Provision for loan losses | 590 | 1,392 | 3,018 | 4,095 |
|
| 7,031 |
|
|
| 570 |
|
|
| 12,086 |
|
|
| 1,143 |
| ||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Net interest income after provision for loan losses | 23,736 | 19,283 | 69,420 | 55,790 |
|
| 20,334 |
|
|
| 26,335 |
|
|
| 42,699 |
|
|
| 50,878 |
| ||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Noninterest income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Service charges on deposit accounts | 39 | 44 | 114 | 139 |
|
| 77 |
|
|
| 51 |
|
|
| 151 |
|
|
| 93 |
| ||||||||||||
Other service charges and fees | 787 | 845 | 2,297 | 2,245 |
|
| 903 |
|
|
| 823 |
|
|
| 1,660 |
|
|
| 1,574 |
| ||||||||||||
Net gains on sale of loans | 1,517 | 2,942 | 5,918 | 6,859 | ||||||||||||||||||||||||||||
Mortgage banking revenue |
|
| 2,473 |
|
|
| 2,044 |
|
|
| 4,145 |
|
|
| 3,602 |
| ||||||||||||||||
Wealth management | 643 | 446 | 1,884 | 1,343 |
|
| 673 |
|
|
| 789 |
|
|
| 1,300 |
|
|
| 1,493 |
| ||||||||||||
Loan servicing fees, net | 70 | (40 | ) | 230 | (2 | ) | ||||||||||||||||||||||||||
Gain on sale or call of securities | 350 | 430 | 470 | 1,535 |
|
| 367 |
|
|
| 1 |
|
|
| 517 |
|
|
| 1 |
| ||||||||||||
Net (loss) gain on sale of foreclosed assets | (16 | ) | 30 | (10 | ) | 36 | ||||||||||||||||||||||||||
Net (loss) gain on sale of loans |
|
| 3 |
|
|
| — |
|
|
| (214 | ) |
|
| — |
| ||||||||||||||||
Net gain on sale of foreclosed assets |
|
| 3 |
|
|
| 3 |
|
|
| 7 |
|
|
| 6 |
| ||||||||||||||||
Other | 179 | 179 | 554 | 432 |
|
| 424 |
|
|
| 436 |
|
|
| 844 |
|
|
| 834 |
| ||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Total noninterest income | 3,569 | 4,876 | 11,457 | 12,587 |
|
| 4,923 |
|
|
| 4,147 |
|
|
| 8,410 |
|
|
| 7,603 |
| ||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Noninterest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Salaries and employee benefits | 9,011 | 7,979 | 26,172 | 22,099 |
|
| 11,365 |
|
|
| 10,268 |
|
|
| 26,108 |
|
|
| 19,456 |
| ||||||||||||
Occupancy and equipment | 2,399 | 2,001 | 6,689 | 5,563 |
|
| 3,283 |
|
|
| 2,885 |
|
|
| 6,396 |
|
|
| 5,479 |
| ||||||||||||
FDIC assessment expense | 900 | 570 | 2,675 | 1,388 |
|
| 660 |
|
|
| 778 |
|
|
| 1,650 |
|
|
| 1,438 |
| ||||||||||||
Marketing | 192 | 206 | 744 | 611 |
|
| 301 |
|
|
| 269 |
|
|
| 620 |
|
|
| 549 |
| ||||||||||||
Professional fees | 821 | 935 | 2,558 | 3,006 |
|
| 1,073 |
|
|
| 1,362 |
|
|
| 1,996 |
|
|
| 2,231 |
| ||||||||||||
Amortization of core deposit intangible | 115 | 138 | 363 | 431 |
|
| 132 |
|
|
| 182 |
|
|
| 277 |
|
|
| 286 |
| ||||||||||||
Other | 1,840 | 1,879 | 5,636 | 5,354 |
|
| 2,556 |
|
|
| 2,306 |
|
|
| 4,939 |
|
|
| 4,099 |
| ||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Total noninterest expense | 15,278 | 13,708 | 44,837 | 38,542 |
|
| 19,370 |
|
|
| 18,050 |
|
|
| 41,986 |
|
|
| 33,538 |
| ||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Income before income tax expense | 12,027 | 10,451 | 36,040 | 29,925 |
|
| 5,887 |
|
|
| 12,432 |
|
|
| 9,123 |
|
|
| 24,943 |
| ||||||||||||
Income tax expense | 3,138 | 3,314 | 10,343 | 9,047 |
|
| 706 |
|
|
| 2,263 |
|
|
| 1,040 |
|
|
| 4,722 |
| ||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Net income | 8,889 | 7,137 | 25,697 | 20,878 |
|
| 5,181 |
|
|
| 10,169 |
|
|
| 8,083 |
|
|
| 20,221 |
| ||||||||||||
Earnings attributable to noncontrolling interest | — | — | (8 | ) | — |
|
| (8 | ) |
|
| (8 | ) |
|
| (8 | ) |
|
| (8 | ) | |||||||||||
Dividends paid on Series A preferred stock | — | — | — | (23 | ) | |||||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Net income available to common shareholders | $ | 8,889 | $ | 7,137 | $ | 25,689 | $ | 20,855 |
| $ | 5,173 |
|
| $ | 10,161 |
|
| $ | 8,075 |
|
| $ | 20,213 |
| ||||||||
|
|
|
| |||||||||||||||||||||||||||||
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Basic | $ | 0.67 | $ | 0.67 | $ | 1.96 | $ | 1.96 |
| $ | 0.35 |
|
| $ | 0.71 |
|
| $ | 0.55 |
|
| $ | 1.46 |
| ||||||||
Diluted | 0.65 | 0.63 | 1.86 | 1.84 |
|
| 0.34 |
|
|
| 0.68 |
|
|
| 0.54 |
|
|
| 1.41 |
|
See accompanying notes to consolidated financial statements.
FRANKLIN FINANCIAL NETWORK, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollar amounts in thousands, except share and per share data)
(Unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, |
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| |||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 |
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| |||||||||||||||||
Net income | $ | 8,889 | $ | 7,137 | $ | 25,697 | $ | 20,878 |
| $ | 5,181 |
|
| $ | 10,169 |
|
| $ | 8,083 |
|
| $ | 20,221 |
| ||||||||
Other comprehensive income, net of tax: | ||||||||||||||||||||||||||||||||
Unrealized gains on securities: | ||||||||||||||||||||||||||||||||
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Unrealized gains/losses on securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Unrealized holding gain (loss) arising during the period | 1,610 | (3,664 | ) | 7,641 | 13,910 |
|
| 7,116 |
|
|
| (3,774 | ) |
|
| 19,109 |
|
|
| (18,351 | ) | |||||||||||
Reclassification adjustment for gains included in net income | (350 | ) | (430 | ) | (470 | ) | (1,535 | ) | ||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Net unrealized gains (losses) | 1,260 | (4,094 | ) | 7,171 | 12,375 | |||||||||||||||||||||||||||
Reclassification adjustment for losses (gains) included in net income |
|
| (367 | ) |
|
| (1 | ) |
|
| (517 | ) |
|
| (1 | ) | ||||||||||||||||
Tax effect | (494 | ) | 1,606 | (2,812 | ) | (4,854 | ) |
|
| (1,760 | ) |
|
| 988 |
|
|
| (4,849 | ) |
|
| 4,796 |
| |||||||||
|
|
|
| |||||||||||||||||||||||||||||
Net of tax |
|
| 4,989 |
|
|
| (2,787 | ) |
|
| 13,743 |
|
|
| (13,556 | ) | ||||||||||||||||
Unrealized gain/loss on cash flow hedge: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Unrealized holding gain (loss) |
|
| (1,667 | ) |
|
| — |
|
|
| (1,667 | ) |
|
| — |
| ||||||||||||||||
Tax effect |
|
| 436 |
|
|
| — |
|
|
| 436 |
|
|
| — |
| ||||||||||||||||
Net of tax |
|
| (1,231 | ) |
|
| — |
|
|
| (1,231 | ) |
|
| — |
| ||||||||||||||||
Total other comprehensive income (loss) | 766 | (2,488 | ) | 4,359 | 7,521 |
|
| 3,758 |
|
|
| (2,787 | ) |
|
| 12,512 |
|
|
| (13,556 | ) | |||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Comprehensive income | $ | 9,655 | $ | 4,649 | $ | 30,056 | $ | 28,399 |
| $ | 8,939 |
|
| $ | 7,382 |
|
| $ | 20,595 |
|
| $ | 6,665 |
| ||||||||
|
|
|
|
See accompanying notes to consolidated financial statements.
FRANKLIN FINANCIAL NETWORK, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
NineThree Months Ended SeptemberJune 30, 20172019 and 2016June 30, 2018
(Dollar amounts in thousands, except share and per share data)
(Unaudited)
Accumulated Other | ||||||||||||||||||||||||||||
Preferred | Common Stock | Retained | Comprehensive | Noncontrolling | Total | |||||||||||||||||||||||
Stock | Shares | Amount | Earnings | Income (Loss) | Interest | Equity | ||||||||||||||||||||||
Balance at December 31, 2015 | $ | 10,000 | 10,571,377 | $ | 147,784 | $ | 31,352 | $ | (320 | ) | $ | — | $ | 188,816 | ||||||||||||||
Exercise of common stock options, net | — | 152,003 | 1,357 | — | 1,357 | |||||||||||||||||||||||
Exercise of common stock warrants | — | 6,575 | 79 | — | 79 | |||||||||||||||||||||||
Redemption of Series A preferred stock | (10,000 | ) | — | — | — | — | — | (10,000 | ) | |||||||||||||||||||
Dividends paid on Series A preferred stock | — | — | — | (23 | ) | — | — | (23 | ) | |||||||||||||||||||
Stock based compensation expense, net of restricted share forfeitures | — | 34,480 | 1,201 | — | — | — | 1,201 | |||||||||||||||||||||
Stock issued (divestment) in conjunction with 401(k) employer match, net of distributions | — | (6,952 | ) | (185 | ) | — | — | — | (185 | ) | ||||||||||||||||||
Net income | — | — | — | 20,878 | — | — | 20,878 | |||||||||||||||||||||
Other comprehensive income | — | — | — | — | 7,521 | — | 7,521 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Balance at September 30, 2016 | $ | — | 10,757,483 | $ | 150,236 | $ | 52,207 | $ | 7,201 | — | $ | 209,644 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Balance at December 31, 2016 | $ | — | 13,036,954 | $ | 218,354 | $ | 59,386 | $ | (7,482 | ) | 103 | $ | 270,361 | |||||||||||||||
Exercise of common stock options, net | — | 138,007 | 1,361 | — | — | — | 1,361 | |||||||||||||||||||||
Exercise of common stock warrants | — | 12,461 | 150 | — | — | — | 150 | |||||||||||||||||||||
Stock based compensation expense, net of restricted share forfeitures | — | 26,718 | 1,970 | — | — | — | 1,970 | |||||||||||||||||||||
Stock issued (divestment) in conjunction with 401(k) employer match, net of distributions | — | (5,085 | ) | (193 | ) | — | — | — | (193 | ) | ||||||||||||||||||
Earnings attributable to noncontrolling interest | — | — | — | (8 | ) | — | — | (8 | ) | |||||||||||||||||||
Net income | — | — | — | 25,697 | — | — | 25,697 | |||||||||||||||||||||
Other comprehensive income | — | — | — | — | 4,359 | — | 4,359 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Balance at September 30, 2017 | $ | — | 13,209,055 | $ | 221,642 | $ | 85,075 | $ | (3,123 | ) | $ | 103 | $ | 303,697 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Shareholders’ Equity |
|
|
|
|
|
|
|
|
| |||||||||||||||||
|
| Preferred |
|
| Common Stock |
|
| Retained |
|
| Accumulated Other Comprehensive |
|
| Noncontrolling |
|
| Total |
| ||||||||||
|
| Stock |
|
| Shares |
|
| Amount |
|
| Earnings |
|
| Loss |
|
| Interest |
|
| Equity |
| |||||||
Balance at April 1, 2018 |
| $ | — |
|
|
| 13,258,142 |
|
| $ | 223,594 |
|
| $ | 98,723 |
|
| $ | (17,555 | ) |
| $ | 103 |
|
| $ | 304,865 |
|
Exercise of common stock options, includes net settlement of shares |
|
| — |
|
|
| 135,883 |
|
|
| 1,717 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,717 |
|
Stock based compensation expense, net of restricted share forfeitures |
|
| — |
|
|
| — |
|
|
| 1,319 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,319 |
|
Stock issued in conjunction with 401(k) employer match, net of distributions |
|
| — |
|
|
| (2,481 | ) |
|
| (45 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (45 | ) |
Issuance of restricted stock, net of forfeitures |
|
| — |
|
|
| 118,306 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Stock issued for acquisition (net of issuance costs) |
|
| — |
|
|
| 970,390 |
|
|
| 32,932 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 32,932 |
|
Noncontrolling interest distributions |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (8 | ) |
|
| — |
|
|
| — |
|
|
| (8 | ) |
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 10,169 |
|
|
| — |
|
|
| — |
|
|
| 10,169 |
|
Other comprehensive loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,787 | ) |
|
| — |
|
|
| (2,787 | ) |
Balance at June 30, 2018 |
| $ | — |
|
|
| 14,480,240 |
|
| $ | 259,517 |
|
| $ | 108,884 |
|
| $ | (20,342 | ) |
| $ | 103 |
|
| $ | 348,162 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at April 1, 2019 |
| $ | — |
|
|
| 14,574,339 |
|
| $ | 266,758 |
|
| $ | 123,250 |
|
| $ | (6,587 | ) |
| $ | 93 |
|
| $ | 383,514 |
|
Exercise of common stock options, includes net settlement of shares |
|
| — |
|
|
| 74,116 |
|
|
| 753 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 753 |
|
Stock based compensation expense, net of restricted share forfeitures |
|
| — |
|
|
| — |
|
|
| 1,513 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,513 |
|
Issuance of restricted stock, net of forfeitures |
|
| — |
|
|
| (988 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Purchase of treasury stock |
|
| — |
|
|
| (19,180 | ) |
|
| (519 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (519 | ) |
Cash dividends - common stock ($0.04 per share) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (583 | ) |
|
| — |
|
|
| — |
|
|
| (583 | ) |
Noncontrolling interest distributions |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (8 | ) |
|
| — |
|
|
| — |
|
|
| (8 | ) |
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5,181 |
|
|
| — |
|
|
| — |
|
|
| 5,181 |
|
Other comprehensive income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,758 |
|
|
| — |
|
|
| 3,758 |
|
Balance at June 30, 2019 |
| $ | — |
|
|
| 14,628,287 |
|
| $ | 268,505 |
|
| $ | 127,840 |
|
| $ | (2,829 | ) |
| $ | 93 |
|
| $ | 393,609 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
FRANKLIN FINANCIAL NETWORK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWSCHANGES IN EQUITY
Six Months Ended June 30, 2019 and June 30, 2018
(Dollar amounts in thousands, except share and per share data)
(Unaudited)
Nine Months Ended September 30, | ||||||||
2017 | 2016 | |||||||
Cash flows from operating activities | ||||||||
Net income | $ | 25,697 | $ | 20,878 | ||||
Adjustments to reconcile net income to net cash from operating activities | ||||||||
Depreciation and amortization on premises and equipment | 1,118 | 986 | ||||||
Accretion of purchase accounting adjustments | (873 | ) | (488 | ) | ||||
Net amortization of securities | 7,654 | 5,428 | ||||||
Amortization of loan servicing right asset | 721 | 905 | ||||||
Amortization of core deposit intangible | 363 | 431 | ||||||
Amortization of debt issuance costs | 133 | 79 | ||||||
Provision for loan losses | 3,018 | 4,095 | ||||||
Deferred income tax benefit | (1,394 | ) | (1,015 | ) | ||||
Origination of loans held for sale | (270,876 | ) | (260,598 | ) | ||||
Proceeds from sale of loans held for sale | 290,669 | 253,701 | ||||||
Net gain on sale of loans | (5,918 | ) | (6,859 | ) | ||||
Gain on sale of available for sale securities | (470 | ) | (1,535 | ) | ||||
Income from bank owned life insurance | (465 | ) | (486 | ) | ||||
Net loss/(gain) on foreclosed assets | 10 | (36 | ) | |||||
Loss on sale of assets held for sale | — | 98 | ||||||
Stock-based compensation | 1,970 | 1,201 | ||||||
Compensation expense related to common stock issued to 401(k) plan | — | 404 | ||||||
Deferred gain on sale of loans | (58 | ) | (46 | ) | ||||
Net change in: | ||||||||
Accrued interest receivable and other assets | (5,949 | ) | (1,033 | ) | ||||
Accrued interest payable and other liabilities | 1,120 | 2,261 | ||||||
|
|
|
| |||||
Net cash from operating activities | 46,470 | 18,371 | ||||||
Cash flows from investing activities | ||||||||
Securities available for sale : | ||||||||
Sales | 122,837 | 74,203 | ||||||
Purchases | (455,700 | ) | (223,432 | ) | ||||
Maturities, prepayments and calls | 108,339 | 64,502 | ||||||
Securities held to maturity : | ||||||||
Purchases | (1,996 | ) | (92,646 | ) | ||||
Maturities, prepayments and calls | 12,110 | 14,088 | ||||||
Net change in loans | (346,595 | ) | (349,944 | ) | ||||
Proceeds from sale of assets held for sale | — | 1,542 | ||||||
Purchase of restricted equity securities | (6,629 | ) | (3,831 | ) | ||||
Proceeds from sale of foreclosed assets | 1,330 | 336 | ||||||
Purchases of premises and equipment, net | (2,784 | ) | (2,142 | ) | ||||
Capitalization of foreclosed assets | (35 | ) | — | |||||
Increase in certificates of deposits at other financial institutions | (1,310 | ) | (805 | ) | ||||
|
|
|
| |||||
Net cash from investing activities | (570,433 | ) | (518,129 | ) | ||||
Cash flows from financing activities | ||||||||
Increase in deposits | 433,007 | 403,915 | ||||||
Decrease in federal funds purchased and repurchase agreements | (50,439 | ) | (55,243 | ) | ||||
Proceeds from Federal Home Loan Bank advances | 370,000 | 305,000 | ||||||
Repayment of Federal Home Loan Bank advances | (165,000 | ) | (200,000 | ) | ||||
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 | 79 | ||||||
Proceeds from exercise of common stock options | 1,361 | 1,357 | ||||||
Divestment of common stock issued to 401(k) plan | (193 | ) | (185 | ) | ||||
Redemption of Series A preferred stock | — | (10,000 | ) | |||||
Dividends paid on preferred stock | — | (23 | ) | |||||
Earnings attributable to noncontrolling interest | (8 | ) | — | |||||
|
|
|
| |||||
Net cash from financing activities | 588,878 | 503,113 | ||||||
|
|
|
| |||||
Net change in cash and cash equivalents | 64,915 | 3,355 | ||||||
Cash and cash equivalents at beginning of period | 90,927 | 52,394 | ||||||
|
|
|
| |||||
Cash and cash equivalents at end of period | $ | 155,842 | $ | 55,749 | ||||
|
|
|
| |||||
Supplemental information: | ||||||||
Interest paid | $ | 24,221 | $ | 11,931 | ||||
Income taxes paid | 12,380 | 9,650 | ||||||
Non-cash supplemental information: | ||||||||
Transfers from loans to foreclosed assets | $ | 2,818 | $ | — | ||||
Transfers from loans to loans held for sale | 2,685 | — |
|
| Shareholders’ Equity |
|
|
|
|
|
|
|
|
| |||||||||||||||||
|
| Preferred |
|
| Common Stock |
|
| Retained |
|
| Accumulated Other Comprehensive |
|
| Noncontrolling |
|
| Total |
| ||||||||||
|
| Stock |
|
| Shares |
|
| Amount |
|
| Earnings |
|
| Loss |
|
| Interest |
|
| Equity |
| |||||||
Balance at January 1, 2018 |
| $ | — |
|
|
| 13,237,128 |
|
| $ | 222,665 |
|
| $ | 88,671 |
|
| $ | (6,786 | ) |
| $ | 103 |
|
| $ | 304,653 |
|
Exercise of common stock options, includes net settlement of shares |
|
| — |
|
|
| 157,231 |
|
|
| 1,937 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,937 |
|
Stock based compensation expense, net of restricted share forfeitures |
|
| — |
|
|
| — |
|
|
| 2,078 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,078 |
|
Stock issued in conjunction with 401(k) employer match, net of distributions |
|
| — |
|
|
| (2,815 | ) |
|
| (95 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (95 | ) |
Issuance of restricted stock, net of forfeitures |
|
| — |
|
|
| 118,306 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Stock issued for acquisition (net of issuance costs) |
|
| — |
|
|
| 970,390 |
|
|
| 32,932 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 32,932 |
|
Noncontrolling interest distributions |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (8 | ) |
|
| — |
|
|
| — |
|
|
| (8 | ) |
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 20,221 |
|
|
| — |
|
|
| — |
|
|
| 20,221 |
|
Other comprehensive loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (13,556 | ) |
|
| — |
|
|
| (13,556 | ) |
Balance at June 30, 2018 |
| $ | — |
|
|
| 14,480,240 |
|
| $ | 259,517 |
|
| $ | 108,884 |
|
| $ | (20,342 | ) |
| $ | 103 |
|
| $ | 348,162 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2019 |
| $ | — |
|
|
| 14,538,085 |
|
| $ | 264,905 |
|
| $ | 123,176 |
|
| $ | (15,341 | ) |
| $ | 93 |
|
| $ | 372,833 |
|
Cumulative-effect of accounting change |
|
| — |
|
|
| — |
|
|
| — |
|
| $ | (2,244 | ) |
|
| — |
|
|
| — |
|
|
| (2,244 | ) |
Balance at January 1, 2019, adjusted |
| $ | — |
|
|
| 14,538,085 |
|
| $ | 264,905 |
|
| $ | 120,932 |
|
| $ | (15,341 | ) |
| $ | 93 |
|
| $ | 370,589 |
|
Exercise of common stock options, includes net settlement of shares |
|
| — |
|
|
| 109,162 |
|
|
| 1,277 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,277 |
|
Stock based compensation expense, net of restricted share forfeitures |
|
| — |
|
|
| — |
|
|
| 2,842 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,842 |
|
Issuance of restricted stock, net of forfeitures |
|
| — |
|
|
| 220 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Purchase of treasury stock |
|
| — |
|
|
| (19,180 | ) |
|
| (519 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (519 | ) |
Cash dividends - common stock ($0.08 per share) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,167 | ) |
|
| — |
|
|
| — |
|
|
| (1,167 | ) |
Noncontrolling interest distributions |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (8 | ) |
|
| — |
|
|
| — |
|
|
| (8 | ) |
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 8,083 |
|
|
| — |
|
|
| — |
|
|
| 8,083 |
|
Other comprehensive income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 12,512 |
|
|
| — |
|
|
| 12,512 |
|
Balance at June 30, 2019 |
| $ | — |
|
|
| 14,628,287 |
|
| $ | 268,505 |
|
| $ | 127,840 |
|
| $ | (2,829 | ) |
| $ | 93 |
|
| $ | 393,609 |
|
See accompanying notes to consolidated financial statements.
FRANKLIN FINANCIAL NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF CASH FLOWS
(Dollar amounts in thousands, except share and per share data)
(Unaudited)
|
| Six Months Ended June 30, |
| |||||
|
| 2019 |
|
| 2018 |
| ||
Cash flows from operating activities |
|
|
|
|
|
|
|
|
Net income |
| $ | 8,083 |
|
| $ | 20,221 |
|
Adjustments to reconcile net income to net cash from operating activities |
|
|
|
|
|
|
|
|
Depreciation and amortization on premises and equipment |
|
| 850 |
|
|
| 841 |
|
Accretion of purchase accounting adjustments |
|
| (346 | ) |
|
| (610 | ) |
Net amortization of securities |
|
| 3,078 |
|
|
| 4,073 |
|
Amortization of loan servicing right asset |
|
| 487 |
|
|
| 441 |
|
Amortization of core deposit intangible |
|
| 277 |
|
|
| 286 |
|
Amortization of debt issuance costs |
|
| 89 |
|
|
| 89 |
|
Provision for loan losses |
|
| 12,086 |
|
|
| 1,143 |
|
Deferred income tax benefit |
|
| (2,121 | ) |
|
| (216 | ) |
Excess tax benefit related to stock compensation |
|
| (205 | ) |
|
| — |
|
Origination of loans held for sale |
|
| (208,009 | ) |
|
| (184,835 | ) |
Proceeds from sale of loans held for sale |
|
| 197,230 |
|
|
| 183,113 |
|
Loss (gain) on sale of loans held for investment |
|
| 227 |
|
|
| — |
|
Net gain on sale of loans held for sale |
|
| (5,594 | ) |
|
| (3,380 | ) |
Gain on sale of available for sale securities |
|
| (517 | ) |
|
| (1 | ) |
Income from bank owned life insurance |
|
| (750 | ) |
|
| (762 | ) |
Stock-based compensation |
|
| 2,842 |
|
|
| 2,078 |
|
Deferred gain on sale of loans |
|
| (7 | ) |
|
| (8 | ) |
Deferred gain on sale of foreclosed assets |
|
| (7 | ) |
|
| (6 | ) |
Net change in: |
|
|
|
|
|
|
|
|
Accrued interest receivable and other assets |
|
| 4,478 |
|
|
| (2,153 | ) |
Accrued interest payable and other liabilities |
|
| 6,875 |
|
|
| (3,327 | ) |
Net cash from operating activities |
|
| 19,046 |
|
|
| 16,987 |
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
Securities available for sale : |
|
|
|
|
|
|
|
|
Sales and calls |
|
| 347,037 |
|
|
| — |
|
Purchases |
|
| (94,860 | ) |
|
| (226,362 | ) |
Maturities and prepayments |
|
| 82,556 |
|
|
| 87,779 |
|
Securities held to maturity : |
|
|
|
|
|
|
|
|
Purchases |
|
| (3,284 | ) |
|
| (1,676 | ) |
Maturities, prepayments and calls |
|
| 5,261 |
|
|
| 6,393 |
|
Net change in loans |
|
| (241,477 | ) |
|
| (118,539 | ) |
Proceeds from sale of loans held for investment |
|
| 18,468 |
|
|
| — |
|
Purchase of restricted equity securities |
|
| (3,011 | ) |
|
| (1,165 | ) |
Purchases of premises and equipment, net |
|
| (1,427 | ) |
|
| (885 | ) |
Increase in certificates of deposits at other financial institutions |
|
| (246 | ) |
|
| — |
|
Purchase of bank owned life insurance |
|
| — |
|
|
| (119 | ) |
Net cash acquired from acquisition |
|
| — |
|
|
| 24,660 |
|
Net cash from investing activities |
|
| 109,017 |
|
|
| (229,914 | ) |
Cash flows from financing activities |
|
|
|
|
|
|
|
|
(Decrease) increase in deposits |
|
| (285,162 | ) |
|
| 107,635 |
|
Increase (decrease) in federal funds purchased and repurchase agreements |
|
| — |
|
|
| (30,659 | ) |
Proceeds from Federal Home Loan Bank advances |
|
| 340,000 |
|
|
| 250,000 |
|
Repayment of Federal Home Loan Bank advances |
|
| (312,000 | ) |
|
| (182,000 | ) |
Proceeds from issuance of common stock, net of offering costs |
|
| — |
|
|
| (242 | ) |
Proceeds from exercise of common stock options |
|
| 1,277 |
|
|
| 1,937 |
|
Divestment of common stock issued to 401(k) plan |
|
| — |
|
|
| (95 | ) |
Purchase of treasury stock |
|
| (494 | ) |
|
| — |
|
Dividends paid on common stock |
|
| (1,167 | ) |
|
| — |
|
Noncontrolling interest distributions |
|
| (8 | ) |
|
| (8 | ) |
Net cash from financing activities |
|
| (257,554 | ) |
|
| 146,568 |
|
Net change in cash and cash equivalents |
|
| (129,491 | ) |
|
| (66,359 | ) |
Cash and cash equivalents at beginning of period |
|
| 280,212 |
|
|
| 251,543 |
|
Cash and cash equivalents at end of period |
| $ | 150,721 |
|
| $ | 185,184 |
|
Supplemental information: |
|
|
|
|
|
|
|
|
Interest paid |
| $ | 40,579 |
|
| $ | 27,004 |
|
Income taxes paid |
|
| 6,043 |
|
|
| 6,632 |
|
Non-cash supplemental information: |
|
|
|
|
|
|
|
|
Fair value of stock and stock options issued related to Civic Bank acquisition |
| $ | - |
|
| $ | 33,174 |
|
Transfers from loans to foreclosed assets |
|
| — |
|
|
| 350 |
|
Establishment of lease liability and right-of use asset |
|
| 43,723 |
|
|
| — |
|
Transfers from securities available for sale to securities held to maturity |
| $ | 1,206 |
|
| $ | — |
|
See accompanying notes to consolidated financial statements.
FRANKLIN FINANCIAL NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share and per share data)
(Unaudited)
NOTE 1—BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared in accordance with instructions to Form10-Q and therefore do not include all information and footnotes necessary for a complete presentation of financial position, results of operations, and cash flows in conformity with U.S. generally accepted accounting principles (U.S. GAAP). All adjustments which are, in the opinion of management, necessary for a fair presentation of the results for the periods reported have been included as required by RegulationS-X, Rule10-01. All such adjustments are of a normal recurring nature. It is suggested that these interim consolidated financial statements and notes be read in conjunction with the financial statements and accompanying notes included in the Company’s Annual Report onForm 10-K filed with the SEC on March 16, 2017.19, 2019.
These consolidated financial statements include the accounts of Franklin Financial Network, Inc. (“FFN”), and its wholly-owned subsidiaries, Franklin Synergy Bank (“Franklin Synergy” or the “Bank”) and Franklin Synergy Risk Management, Inc. (collectively, the “Company”). Franklin Synergy Investments of Tennessee, Inc., Franklin Synergy Investments of Nevada, Inc., and Franklin Synergy Preferred Capital, Inc. are direct or indirect subsidiaries of the Bank and are included in these consolidated financial statements. Significant intercompany transactions and accounts are eliminated in consolidation.
Recently Adopted Accounting Pronouncements
In February 2016, the FASB issued Accounting Standards Update (ASU) 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 now recognize lease assets and lease liabilities for operating leases. 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. 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. In March 2019, the FASB issued ASU No. 2019-01, “Leases: Codification Improvements” whichaddresses lessors and clarifies the transition guidance related to certain interim disclosures provided in the year of adoption. The Company adopted ASU 2016-02 on January 1, 2019, elected the optional transition method, and subsequently adopted ASU 2019-01. The Company recorded a right of use asset and lease liability of $43,723. See Note 5 - Leases for more information.
In 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 earliest call date unless applicable guidance related to certain pools of securities is applied to consider estimated prepayments. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. The guidance became effective for the Company on January 1, 2019, and using a modified retrospective transition adoption approach, we recognized a cumulative effect reduction to retained earnings totaling $2,244.
In October 2018, the FASB issued ASU 2018-16, “Derivatives and Hedging (Topic 815) - Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes.” This update expands the list of U.S. benchmark interest rates permitted in the application of hedge accounting by adding the OIS 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 Federal Reserve Bank of New York initiated an effort to introduce an alternative reference rate in the U.S. The committee identified SOFR as the preferred alternative reference rate to LIBOR. The OIS rate based on SOFR was added as a U.S. benchmark interest rate to facilitate broader use in the marketplace and provide sufficient lead time for entities to prepare for changes to interest rate risk hedging strategies. The Company adopted the provisions of ASU No. 2018-16 on January 1, 2019, and it did not have a material impact on our consolidated financial statements.
Recent Accounting Pronouncements Not Yet Adopted
In June 2016, FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The ASU requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. Organizations will continue to use judgment to determine which loss estimation method is appropriate for their circumstances. 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 accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The ASU is effective for the Company for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019 (i.e., 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 following amendments to ASU 2016-13 are also in consideration by the Company: ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, and ASU No. 2019-05, Financial Instruments—Credit Losses (Topic 326): Targeted Transition Relief. The Company is currently gathering information 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 the 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 life of the loan portfolio.
In January 2017, the FASB issued ASU 2017-04, “Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” The guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. Goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. All other goodwill impairment guidance will remain largely unchanged. ASU 2017-04 is effective for interim and annual reporting periods beginning after December 15, 2019, applied prospectively. Early adoption is permitted for any impairment tests performed after January 1, 2017. Adoption of ASU 2017-04 is not expected to have a material impact on the Company’s consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-13, “Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement.” This ASU eliminates, adds and modifies certain disclosure requirements for fair value measurements. Among the changes, entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. ASU No. 2018-13 is effective for interim and annual reporting periods beginning after December 15, 2019; early adoption is permitted. As ASU No. 2018-13 only revises disclosure requirements, it will not have a material impact on the Company’s consolidated financial statements.
In August 2018, the FASB issued ASU 2018-15, “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 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 be effective for the Company on January 1, 2020, with early adoption permitted, and is not expected to have a significant impact on our financial statements.
NOTE 2—SECURITIES
The following table summarizes the amortized cost and fair value of the securities available for sale portfolio at SeptemberJune 30, 20172019 and December 31, 20162018 and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income.
| Amortized Cost |
|
| Gross Unrealized Gains |
|
| Gross Unrealized Losses |
|
| Fair Value |
| |||||||||||||||||||||
Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |||||||||||||||||||||||||||||
September 30, 2017 | ||||||||||||||||||||||||||||||||
June 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
U.S. government sponsored entities and agencies | $ | 20,147 | $ | — | $ | (65 | ) | $ | 20,082 |
| $ | 1,695 |
|
|
| 1 |
|
|
| (8 | ) |
| $ | 1,688 |
| |||||||
Mortgage-backed securities: residential | 729,014 | 1,113 | (5,460 | ) | 724,667 |
|
| 476,378 |
|
|
| 1,417 |
|
|
| (3,744 | ) |
|
| 474,051 |
| |||||||||||
Mortgage-backed securities: commercial | 15,675 | — | (65 | ) | 15,610 |
|
| 18,544 |
|
|
| 275 |
|
|
| (120 | ) |
|
| 18,699 |
| |||||||||||
Asset-backed securities |
|
| 25,746 |
|
|
| 27 |
|
|
| (565 | ) |
|
| 25,208 |
| ||||||||||||||||
Corporate notes |
|
| 22,360 |
|
|
| 356 |
|
|
| — |
|
|
| 22,716 |
| ||||||||||||||||
State and political subdivisions | 161,223 | 2,197 | (2,855 | ) | 160,565 |
|
| 172,585 |
|
|
| 279 |
|
|
| (94 | ) |
|
| 172,770 |
| |||||||||||
U.S Treasury bills | 59,816 | 1 | (4 | ) | 59,813 | |||||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Total | $ | 985,875 | $ | 3,311 | $ | (8,449 | ) | $ | 980,737 |
| $ | 717,308 |
|
| $ | 2,355 |
|
| $ | (4,531 | ) |
| $ | 715,132 |
| |||||||
|
|
|
|
| Amortized Cost |
|
| Gross Unrealized Gains |
|
| Gross Unrealized Losses |
|
| Fair Value |
| |||||||||||||||||||||
Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |||||||||||||||||||||||||||||
December 31, 2016 | ||||||||||||||||||||||||||||||||
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 | $ | 614,344 | $ | 949 | $ | (8,208 | ) | $ | 607,085 |
|
| 596,766 |
|
|
| 27 |
|
|
| (16,094 | ) |
|
| 580,699 |
| |||||||
Mortgage-backed securities: commercial | 19,439 | 27 | (132 | ) | 19,334 | |||||||||||||||||||||||||||
Asset-backed securities |
|
| 25,744 |
|
|
| — |
|
|
| (900 | ) |
|
| 24,844 |
| ||||||||||||||||
Corporate notes |
|
| 12,480 |
|
|
| 21 |
|
|
| (77 | ) |
|
| 12,424 |
| ||||||||||||||||
State and political subdivisions | 133,280 | 238 | (5,182 | ) | 128,336 |
|
| 141,432 |
|
|
| 863 |
|
|
| (4,496 | ) |
|
| 137,799 |
| |||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Total | $ | 767,063 | $ | 1,214 | $ | (13,522 | ) | $ | 754,755 |
| $ | 1,051,436 |
|
| $ | 971 |
|
| $ | (21,739 | ) |
| $ | 1,030,668 |
| |||||||
|
|
|
|
The amortized cost and fair value of the securities held to maturity portfolio at SeptemberJune 30, 20172019 and December 31, 20162018 and the corresponding amounts of gross unrecognized gains and losses were as follows:
| Amortized Cost |
|
| Gross Unrecognized Gains |
|
| Gross Unrecognized Losses |
|
| Fair Value |
| |||||||||||||||||||||
Amortized Cost | Gross Unrecognized Gains | Gross Unrecognized Losses | Fair Value | |||||||||||||||||||||||||||||
September 30, 2017 | ||||||||||||||||||||||||||||||||
June 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Mortgage backed securities: residential | $ | 95,560 | $ | 354 | $ | (1,502 | ) | $ | 94,412 |
| $ | 74,163 |
|
| $ | 198 |
|
| $ | (1,029 | ) |
| $ | 73,332 |
| |||||||
State and political subdivisions | 121,752 | 3,957 | (32 | ) | 125,677 |
|
| 44,800 |
|
|
| 2,677 |
|
|
| — |
|
|
| 47,477 |
| |||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Total | $ | 217,312 | $ | 4,311 | $ | (1,534 | ) | $ | 220,089 |
| $ | 118,963 |
|
| $ | 2,875 |
|
| $ | (1,029 | ) |
| $ | 120,809 |
| |||||||
|
|
|
| |||||||||||||||||||||||||||||
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, 2016 U.S. government sponsored entities and agencies Mortgage backed securities: residential State and political subdivisions Total Gross
Amortized
Cost Gross
Unrecognized
Gains Gross
Unrecognized
Losses Fair
Value $ 203 $ 6 $ — $ 209 106,169 328 (2,343 ) 104,154 122,522 1,214 (207 ) 123,529 $ 228,894 $ 1,548 $ (2,550 ) $ 227,892
The proceeds from sales and calls of securities available for sale and the associated gains and losses were as follows:
Three Months Ended September 30, | Nine Months Ended September 30, |
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| |||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 |
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| |||||||||||||||||
Proceeds | $ | 61,647 | $ | 11,939 | $ | 122,837 | $ | 74,203 |
| $ | 87,424 |
|
| $ | 1 |
|
| $ | 347,037 |
|
| $ | 1 |
| ||||||||
Gross gains | 414 | 430 | 659 | 1,920 |
|
| 367 |
|
|
| 1 |
|
|
| 2,168 |
|
|
| 1 |
| ||||||||||||
Gross losses | (64 | ) | — | (189 | ) | (385 | ) |
|
| — |
|
|
| — |
|
|
| (1,651 | ) |
|
| — |
|
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, are shown separately.
September 30, 2017 |
| June 30, 2019 |
| |||||||||||||
Amortized Cost | Fair Value |
| Amortized Cost |
|
| Fair Value |
| |||||||||
Available for sale |
|
|
|
|
|
|
|
| ||||||||
One year or less | $ | 74,815 | $ | 74,800 |
| $ | 10,502 |
|
| $ | 10,498 |
| ||||
Over one year through five years | 20,147 | 20,082 |
|
| 697 |
|
|
| 697 |
| ||||||
Over five years through ten years | 4,681 | 4,811 |
|
| 27,586 |
|
|
| 28,033 |
| ||||||
Over ten years | 141,543 | 140,767 |
|
| 157,855 |
|
|
| 157,946 |
| ||||||
Asset-backed securities |
|
| 25,746 |
|
|
| 25,208 |
| ||||||||
Mortgage-backed securities: residential | 729,014 | 724,667 |
|
| 476,378 |
|
|
| 474,051 |
| ||||||
Mortgage-backed securities: commercial | 15,675 | 15,610 |
|
| 18,544 |
|
|
| 18,699 |
| ||||||
|
| |||||||||||||||
Total | $ | 985,875 | $ | 980,737 |
| $ | 717,308 |
|
| $ | 715,132 |
| ||||
|
| |||||||||||||||
Held to maturity |
|
|
|
|
|
|
|
| ||||||||
Over one year through five years | $ | 1,607 | $ | 1,665 |
|
| 1,106 |
|
|
| 1,138 |
| ||||
Over five years through ten years | 6,322 | 6,496 |
|
| 1,034 |
|
|
| 1,076 |
| ||||||
Over ten years | 113,823 | 117,516 |
|
| 42,660 |
|
|
| 45,263 |
| ||||||
Mortgage-backed securities: residential | 95,560 | 94,412 |
|
| 74,163 |
|
|
| 73,332 |
| ||||||
|
| |||||||||||||||
Total | $ | 217,312 | $ | 220,089 |
| $ | 118,963 |
|
| $ | 120,809 |
| ||||
|
|
Securities pledged at SeptemberJune 30, 20172019 and December 31, 20162018 had a carrying amount of $944,463$468,429 and $808,224,$939,440, respectively, and were pledged to secure public deposits and repurchase agreements.deposits.
At SeptemberJune 30, 20172019 and December 31, 2016,2018, 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 shareholders’ equity.
The following table summarizes the securities with unrealized and unrecognized losses at SeptemberJune 30, 20172019 and December 31, 2016,2018, aggregated by major security type and length of time in a continuous unrealized loss position:
| Less Than 12 Months |
|
| 12 Months or Longer |
|
| Total |
| ||||||||||||||||||||||||||||||||||||||||
Less Than 12 Months | 12 Months or Longer | Total |
| Fair Value |
|
| Unrealized Losses |
|
| Fair Value |
|
| Unrealized Losses |
|
| Fair Value |
|
| Unrealized Losses |
| ||||||||||||||||||||||||||||
Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | |||||||||||||||||||||||||||||||||||||||||||
September 30, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||
June 30, 2019 |
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| ||||||||||||||||||||||||
Available for sale |
|
|
|
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|
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|
|
|
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| ||||||||||||||||||||||||
U.S. government sponsored entities and agencies | $ | 20,082 | $ | (65 | ) | $ | — | $ | — | $ | 20,082 | $ | (65 | ) |
| $ | 48 |
|
| $ | — |
|
| $ | 483 |
|
| $ | (8 | ) |
| $ | 531 |
|
| $ | (8 | ) | ||||||||||
Mortgage-backed securities: Residential | 369,300 | (2,279 | ) | 130,043 | (3,181 | ) | 499,343 | (5,460 | ) | |||||||||||||||||||||||||||||||||||||||
Mortgage-backed securities: Commercial | 15,610 | (65 | ) | — | — | 15,610 | (65 | ) | ||||||||||||||||||||||||||||||||||||||||
State and political subdivisions | 22,134 | (82 | ) | 61,297 | (2,773 | ) | 83,431 | (2,855 | ) | |||||||||||||||||||||||||||||||||||||||
U.S. Treasury bills | 19,827 | (4 | ) | — | — | 19,827 | (4 | ) | ||||||||||||||||||||||||||||||||||||||||
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|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
Total available for sale | $ | 446,953 | $ | (2,495 | ) | $ | 191,340 | $ | (5,954 | ) | $ | 638,293 | $ | (8,449 | ) | |||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||
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 | $ | 25,405 | $ | (335 | ) | $ | 55,224 | $ | (1,167 | ) | $ | 80,629 | $ | (1,502 | ) | |||||||||||||||||||||||||||||||||
State and political subdivisions | 263 | (1 | ) | 1,154 | (31 | ) | 1,417 | (32 | ) | |||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
Total held to maturity | $ | 25,668 | $ | (336 | ) | $ | 56,378 | $ | (1,198 | ) | $ | 82,046 | $ | (1,534 | ) | |||||||||||||||||||||||||||||||||
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|
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| |||||||||||||||||||||||||||||||||||||||||||
Less Than 12 Months | 12 Months or Longer | Total | ||||||||||||||||||||||||||||||||||||||||||||||
Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | |||||||||||||||||||||||||||||||||||||||||||
December 31, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||
Available for sale | ||||||||||||||||||||||||||||||||||||||||||||||||
Mortgage-backed securities: residential | $ | 465,416 | $ | (7,833 | ) | $ | 9,907 | $ | (375 | ) | $ | 475,323 | $ | (8,208 | ) |
|
| 8,385 |
|
|
| (44 | ) |
|
| 329,225 |
|
|
| (3,700 | ) |
|
| 337,610 |
|
|
| (3,744 | ) | |||||||||
Mortgage-backed securities: commercial | 15,752 | (132 | ) | — | — | 15,752 | (132 | ) |
|
| — |
|
|
| — |
|
|
| 7,532 |
|
|
| (120 | ) |
|
| 7,532 |
|
|
| (120 | ) | ||||||||||||||||
Asset-backed securities |
|
| 22,713 |
|
|
| (565 | ) |
|
| — |
|
|
| — |
|
|
| 22,713 |
|
|
| (565 | ) | ||||||||||||||||||||||||
State and political subdivisions | 100,020 | (5,182 | ) | — | — | 100,020 | (5,182 | ) |
|
| 9,996 |
|
|
| (4 | ) |
|
| 30,152 |
|
|
| (90 | ) |
|
| 40,148 |
|
|
| (94 | ) | ||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
Total available for sale | $ | 581,188 | $ | (13,147 | ) | $ | 9,907 | $ | (375 | ) | $ | 591,095 | $ | (13,522 | ) |
| $ | 41,142 |
|
| $ | (613 | ) |
| $ | 367,392 |
|
| $ | (3,918 | ) |
| $ | 408,534 |
|
| $ | (4,531 | ) | |||||||||
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|
|
| |||||||||||||||||||||||||||||||||||||||||||
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 | $ | 89,523 | $ | (2,244 | ) | $ | 3,025 | $ | (99 | ) | $ | 92,548 | $ | (2,343 | ) | |||||||||||||||||||||||||||||||||
State and political subdivisions | 18,907 | (207 | ) | — | — | 18,907 | (207 | ) | ||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
Total held to maturity | $ | 108,430 | $ | (2,451 | ) | $ | 3,025 | $ | (99 | ) | $ | 111,455 | $ | (2,550 | ) | |||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
| Less Than 12 Months |
|
| 12 Months or Longer |
|
| Total |
| |||||||||||||||
|
| Fair Value |
|
| Unrecognized Losses |
|
| Fair Value |
|
| Unrecognized Losses |
|
| Fair Value |
|
| Unrecognized Losses |
| ||||||
Held to maturity |
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities: residential |
| $ | 1,639 |
|
| $ | (6 | ) |
| $ | 59,548 |
|
| $ | (1,023 | ) |
| $ | 61,187 |
|
| $ | (1,029 | ) |
Total held to maturity |
| $ | 1,639 |
|
| $ | (6 | ) |
| $ | 59,548 |
|
| $ | (1,023 | ) |
| $ | 61,187 |
|
| $ | (1,029 | ) |
|
| Less Than 12 Months |
|
| 12 Months or Longer |
|
| Total |
| |||||||||||||||
|
| Fair Value |
|
| Unrealized Losses |
|
| Fair Value |
|
| Unrealized Losses |
|
| Fair Value |
|
| Unrealized Losses |
| ||||||
December 31, 2018 |
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Available for sale |
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
| 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 | ) |
Unrealized losses on debt securities have not been recognized into income because the issuers’ bonds are of high credit quality (rated AA or higher),. As of June 30, 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 recover as the bonds approach maturity.
NOTE 3—LOANS
Loans at SeptemberJune 30, 20172019 and December 31, 20162018 were as follows:
| June 30, 2019 |
|
| December 31, 2018 |
| |||||||||||
September 30, 2017 | December 31, 2016 | |||||||||||||||
Loans that are not PCI loans | ||||||||||||||||
Loans |
|
|
|
|
|
|
|
| ||||||||
Construction and land development | $ | 514,934 | $ | 489,562 |
| $ | 584,599 |
|
| $ | 584,440 |
| ||||
Commercial real estate: |
|
|
|
|
|
|
|
| ||||||||
Nonfarm, nonresidential | 565,536 | 458,569 |
|
| 894,910 |
|
|
| 754,243 |
| ||||||
Other | 33,310 | 38,571 |
|
| 37,845 |
|
|
| 48,017 |
| ||||||
Residential real estate: |
|
|
|
|
|
|
|
| ||||||||
Closed-end1-4 family | 373,536 | 254,474 | ||||||||||||||
Closed-end 1-4 family |
|
| 496,597 |
|
|
| 493,065 |
| ||||||||
Other | 158,577 | 150,515 |
|
| 197,549 |
|
|
| 189,817 |
| ||||||
Commercial and industrial | 464,747 | 376,476 |
|
| 668,065 |
|
|
| 592,793 |
| ||||||
Consumer and other | 3,933 | 3,359 |
|
| 4,945 |
|
|
| 5,568 |
| ||||||
|
| |||||||||||||||
Loans before net deferred loan fees | 2,114,573 | 1,771,526 |
|
| 2,884,510 |
|
|
| 2,667,943 |
| ||||||
Deferred loan fees, net | (1,201 | ) | (793 | ) |
|
| (4,077 | ) |
|
| (2,544 | ) | ||||
|
| |||||||||||||||
Total loans that are not PCI loans | 2,113,372 | 1,770,733 | ||||||||||||||
Total PCI loans | 2,558 | 2,859 | ||||||||||||||
Total loans |
|
| 2,880,433 |
|
|
| 2,665,399 |
| ||||||||
Allowance for loan losses | (19,944 | ) | (16,553 | ) |
|
| (27,443 | ) |
|
| (23,451 | ) | ||||
|
| |||||||||||||||
Total loans, net of allowance for loan losses | $ | 2,095,986 | $ | 1,757,039 |
| $ | 2,852,990 |
|
| $ | 2,641,948 |
| ||||
|
|
The following table presents the activity in the allowance for loan losses by portfolio segment for the three monththree-month periods ended SeptemberJune 30, 20172019 and 2016:2018:
| Construction and Land Development |
|
| Commercial Real Estate |
|
| Residential Real Estate |
|
| Commercial and Industrial |
|
| Consumer and Other |
|
| Total |
| |||||||||||||||||||||||||||||||
Construction and Land Development | Commercial Real Estate | Residential Real Estate | Commercial and Industrial | Consumer and Other | Total | |||||||||||||||||||||||||||||||||||||||||||
Three Months Ended September 30, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||
Three Months Ended June 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Allowance for loan losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Beginning balance | $ | 3,796 | $ | 5,011 | $ | 2,939 | $ | 6,894 | $ | 49 | $ | 18,689 |
| $ | 4,742 |
|
| $ | 7,027 |
|
| $ | 4,810 |
|
| $ | 11,229 |
|
| $ | 49 |
|
| $ | 27,857 |
| ||||||||||||
Provision for loan losses | (507 | ) | 212 | 169 | 707 | 9 | 590 |
|
| 42 |
|
|
| 614 |
|
|
| 18 |
|
|
| 6,382 |
|
|
| (25 | ) |
|
| 7,031 |
| |||||||||||||||||
Loanscharged-off | — | — | — | (9 | ) | (11 | ) | (20 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (7,563 | ) |
|
| (29 | ) |
|
| (7,592 | ) | |||||||||||||||
Recoveries | 668 | — | 14 | — | 3 | 685 |
|
| — |
|
|
| — |
|
|
| 16 |
|
|
| 70 |
|
|
| 61 |
|
|
| 147 |
| ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
Total ending allowance balance | $ | 3,957 | $ | 5,223 | $ | 3,122 | $ | 7,592 | $ | 50 | $ | 19,944 |
| $ | 4,784 |
|
| $ | 7,641 |
|
| $ | 4,844 |
|
| $ | 10,118 |
|
| $ | 56 |
|
| $ | 27,443 |
| ||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
Three Months Ended September 30, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||
Three Months Ended June 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Allowance for loan losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Beginning balance | $ | 3,624 | $ | 3,865 | $ | 2,060 | $ | 4,655 | $ | 49 | $ | 14,253 |
| $ | 4,345 |
|
| $ | 5,875 |
|
| $ | 3,605 |
|
| $ | 7,866 |
|
| $ | 47 |
|
| $ | 21,738 |
| ||||||||||||
Provision for loan losses | 427 | 43 | 451 | 455 | 16 | 1,392 |
|
| 267 |
|
|
| 288 |
|
|
| 909 |
|
|
| (900 | ) |
|
| 6 |
|
|
| 570 |
| ||||||||||||||||||
Loanscharged-off | (11 | ) | — | (40 | ) | — | (19 | ) | (70 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (5 | ) |
|
| (5 | ) | ||||||||||||||
Recoveries | — | — | 13 | — | 2 | 15 |
|
| 1 |
|
|
| — |
|
|
| 19 |
|
|
| 10 |
|
|
| 8 |
|
|
| 38 |
| ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
Total ending allowance balance | $ | 4,040 | $ | 3,908 | $ | 2,484 | $ | 5,110 | $ | 48 | $ | 15,590 |
| $ | 4,613 |
|
| $ | 6,163 |
|
| $ | 4,533 |
|
| $ | 6,976 |
|
| $ | 56 |
|
| $ | 22,341 |
| ||||||||||||
|
|
|
|
|
|
The following table presents the activity in the allowance for loan losses by portfolio segment for the nine-monthsix-month periods ended SeptemberJune 30, 20172019 and 2016:2018.
|
| Construction and Land Development |
|
| Commercial Real Estate |
|
| Residential Real Estate |
|
| Commercial and Industrial |
|
| Consumer and Other |
|
| Total |
| ||||||
Six Months Ended June 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
| $ | 4,743 |
|
| $ | 6,725 |
|
| $ | 4,743 |
|
| $ | 7,166 |
|
| $ | 74 |
|
| $ | 23,451 |
|
Provision for loan losses |
|
| 41 |
|
|
| 916 |
|
|
| 101 |
|
|
| 11,012 |
|
|
| 16 |
|
|
| 12,086 |
|
Loans charged-off |
|
| — |
|
|
| — |
|
|
| (15 | ) |
|
| (8,131 | ) |
|
| (99 | ) |
|
| (8,245 | ) |
Recoveries |
|
| — |
|
|
| — |
|
|
| 15 |
|
|
| 71 |
|
|
| 65 |
|
|
| 151 |
|
Total ending allowance balance |
| $ | 4,784 |
|
| $ | 7,641 |
|
| $ | 4,844 |
|
| $ | 10,118 |
|
| $ | 56 |
|
| $ | 27,443 |
|
Six Months Ended June 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
| $ | 3,802 |
|
| $ | 5,981 |
|
| $ | 3,834 |
|
| $ | 7,587 |
|
| $ | 43 |
|
| $ | 21,247 |
|
Provision for loan losses |
|
| 848 |
|
|
| 182 |
|
|
| 668 |
|
|
| (572 | ) |
|
| 17 |
|
|
| 1,143 |
|
Loans charged-off |
|
| (38 | ) |
|
| — |
|
|
| (7 | ) |
|
| (49 | ) |
|
| (17 | ) |
|
| (111 | ) |
Recoveries |
|
| 1 |
|
|
| — |
|
|
| 38 |
|
|
| 10 |
|
|
| 13 |
|
|
| 62 |
|
Total ending allowance balance |
| $ | 4,613 |
|
| $ | 6,163 |
|
| $ | 4,533 |
|
| $ | 6,976 |
|
| $ | 56 |
|
| $ | 22,341 |
|
Construction and Land Development | Commercial Real Estate | Residential Real Estate | Commercial and Industrial | Consumer and Other | Total | |||||||||||||||||||
Nine Months Ended September 30, 2017 | ||||||||||||||||||||||||
Allowance for loan losses: | ||||||||||||||||||||||||
Beginning balance | $ | 3,776 | $ | 4,266 | $ | 2,398 | $ | 6,068 | $ | 45 | $ | 16,553 | ||||||||||||
Provision for loan losses | (487 | ) | 957 | 687 | 1,833 | 28 | 3,018 | |||||||||||||||||
Loanscharged-off | — | — | (1 | ) | (309 | ) | (36 | ) | (346 | ) | ||||||||||||||
Recoveries | 668 | — | 38 | — | 13 | 719 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total ending allowance balance | $ | 3,957 | $ | 5,223 | $ | 3,122 | $ | 7,592 | $ | 50 | $ | 19,944 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2016 Allowance for loan losses: Beginning balance Provision for loan losses Loanscharged-off Recoveries Total ending allowance balance Construction
and Land
Development Commercial
Real
Estate Residential
Real
Estate Commercial
and
Industrial Consumer
and
Other Total $ 3,186 $ 3,146 $ 1,861 $ 3,358 $ 36 $ 11,587 865 762 609 1,817 42 4,095 (11 ) — (39 ) (65 ) (35 ) (150 ) — — 53 — 5 58 $ 4,040 $ 3,908 $ 2,484 $ 5,110 $ 48 $ 15,590
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 SeptemberJune 30, 20172019 and December 31, 2016.2018. For purposes of this disclosure, recorded investment in loans excludes accrued interest receivable and net deferred loan fees net due to immateriality.
| Construction and Land Development |
|
| Commercial Real Estate |
|
| Residential Real Estate |
|
| Commercial and Industrial |
|
| Consumer and Other |
|
| Total |
| |||||||||||||||||||||||||||||||
Construction and Land Development | Commercial Real Estate | Residential Real Estate | Commercial and Industrial | Consumer and Other | Total | |||||||||||||||||||||||||||||||||||||||||||
September 30, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||
June 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Allowance for loan losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Ending allowance balance attributable to loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Individually evaluated for impairment | $ | — | $ | — | $ | — | $ | 1,011 | $ | — | $ | 1,011 |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 2,193 |
|
| $ | — |
|
| $ | 2,193 |
| ||||||||||||
Collectively evaluated for impairment | 3,957 | 5,223 | 3,122 | 6,581 | 50 | 18,933 |
|
| 4,784 |
|
|
| 7,641 |
|
|
| 4,844 |
|
|
| 7,925 |
|
|
| 56 |
|
|
| 25,250 |
| ||||||||||||||||||
Purchased credit-impaired loans | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
Total ending allowance balance | $ | 3,957 | $ | 5,223 | $ | 3,122 | $ | 7,592 | $ | 50 | $ | 19,944 |
| $ | 4,784 |
|
| $ | 7,641 |
|
| $ | 4,844 |
|
| $ | 10,118 |
|
| $ | 56 |
|
| $ | 27,443 |
| ||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Individually evaluated for impairment | $ | — | $ | — | $ | 116 | $ | 3,090 | $ | — | $ | 3,206 |
| $ | — |
|
| $ | — |
|
| $ | 1,837 |
|
| $ | 2,193 |
|
| $ | — |
|
| $ | 4,030 |
| ||||||||||||
Collectively evaluated for impairment | 514,934 | 598,846 | 531,997 | 461,657 | 3,933 | 2,111,367 |
|
| 584,599 |
|
|
| 932,755 |
|
|
| 692,309 |
|
|
| 665,872 |
|
|
| 4,945 |
|
|
| 2,880,480 |
| ||||||||||||||||||
Purchased credit-impaired loans | — | 387 | 182 | 1,989 | — | 2,558 | ||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
Total ending loans balance | $ | 514,934 | $ | 599,233 | $ | 532,295 | $ | 466,736 | $ | 3,933 | $ | 2,117,131 |
| $ | 584,599 |
|
| $ | 932,755 |
|
| $ | 694,146 |
|
| $ | 668,065 |
|
| $ | 4,945 |
|
| $ | 2,884,510 |
| ||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
December 31, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||
December 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Allowance for loan losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Ending allowance balance attributable to loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Individually evaluated for impairment | $ | — | $ | — | $ | — | $ | 1,024 | $ | — | $ | 1,024 |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 17 |
|
| $ | — |
|
| $ | 17 |
| ||||||||||||
Collectively evaluated for impairment | 3,776 | 4,266 | 2,398 | 5,044 | 45 | 15,529 |
|
| 4,743 |
|
|
| 6,725 |
|
|
| 4,743 |
|
|
| 7,149 |
|
|
| 74 |
|
|
| 23,434 |
| ||||||||||||||||||
Purchased credit-impaired loans | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
Total ending allowance balance | $ | 3,776 | $ | 4,266 | $ | 2,398 | $ | 6,068 | $ | 45 | $ | 16,553 |
| $ | 4,743 |
|
| $ | 6,725 |
|
| $ | 4,743 |
|
| $ | 7,166 |
|
| $ | 74 |
|
| $ | 23,451 |
| ||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Individually evaluated for impairment | $ | 1,275 | $ | 2,836 | $ | 2,190 | $ | 3,608 | $ | — | $ | 9,909 |
| $ | 2,298 |
|
| $ | — |
|
| $ | 3,189 |
|
| $ | 167 |
|
| $ | — |
|
| $ | 5,654 |
| ||||||||||||
Collectively evaluated for impairment | 488,287 | 494,304 | 402,799 | 372,868 | 3,359 | 1,761,617 |
|
| 582,142 |
|
|
| 802,260 |
|
|
| 679,693 |
|
|
| 592,626 |
|
|
| 5,568 |
|
|
| 2,662,289 |
| ||||||||||||||||||
Purchased credit-impaired loans | — | 394 | 496 | 1,969 | — | 2,859 | ||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
Total ending loans balance | $ | 489,562 | $ | 497,534 | $ | 405,485 | $ | 378,445 | $ | 3,359 | $ | 1,774,385 |
| $ | 584,440 |
|
| $ | 802,260 |
|
| $ | 682,882 |
|
| $ | 592,793 |
|
| $ | 5,568 |
|
| $ | 2,667,943 |
| ||||||||||||
|
|
|
|
|
|
Loans collectively evaluated for impairment reported at SeptemberJune 30, 20172019 include certain acquired loans. At SeptemberJune 30, 2017,2019, thesenon-PCI loans had a carrying value of $57,663,$72,774, comprised of contractually unpaid principal totaling $59,227$73,717 and discounts totaling $1,564.$943. Management evaluated these loans for credit deterioration since acquisition and determined that $11 inan allowance for loan losses of $115 was necessary at SeptemberJune 30, 2017. As of December 31, 2016, thesenon-PCI loans had a carrying value of $72,367, comprised of contractually unpaid principal totaling $74,373 and discounts totaling $2,006. Management evaluated these loans for credit deterioration since acquisition and determined that a $23 allowance for loan losses was necessary at December 31, 2016.2019.
The following table presents information related to impaired loans by class of loans as of SeptemberJune 30, 20172019 and December 31, 2016:2018:
| Unpaid Principal Balance |
|
| Recorded Investment |
|
| Allowance for Loan Losses Allocated |
| ||||||||||||||||
Unpaid Principal Balance | Recorded Investment | Allowance for Loan Losses Allocated | ||||||||||||||||||||||
September 30, 2017 | ||||||||||||||||||||||||
June 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
With no allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Construction and land development | $ | — | $ | — | $ | — | ||||||||||||||||||
Commercial real estate: | ||||||||||||||||||||||||
Nonfarm, nonresidential | — | — | — | |||||||||||||||||||||
Residential real estate: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Closed-end1-4 family | — | — | — | |||||||||||||||||||||
Closed-end 1-4 family |
| $ | 491 |
|
|
| 484 |
|
| $ | — |
| ||||||||||||
Other | 116 | 116 | — |
|
| 1,353 |
|
|
| 1,353 |
|
|
| — |
| |||||||||
Commercial and industrial | 92 | 92 | — |
|
| — |
|
|
| — |
|
|
| — |
| |||||||||
Consumer and other | — | — | — | |||||||||||||||||||||
|
|
| ||||||||||||||||||||||
Subtotal | 208 | 208 | — |
|
| 1,844 |
|
|
| 1,837 |
|
|
| — |
| |||||||||
With an allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Commercial and industrial | 2,998 | 2,998 | 1,011 |
|
| 5,722 |
|
|
| 2,193 |
|
|
| 2,193 |
| |||||||||
|
|
| ||||||||||||||||||||||
Subtotal | 2,998 | 2,998 | 1,011 |
|
| 5,722 |
|
|
| 2,193 |
|
|
| 2,193 |
| |||||||||
|
|
| ||||||||||||||||||||||
Total | $ | 3,206 | $ | 3,206 | $ | 1,011 |
| $ | 7,566 |
|
| $ | 4,030 |
|
| $ | 2,193 |
| ||||||
|
|
| ||||||||||||||||||||||
December 31, 2016 | ||||||||||||||||||||||||
December 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
With no allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Construction and land development | $ | 1,275 | $ | 1,275 | $ | — |
| $ | 2,298 |
|
| $ | 2,298 |
|
| $ | — |
| ||||||
Commercial real estate: | ||||||||||||||||||||||||
Nonfarm, nonresidential | 4,423 | 2,836 | — | |||||||||||||||||||||
Residential real estate: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Closed-end1-4 family | 2,069 | 2,069 | — | |||||||||||||||||||||
Closed-end 1-4 family |
|
| 1,280 |
|
|
| 1,272 |
|
|
| — |
| ||||||||||||
Other | 121 | 121 | — |
|
| 1,917 |
|
|
| 1,917 |
|
|
| — |
| |||||||||
Commercial and industrial | 934 | 934 | — | |||||||||||||||||||||
|
|
| ||||||||||||||||||||||
Subtotal | 8,822 | 7,235 | — |
|
| 5,495 |
|
|
| 5,487 |
|
|
| — |
| |||||||||
|
|
| ||||||||||||||||||||||
With an allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Commercial and industrial | 2,864 | 2,674 | 1,024 |
|
| 167 |
|
|
| 167 |
|
|
| 17 |
| |||||||||
|
|
| ||||||||||||||||||||||
Subtotal | 2,864 | 2,674 | 1,024 |
|
| 167 |
|
|
| 167 |
|
|
| 17 |
| |||||||||
|
|
| ||||||||||||||||||||||
Total | $ | 11,686 | $ | 9,909 | $ | 1,024 |
| $ | 5,662 |
|
| $ | 5,654 |
|
| $ | 17 |
| ||||||
|
|
|
The following table presents the average recorded investment of impaired loans by class of loans for the three and ninesix months ended SeptemberJune 30, 20172019 and 2016:2018:
Three Months Ended September 30, | Nine Months Ended September 30, |
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| |||||||||||||||||||||||||
Average Recorded Investment | 2017 | 2016 | 2017 | 2016 |
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||||||||||||||
With no allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Construction and land development | $ | 1,348 | $ | — | $ | 1,199 | $ | 340 |
| $ | — |
|
| $ | — |
|
| $ | 384 |
|
| $ | 100 |
| ||||||||
Commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Nonfarm, nonresidential | 812 | 1,427 | 2,394 | 1,307 |
|
| — |
|
|
| — |
|
|
| 25 |
|
|
| — |
| ||||||||||||
Residential real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Closed-end1-4 family | 112 | 451 | 863 | 533 | ||||||||||||||||||||||||||||
Closed-end 1-4 family |
|
| 681 |
|
|
| 496 |
|
|
| 744 |
|
|
| 432 |
| ||||||||||||||||
Other | 199 | 837 | 245 | 768 |
|
| 1,086 |
|
|
| 112 |
|
|
| 1,174 |
|
|
| 192 |
| ||||||||||||
Commercial and industrial | 499 | 46 | 657 | 110 |
|
| 2,638 |
|
|
| 883 |
|
|
| 1,319 |
|
|
| 867 |
| ||||||||||||
Consumer and other | — | — | 1 | 10 | ||||||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Subtotal | 2,970 | 2,761 | 5,359 | 3,068 |
|
| 4,405 |
|
|
| 1,491 |
|
|
| 3,646 |
|
|
| 1,591 |
| ||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
With an allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Construction and land development |
| $ | — |
|
| $ | — |
|
| $ | 91 |
|
| $ | — |
| ||||||||||||||||
Commercial and industrial | $ | 2,998 | $ | 490 | $ | 2,820 | $ | 247 |
|
| 4,404 |
|
|
| 1,638 |
|
|
| 3,787 |
|
|
| 1,785 |
| ||||||||
Residential real estate: | ||||||||||||||||||||||||||||||||
Closed-end1-4 family | — | 70 | — | 23 | ||||||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Subtotal | 2,998 | 560 | 2,820 | 270 |
|
| 4,404 |
|
|
| 1,638 |
|
|
| 3,878 |
|
|
| 1,785 |
| ||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Total | $ | 5,968 | $ | 3,321 | $ | 8,179 | $ | 3,338 | ||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Total average recorded investment |
| $ | 8,809 |
|
| $ | 3,129 |
|
| $ | 7,524 |
|
| $ | 3,376 |
|
The impact on net interest income for these loans was not material to the Company’s results of operations for the three and ninesix months ended SeptemberJune 30, 20172019 and 2016.2018.
The following table presents the recorded investment in nonaccrual loans and loans past due over 90 days still on accrual by class of loans as of SeptemberJune 30, 20172019 and December 31, 2016:2018:
| Nonaccrual |
|
| Loans Past Due Over 90 Days And Still Accruing Interest |
| |||||||||||
Nonaccrual | Loans Past Due Over 90 Days | |||||||||||||||
September 30, 2017 | ||||||||||||||||
June 30, 2019 |
|
|
|
|
|
|
|
| ||||||||
Residential real estate: |
|
|
|
|
|
|
|
| ||||||||
Closed-end1-4 family | $ | — | $ | 262 | ||||||||||||
Closed-end 1-4 family |
| $ | 484 |
|
| $ | — |
| ||||||||
Other | 116 | — |
|
| 1,353 |
|
|
| 250 |
| ||||||
Commercial and industrial | 2,466 | 16 |
|
| 2,193 |
|
|
| 426 |
| ||||||
|
| |||||||||||||||
Total | $ | 2,582 | $ | 278 |
| $ | 4,030 |
|
| $ | 676 |
| ||||
|
|
|
|
|
|
|
|
|
| |||||||
December 31, 2016 | ||||||||||||||||
December 31, 2018 |
|
|
|
|
|
|
|
| ||||||||
Construction and land development | $ | — | $ | 1,950 |
| $ | 2,298 |
|
| $ | — |
| ||||
Commercial real estate: | ||||||||||||||||
Nonfarm, nonresidential | 835 | — | ||||||||||||||
Residential real estate: |
|
|
|
|
|
|
|
| ||||||||
Closed-end1-4 family | — | 452 | ||||||||||||||
Closed-end 1-4 family |
|
| 1,273 |
|
|
| — |
| ||||||||
Other | 121 | — |
|
| 1,917 |
|
|
| — |
| ||||||
Commercial and industrial | 2,674 | 150 |
|
| — |
|
|
| 208 |
| ||||||
|
| |||||||||||||||
Total | $ | 3,630 | $ | 2,552 |
| $ | 5,488 |
|
| $ | 208 |
| ||||
|
|
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.
The following table presents the aging of the recorded investment in past due loans as of SeptemberJune 30, 20172019 and December 31, 20162018 by class of loans:
| 30-59 Days Past Due |
|
| 60-89 Days Past Due |
|
| Greater Than 89 Days Past Due |
|
| Total Past Due |
|
| Loans Not Past Due |
|
| Total |
| |||||||||||||||||||||||||||||||||||||||
30-59 Days Past Due | 60-89 Days Past Due | Greater Than 89 Days Past Due | Nonaccrual | Total Past Due and Nonaccrual | Loans Not Past Due | PCI Loans | Total | |||||||||||||||||||||||||||||||||||||||||||||||||
September 30, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
June 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
Construction and land development | $ | 1,370 | $ | — | $ | — | $ | — | $ | 1,370 | $ | 513,564 | $ | — | $ | 514,934 |
| $ | — |
|
| $ | 380 |
|
| $ | — |
|
| $ | 380 |
|
| $ | 584,219 |
|
| $ | 584,599 |
| ||||||||||||||||
Commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
Nonfarm, nonresidential | — | — | — | — | — | 565,536 | 387 | 565,923 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 894,910 |
|
|
| 894,910 |
| ||||||||||||||||||||||||
Other | — | — | — | — | — | 33,310 | — | 33,310 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 37,845 |
|
|
| 37,845 |
| ||||||||||||||||||||||||
Residential real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
Closed-end1-4 family | 939 | 1,007 | 262 | — | 2,208 | 371,328 | 182 | 373,718 | ||||||||||||||||||||||||||||||||||||||||||||||||
Closed-end 1-4 family |
|
| 350 |
|
|
| — |
|
|
| 159 |
|
|
| 509 |
|
|
| 496,088 |
|
|
| 496,597 |
| ||||||||||||||||||||||||||||||||
Other | 150 | — | — | 116 | 266 | 158,311 | — | 158,577 |
|
| 218 |
|
|
| 404 |
|
|
| 609 |
|
|
| 1,231 |
|
|
| 196,318 |
|
|
| 197,549 |
| ||||||||||||||||||||||||
Commercial and industrial | 511 | 301 | 16 | 2,466 | 3,294 | 461,453 | 1,989 | 466,736 |
|
| 601 |
|
|
| 289 |
|
|
| 2,619 |
|
|
| 3,509 |
|
|
| 664,556 |
|
|
| 668,065 |
| ||||||||||||||||||||||||
Consumer and other | 5 | — | — | — | 5 | 3,928 | — | 3,933 |
|
| 33 |
|
|
| — |
|
|
| — |
|
|
| 33 |
|
|
| 4,912 |
|
|
| 4,945 |
| ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
| $ | 1,202 |
|
| $ | 1,073 |
|
| $ | 3,387 |
|
| $ | 5,662 |
|
| $ | 2,878,848 |
|
| $ | 2,884,510 |
| |||||||||||||||||||||||||
$ | 2,975 | $ | 1,308 | $ | 278 | $ | 2,582 | $ | 7,143 | $ | 2,107,430 | $ | 2,558 | $ | 2,117,131 | |||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||||
December 31, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
December 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
Construction and land development | $ | 380 | $ | — | $ | 1,950 | $ | — | $ | 2,330 | $ | 487,232 | $ | — | $ | 489,562 |
| $ | 294 |
|
| $ | 1,986 |
|
| $ | 548 |
|
| $ | 2,828 |
|
| $ | 581,612 |
|
| $ | 584,440 |
| ||||||||||||||||
Commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
Nonfarm, nonresidential | 664 | — | — | 835 | 1,499 | 457,070 | 394 | 458,963 |
|
| 515 |
|
|
| — |
|
|
| — |
|
|
| 515 |
|
|
| 753,728 |
|
|
| 754,243 |
| ||||||||||||||||||||||||
Other | — | — | — | — | — | 38,571 | — | 38,571 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 48,017 |
|
|
| 48,017 |
| ||||||||||||||||||||||||
Residential real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
Closed-end1-4 family | 428 | 10 | 452 | — | 890 | 253,584 | 496 | 254,970 | ||||||||||||||||||||||||||||||||||||||||||||||||
Closed-end 1-4 family |
|
| 2,390 |
|
|
| 404 |
|
|
| 228 |
|
|
| 3,022 |
|
|
| 490,043 |
|
|
| 493,065 |
| ||||||||||||||||||||||||||||||||
Other | 231 | — | — | 121 | 352 | 150,163 | — | 150,515 |
|
| 142 |
|
|
| — |
|
|
| 1,810 |
|
|
| 1,952 |
|
|
| 187,865 |
|
|
| 189,817 |
| ||||||||||||||||||||||||
Commercial and industrial | 155 | 39 | 150 | 2,674 | 3,018 | 373,458 | 1,969 | 378,445 |
|
| 241 |
|
|
| 252 |
|
|
| 208 |
|
|
| 701 |
|
|
| 592,092 |
|
|
| 592,793 |
| ||||||||||||||||||||||||
Consumer and other | — | — | — | — | 3,359 | — | 3,359 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5,568 |
|
|
| 5,568 |
| |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
| $ | 3,582 |
|
| $ | 2,642 |
|
| $ | 2,794 |
|
| $ | 9,018 |
|
| $ | 2,658,925 |
|
| $ | 2,667,943 |
| |||||||||||||||||||||||||
$ | 1,858 | $ | 49 | $ | 2,552 | $ | 3,630 | $ | 8,089 | $ | 1,763,437 | $ | 2,859 | $ | 1,774,385 | |||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
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 as to credit risk. This analysis includesnon-homogeneous loans, such as commercial and commercial real estate loans as well asnon-homogeneous residential real estate loans. This analysis is performed on a quarterly basis. The Company uses the following definitions for risk ratings:
Special 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.
Loans 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 SeptemberJune 30, 20172019 and December 31, 2016:2018:
| Pass |
|
| Special Mention |
|
| Substandard |
|
| Total |
| |||||||||||||||||||||
Pass | Special Mention | Substandard | Total | |||||||||||||||||||||||||||||
September 30, 2017 | ||||||||||||||||||||||||||||||||
June 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Construction and land development | $ | 512,912 | $ | — | $ | 2,022 | $ | 514,934 |
| $ | 584,251 |
|
|
| 113 |
|
|
| 235 |
|
| $ | 584,599 |
| ||||||||
Commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Nonfarm, nonresidential | 548,792 | 12,322 | 4,809 | 565,923 |
|
| 894,430 |
|
|
| 480 |
|
|
| — |
|
|
| 894,910 |
| ||||||||||||
Other | 32,927 | — | 383 | 33,310 |
|
| 37,229 |
|
|
| 616 |
|
|
| — |
|
|
| 37,845 |
| ||||||||||||
Residential real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Closed-end1-4 family | 371,149 | — | 2,569 | 373,718 | ||||||||||||||||||||||||||||
Closed-end 1-4 family |
|
| 494,306 |
|
|
| — |
|
|
| 2,291 |
|
|
| 496,597 |
| ||||||||||||||||
Other | 156,820 | — | 1,757 | 158,577 |
|
| 195,207 |
|
|
| — |
|
|
| 2,342 |
|
|
| 197,549 |
| ||||||||||||
Commercial and industrial | 445,736 | 12,649 | 8,351 | 466,736 |
|
| 642,120 |
|
|
| 2,662 |
|
|
| 23,283 |
|
|
| 668,065 |
| ||||||||||||
Consumer and other | 3,928 | 5 | — | 3,933 |
|
| 4,945 |
|
|
| — |
|
|
| — |
|
|
| 4,945 |
| ||||||||||||
|
|
|
|
| $ | 2,852,488 |
|
| $ | 3,871 |
|
| $ | 28,151 |
|
| $ | 2,884,510 |
| |||||||||||||
$ | 2,072,264 | $ | 24,976 | $ | 19,891 | $ | 2,117,131 | |||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Pass | Special Mention | Substandard | Total | |||||||||||||||||||||||||||||
December 31, 2016 | ||||||||||||||||||||||||||||||||
Construction and land development | $ | 488,287 | $ | — | $ | 1,275 | $ | 489,562 | ||||||||||||||||||||||||
Commercial real estate: | ||||||||||||||||||||||||||||||||
Nonfarm, nonresidential | 449,373 | 1,847 | 7,743 | 458,963 | ||||||||||||||||||||||||||||
Other | 38,571 | — | — | 38,571 | ||||||||||||||||||||||||||||
Residential real estate: | ||||||||||||||||||||||||||||||||
1-4 family | 251,919 | — | 3,051 | 254,970 | ||||||||||||||||||||||||||||
Other | 149,504 | — | 1,011 | 150,515 | ||||||||||||||||||||||||||||
Commercial and industrial | 373,243 | — | 5,202 | 378,445 | ||||||||||||||||||||||||||||
Consumer and other | 3,359 | — | — | 3,359 | ||||||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
$ | 1,754,256 | $ | 1,847 | $ | 18,282 | $ | 1,774,385 | |||||||||||||||||||||||||
|
|
|
|
|
| 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 |
|
Troubled Debt Restructurings
As of both SeptemberJune 30, 2017 and December 31, 2016,2019, the Company’s loan portfolio contains one loan that has been modified in a troubled debt restructuring with a balance of $608 and $698, respectively.$316. As of December 31, 2018, the Company’s loan portfolio contained one loan that had been modified in a troubled debt restructuring with a balance of $167.
NOTE 4—LOAN SERVICING
Loans serviced for others are not reported as assets. The principal balances of these loans at SeptemberJune 30, 20172019 and December 31, 20162018 are as follows:
September 30, 2017 | December 31, 2016 |
| June 30, 2019 |
|
| December 31, 2018 |
| |||||||||
Loan portfolios serviced for: |
|
|
|
|
|
|
|
| ||||||||
Federal Home Loan Mortgage Corporation | $ | 506,345 | $ | 499,385 |
| $ | 491,388 |
|
| $ | 492,761 |
| ||||
Other | 4,662 | 2,954 |
|
| 3,614 |
|
|
| 3,689 |
|
The related loan servicing rights activity for the three and six months ended June 30, 2019 and 2018 were as follows:
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
|
| ||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| ||||
Servicing rights: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period |
| $ | 3,366 |
|
| $ | 3,602 |
|
| $ | 3,403 |
|
| $ | 3,620 |
|
|
Additions |
|
| 196 |
|
|
| 161 |
|
|
| 383 |
|
|
| 357 |
|
|
Amortized to expense |
|
| (263 | ) |
|
| (227 | ) |
|
| (487 | ) |
|
| (441 | ) |
|
Decrease in impairment |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
End of period |
| $ | 3,299 |
|
| $ | 3,536 |
|
| $ | 3,299 |
|
| $ | 3,536 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of net loan servicing fees for the three and ninesix months ended SeptemberJune 30, 20172019 and 20162018 were as follows:
Three Months Ended September 30, | Nine Months Ended September 30, |
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| |||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 |
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| |||||||||||||||||
Loan servicing fees, net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Loan servicing fees | $ | 312 | $ | 309 | $ | 951 | $ | 903 |
| $ | 312 |
|
| $ | 330 |
|
| $ | 618 |
|
| $ | 663 |
| ||||||||
Amortization of loan servicing fees | (242 | ) | (349 | ) | (721 | ) | (905 | ) |
|
| (263 | ) |
|
| (227 | ) |
|
| (487 | ) |
|
| (441 | ) | ||||||||
Change in impairment | — | — | — | — | ||||||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Total | $ | 70 | $ | (40 | ) | $ | 230 | $ | (2 | ) |
| $ | 49 |
|
| $ | 103 |
|
| $ | 131 |
|
| $ | 222 |
| ||||||
|
|
|
|
The fair value of servicing rights was estimated by management to be approximately $4,916$3,905 at SeptemberJune 30, 2017.2019. Fair value for SeptemberJune 30, 20172019 was determined using a weighted average discount rate of 10.5%9.5% and a weighted average prepayment speed of 10.2%16.4%. At December 31, 2016,2018, the fair value of servicing rights was estimated by management to be approximately $5,015.$4,836. Fair value for December 31, 20162018 was determined using a weighted average discount rate of 10.5%9.5% and a weighted average prepayment speed of 9.9%11.9%.
NOTE 5—SECURITIES SOLD UNDER AGREEMENT TO REPURCHASELEASES
Our subsidiary bank enters into borrowing arrangements with our retail business customers
A lease is defined as a contract, or part of a contract, that conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration. On January 1, 2019, the Company adopted ASU No. 2016-02 “Leases” (Topic 842) and correspondent banks throughall subsequent ASUs that modified Topic 842. For the Company, Topic 842 primarily affected the accounting treatment for operating lease agreements to repurchase (“securities sold under agreements to repurchase”) underin which the bank pledges investment securities ownedCompany is the lessee. The leases are presented as of part of other assets and under its control as collateral against these short-term borrowing arrangements. At maturityother liabilities on the securities underlying the agreements are returned to the Company. At September 30, 2017 and December 31, 2016, these short-term borrowings totaled $32,862 and $36,496, respectively, and were secured by securities with carrying amounts of $41,279 and $41,136, respectively. At September 30, 2017,consolidated balance sheet.
Lessee Accounting
Substantially all of the leases in which the Company is the lessee are comprised of real estate property for branches and office space with terms extending through 2033. Substantially all of our leases are classified as operating leases, and therefore, were previously not recognized on the Company’s repurchase agreements hadconsolidated statements of condition. Upon adoption of FASB ASU 2016-02 one-dayLeases maturities.on January 1, 2019, the Company began recognizing right-of-use assets and lease liabilities related to its operating leases. Prior to ASU 2016-02, such assets and liabilities were recognized only for capital leases (referred to as finance leases under the amendments of ASU 2016-02). In accordance with the optional transition method allowed by ASU 2016-11, comparative prior period information included within this note is presented in accordance with guidance in effect during those periods. The Company has one existing finance lease for additional office space with a lease term through 2033. As this lease was previously required to be recorded on the Company’s consolidated statements of condition, and was recorded in other assets and other liabilities, Topic 842 did not materially impact the accounting for this lease. During the six months ended June 30, 2019, one additional lease agreement has been executed and is scheduled to commence in 2020 relocating one branch in Williamson County, Tennessee.
The following table provides additional detailsrepresents the consolidated statements of condition classification of the Company’s ROU assets and lease liabilities. The Company elected not to include short-term leases (i.e., leases with initial terms of twelve months or less), or equipment leases (deemed immaterial) on the consolidated statements of condition.
Lease right-of-use assets |
| Classification |
| June 30, 2019 |
| |
Operating lease right-of-use assets |
| Other Assets |
| $ | 40,967 |
|
Finance lease right-of-use assets |
| Other Assets |
|
| 2,919 |
|
Total lease right-of-use assets |
|
|
| $ | 43,886 |
|
|
|
|
|
|
|
|
Lease liabilities |
| Classification |
| June 30, 2019 |
| |
Operating lease right-of-use assets |
| Other Liabilities |
| $ | 42,556 |
|
Finance lease right-of-use assets |
| Other Liabilities |
|
| 2,996 |
|
Total lease liabilities |
|
|
| $ | 45,552 |
|
The calculated amount of the ROU assets and lease liabilities in the table above are impacted by the length of the lease term and the discount rate used to present value the minimum lease payments. The Company’s lease agreements often include one or more options to renew at the Company’s discretion, which will be determined within the timeframe of the lease agreement, and not included within the calculated ROU. The Company utilizes the discount rate implicit in the lease whenever this rate is readily determinable. As this rate is rarely determinable, the Company calculated a blended rate consisting of the Federal Home Loan Bank’s rate matching to the duration of the lease (over-collateralized borrowing rate) and the offering rate of the Company’s most recent subordinated debt offering in June of 2016. For operating leases existing prior to January 1, 2019, the rate for the remaining lease term as of September 30, 2017:January 1, 2019, was used. For the Company’s only finance lease that commenced December 2018, the Company utilized its blended rate calculation based on the term of the lease.
As of September 30, 2017 | Mortgage- Backed Securities: Residential | State and Political Subdivisions | Total | |||||||||
Market value of securities pledged | $ | 651 | $ | 41,921 | $ | 42,572 | ||||||
Borrowings related to pledged amounts | $ | — | $ | 32,862 | $ | 32,862 | ||||||
Market value pledged as a % of borrowings | — | % | 128 | % | 130 | % |
Weighted-average remaining lease term (in years) | June 30, 2019 | ||||||||||
Operating leases | 12.1 | ||||||||||
Finance lease | 14.9 | ||||||||||
Weighted-average discount rate | |||||||||||
Operating leases | 5.48% | ||||||||||
Finance lease | 5.49% |
The following table provides additional detailsrepresents lease costs and other lease information. As the Company elected, for all classes of underlying assets, not to separate lease and non-lease components and instead to account for them as a single lease component, the variable lease cost primarily represents variable payments such as common area maintenance and utilities.
Lease costs |
|
|
|
|
|
Operating lease costs |
|
| $ | 2,527 |
|
Variable lease costs |
|
|
| 181 |
|
Short-term lease costs |
|
|
| 94 |
|
Finance lease costs |
|
|
|
|
|
Interest on lease liabilities(1) |
|
|
| 82 |
|
Amortization of right-of-use asset |
|
|
| 101 |
|
Total lease costs |
|
| $ | 2,985 |
|
(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. |
Rent expense related to leases during the three and six months ended June 30, 2018, was $1,319 and $2,547, respectively.
Other supplemental cash flow information: |
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
Operating cash flows from operating leases |
| $ | 2,342 |
|
Operating cash flows from finance leases |
|
| 82 |
|
Financing cash flows from finance leases |
|
| 54 |
|
Future minimum payments for a finance lease and operating leases with initial or remaining terms of one year of more as of June 30, 2019 are as follows:
Twelve Months Ended: |
| Finance |
|
| Operating |
| ||
2020 |
| $ | 274 |
|
| $ | 4,812 |
|
2021 |
|
| 278 |
|
|
| 4,869 |
|
2022 |
|
| 282 |
|
|
| 4,876 |
|
2023 |
|
| 286 |
|
|
| 4,850 |
|
2024 |
|
| 291 |
|
|
| 4,921 |
|
Thereafter |
|
| 2,986 |
|
|
| 33,713 |
|
Total future minimum lease payments |
| $ | 4,397 |
|
| $ | 58,041 |
|
Less: Imputed interest |
|
| (1,401 | ) |
|
| (15,485 | ) |
Total lease liabilities |
| $ | 2,996 |
|
| $ | 42,556 |
|
Future minimum payments for a finance lease and operating leases with initial or remaining terms of one year of more as of December 31, 2016:2018 are as follows:
As of December 31, 2016 | U.S. Government Sponsored Entities and Agencies Securities | Mortgage- Backed Securities: Residential | State and Political Subdivisions | Total | ||||||||||||
Market value of securities pledged | $ | 209 | $ | 117 | $ | 41,330 | $ | 41,656 | ||||||||
Borrowings related to pledged amounts | $ | — | $ | — | $ | 36,496 | $ | 36,496 | ||||||||
Market value pledged as a % of borrowings | — | % | — | % | 113 | % | 114 | % |
Twelve Months Ended: |
| Finance |
|
| Operating |
| ||
2019 |
| $ | 272 |
|
| $ | 4,841 |
|
2020 |
|
| 276 |
|
|
| 4,849 |
|
2021 |
|
| 280 |
|
|
| 4,871 |
|
2022 |
|
| 284 |
|
|
| 4,856 |
|
2023 |
|
| 288 |
|
|
| 4,885 |
|
Thereafter |
|
| 3,133 |
|
|
| 36,178 |
|
Total future minimum lease payments |
| $ | 4,533 |
|
| $ | 60,480 |
|
NOTE 6—SHARE-BASED PAYMENTS
In 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, and they expired on March 30, 2017. The warrants were detachable from the common stock. There were 12,461 and 6,575 warrants exercised during the nine months ended September 30, 2017 and 2016, respectively. A summary of the stock warrant activity for the nine months ended September 30, 2017 and 2016 follows:
September 30, 2017 | September 30, 2016 | |||||||
Stock warrants exercised: | ||||||||
Intrinsic value of warrants exercised | $ | 329 | $ | 136 | ||||
Cash received from warrants exercised | 150 | 79 |
The warrants expired on March 30, 2017; therefore at September 30, 2017, there were no outstanding warrants associated with the 2010 offering.
The Company has two share based compensation plans as described below. Total compensation cost that has been charged against income for those plans was $735$1,513 and $406$1,318, and $1,970$2,842 and $1,201$2,078 for the three and ninesix months ended SeptemberJune 30, 20172019 and 2016,2018, respectively. The total income tax benefit, which is shown on the Consolidated Statements of Income as a reduction of income tax expense, was $261$92 and $711$205 for the three and ninesix months ended SeptemberJune 30, 2017. The total income tax benefit2019 and was $220 and $283 for the three and ninesix months ended SeptemberJune 30, 2016 was $107 and $616,2018, respectively.
Stock Options: The Company’s 2007 Omnibus Equity Incentive Plan (the “2007 Plan”), as amended and shareholder-approved, providesprovided for authorized shares up to 4,000,000. At September 30, 2017, there were 1,960,041 authorized shares available for issuance under the 2007 Plan, although the Company has ceased issuing awards under the 2007 Plan.
The 2007 Plan providesprovided that no options intended to be ISOs 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 newan 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. On April 12, 2018, the Company’s Board of Directors approved the Amended and Restated 2017 Omnibus Equity Incentive Plan (“Amended and Restated 2017 Plan”) to make certain changes in response to feedback received from our shareholders. The terms of the Amended and Restated 2017 Omnibus Equity Incentive Plan are substantially similar to the terms of the 2007 Omnibus Equity Incentive Plan it was intended to replace. The Amended and Restated 2017 Omnibus Equity Incentive Plan provides for authorized shares up to 5,000,000.3,500,000. At SeptemberJune 30, 2017,2019, there were 4,762,7502,421,000 authorized shares available for issuance under the Amended and Restated 2017 Omnibus Equity Incentive Plan.
Employee, organizer and director stock option 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 ten-year contractual term with varying vesting period of three to five years and have aten-year contractual term.requirements. The Company assigns discretion to its Board of DirectorsCompensation Committee to make grants either as qualified incentive stock options or asnon-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 asnon-qualified.
The 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 a peer group.the Company. 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.
The fair value of options granted was determined using the following weighted-average assumptions as of grant date.
September 30, 2017 | September 30, 2016 |
| June 30, 2019 |
|
| June 30, 2018 |
| |||||||||
Risk-free interest rate | 2.16 | % | 1.60 | % |
|
| 2.47 | % |
|
| 2.96 | % | ||||
Expected term | 6.8 years | 7.5 years |
| 7 years |
|
| 7.5 years |
| ||||||||
Expected stock price volatility | 32.32 | % | 30.09 | % |
|
| 30.64 | % |
|
| 32.09 | % | ||||
Dividend yield | 0.03 | % | 0.24 | % |
|
| 0.57 | % |
|
| 0.00 | % |
The weighted average fair value of options granted for the ninesix months ended SeptemberJune 30, 20172019 and 20162018 were $14.51$9.78 and $9.78,$12.03, respectively.
A summary of the activity in the plans for the ninesix months ended SeptemberJune 30, 20172019 follows:
| Shares |
|
| Weighted Average Exercise Price |
|
| Weighted Average Remaining Contractual Term |
|
| Aggregate Intrinsic Value |
| |||||||||||||||||||||
Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term | Aggregate Intrinsic Value | |||||||||||||||||||||||||||||
Outstanding at beginning of year | 1,395,016 | $ | 16.70 | 6.39 | $ | 35,090 | ||||||||||||||||||||||||||
Outstanding at December 31, 2018 |
|
| 1,807,922 |
|
| $ | 24.68 |
|
|
| 6.41 |
|
| $ | 9,581 |
| ||||||||||||||||
Granted | 267,195 | 38.04 |
|
| 91,823 |
|
|
| 27.83 |
|
|
|
|
|
|
|
|
| ||||||||||||||
Exercised | (146,944 | ) | 11.73 |
|
| (128,125 | ) |
|
| 14.14 |
|
|
|
|
|
|
|
|
| |||||||||||||
Forfeited, expired, or cancelled | (3,113 | ) | 25.37 |
|
| (18,883 | ) |
|
| 32.74 |
|
|
|
|
|
|
|
|
| |||||||||||||
| ||||||||||||||||||||||||||||||||
Outstanding at period end | 1,512,154 | $ | 20.93 | 6.65 | $ | 22,256 |
|
| 1,752,737 |
|
| $ | 18.47 |
|
|
| 6.87 |
|
| $ | 4,113 |
| ||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Vested or expected to vest | 1,436,546 | $ | 20.93 | 6.65 | $ | 21,143 |
|
| 1,666,525 |
|
| $ | 25.52 |
|
|
| 6.13 |
|
| $ | 3,908 |
| ||||||||||
Exercisable at period end | 787,451 | $ | 13.43 | 4.96 | $ | 17,498 |
|
| 839,675 |
|
| $ | 17.32 |
|
|
| 6.13 |
|
| $ | 8,847 |
|
For the nine months ended September 30, |
| For the Six Months Ended June 30, |
| |||||||||||||
2017 | 2016 |
| 2019 |
|
| 2018 |
| |||||||||
Stock options exercised: |
|
|
|
|
|
|
|
| ||||||||
Intrinsic value of options exercised | $ | 4,141 | $ | 3,463 |
| $ | 1,869 |
|
| $ | 3,745 |
| ||||
Cash received from options exercised | 1,361 | 1,357 |
|
| 1,277 |
|
|
| 1,937 |
| ||||||
Tax benefit realized from option exercises | 406 | 522 |
|
| 205 |
|
|
| 283 |
|
As of SeptemberJune 30, 2017,2019, there was $6,054$4,786 of total unrecognized compensation cost related tonon-vested stock options granted under the plans. The cost is expected to be recognized over a weighted-average period of 1.81.97 years.
Restricted Stock and Restricted Stock Units: Additionally, the 2007 Omnibus Equity Incentive Plan and the Amended and Restated 2017 Omnibus Equity Incentive Plan each provides for the granting of restricted share awards and other performance related incentives. When the 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 share units which participants do not have voting rights or dividend rights until the restrictions have lapsed. These awards typically have a vesting period of three to five years and vest in equal annual installments on the anniversary date of the grant.
A summary of activity fornon-vested restricted share awards for the ninesix months ended SeptemberJune 30, 20172019 is as follows:
Non-vested Shares | Shares | Weighted- Average Grant- Date Fair Value |
| Shares |
|
| Weighted- Average Grant- Date Fair Value |
| ||||||||
Non-vested at December 31, 2016 | 106,458 | $ | 19.81 | |||||||||||||
Non-vested at December 31, 2018 |
|
| 176,516 |
|
| $ | 31.07 |
| ||||||||
Granted | 27,282 | 37.35 |
|
| 1,255 |
|
|
| 31.87 |
| ||||||
Vested | (36,767 | ) | 18.22 |
|
| (70,069 | ) |
|
| 30.33 |
| |||||
Forfeited | (564 | ) | 28.66 |
|
| (1,035 | ) |
|
| 32.95 |
| |||||
| ||||||||||||||||
Non-vested at September 30, 2017 | 96,409 | $ | 25.32 | |||||||||||||
| ||||||||||||||||
Non-vested at June 30, 2019 |
|
| 106,667 |
|
|
|
|
|
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 SeptemberJune 30, 2017,2019, there was $2,080$1,713 of total unrecognized compensation cost related tonon-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 3.61.30 years.
The total fair value of shares vestedCompany began granting restricted stock units in 2019. The following table outlines restricted stock units that were granted, grouped by similar vesting criteria, during the ninesix months ended SeptemberJune 30, 2017 and 2016 was $1,457 and $974, respectively.2019.
The total income tax benefit realized from
Grant year |
| Units Awarded |
|
| Service period |
|
| Period in which units to be settled into shares of common stock |
| |||
2019 |
|
| 124,661 |
|
|
| 3.00 |
|
|
| 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock compensation expense related with the vesting of restricted stock was $215 and $4 and $305 and $170share units for the three and ninesix months ended SeptemberJune 30, 2019 was $483 and $579, respectively. There was no expense related to restricted share 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 June 30, 2019, there was $3,814 of total unrecognized compensation cost related to non-vested shares granted under the 2007 Plan and Amended and Restated 2017 and 2016, respectively.Plan. The cost is expected to be recognized over a weighted-average period of 2.75 years.
NOTE 7—REGULATORY CAPITAL MATTERS
Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certainoff-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, 2016 with full compliance with all of the requirements being phased in over a multi-year schedule, and fully phased in by January 1, 2019.
The Basel III rules additionally provide for countercyclical capital requirements so that the required amount of capital increases in times of economic expansion and decreases in times of economic contraction, consistent with safety and soundness. Under the Basel III rules, banks must maintain a capital conservation buffer consisting of additional Common Equity Tier 1 Capital equal to 2.5% of risk-weighted assets above each of the required minimum capital levels in order to avoid limitations on paying dividends, engaging in share repurchases, and paying certain discretionary bonuses. This new capital conservation buffer requirement was phased in beginning January 2016 at 0.625% of risk-weighted assets and will increaseincreased each year until fully implemented at 2.5% in January 2019. The capital conservation buffer in effect for 2017 is 1.25%.
Prompt corrective action 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 SeptemberJune 30, 2017,2019, the most recent regulatory notifications categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. Management believes that, as of SeptemberJune 30, 2017,2019, the Company and Bank met all capital adequacy requirements to which they are subject. There 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 SeptemberJune 30, 20172019 and December 31, 20162018 for the Company and Bank:
Actual | Required For Capital Adequacy Purposes | To Be Well Capitalized Under Prompt Corrective Action Regulations | ||||||||||||||||||||||
Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||||||
September 30, 2017 | ||||||||||||||||||||||||
Company common equity Tier 1 capital to risk-weighted assets | $ | 293,004 | 11.58 | % | $ | 113,908 | 4.50 | % | N/A | N/A | ||||||||||||||
Company Total Capital to risk weighted assets | $ | 371,510 | 14.68 | % | $ | 202,502 | 8.00 | % | N/A | N/A | ||||||||||||||
Company Tier 1 (Core) Capital to risk weighted assets | $ | 293,004 | 11.58 | % | $ | 151,877 | 6.00 | % | N/A | N/A | ||||||||||||||
Company Tier 1 (Core) Capital to average assets | $ | 293,004 | 8.58 | % | $ | 136,609 | 4.00 | % | N/A | N/A | ||||||||||||||
Bank common equity Tier 1 capital to risk-weighted assets | $ | 347,043 | 13.71 | % | $ | 113,901 | �� | 4.50 | % | $ | 164,523 | 6.50 | % | |||||||||||
Bank Total Capital to risk weighted assets | $ | 367,079 | 14.50 | % | $ | 202,490 | 8.00 | % | $ | 253,112 | 10.00 | % | ||||||||||||
Bank Tier 1 (Core) Capital to risk weighted assets | $ | 347,043 | 13.71 | % | $ | 151,867 | 6.00 | % | $ | 202,490 | 8.00 | % | ||||||||||||
Bank Tier 1 (Core) Capital to average assets | $ | 347,043 | 10.17 | % | $ | 136,511 | 4.00 | % | $ | 170,639 | 5.00 | % | ||||||||||||
December 31, 2016 | ||||||||||||||||||||||||
Company common equity Tier 1 capital to risk-weighted assets | $ | 263,693 | 11.75 | % | $ | 101,022 | 4.50 | % | N/A | N/A | ||||||||||||||
Company Total Capital to risk weighted assets | $ | 338,675 | 15.09 | % | $ | 179,595 | 8.00 | % | N/A | N/A | ||||||||||||||
Company Tier 1 (Core) Capital to risk weighted assets | $ | 263,693 | 11.75 | % | $ | 134,696 | 6.00 | % | N/A | N/A | ||||||||||||||
Company Tier 1 (Core) Capital to average assets | $ | 263,693 | 9.28 | % | $ | 113,697 | 4.00 | % | N/A | N/A | ||||||||||||||
Bank common equity Tier 1 capital to risk-weighted assets | $ | 319,005 | 14.18 | % | $ | 101,216 | 4.50 | % | $ | 146,201 | 6.50 | % | ||||||||||||
Bank Total Capital to risk weighted assets | $ | 335,650 | 14.92 | % | $ | 179,939 | 8.00 | % | $ | 224,924 | 10.00 | % | ||||||||||||
Bank Tier 1 (Core) Capital to risk weighted assets | $ | 319,005 | 14.18 | % | $ | 134,954 | 6.00 | % | $ | 179,939 | 8.00 | % | ||||||||||||
Bank Tier 1 (Core) Capital to average assets | $ | 319,005 | 11.22 | % | $ | 113,697 | 4.00 | % | $ | 142,122 | 5.00 | % |
|
| Actual |
|
| Required For Capital Adequacy Purposes |
|
| To Be Well Capitalized Under Prompt Corrective Action Regulations |
| |||||||||||||||
|
| Amount |
|
| Ratio |
|
| Amount |
|
| Ratio |
|
| Amount |
|
| Ratio |
| ||||||
June 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company-Level |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company common equity Tier 1 capital to RWA |
| $ | 375,710 |
|
|
| 11.2 | % |
| $ | 151,266 |
|
|
| 4.5 | % |
| N/A |
|
| N/A |
| ||
Company Total Capital to RWA |
| $ | 462,020 |
|
|
| 13.7 | % |
| $ | 268,918 |
|
|
| 8.0 | % |
| N/A |
|
| N/A |
| ||
Company Tier 1 (Core) Capital to RWA |
| $ | 375,710 |
|
|
| 11.2 | % |
| $ | 201,689 |
|
|
| 6.0 | % |
| N/A |
|
| N/A |
| ||
Company Tier 1 (Core) Capital to average assets |
| $ | 375,710 |
|
|
| 9.2 | % |
| $ | 134,459 |
|
|
| 4.0 | % |
| N/A |
|
| N/A |
| ||
Bank-Level |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank common equity Tier 1 capital to RWA |
| $ | 433,574 |
|
|
| 12.9 | % |
| $ | 151,253 |
|
|
| 4.5 | % |
| $ | 218,476 |
|
|
| 6.5 | % |
Bank Total Capital to RWA |
| $ | 461,102 |
|
|
| 13.7 | % |
| $ | 268,894 |
|
|
| 8.0 | % |
| $ | 336,117 |
|
|
| 10.0 | % |
Bank Tier 1 (Core) Capital to RWA |
| $ | 433,574 |
|
|
| 12.9 | % |
| $ | 201,670 |
|
|
| 6.0 | % |
| $ | 268,894 |
|
|
| 8.0 | % |
Bank Tier 1 (Core) Capital to average assets |
| $ | 433,574 |
|
|
| 10.6 | % |
| $ | 163,420 |
|
|
| 4.0 | % |
| $ | 204,274 |
|
|
| 5.0 | % |
December 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company-Level |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company common equity Tier 1 capital to RWA |
| $ | 367,096 |
|
|
| 12.2 | % |
| $ | 135,598 |
|
|
| 4.5 | % |
| N/A |
|
| N/A |
| ||
Company Total Capital to RWA |
| $ | 449,325 |
|
|
| 14.9 | % |
| $ | 241,064 |
|
|
| 8.0 | % |
| N/A |
|
| N/A |
| ||
Company Tier 1 (Core) Capital to RWA |
| $ | 367,096 |
|
|
| 12.2 | % |
| $ | 180,798 |
|
|
| 6.0 | % |
| N/A |
|
| N/A |
| ||
Company Tier 1 (Core) Capital to average assets |
| $ | 367,096 |
|
|
| 8.8 | % |
| $ | 167,553 |
|
|
| 4.0 | % |
| N/A |
|
| N/A |
| ||
Bank-Level |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank common equity Tier 1 capital to RWA |
| $ | 421,335 |
|
|
| 14.0 | % |
| $ | 135,613 |
|
|
| 4.5 | % |
| $ | 195,886 |
|
|
| 6.5 | % |
Bank Total Capital to RWA |
| $ | 444,871 |
|
|
| 14.8 | % |
| $ | 241,090 |
|
|
| 8.0 | % |
| $ | 301,363 |
|
|
| 10.0 | % |
Bank Tier 1 (Core) Capital to RWA |
| $ | 421,335 |
|
|
| 14.0 | % |
| $ | 180,818 |
|
|
| 6.0 | % |
| $ | 241,090 |
|
|
| 8.0 | % |
Bank 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
Dividend 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. Neither
NOTE 8—DERIVATIVE INSTRUMENTS
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 hedges
For 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 norentered into sixteen swap transactions with a notional amount of $101,205 designated as fair value hedges. These derivatives are intended to protect against the Bankeffects of changing interest rates on the fair values of fixed rate securities.
A summary of the Company's fair value hedge relationships as of June 30, 2019 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
| June 30, 2019 |
| |||||
|
| Balance Sheet Location |
| Weighted Average Remaining Maturity (In Years) |
|
| Weighted Average Pay Rate |
|
| Receive Rate |
| Notional Amount |
|
| Estimated Fair Value |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability derivative |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap agreements - securities |
| Other liabilities |
|
| 7.23 |
|
| 2.527% |
|
| 3 month LIBOR |
| $ | 101,205 |
|
| $ | 4,733 |
|
There were no fair value hedge relationships as of December 31, 2018.
The effects of fair value hedge relationships reported in interest income on securities on the consolidated statements of income for the three and six months ended June 30, 2019 and 2018 were as follows (in thousands):
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||
Gain (loss) on fair value hedging relationship | 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||
Interest rate swap agreements - securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hedged items | $ | 3,615 |
|
| $ | — |
|
| $ | 4,733 |
|
| $ | — |
|
Derivative designated as hedging instruments |
| (3,615 | ) |
|
| — |
|
|
| (4,733 | ) |
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following amounts were recorded on the balance sheet related to cumulative basis adjustments for fair value hedges at June 30, 2019:
|
| Carrying Amount of the Hedged Assets (in thousands) |
|
| Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets |
| ||
Line item on the balance sheet |
| June 30, 2019 |
|
| June 30, 2019 |
| ||
Securities available-for-sale |
| $ | 101,205 |
|
| $ | 4,733 |
|
Derivatives designated as cash flow hedges
For 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 June 30, 2019 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
| June 30, 2019 |
| |||||
|
| Balance Sheet Location |
| Weighted Average Remaining Maturity (In Years) |
|
| Weighted Average Pay Rate |
|
| Receive Rate |
| Notional Amount |
|
| Estimated Fair Value |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap agreements |
| Other liabilities |
|
| 2 |
|
| 2.232% |
|
| 3 month LIBOR |
| $ | 100,000 |
|
| $ | 1,667 |
|
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 three and six months ended June 30, 2019 and 2018 were as follows:
| Amount of Gain Recognized in Other Comprehensive Income (Loss) |
|
| Amount of Gain Recognized in Other Comprehensive Income (Loss) |
| ||||||||||
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||
Liability derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap agreements | $ | (1,231 | ) |
| $ | — |
|
| $ | (1,231 | ) |
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The cash flow hedges were determined to be highly effective during the periods presented and as a result qualify for hedge accounting treatment. The Company expects the hedges to continue to be highly effective and qualify for hedge accounting during the remaining terms of the swaps.
NOTE 9—COMMITMENTS AND CONTINGENCIES
We enter into certain off-balance sheet arrangements in the normal course of business to meet the financing needs of our customers. Those agreements involve, to varying degrees, elements of credit risk in excess of the amount recognized in the balance sheet. These off-balance sheet arrangements include commitments to make loans, credit lines and standby letters of credit which would impact our liquidity and capital resources to the extent customers accept or use these commitments. A commitment to extend credit is a formal agreement to lend funds to a client as long as there is no violation of any condition established under the agreement. The actual borrowing needs of our customers under these credit commitments have historically been lower than the contractual amount of the commitments. A significant portion of these commitments expire without being drawn upon. Actual borrowing needs of our customers may currently pay dividends without prior written approvalexceed our expected funding requirements, especially during a challenging economic environment when our client companies may be more dependent on our credit commitments due to the lack of available credit elsewhere, the increasing costs of credit, or the limited availability of financings from its primary regulatory agencies.
Commitments to make loans, credit lines and standby letters of credit involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheet. Off-balance-sheet risk to credit loss exists up to the face amount of these instruments, although material losses are not anticipated. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet financial instruments.
The contractual amounts of financial instruments with off-balance sheet risk were as follows:
|
| June 30, 2019 |
|
| December 31, 2018 |
|
| ||
Unused lines of credit |
| $ | 801,049 |
|
| $ | 654,584 |
|
|
Standby letters of credit |
|
| 52,064 |
|
|
| 40,024 |
|
|
Unfunded loan commitments |
|
| 63,707 |
|
|
| 28,731 |
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 8—10—FAIR VALUE
Fair 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.
Level 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.
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 and 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). Included in securities is interest rate swap agreements. The carrying amount of the interest rate swap agreements is based on pricing models that utilize observable market inputs (Level 2). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3).
DerivativesOther Assets: Included in other assets are certain assets carried at fair value and interest rate locks associated with the mortgage loan pipeline. The fair valuesvalue of derivatives arethe mortgage loan pipeline rate locks is based on valuation models using observableupon the projected sales price of the underlying loans, taking into account market data as ofinterest 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).
Impaired Loans: The fair value of impaired loans with specific allocations of the allowance for loan losses is generally based on recent 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 classification of the inputs for determining fair value.Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted 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, resulting in a Level 3 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 reviewed 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: The Company has elected the fair value option for loans held for sale to align with other accounting policies related to mortgage banking, such as mortgage banking derivatives. These loans are typically sold to an investor following loan origination and the fair value of such accounts are readily available based on direct 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 for 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).
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 June 30, 2019 Using: |
| |||||||||
|
| Quoted Prices in Active Markets for Identical Assets (Level 1) |
|
| Significant Other Observable Inputs (Level 2) |
|
| Significant Unobservable Inputs (Level 3) |
| |||
Financial Assets |
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government sponsored entities and agencies |
| $ | — |
|
|
| 1,688 |
|
| $ | — |
|
Mortgage-backed securities-residential |
|
| — |
|
|
| 474,051 |
|
|
| — |
|
Mortgage-backed securities-commercial |
|
| — |
|
|
| 18,699 |
|
|
| — |
|
Asset-backed securities |
|
| — |
|
|
| 25,208 |
|
|
| — |
|
Corporate notes |
|
| — |
|
|
| 22,716 |
|
|
| — |
|
State and political subdivisions |
|
| — |
|
|
| 172,770 |
|
|
| — |
|
Total securities available for sale |
| $ | — |
|
| $ | 715,132 |
|
| $ | — |
|
Loans held for sale |
| $ | — |
|
| $ | 27,093 |
|
| $ | — |
|
Other assets |
| $ | — |
|
| $ | 278 |
|
| $ | — |
|
Financial Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Other liabilities |
| $ | — |
|
| $ | 6,580 |
|
| $ | — |
|
Fair Value Measurements at September 30, 2017 Using: | ||||||||||||
Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||
Financial Assets | ||||||||||||
Securities available for sale | ||||||||||||
U.S. government sponsored entities and agencies | $ | — | $ | 20,082 | $ | — | ||||||
Mortgage-backed securities-residential | — | 724,667 | — | |||||||||
Mortgage-backed securities-commercial | — | 15,610 | — | |||||||||
State and political subdivisions | — | 160,565 | — | |||||||||
U.S. Treasury bills | — | 59,813 | — | |||||||||
|
|
|
|
|
| |||||||
Total securities available for sale | $ | — | $ | 980,737 | $ | — | ||||||
|
|
|
|
|
| |||||||
Loans held for sale | $ | — | $ | 11,823 | $ | — | ||||||
|
|
|
|
|
| |||||||
Mortgage banking derivatives | $ | — | $ | 501 | $ | — | ||||||
|
|
|
|
|
| |||||||
Financial Liabilities | ||||||||||||
Mortgage banking derivatives | $ | — | $ | (88 | ) | $ | — | |||||
|
|
|
|
|
| |||||||
Fair Value Measurements at December 31, 2016 Using: | ||||||||||||
Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||
Financial Assets | ||||||||||||
Securities available for sale | ||||||||||||
Mortgage-backed securities-residential | $ | — | $ | 607,085 | $ | — | ||||||
Mortgage-backed securities-commercial | — | 19,334 | — | |||||||||
State and political subdivisions | — | 128,336 | — | |||||||||
|
|
|
|
|
| |||||||
Total securities available for sale | $ | — | $ | 754,755 | $ | — | ||||||
|
|
|
|
|
| |||||||
Loans held for sale | $ | — | $ | 23,699 | $ | — | ||||||
|
|
|
|
|
| |||||||
Mortgage banking derivatives | $ | — | $ | 229 | $ | — | ||||||
|
|
|
|
|
| |||||||
Financial Liabilities | ||||||||||||
Mortgage banking derivatives | $ | — | $ | (66 | ) | $ | — | |||||
|
|
|
|
|
|
|
| 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) |
| |||
Financial Assets |
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities |
| $ | 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 |
|
| $ | — |
|
Other assets |
| $ | — |
|
| $ | 206 |
|
| $ | — |
|
Financial Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Other liabilities |
| $ | — |
|
| $ | 129 |
|
| $ | — |
|
As of SeptemberJune 30, 2017,2019, the unpaid principal balance of loans held for sale was $11,524$26,118 resulting in an unrealized gain of $299$975 included in gains on sale of loans.mortgage banking revenue. As of December 31, 2016,2018, the unpaid principal balance of loans held for sale was $23,457,$10,722, resulting in an unrealized gain of $242$381 included in gains on sale of loans.mortgage banking revenue. For the three months ended SeptemberJune 30, 20172019 and 2016,2018, the change in fair value related to loans held for sale, which is included in gain on sale of loans,mortgage banking revenue, was $(48)$324 and $326,$220, respectively. For the ninesix months ended SeptemberJune 30, 20172019 and 2016,2018, the change in fair value related to loans held for sale, which is included in gain on sale of loans,mortgage banking revenue, was $57$594 and $558,$194, respectively. None of these loans were 90 days or more past due or on nonaccrual as of SeptemberJune 30, 20172019 and December 31, 2016.2018.
There were no transfers between levelLevel 1 and 2 during 20172019 or 2016.2018.
Assets measured at fair value on anon-recurring basis are summarized below:
There were two collateral-dependent commercial and industrial impaired loans carried at fair value of $1,987 as of September 30, 2017 andwas one collateral-dependent commercial and industrial impaired loan carried at fair value of $1,650$0 as of December 31, 2016.June 30, 2019. For the three and ninesix months ended SeptemberJune 30, 2017, there was no2019, an additional provision for loan losses of $6,304 and $9,759 was recorded related to impaired loans recorded at fair value of collateral. There was one collateral-dependent impaired loan carried at fair value of $150 as of December 31, 2018. For the three and ninesix months ended SeptemberJune 30, 2016, $1152018, an additional provision for loan losses of $16 was recorded related to impaired loans recorded at fair value of collateral.
Foreclosed assets measured at fair value less costs to sell, had a net carrying amount of $1,503 as of September 30, 2017 and $0 as of June 30, 2019 and December 31, 2016. The foreclosed property was previously collateral for a commercial real estate loan.2018. There were no properties at SeptemberJune 30, 20172019 or 20162018 that had required write-downs to fair value resulting in no write downs for the three and nine months ended September 30, 2017 and 2016, respectively.value.
The carrying amounts and estimated fair values of financial instruments at SeptemberJune 30, 20172019 and December 31, 20162018 are as follows:
Carrying Amount | Fair Value Measurements at September 30, 2017 Using: |
|
|
|
|
| Fair Value Measurements at June 30, 2019 Using: |
| ||||||||||||||||||||||||||||||||
Level 1 | Level 2 | Level 3 | Total |
| Carrying Amount |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||||||||||||||||||||
Financial assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Cash and cash equivalents | $ | 155,842 | $ | 155,842 | $ | — | $ | — | $ | 155,842 |
| $ | 150,721 |
|
| $ | 150,721 |
|
| $ | — |
|
| $ | — |
|
| $ | 150,721 |
| ||||||||||
Certificates of deposit held at other financial institutions | 2,365 | — | 2,365 | — | 2,365 |
|
| 3,840 |
|
|
| — |
|
|
| 3,840 |
|
|
| — |
|
|
| 3,840 |
| |||||||||||||||
Securities available for sale | 980,737 | — | 980,737 | — | 980,737 |
|
| 715,132 |
|
|
| — |
|
|
| 715,132 |
|
|
| — |
|
|
| 715,132 |
| |||||||||||||||
Securities held to maturity | 217,312 | — | 220,089 | — | 220,089 |
|
| 118,963 |
|
|
| — |
|
|
| 120,809 |
|
|
| — |
|
|
| 120,809 |
| |||||||||||||||
Loans held for sale | 11,823 | — | 11,823 | — | 11,823 |
|
| 27,093 |
|
|
| — |
|
|
| 27,093 |
|
|
| — |
|
|
| 27,093 |
| |||||||||||||||
Net loans | 2,115,930 | — | — | 2,074,102 | 2,074,102 |
|
| 2,852,990 |
|
|
| — |
|
|
| — |
|
|
| 2,886,557 |
|
|
| 2,886,557 |
| |||||||||||||||
Restricted equity securities | 18,472 | n/a | n/a | n/a | n/a | |||||||||||||||||||||||||||||||||||
Servicing rights, net | 3,639 | — | — | 4,916 | 4,916 |
|
| 3,299 |
|
|
| — |
|
|
| — |
|
|
| 3,905 |
|
|
| 3,905 |
| |||||||||||||||
Mortgage banking derivative assets | 501 | — | 501 | — | — | |||||||||||||||||||||||||||||||||||
Other assets |
|
| 278 |
|
|
| — |
|
|
| 278 |
|
|
| — |
|
|
| 278 |
| ||||||||||||||||||||
Accrued interest receivable | 11,156 | (13 | ) | 5,603 | 5,566 | 11,156 |
|
| 14,281 |
|
|
| 136 |
|
|
| 5,196 |
|
|
| 8,950 |
|
|
| 14,282 |
| ||||||||||||||
Financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Deposits | $ | 2,824,825 | $ | 1,438,459 | $ | 1,352,945 | $ | — | $ | 2,791,404 |
| $ | 3,146,645 |
|
| $ | 2,182,888 |
|
| $ | 965,228 |
|
| $ | — |
|
| $ | 3,148,116 |
| ||||||||||
Repurchase agreements | 32,862 | — | 32,862 | — | 32,862 | |||||||||||||||||||||||||||||||||||
Federal Home Loan Bank advances | 337,000 | — | 355,910 | — | 355,910 |
|
| 396,500 |
|
|
| — |
|
|
| 396,624 |
|
|
| — |
|
|
| 396,624 |
| |||||||||||||||
Subordinated notes, net | 58,470 | — | — | 61,576 | 61,576 |
|
| 58,782 |
|
|
| — |
|
|
| — |
|
|
| 61,438 |
|
|
| 61,438 |
| |||||||||||||||
Mortgage banking derivative liabilities | (88 | ) | — | (88 | ) | — | — | |||||||||||||||||||||||||||||||||
Other liabilities |
|
| 6,580 |
|
|
| — |
|
|
| 6,580 |
|
|
| — |
|
|
| 6,580 |
| ||||||||||||||||||||
Accrued interest payable | 2,597 | 35 | 2,212 | 350 | 2,597 |
|
| 4,312 |
|
|
| 179 |
|
|
| 687 |
|
|
| 3,446 |
|
|
| 4,312 |
| |||||||||||||||
Carrying Amount | Fair Value Measurements at December 31, 2016 Using: | |||||||||||||||||||||||||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||||||||||||||||||||
Financial assets | ||||||||||||||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 90,927 | $ | 90,927 | $ | — | $ | — | $ | 90,927 | ||||||||||||||||||||||||||||||
Certificates of deposit held at other financial institutions | 1,055 | — | 1,055 | — | 1,055 | |||||||||||||||||||||||||||||||||||
Securities available for sale | 754,755 | — | 754,755 | — | 754,755 | |||||||||||||||||||||||||||||||||||
Securities held to maturity | 228,894 | — | 227,892 | — | 227,892 | |||||||||||||||||||||||||||||||||||
Loans held for sale | 23,699 | — | 23,699 | — | 23,699 | |||||||||||||||||||||||||||||||||||
Net loans | 1,757,039 | — | — | 1,727,188 | 1,727,188 | |||||||||||||||||||||||||||||||||||
Restricted equity securities | 11,843 | n/a | n/a | n/a | n/a | |||||||||||||||||||||||||||||||||||
Servicing rights, net | 3,621 | — | — | 5,015 | 5,015 | |||||||||||||||||||||||||||||||||||
Mortgage banking derivative assets | 229 | — | 229 | — | — | |||||||||||||||||||||||||||||||||||
Accrued interest receivable | 9,931 | — | 5,172 | 4,759 | 9,931 | |||||||||||||||||||||||||||||||||||
Financial liabilities | ||||||||||||||||||||||||||||||||||||||||
Deposits | $ | 2,391,818 | $ | 1,551,461 | $ | 836,444 | $ | — | $ | 2,387,905 | ||||||||||||||||||||||||||||||
Federal funds purchased and repurchase agreements | 83,301 | — | 83,301 | — | 83,301 | |||||||||||||||||||||||||||||||||||
Federal Home Loan Bank advances | 132,000 | — | 131,098 | — | 131,098 | |||||||||||||||||||||||||||||||||||
Subordinated notes, net | 58,337 | — | — | 61,762 | 61,762 | |||||||||||||||||||||||||||||||||||
Mortgage banking derivative liabilities | (66 | ) | — | (66 | ) | — | — | |||||||||||||||||||||||||||||||||
Accrued interest payable | 1,924 | 154 | 1,075 | 695 | 1,924 |
|
|
|
|
|
| Fair Value Measurements at December 31, 2018 Using: |
| |||||||||||||
|
| Carrying Amount |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| |||||
Financial assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 280,212 |
|
| $ | 280,212 |
|
| $ | — |
|
| $ | — |
|
| $ | 280,212 |
|
Certificates of deposit held at other financial institutions |
|
| 3,594 |
|
|
| — |
|
|
| 3,594 |
|
|
| — |
|
|
| 3,594 |
|
Securities available for sale |
|
| 1,030,668 |
|
|
| 253,014 |
|
|
| 777,654 |
|
|
| — |
|
|
| 1,030,668 |
|
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 |
|
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 |
|
Financial 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, net |
|
| 58,693 |
|
|
| — |
|
|
| — |
|
|
| 59,852 |
|
|
| 59,852 |
|
Other liabilities |
|
| 129 |
|
|
| — |
|
|
| 129 |
|
|
| — |
|
|
| 129 |
|
Accrued interest payable |
|
| 4,700 |
|
|
| 146 |
|
|
| 3,866 |
|
|
| 688 |
|
|
| 4,700 |
|
The methods and assumptions not previously described used to estimate fair values are described as follows:
(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 variable rate loans that reprice frequently andIn accordance with no significant change in credit risk, fair values are based on carrying values resulting in 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. Impaired loans are valued at the lower of cost or fair value as described previously. The methods utilized to estimateASU 2016-01, the fair value of loans do not necessarily represent an exit price.
(c) Restricted Equity Securities: It is not practical to determine theheld for investment, excluding previously presented impaired loans measured at fair value on a non-recurring basis, is estimated using a cash flow projection methodology that relies on three primary assumptions: (1) the expected prepayment rate of Federal Home Loan Bank or Federal Reserve Bank stock dueloans; (2) the magnitude of future net losses based on expected default rate and severity of loss; and (3) the discount rate applicable to restrictions placed on its transferability.the expected cash flows of the loan portfolio. Loans are considered a Level 3 classification.
(d)(c) Mortgage Servicing Rights: 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 andnon-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.
(h)(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.
(i)(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.
(j)(i) Off-balance Sheet Instruments: Fair values foroff-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.
NOTE 9—11—EARNINGS PER SHARE
Thetwo-class method is used in the calculation of basic and diluted earnings per share. Under thetwo-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:
Three Months Ended September 30, | Nine Months Ended September 30, |
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| |||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 |
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| |||||||||||||||||
Basic |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net income available to common shareholders | $ | 8,889 | $ | 7,137 | $ | 25,689 | $ | 20,855 |
| $ | 5,173 |
|
| $ | 10,161 |
|
| $ | 8,075 |
|
| $ | 20,213 |
| ||||||||
Less: earnings allocated to participating securities | (66 | ) | (70 | ) | (206 | ) | (219 | ) |
|
| (41 | ) |
|
| (118 | ) |
|
| (79 | ) |
|
| (192 | ) | ||||||||
|
|
|
| |||||||||||||||||||||||||||||
Net income allocated to common shareholders | $ | 8,823 | $ | 7,067 | $ | 25,483 | $ | 20,636 |
| $ | 5,132 |
|
| $ | 10,043 |
|
| $ | 7,996 |
|
| $ | 20,021 |
| ||||||||
|
|
|
| |||||||||||||||||||||||||||||
Weighted average common shares outstanding including participating securities | 13,188,761 | 10,721,253 | 13,119,170 | 10,652,223 |
|
| 14,599,407 |
|
|
| 14,383,493 |
|
|
| 14,580,370 |
|
|
| 13,819,742 |
| ||||||||||||
Less: Participating securities | (97,842 | ) | (105,343 | ) | (105,350 | ) | (111,937 | ) |
|
| (117,063 | ) |
|
| (167,381 | ) |
|
| (143,043 | ) |
|
| (130,898 | ) | ||||||||
|
|
|
| |||||||||||||||||||||||||||||
Average shares | 13,090,919 | 10,615,910 | 13,013,820 | 10,540,286 |
|
| 14,482,344 |
|
|
| 14,216,112 |
|
|
| 14,437,327 |
|
|
| 13,688,844 |
| ||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Basic earnings per common share | $ | 0.67 | $ | 0.67 | $ | 1.96 | $ | 1.96 |
| $ | 0.35 |
|
| $ | 0.71 |
|
| $ | 0.55 |
|
| $ | 1.46 |
| ||||||||
|
|
|
| |||||||||||||||||||||||||||||
Diluted | ||||||||||||||||||||||||||||||||
Net income allocated to common shareholders | $ | 8,823 | $ | 7,067 | $ | 25,483 | $ | 20,636 | ||||||||||||||||||||||||
Weighted average common shares outstanding for basic earnings per common share | 13,090,919 | 10,615,910 | 13,013,820 | 10,540,286 | ||||||||||||||||||||||||||||
Add: Dilutive effects of assumed exercises of stock options | 584,778 | 668,674 | 662,890 | 652,272 | ||||||||||||||||||||||||||||
Add: Dilutive effects of assumed exercises of stock warrants | — | 13,370 | 2,104 | 12,937 | ||||||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Average shares and dilutive potential common shares | 13,675,697 | 11,297,954 | 13,678,814 | 11,205,495 | ||||||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Diluted earnings per common share | $ | 0.65 | $ | 0.63 | $ | 1.86 | $ | 1.84 | ||||||||||||||||||||||||
|
|
|
|
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||
Diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income allocated to common shareholders |
| $ | 5,132 |
|
| $ | 10,043 |
|
| $ | 7,996 |
|
| $ | 20,021 |
|
Weighted average common shares outstanding for basic earnings per common share |
|
| 14,482,344 |
|
|
| 14,216,112 |
|
|
| 14,437,327 |
|
|
| 13,688,844 |
|
Add: Dilutive effects of assumed exercises of stock options |
|
| 341,777 |
|
|
| 597,947 |
|
|
| 376,762 |
|
|
| 557,307 |
|
Add: Dilutive effects of assumed restricted stock units |
|
| 70,019 |
|
|
| — |
|
|
| 35,203 |
|
|
| — |
|
Average shares and dilutive potential common shares |
|
| 14,894,140 |
|
|
| 14,814,059 |
|
|
| 14,849,292 |
|
|
| 14,246,151 |
|
Dilutive earnings per common share |
| $ | 0.34 |
|
| $ | 0.68 |
|
| $ | 0.54 |
|
| $ | 1.41 |
|
For the three months ended SeptemberJune 30, 20172019 and 2016,2018, stock options for 352,042980,099 and 272,087659,291 shares of common stock, respectively, were not considered in computing diluted earnings per common share because they were antidilutive. Stock options for 254,204874,279 and 151,544535,285 shares of common stock were not considered in computing diluted earnings per common share for the ninesix months ended SeptemberJune 30, 20172019 and 20162018, respectively, because they were antidilutive.
NOTE 10—12—SUBORDINATED DEBT ISSUANCE
The Company’s subordinated notes, net of issuance costs, totaled $58,470$58,782 and $58,337$58,693 at SeptemberJune 30, 20172019 and at December 31, 2016,2018, respectively. 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 7 of these 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 (the “March 2016 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 (the “June 2016 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.
The issuance costs related to the March 2016 Subordinated Notes amounted to $1,382 and are being amortized as interest expense over theten-year term of the March 2016 Subordinated Notes. The issuance costs related to the June 2016 Subordinated Notes were $404 and are being amortized as interest expense over theten-year term of the June 2016 Subordinated Notes. For the threesix months ended SeptemberJune 30, 20172019 and 2016,2018, amortization of issuance costs has amounted to $45 for both periods. For the nine months ended September 30, 2017 and 2016, amortization of issuance costs has amounted to $133 and $79, respectively.remained consistent at $89.
The following table summarizes the terms of each subordinated note offering:
March 2016 Subordinated Notes | June 2016 Subordinated Notes |
| March 2016 Subordinated Notes |
|
| June 2016 Subordinated Notes |
| |||
Principal amount issued | $40,000 | $20,000 |
| $40,000 |
|
| $20,000 |
| ||
Maturity date | March 30, 2026 | July 1, 2026 |
| March 30, 2026 |
|
| July 1, 2026 |
| ||
Initial fixed interest rate | 6.875% | 7.00% |
| 6.875% |
|
| 7.00% |
| ||
Initial interest rate period | 5 years | 5 years |
| 5 years |
|
| 5 years |
| ||
First interest rate change date | March 30, 2021 | July 1, 2021 |
| March 30, 2021 |
|
| July 1, 2021 |
| ||
Interest payment frequency through year five* | Semiannually | Semiannually |
| Semiannually |
|
| Semiannually |
| ||
Interest payment frequency after five years* | Quarterly | Quarterly |
| Quarterly |
|
| Quarterly |
| ||
Interest repricing index and margin | 3-month LIBOR plus 5.636% | 3-month LIBOR plus 6.04% |
| 3-month LIBOR plus 5.636% |
|
| 3-month LIBOR plus 6.04% |
| ||
Repricing frequency after five years | Quarterly | Quarterly |
| Quarterly |
|
| Quarterly |
|
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (All dollar values in this section are in thousands.)
The following discussion is intended to assistand analysis identifies significant factors that have affected our financial position and operating results during the periods included in the understanding and assessment of significant changes and trends related to the Company’s results of operations andaccompanying financial condition.statements. This discussion and analysis should be read in conjunction with the accompanying unaudited financial statements, the audited financial statements and accompanying notes included in the Company’s Annual Report on Form10-K filed with the SECSecurities and Exchange Commission (“SEC”) on March 16, 2017,19, 2019, which includes additional information about critical accounting policies and practices and risk factors. Historical results and trends that might appear in the consolidated financial statements should not be interpreted as being indicative of future operations. All amounts are in thousands, except per share data or unless otherwise indicated.
Company Overview
We are a financial holding company headquartered in Franklin, Tennessee. Through our wholly-owned bank subsidiary, Franklin Synergy Bank, a Tennessee-chartered commercial bank and a member of the Federal Reserve System, we provide a full range of banking and related financial services with a focus on service to small businesses, corporate entities, local governments and individuals. We operate through 1215 branches and onea loan production office in the demographically attractive and growing Williamson, Rutherford and Davidson Counties within the Nashville metropolitan area. As used in this report, unless the context otherwise indicates, any reference to “Franklin Financial,” “our Company,” “the Company,” “us,” “we” and “our” refers to Franklin Financial Network, Inc. together with its consolidated subsidiaries (including Franklin Synergy)Synergy Bank), any reference to “FFN” refers to Franklin Financial Network, Inc. only and any reference to “Franklin Synergy” or the “Bank” refers to our banking subsidiary, Franklin Synergy Bank.
As of June 30, 2019, we had consolidated total assets of $4,071,971, total loans, including loans held for sale, of $2,907,526, total deposits of $3,146,645 and total equity of $393,609.
Our principal executive office is located at 722 Columbia Avenue, Franklin, Tennessee 37064-2828, and our telephone number is (615) 236-2265. Our website is www.franklinsynergybank.com. The information contained on or accessible from our website does not constitute a part of this report and is not incorporated by reference herein.
Critical Accounting Policies
The accounting and reporting policies of the Company are in accordance with accounting principles generally accepted in the United States of America and conform to general practices within the banking industry. To prepare financial statements in conformity with accounting principles generally accepted in the United States of America, 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.
The Company’s accounting policies are integral to understanding the results reported. Accounting policies are described in detail in Note 1 of the notes to the consolidated financial statements in the Company’s Annual Report on Form10-K that was filed with the SEC on March 16, 2017.19, 2019. The critical accounting policies require judgment to ascertain the valuation of assets, liabilities, commitments and contingencies. Management has established policies and control procedures that are intended to ensure valuation methods are well controlled and applied consistently from period to period. In addition, the policies and procedures are intended to ensure that the process for changing methodologies occurs in an appropriate manner. The following is a brief summary of the more significant policies.
Allowance for Loan Losses (ALLL)
The allowance for loan lossesALLL is a valuation allowance for probable incurred credit losses. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed.has become uncollectible. 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 (“TDR” or “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 acase-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 impairment. 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 restructuringsTDRs are separately identified for impairment disclosures and 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. For troubled debt restructuringsTDRs that subsequently default, the Company determines the amount of reserve in accordance with the accounting policy for the allowance for loan losses.ALLL.
The general component coversnon-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 from the Bank’s peer group over the past three years. This actual loss experience is supplemented with other economicqualitative 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.
Recently Adopted Accounting Pronouncements
In March 2016, the FASB issuedASU2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. UnderASU 2016-09 all excess tax benefits and tax deficiencies related to share-based payment awards are to be recognized as income tax expense or benefit in the income statement during the period in which they occur. Previously, such amounts were recorded in the pool of excess tax benefits included in additionalpaid-in capital, if such pool was available. Because excess tax benefits are no longer recognized in additionalpaid-in capital, the assumed proceeds from applying the treasury stock method when computing earnings per share excludes the amount of excess tax benefits that would have previously been recognized in additionalpaid-in capital. Additionally, excess tax benefits are classified along with other income tax cash flows as an operating activity rather than as a financing activity, as was previously the case.ASU 2016-09 also provides that an entity can make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest (current GAAP) or account for forfeitures when they occur.ASU 2016-09 changed the threshold to qualify for equity classification (rather than as a liability) to permit withholding up to the maximum statutory tax rates (rather than the minimum as was previously the case) in the applicable jurisdictions. The Company elected to adopt this ASU in the fourth quarter of 2016, effective as of January 1, 2016. The adoption of this ASU decreased income tax expense for the nine months ended September 30, 2016 by $616 and increased diluted earnings per share by $0.04. The adoption of this ASU also impacted previously reported quarterly earnings and earnings per share in the third quarter of 2016 by decreasing income tax expense by $107 and increasing diluted earnings per share by $0.01.
Recent Accounting Pronouncements
In May 2014, the FASB issued ASU2014-09,Revenue from Contracts with Customers (Topic 606). ASU2014-09 creates a new topic in the FASB ASC, Topic 606. In addition to superseding and replacing nearly all existing U.S. GAAP revenue recognition guidance, including industry-specific guidance, ASU2014-09 establishes a new control-based revenue recognition model, changes the basis for deciding when revenue is recognized over time or at a point in time, provides new and more detailed guidance on specific topics and expands and improves disclosures about revenue. In addition, ASU2014-09 added a new Subtopic to the ASC, Other Assets and Deferred Costs: Contracts with Customers (“ASC340-40”), to provide guidance on costs related to obtaining a contract with a customer and costs incurred in fulfilling a contract with a customer that are not in the scope of another ASC Topic. The new guidance does not apply to certain contracts within the scope of other ASC Topics, such as lease contracts, insurance contracts, financing arrangements, financial instruments, guarantees other than product or service warranties, andnon-monetary exchanges between entities in the same line of business to facilitate sales to customers. The amendments are effective for annual periods and interim periods within those annual periods beginning after December 15, 2017. Most of the Company’s revenues come from financial instruments, like loans, investment securities and other financial instruments which are not included in the scope of this ASU. The Company’s revenue recognition pattern for revenue streams within the scope of ASU2014-09, including but not limited to service charges on deposit accounts, gains/losses on the sale of OREO and wealth management income, is not expected to change significantly from current practice. The standard permits the use of either the full retrospective or modified retrospective transition method. The Company is currently planning to use the modified retrospective transition method which requires application of ASU2014-09 to uncompleted contracts at the date of adoption. Periods prior to the date of adoption are not retrospectively revised, but a cumulative effect of adoption is recognized for the impact of the ASU on uncompleted contracts at the date of adoption. Adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial statements.
In January 2016, the FASB issued ASU2016-01,Financial Instruments (Topic 825): Recognition and Measurement of Financial Assets and Financial Liabilities, which amends prior guidance to require an entity to measure its equity investments (except those accounted for under the equity method of accounting) to be measured at fair value with changes in fair value recognized in net income. An entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer. The new guidance simplifies the impairment assessment of equity investments without readily determinable fair values, requires public entities to use the exit price notion when measuring fair value of financial instruments for disclosure purposes, requires an entity to present separately in other comprehensive income the portion of the total change in fair value of a liability resulting from changes in the instrument-specific credit risk when the entity has selected the fair value option for financial instruments and requires separate presentation of financial assets and liabilities by measurement category and form of financial asset. The amendments are effective for annual periods and interim periods within those annual periods beginning after December 15, 2017. Management has not yet determined the impact that adoption of this guidance will have on the Company’s financial statements.
In February 2016, the FASB issued ASU2016-02 which createsTopic 842, Leases and supersedesTopic 840, Leases. ASU2016-02 is intended to improve financial reporting about leasing transactions, by increasing transparency and comparability among organizations. Under the new guidance, a lessee will be required to record all leases with lease terms of more than 12 months on their balance sheet as lease liabilities with a correspondingright-of-use asset. ASU2016-02 maintains the dual model for lease accounting, requiring leases to be classified as either operating or finance, with lease classification determined in a manner similar to existing lease guidance. The new guidance will be effective for the Company for fiscal years beginning on or after December 15, 2018. Early adoption is permitted for all entities. At the time this ASU is adopted, the Company will recognize aright-of-use asset, and a lease liability for all leases, which will initially be measured at the present value of lease payments, and a single lease cost calculated so that the costs of the leases are allocated over the terms of the Company’s leases on a generally straight-line basis. Since an asset will be recognized at the time of adoption, the Company’s regulatory capital ratios will be impacted. Management is evaluating the impact ASU2016-02 will have on the Company’s consolidated financial statements.
In June 2016, the FASB issued ASU2016-13,Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The ASU requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. Organizations will continue to use judgment to determine which loss estimation method is appropriate for their circumstances. 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 accounting for credit losses onavailable-for-sale debt securities and purchased financial assets with credit deterioration. The ASU is effective for the Company for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019 (i.e., 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. The Company is currently gathering information, reviewing possible vendors and has formed a committee to formulate the methodology to be used. Most importantly, the Company is gathering data to enable review scenarios and to determine which calculations will produce the most reliable results. The impact of adopting ASU2016-13 is not currently known.
In August 2016, the FASB issued ASU2016-15,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 ofzero-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. The amendments in this Update are effective for the Company for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. This ASU is not expected to have a material impact on the Company’s financial statements.
In January 2017, the FASB issued ASU2017-04, Intangibles – Goodwill and Other (Topic 350):Simplifying the Test for Goodwill Impairment. The guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. Goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. All other goodwill impairment guidance will remain largely unchanged.ASU 2017-04 is effective for interim and annual reporting periods beginning after December 15, 2019, applied prospectively. Early adoption is permitted for any impairment tests performed after January 1, 2017. Adoption ofASU 2017-04 is not expected to have a material impact on the Company’s consolidated financial statements.
In March 2017, the FASB issued ASU2017-08,Receivables—Nonrefundable Fees and Other Costs (Subtopic310-20): Premium Amortization on Purchased Callable Debt Securities. This Update shortens the amortization period for the premium on certain purchased callable debt securities to the earliest call date. The new guidance does not change the accounting for purchased callable debt securities held at a discount; the discount continues to be amortized to maturity.ASU 2017-08 is effective for interim and annual reporting periods beginning after December 15, 2018, and early adoption is permitted. The guidance calls for a modified retrospective transition approach under which a cumulative-effect adjustment will be made to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. The Company is currently evaluating the provisions ofASU 2017-08 to determine the potential impact the new standard will have on the Company’s consolidated financial statements.
In May 2017, the FASB issued ASU2017-09,Compensation - Stock Compensation (Subtopic 718): Scope of Modification Accounting. ASU2017-09 clarifies when changes to terms or conditions of a share-based payment award must be accounted for as a modification. Under the new guidance, an entity will not apply modification accounting to a share-based payment award if all of the following are the same immediately before and after the change: (i) the fair value of the award, (ii) the vesting conditions of the award, and (iii) the classification of the award as either an equity or liability instrument. ASU2017-09 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted. The guidance requires companies to apply the requirements prospectively to awards modified on or after the adoption date. ASU2017-09 is not expected to have a significant impact on the Company’s consolidated financial statements.
In August 2017, the FASB issued ASU2017-12,Targeted Improvements to 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. The Company currently does not have any hedging activities that would be subject to this Update; however, management may consider hedging activities in the future. Adoption of this Update is not expected to have a material impact on the Company’s consolidated financial statements.
COMPARISON OF RESULTS OF OPERATIONS FOR
THE THREE AND NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 2017 AND 20162019 and 2018
(Dollar Amounts in Thousands)Thousands)
Overview
The Company reported net income of $8,889$5,181 and $25,697$8,083 for the three and ninesix months ended SeptemberJune 30, 2017,2019, respectively, compared to $7,137$10,169 and $20,878$20,221 for the three and ninesix months ended SeptemberJune 30, 2016,2018, respectively. After earnings attributable to noncontrolling interest, and after the payment of preferred dividends on the shares of SeniorNon-Cumulative Perpetual Preferred Stock, Series A (the “Series A Preferred Stock”) issued to the United States Department of the Treasury (“Treasury”) pursuant to the Small Business Lending Fund (“SBLF”), the Company’s net earnings available to common shareholders for the three and ninesix months ended SeptemberJune 30, 20172019, was $8,889$5,173 and $25,689,$8,075, respectively, compared to $7,137$10,161 and $20,855$20,213 for the three and ninesix months ended SeptemberJune 30, 2016,2018, respectively. The primary reason for the increase in net earningsNet income available to common shareholders decreased by $4,988 and $12,138 for the three and ninesix months ended SeptemberJune 30, 2017 was increased interest income2019, compared to June 30, 2018, primarily related to a specific loan loss provision on loansa shared national credit relationship (“SNC”) of $6,304 and investment securities compared with$9,759 for the same periods in 2016. The increase in loans was duethree and six months ended June 30, 2019, respectively, and $4,143 related to significant organic growth. The growthpost-employment and retirement expense recorded in the securities portfolio is primarily attributable to the Company’s leverage program to utilize proceeds received from capital raised during the fourthfirst quarter of 2016.2019.
Net Interest Income/Margin
Net interest income consists of interest income generated by earning assetsearning-assets less interest expense paid on interest-bearing liabilities and is the most significant component of our revenues. Net interest income for the three and ninesix months ended SeptemberJune 30, 2017,2019, totaled $24,326$27,365 and $72,438,$54,785, respectively, compared to $20,675$26,905 and $59,885$52,021 for the same periods in 2016,2018, an increase of $3,651$460 and $12,553,$2,764, or 17.7%1.7% and 21.0%5.3%, between the respective periods. For the three and ninesix months ended SeptemberJune 30, 2017,2019, interest income increased $8,056$5,317 and $24,761,$14,793, or 31.3%12.6% and 34.1%18.4%, respectively, compared with the same periods in 2016,2018, due to growth in both the loan and investment securities portfolios. For the three and ninesix months ended SeptemberJune 30, 2017,2019, interest expense increased $4,405$4,857 and $12,208,
$12,029, or 87.2%31.9% and 96.2%42.7%, respectively, compared with the same periods in 2016, as a result ofprimarily due to increases in interest-bearing deposits combined with an increase in interest rates for deposits and Federal Home Loan Bank (“FHLB”) advances and subordinated notes.advances.
Interest-earning assets averaged $3,351,421$3,940,266 and $2,576,294$4,046,709 during the three months ended SeptemberJune 30, 20172019 and 2016,2018, respectively, an increasea decrease of $775,127,$106,443, or 30.1%2.6%. This increasedecrease was due to growththe strategically planned asset rotation and decrease in all types of interest-earning assets, but the largest growth occurred in loans andtotal investment securities. Average total loans increased 26.5%$420,711, or 17.1%, and investment securities increased 31.8%decreased $528,315, or 37.5%, when comparing the three months ended SeptemberJune 30, 20172019, with the same period in 2016. 2018.
When comparing the three months ended SeptemberJune 30, 20172019 and 2016,2018, the yield on average interest earning assets, adjusted for tax equivalent yield, increased five64 basis points in 20172019, to 4.17%4.89% compared to 4.12%4.25% for the same period during 2016.2018. For the three months ended SeptemberJune 30, 2017,2019, the tax equivalent yield on availableloans held for sale securitiesinvestment was 2.61%5.61%, and for the three months ended SeptemberJune 30, 2016,2018, the tax equivalent yield on availableloans held for sale securitiesinvestment was 2.42%. For the three months ended September 30, 2017, the tax equivalent yield on held to maturity securities was 4.11%, and for the three months ended September 30, 2016, the tax equivalent yield on held to maturity securities was 3.75%5.27%. The primary driver for the increase in yields on securities for the three-month period ended September 30, 2017loans was the volume oftax-exempt municipal securities purchased during the past 12 months, which increased tax equivalent yieldsincrease in market interest rates when comparing the three-month period in 2017 withcompared to the same periodquarter in 2016.the previous year.
Interest-bearing liabilities averaged $2,856,337$3,340,033 during the three months ended SeptemberJune 30, 2017,2019, compared to $2,201,206$3,518,299 for the same period in 2016, an increase2018, a decrease of $655,131,$178,266, or 29.8%5.1%. Total average interest-bearing deposits grew $460,127,decreased $179,800, or 22.9%5.8%, including increasesa decline in average interest checking of $291,152$44,806 and average time deposits of $178,786$380,237 for the three-month periodthree months ended SeptemberJune 30, 2017,2019, as compared to the same period during 2016. Rapid2018. Total average money market deposits increased $254,168, or 32.9% for the three months ended June 30, 2019. Total non-interest deposits averaged $313,104, an increase of $14,979, or 5.0%, during the three months ended June 30, 2019, compared to the same period during 2018. The growth in the loan portfolio also resulted incontributed to an increase in average FHLB advances of $202,445 when$18,857 for the three months ended June 30, 2019.
When comparing the three months ended SeptemberJune 30, 2017 with the same period in 2016.
For the three-month periods ended September 30, 20172019 and 2016,2018, the cost of average interest-bearing liabilities increased 4067 basis points to 1.31%2.41% from 0.91%1.74%. The increase was due to rate increases in the cost of funds for interest-bearing deposits, FHLB advances and Federalfederal funds purchased.
Interest-earning assets averaged $3,304,558$3,991,962 and $2,427,824$3,958,127 during the ninesix months ended SeptemberJune 30, 20172019 and 2016,2018, respectively, an increase of $876,734,$33,835, or 36.1%0.9%. This increase was due to growth in both the loan portfolio and the securities portfolio over the past year. Average loans held for investment increased 28.6%$437,608, or 18.4%, and investmentfor the six months ended June 30, 2019, as compared to the same period for 2018. Investment securities increased 46.8%decreased $359,071, or 26.6%, when comparing the ninesix months ended SeptemberJune 30, 20172019, with the same period in 2016.2018. When comparing the ninesix months ended SeptemberJune 30, 20172019 and 2016,2018, the yield on average interest earninginterest-earning assets, adjusted for tax equivalent yield, decreased 2increased approximately 69 basis points to 4.11%4.85% in 20172019 compared to 4.13%4.16% for the same period during 2016.2018.
For the ninesix months ended SeptemberJune 30, 20172019 and 2016,2018, the tax equivalent yield on loans held for investment was 4.96%5.61% and 4.95% respectively. For the three months ended September 30, 2017 and 2016, the tax equivalent yield on loans was 5.03% and 4.96%,5.17% respectively. The primary driver for the increase in yieldsyield on loans held for investment for the three- and nine-month periodssix months ended SeptemberJune 30, 20172019 was anthe increase in loanmarket interest rates when compared withduring the same periods in 2016.past year.
For the ninesix months ended SeptemberJune 30, 2017,2019, the tax equivalent yield on available for saletaxable securities was 2.66%2.79%, and for the ninesix months ended SeptemberJune 30, 2016,2018, the tax equivalent yield on available for saletaxable securities was 2.48%2.34%. For the ninesix months ended SeptemberJune 30, 2017,2019, the tax equivalent yield on held to maturitytax-exempt securities was 4.18%4.03%, and for the ninesix months ended SeptemberJune 30, 2016,2018, the tax equivalent yield on held to maturitytax-exempt securities was 3.92%4.56%. The primary driver for the increaseyield decreases in yields onboth taxable and tax-exempt securities for the nine-month period ended September 30, 2017 was the decrease in volume oftax-exempt municipal securities purchased duringdue to the past 12 months, which increased tax equivalent yields when comparing the nine-month period in 2017 with the same period in 2016.strategically-planned balance sheet rotation focused on core loan growth.
Interest-bearing liabilities averaged $2,839,188$3,416,223 during the ninesix months ended SeptemberJune 30, 2017,2019, compared to $2,044,661$3,444,835 for the same period in 2016, an increase2018, a decrease of $794,527,$28,612, or 38.9%0.8%. Total average interest-bearing deposits grew $606,229,decreased $54,259, including increasesdecreases in interest-bearing checking of $339,569$52,975 and average time deposits of $259,409$243,823 for the nine-month periodsix months ended SeptemberJune 30, 2017,2019, as compared to the same period during 2016. Rapid2018. Total non-interest deposits averaged $302,200, an increase of $9,647, or 3.3%, during the six months ended June 30, 2019, compared to the same period in 2018. The growth in the loan portfolio also resulted incontributed to an increase in average FHLB advances of $167,137, and subordinated notes and other borrowings increased $25,516, when$44,824 during the six months ended June 30, 2019.
When comparing the ninesix months ended SeptemberJune 30, 2017 with the same period in 2016.
For the nine-month periods ended September 30, 20172019 and 2016,2018, the cost of average interest-bearing liabilities increased 3472 basis points from 0.83%1.65% to 1.17%2.37%. The increase was due to rate increases in the cost of funds fromfor interest-bearing deposits, FHLB advances Federaland federal funds purchased and repurchase agreements.purchased.
The tables below summarize average balances, annualized yields and rates, cost of funds, and the analysis of changes in interest income and interest expense for the three and ninesix months ended SeptemberJune 30, 20172019 and 2016:2018:
Average Balances—Yields & Rates(7)
(Dollars are in thousands)
Three Months Ended September 30, | ||||||||||||||||||||||||
2017 | 2016 | |||||||||||||||||||||||
Average Balance | Interest Inc / Exp | Average Yield / Rate | Average Balance | Interest Inc / Exp | Average Yield / Rate | |||||||||||||||||||
ASSETS: | ||||||||||||||||||||||||
Loans(1)(6) | $ | 2,049,575 | $ | 26,006 | 5.03 | % | $ | 1,620,347 | $ | 20,219 | 4.96 | % | ||||||||||||
Securities available for sale(6) | 972,988 | 6,405 | 2.61 | % | 671,725 | 4,084 | 2.42 | % | ||||||||||||||||
Securities held to maturity(6) | 220,313 | 2,283 | 4.11 | % | 233,986 | 2,203 | 3.75 | % | ||||||||||||||||
Restricted equity securities | 17,396 | 269 | 6.13 | % | 10,372 | 133 | 5.10 | % | ||||||||||||||||
Certificates of deposit at other financial institutions | 2,412 | 9 | 1.48 | % | 941 | 4 | 1.69 | % | ||||||||||||||||
Federal funds sold and other(2) | 88,737 | 271 | 1.21 | % | 38,923 | 49 | 0.50 | % | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
TOTAL INTEREST EARNING ASSETS | $ | 3,351,421 | $ | 35,243 | 4.17 | % | $ | 2,576,294 | $ | 26,692 | 4.12 | % | ||||||||||||
Allowance for loan losses | (18,891 | ) | (14,508 | ) | ||||||||||||||||||||
All other assets | 94,334 | 86,466 | ||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||
TOTAL ASSETS | $ | 3,426,864 | $ | 2,648,252 | ||||||||||||||||||||
LIABILITIES & EQUITY | ||||||||||||||||||||||||
Deposits: | ||||||||||||||||||||||||
Interest checking | $ | 552,502 | $ | 1,285 | 0.92 | % | $ | 261,350 | $ | 256 | 0.39 | % | ||||||||||||
Money market | 604,416 | 1,703 | 1.12 | % | 617,913 | 957 | 0.62 | % | ||||||||||||||||
Savings | 54,921 | 42 | 0.30 | % | 51,235 | 40 | 0.31 | % | ||||||||||||||||
Time deposits | 1,259,452 | 4,281 | 1.35 | % | 1,080,666 | 2,430 | 0.89 | % | ||||||||||||||||
Federal Home Loan Bank advances | 289,228 | 968 | 1.33 | % | 86,783 | 215 | 0.99 | % | ||||||||||||||||
Federal funds purchased and other(3) | 37,374 | 92 | 0.98 | % | 44,974 | 69 | 0.61 | % | ||||||||||||||||
Subordinated notes and other borrowings | 58,444 | 1,083 | 7.35 | % | 58,285 | 1,082 | 7.39 | % | ||||||||||||||||
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|
|
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|
| |||||||||||||
TOTAL INTEREST BEARING LIABILITIES | $ | 2,856,337 | $ | 9,454 | 1.31 | % | $ | 2,201,206 | $ | 5,049 | 0.91 | % | ||||||||||||
Demand deposits | 261,127 | 224,387 | ||||||||||||||||||||||
Other liabilities | 11,312 | 16,650 | ||||||||||||||||||||||
Total equity | 298,088 | 206,009 | ||||||||||||||||||||||
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|
|
| |||||||||||||||||||||
TOTAL LIABILITIES AND EQUITY | $ | 3,426,864 | $ | 2,648,252 | ||||||||||||||||||||
NET INTEREST SPREAD(4) | 2.86 | % | 3.21 | % | ||||||||||||||||||||
NET INTEREST INCOME | $ | 25,789 | $ | 21,643 | ||||||||||||||||||||
NET INTEREST MARGIN(5) | 3.05 | % | 3.34 | % |
ASSETS: Loans(1)(6) Securities available for sale(6) Securities held to maturity(6) Restricted equity securities Certificates of deposit at other financial institutions Federal funds sold and other(2) TOTAL INTEREST EARNING ASSETS Allowance for loan losses All other assets TOTAL ASSETS LIABILITIES & EQUITY Deposits: Interest checking Money market Savings Time deposits Federal Home Loan Bank advances Federal funds purchased and other(3) Subordinated notes and other borrowings TOTAL INTEREST BEARING LIABILITIES Demand deposits Other liabilities Total equity TOTAL LIABILITIES AND EQUITY NET INTEREST SPREAD(4) NET INTEREST INCOME NET INTEREST MARGIN(5) Nine Months Ended September 30, 2017 2016 Average
Balance Interest
Inc / Exp Average
Yield / Rate Average
Balance Interest
Inc / Exp Average
Yield / Rate $ 1,975,592 $ 73,274 4.96 % $ 1,535,894 $ 56,933 4.95 % 1,002,118 19,958 2.66 % 641,270 11,917 2.48 % 224,174 7,012 4.18 % 194,326 5,698 3.92 % 15,830 663 5.60 % 9,256 354 5.11 % 2,178 24 1.47 % 751 11 1.96 % 84,666 643 1.02 % 46,327 164 0.47 % $ 3,304,558 $ 101,574 4.11 % $ 2,427,824 $ 75,077 4.13 % (18,182 ) (13,179 ) 92,425 41,988 $ 3,378,801 $ 2,456,633 $ 631,582 $ 3,586 0.76 % $ 292,013 $ 853 0.39 % 608,670 4,412 0.97 % 608,341 2,767 0.61 % 55,569 127 0.31 % 48,647 121 0.33 % 1,196,675 10,993 1.23 % 937,266 6,377 0.91 % 242,549 2,228 1.23 % 75,412 511 0.91 % 45,745 309 0.90 % 50,100 237 0.63 % 58,398 3,239 7.42 % 32,882 1,820 7.39 % $ 2,839,188 $ 24,894 1.17 % $ 2,044,661 $ 12,686 0.83 % 246,675 200,981 7,358 12,707 285,580 198,284 $ 3,378,801 $ 2,456,633 2.94 % 3.30 % $ 76,680 $ 62,391 3.10 % 3.43 %
|
| Three Months Ended June 30, |
| |||||||||||||||||||||
|
| 2019 |
|
| 2018 |
| ||||||||||||||||||
|
| Average Balance |
|
| Interest Inc / Exp |
|
| Average Yield / Rate |
|
| Average Balance |
|
| Interest Inc / Exp |
|
| Average Yield / Rate |
| ||||||
ASSETS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans(1)(6) |
| $ | 2,858,713 |
|
| $ | 40,003 |
|
|
| 5.61 | % |
| $ | 2,448,646 |
|
| $ | 32,187 |
|
|
| 5.27 | % |
Loans held for sale |
|
| 24,118 |
|
|
| 256 |
|
|
| 4.26 |
|
|
| 13,474 |
|
| $ | 152 |
|
|
| 4.52 |
|
Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable |
|
| 673,386 |
|
|
| 4,614 |
|
|
| 2.75 |
|
|
| 1,179,000 |
|
|
| 6,905 |
|
|
| 2.35 |
|
Tax-exempt(6) |
|
| 208,417 |
|
|
| 1,909 |
|
|
| 3.67 |
|
|
| 231,118 |
|
|
| 2,613 |
|
|
| 4.53 |
|
Restricted equity securities |
|
| 24,641 |
|
|
| 350 |
|
|
| 5.70 |
|
|
| 20,619 |
|
|
| 329 |
|
|
| 6.40 |
|
Certificates of deposit at other financial institutions |
|
| 3,759 |
|
|
| 22 |
|
|
| 2.35 |
|
|
| 3,459 |
|
|
| 19 |
|
|
| 2.20 |
|
Federal funds sold and other(2) |
|
| 147,232 |
|
|
| 855 |
|
|
| 2.33 |
|
|
| 150,393 |
|
|
| 642 |
|
|
| 1.71 |
|
TOTAL INTEREST EARNING ASSETS |
| $ | 3,940,266 |
|
| $ | 48,009 |
|
|
| 4.89 | % |
| $ | 4,046,709 |
|
| $ | 42,847 |
|
|
| 4.25 | % |
Allowance for loan and lease losses |
|
| (28,007 | ) |
|
|
|
|
|
|
|
|
|
| (21,994 | ) |
|
|
|
|
|
|
|
|
All other assets |
|
| 192,843 |
|
|
|
|
|
|
|
|
|
|
| 144,738 |
|
|
|
|
|
|
|
|
|
TOTAL ASSETS |
| $ | 4,105,102 |
|
|
|
|
|
|
|
|
|
| $ | 4,169,453 |
|
|
|
|
|
|
|
|
|
LIABILITIES & EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest checking |
| $ | 816,429 |
|
| $ | 4,357 |
|
|
| 2.14 | % |
| $ | 861,235 |
|
| $ | 3,329 |
|
|
| 1.55 | % |
Money market |
|
| 1,026,200 |
|
|
| 6,103 |
|
|
| 2.39 |
|
|
| 772,032 |
|
|
| 3,048 |
|
|
| 1.58 |
|
Savings |
|
| 38,882 |
|
|
| 27 |
|
|
| 0.28 |
|
|
| 47,807 |
|
|
| 38 |
|
|
| 0.32 |
|
Time deposits |
|
| 1,036,904 |
|
|
| 6,192 |
|
|
| 2.40 |
|
|
| 1,417,141 |
|
|
| 6,189 |
|
|
| 1.75 |
|
Federal Home Loan Bank advances and other (8) |
|
| 349,615 |
|
|
| 2,237 |
|
|
| 2.57 |
|
|
| 330,758 |
|
|
| 1,414 |
|
|
| 1.71 |
|
Federal funds purchased and other(3) |
|
| 13,249 |
|
|
| 90 |
|
|
| 2.72 |
|
|
| 30,750 |
|
|
| 131 |
|
|
| 1.71 |
|
Subordinated notes |
|
| 58,754 |
|
|
| 1,082 |
|
|
| 7.39 |
|
|
| 58,576 |
|
|
| 1,082 |
|
|
| 7.41 |
|
TOTAL INTEREST BEARING LIABILITIES |
| $ | 3,340,033 |
|
| $ | 20,088 |
|
|
| 2.41 | % |
| $ | 3,518,299 |
|
| $ | 15,231 |
|
|
| 1.74 | % |
Demand deposits |
|
| 313,104 |
|
|
|
|
|
|
|
|
|
|
| 298,125 |
|
|
|
|
|
|
|
|
|
Other liabilities |
|
| 63,505 |
|
|
|
|
|
|
|
|
|
|
| 12,854 |
|
|
|
|
|
|
|
|
|
Total equity |
|
| 388,460 |
|
|
|
|
|
|
|
|
|
|
| 340,175 |
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND EQUITY |
| $ | 4,105,102 |
|
|
|
|
|
|
|
|
|
| $ | 4,169,453 |
|
|
|
|
|
|
|
|
|
NET INTEREST SPREAD(4) |
|
|
|
|
|
|
|
|
|
| 2.48 | % |
|
|
|
|
|
|
|
|
|
| 2.51 | % |
NET INTEREST INCOME |
|
|
|
|
| $ | 27,921 |
|
|
|
|
|
|
|
|
|
| $ | 27,616 |
|
|
|
|
|
NET INTEREST MARGIN(5) |
|
|
|
|
|
|
|
|
|
| 2.84 | % |
|
|
|
|
|
|
|
|
|
| 2.74 | % |
(1) | Loan balances include |
(2) | Includes federal funds sold and interest-bearing deposits at the Federal Reserve Bank, |
(3) | Includes repurchase agreements. |
(4) | Represents the average rate earned on interest-earning assets minus the average rate paid on interest-bearing liabilities. |
(5) | Represents net interest income (annualized) divided by total average earning assets. |
(6) | Interest income and rates include the effects oftax-equivalent adjustments to adjusttax-exempt interest income ontax-exempt loans and investment securities to a fully taxable basis. |
(7) | Average balances are average daily balances. |
(8) | Includes finance lease. |
|
| Six Months Ended June 30, |
| |||||||||||||||||||||
|
| 2019 |
|
| 2018 |
| ||||||||||||||||||
|
| Average Balance |
|
| Interest Inc / Exp |
|
| Average Yield / Rate |
|
| Average Balance |
|
| Interest Inc / Exp |
|
| Average Yield / Rate |
| ||||||
ASSETS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans(1)(6) |
| $ | 2,811,954 |
|
| $ | 78,241 |
|
|
| 5.61 | % |
| $ | 2,374,346 |
|
| $ | 60,911 |
|
|
| 5.17 | % |
Loans held for sale |
|
| 16,818 |
|
|
| 371 |
|
|
| 4.45 |
|
|
| 11,090 |
|
| $ | 233 |
|
|
| 4.24 |
|
Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable |
|
| 795,788 |
|
|
| 11,008 |
|
|
| 2.79 |
|
|
| 1,119,823 |
|
|
| 13,017 |
|
|
| 2.34 |
|
Tax-exempt(6) |
|
| 195,132 |
|
|
| 3,899 |
|
|
| 4.03 |
|
|
| 230,168 |
|
|
| 5,205 |
|
|
| 4.56 |
|
Restricted equity securities |
|
| 23,514 |
|
|
| 684 |
|
|
| 5.87 |
|
|
| 19,644 |
|
|
| 603 |
|
|
| 6.19 |
|
Certificates of deposit at other financial institutions |
|
| 3,676 |
|
|
| 42 |
|
|
| 2.30 |
|
|
| 3,138 |
|
|
| 31 |
|
|
| 1.99 |
|
Federal funds sold and other(2) |
|
| 145,080 |
|
|
| 1,822 |
|
|
| 2.53 |
|
|
| 199,918 |
|
|
| 1,584 |
|
|
| 1.60 |
|
TOTAL INTEREST EARNING ASSETS |
| $ | 3,991,962 |
|
| $ | 96,067 |
|
|
| 4.85 | % |
| $ | 3,958,127 |
|
| $ | 81,584 |
|
|
| 4.16 | % |
Allowance for loan and lease losses |
|
| (26,041 | ) |
|
|
|
|
|
|
|
|
|
| (21,840 | ) |
|
|
|
|
|
|
|
|
All other assets |
|
| 196,446 |
|
|
|
|
|
|
|
|
|
|
| 134,877 |
|
|
|
|
|
|
|
|
|
TOTAL ASSETS |
| $ | 4,162,367 |
|
|
|
|
|
|
|
|
|
| $ | 4,071,164 |
|
|
|
|
|
|
|
|
|
LIABILITIES & EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest checking |
| $ | 836,650 |
|
| $ | 8,777 |
|
|
| 2.12 | % |
| $ | 889,625 |
|
| $ | 6,495 |
|
|
| 1.47 | % |
Money market |
|
| 1,009,613 |
|
|
| 12,082 |
|
|
| 2.41 |
|
|
| 757,698 |
|
|
| 5,648 |
|
|
| 1.50 |
|
Savings |
|
| 39,741 |
|
|
| 55 |
|
|
| 0.28 |
|
|
| 49,117 |
|
|
| 76 |
|
|
| 0.31 |
|
Time deposits |
|
| 1,100,929 |
|
|
| 12,755 |
|
|
| 2.34 |
|
|
| 1,344,752 |
|
|
| 11,028 |
|
|
| 1.65 |
|
Federal Home Loan Bank advances and other (8) |
|
| 358,630 |
|
|
| 4,196 |
|
|
| 2.36 |
|
|
| 313,806 |
|
|
| 2,524 |
|
|
| 1.62 |
|
Federal funds purchased and other(3) |
|
| 11,929 |
|
|
| 162 |
|
|
| 2.74 |
|
|
| 31,283 |
|
|
| 227 |
|
|
| 1.46 |
|
Subordinated notes |
|
| 58,731 |
|
|
| 2,164 |
|
|
| 7.43 |
|
|
| 58,554 |
|
|
| 2,164 |
|
|
| 7.45 |
|
TOTAL INTEREST BEARING LIABILITIES |
| $ | 3,416,223 |
|
| $ | 40,191 |
|
|
| 2.37 | % |
| $ | 3,444,835 |
|
| $ | 28,162 |
|
|
| 1.65 | % |
Demand deposits |
|
| 302,200 |
|
|
|
|
|
|
|
|
|
|
| 292,553 |
|
|
|
|
|
|
|
|
|
Other liabilities |
|
| 61,133 |
|
|
|
|
|
|
|
|
|
|
| 13,657 |
|
|
|
|
|
|
|
|
|
Total equity |
|
| 382,811 |
|
|
|
|
|
|
|
|
|
|
| 320,119 |
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND EQUITY |
| $ | 4,162,367 |
|
|
|
|
|
|
|
|
|
| $ | 4,071,164 |
|
|
|
|
|
|
|
|
|
NET INTEREST SPREAD(4) |
|
|
|
|
|
|
|
|
|
| 2.48 | % |
|
|
|
|
|
|
|
|
|
| 2.51 | % |
NET INTEREST INCOME |
|
|
|
|
| $ | 55,876 |
|
|
|
|
|
|
|
|
|
| $ | 53,422 |
|
|
|
|
|
NET INTEREST MARGIN(5) |
|
|
|
|
|
|
|
|
|
| 2.82 | % |
|
|
|
|
|
|
|
|
|
| 2.72 | % |
(1) | Loan balances include loans held in the Bank’s portfolio and are net of deferred origination fees and costs. Non-accrual loans are included in total loan balances. |
(2) | Includes federal funds sold and interest-bearing deposits at the Federal Reserve Bank, the Federal Home Loan Bank and other financial institutions. |
(3) | Includes repurchase agreements. |
(4) | Represents the average rate earned on interest-earning assets minus the average rate paid on interest-bearing liabilities. |
(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. |
Analysis of Changes in Interest Income and Expenses
Net change three months ended September 30, 2017 versus September 30, 2016 | ||||||||||||
Volume | Rate | Net Change | ||||||||||
INTEREST INCOME | ||||||||||||
Loans | $ | 5,425 | $ | 362 | $ | 5,787 | ||||||
Securities available for sale | 1,855 | 466 | 2,321 | |||||||||
Securities held to maturity | (120 | ) | 200 | 80 | ||||||||
Restricted equity securities | 91 | 45 | 136 | |||||||||
Certificates of deposit at other financial institutions | 6 | (1 | ) | 5 | ||||||||
Federal funds sold and other | 63 | 159 | 222 | |||||||||
|
|
|
|
|
| |||||||
TOTAL INTEREST INCOME | $ | 7,320 | $ | 1,231 | $ | 8,551 | ||||||
|
|
|
|
|
| |||||||
INTEREST EXPENSE | ||||||||||||
Deposits | ||||||||||||
Interest checking | $ | 291 | $ | 738 | $ | 1,029 | ||||||
Money market accounts | (16 | ) | 762 | 746 | ||||||||
Savings | 3 | (1 | ) | 2 | ||||||||
Time deposits | 391 | 1,460 | 1,851 | |||||||||
Federal Home Loan Bank advances | 505 | 248 | 753 | |||||||||
Fed funds purchased and other borrowed funds | (12 | ) | 35 | 23 | ||||||||
Subordinated Notes and other borrowings | 7 | (6 | ) | 1 | ||||||||
|
|
|
|
|
| |||||||
TOTAL INTEREST EXPENSE | $ | 1,169 | $ | 3,236 | $ | 4,405 | ||||||
|
|
|
|
|
| |||||||
NET INTEREST INCOME | $ | 6,151 | $ | (2,005 | ) | $ | 4,146 | |||||
|
|
|
|
|
| |||||||
Net change nine months ended September 30, 2017 versus September 30, 2016 | ||||||||||||
Volume | Rate | Net Change | ||||||||||
INTEREST INCOME | ||||||||||||
Loans | $ | 16,193 | $ | 148 | $ | 16,341 | ||||||
Securities available for sale | 6,692 | 1,349 | 8,041 | |||||||||
Securities held to maturity | 878 | 436 | 1,314 | |||||||||
Restricted equity securities | 251 | 58 | 309 | |||||||||
Certificates of deposit at other financial institutions | 21 | (8 | ) | 13 | ||||||||
Federal funds sold and other | 131 | 348 | 479 | |||||||||
|
|
|
|
|
| |||||||
TOTAL INTEREST INCOME | $ | 24,166 | $ | 2,331 | $ | 26,497 | ||||||
|
|
|
|
|
| |||||||
INTEREST EXPENSE | ||||||||||||
Deposits | ||||||||||||
Interest checking | $ | 985 | $ | 1,748 | $ | 2,733 | ||||||
Money market accounts | 6 | 1,639 | 1,645 | |||||||||
Savings | 14 | (8 | ) | 6 | ||||||||
Time deposits | 1,752 | 2,864 | 4,616 | |||||||||
Federal Home Loan Bank advances | 1,136 | 581 | 1,717 | |||||||||
Fed funds purchased and other borrowed funds | (20 | ) | 92 | 72 | ||||||||
Subordinated notes and other borrowings | 1,406 | 13 | 1,419 | |||||||||
|
|
|
|
|
| |||||||
TOTAL INTEREST EXPENSE | $ | 5,279 | $ | 6,929 | $ | 12,208 | ||||||
|
|
|
|
|
| |||||||
NET INTEREST INCOME | $ | 18,887 | $ | (4,598 | ) | $ | 14,289 | |||||
|
|
|
|
|
|
| Net change three months ended June 30, 2019 versus June 30, 2018 |
| ||||||||||
|
| Volume |
|
| Rate |
|
| Net Change |
| |||
INTEREST INCOME |
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
| $ | 5,390 |
|
| $ | 2,426 |
|
| $ | 7,816 |
|
Loans held for sale |
|
| 120 |
|
|
| (16 | ) |
|
| 104 |
|
Securities |
|
|
|
|
|
|
|
|
|
|
|
|
Taxable |
|
| (2,961 | ) |
|
| 670 |
|
|
| (2,291 | ) |
Tax-exempt |
|
| (257 | ) |
|
| (447 | ) |
|
| (704 | ) |
Restricted equity securities |
|
| 64 |
|
|
| (43 | ) |
|
| 21 |
|
Certificates of deposit at other financial institutions |
|
| 2 |
|
|
| 1 |
|
|
| 3 |
|
Federal funds sold and other |
|
| (13 | ) |
|
| 226 |
|
|
| 213 |
|
TOTAL INTEREST INCOME |
| $ | 2,345 |
|
| $ | 2,817 |
|
| $ | 5,162 |
|
INTEREST EXPENSE |
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
|
|
|
|
|
|
|
|
|
|
|
Interest checking |
| $ | (173 | ) |
| $ | 1,201 |
|
| $ | 1,028 |
|
Money market accounts |
|
| 1,003 |
|
| $ | 2,052 |
|
|
| 3,055 |
|
Savings |
|
| (7 | ) |
| $ | (4 | ) |
|
| (11 | ) |
Time deposits |
|
| (1,661 | ) |
| $ | 1,664 |
|
|
| 3 |
|
Federal Home Loan Bank advances and other(1) |
|
| 81 |
|
| $ | 742 |
|
|
| 823 |
|
Federal funds purchased and other(2) |
|
| (75 | ) |
| $ | 34 |
|
|
| (41 | ) |
Subordinated notes |
|
| 3 |
|
| $ | (3 | ) |
|
| - |
|
TOTAL INTEREST EXPENSE |
| $ | (829 | ) |
| $ | 5,686 |
|
| $ | 4,857 |
|
NET INTEREST INCOME |
| $ | 3,174 |
|
| $ | (2,869 | ) |
| $ | 305 |
|
| Net change six months ended June 30, 2019 versus June 30, 2018 |
| ||||||||||
|
| Volume |
|
| Rate |
|
| Net Change |
| |||
INTEREST INCOME |
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
| $ | 11,226 |
|
| $ | 6,104 |
|
| $ | 17,330 |
|
Loans held for sale |
|
| 120 |
|
|
| 18 |
|
|
| 138 |
|
Securities |
| $ | - |
|
| $ | - |
|
|
|
|
|
Taxable |
|
| (3,767 | ) |
|
| 1,758 |
|
|
| (2,009 | ) |
Tax-exempt |
|
| (792 | ) |
|
| (514 | ) |
|
| (1,306 | ) |
Restricted equity securities |
|
| 119 |
|
|
| (38 | ) |
|
| 81 |
|
Certificates of deposit at other financial institutions |
|
| 5 |
|
|
| 6 |
|
|
| 11 |
|
Federal funds sold and other |
|
| (434 | ) |
|
| 672 |
|
|
| 238 |
|
TOTAL INTEREST INCOME |
| $ | 6,477 |
|
| $ | 8,006 |
|
| $ | 14,483 |
|
INTEREST EXPENSE |
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
|
|
|
|
|
|
|
|
|
|
|
Interest checking |
| $ | (387 | ) |
| $ | 2,669 |
|
| $ | 2,282 |
|
Money market accounts |
|
| 1,878 |
|
|
| 4,556 |
|
|
| 6,434 |
|
Savings |
|
| (15 | ) |
|
| (6 | ) |
|
| (21 | ) |
Time deposits |
|
| (2,000 | ) |
|
| 3,727 |
|
|
| 1,727 |
|
Federal Home Loan Bank advances and other(1) |
|
| 361 |
|
|
| 1,311 |
|
|
| 1,672 |
|
Fed funds purchased and other(2) |
|
| (140 | ) |
|
| 75 |
|
|
| (65 | ) |
Subordinated Notes |
|
| 7 |
|
|
| (7 | ) |
|
| - |
|
TOTAL INTEREST EXPENSE |
| $ | (296 | ) |
| $ | 12,325 |
|
| $ | 12,029 |
|
NET INTEREST INCOME |
| $ | 6,773 |
|
| $ | (4,319 | ) |
| $ | 2,454 |
|
(1) Includes finance lease.
(2) Includes repurchase agreements.
Provision for Loan Losses
The provision for loan losses represents a charge to earnings necessary to establish an allowance for loan lossesALLL that, in management’s evaluation, should be adequate to provide coverage for the probable losses incurred in the loan portfolio. The allowance is increased by the provision for loan losses and is decreased by charge-offs, net of recoveries on prior loan charge-offs.
The provision for loan losses was $590$7,031 and $1,392$570 for the three months ended SeptemberJune 30, 20172019 and 2016,2018, respectively, and $3,018$12,086 and $4,095$1,143 for the ninesix months ended SeptemberJune 30, 20172019 and 2016,2018, respectively. The lowerhigher provision for the three and ninesix months ended SeptemberJune 30, 20172019 compared to the same periods in 20162018 is based on the Company’s analysis of its allowance for loan lossesALLL which is based on the loan portfolio’s risk profile and was primarily driven by a specific reserve of $6,304 and $9,759 for the three and six months ended June 30, 2019, related to a SNC relationship. The Company allocated the specific reserve for this credit relationship (and estimated the amount of the relationship to be charged-off) based on information currently available to the Company. The circumstances related to the SNC defaults are fluid, and the Company intends to address events related to the SNC as they develop. In addition, comparatively lesshigher loan growth required lessresulted in more provision bebeing recorded. Nonperforming loans at SeptemberJune 30, 20172019 totaled $2,860$4,705 compared to $6,182$5,696 at December 31, 2016,2018, representing 0.1%0.16% and 0.3%0.21% of total loans respectively.for the respective periods.
Non-Interest Income
Non-interest income for the three and ninesix months ended SeptemberJune 30, 20172019 was $3,569$4,923 and $11,457, respectively,$8,410, compared to $4,876$4,147 and $12,587$7,603 for the same periodsperiod in 2016,2018, respectively. The following is a summary of the components ofnon-interest income (in thousands):
Three Months Ended September 30, | $ Increase (Decrease) | % Increase (Decrease) | ||||||||||||||
2017 | 2016 | |||||||||||||||
Service charges on deposit accounts | $ | 39 | $ | 44 | $ | (5 | ) | (11.4 | %) | |||||||
Other service charges and fees | 787 | 845 | (58 | ) | (6.9 | %) | ||||||||||
Net gains on sale of loans | 1,517 | 2,942 | (1,425 | ) | (48.4 | %) | ||||||||||
Wealth management | 643 | 446 | 197 | 44.2 | % | |||||||||||
Loan servicing fees, net | 70 | (40 | ) | 110 | 275.0 | % | ||||||||||
Gain on sales of investment securities, net | 350 | 430 | (80 | ) | (18.6 | %) | ||||||||||
Net gain on foreclosed assets | (16 | ) | 30 | (46 | ) | (153.3 | %) | |||||||||
Other | 179 | 179 | — | — | % | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Totalnon-interest income | $ | 3,569 | $ | 4,876 | $ | (1,307 | ) | (26.8 | %) | |||||||
|
|
|
|
|
|
|
| |||||||||
Nine Months Ended September 30, | $ Increase (Decrease) | % Increase (Decrease) | ||||||||||||||
2017 | 2016 | |||||||||||||||
Service charges on deposit accounts | $ | 114 | $ | 139 | $ | (25 | ) | (18.0 | %) | |||||||
Other service charges and fees | 2,297 | 2,245 | 52 | 2.3 | % | |||||||||||
Net gains on sale of loans | 5,918 | 6,859 | (941 | ) | (13.7 | %) | ||||||||||
Wealth management | 1,884 | 1,343 | 541 | 40.3 | % | |||||||||||
Loan servicing fees, net | 230 | (2 | ) | 232 | 11,600.0 | % | ||||||||||
Gain on sales of investment securities, net | 470 | 1,535 | (1,065 | ) | (69.4 | %) | ||||||||||
Net gain on foreclosed assets | (10 | ) | 36 | (46 | ) | (127.8 | %) | |||||||||
Other | 554 | 432 | 122 | 28.2 | % | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Totalnon-interest income | $ | 11,457 | $ | 12,587 | $ | (1,130 | ) | (9.0 | %) | |||||||
|
|
|
|
|
|
|
|
|
| Three Months Ended June 30, |
|
| $ Increase |
|
| % Increase |
|
| |||||||
|
| 2019 |
|
| 2018 |
|
| (Decrease) |
|
| (Decrease) |
|
| ||||
Service charges on deposit accounts |
| $ | 77 |
|
| $ | 51 |
|
| $ | 26 |
|
|
| 51.0 |
| % |
Other service charges and fees |
|
| 903 |
|
|
| 823 |
|
|
| 80 |
|
|
| 9.7 |
|
|
Mortgage banking revenue |
|
| 2,473 |
|
|
| 2,044 |
|
|
| 429 |
|
|
| 21.0 |
|
|
Wealth management |
|
| 673 |
|
|
| 789 |
|
|
| (116 | ) |
|
| (14.7 | ) |
|
Gain on sale or call of securities |
|
| 367 |
|
|
| 1 |
|
|
| 366 |
|
| NM |
|
| |
Net (loss) gain on sale of loans |
|
| 3 |
|
|
| — |
|
|
| 3 |
|
| NM |
|
| |
Net gain on sale of foreclosed assets |
|
| 3 |
|
|
| 3 |
|
|
| — |
|
|
| — |
|
|
Other |
|
| 424 |
|
|
| 436 |
|
|
| (12 | ) |
|
| (2.8 | ) |
|
Total non-interest income |
| $ | 4,923 |
|
| $ | 4,147 |
|
| $ | 776 |
|
|
| 18.7 |
| % |
Service charges on deposit accounts
|
| Six Months Ended June 30, |
|
| $ Increase |
|
| % Increase |
|
| |||||||
|
| 2019 |
|
| 2018 |
|
| (Decrease) |
|
| (Decrease) |
|
| ||||
Service charges on deposit accounts |
| $ | 151 |
|
| $ | 93 |
|
| $ | 58 |
|
|
| 62.4 |
| % |
Other service charges and fees |
|
| 1,660 |
|
|
| 1,574 |
|
|
| 86 |
|
|
| 5.5 |
|
|
Mortgage banking revenue |
|
| 4,145 |
|
|
| 3,602 |
|
|
| 543 |
|
|
| 15.1 |
|
|
Wealth management |
|
| 1,300 |
|
|
| 1,493 |
|
|
| (193 | ) |
|
| (12.9 | ) |
|
Gain on sale or call of securities |
|
| 517 |
|
|
| 1 |
|
|
| 516 |
|
| NM |
|
| |
Net (loss) gain on sale of loans |
|
| (214 | ) |
|
| — |
|
|
| (214 | ) |
| NM |
|
| |
Net gain on sale of foreclosed assets |
|
| 7 |
|
|
| 6 |
|
|
| 1 |
|
|
| 16.7 |
|
|
Other |
|
| 844 |
|
|
| 834 |
|
|
| 10 |
|
|
| 1.2 |
|
|
Total noninterest income |
| $ | 8,410 |
|
| $ | 7,603 |
|
| $ | 807 |
|
|
| 10.6 |
| % |
Mortgage banking revenue increased $429 and $543 for the three and ninesix months ended SeptemberJune 30, 2017 decreased $5 and $25, or 11.4% and 18.0%, respectively, from the same periods in 2016. The decrease for the nine months ended September 30, 2017 was due to the Company’s waiving service charges on deposit accounts during March 2017 while the Company was going through a core system conversion.
Other service charges and fees for the three and nine months ended September 30, 2017 decreased $58 and increased $52, or 6.9% and 2.3%, respectively, from the same periods in 2016. The fluctuation for the nine months ended September 30, 2017 was due to a combination of increases and decreases, with the following types of fees having the largest fluctuation in the comparative periods: unused commitment fees ($108), ATM foreign surcharge fees ($42), and underwriting fees ($32).
Net gain on sale of loans decreased $1,425, or 48.4% and $941, or 13.7%, when comparing the three and nine months ended September 30, 2017 to the same period in 2016,2019, respectively. The changes in both periods wereincrease was due to the volume of mortgage loans sold andoriginated, the marginssales related to thethose loans, sold.
Wealth management income for the three and nine months ended September 30, 2017 increased $197 and $541, or 44.2% and 40.3%, respectively, in comparison with the same periods in 2016. The increase was attributed to the growth in the client base and assets under management in the wealth management division, as well as improvement in the stock markets. As a comparison, the Company had assets under management at September 30, 2017 and 2016 of $351,932 and $262,879, respectively.
Net loan servicing fees for the three and nine months ended September 30, 2017 increased $110 and $232, or 275.0% and 11,600.0%, respectively, in comparison with the same periods in 2016. The increase was attributed to the growth in the mortgage loans serviced and the related valuation increase of the mortgage servicing rights.
Non-Interest Expense
Net gain on sale of investment securities decreased $80 and $1,065, or 18.6% and 69.4%, respectively, when comparing the three and nine months ended September 30, 2017 with the same periods in 2016. The decreases were primarily due to the gains on securities that were recognized in the third quarter of 2016, which were related to management selling a number of smaller securities to consolidate the number of securities carried in the portfolio, and selling securities of two municipalities whose credit rating had fallen below management’s credit score limit.
Othernon-interest income remained consistent when comparing the three months ended September 30, 2017 with the same period in 2016 and increased by $122, or 28.2%, when comparing the nine months ended September 30, 2017 with the same period in 2016. The increase for the nine months ended September 30, 2017 is primarily attributed to the loss of $98 recorded on the sale of the Company’s real estate in downtown Murfreesboro, Tennessee during first quarter 2016.
Non-Interest Expense
Non-interest expense for the three and ninesix months ended SeptemberJune 30, 20172019 was $15,278$19,370 and $44,837, respectively, compared to $13,708$18,050 and $38,452$41,986 and $33,538 for the same periodsperiod in 2016,2018, respectively. The increases were the result of the following components listed in the table below (in thousands):
Three Months Ended September 30, | $ Increase (Decrease) | % Increase (Decrease) |
| Three Months Ended June 30, |
|
| $ Increase |
|
| % Increase |
|
| |||||||||||||||||||||
2017 | 2016 |
| 2019 |
|
| 2018 |
|
| (Decrease) |
|
| (Decrease) |
|
| |||||||||||||||||||
Salaries and employee benefits | $ | 9,011 | $ | 7,979 | $ | 1,032 | 12.9 | % |
| $ | 11,365 |
|
| $ | 10,268 |
|
| $ | 1,097 |
|
|
| 10.7 |
| % | ||||||||
Occupancy and equipment | 2,399 | 2,001 | 398 | 19.9 | % |
|
| 3,283 |
|
|
| 2,885 |
|
|
| 398 |
|
|
| 13.8 |
|
| |||||||||||
FDIC assessment expense | 900 | 570 | 330 | 57.9 | % |
|
| 660 |
|
|
| 778 |
|
|
| (118 | ) |
|
| (15.2 | ) |
| |||||||||||
Marketing | 192 | 206 | (14 | ) | (6.8 | %) |
|
| 301 |
|
|
| 269 |
|
|
| 32 |
|
|
| 11.9 |
|
| ||||||||||
Professional fees | 821 | 935 | (114 | ) | (12.2 | %) |
|
| 1,073 |
|
|
| 1,362 |
|
|
| (289 | ) |
|
| (21.2 | ) |
| ||||||||||
Amortization of core deposit intangible | 115 | 138 | (23 | ) | (16.7 | %) |
|
| 132 |
|
|
| 182 |
|
|
| (50 | ) |
|
| (27.5 | ) |
| ||||||||||
Other | 1,840 | 1,879 | (39 | ) | (2.1 | %) |
|
| 2,556 |
|
|
| 2,306 |
|
|
| 250 |
|
|
| 10.8 |
|
| ||||||||||
|
|
|
| ||||||||||||||||||||||||||||||
Totalnon-interest expense | $ | 15,278 | $ | 13,708 | $ | 1,570 | 11.5 | % |
| $ | 19,370 |
|
| $ | 18,050 |
|
| $ | 1,320 |
|
|
| 7.3 |
| % | ||||||||
|
|
|
| ||||||||||||||||||||||||||||||
Nine Months Ended September 30, | $ Increase (Decrease) | % Increase (Decrease) | |||||||||||||||||||||||||||||||
2017 | 2016 | ||||||||||||||||||||||||||||||||
Salaries and employee benefits | $ | 26,172 | $ | 22,099 | $ | 4,073 | 18.4 | % | |||||||||||||||||||||||||
Occupancy and equipment | 6,689 | 5,563 | 1,126 | 20.2 | % | ||||||||||||||||||||||||||||
FDIC assessment expense | 2,675 | 1,388 | 1,287 | 92.7 | % | ||||||||||||||||||||||||||||
Marketing | 744 | 611 | 133 | 21.8 | % | ||||||||||||||||||||||||||||
Professional fees | 2,558 | 3,006 | (448 | ) | (14.9 | %) | |||||||||||||||||||||||||||
Amortization of core deposit intangible | 363 | 431 | (68 | ) | (15.8 | %) | |||||||||||||||||||||||||||
Other | 5,636 | 5,354 | 282 | 5.3 | % | ||||||||||||||||||||||||||||
|
|
|
| ||||||||||||||||||||||||||||||
Totalnon-interest expense | $ | 44,837 | $ | 38,452 | $ | 6,385 | 16.3 | % | |||||||||||||||||||||||||
|
|
|
|
|
| Six Months Ended June 30, |
|
| $ Increase |
|
| % Increase |
|
| |||||||
|
| 2019 |
|
| 2018 |
|
| (Decrease) |
|
| (Decrease) |
|
| ||||
Salaries and employee benefits |
| $ | 26,108 |
|
| $ | 19,456 |
|
| $ | 6,652 |
|
|
| 34.2 |
| % |
Occupancy and equipment |
|
| 6,396 |
|
|
| 5,479 |
|
|
| 917 |
|
|
| 16.7 |
|
|
FDIC assessment expense |
|
| 1,650 |
|
|
| 1,438 |
|
|
| 212 |
|
|
| 14.7 |
|
|
Marketing |
|
| 620 |
|
|
| 549 |
|
|
| 71 |
|
|
| 12.9 |
|
|
Professional fees |
|
| 1,996 |
|
|
| 2,231 |
|
|
| (235 | ) |
|
| (10.5 | ) |
|
Amortization of core deposit intangible |
|
| 277 |
|
|
| 286 |
|
|
| (9 | ) |
|
| (3.1 | ) |
|
Other |
|
| 4,939 |
|
|
| 4,099 |
|
|
| 840 |
|
|
| 20.5 |
|
|
Total non-interest expense |
| $ | 41,986 |
|
| $ | 33,538 |
|
| $ | 8,448 |
|
|
| 25.2 |
| % |
The increase innon-interest expense noted in the table above is related to the Company’s overall growth. The Company’s largest increases for the three and ninesix months ended SeptemberJune 30, 2017,2019, in comparison with the same periods of 2016,2018, were in salaries and employee benefits, occupancy and equipment, FDIC assessment expense, and othernon-interest expense.
Salaries and employee benefits increased $1,032$1,097 and $4,073,$6,652, or 12.9%10.7% and 18.4%34.2%, respectively, when comparing the three and ninesix months ended SeptemberJune 30, 20172019 with the same periods in 2016.2018. The increases in both periods are primarily due to the Company’s staffing growth, during which the Company went from 261326 full-time equivalent employees as of SeptemberJune 30, 2016,2018, to 279343 as of SeptemberJune 30, 2017,2019, many of which were officer level positions as the Company has worked to enhance its management team to properly oversee the Company’s growth and to grow its team of lenders to further grow the loan portfolio. In addition to salaries, incentive expenses increased $405 and $309, respectively, when comparing the three and nine months ended September 30, 2017 with the same periods of 2016 due to the Company’s financial performance during the three and nine months ended September 30, 2017.growth. Stock-based compensation expense also increased $266$195 and $657,$764, respectively, for the three and ninesix months ended SeptemberJune 30, 20172019 in comparison with the same periods in 2016.2018.
Occupancy and equipment expense increased $398 and $1,126,$917, or 19.9%13.8% and 20.2%16.7%, respectively, when comparing the three and ninesix months ended SeptemberJune 30, 20172019 with the same periods in 2016.2018. The variance for the three months ended SeptemberJune 30, 20172019 versus the three months ended SeptemberJune 30, 20162018 is primarily attributable to increases in building rent expense ($222),of $202 and software maintenance fees ($114), and software depreciation ($21).of $113. The variance when comparing the ninesix months ended SeptemberJune 30, 20172019 with the ninesix months ended SeptemberJune 30, 20162018 is attributable to increases in building rent expense ($634),of $360, software maintenance fees ($281)of $357 and leasehold improvement depreciation ($69).other furniture, fixture & equipment expense of $57.
The Company’s FDIC assessment expense decreased $118, or 15.2%, and increased $330 and $1,287,$212, or 57.9% and 92.7%14.7%, respectively, when comparing the three and ninesix months ended SeptemberJune 30, 20172019, with the same periods in 2016.2018. The increases areincrease in comparing the six months ended June 30, 2019 to June 30, 2018 is due to the year-over-year assetloan growth of the Company, on which FDIC assessments are calculated, and are also related to the change in the FDIC insurance assessment calculation in the third quarter of 2016, which caused an increase in the Company’s insurance assessments based on the calculation’s components.loan mix.
Professional fees decreased $114$289 and $448,$235, or 12.2%21.2% and 14.9%10.5%, respectively, when comparing the three and ninesix months ended SeptemberJune 30, 20172019 with the same periods in 2016.2018. The decrease when comparing the three months ended SeptemberJune 30, 20172019 with the same period in 20162018 is due to decreaseschanges in other professional fees ($85)of $140, legal fees of $154, and compliance fees ($152).merger-related expense of $356. The decrease, when comparing the ninesix months ended SeptemberJune 30, 20172019 and 2016,2018, is due to decreaseschanges in merger-related expenses ($316), legal fees ($79) and SEC filing expense ($67). The decreases inof $377, other professional fees are related to the following 2016 expenses: (1) the designof $132, and implementationlegal fees of subsidiaries (Franklin Synergy Risk Management, Inc., Franklin Synergy Investments of Tennessee, Inc., Franklin Synergy Investments of Nevada, Inc., and Franklin Synergy Preferred Capital, Inc.); (2) a consulting engagement related to the Company’s core systems and related processes; and (3) professional placement service fees for the hiring of several key lending and management professionals.$240.
For the three and six months ended SeptemberJune 30, 2017,2019, other non-interest expense increased non-interest expenses decreased $39,$250 and $840, or 2.1%10.8% and 20.5%, respectively, when compared to the three and for the ninesix months ended SeptemberJune 30, 2017, other noninterest expenses increased $282, or 5.3%, from the same comparative periods during 2016.2018. The increase in othernon-interest expense for the ninesix months ended SeptemberJune 30, 20172019 versus SeptemberJune 30, 20162018 is attributed to increases in several types of expenses, but the following expense types represent the largest variances: insuranceATM network expense ($78); franchise taxes ($162); travel expenses ($74); management fees ($200);of $121 and loan servicingCDARS fee expense ($219). These variances were offset by decreases in various expense types, with the following account having the largest decrease: loan-related expenses ($283).of $194.
Income Tax Expense
The Company recognized income tax expense for the three and ninesix months ended SeptemberJune 30, 2017,2019 of $3,138$706 and $10,343, respectively,$1,040 compared to $3,314$2,263 and $9,047, respectively,$4,722 for the three and ninesix months ended SeptemberJune 30, 2016.2018. The Company’syear-to-date quarter-to-date income tax expense for the period ended SeptemberJune 30, 20172019 reflects an effective income tax rate of 28.7%,12.0%. The Company’s year-to-date income tax expense for the period ended June 30, 2019 reflects an effective income tax rate of 11.4% which is a significant decrease compared to 30.2%18.9% for the same period in 2016.2018 resulting from the Company’s participation in Tennessee’s Community Investment Tax Credit (CITC) program and due to the first quarter’s $4,143 related to post-employment and retirement expenses, along with $9,759 related to a specific loan loss provision on a SNC relationship during the first six months of 2019.
COMPARISON OF BALANCE SHEETS AT SEPTEMBERJune 30, 2017 AND DECEMBER2019 and December 31, 20162018
Overview
The Company’s total assets increaseddecreased by $622,089,$177,468, or 21.1%4.2%, from December 31, 20162018 to SeptemberJune 30, 2017.2019. The increasedecrease in total assets has primarily been the result of the continued balance sheet rotation and optimization strategies and the planned sales of investment securities during the six months ended June 30, 2019, offset by organic growth in the loan portfolio and from purchases of additional investment securities.portfolio.
Loans
Lending-related income is the most important component of the Company’s net interest income and is a major contributor to profitability. The loan portfolio is the largest component of earning assets, and therefore generates the largest portion of revenues. For purposes of the discussion in this section, the term “loans” refers to loans, excluding loans held for sale, unless otherwise noted.
The absolute volume of loans and the volume of loans as a percentage of earning assets is an important determinant of net interest margin as loans are expected to produce higher yields than securities and other earning assets. Total loans, net of deferred fees, at SeptemberJune 30, 20172019 and December 31, 20162018 were $2,115,930$2,880,433 and $1,773,592,$2,665,399, respectively, an increase of $342,338,$215,034 or 19.3%8.1%. As a percentage of total assets, total loans, net of deferred fees, at SeptemberJune 30, 20172019 and December 31, 20162018 were 59.3%70.7% and 60.3%62.7%, respectively. Growth in the loan portfolio is primarily due to increased market penetration and a healthy local economy. The Company has also attracted a number of experienced commercial and mortgage lenders to help increase penetrationdevelop new relationships and broaden its presence in its primary markets in Middle Tennessee which include, Williamson County, RutherfordDavidson County and DavidsonRutherford County.
The table below provides a summary of the loan portfolio composition for the periods noted.
|
| June 30, 2019 |
|
| December 31, 2018 |
| ||||||||||
Types of Loans |
| Amount |
|
| % of Total Loans |
|
| Amount |
|
| % of Total Loans |
| ||||
Total loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land development |
| $ | 584,599 |
|
|
| 20.3 | % |
| $ | 584,440 |
|
|
| 21.9 | % |
Commercial |
|
| 932,755 |
|
|
| 32.3 |
|
|
| 802,260 |
|
|
| 30.1 |
|
Residential |
|
| 694,146 |
|
|
| 24.1 |
|
|
| 682,882 |
|
|
| 25.6 |
|
Commercial and industrial |
|
| 668,065 |
|
|
| 23.1 |
|
|
| 592,793 |
|
|
| 22.2 |
|
Consumer and other |
|
| 4,945 |
|
|
| 0.2 |
|
|
| 5,568 |
|
|
| 0.2 |
|
Total gross loans |
|
| 2,884,510 |
|
|
| 100.0 | % |
|
| 2,667,943 |
|
|
| 100.0 | % |
Less: deferred loan fees, net |
|
| (4,077 | ) |
|
|
|
|
|
| (2,544 | ) |
|
|
|
|
allowance for loan losses |
|
| (27,443 | ) |
|
|
|
|
|
| (23,451 | ) |
|
|
|
|
Total loans, net allowance for loan losses |
| $ | 2,852,990 |
|
|
|
|
|
| $ | 2,641,948 |
|
|
|
|
|
September 30, 2017 | December 31, 2016 | |||||||||||||||
Types of Loans | Amount | % of Total Loans | Amount | % of Total Loans | ||||||||||||
Total loans, excluding purchased credit impaired (“PCI”) loans | ||||||||||||||||
Real estate: | ||||||||||||||||
Construction and land development | $ | 514,934 | 24.3 | % | $ | 489,562 | 27.6 | % | ||||||||
Commercial | 598,846 | 28.3 | % | 497,140 | 28.0 | % | ||||||||||
Residential | 532,113 | 25.1 | % | 404,989 | 22.8 | % | ||||||||||
Commercial and industrial | 464,747 | 22.0 | % | 376,476 | 21.2 | % | ||||||||||
Consumer and other | 3,933 | 0.2 | % | 3,359 | 0.2 | % | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total loans—gross, excluding PCI loans | 2,114,573 | 99.9 | % | 1,771,526 | 99.8 | % | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total PCI loans | 2,558 | 0.1 | % | 2,859 | 0.2 | % | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total gross loans | 2,117,131 | 100.0 | % | 1,774,385 | 100.0 | % | ||||||||||
|
|
|
| |||||||||||||
Less: deferred loan fees, net | (1,201 | ) | (793 | ) | ||||||||||||
Allowance for loan losses | (19,944 | ) | (16,553 | ) | ||||||||||||
|
|
|
| |||||||||||||
Total loans, net allowance for loan losses | $ | 2,095,986 | $ | 1,757,039 | ||||||||||||
|
|
|
|
The discussion in the following paragraphs includes the PCI loans in the breakdown of the various categories of loans.
Total gross loans increased 19.3%8.1% during the first ninesix months of 2017,ended June 30, 2019, due to organic growth as a result of continued market penetration and the strength of the local economy.economies. During this period, the Company experienced growth in real estate loans
of 18.2%6.9% with growth occurring in the residential real estate, (31.3%)1.6%, and commercial real estate, (20.4%) and construction and land development (5.2%) 16.3%,segments. The Company also experienced growthan increase of 23.3%12.7% in the commercial and industrial segment during the first ninesix months of 2017.ended June 30, 2019.
Real estate loans comprised 77.7%76.7% of the loan portfolio at SeptemberJune 30, 2017.2019. The largest portion of the real estate segments as of SeptemberJune 30, 2017,2019, was commercial real estate loans, which totaled 36.4%42.2% of real estate loans. Commercial real estate loans totaled $599,233$932,755 at SeptemberJune 30, 2017,2019, and comprised 28.3%32.3% of the total loan portfolio. The commercial real estate loan classification primarily includes commercial-based mortgage loans that are secured by nonfarm, nonresidential real estate properties and multi-family residentialother properties.
Construction and land development loans totaled $514,934$584,599 at SeptemberJune 30, 2017,2019, and comprised 31.3%26.4% of total real estate loans and 24.3%20.3% of the total loan portfolio. Loans in this classification provide financing for the construction and development of residential properties and commercial income properties, multi-family residential development, and land designated for future development. This portfolio has remained steady in absolute dollar terms since 2017, representing a lower corresponding portion of the loan portfolio.
The residential real estate classification primarily includes1-4 family residential loans which are typically conventional first-lien home mortgages, not including loansheld-for-sale in the secondary market, and it also includes home equity lines of credit and other junior lien mortgage loans. Residential real estate loans totaled $532,295$694,146 and comprised 32.3%31.4% of real estate loans and 25.1%24.1% of total loans at SeptemberJune 30, 2017.2019.
Commercial and industrial loans totaled $466,736$668,065 at SeptemberJune 30, 2017 and grew 23.3% during the first nine months of 2017.2019. Loans in this classification comprised 22.0%23.1% of total loans at SeptemberJune 30, 2017.2019. The commercial and industrial classification consists of commercial loans tosmall-to-medium sized businesses, shared national credits, and commercial healthcare loans.
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 $231,216 at June 30, 2019, increasing 4.7% annualized, from $228,538 at March 31, 2019, driven by funding of previously originated loans. All of the outstanding balance of SNCs was included in the commercial and industrial portfolio. SNC participations are originated in the normal course of business to meet the needs of our customers and are reviewed at least quarterly for credit quality.
The table below provides a summary of the SNC and Healthcare portfolio for the periods noted:
SNC and Healthcare Portfolios |
| June 30, 2019 |
|
| March 31, 2019 |
|
| December 31, 2018 |
|
| September 30, 2018 |
|
| June 30, 2018 |
|
| QoQ Growth* |
|
| YoY Growth |
| |||||||
Total SNCs |
| $ | 231,216 |
|
| $ | 228,538 |
|
| $ | 249,033 |
|
| $ | 162,588 |
|
| $ | 155,798 |
|
|
| 4.7 | % |
|
| 48.4 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Total loans held for investment |
|
| 8.0 | % |
|
| 8.1 | % |
|
| 9.3 | % |
|
| 6.4 | % |
|
| 6.3 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Healthcare |
| $ | 329,818 |
|
| $ | 320,611 |
|
| $ | 290,464 |
|
| $ | 285,284 |
|
| $ | 257,225 |
|
|
| 11.5 | % |
|
| 28.2 | % |
SNC |
|
| 118,460 |
|
|
| 107,156 |
|
|
| 123,097 |
|
|
| 103,772 |
|
|
| 107,894 |
|
|
| 42.3 | % |
|
| 9.8 | % |
Non-SNC |
|
| 211,358 |
|
|
| 213,455 |
|
|
| 167,367 |
|
|
| 181,512 |
|
|
| 149,331 |
|
|
| (3.9 | %) |
|
| 41.5 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*Annualized |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The repayment of loans is a source of additional liquidity for the Company. The following table sets forth the loans maturing within specific intervals at SeptemberJune 30, 2017,2019, excluding unearned net fees and costs.
Loan Maturity Schedule
September 30, 2017 |
| June 30, 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: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Construction and land development | $ | 276,021 | $ | 165,429 | $ | 73,484 | $ | 514,934 |
| $ | 277,743 |
|
| $ | 169,809 |
|
| $ | 137,047 |
|
| $ | 584,599 |
| ||||||||
Commercial | 28,239 | 154,309 | 416,685 | 599,233 |
|
| 57,818 |
|
|
| 267,808 |
|
|
| 607,129 |
|
|
| 932,755 |
| ||||||||||||
Residential | 37,849 | 116,899 | 377,547 | 532,295 |
|
| 38,820 |
|
|
| 168,920 |
|
|
| 486,406 |
|
|
| 694,146 |
| ||||||||||||
Commercial and industrial | 75,035 | 308,537 | 83,164 | 466,736 |
|
| 95,734 |
|
|
| 427,062 |
|
|
| 145,269 |
|
|
| 668,065 |
| ||||||||||||
Consumer and other | 2,249 | 1,281 | 403 | 3,933 |
|
| 2,714 |
|
|
| 1,926 |
|
|
| 305 |
|
|
| 4,945 |
| ||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Total | $ | 419,393 | $ | 746,455 | $ | 951,283 | $ | 2,117,131 |
| $ | 472,829 |
|
| $ | 1,035,525 |
|
| $ | 1,376,156 |
|
| $ | 2,884,510 |
| ||||||||
|
|
|
| |||||||||||||||||||||||||||||
Fixed interest rate | $ | 205,808 | $ | 306,701 | $ | 433,595 | $ | 946,104 |
| $ | 136,666 |
|
| $ | 442,992 |
|
| $ | 417,713 |
|
| $ | 997,371 |
| ||||||||
Variable interest rate | 213,585 | 439,754 | 517,688 | 1,171,027 |
|
| 336,163 |
|
|
| 592,533 |
|
|
| 958,443 |
|
|
| 1,887,139 |
| ||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Total | $ | 419,393 | $ | 746,455 | $ | 951,283 | $ | 2,117,131 |
| $ | 472,829 |
|
| $ | 1,035,525 |
|
| $ | 1,376,156 |
|
| $ | 2,884,510 |
| ||||||||
|
|
|
|
The information presented in the above table is based upon the contractual maturities of the individual loans, including loans which may be subject to renewal at their contractual maturity. Renewal of such loans is subject to review and credit approval, as well as modification of terms upon their maturity. Consequently, management believes this treatment presents fairly the maturity structure of the loan portfolio.
Allowance for Loan Losses (ALLL)
The Company maintains an allowance for loan lossesALLL that management believes is adequate to absorb the probable incurred losses inherent in the Company’s loan portfolio. The allowance is increased by provisions for loan losses charged to earnings and is decreased by loan charge-offs net of recoveries of prior period loan charge-offs. The level of the allowance is determined on a quarterly basis, although management is engaged in monitoring the adequacy of the allowance on a more frequent basis. In estimating the allowance balance, the following factors are considered:
The allowance for loan lossesALLL consists of two primary components: (1) a specific component which relates to loans that are individually classified as impairedimpaired; and (2) a general component which coversnon-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 Company’s loss history and loss history from peer group data over the past three years. This actual loss experience is supplemented with other economic factors based on the risks present for each portfolio segment.
The following loan portfolio segments have been identified: (1) Construction and land development loans,loans; (2) Commercial real estate loans,loans; (3) Residential real estate loans,loans; (4) Commercial and industrial loans,loans; and (5) Consumer and other loans. Management evaluates the risks associated with these segments based upon specific characteristics associated with the loan segments. These risk characteristics include, but are not limited to, the value of the underlying collateral, adverse economic conditions and the borrower’s cash flow. While the total allowance consists of a specific portion and a general portion, both portions of the allowance are available to provide for probable incurred loan losses in the entire portfolio.
In the table below, the components, as discussed above, of the allowance for loan lossesALLL are shown as of Septemberat June 30, 20172019 and December 31, 2016.2018.
|
| June 30, 2019 |
|
| December 31, 2018 |
|
| Increase (Decrease) | ||||||||||||||||||||||||||
|
| Loan Balance |
|
| ALLL Balance |
|
| ALLL to Total Loans |
|
| Loan Balance |
|
| ALLL Balance |
|
| ALLL to Total Loans |
|
| Loan Balance |
|
| ALLL Balance |
|
|
| ||||||||
Non impaired loans |
| $ | 2,807,728 |
|
| $ | 25,135 |
|
|
| 0.87 | % |
| $ | 2,568,930 |
|
| $ | 23,249 |
|
|
| 0.87 | % |
| $ | 238,798 |
|
| $ | 1,886 |
|
| 0 bps |
Acquired loans (1) |
|
| 72,752 |
|
|
| 115 |
|
|
| 0.00 |
|
|
| 91,344 |
|
|
| 185 |
|
|
| 0.01 |
|
|
| (18,592 | ) |
|
| (70 | ) |
| -1 bps |
Impaired loans |
|
| 4,030 |
|
|
| 2,193 |
|
|
| 0.08 |
|
|
| 7,669 |
|
|
| 17 |
|
|
| 0.00 |
|
|
| (3,639 | ) |
|
| 2,176 |
|
| 8 bps |
Total loans |
| $ | 2,884,510 |
|
| $ | 27,443 |
|
|
| 0.95 | % |
| $ | 2,667,943 |
|
| $ | 23,451 |
|
|
| 0.88 | % |
| $ | 216,567 |
|
| $ | 3,992 |
|
| 0 bps |
September 30, 2017 | December 31, 2016 | Increase (Decrease) | ||||||||||||||||||||||||||||||||||
Loan Balance | ALLL Balance | % | Loan Balance | ALLL Balance | % | Loan Balance | ALLL Balance | |||||||||||||||||||||||||||||
Non impaired loans | $ | 2,053,704 | $ | 18,922 | 0.92 | % | $ | 1,687,244 | $ | 15,506 | 0.92 | % | $ | 366,460 | $ | 3,416 | — | |||||||||||||||||||
Non-PCI acquired loans (Note 1) | 57,663 | 11 | 0.02 | % | 74,373 | 23 | 0.03 | % | (16,710 | ) | (12 | ) | -1 | bps | ||||||||||||||||||||||
Impaired loans | 3,206 | 1,011 | 31.53 | % | 9,909 | 1,024 | 10.33 | % | (6,703 | ) | (13 | ) | 2,120 | bps | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Non-PCI loans | 2,114,573 | 19,944 | 0.94 | % | 1,771,526 | 16,553 | 0.93 | % | 343,047 | 3,391 | 1 | bps | ||||||||||||||||||||||||
PCI loans | 2,558 | — | — | % | 2,859 | — | — | % | (301 | ) | — | — | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Total loans | $ | 2,117,131 | $ | 19,944 | 0.94 | % | $ | 1,774,385 | $ | 16,553 | 0.93 | % | $ | 342,746 | $ | 3,391 | 1 | bps | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 1: Loans acquired pursuant to the July 1, 2014 acquisition of MidSouth Bank (“MidSouth”) that are not PCI loans. These(1) Acquired loans are performing loans recorded at estimated fair value at the acquisition date. The fair value adjustment at the acquisition date was approximately $5,014 of the outstandingnon-PCI loan balances acquired. This amount is accreted into interest income over the remaining lives of the related loans on a level yield basis. Based on the analysis performed by management as of SeptemberJune 30, 2017, $112019, $115 in allowance for loan lossALLL was recorded at SeptemberJune 30, 20172019 related to the loans acquired from MidSouth.acquired.
At SeptemberJune 30, 2017,2019, the allowance for loan lossesALLL was $19,944,$27,443, compared to $16,553$23,451 at December 31, 2016.2018. The allowance for loan lossesALLL as a percentage of total loans was 0.94%0.95% at SeptemberJune 30, 2017 compared to 0.94%2019 and 0.88% at December 31, 2016. Loan2018. The Company’s loan growth and management’s evaluation of the risk profile, combined with developments during the first nine monthsand second quarters of 2017 is2019 in one SNC relationship, are the primary reasonreasons for the increase in the allowance amount.
The table below sets forth the activity in the allowance for loan lossesALLL for the periods presented.
Nine Months Ended September 30, 2017 | Nine Months Ended September 30, 2016 |
| Six Months Ended June 30, 2019 |
|
| Six Months Ended June 30, 2018 |
| |||||||||
Beginning balance | $ | 16,553 | $ | 11,587 |
| $ | 23,451 |
|
| $ | 21,247 |
| ||||
Loanscharged-off: |
|
|
|
|
|
|
|
| ||||||||
Construction & land development | — | 11 |
|
| — |
|
|
| 38 |
| ||||||
Commercial real estate | — | — | ||||||||||||||
Residential real estate | 1 | 39 |
|
| 15 |
|
|
| 7 |
| ||||||
Commercial & industrial | 309 | 65 |
|
| 8,131 |
|
|
| 49 |
| ||||||
Consumer & other | 36 | 35 |
|
| 99 |
|
|
| 17 |
| ||||||
|
| |||||||||||||||
Total loanscharged-off | 346 | 150 |
|
| 8,245 |
|
|
| 111 |
| ||||||
Recoveries on loans previouslycharged-off: |
|
|
|
|
|
|
|
| ||||||||
Construction & land development | 668 | — |
|
| — |
|
|
| 1 |
| ||||||
Commercial real estate | — | — | ||||||||||||||
Residential real estate | 38 | 53 |
|
| 15 |
|
|
| 38 |
| ||||||
Commercial & industrial | — | — |
|
| 71 |
|
|
| 10 |
| ||||||
Consumer & other | 13 | 5 |
|
| 65 |
|
|
| 13 |
| ||||||
|
| |||||||||||||||
Total loan recoveries | 719 | 58 |
|
| 151 |
|
|
| 62 |
| ||||||
Net recoveries (charge-offs) | 373 | (92 | ) | |||||||||||||
Net charge-offs |
|
| (8,094 | ) |
|
| (49 | ) | ||||||||
Provision for loan losses charged to expense | 3,018 | 4,095 |
|
| 12,086 |
|
|
| 1,143 |
| ||||||
|
| |||||||||||||||
Total allowance at end of period | $ | 19,944 | $ | 15,590 |
| $ | 27,443 |
|
| $ | 22,341 |
| ||||
|
| |||||||||||||||
Total loans, gross, at end of period(1) | $ | 2,117,131 | $ | 1,654,878 |
| $ | 2,884,510 |
|
| $ | 2,474,302 |
| ||||
|
| |||||||||||||||
Average gross loans(1) | $ | 1,966,635 | $ | 1,525,359 |
| $ | 2,811,954 |
|
| $ | 2,376,613 |
| ||||
|
| |||||||||||||||
Allowance to total loans | 0.94 | % | 0.94 | % |
|
| 0.95 | % |
|
| 0.90 | % | ||||
|
| |||||||||||||||
Net charge-offs (recoveries) to average loans, annualized | (0.03 | %) | 0.01 | % |
|
| 0.58 | % |
|
| 0.00 | % | ||||
|
|
(1) Loan balances exclude loans held for sale
While no portion of the allowance is in any way restricted to any individual loan or group of loans, and the entire allowance is available to absorb losses from any and all loans, the following table summarizes the allocation of allowance for loan lossesALLL by loan category and loans in each category as a percentage of total loans, for the periods presented.
September 30, 2017 | December 31, 2016 |
| June 30, 2019 |
|
|
| December 31, 2018 |
|
| |||||||||||||||||||||||||
Amount | % of Loans to Total | Amount | % of Loans to Total |
| Amount |
|
| % of Loan Segment to Total Loans |
|
|
| Amount |
|
| % of Loan Segment to Total Loans |
|
| |||||||||||||||||
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Construction and land development | $ | 3,957 | 24.3 | % | $ | 3,776 | 27.6 | % |
| $ | 4,784 |
|
|
| 20.3 |
| % |
| $ | 4,743 |
|
|
| 21.9 |
| % | ||||||||
Commercial | 5,223 | 28.3 | % | 4,266 | 28.0 | % |
|
| 7,641 |
|
|
| 32.3 |
|
|
| 6,725 |
|
|
| 30.1 |
|
| |||||||||||
Residential | 3,122 | 25.1 | % | 2,398 | 22.9 | % |
|
| 4,844 |
|
|
| 24.1 |
|
|
| 4,743 |
|
|
| 25.6 |
|
| |||||||||||
|
|
|
| |||||||||||||||||||||||||||||||
Total real estate | 12,302 | 77.7 | % | 10,440 | 78.5 | % |
|
| 17,269 |
|
|
| 76.7 |
|
|
| 16,211 |
|
|
| 77.6 |
|
| |||||||||||
|
|
|
| |||||||||||||||||||||||||||||||
Commercial and industrial | 7,592 | 22.1 | % | 6,068 | 21.3 | % |
|
| 10,118 |
|
|
| 23.1 |
|
|
| 7,166 |
|
|
| 22.2 |
|
| |||||||||||
Consumer and other | 50 | 0.2 | % | 45 | 0.2 | % |
|
| 56 |
|
|
| 0.2 |
|
|
| 74 |
|
|
| 0.2 |
|
| |||||||||||
|
|
|
|
| $ | 27,443 |
|
|
| 100.0 |
| % |
| $ | 23,451 |
|
|
| 100.0 |
| % | |||||||||||||
$ | 19,944 | 100.0 | % | $ | 16,553 | 100.0 | % | |||||||||||||||||||||||||||
|
|
|
|
Nonperforming Assets
Non-performing loans consist ofnon-accrual loans and loans that are past due 90 days or more and still accruing interest.Non-performing assets consist ofnon-performing loans plus OREO (i.e., real estate acquired through foreclosure or deed in lieu of foreclosure). Loans that becomeare placed on non-accrual status when they are past due 90 days are reviewed to determine if they should be placed onnon-accrual status. Loans where,and / or management believes the borrower’s financial condition, after giving consideration to economic conditions collateral value, and collection efforts, the fullis such that collection of principal and interest is in doubt, or a portion of principal has been charged off, will be placed onnon-accrual.doubtful. When a loan is placed onnon-accrual status, interest accruals cease and uncollected interest is reversed and charged against current income. The interest on these 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 primary component ofnon-performing loans isnon-accrual loans, which as of SeptemberJune 30, 20172019 totaled $2,582.$4,030. The other component ofnon-performing loans are loans past due greater than 90 days and still accruing interest.interest which totaled $676 at June 30, 2019. Loans past due greater than 90 days are placed onnon-accrual status, unless they are both well-secured and in the process of collection. There were outstanding loans totaling $278 that were past due 90 days or more and still accruing interest at September 30, 2017.
The table below summarizesnon-performing loans and assets for the periods presented.
September 30, 2017 | December 31, 2016 | |||||||
Non-accrual loans | $ | 2,582 | $ | 3,630 | ||||
Past due loans 90 days or more and still accruing interest | 278 | 2,552 | ||||||
|
|
|
| |||||
Totalnon-performing loans | 2,860 | 6,182 | ||||||
Foreclosed real estate (“OREO”) | 1,503 | — | ||||||
|
|
|
| |||||
Totalnon-performing assets | 4,363 | 6,182 | ||||||
Totalnon-performing loans as a percentage of total loans | 0.1 | % | 0.3 | % | ||||
Totalnon-performing assets as a percentage of total assets | 0.1 | % | 0.2 | % | ||||
Allowance for loan losses as a percentage of non-performing loans | 697 | % | 268 | % |
|
| June 30, 2019 |
|
| December 31, 2018 |
| ||
Non-accrual loans |
| $ | 4,030 |
|
| $ | 5,488 |
|
Past due loans 90 days or more and still accruing interest |
|
| 676 |
|
|
| 208 |
|
Total non-performing loans |
|
| 4,706 |
|
|
| 5,696 |
|
Foreclosed real estate and repossessed assets |
|
| - |
|
|
| - |
|
Total non-performing assets |
|
| 4,706 |
|
|
| 5,696 |
|
Total non-performing loans as a percentage of total loans |
|
| 0.16 | % |
|
| 0.21 | % |
Total non-performing assets as a percentage of total assets |
|
| 0.12 | % |
|
| 0.13 | % |
Allowance for loan losses as a percentage of non-performing loans |
|
| 583 | % |
|
| 412 | % |
As of SeptemberJune 30, 2017,2019, there were threenine loans onnon-accrual status. The amount and number are further delineated by collateral categorysegment and number of loans in the table below.
Total Amount | Percentage of Total Non-Accrual Loans | Number of Non-Accrual Loans | ||||||||||
Construction & land development | $ | — | — | % | — | |||||||
Commercial real estate | 116 | 4.5 | % | 1 | ||||||||
Residential real estate | — | — | % | — | ||||||||
Commercial & industrial | 2,466 | 95.5 | % | 2 | ||||||||
Consumer | — | — | % | — | ||||||||
|
|
|
|
|
| |||||||
Totalnon-accrual loans | $ | 2,582 | 100.0 | % | 3 | |||||||
|
|
|
|
|
|
|
| Total Amount |
|
| Percentage of Total Non-Accrual Loans |
|
| Number of Non-Accrual Loans |
| |||
Residential real estate |
| $ | 1,837 |
|
|
| 45.6 | % |
|
| 8 |
|
Commercial & industrial |
|
| 2,193 |
|
|
| 54.4 |
|
|
| 1 |
|
Total non-accrual loans |
| $ | 4,030 |
|
|
| 54.9 | % |
|
| 9 |
|
Investment Securities and Other Earning Assets
The investment securities portfolio is intended to provide the Company with adequate liquidity flexible asset/liability management and a source of stable income. The portfolio is structured with minimal credit exposure to the Company and consists of both securities classified asavailable-for-sale and securities classified asheld-to-maturity. Allavailable-for sale securities are carried at fair value and may be used for liquidity purposes should management deem it to be in the Company’s best interest. Securitiesavailable-for-sale, consisting primarily of U.S. government sponsored enterprises and mortgage-backed securities, were $980,737totaled $715,132 at SeptemberJune 30, 2017,2019, compared to $754,755$1,030,668 at December 31, 2016, an increase2018, a decrease of $225,982,$315,536, or 29.9%30.6%. The increasedecrease inavailable-for-sale securities was primarily attributed to the volume of securities purchasedsecurity sales during the first ninesix months of 2017.2019.
Theheld-to-maturityHeld-to-maturity securities are carried at amortized cost. This portfolio, consisting of U.S. government sponsored enterprises, mortgage-backed securities and municipal securities, totaled $217,312$118,963 at SeptemberJune 30, 2017,2019, compared to $228,894$121,617 at December 31, 2016,2018, a decrease of $11,582,$2,654, or 5.1%2.2%. The decrease is attributable to securities that matured or had principal pay downs during the first ninesix months of 2017.2019.
The combined securities portfolios represented 33.6%20.5% and 33.4%27.1% of total assets at SeptemberJune 30, 20172019 and December 31, 2016,2018, respectively. At SeptemberJune 30, 2017,2019, the Company had no securities that were classified as having other than temporary impairment.
The Company also had other investments of $18,472$24,842 and $11,843$21,831 at SeptemberJune 30, 20172019 and December 31, 2016,2018, respectively, primarily consisting of capital stock in the Federal Reserve and the Federal Home Loan Bank (requiredrequired as members of the Federal Reserve Bank System (“FRB”) and the Federal Home Loan Bank System)System (“FHLB”). The Federal Home Loan BankFHLB and Federal ReserveFRB investments are “restricted” in that they can only be sold back to the respective institutions or another member institution at par, and are thus, not liquid, have no ready market or quoted market value, and are carried at cost.
Bank Premises and Equipment
Bank premises and equipment totaled $11,217$12,948 at SeptemberJune 30, 20172019 compared to $9,551$12,371 at December 31, 2016,2018, an increase of $1,666,$577, or 17.4%4.7%. ThisThe increase was the resultis primarily attributed to an increase of adding$1,182 in leasehold improvements, and furniture and equipment as needed in the normal coursenet of business anddepreciation, related to thebuild-outseveral of a new leased bank office building in Murfreesboro, Tennessee, a new leased office space in Franklin, Tennessee, and a new leased bank building located in Spring Hill, Tennessee.the Company’s locations.
Deposits
Deposits represent the Company’s largest source of funds. The Company competes with other bank and nonbank institutions for deposits, as well as with a growing number ofnon-deposit investment alternatives available to depositors, such as mutual funds, money market funds, annuities, and other brokerage investment products. Challenges to deposit growth include price changes on deposit products given movements in the rate environment and other competitive pricing pressures, and customer preferences regarding higher-costing deposit products ornon-deposit investment alternatives.
At SeptemberJune 30, 2017,2019, total deposits were $2,824,825, an increase$3,146,645, a decrease of $433,007,$285,162, or 18.1%8.3%, compared to $2,391,818$3,431,807 at December 31, 2016. The growth in deposits is attributable to growth in time deposits and noninterest-bearing deposits.
2018. Included in the Company’s funding strategy are brokered deposits, public funds deposits and reciprocal deposits. Total brokered deposits increased from $472,515decreased $98,600, or 12.4%, to $699,195 at June 30, 2019, when compared with $797,795 at December 31, 20162018, which reflects the Company’s strategy to $878,565reduce its dependence on non-core funding. Public funds deposits decreased $302,683, or 38.7%, to $480,206 at SeptemberJune 30, 2017,2019 when compared with $782,889 at December 31, 2018 due to the increased need for funding for the Bank’s loan growth and dueCompany’s strategy to the fluctuation in certain brokered deposits that are interest-bearing checking and money market accounts that can fluctuate daily.
Public funds deposits in the form of county deposits are a partredirect some of the Company’s funding strategy and are cyclical in nature, withlocal government customers into the peak ofreciprocal account relationships, thereby decreasing the Company’s requirements to collateralize those deposit balances occurring during the middle of the first quarter of each calendar year. Publicpublic funds declined $214,866,deposits. As a result, reciprocal deposits increased $123,840, or 32.9%39.6%, from $653,572to $436,522 at June 30, 2019, compared to $312,682 at December 31, 2016 to $438,706 at September 30, 2017.2018.
Time deposits, excluding brokered deposits and public funds, as of SeptemberJune 30, 2017,2019, amounted to $736,067,$432,156, compared to $555,732$532,445 as of December 31, 2016, an increase2018, a decrease of $180,335,$100,289, or 32.4%, primarily due to an increase in Local Government Investment Pool (LGIP) deposits of $185,030 during the first nine months of 2017.Non-public funds money market accounts, excluding brokered deposits, increased $90,039, or 33.8%, from December 31, 2016 to September 30, 2017. Noninterest-bearing checking deposits grew $23,396, or 10.0%, andnon-public funds interest checking accounts, excluding brokered deposits, grew $12,560, or 11.0%, respectively, when comparing deposit balances from September 30, 2017 with balances at December 31, 2016.18.8%.
The following table shows time deposits in denominations of $100 or more based on time remaining until maturity:
September 30, 2017 |
| June 30, 2019 |
| |||||
Three months or less | $ | 448,951 |
| $ | 141,700 |
| ||
Three through six months | 92,911 |
|
| 96,030 |
| |||
Six through twelve months | 76,147 |
|
| 87,272 |
| |||
Over twelve months | 151,497 |
|
| 152,032 |
| |||
| ||||||||
Total | $ | 769,506 |
| $ | 477,034 |
| ||
|
Federal Funds Purchased and Repurchase Agreements
As of September 30, 2017, theThe Company had $0 inno federal funds purchased from correspondent banks compared to $46,805 outstandingor repurchase agreements as of June 30, 2019 and December 31, 2016. Securities sold under agreements to repurchase had an outstanding balance of $32,862 as of September 30, 2017, compared to $36,496 as of December 31, 2016. Securities sold under agreements to repurchase are financing arrangements that mature daily or within a short period of time. At maturity, the securities underlying the agreements are returned to the Company.2018.
Federal Home Loan Bank Advances
The Company has established a line of credit with the Federal Home BankFHLB of Cincinnati which is secured by a blanket pledge of1-4 family residential mortgages and home equity lines of credit. At SeptemberJune 30, 20172019 and at December 31, 2016,2018, advances totaled $337,000$396,500 and $132,000, respectively.
At September 30, 2017,$368,500, respectively, and the scheduled maturities and interest rates of these advances were as follows:
Scheduled Maturities | Amount | Weighted Average Rates |
| Amount |
|
| Weighted Average Rates |
| ||||||||
2017 | $ | 75,000 | 1.17 | % | ||||||||||||
2018 | 157,000 | 1.19 | % | |||||||||||||
2019 | 50,000 | 1.41 | % |
| $ | 241,500 |
|
|
| 2.42 | % | |||||
2020 | 55,000 | 1.72 | % |
|
| 155,000 |
|
|
| 2.41 |
| |||||
|
| |||||||||||||||
Total | $ | 337,000 | 1.31 | % |
| $ | 396,500 |
|
|
| 2.41 | % | ||||
|
|
Subordinated Notes
At SeptemberJune 30, 2017,2019, the Company’s subordinated notes, net of issuance costs, totaled $58,470,$58,782 compared with $58,337$58,693 at December 31, 2016.2018. For more information related to the subordinated notes and the related issuance costs, please see Note 1012 of the consolidated financial statements.
Liquidity
Liquidity 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.
Liquidity 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 subordinated notesMarch 2016 Subordinated Notes and June 2016 Subordinated 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. Under the terms of the informal agreement with the Federal Reserve Bank of Atlanta (the “Reserve Bank”) and the Tennessee Department of Financial Institutions (“TDFI”), described in “Other Events” below, the Bank is required to receive prior written approval from its regulatory agenciesThe Bank’s ability to pay dividendsa dividend may be restricted due to regulatory requirements as well as the Company.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 asavailable-for-sale, and sales of brokered deposits. As of SeptemberJune 30, 2017, $980,7372019, $715,132 of the investment securities portfolio was classified asavailable-for-sale and is reported at fair value on the consolidated balance sheet. Another $217,312$118,963 of the portfolio was classified asheld-to-maturity and is reported at amortized cost. Approximately $944,463$468,429 of the total $1,198,049$834,095 investment securities portfolio on hand at SeptemberJune 30, 2017,2019, was pledged to secure public deposits and repurchase agreements. Other funding sources available include repurchase agreements, federal funds purchased, and borrowings from the Federal Home Loan Bank.
Equity
As of SeptemberJune 30, 2017,2019, the Company’s equity was $303,697,$393,609, as compared with $270,361$372,833 as of December 31, 2016.2018. The increase in equity was primarily due to the Company’s earnings of $25,697$8,075 in the first ninesix months of 2017,ended June 30, 2019, the increase in common stock increase of $3,288 during the first nine months$3,600, less dividends paid of 2017,$1,167 and the $4,359 increase in other comprehensive income from$2,244 decrease for the amortization of security premiums with the adoption of ASU 2017-08, plus the $12,512 increase in the valuation of availableavailable-for-sale securities.
On January 23, 2019, we announced that our board of directors had authorized a share repurchase program for sale securities.up to $30,000 of our outstanding common stock. The repurchase program is scheduled to expire upon the earlier of our repurchase of shares of our common stock having an aggregate purchase price of $30,000, or January 23, 2020. For the three and six months ended June 30, 2019, we repurchased 19,180 shares of our common stock at a weighted average price of $27.07 and an aggregate cost of $519.
Effects ofon Inflation and Changing Prices
The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles, 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 refinancings tend to slow as interest rates increase, and can reduce the Company’s earnings from such activities.
Off Balance Sheet Arrangements
The Company generally does not have anyoff-balance sheet arrangements other than approved and unfunded loans and lines and letters of credit to customers in the ordinary course of business. At SeptemberJune 30, 2017,2019, the Company had unfunded loan commitments outstanding of $43,611,$63,707, unused lines of credit of $563,178,$801,049, and outstanding standby letters of credit of $41,523.$52,064.
GAAP Reconciliation and Management Explanation ofNon-GAAP Financial Measures
Some of the financial data included in our selected historical consolidated financial information are not measures of financial performance recognized by GAAP. Our management uses thesenon-GAAP financial measures in its analysis of our performance:
We believe thesenon-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 ournon-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 tonon-GAAP financial measures that other companies use.
The following reconciliation table provides a more detailed analysis of thesenon-GAAP financial measures:
(Amounts in thousands, except share/per share data and percentages) | As of or for the Three Months Ended | |||||||||||||||||||
Sept 30, 2017 | Jun 30, 2017 | Mar 31, 2017 | Dec 31, 2016 | Sept 30, 2016 | ||||||||||||||||
Total shareholders’ equity | $ | 303,594 | $ | 292,918 | $ | 278,407 | $ | 270,258 | $ | 209,644 | ||||||||||
Less: Preferred stock | — | — | — | — | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total common shareholders’ equity | 303,594 | 292,918 | 278,407 | 270,258 | 209,644 | |||||||||||||||
Less: Goodwill and other intangible assets | 10,294 | 10,356 | 10,477 | 10,633 | 10,774 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Tangible common shareholders’ equity | $ | 293,300 | $ | 282,562 | $ | 267,930 | $ | 259,625 | $ | 198,870 | ||||||||||
Common shares outstanding | 13,209,055 | 13,181,501 | 13,064,110 | 13,036,954 | 10,757,483 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Tangible book value per share | $ | 22.20 | $ | 21.44 | $ | 20.51 | $ | 19.91 | $ | 18.49 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Average total common equity | 298,088 | 285,659 | $ | 272,713 | $ | 235,984 | $ | 206,009 | ||||||||||||
Less: Average Goodwill and other intangible assets | 10,321 | 10,427 | 10,565 | 10,719 | 10,855 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Average tangible common shareholders’ equity | $ | 287,767 | $ | 275,232 | $ | 262,148 | $ | 225,265 | $ | 195,154 | ||||||||||
Net income available to common shareholders | 8,889 | 8,866 | 7,934 | 7,179 | 7,137 | |||||||||||||||
Average tangible common equity | 287,767 | 275,232 | 262,148 | 225,265 | 195,154 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Return on average tangible common equity | 12.26 | % | 12.92 | % | 12.27 | % | 12.68 | % | 14.55 | % | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Efficiency Ratio: | ||||||||||||||||||||
Net interest income | $ | 24,326 | $ | 24,469 | $ | 23,643 | $ | 21,699 | $ | 20,675 | ||||||||||
Noninterest income | 3,569 | 3,880 | 4,008 | 2,553 | 4,876 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Operating revenue | 27,895 | 28,349 | 27,651 | 24,252 | 25,551 | |||||||||||||||
Expense | ||||||||||||||||||||
Total noninterest expense | 15,278 | 15,283 | 14,276 | 13,229 | 13,708 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Efficiency ratio | 54.77 | % | 53.91 | % | 51.63 | % | 54.55 | % | 53.65 | % | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
| As of or for the Three Months Ended |
| |||||||||||||||||
(Amounts in thousands, except share/per share data and percentages) |
| June 30, 2019 |
|
| March 31 2019 |
|
| December 31, 2018 |
|
| Sept 30, 2018 |
|
| June 30, 2018 |
| |||||
Total shareholders’ equity |
| $ | 393,516 |
|
| $ | 383,421 |
|
| $ | 372,740 |
|
| $ | 356,074 |
|
| $ | 348,059 |
|
Less: Preferred stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Total common equity |
|
| 393,516 |
|
|
| 383,421 |
|
|
| 372,740 |
|
|
| 356,074 |
|
|
| 348,059 |
|
Common shares outstanding |
|
| 14,628,287 |
|
|
| 14,574,339 |
|
|
| 14,538,085 |
|
|
| 14,525,351 |
|
|
| 14,480,240 |
|
Book value per share |
| $ | 26.90 |
|
| $ | 26.31 |
|
| $ | 25.64 |
|
| $ | 24.51 |
|
| $ | 24.04 |
|
Total common equity |
|
| 393,516 |
|
|
| 383,421 |
|
|
| 372,740 |
|
|
| 356,074 |
|
|
| 348,059 |
|
Less: Goodwill and other intangible assets |
|
| 18,885 |
|
|
| 19,020 |
|
|
| 19,128 |
|
|
| 19,327 |
|
|
| 19,499 |
|
Tangible common equity |
| $ | 374,631 |
|
| $ | 364,401 |
|
| $ | 353,612 |
|
| $ | 336,747 |
|
| $ | 328,560 |
|
Common shares outstanding |
|
| 14,628,287 |
|
|
| 14,574,339 |
|
|
| 14,538,085 |
|
|
| 14,525,351 |
|
|
| 14,480,240 |
|
Tangible book value per share |
| $ | 25.61 |
|
| $ | 25.00 |
|
| $ | 24.32 |
|
| $ | 23.18 |
|
| $ | 22.69 |
|
Average total common equity |
|
| 388,460 |
|
|
| 377,116 |
|
|
| 299,840 |
|
|
| 351,293 |
|
|
| 340,175 |
|
Less: Average Preferred stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Less: Average Goodwill and other intangible assets |
|
| 18,971 |
|
|
| 19,109 |
|
|
| 19,268 |
|
|
| 19,433 |
|
|
| 19,860 |
|
Average tangible common shareholders’ equity |
| $ | 369,489 |
|
| $ | 358,007 |
|
| $ | 280,572 |
|
| $ | 331,860 |
|
| $ | 320,315 |
|
Net income available to common shareholders |
|
| 5,173 |
|
|
| 2,901 |
|
|
| 3,743 |
|
|
| 10,549 |
|
|
| 10,161 |
|
Average tangible common equity |
|
| 369,489 |
|
|
| 358,007 |
|
|
| 325,012 |
|
|
| 331,860 |
|
|
| 320,315 |
|
Return on average tangible common equity(1) |
|
| 5.6 | % |
|
| 3.3 | % |
|
| 4.6 | % |
|
| 12.6 | % |
|
| 12.7 | % |
Efficiency Ratio: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
| $ | 27,365 |
|
| $ | 27,420 |
|
| $ | 26,920 |
|
| $ | 26,562 |
|
| $ | 26,905 |
|
Noninterest income |
|
| 4,923 |
|
|
| 3,486 |
|
|
| (383 | ) |
|
| 3,442 |
|
|
| 4,147 |
|
Operating revenue |
|
| 32,288 |
|
|
| 30,906 |
|
|
| 26,537 |
|
|
| 30,004 |
|
|
| 31,052 |
|
Expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense |
|
| 19,370 |
|
|
| 22,616 |
|
|
| 21,689 |
|
|
| 18,251 |
|
|
| 18,050 |
|
Efficiency ratio(2) |
|
| 60.0 | % |
|
| 73.2 | % |
|
| 81.7 | % |
|
| 60.8 | % |
|
| 58.1 | % |
(1) | Annualized |
(2) | Efficiency ratio (GAAP) is calculated by dividing reported noninterest expense by reported total revenue |
FRANKLIN FINANCIAL NETWORK, INC.
SUMMARY QUARTERLY CONSOLIDATED FINANCIAL DATA (UNAUDITED)
(Amounts in thousands, except per share data and percentages)
As of and for the three months ended |
| As of and for the three months ended |
| |||||||||||||||||||||||||||||||||||||
Sept 30, 2017 | Jun 30, 2017 | Mar 31, 2017 | Dec 31, 2016 | Sept 30, 2016 |
| Jun 30, 2019 |
|
| Mar 31, 2019 |
|
| Dec 31, 2018 |
|
| Sep 30, 2018 |
|
| Jun 30, 2018 |
| |||||||||||||||||||||
Income Statement Data ($): | Income Statement Data ($): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
Interest income | 33,780 | 33,011 | 30,541 | 27,336 | 25,724 |
|
| 47,453 |
|
|
| 47,523 |
|
|
| 46,046 |
|
|
| 43,717 |
|
|
| 42,136 |
| |||||||||||||||
Interest expense | 9,454 | 8,542 | 6,898 | 5,637 | 5,049 |
|
| 20,088 |
|
|
| 20,103 |
|
|
| 19,125 |
|
|
| 17,155 |
|
|
| 15,231 |
| |||||||||||||||
Net interest income | 24,326 | 24,469 | 23,643 | 21,699 | 20,675 |
|
| 27,365 |
|
|
| 27,420 |
|
|
| 26,921 |
|
|
| 26,562 |
|
|
| 26,905 |
| |||||||||||||||
Provision for loan losses | 590 | 573 | 1,855 | 1,145 | 1,392 |
|
| 7,031 |
|
|
| 5,055 |
|
|
| 975 |
|
|
| 136 |
|
|
| 570 |
| |||||||||||||||
Noninterest income | 3,569 | 3,880 | 4,008 | 2,553 | 4,876 | |||||||||||||||||||||||||||||||||||
Noninterest income (expense) |
|
| 4,923 |
|
|
| 3,486 |
|
|
| (384 | ) |
|
| 3,442 |
|
|
| 4,147 |
| ||||||||||||||||||||
Noninterest expense | 15,278 | 15,283 | 14,276 | 13,229 | 13,708 |
|
| 19,370 |
|
|
| 22,616 |
|
|
| 21,689 |
|
|
| 18,251 |
|
|
| 18,050 |
| |||||||||||||||
Net income before taxes | 12,027 | 12,493 | 11,520 | 9,878 | 10,451 |
|
| 5,887 |
|
|
| 3,235 |
|
|
| 3,873 |
|
|
| 11,617 |
|
|
| 12,432 |
| |||||||||||||||
Income tax expense(1) | 3,138 | 3,619 | 3,586 | 2,699 | 3,314 | |||||||||||||||||||||||||||||||||||
Net income(1) | 8,889 | 8,874 | 7,934 | 7,179 | 7,137 | |||||||||||||||||||||||||||||||||||
Income tax expense |
|
| 706 |
|
|
| 334 |
|
|
| 122 |
|
|
| 1,068 |
|
|
| 2,263 |
| ||||||||||||||||||||
Net income |
|
| 5,181 |
|
|
| 2,901 |
|
|
| 3,751 |
|
|
| 10,549 |
|
|
| 10,169 |
| ||||||||||||||||||||
Pre-tax pre-provision profit |
|
| 12,918 |
|
|
| 8,290 |
|
|
| 4,848 |
|
|
| 11,753 |
|
|
| 13,002 |
| ||||||||||||||||||||
Earnings before interest and taxes | 21,481 | 21,035 | 18,418 | 15,515 | 15,500 |
|
| 25,975 |
|
|
| 23,338 |
|
|
| 23,048 |
|
|
| 28,722 |
|
|
| 27,663 |
| |||||||||||||||
Net income available to common shareholders | 8,889 | 8,866 | 7,934 | 7,179 | 7,137 |
|
| 5,173 |
|
|
| 2,901 |
|
|
| 3,743 |
|
|
| 10,549 |
|
|
| 10,161 |
| |||||||||||||||
Weighted average diluted common shares | 13,773,539 | 13,701,762 | 13,657,357 | 12,473,725 | 11,415,422 |
|
| 14,894,140 |
|
|
| 14,804,830 |
|
|
| 14,821,540 |
|
|
| 14,903,751 |
|
|
| 14,814,059 |
| |||||||||||||||
Earnings per share, basic | 0.67 | 0.68 | 0.61 | 0.61 | 0.67 |
|
| 0.35 |
|
|
| 0.20 |
|
|
| 0.26 |
|
|
| 0.73 |
|
|
| 0.71 |
| |||||||||||||||
Earnings per share, diluted | 0.65 | 0.64 | 0.58 | 0.58 | 0.63 |
|
| 0.34 |
|
|
| 0.19 |
|
|
| 0.25 |
|
|
| 0.70 |
|
|
| 0.68 |
| |||||||||||||||
Dividend per share |
|
| 0.04 |
|
|
| 0.04 |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||
Profitability (%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Return on average assets | 1.03 | 1.03 | 0.99 | 1.00 | 1.07 |
|
| 0.51 |
|
|
| 0.28 |
|
|
| 0.35 |
|
|
| 1.01 |
|
|
| 0.98 |
| |||||||||||||||
Return on average equity | 11.83 | 12.46 | 11.80 | 12.10 | 13.78 |
|
| 5.3 |
|
|
| 3.1 |
|
|
| 4.1 |
|
|
| 11.9 |
|
|
| 12.0 |
| |||||||||||||||
Return on average tangible common equity(3) | 12.26 | 12.92 | 12.27 | 12.68 | 14.55 |
|
| 5.6 |
|
|
| 3.3 |
|
|
| 4.3 |
|
|
| 12.6 |
|
|
| 12.7 |
| |||||||||||||||
Efficiency ratio(3) | 54.77 | 53.91 | 51.63 | 54.55 | 53.65 |
|
| 60.0 |
|
|
| 73.2 |
|
|
| 81.7 |
|
|
| 60.8 |
|
|
| 58.1 |
| |||||||||||||||
Net interest margin(4) | 3.05 | 3.08 | 3.18 | 3.27 | 3.34 | |||||||||||||||||||||||||||||||||||
Net interest margin(1) |
|
| 2.84 |
|
|
| 2.80 |
|
|
| 2.69 |
|
|
| 2.70 |
|
|
| 2.74 |
| ||||||||||||||||||||
Balance Sheet Data ($): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Loans (including HFS) | 2,127,753 | 2,023,679 | 1,962,397 | 1,797,291 | 1,680,877 |
|
| 2,907,526 |
|
|
| 2,829,107 |
|
|
| 2,676,502 |
|
|
| 2,564,684 |
|
|
| 2,488,862 |
| |||||||||||||||
Loan loss reserve | 19,944 | 18,689 | 18,105 | 16,553 | 15,590 |
|
| 27,443 |
|
|
| 27,857 |
|
|
| 23,451 |
|
|
| 22,479 |
|
|
| 22,341 |
| |||||||||||||||
Cash | 155,842 | 96,741 | 114,664 | 90,927 | 56,804 |
|
| 150,721 |
|
|
| 300,113 |
|
|
| 280,212 |
|
|
| 144,660 |
|
|
| 176,870 |
| |||||||||||||||
Securities | 1,198,049 | 1,243,406 | 1,299,349 | 983,649 | 905,806 |
|
| 834,095 |
|
|
| 918,132 |
|
|
| 1,152,285 |
|
|
| 1,319,774 |
|
|
| 1,357,918 |
| |||||||||||||||
Goodwill | 9,124 | 9,124 | 9,124 | 9,124 | 9,124 |
|
| 18,176 |
|
|
| 18,176 |
|
|
| 18,176 |
|
|
| 18,176 |
|
|
| 18,176 |
| |||||||||||||||
Intangible assets (Sum of core deposit intangible and SBA servicing rights) | 1,170 | 1,232 | 1,353 | 1,509 | 1,650 |
|
| 709 |
|
|
| 844 |
|
|
| 952 |
|
|
| 1,151 |
|
|
| 1,323 |
| |||||||||||||||
Assets | 3,565,278 | 3,443,593 | 3,454,788 | 2,943,189 | 2,703,195 |
|
| 4,071,971 |
|
|
| 4,238,436 |
|
|
| 4,249,439 |
|
|
| 4,167,813 |
|
|
| 4,165,238 |
| |||||||||||||||
Deposits | 2,824,825 | 2,754,425 | 2,817,212 | 2,391,818 | 2,217,954 |
|
| 3,146,645 |
|
|
| 3,315,843 |
|
|
| 3,431,807 |
|
|
| 3,371,550 |
|
|
| 3,398,025 |
| |||||||||||||||
Liabilities | 3,261,581 | 3,150,572 | 3,176,278 | 2,672,828 | 2,493,551 |
|
| 3,678,362 |
|
|
| 3,854,922 |
|
|
| 3,876,606 |
|
|
| 3,811,636 |
|
|
| 3,817,076 |
| |||||||||||||||
Total shareholders' equity |
|
| 393,516 |
|
|
| 383,421 |
|
|
| 372,740 |
|
|
| 356,074 |
|
|
| 348,059 |
| ||||||||||||||||||||
Total equity | 303,697 | 293,021 | 278,510 | 270,361 | 209,644 |
|
| 393,609 |
|
|
| 383,514 |
|
|
| 372,833 |
|
|
| 356,177 |
|
|
| 348,162 |
| |||||||||||||||
Common equity | 303,594 | 292,918 | 278,407 | 270,258 | 209,644 | |||||||||||||||||||||||||||||||||||
Tangible common equity(3) | 293,300 | 282,562 | 267,930 | 259,625 | 198,870 |
|
| 374,631 |
|
|
| 364,401 |
|
|
| 353,612 |
|
|
| 336,747 |
|
|
| 328,560 |
| |||||||||||||||
Asset Quality (%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Nonperforming loans/ total loans(2) | 0.14 | 0.19 | 0.21 | 0.35 | 0.10 |
|
| 0.16 |
|
|
| 0.42 |
|
|
| 0.21 |
|
|
| 0.16 |
|
|
| 0.14 |
| |||||||||||||||
Nonperforming assets / (total loans(2) + foreclosed assets) | 0.21 | 0.26 | 0.27 | 0.35 | 0.10 |
|
| 0.16 |
|
|
| 0.42 |
|
|
| 0.21 |
|
|
| 0.23 |
|
|
| 0.21 |
| |||||||||||||||
Loan loss reserve / total loans(2) | 0.94 | 0.93 | 0.93 | 0.93 | 0.94 |
|
| 0.95 |
|
|
| 0.99 |
|
|
| 0.88 |
|
|
| 0.88 |
|
|
| 0.90 |
| |||||||||||||||
Net charge-offs / average loans | (0.13 | ) | 0.00 | 0.07 | 0.04 | 0.01 | ||||||||||||||||||||||||||||||||||
Net charge-offs (recoveries) / average loans HFI(4) |
|
| 1.04 |
|
|
| 0.10 |
|
|
| 0.00 |
|
|
| 0.00 |
|
|
| 0.00 |
| ||||||||||||||||||||
Capital (%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Tangible common equity to tangible assets(3) | 8.25 | 8.23 | 7.78 | 8.85 | 7.39 |
|
| 9.2 |
|
|
| 8.6 |
|
|
| 8.4 |
|
|
| 8.1 |
|
|
| 7.9 |
| |||||||||||||||
Leverage ratio | 8.58 | 8.21 | 8.36 | 9.28 | 7.15 |
|
| 9.2 |
|
|
| 8.8 |
|
|
| 8.8 |
|
|
| 8.7 |
|
|
| 8.3 |
| |||||||||||||||
Common Equity Tier 1 ratio | 11.58 | 11.54 | 11.32 | 11.75 | 9.09 |
|
| 11.2 |
|
|
| 11.3 |
|
|
| 12.2 |
|
|
| 12.2 |
|
|
| 12.1 |
| |||||||||||||||
Tier 1 risk-based capital ratio | 11.58 | 11.54 | 11.32 | 11.75 | 9.09 |
|
| 11.2 |
|
|
| 11.3 |
|
|
| 12.2 |
|
|
| 12.2 |
|
|
| 12.1 |
| |||||||||||||||
Total risk-based capital ratio | 14.68 | 14.69 | 14.51 | 15.09 | 12.66 |
|
| 13.7 |
|
|
| 14.0 |
|
|
| 14.9 |
|
|
| 15.0 |
|
|
| 15.0 |
|
(1) | Net interest margins shown in the |
(2) | Total loans in this ratio exclude loans held for sale. |
(3) | SeeNon-GAAP table in the preceding pages. |
(4) | Annualized. |
Emerging Growth Company Status
The Company is an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and 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 periodic reports and 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 the Company complies with 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) the end of the fiscal year following the fifth anniversary of the effectivenessdate of the first sale of common equity securities under our Registration Statement on FormS-4, which was declared effective by the SEC on May 14, 2014; (2) the last day of the fiscal year in which we have more than $1.07 billion or more in annual revenues; (3) the date on which we are deemed to be a “large accelerated filer” under the Securities Exchange Act;Act of 1934, as amended (the “Exchange Act”); or (4) the date on which we have, during the previous three-year period, issued publicly or privately, more than $1.0 billion innon-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. The Company will cease to be an emerging growth company as of December 31, 2019.
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 or 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 tonon-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.
Other EventsITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
On October 18, 2017, the Bank received regulatory approval from the Reserve Bank to open a new branch at 1605 Medical Center Parkway, Murfreesboro, Tennessee. The TDFI previously approved this new branch on July 14, 2017. The Bank plans to open this new branch during the fourth quarter of 2017.
On November 3, 2016, the Bank entered into an informal agreement with the Reserve Bank and the TDFI in the form of a Memorandum of Understanding (“MOU”). Under the terms of the MOU, the Bank agreed, among other things, to (1) enhance and periodically update its Commercial Real Estate (“CRE”) concentration risk management policy; (2) augment credit risk management practices; and (3) enhance capital and liquidity plans. The Bank has also agreed that it will seek prior written approval of the Reserve Bank and the TDFI to pay dividends to the Company, which dividends are used primarily for the purpose of servicing the Company’s subordinated debt. In addition, the Company currently may not make interest payments on its subordinated debt without prior written approval from its primary regulatory agencies.
The Company has also executed an agreement with the Board of Governors of the Federal Reserve System (the “Agreement”) under section 4(m)(2) of the Bank Holding Company Act, which includes specific actions designed to address the Bank’s risk profile and to strengthen the underlying condition of the Bank. Until the Bank and Company satisfy the requirements of the MOU and the Agreement, any plans for business combinations or location expansion will be limited and subject to prior written approval from the appropriate regulatory body.
The Company’s 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 the Company’s 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 the Company’s operations, the Company is not subject to foreign currency exchange or commodity price risk.
Management 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. The Company’s rate sensitivity position has an important impact on earnings. Senior management monitors the Company’s rate sensitivity position throughout each month, and then 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 (primarily time deposits) 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, over a12-month time period ended SeptemberJune 30, 2017,2019, net interest income was estimated to decrease 3.02%increase 1.18% and 7.13%1.12% if rates were to increase 100 basis points and 200 basis points, respectively, and was estimated to increase 1.26%decrease 1.38% and decrease 5.25%0.99% 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 SeptemberJune 30, 2017.2019.
Projected Interest Rate Change | Net Interest Income | Net Interest Income $ Change from Base | % Change from Base |
| Net Interest Income $ |
|
| Net Interest Income $ Change from Base |
|
| % Change from Base |
| ||||||||||||
-200 | 90,629 | (5,024 | ) | (5.25 | %) |
|
| 115,409 |
|
|
| (1,149 | ) |
|
| (0.99 | )% | |||||||
-100 | 96,857 | 1,205 | 1.26 | % |
|
| 114,948 |
|
|
| (1,610 | ) |
|
| (1.38 | )% | ||||||||
Base | 95,652 | — | 0.00 | % |
|
| 116,558 |
|
|
| — |
|
|
| — |
| ||||||||
+100 | 92,762 | (2,890 | ) | (3.02 | %) |
|
| 117,932 |
|
|
| 1,374 |
|
|
| 1.18 | % | |||||||
+200 | 88,832 | (6,820 | ) | (7.13 | %) |
|
| 117,859 |
|
|
| 1,301 |
|
|
| 1.12 | % | |||||||
+300 | 84,852 | (10,800 | ) | (11.29 | %) |
|
| 117,107 |
|
|
| 549 |
|
|
| 0.47 | % | |||||||
+400 | 81,364 | (14,288 | ) | (14.94 | %) |
|
| 116,697 |
|
|
| 139 |
|
|
| 0.12 | % |
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 securities, rates on loans and deposits, reinvestments of pay downs and maturities of loans, investments and deposits, changes in 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.
ITEM 4. CONTROLS AND PROCEDURES.
(a) Evaluation of Disclosure Controls and Procedures. The Company’s management, with the participation of the Company’s chief executive officer and chief financial officer, have evaluated the effectiveness of the design and operation of the Company’s “disclosure controls and procedures” (as that term is defined in Rule13a-15(e) under the Exchange Act) as of SeptemberJune 30, 2017,2019, the end of the fiscal quarter covered by this Quarterly Report on Form10-Q. Based on that evaluation, the chief executive officer and chief financial officer have concluded that the Company’s disclosure controls and procedures are effective.
(b) Changes in Internal Controls. There has been no change in our internal control over financial reporting that occurred during the fiscal quarter covered by this Quarterly Report on Form10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Management is not aware of any material pending legal proceedings against the Company which, if determined adversely, the Company believes would have a material adverse impact on the Company’s financial position, results of operations or cash flows.
There have been no material changes to the risk factors disclosed in our Annual Report on Form10-K filed with the SEC on March 16, 2017.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
(a) | Unregistered Sales of Equity Securities.N/A |
(b) | Use of Proceeds. Not applicable. |
(c) | Repurchase of Equity Securities |
The following table discloses shares of our common stock repurchased during the three months ended June 30, 2019:
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) |
| ||||
April 1, 2019 to April 30, 2019 |
|
| — |
|
|
| — |
|
|
| — |
|
| $ | 30,000 |
|
May 1, 2019 to May 31, 2019 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 30,000 |
|
June 1, 2019 to June 30, 2019 |
|
| 19,180 |
|
| $ | 27.07 |
|
|
| 19,180 |
|
|
| 29,481 |
|
(1) On January 23, 2019, we announced that our board of directors had authorized a share repurchase program for up to $30 million of our outstanding common stock. The repurchase program is scheduled to expire upon the earlier of our repurchase of shares of our common stock having an aggregate purchase price of $30 million or on January 23, 2020.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
None.
Not applicable.
None
Exhibit No. |
None.
Description
* | Filed herewith |
** | Furnished herewith |
Pursuant to the requirements 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.
Franklin Financial Network, INC. | |||||||
August 6, 2019 | |||||||
By: | /s/ | ||||||
Christopher J. Black Executive Vice President and Chief Financial Officer | |||||||
On behalf of the registrant and as Chief Financial Officer (Principal Financial Officer) |