(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

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.

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 ~~April 30, 2018,~~May 3, 2019, was ~~14,373,890.~~14,729,001.

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,~~ “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, ~~2017, filed with the SEC on March 16,~~ 2018.

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, 2018.~~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.

In ~~May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)2014-09,~~ “~~Revenue from Contracts with Customers~~~~” (“ASU2014-09”),~~ which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU replaces most existing revenue recognition guidance in GAAP. The new standard was effective for the Company on January 1, 2018. Adoption of ASU~~2014-09~~ did not have a material impact on the Company’s consolidated financial statements and related disclosures as the Company’s primary sources of revenues are derived from interest earned on loans, investment securities, and other financial instruments that are not within the scope of ASU~~2014-09.~~ ~~The Company’s revenue recognition pattern for revenue streams within the scope of ASU2014-09,~~ including but not limited to service charges on deposit accounts and gains/losses on the sale of OREO, did not change significantly from current practice. The standard permits the use of either the full retrospective or modified retrospective transition method. The Company elected to use the modified retrospective transition method which requires application of ASU~~2014-09~~ ~~to uncompleted contracts at the date of adoption. The impact on uncompleted contracts at the date of adoption of this Update was not considered material.~~

The Company has identified the contract with a customer, identified the performance obligations in the contract, determined the transaction price, allocated the transaction price to the performance obligations in the contract, and recognized revenue when (or as) the Company satisfied a performance obligation. Significant revenue has not been recognized in the current reporting period that results from performance obligations satisfied in previous periods. The Company’s primary sources of revenue are derived from interest and dividends earned on loans, investment securities, and other financial instruments that are not impacted by the new standard. The Company has evaluated the nature of its contracts with customers and determined that further disaggregation of revenue from contracts with customers into more granular categories beyond what is presented in the Consolidated Statements of Income was not necessary. The Company generally fully satisfies its performance obligations on its contracts with customers as services are rendered and the transaction prices are typically fixed; charged either on a periodic basis or based on activity. Because performance obligations are satisfied as services are rendered and the transaction prices are fixed, there is little judgment involved in applying the new standard that significantly affects the determination of the amount and timing of revenue from contracts with customers.

~~In January~~February 2016, the FASB issued ~~ASUNo. 2016-01,~~ “~~Financial Instruments – Overall: Recognition and Measurement of Financial Assets and Financial Liabilities~~~~” (“ASU2016-01”).~~ ~~The guidance affects the accounting for equity investments, financial liabilities under the fair value option and the presentation and disclosure requirements of financial instruments. ASU2016-01~~ ~~was effective for the Company on January 1, 2018 and resulted in the use of an exit price rather than an entrance price to determine the fair value of loans not measured at fair value on anon-recurring~~ basis in the consolidated balance sheets. The Company does not have any equity investments that qualify for consideration under ASU 2016-01. See Note 8, “Fair Value,” for further information regarding the valuation of these loans.

~~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~~2016-02, Leases which requires recognition in the ~~following eight specific cash flow issues: debt prepayment or debt extinguishment costs; settlement~~statement of~~zero-coupon~~ ~~debt instruments or other debt instruments with coupon interest rates~~ financial position of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous GAAP.

The guidance requires that ~~are insignificant in relation~~a lessee should recognize lease assets and lease liabilities as compared 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;previous GAAP that did not require lease assets and ~~separately identifiable cash flows and application of the predominance principle.~~lease liabilities to be recognized for operating leases. The ~~amendments in this Update~~guidance became effective for the Company on January 1, ~~2018.~~2019. In July 2016, the FASB issued Accounting Standards Update 2018-10, Codification Improvements to Topic 842,

Leases which provides technical corrections and improvements to ASU 2016-02. In July 2016, the FASB issued Accounting Standards Update 2018-11, Leases (Topic 842): Targeted Improvements which provides an optional transition method to adopt the new requirements of ASU 2016-02 as of the adoption date with no adjustment to the presentation or disclosure of comparative prior periods included in the financial statements in the period of adoption. The Company elected the optional transition method on January 1, 2019, which will result in presentation of periods prior to adoption under the prior lease guidance of ASC Topic 840. In December 2018, the FASB issued Accounting Standards Update 2018-20, Leases (Topic 842): Narrow-Scope Improvements for Lessors. ASU 2018-20 permits lessors to account for certain taxes as lessee costs, permits lessors to exclude from revenue certain lessor costs paid by lessees directly to third parties, and requires lessors to allocate certain variable payments to lease and non-lease components. 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 retain earnings totaling $2,244.

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.” The amendments in this update permit use of the OIS rate based on SOFR as a U.S. benchmark interest rate for hedge accounting purposes under Topic 815 in addition to the interest rates on direct U.S. Treasury obligations, the LIBOR swap rate, the OIS rate based on the Fed Funds Effective Rate and the Securities Industry and Financial Markets Association (SIFMA) Municipal Swap Rate. ASU 2018-16 became effective for us on January 1, 2019 and did not have a significant impact on our financial statements.

In March 2019, the FASB issued ASU No. 2019-01, “Leases: Codification Improvements.” This ASU (1) states that for lessors that are not manufacturers or dealers, the fair value of the underlying asset is its cost, less any volume or trade discounts, as long as there isn’t a significant amount of time between acquisition of the asset and lease commencement; (2) clarifies that lessors in the scope of ASC 942 (such as the Company) must classify principal payments received from sales-type and direct financing leases in investing activities in the statement of cash flows; and (3) clarifies the transition guidance related to certain interim disclosures provided in the year of adoption. To coincide with the adoption of ASU No. 2016-02, the Company elected to early adopt ASU 2019-01 on January 1, 2019. The adoption of this ASU did not have a material impact on the Company’s ~~financial statements.~~

~~In January 2017, the FASB issued ASU2017-01,~~ “~~Business Combinations (Topic 805): Clarifying the Definition of a Business~~~~,” (“ASU2017-01”)~~ to improve such definition and, as a result, assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or as business combinations. The definition of a business impacts many areas of accounting including acquisitions, disposals, goodwill and consolidation. ASU~~2017-01~~ was effective for the Company on January 1, 2018 and is to be applied under a prospective approach. The Company expects the adoption of this new guidance to impact the determination of whether future acquisitions are considered business combinations.

~~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. ASU~~2017-09~~ is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. The guidance requires companies to apply the requirements prospectively to awards modified on or after the adoption date. The adoption of ASU~~2017-09~~ ~~did not have a significant impact on the Company’s~~ consolidated financial statements.

~~In February 2016, the FASB issued ASU2016-02~~ ~~which creates Topic 842, “~~~~Leases~~~~” and supersedes Topic 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 corresponding~~right-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 a~~right-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 ASU~~2016-02~~ ~~will have on the Company’s consolidated financial statements.~~

In June 2016, ~~the~~ FASB issued ASU2016-13, “Financial ~~Instruments—~~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.~~2018; however, the Company does not currently plan to early adopt this ASU. The Company is currently gathering information ~~reviewing possible vendors~~ and ~~has formed a committee~~working to ~~formulate~~determine the methodology to be used. ~~Most importantly, the~~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 ~~adopting ASU2016-13~~this new guidance on our financial statements; however an increase in the overall ALLL is ~~not currently known.~~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, “~~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 ofASU 2017-04 is not expected to have a material impact on the Company’s consolidated financial statements.

In ~~March 2017,~~August 2018, the FASB issued ASU No. 2018-13, ~~2017-08,~~“~~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~~Disclosure Framework - Changes to the ~~earliest call date. The new guidance does not change~~Disclosure Requirements for Fair Value Measurement.” This ASU eliminates, adds and modifies certain disclosure requirements for fair value measurements. Among the ~~accounting~~changes, entities will no longer be required to disclose the amount of and reasons for ~~purchased callable debt securities held at a discount;~~transfers between Level 1 and Level 2 of the ~~discount continues~~fair value hierarchy, but will be required to ~~be amortized~~disclose the range and weighted average used to ~~maturity.~~develop significant unobservable inputs for Level 3 fair value measurements. ASU ~~2017-08~~No. 2018-13 is effective for interim and annual reporting periods beginning after December 15, ~~2018, and~~2019; early adoption is permitted. ~~The guidance calls for~~As ASU No. 2018-13 only revises disclosure requirements, it will not have 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 of~~ASU 2017-08~~ ~~to determine the potential~~material impact ~~the new standard will have~~ on the Company’s consolidated financial statements.

~~Acquisition~~ASU 2018-14, “Compensation - Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20).” ASU 2018-14 amends and modifies the disclosure requirements for employers that sponsor defined benefit pension or other post-retirement plans. The amendments in this update remove disclosures that no longer are considered cost beneficial, clarify the specific requirements of ~~Civic Bank & Trust~~disclosures, and add disclosure requirements identified as relevant. ASU 2018-14 will be effective for us on January 1, 2021, with early adoption permitted, and is not expected to have a significant impact on our financial statements.

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 ~~located~~issued in ~~Nashville, Tennessee. Effective~~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 ~~acquisition, Dr. Anil Patel, who was~~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 ~~chairman~~accounting for the service element of ~~the Civic Bank & Trust board of directors, was added~~a hosting arrangement that is a service contract. ASU 2018-15 will be effective for us on January 1, 2020, with early adoption permitted, and is not expected to ~~the Company’s board of directors for~~have a ~~term expiring at the Company’s 2018 annual meeting of shareholders.~~significant impact on our financial statements.

The following table summarizes the amortized cost and fair value of the securities available for sale portfolio at March 31, ~~2018~~2019 and December 31, ~~2017~~2018 and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income.

The amortized cost and fair value of the securities held to maturity portfolio at March 31, ~~2018~~2019 and December 31, ~~2017~~2018 and the corresponding amounts of gross unrecognized gains and losses were as follows:

The proceeds from sales and calls of securities available for sale and the associated gains and losses were as follows:

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.

Securities pledged at March 31, ~~2018~~2019 and December 31, ~~2017~~2018 had a carrying amount of ~~$1,168,275~~$711,826 and ~~$975,518,~~$939,440, respectively, and were pledged to secure public ~~deposits and repurchase agreements.~~deposits.

At March 31, ~~2018~~2019 and December 31, ~~2017,~~2018, there were no holdings of securities of any one issuer, other than the U.S. government-sponsored entities and agencies, in an amount greater than 10% of shareholders’ equity.

The following table summarizes the securities with unrealized and unrecognized losses at March 31, ~~2018~~2019 and December 31, ~~2017,~~2018, aggregated by major security type and length of time in a continuous unrealized loss position:

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 March 31, 2019, management does not intend to sell and it is more likely than not that management will not be required to sell the securities prior to their anticipated recovery, and the decline in fair value is largely due to changes in interest rates and other market conditions. The fair value is expected to recover as the bonds approach maturity.

The following table presents the activity in the allowance for loan losses by portfolio segment for the ~~three month~~three-month periods ended March 31, ~~2018~~2019 and ~~2017:~~2018:

As of both March 31, 2019 and December 31, 2018, there was no allowance for loan losses for PCI loans.

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of March 31, ~~2018~~2019 and December 31, ~~2017.~~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
Purchased credit-impaired loans
   —      —      —      6    —      6












Total ending allowance balance
   $ 4,345    $ 5,875    $ 3,605    $ 7,866    $ 47    $ 21,738












Loans:

Individually evaluated for impairment
   $ 165    $ —      $ 694    $ 2,466    $ —      $ 3,325
Collectively evaluated for impairment
   523,495    716,607    601,989    460,488    3,899    2,306,478
Purchased credit-impaired loans
   —      371    96    1,973    —      2,440












Total ending loans balance
   $ 523,660    $ 716,978    $ 602,779    $ 464,927    $ 3,899    $ 2,312,243












December 31, 2017

Allowance for loan losses:

Ending allowance balance attributable to loans:

Individually evaluated for impairment
   $ —      $ —      $ —      $ 879    $ —      $ 879
Collectively evaluated for impairment
   3,802    5,981    3,834    6,708    43    20,368
Purchased credit-impaired loans
   —      —      —      —      —      —












Total ending allowance balance
   $ 3,802    $ 5,981    $ 3,834    $ 7,587    $ 43    $ 21,247












Loans:

Individually evaluated for impairment
   $ 217    $ —      $ 834    $ 3,090    $ —      $ 4,141
Collectively evaluated for impairment
   494,601    678,238    576,501    498,916    3,781    2,252,037
Purchased credit-impaired loans
   —      380    105    1,908    —      2,393












Total ending loans balance
   $ 494,818    $ 678,618    $ 577,440    $ 503,914    $ 3,781    $ 2,258,571

Loans collectively evaluated for impairment reported at March 31, ~~2018~~2019 include certain acquired loans. At March 31, ~~2018,~~2019, thesenon-PCI loans had a carrying value of ~~$50,759,~~$92,050, comprised of contractually unpaid principal totaling ~~$52,121~~$93,133 and discounts totaling ~~$1,362.~~$1,083. Management evaluated these loans for credit deterioration since acquisition and determined that ~~$10 in~~an allowance for loan losses of $169 was necessary at March 31, ~~2018. As of December 31, 2017, thesenon-PCI~~ loans had a carrying value of $50,341, comprised of contractually unpaid principal totaling $51,767 and discounts totaling $1,426. Management evaluated these loans for credit deterioration since acquisition and determined that a $10 allowance for loan losses was necessary at December 31, 2017.2019.

The following table presents information related to impaired loans by class of loans as of March 31, ~~2018~~2019 and December 31, ~~2017:~~2018:

   Unpaid
Principal
Balance    Recorded
Investment    Allowance for
Loan Losses
Allocated
Residential real estate:

Closed-end1-4 family
   14    14    —
Other
   820    820    —
Commercial and industrial
   108    108    —






Subtotal
   1,159    1,159    —






With an allowance recorded:

Commercial and industrial
   2,982    2,982    879






Subtotal
   2,982    2,982    879






Total
   $ 4,141    $ 4,141    $ 879

The following table presents the average recorded investment of impaired loans by class of loans for the three months ended March 31, ~~2018~~2019 and ~~2017:~~2018:

The impact on net interest income for these loans was not material to the Company’s results of operations for the three months ended March 31, ~~2018~~2019 and ~~2017.~~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 March 31, ~~2018~~2019 and December 31, ~~2017:~~2018:

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 March 31, ~~2018~~2019 and December 31, ~~2017~~2018 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		PCI Loans		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
March 31, 2018
March 31, 2019
Construction and land development	$	473	$	—	$	—	$	165	$	638	$	523,022	$	—	$	523,660	$	139	$	—	$	—	$	139	$	581,201	$	—	$	581,340
Commercial real estate:
Nonfarm, nonresidential		—		—		—		—		—		673,497		371		673,868		—		—		—		—		852,838		—		852,838
Other		5		—		—		—		5		43,105		—		43,110		—		—		—		—		40,652		—		40,652
Residential real estate:
Closed-end1-4 family		610		1,060		—		581		2,251		428,216		96		430,563
Closed-end 1-4 family																		1,135		11		—		1,146		496,014		74		497,234
Other		116		—		12		113		241		171,975		—		172,216		88		—		—		88		196,942		—		197,030
Commercial and industrial		440		195		166		2,466		3,267		459,687		1,973		464,927		522		622		180		1,324		634,093		1,946		637,363
Consumer and other		—		200		—		—		200		3,699		—		3,899		—		—		—		—		4,448		—		4,448
																	$	1,884	$	633	$	180	$	2,697	$	2,806,188	$	2,020	$	2,810,905
	$	1,644	$	1,455	$	178	$	3,325	$	6,602	$	2,303,201	$	2,440	$	2,312,243

December 31, 2017
December 31, 2018
Construction and land development	$	1,918	$	136	$	—	$	—	$	2,054	$	492,764	$	—	$	494,818	$	294	$	1,986	$	548	$	2,828	$	581,612	$	—	$	584,440
Commercial real estate:
Nonfarm, nonresidential		—		—		—		—		—		628,554		380		628,934		515		—		—		515		753,728		—		754,243
Other		—		—		—		—		—		49,681		—		49,684		—		—		—		—		48,017		—		48,017
Residential real estate:
Closed-end1-4 family		—		—		14		257		271		407,424		105		407,800
Closed-end 1-4 family																		2,390		404		228		3,022		489,967		76		493,065
Other		146		719		—		114		979		168,661		—		169,640		142		—		1,810		1,952		187,865		—		189,817
Commercial and industrial		532		27		191		2,466		3,216		498,790		1,908		503,914		241		252		208		701		590,153		1,939		592,793
Consumer and other		—		—		—		—		—		3,781		—		3,781		—		—		—		—		5,568		—		5,568
																	$	3,582	$	2,642	$	2,794	$	9,018	$	2,656,910	$	2,015	$	2,667,943
	$	2,596	$	882	$	205	$	2,837	$	6,520	$	2,249,658	$	2,393	$	2,258,571

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 as non-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 March 31, ~~2018~~2019 and December 31, ~~2017:~~2018:

As of March 31, ~~2018 and December 31, 2017,~~2019, the Company’s loan portfolio contains one loan that has been modified in a troubled debt restructuring with a balance of ~~$165 and $608, respectively. During~~$319. As of December 31, 2018, the ~~first quarter of 2018 one~~Company’s loan ~~was added as~~portfolio contained two loans that had been modified in a troubled debt restructuring with a balance of ~~$165, and~~$490. During the ~~loan~~three months ended March 31, 2019, one of the loans that was ~~previously reported as~~ a troubled debt restructuring at December 31, ~~2017~~2018 was ~~paid down by $575 by~~fully charged off with $159 of the ~~borrower, and the remaining $33 was charged off.~~loan balance being recognized as a charge-off.

Loans serviced for others are not reported as assets. The principal balances of these loans at March 31, ~~2018~~2019 and December 31, ~~2017~~2018 are as follows:

The components of net loan servicing fees for the three months ended March 31, ~~2018~~2019 and ~~2017~~2018 were as follows:

The fair value of servicing rights was estimated by management to be approximately ~~$5,305~~$4,329 at March 31, ~~2018.~~2019. Fair value for March 31, ~~2018~~2019 was determined using a weighted average discount rate of ~~10.5%~~9.5% and a weighted average prepayment speed of ~~9.4%~~13.9%. At December 31, ~~2017,~~2018, the fair value of servicing rights was estimated by management to be approximately ~~$5,089.~~$4,836. Fair value for December 31, ~~2017~~2018 was determined using a weighted average discount rate of ~~10.5%~~9.5% and a weighted average prepayment speed of ~~9.9%~~11.9%.

~~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 through~~all 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”) under~~in which the ~~bank pledges investment securities owned~~Company 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 maturity~~other liabilities on the securities underlying the agreements are returned to the Company. At March 31, 2018 and December 31, 2017, these short-term borrowings totaled $36,071 and $31,004, respectively, and were secured by securities with carrying amounts of $41,377 and $41,618, respectively. At March 31, 2018,consolidated balance sheet.

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 had~~consolidated statements of condition. Upon adoption of FASB ASU 2016-02 ~~one-day~~Leases ~~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. Subsequent to March 31, 2019, one additional lease agreement has been executed with the plan to relocate one branch in Williamson County, Tennessee.

The following table ~~provides additional details~~represents 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.

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 ~~March 31, 2018:~~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.

The following table ~~provides additional details~~represents 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 ~~of December 31, 2017:~~a single lease component, the variable lease cost primarily represents variable payments such as common area maintenance and utilities.

~~In connection with the Company’s 2010 private offering, 32,425 warrants were issued~~

Rent expense related to shareholders, one warrant for every twenty shares of common stock purchased. Each warrant allowed the shareholders to purchase an additional share of common stock at $12.00 per share. The warrants were issued with an effective date of March 30, 2010 and were exercisable in whole or in part up to seven years following the date of issuance. The warrants were detachable from the common stock. There were 11,011 warrants exercisedleases during the three months ended March 31, ~~2017. The warrants expired on March 30, 2017; therefore at~~2018, was $1,228.

Future minimum payments for a finance lease and operating leases with initial or remaining terms of one year of more as of March 31, ~~2018, there were no outstanding warrants associated with the 2010 offering. A summary of the stock warrant activity for the three months ended March 31, 2018 and 2017 follows:~~2019.

Future minimum payments for a finance lease and operating leases with initial or remaining terms of one year of more as of December 31, 2018.

The Company has two share based compensation plans as described below. Total compensation cost that has been charged against income for those plans was ~~$759~~$1,329 and ~~$447~~$759 for the three months ended March 31, ~~2018~~2019 and ~~2017,~~2018, respectively. The total income tax benefit, which is shown on the Consolidated Statements of Income as a reduction of income tax expense, was ~~$63~~$113 and ~~$93~~$63 for the three months ended March 31, ~~2018~~2019 and ~~2017,~~2018, respectively.

Stock Options: The Company’s 2007 Omnibus Equity Incentive Plan (the “2007 Plan”), as amended and shareholder-approved, provided for authorized shares up to 4,000,000. The 2007 Plan provided that no options intended to be 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, an equity incentive plan, the 2017 Omnibus Equity Incentive Plan ~~(the “2017 Plan”). The~~which the Company’s shareholders approved ~~the 2017 Plan~~ at the 2017 annual meeting of shareholders. On April 12, 2018, the Compensation Committee of the Company’s Board of Directors approved the Amended and Restated 2017 Omnibus Equity Incentive Plan to make certain changes in response to feedback received from our shareholders. The terms of the Amended and Restated 2017 Plan are substantially similar to the terms of the 2007 Plan it was intended to replace. The Amended and Restated 2017 Plan provides for authorized shares up to ~~5,000,000.~~3,500,000. At March 31, ~~2018,~~2019, there were ~~4,709,454~~2,481,835 authorized shares ~~available for issuance under the 2017 Plan.~~

On April 12, 2018, the Compensation Committee of the Company’s Board of Directors (the “Committee”) approved the Amended and Restated 2017 Omnibus Equity Incentive Plan (the “Amended and Restated 2017 Plan”) in order to make the following amendments to the 2017 Plan in response to feedback the Company received from its shareholders:

Employee, organizer and director awards are generally granted with an exercise price equal to the market price of the Company’s common stock at the date of grant; those option awards have a 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 Directors 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.

The weighted average fair value of options granted for the three months ended March 31, 2019 and 2018 were $10.01 and ~~2017 were~~ $14.77, ~~and $17.25,~~ respectively.

A summary of the activity in the plans for the three months ended March 31, ~~2018~~2019 follows:

As of March 31, 2019 and 2018, there was $5,306 and $5,708, respectively, 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 ~~1.6~~1.1 years.

Restricted Stock: 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. 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 three months ended March 31, ~~2018~~2019 is as follows:

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 March 31, 2019 and 2018, there was $2,028 and $1,580, respectively, 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 ~~3.1~~1.5 years. ~~There were no shares that vested during the three months ended March 31, 2018 or 2017, respectively.~~

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 increase~~increased each year until fully implemented at 2.5% in January 2019. ~~The capital conservation buffer in effect for 2018 is 1.875%.~~

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 March 31, ~~2018,~~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 March 31, ~~2018,~~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 March 31, ~~2018~~2019 and December 31, ~~2017~~2018 for the Company and Bank:

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. ~~The Bank may not currently pay dividends without prior written approval from its primary regulatory agencies.~~

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.

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 entered into sixteen swap transactions with a notional amount of $101.2 million designated as fair value hedges. These derivatives are intended to protect against the effects of changing interest rates on the fair values of fixed rate securities.

A summary of the Company's fair value hedge relationships as of March 31, 2019 are as follows (in thousands):

The effects of fair value hedge relationships reported in interest income on securities on the consolidated statements of income for the three months ended March 31, 2019 and 2018 were as follows (in thousands):

The following amounts were recorded on the balance sheet related to cumulative basis adjustments for fair value hedges at March 31, 2019:

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).

~~Derivatives~~Other Assets: Included in other assets are certain assets carried at fair value and interest rate locks associated with the mortgage loan pipeline. The fair ~~values~~value of ~~derivatives are~~the mortgage loan pipeline rate locks is based ~~on valuation models using observable~~upon the projected sales price of the underlying loans, taking into account market ~~data as of~~interest rates and other market factors at the measurement date, net of the projected fallout rate. These assets are valued using similar observable data that occurs in the market. (Level 2).

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 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:

As of March 31, 2019, the unpaid principal balance of loans held for sale was $21,079 resulting in an unrealized gain of $651 included in mortgage banking revenue. As of December 31, 2018, the unpaid principal balance of loans held for sale was ~~$12,554~~$10,722, resulting in an unrealized gain of ~~$317~~$381 included in ~~gains on sale of loans. As of December 31, 2017, the unpaid principal balance of loans held for sale was $11,681, resulting in an unrealized gain of $343 included in gains on sale of loans.~~mortgage banking revenue. For the three months ended March 31, ~~2018~~2019 and ~~2017,~~2018, the change in fair value related to loans held for sale, which is included in ~~gain on sale of loans,~~mortgage banking revenue, was ~~$(26)~~$270 and ~~$113,~~($26), respectively. None of these loans were 90 days or more past due or on nonaccrual as of March 31, ~~2018~~2019 and December 31, ~~2017.~~2018.

There were no transfers between level 1 and 2 during ~~2018~~2019 or ~~2017.~~2018.

There ~~was one~~were six collateral-dependent ~~commercial and industrial~~ impaired loans carried at fair value of ~~$1,831~~$5,722 as of March 31, ~~2018~~2019. The level 3 fair value measurement for these assets measured at fair value on a non-recurring basis used the income approach with an adjustment for differences in net operating income expectations based on an unobservable input of earnings before interest, tax, depreciation and amortization (EBITDA). There was one collateral-dependent impaired loan carried at fair value of $150 as of December 31, ~~2017.~~2018. For the three months ended March 31, ~~2018 and 2017, there was no~~2019, $3,455 in additional provision for loan losses was recorded related to impaired loans recorded at fair value of collateral. For the three months ended March 31, 2018, $0 in additional provision for loan losses 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~~$0 as of March 31, ~~2018~~2019 and December 31, ~~2017. The foreclosed property was previously collateral for a commercial real estate loan.~~2018, respectively. There were no properties at March 31, ~~2018~~2019 or ~~2017~~2018 that had required write-downs to fair ~~value resulting in no write downs for the three months ended March 31, 2018 and 2017, respectively.~~value.

The carrying amounts and estimated fair values of financial instruments at March 31, ~~2018~~2019 and December 31, ~~2017~~2018 are as follows:

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: In accordance with ASU 2016-01, the fair value of loans held 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 loans; (2) the magnitude of future net losses based on expected default rate and severity of loss; and (3) the discount rate applicable to the expected cash flows of the loan portfolio. Loans are considered a Level 3 classification.

(c) ~~Restricted Equity Securities:~~ ~~It is not practical to determine the fair value of Federal Home Loan Bank or Federal Reserve Bank stock due to restrictions placed on its transferability.~~

~~(d)~~ 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.

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:

For ~~the~~ three months ended March 31, ~~2018~~2019 and ~~2017,~~2018, stock options for ~~411,279~~768,458 and ~~108,000~~411,279 shares of common stock, respectively, were not considered in computing diluted earnings per common share because they were antidilutive.

The Company’s subordinated notes, net of issuance costs, totaled ~~$58,559~~$58,738 and ~~$58,515~~$58,693 at March 31, ~~2018~~2019 and at December 31, ~~2017,~~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 three months ended March 31, ~~2018~~2019 and ~~2017,~~2018, amortization of issuance costs has amounted to $45 ~~for both periods.~~and $45, respectively.

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 assist~~and 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 and~~accompanying 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 ~~SEC~~Securities and Exchange Commission (“SEC”) on March ~~16, 2018,~~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.~~

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 1415 branches and ~~one~~a 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 March 31, 2019, we had consolidated total assets of $4,238,436, total loans, including loans held for sale, of $2,801,250, total deposits of $3,315,843 and total equity of $383,514.

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.

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, 2018.~~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.

The ~~allowance for loan losses~~ALLL 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’s) 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 restructurings~~TDR’s 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 restructuring~~TDR is considered to be a collateral dependent loan, the loan is reported, net, at the fair value of the collateral. For ~~troubled debt restructurings~~TDR’s 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 ~~economic~~qualitative factors based on the risks present for each portfolio segment. These economic factors include consideration of the following: levels of and trends in delinquencies and impaired loans; levels of and trends in charge-offs and recoveries; trends in volume and terms of loans; effects of any changes in risk selection and underwriting standards; other changes in lending policies, procedures, and practices; experience, ability, and depth of lending management and other relevant staff; national and local economic trends and conditions; industry conditions; and effects of changes in credit concentrations.

The Company reported net income and net income available to common shareholders of ~~$10,052~~$2,901 and ~~$7,934~~$10,052 for the three months ended March 31, 2019 and 2018, ~~and 2017,~~ respectively. ~~The primary reasons for the increase in net~~Net income ~~for the three months ended March 31,~~available to common shareholders decreased by $7,151 when comparing 2019 with 2018, ~~were increased interest income on loans and investment securities~~primarily due to ~~organic growth in these portfolios, decreased provision for loan losses~~$4,143 related to ~~the Company’s loan quality~~post employment and ~~the decrease in income tax~~retirement expense, along with $3,486 related to ~~the Tax Act legislation that was passed in December 2017.~~a specific loan loss provision on a shared national credit (SNC).

Net interest income consists of interest income generated by ~~earning assets,~~earning-assets less interest ~~expense.~~expense paid on interest-bearing liabilities and is the most significant component of our revenues. Net interest income for the three months ended March 31, 2019 and 2018 totaled $27,420 and ~~2017 totaled~~ $25,116, ~~and $23,643,~~ respectively, an increase of ~~$1,473,~~$2,304 or ~~6.2%~~9.2%. For the three months ended March 31, ~~2018 and 2017,~~2019, interest income ~~was $38,047 and $30,541, respectively, an increase of 24.6%,~~increased $9,476 or 24.9% due primarily to growth in ~~both~~ the loan ~~and investment securities portfolios.~~portfolio. For the three months ended March 31, ~~2018 and 2017,~~2019, interest expense ~~was $12,931 and $6,898, respectively, an increase of 87.5%, which is a result of~~increased $7,172 or 55.5% due primarily to increases in ~~interest-bearing deposits and Federal Home Loan Bank advances.~~interest rates paid on deposits.

Interest-earning assets averaged ~~$3,867,957~~$4,044,231 and ~~$3,184,516~~$3,867,957 during the three months ended March 31, ~~2018~~2019 and ~~2017,~~2018, respectively, an increase of ~~$683,441,~~$176,274, or ~~21.5%~~4.6%. This increase was primarily due to ~~organic~~ growth in ~~both the loan portfolio~~average loans of $466,214, which was offset by decreases in securities and ~~the securities portfolio over the past year, as well as growth in the average balance of federal funds sold. Average loans increased 23.5%, average investment securities increased 5.7% and average~~ federal funds sold and other ~~increased 208.0%,~~of $187,947 and $106,488, respectively, when comparing the three months ended March 31, ~~2018~~2019 with the same period in ~~2017.~~2018.

When comparing the three months ended March 31, ~~2018~~2019 and ~~2017,~~2018, the yield on average interest earning assets, adjusted for~~tax-equivalent~~ tax equivalent yield, ~~remained consistent at~~increased 76 basis points in 2019 to 4.82% compared to 4.06%~~. When comparing the first quarter of 2018 with~~ for the same period ~~in 2017, thetax-equivalent~~ ~~yield on loans increased by 16 basis points. The increase is primarily related to an increase in current interest rates.~~

during 2018. For the three months ended March 31, ~~2018,~~2019, the~~tax-equivalent~~ tax equivalent yield on ~~available for sale securities~~loans was ~~2.52%~~5.61%, and for the three months ended March 31, ~~2017,~~2018, the~~tax-equivalent~~ tax equivalent yield on ~~available~~loans was 5.07%. The primary driver for ~~sale securities~~the increase in yields on loans was ~~2.69%. For~~the increase in market interest rates when compared to the same quarter in the previous year.

Interest-bearing liabilities averaged $3,490,227 during the three months ended March 31, 2019, compared to $3,371,827 for the same period in 2018, ~~thetax-equivalent~~ ~~yield on held to maturity securities was 3.83%~~an increase of $118,400, or 3.5%. Total average interest-bearing deposits grew $71,408, or 2.4%, including an increase in average money market deposit accounts of $248,369, offset by decreases in average interest checking ($61,236), average savings deposits ($9,833) and average time deposits ($105,892) for the three months ended March 31, ~~2017, thetax-equivalent~~ ~~yield on held to maturity securities was 4.20%. The primary driver for the yield decreases in both available for sale securities and held to maturity securities was the decrease in volume oftax-exempt~~ ~~securities that have been purchased combined with the reduction of the effective tax rate.~~

Interest-bearing liabilities averaged $3,371,827 during the three months ended March 31, 2018, compared to $2,750,555 for the same period in 2017, an increase of $621,272, or 22.6%. Total average interest-bearing deposits grew $533,604, including increases in average brokered deposits of $195,915 and average interest-bearing public funds deposits of $165,726 for the three-month period ended March 31, 2018,2019, as compared to the same period during ~~2017. Rapid growth in the loan portfolio~~2018. Average FHLB advances also ~~resulted in increases in average Federal Home Loan Bank advances of $100,111,~~increased by $68,044 when comparing the ~~first~~ three months ~~of 2018~~ended March 31, 2019 with the same period in ~~2017.~~2018.

~~For~~When comparing the three ~~month periods~~months ended March 31, ~~2018~~2019 and ~~2017,~~2018, the cost of average interest-bearing liabilities increased 5478 basis points to ~~1.56%~~2.34% from ~~1.02%~~1.56%. The increase was ~~primarily~~ due to rate increases infor interest-bearing ~~checking, money market~~ deposits, ~~time deposits,~~FHLB advances and ~~Federal Home Loan Bank advances when comparing the first quarter of 2018 with the first quarter of 2017.~~federal funds 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-months~~three months ended March 31, ~~2018~~2019 and ~~2017:~~2018:


	Three Months Ended March 31,																Three Months Ended March 31,
	2018								2017								2019								2018
	Average Balance⁽¹⁾			Interest Inc / Exp		Average Yield / Rate			Average Balance⁽¹⁾			Interest Inc / Exp		Average Yield / Rate			Average Balance			Interest Inc / Exp		Average Yield / Rate			Average Balance			Interest Inc / Exp		Average Yield / Rate
ASSETS:
Loans⁽²⁾⁽⁶⁾	$	2,307,899		$	28,805		5.06	%	$	1,868,678		$	22,583		4.90	%
Securities available for sale⁽⁶⁾		1,074,981			6,682		2.52	%		991,679			6,584		2.69	%
Securities held to maturity⁽⁶⁾		214,214			2,021		3.83	%		227,662			2,355		4.20	%
Loans⁽¹⁾⁽⁶⁾																	$	2,764,675		$	38,238		5.61	%	$	2,299,219		$	28,732		5.07	%
Loans held for sale																		9,438			115		4.94			8,680			73		3.41
Securities:
Taxable																		919,549			6,394		2.82			1,059,989			6,111		2.34
Tax-exempt⁽⁶⁾																		181,699			1,990		4.44			229,206			2,592		4.59
Restricted equity securities		18,658			274		5.96	%		13,695			181		5.36	%		22,375			334		6.05			18,658			274		5.96
Certificates of deposit at other financial institutions		2,814			12		1.73	%		1,820			7		1.56	%		3,592			20		2.26			2,814			12		1.73
Federal funds sold and other⁽³⁾		249,391			942		1.53	%		80,982			156		0.78	%

Federal funds sold and other⁽²⁾																		142,903			967		2.74			249,391			942		1.53
TOTAL INTEREST EARNING ASSETS	$	3,867,957		$	38,736		4.06	%	$	3,184,516		$	31,866		4.06	%	$	4,044,231		$	48,058		4.82	%	$	3,867,957		$	38,736		4.06	%
Allowance for loan losses		(21,683	)							(17,162	)
Allowance for loan and lease losses																		(24,054	)							(21,683	)
All other assets		125,590								96,018								200,078								125,590

TOTAL ASSETS	$	3,971,864							$	3,263,372							$	4,220,255							$	3,971,864
LIABILITIES & EQUITY
Deposits:
Interest checking	$	918,332		$	3,166		1.40	%	$	701,983		$	1,062		0.61	%	$	857,096		$	4,420		2.09	%	$	918,332		$	3,166		1.40	%
Money market		744,473			2,600		1.42	%		613,574			1,228		0.81	%		992,842			5,979		2.44			744,473			2,600		1.42
Savings		50,442			38		0.31	%		55,613			42		0.31	%		40,609			28		0.28			50,442			38		0.31
Time deposits		1,271,558			4,839		1.54	%		1,080,031			2,914		1.09	%		1,165,666			6,563		2.28			1,271,558			4,839		1.54
Federal Home Loan Bank advances		296,667			1,110		1.52	%		196,556			508		1.05	%		364,711			1,918		2.13			296,667			1,110		1.52
Federal funds purchased and repurchase agreements		31,823			96		1.22	%		44,446			70		0.64	%
Federal funds purchased and other⁽³⁾																		10,594			72		2.76			31,823			96		1.22
Subordinated notes and other borrowings		58,532			1,082		7.50	%		58,352			1,074		7.46	%		58,709			1,123		7.76			58,532			1,082		7.50

TOTAL INTEREST BEARING LIABILITIES	$	3,371,827		$	12,931		1.56	%	$	2,750,555		$	6,898		1.02	%	$	3,490,227		$	20,103		2.34	%	$	3,371,827		$	12,931		1.56	%
Demand deposits		286,918								230,494								291,176								286,918
Other liabilities		13,279								9,610								61,736								13,279
Total equity		299,840								272,713								377,116								299,840

TOTAL LIABILITIES AND EQUITY	$	3,971,864							$	3,263,372							$	4,220,255							$	3,971,864
NET INTEREST SPREAD⁽⁴⁾							2.50	%							3.04	%							2.48	%							2.50	%
NET INTEREST INCOME				$	25,805							$	24,968							$	27,955							$	25,805
NET INTEREST MARGIN⁽⁵⁾							2.71	%							3.18	%							2.80	%							2.71	%

The tables below detail the components of the changes in net interest income for the periods indicated. For each major category of interest-earning assets and interest-bearing liabilities, information is provided with respect to changes due to average volume and changes due to rates, with the changes in both volumes and rates allocated to these two categories based on the proportionate absolute changes in each category.

The provision for loan losses represents a charge to earnings necessary to establish an ~~allowance for loan losses~~ALLL that, in management’s evaluation, should be adequate to provide coverage for 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 ~~$573~~$5,055 and ~~$1,855~~$573 for the three months ended March 31, ~~2018~~2019 and ~~2017,~~2018, respectively. The ~~decrease in loan loss~~higher provision ~~is due primarily~~for the three months ended March 31, 2019 compared to the same period in 2018 is based on the Company’s analysis of its ALLL which, based on the loan ~~quality.~~portfolio’s risk profile driven primarily by a specific reserve of $3,455 related to a SNC relationship, and comparatively higher loan growth, resulted in more provision being recorded. Nonperforming loans at March 31, ~~2018~~2019 totaled ~~$3,503~~$11,904 compared to ~~$4,036~~$5,696 at ~~March~~December 31, ~~2017,~~2018, representing ~~0.15%~~0.42% and ~~0.21%~~0.22% of total loans ~~respectively.~~for the respective periods.

Non-interest income for the three months ended March 31, ~~2018 and 2017~~2019 was $3,486 compared to $3,456 ~~and $4,008, respectively.~~for the same period in 2018. The following is a summary of the components ofnon-interest income (in thousands):

Net gains on the sale of loans include net gains realized from the sales of mortgage loans and from the fair value adjustments related to mortgage loan derivatives. Net gains on the sale of mortgage loans are based, in part, on differences between the carrying value of loans being sold to third-party investors and the selling price. Also included are changes in the fair value of mortgage

into by the Company to hedge the change in interest rates on loan commitments prior to their sale in the secondary market. Fluctuations in mortgage interest rates, changes in the demand for certain loans by investors, and whether servicing rights associated with the loans being sold are retained or released all affect the net gains on mortgage loan sales. Net gains for the three months ending March 31, 2018 were $1,439, a decrease of $895, or 38.3%, from $2,334revenue increased $123 for the three months ended March 31, ~~2017.~~2019. The ~~decrease~~increase was due to the volume of mortgage loans originated, the sales related to those loans, and ~~less~~more favorable market rates in ~~first quarter 2018,~~2019, which resulted in ~~less~~ favorable fair value adjustments on mortgage derivatives.

The decrease in (loss) gain on sale of loans is attributable to the sale of a Shared National Credit relationship during the three months ended March 31, 2018 increased $111, or 18.7%, in comparison with the same period in 2017. The increase was primarily due to the growth in the client base and the assets under management in the wealth management division.2019.

~~Othernon-interest~~ income increased $209, or 110.6%, when comparing first quarter 2018 with first quarter 2017. The increase is primarily attributed to bank owned life insurance income increasing $211 when compared to the first quarter of 2017.

Non-interest expense for the three months ended March 31, ~~2018 and 2017~~2019 was $22,616 compared to $15,488 ~~and $14,276, respectively, an increase of $1,212, or 8.5%. This increase was~~for the same period in 2018. The increases were the result of the following components listed in the table below (in thousands):

The increase innon-interest expense noted in the table above is ~~indicative of~~related to the Company’s overall growth. The Company’s ~~biggest variances~~largest increases for the three months ended March 31, ~~2018,~~2019, in comparison with the same ~~period~~periods of ~~2017,~~2018, were in salaries and employee benefits, occupancy and equipment, ~~FDIC assessment expense,~~ professional fees, and othernon-interest expense.

Salaries and employee benefits increased ~~$1,155,~~$5,555, or ~~14.4%~~60.5%, when comparing the three months ended March 31, ~~2018~~2019 with the same period in ~~2017,~~2018. The increase is primarily due to $4,143 in post employment and retirement expenses. In addition, stock-based compensation expense increased $569 for the ~~Company’s staffing growth from 274 full-time equivalent employees as of~~three months ended March 31, ~~2017, to 299 as of March 31,~~2019 in comparison with the same period in 2018. The Company added several lending professionals and lending support personnel, additional compliance professionals, additional credit administration professionals and other operational staff, to support the Company’s growth and to provide enhanced corporate governance. The Company also experienced growth in incentive expenses related to the Company’s overall financial performance and in stock option expense.

Occupancy and equipment expense increased ~~$499,~~$519, or ~~23.8%~~20.0%, when comparing the three months ended March 31, ~~2018~~2019 with the same period in ~~2017. This~~2018. The variance for the three months ended March 31, 2019 versus the three months ended March 31, 2018 is primarily attributable to increases in building rent expense ~~($237),~~of $158, software maintenance fees ~~($125),~~of $244, and other furniture, fixture ~~and~~& equipment expense ~~($49) and furniture, fixture and equipment depreciation expense ($24).~~$60.

The Company’s FDIC assessment expense ~~decreased $100,~~increased $330, or ~~13.2%~~50.0%, when comparing the three months ended March 31, ~~2018~~2019 with the same period in ~~2017.~~2018. The ~~decrease~~increase in comparing the three months ended March 31, 2019 to March 31, 2018 is ~~primarily~~ due to ~~the change in the base assessment rate of the Company, on which FDIC assessments are calculated.~~asset growth.

~~The $166,~~Professional fees increased $54, or ~~16.0%~~6.2%, ~~decrease in professional fees,~~ when comparing the three months ended March 31, ~~2018~~2019 with the same period in ~~2017,~~2018. The increase when comparing the three months ended March 31, 2019 with the same period in 2018 is ~~attributable~~due to ~~a decrease~~increases in other professional fees ~~($204), which was offset by an increase in~~$9 and legal fees ~~($31).~~$86.

For the three months ended March 31, ~~2018,~~2019, othernon-interest ~~expenses decreased $166,~~ expense increased $590, or ~~8.5%~~32.9%, ~~from~~when compared to the ~~same period during 2017.~~three months ended March 31, 2018. The ~~reduction~~increase in othernon-interest expense for the three months ended March 31, 2019 versus March 31, 2018 is attributed to ~~larger decreases~~increases in several types of expenses, but the following expense ~~types: appraisal expenses ($125);~~types represent the largest variances: director fees of $44 and ~~foreclosed property expenses ($75).~~ATM Network Expense of $69.

The Company recognized an income tax expense for the three months ended March 31, ~~2018 and 2017,~~2019 of $334, compared to $2,459 ~~and $3,586, respectively.~~for the three months ended March 31, 2018. The Company’s~~year-to-date~~ quarter-to-date income tax expense for the period ended March 31, ~~2018~~2019 reflects an effective income tax rate of ~~19.7%~~10.3%, which is a significant decrease compared to ~~31.1%~~19.7% for the same period in ~~2017. The decrease~~2018 resulting from the Company’s participation in Tennessee’s Community Investment Tax Credit (CITC) program and due to the ~~effective tax rate for the three months ended March 31, 2018 is~~current quarter’s $4.1 million related to post employment and retirement expenses, along with $3.5 million related to a ~~result of the 2017 Tax Cuts and Jobs Act enacted in December 2017.~~specific loan loss provision on a shared national credit (SNC).

COMPARISON OF BALANCE SHEETS AT ~~MARCH~~March 31, ~~2018 AND DECEMBER~~2019 and December 31, ~~2017~~2018

The Company’s total assets ~~increased~~decreased by ~~$240,137,~~$11,003, or ~~6.2%~~0.3%, from December 31, ~~2017~~2018 to March 31, ~~2018.~~2019. The ~~increase~~decrease 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 three months ended March 31, 2019 offset by organic growth in the loan ~~and investment securities portfolios.~~portfolio.

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 March 31, ~~2018~~2019 and December 31, ~~2017~~2018 were ~~$2,310,018~~$2,807,377 and ~~$2,256,608,~~$2,665,399, respectively, an increase of ~~$53,410,~~$141,978, or ~~2.4%~~5.3%. As a percentage of total assets, total loans, net of deferred fees, at March 31, 2019 and December 31, 2018 were 66.2% and 62.7% of total assets, 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 develop new relationships and broaden its presence in its primary markets in Middle Tennessee which include, Williamson County, Davidson County and Rutherford County.

The table below provides a summary of the loan portfolio composition for the periods noted.

~~Gross~~The table below provides a summary of the Share National Credit portfolio for the periods noted.

The discussion in the following paragraphs includes the PCI loans in the breakdown of the various categories of loans.

Total gross loans increased ~~2.4%~~5.3% during the first three months ~~of 2018, primarily~~ended March 31, 2019, due to organic growth as a result of continued market penetration and the strength of the local economies. During this period, the Company experienced growth in real estate loans of ~~5.3%~~4.8% with ~~the majority of the~~ growth occurring in the residential real estate 1.7% and commercial real estate ~~(5.7%) and construction and land development (5.8%)~~11.4% segments. The Company also experienced ~~a decline~~an increase of ~~7.7%~~7.5% in the commercial and industrial segment during the ~~first~~ three months ~~of 2018.~~ended March 31, 2019.

Real estate loans, including $74 of PCI loans, comprised ~~79.7%~~77.2% of the loan portfolio at March 31, ~~2018.~~2019. The largest portion of the real estate segments as of March 31, ~~2018,~~2019, was commercial real estate loans, which totaled ~~38.9%~~41.2% of real estate loans. Commercial real estate loans totaled $893,490 at March 31, 2019, and comprised ~~31.0%~~31.8% 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 residential~~other properties.

~~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 $602,779 at March 31, 2018 and comprised 32.7% of real estate loans and 26.1% of total loans.

Construction and land development loans totaled ~~$523,660~~$581,340 at March 31, ~~2018,~~2019, and comprised ~~28.4%~~26.8% of total real estate loans and ~~22.6%~~20.7% 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.

~~Commercial~~The residential real estate classification primarily includes 1-4 family residential loans which are typically conventional first-lien home mortgages, not including loans held-for-sale in the secondary market, and ~~industrial~~it also includes home equity lines of credit and other junior lien mortgage loans. Residential real estate loans totaled ~~$464,927 at March 31, 2018~~$694,264 and comprised ~~20.1%~~32.0% of real estate loans and 24.7% of total loans at March 31, ~~2018.~~2019.

Commercial and industrial loans totaled $637,363 at March 31, 2019 which includes $1,946 of PCI loans. Loans in this classification comprised 22.7% of total loans at March 31, 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 $229,608 at March 31, 2019, decreasing $19,425, or 31.6%, from $249,033 at December 31, 2018. 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 repayment of loans is a source of additional liquidity for the Company. The following table sets forth the loans maturing within specific intervals at March 31, ~~2018,~~2019, excluding unearned net fees and costs.

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.

The Company maintains an ~~allowance for loan losses~~ALLL 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:

past loan experience;

the nature and volume of the portfolio;

risks known about specific borrowers;

underlying estimated values of collateral securing loans;

current and anticipated economic conditions; and

other factors which may affect the allowance for probable incurred losses.

The ~~allowance for loan losses~~ALLL consists of two primary components: (1) a specific component which relates to loans that are individually classified as impaired 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, (2) Commercial real estate loans, (3) Residential real estate loans, (4) Commercial and industrial 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 losses~~ALLL are shown at March 31, ~~2018~~2019 and December 31, ~~2017.~~2018.


	March 31, 2018							December 31, 2017							Increase (Decrease)							March 31, 2019							December 31, 2018							Increase (Decrease)
	Loan Balance		ALLL Balance		%			Loan Balance		ALLL Balance		%			Loan Balance			ALLL Balance				Loan Balance		ALLL Balance		%			Loan Balance		ALLL Balance		%			Loan Balance			ALLL Balance
Non impaired loans	$	2,255,719	$	21,179		0.94	%	$	2,201,515	$	20,358		0.92	%	$	54,204		$	821		2 bps	$	2,714,663	$	24,233		0.89	%	$	2,568,930	$	23,249		0.91	%	$	145,733		$	984		-2 bps
Non-PCI acquired loans (Note 1)		50,759		10		0.02	%		50,522		10		0.02	%		237			—		—		82,701		169		0.20			91,344		185		0.20			(8,643	)		(16	)	0 bps
Impaired loans		3,325		543		16.33	%		4,141		879		21.23	%		(816	)		(336	)	-490 bps		11,521		3,455		29.99			5,654		17		0.30			5,867			3,438		2969 bps

Non-PCI loans		2,309,803		21,732		0.94	%		2,256,178		21,247		0.94	%		53,625			485		—		2,808,885		27,857		0.99			2,665,928		23,451		0.88			142,957			4,406		11 bps
PCI loans		2,440		6		0.25	%		2,393		—		—	%		47			6		25 bps		2,020		—		—			2,015		—		—			5			—			—

Total loans	$	2,312,243	$	21,738		0.94	%	$	2,258,571	$	21,247		0.94	%	$	53,672		$	491		—	$	2,810,905	$	27,857		0.99	%	$	2,667,943	$	23,451		0.88	%	$	142,962		$	4,406		11 bps

⁽¹⁾ Loans acquired are performing loans recorded at estimated fair value at the acquisition date. Based on the analysis performed by management as of March 31, 2019, $169 in ALLL was recorded at March 31, 2019 related to the loans acquired and not otherwise considered PCI.

~~Note 1:~~

Loans acquired pursuant to the July 1, 2014 acquisition of MidSouth Bank (“MidSouth”) that are not PCI loans. These 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 outstanding~~non-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 March 31, 2018, $10 in allowance for loan loss was recorded related to the loans acquired from MidSouth.

At March 31, ~~2018,~~2019, the ~~allowance for loan losses~~ALLL was ~~$21,738,~~$27,857, compared to ~~$21,247~~$23,451 at December 31, ~~2017.~~2018. The ~~allowance for loan losses~~ALLL as a percentage of total loans was ~~0.94%~~0.99% at ~~both~~ March 31, ~~2018~~2019 and 0.88% at December 31, ~~2017. Loan~~2018. The Company’s loan growth and management’s evaluation of the risk profile, combined with recent developments in one SNC relationship during the first quarter of ~~2018 is~~2019 are the primary ~~reason~~reasons for the increase in the allowance amount.

The table below sets forth the activity in the ~~allowance for loan losses~~ALLL for the periods presented.


	Three Months Ended March 31, 2018			Three Months Ended March 31, 2017			Three Months Ended March 31, 2019			Three Months Ended March 31, 2018
Beginning balance	$	21,247		$	16,553		$	23,451		$	21,247
Loanscharged-off:
Construction & land development		39			—			—			39
Commercial real estate		—			—			—			—
Residential real estate		7			—			15			7
Commercial & industrial		49			300			568			49
Consumer & other		11			23			70			11

Total loanscharged-off		106			323			653			106
Recoveries on loans previouslycharged-off:
Construction & land development		—			—			—			—
Commercial real estate		—			—			—			—
Residential real estate		19			12			2			19
Commercial & industrial		—			—			—			—
Consumer & other		5			8			2			5

Total loan recoveries		24			20			4			24
Net charge-offs		(82	)		(303	)		(649	)		(82	)
Provision for loan losses charged to expense		573			1,855			5,055			573

Total allowance at end of period	$	21,738		$	18,105		$	27,857		$	21,738

Total loans, gross, at end of period (1)	$	2,312,243		$	1,950,686		$	2,810,905		$	2,312,243

Average gross loans (1)	$	2,301,054		$	1,860,081		$	2,764,675		$	2,301,054

Allowance to total loans		0.94	%		0.93	%		0.99	%		0.94	%

Net charge-offs to average loans, annualized		0.01	%		0.07	%

Net charge-offs (recoveries) to average loans, annualized								0.10	%		0.01	%

⁽¹⁾ Loan balances exclude loans held for sale

~~(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 losses~~ALLL by loan category and loans in each category as a percentage of total loans, for the periods presented.


	March 31, 2018					December 31, 2017					March 31, 2019					December 31, 2018
	Amount		% of Allowance to Total			Amount		% of Allowance to Total			Amount		% of Loan Segment to Total Loans			Amount		% of Loan Segment to Total Loans
Real estate loans:
Construction and land development	$	4,345		20.0	%	$	3,802		21.9	%	$	4,680		20.7	%	$	4,743		21.9	%
Commercial		5,875		27.0	%		5,981		30.0	%		7,118		31.8			6,725		30.1
Residential		3,605		16.6	%		3,834		25.6	%		4,726		24.7			4,743		25.6

Total real estate		13,825		63.6	%		13,617		77.5	%		16,524		77.2			16,211		77.6

Commercial and industrial		7,866		36.2	%		7,587		22.3	%		11,283		22.6			7,166		22.2
Consumer and other		47		0.2	%		43		0.2	%		50		0.2			74		0.2
											$	27,857		100.0	%	$	23,451		100.0	%
	$	21,738		100.0	%	$	21,247		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 ~~other real estate owned (“OREO”), i.e.~~OREO (i.e., real estate acquired through foreclosure or deed in lieu of ~~foreclosure.~~foreclosure). Loans are placed onnon-accrual status when they are past due 90 days and / or management believes the borrower’s financial condition, after giving consideration to economic conditions and collection efforts, is such that collection of interest is 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 March 31, ~~2018~~2019 totaled ~~$3,503.~~$11,724. The other component ofnon-performing loans are loans past due greater than 90 days and still accruing ~~interest.~~interest which totaled $180 at March 31, 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 $178 that were past due 90 days or more and still accruing interest at March 31, 2018.~~

The table below summarizesnon-performing loans and assets for the periods presented.

   March 31,
2018 December 31,
2017
Non-accrual loans
   $ 3,325 $ 2,837
Past due loans 90 days or more and still accruing interest
   178 205


Totalnon-performing loans
   3,503 3,042
Foreclosed real estate (“OREO”)
   1,503 1,503


Totalnon-performing assets
   5,006 4,545
Totalnon-performing loans as a percentage of total loans
   0.2 % 0.1 %
Totalnon-performing assets as a percentage of total assets
   0.1 % 0.1 %
Allowance for loan losses as a percentage ofnon-performing loans
   621 % 698 %

	March 31, 2019			December 31, 2018
Non-accrual loans	$	11,724		$	5,488
Past due loans 90 days or more and still accruing interest		180			208
Total non-performing loans		11,904			5,696
Foreclosed real estate and repossessed assets		-			-
Total non-performing assets		11,904			5,696
Total non-performing loans as a percentage of total loans		0.42	%		0.21	%
Total non-performing assets as a percentage of total assets		0.28	%		0.13	%
Allowance for loan losses as a percentage of non-performing loans		234	%		412	%

As of March 31, ~~2018,~~2019, there were ~~nine~~13 loans onnon-accrual status. The amount and number are further delineated by collateral ~~category~~segment and number of loans in the table below.


	Total Amount		Percentage of Total Non-Accrual Loans			Number of Non-Accrual Loans		Total Amount		Percentage of Total Non-Accrual Loans			Number of Non-Accrual Loans
Construction & land development	$	165		5.0	%		1	$	583		5.0	%		1
Commercial real estate									153		1.3			1
Residential real estate		694		20.9	%		3		1,811		15.4			6
Commercial & industrial		2,466		74.1	%		5		9,177		78.3			5

Consumer									—		—			—
Totalnon-accrual loans	$	3,325		100.0	%		9	$	11,724		100.0	%		13

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 $1,186,420~~totaled $799,301 at March 31, ~~2018,~~2019, compared to ~~$999,881~~$1,030,668 at December 31, ~~2017, an increase~~2018, a decrease of ~~$186,539,~~$231,367, or ~~18.7%~~22.4%. The ~~increase~~decrease inavailable-for-sale securities was primarily attributed to ~~the volume of securities purchased~~security sales during the first ~~quarter~~three months of ~~2018.~~2019.

~~Theheld-to-maturity~~Held-to-maturity securities are carried at amortized cost. This portfolio, consisting of U.S. government sponsored enterprises, mortgage-backed securities and municipal securities, totaled ~~$213,381~~$118,831 at March 31, ~~2018,~~2019, compared to ~~$214,856~~$121,617 at December 31, ~~2017,~~2018, a decrease of ~~$1,475,~~$2,786, or ~~0.7%~~2.3%. The decrease is attributable to securities that matured or had principal pay downs during the first ~~quarter~~three months of ~~2018.~~2019.

The combined securities portfolios represented ~~34.3%~~21.7% and ~~31.6%~~27.1% of total assets at March 31, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively. At March 31, ~~2018,~~2019, the Company had no securities that were classified as having ~~Other Than Temporary Impairment.~~other than temporary impairment.

The Company also had other investments of ~~$19,606~~$22,803 and ~~$18,492~~$21,831 at March 31, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively, primarily consisting of capital stock in the Federal Reserve and the Federal Home Loan Bank (required as members of the Federal Reserve Bank System (FRB) and the Federal Home Loan Bank ~~System)~~System (FHLB)). The ~~Federal Home Loan Bank~~FHLB and ~~Federal Reserve~~FRB 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 ~~$10,941~~$12,682 at March 31, ~~2018~~2019 compared to ~~$11,281~~$12,371 at December 31, ~~2017, a decrease~~2018, an increase of ~~$340,~~$311, or ~~3.0%~~2.5%. ~~This decrease was the result~~The increase is primarily attributed to an increase of $389 in leasehold improvements net of depreciation related to several of the ~~increase in accumulated depreciation in the normal course of business.~~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 or~~non-deposit~~ ~~investment alternatives.~~

At March 31, ~~2018,~~2019, total deposits were ~~$3,355,153,~~$3,315,844, an increase of ~~$187,925,~~$115,963, or ~~5.9%~~3.4%, compared to ~~$3,167,228~~$3,431,807 at December 31, ~~2017. The growth in deposits is attributable to growth in public funds deposits, money market deposits, noninterest-bearing deposits, and interest checking deposits.~~

2018. Included in the Company’s funding strategy are brokered deposits, public funds deposits and reciprocal deposits. Total brokered deposits ~~increased from $779,886~~decreased $79,112, or 9.9%, to $718,683 at March 31, 2019, when compared with $797,795 at December 31, ~~2017~~2018, which reflects the Company’s strategy to ~~$855,256~~reduce its dependence on non-core funding. Public funds deposits decreased $153,904, or 19.7%, to $628,985 at March 31, 2019 when compared with $782,889 at December 31, 2018 due to the ~~increased need for funding for the Bank’s loan growth and due~~Company’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 part~~redirect some of the Company’s ~~funding strategy and are cyclical in nature, with~~local government customers into the ~~peak of~~reciprocal 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. Public~~public funds ~~declined $10,477,~~deposits. As a result, reciprocal deposits increased $122,509, or ~~1.1%~~39.2%, ~~from $1,002,584 at December 31, 2017~~ to ~~$992,107~~$435,191 at March 31, ~~2018.~~2019.

Time deposits, excluding brokered deposits and public funds, as of March 31, ~~2018,~~2019, amounted to ~~$667,958,~~$412,650, compared to ~~$675,150~~$532,445 as of December 31, ~~2017,~~2018, a decrease of ~~$7,193,~~$119,795, or ~~1.1%, primarily due to a decrease in Local Government Investment Pool (LGIP) deposits of $30,000 during the first quarter of 2018.Non-public~~ ~~funds money market accounts, excluding brokered deposits, increased $16,721, or 3.5%, from December 31, 2017 to March 31, 2018. Noninterest-bearing checking deposits grew $26,331, or 9.7%, andnon-public~~ ~~funds interest checking accounts, excluding brokered deposits, grew $60,536, or 45.2%, respectively, when comparing deposit balances from March 31, 2018 with balances at December 31, 2017.~~22.5%.

The following table shows time deposits in denominations of $100 or more ~~by category~~ based on time remaining until ~~maturity.~~

~~Maturity ofnon-brokered~~ ~~time deposits of $100 or more~~maturity:


	March 31, 2018		March 31, 2019
Three months or less	$	241,833	$	178,399
Three through six months		72,936		74,839
Six through twelve months		71,190		58,875
Over twelve months		144,681		150,667

Total	$	530,640	$	462,780

Federal Funds Purchased and Repurchase Agreements

~~As of March 31, 2018 and December 31, 2017, the~~The Company had no federal funds purchased from correspondent ~~banks. Securities sold under~~banks or repurchase agreements ~~to repurchase had an outstanding balance of $36,071~~ as of March 31, ~~2018, compared to $31,004 as of~~2019 and December 31, 2017. 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 Bank~~FHLB of Cincinnati which is secured by a blanket pledge of1-4 family residential ~~mortgages.~~mortgages and home equity lines of credit. At March 31, ~~2018~~2019 and at December 31, ~~2017,~~2018, advances totaled ~~$317,000~~$416,500 and ~~$272,000, respectively.~~

~~At March 31, 2018,~~$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
2018		152,000		1.41	%
2019		110,000		1.78	%	$	261,500		2.30	%
2020		55,000		1.72	%		155,000		2.41	%

Total	$	317,000		1.59	%	$	416,500		2.34	%

Subordinated Notes

At March 31, ~~2018,~~2019, the Company’s subordinated notes, net of issuance costs, totaled ~~$58,559,~~$58,738, compared with ~~$58,515~~$58,693 at December 31, ~~2017.~~2018. For more information related to the subordinated notes and the related issuance costs, please see Note 1011 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 notes~~March 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 Reserve Bank, described in “Other Events” in ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS and in “ITEM 1A. RISK FACTORS,” in the Company’s Annual Report on Form~~10-K~~ ~~for the year ended December 31, 2017, the Bank is required to receive prior written approval from its regulatory agencies~~The Bank’s ability to pay ~~dividends~~a 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 March 31, ~~2018, $1,186,420~~2019, $799,301 of the investment securities portfolio was classified asavailable-for-sale and is reported at fair value on the consolidated balance sheet. Another ~~$213,381~~$118,831 of the portfolio was classified asheld-to-maturity and is reported at amortized cost. Approximately ~~$1,168,275~~$711,826 of the total ~~$1,399,801~~$918,132 investment securities portfolio on hand at March 31, ~~2018,~~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 March 31, ~~2018,~~2019, the Company’s equity was ~~$304,865,~~$383,514, as compared with ~~$304,653~~$372,833 as of December 31, ~~2017.~~2018. The increase in equity was due to the Company’s earnings of ~~$10,052~~$2,901 in the first quarter of ~~2018 and~~2019, the increase in common stock of ~~$929 during the first quarter,~~$1,853, offset by ~~a $10,769 reduction~~the $8,754 decrease in ~~other comprehensive income from~~ the ~~reduced~~ valuation of ~~available for sale~~available-for-sale securities.

Effects of 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 March 31, ~~2018,~~2019, the Company had unfunded loan commitments outstanding of ~~$41,381,~~$49,565, unused lines of credit of ~~$621,697,~~$751,601, and outstanding standby letters of credit of ~~$31,951.~~$40,461.

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:

“Common shareholders’ equity” is defined as total shareholders’ equity at end of period less the liquidation preference value of the preferred stock;

“Tangible common shareholders’ equity” is common shareholders’ equity less goodwill and other intangible assets;

~~“Total tangible assets” is defined as total assets less goodwill and other intangible assets;~~

~~“Other intangible assets” is defined as the sum of core deposit intangible and SBA servicing rights;~~

“Tangible book value per share” is defined as tangible common shareholders’ equity divided by total common shares outstanding. This measure is important to investors interested in changes fromperiod-to-period in book value per share exclusive of changes in intangible assets;

“Tangible common shareholders’ equity ratio” is defined as the ratio of tangible common shareholders’ equity divided by total tangible assets. We believe that this measure is important to many investors in the marketplace who are interested in relative changes from~~period-to~~ ~~period in common equity and total assets, each exclusive of changes in intangible assets;~~

“Return on Average Tangible Common Equity” is defined as net income available to common shareholders divided by average tangible common shareholders’ equity;

“Efficiency ratio” is defined as noninterest expenses divided by our operating revenue, which is equal to net interest income plus noninterest ~~income;~~income.

“Adjusted yield on loans” is our yield on loans after excluding loan accretion from our acquired loan portfolio. Our management uses this metric to better assess the impact of purchase accounting on our yield on loans, as the effect of loan discount accretion is expected to decrease as the acquired loans mature or roll off of our balance sheet;

~~“Net interest margin” is defined as annualized net interest income divided by average interest-earning assets for the period;~~

“Adjusted net interest margin” is net interest margin after excluding loan accretion from the acquired loan portfolio and premiums for acquired time deposits. Our management uses this metric to better assess the impact of purchase accounting on net interest margin, as the effect of loan discount accretion and accretion of net discounts and premiums related to deposits is expected to decrease as the acquired loans and deposits mature or roll off of our balance sheet.

We believe 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:~~

The following reconciliation table provides a more detailed analysis of thesenon-GAAP financial measures:

																As of or for the Three Months Ended
(Amounts in thousands, except share/per share data and percentages)	As of or for the Three Months Ended
	Mar 31, 2018			Dec 31, 2017			Sept 30, 2017			Jun 30, 2017			Mar 31, 2017			March 31, 2019			December 31, 2018			Sept 30, 2018			June 30, 2018			Mar 31, 2018
Total shareholders’ equity	$	304,762		$	304,550		$	303,594		$	292,918		$	278,407		$	383,421		$	372,740		$	356,074		$	348,059		$	304,762
Less: Preferred stock		—			—			—			—			—			—			—			—			—			—

Total common shareholders’ equity																	383,421			372,740			356,074			348,059			304,762
Common shares outstanding																	14,574,339			14,538,085			14,525,351			14,480,240			13,258,142
Book value per share																$	26.31		$	25.64		$	24.51		$	24.04		$	22.99
Total common shareholders’ equity		304,762			304,550			303,594			292,918			278,407			383,421			372,740			356,074			348,059			304,762
Less: Goodwill and other intangible assets		10,074			10,181			10,294			10,356			10,477			19,020			19,128			19,327			19,499			10,074

Tangible common shareholders’ equity	$	294,688		$	294,369		$	293,300		$	282,562		$	267,930		$	364,401		$	353,612		$	336,747		$	328,560		$	294,688
Common shares outstanding		13,258,142			13,237,128			13,209,055			13,181,501			13,064,110			14,574,339			14,538,085			14,525,351			14,480,240			13,258,142

Tangible book value per share	$	22.23		$	22.24		$	22.20		$	21.44		$	20.51		$	25.00		$	24.32		$	23.18		$	22.69		$	22.23

Average total common equity		299,840			304,847			298,088			285,659		$	272,713			377,116			299,840			351,293			340,175			299,840
Less: Average Preferred stock																	—			—			—			—			—
Less: Average Goodwill and other intangible assets		10,136			10,247			10,321			10,427			10,565			19,109			19,268			19,433			19,860			10,136

Average tangible common shareholders’ equity	$	289,704		$	294,600		$	287,767		$	275,232		$	262,148		$	358,007		$	280,572		$	331,860		$	320,315		$	289,704
Net income available to common shareholders		10,052			2,394			8,889			8,866			7,934			2,901			3,743			10,549			10,161			10,052
Average tangible common equity		289,704			294,600			287,767			275,232			262,148			358,007			325,012			331,860			320,315			289,704

Return on average tangible common equity		14.07	%		3.22	%		12.26	%		12.92	%		12.27	%		3.3	%		4.6	%		12.6	%		12.7	%		14.1	%

Efficiency Ratio:
Net interest income	$	25,116		$	24,608		$	24,326		$	24,469		$	23,643		$	27,420		$	26,920		$	26,562		$	26,905		$	25,116
Noninterest income		3,456			3,264			3,569			3,880			4,008			3,486			(383	)		3,442			4,147			3,456

Operating revenue		28,572			27,872			27,895			28,349			27,651			30,906			26,537			30,004			31,052			28,572
Expense
Total noninterest expense		15,488			15,987			15,278			15,283			14,276			22,616			21,689			18,251			18,050			15,488

Efficiency ratio		54.21	%		57.36	%		54.77	%		53.91	%		51.63	%		73.2	%		81.7	%		60.8	%		58.1	%		54.2	%

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
		Mar 31, 2018		Dec 31, 2017		Sept 30, 2017			Jun 30, 2017		Mar 31, 2017		Mar 31, 2019		Dec 31, 2018			Sep 30, 2018		Jun 30, 2018		Mar 31, 2018
Income Statement Data ($):	Income Statement Data ($):
Interest income			38,047		35,121		33,780			33,011		30,541		47,523		46,046			43,717		42,136		38,047
Interest expense			12,931		10,513		9,454			8,542		6,898		20,103		19,125			17,155		15,231		12,931
Net interest income			25,116		24,608		24,326			24,469		23,643		27,420		26,921			26,562		26,905		25,116
Provision for loan losses			573		1,295		590			573		1,855		5,055		975			136		570		573
Noninterest income			3,456		3,264		3,569			3,880		4,008
Noninterest income (expense)														3,486		(384	)		3,442		4,147		3,456
Noninterest expense			15,488		15,987		15,278			15,283		14,276		22,616		21,689			18,251		18,050		15,488
Net income before taxes			12,511		10,590		12,027			12,493		11,520		3,235		3,873			11,617		12,432		12,511
Income tax expense			2,459		8,188		3,138			3,619		3,586		334		122			1,068		2,263		2,459
Net income			10,052		2,402		8,889			8,874		7,934		2,901		3,743			10,549		10,161		10,052
Earnings before interest and taxes			25,442		21,103		21,481			21,035		18,418		23,338		23,048			28,722		27,663		25,442
Net income available to common shareholders			10,052		2,394		8,889			8,866		7,934		2,901		3,743			10,549		10,161		10,052
Weighted average diluted common shares			13,249,728		13,767,979		13,773,539			13,701,762		13,657,357		14,804,830		14,821,540			14,903,751		14,814,059		13,672,384
Earnings per share, basic			0.76		0.18		0.67			0.68		0.61		0.20		0.26			0.73		0.71		0.76
Earnings per share, diluted			0.73		0.17		0.65			0.64		0.58		0.19		0.25			0.70		0.68		0.73
Dividend per share														0.04		—			—		—		—
Profitability (%)
Return on average assets			1.03		0.26		1.03			1.03		0.99		0.28		0.35			1.01		0.98		1.03
Return on average equity			13.60		3.13		11.83			12.46		11.80		3.1		4.1			11.9		12.0		13.6
Return on average tangible common equity⁽³⁾			14.07		3.22		12.26			12.92		12.27		3.3		4.6			12.6		12.7		14.1
Efficiency ratio⁽³⁾			54.21		57.36		54.77			53.91		51.63		73.2		81.7			60.8		58.1		54.2
Net interest margin⁽¹⁾			2.71		2.92		3.05			3.08		3.18		2.80		2.69			2.70		2.74		2.71
Balance Sheet Data ($):
Loans (including HFS)			2,322,889		2,268,632		2,127,753			2,023,679		1,962,397		2,829,107		2,676,502			2,564,684		2,488,862		2,322,889
Loan loss reserve			21,738		21,247		19,944			18,689		18,105		27,857		23,451			22,479		22,341		21,738
Cash			246,164		251,543		155,842			96,741		114,664		300,113		280,212			144,660		176,870		246,164
Securities			1,399,801		1,214,737		1,198,049			1,243,406		1,299,349		918,132		1,152,285			1,319,774		1,357,918		1,399,801
Goodwill			9,124		9,124		9,124			9,124		9,124		18,176		18,176			18,176		18,176		9,124
Intangible assets (Sum of core deposit intangible and SBA servicing rights)			950		1,057		1,170			1,232		1,353		844		952			1,151		1,323		950
Assets			4,083,663		3,843,526		3,565,278			3,443,593		3,454,788		4,238,436		4,249,439			4,167,813		4,165,238		4,083,663
Deposits			3,355,153		3,167,228		2,824,825			2,754,425		2,817,212		3,315,843		3,431,807			3,371,550		3,398,025		3,355,153
Liabilities			3,778,798		3,538,873		3,261,581			3,150,572		3,176,278		3,854,922		3,876,606			3,811,636		3,817,076		3,778,798
Total shareholders' equity														383,421		372,740			356,074		348,059		304,865
Total equity			304,865		304,653		303,697			293,021		278,510		383,514		372,833			356,177		348,162		304,762
Common equity			304,762		304,550		303,594			292,918		278,407
Tangible common equity⁽³⁾			294,688		294,369		293,300			282,562		267,930		364,401		353,612			336,747		328,560		294,688
Asset Quality (%)
Nonperforming loans/ total loans⁽²⁾			0.15		0.13		0.14			0.19		0.21		0.42		0.21			0.16		0.14		0.15
Nonperforming assets / (total loans⁽²⁾ + foreclosed assets)			0.22		0.20		0.21			0.26		0.27		0.42		0.21			0.23		0.21		0.22
Loan loss reserve / total loans⁽²⁾			0.94		0.94		0.94			0.93		0.93		0.99		0.88			0.88		0.90		0.94
Net charge-offs / average loans			0.01		0.00		(0.13	)		0.00		0.07
Net charge-offs (recoveries) / average loans														0.10		0.00			0.00		0.00		0.01
Capital (%)
Tangible common equity to tangible assets(3)			7.23		7.68		8.25			8.23		7.78		8.6		8.4			8.1		7.9		7.2
Leverage ratio			7.80		8.25		8.58			8.21		8.36		8.8		8.8			8.7		8.3		7.8
Common Equity Tier 1 ratio			11.45		11.37		11.58			11.54		11.32		11.3		12.2			12.2		12.1		11.5
Tier 1 risk-based capital ratio			11.45		11.37		11.58			11.54		11.32		11.3		12.2			12.2		12.1		11.5
Total risk-based capital ratio			14.42		14.40		14.68			14.69		14.51		14.0		14.9			15.0		15.0		14.4

⁽¹⁾	Net interest margins shown in the table above includetax-equivalent adjustments to adjust interest income ontax-exempt loans andtax-exempt investment securities to a fully taxable basis.

⁽²⁾	Total loans in this ratio exclude loans held for sale.

⁽³⁾	SeeNon-GAAP table in the preceding pages.

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 ~~effectiveness~~date 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.

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.

~~Subsequent Events~~ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Effective April 1, 2018, the Company acquired Civic Bank & Trust (“Civic”), which was located in Nashville, Tennessee and on the same date, Civic was merged with and into the Bank. Effective with the acquisition, Dr. Anil Patel, who was the chairman of the Civic Bank & Trust board of directors, was added to the Company’s board of directors for a term expiring at the Company’s 2018 annual meeting of shareholders.

~~ITEM 3.~~

~~QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.~~

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 March 31, ~~2018,~~2019, net interest income was estimated to decrease ~~2.23%~~1.40% and ~~4.92%~~3.63% if rates were to increase 100 basis points and 200 basis points, respectively, and was estimated to increase ~~1.81%~~0.84% and ~~0.69%~~2.58% 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 March 31, ~~2018.~~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		105,060		715			0.69	%		110,455		2,783			2.58	%
-100		106,229		1,884			1.81	%		108,577		905			0.84	%
Base		104,345		—			0.00	%		107,672		—			0.00	%
+100		102,017		(2,328	)		(2.23	%)		106,162		(1,510	)		(1.40	%)
+200		99,207		(5,138	)		(4.92	%)		103,761		(3,911	)		(3.63	%)
+300		97,041		(7,304	)		(7.00	%)		101,128		(6,544	)		(6.08	%)
+400		94,045		(10,300	)		(9.87	%)		98,589		(9,083	)		(8.44	%)

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.

~~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 March 31, ~~2018,~~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.

PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

~~ITEM 1.~~

~~LEGAL PROCEEDINGS.~~

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.

ITEM 1A. RISK FACTORS.

~~ITEM 1A.~~

~~RISK FACTORS~~

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, 2018.~~

19, 2019.

~~ITEM 2.~~ ~~UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.~~
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

~~ITEM 3.~~

~~DEFAULTS UPON SENIOR SECURITIES.~~

None.

ITEM 4. MINE SAFETY DISCLOSURES.

~~ITEM 4.~~

~~MINE SAFETY DISCLOSURES.~~

Not applicable.

~~ITEM 5.~~

ITEM 5. OTHER INFORMATION.

~~None.~~

~~ITEM 6.~~

~~EXHIBITS~~

Nolensville Lease

On May 6, 2019, the Bank and Nolensville Real Estate Partners, LLC entered into a Triple Net Office Lease Agreement (the “Lease”) related to the relocation of the Bank’s Nolensville, Tennessee branch, which is currently located at 7177 Nolensville Road, Suite A3, Nolensville, Tennessee 37135, to the premises subject to the Lease, which is located at 7216 Nolensville Road, Suite 100, Nolensville, Tennessee 37135. Nolensville Real Estate Partners, LLC is an affiliate of Henry W. Brockman, Jr. and Dr. David H. Kemp, each of whom are directors of the Company and the Bank. The Lease has a term of 15 years, which the Bank has the option to renew for two successive five year periods, and provides for monthly rent payments of $9,453 per month for the first year of the term of the Lease, subject to annual adjustments thereafter.

Executive Officer Resignation

On May 7, 2019, Sally E. Bowers entered into a Severance Agreement and General Release with the Bank, pursuant to which Ms. Bowers resigned from her position as Executive Vice President, Chief Mortgage Officer of the Bank, effective May 10, 2019. The Severance Agreement provides that Ms. Bowers will receive, in exchange for her release of all potential claims against the Company, and in accordance with the terms of her Confidentiality, Non-Competition, and Non-Solicitation Agreement dated as of January 29, 2014, a payment of (i) $132,934, which is equal to 12 months of Ms. Bowers’ current base pay, and (ii) $6,866.21, which is equal to one times the average cash incentive bonus pay earned by Ms. Bowers based on the last three years, in each case payable in bi-monthly installments. In addition, all of Ms. Bowers' outstanding, unvested equity awards will become fully vested on May 10, 2019.

ITEM 6. EXHIBITS


Exhibit No.		Description

10.1		~~Triple Net Office Lease~~Executive Transition Agreement ~~by and~~dated March 8, 2019, between ~~204 9th Avenue Partners, LLC and~~Franklin Financial Network, Inc., Franklin Synergy Bank, and Richard E. Herrington (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form~~8-K~~ 8-k filed with the Securities and Exchange Commission on March ~~29, 2018)~~8, 2019).

31.1* 10.2*	Triple Net Office Lease Agreement, by and between Nolensville Real Estate Partners, LLC and Franklin Synergy Bank, on May 6, 2019.

10.3*	Severance Agreement and General Release, by and between Franklin Synergy Bank and Sally Bowers, dated May 7, 2019.

10.4*	Commencement Agreement, by and between South Royal Oaks Partners, LLC and Franklin Synergy Bank, dated December 8, 2018.

10.5*	Commencement Agreement, by and between SS McEwen, LLC and Franklin Synergy Bank, dated January 1, 2019.

10.6*	Commencement Agreement, by and between 204 9^th Avenue Partners, LLC and Franklin Synergy Bank, dated February 14, 2019.

31.1*	Certification of Chief Executive Officer Pursuant to Rule13a-14(a) (Section 302 Certification).

31.2*		Certification of Chief Financial Officer Pursuant to Rule13a-14(a) (Section 302 Certification).

32**		Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 (Section 906 Certification).

101*		Interactive Data Files.

*	Filed herewith

**	Furnished herewith

*	~~Filed herewith~~

SIGNATURES

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.
	~~FRANKLIN FINANCIAL NETWORK, INC.~~
May 9, 2019
~~May 10, 2018~~	By:	/s/ ~~Sarah Meyerrose~~Christopher J. Black
		~~Sarah Meyerrose~~ Christopher J. Black Executive Vice President and Chief Financial Officer
		On behalf of the registrant and as Chief Financial Officer (Principal Financial Officer)

Tennessee
~~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)


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, no par value	FSB	New York Stock Exchange


	March 31, 2018			December 31, 2017			March 31, 2019			December 31, 2018
	(Unaudited)						(Unaudited)
ASSETS
Cash and due from financial institutions	$	246,164		$	251,543		$	300,113		$	280,212
Certificates of deposit at other financial institutions		2,855			2,855			3,595			3,594
Securities available for sale		1,186,420			999,881			799,301			1,030,668
Securities held to maturity (fair value 2018—$210,888 and 2017—$217,608)		213,381			214,856
Securities held to maturity (fair value 2019—$118,866 and 2018—$118,955)								118,831			121,617
Loans held for sale, at fair value		12,871			12,024			21,730			11,103
Loans		2,310,018			2,256,608
Loans held for investment								2,807,377			2,665,399
Allowance for loan losses		(21,738	)		(21,247	)		(27,857	)		(23,451	)

Net loans		2,288,280			2,235,361			2,779,520			2,641,948

Restricted equity securities, at cost		19,606			18,492			22,803			21,831
Premises and equipment, net		10,941			11,281			12,682			12,371
Accrued interest receivable		12,937			11,947			14,232			13,337
Bank owned life insurance		49,450			49,085			55,614			55,239
Deferred tax asset		13,807			10,007			12,208			13,189
Foreclosed assets		1,503			1,503
Servicing rights, net		3,602			3,620			3,366			3,403
Goodwill		9,124			9,124			18,176			18,176
Core deposit intangible, net		903			1,007			807			952
Other assets		11,819			10,940			75,458			21,799

Total assets	$	4,083,663		$	3,843,526		$	4,238,436		$	4,249,439

LIABILITIES AND EQUITY
Deposits
Non-interest bearing	$	298,503		$	272,172		$	304,937		$	290,580
Interest bearing		3,056,650			2,895,056			3,010,906			3,141,227

Total deposits		3,355,153			3,167,228			3,315,843			3,431,807
Federal Home Loan Bank advances		317,000			272,000			416,500			368,500
Federal funds purchased and repurchase agreements		36,071			31,004
Subordinated notes, net		58,559			58,515			58,738			58,693
Accrued interest payable		2,775			2,769			5,041			4,700
Other liabilities		9,240			7,357			58,800			12,906

Total liabilities		3,778,798			3,538,873			3,854,922			3,876,606
Equity
Preferred stock, no par value: 1,000,000 shares authorized; no shares outstanding at March 31, 2018 and December 31, 2017		—			—
Common stock, no par value: 30,000,000 and 30,000,000 shares authorized at March 31, 2018 and December 31, 2017 , respectively; 13,258,142 and 13,237,128 issued at March 31, 2018 and December 31, 2017 , respectively		223,594			222,665
Preferred stock, no par value: 1,000,000 shares authorized; no shares outstanding at March 31, 2019 and December 31, 2018								—			—
Common stock, no par value: 30,000,000 authorized; 14,574,339 and 14,538,085 issued and outstanding at March 31, 2019, and December 31, 2018, respectively								266,758			264,905
Retained earnings		98,723			88,671			123,250			123,176
Accumulated other comprehensive loss		(17,555	)		(6,786	)		(6,587	)		(15,341	)

Total shareholders’ equity		304,762			304,550			383,421			372,740
Noncontrolling interest in consolidated subsidiary		103			103

Non-controlling interest in consolidated subsidiary								93			93
Total equity		304,865			304,653			383,514			372,833

Total liabilities and equity	$	4,083,663		$	3,843,526		$	4,238,436		$	4,249,439


	Three Months Ended March 31,
	2018			2017
Net income	$	10,052		$	7,934
Other comprehensive loss, net of tax:
Unrealized gains on securities:
Unrealized holding loss arising during the period		(14,577	)		(641	)
Reclassification adjustment for gains included in net income		—			—

Net unrealized losses		(14,577	)		(641	)
Tax effect		3,808			251

Total other comprehensive loss		(10,769	)		(390	)

Comprehensive income (loss)	$	(717	)	$	7,544

	Three Months Ended March 31,
	2019			2018
Net income	$	2,901		$	10,052
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during the period		13,111			(14,577	)
Reclassification adjustment for gains included in net income		(149	)		—
Net unrealized gains (losses)		12,962			(14,577	)
Tax effect, includes $58 and $0, respectively, income tax (benefit) expense from sales of securities		(4,208	)		3,808
Total other comprehensive income (loss)		8,754			(10,769	)
Comprehensive income (loss)	$	11,655		$	(717	)


Large accelerated filer	☐	☐	Accelerated filer	☒

Non-accelerated filer	☐	~~☐ (Do not check if a smaller reporting company)~~	Smaller reporting company	☐

		Emerging growth company	☒


PART I FINANCIAL INFORMATION

Cautionary Note Regarding Forward-Looking Statements	1
Item 1. Consolidated Financial Statements (unaudited)		2
Consolidated Balance Sheets	2
Consolidated Statements of Income	3
Consolidated Statements of Comprehensive Income	4
Consolidated Statement of Changes in Shareholders’ Equity	5
Consolidated Statements of Cash Flows	6
Notes to Consolidated Financial Statements	7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	27	30
Item 3. Quantitative and Qualitative Disclosures About Market Risk	41	47
Item 4. Controls and Procedures	42	47

PART II OTHER INFORMATION

Item 1. Legal Proceedings	42	48
Item 1A. Risk Factors	42	48
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	43	48
Item 3. Defaults Upon Senior Securities	43	48
Item 4. Mine Safety Disclosures	43	48
Item 5. Other Information	43	48
Item 6. Exhibits	43	49

SIGNATURES


	Preferred		Common Stock						Retained		Accumulated Other Comprehensive			Noncontrolling		Total
	Stock		Shares			Amount			Earnings		Income (Loss)			Interest		Equity
Balance at December 31, 2016	$	—		13,036,954		$	218,354		$	59,386	$	(7,482	)		103	$	270,361
Exercise of common stock options		—		20,268			177			—		—			—		177
Exercise of common stock warrants		—		11,011			132			—		—			—		132
Stock based compensation expense, net of restricted share forfeitures		—		(180	)		447			—		—			—		447
Stock issued in conjunction with 401(k) employer match, net of distributions		—		(3,943	)		(151	)		—		—			—		(151	)
Net income		—		—			—			7,934		—			—		7,934
Other comprehensive loss		—		—			—			—		(390	)		—		(390	)

Balance at March 31, 2017	$	—		13,064,110		$	218,959		$	67,320	$	(7,872	)		103	$	278,510

Balance at December 31, 2017	$	—		13,237,128		$	222,665		$	88,671	$	(6,786	)		103	$	304,653
Exercise of common stock options		—		21,348			220			—		—			—		220
Stock based compensation expense, net of restricted share forfeitures		—		(334	)		759			—		—			—		759
Stock issued in conjunction with 401(k) employer match, net of distributions		—		—			(50	)		—		—			—		(50	)
Net income		—		—			—			10,052		—			—		10,052
Other comprehensive loss		—		—			—			—		(10,769	)		—		(10,769	)

Balance at March 31, 2018	$	—		13,258,142		$	223,594		$	98,723	$	(17,555	)		103	$	304,865

	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		—		21,348			220			—			—			—		220
Stock based compensation expense, net of restricted share forfeitures		—		(334	)		759			—			—			—		759
Stock issued in conjunction with 401(k) employer match, net of distributions		—		—			(50	)		—			—			—		(50	)
Net income		—		—			—			10,052			—			—		10,052
Other comprehensive loss		—		—			—			—			(10,769	)		—		(10,769	)
Balance at March 31, 2018	$	—		13,258,142		$	223,594		$	98,723		$	(17,555	)	$	103	$	304,865
Balance at January 1, 2019	$	—		14,538,085		$	264,905		$	123,176		$	(15,341	)	$	93	$	372,833
Exercise of common stock options, includes net settlement of shares		—		35,046			524			—			—			—		524
Issuance of restricted stock, net of forfeitures		—		1,208			—			—			—			—		—
Stock based compensation expense, net of share forfeitures		—		—			1,329			—			—			—		1,329
Cash dividends - common stock ($0.04 per share)		—		—			—			(583	)		—			—		(583	)
Adjustment for adoption of ASU 2017-08 amortization of premiums		—		—			—			(2,244	)		—			—		(2,244	)
Net income		—		—			—			2,901			—			—		2,901
Other comprehensive income		—		—			—			—			8,754			—		8,754
Balance at March 31, 2019	$	—		14,574,339		$	266,758		$	123,250		$	(6,587	)	$	93	$	383,514

										Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
March 31, 2018
March 31, 2019
U.S. Treasury securities	$	289,086	$	—	$	(515	)	$	288,571	$	69,548	$	70	$	—		$	69,618
U.S. government sponsored entities and agencies		20,103		—		(209	)		19,894		1,829		1		(10	)		1,820
Mortgage-backed securities: residential		782,579		45		(19,496	)		763,128		531,551		387		(8,480	)		523,458
Mortgage-backed securities: commercial		5,123		—		(112	)		5,011
Asset-backed securities											25,745		—		(695	)		25,050
Corporate notes											17,878		123		(62	)		17,939
State and political subdivisions		113,295		404		(3,883	)		109,816		160,556		2,087		(1,227	)		161,416

Total	$	1,210,186	$	449	$	(24,215	)	$	1,186,420	$	807,107	$	2,668	$	(10,474	)	$	799,301

										Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses			Fair Value
	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses			Fair Value
March 31, 2018
March 31, 2019
Mortgage backed securities: residential	$	92,152	$	111	$	(3,495	)	$	88,768	$	73,865	$	85	$	(1,968	)	$	71,982
State and political subdivisions		121,229		1,064		(173	)		122,120		44,966		1,918		—			46,884

Total	$	213,381	$	1,175	$	(3,668	)	$	210,888	$	118,831	$	2,003	$	(1,968	)	$	118,866

December 31, 2017
December 31, 2018
Mortgage backed securities: residential	$	93,366	$	207	$	(1,796	)	$	91,777	$	75,944	$	34	$	(3,072	)	$	72,906
State and political subdivisions		121,490		4,379		(38	)		125,831		45,673		466		(90	)		46,049

Total	$	214,856	$	4,586	$	(1,834	)	$	217,608	$	121,617	$	500	$	(3,162	)	$	118,955

																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
March 31, 2018
March 31, 2019
Available for sale
U.S. Treasury securities	$	288,571	$	(515	)	$	—	$	—		$	288,571	$	(515	)
U.S. government sponsored entities and agencies		—		—			19,894		(209	)		19,894		(209	)	$	344	$	(1	)	$	1,021	$	(9	)	$	1,365	$	(10	)
Mortgage-backed securities: residential		436,263		(7,882	)		295,862		(11,614	)		732,125		(19,496	)		—		—			444,647		(8,480	)		444,647		(8,480	)
Mortgage-backed securities: commercial		5,011		(112	)		—		—			5,011		(112	)
Asset-backed securities																	25,050		(695	)		—		—			25,050		(695	)
Corporate																	6,329		(62	)		—		—			6,329		(62	)
State and political subdivisions		11,409		(164	)		60,804		(3,719	)		72,213		(3,883	)		509		(1	)		60,318		(1,226	)		60,827		(1,227	)

Total available for sale	$	741,254	$	(8,673	)	$	376,560	$	(15,542	)	$	1,117,814	$	(24,215	)	$	32,232	$	(759	)	$	505,986	$	(9,715	)	$	538,218	$	(10,474	)


	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	$	13,636	$	(306	)	$	68,768	$	(3,189	)	$	82,404	$	(3,495	)
State and political subdivisions		22,825		(127	)		1,137		(46	)		23,962		(173	)

Total held to maturity	$	36,461	$	(433	)	$	69,905	$	(3,235	)	$	106,366	$	(3,668	)


	Less Than 12 Months					12 Months or Longer					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
December 31, 2017
Available for sale
U.S. Treasury securities	$	228,909	$	(210	)	$	—	$	—		$	228,909	$	(210	)
U.S. government sponsored entities and agencies		19,961		(164	)		—		—			19,961		(164	)
Mortgage-backed securities: residential		301,158		(2,447	)		311,366		(6,314	)		612,524		(8,761	)
Mortgage-backed securities: commercial		5,074		(59	)		—		—			5,074		(59	)
State and political subdivisions		1,298		(2	)		62,725		(1,882	)		64,023		(1,884	)

Total available for sale	$	556,400	$	(2,882	)	$	374,091	$	(8,196	)	$	930,491	$	(11,078	)


	Less Than 12 Months					12 Months or Longer					Total
	Fair Value		Unrecognized Losses			Fair Value		Unrecognized Losses			Fair Value		Unrecognized Losses
Held to maturity
Mortgage-backed securities: residential	$	11,191	$	(69	)	$	72,582	$	(1,727	)	$	83,773	$	(1,796	)
State and political subdivisions		262		(2	)		1,148		(36	)		1,410		(38	)

Total held to maturity	$	11,453	$	(71	)	$	73,730	$	(1,763	)	$	85,183	$	(1,834	)


	March 31, 2018			December 31, 2017			March 31, 2019			December 31, 2018
Loans that are not PCI loans
Construction and land development	$	523,660		$	494,818		$	581,340		$	584,440
Commercial real estate:
Nonfarm, nonresidential		673,497			628,554			852,838			754,243
Other		43,110			49,684			40,652			48,017
Residential real estate:
Closed-end1-4 family		430,467			407,695
Closed-end 1-4 family								497,160			492,989
Other		172,216			169,640			197,030			189,817
Commercial and industrial		462,954			502,006			635,417			590,854
Consumer and other		3,899			3,781			4,448			5,568

Loans before net deferred loan fees		2,309,803			2,256,178			2,808,885			2,665,928
Deferred loan fees, net		(2,225	)		(1,963	)		(3,528	)		(2,544	)

Total loans that are not PCI loans		2,307,578			2,254,215			2,805,357			2,663,384
Total PCI loans		2,440			2,393			2,020			2,015
Allowance for loan losses		(21,738	)		(21,247	)		(27,857	)		(23,451	)

Total loans, net of allowance for loan losses	$	2,288,280		$	2,235,361		$	2,779,520		$	2,641,948

																			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 March 31, 2019
Allowance for loan losses:
Beginning balance																			$	4,743		$	6,725		$	4,743		$	7,166		$	74		$	23,451
Provision for loan losses																				(1	)		302			80			4,631			43			5,055
Loans charged-off																				—			—			(15	)		(568	)		(70	)		(653	)
Recoveries																				—			—			2			—			2			4
Total ending allowance balance																			$	4,742		$	7,027		$	4,810		$	11,229		$	49		$	27,857
Three Months Ended March 31, 2018
Allowance for loan losses:
Beginning balance	$	3,802		$	5,981		$	3,834		$	7,587		$	43		$	21,247		$	3,802		$	5,981		$	3,834		$	7,587		$	43		$	21,247
Provision for loan losses		582			(106	)		(241	)		328			10			573			582			(106	)		(241	)		328			10			573
Loanscharged-off		(39	)		—			(7	)		(49	)		(11	)		(106	)		(39	)		—			(7	)		(49	)		(11	)		(106	)
Recoveries		—			—			19			—			5			24			—			—			19			—			5			24

Total ending allowance balance	$	4,345		$	5,875		$	3,605		$	7,866		$	47		$	21,738		$	4,345		$	5,875		$	3,605		$	7,866		$	47		$	21,738

Three Months Ended March 31, 2017
Allowance for loan losses:
Beginning balance	$	3,776		$	4,266		$	2,398		$	6,068		$	45		$	16,553
Provision for loan losses		61			393			262			1,117			22			1,855
Loanscharged-off		—			—			—			(300	)		(23	)		(323	)
Recoveries		—			—			12			—			8			20

Total ending allowance balance	$	3,837		$	4,659		$	2,672		$	6,885		$	52		$	18,105

							Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
March 31, 2018
March 31, 2019
With no allowance recorded:
Construction and land development	$	203	$	165	$	—	$	599	$	583	$	—
Commercial real estate:
Nonfarm, nonresidential		—		—		—
Residential real estate:
Closed-end1-4 family		581		581		—
Closed-end 1-4 family								884		849		—
Other		113		113		—		996		962		—
Commercial and industrial		92		92		—
Consumer and other		—		—		—

Subtotal		989		951		—		2,479		2,394		—
With an allowance recorded:
Commercial and industrial		2,374		2,374		543		9,177		9,177		3,455

Subtotal		2,374		2,374		543		9,177		9,177		3,455

Total	$	3,363	$	3,325	$	543	$	11,656	$	11,571	$	3,455

December 31, 2017
December 31, 2018
With no allowance recorded:
Construction and land development	$	217	$	217	$	—	$	2,298	$	2,298	$	—
Residential real estate:
Closed-end 1-4 family								1,272		1,272		—
Other								1,917		1,917		—
Subtotal								5,487		5,487		—
With an allowance recorded:
Commercial and industrial								167		167		17
Subtotal								167		167		17
Total							$	5,654	$	5,654	$	17


	Three Months Ended March 31,				Three Months Ended March 31,
Average Recorded Investment	2018		2017		2019		2018
With no allowance recorded:
Construction and land development	$	367	$	—	$	768	$	367
Commercial real estate:
Nonfarm, nonresidential		—		4,128		51		—
Residential real estate:
Closed-end1-4 family		420		1,799
Closed-end 1-4 family						806		420
Other		372		120		1,264		372
Commercial and industrial		626		—		—		626

Subtotal		1,785		6,047		2,889		1,785

With an allowance recorded:
Construction and land development						183		—
Commercial and industrial	$	1,785	$	2,585		3,170		1,785

Subtotal		1,785		2,585		3,353		1,785

Total	$	3,570	$	8,632

Total average recorded investment					$	6,242	$	3,570


	Nonaccrual		Loans Past Due Over 90 Days
March 31, 2018
Construction and land development	$	165	$	—
Residential real estate:
Closed-end1-4 family		581		—
Other		113		12
Commercial and industrial		2,466		166

Total	$	3,325	$	178

December 31, 2017
Residential real estate:
Closed-end1-4 family	$	257	$	14
Other		114		—
Commercial and industrial		2,466		191

Total	$	2,837	$	205

									Pass		Special Mention		Substandard		Total
	Pass		Special Mention		Substandard		Total
March 31, 2018
March 31, 2019
Construction and land development	$	519,831	$	3,664	$	165	$	523,660	$	580,325	$	432	$	583	$	581,340
Commercial real estate:
Nonfarm, nonresidential		658,683		11,098		4,087		673,868		848,221		4,464		153		852,838
Other		42,730		—		380		43,110		40,033		619		—		40,652
Residential real estate:
Closed-end1-4 family		426,856		—		3,707		430,563
Closed-end 1-4 family										492,921		1,567		2,746		497,234
Other		170,467		—		1,749		172,216		194,675		404		1,951		197,030
Commercial and industrial		448,395		9,003		7,529		464,927		596,529		8,519		32,315		637,363
Consumer and other		3,896		3		—		3,899		4,448		—		—		4,448
									$	2,757,152	$	16,005	$	37,748	$	2,810,905
	$	2,270,858	$	23,768	$	17,617	$	2,312,243


	Pass		Special Mention		Substandard		Total
December 31, 2017
Construction and land development	$	494,601	$	—	$	217	$	494,818
Commercial real estate:
Nonfarm, nonresidential		609,458		12,602		6,874		628,934
Other		49,303		—		381		49,684
Residential real estate:
1-4 family		404,832		615		2,353		407,800
Other		167,886		—		1,754		169,640
Commercial and industrial		485,363		10,350		8,201		503,914
Consumer and other		3,777		4		—		3,781

	$	2,215,220	$	23,571	$	19,780	$	2,258,571

Lease right-of-use assets	Classification	March 31, 2019
Operating lease right-of-use assets	Other Assets	$	41,652
Finance lease right-of-use assets	Other Assets		2,970
Total lease right-of-use assets		$	44,622

Lease liabilities	Classification	March 31, 2019
Operating lease right-of-use assets	Other Liabilities	$	43,163
Finance lease right-of-use assets	Other Liabilities		3,023
Total lease liabilities		$	46,186


As of March 31, 2018	Mortgage- Backed Securities: Residential			State and Political Subdivisions			Total
Market value of securities pledged	$	919		$	40,845		$	41,764
Borrowings related to pledged amounts	$	—		$	36,071		$	36,071
Market value pledged as a % of borrowings		—	%		113	%		116	%

Weighted-average remaining lease term									March 31, 2019
Operating leases									14.8 years
Finance lease									11.9 years

Weighted-average discount rate
Operating leases									5.49%
Finance lease									5.48%


As of December 31, 2017	Mortgage- Backed Securities: Residential			State and Political Subdivisions			Total
Market value of securities pledged	$	1,004		$	42,109		$	43,113
Borrowings related to pledged amounts	$	—		$	31,004		$	31,004
Market value pledged as a % of borrowings		—	%		136	%		139	%

Lease costs
Operating lease cost	$	1,262
Variable lease cost		99
Short-term lease cost		24
Finance lease cost
Interest on lease liabilities⁽¹⁾		41
Amortization of right-of-use asset		50
Total lease cost	$	1,476

Other supplemental cash flow information:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	1,138
Operating cash flows from finance leases		41
Financing cash flows from finance leases		27


	March 31, 2018		March 31, 2017
Stock warrants exercised:
Intrinsic value of warrants exercised	$	—	$	291
Cash received from warrants exercised		—		132

Twelve Months Ended:	Finance			Operating
2020	$	273		$	4,794
2021		277			4,868
2022		281			4,865
2023		285			4,853
2024		289			4,903
Thereafter		3,059			34,946
Total future minimum lease payments	$	4,464		$	59,229
Less: Imputed interest		(1,441	)		(16,066	)
Total lease liabilities	$	3,023		$	43,163

										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		1,507,168		$	21.37		6.55	$	19,180
Outstanding at December 31, 2018											1,807,922		$	24.68		6.41	$	9,581
Granted		28,125			36.40						30,000			27.72
Exercised		(21,348	)		10.32						(35,046	)		14.93
Forfeited, expired, or cancelled		(11,754	)		29.37						—

Outstanding at period end		1,502,191		$	21.75		6.41	$	16,299		1,802,876		$	24.92		8.11	$	7,375

Vested or expected to vest		1,427,082		$	21.75		6.41	$	15,484		1,712,732		$	24.92		8.11	$	7,006
Exercisable at period end		760,955		$	14.17		4.75	$	14,022		843,174		$	14.02		7.96	$	10,567


	For the three months ended March 31,				For the Three Months Ended March 31,
	2018		2017		2019		2018
Stock options exercised:
Intrinsic value of options exercised	$	511	$	610	$	623	$	511
Cash received from options exercised		220		177		524		220
Tax benefit realized from option exercises		63		93		113		63


Non-vested Shares	Shares			Weighted- Average Grant- Date Fair Value		Shares			Weighted- Average Grant- Date Fair Value
Non-vested at December 31, 2017		94,181		$	25.42
Non-vested at December 31, 2018							176,516		$	31.07
Granted		—			—		1,255			31.87
Vested		—			—		(10,421	)		31.09
Forfeited		(334	)		37.35		(47	)		32.95

Non-vested at March 31, 2018		96,409		$	25.38

Non-vested at March 31, 2019							167,303


	Actual					Required For Capital Adequacy Purposes					To Be Well Capitalized Under Prompt Corrective Action Regulations
	Amount		Ratio			Amount		Ratio			Amount		Ratio
March 31, 2018
Company common equity Tier 1 capital to risk-weighted assets	$	310,218		11.45	%	$	121,874		4.50	%		N/A		N/A
Company Total Capital to risk weighted assets	$	390,600		14.42	%	$	216,665		8.00	%		N/A		N/A
Company Tier 1 (Core) Capital to risk weighted assets	$	310,218		11.45	%	$	162,499		6.00	%		N/A		N/A
Company Tier 1 (Core) Capital to average assets	$	310,218		7.80	%	$	158,986		4.00	%		N/A		N/A
Bank common equity Tier 1 capital to risk-weighted assets	$	365,295		13.49	%	$	121,874		4.50	%	$	176,040		6.50	%
Bank Total Capital to risk weighted assets	$	387,126		14.29	%	$	216,665		8.00	%	$	270,831		10.00	%
Bank Tier 1 (Core) Capital to risk weighted assets	$	365,295		13.49	%	$	162,499		6.00	%	$	216,665		8.00	%
Bank Tier 1 (Core) Capital to average assets	$	365,295		9.19	%	$	158,857		4.00	%	$	198,572		5.00	%
December 31, 2017
Company common equity Tier 1 capital to risk-weighted assets	$	299,229		11.37	%	$	118,479		4.50	%		N/A		N/A
Company Total Capital to risk weighted assets	$	379,083		14.40	%	$	210,629		8.00	%		N/A		N/A
Company Tier 1 (Core) Capital to risk weighted assets	$	299,229		11.37	%	$	157,972		6.00	%		N/A		N/A
Company Tier 1 (Core) Capital to average assets	$	299,229		8.25	%	$	145,100		4.00	%		N/A		N/A
Bank common equity Tier 1 capital to risk-weighted assets	$	353,512		13.43	%	$	118,489		4.50	%	$	171,151		6.50	%
Bank Total Capital to risk weighted assets	$	374,851		14.24	%	$	210,647		8.00	%	$	263,309		10.00	%
Bank Tier 1 (Core) Capital to risk weighted assets	$	353,512		13.43	%	$	157,985		6.00	%	$	210,647		8.00	%
Bank Tier 1 (Core) Capital to average assets	$	353,512		9.75	%	$	145,003		4.00	%	$	181,253		5.00	%

	Three Months Ended March 31,
Gain (loss) on fair value hedging relationship	2019			2018
Interest rate swap agreements - securities:
Hedged items	$	1,118		$	-
Derivative designated as hedging instruments		(1,118	)		-

	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	March 31, 2019		March 31, 2019
Securities available-for-sale	$	116,634	$	1,118


	Fair Value Measurements at March 31, 2018 Using:						Fair Value Measurements at March 31, 2019 Using:
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		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	$	—	$	288,571	$	—	$	69,618	$	—	$	—
U.S. government sponsored entities and agencies		—		19,894		—		—		1,820		—
Mortgage-backed securities-residential		—		763,128		—		—		523,458		—
Mortgage-backed securities-commercial		—		5,011		—
Asset-backed securities								—		25,050		—
Corporate notes								—		17,939		—
State and political subdivisions		—		109,816		—		—		161,416		—

Total securities available for sale	$	—	$	1,186,420	$	—	$	69,618	$	729,683	$	—

Loans held for sale	$	—	$	12,871	$	—	$	—	$	21,730	$	—

Mortgage banking derivatives	$	—	$	382	$	—

Other assets							$	—	$	190	$	—
Financial Liabilities
Mortgage banking derivatives	$	—	$	45	$	—


	Fair Value Measurements at December 31, 2017 Using:
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Financial Assets
Securities available for sale
U.S. Treasury securities	$	—	$	228,909	$	—
U.S. government sponsored entities and agencies		—		19,961		—
Mortgage-backed securities-residential		—		632,566		—
Mortgage-backed securities-commercial		—		5,074		—
State and political subdivisions		—		113,371		—

Total securities available for sale	$	—	$	999,881	$	—

Loans held for sale	$	—	$	12,024	$	—

Mortgage banking derivatives	$	—	$	175	$	—

Financial Liabilities
Mortgage banking derivatives	$	—	$	35	$	—

Other liabilities							$	—	$	1,331	$	—


	Carrying Amount			Fair Value Measurements at March 31, 2018 Using:															Fair Value Measurements at March 31, 2019 Using:
			Level 1			Level 2			Level 3			Total			Carrying Amount			Level 1			Level 2			Level 3			Total
Financial assets	Carrying Amount
Cash and cash equivalents	$	246,164		$	246,164		$	—		$	—		$	246,164		$	300,113		$	300,113		$	—		$	—		$	300,113
Certificates of deposit held at other financial institutions		2,855			—			2,855			—			2,855			3,595			—			3,601			—			3,601
Securities available for sale		1,186,420			—			1,186,420			—			1,186,420			799,301			69,618			729,683			—			799,301
Securities held to maturity		213,381			—			210,888			—			210,888			118,831			—			118,866			—			118,866
Loans held for sale		12,871			—			12,871			—			12,871			21,730			—			21,730			—			21,730
Net loans		2,288,280			—			—			2,295,275			2,295,275			2,779,520			—			—			2,781,888			2,781,888
Restricted equity securities		19,606			n/a			n/a			n/a			n/a
Servicing rights, net		3,602			—			—			5,305			5,305			3,366			—			—			4,329			4,329
Mortgage banking derivative assets		382			—			382			—			382
Other assets																	190			—			190			—			190
Accrued interest receivable		12,937			182			6,400			6,355			12,937			14,232			140			5,151			8,941			14,232
Financial liabilities
Deposits	$	3,355,153		$	2,026,994		$	1,284,426		$	—		$	3,311,420		$	3,315,843		$	2,201,698		$	1,112,151		$	—		$	3,313,849
Repurchase agreements		36,071			—			36,071			—			36,071
Federal Home Loan Bank advances		317,000			—			314,341			—			314,341			416,500			—			415,845			—			415,845
Subordinated notes, net		58,559			—			—			62,259			62,259			58,738			—			—			60,426			60,426
Mortgage banking derivative liabilities		45			—			45			—			45
Other liabilities																	1,331			—			1,331			—			1,331
Accrued interest payable		2,775			93			2,332			350			2,775			5,041			205			350			4,486			5,041

	Carrying Amount			Fair Value Measurements at December 31, 2017 Using:
			Level 1			Level 2			Level 3			Total
Financial assets	Carrying Amount
Cash and cash equivalents	$	251,543		$	251,543		$	—		$	—		$	251,543
Certificates of deposit held at other financial institutions		2,855			—			2,855			—			2,855
Securities available for sale		999,881			—			999,881			—			999,881
Securities held to maturity		214,856			—			217,608			—			217,608
Loans held for sale		12,024			—			12,024			—			12,024
Net loans		2,235,361			—			—			2,230,607			2,230,607
Restricted equity securities		18,492			n/a			n/a			n/a			n/a
Servicing rights, net		3,620			—			—			5,089			5,089
Mortgage banking derivative assets		175			—			175			—			175
Accrued interest receivable		11,947			73			5,724			6,150			11,947
Financial liabilities
Deposits	$	3,167,228		$	1,911,928		$	1,224,041		$	—		$	3,135,969
Federal funds purchased and repurchase agreements		31,004			—			31,004			—			31,004
Federal Home Loan Bank advances		272,000			—			270,311			—			270,311
Subordinated notes, net		58,515			—			—			59,951			59,951
Mortgage banking derivative liabilities		35			—			35			—			35
Accrued interest payable		2,769			51			2,030			688			2,769


	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