UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM10-Q
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 20182019
or
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period fromto
Commission file number001-36895
FRANKLIN FINANCIAL NETWORK, INC.
(Exact name of registrant as specified in its charter)
Tennessee | ||
20-8839445 | ||
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
722 Columbia Avenue Franklin, Tennessee | 37064 | |
(Address of principal executive offices) | (Zip Code) |
615-236-2265
(Registrant’s telephone number, including area code)
N/A
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Indicate by check mark whether the registrant:registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of RegulationS-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☒ | |||||
Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |||||
Emerging growth company | ☒ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act). Yes ☐ No ☒
Securities registered pursuant to Section 12(b) of the Act.
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, no par value | FSB | New York Stock Exchange |
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.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form10-Q contains “forward-looking statements” as defined under U.S. federal securities laws. These statements reflect management’s current knowledge, assumptions, beliefs, estimates, and expectations and express management’s current views of future performance, results, and trends and may be identified by their use of terms such as “may,” “likely,” “would,” “could,”
“should, “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.
ITEM 1. CONSOLIDATED FINANCIAL INFORMATIONSTATEMENTS
FRANKLIN FINANCIAL NETWORK, INC.
(Dollar amounts in thousands, except share and per share data)
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 |
| ||||
|
|
See accompanying notes to consolidated financial statements.
FRANKLIN FINANCIAL NETWORK, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollar amounts in thousands, except share and per share data)
(Unaudited)
Three Months Ended March 31, |
| Three Months Ended March 31, |
| |||||||||||||
2018 | 2017 |
| 2019 |
|
| 2018 |
| |||||||||
Interest income and dividends |
|
|
|
|
|
|
|
| ||||||||
Loans, including fees | $ | 28,793 | $ | 22,560 |
| $ | 38,338 |
|
| $ | 28,793 |
| ||||
Securities: |
|
|
|
|
|
|
|
| ||||||||
Taxable | 6,111 | 5,617 |
|
| 6,394 |
|
|
| 6,111 |
| ||||||
Tax-Exempt | 1,915 | 2,020 |
|
| 1,470 |
|
|
| 1,915 |
| ||||||
Dividends on restricted equity securities | 274 | 181 |
|
| 334 |
|
|
| 274 |
| ||||||
Federal funds sold and other | 954 | 163 |
|
| 987 |
|
|
| 954 |
| ||||||
|
| |||||||||||||||
Total interest income | 38,047 | 30,541 |
|
| 47,523 |
|
|
| 38,047 |
| ||||||
|
| |||||||||||||||
Interest expense |
|
|
|
|
|
|
|
| ||||||||
Deposits | 10,643 | 5,246 |
|
| 16,990 |
|
|
| 10,643 |
| ||||||
Federal funds purchased and repurchase agreements |
|
| 72 |
|
|
| 96 |
| ||||||||
Federal Home Loan Bank advances | 1,110 | 508 |
|
| 1,959 |
|
|
| 1,110 |
| ||||||
Federal funds purchased and repurchase agreements | 96 | 70 | ||||||||||||||
Subordinated notes and other borrowings | 1,082 | 1,074 |
|
| 1,082 |
|
|
| 1,082 |
| ||||||
|
| |||||||||||||||
Total interest expense | 12,931 | 6,898 |
|
| 20,103 |
|
|
| 12,931 |
| ||||||
|
| |||||||||||||||
Net interest income | 25,116 | 23,643 |
|
| 27,420 |
|
|
| 25,116 |
| ||||||
Provision for loan losses | 573 | 1,855 |
|
| 5,055 |
|
|
| 573 |
| ||||||
|
| |||||||||||||||
Net interest income after provision for loan losses | 24,543 | 21,788 |
|
| 22,365 |
|
|
| 24,543 |
| ||||||
|
| |||||||||||||||
Noninterest income |
|
|
|
|
|
|
|
| ||||||||
Service charges on deposit accounts | 42 | 30 |
|
| 74 |
|
|
| 42 |
| ||||||
Other service charges and fees | 751 | 752 |
|
| 757 |
|
|
| 751 |
| ||||||
Net gains on sale of loans | 1,439 | 2,334 | ||||||||||||||
Mortgage banking revenue |
|
| 1,672 |
|
|
| 1,549 |
| ||||||||
Wealth management | 704 | 593 |
|
| 627 |
|
|
| 704 |
| ||||||
Loan servicing fees, net | 119 | 107 | ||||||||||||||
Net (loss) gain on sale of foreclosed assets | 3 | 3 | ||||||||||||||
Gain on sale or call of securities |
|
| 149 |
|
|
| — |
| ||||||||
Net (loss) gain on sale of loans |
|
| (217 | ) |
|
| 9 |
| ||||||||
Net gain on sale of foreclosed assets |
|
| 4 |
|
|
| 3 |
| ||||||||
Other | 398 | 189 |
|
| 420 |
|
|
| 398 |
| ||||||
|
| |||||||||||||||
Total noninterest income | 3,456 | 4,008 |
|
| 3,486 |
|
|
| 3,456 |
| ||||||
|
| |||||||||||||||
Noninterest expense |
|
|
|
|
|
|
|
| ||||||||
Salaries and employee benefits | 9,188 | 8,033 |
|
| 14,743 |
|
|
| 9,188 |
| ||||||
Occupancy and equipment | 2,594 | 2,095 |
|
| 3,113 |
|
|
| 2,594 |
| ||||||
FDIC assessment expense | 660 | 760 |
|
| 990 |
|
|
| 660 |
| ||||||
Marketing | 280 | 267 |
|
| 319 |
|
|
| 280 |
| ||||||
Professional fees | 869 | 1,035 |
|
| 923 |
|
|
| 869 |
| ||||||
Amortization of core deposit intangible | 104 | 127 |
|
| 145 |
|
|
| 104 |
| ||||||
Other | 1,793 | 1,959 |
|
| 2,383 |
|
|
| 1,793 |
| ||||||
|
| |||||||||||||||
Total noninterest expense | 15,488 | 14,276 |
|
| 22,616 |
|
|
| 15,488 |
| ||||||
|
| |||||||||||||||
Income before income tax expense | 12,511 | 11,520 |
|
| 3,235 |
|
|
| 12,511 |
| ||||||
Income tax expense | 2,459 | 3,586 |
|
| 334 |
|
|
| 2,459 |
| ||||||
|
| |||||||||||||||
Net income | 10,052 | 7,934 |
|
| 2,901 |
|
|
| 10,052 |
| ||||||
|
| |||||||||||||||
Earnings attributable to noncontrolling interest |
|
| — |
|
|
| — |
| ||||||||
Net income available to common shareholders | $ | 10,052 | $ | 7,934 |
| $ | 2,901 |
|
| $ | 10,052 |
| ||||
|
| |||||||||||||||
Earnings per share: |
|
|
|
|
|
|
|
| ||||||||
Basic | $ | 0.76 | $ | 0.61 |
| $ | 0.20 |
|
| $ | 0.76 |
| ||||
Diluted | 0.73 | 0.58 |
|
| 0.19 |
|
|
| 0.73 |
| ||||||
Dividend per share |
| $ | 0.04 |
|
| $ | — |
|
See accompanying notes to consolidated financial statements.
FRANKLIN FINANCIAL NETWORK, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Dollar amounts in thousands, except share and per share data)
(Unaudited)
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) |
|
| (4,208 | ) |
|
| 3,808 |
|
Total other comprehensive income (loss) |
|
| 8,754 |
|
|
| (10,769 | ) |
Comprehensive income (loss) |
| $ | 11,655 |
|
| $ | (717 | ) |
See accompanying notes to consolidated financial statements.
FRANKLIN FINANCIAL NETWORK, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Three Months Ended March 31, 20182019 and 2017March 31, 2018
(Dollar amounts in thousands, except share and per share data)
(Unaudited)
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 |
|
See accompanying notes to consolidated financial statements.
FRANKLIN FINANCIAL NETWORK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar amounts in thousands, except share and per share data)
(Unaudited)
Three Months Ended March 31, |
| Three Months Ended March 31, |
| |||||||||||||
2018 | 2017 |
| 2019 |
|
| 2018 |
| |||||||||
Cash flows from operating activities |
|
|
|
|
|
|
|
| ||||||||
Net income | $ | 10,052 | $ | 7,934 |
| $ | 2,901 |
|
| $ | 10,052 |
| ||||
Adjustments to reconcile net income to net cash from operating activities |
|
|
|
|
|
|
|
| ||||||||
Depreciation and amortization on premises and equipment | 403 | 368 |
|
| 410 |
|
|
| 403 |
| ||||||
Accretion of purchase accounting adjustments | (252 | ) | (381 | ) |
|
| (172 | ) |
|
| (252 | ) | ||||
Net amortization of securities | 1,904 | 2,452 |
|
| 1,212 |
|
|
| 1,904 |
| ||||||
Amortization of loan servicing right asset | 214 | 213 |
|
| 225 |
|
|
| 214 |
| ||||||
Amortization of core deposit intangible | 104 | 127 |
|
| 145 |
|
|
| 104 |
| ||||||
Amortization of debt issuance costs | 44 | 44 |
|
| 45 |
|
|
| 44 |
| ||||||
Provision for loan losses | 573 | 1,855 |
|
| 5,055 |
|
|
| 573 |
| ||||||
Deferred income tax benefit | 10 | (561 | ) | |||||||||||||
Deferred income tax (benefit) expense |
|
| (2,115 | ) |
|
| 10 |
| ||||||||
Excess tax benefit related to stock compensation |
|
| (130 | ) |
|
| — |
| ||||||||
Origination of loans held for sale | (83,226 | ) | (65,213 | ) |
|
| (85,008 | ) |
|
| (83,226 | ) | ||||
Proceeds from sale of loans held for sale | 83,622 | 78,379 |
|
| 75,791 |
|
|
| 83,622 |
| ||||||
Net gain on sale of loans | (1,439 | ) | (2,334 | ) | ||||||||||||
Net gain on sale of loans held for sale |
|
| (1,598 | ) |
|
| (1,439 | ) | ||||||||
Gain on sale of available for sale securities |
|
| (149 | ) |
|
| — |
| ||||||||
Income from bank owned life insurance | (365 | ) | (155 | ) |
|
| (375 | ) |
|
| (365 | ) | ||||
Stock-based compensation | 759 | 447 |
|
| 1,329 |
|
|
| 759 |
| ||||||
Deferred gain on sale of loans | (4 | ) | (58 | ) |
|
| (4 | ) |
|
| (4 | ) | ||||
Deferred gain on sale of foreclosed assets | (3 | ) | (3 | ) |
|
| (4 | ) |
|
| (3 | ) | ||||
Net change in: |
|
|
|
|
|
|
|
| ||||||||
Accrued interest receivable and other assets | (1,871 | ) | (1,687 | ) |
|
| (12,900 | ) |
|
| (1,871 | ) | ||||
Accrued interest payable and other liabilities | 1,896 | 5,944 |
|
| 3,080 |
|
|
| 1,896 |
| ||||||
|
| |||||||||||||||
Net cash from operating activities | 12,421 | 27,371 |
|
| (12,262 | ) |
|
| 12,421 |
| ||||||
Cash flows from investing activities |
|
|
|
|
|
|
|
| ||||||||
Available for sale securities: | ||||||||||||||||
Securities available for sale : |
|
|
|
|
|
|
|
| ||||||||
Sales |
|
| 259,613 |
|
|
| — |
| ||||||||
Purchases | (224,712 | ) | (363,298 | ) |
|
| (80,360 | ) |
|
| (224,712 | ) | ||||
Maturities, prepayments and calls | 22,129 | 42,167 |
|
| 62,050 |
|
|
| 22,129 |
| ||||||
Held to maturity securities: | ||||||||||||||||
Securities held to maturity : |
|
|
|
|
|
|
|
| ||||||||
Purchases | (1,676 | ) | (1,996 | ) |
|
| — |
|
|
| (1,676 | ) | ||||
Maturities, prepayments and calls | 2,714 | 4,335 |
|
| 2,448 |
|
|
| 2,714 |
| ||||||
Net change in loans | (53,240 | ) | (177,360 | ) |
|
| (142,455 | ) |
|
| (53,240 | ) | ||||
Purchase of restricted equity securities | (1,114 | ) | (3,135 | ) |
|
| (972 | ) |
|
| (1,114 | ) | ||||
Purchases of premises and equipment, net | (63 | ) | (1,048 | ) |
|
| (721 | ) |
|
| (63 | ) | ||||
Increase in certificates of deposits at other financial institutions | — | (980 | ) | |||||||||||||
|
| |||||||||||||||
Net cash from investing activities | (255,962 | ) | (501,315 | ) |
|
| 99,603 |
|
|
| (255,962 | ) | ||||
Cash flows from financing activities |
|
|
|
|
|
|
|
| ||||||||
Increase in deposits | 187,925 | 425,394 | ||||||||||||||
Increase (Decrease) in federal funds purchased and repurchase agreements | 5,067 | (12,871 | ) | |||||||||||||
(Decrease) increase in deposits |
|
| (115,964 | ) |
|
| 187,925 |
| ||||||||
Increase in federal funds purchased and repurchase agreements |
|
| — |
|
|
| 5,067 |
| ||||||||
Proceeds from Federal Home Loan Bank advances | 95,000 | 230,000 |
|
| 190,000 |
|
|
| 95,000 |
| ||||||
Repayment of Federal Home Loan Bank advances | (50,000 | ) | (145,000 | ) |
|
| (142,000 | ) |
|
| (50,000 | ) | ||||
Proceeds from exercise of common stock warrants | — | 132 | ||||||||||||||
Proceeds from exercise of common stock options | 220 | 177 |
|
| 524 |
|
|
| 220 |
| ||||||
Divestment of common stock issued to 401(k) plan | (50 | ) | (151 | ) |
|
| — |
|
|
| (50 | ) | ||||
|
| |||||||||||||||
Net cash from financing activities | 238,162 | 497,681 |
|
| (67,440 | ) |
|
| 238,162 |
| ||||||
|
| |||||||||||||||
Net change in cash and cash equivalents | (5,379 | ) | 23,737 |
|
| 19,901 |
|
|
| (5,379 | ) | |||||
Cash and cash equivalents at beginning of period | 251,543 | 90,927 |
|
| 280,212 |
|
|
| 251,543 |
| ||||||
|
| |||||||||||||||
Cash and cash equivalents at end of period | $ | 246,164 | $ | 114,664 |
| $ | 300,113 |
|
| $ | 246,164 |
| ||||
|
| |||||||||||||||
Supplemental information: |
|
|
|
|
|
|
|
| ||||||||
Interest paid | $ | 12,925 | $ | 6,829 |
| $ | 19,762 |
|
| $ | 12,925 |
| ||||
Income taxes paid | 525 | 530 |
|
| 1,428 |
|
|
| 525 |
| ||||||
Non-cash supplemental information: |
|
|
|
|
|
|
|
| ||||||||
Establishment of lease liability and right-of-use asset |
|
| 43,723 |
|
|
| — |
| ||||||||
Transfers from securities available for sale to securities held to maturity |
|
| 1,206 |
|
|
| — |
|
See accompanying notes to consolidated financial statements.
FRANKLIN FINANCIAL NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share and per share data)
(Unaudited)
NOTE 1—BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared in accordance with instructions to Form10-Q and therefore do not include all information and footnotes necessary for a complete presentation of financial position, results of operations, and cash flows in conformity with U.S. generally accepted accounting principles (U.S. GAAP). All adjustments which are, in the opinion of management, necessary for a fair presentation of the results for the periods reported have been included as required by RegulationS-X, Rule10-01. All such adjustments are of a normal recurring nature. It is suggested that these interim consolidated financial statements and notes be read in conjunction with the financial statements and accompanying notes included in the Company’s Annual Report onForm 10-K filed with the SEC on March 16, 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.
Recently Adopted Accounting Pronouncements
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 ASU2014-09 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 ASU2014-09. 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 ASU2014-09 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 JanuaryFebruary 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 addresses2016-02, Leases which requires recognition in the following eight specific cash flow issues: debt prepayment or debt extinguishment costs; settlementstatement ofzero-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 relationa 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 Updateguidance 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. ASU2017-01 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. ASU2017-09 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 ASU2017-09 did not have a significant impact on the Company’s consolidated financial statements.
Recent Accounting Pronouncements Not Yet Adopted
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 correspondingright-of-use asset. ASU2016-02 maintains the dual model for lease accounting, requiring leases to be classified as either operating or finance, with lease classification determined in a manner similar to existing lease guidance. The new guidance will be effective for the Company for fiscal years beginning on or after December 15, 2018. Early adoption is permitted for all entities. At the time this ASU is adopted, the Company will recognize aright-of-use asset, and a lease liability for all leases, which will initially be measured at the present value of lease payments, and a single lease cost calculated so that the costs of the leases are allocated over the terms of the Company’s leases on a generally straight-line basis. Since an asset will be recognized at the time of adoption, the Company’s regulatory capital ratios will be impacted. Management is evaluating the impact ASU2016-02 will have on the Company’s consolidated financial statements.
In June 2016, the FASB issued ASU2016-13, “Financial Instruments—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 committeeworking to formulatedetermine the methodology to be used. Most importantly, theThe 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 ASU2016-13this 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 securitiesDisclosure Framework - Changes to the earliest call date. The new guidance does not changeDisclosure Requirements for Fair Value Measurement.” This ASU eliminates, adds and modifies certain disclosure requirements for fair value measurements. Among the accountingchanges, 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 continuesfair value hierarchy, but will be required to be amortizeddisclose the range and weighted average used to maturity.develop significant unobservable inputs for Level 3 fair value measurements. ASU 2017-08No. 2018-13 is effective for interim and annual reporting periods beginning after December 15, 2018, and2019; early adoption is permitted. The guidance calls forAs 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 ofASU 2017-08 to determine the potentialmaterial impact the new standard will have on the Company’s consolidated financial statements.
AcquisitionASU 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 & Trustdisclosures, 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.
Effective April 1, 2018, the Company acquired Civic Bank & Trust,
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 locatedissued in Nashville, Tennessee. EffectiveApril 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 wasrequirements 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 chairmanaccounting for the service element of the Civic Bank & Trust board of directors, was addeda 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 forhave a term expiring at the Company’s 2018 annual meeting of shareholders.significant impact on our financial statements.
NOTE 2—SECURITIES
The following table summarizes the amortized cost and fair value of the securities available for sale portfolio at March 31, 20182019 and December 31, 20172018 and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income.
| Amortized Cost |
|
| Gross Unrealized Gains |
|
| Gross Unrealized Losses |
|
| Fair Value |
| |||||||||||||||||||||
Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |||||||||||||||||||||||||||||
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 Unrealized Gains |
|
| Gross Unrealized Losses |
|
| Fair Value |
| |||||||||||||||||||||
Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |||||||||||||||||||||||||||||
December 31, 2017 | ||||||||||||||||||||||||||||||||
December 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
U.S. Treasury securities | $ | 229,119 | $ | — | $ | (210 | ) | $ | 228,909 |
| $ | 253,015 |
|
| $ | 59 |
|
| $ | (60 | ) |
| $ | 253,014 |
| |||||||
U.S. government sponsored entities and agencies | 20,125 | — | (164 | ) | 19,961 |
|
| 21,999 |
|
|
| 1 |
|
|
| (112 | ) |
|
| 21,888 |
| |||||||||||
Mortgage-backed securities: residential | 641,225 | 102 | (8,761 | ) | 632,566 |
|
| 596,766 |
|
|
| 27 |
|
|
| (16,094 | ) |
|
| 580,699 |
| |||||||||||
Mortgage-backed securities: commercial | 5,133 | — | (59 | ) | 5,074 | |||||||||||||||||||||||||||
Asset-backed securities |
|
| 25,744 |
|
|
| — |
|
|
| (900 | ) |
|
| 24,844 |
| ||||||||||||||||
Corporate notes |
|
| 12,480 |
|
|
| 21 |
|
|
| (77 | ) |
|
| 12,424 |
| ||||||||||||||||
State and political subdivisions | 113,468 | 1,787 | (1,884 | ) | 113,371 |
|
| 141,432 |
|
|
| 863 |
|
|
| (4,496 | ) |
|
| 137,799 |
| |||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Total | $ | 1,009,070 | $ | 1,889 | $ | (11,078 | ) | $ | 999,881 |
| $ | 1,051,436 |
|
| $ | 971 |
|
| $ | (21,739 | ) |
| $ | 1,030,668 |
| |||||||
|
|
|
|
The amortized cost and fair value of the securities held to maturity portfolio at March 31, 20182019 and December 31, 20172018 and the corresponding amounts of gross unrecognized gains and losses were as follows:
| Amortized Cost |
|
| Gross Unrecognized Gains |
|
| Gross Unrecognized Losses |
|
| Fair Value |
| |||||||||||||||||||||
Amortized Cost | Gross Unrecognized Gains | Gross Unrecognized Losses | Fair Value | |||||||||||||||||||||||||||||
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 |
| |||||||
|
|
|
|
The proceeds from sales and calls of securities available for sale and the associated gains and losses were as follows:
Three Months Ended March 31, |
| Three Months Ended March 31, |
| |||||||||||||
2018 | 2017 |
| 2019 |
|
| 2018 |
| |||||||||
Proceeds | $ | — | $ | — |
| $ | 259,613 |
|
| $ | — |
| ||||
Gross gains | — | — |
|
| 1,801 |
|
|
| — |
| ||||||
Gross losses | — | — |
|
| (1,652 | ) |
|
| — |
|
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.
March 31, 2018 |
| March 31, 2019 |
| |||||||||||||
Amortized Cost | Fair Value |
| Amortized Cost |
|
| Fair Value |
| |||||||||
Available for sale |
|
|
|
|
|
|
|
| ||||||||
One year or less | $ | 289,086 | $ | 288,571 |
| $ | 70,053 |
|
| $ | 70,122 |
| ||||
Over one year through five years | 20,103 | 19,894 |
|
| 1,080 |
|
|
| 1,078 |
| ||||||
Over five years through ten years | 410 | 406 |
|
| 21,576 |
|
|
| 21,663 |
| ||||||
Over ten years | 112,885 | 109,410 |
|
| 157,102 |
|
|
| 157,930 |
| ||||||
Asset-backed securities |
|
| 25,745 |
|
|
| 25,050 |
| ||||||||
Mortgage-backed securities: residential | 782,579 | 763,128 |
|
| 531,551 |
|
|
| 523,458 |
| ||||||
Mortgage-backed securities: commercial | 5,123 | 5,011 | ||||||||||||||
|
| |||||||||||||||
Total | $ | 1,210,186 | $ | 1,186,420 |
| $ | 807,107 |
|
| $ | 799,301 |
| ||||
|
| |||||||||||||||
Held to maturity |
|
|
|
|
|
|
|
| ||||||||
One year or less | $ | 501 | $ | 511 | ||||||||||||
Over one year through five years | 1,106 | 1,121 |
|
| 1,106 |
|
|
| 1,128 |
| ||||||
Over five years through ten years | 11,875 | 11,907 |
|
| 1,039 |
|
|
| 1,073 |
| ||||||
Over ten years | 107,747 | 108,581 |
|
| 42,821 |
|
|
| 44,683 |
| ||||||
Mortgage-backed securities: residential | 92,152 | 88,768 |
|
| 73,865 |
|
|
| 71,982 |
| ||||||
|
| |||||||||||||||
Total | $ | 213,381 | $ | 210,888 |
| $ | 118,831 |
|
| $ | 118,866 |
| ||||
|
|
Securities pledged at March 31, 20182019 and December 31, 20172018 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, 20182019 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, 20182019 and December 31, 2017,2018, aggregated by major security type and length of time in a continuous unrealized loss position:
| Less Than 12 Months |
|
| 12 Months or Longer |
|
| Total |
| ||||||||||||||||||||||||||||||||||||||||
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 | ) | |||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
| 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 |
| $ | — |
|
| $ | — |
|
| $ | 66,578 |
|
| $ | (1,968 | ) |
| $ | 66,578 |
|
| $ | (1,968 | ) |
Total held to maturity |
| $ | — |
|
| $ | — |
|
| $ | 66,578 |
|
| $ | (1,968 | ) |
| $ | 66,578 |
|
| $ | (1,968 | ) |
|
| Less Than 12 Months |
|
| 12 Months or Longer |
|
| Total |
| |||||||||||||||
|
| Fair Value |
|
| Unrealized Losses |
|
| Fair Value |
|
| Unrealized Losses |
|
| Fair Value |
|
| Unrealized Losses |
| ||||||
December 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities |
| $ | 163,722 |
|
| $ | (60 | ) |
| $ | — |
|
| $ | — |
|
| $ | 163,722 |
|
| $ | (60 | ) |
U.S. government sponsored entities and agencies |
|
| 1,355 |
|
|
| (12 | ) |
|
| 19,937 |
|
|
| (100 | ) |
|
| 21,292 |
|
|
| (112 | ) |
Mortgage-backed securities: residential |
|
| 83,203 |
|
|
| (755 | ) |
|
| 490,752 |
|
|
| (15,339 | ) |
|
| 573,955 |
|
|
| (16,094 | ) |
Asset-backed securities |
|
| 24,845 |
|
|
| (900 | ) |
|
| — |
|
|
| — |
|
|
| 24,845 |
|
|
| (900 | ) |
Corporate |
|
| 9,839 |
|
|
| (77 | ) |
|
| — |
|
|
| — |
|
|
| 9,839 |
|
|
| (77 | ) |
State and political subdivisions |
|
| 10,446 |
|
|
| (106 | ) |
|
| 69,238 |
|
|
| (4,390 | ) |
|
| 79,684 |
|
|
| (4,496 | ) |
Total available for sale |
| $ | 293,410 |
|
| $ | (1,910 | ) |
| $ | 579,927 |
|
| $ | (19,829 | ) |
| $ | 873,337 |
|
| $ | (21,739 | ) |
|
| Less Than 12 Months |
|
| 12 Months or Longer |
|
| Total |
| |||||||||||||||
|
| Fair Value |
|
| Unrecognized Losses |
|
| Fair Value |
|
| Unrecognized Losses |
|
| Fair Value |
|
| Unrecognized Losses |
| ||||||
Held to maturity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities: residential |
| $ | 2,239 |
|
| $ | (40 | ) |
| $ | 68,067 |
|
| $ | (3,032 | ) |
| $ | 70,306 |
|
| $ | (3,072 | ) |
State and political subdivisions |
|
| 8,362 |
|
|
| (39 | ) |
|
| 3,675 |
|
|
| (51 | ) |
|
| 12,037 |
|
|
| (90 | ) |
Total held to maturity |
| $ | 10,601 |
|
| $ | (79 | ) |
| $ | 71,742 |
|
| $ | (3,083 | ) |
| $ | 82,343 |
|
| $ | (3,162 | ) |
Unrealized losses on debt securities have not been recognized into income because the issuers’ bonds are of high credit quality (rated AA or higher),. As of 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.
NOTE 3—LOANS
Loans at March 31, 20182019 and December 31, 20172018 were as follows:
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 |
| ||||
|
|
The following table presents the activity in the allowance for loan losses by portfolio segment for the three monththree-month periods ended March 31, 20182019 and 2017:2018:
| Construction and Land Development |
|
| Commercial Real Estate |
|
| Residential Real Estate |
|
| Commercial and Industrial |
|
| Consumer and Other |
|
| Total |
| |||||||||||||||||||||||||||||||
Construction and Land Development | Commercial Real Estate | Residential Real Estate | Commercial and Industrial | Consumer and Other | Total | |||||||||||||||||||||||||||||||||||||||||||
Three Months Ended 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 | ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
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, 20182019 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 |
| |||||||||||||||||||||||||||||||
Construction and Land Development | Commercial Real Estate | Residential Real Estate | Commercial and Industrial | Consumer and Other | Total | |||||||||||||||||||||||||||||||||||||||||||
March 31, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||
March 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Allowance for loan losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Ending allowance balance attributable to loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Individually evaluated for impairment | $ | — | $ | — | $ | — | $ | 543 | $ | — | $ | 543 |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 3,455 |
|
| $ | — |
|
| $ | 3,455 |
| ||||||||||||
Collectively evaluated for impairment | 4,345 | 5,875 | 3,605 | 7,317 | 47 | 21,189 |
|
| 4,742 |
|
|
| 7,027 |
|
|
| 4,810 |
|
|
| 7,774 |
|
|
| 49 |
|
|
| 24,402 |
| ||||||||||||||||||
Purchased credit-impaired loans |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||||||
Total ending allowance balance |
| $ | 4,742 |
|
| $ | 7,027 |
|
| $ | 4,810 |
|
| $ | 11,229 |
|
| $ | 49 |
|
| $ | 27,857 |
| ||||||||||||||||||||||||
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Individually evaluated for impairment |
| $ | 583 |
|
| $ | — |
|
| $ | 1,811 |
|
| $ | 9,177 |
|
| $ | — |
|
| $ | 11,571 |
| ||||||||||||||||||||||||
Collectively evaluated for impairment |
|
| 580,757 |
|
|
| 893,490 |
|
|
| 692,379 |
|
|
| 626,240 |
|
|
| 4,448 |
|
|
| 2,797,314 |
| ||||||||||||||||||||||||
Purchased credit-impaired loans |
|
| — |
|
|
| — |
|
|
| 74 |
|
|
| 1,946 |
|
|
| — |
|
|
| 2,020 |
| ||||||||||||||||||||||||
Total ending loans balance |
| $ | 581,340 |
|
| $ | 893,490 |
|
| $ | 694,264 |
|
| $ | 637,363 |
|
| $ | 4,448 |
|
| $ | 2,810,905 |
| ||||||||||||||||||||||||
December 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Allowance for loan losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Ending allowance balance attributable to loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Individually evaluated for impairment |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 17 |
|
| $ | — |
|
| $ | 17 |
| ||||||||||||||||||||||||
Collectively evaluated for impairment |
|
| 4,743 |
|
|
| 6,725 |
|
|
| 4,743 |
|
|
| 7,149 |
|
|
| 74 |
|
|
| 23,434 |
| ||||||||||||||||||||||||
Total ending allowance balance |
| $ | 4,743 |
|
| $ | 6,725 |
|
| $ | 4,743 |
|
| $ | 7,166 |
|
| $ | 74 |
|
| $ | 23,451 |
| ||||||||||||||||||||||||
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Individually evaluated for impairment |
| $ | 2,298 |
|
| $ | — |
|
| $ | 3,189 |
|
| $ | 167 |
|
| $ | — |
|
| $ | 5,654 |
| ||||||||||||||||||||||||
Collectively evaluated for impairment |
|
| 582,142 |
|
|
| 802,260 |
|
|
| 679,617 |
|
|
| 590,687 |
|
|
| 5,568 |
|
|
| 2,660,274 |
| ||||||||||||||||||||||||
Purchased credit-impaired loans |
|
| — |
|
|
| — |
|
|
| 76 |
|
|
| 1,939 |
|
|
| — |
|
|
| 2,015 |
| ||||||||||||||||||||||||
Total ending loans balance |
| $ | 584,440 |
|
| $ | 802,260 |
|
| $ | 682,882 |
|
| $ | 592,793 |
|
| $ | 5,568 |
|
| $ | 2,667,943 |
|
Purchased credit-impaired loans Total ending allowance balance Loans: Individually evaluated for impairment Collectively evaluated for impairment Purchased credit-impaired loans Total ending loans balance December 31, 2017 Allowance for loan losses: Ending allowance balance attributable to loans: Individually evaluated for impairment Collectively evaluated for impairment Purchased credit-impaired loans Total ending allowance balance Loans: Individually evaluated for impairment Collectively evaluated for impairment Purchased credit-impaired loans Total ending loans balance Construction
and Land
Development Commercial
Real
Estate Residential
Real
Estate Commercial
and
Industrial Consumer
and
Other Total — — — 6 — 6 $ 4,345 $ 5,875 $ 3,605 $ 7,866 $ 47 $ 21,738 $ 165 $ — $ 694 $ 2,466 $ — $ 3,325 523,495 716,607 601,989 460,488 3,899 2,306,478 — 371 96 1,973 — 2,440 $ 523,660 $ 716,978 $ 602,779 $ 464,927 $ 3,899 $ 2,312,243 $ — $ — $ — $ 879 $ — $ 879 3,802 5,981 3,834 6,708 43 20,368 — — — — — — $ 3,802 $ 5,981 $ 3,834 $ 7,587 $ 43 $ 21,247 $ 217 $ — $ 834 $ 3,090 $ — $ 4,141 494,601 678,238 576,501 498,916 3,781 2,252,037 — 380 105 1,908 — 2,393 $ 494,818 $ 678,618 $ 577,440 $ 503,914 $ 3,781 $ 2,258,571
Loans collectively evaluated for impairment reported at March 31, 20182019 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 inan 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, 20182019 and December 31, 2017:2018:
| 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 |
|
Residential real estate: Closed-end1-4 family Other Commercial and industrial Subtotal With an allowance recorded: Commercial and industrial Subtotal Total Unpaid
Principal
Balance Recorded
Investment Allowance for
Loan Losses
Allocated 14 14 — 820 820 — 108 108 — 1,159 1,159 — 2,982 2,982 879 2,982 2,982 879 $ 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, 20182019 and 2017:2018:
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 |
|
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, 20182019 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, 20182019 and December 31, 2017:2018:
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 | ||||
|
|
|
|
|
| Nonaccrual |
|
| Loans Past Due Over 90 Days |
| ||
March 31, 2019 |
|
|
|
|
|
|
|
|
Construction and land development |
| $ | 583 |
|
| $ | — |
|
Commercial real estate: |
|
|
|
|
|
|
|
|
Non-farm non-residential |
|
| 153 |
|
|
| — |
|
Residential real estate: |
|
|
|
|
|
|
|
|
Closed-end 1-4 family |
|
| 849 |
|
|
| — |
|
Other |
|
| 962 |
|
|
| — |
|
Commercial and industrial |
|
| 9,177 |
|
|
| 180 |
|
Total |
| $ | 11,724 |
|
| $ | 180 |
|
December 31, 2018 |
|
|
|
|
|
|
|
|
Construction and land development |
| $ | 2,298 |
|
| $ | — |
|
Residential real estate: |
|
|
|
|
|
|
|
|
Closed-end 1-4 family |
|
| 1,273 |
|
|
| — |
|
Other |
|
| 1,917 |
|
|
| — |
|
Commercial and industrial |
|
| — |
|
|
| 208 |
|
Total |
| $ | 5,488 |
|
| $ | 208 |
|
Nonaccrual loans and loans past due 90 days still on accrual include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans.
The following table presents the aging of the recorded investment in past due loans as of March 31, 20182019 and December 31, 20172018 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, 20182019 and December 31, 2017:2018:
| 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 | |||||||||||||||||||||||||
|
|
|
|
|
| Pass |
|
| Special Mention |
|
| Substandard |
|
| Total |
| ||||
December 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land development |
| $ | 580,468 |
|
| $ | 1,416 |
|
| $ | 2,556 |
|
| $ | 584,440 |
|
Commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonfarm, nonresidential |
|
| 739,469 |
|
|
| 14,774 |
|
|
| — |
|
|
| 754,243 |
|
Other |
|
| 48,017 |
|
|
| — |
|
|
| — |
|
|
| 48,017 |
|
Residential real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closed-end 1-4 family |
|
| 489,781 |
|
|
| 948 |
|
|
| 2,336 |
|
|
| 493,065 |
|
Other |
|
| 186,485 |
|
|
| 404 |
|
|
| 2,928 |
|
|
| 189,817 |
|
Commercial and industrial |
|
| 553,589 |
|
|
| 8,313 |
|
|
| 30,891 |
|
|
| 592,793 |
|
Consumer and other |
|
| 5,567 |
|
|
| 1 |
|
|
| — |
|
|
| 5,568 |
|
|
| $ | 2,603,376 |
|
| $ | 25,856 |
|
| $ | 38,711 |
|
| $ | 2,667,943 |
|
Troubled Debt Restructurings
As of 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 oneCompany’s loan was added asportfolio contained two loans that had been modified in a troubled debt restructuring with a balance of $165, and$490. During the loanthree months ended March 31, 2019, one of the loans that was previously reported as a troubled debt restructuring at December 31, 20172018 was paid down by $575 byfully charged off with $159 of the borrower, and the remaining $33 was charged off.loan balance being recognized as a charge-off.
NOTE 4—LOAN SERVICING
Loans serviced for others are not reported as assets. The principal balances of these loans at March 31, 20182019 and December 31, 20172018 are as follows:
March 31, 2018 | December 31, 2017 |
| March 31, 2019 |
|
| December 31, 2018 |
| |||||||||
Loan portfolios serviced for: |
|
|
|
|
|
|
|
| ||||||||
Federal Home Loan Mortgage Corporation | $ | 507,375 | $ | 507,233 |
| $ | 494,025 |
|
| $ | 492,761 |
| ||||
Other | 4,589 | 4,626 |
|
| 3,651 |
|
|
| 3,689 |
|
The components of net loan servicing fees for the three months ended March 31, 20182019 and 20172018 were as follows:
Three Months Ended March 31, |
| Three Months Ended March 31, |
| |||||||||||||
2018 | 2017 |
| 2019 |
|
| 2018 |
| |||||||||
Loan servicing fees, net: |
|
|
|
|
|
|
|
| ||||||||
Loan servicing fees | $ | 333 | $ | 320 |
| $ | 306 |
|
| $ | 333 |
| ||||
Amortization of loan servicing fees | (214 | ) | (213 | ) |
|
| (225 | ) |
|
| (214 | ) | ||||
Change in impairment | — | — |
|
| — |
|
|
| — |
| ||||||
|
| |||||||||||||||
Total | $ | 119 | $ | 107 |
| $ | 81 |
|
| $ | 119 |
| ||||
|
|
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, 20182019 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, 20172018 was determined using a weighted average discount rate of 10.5%9.5% and a weighted average prepayment speed of 9.9%11.9%.
NOTE 5—SECURITIES SOLD UNDER AGREEMENT TO REPURCHASELEASES
Our subsidiary bank enters into borrowing arrangements with our retail business customers
A lease is defined as a contract, or part of a contract, that conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration. On January 1, 2019, the Company adopted ASU No. 2016-02 “Leases” (Topic 842) and correspondent banks throughall subsequent ASUs that modified Topic 842. For the Company, Topic 842 primarily affected the accounting treatment for operating lease agreements to repurchase (“securities sold under agreements to repurchase”) underin which the bank pledges investment securities ownedCompany is the lessee. The leases are presented as of part of other assets and under its control as collateral against these short-term borrowing arrangements. At maturityother liabilities on the securities underlying the agreements are returned to the Company. At 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.
Lessee Accounting
Substantially all of the leases in which the Company is the lessee are comprised of real estate property for branches and office space with terms extending through 2033. Substantially all of our leases are classified as operating leases, and therefore, were previously not recognized on the Company’s repurchase agreements hadconsolidated statements of condition. Upon adoption of FASB ASU 2016-02 one-dayLeases maturities.on January 1, 2019, the Company began recognizing right-of-use assets and lease liabilities related to its operating leases. Prior to ASU 2016-02, such assets and liabilities were recognized only for capital leases (referred to as finance leases under the amendments of ASU 2016-02). In accordance with the optional transition method allowed by ASU 2016-11, comparative prior period information included within this note is presented in accordance with guidance in effect during those periods. The Company has one existing finance lease for additional office space with a lease term through 2033. As this lease was previously required to be recorded on the Company’s consolidated statements of condition, and was recorded in other assets and other liabilities, Topic 842 did not materially impact the accounting for this lease. 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 detailsrepresents the consolidated statements of condition classification of the Company’s ROU assets and lease liabilities. The Company elected not to include short-term leases (i.e., leases with initial terms of twelve months or less), or equipment leases (deemed immaterial) on the consolidated statements of condition.
Lease right-of-use assets |
| Classification |
| 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 |
|
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.
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% |
The following table provides additional detailsrepresents lease costs and other lease information. As the Company elected, for all classes of underlying assets, not to separate lease and non-lease components and instead to account for them as of December 31, 2017:a single lease component, the variable lease cost primarily represents variable payments such as common area maintenance and utilities.
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 |
|
(1) | Included in other borrowings interest expense in the Company's consolidated statement of income. All other lease costs in this table are included |
NOTE 6—SHARE-BASED PAYMENTSin net occupancy expense.
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 at2018, was $1,228.
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 |
|
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.
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 |
|
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.
Twelve Months Ended: |
| Finance |
|
| Operating |
| ||
2019 |
| $ | 272 |
|
| $ | 4,841 |
|
2020 |
|
| 276 |
|
|
| 4,849 |
|
2021 |
|
| 280 |
|
|
| 4,871 |
|
2022 |
|
| 284 |
|
|
| 4,856 |
|
2023 |
|
| 288 |
|
|
| 4,885 |
|
Thereafter |
|
| 3,133 |
|
|
| 36,178 |
|
Total future minimum lease payments |
| $ | 4,533 |
|
| $ | 60,480 |
|
NOTE 6—SHARE-BASED PAYMENTS
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, 20182019 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, 20182019 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”). Thewhich 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 4,709,4542,481,835 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:
Plan.
Employee, organizer and director awards are generally granted with an exercise price equal to the market price of the Company’s common stock at the date of grant; those option awards have a 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.
March 31, 2018 | March 31, 2017 |
| March 31, 2019 |
|
| March 31, 2018 |
| |||||||||
Risk-free interest rate | 2.49 | % | 2.28 | % |
|
| 2.31 | % |
|
| 2.49 | % | ||||
Expected term | 7.5 years | 7.4 years |
| 7 years |
|
| 7.5 years |
| ||||||||
Expected stock price volatility | 32.48 | % | 34.20 | % |
|
| 30.44 | % |
|
| 32.48 | % | ||||
Dividend yield | 0.00 | % | 0.04 | % |
|
| 0.50 | % |
|
| 0.00 | % |
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, 20182019 follows:
| Shares |
|
| Weighted Average Exercise Price |
|
| Weighted Average Remaining Contractual Term |
|
| Aggregate Intrinsic Value |
| |||||||||||||||||||||
Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term | Aggregate Intrinsic Value | |||||||||||||||||||||||||||||
Outstanding at beginning of year | 1,507,168 | $ | 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 |
|
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 1.61.1 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, 20182019 is as follows:
Non-vested Shares | Shares | Weighted- Average Grant- Date Fair Value |
| Shares |
|
| Weighted- Average Grant- Date Fair Value |
| ||||||||
Non-vested at December 31, 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 |
|
|
|
|
|
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 3.11.5 years. There were no shares that vested during the three months ended March 31, 2018 or 2017, respectively.
NOTE 7—REGULATORY CAPITAL MATTERS
Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certainoff-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action. The final rules implementing Basel Committee on Banking Supervision’s capital guidelines for U.S. Banks (Basel III rules) became effective for the Company on January 1, 2016 with full compliance with all of the requirements being phased in over a multi-year schedule, and fully phased in by January 1, 2019.
The Basel III rules additionally provide for countercyclical capital requirements so that the required amount of capital increases in times of economic expansion and decreases in times of economic contraction, consistent with safety and soundness. Under the Basel III rules, banks must maintain a capital conservation buffer consisting of additional Common Equity Tier 1 Capital equal to 2.5% of risk-weighted assets above each of the required minimum capital levels in order to avoid limitations on paying dividends, engaging in share repurchases, and paying certain discretionary bonuses. This new capital conservation buffer requirement was phased in beginning January 2016 at 0.625% of risk-weighted assets and will increaseincreased each year until fully implemented at 2.5% in January 2019. The capital conservation buffer in effect for 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, 20182019 and December 31, 20172018 for the Company and Bank:
Actual | Required For Capital Adequacy Purposes | To Be Well Capitalized Under Prompt Corrective Action Regulations | ||||||||||||||||||||||
Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||||||
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 | % |
|
| Actual |
|
| Required For Capital Adequacy Purposes |
|
| To Be Well Capitalized Under Prompt Corrective Action Regulations |
| |||||||||||||||
|
| Amount |
|
| Ratio |
|
| Amount |
|
| Ratio |
|
| Amount |
|
| Ratio |
| ||||||
March 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company-Level |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company common equity Tier 1 capital to RWA |
| $ | 369,202 |
|
|
| 11.3 | % |
| $ | 146,855 |
|
|
| 4.5 | % |
| N/A |
|
| N/A |
| ||
Company Total Capital to RWA |
| $ | 455,881 |
|
|
| 14.0 | % |
| $ | 261,076 |
|
|
| 8.0 | % |
| N/A |
|
| N/A |
| ||
Company Tier 1 (Core) Capital to RWA |
| $ | 369,202 |
|
|
| 11.3 | % |
| $ | 195,807 |
|
|
| 6.0 | % |
| N/A |
|
| N/A |
| ||
Company Tier 1 (Core) Capital to average assets |
| $ | 369,202 |
|
|
| 8.8 | % |
| $ | 168,498 |
|
|
| 4.0 | % |
| N/A |
|
| N/A |
| ||
Bank-Level |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank common equity Tier 1 capital to RWA |
| $ | 425,528 |
|
|
| 13.0 | % |
| $ | 146,869 |
|
|
| 4.5 | % |
| $ | 212,144 |
|
|
| 6.5 | % |
Bank Total Capital to RWA |
| $ | 453,469 |
|
|
| 13.9 | % |
| $ | 261,101 |
|
|
| 8.0 | % |
| $ | 326,376 |
|
|
| 10.0 | % |
Bank Tier 1 (Core) Capital to RWA |
| $ | 425,528 |
|
|
| 13.0 | % |
| $ | 195,825 |
|
|
| 6.0 | % |
| $ | 261,101 |
|
|
| 8.0 | % |
Bank Tier 1 (Core) Capital to average assets |
| $ | 425,528 |
|
|
| 10.1 | % |
| $ | 168,318 |
|
|
| 4.0 | % |
| $ | 210,397 |
|
|
| 5.0 | % |
December 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company-Level |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company common equity Tier 1 capital to RWA |
| $ | 367,096 |
|
|
| 12.2 | % |
| $ | 135,598 |
|
|
| 4.5 | % |
| N/A |
|
| N/A |
| ||
Company Total Capital to RWA |
| $ | 449,325 |
|
|
| 14.9 | % |
| $ | 241,064 |
|
|
| 8.0 | % |
| N/A |
|
| N/A |
| ||
Company Tier 1 (Core) Capital to RWA |
| $ | 367,096 |
|
|
| 12.2 | % |
| $ | 180,798 |
|
|
| 6.0 | % |
| N/A |
|
| N/A |
| ||
Company Tier 1 (Core) Capital to average assets |
| $ | 367,096 |
|
|
| 8.8 | % |
| $ | 167,553 |
|
|
| 4.0 | % |
| N/A |
|
| N/A |
| ||
Bank-Level |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank common equity Tier 1 capital to RWA |
| $ | 421,335 |
|
|
| 14.0 | % |
| $ | 135,613 |
|
|
| 4.5 | % |
| $ | 195,886 |
|
|
| 6.5 | % |
Bank Total Capital to RWA |
| $ | 444,871 |
|
|
| 14.8 | % |
| $ | 241,090 |
|
|
| 8.0 | % |
| $ | 301,363 |
|
|
| 10.0 | % |
Bank Tier 1 (Core) Capital to RWA |
| $ | 421,335 |
|
|
| 14.0 | % |
| $ | 180,818 |
|
|
| 6.0 | % |
| $ | 241,090 |
|
|
| 8.0 | % |
Bank Tier 1 (Core) Capital to average assets |
| $ | 421,335 |
|
|
| 10.1 | % |
| $ | 167,420 |
|
|
| 4.0 | % |
| $ | 209,275 |
|
|
| 5.0 | % |
Note: Minimum ratios presented exclude the capital conservation buffer
Dividend Restrictions: The Company’s principal source of funds for dividend payments is dividends received from the Bank. Banking regulations limit the amount of dividends that may be paid without prior approval of regulatory agencies. Under these regulations, the amount of dividends that may be paid in any calendar year is limited to the current year’s net profits, combined with the retained net profits of the preceding two years, subject to the capital requirements described above. The Bank may not currently pay dividends without prior written approval from its primary regulatory agencies.
NOTE 8—DERIVATIVES INSTRUMENTS
Financial derivatives are reported at fair value in other assets or other liabilities. The accounting for changes in the fair value of a derivative depends on whether it has been designated and qualifies as part of a hedging relationship. For derivatives not designated as hedges, the gain or loss is recognized in current earnings.
Derivatives designated as fair value hedges
For derivative instruments that are designated and qualify as a fair value hedge, the gain or loss on the derivative instrument as well as the offsetting loss or gain on the hedged asset or liability attributable to the hedged risk are recognized in current earnings. The gain or loss on the derivative instrument is presented on the same income statement line item as the earnings effect of the hedged item. The Company utilizes interest rate swaps designated as fair value hedges to mitigate the effect of changing interest rates on the fair values of fixed rate callable securities available-for-sale. The hedging strategy on securities converts the fixed interest rates to LIBOR-based variable interest rates. These derivatives are designated as partial term hedges of selected cash flows covering specified periods of time prior to the call dates of the hedged securities.
During 2019, the Company 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):
|
|
|
|
|
|
|
|
|
|
|
|
|
| March 31, 2019 |
| |||||
|
| Balance Sheet Location |
| Weighted Average Remaining Maturity (In Years) |
|
| Weighted Average Pay Rate |
|
| Receive Rate |
| Notional Amount |
|
| Estimated Fair Value |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability derivative |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap agreements - securities |
| Other liabilities |
|
| 7.59 |
|
| 2.528% |
|
| 3 month LIBOR |
| $ | 101,205 |
|
| $ | (1,118 | ) |
There were no fair value hedge relationships as of December 31, 2018.
The effects of fair value hedge relationships reported in interest income on securities on the consolidated statements of income for the three months ended March 31, 2019 and 2018 were as follows (in thousands):
|
| 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 | ) |
|
| - |
|
|
|
|
|
|
|
|
|
|
The following amounts were recorded on the balance sheet related to cumulative basis adjustments for fair value hedges at March 31, 2019:
|
| Carrying Amount of the Hedged Assets (in thousands) |
|
| Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets |
| ||
Line item on the balance sheet |
| March 31, 2019 |
|
| March 31, 2019 |
| ||
Securities available-for-sale |
| $ | 116,634 |
|
| $ | 1,118 |
|
NOTE 9—FAIR VALUE
Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:
Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.
Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.
Securities: The fair values for investment securities are determined by quoted market prices, if available (Level 1). For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2), using matrix pricing. Matrix pricing is a mathematical technique commonly used to price debt securities that are not actively traded and values debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs). Included in securities is interest rate swap agreements. The carrying amount of the interest rate swap agreements is based on pricing models that utilize observable market inputs (Level 2). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3).
DerivativesOther Assets: Included in other assets are certain assets carried at fair value and interest rate locks associated with the mortgage loan pipeline. The fair valuesvalue of derivatives arethe mortgage loan pipeline rate locks is based on valuation models using observableupon the projected sales price of the underlying loans, taking into account market data as ofinterest rates and other market factors at the measurement date, net of the projected fallout rate. These assets are valued using similar observable data that occurs in the market. (Level 2).
Impaired Loans: The fair value of impaired loans with specific allocations of the allowance for loan losses is generally based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification. Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly. Appraisals for impaired loans are generally obtained annually but may be obtained more frequently based on changing circumstances as part of the aforementioned quarterly evaluation.
Foreclosed Assets: Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. Fair value is commonly based on recent real estate appraisals which are updated no less frequently than annually. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Foreclosed assets are evaluated on a quarterly basis for additional impairment and adjusted accordingly.
Appraisals for both collateral-dependent impaired loans and real estate owned are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the Company. Once received, a member of the credit administration department reviews the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value in comparison with independent data sources such as recent market data or industry-wide statistics. On an annual basis, the Company compares the actual selling price of collateral that has been sold to the most recent appraised value to determine what additional adjustment should be made to the appraisal value to arrive at fair value.
Loans Held For Sale: The Company has elected the fair value option for loans held for sale to align with other accounting policies related to mortgage banking, such as mortgage banking derivatives. These loans are typically sold to an investor following loan origination and the fair value of such accounts are readily available based on direct quotes from investors or similar transactions experienced in the secondary loan market. Fair value adjustments, as well as realized gains and losses are recorded in current earnings. Fair value is determined by market prices for similar transactions adjusted for specific attributes of that loan (Level 2).
Other Liabilities: The Company has certain liabilities carried at fair value including certain interest rate swap agreements to facilitate customer transactions and the interest rate locks associated with the funding for its mortgage loan originations. The fair value of these liabilities is based on pricing models that utilize observable market inputs (Level 2).
Assets and liabilities measured at fair value on a recurring basis, including financial assets and liabilities for which the Company has elected the fair value option, are summarized below:
Fair Value Measurements at 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 |
|
| $ | — |
|
|
| Fair Value Measurements at December 31, 2018 Using: |
| |||||||||
|
| Quoted Prices in Active Markets for Identical Assets (Level 1) |
|
| Significant Other Observable Inputs (Level 2) |
|
| Significant Unobservable Inputs (Level 3) |
| |||
Financial Assets |
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities |
| $ | 253,014 |
|
| $ | — |
|
| $ | — |
|
U.S. government sponsored entities and agencies |
|
| — |
|
|
| 21,888 |
|
|
| — |
|
Mortgage-backed securities-residential |
|
| — |
|
|
| 580,699 |
|
|
| — |
|
Asset-backed securities |
|
| — |
|
|
| 24,844 |
|
|
| — |
|
Corporate notes |
|
|
|
|
|
| 12,424 |
|
|
|
|
|
State and political subdivisions |
|
| — |
|
|
| 137,799 |
|
|
| — |
|
Total securities available for sale |
| $ | 253,014 |
|
| $ | 777,654 |
|
| $ | — |
|
Loans held for sale |
| $ | — |
|
| $ | 11,103 |
|
| $ | — |
|
Other assets |
| $ | — |
|
| $ | 206 |
|
| $ | — |
|
Financial Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Other liabilities |
| $ | — |
|
| $ | 129 |
|
| $ | — |
|
As of 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, 20182019 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, 20182019 and December 31, 2017.2018.
There were no transfers between level 1 and 2 during 20182019 or 2017.2018.
Assets measured at fair value on anon-recurring basis are summarized below:
There was onewere six collateral-dependent commercial and industrial impaired loans carried at fair value of $1,831$5,722 as of March 31, 20182019. 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 no2019, $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, 20182019 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, 20182019 or 20172018 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, 20182019 and December 31, 20172018 are as follows:
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
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 | ||||||||||||||||||||||||||||||||||||||||
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 |
|
|
|
|
|
| Fair Value Measurements at December 31, 2018 Using: |
| |||||||||||||
|
| Carrying Amount |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| |||||
Financial assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 280,212 |
|
| $ | 280,212 |
|
| $ | — |
|
| $ | — |
|
| $ | 280,212 |
|
Certificates of deposit held at other financial institutions |
|
| 3,594 |
|
|
| — |
|
|
| 3,594 |
|
|
| — |
|
|
| 3,594 |
|
Securities available for sale |
|
| 1,030,668 |
|
|
| 253,014 |
|
|
| 777,654 |
|
|
| — |
|
|
| 1,030,668 |
|
Securities held to maturity |
|
| 121,617 |
|
|
| — |
|
|
| 118,955 |
|
|
| — |
|
|
| 118,955 |
|
Loans held for sale |
|
| 11,103 |
|
|
| — |
|
|
| 11,103 |
|
|
| — |
|
|
| 11,103 |
|
Net loans |
|
| 2,641,948 |
|
|
| — |
|
|
| — |
|
|
| 2,622,386 |
|
|
| 2,622,386 |
|
Servicing rights, net |
|
| 3,403 |
|
|
| — |
|
|
| — |
|
|
| 4,836 |
|
|
| 4,836 |
|
Other assets |
|
| 206 |
|
|
| — |
|
|
| 206 |
|
|
| — |
|
|
| 206 |
|
Accrued interest receivable |
|
| 13,337 |
|
|
| 71 |
|
|
| 5,539 |
|
|
| 7,727 |
|
|
| 13,337 |
|
Financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
| $ | 3,431,807 |
|
| $ | 2,105,951 |
|
| $ | 1,319,326 |
|
| $ | — |
|
| $ | 3,425,277 |
|
Federal Home Loan Bank advances |
|
| 368,500 |
|
|
| — |
|
|
| 366,786 |
|
|
| — |
|
|
| 366,786 |
|
Subordinated notes, net |
|
| 58,693 |
|
|
| — |
|
|
| — |
|
|
| 59,852 |
|
|
| 59,852 |
|
Other liabilities |
|
| 129 |
|
|
| — |
|
|
| 129 |
|
|
| — |
|
|
| 129 |
|
Accrued interest payable |
|
| 4,700 |
|
|
| 146 |
|
|
| 3,866 |
|
|
| 688 |
|
|
| 4,700 |
|
The methods and assumptions not previously described used to estimate fair values are described as follows:
(a) Cash and Cash Equivalents:The carrying amounts of cash and short-term instruments approximate fair values and are classified as Level 1.
(b) Loans:Fair values of loans, excluding loans held for sale, are estimated as follows: 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.
NOTE 9—10—EARNINGS PER SHARE
Thetwo-class method is used in the calculation of basic and diluted earnings per share. Under thetwo-class method, earnings available to common shareholders for the period are allocated between common shareholders and participating securities according to dividends declared (or accumulated) and participation rights in undistributed earnings. The factors used in the earnings per share computation follow:
Three Months Ended March 31, |
| Three Months Ended March 31, |
| |||||||||||||
2018 | 2017 |
| 2019 |
|
| 2018 |
| |||||||||
Basic |
|
|
|
|
|
|
|
| ||||||||
Net income available to common shareholders | $ | 10,052 | $ | 7,934 |
| $ | 2,901 |
|
| $ | 10,052 |
| ||||
Less: earnings allocated to participating securities | (71 | ) | (65 | ) |
|
| (34 | ) |
|
| (71 | ) | ||||
|
| |||||||||||||||
Net income allocated to common shareholders | $ | 9,981 | $ | 7,869 |
| $ | 2,867 |
|
| $ | 9,981 |
| ||||
|
| |||||||||||||||
Weighted average common shares outstanding including participating securities | 13,249,728 | 13,049,012 |
|
| 14,561,721 |
|
|
| 13,249,728 |
| ||||||
Less: Participating securities | (94,010 | ) | (106,323 | ) |
|
| (168,638 | ) |
|
| (94,010 | ) | ||||
|
| |||||||||||||||
Average shares | �� | 13,155,718 | 12,942,689 |
|
| 14,393,083 |
|
|
| 13,155,718 |
| |||||
|
| |||||||||||||||
Basic earnings per common share | $ | 0.76 | $ | 0.61 |
| $ | 0.20 |
|
| $ | 0.76 |
| ||||
|
| |||||||||||||||
Diluted | ||||||||||||||||
Net income allocated to common shareholders | $ | 9,981 | $ | 7,869 | ||||||||||||
Weighted average common shares outstanding for basic earnings per common share | 13,155,718 | 12,942,689 | ||||||||||||||
Add: Dilutive effects of assumed exercises of stock options | 516,666 | 708,694 | ||||||||||||||
Add: Dilutive effects of assumed exercises of stock warrants | — | 5,974 | ||||||||||||||
|
| |||||||||||||||
Average shares and dilutive potential common shares | 13,672,384 | 13,657,357 | ||||||||||||||
|
| |||||||||||||||
Diluted earnings per common share | $ | 0.73 | $ | 0.58 | ||||||||||||
|
|
|
| Three Months Ended March 31, |
| |||||
|
| 2019 |
|
| 2018 |
| ||
Diluted |
|
|
|
|
|
|
|
|
Net income allocated to common shareholders |
| $ | 2,867 |
|
| $ | 9,981 |
|
Weighted average common shares outstanding for basic earnings per common share |
|
| 14,393,083 |
|
|
| 13,155,718 |
|
Add: Dilutive effects of assumed exercises of stock options |
|
| 411,747 |
|
|
| 516,666 |
|
Add: Dilutive effects of assumed exercises of stock warrants |
|
| — |
|
|
| — |
|
Average shares and dilutive potential common shares |
|
| 14,804,830 |
|
|
| 13,672,384 |
|
Dilutive earnings per common share |
| $ | 0.19 |
|
| $ | 0.73 |
|
For the three months ended March 31, 20182019 and 2017,2018, stock options for 411,279768,458 and 108,000411,279 shares of common stock, respectively, were not considered in computing diluted earnings per common share because they were antidilutive.
NOTE 10—11—SUBORDINATED DEBT ISSUANCE
The Company’s subordinated notes, net of issuance costs, totaled $58,559$58,738 and $58,515$58,693 at March 31, 20182019 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, 20182019 and 2017,2018, amortization of issuance costs has amounted to $45 for both periods.and $45, respectively.
The following table summarizes the terms of each subordinated note offering:
March 2016 Subordinated Notes | June 2016 Subordinated Notes |
| March 2016 Subordinated Notes |
|
| June 2016 Subordinated Notes |
| |||
Principal amount issued | $40,000 | $20,000 |
| $40,000 |
|
| $20,000 |
| ||
Maturity date | March 30, 2026 | July 1, 2026 |
| March 30, 2026 |
|
| July 1, 2026 |
| ||
Initial fixed interest rate | 6.875% | 7.00% |
| 6.875% |
|
| 7.00% |
| ||
Initial interest rate period | 5 years | 5 years |
| 5 years |
|
| 5 years |
| ||
First interest rate change date | March 30, 2021 | July 1, 2021 |
| March 30, 2021 |
|
| July 1, 2021 |
| ||
Interest payment frequency through year five* | Semiannually | Semiannually |
| Semiannually |
|
| Semiannually |
| ||
Interest payment frequency after five years* | Quarterly | Quarterly |
| Quarterly |
|
| Quarterly |
| ||
Interest repricing index and margin | 3-month LIBOR plus 5.636% | 3-month LIBOR plus 6.04% |
| 3-month LIBOR plus 5.636% |
|
| 3-month LIBOR plus 6.04% |
| ||
Repricing frequency after five years | Quarterly | Quarterly |
| Quarterly |
|
| Quarterly |
|
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (All dollar values in this section are in thousands.)
The following discussion is intended to assistand analysis identifies significant factors that have affected our financial position and operating results during the periods included in the understanding and assessment of significant changes and trends related to the Company’s results of operations andaccompanying financial condition.statements. This discussion and analysis should be read in conjunction with the accompanying unaudited financial statements, the audited financial statements and accompanying notes included in the Company’s Annual Report on Form10-K filed with the SECSecurities and Exchange Commission (“SEC”) on March 16, 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.
Company Overview
We are a financial holding company headquartered in Franklin, Tennessee. Through our wholly-owned bank subsidiary, Franklin Synergy Bank, a Tennessee-chartered commercial bank and a member of the Federal Reserve System, we provide a full range of banking and related financial services with a focus on service to small businesses, corporate entities, local governments and individuals. We operate through 1415 branches and onea loan production office in the demographically attractive and growing Williamson, Rutherford and Davidson Counties within the Nashville metropolitan area. As used in this report, unless the context otherwise indicates, any reference to “Franklin Financial,” “our Company,” “the Company,” “us,” “we” and “our” refers to Franklin Financial Network, Inc. together with its consolidated subsidiaries (including Franklin Synergy)Synergy Bank), any reference to “FFN” refers to Franklin Financial Network, Inc. only and any reference to “Franklin Synergy” or the “Bank” refers to our banking subsidiary, Franklin Synergy Bank.
As of 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.
Critical Accounting Policies
The accounting and reporting policies of the Company are in accordance with accounting principles generally accepted in the United States of America and conform to general practices within the banking industry. To prepare financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and actual results could differ.
The Company’s accounting policies are integral to understanding the results reported. Accounting policies are described in detail in Note 1 of the notes to the consolidated financial statements in the Company’s Annual Report on Form10-K that was filed with the SEC on March 16, 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.
Allowance for Loan Losses (ALLL)
The allowance for loan lossesALLL is a valuation allowance for probable incurred credit losses. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed.has become uncollectible. Subsequent recoveries, if any, are credited to the allowance. Management estimates the allowance balance required using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors.
Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged off.
The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired. A loan is impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Loans for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings (TDR’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 restructuringsTDR’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 restructuringTDR is considered to be a collateral dependent loan, the loan is reported, net, at the fair value of the collateral. For troubled debt restructuringsTDR’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 economicqualitative factors based on the risks present for each portfolio segment. These economic factors include consideration of the following: levels of and trends in delinquencies and impaired loans; levels of and trends in charge-offs and recoveries; trends in volume and terms of loans; effects of any changes in risk selection and underwriting standards; other changes in lending policies, procedures, and practices; experience, ability, and depth of lending management and other relevant staff; national and local economic trends and conditions; industry conditions; and effects of changes in credit concentrations.
COMPARISON OF RESULTS OF OPERATIONS FOR
THE THREE MONTHS ENDED MARCH 31, 2019 and 2018 AND 2017
(Dollar Amounts in Thousands)Thousands)
Overview
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 netNet 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 securitiesprimarily due to organic growth in these portfolios, decreased provision for loan losses$4,143 related to the Company’s loan qualitypost employment and the decrease in income taxretirement 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/Margin
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 ofincreased $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, 20182019 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 portfolioaverage 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, 20182019 with the same period in 2017.2018.
When comparing the three months ended March 31, 20182019 and 2017,2018, the yield on average interest earning assets, adjusted fortax-equivalent tax equivalent yield, remained consistent atincreased 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, thetax-equivalent tax equivalent yield on available for sale securitiesloans was 2.52%5.61%, and for the three months ended March 31, 2017,2018, thetax-equivalent tax equivalent yield on availableloans was 5.07%. The primary driver for sale securitiesthe increase in yields on loans was 2.69%. Forthe 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 portfolio2018. 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 2018ended March 31, 2019 with the same period in 2017.2018.
ForWhen comparing the three month periodsmonths ended March 31, 20182019 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-monthsthree months ended March 31, 20182019 and 2017:2018:
Average Balances—Yields & Rates(1)(7)
(Dollars are in thousands)
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 | % |
(1) |
Loan balances include |
| Includes federal funds sold and interest-bearing deposits at the Federal Reserve Bank, the Federal Home Loan Bank and |
(3) | Includes repurchase agreements. |
(4) | Represents the average rate earned on interest-earning assets minus the average rate paid on interest-bearing liabilities. |
(5) | Represents net interest income (annualized) divided by total average earning assets. |
(6) | Interest income and rates include the effects oftax-equivalent adjustments to adjusttax-exempt interest income ontax-exempt loans and investment securities to a fully taxable basis. |
(7) | Average balances are average daily balances. |
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.
Analysis of Changes in Interest Income and Expenses
|
| Net change three months ended March 31, 2019 versus March 31, 2018 |
| |||||||||
|
| Volume |
|
| Rate |
|
| Net Change |
| |||
INTEREST INCOME |
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
| $ | 5,819 |
|
| $ | 3,687 |
|
| $ | 9,506 |
|
Loans held for sale |
|
| 6 |
|
|
| 36 |
|
|
| 42 |
|
Securities |
|
|
|
|
|
|
|
|
|
|
|
|
Taxable |
|
| (810 | ) |
|
| 1,093 |
|
|
| 283 |
|
Tax-exempt |
|
| (538 | ) |
|
| (64 | ) |
|
| (602 | ) |
Restricted equity securities |
|
| 55 |
|
|
| 5 |
|
|
| 60 |
|
Certificates of deposit at other financial institutions |
|
| 3 |
|
|
| 5 |
|
|
| 8 |
|
Federal funds sold and other |
|
| (402 | ) |
|
| 427 |
|
|
| 25 |
|
TOTAL INTEREST INCOME |
| $ | 4,133 |
|
| $ | 5,189 |
|
| $ | 9,322 |
|
INTEREST EXPENSE |
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
|
|
|
|
|
|
|
|
|
|
|
Interest checking |
| $ | (211 | ) |
| $ | 1,465 |
|
| $ | 1,254 |
|
Money market accounts |
|
| 870 |
|
|
| 2,509 |
|
|
| 3,379 |
|
Savings |
|
| (8 | ) |
|
| (2 | ) |
|
| (10 | ) |
Time deposits |
|
| (402 | ) |
|
| 2,126 |
|
|
| 1,724 |
|
Federal Home Loan Bank advances |
|
| 255 |
|
|
| 553 |
|
|
| 808 |
|
Fed funds purchased and other borrowed funds |
|
| (64 | ) |
|
| 40 |
|
|
| (24 | ) |
Subordinated Notes and other borrowings |
|
| 3 |
|
|
| 38 |
|
|
| 41 |
|
TOTAL INTEREST EXPENSE |
| $ | 443 |
|
| $ | 6,729 |
|
| $ | 7,172 |
|
NET INTEREST INCOME |
| $ | 3,690 |
|
| $ | (1,540 | ) |
| $ | 2,150 |
|
Net change three months ended March 31, 2018 versus March 31, 2017 | ||||||||||||
Volume | Rate | Net Change | ||||||||||
INTEREST INCOME | ||||||||||||
Loans | $ | 5,311 | $ | 911 | $ | 6,222 | ||||||
Securities available for sale | 549 | (451 | ) | 98 | ||||||||
Securities held to maturity | (139 | ) | (195 | ) | (334 | ) | ||||||
Restricted equity securities | 65 | 28 | 93 | |||||||||
Certificates of deposit at other financial institutions | 4 | 1 | 5 | |||||||||
Federal funds sold and other | 325 | 461 | 786 | |||||||||
|
|
|
|
|
| |||||||
TOTAL INTEREST INCOME | $ | 6,115 | $ | 755 | $ | 6,870 | ||||||
|
|
|
|
|
| |||||||
INTEREST EXPENSE | ||||||||||||
Deposits | ||||||||||||
Interest checking | $ | 315 | $ | 1,789 | $ | 2,104 | ||||||
Money market accounts | 252 | 1,120 | 1,372 | |||||||||
Savings | (4 | ) | — | (4 | ) | |||||||
Time deposits | 514 | 1,411 | 1,925 | |||||||||
Federal Home Loan Bank advances | 258 | 344 | 602 | |||||||||
Federal funds purchased and repurchase agreements | (20 | ) | 46 | 26 | ||||||||
Subordinated notes and other borrowings | 2 | 6 | 8 | |||||||||
|
|
|
|
|
| |||||||
TOTAL INTEREST EXPENSE | $ | 1,317 | $ | 4,716 | $ | 6,033 | ||||||
|
|
|
|
|
| |||||||
NET INTEREST INCOME | $ | 4,798 | $ | (3,961 | ) | $ | 837 | |||||
|
|
|
|
|
|
Provision for Loan Losses
The provision for loan losses represents a charge to earnings necessary to establish an allowance for loan lossesALLL that, in management’s evaluation, should be adequate to provide coverage for 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, 20182019 and 2017,2018, respectively. The decrease in loan losshigher provision is due primarilyfor 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, 20182019 totaled $3,503$11,904 compared to $4,036$5,696 at MarchDecember 31, 2017,2018, representing 0.15%0.42% and 0.21%0.22% of total loans respectively.for the respective periods.
Non-Interest Income
Non-interest income for the three months ended March 31, 2018 and 20172019 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):
Three Months Ended March 31, | $ Increase (Decrease) | % Increase (Decrease) |
| Three Months Ended March 31, |
|
| $ Increase |
|
| % Increase |
| |||||||||||||||||||||
2018 | 2017 |
| 2019 |
|
| 2018 |
|
| (Decrease) |
|
| (Decrease) |
| |||||||||||||||||||
Service charges on deposit accounts | $ | 42 | $ | 30 | $ | 12 | 40.0 | % |
| $ | 74 |
|
| $ | 42 |
|
| $ | 32 |
|
|
| 76.2 | % | ||||||||
Other service charges and fees | 751 | 752 | (1 | ) | (0.1 | %) |
|
| 757 |
|
|
| 751 |
|
|
| 6 |
|
|
| 0.8 |
| ||||||||||
Net gains on sale of loans | 1,439 | 2,334 | (895 | ) | (38.3 | %) | ||||||||||||||||||||||||||
Mortgage banking revenue |
|
| 1,672 |
|
|
| 1,549 |
|
|
| 123 |
|
|
| 7.9 |
| ||||||||||||||||
Wealth management | 704 | 593 | 111 | 18.7 | % |
|
| 627 |
|
|
| 704 |
|
|
| (77 | ) |
|
| (10.9 | ) | |||||||||||
Loan servicing fees, net | 119 | 107 | 12 | 11.2 | % | |||||||||||||||||||||||||||
Gain on sale or call of securities |
|
| 149 |
|
|
| — |
|
|
| 149 |
|
| NM |
| |||||||||||||||||
Net (loss) gain on sale of loans |
|
| (217 | ) |
|
| 9 |
|
|
| (226 | ) |
|
| (2,511.1 | ) | ||||||||||||||||
Net gain on sale of foreclosed assets | 3 | 3 | — | — | % |
|
| 4 |
|
|
| 3 |
|
|
| 1 |
|
|
| 33.3 |
| |||||||||||
Other | 398 | 189 | 209 | 110.6 | % |
|
| 420 |
|
|
| 398 |
|
|
| 22 |
|
|
| 5.5 |
| |||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Totalnon-interest income | $ | 3,456 | $ | 4,008 | $ | (552 | ) | (13.8 | %) |
| $ | 3,486 |
|
| $ | 3,456 |
|
| $ | 30 |
|
|
| 0.9 | % | |||||||
|
|
|
|
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
Mortgage banking derivatives entered
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 decreaseincrease was due to the volume of mortgage loans originated, the sales related to those loans, and lessmore favorable market rates in first quarter 2018,2019, which resulted in less favorable fair value adjustments on mortgage derivatives.
Wealth management income for
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
Non-interest expense for the three months ended March 31, 2018 and 20172019 was $22,616 compared to $15,488 and $14,276, respectively, an increase of $1,212, or 8.5%. This increase wasfor the same period in 2018. The increases were the result of the following components listed in the table below (in thousands):
Three Months Ended March 31, | $ Increase (Decrease) | % Increase (Decrease) |
| Three Months Ended March 31, |
|
| $ Increase |
|
| % Increase |
| |||||||||||||||||||||
2018 | 2017 |
| 2019 |
|
| 2018 |
|
|
|
|
|
|
| |||||||||||||||||||
Salaries and employee benefits | $ | 9,188 | $ | 8,033 | $ | 1,155 | 14.4 | % |
| $ | 14,743 |
|
| $ | 9,188 |
|
| $ | 5,555 |
|
|
| 60.5 | % | ||||||||
Occupancy and equipment | 2,594 | 2,095 | 499 | 23.8 | % |
|
| 3,113 |
|
|
| 2,594 |
|
|
| 519 |
|
|
| 20.0 |
| |||||||||||
FDIC assessment expense | 660 | 760 | (100 | ) | (13.2 | %) |
|
| 990 |
|
|
| 660 |
|
|
| 330 |
|
|
| 50.0 |
| ||||||||||
Marketing | 280 | 267 | 13 | 4.9 | % |
|
| 319 |
|
|
| 280 |
|
|
| 39 |
|
|
| 13.9 |
| |||||||||||
Professional fees | 869 | 1,035 | (166 | ) | (16.0 | %) |
|
| 923 |
|
|
| 869 |
|
|
| 54 |
|
|
| 6.2 |
| ||||||||||
Amortization of core deposit intangible | 104 | 127 | (23 | ) | (18.1 | %) |
|
| 145 |
|
|
| 104 |
|
|
| 41 |
|
|
| 39.4 |
| ||||||||||
Other | 1,793 | 1,959 | (166 | ) | (8.5 | %) |
|
| 2,383 |
|
|
| 1,793 |
|
|
| 590 |
|
|
| 32.9 |
| ||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Totalnon-interest expense | $ | 15,488 | $ | 14,276 | $ | 1,212 | 8.5 | % |
| $ | 22,616 |
|
| $ | 15,488 |
|
| $ | 7,128 |
|
|
| 46.0 | % | ||||||||
|
|
|
|
The increase innon-interest expense noted in the table above is indicative ofrelated to the Company’s overall growth. The Company’s biggest varianceslargest increases for the three months ended March 31, 2018,2019, in comparison with the same periodperiods 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, 20182019 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 ofthree 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, 20182019 with the same period in 2017. This2018. 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, 20182019 with the same period in 2017.2018. The decreaseincrease 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, 20182019 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 attributabledue to a decreaseincreases 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%, fromwhen compared to the same period during 2017.three months ended March 31, 2018. The reductionincrease in othernon-interest expense for the three months ended March 31, 2019 versus March 31, 2018 is attributed to larger decreasesincreases 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.
Income Tax Expense
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’syear-to-date quarter-to-date income tax expense for the period ended March 31, 20182019 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 decrease2018 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 iscurrent 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 MARCHMarch 31, 2018 AND DECEMBER2019 and December 31, 20172018
Overview
The Company’s total assets increaseddecreased by $240,137,$11,003, or 6.2%0.3%, from December 31, 20172018 to March 31, 2018.2019. The increasedecrease in total assets has primarily been the result of the continued balance sheet rotation and optimization strategies and the planned sales of investment securities during the three months ended March 31, 2019 offset by organic growth in the loan and investment securities portfolios.portfolio.
Loans
Lending-related income is the most important component of the Company’s net interest income and is a major contributor to profitability. The loan portfolio is the largest component of earning assets, and therefore generates the largest portion of revenues. For purposes of the discussion in this section, the term “loans” refers to loans, excluding loans held for sale, unless otherwise noted.
The absolute volume of loans and the volume of loans as a percentage of earning assets is an important determinant of net interest margin as loans are expected to produce higher yields than securities and other earning assets. Total loans, net of deferred fees, at March 31, 20182019 and December 31, 20172018 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.
|
| March 31, 2019 |
|
| December 31, 2018 |
| ||||||||||
Types of Loans |
| Amount |
|
| % of Total Loans |
|
| Amount |
|
| % of Total Loans |
| ||||
Total loans, excluding purchased credit impaired (“PCI”) loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land development |
| $ | 581,340 |
|
|
| 20.7 | % |
| $ | 584,440 |
|
|
| 21.9 | % |
Commercial |
|
| 893,491 |
|
|
| 31.8 |
|
|
| 802,260 |
|
|
| 30.1 |
|
Residential |
|
| 694,190 |
|
|
| 24.7 |
|
|
| 682,806 |
|
|
| 25.6 |
|
Commercial and industrial |
|
| 635,417 |
|
|
| 22.5 |
|
|
| 590,854 |
|
|
| 22.1 |
|
Consumer and other |
|
| 4,447 |
|
|
| 0.2 |
|
|
| 5,568 |
|
|
| 0.2 |
|
Total loans—gross, excluding PCI loans |
|
| 2,808,885 |
|
|
| 99.9 |
|
|
| 2,665,928 |
|
|
| 99.9 |
|
Total PCI loans |
|
| 2,020 |
|
|
| 0.1 |
|
|
| 2,015 |
|
|
| 0.1 |
|
Total gross loans |
|
| 2,810,905 |
|
|
| 100.0 | % |
|
| 2,667,943 |
|
|
| 100.0 | % |
Less: deferred loan fees, net |
|
| (3,528 | ) |
|
|
|
|
|
| (2,544 | ) |
|
|
|
|
Allowance for loan losses |
|
| (27,857 | ) |
|
|
|
|
|
| (23,451 | ) |
|
|
|
|
Total loans, net allowance for loan losses |
| $ | 2,779,520 |
|
|
|
|
|
| $ | 2,641,948 |
|
|
|
|
|
March 31, 2018 | December 31, 2017 | |||||||||||||||
Types of Loans | Amount | % of Total Loans | Amount | % of Total Loans | ||||||||||||
Total loans, excluding PCI loans | ||||||||||||||||
Real estate: | ||||||||||||||||
Construction and land development | $ | 523,660 | 22.6 | % | $ | 494,818 | 21.9 | % | ||||||||
Commercial | 716,607 | 31.0 | % | 678,238 | 30.0 | % | ||||||||||
Residential | 602,683 | 26.1 | % | 577,335 | 25.6 | % | ||||||||||
Commercial and industrial | 462,954 | 20.0 | % | 502,006 | 22.2 | % | ||||||||||
Consumer and other | 3,899 | 0.2 | % | 3,781 | 0.2 | % | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total loans—gross, excluding PCI loans | 2,309,803 | 99.9 | % | 2,256,178 | 99.9 | % | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total PCI loans | 2,440 | 0.1 | % | 2,393 | 0.1 | % | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total gross loans | 2,312,243 | 100.0 | % | 2,258,571 | 100.0 | % | ||||||||||
|
|
|
| |||||||||||||
Less: deferred loan fees, net | (2,225 | ) | (1,963 | ) | ||||||||||||
Allowance for loan losses | (21,738 | ) | (21,247 | ) | ||||||||||||
|
|
|
| |||||||||||||
Total loans, net allowance for loan losses | $ | 2,288,280 | $ | 2,235,361 | ||||||||||||
|
|
|
|
GrossThe table below provides a summary of the Share National Credit portfolio for the periods noted.
Shared National Credit ("SNC"s) and Healthcare Portfolios |
| March 31, 2019 |
|
| December 31, 2018 |
|
| September 30, 2018 |
|
| June 30, 2018 |
|
| March 31, 2018 |
|
| QoQ Growth* |
|
| YoY Growth |
| |||||||
Total SNC |
| $ | 229,608 |
|
| $ | 249,033 |
|
| $ | 162,588 |
|
| $ | 155,798 |
|
| $ | 117,721 |
|
|
| (31.6 | %) |
|
| 95.0 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Total loans held for investment |
|
| 8.2 | % |
|
| 9.3 | % |
|
| 6.4 | % |
|
| 6.3 | % |
|
| 5.1 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Healthcare |
| $ | 318,020 |
|
| $ | 290,464 |
|
| $ | 285,284 |
|
| $ | 257,225 |
|
| $ | 199,425 |
|
|
| 38.5 | % |
|
| 59.5 | % |
SNC |
|
| 107,156 |
|
|
| 123,097 |
|
|
| 103,772 |
|
|
| 107,894 |
|
|
| 89,162 |
|
|
| (52.5 | %) |
|
| 20.2 | % |
Non-SNC |
|
| 210,864 |
|
|
| 167,367 |
|
|
| 181,512 |
|
|
| 149,331 |
|
|
| 110,263 |
|
|
| 105.4 | % |
|
| 91.2 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*Annualized |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, primarilyended 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 declinean 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 residentialother 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.
CommercialThe 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 industrialit 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.
Loan Maturity Schedule
March 31, 2018 |
| March 31, 2019 |
| |||||||||||||||||||||||||||||
One year or less | Over one year to five years | Over five years | Total |
| One year or less |
|
| Over one year to five years |
|
| Over five years |
|
| Total |
| |||||||||||||||||
Real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Construction and land development | $ | 304,484 | $ | 145,396 | $ | 73,780 | $ | 523,660 |
| $ | 300,870 |
|
| $ | 146,717 |
|
| $ | 133,753 |
|
| $ | 581,340 |
| ||||||||
Commercial | 46,613 | 205,124 | 465,241 | 716,978 |
|
| 52,879 |
|
|
| 258,502 |
|
|
| 582,109 |
|
|
| 893,490 |
| ||||||||||||
Residential | 44,473 | 118,380 | 439,926 | 602,779 |
|
| 43,045 |
|
|
| 164,953 |
|
|
| 486,266 |
|
|
| 694,264 |
| ||||||||||||
Commercial and industrial | 90,923 | 312,226 | 61,778 | 464,927 |
|
| 75,135 |
|
|
| 395,320 |
|
|
| 166,908 |
|
|
| 637,363 |
| ||||||||||||
Consumer and other | 2,124 | 1,411 | 364 | 3,899 |
|
| 1,712 |
|
|
| 2,407 |
|
|
| 329 |
|
|
| 4,448 |
| ||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Total | $ | 488,617 | $ | 782,537 | $ | 1,041,089 | $ | 2,312,243 |
| $ | 473,641 |
|
| $ | 967,899 |
|
| $ | 1,369,365 |
|
| $ | 2,810,905 |
| ||||||||
|
|
|
| |||||||||||||||||||||||||||||
Fixed interest rate | $ | 182,630 | $ | 338,721 | $ | 548,296 | $ | 1,069,647 |
| $ | 142,237 |
|
| $ | 377,726 |
|
| $ | 420,834 |
|
| $ | 940,797 |
| ||||||||
Variable interest rate | 305,987 | 443,816 | 492,793 | 1,242,596 |
|
| 331,404 |
|
|
| 590,173 |
|
|
| 948,531 |
|
|
| 1,870,108 |
| ||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Total | $ | 488,617 | $ | 782,537 | $ | 1,041,089 | $ | 2,312,243 |
| $ | 473,641 |
|
| $ | 967,899 |
|
| $ | 1,369,365 |
|
| $ | 2,810,905 |
| ||||||||
|
|
|
|
The information presented in the above table is based upon the contractual maturities of the individual loans, including loans which may be subject to renewal at their contractual maturity. Renewal of such loans is subject to review and credit approval, as well as modification of terms upon their maturity. Consequently, management believes this treatment presents fairly the maturity structure of the loan portfolio.
Allowance for Loan Losses (ALLL)
The Company maintains an allowance for loan lossesALLL that management believes is adequate to absorb the probable incurred losses inherent in the Company’s loan portfolio. The allowance is increased by provisions for loan losses charged to earnings and is decreased by loan charge-offs net of recoveries of prior period loan charge-offs. The level of the allowance is determined on a quarterly basis, although management is engaged in monitoring the adequacy of the allowance on a more frequent basis. In estimating the allowance balance, the following factors are considered:
The allowance for loan lossesALLL consists of two primary components: (1) a specific component which relates to loans that are individually classified as 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 lossesALLL are shown at March 31, 20182019 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.
At March 31, 2018,2019, the allowance for loan lossesALLL was $21,738,$27,857, compared to $21,247$23,451 at December 31, 2017.2018. The allowance for loan lossesALLL as a percentage of total loans was 0.94%0.99% at both March 31, 20182019 and 0.88% at December 31, 2017. Loan2018. 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 is2019 are the primary reasonreasons for the increase in the allowance amount.
The table below sets forth the activity in the allowance for loan lossesALLL for the periods presented.
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
While no portion of the allowance is in any way restricted to any individual loan or group of loans, and the entire allowance is available to absorb losses from any and all loans, the following table summarizes the allocation of allowance for loan lossesALLL by loan category and loans in each category as a percentage of total loans, for the periods presented.
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, 20182019 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 nine13 loans onnon-accrual status. The amount and number are further delineated by collateral categorysegment and number of loans in the table below.
Total Amount | Percentage of Total Non-Accrual Loans | Number of Non-Accrual Loans |
| 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 $1,186,420totaled $799,301 at March 31, 2018,2019, compared to $999,881$1,030,668 at December 31, 2017, an increase2018, a decrease of $186,539,$231,367, or 18.7%22.4%. The increasedecrease inavailable-for-sale securities was primarily attributed to the volume of securities purchasedsecurity sales during the first quarterthree months of 2018.2019.
Theheld-to-maturityHeld-to-maturity securities are carried at amortized cost. This portfolio, consisting of U.S. government sponsored enterprises, mortgage-backed securities and municipal securities, totaled $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 quarterthree months of 2018.2019.
The combined securities portfolios represented 34.3%21.7% and 31.6%27.1% of total assets at March 31, 20182019 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, 20182019 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 BankFHLB and Federal ReserveFRB investments are “restricted” in that they can only be sold back to the respective institutions or another member institution at par, and are thus, not liquid, have no ready market or quoted market value, and are carried at cost.
Bank Premises and Equipment
Bank premises and equipment totaled $10,941$12,682 at March 31, 20182019 compared to $11,281$12,371 at December 31, 2017, a decrease2018, an increase of $340,$311, or 3.0%2.5%. This decrease was the resultThe 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 ornon-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 $779,886decreased $79,112, or 9.9%, to $718,683 at March 31, 2019, when compared with $797,795 at December 31, 20172018, which reflects the Company’s strategy to $855,256reduce 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 dueCompany’s strategy to the fluctuation in certain brokered deposits that are interest-bearing checking and money market accounts that can fluctuate daily.
Public funds deposits in the form of county deposits are a partredirect some of the Company’s funding strategy and are cyclical in nature, withlocal government customers into the peak ofreciprocal account relationships, thereby decreasing the Company’s requirements to collateralize those deposit balances occurring during the middle of the first quarter of each calendar year. Publicpublic funds declined $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 morematurity:
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, theThe Company had no federal funds purchased from correspondent banks. Securities sold underbanks or repurchase agreements to repurchase had an outstanding balance of $36,071 as of March 31, 2018, compared to $31,004 as of2019 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 BankFHLB of Cincinnati which is secured by a blanket pledge of1-4 family residential mortgages.mortgages and home equity lines of credit. At March 31, 20182019 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 notesMarch 2016 Subordinated Notes and June 2016 Subordinated Notes is generally in the form of a dividend from the Bank to the Company, or those payments may be serviced from cash balances held by the Company. Under the terms of the informal agreement with the 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 Form10-K for the year ended December 31, 2017, the Bank is required to receive prior written approval from its regulatory agenciesThe Bank’s ability to pay dividendsa dividend may be restricted due to regulatory requirements as well as the Company.Bank’s future earnings and capital needs.
Funds are available from a number of basic banking activity sources including the core deposit base, the repayment and maturity of loans, payments of principal and interest as well as sales of investments classified asavailable-for-sale, and sales of brokered deposits. As of March 31, 2018, $1,186,4202019, $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 and2019, the increase in common stock of $929 during the first quarter,$1,853, offset by a $10,769 reductionthe $8,754 decrease in other comprehensive income from the reduced valuation of available for saleavailable-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:
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 | 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 effectivenessdate of the first sale of common equity securities under our Registration Statement on FormS-4, which was declared effective by the SEC on May 14, 2014; (2) the last day of the fiscal year in which we have more than $1.07 billion or more in annual revenues; (3) the date on which we are deemed to be a “large accelerated filer” under the Securities Exchange Act;Act of 1934, as amended (the “Exchange Act”); or (4) the date on which we have, during the previous three-year period, issued publicly or privately, more than $1.0 billion innon-convertible debt securities. Management cannot predict if investors will find the Company’s common stock less attractive because it will rely on these exemptions. If some investors find the Company’s common stock less attractive as a result, there may be a less active trading market for its common stock and the Company’s stock price may be more volatile.
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 EventsITEM 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.
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.
(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.
Management is not aware of any material pending legal proceedings against the Company which, if determined adversely, the Company believes would have a material adverse impact on the Company’s financial position, results of operations or cash flows.
There have been no material changes to the risk factors disclosed in our Annual Report on Form10-K filed with the SEC on March 16, 2018.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
ITEM 5. OTHER INFORMATION. |
None.
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.
Exhibit No. | Description | |
10.1 | ||
10.2* | ||
10.3* | ||
10.4* | ||
10.5* | ||
10.6* | ||
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** | ||
101* | Interactive Data Files. |
* | Filed herewith |
** | Furnished herewith |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Franklin Financial Network, INC. | |||||
May 9, 2019 | |||||
By: | /s/ | ||||
Christopher J. Black Executive Vice President and Chief Financial Officer | |||||
On behalf of the registrant and as Chief Financial Officer (Principal Financial Officer) |