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

Indicate by check mark whether the 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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-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 Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares outstanding of the registrant’s common stock, no par value per share, as of ~~October 31, 2018,~~May 3, 2019, was ~~14,525,973.~~

This Quarterly Report on Form 10-Q contains “forward-looking statements” as defined under U.S. federal securities laws. These statements reflect management’s current knowledge, assumptions, beliefs, estimates, and expectations and express management’s current views of future performance, results, and trends and may be identified by their use of terms such as “may,” “likely,” “would,” “could,” “should,” “will,” “expect,” “anticipate,” “predict,” “project,” “potential,” “continue,” “contemplate,” “seek,” “assume,” “believe,” “intend,” “plan,” “forecast,” “goal,” and “estimate,” and other similar terms. Forward-looking statements are subject to a number of risks and uncertainties that could cause our actual results to differ materially from those described in the forward-looking statements. Readers should not place undue reliance on forward-looking statements. Such statements are made as of the date of this Quarterly Report on Form 10-Q, and we undertake no obligation to update such statements after this 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 Form 10-K for the year ended December 31, ~~2017.~~2018.

	September 30, 2018			December 31, 2017			March 31, 2019			December 31, 2018
	(Unaudited)						(Unaudited)
ASSETS
Cash and due from financial institutions	$	144,660		$	251,543		$	300,113		$	280,212
Certificates of deposit at other financial institutions		3,104			2,855			3,595			3,594
Securities available for sale		1,115,187			999,881			799,301			1,030,668
Securities held to maturity (fair value 2018—$199,927 and 2017—$217,608)		204,587			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		14,563			12,024			21,730			11,103
Loans		2,550,121			2,256,608
Loans held for investment								2,807,377			2,665,399
Allowance for loan losses		(22,479	)		(21,247	)		(27,857	)		(23,451	)
Net loans		2,527,642			2,235,361			2,779,520			2,641,948
Restricted equity securities, at cost		21,793			18,492			22,803			21,831
Premises and equipment, net		11,852			11,281			12,682			12,371
Accrued interest receivable		14,391			11,947			14,232			13,337
Bank owned life insurance		54,859			49,085			55,614			55,239
Deferred tax asset		17,366			10,007			12,208			13,189
Foreclosed assets		1,853			1,503
Servicing rights, net		3,465			3,620			3,366			3,403
Goodwill		18,176			9,124			18,176			18,176
Core deposit intangible, net		1,109			1,007			807			952
Other assets		13,206			10,940			75,458			21,799
Total assets	$	4,167,813		$	3,843,526		$	4,238,436		$	4,249,439
LIABILITIES AND EQUITY
Deposits
Non-interest bearing	$	321,108		$	272,172		$	304,937		$	290,580
Interest bearing		3,050,442			2,895,056			3,010,906			3,141,227
Total deposits		3,371,550			3,167,228			3,315,843			3,431,807
Federal Home Loan Bank advances		371,500			272,000			416,500			368,500
Federal funds purchased and repurchase agreements		—			31,004
Subordinated notes, net		58,649			58,515			58,738			58,693
Accrued interest payable		4,726			2,769			5,041			4,700
Other liabilities		5,211			7,357			58,800			12,906
Total liabilities		3,811,636			3,538,873			3,854,922			3,876,606
Equity
Preferred stock, no par value: 1,000,000 shares authorized; no shares outstanding at September 30, 2018 and December 31, 2017		—			—
Common stock, no par value: 30,000,000 and 30,000,000 shares authorized at September 30, 2018 and December 31, 2017 , respectively; 14,525,351 and 13,237,128 issued at September 30, 2018 and December 31, 2017 , respectively		261,623			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		119,433			88,671			123,250			123,176
Accumulated other comprehensive loss		(24,982	)		(6,786	)		(6,587	)		(15,341	)
Total shareholders’ equity		356,074			304,550			383,421			372,740
Non-controlling interest in consolidated subsidiary		103			103			93			93
Total equity		356,177			304,653			383,514			372,833
Total liabilities and equity	$	4,167,813		$	3,843,526		$	4,238,436		$	4,249,439

	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2018			2017			2018			2017			2019			2018
Interest income and dividends
Loans, including fees	$	34,435		$	25,973		$	95,541		$	73,195		$	38,338		$	28,793
Securities:
Taxable		6,460			5,041			19,476			16,358			6,394			6,111
Tax-Exempt		1,926			2,217			5,770			6,449			1,470			1,915
Dividends on restricted equity securities		313			269			916			663			334			274
Federal funds sold and other		583			280			2,197			667			987			954
Total interest income		43,717			33,780			123,900			97,332			47,523			38,047
Interest expense
Deposits		14,137			7,311			37,385			19,118			16,990			10,643
Federal funds purchased and repurchase agreements		69			92			296			309			72			96
Federal Home Loan Bank advances		1,867			968			4,390			2,228			1,959			1,110
Subordinated notes and other borrowings		1,082			1,083			3,246			3,239			1,082			1,082
Total interest expense		17,155			9,454			45,317			24,894			20,103			12,931
Net interest income		26,562			24,326			78,583			72,438			27,420			25,116
Provision for loan losses		136			590			1,279			3,018			5,055			573
Net interest income after provision for loan losses		26,426			23,736			77,304			69,420			22,365			24,543
Noninterest income
Service charges on deposit accounts		58			39			151			114			74			42
Other service charges and fees		747			787			2,321			2,297			757			751
Net gains on sale of loans		1,379			1,517			4,759			5,918
Mortgage banking revenue														1,672			1,549
Wealth management		705			643			2,198			1,884			627			704
Loan servicing fees, net		111			70			333			230
Gain (loss) on sale or call of securities		(1	)		350			—			470
Gain on sale or call of securities														149			—
Net (loss) gain on sale of loans														(217	)		9
Net gain on sale of foreclosed assets		3			(16	)		9			(10	)		4			3
Other		440			179			1,274			554			420			398
Total noninterest income		3,442			3,569			11,045			11,457			3,486			3,456
Noninterest expense
Salaries and employee benefits		10,723			9,011			30,179			26,172			14,743			9,188
Occupancy and equipment		2,933			2,399			8,412			6,689			3,113			2,594
FDIC assessment expense		1,020			900			2,458			2,675			990			660
Marketing		306			192			855			744			319			280
Professional fees		1,023			821			3,254			2,558			923			869
Amortization of core deposit intangible		169			115			455			363			145			104
Other		2,077			1,840			6,176			5,636			2,383			1,793
Total noninterest expense		18,251			15,278			51,789			44,837			22,616			15,488
Income before income tax expense		11,617			12,027			36,560			36,040			3,235			12,511
Income tax expense		1,068			3,138			5,790			10,343			334			2,459
Net income		10,549			8,889			30,770			25,697			2,901			10,052
Earnings attributable to noncontrolling interest		—			—			(8	)		(8	)		—			—
Net income available to common shareholders	$	10,549		$	8,889		$	30,762		$	25,689		$	2,901		$	10,052
Earnings per share:
Basic	$	0.73		$	0.67		$	2.19		$	1.96		$	0.20		$	0.76
Diluted		0.70			0.65			2.10			1.86			0.19			0.73
Dividend per share													$	0.04		$	—

~~Nine~~Three Months Ended ~~September 30,~~March 31, 2019 and March 31, 2018 ~~and September 30, 2017~~

Shareholders’ Equity

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

—

138,007

1,361

—

—

—

1,361

Exercise of common stock warrants

—

12,461

150

—

—

—

150

Stock based compensation expense, net of restricted
   share forfeitures

—

26,718

1,970

—

—

—

1,970

Stock issued in conjunction with 401(k) employer
   match, net of distributions

—

(5,085
)

(193
)

—

—

—

(193
)
Noncontrolling interest distributions

—

—

—

(8
)

—

—

(8
)
Net income

—

—

—

25,697

—

—

25,697

Other comprehensive income

—

—

—

—

4,359

—

4,359

Balance at September 30, 2017

$
—

13,209,055

$
221,642

$
85,075

$
(3,123
)

$
103

$
303,697

Balance at December 31, 2017

$
—

13,237,128

$
222,665

$
88,671

$
(6,786
)

$
103

$
304,653

Exercise of common stock options

—

207,472

2,845

—

—

—

2,845

Stock based compensation expense, net
   of forfeitures

—

—

3,454

—

—

—

3,454

Stock issued in conjunction with 401(k) employer
   match, net of distributions

—

(7,271
)

(273
)

—

—

—

(273
)
Issuance of restricted stock, net of forfeitures

—

117,632

—

—

—

—

-

Stock issued for acquisition (net of issuance costs)

—

970,390

32,932

—

—

—

32,932

Noncontrolling interest distributions

—

—

—

(8
)

—

—

(8
)
Net income

—

—

—

30,770

—

—

30,770

Other comprehensive loss

—

—

—

—
��

(18,196
)

—

(18,196
)
Balance at September 30, 2018

$
—

14,525,351

$
261,623

$
119,433

$
(24,982
)

$
103

$
356,177

	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

Nine Months Ended
September 30,

2018

2017

Cash flows from operating activities

Net income

$
30,770

$
25,697

Adjustments to reconcile net income to net cash from operating activities

Depreciation and amortization on premises and equipment

1,279

1,118

Accretion of purchase accounting adjustments

(1,122
)

(873
)
Net amortization of securities

6,323

7,654

Amortization of loan servicing right asset

643

721

Amortization of core deposit intangible

455

363

Amortization of debt issuance costs

134

133

Provision for loan losses

1,279

3,018

Deferred income tax benefit

(853
)

(1,394
)
Origination of loans held for sale

(267,862
)

(270,876
)
Proceeds from sale of loans held for sale

269,594

290,669

Net gain on sale of loans

(4,759
)

(5,918
)
Gain on sale of available for sale securities

—

(470
)
Income from bank owned life insurance

(1,155
)

(465
)
Net loss on foreclosed assets

—

10

Stock-based compensation

3,454

1,970

Deferred gain on sale of loans

(11
)

(58
)
Deferred gain on sale of foreclosed assets

(9
)

-

Net change in:

Accrued interest receivable and other assets

(4,002
)

(5,949
)
Accrued interest payable and other liabilities

(1,984
)

1,120

Net cash from operating activities

32,174

46,470

Cash flows from investing activities

Securities available for sale :

Sales

—

122,837

Purchases

(235,319
)

(455,700
)
Maturities, prepayments and calls

122,172

108,339

Securities held to maturity :

Purchases

(1,676
)

(1,996
)
Maturities, prepayments and calls

10,571

12,110

Net change in loans

(196,053
)

(346,595
)
Purchase of restricted equity securities

(2,425
)

(6,629
)
Purchases of premises and equipment, net

(1,597
)

(2,784
)
Proceeds from sale of foreclosed assets

—

1,330

Capitalization of foreclosed assets

—

(35
)
Decrease (Increase) in certificates of deposits at other financial institutions

251

(1,310
)
Purchase of bank owned life insurance

(119
)

—

Net cash acquired from acquisition (See Note 2)

24,660

—

Net cash from investing activities

(279,535
)

(570,433
)
Cash flows from financing activities

Increase in deposits

81,160

433,007

Decrease in federal funds purchased and repurchase agreements

(31,004
)

(50,439
)
Proceeds from Federal Home Loan Bank advances

270,000

370,000

Repayment of Federal Home Loan Bank advances

(182,000
)

(165,000
)
Proceeds from issuance of common stock, net of offering costs

(242
)

—

Proceeds from exercise of common stock warrants

—

150

Proceeds from exercise of common stock options

2,845

1,361

Divestment of common stock issued to 401(k) plan

(273
)

(193
)
Noncontrolling interest distributions

(8
)

(8
)
Net cash from financing activities

140,478

588,878

Net change in cash and cash equivalents

(106,883
)

64,915

Cash and cash equivalents at beginning of period

251,543

90,927

Cash and cash equivalents at end of period

$
144,660

$
155,842

Supplemental information:

Interest paid

$
44,159

$
24,221

Income taxes paid

6,632

12,380

Non-cash supplemental information:

Fair value of stock and stock options issued related to Civic Bank acquisition*

$
33,174

$
—

Transfers from loans to foreclosed assets

350

2,818

Transfers from loans to loans held for sale

—

2,685

*	~~See Note 2 for non-cash assets acquired and liabilities assumed in business combinations.~~

	Three Months Ended March 31,
	2019			2018
Cash flows from operating activities
Net income	$	2,901		$	10,052
Adjustments to reconcile net income to net cash from operating activities
Depreciation and amortization on premises and equipment		410			403
Accretion of purchase accounting adjustments		(172	)		(252	)
Net amortization of securities		1,212			1,904
Amortization of loan servicing right asset		225			214
Amortization of core deposit intangible		145			104
Amortization of debt issuance costs		45			44
Provision for loan losses		5,055			573
Deferred income tax (benefit) expense		(2,115	)		10
Excess tax benefit related to stock compensation		(130	)		—
Origination of loans held for sale		(85,008	)		(83,226	)
Proceeds from sale of loans held for sale		75,791			83,622
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		(375	)		(365	)
Stock-based compensation		1,329			759
Deferred gain on sale of loans		(4	)		(4	)
Deferred gain on sale of foreclosed assets		(4	)		(3	)
Net change in:
Accrued interest receivable and other assets		(12,900	)		(1,871	)
Accrued interest payable and other liabilities		3,080			1,896
Net cash from operating activities		(12,262	)		12,421
Cash flows from investing activities
Securities available for sale :
Sales		259,613			—
Purchases		(80,360	)		(224,712	)
Maturities, prepayments and calls		62,050			22,129
Securities held to maturity :
Purchases		—			(1,676	)
Maturities, prepayments and calls		2,448			2,714
Net change in loans		(142,455	)		(53,240	)
Purchase of restricted equity securities		(972	)		(1,114	)
Purchases of premises and equipment, net		(721	)		(63	)
Net cash from investing activities		99,603			(255,962	)
Cash flows from financing activities
(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		190,000			95,000
Repayment of Federal Home Loan Bank advances		(142,000	)		(50,000	)
Proceeds from exercise of common stock options		524			220
Divestment of common stock issued to 401(k) plan		—			(50	)
Net cash from financing activities		(67,440	)		238,162
Net change in cash and cash equivalents		19,901			(5,379	)
Cash and cash equivalents at beginning of period		280,212			251,543
Cash and cash equivalents at end of period	$	300,113		$	246,164
Supplemental information:
Interest paid	$	19,762		$	12,925
Income taxes paid		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			—

The accompanying unaudited consolidated financial statements have been prepared in accordance with instructions to Form 10-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 Regulation S-X, Rule 10-01. 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 on Form 10-K filed with the SEC on March ~~16, 2018.~~19, 2019.

These consolidated financial statements include the accounts of Franklin Financial Network, Inc. (“FFN”), and its wholly-owned subsidiaries, Franklin Synergy Bank (“Franklin Synergy” or the “Bank”) and Franklin Synergy Risk Management, Inc. (collectively, the “Company”). Franklin Synergy Investments of Tennessee, Inc., Franklin Synergy Investments of Nevada, Inc., and Franklin Synergy Preferred Capital, Inc. are direct or indirect subsidiaries of the Bank and are included in these consolidated financial statements. Significant intercompany transactions and accounts are eliminated in consolidation.

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

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

~~In January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments – Overall: Recognition and Measurement of Financial Assets and Financial Liabilities~~” (“ASU 2016-01”). The guidance affects the accounting for equity investments, financial liabilities under the fair value option and the presentation and disclosure requirements of financial instruments. ASU 2016-01 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 a non-recurring basis in the consolidated balance sheets. The Company does not have any equity investments that qualify for consideration under ASU 2016-01. See Note 9, “Fair Value,” for further information regarding the valuation of these loans.

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

In February 2016, the FASB issued Accounting Standards Update 2016-02, ~~“Leases”~~Leases which requires recognition in the statement of financial position of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous GAAP.

The guidance requires that a lessee should recognize lease assets and lease liabilities as compared to previous GAAP that did not require lease assets and lease liabilities to be recognized for operating leases. The guidance ~~becomes~~became effective for the Company on January 1, 2019. ~~Had this standard been effective as of September 30, 2018, we would have recorded a right of use asset and lease liability of approximately $56.9 million.~~ In July ~~2018,~~2016, the FASB issued Accounting Standards Update 2018-10, ~~“Codification~~Codification Improvements to Topic 842, ~~Leases”~~

Leases which provides technical corrections and improvements to ASU 2016-02. ~~It is not anticipated that this update will have an impact on our adoption of ASU 2016-02. Also in~~In July ~~2018,~~2016, the FASB issued Accounting Standards Update 2018-11, ~~“Leases~~Leases (Topic 842): Targeted ~~Improvements”~~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. ~~Franklin Synergy intends to elect~~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 consolidated financial statements.

In June 2016, ~~the~~ FASB issued ASU 2016-13, “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 on available-for-sale debt securities and purchased financial assets with credit deterioration. The ASU is effective for the Company for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019 (i.e., January 1, 2020, for calendar year entities). Early application will be permitted for all organizations for fiscal years, and interim periods within those fiscal years, beginning after December 15, ~~2018.~~2018; however, the Company does not currently plan to early adopt this ASU. The Company is currently gathering information and ~~has formed a committee~~working to ~~formulate~~determine the methodology to be used. ~~Most importantly, the~~The Company is ~~evaluating the outcome of~~gathering as much data as possible to enable review scenarios and to determine which calculations will produce ~~results that are indicative~~the most reliable results. The Company is still evaluating the impact of this new guidance on our financial statements; however an increase in the overall ALLL is likely upon adoption to provide for expected credit losses over the life of the ~~risk within the~~loan portfolio. ~~Management is assessing the potential impact of adopting ASU 2016-13.~~

In January 2017, the FASB issued ASU 2017-04, “Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” The guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. Goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. All other goodwill impairment guidance will remain largely unchanged. ASU 2017-04 is effective for interim and annual reporting periods beginning after December 15, 2019, applied prospectively. Early adoption is permitted for any impairment tests performed after January 1, 2017. Adoption of ASU 2017-04 is not expected to have a material impact on the Company’s consolidated financial statements.

In ~~March 2017,~~August 2018, the FASB issued ASU ~~2017-08,~~ No. 2018-13, “~~Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities.” This Update shortens the amortization period for the premium on certain purchased callable debt securities~~Disclosure Framework - Changes to the ~~earliest call date. The new guidance does not change~~Disclosure Requirements for Fair Value Measurement.” This ASU eliminates, adds and modifies certain disclosure requirements for fair value measurements. Among the ~~accounting~~changes, entities will no longer be required to disclose the amount of and reasons for ~~purchased callable debt securities held at a discount;~~transfers between Level 1 and Level 2 of the ~~discount continues~~fair value hierarchy, but will be required to ~~be amortized~~disclose the range and weighted average used to ~~maturity.~~develop significant unobservable inputs for Level 3 fair value measurements. ASU ~~2017-08~~No. 2018-13 is effective for interim and annual reporting periods beginning after December 15, ~~2018, and~~2019; early adoption is permitted. ~~The guidance calls for~~As ASU No. 2018-13 only revises disclosure requirements, it will not have a modified retrospective transition approach under which a cumulative-effect adjustment will be made to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. The Company is currently evaluating the approach to adopting this new standard, but does not expect the potentialmaterial impact on the Company’s consolidated financial ~~statements to~~statements.

ASU 2018-14, “Compensation - Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20).” ASU 2018-14 amends and modifies the disclosure requirements for employers that sponsor defined benefit pension or other post-retirement plans. The amendments in this update remove disclosures that no longer are considered cost beneficial, clarify the specific requirements of disclosures, and add disclosure requirements identified as relevant. ASU 2018-14 will be ~~material.~~

~~In August 2017, the FASB issued ASU 2017-12,~~ ~~“Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities”. The purpose of this Update is to better align a company‘s financial reporting for hedging activities with the economic objectives of those activities. This Update is~~ effective for ~~public business entities for fiscal years beginning after December 15, 2018,~~us on January 1, 2021, with early adoption including adoption in an interim period permitted. The Update requires a modified retrospective transition method in which the Company will recognize the cumulative effect of the change on the opening balance of each affected component of equity in the statement of financial position as of the date of adoption. While the Company continues to assess all potential impacts of the standard, the Company currently expects the adoptionpermitted, and is not expected to have ~~an immaterial~~a significant impact on our ~~consolidated~~ financial statements.

ASU 2018-15, “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40) - Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.” ASU 2018-15 clarifies certain aspects of ASU 2015-05, “Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement,” which was issued in April 2015. Specifically, ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). ASU 2018-15 does not affect the accounting for the service element of a hosting arrangement that is a service contract. ASU 2018-15 will be effective for us on January 1, 2020, with early adoption permitted, and is not expected to have a significant impact on our financial statements.

As of April 1, 2018, Civic Bank & Trust (“Civic”) merged with and into Franklin Synergy with Franklin Synergy continuing as the surviving company. Under the terms of the acquisition, Civic’s common shareholders received a total of 970,390 shares of the Company’s common stock in exchange for the outstanding shares of Civic common stock. With the completion of the acquisition, the Company has its first full service branch office in Nashville, Tennessee located in the Davidson County market. The results of Civic’s operations are included in the Company’s results since April 1, 2018. Acquisition-related costs of $0 and $565, respectively, are included in other noninterest expense in the Company’s income statement for the three and nine months ended September 30, 2018. The fair value of the common shares issued as part of the consideration paid for Civic was determined using the basis of the closing price of the Company’s common shares on the acquisition date.

Goodwill of $9,052 arising from the acquisition consisted largely of synergies resulting from the combining of the operations of the companies. The fair value of intangible assets related to core deposits was determined to be $558.

~~The following table summarizes the consideration paid for Civic and the amounts of the assets acquired and liabilities assumed recognized at the acquisition date:~~

The fair value of net assets acquired includes fair value adjustments to certain loan receivables that were not considered impaired as of the acquisition date. As such, these receivables were not subject to the guidance relating to purchased credit-impaired loans. Receivables acquired include loans and customer receivables with a fair value and gross contractual amounts receivable of $96,385 and $96,903, respectively, on the date of acquisition.

The following table presents supplemental pro forma information as if the Civic acquisition had occurred at the beginning of 2017. The unaudited pro forma information includes adjustments for interest income on loans acquired, amortization of intangibles arising from the transaction, interest expense on deposits acquired, and the related income tax effects. The pro forma financial information is not necessarily indicative of the results of operations that would have occurred had the transactions been effected on the assumed dates.

The following table summarizes the amortized cost and fair value of the securities available for sale portfolio at ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017~~2018 and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income.

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
September 30, 2018
March 31, 2019
U.S. Treasury securities	$	254,750	$	—	$	(215	)	$	254,535	$	69,548	$	70	$	—		$	69,618
U.S. government sponsored entities and agencies		25,984		1		(249	)		25,736		1,829		1		(10	)		1,820
Mortgage-backed securities: residential		735,120		2		(27,971	)		707,151		531,551		387		(8,480	)		523,458
Mortgage-backed securities: commercial		5,104		—		(143	)		4,961
Asset-backed securities		8,458		—		(28	)		8,430		25,745		—		(695	)		25,050
Corporate notes											17,878		123		(62	)		17,939
State and political subdivisions		119,585		90		(5,301	)		114,374		160,556		2,087		(1,227	)		161,416
Total	$	1,149,001	$	93	$	(33,907	)	$	1,115,187	$	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 ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017~~2018 and the corresponding amounts of gross unrecognized gains and losses were as follows:

	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses			Fair Value		Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses			Fair Value
September 30, 2018
March 31, 2019
Mortgage backed securities: residential	$	84,377	$	29	$	(4,393	)	$	80,013	$	73,865	$	85	$	(1,968	)	$	71,982
State and political subdivisions		120,210		366		(662	)		119,914		44,966		1,918		—			46,884
Total	$	204,587	$	395	$	(5,055	)	$	199,927	$	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 September 30,						Nine Months Ended September 30,					Three Months Ended March 31,
	2018			2017			2018		2017			2019			2018
Proceeds	$	—		$	61,647		$	—	$	122,837		$	259,613		$	—
Gross gains		—			414			—		659			1,801			—
Gross losses		(1	)		(64	)		—		(189	)		(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.

	September 30, 2018				March 31, 2019
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Available for sale
One year or less	$	275,319	$	274,944	$	70,053	$	70,122
Over one year through five years		2,221		2,201		1,080		1,078
Over five years through ten years		2,758		2,732		21,576		21,663
Over ten years		128,479		123,198		157,102		157,930
Asset-backed securities						25,745		25,050
Mortgage-backed securities: residential		735,120		707,151		531,551		523,458
Mortgage-backed securities: commercial		5,104		4,961
Total	$	1,149,001	$	1,115,187	$	807,107	$	799,301
Held to maturity
One year or less	$	500	$	505
Over one year through five years		1,106		1,109		1,106		1,128
Over five years through ten years		13,662		13,678		1,039		1,073
Over ten years		104,942		104,622		42,821		44,683
Mortgage-backed securities: residential		84,377		80,013		73,865		71,982
Total	$	204,587	$	199,927	$	118,831	$	118,866

Securities pledged at ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017~~2018 had a carrying amount of ~~$967,505~~$711,826 and ~~$975,518,~~$939,440, respectively, and were pledged to secure public ~~deposits and repurchase agreements.~~deposits.

At ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, there were no holdings of securities of any one issuer, other than the U.S. government-sponsored entities and agencies, in an amount greater than 10% of shareholders’ equity.

The following table summarizes the securities with unrealized and unrecognized losses at ~~September 30, 2018~~March 31, 2019 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
September 30, 2018
March 31, 2019
Available for sale
U.S. Treasury securities	$	254,535	$	(215	)	$	—	$	—		$	254,535	$	(215	)
U.S. government sponsored entities and agencies		5,186		(90	)		19,899		(159	)		25,085		(249	)	$	344	$	(1	)	$	1,021	$	(9	)	$	1,365	$	(10	)
Mortgage-backed securities: residential		235,919		(5,666	)		470,855		(22,305	)		706,774		(27,971	)		—		—			444,647		(8,480	)		444,647		(8,480	)
Mortgage-backed securities: commercial		—		—			4,961		(143	)		4,961		(143	)
Asset-backed securities		4,923		(28	)		—		—			4,923		(28	)		25,050		(695	)		—		—			25,050		(695	)
Corporate																	6,329		(62	)		—		—			6,329		(62	)
State and political subdivisions		44,606		(609	)		59,664		(4,692	)		104,270		(5,301	)		509		(1	)		60,318		(1,226	)		60,827		(1,227	)
Total available for sale	$	545,169	$	(6,608	)	$	555,379	$	(27,299	)	$	1,100,548	$	(33,907	)	$	32,232	$	(759	)	$	505,986	$	(9,715	)	$	538,218	$	(10,474	)

	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
December 31, 2017
December 31, 2018
Available for sale
U.S. Treasury securities	$	228,909	$	(210	)	$	—	$	—		$	228,909	$	(210	)	$	163,722	$	(60	)	$	—	$	—		$	163,722	$	(60	)
U.S. government sponsored entities and agencies		19,961		(164	)		—		—			19,961		(164	)		1,355		(12	)		19,937		(100	)		21,292		(112	)
Mortgage-backed securities: residential		301,158		(2,447	)		311,366		(6,314	)		612,524		(8,761	)		83,203		(755	)		490,752		(15,339	)		573,955		(16,094	)
Mortgage-backed securities: commercial		5,074		(59	)		—		—			5,074		(59	)
Asset-backed securities																	24,845		(900	)		—		—			24,845		(900	)
Corporate																	9,839		(77	)		—		—			9,839		(77	)
State and political subdivisions		1,298		(2	)		62,725		(1,882	)		64,023		(1,884	)		10,446		(106	)		69,238		(4,390	)		79,684		(4,496	)
Total available for sale	$	556,400	$	(2,882	)	$	374,091	$	(8,196	)	$	930,491	$	(11,078	)	$	293,410	$	(1,910	)	$	579,927	$	(19,829	)	$	873,337	$	(21,739	)

	Less Than 12 Months					12 Months or Longer					Total					Less Than 12 Months					12 Months or Longer					Total
	Fair Value		Unrecognized Losses			Fair Value		Unrecognized Losses			Fair Value		Unrecognized Losses			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	)	$	2,239	$	(40	)	$	68,067	$	(3,032	)	$	70,306	$	(3,072	)
State and political subdivisions		262		(2	)		1,148		(36	)		1,410		(38	)		8,362		(39	)		3,675		(51	)		12,037		(90	)
Total held to maturity	$	11,453	$	(71	)	$	73,730	$	(1,763	)	$	85,183	$	(1,834	)	$	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.

Loans at ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017~~2018 were as follows:

	September 30, 2018			December 31, 2017			March 31, 2019			December 31, 2018
Loans that are not PCI loans
Construction and land development	$	587,736		$	494,818		$	581,340		$	584,440
Commercial real estate:
Nonfarm, nonresidential		731,987			628,554			852,838			754,243
Other		46,002			49,684			40,652			48,017
Residential real estate:
Closed-end 1-4 family		477,050			407,695			497,160			492,989
Other		181,622			169,640			197,030			189,817
Commercial and industrial		520,727			502,006			635,417			590,854
Consumer and other		5,539			3,781			4,448			5,568
Loans before net deferred loan fees		2,550,663			2,256,178			2,808,885			2,665,928
Deferred loan fees, net		(2,565	)		(1,963	)		(3,528	)		(2,544	)
Total loans that are not PCI loans		2,548,098			2,254,215			2,805,357			2,663,384
Total PCI loans		2,023			2,393			2,020			2,015
Allowance for loan losses		(22,479	)		(21,247	)		(27,857	)		(23,451	)
Total loans, net of allowance for loan losses	$	2,527,642		$	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-month periods ended ~~September 30, 2018~~March 31, 2019 and ~~2017:~~2018:

Construction
and Land
Development

Commercial
Real
Estate

Residential
Real
Estate

Commercial
and
Industrial

Consumer
and
Other

Total

Three Months Ended September 30, 2018

Allowance for loan losses:

Beginning balance

$
4,613

$
6,163

$
4,533

$
6,976

$
56

$
22,341

Provision for loan losses

172

(18
)

(30
)

13

(1
)

136

Loans charged-off

—

—

—

—

(5
)

(5
)
Recoveries

—

—

5

—

2

7

Total ending allowance balance

$
4,785

$
6,145

$
4,508

$
6,989

$
52

$
22,479

Three Months Ended September 30, 2017

Allowance for loan losses:

Beginning balance

$
3,796

$
5,011

$
2,939

$
6,894

$
49

$
18,689

Provision for loan losses

(507
)

212

169

707

9

590

Loans charged-off

—

—

-

(9
)

(11
)

(20
)
Recoveries

668

—

14

—

3

685

Total ending allowance balance

$
3,957

$
5,223

$
3,122

$
7,592

$
50

$
19,944

~~The following table presents the activity in the allowance for loan losses by portfolio segment for the nine months ended September 30, 2018 and 2017:~~

	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
Nine Months Ended September 30, 2018
Three Months Ended March 31, 2019
Allowance for loan losses:
Beginning balance	$	3,802		$	5,981	$	3,834		$	7,587		$	43		$	21,247		$	4,743		$	6,725		$	4,743		$	7,166		$	74		$	23,451
Provision for loan losses		1,021			164		638			(559	)		15		$	1,279			(1	)		302			80			4,631			43			5,055
Loans charged-off		(39	)		—		(7	)		(49	)		(22	)	$	(117	)		—			—			(15	)		(568	)		(70	)		(653	)
Recoveries		1			—		43			10			16		$	70			—			—			2			—			2			4
Total ending allowance balance	$	4,785		$	6,145	$	4,508		$	6,989		$	52		$	22,479		$	4,742		$	7,027		$	4,810		$	11,229		$	49		$	27,857
Nine Months Ended September 30, 2017
Three Months Ended March 31, 2018
Allowance for loan losses:
Beginning balance	$	3,776		$	4,266	$	2,398		$	6,068		$	45		$	16,553		$	3,802		$	5,981		$	3,834		$	7,587		$	43		$	21,247
Provision for loan losses		(487	)		957		687			1,833			28		$	3,018			582			(106	)		(241	)		328			10			573
Loans charged-off		—			—		(1	)		(309	)		(36	)	$	(346	)		(39	)		—			(7	)		(49	)		(11	)		(106	)
Recoveries		668			—		38			—			13		$	719			—			—			19			—			5			24
Total ending allowance balance	$	3,957		$	5,223	$	3,122		$	7,592		$	50		$	19,944		$	4,345		$	5,875		$	3,605		$	7,866		$	47		$	21,738

As of both ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017,~~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 ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017.~~2018. For purposes of this disclosure, recorded investment in loans excludes accrued interest receivable and net deferred loan fees due to immateriality.

	Construction and Land Development		Commercial Real Estate		Residential Real Estate		Commercial and Industrial		Consumer and Other		Total		Construction and Land Development		Commercial Real Estate		Residential Real Estate		Commercial and Industrial		Consumer and Other		Total
September 30, 2018
March 31, 2019
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	—	$	—	$	—	$	23	$	—	$	23	$	—	$	—	$	—	$	3,455	$	—	$	3,455
Collectively evaluated for impairment		4,785		6,145		4,508		6,966		52		22,456		4,742		7,027		4,810		7,774		49		24,402
Purchased credit-impaired loans		—		—		—		—		—		—		—		—		—		—		—		—
Total ending allowance balance	$	4,785	$	6,145	$	4,508	$	6,989	$	52	$	22,479	$	4,742	$	7,027	$	4,810	$	11,229	$	49	$	27,857
Loans:
Individually evaluated for impairment	$	548	$	—	$	2,490	$	266	$	—	$	3,304	$	583	$	—	$	1,811	$	9,177	$	—	$	11,571
Collectively evaluated for impairment		587,188		777,989		656,182		520,461		5,539		2,547,359		580,757		893,490		692,379		626,240		4,448		2,797,314
Purchased credit-impaired loans		—		—		83		1,940		—		2,023		—		—		74		1,946		—		2,020
Total ending loans balance	$	587,736	$	777,989	$	658,755	$	522,667	$	5,539	$	2,552,686	$	581,340	$	893,490	$	694,264	$	637,363	$	4,448	$	2,810,905
December 31, 2017
December 31, 2018
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	—	$	—	$	—	$	879	$	—	$	879	$	—	$	—	$	—	$	17	$	—	$	17
Collectively evaluated for impairment		3,802		5,981		3,834		6,708		43		20,368		4,743		6,725		4,743		7,149		74		23,434
Purchased credit-impaired loans		—		—		—		—		—		—
Total ending allowance balance	$	3,802	$	5,981	$	3,834	$	7,587	$	43	$	21,247	$	4,743	$	6,725	$	4,743	$	7,166	$	74	$	23,451
Loans:
Individually evaluated for impairment	$	217	$	—	$	834	$	3,090	$	—	$	4,141	$	2,298	$	—	$	3,189	$	167	$	—	$	5,654
Collectively evaluated for impairment		494,601		678,238		576,501		498,916		3,781		2,252,037		582,142		802,260		679,617		590,687		5,568		2,660,274
Purchased credit-impaired loans		—		380		105		1,908		—		2,393		—		—		76		1,939		—		2,015
Total ending loans balance	$	494,818	$	678,618	$	577,440	$	503,914	$	3,781	$	2,258,571	$	584,440	$	802,260	$	682,882	$	592,793	$	5,568	$	2,667,943

Loans collectively evaluated for impairment reported at ~~September 30, 2018~~March 31, 2019 include certain acquired loans. At ~~September 30, 2018,~~March 31, 2019, these non-PCI loans had a carrying value of ~~$111,022,~~$92,050, comprised of contractually unpaid principal totaling ~~$112,384~~$93,133 and discounts totaling ~~$1,362.~~$1,083. Management evaluated these loans for credit deterioration since acquisition and determined that an allowance for loan losses of ~~$269~~$169 was necessary at ~~September 30, 2018.~~March 31, 2019.

The following table presents information related to impaired loans by class of loans as of ~~September 30, 2018~~March 31, 2019 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
September 30, 2018
March 31, 2019
With no allowance recorded:
Construction and land development	$	548	$	548		—	$	599	$	583	$	—
Residential real estate:
Closed-end 1-4 family		1,357		1,356		—		884		849		—
Other		1,150		1,134		—		996		962		—
Commercial and industrial		92		92		—
Subtotal		3,147		3,130		—		2,479		2,394		—
With an allowance recorded:
Commercial and industrial		174		174		23		9,177		9,177		3,455
Subtotal		174		174		23		9,177		9,177		3,455
Total	$	3,321	$	3,304	$	23	$	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		14		14		—		1,272		1,272		—
Other		820		820		—		1,917		1,917		—
Commercial and industrial		108		108		—
Subtotal		1,159		1,159		—		5,487		5,487		—
With an allowance recorded:
Commercial and industrial		2,982		2,982		879		167		167		17
Subtotal		2,982		2,982		879		167		167		17
Total	$	4,141	$	4,141	$	879	$	5,654	$	5,654	$	17

The following table presents the average recorded investment of impaired loans by class of loans for the three ~~and nine~~ months ended ~~September 30, 2018~~March 31, 2019 and ~~2017:~~2018:

	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended March 31,
Average Recorded Investment	2018		2017		2018		2017		2019		2018
With no allowance recorded:
Construction and land development	$	548	$	1,348	$	649	$	1,199	$	768	$	367
Commercial real estate:
Nonfarm, nonresidential		—		812		—		2,394		51		—
Residential real estate:
Closed-end 1-4 family		1,465		112		1,991		863		806		420
Other		1,025		199		1,025		245		1,264		372
Commercial and industrial		2,466		499		1,099		657		—		626
Consumer and other		—		-		—		1
Subtotal		5,504		2,970		4,764		5,359		2,889		1,785
With an allowance recorded:
Construction and land development										183		—
Commercial and industrial	$	177	$	2,998	$	2,017	$	2,820		3,170		1,785
Subtotal		177		2,998		2,017		2,820		3,353		1,785
Total	$	5,681	$	5,968	$	6,781	$	8,179
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 ~~and nine~~ months ended ~~September 30, 2018~~March 31, 2019 and ~~2017.~~2018.

The following table presents the recorded investment in nonaccrual loans and loans past due over 90 days still on accrual by class of loans as of ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017:~~2018:

	Nonaccrual		Loans Past Due Over 90 Days		Nonaccrual		Loans Past Due Over 90 Days
September 30, 2018
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	$	548	$	274	$	2,298	$	—
Residential real estate:
Closed-end 1-4 family		1,683		—		1,273		—
Other		1,084		50		1,917		—
Commercial and industrial		92		241		—		208
Total	$	3,407	$	565	$	5,488	$	208
December 31, 2017
Residential real estate:
Closed-end 1-4 family	$	257	$	14
Other		114		—
Commercial and industrial		2,466		191
Total	$	2,837	$	205

Nonaccrual loans and loans past due 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 ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017~~2018 by class of loans:

	30-59 Days Past Due		60-89 Days Past Due		Greater Than 89 Days Past Due		Nonaccrual		Total Past Due and Nonaccrual		Loans Not Past Due		PCI Loans		Total		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
September 30, 2018
March 31, 2019
Construction and land development	$	—	$	—	$	274	$	548	$	822	$	586,914	$	—	$	587,736	$	139	$	—	$	—	$	139	$	581,201	$	—	$	581,340
Commercial real estate:
Nonfarm, nonresidential		847		—		—		—		847		731,140		—		731,987		—		—		—		—		852,838		—		852,838
Other		—		—		—		—		—		46,002		—		46,002		—		—		—		—		40,652		—		40,652
Residential real estate:
Closed-end 1-4 family		37		154		—		1,683		1,874		475,176		83		477,133		1,135		11		—		1,146		496,014		74		497,234
Other		65		820		50		1,084		2,019		179,603		—		181,622		88		—		—		88		196,942		—		197,030
Commercial and industrial		233		73		241		92		639		520,088		1,940		522,667		522		622		180		1,324		634,093		1,946		637,363
Consumer and other		—		—		—		—		—		5,539		—		5,539		—		—		—		—		4,448		—		4,448
	$	1,182	$	1,047	$	565	$	3,407	$	6,201	$	2,544,462	$	2,023	$	2,552,686	$	1,884	$	633	$	180	$	2,697	$	2,806,188	$	2,020	$	2,810,905
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		—		—		—		—		—		49,684		—		49,684		—		—		—		—		48,017		—		48,017
Residential real estate:
Closed-end 1-4 family		—		—		14		257		271		407,424		105		407,800		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
	$	2,596	$	882	$	205	$	2,837	$	6,520	$	2,249,658	$	2,393	$	2,258,571	$	3,582	$	2,642	$	2,794	$	9,018	$	2,656,910	$	2,015	$	2,667,943

Credit Quality Indicators: The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis includes non-homogeneous loans, such as commercial and commercial real estate loans as well as non-homogeneous residential real estate loans. This analysis is performed on a quarterly basis. The Company uses the following definitions for risk ratings:

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 ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017:~~2018:

	Pass		Special Mention		Substandard		Total		Pass		Special Mention		Substandard		Total
September 30, 2018
March 31, 2019
Construction and land development	$	583,091	$	3,508	$	1,137	$	587,736	$	580,325	$	432	$	583	$	581,340
Commercial real estate:
Nonfarm, nonresidential		716,869		15,118		—		731,987		848,221		4,464		153		852,838
Other		45,615		—		387		46,002		40,033		619		—		40,652
Residential real estate:
Closed-end 1-4 family		471,522		2,853		2,758		477,133		492,921		1,567		2,746		497,234
Other		179,073		404		2,145		181,622		194,675		404		1,951		197,030
Commercial and industrial		502,762		9,328		10,577		522,667		596,529		8,519		32,315		637,363
Consumer and other		5,537		2		—		5,539		4,448		—		—		4,448
	$	2,504,469	$	31,213	$	17,004	$	2,552,686	$	2,757,152	$	16,005	$	37,748	$	2,810,905

	Pass		Special Mention		Substandard		Total		Pass		Special Mention		Substandard		Total
December 31, 2017
December 31, 2018
Construction and land development	$	494,601	$	—	$	217	$	494,818	$	580,468	$	1,416	$	2,556	$	584,440
Commercial real estate:
Nonfarm, nonresidential		609,458		12,602		6,874		628,934		739,469		14,774		—		754,243
Other		49,303		—		381		49,684		48,017		—		—		48,017
Residential real estate:
1-4 family		404,832		615		2,353		407,800
Closed-end 1-4 family										489,781		948		2,336		493,065
Other		167,886		—		1,754		169,640		186,485		404		2,928		189,817
Commercial and industrial		485,363		10,350		8,201		503,914		553,589		8,313		30,891		592,793
Consumer and other		3,777		4		—		3,781		5,567		1		—		5,568
	$	2,215,220	$	23,571	$	19,780	$	2,258,571	$	2,603,376	$	25,856	$	38,711	$	2,667,943

As of ~~September 30, 2018~~March 31, 2019, the Company’s loan portfolio contains ~~two loans~~one loan that ~~have~~has been modified in a troubled debt restructuring with a balance of $883. The troubled debt restructurings described above increased the allowance for loan loss by $23 with $0 being charged-off as of September 30, 2018. There were also no first payment defaults on the loans modified as a troubled debt restructuring during the three and nine months ended September 30, 2018.$319. As of December 31, ~~2017,~~2018, the Company’s loan portfolio contained ~~one loan~~two loans that had been modified in a troubled debt restructuring with a balance of ~~$608.~~$490. During the three months ended ~~September 30, 2018 two~~March 31, 2019, one of the loans ~~were added as a troubled debt restructuring with a balance of $883, and the loan~~ that was a troubled debt restructuring at December 31, ~~2017~~2018 was ~~paid~~fully charged off with $0$159 of the loan balance being ~~charged off.~~recognized as a charge-off.

Loans serviced for others are not reported as assets. The principal balances of these loans at ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017~~2018 are as follows:

	September 30, 2018		December 31, 2017		March 31, 2019		December 31, 2018
Loan portfolios serviced for:
Federal Home Loan Mortgage Corporation	$	496,037	$	507,233	$	494,025	$	492,761
Other		3,831		4,626		3,651		3,689

The components of net loan servicing fees for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2019 and 2018 ~~and 2017~~ were as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2018			2017			2018			2017			2019			2018
Loan servicing fees, net:
Loan servicing fees	$	314		$	312		$	976		$	951		$	306		$	333
Amortization of loan servicing fees		(203	)		(242	)		(643	)		(721	)		(225	)		(214	)
Change in impairment		—			—			—			—			—			—
Total	$	111		$	70		$	333		$	230		$	81		$	119

The fair value of servicing rights was estimated by management to be approximately ~~$5,348~~$4,329 at ~~September 30, 2018.~~March 31, 2019. Fair value for ~~September 30, 2018~~March 31, 2019 was determined using a weighted average discount rate of ~~10.0%~~9.5% and a weighted average prepayment speed of ~~9.7%~~13.9%. At December 31, ~~2017,~~2018, the fair value of servicing rights was estimated by management to be approximately ~~$5,089.~~$4,836. Fair value for December 31, ~~2017~~2018 was determined using a weighted average discount rate of ~~10.5%~~9.5% and a weighted average prepayment speed of ~~9.9%~~11.9%.

~~Our subsidiary bank enters into borrowing arrangements with our retail business customers~~

A lease is defined as a contract, or part of a contract, that conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration. On January 1, 2019, the Company adopted ASU No. 2016-02 “Leases” (Topic 842) and ~~correspondent banks through~~all subsequent ASUs that modified Topic 842. For the Company, Topic 842 primarily affected the accounting treatment for operating lease agreements ~~to repurchase (“securities sold under agreements to repurchase”) under~~in which the ~~bank pledges investment securities owned~~Company is the lessee. The leases are presented as of part of other assets and other liabilities on the consolidated balance sheet.

Substantially all of the leases in which the Company is the lessee are comprised of real estate property for branches and office space with terms extending through 2033. Substantially all of our leases are classified as operating leases, and therefore, were previously not recognized on the Company’s consolidated statements of condition. Upon adoption of FASB ASU 2016-02 Leases 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 ~~its control as collateral against these short-term borrowing arrangements. At maturity~~ the ~~securities underlying~~amendments of ASU 2016-02). In accordance with the ~~agreements are returned~~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. At September 30, 2018~~Company’s consolidated statements of condition, and ~~December~~was recorded in other assets and other liabilities, Topic 842 did not materially impact the accounting for this lease. Subsequent to March 31, ~~2017, these short-term borrowings totaled $0 and $31,004, respectively, and were secured by securities~~2019, one additional lease agreement has been executed with ~~carrying amounts of $0 and $41,136, respectively.~~the plan to relocate one branch in Williamson County, Tennessee.

The following table ~~provides additional details~~represents the consolidated statements of condition classification of the Company’s ROU assets and lease liabilities. The Company elected not to include short-term leases (i.e., leases with initial terms of twelve months or less), or equipment leases (deemed immaterial) on the consolidated statements of condition.

The calculated amount of the ROU assets and lease liabilities in the table above are impacted by the length of the lease term and the discount rate used to present value the minimum lease payments. The Company’s lease agreements often include one or more options to renew at the Company’s discretion, which will be determined within the timeframe of the lease agreement, and not included within the calculated ROU. The Company utilizes the discount rate implicit in the lease whenever this rate is readily determinable. As this rate is rarely determinable, the Company calculated a blended rate consisting of the Federal Home Loan Bank’s rate matching to the duration of the lease (over-collateralized borrowing rate) and the offering rate of the Company’s most recent subordinated debt offering in June of 2016. For operating leases existing prior to January 1, 2019, the rate for the remaining lease term as of January 1, 2019, was used. For the Company’s only finance lease that commenced December 2018, the Company utilized its blended rate calculation based on the term of the lease.

The following table represents lease costs and other lease information. As the Company elected, for all classes of underlying assets, not to separate lease and non-lease components and instead to account for them as a single lease component, the variable lease cost primarily represents variable payments such as common area maintenance and utilities.

Rent expense related to leases during the three months ended March 31, 2018, was $1,228.

Future minimum payments for a finance lease and operating leases with initial or remaining terms of one year of more as of March 31, 2019.

Future minimum payments for a finance lease and operating leases with initial or remaining terms of one year of more as of December 31, ~~2017:~~2018.

In connection with the Company’s 2010 private offering, 32,425 warrants were issued to shareholders, one warrant for every twenty shares of common stock purchased. Each warrant allows the shareholders to purchase an additional share of common stock at $12.00 per share. The warrants were issued with an effective date of March 30, 2010 and were exercisable in whole or in part up to seven years following the date of issuance. The warrants were detachable from the common stock. There were 0 and 12,461 warrants exercised during the nine months ended September 30, 2018 and 2017, respectively.

~~A summary of the stock warrant activity for the nine months ended September 30, 2018 and 2017 follows:~~

~~The warrants expired on March 30, 2017; therefore at September 30, 2018, there were no outstanding warrants associated with the 2010 offering.~~

The Company has two share based compensation plans as described below. Total compensation cost that has been charged against income for those plans was ~~$1,376~~$1,329 and ~~$735 and $3,454 and $1,970~~$759 for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2019 and 2018, ~~and~~

~~2017,~~ respectively. The total income tax benefit, which is shown on the Consolidated Statements of Income as a reduction of income tax expense, was ~~$285~~$113 and ~~$568~~$63 for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2019 and 2018, ~~respectively. The total income tax benefit for the three and nine months ended September 30, 2017 was $261 and $711,~~ respectively.

Stock Options: The Company’s 2007 Omnibus Equity Incentive Plan (the “2007 Plan”), as amended and shareholder-approved, provided for authorized shares up to 4,000,000. The 2007 Plan provided that no options intended to be ISOs may be granted after April 9, 2017. As a result, the Company’s board of directors approved, and recommended to its shareholders for approval, an equity incentive plan, the 2017 Omnibus Equity Incentive Plan ~~(the “2017 Plan”). The~~which the Company’s shareholders approved ~~the 2017 Plan~~ at the 2017 annual meeting of shareholders. On April 12, 2018, the Compensation Committee of the Company’s Board of Directors approved the Amended and Restated 2017 Omnibus Equity Incentive Plan to make certain changes in response to feedback received from our shareholders. The terms of the Amended and Restated 2017 Plan are substantially similar to the terms of the 2007 Plan it was intended to replace. The Amended and Restated 2017 Plan provides for authorized shares up to 3,500,000. At ~~September 30, 2018,~~March 31, 2019, there were ~~2,765,423~~2,481,835 authorized shares ~~available for issuance under the 2017 Plan.~~

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

Employee, organizer and director awards are generally granted with an exercise price equal to the market price of the Company’s common stock at the date of grant; those option awards have a ten-year contractual term with varying vesting requirements. The Company assigns discretion to its Board of Directors to make grants either as qualified incentive stock options or as non-qualified stock options. All employee grants are intended to be treated as qualified incentive stock options, if allowable. All other grants are expected to be treated as non-qualified.

The fair value of each option award is estimated on the date of grant using a closed form option valuation (Black-Scholes) model that uses the assumptions noted in the table below. Expected stock price volatility is based on historical volatilities of ~~a peer group.~~the Company. The Company uses historical data to estimate option exercise and post-vesting termination behavior.

The expected term of options granted represents the period of time that options granted are expected to be outstanding, which takes into account that the options are not transferable. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of the grant.

The fair value of options granted was determined using the following weighted-average assumptions as of grant date.

	September 30, 2018			September 30, 2017			March 31, 2019			March 31, 2018
Risk-free interest rate		2.83	%		2.16	%		2.31	%		2.49	%
Expected term	7.5 years			6.8 years			7 years			7.5 years
Expected stock price volatility		31.42	%		32.32	%		30.44	%		32.48	%
Dividend yield		0.00	%		0.03	%		0.50	%		0.00	%

The weighted average fair value of options granted for the ~~nine~~three months ended ~~September 30,~~March 31, 2019 and 2018 were $10.01 and ~~2017 were $11.31 and $14.51,~~$14.77, respectively.

A summary of the activity in the plans for the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019 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		542,637			30.14						30,000			27.72
Exercised		(235,381	)		16.61						(35,046	)		14.93
Forfeited, expired, or cancelled		(19,053	)		29.96						—
Outstanding at period end		1,795,371			24.47		6.55	$	26,265		1,802,876		$	24.92		8.11	$	7,375
Vested or expected to vest		1,705,602			24.47		6.55	$	24,952		1,712,732		$	24.92		8.11	$	7,006
Exercisable at period end		975,485			18.42		5.43	$	20,152		843,174		$	14.02		7.96	$	10,567

	For the Nine Months Ended September 30,				For the Three Months Ended March 31,
	2018		2017		2019		2018
Stock options exercised:
Intrinsic value of options exercised	$	4,828	$	4,141	$	623	$	511
Cash received from options exercised		2,845		1,361		524		220
Tax benefit realized from option exercises		568		406		113		63

As of ~~September 30,~~March 31, 2019 and 2018, there was ~~$6,276~~$5,306 and $5,708, respectively, of total unrecognized compensation cost related to non-vested stock options granted under the plans. The cost is expected to be recognized over a weighted-average period of ~~1.2~~1.1 years.

Restricted Stock: Additionally, the 2007 Plan and the Amended and Restated 2017 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 for non-vested restricted share awards for the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019 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		121,288			31.00		1,255			31.87
Vested		(40,114	)		26.67		(10,421	)		31.09
Forfeited		(3,656	)		31.77		(47	)		32.95
Non-vested at September 30, 2018		171,699		$	31.00
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 ~~September 30,~~March 31, 2019 and 2018, there was ~~$4,434~~$2,028 and $1,580, respectively, of total unrecognized compensation cost related to non-vested shares granted under the 2007 Plan and Amended and Restated 2017 Plan. The cost is expected to be recognized over a weighted-average period of ~~1.8~~1.5 years.

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 certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action. The final rules implementing Basel Committee on Banking Supervision’s capital guidelines for U.S. Banks (Basel III rules) became effective for the

Company on January 1, 2016 with full compliance with all of the requirements being phased in over a multi-year schedule, and fully phased in by January 1, 2019.

The Basel III rules additionally provide for countercyclical capital requirements so that the required amount of capital increases in times of economic expansion and decreases in times of economic contraction, consistent with safety and soundness. Under the Basel III rules, banks must maintain a capital conservation buffer consisting of additional Common Equity Tier 1 Capital equal to 2.5% of risk-weighted assets above each of the required minimum capital levels in order to avoid limitations on paying dividends, engaging in share repurchases, and paying certain discretionary bonuses. This new capital conservation buffer requirement was phased in beginning January 2016 at 0.625% of risk-weighted assets and ~~will increase~~increased each year until fully implemented at 2.5% in January 2019. ~~The capital conservation buffer in effect for 2018 is 1.875%.~~

Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. At ~~September 30, 2018,~~March 31, 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 ~~September 30, 2018,~~March 31, 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 ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017~~2018 for the Company and Bank:

Actual

Required
For Capital
Adequacy Purposes

To Be Well
Capitalized Under
Prompt Corrective
Action Regulations

Amount

Ratio

Amount

Ratio

Amount

Ratio

September 30, 2018

Company common equity Tier 1 capital to
   risk-weighted assets

$
359,881

12.24
%

$
132,313

4.50
%

N/A

N/A

Company Total Capital to risk weighted assets

$
441,103

15.00
%

$
235,223

8.00
%

N/A

N/A

Company Tier 1 (Core) Capital to risk weighted
   assets

$
359,881

12.24
%

$
176,417

6.00
%

N/A

N/A

Company Tier 1 (Core) Capital to average assets

$
359,881

8.71
%

$
165,295

4.00
%

N/A

N/A

Bank common equity Tier 1 capital to
   risk-weighted assets

$
413,850

14.08
%

$
132,305

4.50
%

$
185,843

6.50
%
Bank Total Capital to risk weighted assets

$
436,423

14.84
%

$
235,208

8.00
%

$
285,913

10.00
%
Bank Tier 1 (Core) Capital to risk weighted assets

$
413,850

14.08
%

$
176,406

6.00
%

$
228,730

8.00
%
Bank Tier 1 (Core) Capital to average assets

$
413,850

10.02
%

$
165,185

4.00
%

$
208,269

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	%

Dividend Restrictions: The Company’s principal source of funds for dividend payments is dividends received from the Bank. Banking regulations limit the amount of dividends that may be paid without prior approval of regulatory agencies. Under these regulations, the amount of dividends that may be paid in any calendar year is limited to the current year’s net profits, combined with the retained net

profits of the preceding two years, subject to the capital requirements described above. ~~Neither~~

Financial derivatives are reported at fair value in other assets or other liabilities. The accounting for changes in the fair value of a derivative depends on whether it has been designated and qualifies as part of a hedging relationship. For derivatives not designated as hedges, the gain or loss is recognized in current earnings.

For derivative instruments that are designated and qualify as a fair value hedge, the gain or loss on the derivative instrument as well as the offsetting loss or gain on the hedged asset or liability attributable to the hedged risk are recognized in current earnings. The gain or loss on the derivative instrument is presented on the same income statement line item as the earnings effect of the hedged item. The Company utilizes interest rate swaps designated as fair value hedges to mitigate the effect of changing interest rates on the fair values of fixed rate callable securities available-for-sale. The hedging strategy on securities converts the fixed interest rates to LIBOR-based variable interest rates. These derivatives are designated as partial term hedges of selected cash flows covering specified periods of time prior to the call dates of the hedged securities.

During 2019, the Company ~~nor~~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 ~~Bank may currently pay dividends without prior written approval from its primary regulatory agencies.~~effects of changing interest rates on the fair values of fixed rate securities.

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

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

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

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

Securities: The fair values for investment securities are determined by quoted market prices, if available (Level 1). For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2), using matrix pricing. Matrix pricing is a mathematical technique commonly used to price debt securities that are not actively traded and values debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs). Included in securities is interest rate swap agreements. The carrying amount of the interest rate swap agreements is based on pricing models that utilize observable market inputs (Level 2). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3).

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

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:~~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 September 30, 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	$	—	$	254,535	$	—	$	69,618	$	—	$	—
U.S. government sponsored entities and agencies		—		25,736		—		—		1,820		—
Mortgage-backed securities-residential		—		707,151		—		—		523,458		—
Mortgage-backed securities-commercial		—		4,961		—
Asset-backed securities		—		8,430		—		—		25,050		—
Corporate notes								—		17,939		—
State and political subdivisions		—		114,374		—		—		161,416		—
Total securities available for sale	$	—	$	1,115,187	$	—	$	69,618	$	729,683	$	—
Loans held for sale	$	—	$	14,563	$	—	$	—	$	21,730	$	—
Mortgage banking derivatives	$	—	$	200	$	—
Other assets							$	—	$	190	$	—
Financial Liabilities
Mortgage banking derivatives	$	—	$	—	$	—
Other liabilities							$	—	$	1,331	$	—

	Fair Value Measurements at December 31, 2017 Using:						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)		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	$	—	$	253,014	$	—	$	—
U.S. government sponsored entities and agencies		—		19,961		—		—		21,888		—
Mortgage-backed securities-residential		—		632,566		—		—		580,699		—
Mortgage-backed securities-commercial		—		5,074		—
Asset-backed securities								—		24,844		—
Corporate notes										12,424
State and political subdivisions		—		113,371		—		—		137,799		—
Total securities available for sale	$	—	$	999,881	$	—	$	253,014	$	777,654	$	—
Loans held for sale	$	—	$	12,024	$	—	$	—	$	11,103	$	—
Mortgage banking derivatives	$	—	$	175	$	—
Other assets							$	—	$	206	$	—
Financial Liabilities
Mortgage banking derivatives	$	—	$	35	$	—
Other liabilities							$	—	$	129	$	—

As of ~~September 30,~~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 ~~$14,185~~$10,722, resulting in an unrealized gain of ~~$378~~$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 ~~September 30,~~March 31, 2019 and 2018, ~~and 2017,~~ the change in fair value related to loans held for sale, which is included in ~~gain on sale of loans,~~mortgage banking revenue, was ~~($160)~~$270 and ($~~48)~~26), ~~respectively. For the nine months ended September 30, 2018 and 2017, the change in fair value related to loans held for sale, which is included in gain on sale of loans, was $34 and $57,~~ respectively. None of these loans were 90 days or more past due or on nonaccrual as of ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017.~~2018.

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

There ~~was one~~were six collateral-dependent impaired loans carried at fair value of ~~$150~~$5,722 as of ~~September 30, 2018~~March 31, 2019. The level 3 fair value measurement for these assets measured at fair value on a non-recurring basis used the income approach with an adjustment for differences in net operating income expectations based on an unobservable input of earnings before interest, tax, depreciation and amortization (EBITDA). There was one collateral-dependent impaired loan carried at fair value of ~~$1,650~~$150 as of December 31, ~~2017.~~2018. For the three ~~and nine~~ months ended ~~September 30, 2018, $16~~March 31, 2019, $3,455 in additional provision for loan losses was recorded related to impaired loans recorded at fair value of collateral. For the three ~~and nine~~ months ended ~~September 30, 2017, $194~~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 ~~$1,853~~$0 as of ~~September 30, 2018~~March 31, 2019 and ~~$1,503 as of~~ December 31, ~~2017.~~2018, respectively. There were no properties at ~~September 30,~~March 31, 2019 or 2018 ~~or 2017~~ that had required write-downs to fair value.

The carrying amounts and estimated fair values of financial instruments at ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017~~2018 are as follows:

			Fair Value Measurements at September 30, 2018 Using:										Fair Value Measurements at March 31, 2019 Using:
	Carrying Amount		Level 1		Level 2		Level 3		Total		Carrying Amount		Level 1		Level 2		Level 3		Total
Financial assets
Cash and cash equivalents	$	144,660	$	144,660	$	—	$	—	$	144,660	$	300,113	$	300,113	$	—	$	—	$	300,113
Certificates of deposit held at other financial institutions		3,104		—		3,104		—		3,104		3,595		—		3,601		—		3,601
Securities available for sale		1,115,187		—		1,115,187		—		1,115,187		799,301		69,618		729,683		—		799,301
Securities held to maturity		204,587		—		199,927		—		199,927		118,831		—		118,866		—		118,866
Loans held for sale		14,563		—		14,563		—		14,563		21,730		—		21,730		—		21,730
Net loans		2,527,642		—		—		2,489,418		2,489,418		2,779,520		—		—		2,781,888		2,781,888
Restricted equity securities		21,793	n/a		n/a		n/a		n/a
Servicing rights, net		3,465		—		—		5,348		5,348		3,366		—		—		4,329		4,329
Mortgage banking derivative assets		200		—		200		—		200
Other assets												190		—		190		—		190
Accrued interest receivable		14,391		34		6,501		7,856		14,391		14,232		140		5,151		8,941		14,232
Financial liabilities
Deposits	$	3,371,550	$	1,850,538	$	1,511,884	$	—	$	3,362,422	$	3,315,843	$	2,201,698	$	1,112,151	$	—	$	3,313,849
Federal Home Loan Bank advances		371,500		—		369,239		—		369,239		416,500		—		415,845		—		415,845
Subordinated notes, net		58,649		—		—		60,732		60,732		58,738		—		—		60,426		60,426
Other liabilities												1,331		—		1,331		—		1,331
Accrued interest payable		4,726		115		350		4,260		4,725		5,041		205		350		4,486		5,041

			Fair Value Measurements at December 31, 2017 Using:										Fair Value Measurements at December 31, 2018 Using:
	Carrying Amount		Level 1		Level 2		Level 3		Total		Carrying Amount		Level 1		Level 2		Level 3		Total
Financial assets
Cash and cash equivalents	$	251,543	$	251,543	$	—	$	—	$	251,543	$	280,212	$	280,212	$	—	$	—	$	280,212
Certificates of deposit held at other financial institutions		2,855		—		2,855		—		2,855		3,594		—		3,594		—		3,594
Securities available for sale		999,881		—		999,881		—		999,881		1,030,668		253,014		777,654		—		1,030,668
Securities held to maturity		214,856		—		217,608		—		217,608		121,617		—		118,955		—		118,955
Loans held for sale		12,024		—		12,024		—		12,024		11,103		—		11,103		—		11,103
Net loans		2,235,361		—		—		2,230,607		2,230,607		2,641,948		—		—		2,622,386		2,622,386
Restricted equity securities		18,492	n/a		n/a		n/a		n/a
Servicing rights, net		3,620		—		—		5,089		5,089		3,403		—		—		4,836		4,836
Mortgage banking derivative assets		175		—		175		—		175
Other assets												206		—		206		—		206
Accrued interest receivable		11,947		73		5,724		6,150		11,947		13,337		71		5,539		7,727		13,337
Financial liabilities
Deposits	$	3,167,228	$	1,911,928	$	1,224,041	$	—	$	3,135,969	$	3,431,807	$	2,105,951	$	1,319,326	$	—	$	3,425,277
Federal funds purchased and repurchase agreements		31,004		—		31,004		—		31,004
Federal Home Loan Bank advances		272,000		—		270,311		—		270,311		368,500		—		366,786		—		366,786
Subordinated notes, net		58,515		—		—		59,951		59,951		58,693		—		—		59,852		59,852
Mortgage banking derivative liabilities		35		—		35		—		35
Other liabilities												129		—		129		—		129
Accrued interest payable		2,769		51		2,030		688		2,769		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 and non-interest checking, passbook savings, and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amount) resulting in a Level 1 classification. The carrying amounts of fixed-term money market accounts approximate their fair values at the reporting date resulting in a Level 1 classification. Fair values for certificates of deposit are estimated using a discounted cash flows calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits resulting in a Level 2 classification.

~~(f)~~(e) Federal Funds Purchased and Repurchase Agreements: The carrying amounts of federal funds purchased, borrowings under repurchase agreements, and other short-term borrowings, generally maturing within ninety days, approximate their fair values resulting in a Level 2 classification.

~~(g)~~(f) Federal Home Loan Bank Advances: The fair values of the Company’s long-term borrowings are estimated using discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements resulting in a Level 2 classification.

~~(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 for off-balance sheet, credit-related financial instruments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing. The fair value of commitments is not material.

The two-class method is used in the calculation of basic and diluted earnings per share. Under the two-class method, earnings available to common shareholders for the period are allocated between common shareholders and participating securities according to dividends declared (or accumulated) and participation rights in undistributed earnings. The factors used in the earnings per share computation follow:

	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2018			2017			2018			2017			2019			2018
Basic
Net income available to common shareholders	$	10,549		$	8,889		$	30,762		$	25,689		$	2,901		$	10,052
Less: earnings allocated to participating securities		(126	)		(66	)		(318	)		(206	)		(34	)		(71	)
Net income allocated to common shareholders	$	10,423		$	8,823		$	30,444		$	25,483		$	2,867		$	9,981
Weighted average common shares outstanding including participating securities		14,497,840			13,188,761			14,048,270			13,119,170			14,561,721			13,249,728
Less: Participating securities		(173,541	)		(97,842	)		(145,432	)		(105,350	)		(168,638	)		(94,010	)
Average shares		14,324,299			13,090,919			13,902,838			13,013,820			14,393,083			13,155,718
Basic earnings per common share	$	0.73		$	0.67		$	2.19		$	1.96		$	0.20		$	0.76

	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended March 31,
	2018		2017		2018		2017		2019		2018
Diluted
Net income allocated to common shareholders	$	10,423	$	8,823	$	30,444	$	25,483	$	2,867	$	9,981
Weighted average common shares outstanding for basic earnings per common share		14,324,299		13,090,919		13,902,838		13,013,820		14,393,083		13,155,718
Add: Dilutive effects of assumed exercises of stock options		579,452		584,778		564,688		662,890		411,747		516,666
Add: Dilutive effects of assumed exercises of stock warrants		—		-		—		2,104		—		—
Average shares and dilutive potential common shares		14,903,751		13,675,697		14,467,526		13,678,814		14,804,830		13,672,384
Dilutive earnings per common share	$	0.70	$	0.65	$	2.10	$	1.86	$	0.19	$	0.73

For three months ended ~~September 30,~~March 31, 2019 and 2018, ~~and 2017,~~ stock options for ~~397,974~~768,458 and ~~352,042~~411,279 shares of common stock, respectively, were not considered in computing diluted earnings per common share because they were antidilutive. Stock options for 489,515 and 254,204 shares of common stock, respectively, were not considered in computing diluted earnings per common share for the nine months ended September 30, 2018 and 2017 because they were antidilutive.

The Company’s subordinated notes, net of issuance costs, totaled ~~$58,649~~$58,738 and ~~$58,515~~$58,693 at ~~September 30, 2018~~March 31, 2019 and at December 31, ~~2017,~~2018, respectively. For regulatory capital purposes, the subordinated notes are treated as Tier 2 capital, subject to certain limitations, and are included in total regulatory capital when calculating the Company’s total capital to risk weighted assets ratio as indicated in Note 87 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 the ten-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 the ten-year term of the June 2016 Subordinated Notes. For the three months ended ~~September 30,~~March 31, 2019 and 2018, ~~and 2017,~~ amortization of issuance costs has amounted to $45 and $45, respectively. ~~For the nine months ended September 30, 2018 and 2017, amortization of issuance costs has amounted to $134 and $133, respectively.~~

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (All dollar values in this section are in thousands.)

The following discussion ~~is intended to assist~~and analysis identifies significant factors that have affected our financial position and operating results during the periods included in the ~~understanding and assessment of significant changes and trends related to the Company’s results of operations and~~accompanying financial ~~condition.~~statements. This discussion and analysis should be read in conjunction with the accompanying unaudited financial statements, the audited financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March ~~16, 2018,~~19, 2019, which includes additional information about critical accounting policies and practices and risk factors. Historical results and trends that might appear in the consolidated financial statements should not be interpreted as being indicative of future operations. ~~All amounts are in thousands, except per share data or unless otherwise indicated.~~

We are a financial holding company headquartered in Franklin, Tennessee. Through our wholly-owned bank subsidiary, Franklin Synergy Bank, a Tennessee-chartered commercial bank and a member of the Federal Reserve System, we provide a full range of banking and related financial services with a focus on service to small businesses, corporate entities, local governments and individuals. We operate through 1415 branches and ~~one~~a loan production office in the ~~demographically attractive and~~ growing Williamson, Rutherford and Davidson Counties within the Nashville metropolitan area. As used in this report, unless the context otherwise indicates, any reference to “Franklin Financial,” “our ~~company,~~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 ~~April 1, 2018, Civic Bank & Trust (“Civic”), which was~~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 ~~in Nashville,~~at 722 Columbia Avenue, Franklin, Tennessee ~~merged with~~37064-2828, and ~~into Franklin Synergy with Franklin Synergy continuing as the surviving company. Under the terms~~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 the acquisition, Civic’s common shareholders received 0.3686 of a share of the Company’s common stock in exchange for each share of Civic common stock. With the completion of the acquisition of Civic, the Company added its first full service branch office in Nashville, Tennessee located in the very vibrant Davidson County market. The results of Civic’s operations are included in the Company’s results since April 1, 2018. Effective with the acquisition, Dr. Anil Patel, who was the chairman of the Civic board of directors, was added to the Company’s board of directors.this report and is not incorporated by reference herein.

The accounting and reporting policies of the Company are in accordance with accounting principles generally accepted in the United States of America and conform to general practices within the banking industry. To prepare financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and actual results could differ.

The Company’s accounting policies are integral to understanding the results reported. Accounting policies are described in detail in Note 1 of the notes to the consolidated financial statements in the Company’s Annual Report on Form 10-K that was filed with the SEC on March ~~16, 2018.~~19, 2019. The critical accounting policies require judgment to ascertain the valuation of assets, liabilities, commitments and contingencies. Management has established policies and control procedures that are intended to ensure valuation methods are well controlled and applied consistently from period to period. In addition, the policies and procedures are intended to ensure that the process for changing methodologies occurs in an appropriate manner. The following is a brief summary of the more significant policies.

The ~~allowance for loan losses~~ALLL is a valuation allowance for probable incurred credit losses. Loan losses are charged against the allowance when management believes a loan balance 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 a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

All loans classified by management as substandard or worse are individually evaluated for impairment. If a loan is impaired, a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral.

~~Troubled debt restructurings~~TDR’s are separately identified for impairment disclosures and are measured at the present value of estimated future cash flows using the loan’s effective rate at inception. If a ~~troubled debt restructuring~~TDR is considered to be a collateral dependent loan, the loan is reported, net, at the fair value of the collateral. For ~~troubled debt restructurings~~TDR’s that subsequently default, the Company determines the amount of reserve in accordance with the accounting policy for the ~~allowance for loan losses.~~ALLL.

The general component covers non-impaired loans and is based on historical loss experience adjusted for current factors. The historical loss experience is determined by portfolio segment and is based on a combination of the Bank’s loss history and loss history from the Bank’s peer group over the past three years. This actual loss experience is supplemented with other qualitative factors based on the risks present for each portfolio segment. These economic factors include consideration of the following: levels of and trends in delinquencies and impaired loans; levels of and trends in charge-offs and recoveries; trends in volume and terms of loans; effects of any changes in risk selection and underwriting standards; other changes in lending policies, procedures, and practices; experience, ability, and depth of lending management and other relevant staff; national and local economic trends and conditions; industry conditions; and effects of changes in credit concentrations.

THE THREE ~~and NINE~~ MONTHS ENDED ~~SEPTEMBER 30,~~MARCH 31, 2019 and 2018 ~~and 2017~~

The Company reported net income ~~of $10,549~~ and $30,770 for the three and nine months ended September 30, 2018, respectively, compared to $8,889 and $25,697 for the three and nine months ended September 30, 2017, respectively. After earnings attributable to noncontrolling interest, the Company’s net ~~earnings~~income available to common shareholders of $2,901 and $10,052 for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2019 and 2018, ~~was $10,549 and $30,762, respectively, compared to $8,889 and $25,689 for the three and nine months ended September 30, 2017,~~ respectively. ~~The increase in net earnings~~Net income available to common shareholders ~~for the three and nine months ended September 30,~~decreased by $7,151 when comparing 2019 with 2018, ~~was attributable~~primarily due to ~~the increase in net interest income and the decrease in income tax expense~~$4,143 related to ~~the Tax Cuts~~post employment and ~~Jobs Act (the “Tax Act”) that was passed in December 2017 and~~retirement expense, along with $3,486 related to ~~state tax credits resulting from the extension of~~ a ~~significant Community Reinvestment Act (CRA)-qualified loan.~~specific loan loss provision on a shared national credit (SNC).

Net interest income consists of interest income generated by earning-assets less interest expense paid on interest-bearing liabilities and is the most significant component of our revenues. Net interest income for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2019 and 2018 totaled ~~$26,562~~$27,420 and ~~$78,583,~~$25,116, respectively, ~~compared to $24,326 and $72,438 for the same periods in 2017,~~ an increase of ~~$2,236 and $6,145,~~$2,304 or 9.2% ~~and 8.5%, between the respective periods.~~. For the three ~~and nine~~ months ended ~~September 30, 2018,~~March 31, 2019, interest income increased ~~$9,937 and $26,568,~~$9,476 or ~~29.4% and 27.3%, respectively, compared with the same periods in 2017,~~24.9% due primarily to growth in ~~both~~ the loan ~~and investment securities portfolios.~~portfolio. For the three ~~and nine~~ months ended ~~September 30, 2018,~~March 31, 2019, interest expense increased ~~$7,701 and $20,423,~~$7,172 or ~~81.5% and 82.0%, respectively,~~55.5% due primarily ~~due~~ to increases in ~~interest-bearing deposits combined with an increase in~~ interest rates ~~for deposits and Federal Home Loan Bank (“FHLB”) advances.~~paid on deposits.

Interest-earning assets averaged ~~$4,001,611~~$4,044,231 and ~~$3,351,421~~$3,867,957 during the three months ended ~~September 30,~~March 31, 2019 and 2018, ~~and 2017,~~ respectively, an increase of ~~$650,190,~~$176,274, or ~~19.4%~~4.6%. This increase was primarily due to growth in ~~all types~~average loans of ~~interest-earning assets, but the largest growth occurred~~$466,214, which was offset by decreases in ~~loans~~securities and ~~investment securities. Average loans increased 23.4%,~~federal funds sold and ~~available for sale securities increased 16.5%,~~other of $187,947 and $106,488, respectively, when comparing the three months ended ~~September 30, 2018~~March 31, 2019 with the same period in ~~2017.~~2018.

When comparing the three months ended ~~September 30,~~March 31, 2019 and 2018, ~~and 2017,~~ the yield on average interest earning assets, adjusted for tax equivalent yield, increased 2376 basis points in ~~2018~~2019 to ~~4.40%~~4.82% compared to ~~4.17%~~4.06% for the same period during ~~2017.~~2018. For the three months ended ~~September 30,~~March 31, 2019, the tax equivalent yield on loans was 5.61%, and for the three months ended March 31, 2018, the tax equivalent yield on loans was ~~5.41%, and for the three months ended September 30, 2017, the tax equivalent yield on loans was 5.03%~~5.07%. The primary driver for the increase in yields on loans was the increase in market interest rates when compared to the same quarter in the previous year.

Interest-bearing liabilities averaged ~~$3,463,037~~$3,490,227 during the three months ended ~~September 30, 2018,~~March 31, 2019, compared to ~~$2,856,337~~$3,371,827 for the same period in ~~2017,~~2018, an increase of ~~606,700,~~$118,400, or ~~21.2%~~3.5%. Total average interest-bearing deposits grew ~~$569,091,~~$71,408, or ~~23.0%~~2.4%, including ~~increases~~an increase in average money market deposit accounts of $248,369, offset by decreases in average interest checking ~~of $238,231~~($61,236), average savings deposits ($9,833) and average time deposits ~~of $207,451~~($105,892) for the three months ended ~~September 30, 2018,~~March 31, 2019, as compared to the same period during ~~2017. The growth in the loan portfolio contributed to an increase in average~~2018. Average FHLB advances ~~of $62,000.~~also increased by $68,044 when comparing the three months ended March 31, 2019 with the same period in 2018.

When comparing the three months ended ~~September 30,~~March 31, 2019 and 2018, ~~and 2017,~~ the cost of average interest-bearing liabilities increased 6678 basis points to ~~1.97%~~2.34% from ~~1.31%~~1.56%. The increase was due to rate increases ~~in the cost of funds~~ for interest-bearing deposits, FHLB advances and federal funds purchased.

Interest-earning assets averaged $3,967,909 and $3,304,558 during the nine months ended September 30, 2018 and 2017, respectively, an increase of $663,351, or 20.1%. This increase was due to growth in both the loan portfolio and the securities portfolio over the past year. Average loans increased 23.2%, and investment securities increased 9.8%, when comparing the nine months ended September 30, 2018 with the same period in 2017. When comparing the nine months ended September 30, 2018 and 2017, the yield on average interest-earning assets, adjusted for tax equivalent yield, increased 14 basis points to 4.25% in 2018 compared to 4.11% for the same period during 2017.

For the nine months ended September 30, 2018 and 2017, the tax equivalent yield on loans was 5.25% and 4.96% respectively. The primary driver for the increase in yield on loans for the nine months ended September 30, 2018 was the increase in market interest rates during the past year.

For the nine months ended September 30, 2018, the tax equivalent yield on available for sale securities was 2.52%, and for the nine months ended September 30, 2017, the tax equivalent yield on available for sale securities was 2.66%. For the nine months ended September 30, 2018, the tax equivalent yield on held to maturity securities was 3.75%, and for the nine months ended September 30, 2017, the tax equivalent yield on held to maturity securities was 4.18%. The primary driver for the yield decreases in both available for sale securities and held to maturity securities was the decrease in volume of tax-exempt securities that have been purchased combined with the reduction of the effective tax rate.

Interest-bearing liabilities averaged $3,451,403 during the nine months ended September 30, 2018, compared to $2,839,188 for the same period in 2017, an increase of $612,215, or 21.6%. Total average interest-bearing deposits grew $548,856, including increases in interest-bearing checking of $224,717 and average time deposits of $189,256 for the nine months ended September 30, 2018, as compared to the same period during 2017. The growth in the loan portfolio also contributed to an increase in average FHLB advances of $83,869.

When comparing the nine months ended September 30, 2018 and 2017, the cost of average interest-bearing liabilities increased 59 basis points from 1.17% to 1.76%. The increase was due to increases in the cost of funds from interest-bearing deposits, FHLB advances, federal funds purchased and repurchase agreements.

The tables below summarize average balances, annualized yields and rates, cost of funds, and the analysis of changes in interest income and interest expense for the three ~~and nine~~ months ended ~~September 30, 2018~~March 31, 2019 and ~~2017:~~2018:

Three Months Ended September 30,

2018

2017

Average
Balance

Interest
Inc / Exp

Average
Yield /
Rate

Average
Balance

Interest
Inc / Exp

Average
Yield /
Rate

ASSETS:

Loans⁽¹⁾⁽⁶⁾

$
2,528,604

$
34,457

5.41
%

$
2,049,575

$
26,006

5.03
%
Securities available for sale⁽⁶⁾

1,133,536

7,141

2.50
%

972,988

6,405

2.61
%
Securities held to maturity⁽⁶⁾

207,419

1,924

3.68
%

220,313

2,283

4.11
%
Restricted equity securities

21,067

313

5.89
%

17,396

269

6.13
%
Certificates of deposit at other financial institutions

3,113

16

2.04
%

2,412

9

1.48
%
Federal funds sold and other⁽²⁾

107,872

567

2.09
%

88,737

271

1.21
%
TOTAL INTEREST EARNING ASSETS

$
4,001,611

$
44,418

4.40
%

$
3,351,421

$
35,243

4.17
%
Allowance for loan and lease losses

(22,588
)

(18,891
)

All other assets

153,478

94,334

TOTAL ASSETS

$
4,132,501

$
3,426,864

LIABILITIES & EQUITY

Deposits:

Interest checking

$
790,733

$
3,406

1.71
%

$
552,502

$
1,285

0.92
%
Money market

736,157

3,489

1.88
%

604,416

1,703

1.12
%
Savings

46,589

34

0.29
%

54,921

42

0.30
%
Time deposits

1,466,903

7,208

1.95
%

1,259,452

4,281

1.35
%
Federal Home Loan Bank advances

351,228

1,867

2.11
%

289,228

968

1.33
%
Federal funds purchased and other⁽³⁾

12,805

69

2.14
%

37,374

92

0.98
%
Subordinated notes and other borrowings

58,622

1,082

7.32
%

58,444

1,083

7.35
%
TOTAL INTEREST BEARING LIABILITIES

$
3,463,037

$
17,155

1.97
%

$
2,856,337

$
9,454

1.31
%
Demand deposits

305,432

261,127

Other liabilities

12,739

11,312

Total equity

351,293

298,088

TOTAL LIABILITIES AND EQUITY

$
4,132,501

$
3,426,864

NET INTEREST SPREAD⁽⁴⁾

2.43
%

2.86
%
NET INTEREST INCOME

$
27,263

$
25,789

NET INTEREST MARGIN⁽⁵⁾

2.70
%

3.05
%

	Nine Months Ended September 30,																Three Months Ended March 31,
	2018								2017								2019								2018
	Average Balance			Interest Inc / Exp		Average Yield / Rate			Average Balance			Interest Inc / Exp		Average Yield / Rate			Average Balance			Interest Inc / Exp		Average Yield / Rate			Average Balance			Interest Inc / Exp		Average Yield / Rate
ASSETS:
Loans⁽¹⁾⁽⁶⁾	$	2,433,683		$	95,601		5.25	%	$	1,975,592		$	73,274		4.96	%	$	2,764,675		$	38,238		5.61	%	$	2,299,219		$	28,732		5.07	%
Securities available for sale⁽⁶⁾		1,135,915			21,372		2.52	%		1,002,118			19,958		2.66	%
Securities held to maturity⁽⁶⁾		211,031			5,915		3.75	%		224,174			7,012		4.18	%
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		20,123			916		6.09	%		15,830			663		5.60	%		22,375			334		6.05			18,658			274		5.96
Certificates of deposit at other financial institutions		3,130			46		1.96	%		2,178			24		1.47	%		3,592			20		2.26			2,814			12		1.73
Federal funds sold and other⁽²⁾		164,027			2,151		1.75	%		84,666			643		1.02	%		142,903			967		2.74			249,391			942		1.53
TOTAL INTEREST EARNING ASSETS	$	3,967,909		$	126,001		4.25	%	$	3,304,558		$	101,574		4.11	%	$	4,044,231		$	48,058		4.82	%	$	3,867,957		$	38,736		4.06	%
Allowance for loan and lease losses		(22,092	)							(18,182	)							(24,054	)							(21,683	)
All other assets		146,044								92,425								200,078								125,590
TOTAL ASSETS	$	4,091,861							$	3,378,801							$	4,220,255							$	3,971,864
LIABILITIES & EQUITY
Deposits:
Interest checking	$	856,299		$	9,901		1.55	%	$	631,582		$	3,586		0.76	%	$	857,096		$	4,420		2.09	%	$	918,332		$	3,166		1.40	%
Money market		750,857			9,137		1.63	%		608,670			4,412		0.97	%		992,842			5,979		2.44			744,473			2,600		1.42
Savings		48,265			109		0.30	%		55,569			127		0.31	%		40,609			28		0.28			50,442			38		0.31
Time deposits		1,385,931			18,238		1.76	%		1,196,675			10,993		1.23	%		1,165,666			6,563		2.28			1,271,558			4,839		1.54
Federal Home Loan Bank advances		326,418			4,390		1.80	%		242,549			2,228		1.23	%		364,711			1,918		2.13			296,667			1,110		1.52
Federal funds purchased and other⁽³⁾		25,056			296		1.58	%		45,745			309		0.90	%		10,594			72		2.76			31,823			96		1.22
Subordinated notes and other borrowings		58,577			3,246		7.41	%		58,398			3,239		7.42	%		58,709			1,123		7.76			58,532			1,082		7.50
TOTAL INTEREST BEARING LIABILITIES	$	3,451,403		$	45,317		1.76	%	$	2,839,188		$	24,894		1.17	%	$	3,490,227		$	20,103		2.34	%	$	3,371,827		$	12,931		1.56	%
Demand deposits		296,893								246,675								291,176								286,918
Other liabilities		12,940								7,358								61,736								13,279
Total equity		330,625								285,580								377,116								299,840
TOTAL LIABILITIES AND EQUITY	$	4,091,861							$	3,378,801							$	4,220,255							$	3,971,864
NET INTEREST SPREAD⁽⁴⁾							2.49	%							2.94	%							2.48	%							2.50	%
NET INTEREST INCOME				$	80,684							$	76,680							$	27,955							$	25,805
NET INTEREST MARGIN⁽⁵⁾							2.72	%							3.10	%							2.80	%							2.71	%

	Net change nine months ended September 30, 2018 versus September 30, 2017									Net change three months ended March 31, 2019 versus March 31, 2018
	Volume			Rate			Net Change			Volume			Rate			Net Change
INTEREST INCOME
Loans	$	16,994		$	5,333		$	22,327		$	5,819		$	3,687		$	9,506
Securities available for sale		2,662			(1,248	)		1,414
Securities held to maturity		(411	)		(686	)		(1,097	)
Loans held for sale											6			36			42
Securities
Taxable											(810	)		1,093			283
Tax-exempt											(538	)		(64	)		(602	)
Restricted equity securities		180			73			253			55			5			60
Certificates of deposit at other financial institutions		10			12			22			3			5			8
Federal funds sold and other		605			903			1,508			(402	)		427			25
TOTAL INTEREST INCOME	$	20,040		$	4,387		$	24,427		$	4,133		$	5,189		$	9,322
INTEREST EXPENSE
Deposits
Interest checking	$	1,277		$	5,038		$	6,315		$	(211	)	$	1,465		$	1,254
Money market accounts		1,032			3,693			4,725			870			2,509			3,379
Savings		(17	)		(1	)		(18	)		(8	)		(2	)		(10	)
Time deposits		1,741			5,504			7,245			(402	)		2,126			1,724
Federal Home Loan Bank advances		772			1,390			2,162			255			553			808
Fed funds purchased and other borrowed funds		(139	)		126			(13	)		(64	)		40			(24	)
Subordinated notes and other borrowings		10			(3	)		7
Subordinated Notes and other borrowings											3			38			41
TOTAL INTEREST EXPENSE	$	4,676		$	15,747		$	20,423		$	443		$	6,729		$	7,172
NET INTEREST INCOME	$	15,364		$	(11,360	)	$	4,004		$	3,690		$	(1,540	)	$	2,150

The provision for loan losses represents a charge to earnings necessary to establish an ~~allowance for loan and lease losses~~ALLL that, in management’s evaluation, should be adequate to provide coverage for probable losses incurred in the loan portfolio. The allowance is increased by the provision for loan losses and is decreased by charge-offs, net of recoveries on prior loan charge-offs.

The provision for loan losses was ~~$136~~$5,055 and ~~$590~~$573 for the three months ended ~~September 30,~~March 31, 2019 and 2018, ~~and 2017, respectively, and $1,279 and $3,018 for the nine months ended September 30, 2018 and 2017,~~ respectively. The ~~lower~~higher provision for the three ~~and nine~~ months ended ~~September 30, 2018~~March 31, 2019 compared to the same ~~periods~~period in ~~2017~~2018 is based on the Company’s analysis of its ~~allowance for loan losses~~ALLL which, based on the loan portfolio’s risk profile driven primarily by a specific reserve of $3,455 related to a SNC relationship, and comparatively ~~less~~higher loan growth, resulted in ~~less~~more provision being recorded. Nonperforming loans at ~~September 30, 2018~~March 31, 2019 totaled ~~$3,972~~$11,904 compared to ~~$3,042~~$5,696 at December 31, ~~2017,~~2018, representing ~~0.16%~~0.42% and ~~0.14%~~0.22% of total loans for the respective periods.

Non-interest income for the three ~~and nine~~ months ended ~~September 30, 2018~~March 31, 2019 was ~~$3,442 and $11,045, respectively,~~$3,486 compared to ~~$3,569 and $11,457~~$3,456 for the same ~~periods~~period in ~~2017, respectively.~~2018. The following is a summary of the components of non-interest income (in thousands):

	Three Months Ended September 30,						$ Increase			% Increase			Three Months Ended March 31,					$ Increase			% Increase
	2018			2017			(Decrease)			(Decrease)			2019			2018		(Decrease)			(Decrease)
Service charges on deposit accounts	$	58		$	39		$	19			48.7	%	$	74		$	42	$	32			76.2	%
Other service charges and fees		747			787			(40	)		(5.1	%)		757			751		6			0.8
Net gains on sale of loans		1,379			1,517			(138	)		(9.1	%)
Mortgage banking revenue														1,672			1,549		123			7.9
Wealth management		705			643			62			9.6	%		627			704		(77	)		(10.9	)
Loan servicing fees, net		111			70			41			58.6	%
Gain on sales of investment securities, net		(1	)		350			(351	)		(100.3	%)
Net gain on foreclosed assets		3			(16	)		19			(118.8	%)
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														4			3		1			33.3
Other		440			179			261			145.8	%		420			398		22			5.5
Total non-interest income	$	3,442		$	3,569		$	(127	)		(3.6	%)	$	3,486		$	3,456	$	30			0.9	%

~~Net gain on sale of loans decreased $138 and $1,159~~Mortgage banking revenue increased $123 for the three ~~and nine~~ months ended ~~September 30, 2018, respectively, when compared to the three and nine months ended September 30, 2017.~~March 31, 2019. The ~~decrease~~increase was due to the volume of mortgage loans originated, the sales related to those loans, and ~~less~~more favorable market rates in ~~2018,~~2019, which resulted in ~~less~~ favorable fair value adjustments on mortgage derivatives.

~~Wealth management income for the three and nine months ended September 30, 2018 increased $62 and $314, or 9.6% and 16.7%, respectively,~~

The decrease in comparison with the same periods in 2017. The increase was attributed to the growth in the client base and assets under management in the wealth management division, as well as improvement in the stock markets. As a comparison, the Company had assets under management at September 30, 2018 and 2017 of $403,456 and $351,932, respectively.

~~Net~~(loss) gain on sale of ~~investment securities decreased $351 and $470, or 100.3% and 100.0%, for~~loans is attributable to the sale of a Shared National Credit relationship during the three ~~and nine~~ months ended ~~September 30, 2018, respectively, when comparing with the same periods in 2017. The decreases were primarily due to the gains on securities that were recognized in 2017.~~March 31, 2019.

Other non-interest income increased by $261 and $720, or 145.8% and 130.0%, respectively, when comparing the three and nine months ended September 30, 2018 with the same periods 2017. The increase for the three and nine months ended September 30, 2018 is primarily attributed to the increase in bank-owned life insurance (“BOLI”) income of $238 and $690, respectively.

Non-interest expense for the three ~~and nine~~ months ended ~~September 30, 2018~~March 31, 2019 was ~~$18,251 and $51,789, respectively,~~$22,616 compared to ~~$15,278 and $44,837~~$15,488 for the same ~~periods~~period in ~~2017, respectively.~~2018. The increases were the result of the following components listed in the table below (in thousands):

	Three Months Ended September 30,				$ Increase (Decrease)		% Increase (Decrease)			Three Months Ended March 31,				$ Increase		% Increase
	2018		2017							2019		2018
Salaries and employee benefits	$	10,723	$	9,011	$	1,712		19.0	%	$	14,743	$	9,188	$	5,555		60.5	%
Occupancy and equipment		2,933		2,399		534		22.3	%		3,113		2,594		519		20.0
FDIC assessment expense		1,020		900		120		13.3	%		990		660		330		50.0
Marketing		306		192		114		59.4	%		319		280		39		13.9
Professional fees		1,023		821		202		24.6	%		923		869		54		6.2
Amortization of core deposit intangible		169		115		54		47.0	%		145		104		41		39.4
Other		2,077		1,840		237		12.9	%		2,383		1,793		590		32.9
Total non-interest expense	$	18,251	$	15,278	$	2,973		19.5	%	$	22,616	$	15,488	$	7,128		46.0	%

The increase in non-interest expense noted in the table above is related to the Company’s overall growth. The Company’s largest increases for the three ~~and nine~~ months ended ~~September 30, 2018,~~March 31, 2019, in comparison with the same periods of ~~2017,~~2018, were in salaries and employee benefits, occupancy and equipment, professional fees, and other non-interest expense.

Salaries and employee benefits increased ~~$1,712 and $4,007,~~$5,555, or ~~19.0% and 15.3%~~60.5%, ~~respectively,~~ when comparing the three ~~and nine~~ months ended ~~September 30, 2018~~March 31, 2019 with the same ~~periods~~period in ~~2017.~~2018. The ~~increases in both periods are~~increase is primarily due to the Company’s staffing growth, during which the Company went from 279 full-time equivalent employees as of September 30, 2017, to 327 as of September 30, 2018, many of which were officer level positions as the Company has worked to enhance its management team to properly oversee the Company’s growth. Stock-based$4,143 in post employment and retirement expenses. In addition, stock-based compensation expense ~~also~~ increased ~~$641 and $1,485, respectively,~~$569 for the three ~~and nine~~ months ended ~~September 30, 2018~~March 31, 2019 in comparison with the same ~~periods~~period in ~~2017.~~2018.

Occupancy and equipment expense increased ~~$534 and $1,723,~~$519, or ~~22.3% and 25.8%~~20.0%, ~~respectively,~~ when comparing the three ~~and nine~~ months ended ~~September 30, 2018~~March 31, 2019 with the same ~~periods~~period in ~~2017.~~2018. The variance for the three months ended ~~September 30, 2018~~March 31, 2019 versus the three months ended ~~September 30, 2017~~March 31, 2018 is primarily attributable to increases in building rent expense ~~($183) and~~of $158, software maintenance fees ($153). The variance when comparing the nine months ended September 30, 2018 with the nine months ended September 30, 2017 is attributable to increases in building rent expense ($682), software maintenance fees ($497)of $244, and other furniture, fixture & equipment expense ~~($153).~~$60.

The Company’s FDIC assessment expense increased ~~$120 and decreased $217,~~$330, or ~~13.3% and 8.1%~~50.0%, ~~respectively,~~ when comparing the three ~~and nine~~ months ended ~~September 30, 2018~~March 31, 2019 with the same ~~periods~~period in ~~2017.~~2018. The increase in comparing the three months ended ~~September 30,~~March 31, 2019 to March 31, 2018 ~~to September 30, 2017~~ is due to asset ~~growth and the decrease over the nine months is due to improvements in regulatory standing.~~growth.

Professional fees increased ~~$202 and $696,~~$54, or ~~24.6% and 27.2%~~6.2%, ~~respectively,~~ when comparing the three ~~and nine~~ months ended ~~September 30, 2018~~March 31, 2019 with the same ~~periods~~period in ~~2017.~~2018. The increase when comparing the three months ended ~~September 30, 2018~~March 31, 2019 with the same period in ~~2017~~2018 is due to increases in other professional fees ~~($133)~~$9 and legal fees ($49). The increase, when comparing the nine months ended September 30, 2018 and 2017, is due to increases in merger-related expenses ($379), other professional fees ($185), legal fees ($90) and accounting and auditing fees ($71).$86.

For the three ~~and nine~~ months ended ~~September 30, 2018,~~March 31, 2019, other non-interest expense increased ~~$237 and $540,~~$590, or ~~12.9% and 9.6%~~32.9%, ~~respectively,~~ when compared to the three ~~and nine~~ months ended ~~September 30, 2017.~~March 31, 2018. The increase in other non-interest expense for the ~~nine~~three months ended ~~September 30,~~March 31, 2019 versus March 31, 2018 ~~versus September 30, 2017~~ is attributed to increases in several types of expenses, but the following expense types represent the largest variances: director fees of ~~$80; loan legal expenses~~$44 and ATM Network Expense of ~~$77 and internet bill pay of $76.~~$69.

The Company recognized income tax expense for the three ~~and nine~~ months ended ~~September 30, 2018,~~March 31, 2019 of ~~$1,068 and $5,790, respectively,~~$334, compared to ~~$3,138 and $10,343, respectively,~~$2,459 for the three ~~and nine~~ months ended ~~September 30, 2017.~~March 31, 2018. The Company’s ~~year-to-date~~quarter-to-date income tax expense for the period ended ~~September 30, 2018~~March 31, 2019 reflects an effective income tax rate of ~~15.8%~~10.3%, which is a significant decrease compared to ~~28.7%~~19.7% for the same period in ~~2017~~2018 resulting from the ~~positive impact of the Tax Cuts and Jobs Act enacted~~Company’s participation in ~~December 2017 and the Company’s investment in~~Tennessee’s Community Investment Tax Credit (CITC) ~~qualified securities~~program and ~~loans that offer state tax credits in exchange for accepting less than market yields~~due to the current quarter’s $4.1 million related to post employment and retirement expenses, along with $3.5 million related to a specific loan loss provision on ~~projects to build low income housing.~~a shared national credit (SNC).

COMPARISON OF BALANCE SHEETS AT ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017~~2018

The Company’s total assets ~~increased~~decreased by ~~$324,287,~~$11,003, or ~~8.4%~~0.3%, from December 31, ~~2017~~2018 to ~~September 30, 2018.~~March 31, 2019. The ~~increase~~decrease in total assets has primarily been the result of the continued balance sheet rotation and optimization strategies and the planned sales of investment securities during the three months ended March 31, 2019 offset by organic growth in the loan ~~portfolio and from purchases of additional investment securities and the Civic acquisition, which closed on April 1, 2018.~~portfolio.

Lending-related income is the most important component of the Company’s net interest income and is a major contributor to profitability. The loan portfolio is the largest component of earning assets, and therefore generates the largest portion of revenues. For purposes of the discussion in this section, the term “loans” refers to loans, excluding loans held for sale, unless otherwise noted.

The absolute volume of loans and the volume of loans as a percentage of earning assets is an important determinant of net interest margin as loans are expected to produce higher yields than securities and other earning assets. Total loans, net of deferred fees, at ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017~~2018 were ~~$2,550,121~~$2,807,377 and ~~$2,256,608,~~$2,665,399, respectively, an increase of ~~$293,513,~~$141,978, or ~~13.0%~~5.3%. As a percentage of total assets, total loans, net of deferred fees, at ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017~~2018 were ~~61.2%~~66.2% and ~~58.7%~~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.

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

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

Total gross loans increased ~~13.0%~~5.3% during the first ~~nine~~three months ended ~~September 30, 2018,~~March 31, 2019, due to organic growth as a result of continued market penetration and the strength of the local ~~economies, and also due to the Civic acquisition.~~economies. During this period, the Company experienced growth in real estate loans of ~~15.7%~~4.8% with growth occurring in the residential real estate ~~(14.1%),~~1.7% and commercial real estate ~~(14.7%) and construction and land development (18.8%)~~11.4% segments. The Company also experienced ~~a slight~~an increase of ~~3.7%~~7.5% in the commercial and industrial segment during the ~~nine~~three months ended ~~September 30, 2018.~~March 31, 2019.

Real estate loans, including ~~$83~~$74 of PCI loans, comprised ~~79.3%~~77.2% of the loan portfolio at ~~September 30, 2018.~~March 31, 2019. The largest portion of the real estate segments as of ~~September 30, 2018,~~March 31, 2019, was commercial real estate loans, which totaled ~~38.4%~~41.2% of real estate loans. Commercial real estate loans totaled ~~$777,989~~$893,490 at ~~September 30, 2018,~~March 31, 2019, and comprised ~~30.5%~~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 other properties.

Construction and land development loans totaled ~~$587,736~~$581,340 at ~~September 30, 2018,~~March 31, 2019, and comprised ~~29.0%~~26.8% of total real estate loans and ~~23.0%~~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.

The residential real estate classification primarily includes 1-4 family residential loans which are typically conventional first-lien home mortgages, not including loans held-for-sale in the secondary market, and it also includes home equity lines of credit and other junior lien mortgage loans. Residential real estate loans totaled ~~$658,755~~$694,264 and comprised ~~32.5%~~32.0% of real estate loans and ~~25.8%~~24.7% of total loans at ~~September 30, 2018.~~March 31, 2019.

Commercial and industrial loans totaled ~~$522,667~~$637,363 at ~~September 30, 2018~~March 31, 2019 which includes ~~$1,940~~$1,946 of PCI loans. Loans in this classification comprised ~~20.5%~~22.7% of total loans at ~~September 30, 2018.~~March 31, 2019. The commercial and industrial classification consists of commercial loans to small-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 ~~September 30, 2018,~~March 31, 2019, excluding unearned net fees and costs.

	September 30, 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	$	330,581	$	153,372	$	103,783	$	587,736	$	300,870	$	146,717	$	133,753	$	581,340
Commercial		40,305		241,073		496,611		777,989		52,879		258,502		582,109		893,490
Residential		42,556		142,456		473,743		658,755		43,045		164,953		486,266		694,264
Commercial and industrial		67,167		372,073		83,427		522,667		75,135		395,320		166,908		637,363
Consumer and other		1,958		3,232		349		5,539		1,712		2,407		329		4,448
Total	$	482,567	$	912,206	$	1,157,913	$	2,552,686	$	473,641	$	967,899	$	1,369,365	$	2,810,905
Fixed interest rate	$	135,905	$	405,588	$	599,692	$	1,141,185	$	142,237	$	377,726	$	420,834	$	940,797
Variable interest rate		346,662		506,618		558,221		1,411,501		331,404		590,173		948,531		1,870,108
Total	$	482,567	$	912,206	$	1,157,913	$	2,552,686	$	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.

The Company maintains an ~~allowance for loan losses~~ALLL that management believes is adequate to absorb the probable incurred losses inherent in the Company’s loan portfolio. The allowance is increased by provisions for loan losses charged to earnings and is decreased by loan charge-offs net of recoveries of prior period loan charge-offs. The level of the allowance is determined on a quarterly basis, although management is engaged in monitoring the adequacy of the allowance on a more frequent basis. In estimating the allowance balance, the following factors are considered:

The ~~allowance for loan losses~~ALLL consists of two primary components: (1) a specific component which relates to loans that are individually classified as impaired and (2) a general component which covers non-impaired loans and is based on historical loss experience adjusted for current factors. The historical loss experience is determined by portfolio segment and is based on a combination of the Company’s loss history and loss history from peer group data over the past three years. This actual loss experience is supplemented with other economic factors based on the risks present for each portfolio segment.

The following loan portfolio segments have been identified: (1) Construction and land development loans, (2) Commercial real estate loans, (3) Residential real estate loans, (4) Commercial and industrial loans and (5) Consumer and other loans. Management evaluates the risks associated with these segments based upon specific characteristics associated with the loan segments. These risk characteristics include, but are not limited to, the value of the underlying collateral, adverse economic conditions and the borrower’s cash flow. While the total allowance consists of a specific portion and a general portion, both portions of the allowance are available to provide for probable incurred loan losses in the entire portfolio.

In the table below, the components, as discussed above, of the ~~allowance for loan losses~~ALLL are shown at ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017.~~2018.

	September 30, 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	$	2,436,737	$	22,187		0.91	%	$	2,201,515	$	20,358		0.92	%	$	235,222		$	1,829		(1) 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)		110,622		269		0.24			50,522		10		0.02	%		60,100			259		22 bps			82,701		169		0.20			91,344		185		0.20			(8,643	)		(16	)	0 bps
Impaired loans		3,304		23		0.70			4,141		879		21.23	%		(837	)		(856	)	(2053) bps			11,521		3,455		29.99			5,654		17		0.30			5,867			3,438		2969 bps
Non-PCI loans		2,550,663		22,479		0.88			2,256,178		21,247		0.94	%		294,485			1,232		(6) bps			2,808,885		27,857		0.99			2,665,928		23,451		0.88			142,957			4,406		11 bps
PCI loans		2,023		—		—			2,393		—		—			(370	)		—			—		2,020		—		—			2,015		—		—			5			—			—
Total loans	$	2,552,686	$	22,479		0.88	%	$	2,258,571	$	21,247		0.94	%	$	294,115		$	1,232		(6) bps		$	2,810,905	$	27,857		0.99	%	$	2,667,943	$	23,451		0.88	%	$	142,962		$	4,406		11 bps

~~Note 1:~~⁽¹⁾ Loans acquired are performing loans recorded at estimated fair value at the acquisition date. Based on the analysis performed by management as of ~~September 30, 2018, $269~~March 31, 2019, $169 in ~~allowance for loan loss~~ALLL was recorded at ~~September 30, 2018~~March 31, 2019 related to the loans acquired and not otherwise considered PCI.

At ~~September 30, 2018,~~March 31, 2019, the ~~allowance for loan losses~~ALLL was ~~$22,479,~~$27,857, compared to ~~$21,247~~$23,451 at December 31, ~~2017.~~2018. The ~~allowance for loan losses~~ALLL as a percentage of total loans was ~~0.88%~~0.99% at ~~September 30, 2018~~March 31, 2019 and ~~0.94%~~0.88% at December 31, ~~2017. Loan~~2018. The Company’s loan growth and management’s evaluation of the risk profile, combined with recent developments in one SNC relationship during the ~~nine months~~first quarter of ~~2018 is~~2019 are the primary ~~reason~~reasons for the ~~dollar~~ increase in the allowance amount.

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

While no portion of the allowance is in any way restricted to any individual loan or group of loans, and the entire allowance is available to absorb losses from any and all loans, the following table summarizes the allocation of ~~allowance for loan losses~~ALLL by loan category and loans in each category as a percentage of total loans, for the periods presented.

	September 30, 2018					December 31, 2017					March 31, 2019					December 31, 2018
	Amount		% of Loan Segment to Total Loans			Amount		% of Loan Segment to Total Loans			Amount		% of Loan Segment to Total Loans			Amount		% of Loan Segment to Total Loans
Real estate loans:
Construction and land development	$	4,785		23.0	%	$	3,802		21.9	%	$	4,680		20.7	%	$	4,743		21.9	%
Commercial		6,145		30.5			5,981		30.0			7,118		31.8			6,725		30.1
Residential		4,508		25.8			3,834		25.6			4,726		24.7			4,743		25.6
Total real estate		15,438		79.3			13,617		77.5			16,524		77.2			16,211		77.6
Commercial and industrial		6,989		20.5			7,587		22.3			11,283		22.6			7,166		22.2
Consumer and other		52		0.2			43		0.2			50		0.2			74		0.2
	$	22,479		100.0	%	$	21,247		100.0	%	$	27,857		100.0	%	$	23,451		100.0	%

Non-performing loans consist of non-accrual loans and loans that are past due 90 days or more and still accruing interest. Non-performing assets consist of non-performing loans plus ~~foreclosed and repossessed assets~~OREO (i.e., real estate acquired through foreclosure or deed in lieu of foreclosure). Loans ~~that become~~are placed on non-accrual status when they are past due 90 days ~~are reviewed to determine if they should be placed on non-accrual status. Loans where,~~and / or management believes the borrower’s financial condition, after giving consideration to economic conditions ~~collateral value,~~ and collection efforts, ~~the full~~is such that collection of ~~principal and~~ interest is ~~in doubt, or a portion of principal has been charged off, will be placed on non-accrual.~~doubtful. When a loan is placed on non-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 of non-performing loans is non-accrual loans, which as of ~~September 30, 2018~~March 31, 2019 totaled ~~$3,407.~~$11,724. The other component of non-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 on non-accrual status, unless they are both well-secured and in the process of collection. ~~There were outstanding loans totaling $565 that were past due 90 days or more and still accruing interest at September 30, 2018.~~

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

	September 30, 2018			December 31, 2017			March 31, 2019			December 31, 2018
Non-accrual loans	$	3,407		$	2,837		$	11,724		$	5,488
Past due loans 90 days or more and still accruing interest		565			205			180			208
Total non-performing loans		3,972			3,042			11,904			5,696
Foreclosed assets		1,853			1,503
Foreclosed real estate and repossessed assets								-			-
Total non-performing assets		5,825			4,545			11,904			5,696
Total non-performing loans as a percentage of total loans		0.16	%		0.13	%		0.42	%		0.21	%
Total non-performing assets as a percentage of total assets		0.14	%		0.12	%		0.28	%		0.13	%
Allowance for loan losses as a percentage of non-performing loans		566	%		698	%		234	%		412	%

As of ~~September 30, 2018,~~March 31, 2019, there were ~~eight~~13 loans on non-accrual status. The amount and number are further delineated by collateral segment and number of loans in the table below.

	Total Amount		Percentage of Total Loans			Number of Non-Accrual Loans		Total Amount		Percentage of Total Non-Accrual Loans			Number of Non-Accrual Loans
Construction & land development	$	548		0.1	%		1	$	583		5.0	%		1
Commercial real estate		—		—			—		153		1.3			1
Residential real estate		2,767		0.4			4		1,811		15.4			6
Commercial & industrial		92		0.0			3		9,177		78.3			5
Consumer		—		—			—		—		—			—
Total non-accrual loans	$	3,407		0.1	%		8	$	11,724		100.0	%		13

The investment securities portfolio is intended to provide the Company with adequate liquidity and a source of stable income. The portfolio is structured with minimal credit exposure to the Company and consists of both securities classified as available-for-sale and securities classified as held-to-maturity. All available-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. Securities available-for-sale, consisting primarily of U.S. government sponsored enterprises and mortgage-backed securities, ~~were $1,115,187~~totaled $799,301 at ~~September 30, 2018,~~March 31, 2019, compared to ~~$999,881~~$1,030,668 at December 31, ~~2017, an increase~~2018, a decrease of ~~$115,306,~~$231,367, or ~~11.5%~~22.4%. The ~~increase~~decrease in available-for-sale securities was primarily attributed to security ~~purchases~~sales during the first ~~nine~~three months of ~~2018.~~2019.

Held-to-maturity securities are carried at amortized cost. This portfolio, consisting of U.S. government sponsored enterprises, mortgage-backed securities and municipal securities, totaled ~~$204,587~~$118,831 at ~~September 30, 2018,~~March 31, 2019, compared to ~~$214,856~~$121,617 at December 31, ~~2017,~~2018, a decrease of ~~$10,269,~~$2,786, or ~~4.8%~~2.3%. The decrease is attributable to securities that matured or had principal pay downs during the first ~~nine~~three months of ~~2018.~~2019.

The combined securities portfolios represented ~~31.7%~~21.7% and ~~31.6%~~27.1% of total assets at ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, respectively. At ~~September 30, 2018,~~March 31, 2019, the Company had no securities that were classified as having other than temporary impairment.

The Company also had other investments of ~~$21,793~~$22,803 and ~~$18,492~~$21,831 at ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, respectively, primarily consisting of capital stock in the Federal Reserve and the Federal Home Loan Bank (required as members of the Federal Reserve Bank System (FRB) and the Federal Home Loan Bank ~~System)~~System (FHLB)). The ~~Federal Home Loan Bank~~FHLB and ~~Federal Reserve~~FRB investments are “restricted” in that they can only be sold back to the respective institutions or another member institution at par, and are thus, not liquid, have no ready market or quoted market value, and are carried at cost.

Bank premises and equipment totaled ~~$11,852~~$12,682 at ~~September 30, 2018~~March 31, 2019 compared to ~~$11,281~~$12,371 at December 31, ~~2017,~~2018, an increase of ~~$571,~~$311, or ~~5.1%~~2.5%. ~~This~~The increase ~~was~~is primarily ~~the result~~attributed to an increase of ~~adding~~$389 in leasehold improvements ~~and furniture and equipment as part~~net of depreciation related to several of the ~~Civic acquisition, which closed on April 1, 2018.~~Company’s locations.

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 of non-deposit investment alternatives available to depositors, such as mutual funds, money market funds, annuities, and other brokerage investment products. Challenges to deposit growth include price changes on deposit products given movements in the rate environment and other competitive pricing pressures, and customer preferences regarding higher-costing deposit products or non-deposit investment alternatives.

At ~~September 30, 2018,~~March 31, 2019, total deposits were ~~$3,371,550,~~$3,315,844, an increase of ~~$204,322,~~$115,963, or ~~6.5%~~3.4%, compared to ~~$3,167,228~~$3,431,807 at December 31, ~~2017. The growth in deposits is attributable to growth in time deposits and noninterest-bearing deposits.~~

2018. Included in the Company’s funding strategy are brokered deposits, public funds deposits and reciprocal deposits. Total brokered deposits ~~increased from $779,886~~decreased $79,112, or 9.9%, to $718,683 at March 31, 2019, when compared with $797,795 at December 31, ~~2017~~2018, which reflects the Company’s strategy to ~~$887,113~~reduce its dependence on non-core funding. Public funds deposits decreased $153,904, or 19.7%, to $628,985 at ~~September 30,~~March 31, 2019 when compared with $782,889 at December 31, 2018 due to the ~~increased need for funding for the Bank’s loan growth and due~~Company’s strategy to ~~certain brokered deposits that are interest-bearing checking and money market accounts that can fluctuate daily.~~

~~Public funds deposits in the form of local county deposits are a part~~redirect some of the Company’s ~~funding strategy and are seasonal in nature, with~~local government customers into the ~~peak of~~reciprocal account relationships, thereby decreasing the Company’s requirements to collateralize those ~~deposit balances occurring during the middle of the first quarter of each calendar year. Public~~public funds ~~declined $234,689,~~deposits. As a result, reciprocal deposits increased $122,509, or ~~23.4%~~39.2%, ~~from $1,002,584~~to $435,191 at ~~December~~March 31, ~~2017 to $767,895 at September 30, 2018 due to expected seasonal fluctuations in county deposits that repeat each year.~~2019.

Time deposits, excluding brokered deposits and public funds, as of ~~September 30, 2018,~~March 31, 2019, amounted to ~~$814,806,~~$412,650, compared to ~~$675,150~~$532,445 as of December 31, ~~2017, an increase~~2018, a decrease of ~~$139,656,~~$119,795, or 20.7%, much of which is attributable to the Civic acquisition on April 1, 2018 and new legislation that reclassified reciprocal deposits from brokered deposits to non-brokered deposits. Non-public funds money market accounts, excluding brokered deposits, increased $61,427, or 12.9%, from December 31, 2017 to September 30, 2018. Noninterest-bearing checking deposits grew $35,489, or 12.4%, and non-public funds interest checking accounts, excluding brokered deposits, grew $74,231, or 53.4%, respectively, when comparing deposit balances from September 30, 2018 with balances at December 31, 2017, much of which is attributable to the Civic acquisition on April 1, 2018 and new legislation that reclassified reciprocal deposits from brokered deposits to non-brokered deposits.22.5%.

The following table shows time deposits in denominations of $100 or more based on time remaining until maturity:

	September 30, 2018		March 31, 2019
Three months or less	$	296,343	$	178,399
Three through six months		101,916		74,839
Six through twelve months		152,985		58,875
Over twelve months		144,647		150,667
Total	$	695,891	$	462,780

The Company had no federal funds purchased from correspondent banks or repurchase agreements as of ~~September 30, 2018~~March 31, 2019 and December 31, 2017. Securities sold under agreements to repurchase had an outstanding balance of $0 as of September 30, 2018, compared to $31,004 as of 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.

The Company has established a line of credit with the ~~Federal Home Bank~~FHLB of Cincinnati which is secured by a blanket pledge of 1-4 family residential mortgages and home equity lines of credit. At ~~September 30, 2018~~March 31, 2019 and at December 31, ~~2017,~~2018, advances totaled ~~$371,500~~$416,500 and ~~$272,000,~~$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		48,000		2.18	%
2019		268,500		2.21	%	$	261,500		2.30	%
2020		55,000		1.72	%		155,000		2.41	%
Total	$	371,500		2.13	%	$	416,500		2.34	%

At ~~September 30, 2018,~~March 31, 2019, the Company’s subordinated notes, net of issuance costs, totaled ~~$58,649,~~$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 11 of the consolidated financial statements.

Liquidity is defined as the ability to meet anticipated customer demands for funds under credit commitments and deposit withdrawals at a reasonable cost and on a timely basis.

Liquidity risk involves the risk of being unable to fund assets with the appropriate duration and rate-based liabilities, as well as the risk of not being able to meet unexpected cash needs. Liquidity planning and management are necessary to ensure the ability to fund operations cost-effectively and to meet current and future potential obligations such as loan commitments, lease obligations, and unexpected deposit outflows. In this process, management focuses on both assets and liabilities and on the manner in which they combine to provide adequate liquidity to meet the Company’s needs. Our source of funds to pay interest on our ~~subordinated notes~~March 2016 Subordinated Notes and June 2016 Subordinated Notes is generally in the form of a dividend from the Bank to the Company, or those payments may be serviced from cash balances held by the Company. Under the terms of the informal agreement with the Federal Reserve Bank of Atlanta (the “Reserve Bank”) and the Tennessee Department of Financial Institutions (“TDFI”), described in “Other Events” in Management’s Discussion and Analysis and in “ITEM 1A. RISK FACTORS,” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, the Bank is required to receive prior written approval from its regulatory agenciesThe Bank’s ability to pay ~~dividends~~a dividend may be restricted due to regulatory requirements as well as the ~~Company.~~Bank’s future earnings and capital needs.

Funds are available from a number of basic banking activity sources including the core deposit base, the repayment and maturity of loans, payments of principal and interest as well as sales of investments classified as available-for-sale, and sales of brokered deposits. As of ~~September 30, 2018, $1,115,187~~March 31, 2019, $799,301 of the investment securities portfolio was classified as available-for-sale and is reported at fair value on the consolidated balance sheet. Another ~~$204,587~~$118,831 of the portfolio was classified as held-to-maturity and is reported at amortized cost. Approximately ~~$967,505~~$711,826 of the total ~~$1,115,187~~$918,132 investment securities portfolio on hand at ~~September 30, 2018,~~March 31, 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.

As of ~~September 30, 2018,~~March 31, 2019, the Company’s equity was ~~$356,177,~~$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 ~~$30,762~~$2,901 in the first ~~nine months~~quarter of ~~2018,~~2019, the increase in common stock of ~~$38,958, of which $33,174 was the result of common stock issued as part of the Civic acquisition,~~$1,853, offset by the ~~$18,196~~$8,754 decrease in the valuation of available-for-sale securities.

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.

The Company generally does not have any off-balance sheet arrangements other than approved and unfunded loans and lines and letters of credit to customers in the ordinary course of business. At ~~September 30, 2018,~~March 31, 2019, the Company had unfunded loan commitments outstanding of ~~$38,140,~~$49,565, unused lines of credit of ~~$653,192,~~$751,601, and outstanding standby letters of credit of ~~$33,398.~~$40,461.

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 these non-GAAP financial measures in its analysis of our performance:

We believe these non-GAAP financial measures provide useful information to management and investors that is supplementary to our financial condition, results of operations and cash flows computed in accordance with GAAP; however, we acknowledge that our non-GAAP financial measures have a number of limitations. As such, you should not view these disclosures as a substitute for results determined in accordance with GAAP, and they are not necessarily comparable to non-GAAP financial measures that other companies use.

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

	As of or for the Three Months Ended															As of or for the Three Months Ended
(Amounts in thousands, except share/per share data and percentages)	September 30, 2018			June 30, 2018			Mar 31, 2018			Dec 31, 2017			Sept 30, 2017			March 31, 2019			December 31, 2018			Sept 30, 2018			June 30, 2018			Mar 31, 2018
Total shareholders’ equity	$	356,074		$	348,059		$	304,762		$	304,550		$	303,594		$	383,421		$	372,740		$	356,074		$	348,059		$	304,762
Less: Preferred stock		—			—			—			—			—			—			—			—			—			—
Total common shareholders’ equity		356,074			348,059			304,762			304,550			303,594			383,421			372,740			356,074			348,059			304,762
Common shares outstanding		14,525,351			14,480,240			13,258,142			13,237,128			13,209,055			14,574,339			14,538,085			14,525,351			14,480,240			13,258,142
Book value per share	$	24.51		$	24.04		$	22.99		$	23.01		$	22.98		$	26.31		$	25.64		$	24.51		$	24.04		$	22.99
Total common shareholders’ equity		356,074			348,059			304,762			304,550			303,594			383,421			372,740			356,074			348,059			304,762
Less: Goodwill and other intangible assets		19,327			19,499			10,074			10,181			10,294			19,020			19,128			19,327			19,499			10,074
Tangible common shareholders’ equity	$	336,747		$	328,560		$	294,688		$	294,369		$	293,300		$	364,401		$	353,612		$	336,747		$	328,560		$	294,688
Common shares outstanding		14,525,351			14,480,240			13,258,142			13,237,128			13,209,055			14,574,339			14,538,085			14,525,351			14,480,240			13,258,142
Tangible book value per share	$	23.18		$	22.69		$	22.23		$	22.24		$	22.20		$	25.00		$	24.32		$	23.18		$	22.69		$	22.23
Average total common equity		351,293		$	340,175		$	299,840		$	304,847		$	298,088			377,116			299,840			351,293			340,175			299,840
Less: Average Preferred stock		—			—			—			—			—			—			—			—			—			—
Less: Average Goodwill and other intangible assets		19,433			19,860			10,136			10,247			10,321			19,109			19,268			19,433			19,860			10,136
Average tangible common shareholders’ equity	$	331,860		$	320,315		$	289,704		$	294,600		$	287,767		$	358,007		$	280,572		$	331,860		$	320,315		$	289,704
Net income available to common shareholders		10,549			10,161			10,052			2,394			8,889			2,901			3,743			10,549			10,161			10,052
Average tangible common equity		331,860			320,315			289,704			294,600			287,767			358,007			325,012			331,860			320,315			289,704
Return on average tangible common equity		12.61	%		12.72	%		14.07	%		3.22	%		12.26	%		3.3	%		4.6	%		12.6	%		12.7	%		14.1	%
Efficiency Ratio:
Net interest income	$	26,562		$	26,905		$	25,116		$	24,608		$	24,326		$	27,420		$	26,920		$	26,562		$	26,905		$	25,116
Noninterest income		3,442			4,147			3,456			3,264			3,569			3,486			(383	)		3,442			4,147			3,456
Operating revenue		30,004			31,052			28,572			27,872			27,895			30,906			26,537			30,004			31,052			28,572
Expense
Total noninterest expense		18,251			18,050			15,488			15,987			15,278			22,616			21,689			18,251			18,050			15,488
Efficiency ratio		60.83	%		58.13	%		54.21	%		57.36	%		54.77	%		73.2	%		81.7	%		60.8	%		58.1	%		54.2	%

	As of and for the three months ended												As of and for the three months ended
	Sept 30, 2018		Jun 30, 2018			Mar 31, 2018		Dec 31, 2017		Sept 30, 2017			Mar 31, 2019		Dec 31, 2018			Sep 30, 2018		Jun 30, 2018		Mar 31, 2018
Income Statement Data ($):
Interest income		43,717		42,136			38,047		35,121		33,780			47,523		46,046			43,717		42,136		38,047
Interest expense		17,155		15,231			12,931		10,513		9,454			20,103		19,125			17,155		15,231		12,931
Net interest income		26,562		26,905			25,116		24,608		24,326			27,420		26,921			26,562		26,905		25,116
Provision for loan losses		136		570			573		1,295		590			5,055		975			136		570		573
Noninterest income		3,442		4,147			3,456		3,264		3,569
Noninterest income (expense)														3,486		(384	)		3,442		4,147		3,456
Noninterest expense		18,251		18,050			15,488		15,987		15,278			22,616		21,689			18,251		18,050		15,488
Net income before taxes		11,617		12,432			12,511		10,590		12,027			3,235		3,873			11,617		12,432		12,511
Income tax expense		1,068		2,263			2,459		8,188		3,138			334		122			1,068		2,263		2,459
Net income		10,549		10,169			10,052		2,402		8,889			2,901		3,743			10,549		10,161		10,052
Earnings before interest and taxes		28,722		27,663			25,442		21,103		21,481			23,338		23,048			28,722		27,663		25,442
Net income available to common shareholders		10,549		10,161			10,052		2,394		8,889			2,901		3,743			10,549		10,161		10,052
Weighted average diluted common shares		15,077,291		14,981,440			13,766,394		13,767,949		13,773,539			14,804,830		14,821,540			14,903,751		14,814,059		13,672,384
Earnings per share, basic		0.73		0.71			0.76		0.18		0.67			0.20		0.26			0.73		0.71		0.76
Earnings per share, diluted		0.70		0.68			0.73		0.17		0.65			0.19		0.25			0.70		0.68		0.73
Dividend per share														0.04		—			—		—		—
Profitability (%)
Return on average assets		1.01		0.98			1.03		0.26		1.03			0.28		0.35			1.01		0.98		1.03
Return on average equity		11.91		11.99			13.60		3.13		11.83			3.1		4.1			11.9		12.0		13.6
Return on average tangible common equity⁽³⁾		12.61		12.72			14.07		3.22		12.26			3.3		4.6			12.6		12.7		14.1
Efficiency ratio⁽³⁾		60.83		58.13			54.21		57.36		54.77			73.2		81.7			60.8		58.1		54.2
Net interest margin⁽¹⁾		2.70		2.74			2.71		2.92		3.05			2.80		2.69			2.70		2.74		2.71
Balance Sheet Data ($):
Loans (including HFS)		2,564,684		2,488,862			2,322,889		2,268,632		2,127,753			2,829,107		2,676,502			2,564,684		2,488,862		2,322,889
Loan loss reserve		22,479		22,341			21,738		21,247		19,944			27,857		23,451			22,479		22,341		21,738
Cash		144,660		176,870			246,164		251,543		155,842			300,113		280,212			144,660		176,870		246,164
Securities		1,319,774		1,357,918			1,399,801		1,214,737		1,198,049			918,132		1,152,285			1,319,774		1,357,918		1,399,801
Goodwill		18,176		18,176			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)		1,151		1,323			950		1,057		1,170			844		952			1,151		1,323		950
Assets		4,167,813		4,165,238			4,083,663		3,843,526		3,565,278			4,238,436		4,249,439			4,167,813		4,165,238		4,083,663
Deposits		3,371,550		3,398,025			3,355,153		3,167,228		2,824,825			3,315,843		3,431,807			3,371,550		3,398,025		3,355,153
Liabilities		3,811,636		3,817,076			3,778,798		3,538,873		3,261,581			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		356,177		348,162			304,865		304,653		303,697			383,514		372,833			356,177		348,162		304,762
Common equity		356,074		348,059			304,762		304,550		303,594
Tangible common equity⁽³⁾		336,747		328,560			294,688		294,369		293,300			364,401		353,612			336,747		328,560		294,688
Asset Quality (%)
Nonperforming loans/ total loans⁽²⁾		0.16		0.14			0.15		0.13		0.14			0.42		0.21			0.16		0.14		0.15
Nonperforming assets / (total loans⁽²⁾+ foreclosed assets)		0.23		0.21			0.22		0.20		0.21			0.42		0.21			0.23		0.21		0.22
Loan loss reserve / total loans⁽²⁾		0.88		0.90			0.94		0.94		0.94			0.99		0.88			0.88		0.90		0.94
Net charge-offs (recoveries) / average loans		0.00		(0.01	)		0.01		0.00		(0.13	)		0.10		0.00			0.00		0.00		0.01
Capital (%)
Tangible common equity to tangible assets⁽³⁾		8.12		7.93			7.23		7.68		8.25			8.6		8.4			8.1		7.9		7.2
Leverage ratio		8.70		8.31			7.80		8.25		8.58			8.8		8.8			8.7		8.3		7.8
Common Equity Tier 1 ratio		12.24		12.14			11.45		11.37		11.58			11.3		12.2			12.2		12.1		11.5
Tier 1 risk-based capital ratio		12.24		12.14			11.45		11.37		11.58			11.3		12.2			12.2		12.1		11.5
Total risk-based capital ratio		15.02		14.98			14.42		14.40		14.68			14.0		14.9			15.0		15.0		14.4

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 date of the first sale of common equity securities under our Registration Statement on Form S-4, which was declared effective by the SEC on May 14, 2014; (2) the last day of the fiscal year in which we have $1.07 billion or more in annual revenues; (3) the date on which we are deemed to be a “large accelerated filer” under the Securities Exchange 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 in non-convertible debt securities. Management cannot predict if investors will find the Company’s common stock less attractive because it will rely on these exemptions. If some investors find the Company’s common stock less attractive as a result, there may be a less active trading market for its common stock and the Company’s stock price may be more volatile.

Further, the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective 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 to non-emerging growth companies but any such an election to opt out is irrevocable. The Company has elected to opt out of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, it adopts the new or revised standard at the time public companies adopt the new or revised standard. This election is irrevocable.

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 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 a 12-month time period ended ~~September 30, 2018,~~March 31, 2019, net interest income was estimated to decrease ~~1.09%~~1.40% and ~~2.50%~~3.63% if rates were to increase 100 basis points and 200 basis points, respectively, and was estimated to increase ~~0.89%~~0.84% and ~~0.65%~~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 ~~September 30, 2018.~~March 31, 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		106,162		687			0.65	%		110,455		2,783			2.58	%
-100		106,415		940			0.89	%		108,577		905			0.84	%
Base		105,475		—			0.00	%		107,672		—			0.00	%
+100		104,324		(1,151	)		(1.09	%)		106,162		(1,510	)		(1.40	%)
+200		102,839		(2,636	)		(2.50	%)		103,761		(3,911	)		(3.63	%)
+300		102,133		(3,342	)		(3.17	%)		101,128		(6,544	)		(6.08	%)
+400		100,376		(5,099	)		(4.83	%)		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.

(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 Rule 13a-15(e) under the Exchange Act) as of ~~September 30, 2018,~~March 31, 2019, the end of the fiscal quarter covered by this Quarterly Report on Form 10-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 Form 10-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 Form 10-K filed with the SEC on March ~~16, 2018.~~19, 2019.

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.

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.

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.

Tennessee	20-8839445
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

722 Columbia Avenue Franklin, Tennessee	37064
(Address of principal executive offices)	(Zip Code)


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

PART I FINANCIAL INFORMATION

Cautionary Note Regarding Forward-Looking Statements	1
Item 1. Consolidated Financial Statements (unaudited)	2
Consolidated Balance Sheets	2
Consolidated Statements of Income	3
Consolidated Statements of Comprehensive Income	4
Consolidated Statement of Changes in Shareholders’ Equity	5
Consolidated Statements of Cash Flows	6
Notes to Consolidated Financial Statements	7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
Item 3. Quantitative and Qualitative Disclosures About Market Risk	4947
Item 4. Controls and Procedures	4947

PART II OTHER INFORMATION

Item 1. Legal Proceedings	5048
Item 1A. Risk Factors	5048
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	5048
Item 3. Defaults Upon Senior Securities	5048
Item 4. Mine Safety Disclosures	5048
Item 5. Other Information	5048
Item 6. Exhibits	5049

SIGNATURES

	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Net income	$	10,549		$	8,889		$	30,770		$	25,697
Other comprehensive income, net of tax:
Unrealized gains on securities:
Unrealized holding gain (loss) arising during the period		(6,279	)		1,610			(24,625	)		7,641
Reclassification adjustment for gains included in net income		1			(350	)		—			(470	)
Net unrealized gains (losses)		(6,278	)		1,260			(24,625	)		7,171
Tax effect		1,639			(494	)		6,429			(2,812	)
Total other comprehensive income (loss)		(4,639	)		766			(18,196	)		4,359
Comprehensive income	$	5,910		$	9,655		$	12,574		$	30,056

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

Large accelerated filer	☐	Accelerated filer	☒

Non-accelerated filer	☐	Smaller reporting company	☐

		Emerging growth company	☒

Consideration:
Common stock issued to Civic shareholders	$	31,635
Fair value of stock options issued to Civic option holders		1,539
Fair value of total consideration	$	33,174
Recognized amounts of identifiable assets acquired and liabilities assumed:*
Cash and cash equivalents	$	24,660
Certificates of deposit at other financial institutions		500
Securities available for sale		31,734
Loans		96,385
Equity securities		876
Premises and equipment		253
Core deposit intangibles		558
Foreclosed assets		350
Other assets		5,285
Total assets acquired		160,601
Deposits		123,162
Federal Home Loan Bank advances		11,500
Other liabilities		1,817
Total liabilities assumed		136,479
Total net assets acquired		24,122
Goodwill	$	9,052

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

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%

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

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

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

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	%

	September 30, 2018		September 30, 2017
Stock warrants exercised:
Intrinsic value of warrants exercised	$	—	$	329
Cash received from warrants exercised		—		150

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

	Carrying Amount of the Hedged Assets (in thousands)		Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets
Line item on the balance sheet	March 31, 2019		March 31, 2019
Securities available-for-sale	$	116,634	$	1,118

	March 2016 Subordinated Notes	June 2016 Subordinated Notes
Principal amount issued	$40,000	$20,000
Maturity date	March 30, 2026	July 1, 2026
Initial fixed interest rate	6.875%	7.00%
Initial interest rate period	5 years	5 years
First interest rate change date	March 30, 2021	July 1, 2021
Interest payment frequency through year five*	Semiannually	Semiannually
Interest payment frequency after five years*	Quarterly	Quarterly
Interest repricing index and margin	3-month LIBOR plus 5.636%	3-month LIBOR plus 6.04%
Repricing frequency after five years	Quarterly	Quarterly

	Three Months Ended September 30,
	2018								2017
	Average Balance			Interest Inc / Exp		Average Yield / Rate			Average Balance			Interest Inc / Exp		Average Yield / Rate
ASSETS:
Loans⁽¹⁾⁽⁶⁾	$	2,528,604		$	34,457		5.41	%	$	2,049,575		$	26,006		5.03	%
Securities available for sale⁽⁶⁾		1,133,536			7,141		2.50	%		972,988			6,405		2.61	%
Securities held to maturity⁽⁶⁾		207,419			1,924		3.68	%		220,313			2,283		4.11	%
Restricted equity securities		21,067			313		5.89	%		17,396			269		6.13	%
Certificates of deposit at other financial institutions		3,113			16		2.04	%		2,412			9		1.48	%
Federal funds sold and other⁽²⁾		107,872			567		2.09	%		88,737			271		1.21	%
TOTAL INTEREST EARNING ASSETS	$	4,001,611		$	44,418		4.40	%	$	3,351,421		$	35,243		4.17	%
Allowance for loan and lease losses		(22,588	)							(18,891	)
All other assets		153,478								94,334
TOTAL ASSETS	$	4,132,501							$	3,426,864
LIABILITIES & EQUITY
Deposits:
Interest checking	$	790,733		$	3,406		1.71	%	$	552,502		$	1,285		0.92	%
Money market		736,157			3,489		1.88	%		604,416			1,703		1.12	%
Savings		46,589			34		0.29	%		54,921			42		0.30	%
Time deposits		1,466,903			7,208		1.95	%		1,259,452			4,281		1.35	%
Federal Home Loan Bank advances		351,228			1,867		2.11	%		289,228			968		1.33	%
Federal funds purchased and other⁽³⁾		12,805			69		2.14	%		37,374			92		0.98	%
Subordinated notes and other borrowings		58,622			1,082		7.32	%		58,444			1,083		7.35	%
TOTAL INTEREST BEARING LIABILITIES	$	3,463,037		$	17,155		1.97	%	$	2,856,337		$	9,454		1.31	%
Demand deposits		305,432								261,127
Other liabilities		12,739								11,312
Total equity		351,293								298,088
TOTAL LIABILITIES AND EQUITY	$	4,132,501							$	3,426,864
NET INTEREST SPREAD⁽⁴⁾							2.43	%							2.86	%
NET INTEREST INCOME				$	27,263							$	25,789
NET INTEREST MARGIN⁽⁵⁾							2.70	%							3.05	%

	Net change three months ended September 30, 2018 versus September 30, 2017
	Volume			Rate			Net Change
INTEREST INCOME
Loans	$	6,073		$	2,378		$	8,451
Securities available for sale		1,056			(320	)		736
Securities held to maturity		(134	)		(225	)		(359	)
Restricted equity securities		57			(13	)		44
Certificates of deposit at other financial institutions		3			4			7
Federal funds sold and other		58			238			296
TOTAL INTEREST INCOME	$	7,113		$	2,062		$	9,175
INTEREST EXPENSE
Deposits
Interest checking	$	552		$	1,569		$	2,121
Money market accounts		372			1,414			1,786
Savings		(7	)		(1	)		(8	)
Time deposits		706			2,221			2,927
Federal Home Loan Bank advances		208			691			899
Fed funds purchased and other borrowed funds		(61	)		38			(23	)
Subordinated Notes and other borrowings		3			(4	)		(1	)
TOTAL INTEREST EXPENSE	$	1,773		$	5,928		$	7,701
NET INTEREST INCOME	$	5,340		$	(3,866	)	$	1,474

	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

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

Exhibit No.	Description

10.1	Executive Transition Agreement dated March 8, 2019, between Franklin Financial Network, Inc., Franklin Synergy Bank, and Richard E. Herrington (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-k filed with the Securities and Exchange Commission on March 8, 2019).

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

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

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

10.5*	Commencement Agreement, by ~~reference to Exhibit 10.1 to the Company’s current report on Form 8-K filed with the Securities~~ and ~~Exchange Commission on August 30, 2018)~~between SS McEwen, LLC and Franklin Synergy Bank, dated January 1, 2019.

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

31.1*	Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) (Section 302 Certification).

31.2*	Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) (Section 302 Certification).

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

101*	Interactive Data Files.

	Franklin Financial Network, INC.

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