Strategic Balance Sheet Actions Continue to
Unlock Value of Core Bank
Net Interest Margin 2.98%, 14 Basis Points
Expansion from Previous Quarter
Earnings per Diluted Common Share of
$0.75
Announced Dividend Increase of 50% to $0.06
per Common Share
Franklin Financial Network, Inc. (the "Company") (NYSE: FSB),
parent company of Franklin Synergy Bank, reported net income of
$11.3 million, or $0.75 per diluted common share, for the
quarter-ended September 30, 2019, compared to $10.5 million, or
$0.70 per diluted common share, for the quarter-ended September 30,
2018.
Pre-tax pre-provision profit was $14.4 million, representing an
annualized increase of 46.8% from the second quarter of 2019 and a
22.9% increase from the third quarter of 2018. Core net income for
the quarter-ended September 30, 2019 was $10.9 million, or $0.72
per diluted common share, compared to $10.5 million, or $0.70 per
diluted common share, for the quarter-ended September 30, 2018.
Chief Executive Officer, J. Myers Jones, III, stated, "Our
Company’s strength continues to be our team, from our originators,
to our front-line branch folks and our support group, and I could
not be more proud of the attitude and excellence they show each and
every day. Their efforts drive the execution of our strategic
balance sheet actions that continue to unlock our core Bank’s
value, demonstrated this quarter by our improved financial
performance and focused deleveraging of non-core assets and
liabilities.”
Jones continued, “Accordingly, our focus on enhancing the
strength of our core balance sheet drove an $87 million reduction
in our Shared National Credit (SNC) portfolio, which now stands
near 5% of loans held for investment (HFI). Similarly, brokered
deposit balances decreased by $109 million and retail deposits
increased by $226 million during the quarter. We remain completely
focused on core customer deposit and loan initiatives and are
highly engaged in the execution of our strategic plan, with
particular emphasis on balancing profitability and growth.”
Key Highlights and Recent
Developments
- Net interest margin (tax-equivalent basis) improved to 2.98%,
an expansion of 14 basis points from last quarter and 28 basis
points year-over-year
- SNC reduction of $86.7 million to $144.5 million, or 5.2% of
loans HFI, which stands at the lowest concentration of loans HFI
since the second quarter of 2018
- Continued optimization and deleveraging of non-core balance
sheet with $221.7 million securities reduction to 16.0% of total
assets; securities have been reduced by $707.4 million since
September 30, 2018 when securities represented 31.7% of total
assets
- Retail & other deposit growth of $225.8 million, or 58.5%
annualized and 14.5% year-over-year; reduction of $109.7 million in
brokered deposits, or 33.6% year-over-year
- Tangible book value per share of $26.61, up 15.5% annualized
and 14.8% year-over-year
Performance Summary
Reported GAAP Results
Non-GAAP "Core"
Results(1)
(dollars in thousands, except share data
and %)
3Q 2019
2Q 2019
3Q 2018
3Q 2019
2Q 2019
3Q 2018
Net Interest Income
$
28,262
$
27,365
$
26,562
$
28,262
$
27,365
$
26,562
Net Interest Margin (FTE)(2)
2.98
%
2.84
%
2.70
%
2.98
%
2.84
%
2.70
%
Provision for Loan Losses
$
1,000
$
7,031
$
136
$
1,000
$
7,031
$
136
Net Charge-offs / Average Loans
0.27
%
1.04
%
0.00
%
0.27
%
1.04
%
0.00
%
Noninterest Income
$
4,793
$
4,923
$
3,442
$
5,065
$
4,923
$
3,442
Noninterest Expense
$
18,614
$
19,370
$
18,251
$
19,371
$
19,370
$
18,251
Efficiency Ratio
56.3
%
60.0
%
60.8
%
58.1
%
60.0
%
60.8
%
Pre-tax Income
$
13,441
$
5,887
$
11,617
$
12,956
$
5,887
$
11,617
Net Income available to common
shareholders
$
11,324
$
5,173
$
10,549
$
10,926
$
5,173
$
10,549
Pre-tax pre-provision profit
$
14,441
$
12,918
$
11,753
$
13,956
$
12,918
$
11,753
Diluted EPS
$
0.75
$
0.34
$
0.70
$
0.72
$
0.34
$
0.70
Effective Tax Rate
15.8
%
12.0
%
9.2
%
15.7
%
12.0
%
9.2
%
Weighted Average Diluted Shares
14,991,363
14,894,140
14,903,751
14,991,363
14,894,140
14,903,751
Actual Shares Outstanding
14,636,484
14,628,287
14,525,351
14,636,484
14,628,287
14,525,351
Return on Average:
Assets
1.12
%
0.51
%
1.01
%
1.08
%
0.51
%
1.01
%
Equity
11.3
%
5.3
%
11.9
%
10.9
%
5.3
%
11.9
%
Tangible Common Equity
11.8
%
5.6
%
12.6
%
11.4
%
5.6
%
12.6
%
(1)
Non-GAAP financial measures that adjust
GAAP reported net income and other metrics for certain income and
expense items. Excludes 3Q’19 nonrecurring Federal Deposit
Insurance Corporation (FDIC) assessment credit of $757, gain on
sales of securities of $1,493, and loss on sales of loans of
$1,765. See "GAAP reconciliation and use of non-GAAP financial
measures" below for a discussion and reconciliation of non-GAAP
financial measures.
(2)
Interest income and rates include the
effects of tax-equivalent adjustments to adjust tax-exempt interest
income on tax-exempt loans and investment securities to a fully
taxable basis (FTE).
Continued Focus on Reducing Non-Core
Assets and Liabilities
Driven by the expected reduction in SNCs and anticipated
construction loan paydowns, loans HFI decreased $84.2 million from
the second quarter of 2019, or 11.6% annualized, and increased
$246.1 million year-over-year, or 9.7%. Non-SNC-related loan growth
was $2.5 million, or 0.4% annualized from the second quarter of
2019.
Total deposits decreased by $84.7 million, or 10.7% annualized
from the second quarter of 2019 and by $309.6 million, or 9.2% from
the third quarter of 2018, reflecting a deliberate reduction in
non-core deposits as a part of the Company's continued balance
sheet optimization. As a part of this effort, brokered deposits
decreased $109.7 million from the second quarter of 2019, an
annualized decline of 62.3%, and reciprocal deposits decreased by
$70.1 million, to $366.4 million, or 63.8% annualized, while during
the same time period, retail and other deposits grew $225.8
million, or 58.5% annualized and 14.5% year-over-year.
Largely as a result of the deliberate reduction in non-core
funding and securities, net interest income increased to $28.3
million for the third quarter of 2019, or 13.0% annualized,
compared to the second quarter of 2019, and increased $1.7 million
compared to the third quarter of 2018, representing a 6.4%
year-over-year increase.
Executive Vice President and Chief Financial Officer,
Christopher J. Black stated, "While these strategic shifts in our
operating model will take time to fully reflect themselves in our
core profitability metrics, our organizational realignment and
funding-driven profitability processes are producing positive
results in these early stages. We are pleased with the positive
impact to both net interest income and net interest margin
demonstrated this quarter, which was driven by the reduction in
non-core assets and liabilities, as well as positive loan and
deposit pricing dynamics.”
Balance Sheet Deleverage Strategy
Drives Margin Expansion; SNC Portfolio Reduction
Continues
Net interest margin (tax-equivalent basis) was 2.98% for the
three months ended September 30, 2019, a 14 basis point increase
quarter-over-quarter, and a 28 basis point increase year-over-year,
primarily driven by balance sheet rotation and optimization
strategies that have focused on the reduction in non-core assets
and liabilities.
The Company reduced its SNC loan portfolio by $86.7 million in
the third quarter of 2019, to $144.5 million. This reduction in the
SNC portfolio represents an 11.1% year-over-year decrease and is
the lowest SNC balance held by the Company during the last five
quarters, representing 5.2% of loans HFI, which is almost half of
the Company’s concentration of 9.3% of loans HFI at the peak of the
SNC portfolio at December 31, 2018.
Illustrating further progress, the Company has reduced its
securities portfolio by a total of $539.9 million through the first
nine months of 2019. This has been accomplished through a
combination of rotating lower-yielding securities into
higher-yielding assets and selling lower-yielding securities that
had been funded by non-core liabilities. As a result of this effort
to reduce reliance upon non-core funding sources, securities
represent 16.0% of total assets at September 30, 2019, down from
31.7% at September 30, 2018. As the Company has effectively rotated
and optimized its balance sheet, loans HFI increased to 91.3% of
total deposits at September 30, 2019, up from 77.7% and 75.6% at
December 31, 2018, and September 30, 2018, respectively.
Black stated, “The inversion of the yield curve provided us with
the opportunity to further deleverage the balance sheet of non-core
assets and liabilities. This was done through an additional
reduction of the securities portfolio and the concurrent decision
to continue to shrink various components of non-core funding.
Despite inherent market-driven margin pressure in this yield curve
environment, our deleveraging strategy was a key driver in this
quarter’s net interest margin expansion.”
Black continued, “Reflective of our focus on growing deeper core
customer relationships, we were able to reduce our SNC portfolio to
5.2% of loans HFI, with expectations for further reductions in the
coming quarters.”
Core Noninterest Income
Increases
Total noninterest income was $4.8 million, $4.9 million for the
third and second quarters of 2019, respectively, and $3.4 million
for the third quarter of 2018. After non-core adjustments, core
noninterest income was $5.1 million for the third quarter of 2019,
an increase of 11.4% annualized from the second quarter of 2019, or
47.2% on a year-over-year basis.
Core Noninterest Expenses Held In
Check
Noninterest expense was $18.6 million and $19.4 million during
the third and second quarters of 2019, respectively. When adjusted
for a nonrecurring FDIC assessment credit during the third quarter
of 2019, core noninterest expense was $19.4 million, a 6.1%
year-over-year increase when compared to the third quarter of 2018
expense of $18.3 million.
Asset Quality
As disclosed previously, the Company had allocated a specific
reserve for a single SNC relationship in the amount of
approximately $2.2 million, which then represented the total
remaining relationship balance. During the third quarter of 2019,
the Company determined that, excluding a principal repayment of
approximately $500 thousand, the balance of this relationship
should be charged-off, resulting in the recognition of a charge-off
of approximately $1.7 million. Given that the specific reserve had
been established during the second quarter of 2019, there is no
further potential negative financial impact related to this
relationship.
The allowance for loan and lease losses (ALLL) was $26.5 million
at September 30, 2019, representing an increase of $3.0 million
from $23.5 million at December 31, 2018, resulting from an uptick
in, and developments relating to, our classified assets. The
allowance for loan and lease losses equates to 0.95% of total loans
HFI at September 30, 2019. The Company reported no bank-owned real
estate (OREO) at September 30, 2019.
As of September 30, 2019, the Company’s total non-performing
assets (NPA) were 0.08% of assets, or $3.1 million, a decrease of
approximately $2.6 million from December 31, 2018. The NPA/ALLL
coverage ratio was 852% at September 30, 2019, more than double the
415% coverage present at December 31, 2018. Classified Assets were
$49.4 million at September 30, 2019, representing 1.77% of loans
HFI, up from 1.45% of loans HFI at December 31, 2018.
Strong Capital to Support Future Growth
and Expansion
The ratio of tangible common equity to tangible assets was 10.2%
at September 30, 2019, compared with 9.2% and 8.1% at June 30,
2019, and September 30, 2018, respectively. The Company's tangible
book value per share increased to $26.61, which represents a 15.5%
annualized quarterly increase and 14.8% year-over-year growth.
Black commented, “As we continue to strengthen our balance
sheet, our tangible book value growth clearly demonstrates one of
our Company’s strengths that has been consistent throughout our
time as a public company. Given our strong capital position, we
expect to continue to return capital to shareholders through
repurchases, along with a newly-authorized 50% increase in our
established quarterly dividend to $0.06 per share.”
Summary
Jones concluded, “As we move towards the end of 2019, I am happy
with the progress that we have made thus far in the execution of
our balance sheet optimization and strategic plan. Our team remains
optimistic about the future and the tremendous opportunities we
have to grow and enhance our relationships with our customers,
community, teammates and shareholders. We remain committed to our
core values of integrity, accountability, excellence and
reliability. Underlying our quarterly financial results is a strong
foundation that we firmly believe has our Company well-positioned
for the future, which we are confident will be guided by our
strong, unified leadership team."
WEBCAST AND CONFERENCE CALL INFORMATION
The live broadcast of the Company's earnings webcast and
conference call will begin at 8:00 a.m. CDT on Thursday, October
24, 2019, and the presentation and conference call will be
broadcast live over the Internet at
http://www.snl.com/IRW/CorporateProfile/4185772. This Earnings
Release and the Earnings Presentation will be available for twelve
months, and are also included on a Form 8-K that the Company
furnished to the U.S. Securities and Exchange Commission (SEC) on
October 23, 2019. To access the call for audio only, please call
1-844-378-6480 which will be available for 90 days.
ABOUT THE COMPANY
Franklin Financial Network, Inc. (NYSE: FSB) is a financial
holding company headquartered in Franklin, Tennessee. The Company's
wholly owned bank subsidiary, Franklin Synergy Bank, a
Tennessee-chartered commercial bank founded in November 2007 and a
member of the Federal Reserve System, provides a full range of
banking and related financial services with a focus on service to
small businesses, corporate entities, local governments and
individuals. With consolidated total assets of $3.8 billion at
September 30, 2019, the Bank currently operates through 15 branches
in the growing Williamson, Rutherford and Davidson Counties, all
within the Nashville metropolitan statistical area. Additional
information about the Company, which is included in the NYSE
Financial-100 Index, the FTSE Russell 2000 Index and the S&P
SmallCap 600 Index, is available at
www.FranklinSynergyBank.com.
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS
This Earnings Release contains forward-looking statements
regarding, among other things, our anticipated financial and
operating results and our plans regarding future share repurchases,
payment of quarterly dividends, and reduction in our SNC portfolio.
The Company claims the protection of the safe harbor for
forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995. Forward-looking statements reflect
our management's current assumptions, beliefs, and expectations.
Words such as "anticipate," "believe," "estimate," "expect,"
"intend," "plan," "objective," "should," "hope," "pursue," "seek,"
and similar expressions are intended to identify forward-looking
statements. While we believe that the expectations reflected in our
forward-looking statements are reasonable, we can give no assurance
that such expectations will prove correct. Forward-looking
statements are subject to risks and uncertainties that could cause
our actual results to differ materially from the future results,
performance, or achievements expressed in or implied by any
forward-looking statement we make. Some of the relevant risks and
uncertainties that could cause our actual performance to differ
materially from the forward-looking statements contained in this
Earnings Release are discussed below and under the heading "Risk
Factors" and elsewhere in our Annual Report on Form 10-K filed with
the Securities and Exchange Commission ("SEC") on March 19, 2019.
We caution readers that these discussions of important risks and
uncertainties are not exclusive, and our business may be subject to
other risks and uncertainties which are not detailed there. Readers
are cautioned not to place undue reliance on our forward-looking
statements. We make forward-looking statements as of the date on
which this Earnings Release is filed with the SEC, and we assume no
obligation to update the forward-looking statements after the date
hereof whether as a result of new information or events, changed
circumstances, or otherwise, except as required by law.
There are or will be important factors that could cause our
actual results to differ materially from those indicated in these
forward-looking statements, including, but not limited to, the
following:
- business and economic conditions nationally, regionally and in
our target markets, particularly in Middle Tennessee and the
geographic areas in which we operate;
- the concentration of our loan portfolio in real estate loans
and changes in the prices, values and sales volumes of commercial
and residential real estate;
- the concentration of our business within our geographic areas
of operation in Middle Tennessee;
- credit and lending risks associated with our commercial real
estate, residential real estate, commercial and industrial, and
construction and land development portfolios;
- increased competition in the banking and mortgage banking
industry, nationally, regionally and locally;
- our ability to execute our business strategy to achieve
profitable growth;
- the dependence of our operating model on our ability to attract
and retain experienced and talented bankers in each of our
markets;
- risks that our cost of funding could increase, in the event we
are unable to continue to attract stable, low-cost deposits and
reduce our cost of deposits;
- our ability to increase our operating efficiency;
- failure to keep pace with technological change or difficulties
when implementing new technologies;
- risks related to our acquisition, disposition, growth and other
strategic opportunities and initiatives;
- negative impact on our mortgage banking services, including
declines in our mortgage originations or profitability due to
rising interest rates and increased competition and
regulation;
- our ability to attract and maintain business banking
relationships with well-qualified businesses, real estate
developers and investors with proven track records in our market
areas;
- our ability to attract sufficient loans that meet prudent
credit standards, including in our commercial and industrial and
commercial real estate loan categories;
- failure to maintain adequate liquidity and regulatory capital
and comply with evolving federal and state banking
regulations;
- inability of our risk management framework to effectively
mitigate credit risk, interest rate risk, liquidity risk, price
risk, compliance risk, operational risk, strategic risk and
reputational risk;
- failure to develop new, and grow our existing, streams of
noninterest income;
- our ability to maintain expenses in line with our current
projections;
- our dependence on our management team and our ability to
motivate and retain our management team;
- risks related to management transition;
- risks related to any future acquisitions, including failure to
realize anticipated benefits from future acquisitions;
- inability to find acquisition candidates that will be accretive
to our financial condition and results of operations;
- system failures, data security breaches (including as a result
of cyber-attacks), or failures to prevent breaches of our network
security;
- data processing system failures and errors;
- fraudulent and negligent acts by individuals and entities that
are beyond our control;
- fluctuations in market value and its impact on the securities
held in our securities portfolio;
- the adequacy of our reserves (including allowance for loan
losses) and the appropriateness of our methodology for calculating
such reserves;
- the makeup of our asset mix and investments;
- our focus on small and mid-sized businesses;
- an inability to raise necessary capital to fund our growth
strategy or operations, or to meet increased minimum regulatory
capital levels;
- the sufficiency of our capital, including sources of such
capital and the extent to which capital may be used or
required;
- interest rate shifts and its impact on our financial condition
and results of operation;
- the expenses that we incur to operate as a public company;
- the institution and outcome of litigation and other legal
proceedings against us or to which we become subject;
- changes in accounting standards;
- the impact of recent and future legislative and regulatory
changes;
- governmental monetary and fiscal policies;
- changes in the scope and cost of Federal Deposit Insurance
Corporation, or FDIC, insurance and other coverage; and
- future equity issuances under our Amended and Restated 2017
Omnibus Equity Incentive Plan and future sales of our common stock
by us or our executive officers or directors.
The foregoing factors should not be construed as exhaustive and
should be read in conjunction with the sections entitled "Risk
Factors" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included in our Annual Report
on Form 10-K filed March 19, 2019 with the SEC and our Quarterly
Reports on Form 10-Q filed May 9, 2019 and August 6, 2019 with the
SEC. If one or more events related to these or other risks or
uncertainties materialize, or if our underlying assumptions prove
to be incorrect, actual results may differ materially from our
forward-looking statements. New risks and uncertainties may emerge
from time to time, and it is not possible for us to predict their
occurrence or how they will affect the Company.
GAAP RECONCILIATION AND USE OF NON-GAAP FINANCIAL
MEASURES
Some of the financial data included in this earnings release and
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:
- "Common equity" is defined as total shareholders' equity at end
of period less the liquidation preference value of the preferred
stock;
- "Tangible common equity" is common equity less goodwill and
other intangible assets;
- "Total tangible assets" is defined as total assets less
goodwill and other intangible assets;
- "Other intangible assets" is defined as the sum of core deposit
intangible assets and SBA servicing rights;
- "Tangible book value per share" is defined as tangible common
equity divided by total common shares outstanding. This measure is
important to investors interested in changes from period-to-period
in book value per share exclusive of changes in intangible
assets;
- "Tangible common equity ratio" is defined as the ratio of
tangible common equity divided by total tangible assets. We believe
that this measure is important to many investors in the marketplace
who are interested in relative changes from period-to period in
common equity and total assets, each exclusive of changes in
intangible assets;
- "Core Return on Average Tangible Common Equity" is defined as
annualized core net income available to common shareholders divided
by average tangible common equity;
- "Core Efficiency Ratio" is defined as noninterest expense
divided by our operating revenue, which is equal to net interest
income plus noninterest income with all adjusted to certain
one-time expenses;
- "Core Diluted Earnings Per Share" is defined as reported
earnings per share adjusted for certain one-time expenses;
- "Core NonInterest Income" is defined as noninterest income
adjusted for certain one-time items;
- "Core NonInterest Expense" is defined as noninterest expense
adjusted for certain one-time items;
- "Core Compensation Expense" is defined as compensation expense
adjusted for certain one-time items;
- "Core Net Income" is defined as "Net Income Available to Common
Shareholders" adjusted for certain one-time items;
- "Pre-tax core net income" is defined as pre-tax net income
adjusted for certain one-time noninterest income and noninterest
expense items; and
- "Pre-tax pre-provision core profit" is defined as pre-tax core
net income and provision for loan losses.
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.
Financial Summary and Key
Metrics
(Unaudited)
(In Thousands, Except Share Data
and %)
2019
2018
Third
Quarter
Second
Quarter
First
Quarter
Fourth
Quarter
Third
Quarter
Statement of Income Data
Total interest income
$
46,531
$
47,453
$
47,523
$
46,046
$
43,717
Total interest expense
18,269
20,088
20,103
19,125
17,155
Net interest income
28,262
27,365
27,420
26,921
26,562
Provision for loan losses
1,000
7,031
5,055
975
136
Total noninterest income
4,793
4,923
3,486
(384
)
3,442
Total noninterest expense
18,614
19,370
22,616
21,689
18,251
Net income before income taxes
13,441
5,887
3,235
3,873
11,617
Income tax expense
2,117
706
334
122
1,068
Net income available to common
shareholders (a)
$
11,324
$
5,173
$
2,901
$
3,743
$
10,549
Pre-tax pre-provision profit
$
14,441
$
12,918
$
8,290
$
4,848
$
11,753
Net interest income (tax-equivalent
basis)
$
28,809
$
27,921
$
27,955
$
27,516
$
27,263
Core net income* (a)
$
10,926
$
5,173
$
6,103
$
9,178
$
10,549
Per Common Share
Diluted net income
$
0.75
$
0.34
$
0.19
$
0.25
$
0.70
Core diluted net income *
0.72
0.34
0.41
0.61
0.70
Book value
27.89
26.90
26.31
25.64
24.51
Tangible book value*
26.61
25.61
25.00
24.32
23.18
Weighted average number of
shares-diluted
14,991,363
14,894,140
14,804,830
14,821,540
14,903,751
Period-end number of shares
14,636,484
14,628,287
14,574,339
14,538,085
14,525,351
Selected Balance Sheet Data
Cash and due from banks
$
178,747
$
150,721
$
300,113
$
280,212
$
144,660
Securities available-for-sale, at fair
value
612,371
715,132
799,301
1,030,668
1,115,187
Securities held to maturity
-
118,963
118,831
121,617
204,587
Loans held for sale, at fair value
56,570
27,093
21,730
11,103
14,563
Loans held for investment
2,796,233
2,880,433
2,807,377
2,665,399
2,550,121
Allowance for loan losses
(26,474
)
(27,443
)
(27,857
)
(23,451
)
(22,479
)
Other real estate owned, net
-
-
-
-
1,853
Total assets
3,818,324
4,071,971
4,238,436
4,249,439
4,167,813
Retail and other deposits
1,756,558
1,530,722
1,532,984
1,538,441
1,534,014
Local Government deposits
349,535
480,206
628,985
782,889
833,052
Brokered deposits
589,482
699,195
718,683
797,795
887,112
Reciprocal deposits
366,375
436,522
435,191
312,682
117,372
Total deposits
3,061,950
3,146,645
3,315,843
3,431,807
3,371,550
Borrowings
278,827
455,282
475,238
427,193
430,149
Total shareholders' equity
408,168
393,516
383,421
372,740
356,074
Total equity
408,261
393,609
383,514
372,833
356,177
Selected Ratios
Return on average:
Assets
1.12
%
0.51
%
0.28
%
0.35
%
1.01
%
Shareholders' equity
11.3
%
5.3
%
3.1
%
4.1
%
11.9
%
Tangible common equity*
11.8
%
5.6
%
3.3
%
4.3
%
12.6
%
Average shareholders' equity to average
assets
10.0
%
9.5
%
8.9
%
8.6
%
8.5
%
Net interest margin (NIM) (tax-equivalent
basis)
2.98
%
2.84
%
2.80
%
2.69
%
2.70
%
Efficiency ratio (GAAP)
56.3
%
60.0
%
73.2
%
81.7
%
60.8
%
Core efficiency ratio (tax-equivalent
basis)*
58.1
%
60.0
%
59.8
%
60.4
%
60.8
%
Loans held for investment to deposit
ratio
91.3
%
91.5
%
84.7
%
77.7
%
75.6
%
Total loans to deposit ratio
93.2
%
92.4
%
85.3
%
78.0
%
76.1
%
Yield on interest-earning assets
4.87
%
4.89
%
4.82
%
4.56
%
4.40
%
Cost of interest-bearing liabilities
2.26
%
2.41
%
2.34
%
2.16
%
1.97
%
Cost of total deposits
1.91
%
2.07
%
2.06
%
1.88
%
1.68
%
Credit Quality Ratios
Allowance for loan losses as a percentage
of loans held for investment
0.95
%
0.95
%
0.99
%
0.88
%
0.88
%
Net charge-offs (recoveries) as a
percentage of average loans held for investment(b)
0.27
%
1.04
%
0.00
%
0.00
%
0.00
%
Nonperforming loans held for investment as
a percentage of total loans held for investments
0.11
%
0.16
%
0.42
%
0.21
%
0.16
%
Nonperforming assets as a percentage of
total assets
0.08
%
0.12
%
0.28
%
0.13
%
0.14
%
Preliminary capital ratios
(Consolidated)
Shareholders' equity to assets
10.7
%
9.7
%
9.0
%
8.8
%
8.5
%
Tangible common equity to tangible
assets*
10.2
%
9.2
%
8.6
%
8.4
%
8.1
%
Tier 1 capital (to average assets)
9.8
%
9.2
%
8.8
%
8.8
%
8.7
%
Tier 1 capital (to risk-weighted
assets)
12.0
%
11.2
%
11.3
%
12.2
%
12.2
%
Total capital (to risk-weighted
assets)
14.7
%
13.7
%
14.0
%
12.4
%
15.0
%
Common Equity Tier 1 (to risk-weighted
assets) (CET1)
12.0
%
11.2
%
11.3
%
12.2
%
12.2
%
*These measures are considered non-GAAP
financial measures. See "GAAP Reconciliation and Use of Non-GAAP
Financial Measures" and the corresponding financial tables below
for reconciliations of these Non-GAAP measures.
(a) - Includes a dividend declared and
paid by the Company's REIT subsidiary to minority interest
preferred shareholders in the second and fourth quarters.
(b) - annualized
Consolidated Statements of
Income
(Unaudited)
(In Thousands, Except Share Data
and %)
Q3 2019
Q3 2019
vs.
vs.
2019
2018
Q2 2019
Percent
Q3 2018
Percent
Third Quarter
Second Quarter
First Quarter
Fourth Quarter
Third Quarter
Variance
Variance
Interest income:
Loans, including fees
$
40,118
$
40,202
$
38,338
$
36,314
$
34,435
(0.2
)
%
16.5
%
Securities
Taxable
3,815
4,614
6,394
7,058
6,460
(17.3
)
%
(40.9
)
%
Tax-exempt
1,471
1,410
1,470
1,615
1,926
4.3
%
(23.6
)
%
Dividends on restricted equity
securities
291
348
332
334
313
(16.4
)
%
(7.0
)
%
Federal funds sold and other
836
879
989
725
583
(4.9
)
%
43.4
%
Total interest income
46,531
47,453
47,523
46,046
43,717
(1.9
)
%
6.4
%
Interest expense:
Deposits
15,020
16,679
16,990
15,941
14,137
(9.9
)
%
6.2
%
Federal funds purchased and repurchase
agreements
49
90
72
123
69
(45.6
)
%
(29.0
)
%
Federal Home Loan Bank advances and
other
2,118
2,237
1,959
1,979
1,867
(5.3
)
%
13.4
%
Subordinated notes
1,082
1,082
1,082
1,082
1,082
0.0
%
0.0
%
Total interest expense
18,269
20,088
20,103
19,125
17,155
(9.1
)
%
6.5
%
Net interest income
28,262
27,365
27,420
26,921
26,562
3.3
%
6.4
%
Provision for loan losses
1,000
7,031
5,055
975
136
(85.8
)
%
635.3
%
Net interest income after provision
27,262
20,334
22,365
25,946
26,426
34.1
%
3.2
%
Noninterest income:
Service charges on deposit accounts
83
77
74
66
58
7.8
%
43.1
%
Other service charges and fees
1,069
903
757
830
747
18.4
%
43.1
%
Mortgage banking revenue
2,702
2,473
1,672
1,630
1,483
9.3
%
82.2
%
Wealth management
767
673
627
741
705
14.0
%
8.8
%
Gain (loss) on sales and calls of
securities
1,493
367
149
(4,160
)
(1
)
306.8
%
NM
%
Net (loss) gain on sale of loans
(1,758
)
3
(217
)
5
7
NM
%
NM
%
Net gain on foreclosed assets
2
3
4
107
3
(33.3
)
%
(33.3
)
%
Other income
435
424
420
397
440
2.6
%
(1.1
)
%
Total noninterest income
4,793
4,923
3,486
(384
)
3,442
(2.6
)
%
39.3
%
Total revenue
33,055
32,288
30,906
26,537
30,004
2.4
%
10.2
%
Noninterest expenses:
Salaries and employee benefits
11,632
11,365
14,743
13,657
10,723
2.3
%
8.5
%
Occupancy and equipment expense
3,360
3,283
3,113
3,216
2,933
2.3
%
14.6
%
FDIC assessment expense
(357
)
660
990
990
1,020
(154.1
)
%
(135.0
)
%
Marketing expense
315
301
319
236
306
4.7
%
2.9
%
Professional fees
1,118
1,073
923
1,107
1,023
4.2
%
9.3
%
Other expense
2,546
2,688
2,528
2,483
2,246
(5.3
)
%
13.4
%
Total noninterest expense
18,614
19,370
22,616
21,689
18,251
(3.9
)
%
2.0
%
Net income before income taxes
13,441
5,887
3,235
3,873
11,617
128.3
%
15.7
%
Income tax expense
2,117
706
334
122
1,068
199.9
%
98.2
%
Net income
$
11,324
$
5,181
$
2,901
$
3,751
$
10,549
118.6
%
7.3
%
Earnings attributable to noncontrolling
interest
-
(8
)
-
(8
)
-
0.0
%
0.0
%
Net income available to common
shareholders (a)
$
11,324
$
5,173
$
2,901
$
3,743
$
10,549
118.9
%
7.3
%
Weighted average common shares
outstanding:
Basic
14,530,586
14,482,344
14,393,083
14,354,399
14,324,299
Fully diluted
14,991,363
14,894,140
14,804,830
14,821,540
14,903,751
Earnings per share
Basic
$
0.77
$
0.35
$
0.20
$
0.26
$
0.73
Fully diluted
$
0.75
$
0.34
$
0.19
$
0.25
$
0.70
Dividend per share
$
0.04
$
0.04
$
0.04
$
-
$
-
(a) Includes a dividend declared and paid
by the Company's REIT subsidiary to minority interest preferred
shareholders in the second and fourth quarters.
Consolidated Balance
Sheets
(Unaudited)
(In Thousands, Except %)
Q3 2019
Q3 2019
vs.
vs.
2019
2018
Q2 2019
Q3 2018
Annualized
Percent
Third Quarter
Second Quarter
First Quarter
Fourth Quarter
Third Quarter
Variance
Variance
ASSETS
Cash and due from banks
$
178,747
$
150,721
$
300,113
$
280,212
$
144,660
73.8
%
23.6
%
Certificates of deposit at other financial
institutions
3,590
3,840
3,595
3,594
3,104
(25.8
)
%
15.7
%
Securities available for sale, fair
value
612,371
715,132
799,301
1,030,668
1,115,187
(57.0
)
%
(45.1
)
%
Securities held to maturity
-
118,963
118,831
121,617
204,587
NM
%
(100.0
)
%
Loans held for sale, at fair value
56,570
27,093
21,730
11,103
14,563
431.6
%
288.5
%
Loans held for investment
2,796,233
2,880,433
2,807,377
2,665,399
2,550,121
(11.6
)
%
9.7
%
Allowance for loan losses
(26,474
)
(27,443
)
(27,857
)
(23,451
)
(22,479
)
(14.0
)
%
17.8
%
Net loans
2,769,759
2,852,990
2,779,520
2,641,948
2,527,642
(11.6
)
%
9.6
%
Restricted equity securities, at cost
24,764
24,524
22,510
21,538
21,500
3.9
%
15.2
%
Premises and equipment, net
12,449
12,948
12,682
12,371
11,852
(15.3
)
%
5.0
%
Accrued interest receivable
12,077
14,281
14,232
13,337
14,391
(61.2
)
%
(16.1
)
%
Bank owned life insurance
56,366
55,989
55,614
55,239
54,859
2.7
%
2.7
%
Deferred tax asset, net
10,297
10,451
12,208
13,189
17,366
(5.8
)
%
(40.7
)
%
Foreclosed assets
-
-
-
-
1,853
0.0
%
(100.0
)
%
Servicing rights, net
3,128
3,299
3,366
3,403
3,465
(20.6
)
%
(9.7
)
%
Goodwill
18,176
18,176
18,176
18,176
18,176
0.0
%
0.0
%
Core deposit intangible asset
556
675
807
952
1,109
(69.9
)
%
(49.9
)
%
Other assets
59,474
62,889
75,751
22,092
13,499
(21.5
)
%
340.6
%
Total assets
$
3,818,324
$
4,071,971
$
4,238,436
$
4,249,439
$
4,167,813
(24.7
)
%
(8.4
)
%
LIABILITIES AND EQUITY
Liabilities:
Demand deposits
Noninterest-bearing
$
346,441
$
334,802
$
304,937
$
290,580
$
321,108
13.8
%
7.9
%
Interest-bearing
2,715,509
2,811,843
3,010,906
3,141,227
3,050,442
(13.6
)
%
(11.0
)
%
Total deposits
3,061,950
3,146,645
3,315,843
3,431,807
3,371,550
(10.7
)
%
(9.2
)
%
Federal Home Loan Bank advances
220,000
396,500
416,500
368,500
371,500
(176.6
)
%
(40.8
)
%
Subordinated notes, net
58,827
58,782
58,738
58,693
58,649
0.3
%
0.3
%
Accrued interest payable
3,932
4,312
5,041
4,700
4,726
(35.0
)
%
(16.8
)
%
Other liabilities
65,354
72,123
58,800
12,906
5,211
(37.2
)
%
NM
%
Total liabilities
3,410,063
3,678,362
3,854,922
3,876,606
3,811,636
(28.9
)
%
(10.5
)
%
Shareholders' equity:
Common stock
269,842
268,505
266,758
264,905
261,623
2.0
%
3.1
%
Retained earnings
138,579
127,840
123,250
123,176
119,433
33.3
%
16.0
%
Accumulated other comprehensive
gain/(loss), net
(253
)
(2,829
)
(6,587
)
(15,341
)
(24,982
)
(361.3
)
%
(99.0
)
%
Total shareholders' equity
408,168
393,516
383,421
372,740
356,074
14.8
%
14.6
%
Noncontrolling interest in consolidated
subsidiary
93
93
93
93
103
0.0
%
(9.7
)
%
Total equity
408,261
393,609
383,514
372,833
356,177
14.8
%
14.6
%
Total liabilities and shareholders'
equity
$
3,818,324
$
4,071,971
$
4,238,436
$
4,249,439
$
4,167,813
(24.7
)
%
(8.4
)
%
Average Balance, Average Yield
Earned and Average Rate Paid (7)
For the Periods Ended
(Unaudited)
(In Thousands, Except %)
Three Months Ended
Three Months Ended
September 30, 2019
June 30, 2019
Interest
Average
Interest
Average
Average
income/
yield/
Average
income/
yield/
balances
expense
rate
balances
expense
rate
Interest-earning assets:
Loans(1)(6)
$
2,848,888
$
39,926
5.56
%
$
2,858,713
$
40,003
5.61
%
Loans held for sale
22,048
217
3.90
%
24,118
256
4.26
%
Securities:
Taxable
570,891
3,815
2.65
%
673,386
4,614
2.75
%
Tax-Exempt
209,442
1,991
3.77
%
208,417
1,909
3.67
%
Restricted equity securities
24,676
292
4.69
%
24,331
348
5.74
%
Total Securities
805,009
6,098
3.01
%
906,134
6,871
3.04
%
Certificates of deposit at other financial
institutions
3,628
22
2.41
%
3,759
22
2.35
%
Fed funds sold and other (2)
158,618
814
2.04
%
147,542
857
2.33
%
Total interest earning assets
3,838,191
47,077
4.87
%
3,940,266
48,009
4.89
%
Noninterest Earning Assets:
Allowance for loan losses
(27,364
)
(28,007
)
Other assets
188,520
192,843
Total noninterest earning assets
161,156
164,836
Total assets
$
3,999,347
$
4,105,102
Interest-bearing liabilities:
Interest bearing deposits:
Interest Checking
$
712,992
$
3,536
1.97
%
$
816,429
$
4,357
2.14
%
Money market
1,112,573
5,815
2.07
%
1,026,200
6,103
2.39
%
Savings deposits
38,952
27
0.28
%
38,882
27
0.28
%
Time deposits
928,571
5,642
2.41
%
1,036,904
6,192
2.40
%
Total interest bearing deposits
2,793,088
15,020
2.13
%
2,918,415
16,679
2.29
%
Other interest-bearing liabilities:
FHLB advances and other (8)
343,419
2,117
2.45
%
349,615
2,237
2.57
%
Federal funds purchased and other (3)
7,170
49
2.71
%
13,249
90
2.72
%
Subordinated notes
58,798
1,082
7.30
%
58,754
1,082
7.39
%
Total other interest-bearing
liabilities
409,387
3,248
3.15
%
421,618
3,409
3.24
%
Total Interest-bearing liabilities
$
3,202,475
$
18,268
2.26
%
$
3,340,033
$
20,088
2.41
%
Noninterest bearing liabilities:
Demand deposits
329,620
313,104
Other liabilities
68,156
63,505
Total noninterest-bearing liabilities
397,776
376,609
Total liabilities
3,600,251
3,716,642
Equity
399,096
388,460
Total liabilities and equity
$
3,999,347
$
4,105,102
Net interest income
$
28,809
$
27,921
Interest rate spread (4)
2.61
%
2.48
%
Net interest margin (5)
2.98
%
2.84
%
Cost of total deposits
1.91
%
2.07
%
Average interest-earning assets to average
interest-bearing liabilities
119.85
%
117.97
%
Tax equivalent adjustment
$
546
$
556
Loan yield components:
Contractual interest rate on loans held
for investment (1)
$
37,908
5.28
%
$
37,925
5.32
%
Origination and other loan fee income
1,895
0.26
%
1,904
0.27
%
Accretion on purchased loans
123
0.02
%
174
0.02
%
Nonaccrual interest collections
-
-
%
-
-
%
Total loan yield
$
39,926
5.56
%
$
40,003
5.61
%
(1) Loan balances are net of deferred
origination fees and costs. Nonaccrual loans are included in total
loan balances.
(2) Includes federal funds sold and
capital stock in the Federal Reserve Bank and Federal Home Loan
Bank, and interest-bearing deposits at the Federal Reserve Bank and
the Federal Home Loan Bank.
(3) Includes repurchase agreements.
(4) Represents the average rate earned on
interest-earning assets minus the average rate paid on
interest-bearing liabilities.
(5) Represents net interest income
(annualized) divided by total average earning assets.
(6) Interest income and rates include the
effects of a tax equivalent adjustment to adjust tax-exempt
interest income on tax exempt loans and investment securities to a
fully taxable basis.
(7) Average balances are average daily
balances.
(8) Includes finance lease.
Average Balance, Average Yield
Earned and Average Rate Paid (7)
For the Quarters Ended
(Unaudited)
(In Thousands, Except %)
Three Months Ended
Three Months Ended
Three Months Ended
March 31, 2019
December 31, 2018
September 30, 2018
Average
Interest
Average
Average
Interest
Average
Average
Interest
Average
balances
income/expense
yield/rate
balances
income/expense
yield/rate
balances
income/expense
yield/rate
Interest-earning assets:
Loans held for investment(1)(6)
$
2,764,675
$
38,238
5.61
%
$
2,617,649
$
36,234
5.49
%
$
2,517,545
$
34,337
5.41
%
Loans held for sale
9,438
115
4.94
%
9,129
104
4.52
%
11,059
120
4.30
%
Securities:
Taxable
919,549
6,394
2.82
%
1,082,429
7,058
2.59
%
1,111,376
6,460
2.31
%
Tax-Exempt
181,699
1,990
4.44
%
193,004
2,186
4.49
%
229,579
2,605
4.50
%
Restricted equity securities
22,082
332
6.1
%
21,518
334
6.16
%
20,775
311
5.94
%
Total Securities
1,123,330
8,716
3.15
%
1,296,951
9,578
2.93
%
1,361,730
9,376
2.73
%
Certificates of deposit at other financial
institutions
3,592
20
2.26
%
3,123
16
2.03
%
3,113
16
2.04
%
Fed funds sold and other (2)
143,196
969
2.74
%
127,769
709
2.2
%
108,164
569
2.09
%
Total interest earning assets
4,044,231
48,058
4.82
%
4,054,621
46,641
4.56
%
4,001,611
44,418
4.40
%
Noninterest Earning Assets:
Provision for loan losses
(24,054
)
(22,667
)
(22,588
)
Other assets
200,078
151,749
153,478
Total noninterest earning assets
176,024
129,082
130,890
Total assets
$
4,220,255
$
4,183,703
$
4,132,501
Interest-bearing liabilities:
Interest bearing deposits:
Interest Checking
$
857,096
$
4,420
2.09
%
$
751,873
$
3,564
1.88
%
$
790,733
$
3,406
1.71
%
Money market
992,842
5,979
2.44
%
822,850
4499
2.17
%
736,157
3489
1.88
%
Savings deposits
40,609
28
0.28
%
44,336
32
0.29
%
46,589
34
0.29
%
Time deposits
1,165,666
6,563
2.28
%
1,442,783
7,846
2.16
%
1,466,903
7,208
1.95
%
Total interest bearing deposits
3,056,213
16,990
2.25
%
3,061,842
15,941
2.07
%
3,040,382
14,137
1.84
%
Other interest-bearing liabilities:
FHLB advances
364,711
1,959
2.18
%
365,696
1,979
2.15
%
351,228
1,867
2.11
%
Federal funds purchased and other (3)
10,594
72
2.76
%
19,626
123
2.49
%
12,805
69
2.14
%
Subordinated notes
58,709
1,082
7.47
%
58,664
1,082
7.32
%
58,622
1,082
7.32
%
Total other interest-bearing
liabilities
434,014
3,113
2.91
%
443,986
3,184
2.85
%
422,655
3,018
2.83
%
Total Interest-bearing liabilities
$
3,490,227
$
20,103
2.34
%
$
3,505,828
$
19,125
2.16
%
$
3,463,037
$
17,155
1.97
%
Noninterest bearing liabilities:
Demand deposits
291,176
303,192
305,432
Other liabilities
61,736
13,974
12,739
Total noninterest-bearing liabilities
352,912
317,166
318,171
Total liabilities
3,843,139
3,822,994
3,781,208
Equity
377,116
360,709
351,293
Total liabilities and equity
$
4,220,255
$
4,183,703
$
4,132,501
Net interest income
$
27,955
$
27,516
$
27,263
Interest rate spread (4)
2.48
%
2.40
%
2.43
%
Net interest margin (5)
2.80
%
2.69
%
2.70
%
Cost of total deposits
2.06
%
1.88
%
1.68
%
Average interest-earning assets to average
interest-bearing liabilities
115.87
%
115.65
%
115.55
%
Tax equivalent adjustment
$
535
$
595
$
701
Loan yield components:
Contractual interest rate on loans held
for investment (1)
$
36,465
5.34
%
$
34,324
5.20
%
$
32,292
5.06
%
Origination and other loan fee income
1,600
0.24
%
1,647
0.25
%
1,434
0.24
%
Accretion on purchased loans
173
0.03
%
249
0.03
%
510
0.08
%
Nonaccrual interest collections
-
-
%
44
0.01
%
221
0.03
%
Total loan yield
$
38,238
5.61
%
$
36,264
5.49
%
$
34,457
5.41
%
(1) Loan balances are net of deferred
origination fees and costs. Nonaccrual loans are included in total
loan balances.
(2) Includes federal funds sold, capital
stock in the Federal Reserve Bank and Federal Home Loan Bank, and
interest-bearing deposits at the Federal Reserve Bank and the
Federal Reserve Bank and the Federal Home Loan Bank.
(3) Includes repurchase agreements.
(4) Represents the average rate earned on
interest-earning assets minus the average rate paid on
interest-bearing liabilities.
(5) Represents net interest income
(annualized) divided by total average earning assets.
(6) Interest income and rates include the
effects of a tax equivalent adjustment to adjust tax-exempt
interest income on tax exempt loans and investment securities to a
fully taxable basis.
(7) Average balances are average daily
balances.
(8) Includes finance lease.
Loan Portfolio and Asset
Quality
For the Quarters Ended
(Unaudited)
(In Thousands, Except %)
2019
2018
September 30,
% of
June 30,
% of
March 31,
% of
December 31,
% of
September 30,
% of
2019
Total
2019
Total
2019
Total
2018
Total
2018
Total
Loan portfolio
Commercial and industrial
$
576,018
20.60
%
$
666,025
23.12
%
$
635,673
22.64
%
$
591,479
22.19
%
$
521,396
20.45
%
Construction and land development
596,459
21.33
%
582,715
20.23
%
579,584
20.65
%
583,022
21.87
%
586,324
22.99
%
Commercial real estate:
0.00
%
Nonfarm, nonresidential
911,205
32.59
%
893,085
31.01
%
851,102
30.32
%
752,806
28.24
%
730,586
28.65
%
Other
32,466
1.16
%
37,789
1.31
%
40,597
1.45
%
47,965
1.80
%
45,954
1.80
%
Residential real estate:
Closed-end 1-to-4 family
477,789
17.09
%
497,838
17.28
%
498,511
17.76
%
494,366
18.55
%
478,418
18.76
%
Other
196,322
7.02
%
198,016
6.87
%
197,446
7.03
%
190,173
7.13
%
181,890
7.13
%
Consumer and other
5,974
0.21
%
4,965
0.17
%
4,464
0.16
%
5,588
0.21
%
5,553
0.22
%
Total loans held for investment
$
2,796,233
100.00
%
$
2,880,433
100.00
%
$
2,807,377
100.00
%
$
2,665,399
100.00
%
$
2,550,121
100.00
%
Allowance for loan losses roll forward
summary
Allowance for loan losses at the beginning
of the period
$
27,443
$
27,857
$
23,451
$
22,479
$
22,341
Charge-offs
(2,021
)
(7,592
)
(653
)
(5
)
(5
)
Recoveries
52
147
4
2
7
Provision for Loan losses
1,000
7,031
5,055
975
136
Allowance for loan losses at the end of
the period
$
26,474
$
27,443
$
27,857
$
23,451
$
22,479
Allowance for loan losses as a percentage
of total loans held for investment
0.95
%
0.95
%
0.99
%
0.88
%
0.88
%
Charge-offs
Commercial and industrial
$
(1,935
)
$
(7,563
)
$
(568
)
$
-
$
-
Residential real estate
-
-
(15
)
-
-
Construction and land development
(59
)
-
-
-
-
Consumer and other
(27
)
(29
)
(70
)
(5
)
(5
)
Total Charge-offs
(2,021
)
(7,592
)
(653
)
(5
)
(5
)
Recoveries
Commercial and industrial
30
70
-
-
-
Residential real estate
-
16
2
1
5
Consumer and other
22
61
2
1
2
Total Recoveries
52
147
4
2
7
Net (charge-offs) recoveries
$
(1,969
)
$
(7,445
)
$
(649
)
$
(3
)
$
2
Net charge-offs (recoveries) as a
percentage of average total loans(b)
0.27
%
1.04
%
0.00
%
0.00
%
0.00
%
Loans classified as substandard or
worse
$
49,424
$
28,151
$
35,728
$
38,711
$
17,004
Nonperforming assets(a)
Past due 90 days or more and accruing
interest
$
732
$
676
$
180
$
208
$
565
Nonaccrual
2,375
4,030
11,724
5,488
3,407
Total nonperforming loans held for
investment
$
3,107
$
4,706
$
11,904
$
5,696
$
3,972
Foreclosed assets
-
-
-
-
1,853
Total nonperforming assets
$
3,107
$
4,706
$
11,904
$
5,696
$
5,825
Total nonperforming loans as a percentage
of loans held for investment
0.11
%
0.16
%
0.42
%
0.21
%
0.16
%
Total nonperforming assets as a percentage
of total assets
0.08
%
0.12
%
0.28
%
0.13
%
0.14
%
Total accruing loans over 90 days
delinquent as a percentage of total assets
0.02
%
0.02
%
0.00
%
0.00
%
0.01
%
Loans restructured as troubled debt
restructurings
$
313
$
316
$
319
$
167
$
883
Troubled debt restructurings as a
percentage of loans held for investment
0.01
%
0.01
%
0.01
%
0.01
%
0.03
%
(a) Nonperforming assets excludes purchase
credit impaired loans
(b) Annualized
Preliminary Capital
Ratios
(Unaudited)
(In Thousands, Except %)
Computation of Tangible Common Equity
to Tangible Assets:
September 30, 2019
December 31, 2018
Total Shareholders' Equity
$
408,168
$
372,740
Less:
Goodwill
18,176
18,176
Other intangibles
587
991
Tangible Common Equity
$
389,405
$
353,573
Total Assets
$
3,818,324
$
4,249,439
Less:
Goodwill
18,176
18,176
Other intangibles
587
991
Tangible Assets
$
3,799,561
$
4,230,272
Preliminary Total Risk-Weighted
Assets
$
3,230,842
$
3,011,345
Total Common Equity to Total
Assets
10.7
%
8.8
%
Tangible Common Equity to Tangible
Assets
10.2
%
8.4
%
September 30, 2019
December 31, 2018
Preliminary Regulatory Capital:
Common Equity Tier 1 Capital
$
387,909
$
367,096
Tier 1 Capital
387,909
367,096
Total Capital
473,294
449,325
Preliminary Regulatory Capital
Ratios:
Common Equity Tier 1
12.0
%
12.2
%
Tier 1 Risk-Based
12.0
%
12.2
%
Total Risk-Based
14.7
%
12.4
%
Tier 1 Leverage
9.8
%
8.8
%
Non-GAAP
Reconciliation
For the Years and Quarters
Ended
(Unaudited)
(In Thousands, Except Share Data
and %)
2019
2018
Core net income
Third Quarter
Second Quarter
First Quarter
Fourth Quarter
Third Quarter
Pre-tax net income
$
13,441
$
5,887
$
3,235
$
3,873
$
11,617
Non-core items:
Noninterest income
(Gain) / loss on sales of securities
(1,493
)
-
-
4,160
-
Loss on sales of loans
1,765
-
-
-
-
Noninterest expenses
FDIC assessment credit
(757
)
-
-
-
-
Post-employment and retirement expense
-
-
4,143
3,151
-
Pre-tax core net income
$
12,956
$
5,887
$
7,378
$
11,184
$
11,617
Pre-tax pre-provision core
profit
$
13,956
$
12,918
$
12,433
$
12,159
$
11,753
Pre-tax core net income
$
12,956
$
5,887
$
7,378
$
11,184
$
11,617
Core income tax expense
2,030
706
1,275
1,998
1,068
Core net income
$
10,926
$
5,181
$
6,103
$
9,186
$
10,549
Less: earnings attributable to
noncontrolling interest
-
8
-
8
-
Core net income available to common
shareholders
10,926
5,173
6,103
9,178
10,549
Less: earnings allocated to participating
securities
74
42
71
100
190
Core net income allocated to common
shareholders
10,852
5,131
6,032
9,078
10,359
Weighted average common shares outstanding
fully diluted
14,991,363
14,894,140
14,804,830
14,821,540
14,903,751
Core diluted earnings per share
Diluted earnings per share
$
0.75
$
0.34
$
0.19
$
0.25
$
0.70
Non-core items:
Noninterest income
(Gain) / loss on sales of securities
(0.10
)
-
-
0.28
-
Loss on sales of loans
0.12
-
-
-
-
Noninterest expenses
FDIC assessment credit
(0.04
)
-
-
-
-
Accrual for post-employment benefits
-
-
0.28
0.21
-
Tax effect
(0.01
)
-
(0.06
)
(0.13
)
-
Core diluted earnings per share
$
0.72
$
0.34
$
0.41
$
0.61
$
0.70
Non-GAAP financial measures that adjust
GAAP reported net income and other metrics for certain income and
expense items. Excludes 3Q’19 FDIC nonrecurring assessment credit,
gain on sales of securities and loss on sales of loans. Excludes
1Q’19 compensation-related, nonrecurring expenses and 4Q'18
compensation-related, nonrecurring expenses and securities
losses.
See "GAAP reconciliation and use of
non-GAAP financial measures" and the reconciliation tables above
for a discussion and reconciliation of non-GAAP financial
measures.
Non-GAAP
Reconciliation
For the Quarters Ended
(Unaudited)
(In Thousands, Except Share Data
and %)
2019
2018
Core efficiency ratio
Third Quarter
Second Quarter
First Quarter
Fourth Quarter
Third Quarter
Total noninterest expense
$
18,614
$
19,370
$
22,616
$
21,689
$
18,251
Plus FDIC assessment credit
757
-
-
-
-
Less post-employment and retirement
expense
-
-
(4,143
)
(3,151
)
-
Core noninterest expense
$
19,371
$
19,370
$
18,473
$
18,538
$
18,251
Net interest income
$
28,262
$
27,365
$
27,420
$
26,921
$
26,562
Total noninterest income
4,793
4,923
3,486
(384
)
3,442
(Gain) / loss on sales of securities
(1,493
)
-
-
4,160
-
Loss on sales of loans
1,765
-
-
-
-
Core noninterest income
$
5,065
$
4,923
$
3,486
$
3,776
$
3,442
Core revenue
$
33,327
$
32,288
$
30,906
$
30,697
$
30,004
Efficiency ratio (GAAP)(1)
56.3
%
60.0
%
73.2
%
81.7
%
60.8
%
Core efficiency ratio
58.1
%
60.0
%
59.8
%
60.4
%
60.8
%
(1) Efficiency ratio (GAAP) is calculated
by dividing reported noninterest expense by reported total core
revenue
2019
2018
Tangible assets and equity
Third Quarter
Second Quarter
First Quarter
Fourth Quarter
Third Quarter
Tangible Assets
Total assets
$
3,818,324
$
4,071,971
$
4,238,436
$
4,249,439
$
4,167,813
Less goodwill
18,176
18,176
18,176
18,176
18,176
Less intangibles, net
587
709
844
991
1,151
Tangible assets
$
3,799,561
$
4,053,086
$
4,219,416
$
4,230,272
$
4,148,486
Tangible Common Equity
Total shareholders' equity
$
408,168
$
393,516
$
383,421
$
372,740
$
356,074
Less goodwill
18,176
18,176
18,176
18,176
18,176
Less intangibles, net
587
709
844
991
1,151
Tangible common equity
$
389,405
$
374,631
$
364,401
$
353,573
$
336,747
Common shares outstanding
14,636,484
14,628,287
14,574,339
14,538,085
14,525,351
Book value per common share
$
27.89
$
26.90
$
26.31
$
25.64
$
24.51
Tangible book value per common
share
$
26.61
$
25.61
$
25.00
$
24.32
$
23.18
Total shareholders' equity to total
assets
10.7
%
9.7
%
9.0
%
8.8
%
8.5
%
Tangible common equity to tangible
assets
10.2
%
9.2
%
8.6
%
8.4
%
8.1
%
Non-GAAP financial measures that adjust
GAAP reported net income and other metrics for certain income and
expense items. Excludes 3Q’19 FDIC nonrecurring assessment credit,
gain on sales of securities and loss on sales of loans. Excludes
1Q’19 compensation-related, nonrecurring expenses and 4Q'18
compensation-related, nonrecurring expenses and securities
losses.
See "GAAP reconciliation and use of
non-GAAP financial measures" and the reconciliation tables above
for a discussion and reconciliation of non-GAAP financial
measures.
Non-GAAP
Reconciliation
For the Quarters Ended
(Unaudited)
(In Thousands, Except Share Data
and %)
2019
2018
Return on average tangible common
equity
Third Quarter
Second Quarter
First Quarter
Fourth Quarter
Third Quarter
Total average shareholders' equity
$
399,096
$
388,460
$
377,116
$
360,709
$
351,293
Less average goodwill
18,176
18,176
18,176
18,176
18,176
Less intangibles, net
587
709
844
991
1,151
Average tangible common equity
$
380,333
$
369,575
$
358,096
$
341,542
$
331,966
Net income available to common
shareholders (1)
$
11,324
$
5,173
$
2,901
$
3,743
$
10,549
Return on average tangible common
equity
11.8
%
5.6
%
3.3
%
4.3
%
12.6
%
2019
2018
Core return on average tangible common
equity
Third Quarter
Second Quarter
First Quarter
Fourth Quarter
Third Quarter
Pre-tax net income
$
13,441
$
5,887
$
3,235
$
3,873
$
11,617
Adjustments:
Add non-core items
(485
)
-
4,143
7,311
-
Less core income tax expense
2,030
706
1,275
1,998
1,068
Core net income (2)
$
10,926
$
5,181
$
6,103
$
9,178
$
10,549
Core return on average tangible common
equity
11.4
%
5.6
%
6.9
%
10.7
%
12.6
%
2019
2018
Core return on average assets and
equity
Third Quarter
Second Quarter
First Quarter
Fourth Quarter
Third Quarter
Net income
$
11,324
$
5,173
$
2,901
$
3,743
$
10,549
Average assets
3,999,347
4,105,102
4,220,255
4,183,703
4,132,501
Average equity
399,096
388,460
377,116
360,709
351,293
Return on average assets
1.12
%
0.51
%
0.28
%
0.35
%
1.01
%
Return on average equity
11.3
%
5.3
%
3.1
%
4.1
%
11.9
%
Core net income (2)
$
10,926
$
5,181
$
6,103
$
9,178
$
10,549
Core return on average assets
1.08
%
0.51
%
0.59
%
0.87
%
1.01
%
Core return on average equity
10.9
%
5.3
%
6.6
%
10.1
%
11.9
%
2019
2018
Core total revenue
Third Quarter
Second Quarter
First Quarter
Fourth Quarter
Third Quarter
Net interest income
$
28,262
$
27,365
$
27,420
$
26,921
$
26,562
Noninterest income
4,793
4,923
3,486
(384
)
3,442
Adjustments
(Gain) / loss on sales of securities
(1,493
)
-
-
4,160
-
Loss on sales of loans
1,765
-
-
-
-
Core total revenue
$
33,327
$
32,288
$
30,906
$
30,697
$
30,004
Annualized net income available to
common shareholders (1)
$
44,927
$
20,749
$
11,765
Annualized core net income (2)
$
43,349
$
20,781
$
24,752
(1) Annualized net income available to
common shareholders utilized in calculating year-to-date return on
average tangible common equity.
(2) Annualized core net income utilized in
calculating core return on average tangible common equity and core
return on average assets and average equity.
Non-GAAP financial measures that adjust
GAAP reported net income and other metrics for certain income and
expense items. Excludes 3Q’19 FDIC nonrecurring assessment credit,
gain on sales of securities and loss on sales of loans. Excludes
1Q’19 compensation-related, nonrecurring expenses and 4Q'18
compensation-related, non-reoccurring expenses and securities
losses.
See "GAAP reconciliation and use of
non-GAAP financial measures" and the reconciliation tables above
for a discussion and reconciliation of non-GAAP financial
measures.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20191023005745/en/
Chris Black EVP, Chief Financial Officer (615) 721-6096
chris.black@franklinsynergy.com
Franklin Financial Network (NYSE:FSB)
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