Company Quick10K Filing
Quick10K
Franklin Financial Network
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$27.86 15 $406
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
8-K 2019-05-23 Shareholder Vote
8-K 2019-05-10 Regulation FD, Exhibits
8-K 2019-04-24 Regulation FD, Exhibits
8-K 2019-04-24 Earnings, Regulation FD, Exhibits
8-K 2019-04-08 Regulation FD
8-K 2019-03-08 Officers, Regulation FD, Exhibits
8-K 2019-02-08 Regulation FD, Exhibits
8-K 2019-01-23 Regulation FD, Exhibits
8-K 2019-01-23 Regulation FD, Exhibits
8-K 2019-01-23 Earnings, Regulation FD, Exhibits
8-K 2019-01-14 Other Events, Exhibits
8-K 2018-12-12 Officers, Regulation FD, Exhibits
8-K 2018-10-24 Earnings, Regulation FD, Exhibits
8-K 2018-08-28 Enter Agreement, Exhibits
8-K 2018-07-25 Earnings, Regulation FD, Exhibits
8-K 2018-06-05 Regulation FD, Exhibits
8-K 2018-05-25 Shareholder Vote
8-K 2018-05-24 Regulation FD, Exhibits
8-K 2018-04-25 Earnings, Regulation FD, Exhibits
8-K 2018-04-12 Officers, Exhibits
8-K 2018-04-01 Officers
8-K 2018-03-28 Enter Agreement, Exhibits
8-K 2018-01-24 Earnings, Regulation FD, Exhibits
8-K 2018-01-09 Earnings, Other Events
TXT Textron 11,830
MLCO Melco Resorts & Entertainment 10,330
MTSI Macom Technology Solutions Holdings 1,010
CMRE Costamare 653
PRQR Proqr Therapeutics 431
CELC Celcuity 228
GORO Gold Resource 203
ASRV Ameriserv Financial 73
VRCP Virtual Crypto Technologies 0
FUSZ nFusz 0
FSB 2019-03-31
Part I Financial Information
Item 1. Consolidated Financial Statements
Note 1-Basis of Presentation
Note 3-Loans
Note 4-Loan Servicing
Note 5-Leases
Note 6-Share-Based Payments
Note 7-Regulatory Capital Matters
Note 8-Derivatives Instruments
Note 9-Fair Value
Note 10-Earnings per Share
Note 11-Subordinated Debt Issuance
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (All Dollar Values in This Section Are in Thousands.)
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
Part II Other Information
Item 1. Legal Proceedings.
Item 1A. Risk Factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 3. Defaults Upon Senior Securities.
Item 4. Mine Safety Disclosures.
Item 5. Other Information.
Item 6. Exhibits
EX-10.2 fsb-ex102_43.htm
EX-10.3 fsb-ex103_61.htm
EX-10.4 fsb-ex104_80.htm
EX-10.5 fsb-ex105_78.htm
EX-10.6 fsb-ex106_77.htm
EX-31.1 fsb-ex311_8.htm
EX-31.2 fsb-ex312_6.htm
EX-32 fsb-ex32_7.htm

Franklin Financial Network Earnings 2019-03-31

FSB 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 fsb-10q_20190331.htm 10-Q fsb-10q_20190331.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2019

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission file number 001-36895

 

FRANKLIN FINANCIAL NETWORK, INC.

(Exact name of registrant as specified in its charter)

 

Tennessee

20-8839445

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

 

722 Columbia Avenue

Franklin, Tennessee

37064

(Address of principal executive offices)

(Zip Code)

615-236-2265

(Registrant’s telephone number, including area code)

N/A

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

 

Indicate by check mark whether the registrant (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.

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

  

Smaller reporting company

 

 

 

 

 

 

Emerging growth company

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

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

 

Securities registered pursuant to Section 12(b) of the Act.

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, no par value

FSB

New York Stock Exchange

 

The number of shares outstanding of the registrant’s common stock, no par value per share, as of May 3, 2019, was 14,729,001.

 

 

 


TABLE OF CONTENTS

 

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

47

Item  4. Controls and Procedures

47

 

 

PART II OTHER INFORMATION

 

 

 

Item 1. Legal Proceedings

48

Item 1A. Risk Factors

48

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

48

Item 3. Defaults Upon Senior Securities

48

Item 4. Mine Safety Disclosures

48

Item 5. Other Information

48

Item 6. Exhibits

49

 

 

SIGNATURES

 

 


 

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

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, 2018.

1


 

PART I FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

FRANKLIN FINANCIAL NETWORK, INC.

CONSOLIDATED BALANCE SHEETS

(Dollar amounts in thousands, except share and per share data)

 

 

 

March 31,

2019

 

 

December 31,

2018

 

 

 

(Unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Cash and due from financial institutions

 

$

300,113

 

 

$

280,212

 

Certificates of deposit at other financial institutions

 

 

3,595

 

 

 

3,594

 

Securities available for sale

 

 

799,301

 

 

 

1,030,668

 

Securities held to maturity (fair value 2019—$118,866 and 2018—$118,955)

 

 

118,831

 

 

 

121,617

 

Loans held for sale, at fair value

 

 

21,730

 

 

 

11,103

 

Loans held for investment

 

 

2,807,377

 

 

 

2,665,399

 

Allowance for loan losses

 

 

(27,857

)

 

 

(23,451

)

Net loans

 

 

2,779,520

 

 

 

2,641,948

 

Restricted equity securities, at cost

 

 

22,803

 

 

 

21,831

 

Premises and equipment, net

 

 

12,682

 

 

 

12,371

 

Accrued interest receivable

 

 

14,232

 

 

 

13,337

 

Bank owned life insurance

 

 

55,614

 

 

 

55,239

 

Deferred tax asset

 

 

12,208

 

 

 

13,189

 

Servicing rights, net

 

 

3,366

 

 

 

3,403

 

Goodwill

 

 

18,176

 

 

 

18,176

 

Core deposit intangible, net

 

 

807

 

 

 

952

 

Other assets

 

 

75,458

 

 

 

21,799

 

Total assets

 

$

4,238,436

 

 

$

4,249,439

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

Deposits

 

 

 

 

 

 

 

 

Non-interest bearing

 

$

304,937

 

 

$

290,580

 

Interest bearing

 

 

3,010,906

 

 

 

3,141,227

 

Total deposits

 

 

3,315,843

 

 

 

3,431,807

 

Federal Home Loan Bank advances

 

 

416,500

 

 

 

368,500

 

Subordinated notes, net

 

 

58,738

 

 

 

58,693

 

Accrued interest payable

 

 

5,041

 

 

 

4,700

 

Other liabilities

 

 

58,800

 

 

 

12,906

 

Total liabilities

 

 

3,854,922

 

 

 

3,876,606

 

Equity

 

 

 

 

 

 

 

 

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

 

 

123,250

 

 

 

123,176

 

Accumulated other comprehensive loss

 

 

(6,587

)

 

 

(15,341

)

Total shareholders’ equity

 

 

383,421

 

 

 

372,740

 

Non-controlling interest in consolidated subsidiary

 

 

93

 

 

 

93

 

Total equity

 

 

383,514

 

 

 

372,833

 

Total liabilities and equity

 

$

4,238,436

 

 

$

4,249,439

 

 

See accompanying notes to consolidated financial statements.

 

2


 

FRANKLIN FINANCIAL NETWORK, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Dollar amounts in thousands, except share and per share data)

(Unaudited)

 

 

 

Three Months Ended

March 31,

 

 

 

2019

 

 

2018

 

Interest income and dividends

 

 

 

 

 

 

 

 

Loans, including fees

 

$

38,338

 

 

$

28,793

 

Securities:

 

 

 

 

 

 

 

 

Taxable

 

 

6,394

 

 

 

6,111

 

Tax-Exempt

 

 

1,470

 

 

 

1,915

 

Dividends on restricted equity securities

 

 

334

 

 

 

274

 

Federal funds sold and other

 

 

987

 

 

 

954

 

Total interest income

 

 

47,523

 

 

 

38,047

 

Interest expense

 

 

 

 

 

 

 

 

Deposits

 

 

16,990

 

 

 

10,643

 

Federal funds purchased and repurchase agreements

 

 

72

 

 

 

96

 

Federal Home Loan Bank advances

 

 

1,959

 

 

 

1,110

 

Subordinated notes and other borrowings

 

 

1,082

 

 

 

1,082

 

Total interest expense

 

 

20,103

 

 

 

12,931

 

Net interest income

 

 

27,420

 

 

 

25,116

 

Provision for loan losses

 

 

5,055

 

 

 

573

 

Net interest income after provision for loan losses

 

 

22,365

 

 

 

24,543

 

Noninterest income

 

 

 

 

 

 

 

 

Service charges on deposit accounts

 

 

74

 

 

 

42

 

Other service charges and fees

 

 

757

 

 

 

751

 

Mortgage banking revenue

 

 

1,672

 

 

 

1,549

 

Wealth management

 

 

627

 

 

 

704

 

Gain on sale or call of securities

 

 

149

 

 

 

 

Net (loss) gain on sale of loans

 

 

(217

)

 

 

9

 

Net gain on sale of foreclosed assets

 

 

4

 

 

 

3

 

Other

 

 

420

 

 

 

398

 

Total noninterest income

 

 

3,486

 

 

 

3,456

 

Noninterest expense

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

14,743

 

 

 

9,188

 

Occupancy and equipment

 

 

3,113

 

 

 

2,594

 

FDIC assessment expense

 

 

990

 

 

 

660

 

Marketing

 

 

319

 

 

 

280

 

Professional fees

 

 

923

 

 

 

869

 

Amortization of core deposit intangible

 

 

145

 

 

 

104

 

Other

 

 

2,383

 

 

 

1,793

 

Total noninterest expense

 

 

22,616

 

 

 

15,488

 

Income before income tax expense

 

 

3,235

 

 

 

12,511

 

Income tax expense

 

 

334

 

 

 

2,459

 

Net income

 

 

2,901

 

 

 

10,052

 

Earnings attributable to noncontrolling interest

 

 

 

 

 

 

Net income available to common shareholders

 

$

2,901

 

 

$

10,052

 

Earnings per share:

 

 

 

 

 

 

 

 

Basic

 

$

0.20

 

 

$

0.76

 

Diluted

 

 

0.19

 

 

 

0.73

 

Dividend per share

 

$

0.04

 

 

$

 

 

See accompanying notes to consolidated financial statements.

 

3


 

FRANKLIN FINANCIAL NETWORK, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Dollar amounts in thousands, except share and per share data)

(Unaudited)

 

 

 

Three Months Ended

March 31,

 

 

 

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

)

 

See accompanying notes to consolidated financial statements.

 

4


 

FRANKLIN FINANCIAL NETWORK, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

Three Months Ended March 31, 2019 and March 31, 2018

(Dollar amounts in thousands, except share and per share data)

(Unaudited)

 

 

 

Shareholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

Preferred

 

 

Common Stock

 

 

Retained

 

 

Accumulated

Other

Comprehensive

 

 

Noncontrolling

 

 

Total

 

 

 

Stock

 

 

Shares

 

 

Amount

 

 

Earnings

 

 

Loss

 

 

Interest

 

 

Equity

 

Balance at January 1, 2018

 

$

 

 

 

13,237,128

 

 

$

222,665

 

 

$

88,671

 

 

$

(6,786

)

 

$

103

 

 

$

304,653

 

Exercise of common stock options, includes net settlement of shares

 

 

 

 

 

21,348

 

 

 

220

 

 

 

 

 

 

 

 

 

 

 

 

220

 

Stock based compensation expense, net of restricted

   share forfeitures

 

 

 

 

 

(334

)

 

 

759

 

 

 

 

 

 

 

 

 

 

 

 

759

 

Stock issued in conjunction with 401(k) employer

   match, net of distributions

 

 

 

 

 

 

 

 

(50

)

 

 

 

 

 

 

 

 

 

 

 

(50

)

Net income

 

 

 

 

 

 

 

 

 

 

 

10,052

 

 

 

 

 

 

 

 

 

10,052

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(10,769

)

 

 

 

 

 

(10,769

)

Balance at March 31, 2018

 

$

 

 

 

13,258,142

 

 

$

223,594

 

 

$

98,723

 

 

$

(17,555

)

 

$

103

 

 

$

304,865

 

Balance at January 1, 2019

 

$

 

 

 

14,538,085

 

 

$

264,905

 

 

$

123,176

 

 

$

(15,341

)

 

$

93

 

 

$

372,833

 

Exercise of common stock options, includes net settlement of shares

 

 

 

 

 

35,046

 

 

 

524

 

 

 

 

 

 

 

 

 

 

 

 

524

 

Issuance of restricted stock, net of forfeitures

 

 

 

 

 

1,208

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock based compensation expense, net of

   share forfeitures

 

 

 

 

 

 

 

 

1,329

 

 

 

 

 

 

 

 

 

 

 

 

1,329

 

Cash dividends - common stock ($0.04 per share)

 

 

 

 

 

 

 

 

 

 

 

(583

)

 

 

 

 

 

 

 

 

(583

)

Adjustment for adoption of ASU 2017-08

   amortization of premiums

 

 

 

 

 

 

 

 

 

 

 

(2,244

)

 

 

 

 

 

 

 

 

(2,244

)

Net income

 

 

 

 

 

 

 

 

 

 

 

2,901

 

 

 

 

 

 

 

 

 

2,901

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8,754

 

 

 

 

 

 

8,754

 

Balance at March 31, 2019

 

$

 

 

 

14,574,339

 

 

$

266,758

 

 

$

123,250

 

 

$

(6,587

)

 

$

93

 

 

$

383,514

 

 

See accompanying notes to consolidated financial statements.

 

5


 

FRANKLIN FINANCIAL NETWORK, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollar amounts in thousands, except share and per share data)

(Unaudited)

 

 

 

Three Months Ended

March 31,

 

 

 

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

 

 

 

 

See accompanying notes to consolidated financial statements.

 

6


 

FRANKLIN FINANCIAL NETWORK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollar amounts in thousands, except share and per share data)

(Unaudited)

NOTE 1—BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements have been prepared in accordance with instructions to 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 19, 2019.

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

Recently Adopted Accounting Pronouncements

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

The guidance requires that a lessee should 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 became effective for the Company on January 1, 2019. In July 2016, the FASB issued Accounting Standards Update 2018-10, Codification Improvements to Topic 842,

Leases which provides technical corrections and improvements to ASU 2016-02. In July 2016, the FASB issued Accounting Standards Update 2018-11, Leases (Topic 842): Targeted Improvements which provides an optional transition method to adopt the new requirements of ASU 2016-02 as of the adoption date with no adjustment to the presentation or disclosure of comparative prior periods included in the financial statements in the period of adoption. The Company elected the optional transition method on January 1, 2019, which will result in presentation of periods prior to adoption under the prior lease guidance of ASC Topic 840. In December 2018, the FASB issued Accounting Standards Update 2018-20, Leases (Topic 842): Narrow-Scope Improvements for Lessors. ASU 2018-20 permits lessors to account for certain taxes as lessee costs, permits lessors to exclude from revenue certain lessor costs paid by lessees directly to third parties, and requires lessors to allocate certain variable payments to lease and non-lease components. See Note 5 Leases for more information.  

In March 2017, the FASB issued ASU 2017-08, Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities. These amendments shorten the amortization period for certain callable debt securities held at a premium to require such premiums to be amortized to the earliest call date unless applicable guidance related to certain pools of securities is applied to consider estimated prepayments. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. The guidance became effective for the Company on January 1, 2019, and using a modified retrospective transition adoption approach, we recognized a cumulative effect reduction to retain earnings totaling $2,244.

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

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

7


 

Recent Accounting Pronouncements Not Yet Adopted

In June 2016, FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The ASU requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. Organizations will continue to use judgment to determine which loss estimation method is appropriate for their circumstances. The ASU requires enhanced disclosures to help investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. These disclosures include qualitative and quantitative requirements that provide additional information about the amounts recorded in the financial statements. In addition, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The ASU is effective for the Company for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019 (i.e., January 1, 2020, for calendar year entities). Early application will be permitted for all organizations for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018; however, the Company does not currently plan to early adopt this ASU. The Company is currently gathering information and working to determine the methodology to be used. The Company is gathering as much data as possible to enable review scenarios and to determine which calculations will produce the most reliable results. The Company is still evaluating the impact of this new guidance on our financial statements; however an increase in the overall ALLL is likely upon adoption to provide for expected credit losses over the life of the loan portfolio.

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

In August 2018, the FASB issued ASU No. 2018-13, “Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement.” This ASU eliminates, adds and modifies certain disclosure requirements for fair value measurements. Among the changes, entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. ASU No. 2018-13 is effective for interim and annual reporting periods beginning after December 15, 2019; early adoption is permitted. As ASU No. 2018-13 only revises disclosure requirements, it will not have a material impact on the Company’s consolidated financial statements.

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 effective for us on January 1, 2021, with early adoption permitted, and is not expected to have a significant impact on our financial statements.

 

ASU 2018-15, “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40) - Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.” ASU 2018-15 clarifies certain aspects of ASU 2015-05, “Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement,” which was 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.

8


 

NOTE 2—SECURITIES

The following table summarizes the amortized cost and fair value of the securities available for sale portfolio at March 31, 2019 and December 31, 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

 

March 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

$

69,548

 

 

$

70

 

 

$

 

 

$

69,618

 

U.S. government sponsored entities and agencies

 

 

1,829

 

 

 

1

 

 

 

(10

)

 

 

1,820

 

Mortgage-backed securities: residential

 

 

531,551

 

 

 

387

 

 

 

(8,480

)

 

 

523,458

 

Asset-backed securities

 

 

25,745

 

 

 

 

 

 

(695

)

 

 

25,050

 

Corporate notes

 

 

17,878

 

 

 

123

 

 

 

(62

)

 

 

17,939

 

State and political subdivisions

 

 

160,556

 

 

 

2,087

 

 

 

(1,227

)

 

 

161,416

 

Total

 

$

807,107

 

 

$

2,668

 

 

$

(10,474

)

 

$

799,301

 

 

 

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Fair

Value

 

December 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

$

253,015

 

 

$

59

 

 

$

(60

)

 

$

253,014

 

U.S. government sponsored entities and agencies

 

 

21,999

 

 

 

1

 

 

 

(112

)

 

 

21,888

 

Mortgage-backed securities: residential

 

 

596,766

 

 

 

27

 

 

 

(16,094

)

 

 

580,699

 

Asset-backed securities

 

 

25,744

 

 

 

 

 

 

(900

)

 

 

24,844

 

Corporate notes

 

 

12,480

 

 

 

21

 

 

 

(77

)

 

 

12,424

 

State and political subdivisions

 

 

141,432

 

 

 

863

 

 

 

(4,496

)

 

 

137,799

 

Total

 

$

1,051,436

 

 

$

971

 

 

$

(21,739

)

 

$

1,030,668

 

 

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

 

 

 

Amortized

Cost

 

 

Gross

Unrecognized

Gains

 

 

Gross

Unrecognized

Losses

 

 

Fair

Value

 

March 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage backed securities: residential

 

$

73,865

 

 

$

85

 

 

$

(1,968

)

 

$

71,982

 

State and political subdivisions

 

 

44,966

 

 

 

1,918

 

 

 

 

 

 

46,884

 

Total

 

$

118,831

 

 

$

2,003

 

 

$

(1,968

)

 

$

118,866

 

December 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage backed securities: residential

 

$

75,944

 

 

$

34

 

 

$

(3,072

)

 

$

72,906

 

State and political subdivisions

 

 

45,673

 

 

 

466

 

 

 

(90

)

 

 

46,049

 

Total

 

$

121,617

 

 

$

500

 

 

$

(3,162

)

 

$

118,955

 

 

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

 

 

 

Three Months Ended

March 31,

 

 

 

2019

 

 

2018