Net Income $10.2 million, Diluted Earnings per share $0.66

Pre-Tax Pre-Provision Profit of $16.1 million, a 24.7% Year-Over-Year Increase

Strategic Merger with FB Financial Corporation Expected to Close in Third Quarter 2020

Franklin Financial Network, Inc. (the "Company") (NYSE: FSB), parent company of Franklin Synergy Bank (the "Bank"), reports net income of $10.2 million, or $0.66 per diluted common share, for the quarter-ended June 30, 2020, compared to net income of $5.2 million, or $0.34 per diluted common share, for the quarter-ended June 30, 2019. Pre-tax pre-provision profit was $16.1 million for the quarter-ended June 30, 2020, compared to $12.9 million for the quarter-ended June 30, 2019.

On a non-GAAP basis, net income excluding non-core revenues and non-core expenses (“core net income”) for the quarter-ended June 30, 2020 was $10.7 million, or $0.70 per diluted common share, compared to $5.2 million, or $0.34 per diluted common share, for the quarter-ended June 30, 2019. Core pre-tax pre-provision profit was $16.8 million for the quarter-ended June 30, 2020, an increase from $12.9 million in the quarter-ended June 30, 2019.

Chief Executive Officer, J. Myers Jones, III, stated, “Across our Company, at every level of our organization, I continue to be impressed and extremely proud of our Bank-wide team, that continues to perform with selflessness and unity as we navigate the challenges and new realities confronting our Company, community and society at-large. During this past quarter, our team has successfully executed our response to COVID-19, ensuring the safety and well-being of our employees and customers, fulfilled our role as trusted advisor and community pillar through the extension of $76.6 million of the Small Business Association ("SBA") Paycheck Protection Program (“PPP”) loans to our customers and continue to prepare for the closing and integration of our pending merger with our soon-to-be-partners at FirstBank.”

Jones continued, “Furthermore, we have continued to successfully operate our Company for the benefit of our shareholders as our team delivered a strong financial performance during this challenging quarter, highlighted by robust results from our mortgage group, net interest margin expansion and continued reduction of non-core assets and liabilities, all while continuing to strengthen our capital and loan loss reserve positions.”

Second Quarter Key Highlights

  • Core net income increased to $10.7 million, or $0.70 per diluted common share for the quarter-ended June 30, 2020 compared to $5.2 million, or $0.34 per diluted common share for the quarter-ended June 30, 2019
  • Core pre-tax pre-provision profit of $16.8 million, a 30.1% year-over-year increase
  • Core deposit growth of $496.4 million, or 26.6% year-over-year and $124.1 million, or 22.9% linked-quarter annualized
  • Sold the entirety of $76.6 million of SBA PPP loans originated to a third party at a minimal discount, recognized full loan fee amount of $1.5 million
  • Net interest margin (“NIM”) expanded 24 bps to 3.26%; excluding PPP fee income impact NIM was 3.13%
  • Record mortgage banking revenue of $8.7 million driven by robust origination and strong execution
  • SNC portfolio year-over-year reduction of 56.9%, or $131.6 million, to a balance of $99.6 million, representing 3.6% of loans held for investment ("HFI")
  • Securities to total assets declined to 13.3% as of June 30, 2020, down from 20.5% at June 30, 2019
  • Tangible book value per share of $27.01, up 5.5% year-over-year; Tangible Common Equity / Tangible Assets of 10.7% at June 30, 2020, up from 10.1% at December 31, 2019 and 9.2% at June 30, 2019

COVID-19 Operational Highlights

  • The Company continues to execute its business continuity plans and pandemic response plan, with 2/3 of branches currently being utilized per normal operating procedures and more than 50% of the Company’s employees continuing to operate remotely
  • As of July 15, 2020, the Company had approximately 170 loans totaling approximately $380 million that were expected to remain on temporary loan payment deferral during the next 90 day period, and the Company had approximately 260 loans totaling approximately $350 million that were previously granted a temporary loan payment deferral and are expected to return to payment status during the third quarter of 2020. The Company continues to proactively engage and work with customers. For comparison purposes, the Company had approximately 350 loans totaling approximately $490 million that were on deferral as of April 30, 2020.

Performance Summary

 

 

Reported GAAP Results

 

Non-GAAP "Core" Results(1)

(dollars in thousands, except share data and %)

 

2Q 2020

 

1Q 2020

 

2Q 2019

 

2Q 2020

 

1Q 2020

 

2Q 2019

Net Interest Income

 

$

29,528

 

 

$

27,464

 

 

$

27,365

 

 

$

27,897

 

 

$

27,464

 

 

$

27,365

 

Net Interest Margin (FTE)(2)

 

3.26

%

 

3.02

%

 

2.84

%

 

3.26

%

 

3.02

%

 

2.84

%

Provision for Loan Losses

 

$

3,195

 

 

$

13,022

 

 

$

7,031

 

 

$

3,195

 

 

$

13,022

 

 

$

7,031

 

Net Charge-offs / Average Loans

 

0.49

%

 

2.85

%

 

1.04

%

 

0.49

%

 

2.85

%

 

1.04

%

Noninterest Income

 

$

10,555

 

 

$

5,893

 

 

$

4,923

 

 

$

10,762

 

 

$

4,913

 

 

$

4,923

 

Noninterest Expense

 

$

23,976

 

 

$

22,421

 

 

$

19,370

 

 

$

21,859

 

 

$

20,768

 

 

$

19,370

 

Efficiency Ratio

 

59.8

%

 

67.2

%

 

60.0

%

 

56.5

%

 

64.1

%

 

60.0

%

Pre-tax Income

 

$

12,912

 

 

$

(2,086)

 

 

$

5,887

 

 

$

13,605

 

 

$

(1,413)

 

 

$

5,887

 

Net Income available to common shareholders(3)

 

$

10,174

 

 

$

(1,148)

 

 

$

5,173

 

 

$

10,686

 

 

$

(651)

 

 

$

5,173

 

Pre-tax pre-provision profit

 

$

16,107

 

 

$

10,936

 

 

$

12,918

 

 

$

16,800

 

 

$

11,609

 

 

$

12,918

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted EPS

 

$

0.66

 

 

$

(0.08)

 

 

$

0.34

 

 

$

0.70

 

 

$

(0.04)

 

 

$

0.34

 

Effective Tax Rate

 

21.14

%

 

44.97

%

 

11.99

%

 

21.40

%

 

53.94

%

 

11.99

%

Weighted Average Diluted Shares

 

15,271,414

 

15,321,476

 

14,894,140

 

15,271,414

 

15,321,476

 

14,894,140

Actual Shares Outstanding

 

14,937,776

 

14,859,704

 

14,628,287

 

14,937,776

 

14,859,704

 

14,628,287

Return on Average:

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

1.06

%

 

(0.12)

%

 

0.51

%

 

1.11

%

 

(0.07)

%

 

0.51

%

Equity

 

9.9

%

 

(1.1)

%

 

5.3

%

 

10.5

%

 

(0.6)

%

 

5.3

%

Tangible Common Equity

 

10.4

%

 

(1.2)

%

 

5.6

%

 

10.9

%

 

(0.7)

%

 

5.6

%

(1)

Non-GAAP financial measures that adjust GAAP reported net income and other metrics for certain income and expense items. Non-GAAP for 2Q20 excludes interest income - SBA PPP loans of $140, amortization loan fees SBA PPP loans of $1,491, gain on sales of securities of $166, loss on sales of loans of $143, merger related expenses of $1,540, and accrual for post-employment benefits of $577. Non-GAAP for 1Q2020 excludes gain on sales of securities of $1,396, loss on sales of loans of $416, and merger related expenses of $1,653. Non-GAAP for 2Q2019 excludes $598 employment related payroll adjustment expenses. 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).

(3)

Net income available to common shareholders includes a dividend declared and paid by the Company's REIT subsidiary to minority interest preferred shareholders in the fourth quarter of 2019.

Balance Sheet

Loans HFI decreased $61.0 million, or 8.6% annualized from the first quarter of 2020, and decreased $85.7 million year-over-year, or 3.0%. This net loan decrease for the second quarter of 2020 was driven primarily by the continued reduction in the Institutional loan portfolio.

The Shared National Credit ("SNC") portfolio decreased to $99.6 million, representing a 56.9% year-over-year and 22.6% annualized linked-quarter decrease. This is the lowest SNC balance held by the Company during the last seven quarters, representing 3.6% of loans HFI, which is more than half of the Company’s concentration of 9.3% of loans HFI at the peak of the SNC portfolio at December 31, 2018.

Non-SNC loans decreased in the second quarter by $55.1 million representing an annualized decrease of 8.1% from the first quarter of 2020. Despite continued economic uncertainty, customer line of credit utilization did not change much during the second quarter of 2020, following approximately $32.0 million of line of credit utilization in the first quarter of 2020. Of the $727.0 million of unfunded commitments at June 30, 2020, the Company estimates approximately $294.3 million, or approximately 40.5%, are available to be drawn by customers without further approval by the Bank.

Total deposits increased by $5.8 million, or 0.7% annualized when compared to the first quarter of 2020. Total deposits decreased by $3.4 million, basically flat when compared to the second quarter of 2019. Core deposits increased by $175.8 million, or 32.4% annualized from the first quarter 2020, and increased by $496.4 million, or 26.6% from the second quarter of 2019. The increase in core deposits, and in particular in noninterest bearing deposits, has been driven by continued focus on customer deposit growth, as well as additional liquidity in the banking system due to the overall market and economic factors. As a result of the focused strategic loan reduction and core deposit emphasis, loans HFI decreased to 88.9% of total deposits at June 30, 2020, when compared with 91.0% at March 31, 2020, and with 91.5% at June 30, 2019.

As of June 30, 2020, securities totaled $503.9 million, which represents 13.3% of total assets. The Company has reduced its securities portfolio by a total of $896.1 million since its peak level of $1.4 billion at March 31, 2018, representing a reduction of 64.0% as part of the strategic rotation and optimization away from non-core assets and liabilities. Wholesale funding, represented by brokered deposits and FHLB advances, totaled $506.5 million, down $659.8 million from the December 31, 2018 peak of $1.2 billion, a 56.6% decline in the non-core wholesale funding portfolio.

Net Interest Income and Net Interest Margin (NIM)

Net interest income increased to $29.5 million, or 7.5%, for the second quarter of 2020 compared to $27.5 million during the first quarter of 2020, and increased 7.9% year-over-year. The increase in net interest income during the quarter was driven primarily by $1.5 million of accelerated loan fees due to the sale of approximately $76.6 million of PPP loans that occurred prior-to-quarter end.

NIM (tax-equivalent basis) was 3.26% for the three months ended June 30, 2020, a 24 basis point increase quarter-over-quarter, and a 42 basis point increase year-over-year, The current increase was primarily driven by the accelerated loan fees due to the PPP loan sale, which contributed 13 basis points to the NIM. Excluding the recognition of $1.5 million of PPP loan fees, NIM would have been 3.13%.

Noninterest Income and Expense

Total noninterest income was $10.6 million and $5.9 million for the second and first quarters of 2020, respectively. After non-core adjustments, core noninterest income was $10.8 million and $4.9 million for the second and first quarters of 2020, an increase of 118.6% on a year-over-year basis. Mortgage banking revenue of $8.7 million in the second quarter of 2020, which more than doubled from the second quarter of 2019, was the primary driver of the substantial increase in total noninterest income. The robust results from mortgage banking were driven by a combination of historically low interest rates, strong origination pipelines and teams, as well as outstanding secondary market execution and pricing.

Total noninterest expense was $24.0 million and $22.4 million during the first quarter of 2020 and fourth quarter of 2019, respectively. Core non-interest expense increased 21.1% during the second quarter of 2020 when adjusted for merger-related expenses of $1.5 million and post-employment and retirement expenses of $0.6 million compared to first quarter of 2020 when adjusted for merger-related expenses of $1.7 million. Core non‑interest expense increased 12.8% year-over-year when compared to the second quarter of 2019 with no expense adjustments.

Asset Quality

Corporate and Healthcare Portfolios

 

2Q20

 

1Q20

 

4Q19

 

3Q19

 

2Q19

Corporate

 

$

95,150

 

 

$

102,370

 

 

$

139,840

 

 

$

133,386

 

 

$

170,125

 

Portion SNC

 

34,912

 

 

36,011

 

 

59,339

 

 

58,544

 

 

112,756

 

Portion not SNC

 

60,238

 

 

66,359

 

 

80,501

 

 

74,842

 

 

57,369

 

Healthcare

 

262,417

 

 

306,343

 

 

289,703

 

 

273,106

 

 

329,818

 

Portion SNC

 

64,690

 

 

69,515

 

 

77,319

 

 

85,932

 

 

118,460

 

Portion not SNC

 

197,727

 

 

236,828

 

 

212,384

 

 

187,174

 

 

211,358

 

Total institutional

 

$

357,567

 

 

$

408,713

 

 

$

429,543

 

 

$

406,492

 

 

$

499,943

 

Commercial and industrial

 

$

519,040

 

 

$

579,751

 

 

$

580,696

 

 

$

576,018

 

 

$

666,025

 

% of Institutional within commercial and industrial

 

68.9

%

 

70.5

%

 

74.0

%

 

70.6

%

 

75.1

%

Total SNC

 

$

99,602

 

 

$

105,526

 

 

$

136,658

 

 

$

144,476

 

 

$

231,216

 

% of total loans HFI

 

3.6

%

 

3.7

%

 

4.9

%

 

5.2

%

 

8.0

%

Institutional Loans Asset Quality

 

2Q20

 

1Q20

 

4Q19

 

3Q19

 

2Q19

Corporate loans

 

$

95,150

 

 

$

102,370

 

 

$

139,840

 

 

$

133,386

 

 

$

170,125

 

Loans classified as criticized or worse

 

—

 

 

—

 

 

17,608

 

 

17,598

 

 

—

 

Loans criticized or worse as % corporate Loans

 

0.0

%

 

0.0

%

 

12.6

%

 

13.2

%

 

0.0

%

Loans requiring specific reserve

 

$

—

 

 

$

—

 

 

$

17,608

 

 

$

—

 

 

$

—

 

Specific reserve

 

—

 

 

—

 

 

13,894

 

 

—

 

 

—

 

Specific reserve as % of corporate loans requiring specific reserve

 

0.0

%

 

0.0

%

 

78.9

%

 

0.0

%

 

0.0

%

Net charge-offs (1)

 

$

—

 

 

$

(20,428)

 

 

$

—

 

 

$

—

 

 

$

—

 

Healthcare loans

 

262,417

 

 

306,343

 

 

289,703

 

 

273,106

 

 

329,818

 

Loans classified as criticized or worse

 

28,209

 

 

33,735

 

 

21,517

 

 

21,554

 

 

20,699

 

Loans criticized or worse as a % of healthcare loans

 

10.7

%

 

11.0

%

 

7.4

%

 

7.9

%

 

6.3

%

Loans requiring specific reserve

 

$

1,339

 

 

$

6,592

 

 

$

6,667

 

 

$

—

 

 

$

2,193

 

Specific reserve

 

1,339

 

 

6,544

 

 

6,763

 

 

—

 

 

2,193

 

Specific reserve as % of healthcare loans requiring specific reserve

 

100.0

%

 

99.3

%

 

0.0

%

 

0.0

%

 

100.0

%

Net charge-offs

 

$

(5,152)

 

 

$

—

 

 

$

—

 

 

$

(1,691)

 

 

$

(7,563)

 

Total Institutional Loans

 

$

357,567

 

 

$

408,713

 

 

$

429,543

 

 

$

406,492

 

 

$

499,943

 

(1) Net charge-offs include approximately $2.9 million of demand deposit account (DDA) charge-offs for 1Q20.

 

In accordance with the CARES Act that was signed into law on March 27, 2020, the Company deferred implementation of CECL and thus elected to continue to utilize the incurred loss model ("ILM") to calculate loan loss reserves. The allowance for loan and lease losses ("ALLL") was $38.1 million representing 1.36% of total loans HFI at June 30, 2020 compared to $38.4 million (1.34% of loans HFI) at March 31, 2020 and $27.4 million (0.95% of total loans HFI) at June 30, 2019.

When combined with the cumulative $32.0 million in loan loss provisions recorded in the fourth quarter of 2019 and the first quarter of 2020, and netted against the cumulative $23.6 million in net charge-offs recorded in the fourth quarter of 2019 through the second quarter of 2020, the $3.2 million loan loss provision recorded for the second quarter of 2020 resulted in a net ALLL build of approximately $11.6 million, or an increase of approximately 43.9% since the third quarter of 2019.

As of June 30, 2020, the Company’s total nonperforming assets ("NPAs") were 0.65% of total assets, or $24.4 million, which represents a decrease of $3.0 million from March 31, 2020. The ALLL/NPAs coverage ratio was 1.56 at June 30, 2020, compared with the 1.40 coverage present at March 31, 2020. Criticized and classified assets were $50.7 million at June 30, 2020, representing 1.81% of loans HFI, a slight decrease from 1.86% of loans HFI at March 31, 2020, and December 31, 2019.

The Company reported no bank-owned real estate (OREO) at June 30, 2020.

Given the on-going and uncertain impact to the economy of the current COVID- 19 pandemic, the Company continues to monitor its portfolio as the potential exists for adverse events to impact credit quality trends.

Capital

Tangible common equity to tangible assets was 10.7% at June 30, 2020, compared with 10.1% and 9.2% at December 31, 2019, and June 30, 2019, respectively. The Company's tangible book value per share was $27.01 at June 30, 2020, compared to $25.61 at June 30, 2019, a 5.5% year-over-year increase.

Summary

Jones concluded, “I am proud and humbled to work with such a fine group of selfless professionals, as has been consistently demonstrated during the past year. We look forward to the conclusion of the current chapter of this wonderful franchise, with our sights set on the exciting future that lies before us with our new partners at FirstBank. We firmly believe that we will be better together with our focus continuing to be concentrated on our customers and our abilities being stronger than ever to meet their needs.”

WEBCAST AND CONFERENCE CALL INFORMATION

Due to the pending strategic merger with FB Financial Corporation, management will not conduct an earnings conference call or webcast.

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 June 30, 2020, the Bank currently operates through 15 branches in the growing Williamson, Rutherford and Davidson Counties and one loan production/deposit production office in Wilson County, 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, the transaction with FB Financial Corporation, and the COVID 19 pandemic. 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 16, 2020 and our Quarterly Report on Form 10-Q filed with the SEC on May 7, 2020. 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:
  • the risk that the cost savings and any revenue synergies from the proposed merger with FB Financial Corporation may not be realized or may take longer than anticipated to be realized;
  • disruption from the proposed merger with customer, supplier, or employee relationships;
  • the occurrence of any event, change, or other circumstances that could give rise to the termination of the merger agreement with FB Financial Corporation;
  • the failure to obtain necessary regulatory approvals for the proposed merger with FB Financial Corporation;
  • the possibility that the costs, fees, expenses, and charges related to the proposed merger with FB Financial Corporation may be greater than anticipated, including as a result of unexpected or unknown factors, events, or liabilities;
  • the failure of the conditions to the proposed merger to be satisfied;
  • the risks related to the integration of the combined businesses (as well as FB Financial Corporation’s acquisition of FNB Financial Corp completed February 14, 2020, and any future acquisitions), including the risk that the integration will be materially delayed or will be more costly or difficult than expected;
  • the diversion of management time on merger-related issues;
  • the ability of FB Financial Corporation to effectively manage the larger and more complex operations of the combined company following the proposed merger with the Company;
  • reputational risk and the reaction of the Company’s and FB Financial Corporation’s customers to the proposed merger;
  • the risk of litigation or regulatory action related to the proposed merger;
  • 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;
  • adverse trends or events affecting business industry groups, reduction in real estate values or markets, business closings or layoffs, inclement weather, natural disasters, pandemic crises, and international instability;
  • 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 non-interest 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 our market value and its impact on the securities held in our securities portfolio;
  • changes in the level of nonperforming assets and other credit quality measures, and their impact on the adequacy of our allowance for loan losses;
  • further deterioration in the credits that we are presently monitoring could result in future losses;
  • 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 proceeding 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;
  • 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 continuation of the disruption to the global economy caused by COVID-19, which could affect our capital and liquidity position, impair the ability of borrowers to repay outstanding loans and increase our allowance for loan and lease losses, impair the collateral values, cause an outflow of deposits, result in lost revenue or additional expenses, result in goodwill impairment charges, and increase our cost of capital;
  • natural or other disasters, acts of terrorism, widespread protests and civil unrest and pandemics, could have an adverse effect on us, including a material disruption of our operations or the ability or willingness of clients to access our products and services;
  • widespread system outages, caused by the failure of critical internal systems or critical services provided by third parties could adversely impact our financial condition and results of operations; and
  • depressed market values for our stock and adverse economic conditions sustained over a period of time may require a write down to goodwill.

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 16, 2020 with the SEC and our Quarterly Report on Form 10-Q filed with the SEC on May 7, 2020, as well as the section below entitled "Statement Regarding the Impact of the COVID-19 Pandemic." 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.

Statement Regarding the Impact of the COVID-19 Pandemic

The Company prioritizes the health and safety of its employees and customers, and it will continue to do so throughout the duration of the pandemic. At the same time, the Company remains focused on improving shareholder value, managing credit exposure, challenging expenses, enhancing the customer experience and supporting the communities it serves.

Through this earnings release, the Company has sought to describe the historical and future impact of the COVID‑19 pandemic on the Company's operations, including the discussions of our loan portfolio and credit quality. Although the Company believes that the statements that pertain to future events, results and trends and their impact on the Company's business are reasonable at the present time, those statements are not historical facts and are based upon current assumptions, expectations, estimates and projections, many of which, by their nature, are beyond the Company's control. Accordingly, all discussions regarding future events, results and trends and their impact on the Company's business, even in the near term, are necessarily uncertain given the fluid and evolving nature of the pandemic.

If the health, logistical or economic effects of the pandemic worsen, or if the assumptions, expectations, estimates or projections that underlie the Company's statements regarding future effects or trends prove to be incorrect, then the Company's operations may be materially and adversely impacted in ways that the Company cannot reasonably forecast.

Therefore, when reading this earnings release, undue reliance should not be placed upon any statement pertaining to future events, results and trends and their impact on the Company's business in future periods.

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 Interest Income" is defined as interest income adjusted for certain one-time items;
  • "Core Net Interest Income" is defined as net interest income adjusted for certain one-time items;
  • "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 %)

 

 

 

2020

 

2019

 

 

Second Quarter

 

First Quarter

 

Fourth Quarter

 

Third Quarter

 

Second Quarter

Statement of Income Data

 

 

 

 

 

 

 

 

 

 

Total interest income

 

$

39,814

 

 

$

41,607

 

 

$

43,185

 

 

$

46,531

 

 

$

47,453

 

Total interest expense

 

10,286

 

 

14,143

 

 

15,072

 

 

18,269

 

 

20,088

 

Net interest income

 

29,528

 

 

27,464

 

 

28,113

 

 

28,262

 

 

27,365

 

Provision for loan losses

 

3,195

 

 

13,022

 

 

18,961

 

 

1,000

 

 

7,031

 

Total noninterest income

 

10,555

 

 

5,893

 

 

4,573

 

 

4,793

 

 

4,923

 

Total noninterest expense

 

23,976

 

 

22,421

 

 

21,279

 

 

18,614

 

 

19,370

 

Net income before income taxes

 

12,912

 

 

(2,086)

 

 

(7,554)

 

 

13,441

 

 

5,887

 

Income tax expense

 

2,730

 

 

(938)

 

 

(2,970)

 

 

2,117

 

 

706

 

Net income available to common shareholders (a)

 

$

10,174

 

 

$

(1,148)

 

 

$

(4,592)

 

 

$

11,324

 

 

$

5,173

 

Pre-tax pre-provision profit

 

$

16,107

 

 

$

10,936

 

 

$

11,407

 

 

$

14,441

 

 

$

12,918

 

Net interest income (tax-equivalent basis)

 

$

30,028

 

 

$

28,000

 

 

$

28,778

 

 

$

28,808

 

 

$

27,921

 

Core net income* (a)

 

$

10,686

 

 

$

(651)

 

 

$

(4,102)

 

 

$

10,926

 

 

$

5,173

 

Per Common Share

 

 

 

 

 

 

 

 

 

 

Diluted net income

 

$

0.66

 

 

$

(0.08)

 

 

$

(0.31)

 

 

$

0.75

 

 

$

0.34

 

Core diluted net income *

 

0.70

 

 

(0.04)

 

 

(0.27)

 

 

0.72

 

 

0.34

 

Book value

 

28.25

 

 

27.51

 

 

27.68

 

 

27.89

 

 

26.90

 

Tangible book value*

 

27.01

 

 

26.26

 

 

26.43

 

 

26.61

 

 

25.61

 

Weighted average number of shares-diluted

 

15,271,414

 

 

15,321,476

 

 

15,126,270

 

 

14,991,363

 

 

14,894,140

 

Period-end number of shares

 

14,937,776

 

 

14,859,704

 

 

14,821,594

 

 

14,636,484

 

 

14,628,287

 

Selected Balance Sheet Data

 

 

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

236,775

 

 

$

173,482

 

 

$

234,991

 

 

$

178,747

 

 

$

150,721

 

Securities available-for-sale, at fair value

 

503,877

 

 

543,225

 

 

652,132

 

 

612,371

 

 

715,132

 

Securities held to maturity

 

—

 

 

—

 

 

—

 

 

—

 

 

118,963

 

Loans held for sale, at fair value

 

61,142

 

 

42,682

 

 

43,162

 

 

56,570

 

 

27,093

 

Loans held for investment

 

2,794,768

 

 

2,855,768

 

 

2,812,444

 

 

2,796,233

 

 

2,880,433

 

Allowance for loan losses

 

(38,100)

 

 

(38,403)

 

 

(45,436)

 

 

(26,474)

 

 

(27,443)

 

Total assets

 

3,775,741

 

 

3,791,601

 

 

3,896,162

 

 

3,818,324

 

 

4,071,971

 

Retail and other deposits

 

1,928,940

 

 

1,726,087

 

 

1,706,699

 

 

1,756,558

 

 

1,530,722

 

Local Government deposits

 

229,685

 

 

328,169

 

 

386,903

 

 

349,535

 

 

480,206

 

Brokered deposits

 

406,459

 

 

534,375

 

 

632,241

 

 

589,482

 

 

699,195

 

Reciprocal deposits

 

578,175

 

 

548,840

 

 

481,741

 

 

366,375

 

 

436,522

 

Total deposits

 

3,143,259

 

 

3,137,471

 

 

3,207,584

 

 

3,061,950

 

 

3,146,645

 

Borrowings

 

158,961

 

 

193,916

 

 

213,872

 

 

278,827

 

 

455,282

 

Total shareholders' equity

 

421,970

 

 

408,755

 

 

410,333

 

 

408,168

 

 

393,516

 

Total equity

 

422,063

 

 

408,848

 

 

410,426

 

 

408,261

 

 

393,609

 

Selected Ratios

 

 

 

 

 

 

 

 

 

 

Return on average:

 

 

 

 

 

 

 

 

 

 

Assets

 

1.06

%

 

(0.12)

%

 

(0.48)

%

 

1.12

%

 

0.51

%

Shareholders' equity

 

9.9

%

 

(1.1)

%

 

(4.4)

%

 

11.3

%

 

5.3

%

Tangible common equity*

 

10.4

%

 

(1.2)

%

 

(4.6)

%

 

11.8

%

 

5.6

%

Average shareholders' equity to average assets

 

10.6

%

 

10.7

%

 

10.9

%

 

10.0

%

 

9.5

%

Net interest margin (NIM) (tax-equivalent basis)

 

3.26

%

 

3.02

%

 

3.13

%

 

2.98

%

 

2.84

%

Efficiency ratio (GAAP)

 

59.8

%

 

67.2

%

 

65.1

%

 

56.3

%

 

60.0

%

Core efficiency ratio (tax-equivalent basis)*

 

56.5

%

 

64.1

%

 

63.3

%

 

58.1

%

 

60.0

%

Loans held for investment to deposit ratio

 

88.9

%

 

91.0

%

 

87.7

%

 

91.3

%

 

91.5

%

Total loans to deposit ratio

 

90.9

%

 

92.4

%

 

89.0

%

 

93.2

%

 

92.4

%

Yield on interest-earning assets

 

4.38

%

 

4.55

%

 

4.76

%

 

4.87

%

 

4.89

%

Cost of interest-bearing liabilities

 

1.40

%

 

1.85

%

 

2.00

%

 

2.26

%

 

2.41

%

Cost of total deposits

 

1.12

%

 

1.53

%

 

1.65

%

 

1.91

%

 

2.07

%

Credit Quality Ratios

 

 

 

 

 

 

 

 

 

 

Allowance for loan losses as a percentage of loans held for investment (c)

 

1.36

%

 

1.34

%

 

1.62

%

 

0.95

%

 

0.95

%

Net charge-offs (recoveries) as a percentage of average loans held for investment(b)

 

0.49

%

 

2.85

%

 

—

%

 

0.27

%

 

1.04

%

Nonperforming loans held for investment as a percentage of total loans held for investments

 

0.87

%

 

0.96

%

 

0.98

%

 

0.11

%

 

0.16

%

Nonperforming assets as a percentage of total assets

 

0.65

%

 

0.72

%

 

0.71

%

 

0.08

%

 

0.12

%

Criticized and classified assets as a percentage of loans held for investment

 

1.81

%

 

1.86

%

 

1.86

%

 

2.95

%

 

2.01

%

Preliminary capital ratios (Consolidated)

 

 

 

 

 

 

 

 

 

 

Shareholders' equity to assets

 

11.2

%

 

10.8

%

 

10.5

%

 

10.7

%

 

9.7

%

Tangible common equity to tangible assets*

 

10.7

%

 

10.3

%

 

10.1

%

 

10.2

%

 

9.2

%

Tier 1 capital (to average assets)

 

10.4

%

 

10.1

%

 

10.3

%

 

9.8

%

 

9.2

%

Tier 1 capital (to risk-weighted assets)

 

12.5

%

 

12.0

%

 

11.9

%

 

12.0

%

 

11.2

%

Total capital (to risk-weighted assets)

 

15.5

%

 

15.0

%

 

15.0

%

 

14.7

%

 

13.7

%

Common Equity Tier 1 (to risk-weighted assets) (CET1)

 

12.5

%

 

12.0

%

 

11.9

%

 

12.0

%

 

11.2

%

*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

c

- In accordance with the CARES Act passed in March 2020, the Company deferred the implementation of the current expected credit loss (CECL) methodology, and as such, ALLL/provision should not be compared to those under a different accounting method (e.g.CECL) 

 

Consolidated Statements of Income

(Unaudited)

(In Thousands, Except Share Data and %)

 

 

 

 

 

 

 

 

 

 

 

 

Q2 2020 vs.

 

Q2 2020 vs.

 

2020

 

2019

 

Q1 2020 Percent

 

Q2 2019 Percent

 

Second Quarter

 

First Quarter

 

Fourth Quarter

 

Third Quarter

 

Second Quarter

 

Variance

 

Variance

Interest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans, including fees

$

36,623

 

 

$

37,038

 

 

$

38,567

 

 

$

40,118

 

 

$

40,202

 

 

(1.1)

%

 

(8.9)

%

Securities

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxable

1,700

 

 

2,424

 

 

2,639

 

 

3,815

 

 

4,614

 

 

(29.9)

%

 

(63.2)

%

Tax-exempt

1,219

 

 

1,383

 

 

1,208

 

 

1,471

 

 

1,410

 

 

(11.9)

%

 

(13.5)

%

Dividends on restricted equity securities

220

 

 

162

 

 

238

 

 

291

 

 

350

 

 

35.8

%

 

(37.1)

%

Federal funds sold and other

52

 

 

600

 

 

533

 

 

836

 

 

877

 

 

(91.3)

%

 

(94.1)

%

Total interest income

39,814

 

 

41,607

 

 

43,185

 

 

46,531

 

 

47,453

 

 

(4.3)

%

 

(16.1)

%

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

8,929

 

 

12,246

 

 

12,609

 

 

15,020

 

 

16,679

 

 

(27.1)

%

 

(46.5)

%

Federal funds purchased and

repurchase agreements

1

 

 

14

 

 

79

 

 

49

 

 

90

 

 

(92.9)

%

 

(98.9)

%

Federal Home Loan Bank advances and other

274

 

 

801

 

 

1,302

 

 

2,118

 

 

2,237

 

 

(65.8)

%

 

(87.8)

%

Subordinated notes

1,082

 

 

1,082

 

 

1,082

 

 

1,082

 

 

1,082

 

 

0.0

%

 

0.0

%

Total interest expense

10,286

 

 

14,143

 

 

15,072

 

 

18,269

 

 

20,088

 

 

(27.3)

%

 

(48.8)

%

Net interest income

29,528

 

 

27,464

 

 

28,113

 

 

28,262

 

 

27,365

 

 

7.5

%

 

7.9

%

Provision for loan losses

3,195

 

 

13,022

 

 

18,961

 

 

1,000

 

 

7,031

 

 

(75.5)

%

 

(54.6)

%

Net interest income after provision

26,333

 

 

14,442

 

 

9,152

 

 

27,262

 

 

20,334

 

 

82.3

%

 

29.5

%

Noninterest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

Service charges on deposit accounts

74

 

 

92

 

 

83

 

 

83

 

 

77

 

 

(19.57)

%

 

(3.9)

%

Other service charges and fees

1,397

 

 

897

 

 

995

 

 

1,069

 

 

903

 

 

55.7

%

 

54.7

%

Mortgage banking revenue

8,688

 

 

2,685

 

 

2,307

 

 

2,702

 

 

2,473

 

 

223.6

%

 

251.3

%

Wealth management

702

 

 

814

 

 

813

 

 

767

 

 

673

 

 

(13.8)

%

 

4.3

%

Gain on sales and calls of securities

166

 

 

1,396

 

 

34

 

 

1,493

 

 

367

 

 

(88.1)

%

 

(54.8)

%

Net (loss) gain on sale of loans

(372)

 

 

(416)

 

 

(31)

 

 

(1,758)

 

 

3

 

 

(10.6)

%

 

NM

Net gain on foreclosed assets

5

 

 

2

 

 

(2)

 

 

2

 

 

3

 

 

150.0

%

 

66.7

%

Other income

(105)

 

 

423

 

 

374

 

 

435

 

 

424

 

 

(124.8)

%

 

(124.8)

%

Total noninterest income

10,555

 

 

5,893

 

 

4,573

 

 

4,793

 

 

4,923

 

 

79.1

%

 

114.4

%

Total revenue

40,083

 

 

33,357

 

 

32,686

 

 

33,055

 

 

32,288

 

 

20.2

%

 

24.1

%

Noninterest expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

14,762

 

 

12,580

 

 

13,073

 

 

11,632

 

 

11,365

 

 

17.3

%

 

29.9

%

Occupancy and equipment expense

2,832

 

 

3,086

 

 

3,313

 

 

3,360

 

 

3,283

 

 

(8.2)

%

 

(13.7)

%

FDIC assessment expense

900

 

 

450

 

 

550

 

 

(357)

 

 

660

 

 

100.0

%

 

36.4

%

Marketing expense

133

 

 

245

 

 

254

 

 

315

 

 

301

 

 

(45.7)

%

 

(55.8)

%

Professional fees

2,345

 

 

3,068

 

 

1,242

 

 

1,118

 

 

1,073

 

 

(23.6)

%

 

118.5

%

Amortization of core deposit intangible

82

 

 

94

 

 

107

 

 

120

 

 

132

 

 

(12.8)

%

 

(37.9)

%

Other expense

2,922

 

 

2,898

 

 

2,740

 

 

2,426

 

 

2,556

 

 

0.8

%

 

14.3

%

Total noninterest expense

23,976

 

 

22,421

 

 

21,279

 

 

18,614

 

 

19,370

 

 

6.9

%

 

23.8

%

Net income before income taxes

12,912

 

 

(2,086)

 

 

(7,554)

 

 

13,441

 

 

5,887

 

 

(719.0)

%

 

119.3

%

Income tax expense

2,730

 

 

(938)

 

 

(2,970)

 

 

2,117

 

 

706

 

 

(391.0)

%

 

286.7

%

Net income

$

10,182

 

 

$

(1,148)

 

 

$

(4,584)

 

 

$

11,324

 

 

$

5,181

 

 

(986.9)

%

 

96.5

%

Earnings attributable to noncontrolling interest

(8)

 

 

—

 

 

(8)

 

 

—

 

 

(8)

 

 

0.00

%

 

0.00

%

Net income available to common shareholders (a)

$

10,174

 

 

$

(1,148)

 

 

$

(4,592)

 

 

$

11,324

 

 

$

5,173

 

 

(986.2)

%

 

96.7

%

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

14,864,794

 

 

14,758,960

 

 

14,649,906

 

 

14,530,586

 

 

14,482,344

 

 

 

 

 

Fully diluted

15,271,414

 

 

15,321,476

 

 

15,126,270

 

 

14,991,363

 

 

14,894,140

 

 

 

Earnings per share

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

$

0.68

 

 

$

(0.08)

 

 

$

(0.31)

 

 

$

0.77

 

 

$

0.35

 

 

 

 

 

Fully diluted

$

0.66

 

 

$

(0.08)

 

 

$

(0.31)

 

 

$

0.75

 

 

$

0.34

 

 

 

 

 

Dividend per share

$

0.06

 

 

$

0.06

 

 

$

0.06

 

 

$

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 %)

 

 

 

 

 

 

 

 

 

 

 

 

Q2 2020 vs.

 

Q2 2020 vs.

 

2020

 

2019

 

Q1 2020 Percent

 

Q2 2019 Percent

 

Second Quarter

 

First Quarter

 

Fourth Quarter

 

Third Quarter

 

Second Quarter

 

Annualized Variance

 

Percent Variance

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and due from banks

$

236,775

 

 

$

173,482

 

 

$

234,991

 

 

$

178,747

 

 

$

150,721

 

 

146.7

%

 

57.1

%

Certificates of deposit at other financial institutions

3,506

 

 

3,345

 

 

3,590

 

 

3,590

 

 

3,840

 

 

19.4

%

 

(8.7)

%

Securities available for sale, fair value

503,877

 

 

543,225

 

 

652,132

 

 

612,371

 

 

715,132

 

 

(29.1)

%

 

(29.5)

%

Securities held to maturity

—

 

 

—

 

 

—

 

 

—

 

 

118,963

 

 

0.0

%

 

(100.0)

%

Loans held for sale, at fair value

61,142

 

 

42,682

 

 

43,162

 

 

56,570

 

 

27,093

 

 

174.0

%

 

125.7

%

Loans held for investment

2,794,768

 

 

2,855,768

 

 

2,812,444

 

 

2,796,233

 

 

2,880,433

 

 

(8.6)

%

 

(3.0)

%

Allowance for loan losses

(38,100)

 

 

(38,403)

 

 

(45,436)

 

 

(26,474)

 

 

(27,443)

 

 

(3.2)

%

 

38.8

%

Net loans

2,756,668

 

 

2,817,365

 

 

2,767,008

 

 

2,769,759

 

 

2,852,990

 

 

(8.7)

%

 

(3.4)

%

Restricted equity securities, at cost

24,110

 

 

24,844

 

 

24,802

 

 

24,764

 

 

24,524

 

 

(11.9)

%

 

(1.7)

%

Premises and equipment, net

47,305

 

 

48,470

 

 

12,141

 

 

12,449

 

 

12,948

 

 

(9.7)

%

 

265.3

%

Accrued interest receivable

18,576

 

 

12,043

 

 

12,362

 

 

12,077

 

 

14,281

 

 

218.2

%

 

30.1

%

Bank owned life insurance

57,432

 

 

57,082

 

 

56,726

 

 

56,366

 

 

55,989

 

 

2.5

%

 

2.6

%

Deferred tax asset, net

10,093

 

 

12,846

 

 

14,229

 

 

10,297

 

 

10,451

 

 

(86.2)

%

 

(3.4)

%

Servicing rights, net

4,035

 

 

3,057

 

 

3,246

 

 

3,128

 

 

3,299

 

 

128.7

%

 

22.3

%

Goodwill

18,176

 

 

18,176

 

 

18,176

 

 

18,176

 

 

18,176

 

 

0.0

%

 

0.0

%

Core deposit intangible asset

271

 

 

354

 

 

448

 

 

556

 

 

675

 

 

(94.3)

%

 

(59.9)

%

Other assets

33,775

 

 

34,630

 

 

53,149

 

 

59,474

 

 

62,889

 

 

(9.9)

%

 

(46.3)

%

Total assets

$

3,775,741

 

 

$

3,791,601

 

 

$

3,896,162

 

 

$

3,818,324

 

 

$

4,071,971

 

 

(1.7)

%

 

(7.3)

%

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Demand deposits

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest-bearing

$

483,445

 

 

$

387,195

 

 

$

319,373

 

 

$

346,441

 

 

$

334,802

 

 

100.0

%

 

44.4

%

Interest-bearing

2,659,814

 

 

2,750,276

 

 

2,888,211

 

 

2,715,509

 

 

2,811,843

 

 

(13.2)

%

 

(5.4)

%

Total deposits

3,143,259

 

 

3,137,471

 

 

3,207,584

 

 

3,061,950

 

 

3,146,645

 

 

0.7

%

 

(0.1)

%

Federal Home Loan Bank advances

100,000

 

 

135,000

 

 

155,000

 

 

220,000

 

 

396,500

 

 

(104.3)

%

 

(74.8)

%

Subordinated notes, net

58,961

 

 

58,916

 

 

58,872

 

 

58,827

 

 

58,782

 

 

0.3

%

 

0.3

%

Accrued interest payable

2,711

 

 

3,179

 

 

4,201

 

 

3,932

 

 

4,312

 

 

(59.2)

%

 

(37.1)

%

Other liabilities

48,747

 

 

48,187

 

 

60,079

 

 

65,354

 

 

72,123

 

 

4.7

%

 

(32.4)

%

Total liabilities

3,353,678

 

 

3,382,753

 

 

3,485,736

 

 

3,410,063

 

 

3,678,362

 

 

(3.5)

%

 

(8.8)

%

Shareholders' equity:

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock

279,232

 

 

277,341

 

 

275,412

 

 

269,842

 

 

268,505

 

 

2.7

%

 

4.0

%

Retained earnings

140,339

 

 

131,061

 

 

133,102

 

 

138,579

 

 

127,840

 

 

28.5

%

 

9.8

%

Accumulated other comprehensive gain/(loss), net

2,399

 

 

353

 

 

1,819

 

 

(253)

 

 

(2,829)

 

 

NM

 

 

(184.8)

%

Total shareholders' equity

421,970

 

 

408,755

 

 

410,333

 

 

408,168

 

 

393,516

 

 

13.0

%

 

7.2

%

Noncontrolling interest in consolidated

93

 

 

93

 

 

93

 

 

93

 

 

93

 

 

0.0

%

 

0.0

%

Total equity

422,063

 

 

408,848

 

 

410,426

 

 

408,261

 

 

393,609

 

 

13.0

%

 

7.2

%

Total liabilities and equity

$

3,775,741

 

 

$

3,791,601

 

 

$

3,896,162

 

 

$

3,818,324

 

 

$

4,071,971

 

 

(1.7)

%

 

(7.3)

%

 

Average Balance, Average Yield Earned and Average Rate Paid (7)

For the Periods Ended

(Unaudited)

(In Thousands, Except %)

 

 

Three Months Ended June 30, 2020

 

Three Months Ended March 31, 2020

 

Average balances

 

Interest income/ expense

 

Average yield/ rate

 

Average balances

 

Interest income/ expense

 

Average yield/ rate

Interest-earning assets:

 

 

 

 

 

 

 

 

 

 

 

Loans(1)(6)

$

2,870,460

 

 

$

36,401

 

 

5.10

%

 

$

2,834,437

 

 

$

36,707

 

 

5.21

%

Loans held for sale

48,899

 

 

290

 

 

2.39

%

 

36,668

 

 

379

 

 

4.16

%

Securities:

 

 

 

 

 

 

 

 

 

 

 

Taxable

299,546

 

 

1,700

 

 

2.28

%

 

399,135

 

 

2,424

 

 

2.44

%

Tax-Exempt (6)

227,039

 

 

1,651

 

 

2.92

%

 

221,190

 

 

1,872

 

 

3.40

%

Restricted equity securities

24,675

 

 

219

 

 

3.57

%

 

24,824

 

 

162

 

 

2.62

%

Total Securities

551,260

 

 

3,570

 

 

2.60

%

 

645,149

 

 

4,458

 

 

2.78

%

Certificates of deposit at other financial institutions

3,445

 

 

20

 

 

2.33

%

 

3,426

 

 

20

 

 

2.35

%

Fed funds sold and other (2)

227,451

 

 

33

 

 

0.06

%

 

207,164

 

 

579

 

 

1.12

%

Total interest earning assets

3,701,515

 

 

40,314

 

 

4.38

%

 

3,726,844

 

 

42,143

 

 

4.55

%

Noninterest Earning Assets:

 

 

 

 

 

 

 

 

 

 

 

Allowance for loan losses

(38,211)

 

 

 

 

 

 

(45,100)

 

 

 

 

 

Other assets

205,647

 

 

 

 

 

 

198,380

 

 

 

 

 

Total noninterest earning assets

167,436

 

 

 

 

 

 

153,280

 

 

 

 

 

Total assets

$

3,868,951

 

 

 

 

 

 

$

3,880,124

 

 

 

 

 

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

Interest bearing deposits:

 

 

 

 

 

 

 

 

 

 

 

Interest Checking

$

800,030

 

 

$

1,913

 

 

0.96

%

 

$

877,751

 

 

$

3,400

 

 

1.56

%

Money market

1,328,548

 

 

3,758

 

 

1.14

%

 

1,241,087

 

 

4,930

 

 

1.60

%

Savings deposits

42,662

 

 

29

 

 

0.27

%

 

40,055

 

 

27

 

 

0.27

%

Time deposits

567,477

 

 

3,229

 

 

2.29

%

 

718,294

 

 

3,889

 

 

2.18

%

Total interest bearing deposits

2,738,717

 

 

8,929

 

 

1.31

%

 

2,877,187

 

 

12,246

 

 

1.71

%

Other interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

FHLB advances and other (8)

141,333

 

 

265

 

 

0.75

%

 

137,319

 

 

801

 

 

2.35

%

Federal funds purchased and other (3)

11,124

 

 

10

 

 

0.36

%

 

2,876

 

 

14

 

 

1.96

%

Subordinated notes

58,932

 

 

1,082

 

 

7.38

%

 

58,887

 

 

1,082

 

 

7.39

%

Total other interest-bearing liabilities

211,389

 

 

1,357

 

 

2.58

%

 

199,082

 

 

1,897

 

 

3.83

%

Total Interest-bearing liabilities

2,950,106

 

 

10,286

 

 

1.40

%

 

3,076,269

 

 

14,143

 

 

1.85

%

Noninterest bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

Demand deposits

455,540

 

 

 

 

 

 

333,883

 

 

 

 

 

Other liabilities

51,943

 

 

 

 

 

 

53,454

 

 

 

 

 

Total noninterest-bearing liabilities

507,483

 

 

 

 

 

 

387,337

 

 

 

 

 

Total liabilities

3,457,589

 

 

 

 

 

 

3,463,606

 

 

 

 

 

Equity

411,362

 

 

 

 

 

 

416,518

 

 

 

 

 

Total liabilities and equity

$

3,868,951

 

 

 

 

 

 

$

3,880,124

 

 

 

 

 

Net interest income

 

 

$

30,028

 

 

 

 

 

 

$

28,000

 

 

 

Interest rate spread (4)

 

 

 

 

2.98

%

 

 

 

 

 

2.70

%

Net interest margin (5)

 

 

 

 

3.26

%

 

 

 

 

 

3.02

%

Cost of total deposits

 

 

 

 

1.12

%

 

 

 

 

 

1.53

%

Average interest-earning assets to average interest-bearing liabilities

 

 

 

 

125.47

%

 

 

 

 

 

121.15

%

Tax equivalent adjustment

 

 

$

500

 

 

 

 

 

 

$

536

 

 

 

Loan yield components:

 

 

 

 

 

 

 

 

 

 

 

Contractual interest rate on loans held for investment (1)

 

 

$

33,332

 

 

4.67

%

 

 

 

$

34,973

 

 

4.96

%

Origination and other loan fee income

 

 

3,008

 

 

0.42

%

 

 

 

1,626

 

 

0.23

%

Accretion on purchased loans

 

 

61

 

 

0.01

%

 

 

 

108

 

 

0.02

%

Nonaccrual interest collections

 

 

—

 

 

0.00

%

 

 

 

—

 

 

0.00

%

Total loan yield

 

 

$

36,401

 

 

5.10

%

 

 

 

$

36,707

 

 

5.21

%

 

 

 

 

 

 

 

 

 

 

 

 

(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 and other borrowings from the Federal Reserve Bank.

(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 December 31, 2019

 

Three Months Ended September 30, 2019

 

Three Months Ended June 30, 2019

 

Average balances

 

Interest income/expense

 

Average yield/rate

 

Average balances

 

Interest income/expense

 

Average yield/rate

 

Average balances

 

Interest income/expense

 

Average yield/rate

Interest-earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans held for investment(1)(6)

$

2,827,590

 

 

$

38,510

 

 

5.40

%

 

$

2,848,888

 

 

$

39,926

 

 

5.56

%

 

$

2,858,948

 

 

$

40,003

 

 

5.61

%

Loans held for sale

27,131

 

 

211

 

 

3.09

%

 

22,048

 

 

217

 

 

3.90

%

 

23,883

 

 

256

 

 

4.30

%

Securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxable

438,494

 

 

2,639

 

 

2.39

%

 

570,891

 

 

3,815

 

 

2.65

%

 

673,386

 

 

4,614

 

 

2.75

%

Tax-Exempt (6)

189,091

 

 

1,636

 

 

3.43

%

 

209,442

 

 

1,991

 

 

3.77

%

 

208,417

 

 

1,909

 

 

3.67

%

Restricted equity securities

24,784

 

 

241

 

 

3.86

%

 

24,676

 

 

292

 

 

4.69

%

 

24,331

 

 

350

 

 

5.77

%

Total Securities

652,369

 

 

4,516

 

 

2.75

%

 

805,009

 

 

6,098

 

 

3.01

%

 

906,134

 

 

6,873

 

 

3.04

%

Certificates of deposit at other financial institutions

3,590

 

 

21

 

 

2.32

%

 

3,628

 

 

22

 

 

2.41

%

 

3,759

 

 

22

 

 

2.35

%

Fed funds sold and other (2)

141,199

 

 

592

 

 

1.66

%

 

158,618

 

 

814

 

 

2.04

%

 

147,542

 

 

855

 

 

2.32

%

Total interest earning assets

3,651,879

 

 

43,850

 

 

4.76

%

 

3,838,191

 

 

47,077

 

 

4.87

%

 

3,940,266

 

 

48,009

 

 

4.89

%

Noninterest Earning Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision for loan losses

(26,844)

 

 

 

 

 

 

(27,364)

 

 

 

 

 

 

(28,007)

 

 

 

 

 

Other assets

183,123

 

 

 

 

 

 

188,520

 

 

 

 

 

 

192,843

 

 

 

 

 

Total noninterest earning assets

156,279

 

 

 

 

 

 

161,156

 

 

 

 

 

 

164,836

 

 

 

 

 

Total assets

$

3,808,158

 

 

 

 

 

 

$

3,999,347

 

 

 

 

 

 

$

4,105,102

 

 

 

 

 

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest bearing deposits:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest Checking

$

676,909

 

 

$

2,818

 

 

1.65

%

 

$

712,992

 

 

$

3,536

 

 

1.97

%

 

$

816,429

 

 

$

4,357

 

 

2.14

%

Money market

1,208,200

 

 

5,305

 

 

1.74

%

 

1,112,573

 

 

5,815

 

 

2.07

%

 

1,026,200

 

 

6,103

 

 

2.39

%

Savings deposits

38,778

 

 

27

 

 

0.28

%

 

38,952

 

 

27

 

 

0.28

%

 

38,882

 

 

27

 

 

0.28

%

Time deposits

770,464

 

 

4,459

 

 

2.30

%

 

928,571

 

 

5,642

 

 

2.41

%

 

1,036,904

 

 

6,192

 

 

2.40

%

Total interest bearing deposits

2,694,351

 

 

12,609

 

 

1.86

%

 

2,793,088

 

 

15,020

 

 

2.13

%

 

2,918,415

 

 

16,679

 

 

2.29

%

Other interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FHLB advances(8)

225,125

 

 

1,302

 

 

2.29

%

 

343,419

 

 

2,118

 

 

2.45

%

 

349,615

 

 

2,237

 

 

2.57

%

Federal funds purchased and other (3)

14,985

 

 

79

 

 

2.09

%

 

7,170

 

 

49

 

 

2.71

%

 

13,249

 

 

90

 

 

2.72

%

Subordinated notes, net

58,842

 

 

1,082

 

 

7.30

%

 

58,798

 

 

1,082

 

 

7.30

%

 

58,754

 

 

1,082

 

 

7.39

%

Total other interest-bearing liabilities

298,952

 

 

2,463

 

 

3.27

%

 

409,387

 

 

3,249

 

 

3.15

%

 

421,618

 

 

3,409

 

 

3.24

%

Total Interest-bearing liabilities

2,993,303

 

 

15,072

 

 

2.00

%

 

3,202,475

 

 

18,269

 

 

2.26

%

 

3,340,033

 

 

20,088

 

 

2.41

%

Noninterest bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Demand deposits

334,840

 

 

 

 

 

 

329,620

 

 

 

 

 

 

313,104

 

 

 

 

 

Other liabilities

65,764

 

 

 

 

 

 

68,156

 

 

 

 

 

 

63,505

 

 

 

 

 

Total noninterest-bearing liabilities

400,604

 

 

 

 

 

 

397,776

 

 

 

 

 

 

376,609

 

 

 

 

 

Total liabilities

3,393,907

 

 

 

 

 

 

3,600,251

 

 

 

 

 

 

3,716,642

 

 

 

 

 

Equity

414,251

 

 

 

 

 

 

399,096

 

 

 

 

 

 

388,460

 

 

 

 

 

Total liabilities and equity

$

3,808,158

 

 

 

 

 

 

$

3,999,347

 

 

 

 

 

 

$

4,105,102

 

 

 

 

 

Net interest income

 

 

$

28,778

 

 

 

 

 

 

$

28,808

 

 

 

 

 

 

$

27,921

 

 

 

Interest rate spread (4)

 

 

 

 

2.76

%

 

 

 

 

 

2.61

%

 

 

 

 

 

2.48

%

Net interest margin (5)

 

 

 

 

3.13

%

 

 

 

 

 

2.98

%

 

 

 

 

 

2.84

%

Cost of total deposits

 

 

 

 

1.65

%

 

 

 

 

 

1.91

%

 

 

 

 

 

2.07

%

Average interest-earning assets to average interest-bearing liabilities

 

 

 

 

122.00

%

 

 

 

 

 

119.85

%

 

 

 

 

 

117.97

%

Tax equivalent adjustment

 

 

$

665

 

 

 

 

 

 

$

546

 

 

 

 

 

 

$

556

 

 

 

Loan yield components:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contractual interest rate on loans held for investment (1)

 

 

$

36,568

 

 

5.13

%

 

 

 

$

37,908

 

 

5.28

%

 

 

 

$

37,925

 

 

5.32

%

Origination and other loan fee income

 

 

1,696

 

 

0.24

%

 

 

 

1,895

 

 

0.26

%

 

 

 

1,904

 

 

0.27

%

Accretion on purchased loans

 

 

229

 

 

0.03

%

 

 

 

123

 

 

0.02

%

 

 

 

174

 

 

0.02

%

Nonaccrual interest collections

 

 

—

 

 

0.00

%

 

 

 

—

 

 

0.00

%

 

 

 

—

 

 

—

%

Total loan yield

 

 

$

38,493

 

 

5.40

%

 

 

 

$

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, 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 and other borrowings from the Federal Reserve Bank.

(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 %)

 

 

 

2020

 

2019

 

 

June 30,

 

% of Total

 

March 31,

 

% of Total

 

December 31,

 

% of Total

 

September 30,

 

% of Total

 

June 30,

 

% of Total

Loan portfolio

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

$

519,040

 

 

18.57

%

 

$

579,751

 

 

20.30

%

 

$

580,696

 

 

20.65

%

 

$

576,018

 

 

20.60

%

 

$

666,025

 

 

23.12

%

Construction and land development

 

643,704

 

 

23.03

%

 

625,411

 

 

21.90

%

 

589,800

 

 

20.97

%

 

596,459

 

 

21.33

%

 

582,715

 

 

20.23

%

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nonfarm, nonresidential

 

967,967

 

 

34.63

%

 

953,490

 

 

33.39

%

 

942,190

 

 

33.50

%

 

911,205

 

 

32.59

%

 

893,085

 

 

31.01

%

Other

 

47,466

 

 

1.70

%

 

42,516

 

 

1.49

%

 

49,793

 

 

1.77

%

 

32,466

 

 

1.16

%

 

37,789

 

 

1.31

%

Residential real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Closed-end 1-to-4 family

 

425,626

 

 

15.23

%

 

457,571

 

 

16.02

%

 

456,972

 

 

16.25

%

 

477,789

 

 

17.09

%

 

497,838

 

 

17.28

%

Other

 

187,377

 

 

6.71

%

 

192,557

 

 

6.74

%

 

188,204

 

 

6.69

%

 

196,322

 

 

7.02

%

 

198,016

 

 

6.87

%

Consumer and other

 

3,588

 

 

0.13

%

 

4,472

 

 

0.16

%

 

4,789

 

 

0.17

%

 

5,974

 

 

0.21

%

 

4,965

 

 

0.17

%

Total loans held for investment

 

$

2,794,768

 

 

100.00

%

 

$

2,855,768

 

 

100.00

%

 

$

2,812,444

 

 

100.00

%

 

$

2,796,233

 

 

100.00

%

 

$

2,880,433

 

 

100.00

%

Allowance for loan losses roll forward summary

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for loan losses at the beginning of the period

 

$

38,403

 

 

 

 

$

45,436

 

 

 

 

$

26,474

 

 

 

 

$

27,443

 

 

 

 

$

27,857

 

 

 

Charge-offs

 

(5,166)

 

 

 

 

(20,530)

 

 

 

 

(191)

 

 

 

 

(2,021)

 

 

 

 

(7,592)

 

 

 

Recoveries

 

1,668

 

 

 

 

475

 

 

 

 

192

 

 

 

 

52

 

 

 

 

147

 

 

 

Provision for Loan losses

 

3,195

 

 

 

 

13,022

 

 

 

 

18,961

 

 

 

 

1,000

 

 

 

 

7,031

 

 

 

Allowance for loan losses at the end of the period

 

$

38,100

 

 

 

 

$

38,403

 

 

 

 

$

45,436

 

 

 

 

$

26,474

 

 

 

 

$

27,443

 

 

 

Allowance for loan losses as a percentage of total loans held for investment

 

1.36

%

 

 

 

1.34

%

 

 

 

1.62

%

 

 

 

0.95

%

 

 

 

0.95

%

 

 

Charge-offs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

$

(5,163)

 

 

 

 

$

(20,501)

 

 

 

 

$

(160)

 

 

 

 

$

(1,935)

 

 

 

 

$

(7,563)

 

 

 

Residential real estate

 

—

 

 

 

 

(8)

 

 

 

 

(9)

 

 

 

 

—

 

 

 

 

—

 

 

 

Construction and land development

 

—

 

 

 

 

—

 

 

 

 

—

 

 

 

 

(59)

 

 

 

 

—

 

 

 

Consumer and other

 

(3)

 

 

 

 

(21)

 

 

 

 

(22)

 

 

 

 

(27)

 

 

 

 

(29)

 

 

 

Total Charge-offs

 

$

(5,166)

 

 

 

 

$

(20,530)

 

 

 

 

$

(191)

 

 

 

 

$

(2,021)

 

 

 

 

$

(7,592)

 

 

 

Recoveries

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

$

1,662

 

 

 

 

$

468

 

 

 

 

$

185

 

 

 

 

$

30

 

 

 

 

$

70

 

 

 

Residential real estate

 

—

 

 

 

 

1

 

 

 

 

—

 

 

 

 

—

 

 

 

 

16

 

 

 

Consumer and other

 

6

 

 

 

 

6

 

 

 

 

7

 

 

 

 

22

 

 

 

 

61

 

 

 

Total Recoveries

 

$

1,668

 

 

 

 

$

475

 

 

 

 

$

192

 

 

 

 

$

52

 

 

 

 

$

147

 

 

 

Net (charge-offs) recoveries (c)

 

$

(3,498)

 

 

 

 

$

(20,055)

 

 

 

 

$

1

 

 

 

 

$

(1,969)

 

 

 

 

$

(7,445)

 

 

 

Net charge-offs (recoveries) as a percentage of average total loans(b)

 

0.49

%

 

 

 

2.85

%

 

 

 

0.00

%

 

 

 

0.27

%

 

 

 

1.04

%

 

 

Criticized and Classified

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans classified as criticized

 

$

8,336

 

 

 

 

$

5,431

 

 

 

 

$

3,013

 

 

 

 

$

33,161

 

 

 

 

$

29,876

 

 

 

Loans classified as substandard or worse

 

42,347

 

 

 

 

47,694

 

 

 

 

49,263

 

 

 

 

49,424

 

 

 

 

28,151

 

 

 

Total Loans Criticized and Classified

 

$

50,683

 

 

 

 

$

53,125

 

 

 

 

$

52,276

 

 

 

 

$

82,585

 

 

 

 

$

58,027

 

 

 

Nonperforming assets(a)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Past due 90 days or more and accruing interest

 

$

—

 

 

 

 

$

—

 

 

 

 

$

654

 

 

 

 

$

79

 

 

 

 

$

676

 

 

 

Nonaccrual

 

24,433

 

 

 

 

27,434

 

 

 

 

27,035

 

 

 

 

3,028

 

 

 

 

4,030

 

 

 

Total nonperforming loans held for investment

 

$

24,433

 

 

 

 

$

27,434

 

 

 

 

$

27,689

 

 

 

 

$

3,107

 

 

 

 

$

4,706

 

 

 

Total nonperforming assets

 

$

24,433

 

 

 

 

$

27,434

 

 

 

 

$

27,689

 

 

 

 

$

3,107

 

 

 

 

$

4,706

 

 

 

Total nonperforming loans as a percentage of loans held for investment

 

0.87

%

 

 

 

0.96

%

 

 

 

0.98

%

 

 

 

0.11

%

 

 

 

0.16

%

 

 

Total nonperforming assets as a percentage of total assets

 

0.65

%

 

 

 

0.72

%

 

 

 

0.71

%

 

 

 

0.08

%

 

 

 

0.12

%

 

 

Total accruing loans over 90 days delinquent as a percentage of total assets

 

0.00

%

 

 

 

0.00

%

 

 

 

0.02

%

 

 

 

0.00

%

 

 

 

0.02

%

 

 

Loans restructured as troubled debt restructurings not in compliance with modified terms

 

$

311

 

 

 

 

$

311

 

 

 

 

$

311

 

 

 

 

$

313

 

 

 

 

$

316

 

 

 

Loans restructured as troubled debt restructurings in compliance with modified terms

 

4,303

 

 

 

 

—

 

 

 

 

—

 

 

 

 

—

 

 

 

 

—

 

 

 

Total troubled debt restructurings

 

$

4,614

 

 

 

 

$

311

 

 

 

 

$

311

 

 

 

 

$

313

 

 

 

 

$

316

 

 

 

Total troubled debt restructurings as a percentage of loans held for investment

 

0.17

%

 

 

 

0.01

%

 

 

 

0.01

%

 

 

 

0.01

%

 

 

 

0.01

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a) Nonperforming assets exclude purchase credit impaired loans

(b) Annualized

(c) Net (charge-offs) and recoveries includes approximately $2.9 million of DDA charge-offs for 1Q20.

 

 

COVID-19 Potentially Impacted Industries

For the Quarter Ended June 30, 2020

(Unaudited)

(In Thousands, Except %)

 

Industries

Commercial and industrial

Commercial real estate owner occupied

Commercial real estate non-owner occupied other real estate

Total

% of Total Loans HFI

Retail

$

5,390

 

$

39,342

 

$

208,419

 

$

253,151

 

9.1

%

Healthcare - institutional

262,417

 

—

 

—

 

262,417

 

9.4

%

Healthcare non-institutional

21,354

 

10,900

 

50,705

 

82,959

 

3.0

%

Total healthcare

283,771

 

10,900

 

50,705

 

345,376

 

12.4

%

Hotels

371

 

4,293

 

139,215

 

143,879

 

5.1

%

Restaurants

5,023

 

44,153

 

28,460

 

77,636

 

2.8

%

Transportation and warehousing

19,558

 

1,087

 

6,591

 

27,236

 

1.0

%

Total

$

314,113

 

$

99,775

 

$

433,390

 

$

847,278

 

30.3

%

 

 

 

 

 

 

Risk Category

Retail

Healthcare - institutional

Healthcare non-institutional

Total Healthcare

Hotels

Restaurants

Transportation and warehousing

Pass

95.2

%

87.0

%

97.9

%

89.6

%

90.1

%

92.0

%

94.1

%

Watch

1.8

%

2.3

%

2.1

%

2.2

%

9.9

%

7.0

%

5.9

%

Special mention

1.6

%

0.0

%

0.0

%

0.0

%

0.0

%

0.8

%

0.0

%

Substandard or worse

1.4

%

10.7

%

0.0

%

8.2

%

0.0

%

0.2

%

0.0

%

Total

100.0

%

100.0

%

100.0

%

100.0

%

100.0

%

100.0

%

100.0

%

 

 

Preliminary Capital Ratios

(Unaudited)

(In Thousands, Except %)

 

Computation of Tangible Common Equity to Tangible Assets:

June 30, 2020

 

December 31, 2019

Total Shareholders' Equity

$

421,970

 

 

$

410,333

 

Less:

 

 

 

Goodwill

18,176

 

 

18,176

 

Other intangibles

295

 

 

476

 

Tangible Common Equity

$

403,499

 

 

$

391,681

 

 

 

 

 

Total Assets

$

3,775,741

 

 

$

3,896,162

 

Less:

 

 

 

Goodwill

18,176

 

 

18,176

 

Other intangibles

295

 

 

476

 

Tangible Assets

$

3,757,270

 

 

$

3,877,510

 

 

 

 

 

Preliminary Total Risk-Weighted Assets

$

3,193,323

 

 

$

3,260,236

 

 

 

 

 

Total Common Equity to Total Assets

11.2

%

 

10.5

%

Tangible Common Equity to Tangible Assets

10.7

%

 

10.1

%

 

 

 

 

 

June 30, 2020

 

December 31, 2019

Preliminary Regulatory Capital:

 

 

 

Common Equity Tier 1 Capital

$

399,384

 

 

$

388,199

 

Tier 1 Capital

399,384

 

 

388,199

 

Total Capital

496,529

 

 

487,966

 

Preliminary Regulatory Capital Ratios:

 

 

 

Common Equity Tier 1

12.5

%

 

11.9

%

Tier 1 Risk-Based

12.5

%

 

11.9

%

Total Risk-Based

15.5

%

 

15.0

%

Tier 1 Leverage

10.4

%

 

10.3

%

 

 

Non-GAAP Reconciliation

For the Years and Quarters Ended

(Unaudited)

(In Thousands, Except Share Data and %)

 

 

 

2020

 

2019

Core net income

 

Second Quarter

 

First Quarter

 

Fourth Quarter

 

Third Quarter

 

Second Quarter

 

 

 

 

 

 

 

 

 

 

 

Pre-tax net income

 

$

12,912

 

 

$

(2,086)

 

 

$

(7,554)

 

 

$

13,441

 

 

$

5,887

 

Non-core items:

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

 

 

 

 

 

 

 

 

Interest income SBA PPP loans

 

(140)

 

 

—

 

 

—

 

 

—

 

 

—

 

Amortization loan fees SBA PPP loans

 

(1,491)

 

 

—

 

 

—

 

 

—

 

 

—

 

Noninterest income

 

 

 

 

 

 

 

 

 

 

Gain on sales of securities

 

(166)

 

 

(1,396)

 

 

—

 

 

(1,493)

 

 

—

 

Loss on sales of loans

 

143

 

 

416

 

 

—

 

 

1,765

 

 

—

 

Loss on sale of SBA PPP loans

 

230

 

—

 

 

—

 

 

—

 

 

—

 

Noninterest expenses

 

 

 

 

 

 

 

 

 

 

Merger related expense

 

1,540

 

 

1,653

 

 

—

 

 

—

 

 

—

 

FDIC assessment credit

 

—

 

 

—

 

 

—

 

 

(757)

 

 

—

 

Employment related payroll adjustments

 

—

 

 

—

 

 

598

 

 

—

 

 

—

 

Accrual for post-employment benefits

 

577

 

 

—

 

 

—

 

 

—

 

 

—

 

Pre-tax core net income

 

$

13,605

 

 

$

(1,413)

 

 

$

(6,956)

 

 

$

12,956

 

 

$

5,887

 

Pre-tax pre-provision core profit

 

$

16,800

 

 

$

11,609

 

 

$

12,005

 

 

$

13,956

 

 

$

12,918

 

 

 

 

 

 

 

 

 

 

 

 

Pre-tax core net income

 

$

13,605

 

 

$

(1,413)

 

 

$

(6,956)

 

 

$

12,956

 

 

$

5,887

 

Core income tax expense

 

2,911

 

 

(762)

 

 

(2,862)

 

 

2,030

 

 

706

 

Core net income

 

$

10,694

 

 

$

(651)

 

 

$

(4,094)

 

 

$

10,926

 

 

$

5,181

 

Less: earnings attributable to noncontrolling interest

 

8

 

 

—

 

 

8

 

 

—

 

 

8

 

Core net income available to common shareholders

 

$

10,686

 

 

$

(651)

 

 

$

(4,102)

 

 

$

10,926

 

 

$

5,173

 

Less: earnings allocated to participating securities

 

36

 

 

(3)

 

 

(67)

 

 

74

 

 

42

 

Core net income allocated to common shareholders

 

$

10,650

 

 

$

(648)

 

 

$

(4,035)

 

 

$

10,852

 

 

$

5,131

 

Weighted average common shares outstanding fully diluted

 

15,271,414

 

 

15,321,476

 

 

15,126,270

 

 

14,991,363

 

 

14,894,140

 

 

 

 

 

 

 

 

 

 

 

 

Core diluted earnings per share

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share

 

$

0.66

 

 

$

(0.08)

 

 

$

(0.31)

 

 

$

0.75

 

 

$

0.34

 

Non-core items:

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

 

 

 

 

 

 

 

 

Interest income SBA PPP loans

 

(0.01)

 

 

—

 

 

—

 

 

—

 

 

—

 

Amortization loan fees SBA PPP loans

 

(0.10)

 

 

—

 

 

—

 

 

—

 

 

—

 

Noninterest income

 

 

 

 

 

 

 

 

 

 

Gain on sales of securities

 

(0.01)

 

 

(0.09)

 

 

—

 

 

(0.10)

 

 

—

 

Loss on sales of loans

 

0.01

 

 

0.03

 

 

—

 

 

0.12

 

 

—

 

Loss on sale of SBA PPP loans

 

0.02

 

 

—

 

 

—

 

 

—

 

 

—

 

Noninterest expenses

 

 

 

 

 

 

 

 

 

 

Merger related expense

 

0.10

 

 

0.11

 

 

—

 

 

—

 

 

—

 

FDIC assessment credit

 

—

 

 

—

 

 

—

 

 

(0.04)

 

 

—

 

Employment related payroll adjustments

 

—

 

 

—

 

 

0.05

 

 

—

 

 

—

 

Accrual for post-employment benefits

 

0.04

 

 

—

 

 

—

 

 

—

 

 

—

 

Tax effect

 

$

(0.01)

 

 

$

(0.01)

 

 

$

(0.01)

 

 

$

(0.01)

 

 

$

—

 

Core diluted earnings per share(a)

 

$

0.70

 

 

$

(0.04)

 

 

$

(0.27)

 

 

$

0.72

 

 

$

0.34

 

Non-GAAP financial measures that adjust GAAP reported net income and other metrics for certain income and expense items. Non-GAAP for 2Q20 excludes interest income SBA PPP loans of $140, amortization loan fees SBA PPP loans of $1,491, gain on sales of securities of $166, loss on sales of loans of $143, merger related expenses of $1,540, and accrual for post-employment benefits of $577. Non-GAAP for 1Q20 excludes gain on sales of securities of $1,396, loss on sales of loans of $416, and merger related expenses of $1,653. 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.

(a) Quarterly rounding may vary from year-to-date totals.

 

 

 

Non-GAAP Reconciliation

For the Quarters Ended

(Unaudited)

(In Thousands, Except Share Data and %)

 

 

2020

 

2019

Core efficiency ratio

Second Quarter

 

First Quarter

 

Fourth Quarter

 

Third Quarter

 

Second Quarter

Total noninterest expense

$

23,976

 

 

$

22,421

 

 

$

21,279

 

 

$

18,614

 

 

$

19,370

 

Merger related expense

(1,540)

 

 

(1,653)

 

 

—

 

 

—

 

 

—

 

FDIC assessment credit

—

 

 

—

 

 

—

 

 

757

 

 

—

 

Employment related payroll adjustments

—

 

 

—

 

 

(598)

 

 

—

 

 

—

 

Post-employment and retirement expense

(577)

 

 

—

 

 

—

 

 

—

 

 

—

 

Core noninterest expense

$

21,859

 

 

$

20,768

 

 

$

20,681

 

 

$

19,371

 

 

$

19,370

 

Total Interest income

$

39,814

 

 

$

41,607

 

 

$

43,185

 

 

$

46,531

 

 

$

47,453

 

Interest income - PPP loans

$

(140)

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

Amortization loan fees - PPP loans

$

(1,491)

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

Core interest income

$

38,183

 

 

$

41,607

 

 

$

43,185

 

 

$

46,531

 

 

$

47,453

 

Interest expense

$

10,286

 

 

$

14,143

 

 

$

15,072

 

 

$

18,269

 

 

$

20,088

 

Core net interest income

$

27,897

 

 

$

27,464

 

 

$

28,113

 

 

$

28,262

 

 

$

27,365

 

Total noninterest income

10,555

 

 

5,893

 

 

4,573

 

 

4,793

 

 

4,923

 

Gain on sales of securities

(166)

 

 

(1,396)

 

 

(1,493)

 

 

(1,493)

 

 

—

 

Loss on sales of loans

143

 

 

416

 

 

1,765

 

 

1,765

 

 

—

 

Loss on sale of PPP loans

230

 

 

—

 

 

—

 

 

—

 

 

—

 

Core noninterest income

$

10,762

 

 

$

4,913

 

 

$

4,845

 

 

$

5,065

 

 

$

4,923

 

Core revenue

$

38,659

 

 

$

32,377

 

 

$

32,958

 

 

$

33,327

 

 

$

32,288

 

Efficiency ratio (GAAP)(1)

59.8

%

 

67.2

%

 

65.1

%

 

56.3

%

 

60.0

%

Core efficiency ratio

56.5

%

 

64.1

%

 

63.3

%

 

58.1

%

 

60.0

%

(1) Efficiency ratio (GAAP) is calculated by dividing reported noninterest expense by reported total core revenue

 

2020

 

2019

Tangible assets and equity

Second Quarter

 

First Quarter

 

Fourth Quarter

 

Third Quarter

 

Second Quarter

Tangible Assets

 

 

 

 

 

 

 

 

 

Total assets

$

3,775,741

 

 

$

3,791,601

 

 

$

3,896,162

 

 

$

3,818,324

 

 

$

4,071,971

 

Less goodwill

18,176

 

 

18,176

 

 

18,176

 

 

18,176

 

 

18,176

 

Less intangibles, net

295

 

 

379

 

 

476

 

 

587

 

 

709

 

Tangible assets

$

3,757,270

 

 

$

3,773,046

 

 

$

3,877,510

 

 

$

3,799,561

 

 

$

4,053,086

 

Tangible Common Equity

 

 

 

 

 

 

 

 

 

Total shareholders' equity

$

421,970

 

 

$

408,755

 

 

$

410,333

 

 

$

408,168

 

 

$

393,516

 

Less goodwill

18,176

 

 

18,176

 

 

18,176

 

 

18,176

 

 

18,176

 

Less intangibles, net

295

 

 

379

 

 

476

 

 

587

 

 

709

 

Tangible common equity

$

403,499

 

 

$

390,200

 

 

$

391,681

 

 

$

389,405

 

 

$

374,631

 

Common shares outstanding

14,937,776

 

 

14,859,704

 

 

14,821,594

 

 

14,636,484

 

 

14,628,287

 

Book value per common share

$

28.25

 

 

$

27.51

 

 

$

27.68

 

 

$

27.89

 

 

$

26.90

 

Tangible book value per common share

$

27.01

 

 

$

26.26

 

 

$

26.43

 

 

$

26.61

 

 

$

25.61

 

Total shareholders' equity to total assets

11.2

%

 

10.8

%

 

10.5

%

 

10.7

%

 

9.7

%

Tangible common equity to tangible assets

10.7

%

 

10.3

%

 

10.1

%

 

10.2

%

 

9.2

%

Non-GAAP financial measures that adjust GAAP reported net income and other metrics for certain income and expense items. Non-GAAP for 2Q20 excludes interest income SBA PPP loans of $140, amortization loan fees SBA PPP loans of $1,491, gain on sales of securities of $166, loss on sales of loans of $143, merger related expenses of $1,540, and accrual for post-employment benefits of $577. Non-GAAP for 1Q2020 excludes gain on sales of securities of $1,396, loss on sales of loans of $416, and merger related expenses of $1,653. Non-GAAP for 4Q2019 excludes $598 employment related payroll adjustment expenses. 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 %)

 

 

 

2020

 

2019

Return on average tangible common equity

 

Second Quarter

 

First Quarter

Fourth Quarter

 

Third Quarter

 

Second Quarter

Total average shareholders' equity

 

$

411,362

 

 

$

416,518

 

$

414,251

 

 

$

399,096

 

 

$

388,460

 

Less average goodwill

 

18,176

 

 

18,176

 

18,176

 

 

18,176

 

 

18,176

 

Less intangibles, net

 

347

 

 

439

 

633

 

 

587

 

 

709

 

Average tangible common equity

 

$

392,839

 

 

$

397,903

 

$

395,442

 

 

$

380,333

 

 

$

369,575

 

Net income available to common shareholders (1)

 

$

10,174

 

 

$

(1,148)

 

$

(4,592)

 

 

$

11,324

 

 

$

5,173

 

Return on average tangible common equity

 

10.4

%

 

(1.2)

%

(4.6)

%

 

11.8

%

 

5.6

%

 

 

 

 

 

 

 

 

 

 

 

 

2020

2019

Core return on average tangible common equity

 

Second Quarter

 

First Quarter

Fourth Quarter

 

Third Quarter

 

Second Quarter

Pre-tax net income

 

$

12,912

 

 

$

(2,086)

 

$

(7,554)

 

 

$

13,441

 

 

$

5,887

 

Adjustments:

 

 

 

 

 

 

 

 

 

Add non-core items

 

693

 

 

673

 

598

 

 

(485)

 

 

—

 

Less core income tax expense

 

2,911

 

 

(762)

 

(2,862)

 

 

2,030

 

 

706

 

Core net income (2)

 

$

10,694

 

 

$

(651)

 

$

(4,094)

 

 

$

10,926

 

 

$

5,181

 

Core return on average tangible common equity

 

10.9

%

 

(0.7)

%

(4.1)

%

 

11.4

%

 

5.6

%

 

 

 

 

 

 

 

 

 

 

 

 

2020

2019

Core return on average assets and equity

 

Second Quarter

 

First Quarter

Fourth Quarter

 

Third Quarter

 

Second Quarter

Net income

 

$

10,174

 

 

$

(1,148)

 

$

(4,592)

 

 

$

11,324

 

 

$

5,173

 

Average assets

 

3,868,951

 

 

3,880,124

 

3,808,158

 

 

3,999,347

 

 

4,105,102

 

Average equity

 

411,362

 

 

416,518

 

414,251

 

 

399,096

 

 

388,460

 

Return on average assets

 

1.06

%

 

(0.12)

%

(0.48)

%

 

1.12

%

 

0.51

%

Return on average equity

 

9.9

%

 

(1.1)

%

(4.4)

%

 

11.3

%

 

5.3

%

Core net income (2)

 

$

10,694

 

 

$

(651)

 

$

(4,094)

 

 

$

10,926

 

 

$

5,181

 

Core return on average assets

 

1.11

%

 

(0.07)

%

(0.43)

%

 

1.08

%

 

0.51

%

Core return on average equity

 

10.5

%

 

(0.6)

%

(3.9)

%

 

10.9

%

 

5.3

%

 

 

 

 

 

 

 

 

 

 

 

 

2020

2019

Core total revenue

 

Second Quarter

 

First Quarter

Fourth Quarter

 

Third Quarter

 

Second Quarter

Net interest income

 

$

29,528

 

 

$

27,464

 

$

28,113

 

 

$

28,262

 

 

$

27,365

 

Noninterest income

 

10,555

 

 

5,893

 

4,573

 

 

4,793

 

 

4,923

 

Adjustments

 

 

 

 

 

 

 

 

 

Interest income SBA PPP loans

 

(140)

 

 

—

 

—

 

 

—

 

 

—

 

Amortization loan fees SBA PPP loans

 

(1,491)

 

 

—

 

—

 

 

—

 

 

—

 

Gain on sales of securities

 

(166)

 

 

(1,396)

 

—

 

 

(1,493)

 

 

—

 

Loss on sales of loans

 

143

 

 

416

 

—

 

 

1,765

 

 

—

 

Loss on sale of SBA PPP loans

 

230

 

 

—

 

—

 

 

—

 

 

—

 

Core total revenue

 

$

38,659

 

 

$

32,377

 

$

32,686

 

 

$

33,327

 

 

$

32,288

 

Annualized net income available to common shareholders (1)

 

$

40,920

 

 

$

(4,617)

 

$

(18,218)

 

 

$

44,927

 

 

 

Annualized core net income (2)

 

$

43,011

 

 

$

(2,618)

 

$

(16,241)

 

 

$

43,349

 

 

 

 

 

 

 

 

 

 

 

 

 

(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. Non-GAAP for 2Q20 excludes interest income SBA PPP loans of $140, amortization loan fees SBA PPP loans of $1,491, gain on sales of securities of $166, loss on sales of loans of $143, merger related expenses of $1,540, and accrual for post-employment benefits of $577. 1Q2020 excludes gain on sales of securities of $1,396, loss on sales of loans of $416, and merger related expenses of $1,653. Non-GAAP for 4Q2019 excludes $598 employment related payroll adjustment expenses. 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.

 

Chris Black EVP, Chief Financial Officer (615) 721-6096 chris.black@franklinsynergy.com

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