Franklin Financial Network Reports 2019 Fourth Quarter Results

Strategic Merger Agreement Signed with FB Financial Corporation

Net Interest Margin 3.12%, 14 Basis Point Expansion from Previous Quarter

Earnings per Diluted Common Share of $0.64

Franklin Financial Network, Inc. (the "Company") (NYSE: FSB), parent company of Franklin Synergy Bank (the "Bank"), today announced a merger with FB Financial Corporation. The details of the merger are contained within a joint press release issued by the two companies today. The Company reported net income of $9.7 million, or $0.64 per diluted common share, for the quarter-ended December 31, 2019, compared to $3.8 million, or $0.25 per diluted common share, for the quarter-ended December 31, 2018.

The Company reported net income of $29.1 million, or $1.93 per diluted common share, for the year-ended December 31, 2019, compared to $34.5 million, or $2.34 per diluted common share, for the year-ended December 31, 2018.

Core net income for the quarter-ended December 31, 2019 was $10.2 million, or $0.68 per diluted common share, compared to $9.2 million, or $0.61 per diluted common share, for the quarter-ended December 31, 2018. Core pre‑tax pre-provision profit was $12.4 million for the quarter-ended December 31, 2019, an increase of 2.1% from the quarter-ended December 31, 2018.

Chief Executive Officer, J. Myers Jones, III, stated, “We are very pleased with the Company’s results for the fourth quarter and for the full year of 2019. These results can be directly attributed to the hard work that our entire team has done over the course of the past year to unlock the Bank’s core value through the success of various strategic initiatives such as balance sheet rotation and optimization, reduction of non-core banking activities, and a multitude of operational efficiency improvements. As we look ahead, we are very excited to announce that we will be joining our partners at FirstBank to continue to build a phenomenal middle Tennessee-headquartered bank and look forward to years of growing together, with our shared passion and focus on our customers, employees, communities, and shareholders.”

Fourth Quarter and Full 2019 Key Highlights

Net interest margin (tax-equivalent basis) improved to 3.12%, an expansion of 14 basis points from last quarter and 43 basis points year-over-year
During the full year 2019, the securities portfolio and wholesale funding portfolio were reduced by $500.2 million and $379.1 million respectively as part of the bank’s optimization and deleveraging of the non-core balance sheet
Securities to total assets declined to 16.7% as of December 31, 2019, down from 27.1% at December 31, 2018
$112.4 million year-over-year reduction in the SNC portfolio to a balance of $136.7 million, representing 4.9% of loans HFI and a 45.1% year-over-year decrease
Core deposit growth of $65.5 million, or 12.2% annualized from the third quarter of 2019 and $337.3 million, or 18.2% from the fourth quarter of 2018
Tangible book value per share of $27.39, up 11.7% annualized and 12.6% year-over-year

Performance Summary

Reported GAAP Results

Non-GAAP "Core" Results(1)

(dollars in thousands, except share data and %)

4Q 2019

3Q 2019

4Q 2018

4Q 2019

3Q 2019

4Q 2018

Net Interest Income

28,296

28,262

26,921

28,296

28,262

26,921

Net Interest Margin (FTE)(2)

3.12

2.98

2.69

3.12

2.98

2.69

Provision for Loan Losses

200

1,000

975

200

1,000

975

Net Charge-offs / Average Loans

0.00

0.27

0.00

0.27

0.00

Noninterest Income (loss)

4,573

4,793

(384)

4,573

5,065

3,776

Noninterest Expense

21,047

18,614

21,689

20,449

19,371

18,538

Efficiency Ratio

64.0

56.3

81.7

62.2

58.1

60.4

Pre-tax Income

11,622

13,441

3,873

12,220

12,956

11,184

Net Income available to common shareholders(3)

9,721

11,324

3,743

10,211

10,926

9,178

Pre-tax pre-provision profit

11,822

14,441

4,848

12,420

13,956

12,159

Diluted EPS

0.64

0.75

0.25

0.68

0.72

0.61

Effective Tax Rate

16.29

15.75

3.15

16.37

15.67

17.86

Weighted Average Diluted Shares

15,126,270

14,991,363

14,821,540

15,126,270

14,991,363

14,821,540

Actual Shares Outstanding

14,821,594

14,636,484

14,538,085

14,821,594

14,636,484

14,538,085

Return on Average:

Assets

1.01

1.12

0.35

1.06

1.08

0.87

Equity

9.3

11.3

4.1

9.8

10.9

10.1

Tangible Common Equity

9.7

11.8

4.3

10.2

11.4

10.7

(1) Non-GAAP financial measures that adjust GAAP reported net income and other metrics for certain income and expense items. Excludes 4Q2019 employee related payroll adjustments of $598, 3Q2019 nonrecurring Federal Deposit Insurance Corporation (FDIC) assessment credit of $757, gain on sales of securities of $1,493, and loss on sales of loans of $1,765. See "GAAP reconciliation and use of non-GAAP financial measures" below for a discussion and reconciliation of non-GAAP financial measures. (2) Interest income and rates include the effects of tax-equivalent adjustments to adjust tax-exempt interest income on tax-exempt loans and investment securities to a fully taxable basis (FTE). (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 and the fourth quarter of 2018.

Balance Sheet

Loans held for investment (HFI) increased $7.6 million, or 1.1% annualized from the third quarter of 2019, and increased $138.5 million year-over-year, or 5.2%. This net loan growth for the full year 2019 occurred in spite of the $112.4 million year-over-year reduction in the Shared National Credit (SNC) portfolio to a balance of $136.7 million, representing a 45.1% year-over-year decrease. This is the lowest SNC balance held by the Company during the last five quarters, representing 4.9% of loans HFI, which is almost half of the Company’s concentration of 9.3% of loans HFI at the peak of the SNC portfolio at December 31, 2018. Non-SNC loan growth in the fourth quarter was $33.3 million, representing annualized growth of 4.7% from the third quarter.

Total deposits increased by $145.6 million, or 18.9% annualized from the third quarter of 2019 and decreased by $224.2 million, or 6.5% from the fourth quarter of 2018. Core deposits increased by $65.5 million, or 12.2% annualized from the third quarter 2019, driven primarily by reciprocal deposits. Loans HFI decreased to 87.4% of total deposits at December 31, 2019, when compared with 91.3% at September 30, 2019, and increased when compared with 77.7% at December 31, 2018.

As part of the strategic rotation and optimization away from non-core assets and liabilities, the Company has reduced its securities portfolio by a total of $500.2 million over the course of the full-year 2019, representing a 43.4% reduction from the fourth quarter of 2018. As of December 31, 2019, securities represent 16.7% of total assets, down from 27.1% at December 31, 2018. Wholesale funding, represented by brokered deposits and FHLB advances, ended the year at $787.2 million, down $379.1 million from December 31, 2018, a 32.5% year-over-year decline in the non-core wholesale funding portfolio.

Executive Vice President and Chief Financial Officer, Christopher J. Black stated, “Throughout the year of 2019, we have continued to make great progress in the reduction of non-core banking activities. We expect to continue on this pathway and will likely accelerate these activities in light of our strategic merger agreement with FB Financial Corporation. Together with our partners at FirstBank, as one team with so many similarities, we are excited to continue to drive shareholder value as we focus on bringing the best products and services to our customers.”

Net Interest Income and Net Interest Margin (NIM)

Net interest income remained steady at $28.3 million for the fourth quarter of 2019 compared to the third quarter of 2019, and increased $1.4 million compared to the fourth quarter of 2018, representing a 5.1% year-over-year increase.

NIM (tax-equivalent basis) was 3.12% for the three months ended December 31, 2019, a 14 basis point increase quarter-over-quarter, and a 43 basis point increase year-over-year, primarily driven by the balance sheet rotation and optimization strategies that have focused on the reduction in non-core assets and liabilities.

Noninterest Income and Expense

Total noninterest income was $4.6 million and $4.8 million for the fourth and third quarters of 2019, respectively. After non-core adjustments, core noninterest income was $4.6 million for the fourth quarter of 2019 and $5.1 million for the third quarter of 2019, a decrease of 38.5% annualized from the third quarter of 2019, and an increase of 21.1% on a year-over-year basis.

Total noninterest expense was $21.0 million and $18.6 million during the fourth and third quarters of 2019, respectively. When adjusted for a nonrecurring employment related payroll adjustment of $598 thousand during the fourth quarter of 2019, core noninterest expense was $20.4 million compared to $19.4 million after an adjustment for an FDIC assessment credit during the third quarter of 2019. This represents a 10.3% year-over-year increase when compared to the fourth quarter of 2018 core noninterest expense of $18.5 million.

Asset Quality

The allowance for loan and lease losses (ALLL) was $26.7 million at December 31, 2019, representing an increase of $3.2 million from $23.5 million at December 31, 2018, equating to 0.95% of total loans HFI. The Company reported no bank-owned real estate (OREO) at December 31, 2019.

As of December 31, 2019, the Company’s total nonperforming assets (NPAs) were 0.09% of total assets, or $3.4 million, a decrease of approximately $2.3 million from December 31, 2018. The ALLL/NPAs coverage ratio was 781.3% at December 31, 2019, compared with the 411.7% coverage present at December 31, 2018. Classified assets were $48.9 million at December 31, 2019, representing 1.74% of loans HFI, down from 1.77% of loans HFI at September 30, 2019.

Capital

Tangible common equity to tangible assets was 10.4% at December 31, 2019, compared with 10.2% and 8.4% at September 30, 2019, and December 31, 2018, respectively. The Company's tangible book value per share increased to $27.39, which represents a 11.7% annualized quarterly increase and 12.6% year-over-year growth.

Summary

Jones concluded, “I am quite proud of the progress and the evolution of our franchise, as well as the improvement in our financial performance throughout 2019. As we look ahead to 2020 and beyond, we are excited about the future that is in front of us with our new partners at FirstBank. We firmly believe that we will be better together with our focus being concentrated on our customers and our abilities being stronger than ever to meet the needs of our customers.”

WEBCAST AND CONFERENCE CALL INFORMATION

The live broadcast of the Company's earnings webcast and conference call previously scheduled at 8:00 a.m. CST on Thursday, January 23, 2020 will be cancelled, and management will join FB Financial Corporation on Tuesday, January 21, 2020 at 5:00 p.m. CST to discuss the announced merger with FB Financial Corporation and FB Corporation's 2019 fourth quarter and year-end earnings, and the conference call will be broadcast live over the Internet at https://www.webcaster4.com/Webcast/Page/1631/32670. The replay presentation materials will be available with the webcast at www.firstbankonline.com approximately an hour following the conclusion of the live broadcast. This Earnings Release will be included on a Form 8-K that the Company furnished to the U.S. Securities and Exchange Commission (SEC) on January 21, 2020.

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 $3.9 billion at December 31, 2019, 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 our plans regarding reductions in noncore banking activities. The Company claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Forward-looking statements reflect our management's current assumptions, beliefs, and expectations. Words such as "anticipate," "believe," "estimate," "expect," "intend," "plan," "objective," "should," "hope," "pursue," "seek," and similar expressions are intended to identify forward-looking statements. While we believe that the expectations reflected in our forward-looking statements are reasonable, we can give no assurance that such expectations will prove correct. Forward-looking statements are subject to risks and uncertainties that could cause our actual results to differ materially from the future results, performance, or achievements expressed in or implied by any forward-looking statement we make. Some of the relevant risks and uncertainties that could cause our actual performance to differ materially from the forward-looking statements contained in this Earnings Release are discussed below and under the heading "Risk Factors" and elsewhere in our Annual Report on Form 10-K filed with the Securities and Exchange Commission ("SEC") on March 19, 2019. We caution readers that these discussions of important risks and uncertainties are not exclusive, and our business may be subject to other risks and uncertainties which are not detailed there. Readers are cautioned not to place undue reliance on our forward-looking statements. We make forward-looking statements as of the date on which this Earnings Release is filed with the SEC, and we assume no obligation to update the forward-looking statements after the date hereof whether as a result of new information or events, changed circumstances, or otherwise, except as required by law.

There are or will be important factors that could cause our actual results to differ materially from those indicated in these forward-looking statements, including, but not limited to, the following:

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 failure to obtain the approval of the Company’s and FB Financial Corporation’s shareholders in connection with the proposed merger;
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 pending acquisition of FNB Financial Corp. 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 potential 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;
increased competition in the banking and mortgage banking industry, nationally, regionally and locally;
our ability to execute our business strategy to achieve profitable growth;
the dependence of our operating model on our ability to attract and retain experienced and talented bankers in each of our markets;
risks that our cost of funding could increase, in the event we are unable to continue to attract stable, low-cost deposits and reduce our cost of deposits;
our ability to increase our operating efficiency;
failure to keep pace with technological change or difficulties when implementing new technologies;
risks related to our acquisition, disposition, growth and other strategic opportunities and initiatives;
negative impact on our mortgage banking services, including declines in our mortgage originations or profitability due to rising interest rates and increased competition and regulation;

our ability to attract and maintain business banking relationships with well-qualified businesses, real estate developers and investors with proven track records in our market areas;
our ability to attract sufficient loans that meet prudent credit standards, including in our commercial and industrial and commercial real estate loan categories;
failure to maintain adequate liquidity and regulatory capital and comply with evolving federal and state banking regulations;
inability of our risk management framework to effectively mitigate credit risk, interest rate risk, liquidity risk, price risk, compliance risk, operational risk, strategic risk and reputational risk;
failure to develop new, and grow our existing, streams of noninterest income;
our ability to maintain expenses in line with our current projections;
our dependence on our management team and our ability to motivate and retain our management team;
risks related to management transition;
risks related to any future acquisitions, including failure to realize anticipated benefits from future acquisitions;
inability to find acquisition candidates that will be accretive to our financial condition and results of operations;
system failures, data security breaches (including as a result of cyber-attacks), or failures to prevent breaches of our network security;
data processing system failures and errors;
fraudulent and negligent acts by individuals and entities that are beyond our control;
fluctuations in market value and its impact on the securities held in our securities portfolio;
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 proceedings against us or to which we become subject;
changes in accounting standards;
the impact of recent and future legislative and regulatory changes;
governmental monetary and fiscal policies;
changes in the scope and cost of Federal Deposit Insurance Corporation, or FDIC, insurance and other coverage; and
future equity issuances under our Amended and Restated 2017 Omnibus Equity Incentive Plan and future sales of our common stock by us or our executive officers or directors.

The foregoing factors should not be construed as exhaustive and should be read in conjunction with the sections entitled "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our Annual Report on Form 10-K filed March 19, 2019 with the SEC and our Quarterly Reports on Form 10-Q filed May 9, 2019, August 6, 2019, and October 31, 2019 with the SEC. If one or more events related to these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from our forward-looking statements. New risks and uncertainties may emerge from time to time, and it is not possible for us to predict their occurrence or how they will affect the Company.

IMPORTANT INFORMATION FOR SHAREHOLDERS AND INVESTORS

In connection with the proposed merger, FB Financial Corporation will file a registration statement on Form S-4 with the SEC. The registration statement will contain the joint proxy statement of the Company and FB Financial Corporation to be sent to the Company’s and FB Financial Corporation’s shareholders seeking their approvals in connection with the merger and the issuance of FB Financial Corporation common stock in the merger. The registration statement will also contain the prospectus of FB Financial Corporation to register the shares of FB Financial Corporation common stock to be issued in connection with the merger. A definitive joint proxy statement/prospectus will also be provided to the Company’s and FB Financial Corporation’s shareholders as required by applicable law. Investors and shareholders are encouraged to read the registration statement, including the joint proxy statement/prospectus that will be part of the registration statement, as well as any other relevant documents filed by the Company and FB Financial Corporation with the SEC, including any amendments or supplements to the registration statement and other documents filed with the SEC, because they will contain important information about the proposed merger, the Company and FB Financial Corporation. The registration statement and other documents filed with the SEC may be obtained for free on the SEC’s website (www.sec.gov). The definitive proxy statement/prospectus will also be made available for free by contacting Franklin Investor Relations at (615) 236-8327 or investors@franklinsynergy.com, or by contacting FB Financial Corporation Investor Relations at (615) 564-1212 or investors@firstbankonline.com. This communication does not constitute an offer to sell, the solicitation of an offer to sell or the solicitation of an offer to buy any securities, or the solicitation of any vote or approval, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of such jurisdiction.

PARTICIPANTS IN THE SOLICITATION

The Company, FB Financial Corporation, and certain of their respective directors and executive officers may be deemed to be participants in the solicitation of proxies from the Company’s and FB Financial Corporation’s shareholders in connection with the proposed merger under the rules of the SEC. Information about the directors and executive officers of the Company may be found in the definitive proxy statement for the Company’s 2019 annual meeting of shareholders, filed with the SEC by the Company on April 12, 2019, and other documents subsequently filed by the Company with the SEC. Information about the directors and executive officers of FB Financial Corporation may be found in the definitive proxy statement for FB Financial Corporation’s 2019 annual meeting of shareholders, filed with the SEC by FB Financial Corporation on April 16, 2019, and other documents subsequently filed by FB Financial Corporation with the SEC. Other information regarding the participants in the proxy solicitation and a description of their direct and indirect interests, by security holdings or otherwise, will be contained in the joint proxy statement/prospectus when it becomes available. Free copies of these documents may be obtained as described in the paragraph above.

GAAP RECONCILIATION AND USE OF NON-GAAP FINANCIAL MEASURES

Some of the financial data included in this earnings release and our selected historical consolidated financial information are not measures of financial performance recognized by GAAP. Our management uses these non-GAAP financial measures in its analysis of our performance:

"Common equity" is defined as total shareholders' equity at end of period less the liquidation preference value of the preferred stock;
"Tangible common equity" is common equity less goodwill and other intangible assets;
"Total tangible assets" is defined as total assets less goodwill and other intangible assets;
"Other intangible assets" is defined as the sum of core deposit intangible assets and SBA servicing rights;
"Tangible book value per share" is defined as tangible common equity divided by total common shares outstanding. This measure is important to investors interested in changes from period-to-period in book value per share exclusive of changes in intangible assets;
"Tangible common equity ratio" is defined as the ratio of tangible common equity divided by total tangible assets. We believe that this measure is important to many investors in the marketplace who are interested in relative changes from period-to period in common equity and total assets, each exclusive of changes in intangible assets;
"Core Return on Average Tangible Common Equity" is defined as annualized core net income available to common shareholders divided by average tangible common equity;
"Core Efficiency Ratio" is defined as noninterest expense divided by our operating revenue, which is equal to net interest income plus noninterest income with all adjusted to certain one-time expenses;
"Core Diluted Earnings Per Share" is defined as reported earnings per share adjusted for certain one-time expenses;
"Core NonInterest Income" is defined as noninterest income adjusted for certain one-time items;
"Core NonInterest Expense" is defined as noninterest expense adjusted for certain one-time items;
"Core Compensation Expense" is defined as compensation expense adjusted for certain one-time items;
"Core Net Income" is defined as "Net Income Available to Common Shareholders" adjusted for certain one-time items;
"Pre-tax core net income" is defined as pre-tax net income adjusted for certain one-time noninterest income and noninterest expense items; and
"Pre-tax pre-provision core profit" is defined as pre-tax core net income and provision for loan losses.

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

Financial Summary and Key Metrics

(Unaudited)

(In Thousands, Except Share Data and %)

2019

2018

Fourth Quarter

Third Quarter

Second Quarter

First Quarter

Fourth Quarter

Statement of Income Data

Total interest income

43,368

46,531

47,453

47,523

46,046

Total interest expense

15,072

18,269

20,088

20,103

19,125

Net interest income

28,296

28,262

27,365

27,420

26,921

Provision for loan losses

200

1,000

7,031

5,055

975

Total noninterest income (loss)

4,573

4,793

4,923

3,486

(384)

Total noninterest expense

21,047

18,614

19,370

22,616

21,689

Net income before income taxes

11,622

13,441

5,887

3,235

3,873

Income tax expense

1,893

2,117

706

334

122

Net income available to common shareholders (a)

9,721

11,324

5,173

2,901

3,743

Pre-tax pre-provision profit

11,822

14,441

12,918

8,290

4,848

Net interest income (tax-equivalent basis)

28,761

28,808

27,921

27,955

27,516

Core net income* (a)

10,211

10,926

5,173

6,103

9,178

Per Common Share

Diluted net income

0.64

0.75

0.34

0.19

0.25

Core diluted net income *

0.68

0.72

0.34

0.41

0.61

Book value

28.65

27.89

26.90

26.31

25.64

Tangible book value*

27.39

26.61

25.61

25.00

24.32

Weighted average number of shares-diluted

15,126,270

14,991,363

14,894,140

14,804,830

14,821,540

Period-end number of shares

14,821,594

14,636,484

14,628,287

14,574,339

14,538,085

Selected Balance Sheet Data

Cash and due from banks

234,991

178,747

150,721

300,113

280,212

Securities available-for-sale, at fair value

652,132

612,371

715,132

799,301

1,030,668

Securities held to maturity

—

118,963

118,831

121,617

Loans held for sale, at fair value

43,757

56,570

27,093

21,730

11,103

Loans held for investment

2,803,849

2,796,233

2,880,433

2,807,377

2,665,399

Allowance for loan losses

(26,675)

(26,474)

(27,443)

(27,857)

(23,451)

Total assets

3,910,243

3,818,324

4,071,971

4,238,436

4,249,439

Retail and other deposits

1,706,699

1,756,558

1,530,722

1,532,984

1,538,441

Local Government deposits

386,903

349,535

480,206

628,985

782,889

Brokered deposits

632,241

589,482

699,195

718,683

797,795

Reciprocal deposits

481,741

366,375

436,522

435,191

312,682

Total deposits

3,207,584

3,061,950

3,146,645

3,315,843

3,431,807

Borrowings

213,872

278,827

455,282

475,238

427,193

Total shareholders' equity

424,646

408,168

393,516

383,421

372,740

Total equity

424,739

408,261

393,609

383,514

372,833

Selected Ratios

Return on average:

Assets

1.01

1.12

0.51

0.28

0.35

Shareholders' equity

9.3

11.3

5.3

3.1

4.1

Tangible common equity*

9.7

11.8

5.6

3.3

4.3

Average shareholders' equity to average assets

10.9

10.0

9.5

8.9

8.6

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

3.12

2.98

2.84

2.80

2.69

Efficiency ratio (GAAP)

64.0

56.3

60.0

73.2

81.7

Core efficiency ratio (tax-equivalent basis)*

62.2

58.1

60.0

59.8

60.4

Loans held for investment to deposit ratio

87.4

91.3

91.5

84.7

77.7

Total loans to deposit ratio

88.8

93.2

92.4

85.3

78.0

Yield on interest-earning assets

4.76

4.87

4.89

4.82

4.56

Cost of interest-bearing liabilities

2.00

2.26

2.41

2.34

2.16

Cost of total deposits

1.65

1.91

2.07

2.06

1.88

Credit Quality Ratios

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

0.95

0.99

0.88

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

investment(b)

0.00

0.27

1.04

0.10

0.00

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

investments

0.12

0.11

0.16

0.42

0.21

Nonperforming assets as a percentage of total assets

0.09

0.08

0.12

0.28

0.13

Classified assets as a percentage of loans held for investment

1.74

1.77

0.98

1.27

1.45

Preliminary capital ratios (Consolidated)

Shareholders' equity to assets

10.9

10.7

9.7

9.0

8.8

Tangible common equity to tangible assets*

10.4

10.2

9.2

8.6

8.4

Tier 1 capital (to average assets)

10.6

9.8

9.2

8.8

Tier 1 capital (to risk-weighted assets)

12.4

12.0

11.2

11.3

12.2

Total capital (to risk-weighted assets)

15.0

14.7

13.7

14.0

14.9

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

12.4

12.0

11.2

11.3

12.2

*These measures are considered non-GAAP financial measures. See "GAAP Reconciliation and Use of Non-GAAP Financial Measures" and the corresponding financial tables below for reconciliations of these Non-GAAP measures. (a) - Includes a dividend declared and paid by the Company's REIT subsidiary to minority interest preferred shareholders in the second and fourth quarters. (b) - annualized

Consolidated Statements of Income

(Unaudited)

(In Thousands, Except Share Data and %)

Q4 2019 vs.

2019

2018

Q3 2019 Percent

Q4 2018 Percent

Fourth Quarter

Third Quarter

Second Quarter

First Quarter

Fourth Quarter

Variance

Interest income:

Loans, including fees

38,667

40,118

40,202

38,338

36,314

(3.6)

6.5

Securities

Taxable

2,639

3,815

4,614

6,394

7,058

(30.8)

(62.6)

Tax-exempt

1,208

1,471

1,410

1,470

1,615

(17.9)

(25.2)

Dividends on restricted equity securities

238

291

350

334

(18.2)

(28.7)

Federal funds sold and other

616

836

877

987

725

(26.3)

(15.0)

Total interest income

43,368

46,531

47,453

47,523

46,046

(6.8)

(5.8)

Interest expense:

Deposits

12,609

15,020

16,679

16,990

15,941

(16.1)

(20.9)

Federal funds purchased and repurchase agreements

123

61.2

(35.8)

Federal Home Loan Bank advances and other

1,302

2,118

2,237

1,959

1,979

(38.5)

(34.2)

Subordinated notes

1,082

0.0

Total interest expense

15,072

18,269

20,088

20,103

19,125

(17.5)

(21.2)

Net interest income

28,296

28,262

27,365

27,420

26,921

0.1

5.1

Provision for loan losses

200

1,000

7,031

5,055

975

(80.0)

(79.5)

Net interest income after provision

28,096

27,262

20,334

22,365

25,946

3.1

8.3

Noninterest income:

Service charges on deposit accounts

0.00

25.8

Other service charges and fees

970

1,069

903

757

830

(9.3)

16.9

Mortgage banking revenue

2,307

2,702

2,473

1,672

1,630

(14.6)

41.5

Wealth management

813

767

673

627

741

6.0

9.7

Gain (loss) on sales and calls of securities

1,493

367

149

(4,160)

(97.7)

(100.8)

Net (loss) gain on sale of loans

(31)

(1,758)

(217)

(98.2)

(720.0)

Net gain on foreclosed assets

(2)

107

(200.0)

(101.9)

Other income

399

435

424

420

397

(8.3)

0.5

Total noninterest income

4,573

4,793

4,923

3,486

(384)

(4.6)

(1,290.9)

Total revenue

32,869

33,055

32,288

30,906

26,537

(0.6)

23.9

Noninterest expenses:

Salaries and employee benefits

12,841

11,632

11,365

14,743

13,657

10.4

(6.0)

Occupancy and equipment expense

3,313

3,360

3,283

3,113

3,216

(1.4)

3.0

FDIC assessment expense

550

(357)

660

990

(254.1)

(44.4)

Marketing expense

254

315

301

319

236

(19.4)

7.6

Professional fees

1,242

1,118

1,073

923

1,107

11.1

12.2

Other expense

2,847

2,546

2,688

2,528

2,483

11.8

14.7

Total noninterest expense

21,047

18,614

19,370

22,616

21,689

13.1

(3.0)

Net income before income taxes

11,622

13,441

5,887

3,235

3,873

(13.5)

200.1

Income tax expense

1,893

2,117

706

334

122

(10.6)

1,451.6

Net income

9,729

11,324

5,181

2,901

3,751

(14.1)

159.4

Earnings attributable to noncontrolling interest

(8)

—

(8)

—

(8)

0.00

Net income available to common shareholders (a)

9,721

11,324

5,173

2,901

3,743

(14.2)

159.7

Weighted average common shares outstanding:

Basic

14,649,906

14,530,586

14,482,344

14,393,083

14,354,399

Fully diluted

15,126,270

14,991,363

14,894,140

14,804,830

14,821,540

Earnings per share

Basic

0.66

0.77

0.35

0.20

0.26

Fully diluted

0.64

0.75

0.34

0.19

0.25

Dividend per share

0.06

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 %)

Q4 2019 vs.

2019

2018

Q3 2019

Q4 2018

Fourth Quarter

Third Quarter

Second Quarter

First Quarter

Fourth Quarter

Annualized Variance

Percent Variance

ASSETS

Cash and due from banks

234,991

178,747

150,721

300,113

280,212

124.8

(16.1)

Certificates of deposit at other financial institutions

3,590

3,840

3,595

3,594

0.0

(0.1)

Securities available for sale, fair value

652,132

612,371

715,132

799,301

1,030,668

25.8

(36.7)

Securities held to maturity

—

118,963

118,831

121,617

0.0

(100.0)

Loans held for sale, at fair value

43,757

56,570

27,093

21,730

11,103

(89.9)

294.1

Loans held for investment

2,803,849

2,796,233

2,880,433

2,807,377

2,665,399

1.1

5.2

Allowance for loan losses

(26,675)

(26,474)

(27,443)

(27,857)

(23,451)

3.0

13.7

Net loans

2,777,174

2,769,759

2,852,990

2,779,520

2,641,948

1.1

5.1

Restricted equity securities, at cost

24,802

24,764

24,524

22,510

21,538

0.6

15.2

Premises and equipment, net

12,141

12,449

12,948

12,682

12,371

(9.8)

(1.9)

Accrued interest receivable

12,544

12,077

14,281

14,232

13,337

15.3

(5.9)

Bank owned life insurance

56,726

56,366

55,989

55,614

55,239

2.5

2.7

Deferred tax asset, net

8,910

10,297

10,451

12,208

13,189

(53.4)

(32.4)

Servicing rights, net

3,246

3,128

3,299

3,366

3,403

15.0

(4.6)

Goodwill

18,176

0.0

Core deposit intangible asset

449

556

675

807

952

(76.4)

(52.8)

Other assets

61,605

59,474

62,889

75,751

22,092

14.2

178.9

Total assets

3,910,243

3,818,324

4,071,971

4,238,436

4,249,439

9.6

(8.0)

LIABILITIES AND EQUITY

Liabilities:

Demand deposits

Noninterest-bearing

319,373

346,441

334,802

304,937

290,580

(31.0)

9.9

Interest-bearing

2,888,211

2,715,509

2,811,843

3,010,906

3,141,227

25.2

(8.1)

Total deposits

3,207,584

3,061,950

3,146,645

3,315,843

3,431,807

18.9

(6.5)

Federal Home Loan Bank advances

155,000

220,000

396,500

416,500

368,500

(117.2)

(57.9)

Subordinated notes, net

58,872

58,827

58,782

58,738

58,693

0.3

Accrued interest payable

4,201

3,932

4,312

5,041

4,700

27.1

(10.6)

Other liabilities

59,847

65,354

72,123

58,800

12,906

(33.4)

363.7

Total liabilities

3,485,504

3,410,063

3,678,362

3,854,922

3,876,606

8.8

(10.1)

Shareholders' equity:

Common stock

275,412

269,842

268,505

266,758

264,905

8.2

4.0

Retained earnings

147,415

138,579

127,840

123,250

123,176

25.3

19.7

Accumulated other comprehensive gain/(loss), net

1,819

(253)

(2,829)

(6,587)

(15,341)

(111.9)

Total shareholders' equity

424,646

408,168

393,516

383,421

372,740

16.0

13.9

Noncontrolling interest in consolidated

0.0

Total equity

424,739

408,261

393,609

383,514

372,833

16.0

13.9

Total liabilities and equity

3,910,243

3,818,324

4,071,971

4,238,436

4,249,439

9.6

(8.0)

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

For the Periods Ended

(Unaudited)

(In Thousands, Except %)

Three Months Ended December 31, 2019

Three Months Ended September 30, 2019

Average balances

Interest income/ expense

Average yield/ rate

Average balances

Interest income/ expense

Average yield/ rate

Interest-earning assets:

Loans(1)(6)

2,827,590

38,493

5.40

2,848,888

39,926

5.56

Loans held for sale

27,131

211

3.09

22,048

217

3.90

Securities:

Taxable

438,494

2,639

2.39

570,891

3,815

2.65

Tax-Exempt (6)

189,091

1,636

3.43

209,442

1,991

3.77

Restricted equity securities

24,784

241

3.86

24,676

292

4.69

Total Securities

652,369

4,516

2.75

805,009

6,098

3.01

Certificates of deposit at other financial institutions

3,590

2.32

3,628

2.41

Fed funds sold and other (2)

141,199

592

1.66

158,618

814

2.04

Total interest earning assets

3,651,879

43,833

4.76

3,838,191

47,077

4.87

Noninterest Earning Assets:

Allowance for loan losses

(26,640)

(27,364)

Other assets

183,072

188,520

Total noninterest earning assets

156,432

161,156

Total assets

3,808,311

3,999,347

Interest-bearing liabilities:

Interest bearing deposits:

Interest Checking

676,909

2,818

1.65

712,992

3,536

1.97

Money market

1,208,200

5,305

1.74

1,112,573

5,815

2.07

Savings deposits

38,778

0.28

38,952

0.28

Time deposits

770,464

4,459

2.30

928,571

5,642

2.41

Total interest bearing deposits

2,694,351

12,609

1.86

2,793,088

15,020

2.13

Other interest-bearing liabilities:

FHLB advances and other (8)

225,125

1,302

2.29

343,419

2,118

2.45

Federal funds purchased and other (3)

14,985

2.09

7,170

2.71

Subordinated notes

58,842

1,082

7.30

58,798

1,082

7.30

Total other interest-bearing liabilities

298,952

2,463

3.27

409,387

3,249

3.15

Total Interest-bearing liabilities

2,993,303

15,072

2.00

3,202,475

18,269

2.26

Noninterest bearing liabilities:

Demand deposits

334,840

329,620

Other liabilities

65,668

68,156

Total noninterest-bearing liabilities

400,508

397,776

Total liabilities

3,393,811

3,600,251

Equity

414,500

399,096

Total liabilities and equity

3,808,311

3,999,347

Net interest income

28,761

28,808

Interest rate spread (4)

2.76

2.61

Net interest margin (5)

3.12

2.98

Cost of total deposits

1.65

1.91

Average interest-earning assets to average interest-bearing liabilities

122.00

119.85

Tax equivalent adjustment

465

546

Loan yield components:

Contractual interest rate on loans held for investment (1)

36,568

5.13

37,908

5.28

Origination and other loan fee income

1,696

0.24

1,895

0.26

Accretion on purchased loans

229

0.03

123

0.02

Nonaccrual interest collections

—

0.00

—

0.00

Total loan yield

38,493

5.40

39,926

5.56

(1) Loan balances are net of deferred origination fees and costs. Nonaccrual loans are included in total loan balances. (2) Includes federal funds sold and capital stock in the Federal Reserve Bank and Federal Home Loan Bank, and interest-bearing deposits at the Federal Reserve Bank and the Federal Home Loan Bank. (3) Includes repurchase agreements. (4) Represents the average rate earned on interest-earning assets minus the average rate paid on interest-bearing liabilities. (5) Represents net interest income (annualized) divided by total average earning assets. (6) Interest income and rates include the effects of a tax equivalent adjustment to adjust tax-exempt interest income on tax exempt loans and investment securities to a fully taxable basis. (7) Average balances are average daily balances. (8) Includes finance lease.

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

For the Quarters Ended

(Unaudited)

(In Thousands, Except %)

Three Months Ended June 30, 2019

Three Months Ended March 31, 2019

Three Months Ended December 31, 2018

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)

2,858,713

40,003

5.61

2,764,675

38,238

5.61

2,617,649

36,234

5.49

Loans held for sale

24,118

256

4.26

9,438

115

4.94

9,129

104

4.52

Securities:

Taxable

673,386

4,614

2.75

919,549

6,394

2.82

1,082,429

7,058

2.59

Tax-Exempt (6)

208,417

1,909

3.67

181,699

1,990

4.44

193,004

2,186

4.49

Restricted equity securities

24,331

350

5.77

22,082

332

6.10

21,518

334

6.16

Total Securities

906,134

6,873

3.04

1,123,330

8,716

3.15

1,296,951

9,578

2.93

Certificates of deposit at other financial institutions

3,759

2.35

3,592

2.26

3,123

2.03

Fed funds sold and other (2)

147,542

855

2.32

143,196

969

2.74

127,769

709

2.20

Total interest earning assets

3,940,266

48,009

4.89

4,044,231

48,058

4.82

4,054,621

46,641

4.56

Noninterest Earning Assets:

Provision for loan losses

(28,007)

(24,054)

(22,667)

Other assets

192,843

200,078

151,749

Total noninterest earning assets

164,836

176,024

129,082

Total assets

4,105,102

4,220,255

4,183,703

Interest-bearing liabilities:

Interest bearing deposits:

Interest Checking

816,429

4,357

2.14

857,096

4,420

2.09

751,873

3,564

1.88

Money market

1,026,200

6,103

2.39

992,842

5,979

2.44

822,850

4,499

2.17

Savings deposits

38,882

0.28

40,609

0.28

44,336

0.29

Time deposits

1,036,904

6,192

2.40

1,165,666

6,563

2.28

1,442,783

7,846

2.16

Total interest bearing deposits

2,918,415

16,679

2.29

3,056,213

16,990

2.25

3,061,842

15,941

2.07

Other interest-bearing liabilities:

FHLB advances(8)

349,615

2,237

2.57

364,711

1,959

2.18

365,696

1,979

2.15

Federal funds purchased and other (3)

13,249

2.72

10,594

2.76

19,626

123

2.49

Subordinated notes

58,754

1,082

7.39

58,709

1,082

7.47

58,664

1,082

7.32

Total other interest-bearing liabilities

421,618

3,409

3.24

434,014

3,113

2.91

443,986

3,184

2.85

Total Interest-bearing liabilities

3,340,033

20,088

2.41

3,490,227

20,103

2.34

3,505,828

19,125

2.16

Noninterest bearing liabilities:

Demand deposits

313,104

291,176

303,192

Other liabilities

63,505

61,736

13,974

Total noninterest-bearing liabilities

376,609

352,912

317,166

Total liabilities

3,716,642

3,843,139

3,822,994

Equity

388,460

377,116

360,709

Total liabilities and equity

4,105,102

4,220,255

4,183,703

Net interest income

27,921

27,955

27,516

Interest rate spread (4)

2.48

2.40

Net interest margin (5)

2.84

2.80

2.69

Cost of total deposits

2.07

2.06

1.88

Average interest-earning assets to average interest-bearing liabilities

117.97

115.87

115.65

Tax equivalent adjustment

556

535

595

Loan yield components:

Contractual interest rate on loans held for investment (1)

37,925

5.32

36,465

5.34

34,324

5.20

Origination and other loan fee income

1,904

0.27

1,600

0.24

1,647

0.25

Accretion on purchased loans

174

0.02

173

0.03

249

0.03

Nonaccrual interest collections

—

0.00

—

0.00

0.01

Total loan yield

40,003

5.61

38,238

5.61

36,264

5.49

(1) Loan balances are net of deferred origination fees and costs. Nonaccrual loans are included in total loan balances. (2) Includes federal funds sold, capital stock in the Federal Reserve Bank and Federal Home Loan Bank, and interest-bearing deposits at the Federal Reserve Bank and the Federal Reserve Bank and the Federal Home Loan Bank. (3) Includes repurchase agreements. (4) Represents the average rate earned on interest-earning assets minus the average rate paid on interest-bearing liabilities. (5) Represents net interest income (annualized) divided by total average earning assets. (6) Interest income and rates include the effects of a tax equivalent adjustment to adjust tax-exempt interest income on tax exempt loans and investment securities to a fully taxable basis. (7) Average balances are average daily balances. (8) Includes finance lease.

Loan Portfolio and Asset Quality

For the Quarters Ended

(Unaudited)

(In Thousands, Except %)

2019

2018

December 31, 2019

% of Total

September 30, 2019

% of Total

June 30, 2019

% of Total

March 31, 2019

% of Total

December 31, 2018

% of Total

Loan portfolio

Commercial and industrial

575,696

20.53

576,018

20.60

666,025

23.12

635,673

22.64

591,479

22.19

Construction and land development

589,799

21.04

596,459

21.33

582,715

20.23

579,584

20.65

583,022

21.87

Commercial real estate:

Nonfarm, nonresidential

942,190

33.60

911,205

32.59

893,085

31.01

851,102

30.32

752,806

28.24

Other

46,793

1.67

32,466

1.16

37,789

1.31

40,597

1.45

47,965

1.80

Residential real estate:

Closed-end 1-to-4 family

456,378

16.28

477,789

17.09

497,838

17.28

498,511

17.76

494,366

18.55

Other

188,203

6.71

196,322

7.02

198,016

6.87

197,446

7.03

190,173

7.13

Consumer and other

4,790

0.17

5,974

0.21

4,965

0.17

4,464

0.16

5,588

0.21

Total loans held for investment

2,803,849

100.00

2,796,233

100.00

2,880,433

100.00

2,807,377

100.00

2,665,399

100.00

Allowance for loan losses roll forward summary

Allowance for loan losses at the beginning of the period

26,474

27,443

27,857

23,451

22,479

Charge-offs

(191)

(2,021)

(7,592)

(653)

(5)

Recoveries

192

147

Provision for Loan losses

200

1,000

7,031

5,055

975

Allowance for loan losses at the end of the period

26,675

26,474

27,443

27,857

23,451

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

0.95

0.99

0.88

Charge-offs

Commercial and industrial

(160)

(1,935)

(7,563)

(568)

—

Residential real estate

(9)

—

(15)

—

Construction and land development

—

(59)

—

Consumer and other

(22)

(27)

(29)

(70)

(5)

Total Charge-offs

(191)

(2,021)

(7,592)

(653)

(5)

Recoveries

Commercial and industrial

185

—

Residential real estate

—

Consumer and other

Total Recoveries

192

147

Net (charge-offs) recoveries

(1,969)

(7,445)

(649)

(3)

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

0.00

0.27

1.04

0.10

0.00

Criticized and Classified

Loans classified as criticized

2,565

33,161

29,876

8,117

16,123

Loans classified as substandard or worse

49,264

49,424

28,151

35,728

38,711

Total Loans Criticized and Classified

51,829

82,585

58,027

43,845

54,834

Nonperforming assets(a)

Past due 90 days or more and accruing interest

654

676

180

208

Nonaccrual

2,760

3,028

4,030

11,724

5,488

Total nonperforming loans held for investment

3,414

3,107

4,706

11,904

5,696

Total nonperforming assets

3,414

3,107

4,706

11,904

5,696

Total nonperforming loans as a percentage of loans held for investment

0.12

0.11

0.16

0.42

0.21

Total nonperforming assets as a percentage of total assets

0.09

0.08

0.12

0.28

0.13

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

0.02

0.00

0.02

0.00

Loans restructured as troubled debt restructurings

311

313

316

319

167

Troubled debt restructurings as a percentage of loans held for investment

0.01

(a) Nonperforming assets exclude purchase credit impaired loans (b) Annualized

Preliminary Capital Ratios

(Unaudited)

(In Thousands, Except %)

Computation of Tangible Common Equity to Tangible Assets:

December 31, 2019

December 31, 2018

Total Shareholders' Equity

424,646

372,740

Less:

Goodwill

18,176

Other intangibles

477

991

Tangible Common Equity

405,993

353,573

Total Assets

3,910,243

4,249,439

Less:

Goodwill

18,176

Other intangibles

477

991

Tangible Assets

3,891,590

4,230,272

Preliminary Total Risk-Weighted Assets

3,256,463

3,011,345

Total Common Equity to Total Assets

10.9

8.8

Tangible Common Equity to Tangible Assets

10.4

8.4

December 31, 2019

December 31, 2018

Preliminary Regulatory Capital:

Common Equity Tier 1 Capital

402,512

367,096

Tier 1 Capital

402,512

367,096

Total Capital

488,143

449,325

Preliminary Regulatory Capital Ratios:

Common Equity Tier 1

12.4

12.2

Tier 1 Risk-Based

12.4

12.2

Total Risk-Based

15.0

14.9

Tier 1 Leverage

10.6

8.8

Non-GAAP Reconciliation

For the Years and Quarters Ended

(Unaudited)

(In Thousands, Except Share Data and %)

2019

2018

Core net income

Fiscal Year

Fourth Quarter

Third Quarter

Second Quarter

First Quarter

Fiscal Year

Fourth Quarter

Pre-tax net income

34,185

11,622

13,441

5,887

3,235

40,433

3,873

Non-core items:

Noninterest income

(Gain) / loss on sales of securities

(1,493)

—

(1,493)

—

4,160

Loss on sales of loans

1,765

—

1,765

—

Noninterest expenses

FDIC assessment credit

(757)

—

(757)

—

Employment related payroll adjustments

598

—

Post-employment and retirement expense

4,143

—

4,143

3,151

Pre-tax core net income

38,441

12,220

12,956

5,887

7,378

47,744

11,184

Pre-tax pre-provision core profit

51,727

12,420

13,956

12,918

12,433

49,998

12,159

Pre-tax core net income

38,441

12,220

12,956

5,887

7,378

47,744

11,184

Core income tax expense

6,011

2,001

2,030

706

1,275

7,788

1,998

Core net income

32,430

10,219

10,926

5,181

6,103

39,956

9,186

Less: earnings attributable to noncontrolling interest

—

Core net income available to common shareholders

32,414

10,211

10,926

5,173

6,103

39,940

9,178

Less: earnings allocated to participating securities

251

430

100

Core net income allocated to common shareholders

32,163

10,147

10,852

5,131

6,032

39,510

9,078

Weighted average common shares outstanding fully diluted

14,962,307

15,126,270

14,991,363

14,894,140

14,804,830

14,556,958

14,821,540

Core diluted earnings per share

Diluted earnings per share

1.93

0.64

0.75

0.34

0.19

2.34

0.25

Non-core items:

Noninterest income

(Gain) / loss on sales of securities

(0.10)

—

(0.10)

—

0.29

0.28

Loss on sales of loans

0.12

—

0.12

—

Noninterest expenses

FDIC assessment credit

(0.04)

—

(0.04)

—

Employment related payroll adjustments

0.05

—

Accrual for post-employment benefits

0.28

—

0.28

0.22

0.21

Tax effect

(0.08)

(0.01)

—

(0.06)

(0.14)

(0.13)

Core diluted earnings per share

2.16

0.68

0.72

0.34

0.41

2.71

0.61

Year-to-date average tangible common equity (a)

375,898

325,012

Non-GAAP financial measures that adjust GAAP reported net income and other metrics for certain income and expense items. Excludes 4Q'19 employee related payroll adjustments of $598, 3Q’19 FDIC nonrecurring assessment credit, gain on sales of securities and loss on sales of loans. Excludes 1Q’19 compensation-related, nonrecurring expenses and 4Q'18 compensation-related, nonrecurring expenses and securities losses. See "GAAP reconciliation and use of non-GAAP financial measures" and the reconciliation tables above for a discussion and reconciliation of non-GAAP financial measures. (a) Core net income includes a dividend declared and paid by the Company's REIT subsidiary to minority interest preferred shareholders in the second and fourth quarters of 2019 and the fourth quarter of 2018.

Non-GAAP Reconciliation

For the Quarters Ended

(Unaudited)

(In Thousands, Except Share Data and %)

2019

2018

Core efficiency ratio

Fourth Quarter

Third Quarter

Second Quarter

First Quarter

Fourth Quarter

Total noninterest expense

21,047

18,614

19,370

22,616

21,689

Plus FDIC assessment credit

—

757

—

Employment related payroll adjustments

(598)

—

Less post-employment and retirement expense

—

(4,143)

(3,151)

Core noninterest expense

20,449

19,371

19,370

18,473

18,538

Net interest income

28,296

28,262

27,365

27,420

26,921

Total noninterest income

4,573

4,793

4,923

3,486

(384)

(Gain) / loss on sales of securities

—

(1,493)

—

4,160

Loss on sales of loans

—

1,765

—

Core noninterest income

4,573

5,065

4,923

3,486

3,776

Core revenue

32,869

33,327

32,288

30,906

30,697

Efficiency ratio (GAAP)(1)

64.0

56.3

60.0

73.2

81.7

Core efficiency ratio

62.2

58.1

60.0

59.8

60.4

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

2019

2018

Tangible assets and equity

Fourth Quarter

Third Quarter

Second Quarter

First Quarter

Fourth Quarter

Tangible Assets

Total assets

3,910,243

3,818,324

4,071,971

4,238,436

4,249,439

Less goodwill

18,176

Less intangibles, net

477

587

709

844

991

Tangible assets

3,891,590

3,799,561

4,053,086

4,219,416

4,230,272

Tangible Common Equity

Total shareholders' equity

424,646

408,168

393,516

383,421

372,740

Less goodwill

18,176

Less intangibles, net

477

587

709

844

991

Tangible common equity

405,993

389,405

374,631

364,401

353,573

Common shares outstanding

14,821,594

14,636,484

14,628,287

14,574,339

14,538,085

Book value per common share

28.65

27.89

26.90

26.31

25.64

Tangible book value per common share

27.39

26.61

25.61

25.00

24.32

Total shareholders' equity to total assets

10.9

10.7

9.7

9.0

8.8

Tangible common equity to tangible assets

10.4

10.2

9.2

8.6

8.4

Non-GAAP Reconciliation

For the Quarters Ended

(Unaudited)

(In Thousands, Except Share Data and %)

2019

2018

Return on average tangible common equity

Fourth Quarter

Third Quarter

Second Quarter

First Quarter

Fourth Quarter

Total average shareholders' equity

414,500

399,096

388,460

377,116

360,709

Less average goodwill

18,176

Less intangibles, net

633

587

709

844

991

Average tangible common equity

395,691

380,333

369,575

358,096

341,542

Net income available to common shareholders (1)

9,721

11,324

5,173

2,901

3,743

Return on average tangible common equity

9.7

11.8

5.6

3.3

4.3

2019

2018

Core return on average tangible common equity

Fourth Quarter

Third Quarter

Second Quarter

First Quarter

Fourth Quarter

Pre-tax net income

11,622

13,441

5,887

3,235

3,873

Adjustments:

Add non-core items

598

(485)

—

4,143

7,311

Less core income tax expense

2,001

2,030

706

1,275

1,998

Core net income (2)

10,219

10,926

5,181

6,103

9,178

Core return on average tangible common equity

10.2

11.4

5.6

6.9

10.7

2019

2018

Core return on average assets and equity

Fourth Quarter

Third Quarter

Second Quarter

First Quarter

Fourth Quarter

Net income

9,721

11,324

5,173

2,901

3,743

Average assets

3,808,311

3,999,347

4,105,102

4,220,255

4,183,703

Average equity

414,500

399,096

388,460

377,116

360,709

Return on average assets

1.01

1.12

0.51

0.28

0.35

Return on average equity

9.3

11.3

5.3

3.1

4.1

Core net income (2)

10,219

10,926

5,181

6,103

9,178

Core return on average assets

1.06

1.08

0.51

0.59

0.87

Core return on average equity

9.8

10.9

5.3

6.6

10.1

2019

2018

Core total revenue

Fourth Quarter

Third Quarter

Second Quarter

First Quarter

Fourth Quarter

Net interest income

28,296

28,262

27,365

27,420

26,921

Noninterest income

4,573

4,793

4,923

3,486

(384)

Adjustments

(Gain) / loss on sales of securities

—

(1,493)

—

4,160

Loss on sales of loans

—

1,765

—

Core total revenue

32,869

33,327

32,288

30,906

30,697

Annualized net income available to common shareholders (1)

38,567

44,927

20,749

11,765

Annualized core net income (2)

40,544

43,349

20,781

24,752

(1) Annualized net income available to common shareholders utilized in calculating year-to-date return on average tangible common equity. (2) Annualized core net income utilized in calculating core return on average tangible common equity and core return on average assets and average equity. Non-GAAP financial measures that adjust GAAP reported net income and other metrics for certain income and expense items. Excludes 4Q'19 employee related payroll adjustments of $598, 3Q’19 FDIC nonrecurring assessment credit, gain on sales of securities and loss on sales of loans. Excludes 1Q’19 compensation-related, nonrecurring expenses and 4Q'18 compensation-related, non-reoccurring expenses and securities losses. See "GAAP reconciliation and use of non-GAAP financial measures" and the reconciliation tables above for a discussion and reconciliation of non-GAAP financial measures.

View source version on businesswire.com: https://www.businesswire.com/news/home/20200121006042/en/

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

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