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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________________________________________________

FORM 10-Q

________________________________________________________

(Mark One)


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

For the quarterly period ended June 30, 2020


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

For the transition period from to

Commission file number 001-36895

________________________________________________________

FRANKLIN FINANCIAL NETWORK, INC.

(Exact name of registrant as specified in its charter)

________________________________________________________


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

722 Columbia Avenue, Franklin, Tennessee 37064

(Address of principal executive offices) (Zip Code)

615-236-2265

(Registrant’s telephone number, including area code)

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


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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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

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

The number of shares outstanding of the registrant’s common stock, no par value per share, as of July 31, 2020, was 14,972,793.

Table of Contents

TABLE OF CONTENTS


PART I FINANCIAL INFORMATION

Cautionary Note Regarding Forward-Looking Statements			1
Item 1. Consolidated Financial Statements (unaudited)			4
Consolidated Balance Sheets			4
Consolidated Statements of Income			5
Consolidated Statements of Comprehensive Income			6
Consolidated Statement of Changes in Equity			7
Consolidated Statements of Cash Flows			9
Notes to Consolidated Financial Statements			11
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			36
Item 3. Quantitative and Qualitative Disclosures About Market Risk			60
Item 4. Controls and Procedures			61

PART II OTHER INFORMATION

Item 1. Legal Proceedings			62
Item 1A. Risk Factors			62
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			63
Item 3. Defaults Upon Senior Securities			63
Item 4. Mine Safety Disclosures			64
Item 5. Other Information			64
Item 6. Exhibits			64

SIGNATURES

Table of Contents

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Form 10-Q contains forward-looking statements regarding, among other things, our anticipated financial and operating results, the transaction with FB Financial Corporation, and the impact of 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,” “may,” “could,” “would,” “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 report are discussed 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 in this Form 10-Q. 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 Form 10-Q 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 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 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;

•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;

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•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 and national 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.

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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” and the section entitled “Risk Factors” in this Form 10-Q. 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 us.

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.

Throughout this Form 10-Q, 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, allowances for loan and lease losses 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 Form 10-Q, 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.

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PART I FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

FRANKLIN FINANCIAL NETWORK, INC.

CONSOLIDATED BALANCE SHEETS

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


	June 30, 2020		December 31, 2019
	(Unaudited)
ASSETS
Cash and due from financial institutions	$	236,775	$	234,991
Certificates of deposit at other financial institutions	3,506		3,590
Securities available for sale	503,877		652,132
Loans held for sale, at fair value	61,142		43,162
Loans held for investment	2,794,768		2,812,444
Allowance for loan losses	(38,100)		(45,436)
Net loans	2,756,668		2,767,008
Restricted equity securities, at cost	24,110		24,802
Premises and equipment, net	47,305		12,141
Accrued interest receivable	18,576		12,362
Bank owned life insurance	57,432		56,726
Deferred tax asset	10,093		14,229
Servicing rights, net	4,035		3,246
Goodwill	18,176		18,176
Core deposit intangible, net	271		448
Other assets	33,775		53,149
Total assets	$	3,775,741	$	3,896,162
LIABILITIES AND EQUITY
Deposits
Non-interest bearing	$	483,445	$	319,373
Interest bearing	2,659,814		2,888,211
Total deposits	3,143,259		3,207,584
Federal Home Loan Bank advances	100,000		155,000
Subordinated notes, net	58,961		58,872
Accrued interest payable	2,711		4,201
Other liabilities	48,747		60,079
Total liabilities	3,353,678		3,485,736
Commitments and Contingencies (Note 9)
Equity
Preferred stock, no par value: 1.0 million shares authorized; no shares outstanding at June 30, 2020 and December 31, 2019	—		—
Common stock, no par value: 30.0 million authorized; 14.9 million issued and outstanding at June 30, 2020 and 14.8 million issued and outstanding December 31, 2019, respectively	279,232		275,412
Retained earnings	140,339		133,102
Accumulated other comprehensive income	2,399		1,819
Total shareholders’ equity	421,970		410,333
Non-controlling interest in consolidated subsidiary	93		93
Total equity	422,063		410,426
Total liabilities and equity	$	3,775,741	$	3,896,162

See accompanying notes to consolidated financial statements.

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FRANKLIN FINANCIAL NETWORK, INC.

CONSOLIDATED STATEMENTS OF INCOME

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

(Unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Interest income and dividends
Loans, including fees	$	36,623	$	40,202	$	73,661	$	78,540
Securities:
Taxable	1,700		4,614		4,124		11,008
Tax-Exempt	1,219		1,410		2,602		2,880
Dividends on restricted equity securities	220		350		382		684
Federal funds sold and other	52		877		652		1,864
Total interest income	39,814		47,453		81,421		94,976
Interest expense
Deposits	8,929		16,679		21,175		33,669
Federal funds purchased and repurchase agreements	1		90		15		162
Federal Home Loan Bank advances and other borrowings	274		2,237		1,075		4,196
Subordinated notes	1,082		1,082		2,164		2,164
Total interest expense	10,286		20,088		24,429		40,191
Net interest income	29,528		27,365		56,992		54,785
Provision for loan losses	3,195		7,031		16,217		12,086
Net interest income after provision for loan losses	26,333		20,334		40,775		42,699
Noninterest income
Service charges on deposit accounts	74		77		166		151
Other service charges and fees	1,397		903		2,294		1,660
Mortgage banking revenue	8,688		2,473		11,373		4,145
Wealth management	702		673		1,516		1,300
Gain on sale or call of securities	166		367		1,562		517
Net (loss) gain on sale of loans held for investment	(372)		3		(788)		(214)
Net gain on sale of foreclosed assets	5		3		7		7
Other	(105)		424		318		844
Total noninterest income	10,555		4,923		16,448		8,410
Noninterest expense
Salaries and employee benefits	14,762		11,365		27,342		26,108
Occupancy and equipment	2,832		3,283		5,918		6,396
FDIC assessment expense	900		660		1,350		1,650
Marketing	133		301		378		620
Professional fees	2,345		1,073		5,413		1,996
Amortization of core deposit intangible	82		132		177		277
Other	2,922		2,556		5,819		4,939
Total noninterest expense	23,976		19,370		46,397		41,986
Income before income tax expense	12,912		5,887		10,826		9,123
Income tax expense	2,730		706		1,792		1,040
Net income	10,182		5,181		9,034		8,083
Earnings attributable to noncontrolling interest	(8)		(8)		(8)		(8)
Net income available to common shareholders	$	10,174	$	5,173	$	9,026	$	8,075
Earnings per share:
Basic	$	0.68	$	0.35	$	0.61	$	0.55
Diluted	0.66		0.34		0.59		0.54

See accompanying notes to consolidated financial statements.

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FRANKLIN FINANCIAL NETWORK, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

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

(Unaudited)


	Three Months Ended June 30, 2020						Six Months Ended June 30,
	2020		2019		2020		2019
Net income	$	10,182	$	5,181	$	9,034	$	8,083
Other comprehensive income, net of tax:
Unrealized gains/losses on securities:
Unrealized holding gains arising during the period	2,704		7,116		4,443		19,109
Reclassification adjustment for gains on sales, calls, and prepayments of securities included in net income	(166)		(367)		(1,562)		(517)
Tax effect	(634)		(1,760)		(714)		(4,849)
Net unrealized gains on securities	1,904		4,989		2,167		13,743
Unrealized gain/loss on cash flow hedge:
Unrealized holding gain (losses) arising during the period	192		(1,667)		(2,149)		(1,667)
Tax effect	(50)		436		562		436
Net unrealized gains (losses) on cash flow hedge	142		(1,231)		(1,587)		(1,231)
Total other comprehensive income	2,046		3,758		580		12,512
Comprehensive income	$	12,228	$	8,939	$	9,614	$	20,595

See accompanying notes to consolidated financial statements.

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FRANKLIN FINANCIAL NETWORK, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

Three Months Ended June 30, 2020 and June 30, 2019

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

(Unaudited)


	Shareholders’ Equity
	Preferred Stock		Common Stock					Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Noncontrolling Interest		Total Equity
				Shares		Amount
Balance at April 1, 2019	$	—	14,574,339	$	266,758	$	123,250	$	(6,587)	$	93	$	383,514
Exercise of common stock options, includes net settlement of shares	—		74,116	753		—		—		—		753
Stock based compensation expense, net of restricted share forfeitures	—		—	1,513		—		—		—		1,513
Issuance of restricted stock awards, net of forfeitures	—		(988)	—		—		—		—		—
Purchase of treasury stock	—		(19,180)	(519)		—		—		—		(519)
Cash Dividends - common stock ($0.04 per share)	—		—	—		(583)		—		—		(583)
Noncontrolling interest distributions	—		—	—		(8)		—		—		(8)
Net income	—		—	—		5,181		—		—		5,181
Other comprehensive income	—		—	—		—		3,758		—		3,758
Balance at June 30, 2019	$	—	14,628,287	$	268,505	$	127,840	$	(2,829)	$	93	$	393,609

Balance at April 1, 2020	$	—	14,859,704	$	277,341	$	131,061	$	353	$	93	$	408,848
Exercise of common stock options, includes net settlement of shares	—		39,073	449		—		—		—		449
Stock based compensation expense, net of restricted share forfeitures	—		—	1,442		—		—		—		1,442
Issuance of restricted stock awards, net of forfeitures, and vesting of restricted stock units	—		38,999	—		—		—		—		—
Cash dividends - common stock ($0.06 per share)	—		—	—		(896)		—		—		(896)
Noncontrolling interest distributions	—		—	—		(8)		—		—		(8)
Net income	—		—	—		10,182		—		—		10,182
Other comprehensive income	—		—	—		—		2,046		—		2,046
Balance at June 30, 2020	$	—	14,937,776	$	279,232	$	140,339	$	2,399	$	93	$	422,063

See accompanying notes to consolidated financial statements.

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FRANKLIN FINANCIAL NETWORK, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

Six Months Ended June 30, 2020 and June 30, 2019

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

(Unaudited)


	Shareholders’ Equity
	Preferred Stock		Common Stock							Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Noncontrolling Interest		Total Equity
				Shares			Amount
Balance at January 1, 2019	$	—	14,538,085		$	264,905		$	123,176	$	(15,341)	$	93	$	372,833
Cumulative-effect of accounting change	—		—		—			(2,244)		—		—		(2,244)
Balance at January 1, 2019 adjusted	$	—	14,538,085		$	264,905		$	120,932	$	(15,341)	$	93	$	370,589
Exercise of common stock options, includes net settlement of shares	—		109,162		1,277			—		—		—		1,277
Stock based compensation expense, net of restricted share forfeitures	—		—		2,842			—		—		—		2,842
Issuance of restricted stock awards, net of forfeitures	—		220		—			—		—		—		—
Purchase of treasury stock	—		(19,180)		(519)			—		—		—		(519)
Cash Dividends - common stock ($0.08 per share)	—		—		—			(1,167)		—		—		(1,167)
Noncontrolling interest distributions	—		—		—			(8)		—		—		(8)
Net income	—		—		—			8,083		—		—		8,083
Other comprehensive income	—		—		—			—		12,512		—		12,512
Balance at June 30, 2019	$	—	14,628,287		$	268,505		$	127,840	$	(2,829)	$	93	$	393,609

Balance at January 1, 2020	$	—	14,821,594		$	275,412		$	133,102	$	1,819	$	93	$	410,426
Exercise of common stock options, includes net settlement of shares	—		76,489		866			—		—		—		866
Stock based compensation expense, net of restricted share forfeitures	—		—		2,954			—		—		—		2,954
Issuance of restricted stock awards, net of forfeitures, and vesting of restricted stock units	—		39,693		—			—		—		—		—
Cash dividends - common stock ($0.12 per share)	—		—		—			(1,789)		—		—		(1,789)
Noncontrolling interest distributions	—		—		—			(8)		—		—		(8)
Net income	—		—		—			9,034		—		—		9,034
Other comprehensive income	—		—		—			—		580		—		580
Balance at June 30, 2020	$	—	14,937,776		$	279,232		$	140,339	$	2,399	$	93	$	422,063

See accompanying notes to consolidated financial statements.

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FRANKLIN FINANCIAL NETWORK, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

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

(Unaudited)


	Six Months Ended June 30,
	2020		2019
Cash flows from operating activities
Net income	$	9,034	$	8,083
Adjustments to reconcile net income to net cash from operating activities
Depreciation and amortization on premises and equipment	1,200		850
Accretion of purchase accounting adjustments	(169)		(346)
Net amortization of securities	2,675		3,078
Amortization of loan servicing right asset	1,013		487
Amortization of core deposit intangible	177		277
Amortization of debt issuance costs	89		89
Provision for loan losses	16,217		12,086
Impairment charges on loan servicing right asset	316		—
Deferred income tax expense (benefit)	3,984		(2,121)
Excess tax benefit related to stock compensation	(3)		(205)
Origination of loans held for sale	(380,107)		(208,009)
Proceeds from sale of loans held for sale	371,034		197,230
Net gain on sale of loans held for sale	(11,025)		(5,594)
Loss on sale of loans held for investment	788		227
Gain on sale of available for sale securities	(1,562)		(517)
Income from bank owned life insurance	(705)		(750)
Stock-based compensation	2,954		2,842
Deferred gain on sale of loans	(8)		(7)
Deferred gain on sale of foreclosed assets	(7)		(7)
Net change in:
Accrued interest receivable and other assets	(7,370)		4,478
Accrued interest payable and other liabilities	(3,539)		6,875
Net cash from operating activities	$	4,986	$	19,046
Cash flows from investing activities
Securities available for sale :
Sales and calls	119,888		347,037
Purchases	(369)		(94,860)
Maturities and prepayments	39,619		82,556
Securities held to maturity :
Purchases	—		(3,284)
Maturities, prepayments and calls	—		5,261
Net change in loans	(144,828)		(241,477)
Proceeds from sale of loans held for investment	138,332		18,468
Purchase of restricted equity securities	(83)		(3,011)
Proceeds from sale of restricted equity securities	775		—
Purchases of premises and equipment, net	(36,364)		(1,427)
Decrease (increase) in certificates of deposits at other financial institutions	84		(246)
Net cash from investing activities	$	117,054	$	109,017
Cash flows from financing activities
Decrease in deposits	(64,325)		(285,162)
Proceeds from Federal Home Loan Bank advances	145,000		340,000
Repayment of Federal Home Loan Bank advances	(200,000)		(312,000)
Proceeds from exercise of common stock options	866		1,277
Purchase of treasury stock	—		(494)
Dividends paid on common stock	(1,789)		(1,167)
Noncontrolling interest distributions	(8)		(8)
Net cash from financing activities	$	(120,256)	$	(257,554)

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Net change in cash and cash equivalents	1,784		(129,491)
Cash and cash equivalents at beginning of period	234,991		280,212
Cash and cash equivalents at end of period	$	236,775	$	150,721

Supplemental information:
Interest paid	$	25,920	$	40,579
Income taxes paid	$	48	$	6,043
Non-cash supplemental information:
Establishment and extinguishment of lease liability and right-of use asset	$	(21,522)	$	43,723
Transfers from securities held to maturity to securities available for sale	$	—	$	1,206

See accompanying notes to consolidated financial statements.

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FRANKLIN FINANCIAL NETWORK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

(Unaudited)

NOTE 1—BASIS OF PRESENTATION

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

The Company provides financial services through its offices in Franklin, Brentwood, Spring Hill, Murfreesboro, Nashville, Nolensville, and Smyrna, Tennessee, as well as through its loan and deposit production location in Mt. Juliet, Tennessee. Its primary deposit products are checking, savings, and certificate of deposit accounts, and its primary lending products are commercial and residential construction, commercial, installment loans and lines secured by home equity. Substantially all loans are secured by specific items of collateral including commercial and residential real estate, business assets, and consumer assets. Commercial loans are expected to be repaid by cash flow from operations of businesses. The Company also focuses on electronic banking products such as internet banking, remote deposit capture and lockbox services.

Principles of Consolidation and Basis of Presentation

The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with United States Generally Accepted Accounting Principles (“GAAP”) for interim financial information and in accordance with guidance provided by the SEC. Accordingly, the financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

In the opinion of management, the accompanying unaudited consolidated financial statements reflect all normal and recurring adjustments considered necessary for a fair presentation. Transactions between the subsidiaries have been eliminated. These consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, and our Quarterly Report on Form 10-Q filed with the SEC on May 7, 2020. Operating results for the three and six months ended June 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020. On January 21, 2020, the Company announced a strategic merger with FB Financial Corporation that is expected to close in the third quarter of 2020, with an anticipated closing date of August 15, 2020.

Risks and Uncertainties

The outbreak of COVID-19 has adversely impacted a broad range of industries in which the Company’s customers operate and could impair their ability to fulfill their financial obligations to the Company. During the first quarter of 2020, the World Health Organization declared COVID-19 to be a global pandemic indicating that almost all public commerce and related business activities must be, to varying degrees, curtailed with the goal of decreasing the rate of new infections. The pandemic has caused significant disruptions in the U.S. economy, has disrupted banking and other financial activity in the areas in which the Company operates. The pandemic and its adverse consequences continued throughout the second quarter of 2020, and will likely present significant economic risks for at least the next several quarters. While there has been no material impact to the Company’s employees to date, COVID-19 could also potentially create widespread business continuity issues for the Company.

The United States Congress, the President of the United States, and the Federal Reserve have taken several actions designed to cushion the economic fallout from the COVID-19 pandemic. Most notably, the Coronavirus Aid, Relief and Economic Security (“CARES”) Act was signed into law on March 27, 2020 as a $2.2 trillion legislative relief package. The goal of the CARES Act is to limit the impact of a potentially severe economic downturn through various measures, including direct financial aid to American families and economic stimulus to significantly impacted industry sectors. The package also includes extensive emergency funding for hospitals and medical providers. In addition to the general impact of COVID-19, certain provisions of the CARES Act as well as other recent legislative and regulatory relief efforts, together with other proposed and/or pending legislature and regulatory actions, are expected to have a material impact on the Company’s operations.

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The Company’s business is dependent upon the willingness and ability of its employees and customers to conduct banking and other financial transactions. If the global response to contain COVID-19 escalates further or is unsuccessful, the Company could experience a material adverse effect on its business, financial condition, results of operations and cash flows. It is not possible at this time to know the full extent that the impact of COVID-19, and resulting measures to curtail its spread, could have on the Company’s operations, but such impacts could be material and adverse.

Financial position and results of operations

The Company’s fee income could be reduced due to the impacts of COVID-19. In keeping with guidance from regulators, the Company continues to work with COVID-19 affected customers to waive fees from a variety of sources, such as, but not limited to, insufficient funds and overdraft fees, ATM fees, account maintenance fees, etc. These reductions in fees are thought, at this time, to be temporary in conjunction with the length of the expected COVID-19 related economic crisis. At this time, the Company is unable to project the materiality of such an impact, but recognizes the breadth of the economic impact is likely to impact its fee income in future periods.

The Company’s interest income could be reduced due to the impacts of COVID-19. In keeping with guidance from regulators, the Company is actively working with COVID-19 affected borrowers to defer their payments, interest, and fees. During the second quarter of 2020, the Company sold approximately $76.6 million of SBA PPP loans originated to a third party at a minimal discount. While interest and fees for any remaining SBA PPP loans will still accrue to income through normal GAAP accounting, should eventual credit losses on these deferred payments emerge, interest income and fees accrued may need to be reversed. In such a scenario, interest income in future periods could be negatively impacted. At this time, the Company is unable to project the materiality of such an impact, but recognizes the breadth of the economic impact may affect its borrowers’ ability to repay in future periods.

In an agreement with a third party provider, the Company sold substantially all of its Paycheck Protection Program ("PPP") loan portfolio that were originated and funded during the first and second quarter of 2020. This transaction allowed the Company to immediately recognize the origination fees paid by the Small Business Administration (“SBA”) during the second quarter of 2020. The Company no longer retains the servicing or other risks associated with the administration of the transferred loan portfolio.

Lending operations and accommodations to borrowers

In keeping with regulatory guidance to work with borrowers during this unprecedented situation and as outlined in the CARES Act, the Company continues to execute a payment deferral program for its eligible clients that are adversely affected by the pandemic. Depending on the demonstrated need of the client, the Company is deferring either the full loan payment or the principal component of the loan payment, with the typical deferral period of 90 days. The majority of the Company’s first round of 90-day loan payment deferrals began to mature toward the end of the second quarter of 2020 and during the first part of the third quarter of 2020. The Company is working with its customers during this timeframe to determine if a second 90-day loan payment deferral is necessary. During the period ended June 30, 2020, interagency guidance and the CARES Act rules provided clarity to accounting for modifications whereby under certain circumstances, such modifications would not be considered troubled debt restructurings ("TDRs").

As of July 31, 2020, we have approximately 305 loans with a balance of approximately $478,000 that have returned to regular payment status, and we have approximately 101 loans with a balance of approximately $253,000 that remain on temporary payment deferral program.

Credit

Pertaining to the Company’s June 30, 2020 financial condition and results of operations, COVID-19 had an impact on the Company’s allowance for loan and lease losses (“ALLL”) and the resulting provision for loan losses were impacted by changes in economic conditions. Should economic conditions worsen, we could experience further increases in our ALLL and record additional provision expense. The execution of the payment deferral program discussed above improved our ratio of past due loans to total loans. It is possible that our asset quality measures could worsen at future measurement periods if the effects of COVID-19 are prolonged.

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Goodwill

COVID-19 could cause a further and sustained decline in the Company’s stock price or the occurrence of what management would deem to be a triggering event that could, under certain circumstances, cause us to perform an additional goodwill impairment test and could result in an impairment charge being recorded for that period. In the event that the Company concludes that all or a portion of its goodwill is impaired, a non-cash charge for the amount of such impairment would be recorded to earnings.

Reclassifications

Some items in the prior year financial statements were reclassified to conform to the current presentation. Reclassifications had no effect on prior year net income or equity.

Recently Adopted and Effective Accounting Pronouncements

In January 2017, the FASB issued ASU 2017-04, “Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” The guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation and instead treats goodwill impairment as the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. All other goodwill impairment guidance remains largely unchanged. ASU 2017-04 became effective for us on January 1, 2020, and it did not have a material impact on the Company’s consolidated financial statements. The Company's policy is to test goodwill for impairment annually on December 31 or on an interim basis if an event triggering impairment may have occurred. During the period ended June 30, 2020, the economic turmoil and market volatility resulting from the COVID-19 crisis resulted in a decrease in the Company's stock price and market capitalization. Management believed such decrease was a triggering indicator requiring an interim goodwill impairment quantitative analysis. Under the new simplified guidance, the Company determined that none of its goodwill was impaired as of June 30, 2020. Management will continue to evaluate the economic conditions at future reporting periods for applicable changes.

In August 2018, the FASB issued ASU No. 2018-13, “Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement.” This ASU eliminates, adds and modifies certain disclosure requirements for fair value measurements. Among the changes, entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. ASU No. 2018-13 became effective for us on January 1, 2020, and only revises disclosure requirements. It did not have a material impact on the Company’s consolidated financial statements.

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

Status of New Accounting Standard for Accounting for Allowance for Credit Losses

On January 1, 2020, ASU 2016-13 Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, became effective for the Company which replaces the existing incurred loss impairment methodology ("ILM") for loans that are collectively evaluated for impairment with a methodology that reflects management’s best estimate of lifetime expected credit losses and requires consideration of reasonable and supportable economic forecasts to develop a lifetime credit loss estimate. Topic 326 requires additional qualitative and quantitative disclosure to allow users to better understand the credit risk within the portfolio and the methodologies for determining the allowance for credit losses ("ACL"). The Cumulative Expected Credit Loss ("CECL") standard also simplifies the accounting model for purchased credit impaired loans. Additionally, Topic 326 requires expected credit losses on available-for-sale ("AFS") debt securities be recorded as an ACL. For certain types of debt securities, such as U.S. Treasuries and other securities with government guarantees, entities may utilize an assumption of zero credit losses.

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In accordance with Section 4014 of the CARES Act, the Company deferred implementation of CECL and thus elected to continue to utilize the ILM to calculate loan loss reserves in the first and second quarters 2020.

The temporary deferral of CECL will remain effective until the earlier of the termination of the national emergency declaration concerning the COVID-19 pandemic or December 31, 2020, with an effective retrospective implementation date of January 1, 2020. There is increased uncertainty on the local, regional, and national economy as a result of local and state stay-at-home orders, as well as relief measures provided at a national, state, and local level. The Company has taken actions to mitigate the impact or potential prospective credit losses including permitting short-term payment deferrals to current customers. These conditions significantly impact management’s determination of a reasonable and supportable forecast, an essential requirement in the calculation of expected credit losses under CECL methodology. The Company believes that the deferral will provide time to better assess the impact of the COVID-19 pandemic on the expected lifetime credit losses. Management will continue to measure and monitor the estimated impacts of CECL adoption through continued parallel testing of model simulations based on our portfolio composition and current expectations of future economic conditions.

The Company’s CECL implementation efforts will remain in process in order to adequately comply with the provisions of CECL once the deferral period ceases. Management will continue to measure and monitor the estimated impacts of CECL adoption through continued parallel testing of model simulations based on our portfolio composition and current expectations of future economic conditions.

NOTE 2—SECURITIES

The following table summarizes the amortized cost and fair value of the securities available-for-sale portfolio at June 30, 2020 and December 31, 2019 and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income.


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
June 30, 2020
Mortgage-backed securities: residential	$	250,810	$	6,828	$	(1)	$	257,637
Mortgage-backed securities: commercial	15,217		454		(79)		15,592
Corporate notes	2,500		92		—		2,592
State and political subdivisions	228,567		5,698		(6,209)		228,056
Total	$	497,094	$	13,072	$	(6,289)	$	503,877


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
December 31, 2019
Mortgage-backed securities: residential	$	374,923	$	1,876	$	(856)	$	375,943
Mortgage-backed securities: commercial	17,858		56		(134)		17,780
Corporate notes	32,825		539		(3)		33,361
State and political subdivisions	222,624		2,566		(142)		225,048
Total	$	648,230	$	5,037	$	(1,135)	$	652,132

There were no securities held-to-maturity at June 30, 2020 or December 31, 2019.

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


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Proceeds	$	17,462	$	87,424	$	119,888	$	347,037
Gross gains	253		367		1,677		2,168
Gross losses	(87)		—		(115)		(1,651)

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The amortized cost and fair value of the investment securities portfolio are shown by contractual maturity. Securities not due at a single maturity date, primarily mortgage-backed securities, are shown separately.


	June 30, 2020
	Amortized Cost		Fair Value
Available-for-sale
Over one year through five years	$	1,606	$	1,634
Over five years through ten years	5,461		5,437
Over ten years	224,000		223,577
Mortgage-backed securities: residential	250,810		257,637
Mortgage-backed securities: commercial	15,217		15,592
Total	$	497,094	$	503,877

Securities pledged at June 30, 2020, and December 31, 2019 had a carrying amount of $283,970 and $294,585, respectively, that were pledged to secure public deposits.

At June 30, 2020 and December 31, 2019, there were no holdings of securities of any one issuer, other than the U.S. government-sponsored entities and agencies, in an amount greater than 10% of shareholders’ equity.

The following table summarizes the securities with unrealized and unrecognized losses at June 30, 2020 and December 31, 2019, aggregated by major security type and length of time in a continuous unrealized loss position:


	Less Than 12 Months						12 Months or Longer						Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
June 30, 2020
Available-for-sale
Mortgage-backed securities: residential	$	—	$	—	$	102	$	(1)	$	102	$	(1)
Mortgage-backed securities: commercial	—		—		3,109		(79)		3,109		(79)
State and political subdivisions	116,336		(6,209)		—		—		116,336		(6,209)
Total available-for-sale	$	116,336	$	(6,209)	$	3,211	$	(80)	$	119,547	$	(6,289)


	Less Than 12 Months						12 Months or Longer						Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
December 31, 2019
Available-for-sale
Mortgage-backed securities: residential	$	49,390	$	(172)	$	91,644	$	(684)	$	141,034	$	(856)
Asset-backed securities	4,436		(29)		7,286		(105)		11,722		(134)
Corporate notes	997		(3)		—		—		997		(3)
State and political subdivisions	29,843		(142)		—		—		29,843		(142)
Total available-for-sale	$	84,666	$	(346)	$	98,930	$	(789)	$	183,596	$	(1,135)

Unrealized losses on debt securities have not been recognized into income because the issuers’ bonds are of high credit quality. As of June 30, 2020, management does not intend to sell and it is more likely than not that management will not be required to sell the securities prior to their anticipated recovery, and the decline in fair value is largely due to changes in interest rates and other market conditions. The fair value is expected to recover as the bonds approach maturity.

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NOTE 3—LOANS

Loans at June 30, 2020 and December 31, 2019 were as follows:


	June 30, 2020		December 31, 2019
Loans
Construction and land development	$	645,281	$	591,541
Commercial real estate:
Nonfarm, nonresidential	969,870		944,021
Other	47,559		49,891
Residential real estate:
Closed-end 1-4 family	424,786		455,920
Other	186,746		187,681
Commercial and industrial	520,413		582,641
Consumer and other	3,570		4,769
Loans before net deferred loan fees	2,798,225		2,816,464
Deferred loan fees, net	(3,457)		(4,020)
Total loans	2,794,768		2,812,444
Allowance for loan losses	(38,100)		(45,436)
Total loans, net of allowance for loan losses	$	2,756,668	$	2,767,008

The following table presents the activity in the allowance for loan losses by portfolio segment for the three-month periods ended June 30, 2020 and 2019:


	Construction and Land Development		Commercial Real Estate		Residential Real Estate		Commercial and Industrial		Consumer and Other		Total
Three Months Ended June 30, 2020
Allowance for loan losses:
Beginning balance	$	6,417	$	9,018	$	4,767	$	18,146	$	55	$	38,403
Provision for loan losses	102		540		(288)		2,032		809		3,195
Loans charged-off	—		—		—		(5,163)		(3)		(5,166)
Recoveries	—		—		—		1,662		6		1,668
Total ending allowance balance	$	6,519	$	9,558	$	4,479	$	16,677	$	867	$	38,100
Three Months Ended June 30, 2019
Allowance for loan losses:
Beginning balance	$	4,742	$	7,027	$	4,810	$	11,229	$	49	$	27,857
Provision for loan losses	42		614		18		6,382		(25)		7,031
Loans charged-off	—		—		—		(7,563)		(29)		(7,592)
Recoveries	—		—		16		70		61		147
Total ending allowance balance	$	4,784	$	7,641	$	4,844	$	10,118	$	56	$	27,443

The following table presents the activity in the allowance for loan losses by portfolio segment for the six-month periods ended June 30, 2020 and 2019:

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	Construction and Land Development		Commercial Real Estate		Residential Real Estate		Commercial and Industrial		Consumer and Other		Total
Six Months Ended June 30, 2020
Allowance for loan losses:
Beginning balance	$	4,847	$	8,113	$	4,462	$	27,957	$	57	$	45,436
Provision for loan losses	1,672		1,445		24		12,254		822		16,217
Loans charged-off	—		—		(8)		(25,664)		(24)		(25,696)
Recoveries	—		—		1		2,130		12		2,143
Total ending allowance balance	$	6,519	$	9,558	$	4,479	$	16,677	$	867	$	38,100
Six Months Ended June 30, 2019
Allowance for loan losses:
Beginning balance	$	4,743	$	6,725	$	4,743	$	7,166	$	74	$	23,451
Provision for loan losses	41		916		101		11,012		16		12,086
Loans charged-off	—		—		(15)		(8,131)		(99)		(8,245)
Recoveries	—		—		15		71		65		151
Total ending allowance balance	$	4,784	$	7,641	$	4,844	$	10,118	$	56	$	27,443

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of June 30, 2020 and December 31, 2019. For purposes of this disclosure, recorded investment in loans excludes accrued interest receivable and net deferred loan fees due to immateriality.

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	Construction and Land Development		Commercial Real Estate		Residential Real Estate		Commercial and Industrial		Consumer and Other		Total
June 30, 2020
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	—	$	—	$	—	$	1,528	$	—	$	1,528
Collectively evaluated for impairment	6,519		9,558		4,479		15,149		867		36,572
Total ending allowance balance	$	6,519	$	9,558	$	4,479	$	16,677	$	867	$	38,100
Loans:
Individually evaluated for impairment	$	335	$	4,305	$	4,413	$	18,016	$	—	$	27,069
Collectively evaluated for impairment	644,946		1,013,124		607,119		502,397		3,570		2,771,156
Total ending loans balance	$	645,281	$	1,017,429	$	611,532	$	520,413	$	3,570	$	2,798,225
December 31, 2019
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	—	$	—	$	17	$	20,754	$	—	$	20,771
Collectively evaluated for impairment	4,847		8,113		4,445		7,203		57		24,665
Total ending allowance balance	$	4,847	$	8,113	$	4,462	$	27,957	$	57	$	45,436
Loans:
Individually evaluated for impairment	$	30	$	—	$	2,477	$	24,528	$	—	$	27,035
Collectively evaluated for impairment	591,511		993,912		641,124		558,113		4,769		2,789,429
Total ending loans balance	$	591,541	$	993,912	$	643,601	$	582,641	$	4,769	$	2,816,464

Loans collectively evaluated for impairment reported at June 30, 2020 include certain acquired loans. At June 30, 2020, these non-purchased credit impaired (PCI) loans had a carrying value of $47,053, comprised of contractually unpaid principal totaling $47,707 and discounts totaling $654. Management evaluated these loans for credit deterioration since acquisition and determined that an allowance for loan losses of $71 was necessary at June 30, 2020.

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The following table presents information related to impaired loans by class of loans as of June 30, 2020 and December 31, 2019:


	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
June 30, 2020
With no allowance recorded:
Construction and land development	$	335	$	335	$	—
Commercial real estate:
Nonfarm, nonresidential	4,305		4,305		—
Residential real estate:
Closed-end 1-4 family	1,875		1,868		—
Other	2,545		2,545		—
Commercial and industrial	15,472		15,472		—
Subtotal	24,532		24,525		—
With an allowance recorded:
Commercial and industrial	7,697		2,544		1,528
Subtotal	7,697		2,544		1,528
Total	$	32,229	$	27,069	$	1,528
December 31, 2019
With no allowance recorded:
Construction and land development	$	30	$	30	$	—
Residential real estate:
Closed-end 1-4 family	319		311		—
Other	1,523		1,523		—
Commercial and industrial	11		11		—
Subtotal	1,883		1,875		—
With an allowance recorded:
Residential real estate:
Closed-end 1-4 family	643		643		17
Commercial and industrial	24,517		24,517		20,754
Subtotal	25,160		25,160		20,771
Total	$	27,043	$	27,035	$	20,771

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The following table presents the average recorded investment of impaired loans by class of loans for the three and six months ended June 30, 2020 and 2019:


	Three Months Ended June 30,						Six Months Ended June 30,
Average Recorded Investment	2020		2019		2020		2019
With no allowance recorded:
Construction and land development	$	224	$	—	$	117	$	384
Commercial real estate:
Nonfarm, nonresidential	4,736		—		4,660		25
Residential real estate:
Closed-end 1-4 family	1,947		681		1,603		744
Other	2,252		1,086		2,546		1,174
Commercial and industrial	16,563		2,638		17,863		1,319
Subtotal	25,722		4,405		26,789		3,646
With an allowance recorded:
Construction and land development	—		—		—		91
Commercial real estate:
Nonfarm, nonresidential	—		—		78		—
Residential real estate:
Closed-end 1-4 family	214		—		213		—
Commercial and industrial	3,649		4,404		7,232		3,787
Subtotal	3,863		4,404		7,523		3,878
Total average recorded investment	$	29,585	$	8,809	$	34,312	$	7,524

The impact on net interest income for these loans was not material to the Company’s results of operations for the three and six months ended June 30, 2020 and 2019.

The following table presents the recorded investment in nonaccrual loans and loans past due over 90 days still on accrual by class of loans as of June 30, 2020 and December 31, 2019:


	Nonaccrual		Loans Past Due Over 90 Days And Still Accruing Interest
June 30, 2020
Commercial real estate:
Nonfarm, nonresidential	$	5,760	$	—
Residential real estate:
Closed-end 1-4 family	1,868		—
Other	1,612		—
Commercial and industrial	15,193		—
Total	$	24,433	$	—

December 31, 2019
Construction and land development	$	30	$	—
Residential real estate:
Closed-end 1-4 family	954		—
Other	1,523		—
Commercial and industrial	24,528		654
Total	$	27,035	$	654

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Nonaccrual loans and any loans past due 90 days still on accrual include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans.

The following table presents the aging of the recorded investment in past due loans as of June 30, 2020 and December 31, 2019 by class of loans:


	30-59 Days Past Due		60-89 Days Past Due		Greater Than 89 Days Past Due		Total Past Due		Loans Not Past Due		Total
June 30, 2020
Construction and land development	$	—	$	1,174	$	—	$	1,174	$	644,107	$	645,281
Commercial real estate:
Nonfarm, nonresidential	2,981		—		3,460		6,441		963,429		969,870
Other	—		—		—		—		47,559		47,559
Residential real estate:
Closed-end 1-4 family	—		1,930		—		1,930		422,856		424,786
Other	194		421		749		1,364		185,382		186,746
Commercial and industrial	393		—		2,916		3,309		517,104		520,413
Consumer and other	—		—		—		—		3,570		3,570
	$	3,568	$	3,525	$	7,125	$	14,218	$	2,784,007	$	2,798,225
December 31, 2019
Construction and land development	$	508	$	—	$	30	$	538	$	591,003	$	591,541
Commercial real estate:
Nonfarm, nonresidential	3,981		—		—

Franklin Financial Network Inc. 10-Q