EX-99.1 2 fraf-20191030xex99_1.htm EX-99.1 8-K EarningsRelease 3Q 2019-Exh 99.1

Exhibit 99.1

October 29, 2019

Franklin Financial Reports Q3 2019 Earnings



(Chambersburg, PA)  Franklin Financial Services Corporation (NASDAQ: FRAF), the bank holding company of F&M Trust (the Bank), reported consolidated earnings of $4.5 million ($1.03 per diluted share) for the third quarter ended September 30, 2019, compared to second quarter 2019 earnings of $4.0 million ($0.90 per diluted share) and third quarter 2018 earnings of $4.0 million ($0.91 per diluted share). Net income for the first nine months of 2019 was $11.7 million ($2.66 per diluted share) compared to $2.3 million ($0.53 per diluted share) for the same period in 2018.

A summary of operating results during the third quarter of 2019 are as follows:

·

Net interest income increased $480,000 quarter-over-quarter and $1.6 million year-over-year due to the growth in interest income, which outpaced higher interest expense, as interest earning assets grew more than interest bearing liabilities.

·

A negative provision for loan loss expense of $162,000 was recorded in the third quarter of 2019 compared to $0 in the second quarter of 2019 and an expense of $250,000 in the third quarter of 2018. The reversal was due to a decrease in total loans and therefore, a reduction in the allowance for loan losses was appropriate. The Bank’s allowance for loan loss ratio was 1.30% at September 30, 2019.  For the first nine months of 2019, the provision for loan loss expense was $237,000 compared to $10.0 million the prior year. The provision for loan loss expense for the year-to-date period in 2018 was affected by the impairment charges on a loan participation initially reported in our current report on Form 8-K filed May 31, 2018.

·

Noninterest income increased $358,000 quarter-over-quarter and $853,000 year-over-year. The quarterly increase was due in part to a $58,000 increase in asset management fees in the Bank’s Investment and Trust Services department and a $107,000 recovery on an insurance claim. The year-over-year increase was due primarily from asset management fees ($297,000), gains from the sale of debt securities ($200,000), and an increase in fees from originating mortgages for the secondary market ($98,000).  Mortgage production for secondary market programs has doubled in 2019 versus 2018.

·

Noninterest expense for the third quarter of 2019 increased $420,000 over the same quarter of 2018 (primarily from salary increases) and decreased $398,000 year-over-year. The year-to-date decrease was primarily from the $2.4 million provision expense for credit losses on off-balance sheet exposures in 2018 in connection with the participation, as well as a decrease in the FDIC insurance expense. The Bank utilized $150,000 of the small bank assessment credit. The FDIC credit is the result of the Deposit Insurance Fund reserve ratio reaching its objective of 1.38%. The decrease in noninterest expense was partially offset by increases in salaries and benefits expense as the number of full-time equivalent employees increased in 2019 and the cost of a building feasibility study.

Total assets at September 30, 2019 were $1.3 billion, a 9.0% increase when compared with total assets at September 30, 2018 and a 7.6% increase from the year-end 2018 balance. Significant balance sheet changes since December 31, 2018 include:

·

Interest-bearing deposits in other banks increased from pay-offs in the loan portfolio and increased deposits.

·

The loan portfolio decreased $35.9 million due primarily to several large commercial participation payoffs of approximately $22 million as the Bank continues to move away from purely loan transactions without business relationships.

 

·

A lease liability and a right-of-use asset of $6.2 million were initially recognized in 2019.

·

Deposits increased $77.0 million primarily in interest-bearing municipal deposits due to seasonal inflows.

·

Shareholders’ equity increased $7.7 million due primarily to an increase in retained earnings.

“We are pleased that, despite the negative headwinds of quickly shifting national interest rate policies and a negative yield curve, the bank demonstrated strong core earnings both for the third quarter and year to date, supplemented by some relatively minor one-time gains,” said Timothy G. Henry, President and CEO.  “In addition to our positive core performance we have stayed true to our long-term strategy of moving away from transactional loan business and maintaining our focus on relationship banking. In the short term this has resulted in decreased loan outstandings but the bank is repositioning its loan portfolio with high quality relationships which will be more meaningful to the bank and to our shareholders over the long run. I am also pleased with the performance of our residential mortgage and consumer lending teams that, through product innovation and the development of increased service levels, have seen growth in originations and fee income. The market consensus moving forward seems to be calling for more challenges in the interest rate environment and moderate loan demand. We are working to position ourselves to effectively meet those challenges by concentrating on loan quality, our fee income generating business lines and using technology for more efficient interfacing with our customers and reducing transaction costs”.

Franklin Financial is the largest independent, locally owned and operated bank holding company headquartered in Franklin County with assets of more than $1.3 billion. Its wholly-owned subsidiary, F&M Trust, has twenty-two community banking locations in Franklin, Cumberland, Fulton and Huntingdon Counties. Franklin Financial stock is trading on the Nasdaq Stock Market under the symbol FRAF. Please visit our website for more information, www.franklinfin.com.



Management considers subsequent events occurring after the balance sheet date for matters which may require adjustment to, or disclosure in, the consolidated financial statements.  The review period for subsequent events extends up to and including the filing date of a public company's consolidated financial statements when filed with the Securities and Exchange Commission ("SEC"). Accordingly, the financial information in this announcement is subject to change.



Certain statements appearing herein which are not historical in nature are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  Such forward-looking statements refer to a future period or periods, reflecting management’s current views as to likely future developments, and use words “may,” “will,” “expect,” “believe,” “estimate,” “anticipate,” or similar terms.  Because forward-looking statements involve certain risks, uncertainties and other factors over which Franklin Financial Services Corporation has no direct control, actual results could differ materially from those contemplated in such statements.  These factors include (but are not limited to) the following: general economic conditions, changes in interest rates, changes in the Corporation’s cost of funds, changes in government monetary policy, changes in government regulation and taxation of financial institutions, changes in the rate of inflation, changes in technology, the intensification of competition within the Corporation’s market area, and other similar factors.



We caution readers not to place undue reliance on these forward-looking statements. They only reflect management’s analysis as of this date. The Corporation does not revise or update these forward-looking statements to reflect events or changed circumstances. Please carefully review the risk factors described in other documents the Corporation files from time to time with the SEC, including the Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, and any Current Reports on Form 8-K.

 





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FRANKLIN FINANCIAL SERVICES CORPORATION

 

 

 

 

 

 

 

Financial Highlights (Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings Summary

 

 

For the Three Months Ended

 

For the Nine Months Ended (1)

(Dollars in thousands, except per share data)

 

 

9/30/2019

 

 

6/30/2019

 

 

3/31/2019

 

 

12/31/2018

 

 

9/30/2018

 

2019

 

2018

 

% Change



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

$

 12,722 

 

$

 12,396 

 

$

 11,989 

 

$

 11,849 

 

$

 11,477 

 

$

 37,104 

 

$

 33,019 

 

 12.4% 

Interest expense

 

 

 1,887 

 

 

 1,833 

 

 

 1,660 

 

 

 1,343 

 

 

 1,122 

 

 

 5,379 

 

 

 2,871 

 

 87.4% 

    Net interest income

 

 

 10,835 

 

 

 10,563 

 

 

 10,329 

 

 

 10,506 

 

 

 10,355 

 

 

 31,725 

 

 

 30,148 

 

 5.2% 

Provision for loan losses

 

 

 (162)

 

 

 -

 

 

 399 

 

 

 375 

 

 

 250 

 

 

 237 

 

 

 9,579 

 

-97.5%

Noninterest income

 

 

 3,478 

 

 

 3,696 

 

 

 3,165 

 

 

 3,140 

 

 

 3,120 

 

 

 10,342 

 

 

 9,489 

 

 9.0% 

Noninterest expense

 

 

 8,991 

 

 

 9,606 

 

 

 9,412 

 

 

 8,961 

 

 

 8,571 

 

 

 28,010 

 

 

 28,408 

 

-1.4%

    Income (loss) before income taxes

 

 

 5,484 

 

 

 4,653 

 

 

 3,683 

 

 

 4,310 

 

 

 4,654 

 

 

 13,820 

 

 

 1,650 

 

 737.6% 

Income taxes

 

 

 985 

 

 

 669 

 

 

 446 

 

 

 506 

 

 

 654 

 

 

 2,100 

 

 

 (671)

 

-413.0%

Net income (loss)

 

$

 4,499 

 

$

 3,984 

 

$

 3,237 

 

$

 3,804 

 

$

 4,000 

 

$

 11,720 

 

$

 2,321 

 

 405.0% 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings (loss) per share

 

$

 1.03 

 

$

 0.90 

 

$

 0.73 

 

$

 0.86 

 

$

 0.91 

 

$

 2.66 

 

$

 0.53 

 

 401.9% 

Regular cash dividends declared

 

$

 0.30 

 

$

 0.30 

 

$

 0.27 

 

$

 0.27 

 

$

 0.27 

 

$

 0.87 

 

$

 0.78 

 

 11.5% 

(1) Due to rounding, the sum of the quarters may not equal the amount reported for the year

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance Sheet Highlights (as of)

 

 

9/30/2019

 

 

6/30/2019

 

 

3/31/2019

 

 

12/31/2018

 

 

9/30/2018

 

 

 

 

 

 

 

 

Total assets

 

$

 1,301,773 

 

$

 1,252,141 

 

$

 1,212,960 

 

$

 1,209,587 

 

$

 1,194,624 

 

 

 

 

 

 

 

 

Investment and equity securities

 

 

 147,712 

 

 

 129,812 

 

 

 128,258 

 

 

 131,846 

 

 

 125,786 

 

 

 

 

 

 

 

 

Loans, net

 

 

 925,033 

 

 

 969,904 

 

 

 967,785 

 

 

 960,960 

 

 

 958,457 

 

 

 

 

 

 

 

 

Deposits

 

 

 1,159,601 

 

 

 1,113,049 

 

 

 1,076,491 

 

 

 1,082,629 

 

 

 1,071,857 

 

 

 

 

 

 

 

 

Shareholders' equity

 

 

 126,100 

 

 

 123,914 

 

 

 121,491 

 

 

 118,396 

 

 

 114,028 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets Under Management (fair value)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment and Trust Services

 

 

 763,296 

 

 

 763,237 

 

 

 753,086 

 

 

 684,825 

 

 

 737,102 

 

 

 

 

 

 

 

 

Held at third party brokers

 

 

 121,466 

 

 

 125,448 

 

 

 127,515 

 

 

 122,213 

 

 

 134,267 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

As of or for the year-to-date period ended

 

 

 

 

 

 

 

 

Performance Ratios

 

 

9/30/2019

 

 

6/30/2019

 

 

3/31/2019

 

 

12/31/2018

 

 

9/30/2018

 

 

 

 

 

 

 

 

Return on average assets*

 

 

 1.26% 

 

 

 1.18% 

 

 

 1.08% 

 

 

 0.52% 

 

 

 0.26% 

 

 

 

 

 

 

 

 

Return on average equity*

 

 

 12.89% 

 

 

 12.02% 

 

 

 10.90% 

 

 

 5.34% 

 

 

 2.70% 

 

 

 

 

 

 

 

 

Book value, per share

 

$

 29.03 

 

$

 28.21 

 

$

 27.54 

 

$

 26.85 

 

$

 25.93 

 

 

 

 

 

 

 

 

Tangible book value

 

$

 26.95 

 

$

 26.21 

 

$

 25.50 

 

$

 24.81 

 

$

 23.88 

 

 

 

 

 

 

 

 

Market value, per share**

 

$

 35.55 

 

$

 38.24 

 

$

 36.00 

 

$

 31.50 

 

$

 34.77 

 

 

 

 

 

 

 

 

Market value/book value ratio

 

 

 122.46% 

 

 

 135.55% 

 

 

 130.72% 

 

 

 117.32% 

 

 

 134.09% 

 

 

 

 

 

 

 

 

Market value/tangible book value

 

 

 131.90% 

 

 

 145.90% 

 

 

 141.18% 

 

 

 126.96% 

 

 

 145.60% 

 

 

 

 

 

 

 

 

Price/earnings multiple*

 

 

 10.01 

 

 

 11.73 

 

 

 12.33 

 

 

 22.66 

 

 

 48.97 

 

 

 

 

 

 

 

 

Current quarter dividend yield

 

 

 3.38% 

 

 

 3.14% 

 

 

 3.00% 

 

 

 3.43% 

 

 

 3.11% 

 

 

 

 

 

 

 

 

Dividend payout ratio year-to-date

 

 

 32.52% 

 

 

 34.75% 

 

 

 36.82% 

 

 

 75.07% 

 

 

 146.92% 

 

 

 

 

 

 

 

 

Net interest margin*

 

 

 3.75% 

 

 

 3.80% 

 

 

 3.86% 

 

 

 3.78% 

 

 

 3.77% 

 

 

 

 

 

 

 

 

Nonperforming loans / gross loans

 

 

 0.53% 

 

 

 0.59% 

 

 

 0.60% 

 

 

 0.27% 

 

 

 0.58% 

 

 

 

 

 

 

 

 

Nonperforming assets / total assets

 

 

 0.59% 

 

 

 0.68% 

 

 

 0.70% 

 

 

 0.44% 

 

 

 0.70% 

 

 

 

 

 

 

 

 

Allowance for loan loss / loans

 

 

 1.30% 

 

 

 1.28% 

 

 

 1.29% 

 

 

 1.28% 

 

 

 1.29% 

 

 

 

 

 

 

 

 

Net loans charged-off/average loans*

 

 

 0.06% 

 

 

 0.05% 

 

 

 0.05% 

 

 

 0.97% 

 

 

 1.23% 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

* Year-to-date annualized

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

** Based on the closing price of FRAF as quoted on the Nasdaq Capital Market for September 30 and June 30, 2019, and the OTCQX for all prior periods