FRANKLIN FINANCIAL CORP RICHMOND, Va., Aug. 5, 2014 /PRNewswire/ -- Franklin Financial Corporation (NASDAQ: FRNK) ("the Company"), the parent company of Franklin Federal Savings Bank, announced net income for the three months ended June 30, 2014 of $2.7 million, or $0.24 per diluted share, compared to $1.7 million, or $0.14 per diluted share, for the three months ended June 30, 2013. Net income for the nine months ended June 30, 2014 was $9.7 million, or $0.85 per diluted share, compared to $6.7 million, or $0.56 per diluted share, for the nine months ended June 30, 2013.
"We again achieved solid growth in tangible book value per share and deposits during the latest quarter, and we reduced nonperforming assets by $2.4 million and regulatory criticized assets by $3.4 million," noted Richard T. Wheeler, Jr., Chairman, President, and Chief Executive Officer. "During the quarter, three large loans totaling $13.2 million prepaid, generating $581,000 of prepayment fees, but causing loans, net interest income, and net interest margin to decrease compared to the March 31, 2014 quarter."
Third Quarter Highlights
-- Tangible book value increased $0.40 per share in the three months ended
June 30, 2014 to $20.77 per share.
-- Deposits increased $13.9 million, or 2.1%, during the three months ended
June 30, 2014 to $684.5 million.
-- Nonperforming assets decreased $2.4 million in the three months ended
June 30, 2014 to $52.4 million due primarily to sales of other real
estate owned.
-- Noninterest income for the three months ended June 30, 2014 increased
$1.2 million from the comparable prior year quarter due to increased
gains on sales of securities, increased gains on sales of other real
estate owned, and increased prepayment fees received during the current
quarter.
-- Net loans decreased $10.7 million, or 2.0%, during the three months
ended June 30, 2014 to $533.3 million primarily due to the prepayment of
several large loans during the quarter.
-- Net interest income for the three months ended June 30, 2014 decreased
$268,000 from the prior quarter and increased $449,000 from the
comparable prior year quarter.
-- Net interest margin for the three months ended June 30, 2014 decreased
15 basis points to 2.71% from the prior quarter and increased 13 basis
points from the comparable prior year quarter.
-- The Company repurchased 158,948 shares of its common stock for $3.2
million ($20.01 per share on average) under its previously announced
stock repurchase program.
Net Interest Income
Net interest income for the three months ended June 30, 2014 decreased $268,000, or 3.8%, to $6.7 million compared to $7.0 million for the prior quarter and increased $449,000, or 7.2%, compared to $6.3 million for the three months ended June 30, 2013. Our net interest margin for the three months ended June 30, 2014 decreased 15 basis points from the prior quarter and increased 13 basis points from the same quarter in the prior year to 2.71%. Interest income on loans increased $496,000 from the comparable prior year quarter due to a $56.4 million increase in the average balance of loans, partially offset by a 27 basis point decline in yield as a result of lower interest rates for new loans due in part to increased competition for quality loans. Interest income on securities increased $28,000 from the comparable prior year quarter due to a $2.2 million increase in the average balance of securities as well as a 1 basis point increase in yield. Deposit costs increased $146,000 from the comparable prior year quarter due to a $46.6 million increase in the average balance of interest-bearing deposits as well as a 2 basis point increase in cost. FHLB borrowing costs declined $67,000 from the comparable prior year quarter due to a 19 basis point decline in cost as a result of a prepayment made during the fourth quarter of fiscal 2013, partially offset by a new advance obtained on March 14, 2014. This decline in cost was partially offset by a $1.3 million increase in the average balance of FHLB borrowings.
Net interest income for the nine months ended June 30, 2014 increased $1.6 million, or 8.0%, to $20.6 million compared to $19.0 million for the nine months ended June 30, 2013. Our net interest margin for the nine months ended June 30, 2014 increased 16 basis points from the same period in the prior year to 2.76%. Interest income on loans increased $1.7 million due to a $72.8 million increase in the average balance of loans, partially offset by a 41 basis point decline in yield as a result of lower interest rates for new loans due in part to increased competition for quality loans. Interest income on securities declined $316,000 due to a $12.1 million decrease in the average balance of securities as well as a 3 basis point decline in yield. Deposit costs increased $133,000 due to a $32.4 million increase in the average balance of interest-bearing deposits, partially offset by a 2 basis point decline in cost. FHLB borrowing costs declined $274,000 due to a $4.7 million decrease in the average balance of FHLB borrowings as well as a 9 basis point decline in cost due to a prepayment made during the fourth quarter of fiscal 2013, slightly offset by a new advance obtained on March 14, 2014.
Noninterest Income, Excluding Impairment Charges and Gains and Losses on Sales of Securities
Noninterest income, excluding impairment charges and gains and losses on sales of securities, increased $898,000, or 124.2%, for the three months ended June 30, 2014. The increase was due to a $637,000 increase in other service charges and fees due to a $528,000 increase in prepayment fees received in connection with the prepayment of loans as well as an increase in net gains on sales of other real estate owned of $239,000.
Noninterest income, excluding impairment charges and gains and losses on sales of securities, decreased $567,000, or 15.1%, for the nine months ended June 30, 2014. The decrease was primarily due to net gains on sales of other real estate owned, which decreased $1.2 million. This decrease was partially offset by an increase in other service charges and fees of $593,000 primarily due to a $468,000 increase in prepayment fees received in connection with the prepayment of loans.
Impairment Charges and Gains and Losses on Sales of Securities
The Company recorded other-than-temporary impairment ("OTTI") charges in earnings of zero and $575,000 for the three and nine months ended June 30, 2014, respectively, compared to charges of $138,000 and $333,000 for the three and nine months ended June 30, 2013, respectively. OTTI charges for the nine months ended June 30, 2014 related entirely to the Company's portfolio of non-agency CMOs, which were sold in January 2014.
Sales of securities resulted in net gains of $331,000 and $5.0 million for the three and nine months ended June 30, 2014, respectively, compared to $205,000 and $1.6 million for the three and nine months ended June 30, 2013, respectively. Securities sold during the three and nine months ended June 30, 2014 included equity securities of local community bank holding companies as well as the Company's portfolio of non-agency CMOs. Gains on sales of securities also included a $323,000 gain on a corporate bond called during the nine months ended June 30, 2014.
Other Noninterest Expenses
Other noninterest expenses increased $257,000, or 5.6%, to $4.9 million for the three months ended June 30, 2014 compared to $4.6 million for the three months ended June 30, 2013. Other noninterest expenses increased $478,000, or 3.4%, to $14.4 million for the nine months ended June 30, 2014 compared to $13.9 million for the nine months ended June 30, 2013. The increase for both the three- and nine-month periods was due to an increase in other operating expenses, which increased $277,000 and $541,000 for the three- and nine-month periods, respectively, due to increased foreclosure expenses and increased stock compensation expense as a result of an accelerated vesting of stock options and restricted stock granted to a director due to the death of the director in May 2014. The increase for the nine-month period was also due to increased legal and technology costs.
Asset Quality
Nonperforming assets decreased $2.4 million in the three months ended June 30, 2014 to $52.4 million. The decrease was primarily due to sales of other real estate owned. Nonperforming loans totaled $27.7 million at June 30, 2014 compared to $28.9 million at March 31, 2014 and $49.1 million at September 30, 2013. Other real estate owned totaled $24.6 million at June 30, 2014 compared to $25.9 million at March 31, 2014 and $6.7 million at September 30, 2013. Total nonperforming loans as a percentage of total loans at June 30, 2014 were 5.07% compared to 5.17% at March 31, 2014 and 9.37% at September 30, 2013.
The Company recorded a credit provision for loan losses of $55,000 for the three months ended June 30, 2014, compared to a provision of $171,000 for the three months ended June 30, 2013. The Company recorded a provision for loan losses of $1.3 million for the nine months ended June 30, 2014, compared to $532,000 for the nine months ended June 30, 2013. The allowance for loan losses as a percentage of total loans was 1.91% at June 30, 2014 compared to 1.92% at March 31, 2014 and 1.86% at September 30, 2013.
Stock Repurchase Program
During the three months ended June 30, 2014, the Company repurchased 158,948 shares of its common stock for $3.2 million, or an average price of $20.01 per share, under its previously announced fourth stock repurchase program.
About Franklin Financial Corporation
Franklin Financial Corporation is the parent of Franklin Federal Savings Bank, a federally chartered capital stock savings bank engaged in the business of attracting retail deposits from the general public and originating non-owner-occupied one- to four-family loans as well as multi-family loans, nonresidential real estate loans, construction loans, land and land development loans, and other loans. The Bank is headquartered in Glen Allen, Virginia and operates eight branch offices. Franklin Financial Corporation trades under the symbol FRNK (NASDAQ).
Forward-Looking Statements
This report may contain forward-looking statements within the meaning of the federal securities laws. These statements are not historical facts; rather they are statements based on our current expectations regarding our business strategies and their intended results and our future performance. Forward-looking statements are preceded by terms such as "expects," "believes," "anticipates," "intends" and similar expressions. Forward-looking statements are not guarantees of future performance. Numerous risks and uncertainties could cause or contribute to our actual results, performance and achievements being materially different from those expressed or implied by the forward-looking statements. These forward-looking statements are subject to significant risks and uncertainties. Actual results may differ materially from those contemplated by the forward-looking statements due to, among others, the following factors:
-- general economic conditions, either internationally, nationally, or in
our primary market area, that are worse than expected;
-- a decline in real estate values;
-- changes in the interest rate environment that reduce our interest
margins or reduce the fair value of financial instruments;
-- increased competitive pressures among financial services companies;
-- changes in consumer spending, borrowing and savings habits;
-- legislative, regulatory or supervisory changes that adversely affect our
business;
-- adverse changes in the securities markets;
-- changes in accounting policies and practices, as may be adopted by the
bank regulatory agencies, the Financial Accounting Standards Board or
the Public Company Accounting Oversight Board;
-- the requisite stockholder or regulatory approval of the previously
disclosed proposed merger with TowneBank may not be received or other
conditions to the completion of the proposed merger might not be
satisfied or waived; and
-- operations will continue to be impacted until the proposed merger
transaction is either consummated or terminated.
Additional factors that may affect our results are discussed in the Company's Form 10-K for the year ended September 30, 2013 under the Item 1A titled "Risk Factors." These factors should be considered in evaluating the forward-looking statements and undue reliance should not be placed on such statements. Except as required by applicable law or regulation, we assume no obligation and disclaim any obligation to update any forward-looking statements.
Website: www.franklinfederal.com
Selected Financial Data
For the Three Months For the Nine Months
Ended June 30, Ended June 30,
-------------- --------------
(Dollars in thousands) 2014 2013 2014 2013
---- ---- ---- ----
Operating Data:
Interest and dividend
income $10,315 $9,787 $31,089 $29,699
Interest expense 3,584 3,505 10,530 10,671
----- ----- ------ ------
Net interest income 6,731 6,282 20,559 19,028
(Credit) provision for loan
losses (55) 171 1,338 532
--- --- ----- ---
Net interest income after
(credit) provision for
loan 6,786 6,111 19,221 18,496
losses
Noninterest income:
Impairment of securities
reflected in earnings - (138) (575) (333)
Gains on sales of
securities, net 331 205 4,976 1,618
Gains on sales of other
real estate owned 289 50 441 1,614
Other noninterest income 1,331 672 2,740 2,134
----- --- ----- -----
Total noninterest income 1,951 789 7,582 5,033
----- --- ----- -----
Other noninterest expenses 4,855 4,598 14,382 13,904
----- ----- ------ ------
Income before provision for
income taxes 3,882 2,302 12,421 9,625
Provision for income taxes 1,165 640 2,716 2,939
----- --- ----- -----
Net income $2,717 $1,662 $9,705 $6,686
====== ====== ====== ======
Per Share Data
For the Three Months For the Nine Months
Ended June 30, Ended June 30,
-------------- --------------
2014 2013 2014 2013
(Amounts in thousands,
except per share data)
Basic net income per share $0.25 $0.14 $0.88 $0.56
Diluted net income per
share $0.24 $0.14 $0.85 $0.56
Tangible book value per
share at end of period $20.77 $19.12 $20.77 $19.12
Shares outstanding at end
of period 11,781 12,507 11,781 12,507
Weighted-average shares
outstanding
Basic 10,871 11,499 11,052 11,850
Diluted 11,191 11,709 11,376 12,011
Quarterly Data
(Dollars in
thousands) June 30, March 31, September 30, June 30,
2014 2014 2013 2013
---- ---- ---- ----
Financial Condition Data:
Total assets $1,110,176 $1,095,195 $1,059,321 $1,050,630
Cash and cash
equivalents 144,216 89,175 98,914 129,309
Securities
available for
sale 228,632 253,289 304,998 331,521
Securities held
to maturity 111,445 114,963 70,249 16,061
Loans, net 533,338 544,072 511,183 496,532
Cash surrender
value of bank-
owned life 35,109 34,792 34,296 33,970
insurance
Deposits 684,508 670,620 646,838 629,634
Federal Home Loan
Bank borrowings 174,460 174,133 163,485 173,162
Total
stockholders'
equity 244,659 243,116 241,394 239,160
Capital Ratios(1):
Tier 1 capital to
adjusted
tangible assets 18.73% 18.68% 17.83% 17.68%
Tier 1 risk-
based capital to
risk weighted
assets 29.46 28.48 26.32 26.98
Risk-based
capital to risk
weighted assets 30.72 29.74 27.57 28.23
(1) Ratios are for Franklin Federal Savings Bank.
For the Three Months Ended
--------------------------
June 30, March 31, September 30, June 30,
2014 2014 2013 2013
---- ---- ---- ----
Performance Ratios:
Return on average
assets(2) 0.99% 1.65% 1.00% 0.63%
Return on average
equity(2) 4.47 7.31 4.39 2.77
Interest rate
spread(2)(3) 2.46 2.59 2.40 2.26
Net interest
margin(2)(4) 2.71 2.86 2.70 2.58
Efficiency ratio(5) 60.21 62.93 60.66 64.36
Average interest-
earning assets to
average interest-
bearing liabilities 117.56 119.36 121.33 122.14
Average equity to
average assets 22.18 22.52 22.69 22.86
(2) Annualized
(3) Represents the
difference between the
weighted average yield on
interest-earning assets and
the weighted average cost of
interest-bearing
liabilities.
(4) Represents net
interest income as a percent
of average interest-earning
assets.
(5) A non-GAAP measure
calculated by dividing other
noninterest expenses, net of
impairment charges on OREO
and net losses on the sale
of fixed assets and
foreclosed assets, by the
sum of net interest income
and other noninterest
income, net of impairments
of securities, gains and
losses on sales of
securities, gains and losses
on sales of OREO and net
gains on sales of fixed
assets.
For the Three Months Ended
--------------------------
(Dollars in thousands) June 30, March 31, September 30, June 30,
2014 2014 2013 2013
---- ---- ---- ----
Asset Quality:
Allowance for Loan Losses
Beginning balance $10,721 $10,464 $9,912 $10,638
Provision (55) 296 (7) 171
Recoveries 41 93 93 56
Charge-offs (259) (132) (258) (953)
---- ---- ---- ----
Ending balance $10,448 $10,721 $9,740 $9,912
======= ======= ====== ======
Nonperforming Assets at Period End
Nonaccrual loans $27,727 $28,890 $49,131 $41,184
Other real estate owned 24,645 25,868 6,715 7,049
------ ------ ----- -----
Total nonperforming
assets 52,372 54,758 55,846 48,233
Performing troubled
debt restructurings
(6) 5,657 5,666 5,501 5,510
----- ----- ----- -----
Total nonperforming
assets and performing $58,029 $60,424 $61,347 $53,743
troubled debt restructurings
Allowance for loan
losses as a percent of
total 1.91% 1.92% 1.86% 1.94%
loans at period end
Allowance for loan
losses as a percent of 37.68 37.11 19.82 24.07
nonperforming loans at period end
Nonperforming loans as
a percent of total
loans 5.07 5.17 9.37 8.08
at period end
Nonperforming assets as
a percent of total 4.72 5.00 5.27 4.59
assets at period end
Total nonperforming assets and troubled debt
restructurings to total
assets at period end 5.23 5.52 5.79 5.12
Net charge-offs to average loans outstanding
during the period
(annualized) 0.16 0.03 0.13 0.72
(6) Performing troubled debt
restructurings do not include
troubled debt restructurings that
remain on nonaccrual status and
are included in nonaccrual loans
above.
Non-GAAP
Reconciliation
For the Three Months Ended
--------------------------
(Dollars in thousands) June 30, March 31, September 30, June 30,
2014 2014 2013 2013
---- ---- ---- ----
Net interest income $6,731 $6,999 $6,628 $6,282
Plus: Total
noninterest income 1,951 3,709 910 789
Less: Gains on sales
of securities, net (331) (2,973) (98) (205)
Plus: Net impairment
reflected in income - - 102 138
Less: Gains on sales
of OREO (289) (40) (198) (50)
---- --- ---- ---
Total net interest
income and adjusted
other $8,062 $7,695 $7,344 $6,954
noninterest income
Other noninterest
expenses $4,855 $4,865 $4,621 $4,598
Less: Impairment
charges on OREO - (8) (160) (78)
Less: Net losses on
sales of fixed assets - (15) (7) (43)
--- --- --- ---
Adjusted other
noninterest expenses $4,855 $4,842 $4,454 $4,477
====== ====== ====== ======
Efficiency ratio 60.21% 62.93% 60.66% 64.36%
===== ===== ===== =====
SOURCE Franklin Financial Corporation
