FRANKLIN FINANCIAL CORP 
By RICHMOND, Va., May 6, 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 March 31, 2014 of $4.4 million, or $0.38 per diluted share, compared to $2.7 million, or $0.23 per diluted share, for the three months ended March 31, 2013. Net income for the six months ended March 31, 2014 was $7.0 million, or $0.61 per diluted share, compared to $5.0 million, or $0.42 per diluted share, for the six months ended March 31, 2013.
"We are pleased with our financial results for the quarter ended March 31, 2014," noted Richard T. Wheeler, Jr., Chairman, President, and Chief Executive Officer. "We sold a portion of our high performing investment portfolio and realized substantial gains, and we generated solid loan production and deposit growth. Even more satisfying were the increases in net interest income and net interest margin compared to the prior quarter and the comparable 2013 quarter, as well as a $0.40 per share increase in tangible book value per share during the quarter."
Second Quarter Highlights
-- Tangible book value increased $0.40 per share in the three months ended
March 31, 2014 to $20.37 per share.
-- Net loans increased $7.7 million, or 1.4%, during the three months ended
March 31, 2014 to $544.1 million despite $9.6 million of loan
foreclosures during the quarter.
-- Deposits increased $8.0 million, or 1.2%, during the three months ended
March 31, 2014 to $670.6 million.
-- Net interest income for the three months ended March 31, 2014 increased
$170,000 from the prior quarter and $608,000 from the comparable prior
year quarter.
-- Net interest margin for the three months ended March 31, 2014 increased
16 basis points to 2.86% from the prior quarter and 20 basis points from
the comparable prior year quarter.
-- The Company recorded a provision for loan losses of $296,000 for the
three months ended March 31, 2014 compared to $126,000 for the three
months ended March 31, 2013.
-- Nonperforming assets increased $174,000 in the three months ended March
31, 2014 to $54.8 million due primarily to expenditures to maintain,
enhance and develop previously reported nonperforming assets.
-- Gains on the sale of securities for the three months ended March 31,
2014 of $3.0 million were $1.6 million higher than the comparable prior
year quarter and gains on sales of other real estate owned of $40,000
were $485,000 lower than the comparable prior year quarter. There was no
tax expense related to $1.9 million of the gains on sales of securities
for the three months ended March 31, 2014 because the Company had a
deferred tax valuation allowance on its capital loss carryforward
position.
-- The Company repurchased 166,800 shares of its common stock for $3.3
million ($19.53 per share on average) under its previously announced
stock repurchase program.
-- During the three months ended March 31, 2014, the Company obtained a new
$10.0 million FHLB advance with an interest rate of 1.65% that will
mature in September 2018.
Net Interest Income
Net interest income for the three months ended March 31, 2014 increased $170,000, or 2.5%, to $7.0 million compared to $6.8 million for the prior quarter and increased $608,000, or 9.5%, compared to $6.4 million for the three months ended March 31, 2013. Our net interest margin for the three months ended March 31, 2014 increased 16 basis points from the prior quarter and 20 basis points from the same quarter in the prior year to 2.86%. Interest income on loans increased $566,000 from the comparable prior year quarter due to an $84.8 million increase in the average balance of loans, partially offset by a 54 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 $19,000 from the comparable prior year quarter due to an $8.2 million decrease in the average balance of securities, partially offset by a 3 basis point increase in yield. Deposit costs increased $30,000 from the comparable prior year quarter due to a $32.5 million increase in the average balance of interest-bearing deposits, partially offset by a 4 basis point decline in cost. FHLB borrowing costs declined $97,000 from the comparable prior year quarter due to a $6.7 million decrease in the average balance of FHLB borrowings as well as a 6 basis point decline in cost due to a prepayment made during the fourth quarter of fiscal 2013, slightly offset by a new advance obtained during the current quarter.
Net interest income for the six months ended March 31, 2014 increased $1.1 million, or 8.5%, to $13.8 million compared to $12.7 million for the six months ended March 31, 2013. Our net interest margin for the six months ended March 31, 2014 increased 16 basis points from the same period in the prior year to 2.78%. Interest income on loans increased $1.2 million due to an $80.9 million increase in the average balance of loans, partially offset by a 47 basis point decline in yield as a result of lower interest rates for new loans due in part to increased competition for quality loans as well as an increase in the average balance of nonaccrual loans. Interest income on securities declined $346,000 due to a $19.1 million decrease in the average balance of securities as well as a 5 basis point decline in yield. Deposit costs declined $13,000 due to a 5 basis point decline in cost, partially offset by a $25.3 million increase in the average balance of interest-bearing deposits. FHLB borrowing costs declined $207,000 due to a $7.7 million decrease in the average balance of FHLB borrowings as well as a 4 basis point decline in cost due to a prepayment made during the fourth quarter of fiscal 2013, slightly offset by a new advance obtained during the current quarter.
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, decreased $413,000, or 35.9%, for the three months ended March 31, 2014 and $1.5 million, or 48.4%, for the six months ended March 31, 2014. The decrease for both the three and six months ended March 31, 2014 was primarily due to net gains on sales of other real estate owned, which decreased $485,000 and $1.4 million, respectively. The decrease was also due to a decrease in gains on sales of loans held for sale of $45,000 and $94,000 for the three and six months ended March 31, 2014, respectively, as a result of Franklin Federal's discontinuation of single-family, owner-occupied residential mortgage lending subsequent to its formation of a joint venture with TowneBank Mortgage in January 2013. For the three months ended March 31, 2014, these decreases were partially offset by an increase in other service charges and fees of $79,000 due to an increase in prepayment fees on 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 six months ended March 31, 2014, respectively, compared to charges of $76,000 and $195,000 for the three and six months ended March 31, 2013, respectively. OTTI charges for the six months ended March 31, 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 $3.0 million and $4.6 million for the three and six months ended March 31, 2014, respectively, compared to $1.4 million for both the three and six months ended March 31, 2013. Securities sold during the three and six months ended March 31, 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 three months ended March 31, 2014.
Other Noninterest Expenses
Other noninterest expenses increased $152,000, or 3.2%, to $4.9 million for the three months ended March 31, 2014 compared to $4.7 million for the three months ended March 31, 2013. The increase was primarily due to a $138,000 increase in other operating expenses due to increased foreclosure expenses and legal costs as well as an increase in federal deposit insurance premiums of $45,000. These increases were partially offset by a $51,000 decrease in personnel expense due to decreased stock compensation expense related to the stock options and restricted stock granted under the Company's 2012 Equity Incentive Plan.
Other noninterest expenses increased $221,000, or 2.4%, to $9.5 million for the six months ended March 31, 2014 compared to $9.3 million for the six months ended March 31, 2013. The increase was primarily due to a $264,000 increase in other operating expenses due to increased foreclosure expenses, legal costs and technology costs as well as an increase in advertising expenses of $70,000 and federal deposit insurance premiums of $31,000. These increases were partially offset by a $152,000 decrease in personnel expense due to decreased stock compensation expense related to the stock options and restricted stock granted under the Company's 2012 Equity Incentive Plan.
Asset Quality
Nonperforming assets increased $174,000 in the three months ended March 31, 2014 to $54.8 million. The increase was primarily due to expenditures to maintain, enhance and develop previously reported nonperforming assets. Nonperforming loans totaled $28.9 million at March 31, 2014 compared to $38.0 million at December 31, 2013 and $49.1 million at September 30, 2013. Other real estate owned totaled $25.9 million at March 31, 2014 compared to $16.6 million at December 31, 2013 and $6.7 million at September 30, 2013. Total nonperforming loans as a percentage of total loans at March 31, 2014 were 5.17% compared to 6.91% at December 31, 2013 and 9.37% at September 30, 2013.
The Company recorded a provision for loan losses of $296,000 and $1.4 million for the three and six months ended March 31, 2014, respectively, compared to $126,000 and $361,000 for the three and six months ended March 31, 2013, respectively. The increase in the provision for the three and six months ended March 31, 2014 was primarily due to higher loan levels. The increase for the six months ended March 31, 2014 was also due to a $406,000 charge-off recorded in the first quarter of fiscal 2014 in connection with a foreclosure on collateral securing a nonperforming loan. The allowance for loan losses as a percentage of total loans was 1.92% at March 31, 2014 compared to 1.90% at December 31, 2013 and 1.86% at September 30, 2013.
Stock Repurchase Program
During the three months ended March 31, 2014, the Company repurchased 166,800 shares of its common stock for $3.3 million, or an average price of $19.53 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; and
-- 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.
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 For the Six
Months Months
Ended March 31, Ended March 31,
--------------- ---------------
(Dollars in thousands) 2014 2013 2014 2013
---- ---- ---- ----
Operating Data:
Interest and dividend income $10,455 $9,914 $20,774 $19,912
Interest expense 3,456 3,523 6,946 7,166
----- ----- ----- -----
Net interest income 6,999 6,391 13,828 12,746
Provision for loan losses 296 126 1,393 361
--- --- ----- ---
Net interest income after provision for loan losses 6,703 6,265 12,435 12,385
----- ----- ------ ------
Noninterest income:
Impairment of securities reflected in earnings - (76) (575) (195)
Gains on sales of securities, net 2,973 1,382 4,645 1,413
Gains on sales of other real estate owned 40 525 152 1,564
Other noninterest income 696 624 1,409 1,462
--- --- ----- -----
Total noninterest income 3,709 2,455 5,631 4,244
----- ----- ----- -----
Other noninterest expenses 4,865 4,713 9,527 9,306
----- ----- ----- -----
Income before provision for income taxes 5,547 4,007 8,539 7,323
Provision for income taxes 1,144 1,292 1,551 2,299
----- ----- ----- -----
Net income $4,403 $2,715 $6,988 $5,024
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Per Share Data
For the Three For the Six
Months Months
Ended March 31, Ended March 31,
--------------- ---------------
(Amounts in thousands, except per share data) 2014 2013 2014 2013
---- ---- ---- ----
Basic net income per share $0.40 $0.23 $0.63 $0.42
Diluted net income per share $0.38 $0.23 $0.61 $0.42
Tangible book value per share at end of period $20.37 $18.92 $20.37 $18.92
Shares outstanding at end of period 11,933 12,737 11,933 12,737
Weighted-average shares outstanding
Basic 11,081 11,817 11,142 11,961
Diluted 11,393 11,965 11,468 12,097
Quarterly Data
(Dollars in thousands) March 31, December 31, September 30, March 31,
2014 2013 2013 2013
---- ---- ---- ----
Financial Condition Data:
Total assets $1,095,195 $1,075,418 $1,059,321 $1,052,094
Cash and cash equivalents 89,175 75,049 98,914 143,106
Securities available for sale 253,289 275,528 304,998 345,097
Securities held to maturity 114,963 104,737 70,249 17,387
Loans, net 544,072 536,379 511,183 467,898
Cash surrender value of bank-owned life insurance 34,792 34,617 34,296 33,651
Deposits 670,620 662,603 646,838 628,810
Federal Home Loan Bank borrowings 174,133 163,808 163,485 172,841
Total stockholders' equity 243,116 242,054 241,394 241,007
Capital Ratios(1):
Tier 1 capital to adjusted tangible assets 18.68% 18.85% 17.83% 17.10%
Tier 1 risk-based capital to risk weighted assets 28.48 26.97 26.32 26.34
Risk-based capital to risk weighted assets 29.74 28.22 27.57 27.60
((1)) Ratios are for Franklin Federal Savings Bank.
For the Three Months Ended
--------------------------
March 31, December 31, September 30, March 31,
2014 2013 2013 2013
---- ---- ---- ----
Performance Ratios:
Return on average assets(2) 1.65% 0.95% 1.00% 1.04%
Return on average equity(2) 7.31 4.21 4.39 4.57
Interest rate spread(2)(3) 2.59 2.38 2.40 2.34
Net interest margin(2)(4) 2.86 2.70 2.70 2.66
Efficiency ratio(5) 62.93 61.69 60.66 67.18
Average interest-earning assets to
average interest-bearing liabilities 119.36 122.71 121.33 121.31
Average equity to average assets 22.52 22.52 22.69 22.83
((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) March 31, December 31, September 30, March 31,
2014 2013 2013 2013
---- ---- ---- ----
Asset Quality:
Allowance for Loan Losses
Beginning balance $10,464 $9,740 $9,912 $10,649
Provision 296 1,097 (7) 126
Recoveries 93 126 93 13
Charge-offs (132) (499) (258) (150)
---- ---- ---- ----
Ending balance $10,721 $10,464 $9,740 $10,638
======= ======= ====== =======
Nonperforming Assets at Period End
Nonaccrual loans $28,890 $38,008 $49,131 $40,171
Other real estate owned 25,868 16,576 6,715 10,440
------ ------ ----- ------
Total nonperforming assets 54,758 54,584 55,846 50,611
Performing troubled debt restructurings (6) 5,666 5,494 5,501 5,518
----- ----- ----- -----
Total nonperforming assets and performing troubled debt restructurings $60,424 $60,078 $61,347 $56,129
------- ------- ======= -------
Allowance for loan losses as a percent of total loans at period end 1.92% 1.90% 1.86 2.21%
%
Allowance for loan losses as a percent of nonperforming loans at period end 37.11 27.53 19.82 26.48
Nonperforming loans as a percent of total loans at period end 5.17 6.91 9.37 8.33
Nonperforming assets as a percent of total assets at period end 5.00 5.08 5.27 4.81
Total nonperforming assets and troubled debt
restructurings to total assets at period end 5.52 5.59 5.79 5.33
Net charge-offs to average loans outstanding
during the period (annualized) 0.03 0.28 0.13 0.12
((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) March 31, December 31, September 30, March 31,
2014 2013 2013 2013
---- ---- ---- ----
Net interest income $6,999 $6,829 $6,628 $6,391
Plus: Total noninterest income 3,709 1,922 910 2,455
Less: Gains on sales of securities, net (2,973) (1,672) (98) (1,382)
Plus: Net impairment reflected in income - 575 102 76
Less: Gains on sales of OREO (40) (112) (198) (525)
--- ---- ---- ----
Total net interest income and adjusted other noninterest income
$7,695 $7,542 $7,344 $7,015
====== ====== ====== ======
Other noninterest expenses $4,865 $4,662 $4,621 $4,713
Less: Impairment charges on OREO (8) - (160) -
Less: Net losses on sales of fixed assets (15) (9) (7) -
--- --- --- ---
Adjusted other noninterest expenses $4,842 $4,653 $4,454 $4,713
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Efficiency ratio 62.93% 61.69 % 60.66% 67.18%
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SOURCE Franklin Financial Corporation
