Franklin Financial Network, Inc. Reports Record Quarterly Earnings

FRANKLIN, Tenn., Oct. 27, 2015 /PRNewswire/ -- Franklin Financial Network, Inc., (NYSE:FSB) the parent company of Franklin Synergy Bank (the "Bank"), today reported record consolidated net income of $5.2 million for the third quarter of 2015, a 155.6% increase compared to $2.0 million for the third quarter of 2014. Basic earnings per common share for the quarter ending September 30, 2015 totaled $0.49, an 88.5% increase compared to $0.26 for the same period in 2014.

For the nine months ended September 30, 2015, consolidated net income was $11.4 million, an increase of 104.6% over $5.6 million for the same period in 2014. Basic earnings per common share for the nine months ending September 30, 2015 totaled $1.17, a 24.5% increase compared to $0.94 for the same period in 2014.

On a fully diluted basis, earnings per share were $0.46 for the quarter ended September 30, 2015, compared to fully diluted earnings per share of $0.25 for the quarter ended September 30, 2014, an increase of 84.0%. For the nine months ended September 30, 2015, fully diluted earnings per share were $1.12, an increase of 23.1%, compared to fully diluted earnings per share of $0.91 for the nine months ended September 30, 2014.  

"The third quarter was the most profitable quarter in the history of our bank, with record earnings," stated Richard Herrington, Chairman and Chief Executive Officer. "We posted our twenty-seventh consecutive profitable quarter."

"Organic loan growth continues to exceed expectations. Our annualized growth rate in loans, including loans held for sale, is more than 50% since December 31, 2014; at the same time, we diversified our loan portfolio.  Our investment in a healthcare banking team has significantly impacted our balance sheet in the third quarter.  Additionally, we have passed the $2 billion milestone in assets."

Selected highlights for the third quarter of 2015:

• Record earnings of $5.2 million in the third quarter exceeded the third quarter of 2014 by 155.6%.
• The Company earned $1.2 million on the full payoff of a purchased credit-impaired loan.
• The healthcare lending team that was added in the second quarter of 2015 produced $64.2 million of the Company's $159.5 million loan growth during the third quarter, helping to further diversify the Company's loan portfolio.
• Third quarter performance illustrates the importance of asset quality in tandem with an organically growing bank. Nonperforming assets as a percentage of total assets were 0.05% at September 30, 2015.  

Third Quarter 2015 Results of Franklin Financial Network, Inc.

Balance Sheet Growth and Asset Quality

• The strength of the local market as well as continued loan demand fueled the Company's loan growth. Total loans, including loans held for sale, totaled $1.1 billion at September 30, 2015, an increase of $393.6 million from September 30, 2014, a year-over-year growth rate of 52.8%. Loan growth during the nine months ended September 30, 2015 was $332.8 million, or 41.3%, when compared with $805.7 million at December 31, 2014.  
• The majority of the loan growth was in three categories: business lending, construction lending and commercial real estate lending, which grew $142.8 million, $95.0 million and $66.4 million, respectively.  The growth in business loans served to diversify the Company's loan portfolio with real estate lending concentration decreasing from 89.3% at December 31, 2014 to 80.0% at September 30, 2015.
• At September 30, 2015, assets totaled $2.0 billion, compared to $1.2 billion at September 30, 2014, an annual growth rate of 61.6%.  Assets grew $0.6 billion, or 47.7%, during the first nine months of 2015 when compared with assets of $1.4 billion at December 31, 2014.
• Nonperforming assets decreased $0.8 million, or 44.2%, to $1.0 million from the December 31, 2014 total of approximately $1.9 million, primarily due to sales of foreclosed properties during the first nine months of 2015. Nonperforming assets as a percent of total assets were 0.05% at September 30, 2015 and 0.14% at December 31, 2014. When compared with September 30, 2014, nonperforming assets decreased approximately $4.0 million, or 79.4%. At September 30, 2014, nonperforming assets were 0.41% of total assets. Delinquent loans, a harbinger of nonperforming assets, remain very low. 
• Investment securities grew $307.5 million, or 68.5%, during the first nine months of 2015, to $756.6 million. This growth is attributable to the leverage program of purchasing securities during the second and third quarters of 2015 to properly utilize the capital that was raised in the IPO during the first quarter of 2015.
• Deposits grew to $1.7 billion at September 30, 2015 versus $1.1 billion at September 30, 2014, a year-over-year growth rate of 63.1%. Deposits grew $0.5 billion, or 46.3%, during the first nine months of 2015 when compared with deposits of $1.2 billion at December 31, 2014. Year-to-date cost of interest-bearing deposits was 0.65% at September 30, 2015, compared to 0.68% at September 30, 2014. For the third quarter of 2015, cost of interest-bearing deposits was 0.66% compared to 0.64% for the same period in 2014.

Profitability

• The primary driver of increased net interest income was continued growth in earning assets (loans and investment securities). Net Interest income increased 50.4% to $16.7 million for the quarter ended September 30, 2015, up from $11.1 million for the same period in 2014. During the quarter, the Company received a full payoff of a purchased credit-impaired loan relationship, which increased the Company's net interest income and pre-tax earnings by nearly $1.2 million. Net interest income increased to $42.2 million for the nine months ended September 30, 2015, up from $25.6 million for the same period in 2014, a 65.1% increase.
• The net interest margin for the nine months ended September 30, 2015 remained relatively stable with the growth in loan volume offsetting the effects of the growth in investment securities.  
• Noninterest income for the three months ended September 30, 2015, was $3.8 million, compared to $3.3 million for the three months ended September 30, 2014, an increase of 16.0%. Noninterest income for the nine months ended September 30, 2015, was $9.9 million, compared to $7.1 million for the nine months ended September 30, 2014, an increase of 38.4%. Increased mortgage loan volume and improved margins on mortgage banking accounted for $1.3 million of the increase in noninterest income when comparing the nine months ended September 30, 2015 with the same period in 2014.  The increase in noninterest income can be traced to increased loan growth and mortgage banking, and to increased fees for other services, including fee income from wealth management services.
• Noninterest expense for the quarter ended September 30, 2015 was $10.9 million, a 4.5% increase over the third quarter 2014 noninterest expense of $10.4 million. Noninterest expense for the nine months ended September 30, 2015 was $31.0 million, a 41.4% increase over noninterest expense of $22.0 million for the same period in 2014.
  Primary drivers of the increase in noninterest expense for third quarter 2015 over third quarter 2014 as well as for the nine months ended September 30, 2015 compared with the same period in 2014 include:
  • Significant growth in both loans and deposits has allowed the Company to achieve operating economies of scale. Year-to-date 2015 efficiency ratio, adjusted for the $1.2 million earned from the payoff of a large purchased credit-impaired loan during the third quarter, was 60.96% at September 30, 2015, as compared to 67.16% at September 30, 2014. The Company's efficiency ratio for the third quarter, also adjusted for the $1.2 million earned from the payoff, was 56.00%, compared to 72.14% for the same period in 2014.
  • Increased operating expense associated with the Company's acquisition of MidSouth Bank in July of 2014.
  • One-time expenses associated with the Company's IPO during the first quarter of 2015 and the addition of a healthcare banking team during the second quarter of 2015.  
• Provision expense for loan losses for the quarter ended September 30, 2015 was $1.7 million versus $664 thousand for the quarter ended September 30, 2014, and $805 thousand for the second quarter of 2015. For the nine months ended September 30, 2015, provision expense for loan losses was $3.2 million versus $1.5 million for the same period in 2014. The Company's significant loan growth drove the increase in provision for loan losses from 2014 to 2015. 

"We continue to execute our plan in two of the most vibrant communities in Middle Tennessee," stated Herrington.  "We are attracting and retaining the best bankers in the market."

Webcast and Conference Call Information
Franklin Financial Network, Inc. will host a webcast and conference call at 9:00 a.m. (CDT) on October 28, 2015 to discuss third quarter 2015 results. To access the call for audio only, please call 1-844-378-6480. For the presentation and streaming audio, please access the webcast on the Investor Relations page of Franklin Synergy Bank's website at www.franklinsynergybank.com.

For those unable to participate in the webcast, it will be archived on the Investor Relations page of Franklin Synergy Bank's website at www.franklinsynergybank.com for one year, with audio available for 90 days.  

Safe Harbor for Forward-Looking Statements

This media release contains forward-looking statements.  Such statements include, but are not limited to, projected sales, gross margin and net income figures, the availability of capital resources, and plans concerning products and market acceptance.  Words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates" and variations of such words and similar expressions are intended to identify such forward-looking statements. Forward-looking statements are inherently subject to risks and uncertainties, many of which cannot be predicted with accuracy and some of which might not even be anticipated.  Future events and actual results, financial and otherwise, could differ materially from those set forth in or contemplated by the forward-looking statements herein.

Future operating results of the corporation are impossible to predict, and no representation or warranty of any kind can be made respecting the present or future accuracy of such forward-looking statements or the ability of the corporation to meet its obligations, and no such representation or warranty is to be inferred.

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Franklin Financial Network, Inc.

GAAP Reconciliation and Management Explanation of Non-GAAP Financial Measures

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

• "Common shareholders' equity" is defined as total shareholders' equity at end of period less the liquidation preference value of the preferred stock;
• "Tangible common shareholders' equity" is common shareholders' equity less goodwill and other intangible assets;
• "Total tangible assets" is defined as total assets less goodwill and other intangible assets;
• "Other intangible assets" is defined as the sum of core deposit intangible and SBA servicing rights;
• "Tangible book value per share" is defined as tangible common shareholders' equity divided by total common shares outstanding. This measure is important to investors interested in changes from period-to-period in book value per share exclusive of changes in intangible assets;
• "Tangible common shareholders' equity ratio" is defined as the ratio of tangible common shareholders' equity divided by total tangible assets. We believe that this measure is important to many investors in the marketplace who are interested in relative changes from period-to period in common equity and total assets, each exclusive of changes in intangible assets;
• "Return on Average Tangible Common Equity" is defined as net income available to common shareholders divided by average tangible common shareholders' equity;
• "Efficiency ratio" is defined as noninterest expenses divided by our operating revenue, which is equal to net interest income plus noninterest income;
• "Adjusted yield on loans" is our yield on loans after excluding loan accretion from our acquired loan portfolio. Our management uses this metric to better assess the impact of purchase accounting on our yield on loans, as the effect of loan discount accretion is expected to decrease as the acquired loans mature or roll off of our balance sheet;
• "Net interest margin" is defined as annualized net interest income divided by average interest-earning assets for the period;
• "Adjusted net interest margin" is net interest margin after excluding loan accretion from the acquired loan portfolio and premiums for acquired time deposits. Our management uses this metric to better assess the impact of purchase accounting on net interest margin, as the effect of loan discount accretion and accretion of net discounts and premiums related to deposits is expected to decrease as the acquired loans and deposits mature or roll off of our balance sheet.

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

Contact: Aimee Punessen, (615) 236-8329
[email protected]

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SOURCE Franklin Financial Network, Inc.

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https://www.franklinsynergybank.com/