Franklin Financial Network Announces Record Net Income On Continued Strong Loan Growth For The Second Quarter Of 2017

FRANKLIN, Tenn., July 26, 2017 /PRNewswire/ -- Franklin Financial Network, Inc. (NYSE: FSB), the parent company (the "Company") of Franklin Synergy Bank (the "Bank"), today announced financial results for the second quarter and six months ended June 30, 2017.

Net income available for common shareholders increased 18.1% to a record $8.9 million for the second quarter compared with $7.5 million for the second quarter of 2016. Earnings per diluted share were $0.64 for the second quarter of 2017 compared with $0.66 for the second quarter of 2016.  Weighted average diluted shares outstanding increased 22.3% for the second quarter of 2017 from the second quarter of 2016, primarily due to the Company's $72 million public offering of common stock in November 2016.

Highlights for the second quarter of 2017 include:

• Return on average assets was 1.03% compared with 1.22% for the second quarter of 2016, and return on average tangible common equity was 12.92% compared with 15.53% for the second quarter of 2016.
• Net interest income plus noninterest income increased 15.4% to $28.3 million from $24.6 million for the second quarter of 2016.
• The efficiency ratio was 53.91% compared with 52.58% for the second quarter of 2016.
• Total loans, including loans held for sale, increased 29.1% or $456.0 million to $2.02 billion at the quarter's end from $1.57 billion at June 30, 2016.
• Credit quality remained strong, with nonperforming loans at 0.19% of total loans, excluding loans held for sale; the allowance for loan losses at 0.93% of total loans, excluding loans held for sale; and nominal net recoveries for the quarter.
• Tangible book value per share increased 18.5% to $21.44 at June 30, 2017, compared with $18.09 at June 30, 2016.

"We are pleased to report these record second-quarter financial results, which met expectations and demonstrate a continued ability to balance the competing and often conflicting objectives of soundness, profitability and growth," said Richard Herrington, the Company's Chairman and Chief Executive Officer. "With regard to soundness, our nonperforming loans were 0.19% of total loans, while our loan loss reserves were 0.93% of total loans. We also had nominal net recoveries for the second quarter, consistent with the second quarter last year. Despite continued pressure on net interest margin, our profitability metrics were strong, with a return on average assets of 1.03%, a return on tangible common equity of 12.92% and an efficiency ratio of 53.91%. We also produced substantial growth for the quarter, with a comparable-quarter increase of 29.1% in our total loans, 22.4% in total deposits and 18.2% in net income. 

"We believe the Company is well positioned to make further progress in the second half of 2017.  The growth dynamics in our core middle Tennessee market continue to be among the most attractive in the country resulting in an ongoing ability to selectively expand our highly experienced team of local bankers. We continue to improve our technology infrastructure to enhance our management capabilities, increase operating efficiencies and support our customers and our team as we pursue long-term growth. Through strong execution of this proven business model that balances competing objectives, we are confident of our opportunities for driving further gains in market share and shareholder value."

Strong Asset Quality

• At June 30, 2017, nonperforming loans were 0.19% of total loans, excluding loans held for sale, compared with 0.10% and 0.21% at June 30, 2016 and March 31, 2017.
• The allowance for loan losses at June 30, 2017 was 0.93% of total loans, excluding loans held for sale, compared with 0.92% and 0.93% at June 30, 2016 and March 31, 2017.
• There were nominal net recoveries for the second quarter of 2017 and 2016, and net charge offs were 0.07% of average loans for the first quarter of 2017.

Attractive, Growing, Local Markets Support Expansion of Balance Sheet

• Total assets increased 32.1% to $3.44 billion at June 30, 2017 from $2.61 billion at June 30, 2016.
• Total loans, including loans held for sale, increased 29.1% or $456.0 million to $2.02 billion at June 30, 2017 from June 30, 2016, primarily due to growth in real estate loans, with increases of $179.9 million in 1-4 family real estate loans and $141.5 million in commercial real estate loans and $59.0 million in construction loans, as well as an increase of $77.4 million in business loans.
• The mix of total loans, excluding loans held for sale, at the end of the second quarter changed slightly in comparison with the mix at the end of the prior quarter, with total real estate lending at 78.8% and business loans at 21.1% of total loans, compared with prior-quarter total real estate lending at 76.9% and business loans at 22.9%.
• Deposits were $2.75 billion at June 30, 2017, an increase of 22.4% from June 30, 2016. Non-interest bearing deposits increased 11.5% compared with the second quarter of 2016, and interest bearing deposits increased 23.7%.

Strong Growth in the Loan Portfolio and Net Interest Income Drive Earnings per Share

• Net interest income for the second quarter of 2017 increased 22.8% to $24.5 million from $19.9 million for the second quarter of 2016. The growth in net interest income resulted from strong growth in interest earning assets, partly offset by a decline in loan yield. Interest expense also increased for the second quarter of 2017, due to the growth and change in mix of funding sources, which included the full-quarter impact of the issuance of $20 million of subordinated notes on June 30, 2016. 
• The average yield on total interest earning assets was 4.09% for the second quarter of 2017, a decrease of 11 basis points from 4.20% for the second quarter of 2016, driven by changes in the mix of loans and competitive pressures. Average yield increased three basis points from 4.06% for the first quarter of 2017.
• The average rate on total interest bearing liabilities was 1.18% for the second quarter of 2017, up 33 basis points from 0.85% for the second quarter of 2016. On a sequential-quarter basis, the increase was 16 basis points.  These increases were driven primarily by changes in the mix of deposits and the rise in interest rates.
• Net interest margin, adjusted for tax equivalent yield, was 3.08% for the second quarter of 2017, compared with 3.47% for the second quarter of 2016 and 3.18% for the first quarter of 2017.
• Noninterest income for the second quarter of 2017 decreased 16.1% to $3.9 million from $4.6 million for the second quarter of 2016. The decrease primarily reflected an 84.9%, or $0.7 million, decrease in net gain on sale of securities compared with the second quarter of 2016, as well as a 10.5% decline in net gains on sale of loans, which is related to a reduction in the value of held-for-sale mortgages due to increasing mortgage interest rates.
• Noninterest expense increased 18.4% to $15.3 million for the second quarter of 2017 from $12.9 million for the second quarter of 2016, primarily due to increased salaries and employee benefits related to both the Company's growth and stronger mortgage loan production. The Company's FDIC assessment expense increased 150.6% due to growth in total assets, and occupancy and equipment expense increased 25.1% related to the Company's growth. The Company's efficiency ratio was 53.91% for the second quarter of 2017, compared with 52.58% for the second quarter of 2016.
• The Company's effective income tax rate was 29.0% for the second quarter of 2017 compared with 25.5% for the second quarter of 2016. 

Webcast and Conference Call Information

The Company will host a webcast and conference call at 8:00 a.m. (CT) on Thursday, July 27, 2017, to discuss operating and financial results for the second quarter of 2017. To access the call for audio only, please call 1-844-378-6480. For the presentation materials 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 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, expected operating results, including market share and shareholder value, strategy for growth and profitability, 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," "strategies" 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.  Risks and uncertainties that could cause the corporation's actual results to materially differ from those described in forward-looking statements include those discussed in Item 1A of the corporation's Annual Report on Form 10-K for the year ended December 31, 2016 filed with the Securities and Exchange Commission on March 16, 2017. 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.

About the Company

Franklin Financial Network, Inc. is a financial holding company headquartered in Franklin, Tennessee. The Company's wholly owned bank subsidiary, Franklin Synergy Bank, a Tennessee-chartered commercial bank founded in November 2007 and a member of the Federal Reserve System, provides a full range of banking and related financial services with a focus on service to small businesses, corporate entities, local governments and individuals. With consolidated total assets of $3.44 billion at June 30, 2017, the Bank currently operates through 12 branches and one loan production office in the growing Williamson, Rutherford and Davidson Counties, all within the Nashville metropolitan statistical area. Additional information about the Company, which is included in the NYSE Financial-100 Index, and the FTSE Russell 2000 Index, is available at www.FranklinSynergyBank.com.

Investor Relations Contact:
Sarah Meyerrose
EVP, Chief Financial Officer
(615) 236-8344
[email protected]

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 annualized net income available to common shareholders divided by average tangible common shareholders' equity; and
• "Efficiency ratio" is defined as noninterest expenses divided by our operating revenue, which is equal to net interest income plus noninterest income.
  

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:

SOURCE Franklin Financial Network, Inc.

Related Links

http://www.FranklinSynergyBank.com