Franklin Financial Network Reports Double-Digit Annualized Growth in Loans and Deposits in Second Quarter 2015

FRANKLIN, Tenn., July 28, 2015 /PRNewswire/ -- Franklin Financial Network, Inc., (NYSE:FSB) the parent company of Franklin Synergy Bank (the "Bank"), today reported consolidated net income of $3.1 million for the second quarter of 2015, a 54.0% increase compared to $2.0 million for the second quarter of 2014. Basic earnings per common share for the quarter ending June 30, 2015 totaled $0.30, a 26.8% decrease compared to $0.41 for the same period in 2014.

For the six months ended June 30, 2015, consolidated net income was $6.3 million, an increase of 75.8% over $3.6 million for the same period in 2014. Basic earnings per common share for the six months ending June 30, 2015 totaled $0.67, a 6.9% decrease compared to $0.72 for the same period in 2014.

On a fully diluted basis, earnings per share were $0.28 for the quarter ended June 30, 2015, compared to fully diluted earnings per share of $0.40 for the quarter ended June 30, 2014, a decrease of 30.0%.  On a fully diluted basis, earnings per share were $0.64 for the six months ended June 30, 2015, compared to fully diluted earnings per share of $0.70 for the six months ended June 30, 2014, a decrease of 8.6%.  

The disparity between growth in net income and lower earnings per share is the result of the addition of 2.64 million shares of common stock issued through the Company's Initial Public Offering (IPO) in March 2015. The second quarter was the first full quarter to reflect the impact of the additional shares.

"Franklin Financial Network, Inc. posted a solid twenty-sixth consecutive profitable quarter, with our growth momentum accelerating," stated Richard Herrington, Chairman and Chief Executive Officer. "While earnings were slightly lower than planned due to our investment in a new healthcare banking team, we expect this strategic building block to quickly produce significant gains in this new line of business."

"Organic loan growth continues to exceed expectations; our annualized growth rate in loans, including loans held for sale, since December 31, 2014 is 43%," Herrington added. "In spite of this growth rate, asset quality continues to remain very strong, with non-performing assets holding steady at 0.1% at both December 31, 2014 and June 30, 2015. Our plan continues to build and deliver long-term sustainable value for our shareholders."

Selected highlights for the second quarter of 2015 include:

• The Company added an experienced healthcare banking team, expanding the Bank's reach into the local and national healthcare markets.
• The Company received $55 million in capital on the final day of the first quarter of 2015, related to its initial public offering, issuing 2.64 million shares of common stock. Late in the second quarter, the Company initiated a leverage program by purchasing securities to properly utilize the capital raised during the IPO.
• The quarter marks a full year of results that include the addition of five branches and the associated personnel in Rutherford County through the MidSouth Bank acquisition in July of 2014.  
• The mortgage segment remained strong with mortgage banking revenues for the six months ended June 30, 2015 of $3.1 million, up by $759 thousand, or 32.3%, over the same period in 2014.

Second Quarter 2015 Results of Franklin Financial Network, Inc.

Balance Sheet Growth and Asset Quality

• Loans, including loans held for sale, at June 30, 2015 totaled $979.0 million, an increase of $477.4 million from June 30, 2014, a year-over-year growth rate of 95.2%.  Loan growth, including loans held for sale, during the six months ended June 30, 2015 was $173.4 million, or 21.5%, when compared with $805.7 million at December 31, 2014.  The majority of the loan growth was in two categories: commercial and industrial lending and construction lending, which grew $68.2 million and $54.4 million, respectively.
• Investment securities available for sale grew $239.5 million, or 60.5%, during the first six months of 2015, to $635.2 million. This growth is attributable to the leverage program that was initiated during the second quarter of 2015.
• Deposits grew to $1.5 billion at June 30, 2015 versus $747.3 million at June 30, 2014, a year-over-year growth rate of 99.6%.  Deposits grew $319.8 million, or 27.3%, during the first six months of 2015 when compared with deposits of $1.2 billion at December 31, 2014. 
• At June 30, 2015, assets totaled $1.8 billion, compared to $872.1 million at June 30, 2014, an annual growth rate of 102.6%.  Assets grew $410.9 million, or 30.3%, during the first six months of 2015 when compared with assets of $1.4 billion at December 31, 2014.
• Non-performing assets decreased $712 thousand, or 61.7%, to $1.2 million from the December 31, 2014 total of $1.9 million due to sales of four foreclosed properties during the first six months of 2015. Non-performing assets as a percent of total assets were 0.1% at June 30, 2015 and at December 31, 2014. When compared with June 30, 2014, non-performing assets decreased approximately $1.5 million, or 55.0%. At June 30, 2014 non-performing assets were 0.3% of total assets.

Profitability

• Net Interest income increased to $13.3 million for the quarter ended June 30, 2015, up from $7.3 million for the same period in 2014, an 81.4% increase.  The net interest margin for the quarter ended June 30, 2015 increased to 3.51%, compared to 3.48% for the quarter ended June 30, 2014.
• Net Interest income increased to $25.5 million for the six months ended June 30, 2015, up from $14.4 million for the same period in 2014, a 76.4% increase. The net interest margin for the six months ended June 30, 2015 increased to 3.57%, compared to 3.51% for the six months ended June 30, 2014. Earning asset growth, improved interest margins related to purchase accounting adjustments and decreased costs of funds related to deposits and borrowings drove the increase in net interest income for the quarter as well as the six-month period ended June 30, 2015.
• The net interest margin for the quarter ended June 30, 2015 decreased to 3.51%, from 3.65% for the quarter ended March 31, 2015. The net interest margin decrease in second quarter 2015 from first quarter 2015 is primarily attributed to the change in asset mix as the Bank's leverage program was initiated.
• Noninterest income for the six months ended June 30, 2015, was $6.1 million, compared to $3.9 million for the six months ended June 30, 2014, an increase of 57.5%. Increased mortgage loan volume and improved margins on the loans sold accounted for $759 thousand of the increase in non-interest income when compared with the same period in 2014.  The Company also experienced increases in gains from the sales of securities of $453 thousand and in other services charges and fees of $759 thousand.
  Noninterest income for the second quarter decreased 11.3% from first quarter of 2015 noninterest income of $3.2 million primarily due to the decrease in gain on sale of securities of $306 thousand.
• Noninterest expense for the quarter ended June 30, 2015 was $10.6 million, a 73.9% increase over the second quarter 2014 noninterest expense of $6.1 million. Noninterest expense for the six months ended June 30, 2015 was $20.2 million, a 74.5% increase over noninterest expense of $11.6 million for the same period in 2014.
  Primary drivers of the increase in noninterest expense second quarter 2015 over second quarter 2014 as well as for the six months ended June 30, 2015 over the same period in 2014 include:
• Salary and benefit increases associated with the addition of the healthcare banking team early in the second quarter, the addition of the Rutherford County personnel as part of the Company's July 2014 acquisition of MidSouth Bank, and the commissions paid on the increased mortgage loan origination volume in 2015.
  • Salaries and employee benefits increased $2.3 million in the second quarter of 2015 compared to the second quarter of 2014, and $4.4 million for the six-month period ended June 30, 2015 compared to the same period in 2014.
• One-time expenses associated with the Company's IPO that were not fully absorbed during the first quarter of 2015 and insurance and professional fees associated with the Company's status as a publicly traded company on the New York Stock Exchange.
• The expansion of the Company's Franklin headquarters, the relocation of two Williamson County branches, and the acquisition of five branch locations in Rutherford County. 
  • Occupancy and equipment expense increased $690 thousand in the second quarter of 2015 compared to the second quarter of 2014 and $1.5 million for the six-month period ended June 30, 2015 compared to the same period in 2014. 
• Increases in the Company's FDIC insurance and marketing expenses associated with the Company's growth.
• Provision for loan and lease losses for the quarter ended June 30, 2015 was $805 thousand versus $440 thousand for the quarter ended June 30, 2014, and $625 thousand for the first quarter of 2015, and for the six months ended June 30, 2015, provision for loan and lease losses was $1.4 million versus $825 thousand for the same period in 2014.  The Company's significant loan growth drove the increase in provision for loan and lease 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 July 29, 2015 to discuss second quarter 2015 results. To access the call for audio only, please call 1-888-317-6016. 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.  

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 Synergy Bank

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