CHAMBERSBURG, Pa., Oct. 24,
2023 /PRNewswire/ -- Franklin Financial Services
Corporation (the Corporation) (NASDAQ: FRAF), the bank holding
company of F&M Trust (the Bank) headquartered in Chambersburg, PA, reported its third quarter
2023 and year-to-date 2023 financial results. A summary of
operating results follows:
- Net income for the third quarter of 2023 was $3.9 million ($0.88
per diluted share) compared to $3.0
million ($0.68 per diluted
share) for the second quarter of 2023 (an increase of 22.9%), and
$4.6 million ($1.05 per diluted share) for the third quarter of
2022 (a decrease of 16.7%).
- For the third quarter of 2023, the provision for credit losses
was $875 thousand compared to
$524 thousand for the second quarter
of 2023 and $0 for the third quarter
of 2022.
- Net income year-to-date for 2023 was $10.1 million ($2.31 per diluted share) compared to $11.2 million ($2.52 per diluted share) for the same period in
2022, a decrease of 9.7%. As compared to the prior year-to-date
results, 2023 was affected by a loss of $1.1
million on securities sales, a lease termination expense of
$495 thousand and an increase of
$1.9 million in the provision for
credit losses.
- Total net loans increased 5.4% from the end of the second
quarter of 2023 and 14.9% from December 31,
2022.
- Total deposits increased 3.6% from the end of the second
quarter of 2023, and 1.0% from December 31,
2022. Borrowings from the Federal Reserve and Federal Home
Loan Bank of Pittsburgh (FHLB)
totaled $110.0 million at
September 30, 2023.
- For the year-to-date period, Return on Average Assets (ROA) was
0.78%. Return on Average Equity (ROE) was 11.25% and the Net
Interest Margin (NIM) was 3.33%, compared to ROA of 0.83%, ROE of
11.12% and NIM of 2.96% for the same period in 2022.
- On October 19, 2023, the Board of
Directors declared a $0.32 per share
regular quarterly cash dividend for the fourth quarter of 2023 to
be paid on November 22, 2023, to
shareholders of record at the close of business on November 3, 2023.
Balance Sheet Highlights
Total assets at September 30, 2023
were $1.828 billion up 7.6% from
$1.700 billion at December 31, 2022. Changes in the balance sheet
since December 31, 2022,
include:
- The investment portfolio decreased $28.6
million (5.9%), primarily the result of selling
approximately $41.2 million of
investments with only a portion of the proceeds being reinvested
into the portfolio to take advantage of higher market interest
rates.
- The net loan portfolio increased $154.5
million (14.9%) over the year-end 2022 balance, primarily
from an increase in commercial purpose loans of $118.4 million, primarily in commercial real
estate. At September 30, 2023,
commercial real estate loans totaled $671.2
million, with the largest collateral segments being:
apartment buildings ($112.2 million),
office buildings ($82.9 million), and
hotels and motels ($81.6 million)
primarily in south-central Pennsylvania.
- Total deposits increased $16.0
million (1.0%) from year-end 2022. Time deposits and money
management accounts increased $69.2
million in total, but this increase was partially offset by
a decrease in interest-bearing checking and savings accounts.
Year-to-date, the cost of deposits was 1.14% for 2023, compared to
0.14% for the same period in 2022. For the third quarter of 2023,
the cost of deposits increased to 1.32% and was 1.37% for the month
of September 2023. At September 30, 2023, the Bank estimated that
approximately 94% of its deposits were FDIC insured or
collateralized.
- At September 30, 2023, the Bank
had borrowings of $110.0 million
comprised of $70.0 million from
Federal Reserve Bank Term Funding Program (BTFP) and $40.0 million from the Federal Home Loan Bank of
Pittsburgh. The Bank has
additional funding capacity in the BTFP, the Federal Reserve
Discount Window, the FHLB and correspondent banks.
- Shareholders' equity increased $572
thousand from December 31,
2022 to $114.8 million.
Retained earnings increased $6.0
million in 2023, net of dividends of $4.2 million. Accumulated other comprehensive
income (loss) (AOCI) decreased $4.5
million as the fair value of the investment portfolio
declined as of September 30, 2023,
after showing increased valuations during the prior quarters of
2023. At September 30, 2023, the book
value of the Corporation's common stock was $26.31 per share and tangible book value was
$24.24 per share. In December 2022, an open market repurchase plan was
approved to repurchase 150,000 shares over a one-year period, with
83,058 shares repurchased year-to-date 2023 and 85,906 purchased in
total under the approved plan. The Bank is considered to be
well-capitalized under regulatory guidance as of September 30, 2023.
- Average earning assets for 2023 were $1.629 billion compared to $1.718 billion in 2022, a decrease of 5.2%. In
2023, the average balance of interest-earning cash balances
decreased $121.6 million (68.9%) to
support loan growth and to offset a decrease in average deposits
during the year. The average balance of the investment portfolio
decreased $56.4 million (11.0%),
while the average balance of the loan portfolio increased
$89.1million (8.7%), over the prior
year averages. Within the loan portfolio, average commercial loan
balances increased $62.1 million
during the year and residential mortgages increased $26.8 million. Total deposits averaged
$1.519 billion for 2023, a decrease
of $118.1 million (7.2%) from the
average balance for 2022. All deposit categories reported a
year-over-year decrease in average balances, except for time
deposits.
Income Statement Highlights
- Net interest income was $13.7
million for the third quarter of 2023 compared to
$13.2 million for the second quarter
of 2023 and $14.1 million for the
third quarter of 2022. The net interest margin (NIM) was 3.29% for
the third quarter of 2023 compared to 3.30% in the prior quarter
and 3.28% for the third quarter of 2022. Year-to-date, NIM was
3.33% compared to 2.96% for the same period of 2022. On a
year-over-year comparison, the yield on earning assets increased
145 basis points from 3.15% in 2022 to 4.60% for 2023, while the
cost of interest-bearing liabilities increased 136 basis points
from 0.24% to 1.60% over the same period.
- On January 1, 2023, the Bank
adopted a new accounting standard for the calculation of its
allowance for credit losses (ACL), referred to as the current
expected credit loss (CECL) model. Upon adoption, the Bank recorded
a decrease of $536 thousand to the
ACL for loans, an increase of $411
thousand to the ACL for unfunded commitments (carried in
Other Liabilities on the consolidated balance sheet), an increase
of $98 thousand to retained earnings,
and a deferred tax liability of $26
thousand. The provision for credit losses for 2023 was
calculated using the CECL model, while the provision for loan
losses for 2022 was calculated under the previous methodology. For
the third quarter of 2023, the provision for credit losses on loans
was $866 thousand compared to
$0 for the third quarter of 2022 and
$524 thousand for the second quarter
of 2023. The increase in the provision for loan loss was due
primarily to growth in the loan portfolio. The ACL ratio for loans
was 1.29% at September 30, 2023,
compared to 1.31% at December 31,
2022. For the third quarter of 2023, the provision for
credit losses on unfunded commitments was $9
thousand compared to $0 for
the third quarter of 2022 and $8
thousand for the second quarter of 2023. The ACL for
unfunded commitments was $2.0 million
at September 30, 2023 compared to
$1.5 million at December 31, 2022.
- Noninterest income totaled $4.0
million for the third quarter of 2023 compared to
$3.5 million in the second quarter of
2023 (an increase of 13.7%), and $3.7
million for the third quarter of 2022 (an increase of 9.6%).
The increase from the third quarter of 2022 to the third quarter of
2023 was due in part to increases in investment and trust fees and
debit card income.
- Noninterest income year-to-date was $10.8 million, $873
thousand less (7.5%) than the same period in 2022. The
decrease was driven primarily by a loss of $1.1 million from the sale of securities as part
of a portfolio restructuring in 2023.
- Noninterest expense for the third quarter of 2023 was
$12.2 million compared to
$12.6 million for the second quarter
of 2023 (a decrease of 3.6%), and $12.2
million in the third quarter of 2022. The decrease in
noninterest expense between the second and third quarter of 2023
was due primarily to a $495 thousand
lease termination expense recorded in the second quarter of
2023.
- Noninterest expense was $36.9
million for the nine months ending September 30, 2023 compared to $35.5 million for the same period of 2022, an
increase of $1.4 million or 3.9%.
Contributing to the year-over-year increase was an increase of
$800 thousand in salaries and
benefits (primarily salaries due to a highly competitive labor
market), an increase in net occupancy of $238 thousand from costs associated with the new
headquarters and operations center that was put in service in
July 2022 and the lease termination
expense of $495 thousand recorded in
the second quarter of 2023.
- The effective federal income tax rate was 17.0% for the third
quarter of 2023 and 13.5% on a year-to-date basis. The year-to-date
rate reflects the benefit of a $280
thousand tax credit that was recorded during the first
quarter of 2023. Without the tax credit, the effective rate
year-to-date would have been 15.9%.
"Our third quarter results are in line with our efforts to
position the company for success in the future," said Tim Henry, President and CEO. "I am pleased that
we have been able to continue to grow the bank, while also
balancing today's profitability against longer term investments in
people and systems aimed at building for the future."
Additional information on the Corporation is
available on our website at:
www.franklinfin.com/Presentations.
Franklin Financial is the largest independent,
locally owned and operated bank holding company
headquartered in Franklin County
with assets of more than $1.8 billion. Its wholly-owned
subsidiary, F&M Trust, has twenty-two community banking
locations in Franklin,
Cumberland, Fulton and
Huntingdon Counties PA, and
Washington County MD. Franklin
Financial stock is trading on the Nasdaq Stock Market under the
symbol FRAF. Please visit our website for more
information, www.franklinfin.com.
Management considers subsequent events occurring after the
balance sheet date for matters which may require adjustment to, or
disclosure in, the consolidated financial statements. The
review period for subsequent events extends up to and including the
filing date of a public company's consolidated financial statements
when filed with the Securities and Exchange Commission ("SEC").
Accordingly, the financial information in this announcement is
subject to change.
Certain statements appearing herein which are not historical
in nature are forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Such
forward-looking statements refer to a future period or periods,
reflecting management's current views as to likely future
developments, and use words "may," "will," "expect," "believe,"
"estimate," "anticipate," or similar terms. Because
forward-looking statements involve certain risks, uncertainties and
other factors over which Franklin Financial Services Corporation
has no direct control, actual results could differ materially from
those contemplated in such statements. These factors include
(but are not limited to) the following: changes in interest rates,
changes in the rate of inflation, general economic conditions and
their effect on the Corporation and our customers, changes in the
Corporation's cost of funds, changes in government monetary policy,
changes in government regulation and taxation of financial
institutions, changes in technology, the intensification of
competition within the Corporation's market area, and other similar
factors.
We caution readers not to place undue reliance on these
forward-looking statements. They only reflect management's analysis
as of this date. The Corporation does not revise or update these
forward-looking statements to reflect events or changed
circumstances. Please carefully review the risk factors described
in other documents the Corporation files from time to time with the
SEC, including the Annual Reports on Form 10-K, Quarterly Reports
on Form 10-Q, and any Current Reports on Form 8-K.
FRANKLIN FINANCIAL SERVICES
CORPORATION
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Financial Highlights
(Unaudited)
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Earnings Summary
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For the Three Months
Ended
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For the Nine Months
Ended
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(Dollars in thousands, except per share
data)
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9/30/2023
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6/30/2023
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9/30/2022
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9/30/2023
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9/30/2022
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% Change
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Interest
income
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$
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20,154
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$
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18,511
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$
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15,043
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$
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55,247
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$
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39,454
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40.0 %
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Interest
expense
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6,447
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5,316
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980
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15,509
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2,471
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527.6 %
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Net interest
income
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13,707
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13,195
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14,063
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39,738
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36,983
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7.4 %
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Provision for credit
losses - loans
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866
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524
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-
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1,857
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-
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0.0 %
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Provision for credit
losses - unfunded commitments
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9
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8
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-
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79
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-
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0.0 %
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Noninterest
income
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4,013
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3,529
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3,663
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10,766
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11,639
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-7.5 %
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Noninterest
expense
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12,198
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12,648
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12,200
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36,864
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35,496
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3.9 %
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Income before income
taxes
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4,647
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3,544
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5,526
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11,704
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13,126
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-10.8 %
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Income taxes
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788
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568
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895
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1,577
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1,905
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-17.2 %
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Net income
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$
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3,859
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$
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2,976
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$
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4,631
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$
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10,127
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$
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11,221
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-9.7 %
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Diluted earnings per
share
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$
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0.88
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$
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0.68
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$
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1.05
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$
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2.31
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$
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2.52
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-8.3 %
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Regular cash dividends
declared
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$
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0.32
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$
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0.32
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$
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0.32
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$
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0.96
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$
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0.96
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0.0 %
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Balance Sheet Highlights (as of
)
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9/30/2023
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6/30/2023
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9/30/2022
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Total assets
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$
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1,827,910
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$
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1,736,165
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$
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1,847,162
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Investment and equity
securities
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458,662
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439,851
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492,467
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Loans, net
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1,191,322
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1,130,547
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1,033,518
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Deposits
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1,567,414
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1,513,135
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1,704,983
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Shareholders'
equity
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114,769
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119,770
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108,151
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Assets Under Management (fair
value)
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Investment and Trust
Services
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963,805
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977,461
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810,954
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Held at third party
brokers
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126,394
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127,807
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104,127
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As of or for the
Three Months Ended
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As of or for the Nine
Months Ended
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Performance Ratios
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9/30/2023
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6/30/2023
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9/30/2022
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9/30/2023
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9/30/2022
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Return on average
assets*
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0.86 %
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0.70 %
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1.00 %
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0.78 %
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0.83 %
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Return on average
equity*
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12.72 %
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9.82 %
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14.86 %
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11.25 %
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11.12 %
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Dividend payout
ratio
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36.07 %
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47.08 %
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30.36 %
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41.45 %
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37.91 %
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Net interest
margin*
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3.29 %
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3.30 %
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3.28 %
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3.33 %
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2.96 %
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Net loans (charged-off)
recovered/average loans*
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0.01 %
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0.00 %
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-0.01 %
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0.00 %
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-0.01 %
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Nonperforming loans /
gross loans
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0.02 %
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0.02 %
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0.53 %
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Nonperforming assets /
total assets
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0.01 %
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0.01 %
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0.30 %
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Allowance for credit
losses / loans
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1.29 %
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1.28 %
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1.43 %
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Book value, per
share
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$
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26.31
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$
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27.53
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$
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24.60
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Tangible book value
(1)
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$
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24.24
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$
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25.46
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$
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22.55
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Market value, per
share
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$
|
28.50
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$
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27.74
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$
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31.56
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Market value/book value
ratio
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108.32 %
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100.76 %
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128.29 %
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Market value/tangible
book value ratio
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117.55 %
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108.95 %
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139.95 %
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Price/earnings
multiple*
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8.10
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10.20
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7.51
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9.25
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9.39
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Current quarter
dividend yield*
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4.49 %
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4.61 %
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4.06 %
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*Annualized
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(1) NonGAAP measurement. See GAAP versus
NonGAAP disclosure
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GAAP versus non-GAAP Presentations – The Corporation
supplements its traditional GAAP measurements with certain non-GAAP
measurements to evaluate its performance and to eliminate the
effect of intangible assets. By eliminating intangible assets
(Goodwill), the Corporation believes it presents a measurement that
is comparable to companies that have no intangible assets or to
companies that have eliminated intangible assets in similar
calculations. However, not all companies may use the same
calculation method for each measurement. The non-GAAP measurements
are not intended to be used as a substitute for the related GAAP
measurements. Non-GAAP financial measures should be viewed in
addition to, and not as an alternative for, our reported results
prepared in accordance with GAAP. In the event of such a
disclosure or release, the Securities and Exchange Commission's
Regulation G requires: (i) the presentation of the most directly
comparable financial measure calculated and presented in accordance
with GAAP and (ii) a reconciliation of the differences between the
non-GAAP financial measure presented and the most directly
comparable financial measure calculated and presented in accordance
with GAAP. The following table shows the calculation of the
non-GAAP measurements.
NonGAAP
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(Dollars in
thousands, except per share)
|
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As of
|
|
As of
|
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As of
|
|
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September 30,
2023
|
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June 30,
2023
|
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September 30,
2022
|
Tangible Book
Value (per share) (non-GAAP)
|
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Shareholders'
equity
|
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$
|
114,769
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$
|
119,770
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$
|
108,151
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Less intangible
assets
|
|
|
(9,016)
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|
(9,016)
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|
|
(9,016)
|
Tangible book value
(non-GAAP)
|
|
|
105,753
|
|
|
110,754
|
|
|
99,135
|
|
|
|
|
|
|
|
|
|
|
Shares outstanding (in
thousands)
|
|
|
4,362
|
|
|
4,350
|
|
|
4,396
|
|
|
|
|
|
|
|
|
|
|
Tangible book
value per share (non-GAAP)
|
|
$
|
24.24
|
|
$
|
25.46
|
|
$
|
22.55
|
|
|
|
|
|
|
|
|
|
|
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multimedia:https://www.prnewswire.com/news-releases/franklin-financial-reports-2023-q3-and-year-to-date-results-declares-dividend-301966085.html
SOURCE Franklin Financial Services Corporation