Franklin Financial Network Inc. - FORM 8-K - EX-99.1

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8-K - 8-K - Franklin Financial Network Inc.	d913263d8k.htm

Exhibit 99.1

LOGO

722 Columbia Avenue

Franklin, Tennessee 37064

For Immediate Release

Contact: Aimee Punessen, (615) 236-8329

aimee.punessen@franklinsynergy.com

Franklin Financial Network Reports Record Earnings and Continued Growth in First Quarter 2015

Completes Initial Public Offering and reports 93.7% loan growth over first quarter 2014

Franklin, Tenn., April 22, 2015 – 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 first quarter of 2015, a 104.8% increase compared to $1.5 million for the first quarter of 2014. The increase in net income was attributed to both the acquisition of MidSouth Bank (“MidSouth”) that was completed effective July 1, 2014 and to organic growth experienced during the past year.

Basic earnings per common share for the quarter ending March 31, 2015 totaled $0.39, a 25.8% increase compared to $0.31 for the same period in 2014. On a fully diluted basis, earnings per share were $0.37 for the quarter ended March 31, 2015, compared to fully diluted earnings per share of $0.30 for the quarter ended March 31, 2014, an increase of 23.3%.

“We have an ambitious growth plan that we continue to execute successfully,” noted Richard Herrington, Franklin Financial Network President and CEO. “Our first quarter results were fueled by continued strong loan growth, exceeding our expectations. The Bank’s twenty-fifth profitable quarter continues a trend that rewards our shareholders through increased earnings per share and enhanced profitability.”

First Quarter 2015 Highlights of Franklin Financial Network, Inc. (“FFN”)

Completion of Initial Public Offering

•

On Thursday, March 26, 2015, FFN completed its initial public offering on the New York Stock Exchange (“NYSE”), selling 2.64 million shares of its common stock at an initial offering price of $21.00 per share and raising over $55 million in capital. Herrington noted, “Our stock is now listed on the New York Stock Exchange under the symbol “FSB”. Worldwide, there are only 90 banks listed on the NYSE, and Franklin Synergy Bank is one of them.”

Balance Sheet Growth and Soundness

•

Loans, including loans held for sale, at March 31, 2015 totaled $897.0 million, an increase of $433.9 million from March 31, 2014, a year-over-year growth rate of 93.7%. The MidSouth acquisition added $191.4 million in loans when the transaction closed on July 1, 2014. Loan growth, including loans held for sale, during the first quarter was $91.4 million, or 11.3%, compared to $60.7 million in the fourth

quarter of 2014. Loans at December 31, 2014, including loans held for sale, totaled $805.7 million. The majority of the loan growth was in three categories: construction loans, commercial real estate loans, and commercial and industrial loans.

•

Deposits grew to $1.3 billion at March 31, 2015 versus $739.6 million at March 31, 2014, a growth rate of 71.9%. The MidSouth acquisition added $244.4 million in deposits when the transaction closed on July 1, 2014. Deposits grew $99.4 million, or 8.5%, during the first quarter of 2015 when compared with deposits of $1.2 billion at December 31, 2014.

•

At March 31, 2015, assets totaled $1.5 billion, compared to $866.7 million at March 31, 2014, an annual growth rate of 74.2%. The MidSouth acquisition added $293.8 million in assets when the transaction closed on July 1, 2014. Assets grew $153.6 million, or 11.3%, during the first quarter of 2015 when compared with assets of $1.4 billion at December 31, 2014.

•

Non-performing assets decreased $226 thousand, or 12.1%, to $1.6 million from the December 31, 2014 total of $1.9 million due to sales of two foreclosed properties during the first quarter of 2015. Non-performing assets as a percent of total assets were 0.1% at March 31, 2015 and at December 31, 2014. When compared with March 31, 2014, non-performing assets decreased approximately $961 thousand, or 36.9%. As a percent of total assets, non-performing assets were 0.3 % at March 31, 2014.

Profitability

•

Net Interest income increased to $12.1 million for the quarter ended March 31, 2015, up from $7.1 million for the same period in 2014, a 71.3% increase. Earning asset growth and improved interest margins related to purchase accounting adjustments combined with the Company’s decreased cost of funds related to deposits drove the increase in net interest income. The net interest margin for the quarter ended March 31, 2015 increased to 3.65%, compared to 3.55% for the quarter ended March 31, 2014.

•

The net interest margin for the quarter ended March 31, 2015 decreased to 3.65%, from 3.97% for the quarter ended December 31, 2014. The net interest margin decrease in first quarter 2015 from fourth quarter 2014 reflects the effects of the seasonality of county deposits, purchase accounting adjustments, and competition.

•

Noninterest income for the quarter ended March 31, 2015, was $3.2 million, compared to $1.4 million for the quarter ended March 31, 2014, representing a 126.2% increase. Noninterest income for the first quarter increased 9.9% from fourth quarter of 2014 noninterest income of $2.9 million. The substantial increase in noninterest income was attributed to significant increase in the gain from sales of mortgage loans during first quarter 2015. Increased loan volume and improved margins on the loans sold accounted for $863 thousand of the increase in non-interest income when compared with first quarter 2014. When comparing first quarter 2015 with first quarter 2014, the Company also experienced increases in gains from the sales of securities of $407 thousand, in other services charges and fees of $382 thousand.

•

Noninterest expense for the quarter ended March 31, 2015 was $9.6 million, a 75.2% increase over the first quarter 2014 noninterest expense of $5.5 million. When comparing first quarter 2015 with first quarter 2014, the following represent the largest increases in noninterest expense:

•

Salaries and employee benefits increased $2.1 million primarily due to the personnel added during the acquisition of MidSouth Bank in July 2014 and due to the commissions paid on the increased mortgage origination volume in the first quarter of 2015.

•

Occupancy and equipment expense increased $793 thousand related to: (1) the Rutherford County offices added during the MidSouth acquisition; (2) the expansion of the Company’s Williamson County headquarters; and (3) the relocation of two Williamson County office locations during the second half of 2014.

•

Other noninterest expense increased $991 thousand primarily due to the following: (1) electronic banking expenses increased $176 thousand in first quarter 2015 due to the increased usage of electronic banking services by the Company’s customers, much of which was due to the composition of the customer base from the MidSouth acquisition, which was more consumer-based and increased the volume of debit card transactions, internet banking transactions, and other types of automated transactions; (2) amortization of the core deposit intangible that resulted from the acquisition of MidSouth increased noninterest expense by $172 thousand; and (3) other noninterest expense increased $643 thousand due to a variety of expense items that include, but are not limited to, deposit expenses, franchise taxes, mortgage lending expenses, meals and travel, communications expenses, etc.

Noninterest expense for the first quarter of 2015 was $242 thousand, or 2.5%, less than the fourth quarter 2014 noninterest expense of $9.9 million.

•

Provision for loan and lease losses for the quarter ended March 31, 2015 was $625 thousand versus $385 thousand for the quarter ended March 31, 2014, and $885 thousand for the fourth quarter of 2014. Significant loan growth drove the increase in provision for loan and lease losses from first quarter 2014 to first quarter 2015.

“We remain excited about our performance and about the Bank’s achievements,” Herrington said. “The key to our success has been adding the top bankers in our markets to our team. That single factor offers us the best opportunity to find continued growth opportunities in our markets.”

Founded in November 2007, Franklin Synergy Bank currently has six offices in Williamson County and five offices in Rutherford County. The bank provides deposit and loan products, treasury management, wealth management, trust and financial planning services for consumers and businesses. Franklin Synergy earned its first profit in 2009, after just five quarters of operation. The bank’s assets and deposits both surpassed $1 billion in July 2014, just after the completion of the acquisition of Rutherford County’s MidSouth Bank.

Recent FDIC deposit share of market data shows that Franklin Synergy Bank has grown to be the largest bank doing business in Williamson County. The bank is also the top deposit market share bank in Franklin, Tennessee.

Additional information about Franklin Synergy Bank is available at the bank’s website: www.franklinsynergybank.com.

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, market acceptance and the proposed merger with MidSouth Bank. 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 can not 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.

###

Franklin Financial Network, Inc.

FRANKLIN FINANCIAL NETWORK

CONSOLIDATED BALANCE SHEETS

(Unaudited)


(Amounts in thousands, except share data)	March 31, 2015			December 31, 2014
	*(Unaudited)*
ASSETS
Cash and due from financial institutions	$	48,580		$	49,347
Certificates of deposit at other financial institutions		250			250
Securities available for sale		456,520			395,705
Securities held to maturity (fair value 2015—$51,461 and 2014—$53,741)		50,650			53,332
Loans held for sale, at fair value		22,462			18,462
Loans		874,539			787,188
Allowance for loan losses		(7,308	)		(6,680	)

Net loans		867,231			780,508

Restricted equity securities, at cost		5,731			5,349
Premises and equipment, net		9,731			9,664
Accrued interest receivable		3,984			3,545
Bank owned life insurance		21,776			11,664
Deferred tax asset		5,675			6,780
Buildings held for sale		—			4,080
Foreclosed assets		453			715
Servicing rights, net		3,113			3,053
Goodwill		9,124			9,124
Core deposit intangible, net		2,526			2,698
Other assets		1,624			1,551

Total assets	$	1,509,430		$	1,355,827

LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits
Non-interest bearing	$	156,062		$	150,337
Interest bearing		1,115,540			1,021,896

Total deposits		1,271,602			1,172,233
Federal funds purchased and repurchase agreements		35,718			39,078
Federal Home Loan Bank advances		19,000			19,000
Accrued interest payable		552			421
Other liabilities		4,017			3,296

Total liabilities		1,330,889			1,234,028
Shareholders’ equity
Senior non-cumulative preferred stock, no par value, $10,000 liquidation value: Series A, 1,000,000 shares authorized; 10,000 shares issued and outstanding at March 31, 2015 and December 31, 2014, respectively		10,000			10,000
Common stock, no par value; 20,000,000 and 10,000,000 shares authorized; 10,465,930 and 7,756,411 issued at March 31, 2015 and December 31, 2014, respectively		146,330			94,251
Retained earnings		18,479			15,372
Accumulated other comprehensive income		3,732			2,176

Total shareholders’ equity		178,541			121,799

Total liabilities and shareholders’ equity	$	1,509,430		$	1,355,827

FRANKLIN FINANCIAL NETWORK, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)


(Amounts in thousands, except per share data)	Three Months Ended March 31,
	2015			2014
Interest income and dividends
Loans, including fees	$	11,154		$	5,918
Securities:
Taxable		2,665			2,303
Tax-Exempt		20			20
Dividends on restricted equity securities		67			40
Federal funds sold and other		20			18

Total interest income		13,926			8,299

Interest expense
Deposits		1,633			1,148
Federal funds purchased and repurchase agreements		71			27
Federal Home Loan Bank advances		65			29

Total interest expense		1,769			1,204

Net interest income		12,157			7,095
Provision for loan losses		625			385

Net interest income after provision for loan losses		11,532			6,710

Noninterest income
Service charges on deposit accounts		16			12
Other service charges and fees		618			236
Net gains on sale of loans		1,647			784
Loan servicing fees, net		43			12
Gain on sale of securities		415			8
Net gain on sale and write-down of foreclosed assets		6			33
Other		470			336

Total noninterest income		3,215			1,421

Noninterest expense
Salaries and employee benefits		5,681			3,545
Occupancy and equipment		1,579			786
FDIC assessment expense		214			119
Marketing		220			111
Professional fees		359			354
Other		1,568			577

Total noninterest expense		9,621			5,492

Income before income tax expense		5,126			2,639
Income tax expense		1,994			1,110

Net income		3,132			1,529
Dividends paid on Series A preferred stock		(25	)		(25	)

Net income available to common shareholders	$	3,107		$	1,504

Earnings per share:
Basic	$	0.39		$	0.31
Diluted		0.37			0.30

FRANKLIN FINANCIAL NETWORK, INC.

AVERAGE BALANCES⁽⁷⁾ — ANALYSIS OF YIELDS & RATES (UNAUDITED)

(Amounts in thousands, except percentages)


	Three Months Ended March 31,
	2015								2014
	Average Balance			Interest Inc / Exp		Average Yield / Rate			Average Balance			Interest Inc / Exp		Average Yield / Rate
ASSETS:
Loans⁽¹⁾⁽⁶⁾	$	845,437		$	11,154		5.35	%	$	445,583		$	5,918		5.39	%
Securities available for sale⁽⁶⁾		408,189			2,321		2.31	%		275,569			1,928		2.84	%
Securities held to maturity		52,513			364		2.81	%		58,344			395		2.75	%
Certificates of deposit at other financial institutions		250			1		1.62	%		—			—		0.00	%
Federal funds sold and other⁽²⁾		44,962			86		0.78	%		30,058			58		0.78	%

TOTAL INTEREST EARNING ASSETS	$	1,351,351		$	13,926		4.18	%	$	809,554		$	8,299		4.16	%
Allowance for loan losses		(7,043	)							(5,062	)
All other assets		69,350								30,700

TOTAL ASSETS	$	1,413,658							$	835,192
LIABILITIES & SHAREHOLDERS’ EQUITY
Deposits:
Interest checking	$	301,147		$	174		0.23	%	$	210,039		$	166		0.32	%
Money market		394,082			585		0.60	%		237,938			442		0.75	%
Savings		30,615			35		0.46	%		19,741			25		0.51	%
Time deposits		340,509			839		1.00	%		203,921			515		1.02	%
Federal Home Loan Bank advances		23,133			65		1.14	%		20,167			29		0.58	%
Federal funds purchased and other⁽³⁾		42,871			71		0.67	%		13,172			27		0.83	%

TOTAL INTEREST BEARING LIABILITIES	$	1,132,357		$	1,769		0.63	%	$	704,978		$	1,204		0.69	%
Demand deposits		150,108								59,754
Other liabilities		5,895								2,532
Total shareholders’ equity		125,298								67,928

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	1,413,658							$	835,192
NET INTEREST SPREAD⁽⁴⁾							3.55	%							3.47	%
NET INTEREST INCOME				$	12,157							$	7,095
NET INTEREST MARGIN⁽⁵⁾							3.65	%							3.55	%

⁽¹⁾	Loan balances include both loans held in the Bank’s portfolio and mortgage loans held for sale and are net of deferred origination fees and costs. Non-accrual loans are included in total loan balances.

⁽²⁾	Includes federal funds sold, capital stock in the Federal Reserve Bank and Federal Home Loan Bank, and interest-bearing deposits at the Federal Reserve Bank and the Federal Home Loan Bank.

⁽³⁾	Includes repurchase agreements.

⁽⁴⁾	Represents the average rate earned on interest-earning assets minus the average rate paid on interest-bearing liabilities.

⁽⁵⁾	Represents net interest income (annualized) divided by total average earning assets.

⁽⁶⁾	Interest income and rates exclude the effects of a tax equivalent adjustment to adjust tax exempt investment income on tax exempt investment securities to a fully taxable basis due to immateriality.

⁽⁷⁾	Averages balances are average daily balances.

FRANKLIN FINANCIAL NETWORK, INC.

SUMMARY QUARTERLY CONSOLIDATED FINANCIAL DATA (UNAUDITED)

(Amounts in thousands, except per share data and percentages)


	As of and for the three months ended
	Mar 31, 2015		Dec 31, 2014		Sept 30, 2014		Jun 30, 2014			Mar 31, 2014

Income Statement Data ($):
Interest income		13,926		13,742		12,692		8,699			8,299
Interest expense		1,769		1,619		1,565		1,351			1,204
Net interest income		12,157		12,123		11,127		7,348			7,095
Provision for loan losses		625		885		664		440			385
Noninterest income		3,215		2,926		3,274		2,430			1,421
Noninterest expense		9,621		9,863		10,389		6,078			5,492
Net Income before taxes		5,126		4,301		3,348		3,260			2,639
Provision for taxes		1,994		1,466		1,333		1,225			1,110
Net income		3,132		2,835		2,015		2,035			1,529
Net income available to common shareholders		3,107		2,810		1,990		2,010			1,504
Earnings per share, basic		0.39		0.36		0.26		0.41			0.31
Earnings per share, diluted		0.37		0.34		0.25		0.40			0.30

Profitability (%)
Return on average assets		0.90		0.88		0.67		0.94			0.74
Return on average equity		10.14		9.40		7.02		11.47			9.13
Return on average tangible common equity		12.18		11.42		8.20		13.23			10.58
Efficiency ratio		62.59		65.54		72.14		62.16			64.49
Net Interest margin		3.65		3.97		3.86		3.48			3.55

Balance Sheet Data ($):
Loans (including HFS)		897,001		805,650		744,927		501,664			463,137
Loan loss reserve		7,308		6,680		5,883		5,771			5,304
Cash		48,580		49,347		36,657		26,054			30,870
Securities		507,170		449,037		403,043		322,607			351,850
Goodwill		9,124		9,124		9,121		157			157
Intangible assets		2,585		2,762		2,953		83			88
Assets		1,509,430		1,355,827		1,238,579		872,142			866,685
Deposits		1,271,602		1,172,233		1,051,558		747,324			739,634
Liabilities		1,330,889		1,234,028		1,122,125		797,943			797,858
Total equity		178,541		121,799		116,454		74,199			68,827
Common equity		168,541		111,799		106,454		64,199			58,827
Tangible Common equity		156,832		99,913		94,380		63,959			58,582

Asset Quality (%)
Nonperforming loans/ total loans		0.14		0.15		0.47		0.34			0.58
Nonperforming assets / total loans + OREO		0.19		0.24		0.70		0.58			0.58
Loan loss reserve / loans (excluding HFS)		0.84		0.85		0.82		1.19			1.17
Net charge-offs / average loans		0.00		0.04		0.30		(0.02	)		(0.02	)

Capital (%)
Tangible common equity to tangible assets		10.47		7.43		7.70		7.34			6.76
Leverage ratio⁽¹⁾		11.47		8.57		8.83		8.39			8.48
Tier 1 common ratio⁽¹⁾		13.97		10.51		11.17		11.10			11.38
Tier 1 risk-based capital ratio⁽¹⁾		14.90		11.58		12.35		12.86			13.24
Total risk-based capital ratio⁽¹⁾		15.58		12.30		13.05		13.88			14.23

⁽¹⁾	Capital ratios for March 31, 2015 are estimates, since the Company’s quarterly regulatory reports have not yet been filed.

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;

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:


	As of or for the Three Months Ended
(Amounts in thousands, except share/ per share data and percentages)	Mar 31, 2015			Dec 31, 2014			Sept 30, 2014			Jun 30, 2014			Mar 31, 2014
Total shareholders’ equity	$	178,541		$	121,799		$	116,454		$	74,199		$	68,827
Less: Preferred stock		10,000			10,000			10,000			10,000			10,000

Total common shareholders’ equity		168,541			111,799			106,454			64,199			58,827
Less: Goodwill and other intangibles		11,709			11,886			12,074			240			245

Tangible common shareholders’ equity	$	156,832		$	99,913		$	94,380		$	63,959		$	58,582
Common shares outstanding		10,465,930			7,756,411			7,739,644			4,915,907			4,862,778

Tangible book value per share	$	14.99		$	12.88		$	12.19		$	13.01		$	12.05


Net income available to common shareholders	$	3,107		$	2,810		$	1,990		$	2,010		$	1,504
Average tangible common equity		103,475			97,630			96,310			60,915			57,679

Return on average tangible common equity		12.18	%		11.42	%		8.20	%		13.23	%		10.58	%


Efficiency Ratio:
Net interest income	$	12,157		$	12,123		$	11,127		$	7,348		$	7,095
Noninterest income		3,215			2,926			3,274			2,430			1,421

Operating revenue		15,372			15,049			14,401			9,778			8,516
Expense
Total noninterest expense		9,621			9,863			10,389			6,078			5,492

Efficiency ratio		62.59	%		65.54	%		72.14	%		62.16	%		64.49	%

Franklin Financial Network Inc. - FORM 8-K - EX-99.1 - April 22, 2015

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Franklin Financial Network Inc. Reports