Franklin Financial Network Reports Earnings Per Diluted Share Of $0.65 On Record Net Income For The Third Quarter Of 2017

FRANKLIN, Tenn., Oct. 25, 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 third quarter and nine months ended September 30, 2017.  For the third quarter, net income available for common shareholders increased 24.5% to a record $8.9 million compared with $7.1 million for the third quarter of 2016. Earnings per diluted share were $0.65 for the third quarter of 2017, up 3.2% compared with $0.63 for the third quarter of 2016.  Weighted average diluted shares outstanding increased 20.7% for the third quarter of 2017 from the third quarter of 2016, primarily due to the Company's $72 million public offering of common stock in November 2016.

Highlights for the third quarter of 2017 include:

• Return on average assets was 1.03% compared with 1.07% for the third quarter of 2016 and 1.03% for the second quarter of 2017, and return on average tangible common equity was 12.26% compared with 14.55% for the third quarter of 2016 and 12.92% for the second quarter of 2017.
• Net interest income increased 17.7% to $24.3 million from $20.7 million for the third quarter of 2016 and decreased 0.6% from $24.5 million for the second quarter of 2017.
• The efficiency ratio was 54.77% compared with 53.65% and 53.91% for the third quarter of 2016 and second quarter of 2017.
• Total loans, including loans held for sale, increased 26.6%, or $446.9 million, to $2.13 billion at the quarter's end from $1.68 billion at September 30, 2016, and 5.1% from $2.02 billion at the end of the second quarter of 2017.
• Credit quality remained strong, with nonperforming loans at 0.14% of total loans, excluding loans held for sale; the allowance for loan losses at 0.94% of total loans, excluding loans held for sale; and net recoveries of 0.13% of average loans.
• Tangible book value per share increased 20.1% to $22.20 at September 30, 2017, from $18.49 at September 30, 2016, and increased 3.5% from $21.44 at June 30, 2017

"For the third quarter of 2017, Franklin Financial Network again produced strong growth and significant profitability, while maintaining sound operations," remarked Richard Herrington, the Company's Chairman and Chief Executive Officer. "The Company's soundness is evident in our credit quality, with nonperforming loans to total loans of 0.14%, net recoveries of 0.13% of average loans for the quarter and loan loss reserves totaling 0.94% of total loans. We continued to demonstrate substantial profitability with a return on average assets of 1.03%, a return on tangible common equity of 12.26% and an efficiency ratio of 54.77%. Our strong growth was reflected in a comparable-quarter increase of 26.6% in our total loans, 27.4% in total deposits and 24.5% for net income, which increased to a new quarterly record.

"Over the nearly 10 years since we were chartered in November 2007, we have earned the reputation of being a high growth community bank dedicated to our customers and our market. In addition, our culture, proven business model executed by a team of highly experienced local bankers, and fierce attention to asset quality have all combined to consistently deliver top tier performance in our three strategic goals of soundness, growth and profitability. This quarter marked another milestone as total assets topped $3.5 billion. The third quarter also included what we expect is a temporary pause in the growth of net interest income as funding costs outpaced the expansion of asset yields due in part to continued low rates and a flattening yield curve.

"We are optimistic about our ongoing potential for achieving these goals for soundness, growth and profitability, and we expect the next chapter in our history will also be marked by solid loan growth relative to the industry and expansion of lower cost deposit sources.  We continue to operate in a core middle Tennessee market that is one of the most attractive in the country.  We have substantially completed significant investments in people, systems and technology infrastructure since early 2016. These enhancements to our infrastructure and talent provide the platform to continue to increase operating efficiencies, while producing long-term gains in market share and, most importantly, shareholder value."

Strong Asset Quality

• At September 30, 2017, nonperforming loans were 0.14% of total loans, excluding loans held for sale, compared with 0.10% and 0.19% at September 30, 2016, and June 30, 2017.
• The allowance for loan losses at September 30, 2017, was 0.94% of total loans, excluding loans held for sale, compared with 0.94% and 0.93% at September 30, 2016, and June 30, 2017.
• There were net recoveries of 0.13% of average loans for the third quarter of 2017 compared with net charge offs of 0.01% of average loans for the third quarter of 2016 and nominal net recoveries for the second quarter of 2017.

Attractive, Growing, Local Markets Support Expansion of Balance Sheet

• Total assets increased 31.9% to $3.57 billion at September 30, 2017, from $2.70 billion at September 30, 2016, and 3.5% from $3.44 billion at June 30, 2017.
• Total loans, including loans held for sale, increased 26.6%, or $446.9 million, to $2.13 billion at September 30, 2017, from $1.68 billion at September 30, 2016, primarily due to growth in real estate loans, with increases of $145.8 million in 1-4 family real estate loans, $168.4 million in commercial real estate loans and $45.4 million in construction loans, as well as an increase of $92.0 million in business loans.
• The mix of total loans, excluding loans held for sale, at the end of the third quarter changed slightly in comparison with the mix at the end of the prior quarter, with total real estate lending at 77.8% and business loans at 22.0% of total loans, compared with prior-quarter total real estate lending at 78.8% and business loans at 21.1%.
• Deposits were $2.82 billion at September 30, 2017, up 27.4% from $2.22 billion at September 30, 2016, and 2.6% from $2.75 billion at June 30, 2017. Non-interest bearing deposits increased 10.8% and 0.7% compared with the third quarter of 2016 and second quarter of 2017, and interest bearing deposits increased 29.3% and 2.7% when comparing the same periods.

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

• For the third quarter of 2017, net interest income increased 17.7% to $24.3 million from $20.7 million for the third quarter of 2016. The growth in net interest income resulted from strong growth in interest earning assets and an increase in loan yield. Interest expense also increased for the third quarter of 2017, due to the growth and change in mix of funding sources.  The 0.6% decrease in net interest income on a sequential-quarter basis reflected slight sequential declines in total interest earning assets and interest bearing liabilities for the third quarter and higher sequential growth in average rates paid than average yields earned.
• The average yield on total interest earning assets was 4.17% for the third quarter of 2017, an increase of five basis points from 4.12% for the third quarter of 2016, driven by changes in the mix of loans and competitive pressures. Average yield increased eight basis points from 4.09% for the second quarter of 2017.
• The average rate on total interest bearing liabilities was 1.31% for the third quarter of 2017, up 40 basis points from 0.91% for the third quarter of 2016. On a sequential-quarter basis, the increase was 13 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 3.05% for the third quarter of 2017, compared with 3.34% for the third quarter of 2016 and 3.08% for the second quarter of 2017.
• Noninterest income for the third quarter of 2017 was $3.6 million, a decrease of 26.8% from $4.9 million for the third quarter of 2016 and 8.0% from $3.9 million for the second quarter of 2017. The declines primarily reflected a decrease in net gains on sale of loans of 48.4%, or $1.4 million, from the third quarter of 2016 and 26.6%, or $0.6 million, from the second quarter of 2017, which are related to a reduction in the value of held-for-sale mortgages due to increasing mortgage interest rates.
• Noninterest expense increased 11.5% to $15.3 million for the third quarter of 2017 from $13.7 million for the third quarter of 2016, primarily due to a 12.9% increase in salaries and employee benefits, as well as a 19.9% increase in occupancy and equipment, both related to the Company's ongoing investment in people, systems and infrastructure to support growth. The Company's FDIC assessment expense increased 57.9% due to growth in total assets, partially offset by lower marketing, professional and other expenses. Sequentially, noninterest expense was essentially flat for the third quarter of 2017 compared with the second quarter. The Company's efficiency ratio was 54.77% for the third quarter of 2017, compared with 53.65% for the third quarter of 2016 and 53.91% for the second quarter of 2017.
• The Company's effective income tax rate was 26.1% for the third quarter of 2017 compared with 31.7% for the third quarter of 2016 and 29.0% for the second quarter of 2017. 

Webcast and Conference Call Information

The Company will host a webcast and conference call at 8:00 a.m. (CT) on Thursday, October 26, 2017, to discuss operating and financial results for the third 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 $3.57 billion at September 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.

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:

Investor Relations Contact:
Sarah Meyerrose
EVP, Chief Financial Officer
(615) 236-8344
sarah.meyerrose@franklinsynergy.com

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SOURCE Franklin Financial Network, Inc.