UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)
August 5, 2014
FRANKLIN FINANCIAL CORPORATION
(Exact name of registrant as specified in
its charter)
Virginia |
1-35085 |
27-4132729 |
(State or other jurisdiction of |
(Commission |
(IRS Employer |
Incorporation) |
File Number) |
Identification No.) |
4501 Cox Road, Glen Allen, Virginia
23060
(Address of principal executive offices)
(Zip Code)
(804) 967-7000
(Registrant’s telephone number, including
area code)
Not Applicable
(Former name or former address, if changed
since last report)
Check the appropriate box below if the Form 8-K filing is intended
to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ¨ | Written communications pursuant to Rule 425 under the
Securities Act (17 CFR 230.425) |
| ¨ | Soliciting material pursuant to Rule 14a-12 under the
Exchange Act (17 CFR 240.14a-12) |
| ¨ | Pre-commencement communications pursuant to Rule 14d-2(b)
under the Exchange Act (17 CFR 240.14d-2(b)) |
| ¨ | Pre-commencement communications pursuant to Rule 13e-4(c)
under the Exchange Act (17 CFR 240.13e-4(c)) |
| Item 2.02 | Results of Operations and Financial Condition |
On
August 5, 2014, Franklin Financial Corporation (the “Company”) issued a press release announcing its financial
results for the three and nine months ended June 30, 2014. A copy of the Company’s press release, dated
August 5, 2014, is attached to this report as Exhibit 99.1 and is furnished herewith.
| Item9.01 | Financial Statements and Other Exhibits |
|
Number |
Description |
|
|
|
99.1 |
Press Release dated August 5, 2014 |
SIGNATURE
Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
FRANKLIN FINANCIAL CORPORATION |
|
|
|
|
|
|
Date: August 6, 2014 |
By: |
/s/ Richard T. Wheeler, Jr. |
|
|
Richard T. Wheeler, Jr. |
|
|
Chairman, President and Chief Executive Officer |
Franklin Financial Corporation Reports Third Quarter 2014
Financial Results
Richmond, Va., August 5, 2014 – Franklin Financial Corporation
(NASDAQ: FRNK) (“the Company”), the parent company of Franklin Federal Savings Bank, announced net income for the three
months ended June 30, 2014 of $2.7 million, or $0.24 per diluted share, compared to $1.7 million, or $0.14 per diluted share, for
the three months ended June 30, 2013. Net income for the nine months ended June 30, 2014 was $9.7 million, or $0.85 per diluted
share, compared to $6.7 million, or $0.56 per diluted share, for the nine months ended June 30, 2013.
“We again achieved solid growth in tangible book value
per share and deposits during the latest quarter, and we reduced nonperforming assets by $2.4 million and regulatory criticized
assets by $3.4 million,” noted Richard T. Wheeler, Jr., Chairman, President, and Chief Executive Officer. “During the
quarter, three large loans totaling $13.2 million prepaid, generating $581,000 of prepayment fees, but causing loans, net interest
income, and net interest margin to decrease compared to the March 31, 2014 quarter.”
Third Quarter Highlights
| · | Tangible book value increased $0.40 per share in the
three months ended June 30, 2014 to $20.77 per share. |
| · | Deposits increased $13.9 million, or 2.1%, during
the three months ended June 30, 2014 to $684.5 million. |
| · | Nonperforming assets decreased $2.4 million in the
three months ended June 30, 2014 to $52.4 million due primarily to sales of other real estate owned. |
| · | Noninterest income for the three months ended June
30, 2014 increased $1.2 million from the comparable prior year quarter due to increased gains on sales of securities, increased
gains on sales of other real estate owned, and increased prepayment fees received during the current quarter. |
| · | Net loans decreased $10.7 million, or 2.0%, during
the three months ended June 30, 2014 to $533.3 million primarily due to the prepayment of several large loans during the quarter. |
| · | Net interest income for the three months ended June
30, 2014 decreased $268,000 from the prior quarter and increased $449,000 from the comparable prior year quarter. |
| · | Net interest margin for the three months ended June
30, 2014 decreased 15 basis points to 2.71% from the prior quarter and increased 13 basis points from the comparable prior year
quarter. |
| · | The Company repurchased 158,948 shares of its common
stock for $3.2 million ($20.01 per share on average) under its previously announced stock repurchase program. |
Net Interest Income
Net interest income for the three months ended June 30, 2014
decreased $268,000, or 3.8%, to $6.7 million compared to $7.0 million for the prior quarter and increased $449,000, or 7.2%, compared
to $6.3 million for the three months ended June 30, 2013. Our net interest margin for the three months ended June 30, 2014 decreased
15 basis points from the prior quarter and increased 13 basis points from the same quarter in the prior year to 2.71%. Interest
income on loans increased $496,000 from the comparable prior year quarter due to a $56.4 million increase in the average balance
of loans, partially offset by a 27 basis point decline in yield as a result of lower interest rates for new loans due in part to
increased competition for quality loans. Interest income on securities increased $28,000 from the comparable prior year quarter
due to a $2.2 million increase in the average balance of securities as well as a 1 basis point increase in yield. Deposit costs
increased $146,000 from the comparable prior year quarter due to a $46.6 million increase in the average balance of interest-bearing
deposits as well as a 2 basis point increase in cost. FHLB borrowing costs declined $67,000 from the comparable prior year quarter
due to a 19 basis point decline in cost as a result of a prepayment made during the fourth quarter of fiscal 2013, partially offset
by a new advance obtained on March 14, 2014. This decline in cost was partially offset by a $1.3 million increase in the average
balance of FHLB borrowings.
Net interest income for the nine months ended June 30, 2014
increased $1.6 million, or 8.0%, to $20.6 million compared to $19.0 million for the nine months ended June 30, 2013. Our net interest
margin for the nine months ended June 30, 2014 increased 16 basis points from the same period in the prior year to 2.76%. Interest
income on loans increased $1.7 million due to a $72.8 million increase in the average balance of loans, partially offset by a 41
basis point decline in yield as a result of lower interest rates for new loans due in part to increased competition for quality
loans. Interest income on securities declined $316,000 due to a $12.1 million decrease in the average balance of securities as
well as a 3 basis point decline in yield. Deposit costs increased $133,000 due to a $32.4 million increase in the average balance
of interest-bearing deposits, partially offset by a 2 basis point decline in cost. FHLB borrowing costs declined $274,000 due to
a $4.7 million decrease in the average balance of FHLB borrowings as well as a 9 basis point decline in cost due to a prepayment
made during the fourth quarter of fiscal 2013, slightly offset by a new advance obtained on March 14, 2014.
Noninterest Income, Excluding Impairment Charges and Gains
and Losses on Sales of Securities
Noninterest income, excluding impairment charges and gains and
losses on sales of securities, increased $898,000, or 124.2%, for the three months ended June 30, 2014. The increase was due to
a $637,000 increase in other service charges and fees due to a $528,000 increase in prepayment fees received in connection with
the prepayment of loans as well as an increase in net gains on sales of other real estate owned of $239,000.
Noninterest income, excluding impairment charges and gains and
losses on sales of securities, decreased $567,000, or 15.1%, for the nine months ended June 30, 2014. The decrease was primarily
due to net gains on sales of other real estate owned, which decreased $1.2 million. This decrease was partially offset by an increase
in other service charges and fees of $593,000 primarily due to a $468,000 increase in prepayment fees received in connection with
the prepayment of loans.
Impairment Charges and Gains and Losses on Sales of Securities
The Company recorded other-than-temporary impairment (“OTTI”)
charges in earnings of zero and $575,000 for the three and nine months ended June 30, 2014, respectively, compared to charges of
$138,000 and $333,000 for the three and nine months ended June 30, 2013, respectively. OTTI charges for the nine months ended June
30, 2014 related entirely to the Company’s portfolio of non-agency CMOs, which were sold in January 2014.
Sales of securities resulted in net gains of $331,000 and $5.0
million for the three and nine months ended June 30, 2014, respectively, compared to $205,000 and $1.6 million for the three and
nine months ended June 30, 2013, respectively. Securities sold during the three and nine months ended June 30, 2014 included equity
securities of local community bank holding companies as well as the Company’s portfolio of non-agency CMOs. Gains on sales
of securities also included a $323,000 gain on a corporate bond called during the nine months ended June 30, 2014.
Other Noninterest Expenses
Other noninterest expenses increased $257,000, or 5.6%, to $4.9
million for the three months ended June 30, 2014 compared to $4.6 million for the three months ended June 30, 2013. Other noninterest
expenses increased $478,000, or 3.4%, to $14.4 million for the nine months ended June 30, 2014 compared to $13.9 million for the
nine months ended June 30, 2013. The increase for both the three- and nine-month periods was due to an increase in other operating
expenses, which increased $277,000 and $541,000 for the three- and nine-month periods, respectively, due to increased foreclosure
expenses and increased stock compensation expense as a result of an accelerated vesting of stock options and restricted stock granted
to a director due to the death of the director in May 2014. The increase for the nine-month period was also due to increased legal
and technology costs.
Asset Quality
Nonperforming assets decreased $2.4 million in the three months
ended June 30, 2014 to $52.4 million. The decrease was primarily due to sales of other real estate owned. Nonperforming loans
totaled $27.7 million at June 30, 2014 compared to $28.9 million at March 31, 2014 and $49.1 million at September 30, 2013. Other
real estate owned totaled $24.6 million at June 30, 2014 compared to $25.9 million at March 31, 2014 and $6.7 million at September
30, 2013. Total nonperforming loans as a percentage of total loans at June 30, 2014 were 5.07% compared to 5.17% at March 31,
2014 and 9.37% at September 30, 2013.
The Company recorded a credit provision for loan losses of $55,000
for the three months ended June 30, 2014, compared to a provision of $171,000 for the three months ended June 30, 2013. The Company
recorded a provision for loan losses of $1.3 million for the nine months ended June 30, 2014, compared to $532,000 for the nine
months ended June 30, 2013. The allowance for loan losses as a percentage of total loans was 1.91% at June 30, 2014 compared to
1.92% at March 31, 2014 and 1.86% at September 30, 2013.
Stock Repurchase Program
During the three months ended June 30, 2014, the Company repurchased
158,948 shares of its common stock for $3.2 million, or an average price of $20.01 per share, under its previously announced fourth
stock repurchase program.
About Franklin Financial Corporation
Franklin Financial Corporation is the parent of Franklin Federal
Savings Bank, a federally chartered capital stock savings bank engaged in the business of attracting retail deposits from the general
public and originating non-owner-occupied one- to four-family loans as well as multi-family loans, nonresidential real estate loans,
construction loans, land and land development loans, and other loans. The Bank is headquartered in Glen Allen, Virginia and operates
eight branch offices. Franklin Financial Corporation trades under the symbol FRNK (NASDAQ).
Forward-Looking Statements
This report may contain forward-looking statements within
the meaning of the federal securities laws. These statements are not historical facts; rather they are statements based on our
current expectations regarding our business strategies and their intended results and our future performance. Forward-looking statements
are preceded by terms such as “expects,” “believes,” “anticipates,” “intends” and
similar expressions. Forward-looking statements are not guarantees of future performance. Numerous risks and uncertainties could
cause or contribute to our actual results, performance and achievements being materially different from those expressed or implied
by the forward-looking statements. These forward-looking statements are subject to significant risks and uncertainties. Actual
results may differ materially from those contemplated by the forward-looking statements due to, among others, the following factors:
| • | general economic conditions, either internationally,
nationally, or in our primary market area, that are worse than expected; |
| • | a decline in real estate values; |
| • | changes in the interest rate environment that reduce
our interest margins or reduce the fair value of financial instruments; |
| • | increased competitive pressures among financial
services companies; |
| • | changes in consumer spending, borrowing and savings
habits; |
| • | legislative, regulatory or supervisory changes
that adversely affect our business; |
| • | adverse changes in the securities markets; |
| • | changes in accounting policies and practices, as
may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board or the Public Company Accounting Oversight
Board; |
| • | the requisite stockholder or regulatory approval
of the previously disclosed proposed merger with TowneBank may not be received or other conditions to the completion of the proposed
merger might not be satisfied or waived; and |
| • | operations will continue to be impacted until the
proposed merger transaction is either consummated or terminated. |
Additional factors that may affect our results are discussed
in the Company’s Form 10-K for the year ended September 30, 2013 under the Item 1A titled “Risk Factors.” These
factors should be considered in evaluating the forward-looking statements and undue reliance should not be placed on such statements.
Except as required by applicable law or regulation, we assume no obligation and disclaim any obligation to update any forward-looking
statements.
Website: www.franklinfederal.com
Selected Financial Data
| |
For the Three Months
Ended June 30, | | |
For the Nine Months
Ended June 30, | |
(Dollars in thousands) | |
2014 | | |
2013 | | |
2014 | | |
2013 | |
Operating Data: | |
| | |
| | |
| | |
| |
Interest and dividend income | |
$ | 10,315 | | |
$ | 9,787 | | |
$ | 31,089 | | |
$ | 29,699 | |
Interest expense | |
| 3,584 | | |
| 3,505 | | |
| 10,530 | | |
| 10,671 | |
Net interest income | |
| 6,731 | | |
| 6,282 | | |
| 20,559 | | |
| 19,028 | |
(Credit) provision for loan losses | |
| (55 | ) | |
| 171 | | |
| 1,338 | | |
| 532 | |
Net interest income after (credit) provision for loan losses | |
| 6,786 | | |
| 6,111 | | |
| 19,221 | | |
| 18,496 | |
Noninterest income: | |
| | | |
| | | |
| | | |
| | |
Impairment of securities reflected in earnings | |
| - | | |
| (138 | ) | |
| (575 | ) | |
| (333 | ) |
Gains on sales of securities, net | |
| 331 | | |
| 205 | | |
| 4,976 | | |
| 1,618 | |
Gains on sales of other real estate owned | |
| 289 | | |
| 50 | | |
| 441 | | |
| 1,614 | |
Other noninterest income | |
| 1,331 | | |
| 672 | | |
| 2,740 | | |
| 2,134 | |
Total noninterest income | |
| 1,951 | | |
| 789 | | |
| 7,582 | | |
| 5,033 | |
Other noninterest expenses | |
| 4,855 | | |
| 4,598 | | |
| 14,382 | | |
| 13,904 | |
| |
| | | |
| | | |
| | | |
| | |
Income before provision for income taxes | |
| 3,882 | | |
| 2,302 | | |
| 12,421 | | |
| 9,625 | |
Provision for income taxes | |
| 1,165 | | |
| 640 | | |
| 2,716 | | |
| 2,939 | |
Net income | |
$ | 2,717 | | |
$ | 1,662 | | |
$ | 9,705 | | |
$ | 6,686 | |
Per Share Data | |
| | |
| | |
| | |
| |
| |
For the Three Months
Ended June 30, | | |
For the Nine Months
Ended June 30, | |
(Amounts in thousands, except per share data) | |
2014 | | |
2013 | | |
2014 | | |
2013 | |
Basic net income per share | |
$ | 0.25 | | |
$ | 0.14 | | |
$ | 0.88 | | |
$ | 0.56 | |
Diluted net income per share | |
$ | 0.24 | | |
$ | 0.14 | | |
$ | 0.85 | | |
$ | 0.56 | |
Tangible book value per share at end of period | |
$ | 20.77 | | |
$ | 19.12 | | |
$ | 20.77 | | |
$ | 19.12 | |
Shares outstanding at end of period | |
| 11,781 | | |
| 12,507 | | |
| 11,781 | | |
| 12,507 | |
Weighted-average shares outstanding | |
| | | |
| | | |
| | | |
| | |
Basic | |
| 10,871 | | |
| 11,499 | | |
| 11,052 | | |
| 11,850 | |
Diluted | |
| 11,191 | | |
| 11,709 | | |
| 11,376 | | |
| 12,011 | |
| |
| | | |
| | | |
| | | |
| | |
Quarterly Data
(Dollars in thousands) | |
June 30, 2014 | | |
March 31, 2014 | | |
September 30, 2013 | | |
June 30, 2013 | |
Financial Condition Data: | |
| | |
| | |
| | |
| |
Total assets | |
$ | 1,110,176 | | |
$ | 1,095,195 | | |
$ | 1,059,321 | | |
$ | 1,050,630 | |
Cash and cash equivalents | |
| 144,216 | | |
| 89,175 | | |
| 98,914 | | |
| 129,309 | |
Securities available for sale | |
| 228,632 | | |
| 253,289 | | |
| 304,998 | | |
| 331,521 | |
Securities held to maturity | |
| 111,445 | | |
| 114,963 | | |
| 70,249 | | |
| 16,061 | |
Loans, net | |
| 533,338 | | |
| 544,072 | | |
| 511,183 | | |
| 496,532 | |
Cash surrender value of bank-owned life insurance | |
| 35,109 | | |
| 34,792 | | |
| 34,296 | | |
| 33,970 | |
Deposits | |
| 684,508 | | |
| 670,620 | | |
| 646,838 | | |
| 629,634 | |
Federal Home Loan Bank borrowings | |
| 174,460 | | |
| 174,133 | | |
| 163,485 | | |
| 173,162 | |
Total stockholders’ equity | |
| 244,659 | | |
| 243,116 | | |
| 241,394 | | |
| 239,160 | |
Capital Ratios(1): | |
| | |
| | |
| | |
| |
Tier 1 capital to adjusted tangible assets | |
| 18.73 | % | |
| 18.68 | % | |
| 17.83 | % | |
| 17.68 | % |
Tier 1 risk-based capital to risk weighted assets | |
| 29.46 | | |
| 28.48 | | |
| 26.32 | | |
| 26.98 | |
Risk-based capital to risk weighted assets | |
| 30.72 | | |
| 29.74 | | |
| 27.57 | | |
| 28.23 | |
| (1) | Ratios are for Franklin Federal Savings Bank. |
| |
For the Three Months Ended | |
| |
June 30,
2014 | | |
March 31,
2014 | | |
September 30,
2013 | | |
June 30,
2013 | |
Performance Ratios: | |
| | |
| | |
| | |
| |
Return on average assets(2) | |
| 0.99 | % | |
| 1.65 | % | |
| 1.00 | % | |
| 0.63 | % |
Return on average equity(2) | |
| 4.47 | | |
| 7.31 | | |
| 4.39 | | |
| 2.77 | |
Interest rate spread(2)(3) | |
| 2.46 | | |
| 2.59 | | |
| 2.40 | | |
| 2.26 | |
Net interest margin(2)(4) | |
| 2.71 | | |
| 2.86 | | |
| 2.70 | | |
| 2.58 | |
Efficiency ratio(5) | |
| 60.21 | | |
| 62.93 | | |
| 60.66 | | |
| 64.36 | |
Average interest-earning assets to average interest-bearing liabilities | |
| 117.56 | | |
| 119.36 | | |
| 121.33 | | |
| 122.14 | |
Average equity to average assets | |
| 22.18 | | |
| 22.52 | | |
| 22.69 | | |
| 22.86 | |
| (3) | Represents the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing
liabilities. |
| (4) | Represents net interest income as a percent of average interest-earning assets. |
| (5) | A non-GAAP measure calculated by dividing other noninterest expenses, net of impairment charges on OREO and net losses on the
sale of fixed assets and foreclosed assets, by the sum of net interest income and other noninterest income, net of impairments
of securities, gains and losses on sales of securities, gains and losses on sales of OREO and net gains on sales of fixed assets. |
| |
For the Three Months Ended | |
(Dollars in thousands) | |
June 30, 2014 | | |
March 31, 2014 | | |
September 30, 2013 | | |
June 30, 2013 | |
Asset Quality: | |
| | |
| | |
| | |
| |
Allowance for Loan Losses | |
| | |
| | |
| | |
| |
Beginning balance | |
$ | 10,721 | | |
$ | 10,464 | | |
$ | 9,912 | | |
$ | 10,638 | |
Provision | |
| (55 | ) | |
| 296 | | |
| (7 | ) | |
| 171 | |
Recoveries | |
| 41 | | |
| 93 | | |
| 93 | | |
| 56 | |
Charge-offs | |
| (259 | ) | |
| (132 | ) | |
| (258 | ) | |
| (953 | ) |
Ending balance | |
$ | 10,448 | | |
$ | 10,721 | | |
$ | 9,740 | | |
$ | 9,912 | |
Nonperforming Assets at Period End | |
| | | |
| | | |
| | | |
| | |
Nonaccrual loans | |
$ | 27,727 | | |
$ | 28,890 | | |
$ | 49,131 | | |
$ | 41,184 | |
Other real estate owned | |
| 24,645 | | |
| 25,868 | | |
| 6,715 | | |
| 7,049 | |
Total nonperforming assets | |
| 52,372 | | |
| 54,758 | | |
| 55,846 | | |
| 48,233 | |
Performing troubled debt restructurings (6) | |
| 5,657 | | |
| 5,666 | | |
| 5,501 | | |
| 5,510 | |
Total nonperforming assets and performing troubled debt restructurings | |
$ | 58,029 | | |
$ | 60,424 | | |
$ | 61,347 | | |
$ | 53,743 | |
Allowance for loan losses as a percent of total loans at period end | |
| 1.91 | % | |
| 1.92 | % | |
| 1.86 | % | |
| 1.94 | % |
Allowance for loan losses as a percent of nonperforming loans at period end | |
| 37.68 | | |
| 37.11 | | |
| 19.82 | | |
| 24.07 | |
Nonperforming loans as a percent of total loans at period end | |
| 5.07 | | |
| 5.17 | | |
| 9.37 | | |
| 8.08 | |
Nonperforming assets as a percent of total assets at period end | |
| 4.72 | | |
| 5.00 | | |
| 5.27 | | |
| 4.59 | |
Total nonperforming assets and
troubled debt restructurings to total assets at period end | |
| 5.23 | | |
| 5.52 | | |
| 5.79 | | |
| 5.12 | |
Net charge-offs to average loans
outstanding during the period (annualized) | |
| 0.16 | | |
| 0.03 | | |
| 0.13 | | |
| 0.72 | |
| (6) | Performing troubled debt restructurings do not include troubled debt restructurings that remain
on nonaccrual status and are included in nonaccrual loans above. |
Non-GAAP Reconciliation
| |
For the Three Months Ended | |
(Dollars in thousands) | |
June 30, 2014 | | |
March 31, 2014 | | |
September 30, 2013 | | |
June 30, 2013 | |
Net interest income | |
$ | 6,731 | | |
$ | 6,999 | | |
$ | 6,628 | | |
$ | 6,282 | |
Plus: Total noninterest income | |
| 1,951 | | |
| 3,709 | | |
| 910 | | |
| 789 | |
Less: Gains on sales of securities, net | |
| (331 | ) | |
| (2,973 | ) | |
| (98 | ) | |
| (205 | ) |
Plus: Net impairment reflected in income | |
| - | | |
| - | | |
| 102 | | |
| 138 | |
Less: Gains on sales of OREO | |
| (289 | ) | |
| (40 | ) | |
| (198 | ) | |
| (50 | ) |
Total net interest income and adjusted other noninterest income | |
$ | 8,062 | | |
$ | 7,695 | | |
$ | 7,344 | | |
$ | 6,954 | |
| |
| | | |
| | | |
| | | |
| | |
Other noninterest expenses | |
$ | 4,855 | | |
$ | 4,865 | | |
$ | 4,621 | | |
$ | 4,598 | |
Less: Impairment charges on OREO | |
| - | | |
| (8 | ) | |
| (160 | ) | |
| (78 | ) |
Less: Net losses on sales of fixed assets | |
| - | | |
| (15 | ) | |
| (7 | ) | |
| (43 | ) |
Adjusted other noninterest expenses | |
$ | 4,855 | | |
$ | 4,842 | | |
$ | 4,454 | | |
$ | 4,477 | |
| |
| | | |
| | | |
| | | |
| | |
Efficiency ratio | |
| 60.21 | % | |
| 62.93 | % | |
| 60.66 | % | |
| 64.36 | % |
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