Franklin Financial Reports 2019 Earnings; Declares Dividend

CHAMBERSBURG, Pa., Jan. 28, 2020

A summary of operating results for 2019 are as follows:

• 2019 net interest income increased $1.5 million to $42.1 million compared to $40.7 million in 2018. Average interest-earning assets for 2019 increased $66.5 million over 2018. The average balance of the loan portfolio increased $5.1 million due to a lesser dependence on purchased loan participations and slower loan demand. The average balance of the investment portfolio and interest-bearing cash increased $61.5 million and accounted for most of the growth in interest-earning assets. The yield on earning assets increased 13 basis points over 2018 due to short-term market rate increases during the year, with the yield on the loan portfolio increasing 26 basis points year-over-year. These changes resulted in a $4.4 million increase in interest income. This increase was partially offset by an increase in interest expense of $2.9 million driven by an increase of $53.8 million in average interest-bearing balances and an increase of 29 basis points on the cost of these funds from 0.49% in 2018 to 0.78% in 2019. For 2019, the net interest margin was 3.68% compared to 3.78% in 2018.
• The provision for loan loss expense decreased $9.7 million compared to 2018. The provision expense for the year-ended 2018 was affected by the impairment charges on a loan participation initially reported in the Corporation's current report on Form 8-K filed May 31, 2018.
• Noninterest income increased $2.8 million, driven primarily by an increase in fee income from Investment and Trust services, gains from the sale of debt securities and an increase in fees from newly originated mortgages sold into the secondary market. In addition, noninterest income was enhanced by gains on the sale of property owned by the Corporation ($597 thousand) and a gain on the sale of OREO property ($557 thousand).
• Noninterest expense increased by $945 thousand, primarily due to an increase in salaries and incentive plans, increases in data processing expenses from increased mobile offerings and the cost of a building feasibility study.

Total assets at December 31, 2019 were $1.3 billion, a 5.1% increase when compared with total assets at December 31, 2018. Significant balance sheet changes since December 31, 2018 include:

• Interest-bearing deposits in other banks increased $39.6 million from pay-offs in the loan portfolio and deposit growth.
• The loan portfolio decreased by 4.0%, or $38.8 million, to $934.6 million, primarily due to several large commercial participation payoffs of approximately $35.0 million as the Bank continues to transition away from loan transactions without business relationships.
• A lease liability and a right-of-use asset of $6.2 million were initially recognized in 2019.
• Deposits increased $42.8 million primarily in interest-bearing commercial and municipal deposits.
• Shareholders' equity increased $9.1 million due primarily to an increase in retained earnings.

"For the fourth quarter, and for 2019 as a whole, we have been pleased to be able to continue to build on our solid core earnings while making investments in our company's future and reducing overall risk to the bank," said Timothy G. Henry, President and CEO. "Net income for the year was at a record high, but more importantly we have restructured our loan portfolio to reduce risk and seen significant development in two key fee income business lines, Investment & Trust services and residential mortgage lending. By increasing our profitability and reducing risk, we are positioning ourselves well for the future growth of our company. 2020 will present new challenges for the bank but as we move forward you can expect to see more investments in our product lines, technology and infrastructure all being done with a mind towards growing the company for the benefit of our shareholders and the communities and customers we serve."

On January 10, 2020, the Board of Directors of Franklin Financial Services Corporation declared a $0.30 per share regular quarterly cash dividend for the first quarter of 2020, which is an 11.1% increase over the $0.27 per share regular quarterly cash dividend for the first quarter of 2019. This compares equitably to a $0.30 per share regular quarterly cash dividend for the fourth quarter of 2019. The regular quarterly cash dividend for the first quarter of 2020 will be paid on February 26, 2020 to shareholders of record at the close of business on February 7, 2020.

Franklin Financial is the largest independent, locally owned and operated bank holding company headquartered in Franklin County with assets of more than $1.3 billion. Its wholly-owned subsidiary, F&M Trust, has twenty-two community banking locations in Franklin, Cumberland, Fulton and Huntingdon Counties. 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.