Franklin Financial Reports 2021 Q1 Earnings; Declares Dividend

CHAMBERSBURG, Pa., April 26, 2021

A summary of operating results for the first quarter of 2021 are as follows:

• Net interest income was $10.8 million for the first quarter of 2021 compared to $10.3 million for the first quarter of 2020. The net interest margin for the first quarter fell from 3.53% in 2020 to 3.03% in 2021. The year-to-date yield on earning assets fell by 0.77% from 4.00% in 2020 to 3.23% in 2021 as all asset classes had lower yields as market rates decreased over the year. The cost of interest-bearing deposits fell from 0.61% in 2020 to 0.18% in 2021 as the Bank reduced deposit rates to offset lower asset yields. The cost of total deposits fell from 0.51% in 2020 to 0.14% in 2021.
• Earning assets for the first quarter of 2021 averaged $1.5 billion compared to $1.2 billion for the same period in 2020. The average balance of the investment portfolio increased $212.3 million over the same comparative period, primarily in the municipal bond portfolio. The average balance of the loan portfolio increased from $934.5 million in the first quarter of 2020 to $1.0 billion in 2021. The average balance of the commercial loan portfolio increased $65.3 million over the first quarter of 2020. The increase is primarily due to the addition of Paycheck Protection Program (PPP) loans which totaled $55.9 million at March 31, 2021 and averaged $54.6 million for the quarter. The average balance of deposits for the first quarter of 2021 increased $268.0 million over the same quarter in 2020 with every deposit category increasing except for time deposits.
• The provision for loan loss expense for the first quarter of 2021 was ($800) thousand, representing a reversal of previously recorded provision for loan loss expense. This expense reversal compares to a provision for loan loss expense of $3.0 million in the first quarter of 2020. The 2020 provision expense was the result of an increase in several qualitative factors in the allowance for loan loss calculation due to the economic effects and impact of the COVID-19 pandemic. As of March 31, 2021 several qualitative factors were reduced reflecting a lower risk of loss in the loan portfolio, thereby, resulting in a reversal of the provision for loan loss expense. The allowance for loan loss ratio was 1.61% of gross loans as of March 31, 2021, compared to 1.66% at December 31, 2020. Excluding the PPP loans, the allowance for loan loss ratio was 1.71% at the end of the first quarter of 2021.
• Noninterest income totaled $4.2 million for the first quarter of 2021, an increase of $338 thousand over the comparable quarter of 2020. The largest increases comparable quarter-over-quarter were in Investment and Trust Service fees ($191 thousand), gain on the sale of mortgages ($638 thousand) and the fair value of equity securities ($181 thousand). These increases were partially offset by a decrease of $812 thousand from a gain on a bank owned life insurance policy recorded in 2020.
• Noninterest expense for the first quarter of 2021 was $10.2 million compared to $9.5 million in 2020. Salaries and benefits, and data processing expense each increased $123 thousand quarter-over-quarter, while FDIC insurance increased $142 thousand.
• The effective tax rate for the first quarter of 2021 was 15.4% compared to - 6.6% for the first quarter of 2020. The increase in the effective tax rate was due primarily to higher pre-tax income driven by the large change in the provision for loan loss expense quarter-over-quarter. The benefit of tax-exempt income increased only slightly quarter-over-quarter.

Total assets at March 31, 2021 were $1.598 billion compared $1.535 billion at December 31, 2020. Significant balance sheet changes since December 31, 2020 include:

• Short-term interest-bearing deposits in other banks increased $50.4 million and the investment portfolio increased $25.2 million.
• The net loan portfolio decreased $8.1 million during 2021 over the year-end 2020 balance. The reduction occurred primarily in the commercial loan portfolio, with a decrease in commercial real estate loans partially offset by an increase in PPP loans. The Bank held $55.9 million in PPP loans at March 31, 2021 with $1.9 million of deferred PPP fees remaining to be recognized. The Bank is recognizing the PPP fees over the contractual life of the PPP loans (two years or five years). As PPP loans are granted forgiveness by the SBA, fee recognition will accelerate.
• At March 31, 2021, the Bank had $67.6 million of modified loans unchanged from year-end 2020 and $196.5 million at June 30, 2020. The current balance is comprised primarily of 19 unrelated loans to hotels for $46.5 million, three unrelated loans in the entertainment sector for $14.1 million and one loan for $4.7 million in rental real estate. The majority of these loans are making some form of payment and will come out of the modified terms during the second quarter of 2021.
• Deposits increased $66.5 million (4.9%) over year-end 2020, with all deposit products showing an increase except time deposits. Based on current information known to Management, the increases seem to stem from government stimulus payments to consumers, businesses and municipalities, lower spending as economic activity slowed during the pandemic and a sense of security offered by bank deposits in uncertain economic times.
• Shareholders' equity decreased $4.5 million from the end of 2020, due primarily to a decrease of $8.4 million in accumulated other comprehensive income (AOCI) as the fair value of the investment portfolio declined during the quarter. Retained earnings increased $3.5 million from year-end 2020. The book value per share of the Corporation's common stock was $31.92 at March 31, 2021. In December 2020, an open market repurchase plan was approved to repurchase 150,000 shares over a one-year period and no shares have been repurchased under the plan as of March 31, 2021.

"Franklin Financial's first quarter financial performance continued to build off of the last two quarters of 2020 with robust noninterest income generated by our Residential Lending and Investment & Trust Services departments and minimal new credit quality issues. As a result of our cautious optimism, the Board of Directors declared a $0.31 per share regular cash dividend for the second quarter of 2021, which represents a 3.3 percent increase from last quarter," said Timothy G. Henry, President and CEO of Franklin Financial Services Corporation and F&M Trust. "While we are pleased with our performance, we recognize that Covid-19 is still very much with us and that the economic recovery is uncertain. As such, we will remain keenly focused on our strategic priorities which include developing a stronger online presence and digital tools, leveraging our capabilities in trust, retail and commercial and focusing on the long-term growth of the bank."

On April 8, 2021, the Board of Directors of Franklin Financial Services Corporation declared a $0.31 per share regular quarterly cash dividend for the second quarter of 2021. This compares to a $0.30 per share regular cash dividend for the first quarter of 2021. The regular quarterly cash dividend for the second quarter of 2021 will be paid on May 26, 2021 to shareholders of record at the close of business on May 7, 2021.

Additional information on the Corporation's COVID-19 response and financial updates are 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 $1.6 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.