FRANKLIN FINANCIAL CORP 
By RICHMOND, Va., Dec. 1, 2011 /PRNewswire/ -- Franklin Financial Corporation (NASDAQ: FRNK), or "the Company", the parent company of Franklin Federal Savings Bank, announced net income for the three months ended September 30, 2011 of $936,000, or $0.07 per share, compared to a net loss of $4.3 million for the three months ended September 30, 2010. For the year ended September 30, 2011, the Company reported net income of $1.4 million, or $0.11 per share, compared to a net loss of $1.1 million for the year ended September 30, 2010. Net income for the year ended September 30, 2011 included the effect of a $5.6 million charitable contribution made to The Franklin Federal Foundation ($1.4 million in cash and $4.2 million in Company stock) in connection with Franklin Financial Corporation MHC's mutual-to-stock conversion. Net income for the year ended September 30, 2011 excluding the conversion-related charitable contribution and the related income tax benefit was $5.4 million, or $0.41 per share, a $6.5 million increase from the $1.1 million net loss for the year ended September 30, 2010.
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"Fiscal 2011 was a good year for our Company, including a successful and well-received mutual-to-stock conversion and a return to profitable operating results," said Richard T. Wheeler, Jr., Chairman, President and Chief Executive Officer of Franklin Financial Corporation. "We have weathered the worst economic period in our country's history since the Great Depression and emerged stronger than before because of the capital we raised as part of our conversion. We, as well as most other financial institutions and our nation, still face many difficult challenges, but we believe that we are positioned to convert those challenges into opportunities."
Net Interest Income
Net interest income was $7.0 million for the three months ended September 30, 2011 compared to $6.9 million for the three months ended June 30, 2011. Our net interest margin for the three months ended September 30, 2011 was 2.63%, a three basis point increase from the prior quarter.
Net interest income for the three months ended September 30, 2011 increased $490,000, or 7.6%, compared to the same period in the prior year as declines in deposit and FHLB borrowing costs of $805,000 outpaced a decrease in interest income on loans of $388,000. Our net interest margin for the three months ended September 30, 2011 decreased 17 basis points to 2.63% from the same period in the prior year, primarily due to a 194 basis point decline in the yield on collateralized mortgage obligations ("CMOs") as we continue to purchase short-term CMOs in order to comply with qualified thrift lender requirements.
For the year ended September 30, 2011, net interest income was $26.5 million, a $2.2 million increase from $24.3 million for the year ended September 30, 2010. Our net interest margin for the year ended September 30, 2011 increased twelve basis points to 2.67% as a result of declining deposit costs and lower interest expense on FHLB borrowings due to prepayments of higher-rate borrowings in fiscal 2010.
Asset Quality
During the three months ended September 30, 2011, non-performing assets increased $4.6 million to $50.8 million from $46.2 million at June 30, 2011. This increase was the result of a $5.6 million increase in non-performing loans, partially offset by a $944,000 decrease in real estate owned. Non-performing loans totaled $42.2 million at September 30, 2011 compared to $36.6 million at June 30, 2011. The increase in non-performing loans related primarily to the addition of one large loan on a multi-family property that is experiencing leasing difficulties and, as a result, does not generate sufficient cash flow to service the loan. Real estate owned decreased to $8.6 million at September 30, 2011 from $9.6 million at June 30, 2011 and $11.6 million at September 30, 2010 as the Company continues to actively work to reduce its level of foreclosed assets. Total non-performing loans as a percentage of total loans at September 30, 2011 was 8.50% compared to 7.35% at June 30, 2011 and 6.03% at September 30, 2010.
The Company recorded a provision for loan losses of $1.2 million for the three months ended September 30, 2011 compared to $1.8 million for the three months ended June 30, 2011 and $5.5 million for the three months ended September 30, 2010. For the year ended September 30, 2011, the provision for loan losses was $3.7 million compared to $9.3 million for the year ended September 30, 2010. The allowance for loan losses as a percentage of total loans was 2.95% at September 30, 2011 compared to 2.70% at June 30, 2011 and 2.72% at September 30, 2010. The increase in the allowance coverage rate reflects the increasing level of non-performing loans along with declining valuations of large land acquisition and development projects securing certain of our loans.
The Company recorded an other-than-temporary impairment ("OTTI") charge in earnings of $637,000 for the three months ended September 30, 2011 compared to charges of $1.3 million for the three months ended June 30, 2011 and $4.1 million for the three months ended September 30, 2010. OTTI charges included $319,000 related to the impairment of equity investments in Virginia-based community banks and $318,000 related to the Company's portfolio of non-agency CMOs for the three months ended September 30, 2011 compared to charges of $752,000 on equities and $502,000 on non-agency CMOs for the three months ended June 30, 2011 and $3.4 million and $714,000, respectively, for the three months ended September 30, 2010.
For the year ended September 30, 2011, OTTI charges reflected in earnings totaled $2.6 million compared to $7.6 million for the year ended September 30, 2010. These amounts included charges of $1.1 million on equity securities and $1.5 million on non-agency CMOs for the year ended September 30, 2011 compared to $3.8 million on equities and $3.8 million on non-agency CMOs for the year ended September 30, 2010.
Annual Meeting
The annual meeting of stockholders of Franklin Financial Corporation will be held on Tuesday, February 21, 2012. Details of the annual meeting will be communicated to stockholders in a proxy statement, which will be mailed in early January 2012.
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 both owner and non-owner-occupied one-to four-family loans as well as multi-family loans, nonresidential real estate loans, construction loans, and land and land development 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:
-- 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.
-- adverse changes in the securities markets; and
-- legislative, regulatory or supervisory changes that adversely affect our
business;
-- changes in consumer spending, borrowing and savings habits;
-- increased competitive pressures among financial services companies;
-- changes in the interest rate environment that reduce our interest
margins or reduce the fair value of financial instruments;
-- a continued decline in real estate values;
-- general economic conditions, either internationally, nationally, or in
our primary market area, that are worse than expected;
Additional factors that may affect our results are discussed beginning on page 12 of the Company's prospectus, dated February 11, 2011 under the section 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 For the Year Ended
Ended September 30, September 30,
------------------- -------------
(Dollars
in
thousands) 2011 2010 2011 2010
---- ---- ---- ----
Operating
Data:
Interest
and
dividend
income $11,497 $11,812 $45,934 $48,617
Interest
expense 4,541 5,346 19,398 24,335
----- ----- ------ ------
Net
interest
income 6,956 6,466 26,536 24,282
Provision
for loan
losses 1,207 5,494 3,744 9,256
----- ----- ----- -----
Net
interest
income
after
provision
for loan
losses 5,749 972 22,792 15,026
----- --- ------ ------
Noninterest
income
(expense):
Impairment
of
securities
reflected
in
earnings (637) (4,141) (2,572) (7,629)
Gains
(losses)
on sales
of
securities,
net (22) 33 243 2,045
Other
noninterest
income 790 971 2,784 3,149
--- --- ----- -----
Total
noninterest
income
(expense) 131 (3,137) 455 (2,435)
--- ------ --- ------
Other
noninterest
expenses 3,852 3,129 21,064 (1) 13,642
----- ----- ------ ------
Income
(loss)
before
provision
for income
taxes 2,028 (5,294) 2,183 (1,051)
Income tax
expense
(benefit) 1,092 (995) 752 30
----- ---- --- ---
Net income
(loss) $936 $(4,299) $1,431 $(1,081)
==== ======= ====== =======
(1) Includes charitable contributions of $5.6 million to The Franklin Federal Foundation for the year ended September 30, 2011 made in connection with Franklin Financial Corporation MHC's mutual-to-stock conversion.
For the Three Months For the Year Ended
Ended September 30, September 30,
------------------- -------------
(Amounts in thousands, except
per share data) 2011 2010 2011 2010
---- ---- ---- ----
Per Share Data
Basic earnings per share $0.07 N/A $0.11 N/A
Diluted earnings per share $0.07 N/A $0.11 N/A
Book value per share at end of
period $17.45 N/A $17.45 N/A
Shares outstanding at period
end 14,303 N/A 14,303 N/A
Weighted-average shares
outstanding
Basic 13,184 N/A 13,177 N/A
Diluted 13,184 N/A 13,177 N/A
At September 30,
----------------
(Dollars in thousands) 2011 2010
---- ----
Financial Condition Data:
Total assets $1,096,977 $971,055
Cash and cash equivalents 115,749 97,909
Securities available for sale 396,809 276,643
Securities held to maturity 25,517 35,518
Loans, net 478,423 477,035
Loans held for sale 922 2,781
Cash surrender value of bank-
owned life insurance 31,714 30,430
Deposits 648,754 647,127
Federal Home Loan Bank
borrowings 190,000 190,000
Total stockholders' equity 249,558 126,769
Capital Ratios(2):
Tier 1 capital to adjusted
tangible assets 16.00% 10.90%
Tier 1 risk-based capital to
risk weighted assets 23.72 14.12
Tangible capital to adjusted
tangible assets 16.00 10.90
Risk-based capital to risk
weighted assets 24.98 15.37
For the Three Months For the Year
Ended September 30, Ended September 30,
------------------- -------------------
(Dollars in thousands) 2011 2010 2011 2010
---- ---- ---- ----
Performance Ratios:
Return on average assets 0.33% (1.74)% 0.13% (0.11)%
Return on average equity 1.45 (13.36) 0.81 (0.85)
Interest rate spread(3) 2.22 2.61 2.34 2.29
Net interest margin(4) 2.63 2.80 2.67 2.55
Efficiency ratio(5) 45.37 36.91 48.68 48.66
Average interest-earning assets to
average interest-bearing liabilities 124.33 108.59 117.20 109.99
Average equity to average assets 23.12 13.04 16.72 12.67
(Dollars in thousands)
Asset Quality:
Allowance for Loan Losses
Beginning balance $13,432 $10,867 $13,419 $8,524
Provision 1,207 5,495 3,744 9,256
Recoveries 18 1 45 147
Charge-offs (33) (2,944) (2,584) (4,508)
--- ------ ------ ------
Ending balance $14,624 $13,419 $14,624 $13,419
======= ======= ======= =======
Nonperforming Assets at Period End
Nonaccrual loans $42,205 $28,543 $42,205 $28,543
Accruing loans 90+ days past due - 1,230 - 1,230
Other real estate owned 8,627 11,581 8,627 11,581
----- ------ ----- ------
Total nonperforming assets at period end $50,832 $41,354 $50,832 $41,354
======= ======= ======= =======
Allowance for loan losses as a percent of total loans at period end 2.95% 2.72% 2.95% 2.72%
Allowance for loan losses as a percent of non-performing loans at period end 34.65 45.07 34.65 45.07
Non-performing loans as a percent of total loans at period end 8.50 6.03 8.50 6.03
Non-performing assets as a percent of total assets at period end 4.63 4.26 4.63 4.26
Net charge-offs (recoveries) to average
loans outstanding during the period (annualized) 0.01 2.32 0.52 0.86
(2) Ratios are for Franklin Federal Savings Bank.
(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 and losses on the sale of fixed assets and foreclosed assets and the conversion-related charitable contribution to The Franklin Federal Foundation, by the sum of net interest income and other noninterest income, net of gains on the sale of fixed assets and foreclosed assets.
SOURCE Franklin Financial Corporation
