CHAMBERSBURG, Pa., July 25,
2023 /PRNewswire/ -- Franklin Financial Services
Corporation (the Corporation) (NASDAQ: FRAF), the bank holding
company of F&M Trust (the Bank) headquartered in Chambersburg, PA, reported its second quarter
2023 and year-to-date 2023 results. A summary of operating
results follows:
- Net income for the second quarter of 2023 was $3.0 million ($0.68
per diluted share) compared to $3.3
million ($0.75 per diluted
share) for the first quarter of 2023 (a decrease of 9.6%), and
$3.6 million ($.80 per diluted share) for the second quarter of
2022 (a decrease of 16.8%).
- Net income for the second quarter of 2023 was affected by a
$517 thousand loss on the sale of
investment securities realized as part of a portfolio
restructuring, and a loss of $525
thousand from the termination of a long-term real estate
lease.
- Net income year-to-date 2023 was $6.3
million ($1.42 per diluted
share) compared to $6.6 million
($1.47 per diluted share) for the
same period in 2022, a decrease of 4.9%. Year-to-date net income
was affected by a loss of $1.1
million on securities sales and the previously mentioned
lease termination expense.
- Total net loans increased $93.7
million (9.0%) to $1.131
billion from $1.037 billion at
December 31, 2022.
- Total deposits decreased $38.3
million (2.5%) to $1.513
billion from $1.551 billion at
December 31, 2022.
- Shareholder equity increased by $5.6
million, year-to-date, to $119.8
million, and the book value per share increased to
$27.53.
- For the year-to-date period, Return on Assets (ROA) was 0.75%,
Return on Equity (ROE) was 10.56% and the Net Interest Margin (NIM)
was 3.35%, compared to ROA of 0.74%, ROE of 9.36% and NIM of 2.80%
for the same period in 2022.
- On July 13, the Board of
Directors declared a $0.32 per share
regular quarterly cash dividend for the third quarter of 2023 to be
paid on August 23, 2023, to
shareholders of record at the close of business on August 4, 2023.
Balance Sheet Highlights
Total assets at June 30, 2023 were
$1.736 billion up slightly from
$1.700 at December 31, 2022. Changes in the balance sheet
since December 31, 2022,
include:
- The investment portfolio decreased $47.4
million (9.7%), primarily the result of selling
approximately $41.2 million of
investments during the year as part of a portfolio restructuring to
take advantage of higher market interest rates.
- The net loan portfolio increased $93.7
million (9.0%) over the year-end 2022 balance, primarily
from an increase in commercial purpose loans of $77.4 million from year-end 2022. At June 30, 2023, commercial real estate loans
totaled $638.1 million, with the
largest collateral segments being: apartment buildings
($105.7 million), hotels and motels
($82.4 million), and office buildings
($80.7 million) primarily in
south-central Pennsylvania.
- Total deposits decreased $38.3
million (2.5%) from year-end 2022, primarily from a decrease
in interest-bearing checking and savings accounts, that was
partially offset by an increase in time deposits. The largest
decrease occurred in municipal accounts, reversing much of the
growth in these accounts that occurred during 2022. Time deposits
showed an increase of $32.4 million
due to the addition of $8.6 million
in brokered CDs and retail depositors seeking higher rates. The
Bank's cost of deposits has increased from 0.64% for the month of
December 2022 to 1.22% for the month
of June 2023. Year-to-date, the cost
of deposit was 1.04% for 2023, compared to 0.12% for the same
period in 2022. At June 30, 2023, the
Bank estimated that approximately 91% of its deposits were FDIC
insured or collateralized.
- At June 30, 2023, the Bank had
borrowings of $70.0 million, at an
average rate of 4.44%, from the Federal Reserve through the Bank
Term Funding Program (BTFP) to temporarily support its liquidity
position. The Bank has additional funding capacity in the BTFP, the
Federal Reserve Discount Window, the Federal Home Loan Bank and
correspondent banks.
- Shareholders' equity increased $5.6
million from December 31,
2022. Retained earnings increased $3.6 million in 2023 and accumulated other
comprehensive income (AOCI) increased $3.3
million as the fair value of the investment portfolio
increased during the year. At June 30,
2023, the book value of the Corporation's common stock was
$27.53 per share and tangible book
value was $25.46 per share. In
December 2022, an open market
repurchase plan was approved to repurchase 150,000 shares over a
one-year period, with 83,058 shares repurchased year-to-date 2023
and 85,906 purchased in total under the approved plan. The Bank is
considered to be well-capitalized under regulatory guidance as of
June 30, 2023.
- Average earning assets for 2023 were $1.600 billion compared to $1.704 billion in 2022, a decrease of 6.1%. In
2023, the average balance of interest-earning cash balances
decreased $119.6 million (68.8%) to
support loan growth and to offset a decrease in average deposits
during the year. The average balance of the investment portfolio
decreased $56.3 million (10.8%),
while the average balance of the loan portfolio increased
$72.0 million (7.1%), over the prior
year averages. Within the loan portfolio, average commercial loan
balances increased $49.6 million
during the year and residential mortgages increased $20.9 million. Total deposits averaged
$1.509 billion for 2023, a decrease
of $105.0 million (6.5%) from the
average balance for 2022. All deposit categories reported a
year-over-year decrease in average balances, except for time
deposits.
Income Statement Highlights
- Net interest income was $13.2
million for the second quarter of 2023 compared to
$12.8 million for the first quarter
of 2023 and $12.1 million for the
second quarter of 2022. The net interest margin decreased to 3.30%
for the second quarter of 2023 from 3.41% in the prior quarter. The
change in the net interest margin quarter over quarter was due
primarily to an increase in the cost of interest-bearing
liabilities from 1.22% in first quarter of 2023 to 1.65% for the
second quarter of 2023 as all deposit categories had higher costs
in 2023, except Savings. The cost of all deposits increased to
1.16% for the second quarter of 2023, from 0.92% for the first
quarter of 2023. For the month of June
2023, the cost of deposits was 1.22%.
- On January 1, 2023, the Bank
adopted a new accounting standard for the calculation of its
allowance for credit losses (ACL), referred to as the current
expected credit loss (CECL) model. Upon adoption, the Bank recorded
a decrease of $536 thousand to the
ACL for loans, an increase of $411
thousand to the ACL for unfunded commitments (carried in
Other Liabilities on the consolidated balance sheet), an increase
of $98 thousand to retained earnings,
and a deferred tax liability of $26
thousand. The provision for credit losses for 2023 was
calculated using the CECL model, while the provision for loan
losses for 2022 was calculated under the previous methodology. For
the second quarter of 2023 the provision for credit losses on loans
was $524 thousand compared to
$0 for the second quarter of 2022 and
$467 thousand for the first quarter
of 2023. The increase in the provision for loan loss was due
primarily to growth in the loan portfolio. The ACL ratio for loans
was 1.28% at June 30, 2023, compared
to 1.31% at December 31, 2022. For
the second quarter of 2023 the provision for credit losses on
unfunded commitments was $8 thousand
compared to $0 for the second quarter
of 2022 and $62 thousand for the
first quarter of 2023. The ACL for unfunded commitments was
$2.0 million compared to $1.5 million at December
31, 2022.
- Noninterest income totaled $3.5
million for the second quarter of 2023 compared to
$3.2 million in the first quarter of
2023 (an increase of 9.4%), and $4.1
million for the second quarter of 2022 (a decrease of
13.7%). The change from the second quarter of 2022 to the second
quarter of 2023 was due primarily to an increase of $498 thousand on losses from the sale of
securities due to portfolio restructuring in 2023, and a decrease
of $210 thousand in gains on sale of
mortgages. These changes were partially offset by an increase of
$119 thousand in loan service
charges.
- Noninterest income year-to-date was $6.8
million, $1.2 million (15.3%)
less than the same period in 2022. The decrease was driven
primarily by an increase of $1.1
million on losses from the sale of securities due to
portfolio restructuring in 2023.
- Noninterest expense for the second quarter of 2023 was
$12.6 million compared to
$12.0 million for the first quarter
of 2023 (an increase of 5.1%), and $12.0
million in the second quarter of 2022 (an increase of 5.1%).
The increase from the second quarter of 2022 to the second quarter
of 2023 was due primarily to a lease termination expense of
$525 thousand. The lease was a
long-term real estate lease held for a new community banking office
that will not be constructed.
- Noninterest expense was $24.7
million for the six months ending June 30, 2023 compared to $23.3 million for the same period of 2022, an
increase of 5.9%. Contributing to the year-over-year increase was
an increase of $809 thousand in
salaries and benefits (primarily salaries due to a highly
competitive labor market), an increase in net occupancy of
$269 thousand from costs associated
with the new headquarters and operations center that was put in
service in July 2022 and the lease
termination expense previously mentioned. Partially offsetting
these increases was a decrease in data processing expense of
$220 thousand due in part to lower
core system costs.
- The effective federal income tax rate was 16.0% for the second
quarter of 2023 and 11.2% on a year-to-date basis. The year-to-date
rate reflects the benefit of a $280
thousand tax credit that was recorded during the first
quarter. Without the tax credit, the effective rate year-to-date
would have been 15.2%.
"After a challenging beginning to the year for the entire
banking industry, I am pleased that your company has been able to
keep its focus on the future as we were able to grow loans,
increase deposits and restructure the balance sheet to support
growth," said Tim Henry, President
and CEO. "The steps taken in the second quarter will have a
positive effect on future earnings and returns to our shareholders
and strengthen the company to be able to take advantage of
opportunities as they develop."
Additional information on the Corporation is
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 $1.7 billion. Its wholly-owned
subsidiary, F&M Trust, has twenty-two community banking
locations in Franklin,
Cumberland, Fulton and
Huntingdon Counties PA, and
Washington County MD. 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.
Certain statements appearing herein which are not historical
in nature are forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Such
forward-looking statements refer to a future period or periods,
reflecting management's current views as to likely future
developments, and use words "may," "will," "expect," "believe,"
"estimate," "anticipate," or similar terms. Because
forward-looking statements involve certain risks, uncertainties and
other factors over which Franklin Financial Services Corporation
has no direct control, actual results could differ materially from
those contemplated in such statements. These factors include
(but are not limited to) the following: changes in interest rates,
changes in the rate of inflation, general economic conditions and
their effect on the Corporation and our customers, changes in the
Corporation's cost of funds, changes in government monetary policy,
changes in government regulation and taxation of financial
institutions, changes in technology, the intensification of
competition within the Corporation's market area, and other similar
factors.
We caution readers not to place undue reliance on these
forward-looking statements. They only reflect management's analysis
as of this date. The Corporation does not revise or update these
forward-looking statements to reflect events or changed
circumstances. Please carefully review the risk factors described
in other documents the Corporation files from time to time with the
SEC, including the Annual Reports on Form 10-K, Quarterly Reports
on Form 10-Q, and any Current Reports on Form 8-K.
FRANKLIN FINANCIAL SERVICES
CORPORATION
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Financial Highlights
(Unaudited)
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Earnings Summary
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For the Three Months
Ended
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For the Six Months
Ended
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(Dollars in thousands, except per share
data)
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6/30/2023
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3/31/2023
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6/30/2022
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6/30/2023
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6/30/2022
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% Change
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Interest
income
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$
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18,511
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$
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16,583
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$
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12,875
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$
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35,094
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$
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24,409
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43.8 %
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Interest
expense
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5,316
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3,746
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764
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9,062
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1,490
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508.2 %
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Net interest
income
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13,195
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12,837
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12,111
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26,032
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22,919
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13.6 %
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Provision for credit
losses - loans
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524
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467
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-
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991
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-
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0.0 %
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Provision for credit
losses - unfunded commitments
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8
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62
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-
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70
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-
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0.0 %
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Noninterest
income
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3,529
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3,225
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4,091
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6,754
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7,976
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-15.3 %
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Noninterest
expense
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12,648
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12,019
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12,029
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24,667
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23,296
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5.9 %
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Income before income
taxes
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3,544
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3,514
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4,173
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7,058
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7,599
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-6.2 %
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Income taxes
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568
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222
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595
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790
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1,009
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-21.7 %
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Net income
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$
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2,976
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$
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3,292
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$
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3,578
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$
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6,268
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$
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6,590
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-3.8 %
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Diluted earnings per
share
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$
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0.68
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$
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0.75
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$
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0.80
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$
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1.42
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$
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1.47
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-3.4 %
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Regular cash dividends
declared
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$
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0.32
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$
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0.32
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$
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0.32
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$
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0.64
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$
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0.64
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0.0 %
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Balance Sheet Highlights (as of
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6/30/2023
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3/31/2023
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6/30/2022
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Total assets
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$
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1,736,165
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$
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1,711,285
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$
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1,832,296
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Investment and equity
securities
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439,851
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458,154
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510,282
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Loans, net
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1,130,547
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1,063,337
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1,019,608
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Deposits
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1,513,135
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1,502,110
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1,679,187
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Shareholders'
equity
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119,770
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123,583
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121,797
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Assets Under Management (fair
value)
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Investment and Trust
Services
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977,461
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942,025
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838,830
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Held at third party
brokers
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127,807
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124,483
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104,881
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As of or for the
Three Months Ended
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As of or for the Six
Months Ended
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Performance Ratios
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6/30/2023
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3/31/2023
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6/30/2022
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6/30/2023
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6/30/2022
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Return on average
assets*
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0.70 %
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0.80 %
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0.79 %
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0.75 %
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0.74 %
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Return on average
equity*
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9.82 %
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11.33 %
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11.11 %
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10.56 %
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9.36 %
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Dividend payout
ratio
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47.08 %
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42.68 %
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39.88 %
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44.77 %
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43.22 %
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Net interest
margin*
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3.30 %
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3.41 %
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2.90 %
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3.35 %
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2.80 %
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Net loans (charged-off)
recovered/average loans*
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0.00 %
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0.00 %
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-0.01 %
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0.00 %
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-0.01 %
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Nonperforming loans /
gross loans
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0.02 %
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0.02 %
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0.55 %
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Nonperforming assets /
total assets
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0.01 %
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0.01 %
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0.31 %
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Allowance for credit
losses / loans
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1.28 %
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1.31 %
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1.45 %
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Book value, per
share
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$
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27.53
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$
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28.07
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$
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27.54
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Tangible book value
(1)
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$
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25.46
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$
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26.02
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$
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25.50
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Market value, per
share
|
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$
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27.74
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$
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29.64
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$
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30.16
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Market value/book value
ratio
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100.76 %
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|
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105.59 %
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|
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109.51 %
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Market value/tangible
book value ratio
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108.95 %
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113.91 %
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118.25 %
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Price/earnings
multiple*
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10.20
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9.88
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|
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9.43
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|
|
9.77
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10.26
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Current quarter
dividend yield*
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4.61 %
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4.32 %
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4.24 %
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* Annualized
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(1) NonGAAP measurement. See GAAP versus
NonGAAP disclosure
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GAAP versus non-GAAP Presentations – The Corporation
supplements its traditional GAAP measurements with certain non-GAAP
measurements to evaluate its performance and to eliminate the
effect of intangible assets. By eliminating intangible assets
(Goodwill), the Corporation believes it presents a measurement that
is comparable to companies that have no intangible assets or to
companies that have eliminated intangible assets in similar
calculations. However, not all companies may use the same
calculation method for each measurement. The non-GAAP measurements
are not intended to be used as a substitute for the related GAAP
measurements. Non-GAAP financial measures should be viewed in
addition to, and not as an alternative for, our reported results
prepared in accordance with GAAP. In the event of such a
disclosure or release, the Securities and Exchange Commission's
Regulation G requires: (i) the presentation of the most directly
comparable financial measure calculated and presented in accordance
with GAAP and (ii) a reconciliation of the differences between the
non-GAAP financial measure presented and the most directly
comparable financial measure calculated and presented in accordance
with GAAP. The following table shows the calculation of the
non-GAAP measurements.
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NonGAAP
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(Dollars in thousands, except per
share)
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As of
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As of
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As of
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|
|
|
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|
|
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|
June 30,
2023
|
|
December 31,
2022
|
|
June 30,
2022
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Tangible Book Value (per share)
(non-GAAP)
|
|
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|
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|
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|
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|
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|
|
|
|
|
|
Shareholders'
equity
|
|
$
|
119,770
|
|
$
|
114,197
|
|
$
|
121,797
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|
|
|
|
|
|
|
|
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Less intangible
assets
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|
|
(9,016)
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|
|
(9,016)
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|
|
(9,016)
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|
|
|
|
|
|
|
|
|
Tangible book value
(non-GAAP)
|
|
|
110,754
|
|
|
105,181
|
|
|
112,781
|
|
|
|
|
|
|
|
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Shares outstanding (in
thousands)
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|
|
4,350
|
|
|
4,390
|
|
|
4,422
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|
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Tangible book
value per share (non-GAAP)
|
|
$
|
25.46
|
|
$
|
23.96
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|
$
|
25.50
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|
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View original content to download
multimedia:https://www.prnewswire.com/news-releases/franklin-financial-reports-2023-q2-and-year-to-date-results-declares-dividend-301885627.html
SOURCE Franklin Financial Services Corporation