·

Net interest income was $12.1 million for the second quarter of 2022 compared to $10.8 million for the second quarter of 2021. The second quarter of 2021 included $746 thousand of PPP interest and fees compared to only $4 thousand for the second quarter of 2022. Year-to-date, net interest income was $22.9 million (including $388 thousand of PPP interest and fees) compared to $21.7 million for the same period in 2021 (including $1.6 million of PPP interest and fees). The net interest margin increased to 2.90% for the second quarter of 2022 from 2.82% for the same quarter of the prior year. On a year-to-date comparison, the net interest margin was 2.80% for 2022 compared to 2.92% in 2021. The yield on earning assets increased in the second quarter 2022 versus 2021 comparison (up 0.08%), but decreased year-over-year (down 0.14%). The increase in the second quarter yield on earning assets was primarily the result of Federal Reserve rate increases that began near the end of the first quarter of 2022 and continued through the second quarter. The year-to-date cost of interest-bearing deposits was 0.15% compared to 0.16% for 2021 while the cost of total deposits decreased from 0.13% in 2021 to 0.12% in 2022.

·

Earning assets for the second quarter of 2022 averaged $1.7 billion compared to $1.6 billion for the same period in 2021, and year-to-date average earnings assets increased 10% from $1.5 billion to $1.7 billion. Year-to-date the average balance of interest-earning cash increased $72.3 million, and the investment portfolio increased $82.2 million. The average balance of the loan portfolio increased only $1.9 million for the first six months of 2022 compared to 2021. The growth in the year-to-date average balance of the loan portfolio was negatively affected by a decrease of $53.8 million in the average balance of PPP loans over the comparative periods. The average balance of deposits for the year increased $179.9 million over the same period in 2021 with every deposit category increasing except for time deposits.

·

There was no provision for loan loss expense for the second quarter and year-to-date periods of 2022. In 2021, the provision for loan loss expense was a reversal of $1.1 million for the second quarter and a reversal of $1.9 million for the first six months of 2021. During 2020, the allowance for loan loss was increased through the provision expense due to increased economic uncertainty stemming from the pandemic. As these risks lessened in 2021, loans reserves were released via a reversal in the provision for loan loss. With relatively unchanged net loan balances since year-end 2021 and stable credit quality indicators, it was determined no additional provision expense was needed during the first half of the year. The allowance for loan loss ratio was 1.45% of gross loans as of June 30, 2022, compared to 1.51% at December 31, 2021.

·

Noninterest income totaled $4.1 million for the second quarter of 2022 compared to $4.5 million in the second quarter of 2021. Year-to-date, noninterest income decreased $740 thousand (8.5%) to $8.0 million compared to $8.7 million the prior year. The largest increases year-over-year were in Investment and Trust Services fees (up $204 thousand) and deposit service charges (up $319 thousand) primarily from a new product introduced in the third quarter of 2021. These increases were more than offset by a decrease of $828 thousand in gains on sale as mortgage originations have slowed in 2022.  

·

Noninterest expense for the second quarter of 2022 was $12.0 million compared to $10.1 million for the second quarter of 2021. Year-to-date, noninterest expense was $23.3 million compared to $20.3 million in 2021, an increase of 14.9%. The categories contributing to this increase were: salaries and benefits ($1.5 million), data processing ($581 thousand) and other expenses ($643 thousand). Salaries and benefits increased primarily in employee compensation, the increase in data processing is related to the implementation of a Customer Relationship Management system and other expenses increased comparatively due to a reversal of $636 thousand for an off-balance sheet liability during the second quarter of 2021.  

·

Short-term interest-earning deposits in other banks increased $15.2 million. The amortized cost basis of the investment portfolio increased $28.6 million, however, the fair value of the portfolio decreased by $20.0 million due to higher interest rates.

·

The net loan portfolio increased $35.9 million during 2022 over the year-end 2021 balance. The largest increase occurred in the commercial real estate portfolio ($40.0 million) which was partially offset by a decrease of $8.3 million in non-real estate commercial loans. The Bank held $215 thousand in PPP loans at June 30, 2022, a decrease of $7.6 million since year-end 2021, and all PPP fees have been recognized.  

·

Deposits increased $94.8 million (6.0%) over year-end 2021, with all deposit products showing an increase except time deposits. Interest-bearing checking accounts showed the largest increase ($67.1 million or 13.1%), primarily in commercial and municipal accounts.  

·

Shareholders’ equity decreased $35.3 million since the end of 2021. Retained earnings increased $3.7 million, net of $2.8 million in dividend payments. Accumulated other comprehensive income (AOCI) decreased by $38.4 million as the fair value of the investment portfolio declined during the year due to higher interest rates. At June 30, 2022, the book value of the Corporation’s common stock was $27.54 per share and the tangible book value was $25.50 per share. In December 2021, an open market repurchase plan was approved to repurchase 150,000 shares over a one-year period and 47,450 shares have been repurchased under the plan as of June 30, 2022.



FRANKLIN FINANCIAL SERVICES CORPORATION

Financial Highlights (Unaudited)



Earnings Summary

For the Three Months Ended

For the Six Months Ended

(Dollars in thousands, except per share data)

6/30/2022

3/31/2022

6/30/2021

6/30/2022

6/30/2021

% Change



Interest income

$

$

$

$

$

Interest expense

    Net interest income

Provision for loan losses

 -

 -

 -

-100.0%

Noninterest income

-8.5%

Noninterest expense

    Income before income taxes

-36.7%

Income taxes

-47.0%

Net income

$

$

$

$

$

-34.8%



Diluted earnings per share

$

$

$

$

$

-35.5%

Regular cash dividends declared

$

$

$

$

$



Balance Sheet Highlights (as of )

6/30/2022

3/31/2022

6/30/2021

Total assets

$

$

$

Investment and equity securities

Loans, net

Deposits

Shareholders' equity



Assets Under Management (fair value)

Investment and Trust Services

Held at third party brokers





As of and for the Three Months Ended

As of or for the Six Months Ended

Performance Ratios

6/30/2022

3/31/2022

6/30/2021

6/30/2022

6/30/2021

Return on average assets*

Return on average equity*

Dividend payout ratio

Net interest margin*

Net loans (charged-off) recovered/average loans*

-0.01%

-0.01%

-0.01%

Nonaccrual loans / gross loans

Nonperforming assets / total assets

Allowance for loan loss / loans

Book value, per share

$

$

$

Tangible book value (1)

$

$

$

Market value, per share

$

$

$

Market value/book value ratio

Market value/tangible book value ratio

Price/earnings multiple*

Current quarter dividend yield*

* Annualized

(1) NonGAAP measurement.  See GAAP versus NonGAAP disclosure



NonGAAP

(Dollars in thousands, except per share)

As of

As of

As of



June 30, 2022

March 31, 2022

June 30, 2021

Tangible Book Value (per share) (non-GAAP)

Shareholders' equity

$

$

$

Less intangible assets

Tangible book value (non-GAAP)



Shares outstanding (in thousands)



 Tangible book value per share (non-GAAP)