·

Net interest income was $14.1 million for the third quarter of 2022 compared to $11.6 million for the third quarter of 2021. The third quarter of 2021 included $1.2 million of Paycheck Protection Program (PPP) interest and fees compared to $0 for the third quarter of 2022. Year-to-date, net interest income was $37.0 million (including $388 thousand of PPP interest and fees) compared to $33.3 million for the same period in 2021 (including $2.5 million of PPP interest and fees). The net interest margin increased to 3.28% for the third quarter of 2022 from 2.89% for the same quarter of the prior year. On a year-to-date comparison, the net interest margin was 2.96% for the first nine months of 2022 compared to 2.91% in 2021. The yield on earning assets increased in the third quarter 2022 versus 2021 comparison (up 0.44%) and year-over-year (up 0.06%). The year-to-date cost of interest-bearing deposits was 0.17% compared to 0.16% for 2021 while the cost of total deposits was 0.14% and 0.13% respectively in 2022 and 2021.

·

Earning assets for the third 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 9% from $1.6 billion to $1.7 billion. Year-to-date the average balance of interest-earning cash increased $72.2 million, and the investment portfolio increased $50.4 million.  The average balance of the loan portfolio increased $16 million for the first nine 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 $22.0 million in the average balance of PPP loans over the comparative periods. The average balance of deposits for the year increased $173.2 million over the same period in 2021 with every deposit category increasing except for time deposits which decreased by 19.4% over the period.

·

There was no provision for loan loss expense for the third quarter and year-to-date periods of 2022.  In 2021, the provision for loan loss expense was $0 for the third quarter and a reversal of $1.9 million for the first nine 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.  Based on loan growth in 2022 and stable credit quality indicators it was determined no additional provision expense was needed during the first nine months of the year. The allowance for loan loss ratio was 1.43% of gross loans as of September 30, 2022, compared to 1.51% at December 31, 2021.

·

Noninterest income totaled $3.7 million for the third quarter of 2022 compared to $6.2 million in the third quarter of 2021, a decline of $2.5 million (40.7%). This change was due primarily to a $346 thousand decrease on the gain on sale of mortgages and a one-time $1.8 million gain on the sale of the Bank’s prior headquarters building in the third quarter of 2021.  Year-to-date, noninterest income decreased $3.3 million (21.9%) to $11.6 million compared to $14.9 million the prior year. The change was primarily from a decrease of $1.2 million in the gains on sale of mortgages and the previously mentioned gain on the sale of the Bank’s prior headquarters building.  

·

Noninterest expense for the third quarter of 2022 was $12.2 million compared to $11.0 million for the third quarter of 2021, an increase of 11.1%.  Year-to-date, noninterest expense was $35.5 million compared to $31.3 million in 2021, an increase of 13.5%. The categories contributing to this increase were: salaries and benefits ($2.6 million), data processing ($687 thousand), net occupancy ($402 thousand) and other expense ($492 thousand). Salaries and benefits increased primarily in employee compensation due to higher staffing levels, incentive compensation and health insurance costs. The increase in data processing is related to the implementation of a Customer Relationship Management system, while net occupancy increased from expenses for new leased space for community offices. Other expenses increased due to a reversal of $636 thousand off-balance sheet liability during the second quarter of 2021.  

·

Short-term interest-earning deposits in other banks increased $21.2 million. The amortized cost basis of the investment portfolio increased $31.3 million; however, the fair value of the portfolio decreased by $37.8 million due to higher market interest rates during the nine-month period.
The net loan portfolio increased $50.0 million during 2022 over the year-end 2021 balance.  The largest increase occurred in the commercial real estate portfolio ($48.6 million) which was partially offset by a decrease of $11.1 million in non-real estate commercial loans.  The Bank held $205 thousand in PPP loans at September 30, 2022, a decrease of $7.6 million since year-end 2021, and all PPP fees have been recognized.  

·

Deposits increased $120.6 million (7.6%) over year-end 2021, with all deposit products showing an increase except time deposits. Interest-bearing checking accounts showed the largest increase ($80.7 million – 15.8%), primarily in commercial and municipal accounts.  

·

Shareholders’ equity decreased $48.9 million since the end of 2021. Retained earnings increased $11.2 million, net of $4.3 million in dividend payments. Accumulated other comprehensive income (AOCI) decreased by $54.6 million as the fair value of the investment portfolio declined during the year due to higher market interest rates. At September 30, 2022, the book value of the Corporation’s common stock was $24.60 per share and the tangible book value was $22.55 per share. In December 2021, an open market repurchase plan was approved to repurchase 150,000 shares over a one-year period and 85,343 shares have been repurchased under the plan as of September 30, 2022. The Bank is considered to be well-capitalized under the regulatory guidance as of September 30, 2022.



FRANKLIN FINANCIAL SERVICES CORPORATION

Financial Highlights (Unaudited)



Earnings Summary

For the Three Months Ended

For the Nine Months Ended

(Dollars in thousands, except per share data)

9/30/2022

6/30/2022

9/30/2021

9/30/2022

9/30/2021

% Change



Interest income

$

$

$

$

$

Interest expense

    Net interest income

Provision for loan losses

 -

 -

 -

 -

-100.0%

Noninterest income

-21.9%

Noninterest expense

    Income before income taxes

-30.2%

Income taxes

-32.8%

Net income

$

$

$

$

$

-29.7%



Diluted earnings per share

$

$

$

$

$

-30.0%

Regular cash dividends declared

$

$

$

$

$



Balance Sheet Highlights (as of )

9/30/2022

6/30/2022

9/30/2021

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 Nine Months Ended

Performance Ratios

9/30/2022

6/30/2022

9/30/2021

9/30/2022

9/30/2021

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

** Market value as reported on the Nasdaq Capital Market as of September 30, 2022

(1) NonGAAP measurement.  See GAAP versus NonGAAP disclosure



NonGAAP

(Dollars in thousands, except per share)

As of

As of

As of



September 30, 2022

June 30, 2022

September 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)