Franklin Financial Services Corporation · NASDAQ:FRAF
Franklin Financial Services — Debt Investor Presentation (August 2020)
36 slides from Franklin Financial Services's debt investor presentation, Aug 5, 2020
Slide 1: Subordinated Notes Offering Presentation July 2020
Franklin Financial Services Corporation Subordinated Notes Offering Presentation July 2020
Slide 2: Forward-Looking Disclaimer
Forward-Looking Disclaimer This presentation includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, with respect to the financial condition, liquidity, results of operations,
Slide 3: Terms of the Offered Securities
Terms of the Offered Securities Issuer: Franklin Financial Services Corporation (the “Company”, “FRAF”) the 100% holding company of Farmers and Merchants Trust Company of Chambersburg (the "Bank“, “F&M Trust”) Security: Subordinated Debt Principal Amount: $15 million Term: 10-year, no-call 5-year Co
Slide 4: Pro Forma Capital Structure and Regulatory Capital Ratios
Pro Forma Capital Structure and Regulatory Capital Ratios Note: For illustrative purposes, bank capital ratios assumes 90% ($13.5 million) of $15 million in proceeds raised is down-streamed to the bank. At March 31, 2020 $124,349 $10,637 Pro Forma $124,349 $15,000 $10,637 Common Equity Tier Capital
Slide 5: Interest Coverage and Double Leverage COVID-19 What-if Scenario #1
Interest Coverage and Double Leverage Franklin Financial Services Corporation 5 COVID-19 What-if Scenario #1 ($ in thousands) 25% Reduction Interest Coverage 2019 2020E PF 2020E PF Consolidated Pre-Tax Earnings Consolidated Pre-Tax Income Excluding Securities Gains (1) 18,673 14,001 10,501 Interest
Slide 6: F&M Trust | Overview
F&M Trust | Overview Corporate Overview Founded in 1906 Headquartered in Chambersburg, PA Operates 24 locations across Pennsylvania; branches located in Franklin, Cumberland, Fulton, and Huntingdon Single Bank Holding Company (Franklin Financial Services Corp.) is 100% owner of one subsidiary, F&M T
Slide 7: Investment Highlights
Investment Highlights Experienced Management Team Senior management has decades of experience in the community banking industry and both the CEO & CFO have been banking in the Mid- Atlantic for the entirety of their careers Tim Henry, President & CEO of FRAF, is a well-respected figure in Pennsylvan
Slide 8: 2nd Quarter 2020 Preliminary Performance
2nd Quarter 2020 Preliminary Performance Q2 2020 Guidance Estimated Q2 2020 balance sheet highlights (include $61 million of PPP loans): Total assets of approximately $1.4 billion compared to $1.3 billion at Q1 2020 Gross loans of approximately $1.0 billion compared to $936 million at Q1 2020 Invest
Slide 9: Experienced Management Team
Experienced Management Team Franklin Financial Services Corporation 9
Slide 10: Experienced Management Team | Key Biographies
Experienced Management Team | Key Biographies Name Title Age Biography Timothy G. Henry President, CEO & Director 62 Mr. Henry joined Franklin Financial Service Corp and Farmers & Merchants Trust Company of Chambersburg, PA as President and a Director on February 1, 2016. He became Chief Executive O
Slide 11: Notable Profitability Metrics
Notable Profitability Metrics Franklin Financial Services Corporation 11
Slide 12: Sustains Positive Income YoY
Notable Profitability Metrics | Sustains Positive Income YoY Great Recession Franklin Financial has outstanding earnings over the last 20 years measured by ROAE and ROAA and has never had a yearly loss. ROAA 2.50% 2.25% 2.00% 1.75% 1.50% 1.25% 1.00% 0.75% 0.50% 0.25% 0.00% ROAE 20.00% 18.00% 16.00%
Slide 13: Strong Profitability via Expense Controls
Notable Profitability Metrics | Strong Profitability via Expense Controls Efficiency Ratio Efficiency Ratio Net Noninterest Expense / Avg Assets (%) Efficiency Ratio 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 90.0% Net Noninterest Expense / Avg. Assets 1.20% 1.40% 1.60% 1.80% 2.00% 2.20% 2
Slide 14: Stable Net Interest Margin
Notable Profitability Metrics | Stable Net Interest Margin Net Interest Income (NII) and Net Interest Margin (NIM) (S in thousands) ^ Net interest Income NIM $50,000 $45,000 $40,000 $35,000 $30,000 $25,000 $20,000 $15,000 $10,000 $5,000 $- $34,734 $37,394 $40,654 $42,122 $10,252 3.62% 3.72% 3.78% 3.
Slide 15: NIM vs. Net NIE / Avg. Assets
Notable Profitability Metrics | NIM vs. Net NIE / Avg. Assets 5.00% 4.50% 4.00% 3.50% 3.00% 2.50% 2.00% 1.50% 1.00% 0.50% 3.83% 3.80% 3.73% 3.68% 3.52% 3.52% 1.93% 2.10% 1.98% 1.72% 1.89% 2.00% 2018Q4 2019QA 2019Q2 2019Q3 2019Q4 2020Q1 Net Interest Margin Net Noninterest Expense/AA Net NIE / AA = (N
Slide 16: Core Revenue Detail
Notable Profitability Metrics | Core Revenue Detail (S in thousands) Total Revenue Noninterest Expense «Noninterest Income $60,000 $50,000 $40,000 $30,000 $20,000 $10,000 $- $43,874 $21,104 $11,630 2015Y $46,312 $33,206 $11,578 2016Y $49,606 $43,198 $12,212 2017Y $53,223 $37,374 $12,569 2018Y $56,11
Slide 17: Solid Investment Portfolio
Notable Profitability Metrics | Solid Investment Portfolio Asset Class Breakdown US Treasury and Agency Secs 7.4% Other Debt Secs 1.7% State & Political Subdiv Secs 46.7% RMBS 24.7% ABS CMBS 9.2% 10.3% Portfolio Management Statistics The securities portfolio, largely consisting of mortgage backed se
Slide 18: Consistently Well-Capitalized
Consistently Well-Capitalized Franklin Financial Services Corporation 18
Slide 19: Regularly above Capital Thresholds
Consistently Well-Capitalized | Regularly above Capital Thresholds 20.00% 18.00% 16.00% 14.00% 12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% 13.79% 13.15% 13.00% 14.03% 14.74% 13.85% 11.91% 12.28% 11.02% 10.89% 11.73% 12.14% 12.60% 14.24% 15.49% 16.03% 15.67% 15.31% 15.21% 16.08% 15.99% Well-Capitaliz
Slide 20: Diversified Loan Portfolio & Asset Quality
Diversified Loan Portfolio & Asset Quality Franklin Financial Services Corporation 20
Slide 21: Diversified Loan Portfolio | Moderate Loan Growth Over Time
Diversified Loan Portfolio | Moderate Loan Growth Over Time Loan Trends ($ in millions) $1,000 $800 $600 $400 $200 $- $894 2016Y $944 2017Y $973 2018Y $937 2019Y $939 2020Q1 Loan Composition(1) Consumer 0.7% Other 15.8 % Non-Owner Occ. CRE 21.9% 1-4 Family 21.0% Owner Occ. CRE 16.2% Constr & Land De
Slide 22: Diversified Loan Portfolio | Historical Loan Composition
Diversified Loan Portfolio | Historical Loan Composition Farmers and Merchants Trust Company of Chambersburg Loan Composition Since 2016 12/31/2016 12/31/2017 12/31/2018 12/31/2019 03/31/2020 Loan Composition Balance % of Total Balance % of Total Balance % of Total Balance % of Total Balance % of To
Slide 23: Asset Quality | Nonperforming Assets Dwindling Since 2012
Asset Quality | Nonperforming Assets Dwindling Since 2012 NPAs/Assets Reserves/Loans 8.00% 7.00% 6.00% 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% 1.75% 1.50% 1.25% 1.00% 0.75% 0.50% 0.25% 1.28% 1.32% 1.34% 1.08% 1.38% 1.36% 1.29% 1.29% 1.09% 1.21% 1.18% 1.27% 1.38% 1.34% 1.25% 1.29% 1.24% 1.25% 1.28% 1.28%
Slide 24: Asset Quality | Non-Performing Assets Commentary
Asset Quality | Non-Performing Assets Commentary Non-Accrual Loans by Type as of March 31, 2020(1) Asset Quality Detail as of March 31, 2020: NPAs / Assets: 1.03% NPLs / Loans: 1.39% Restructured loans (“TDRs”): $9.34mm No OREO Texas Ratio of 9.68% COVID Detail as of May 31, 2020: 283 Loan modificat
Slide 25: Asset Quality | Strong Asset Quality & Reserve Coverage
Asset Quality | Strong Asset Quality & Reserve Coverage NPLs / Loans(1) 2.10% 1.88% 1.80% 1.50% 1.20% 0.90% 0.60% 0.30% 0.00% 1.88% 1.51% 1.21% 1.52% 1.39% 2016Y 2017Y 2018Y 2019Y 2020Q1 NCOs / Avg. Loans 1.20% 1.00% 0.80% 0.60% 0.40% 0.20% 0.00% -0.20% 0.33% -0.01% 0.97% 0.07% 0.10% 2016Y 2017Y 201
Slide 26: Measured Growth & Risk Mitigation
Measured Growth & Risk Mitigation Financial Services Corporation 26
Slide 27: Balance Sheet Growth
Measured Growth & Risk Mitigation | Balance Sheet Growth Total Assets ($ in millions) $2,000 $1,500 $1,000 $500 $- $1,127 $1,180 $1,210 $1,269 $1,262 CAGR: 3.5% 2016Y 2017Y 2018Y 2019Y 2020Q1 Total Loans ($ in millions) $1,600 $1,200 $800 $400 $- CAGR: 1.5% $894 $944 $973 $937 $939 2016Y 2017Y 2018Y
Slide 28: Deposit Composition
Measured Growth & Risk Mitigation | Deposit Composition Deposit Composition(1) Retail Time 6.6% Jumbo Time 0.9% Money Market 38.5% Other Savings 36.6% Transaction Accts 17.3% MRQ Cost of Funds: 0.51% Total Deposits ($ in millions) $1,200 $900 $600 $300 $- $982 2016Y $1,047 2017Y $1,083 2018Y $1,125
Slide 29: Liquidity Sources
Measured Growth & Risk Mitigation | Liquidity Sources (Dollars in thousands) Liquidity Source Federal Home Loan Bank $ Federal Reserve Bank Discount Window Correspondent Banks Total $ Capacity' Outstanding Available 377,600 $ — S 377,600 21,000 — 21,000 21,000 — 21,000 419,600 $ — s 419,600 FRA
Slide 30: Strong Deposit Market Share Presence
Measured Growth & Risk Mitigation | Strong Deposit Market Share Presence Franklin, PA 2019 2019 2019 2019 Deposits Market Rank Institution (ST) Branches ($000s) Share (%) 1 Franklin Financial Services (PA) 13 757,427 34.08% 2 Truist Financial Corp. (NC) 5 510,418 22.97% 3 Orrstown Financial Services
Slide 31: Balanced Interest Rate Profile
Measured Growth & Risk Mitigation | Balanced Interest Rate Profile Net Interest Income Sensitivity Profile Interest Rate Scenario -100 Base 100 200 300 400 Net Interest Income Change - Next 12 Months -4.2% 0.0% 3.0% 6.5% 9.9% 13.4% Net Interest Income Change - Year 2 -11.6% 0.0% 5.9% 12.2% 18.1% 23.
Slide 32: F&M Trust PT Score
Measured Growth & Risk Mitigation | F&M Trust PT Score PT Score Overview 0 100 200 300 400 500 PT Score 110 National Median: 145 Capital Score 20 Asset Quality Score 52 Earnings Score 8 Liquidity Score 10 Sensitivity Score 20 National Median: 21 National Median: 42 National Median: 25 National Media
Slide 33: Appendix
Appendix Franklin Financial Services Corporation 33
Slide 34: Consolidated Financial Highlights
A ppendix | Consolidated Financial Highlights For the Years Ended: 12/31/2016 12/31/2017 12/31/2018 12/31/2019 Total Assets ($000) 1,127,443 1,179,813 1,209,587 1,269,157 Total Net Loans ($000) 883,338 932,350 961,078 924,649 Total Deposits ($000) 982,120 1,047,181 1,082,629 1,125,392 Tangible Equit
Slide 35: Consolidated Balance Sheet
Appendix | Consolidated Balance Sheet Year-Ended December 31, March 31, (dollars show n in thousands) 2016 2017 2018 2019 2020 Assets Cash & Cash Equivalents $ 36,665 $ 58,603 $ 52,957 $ 92,574 $ 64,088 Securities $ 145,925 $ 128,053 132,499 188,533 209,011 Cash and Securities Investment in Non-Bank
Slide 36: Consolidated Income Statement
Appendix | Consolidated Income Statement Year-Ended December 31, Q1 (dollars show n in thousands) 2016 2017 2018 2019 2020 Total Interest and Dividend Income 36,979 39,885 44,868 49,235 11,665 Interest Expense: Deposits 2,212 2,475 4,190 7,077 1,413 Borrowings and Debt 33 16 24 36 - Total Interest E
Franklin Financial Services — Debt Investor Presentation (August 2020) on 6ix