Franklin Financial Network, Inc. (NYSE:FSB) Q2 2019 Earnings Conference Call - Final Transcript

Jul 25, 2019 • 09:00 am ET

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Franklin Financial Network, Inc. (NYSE:FSB) Q2 2019 Earnings Conference Call - Final Transcript

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Presentation
Executive
Myers Jones

preannounced -- we, as preannounced, we had one nonrecurring credit event take place in the second quarter and we filed a Form 8-K last week providing details about the situation. We expect no further negative impact as we have fully accounted for the amount of our exposure through either a specific reserve or charging off the balance of this relationship.

We see no deterioration in the rest of our portfolio. In fact, we recently had a third party perform a top to bottom portfolio review of our corporate and healthcare loans, including our SNCs, resulting in no material risk rate changes. This is effectively a clean bill of health at this given point in time. Aside from the single event, our credit metrics and asset quality remains strong. Regarding our ongoing search for a permanent CEO, to date, we have gone through a very deliberate process whereby we have identified a search firm. We expect to announce the results of that process in due course as we continue to make positive progress toward achieving the long-term objectives set forth by our Board of Directors.

Now I'll turn over to Chris to discuss the final -- the financial results in more detail.

Executive
Chris Black

Thank you, Myers, and good morning, everyone. I'll be referring to the quarterly earnings presentation as available on our Investor Relations page. On Page 2, we list a number of specific financial highlights and results that summarize the quarter. We had core organic loan growth of $73 million or just over 10% on an annualized basis within our guidance of low double digits.

Growth came from all areas of the franchise and the composition of our portfolio is consistent with the first quarter. We further reduced our securities portfolio, which now represents 20% of assets, down from 32% a year ago. That is a reduction of more than $520 million during the last 12 months. Core deposits, which consists of our retail and reciprocal deposits, grew at a rate of 16% from the same time last year and are basically flat from the first quarter.

During the same time, we reduced our brokered deposit portfolio by 14.5% as we continue to focus on strengthening our balance sheet through the reduction of non-core funding sources. Taking that all together, strong organic loan growth funded with core deposits, a reduction in our securities portfolio and a reduction in our wholesale funding, our net interest margin expanded by 4 basis points to 2.84% and the monthly trends through the quarter remained strong. Our cost of deposits remained essentially flat from last quarter at 2.07% and our yield on loans held for investment remained flat from last quarter at 5.61%. Our balance sheet optimization strategies have allowed us to protect margin in this low interest rate environment.

I also would like to mention that, as we discussed last quarter, our intention is to opportunistically reduce the SNCs in our loan portfolio that we consider to be non-relationship-based. This can occur in a number