Franklin Financial

Two troubled loans have given Franklin Financial Network executives nearly $19 million of indigestion as they prepare to sell their company to their local peers at FB Financial Corp.

Franklin Financial, the parent of Franklin Synergy Bank, reported its fourth-quarter results — a net profit of $9.7 million versus $3.7 million in the last three months of 2018 — on Jan. 21, the same day it and FB Financial announced their planned union. The company’s leaders said then that their loan loss provisions for the year totaled $13.3 million, a number that included nearly $1.9 million allocated to two relationships in the bank’s health care and corporate loan portfolios.

Less than two months later, Franklin Financial’s loan loss provision has swollen to more than $32.0 million after the company’s year-end audit process showed that those two borrowers’ situations had meaningfully worsened.

“Our determination to record this additional provision was primarily the result of certain developments and circumstances regarding the collectability of these two relationships that arose following our earnings release, and have been amplified by various macroeconomic developments,” bank executives wrote in their recently filed annual report.

Franklin Financial execs said they expect to lose loans and deposits from at least one of the two customers in question, losses that would show up in the company’s first-quarter results due in about a month.

Because of the market’s COVID-19 and oil industry turmoil, the value of the planned FB Financial-Franklin Financial deal has shrunk from about $600 million to a little less than $300 million.

Shares of Franklin Financial (Ticker: FSB) closed down nearly 5 percent Wednesday at $19.68. A month ago, they were changing hands above $35.

This post originally appeared in our sister publication, the Nashville Post. 

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