-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JJ4kq0VzkgCIsRWXB0zlV3cVraaS+VmJ84cKkBcWPZ85IcRUlj9X+8qva2tW5LCS xXv+gRBSyxhEH/OdAycIPA== 0000723646-97-000012.txt : 19971113 0000723646-97-000012.hdr.sgml : 19971113 ACCESSION NUMBER: 0000723646-97-000012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971113 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FRANKLIN FINANCIAL SERVICES CORP /PA/ CENTRAL INDEX KEY: 0000723646 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 251440803 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-12126 FILM NUMBER: 97716245 BUSINESS ADDRESS: STREET 1: P O BOX T CITY: CHAMBERSBURG STATE: PA ZIP: 17201-0819 BUSINESS PHONE: 7172646116 MAIL ADDRESS: STREET 1: P O BOX T CITY: CHAMBERSBURG STATE: PA ZIP: 17201 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1997 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ....... to ....... Commission file number 0-12126 FRANKLIN FINANCIAL SERVICES CORPORATION (Exact name of registrant as specified in its charter) PENNSYLVANIA 25-1440803 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 20 SOUTH MAIN STREET (P.O. BOX T), CHAMBERSBURG,PA 17201-0819 (Address of principal executive officer) 717/264-6116 (Registrant's telephone number, including area code) (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes No APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. There were 1,863,165 outstanding shares of the Registrant's common stock as of November 6, 1997. INDEX Page PART I - FINANCIAL INFORMATION Item 1 - Financial Statements Consolidated Balance Sheets 2 as of September 30, 1997 (Unaudited) and December 31, 1996 Consolidated Statements of 3 Income for the Nine Months ended September 30, 1997 and 1996 (unaudited) Condensed Consolidated Statements of 4 Changes in Shareholders' Equity for the Twelve and Nine Months ended December 31, 1996 and September 30, 1997 (unaudited) Consolidated Statements of Cash 5 Flows for the Nine Months Ended September 30, 1997 and 1996 (unaudited) Notes to Condensed Consolidated Financial 6 Statements (unaudited) Item 2 - Management's Discussion and Analysis of 11 Financial Condition and Results of Operations PART II - OTHER INFORMATION Item 6 - Exhibits and Reports on Form 8-K 16 SIGNATURE PAGE 17
CONSOLIDATED BALANCE SHEETS (Amounts in Thousands) September 30 December 31 1997 1996 (unaudited) ASSETS Cash and due from banks $9,312 $10,265 Interest bearing deposits in other banks 305 256 Investment securities held to maturity (Market value of $29,695 and $36,199 at September 30, 1997 and December 31, 1996 respectively) (Note 3) 29,479 36,290 Investment securities available for sale (Note 3) 61,082 53,502 Loans, net 236,669 221,166 Premises and equipment, net 6,133 6,698 Other assets 8,413 7,943 Total Assets $351,393 $336,120 LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: (Note 4) Demand (non-interest bearing) $35,618 $34,847 Savings and Interest checking 111,738 104,763 Time 117,648 128,592 Total Deposits 265,004 268,202 Securities sold under agreements to repurchase 14,108 15,122 Other borrowings 31,701 14,891 Other liabilities 3,018 2,564 Total Liabilities 313,831 300,779 Commitments and Contingencies - - Shareholders' equity: Common stock $1 par value per share, 5,000 shares authorized with 2,030 shares issued and 1,862 and 1,890 outstanding at September 30, 1997 and December 31,1996, respectively 2,030 2,030 Capital stock without par value, 5,000 shares authorized with no shares issued or outstanding - - Additional paid in capital 19,744 19,745 Retained earnings 19,786 17,590 Net unrealized gain on securities 1,581 613 Treasury stock (Note 5) (4,787) (3,830) Unearned compensation (792) (807) Total shareholders' equity 37,562 35,341 Total Liabilities and Shareholders' Equity $351,393 $336,120 The accompanying notes are an integral part of these statements
CONSOLIDATED STATEMENTS OF INCOME (amounts in thousands, except per share) (Unaudited) For the Three For the Nine Months Ended Months Ended September 30 September 30 1997 1996 1997 1996 INTEREST INCOME Interest on loans $5,405 $5,168 $15,707 $14,883 Interest on deposits in other banks 4 3 25 199 Interest and dividends on investments (Note 2) 1,315 1,227 3,905 3,464 Total interest income 6,724 6,398 19,637 18,546 INTEREST EXPENSE Interest on deposits 2,567 2,403 7,482 7,366 Interest on securities sold under repurchase agreements and other borrowings 606 371 1,535 917 Total interest expense 3,173 2,774 9,017 8,283 Net interest income 3,551 3,624 10,620 10,263 Provision for possible loan loss 253 96 638 321 Net-interest income after provision for possible loan losses 3,298 3,528 9,982 9,942 NONINTEREST INCOME Trust commissions 354 289 1,022 880 Service charges, commissions and fees 366 349 1,404 1,373 Other 108 239 156 484 Net securities gains 189 (1) 393 77 Total noninterest income 1,017 876 2,975 2,814 NONINTEREST EXPENSE Salaries and benefits 1,677 1,636 4,814 4,877 Net occupancy expense 153 129 468 385 Furniture and equipment expense 204 187 583 548 FDIC insurance 11 136 33 163 Other 940 909 2,666 2,485 Total noninterest expense 2,985 2,997 8,564 8,458 Income before income tax provision 1,330 1,407 4,393 4,298 Income tax provision 291 345 1,036 1,050 Net income $1,039 $1,062 $3,357 $3,248 Earnings per share Net income per share $0.57 $0.60 $1.84 $1.72 Weighed avergage shares outstanding 1,819,015 1,761,750 1,828,437 1,886,702 The accompanying notes are an intergral part of these statements.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY for the year ended December 31, 1996 and the Nine Months ended September 30, 1997 (Amounts in thousands, except per share ) Net Additional Unrealized Common Paid-in Retained Gain/(Loss) Treasury Unearned Stock Capital Earnings on Securities Stock Compensation Total Balance at December 31, 1995 $2,030 $19,431 $14,966 $677 ($2,053) ($95) $34,956 Net Income - - 4,127 - - - 4,127 - - - - - Cash dividends, $.78 per share - - (1,503) - - - (1,503) - - - Common stock issued under stock option plans - (33) - - 233 - 200 Change in net unrealized gain on - - - (64) - - (64) securities Restricted stock issued under long-term incentive compensation plan (28,926 shares, net of forfeitures) - 177 - - 672 (849) 0 Acquisition of 88,604 shares of treasury stock at cost - - - - (2,682) - (2,682) Tax benefit of restricted stock tranaction - 170 - - - - 170 Amortization of unearned compensation - - - - - 137 137 Balance at December 31, 1996 2,030 19,745 17,590 613 (3,830) (807) 35,341 Net income - - 3,357 - - - 3,357 Cash Dividends, $.62 per share - - (1,161) - - - (1,161) Common stock issued under stock option plans - 10 - - 250 - 260 Change in net unrealized gain on - - - 968 - - 968 securities Restricted stock issued under long-term incentive compensation plan - (11) - - - (73) (84) (2,174 shares) Acquisition of 35,983 shares of treasury stock at cost (Note 5) - - - - (1,207) - (1,207) Amortization of unearned compensation - - - - - 88 88 Balance at September 30, 1997 $2,030 $19,744 $19,786 $1,581 ($4,787) ($792) $37,562 (unaudited) The accompanying notes are an integral part of these statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in Thousands) Unaudited For the Nine Months Ended September 30 1997 1996 Cash flows from operating activities: Net Income $3,357 $3,248 Adjustments to reconcile net income to net cash provided (used) by operating activities: Depreciation 583 549 Premium amortization on investment securities 90 78 Discount accretion on investment securities (117) (93) Provision for possible loan losses 638 321 Securities gains, net (393) (77) Principal gains on sales of mortgage loans (47) (47) Proceeds from sale of mortgage loans 8,487 11,702 Loss (Gain) on sale of premises and equipment 37 (89) Loan charge-offs, net of recoveries (445) (511) Increase in interest receivable (390) (144) Increase in interest payable 116 200 Decrease in unearned discount (99) (307) Increase in prepaid and other assets (13) (533) (Decrease) Increase in accrued expenses and other liabilities (160) 439 Other, net 95 176 Net cash provided by operating activities $11,739 $14,912 Cash flows from investing activities: Proceeds from sales of investment securities available for sale 3,887 118 Proceeds from maturities of investment securities held to maturity 7,586 5,900 Proceeds from maturities of investment securities available for sale6,974 10,727 Purchase of investment securities held to maturity (775) (7,729) Purchase of investment securities available for sale (16,582) (15,898) Net increase in loans (24,037) (19,517) Capital expenditures (332) (1,156) Proceeds from sales of premises and equipment 146 223 Net cash (used) in investing activities (23,133) (27,332) Cash flows from financing activities: Net increase in demand deposits, NOW accounts and savings accounts 7,746 2,150 Net (decrease) increase in certificates of deposit (10,944) 1,616 Dividends (1,161) (1,123) Common stock issued under stock option plans 260 172 Purchase of treasury shares (1,207) (2,180) Cash inflows from other borrowings 15,796 8,830 Net cash provided by financing activities 10,490 9,465 (Decrease) in cash and cash equivalents (904) (2,955) Cash and cash equivalents as of January 1 10,521 14,904 Cash and cash equivalents as of September 30 $9,617 $11,949 The accompanying notes are an integral part of these statements.
FRANKLIN FINANCIAL SERVICES CORPORATION and SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 1 - Basis of Presentation The consolidated balance sheets as of September 30, 1997 and December 31, 1996, the consolidated statements of income for the three month and nine-month periods ended September 30, 1997 and 1996, the condensed consolidated statements of changes in shareholders' equity as of December 31, 1996 and September 30, 1997 and the consolidated statements of cash flows for the nine-month periods ended September 30, 1997 and 1996 have been prepared by the Corporation, without audit where indicated. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows at September 30, 1997, and for all periods presented have been made. The consolidated financial statements include the accounts of Franklin Financial Services Corporation (the Corporation), and its wholly-owned subsidiary, Farmers and Merchants Trust Company of Chambersburg. All significant intercompany transactions and account balances have been eliminated. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that these condensed consolidated financial statements be read in conjunction with the audited financial statements and notes thereto included in the Corporation's 1996 Annual Report. The results of operations for the period ended September 30, 1997, are not necessarily indicative of the operating results for the full year. For purposes of reporting cash flows, cash and cash equivalents include cash, due from banks, interest-bearing deposits in other banks and federal funds sold. Generally, Federal funds are purchased and sold for one-day periods. Supplemental disclosures of cash flows information are as follows: Cash paid for nine months ended September 30: 1997 1996 Interest paid on deposits and other borrowed funds . . . . . $8,930,000 $8,083,000 Income taxes paid $ 775,000 $935,000 Note 2. Capital Adequacy Quantitative measures established by regulation to ensure capital adequacy require financial minimum amounts and ratios of total and Tier I capital to risk-weighted assets and of Tier I The Capital ratios of the Corporation and its bank subsidiary are as follows: As of September 30, 1997 (unaudited) To be well Capitalized Under For Capital Prompt Corrective Actual Adequacy Purposes Action Provisions (Amounts in thousands) Amount Ratio Amount Ratio Amount Ratio Total Capital (to Risk Weighted Assets) Corporation $36,948 15.62% $18,919 8.00% $23,648 10.00% Bank 32,961 14.11% 18,689 8.00% 23,361 10.00% Tier I Capital (to Risk Weighted Assets) Corporation $33,988 14.37% $9,459 4.00% $14,189 6.00% Bank 30,037 12.86% 9,344 4.00% 14,017 6.00% Tier I Capital (to Average Assets) Corporation $33,988 9.66% $14,071 4.00% $17,589 5.00% Bank 30,037 8.70% 13,815 4.00% 17,268 5.00%
Note 3 - Investment Securities Amortized cost and estimated market values of investment securities as of September 30, 1997 (unaudited), and December 31, 1996, were as follows (amounts in thousands): Held to Maturity September 30 December 31 1997 1996 Estimated Estimated Amortized Market Amortized Market Cost Value Cost Value U.S. Treasury securities and obligations of U.S. Government agencies & corporations $1,035 $1,044 $1,051 $1,058 Obligations of state and political subdivisions 15,475 15,663 19,496 19,536 Corporate debt securities 2,404 2,412 3,688 3,677 Mortgage - backed securities 8,938 8,949 10,832 10,705 27,852 28,068 35,067 34,976 Other 1,627 1,627 1,223 1,223 $29,479 $29,695 $36,290 $36,199 Available for sale September 30 December 31 1997 1996 Estimated Estimated Amortized Market Amortized Market Cost Value Cost Value Equity securities $1,412 $3,256 $1,380 $2,490 U.S. Treasury securities and obligations of U.S. Government agencies & corporations 21,962 22,100 27,054 27,055 Obligations of state and political subdivisions 14,916 15,376 1,934 1,930 Corporate debt securities 5,032 5,059 5,046 5,058 Mortgage - backed securities 15,365 15,291 17,159 16,969 $58,687 $61,082 $52,573 $53,502
Interest income and dividends received on investment securities for the three and nine months ended September 30, 1997 and 1996 are as follows (amounts in thousands): Three Months Nine Months 1997 1996 1997 1996 (Unaudited) (Unaudited) U.S. Government Obligations $73 $87 $221 $244 Obligations of U.S. Government Agencies and Corporations 631 646 2,015 1,873 Obligations of States and Political Subdivisions 401 260 1,014 747 Other Securities, primariy Notes and Debentures 152 199 542 498 Common Stock 58 35 113 102 $1,315 $1,227 $3,905 $3,464
Note 4 - Deposits Deposits are summarized as follows (amounts in thousands): September 30 December 31 1997 1996 (Unaudited) Demand $35,618 $34,847 Savings Interest-bearing checking 33,535 34,473 Money Market Accounts 36,200 25,288 Passbook and Statement Savings 42,003 45,002 $111,738 $104,763 Time Deposits of $100,000 and over 15,211 30,345 Other Time Deposits 102,437 98,247 117,648 128,592 Total Deposits $265,004 $268,202
NOTE 5 - Treasury Stock The Corporation repurchased 12,500 shares of Franklin Financial Services Corporation common stock during the third quarter ended September 30, 1997. The cumulative total of common shares repurchased during the nine-month period ended September 30, 1997 was 35,983 at a cost of approximately $1,207,000. These shares were acquired pursuant to the stock repurchase program approved by the Board of Directors in the first quarter of 1997. Under the program, the Corporation is authorized to repurchase up to 100,000 shares in open market transactions through dealers. Note 6 - New Accounting Standards In February 1997, the Financial Accounting Standards Board (FASB) issued Statement No. 128, "Earnings Per Share" effective for fiscal years ending on or after December 15, 1997. This Statement establishes new standards for computing and presenting earnings per share (EPS) and makes earnings per share comparable to international standards. The Statement prohibits early application and requires restatement of all prior-period EPS data presented after its effective date. The EPS as currently reported is the same as the Basic EPS required by the Statement. The newly required Diluted EPS is not expected to be materially different than the Basic EPS. Management's Discussion and Analysis of Results of Operations and Financial Condition for the Three and Nine Month Periods Ended September 30, 1997 Part 1, Item 2 Results of Operations Net income for the third quarter and nine months ended September 30, 1997, was $1.0 million and $3.4 million, respectively, compared to $1.1 million and $3.2 million, respectively, for the same periods in 1996. Earnings per share recorded a decrease of 5.0% to $.57 for the thrid quarter of 1997 and an increase of 7.0% to $1.84 for the nine months ended September 30, 1997. Earnings per share reported for the third quarter and nine months ended September 30, 1996 was $.60 and $1.72, respectively. Per share earnings are weighted to reflect the impact of the stock repurchase program. Book value per share equaled $20.17 at September 30, 1997 versus $18.39 one year earlier. The Corporation's annualized return on average assets (ROA) and return on average equity (ROE) for the first nine months of 1997 were 1.31% and 12.47%, respectively, compared to 1.36% and 12.47%, respectively, for the first nine months of 1996. Net interest income decreased $73,000 for the third quarter of 1997 to $3.5 million cmpared to the same quarter in 1996. The decrease in net interest income for the third quarter of 1997 versus the third quarter of 1996 was driven primarily by changes in rates paid on interest-bearing liabilities offset to a large degree by increased volume in interest-earning assets. During the third quarter of 1997, the yield on interest-earning assets decreased 2 basis points while the average volume increased approximately $26 million when compared to the same period in 1996; at the same time rates paid on interest-bearing liabilities increased 18 basis points and the average volume increased approximately $24 million. Commercial loan demand was strong during the third quarter of 1997 versus the third quarter of 1996 as evidenced by increased average volume totaling approximately $11 million followed by higher consumer loan volume totaling $6 million. The average volume of investment securities grew approximately $6 million period to period primarily the result of purchasing state and municipal tax-exempt securities. Growth in interest-bearing liabilities occurred mainly in money market deposit accounts and overnight borrowings with the Federal Home Loan Bank of Pittsburgh. Net interest income for the nine-month period ended September 30, 1997, increased 3.5%, or $357,000, to $10.6 million from $10.3 million for the same period ended September 30, 1996. The increase of $1.1 million in interest income and $.7 million in interest expense for the nine-month period was driven primarily by increases in volume of interest-earning assets and interest-bearing liabilities rather than increases in interest rates. Following the same trend as the third quarter, commercial and consumer loan demand and purchases of investment securities were the primary contributors to the growth in earning assets for the nine month period ended September 30, 1997 compared to the same period in 1996. For the nine-month period in 1997, the growth in interest-bearing liabilities occurred primarily in borrowings with the Federal Home Loan Bank. The Corporation's yield on earning assets for the first nine months of 1997 was 8.36% and the cost of funds for the same period was 4.49%. This compares with 8.36% and 4.46%, respectively, for the yield on earning assets and the cost of funds for the first nine months of 1996. The interest spread and net interest margin for the nine months ended September 30, 1997 were 3.87% and 4.62%, respectively, compared to 3.90% and 4.70%, respectively, one year earlier. The Corporation expensed $253,000 and $638,000 for possible loan losses in the third quarter and first nine months, respectively, of 1997 versus $96,000 and $321,000, respectively, for the same periods in 1996. Continued consumer loan charge-offs and the growth of the total loan portfolio are the two factors responsible for the increased loan loss provision. Net charge-offs for the third quarter and first nine months of 1997 were $100,000 and $445,000, respectively, compared to $94,000 and $512,000, respectively, for the same periods in 1996. Total noninterest income, excluding net securities gains, decreased 5.6%, or $49,000 to $828,000 for the third quarter ended September 30, 1997, from $877,000 for the third quarter ended September 30, 1996. Other noninterest income decreased $54.8%, or $131,000, to $108,000 largely offset by an increase of $65,000, or 22.5%, to $354,000 in trust commissions for the quarter. The decrease in other noninterest income was mainly due to nonrecurring income recorded during the third quarter of 1996. Income from trust commissions was up primarily as a result of significant growth in trust assets under management. Total noninterest income, excluding net securities gains, for the nine months ended September 30, 1997, decreased 5.6%, or $155,000 to $2.6 million from $2.7 million at September 30, 1996. Other noninterest income recorded a decrease of $328,000 to $156,000 and was partially offset by increases in trust commission income ($142,000) and income from service charges, commissions and fees ($31,000). As reported above, the decrease in other income for the first nine months of 1997 versus 1996 was due primarily to nonrecurring income recorded in 1996. Also, the increase in trust commission income is related to the 38.2% growth in trust assets under management during the twelve month period between September 30, 1996 and 1997. Net securities gains for the third quarter and nine months ended September 30, 1997, were $189,000 and $393,000, respectively, compared to a net securities loss of $1,000 for the third quarter of 1996 and a net securities gain of $77,000 for the nine months ended September 30, 1996. The net securities gains realized were from the available-for-sale equities portfolio. Total noninterest expense for the third quarter ended September 30, 1997 recorded a slight decrease of $12,000 to $2.98 million compared to $2.99 million for the same quarter a year earlier. Contributing to the decrease was a significant reduction in FDIC insurance expense offset by increases in other operating expenses. Net occupancy and funiture and equipment expense were up a total of $41,000 for the third quarter related primarily to higher costs associated with the opening of three new branch offices in the fourth quarter of 1996. FDIC insurance expense decreased $125,000 quarter to quarter largely due to a third quarter 1996 one-time industry-wide assessment for recapitalization of the Savings Association Insurance Fund (SAIF). Total noninterest expense for the nine months ended September 30, 1997 increased 1.2%, or $106,000, to $8.6 million from $8.5 million for the same period one year earlier. Net occupancy and furniture and equipment expense increased a total of $118,000 due to added costs related to the opening of three new branch offices. FDIC insurance expense decreased by $130,000 primarily due to the one time industry-wide assessment to recapitalize SAIF. Other expense for the nine months ended September 30, 1997 was up $181,000 to $2.7 million versus the same period in 1996 largely due to higher costs associated with legal and professional fees ($58,000), a loss on real estate sold ($40,000), and a writedown of buildings slated for demolition ($63,000). Federal income tax expense for the third quarter and nine months ended September 30, 1997 equaled $291,000 and $1.0 million, respectively, compared to $345,000 and $1.0 million, respectively, for the same periods ended September 30, 1996. The effective tax rate for the nine months ended September 30, 1997 and 1996 was 23.6% and 24.4%, respectively, compared to a statuatory rate of 34.0%. The differential between the effective tax rate and the statuatory rate is due primarily to interest income earned on tax-free investments and tax-free loans. Financial Condition Total assets grew $15.3 million,or 4.5%, to $351.4 million at September 30, 1997, from $336.1 million at December 31, 1996. Total assets at September 30, 1996 were $326.6 million. The growth in assets from year-end 1996 occurred primarily in loan volume which reported an increase of $15.5 million, or 6.9%, to $239.9 million at September 30, 1997. Commercial loan volume led the growth with an increase of $10.0 million to $101.2 million in outstanding loan balances. Consumer loans followed with an increase of $4.9 million, or 9.8%, reaching $54.8 million in outstanding loan balances at September 30, 1997. Funding the increase in assets was an increase in borrowings with the Federal Home Loan Bank of Pittsburgh (FHLB). Total borrowings with FHLB increased $16.8 million, or 112.9%, to $31.7 million at September 30, 1997, from $14.9 million at December 31, 1996. Total deposits at September 30, 1997 declined $3.2 million to $265.0 million from $268.2 million at December 31, 1996, and reflects the industry-wide trend of deposit money fleeing to alternative investment sources yielding a higher rate of return and higher risk. Demand and savings deposits, which include interest-bearing checking, money market accounts and passbook and statement savings recorded an increase of $7.7 mllion but was more than offset by a decrease in time deposits of $100,000 and over totaling $15.1 million. Time deposits under $100,000 increased by $4.2 million during the nine month period ended September 30, 1997. Recognizing the trend of deposit flight from financial institutions the Corporation continues to look to alternative funding sources, namely the FHLB of Pittsburgh. At September 30, 1997, the Corporation had a Maximum Borrowing Capacity with the FHLB equal to $93.4 million and unused borrowing capacity of $61.7 million. The FHLB provides a reliable funding source with attractive interest rates. The Corporation's allowance for possible loan losses recorded a balance of $3.3 million at September 30, 1997, compared to $3.1 million at December 31, 1996. The allowance as a percentage of total loans equaled 1.35% and 1.36%, at September 30, 1997 and December 31, 1996, respectively, and provided coverage for nonaccrual loans and nonperforming loans 2.5 times and 1.7 times, respectively, at September 30, 1997. Nonperforming loans totaled $1.9 million at September 30, 1997, compared to $1.7 million at December 31, 1996. Included in nonperforming loans at September 30, 1997, were $1.3 million and $.6 mllion, respectively, in nonaccrual loans and loans past due over 90 days. Nonaccrual loans and loans past due 90 days or more equaled $856,000 and $874,000, respectively, at December 31, 1996. Loans past due 30-89 days decreased to $2.1 million at September 30, 1997 from $2.2 million at December 31, 1996. The Corporation had no restructured loans at September 30, 1997. Other real estate owned (OREO) totaled $146,000 at September 30, 1997 compared to $99,000 at December 31, 1996. Nonperforming assets, which includes nonperforming loans, restructured loans and OREO totaled $2.1 million at September 30, 1997 and represented .61% of total assets. Net charge-offs recorded for the third quarter and nine months ended September 30, 1997 totaled $100,000 and $445,000, respectively, compared to $94,000 and $512,000, respectively, for the same periods one year earlier. Net charge-offs for the first nine months of 1997 were attributable 96.0% to consumer loans and 4.0% to commercial loans compared to 72.0% and 28.0%, respectively, for the same period in 1996. Net charge-offs represented .26% and .31%, respectively, of average loans for the nine month periods ended September 30, 1997 and 1996. The local economy remains stable with unemployment at or below the national average. New jobs created in the past several years by old and new businesses in Franklin County have to date offset any potential negative impact to the local economy. A recent study of job skills in the quad-state area along the Interstate 81 corridor supports the fact that the region has a higher concentration in manufacturing jobs than the rest of the United States. Also reported in the study was that, on average, jobs paid 16.3% less than the nation as a whole but was offset by a lower than average cost of living(10% or less) and a good quality of life. The study found that manufacturing skills groups in the region are in metalworking, plastics, auto/truck parts, woodworking, printing and publishing and electronics to name a few. Letterkenny Industrial Development Authority (LIDA) a group born out of the Base Realignment and Closing decision which resulted in realignment and downsizing of the Letterkenny Army Depot exists to attract and retain new business and therefore create new jobs. Although LIDA is still in its infancy, progress has been made in attracting two or three new businesses. Men and women from the Franklin County area with experience in business and government make up the authority. In addition to LIDA, local Chambers of Commerce and other local development authorities continue to work together to attract new business to the Franklin County area and have experienced success with their efforts. Liquidity The Corporation's liquidity position (net cash, short-term and marketable assets divided by net deposits and short-term liabilities) was 23.0% at September 30, 1997. The Corporation actively sells mortgage loans to the secondary market (primairly FNMA) and looks to its borrowing ability with FHLB to satisfy any liquidity needs. The Corporation sold $18.8 million in mortgage loans to the secondary market during the first nine months of 1997 and had advances outstanding with FHLB totaling $31.7 million. The Corporation's maximum borrowing capacity with FHLB equals $93.4 million. Management believes that liquidity is adequate to meet the borrowing and deposit withdrawal needs of its customers. Capital Adequacy Total shareholders' equity increased $2.2 million to $37.6 million at September 30, 1997 from $35.3 million at December 31, 1996. Retained earnings recorded a net increase of $2.2 million for the nine months ended September 30, 1997, to $19.8 million after cash dividends totaling $1.2 million were paid to shareholders. The market value of the Corporation's available-for-sale securities improved at September 30, 1997 resulting in a net unrealized gain recorded at $1.6 million compared to $613,000 at December 31, 1996, an increase of $1.0 million. Offsetting the increases in retained earnings and the net unrealized gain on securities was the repurchase of 35,983 shares of the Corporation's common stock which increased the cost of treasury stock by $.96 million to $4.8 million. For the third quarter of 1997 the Corporation paid cash dividends totaling $409,000, or $.22 per share. Cash dividends paid per year-to-date totaled $1.2 million, or $.62 per share, and represented 34.5% of the recorded nine months earnings for 1997. Capital adequacy is currently defined by banking regulatory authorities through the use of several minimum required ratios. The Corporation's leverage ratio, Tier I and Tier II risk-based capital ratios at September 30, 1997 were 9.66%, 14.37% and 15.62%, respectively. For more information refer to Note 2 of the financial statements. PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibits 11 - Computation of earnings per share (b) Reports on Form 8-K There were no reports filed on Form 8-K for the quarter ended September 30, 1997. FRANKLIN FINANCIAL SERVICES CORPORATION and SUBSIDIARY SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Franklin Financial Services Corporation /s/ William E. Snell, Jr. William E. Snell, Jr. President and Chief Executive Officer /s/ Elaine G. Meyers Elaine G. Meyers Treasurer and Chief Financial Officer
Exhibit 11 COMPUTATION OF PER SHARE EARNINGS For the Three Months Ended September 30 1997 1996 Fully Fully Primary Earnings Primary Earnings Diluted Primary Earnings Primary Earnings Diluted Per Share(1) Per Share(1) Earnings Per Share(1) Per Share(1) Earnings as Reported as Adjusted Per Share as Reported as Adjusted Per Share Computation of earnings per common share: Shares Weighted average shares outstanding 1,819,015 1,819,015 1,819,015 1,761,750 1,761,750 1,761,750 Equivalent shares from exercise of dilutive stock equivalents -- 18,679 19,961 --- 17,367 24,392 1,819,015 1,837,694 1,838,976 1,761,750 1,779,117 1,786,142 Net Income $1,039,000 $1,039,000 $1,039,000 $1,062,000 $1,062,000 $1,062,000 Earnings per common share Net Income $0.57 $0.57 $0.56 $0.60 $0.60 $0.59 (1) Primary earnings per share "as reported" exclude the effect of the options issued under the Employee Stock Purchase Plan and the restricted stock issued under the Long-Term Incentive Plan of 1990, as the effect of the equivalent shares on the earnings per share calculation is less than 3%. Primary earnings per share "as adjusted" include the effect of the options and restricted stock.
Exhibit 11 COMPUTATION OF PER SHARE EARNINGS For the Nine Months Ended September 30 1997 1996 Fully Fully Primary Earnings Primary Earnings Diluted Primary Earnings Primary Earnings Diluted Per Share(1) Per Share(1) Earnings Per Share(1) Per Share(1) Earnings as Reported as Adjusted Per Share as Reported as Adjusted Per Share Computation of earnings per common share: Shares Weighted average shares outstanding 1,828,437 1,828,437 1,828,437 1,886,702 1,886,702 1,886,702 Equivalent shares from exercise of dilutive stock equivalents -- 18,541 19,961 --- 21,414 24,392 1,828,437 1,846,978 1,848,398 1,886,702 1,908,116 1,911,094 Net Income $3,357,000 $3,357,000 $3,357,000 $3,248,000 $3,248,000 $3,248,000 Earnings per common share Net Income $1.84 $1.82 $1.82 $1.72 $1.70 $1.70 (1) Primary earnings per share "as reported" exclude the effect of the options issued under the Employee Stock Purchase Plan and the restricted stock issued under the Long-Term Incentive Plan of 1990, as the effect of the equivalent shares on the earnings per share calculation is less than 3%. Primary earnings per share "as adjusted" include the effect of the options and restricted stock.
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9 1000 9-MOS DEC-31-1997 SEP-30-1997 9312 305 0 0 61082 29479 29695 243181 3253 351393 265004 40750 3018 7059 0 0 2030 35532 351393 15707 3905 25 19637 7482 9012 10620 638 393 8564 4393 4393 0 0 3357 1.84 1.82 8.35 1319 591 0 0 3060 522 77 3253 3253 0 350
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