-----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, CIZRpxiM7hha2xm6pGCJLsfBQugNmkQ38LjE2KQE8dULcM8K9S00lSfhcd0E6dI+ 8uoUZhdTJ2nzbchoe4BIFA== 0000723646-99-000008.txt : 19990517 0000723646-99-000008.hdr.sgml : 19990517 ACCESSION NUMBER: 0000723646-99-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990514 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: 99623018 BUSINESS ADDRESS: STREET 1: 20 S MAIN ST STREET 2: 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 March 31, 1999 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 2,794,366 outstanding shares of the Registrant's common stock as of April 30, 1999. INDEX Page PART I - FINANCIAL INFORMATION Item 1 - Financial Statements Condensed Consolidated Balance Sheets 2 as of March 31, 1999 (Unaudited) and December 31, 1998 Condensed Consolidated Statements of 3 Income for the Three Months ended March 31, 1999 and 1998 (unaudited) Condensed Consolidated Statements of Cash 4 Flows for the Three Months Ended March 31, 1999 and 1998 (unaudited) Condensed Consolidated Statements of 5 Changes in Shareholders' Equity for the Twelve and Three Months ended December 31, 1998 and March 31, 1999 (unaudited) Notes to Condensed Consolidated Financial 6 Statements (unaudited) Item 2 - Management's Discussion and Analysis of 12 Financial Condition and Results of Operations PART II - OTHER INFORMATION Item 6 - Exhibits and Reports on Form 8-K 17 SIGNATURE PAGE 18 PART I, Item 1
CONSOLIDATED BALANCE SHEETS (Amounts in thousands) March 31 December 31 1999 1998 ------------- ------------ (Unaudited) ASSETS Cash and due from banks $14,576 $12,895 Interest bearing deposits in other banks 2,486 11,514 Investment securities available for sale (Note 3) 119,663 127,118 Loans, net 261,273 258,488 Premises and equipment, net 5,799 5,889 Other assets 9,569 9,097 ------------- ------------ Total Assets $413,366 $425,001 ============= ============ LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: (Note 4) Demand (noninterest bearing) $42,293 $42,224 Savings and interest checking 141,029 141,477 Time 133,375 142,878 ------------- ------------ Total Deposits 316,697 326,579 Securities sold under agreements to repurchase 22,190 24,414 Other borrowings 30,744 30,744 Other liabilities 4,500 3,363 ------------- ------------ Total Liabilities 374,131 385,100 Commitments and Contingencies - - Shareholders' equity: Common stock $1 par value per share, 5,000 shares authorized with 3,045 shares issued and 2,794 and 2,802 shares outstanding at March 31,1999 and December 31,1998,respectively. 3,045 3,045 Capital stock without par value, 5,000 shares authorized with no shares issued or outstanding - - Additional paid in capital 19,809 19,793 Retained earnings 20,275 20,562 Accumulated other comprehensive income 1,604 1,783 Treasury stock (Note 5) (4,863) (4,620) Unearned compensation (635) (662) ------------- ------------ Total Shareholders' Equity 39,235 39,901 ------------- ------------ Total Liabilities and Shareholders' Equity $413,366 $425,001 ============= ============ The accompanying notes are an integral part of these statements
CONSOLIDATED STATEMENTS OF INCOME (amounts in thousands, except per share data) (Unaudited) For the Three Months Ended March 31 1999 1998 ---------------------------- INTEREST INCOME Interest on loans $5,387 $5,490 Interest on deposits in other banks 74 4 Interest on Federal funds sold 0 0 Interest and dividends on investments (Note 3) 1,702 1,219 ------------ ----------- Total interest income 7,163 6,713 ------------ ----------- INTEREST EXPENSE Interest on deposits 2,886 2,665 Interest on securities sold under agreements to repurchase and other borrowings 681 451 ------------ ----------- Total interest expense 3,567 3,116 ------------ ----------- Net interest income 3,596 3,597 Provision for possible loan losses 195 365 ------------ ----------- Net-interest income after provision for possible loan losses 3,401 3,232 ------------ ----------- NONINTEREST INCOME Trust fees 634 477 Service charges, commissions and fees 404 385 Other 16 20 Securities gains 0 299 ------------ ----------- Total noninterest income 1,054 1,181 ------------ ----------- NONINTEREST EXPENSE Salaries and benefits 1,510 1,411 Net occupancy expense 168 152 Furniture and equipment expense 240 216 Legal & professional fees 99 68 Data processing 208 193 Pennsylvania capital shares tax 91 83 Other 564 663 ------------ ----------- Total noninterest expense 2,880 2,786 ------------ ----------- Income before Federal income taxes 1,575 1,627 ------------ ----------- Federal income tax expense 296 394 ------------ ----------- Net income $1,279 $1,233 ============ =========== Basic earnings per share $0.47 $0.45 Weighted average shares outstanding (000's) 2,731 2,728 Diluted earnings per share $0.46 $0.45 Weighted average shares outstanding (000's) 2,768 2,756 The accompanying notes are an integral part of these statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in thousands) (Unaudited) For the Three Months Ended March 31 1999 1998 ----------------------- Cash flows from operating activities: Net Income 1,279 1,233 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 202 187 Premium amortization on investment securities 54 24 Discount accretion on investment securities (265) (40) Provision for possible loan losses 195 365 Securities gains, net - (299) Principal (gain) loss on sales of mortgage loans (2) 25 Proceeds from sale of mortgage loans 4,537 3,904 Loss on sale of premises and equipment - (24) Loan charge-offs, net of recoveries (121) (363) Increase in interest receivable (359) (33) (Decrease) increase in interest payable (69) 175 Decrease in unearned discount (3) (12) Increase in prepaid and other assets (113) (85) Increase in accrued expenses and other liabilities 43 353 Other, net 173 29 ----------------------- Net cash provided by operating activities 5,551 5,439 ----------------------- Cash flows from investing activities: Proceeds from sales of investment securities available for sale - 420 Proceeds from maturities of investment securities held to maturity - 2,206 Proceeds from maturities of investment securities available for sale 47,761 2,257 Purchase of investment securities available for sale (40,366) (2,444) Net increase in loans (7,390) (7,644) Capital expenditures (112) (123) Proceeds from sales of premises and equipment - 173 ----------------------- Net cash used in investing activities (107) (5,155) ----------------------- Cash flows from financing activities: Net (decrease) increase in demand deposits, NOW accounts and savings accounts (379) 11,395 Net decrease in certificates of deposit (9,503) (716) Dividends paid (448) (2,284) Common stock issued under stock option plans 23 44 Purchase of treasury shares (260) - Net decrease in other borrowings (2,224) (8,315) ----------------------- Net cash (used in) provided by financing activities (12,791) 124 ----------------------- (Decrease) increase in cash and cash equivalents (7,347) 408 Cash and cash equivalents as of January 1 24,409 11,112 ----------------------- Cash and cash equivalents as of March 31 17,062 11,520 ======== ======== The accompanying notes are an integral part of these statements.
Consolidated Statements of Changes in Shareholders' Equity for the year ended December 31, 1998 and the three months ended March 31, 1999 (Amounts in thousands, except share and per share data) Accumulated Additional Other Common Paid-in Retained Comprehensive Treasury Unearned Stock Capital Earnings Income Stock Compensation Total ----------------------------------------------------------------------- Balance at December 31, 1997 $3,045 $19,761 $17,087 $1,935 ($4,760) ($763) $36,305 Comprehensive income: Net income - - 4,805 - - - 4,805 Unrealized holding gains arising during current period, net of tax - - - 302 - - 302 Reclassification adjustment for realized gains included in net income, net of tax - - - (454) - - (454) ---------- Total Comprehensive income 4,653 Cash dividends declared, $.47 per share - - (1,316) - - - (1,316) Cash in lieu of fractional shares on 50% stock split - - (14) - - - (14) Common stock issued under stock option plans - 32 - - 140 - 172 Amortization of unearned compensation - - - - - 101 101 ----------------------------------------------------------------------- Balance at December 31, 1998 $3,045 $19,793 $20,562 $1,783 ($4,620) ($662) $39,901 Comprehensive income: Net income - - 1,279 - - - 1,279 Unrealized holding gains arising during current period, net of tax - - - (179) - - (179) ----------- Total Comprehensive income 1,100 Cash dividends declared, $.56 per share - - (1,566) - - - (1,566) Common stock issued under stock option plans - 6 - - 17 - 23 Tax benefit of restricted stock transaction - 10 - - - - 10 Acquisition of 8,975 shares of treasury stock - - - - (260) - (260) Amortization of unearned compensation - - - - - 27 27 ------------------------------------------------------------------------ Balance at March 31, 1999 (unaudited) $3,045 $19,809 $20,275 $1,604 ($4,863) ($635) $39,235 ======== ======== ======== =========== ======== ========== ======== Cash dividends per share in 1998 have been adjusted to reflect a 3 for 2 stock split issued in the form of a 50% stock dividend and distributed on February 3,1998. The accompanying notes are an integral part of these statements.
FRANKLIN FINANCIAL SERVICES CORPORATION and SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 1 - Basis of Presentation The consolidated balance sheets as of March 31, 1999 and December 31, 1998, the consolidated statements of income for the three-month periods ended March 31, 1999 and 1998, the consolidated statements of changes in shareholders' equity for the year ended as of December 31, 1998 and the three months ended March 31, 1999 and the consolidated statements of cash flows for the three-month periods ended March 31, 1999 and 1998 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 March 31, 1999, 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, a commercial bank (the Bank). 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 1998 Annual Report. The results of operations for the period ended March 31, 1999, are not necessarily indicative of the operating results for the full year. For purposes of reporting cash flows, cash and cash equivalents include Cash and 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 three months ended March 31: 1999 1998 Interest paid on deposits and other borrowed funds . . . . . $3,636,000 $2,941,000 Income taxes paid $ - $ 120,000 Earnings per share is computed based on the weighted average number of shares outstanding during each quarter, adjusted retroactively for stock splits and dividends. A reconciliation of the weighted average shares outstanding used to calculate basic earnings per share and diluted earnings per share follows: For the quarter ended March 31 1999 1998 (Amounts in thousands) Weighted average shares outstanding (basic) 2,731 2,728 Impact of common stock equivalents, 37 28 primary stock options Weighted average shares outstanding (diluted) 2,768 2,756
Note 2. Capital Adequacy Quantitative measures established by regulation to ensure capital adequacy require financial institution to maintain minimum amounts and ratios of total and Tier I capital to risk-weighted assets and of Tier I capital to average assets. The Capital ratios of the Corporation and its bank subsidiary are as follows: As of March 31, 1999 (unaudited) To be well Capitalized Under For Capital Prompt Corrective Actual Adequacy PurposesAction Provisions (Amounts in thousands) Amount Ratio Amount Ratio Amount Ratio Total Capital (to Risk Weighted Assets) Corporation $39,547 14.22% $22,197 8.00% $27,746 10.00% Bank 36,140 13.16% 21,971 8.00% 27,464 10.00% Tier I Capital (to Risk Weighted Assets) Corporation $36,077 13.00% $11,098 4.00% $16,648 6.00% Bank 32,704 11.91% 10,985 4.00% 16,478 6.00% Tier I Capital (to Average Assets) Corporation $36,077 8.63% $16,720 4.00% $20,900 5.00% Bank 32,704 7.88% 16,591 4.00% 20,739 5.00%
Note 3 - Investment Securities Amortized cost and estimated market values of available for sale investment securities as of March 31, 1999 (unaudited), and December 31, 1998, were as follows (amounts in thousands): March 31 December 31 1999 1998 ------------------------------------------------------------ Estimated Estimated Amortized Market Amortized Market Cost Value Cost Value -------------------------------- -------------------------- Equity securities $3,619 $4,867 $3,404 $4,674 U.S. Treasury securities and obligations of U.S. Government agencies & corporations 14,038 14,195 13,992 14,243 Obligations of state and political subdivisions 47,877 48,707 48,490 49,452 Corporate debt securities 27,637 27,690 32,959 33,053 Mortgage - backed securities 24,062 24,204 25,572 25,696 -------------------------------- ------------------------------- $117,233 $119,663 $124,417 $127,118 ======== ======== ======== ========
Interest income and dividends received on investment securities for the three months ended March 31, 1999 and 1998 are as follows (amounts in thousands): Three Months 1999 1998 ----------------- (Unaudited) U.S. Government Obligations $52 $68 Obligations of U.S. Government Agencies and Corporations 503 575 Obligations of States and Political Subdivisions 597 383 Other Securities, primariy Notes and Debentures 504 146 Common Stock 46 47 ----------------- $1,702 $1,219 ======== ======
Note 4 - Deposits Deposits are summarized as follows (amounts in thousands): March 31 December 31 1999 1998 ---------- ---------- (Unaudited) Demand $42,293 $42,224 Savings Interest-bearing checking 41,636 46,707 Money Market Accounts 59,616 56,623 Passbook and Statement Savings 39,777 38,147 ---------- ---------- $141,029 $141,477 ---------- ---------- Time Deposits of $100,000 and over 23,707 33,223 Other Time Deposits 109,668 109,655 ---------- ---------- 133,375 142,878 ---------- ---------- Total Deposits $316,697 $326,579 ========= =========
====== ====== NOTE 5 - Stock Repurchase Program On March 4, 1999, the Board of Directors authorized the repurchase of up to 50,000 shares of the Corporation's $1.00 par value common stock, representing approximately 1.79% of such shares then issued and outstanding. The repurchases are authorized to be made from time to time during the next 12 months in open market or privately negotiated transactions. The repurchased shares will be held as treasury shares available for issuance in connection with future stock dividends and stock splits, employee benefit plans, executive compensation plans, and for issuance under the Dividend Reinvestment Plan and other corporate purposes. No common shares were purchased under this plan in the first quarter of 1999. Under a similar plan authorized by the Board of Directors in March 1998, 8,975 shares of the Corporation's common stock were repurchased at a cost of approximately $260,000. NOTE 6 - Recent Accounting Pronouncements On March 4, 1998, the American Institute of Certified Public Accountants issued Statement of Position, (SOP) 98-1, Accounting for the Costs of Computed Software Developed or Obtained for Internal Use. This Statement provides guidelines on accounting for the costs of computer software developed or obtained for internal use and is effective for financial statements for fiscal years beginning after December 15, 1998. The Corporation adopted SOP 98-1 on January 1, 1999. The impact of adoption was immaterial. Management's Discussion and Analysis of Results of Operations and Financial Condition for the Three Months Periods Ended March 31, 1998 Part I, Item 2 Results of Operations The Corporation reported earnings of $1,233,000 for the first quarter ended March 31, 1998, versus $1,135,000 for the same quarter in 1997, reflecting an increase of 8.6%. Basic earnings per share for the quarter increased 9.8% to $.45 from $.41, for the first quarter of 1997. Per share earnings are weighted to reflect the impact of the stock repurchase program. Book value per share equaled $13.40 at March 31, 1998 compared to $12.63 at March 31, 1997. Per share information for 1997 has been adjusted to reflect a 3 for 2 stock split issued in the form of a 50% stock dividend distributed to shareholders on February 3, 1998. The Corporation's annualized return on average assets (ROA) and return on average equity (ROE) for the first quarter of 1998 were 1.41% and 13.54%, respectively, compared to 1.37% and 12.98%, respectively, for the first quarter of 1997. Net interest income showed marginal improvement for the quarter ended March 31, 1998, reaching $3.6 million compared to $3.5 million for the same quarter one year earlier. Despite an $83,000 improvement in net interest income quarter over quarter, the Corporation's net interest margin on a tax-equivalent basis narrowed to 4.62% for the first quarter of 1998 from 4.67% for the first quarter of 1997. The higher cost of interest-bearing liabilities (up 21 basis points to 4.62% from 4.41%) outweighed the improvement in the rate of return (up 8 basis points to 8.42% from 8.34%) recorded on interest earning assets for the first quarter ended March 31, 1998, versus the first quarter ended March 31, 1997 and resulted in some shrinkage in net interest margin. Increased volume rather than higher rates was primarily responsible for the improvement in interest income to $6.7 million for the first quarter of 1998 from $6.4 million for the same quarter in 1997. Increased volume and higher rates combined accounted for the increase in interest expense to $3.1 million for the first quarter of 1998 from $2.9 million for the same quarter in 1997. The growth in interest expense for the first quarter of 1998 over the first quarter of 1997 was driven largely by a new money market deposit product introduced in the second quarter of 1997. As discussed in the Corporation's 1997 Annual Report, the only market risk exposure for the Corporation is its normal business operations in interest rate risk. For the quarter ended March 31, 1998, the Corporation's interest rate risk remained substantially unchanged from December 31, 1997. The Corporation expensed $365,000 for possible loan losses in the first quarter of 1998 compared to $193,000 in the first quarter of 1997. The higher provision was required to offset an increase in net charge-offs of $130,000 to $363,000 for the first quarter of 1998 compared to $232,000 for the first quarter of 1997 and to maintain the adequacy of the allowance for possible loan losses. Total noninterest income excluding net securities gains recorded an increase of $92,000, or 10.4% to $975,000 for the three months ended March 31, 1998, compared to $883,000 for the three months ended March 31, 1997. Trust fees increased $138,000, or 40.7%, to $477,000 for the first quarter of 1998 compared to $339,000 for the same quarter one year earlier and were largely due to a 38.6% increase in the market value of trust assets under management. A strong economy as well as new business contributed to the growth in trust assets. Net securities gains equaled $299,000 for the three months ended March 31, 1998, compared to $111,000 for the three months ended March 31, 1997 and came entirely from the Corporation's available for sale equities portfolio. The gains realized in the first quarter of 1998 offset the additional loan loss provision recorded and the write down of recently purchased real estate that is scheduled for demolition. The Corporation is in the planning stages for a future expansion of its headquarters and accordingly, has plans to demolish some adjacent properties. Total noninterest expense recorded a marginal increase of $100,000, or 3.6%, to $2.9 million for the first quarter of 1998 compared to $2.8 million for the same quarter in 1997. Salaries and benefits expense decreased $44,000, or 2.8%, to $1.52 million for the three months ended March 31, 1998 compared to $1.56 million for the three months ended March 31, 1997. Salaries expense grew $54,000, or 4.5%, to $1.24 million for the quarter ended March 31, 1998, from $1.18 million for the same period in 1997 and reflects general merit increases and higher commissions and incentives paid quarter over quarter. The increase in salaries expense was more than offset by a decrease in the cost of employee benefits. Benefits expense decreased $102,000, or 26.8%, to $278,000 for the first quarter of 1998 from $379,000 for the first quarter of 1997 primarily the result of a $110,000 swing from net periodic pension expense to net periodic pension income. The Corporation's pension plan is over-funded and, as a result, the Corporation will realize a credit to its pension expense in 1998 that is expected to total approximately $500,000 for the year. Other expense recorded an increase of $143,000, or 16.5%, to $1.0 million for the first quarter of 1998 compared to $864,000 for the first quarter of 1997 due to the net impact of a combination of various expenses. Postage expense (up $30,000), software expense (up $29,000), loan collection expense (up $16,000), expense associated with the acquisition of property ($103,000) targeted for future demolition in a planned headquarter's expansion and the timing of FDIC insurance expense (up $11,000) were the primary contributors to the increase in other expense. Offsetting these increases was a decrease of $40,000 in stationary and supplies expense. As reported in the Corporation's 1997 Annual Report, management has determined that Year 2000 issues will impact daily business operations and has developed and implemented a comprehensive plan to evaluate all of its data processing systems, software programs and providers to ensure their readiness for the Year 2000. The process which began in early 1997 has resulted in over 30% of the software programs and data processing systems achieving Year 2000 compliance as of March 31, 1998. Management expects that by December 31, 1998, over 90% of its software programs and data processing systems will be Year 2000 compliant with the remaining 10% compliant by mid-1999. In addition to evaluating the Corporation's Year 2000 readiness, management has also established a process to manage the Year 2000 risks posed by its customers. As part of the process currently underway, significant customers have been identified and evaluated for Year 2000 preparedness. Personal contact has been or will be made with identified, primarily commercial, customers to assess their risk to the Corporation. After assessment has been completed, where Year 2000 issues exist, appropriate communication with the customer will be established to manage and mitigate potential Year 2000-related risk to the Corporation. Management expects that individual customer assessments and follow-up communication will be substantially complete by the end of the third quarter of 1998. Costs associated with Year 2000 readiness have not been and are not expected to be significant in any one year. Federal income tax expense for the first quarter ended March 31, 1998, totaled $394,000 compared to $401,000 for the same period ended March 31, 1997. The Corporation's effective tax rate for the quarter ended March 31, 1998 was 24.2% versus 26.1% a year earlier. The decrease in the effective tax rate quarter versus quarter is due primarily to an increase in tax-free income relative to pre-tax income. Financial Condition Total assets grew $1.8 million to $355.6 million at March 31, 1998, from $353.9 million at December 31, 1997. Most of the asset growth in the first quarter of 1998 was recorded in earning assets which increased $1.6 million to $330.2 million at March 31, 1998 from $328.6 million at December 31, 1997. Earning assets represented 92.8% of total assets at March 31, 1998 and December 31, 1997. Proceeds from the sale of available-for-sale securities in the first quarter of 1998 totaled $420,000 and included gains of $299,000. Despite the sale of some available- for-sale equity securities in the first quarter of 1998 the market value of available-for-sale securities remained stable at $59.3 million at March 31, 1998 and December 31, 1997. Net unrealized gains on available-for-sale securities equaled $1.9 million at March 31, 1998. Net loans grew $3.7 million, or 1.5%, to $244.9 million at March 31, 1998, from $241.2 million at December 31, 1997, despite the sale of approximately $4.0 million in mortgage loans to the secondary market, primarily Federal National Mortgage Association (FNMA). Commercial and mortgage loan activity was robust during the first quarter of 1998 due to the strong economy and the low interest rate environment. Consumer loan volume remained steady and reflects the implementation of tighter consumer underwriting standards instituted in 1997 and the improved lending skills of our lending staff, a result of an extensive lending training program provided in 1997 and completed in the spring of 1998. Net charge-offs for the first quarter of 1998 totaled $363,000 and were primarily from the consumer loan portfolio. As discussed in the Corporation's 1997 Annual Report, personal bankruptcies of loan customers have had an adverse impact on the Corporation and continued into the first quarter of 1998. The consumer loan portfolio was responsible for 66.0% of the total net charge-offs for the three months ended March 31, 1998, versus 91.4% for the three months ended March 31, 1997. Management anticipates that the level of net charge-offs recorded after the first quarter of 1998 will decline as the year progresses. The annualized ratio of net charge-offs to average loans was .60% at March 31, 1998, compared to .29% at December 31, 1997 and .43% at March 31, 1997. Nonperforming loans increased $192,000 to $1.9 million at March 31, 1998 versus $1.7 million at December 31, 1997. Included in nonperforming loans at March 31, 1998 were nonaccrual loans totaling $1.8 million and loans past due more than ninety days totaling $126,000 compared to $1.1 million and $564,000, respectively, at December 31, 1997. The Corporation recorded other real estate owned totaling $133,000 at March 31, 1998, versus $185,000 at year-end 1997. Nonperforming assets represented .58% of total assets at March 31, 1998, up from .54% at December 31, 1997. The allowance for possible loan losses totaled $3.3 million at March 31, 1998, and December 31, 1997, and represented 1.34% and 1.35%, respectively, of total loans. The allowance provided coverage for nonperforming loans of 1.7 times at March 31, 1998, compared to 1.9 times at December 31, 1997. Total deposits grew $10.7 million, or 3.8%, to $285.2 million at March 31, 1998, from $274.5 million at December 31, 1997. Savings and interest checking realized most of the growth with an increase of $8.2 million followed by noninterest bearing demand which increased $3.1 million offset by a decrease in time deposits of $.7 million. The Corporation has attracted new deposit dollars with its new Money Management Account introduced in the spring of 1997. This new deposit has continued to attract deposit dollars into 1998 and is largely responsible for the growth in deposits in the first quarter of 1998. As a result of the deposit growth in the first quarter of 1998, the Corporation reduced its other borrowings $8.7 million to $12.6 million at March 31, 1998 from $21.4 million at December 31, 1997. Other borrowings represent short and long-term borrowings from the Federal Home Loan Bank of Pittsburgh(FHLB). Unemployment in the Franklin County area remained low at just over 4%. The local economy is strong and continues to be fairly well diversified. Liquidity The Corporation's liquidity position (net cash, short-term and marketable assets divided by net deposits and short-term liabilities) was 20.3% at March 31, 1998. The Corporation actively sells mortgage loans to the secondary market (primarily FNMA) and looks to its borrowing ability with FHLB to satisfy any liquidity needs. The Corporation sold approximately $4.0 million mortgage loans to FNMA during the first quarter of 1998 and had advances outstanding with FHLB totaling $12,645,000. The Corporation's maximum borrowing capacity with FHLB equals $82,000,000. Management believes that liquidity is adequate to meet the borrowing and deposit withdrawal needs of its customers. Capital Adequacy Total shareholders' equity increased $1.3 million to $37.6 million at March 31, 1998, from $36.3 million at December 31, 1997, primarily as a result of earnings retention from the first quarter of 1998. As reported in the Corporation's 1997 Annual Report, in November 1997, the Board of Directors approved a 3 for 2 stock split issued in the form of a 50% stock dividend to shareholders of record at the close of business on January 13, 1998. The common stock certificates from this stock dividend were distributed to shareholders on February 3, 1998. In addition to the 50% stock dividend, the Board of Directors also approved a special cash dividend of $1.00 per share ($.66 per share adjusted for the 50% Stock Dividend) and a $.15 per share first quarter cash dividend in November 1997. Both of these cash dividends were reflected in the December 31, 1997 financial statements but were paid to shareholders in January and February 1998, respectively. Cash dividends paid to shareholders in the first quarter of 1998 totaled $2.3 million and compare with $377,000 paid in the first quarter of 1997. Capital adequacy is currently defined by banking regulatory agencies through the use of several minimum required ratios. At March 31, 1998 the Corporation was determined to be well capitalized as defined by the banking regulatory agencies. The Corporation's leverage ratio, Tier I and Tier II risk-based capital ratios at March 31, 1998, were 9.57%, 13.78% and 15.03%, respectively. PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits None (b) Reports on Form 8-K A Form 8-K dated March 5, 1999 was filed in connection with a stock repurchase program. 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 May 11, 1999 /s/ William E. Snell, Jr. William E. Snell Jr. President and Chief Executive Officer May 11, 1999 /s/ Elaine G. Meyers Elaine G. Meyers Treasurer and Chief Financial Officer EX-27 2
9 1000 3-MOS DEC-31-1999 MAR-31-1999 14576 2486 0 0 119663 0 0 264898 3622 413366 316697 27825 4500 25109 0 0 3045 36190 413366 5387 1702 74 7163 2886 681 3596 195 0 2880 1757 1757 0 0 1279 0.47 0.46 7.62 1177 512 0 0 3549 136 14 3622 3622 0 430
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