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, 2001
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 6010), CHAMBERSBURG, PA 17201-0819
(Address of principal executive office)
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 2,723,551 outstanding shares of the Registrant's common stock as of
May 4, 2001.
INDEX
Page
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Balance Sheets 2
as of March 31, 2001 (Unaudited) and
December 31, 2000
Consolidated Statements of 3
Income for the Three Months ended
March 31, 2001 and 2000 (unaudited)
Consolidated Statements of 4
Changes in Shareholders' Equity for the Three
Months ended March 31, 2000 and March 31,
2001 (unaudited)
Consolidated Statements of Cash 5
Flows for the Three Months Ended March 31,
2001 and 2000 (unaudited)
Notes to Consolidated Financial 6
Statements (unaudited)
Item 2 - Management's Discussion and Analysis of 9
Financial Condition and Results of Operations
Item 3 - Quantitative and Qualitative Disclosures about Market Risk 14
PART II - OTHER INFORMATION 14
SIGNATURE PAGE 15
CONSOLIDATED BALANCE SHEETS
(amounts in thousands)
(unaudited)
March 31 December 31
2001 2000
---------- ----------
ASSETS
Cash and due from banks .............................................. $ 20,439 $ 15,118
Interest bearing deposits in other banks ............................. 9,453 2,650
Investment securities available for sale ............................. 131,784 125,174
Loans, net ........................................................... 298,938 297,307
Premises and equipment, net .......................................... 7,395 7,237
Other assets ......................................................... 18,473 18,499
--------- ---------
Total Assets ......................................................... $ 486,482 $ 465,985
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand (non-interest bearing) ...................................... $ 51,931 $ 47,028
Savings and Interest checking ...................................... 184,736 178,992
Time ............................................................... 127,429 131,189
--------- ---------
Total Deposits ....................................................... 364,096 357,209
Securities sold under agreements to repurchase ....................... 36,522 33,036
Long term debt ....................................................... 37,814 29,477
Other liabilities .................................................... 3,493 3,062
--------- ---------
Total Liabilities .................................................... 441,925 422,784
Shareholders' equity:
Common stock $1 par value per share, 15,000 shares authorized
with 3,045 shares issued and 2,739 and 2,758 shares
outstanding at March 31, 2001 and December 31, 2000, respectively 3,045 3,045
Capital stock without par value, 5,000 shares authorized
with no shares issued or outstanding ............................... -- --
Additional paid in capital ........................................... 19,793 19,797
Retained earnings .................................................... 26,305 25,522
Accumulated other comprehensive income ............................... 1,243 343
Treasury stock ....................................................... (5,829) (5,506)
--------- ---------
Total shareholders' equity ........................................... 44,557 43,201
--------- ---------
Total Liabilities and Shareholders' Equity ........................... $ 486,482 $ 465,985
========= =========
<FN>
The accompanying notes are an integral part of these statements
</FN>
CONSOLIDATED STATEMENTS OF INCOME
(amounts in thousands, except per share data)
(unaudited)
For the Three Months Ended
March 31
----------------
2001 2000
INTEREST INCOME
Interest on loans $ 6,216 $ 5,915
Interest on deposits in other banks 125 6
Interest and dividends on investments:
Taxable interest 1,287 1,266
Tax exempt interest 501 573
Dividends 75 78
-------- --------
Total interest income 8,204 7,838
-------- --------
INTEREST EXPENSE
Interest on deposits 3,460 3,195
Interest on securities sold under agreements to repurchase 487 364
Interest on short term borrowings - 177
Interest on long term debt 423 411
-------- --------
Total interest expense 4,370 4,147
-------- --------
Net interest income 3,834 3,691
Provision for possible loan losses 209 272
Net-interest income after provision -------- --------
for possible loan losses 3,625 3,419
-------- --------
NONINTEREST INCOME
Service charges and fees 529 424
Investment and trust services fees 557 644
Other 84 17
Securities gains 4 107
-------- --------
Total noninterest income 1,174 1,192
-------- --------
NONINTEREST EXPENSE
Salaries and benefits 1,644 1,745
Net occupancy expense 192 180
Furniture and equipment expense 177 153
Advertising 123 81
Legal & professional fees 92 78
Data processing 235 284
Pennsylvania bank shares tax 101 96
Other 594 520
-------- --------
Total noninterest expense 3,158 3,137
-------- --------
Income before Federal income taxes 1,641 1,474
-------- --------
Federal income tax expense 307 263
Net income $ 1,334 $ 1,211
======== ========
Basic earnings per share $ 0.50 $ 0.44
Weighted average shares outstanding (000's) 2,694 2,724
Diluted earnings per share $ 0.49 $ 0.44
Weighted average shares outstanding (000's) 2,741 2,768
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
Consolidated Statements of Changes in Shareholders' Equity
for the three months ended March 31, 2000 and 2001
(unaudited)
Accumulated
Additional Other
Common Paid-in Retained Comprehensive Treasury Unearned
(Dollars in thousands, except per share data) Stock Capital Earnings Income (loss) Stock Compensation Total
-------- -------- -------- ------------- -------- -------- --------
Balance at December 31, 1999 .....................$ 3,045 $ 19,834 $ 22,627 ($ 876) ($ 4,938) ($ 432) $ 39,260
Comprehensive income:
Net income ..................................... -- -- 1,211 -- -- -- 1,211
Unrealized securities losses arising
during current period, net of tax .............. -- -- -- (307) -- -- (307)
Reclassification adjustment for realized
gains included in net income, net of tax ....... -- -- -- 89 -- -- 89
Unrealized gain on interest rate cap, net of tax . -- -- -- 11 -- -- 11
--------
Total Comprehensive income ..................... 1,004
Cash dividends declared, $.18 per share .......... -- -- (503) -- -- -- (503)
Common stock issued under stock option plans ..... -- (5) -- -- 30 -- 25
Acquisition of 7,900 shares of Treasury stock .... -- -- -- -- (136) -- (136)
Amortization of unearned compensation ............ -- -- -- -- -- 27 27
-------- -------- -------- -------- -------- -------- --------
Balance at March 31, 2000 ........................$ 3,045 $ 19,829 $ 23,335 $ (1,083) $ (5,044) $ (405) $ 39,677
======== ======== ======== ======== ======== ======== ========
Balance at December 31, 2000 .....................$ 3,045 $ 19,797 $ 25,522 $ 343 $ (5,506) -- $ 43,201
Comprehensive income:
Net income ....................................... -- -- 1,334 -- -- -- 1,334
Unrealized securities gains arising
during current period, net of tax .............. -- -- -- 911 -- -- 911
Reclassification adjustment for realized
gains included in net income ................... -- -- -- 3 -- -- 3
Unrealized loss on interest rate cap, net of tax . (14) (14)
--------
Total Comprehensive income ..................... 2,234
Cash dividends declared, $.20 per share .......... -- -- (551) -- -- -- (551)
Common stock issued under stock option plans ..... -- (4) -- -- 18 -- 14
Acquisition of 20,275 shares of treasury stock ... -- -- -- -- (341) -- (341)
-------- -------- -------- -------- -------- -------- --------
Balance at March 31, 2001 ........................$ 3,045 $ 19,793 $ 26,305 $ 1,243 $ (5,829) $ -- $ 44,557
======== ======== ======== ======== ======== ======== ========
<FN>
The accompanying notes are an integral part of these financial statements
</FN>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
(unaudited)
For the Three Months Ended
March 31
2001 2000
------- -------
Cash flows from operating activities:
Net Income $ 1,334 $ 1,211
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 243 231
Net accretion of securities premiums and discounts (54) (3)
Provision for possible loan losses 209 272
Securities gains, net (4) (107)
Mortgage loans originated for sale (5,360) (1,723)
Proceeds from sale of mortgage loans 5,379 1,736
Principal gain on sales of mortgage loans (19) (13)
Increase in cash surrender value of life insurance (96) -
Decrease (increase) in interest receivable and other assets 94 (601)
(Decrease) increase in interest payable and other liabilities (39) 460
Other, net (13) 25
-------- --------
Net cash provided by operating activities 1,674 1,488
-------- --------
Cash flows from investing activities:
Proceeds from sales of investment securities available for sale 828 1,317
Proceeds from maturities of investment securities available for sale 15,531 3,480
Purchase of investment securities available for sale (21,528) (2,154)
Net increase in loans (1,859) (9,097)
Capital expenditures (354) (256)
-------- --------
Net cash used in investing activities (7,382) (6,710)
-------- --------
Cash flows from financing activities:
Net change in demand deposits,
NOW accounts and savings accounts 10,647 1,446
Net change in certificates of deposit (3,760) 6,632
Net change in short term borrowings 3,486 (3,950)
Long term debt advances 9,302 -
Long term debt payments (965) -
Dividends paid (551) (503)
Common stock issued under stock option plans 14 25
Purchase of treasury shares (341) (136)
-------- --------
Net cash provided by financing activities 17,832 3,514
-------- --------
Increase (decrease) in cash and cash equivalents 12,124 (1,708)
Cash and cash equivalents as of January 1 17,768 15,117
-------- --------
Cash and cash equivalents as of March 31 $ 29,892 $ 13,409
======= =======
<FN>
The accompanying notes are an integral part of these statements.
</FN>
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, 2001 and December 31, 2000,
the consolidated statements of income for the three-month periods ended March
31, 2001 and 2000, the consolidated statements of changes in shareholders'
equity for the three month periods ended March 31, 2000 and March 31, 2001 and
the consolidated statements of cash flows for the three-month periods ended
March 31, 2001 and 2000 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, 2001, 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 (the Bank) and
the Bank's wholly-owned subsidiary, Franklin Realty Services Corporation. 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 2000 Annual
Report. The results of operations for the period ended March 31, 2001, 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.
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
2001 2000
(Amounts in thousands)
Weighted average shares outstanding (basic) 2,694 2,724
Impact of common stock equivalents, 47 44
primarily stock options
Weighted average shares outstanding (diluted) 2,741 2,768
====== ======
Note 2. Capital Adequacy
Quantitative measures established by regulation to ensure capital adequacy
require financial institutions 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, 2001 (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 $46,327 13.75% $26,946 8.00% N/A
Bank 42,271 12.64% 26,761 8.00% $33,683 10.00%
Tier 1 Capital (to Risk Weighted Assets)
Corporation $42,154 12.52% $13,473 4.00% N/A
Bank 38,243 11.43% 13,381 4.00% $20,210 6.00%
Tier 1 Capital (to Average Assets)
Corporation $42,154 8.96% $18,827 4.00% N/A
Bank 38,243 8.18% 18,707 4.00% $23,384 5.00%
As of December 31, 2000
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 $45,517 13.79% $26,410 8.00% N/A
Bank 41,976 12.85% 26,134 8.00% $32,667 10.00%
Tier 1 Capital (to Risk Weighted Assets)
Corporation $41,650 12.62% $13,205 4.00% N/A
Bank 38,109 11.67% 13,067 4.00% $19,600 6.00%
Tier 1 Capital (to Average Assets)
Corporation $41,650 8.99% $18,535 4.00% N/A
Bank 38,109 8.27% 18,438 4.00% $23,048 5.00%
NOTE 3 - Stock Repurchase Program
On March 8, 2001, the Board of Directors authorized the repurchase of up to
75,000 shares of the Corporation's $1.00 par value common stock. The repurchases
are authorized to be made from time to time over 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. During the first quarter ended March 31, 2001, 3,343 shares of the
Corporation's common stock were repurchased at a cost of approximately $61,000.
Under a similar program which expired on March 1, 2001, the Corporation
repurchased 11,805 shares at a cost of approximately $195,000. In addition, the
Corporation repurchased 5,127 shares of common stock from employees at a cost of
$85,000. These shares had been granted to the employees as part of a restricted
stock plan.
Management's Discussion and Analysis of
Results of Operations and Financial Condition
For the Three Month Periods
Ended March 31, 2001 and 2000
Part 1, Item 2
Forward Looking Statements
Certain statements appearing herein which are not historical in nature are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward- looking statements refer to a
future period or periods, reflecting management's current views as to likely
future developments, and use words "may," "will," "expect," "believe,"
"estimate," "anticipate," or similar terms. Because forward-looking statements
involve certain risks, uncertainties and other factors over which the
Corporation has no direct control, actual results could differ materially from
those contemplated in such statements. These factors include (but are not
limited to) the following: general economic conditions, changes in interest
rates, changes in the Corporation's cost of funds, changes in government
monetary policy, changes in government regulation and taxation of financial
institutions, changes in the rate of inflation, changes in technology, the
intensification of competition within the Corporation's market area, and other
similar factors.
Results of Operations
The Corporation reported earnings of $1,334,000 for the first quarter ended
March 31, 2001, representing an increase of 10.2% over reported earnings of
$1,211,000 for the first quarter of 2000. Basic earnings per share for the
period ended March 31, 2001 was $.50 compared to $.44 for the same period one
year earlier. Diluted earnings per share was $.49 and $.44 for the quarters
ended March 31, 2001 and 2000, respectively. Per share earnings are weighted to
reflect the impact of the stock repurchase program. Book value per share at
March 31, 2001 equaled $16.27 versus $14.23 at March 31, 2000.
The Corporation's annualized return on average assets (ROA) and return on
average equity (ROE) for the first quarter of 2001 were 1.11% and 12.05%,
respectively, compared to 1.09% and 12.55%, respectively, for the first quarter
of 2000. The decline in ROE for the period is due primarily to the higher
unrealized securities gains recorded at March 31 and reflected in Shareholders'
equity as Accumulated other comprehensive income.
Net Interest Income
Net interest income improved to $3.8 million for the first quarter of 2001
versus $3.6 million for the first quarter of 2000, an increase of $143,000, or
3.9%. Interest income grew $366,000, or 4.7%, to $8.2 million while interest
expense grew $223,000, or 5.38%, to $4.4 million. The reduction in market
interest rates in December 2000 and in the first quarter of 2001, coupled with
balance sheet growth, has buoyed the Corporation's net interest income. At March
31, 2001 interest spread and net interest margin (tax equivalent) were 3.18% and
3.75%, respectively, versus 3.12% and 3.79%, respectively, one year earlier.
Provision for Possible Loan Losses
The Corporation expensed $209,000 for possible loan losses in the first
quarter of 2001 compared to $272,000 in the first quarter of 2000. A reduction
in nonperforming loans, from March 31, 2000 to March 31, 2001, accounted for the
lower provision expense for the first quarter.
Noninterest Income
Total noninterest income equaled $1.17 million for the three months ended
March 31, 2001, a net decrease of $18,000, or 1.5% compared to $1.19 million for
the same period ended March 31, 2000. The decrease in noninterest income was
attributable to lower securities gains and Investment and Trust services fees
which were almost entirely offset by increases in service charges and fees and
other income. Securities gains decreased $103,000 to $4,000 for the first
quarter of 2001 versus $107,000 for the first quarter of 2000. Investment and
trust services fees declined $87,000 to $557,000 for the first quarter of 2001
versus $644,000 for the first quarter of 2000. The decline in Investment and
trust services fees was due primarily to lower market values of trust assets
under management and slower growth. Service charges and fees grew $105,000 to
$529,000 in the first quarter ended March 31, 2001 versus $424,000 for the same
period in 2000. Contributing to this increase were higher loan fees related to a
larger volume of mortgage loan origination activity, growth in commercial
checking service charges, a new ATM access fee, growth in customer usage of
debit cards and the implementation of a new official check program. Other
noninterest income was up $67,000 for the first quarter to $84,000 versus
$17,000 for the three months ended March 31, 2000. Earnings from Bank Owned Life
Insurance was the primary contributor to the increase in other income.
Noninterest Expense
Total noninterest expense held steady during the first quarter of 2001
compared to the first quarter of 2000 and equaled $3.16 million versus $3.14
million, an increase of $21,000, or .66%. Declines in the level of salaries and
benefits and data processing costs offset increases in other categories of
expense to result in the minimal increase in noninterest expense. Salaries and
benefits recorded a decrease of $101,000, or 5.78%, to $1.64 million for the
first quarter ended March 31, 2001 from $1.74 million for the first quarter
ended March 31, 2000. Some vacant positions, a move to pay for performance
compensation, the end of a restricted stock program that was fully expensed in
2000, and lower education and training expenses contributed to the lower salary
and benefit expense in the first quarter of 2001. Data processing expense was
down $49,000, or 17.25%, to $235,000 for the quarter ended March 31, 2001,
compared to $284,000 for the same period in 2000. The timing of expenses related
to data processing equipment maintenance was primarily responsible for this
variance. All other expense categories recorded increases for the first quarter.
The largest increases occurred in advertising and other expense. Advertising
expense was up $42,000, or 51.8%, to $123,000 for the first quarter due to the
timing of expenses for newspaper and radio advertising and additional costs for
advertising in a new market. Other expense increased $74,000, or 14.2%, to
$594,000 for the first quarter of 2001 compared to the first quarter of 2000.
Higher costs associated with ATM activity, higher postage and telephone costs,
and an increase in costs associated with other real estate owned and loan
collection expense were the primary contributors to the increase in other
expense quarter over quarter. The Corporation's efficiency ratio was 59.9% at
March 31, 2001.
Federal income tax expense for the quarter ended March 31, 2001, totaled
$307,000 compared to $263,000 for the same quarter ended March 31, 2000. The
Corporation's effective tax rate for the quarter ended March 31, 2001, was 18.7%
compared to 17.8% for the quarter ended March 31, 2000. The increase in the
effective tax rate quarter versus quarter was primarily due to a decrease in
tax-free income relative to pretax income. All taxable income for the
Corporation is taxed at a rate of 34%.
Financial Condition
Total assets were $486.48 million at March 31, 2001, an increase of $20.5
million, or 4.4% from $465.98 million at December 31, 2000. Cash and due from
banks, interest-bearing deposits in other banks and investment securities
available for sale were the asset categories that recorded more than 90% of the
growth since year-end 2000. Loan growth during the first quarter of 2001 was
flat. Commercial loan volume up almost $2.0 million from year-end reported the
largest increase but was offset by volume decreases in mortgage and consumer
loan categories. With the decrease in interest rates, mortgage origination
activity picked up toward mid-quarter, however most of those mortgages were sold
on the secondary market and did not impact the balance sheet. Funding the
increase in assets over the first quarter of 2001 was an increase in total
deposits, securities sold under agreements to repurchase (Repos) and long term
debt with the Federal Home Loan Bank of Pittsburgh (FHLB). Total deposits were
up $6.9 million to $364.1 million at March 31, 2001 from $357.2 million at
December 31, 2000. Noninterest- bearing demand and savings and interest checking
grew $10.6 million while time deposits declined $3.7 million. Included in
savings and interest checking is a money management deposit product which grew
$7.9 million from year-end and is the primary driver behind the continued growth
in deposits. Repo volume was up $3.5 million, or 10.6%, to $36.5 million from
$33.0 million and long-term debt increased $8.3 million, or 28.3% to $37.8
million from $29.5 million. The increase in long term debt was used to
match-fund new and existing fixed rate loans and to extend the duration of the
Corporation's liabilities.
Total shareholders' equity increased $1.4 million to $44.6 million at March
31, 2001 from $43.2 million at year-end 2000. During the quarter shareholders'
equity was favorably impacted by an approximate $900,000 increase in other
comprehensive income. An increase of $783,000 in retained earnings during the
quarter accounted for the rest of the increase.
Capital adequacy is currently defined by regulatory agencies through the
use of several minimum required ratios. At March 31, 2001, the Corporation was
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, 2001 were 8.96%, 12.52%, and 13.75%, respectively. For more
information on capital ratios refer to Note 2 of the accompanying financial
statements.
Loan Quality
Net charge-offs for the first quarter ended March 31, 2001, totaled
$128,000 compared to $105,000 for the first quarter of 2000. In the first
quarter of 2001, 27% of the net charge-offs were related to the real estate loan
portfolio, 30% to the commercial portfolio and 43% to the consumer portfolio.
The annualized ratio of net charge-offs to average loans was .17% at March 31,
2001 compared to .14% at March 31, 2000.
Nonperforming loans were up $105,000 to $1.05 million at March 31, 2001
from $945,000 at December 31, 2000. However, nonperforming loans at March 31,
2001 have significantly decreased from $3.2 million at March 31, 2000. Included
in nonperforming loans at March 31, 2001, were nonaccrual loans totaling
$536,000 and loans past due 90 days or more totaling $514,000 compared to
$576,000 and $369,000, respectively at December 31, 2000. The Corporation held
other real estate (ORE) equaling $1.2 million at March 31, 2001 compared to $1.4
million at December 31, 2000. Nonperforming assets represented .46% of total
assets at March 31, 2001 compared to .50% at December 31, 2000.
The allowance for possible loan losses totaled $3.95 million at March 31,
2001, compared to $3.87 million at December 31, 2000. The allowance represents
1.30% and 1.28%, of total loans at March 31, 2001 and December 31, 2000,
respectively. The allowance provided coverage for nonperforming loans at a rate
of 3.8 times at March 31, 2001.
The local economy has slowed from a year ago. The unemployment rate
reported by the Department of Labor and Industry for Franklin County for March
was 5.1%, an increase from the 4.4% that was reported in January 2001. Local
economists expect the rate to increase again once recent layoff announcements
take effect in May and June. Although the unemployment rate has increased,
unemployment remains close to what economic observers refer to as "full
employment," or 5%.
Liquidity
The Corporation's liquidity ratio (net cash, short-term and marketable
assets divided by net deposits and short-term liabilities) was 37.6% at March
31, 2001. The Corporation has the ability to borrow funds from the Federal Home
Loan Bank of Pittsburgh, if necessary, to enhance its liquidity position. At
March 31, 2001, the maximum borrowing capacity for the Corporation with FHLB is
approximately $145 million. The Corporation is currently involved in the
construction of an addition to its headquarters facility. Approximately $1.0
million of the $3.15 million project has been funded as of March 31, 2001. This
project is expected to be completed during 2001. Management believes that
liquidity is adequate to meet the borrowing and deposit needs of its customers
as well as to fund other commitments.
PART I, Item 3
Qualitative and Quantitative Disclosures about Market Risk
There were no material changes in the Corporation's exposure to market risk
during the first quarter ended March 31, 2001. For more information on market
risk refer to the Corporation's 2000 10-K.
PART II - Other Information
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults by the Company on its Senior Securities
None
Item 4. Results of Votes of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
A Form 8-K dated March 8, 2001, 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 10, 2001 /s/ William E. Snell, Jr.
William E. Snell Jr.
President and Chief Executive Officer
May 10, 2001 /s/ Elaine G. Meyers
Elaine G. Meyers
Treasurer and Chief Financial Officer