SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------
FORM 11-K
ANNUAL REPORT
PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934.
For the fiscal year ended December 31, 2002
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the transition period from to
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Commission file number: 0-24133
A. Full title of the plan and the address of the plan, if
different from that of the issuer named below:
Franklin Financial Employees
Retirement Savings Plan
B. Name of issuer of the securities held pursuant to the plan and
the address of its principal executive office:
Franklin Financial Corporation
230 Public Square
Franklin, Tennessee 37064
REQUIRED INFORMATION
(a) Financial Statements for the Franklin Financial Employees Retirement
Savings Plan
(i) Independent Auditors' Report
(ii) Statements of Net Assets Available for Plan Benefits, as of
December 31, 2002 and 2001
(iii) Statements of Changes in Net Assets Available for Plan
Benefits, for the Years Ended December 31, 2002 and 2001
(iv) Notes to Financial Statements
(v) Schedule H, Line 4i - Schedule of Assets (Held at End of Year)
(vi) Schedule H, Line 4j - Schedule of Reportable Transactions
(b) Exhibits
The following exhibits are filed herewith as part of this annual
report:
Exhibit No. Description of Exhibit
23.1 Consent of Crowe Chizek and Company LLC
99.1 Certification pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Plan has caused this annual report to be signed on its behalf by the
undersigned hereunto duly authorized.
FRANKLIN FINANCIAL EMPLOYEES
RETIREMENT SAVINGS PLAN
By: /s/ Gordon E. Inman
---------------------------------------
Gordon E. Inman, Trustee
(Plan Administrator)
Date: June 30, 2003
FRANKLIN FINANCIAL EMPLOYEES
RETIREMENT SAVINGS PLAN
FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
FRANKLIN FINANCIAL EMPLOYEES RETIREMENT SAVINGS PLAN
FRANKLIN, TENNESSEE
FINANCIAL STATEMENTS
December 31, 2002 and 2001
CONTENTS
Report of Independent Auditors..................................................1
Financial Statements:
Statements of Net Assets Available for Plan Benefits...................2
Statements of Changes in Net Assets Available for Plan Benefits........3
Notes to Financial Statements..........................................4
Supplemental Schedules:
Schedule H, Line 4i - Schedule of Assets...............................9
(Held at end of year)
Schedule H, Line 4j - Schedule of Reportable Transactions.............10
REPORT OF INDEPENDENT AUDITORS
Plan Administrator
Franklin Financial Employees
Retirement Savings Plan
Franklin, Tennessee
We have audited the accompanying statements of net assets available for benefits
of Franklin Financial Employees Retirement Savings Plan as of December 31, 2002
and 2001, and the related statements of changes in net assets available for
benefits for the years then ended. These financial statements are the
responsibility of the Plan's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of Franklin
Financial Employees Retirement Savings Plan as of December 31, 2002 and 2001,
and the changes in its net assets available for benefits for the years then
ended in conformity with accounting principles generally accepted in the United
States of America.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedules of Assets Held
for Investment Purposes and Reportable Transactions are presented for the
purpose of additional analysis and are not a required part of the basic
financial statements but are supplementary information required by the
Department of Labor's Rules and Regulations for Reporting and Disclosure under
the Employee Retirement Income Security Act of 1974. These supplemental
schedules are the responsibility of the Plan's management. The supplemental
schedules have been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, are fairly stated in all
material respects in relation to the basic financial statements taken as a
whole.
/s/ Crowe Chizek and Company LLC
Crowe Chizek and Company LLC
Brentwood, Tennessee
June 20, 2003
1
FRANKLIN FINANCIAL EMPLOYEES RETIREMENT SAVINGS PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 2002 AND 2001
ASSETS: 2002 2001
---------- ----------
Investments - at fair value:
Mutual funds $1,532,520 $1,610,851
Franklin Financial Corporation common stock 1,143,326 673,858
Common trust fund 166,029 --
Participant loans 27,466 34,698
---------- ----------
Total investments - at fair value 2,869,341 2,319,407
Receivables:
Employer contribution -- 11,807
---------- ----------
Total receivables -- 11,807
Cash -- 4,108
---------- ----------
Total assets $2,869,341 $2,335,322
========== ==========
LIABILITIES:
Benefit claims -- 3,511
---------- ----------
NET ASSETS AVAILABLE FOR BENEFITS $2,869,341 $2,331,811
========== ==========
See accompanying notes to financial statements.
2
FRANKLIN FINANCIAL EMPLOYEES RETIREMENT SAVINGS PLAN
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
YEARS ENDED DECEMBER 31, 2002 AND 2001
ADDITIONS TO NET ASSETS ATTRIBUTED TO: 2002 2001
----------- -----------
Investment income:
Net appreciation (depreciation) in fair value of investments $ (29,996) $ (530)
Interest 3,105 4,605
Dividends 19,120 6,389
----------- -----------
(7,771) 10,464
Less investment expenses (1,170) --
----------- -----------
(8,941) 10,464
Contributions
Employer 228,371 168,952
Participants 597,544 420,350
Rollovers 1,441 19,911
----------- -----------
827,356 609,213
----------- -----------
TOTAL ADDITIONS 818,415 619,677
----------- -----------
DEDUCTIONS FROM NET ASSETS ATTRIBUTED TO:
Benefits paid to participants 274,428 65,541
Forfeitures 6,457 4,980
----------- -----------
TOTAL DEDUCTIONS 280,885 70,521
----------- -----------
NET INCREASE 537,530 549,156
NET ASSETS AVAILABLE FOR BENEFITS:
BEGINNING OF YEAR 2,331,811 1,782,655
----------- -----------
END OF YEAR $ 2,869,341 $ 2,331,811
=========== ===========
See accompanying notes to financial statements.
3
FRANKLIN FINANCIAL EMPLOYEES RETIREMENT SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
NOTE 1 - DESCRIPTION OF PLAN
The following brief description of the Franklin Financial Employees Retirement
Savings Plan (Plan) provides only general information. Participants should refer
to the Plan agreement for a more comprehensive description of the Plan's
provisions.
(A) GENERAL
The Plan is a defined contribution plan covering all employees of
Franklin National Bank (the Company) who have three months of service
and are age twenty-one or older. The Plan is subject to the provisions
of the Employee Retirement Income Security Act of 1974 (ERISA).
Franklin National Bank is a wholly-owned subsidiary of Franklin
Financial Corporation.
(B) CONTRIBUTIONS
Each year, participants may contribute up to 85% of pretax annual
income, as defined in the Plan. Participants may also contribute
amounts representing distributions from other qualified defined benefit
or contribution plans. The Company contributes 50% of the first 6% of
base compensation that a participant contributes to the Plan.
Additional amounts may be contributed at the option of the Company. A
participant may make a contribution to the Plan, limited to the lesser
of $11,000 and $10,500 for 2002 and 2001, or the maximum permitted
contribution percentage of his or her salary. Effective January 1, 1998
all employer contributions are invested in Franklin Financial
Corporation common stock.
(C) PARTICIPANTS ACCOUNTS
Each participant's account is credited with the participant's
contribution and allocations of (a) the Company's contribution and (b)
Plan earnings, and charged with an allocation of administrative
expenses, if any. Allocations are based on participant earnings or
account balances, as defined. The benefit to which a participant is
entitled is the benefit that can be provided from the participant's
vested account.
(D) VESTING
Participants are immediately vested in their contributions plus actual
earnings thereon. Vesting in the Company's matching and discretionary
contribution portion of their accounts plus actual earnings is based on
years of continuous service. A participant is 100 percent vested after
3 years of service.
Participants automatically become fully vested, regardless of the years
of service completed, upon attainment of the Plan's normal retirement
age of 65, upon death, or upon disability.
(E) INVESTMENT OPTIONS
Upon enrollment in the Plan, a participant may direct employee
contributions in any of twelve investment options including common
stock of Franklin Financial Corporation.
4
FRANKLIN FINANCIAL EMPLOYEES RETIREMENT SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
NOTE 1 - DESCRIPTION OF PLAN (Continued)
(F) PARTICIPANT LOANS
Participants may borrow from their fund accounts to a maximum equal to
the lesser of $50,000 or 50% of their account balance. Loan
transactions are treated as a transfer to (from) the investment funds
from (to) the Participant notes fund. Loan terms are limited to five
years. The loan term may exceed five years for the purchase of a
primary residence. The loans are secured by the balance in the
participant's account and bear interest at a rate commensurate with
local prevailing rates as determined by the Plan administrator.
Principal and interest are paid ratably through monthly payroll
deductions.
(G) PAYMENT OF BENEFITS
On termination of service due to death, disability or retirement, a
participant may elect to receive either a lump-sum amount equal to the
value of the participant's vested interest in his or her account, or
annual installments. If a participant's account balance exceeds $5,000,
no portion of the account balance will be distributed as a lump-sum
without the participant's consent. For termination of service due to
other reasons, a participant may receive the value of the vested
interest in their account as a lump sum distribution.
(H) FORFEITED ACCOUNTS
Forfeitures of nonvested Company contributions are used to pay expenses
of the Plan.
(I) TERMINATED PARTICIPANTS
Included in net assets available for benefits are amounts allocated to
individuals who have elected to withdraw from the Plan, but who have
not yet been paid. Amounts allocated to those participants were zero at
December 31, 2002 and 2001.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) BASIS OF ACCOUNTING
The financial statements of the Plan are prepared on an accrual method
of accounting.
(B) USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect certain
reported amounts and disclosures. These estimates and assumptions may
change in the future and future results would differ. It is at least
reasonably possible that a significant change may occur in the near
term for the estimates of investment valuation.
5
FRANKLIN FINANCIAL EMPLOYEES RETIREMENT SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(C) INVESTMENTS
Investments are stated at fair value as reported by the custodian. Fair
values have been determined by quoted prices on an active market.
Shares of mutual funds are valued at quoted market prices which
represent the net assets value of shares held by the plan at year end.
In accordance with the policy of stating investments at fair value, the
Plan presents the net appreciation as both realized gains or losses and
unrealized appreciation (depreciation) on those investments in the
statement of changes in net assets available for benefits. Purchases
and sales of securities are recorded on a trade date basis. Interest
income is recorded on the accrual basis. Dividends are recorded on the
ex-dividend date.
(D) RISKS AND UNCERTAINTIES
The Plan provides for various investment options including any
combination of mutual funds, stocks, bonds, and other investment
securities. The underlying investment securities are exposed to various
risks, such as interest rate, market and credit risks. Due to the level
of risk associated with certain investment securities and the level of
uncertainty related to changes in the value of investment securities,
it is at least reasonably possible that changes in the values of
investment securities will occur in the near term and that such changes
could materially affect the amounts reported in the statement of net
assets available for benefits and participants' individual account
balances.
(E) PAYMENT OF BENEFITS
Benefits are recorded when paid.
NOTE 3 - INVESTMENTS
Investments that represent 5% or more of the Plan's net assets in
either year are presented below:
December 31,
2002 2001
---------- ----------
Aetna Investments Growth and Income Fund $ -- $ 316,867
Aetna Investments Balanced Fund -- 120,311
Aetna Investments Fixed Account -- 320,785
Fidelity VIP Equity Income Portfolio -- 121,255
Fidelity VIP Growth Portfolio -- 473,349
Franklin Financial Corporation Common Stock 1,143,326 673,858
American Funds AMCAP Fund 232,612 --
American Funds Growth Fund A 298,285 --
American Funds Income Fund A 176,668 --
American Funds Washington Mutual A 332,010 --
CTC Stable Value Fund 166,029 --
6
FRANKLIN FINANCIAL EMPLOYEES RETIREMENT SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
NOTE 3 - INVESTMENTS (Continued)
During the years ended December 31, 2002 and 2001, the Plan's investments
(including bought, sold, and held during the year) appreciated (depreciated) as
follows:
December 31,
2002 2001
--------- ---------
Investments held by Circle Trust Company, custodian $(323,168) $ --
Investments held by Aetna Life Insurance and Annuity
Company, custodian -- (192,269)
Franklin Financial Corporation common stock 290,072 191,739
CTC stable value fund common trust fund 3,100 --
--------- ---------
$ (29,996) $ (530)
========= =========
NONPARTICIPANT - DIRECTED INVESTMENTS
Information about the net assets and the significant components of the changes
in net assets relating to the nonparticipant-directed investments is as follows:
December 31,
2002 2001
--------- ---------
Net Assets:
Franklin Financial Corporation common stock $ 806,328 $ 463,136
========= =========
Changes in Net Assets:
Contributions $ 125,272 $ 181,101
Net transfers 117,295 --
Dividends -- 4,456
Net appreciation 184,447 160,387
Benefits paid to participants (77,033) (43,080)
Fees and forfeitures (6,789) --
--------- ---------
$ 343,192 $ 302,864
========= =========
NOTE 4 - PLAN AMENDMENT
Effective January 1, 2002, the Plan was amended to comply with GUST [The Uruguay
Round Agreements Act of the General Agreement on Tariffs and Trade (GAAT), the
Uniformed Services Employment and Reemployment Rights Act of 1997 (USERRA), the
Small Business Job Protection Act of 1996 (SBJPA), and the Tax Reform Act of
1997 (TRA '97)].
7
FRANKLIN FINANCIAL EMPLOYEES RETIREMENT SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
NOTE 4 - PLAN AMENDMENT (Continued)
NOTE 5 - INCOME TAX STATUS
The Internal Revenue Service has determined and informed the Company by a letter
dated November 30, 1998, that the Plan and related trust are designed in
accordance with applicable sections of the Internal Revenue Code (IRC). The Plan
has been amended since receiving the determination letter. However, the Company
believes that the Plan is designed and is currently being operated in compliance
with the applicable requirements of the IRC.
NOTE 6 - PARTY-IN-INTEREST TRANSACTIONS
Parties-in-interest are defined under Department of Labor Regulations as any
fiduciary of the Plan, any party rendering service to the Plan, the employer and
certain others. Professional fees for the administration and audit of the Plan
were paid by the Plan.
December 31,
2002 2001
---------- ----------
Aetna Funds $ -- $ 811,569
Franklin Financial Corporation common stock 1,143,326 673,858
CTC Stable Value Plus 166,029 --
Participant loans 27,466 34,698
NOTE 7 - PLAN TERMINATION
On July 23, 2002, the Company entered into a definitive Affiliation Agreement
(the "Agreement") which provides for the acquisition of the Company by Fifth
Third Bancorp, an Ohio corporation ("Fifth Third") through the merger of the
Company into a wholly owned subsidiary of Fifth Third.
On March 27, 2003, the Company extended the termination date of the Agreement to
June 30, 2004. In the event that the Board of Governors of the Federal Reserve
System has not granted regulatory approval for the merger on or before May 31,
2004, the company has the right to terminate the Agreement.
The Franklin Financial Employees Retirement Savings Plan will be terminated the
day before the merger is finalized. Employees participating in the Plan will
have an option to receive a full distribution, transfer fund balance into an
individual retirement account, or transfer fund balance into the Fifth Third
Retirement Plan.
SUPPLEMENTAL SCHEDULES
FRANKLIN FINANCIAL EMPLOYEES RETIREMENT SAVINGS PLAN
EIN: 62-1376027
PLAN NUMBER: 001
PLAN YEAR ENDED: DECEMBER 31, 2002
SCHEDULE H, LINE 4I - SCHEDULE OF ASSETS (HELD AT END OF YEAR)
(c)
(a) Description of
Party (b) Investments including (e)
-in- Identity of Issue, Borrower, Maturity Date and (d) Current
interest Lessor or Similar Party Rate of Interest Cost Value
- -------- ---------------------------- ---------------------- ---- ----------
American Funds AMCAP Fund Mutual fund N/A $ 232,612
American Funds Euro Pacific Growth Fund Mutual fund N/A 52,121
American Funds The Bond Fund of America Mutual fund N/A 108,100
American Funds Washington Mutual Investors Fund Mutual fund N/A 332,010
American Funds New Perspective Fund Mutual fund N/A 117,477
American Funds The Growth Fund of America Mutual fund N/A 298,285
American Funds American High-Income Trust Mutual fund N/A 89,028
American Funds Intermediate Bond Fund of America Mutual fund N/A 39,360
American Funds The New Economy Fund Mutual fund N/A 86,859
* CTC Stable Value Plus Common trust N/A 166,029
American Funds Income Fund of America Mutual fund N/A 176,668
* Participant Loans 5.75% - 10.50% N/A 27,466
* Franklin Financial Corporation
Participant-Directed Employer Stock N/A 336,998
Nonparticipant-Directed Employer Stock 310,560 806,328
-----------
TOTAL INVESTMENTS $ 2,869,341
===========
* Party-in-interest to the Plan.
N/A - Information is not required since these are participant directed
investments.
9
FRANKLIN FINANCIAL EMPLOYEES RETIREMENT SAVINGS PLAN
EIN: 62-1376027
PLAN NUMBER: 001
PLAN YEAR ENDED: DECEMBER 31, 2002
SCHEDULE H, LINE 4J - SCHEDULE OF REPORTABLE TRANSACTIONS
(H)
(F) CURRENT
(A) VALUE OF (I)
(B) (C) (D) (E) EXPENSE (G) ASSET
IDENTITY OF INCURRED ON NET
PARTY DESCRIPTION PURCHASE SELLING LEASE WITH COST OF TRANSACTION GAIN
INVOLVED OF ASSET PRICE PRICE RENTAL TRANSACTION ASSET DATE OR (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
1) Single Transactions
* Franklin Employer $ 125,272 - - - $ 125,272 $ 125,272 -
Financial Stock
Corp
2) Series of Nonsecurity Transactions
None reportable.
* Party-in-interest to the Plan.
10