U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER 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
COMMISSION FILE NUMBER: 0-24675
---------
STATE OF FRANKLIN BANCSHARES, INC.
------------------------------------------
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
TENNESSEE 62-1607709
- --------------------------------- --------------------------------
(STATE OF INCORPORATION) (I.R.S. EMPLOYER
IDENTIFICATION NO.)
1907 NORTH ROAN STREET
JOHNSON CITY, TENNESSEE 37601
-------------------------- -----
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(423) 926-3300
------------------------------------------
(ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE)
NONE
------------------------------------------
(FORMER NAME, ADDRESS AND FISCAL YEAR, IF CHANGED SINCE LAST REPORT)
INDICATE BY CHECK MARK WHETHER THE ISSUER: (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
----
1,465,512
------------------------------------------
(OUTSTANDING SHARES OF THE ISSUER'S COMMON STOCK AS OF MAY 11, 2001)
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE):
YES NO X
----
STATE OF FRANKLIN BANCSHARES, INC
INDEX
-----
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS PAGE
-------
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION 3
MARCH 31, 2001 (UNAUDITED) AND DECEMBER 31, 2000 (AUDITED)
CONSOLIDATED STATEMENTS OF INCOME 4
THREE MONTHS ENDED MARCH 31, 2001 AND 2000 (UNAUDITED)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY 5
THREE MONTHS ENDED MARCH 31, 2001 (UNAUDITED)
AND YEAR ENDED DECEMBER 31, 2000 (AUDITED)
CONSOLIDATED STATEMENTS OF CASH FLOWS 6
THREE MONTHS ENDED MARCH 31, 2001 (UNAUDITED) AND 2000 (UNAUDITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 13
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 15
ITEM 2. CHANGES IN SECURITIES 15
ITEM 3. DEFAULT UPON SENIOR SECURITIES 15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 15
ITEM 5. OTHER INFORMATION 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 15
2
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
STATE OF FRANKLIN BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
MARCH 31, DECEMBER 31,
ASSETS 2001 - UNAUDITED 2000 - AUDITED
- -------------------------------------------------------------------------------------------------
Cash and Due from Banks $ 4,471,814 4,715,833
Federal Funds Sold 4,255,000 2,525,000
Short-Term Interest Bearing Deposits 38,955 227,422
Investments - HTM
(Estimated Market 2000 - $7,978,242 and 2000 - $13,792,610) 7,991,500 13,989,368
Investments - AFS 51,650,640 38,714,467
Loans Held for Sale 1,201,935 264,922
Loans and Leases Receivable 138,650,986 136,155,217
Less: Allowance for Loan and Lease Losses (1,137,763) (1,062,511)
- -------------------------------------------------------------------------------------------------
Loans and Leases Receivable, Net 137,513,223 135,092,706
- -------------------------------------------------------------------------------------------------
Accrued Interest Receivable, Net 1,329,199 1,542,443
Land, Buildings & Equip at Cost Less Accum Depr
of $970,862 in 2001 and $883,607 in 2000 5,324,116 5,395,933
Prepaid Expense and Accounts Receivable 118,194 77,379
Investment in Service Bureau at Cost 15,000 15,000
Deferred Tax Assets 110,069 313,815
FHLB Stock 2,058,100 1,524,500
- -------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 216,077,745 204,398,788
=================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
=================================================================================================
LIABILITIES:
Interest-Free Deposits $ 8,367,554 9,503,943
Interest-Bearing Deposits 160,107,813 152,578,447
Advances by Borrowers for Taxes and Insurance 173,879 107,235
Accrued Interest on Deposits 217,487 188,408
Accounts Payable and Accrued Expenses 387,195 296,388
FHLB Short-Term Advances 0 12,660,000
FHLB Long-Term Advances 28,245,272 11,246,679
Deferred Gain on REO 21,448 21,448
Notes Payable 557,115 571,637
- -------------------------------------------------------------------------------------------------
TOTAL LIABILITIES $ 198,077,763 187,174,185
- -------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY:
Common Stock, $1.00 Par Value 1,465,512 1,465,512
Paid-in Capital 14,251,461 14,251,461
Accumulated Other Comprehensive Income 431,800 89,678
Retained Earnings 2,981,461 2,569,575
Less: Employee Stock Ownership (1,130,252) (1,151,623)
- -------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY $ 17,999,982 17,224,603
- -------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 216,077,745 204,398,788
=================================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
3
STATE OF FRANKLIN BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31,
----------------------------------
INTEREST INCOME: 2001 - UNAUDITED 2000 - UNAUDITED
---------------- ----------------
Interest and Fees on Loans $ 3,016,603 2,481,052
Other Interest Income 975,424 618,394
- ----------------------------------------------------------------------------------------
TOTAL INTEREST INCOME 3,992,028 3,099,446
- ----------------------------------------------------------------------------------------
INTEREST EXPENSE:
Interest on Deposits 2,164,843 1,628,754
Interest on Short-Term Debt 84,776 80,118
Interest on Long-Term Debt 305,617 124,066
- ----------------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE 2,555,236 1,832,938
- ----------------------------------------------------------------------------------------
NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSS 1,436,792 1,266,508
PROVISION FOR LOAN LOSSES (78,277) (56,938)
- ----------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSS 1,358,515 1,209,570
- ----------------------------------------------------------------------------------------
OTHER INCOME:
Other Fees and Service Charges 107,134 90,017
Net Gain on Loans Sold 28,347 8,739
Insurance Commission Income 3,322 10,087
Rental Income, Net 16,237 15,024
- ----------------------------------------------------------------------------------------
TOTAL OTHER INCOME 155,039 123,867
- ----------------------------------------------------------------------------------------
OTHER EXPENSES:
Compensation and Related Benefits 429,037 380,166
Occupancy Expenses 72,769 76,095
Furniture and Equipment Expense 81,102 69,866
Advertising 23,677 14,428
Data Processing Expense 113,480 83,894
Other 203,196 222,796
- ----------------------------------------------------------------------------------------
TOTAL OTHER EXPENSES 923,262 847,245
- ----------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAX 590,293 486,192
PROVISION FOR INCOME TAXES (178,407) (158,106)
- ----------------------------------------------------------------------------------------
NET INCOME $ 411,886 328,086
========================================================================================
EARNINGS PER SHARE:
BASIC $ 0.30 0.26
DILUTED 0.29 0.25
========================================================================================
WEIGHTED AVERAGE SHARES OUTSTANDING:
BASIC 1,366,126 1,271,086
DILUTED 1,424,281 1,307,868
========================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
4
STATE OF FRANKLIN BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THREE MONTHS ENDED MARCH 31, 2001 (UNAUDITED) AND YEAR ENDED DECEMBER 31, 2000 (AUDITED)
Accumulated
Other Employee
Common Paid-In Comprehensive Retained Stock
Stock Capital Income Earnings Ownership Total
-------------- ---------- ------------ --------- ----------- -------------
Balance at December 31, 1999 1,301,519 12,243,730 (610,238) 1,189,889 (626,615) 13,498,285
-------------
Net Proceeds
from Sale of Stock 163,993 2,007,731 -- -- -- 2,171,724
-------------
ESOP Shares Allocated -- -- -- -- 74,986 74,986
-------------
Additional ESOP Shares Issued (599,994) (599,994)
-------------
Comprehensive Income
Other Comprehensive Income,
Net of Tax:
Unrealized Gains on Securities
Available-For-Sale:
Unrealized Holding Gains
Arising During the Period
(Net of $360,563 Income Tax) -- -- 699,915 -- -- 699,915
Net Income -- -- -- 1,379,687 -- 1,379,687
-------------
Total Comprehensive Income -- -- -- -- -- 2,079,603
----------- ---------- --------- --------- ---------- -------------
Balance at December 31, 2000 1,465,512 14,251,461 89,677 2,569,576 (1,151,623) 17,224,603
ESOP Shares Allocated -- -- -- -- 21,371 21,371
Comprehensive Income
Other Comprehensive Income,
Net of Tax:
Unrealized Gains on Securities
Available-For-Sale:
Unrealized Holding Losses
Arising During the Period
(Net of $229,515 Income Tax) -- -- 383,341 -- -- 383,341
Less: Reclassification Adjustment
(Net of $25,263 Income Tax) -- -- (41,218) -- -- (41,218)
-------------
342,123
Net Income -- -- -- 411,885 -- 411,885
-------------
Total Comprehensive Income -- -- -- -- -- 754,008
------------ ---------- --------- --------- ----------- -------------
Balance at March 31, 2001 1,465,512 14,251,461 431,800 2,981,461 (1,130,252) 17,999,982
============ ========== ========= ========= =========== =============
The accompanying notes are an integral part of the consolidated
financial statements.
5
STATE OF FRANKLIN BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31,
----------------------------------
2001 - UNAUDITED 2000 - UNAUDITED
---------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 411,886 328,086
Items Not Affecting Cash:
Depreciation 92,567 68,997
Decrease in Accrued Interest 213,244 51,121
Deferred Income Taxes (Benefit) (14,707) (34,323)
Provision for Loan and Lease Losses 78,277 56,938
(Increase) in Prepaid Expenses and Accounts Receivable (40,815) (21,955)
Increase in Interest Payable 29,079 27,725
Increase (Decrease) in Accounts Payable and Accrued Expenses 90,807 (241,655)
Increase (Decrease) in Deferred Loan Fees, Net (3,066) 15,281
Discount Accretion (98,484) (4,635)
Earned ESOP Shares 21,371 13,427
FHLB Stock Dividends (33,600) (24,600)
Net (Increase) Decrease in Loans Held for Sale (937,013) 234,851
- -----------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES (190,454) 469,258
- -----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Held-to-Maturity Investments - -
Purchase of Available-for-Sale Investments (16,156,869) (6,220)
Proceeds from Sale of Available-for-Sale Investments 6,000,000 -
Proceeds from Maturities of Available-for-Sale Investments 3,925,000 -
Proceeds from Sale of Available-for-Sale Investments - 504,171
(Increase) in Federal Funds Sold (1,730,000) (1,991,000)
(Increase) Decrease in Short-Term Interest Bearing Deposits 188,467 (10,165)
(Increase) in Loans Receivable, Net (2,543,105) (6,806,718)
Purchases of Premises and Equipment (20,750) (752,721)
Purchases of Federal Home Loan Bank Stock (500,000) -
- -----------------------------------------------------------------------------------------------------------------
NET CASH (USED) BY INVESTING ACTIVITIES (10,837,257) (9,062,653)
- -----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Increase in Deposits 6,392,977 7,831,989
Net Increase in Advances by Borrowers for Taxes and Insurance 66,644 44,685
Issuance of Common Stock, Net - 721,121
Repayment of Debt (14,522) (13,427)
Repayment of FHLB Advances (12,660,000) -
Proceeds from FHLB Advances 16,998,593 934,706
- -----------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 10,783,692 9,519,074
- -----------------------------------------------------------------------------------------------------------------
NET INCREASE IN CASH (244,019) 925,679
CASH AND DUE FROM BANKS AT BEGINNING OF PERIOD 4,715,833 2,785,509
- -----------------------------------------------------------------------------------------------------------------
CASH AND DUE FROM BANKS AT END OF PERIOD $ 4,471,814 3,711,188
=================================================================================================================
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Increase (Decrease) in Unrealized Gain (Loss) on Securities Available-For-Sale,
Net of Deferred Tax Liability $ 342,122 (6,514)
Acquisition of Real Estate Property through Foreclosure of Related Loans $ (155,831)
=================================================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash Paid During the Period for:
Income Taxes $ 20,000 427,413
Interest $ 2,526,157 1,805,213
=================================================================================================================
The accompanying notes are an integral part of the consolidated
financial statements.
6
STATE OF FRANKLIN BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
NOTE 1 INCORPORATION AND OPERATIONS
- ------ ------------------------------
State of Franklin Bancshares, Inc. (Company) was incorporated under the
laws of the State of Tennessee for the purpose of becoming the holding
company of State of Franklin Savings Bank (Savings Bank). The stockholders
of the Savings Bank exchanged their shares for the shares of the Company,
whereby the Savings Bank became the Company's wholly owned subsidiary.
State of Franklin Leasing Corporation (Leasing Corp) was incorporated
under the laws of the State of Tennessee for the purpose of lease
financing. The Leasing Corp is a wholly owned subsidiary of the Company.
John Sevier Title Services, Inc. (Title Company) is the wholly owned
subsidiary of the Savings Bank.
NOTE 2 BASIS OF PREPARATION
- ------ ----------------------
The accompanying reviewed consolidated financial statements include the
accounts of the Company and its subsidiaries. All significant intercompany
accounts and transactions have been eliminated. These financial statements
were prepared in accordance with generally accepted accounting principles
for interim financial information and in accordance with the instructions
for Form 10-QSB. Accordingly, they do not include all disclosures
necessary for a complete presentation of the consolidated statements of
financial condition, income, cash flows, and changes in stockholders'
equity in conformity with generally accepted accounting principles.
However, all adjustments which are, in the opinion of management,
necessary for the fair presentation of the interim financial statements
have been included. All such adjustments are of a normal recurring nature.
The statement of comprehensive income for the three months ended March 31,
2001 is not necessarily indicative of the results which may be expected
for the entire year.
These consolidated financial statements should be read in conjunction with
the audited consolidated financial statements and notes thereto for the
Company for the year ended December 31, 2000.
NOTE 3 RECLASSIFICATIONS
- ------ -----------------
In instances where required, amounts reported in prior period's financial
statements included herein have been reclassified to put them on a
comparable basis to the amounts reported in the March 31, 2000 consolidated
financial statements.
NOTE 4 LAND BUILDINGS AND EQUIPMENT
- ----- -----------------------------
Fixed assets at March 31, 2001, and December 31, 2000 are summarized as
follows:
2001 2000
----------- -----------
Land 1,450,000 1,450,000
Buildings and Leasehold Improvements 2,942,122 2,941,388
Furniture, Fixtures and Equipment 1,905,512 1,885,496
----------- -----------
6,297,634 6,276,884
Less: Accumulated Depreciation 973,518 880,951
----------- -----------
5,324,116 5,395,933
=========== ===========
7
NOTE 5 LOANS RECEIVABLE
- ------- ------------------
Loans receivable at March 31, 2001 and December 31, 2000, consist of the
following:
2001 2000
-------------- --------------
First Mortgage Loans 54,306,025 54,716,151
Construction Loans 25,755,288 24,454,126
Consumer Loans 10,492,724 10,066,638
Participation Loans, Net 533,676 533,676
Commercial Loans 52,627,614 50,931,829
Savings Account Loans 21,047 138,122
Credit Line Advances 643,149 392,295
Lease Finance 1,521,580 1,461,095
--------------- ---------------
Gross Loans and Leases Receivable 145,901,103 142,693,932
--------------- ---------------
Less:
Undisbursed Portion of Loans in Process ( 7,132,558) ( 6,418,090)
Net Deferred Loan Origination Fees ( 117,559) ( 120,626)
Accumulated General Loan Loss Allowance ( 1,137,763) ( 1,062,511)
--------------- ---------------
( 8,387,880) ( 7,601,227)
--------------- ---------------
Loans and Leases Receivable, Net 137,513,223 135,092,705
=============== ===============
An analysis of the allowance for loan and lease losses at March 31, 2001
and December 31, 2000 is as follows:
2001 2000
-------------- --------------
Balance - Beginning of Period 1,062,511 810,303
Provision for Loan and Lease Losses 78,277 302,609
Loans and Leases Charged-Off (3,025) (50,401)
Charged-Off Loan and Lease Recoveries -- -
-------------- --------------
Balance - End of Period 1,137,763 1,062,511
============== ==============
The gross amount of participation loans serviced by State of Franklin Savings
Bank was $1,067,240 at March 31, 2001 and also at December 31, 2000.
The Bank had $1.2 million in non-performing loans at March 31, 2001
compared to $984,000 at December 31, 2000.
8
NOTE 6 FEDERAL REGULATION
- ------- -------------------
The capital ratios for State of Franklin Savings Bank are as follows:
For Capital
Adequacy
Purposes
And To Be Well
Capitalized Under
Prompt Corrective
Actual Action Provision
---------------- ----------------
In Thousands (Reviewed) Amount Ratio Amount Ratio
- --------------------------- ---------------- ----------------
As of March 31, 2001:
Total Risk-Based Capital
(to Risk-Weighted Assets) 16,838 11.00% >=15,259 10.0%
Tier 1 Capital
(to Risk-Weighted Assets) 15,742 10.24% >=9,155 6.0%
Tier 1 Capital
(to Adjusted Total Assets) 15,742 7.54% >=10,357 5.0%
As of December 31, 2000:
Total Risk-Based Capital
(to Risk-Weighted Assets) 16,355 12.78% >=12,802 10.0%
Tier 1 Capital
(to Risk-Weighted Assets) 15,325 11.97% >=7,681 6.0%
Tier 1 Capital
(to Adjusted Total Assets) 15,325 7.93% >=9,665 5.0%
The capital ratios for State of Franklin Bancshares, Inc. are as follows:
For Capital
Adequacy
Purposes
And To Be Well
Capitalized Under
Prompt Corrective
Actual Action Provision
----------------- -----------------
In Thousands (Reviewed) Amount Ratio Amount Ratio
- --------------------------- ----------------- -----------------
As of March 31, 2001:
Total Risk-Based Capital
(to Risk-Weighted Assets) 18,706 12.21% >=15,320 10.0%
Tier 1 Capital
(to Risk-Weighted Assets) 17,568 11.47% >=9,192 6.0%
Tier 1 Capital
(to Adjusted Total Assets) 17,568 8.40% >=10,457 5.0%
As of December 31, 2000:
Total Risk-Based Capital
(to Risk-Weighted Assets) 18,197 14.15% >=12,858 10.0%
Tier 1 Capital
(to Risk-Weighted Assets) 17,135 13.33% >=7,715 6.0%
Tier 1 Capital
(to Adjusted Total Assets) 17,135 8.79% >=9,747 5.0%
9
NOTE 7 EMPLOYEE AND DIRECTOR BENEFIT PLANS
- ------ ------------------------------------
EMPLOYEE STOCK OWNERSHIP PLAN
The company has an employee stock ownership plan (ESOP) for those employees
who meet the eligibility requirements of the plan. The ESOP was established
and funded for 1997. On February 28, 1998, 5,236 shares of the Savings Bank
with a fair value of $57,600 were issued for the 1997 contribution. The
Savings Bank stock was exchanged for Company stock as discussed in Note 1.
During the third quarter of 1998, the ESOP borrowed $700,000 from the
Company and used the funds to purchase 63,636 shares of common stock of the
Company at $11 per share. Note payments are $8,218 per month for ten years
with a fixed interest rate of 7.25%. The note balances outstanding at March
31, 2001 and December 31, 2000 were $557,115 and $571,637, respectively. A
related loan was granted for the purpose of leveraging the ESOP in the
amount of $700,000 with similar terms and collaterized with stock. The note
balances outstanding at March 31, 2001 and December 31, 2000 were $557,115
and $571,637, respectively.
On June 30, 2000, the ESOP borrowed an additional $599,994 from the Company
and used the funds to purchase 44,444 additional shares of common stock of
the Company at $13.50 per share. Note payments are $7,280 per month for ten
years with a fixed interest rate of 8.00%. The note balance outstanding at
March 31, 2001 was $569,678 and $579,985 at December 31, 2000. Shares owned
by the ESOP at March 31, 2001 totaled 134,892.
ESOP shares are maintained in a suspense account until released and
allocated to participants' accounts. The release of shares from the
suspense account is based on the principal paid in the year in proportion
to the total of current year and remaining outstanding debt. Allocation of
released shares to participants' accounts is done as of December 31. Shares
allocated and remaining in suspense were as follows:
March 31, December 31,
2001 2000
------------- -------------
Number of Shares
Released and Allocated 26,431 26,431
Committed to be Released 6,970 5,554
Suspense 101,491 98,957
Fair Value
Released and Allocated 396,465 396,465
Committed to be Released 104,550 83,310
Suspense 1,522,365 1,484,355
Contributions to the ESOP are as follows:
March 31, December 31,
2001 2000
------------- -------------
Compensation Expense 60,000 186,000
Contributions 60,000 186,000
For the purpose of computing earnings per share, all ESOP shares committed
to be released will be considered outstanding.
STOCK OPTION PLANS
Weighted
Average
Awarded Exercise
And Price
Unexercised Vested Per
Options Options Share
--------------------------------------------------
Options Granted - Outside Directors January 1, 2001 73,514 35,001 $11.46
Options Granted - Management January 1, 2001 182,166 73,476 $11.64
------- -------
Options Outstanding - March 31, 2001 255,680 108,477 $11.59
======= =======
10
NOTE 8 DEPOSITS
- ------- ----------
Deposit balances are summarized as follows:
March 31, 2001 December 31, 2000
----------------------------- -----------------------------
Rate Amount Percent Rate Amount Percent
------- ----------- -------- ------- ----------- --------
Passbook 4.64 16,525,940 9.81 4.68 16,657,166 10.28
Interest-Free Checking -- 8,367,554 4.97 -- 9,503,943 5.86
NOW 2.02 7,329,665 4.35 2.00 7,465,557 4.61
Money Market Deposit 5.53 45,390,999 26.94 5.51 31,022,840 19.14
----------- -------- ----------- --------
77,614,158 46.07 64,649,506 39.89
----------- -------- ----------- --------
Fixed Term Certificate Accounts
Balances $100,000 or greater 6.19 21,017,031 12.47 6.38 23,480,179 14.48
Balances less than $100,000 6.19 69,844,178 41.46 6.36 73,952,705 45.63
----------- -------- ----------- --------
90,861,209 53.93 97,432,884 60.11
----------- -------- ----------- --------
168,475,367 100.00 162,082,390 100.00
=========== ======== =========== ========
The contractual maturity of certificate accounts at March 31, 2001 and December
31, 2000, is as follows:
Period Ending March 31, 2001 Year Ending December 31, 2000
---------------------------- -----------------------------
2001 58,295,784 2001 81,572,541
2002 26,001,136 2002 13,728,541
2003 6,024,669 2003 1,810,104
2004 539,620 2004 321,698
2005 and After -- 2005 and After --
---------- ----------
90,861,209 97,432,884
========== ==========
NOTE 9 SHORT-TERM BORROWINGS
- ------- ---------------------
Short-term advances from the Federal Home Loan Bank are summarized as
follows for the periods ended March 31, 2001 and December 31, 2000:
2001 2000
---------- ----------
Cash Management (Rate Floats Daily) 0 17,185,000
Weighted Average Rate at End of Period 0% 6.70%
NOTE 10 INVESTMENT SECURITIES
- ------- ---------------------
The amortized cost and fair value of investment securities held-to-maturity
and available-for-sale at March 31, 2001, by contractual maturity, are
shown below. Expected maturities will differ from contractual maturities
because issuers may have the right to call or prepay obligations without
call or prepayment penalties.
11
NOTE 10 CONTINUED
- ------- ---------
March 31, 2001:
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---------- ------- ---------- -----------
Available-for-Sale:
United States Government
Agency Securities Maturing:
After one year
but within five years 998,359 3,308 -- 1,001,667
After five years
but within ten years 14,868,769 170,119 347 15,038,541
Over ten years
but within fifteen years 1,924,864 66,601 489 1,990,976
Over 15 years 3,376,887 166,380 48,223 3,495,044
Municipal Securities Maturing:
Within one year 120,000 1,128 -- 121,128
After one year
but within five years 530,000 15,022 -- 545,022
After five years
but within ten years 810,000 29,577 -- 839,577
Over ten years
but within fifteen years 2,377,877 73,120 -- 2,450,997
Over 15 years 1,210,878 67,174 -- 1,278,052
Equity Securities
Callable after one year
but within five years 17,000,000 130,247 -- 17,130,247
Callable after five years
but within ten years 1,000,000 20,000 -- 1,020,000
Other
Within one year 6,243,139 -- -- 6,243,139
Over 15 years 493,415 2,835 -- 496,250
---------- ------- --------- -----------
Total Available-for-Sale 50,954,188 745,511 49,059 51,650,640
========== ======= ========= ===========
Held-to-Maturity:
United States Government
Agency Securities Maturing:
After five years
but within ten years 7,991,500 4,426 17,684 7,978,242
---------- ------- --------- -----------
Total Held-to-Maturity 7,991,500 4,426 17,684 7,978,242
========== ======= ========= ===========
NOTE 11 EARNINGS PER SHARE
- ------- ------------------
Earnings per share for quarter ended March 31, 2001, compared with quarter
ended March 31, 2000, is as follows:
March 31,
2001 2000
--------- ---------
Net Income 411,886 328,086
Average Basic Shares Outstanding 1,366,126 1,271,086
Basic Earnings Per Share 0.30 0.26
==== ====
Net Income 411,886 328,086
Average Basic Shares Outstanding 1,366,126 1,271,086
Dilutive Effect Due to Stock Options 58,155 36,782
--------- ---------
Average Shares Outstanding, as Adjusted 1,424,281 1,307,868
Diluted Earnings Per Share 0.29 0.25
==== ====
12
ITEM NO. 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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GENERAL
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The following discussion and analysis is intended to assist in
understanding the financial condition and the results of operations of the
Company. State of Franklin Savings Bank (Savings Bank) and State of
Franklin Leasing Corporation (Leasing Corp) represents virtually all of the
assets of State of Franklin Bancshares, Inc. (Company). The Company places
an emphasis on an integrated approach to its balance sheet management.
Significant balance sheet components of investment securities, loans and
sources of funds are managed in an integrated manner with the management of
interest rate risk, liquidity, and capital. These components are examined
below.
BALANCE SHEET REVIEW
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At March 31, 2001, assets of State of Franklin Bancshares, Inc. totaled
$216.1 million reflecting an increase of $11.7 million or 6% since December
31, 2000. The growth in assets has been funded primarily by a $6.4 million
increase in deposits and a $4.3 million increase in Federal Home Loan Bank
advances.
LOANS
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Loans outstanding totaled $138.7 million at March 31, 2001. This
represented an increase of 2% from the December 31, 2000 outstanding loans
of $136.2 million.
Commercial loans increased $1.7 million to $52.6 million at March 31, 2001,
an increase of 3% from $50.9 million at December 31, 2000. Real estate
construction lending totaled $25.8 million compared with $24.5 million at
December 31, 2000, reflecting an increase of $1.3 million or 5%. Consumer
loans of $10.5 million at March 31, 2001 increased $426,000 or 4% from
$10.1 million at December 31, 2000. During the first three months of 2001,
first mortgage residential loans declined slightly to $54.3 million or 1%
from $54.7 million at December 31, 2000. The loan portfolio mix at March
31, 2001 consists of 38% residential mortgages, 36% commercial, 17% real
estate construction, and 9% consumer loans.
INVESTMENT SECURITIES
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Investment securities totaled $59.6 million at March 31, 2001. The
investment portfolio at quarter end consisted of $29.5 million in debt
securities issued by the U. S Government or Federal Agencies, $18.2 million
in preferred stock issued by Federal Agencies, $5.2 million in securities
issued by state, county, or municipalities, and $496,000 in corporate
securities.
At March 31, 2001, securities categorized as available-for-sale totaled
$51.6 million while the held-to-maturity securities totaled $8 million
compared to $38.7 million in available-for-sale and $14 million in
held-to-maturity at December 31, 2000. At March 31, 2001, the
available-for-sale portfolio had gross unrealized gains of $696,452 while
our held-to-maturity securities had $13,258 in unrealized losses due to
changes in market rates. Due to the credit quality of these investments, no
realized losses are expected.
NON-PERFORMING ASSETS
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Loans past due 90 days or more were $371,000 at March 31, 2001 and $194
thousand at December 31, 2000. Nonaccrual loans were $1.2 million at March
31, 2001 compared with $984,000 at December 31, 2000. Additional funding of
the allowance for loan losses have been made to cover anticipated losses
associated with these loans. The reserve for loan and lease losses was
$1,137,763 at March 31, 2001, or 0.82% of loans and leases outstanding, net
of unearned income, compared to $1,062,511 or 0.78% at December 31, 2000.
Management believes the allowance for loan losses is adequate to provide
for potential loan losses.
DEPOSITS
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Total deposits at March 31, 2001 of $168.5 million, represented an increase
of $6.4 million or a 4% increase from $162.1 million at December 31, 2000.
Non-interest bearing demand deposits totaled $8.4 million at March 31,
2001, a decrease of $1.1 million from December 31, 2000. Interest bearing
deposits increased $7.5 million to $160.1 million at March 31, 2001.
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CAPITAL
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Equity capital for the Savings Bank at March 31, 2001 was $16.2 million. At
March 31, 2001, all capital ratios were in excess of the regulatory
minimums, with the Savings Bank's Tier 1, total risk-based, and leverage
ratios of 10.24%, 11.00% and 7.54%, respectively.
Equity capital for the Company at March 31, 2001, was $18 million with Tier
1, total risk-based, and leverage ratios of 11.47%, 12.21%, and 8.40%,
respectively.
LIQUIDITY
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The purpose of liquidity management is to ensure that there is sufficient
cash flow to satisfy demands for credit, deposit withdrawals, and other
corporate needs. Traditional sources of liquidity include asset maturities
and growth in core deposits. Other sources of funds such as securities sold
under agreements to repurchase, negotiable certificates of deposit and
other liabilities are sources of liquidity that the Company has not
significantly used. The Company had unused sources of liquidity in the form
of unused federal funds lines of credit and an unused line of credit with
the Federal Home Loan Bank of Cincinnati totaling $19 million at March 31,
2001.
EARNINGS REVIEW
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The Company had net income of $411,886 for the three months ending March
31, 2001, compared with $328,086 for the same period last year, resulting
in an increase of 26%. Net income per diluted share was $0.29 compared to
earnings per share of $0.25 for the three months ending March 31, 2000.
Return on average assets was .80% and the return on average equity was
9.21% for the three month period ended March 31, 2001, compared with .81%
and 9.27%, respectively, for the same period in 2000.
Noninterest income increased $31,172, or 25%, during the three months ended
March 31, 2001, compared the same period last year as a result of the net
effect several factors. Gain on loans sold increased $19,608, other fees
and service charges increased $17,117, and rental income increased $1,213.
Offsetting a portion of the increase was a $6,765 decline in insurance
commission income.
Noninterest expense was $923,262 for the three months ending March 31,
2001, an increase of 9% over the 2000 period, resulting mainly from
compensation and related benefits, furniture and equipment expense,
advertising, and data processing expense. Partially offsetting the
increases were declines in occupancy and other operating expenses which
included expenses associated with the Y2K transition during the first three
months of year 2000.
NET INTEREST INCOME
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Interest income and interest expense both increased from 2000 to 2001
resulting primarily from the increases in both earning assets and interest
bearing liabilities. Net interest income of $1.4 million for the three
months ended March 31, 2001 reflects an increase of $170,284 or 13% over
the same period last year. For the three months ending March 31, 2001,
average earning assets increased $45.5 million or 29% while average
interest bearing liabilities increased $42 million, or 30%, compared with
the same period in 2000. Average earning asset yield increased 25 basis
points to 8.26% while the cost on interest bearing liabilities increased 45
basis points to 5.67%. Consequently, the net interest margin based on
average earning assets declined to 3.10% for the three months ending March
31, 2001 compared with 3.28% for the same period in 2000.
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PROVISION FOR LOAN LOSSES
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During the three months ended March 31, 2001, the provision for possible
loan losses was $78,227 compared with $56,938 for the same period last
year. Loan charge-offs for the three months ended March 31, 2001, were $873
compared with $56,938 during the same period in 2000. The allowance for
possible loan losses represented .82% of total loans, net of mortgage loans
held-for-sale, at March 31, 2001, compared to .72% at March 31, 2000.
Management considers the allowance for loan losses to be adequate to cover
losses inherent in the loan portfolio.
PROVISION FOR INCOME TAXES
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For the three months ended March 31, 2001, the provision for federal and
state income taxes was $178,407, an increase of $20,301 from 2000,
primarily due to the increase in income before income taxes.
NONINTEREST INCOME
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The Company's noninterest income was $155,039 during the three months ended
March 31, 2001, an increase of $31,172 or 25% from the comparable 2000
period. The increase resulted from the net effect of increases in service
charges on deposit accounts, gains on loans sold, and rental income of
$17,117, $19,608, and $1,213, respectively, combined with a decrease of
$6,765 in insurance commission income.
NONINTEREST EXPENSE
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Noninterest expense totaled $923,262 for the three month period ending
March 31, 2001, an increase of $76,017 or 9%. The increase was result of
increases in compensation and related benefits, furniture and equipment
expense, advertising, and data processing expense of $48,871, $11,236,
$9,249, and $29,586, respectively. Areas with reductions in noninterest
expense were reflected in a $3,326 decline in occupancy expense and a
$19,600 decline in other operating expenses.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULT UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
b) The Company did not file any reports on Form 8-K during the quarter
ended March 31, 2001.
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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.
STATE OF FRANKLIN BANCSHARES, INC.
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(Registrant)
May 10, 2001 /s/ Randal R. Greene
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(Date) Randal R. Greene, President
May 10, 2001 /s/ Charles E. Allen, Jr.
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(Date) Charles E. Allen, Jr.,
Chairman of the Board
and Chief Executive Officer
(Principal Executive, Financial
and Accounting Officer)
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