SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
Rule 13e-3 Transaction Statement
Under Section 13(e) of the Securities Exchange Act of 1934
Amendment No.3
to
Schedule 13E-3
STATE OF FRANKLIN BANCSHARES, INC.
(Name of the Issuer)
State of Franklin Bancshares, Inc.
State of Franklin Merger Corp.
Charles E. Allen, Jr.
Randal R. Greene
Charles E. Allen, Sr., M.D.
Vance W. Cheek
Kenneth E. Cutshall, M.D.
Stephen K. Gross
Alan R. Hubbard
Donald R. Jeanes
Verrill M. Norwood, Jr.
Cameron E. Perry
Richard S. Venable
Henry Jack Williams, M.D.
(Name of Person(s) Filing Statement)
COMMON STOCK, $1.00 PAR VALUE
(Title of Class of Securities)
Not Applicable
(CUSIP Number of Class of Securities)
1
Charles E. Allen, Jr.
Chairman and Chief Executive Officer
State of Franklin Bancshares, Inc.
1907 North Roan Street
Johnson City, Tennessee 37604
(423) 232-4400
(Name, Address and Telephone Number of Person Authorized to Receive
Notices and Communications on Behalf of Person(s) Filing Statement)
With Copies To:
Linda M. Crouch-McCreadie, Esq.
Baker, Donelson, Bearman, Caldwell & Berkowitz, PC
207 Mockingbird Lane, Suite 300
Johnson City, Tennessee 37604
(423) 921-0181
This statement is filed in connection with (check the appropriate box):
a. [X] The filing of solicitation materials or an information statement
subject to Regulation 14A, Regulation 14C or Rule 13e-3(c) under the
Securities Exchange Act of 1934.
b. [ ] The filing of a registration statement under the Securities Act
of 1933.
c. [ ] A tender offer.
d. [ ] None of the above.
Check the following box if the soliciting materials or information statement
referred to in checking box (a) are preliminary copies: [X]
Check the following box if the filing is a final amendment reporting the results
of the transaction: []
2
INTRODUCTION
This Amendment No. 3 to Rule 13e-3 Transaction Statement (the "Statement") on
Schedule 13E-3 (the "Schedule 13E-3") is being filed by State of Franklin
Bancshares, Inc., a Tennessee corporation ("State of Franklin" or the
"Company"), State of Franklin Merger Corp., a Tennessee corporation and the
Company's wholly-owned subsidiary (the "Merger Corp."), Charles E. Allen, Jr.,
Randal R. Greene, Charles E. Allen, Sr., M.D., Vance W. Cheek, Kenneth E.
Cutshall, M.D., Stephen K. Gross, Alan R. Hubbard, Donald R. Jeanes, Verrill M.
Norwood, Jr., Cameron E. Perry, Richard S. Venable and Henry Jack Williams, M.D.
(collectively, the "Individuals"), who are the directors and executive officers
of both the Company and Merger Corp., pursuant to Section 13(e) of the
Securities Exchange Act of 1934, as amended, and Rule 13e-3 thereunder in
connection with the Agreement and Plan of Merger dated as of April 13, 2005 (the
"Merger Agreement"), by and between the Company and the Merger Corp. A copy of
the Merger Agreement is attached as Annex A to the preliminary proxy statement
filed by the Company contemporaneously herewith (as amended and including all
annexes thereto, the "Proxy Statement"). Concurrently with the filing of this
Schedule 13E-3, the Company is filing with the Securities and Exchange
Commission the preliminary Proxy Statement under Regulation 14A of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), relating to
the Annual Meeting of Shareholders of the Company at which the shareholders will
consider and vote upon a proposal to approve and adopt the Merger Agreement.
All information contained in this Schedule 13E-3 concerning the Company and the
Merger Corp. has been supplied by the Company and all information concerning the
Individuals has been supplied by the Individuals.
The information contained in the Proxy Statement, including all annexes thereto,
is hereby expressly incorporated herein by reference. As of the date hereof, the
Proxy Statement is in preliminary form and is subject to completion or
amendment. This Statement will be amended to reflect such completion or
amendment of the preliminary Proxy Statement. Capitalized terms used but not
defined herein shall have the meanings given to them in the Proxy Statement. All
parenthetical references under the various Items contained in this Schedule
13E-3 are references to the corresponding Items contained in Regulation M-A
under the Exchange Act.
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ITEM 1.SUMMARY TERM SHEET
The information set forth in the Proxy Statement under "Summary Term Sheet
Regarding the Going Private Merger" is incorporated herein by reference.
ITEM 2.SUBJECT COMPANY INFORMATION.
(a). The name of the subject company is State of Franklin Bancshares, Inc. The
address of the principal executive offices of the Company is 1907 North
Roan Street, Johnson City, Tennessee 37601. The Company is a registered
bank holding company.
(b). The information set forth in the Proxy Statement under "NOTICE OF ANNUAL
MEETING OF SHAREHOLDERS" and "PROXY STATEMENT FOR ANNUAL MEETING OF
SHAREHOLDERS - Who can vote?" is incorporated herein by reference.
(c).-(d).The information set forth in the Proxy Statement under "Per Share
Market Price" is incorporated herein by reference.
(e). Not applicable.
(f). The information set forth in the Proxy Statement under "Per Share Market
Price" is incorporated herein by reference.
ITEM 3.IDENTITY AND BACKGROUND OF FILING PERSON.
(a).-(b).The information set forth in the Proxy Statement under "Determination
of Fairness of Merger Corp. and Other State of Franklin Affiliates" and
"Information about State of Franklin and Merger Corp." is incorporated
herein by reference.
(c). The information set forth in the Proxy Statement under "Information about
State of Franklin and Merger Corp." is incorporated herein by reference.
(d). Not applicable.
ITEM 4.TERMS OF THE TRANSACTION.
(a). The information set forth in the Proxy Statement under "Determination of
Fairness of Merger Corp. and other State of Franklin Affiliates" and of the
Going Private Merger Proposal"; "Reasons for the Going Private Merger";
"Effects of the Going Private Merger"; "Opinion of Financial Advisor";
"Material U.S. Federal Income Tax Consequence of the Going Private Merger";
and "The Merger Agreement" is incorporated herein by reference.
(b).Not applicable.
(c).The information set forth in the Proxy Statement under "Background of the
Going Private Merger Proposal"; "Reasons for the Going Private Merger";
"Effects of the Going Private Merger"; "Recommendation of the Board of
Directors; Fairness of the Going Private Merger Proposal"; and "The Merger
Agreement" is incorporated herein by reference.
4
(d).The information set forth in the Proxy Statement under "Dissenters Rights"
is incorporated herein by reference.
(e).No provision is being made in connection with the Going Private Merger to
grant unaffiliated shareholders access to the filing persons' files or to
obtain counsel or appraisal services at the expense of the filing persons.
(f).Not applicable.
ITEM 5.PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS.
(a). The information set forth in the Proxy Statement under "Transactions with
Executive Officers, Directors and Others" is incorporated herein by
reference.
(b)-(c).The information set forth in the Proxy Statement under "Background of
the Going Private Merger Proposal" and "Recommendation of the Board of
Directors; Fairness of the Going Private Merger Proposal" is incorporated
herein by reference.
(e).The information set forth in the Proxy Statement under "State of Franklin
Stock Ownership" and "Information about State of Franklin and Merger Corp."
is incorporated herein by reference.
ITEM 6.PURPOSES OF THE TRANSACTION AND PLANS OR PROPOSALS.
(a). The information set forth in the Proxy Statement under "Background of the
Going Private Merger Proposal"; "Reasons for the Going Private Merger";
"Recommendation of the Board of Directors; Fairness of the Going Private
Merger Proposal"; and "The Merger Agreement" is incorporated herein by
reference.
(b).The information set forth in the Proxy Statement under "Effects of the Going
Private Merger" and "The Merger Agreement" is incorporated herein by
reference.
(c).The information set forth in the Proxy Statement under "Background of the
Going Private Merger Proposal"; "Reasons for the Going Private Merger";
"Effects of the Going Private Merger"; "Recommendation of the Board of
Directors; Fairness of the Going Private Merger Proposal"; "The Merger
Agreement"; and "Information about State of Franklin and Merger Corp." is
incorporated herein by reference.
(d).Not applicable.
ITEM 7.PURPOSE(S), ALTERNATIVES, REASONS AND EFFECTS.
(a).The information set forth in the Proxy Statement under "Background of the
Going Private Merger Proposal"; "Reasons for the Going Private Merger";
"Effects of the Going Private Merger"; "Recommendation of the Board of
Directors; Fairness of the Going Private Merger Proposal"; and "The Merger
Agreement" is incorporated herein by reference.
(b).-(c).The information set forth in the Proxy Statement under "Background of
the Going Private Merger Proposal"; "Reasons for the Going Private Merger";
and "Recommendation of the Board of Directors; Fairness of the Going
Private Merger Proposal" is incorporated herein by reference.
5
(d).The information set forth in the Proxy Statement under "Effects of the Going
Private Merger" and "Material U.S. Federal Income Tax Consequence of the
Going Private Merger" is incorporated herein by reference.
ITEM 8.FAIRNESS OF THE TRANSACTION.
(a)-(e).The information set forth in the Proxy Statement under "Background of
the Going Private Merger Proposal"; "Reasons for the Going Private Merger";
"Recommendation of the Board of Directors; Fairness of the Going Private
Merger Proposal"; "Determination of Fairness of Merger Corp. and Other
State of Franklin Affiliates"; "Per Share Market Price"; and "Opinion of
Financial Advisor" is incorporated herein by reference.
(f).Not applicable.
ITEM 9.REPORTS, OPINIONS, APPRAISALS, AND CERTAIN NEGOTIATIONS
(a)-(b).The information set forth in the Proxy Statement under "Background of
the Going Private Merger Proposal"; "Recommendation of the Board of
Directors; Fairness of the Going Private Merger Proposal"; and "Opinion of
Financial Advisor" is incorporated herein by reference.
(c).The Opinion of Financial Advisor, attached as Annex B to the Proxy
Statement; the Valuation Letter of Financial Advisor, attached as Annex D
to the Proxy Statement; and the Company's Five Year Budget, attached as
Annex E to the Proxy Statement are incorporated herein by reference.
ITEM 10.SOURCE AND AMOUNTS OF FUNDS OR OTHER CONSIDERATION.
(a)-(b).The information set forth in the Proxy Statement under "Source and
Amount of Funds for the Going Private Merger" is incorporated herein by
reference. No alternative financing arrangements or plans have been made to
finance the Going Private Merger.
(c).The information set forth in the Proxy Statement under "Fees and Expenses of
the Going Private Merger" is incorporated herein by reference.
(d).Not applicable.
ITEM 11.INTERESTS IN SECURITIES OF THE SUBJECT COMPANY.
(a).The information set forth in the Proxy Statement under "Interests of
Officers and Directors in the Going Private Merger" and "State of Franklin
Stock Ownership" is incorporated herein by reference.
(b). The information set forth in the Proxy Statement under "Per Share Market
Price" is incorporated herein by reference.
ITEM 12.THE SOLICITATION OR RECOMMENDATION.
(d)-(e).The information set forth in the Proxy Statement under "Recommendation
of the Board of Directors; Fairness of the Going Private Merger Proposal"
is incorporated herein by reference.
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ITEM 13.FINANCIAL STATEMENTS.
(a).The financial statements, and the notes thereto, of State of Franklin set
forth in State of Franklin's annual report on Form 10-KSB for the year
ended December 31, 2004, filed with the SEC on March 31, 2005, and the
financial statements, and the notes thereto, of State of Franklin set forth
in State of Franklin's quarterly report on Form 10-QSB for the quarter
ended March 31, 2005, filed with the SEC on May 12, 2005, is incorporated
herein by reference.
(b).The information set forth in the Proxy Statement under "Summary Unaudited
Pro Forma Consolidated Financial Information"; "Selected Per Share
Financial Information"; "Effects of the Going Private Merger"; and "Index
to Financial Statements" is incorporated herein by reference.
(c). The information in the Proxy Statement under "Summary Financial
Information" is incorporated herein by reference.
ITEM 14.PERSONS/ASSETS RETAINED, EMPLOYED, COMPENSATED OR USED.
(a)-(b).The information set forth in the Proxy Statement under "Cost of
Solicitation" is incorporated herein by reference.
ITEM 15.ADDITIONAL INFORMATION.
(b).The information contained in the Proxy Statement, including all appendices
attached thereto, is incorporated herein by reference.
ITEM 16.EXHIBITS.
(a)(1).Preliminary Proxy Statement on Schedule 14A, as amended, of the Company,
as filed with the Commission on July 25, 2005.*
(a)(2).Current Report on Form 8-K containing press release issued April 7, 2005,
incorporated herein by reference.
(c)(1).Form of opinion of Alex Sheshunoff & Co. (included as Annex B to the
Company's Proxy Statement filed as part of the Schedule 14A included as
Exhibit (a)(1) to this Schedule 13E-3).*
(c)(2) Financial Schedules prepared by Alex Sheshunoff & Co.
(d)(1).Agreement and Plan of Merger dated as of April 13, 2005 by and between
the Company and State of Franklin Merger Corp.(included as Annex A to the
Company's Proxy Statement filed as part of the Schedule 14A included as
Exhibit (a)(1) to this Schedule 13E-3).*
(f)(1).Sections 48-21-101 through 48-23-302 of Tennessee Business Corporation
Act included as Annex C to the Company's Proxy Statement filed as part of
the Schedule 14A included as Exhibit (a)(1) to this Schedule 13E-3).*
* Incorporated by reference to the Company's Preliminary Proxy Statement, as
amended, on Schedule 14A, as filed with the Commission on July 25, 2005.
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SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify that the
information set forth in this statement is true, complete, and correct.
Dated: July 25, 2005 STATE OF FRANKLIN BANCSHARES, INC.
By: /s/ Charles E. Allen, Jr.
Charles E. Allen, Jr.
Chairman and Chief Executive Officer
8
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify that the
information set forth in this statement is true, complete, and correct.
Dated: July 25, 2005
/s/ Charles E. Allen, Jr.
Charles E. Allen, Jr.
9
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify that the
information set forth in this statement is true, complete, and correct.
STATE OF FRANKLIN MERGER CORP.
Dated: July 25, 2005
By: /s/ Charles E. Allen, Jr.
Charles E. Allen, Jr.
Chairman and Chief Executive Officer
10
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify that the
information set forth in this statement is true, complete, and correct.
Dated: July 25, 2005
/s/ Randal R. Greene
Randal R. Greene
11
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify that the
information set forth in this statement is true, complete, and correct.
Dated: July 25, 2005
/s/ Charles E. Allen, Sr., M.D.
Charles E. Allen, Sr., M.D.
12
- --------------------------------------------------------------------------------
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify that the
information set forth in this statement is true, complete, and correct.
Dated: July 25, 2005
/s/ Vance W. Cheek
Vance W. Cheek
13
- --------------------------------------------------------------------------------
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify that the
information set forth in this statement is true, complete, and correct.
Dated: July 25, 2005
/s/ Kenneth E. Cutshall, M.D.
Kenneth E. Cutshall, M.D.
14
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify that the
information set forth in this statement is true, complete, and correct.
Dated: July 25, 2005
/s/ Stephen K. Gross
Stephen K. Gross
15
- --------------------------------------------------------------------------------
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify that the
information set forth in this statement is true, complete, and correct.
Dated: July 25, 2005
/s/ Alan R.Hubbard
Alan R. Hubbard
16
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify that the
information set forth in this statement is true, complete, and correct.
Dated: July 25, 2005
/s/ Donald R. Jeanes
Donald R. Jeanes
17
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify that the
information set forth in this statement is true, complete, and correct.
Dated: July 25, 2005
/s/ Verrill M. Norwood, Jr.
Verrill M. Norwood, Jr.
18
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify that the
information set forth in this statement is true, complete, and correct.
Dated: July 25, 2005
/s/ Cameron E. Perry
Cameron E. Perry
19
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify that the
information set forth in this statement is true, complete, and correct.
Dated: July 25, 2005
/s/ Richard S. Venable
Richard S. Venable
20
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify that the
information set forth in this statement is true, complete, and correct.
Dated: July 25, 2005
/s/ Henry Jack Williams, M.D.
Henry Jack Williams, M.D.
21
EXHIBIT I
STATE OF FRANKLIN BANCSHARES, INC.
PERIOD-END BALANCE SHEETS
Changes 2003-2004Q3
---------------------
(Thousands) 2000 2001 2002 2003 2004Q3 Dollar Percent
----- ----- ----- ------ ----- ------ --------
Int-Bearing Deposits $ 227 $ 58 $ 1,366 $ 3,337 $ 2,942 ($ 395) -11.8%
Fed Funds Sold 2,525 28,590 12,705 25,040 16,545 ( 8,495) -33.9%
Securities 54,243 72,567 77,767 97,407 108,290 10,883 11.2%
Ln&Lse: Net Unearned Income 136,420 141,638 160.353 151,060 158,161 7,101 4.7%
-------- ------- -------- -------- -------- ------- -------
TOTAL EARNING ASSETS $193,415 $242,853 $252,191 $276,844 $285,938 $ 9,094 3.3%
Allow for Loan & Lse Losses (981) (1,474) (1,563) (1,870) (1,727) 143 -7.6%
Cash & Due: Nonint-Bearing 4,716 5,253 5,817 3,764 4,465 701 18.6%
Premises and Fixed Assets 5,396 5,396 5,761 6,218 7,260 1,042 16.8%
Other Real Estate Owned - 450 1,322 1,153 897 (256) -22.2%
Goodwill - - - - - - 0.0%
Other Intangible Assets - 236 188 140 104 (36) -25.7%
Other Assets 1,903 5,202 4,316 5,805 6,354 549 9.5%
-------- -------- -------- -------- -------- ------- -------
TOTAL ASSETS $204,449 $257,839 $268,032 $292,054 $303,291 $11,237 3.8%
======== ======== ======== ======== ======== ======= =======
Demand Deposits 9,595 18,255 11,354 12,115 15,078 2,963 24.5%
NOW ATS & Other Trans Acct 7,481 8,474 13,530 17,350 18,296 946 5.5%
MMDA & Other Savings Accts 47,680 87,722 99,211 112,335 113,536 1,201 1.1%
Time Deposits < $100M 73,953 63,547 55,356 59,909 54,839 (5,070) -8.5%
Time Deposits > $100M 23,480 22,238 19,389 20,284 20,024 (260) -1.3%
-------- -------- -------- -------- -------- ------- -------
TOTAL DEPOSITS $162,189 $200,236 $198,840 $221,993 $221,773 $ (220) -0.1%
Fed Funds Purch & Sec Sold 0 0 1,050 536 217 (319) -59.5%
Other ST Borrowings 9,660 - - - - - 0.0%
Other LT Borrowings 14,819 30,241 36,239 36,210 46,188 9,978 27.6%
-------- -------- -------- -------- -------- ------- -------
TOTAL LIABILITIES $187,164 $231,100 $237,410 $259,563 $269,441 $ 9,878 3.8%
Trust Preferred - 8,000 8,000 8,000 8,000 - 0.0%
Preferred Stock - - - - - - 0.0%
FAS 115 (Other Comp Inc.) 90 (415) 252 (798) (1,289) (491) 61.5%
Common Equity (Excl. FAS 115) 17,195 19,154 22,370 25,289 27,139 1,850 7.3%
-------- -------- -------- -------- -------- ------- -------
TOTAL COMMON EQUITY $ 17,195 $ 18,739 $ 22,622 $ 24,491 $ 25,850 $ 1,359 5.5%
-------- -------- -------- -------- -------- ------- -------
TOTAL EQUITY 17,285 18,739 22,622 24,491 25,850 $ 1,359 5.5%
-------- -------- -------- -------- -------- ------- -------
TOTAL LIABS & EQUITY $204,449 $257,839 $268,032 $292,054 $303,291 $11,237 3.8%
======== ======== ======== ======== ======== ======= =======
S-1
EXHIBIT I
STATE OF FRANKLIN BANCSHARES, INC.
COMMON SIZED BALANCE SHEETS
(% of Assets) 2000 2001 2002 2003 2004Q3 Average
----- ----- ----- ------ ------ -------
Interest Bearing Deposits 0.1% 0.0% 0.5% 1.1% 1.0% 0.6%
Fed Funds Sold 1.2% 11.1% 4.7% 8.6% 5.5% 6.2%
Securities 26.5% 28.1% 29.0% 33.4% 35.7% 30.5%
Lln&Lse: Net Unearned Income 66.7% 54.9% 59.8% 51.7% 52.1% 57.1%
------ ------ ------ ------ ------ ------
TOTAL EARNING ASSETS 94.6% 94.2% 94.1% 94.8% 94.3% 94.4%
Allow for Loan & Lse Losses -0.5% -0.6% -0.6% -0.6% -0.6% -0.6%
Cash & Due: Nonint-Bearing 2.3% 2.0% 2.2% 1.3% 1.5% 1.9%
Premises and Fixed Assets 2.6% 2.1% 2.1% 2.1% 2.4% 2.3%
Other Real Estate Owned 0.0% 0.2% 0.5% 0.4% 0.3% 0.3%
Goodwill 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Other Intangible Assets 0.0% 0.1% 0.1% 0.0% 0.0% 0.0%
Other Assets 0.9% 2.0% 1.6% 2.0% 2.1% 1.7%
------ ------ ------ ------ ------ ------
TOTAL ASSETS 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
====== ====== ====== ====== ====== ======
Demand Deposits 4.7% 7.1% 4.2% 4.1% 5.0% 5.0%
NOW ATS & Other Trans Acct 3.7% 3.3% 5.0% 5.9% 6.0% 4.8%
MMDA & Other Savings Accts 23.3% 34.0% 37.0% 38.5% 37.4% 34.1%
Time Deposits < $100M 36.2% 24.6% 20.7% 20.5% 18.1% 24.0%
Time Deposits > $100M 11.5% 8.6% 7.2% 6.9% 6.6% 8.2%
------- ------ ------ ------ ------ ------
TOTAL DEPOSITS 79.3% 77.7% 74.2% 76.0% 73.1% 76.1%
Fed Funds Purch & Sec Sold 0.0% 0.0% 0.4% 0.2% 0.1% 0.1%
Other ST Borrowings 4.7% 0.0% 0.0% 0.0% 0.0% 0.9%
Other LT Borrowings 7.2% 11.7% 13.5% 12.4% 15.2% 12.0%
Other Liabilities 0.2% 0.2% 0.5% 0.3% 0.4% 0.3%
------ ------ ------ ------ ------ ------
TOTAL LIABILITIES 91.5% 89.6% 88.6% 88.9% 88.8% 89.5%
Trust Preferred 0.0% 3.1% 3.0% 2.7% 2.6% 2.3%
Perpetual Preferred Stock 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
FAS 115 0.0% -0.2% 0.1% -0.3% -0.4% -0.1%
Common Equity 8.4% 7.4% 8.3% 8.7% 8.9% 8.4%
------ ------ ------ ------ ------- ------
TOTAL COMMON EQUITY 8.5% 7.3% 8.4% 8.4% 8.5% 8.2%
------ ------ ------ ------ ------- ------
TOTAL EQUITY 8.5% 7.3% 8.4% 8.4% 8.5% 8.2%
------ ------ ------ ------ ------- ------
TOTAL LIABS & EQUITY 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
====== ====== ====== ====== ======= =======
S-2
EXHIBIT I
STATE OF FRANKLIN BANCSHARES, INC.
INCOME STATEMENT
Changes
2003-LTM 2004Q3
LTM -------------------
(Thousands) 2000 2001 2002 2003 2004Q3 Dollar Percent
----- ----- ----- ------ ----- ------ --------
Interest Income - TE $13,911 $16,280 $17,044 $14,896 $15,090 $194 1.3%
Interest Expense 8,610 9,349 7,558 6,637 6,549 (88) -1.3%
------- ------- ------- ------- ------- ----- -----
NET INTEREST INCOME $ 5,301 $ 6,931 $ 9,486 $ 8,259 $ 8,541 $282 3.4%
Provision 221 590 579 445 111 (334) -75.1%
Service Charges 338 378 419 501 523 22 4.4%
Fiduciary Fees - - - - - - 0.0%
Other fee Income 25 302 289 1,187 784 (403) -34.0%
Other Non-Interest Income 120 - 182 43 42 (1) -2.3%
------- ------- ------- ------- ------- ----- -------
NON-INTEREST INCOME $ 483 $ 680 $ 890 $ 1,731 1,349 ($382) -22.1%
Securities Gains (Losses) - - 260 - - - NM
Salaries & Benefits 1,573 1,832 2,480 2,730 2,868 138 5.1%
Premises & Fixed Assets 489 603 756 762 922 160 21.0%
Amortization of Intangible Assets - 4 48 - - - 0.0%
Other Expense 1,291 1,422 2,000 1,972 2,432 460 23.3%
------- ------- ------- ------- ------- ----- -------
TOTAL NON-INT EXPENSE $ 3,353 $ 3,861 $ 5,284 $ 5,464 $ 6,222 $758 13.9%
------- ------- ------- ------- ------- ------ -------
PRE-TAX INCOME $ 2,210 $ 3,160 $ 4,773 $ 4,081 $ 3,557 ($524) -12.8%
Taxes & TE 770 1,211 1,589 1,436 1,284 ( 152) -10.6%
------- ------- ------- ------- ------- ------ --------
INCOME BEFORE EXTRAS $ 1,440 $ 1,949 $ 3,184 $ 2,645 $ 2,273 ($372) -14.1%
Extraordinary Items
& Minority Interest - - - - - - 0.0%
------- ------- ------- ------- ------- ------ -------
NET INCOME $ 1,440 $ 1,949 $ 3,184 $2,645 $ 2,273 ($372) -14.1%
======= ======= ======= ======= ======= ====== =======
S-Corp? No No No No No
Preferred Dividents $ 0 $ 0 $ 0 $ 0 $ 0
Common Dividends - - - - -
FTE Employees 45 48 55 60 58
S-3
EXHIBIT I
STATE OF FRANKLIN BANCSHARES, INC.
COMMON SIZED INCOME STATEMENT
LTM
(% of Average Assets) 2000 2001 2002 2003 2004Q3 Average
----- ----- ----- ------ ------ -------
Interest Income 6.80% 7.04% 6.48% 5.32% 5.05% 6.14%
Interest Expense 4.21% 4.04% 2.87% 2.37% 2.19% 3.14%
----- ----- ------ ------- ------- --------
NET INTEREST INCOME 2.59% 3.00% 3.61% 2.95% 2.86% 3.00%
Provision 0.11% 0.26% 0.22% 0.16% 0.04% 0.16%
Service Charges 0.17% 0.16% 0.16% 0.18% 0.18% 0.17%
Fiduciary Fees 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Other fee income 0.01% 0.13% 0.11% 0.42% 0.26% 0.19%
Other non-interest income 0.06% 0.00% 0.07% 0.02% 0.01% 0.03%
----- ----- ------ ------- ------- --------
NON-INTEREST INCOME 0.24% 0.29% 0.34% 0.62% 0.45% 0.39%
Security Gains (Losses) 0.00% 0.00% 0.10% 0.00% 0.00% 0.02%
Salaries & Benefits 0.77% 0.79% 0.94% 0.97% 0.96% 0.89%
Premises & Fixed Assets 0.24% 0.26% 0.29% 0.27% 0.31% 0.27%
Amortization of Intangible Assets 0.00% 0.00% 0.02% 0.00% 0.00% 0.00%
Other Expense 0.63% 0.62% 0.76% 0.70% 0.81% 0.71%
----- ----- ------ ------- ------- --------
TOTAL NON-INT EXPENSE 1.64% 1.67% 2.01% 1.95% 2.08% 1.87%
----- ----- ------ ------- ------- --------
PRE-TAX INCOME 1.08% 1.37% 1.82% 1.46% 1.19% 1.38%
Taxes & TE 0.38% 0.52% 0.60% 0.51% 0.43% 0.49%
----- ----- ------ ------- ------- --------
INCOME BEFORE EXTRAS 0.70% 0.84% 1.21% 0.94% 0.76% 0.89%
Extraordinary Items 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
----- ----- ------ ------- ------- --------
NET INCOME 0.70% 0.84% 1.21% 0.94% 0.76% 0.89%
===== ===== ====== ======= ======= ========
MEMO: Est. Average Assets $204,449 $231,144 $262,936 $280,043 $298,660
======== ======== ======== ======== ========
S-4
EXHIBIT I
STATE OF FRANKLIN BANCSHARES, INC.
LOANS
Changes 2003-2004Q3
(Thousands) 2000 2001 2002 2003 2004Q3 Dollar Percent
----- ----- ----- ------ ------ ------- -------
Commercial & Industrial $26,337 $25,437 $28,255 $26,590 $28,953 $2,363 8.9%
Commercial Real Estate 7,802 13,127 24,506 20,078 25,243 5,165 25.7%
Construction & Land Development 762 14,668 19,017 21,974 24,879 2,905 13.2%
Residential Real Estate 77,846 67,913 76,187 77,565 74,047 (3,518) -4.5%
Agricultural & Farm - - - - - - NA
Consumer 22,195 19,091 10,929 3,547 3,879 332 9.4%
Other Loans & Unearned Income 1,477 1,402 1,459 1,306 1,160 (146) -11.2%
-------- -------- -------- -------- -------- ------- -------
LN&LSE: NET UNEARN INCOME $136,420 $141,638 $160,353 $151,060 $158,161 $7,101 4.7%
======== ======== ======== ======== ======== ======= =======
(% of Gross Loans)
2000 2001 2002 2003 2004Q3 Average
----- ----- ----- ------ ------ -------
Commercial & Industrial 19.3% 18.0% 17.6% 17.6% 18.3% 18.2%
Commercial Real Estate 5.7% 9.3% 15.3% 13.3% 16.0% 11.9%
Construction & Land Development 0.6% 10.4% 11.9% 14.5% 15.7% 10.6%
Residential Real Estate 57.1% 47.9% 47.5% 51.3% 46.8% 50.1%
Agricultural & Farm 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Consumer 16.3% 13.5% 6.8% 2.3% 2.5% 8.3%
Other Loans 1.1% 1.0% 0.9% 0.9% 0.7% 0.9%
------- ------ ------ ------ ------ ------
GROSS LOANS 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
======= ====== ====== ====== ====== ======
S-5
EXHIBIT I
STATE OF FRANKLIN BANCSHARES, INC.
CREDIT QUALITY
Changes
2003-2004Q3
ASSET QUALITY 2000 2001 2002 2003 2004Q3 Dollar Percent
------------- ------- -------- -------- ------- -------- ------- -------
(Thousands)
Total Loans 90+ Past Due $ 194 $ 881 $ 0 $ 0 $ 0 $ 0 NA
======= ======== ======== ======== ======== ======== =======
Total Loans Nonaccrual $984 $2,840 $1,104 $3,212 $ 2,893 $ (319) -9.9%
Total Loans Restructured - - - - - - NA
------- -------- -------- -------- -------- -------- -------
NON-PERFORMING LOANS* $984 $2,840 $1,104 $3,212 $ 2,893 $ (319) -9.9%
Other Real Estate Owned - 450 1,322 1,153 897 (256) -22.2%
------- -------- -------- -------- -------- -------- -------
NON-PERFORMING ASSETS* $984 $3,290 $2,426 $4,365 $ 3,790 $ (575) -13.2%
======= ======== ======== ======= ======== ======== =======
ASSET QUALITY RATIOS Average
-------------------- -------
90+ Past Due as % of Loans 0.14% $0.62% 0.00% 0.00% 0.00% 0.19%
======= ======== ======== ======== ======== ========
Non-Accrual Loans as % of Loans 0.72% 2.01% 0.69% 2.13% 1.83% 1.39%
Total Loans Restr. as % of Loans 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
------- -------- -------- -------- -------- --------
NPL's as % of LOANS 0.72% 2.01% 0.69% 2.13% 1.83% 1.39%
======= ======== ======== ======== ======== ========
NPA's as % of Loans and OREO 0.72% 2.32% 1.50% 2.87% 2.38% 1.85%
NPA's as % of Assets 0.48% 1.28% 0.91% 1.49% 1.25% 1.23%
ALLOWANCE-LLR
-------------
Period-end $981 $1,474 $1,563 $1,870 $ 1,727
% of Non-Performing Assets 99.70% 44.80% 64.43% 42.84% 45.57%
% of Non-Performing Loans 99.70% 51.90% 141.58% 58.22% 59.70%
% of Loans 0.72% 1.04% 0.97% 1.24% 1.09%
LTM
NET CHARGE-OFFS 2000 2001 2002 2003 2004Q3
------------- ------- -------- -------- ------- --------
Total Charge-Offs $ 50 $ 181 $ 490 $138 $ 273
Total Recoveries - 2 - - 6
------- -------- -------- -------- --------
Net Charge-Offs $ 50 $ 179 $ 490 $138 $ 267
======= ======== ======== ======== ========
Total Loans $136,420 $141,638 $160,353 $151,060 $158,161
======= ======== ======== ======== ========
Net Charge-Offs/Loans 0.04% 0.13% 0.31% 0.09% 0.17%
*Nonperforming loans and assets do not include Loans 90 Days Past Due
S-6
EXHIBIT I
STATE OF FRANKLIN BANCSHARES, INC.
KEY RATIOS
LTM
2000 2001 2002 2003 2004Q3 Average
----- ----- ----- ------ ------ -------
Growth Rates
- -------------
Asset Growth NA 26.1% 4.0% 9.0% 3.2% 10.5%
Loan Growth NA 3.8% 13.2% -5.8% 5.2% 4.1%
Deposit Growth NA 23.5% -0.7% 11.6% -1.1% 8.3%
Income Growth NA 35.5% 63.4% -16.9% -28.6% 13.3%
Balance Sheet
- -------------
Assets/FTE $ 4,543 $ 5,372 $ 4,873 $ 4,868 $ 5,229 $ 4,977
Total Equity/Assets 8.45% 7.27% 8.44% 8.39% 8.52% 8.21%
Common Equity/Assets 8.45% 7.27% 8.44% 8.39% 8.52% 8.21%
T.Common Equity/T.Assets 8.45% 7.18% 8.38% 8.34% 8.49% 8.17%
Tier 1 Capital Ratio 8.41% 9.81% 10.99% 10.74% 10.82% 10.15%
Loans/Deposits 84.11% 70.74% 80.64% 68.05% 71.32% 74.97%
Liquidity Ratio 32.97% 46.07% 41.13% 49.91% 45.26% 43.07%
Income Statement
- -----------------
ROAA 0.70% 0.84% 1.21% 0.94% 0.76% 0.89%
ROACE 16.66% 10.82% 15.40% 11.23% 9.02% 12.63%
Efficiency Ratio 57.97% 50.73% 50.93% 54.69% 62.91% 55.45%
Net Interest Margin (TE) 5.48% 3.18% 3.83% 3.12% 3.03% 3.73%
Effective Tax Rate 34.84% 38.32% 33.29% 35.19% 36.10% 35.55%
Dividend Payout Ratio 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Yield on Earning Assets 14.38% 7.46% 6.89% 5.63% 5.36% 7.95%
Cost of Interest Bearing
Liabilities 9.72% 4.80% 3.46% 2.82% 2.61% 4.68%
------- ------- ------- ------- ------- -------
Yield/Cost Spread 4.66% 2.66% 3.43% 2.82% 2.75% 3.26%
7.00% Tangible Capital Ratio Calcs
- ----------------------------------
Target 7.00% Capital $14,311 $18,032 $18,749 $20,434 $21,223
Excess Common Equity/(Deficiency) $ 2,974 $ 471 $ 3,685 $ 3,917 $ 4,523
S-7