U. S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: JUNE 30, 2005
-------------------
OR
--
[ ] TRANSITION REPORT PURSUANT TO SECTION 13
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 62-1749121
- --------------------------------- --------------------------------
(STATE OF INCORPORATION) (I.R.S. EMPLOYER
IDENTIFICATION NO.)
1907 NORTH ROAN
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
----
1,481,462
------------------------------------------
(OUTSTANDING SHARES OF THE ISSUER'S COMMON STOCK AS OF AUGUST 9, 2005)
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
JUNE 30, 2005 (UNAUDITED) AND DECEMBER 31, 2004 (AUDITED)
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED JUNE 30, 2005 (UNAUDITED) AND 2004 (UNAUDITED) 4
SIX MONTHS ENDED JUNE 30, 2005 (UNAUDITED) AND 2004 (UNAUDITED) 5
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY 6
SIX MONTHS ENDED JUNE 30, 2005 (UNAUDITED)
AND YEAR ENDED DECEMBER 31, 2004 (AUDITED)
CONSOLIDATED STATEMENTS OF CASH FLOWS 7
SIX MONTHS ENDED JUNE 30, 2005 (UNAUDITED) AND 2004 (UNAUDITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 15
ITEM 3. CONTROLS AND PROCEDURES 17
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 18
ITEM 2. CHANGES IN SECURITIES 18
ITEM 3. DEFAULT UPON SENIOR SECURITIES 18
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 18
ITEM 5. OTHER INFORMATION 18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 18
2
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
STATE OF FRANKLIN BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
JUNE 30, DECEMBER 31,
ASSETS 2005 - UNAUDITED 2004 - AUDITED
- -------------------------------------------------------------------------------------------------
Cash and Due from Banks $ 9,306,801 5,564,907
Federal Funds Sold 12,000,000 7,130,000
Short-Term Interest Bearing Deposits 942,183 2,279,711
- -------------------------------------------------------------------------------------------------
Total Cash and Cash Equivalents 22,248,984 14,974,618
- -------------------------------------------------------------------------------------------------
Investments - HTM
(Estimated Market 2005 - $47,039,450 and 2004 - $49,864,335) 47,237,828 49,702,867
Investments - AFS 51,858,515 53,650,416
Loans Held for Sale 657,075 374,700
Loans and Leases Receivable 175,669,254 164,458,145
Less: Allowance for Loan and Lease Losses ( 1,803,387) ( 1,601,332)
- -------------------------------------------------------------------------------------------------
Loans and Leases Receivable, Net 173,865,867 162,856,813
- -------------------------------------------------------------------------------------------------
Accrued Interest Receivable, Net 1,567,741 1,490,634
Land, Buildings & Equip at Cost Less Accum Depr
of $2,931,827 in 2005 and $2,643,828 in 2004 7,964,413 7,468,710
Prepaid Expense and Accounts Receivable 138,183 175,816
Deferred Tax Assets 1,849,170 1,727,642
FHLB Stock 2,510,600 2,453,300
Investment in Service Bureau at Cost - 815,009
Other Real Estate Owned 884,656 891,413
Other Assets 86,958 124,241
- -------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 310,869,990 296,706,179
=================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
=================================================================================================
LIABILITIES:
Interest-Free Deposits $ 18,942,932 15,371,046
Interest-Bearing Deposits 206,600,166 198,784,547
Advances to Borrowers for Taxes and Insurance 301,372 110,328
Accrued Interest on Deposits 272,558 136,476
Accrued State and Federal Taxes ( 165,776) ( 149,118)
Other Accounts Payable and Accrued Expenses 741,867 784,704
Repurchase Agreements 387,808 1,024,608
FHLB Long-Term Advances 46,165,680 46,180,671
Deferred Credits on REO 189,384 189,384
- -------------------------------------------------------------------------------------------------
TOTAL LIABILITIES $ 273,435,991 262,432,646
- -------------------------------------------------------------------------------------------------
Guaranteed Preferred Beneficial Interest in
Subordinated Debentures 8,000,000 8,000,000
STOCKHOLDERS' EQUITY:
Common Stock, $1.00 Par Value 1,481,462 1,465,512
Paid-in Capital 14,598,374 14,251,461
Accumulated Other Comprehensive Income ( 2,113,262) ( 2,005,925)
Retained Earnings 16,035,029 13,204,732
Less: Employee Stock Ownership ( 567,604) ( 642,247)
- -------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY $ 29,433,999 26,273,533
- -------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 310,869,990 296,706,179
=================================================================================================
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 JUNE 30,
----------------------------------
INTEREST INCOME: 2005 - UNAUDITED 2004 - UNAUDITED
---------------- ----------------
Interest and Fees on Loans $ 2,933,302 2,353,706
Other Interest Income 1,296,602 1,180,202
- ----------------------------------------------------------------------------------------
TOTAL INTEREST INCOME 4,229,904 3,533,908
- ----------------------------------------------------------------------------------------
INTEREST EXPENSE:
Interest on Deposits 1,144,243 1,014,116
Interest on Repurchase Agreements 2,427 2,340
Interest on Short-Term Debt 413 690
Interest on Long-Term Debt 524,715 523,498
Interest on Subordinated Debentures 148,878 109,517
- ----------------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE 1,820,676 1,650,161
- ----------------------------------------------------------------------------------------
NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSS 2,409,228 1,883,747
PROVISION FOR LOAN LOSSES (140,000) (10,000)
- ----------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSS 2,269,228 1,873,747
- ----------------------------------------------------------------------------------------
OTHER INCOME:
Other Fees and Service Charges 159,486 146,423
Net Gain on Loans Sold 88,970 98,431
Realized Gain on Securities 2,574,788 -
Real Estate Sales Commission Income 156,207 106,201
Insurance Commission Income 20,970 17,823
Rental Income, Net 17,225 25,997
- ----------------------------------------------------------------------------------------
TOTAL OTHER INCOME 3,017,646 394,875
- ----------------------------------------------------------------------------------------
OTHER EXPENSES:
Compensation and Related Benefits 907,259 725,515
Occupancy Expenses 115,306 105,545
Furniture and Equipment Expense 129,426 130,147
Advertising 73,778 72,644
Data Processing Expense 155,415 156,090
Other 491,124 345,676
- ----------------------------------------------------------------------------------------
TOTAL OTHER EXPENSES 1,872,308 1,535,617
- ----------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAX 3,414,566 733,005
PROVISION FOR INCOME TAXES (1,139,379) (157,202)
- ----------------------------------------------------------------------------------------
NET INCOME $ 2,275,187 575,803
========================================================================================
EARNINGS PER SHARE:
BASIC $ 1.58 0.41
DILUTED 1.42 0.38
========================================================================================
WEIGHTED AVERAGE SHARES OUTSTANDING:
BASIC 1,436,821 1,397,269
DILUTED 1,599,995 1,533,126
========================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
4
STATE OF FRANKLIN BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
SIX MONTHS ENDED JUNE 30,
----------------------------------
INTEREST INCOME: 2005 - UNAUDITED 2004 - UNAUDITED
---------------- ----------------
Interest and Fees on Loans $ 5,652,356 4,797,338
Other Interest Income 2,453,795 2,324,016
- ----------------------------------------------------------------------------------------
TOTAL INTEREST INCOME 8,106,151 7,121,354
- ----------------------------------------------------------------------------------------
INTEREST EXPENSE:
Interest on Deposits 2,072,563 2,074,090
Interest on Repurchase Agreements 4,509 4,948
Interest on Short-Term Debt 816 650
Interest on Long-Term Debt 1,043,799 986,626
Interest on Subordinated Debentures 284,609 217,804
- ----------------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE 3,406,296 3,284,118
- ----------------------------------------------------------------------------------------
NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSS 4,699,855 3,837,236
PROVISION FOR LOAN LOSSES ( 200,000) ( 20,000)
- ----------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSS 4,499,855 3,817,236
- ----------------------------------------------------------------------------------------
OTHER INCOME:
Other Fees and Service Charges 308,519 265,333
Net Gain on Loans Sold 143,875 170,780
Realized Gain on Securities 2,574,788 -
Real Estate Sales Commission Income 256,877 161,482
Insurance Commission Income 30,497 29,147
Rental Income, Net 32,134 47,011
- ----------------------------------------------------------------------------------------
TOTAL OTHER INCOME 3,346,690 673,753
- ----------------------------------------------------------------------------------------
OTHER EXPENSES:
Compensation and Related Benefits 1,776,750 1,443,468
Occupancy Expenses 237,368 203,969
Furniture and Equipment Expense 248,305 253,895
Advertising 187,038 136,068
Data Processing Expense 320,833 318,205
Other 931,111 673,182
- ----------------------------------------------------------------------------------------
TOTAL OTHER EXPENSES 3,701,405 3,028,787
- ----------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAX 4,145,140 1,462,202
PROVISION FOR INCOME TAXES (1,314,842) ( 333,968)
- ----------------------------------------------------------------------------------------
NET INCOME $ 2,830,298 1,128,234
========================================================================================
EARNINGS PER SHARE:
BASIC $ 1.98 .81
DILUTED 1.79 .74
========================================================================================
WEIGHTED AVERAGE SHARES OUTSTANDING:
BASIC 1,430,917 1,396,486
DILUTED 1,584,241 1,522,724
========================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
5
STATE OF FRANKLIN BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR SIX MONTHS ENDED JUNE 30, 2005 (UNAUDITED)
AND YEAR ENDED DECEMBER 31, 2004 (AUDITED)
Accumulated
Other Employee
Common Paid-In Comprehensive Retained Stock
Stock Capital Income Earnings Ownership Total
-------------- ---------- ------------ --------- ----------- ------------
Balance at December 31, 2003 1,465,512 14,251,461 ( 797,592) 10,356,572 ( 784,995) 24,490,958
ESOP Shares Allocated -- -- -- -- 142,748 142,748
Comprehensive Income
Other Comprehensive Income,
Net of Tax:
Unrealized Gains on Securities
Available-For-Sale:
Unrealized Holding Losses
Arising During the Period
(Net of $764,826 Income Tax Benefit) -- -- (1,232,308) -- -- (1,232,308)
Less: Reclassification Adjustment
(Net of $14,880 Tax Benefit) -- -- 23,975 -- -- 23,975
------------
(1,208,333)
Net Income -- -- -- 2,848,159 -- 2,848,159
------------
Total Comprehensive Income -- -- -- -- -- 1,639,826
------------ ---------- --------- ---------- ---------- ------------
Balance at December 31, 2004 1,465,512 14,251,461 (2,005,925) 13,204,731 ( 642,247) 26,273,532
Net Proceeds
From Sale of Stock 15,950 346,913 -- -- -- 362,863
ESOP Shares Allocated -- -- -- -- 74,643 74,643
Comprehensive Income
Other Comprehensive Income,
Net of Tax:
Unrealized Gains on Securities
Available-For-Sale:
Unrealized Holding Gains
Arising During the Period
(Net of $66,764 Income Tax Benefit) -- -- ( 107,572) -- -- ( 107,572)
Less: Reclassification Adjustment
(Net of $146 Income Tax) -- -- 235 -- -- 235
------------
( 107,337)
Net Income -- -- -- 2,830,298 -- 2,830,298
------------
Total Comprehensive Income -- -- -- -- -- 2,722,961
------------ ---------- --------- ---------- --------- ------------
Balance at June 30, 2005 1,481,462 14,598,374 (2,113,262) 16,035,029 ( 567,604) 29,433,999
============ ========== ========= ========== ========== ============
The accompanying notes are an integral part of the consolidated financial
statements.
6
STATE OF FRANKLIN BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30,
----------------------------------
2005 - UNAUDITED 2004 - UNAUDITED
---------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 2,830,298 1,128,234
Items Not Affecting Cash:
Depreciation 288,000 287,648
(Increase) in Accrued Interest (77,107) (66,165)
Deferred Income Taxes (Benefit) (41,646) 32,327
Provision for Loan and Lease Losses 200,000 20,000
(Increase) Decrease in Prepaid Expenses and Accounts Receivable 37,633 (51,978)
Increase (Decrease) in Interest Payable 136,082 (19,335)
Increase (Decrease) in State and Federal Taxes Payable (16,658) 64,969
Increase (Decrease) in Other Accounts Payable and Accrued Expenses (42,837) 126,675
Increase in Deferred Loan Fees, Net 16,667 18,854
Realized (Gain) on Securities (2,574,788) -
Discount Accretion (138,278) (106,876)
Premium Amortization 296,584 323,274
Increase in Deferred Gain on Sale of REO - 31,038
Earned ESOP Shares 74,643 70,306
FHLB Stock Dividends (57,300) (47,000)
Net (Increase) in Loans Held for Sale (282,375) (496,136)
- -----------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 648,918 1,315,835
- -----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Held-to-Maturity Investments (1,136,639) (22,697,557)
Proceeds from Maturities of Held-to-Maturity Investments 1,100,000 6,405,000
Proceeds from Maturities of Available-for-Sale Investments 1,243,942 2,226,941
Principal Payments on Mortgage-backed Securities - HTM 2,321,612 3,160,002
Principal Payments on Mortgage-backed Securities - AFS 419,782 1,563,418
Proceeds from Sale of Service Bureau Stock 3,389,797 -
(Increase) in Loans Receivable, Net (11,218,964) (2,896,196)
Purchases of Premises and Equipment (783,703) (1,269,591)
- -----------------------------------------------------------------------------------------------------------------
NET CASH (USED) BY INVESTING ACTIVITIES (4,664,173) (13,507,983)
- -----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Increase in Deposits 11,387,505 5,735,655
Net Increase in Advances by Borrowers for Taxes and Insurance 191,044 178,072
Net Increase (Decrease) in Repurchase Agreements (636,800) 187,736
Issuance of Common Stock, Net 362,863 -
Repayment of FHLB Advances (14,991) (14,604)
Proceeds from FHLB Advances - 10,000,000
- -----------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 11,289,621 16,086,859
- -----------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 7,274,366 3,894,711
CASH AND CASH EQUIVALENTS BEGINNING OF PERIOD 14,974,618 32,141,033
- -----------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 22,248,984 36,035,744
=================================================================================================================
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Increase (Decrease) in Unrealized Gain (Loss) on Securities Available-For-Sale,
Net of Deferred Tax Liability $ (107,337) (849,712)
Acquisition of Real Estate Property through Foreclosure of Related Loans $ - -
=================================================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash Paid During the Period for:
Income Taxes $ 1,372,500 242,521
Interest $ 3,270,214 3,303,453
=================================================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
7
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 a wholly owned subsidiary of the Company.
State of Franklin Leasing Corporation (Leasing Corp) was incorporated under
the laws of the State of Tennessee for the purpose of lease financing.
State of Franklin Real Estate, Inc. (Real Estate Company) was incorporated
for the purpose of selling real estate. The Real Estate Company and John
Sevier Title services, Inc. (Title Company) are wholly owned subsidiaries
of the Savings Bank. The leasing Corp is a wholly owned subsidiary of the
Company.
NOTE 2 BASIS OF PREPARATION
- ------ ----------------------
The accompanying 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 income
for the six months ended June 30, 2005 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, 2004.
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 June 30, 2005 consolidated
financial statements.
NOTE 4 LAND BUILDINGS AND EQUIPMENT
- ----- -----------------------------
Fixed assets at June 30, 2005, and December 31, 2004 are summarized as
follows:
2005 2004
----------- -----------
Land 1,580,000 1,580,000
Buildings and Leasehold Improvements 5,449,366 5,082,535
Furniture, Fixtures and Equipment 3,866,875 3,450,003
----------- -----------
10,896,241 10,112,538
Less: Accumulated Depreciation 2,931,828 2,643,828
----------- -----------
7,964,413 7,468,710
=========== ===========
8
NOTE 5 LOANS RECEIVABLE
- ------- ------------------
Loans receivable at June 30, 2005 and December 31, 2004, consist of the
following:
2005 2004
-------------- --------------
First Mortgage Loans 53,531,408 51,965,318
Construction Loans 29,855,790 27,146,299
Consumer Loans 14,431,590 14,407,548
Commercial Loans 75,772,159 69,267,247
Credit Line Advances 861,204 870,529
Lease Finance 1,252,512 1,381,883
--------------- ---------------
Gross Loans and Leases Receivable 175,704,663 165,038,824
--------------- ---------------
Less:
Undisbursed Portion of Loans in Process 235,728 ( 326,209)
Net Deferred Loan Origination Fees ( 271,137) ( 254,470)
Accumulated General Loan Loss Allowance ( 1,803,387) ( 1,601,332)
--------------- ---------------
( 1,838,796) ( 2,182,011)
--------------- ---------------
Loans and Leases Receivable, Net 173,865,867 162,856,813
=============== ===============
An analysis of the allowance for loan and lease losses at June 30, 2005 and
December 31, 2004 is as follows:
2005 2004
-------------- --------------
Balance - Beginning of Period 1,601,332 1,870,279
Provision for Loan and Lease Losses 200,000 ( 62,000)
Loans and Leases Charged-Off - ( 212,947)
Charged-Off Loan and Lease Recoveries 2,055 6,000
-------------- --------------
Balance - End of Period 1,803,387 1,601,332
============== ==============
At June 30, 2005 the Company had non-accrual loans and leases totaling
$739,000 which included $18,000 in impaired loans compared with $1,261,000
and $18,000, respectively, at December 31, 2004. A loan is impaired when,
based on current information and events, it is probable that the Company
will be unable to collect all amounts due according to the contractual
agreement. The total allowance for loan losses allocated to impaired loans
was $14,000 at June 30, 2005 and December 31, 2004. No interest income on
impaired loans was recognized for the periods ending June 30, 2005 and
December 31, 2004. The Company had $180,000 in loans and leases 90 days or
more past due and still accruing and no restructured loans at June 30,
2005, compared to no loans or leases 90 days or more past due and still
accruing and no restructured loans at December 31, 2004.
9
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 June 30, 2005:
Total Risk-Based Capital
(to Risk-Weighted Assets) 28,539 13.06% >=21,848 10.0%
Tier 1 Capital
(to Risk-Weighted Assets) 26,933 12.33% >=13,109 6.0%
Tier 1 Capital
(to Adjusted Total Assets) 26,933 8.81% >=15,282 5.0%
As of December 31, 2004:
Total Risk-Based Capital
(to Risk-Weighted Assets) 25,178 12.08% >=20,850 10.0%
Tier 1 Capital
(to Risk-Weighted Assets) 23,772 11.40% >=12,510 6.0%
Tier 1 Capital
(to Adjusted Total Assets) 23,772 7.98% >=14,891 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 June 30, 2005:
Total Risk-Based Capital
(to Risk-Weighted Assets) 38,581 17.70% >=21,799 10.0%
Tier 1 Capital
(to Risk-Weighted Assets) 36,778 16.87% >=13,080 6.0%
Tier 1 Capital
(to Adjusted Total Assets) 36,778 11.99% >=15,339 5.0%
As of December 31, 2004:
Total Risk-Based Capital
(to Risk-Weighted Assets) 34,938 16.71% >=20,908 10.0%
Tier 1 Capital
(to Risk-Weighted Assets) 33,337 15.94% >=12,545 6.0%
Tier 1 Capital
(to Adjusted Total Assets) 33,337 11.16% >=14,935 5.0%
10
NOTE 7 EMPLOYEE AND DIRECTOR BENEFIT PLANS
- ------ ------------------------------------
EMPLOYEE STOCK OWNERSHIP PLAN
The company has an employee stock ownership plan (the "ESOP") for those
employees who meet the eligibility requirements of the plan. The ESOP was
established in 1997. The ESOP currently has two loans established for the
purpose of purchasing shares in the Company for the plan.
In November 2001, the ESOP loans were consolidated into a seven year term
loan from the Company in the amount of $1,071,093 with a fixed interest
rate of 6.00%. Note payments are $15,218 per month for 83 months plus a
final principal payment of $24,092. The note balance outstanding at June
30, 2005 was $567,604. In November 2001, the Company also granted a
$300,000 line of credit to the ESOP for the purchase of additional shares
of stock in the Company as it becomes available. The interest rate for
balances outstanding on the line of credit is 6% with a five year term.
Interest is paid monthly with principal payments made as funds are
available. At June 30, 2005, no balances were outstanding for advances on
the line of credit.
Shares owned by the ESOP at June 30, 2005 totaled 186,829. 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:
June 30, December 31,
2005 2004
------------- -------------
Number of Shares
Released and Allocated since Inception 46,073 46,073
Suspense 38,887 44,641
Fair Value
Released and Allocated since Inception 1,163,343 1,013,606
Suspense 981,897 982,102
The expense recorded by the Company is based on cash contributed to the
ESOP during the year in amounts determined by the Board of Directors, plus
the excess of fair value of shares released and allocated over the ESOP's
cost of those shares. The Company's contributions to the ESOP are as
follows:
June 30, December 31,
2005 2004
------------- ------------
Compensation Expense 222,000 444,000
Contributions 222,000 444,000
No dividends have been declared on the Company's stock. If dividends are
paid, the ESOP administrators will determine whether dividends on allocated
and unallocated shares will be used for debt service. Any allocated
dividends used will be replaced with common stock of equal value. For the
purpose of computing earnings per share, all ESOP shares committed to be
released are considered outstanding.
The released Company stock will be allocated to employees based on their
salaries. Generally, all employees who work over 1,000 hours are eligible
for the plan after one year of service. Employees will be vested after
seven years of service. This plan includes a 401(k) feature that began in
1998, which allows employees to defer up to 15% of their salary and is
matched by the Company up to 6%. In addition, the Company may make a
discretionary contribution to the ESOP.
STOCK OPTION PLANS
Weighted
Average
Awarded Exercise
And Price
Unexercised Vested Per
Options Options Share
--------------------------------------------------
Options Granted - Outside Directors January 1, 2005 94,014 88,323 $12.79
During 2005 7,000 11,698 $25.25
Options Granted - Management January 1, 2005 249,423 193,011 $13.43
During 2005 9,279 15,234 $25.25
------- -------
Options Outstanding - June 30, 2005 359,716 308,266 $13.80
======= =======
11
NOTE 8 DEPOSITS
- ------- ----------
Deposit balances are summarized as follows:
June 30, 2005 December 31, 2004
----------------------------- -----------------------------
Rate Amount Percent Rate Amount Percent
------- ----------- -------- ------- ----------- --------
Passbook 1.34 50,159,532 22.24 1.13 72,157,046 33.69
Interest-Free Checking -- 18,942,932 8.40 -- 15,371,046 7.18
NOW .25 17,841,891 7.91 .25 20,439,053 9.54
Money Market Deposit 1.45 20,880,257 9.26 1.07 22,156,509 10.35
----------- -------- ----------- --------
107,824,612 47.81 130,123,654 60.76
----------- -------- ----------- --------
Fixed Term Certificate Accounts
Balances $100,000 or greater 3.39 36,219,334 16.06 2.84 22,745,289 10.62
Balances less than $100,000 3.19 81,499,152 36.13 2.66 61,286,650 28.62
----------- -------- ----------- --------
117,718,486 52.19 84,031,939 39.24
----------- -------- ----------- --------
225,543,098 100.00 214,155,593 100.00
=========== ======== =========== ========
The contractual maturity of certificate accounts at June 30, 2005 and December
31, 2004, is as follows:
Period Ending June 30, 2005 Year Ending December 31, 2004
-------------------------------- -----------------------------
2005 36,033,900 2005 52,996,714
2006 54,556,444 2006 20,586,376
2007 21,033,080 2007 4,800,025
2008 4,362,987 2008 4,138,797
2009 and After 1,732,075 2009 and After 1,510,027
----------- ----------
117,718,486 84,031,939
=========== ==========
NOTE 9 FEDERAL HOME LOAN BANK ADVANCES
- ------- -------------------------------
The contractual maturity of FHLB advances at June 30, 2005 is as follows:
2005 15,190 2010 8,034,555
2006 31,091 2011 19,035,481
2007 31,923 2012 5,036,431
2008 3,032,777 2013 10,037,879
2009 33,654 2014 and after 876,699
Convertible fixed rate advances were $45,000,000 at June 30, 2005 and at
December 31, 2004. The convertible fixed rate advances have an original
maturity of 10 years with an option held by FHLB to convert to a variable
rate tied to 3-month LIBOR beginning 1 to 3 years from the original issue
date. If converted to a variable rate the bank maintains the option to pay
off the advance or continue at the variable rate over the original
contractual maturity of the advance. CRA mortgage match advances are
amortized over a 30-year period and totaled $1,165,680 at June 30, 2005 and
$1,180,671 at December 31, 2004. The average rate on FHLB advances was
4.56% at both June 30, 2005 and December 31, 2004.
The Savings Bank pledges as collateral for these borrowings selected
qualifying mortgage loans and securities (as defined) under an agreement
with the FHLB. Loans and securities pledged at June 30, 2005 totaled $66.9
million in residential mortgage loans and $7.9 million in securities. At
December 31, 2004 there were approximately $66.9 million in mortgage loans
and $9.4 million in securities pledged for FHLB borrowings.
NOTE 10 INVESTMENT SECURITIES
- ------- ---------------------
The amortized cost and fair value of investment securities held-to-maturity
and available-for-sale at June 30, 2005, by contractual maturity, are shown
below. Expected maturities differ from contractual maturities because
issuers may have the right to call or prepay obligations without call or
prepayment penalties. Maturities for mortgage backed securities with
scheduled contractual payments are based on the weighted average life of
the remaining payments.
12
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---------- ------- ---------- -----------
Available-for-Sale:
Mortgage Backed Securities:
After one year
but within five years 319,212 1,075 246 320,041
After five years
but within ten years 1,234,809 - 4,267 1,230,542
Municipal Securities Maturing:
Within one year 140,000 1,882 -- 141,882
After one year
but within five years 1,454,192 39,795 -- 1,493,987
After five years
but within ten years 9,104,698 377,253 -- 9,481,951
After ten years
but within fifteen years 5,949,944 389,785 -- 6,339,729
After fifteen years
but within twenty years 3,098,968 221,353 -- 3,320,321
After 20 years 1,137,493 52,100 4,337 1,185,256
Corporate Securities Maturing:
Within one year 1,308,986 1,245 -- 1,310,231
After one year
but within five years 3,000,000 -- 267,243 2,732,757
After twenty years 1,730,380 143,625 -- 1,874,005
Equity Securities: (Preferred
Stock in US Government Agencies)
Callable within one year 21,072,044 -- 4,234,044 16,838,000
Callable after one year
but within five years 4,414,150 -- 178,637 4,235,513
Callable after five years
but within ten years 1,000,000 800 - 1,000,800
Other Equity Stock:
After 20 years 318,155 35,345 -- 353,500
---------- --------- --------- -----------
Total Available-for-Sale 55,283,031 1,264,258 4,688,774 51,858,515
========== ========= ========= ===========
Held-to-Maturity:
United States Government
Agency Securities Maturing:
After one year
but within five years 7,019,848 -- 187,470 6,832,378
Mortgage Backed Securities:
After one year
but within five years 5,531,626 666 43,128 5,489,164
After five years
but within ten years 10,855,146 -- 45,075 10,810,071
After fifteen years
but within twenty years 408,158 2,182 -- 410,340
After twenty years 4,269,712 7,843 50,681 4,226,874
Municipal Securities Maturing:
After one year
but within five years 1,216,646 17,620 351 1,233,915
After five years
but within ten years 429,982 8,751 -- 438,733
After ten years
but within fifteen years 340,000 522 -- 340,522
After twenty years 2,612,159 2,778 2,366 2,612,571
Corporate Securities Maturing:
Within one year 1,130,625 6,907 260 1,137,272
After one year
but within five years 7,242,942 23,088 41,607 7,224,423
13
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---------- ------- ---------- -----------
After five years
but within ten years 984,660 -- 15,989 968,671
After twenty years 5,196,324 124,356 6,164 5,314,516
---------- ------- --------- -----------
Total Held-to-Maturity 47,237,828 194,713 393,091 47,039,450
========== ======= ========= ===========
Securities sold under agreement to repurchase are offered to cash
management customers as an automated, collateralized investment account.
Under these transactions, securities are delivered to the counterparty's
custody account. Securities held in custody accounts at June 30, 2005 and
December 31, 2004 totaled $2,037,355 and $2,005,365, respectively.
Information pertaining to securities with gross unrealized losses at June
30, 2005, aggregated by investment category and length of time that
individual securities have been in a continuous loss position, follows:
Less than Twelve Months Over Twelve Months
----------------------- -----------------------
Gross Gross
Unrealized Fair Unrealized Fair
Losses Value Losses Value
-------- ---------- ----------- ----------
Available-for-Sale
Mortgage Backed Securities 2,427 805,435 2,085 557,870
Municipal Securities - - 4,337 704,485
Corporate Securities 267,243 2,732,757 - -
Marketable Equity Securities 18,000 1,982,000 4,394,682 19,091,513
-------- --------- --------- ----------
Total Available-for-Sale 287,670 5,520,192 4,401,104 20,353,868
Held-to-Maturity
US Government Agencies - - 187,470 6,832,378
Mortgage Backed Securities 5,522 1,548,417 133,362 17,855,155
Municipal Securities - - 2,718 637,786
Corporate Securities 52,022 6,600,775 11,997 2,249,826
-------- --------- --------- ----------
Total Held-to-Maturity 57,544 8,149,192 335,547 27,575,145
Management believes all unrealized losses as of June 30, 2005 represent
temporary impairment. The unrealized losses have resulted from temporary
changes in the interest rate market and not as a result of credit
deterioration. Management does not anticipate selling the securities for
losses, and State of Franklin has sufficient cash, investments with
unrealized gains and unused lines of credit to provide resources to meet
liquidity needs.
NOTE 11 EARNINGS PER SHARE
- ------- ------------------
Earnings per share for three and six months ended June 30, 2005, compared
with the same period in 2004, are as follows:
Three Months Ended Six Months Ended
June 30, June 30,
2005 2004 2005 2004
--------- --------- --------- ---------
Net Income 2,275,187 575,803 2,830,298 1,128,234
Average Basic Shares Outstanding 1,436,821 1,397,269 1,430,917 1,396,486
Basic Earnings Per Share 1.58 .41 1.98 .81
========= ========= ========= =========
Net Income 2,275,187 575,803 2,830,298 1,128,234
Average Basic Shares Outstanding 1,436,821 1,397,269 1,430,917 1,396,486
Dilutive Effect Due to Stock Options 163,174 135,857 153,324 126,238
--------- --------- --------- ---------
Average Shares Outstanding, as Adjusted 1,599,995 1,533,126 1,584,241 1,522,724
Diluted Earnings Per Share 1.42 .38 1.79 .74
========= ========= ========= =========
14
NOTE 12 SUBSEQUENT EVENTS
- ------- -----------------
On April 6, 2005, the Company's Board of Directors announced that it has
approved a proposed going private transaction by merging the Company with a
newly formed subsidiary of the Company. The proposed transaction would
reduce the number of stockholders of record from approximately 1,200 to
approximately 250. Following the proposed merger, the surviving entity
would continue operations of the Company as a privately held corporation
that would not be required to file periodic public reports with the
Securities and Exchange Commission.
The terms of the proposed merger are expected to provide that each
stockholder of record of the Company beneficially owning 3,000 or less
common shares will receive cash for shares at a price equal to $25.25 per
share of the common stock, which is the price the Board of Directors has
established based on an independent valuation by a qualified valuation firm
and other factors. Each stockholder of record beneficially owning more than
3,000 common shares will continue to hold the same number of shares of the
surviving corporation after the merger and will not receive any cash for
shares. The Company intends to finance the proposed merger with $8 million
of Company cash in hand from a trust preferred offering completed in 2001
and a $5 million upstream dividend payment from the Bank to the Company.
Consummation of the proposed going private transaction is conditioned upon
the filing of the requisite reports with the SEC, review by and consent of
the Federal Reserve, approval of the Company's stockholders, and other
conditions. Therefore, there is no assurance that the transaction will be
consummated on the terms described or at all.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
- --------------------------------------------------------------------------------
GENERAL
-------
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
--------------------
At June 30, 2005, assets of State of Franklin Bancshares, Inc. totaled
$310.9 million reflecting an increase of $14.2 million or 5% since December
31, 2004. The growth in assets has been funded primarily by an $11.4
million increase in deposits and a $2.8 million increase in retained
earnings.
LOANS
-----
Loans outstanding increased $11.5 million, or 7%, from $164.8 million at
December 31, 2004 to $176.3 million at June 30, 2005. First mortgage loans
increased $1.6 million, commercial and construction loans increased $9.1
million, and consumer loans increased $15,000. The loan portfolio mix at
June 30, 2005 consists of 30% residential mortgages, 44% commercial, 17%
real estate construction, and 9% consumer loans.
INVESTMENT SECURITIES
---------------------
Investment securities totaled $99.1 million at June 30, 2005. The
investment portfolio at quarter end consisted of $7.0 million in debt
securities issued by the U. S Government or Federal Agencies, $22.6 million
in mortgage backed securities, $26.6 million in securities issued by state,
county, or municipalities, $20.5 million in corporate securities, $22.1
million in preferred stock issued by Federal Agencies, and $354,000 in
other equity securities.
At June 30, 2005, securities categorized as available-for-sale totaled
$51.9 million while the held-to-maturity securities totaled $47.2 million
compared to $53.7 million in available-for-sale and $49.7 million in
held-to-maturity at December 31, 2004. At June 30, 2005, the
available-for-sale portfolio had net unrealized losses of $3.4 million
while our held-to-maturity securities had $198,000 in net unrealized
losses.
NON-PERFORMING ASSETS
---------------------
At June 30, 2005 the Company had nonaccrual loans totaling $739,000
compared with $1.2 million at December 31, 2004. The reserve for loan and
lease losses was $1,803,387 at June 30, 2005, or 1.03% of loans and leases
outstanding, net of unearned income and loans held for sale, compared to
$1,601,332 or .97% at December 31, 2004. Management believes the allowance
for loan losses is adequate to provide for potential loan losses.
15
DEPOSITS
--------
Total deposits at June 30, 2005 of $225.5 million, reflected an increase of
$11.4 million or a 5% increase from $214.2 million at December 31, 2004.
Non-interest bearing demand deposits totaled $18.9 million at June 30,
2005, an increase of $3.6 million from December 31, 2004. Interest bearing
deposits increased $7.8 million to $206.6 million at June 30, 2005.
CAPITAL
-------
Tier 1 capital for the Savings Bank at June 30, 2005 was $26.9 million. At
June 30, 2005, all capital ratios were in excess of the regulatory
minimums, with the Savings Bank's Tier 1, total risk-based, and leverage
ratios of 12.33%, 13.06% and 8.81%, respectively.
Tier 1 capital for the Company at June 30, 2005, was $36.8 million with
Tier 1, total risk-based, and leverage ratios of 16.87%, 17.70%, and
11.99%, respectively.
LIQUIDITY
---------
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.
EARNINGS REVIEW
----------------
The Company had net income of $2,275,000 for the three months ending June
30, 2004, compared with $576,000 for the same period last year, resulting
in an increase of 295%. Return on average assets was 2.97% and the return
on average equity was 31.80% for the three months ended June 30, 2005,
compared with .75% and 9.41%, respectively, for the same period in 2004.
For the six months ending June 30, 2005, net income was $2,830,000 compared
with $1,128,000 for the same period ending June 30, 2004 resulting in an
increase of 151%. Return on average assets and average equity were 1.89%
and 20.78%, respectively, compared with .75% and 9.17% for the six month
period ended June 30, 2004. For the six months ended June 30, 2005, net
income per diluted share was $1.79 compared to earnings per share of $.74
for the same period in 2004.
Noninterest income increased $2,673,000, or 397%, during the six months
ended June 30, 2005, compared to the same period last year as a result of
increases in other fees and service charges, realized gains on securities,
real estate commission income, and insurance commissions. Contributing
significantly to the increase was the stock buyout of the Company's data
processing service provider, Intrieve Corporation, located in Cincinnati,
Ohio, in which the Company owned a significant number of shares. Net gains
on loans sold and rental income declined from the prior year due to a
reduction in the number of existing homes being refinanced and a reduction
in space available for rent at the Company's main office, respectively.
Noninterest expense was $3,701,000 for the six months ending June 30, 2005,
an increase of $673,000, or 22% over the 2004 period, resulting from
increases in compensation and related benefits, occupancy expense,
advertising, data processing, and other operating expenses. Furniture and
equipment expense declined from the prior period.
NET INTEREST INCOME
-------------------
Interest income and interest expense both increased from 2004 to 2005
primarily resulting from assets and liabilities repricing with recent rate
increases by the Federal Reserve Bank. Net interest income of $4,700,000
for the six months ended June 30, 2005 reflects an increase of $862,000 or
23% over the same period last year. For the six months ending June 30,
2005, average earning assets decreased $3.3 million or 1% while average
interest bearing liabilities declined $8.1 million, or 3%, compared with
the same period in 2004. Offsetting the negative effect on net interest
income resulting from the decline in average earning assets were increases
in loans outstanding, when compared to lower yielding asset alternatives,
and increases in interest-free sources of funds. Consequently, the taxable
equivalent yield on earning assets increased 80 basis points to 5.99% for
the first six months of 2005 compared with the same period in 2004. During
the same period the cost on interest bearing liabilities increased 18 basis
points to 2.67% resulting in the taxable equivalent net interest margin
based on average earning assets increasing 63 basis points to 3.59% for the
six months ending June 30, 2005 compared with 2.91% for the same period in
2004.
16
PROVISION FOR LOAN LOSSES
-------------------------
During the six months ended June 30, 2005, the provision for possible loan
losses was $200,000 compared with $20,000 for the same period last year.
There were $2,000 in loan or lease recoveries and no charge-offs for the
six months ended June 30, 2005, compared to $95,000 in loan or lease
charge-offs net of recoveries during the same period in 2004. The allowance
for possible loan losses represented 1.03% of total loans, net of mortgage
loans held-for-sale, at June 30, 2005, compared to 1.17% at June 30, 2004.
Management considers the allowance for loan losses to be adequate to cover
losses inherent in the loan portfolio.
PROVISION FOR INCOME TAXES
---------------------------
For the six months ended June 30, 2005, the provision for federal and state
income taxes was $1,315,000, an increase of $981,000 from 2004. The
increase is due to the increase in taxable income compared to the same
period in 2004.
NONINTEREST INCOME
-------------------
The Company's noninterest income was $3,347,000 during the six months ended
June 30, 2005, an increase of $2,673,000 or 397% from the comparable 2004
period. During 2004, other fees and service charges, realized gains on
securities, real estate sales commissions, and insurance commissions
increased $43,000, $2,575,000, 95,000, and $1,000, respectively. Net gain
on loans sold declined $27,000, and rental income declined $15,000.
NONINTEREST EXPENSE
--------------------
Noninterest expense totaled $3,701,000 for the six month period ending June
30, 2005, an increase of $673,000, or 22%, over the same period in 2004.
The increase was the result of increases in compensation and benefits,
occupancy expense, advertising, data processing, and other operating
expenses of $333,000, $33,000, $51,000, $3,000, and $258,000, respectively.
During the same period, furniture and equipment expense declined $6,000.
ITEM 3 CONTROLS AND PROCEDURES
- ------ -----------------------
(a) Evaluation of Disclosure Controls and Procedures. The Company's
President and its Chief Executive Officer have evaluated the effectiveness
of the design and operation of the Company's disclosure controls and
procedures (as defined in Exchange Act Rule 13a-14(c)) as of June 30,2005.
Based on that evaluation, the President and the Chief Executive Officer
have concluded that the Company's disclosure controls and procedures are
effective to ensure that material information relating to the Company and
the Company's consolidated subsidiaries is made known to such officers by
others within these entities, particularly during the period this quarterly
report was prepared, in order to allow timely decisions regarding required
disclosure.
(b) Changes in Internal Controls. There have not been any significant
changes in the Company's internal controls or in other factors that could
significantly affect these controls subsequent to the date of their
evaluation.
17
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
(a) Exhibits
31.1 Certification of Randal R. Greene, President of State of Franklin
Bancshares, Inc. pursuant to Section 301 of the Sarbanes-Oxley
Act of 2002.
31.2 Certification of Charles E. Allen, Jr., the Chairman of the Board
and Chief Executive Officer of State of Franklin Bancshares, Inc.
pursuant to Section 301 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Randal R. Greene, President of State of Franklin
Bancshares, Inc. pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
32.2 Certification of Charles E. Allen, Jr., the Chairman of the Board
and Chief Executive Officer of State of Franklin Bancshares, Inc.
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(b) The Company did not file any reports on Form 8-K during the
quarter ended June 30, 2005, except an 8-K on April 8, 2005
attaching a press release related to the proposed going private
transaction.
18
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.
----------------------------------
(Registrant)
August 9, 2005 /s/Randal R. Greene
- --------------------------- ----------------------------------
(Date) Randal R. Greene, President
August 9, 2005 /s/Charles E. Allen, Jr.
- --------------------------- ----------------------------------
(Date) Charles E. Allen, Jr.
Chairman of the Board
and Chief Executive Officer
(Principal Executive, Financial
and Accounting Officer)
19