UNITED STATES SECURITIES AND EXCHANGE COMMISSION,
WASHINGTON, DC 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ............... to ...............
Commission file number 0-12126
FRANKLIN FINANCIAL SERVICES CORPORATION
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 25-1440803
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
20 SOUTH MAIN STREET (P.O. BOX T)
CHAMBERSBURG, PA 17201-0819
(Address of principal executive offices) (Zip Code)
717/264-6116
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if
changed since last report.)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X
No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 12,
13 or 15(d) of the Securities Exchange Act of 1934
subsequent to the distribution of securities under a plan
confirmed by a court.
Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
There were 1,416,090 outstanding shares of the Registrant's
common stock as of November 3, 1995.
<PAGE>
FRANKLIN FINANCIAL SERVICES CORPORATION
AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements Page
Condensed Consolidated Balance Sheets as of
September 30, 1995 (Unaudited) and
December 31, 1994
Condensed Consolidated Statements of Income
for the Three and Nine Months ended
September 30, 1995 and 1994 (unaudited)
Condensed Consolidated Statements of Changes in
Shareholders' Equity for the Nine Months ended
September 30, 1995 (unaudited)
Condensed Consolidated Statements of Cash Flows
for the Nine Months Ended September 30, 1995
and 1994 (unaudited)
Notes to Condensed Consolidated Financial
Statements (unaudited)
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II - OTHER INFORMATION
Item 4 - Other Matter
Item 6 - Exhibits and Reports on Form 8-K
SIGNATURE PAGE
<PAGE>
<TABLE>
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands)
<CAPTION>
September 30 December
1995 1994
(unaudited)
<S> <C> <C>
ASSETS
Cash and due from banks. . . . . . . . . . . . . . . . . . . . . . . $8,243 $8,290
Interest bearing deposits in other banks. . . . . . . . . . . . . . . 16,805 381
Investment securities (Maket value of $50,993 and $57,340 at
September 30, 1995 and December, 31 1994 respectively) (Note 2). . 50,787 58,494
Investments available for sale (Note 2). . . . . . . . . . . . . . . 20,400 14,082
Loans: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 216,414 223,847
Less: Unearned discount. . . . . . . . . . . . . . . . . . . . . . . (660) (1,111)
Allowance for possible loan losses. . . . . . . . . . . . . (3,319) (3,425)
Net Loans . . . . . . . . . . . . . . . . . . . . . . 212,435 219,311
Premises and equipment, net . . . . . . . . . . . . . . . . . . . . . 5,416 4,986
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,733 5,010
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . $318,819 $310,554
LIABLITIES AND SHAREHOLDERS' EQUITY
Deposits: (Note 3)
Demand (non-interest bearing) . . . . . . . . . . . . . . . . . . . $33,087 $29,323
Savings and Interest checking . . . . . . . . . . . . . . . . . . . 99,162 105,977
Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129,920 121,397
Total Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . 262,169 256,697
Securities sold under agreements to repurchase . . . . . . . . . . . 13,975 9,612
Other borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . 6,501 8,951
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 2,258 2,421
Total Liabilities 284,903 277,681
Commitments and Contingencies . . . . . . . . . . . . . . . . . . . . - -
Shareholders' equity:
Common stock $1 par value per share, 5000 shares authorized
with 1,354 and 1,354 shares issued and 1,293 and 1,352
outstanding at September 30, 1995 and December 31,1994
respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,354 1,353
Capital stock without par value, 5,000 shares authorized
with no shares issued or outstanding . . . . . . . . . . . . . . . - -
Additional paid in capital . . . . . . . . . . . . . . . . . . . . . 19,441 19,451
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . 15,003 12,884
Net unrealized gain (loss)on securities . . . . . . . . . . . . . . . 389 (353)
Treasury stock (Note 4) . . . . . . . . . . . . . . . . . . . . . . (2,108) (36)
Unearned compensation . . . . . . . . . . . . . . . . . . . . . . . . (163) (426)
Total shareholders' equity . . . . . . . . . . . . . . . . . . . . . 33,916 32,873
Total Liabilities and Shareholders' Equity . . . . . . . . . . . . . 318,819 $310,554
The accompanying notes are an integral part of these statements
</TABLE>
<PAGE>
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except per share)
(Unaudited)
<CAPTION>
For the Three For the Nine
Months Ended Months Ended
September 30 September 30
1995 1994 1995 1994
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest on loans. . . . . . . . . . . . . . . . . . . . $5,276 $4,479 $15,317 $12,982
Interest on deposits in other banks. . . . . . . . . . . 318 6 446 10
Interest on federal funds sold. . . . . . . . . . . . . 1 0 6 5
Interest and dividends on investments (Note 2). . . . . 960 1,015 2,970 3,205
Total interest income . . . . . . . . . . . . . . . . 6,555 5,500 18,739 16,202
INTEREST EXPENSE
Interest on deposits . . . . . . . . . . . . . . . . . . 2,660 2,214 7,531 6,497
Interest on securities sold under repurchase
agreements and other borrowings . . . . . . . . . . . 292 219 797 662
Total interest expense . . . . . . . . . . . . . 2,952 2,433 8,328 7,159
Net interest income . . . . . . . . . . . . . . . . . . 3,603 3,067 10,411 9,043
Provision for possible loan loss . . . . . . . . . . . . . (90) (2) (212) (47)
Net-interest income after provision
for possible loan losses . . . . . . . . . . . . . . . . 3,513 3,065 10,199 8,996
OTHER INCOME
Trust commissions . . . . . . . . . . . . . . . . . . . 282 277 934 803
Service charges, commissions and fees . . . . . . . . . 407 521 1,440 1,420
Other . . . . . . . . . . . . . . . . . . . . . . . . . 62 38 179 326
Net securities gains. . . . . . . . . . . . . . . . . . 0 60 0 176
Total Other Income . . . . . . . . . . . . . . . . . . 751 896 2,553 2,725
OTHER EXPENSE
Salaries and benefits . . . . . . . . . . . . . . . . . 1,543 1,456 4,548 4,370
Net occupancy expense . . . . . . . . . . . . . . . . . 141 113 389 387
Furniture and equipment expense . . . . . . . . . . . . 179 184 568 562
FDIC insurance . . . . . . . . . . . . . . . . . . . . . 161 141 449 438
Other . . . . . . . . . . . . . . . . . . . . . . . . . 918 834 2,619 2,525
Total Other Expenses . . . . . . . . . . . . . . . . . 2,942 2,728 8,573 8,282
Income before income tax provision . . . . . . . . . . . . 1,322 1,233 4,179 3,439
Income tax provision . . . . . . . . . . . . . . . . . . . (296) (229) (1,010) (680)
Net income . . . . . . . . . . . . . . . . . . . . . . 1,026 1,004 3,169 2,759
Earnings per share (Note 1)
Net income per share . . . . . . . . . . . . . . . . . $0.81 $0.77 $2.47 $2.11
Net income per share computations for 1994 have been
adjusted retroactively to reflect a 10% stock dividend paid
on December 30, 1994 to shareholders of record on
December 9, 1994.
The accompanying notes are an intergral part
of these statements
</TABLE>
<PAGE>
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
for the year ended December 31, 1994 and the Nine Months ended September 30, 1995
(Amounts in thousands, except per share)
<CAPTION> Net
Additional Unrealized
Common Paid-in Retained Gain/Loss Treasury Unearned
Stock Capital Earnings Securities Stock Compensation Total
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 1,231 15,493 14,358 302 (154) (612) 30,618
Year ended December 31, 1994
Net Income - - 3,760 - - - 3,760
- - - - -
Cash dividends, $.98 per share - - (1,224) - - - (1,224)
- - -
10% stock dividend 122 3,888 (4,010) - - - 0
Common stock issued under stock
option plans - 70 - - 147 - 217
Change in net unrealized loss on
securities (Note 1 and 4) - - - (655) - - (655)
Acquisiton of 842 shares of
Treasury stock at cost - - - - (29) - (29)
Amortization of unearned compensation - - - - - 186 186
Balance at December 31, 1994 $1,353 $19,451 $12,884 ($353) ($36) ($426) $32,873
Net income - - 3,169 - - - 3,169
Cash Dividends, $.80 per share - - (1,050) - - - (1,050)
Common stock issued under stock
option plans 1 (10) - - 101 - 92
Change in net unrealized loss on
securities - - - 742 - - 742
Acquisition of 62,246 shares of
Treasury stock at cost - - - - (2,173) - (2,173)
Amortization of unearned compensation - - - - - 263 263
Balance at September 30, 1995 $1,354 $19,441 $15,003 $389 ($2,108) ($163) $33,916
(unaudited)
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
Unaudited
<CAPTION>
For the Nine
Months Ended
September 30
1995 1994
<S> <C> <C>
Cash flows from operating activities:
Net Income . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . $3,169 $2,759
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . 469 469
Premium amortization on investment securities . . . . . . . . . . . . . 55 222
Discount accretion on investment securities . . . . . . . . . . . . . . (140) (87)
Provision for loan losses . . . . . . . . . . . . . . . . . . . . . . . 212 47
Securities gains, net . . . . . . . . . . . . . . . . . . . . . . . . . 0 (176)
Principal gains on sales of mortgage loans . . . . .. . . . . . . . . . (26) (45)
Gain on sale of other assets. . . . . . . . . . . . . . . . . . . . . . (6) (116)
Loan charge-offs, net of recoveries . . . . . . . . . . . . . . . . . . (318) (157)
(Increase) in interest receivable . . . . . . . . . . . . . . . . . . . (138) (1)
Increase(Decrease) in interest payable . . . . . . .. . . . . . . . . . 256 (6)
(Increase)Decrease in unearned income . . . . . . . . . . . . . . . . . (451) 442
Decrease(Increase) in prepaid and other assets . . .. . . . . . . . . . 233 (120)
Decrease in accrued expenses and other liabilities .. . . . . . . . . . (619) (195)
Net cash provided by operating activities . . . . . . .. . . . . . . . . . $2,696 $3,036
Cash flows from investing activities:
Proceeds from sales of investment securities available. . . . . . . . . . 0 695
Proceeds from maturities of investment securities . . . . . . . . . . . . 16,405 17,501
Purchase of investment securities . . . . . . . . . . . . . . . . . . . . (13,807) (5,400)
Net Decrease (Increase) in loans . . . . . . . . . . .. . . . . . . . . . 5,163 (13,612)
Proceeds from sale of mortgage loans . . . . . . . . .. . . . . . . . . . 2,296 7,372
Capital expenditures . . . . . . . . . . . . . . . . .. . . . . . . . . . (909) (284)
Proceeds from sales of other assets . . . . . . . . . . . . . . . . . . . 16 201
Net cash provided by investing activities . . . . . . .. . . . . . . . . . 9,164 6,473
Cash flows from financing activities:
Net Increase(Decrease) in demand deposits,
NOW accounts and savings accounts . . . . . . . . . .. . . . . . . . . . (3,051) (4,880)
Net Increase (Decrease) in certificates of deposit . .. . . . . . . . . . 8,523 (766)
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,050) (894)
Common stock issued under stock option plans . . . . .. . . . . . . . . . 101 99
Purchase of treasury shares . . . . . . . . . . . . . . . . . . . . . . . (2,173) (29)
Cash inflows(outflows) from other borrowings . . . . .. . . . . . . . . . 1,913 (3,200)
Other, net . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . 255 176
Net cash provided (used) by financing activities . . . . . . . . . . . . . 4,518 (9,494)
Increase in cash and cash equivalents . . . . . . . . .. . . . . . . . . . 16,378 15
Cash and cash equivalents as of January 1 . . . . . . .. . . . . . . . . . 8,670 7,183
Cash and cash equivalents as of September 30 . . . . . . . . . . . . . . . $25,048 $7,198
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
FRANKLIN FINANCIAL SERVICES CORPORATION and SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(Unaudited)
Note 1 -- Basis of Presentation
The condensed consolidated balance sheets as of
September 30, 1995, the condensed consolidated statements
of income for the three and nine-month period ended
September 30, 1995 and 1994, the condensed consolidated
statements of changes in shareholders' equity as of
September 30, 1995 and the condensed consolidated
statements of cash flows for the nine-month periods ended
September 30, 1995 and 1994, have been prepared by the
Corporation, without audit. In the opinion of management,
all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial
position, results of operations, and cash flows at September
30, 1995, and for all periods presented have been made.
The consolidated financial statements include the accounts
of Franklin Financial Services Corporation (the
Corporation), and its wholly-owned subsidiaries.
Subsidiaries include Franklin Founders Life Insurance
Company, a credit life reinsurance company and Farmers and
Merchants Trust Company, a commercial bank. Effective May
1, 1995, The Mont Alto State Bank, also a commercial bank and
a subsidiary of the Corporation, was merged into Farmers
and Merchants Trust Company. All significant intercompany
transactions and account balances have been eliminated.
Certain information and footnote disclosures normally
included in financial statements prepared in accordance with
generally accepted accounting principles have been
condensed or omitted. It is suggested that these condensed
consolidated financial statements be read in conjunction
with the audited financial statements and notes thereto
included in the Corporation's 1994 Annual Report. The
results of operations for the period ended
September 30, 1995, are not necessarily indicative of the
operating results for the full year.
For purposes of reporting cash flows, cash and cash
equivalents include Cash, Due from Banks, and Federal
Funds Sold. Generally, Federal funds are purchased and
sold for one-day periods. Supplemental disclosures of cash
flow information are as follows:
Cash paid for nine months ended 1995 1994
September 30 (unaudited):
Interest paid on deposits and
other borrowed funds . . . . . . . . . $8,072,000 $7,007,024
Income taxes paid . . . . . . . . . . . . $1,125,000 $ 755,000
Note 2 -- Investment Securities
Amortized cost and estimated market values of investment
securities as of September 30, 1995 (unaudited), and
December 31, 1994, were as follows (amounts in thousands):
<TABLE>
<CAPTION>
Held to Maturity
September 30 December 31
1995 1994
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations
of U.S. Government agencies & corporations $18,202 $18,210 $17,466 $17,091
Obligations of state and political subdivisions 18,208 18,449 18,909 18,717
Corporate debt securities 6,492 6,447 11,147 10,920
Mortgage - backed securities 6,746 6,748 9,810 9,450
49,648 49,854 57,332 56,178
Other 1,139 1,139 1,162 1,162
$50,787 $50,993 $58,494 $57,340
Available for sale
September 30 December 31
1995 1994
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
Equity securities $1,237 $1,991 $1,213 $1,548
U.S. Treasury securities and obligations
of U.S. Government agencies & corporations $6,006 $5,996 - -
Obligations of state and political subdivisions 2,413 2,404 2,400 2,278
Corporate debt securities 1,683 1,664 - -
Mortgage - backed securities 8,472 8,345 11,004 10,256
$19,811 $20,400 $14,617 $14,082
</TABLE>
<PAGE>
Interest income earned and dividends recieved on investment
securities for the three and nine months ended September
30, 1995 and 1994 are as follows (amounts in thousands):
<TABLE>
<CAPTION>
Three Months Nine Months
1995 1994 1995 1994
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
U.S. Government Obligations $66 $69 $206 $244
Obligations of U.S. Government
Agencies and Corporations 452 396 1,348 1,193
Obligations of States and
Political Subdivisions 279 320 846 998
Other Securities, primariy
Notes and Debentures 129 214 462 674
Common Stock 34 16 108 96
$960 $1,015 $2,970 $3,205
</TABLE>
Note 3 - Deposits
Deposits are summarized as follows (amounts in thousands):
<TABLE>
<CAPTION>
September 30 December 31
1995 1994
(Unaudited)
<S> <C> <C>
$33,087 $29,323
Demand
Savings
Interest-bearing checking 29,439 27,689
Money Market Accounts 24,015 30,558
Passbook and Statement Savings 45,708 47,730
$99,162 $105,977
Time
Deposits of $100,000 and over 22,344 20,968
Other Time Deposits 107,576 100,429
129,920 121,397
Total Deposits $262,169 $256,697
</TABLE>
<PAGE>
NOTE 4 - Treasury Stock
Pursuant to the stock repurchase program approved by
the Board of Directors on January 5, 1995, the Corporation
acquired 23,469 common shares through September 30, 1995 at a
cost of approximately $816,000. Under the program, the
Corporation is authorized to purchase up to 50,000 shares in
open market transactions through dealers.
In addition to the stock repurchase program, the Board
has authorized the repurchase of separate blocks of common
shares totaling 38,777 shares at a cost of $1,357,000. The
block purchases occurred in each of the first three quarters
of 1995.
NOTE 5 - Accounting Standards Effective January 1, 1995
The Corporation adopted Statement of Financial
Accounting Standards No. 114 titled "Accounting by
Creditors for Impairment of a Loan" and Statement of
Financial Accounting Standards No. 118 titled "Accounting
by Creditors for Impairment of a Loan - Income Recognition
and Disclosures" effective January 1, 1995. An analysis of
these standards determined the impact to be immaterial to
the Corporation's results.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
FOR THE THREE AND NINE MONTH PERIODS
ENDED SEPTEMBER 30, 1995
Part 1, Item 2
Results of Operations
Consolidated net income for the third quarter and nine
months ended September 30, 1995 was $1,026,000 and
$3,169,000, respectively, compared to $1,004,000 and
$2,759,000, respectively, for the comparable periods in 1994.
These results represent increases in net income for the
quarter and nine months of 2.1% and 14.9%, respectively.
Consolidated earnings per share equaled $.81 and $2.47 for
the quarter and nine months ended September 30, 1995,
versus $.77 and $2.11, respectively for the same periods in
1994. Book value per share equaled $26.25 at September 30,
1995, up from $24.00 a year earlier. Per share information
for September 1994 has been restated to reflect a 10% stock
dividend paid on December 30, 1994 to shareholders of
record on December 9, 1994.
The Corporation's annualized return on average
assets (ROA) and return on average equity (ROE) for the
first nine months of 1995 was 1.35% and 12.69%, respectively,
an improvement over 1.19% and 11.67%, respectively, for the
first nine months of 1994.
Net interest income for the third quarter of 1995
showed marked improvement increasing $536,000, or 17.5%, to
$3,603,000 from $3,067,000 at September 30, 1994. Net
interest income for the nine months ended September 30,
1995 reflected the same improvement reaching $10,411,000,
an increase of $1,368,000 or 15.1% over $9,043,000 a year
earlier. A consistent overall loan demand coupled with
higher loan yields and better managed deposit rates
continued to be the driver behind the improved net interest
income. Overall the increase in earning asset yields
outpaced the increase in rate related liability costs. The
Corporation's net interest margin on a tax-equivalent basis
reached 4.85% at September 30, 1995 compared to 4.38% a
year earlier. Net interest spread for the same periods was
4.06% and 3.77%, respectively.
The Corporation expensed $90,000 and $212,000 for
possible loan losses in the third quarter and nine months of
1995, respectively versus $2,000 and $47,000, for the same
periods in 1994. An increase in the ratio of net charge-offs
to average loans for the first nine months of 1995 to .19%
from .10% a year earlier was the primary factor driving the
increase in loan loss provision expense. Other factors
included the recent announcement that Franklin County jobs
would be lost due to closure and realignment of a local Army
depot and base. In June 1995, there was an announcement
by the independent Defense Base Realignment and Closure
Commission, which received subsequent approval from
President Clinton, to realign Letterkenny Army Depot in the
Chambersburg (Franklin County) area (2,000 - 2,500 jobs
lost) and to close Fort Ritchie in Maryland (approximately
1,000 Franklin County jobs lost out of a total of 2,500).
Letterkenny is one of the areas largest employers. In
addition, another recent announcement by the management
of J. Schoeneman Co., a mens clothing manufacturer, that
they would close in early 1996 will result in the loss of
another 800 to 1,000 jobs, primarily Franklin County
residents. Although the impact of the loss of jobs on the
local economy and the Corporation is uncertain, the expected
result is that consumer delinquencies and possibly consumer
charge-offs could increase. At September 30, 1995, the level
of nonperforming assets continued to show improvement reflected
in the ratio of nonperforming assets reaching .73% compared
to .96% at September 30, 1994. The allowance for possible
loan loss as a percentage of loans remained stable at 1.54% as of
September 30, 1995, compared to 1.58% a year earlier. The coverage the
allowance for possible loan loss provides for nonaccrual loans
and nonperforming loans is adequate at 3.8 times and
1.5 times, respectively.
Total other income excluding net securities gains
realized an $85,000, or 10.2% decrease for the third quarter
of 1995 to $751,000, driven primarily by lower secondary
market sales. For the nine months period ended September
30, 1995 and 1994 total other income remained stable at
$2,553,000 versus $2,549,000, respectively. An increase in
trust commissions of $131,000 for the nine months in 1995 was
more than offset by the $147,000 decrease in other income.
Trust commissions were up due to business growth. Other
income was down due to a realized gain ($116,000) from the
sale of real estate in 1994 and a decrease in gains from the
sale of loans to the secondary market in 1995.
Total other expense increased $214,000, or 7.8%, to
$2,942,000 for the third quarter of 1995 compared to the same
quarter in 1994. Salaries and benefits were up $87,000, or
6.0%, to $1,543,000 for the third quarter of 1995 compared to
the third quarter of 1994. Salaries grew $59,000 due to merit
increases and added personnel while benefit expense grew
$28,000. Net occupancy expense increased 25.0% to $141,000
for the third quarter of 1995 versus the same quarter in
1994. Costs associated with building repairs and
maintenance and a decrease in rental income were primarily
responsible for the $28,000 increase in net occupancy
expense for the quarter. As a result of reduced premiums on
FDIC insurance effective in May 1995, the Corporation
received a premium refund in the third quarter totaling
$132,000; however, a $152,000 reserve was established in the
third quarter of 1995 in anticipation of a future FDIC special
assessment expense related to the Savings Association
Insurance Fund (SAIF) and OAKKAR deposits. The
Corporation acquired $26 million in OAKKAR deposits in 1992
with a branch purchase from a thrift institution. The special
assessment payment date is expected to be January 1, 1996.
Other expense for the quarter was up $84,000, or 10.1%,
primarily due to overall higher costs such as postage,
travel, and telephone. Total other expense for the nine
months ended September 30, 1995, grew moderately by
$291,000, or 3.5% to $8,573,000 versus $8,282,000 a year
earlier.
Federal income tax expense totaled $296,000 for the
third quarter and $1,010,000 for the nine months ended
September 30, 1995 compared to $229,000 and $680,000,
respectively, for the same periods in 1994. The
Corporation's effective tax rates for the nine month periods
ended September 30, 1995, and 1994 were 24% and 20%. The
increase in the effective tax rate was largely due to lower tax
free income relative to pretax income.
Financial Condition
Total assets grew to $318,819,000, or 2.7%, at
September 30, 1995 from $310,554,000 at December 31, 1994.
Total assets at September 30, 1994 were $307,165,000.
Interest bearing deposits in other banks grew to $16,805,000
from $381,000 at December 31, 1994. A significant portion of
the balance ($16.6 million) was invested in overnight funds
with the Federal Home Loan Bank of Pittsburgh. Investment
securities decreased $7.7 million to $50,787,000 while
securities available for sale increased $6.3 million to
$20,400,000. Loans, net of unearned discount decreased 3.1%
to $215,754,000 at September 30, 1995 from year-end 1994.
Commercial loan volume was up approximately $4.4 million
since year-end while mortgage and other consumer loan
volume was down approximately $11.4 million. Consumer loan
demand from December 31, 1994, continues to be soft due to
uncertainty in the local area economy relative to job losses.
Mortgage loans sold on the secondary market to FNMA for
the nine month period this year totaled $2.3 million compared
to $7.3 million for the same period last year.
Total deposits continue to show slow but steady
growth to $262,169,000 at September 30, 1995, from
$256,697,000 at December 31, 1995. Effective marketing
programs for deposit products, primarily certificates of
deposits, customer displeasure with a local bank merger and
higher deposit rates are primarily responsible for the inflow
of deposit funds. Securities sold under agreements to
repurchase (Repo) realized significant growth to $13,975,000
at September 30, 1995, from $9,612,000 at year-end 1994.
Other borrowings have decreased $2.4 million to $6,501,000 at
September 30, 1995 from December 31, 1994.
Average earning assets represented 96.0%, or $298
million of total assets and yielded 8.3% for the nine months
ended September 30, 1995. The allowance for possible loan
loss declined 3.0% to $3,319,000 at September 30, 1995 from
$3,425,000 at December 31, 1994 and represented 1.54% and
1.65%, respectively, of net loans. The Corporation's loan-to-
deposit ratio was 82.3% at September 30, 1995, versus 86.8%
at December 31, 1994.
The Corporation's nonperforming loans have
decreased to $2,191,000 at September 30, 1995 from $2,243,000
at December 31, 1994. Nonperforming loans one year ago
equaled $2,941,000. Nonaccrual loans totaled $874,000 at
September 30, 1995, versus $1.0 million at December 31, 1994,
and September 30, 1994. Loans past due 90 days or more and still
accruing totaled $888,000 at third quarter end 1995
compared to $.6 million and $1.2 million at December 31, 1994,
and September 30, 1994, respectively. Restructured loans
equaled $429,000 at September 30, 1995. At September 30, 1995, OREO was
$123,000 compared to $0 at year-end 1994. Nonperforming
assets represented .73% of total assets at September 30, 1995,
compared to .72% and .96% at December 31, 1994 and
September 30, 1994, respectively. Net charge-offs to
average loans were .19% at September 30, 1995, up from .10%
at December 31, 1994, and September 30, 1994.
Liquidity
The Corporation's liquidity position remained strong
at third quarter-end 1995. The Corporation continues to sell
mortgage loans to the secondary market (FNMA) and looks to
its borrowing ability with the Federal Home Loan Bank of
Pittsburgh to satisfy any liquidity needs. The Corporation
has an overnight (Flexline) borrowing line of approximately
$28,000,000 and the availability of borrowing up to
$43,000,000 on a term basis. At September 30, 1995, the
Corporation had no overnight borrowings and had term
borrowings of $6,501,000. Currently management believes
that liquidity is adequate to meet the borrowing and deposit
withdrawal needs of its customers.
Capital Adequacy
Total shareholders' equity increased $1,043,000, or
3.2%, to $33,916,000 at September 30, 1995, from $32,873,000 at
December 31, 1994. Earnings retention, the primary source
of shareholder equity growth, has been off set through the
repurchase of Franklin Financial common stock (treasury
shares) and cash dividends paid to shareholders. At
September 30, 1995, the cost of treasury shares equaled
$2,173,000. (See Note 4 for more information on treasury
stock.) For the third quarter and nine months ended
September 30, 1995, the Corporation paid cash dividends to
shareholders totaling $363,000 and $1,050,000, respectively,
compared to $306,000 and $894,000, respectively, for the
same periods in 1994. Dividends paid per share were $.28
and $.80, respectively, for the quarter and nine months
ended September 30, 1995. The cash dividend paid to
shareholders represents 33.0% of nine months earnings.
Capital adequacy is currently defined by banking
regulatory authorities through the use of several minimum
required ratios. The following table presents capital ratios
for the Corporation and its banking subsidiary at September
30, 1995, as well as current minimum regulatory capital
requirements (unaudited). As the following table indicates,
the Corporation exceeds all minimum capital requirements.
<PAGE>
Farmers
& Current
Merchants FFSC Regulatory
Trust Company Consolidated Minimum
Tier I leverage ratio 9.75% 10.75% 6.00%
Risk-based capital ratio
Tier I 14.90% 16.21% 4.00%
Tier II 16.16% 17.47% 8.00%
<PAGE>
PART II - OTHER INFORMATION
Item 4. OTHER MATTERS
On October 5, 1995, the Corporation's Board of Directors
declared a 50% stock split issued in the form of a stock
dividend payable on December 29, 1995, to shareholders of
record on December 8, 1995. The September 30, 1995,
financial statements do not reflect the effects of the stock
dividend.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibits 11 - Computation of earnings per share.
(b) Reports on Form 8-K
There were no reports filed on Form 8-K for the quarter
ended September 30, 1995.
<PAGE>
<TABLE>
Exhibit 11
COMPUTATION OF EARNINGS PER SHARE
<CAPTION>
For the Three Months Ended September 30, 1995
Primary Primary Fully
Earnings Earnings Diluted
Per Share* Per Share* Earnings
As Reported As Adjusted Per Share
<S> <C> <C> <C>
Computation of earnings per
common share:
Shares
Weighted average shares
outstandiing 1,268,593 1,268,593 1,268,593
Equivalent shares from exercise
of dilutive common stock
equvalents - 19,461 23,119
1,268,593 1,288,054 1,291,712
Net Income $1,026,000 $1,026,000 $1,026,000
Earnings per common share
Net income $0.81 $0.80 $0.79
* Primary earnings per share "as reported" exclude the effect of the options issued under the Incentive
Stock Option Plan, the Employee Stock Purchase Plan, and the restricted stock issued under the
Long-Term Incentive Plan of 1990, as the effect of the equivalent shares on the earnings per share
calculation is less than 3%. Primary earnings per share "as adjusted" include the effect of the options
and restricted stock.
</TABLE>
<TABLE>
<CAPTION>
For the Nine Months Ended September 30, 1995
Primary Primary Fully
Earnings Earnings Diluted
Per Share* Per Share* Earnings
As Reported As Adjusted Per Share
<S> <C> <C> <C>
Computation of earnings per
common share:
Shares
Weighted average shares
outstandiing 1,283,511 1,283,511 1,283,511
Equivalent shares from exercise
of dilutive common stock
equvalents - 15,809 19,856
1,283,511 1,299,320 1,303,367
Net Income $3,169,000 $3,169,000 $3,169,000
Earnings per common share
Net income $2.47 $2.44 $2.43
* Primary earnings per share "as reported" exclude the effect of the options issued under the Incentive
Stock Option Plan, the Employee Stock Purchase Plan, and the restricted stock issued under the
Long-Term Incentive Plan of 1990, as the effect of the equivalent shares on the earnings per share
calculation is less than 3%. Primary earnings per share "as adjusted" include the effect of the options
and restricted stock.
</TABLE>
<TABLE>
<CAPTION>
For the Three Months Ended September 30, 1994
Primary Primary Fully
Earnings Earnings Diluted
Per Share* Per Share* Earnings
As Reported As Adjusted Per Share
<S> <C> <C> <C>
Computation of earnings per
common share:
Shares**
Weighted average shares
outstandiing 1,308,574 1,308,574 1,308,574
Equivalent shares from exercise
of dilutive common stock
equvalents - 20,344 24,260
1,308,574 1,328,918 1,332,834
Net Income $1,004,000 $1,004,000 $1,004,000
Earnings per common share**
Net income $0.77 $0.76 $0.75
* Primary earnings per share "as reported" exclude the effect of the options issued under the Incentive
Stock Option Plan, the Employee Stock Purchase Plan, and the restricted stock issued under the
Long-Term Incentive Plan of 1990, as the effect of the equivalent shares on the earnings per share
calculation is less than 3%. Primary earnings per share "as adjusted" include the effect of the options
and restricted stock.
** Net income per share computations have been adjusted retroactively to reflect a 10% stock dividend
paid on December 30, 1994 to shareholders of record on December 9, 1994.
</TABLE>
<TABLE>
<CAPTION>
For the Nine Months Ended September 30, 1994
Primary Primary Fully
Earnings Earnings Diluted
Per Share* Per Share* Earnings
As Reported As Adjusted Per Share
<S> <C> <C> <C>
Computation of earnings per
common share:
Shares**
Weighted average shares
outstandiing 1,305,116 1,305,116 1,305,116
Equivalent shares from exercise
of dilutive common stock
equvalents - 17,884 22,301
1,305,116 1,323,000 1,327,417
Net Income $2,759,000 $2,759,000 $2,759,000
Earnings per common share**
Net income $2.11 $2.09 $2.08
* Primary earnings per share "as reported" exclude the effect of the options issued under the Incentive
Stock Option Plan, the Employee Stock Purchase Plan, and the restricted stock issued under the
Long-Term Incentive Plan of 1990, as the effect of the equivalent shares on the earnings per share
calculation is less than 3%. Primary earnings per share "as adjusted" include the effect of the options
and restricted stock.
** Net income per share computations have been adjusted retroactively to reflect a 10% stock dividend
paid on December 30, 1994 to shareholders of record on December 9, 1994.
</TABLE>
<PAGE>
FRANKLIN FINANCIAL SERVICES CORPORATION
AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on behalf by the
undersigned thereunto duly authorized.
FRANKLIN FINANCIAL SERVICES CORPORATION
Date 11/10/95
William E. Snell, Jr.
President
Date 11/10/95
Elaine G. Meyers
Treasurer and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
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<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 8243
<INT-BEARING-DEPOSITS> 16805
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 20400
<INVESTMENTS-CARRYING> 50787
<INVESTMENTS-MARKET> 50993
<LOANS> 215754
<ALLOWANCE> (3319)
<TOTAL-ASSETS> 318819
<DEPOSITS> 262169
<SHORT-TERM> 13975
<LIABILITIES-OTHER> 2258
<LONG-TERM> 6501
<COMMON> 1354
0
0
<OTHER-SE> 32562
<TOTAL-LIABILITIES-AND-EQUITY> 318819
<INTEREST-LOAN> 15317
<INTEREST-INVEST> 2970
<INTEREST-OTHER> 452
<INTEREST-TOTAL> 18739
<INTEREST-DEPOSIT> 7531
<INTEREST-EXPENSE> 8328
<INTEREST-INCOME-NET> 10411
<LOAN-LOSSES> 212
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 8573
<INCOME-PRETAX> 4179
<INCOME-PRE-EXTRAORDINARY> 4179
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3169
<EPS-PRIMARY> 2.47
<EPS-DILUTED> 2.43
<YIELD-ACTUAL> 8.22
<LOANS-NON> 1303
<LOANS-PAST> 888
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3425
<CHARGE-OFFS> 364
<RECOVERIES> 46
<ALLOWANCE-CLOSE> 3319
<ALLOWANCE-DOMESTIC> 3319
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2296
</TABLE>
