UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
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 of (I.R.S. Employer
incorporation or organization) Identification No.)
20 SOUTH MAIN STREET (P.O. BOX 6010), CHAMBERSBURG,PA 17201-0819
(Address of principal executive officer)
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 2,773,240 outstanding shares of the Registrant's
common stock as of August 4, 2000.
INDEX
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Balance Sheets as of
June 30, 2000 (Unaudited) and
December 31, 1999
Consolidated Statements of Income
for the Three and Six Months ended
June 30, 2000 and 1999 (unaudited)
Consolidated Statements of Changes
in Shareholders' Equity for the Six Months
ended June 30, 1999 and June 30, 2000 (unaudited)
Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 2000
and 1999 (unaudited)
Notes to Consolidated Financial
Statements (unaudited)
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations
Item 3 - Quantitative and Qualitative Disclosures about
Market Risk
PART II - OTHER INFORMATION
SIGNATURE PAGE
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Amounts in thousands, except per share)
June 30 December 31
2000 1999
---------- ----------
(unaudited)
<S> <C> <C>
ASSETS
Cash and due from banks $13,179 $14,956
Interest bearing deposits in other banks 816 161
Investment securities available for sale 118,867 129,801
Loans, net 296,254 284,084
Premises and equipment, net 6,225 5,513
Other assets 17,909 10,164
---------- ----------
Total Assets $453,250 $444,679
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand (non-interest bearing) $45,715 $43,297
Savings and Interest checking 158,760 154,537
Time 133,744 135,476
---------- ----------
Total Deposits 338,219 333,310
Securities sold under agreements to repurchase 38,262 27,182
Short term borrowings 4,000 12,500
Long term debt 29,820 29,695
Other liabilities 2,760 2,732
---------- ----------
Total Liabilities 413,061 405,419
Shareholders' equity:
Common stock $1 par value per share, 15,000 shares authorized
with 3,045 shares issued and 2,778 and 2,792 shares
outstanding at March 31,2000 and December 31, 1999 respectively. 3,045 3,045
Capital stock without par value, 5,000 shares authorized
with no shares issued or outstanding - -
Additional paid in capital 19,819 19,834
Retained earnings 23,987 22,627
Accumulated other comprehensive income (loss) (1,127) (876)
Treasury stock (Note 4) (5,182) (4,938)
Unearned compensation (353) (432)
---------- ----------
Total shareholders' equity 40,189 39,260
---------- ----------
Total Liabilities and Shareholders' Equity $453,250 $444,679
====== ======
The accompanying notes are an integral part of these statements
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except per share)
(Unaudited)
<S> <C> <C> <C> <C>
For the Three Months Ended For the Six Months Ended
June 30 June 30
2000 1999 2000 1999
---------------------------- ----------------------------
INTEREST INCOME
Interest on loans $6,166 $5,437 $12,081 $10,823
Interest on deposits in other banks 30 91 37 165
Interest on fed funds sold 1 - 1 -
Interest and dividends on investments:
Ta x able interest 1,227 1,042 2,492 2,129
Tax exempt interest 538 571 1,112 1,140
Dividends 81 45 159 91
------ --------- --------- ---------
Total interest income 8,043 7,186 15,882 14,348
------ --------- --------- ---------
INTEREST EXPENSE
Interest on deposits 3,365 2,908 6,559 5,794
Interest on securities sold under agreements
to repurchase 529 283 894 540
Interest on short term borrowings 23 0 200 1
Interest on long term debt 411 427 821 850
----- --------- --------- ---------
Total interest expense 4,328 3,618 8,474 7,185
----- --------- --------- ---------
Net interest income 3,715 3,568 7,408 7,163
Provision for possible loan losses 120 200 393 395
----- --------- --------- ---------
Net-interest income after provision
for possible loan losses 3,595 3,368 7,015 6,768
----- --------- --------- ---------
NONINTEREST INCOME
Service charges on loans 96 196 198 304
Services charges on deposit accounts 245 222 471 440
Investment and trust services fees 542 547 1,185 1,190
Other service charges and fees 198 82 312 166
Securities gains 110 217
----- --------- --------- ---------
Total noninterest income 1,191 1,047 2,383 2,100
----- --------- --------- ---------
NONINTEREST EXPENSE
Salaries and benefits 1,706 1,482 3,451 2,991
Net occupancy expense 170 163 350 331
Furniture and equipment expense 143 162 297 330
Advertising 166 181 247 257
Legal & professional fees 119 69 196 168
Data processing 234 192 517 472
Pennsylvania bank shares tax 96 91 192 181
Other 765 526 1,287 1,014
---- --------- --------- ---------
Total noninterest expense 3,399 2,866 6,537 5,744
----- --------- --------- ---------
Income before Federal income taxes 1,387 1,549 2,861 3,124
Federal income tax expense 234 304 497 600
----- --------- --------- ---------
Net income $1,153 $1,245 $2,364 $2,524
====== ========= ========= =========
Basic earnings per share $0.42 $0.46 $0.87 $0.92
Weighted average shares outstanding (000's) 2,716 2,727 2,720 2,729
Diluted earnings per share $0.42 $0.45 $0.86 $0.91
Weighted average shares outstanding (000's) 2,759 2,764 2,763 2,766
The accompanying notes are an integral part of these statements.
</TABLE>
<TABLE>
<CAPTION>
Consolidated Statements of Changes in Shareholders' Equity
for the six months ended June 30, 2000 and 1999
(Amounts in thousands, except per share data)
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Accumulated
Additional Other
Common Paid-in Retained Comprehensive Treasury Unearned
(Amounts in thousands, Stock Capital Earnings Income (loss) Stock Compensation Total
except per share) ---------------------------------------------------------------------------------
Balance at December 31, 1998 $3,045 $19,793 $20,562 $1,783 ($4,620) ($662) $39,901
Comprehensive income:
Net income - - 2,524 - - - 2,524
Unrealized holding losses arising
during current period, net of tax - - - (1,013) - - (1,013)
Reclassification adjustment for realized
gains included in net income,
net of tax - - - - - - -
-----------
Total Comprehensive income 1,511
Cash dividends declared, $.72 per share - - (2,013) - - - (2,013)
Tax benefit of restricted stock
transaction - 10 - - - - 10
Common stock issued under
stock option plans - 11 - - 29 - 40
Acquisition of 8,975 shares of
treasury stock - - - - (260 - (260)
Amortization of unearned compensation - - - - - 54 54
------- ------- ------- -------- -------- -------- --------
Balance at June 30, 1999 $3,045 $19,814 $21,073 $770 ($4,851) ($608) $39,243
====== ====== ====== ====== ====== ====== ======
Balance at December 31, 1999 $3,045 19,834 22,627 (876) (4,938) (432) $39,260
Comprehensive income:
Net income - - 2,364 - - - 2,364
Unrealized holding losses arising
during current period, net of tax - - - (439) - - (439)
Reclassification adjustment for realized
gains included in net income,
net of tax - - - 184 - - 184
Other comprehensive income,
net of tax - - - 4 - - 4
-----------
Total Comprehensive income 2,113
Cash dividends declared, $.36 per share - - (1,004) - - - (1,004)
Common stock issued under
stock option plans - (11) - - 51 - 40
Forfeiture of restricted stock - (4) - - (20) 24 -
Acquisition of 16,400 shares of
treasury stock - - - - (275) - (275)
Amortization of unearned compensation - - - - - 55 55
------- ------- ------- -------- -------- -------- --------
Balance at June 30, 2000 $3,045 $19,819 $23,987 ($1,127) ($5,182) ($353) $40,189
======= ======= ======= ======= ======= ======= =======
The accompanying notes are an integral part of these statements.
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
(Unaudited)
For the Six Months Ended
June 30
<S> <C> <C>
2000 1999
------- -------
Cash flows from operating activities:
Net Income 2,364 2,524
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 369 400
Net amortization of securities premiums and discounts (4) (235)
Provision for possible loan losses 393 395
Securities gains, net (217) -
Mortgage loans originated for sale (3,550) (8,148)
Proceeds from sale of mortgage loans 3,574 8,153
Principal gain on sales of mortgage loans (24) (5)
Increase in cash surrender value of life insurance (26) -
Increase in interest receivable and other assets (373) (483)
Increase (decrease) in interest payable and other liabilities 107 (47)
Other, net (38) 62
-------- --------
Net cash (used in) provided by operating activities 2,575 2,616
-------- --------
Cash flows from investing activities:
Proceeds from sales of investment securities available for sale 4,394 -
Proceeds from maturities of investment securities available
for sale 10,466 73,257
Purchase of investment securities available for sale (4,092) (72,100)
Net increase in loans (13,758) (10,422)
Purchase of bank owned life insurance (6,000) -
Capital Expenditures (1,082) (248)
-------- --------
Net cash used in investing activities (10,072) (9,513)
-------- --------
Cash flows from financing activities:
Net increase in demand deposits,
NOW accounts and savings accounts 6,641 8,773
Net (decrease) in certificates of deposit (1,732) (5,761)
Net increase (decrease) in other borrowings 2,705 (405)
Dividends paid (1,004) (2,013)
Common stock issued under stock option plans 40 40
Purchase of treasury shares (275) (260)
-------- --------
Net cash provided by financing activities 6,375 374
-------- --------
Decrease in cash and cash equivalents (1,122) (6,523)
Cash and cash equivalents as of January 1 15,117 24,409
-------- --------
Cash and cash equivalents as of June 30 13,995 17,886
======= =======
The accompanying notes are an integral part of these statements.
</TABLE>
FRANKLIN FINANCIAL SERVICES CORPORATION and its SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Basis of Presentation
The consolidated balance sheets as of June 30, 2000 and
December 31, 1999, the consolidated statements of income for the
three and six month periods ended June 30, 2000 and 1999, the
consolidated statements of changes in shareholders' equity for
the six months ended June 30, 1999 and June 30, 2000 and the
consolidated statements of cash flows for the six month periods
ended June 30, 2000 and 1999 have been prepared by the
Corporation, without audit where indicated. 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 June 30, 2000, and for
all periods presented have been made. Certain prior year amounts
have been reclassified to be consistent with the current year's
reporting.
The consolidated financial statements include the accounts
of Franklin Financial Services Corporation (the Corporation), and
its wholly-owned subsidiary, Farmers and Merchants Trust Company
of Chambersburg. 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 consolidated financial
statements be read in conjunction with the audited financial
statements and notes thereto included in the Corporation's 1999
Annual Report. The results of operations for the period ended
June 30, 2000, 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 flows information are
as follows:
Cash paid for six months ended June 30: 2000 1999
---- ----
Interest paid on deposits and other borrowed funds $8,302,000 $7,213,000
Income taxes paid $ 679,000 $ 732,000
Earnings per share is computed based on the weighted average
number of shares outstanding during each quarter, adjusted
retroactively for stock splits and dividends. A reconciliation
of the weighted average shares outstanding used to calculate
basic earnings per share and diluted earnings per share follows:
For the quarter ended
June 30
-------
2000 1999
---- ----
(Amounts in thousands)
Weighted average shares outstanding (basic) 2,716 2,727
Impact of common stock equivalents,
primarily stock options 42 37
----- -----
Weighted average shares outstanding (diluted) 2,758 2,764
====== ======
For the six months ended
June 30
-------
2000 1999
---- ----
(Amounts in thousands)
Weighted average shares outstanding (basic) 2,720 2,729
Impact of common stock equivalents,
primarily stock options 43 37
Weighted average shares outstanding (diluted) 2,763 2,766
====== ======
NOTE 3 Interest Rate Cap
On September 27, 1999, the Corporation entered into an
interest rate cap transaction as a vehicle to partially hedge net
interest income against the effect of rising market interest
rates. The transaction was effective September 29, 1999, has a
notional amount of $5,000,000, a term of five years, a strike
rate of 6.00% and is indexed to 3-month LIBOR. At June 30, 2000,
the cost of the cap was $161,500 and the fair value was $225,503.
A gain of $4,242, net of tax, was recorded as other comprehensive
income for the six months ended June 30, 2000.
NOTE 4 - Stock Repurchase Program
On March 2, 2000, the Board of Directors authorized the
repurchase of up to 75,000 shares of the Corporation's $1.00 par
value common stock. The repurchases are authorized to be made
from time to time during the next 12 months in open market or
privately negotiated transactions. The repurchased shares will
be held as treasury shares available for issuance in connection
with future stock dividends and stock splits, employee benefit
plans, executive compensation plans, and for issuance under the
Dividend Reinvestment Plan and other corporate purposes. During
the first six months ended June 30, 2000, 16,400 shares of the
Corporation's common stock were repurchased at a cost of
approximately $275,000.
NOTE 5 Bank Owned Life Insurance
On June 5, 2000, the Corporation purchased Bank Owned Life
Insurance (BOLI) in the amount of $6.0 million that will yield a
return of approximately 6.4%, or tax equivalized, 9.8%. The
Corporation paid a one-time single premium of $6.0 million, split
between two insurance companies, to purchase approximately $19
million in death benefit coverage on the lives of a selected
group of employees.
The Corporation's $6.0 million investment has been recorded
as an Other Asset. At June 30, 2000, the carrying value of the
investment was $6,026,200.
Management's Discussion and Analysis of
Results of Operations and Financial Condition
for the Three and Six Month Periods
Ended June 30, 2000 and 1999
Part 1, Item 2
Results of Operations
In the second quarter and six months ended June 30, 2000,
the Corporation earned $1.15 million and $2.36 million,
respectively, compared to $1.24 million and $2.52 million,
respectively, for the comparable periods ended June 30, 1999.
Basic earning per share equaled $.42 and $.87, respectively, for
the second quarter and six months in 2000 versus $.46 and $.92,
respectively, for the same periods in 1999. Lower fee income and
deferred costs from loan originations, a tighter net interest
margin, higher salary and benefit costs and higher loan
collection expense are the primary factors contributing to the
lower reported net income for the second quarter and six months.
Book value per share equaled $14.47 at June 30, 2000, compared to
$14.04 at June 30, 1999.
The Corporation's annualized return on average assets (ROA)
and return on average equity (ROE) for the first six months of
2000 were 1.06% and 12.17%, respectively, compared to 1.20% and
12.87%, respectively, for the first six months of 1999. A six
percent growth in assets over the six month period ended June 30,
2000, versus the six month period ended June 30, 1999, coupled
with a six percent decline in net income for the six months ended
June 30, 2000, produced the lower ROA. The decline in earnings
in the first six months of 2000 compared to the first six months
of 1999 was the primary driver behind the lower ROE for the
period.
Net interest income recorded an increase of $147,000, or
4.1%, to $3.715 million for the second quarter ended June 30,
2000, compared to $3.568 million for the second quarter ended
June 30, 1999. For the six months ended June 30, 2000, net
interest income was up $244,000, or 3.4%, to $7.407 million from
$7.163 million at June 30, 1999. Although net interest income
increased in absolute dollars due to balance sheet growth, the
Corporation's net interest spread and net interest margin have
experience compression primarily due to the current rising
interest rate environment. Interest spread and net interest
margin for the six-month period ended June 30, 2000 was 3.10% and
3.79%, respectively, compared with 3.27% and 3.90%, respectively,
for the same period ended June 30, 1999.
For the second quarter and six months, the Corporation
expensed $120,000 and $393,000, respectively, for possible loan
losses. This compares with $200,000 and $395,000 for the second
quarter and six months, respectively, ended June 30, 1999. A
loss on the sale of nonperforming loans in the second quarter
ended June 30, 2000 was offset by a reduction in provision for
the quarter.
Total noninterest income, excluding securities gains, was up
$34,000, or 3.2%, to $1.081 million and $66,000, or 3.1%, to
$2.166 million for the second quarter and six months,
respectively, ended June 30, 2000. Revenues from fee income
related to lending activities, primarily mortgage banking
activities, were down $100,000 for the second quarter and
$106,000 for the six months ended June 30, 2000. More than
offsetting the decrease in lending activity fees was an increase
in Other service charges and fees of $116,000 for the second
quarter and $146,000 for the six months ended June 30, 2000.
Contributing to this increase was a newly implemented ATM access
fee, $37,000, the sale of the Merchant Card portfolio, $34,000,
and income from the purchase of Bank Owned Life Insurance (BOLI),
$26,000. All of these transactions occurred in the second
quarter of 2000.
The Corporation realized $110,000 and $217,000 in securities
gains for the second quarter and six months, respectively, ended
June 30, 2000. There were no securities gains realized in the
second quarter or six months ended June 30, 1999. All realized
gains in 2000 were produced from the Corporation's available-for-
sale bank equities portfolio and were used to offset expenses
related to other real estate owned (ORE) and loan collections in
the respective periods.
Total noninterest expense was up $533,000, or 18.6% to
$3.399 million for the second quarter ended June 30, 2000, over
the second quarter of 1999 and up $792,000, or 13.8%, to $6.536
million for the six months ended June 30, 2000, over the
comparable period in 1999. For the second quarter and six months
ended June 30, 2000, the two categories that were the primary
contributors to the increase in noninterest expense were salaries
and benefits and other expense.
Salary expense, which includes commissions and a recently
initiated pay for performance program, was up $132,149, or 9.55% for
the second quarter and $258,141, or 9.29%, for the six months. An
increase in full-time-equivalent (FTE) employees to 187 at June
30, 2000 from 183 at June 30, 1999 as well as a change to pay for
performance in the second half of 1999 served to push salary
expense up for the quarter and six months. The increase in FTEs
is largely attributable to strategic initiatives in the
Cumberland County markets. Benefits expense was up $27,439, or
9.34 %, to $323,910 for the second quarter and $71,284, or
11.94%, to $668,174 for the six months ended June 30, 2000.
Higher health insurance costs, a smaller credit for pension
expense and higher payroll taxes are the primary expense
categories driving the increase. Lower deferred costs for
salaries and benefits related to a smaller volume of loan
originations, primarily mortgage originations, also acted to
increase total salaries and benefits. The increase related to
lower deferred costs for the second quarter of 2000 was
approximately $62,000 and for the first six months of 2000
approximately $130,000 when compared to the second quarter and
six months ended June 30, 1999.
Other expense was up $239,000, or 45.4%, to $765,000 for the
second quarter and up $272,000, or 26.8%, to $1.286 million for
the six months ended June 30, 2000 compared to the same periods
ended June 30, 1999. The primary contributors to the increase in
other expense for the second quarter and six months ended June
30, 2000, were losses on the sale of nonperforming loans,
$137,000, and higher loan collection expense $100,000, related to
ORE.
Federal income tax expense for the second quarter and six
months ended June 30, 2000, was $234,000 and $497,000,
respectively, compared to $304,000 and $600,000 for the same
periods ended June 30, 1999. The Corporation's effective tax
rate for the second quarter and six months ended June 30, 2000,
was 16.9% and 17.4%, respectively, compared to 19.6% and 19.2%,
respectively, for the second quarter and six months ended June
30, 1999. The decrease in the effective tax rate period over
period is primarily due to an increase in tax-free income
relative to pretax net income.
Financial Condition
Total assets were $453.2 million at June 30, 2000, an
increase of $8.571 million, or 1.9%, from $444.7 million at
December 31, 1999. Loan growth for the first six months of 2000
has been moderate, increasing $12.2 million, or 4.2%, to $300.1
million at June 30, 2000, from $287.9 at December 31, 1999. The
Corporation has seen a 40% decline in its mortgage loan
originations during the first six months of 2000 compared to the
first six months of 1999. Commercial and consumer loans, up 6.2%
and 6.0%, respectively, during the same period have helped to
partially offset this decline. Premises and equipment recorded an
increase of $712,000, or 12.9% to $6.2 million at June 30, 2000
from $5.5 million at December 31, 1999, largely due to the
purchase of two parcels of land in two new markets. An ATM was
installed on the one parcel and was operational on July 27; a
community office will be built on the other parcel with an
expected completion date of October 31, 2000. In June, the
Corporation purchased $6.0 million of Bank Owned Life Insurance
(BOLI) which is recorded in Other Assets and accounts for the
substantial increase in this category. For more information on
the BOLI purchase see Note 6.
Funding the growth in assets from December 31, 1999, was
deposit growth of $4.9 million, or 1.5%, and an increase of $11.2
million, or 40.8%, in securities sold under agreements to
repurchase. Deposits and securities sold under agreements to
repurchase totaled $338.2 million and $38.3 million, respectively
at June 30, 2000.
Total shareholders' equity increased $929,000, or 2.4%, to
$40.2 million at June 30, 2000, from $39.2 million at December
31, 1999. The net effect of an increase in retained earnings
offset by increased unrealized security losses and stock
repurchase transactions during the six months accounted for the
majority of the change in shareholders' equity. Cash dividends
declared in the second quarter ended June 30, 2000, totaled
$501,000 compared to $447,000 in the second quarter of 1999. For
the six months ended June 30, 2000, cash dividends declared
totaled $1.0 million versus $2.0 million for the same period in
1999. Cash dividends declared for the first six months of 1999
included a special cash dividend of $.40 per share.
Capital adequacy is currently defined by regulatory agencies
through the use of several minimum required ratios. At June 30,
2000, the Corporation was well capitalized as defined by the
banking regulatory agencies. The Corporation's leverage ratio,
Tier I and Tier II risk-based capital ratios at June 30, 2000
were 8.87%, 12.44% and 13.64%, respectively. For more
information on capital ratios refer to Note 2 of the accompanying
financial statements.
Net charge-offs for the second quarter and six months ended
June 30, 2000, totaled $307,000 and $412,000, respectively,
compared to $146,000 and $267,000 for the same periods ended
June 30, 1999. For the six months ended June 30, 2000, 60% of
net charge-offs were from the commercial portfolio versus the
first six months ended June 30, 1999, when 93.5% of the net
charge-offs were from the consumer portfolio. The increase in
commercial net charge-offs for the first six months of 2000 is
related primarily to one large credit and is not indicative of
the quality of the entire commercial portfolio. The annualized
ratio of net charge-offs to average loans was .28% at June 30,
2000, versus .19% at December 31, 1999.
Nonperforming loans were down $2.5 million to $1.1 million
at June 30, 2000 from $3.6 million at December 31, 1999.
Contributing to the decrease in nonperforming loans was a
transfer of $1.2 million to ORE. In addition, $600,000 in
nonperforming loans were sold to a third party, $203,000 was
transferred to other repossessed assets and the remainder either
charged-off or paid-off. Included in nonperforming loans at June
30, 2000, were nonaccrual loans totaling $586,000 and loans past
due 90 days or more totaling $520,000 compared to $3.1 million
and $451,000, respectively, at December 31, 1999. The
Corporation recorded ORE equaling $1.5 million at June 30, 2000
versus $306,000 at December 31, 1999. Nonperforming assets
represented .57% of total assets at June 30, 2000 compared to
.87% at December 31, 1999.
The allowance for possible loan losses totaled $3.8 million
at June 30, 2000, compared to $3.9 million at December 31, 1999
and represented 1.28% and 1.34% of total loans at June 30, 2000
and December 31, 1999, respectively. The allowance provided
coverage for nonperforming loans at a rate of 1.34 times at June
30, 2000.
The local economy remains basically unchanged from year-end
1999. At 3.5%, the unemployment rate is near the 11-year low of
3.0% for the Franklin County area.
Liquidity
The Corporation's liquidity position (net cash, short-term
and marketable assets divided by net deposits and short-term
liabilities) was 20.2% at June 30, 2000. The Corporation had
advances outstanding totaling $33.8 million with the Federal Home
Loan Bank of Pittsburgh (FHLB) at June 30, 2000. The Corporation
has term and overnight borrowings with FHLB. Currently, the
maximum borrowing capacity for the Corporation with FHLB is
approximately $108.7 million. Management believes that liquidity
is adequate to meet the borrowing and deposit needs of its
customers.
Part I, Item 3
Qualitative and Quantitative Disclosures about Market Risk
There were no material changes in the Corporation's exposure
to market risk during the second quarter and six months ended
June 30, 2000. For more information on market rate risk refer to
the Corporation's 1999 10-K.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults by the Company on its Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
The 2000 Annual Meeting of Shareholders (the "Meeting") of
the Corporation was held on April 25, 2000. Notice of the
Meeting was mailed to shareholders on or about March 28, 2000,
together with proxy solicitation materials prepared in accordance
with Section 14(a) of the Securities Exchange Act of 1934, as
amended, and the regulations promulgated thereunder.
The Meeting was held for the following purpose:
1. Election of Directors. To elect three Class A
directors to hold office for 3 years from the date of
election and until their successors are elected and
qualified.
There was no solicitation in opposition to the nominees of
the Board of Directors for election to the Board. All nominees
of the Board of Directors were elected. The number of votes cast
for as well as the number of votes withheld for each of the
nominees for election to the Board of Directors, were as follows:
Votes
Nominee Votes For Withheld
------- --------- --------
Donald A. Fry 2,096,326.7671 8,859.3422
H. Huber McCleary 2,097,101.3438 8,084.7655
Charles M. Sioberg 2,092,292.5621 12,893.5472
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
There were no reports filed on Form 8-K for the period.
FRANKLIN FINANCIAL SERVICES CORPORATION
and SUBSIDIARY
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.
Franklin Financial Services Corporation
August 11, 2000 /s/ William E. Snell, Jr.
-------------------------
William E. Snell Jr.
President and Chief Executive Officer
August 11, 2000 /s/ Elaine G. Meyers
--------------------
Elaine G. Meyers
Treasurer and Chief Financial Officer
