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 September 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 2,767,494 outstanding shares of the Registrant's
common stock as of November 3, 2000.
INDEX
Page
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Balance Sheets 3
as of September 30, 2000 (unaudited) and
December 31, 1999
Consolidated Statements of 4
Income for the Three and Nine Months ended
September 30, 2000 and 1999 (unaudited)
Consolidated Statements of Changes in 5
Shareholders' Equity for the Nine Months
ended September 30, 2000 and 1999 (unaudited)
Consolidated Statements of Cash 6
Flows for the Nine Months Ended September
30, 2000 and 1999 (unaudited)
Notes to Condensed Consolidated Financial 7
Statements (unaudited)
Item 2 - Management's Discussion and Analysis of 12
Financial Condition and Results of Operations
Item 3 - Qualitative and Quantitative Disclosures About
Market Risk 12
PART II - OTHER INFORMATION
SIGNATURE PAGE 28
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except per share)
(Unaudited)
September 30 December 31
2000 1999
---------- ----------
(unaudited)
<S> <C> <C>
ASSETS
Cash and due from banks $11,813 $14,956
Interest bearing deposits in other banks 1,257 161
Investment securities available for sale 132,653 129,801
Loans, net 294,625 284,084
Premises and equipment, net 6,410 5,513
Other assets 19,044 10,164
-------- --------
Total Assets $465,802 $444,679
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand (non-interest bearing) $43,240 $43,297
Savings and Interest checking 166,098 154,537
Time 136,228 135,476
-------- --------
Total Deposits 345,566 333,310
Securities sold under agreements to repurchase 37,093 27,182
Short term borrowings 9,300 12,500
Long term debt 29,788 29,695
Other liabilities 2,943 2,732
-------- --------
Total Liabilities 424,690 405,419
Shareholders' equity:
Common stock $1 par value per share, 15,000 shares authorized
with 3,045 shares issued and 2,767 and 2,792 shares
outstanding at September 30,2000 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 19,798 19,834
Retained earnings 24,749 22,627
Accumulated other comprehensive income (loss) (866) (876)
Treasury stock (Note 4) (5,353) (4,938)
Unearned compensation (261) (432)
-------- --------
Total shareholders' equity 41,112 39,260
-------- --------
Total Liabilities and Shareholders' Equity $465,802 $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 Nine Months Ended
September 30 September 30
2000 1999 2000 1999
---------------------------- ----------------------------
INTEREST INCOME
Interest on loans $6,278 $5,506 $18,359 $16,330
Interest on deposits in other banks 58 109 95 274
Interest on fed funds sold 0 1 -
Interest and dividends on investments:
Taxable interest 1,273 1,156 3,765 3,285
Tax exempt interest 522 580 1,634 1,720
Dividends 76 48 235 139
--------- --------- --------- ---------
Total interest income 8,207 7,399 24,089 21,748
--------- --------- --------- ---------
INTEREST EXPENSE
Interest on deposits 3,552 3,035 10,111 8,830
Interest on securities sold under
agreements to repurchase 630 307 1,524 847
Interest on short term borrowings 32 3 232 5
Interest on long term debt 417 460 1,239 1,309
--------- --------- --------- ---------
Total interest expense 4,631 3,805 13,106 10,991
--------- --------- --------- ---------
Net interest income 3,576 3,594 10,983 10,757
Provision for possible loan losses 180 180 573 575
--------- --------- --------- ---------
Net-interest income after provision
for possible loan losses 3,396 3,414 10,410 10,182
--------- --------- --------- ---------
NONINTEREST INCOME
Service charges on loans 130 112 327 416
Services charges on deposit accounts 244 225 715 665
Investment and trust services fees 591 590 1,776 1,780
Other service charges and fees 246 146 558 312
Securities gains 21 238 188
--------- --------- --------- ---------
Total noninterest income 1,232 1,261 3,614 3,361
--------- --------- --------- ---------
NONINTEREST EXPENSE
Salaries and benefits 1,619 1,755 5,071 4,747
Net occupancy expense 181 151 531 483
Furniture and equipment expense 148 155 444 485
Advertising 151 119 398 375
Legal & professional fees 85 101 281 269
Data processing 175 192 693 664
Pennsylvania bank shares tax 96 91 288 272
Other 565 541 1,850 1,554
--------- --------- --------- ---------
Total noninterest expense 3,020 3,105 9,556 8,849
--------- --------- --------- ---------
Income before Federal income taxes 1,608 1,570 4,468 4,694
Federal income tax expense 292 290 788 890
--------- --------- --------- ---------
Net income $1,316 $1,280 $3,680 $3,804
======= ======= ======= =======
Basic earnings per share $0.49 $0.47 $1.36 $1.39
Weighted average shares outstanding (000's) 2,709 2,727 2,715 2,728
Diluted earnings per share $0.48 $0.46 $1.33 $1.37
Weighted average shares outstanding (000's) 2,754 2,766 2,757 2,767
The accompanying notes are an integral part of these statements.
</TABLE>
<TABLE>
<CAPTION>
Consolidated Statements of Changes in Shareholders' Equity
for the nine months ended September 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, except per share Stock Capital Earnings Income (loss) Stock Compensation Total
--------------------------------------------------------------------------------------
Balance at December 31, 1998 $3,045 $19,793 $20,562 $1,783 ($4,620) ($662) $39,901
Comprehensive income:
Net income - - 3,804 - - - 3,804
Unrealized holding losses arising
during current period, net of tax - - - (2,122) - - (2,122)
Reclassification adjustment for realized
gains included in net income,
net of tax - - - 83 - - 83
Other comprehensive income,net of tax - - - 3 - - 3
--------
Total Comprehensive income 1,765
Cash dividends declared, $.90 per share - - (2,516) - - - (2,516)
Tax benefit of restricted stock
transaction - 10 - - - - 10
Common stock issued under
stock option plans - 30 - - 98 - 128
Acquisition of 11,975 shares of
treasury stock - - - - (342) - (342)
Amortization of unearned compensation - - - - - 176 176
--------------------------------------------------------------------------------------
Balance at September 30, 1999 $3,045 $19,833 $21,850 ($253) ($4,864) ($486) $39,125
====== ====== ====== ====== ====== ====== ======
Balance at December 31, 1999 $3,045 19,834 22,627 (876) (4,938) (432) $39,260
Comprehensive income:
Net income - - 3,680 - - - 3,680
Unrealized holding losses arising
during current period, net of tax - - - (164) - - (164)
Reclassification adjustment for realized
gains included in net income,
net of tax - - - 213 - - 213
Other comprehensive income, net of tax - - - -39 - - -39
---------
Total Comprehensive income 3,690
Cash dividends declared, $.56 per share - -- (1,558) - - - (1,558)
Common stock issued under
stock option plans - (20) - - 94 - 74
Forfeiture of restricted stock - (16) - - (73) 89 -
Acquisition of 25,900 shares of
treasury stock - - - - (436) - (436)
Amortization of unearned compensation - - - - - 82 82
-----------------------------------------------------------------------------------------
Balance at September 30, 2000 $3,045 $19,798 $24,749 ($866) ($5,353) ($261) $41,112
======= ======= ======= ======= ======= ======= =======
The accompanying notes are an integral part of these statements.
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
(Unaudited)
For the Nine Months Ended
September 30
<S> <C> <C>
2000 1999
------- -------
Cash flows from operating activities:
Net Income 3,680 3,804
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 556 594
Net amortization of securities premiums and discounts (59) (252)
Provision for possible loan losses 573 575
Securities gains, net (238) (188)
Mortgage loans originated for sale (6,116) (11,578)
Proceeds from sale of mortgage loans 6,159 11,572
Principal gain on sales of mortgage loans (43) 6
Gain on sale of premises and equipment - (44)
Increase in cash surrender value of life insurance (122) -
Increase in interest receivable and other assets (1,362) (926)
Increase in interest payable and other liabilities 247 179
Other, net 213 -
-------- --------
Net cash provided by operating activities 3,488 3,742
-------- --------
Cash flows from investing activities:
Proceeds from sales of investment securities available for sale 6,118 777
Proceeds from maturities of investment securities available
for sale 13,991 90,475
Purchase of investment securities available for sale (22,591) (95,851)
Net increase in loans (12,729) (15,337)
Purchase of bank owned life insurance (6,000) -
Capital expenditures (1,463) (337)
Proceeds from sales of premises and equipment - 325
-------- --------
Net cash used in investing activities (22,674) (19,948)
-------- --------
Cash flows from financing activities:
Net increase in demand deposits,
NOW accounts and savings accounts 11,505 6,481
Net increase in certificates of deposit 752 665
Net increase in other borrowings 6,804 4,436
Dividends paid (1,560) (2,516)
Common stock issued under stock option plans 74 138
Purchase of treasury shares (436) (342)
-------- --------
Net cash provided by financing activities 17,139 8,862
-------- --------
Decrease in cash and cash equivalents (2,047) (7,344)
Cash and cash equivalents as of January 1 15,117 24,409
-------- --------
Cash and cash equivalents as of September 30 13,070 17,065
======= =======
The accompanying notes are an integral part of these statements.
</TABLE>
FRANKLIN FINANCIAL SERVICES CORPORATION and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Basis of Presentation
The consolidated balance sheets as of September 30, 2000 and
December 31, 1999, the consolidated statements of income for the
three-month and nine-month periods ended September 30, 2000 and
1999, the consolidated statements of changes in shareholders'
equity for the nine-month periods ended September 30, 2000 and
1999 and the consolidated statements of cash flows for the nine-
month periods ended September 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
September 30, 2000, 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 direct and indirect subsidiaries. Farmers and
Merchants Trust Company of Chambersburg is a direct subsidiary;
Franklin Realty Services Corporation (a Farmers and Merchants'
subsidiary) is an indirect subsidiary. 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
September 30, 2000, are not necessarily indicative of the
operating results for the full year.
Earnings per share is computed based on the weighted average
number of shares outstanding during each quarter, adjusted
retroactively for stock splits and stock 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
September 30
2000 1999
---- ----
(Amounts in thousands)
Weighted average shares outstanding (basic) 2,709 2,727
Impact of common stock equivalents,
primarily stock options 45 39
Weighted average shares outstanding (diluted) 2,754 2,766
====== ======
For the nine months ended
September 30
2000 1999
---- ----
(Amounts in thousands)
Weighted average shares outstanding (basic) 2,715 2,728
Impact of common stock equivalents,
primarily stock options 42 39
Weighted average shares outstanding (diluted) 2,757 2,767
====== ======
<TABLE>
<CAPTION>
Note 2. Capital Adequacy
Quantitative measures established by regulation to ensure capital adequacy
require financial institutions to maintain minimum amounts and ratios of
total and Tier I capital to risk-weighted assets and of Tier I capital to
average assets. The Capital ratios of the Corporation and its bank
subsidiary are as follows:
As of September 30, 2000 (unaudited)
To be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
(Amounts in thousands) Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
Total Capital (to Risk Weighted Assets)
Corporation $44,698 13.41% $26,669 8.00% N/A
Bank 41,471 12.57% 26,394 8.00% $32,992 10.00%
Tier I Capital (to Risk Weighted Assets)
Corporation $40,724 12.22% $13,334 4.00% N/A
Bank 37,497 11.37% 13,197 4.00% $19,795 6.00%
Tier I Capital (to Average Assets)
Corporation $40,724 8.92% $18,253 4.00% N/A
Bank 37,497 8.26% 18,163 4.00% $22,704 5.00%
As of December 31, 1999
To be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
(Amounts in thousands) Amount Ratio Amount Ratio Amount Ratio
Total Capital (to Risk Weighted Assets)
Corporation $42,494 13.89% $24,469 8.00% N/A
Bank 38,930 12.82% 24,298 8.00% $30,373 10.00%
Tier I Capital (to Risk Weighted Assets)
Corporation $38,697 12.65% $12,235 4.00% N/A
Bank 35,133 11.57% 12,149 4.00% $18,224 6.00%
Tier I Capital (to Average Assets)
Corporation $38,697 8.72% $17,755 4.00% N/A
Bank 35,133 7.94% 17,698 4.00% $22,122 5.00%
</TABLE>
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, had 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 September 30,
2000, the amortized cost of the cap was $152,000; the fair market
value of the cap at September 30, 2000 was $150,556. A loss of
$39,000, net of tax was recorded as comprehensive income for the
nine months ended September 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 nine months ended September 30, 2000, 25,900 shares of
the Corporation's common stock were repurchased at a cost of
approximately $436,000.
NOTE 5 Bank Owned Life Insurance
On June 5, 2000, the Bank 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 Bank
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 Bank's $6.0 million investment has been recorded as an
Other Asset. At September 30, 2000, the carrying value of the
investment was $6,121,677.
NOTE 6 Recent Accounting Pronouncements
In September 2000, The Financial Accounting Standards Board issued
Statement No. 140 "Accounting for Transfers and Servicing of Assets and
Extinguishments of Liabilities." Statement No.140 replaces Statement
No. 125. This statement shall be effective for transfers and servicing of
financial assets and extinguishments of liabilities occuring after March 31,
2001. The adoption of the statement is not expected to have a significant
impact on the financial condition or results of operations of the Company.
Management's Discussion and Analysis of
Results of Operations and Financial Condition
for the Three and Nine Month Periods
Ended September 30, 2000 and 1999
PART 1, Item 2
Results of Operations
In the third quarter and nine months ended September 30,
2000, the Corporation earned $1.32 million and $3.68 million,
respectively, compared to $1.28 million and $3.80 million,
respectively, for the comparable periods ended September 30,
1999. Basic earnings per share equaled $.49 and $1.36 for the
third quarter and nine months, respectively, in 2000 versus $.47
and $1.39 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 nine months. Book value per
share equaled $14.86 at September 30, 2000, compared to $13.99 at
September 30, 1999.
The Corporation's annualized return on average assets (ROA)
and return on average equity (ROE) for the first nine months of
2000 were 1.09% and 12.48 %, respectively, compared to 1.19% and
12.92%, respectively, for the first nine months of 1999.
Net Interest Income
Net interest income recorded a decrease of $18,000 to $3.57
million for the third quarter ended September 30, 2000 compared
to $3.59 million for the third quarter ended September 30, 1999.
Net interest income for the nine months ended September 30, 2000
was up $226,000, or 2.1%, to $10.98 million from $10.76 million
for the comparable period in 1999. Net interest margin for the
nine months ended September 30, 2000 was 3.71% compared to 3.87%
for the nine months ended September 30, 1999. Factors
contributing to the tightening of the net interest margin are
rising interest rates coupled with a negative gap position, a
shifting deposit mix and the June purchase of $6.0 million in
Bank Owned Life Insurance (BOLI). The interest earned on BOLI is
recorded in other noninterest income and totaled approximately
$95,000 for the third quarter and $122,000 for the nine months
ended September 30, 2000.
Provision for Possible Loan Losses
For the third quarter and nine months ended September 30,
2000, the Corporation expensed $180,000 and $573,000,
respectively, for possible loan losses. This compares with
$180,000 and $575,000 for the third quarter and nine months,
respectively, ended September 30, 1999. The provision reflects
the level of charge-off activity for the periods.
Management believes that the allowance for loan losses is adequately
funded at September 30,2000.
Noninterest Income
Total noninterest income, excluding net securities gains,
grew $138,000, or 12.86%, to $1.2 million for the third quarter
ended September 30, 2000 compared to $1.1 million for the third
quarter ended September 30, 1999. The primary factors
contributing to this increase was an ATM access fee implemented
earlier in 2000 which produced income of $49,000 for the quarter
and interest earned on the BOLI which totaled approximately
$95,000 for the third quarter.
Total noninterest income, excluding net securities gains,
grew $203,000, or 6.40%, to $3.37 million for the nine months
ended September 30, 2000, compared to $3.17 million for
the nine months ended September 30, 1999. Factors contributing
to the increase in noninterest income for the nine months were
growth in deposit accounts adding $50,000 more service charge
income, the ATM access fee which added $87,000 and interest
earned on BOLI which totaled $122,000. A decrease in mortgage
origination activity in 2000 versus 1999 acted to partially
offset these additions to income.
Net securities gains for the third quarter ended September
30, 2000, totaled $21,000 versus $188,000 for the third quarter
ended September 30, 1999. For the nine months ended September
30, 2000, net securities gains totaled $238,000 compared to
$188,000 one year earlier and were used to offset expenses
related to other real estate owned (OREO) and loan collections in
the respective periods.
Noninterest Expense
Total noninterest expense was down $85,000, or 2.7%, to
$3.02 million for the third quarter ended September 30, 2000,
over the third quarter of 1999 and up $707,000, or 7.9%, to $9.56
million for the nine months ended September 30, 2000 over the
comparable period in 1999. For the third quarter of 2000, lower
expense related to a long-term incentive plan was the primary
contributor to the decrease in noninterest expense. For the nine
months ended September 30, 2000, salaries and benefits and other
expense were the primary contributors to the higher noninterest
expense.
Salary expense, which includes commissions and a recently
initiated pay for performance, was up approximately $230,000 to
$4.5 million for the first nine months of 2000 compared to $4.3
million for the comparable period one year earlier. Benefits
expense was up approximately $94,000 to $540,000 for the same
nine-month period compared to the nine-month period ended
September 30, 1999. Lower deferred costs for salaries and
benefits related to a smaller volume of mortgage loan
originations acted to increase salaries and benefits, $196,000,
while other benefit expense acted to partially offset this
increase.
Other expense was up $296,000, or 19.0%, to $1.8 million for
the nine months ended September 30, 2000, compared to $1.5
million for the same period in 1999. Primary contributors to the
higher expense were losses of $137,000 on the sale of nonperforming loans
held-for-sale and an increase in loan collection and OREO expense of $132,000.
Federal income tax expense for the third quarter and nine
months ended September 30, 2000, was $292,000 and $788,000,
respectively, compared to $290,000 and $890,000, respectively,
for the same periods ended September 30, 1999. The Corporation's
effective tax rate for the nine months ended September 30, 2000,
was 17.6% compared to 18.9% for the nine months ended September
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 $465.8 million at September 30, 2000, an
increase of $21.1 million, or 4.7%, from $444.7 million at
December 31,1999. Asset growth was concentrated primarily in net
loans and other assets. Net loan growth totaled $10.5 million,
or 3.71%, and was led by commercial loans with $5.7 million. New
mortgage and consumer loans combined recorded less growth than
commercial loans. Mortgage loan originations were down almost
40.0% in the first nine months of 2000 compared with the first
nine months of 1999. Other asset growth was primarily the result
of an addition of a significant foreclosed property to Other Real
Estate Owned (OREO) and the purchase of $6.0 million in Bank
Owned Life Insurance (BOLI). For more information on the BOLI
transaction refer to Note 5.
Deposit growth of $12.2 million and growth in Securities
sold under agreements to repurchase totaling $9.9 million were
the funding sources for the growth in assets over the nine month
period ended September 30, 2000. Total deposits at September 30,
2000 were $345.6 million compared to $333.3 million at December
31, 1999. Growth in deposits occurred largely in one deposit
product, the Money Management Account, with a total volume of
$78.7 million at September 30, 2000 compared with $60.5 million
at December 31, 1999. The money market rate attached to this
product makes it very attractive to customers and largely the
reason for its growth. Securities sold under agreements to
repurchase (Repos) grew to $37.1 million at September 30, 2000
from $27.2 million at December 31, 1999. Repos, as part of a
cash management product for business customers, also pay an
attractive interest rate.
Total shareholders' equity increased $1.8 million to $41.1
million at September 30, 2000 from $39.3 million at December31,
1999. Retained earnings of $2.1 million were the primary
contributors to the growth in shareholders' equity. Cash
dividends declared in the third quarter ended September 30, 2000
totaled $554,000 compared to $503,000 for the third quarter of
1999. For the nine months ended September 30, 2000, cash
dividends declared totaled $1.6 million compared to $2.5 million
for the nine months ended September 30, 1999. Cash dividends
declared for the first nine 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 September
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 September 30,
2000 were 8.92%, 12.22% and 13.41%, respectively. For more
information on capital ratios refer to Note 2 of the accompanying
financial statements.
Net charge-offs for the third quarter and nine months ended
September 30, 2000 totaled $45,000 and $457,000, respectively,
compared to $59,000 and $327,000, respectively, for the
comparable periods in 1999. For the nine months ended September
30, 2000, 55.0% of net charge-offs were from the commercial loan
portfolio versus the first nine months ended September 30, 1999,
when 93.5% of net charge-offs were from the consumer portfolio.
The increase in commercial net charge-offs for the first nine
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
0.21% at September 30, 2000, versus 0.19% at December 31, 1999.
Nonperforming loans decreased 50.0% to $1.8 million at
September 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 OREO earlier in the year. 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 of paid-off. Included in
nonperforming loans at September 30, 2000, were nonaccrual loans
totaling $824,000 and loans past due 90 days or more totaling
$1.0 million compared to $3.1 million and $451,000, respectively,
at December 31, 1999. The Corporation recorded OREO equaling
$1.4 million at September 30, 2000, versus $306,000 at December
31, 1999. Nonperforming assets represented 0.69% of total assets
at September 30, 2000 compared to 0.87% at December 31, 1999.
The allowance for possible loan losses totaled $3.97 million
at September 30, 2000, compared to $3.86 million at December 31,
1999 and represented 1.33% and 1.34% of total loans at September
30, 2000 and December 31, 1999, respectively. The coverage rate
for the allowance to nonperforming loans was approximately 2.2
times at September 30, 2000.
A series of local economic downturns occurring in the past
several months contributed to the jump in Franklin County's
jobless rate to 4% in September 2000 from 3.5% in June 2000. Two
long-time employers announced layoffs, one of these employers
affecting more than 400 workers. In September, a large national
company reneged on its decision to operate a major distribution
center in Chambersburg just days before its official opening
date, affecting 280 workers. Although new jobs have been added
in the past year that will help to offset the recent reduction in
jobs, local officials are beginning to report that many employed
workers are underemployed. The local Franklin County Area
Development Corporation is stepping up to the challenge of
bringing other jobs to Franklin County that would have the same
economic impact as the lost jobs.
The unemployment rate in neighboring Fulton and Cumberland
Counties has changed little: Fulton's unemployment rate was
3.3%, ranking 17th lowest in the State and Cumberland County,
ranking 4th lowest in the State, reported 2.3% unemployment in
September. Pennsylvania's seasonally unadjusted jobless rate in
September was 4%.
Management is cautiously optimistic that the recent events
in the local workforce will not have a significant negative
impact on the Corporation.
Liquidity
The Corporation's liquidity position (net cash, short-term
and marketable assets divided by net deposits and short-term
liabilities) was 18.8% at September 30, 2000. The Corporation
had advances outstanding totaling $39.1 million with the Federal
Home Loan Bank of Pittsburgh (FHLB) at September 30, 2000. The
Corporation has term and overnight borrowings with FHLB.
Currently, the maximum borrowing capacity for the Corporation
with FHLB is approximately $111 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 third quarter and nine months ended
September 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. Results of Votes of Security Holders
None
Item 5. Other Information
None
Item 6a. 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
November 13, 2000 /s/ William E. Snell, Jr.
---------------------------------
William E. Snell, Jr.
President and Chief Executive
Officer
November 13, 2000 /s/ Elaine G. Meyers
---------------------------------
Elaine G. Meyers
Treasurer and Chief Financial
Officer
