FRANKLIN FINANCIAL CORP /TN/ - 10-Q Quarterly Report

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934


For Quarterly Period Ended		Commission File Number:
September 30, 2003		0-24133

FRANKLIN FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)


Tennessee		62-1376024

(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

230 Public Square, Franklin, Tennessee		37064

(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code (615)790-2265

Not applicable

(Former name, former address and formal fiscal year, if changed since last report)

Check whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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 o

Indicate by checkmark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934)

Yes x No o

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date:


Common Stock, No Par Value		8,382,621

Class	Outstanding at November 6, 2003

TABLE OF CONTENTS


PART I. — FINANCIAL INFORMATION
	Item I. Financial Statements
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Changes in Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Unaudited Consolidated Financial Statements
	ITEM 2 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
	ITEM 4 — CONTROLS AND PROCEDURES
PART II. OTHER INFORMATION
	Item 1. Legal Proceedings
	Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
EXHIBIT INDEX
EX-31.1 SECTION 302 CERTIFICATION OF THE CEO
EX-31.2 SECTION 302 CERTIFICATION OF THE CFO
EX-32 SECTION 906 CERTIFICATIONS OF THE CEO & CFO

PART I. — FINANCIAL INFORMATION

Item I. Financial Statements

FRANKLIN FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets

(Unaudited)


					(In thousands)
					September 30,			December 31,
					2003			2002

Assets
Cash and cash equivalents					$	21,668		$	28,061
Federal funds sold						—			18,922
Investment securities available-for-sale, at fair value						65,320			68,325
Mortgage-backed securities available-for-sale, at fair value						222,843			189,647
Investment securities held-to-maturity, fair value $3,871 at September 30, 2003 and $8,137 at December 31, 2002						3,807			8,043
Mortgage-backed securities held-to-maturity, fair value $116 at September 30, 2003 and $198 at December 31, 2002						109			185
Federal Home Loan and Federal Reserve Bank stock, restricted						4,377			4,113
Loans held for sale						5,370			19,432
Loans						536,351			538,263
Allowance for loan losses						(5,478	)		(5,761	)

				Loans, net		530,873			532,502

Premises and equipment, net						8,967			9,691
Accrued interest receivable						3,933			3,713
Mortgage servicing rights						4,999			3,749
Repossessed and foreclosed assets, net						3,833			1,555
Other assets						3,492			3,295

					$	879,591		$	891,233

Liabilities and Stockholders’ Equity
Liabilities:
	Deposits:
			Noninterest-bearing		$	78,285		$	78,507
			Interest-bearing			666,368			679,865

				Total deposits		744,653			758,372
			Repurchase agreements			200			200
			Long-term debt and other borrowings			78,040			76,382
			Accrued interest payable			1,146			1,478
			Other liabilities			721			6,253

				Total liabilities		824,760			842,685

Stockholders’ equity:
	Common stock, No par value. Authorized 500,000,000 shares; issued 8,360,462 and 7,968,022 at September 30, 2003 and December 31, 2002, respectively					15,839			12,659
	Accumulated other comprehensive (loss) gain, net of tax					(75	)		2,807
	Unearned compensation related to outstanding restricted stock awards					(96	)		(147	)
	Retained earnings					39,163			33,229

		Total stockholders’ equity				54,831			48,548

					$	879,591		$	891,233

See Notes to Unaudited Consolidated Financial Statements

FRANKLIN FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
(Unaudited and in thousands except for per share data)


			Three Months Ended				Nine Months Ended
			September 30,				September 30,

			2003		2002		2003		2002

Interest income:
	Interest and fees on loans		$	8,398	$	9,028	$	25,600	$	26,161
	Taxable securities			2,388		3,429		8,060		10,991
	Tax-exempt securities			527		263		1,178		744
	Federal funds sold			4		29		81		50

		Total interest income		11,317		12,749		34,919		37,946

Interest expense:
	Certificates of deposit over $100,000			1,120		1,320		3,638		4,280
	Other deposits			1,483		2,020		4,826		5,855
	Federal Home Loan Bank advances			847		856		2,519		2,549
	Other borrowed funds			217		268		673		870

		Total interest expense		3,667		4,464		11,656		13,554

		Net interest income		7,650		8,285		23,263		24,392
Provision for loan losses				470		760		1,875		2,210

		Net interest income after provision for loan losses		7,180		7,525		21,388		22,182
Other income:
	Service charges on deposit accounts			777		749		2,134		2,137
	Mortgage banking activities			2,273		1,144		3,814		2,780
	Other service charges, commissions and fees			12		129		343		467
	Commissions on sale of annuities and brokerage activity			30		113		78		374
	Gain on sale of mortgage loans			213		675		1,202		801
	Gain on sale of investment securities			339		428		1,348		591

		Total other income		3,644		3,238		8,919		7,150

Other expenses:
	Salaries and employee benefits			2,962		3,042		9,129		8,854
	Occupancy expense			553		531		1,596		1,579
	Mortgage banking			681		388		1,730		1,076
	Furniture and equipment			257		330		864		1,018
	Communications and supplies			178		159		470		473
	Advertising and marketing			83		102		292		307
	FDIC and regulatory assessments			77		69		231		202
	Repossessed and foreclosed assets, net			134		2		2,769		805
	Merger expenses			—		360		19		360
	Other			664		681		1,899		1,759

		Total other expenses		5,589		5,664		18,999		16,433

		Income before income taxes		5,235		5,099		11,308		12,899
Income taxes				1,830		1,833		3,932		4,517

		Net income	$	3,405	$	3,266	$	7,376	$	8,382

Net income per share – basic			$	0.41	$	0.41	$	0.89	$	1.06

Net income per share — diluted			$	0.37	$	0.37	$	0.82	$	0.95

Dividends declared per share			$	0.05775		0.055		0.17325		0.1650
Weighted average shares outstanding:
Basic				8,358		7,908		8,278		7,891
Diluted				9,130		8,844		9,014		8,785

See Notes to Unaudited Consolidated Financial Statements

FRANKLIN FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders’ Equity
(Unaudited and in thousands)


															Accumulated			Unamortized
			Common Stock												Other			Cost of
									Comprehensive			Retained			Comprehensive			Restricted
			Shares			Amount			Income (Loss)			Earnings			Income (Loss)			Stock Awards			Total

BALANCE – JANUARY 1, 2003				7,968		$	12,659					$	33,229		$	2,807		$	(147	)	$	48,548
Comprehensive Income:
	Net Income									7,376			7,376									7,376
	Other comprehensive loss, net of tax:
		Unrealized holding losses on securities (net of tax of $2,281)								(3,718	)
		Less: Reclassification adjustment for gains included in net income (net of $512 tax)								836

	Other comprehensive loss									(2,882	)					(2,882	)					(2,882	)

Comprehensive income									$	4,494

Exercise of stock options and issuance of common stock				394			2,516															2,516
Amortization of restricted stock																			51			51
Tax benefit of stock options exercised							679															679
Cancellation of restricted stock				(2	)		(15	)														(15	)
Cash dividend declared: $0.17325 per share													(1,442	)								(1,442	)

BALANCE – SEPTEMBER 30, 2003				8,360		$	15,839					$	39,163		$	(75	)	$	(96	)	$	54,831

See Notes to Unaudited Consolidated Financial Statements

FRANKLIN FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)


					(In thousands)
					Nine Months Ended
					September 30,

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