10-Q 1 k79107e10vq.txt QUARTERLY REPORT FOR PERIOD ENED JUNE 30, 2003 U.S. 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 JUNE 30, 2003 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____________ TO ____________. COMMISSION FILE NO. 0-50078 FRANKLIN BANCORP, INC. (Exact name of registrant as specified in its charter) UNITED STATES 38-2606280 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification Number) 24725 WEST TWELVE MILE ROAD SOUTHFIELD, MICHIGAN 48034 (Address of principal executive office) (Zip Code) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (248) 358-4710 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 twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such requirement for the past 90 days. Yes x No Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes No X --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. CLASS OUTSTANDING AT AUGUST 12, 2003 ----- ------------------------------ Common stock, $1.00 par value. 3,702,139 FRANKLIN BANCORP, INC. TABLE OF CONTENTS

-2- [GRANT THORNTON LOGO] Report of Independent Certified Public Accountant Board of Directors and Stockholders Franklin Bancorp, Inc. We have reviewed the accompanying consolidated statements of financial condition of Franklin Bancorp, Inc. and subsidiary as of June 30, 2003, and the related consolidated statements of operations, comprehensive (loss) income, shareholders' equity and cash flows for the six-month and three-month periods ended June 30 and March 31, 2003 and 2002, respectively. These interim financial statements are the responsibility of the company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the accompanying interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America. /S/ GRANT THORNTON LLP Southfield, Michigan August 13, 2003 -3- PART 1. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Franklin Bancorp, Inc. Consolidated Statements of Financial Condition

See Notes to Consolidated Financial Statements -4- Consolidated Statements of Operations (unaudited)

-5- FRANKLIN BANCORP, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS) (unaudited)

See Notes to Consolidated Financial Statements. -6- Franklin Bancorp, Inc. Consolidated Statements of Shareholders' Equity (unaudited)

See Notes to Consolidated Financial Statements. -7- Consolidated Statements of Cash Flows (unaudited)

See Notes to Consolidated Financial Statements. -8- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. Basis of Presentation and Significant Accounting Policies: The accompanying consolidated financial statements of Franklin Bancorp, Inc. ("Franklin", the "Corporation" or the "Bancorp") have been prepared in accordance with the instructions for Form 10-Q. Accordingly, they do not include all information and footnotes necessary for a fair presentation of consolidated financial condition, results of operations and cash flows in conformity with generally accepted accounting principles. The statements do, however, include all adjustments (consisting of normal recurring accruals) which management considers necessary for a fair presentation of the interim periods. This Form 10-Q is written with the presumption that the users of the interim financial statements have read or have access to the Bancorp's Annual Report on Form 10-K, which contains the latest audited financial statements and notes thereto, together with Management's Discussion and Analysis of Financial Condition and Results of Operations as of December 31, 2002 and for the year then ended. Therefore, only material changes in financial condition and results of operations are discussed in the remainder of Part I. The results of operations for the three month or the six month period ended June 30, 2003 are not necessarily indicative of the results to be expected for the year ended December 31, 2003. The Consolidated Statement of Financial Condition as of December 31, 2002 has been derived from the audited Consolidated Statement of Financial Condition as of that date. Stock Options At June 30, 2003, the Corporation had two stock-based employee compensation plans and two stock based director compensation plans. The Corporation accounts for those plans under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. No stock-based employee compensation is reflected in net income, as all options granted under those plans have an exercise price greater than or equal to the market value of the underlying common stock on the date of grant. The Corporation granted options on 30,295 shares during the quarter ended June 30, 2003. The effect on net income (loss) and (loss) earnings per share if the Corporation had applied the fair value recognition provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation, as amended by FASB Statement No. 148, to stock-based employee compensation was less than $.01 in each of the periods presented. Recent Accounting Pronouncements In April 2003 the FASB issued Statement of Financial Accounting Standards (SFAS) No. 149 which amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. This statement clarifies under what circumstances a contract with an initial net investment meets the characteristic of a derivative discussed in paragraph 6(b) of SFAS No. 133, clarifies when a derivative contains a financing component, amends the definition of an underlying to conform to language used in FASB Interpretation No. 45, and amends certain other existing pronouncements. This statement is effective for contracts entered into or modified after June 30, 2003. It is not expected that the provisions of Statement No. 149 will have a material impact on the financial position or results of operations of the Corporation. In May 2003 the FASB issued SFAS No. 150, which establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). This statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. It is to be implemented by reporting the cumulative effect of a change in accounting principle for financial instruments created before the issuance date of the Statement and still existing at the beginning of the interim period of adoption. It is not expected that provisions of Statement No. 150 will have a material impact on the financial position or results of operations of the Corporation. Franklin Bancorp, Inc. Notes to Consolidated Financial Statements (unaudited) Note 2. Earnings Per Share: Net income/(loss) per share is computed based on the weighted-average number of shares outstanding, including the dilutive effect of stock options, as follows:

-10- Note 3. Loans, Nonperforming Assets and Allowance for Loan Losses: The following table summarizes changes in the allowance for loan and lease losses arising from loans being charged off, recoveries on loans which had previously been charged off, and the provision for loan losses.

-11- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Note 3. Loans, Nonperforming Assets and Allowance for Loan Losses: The following table summarizes the non-performing loans and assets arising from loans being placed on non-accrual status, loans being deemed to be non-performing and assets that the Bank currently owns: NONPERFORMING ASSETS ANALYSIS

The carrying values of impaired loans are periodically adjusted to reflect cash payments, revised estimates of future cash flows and increases in the present value of expected cash flows due to the passage of time. Cash payments are reported as reductions in carrying value, while increases or decreases due to changes in estimates of future payments and due to the passage of time are reported as a valuation allowance and in gain or loss on sale of real estate owned. -12- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Except for the historical information contained herein, the matters discussed in this report may be deemed to be forward-looking statements that involve risk and uncertainties. Words or phrases "will likely result", "are expected to", "will continue", "is anticipated", "estimate", "project" or similar expressions are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Factors which could cause results to differ include those listed below and other risks detailed from time to time in the Bancorp's Securities Exchange Act of 1934 reports, including the report on Form 10-K for the year ended December 31, 2002. These forward-looking statements represent the Bancorp's judgment as of the date of this report. The Bancorp disclaims, however, any intent or obligation to update these forward-looking statements. Future factors include, but are not limited to, changes in interest rates and interest rate relationships; demand for products and services; the degree of competition by traditional and non-traditional competitors; changes in banking regulations; changes in tax laws; changes in prices, levies and assessments; the impact of technological advances and issues; governmental and regulatory policy changes; the outcomes of pending and future litigation and contingencies; trends in customer behavior as well as their ability to repay loans; and changes in the national economy. These are representative of the future factors that could cause a difference between an ultimate actual outcome and a preceding forward-looking statement. COMPARISON OF SIX MONTHS ENDED JUNE 30, 2003 TO SIX MONTHS ENDED JUNE 30, 2002: NET INTEREST INCOME Interest income decreased by $2.8 million, along with interest expense which decreased by $.8 million, resulting in a decrease in net interest income of $2.0 million or 15.4%. The net interest margin was 4.67% and 5.30% for the six months ended June 30, 2003 and 2002, respectively. Interest income earned on the loan portfolio decreased $1.4 million or 11.1% compared to the year earlier period. The largest decrease in interest income came from securities and other investments, with a decrease of $1.5 million. The decrease in interest income was primarily the result of the overall decrease in interest rates over the last twelve months and the decline in average earning asset balances of $20.3 million or 2.6%. Average balances for outstanding loans decreased by $9.2 million or 2.8% when comparing the six months ended June 30, 2003 to June 30, 2002. Average balances for securities decreased $25.3 million or 22.5%, for the six months ended June 30, 2003 compared to June 30, 2002. Offsetting some of these decreases was an increase in the average balance of $12.8 million in the Federal Home Loan Bank time deposit account, a short-term investment vehicle. Interest expense is comprised of interest on deposits and interest on other borrowings, primarily Federal Home Loan Bank advances. Interest on deposits decreased $737,995 or 29.6% when comparing the six months ended June 30, 2003 to June 30, 2002. Both the decline in market interest rates and the shift of deposit balances to non-interest bearing accounts caused the reduction. The Federal Home Loan Bank advances carried fixed rates during these periods. The interest on other borrowings declined $62,481 or 0.04% for the prior comparative period. -13- The following schedules present the daily average amount outstanding for each major category of interest earning assets, Non-earning assets, interest bearing liabilities, and non-interest bearing liabilities. This schedule also presents an analysis of interest income and interest expense for the periods indicated. All interest income is reported on a fully taxable equivalent (FTE) basis using a 34% tax rate. Nonaccruing loans, for the purpose of the following computations, are included in the average loan amounts outstanding.

-14- NON INTEREST INCOME Total non interest income increased by $118,700 or 4.36% for the six months ended June 30, 2003 when compared to the same period ended 2002. There was a decrease in deposit account service charges of $53,312 or 3.38% off set by securities gains which increased by $135,103 to $455,511 or 42.2% when comparing the six months ended June 30, 2003 to the same period ended June 30, 2002. These changes can be attributed to competitive pricing and current market forces regarding deposit account service charges along with the Bank's conservative approach to securities trading. If the local economy begins to improve, the Bank will expect to see an increase in deposit account service charges with expected increases in the average balances of business checking accounts. Operating fee income (defined as non interest income excluding gains or losses on sales of securities, loans, real estate owned and repossessed assets) decreased slightly by $118,005 for the six months ended June 30, 2003 compared to the same period in 2002. NON INTEREST EXPENSE Non-interest expenses were $12.8 million for the six months ended June 30, 2003 compared to $9.4 million for the same period ended June 30, 2002. Increases in severance compensation and in expenses associated with the new Troy branch accounted for $2.8 million and $361,000, respectively, of the $3.4 million increase. INCOME TAXES The income tax benefit for the first half of 2003 totaled $21,797 compared to an income tax provision of $1,397,499 for the same period a year ago. The effective tax rate was 30.0% for the first six months of 2003, compared to 32.5% for the same quarter of 2002. FINANCIAL CONDITION Total assets were $536.2 million at June 30, 2003 compared to $542.5 million at December 31, 2002. When comparing average balances for the six month periods ending June 30, 2003 and 2002, cash and cash equivalents increased $13.8 million and represented 8.4% and 5.7%, respectively, of total assets. However, cash and cash equivalents increased by $46.2 million from December 31, 2002 to June 30, 2003. The majority of these funds are invested on a short term basis in the Federal Home Loan Bank time deposit account. Cash and cash equivalents have increased because both investment and lending opportunities have been unattractive or unavailable during this six month period. INVESTMENTS Investment balances decreased $25.4 million or 17.0% from December 31, 2002 to June 30, 2003 as securities matured throughout the period. The Bank continues to maintain a conservative approach to its investment acquisitions. Market conditions during the first half of 2003 have provided limited opportunities to invest for a term and at a yield that management considered attractive. LOANS Net loan balances decreased $24.0 million or 7.3% from December 31, 2002 to June 30, 2003. Commercial real estate and commercial loans were the categories showing growth. Franklin continues to aggressively manage its credit risk during the current sluggish economic period. As a result, total non-performing assets declined to $6.1 million at June 30, 2003, down from $7.3 million at December 31, 2002 and $8.7 million at March 31, 2003. ALLOWANCE FOR LOAN LOSSES At June 30, 2003, Franklin's allowance for loan and lease losses (ALLL) as a percentage of loans outstanding was 1.64% compared to 1.50% at June 30, 2002. Franklin increased its provision for the six months ended June 30, 2003 to $1,251,306 compared to $975,000 for the six months ended June 30, 2002. During the first half of 2003, Franklin had net charge-offs of $2.1 million compared to $872,000 for the first six months of 2002. The majority of the increase in net charge-offs was related to two commercial loan relationships which were charged-off during the six months ended June 30, 2003. Management expects to see a decline in the rate of net charge off activity within these loan portfolios during the remainder of 2003 if the economy rebounds. -15- Management reviews the adequacy of the ALLL quarterly and establishes appropriate levels of allowance based on various factors, including historical charge-off levels, evaluation of impaired loans in accordance with the provision of FASB Statement No. 114, and its view of how economic conditions may affect the ability of borrowers to repay their loans. Management believes the current level of ALLL is adequate. Any adjustments, if necessary, are reported in the allowance for loan losses and the related provision for loan losses in the period in which they become known. LIQUIDITY Franklin competes aggressively for business demand and money market deposits in southeastern Michigan; which comprise Franklin's primary liquidity source. Franklin's principal sources of funds for its lending and investment activities have consisted of deposits, principal repayment on loans, and, to a lesser extent, Federal Home Loan Bank advances and repurchase agreements. Principal uses of funds for Franklin include the origination of loans and the repayment of maturing deposit accounts and other borrowings. The Bank anticipates it will have sufficient funds available to meet current loan commitments, as well as its other future liquidity needs. The liquid asset level increased during the first six months of 2003 by $46.2 million as a result of the decrease in loans and investments by a greater amount than the decrease in deposits. DEPOSITS AND BORROWED FUNDS During the six month period ended June 30, 2003, Franklin experienced a decrease in total deposits of $4.9 million. Commercial demand deposits were the principal source of growth in deposits with an increase of $9.5 million, which was more than offset by the decrease in time deposits of $13.9 million and a decrease in the money fund accounts of $1.5 million. REGULATORY CAPITAL The following table compares the Bank's regulatory capital requirements and ratios at June 30, 2003 and December 31, 2002.

The increase in the Tier 1 Leverage Ratio from December 31, 2002 to June 30, 2003 was the result of decreases in risk weighted assets. The Bank remains well capitalized with a Tier 1 Leverage ratio of 8.09% at June 30, 2003. The changes in Tier 1 and Total Risk-based Ratios are a reduction of 5 basis points and an decrease of 6 basis points, respectively, as a result of a decrease in regulatory equity capital of $256,000, and a decrease in total regulatory capital of $277,000 when compared to December 31, 2002. This decrease in total regulatory capital at June 30, 2003 is due to the net loss in the first six months of 2003, dividends paid and a reduction in the allowance for loan losses from the December 31, 2002 balance. -16- COMPARISON OF THREE MONTHS ENDED JUNE 30, 2003 TO THREE MONTHS ENDED JUNE 30, 2002 The trends and comparisons for the quarters ended June 30, 2003 and 2002 are substantially similar to those of the six month periods ended on the same respective dates. This portion of Management's Discussion and Analysis of Financial Condition and Results of Operations is written with the presumption that the reader has read the preceding. Therefore, only material changes in financial condition and results of operations are discussed in the remainder of Item 2. NET INTEREST INCOME The decrease in net interest income of $1.1 million in the second quarter of 2003 compared to the second quarter of 2002 is a result of declining interest rates and a shift in earning asset composition from loans and securities to short term interest bearing deposits. Interest expense on other borrowings increased from 36% to 48% of total interest expense as the balance of the fixed rate borrowings from the Federal Home Loan Bank remained stable while the rates and balances of interest bearing deposits declined, which resulted in less of a decline in interest expense than interest income. This resulted in a drop in the Bank's net interest income when comparing the quarters. Therefore, a positive gap position in a declining rate environment will generally result in reduced net interest income unless volume increases are able to compensate. PROVISION FOR LOAN LOSSES The provision for loan losses of $625,653 in the second quarter of 2003 was $125,653 greater than the provision in 2002's second quarter. The provision for loan losses will vary from quarter to quarter as the changes in the assessment of the adequacy of the allowance for loan losses and net charge offs during the period will determine the amount of provision required. NON INTEREST INCOME Non interest income in the second quarter of 2003 had no gains on the sale of securities, while the second quarter of 2002 included $320,408 of gains on the sale of securities. NON INTEREST EXPENSE Non interest expense increased by $332,792 in the second quarter of 2003 compared to the same quarter in 2002. The expenses related to the new Troy branch of approximately $227,000 and outside service expenses of approximately $281,005 were the primary causes of the increase. Severance expenses were $84,843 higher in the second quarter of 2003 than in the second quarter of 2002. -17- ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Net interest income, as the predominant source of revenue, is closely monitored, measured and protected through active asset liability management. Combinations of risk measurement tools are used to accomplish this including static analysis, "shock" analysis, repricing schedules and duration analysis. In the normal course of business, assets and liabilities are not perfectly matched, relative to their maturities and hence, repricing opportunities. The natural difference between assets and repricing liabilities is the "gap", or exposure to a potentially adverse impact on net interest income. Management also monitors the impact on the market value of equity and the impact on net interest income at risk in its interest rate shock analysis. When comparing the June 30, 2003 and December 31, 2002 12 month gap model, the increase in the positive gap can be attributed primarily to a decrease in loans and investment securities along with an increase in time deposits with the Federal Home Loan Bank, which have a shorter duration. That increase in assets that reprice in 12 months or less is compounded by a decrease in time deposits and an increase in commercial demand deposits. Management also modified its gap model to distribute the repricing points for the Bank's money market deposit accounts. This distribution moved $50 million from the 12 month or less repricing bucket into the 1 to 5 year repricing buckets. Management believes that this modification to its gap model more accurately reflects the reaction to interest rate fluctuations relative to non-maturity deposits. Management expects to remain in a positive gap position throughout the remainder of 2003 given the current repricing structure of the Bank's balance sheet. The Bank has noted a decrease in its net interest margin resulting from the current decline in short term market rates. During the second quarter of 2003, the Federal Reserve lowered the targeted fed funds rate from the prior quarter. In the short term, the Bank expects a tightening of its net interest margin as a result of the reduction in the yield on interest bearing assets decreasing more rapidly than interest bearing liabilities; however if interest rate rise, a significant portion of the earning assets should reprice upward while the growth in noninterest bearing deposits will tend to hold down funding costs, which will result in improvement in the margin. In determining interest rate risk exposure, numerous additional factors and assumptions are built into the analysis. Prepayments, competition, economic forecast, yield curve assumptions are all factors that can affect net interest income. Management builds in assumptions based on both historical experience and predictions to create a more accurate assessment of the true portfolio position. The goal is to achieve proper balance and alignment between assets and liabilities not only to protect net interest income but also fully capitalize on the effect of anticipated future fluctuations. ITEM 4. CONTROLS AND PROCEDURES a. The term "disclosure controls and procedures" is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the "Exchange Act"). These rules refer to the controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files under the Exchange Act is recorded, processed, summarized and reported within required time periods. Our Chief Executive Officer and our Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by the report (the "Evaluation Date"), and have concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective in providing them with material information relating to the Corporation known to others within the Corporation which is required to be included in our periodic reports filed under the Exchange Act. b. There have been no changes in the Corporation's internal controls over financial reporting that occurred during the period this Form 10-Q was being prepared that has materially affected, or is reasonably likely to materially affect, the Corporation's internal control over financial reporting. -18- PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Bank is subject to various claims and legal proceedings arising out of the normal course of business,none of which in the opinion of management is expected to have a material effect on the Bank's operations of financial position. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Annual Meeting of the Shareholders of the Corporation was held on June 17, 2003 in Birmingham, Michigan for the purpose of electing one director for a three year term expiring in 2006 and upon the election and qualification of his successor and for the purpose of approving the Amended and Restated 1994 Key Executive Incentive Stock Option Plan. The results of the voting were as follows:

The names of the other directors and their remaining terms are as follows:

Also, on July 9, 2003, Walter J. Aspatore was appointed a director to serve until the 2006 annual meeting of shareholders and until the election and qualification of his successor. The following are the results with respect to the Amended and Restated 1994 Key Executive Incentive Stock Option Plan

-19- ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 10.20 Employment agreement of Craig L. Johnson dated as of June 16, 2003. 10.21 Employment agreement of Leonard B. Carleton dated as of June 16, 2003. 10.22 Change in Control Agreement of Ronald J. Carr 10.23 Change in Control Agreement of Michael A. King 10.24 Amended and Restated 1994 Key Executive Incentive Stock Option Agreement 31.1 Certification of Chief Executive Officer 31.2 Certification of Chief Financial Officer 32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (b) Reports on Form 8-K. On April 4, 2003, the Corporation filed a Form 8-K disclosing in Item 5 thereof the resignation of an executive officer and the continuation in office of another executive officer. On May 5, 2003, the Corporation filed a Form 8-K disclosing in Item 5 thereof the announcement of a cash dividend and the appointment of two new executive officers of Franklin Bank, National Association, and disclosing in Item 9 thereof, and including as an exhibit, the press release announcing its results of operations for the first quarter ended March 31, 2003. On June 24, 2003, the Corporation filed a Form 8-K disclosing in Item 5 thereof the appointment of two new executive officers. -20- 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 BANCORP, INC. August 14, 2003 By: /s/ David L. Shelp --------------------------- (David L. Shelp, President and CEO) -21- EXHIBIT INDEX 10.20 Employment agreement of Craig L. Johnson dated as of June 16, 2003. 10.21 Employment agreement of Leonard B. Carleton dated as of June 16, 2003. 10.22 Change in Control Agreement of Ronald J. Carr 10.23 Change in Control Agreement of Michael A. King 10.24 Amended and Restated 1994 Key Executive Incentive Stock Option Agreement 31.1 Certification of Chief Executive Officer 31.2 Certification of Chief Financial Officer 32.1 Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. -22-

FRANKLIN BANCORP INC MI 10-Q