Item 1.  Security and Issuer

            This Schedule 13D relates to the common stock (“Shares”), $0.01 par value per share, of Franklin Financial Corporation (the “Issuer”), a Virginia corporation. The address of the principal executive offices of the Issuer is 4501 Cox Road, Glen Allen, Virginia  23060.

Item 2.  Identity and Background

            (a) This Schedule 13D is being filed jointly by the parties identified below.  All the filers of this Schedule 13D are collectively referred to as the “Reporting Group.”

• Homestead Partners LP (“Homestead Partners”), a Delaware limited partnership;
• Homestead Odyssey Partners LP (“Homestead Odyssey Partners”), a Delaware limited partnership;
• Arles Partners LP (“Arles Partners”), a New York limited partnership;
• Arles Advisors Inc (“Arles Advisors”), a New York corporation; and
• Warren A. Mackey, as an individual.

            Arles Advisors is the general partner of Homestead Partners, Homestead Odyssey Partners and Arles Partners. The sole shareholder, director and executive officer of Arles Advisors is Warren A. Mackey. By virtue of his position with Arles Advisors, Mr. Mackey has the sole investment discretion and voting authority with respect to the Issuer’s Shares owned by Homestead Partners, Homestead Odyssey Partners and Arles Partners. Mr. Mackey individually has the sole investment discretion and voting authority for himself. Accordingly, the Reporting Group is hereby filing a joint Schedule 13D.

            (b) The principal business address of the Reporting Group is 565 Fifth Avenue, 22d Floor, New York, New York 10017.

            (c) The principal business of Homestead Partners, Homestead Odyssey Partners and Arles Partners is investing in securities. The principal business of Arles Advisors is acting as the general partner of Homestead Partners, Homestead Odyssey Partners and Arles Partners. The principal occupation of Mr. Mackey is investing in securities.

            (d) During the past five years, no member of the Reporting Group has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors).

            (e) During the past five years, no member of the Reporting Group has been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and, as a result of such proceeding, was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, Federal or State securities laws or finding any violation with respect to such laws.

            (f) Warren A. Mackey is a citizen of the United States of America.

 

 

Item 3.  Source and Amount of Funds or Other Consideration

In the aggregate, the Reporting Group owns 1,001,643 Shares acquired at an aggregate cost of $11,827,639, including brokerage commissions.

            The Shares acquired by the Reporting Group were purchased with funds provided from working capital and, with regard to the Shares purchased by Warren A. Mackey, from his personal funds.  All or part of the Shares owned by members of the Reporting Group may from time to time be pledged with J.P. Morgan Clearing Corporation or other banking institutions or brokerage firms as collateral for loans made by such entities to members of the Reporting Group. Such loans, if any, generally bear interest at a rate based on the federal funds rate plus a margin. Such indebtedness, if any, may be refinanced with other banking institutions or brokerage firms.

Item 4.  Purpose of Transaction

             The Reporting Group purchased the Shares based on the Reporting Group’s belief that the Shares, when purchased, were undervalued and represented an attractive investment opportunity. Depending upon overall market conditions, other investment opportunities available to the Reporting Group and the availability of Shares at prices that would make the purchase or sale of Shares desirable, the Reporting Group, jointly or individually, may increase or decrease their position in the Issuer through the purchase or sale of Shares in the open market or in private transactions or otherwise on such terms and at such times as the Reporting Group may deem advisable.

            The Reporting Group intends to review its investment in the Issuer on a continuing basis, engage in discussions with senior management and the board of directors of the Issuer and work with the Issuer to enhance shareholder value. Depending on various factors including, without limitation, the Issuer’s financial position and strategy and results of operations, the Reporting Group’s investment strategy, the price levels of the Shares, conditions in the securities markets and global, national and local economic and industry conditions, the Reporting Group may in the future take such actions with respect to its investment in the Issuer as it deems appropriate including, without limitation, making proposals to senior management and the board of directors of the Issuer concerning changes to the Issuer's capitalization, dividend policy, share-repurchase policy, investment and leverage strategy and operations, seeking Board representation, purchasing additional Shares, selling some or all of its Shares, engaging in short selling of or any hedging or similar transaction with respect to the Shares or changing its intention with respect to any and all matters referred to in this Item 4.

No member of the Reporting Group, to the best of the Reporting Group's knowledge, has any present plans or proposals that relate to, or could result in, any of the matters referred to in paragraphs (a) through (j) of Item 4 of Schedule 13D except as set forth herein or such as would occur upon completion of any of the actions discussed above.

Item 5.  Interest in Securities of the Issuer

(a) and (b) The percentages of Shares reported as beneficially owned by the Reporting Group and each member of the Reporting Group is based upon 14,302,838 Shares outstanding as of May 1, 2011, which is the total number of Shares outstanding as reported in the Issuer's quarterly report on Form 10-Q filed with the Securities and Exchange Commission on May 13, 2011.

 

As of the close of business on June 2, 2011, the Reporting Group beneficially owned, in the aggregate, 1,001,643 Shares, representing 7.0% of the Issuer’s Shares outstanding. As the general partner of Homestead Partners, Homestead Odyssey Partners and Arles Partners, Arles Advisors may be deemed to share voting and dispositive power over the 360,963 Shares owned by Homestead Partners, the 476,569 Shares owned by Homestead Odyssey Partners and the 130,420 Shares owned by Arles Partners, representing 2.5%, 3.3% and 0.9% of the Issuer’s Shares outstanding, respectively. As the sole shareholder, director and executive officer of Arles Advisors, Warren A. Mackey may be deemed to share voting and dispositive power over the Shares owned by Homestead Partners, Homestead Odyssey Partners and Arles Partners. Mr. Mackey individually and as the person with the sole investment discretion and voting authority for himself may be deemed to beneficially own 33,691 Shares representing approximately 0.2% of the Issuer’s outstanding Shares.

(c) Exhibit B annexed hereto lists all transactions in the Shares during the past 60 days by the Reporting Group.  All shares acquired as reported herein were purchased in the open market except for the 22,524 Shares purchased by Arles Partners and the 33,691 Shares purchased by Mr. Mackey on April 27, 2011 directly from the Issuer pursuant to the Issuer’s stock-subscription offering.

Item 6.  Contracts, Arrangements, Understandings or Relationships With Respect to Securities of the Issuer

Except as otherwise described herein, there are no contracts, arrangements, understandings or relationships among the persons named in Item 2 hereof and between such persons and any person with respect to any securities of the Issuer, including but not limited to transfer or voting of any of the securities, finder's fees, joint ventures, loan or option arrangements, puts or calls, guarantees of profits, division of profits or losses or the giving or withholding of proxies, except for sharing of profits. Arles Advisors, in its capacity as general partner of Homestead Partners, Homestead Odyssey Partners and Arles Partners, and Warren A. Mackey, in his capacity as the sole shareholder, director and executive officer of Arles Advisors, are entitled to an allocation of a portion of profits.

See Item 2 above regarding disclosure of the relationships between members of the Reporting Group, which disclosure is incorporated herein by reference.

Item 7.  Material to be Filed as Exhibits

 

 

 

SIGNATURES

 

After reasonable inquiry and to the best of our knowledge and belief, we certify that the information set forth in this statement is true, complete and correct.

Date:    June 2, 2011

 

 

EXHIBIT A

Joint Filing Agreement by and among the Reporting Group

 

Pursuant to Rule 13d-1(k)(2) under the Securities Exchange Act of 1934, as amended, the undersigned hereby agree that the Schedule 13D to which this Joint Filing Agreement is being filed as an exhibit (and any amendments to this Schedule 13D) shall be a joint statement filed on behalf of each of the undersigned.

 

Date:    June 2, 2011

 

 

 

EXHIBIT B

Schedule of Transactions in the Shares

as of June 2, 2011