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 March 31, 1996
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 T), 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 2,129,948 outstanding shares of the Registrant's common stock as of
May 3, 1996.
INDEX
PART I - FINANCIAL INFORMATION Page
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets 2
as of March 31, 1996 (Unaudited) and
December 31, 1995
Condensed Consolidated Statements of 3
Income for the Three Months ended
March 31, 1996 and 1995 (unaudited)
Condensed Consolidated Statements of 4
Changes in Shareholders' Equity for the
Twelve and Three Months ended December 31,
1995 and March 31, 1996 (unaudited)
Condensed Consolidated Statements of Cash 5
Flows for the Three Months Ended March 31,
1996 and 1995 (unaudited)
Notes to Condensed Consolidated Financial 6
Statements (unaudited)
Item 2 - Management's Discussion and Analysis of 11
Financial Condition and Results of Operations
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 15
SIGNATURE PAGE 23
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands)
March 31 December 31
1996 1995
(unaudited)
ASSETS
Cash and due from banks $7,872 $8,244
Interest bearing deposits in other banks 14,091 6,660
Investment securities held to maturity (Market value of $36,604 and $35,563 at
March 31, 1996 and December, 31 1995 respectively) (Note 2) 36,694 35,317
Investment securities available for sale (Note 2) 40,508 42,025
Loans 213,587 213,728
Less: Unearned discount (392) (520)
Allowance for possible loan losses (2,938) (3,141)
Net Loans 210,257 210,067
Premises and equipment, net 5,694 5,645
Other assets 5,462 5,515
Total Assets $320,578 $313,473
LIABLITIES AND SHAREHOLDERS' EQUITY
Deposits: (Note 3)
Demand (non-interest bearing) $36,626 $31,609
Savings and Interest checking 102,008 99,049
Time 125,661 126,553
Total Deposits 264,295 257,211
Securities sold under agreements to repurchase 13,436 13,611
Other borrowings 5,650 5,650
Other liabilities 2,276 2,045
Total Liabilities 285,657 278,517
Commitments and Contingencies - -
Shareholders' equity:
Common stock $1 par value per share, 5000 shares authorized
with 2,030 shares issued and 1,953 and 1,940
outstanding at March 31, 1996 and December 31,1995
respectively 2,030 2,030
Capital stock without par value, 5,000 shares authorized
with no shares issued or outstanding - -
Additional paid in capital 19,608 19,431
Retained earnings 15,642 14,966
Net unrealized gain on securities 468 677
Treasury stock (Note 4) (1,875) (2,053)
Unearned compensation (952) (95)
Total shareholders' equity 34,921 34,956
Total Liabilities and Shareholders' Equity $320,578 $313,473
The accompanying notes are an integral part of these statements
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(amounts in thousands, except per share)
(Unaudited)
For the Three
Months Ended
March 31
1996 1995
INTEREST INCOME
Interest on loans $4,898 $4,984
Interest on deposits in other banks 131 7
Interest and dividends on investments (Note 2) 1,087 1,018
Total interest income 6,116 6,009
INTEREST EXPENSE
Interest on deposits 2,543 2,370
Interest on securities sold under repurchase
agreements and other borrowings 241 257
Total interest expense 2,784 2,627
Net interest income 3,332 3,382
Provision for possible loan loss 94 39
Net-interest income after provision
for possible loan losses 3,238 3,343
OTHER INCOME
Trust commissions 299 388
Service charges, commissions and fees 447 493
Other 88 29
Net securities gains 78 -
Total noninterest income 912 910
OTHER EXPENSE
Salaries and benefits 1,660 1,518
Net occupancy expense 134 123
Furniture and equipment expense 176 202
FDIC insurance 13 144
Other 742 814
Total noninterest expense 2,725 2,801
Income before income tax provision 1,425 1,452
Income tax provision 375 365
Net income $1,050 $1,087
Earnings per share (Note 1)
Net income per share $0.55 $0.56
Net income per share for 1995 has been adjusted retroactively to reflect a 50% stock split issued in
the form of a dividend paid on December 29, 1995 to shareholders of record on December 8, 1995.
The accompanying notes are an intergral part of these statements.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
for the year ended December 31, 1995 and the Three Months ended March 31, 1996
(Amounts in thousands, except per share )
Net
Additional Unrealized
Common Paid-in Retained Gain/Loss Treasury Unearned
Stock Capital Earnings Securities Stock Compensation Total
Balance at December 31, 1994 1,353 19,451 12,884 (353) (36) (426) 32,873
Year ended December 31, 1995
Net Income - - 4,179 - - - 4,179
- - - - -
Cash dividends, $.72 per share - - (1,420) - - - (1,420)
- - -
50% stock dividend 677 - (677) - - - -
Common stock issued under stock
option plans - (20) - - 218 - 198
Change in net unrealized gain on
securities (Note 1 and 4) - - - 1,030 - - 1,030
Treasury stock at cost - - - - (2,235) - (2,235)
Amortization of unearned compensation - - - - - 331 331
Balance at December 31, 1995 $2,030 $19,431 $14,966 $677 ($2,053) ($95) $34,956
Net income - - 1,050 - - - 1,050
Cash Dividends, $.19 per share - - (374) - - - (374)
Common stock issued under stock
option plans - - - - 22 - 22
Change in net unrealized gain on
securities - - - (209) - - (209)
Restricted stock issued under long-term
incentive compensation plan
(35,033 shares) - 177 - - 799 (976) -
Restricted stock forfeited under long-term
incentive compensation plan
(2,918 shares) - - - - (38) 38 -
Acquisition of 20,662 shares of Treasury
stock at cost (Note 4) - - - - (605) - (605)
Amortization of unearned compensation - - - - - 81 81
Balance at March 31, 1996 (unaudited) $2,030 $19,608 $15,642 $468 ($1,875) ($952) $34,921
The accompanying notes are an integral part of these statements.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(Amounts in Thousands)
Unaudited
For the Three
Months Ended
March 31
1996 1995
Cash flows from operating activities:
Net Income $1,050 $1,087
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation 171 156
Premium amortization on investment securities 19 19
Discount accretion on investment securities (28) (72)
Provision for loan losses 94 39
Securities gains, net (78) -
Principal gains on sales of mortgage loans (11) (12)
Proceeds from sale of mortgage loans 4,146 1,663
Gain on sale of other assets - -
Loan charge-offs, net of recoveries (297) (122)
Decrease in interest receivable 26 85
(Decrease) Increase in interest payable (31) 69
Decrease in unearned discount (128) (77)
Decrease in prepaid and other assets 27 37
Increase (Decrease) in accrued expenses and other liabilities 450 (51)
Other, net (1) (52)
Net cash provided by operating activities $5,409 $2,769
Cash flows from investing activities:
Proceeds from sales of investment securities available for sale 118 -
Proceeds from maturities of investment securities 7,940 6,378
Purchase of investment securities (8,146) (1,999)
Net (Increase) Decrease in loans (3,994) 3,942
Capital expenditures (220) (151)
Proceeds from sales of other assets - 5
Net cash (used) provided by investing activities (4,302) 8,175
Cash flows from financing activities:
Net Increase(Decrease) in demand deposits,
NOW accounts and savings accounts 7,976 (7,483)
Net (Decrease) Increase in certificates of deposit (892) 176
Dividends (374) (351)
Common stock issued under stock option plans 22 20
Purchase of treasury shares , net. (605) (1,208)
Cash(outflows) from other borrowings (175) (2,398)
Net cash provided (used) by financing activities 5,952 (11,244)
Increase in cash and cash equivalents 7,059 (300)
Cash and cash equivalents as of January 1 14,904 8,290
Cash and cash equivalents as of March 31 $21,963 $7,990
The accompanying notes are an integral part of these statements.
FRANKLIN FINANCIAL SERVICES CORPORATION and SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Basis of Presentation
The condensed consolidated balance sheets as of March 31,
1996 and December 31, 1995, the condensed consolidated statements
of income for the three-month periods ended March 31, 1996 and
1995, the condensed consolidated statements of changes in
shareholders' equity as of December 31, 1995 and March 31, 1996
and the condensed consolidated statements of cash flows for the
three-month periods ended March 31, 1996 and 1995 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
March 31, 1996, 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 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 condensed consolidated
financial statements be read in conjunction with the audited
financial statements and notes thereto included in the
Corporation's 1995 Annual Report. The results of operations for
the period ended March 31, 1996, 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 three months ended March 31: 1996 1995
Interest paid on deposits and
other borrowed funds . . . . . $2,815,000 $2,558,000
Income taxes paid $ - $ 100,000
Note 2 - Investment Securities
Amortized cost and estimated market values of investment securities as of March 31, 1996 (unaudited),
and December 31, 1995, were as follows (amounts in thousands):
Held to Maturity
March 31 December 31
1996 1995
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
U.S. Treasury securities and obligations
of U.S. Government agencies & corporations $ - $ - $849 $849
Obligations of state and political subdivisions 18,399 18,493 16,225 16,484
Corporate debt securities 5,941 5,905 6,795 6,790
Mortgage - backed securities 11,131 10,983 10,309 10,301
35,471 35,381 34,178 34,424
Other 1,223 1,223 1,139 1,139
$36,694 $36,604 $35,317 $35,563
Available for sale
March 31 December 31
1996 1995
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
Equity securities $1,290 $2,134 $1,330 $2,156
U.S. Treasury securities and obligations
of U.S. Government agencies & corporations $21,802 $21,813 25,717 25,923
Obligations of state and political subdivisions 1,921 1,911 2,417 2,420
Corporate debt securities 3,066 3,068 1025 1036
Mortgage - backed securities 11,719 11,582 10,511 10,490
$39,798 $40,508 $41,000 $42,025
Interest income and dividends received on investment securities for the three months
ended March 31, 1996 and 1995 are as follows (amounts in thousands):
Three Months
1996 1995
(Unaudited)
U.S. Government Obligations $76 $67
Obligations of U.S. Government
Agencies and Corporations 618 451
Obligations of States and
Political Subdivisions 228 287
Other Securities, primariy
Notes and Debentures 130 179
Common Stock 35 34
$1,087 $1,018
Note 3 - Deposits
Deposits are summarized as follows (amounts in thousands):
March 31 December 31
1996 1995
(Unaudited)
Demand $36,626 $31,609
Savings
Interest-bearing checking 30,059 31,090
Money Market Accounts 25,270 22,694
Passbook and Statement Savings 46,679 45,265
$102,008 $99,049
Time
Deposits of $100,000 and over 21,498 19,450
Other Time Deposits 104,163 107,103
125,661 126,553
Total Deposits $264,295 $257,211
NOTE 4 - Treasury Stock
Pursuant to the stock repurchase program approved by the
Board of Directors in the first quarter of 1996, the Corporation
acquired 11,305 common shares as of March 31, 1996 at a cost of
approximately $327,000. Under the program, the Corporation is
authorized to repurchase up to 50,000 shares in open market
transactions through dealers.
In addition the Executive Committee of the Board of
Directors approved the repurchase of a block of 9,357 common
shares at a cost of approximately $278,000.
NOTE 5 - Accounting Standards Effective January 1, 1996
The Corporation adopted Statement of Financial Accounting
Standard No. 122 titled "Accounting for Mortgage Servicing
Rights" effective January 1, 1996. An analysis of this standards
determined the impact to be immaterial to the Corporation's
results.
Management's Discussion and Analysis of
Results of Operations and Financial Condition
for the Three Months Period
Ended March 31, 1996
Part 1, Item 2
Results of Operations
Consolidated net income for the first quarter ended March
31, 1996 was $1,050,000 versus $1,087,000 for the first quarter
of 1995, reflecting a decrease of 3.4%. Consolidated earnings
per share amounted to $.55 at March 31, 1996 compared to $.56 at
March 31, 1995 and are weighted to reflect the impact of the
stock repurchase program. Book value per share equaled $17.88 at
March 31, 1996 up 7.5% over book value at March 31, 1995. Per
share information has been restated to reflect a 3 for 2 stock
split issued in the form of a 50% stock dividend distributed on
December 29, 1995, to shareholders of record on December 8, 1995.
The Corporation's annualized return on average assets (ROA)
and return on average equity (ROE) for the first quarter of 1996
were 1.35% and 12.33%, respectively, compared to 1.42% and
13.23%, respectively, for the first quarter of 1995.
Net interest income for the quarter weakened slightly to
$3,332,000 at March 31, 1996 from $3,382,000 at March 31, 1995.
The lower short-term interest rate environment coupled with the
Corporation's positive short-term gap position (one year or less)
contributed to the squeeze on net interest income. In addition a
delay in adjusting savings deposit rates downward due to
competitive pressures also was a factor in the lower net interest
income. Overall the decrease in earning asset yields outpaced
the decrease in liability costs. The Corporation's net interest
margin on a tax-equivalent basis was 4.66% at March 31, 1996
versus 4.88% at March 31, 1995. Net interest spread for the same
periods was 3.85% and 3.86%, respectively.
The Corporation expensed $94,000 for possible loan losses in
the first quarter of 1995 versus $39,000 for the same period a
year earlier. Net charge-offs in the first quarter of 1996
totaled $296,000 versus $121,883 for the same period a year ago
and resulted in the ratio of net charge-offs to average loans
increasing to .56% at March 31, 1996 from .22% at March 31, 1995.
The ratio of allowance for loan loss as a percent of loans
decreased to 1.38% at March 31, 1996 from 1.54% at March 31,
1995. The level of allowance has been determined by management
to be adequate and is supported by the ratio of nonperforming
assets to total assets equaling .50% at March 31, 1996 versus
.76% at March 31, 1995.
Total noninterest income excluding net securities gains
realized a decrease of 8.3% to $834,000 at March 31, 1996 from
$910,000 a year earlier. Trust commissions were down $89,000, or
23%, to $299,000 primarily due to a lower volume of settled
estates in the first quarter of 1996 versus the first quarter of
1995. Service charges, commissions and fees also showed a
decrease of $46,000, or 9%, to $447,000 for the quarter ended
March 31, 1996 versus $493,000 a year earlier. No fees generated
from the liquidated Franklin Founders Life Insurance subsidiary
accounted for most of the decrease. Partially offsetting the
decreases discussed above was an increase in other income of
$59,000 to $88,000 at March 31, 1996 from March 31, 1995 due
largely to nonrecurring transactions such as expense recovery and
refunds.
The Corporation recorded $78,000 for securities gains in the
first quarter of 1996 compared to none for the same period a year
earlier. Securities gains were realized from the Corporation's
available for sale equity securities.
Total noninterest expense decreased $76,000, or 2.7%, to
$2,725,000 for the quarter ended March 31, 1996 compared to
$2,801,000 for the quarter ended March 31, 1995. Salaries and
benefits were up $142,000, or 9.4%, to $1,660,000 for the first
quarter of 1996 versus the same period in 1995. Salary expense
increased $71,000, or 6.5%, to $1,159,000 primarily due to merit
increases and the addition of one senior level officer while
benefits increased by $71,000, or 16.5%. A nonrecurring expense
related to the Long Term Incentive Plan of 1990 is primarily
responsible for the unusual increase in benefit expense for the
quarter. Furniture and equipment expense decreased $26,000, or
12.9%, to $176,000 due to lower maintenance and lease expense on
equipment. Deposit insurance expense showed a decrease of
$131,000, or 91.0%, to $13,000 for the quarter ended March 31,
1996 from $144,000 a year earlier. Although FDIC deposit
insurance premiums have been reduced to zero, the Corporation is
still required to pay $.23 per hundred of deposits on the SAIF
deposits acquired through the Waynesboro branch purchase.
Federal income tax expense totaled $375,000 for the three
months ended March 31, 1996 compared to $365,000 for the same
period ended March 31, 1995. The Corporation's effective tax
rate for the respective periods was 26.3% and 25.1%. The
increase in effective tax rate was due largely to lower tax free
income relative to pretax income.
Financial Condition
Total assets increased 2.2%, or $7.1 million to $320,578,000
at March 31, 1996 compared to $313,473,000 at December 31, 1995.
Interest bearing deposits in other banks grew 111.6%, or $7.4
million to $14,091,000. These balances consist primarily of
overnight deposits held at Federal Home Loan Bank of Pittsburgh.
Driving the increase in interest bearing deposits in other banks
was a 2.7%, or $7.1 million increase in total deposits reaching
$264,295,000 at March 31, 1996. Total deposits a year ago
totaled $257,211,000. The increase in deposits occurred in
noninterest bearing demand (up $5 million) and savings and
interest checking (up $3 million) offset by a $1 million decrease
in time deposits. Investment securities held to maturity at
March 31, 1996 increased $1.4 million from December 31, 1995 to
$36,694,000 offset by a decrease of $1.5 million in investments
available for sale during the same three month period. Net loans
remained unchanged at $210,257,000 at March 31, 1996 compared to
$210,067,000 at December 31, 1995. Commercial loan demand in the
first quarter was strong increasing approximately $4 million to
$84,000,000 at March 31, 1996 from $80,000,000 at December 31,
1995. A $2 million decrease in both mortgage and consumer loans
during the first quarter completely offset the increase in
commercial loans. Mortgage and consumer loans totaled
$81,254,000 and $48,076,000, respectively at March 31, 1996.
Earning assets represented 94.1% of total assets at March 31,
1996 and equaled $301,550,000 compared to 93.8% and $294,069,000
respectively at December 31, 1995. The yield on average earning
assets for the first quarter of 1996 was 8.44% compared to 8.52%
for the first quarter of 1995. The allowance for possible loan
losses decreased $203,000 to $2,938,000 at March 31, 1996
compared to $3,141,000 at December 31, 1995 due to net charge-offs of
$296,000. The allowance represented 1.38% and 1.47% of
total loans at March 31, 1996 and December 31, 1995,
respectively. The Corporation's loan-to-deposit ratio was 80.7%
and 82.9% at March 31, 1996 and December 31, 1995, respectively.
The Corporation's nonperforming loans decreased $204,000, or
11.3%, to $1,590,000 at March 31, 1996 versus $1,794,000 at
December 31, 1995. Nonaccrual loans and loans past due 90 days
or more totaled $595,000 and $995,000, respectively at March 31,
1996 compared to $671,000 and $1,123,000, respectively at
December 31, 1995. Other real estate equaled $122,000 at March
31, 1996 compared to $258,000 at December 31, 1995.
Nonperforming assets represented .50% of total assets at March
31, 1996 compared to .65% at December 31, 1995. Net charge-offs
to average loans were .56% and .27% at March 31, 1996 and
December 31, 1995, respectively.
Liquidity
The Corporation's liquidity position was strong at first
quarter end 1995. The Corporation actively sells mortgage loans
to the secondary market (FNMA) and looks to its borrowing ability
with the Federal Home Loan Bank of Pittsburgh (FHLB) to satisfy
any liquidity needs. The Corporation has an overnight (Flexline)
line of credit with FHLB totaling approximately $30 million. The
Corporation had no borrowings under this line at March 31, 1996.
Currently management believes that liquidity is adequate to meet
the borrowing and deposit needs of its customers.
Capital Adequacy
Total shareholders' equity decreased slightly by $35,000 to
$34,921,000 at March 31, 1996 from $34,956,000 at December 31,
1995. Earnings retention continues to be the major source of
shareholder equity growth; however, equity growth through
earnings has been partially offset as a result of the treasury
stock buy back program and cash dividends paid to shareholders.
At March 31, 1996 the cost of treasury shares equaled $605,000.
(See Note 4 for more information on treasury stock.) For the
quarter ended March 31, 1996, the Corporation paid a cash
dividend of $374,000 or $.19 per common share. This compares
with a cash dividend paid of $351,000 or $.17 per common share
for the first quarter of 1994.
Capital adequacy is currently defined by banking regulatory
authorities through the use of several minimum required ratios.
The following table presents capital ratios for the Corporation
and its banking subsidiary at March 31, 1996, as well as current
minimum regulatory capital requirements. As the following table
indicates, the Corporation exceeds all minimum capital
requirements.
Farmers
& Current
Merchants FFSC Regulatory
Trust Company Consolidated Minimum
Tier I leverage ratio 9.84% 11.01% 6.00%
Risk-based capital ratio
Tier I 15.07% 16.49% 4.00%
Tier II 16.32% 17.74% 8.00%
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 10 - Material Contracts
Exhibits 11 - Computation of earnings per share
(b) Reports on Form 8-K
There were no reports filed on Form 8-K for the quarter
ended March 31, 1996.
Exhibit 10
Material Contracts
Omer L. Eshleman
RESTRICTED STOCK AWARD AGREEMENT
MADE as of and effective this 2nd day of February, 1996 by
and between FRANKLIN FINANCIAL SERVICES CORPORATION, a
Pennsylvania corporation with offices at 20 South Main Street,
P.O. Box T, Chambersburg, Pennsylvania 17201-0819 (the "Company")
and OMER L. ESHLEMAN, an adult individual who resides at 126
Northeast Avenue, Waynesboro, Pennsylvania 17268 ("Eshleman").
Background:
Eshleman retired on January 3, 1996 after serving for many
years as an officer of Mont Alto State Bank ("Mont Alto"),
formerly a wholly-owned subsidiary of the Company prior to its
merger with and into Farmers and Merchants Trust Company of
Chambersburg ("F&M Trust"), which is also a wholly-owned
subsidiary of the Company. In recognition of the fact that
Eshleman's pension benefits were adversely affected by the merger
of Mont Alto with and into F&M Trust and of his many years of
service to the Company, and in consideration of the covenants
hereinafter set forth, the Company wishes to grant to Eshleman an
award of 1,035 shares of restricted stock, subject to the terms,
conditions and restrictions hereinafter set forth.
WITNESSETH:
NOW, THEREFORE, in consideration of the mutual agreements
hereinafter set forth and intending to be legally bound, the
parties hereby agree as follows:
1. Grant of Restricted Stock. The Company hereby
grants to Eshleman 1,035 shares of the $1.00 par value common
stock of the Company, which shares shall be in the form of
restricted stock subject to the terms, conditions and
restrictions set forth in this Agreement.
2. Vesting. Subject to the provisions of Section 3
below (relating to accelerated vesting in the event of Eshleman's
death or disability) and to Section 4 below (relating to
forfeiture), the shares of restricted stock granted to Eshleman
hereunder (the "Award Shares") shall fully vest upon expiration
of one (1) year from the date of this Agreement.
3. Death of Disability. In the event of Eshleman's
death or substantially total disability prior to the expiration
of the one (1) year from the date of this Agreement, the Award
Shares shall immediately vest and a certificate representing such
shares shall be delivered by the Company to Eshleman or to his
estate, as the case may be. For purposes of this Agreement, any
determination relating to the substantially total disability of
Eshleman shall be made by the Board of Directors in its sole and
absolute discretion; any such determination, if made in good
faith, shall be final, conclusive and binding.
4. Forfeiture. In the event that Eshleman prior to
the expiration of the one (1) year vesting period provided for in
Section 2 above engages in any activity which the Board of
Directors of the Company determines in its sole and absolute
discretion to be in violation of one or both covenants set forth
in Section 5 below, then in such event (and in addition to any
other remedy which the Company may have) all then unvested Award
Shares shall be forfeited to the Company.
5. Certain Covenants.
(a) Covenant Not to Compete. Eshleman covenants
and agrees that, for a period of two (2) years from the date of
this Agreement he will not, directly or indirectly, (whether as
an employee, agent, consultant, independent contractor, officer,
director or otherwise) participate in the management or
operations of any bank, savings bank, savings and loan
association or other thrift, trust company, mortgage bank, credit
union, brokerage firm or other financial services institution (or
any company which controls, is controlled by or is under common
control with any of the foregoing) which as of the date of the
Agreement or at any time during the foregoing two (2) year period
maintains an office within Franklin County or within 25 miles of
Chambersburg, Pennsylvania.
(b) Covenant Not to Disclose Confidential
Information. Eshleman recognizes and acknowledges that he has
acquired during the course of his employment by Mont Alto certain
proprietary and confidential business information concerning the
business and operations of Mont Alto, F&M Trust and the Company
which are a valuable property of a confidential nature and which
belong to the Company. Eshleman covenants and agrees that he
will not during the foregoing two (2) year period or at any time
thereafter disclose to any person or use in competition with F&M
Trust or the Company any such proprietary or confidential
business information.
(c) Specific Performance. Eshleman acknowledges
and agrees that any breach of any of the covenants set forth in
this Section 5 will result in irreparable damage to F&M Trust
and/or to the Company, for which there will be no adequate remedy
at law. Eshleman therefore agrees that, in the event of any such
breach, the Company shall be entitled, without limitation of any
other rights or remedies otherwise available to it and without
posting any bond, to obtain an injunction or other form of
equitable relief from any court of competent jurisdiction.
6. Limitation on Right of Transfer. The Award Shares
may not be sold, assigned, pledged or otherwise transferred until
such time as they become vested. Any transfer of the Award
Shares after vesting shall be subject to the restrictions
referred to in Section 7 below.
7. Acknowledgment. Eshleman acknowledges that the
Award Shares have not been registered under the provisions of the
Securities Act of 1933, as amended (the "Securities Act"), and
may be sold or otherwise transferred only pursuant to an
effective registration statement under the Securities Act,
pursuant to Securities and Exchange Commission Rule 144, or
pursuant to another applicable exemption from the registration
requirements of the Securities Act. Eshleman further
acknowledges that the certificate representing the Award Shares
will bear a legend in substantially the following form:
The shares represented by this certificate have not
been registered under the Securities Act of 1933, as
amended, and may not be sold or otherwise transferred
unless they have been registered under such Act or
unless an exemption from the registration requirement
of such Act is available.
8. Stock Certificate. A certificate representing the
Award Shares shall be issued in the name of Eshleman and
deposited by him with the Company, together with a stock power
endorsed in blank. Upon the vesting of the Award Shares and
subject to compliance by Eshleman with the withholding
requirements set forth in Section 11 below, the Company shall
deliver such stock certificate and stock power to Eshleman or to
his legal representative.
9. Dividend and Voting Rights. Unless and until
forfeited in accordance with the terms of this Agreement,
Eshleman shall have all the rights of a shareholder of the
Company with respect to the Award Shares prior to the vesting of
the Award Shares, including, but not limited to, the right to
receive all dividends paid on the Award Shares and the right to
vote the Award Shares.
10. Authority of the Board of Directors. The Board of
Directors of the Company shall have the exclusive authority to
construe and interpret the provisions of this Agreement. All
decisions of the Board of Directors, if made in good faith, shall
be final, conclusive and binding.
11. Withholding Taxes. When the Award Shares vest, or
if sooner, when Eshleman must include the Award Shares in income
for federal, state or local income tax purposes, the Company
shall have the right to: (a) require Eshleman to remit or
otherwise make available to the Company an amount sufficient to
satisfy all federal, state and/or local withholding tax
requirements prior to the delivery of any stock certificate for
the Award Shares, and/or (b) take whatever action it deems
necessary to protect its interests with respect to such
withholding requirements, including, without limitation,
redeeming a portion of the Award Shares otherwise deliverable
pursuant to this Agreement with a then fair market value
sufficient to satisfy such withholding requirements. The
Company's obligation to deliver a stock certificate upon vesting
of the Award Shares shall be conditioned upon Eshleman's
compliance with any withholding requirements to the Company's
satisfaction.
12. Miscellaneous Provisions.
(a) Parties in Interest. This Agreement shall be
binding upon and shall inure to the benefit of the Company and
Eshleman and their respective heirs, personal representatives,
successors and assigns; provided, however, that Eshleman may not
assign this Agreement or any of his rights hereunder.
(b) Notices. All notices and other
communications required to be given or made hereunder shall be in
writing and shall be deemed to have been given or made when hand
delivered or when mailed, certified mail, return receipt
requested, to the Company or to Eshleman, as the case may be, at
their respective addresses set forth on the first page of this
Agreement or to such other address as the Company or executive
may subsequently designate in writing and deliver as provided in
this Section 12(b).
(c) Governing Law. This Agreement shall be
governed by and construed in accordance with the laws of the
Commonwealth of Pennsylvania, without reference to its law on the
choice of laws.
(d) Amendment. No term or provision of this
Agreement may be changed, waived, amended, terminated or
otherwise modified, except by written instrument duly executed by
the Company and by Eshleman.
(e) Entire Agreement. This Agreement constitutes
the entire Agreement between the Company and Eshleman and
supersedes all prior written or oral agreements and
understandings between them.
IN WITNESS WHEREOF, this Agreement is executed as of and
effective the day and year first above written.
FRANKLIN FINANCIAL SERVICES
CORPORATION
By: /s/ William E. Snell, Jr.
William E. Snell, Jr.,
President
Attest: /s/ April E. Rosenbaum
April E. Rosenbaum,
Secretary
/s/ Omer L. Eshleman
Omer L. Eshleman
Exhibit 11
COMPUTATION OF EARNINGS PER SHARE
For the Three Months Ended March 31, 1996
Primary Primary Fully
Earnings Earnings Diluted
Per Share* Per Share* Earnings
As Reported As Adjusted Per Share
Computation of earnings per
common share:
Shares
Weighted average shares
outstandiing 1,912,535 1,912,535 1,912,535
Equivalent shares from exercise
of dilutive common stock
equvalents - 29,532 18,224
1,912,535 1,942,067 1,930,759
Net Income $1,050,000 $1,050,000 $1,050,000
Earnings per common share
Net income $0.55 $0.54 $0.54
* Primary earnings per share "as reported" exclude the effect of the options issued under the
the Employee Stock Purchase Plan and the restricted stock issued under the Long - Term
Incentive Plan of 1990, as the effect of the equivalent shares on the earnings per share
calculation is less than 3%. Primary earnings per share "as adjusted" include the effect of the
options and restricted stock.
For the Three Months Ended March 31, 1995
Primary Primary Fully
Earnings Earnings Diluted
Per Share* Per Share* Earnings
As Reported As Adjusted Per Share
Computation of earnings per
common share:
Shares
Weighted average shares
outstandiing 1,946,913 1,946,913 1,946,913
Equivalent shares from exercise
of dilutive common stock
equvalents - 22,693 23,899
1,946,913 1,969,606 1,970,812
Net Income $1,087,000 $1,087,000 $1,087,000
Earnings per common share**
Net income $0.56 $0.55 $0.55
* Primary earnings per share "as reported" exclude the effect of the options issued under the
the Employee Stock Purchase Plan and the restricted stock issued under the Long - Term
Incentive Plan of 1990, as the effect of the equivalent shares on the earnings per share
calculation is less than 3%. Primary earnings per share "as adjusted" include the effect of the
options and restricted stock.
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
/s/ William E. Snell, Jr.
William E. Snell Jr.
President and Chief Executive Officer
/s/ Elaine G. Meyers
Elaine G. Meyers
Treasurer and Chief Financial Officer