PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
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by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c)
or Section 240.14a-12
FRANKLIN FINANCIAL SERVICES CORPORATION
(Name of Registrant as Specified in its Charter)
_________________________________________________________________
(Name of Person(s) Filing Proxy Statement
if other than the Registrant)
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6(i)(4) and 0-11.
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FRANKLIN FINANCIAL SERVICES CORPORATION
20 South Main Street
P. O. Box T
Chambersburg, PA 17201-0819
(717)264-6116
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD April 27, 1999
TO THE SHAREHOLDERS OF FRANKLIN FINANCIAL SERVICES CORPORATION:
Notice is hereby given that, pursuant to the call of its
directors, the regular Annual Meeting of Shareholders of FRANKLIN
FINANCIAL SERVICES CORPORATION, Chambersburg, Pennsylvania, will
be held on Tuesday, April 27, 1999, at 10:30 A.M. at the
Lighthouse Restaurant, 4301 Philadelphia Avenue, Chambersburg,
Pennsylvania, for the purpose of considering and voting upon the
following matters:
1. ELECTION OF DIRECTORS. To elect the five nominees
listed in the accompanying Proxy Statement for the
term
specified.
2. AMENDMENT OF THE ARTICLES OF INCORPORATION. To
consider and vote upon a proposal to amend the
Articles
of Incorporation to increase the number of
authorized
shares of common stock from 5,000,000 shares to
15,000,000 shares.
3. OTHER BUSINESS. To consider such other business as
may
properly be brought before the meeting and any
adjournments thereof.
Only those shareholders of record at the close of business
on March 12, 1999, shall be entitled to notice of and to vote at
the Annual Meeting.
Please mark, date and sign the enclosed Proxy and return
it
in the enclosed postpaid envelope as soon as possible, whether or
not you plan to attend the meeting. You are cordially invited to
attend the meeting and the luncheon to be held following the
meeting. If you attend the meeting, you may withdraw your proxy
and vote your shares in person.
A copy of the Annual Report of Franklin Financial Services
Corporation is enclosed.
BY ORDER OF THE BOARD OF
DIRECTORS
April E. ROSENBAUM
Secretary
Enclosures
March 30, 1999
PROXY STATEMENT
Dated and to be Mailed March 30, 1999
FRANKLIN FINANCIAL SERVICES CORPORATION
20 South Main Street
P. O. Box T
Chambersburg, PA 17201-0819
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON April 27, 1999
TABLE OF CONTENTS
GENERAL INFORMATION...................................... 1
Date, Time, and Place of Meeting.................... 1
Shareholders Entitled to Vote....................... 1
Purpose of Meeting.................................. 1
Solicitation of Proxies............................. 1
Revocability and Voting of Proxies.................. 1
Voting of Shares and Principal Holders Thereof...... 2
Shareholder Proposals............................... 3
Recommendations of the Board of Directors........... 4
INFORMATION CONCERNING THE ELECTION OF DIRECTORS......... 4
General Information................................. 4
Information about Nominees and Continuing Directors. 5
Meetings and Committees of the Board of Directors... 8
Compensation of Directors........................... 8
Executive Officers.................................. 8
Executive Compensation and Related Matters.......... 9
Transactions with Directors and Executive Officers.. 14
Compliance with Section 16(a) of the Exchange Act... 14
PROPOSAL TO AMEND THE ARTICLES OF INCORPORATION.......... 15
General Information................................. 15
Recommendation of the Board of Directors............ 16
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS......... 17
ADDITIONAL INFORMATION................................... 17
OTHER MATTERS............................................ 17
GENERAL INFORMATION
Date, Time, and Place of Meeting
The regular Annual Meeting of the shareholders of Franklin
Financial Services Corporation (hereinafter, "Franklin
Financial") will be held on Tuesday, April 27, 1999, at
10:30 a.m. at the Lighthouse Restaurant, 4301 Philadelphia
Avenue, Chambersburg, Pennsylvania.
Shareholders Entitled to Vote
Shareholders of record at the close of business on March
12,
1999, are entitled to notice of and to vote at the meeting.
Purpose of Meeting
Shareholders will be asked to consider and vote upon the
following matters at the Annual Meeting: (1) the election of
five directors, (2) a proposal to amend the Articles of
Incorporation of Franklin Financial for the purpose of increasing
the number of authorized shares of common stock, and (3) such
other business as may be properly brought before the meeting and
any adjournments thereof.
Solicitation of Proxies
This Proxy Statement is furnished in connection with the
solicitation of proxies, in the accompanying form, by the Board
of Directors of Franklin Financial for use at the Annual Meeting
and any adjournments thereof.
The expense of soliciting proxies will be borne by
Franklin
Financial. In addition to the use of the mails, directors,
officers, and employees of Franklin Financial and of any
subsidiary may, without additional compensation, solicit proxies
personally or by telephone.
Farmers and Merchants Trust Company of Chambersburg
(hereinafter, "F&M Trust") is a wholly-owned subsidiary of
Franklin Financial. This Proxy Statement, while prepared in
connection with the Annual Meeting of Shareholders of Franklin
Financial, contains certain information relating to F&M Trust
which will be identified where appropriate.
Revocability and Voting of Proxies
The execution and return of the enclosed proxy will not
affect a shareholder's right to attend the meeting and to vote in
person. Any proxy given pursuant to this solicitation may be
revoked by delivering written notice of revocation to April E.
Rosenbaum, Secretary of Franklin Financial, at any time before
the proxy is voted at the meeting. Unless revoked, any proxy
given pursuant to this solicitation will be voted at the meeting
<PAGE 1> in accordance with the instructions thereon of the
shareholder giving the proxy. In the absence of instructions,
all proxies will be voted FOR the election of the five nominees
identified in this Proxy Statement and FOR the proposal to amend
the Articles of Incorporation. The enclosed proxy confers upon
the persons named as proxies therein discretionary authority to
vote the shares represented thereby on all matters that may come
before the meeting in addition to the scheduled items of
business, including unscheduled shareholder proposals and matters
incident to the conduct of the meeting. Although the Board of
Directors knows of no other business to be presented, in the
event that any other matters are brought before the meeting, the
shares represented by any proxy given pursuant to this
solicitation will be voted in accordance with the recommendations
of the management of Franklin Financial.
Shares held for the account of shareholders who
participate
in the Dividend Reinvestment Plan will be voted in accordance
with the instructions of each shareholder as set forth in his
proxy. If a shareholder who participates in the Dividend
Reinvestment Plan does not return a proxy, the shares held for
his account under the Dividend Reinvestment Plan will not be
voted.
Voting of Shares and Principal Holders Thereof
At the close of business on December 31, 1998, Franklin
Financial had issued and outstanding 2,802,427 shares of common
stock; there is no other class of stock outstanding. As of such
date, 163,147 shares of Franklin Financial common stock were held
by the Trust Department of F&M Trust as sole fiduciary
(representing approximately 5.8% of such shares outstanding) and
will be voted FOR the election of the five nominees identified in
this Proxy Statement and FOR the proposal to amend the Articles
of Incorporation.
A majority of the outstanding common stock present in
person
or by proxy will constitute a quorum for the conduct of business
at the Annual Meeting. Abstentions and broker non-votes will be
treated as shares that are present and entitled to vote for
purposes of determining the presence of a quorum, but will not be
treated as votes cast. Each share is entitled to one vote on all
matters submitted to a vote of the shareholders. A majority of
the votes that all shareholders present in person or by proxy are
entitled to cast at a meeting at which a quorum is present is
required to approve any matter submitted to a vote of the
shareholders, unless a greater vote is required by law or by the
Articles of Incorporation or Bylaws. In the case of the election
of directors, the five candidates receiving the highest number of
votes shall be elected directors of Franklin Financial;
accordingly, in the absence of a contested election, votes
withheld from a particular nominee or nominees will not influence
the outcome of the election. In the case of the proposal to
amend the Articles of Incorporation, the affirmative vote of a
majority of the shares entitled to vote is required for approval;
<PAGE 2> accordingly, abstentions and broker non-votes will have
the same effect as a vote against the proposal.
To the knowledge of Franklin Financial, no person owned of
record or beneficially on December 31, 1998 more than five
percent (5%) of the outstanding common stock of Franklin
Financial, except as set forth in the table which follows.
Amount and
Nature of
Beneficial
Name and Ownership
Title of Address of as of Percent
Class Beneficial Owner 12/31/98 of Class
Common Stock, Farmers and Merchants Trust 163,147
$1.00 par Company of Chambersburg shares(1) 5.8%
value per Trust Company
share Trust Department
20 South Main Street
Chambersburg, PA 17201-0819
Footnote
1. Shares are held on behalf of various trusts, estates and
other accounts, with respect to which F&M Trust acts as
sole
fiduciary.
Shareholder Proposals
Pursuant to Rule 14a-8 promulgated by the Securities and
Exchange Commission (hereafter the "SEC"), shareholder proposals
intended to be presented at the 2000 Annual Meeting of the
shareholders of Franklin Financial must be received at the
executive offices of Franklin Financial no later than
December 10, 1999, in order to be included in the proxy statement
and proxy form to be prepared by Franklin Financial in connection
with the 2000 Annual Meeting. A shareholder proposal which does
not satisfy the notice and other requirements of SEC Rule 14a-8
is not required to be included in Franklin Financial's proxy
statement and proxy form, but may be presented at the 2000 Annual
Meeting if the proposal is received by Franklin Financial not
later than February 15, 2000; provided, however, that the
Chairman of the Annual Meeting may in his discretion rule any
such proposal out of order for the reason that the inability of
the shareholders to express an opinion through the proxy
solicitation process would render any vote on the matter
meaningless as an expression of shareholder sentiment. All
shareholder proposals should be sent to: Franklin Financial
Services Corporation, Attention: Corporate Secretary, 20 South
Main Street, P.O. Box T, Chambersburg, Pennsylvania 17201-0819.
<PAGE 3>
Recommendations of the Board of Directors
The Board of Directors recommends that the shareholders
vote
FOR the election of the five nominees identified in this Proxy
Statement and FOR the proposal to amend the Articles of
Incorporation.
INFORMATION CONCERNING THE ELECTION OF
DIRECTORS
General Information
The Bylaws of Franklin Financial provide that the Board of
Directors shall consist of not less than five nor more than 25
persons and that the directors shall be classified with respect
to the time they shall severally hold office by dividing them
into three classes, each consisting as nearly as possible of one-
third of the number of the whole Board of Directors. The Bylaws
further provide that the directors of each class shall be elected
for a term of three years so that the term of office of one class
of directors shall expire in each year. Finally, the Bylaws
provide that the number of directors in each class of directors
shall be determined by the Board of Directors.
A majority of the Board of Directors may increase the
number
of directors between meetings of shareholders. Any vacancy
occurring in the Board of Directors, whether due to an increase
in the number of directors, resignation, retirement, death, or
any other reason, may be filled by appointment by the remaining
directors. Any director who is appointed to fill a vacancy shall
hold office until his successor is duly elected by the
shareholders at the next Annual Meeting at which directors in his
class are elected.
The Board of Directors has determined that the Board shall
consist of 13 directors. There are five directors whose terms of
office will expire at the 1999 Annual Meeting and eight
continuing directors whose terms of office will expire at the
2000 or 2001 Annual Meeting. The Board of Directors proposes to
nominate the following five persons for election to the Board of
Directors for the term specified below:
CLASS A
For a Term of
Three Years
G. Warren Elliott William E. Snell, Jr.
Dennis W. Good, Jr. Martha B. Walker
Robert G. Zullinger
In the event that any of the foregoing nominees is unable
to
accept nomination or election, the shares represented by any
proxy given pursuant to this solicitation will be voted in favor
<PAGE 4> of such other persons as the management of Franklin
Financial may recommend. However, the Board of Directors has no
reason to believe that any of its nominees will be unable to
accept nomination or to serve as a director if elected.
Section 3.5 of Article III of the Bylaws of Franklin
Financial requires that nominations, other than those made by or
on behalf of the existing management of Franklin Financial, must
be made in writing and must be delivered or mailed to the
Corporate Secretary of Franklin Financial no later than the 30th
business day prior to the date of the Annual Meeting. The
Chairman of the meeting must determine whether nominations have
been made in accordance with the requirements of the Bylaws and,
if he determines that a nomination is defective, the nomination
and any votes cast for the nominee shall be disregarded.
Information about Nominees and Continuing Directors
Information concerning the five persons to be nominated
for
election to the Board of Directors of Franklin Financial at the
1999 Annual Meeting and concerning the eight continuing directors
is set forth in the table which follows. The table also includes
information concerning shares of Franklin Financial common stock
owned beneficially by executive officers who are named in the
Summary Compensation Table appearing elsewhere in this Proxy
Statement and by all directors and executive officers as a group.
<PAGE 5>
Shares of Stock
of Franklin
Financial
Business Experience,
Beneficially
Including Principal
Owned and Per-
Occupation for the
centage of Total
Past 5 Years, and
Director Outstanding Stock
Name and Age Other Directorships(1
Since(2) as of 12/31/98(3)
CLASS A - Nominees
G. Warren Elliott (44) Franklin County Comissioner;
1994 1,005 *
Regional Representative, General
Code Publishers (legal
publisher)
Dennis W. Good, Jr. (63) Partner, McGuire, Woods,
1988 36,801 1.31%
Battle & Boothe, LLP (law firm)
William E. Snell, Jr. (50) President and Chief Executive
1995 20,663 *
Officer, Franklin Financial and
F&M Trust; formerly President
and Chief Executive Officer,
Commonwealth Bank, and President
and Chief Operating Officer,
Commonwealth Bancshares
Corporation (1990-1995)
Martha B. Walker (52) Partner, Walker, Van Horn &
1979 9,416*
Horn & MacBride, a Division of
Barley, Snyder, Senft & Cohen,
LLC (law firm)
Robert G. Zullinger (66) Vice Chairman, Franklin Financial
1981 34,756 1.24%
and F&M Trust; formerly President
and Chief Executive Officer,
Franklin Financial and F&M Trust
(1981-1996)
CLASS B - Continuing Directors
(Term expires 2001)
Charles S. Bender, II (54) Executive Vice President,
1981 60,907 2.17%
Franklin Financial and F&M Trust
Omer L. Eshleman (65) Retired -- formerly President and
1992 18,553 *
Chief Executive Officer, Mont
Alto State Bank
Jeryl C. Miller (58) Vice President and Secretary,
1983 13,885 *
Charles W. Karper, Inc. (trucking
industry)
Stephen E. Patterson (54) Shareholder, Patterson, Kiersz &
1998 800 *
Ganley, PC (law firm)
CLASS C - Continuing Directors
(Term expires 2000)
Jay L. Benedict, Jr. (69) Attorney -- formerly partner,
1969 18,293 *
Benedict & Gabler (law firm);
Chairman of the Board of Franklin
Financial and F&M Trust <PAGE 6>
Donald A. Fry (49) President, Cumberland Valley
1998 750 *
Rental (uniform rental)
H. Huber McCleary (60) President, McCleary Oil Co.
1990 32,475 1.16%
(service station operator and
fuel oil distributor)
Charles M. Sioberg (58) Vice President, Martin & Martin,
1982 4,509 *
Inc. (engineers)
All directors and
312,686(4) 11.16%
executive officers as
a group (16 persons)
FOOTNOTES
* The number of shares shown represents less than one
percent
of the total number of shares of common stock outstanding.
1. No nominee or continuing director is a director of any
other
company which has one or more classes of securities
registered with the Securities and Exchange Commission
pursuant to Section 12 or which is required to file
periodic
reports with the Securities and Exchange Commission
pursuant
to Section 15(d) of the Securities Exchange Act of 1934.
2. Reflects service as a director of Franklin Financial and
service as a director of F&M Trust, predecessor of
Franklin
Financial.
3. Beneficial ownership of shares of the common stock of
Franklin Financial is determined in accordance with
Securities and Exchange Commission Rule 13d-3d(1) which
provides that a person shall be deemed to own any stock
with
respect to which he, directly or indirectly, through any
contract, arrangement, understanding, relationship, or
otherwise has or shares: (i) voting power, which includes
the power to vote or to direct the voting of the stock, or
(ii) investment power, which includes the power to dispose
or to direct the disposition of the stock.
4. Each director and executive officer has sole voting and
investment power with respect to the shares shown above,
except that voting and investment power with respect to a
total of 37,332 shares is shared with spouses, children or
other family members. The shares shown above include a
total of 85,639 shares which are held by spouses, children
or other family members or by trusts or estates with
respect
to which a director or executive officer serves as trustee
or executor and shares subject to a power of attorney in
favor of a director or executive officer, beneficial
ownership of which is in each case disclaimed. Also
included in the shares shown above are a total of 48,273
shares of unvested restricted stock issued under the Long-
Term Incentive Plan of 1990 and a total of 1,933 shares
issuable under the Employee Stock Purchase Plan. <PAGE 7>
Meetings and Committees of the Board of Directors
The Board of Directors of Franklin Financial has a
standing
Audit Committee and a standing Incentive Compensation Committee,
but does not have a standing Nominating Committee.
Members of the Audit Committee during 1998 were Jeryl C.
Miller, Chairman, and Messrs. Eshleman, Good, Sioberg and
Zullinger. Mr. Benedict is an ex-officio member of the Audit
Committee. The Audit Committee met four times during the past
year. The Audit Committee is responsible for overseeing the
internal accounting and auditing methods and procedures of
Franklin Financial and its subsidiaries and for recommending
annually to the Board of Directors the engagement of an
independent public accounting firm to examine the consolidated
financial statements of Franklin Financial.
Members of the Incentive Compensation Committee during
1998
were Jay L. Benedict, Chairman, and Messrs. Elliott, Good, Miller
and Patterson. The Incentive Compensation Committee met three
times during the past year. The Incentive Compensation Committee
currently administers the Long-Term Incentive Plan of 1990 and
the Employee Stock Purchase Plan and, in conjunction with the
Personnel Committee of the Board of Directors of F&M Trust,
oversees the administration of Franklin Financial's compensation
policies and employee benefits plans.
The Board of Directors of Franklin Financial met nine
times
during 1998. All incumbent directors attended at least 75
percent of the meetings of the Board of Directors and the
committees on which they served.
Compensation of Directors
Directors of Franklin Financial who are not salaried
officers of Franklin Financial or one of its subsidiaries are
paid an annual retainer of $3,600 and receive a fee of $150 for
each committee meeting attended.
Executive Officers
The following persons are the executive officers of
Franklin
Financial:
Name Age Office Held
William E. Snell, Jr. 50 President and Chief
Executive
Officer of Franklin
Financial and
F&M Trust since 1996;
President of
Franklin Financial and
F&M Trust
since 1995
<PAGE 8>
Charles S. Bender, II 54 Executive Vice President
of
Franklin Financial since
1983 and
of F&M Trust since 1981
Frank S. Elliott 57 Senior Vice President of
Franklin
Financial and F&M Trust
since 1988
Elaine G. Meyers 51 Treasurer and Chief
Financial
Officer of Franklin
Financial and
Senior Vice
President/Finance of
F&M Trust since 1988
Kenneth D. Sauders 54 Investment and
Asset/Liability
Manager of Franklin
Financial since
1997 and Senior Vice
President of
F&M Trust since 1995
Executive Compensation and Related Matters
Summary of Cash and Certain Other Compensation
The following table provides certain summary information
concerning compensation paid or accrued by Franklin Financial and
F&M Trust to William E. Snell, Jr., the Chief Executive Officer
of Franklin Financial, and to each of the other most highly
compensated executive officers of Franklin Financial whose
combined 1998 salary and bonus compensation exceeded $100,000.
SUMMARY COMPENSATION TABLE
Long Term Compensation
- ------------------------------
Annual Compensation
Awards Payouts
---------------------------
- -------------------- -------
(a) (b) (c) (d) (e)
(f) (g) (h) (i)
Secur-
ities
Other
Under- All
Annual
Restrict- lying LTIP Other
Compen- ed
Stock Options/ Pay- Compen-
Name and Salary Bonus sation
Awards(1) Sars outs(2) sation(3)
Principal Position Year ($) ($) ($)
($) (#) ($) ($)
- ---------------------- ---- -------- ------ -------
- --------- -------- ------- ---------
William E. Snell, Jr., 1998 $160,000 $9,600 None
None None None $8,114
President and Chief
Executive Officer 1997 $160,000 None None
None None None $5,198
1996 $154,615 None None
None None None $3,283
Charles S. Bender, II 1998 $114,450 $6,867 None
None None None $7,014
Executive Vice
President 1997 $114,450 None None
None None None $4,258
1996 $114,450 None $16,366
None None None $4,648
Footnotes
<PAGE 9>
1. No restricted stock awards were granted in 1998. Messrs.
Snell and Bender held 10,987 and 15,714 shares,
respectively, of previously issued restricted stock with
an
aggregate value of $324,117 and $463,563, respectively, as
of December 31, 1998. Dividends are paid on those shares
if
and to the extent paid on Franklin Financial common stock
generally.
2. Consists of the dollar value of shares of previously
issued
restricted stock and restricted cash awards which vested
during the year indicated. No such shares or cash awards
vested in 1998.
3. Consists exclusively of matching contribution and
short-term
incentive plan additional contribution to Section 401(k)
Profit Sharing Plan.
Defined Benefit Pension Plan
The defined benefit pension plan maintained by F&M
Trust (the "Plan") was amended on November 14, 1997, effective
January 1, 1998, to reduce future benefit accruals under the
Plan's benefit formula. The following table shows, for the
salary levels and years of service indicated, the annual pension
benefit, before a Social Security offset of 0.6 percent (0.6%) of
covered compensation for each year of service to a maximum of 35
years (but without reflecting the maximum pension benefit
limitations established under Section 415 of the Internal Revenue
Code), payable under the Plan commencing at age 65 under the
pension benefit formula effective January 1, 1998 (and assuming
all years of service are earned after January 1, 1998):
PENSION PLAN TABLE
YEARS OF SERVICE
Covered
Remun-
eration 5 10 15 20 25 30 35
$ 50,000 3,750 7,500 11,250 15,000 18,750 22,500 26,250
$ 75,000 5,625 11,250 16,875 22,500 28,125 33,750 39,375
$100,000 7,500 15,000 22,500 30,000 37,500 45,000 52,500
$125,000 9,375 18,750 28,125 37,500 46,875 56,250 65,625
$150,000 11,250 22,500 33,750 45,000 56,250 67,500 78,750
$160,000 12,000 24,000 36,000 48,000 60,000 72,000 84,000
and Over
A participant's remuneration covered by the Plan is
the
average of the highest five consecutive year's compensation
(salary and bonus as reported in the Summary Compensation Table
appearing above) in the ten years preceding normal retirement.
Current compensation covered by the plan for the year ended
December 31, 1998 for Messrs. Snell and Bender was $155,455 and
<PAGE 10> $120,825, respectively. As of December 31, 1998,
Messrs. Snell and Bender were credited with 3.67 and 23.92 years
of service, respectively, for benefit accrual purposes under the
Plan. The normal retirement benefit under the Plan is a single-
life annuity equal to the sum of the following:
(i) 1.15 percent (1.15%) of the average of the highest
five
consecutive years' compensation in the 10 years
preceding normal retirement, multiplied by a
participant's number of years of service from the
date
of employment to December 31, 1997, plus
(ii) 0.90 percent (0.90%) of the such compensation
multiplied by a participant's number of years of
service from January 1, 1998, through the date of
retirement, plus
(iii) 0.60 percent (0.60%) of such compensation in excess
of
Social Security covered compensation (the taxable
wage
base averaged over the 35 year period ending with
the
last day of the calendar year in which the
participant
attains Social Security retirement age), multiplied
by
a participant's total number of years of service (up
to
a maximum of 35 years) from the date of employment
to
the retirement date.
This benefit is limited by the maximum benefit as
specified
under Section 415 of the Internal Revenue Code of 1986, as
amended.
Compensation Committee Report on Executive Compensation
The Incentive Compensation Committee of the Board of
Directors of Franklin Financial (the "Committee") administers the
executive compensation programs of Franklin Financial and its
subsidiaries. The Committee consists of five independent
directors.
Executive Compensation Policies
Executive compensation at Franklin Financial consists of
two
components: base salary and incentive programs. The Committee
has established an executive compensation policy to assist it in
administering these two components of executive compensation.
The Franklin Financial's executive compensation policy is
designed to provide its executives with a total compensation
package that is fair in light of competitive compensation
practices, that attracts and retains qualified executives, that
places a portion of total pay at risk (to be earned through the
achievement of performance goals), and that helps to align
management's interests with those of shareholders. Fair pay is
defined as pay levels that are at or approach the median of
competitive compensation practices.
<PAGE 11>
Competitive compensation practices are determined from
time
to time, as follows. The Committee uses data from banking
industry compensation surveys to determine median pay practices
for similar positions at comparably sized organizations.
Compensation disclosures made by a peer group of comparably sized
Pennsylvania banks are also used to determine competitive pay
practices at the top management level. This group of
Pennsylvania banking organizations bears no direct relationship
to those companies represented in the Media General Regional
Northeast Bank Index appearing in the stock performance graph set
forth elsewhere in this Proxy Statement because the companies
represented in this Index are too numerous and because some are
too small and others too large for appropriate and meaningful
compensation comparisons. Additionally, the Committee's
understanding of competitive salary increases is used in
estimating competitive pay levels.
The Committee uses incentive programs to link total
executive compensation to the performance of Franklin Financial.
These programs provide executives with an opportunity to earn a
combination of cash and stock awards contingent upon the
achievement of corporate earnings objectives.
Relationship of Performance to Executive
Compensation
The Committee employs a short-term incentive plan to link
senior officer compensation to the success in meeting annual
goals based upon the net income of the corporation. The 1998
plan included a range of net income targets and within that range
of targets, senior officer incentive payouts could range from 1%
to 6% of annual salary, with an additional 401(k) Profit Sharing
Plan contribution ranging from 1/2% to 2% of salary (up to
applicable limitations under the Internal Revenue Code).
Messrs. Snell and Bender participated in this program for the
first time in 1998. As a result of the corporation achieving net
income of $4.805 million in 1998, Messrs. Snell and Bender were
awarded cash bonuses of $9,600 and $6,867 respectively, and
additional 401(k) Profit Sharing Plan contributions of $3,200 and
$2,338, respectively under the short-term incentive plan.
The Committee administers a long-term incentive plan for
members of senior management, which includes Messrs. Snell and
Bender. Other senior officers also participate in this plan.
Under the plan, participants receive awards of restricted stock
and cash, which awards are subject to accelerated vesting if
Franklin Financial meets or exceeds certain five year annual net
income performance goals established at the time of grant of the
award. To the extent not previously vested, the restricted stock
portion of the award will vest in full upon the expiration of
10 years from the date of grant. The cash portion of an award,
to the extent not vested after the expiration of five years, is
forfeited.
Achievement of any one year's earnings objective results
in
the vesting of a portion of the restricted stock award and a
<PAGE 12> distribution of a portion of the cash award. Failure
to meet the earnings objective in a given year results in the
permanent forfeiture of that year's portion of the cash award.
Furthermore, failure to meet the annual earnings objective means
that no restricted shares vest that year. After the expiration
of ten years from the date of the award, however, all unvested
shares of restricted stock will vest, provided that the
participant remains an employee of Franklin Financial or one of
its subsidiaries.
In 1998, Franklin Financial had net income of
$4.805 million. This resulted in basic earnings per share of
$1.76, return on assets of 1.29%, and return on equity of 12.58%.
This level of earnings did not meet the annual earnings objective
for 1998 established under the long-term incentive plan.
Accordingly, no cash awards were distributed and no accelerated
vesting of restricted shares occurred.
1998 Compensation of the Chief Executive
Officer
The Committee at its December 1997 meeting discussed its
compensation policy as summarized above and competitive pay
practices, balanced with Franklin Financial's strategic
initiative to control overhead expenses. After considering
several alternatives, the Committee determined that the base
salary of each member of senior management would remain unchanged
for 1998. Therefore, Mr. Snell's base salary remained at
$160,000 throughout 1998.
Compliance with Internal Revenue Code Section
162(m)
Section 162(m) of the Internal Revenue Code, enacted in
1993, brought about a limitation on the deductibility for federal
income tax purposes of annual compensation in excess of
$1 million payable to certain senior officers of publicly held
companies. Qualifying performance-based compensation is not
subject to this limitation if certain conditions are met. The
Committee does not foresee current compensation arrangements
exceeding this level. Accordingly, the Committee has no plans to
modify the compensation policies of Franklin Financial in
response to the provisions of Section 162(m) of the Code. The
Committee will evaluate this matter on an ongoing basis.
The foregoing report is furnished by Jay L.
Benedict, Chairman of the Incentive
Compensation Committee, and Messrs. Elliott,
Good, Miller and Patterson, who served as
members of the Incentive Compensation
Committee during 1998.
Performance Graph
The Securities and Exchange Commission requires that a
publicly held company include in its proxy statement a stock
performance graph comparing its five-year cumulative total return
<PAGE 13> to shareholders with the returns generated by an
industry-specific index (or peer group index) and with the return
generated by a broad market index.
The following graph compares the cumulative total return
to
shareholders of Franklin Financial with the Media General Market
Weighted NASDAQ Index (a broad market index prepared by Media
General Financial Services) and with the Media General Regional
Northeast Bank Index (an industry index also prepared by Media
General Financial Services) for the five year period ended
December 31, 1998, in each case assuming an initial investment of
$100 on December 31, 1993 and the reinvestment of all dividends.
December 31 December 31 December 31 December 31
December 31 December 31
1993 1994 1995 1996
1997 1998
Franklin
Financial $100 $117.35 $149.36 $185.82
$304.80 $287.51
NASDAQ
Index $100 $104.99 $136.18 $169.23
$207.00 $291.96
Regional
Northeast
Bank Index $100 $ 96.47 $146.66 $195.10
$336.51 $351.27
Transactions with Directors and Executive Officers
Some of the directors and executive officers of Franklin
Financial and F&M Trust and the companies with which they are
associated were customers of and had banking transactions with
F&M Trust in the ordinary course of business during 1998. All
loans and commitments to loan made to such persons and the
companies with which they are associated were made on
substantially the same terms, including interest rates,
collateral, and repayment terms, as those prevailing at the time
for comparable transactions with other persons and did not
involve more than a normal risk of collectibility or present
other unfavorable features. It is anticipated that F&M Trust
will enter into similar transactions in the future.
Martha B. Walker, a member of the Boards of Directors of
Franklin Financial and F&M Trust, is a partner in the law firm of
Barley, Snyder, Senft & Cohen (hereafter, "BSS&C"). BSS&C has
provided legal services to Franklin Financial and F&M Trust for
many years and is expected to continue to do so in the future.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934
requires that the directors and certain officers of Franklin
Financial file with the Securities and Exchange Commission
reports of ownership and changes in ownership with respect to
shares of Franklin Financial common stock beneficially owned by
them. Based solely upon its review of copies of such reports
furnished to it and written representations made by its directors
and those officers who are subject to such reporting <PAGE 14>
requirements, Franklin Financial believes that during the
calendar year ended December 31, 1998, all filing requirements
applicable to its directors and officers were complied with,
except that one report with respect to the sale of 100 shares
held in an IRA account maintained by her spouse was inadvertently
filed late by Mrs. Walker and one report with respect to the
purchase of 150 shares by a trust in which he has an interest was
inadvertently filed late by Mr. Fry.
PROPOSAL TO AMEND THE ARTICLES OF
INCORPORATION
General Information
The Articles of Incorporation of Franklin Financial as
presently in effect provide that the authorized capital of
Franklin Financial consists exclusively of 10,000,000 shares,
divided into 5,000,000 shares of $1.00 par value common stock and
5,000,000 shares of stock without par value. As of December 31,
1998, there were 2,802,427 shares of common stock issued and
outstanding, which shares were held by approximately 1,930 owners
of record. No shares of stock without par value have been
issued. Under the Articles of Incorporation, the Board of
Directors has authority to issue shares without par value as a
class without series or in one or more series, to designate such
stock as common stock or preferred stock, and to determine the
voting rights (which may be full, limited, multiple, fractional
or withheld altogether), designations, preferences,
qualifications, limitations, restrictions, privileges, options,
redemption rights, conversion rights and other special or
relative rights of any class or series thereof.
On January 14, 1999, the Board of Directors adopted a
proposal to amend Article 5 of the Articles of Incorporation of
Franklin Financial for the purpose of increasing the number of
authorized shares of common stock from 5,000,000 shares to
15,000,000 shares. The proposal would not affect the number of
authorized shares of stock without par value. The Board of
Directors believes that it is desirable to have additional
authorized shares of common stock available for issuance for
purposes of raising additional capital, for use in connection
with acquisitions, stock dividends, stock splits, and incentive
compensation and other employee benefit plans and for other
general corporate purposes. Having additional authorized shares
of common stock available for issuance in the future would
provide Franklin Financial with greater flexibility in pursuing
such corporate purposes and would allow additional shares to be
issued without the expense and delay associated with the need
under certain circumstances to call a special meeting of the
shareholders for purposes of approving an amendment to the
Articles of Incorporation. Franklin Financial has no present
plan or intention to issue any additional shares of common stock,
except as required or permitted in connection with the purchase
of original issue shares by shareholders who are participants in
the Dividend Reinvestment Plan. <PAGE 15>
The additional shares of Franklin Financial common stock
for
which authorization is sought would be part of the existing class
of common stock and, if and when issued, would have the same
rights and privileges as the shares of common stock presently
outstanding. The Board of Directors will not seek shareholder
approval to issue additional authorized shares of common stock,
except to the extent that such approval may be required by law,
and such shares may be issued for such consideration, cash or
otherwise, at such times and in such amounts as the Board of
Directors may determine. Although the Board of Directors
presently intends to use the additional authorized shares of
common stock exclusively for the purposes described above, such
shares could be used to dilute the stock ownership of persons
seeking to obtain control of Franklin Financial, thereby possibly
discouraging or deterring a non-negotiated attempt to obtain
control of Franklin Financial and making the removal of incumbent
management more difficult. The holders of Franklin Financial
common stock do not have preemptive rights in connection with the
issuance of additional shares of common stock.
The proposed amendment will amend and restate in its
entirety the first sentence of Article 9 of the Articles of
Incorporation, to read as follows:
The aggregate number of shares which the corporation
shall have authority to issue is 20,000,000 shares,
divided into 15,000,000 shares of common stock of one
and 00/100 Dollar ($1.00) par value per share and
5,000,000 shares of stock without par value.
If approved by the shareholders, the proposed amendment
will
become effective upon the filing of Articles of Amendment with
the Secretary of State of the Commonwealth of Pennsylvania.
Pursuant to Article 9 of the Articles of Incorporation of
Franklin Financial, the affirmative vote of a majority of the
shares entitled to vote is required in order to approve the
proposed amendment.
Recommendation of the Board of Directors
The Board of Directors believes that its proposal to amend
the Articles of Incorporation for the purpose of increasing the
number of authorized shares of common stock is in the best
interests of Franklin Financial and its shareholders and
recommends that the proposal be approved by the shareholders.
Accordingly, the following resolutions will be presented to the
shareholders at the 1999 Annual Meeting:
RESOLVED, that the proposal of the Board of
Directors to amend the Articles of Incorporation of the
corporation for the purpose of increasing the number of
authorized shares of common stock from 5,000,000 shares
to 15,000,000 shares be and is hereby approved and
adopted by the shareholders of the corporation; and
<PAGE 16>
RESOLVED FURTHER, that the officers and directors
of the corporation be and are hereby authorized and
empowered on behalf of the corporation to execute and
file Articles of Amendment and to take all such other
actions as they may determine in their discretion to be
necessary or appropriate in order to effect the
foregoing amendment of the Articles of Incorporation.
RELATIONSHIP WITH INDEPENDENT PUBLIC
ACCOUNTANTS
For the year ended December 31, 1998, Franklin Financial
engaged Arthur Andersen LLP, independent certified public
accountants, to examine its consolidated financial statements.
It is anticipated that Arthur Andersen LLP will be similarly
engaged for the year 1999. Representatives of Arthur Andersen
LLP are expected to be present at the 1999 Annual Meeting with
the opportunity to make a statement if they desire to do so and
to be available to respond to appropriate questions.
ADDITIONAL INFORMATION
A copy of the Annual Report of Franklin Financial on Form
10-K as filed with the Securities and Exchange Commission,
including financial statements and financial statement schedules,
is available without charge to shareholders upon written request
addressed to William E. Snell, Jr., President and Chief Executive
Officer, Franklin Financial Services Corporation, 20 South Main
Street, P.O. Box T, Chambersburg, Pennsylvania 17201-0819.
OTHER MATTERS
The Board of Directors of Franklin Financial knows of no
matters, other than those discussed in this Proxy Statement,
which will be presented at the 1999 Annual Meeting. However, if
any other matters are properly brought before the meeting, any
proxy given pursuant to this solicitation will be voted in
accordance with the recommendations of the management of Franklin
Financial.
BY ORDER OF THE BOARD OF
DIRECTORS
April E. Rosenbaum
Secretary
Chambersburg, Pennsylvania
March 30, 1999
PAGE 17
APPENDIX
PROXY
FRANKLIN FINANCIAL SERVICES CORPORATION
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD April
27, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORS
The undersigned hereby appoints April E. Rosenbaum and
Mark R. Hollar, and each or either of them, as proxies, with full
power of substitution, to vote as directed below all of the
shares of Franklin Financial Services Corporation common stock
held of record on March 12, 1999 by the undersigned and by the
Plan Agent for the account of the undersigned under the Dividend
Reinvestment Plan at the Annual Meeting of Shareholders to be
held on Tuesday, April 27, 1999, at 10:30 a.m. at the Lighthouse
Restaurant, 4301 Philadelphia Avenue, Chambersburg, Pennsylvania,
and at any adjournment thereof, as follows:
1. ELECTION OF FIVE DIRECTORS FOR A TERM OF THREE YEARS
[ ] FOR all nominees listed [ ] WITHHOLD AUTHORITY to
vote
below* for all nominees listed
below
G. Warren Elliott William E. Snell, Jr. Dennis
W. Good, Jr.
Martha B. Walker Robert G. Zullinger
*INSTRUCTION: If you wish to withhold
authority
to vote for any
individual nominee,
strike a line through the
nominee's
name.
2. PROPOSAL TO AMEND THE ARTICLES OF INCORPORATION
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(continued on reverse side)
PAGE 18
THIS PROXY WILL BE VOTED AS DIRECTED. IF NO DIRECTION IS GIVEN,
THIS PROXY WILL BE VOTED FOR THE NOMINEES LISTED AND FOR THE
PROPOSAL TO AMEND THE ARTICLES OF INCORPORATION.
This proxy also confers authority as to any other business which
may be brought before the meeting or any adjournment thereof. If
any other business is presented at the meeting, the shares
represented by this proxy will be voted in accordance with the
recommendations of the management of Franklin Financial Services
Corporation.
Dated:_______________________, 1999
___________________________________
Signature
___________________________________
Signature
IMPORTANT: Please sign
exactly as
your name or names appear
hereon.
Joint owners should each
sign. If
you sign as agent or in
any other
representative capacity,
please
state the capacity in
which you
sign.
<PAGE 19>