PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
[X] 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)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-
6(i)(4) and 0-11.
1) Title of each class of securities to which transaction
applies:
_________________________________________________________________
2) Aggregate number of securities to which transaction
applies:
_________________________________________________________________
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth
the amount on which the filing fee is calculated and
state how it was determined):
_________________________________________________________________
4) Proposed maximum aggregate value of transaction:
_________________________________________________________________
5) Total fee paid:
_________________________________________________________________
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided
by Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or Schedule
and the date of its filing.
1) Amount Previously Paid:
________________________________________________
2) Form, Schedule or Registration Statement No.:
________________________________________________
3) Filing Party:
________________________________________________
4) Date Filed:
________________________________________________
<PAGE>
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 28, 1998
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 28, 1998, 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 four nominees
listed in the accompanying Proxy Statement for the term
specified.
2. 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 13, 1998, shall be entitled to notice of and to vote at
the Annual Meeting.
It is requested that you promptly execute 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, 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 31, 1998
<PAGE>
PROXY STATEMENT
Dated and to be Mailed March 31, 1998
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 28, 1998
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................ 3
INFORMATION CONCERNING THE ELECTION OF DIRECTORS.............. 3
General Information...................................... 3
Information about Nominees and Continuing Directors...... 4
Meetings and Committees of the Board of Directors........ 6
Compensation of Directors................................ 7
Executive Officers....................................... 7
Executive Compensation and Related Matters............... 8
Transactions with Directors and Executive Officers............ 13
Compliance with Section 16(a) of the Exchange Act........ 13
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS.............. 13
ADDITIONAL INFORMATION........................................ 14
OTHER MATTERS................................................. 14
<PAGE>
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 28, 1998, 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 13,
1998, 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
four directors, and (2) 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.
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
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 four nominees identified in
this Proxy Statement. 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, 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 February 6, 1998, Franklin
Financial had issued and outstanding 2,796,082 shares of common
stock; there is no other class of stock outstanding. As of such
date, 172,379 shares of Franklin Financial common stock were held
by the Trust Department of F&M Trust as sole fiduciary
(representing approximately 6.17% of such shares outstanding) and
will be voted FOR the election of the four nominees identified in
this Proxy Statement.
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 four 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.
To the knowledge of Franklin Financial, no person owned of
record or beneficially on February 6, 1998 more than five percent
(5%) of the outstanding common stock of Franklin Financial,
except as set forth in the table which follows.
<TABLE>
<CAPTION>
Amount and Nature
of Beneficial
Name and Address of Ownership as of
Title of Class Beneficial Owner 2/6/98 Percent of Class
<S> <C> <C> <C>
Common Stock, Farmers and Merchants Trust Company 172,379 shares(1) 6.17%
$1.00 par value of Chambersburg
per share Trust Department
20 South Main Street
Chambersburg, PA 17201-0819
</TABLE>
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
Shareholder proposals intended to be presented at the 1999
Annual Meeting of the shareholders of Franklin Financial must be
received at the executive offices of Franklin Financial at
20 South Main Street, P.O. Box T, Chambersburg, Pennsylvania
17201-0819, no later than December 3, 1998, in order to be
included in the proxy statement and proxy form to be prepared by
Franklin Financial in connection with the 1999 Annual Meeting.
Recommendations of the Board of Directors
The Board of Directors recommends that the shareholders vote
FOR the election of the four nominees identified in this Proxy
Statement.
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 12 directors. There are four directors whose terms of
office will expire at the 1998 Annual Meeting and eight
continuing directors whose terms of office will expire at the
1999 or 2000 Annual Meeting. Charles R. Diller, who served as a
director of F&M Trust since 1972 and of Franklin Financial since
its organization in 1983, retired in December of last year.
John M. Hull, III, who has also served as a director of F&M Trust
since 1972 and of Franklin Financial since 1983, will retire at
the conclusion of this year's Annual Meeting. The Board of
Directors proposes to nominate the following four persons for
election to the Board of Directors for the term specified below:
CLASS B
For a Term of
Three Years
Charles S. Bender, II Jeryl C. Miller
Omer L. Eshleman Stephen E. Patterson
In the event that any of the foregoing nominees is unable to
accept nomination or election, any proxy given pursuant to this
solicitation will be voted in favor 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
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 four persons to be nominated for
election to the Board of Directors of Franklin Financial at the
1998 Annual Meeting and concerning the eight continuing directors
and the executive officers of Franklin Financial named in the
Summary Compensation Table appearing elsewhere in this Proxy
Statement is set forth in the table which follows.
<PAGE>
<TABLE>
<CAPTION>
Shares of Stock of Franklin
Business Experience, Including Principal Financial Beneficially
Occupation for the Owned and Percentage of
Past 5 Years, and Director Total Outstanding Stock
Name and Age Other Directorships(1) Since(2) as of 2/6/98(3)
<S> <C> <C> <C>
CLASS A - Continuing
Directors
(Term expires 1999)
G. Warren Elliott (43) Franklin County Commissioner; Regional 1994 889 *
Representative, General Code Publishers
(legal publisher)
Dennis W. Good, Jr. (62) Partner, McGuire, Woods, Battle & Boothe, LLP 1988 37,001 1.32%
(law firm)
William E. Snell, Jr. (49) President and Chief Executive Officer, Franklin 1995 20,036 *
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 (51) Partner, Walker, Van Horn & MacBride, a Division 1979 12,159 *
of Barley, Snyder, Senft & Cohen, LLC (law firm)
Robert G. Zullinger (65) Vice Chairman, Franklin Financial and F&M Trust; 1981 37,806 1.35%
formerly President and Chief Executive Officer,
Franklin Financial and F&M Trust (1981-1996)
CLASS B - Nominees
Charles S. Bender, II (53) Executive Vice President, Franklin Financial and 1981 60,534 2.17%
F&M Trust
Omer L. Eshleman (64) Retired -- formerly President and Chief Executive 1992 18,553 *
Officer, Mont Alto State Bank
Jeryl C. Miller (57) Vice President and Secretary, Charles W. Karper, 1983 15,999 *
Inc. (trucking industry)
Stephen E. Patterson (53) Shareholder, Patterson, Kiersz & Ganley, 1998 800 *
P.C. (law firm)
CLASS C - Continuing Directors
(Term expires 2000)
Jay L. Benedict, Jr. (68) Attorney -- formerly partner, Benedict & Gabler 1969 18,217
(law firm); Chairman of the Board of Franklin
Financial and F&M Trust
H. Huber McCleary (59) President, McCleary Oil Co. (service station 1990 31,922 1.14%
operator and fuel oil distributor)
Charles M. Sioberg (57) Vice President, Martin & Martin, Inc. (engineers) 1982 5,292 *
All directors and
executive officers as
a group (15 persons) 319,622(4) 11.43%
</TABLE>
FOOTNOTES
* The number of shares shown represents less than one percent
of the total number of shares of common stock outstanding.
<PAGE>
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 47,041 shares is shared with
spouses, children or other family members. The shares
shown above include a total of 82,169 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 619 shares
issuable under the Employee Stock Purchase Plan.
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 1997 were Jeryl C.
Miller, Chairman, and Messrs. Eshleman, Good, Hull, 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 1997
were Jay L. Benedict, Chairman, and Messrs. Diller, Elliott, Good
and Miller. The Incentive Compensation Committee met two 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 seven times
during 1997. 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:
<TABLE>
<CAPTION>
Name Age Office Held
<S> <C> <C>
William E. Snell, Jr. 49 President and Chief Executive Officer of Franklin Financial
and F&M Trust since 1996; President of Franklin Financial
and F&M Trust since 1995
Charles S. Bender, II 53 Executive Vice President of Franklin Financial since 1983
and of F&M Trust since 1981
Frank S. Elliott 56 Senior Vice President of Franklin Financial and F&M Trust
since 1988
Elaine G. Meyers 50 Treasurer and Chief Financial Officer of Franklin Financial
and Senior Vice President/Finance of F&M Trust since 1988
Kenneth D. Sauders 53 Investment and Asset/Liability Manager of Franklin
Financial since 1997 and Senior Vice President of F&M Trust
since 1995
</TABLE>
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 1997 salary and bonus compensation exceeded $100,000.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term Compensation
Annual Compensation Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other Securities
Annual Restricted Underlying All Other
Compen- Stock Options/ LTIP Compen-
Name and Principal Salary Bonus sation Awards(1) SARs Payouts(2) sation(3)
Position Year ($) ($) ($) ($) (#) ($) ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
William E. Snell, Jr., 1997 $160,000 None None None None None $5,198
President and Chief
Executive Officer(4) 1996 $154,615 None None None None None $3,283
1995 $ 96,923 $20,000 None None None None None
Charles S. Bender, II 1997 $114,450 None None None None None $4,258
Executive Vice President
1996 $114,450 None $16,366 None None None $4,648
1995 $109,200 None $ 8,992 None None $7,702 $4,202
</TABLE>
Footnotes
1. No restricted stock awards were granted in 1997. Messrs.
Snell and Bender held 10,987 and 15,714 shares,
respectively, of previously issued restricted stock with an
aggregate value of $390,039 and $557,847, respectively, as
of February 6, 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 1997.
3. Consists exclusively of matching contribution to
Section 401(k) Profit Sharing Plan.
4. Mr. Snell was employed by Franklin Financial on April 17,
1995 and became Chief Executive Officer on March 8, 1996.
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):
<TABLE>
<CAPTION>
PENSION PLAN TABLE
YEARS OF SERVICE
Covered Remuneration 5 10 15 20 25 30 35
<S> <C> <C> <C> <C> <C> <C> <C>
$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 and Over 12,000 24,000 36,000 48,000 60,000 72,000 84,000
</TABLE>
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,
1997 for Messrs. Snell and Bender was $153,750 and $117,125,
respectively. As of December 31, 1997, Messrs. Snell and Bender
were credited with 2.67 and 22.92 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 consists of two components: base
salary and long-term incentives. The Committee has established
an executive compensation policy to assist it in administering
these two components of executive compensation.
The policy is to provide executives of Franklin Financial
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.
Competitive compensation practices are determined from time
to time, as follows. The Committee uses data from compensation
surveys of the banking industry 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 Mid-Atlantic
Bank Index appearing in the stock performance graph set forth
elsewhere in this proxy statement because the companies
represented in the 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 a long-term incentive program to link
total pay to the performance of Franklin Financial. This program
provides participants the opportunity to earn a combination of
cash and stock awards contingent upon the achievement of long-
term corporate earnings objectives. The goals of this program
are to align an executive's financial interests with those of
shareholders by linking total pay to the achievement of long-term
corporate earnings objectives and to encourage a performance
focus that is longer-term in nature. The Committee attempts in
this connection to provide long-term incentive opportunities that
are fair in light of competitive compensation practices.
Relationship of Performance to Executive Compensation
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
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 1997, Franklin Financial had net income of approximately
$4.363 million. This resulted in basic earnings per share of
$1.59, return on assets of 1.26%, and return on equity of 12.03%.
This level of earnings did not meet the annual earnings objective
for 1997 established under the plan. Accordingly, no cash awards
were distributed and no accelerated vesting of restricted shares
occurred.
1997 Compensation of the Chief Executive Officer
The Committee at its December 1996 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 the Senior Management Group would remain
unchanged for 1997. Therefore, Mr. Snell's base salary remained
at $160,000 throughout 1997.
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. Diller, Elliott, Good and Miller, who served as
members of the Incentive Compensation Committee during
1997.
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
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 Mid-Atlantic Bank Index
(an industry index prepared by Media General Financial Services)
for the five year period ended December 31, 1997, in each case
assuming an initial investment of $100 on December 31, 1992 and
the reinvestment of all dividends.
<PAGE>
<TABLE>
<CAPTION>
December 31 December 31 December 31 December 31 December 31 December 31
1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C>
Franklin Financial $100 $153.01 $171.59 $208.39 $254.33 $407.70
NASDAQ Index $100 $124.23 $117.94 $179.10 $253.66 $375.28
Mid-Atlantic Bank Index $100 $119.95 $125.94 $163.35 $202.99 $248.30
</TABLE>
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 1997. 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, was president of Walker, Van
Horn & MacBride, P.C. ("WVH&M"), which provided legal services to
F&M Trust in 1997. WVH&M has since merged with Barley, Snyder,
Senft & Cohen ("BSS&C"), where Ms. Walker is now a partner.
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
requirements, Franklin Financial believes that during the
calendar year ended December 31, 1997, all filing requirements
applicable to its directors and officers were complied with.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
For the year ended December 31, 1997, 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 1998. Representatives of Arthur Andersen
LLP are expected to be present at the 1998 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 1998 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 31, 1998
<PAGE>
APPENDIX
PROXY
FRANKLIN FINANCIAL SERVICES CORPORATION
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD APRIL 28, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints April E. Rosenbaum and Ruth
Ann Lesher, 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 13, 1998, 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 28, 1998, at 10:30 a.m. at the Lighthouse
Restaurant, 4301 Philadelphia Avenue, Chambersburg, Pennsylvania,
and at any adjournment thereof, as follows:
1. ELECTION OF FOUR DIRECTORS FOR A TERM OF THREE YEARS
[ ] FOR all nominees listed below (except as marked to the
contrary below)
Charles S. Bender, II Omer L. Eshleman
[ ] WITHHOLD AUTHORITY to vote for all nominees listed
below
Jeryl C. Miller Stephen E. Patterson
INSTRUCTION: To withhold authority to vote for any individual
nominee, strike a line through the nominee's name.
(continued on reverse side)
<PAGE>
THIS PROXY WILL BE VOTED AS DIRECTED. IF NO DIRECTION IS GIVEN,
THIS PROXY WILL BE VOTED FOR THE NOMINEES LISTED.
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:____________________,1998
___________________________________
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.
