PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
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Section 240.14a-12
FRANKLIN FINANCIAL SERVICES CORPORATION
Name of Registrant as Specified in its Charter)
________________________________________________________________
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if other than the Registrant)
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PROXY STATEMENT
Dated and to be Mailed March 27, 2001
FRANKLIN FINANCIAL SERVICES CORPORATION
20 South Main Street
P. O. Box 6010
Chambersburg, PA 17201-6010
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 24, 2001
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 24, 2001, 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 three 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 9, 2001, 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 27, 2001
PROXY STATEMENT
Dated and to be Mailed March 27, 2001
FRANKLIN FINANCIAL SERVICES CORPORATION
20 South Main Street
P. O. Box 6010
Chambersburg, PA 17201-6010
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 24, 2001
Table of Contents
Page
GENERAL INFORMATION......................................
Date, Time, and Place of Meeting.......................
Shareholders Entitled to Vote..........................
Purpose of Meeting.....................................
Solicitation of Proxies................................
Revocability and Voting of Proxies.....................
Voting of Shares and Principal Holders Thereof.........
Shareholder Proposals..................................
Recommendation of the Board of Directors...............
INFORMATION CONCERNING THE ELECTION OF DIRECTORS.........
General Information....................................
Information about Nominees and Continuing Directors....
Meetings and Committees of the Board of Directors......
Compensation of Directors..............................
Executive Officers.....................................
Executive Compensation and Related Matters.............
Audit Committee Report.................................
Transactions with Directors and Executive Officers.....
Compliance with Section 16(a) of the Exchange Act......
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS.........
General Information....................................
Information About Fees.................................
ADDITIONAL INFORMATION...................................
OTHER MATTERS............................................
EXHIBIT A - FRANKLIN FINANCIAL SERVICES CORPORATION
AUDIT COMMITTEE CHARTER......................
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 24, 2001, 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 9,
2001, 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
three 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
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
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 three nominees identified
in this Proxy Statement. 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, 2000, Franklin
Financial had issued and outstanding 2,757,925 shares of common
stock; there is no other class of stock outstanding. As of such
date, 163,313 shares of Franklin Financial common stock were
held by the Trust Department of F&M Trust as sole fiduciary
(representing approximately 5.9% of such shares outstanding) and
will be voted FOR the election of the three 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. Each
share is entitled to one vote on all matters submitted to a vote
of the shareholders. A majority of the votes which 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 three 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
December 31, 2000 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 Percent
Title of Name and Address of Ownership as of
Class Beneficial Owner of 12/31/00 Class
Common Farmers and 163,313 shares(1) 5.9%
stock, Merchants Trust
$1.00 par Company of
value Chambersburg
Per share Trust Department
20 South Main Street
P.O. Box 6010
Chambersburg, PA
17201-6010
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. The Trust Department of F&M Trust also holds
shared voting or dispositive authority with respect to an
additional 19,853 shares
Shareholder Proposals
Pursuant to Rule 14a-8 promulgated by the Securities and
Exchange Commission (hereafter the "SEC") and Section 2.4 of the
Bylaws of Franklin Financial, shareholder proposals intended to
be presented at the 2002 Annual Meeting of the shareholders of
Franklin Financial must be received at the executive offices of
Franklin Financial no later than November 27, 2001, in order to
be eligible for inclusion in the proxy statement and proxy form
to be prepared by Franklin Financial in connection with the 2002
Annual Meeting. A shareholder proposal which does not satisfy
the notice and other requirements of SEC Rule 14a-8 and the
Bylaws of Franklin Financial is not required to be included in
Franklin Financial's proxy statement and proxy form and may not
be presented at the 2002 Annual Meeting. All shareholder
proposals should be sent to: Franklin Financial Services
Corporation, Attention: President, 20 South Main Street, P.O.
Box 6010, Chambersburg, Pennsylvania 17201-6010.
Recommendation of the Board of Directors
The Board of Directors recommends that the shareholders
vote FOR the election of the three 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 11 directors. There are four directors whose terms
of office will expire at the 2001 Annual Meeting and eight
continuing directors whose terms of office will expire at the
2002 or 2003 Annual Meeting. Omer L. Eshleman, whose term of
office expires at this year's Annual Meeting has chosen not to
stand for reelection and will retire from the Board at that
time. The Board of Directors proposes to nominate the following
three 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 Stephen E. Patterson
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
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, among other things, that a shareholder who
wishes to nominate a candidate for election to the Board of
Directors must provide advance written notice to Franklin
Financial, which notice must contain certain prescribed
information and must be delivered to the President of Franklin
Financial not less than 90 days prior to the anniversary date of
the immediately preceding Annual Meeting. The Chairman of the
meeting must determine whether a nomination has been made in
accordance with the requirements of the Bylaws and, if he
determines that a nomination is defective, such nomination and
any votes cast for the nominee shall be disregarded.
Information about Nominees and Continuing Directors
Information concerning the three persons to be nominated
for election to the Board of Directors of Franklin Financial at
the 2001 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.
Shares of Stock
of Franklin
Financial
Beneficially
Owned and
Business Percentage
Experience Including of Total
Principal Occupation Outstanding
for the Past 5 Years, Director Stock, as
Name and Age and Other Directorships(1) Since(2) of 12/31/00(3)
Class A - CONTINUING DIRECTORS - TERM EXPIRES IN 2002
G. Warren Elliott (46) Franklin County Commissioner; 1994 1,288 *
Regional Representative,
General Code Publishers
(legal publisher)
Dennis W. Good, Jr. (65) Partner, McGuireWoods LLP 1988 30,964 1.12%
(law firm)
William E. Snell, Jr. (52) President and Chief Executive 1995 22,429 *
Officer, Franklin Financial
and F&M Trust
Martha B. Walker (54) Partner, Walker & MacBride, 1979 10,090 *
a Division of Barley, Snyder,
Senft & Cohen, LLC (law firm)
Robert G. Zullinger (68) Chairman of the Board, 1981 32,693 1.19%
Franklin Financial and
F&M Trust; formerly President
and Chief Executive Officer,
Franklin Financial and
F&M Trust (1981-1996)
CLASS B - NOMINEES
Charles S. Bender, II (56) Executive Vice President, 1981 62,135 2.25%
Franklin Financial and
F&M Trust
Jeryl C. Miller (60) Vice President and Secretary, 1983 14,918 *
Charles W. Karper, Inc.
(trucking industry)
Stephen E. Patterson (56) Shareholder, Patterson & 1998 800 *
Kiersz, PC (law firm)
CLASS C - CONTINUING DIRECTORS - TERM EXPIRES IN 2003
Donald A. Fry (51) President, ANDOCO, Inc., 1998 945 *
trading as Cumberland
Valley Rental (uniform
rental)
H. Huber McCleary (62) President, McCleary Oil Co. 1990 36,720 1.33%
(service station operator
and fuel oil distributor)
Charles M. Sioberg (59) Vice President, Martin & 1982 5,525 *
Martin, Inc. (engineers)
All directors and group 235,542 8.54%
executive officers as a
(14 persons)
* The number of shares shown represents less than one percent
of the total number of shares of common stock outstanding.
FOOTNOTES
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 19,706 shares is shared with spouses, children or
other family members. The shares shown above include a
total of 57,878 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
36,228 shares of unvested restricted stock issued under the
Long-Term Incentive Plan of 1990 and a total of 3,077 shares
issuable under the Employee Stock Purchase Plan.
Meetings and Committees of the Board of Directors
The Board of Directors of Franklin Financial has standing
Audit, Nominating and Personnel Committees.
Members of the Audit Committee during 2000 were Jeryl C.
Miller, Chairman, Mrs. Walker and Messrs. Eshleman, Good,
McCleary and Sioberg. Robert G. Zullinger, who was Chairman of
the Board in 2000, was an ex-officio member of the Audit
Committee. The Audit Committee met four times during 2000. 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. The Audit Committee operates under a
charter adopted by the Board of Directors, a copy of which is
attached to this proxy statement as Exhibit A. All members of
the Audit Committee were at all times during 2000 "independent
directors" as such term is defined in the listing standards of
the National Association of Securities Dealers, Inc.
Members of the Nominating Committee during 2000 were
Robert G. Zullinger, Chairman, and Messrs. Bender, Elliott,
McCleary, Patterson, Sioberg and Snell. The Nominating
Committee did not meet during the past year. The Nominating
Committee is responsible, among other things, for recommending
to the Board of Directors persons to be nominated for election
to the Board and persons to be appointed to fill vacancies on
the Board. The Nominating Committee will consider qualified
nominees who are recommended by shareholders, although no formal
procedures have been adopted for addressing shareholder
recommendations.
Members of the Personnel Committee during 2000 were
Robert G. Zullinger, Chairman, and Messrs. Elliott, Fry, Good
and Miller. The Personnel Committee met three times during the
past year. The Personnel Committee is responsible, among other
things, for administering the Long-Term Incentive Plan of 1990
and the Employee Stock Purchase Plan and overseeing the
administration of Franklin Financial's compensation policies and
employee benefits plans.
The Board of Directors of Franklin Financial met five times
during 2000. 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
With the exception of the Chairman of the Board, each
director of Franklin Financial who is not a salaried officer of
Franklin Financial or one of its subsidiaries is paid an annual
retainer of $3,800 and receives a fee of $150 for each committee
meeting attended. The Chairman of the Board receives an annual
retainer of $21,000, but does not receive a fee for attending
committee meetings.
Executive Officers
The following persons are the executive officers of
Franklin Financial:
Name Age Office Held
William E. Snell, Jr. 52 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 56 Executive Vice President of
Franklin Financial since 1983 and
of F&M Trust since 1981
Theodore D. McDowell 50 Executive Vice President of
Franklin Financial and F&M Trust
since 1999
Elaine G. Meyers 53 Treasurer and Chief Financial
Officer of Franklin Financial and
Senior Vice President/Finance of
F&M Trust since 1988
Kenneth D. Sauders 56 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 2000 salary and bonus compensation exceeded
$100,000.
SUMMARY COMPENSATION TABLE
Long-Term Compensation
Annual Compensation Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Securities
Other Underly- All
Annual Restricted ing Other
Compen- Stock Options/ LTIP Compen-
Name and Salary Bonus sation Awards SARs Payouts(2) sation
Principal Position Year ($) ($) ($) ($) (#) ($) (3)($)
William E. Snell, Jr., 2000 $170,000 $ 3,295 None None None None $5,280
President and Chief 1999 164,788 1,648 None None None None 5,964
Executive Officer 1998 160,000 9,600 None None None None 8,114
Theodore D. McDowell, 2000 $120,000 - 0 - None None None None $1,751
Executive Vice 1999 46,538 $10,000 None None None None - 0 -
President
FOOTNOTES
1. No restricted stock awards were granted in 2000. Mr. Snell
held 10,987 shares of previously issued restricted stock
with an aggregate value of $170,299 as of December 31, 2000.
Dividends are paid on those shares if and to the extent paid
on Franklin Financial common stock generally. Mr. McDowell
held no shares of restricted stock as of December 31, 2000.
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 2000.
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
Remuner-
ation 5 10 15 20 25 30 35
$ 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
$170,000 12,750 25,500 38,250 51,000 63,750 76,500 89,250
and Over
Compensation covered by the Plan is calculated by
determining the average of a participant's highest five
consecutive years' compensation (generally, salary and bonus as
reported in the Summary Compensation Table appearing above) in
the ten years preceding normal retirement. A participant's
compensation for these purposes is limited by Section 401(a)(7)
of the Internal Revenue Code of 1986, as amended (the "Code")
for each calendar year. Current compensation covered by the
plan for the year ended December 31, 2000 for Messrs. Snell and
McDowell was $160,000 and $140,840, respectively. As of
December 31, 2000, Messrs. Snell and McDowell were credited with
5.67 and 1.33 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 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 Code.
The Plan was amended November 24, 1999, effective
January 1, 2000, to give a cost-of-living adjustment to retirees
and beneficiaries with a retirement date on or before January 1,
1999. The increase is equal to 1.50% of the retiree's and
beneficiary's monthly pension payment for each complete year
measured from the later of October 1, 1994 and the retiree's and
beneficiary's retirement date to January 1, 2000.
Severance Benefit Agreement
On July 28, 1999, Franklin Financial entered into a
Severance Benefit Agreement with Theodore D. McDowell (the
"Agreement") in connection with Mr. McDowell's decision to join
Franklin Financial as its Executive Vice President. Under the
terms of the Agreement, Mr. McDowell is entitled to receive a
severance benefit of $150,000 in the event that, at any time
within 18 months following the occurrence of a Change in Control
of Franklin Financial, his employment is terminated without
cause or in the event that he elects to terminate his employment
for good reason. The Agreement will terminate automatically on
December 31, 2001 (provided that a change in control of Franklin
Financial has not occurred on or before that date), unless one
of the following events occurs on or before December 31, 2001,
in which case the Agreement will terminate upon the first to
occur of the following events: (i) Mr. McDowell is granted a
long-term incentive award on such terms as the Board of
Directors determines appropriate, or (ii) Mr. McDowell's
employment terminates for any reason.
Compensation Committee Report on Executive Compensation
The Personnel 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.
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 analysis 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 2000
plan included a range of net income targets and within that
range of targets, senior officer incentive payouts could range
from 1% to 12% 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 McDowell each participated in this
program. Because Franklin Financial's net income of
$5.007 million in 2000 fell short of the annual goal, no awards
were made under the plan in 2000.
The Committee administers a long-term incentive plan for
members of senior management, which includes Messrs. Snell and
McDowell. 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 annual and/or
cumulative 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 an annual or cumulative net income
performance goal 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 either goal in a given year results
in the permanent forfeiture of that year's portion of the cash
award. Furthermore, failure to meet the annual or cumulative
net income goals 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 2000, Franklin Financial had net income of
$5.007 Million. This resulted in basic earnings per share of
$1.85, return on assets of 1.10%, and return on equity of
12.57%. This level of earnings did not meet the annual or
cumulative net income goals for 2000 established under the long-
term incentive plan. Accordingly, no cash awards were
distributed and no accelerated vesting of restricted shares
occurred.
2000 Compensation of the Chief Executive Officer
The Committee at its December 1999 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 Mr. Snell's
base salary would be increased by 3.2% to $170,000 in 2000.
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 submitted by
Robert G. Zullinger, Chairman of the
Personnel Committee, and Messrs. Elliott,
Good, Fry and Miller, who served as members
of the Personnel Committee during 2000.
Compensation Committee Interlocks and Insider Participation
The members of the Personnel Committee of the Board of
Directors during 2000 were those persons who are named in the
Compensation Committee Report on Executive Compensation which
appears above. No member of the Personnel Committee was an
employee of Franklin Financial or F&M Trust at any time during
2000, although Mr. Zullinger served as President and Chief
Executive Officer of Franklin Financial and F&M Trust until his
retirement in 1996. There were no compensation committee
"interlocks" at any time during 2000, which in general terms
means that no executive officer or director of Franklin
Financial served as a director or member of the compensation
committee of another entity, one of whose executive officers
served as a director of Franklin Financial.
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 NASDAQ - Total U.S.
Index (a broad market index prepared by the Center for Research
in Security Prices at the University of Chicago Graduate School
of Business), with the Media General Regional Northeast Bank
Index ( an industry-specific index prepared by Media General
Financial Services), and with the Northeast Pink Banks Index (an
industry-specific index prepared by SNL Securities LC) for the
five year period ended December 31, 2000, in each case assuming
an initial investment of $100 on December 31, 1995 and the
reinvestment of all dividends. Franklin Financial has elected
to replace the Media General Regional Northeast Bank Index with
the Northeast Pink Banks Index for the reason that the later
index more closely approximates the characteristics of Franklin
Financial's common stock in that it consists exclusively of bank
stocks which are traded on the over-the-counter bulletin board;
[INSERT PERFORMANCE GRAPH}
Period Ending
Index 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99 19/31/00
Franklin Financial $100.00 $126.64 $200.62 $182.10 $132.15 $107.62
Services
Corporation
NASDAQ - Total US* 100.00 123.04 150.69 212.51 394.92 237.62
Northeast Pink Banks 100.00 120.88 170.71 205.85 169.20 147.13
Media General Regional - 100.00 133.03 229.45 239.51 220.39 306.75
Northeast Banks
* Source: CRSP, Center for Research in Security Prices,
Graduate School of Business, The University of Chicago 2001.
Used with permission. All rights reserved. crsp.com
such stocks typically have fewer shares outstanding and a lower
average daily trading volume than exchange or NASDAQ traded
stocks. The Media General Regional Northeast Banks Index, by
contrast, consists of bank stocks, a majority of which are
traded on the New York Stock Exchange or on the NASDAQ National
Market.
Audit Committee Report
The Audit Committee has reviewed the audited financial
statements of Franklin Financial for the year ended December 31,
2000 and has discussed these financial statements with
management and with Franklin Financial's independent
accountants, Beard Miller Company LLP ("Beard Miller Company").
The Audit Committee also has discussed with Beard Miller Company
the matters required to be discussed by Statement of Auditing
Standards No. 61.
The Audit Committee has received from Beard Miller Company
the written disclosures and letter required by the Independence
Standards Board Standard No. 1 and the Audit Committee has
discussed with Beard Miller Company their independence from
Franklin Financial and from Franklin Financial's management.
Based upon the review and discussions described above, the
Audit Committee recommended to the Board of Directors that
Franklin Financial's audited financial statements for the year
ended December 31, 2000 be included in Franklin Financial's
Annual Report on Form 10-K for that year.
In connection with the standards for accountant's
independence adopted by the Securities and Exchange Commission,
the Audit Committee will undertake to consider in advance of the
provision of any non-audit services by Franklin Financial's
independent accountants whether the provision of such services
is compatible with maintaining the independence of such
accountants.
The foregoing report is submitted by Jeryl C.
Miller, Chairman of the Audit Committee,
Mrs. Walker and Messrs. Eshleman, Good,
McCleary, Sioberg and Zullinger, who served
as members of the Audit Committee during
2000.
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 2000. 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
requirements, Franklin Financial believes that during the
calendar year ended December 31, 2000, all filing requirements
applicable to its directors and officers were complied with,
except that Charles M. Sioberg inadvertently failed to timely
file a Form 4 with respect to 609 shares held by a trust with
respect to which he serves as a trustee.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
General Information
On July 8, 1999, the Board of Directors of Franklin
Financial determined that it would discontinue the engagement of
Arthur Andersen LLP ("Arthur Andersen") as independent auditors
and approved the engagement of Beard & Company, Inc., Certified
Public Accountants, now Beard Miller Company LLP ("Beard Miller
Company"), as independent auditors for the fiscal year ending
December 31, 1999. The Board's decision was based upon the
recommendation of its Audit Committee, which interviewed several
independent certified public accounting firms (including Arthur
Andersen) prior to making its recommendation. Franklin
Financial did not consult with Beard Miller Company on any
matter during the two recent fiscal years immediately preceding
the fiscal year in which it determined that it would discontinue
the engagement of Arthur Andersen.
The reports of Arthur Andersen on the financial statements
of Franklin Financial for the years ended December 31, 1997 and
1998 did not contain an adverse opinion or disclaimer of
opinion, nor were such reports qualified or modified as to
uncertainty, audit scope or accounting principles. There were
no disagreements between Franklin Financial and Arthur Andersen
on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure during the
two fiscal years immediately preceding the fiscal year in which
it determined that it would discontinue the engagement of Arthur
Andersen or during any subsequent interim period, which
disagreements, if not resolved to the satisfaction of Arthur
Andersen, would have caused Arthur Andersen to make reference to
the subject matter of the disagreement in connection with its
reports on the financial statements of Franklin Financial for
such years.
It is anticipated that Franklin Financial will engage Beard
Miller Company as its auditors for the year ending December 31,
2001.
Representatives of Beard Miller Company are expected to be
present at the Annual Meeting, will have an opportunity to make
a statement if they desire to do so and will be available to
respond to appropriate questions.
Information About Fees
Audit Fees
Fees billed to Franklin Financial by Beard Miller Company
during 2000 for services relating to the audit of Franklin
Financial's annual financial statements and the review of the
financial statements included in Franklin Financial's Quarterly
Reports on Form 10-Q totaled $64,695.
Financial Information Systems Design and Implementation Fees
Franklin Financial did not engage Beard Miller Company to
provide services relating to financial information systems
design and implementation during 2000.
All Other Fees
Fees billed to Franklin Financial by Beard Miller Company
during 2000 for all other non-audit services, including tax
related services, totaled $6,765.
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 6010, Chambersburg,
Pennsylvania 17201-6010.
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 2001 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 27, 2001
EXHIBIT A
FRANKLIN FINANCIAL SERVICES CORPORATION
AUDIT COMMITTEE CHARTER
Purpose
The purpose of this Audit Committee Charter is to formally
establish and provide guidance for an independent audit function
within the holding company which complies with regulatory
requirements.
Audit Committee Composition
The Audit Committee of Franklin Financial Services
Corporation is a standing committee of the Board of Directors.
It shall contain at least five (5) directors, including the
Board Chairman as an ex-officio member. In selecting the
committee membership, which will be staggered in rotation, the
Chairman of the Board shall take into consideration the business
experience and financial background of the individual directors.
The Board Chairman shall designate an audit Committee Chairman
annually. Any inside directors shall not be committee members,
but may attend meetings upon invitation Of the Chairman or the
Auditor.
Audit Committee Purpose and Function
1. Engaging of internal and external auditors.
2. Oversight of internal audit function.
3. Review and approval of the overall audit plan and
policy.
4. Review and approval of key accounting and financial
policies.
5. Review of statements, audit results, examiners'
reports, external and internal auditors' reports and
memorandums.
6. Serve as a communication channel for the internal and
external auditors, management, and employees on matters
concerning accounting, financial reporting, auditing,
and related subjects.
Responsibility
Through its Audit Committee, the Board of Directors assumes
ultimate responsibility for the bank's audit function. The
Board is responsible for: (1) engaging the bank's internal
auditors, (2) the independence of the audit function within the
organization, (3) insuring that adequate and effective audit
programs and procedures exist, (4) receiving and reviewing and
acting on the findings of the audit function, and (5) engaging
the bank's external auditors.
The Audit Committee shall be responsible for completing all
the minimum standards established by the Pennsylvania Department
of Banking and any requirements of Section 1407 of the
Pennsylvania Banking Code of 1965 as they pertain to
subsidiaries of Franklin Financial Services Corporation.
Reporting
The audit Committee shall meet at least quarterly and
thereafter, report any major finding to the Board of Directors.
At least once per year, the Committee shall meet with the
external auditors without management and the internal audit
representatives present.
Objectives of the Audit Function
To determine compliance with bank policies and procedures
for Franklin Financial Services Corporation and its subsidiary,
Farmers and Merchants Trust Company (F&M).
To insure that the bank's accounting systems are consistent
with generally accepted accounting procedures so as to provide
prompt and accurate recording of transactions.
To appraise the adequacy, effectiveness and efficiency of
internal controls to insure the safeguarding bank assets.
To insure bank compliance with regulatory, legal, and
consumer oriented requirements.
APPENDIX
FRANKLIN FINANCIAL SERVICES CORPORATION
PROXY ANNUAL MEETING OF SHAREHOLDERS TO BE HELD APRIL 24, 2001
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 9, 2001 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 24, 2001, at 10:30 a.m. at the Lighthouse
Restaurant, 4301 Philadelphia Avenue, Chambersburg,
Pennsylvania, and at any adjournment thereof, as follows:
1. ELECTION OF THREE DIRECTORS FOR A TERM OF THREE YEARS
[ ] FOR all nominees listed below*
[ ] WITHHOLD AUTHORITY to vote for all nominees listed below
Charles S. Bender, II Jeryl C. Miller Stephen E. Patterson
INSTRUCTION: If you wish to withhold authority to vote for any
individual nominee, strike a line through the
nominee's name.
(continued on reverse side)
THIS PROXY WILL BE VOTED AS DIRECTED. IF NO DIRECTION IS GIVEN,
THIS PROXY WILL BE VOTED FOR THE NOMINEES IDENTIFIED ABOVE.
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: ____________________, 2001
__________________________________
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.