PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
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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
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Name of Registrant as Specified in its Charter)
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(Name of Person(s) Filing Proxy Statement
if other than the Registrant)
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PROXY STATEMENT
Dated and to be Mailed April 1, 2003
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 29, 2003
FRANKLIN FINANCIAL SERVICES CORPORATION
20 South Main Street
P. O. Box 6010
Chambersburg, PA 17201-6010
(717) 264-6116
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 29, 2003
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 29, 2003, 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
identified 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 14, 2003, 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
/s/ BONNIE J. CLUGSTON
BONNIE J. CLUGSTON
Secretary
Enclosures
April 1, 2003
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 29, 2003, 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 14, 2003, 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
and any adjournments thereof.
The expense of soliciting proxies will be borne by Franklin
Financial. In addition to the use of the mails, the 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 Bonnie J.
Clugston, 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. 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, 2002, Franklin
Financial had issued and outstanding 2,680,366 shares of common
stock; there is no other class of stock outstanding. As of such
date, 137,575 shares of Franklin Financial common stock were
held by the Trust Department of F&M Trust as sole fiduciary
(representing approximately 5.1% 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. 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 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. 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.
To the knowledge of Franklin Financial, no person owned of
record or beneficially on December 31, 2002 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
Name and Address of Beneficial Ownership Percent
Title of Class Beneficial Owner as of 12/31/02 of Class
Common stock, Farmers and Merchants 137,575 shares(1) 5.1%
$1.00 par value Trust Company of
Per share Chambersburg Trust
Department
20 South Main Street
P.O. Box 6010
Chambersburg, PA 17201-6010
(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 1,305 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 2004 Annual Meeting of the shareholders of
Franklin Financial must be received at the executive offices of
Franklin Financial no later than December 2, 2003, in order to
be eligible for inclusion in the proxy statement and proxy form
to be prepared by Franklin Financial in connection with the 2004
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 2004 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 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 2003 Annual Meeting and eight
continuing directors whose terms of office will expire at the
2004 or 2005 Annual Meeting. The Board of Directors proposes to
nominate the following persons for election to the Board of
Directors at the 2003 Annual Meeting for the term specified
below:
CLASS C
For a Term of
Three Years
Donald A. Fry Charles M. Sioberg
H. Huber McCleary Kurt E. Suter
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 four persons to be nominated for
election to the Board of Directors of Franklin Financial at the
2003 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 Percentage of
Business Experience, Including Principal Total Outstanding
Occupation for the Past 5 Years, and Other Director Stock as of
Name and Age Directorships(1) Since(2) 12/31/02(3)(4)
CLASS A - CONTINUING DIRECTORS (TERM EXPIRES IN 2005)
G. Warren Elliott (48) Franklin County Commissioner; Regional 1994 1,386
*
Representative, General Code Publishers (legal
publisher)
Dennis W. Good, Jr. (67) Retired; formerly Partner, McGuireWoods LLP 1988
30,629 1.14%
(law firm)
William E. Snell, Jr. (54) President and Chief Executive Officer, Franklin 1995
23,133 *
Financial and F&M Trust
Martha B. Walker (56) Partner, Barley, Snyder, Senft & Cohen, LLC (law firm) 1979
5,592 *
CLASS B - CONTINUING DIRECTORS (TERM EXPIRES IN 2004)
Charles S. Bender, II (58) Retired. Formerly Executive Vice President, 1981
56,152 2.09%
Franklin Financial and F&M Trust
Allan E. Jennings, Jr. (53) President, Jennings Chevrolet Oldsmobile 2002 941
*
Cadillac, Inc.; Vice President, Jennings Pontiac
Buick GMC, Inc. (car dealerships)
Jeryl C. Miller (62) Vice President and Secretary, Charles W. 1983 15,868
*
Karper, Inc. (trucking industry)
Stephen E. Patterson (58) Shareholder, Patterson & Kiersz, PC (law firm) 1998
800 *
CLASS C - NOMINEES (TERM EXPIRES IN 2003)
Donald A. Fry (53) President, ANDOCO, Inc., trading as Cumberland 1998
1,245 *
Valley Rental (uniform rental)
H. Huber McCleary (64) President, McCleary Oil Co. (service station 1990
40,176 1.50%
operator and fuel oil distributor)
Kurt E. Suter (61) President, Carlisle Mobile Homes, Inc. and 2002 1,000
*
Eastern Motor Inns, Inc.; Partner, Hooke &
Suter (real estate firm)
Charles M. Sioberg (63) Vice President, Martin & Martin, Inc. (engineers) 1982
5,310 *
NAMED EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
Theodore D. McDowell 3,358 *
All directors and executive 201,198 7.50%
officers as a group (15 persons)
*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 14,768 shares is shared with spouses, children or
other family members. The shares shown above include a
total of 52,611 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
1,826 shares issuable under the Employee Stock Purchase
Plan and a total of 7,500 shares issuable pursuant to the
exercise of stock options granted under the Incentive Stock
Option Plan of 2002.
(5) Mr. Sioberg was elected to the office of Chairman of the
Board of Franklin Financial, effective January 1, 2003.
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 2002 were Jeryl C.
Miller, Chairman, Mrs. Walker and Messrs. Good, Jennings,
Sioberg and Suter. Robert G. Zullinger, who retired on December
31, 2002 and who was Chairman of the Board in 2001, was an ex-
officio member of the Audit Committee. The Audit Committee met
five times during 2002. 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. All members of the Audit Committee were at all times
during 2002 "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 2002 were Robert
G. Zullinger, Chairman, and Messrs. Bender, Elliott, McCleary,
Patterson, Sioberg and Snell. The Nominating Committee met once
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, persons to be
appointed to fill vacancies on the Board and persons to be
elected as officers of 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 2002 were Robert
G. Zullinger, Chairman, and Messrs. Elliott, Fry, Good, Jennings
and Miller. The Personnel Committee met five times during the
past year. The Personnel Committee is responsible, among other
things, for administering the Incentive Stock Option Plan of
2002 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 seven
times and the Executive Committee of the Board of Directors met
13 times during 2002. 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 $4,000 and receives a fee of $150 for each committee
meeting attended. The Chairman of the Board receives an annual
retainer of $22,000, 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. 54 President and Chief Executive
Officer of Franklin Financial
and F&M Trust since 1996;
President of Franklin Financial
and F&M Trust since 1995
Theodore D. McDowell 52 Executive Vice President of
Franklin Financial and F&M
Trust since 1999
Elaine G. Meyers 55 Treasurer and Chief Financial
Officer of Franklin Financial
and Senior Vice President/
Finance of F&M Trust since 1988
Kenneth D. Sauders 58 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 2002 salary and bonus compensation exceeded
$100,000.
SUMMARY COMPENSATION TABLE
Long-Term Compensation
Annual Compensation Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other Securities
Annual Restricted Underlying All
Name And Compen- Stock Options/ LTIP Other
Principal Year Salary Bonus sation Awards SARs Payouts Compen-
Position ($) ($) ($) ($) (#) ($) ($)
William E. 2002 $180,223 $13,874 $23,282 None 2,500 None $9,286
Snell, Jr.,
President and 2001 173,400 3,400 None None None $272,478(1) 7,829
Chief Executive
Officer 2000 170,000 3,295 None None None None 5,280
Theodore D. 2002 $127,177 $9,793 None None 2,000 None $7,439
McDowell,
Executive Vice 2001 122,408 2,400 None None None None 6,966
President
2000 120,000 -0- None None None None 1,751
(1) Consists of the dollar value of shares of restricted stock
granted to Mr. Snell in 1996 pursuant to an award under a
long-term incentive plan in which Mr. Snell and seven other
senior officers participated, which shares vested on
December 31, 2001.
(2) Consists exclusively of matching contribution and
discretionary contribution to Section 401(k) Profit Sharing
Plan.
Stock Options Granted in 2002
The following table sets forth certain information relating
to stock options granted during 2002 to the executive officers
named in the Summary Compensation Table appearing above. No
stock appreciation rights ("SAR's") were granted in 2002.
OPTION/SAR GRANTS IN 2002
Individual Grants
Potential
Realizable Value
at Assumed Annual
Number of Percent of Rates of Stock
Shares Total Price Appreciation
Underlying Options/SAR's Exercise for Option Term
Options/SAR's Granted to or
Granted in Employees Base
2002(1)(2) in Fiscal Year Price(2)(3) Expiration 5% 10%
Name (#) (%) ($/Share) Date ($) ($)
William E. 2,500 15% $25.00 4-23-12 $39,306 $99,609
Snell, Jr.
Theodore D. 2,000 12% $25.00 4-23-12 $31,440 $79,680
McDowell
(1) Represents the grant of incentive stock options on May 23,
2002 pursuant to the terms of the Incentive Stock Option
Plan of 2002. Each option is currently vested and
exercisable and expires, to the extent not previously
exercised, upon termination of employment for reasons other
than retirement, disability or death.
(2) Adjusted to reflect stock splits and stock dividends, if
any, since date of grant.
(3) Exercise price in each case is equal to 100% of fair market
value on the date of grant.
(4) The dollar amounts set forth in these columns are based
upon assumed annual appreciation rates of 5% and 10% as
required under applicable Securities and Exchange
Commission regulations and are not intended to indicate the
possible future price appreciation, if any, of Franklin
Financial common stock. No gain will be realized by the
option holder in the absence of an increase in the market
price of Franklin Financial common stock, which will
benefit all shareholders.
Stock Option Exercises and 2002 Year-End Values
The following table sets forth with respect to the
executive officers named in the Summary Compensation Table
certain information relating to the exercise of stock options
during 2002 and relating to the number and value of unexercised
stock options and SAR's held as of December 31, 2002. No SAR's
were granted or exercised in 2002 and none were outstanding on
December 31, 2002.
2002 OPTION EXERCISE AND YEAR-END VALUES
Value
Realized
(Market
Value at
Shares Exercise, Number of Value of Unexercised
Acquired Less Unexercised Options/ In-The-Money Options/
on Exercise SAR's at Fiscal SAR's at Fiscal
Exercise Price Year-End Year-End 12-31-2002
Name (#) ($) (#) ($)
Exercisable Unexercisable Exercisable Unexercisable
Defined Benefit Pension Plan
F&M Trust maintains a defined benefit pension plan (the
"Plan") for the benefit of its employees. 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 of 1986, as amended
(the "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
Remuneration 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
$180,000 13,500 27,000 40,500 54,000 67,500 81,000 94,500
$190,000 14,250 28,500 42,750 57,000 71,250 85,500 99,750
$200,000 and Over 15,000 30,000 45,000 60,000 75,000 90,000 105,000
Compensation covered by the Plan is calculated by
determining the average of a participant's highest five
consecutive years' compensation in the ten years preceding
normal retirement. Prior to 2002, compensation is generally
salary and bonus as reported in the Summary Compensation Table
above. Effective January 1, 2002, compensation for Plan
purposes excludes long-term disability payments, taxable fringe
benefits, moving expenses, housing expenses, non-cash taxable
amounts under the restricted stock program, restricted stock
program cash dividend payments, and tax equalization payments.
Section 401(a)(17) of the Code limits a participant's
compensation for each calendar year. Current compensation
covered by the Plan for the year ended December 31, 2002 for
Messrs. Snell and McDowell was $181,982 and $135,422,
respectively. As of December 31, 2002, Messrs. Snell and
McDowell were credited with 7.67 and 3.33 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. The Plan was
also amended and restated on November 9, 2001 to conform the
Plan to reflect changes required by law, up to and including the
IRS Restructuring and Reform Act of 1998. The Plan was again
amended on December 19, 2002 in order to fully adopt the
provisions of the Economic Growth and Tax Relief Reconciliation
Act of 2001 and other changes in tax law.
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 consisted of six independent
directors in 2002.
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 SNL Northeast OTC-BB and
Pink Banks 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 net income and other performance
targets.
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 and other
performance targets. The 2001 plan included a range of net
income and other performance targets and within that range of
targets, senior officer incentive payouts could range from 1% to
15% of annual salary, with an additional 401(k) Profit Sharing
Plan discretionary 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. Based upon Franklin Financial's financial performance
in 2002, awards will be payable to both Messrs. Snell and
McDowell. The exact amount of those awards cannot be determined
at this time because certain necessary peer group data is not
yet publicly available. The awards paid to Messrs. Snell and
McDowell under the short-term incentive plan in 2002, based upon
the financial performance of Franklin Financial in 2001, were
$13,874 and $9,793, respectively, and are reported in the
Summary Compensation Table which appears above.
The Committee administers the Incentive Stock Option Plan
of 2002 for senior officers. Under this plan, participants are
granted on an annual basis Incentive Stock Options to purchase
shares at an exercise price not less than 100% of the fair
market value of a share of Common Stock on the date the option
is granted.
The purpose of the Plan is to promote the interests of
Franklin Financial and its shareholders by strengthening the
ability of Franklin Financial to attract, motivate and retain
qualified executives and to provide as additional incentives for
these officers to promote the financial success and growth of
Franklin Financial and its subsidiaries. Options are the only
form of award authorized under the Plan and have no intrinsic
value unless the price of the underlying shares appreciates over
time. No gain will accrue to the officer who is awarded an
option, absent appreciation in the price of Franklin Financial
Common Stock, which will benefit all shareholders.
In administering the Plan, the Committee has established an
annual Target Option Award for each participant which is linked
to one of five salary grade level ranges. Actual Option Awards
are granted by the Committee based upon a calculation of the
three-year average of Franklin Financial's annual increase in
earnings per share. The Committee's philosophy in utilizing
this performance measurement is that long term growth in
earnings per share is the primary driver of both the market
value of Franklin Financial stock and the company's capacity to
regularly increase cash dividends to shareholders.
Four target ranges have been established for the three-year
average of Franklin Financial's annual increase in earnings per
share. Actual Option Awards are determined by comparing the
calculation of the three-year average of earnings per share
growth against the four target ranges. Accordingly, actual
Option Awards may be greater or lesser than the annual Target
Option Award for each participant.
Franklin Financial's Basic Earnings Per Share for 1998
through 2001 were $1.76, $1.86, $1.85 and $2.09 respectively,
resulting in an average three-year growth in earnings per share
of 6.1%. In accordance with the guidelines established by the
Committee. Incentive Stock Option Awards for an aggregate
17,000 shares were granted to twelve participants during 2002.
2002 Compensation of the Chief Executive Officer
The Committee at its December 2001 meeting discussed its
compensation policy as summarized above, reviewed competitive
pay practices, and considered both in light of Franklin
Financial's strategic initiative to control overhead expenses.
After considering these factors, the Committee determined that
Mr. Snell's base salary would be increased to $180,223 in 2002.
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, Fry, Good,
Jennings and Miller, who served as members of the
Personnel Committee during 2002.
Compensation Committee Interlocks and Insider Participation
The members of the Personnel Committee of the Board of
Directors during 2002 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
2002, 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 2002, 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) and with the Northeast OTC-BB and Pink Banks Index
(an industry-specific index prepared by SNL Financial LC) for
the five year period ended December 31, 2002, in each case
assuming an initial investment of $100 on December 31, 1997 and
the reinvestment of all dividends.
[See Performance Graph]
Audit Committee Report
The Audit Committee has reviewed the audited financial
statements of Franklin Financial for the year ended December 31,
2002 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, 2002 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.
This report is not intended to be incorporated by reference
into any filing made by Franklin Financial with the SEC under
the Securities Act of 1933 or the Securities Exchange Act of
1934.
The foregoing report is submitted by Jeryl C. Miller,
Chairman of the Audit Committee, Mrs. Walker and
Messrs. Good, Jennings, Sioberg and Suter, who served
as members of the Audit Committee during 2002.
Transactions with Directors and Executive Officers
Some of the directors and executive officers of Franklin
Financial 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 2002. 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, 2002, all filing requirements
applicable to its directors and officers were complied with.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
General Information
For the year ended December 31, 2002, Franklin Financial
engaged Beard Miller Company, independent certified public
accountants, to examine its consolidated financial statements.
It is anticipated that Beard Miller Company will be similarly
engaged for the year 2003. 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 2002 for services relating to the audit of Franklin
Financial's annual financial statements and the review of the
unaudited financial statements included in Franklin Financial's
Quarterly Reports on Form 10-Q totaled $60,345.
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 2002.
All Other Fees
Fees billed to Franklin Financial by Beard Miller Company
during 2002 for all other non-audit services, including tax
related services, totaled $30,919.
The Audit Committee considered whether the provision of
nonaudit services by Franklin Financial's accountants during
2002 was compatible with maintaining auditor independence.
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 2003 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
/s/ BONNIE J. CLUGSTON
BONNIE J. CLUGSTON
Secretary
Chambersburg, Pennsylvania
April 1, 2003
APPENDIX
FRANKLIN FINANCIAL SERVICES CORPORATION
PROXY ANNUAL MEETING OF SHAREHOLDERS TO BE HELD APRIL 29,
2003
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Bonnie J. Clugston 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 14, 2003 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 29, 2003, 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 [ ] WITHHOLD AUTHORITY to
below* vote for all nominees
listed below
Donald A. Fry H. Huber McCleary Kurt E. Suter Charles M. Sioberg
*INSTRUCTION: If you wish to withhold authority to vote
for any individual nominee, strike a line
through the nominee's name.
It is important that your shares be represented at the
meeting. Please sign, date and return this proxy as promptly as
possible, whether or not you plan to attend the meeting. This
proxy is revocable at any time before it is exercised and may be
withdrawn if you elect to attend the meeting and wish to vote in
person.
(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.
The undersigned hereby acknowledges receipt of the notice
of annual meeting of shareholders and proxy statement dated
April 1, 2003 and hereby revokes all proxies heretofore given.
Dated: , 2003
--------------------------------
Signature
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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.