-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HHLfpxZGX3TAMP6vH4di15KUw28c49O2sNh33i6zAA2guoN5rEA+Lc4/n6+mgTIb VkAfkosSeAvkkBRaTyterQ== 0000723646-96-000011.txt : 19960515 0000723646-96-000011.hdr.sgml : 19960515 ACCESSION NUMBER: 0000723646-96-000011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960514 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FRANKLIN FINANCIAL SERVICES CORP /PA/ CENTRAL INDEX KEY: 0000723646 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 251440803 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-12126 FILM NUMBER: 96564193 BUSINESS ADDRESS: STREET 1: P O BOX T CITY: CHAMBERSBURG STATE: PA ZIP: 17201-0819 BUSINESS PHONE: 7172646116 MAIL ADDRESS: STREET 1: P O BOX T CITY: CHAMBERSBURG STATE: PA ZIP: 17201 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1996 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ....... to ....... Commission file number 0-12126 FRANKLIN FINANCIAL SERVICES CORPORATION (Exact name of registrant as specified in its charter) PENNSYLVANIA 25-1440803 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 20 SOUTH MAIN STREET (P.O. BOX T), CHAMBERSBURG,PA 17201-0819 (Address of principal executive officer) 717/264-6116 (Registrant's telephone number, including area code) (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes No APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. There were 2,129,948 outstanding shares of the Registrant's common stock as of May 3, 1996. INDEX PART I - FINANCIAL INFORMATION Page Item 1 - Financial Statements Condensed Consolidated Balance Sheets 2 as of March 31, 1996 (Unaudited) and December 31, 1995 Condensed Consolidated Statements of 3 Income for the Three Months ended March 31, 1996 and 1995 (unaudited) Condensed Consolidated Statements of 4 Changes in Shareholders' Equity for the Twelve and Three Months ended December 31, 1995 and March 31, 1996 (unaudited) Condensed Consolidated Statements of Cash 5 Flows for the Three Months Ended March 31, 1996 and 1995 (unaudited) Notes to Condensed Consolidated Financial 6 Statements (unaudited) Item 2 - Management's Discussion and Analysis of 11 Financial Condition and Results of Operations PART II - OTHER INFORMATION Item 6 - Exhibits and Reports on Form 8-K 15 SIGNATURE PAGE 23
CONDENSED CONSOLIDATED BALANCE SHEETS (Amounts in Thousands) March 31 December 31 1996 1995 (unaudited) ASSETS Cash and due from banks $7,872 $8,244 Interest bearing deposits in other banks 14,091 6,660 Investment securities held to maturity (Market value of $36,604 and $35,563 at March 31, 1996 and December, 31 1995 respectively) (Note 2) 36,694 35,317 Investment securities available for sale (Note 2) 40,508 42,025 Loans 213,587 213,728 Less: Unearned discount (392) (520) Allowance for possible loan losses (2,938) (3,141) Net Loans 210,257 210,067 Premises and equipment, net 5,694 5,645 Other assets 5,462 5,515 Total Assets $320,578 $313,473 LIABLITIES AND SHAREHOLDERS' EQUITY Deposits: (Note 3) Demand (non-interest bearing) $36,626 $31,609 Savings and Interest checking 102,008 99,049 Time 125,661 126,553 Total Deposits 264,295 257,211 Securities sold under agreements to repurchase 13,436 13,611 Other borrowings 5,650 5,650 Other liabilities 2,276 2,045 Total Liabilities 285,657 278,517 Commitments and Contingencies - - Shareholders' equity: Common stock $1 par value per share, 5000 shares authorized with 2,030 shares issued and 1,953 and 1,940 outstanding at March 31, 1996 and December 31,1995 respectively 2,030 2,030 Capital stock without par value, 5,000 shares authorized with no shares issued or outstanding - - Additional paid in capital 19,608 19,431 Retained earnings 15,642 14,966 Net unrealized gain on securities 468 677 Treasury stock (Note 4) (1,875) (2,053) Unearned compensation (952) (95) Total shareholders' equity 34,921 34,956 Total Liabilities and Shareholders' Equity $320,578 $313,473 The accompanying notes are an integral part of these statements
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (amounts in thousands, except per share) (Unaudited) For the Three Months Ended March 31 1996 1995 INTEREST INCOME Interest on loans $4,898 $4,984 Interest on deposits in other banks 131 7 Interest and dividends on investments (Note 2) 1,087 1,018 Total interest income 6,116 6,009 INTEREST EXPENSE Interest on deposits 2,543 2,370 Interest on securities sold under repurchase agreements and other borrowings 241 257 Total interest expense 2,784 2,627 Net interest income 3,332 3,382 Provision for possible loan loss 94 39 Net-interest income after provision for possible loan losses 3,238 3,343 OTHER INCOME Trust commissions 299 388 Service charges, commissions and fees 447 493 Other 88 29 Net securities gains 78 - Total noninterest income 912 910 OTHER EXPENSE Salaries and benefits 1,660 1,518 Net occupancy expense 134 123 Furniture and equipment expense 176 202 FDIC insurance 13 144 Other 742 814 Total noninterest expense 2,725 2,801 Income before income tax provision 1,425 1,452 Income tax provision 375 365 Net income $1,050 $1,087 Earnings per share (Note 1) Net income per share $0.55 $0.56 Net income per share for 1995 has been adjusted retroactively to reflect a 50% stock split issued in the form of a dividend paid on December 29, 1995 to shareholders of record on December 8, 1995. The accompanying notes are an intergral part of these statements.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY for the year ended December 31, 1995 and the Three Months ended March 31, 1996 (Amounts in thousands, except per share ) Net Additional Unrealized Common Paid-in Retained Gain/Loss Treasury Unearned Stock Capital Earnings Securities Stock Compensation Total Balance at December 31, 1994 1,353 19,451 12,884 (353) (36) (426) 32,873 Year ended December 31, 1995 Net Income - - 4,179 - - - 4,179 - - - - - Cash dividends, $.72 per share - - (1,420) - - - (1,420) - - - 50% stock dividend 677 - (677) - - - - Common stock issued under stock option plans - (20) - - 218 - 198 Change in net unrealized gain on securities (Note 1 and 4) - - - 1,030 - - 1,030 Treasury stock at cost - - - - (2,235) - (2,235) Amortization of unearned compensation - - - - - 331 331 Balance at December 31, 1995 $2,030 $19,431 $14,966 $677 ($2,053) ($95) $34,956 Net income - - 1,050 - - - 1,050 Cash Dividends, $.19 per share - - (374) - - - (374) Common stock issued under stock option plans - - - - 22 - 22 Change in net unrealized gain on securities - - - (209) - - (209) Restricted stock issued under long-term incentive compensation plan (35,033 shares) - 177 - - 799 (976) - Restricted stock forfeited under long-term incentive compensation plan (2,918 shares) - - - - (38) 38 - Acquisition of 20,662 shares of Treasury stock at cost (Note 4) - - - - (605) - (605) Amortization of unearned compensation - - - - - 81 81 Balance at March 31, 1996 (unaudited) $2,030 $19,608 $15,642 $468 ($1,875) ($952) $34,921 The accompanying notes are an integral part of these statements.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (Amounts in Thousands) Unaudited For the Three Months Ended March 31 1996 1995 Cash flows from operating activities: Net Income $1,050 $1,087 Adjustments to reconcile net income to net cash provided (used) by operating activities: Depreciation 171 156 Premium amortization on investment securities 19 19 Discount accretion on investment securities (28) (72) Provision for loan losses 94 39 Securities gains, net (78) - Principal gains on sales of mortgage loans (11) (12) Proceeds from sale of mortgage loans 4,146 1,663 Gain on sale of other assets - - Loan charge-offs, net of recoveries (297) (122) Decrease in interest receivable 26 85 (Decrease) Increase in interest payable (31) 69 Decrease in unearned discount (128) (77) Decrease in prepaid and other assets 27 37 Increase (Decrease) in accrued expenses and other liabilities 450 (51) Other, net (1) (52) Net cash provided by operating activities $5,409 $2,769 Cash flows from investing activities: Proceeds from sales of investment securities available for sale 118 - Proceeds from maturities of investment securities 7,940 6,378 Purchase of investment securities (8,146) (1,999) Net (Increase) Decrease in loans (3,994) 3,942 Capital expenditures (220) (151) Proceeds from sales of other assets - 5 Net cash (used) provided by investing activities (4,302) 8,175 Cash flows from financing activities: Net Increase(Decrease) in demand deposits, NOW accounts and savings accounts 7,976 (7,483) Net (Decrease) Increase in certificates of deposit (892) 176 Dividends (374) (351) Common stock issued under stock option plans 22 20 Purchase of treasury shares , net. (605) (1,208) Cash(outflows) from other borrowings (175) (2,398) Net cash provided (used) by financing activities 5,952 (11,244) Increase in cash and cash equivalents 7,059 (300) Cash and cash equivalents as of January 1 14,904 8,290 Cash and cash equivalents as of March 31 $21,963 $7,990 The accompanying notes are an integral part of these statements.
FRANKLIN FINANCIAL SERVICES CORPORATION and SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 1 - Basis of Presentation The condensed consolidated balance sheets as of March 31, 1996 and December 31, 1995, the condensed consolidated statements of income for the three-month periods ended March 31, 1996 and 1995, the condensed consolidated statements of changes in shareholders' equity as of December 31, 1995 and March 31, 1996 and the condensed consolidated statements of cash flows for the three-month periods ended March 31, 1996 and 1995 have been prepared by the Corporation, without audit where indicated. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows at March 31, 1996, and for all periods presented have been made. The consolidated financial statements include the accounts of Franklin Financial Services Corporation (the Corporation), and its wholly-owned subsidiary, Farmers and Merchants Trust Company of Chambersburg. All significant intercompany transactions and account balances have been eliminated. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that these condensed consolidated financial statements be read in conjunction with the audited financial statements and notes thereto included in the Corporation's 1995 Annual Report. The results of operations for the period ended March 31, 1996, are not necessarily indicative of the operating results for the full year. For purposes of reporting cash flows, cash and cash equivalents include cash, due from banks, and federal funds sold. Generally, Federal funds are purchased and sold for one-day periods. Supplemental disclosures of cash flows information are as follows: Cash paid for three months ended March 31: 1996 1995 Interest paid on deposits and other borrowed funds . . . . . $2,815,000 $2,558,000 Income taxes paid $ - $ 100,000
Note 2 - Investment Securities Amortized cost and estimated market values of investment securities as of March 31, 1996 (unaudited), and December 31, 1995, were as follows (amounts in thousands): Held to Maturity March 31 December 31 1996 1995 Estimated Estimated Amortized Market Amortized Market Cost Value Cost Value U.S. Treasury securities and obligations of U.S. Government agencies & corporations $ - $ - $849 $849 Obligations of state and political subdivisions 18,399 18,493 16,225 16,484 Corporate debt securities 5,941 5,905 6,795 6,790 Mortgage - backed securities 11,131 10,983 10,309 10,301 35,471 35,381 34,178 34,424 Other 1,223 1,223 1,139 1,139 $36,694 $36,604 $35,317 $35,563 Available for sale March 31 December 31 1996 1995 Estimated Estimated Amortized Market Amortized Market Cost Value Cost Value Equity securities $1,290 $2,134 $1,330 $2,156 U.S. Treasury securities and obligations of U.S. Government agencies & corporations $21,802 $21,813 25,717 25,923 Obligations of state and political subdivisions 1,921 1,911 2,417 2,420 Corporate debt securities 3,066 3,068 1025 1036 Mortgage - backed securities 11,719 11,582 10,511 10,490 $39,798 $40,508 $41,000 $42,025
Interest income and dividends received on investment securities for the three months ended March 31, 1996 and 1995 are as follows (amounts in thousands): Three Months 1996 1995 (Unaudited) U.S. Government Obligations $76 $67 Obligations of U.S. Government Agencies and Corporations 618 451 Obligations of States and Political Subdivisions 228 287 Other Securities, primariy Notes and Debentures 130 179 Common Stock 35 34 $1,087 $1,018
Note 3 - Deposits Deposits are summarized as follows (amounts in thousands): March 31 December 31 1996 1995 (Unaudited) Demand $36,626 $31,609 Savings Interest-bearing checking 30,059 31,090 Money Market Accounts 25,270 22,694 Passbook and Statement Savings 46,679 45,265 $102,008 $99,049 Time Deposits of $100,000 and over 21,498 19,450 Other Time Deposits 104,163 107,103 125,661 126,553 Total Deposits $264,295 $257,211
NOTE 4 - Treasury Stock Pursuant to the stock repurchase program approved by the Board of Directors in the first quarter of 1996, the Corporation acquired 11,305 common shares as of March 31, 1996 at a cost of approximately $327,000. Under the program, the Corporation is authorized to repurchase up to 50,000 shares in open market transactions through dealers. In addition the Executive Committee of the Board of Directors approved the repurchase of a block of 9,357 common shares at a cost of approximately $278,000. NOTE 5 - Accounting Standards Effective January 1, 1996 The Corporation adopted Statement of Financial Accounting Standard No. 122 titled "Accounting for Mortgage Servicing Rights" effective January 1, 1996. An analysis of this standards determined the impact to be immaterial to the Corporation's results. Management's Discussion and Analysis of Results of Operations and Financial Condition for the Three Months Period Ended March 31, 1996 Part 1, Item 2 Results of Operations Consolidated net income for the first quarter ended March 31, 1996 was $1,050,000 versus $1,087,000 for the first quarter of 1995, reflecting a decrease of 3.4%. Consolidated earnings per share amounted to $.55 at March 31, 1996 compared to $.56 at March 31, 1995 and are weighted to reflect the impact of the stock repurchase program. Book value per share equaled $17.88 at March 31, 1996 up 7.5% over book value at March 31, 1995. Per share information has been restated to reflect a 3 for 2 stock split issued in the form of a 50% stock dividend distributed on December 29, 1995, to shareholders of record on December 8, 1995. The Corporation's annualized return on average assets (ROA) and return on average equity (ROE) for the first quarter of 1996 were 1.35% and 12.33%, respectively, compared to 1.42% and 13.23%, respectively, for the first quarter of 1995. Net interest income for the quarter weakened slightly to $3,332,000 at March 31, 1996 from $3,382,000 at March 31, 1995. The lower short-term interest rate environment coupled with the Corporation's positive short-term gap position (one year or less) contributed to the squeeze on net interest income. In addition a delay in adjusting savings deposit rates downward due to competitive pressures also was a factor in the lower net interest income. Overall the decrease in earning asset yields outpaced the decrease in liability costs. The Corporation's net interest margin on a tax-equivalent basis was 4.66% at March 31, 1996 versus 4.88% at March 31, 1995. Net interest spread for the same periods was 3.85% and 3.86%, respectively. The Corporation expensed $94,000 for possible loan losses in the first quarter of 1995 versus $39,000 for the same period a year earlier. Net charge-offs in the first quarter of 1996 totaled $296,000 versus $121,883 for the same period a year ago and resulted in the ratio of net charge-offs to average loans increasing to .56% at March 31, 1996 from .22% at March 31, 1995. The ratio of allowance for loan loss as a percent of loans decreased to 1.38% at March 31, 1996 from 1.54% at March 31, 1995. The level of allowance has been determined by management to be adequate and is supported by the ratio of nonperforming assets to total assets equaling .50% at March 31, 1996 versus .76% at March 31, 1995. Total noninterest income excluding net securities gains realized a decrease of 8.3% to $834,000 at March 31, 1996 from $910,000 a year earlier. Trust commissions were down $89,000, or 23%, to $299,000 primarily due to a lower volume of settled estates in the first quarter of 1996 versus the first quarter of 1995. Service charges, commissions and fees also showed a decrease of $46,000, or 9%, to $447,000 for the quarter ended March 31, 1996 versus $493,000 a year earlier. No fees generated from the liquidated Franklin Founders Life Insurance subsidiary accounted for most of the decrease. Partially offsetting the decreases discussed above was an increase in other income of $59,000 to $88,000 at March 31, 1996 from March 31, 1995 due largely to nonrecurring transactions such as expense recovery and refunds. The Corporation recorded $78,000 for securities gains in the first quarter of 1996 compared to none for the same period a year earlier. Securities gains were realized from the Corporation's available for sale equity securities. Total noninterest expense decreased $76,000, or 2.7%, to $2,725,000 for the quarter ended March 31, 1996 compared to $2,801,000 for the quarter ended March 31, 1995. Salaries and benefits were up $142,000, or 9.4%, to $1,660,000 for the first quarter of 1996 versus the same period in 1995. Salary expense increased $71,000, or 6.5%, to $1,159,000 primarily due to merit increases and the addition of one senior level officer while benefits increased by $71,000, or 16.5%. A nonrecurring expense related to the Long Term Incentive Plan of 1990 is primarily responsible for the unusual increase in benefit expense for the quarter. Furniture and equipment expense decreased $26,000, or 12.9%, to $176,000 due to lower maintenance and lease expense on equipment. Deposit insurance expense showed a decrease of $131,000, or 91.0%, to $13,000 for the quarter ended March 31, 1996 from $144,000 a year earlier. Although FDIC deposit insurance premiums have been reduced to zero, the Corporation is still required to pay $.23 per hundred of deposits on the SAIF deposits acquired through the Waynesboro branch purchase. Federal income tax expense totaled $375,000 for the three months ended March 31, 1996 compared to $365,000 for the same period ended March 31, 1995. The Corporation's effective tax rate for the respective periods was 26.3% and 25.1%. The increase in effective tax rate was due largely to lower tax free income relative to pretax income. Financial Condition Total assets increased 2.2%, or $7.1 million to $320,578,000 at March 31, 1996 compared to $313,473,000 at December 31, 1995. Interest bearing deposits in other banks grew 111.6%, or $7.4 million to $14,091,000. These balances consist primarily of overnight deposits held at Federal Home Loan Bank of Pittsburgh. Driving the increase in interest bearing deposits in other banks was a 2.7%, or $7.1 million increase in total deposits reaching $264,295,000 at March 31, 1996. Total deposits a year ago totaled $257,211,000. The increase in deposits occurred in noninterest bearing demand (up $5 million) and savings and interest checking (up $3 million) offset by a $1 million decrease in time deposits. Investment securities held to maturity at March 31, 1996 increased $1.4 million from December 31, 1995 to $36,694,000 offset by a decrease of $1.5 million in investments available for sale during the same three month period. Net loans remained unchanged at $210,257,000 at March 31, 1996 compared to $210,067,000 at December 31, 1995. Commercial loan demand in the first quarter was strong increasing approximately $4 million to $84,000,000 at March 31, 1996 from $80,000,000 at December 31, 1995. A $2 million decrease in both mortgage and consumer loans during the first quarter completely offset the increase in commercial loans. Mortgage and consumer loans totaled $81,254,000 and $48,076,000, respectively at March 31, 1996. Earning assets represented 94.1% of total assets at March 31, 1996 and equaled $301,550,000 compared to 93.8% and $294,069,000 respectively at December 31, 1995. The yield on average earning assets for the first quarter of 1996 was 8.44% compared to 8.52% for the first quarter of 1995. The allowance for possible loan losses decreased $203,000 to $2,938,000 at March 31, 1996 compared to $3,141,000 at December 31, 1995 due to net charge-offs of $296,000. The allowance represented 1.38% and 1.47% of total loans at March 31, 1996 and December 31, 1995, respectively. The Corporation's loan-to-deposit ratio was 80.7% and 82.9% at March 31, 1996 and December 31, 1995, respectively. The Corporation's nonperforming loans decreased $204,000, or 11.3%, to $1,590,000 at March 31, 1996 versus $1,794,000 at December 31, 1995. Nonaccrual loans and loans past due 90 days or more totaled $595,000 and $995,000, respectively at March 31, 1996 compared to $671,000 and $1,123,000, respectively at December 31, 1995. Other real estate equaled $122,000 at March 31, 1996 compared to $258,000 at December 31, 1995. Nonperforming assets represented .50% of total assets at March 31, 1996 compared to .65% at December 31, 1995. Net charge-offs to average loans were .56% and .27% at March 31, 1996 and December 31, 1995, respectively. Liquidity The Corporation's liquidity position was strong at first quarter end 1995. The Corporation actively sells mortgage loans to the secondary market (FNMA) and looks to its borrowing ability with the Federal Home Loan Bank of Pittsburgh (FHLB) to satisfy any liquidity needs. The Corporation has an overnight (Flexline) line of credit with FHLB totaling approximately $30 million. The Corporation had no borrowings under this line at March 31, 1996. Currently management believes that liquidity is adequate to meet the borrowing and deposit needs of its customers. Capital Adequacy Total shareholders' equity decreased slightly by $35,000 to $34,921,000 at March 31, 1996 from $34,956,000 at December 31, 1995. Earnings retention continues to be the major source of shareholder equity growth; however, equity growth through earnings has been partially offset as a result of the treasury stock buy back program and cash dividends paid to shareholders. At March 31, 1996 the cost of treasury shares equaled $605,000. (See Note 4 for more information on treasury stock.) For the quarter ended March 31, 1996, the Corporation paid a cash dividend of $374,000 or $.19 per common share. This compares with a cash dividend paid of $351,000 or $.17 per common share for the first quarter of 1994. Capital adequacy is currently defined by banking regulatory authorities through the use of several minimum required ratios. The following table presents capital ratios for the Corporation and its banking subsidiary at March 31, 1996, as well as current minimum regulatory capital requirements. As the following table indicates, the Corporation exceeds all minimum capital requirements. Farmers & Current Merchants FFSC Regulatory Trust Company Consolidated Minimum Tier I leverage ratio 9.84% 11.01% 6.00% Risk-based capital ratio Tier I 15.07% 16.49% 4.00% Tier II 16.32% 17.74% 8.00% PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit 10 - Material Contracts Exhibits 11 - Computation of earnings per share (b) Reports on Form 8-K There were no reports filed on Form 8-K for the quarter ended March 31, 1996. Exhibit 10 Material Contracts Omer L. Eshleman RESTRICTED STOCK AWARD AGREEMENT MADE as of and effective this 2nd day of February, 1996 by and between FRANKLIN FINANCIAL SERVICES CORPORATION, a Pennsylvania corporation with offices at 20 South Main Street, P.O. Box T, Chambersburg, Pennsylvania 17201-0819 (the "Company") and OMER L. ESHLEMAN, an adult individual who resides at 126 Northeast Avenue, Waynesboro, Pennsylvania 17268 ("Eshleman"). Background: Eshleman retired on January 3, 1996 after serving for many years as an officer of Mont Alto State Bank ("Mont Alto"), formerly a wholly-owned subsidiary of the Company prior to its merger with and into Farmers and Merchants Trust Company of Chambersburg ("F&M Trust"), which is also a wholly-owned subsidiary of the Company. In recognition of the fact that Eshleman's pension benefits were adversely affected by the merger of Mont Alto with and into F&M Trust and of his many years of service to the Company, and in consideration of the covenants hereinafter set forth, the Company wishes to grant to Eshleman an award of 1,035 shares of restricted stock, subject to the terms, conditions and restrictions hereinafter set forth. WITNESSETH: NOW, THEREFORE, in consideration of the mutual agreements hereinafter set forth and intending to be legally bound, the parties hereby agree as follows: 1. Grant of Restricted Stock. The Company hereby grants to Eshleman 1,035 shares of the $1.00 par value common stock of the Company, which shares shall be in the form of restricted stock subject to the terms, conditions and restrictions set forth in this Agreement. 2. Vesting. Subject to the provisions of Section 3 below (relating to accelerated vesting in the event of Eshleman's death or disability) and to Section 4 below (relating to forfeiture), the shares of restricted stock granted to Eshleman hereunder (the "Award Shares") shall fully vest upon expiration of one (1) year from the date of this Agreement. 3. Death of Disability. In the event of Eshleman's death or substantially total disability prior to the expiration of the one (1) year from the date of this Agreement, the Award Shares shall immediately vest and a certificate representing such shares shall be delivered by the Company to Eshleman or to his estate, as the case may be. For purposes of this Agreement, any determination relating to the substantially total disability of Eshleman shall be made by the Board of Directors in its sole and absolute discretion; any such determination, if made in good faith, shall be final, conclusive and binding. 4. Forfeiture. In the event that Eshleman prior to the expiration of the one (1) year vesting period provided for in Section 2 above engages in any activity which the Board of Directors of the Company determines in its sole and absolute discretion to be in violation of one or both covenants set forth in Section 5 below, then in such event (and in addition to any other remedy which the Company may have) all then unvested Award Shares shall be forfeited to the Company. 5. Certain Covenants. (a) Covenant Not to Compete. Eshleman covenants and agrees that, for a period of two (2) years from the date of this Agreement he will not, directly or indirectly, (whether as an employee, agent, consultant, independent contractor, officer, director or otherwise) participate in the management or operations of any bank, savings bank, savings and loan association or other thrift, trust company, mortgage bank, credit union, brokerage firm or other financial services institution (or any company which controls, is controlled by or is under common control with any of the foregoing) which as of the date of the Agreement or at any time during the foregoing two (2) year period maintains an office within Franklin County or within 25 miles of Chambersburg, Pennsylvania. (b) Covenant Not to Disclose Confidential Information. Eshleman recognizes and acknowledges that he has acquired during the course of his employment by Mont Alto certain proprietary and confidential business information concerning the business and operations of Mont Alto, F&M Trust and the Company which are a valuable property of a confidential nature and which belong to the Company. Eshleman covenants and agrees that he will not during the foregoing two (2) year period or at any time thereafter disclose to any person or use in competition with F&M Trust or the Company any such proprietary or confidential business information. (c) Specific Performance. Eshleman acknowledges and agrees that any breach of any of the covenants set forth in this Section 5 will result in irreparable damage to F&M Trust and/or to the Company, for which there will be no adequate remedy at law. Eshleman therefore agrees that, in the event of any such breach, the Company shall be entitled, without limitation of any other rights or remedies otherwise available to it and without posting any bond, to obtain an injunction or other form of equitable relief from any court of competent jurisdiction. 6. Limitation on Right of Transfer. The Award Shares may not be sold, assigned, pledged or otherwise transferred until such time as they become vested. Any transfer of the Award Shares after vesting shall be subject to the restrictions referred to in Section 7 below. 7. Acknowledgment. Eshleman acknowledges that the Award Shares have not been registered under the provisions of the Securities Act of 1933, as amended (the "Securities Act"), and may be sold or otherwise transferred only pursuant to an effective registration statement under the Securities Act, pursuant to Securities and Exchange Commission Rule 144, or pursuant to another applicable exemption from the registration requirements of the Securities Act. Eshleman further acknowledges that the certificate representing the Award Shares will bear a legend in substantially the following form: The shares represented by this certificate have not been registered under the Securities Act of 1933, as amended, and may not be sold or otherwise transferred unless they have been registered under such Act or unless an exemption from the registration requirement of such Act is available. 8. Stock Certificate. A certificate representing the Award Shares shall be issued in the name of Eshleman and deposited by him with the Company, together with a stock power endorsed in blank. Upon the vesting of the Award Shares and subject to compliance by Eshleman with the withholding requirements set forth in Section 11 below, the Company shall deliver such stock certificate and stock power to Eshleman or to his legal representative. 9. Dividend and Voting Rights. Unless and until forfeited in accordance with the terms of this Agreement, Eshleman shall have all the rights of a shareholder of the Company with respect to the Award Shares prior to the vesting of the Award Shares, including, but not limited to, the right to receive all dividends paid on the Award Shares and the right to vote the Award Shares. 10. Authority of the Board of Directors. The Board of Directors of the Company shall have the exclusive authority to construe and interpret the provisions of this Agreement. All decisions of the Board of Directors, if made in good faith, shall be final, conclusive and binding. 11. Withholding Taxes. When the Award Shares vest, or if sooner, when Eshleman must include the Award Shares in income for federal, state or local income tax purposes, the Company shall have the right to: (a) require Eshleman to remit or otherwise make available to the Company an amount sufficient to satisfy all federal, state and/or local withholding tax requirements prior to the delivery of any stock certificate for the Award Shares, and/or (b) take whatever action it deems necessary to protect its interests with respect to such withholding requirements, including, without limitation, redeeming a portion of the Award Shares otherwise deliverable pursuant to this Agreement with a then fair market value sufficient to satisfy such withholding requirements. The Company's obligation to deliver a stock certificate upon vesting of the Award Shares shall be conditioned upon Eshleman's compliance with any withholding requirements to the Company's satisfaction. 12. Miscellaneous Provisions. (a) Parties in Interest. This Agreement shall be binding upon and shall inure to the benefit of the Company and Eshleman and their respective heirs, personal representatives, successors and assigns; provided, however, that Eshleman may not assign this Agreement or any of his rights hereunder. (b) Notices. All notices and other communications required to be given or made hereunder shall be in writing and shall be deemed to have been given or made when hand delivered or when mailed, certified mail, return receipt requested, to the Company or to Eshleman, as the case may be, at their respective addresses set forth on the first page of this Agreement or to such other address as the Company or executive may subsequently designate in writing and deliver as provided in this Section 12(b). (c) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania, without reference to its law on the choice of laws. (d) Amendment. No term or provision of this Agreement may be changed, waived, amended, terminated or otherwise modified, except by written instrument duly executed by the Company and by Eshleman. (e) Entire Agreement. This Agreement constitutes the entire Agreement between the Company and Eshleman and supersedes all prior written or oral agreements and understandings between them. IN WITNESS WHEREOF, this Agreement is executed as of and effective the day and year first above written. FRANKLIN FINANCIAL SERVICES CORPORATION By: /s/ William E. Snell, Jr. William E. Snell, Jr., President Attest: /s/ April E. Rosenbaum April E. Rosenbaum, Secretary /s/ Omer L. Eshleman Omer L. Eshleman
Exhibit 11 COMPUTATION OF EARNINGS PER SHARE For the Three Months Ended March 31, 1996 Primary Primary Fully Earnings Earnings Diluted Per Share* Per Share* Earnings As Reported As Adjusted Per Share Computation of earnings per common share: Shares Weighted average shares outstandiing 1,912,535 1,912,535 1,912,535 Equivalent shares from exercise of dilutive common stock equvalents - 29,532 18,224 1,912,535 1,942,067 1,930,759 Net Income $1,050,000 $1,050,000 $1,050,000 Earnings per common share Net income $0.55 $0.54 $0.54 * Primary earnings per share "as reported" exclude the effect of the options issued under the the Employee Stock Purchase Plan and the restricted stock issued under the Long - Term Incentive Plan of 1990, as the effect of the equivalent shares on the earnings per share calculation is less than 3%. Primary earnings per share "as adjusted" include the effect of the options and restricted stock.
For the Three Months Ended March 31, 1995 Primary Primary Fully Earnings Earnings Diluted Per Share* Per Share* Earnings As Reported As Adjusted Per Share Computation of earnings per common share: Shares Weighted average shares outstandiing 1,946,913 1,946,913 1,946,913 Equivalent shares from exercise of dilutive common stock equvalents - 22,693 23,899 1,946,913 1,969,606 1,970,812 Net Income $1,087,000 $1,087,000 $1,087,000 Earnings per common share** Net income $0.56 $0.55 $0.55 * Primary earnings per share "as reported" exclude the effect of the options issued under the the Employee Stock Purchase Plan and the restricted stock issued under the Long - Term Incentive Plan of 1990, as the effect of the equivalent shares on the earnings per share calculation is less than 3%. Primary earnings per share "as adjusted" include the effect of the options and restricted stock.
FRANKLIN FINANCIAL SERVICES CORPORATION and SUBSIDIARY SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Franklin Financial Services Corporation /s/ William E. Snell, Jr. William E. Snell Jr. President and Chief Executive Officer /s/ Elaine G. Meyers Elaine G. Meyers Treasurer and Chief Financial Officer EX-27 2
9 1000 3-MOS DEC-31-1996 MAR-31-1996 7872 14091 0 0 40508 39798 36604 213195 2938 320578 264295 13436 2276 5650 0 0 2030 32891 320578 4898 1087 131 6116 2543 2784 3332 94 78 2725 1425 1425 0 0 1050 .55 .54 8.03 595 3229 0 0 3141 311 14 2938 2938 0 1540
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