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Section 1: DEF 14A (DEF 14A)

DEF14 A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities

Exchange Act of 1934 (Amendment No.   )

Filed by the Registrant  

Filed by a Party other than the Registrant  

Check the appropriate box:

  Preliminary Proxy Statement

  CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY RULE 14A-6(E) (2))

  Definitive Proxy Statement

  Definitive Additional Materials

  Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12

 



 

 



FRANKLIN FINANCIAL SERVICES CORPORATION

 



(Name of Registrant as Specified In Its Charter)

 



 

 



(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

 







 

 



 

 

No fee required

Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.



1.

Title of each class of securities to which transaction applies:



 

 



2.

Aggregate number of securities to which transaction applies:



 

 



3.

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):



 

 



4.

Proposed maximum aggregate value of transaction:



 

 



5.

Total fee paid:



 

 

Fee paid previously with preliminary materials.

Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.



1.

Amount previously paid:



 

 



2.

Form, Schedule or Registration Statement No.:



 

 



3.

Filing Party:



 

 



4.

Date Filed:



 

 

 

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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 24, 2018





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, 2018, at 9:00 a.m. at The Orchards Restaurant, 1580 Orchard Drive, 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 as directors to Class C for three year terms.



2. SAY-ON-PAY.  To provide a non-binding advisory vote approving the compensation paid to our named executive officers in 2017.



3. RATIFICATION OF THE SELECTION OF AUDITORS.  To ratify the Audit Committee’s selection of BDO USA, LLP as Franklin Financial’s independent registered public accounting firm for 2018.



4. OTHER BUSINESS.  To consider other business, if any, as may properly be brought before the meeting and any adjournments thereof.



Your Board of Directors recommends that you vote:



FOR the election as directors to Class C of the four nominees identified in the accompanying Proxy Statement;



FOR approval of the compensation paid to our named executive officers in 2017 (Say on Pay);  



FOR the ratification of the selection of BDO USA, LLP as Franklin Financial’s independent registered public accounting firm for 2018.



Only those shareholders of record at the close of business on March 5, 2018 shall be entitled to notice of and to vote at the Annual Meeting.



This year we are taking advantage of the Securities and Exchange Commission Rule allowing companies to furnish proxy materials to their shareholders by the Internet.  We have mailed to our shareholders the Notice of Internet Availability of Proxy Materials containing instructions on how to access this Notice of Annual Meeting of Shareholders and the accompanying proxy statement, annual report and proxy card by the Internet.  The Notice of Internet Availability of Proxy Materials also contains instructions on how you may receive a paper copy of the proxy materials.



The Notice of Internet Availability of Proxy Materials was mailed to our shareholders on or about March 15, 2018.  This Notice of Annual Meeting of Shareholders and the accompanying proxy statement, annual report and proxy card are being made available to shareholders on or about March 15, 2018.



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You may vote by completing and returning the enclosed Proxy Card, by internet, by phone or in person at the meeting.  If you attend the meeting and want to change your vote, you may withdraw your proxy and vote in person.



You are cordially invited to attend the meeting and the breakfast which will precede the meeting.





 



BY ORDER OF THE BOARD OF DIRECTORS



Picture 1



MARK R. HOLLAR, Senior Vice President, Treasurer and Chief Financial Officer



 



Enclosures

March 15, 2018

 

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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

Shares Held in Street Name

Shareholder Proposals

Availability of Proxy Materials for the Shareholders Meeting

Recommendations of the Board of Directors



 

CORPORATE GOVERNANCE POLICIES, PRACTICES AND PROCEDURES



 

ELECTION OF DIRECTORS

General Information

Nominations for Election of Directors

Nominating and Corporate Governance Committee Process for the Selection and  Evaluation of  Nominees

Director Independence

Information about Nominees and Continuing Directors

Common Stock Ownership of Directors, Nominees and Executive Officers

12 

Meetings of the Board of Directors

12 

2017 Director Compensation

13 



 

BOARD STRUCTURE AND COMMITTEES

15 

Audit Committee

15 

Nominating and Corporate Governance Committee

15 

Personnel Committee

16 

Compensation Committee Interlocks and Insider Participation

16 



 

EXECUTIVE COMPENSATION

16 

Compensation Discussion and Analysis

16 

Compensation Committee Report

20 

Compensation Tables and Additional Compensation Disclosure

21 







 

ADVISORY VOTE ON COMPENSATION PAID TO NAMED EXECUTIVE OFFICERS (“Say-On-Pay”)

27 

AUDIT COMMITTEE REPORT

27 



 

RELATIONSHIP WITH INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS

28 

General Information

28 

Information About Fees

28 

Audit Committee Pre-Approval Policies and Procedures

29 



 

RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

29 



 

ADDITIONAL INFORMATION

30 

Key Employees

30 

Transactions with Related Persons

30 

Compliance with Section 16(a) of the Exchange Act

31 

Shareholder Communication with the Board of Directors

31 

Householding of Proxy Materials

31 

Annual Report on Form 10-K

32 



 

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OTHER MATTERS

32 







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GENERAL INFORMATION



We are making this Proxy Statement, the Notice of Annual Meeting of Shareholders, Annual Report and proxy card available to our shareholders by the Internet.  On or about March 15, 2018, we mailed to our shareholders the Notice of Internet Availability of Proxy Materials containing instructions on how to access the Notice of Annual Meeting of Shareholders and this proxy statement, the annual report and proxy card by the Internet.  The Notice of Internet Availability of Proxy Materials also contains instructions on how you may receive a paper copy of the proxy materials.



Date, Time and Place of Meeting



The Annual Meeting of the shareholders of Franklin Financial Services Corporation (hereinafter, "Franklin Financial" or the "Company") will be held on Tuesday, April 24, 2018, at 9:00 a.m. at The Orchards Restaurant, 1580 Orchard Drive,  Chambersburg, Pennsylvania.



Shareholders Entitled to Vote



Shareholders of record at the close of business on March 5, 2018 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 (4) directors to Class C for the term of three years; (2) to provide a non-binding advisory vote approving the compensation paid to our named executive officers in 2017 as disclosed in this proxy statement (“Say-On-Pay”); (3) to ratify the Audit Committee’s selection of BDO USA, LLP as Franklin Financial’s independent registered public accounting firm for 2018; and (4) 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 and the Internet, 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 Amanda M. Ducey, Corporate 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 as directors to Class C for three year terms;  



FOR approval of the compensation paid to our named executive officers in 2017 as disclosed in this proxy statement (Say on Pay);



FOR the ratification of the Audit Committee’s selection of BDO USA, LLP as Franklin Financial’s independent registered public accounting firm for 2018.    



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 Board of Directors of Franklin Financial.



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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, 2017, Franklin Financial had issued and outstanding 4,354,788 shares of common stock.  There is no other class of stock outstanding.



A majority of the outstanding shares of 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.  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, abstentions and broker non-votes will not influence the outcome of the election.  A majority of the votes cast by shareholders present in person or by proxy and entitled to vote at a meeting at which a quorum is present is required to approve each of the other proposals.  Abstentions and broker non-votes will not be treated as votes cast and, therefore, will have no effect on whether or not a proposal is approved.



To the knowledge of Franklin Financial, no person owned of record or beneficially on December 31, 2017 more than five percent of the outstanding shares of common stock of Franklin Financial.



Shares Held in Street Name



If your shares are held in "street name" by your bank or broker or other intermediary, you will receive voting instructions from your intermediary which you must follow in order for your shares to be voted in accordance with your directions.  Many intermediaries permit their clients to vote via the internet or by telephone. Whether or not internet or telephone voting is available, you may vote your shares by returning the voting instruction card which you will receive from your intermediary.



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 2019 Annual Meeting of the shareholders of Franklin Financial must be received at the executive offices of Franklin Financial no later than November 15, 2018, nor earlier than October 16, 2018, in order to be eligible for inclusion in the proxy statement and proxy form to be prepared by Franklin Financial in connection with the 2019 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 2019 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. 



Availability of Proxy Materials for the Shareholders Meeting to Be Held on April 24, 2018



This Proxy Statement, the form of proxy and the 2017 Annual Report to Shareholders are available at:



www.edocumentview.com/fraf



Recommendations of the Board of Directors



The Board of Directors recommends that the shareholders vote:



FOR the election as directors to Class C for three year terms, the four nominees identified in this proxy statement.



FOR approval of the compensation paid to our named executive officers in 2017 as disclosed in this proxy statement (Say on Pay).



FOR the ratification of the Audit Committee’s selection of BDO USA, LLP as Franklin Financial’s independent registered public accounting firm for 2018.





 

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CORPORATE GOVERNANCE POLICIES, PRACTICES AND PROCEDURES



Franklin Financial is and always has been committed to the highest ideals in the conduct of its business and to observing sound corporate governance policies, practices and procedures.



In order to comply with the requirements of the Sarbanes-Oxley Act and related SEC rules and regulations, Franklin Financial has taken a number of actions which are intended to strengthen and improve its commitment to sound corporate governance.  These actions include the following:



·

The Board of Directors has adopted formal Corporate Governance Guidelines, a copy of which is posted on Franklin Financial's website at www.franklinfin.com.



·

The Board of Directors has adopted a Conflicts of Interest Policy for Directors and Executive Officers that focuses on issues of ethical business conduct relating to conflicts of interest, which is posted on Franklin Financial’s website at www.franklinfin.com.  



·

The Board of Directors has adopted a Code of Ethics Applicable to Senior Executives addressing the integrity of Franklin Financial’s periodic reports filed with the Securities and Exchange Commission and other public communications, and compliance with all applicable governmental rules and regulations, as required by the Sarbanes-Oxley Act and related SEC rules and regulations, which is posted on Franklin Financial’s website at www.franklinfin.com.  



·

The Board of Directors has adopted written charters for its Audit, Personnel, and Nominating and Corporate Governance Committees, copies of which are posted on Franklin Financial's website at www.franklinfin.com.



Pursuant to the terms of its Corporate Governance Guidelines, Franklin Financial’s "independent directors" meet at least quarterly in executive session (i.e., without the presence of the Chief Executive Officer or other members of Franklin Financial's management).

 

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 twenty-five 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.



Franklin Financial’s Bylaws provide for the mandatory retirement of directors at the end of the calendar year in which a director reaches age 72.  The Corporate Governance Guidelines provide that no director may be nominated to a new term if he or she would be age 72 or older at the time of election.   



The Board of Directors has determined that the Board shall consist of twelve directors. There are four directors whose terms of office will expire at the 2018 Annual Meeting and eight continuing directors whose terms of office will expire at the 2019 or 2020 Annual Meeting. The Board of Directors has nominated the following persons for election to the Board of Directors at the 2018 Annual Meeting to the class and for the term specified below:



CLASS C

For a Term of Three Years





 

 

 

Daniel J. Fisher

Donald A. Fry

Richard E. Jordan III

Donald H. Mowery



In the event that any of the foregoing nominees are 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 Board of Directors of Franklin Financial

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may recommend.  The Board of Directors, however, has no reason to believe that any of its nominees will be unable to accept nomination or to serve as a director if elected.



Nominations for Election of Directors



In accordance with Section 3.5 of the Bylaws of Franklin Financial, any shareholder of record entitled to vote for the election of directors who is a shareholder on the record date and on the date of the meeting at which directors are to be elected may nominate a candidate for election to the Board of Directors, provided that the shareholder has given proper written notice of the nomination, which notice must contain certain prescribed information and must be delivered to the President of Franklin Financial not less than 90 days nor more than 120 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.



Shareholders may also recommend qualified persons for consideration by the Nominating and Corporate Governance Committee to be included in Franklin Financial's proxy materials as a nominee of the Board of Directors. A shareholder who wishes to make such a recommendation must submit his recommendation in writing addressed to the Chairman of the Board, Franklin Financial Services Corporation, P.O. Box 6010, Chambersburg, Pennsylvania 17201-6010. The recommendation must include the proposed nominee's name and qualifications and must be delivered not less than 120 days prior to the anniversary date of the immediately preceding annual meeting.



Nominating and Corporate Governance Committee Process for the Selection and Evaluation of Nominees



Franklin Financial's Board of Directors has adopted a Job Description identifying the qualifications expected of a member of the Board of Directors and the criteria to be applied by the Nominating and Corporate Governance Committee in evaluating candidates who will be recommended to the Board of Directors as nominees for election to the Board. A candidate must possess good business judgment and must be free of any relationship which would compromise their ability to properly perform the duties of a director. A candidate must have sufficient financial background and experience to be able to read and understand financial statements and to evaluate financial performance. A candidate should have proven leadership skills and management experience and should be actively involved in the community served by Franklin Financial and its subsidiaries. A candidate must be willing and able to commit the time and attention necessary to actively participate in Board affairs. In addition, a candidate must be a person of integrity and sound character.  Although the Nominating and Corporate Governance Committee does not have a policy with regard to considering diversity in identifying nominees for director, the Committee does consider whether a candidate’s age, background, skills and experience will compliment or supplement those of other members of the Board of Directors in order to achieve an appropriate balance and diversity of such qualities and characteristics. 



The Nominating and Corporate Governance Committee uses a variety of methods for identifying and evaluating potential nominees for election to the Board of Directors. The Nominating and Corporate Governance Committee regularly assesses the appropriate size of the Board and whether any vacancies on the Board are expected due to retirement or otherwise. In the event that a vacancy is anticipated or otherwise arises, the Nominating and Corporate Governance Committee typically considers and interviews several potential candidates for appointment to fill the vacancy. Candidates may come to the attention of the Nominating and Corporate Governance Committee through current Board members, shareholders and other persons. These candidates are evaluated by the Nominating and Corporate Governance Committee and may be considered at any time during the year. In evaluating potential nominees, the Nominating and Corporate Governance Committee seeks to achieve a balance of knowledge, skills and experience on the Board. The Nominating and Corporate Governance Committee has not engaged third party consultants in connection with the identification or evaluation of potential nominees.



The Nominating and Corporate Governance Committee will consider persons recommended by shareholders as potential nominees for election to the Board of Directors, provided that recommendations are made in accordance with the procedures described above under the caption "Nominations for Election of Directors." A potential nominee who is recommended by a shareholder will be evaluated by the Nominating and Corporate Governance Committee in the same fashion as other persons who are considered by the Committee as potential candidates for election to the Board of Directors.



Director Independence



The Board of Directors has determined that each director is an "independent director," as such term is defined in the NASDAQ Stock Market Rules except for Timothy G. Henry, President and CEO, Franklin Financial Services Corporation and Farmers and Merchants Trust Company.



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Information about Nominees and Continuing Directors



Information concerning the four persons nominated for election to Class C of the Board of Directors of Franklin Financial at the 2018 Annual Meeting and concerning the eight continuing directors follows.



NOMINEES FOR CLASS C DIRECTORS (Term expires 2021)



Daniel J. Fisher

Age:  61

Year Became Director: 2010

Committees: ALCO, Audit, Nominating and Corporate Governance (Chair), Personnel



Mr. Fisher graduated from Muhlenberg College with a B.A. in Business Administration in 1978 and from Lehigh University with a MS in Management Science in 1986. Mr. Fisher retired as President and CEO of D. L. Martin Company on June 30, 2017 and remains active on its Board, and as an Operations Consultant.  The Board of Directors values Mr. Fisher’s manufacturing background and experience.  Mr. Fisher is active in his community and the Company’s Franklin County market area, where he has served and continues to serve on various boards. 



Donald A. Fry

Age:  68

Year Became Director: 1998

Committees:  Executive, Personnel, Trust



Mr. Fry graduated from Waynesburg University in 1973 with a B.A. in Accounting and Economics.    Mr. Fry currently serves as Chairman of the Board of ANDOCO, Inc. which trades as Cumberland Valley Rental.  Although retired from the day-to-day operations, Mr. Fry continues to be active in the company.  He has served and continues to serve on the boards of organizations within the Company's Shippensburg, Pennsylvania market area. The Board of Directors values Mr. Fry's entrepreneurial and business experience and his accounting background.  



Richard E. Jordan III

Age:  45

Year Became Director:  2012

Committees:  ALCO, Audit, Credit Risk Oversight



Mr. Jordan graduated from Dickinson College in 1995 with a B.A. in Spanish.  Mr. Jordan is President and C.E.O of Smith Land & Improvement Corporation, where he served as Vice President and C.O.O. from 2003 to 2017, a commercial real estate development business located in Camp Hill, Pennsylvania, with new and existing developments in Central Pennsylvania.  Mr. Jordan is involved in all facets of real estate development and management including selling, leasing, property management, and tenant relations.  Mr. Jordan was named as one of Central Penn Business Journal’s “Forty Under 40” in 2011.  Mr. Jordan serves on various boards in the Company’s Cumberland County market area.  The Board of Directors values Mr. Jordan’s business and leadership experience and his community involvement.



Donald H. Mowery

Age: 66

Year Became Director: 2010

Committees: Audit, Credit Risk Oversight, Nominating and Corporate Governance



Mr. Mowery is managing partner of RSM Associates, LP, a real estate development firm focusing on the development of business centers and industrial parks. Additionally he is the third generation former owner and CEO  of R. S. Mowery & Sons, Inc., a regional contractor founded in 1925.  His career in the construction and real estate development industries spans over 48 years, beginning as a laborer in 1968 and advancing through various positions over the years. Mr. Mowery received a B.S. in Civil Engineering in 1974 from Drexel University.  He has completed post-baccalaureate studies in engineering and construction management at the Pennsylvania State University.  Mr. Mowery is a Registered Professional Engineer.    Mr. Mowery's business and leadership expertise provide our Board with valuable insights, particularly pertaining to the construction industry, real estate development, and family businesses.  As a life-long resident of the area, Mr. Mowery is a well-known and respected member of the community, which provides positive exposure for the Company in the market area that he represents. 



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CLASS B DIRECTORS (Term expires 2019)



Martin R. Brown

Age: 66

Year Became Director: 2006

Committees: Audit, Executive, Personnel, Trust (Chair)



Mr. Brown graduated with honors from the Pittsburgh Institute of Mortuary Science in 1973.    He is a licensed Pennsylvania Funeral Director who operates three family owned funeral homes within the Company's Fulton and Huntingdon County market area.  Additionally, Mr. Brown is President of M.R. Brown Management, Inc. where he is the managing general partner of Sandy Ridge Express convenience store, Sandy Ridge A&W Restaurant and Marymart Family LP, which owns Sandy Ridge Station Mall.  Along with his wife, Mr. Brown is the owner of the Sandy Ridge Market, a full service grocery store located at the Sandy Ridge Station Mall.  Mr. Brown has served and continues to serve on the boards of organizations within the Company's Fulton and Huntingdon County market area.    The Board of Directors values Mr. Brown's entrepreneurial background and business management experience and his status as a business leader in the Company’s Fulton and Huntingdon County market area.  



Gregory A. Duffey

Age: 59

Year Became Director: 2015

Committees: ALCO, Nominating and Corporate Governance, Trust  



Mr. Duffey is President of CFPM Insurance, a divison of KSI Insurance. Mr. Duffey began his career in the insurance business in 1980 after attending Shippensburg University. The Board of Directors values Mr. Duffey’s experience as a business and community leader.  For more than thirty years, Mr. Duffey has been very active in the Company’s Franklin County market area having served on the boards or in leadership positions of non-profit and community development organizations.



Allan E. Jennings, Jr.

Age: 68

Year Became Director: 2002

Committees: ALCO, Audit (Chair), Credit Risk Oversight, Executive, Personnel



Mr. Jennings graduated with honors from Lehigh University in 1971 with a B.S. in Industrial Engineering.  He has been President and COO of Jennings Automotive, Inc. (dba Jennings Chevrolet Buick GMC) since 1986.  Mr. Jennings is a former director and past Chairman of the Pennsylvania Automotive Association.  The Board of Directors values Mr. Jennings' entrepreneurial background and business experience, including his knowledge of sales and marketing, and his leadership in the automotive industry.  His participation on local boards provides valuable information relative to the Franklin County market area.

 

Patrica D. Lacy

Age: 59

Year Became Director: 2015

Committees: Nominating and Corporate Governance, Personnel, Trust



Ms. Lacy graduated from Temple University in 1980 with a B.A. in Sociology, and from Dickinson School of Law with a J.D. degree in 1983.    Ms. Lacy currently serves as President and a Director of the Beistle Company, a world renowned manufacturer of decorations and party goods. Her career with the Beistel Company began in 1989 and she has served in a number of positions including Director of Human Resources and General Counsel.  She has served as President since 2002 and as a Director since 1998. The Board of Directors values Ms. Lacy’s leadership skills and her knowledge of business, human resources, and corporate governance.  Ms. Lacy is a business and community leader in the Company’s Cumberland County market area.



CLASS A DIRECTORS (Term expires 2020)



G. Warren Elliott

Age:  63

Year Became Director:  1991

Chairman of the Board since 2012

Vice Chairman of the Board 2010-2011

Committees:  ALCO, Audit, Credit Risk Oversight, Executive (Chair), Nominating and Corporate Governance, Personnel (Chair)



Mr. Elliott graduated with honors with a B.A. in Public Administration and an M.S. in Public Administration from Shippensburg University in 1976 and 1977 respectively.  He is a Distinguished Alumnus of Shippensburg University and in 2014 he was presented an honorary Doctoral degree in Public Service.  He is also a Distinguished Alumnus and Centennial Fellow of Penn State Mont Alto.

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Mr. Elliott is currently President of Cardinal Crossings, Inc. and CCI Properties, LLC, municipal government consulting and real estate investment firms.  From 1991 to 1995 he served as an adjunct faculty member at Shippensburg University teaching state and local government.  Mr. Elliott also served Franklin County as a Commissioner for many years and as Chairman of the Board of Commissioners from 1996 to 2007.  Mr. Elliott has been recognized by a number of civic awards, most recently the Chambersburg Area Development Corp – Zane Miller Award received in 2010.  Mr. Elliott has served and continues to serve on the boards of numerous organizations within the Company’s trade area.  He also serves as a commissioner on the Pennsylvania Fish and Boat Commission, and he is a member of the Chesapeake Bay Commission and the Mid-Atlantic Fisheries Management Council.    The Board of Directors values Mr. Elliott’s considerable knowledge regarding county and local government,  his entrepreneurial experience with business and sales, as well as the leadership skills he has developed through his service in Franklin County government and civic service.    



Timothy G. Henry      

Age: 59

Year Became Director: 2016



Mr. Henry joined Franklin Financial and F&M Trust as President and as a Director on February 1, 2016. He became Chief Executive Officer on July 1, 2016.  Mr. Henry received a bachelor’s degree in dairy science from the Pennsylvania State University and an MBA from St. Joseph’s University in Philadelphia.   Mr. Henry has had a career of more than 30 years in the banking industry in central Pennsylvania and the Hagerstown and Frederick, Maryland areas.  He has extensive experience in managing branch networks, lending and private banking.  He served as Chief Executive Officer of Centra Bank, a start-up in Hagerstown, and as a senior officer of BlueRidge Bank, a start-up in Frederick, where he gained significant experience in risk management, compliance and operations.  Most recently, Mr. Henry served for three years as Susquehanna Bank’s Commercial Executive for its Washington County, Maryland region.    The Pennsylvania Banking Code requires that a bank president be a member of the bank’s board of directors.  In addition, the Board believes that it is important that the President serve as a Director so that the President may interact with his fellow Directors on a peer to peer basis.  The Board of Directors values Mr. Henry’s depth and breadth of experience in the banking industry.



Stanley J. Kerlin

Age: 64

Year Became Director: 2006

Committees: ALCO (Chair), Credit Risk Oversight, Executive, Trust



Mr. Kerlin graduated Cum Laude with a B.A. Degree in History from Elizabethtown College in 1976 and a J.D. Degree from Dickinson School of Law in 1979.    Mr. Kerlin has engaged in the active practice of law for over 35 years and has owned and operated his own law practice as both a partner and a sole practitioner.  Mr. Kerlin is active in his church and in several community and political organizations within the Company's Fulton and Huntingdon County market area.    Mr. Kerlin's knowledge of business and management provide valuable insight to the Board.  The Board of Directors values Mr. Kerlin’s perspective as a lawyer and community leader in the Company’s Fulton and Huntingdon County market area.    



 

Martha B. Walker

Age: 71

Year Became Director: 1979

Committees: Credit Risk Oversight (Chair), Executive, Nominating and Corporate Governance, Trust



Ms. Walker graduated from the Dickinson School of Law in 1972 with a J.D. degree.    She has been a practicing attorney for over 40 years handling domestic relations, estate administration, real estate transactions, small business and estate planning and has been a managing partner for law firms for over 30 years. Ms. Walker currently is a partner in the law firm of Walker, Connor and Spang, LLC.  She was a partner in the firm of Barley, Snyder, Senft & Cohen, LLC from 1998 to 2006.   Ms. Walker has been an Assistant Professor at Wilson College and Penn State Mont Alto. She was a business owner and director of Baum Publishing Company, Inc., a weekly newspaper in Bucks County, Pennsylvania, for 15 years.  Ms. Walker has been the Chairman or President of non-profit organizations and continues to serve on the boards of a number of organizations in this Company's trade areaNumerous honors and awards include being the first woman member of the Franklin County Bar Association, first woman President of the Franklin County Bar Association, and first woman in Franklin County named to a local bank Board of Directors.    Ms. Walker's wide range of experience as a lawyer and her leadership in the Franklin County community are valued by the Board of Directors. Her long tenure as a Director speaks to her high level of dedication to the Company, shareholders, and employees. 



12


 

Common Stock Ownership of Directors, Nominees and Executive Officers



The following table includes information concerning shares of Franklin Financial common stock beneficially owned by directors, nominees, and the 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. There are no family relationships between or among any of the Company's executive officers, directors or nominees.







 

 

 

 

 



 

Shares of Stock of Franklin

 

 

Percentage of Total



 

Beneficially Owned as of

 

 

Outstanding Shares as of

Name

 

12/31/2017 (1)

 

 

12/31/2017 (2)



 

 

 

 

 

Martin R. Brown

 

5,673 

 

 

 

Steven D. Butz

 

8,040 

(3)

 

 

Ronald L. Cekovich

 

13,030 

(4)

 

 

Gregory A. Duffey

 

4,727 

 

 

 

G. Warren Elliott

 

6,858 

 

 

 

Daniel J. Fisher

 

15,328 

 

 

 

Donald A. Fry

 

5,781 

 

 

 

Lorie M. Heckman

 

6,584 

(5)

 

 

Timothy G. Henry

 

6,042 

(6)

 

 

Mark R. Hollar

 

15,543 

(7)

 

 

Allan E. Jennings, Jr.

 

15,311 

(8)

 

 

Richard E. Jordan III

 

1,826 

 

 

 

Stanley J. Kerlin

 

31,467 

(9)

 

 

Patricia D. Lacy

 

6,623 

 

 

 

Donald H. Mowery

 

47,627 

 

 

 

Martha B. Walker

 

6,283 

 

 

 



 

 

 

 

 



 

 

 

 

 

All Ditrectors and Executive Officers as a Group (20 Persons)

 

228,577 

 

 

5.25% 

_____________________

(1)

Beneficial ownership of shares of the common stock of Franklin Financial is determined in accordance with SEC Rule 13d-3, 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. A person is also deemed to own any stock which he has the right to acquire within 60 days through the exercise of an option or conversion right, through the revocation of a trust or similar arrangement, or otherwise.  Unless otherwise stated, each director and executive officer has sole voting and investment power with respect to the shares shown above or holds the shares jointly with his or her spouse.

(2)

Unless otherwise stated, the number of shares shown represents less than one percent of the total number of shares of common stock outstanding.

(3)

Includes options issued under the Incentive Stock Option Plan to purchase 7,650 shares and options issued under the Employee Stock Purchase Plan to purchase 309 shares.

(4)

Includes options issued under the Incentive Stock Option Plan to purchase 10,125 shares and options issued under the Employee Stock Purchase Plan to purchase 245 shares.

(5)

Includes options issued under the Incentive Stock Option Plan to purchase 5,300 shares and options issued under the Employee Stock Purchase Plan to purchase 248 shares.

(6)

Includes options issued under the Incentive Stock Option Plan to purchase 3,750 shares and options issued under the Employee Stock Purchase Plan to purchase 388 shares.

(7)

Includes options issued under the Incentive Stock Option Plan to purchase 12,550 shares and options issued under the Employee Stock Purchase Plan to purchase 363 shares; and, 436 shares held by Mr. Hollar as custodian under Uniform Gift to Minors Act accounts for the benefit of his children.

(8)

Includes 11,377 shares held in the name of Mr. Jennings’ spouse.

(9)

Includes 5,148 shares held by Mr. Kerlin as co-trustee of the Kerlin Family Trust and 21,158 shares with respect to which Mr. Kerlin holds power of attorney.





Meetings of the Board of Directors



Franklin Financial's Corporate Governance Guidelines provide that directors are expected to attend meetings of the Board of Directors, meetings of the committees on which they serve, and the annual meeting of shareholders. The Boards of Directors of the Company and of F&M Trust met a total of 66 times, including committee meetings, during 2017.  All directors attended 75% or more of the aggregate number of meetings of the Boards of Directors and of the various committees of the Board of Directors on which they served, and all directors attended the annual meeting of shareholders in 2017.



13


 

2017 Director Compensation



Director compensation, including fees and other forms of compensation are set annually by the Personnel Committee.  The Committee periodically receives peer group reports when reviewing Director compensation. The Committee reviewed a peer group report in 2016, but did not review such a report in 2017.  When reviewing Director compensation, the Committee considers things such as Board structure, meeting frequency, retainer fees and committee fees.  Each director of Franklin Financial is also a director of F&M Trust. 



The following table sets forth the components of compensation for non-employee directors.    







 

 

 

2017 Board Fees

 

 

 

Annual Board Retainer - Franklin Financial

 

$

10,796 

Annual Board Retainer - F&M Trust

 

$

18,048 

Committee Attendance Fee - per meeting (1)

 

$

525 

Board Chair Annual Retainer

 

$

27,000 

Audit Committee Chair Annual Retainer

 

$

7,284 



 

 

 

(1) Franklin Financial or F&M Trust committee

 

 

 



 

 

 



 

 

 



 

 

 

For 2018, the Committee recommended and the Board of Directors approved an increase in fees of 3%. This increase is comparable to the market value increase approved for Named Executive Officers as discussed in the section titled Executive Compensation.  In addition, the Board of Directors approved an annual retainer of $500 for the Chair of all Board Committees, other than Audit Committee, effective in 2018.



The following table provides certain summary information concerning the total compensation paid or accrued by Franklin Financial and F&M Trust in 2017 to each non-employee member of the Board of Directors.



2017 DIRECTOR COMPENSATION



 

 

 

 

 

 

 

 



 

Fees 

 

 

 

 

 

 



 

Earned

 

Non-Equity

 

 

 

 



 

or Paid in

 

Incentive Plan

 

All Other

 

 



 

Cash (1)

 

Compensation  (2)

 

Compensation

 

Total

Name

 

$

 

$

 

$

 

$

Martin R. Brown

 

41,969 

 

4,327 

 

1,995  (3) 48,291 

Gregory A. Duffey

 

39,344 

 

4,327 

 

 -

 

43,671 

G. Warren Elliott

 

68,969 

 

4,327 

 

 -

 

73,296 

Daniel J. Fisher

 

38,294 

 

4,327 

 

 -

 

42,621 

Donald A. Fry

 

39,869 

 

4,327 

 

 -

 

44,196 

Allan E. Jennings, Jr.

 

47,678 

 

4,327 

 

 -

 

52,005 

Richard E. Jordan III

 

35,669 

 

4,327 

 

 -

 

39,996 

Stanley J. Kerlin

 

40,919 

 

4,327 

 

 -

 

45,246 

Patricia D. Lacy

 

39,869 

 

4,327 

 

 -

 

44,196 

Donald H. Mowery

 

34,619 

 

4,327 

 

 -

 

38,946 

Martha B. Walker

 

38,819 

 

4,327 

 

16,392  (4) 59,538 

_____________________

(1)

The amount reported is the aggregate dollar value of all fees earned (even if deferred) or paid in cash for services as a director in 2017, including annual retainer fees, committee and/or chairmanship fees and meeting fees.  

(2)

The amounts reported in this column consist of payouts earned in the indicated year in respect of the Company's performance for the previous year under the Director Pay for Performance Program, a non-equity incentive compensation plan described below. The Pay for Performance payout in respect of the Company’s performance for 2017 is anticipated to be paid in April, 2018.

(3)

The amount reported is the annual premium paid by Franklin Financial on a split-dollar life insurance policy maintained for the benefit of the director.

(4)

The amount reported is the amount paid to the Director under a deferred compensation arrangement known as the Brick Plan described below.  



Director fees payable by F&M Trust are eligible to be deferred pursuant to the Farmers and Merchants Trust Company of Chambersburg Directors’ Deferred Compensation Plan (the “Director Deferred Compensation Plan”).  Participation in the Director Deferred Compensation Plan is voluntary and each participant may elect each year to defer all or a portion of their F&M Trust director’s fees.   Each participant directs the investment of his own account among various publicly available mutual funds designated

14


 

by the Bank’s Investment and Trust Services department.  Growth of each participant’s account is a result of investment performance and is not the result of an interest factor or interest formula established by the participant or the Bank.  The balance in such director’s deferred benefit account is payable to a designated beneficiary within 60 days upon the first to occur of the director’s retirement from the Board or death. The director may select a lump sum payout or may elect to receive a payout over a period of up to five years.  Directors participating in this plan and amounts deferred for 2017 include Ms. Walker and Messrs. Brown, Fisher and Fry.  Each participating director deferred $18,048.



In January, 2008, the Board of Directors adopted the Director Pay for Performance Program (the "Pay for Performance Program") under the terms of which non-employee directors are eligible to receive an annual cash bonus if Franklin Financial achieves certain financial targets established in advance by the Board. The financial targets are expressed in terms of the average annual increase in diluted earnings per share over rolling measurement periods of three calendar years each. The target bonus payable under the Pay for Performance Program is an amount equal to 10% of the total Franklin Financial and F&M Trust retainer fees earned by a participant during the third calendar year of the three year measurement period.  A director may receive a bonus which is more or less than the target bonus, depending upon the extent to which Franklin Financial meets or exceeds the financial target established by the Board for the three-year measurement period. Bonuses earned under the Pay for Performance Program are paid in the second quarter of the calendar year following the third calendar year of the three-year measurement period.



The following table shows the potential payouts, as described above, under the Pay for Performance Program.





 

 

 

 

 

 

Average Annual Increase In Diluted Earnings Per Share

 

Target

 

Amount of Bonus as a

 

 

During a Three-year Measurement Period

 

Bonus

 

% of Target Bonus 

 

% Payout



 

 

 

 

 

 

0% or less

 

 

 

0%

 

0.0%

.01% to 4.99%

 

 

 

50%

 

5.0%

5.00% to 7.99%

 

10%

 

100%

 

10.0%

8.00% to 9.99%

 

 

 

125%

 

12.5%

10.00% or greater

 

 

 

150%

 

15.0%



The Personnel Committee met in February 2017 to address the Directors Pay for Performance Program.  The Company’s average annual increase in diluted earnings per share for calendar years 2014 through 2016 was 10.3%.  This increase results in a payout equal to 150% of the 10% target bonus, or 15%.  Therefore, in accordance with the principles discussed above, there was a 15% directors’ Pay for Performance bonus payout in 2017 for 2016.



The Personnel Committee met in February 2018 to address the Directors Pay for Performance Program. As part of this review, the Committee considered action taken by the Board of Directors in January 2018 to exclude the negative effect of the legal reserve and the write-down of the net deferred tax assets on the Company’s net income in 2017 and for any future period calculations. This action was taken due to the unique and nonrecurring nature of these events.  The Company’s average annual increase in diluted earnings per share as reported for  calendar years 2015 through 2017 was  -25.0%.  Excluding the effect of the previously mentioned items, the adjusted average annual increase in diluted earnings per share for the years 2015 through 2017 was 16.5%.  This increase results in a payout equal to 150% of the 10% target bonus, or 15%.  Therefore, in accordance with the principles discussed above, there will be a 15% directors’ Pay for Performance bonus payout in 2018 for 2017.



At the February 2018 meeting, the Personnel Committee also established financial targets applicable to payouts under the directors’ Pay for Performance Program for 2018.



Director fees payable by F&M Trust from 1982 to 1988 were eligible to be deferred under a deferred compensation arrangement known as the Brick Plan.  The components of the plan were life insurance policies on the lives of the participating directors with the Bank as beneficiary and an individual agreement between the Bank and each director that outlined future payments to the director commencing at age 65.  The director is to be paid a fixed amount monthly over a ten year period beginning at age 65.  Ms. Walker received a payout of $16,392 in 2017 and is the only current director in the plan.



BOARD STRUCTURE AND COMMITTEES

 

Leadership of the Board of Directors is placed in an independent Chairman.  The Board performs its risk management oversight role through its committee structure.  In addition to the Audit, Nominating and Corporate Governance, and Personnel committees described below, the Board also has Asset-Liability, Credit Risk Oversight, and Investment and Trust committees.  An independent director chairs each of these committees.  Board members are selected to serve on committees where it is believed that their knowledge and experience will be most beneficial to the Company.  Each board committee meets at least quarterly.

15


 

The following table shows the committee structure of Franklin Financial and F&M Trust.







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



Franklin Financial

 

F&M Trust



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

Nominating &

 

 

 

 

 

 

 

Credit

 

 



Asset-

 

 

 

Corporate

 

 

 

 

 

 

 

Risk

 

 



Liability

 

Audit

 

Governance

 

Personnel

 

Executive

 

Trust

 

Oversight

 

Executive



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Martin R. Brown

 

 

*

 

 

 

*

 

*

 

Chair

 

 

 

*

Gregory A. Duffey

*

 

 

 

*

 

 

 

 

 

*

 

 

 

 

G. Warren Elliott

*

 

*

 

*

 

Chair

 

Chair

 

 

 

*

 

Chair

Daniel J. Fisher

*

 

*

 

Chair

 

*

 

 

 

 

 

 

 

 

Donald A. Fry

 

 

 

 

 

 

*

 

*

 

*

 

 

 

*

Allan E. Jennings, Jr.

*

 

Chair

 

 

 

*

 

*

 

 

 

*

 

*

Richard E. Jordan III

*

 

*

 

 

 

 

 

 

 

 

 

*

 

 

Stanley J. Kerlin

Chair

 

 

 

 

 

 

 

*

 

*

 

*

 

*

Patricia D. Lacy

 

 

 

 

*

 

*

 

 

 

*

 

 

 

 

Donald H. Mowery

 

 

*

 

*

 

 

 

 

 

 

 

*

 

 

Martha B. Walker

 

 

 

 

*

 

 

 

*

 

*

 

Chair

 

*



*Member



Audit Committee



The Audit Committee assists the Board of Directors in fulfilling its responsibilities in providing oversight over the integrity of Franklin Financial's financial statements, Franklin Financial's compliance with applicable legal and regulatory requirements and the performance of Franklin Financial's internal audit function. The Audit Committee is responsible for the appointment, compensation, oversight and termination of Franklin Financial's independent auditors and regularly evaluates the independent auditors' independence from Franklin Financial and Franklin Financial's management. The Audit Committee reviews and approves the scope of the annual audit and is also responsible for, among other things, reporting to the Board on the results of the annual audit and reviewing the financial statements and related financial and nonfinancial disclosures included in Franklin Financial's Annual Report on Form 10-K and Quarterly Reports on Form 10-Q.  The Audit Committee also reviews Franklin Financial's disclosure controls and procedures and internal controls. The Audit Committee prepares the Audit Committee Report for inclusion in the annual proxy statement and oversees investigations into complaints concerning accounting and auditing matters. The Audit Committee also meets periodically with Franklin Financial's independent auditors and with Franklin Financial's internal auditors outside of the presence of management and has authority to retain outside legal, accounting and other professionals to assist it in meeting its responsibilities.



The Audit Committee operates under a charter adopted by the Board of Directors, which is posted on Franklin Financial's website at www.franklinfin.com.  All members of the Audit Committee were at all times during 2017 “independent directors” as such term is defined by the rules of the NASDAQ Stock Market. The Board of Directors has not designated an “audit committee financial expert” as such term is defined in the Sarbanes-Oxley Act and applicable SEC rules and regulations because it believes that each member of the Audit Committee is qualified in terms of background and experience to perform his duties as a member of the Committee and because it believes that an audit committee financial expert is not necessary in light of Franklin Financial's size, the nature of its business and the relative lack of complexity of its financial statements. The Audit Committee met four times during 2017.



Nominating and Corporate Governance Committee



The Nominating and Corporate Governance 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 and Corporate Governance Committee operates under a charter adopted by the Board of Directors, which is posted on Franklin Financial's website at www.franklinfin.com. All members of the Nominating Committee were at all times during 2017 “independent directors” as such term is defined by the rules of the NASDAQ Stock Market.  The Nominating and Corporate Governance Committee met three times in 2017.



Personnel Committee



The Personnel Committee assists the Board of Directors in fulfilling its responsibilities in providing oversight over Franklin Financial's compensation policies and procedures. The Personnel Committee also serves as the Compensation Committee. The Personnel Committee is responsible for, among other things, administering and making grants and awards under the Incentive Stock

16


 

Option Plan of 2013 and the Employee Stock Purchase Plan. The Personnel Committee is also responsible for annually evaluating the compensation of Franklin Financial's Chief Executive Officer. The Personnel Committee also prepares the Compensation Committee Report on Executive Compensation for inclusion in the annual proxy statement. The Personnel Committee operates under a charter adopted by the Board of Directors, which is posted on Franklin Financial's website at www.franklinfin.com.  All members of the Personnel Committee were at all times during 2017 "independent directors" as such term is defined by the rules of the NASDAQ Stock Market. The Personnel Committee met seven times during 2017.



Compensation Committee Interlocks and Insider Participation



No member of the Personnel Committee is an employee or former employee of Franklin Financial or F&M Trust. There were no compensation committee “interlocks” at any time during 2017, 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 at the same time as an executive officer of such other entity served as a director of Franklin Financial.



EXECUTIVE COMPENSATION



Compensation Discussion and Analysis

Introduction



The Personnel Committee of the Company's Board of Directors administers the Company's executive compensation program. The Company currently has nine senior officers, including the President and Chief Executive Officer. The Personnel Committee, which is composed entirely of independent directors, is responsible for reviewing and approving senior officer compensation, for evaluating the President and Chief Executive Officer, for overseeing the administration of the Company's compensation program generally as it affects all other officers and employees, for administering the Company's incentive compensation programs (including the Incentive Stock Option Plan), for approving and overseeing the administration of the Company's employee benefits programs, for providing insight and guidance to management with respect to employee compensation generally, and for reviewing and making recommendations to the Board with respect to director compensation.



The Personnel Committee operates under a charter adopted by the Board of Directors. The Personnel Committee annually reviews the adequacy of its charter and recommends changes to the Board for approval. The Personnel Committee meets at scheduled times during the year and on an "as necessary" basis, The Chairman of the Personnel Committee reports on Committee activities and makes Committee recommendations at meetings of the Board of Directors.



At the Company’s annual meeting of shareholders held in 2017, the shareholders approved the compensation paid to our Named Executive Officers (as defined below) in 2016 in a non-binding advisory vote by a majority of the votes cast.  In consideration, in part, of that vote, the Personnel Committee did not make any material changes to its compensation policies, procedures or practices for 2017.  In addition, shareholders in a non-binding advisory vote, indicated the preference for an annual Say-on-Pay vote.



Compensation Philosophy



The Personnel Committee believes that executive compensation should be tied to individual performance, should vary with the Company's performance in achieving its financial and non-financial objectives, and should be structured so as to be closely aligned with the interests of the Company's shareholders. The Committee also believes that the compensation package of each senior officer should include an at-risk, performance-based component and that this component should increase as an officer's authority and responsibility increase. The Committee's philosophy is reflected in the Company's compensation objectives for its senior officers, which are as follows:



·

Create a merit-based, pay for performance incentive-driven system which is linked to the Company’s financial results and other factors that directly and indirectly influence shareholder value;

·

Establish a compensation system that enables the Company to attract and retain talented executives who are motivated to advance the interests of the Company's shareholders; and

·

Provide a total compensation package that is fair in relation to the compensation practices of comparable financial institutions.



To the extent that established performance goals are exceeded, the Committee believes that the Company's senior executives should be financially rewarded. It should be noted that all employees, including the Company's executive officers, are employed at will and do not have employment contracts, severance pay agreements or "golden parachute" arrangements that would be triggered upon the occurrence of a change in control of the Company.



17


 

Components of Compensation



The elements of total compensation paid by the Company to its senior officers, including the Chief Executive Officer (the "CEO") and the other executive officers (collectively, together with the CEO, the “Named Executive Officers”) identified in the Summary Compensation Table which appears following this Compensation Discussion and Analysis, include:



·

Base salary;

·

Short-term incentive compensation in the form of cash awards granted under the Company’s Management Group Pay for Performance Program;

·

Long-term incentive compensation in the form of stock options granted under the Company’s Incentive Stock Option Plan;

·

Benefits under the Company’s retirement plan; and

·

Benefits under the Company’s health and welfare benefits plans.



Base Salary



The base salaries of the Named Executive Officers are reviewed by the Personnel Committee annually in December of each year, as well as at the time of any promotion or significant change in job responsibilities. Base salaries for our senior officers are established based upon the scope of their responsibilities, taking into account compensation paid by comparable financial institutions for similar positions. Specifically, a salary range is determined for each position based upon published salary surveys.  These surveys report base salary ranges for comparable positions at similar financial institutions.  The following peer institutions were considered:



·

ACNB Corporation (Gettysburg, PA)

·

AgChoice Farm Credit (Mechanicsburg, PA)

·

Citizens and Northern Bank (Wellsboro, PA)

·

Codorus Valley Bancorp, Inc. (York, PA)

·

Columbia Bank (Fair Lawn, NJ)

·

ESSA Bancorp, Inc. (Stroudsburg, PA)

·

First Citizens Community Bank (Mansfield, PA)

·

First National Community Bank (Dunmore, PA)

·

First United Bank & Trust (Oakland, MD)

·

First United Corporation (Oakland, MD)

·

MidPenn Bancorp, Inc. (Millersburg, PA)

·

NexTier Bank (Butler, PA)

·

Peoples Security Bank & Trust Co (Scranton, PA)

·

QNB Bank (Quakertown, PA)

·

Somerset Trust Company (Somerset, PA)

·

Univest Corporation of Pennsylvania (Souderton, PA)

·

Washington Financial Bank (Washington, PA)



The Committee then establishes a "market value" for each position (defined as the mid-point of the approved salary range, plus ten percent and minus ten percent) in order to ensure that the base salary for each senior executive falls within the market value for that position. An adjustment to the executive's base salary, effective as of January 1 of each year, may (or may not) be approved by the Committee, based upon its assessment of the market value of the position involved.



Short-Term Incentive Compensation



The Company has adopted the Management Group Pay for Performance Program (the "PFP Program") for purposes of linking a portion of the compensation of its senior officers, including the Named Executive Officers, to the success of the Company in meeting certain financial targets which are established annually by the Personnel Committee. Under the terms of the PFP Program, the Committee establishes in February of each year five distinct financial targets for the following: (1) tax equivalent net interest income, (2) noninterest income, (3) noninterest expense, (4) loan quality, and (5) corporate net income.  Target (4) is measured against national peer group loan quality data published by the Federal Reserve System in the Bank Holding Company Performance Report.



Each PFP Program target is evaluated separately and is assigned a payout range expressed as a percentage of annual base salary. Payouts under the PFP Program are determined on the basis of the Company's performance relative to the targets established by the Committee.  The potential annual payout for targets one through four range from 0% to 2.5%, and from 0 – 12% for target five, resulting in an aggregate payout range from 0% to 22% percent of an executive's annual base salary. To earn a payout in any target category, the established target must be met or exceeded.  In addition, the PFP Program payout level is dependent upon the executive’s annual performance rating and receipt of the peer group data which is usually unavailable until after the mailing of the Proxy.



18


 

In February 2018, the Committee reviewed the 2017 PFP Program targets. The Committed determined that the targets for measurements (1), (2) and (3) were achieved. Measurement (4) will not be determined until the peer group data is released.  With regard to measurement (5), the Committee considered action taken by the Board of Directors in January 2018 to exclude the negative effect of the legal reserve and the write-down of the net deferred tax assets on the Company’s net income in 2017. This action was taken due to the unique and nonrecurring nature of these events.  Excluding the effect of the previously mentioned items, measurement (5) was achieved.  Based on these results, the preliminary estimate for the 2017 PFP Program award, to be paid in 2018, is 8.5%.  The final 2017 PFP program award will not be determined until April 2018.



The Personnel Committee established financial targets applicable to payouts under the Pay for Performance Program for 2018 at its February 2018 meeting.



Long-Term Incentive Compensation



The Company uses the grant of incentive stock options under its Incentive Stock Option Plan as the primary vehicle for providing long-term incentive compensation opportunities to its senior officers, including the Named Executive Officers. The Plan provides for the grant of incentive stock options to purchase shares of Company common stock at a per share exercise price which is not less than 100% of the fair market value of such shares on the date that the option is granted.  Incentive stock options are the only form of award provided for under the Plan.



The Personnel Committee has historically granted incentive stock options annually at its meeting in February of each year. In administering the Plan, the Committee establishes an annual option award target ranging from 500 to 2,500 shares for each of nine officer salary grade levels. The Committee has also established a target range for the Company's average annual increase in diluted earnings per share during the three most recently ended calendar year periods.  Options may be granted by the Committee for more or fewer shares than the established option award targets for a given salary grade depending upon the Company's growth in fully diluted earnings per share relative to the target range established by the Committee. The Committee’s philosophy in utilizing this performance measurement is that long term growth in fully diluted earnings per share is the primary driver of both the market value of the Company’s common stock and of the Company’s capacity to regularly increase the cash dividends which it pays to its shareholders.



The following table shows the potential incentive stock option award using a salary grade with a 1,000 shares award target for illustration.







 

 

 

 

 

 

Average Annual Increase In Diluted Earnings Per Share

 

Salary Grade

 

Shares Awarded

 

Shares

During a Three-year Measurement Period

 

Shares Target

 

as a % of Target

 

Awarded



 

 

 

 

 

 

0% or less

 

 

 

0%

 

0

.01% to 4.99%

 

 

 

50%

 

500

5.00% to 7.99%

 

1,000

 

100%

 

1,000

8.00% to 9.99%

 

 

 

125%

 

1,250

10.00% or greater

 

 

 

150%

 

1,500



The Personnel Committee met in February 2017 to address the Incentive Stock Option Plan.  The Company’s average annual increase in diluted earnings per share growth for the calendar years 2014 through 2016 was 10.3%.  As a result of this increase, the Committee granted an incentive stock option award in 2017 to the Named Executive Officers at 150% of the target level.



The Personnel Committee met in February 2018 to address the Incentive Stock Option Plan. As part of this review, the Committee considered action taken by the Board of Directors in January 2018 to exclude the negative effect of the legal reserve and the write-down of the net deferred tax assets on the Company’s net income in 2017 and for any future period calculations. This action was taken due to the unique and nonrecurring nature of these events.  The Company’s average annual increase in diluted earnings per share as reported for  calendar years 2015 through 2017 was  -25.0%.  Excluding the effect of the previously mentioned items, the adjusted average annual increase in diluted earnings per share for the years 2015 through 2017 was 16.5%.   As a result of this increase, the Committee granted in an incentive stock option award in 2018 to the Named Executive Officers at 150% of the target level.



Options are granted at an exercise price equal to the fair market value per share of the Company's common stock on the date of grant, which fair market value is determined in accordance with the terms of the Plan on the basis of the average of the average of the closing bid and asked quotations for the five trading days immediately preceding the applicable date as reported by two brokerage firms selected by the Committee which are then making a market in the Company's stock, except that if no closing bid or asked quotation is available on one or more of such trading days, fair market value is determined by reference to the five trading days immediately preceding the applicable date on which closing bid and asked quotations are available. Options granted under the Plan vest after the expiration of six months from the date of grant or upon the occurrence of a change in control of Franklin Financial if a change in control occurs prior to the expiration of such six month period. Neither the CEO nor any other Named Executive Officer has

19


 

any role in selecting the date of grant of any stock option granted under the Plan. The options granted to the Named Executive Officers under the Incentive Stock Option Plan are reported in the Grants of Plan-Based Awards Table.



Information concerning the number of options held by each Named Executive Officer is set forth in the Outstanding Equity Awards at Fiscal Year-End Table which follows the Compensation Discussion and Analysis.



Employee Stock Purchase Plan



The Company established its Employee Stock Purchase Plan (ESPP) to encourage its employees to acquire a stake in the future of the Company by purchasing shares of its common stock.  All persons who are employed by the Company and its subsidiaries at the grant date and December 31 of the preceding year are eligible to be granted options under the plan, except that the Personnel Committee may exclude employees who customarily work twenty hours or less per week.  The number of shares subject to options each calendar year is allocated uniformly among the eligible employees based upon each employee’s qualifying compensation (base salary plus overtime pay) as compared to the aggregate qualifying compensation of all plan participants.  The Personnel Committee determines the exercise price of each option, which may not be less than 90 percent of the fair market value of the Company’s common stock on the grant date.  No option may have a term longer than one year from the grant date.  The options granted to the Named Executive Officers under the ESPP are reported in the Grants of Plan-Based Awards Table.



Retirement Plans



The senior officers of the Company are eligible to participate in the various retirement plans maintained by F&M Trust for the benefit of its employees. The F&M Trust Pension Plan is a defined benefit plan which provides retirement benefits based upon a career-average compensation formula. F&M Trust adopted, effective January 1, 2008, a Qualified Pension Supplemental Plan and a Nonqualified Deferred Compensation Plan. The Pension Plan was closed to new employees as of April 1, 2007 and as such new employees are eligible to participate only in the F&M Trust 401(k) Plan. The F&M Trust 401(k) Plan covers substantially all employees of F&M Trust who have completed one year and 1,000 hours of service. Employee contributions to the plan are matched at 100% up to 4% of each employee's deferrals, plus 50% of the next 2% of deferrals from participants' eligible compensation. Effective January 1, 2017 the time in service requirement for 401(k) eligibility was reduced from one year to four months, the hours of service requirement was removed and an auto- enrollment feature was added. In addition, a 100% discretionary profit sharing contribution of up to 2% of each employee's eligible compensation is possible, provided net income targets are achieved. The Personnel Committee of the Company's Board of Directors establishes the net income targets annually. Additional information relating to the Company's retirement plans is set forth in the Pension Benefits Table which follows the Compensation Discussion and Analysis and in the narrative that accompanies that Table.



Health and Welfare Employee Benefits Plans



The Company provides healthcare, life and disability insurance and other employee benefits programs to its employees, including its senior officers. The Personnel Committee is responsible for overseeing the administration of these programs and believes that its employee benefits programs should be comparable to those maintained by Central Pennsylvania financial institutions of comparable size so as to assure that the Company is able to maintain a competitive position in terms of attracting and retaining officers and other employees. The Company's employee benefits plans are provided on a nondiscriminatory basis to all employees.



Risk Profile of Compensation Programs



The Committee has determined that the Company’s compensation policies and practices do not present any risks that would be reasonably likely to have a material adverse effect on the Company.  All of the Company’s employees are either salaried employees or hourly wage employees.  The Committee does not believe that the salaries or wages paid to our employees present any risks that would be reasonably likely to have a material adverse effect on the Company.  The Management Group Pay for Performance Plan provides for the payment of cash bonuses to selected officers if the Company meets certain financial targets set annually by the Committee.  Because such targets relate to interrelated measures of return, asset quality and expense control, the incentives to maximize the Company’s performance with respect to any one target tend to be counterbalanced by the incentives to maximize one or more other targets, thereby minimizing the risks that otherwise might be presented by the Plan.  Grants of stock options are awarded at targeted numbers of shares from 500 to 2,500 shares depending upon officer salary grade levels and targeted ranges for the Company’s average annual increase in diluted earnings per share during the three most recent calendar years.  Because grants of stock options are limited to targeted numbers of shares and based upon the company’s average increase in diluted earnings per share over three years, there is little incentive to engage in conduct that would be reasonably likely to have a material adverse effect on the Company.



20


 

Procedure Followed by the Personnel Committee in Determining Executive Compensation



The Committee annually determines the compensation of each senior officer (base salary, payout under the PFP Program and stock option grant under the Incentive Stock Option Plan) in accordance with the factors discussed above. The CEO plays an important role in the compensation process, particularly as it applies to the other Named Executive Officers. Specifically, the CEO evaluates officer performance, provides input in connection with establishing individual performance targets and objectives, and makes recommendations as to base salary levels. The CEO participates in Committee meetings at the Committee's request in connection with the evaluation of the other Named Executive Officers and in order to provide background information.



The Committee, meeting in executive session, performs an annual performance evaluation of the CEO and determines his compensation in accordance with the factors discussed above.  Each member of the Committee independently evaluates the CEO by using a written performance evaluation form to prepare a formal evaluation. The evaluation form includes ratings for key accountabilities, including strategic leadership, business and organization knowledge, decision making, customer focus, personnel selection and development, vision/direction setting, adaptability and community involvement.



Restatement of Financial Statements



The Personnel Committee is of the view that, to the extent permitted by law, it has authority to retroactively adjust any cash or equity-based incentive award paid to any senior officer (including any Named Executive Officer) where the award was based upon the achievement by the Company of specified financial goals and it is subsequently determined following a restatement of the Company's financial statements that the specified goals were not in fact achieved.



Stock Ownership Guidelines



The Board of Directors believes that the interests of its senior officers and its shareholders should be aligned and for this reason encourages its senior officers, including the Named Executive Officers, to acquire a meaningful investment position in the Company's common stock so as to have a meaningful personal financial stake in the success of the Company.  In December 2015, the Board of Directors adopted the Directors and Executive Officers Stock Ownership Policy that established a minimum number of shares to be held by Directors and Executive Officers. Under the policy, Executive Officers, other than the Chief Executive Officer and the Chief Financial Officer, shall hold no less than 1,000 shares of Company common stock, excluding options. Directors, and the Chief Executive Officer and Chief Financial Officer, shall hold no less than 3,000 shares of Company common stock, excluding options. Executive Officers, other than the Chief Executive Officer and the Chief Financial Officer must hold the required shares within five (5) years of first being appointed or hired into such position, or if already an Executive Officer as of the date the policy is adopted, within five (5) years after the adoption of the policy.  Directors, the Chief Executive Officer and Chief Financial Officer, must hold the required shares within five (5) years of first being elected or appointed to any such position or, if already holding such a position as of the date the policy is adopted, within three (3) years after the adoption of the policy.



Compensation Committee Report



In connection with the preparation of the disclosures set forth in this Proxy Statement, the Personnel Committee of the Board of Directors has reviewed and discussed the Compensation Discussion and Analysis set forth above with the management of Franklin Financial. Based upon this review and discussion, the Personnel Committee has recommended to the Board of Directors that this Compensation Discussion and Analysis be included in this Proxy Statement and that it be incorporated by reference in the Annual Report on Form 10-K for the year ended December 31, 2017 filed by Franklin Financial with the SEC.



This report is not intended to be "soliciting material," is not intended to be "filed" with the SEC, and 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, whether such filing is made before or after the date hereof and notwithstanding any general incorporation language contained in any such filing.



The foregoing report is submitted by the Personnel Committee:

G. Warren Elliott, Chairman

Martin R. Brown

Daniel J. Fisher

Donald A. Fry

Allan E. Jennings, Jr.

Patricia D. Lacy



21


 

Compensation Tables and Additional Compensation Disclosure



Total Compensation



The following table provides certain summary information concerning total compensation paid or accrued by Franklin Financial and F&M Trust to Timothy G. Henry, the President and Chief Executive Officer of Franklin Financial, Mark R. Hollar, Senior Vice President and Chief Financial Officer of Franklin Financial, and to each of the three most highly compensated executive officers other than Messrs. Henry and Hollar whose total compensation in 2017 exceeded $100,000. 



SUMMARY COMPENSATION TABLE







 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

Change in

 

 

 

 



 

 

 

 

 

 

 

 

 

Pension Value

 

 

 

 



 

 

 

 

 

 

 

Non-Equity

 

and Nonqualified

 

 

 

 



 

 

 

 

 

 

 

Incentive  

 

Deferred

 

 

 

 

Name and

 

 

 

 

 

Option

 

Plan

 

Compensation

 

All Other

 

 

Principal

 

 

 

Salary

 

Awards

 

Compensation

 

Earnings

 

Compensation

 

Total 

Position

 

Year

 

(1)

 

(2)

 

(3)

 

(4)

 

(5)

 

 



 

 

 

$

 

$

 

$

 

$

 

$

 

$



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Timothy G. Henry (6)

 

2017 

 

288,756 

 

18,038 

 

24,544 

 

 -

 

18,660 

 

349,998 

President & Chief

 

2016 

 

232,796 

 

 -

 

16,500 

 

 -

 

5,205 

 

254,501 

Executive Officer

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mark R. Hollar

 

2017 

 

207,064 

 

14,430 

 

17,600 

 

65,850 

 

13,652 

 

318,596 

Senior Vice President

 

2016 

 

201,158 

 

10,740 

 

12,069 

 

44,625 

 

15,464 

 

284,056 

Chief Financial Officer

 

2015 

 

184,758 

 

10,550 

 

16,120 

 

7,297 

 

11,588 

 

230,313 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Steven D. Butz

 

2017 

 

177,450 

 

12,987 

 

15,083 

 

 -

 

9,377 

 

214,897 

Senior Vice President

 

2016 

 

171,631 

 

9,666 

 

10,298 

 

 -

 

11,063 

 

202,658 

(F&M Trust)

 

2015 

 

165,084 

 

9,495 

 

14,047 

 

 -

 

8,893 

 

197,519 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ronald L. Cekovich

 

2017 

 

140,504 

 

10,823 

 

11,943 

 

46,176 

 

7,996 

 

217,442 

Senior Vice President

 

2016 

 

135,903 

 

8,055 

 

8,154 

 

30,457 

 

9,266 

 

191,835 

(F&M Trust)

 

2015 

 

130,701 

 

7,913 

 

11,123 

 

10,804 

 

7,483 

 

168,024 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lorie M. Heckman

 

2017 

 

154,648 

 

12,987 

 

13,145 

 

42,026 

 

9,466 

 

232,272 

Senior Vice President

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(F&M Trust)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

_____________________

(1)

The amounts reported in this column consist of base salary earned during the indicated year.

(2)

The amounts reported in this column would reflect the dollar amount of the compensation expense recognized for financial statement reporting purposes for the indicated year in accordance with FASB ASC Topic 718 in connection with awards of stock options made pursuant to the Incentive Stock Option Plan. The Incentive Stock Option Plan is described under the heading “Long-Term Incentive Compensation” in the Compensation Discussion and Analysis which appears above. The assumptions used in the calculation of these amounts are identified in a footnote to the audited year-end financial statements of Franklin Financial, which financial statements are included in the Annual Report on Form 10-K filed by Franklin Financial with the Securities and Exchange Commission. 

(3)

The amounts reported in this column consist of payouts earned in the indicated year in respect of the Company's performance for that year under the Management Group Pay for Performance Program, a non-equity incentive compensation plan which is described under the heading "Short-Term Incentive Compensation" in the Compensation Discussion and Analysis which appears above. The Pay for Performance payout in respect of the Company’s performance for 2017 is anticipated to be paid in April, 2018.

(4)

The amounts reported in this column consist of the aggregate change in the actuarial present value of accumulated benefits under the F&M Trust Pension Plan from the plan measurement date used for financial statement reporting purposes with respect to the prior completed fiscal year to the plan measurement date used for financial statement reporting purposes with respect to the indicated year.  The F&M Trust Pension Plan is described in the narrative which follows the Pension Benefits Table which appears below.

(5)

The components of all other compensation are reported in the All Other Compensation table that follows. 

(6)

Mr. Henry joined the Company on February 1, 2016.  

22


 

ALL OTHER COMPENSATION TABLE







 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

NonQualified

 

Perquisites

 

 



 

 

 

Company Contributions

 

Split Dollar Life

 

Pension

 

and Other

 

 

Name

 

Year

 

to 401(k) Plan

 

Insurance Premium

 

Contribution

 

Compensation

 

Total



 

 

 

$

 

$

 

$

 

$

 

$

Timothy G. Henry (1)

 

2017 

 

13,500 

 

 -

 

 -

 

5,160  (2) 18,660 



 

2016 

 

 -

 

 -

 

 -

 

5,205  (2) 5,205 



 

 

 

 

 

 

 

 

 

 

 

 

Mark R. Hollar

 

2017 

 

10,986 

 

477 

 

2,189 

 

 -

 

13,652 



 

2016 

 

12,866 

 

430 

 

2,168 

 

 -

 

15,464 



 

2015 

 

9,270 

 

379 

 

1,939 

 

 -

 

11,588 



 

 

 

 

 

 

 

 

 

 

 

 

Steven D. Butz

 

2017 

 

9,377 

 

 -

 

 -

 

 -

 

9,377 



 

2016 

 

11,063 

 

 -

 

 -

 

 -

 

11,063 



 

2015 

 

8,893 

 

 -

 

 -

 

 -

 

8,893 



 

 

 

 

 

 

 

 

 

 

 

 

Ronald L. Cekovich

 

2017 

 

7,425 

 

571 

 

 -

 

 -

 

7,996 



 

2016 

 

8,759 

 

507 

 

 -

 

 -

 

9,266 



 

2015 

 

7,038 

 

445 

 

 -

 

 -

 

7,483 



 

 

 

 

 

 

 

 

 

 

 

 

Lorie M. Heckman

 

2017 

 

7,906 

 

 -

 

1,560 

 

 -

 

9,466 



(1)

Mr. Henry joined the Company on February 1, 2016.

(2)

Value of personal use of company car.



Pay-Ratio



The ratio of the total compensation of the Chief Executive Officer to the median employee was 8.0 to 1, for 2017.  In calculating the ratio, the total annual compensation of the Chief Executive Officer was $349,998, as reported in the Summary Compensation Table.  The total annual compensation of the median employee was $43,864.  The median employee was identified using the annual compensation of all employees (other than the Chief Executive Officer) as reflected on our payroll records as of December 31, 2017.  The compensation of employees that were not employed for a full year was annualized.  The total annual compensation for the median employee was then calculated in the same manner as the total compensation for the Chief Executive Officer as reported in the Summary Compensation Table.



23


 

Plan-Based Compensation



The following table provides certain information concerning awards granted in 2017 under the Pay for Performance Plan (PFP), the Incentive Stock Option Plan (ISOP) and the Employee Stock Purchase Plan (ESPP) to the executive officers named in the Summary Compensation Table.



GRANTS OF PLAN-BASED AWARDS







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

All Other

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

Option Awards

 

 

 

Grant Date



 

 

 

 

 

 

 

Number of

 

Exercise or

 

Fair Value



 

 

 

 

 

Estimated Future Payouts Under

 

Securities

 

Base Price

 

of Stock



 

 

 

Grant

 

Non-Equity Incentive Plan Awards (2)

 

Underlying

 

of Option

 

and Option

Name

 

Plan

 

Date (1)

 

Threshold

 

Target

 

Maximum

 

Options (3)

 

Awards (4)

 

Awards (5)



 

 

 

 

 

$

 

$  

 

$  

 

#

 

$/Share

 

$/Share

Timothy G. Henry

 

PFP

 

 

 

 

 

28,876 

 

63,526 

 

 

 

 

 

 



 

ISOP

 

02/23/17

 

 -

 

 -

 

 -

 

3,750 

 

30.00 

 

18,038 



 

ESPP

 

07/01/17

 

 -

 

 -

 

 -

 

388 

 

29.95 

 

 -

Mark R. Hollar

 

PFP

 

 

 

 

 

20,706 

 

45,554 

 

 

 

 

 

 



 

ISOP

 

02/23/17

 

 -

 

 -

 

 -

 

3,000 

 

30.00 

 

14,430 



 

ESPP

 

07/01/17

 

 -

 

 -

 

 -

 

363 

 

29.95 

 

 -

Steven D. Butz

 

PFP

 

 

 

 

 

17,745 

 

39,039 

 

 

 

 

 

 



 

ISOP

 

02/23/17

 

 -

 

 -

 

 -

 

2,700 

 

30.00 

 

12,987 



 

ESPP

 

07/01/17

 

 -

 

 -

 

 -

 

309 

 

29.95 

 

 -

Ronald L. Cekovich

 

PFP

 

 

 

 

 

14,050 

 

30,911 

 

 

 

 

 

 



 

ISOP

 

02/23/17

 

 -

 

 -

 

 -

 

2,250 

 

30.00 

 

10,823 



 

ESPP

 

07/01/17

 

 -

 

 -

 

 -

 

245 

 

29.95 

 

 -

Lorie M. Heckman

 

PFP

 

 

 

 

 

15,465 

 

34,023 

 

 

 

 

 

 



 

ISOP

 

02/23/17

 

 -

 

 -

 

 -

 

2,700 

 

30.00 

 

12,987 



 

ESPP

 

07/01/17

 

 -

 

 -

 

 -

 

248 

 

29.95 

 

 -

_____________________

(1)

The grant date for stock options and other equity-based awards.

(2)

The amounts shown in the columns titled “Estimated Possible Payouts” represent the range of possible payouts in respect of the Company’s calendar year 2017 financial performance under the Pay for Performance Program described in the Compensation Discussion and Analysis above. The column titled “Threshold” shows the result with a 0% payout at the low end of the range; the column titled “Target” shows a 11% payout at the mid-point of the range; and the column titled “Maximum” shows a 22% percent payout at the maximum point of the range. 

(3)

The number of shares of stock underlying options granted February 25, 2017 under the Incentive Stock Option Plan, and July 1, 2017 under the Employee Stock Purchase Plan.

(4)

The per-share exercise price of the options granted.

(5)

Reported amount is the aggregate fair value of stock options granted in 2017, determined as of the date of grant in accordance with FASB ASC Topic 718.  With respect to options granted under the Employee Stock Purchase Plan, no fair value is recognized under FASB ASC Topic 718 as of the date of grant.  The assumptions used in the calculation of these amounts are included in a footnote to the audited financial statements of Franklin Financial for the fiscal year ended December 31, 2017, which financial statements are included in the Annual Report on Form 10-K filed by Franklin Financial with the Securities and Exchange Commission. No gain will be realized by the officer unless the market price of Franklin Financial common stock appreciates in value following the date of grant, which appreciation will benefit all shareholders generally. The actual value, if any that an officer may realize upon the exercise of an option will depend upon the excess of the market price of Franklin Financial common stock on the date of exercise over the exercise price of the option. There can be no assurance that an officer will realize all or any part of the value of any option as reported in this Table, which value is merely an estimate determined in accordance with FASB ASC Topic 718.



24


 

Outstanding Stock Option
and Other Equity Awards at Fiscal Year End



The following table provides certain information with respect to the executive officers named in the Summary Compensation Table appearing above concerning stock options and other equity awards which were outstanding on December 31,  2017.



OUTSTANDING EQUITY AWARDS AT DECEMBER 31, 2017





 

 

 

 

 

 

 

 

 



 

 

 

 

Option Awards (1)

 

 



 

 

 

 

Number of

 

 

 

 



 

 

 

 

Securities

 

 

 

 



 

 

 

 

Underlying

 

 

 

 



 

 

 

 

Unexercised

 

Option

 

Option  



 

 

 

 

Options

 

Exercise

 

Expiration

Name

 

Grant Date

 

Exercisable (2)

 

Price (3) $

 

Date

Timothy G. Henry (4)

 

2/23/2017

(ISOP)

 

3,750 

 

30.00 

 

2/23/2027



 

7/1/2017

(ESPP)

 

388 

 

29.95 

 

6/30/2018



 

 

 

 

 

 

 

 

 

Mark R. Hollar

 

2/14/2008

(ISOP)

 

2,550 

 

23.77 

 

2/12/2018



 

2/26/2009

(ISOP)

 

1,500 

 

16.11 

 

2/26/2019



 

2/26/2015

(ISOP)

 

2,500 

 

22.05 

 

2/26/2025



 

2/25/2016

(ISOP)

 

3,000 

 

21.27 

 

2/25/2026



 

2/23/2017

(ISOP)

 

3,000 

 

30.00 

 

2/23/2027



 

7/1/2017

(ESPP)

 

363 

 

29.95 

 

6/30/2018



 

 

 

 

 

 

 

 

 

Steven D. Butz

 

2/26/2015

(ISOP)

 

2,250 

 

22.05 

 

2/26/2025



 

2/25/2016

(ISOP)

 

2,700 

 

21.27 

 

2/25/2026



 

2/23/2017

(ISOP)

 

2,700 

 

30.00 

 

2/23/2027



 

7/1/2017

(ESPP)

 

309 

 

29.95 

 

6/30/2018



 

 

 

 

 

 

 

 

 

Ronald L. Cekovich

 

2/14/2008

(ISOP)

 

2,250 

 

22.05 

 

2/12/2018



 

2/26/2009

(ISOP)

 

1,500 

 

16.11 

 

2/26/2019



 

2/26/2015

(ISOP)

 

1,875 

 

22.05 

 

2/26/2025



 

2/25/2016

(ISOP)

 

2,250 

 

21.27 

 

2/25/2026



 

2/23/2017

(ISOP)

 

2,250 

 

30.00 

 

2/23/2027



 

7/1/2017

(ESPP)

 

245 

 

29.95 

 

6/30/2018