F&M Trust Co. could be absorbing a $10 million hit to its earnings to settle a class-action lawsuit stemming from a trust company it bought in 2008.
The settlement, which requires court approval, would close out claims arising from allegedly improper oversight of funds first held by Community Trust Co., a Cumberland County firm purchased by F&M Trust in 2008.
The cost will be reflected in F&M Trust’s fourth-quarter earnings for 2017, said Tim Henry, the bank’s president and CEO.
Henry declined to forecast the bank’s eventual results. But for the first nine months of 2017, the bank’s parent, Franklin Financial Services Corp., earned net income of $9.4 million, up nearly 50 percent from $6.4 million for the same period in 2016, according to filings with the U.S. Securities and Exchange Commission.
The $10 million hit won’t derail the Chambersburg based bank from its plans moving forward, said Henry, adding that the bank will remain well capitalized. “This doesn’t keep us from looking at 2018 with great expectations.”
The bank has assets of about $1 billion and operates 22 branches throughout Central Pennsylvania.
About the suit
The class-action suit, filed in 2015 in federal court, alleged that Community Trust and F&M Trust did not exercise proper oversight of funds they held between 2002 and 2010 on behalf of employee-benefit plans created by an independent lawyer. The settlement is not an admission of any wrongdoing on the bank’s part.
The lawyer, John Koresko, created several employee-benefit plans for doctors’ offices and other small employers around the country but spent plan money for his own personal benefit, according to the 2015 complaint. Koresko’s spending included a $4.5 million purchase of seven condominiums on the Caribbean island of Nevis, the complaint said.
The plans, which covered more than 500 participants, involved employer-owned life insurance policies for company principals and employees. Those participants are the class covered by the proposed settlement with F&M Trust.
A Philadelphia-based attorney for the plaintiffs, Ira Silverstein, said he planned to file a preliminary motion for approval of the settlement next week.
If and when preliminary approval is granted, class members will be notified and then the settlement will move toward final approval, Silverstein said.
It would represent the fifth class-action settlement of claims arising from Koresko’s actions, Silverstein said. The four others, totaling about $1.5 million, involved recouping fees Koresko paid to law firms using money from the employee-benefit plans.