Franklin Financial Services Corporation Annual Report 2012

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FY2012 Annual Report · Franklin Financial Services Corporation

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2012 A nnual Re p or t

High Tech High Touch

Serving Franklin, Cumberland, Fulton and Huntingdon Counties |Contents

Consolidated Financial Highlights

Summary of Selected Financial Data

A Message to Our Shareholders

FFSC Directors and Officers

F&M Trust Officers

Community Office Locations

ATM Locations

FFSC Shareholders’ Information / Market and Dividend Information

Franklin Financial Services Corporation (the Corporation) is a holding

company with headquarters in Chambersburg, PA. The Corporation’s

direct subsidiary is The Farmers and Merchants Trust Company of

Chambersburg (the bank, F&M Trust).

F&M Trust is a full-service bank offering investment, trust, commercial and

retail services with twenty-six community offices in Franklin, Cumberland,

Fulton and Huntingdon Counties.

1. Radle Electric, Camp Hill

F RON T COVER IM AG ES:

2. Totem Pole Playhouse, Fayetteville

3. Cumberland-Franklin Joint Municipal Authority, Shippensburg

2 0 12 A n n u a l R e p o r t

4. F&M Trust mobile banking app introduced, 2012

5. 4-H Program, Claudia Hissong (left), Greencastle

6. M&C Lumber Co., Needmore

7. Franklin Business eDeposit remote check deposit unit

8. New F&M Trust website introduced, 2012

9. Chambersburg Waste Paper, Chambersburg

High Tech High Touch

Consolidated Financial Highlights

(d ollars in thous a nds , e xc ept p er s ha r e)

2012

2011

% increase
(decrease)

Performance Measurement

Net income

Return on average assets

Return on average equity
Return on average tangible assets1
Return on average tangible equity1
Efficiency ratio2

Net interest margin

Current dividend yield

Dividend payout ratio

Balance Sheet Highlights

Total assets

Investment Securities (includes restricted stock)

Loans, net

Deposits and customer repurchase agreements

Shareholders’ equity

Shareholders’ Value (per common share)

Diluted earnings per share

Basic earnings per share

Regular cash dividends paid

Book value
Tangible book value3

Market value

Market value/book value ratio

Price/earnings multiple

Safety and Soundness
Leverage ratio (Tier 1)
Risk-based capital ratio (Tier 1)
Common equity ratio
Tangible common equity ratio4

Nonperforming loans/gross loans

Nonperforming assets/total assets

Allowance for loan losses as a percentage of loans

Net charge-offs/average loans

Average equity to average asset ratio

Trust Assets

5,365

6,569

(18)

0.51%
6.00%
0.55%
7.14%
70.44%
3.50%
4.86%
59.09%

0.66%
7.68%
0.70%
9.30%
63.46%
3.73%
8.74%
65.05%

$ 1,027,363
136,899
743,200
916,649
91,634

$ 990,248
130,323
756,687
841,089
87,182

1.32
1.32
0.78
22.31
19.84
14.00

62.75%

10.61

8.29%
12.60%
8.92%
8.01%
4.90%
4.10%
1.38%
0.60%
8.60%

1.66
1.66
1.08
21.67
19.04
12.35

56.99%

7.44

8.40%
12.14%
8.80%
7.82%
2.94%
2.60%
1.27%
0.86%
8.63%

4
5
(2)
9
5

(20)
(20)
(28)
3
4
13

Trust assets under management (market value)

$ 520,434

$ 481,536

1 Excludes goodwill, intangibles and intangible amortization expense, net of tax.
2 Noninterest expense / tax equivalent net interest income plus noninterest income less net securities gains.
3 Total shareholders’ equity less goodwill and intangibles / shares outstanding.
4 Total shareholders’ equity less goodwill and intangibles / total assets less goodwill and intangibles.

Summary of Selected Financial Data

(d ollars in thousa nds , e xc ept p er s ha r e)

2012

2011

2010

2009

2008

Fo r t he year ended, De ce mber 31

Summary of Operations

Interest income
Interest expense
Net interest income
Provision for loan losses
Net interest income after
provision for loan losses
Noninterest income
Noninterest expense
Income before income taxes
Income tax
Net income

Performance Measurements

Return on average assets
Return on average equity
Return on average tangible assets1
Return on average tangible equity1
Efficiency ratio2
Net interest margin
Current dividend yield
Dividend payout ratio

Shareholders’ Value (per common share)

Diluted earnings per share
Basic earnings per share
Regular cash dividends paid
Book value
Tangible book value3
Market value
Market value/book value ratio
Price/earnings multiple

Balance Sheet Highlights

$ 39,142
6,890
32,252
5,225

27,027
9,451
30,601
5,877
512
5,365

0.51%
6.00%
0.55%
7.14%
70.44%
3.50%
4.86%
59.09%

1.32
1.32
0.78
22.31
19.84
14.00
62.75%
10.61

$ 41,791
9,154
32,637
7,524

25,113
10,200
28,333
6,980
411
$ 6,569

$ 43,284
12,443
30,841
3,235

$ 43,757
14,674
29,083
3,438

$ 46,156
16,037
30,119
1,193

27,606
9,366
26,423
10,549
2,937
$ 7,612

25,645
8,880
25,929
8,596
2,011
$ 6,585

28,926
6,538
23,189
12,275
3,680
$ 8,595

0.66%
7.68%
0.70%
9.30%
63.46%
3.73%
8.74%
65.05%

1.66
1.66
1.08
21.67
19.04
12.35
56.99%
7.44

0.78%
9.34%
0.82%
11.27%
63.43%
3.53%
5.92%
55.10%

1.96
1.96
1.08
21.09
18.28
18.25
86.53%
9.31

0.69%
8.69%
0.74%
10.79%
65.35%
3.44%
6.61%
62.95%

1.71
1.71
1.08
20.39
17.38
16.33
80.09%
9.55

1.01%
10.99%
1.05%
13.19%
61.25%
4.03%
5.92%
47.66%

2.24
2.24
1.07
19.10
15.94
18.25
95.55%
8.15

Total assets
Investment securities (includes restricted stock)
Loans, net
Deposits and customer repurchase agreements
Shareholders’ equity

$ 1,027,363
136,889
743,200
916,649
91,634

$ 990,248
130,323
756,687
841,089
87,182

$ 951,889
123,775
739,841
785,495
82,639

$ 979,373
149,770
730,626
794,220
78,766

$ 902,460
154,041
668,860
691,653
73,059

Safety and Soundness
Leverage ratio (Tier 1)
Risk-based capital ratio (Tier 1)
Common equity ratio
Tangible common equity ratio4
Nonperforming loans/gross loans
Nonperforming assets/total assets
Allowance for loan losses as a % of loans
Net charge-offs/average loans
Average equity to average asset ratio

Trust Assets

8.29%
12.60%
8.92%
8.01%
4.90%
4.10%
1.38%
0.60%
8.60%

8.40%
12.14%
8.80%
7.82%
2.94%
2.60%
1.27%
0.86%
8.63%

8.16%
11.73%
8.68%
7.61%
3.68%
2.96%
1.18%
0.45%
8.36%

7.50%
10.89%
8.04%
6.94%
2.47%
1.93%
1.21%
0.26%
7.98%

7.84%
11.02%
8.10%
6.85%
0.59%
0.44%
1.09%
0.19%
9.18%

Trust assets under management (market value)

$ 520,434

$ 481,536

$ 490,420

$ 460,233

$ 497,215

A Message to Our Shareholders

Dear Shareholder:

Franklin Financial reported earnings of $5,365,000 in 2012,
representing an 18.3% decrease from our 2011 earnings of $6,569,000.
Diluted earnings per share decreased to $1.32 per share in 2012 from
$1.66 per share in 2011.

As a shareholder, you received cash dividends of $0.78 per share in
2012, representing a 27.8% decline from the $1.08 per share regular
cash dividends paid in 2011. This was a result of our decision to decrease
the dividend to $0.17 per share for each of the last three quarters from
the $0.27 regular cash dividend paid to shareholders in the first quarter
of 2012 as well as in previous quarters.

Bill Snell
President and
Chief Executive Officer

Bill Snell
President & CEO

Prior to the reduction, our regular quarterly dividend payout had exceeded 60% of net income for
several quarters. In light of the uncertain economic and regulatory environment, prior to the start
of the second quarter the Board determined that it would be prudent to reduce the dividend payout
rather place ourselves in the position that we needed to raise substantial capital and significantly
dilute our shareholders. Our current dividend payout represents a 4.86% return based upon the
closing price of Franklin Financial stock at December 31, 2012. Our dividend payout ratio remains
in the upper end of our peer banking group range.

The market value of a share of Franklin Financial stock rebounded from a closing price of $12.35 at
December 31, 2011 to $14.00 at December 31, 2012. As of mid-March, the market value of a share of
Franklin Financial stock has improved into the $16.50 to $17.00 range.

The Federal Reserve is flooding the market with cash in order to stimulate the economy which
continues to muddle along. Although housing is showing signs of modest improvement, the
unemployment profile may take years to fix. Any increase in short-term rates is now tied to the
unemployment rate dropping below 6.5% which means that short-term rates may be low for a
prolonged period.

Throughout 2012, our ability to increase earnings was impaired by the same factors that have
challenged the financial services industry for the past several years – weak quality loan demand,
compressed net interest rate margins, increased compliance costs and reduced fee income. In previous
years, we had been able to generate earnings from balance sheet growth despite margin compression.

However, that was not the case in 2012 as both individuals and businesses in South Central
Pennsylvania were hesitant to borrow and cautious in their outlook for the overall economic
recovery. As a result of slower growth on our balance sheet and a narrowing margin,
Net Interest Income declined by 1.2% from a year earlier.

Although most components of Non-Interest Income increased during 2012, Total Non-Interest
Income declined by $749,000 or 7.3% to $9,451,000. This decrease resulted from write-downs
in the amount of $582,000 on two properties held in Other Real Estate Owned (OREO) as well
as lower Securities Gains. Non-Interest expense increased by $2,268,000 or 8.0% during 2012,
reflecting increased Salary and Benefits Expense as well as a one-time penalty in the amount
of $439,000 to prepay $33,138,000 in higher interest rate borrowings at the Federal Home Loan
Bank of Pittsburgh. This action will benefit Net Interest Income in future years.

Our Provision for Loan Losses declined from $7,524,000 to $5,225,000. In 2012, our net loans
charged off ratio improved to 0.60% from 0.86% in 2011 as net charge-offs declined from
$6,602,000 in 2011 to $4,569,000 in 2012.

Non-Accruing Loans totaled $36,394,000 at year-end, representing a 105% increase over the
$17,756,000 at year-end 2011. We have been able to exit some problem credits, however, the impact

C o n t i n u e d

New Mechanicsburg Location

In 1906, F&M Trust opened its first community banking

office. Since day one, customers have enjoyed our

100% local approach to personal service and great value.

Today, we bring full-service community banking to

26 locations throughout South Central PA, including our

newest location serving Mechanicsburg. The office is

located at Silver Creek Plaza on the Pike, near Toys“R”Us®.

F&M Trust Management Team

Left to right:

Mark Hollar

Senior Vice President, Chief Financial Officer and Treasurer

Dennis Ginder

Senior Vice President, Risk Management Officer

Trish Hanks

Senior Vice President, Retail Services Market Manager

Ken Ditzler

Senior Vice President, Marketing and Corporate Communications Manager

Ron Cekovich

Senior Vice President, Technology Services Manager

Karen Carmack Senior Vice President, Human Resources Manager, Affirmative Action and HIPAA Privacy Officer

Bill Snell

President & Chief Executive Officer

Lise Shehan

Senior Vice President, Investment & Trust Services Manager

of the continuing sluggish economy created challenges for several additional customer relationships. As
a result, our nonperforming ratios rose to 4.90% of gross loans and 4.10% of total assets at year-end.

Franklin Financial’s total assets at December 31, 2012 topped the $1 billion mark, reaching
$1,027,363,000 as compared to $990,248,000 one year earlier, an increase of 3.7%. Net loans
outstandings declined by 1.8% on a year-over-year basis while average loan outstandings
decreased by 0.4%.

Commercial loan demand softened with average loan outstandings in this portfolio increasing
$9,501,000 or only 1.6%. Average consumer loan outstandings decreased 14.0% to $79,053,000 as
consumers continued to be hesitant to look for credit and focused on a flight to safety with increased
savings. Average residential mortgage loan outstandings were relatively unchanged, although
mortgage activity was brisk throughout the year from refinancings. During 2012, our mortgage
originators settled $52,110,000 in mortgage loans, the highest volume in many years.

The consumer flight to safety was apparent in our deposit balances. Total deposits and repurchase
agreements as measured at December 31, 2012 increased by 9.0% to $916,649,000 while average

C o n t i n u e d

Financial Highlights

Total Assets4005006007008009001,00020112010200920082012As dollars in millionsAs dollars in millions9529901,027902979Net Loans40045050055060065070075080020112010200920082012740757743669731Total Deposits & ReposAs dollars in millionsAs dollars in millions55060065070075080085090095020112010200920082012785841917692794Net Income109876543210201120102009200820126.597.616.575.378.60Regular Cash Dividends PaidAs dollars per share0.500.751.001.251.50 201120102009200820121.081.080.781.071.08ROE/ROA0.000.501.001.50As percentage values20112010200920082012ROA 0.78TROA 0.8210.011.513.014.58.57.05.5ROE9.306.0013.1910.7911.277.1410.998.699.34ROA 0.66ROA 0.51TROA 0.55ROA 0.69ROA 1.01TROA 1.05TROA 0.74TROA 0.70TANGIBLE ROE7.68Chambersburg Waste Paper, Inc.
C h a m b e r s b u r g

Left to right:

After nearly 40 years in business, Chambersburg Waste Paper, Inc.,

Mike Metz
Vice President
Commercial Services
F&M Trust

Ron Froeschle
Vice President
Employee Benefits Officer
F&M Trust

Kelly Adams
President
Chambersburg Waste Paper

Kristian Johnson
Secretary
Chambersburg Waste Paper

Craig Adams
Warehouse Supervisor
Chambersburg Waste Paper

(CWP) knows what it takes to build a successful business – hard work,

state-of-the-art equipment, and a reliable, locally-based, financial team.

That’s why Kelly Adams, president, and his team prefer working

with F&M Trust.

CWP started working with F&M Trust in 1990. Ever since, F&M Trust has been

there to serve the business’ financial needs, including everyday banking,

employee benefits programs, credit services, and more. With flexible thinking

and personalized service from F&M Trust, CWP has been able to expand

facilities, enhance equipment, rebuild after a devastating fire, and plan for

future opportunities.

Today, Mike Metz and Ron Froeschle of F&M Trust continue the tradition

of providing local, personal service to Kelly and his team as they focus

on serving their own clients and processing up to 50 tons of recycled

products per hour – the speed of small business success.

deposits and repurchase agreements increased 7.4% to $900,175,000. Average core deposits
(i.e. checking, savings, and interest bearing checking) increased by $20,675,000 or 7.7%. Average
balances in our Money Management Account increased by $56,987,000 or 18.4% as the competitive
yield and liquidity offered by this product continued to be attractive to customers.

Our Net Interest Margin dropped from 3.73% in 2011 to 3.50% on a fully tax equivalized basis at
year-end as we faced intense pricing competition to retain and grow quality loans as well as loan
assets repricing at lower rates. Accordingly, fully tax equivalized Net Interest Income decreased
by 1.2% from $34,367,000 in 2011 to $33,935,000 in 2012.

The market value of assets under management by our Investment and Trust Services Department
grew by 8.1% to $520,434,000 at December 31, 2012, reflecting the addition of new client relationships
and higher market valuations. Assets under management as reported do not include approximately
$116,413,000 in assets held at third party brokers at December 31, 2012 compared to $114,600,000 at
year-end 2011. Investment and Trust Services fee income, including revenue generated through the
Personal Investment Centers, increased 3.4% from $3,953,000 in 2011 to $4,087,000 in 2012.

Our financial condition remains strong as evidenced by a Total Risk-Based Capital Ratio of 12.60%
and a Leverage Capital Ratio of 8.29%. These ratios remain above the levels that federal regulators
require for an institution to be considered “well capitalized.”

C o n t i n u e d

A New Online Experience

During 2012, F&M Trust made a dedicated effort to improve the online customer

experience. By redeveloping the website from the ground up, clients can now find

what they need much easier – detailed product information, handy financial

calculators, local office hours, and of course, secure online banking

with bill pay.

As smartphones continue to become the mobile

standard, F&M Trust is in step with the latest technology advances.

The new mobile version of our website is optimized to help users

access accounts safely, get product information, check rates,

locate the nearest F&M Trust office, and more.

Our Tangible Common Equity Ratio, which measures Total Equity net of Goodwill and Intangible
Assets as a percentage of Total Assets excluding Goodwill and Intangible Assets, stands at 8.01%
at year-end up from 7.82% at December 31, 2011. This ratio is increasingly used by regulators
and investors as a measure of capital adequacy.

In October, we appointed Registrar and Transfer Company as our new transfer agent, registrar
and dividend agent. This change allows us to better serve our shareholders now and in the future.
Shareholders now have access to their account information online to update their account
information, request transfer ownership of shares, cast votes, and more. And shareholders have
the flexibility to either contact our corporate secretaries for assistance or contact Registrar and
Transfer Company directly.

Shareholders continue to participate in the Dividend Reinvestment and Stock Purchase Plan
(“the Plan”). Since amendments were made in September 2010 to enhance our capital adequacy
by providing our shareholders with a convenient and economical way to purchase additional
shares of Franklin Financial common stock by reinvesting cash dividends paid on their shares or
through optional cash payments, in excess of $3,200,000 have been invested through the Plan.

C o n t i n u e d

In Touch with the Arts

F&M Trust understands the value of South Central PA’s

cultural and community organizations. A great high-touch

example is the bank’s relationship with Totem Pole Playhouse

in Fayetteville. Since 1993, F&M Trust has been a reliable

contributer, helping the playhouse to remain viable and strong.

The playhouse is about to celebrate its 63rd season of quality

summer theatre, and F&M Trust’s pledge of $25,000 helped

get the 2012 appeal off the ground. Ray Ficca, artistic director,

noted, “We greatly appreciate F&M Trust taking such a lead

role. They have always been a great supporter of our theatre.”

In addition, F&M Trust supports a variety of community-service

initiatives across the region. Whether through financial support

or volunteering (or both!), F&M Trust lives up to its 100-year

commitment of helping to build stronger local communities.

Left to right:

Martha Walker
Director
FFSC

Ray Ficca
Artistic Director
Totem Pole Playhouse

Bill Snell
President & CEO
F&M Trust

M&C Lumber Co., Inc.
Fulton County

In 1988, Mark and Connie Mellott purchased their Needmore lumber products

Left to right:

business from Mark’s father, starting an impressive 3rd generation of family

ownership. Today, M&C Lumber Co. Inc. continues to provide quality wood

products to businesses throughout their multistate service region.

With 3 service-minded employees on staff, the Mellotts know the financial

challenges that small business owners face every day – operational

expenses, payroll, benefits and more. That’s why Mark and Connie prefer

working with F&M Trust, their 100% local community banking partner.

F&M Trust has all the advanced financial tools and services they need

to manage a successful small business. Gerri Fischer and Don Trego

of F&M Trust work together to provide customized banking solutions that

help the Mellotts manage everything with ease.

Mark also manages a fleet of school busses, requiring additional attention

and financial support. That’s okay with F&M Trust. The bank enjoys supporting

the entrepreneurial spirit of small business owners. With flexible thinking

and personalized service, F&M Trust can help local small businesses take

advantage of new opportunities.

Don Trego
Assistant Vice President
Small Business
Relationship Manager
F&M Trust

Mark Mellott
Owner
M&C Lumber Co., Inc.

Connie Mellott
Owner
M&C Lumber Co., Inc.

Gerri Fischer
Financial Services
Officer and Manager
F&M Trust

Cumberland-Franklin Joint Municipal Authority
Cumberland & Franklin Counties

Left to right:

Dwain Koser
Manager
CFJMA

Lisa E. Suders
Assistant Manager and
Treasurer
CFJMA

Thomas Ginnick
Member
Board of Directors
CFJMA

Dianne Cornman, ctp
Cash Management Specialist
F&M Trust

Dave Zimmerman
Commercial Services
Relationship Manager
F&M Trust

Recently, Cumberland-Franklin Joint Municipal Authority (CFJMA) decided

to add capacity to their service network to allow for future growth in the

Shippensburg region. Also, the Authority saw an opportunity to be at

the forefront in meeting important Chesapeake Bay watershed quality

standards. When planning enhancements, the Authority met with several

financial resources, including F&M Trust.

Dave Zimmerman and Dianne Cornman of F&M Trust worked to not only

bid on the financing of the project, but also recommend a total financial

solution. By combining multiple loans into one, and implementing a better

Cash Management process, the Authority could enhance their facilities

and streamline office operations.

After considering all bids, F&M Trust was selected as the best overall

choice – providing superior bottomline value, local convenience, and

well-designed financial tools. Since switching to F&M Trust, the Authority

has been thrilled with the level of personalized service received from

their 100% local banking team.

Last year we engaged in a checking account acquisition strategy aimed at increasing our market share.
This campaign targeted customers of other financial institutions who are being impacted by disruptions
relating to merger or regulatory issues using a predictive statistical model to identify the best prospects
in targeted markets. The program was supported by customer service and sales training, tell-a-friend
referrals, mystery shopping, and performance monitoring. We are pleased to report that the program
was effective in growing consumer checking accounts by 58% and new consumer checking balances
by over 90%. Supported by our successful OnBoarding program to effectively expand relationships and
cross-sell banking services, the acquisition program served to enhance customer retention as well.

Throughout the year we worked tirelessly to ensure that all of our ATM machines were compliant
with the Americans with Disabilities Act (ADA). Upgrades were made to enable ATM users without
sight to use the machines through audio commands. The cost for us to comply with this regulation
at our 35 ATMs totaled more than $550,000.

During the spring, the F&M Trust Newville Office relocated from 9 West Big Spring Avenue to
51 South High Street on May 29. The new office, although occupying less square footage than the
previous facility, offers full-service banking including drive-up teller service, drive-up ATM access,
safe deposit boxes, and lobby service. Our participation was integral in Newville’s revitalization
project, undertaken by 3T Investors LP. A portion of the property was set aside for a town clock
and community Christmas tree to enhance the town center.

C o n t i n u e d

Adding the Mobile Touch

Today’s banking customer demands finger-tip convenience to help keep a

busy life easier to manage. With an ever-increasing number of smartphone

users, F&M Trust welcomed the opportunity to help every customer keep

in touch with their personal funds.

In 2012, the bank introduced F&M Trust Mobile, a secure and convenient

way to manage funds. Every bank customer now has the option to bank

his or her favorite way – in person, on the phone, online, and on the road.

Customers will soon be able to make check deposits with smartphone

technology – Mobile Xpress Deposit will be introduced during 2013.

As technology evolves, F&M Trust will be there developing new ways

to make banking more convenient.

In July, we began the expedited issuance of debit cards to enhance the delivery of service to our
banking customers. Debit cards for new accounts, as well as those being replaced as a result of
being lost or stolen, are produced locally using ‘flat card’ technology. This enhancement reduced
turn-around time by more than half and allows us to accommodate special issuance requests more
easily. In early December, our web site underwent a facelift with a fresh new look and mobile
application. The web site also introduced other features including searchable data tools,
campaign-based messaging, informational videos and more. And we rolled out a mobile banking
platform so customers could bank with us on their smartphones.

F&M Trust’s Mechanicsburg Office, located at 6375 Carlisle Pike, Mechanicsburg in the Silver Creek Plaza
on the Pike, opened for business on November 14. The office is in front of Toys ‘R Us and a Buffalo
Wild Wings restaurant. The 3,188 square foot facility includes a banking lobby with teller stations and
customer service offices, drive-up teller and drive through ATM services, conference room, and offices
for Commercial Services and Small Business Relationship Managers, Investment and Trust Services staff,
and Residential Mortgage Orginators. Cydnie Kelly joined us as the Community Office Manager of the
Mechanicsburg Office, the twenty-sixth community banking office in our network.

In the fourth quarter, Richard E. Jordan III was appointed to the boards of directors of Franklin Financial
Services Corporation and its subsidiary, F&M Trust, as a Class C director with a term expiring in 2015.

C o n t i n u e d

The Natural Touch

F&M Trust not only believes in setting a good example

for today’s youth, but also in supporting our region’s

agricultural interests. Local 4-H and FFA clubs in Cumberland,

Franklin, Fulton and Huntingdon Counties provide excellent

opportunities for today’s youth to learn about agriculture,

sustainability and leadership. By participating in local club

sales and agricultural fairs, F&M Trust has the natural touch

with youth and the PA farming community.

Left to right: Claudia Hissong,
4-H member, with Gretchen the goat,
and Renee Preso, F&M Trust.

Radle Electric
Cumberland County

Left to right:

Joe Radle
Co-Owner
Radle Electric

Lindsay Reisinger
Assistant Vice President
Small Business
Relationship Manager
F&M Trust

Since its start in 2005, Radle Electric has been working hard to provide

excellent customer service and quality workmanship for installation and repair

clients throughout South Central PA. Clients have noticed.

That’s why co-owners Joe Radle and his wife Laura Lee Lukunich (not pictured)

have been repeat winners of Harrisburg Magazine’s “Simply the Best” and also

received the “Super Service Award” from Angie’s List, a national consumer

ratings service.

The owners are very dedicated to the community, too. As an Air Force veteran,

Joe invites clients to participate in Facebook promotions where customers can

win donations to local military charities. The company also supports Passion

for Mother’s Flowers Memorial Garden in Hampden Township, honoring loved

ones lost to cancer, including Laura’s mother.

When Joe and Laura were searching for a banking partner to help them grow

the business, they chose F&M Trust. It was Lindsay Reisinger’s service-minded

approach, and F&M Trust’s community-focused reputation, that provided the

‘spark’ to build a great business relationship.

Personalized Trust Services
Investment & Trust Services

Don Wissner
Retired

Bev Wissner
Retired

Rod Salter
Assistant Vice President, Investment & Trust
Services Relationship Manager, F&M Trust

In 2012, Don and Bev Wissner decided to
improve how they managed their personal
assets. As retirees enjoying their lives in
the Penn National community, they wanted
to be sure their funds were secure and
performing well.

Don and Bev already enjoyed the level of
personalized service they’ve been receiving
from F&M Trust, and talked with Rod Salter
about how the Investment & Trust Services
team could streamline the management
of their assets.

After discussing everything, Don and Bev
decided to let Rod help manage their retirement
accounts. They’ve been pleased with Rod’s
personal service, and Don really enjoys
the fact that he no longer needs to handle the
day-to-day management of investments.

The couple agreed that they would recommend
F&M Trust to friends, because of the excellent
personal service and the financial integrity of
the bank.

Jordan is a commercial real estate manager and developer serving as Vice President of Smith Land
& Improvement Corporation, Camp Hill. He is active in the community serving on the board of the
Lion Foundation of Camp Hill, advisory board of The Salvation Army Harrisburg Capital City Region
as president and member of the property and executive committees, board of the West Shore YMCA
as president, and on the Capital Region Economic Development (CREDC) board of directors.

In 2013, we will continue to enhance banking convenience for our customers through advancements
in technology. In March, we will introduce Online Account Creation, giving customers the ability
to open accounts online. By mid-year, customers will be able to create their own customized
Freedom Cards (MasterCard Debit Card) by selecting an image from their PC, Facebook, Twitter,
Flickr, or Picasa, customize the image, and create the card.

In the second half of 2013, we will add Mobile Xpress Deposit or remote deposit capture to our
mobile banking platform. When this service is introduced, customers will be able to deposit checks
from home, work, or nearly anywhere simply by taking a photo of the items with their smartphone
and electronically presenting them for deposit. We are also planning upgrades to our online
banking and online bill pay systems during the year.

Our Investment and Trust Services Division is currently evaluating several candidates for our
broker dealer business. We anticipate that our selection will provide a higher level of support
resulting in enhanced customer service.

We recently embarked on a comprehensive study of our current community office network as well
as “self-service” delivery channels including ATMs, Mobile Banking and Internet Banking with the
objective of increasing market penetration and profitability. This initiative will result in a five-year plan
for the development of new or transformed community offices more fully integrated with our
“self-service” delivery channels incorporating measurable financial objectives.

Our perspective is that 2013 will be yet another challenging year for financial institutions with
this prolonged period of low interest rates and high levels of unemployment and loan
delinquencies continuing. In addition, we see additional regulations for all financial institutions
continuing to have an impact on our industry. Your interest and support as Franklin Financial
shareholders is very much appreciated.

Sincerely,

William E. Snell, Jr.
President & CEO

High Tech is in the Cards

In addition to personalized local service, today’s community

banking customer prefers added convenience. With recent

advances in debit card production technology, F&M Trust has

introduced Expedited Issuance debit card service.

Customers no longer need to wait a week or more for a new

F&M Trust debit card to arrive in the mail. With Expedited Issuance

printing capabilities, a new debit card can arrive in just two to

Expedited Issuance Debit Card Printer

three days. In emergencies, a replacement debit card can be

produced even faster.

F&M Trust is dedicated to combining today’s high-tech

financial tools with personal, high-touch service. The objective?

High customer satisfaction, of course.

FFSC Board of Directors

Front (left to right)

Back (left to right)

Donald A. Fry
President, Cumberland Valley Rental and Towne Cleaners, ANDOCO, Inc.

Richard E. Jordan III
Vice President, Smith Land & Improvement Corp.

Charles S. Bender II
Retired, F&M Trust Executive Vice President

Donald H. Mowery
President, R. S. Mowery & Sons, Inc.

G. Warren Elliott
President, Cardinal Crossing, Inc., Former Franklin County Commissioner

Allan E. Jennings, Jr.
President, Jennings Chevrolet, Buick, GMC, Inc.

William E. Snell, Jr.
President and Chief Executive Officer, F&M Trust

Martha B. Walker, Esq.
Partner, Walker, Connor & Spang, LLC

Daniel J. Fisher
President and Chief Executive Officer, D.L. Martin Company

Martin R. Brown
President, M.R. Brown Funeral Home, Inc.

Stephen E. Patterson, Esq.
Principal, Salzmann Hughes P.C.

Stanley J. Kerlin, Esq.
Attorney, Law Offices of Stanley J. Kerlin, LLC

FFSC Officers

G. Warren Elliott
Chairman of the Board

William E. Snell, Jr.
President and Chief
Executive Officer

Mark R. Hollar
Treasurer and Chief
Financial Officer

Catherine C. Angle
Corporate Secretary

Joyce A. Riley
Assistant Corporate
Secretary

Management

William E. Snell, Jr.
President and Chief Executive Officer

Mark R. Hollar
Senior Vice President
Chief Financial Officer
and Treasurer

Karen K. Carmack, SPHR
Senior Vice President
Human Resources Manager,
Affirmative Action and HIPAA
Privacy Officer

Ronald L. Cekovich
Senior Vice President
Technology Services Manager

Kenneth C. Ditzler
Senior Vice President
Marketing and Corporate
Communications Manager

E. Dennis Ginder
Senior Vice President
Risk Management Officer

Patricia A. Hanks
Senior Vice President
Retail Services Market Manager

Lise M. Shehan, Esq.
Senior Vice President
Investment & Trust Services
Manager

Relationship
Management Division

Commercial Services

Dianne L. Cornman, CTP
Vice President
Cash Management Specialist

Michael S. Metz
Vice President

Philip A. Pantano
Vice President

Barbara L. Peltzer
Vice President

David P. Zimmerman
Vice President

Kathleen M. Bloss
Assistant Vice President
Credit Department Manager

Mary S. Cordell
Assistant Vice President
Commercial Services
Relationship Manager

Jeramy D. Culler
Credit Analyst

Eric J. Fleming
Small Business Credit Analyst

Maria S. Seabra
Credit Analyst

Jennifer D. Kaiser
Commercial Services
Support Specialist

Retail Services

L. Kay Estep
Assistant Vice President
GO Club Coordinator

Officers

CHAMBERSBURG
MARKET OFFICES

Lincoln Way East Office

Lisa A. Hogue
Financial Services Officer and Manager

Tina M. Bricker
Assistant Financial Services Officer
and Assistant Manager

Memorial Square Office

Summer Franzoni
Assistant Vice President and Manager

Kim S. McKenrick
Assistant Vice President and Assistant
Financial Services Officer

Pamela J. Kolsun
Assistant Financial Services Officer

Orchard Park Office

Antonia L. Diffenderfer
Assistant Vice President and Manager

Penn Hall and Menno Village Offices

Barbara A. Seylar
Financial Services Officer and Manager

Philadelphia Avenue Office

Eric L. Alleman
Financial Services Officer and Manager

Norland Avenue Office

Shaun M. Young
Financial Services Officer and Manager

St. Thomas Office

Dana L. Kaiser
Financial Services Officer and Manager

West Side Office

N. Joy Weller
Vice President and Manager

Officers (continued)

SOUTHERN FRANKLIN
COUNTY MARKET OFFICES

Renee L. Preso
Assistant Vice President
Southern Franklin County
Market Manager

Lynn A. Waite
Small Business Relationship Manager

Greencastle Office

Lisa A. Cesa
Financial Services Officer and Manager

Marion Office

Vicky L. Carson
Assistant Financial Services Officer
and Assistant Manager

Mont Alto Office

Brian J. Over
Financial Services Officer and Manager

Linda K. Stottlemyer
Assistant Financial Services Officer
and Assistant Manager

Waynesboro Office

Natasha J. Koons
Financial Services Officer and Manager

Chastity L. Wantz
Assistant Financial Services Officer
and Assistant Manager

CUMBERLAND COUNTY
MARKET OFFICES

Lindsay J. Reisinger
Small Business Relationship Manager

Boiling Springs Office

Kevin M. Stoner
Financial Services Officer and Manager

Camp Hill Office

Katrina E. Buck
Financial Services Officer and Manager

Carlisle Crossing Office

Warfordsburg Office

David R. Winters
Assistant Vice President and Manager

Geraldine A. Fischer
Financial Services Officer and Manager

Mechanicsburg Office

Cydnie Kelly
Financial Services Officer and Manager

Newville Office

Ellen L. Ile
Financial Services Officer and Manager

Ritner Highway and
Hanover Street Offices

I. Edward Bidelspach
Assistant Vice President and Manager

Shippensburg Office

Barbara A. Hoover
Financial Services Officer and Manager

FULTON & HUNTINGDON
COUNTIES MARKET OFFICES

Donald L. Trego
Assistant Vice President
Small Business Relationship Manager

Hustontown Office

Denise M. Doyle
Financial Services Officer and Manager

McConnellsburg Office

Mary E. Wright
Financial Services Officer and Manager

Orbisonia Office

Shawna C. Dunmire
Financial Services Officer and Manager

Penns Village Office

Brenda J. Gordon
Financial Services Officer and Manager

Consumer Lending
Services

Kristen G. Appleby
Consumer Lending Manager

Mark E. Bitting
Mortgage Production Manager

Investment &
Trust Services

Warren M. Hurt
Vice President
Senior Investment Portfolio Manager

Carole L. Crist
Vice President
Investment & Trust Services Officer

Ronald R. Froeschle, QPA, QKA
Vice President
Employee Benefits Officer

David C. Gority
Vice President
Investment & Trust Services Officer

Charles R. Porter
Vice President
Business Development

James P. Probst
Vice President
Investment & Trust Services Officer

Diana L. Sponseller, CISP
Vice President
Investment & Trust Services Officer

Dennis L. Wilson, CTFA
Vice President
Investment & Trust Services Officer

David Y. Luo
Investment Portfolio Manager

Officers (continued)

Mary F. Cramer
Bank Secrecy Act and OFAC Analyst

Sheryl R. Snider
Assistant Compliance Officer

Credit Administration

William A. Pryor
Vice President
Credit Recovery Manager

Robert K. Day
Commercial Credit Recovery Officer

Steven R. Gormont
Credit Recovery Officer

Technology Services
Division

Matthew C. Clark
Assistant Vice President
Assistant Technology
Services Officer

Patricia R. Ganoe
Assistant Vice President
Deposit Operations Manager

Pamela A. Johns
Assistant Vice President
Loan Servicing Manager

Joshua S. Davis
Assistant Technology Services Manager

Carol L. Morris
Assistant Loan Servicing Manager

Stacey A. Stenger
Data Operations Manager

Andrew M. Otto
Investment & Trust Services
Relationship Manager

Heather C. Hershey
Estate Administration Officer

Robin L. Murray
Trust Operations Manager

Matthew T. Brennan
Assistant Investment &
Trust Services Officer
Personal Investment Counselor

Avis M. Graham, CFP®, RFC, CASL
Assistant Investment &
Trust Services Officer
Personal Investment Counselor

Roderick C. Salter, FSS, CTFA
Assistant Investment &
Trust Services Officer
Personal Investment Counselor

Marketing

Samantha J. Burke
Marketing Officer

Melissa D. Miller
Marketing Officer

Facilities

Barry L. Shetter
Assistant Vice President
Facilities Manager

Finance & Control

Kim A. Brant
Asset-Liability Analyst

Amy B. Herrold
Controller

Human Resources

Levi L. Crouse
Human Resources Officer

Christina L. Yoder
Training and Development Officer

Corporate

Catherine C. Angle
Corporate Secretary

Joyce A. Riley
Assistant Corporate Secretary

Risk Management
Division

Olaf R. Hasse
Vice President
Loan Portfolio Risk
Management Officer

Eric M. Follin
Documentation Review Officer

Matthew R. Shank
Assistant Documentation
Review Officer

Janet E. Stamper
Assistant Documentation
Review Officer

Compliance

Lorie M. Heckman, CRCM
Vice President
Bank Secrecy Act, Compliance
and Security Officer

General Contact Information

FFSC / F&M Trust Headquarters
Local: 717-264-6116
Toll Free: 888-264-6116

Freedom Access Center
(telephone banking service)
Local: 717-261-3662
Toll Free: 888-261-3662

24-Hour Online Access
www.fmtrustonline.com

Marion Community Office

Newville Community Office

Community Office Locations

Southern Franklin
County

Greencastle
518 N. Antrim Way
Greencastle
717-597-2384

Marion
5293 Main Street
Marion
717-375-2200

Mont Alto
8 Park Street
Mont Alto
717-749-3161

Waynesboro
200 East Main Street
Waynesboro
717-762-2188

Fulton and Huntingdon
Counties

Hustontown
7781 Waterfall Road
Hustontown
717-987-3193

McConnellsburg
100 Lincoln Way East
McConnellsburg
717-485-3144

Orbisonia
18810 Sandy Ridge Station
Orbisonia
814-447-3104

Penns Village
182 Buchanan Trail
McConnellsburg
717-485-3167

Warfordsburg
560 Great Cove Road
Warfordsburg
717-294-3288

Cumberland
County

Boiling Springs
3 East First Street
Boiling Springs
717-241-4131

Camp Hill
3907 Market Street
Camp Hill
717-731-9604

Carlisle Crossing
214A Westminster Drive
Carlisle
717-243-2215

Hanover Street
14 North Hanover Street
Carlisle
717-249-1331

Mechanicsburg
6375 Carlisle Pike
Mechanicsburg
717-697-0444

Newville
51 South High Street
Newville
717-776-2240

Ritner Highway
1901 Ritner Highway
Carlisle
717-960-1400

Shippensburg
13 Shippensburg
Shopping Center
717-530-2100

Chambersburg
Area

Lincoln Way East
1712 Lincoln Way East
Chambersburg
717-264-9414

Memorial Square
20 South Main Street
Chambersburg
717-264-6116

Menno Village
2075 Scotland Avenue
Chambersburg
717-261-3697

Norland Avenue
870 Norland Avenue
Chambersburg
717-262-2085

Orchard Park
841 Wayne Avenue
Chambersburg
717-263-1801

Penn Hall
1425 Philadelphia Avenue
Chambersburg
717-261-3660

Philadelphia Avenue
2405 Philadelphia Avenue
Chambersburg
717-264-5122

St. Thomas
6962 Lincoln Way West
St. Thomas
717-369-3240

West Side
1100 Lincoln Way West
Chambersburg
717-263-9168

Ayr Town Center in McConnellsburg

Shippensburg West End ATM

STAR®/Cirrus® ATM Locations

Chambersburg
Area

Downtown Drive-Up ¬
150 Lincoln Way East
Chambersburg

Southern Franklin
County

Greencastle ¬
518 North Antrim Way
Greencastle

Marion ¬
5293 Main Street
Marion

Mont Alto ¬
8 Park Street
Mont Alto

Penn National Clubhouse
3720 Clubhouse Drive
Fayetteville

Quincy Village
6596 Orphanage Road
Quincy

Waynesboro ¬
200 East Main Street
Waynesboro

Waynesboro Market Place ¬
11123 Buchanan Trail East
Waynesboro

Zullinger ¬
4884 Buchanan Trail East
Zullinger

Fayetteville ¬
4025 Lincoln Way East
Fayetteville

Lincoln Way East ¬
1712 Lincoln Way East
Chambersburg

Menno Village
2075 Scotland Avenue
Chambersburg

Norland Avenue ¬
870 Norland Avenue
Chambersburg

Northgate Commons
1500 Northfield Drive
Chambersburg

Orchard Park ¬
841 Wayne Avenue
Chambersburg

Penn Hall
1425 Philadelphia Avenue
Chambersburg

Philadelphia Avenue ¬
2405 Philadelphia Avenue
Chambersburg

St. Thomas ¬
6962 Lincoln Way West
St. Thomas

West Side ¬
1100 Lincoln Way West
Chambersburg

¬ Indicates drive-up access

Fulton & Huntingdon
Counties

Ayr Town Center ¬
368 South 2nd Street
McConnellsburg

Hustontown ¬
7781 Waterfall Road
Hustontown

McConnellsburg ¬
100 Lincoln Way East
McConnellsburg

Orbisonia ¬
18810 Sandy Ridge Station
Orbisonia

Penns Village ¬
182 Buchanan Trail
McConnellsburg

Riverview Business Center ¬
11734 Lenape Drive
Mount Union

Warfordsburg ¬
560 Great Cove Road
Warfordsburg

Cumberland
County

Boiling Springs
3 East First Street
Boiling Springs

Camp Hill ¬
3907 Market Street
Camp Hill

Carlisle Crossing ¬
214A Westminster Drive
Carlisle

Carlisle Plaza Drive-Up ¬
700 East High Street
Carlisle

Hanover Street
14 North Hanover Street
Carlisle

Mechanicsburg ¬
6375 Carlisle Pike
Mechanicsburg

Newville ¬
51 South High Street
Newville

Ritner Highway ¬
1901 Ritner Highway
Carlisle

Shippensburg ¬
13 Shippensburg
Shopping Center

Shippensburg West End ¬
9966 Molly Pitcher Highway
Shippensburg

FFSC Shareholders’ Information

Dividend Reinvestment Plan
Franklin Financial Services Corporation offers a dividend
reinvestment program whereby shareholders with
stock registered in their own names may reinvest
their dividends in additional shares of the Corporation.
Information concerning this optional program is available
by contacting the Corporate Secretary at 20 South Main
Street, PO Box 6010, Chambersburg, PA 17201-6010,
telephone 717-264-6116.

Dividend Direct Deposit Program
Franklin Financial Services Corporation offers a dividend
direct deposit program whereby shareholders with stock
registered in their own names may choose to have their
dividends deposited directly into the bank account of
their choice on the dividend payment date. Information
concerning this optional program is available by contacting
the Corporate Secretary at 20 South Main Street,
PO Box 6010, Chambersburg, PA 17201-6010,
telephone 717-264-6116.

Stock Information
The following brokers are registered as market makers of
Franklin Financial Services Corporation’s common stock:

Boenning & Scattergood, Inc.
4 Tower Bridge
200 Bar Harbor Drive, Suite 300
West Conshohocken, PA 19428
800-883-1212
Raymond James and Associates
222 South Riverside Plaza, 7th Floor
Chicago, IL 60606
866-353-7522
RBC Wealth Management
2101 Oregon Pike
Lancaster, PA 17601
800-456-9234
Stifel, Nicolaus & Co.
20 Ash Street, Suite 400
Conshohocken, PA 19428
800-223-6807

Registrar and Transfer Agent
Registrar and Transfer Company is the transfer agent and
registrar for Franklin Financial Services Corporation.

Annual Meeting
The Annual Shareholders’ Meeting will be held
Tuesday, April 30, 2013 at the Orchards Restaurant
in Chambersburg. The Business Meeting will begin
at 10:30 a.m. and will be followed by a luncheon.
If interested in attending, please complete and
return the reservation form reply card by April 15.

Registrar and Transfer Company
10 Commerce Drive
Cranford, NJ 07016-3572
1-800-368-5948
Email: info@rtco.comw

Web Site
www.franklinfin.com

Market & Dividends

The Corporation’s common stock is not actively traded
in the over-the-counter market. The Corporation’s stock
is quoted on the OTCQB Market Tier of the OTC Markets
under the symbol “FRAF”. Current price information
is available from account executives at most brokerage
firms as well as the registered market makers of

Franklin Financial Services Corporation common stock as
listed above under Shareholders’ Information. There were
2,032 shareholders of record as of December 31, 2012.
The range of high and low bid prices is shown below
for the years 2012 and 2011. Also shown are the regular
quarterly cash dividends paid for the same years.

2012 Per Share

2011 Per Share

High

Low

Dividends
Paid

First quarter

$15.85

$12.30

$0.27

First quarter

Second quarter

Third quarter

Fourth quarter

15.75

14.29

14.75

12.86

13.10

13.65

0.17

$0.78

Second quarter

Third quarter

Fourth quarter

High

$17.00

18.25

17.50

15.55

wLow

Dividends
Paid

$15.19

$0.27

17.10

15.10

12.30

0.27

$1.08

S u p p o r t i n g o u r c o m m u n i t i e s

a n d l o c a l e c o n o m y.

P. O . B o x 6 0 1 0 • C h a m b e r s b u r g , P A 1 7 2 0 1 • 8 8 8 . 2 6 4 . 6 1 1 6 • w w w . f r a n k l i n f i n . c o m