Franklin Financial Services Corporation
Annual Report 2013

Plain-text annual report

2013 Annual Report W OF CONTENTS A MESSAGE TO OUR SHAREHOLDERS . . . . . . . . . . . 1 SUMMARY OF SELECTED FINANCIAL DATA . . . . . 21 F&M TRUST SENIOR MANAGEMENT TEAM . . . . . 16 FFSC DIRECTORS AND OFFICERS . . . . . . . . . . . . . . . 22 F&M TRUST OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . 17 FFSC SHAREHOLDERS’ INFORMATION . . . . . . . . . . 23 CONSOLIDATED FINANCIAL HIGHLIGHTS . . . . . . . 20 F&M TRUST COMMUNITY OFFICE LOCATIONS . . 24 01 A Message to Our Shareholders William E. Snell, Jr. /President and Chief Executive Officer Dear Shareholders, Franklin Financial reported earnings of $6,232,000 in 2013, representing a 16.2% increase over our 2012 earnings of $5,365,000. Diluted earnings per share increased from $1.32 per share in 2012 to $1.51 per share in 2013. As a shareholder, you received cash dividends of $0.68 per share in 2013, compared with $0.78 per share in 2012. This decrease resulted from our decision to reduce the dividend from $0.27 per share to $0.17 per share in the second quarter of 2012 in order to avoid the need to raise substantial additional capital, thereby significantly diluting our shareholders. This action, coupled with investments from existing and new shareholders, through our enhanced Dividend Reinvestment and Stock Purchase Plan, has been successful in boosting our capital ratios. Our current dividend payout represents a 4% return based upon the clos- ing price of Franklin Financial Stock at December 31, 2013. Our dividend payout remains in the upper end of our peer banking group range. Franklin Financial reported earnings of $6,232,000 in 2013, representing a 16.2% increase. The market value of a share of Franklin Financial stock rebounded from a closing price of $14.00 at December 31, 2012 to $17.10 at December 31, 2013. Our Tax Equivalent Net Interest Income in 2013 declined by $675,000 or 2%, reflecting weak loan demand, intense competition for quality loans, as well as the Federal Reserve’s con- tinuing initiative to keep interest rates low in order to stimulate the economy. Non-Interest Income increased by $426,000 or 4.5%, reflecting a solid 8.4% increase in Investment and Trust Services Fee Income as well as a 56% reduction in write-downs on Other Real Estate Owned (OREO). 02 Our Dividend Yield remains in the upper end of our peer banking group range. Non-Interest Expense increased by $493,000 or year of a decline in Net Charge-Offs. Our Net 1.6% in 2013 as we held salary and benefit Charge-Off ratio improved to .49% in 2013 as expenses flat while FDIC Insurance Premiums compared to .60% in 2012. At year end, our declined by $114,000. Allowance for Loan Losses as a percentage of Total Loans stood at 1.34%. In the fourth quarter of 2013, we recorded a nonrecurring expense of $667,000 for a deferred Non-Accruing Loans totaled $24,643,000 at compensation plan assumed in our acquisition year-end 2013, representing a 32% decline from of Fulton Bancshares Corporation in 2006. At the $36,394,000 total at year-end 2012. We con- the time of the acquisition, information provided tinue to work diligently to exit our problem by the FDIC indicated that this payout was con- credits and are optimistic that we will continue sidered a non-permissible “golden parachute” to make significant progress in 2014. payment and; therefore, not accrued in prior years. The FDIC’s ruling was challenged by the Franklin Financial’s Total Assets declined from beneficiary of the deferred compensation plan $1,027,363,000 at year-end 2012 to $984,587,000 and, more than seven years later, the FDIC at December 31, 2013, as we opted to let higher reversed its decision, thereby permitting the cost deposits roll off in light of sluggish loan payment…which resulted in our decision to demand. Net loans outstanding declined by 4% fully accrue this liability in the fourth quarter. on a year-over-year basis while average loan Obviously, our Net Income increase in 2013 outstandings decreased by 3.5%. would have been significantly higher without this reversal in the FDIC’s position. Commercial Loan demand was spotty and, cou- Our Provision for Loan Losses decreased 44% average outstandings in the commercial portfo- from $5,225,000 in 2012 to $2,920,000 as Net lio declined by $34,343,000 or 5.5%. Average Charge-Offs decreased from $4.6 million to $3.6 consumer loan outstandings decreased by 12% million. This marked the second consecutive to $69,608,000 as consumers continued to be pled with the exit of several problem loans, 03 Financial Highlights Total Assets As dollars in millions Net Loans As dollars in millions Total Deposits and Repos As dollars in millions 9 7 9 2 5 9 0 9 9 7 2 0 , 1 5 8 9 1 3 7 0 4 7 7 5 7 3 4 7 4 1 7 7 1 9 0 7 8 1 4 8 4 9 7 5 8 7 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013 Net Income As dollars in millions Regular Cash Dividends Paid As dollars per share 2 1 6 . 7 5 8 5 . 6 9 6 5 . 6 2 3 2 . 5 6 6 3 . 5 8 0 . 1 8 0 . 1 8 0 . 1 8 7 . 0 8 6 . 0 ROA/ROE As percentage values ROE Tangible ROE 9 7 . 0 1 9 6 . 8 7 2 . 1 1 4 3 . 9 5.5 0 3 . 9 8 6 . 7 8 6 . 7 2 2 7 7 . . 6 6 1.5 4 1 . 7 0 0 . 6 4 7 . 0 9 6 . 0 2 8 . 0 8 7 . 0 0 7 . 0 6 6 . 0 4 6 . 0 1 6 . 0 5 5 . 0 1 5 . 0 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013 Tangible ROA ROA 04 hesitant to add debt and focused on increasing grew by 10.4% to $574,700,000 at December 31, liquidity. Average residential mortgage loan 2013, reflecting the addition of new client rela- outstandings increased by 29% as we retained tionships and higher market valuations. Assets more originations in the portfolio. Under Management as reported do not include approximately $130,000,000 in assets held at Total Deposits and Repurchase Agreements as third party brokers at year-end. Investment and measured at December 31, 2013 decreased by Trust Service fee income, including revenue 5.1% while average Deposits and Repurchase generated through our brokerage offerings, Agreements increased by 1.9%. Average Core increased 8.4% to $4,429,000 in 2013. Deposits (i.e. checking, savings, and interest- bearing checking) increased by $60,310,000 Our financial condition remains strong as evi- or 20.9%. Average balances in our Money denced by a Total Risk Based Capital Ratio of Management Account product increased by 14.24% and a Leverage Capital Ratio of 9.14%. $20,750,000 or 5.7%. These ratios remain above the levels that fed- eral regulators require for an institution to be The market value of Assets Under Management by considered “well-capitalized.” Franklin Financial’s our Investment and Trust Services Department Tangible Common Equity Ratio also improved from 8.01% to 8.79% at year-end 2013. Shareholder services team: Lee Ann Novak, Joyce Riley, Cathy Angle 05 AVERAGE CORE DEPOSITS INCREASED BY OVER $60 MILLION OR 20.9% During 2013, we made two significant additions experience to F&M Trust, most recently having to our Management Group. Jane Tompkins served as President of the Capital Region of joined us in May as Senior Vice President and Susquehanna Bank where he had responsibility Risk Management Officer. Jane has an extensive for all commercial banking and retail operations background in commercial lending and credit in a region that included 13 branches. management during her 39 years in banking. As Risk Management Officer, she is responsible for At F&M Trust, Steve is responsible for managing ensuring that we maintain adequate policies to our Commercial Services Department, including control credit, operational, compliance and other cash management, merchant services, commercial risks. Her duties also include managing our lending, and the credit department. We are enterprise risk management program, ensuring delighted to have both Jane and Steve aboard. the overall quality of the Bank’s loss portfolio and acting as a liaison with our internal audit We continued to enhance banking convenience and loan review firms. for our customers through advancements in technology throughout 2013. In March, we intro- Steve Butz joined us in November as Senior Vice duced Online Account Creation, giving custom- President and Commercial Services Market ers the ability to open accounts online. We Manager. Steve brings almost 30 years of added Mobile Xpress Deposit in July, enabling 06 INVESTMENT & TRUST SERVICES FEE INCOME INCREASED 8.4% IN 2013 retail customers to deposit checks from home, advisor and wealth management platforms are work, or nearly anywhere, simply by taking a key components in our strategy of deepening photo of the items with their smart phone and customer relationships by creating customized electronically presenting them for deposit. financial plans to enable customers to meet Mobile Xpress Deposit for Small Businesses their defined goals. was added in December. We also provided customers with the ability to create their own We also embarked on a comprehensive study of customized Freedom Cards (MasterCard Debit our current community offices network as well Card) by selecting an image from their PC, as “self-service” delivery channels, including Facebook, Twitter, Flicker, or Picasa, customize ATMs, Mobile Banking and Internet Banking, the image, and create the card. with the objective of increasing market penetra- tion and profitability. This initiative will result in In September, our Investment and Trust Services a five-year plan for the development of new or Department converted its non-trust brokerage transformed community offices, more fully inte- to Cetera Investment Services, LLC and is now grated with our “self-service” delivery channels, operating under the private label of “F&M incorporating measurable financial objectives. Investment Services.” Cetera Investment We may also conclude that certain offices may Services, LLC provides customized investment not have the potential to achieve the desired and insurance solutions solely to financial insti- level of profitability…one example was our tutions. The key factors in the selection of our Hanover Street Office, which we closed in new broker dealer was Cetera’s self-clearing January of this year. status and its innovative technology. Cetera’s 07 During 2014, we will be upgrading our PCs January and has been working with Cathy to and servers with a more current version of the ensure a smooth transition in this position. Microsoft Operating System, as well as our doc- ument imaging system. We also plan to upgrade We anticipate that 2014 will be yet another chal- our Business Remote Deposit Capture system lenging year for financial institutions with a and offer loan billing statements online by continuation of the low interest rate environ- mid-year. ment, soft loan demand and additional regula- tions for financial institutions. Your continued Finally, I’d like to recognize and thank Cathy Angle, support as Franklin Financial shareholders is who will be retiring in May after 11 years of ser- very much appreciated. vice as Corporate Secretary of Franklin Financial and F&M Trust, as well as my Executive Sincerely, Assistant, for her professionalism, dedication, and many contributions. It has been my plea- sure to work with Cathy and she will be missed. William E. Snell, Jr. I am delighted that Lee Ann Novak joined us in President & CEO 08 Zoe’s Chocolates Waynesboro In 2007, siblings Zoë, Petros and Pantelis Today, Zoë’s Chocolate Co. serves more than Tsoukatos established Zoë’s Chocolate Co. 100 retailers nationally. The company’s superior to begin a third generation of passionate choco- quality has earned it the honor of providing latiers. What started in the early 1900s with chocolates for the 2013 Oscars, 2013 White Zoë’s Great Aunt Mary and Uncle Jim who left House Correspondents’ Dinner, and 2011 Greece and started a pushcart confectionery Emmy Awards. business, evolved into a permanent storefront in Waynesboro, with Zoe’s grandfather Petros With a nicely growing business, the Tsoukatoses joining them. George Tsoukatos came to visit look to Natasha Koons—Waynesboro Community America, fell in love with Petros’ daughter, and Office manager and her staff for responsive joined the business—becoming a master choco- service and fast, local answers. latier and father of three children who now run the business. Zoë, Petros and Pantelis Tsoukatos of Zoë’s Chocolates with Natasha Koons 09 The Butcher Shoppe Chambersburg The Butcher Shoppe in Chambersburg evolved The Butcher Shoppe and its attached Big from “Kennie’s Market,” a 1957 partnership Oak Cafe offer “market style” customer shop- between Kenneth Foust and Glenn Koons. In ping and dining experiences. The Keaths like 1964, it was renamed Scotland Road Market. the 100% local attention they get from Shaun A second location on Stouffer Avenue opened Young—Norland Avenue Office Manager and in 1977 and houses the current operation well Phil Pantano—Commercial Services Officer to known as The Butcher Shoppe. In 2006, Mary meet their financial needs for borrowing, cash Sue and Frank Keath, Glenn and Lorraine Koons’ management, payroll, and more. daughter and son-in-law purchased the company and now run it with their children, Adam, Ann, and Kyle. Shaun Young, Frank Keath of the Butcher Shoppe, and Phil Pantano 10 Thomas E. Brown Auto Body Werks Mechanicsburg Since 1960, the Mechanicsburg community has Lance’s relationship with Matt Harshbarger— relied on the Thomas E. Brown Auto Body Werks Commercial Services Officer, started when the business to provide exceptional body work on cars expanding business constructed their new build- and trucks—no matter the year, make, or model. ing. Lance noted, “I like Matt and F&M Trust Today, second-generation owner Lance Bonsall work. They get the job done. I really appreciate continues the tradition of superior quality and the bank’s commitment to its customers.” because of their honesty, integrity, and hard service—relying on well-trained employees, industry-certified technicians, and a 12,000- square-foot state-of-the-art workshop. Lance Bonsall of Thomas E. Brown Auto Body Werks and Matt Harshbarger 11 Cumberland Valley Tree Service Chambersburg Cumberland Valley Tree Service and Landscaping Franklin counties in Pennsylvania, as well as in is a family-owned business that provides land- Frederick and Washington counties in Maryland. scaping artistry, holistic plant health care, and comprehensive tree care by ISA Certified For the past decade, they have been working Arborists. with Ron Froeschle, Vice President—Employee Benefits Specialist, and the F&M Trust team Established in 1978 by George & Nancy Pogue, for retirement planning, business banking and Sr., today the company’s day-to-day operations lines of credit. With more than 40 years of are run by their son, George Pogue, Jr. and his financial experience, Ron helps clients like the wife Lisa. And Cumberland Valley Tree Service Pogues with their financial needs and goals. has branched out into Cumberland, Adams and Ron Froeschle with Lisa and George Pogue, Jr, and Kelly Schooley and Cumberland Valley Tree Service 12 Carlisle Evangelical Free Church Carlisle Carlisle Evangelical Free Church was established When the church was looking to expand two in 1985 when a small group of parishioners from years ago and needed financing assistance, the West Shore saw a need for a local church in they chose F&M Trust and moved all of their Carlisle. Today, average weekly attendance is banking accounts. They liked the competitive- nearly 1,000 worshipers. Since the church doesn’t ness of the bank’s products, its community set any geographic boundaries for attending, focus, and local decision making process. And people gather from a large surrounding area, they find Dave Zimmerman, Vice President— from Mechanicsburg to near Chambersburg. Commercial Services, is good to work with because he genuinely understand their needs Church staff currently includes four pastors, two and goals. directors, and seven part-time support staff. David Zimmerman and Steve Wilmert, Kristine Barner, and Trevor Steele of Carlisle Evangelical Free Church 13 M&C Lumber Needmore In 1988, Mark and Connie Mellott purchased Facing the financial challenges that most small the Needmore lumber products business from business owners deal with on a daily basis— Mark’s father, starting an impressive 3rd operational expenses, payroll, benefits and generation of family ownership. Today, M&C more, Mark and Connie turned to Don Trego— Lumber Co. Inc. continues to provide quality Small Business Relationship Manager and wood products to businesses throughout their Gerri Fischer—Warfordsburg Community Office multi-state service region. Manager for personalized service and custom- ized banking solutions. Don Trego, Mark and Connie Mellott of M&C Lumber and Gerri Fischer 14 Community Activism Ed Bidelspach F&M Trust employees, like Ed Bidelspach— County. Safe Harbour operates an emergency Ritner Highway Office Manager are active in the shelter for families and single females who community, serving on a variety of committees are in desperate need of a secure place to live and board, as well as volunteering at commu- and an environment to begin getting their lives nity events. under control, temporary and permanent hous- ing plus other fundamental services. While it would be simple to write a check for a worthy cause, F&M Trust believes that giving That’s just one of the many organizations Ed something more valuable can produce far greater supports. He also provides time and talent to the results—time and experience. Salvation Army, Downtown Carlisle Association, First Friday Committee, and others. He also has Ed has been an active volunteer with Safe been an active volunteer at the United Way Day Harbour, Inc.’s Board of Directors for the past of Caring, Toys for Tots parade, YMCA fund-raiser, five years. As chairman, he offers his time and West Pennsboro Fire Company car show. and professional knowledge to help guide Safe Harbour initiatives to provide a continuum of It’s another part of what makes F&M Trust a housing services for the homeless of Cumberland true local, community bank. 15 Borough of Chambersburg Chambersburg Established in 1803, the Borough of Chambersburg to be at the forefront in meeting important offers a variety of services to residents and Chesapeake Bay watershed quality standards businesses. When it comes to services, it is and add capacity to their sewer service network very unique among Pennsylvania municipalities. to allow for future growth with a waste water It is the only municipality in the state to own sewer upgrade in 2012. F&M Trust financed the both electric and natural gas systems. The project to improve and expand the Borough’s electric system is the largest municipal elec- waste water treatment facility, and to make tric system in the state—by twice the size— improvements to its electrical transmission and the Borough is the sole municipality in the system. state that owns and operates electric generat- ing plants. After considering all bids, F&M Trust was selected as the best overall choice providing superior The Borough also has a regional water system, bottom-line value, local convenience, and well- as well as a regional sewer system including a designed financial tools. Working with Mike wastewater treatment facility. The sewer sys- Metz, Vice President—Commercial Services, tem provides treatment for Borough residents Dianne Cornman—Cash Management Specialist, and businesses as well as customers of the and the bank’s staff, the borough officials have Greene, Guilford and Hamilton Sewer Authorities. been thrilled with the level of personalized ser- In addition they provide public works, police, vice received from their 100% local banking team. fire and ambulance, and other services. For many years they have relied on F&M Trust for their banking deposit and cash management services. The municipality saw an opportunity Mike Metz with officials from the Borough of Chambersburg: Jason Cohen—Director of Finance/Treasurer, Darren Brown—Mayor, Jeff Stonehill—Borough Manager/Director of Utilities, and Allen Coffman, President of Council 16 Senior Management Team From left to right: Mark R. Hollar—Senior Vice President, Chief Financial Officer and Treasurer Jane B. Tompkins—Senior Vice President, Risk Management Officer Patricia A. Hanks—Senior Vice President, Retail Services Market Manager Steven D. Butz—Senior Vice President, Commercial Services Market Manager William E. Snell, Jr.—President and Chief Executive Officer Lise M. Shehan, Esq.—Senior Vice President, Investment and Trust Services Manager Kenneth C. Ditzler—Senior Vice President, Marketing and Corporate Communications Manager Ronald L. Cekovich—Senior Vice President, Technology Services Manager Karen K. Carmack, SPHR—Senior Vice President, Human Resources Manager, Affirmative Action and HIPAA Privacy Officer Senior Management Team—from Left to Right: Mark R. Hollar, Jane B. Tompkins, Patricia A. Hanks, Steven D. Butz, William E. Snell, Jr., Lise M. Shehan, Esq., Kenneth C. Ditzler, Ronald L. Cekovich, Karen K. Carmack, SPHR 17 Officers Relationship Management Division Maria S. Seabra Credit Analyst Commercial Services Dianne L. Cornman, CTP Vice President—Cash Management Specialist William D. Feist IV Vice President Michael S. Metz Vice President Philip A. Pantano Vice President Katherine M. Powley Vice President David P. Zimmerman Vice President Kathleen M. Bloss Assistant Vice President Senior Credit Analyst Mary S. Cordell Assistant Vice President Matthew D. Harshbarger Assistant Vice President Brian C. Reidell Assistant Vice President Merchant Services Specialist Kelly J. Bricker Credit Analyst Jeramy D. Culler Small Business Credit Analyst Eric J. Fleming Credit Department Manager Jennifer D. Kaiser Commercial Services Support Specialist Danielle J. Meredith Credit Analyst Retail Services L. Kay Estep Assistant Vice President GO Club Coordinator 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 Philadelphia Avenue Office Eric L. Alleman Financial Services Officer and Manager Norland Avenue Office Shaun M. Young Assistant Vice President and Manager St. Thomas Office Dana L. Kaiser Financial Services Officer and Manager West Side Office N. Joy Weller Vice President and Manager Southern Franklin County Market Offices: Renee L. Preso Assistant Vice President Southern Franklin County Market Manager Summer Franzoni Assistant Vice President and Manager Lynn A. Waite Assistant Vice President Kimberly S. McKenrick Assistant Vice President Michele A. Williams Assistant Financial Services Officer and Assistant Manager 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 Greencastle Office Kimberly M. Smith Financial Services Officer and Manager Marion Office Vicky L. Carson Assistant Financial Services Officer and Assistant Manager Mont Alto Office Sarah S. Stansfield Financial Services Officer and Manager Don Trego, Mark and Connie Mellott of M&C Lumber and Gerri Fischer 18 OFFICERS Waynesboro Office Natasha J. Koons Financial Services Officer and Manager Chastity L. Wantz Assistant Financial Services Officer and Assistant Manager Cumberland County Market Offices: Robert D. Weed Vice President Cumberland County Market Manager Christopher J. Fitting Small Business Relationship Manager Boiling Springs Office Kevin M. Stoner Financial Services Officer and Manager Carlisle Crossing Office David R. Winters Assistant Vice President and Manager Mechanicsburg Office Cydnie Kelly Financial Services Officer and Manager Newville Office Ellen L. Ile Financial Services Officer and Manager Ritner Highway Office I. Edward Bidelspach Assistant Vice President and Manager Shippensburg Office Barbara A. Hoover Financial Services Officer and Manager Fulton & Huntingdon County Market Offices: Joyce E. Ritchey Vice President Fulton & Huntingdon County Market Manager Investment & Trust Services Marissa Pinto Burt Investment & Trust Services Market Manager Warren M. Hurt Vice President Senior Investment Portfolio Manager David Y. Luo, CFA Investment Portfolio Manager Donald L. Trego Assistant Vice President Small Business Relationship Manager Carole L. Crist Vice President Investment & Trust Services Hustontown Office Bertha A. Peffer Financial Services Officer and Manager McConnellsburg Office Mary E. Wright Financial Services Officer and Manager Warfordsburg Office Geraldine A. Fischer Financial Services Officer and Manager Consumer Lending Services Kristen G. Appleby Consumer Lending Manager Mark E. Bitting Mortgage Production Manager Ronald R. Froeschle, QPA, QKA Vice President Employee Benefits Officer David C. Gority Vice President Investment & Trust Services James P. Probst Vice President Investment & Trust Services Diana L. Sponseller, CISP Vice President Investment & Trust Services Dennis L. Wilson, CTFA Vice President Investment & Trust Services Matthew T. Brennan Assistant Vice President Investment & Trust Services 19 OFFICERS Avis M. Graham, CFP®, RFC, CASL Assistant Vice President Investment & Trust Services Human Resources Levi L. Crouse Human Resources Officer Andrew M. Otto Investment & Trust Services Relationship Manager Matthew W. Berger Investment & Trust Services Assistant Relationship Manager Heather C. Hershey Estate Administration Officer Robin L. Murray Trust Operations Manager 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 Christina L. Yoder Training & Development Officer Corporate Catherine C. Angle Corporate Secretary Lee Ann Novak 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 Rainbow D. Hopkins Security Officer Mary F. Cramer Bank Secrecy Act and OFAC Analyst David W. Smith 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 Technology Services Officer Pamela A. Johns Assistant Vice President Loan Servicing Manager Patricia R. Ganoe Deposit Operations Manager Joshua S. Davis Assistant Technology Services Manager Carol L. Morris Assistant Loan Servicing Manager Stacey A. Stenger Data Operations Manager 20 2013 CONSOLIDATED FINANCIAL HIGHLIGHTS (dollars in thousands, except per share) Performance Measurements Net income Return on average assets Return on average equity Return on average tangible assets(1) Return on average tangible equity(1) Efficiency ratio(2) 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 value(3) Market value Market value/book value ratio Price/earnings multiple Balance Sheet Highlights Total assets Investment securities Loans, net Deposits and customer repurchase agreements Shareholders’ equity Safety and Soundness Risk-based capital ratio (Total) Leverage ratio (Tier 1) Common equity ratio Tangible common equity ratio(4) 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 under management (fair value) 2013 2012 % increase (decrease) $ 6,232 $ 5,365 16 0.61% 6.72% 0.64% 7.86% 72.01% 3.47% 3.98%% 45.09% 1.51 1.51 0.68 22.88 20.55 17.10 72.01% 11.32 $ 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 $ $984,587 $1,027,363 159,674 713,711 869,558 95,388 133,328 743,200 916,649 91,634 14.24% 12.60% 9.14% 9.69% 8.79% 3.49% 3.04% 1.34% 0.49% 9.01% 8.29% 8.92% 8.01% 4.90% 4.10% 1.38% 0.60% 8.60% 14 14 (13) 3 4 22 (4) 20 (4) (5) 4 $ 574,680 $ 520,434 10 (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 21 SUMMARY OF SELECTED FINANCIAL DATA (Dollars in thousands, except per share) 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 assets(1) Return on average tangible equity(1) Efficiency ratio(2) 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 value(3) Market value Market value/book value ratio Price/earnings multiple Balance Sheet Highlights Total assets Investment securities Loans, net Deposits and customer repurchase agreements Shareholders’ equity Safety and Soundness Risk-based capital ratio (Total) Leverage ratio (Tier 1) Common equity ratio Tangible common equity ratio(4) 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 under management For the Year Ended December 31 2013 2012 2011 2010 2009 $ 36,042 4,378 31,664 2,920 28,744 9,877 31,094 7,527 1,295 $ 6,232 0.61% 6.72% 0.64% 7.86% 72.01% 3.47% 3.98% 45.09% 1.51 1.51 0.68 22.88 20.55 17.10 74.74% 11.32 $ $ $ $ 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 0.66% 7.68% 0.70% 9.30% 63.46% 3.73% 8.74% 65.05% 1.66 1.66 1.08 21.67 19.44 12.35 56.99% 7.44 $ $ 43,284 12,443 30,841 3,235 27,606 9,366 26,423 10,549 2,937 $ 7,612 0.78% 9.34% 0.82% 11.27% 63.43% 3.53% 5.92% 55.10% 1.96 1.96 1.08 21.09 18.38 18.25 86.53% 9.31 $ $ 43,757 14,674 29,083 3,438 25,645 8,880 25,929 8,596 2,011 $ 6,585 0.69% 8.69% 0.74% 10.79% 65.35% 3.44% 6.61% 62.95% 1.71 1.71 1.08 20.39 17.43 16.33 80.09% 9.55 $ $984,587 159,674 713,711 869,558 95,388 $1,027,363 133,328 743,200 916,649 91,634 $ 990,248 125,301 756,687 841,089 87,182 $ 951,889 117,616 739,841 785,495 82,639 $ 979,373 143,288 730,626 794,220 78,766 14.24% 9.14% 9.69% 8.79% 3.49% 3.04% 1.34% 0.49% 9.01% 12.60% 8.29% 8.92% 8.01% 4.90% 4.10% 1.38% 0.60% 8.60% 12.14% 8.40% 8.80% 7.82% 2.94% 2.60% 1.27% 0.86% 8.63% 11.73% 8.16% 8.68% 7.61% 3.68% 2.96% 1.18% 0.45% 8.36% 10.89% 7.50% 8.04% 6.94% 2.47% 1.93% 1.21% 0.26% 7.98% (fair value) $574,680 $ 520,434 $ 481,536 $ 490,420 $ 460,233 (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 22 Directors and Officers FFSC Board of Directors G. Warren Elliott President, Cardinal Crossing, Inc., Former Franklin County Commissioner William E. Snell, Jr. President and Chief Executive Officer, F&M Trust Charles S. Bender II Retired, F&M Trust Executive Vice President FFSC Officers G. Warren Elliott Chairman of the Board Catherine C. Angle Corporate Secretary Martin R. Brown President, M.R. Brown Funder Home, Inc. Richard E. Jordan III Vice President, Smith Land & Improvement Corp. Daniel J. Fisher President and Chief Executive Officer, D.L. Martin Company Donald A. Fry President, Cumberland Valley Rental and Towne Cleaners, ANDOCO, Inc. Allan E. Jennings, Jr. President, Jennings Chevrolet, Buick, GMC, Inc. Stanley J. Kerlin, Esq. Attorney, Law Offices of Stanley J. Kerlin, LLC Donald H. Mowery President, R.S. Mowery & Sons, Inc. Stephen E. Patterson, Esq. Principal, Salzmann Hughes P.C. Martha B. Walker, Esq. Partner, Walker, Connor & Spang, LLC William E. Snell, Jr. President and Chief Executive Officer Mark R. Hollar Treasurer and Chief Financial Officer Lee Ann Novak Corporate Secretary Joyce A. Riley Assistant Corporate Secretary Franklin Financial Service Corporation Board of Directors, front row (left to right): Donald A. Fry, Charles S. Bender II, G. Warren Elliott, William E. Snell Jr, Martha B. Walker, and Daniel J. Fisher: back row (left to right): Richard E. Jordan III, Donald H. Mowery, Allen E. Jennings Jr, Martin R. Brown, Stephen E. Patterson, and Stanley J. Kerlin 23 Shareholder Information Dividend Reinvestment Plan: Franklin Financial Services Corporation offers a div- Stock Information: The following brokers are registered as market idend reinvestment program whereby shareholders makers of Franklin Financial Services Corporation’s with stock registered in their own names may rein- common stock: vest 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 div- idend direct deposit program whereby shareholders Boenning & Scattergood, Inc. 4 Tower Bridge, 200 Bar Harbor Dr., Suite 300 West Conshohocken, PA 19428 800-883-1212 Raymond James Financial, Inc. 222 South Riverside Plaza, 7th Floor Chicago, IL 60606 312-655-2975 with stock registered in their own names may choose RBC Wealth Management to have their dividends deposited directly into the 2101 Oregon Pike bank account of their choice on the dividend payment Lancaster, PA 17601 date. Information concerning this optional program 800-456-9234 is available by contacting the Corporate Secretary at 20 South Main Street, PO Box 6010, Chambersburg, PA 17201-6010, telephone 717-264-6116. Annual Meeting: The Annual Shareholders’ Meeting will be held Tuesday, April 29, 2014 at the Orchards Restaurant in Chambersburg. The Business Meeting will begin at 9:00 a.m. and will be preceded by a breakfast buffet. If interested in attending, please complete and return the reservation form reply card by April 15th. Market and Dividend Information Stifel, Nicolaus & Co. 20 Ash Street, Suite 400 Conshohocken, PA 19428 800-223-6807 Registrar and Transfer Agent: The registrar and transfer agent for Franklin Financial Services Corporation is Registrar & Transfer Company, 10 Commerce Drive, Cranford, NJ 07016-3572, telephone 800-368-5948, email: info@rtco.com Web site: www.franklinfin.com The Corporation’s common stock is not actively Services Corporation common stock as listed above traded in the over-the-counter market. The under Stock Information. 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 There were 1,984 shareholders of record as of December 31, 2013. The range of high and low bid prices is shown below for the years 2013 and 2012. Also shown are the regular quarterly cash dividends paid for the same years. 2013 Per Share High Low First quarter $17.05 13.81 Second quarter Third quarter Fourth quarter 16.25 16.60 17.10 15.75 15.85 15.95 Cash Dividends Paid $0.17 0.17 0.17 0.17 2012 Per Share High Low First quarter $15.85 12.30 Second quarter Third quarter Fourth quarter 15.75 14.29 14.75 12.86 13.10 13.65 Cash Dividends Paid $0.27 0.17 0.17 0.17 24 Community Office/ATM Locations Chambersburg Area Lincoln Way East 1712 Lincoln Way East, Chambersburg 264-9414 Memorial Square 20 South Main Street, Chambersburg 264-6116 Menno Village 2075 Scotland Avenue, Chambersburg 261-3697 Norland Avenue 870 Norland Avenue, Chambersburg 262-2085 Orchard Park 841 Wayne Avenue, Chambersburg 263-1801 Penn Hall 1425 Philadelphia Avenue, Chambersburg 261-3660 Philadelphia Avenue 2405 Philadelphia Avenue, Chambersburg 264-5122 St. Thomas 6962 Lincoln Way West, St. Thomas 369-3240 West Side 1100 Lincoln Way West, Chambersburg 263-9168 Southern Franklin County Greencastle 518 N. Antrim Way, Greencastle 597-2384 Marion 5293 Main Street, Marion 375-2200 Mont Alto 8 Park Street, Mont Alto 749-3161 Waynesboro 200 East Main Street, Waynesboro 762-2188 Cumberland County Boiling Springs 3 East First Street, Boiling Springs 241-4131 Camp Hill 3907 Market Street, Camp Hill 731-9604 Carlisle Crossing 214A Westminster Drive, Carlisle 243-2215 Carlisle Plaza Drive-Up 700 East High Street, Carlisle 243-0416 Mechanicsburg Office 6375 Carlisle Pike, Mechanicsburg 697-0444 Newville 51 South High Street, Newville 776-2240 Ritner Highway 1901 Ritner Highway, Carlisle 960-1400 Shippensburg 13 Shippensburg, Shopping Center 530-2100 Fulton & Huntingdon County Hustontown 7781 Waterfall Road, Hustontown 987-3193 McConnellsburg 100 Lincoln Way East, McConnellsburg 485-3144 Orbisonia 18810 Sandy Ridge Station, Orbisonia 814/447-3104 Penns Village 182 Buchanan Trail, McConnellsburg 485-3167 Warfordsburg 560 Great Cove Road, Warfordsburg 294-3288 Additional ATM Locations Fayetteville 4025 Lincoln Way East, Fayetteville Northgate Commons 1500 Northfield Drive, Chambersburg Quincy Village 6596 Orphanage Road, Quincy Penn National Clubhouse 3720 Club House Drive, Fayetteville Waynesboro Market Place 11123 Buchanan Trail East, Waynesboro Zullinger 4884 Buchanan Trail East, Zullinger Shippensburg West End 9966 Molly Pitcher Highway, Shippensburg Ayr Town Center 368 South 2nd Street, McConnellsburg Riverview Business Center 11734 Lenape Drive, Mount Union m o c . s r o n n o c - n a r r u c . w w w / . c n I , s r o n n o C & n a r r u C y b n g i s e D t r o p e R l a u n n A P. O. Box 6010 Chambersburg, PA 17201 888.264.6116 www.franklinfin.com 

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