SHAREHOLDER
LETTER
2022
DEAR SHAREHOLDERS,
It is an honor and a pleasure to once again
be writing to share with you what your
company accomplished in the past year.
Franklin Financial Services Corporation
(FFSC) successfully completed the
third-most profitable year in its history
during a time of dynamic changes that had
both positive and negative effects on the
local economy and the company.
Nationally and regionally, 2022 will be remembered as a
financially tumultuous year, as the country continued to react
to its response to the pandemic. 2022 saw interest rates spike
from December 31, 2021, to December 31, 2022, as the Federal
Reserve’s funds rate went from 0.08% to 4.33%, the prime rate
rose from 3.25% to 7.50%, and the 10-year treasury rate climbed
from 0.94% to 3.88%. As interest rates climbed, there were
equally dramatic effects on loan and deposit pricing and the
stock and bond markets. Just as challenging for the country
and the region were international and employment issues, as
well as financial issues, that created an economy subject to
historic inflation levels that affected everyone.
FFSC was affected by the same economic factors that
affected the nation and our region. While addressing the
current short-term issues, it was also important that your
company not overreact and lose sight of our long-term plans
and goals. By maintaining a long-term view, your company was
able to continue to position itself for future growth and
profitability by adding key employees to our team; growing into
new markets; adding digital infrastructure, including new ATMs;
and adding to our physical footprint with a new headquarters
building and two newly renovated community offices.
In 2022, your company posted a net income of $14,938,000.
While rising interest rates helped us to recognize higher net
interest income, when compared to 2021, that advantage was
offset by lower non-interest income and higher expenses. Some
of the differences between 2021 and 2022 were due to one-time
benefits recognized in 2021, including a $2.1 million loan loss
reversal and the sale of the company’s headquarters in
downtown Chambersburg. In 2022, your company had higher
salary and benefit costs, as inflation and wage and salary
pressures required the company to raise wages to meet market
demand. With the end of federal government support payments
related to the pandemic, spending habits changed, reducing
some of the bank’s non-interest income. Increased interest rates
affected your company in several other ways. The Investment &
Trust Services team generated higher income levels than the
previous year, but the negative effect the movement in interest
rates had on both the stock and bond markets slowed the
potential growth in fee income generated by the team. Higher
rates also significantly slowed residential mortgage originations
for both refinancing and acquisition, which reduced related fee
income compared to the previous year.
Your company’s balance sheet continues to be strong and
meets all regulatory benchmarks for being a well-capitalized
company. In 2022, book capital (non-regulatory) decreased
primarily due to a $51 million decrease in accumulated other
comprehensive income (AOCI) and as unrealized losses in the
bank’s investment portfolio increased with climbing interest
rates. Ultimately, most of these unrealized losses will be
recaptured as the investment portfolio amortizes and matures,
but the short-term effect is significant to the balance sheet. It is
important to remember that the AOCI is not considered in the
calculation of regulatory capital ratios. Beyond AOCI, the bank
began to see a drawdown from record levels of deposits as
customers began using the funds for projects and ordinary
spending or sought higher deposit rates. As a result, FFSC began
to reduce its cash to support the growth of the bank and to avoid
having to liquidate longer-term investments. Despite these
challenges, your company maintains a strong liquidity position
that supports future growth plans.
The bank’s loan quality continued to
improve in 2022 as non-performing
loans to gross loans dropped to 0.01%
as of year-end 2022 compared to
0.74% for the same period in 2021.
The allowance for loan losses to
gross loans at year’s end was 1.35%,
down from 1.51% a year earlier, and a
reflection of the improved loan quality.
During 2022, the bank prepared to
adopt the Current Expected Credit Loss
(CECL) standard for implementation
at the beginning of 2023.
The company does
not anticipate a
significant impact
from adopting
CECL.
TIMOTHY G. HENRY
President & CEO
Continued on next page > > Continued from previous page
Over the course of the year, our stock price moved from $33.10
per share on December 31, 2021, to $36.10 per share on
December 31, 2022. The stock traded in a range from $28.05 per
share to $36.55 per share, as many factors play a role in the price
of our stock on a given day. For the year, the annual dividend was
$1.28 per share, up from $1.25 per share in the previous year.
We believe that if we run the company effectively, our
shareholders will see appreciation of their stock over time
while benefiting from a reliable dividend payment.
with renovations to our Mechanicsburg and West Side
(Chambersburg) community offices. Both locations were
redesigned to meet the needs of our customers more effectively.
We created spaces where customers can comfortably meet bank
staff, discuss solutions to banking and financial issues, and
conduct transactions. We also completed the first phase of a
three-phase plan to replace our aging ATMs with new machines
that offer improved security and customer-friendly features.
2022 also saw the completion of the new company
headquarters and operations center at
While the inflationary economy and the
dramatically shifting interest rates created
short-term challenges, your company
stayed focused on investing and
building for the future as an
independent community bank.
In July 2022, the bank moved into
Maryland, establishing a community
office in Hagerstown that is home
to retail, commercial lending,
treasury, and investment and trust
teams. It is an exciting first step as
the bank spreads its community
banking, relationship-driven model to
new markets. In December, your company
announced the addition of Gregory I. Snook to
the Board of Directors. Mr. Snook was born and
raised in Washington County, Maryland, and has spent his
adult life serving the area in many capacities.
AS WE MAKE
DECISIONS REGARDING
STRATEGY, PEOPLE,
NEW MARKETS, TOOLS,
AND INFRASTRUCTURE,
WE DO SO WITH AN EYE
TO THE FUTURE.
TIMOTHY G. HENRY
President & CEO
1500 Nitterhouse Drive in Chambersburg.
The project, which started with selling
our two buildings downtown and
repurposing a vacant industrial
building, was completed on time and
on budget, and teams began moving
in at the end of June. The project
brought employees formerly working
on six floors in two buildings into a
single-story building designed to
promote collaboration. While a new
headquarters became a necessity due
to the growth of the bank, I am convinced
that the result of the collaboration between
departments in our new location will be a more
customer-focused, efficient, and profitable company.
Amidst all this activity, your company has not lost its focus on
community. During 2022, we donated more than $526,000 to
263 community organizations and more than $122,000 in
scholarships through the Pennsylvania Educational Improvement
Tax Credit (EITC) program. And your company did not just give
of its “treasure” but also gave of “time” and “talent” by investing
more than 1,300 volunteer hours in 62 different organizations.
Last year, I wrote of the pending retirements of Ron Cekovich,
Trish Hanks, and Joe Lieb, which occurred as planned.
We thank them for their significant contributions to the
company. We are a better organization for them having
2022 also saw the adoption of Salesforce, a Customer
Relationship Management (CRM) tool that will support the bank’s
efforts to digitally connect its teams with our customers and
efficiently offer solutions to meet their needs. While engaging the
Salesforce tool has been a major undertaking by nearly everyone
in the bank, we believe it will become our “digital backbone”
and support the ongoing digital transformation that is required
for us to be successful.
Your company also improved existing physical infrastructure
NEW COMPANY
HEADQUARTERS AND
OPERATIONS CENTER
Chambersburg PA
SHAREHOLDER
LETTER
2022
been part of the team. In 2022, we introduced two new senior
management team members: Chief Retail Services Officer
Lou Giustini and Chief Technology Officer Dave Long.
On January 2, 2023, we welcomed Chief Operating Officer
Chad Carroll. All three have made significant contributions
to your company and I am very pleased to have them as
part of the team.
The past three years have demonstrated how quickly and
dramatically the world around us can change. Those changes
require us, in response or proactively, to make changes too.
As we make decisions regarding strategy, people, new markets,
tools, and infrastructure, we do so with an eye to the future.
We are positioning ourselves to be able to continue to grow,
both organically and through merger and acquisition, so we
can continue to provide the great service and products our
customers have come to expect and continue to meet the
needs of the communities we serve.
What doesn’t change is our focus on being a great, independent,
community bank that brings a fair return to our shareholders
based on a business model that provides capital and outstanding
service to our customers, supports the communities in which
we operate, and provides rewarding careers to our employees.
If we can do all this effectively, I believe there is a bright future
for you, our shareholder, your company, and those it serves.
We operate with the guidance of your Board of Directors,
who work to set the direction for the company, oversee its
management, and ensure that shareholder needs are addressed.
Collectively, board members spend many hours in learning
opportunities outside the board room so they can be more
effective in their roles and bring value to the organization.
Their conversations in the board room are straightforward,
inquisitive, challenging, respectful of each other and
management, and focused on how we can become a better
company. I am grateful for their guidance and input.
2023 will be another challenging year. There is no reason
why it shouldn’t be. The management team and I look forward
to embracing the challenges and opportunities the year
presents with the goal of continuing to build for a better future
for all, including you, our shareholder. Thank you for your
continued support.
Sincerely yours,
Timothy G. Henry
President & CEO
Franklin Financial Services Corporation and F&M Trust
T O T A L R E T U R N P E R F O R M A N C E
E
U
L
A
V
X
E
D
N
I
$250
$200
$150
$100
$50
$116.23
12/31/17
12/31/18
12/31/19
12/31/20
12/31/21
12/31/22
LEGEND
Frankin Financial Services Corp.
NASDAQ Composite Index
S&P US BMI Banks - Mid-Atlantic Region
Peer Group
CONSOLIDATED
FINANCIAL HIGHLIGHTS
2022
(Dollars in thousands, except per share)
2022
2021
PERFORMANCE MEASUREMENTS
Net income
Return on average assets
Return on average equity
Net interest margin, fully tax equivalent
SHAREHOLDERS’ VALUE (Per common share)
Diluted earnings per share
Basic earnings per share
Regular cash dividends paid
Book value
Market value*
Market value/book value ratio
Price/earnings multiple year-to-date
Dividend yield
Dividend payout ratio
BALANCE SHEET HIGHLIGHTS
Total assets
Investment and equity securities
Loans, net
Deposits
Shareholders’ equity
SAFETY AND SOUNDNESS
Risk-based capital ratio (Total)
Leverage ratio (Tier 1)
Common equity ratio (Tier 1)
Nonperforming loans/gross loans
Nonperforming assets/total assets
Allowance for loan loss/loans
Net loan (charge-offs) recoveries/average loans
ASSETS UNDER MANAGEMENT
$
14,938
$
$
$
0.83%
11.64%
3.11%
3.36
3.38
1.28
26.01
36.10
138.79%
10.74
3.55%
37.88%
19,616
1.17%
13.20%
2.88%
4.42
4.44
1.25
35.36
33.10
93.61%
7.49
3.87%
28.16%
$ 1,699,579
$
1,773,806
487,247
1,036,866
1,551,448
114,197
17.21%
8.95%
14.22%
0.01%
0.01%
1.35%
(0.15)%
530,292
983,746
1,584,359
157,065
18.41%
8.52%
15.20%
0.74%
0.42%
1.51%
0.04%
Trust and Investment Services (Fair value)
$
904,317
$
946,964
Held at third-party brokers (Fair value)
116,398
118, 046
*Based on the closing price of FRAF as quoted on the Nasdaq Capital Market.