DEAR SHAREHOLDERS,
It is my pleasure to report to you the results
of a successful 2023 year in which your
company operated profitably in a very
difficult operating year and, at the same
time, made investments that will lead to
the future growth and continuing success
of Franklin Financial Services Corporation
and its operating bank, F&M Trust.
For the year, the company posted a net income of
$13.6 million after taking a charge of $1.1 million on
a restructuring of the investment portfolio, and the
termination and buyout of an unproductive land lease
at a cost of $495 thousand. This compares to 2022
earnings of $14.9 million.
From this profit, we were able to return $5.6 million to
our shareholders in the form of dividends (a dividend
yield of 4.06%) and build shareholder equity in the
company, further strengthening the company and
positioning it for future growth.
Several factors were key to our earnings success in 2023.
The year was highlighted by 19.6% growth in our loan
balances, particularly due to growth in commercial loan
balances, which grew by 18.3% over
the course of the year. Despite a
year of dramatically increasing
deposit rates, your company’s
net interest margin actually
increased to 3.31%, from
3.11% in 2022, due to a
focused effort on providing
value to our customers
while controlling costs.
SHAREHOLDER
LETTER
2023
Residential mortgages also performed well for your
company after a very slow start to the year brought on
by the rapid increase in mortgage rates. In an atypical
year, in which we held many of our adjustable-rate
mortgages, fee income from the sale of mortgages
was down but interest income was up.
Credit quality continues to be exceptionally good with
non-performing loans just 0.01% of total loans. The
bank’s allowance for credit losses at 1.28% of total
loans gives your company a significant buffer
should credit quality deteriorate in the future due
to economic challenges.
Fee income from our Wealth Management division
(recently renamed from the prior name of “Investment
and Trust Services”) grew by 5.0% to $7.5 million, while
assets under management remained over $1 billion.
We also saw a 15.5% increase in our debit card income
as we expanded the total number of households we
serve and provided our deposit customers with additional
incentives for using our debit card.
Deposits were down for the year by 0.9%. While it is our
goal to grow our deposit base, I am pleased that in a year
when deposits shifted for the entire industry, due to
rapidly rising rates and the Silicon Valley and First
Republic issues in March 2023, our deposits stayed
essentially flat. We see this to be a case of our customer
base recognizing the value in banking with F&M Trust
that goes beyond just the interest rate paid.
One of the reasons our deposit customers stay is that we
take care of them. Though it might cost the bank to do
so, 91.3% of our total deposits were either covered by
FDIC insurance or collateralized. For the 8.7% of
uninsured deposits, we have talked with those customers,
and they have decided to leave those particular deposits
uninsured for their own particular purposes. This high
level of protected deposits protects both the customer
and the bank from facing the liquidity issues faced by
other banks around the country.
Shareholder equity increased by $17.9 million,
maintaining the company’s status as well capitalized.
The increase in equity was due to two main factors.
TIMOTHY G. HENRY
President & CEO
24026FMT 2023 4pp Ann Rep Draft F.indd 1
24026FMT 2023 4pp Ann Rep Draft F.indd 1
3/7/24 9:57 AM
3/7/24 9:57 AM
Continued on next page > > Continued from previous page
First, retained earnings increased by $8.1 million,
and secondly, the charge under Accumulated Other
Comprehensive Income (AOCI) improved $10.3 million
due to changes we made in the investment portfolio,
the natural amortization of the investment portfolio,
and a slight retreat in interest rates toward the
end of 2023.
future. Without making these changes, we would have
posted a higher net income this year but negatively
impacted our long-term vision of being a strong and
viable company that can bring solid returns to our
1,536 shareholders, to our communities and customers,
and to our employees.
During 2023, our employees continued to
Performance ratios for Return on Assets
(ROA) and Return on Equity (ROE)
softened in the year, dropping to
.78% and 11.39% respectively
from .83% and 11.64% in 2022.
Reasons for this included the
$1.1 million charge we took to
reposition the investment
portfolio (the cost of which
should be earned back over
18 months), the $495 thousand
charge to buy out a lease, and
the additional provision for credit
losses we had to make in the face of
increased loan balances, which will be
earned back over the life of the loans.
WE BELIEVE
IN THE COMMUNITY
BANK CONCEPT THAT
YOU GIVE BACK TO THE
COMMUNITIES WHERE
YOU DO BUSINESS.
TIMOTHY G. HENRY
President & CEO
give back to their communities with over
1,300 volunteer hours contributed to
62 different service organizations.
Supporting our employees and
our communities, your company
donated $419 thousand to
255 organizations and
over $192 thousand to fund
342 scholarships for children
in pre-kindergarten and
kindergarten through 12th grade.
We believe in the community bank
concept that you give back to the
communities where you do business,
and we live it in what we do and how
we invest our time, talent, and treasure.
There are other reasons for the drop in ROA and ROE
as we realized a year’s full cost in moving to our new
headquarters at 1500 Nitterhouse Drive in Chambersburg
and absorbed the full-year costs of new software systems,
including Salesforce. We also added some necessary
positions to our team of employees as we structure and
prepare the company for future growth. While categorized
as expenses, I view these changes as investments in our
For our shareholders, your investment in Franklin Financial
Services Corporation earned you a solid dividend return.
In addition, we repurchased 83,058 shares, returning
capital to our shareholders. Our stock price moved
considerably, up and down, over the course of the year
for several reasons. One, the financial industry as a whole
did not see stock price appreciation as news events and
the rapidly rising interest rates, as well as strength in the
SHAREHOLDER
LETTER
2023
other investing sectors, captured the focus of investors.
Your company is also faced with the challenge of having
relatively little buy/sell action in the stock (stock liquidity),
which can result in the stock price moving on very few
shares traded. As we move forward, we will work to
protect our dividend through solid earnings performance,
and we will work to grow the bank to improve our stock
liquidity, in order to provide our shareholders with a more
stable stock price.
Our shareholders continue to be well represented by the
current Board of Directors. Your Board is highly engaged
in what the company is doing strategically. Continually
educating themselves through in-person meetings, online
training, and attending conferences, the Board has worked
to improve its own governance while also laying out
ambitious goals for the company that will provide for
strong performance into the future. I appreciate the effort
the Board, and its individual members, is making to
ensure that we continue to become a better company.
By all measures, 2023 was a challenging year for financial
institutions across the country, including your company.
Yet, we were able to provide a good dividend return for our
shareholders while also investing and preparing for the
future. Significantly, we did all this without ignoring the
communities that we serve. I, along with our staff and
your Board of Directors, continue to be excited and
enthused about the future of your company. We are
making the necessary changes to meet the ever-changing
needs of our customers while at the same time holding
true to our values that unite our employees and make us
valuable to those we serve.
Thank you for your past and ongoing 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
$122.03
12/31/18
12/31/19
12/31/20
12/31/21
12/31/22
12/31/23
LEGEND
Frankin Financial Services Corp.
NASDAQ Composite Index
S&P US BMI Banks - Mid-Atlantic Region
Peer Group
American Heart Association
Chesapeake Bay Foundation
Habitat for Humanity
Hagerstown Tree Lighting
Army Heritage Center
24026FMT 2023 4pp Ann Rep Draft F.indd 2-3
24026FMT 2023 4pp Ann Rep Draft F.indd 2-3
3/7/24 9:57 AM
3/7/24 9:57 AM
CONSOLIDATED
FINANCIAL HIGHLIGHTS
2023
(Dollars in thousands, except per share)
2023
2022
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
Current quarter 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
$
13,598
$
$
$
0.78%
11.39%
3.31%
3.10
3.11
1.28
30.23
31.55
104.37%
10.18
4.06%
41.15%
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%
$ 1,836,039
$
1,699,579
472,503
1,240,933
1,537,978
132,136
14.45%
9.01%
11.82%
0.01%
0.01%
1.28%
(0.02)%
487,247
1,036,866
1,551,448
114,197
17.21%
8.95%
14.22%
0.01%
0.01%
1.35%
(0.15)%
Wealth Management Services (Fair value)
$ 1,094,747
$
904,317
Held at third-party brokers (Fair value)
135,423
116,398
*Based on the closing price of FRAF as quoted on the Nasdaq Capital Market
**Annualized
24026FMT 2023 4pp Ann Rep Draft F.indd 4
24026FMT 2023 4pp Ann Rep Draft F.indd 4
3/7/24 9:57 AM
3/7/24 9:57 AM