Franklin Financial Services Corporation was organized as a Pennsylvania business
corporation on June 1, 1983 and is a registered bank holding company under the
Bank Holding Company Act of 1956, as amended (the “BHCA”). On January
16, 1984, pursuant to a plan of reorganization approved by the shareholders
of Farmers and Merchants Trust Company of Chambersburg (“F&M Trust”
or “the Bank”) and the appropriate regulatory agencies, the Corporation
acquired all the shares of F&M Trust and issued its own shares to former
F&M Trust shareholders on a share-for-share basis.
The Corporation’s common stock is thinly traded in the over-the-counter
market. The Corporation’s stock is listed under the symbol “FRAF”
www.otcmarkets.com/stock/FRAF/quote) on the OTCQX Market Tier of the OTC Markets.
The Corporation’s Internet address is www.franklinfin.com. Electronic
copies of the Corporation’s 2015
The Corporation conducts substantially all of its business through its direct
banking subsidiary, F&M Trust, which is wholly owned. F&M Trust, established
in 1906, is a full-service, Pennsylvania-chartered commercial bank and trust
company, which is not a member of the Federal Reserve System. F&M Trust
operates twenty-two community banking offices in Franklin, Cumberland, Fulton
and Huntingdon Counties, Pennsylvania. The Bank engages in general commercial,
retail banking and trust services normally associated with community banks and
its deposits are insured (up to applicable limits) by the Federal Deposit Insurance
Corporation (the “FDIC”). F&M Trust offers a wide variety of
banking services to businesses, individuals, and governmental entities. These
services include, but are not necessarily limited to, accepting and maintaining
checking, savings, and time deposit accounts, providing investment and trust
services, making loans and providing safe deposit facilities. Franklin Future
Fund Inc., a direct subsidiary of the Corporation, is a non-bank investment
company that makes venture capital investments within the Corporation’s
primary market area. Franklin Financial Properties Corp. is a “qualified
real estate subsidiary”, a wholly owned subsidiary of F&M Trust and
was established to hold real estate assets used by F&M Trust in its banking
operations.
F&M Trust is not dependent upon a single customer or a few customers for
a material part of its business. Thus, the loss of any customer or identifiable
group of customers would not materially affect the business of the Corporation
or the Bank in an adverse manner. Also, none of the Bank’s business is
seasonal. The Bank’s lending activities consist primarily of commercial
real estate, construction and land development, agricultural, commercial and
industrial loans, installment and revolving loans to consumers and residential
mortgage loans. Secured and unsecured commercial and industrial loans, including
accounts receivable and inventory financing, and commercial equipment financing,
are made to small and medium-sized businesses, individuals, governmental entities,
and non-profit organizations.
The Bank classifies loans in this report by the type of collateral, primarily
residential or commercial and agricultural real estate. Loans secured by residential
real estate loans may be further broken down into consumer or commercial purpose.
Consumer purpose residential real estate loans represent traditional residential
mortgages and home equity products. Both of these products are underwritten
in generally the same manner; however, home equity products may present greater
risk since many of these loans are secured by a second lien position where the
Bank may or may not hold the first lien position. Commercial purpose residential
real estate loans represent loans made to businesses, but are secured by residential
real estate. These loans are underwritten as commercial loans and the repayment
ability may be dependent on the business operation, despite the residential
collateral. In addition to the real estate collateral, it is possible that personal
guarantees or UCC filings on business assets provide additional security. In
certain situations, the Bank acquires properties through foreclosure on delinquent
loans. The Bank initially records these properties at the estimated fair value
less cost to sell with subsequent adjustments to fair value recorded as needed.
Commercial and agricultural real estate loans are secured by properties such
as hotels, office buildings, apartment buildings, retail sites, and farmland
or agricultural related properties. These loans are highly dependent on the
business operations for repayment. Compared to residential real estate, this
collateral may be more difficult to sell in the event of a delinquency.
Construction loans are made to finance the purchase of land and the construction
of residential and commercial buildings, and are secured by mortgages on real
estate. These loans are primarily comprised of loans to consumers to build a
home, and loans to contractors and developers to construct residential properties
for resale or rental. Construction loans present various risks that include,
but are not limited to: schedule delays, cost overruns, changes in economic
conditions during the construction period, and the inability to sell or rent
the property upon completion.
Commercial loans are made to businesses and government municipalities of various
sizes for a variety of purposes including operations, property, plant and equipment,
and working capital. These loans are highly dependent on the business operations
for repayment and are generally secured by business assets and personal guarantees.
As such, this collateral may be more difficult to sell in the event of a delinquency.
Commercial lending, including commercial real estate, is concentrated in the
Bank’s primary market, but also includes purchased loan participations
originated primarily in south-central Pennsylvania.
Consumer loans are comprised of installment and unsecured personal lines of
credit. While some of these loans are secured, the collateral behind the loans
is often comprised of assets that lose value quickly (e.g. automobiles) and
if repossessed, may not fully satisfy the loan in the event of default. Repayment
of these loans is highly dependent on the borrowers’ financial condition
that can be affected by economic factors beyond their control and personal circumstances.
F&M Trust’s Investment and Trust Services Department offers all of
the personal and corporate trust services normally associated with trust departments
including: estate planning and administration, corporate and personal trust
fund management, pension, profit sharing and other employee benefit funds management,
and custodial services. F&M Trust through licensed members of its Investment
and Trust Services Department sells mutual funds, annuities and selected insurance
products.
1.45% 