10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2014

[  ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from__________ to___________

Commission file number 0-12126

FRANKLIN FINANCIAL SERVICES CORPORATION

(Exact name of registrant as specified in its charter)

PENNSYLVANIA	25-1440803
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

20 South Main Street, Chambersburg	PA17201-0819
(Address of principal executive offices)	(Zip Code)

(717) 264-6116

(Registrant's telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes [X]   No [  ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X]  No [  ]

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.   See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer [  ]       Accelerated filer  [  ]         Non-accelerated filer [  ]          Smaller reporting company [X]

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act)  Yes[   ]  No [X]

There were 4,180,073 outstanding shares of the Registrant’s common stock as of April 30, 2014.

INDEX

Part I - FINANCIAL INFORMATION
Item 1	Financial Statements
	Consolidated Balance Sheets as of March 31, 2014 and December 31, 2013 (unaudited)	1
	Consolidated Statements of Income for the Three Months ended March 31, 2014	2
	and 2013 (unaudited)
	Consolidated Statements of Comprehensive Income for the Three Months ended	3
	March 31, 2014 and 2013 (unaudited)
	Consolidated Statements of Changes in Shareholders’ Equity for the Three Months	3
	ended March 31, 2014 and 2013 (unaudited)
	Consolidated Statements of Cash Flows for the Three Months ended March 31, 2014	4
	and 2013 (unaudited)
	Notes to Consolidated Financial Statements (unaudited)	5
Item 2	Management’s Discussion and Analysis ofResults of Operations and Financial Condition	25
Item 3	Quantitative and Qualitative Disclosures about Market Risk	45
Item 4	Controls and Procedures	45
Part II - OTHER INFORMATION
Item 1	Legal Proceedings	45
Item 1A	Risk Factors	45
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	46
Item 3	Defaults Upon Senior Securities	46
Item 4	Mine Safety Disclosures	46
Item 5	Other Information	46
Item 6	Exhibits	46
SIGNATURE PAGE		47
EXHIBITS

Part I FINANCIAL INFORMATION

Item 1 Financial Statements

Consolidated Balance Sheets

	(unaudited)
(Dollars in thousands, except share and per share data)	March 31		December 31
	2014		2013
Assets
Cash and due from banks	$	16,806	$	13,542
Interest-bearing deposits in other banks		62,575		27,203
Total cash and cash equivalents		79,381		40,745
Investment securities available for sale, at fair value		161,626		159,674
Restricted stock		1,906		1,906
Loans held for sale		156		349
Loans		726,058		723,413
Allowance for loan losses		(9,745)		(9,702)
Net Loans		716,313		713,711
Premises and equipment, net		16,006		16,145
Bank owned life insurance		21,673		21,530
Goodwill		9,016		9,016
Other intangible assets		594		698
Other real estate owned		4,307		4,708
Deferred tax asset, net		5,065		5,445
Other assets		10,408		10,660
Total assets	$	1,026,451	$	984,587
Liabilities
Deposits
Noninterest-bearing checking	$	128,670	$	121,565
Money management, savings and interest checking		653,902		610,245
Time		110,313		113,914
Total Deposits		892,885		845,724
Securities sold under agreements to repurchase		15,905		23,834
Long-term debt		12,401		12,403
Other liabilities		7,587		7,238
Total liabilities		928,778		889,199
Shareholders' equity
Common stock, $1 par value per share,15,000,000 shares authorized with
4,570,495 shares issued and 4,178,691 shares outstanding at March 31, 2014 and
4,560,700 shares issued and 4,168,673 shares outstanding at December 31, 2013		4,571		4,561
Capital stock without par value, 5,000,000 shares authorized with no
shares issued and outstanding		-		-
Additional paid-in capital		36,796		36,636
Retained earnings		67,014		65,897
Accumulated other comprehensive loss		(3,702)		(4,696)
Treasury stock, 391,804 at March 31, 2014 and 392,027 shares at
December 31, 2013, at cost		(7,006)		(7,010)
Total shareholders' equity		97,673		95,388
Total liabilities and shareholders' equity	$	1,026,451	$	984,587
The accompanying notes are an integral part of these financial statements.

1

Consolidated Statements of Income

	For the Three Months Ended
(Dollars in thousands, except per share data) (unaudited)	March 31
	2014		2013
Interest income
Loans, including fees	$	7,511	$	8,297
Interest and dividends on investments:
Taxable interest		641		353
Tax exempt interest		358		376
Dividend income		25		18
Deposits and obligations of other banks		39		58
Total interest income		8,574		9,102
Interest expense
Deposits		702		1,103
Securities sold under agreements to repurchase		7		18
Long-term debt		121		121
Total interest expense		830		1,242
Net interest income		7,744		7,860
Provision for loan losses		198		803
Net interest income after provision for loan losses		7,546		7,057
Noninterest income
Investment and trust services fees		1,091		1,019
Loan service charges		167		250
Mortgage banking activities		12		(22)
Deposit service charges and fees		464		436
Other service charges and fees		267		221
Debit card income		306		285
Increase in cash surrender value of life insurance		143		152
Other real estate owned losses, net		(122)		-
Other		52		43
Total noninterest income		2,380		2,384
Noninterest expense
Salaries and employee benefits		4,251		4,214
Net occupancy expense		675		568
Furniture and equipment expense		254		247
Advertising		316		335
Legal and professional fees		265		279
Data processing		391		394
Pennsylvania bank shares tax		173		205
Intangible amortization		104		106
FDIC insurance		232		245
ATM/debit card processing		179		181
Other		848		808
Total noninterest expense		7,688		7,582
Income before federal income tax expense		2,238		1,859
Federal income tax expense		412		308
Net income	$	1,826	$	1,551
Per share
Basic earnings per share	$	0.44	$	0.38
Diluted earnings per share	$	0.44	$	0.38
Cash dividends declared	$	0.17	$	0.17
The accompanying notes are an integral part of these financial statements.

2

Consolidated Statements of Comprehensive Income

	For the Three Months Ended
	March 31
(Dollars in thousands) (unaudited)	2014		2013
Net Income	$	1,826	$	1,551
Securities:
Unrealized gains arising during the period		1,420		177
Tax effect		(483)		(60)
Net of tax amount		937		117
Derivatives:
Unrealized gains arising during the period		(8)		2
Reclassification adjustment for losses included in net income (1)		95		180
Net unrealized gains		87		182
Tax effect		(30)		(62)
Net of tax amount		57		120
Total other comprehensive income		994		237
Total Comprehensive Income	$	2,820	$	1,788
Reclassification adjustment / Statement line item	Tax  expense (benefit)
(1) Derivatives / interest expense on deposits	$	(32)	$	(61)
The accompanying notes are an integral part of these financial statements.

Consolidated Statements of Changes in Shareholders' Equity

For the three months March 31, 2014 and 2013:

							Accumulated
			Additional				Other
	Common		Paid-in		Retained		Comprehensive		Treasury
(Dollars in thousands, except per share data) (unaudited)	Stock		Capital		Earnings		Loss		Stock		Total
Balance at December 31, 2012	$	4,503	$	35,788	$	62,475	$	(4,050)	$	(7,082)	$	91,634
Net income		-		-		1,551		-		-		1,551
Other comprehensive income		-		-		-		237		-		237
Cash dividends declared, $.17 per share		-		-		(698)		-		-		(698)
Treasury shares issued under stock option plans, 204 shares		-		(1)		-		-		4		3
Common stock issued under dividend reinvestment plan, 12,633 shares		13		180		-		-		-		193
Balance at March 31, 2013	$	4,516	$	35,967	$	63,328	$	(3,813)	$	(7,078)	$	92,920
Balance at December 31, 2013	$	4,561	$	36,636	$	65,897	$	(4,696)	$	(7,010)	$	95,388
Net income		-		-		1,826		-		-		1,826
Other comprehensive income		-		-		-		994		-		994
Cash dividends declared, $.17 per share		-		-		(709)		-		-		(709)
Treasury shares issued under stock option plans, 223 shares		-		-		-		-		4		4
Common stock issued under dividend reinvestment plan, 9,795 shares		10		160		-		-		-		170
Balance at March 31, 2014	$	4,571	$	36,796	$	67,014	$	(3,702)	$	(7,006)	$	97,673
The accompanying notes are an integral part of these financial statements.

3

Consolidated Statements of Cash Flows

	Three Months Ended March 31
	2014		2013
(Dollars in thousands) (unaudited)
Cash flows from operating activities
Net income	$	1,826	$	1,551
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		372		385
Net amortization of loans and investment securities		428		461
Amortization and net change in mortgage servicing rights valuation		8		50
Amortization of intangibles		104		106
Provision for loan losses		198		803
Loans originated for sale		(1,443)		(2,648)
Proceeds from sale of loans		1,636		2,388
Writedown of other real estate owned		120		-
Net loss on sale or disposal of other real estate/other repossessed assets		2		-
Increase in cash surrender value of life insurance		(143)		(152)
Decrease in other assets		185		69
Increase in other liabilities		440		412
Other, net		(94)		747
Net cash provided by operating activities		3,639		4,172
Cash flows from investing activities
Proceeds from maturities and paydowns of securities available for sale		5,844		9,853
Purchase of investment securities available for sale		(6,816)		(11,620)
Net decrease in restricted stock		-		521
Net (increase) decrease in loans		(2,787)		6,859
Proceeds from sale of other real estate/other repossessed assets		279		-
Capital expenditures		(218)		(222)
Net cash (used in) provided by investing activities		(3,698)		5,391
Cash flows from financing activities
Net increase in demand deposits, NOW, and savings accounts		50,762		28,138
Net decrease in time deposits		(3,601)		(400)
Net decrease in repurchase agreements		(7,929)		(2,844)
Long-term debt payments		(2)		(2)
Dividends paid		(709)		(698)
Treasury stock issued under stock option plans		4		3
Common stock issued under dividend reinvestment plan		170		193
Net cash provided by financing activities		38,695		24,390
Increase in cash and cash equivalents		38,636		33,953
Cash and cash equivalents as of January 1		40,745		77,834
Cash and cash equivalents as of March 31	$	79,381	$	111,787
Supplemental Disclosures of Cash Flow Information
Cash paid during the year for:
Interest on deposits and other borrowed funds	$	786	$	1,121
Income taxes	$	20	$	-
Noncash Activities
Loans transferred to Other Real Estate	$	-	$	293
The accompanying notes are an integral part of these financial statements.

4

FRANKLIN FINANCIAL SERVICES CORPORATION and SUBSIDIARIES

UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 - Basis of Presentation

The consolidated financial statements include the accounts of Franklin Financial Services Corporation (the Corporation), and its wholly-owned subsidiaries, Farmers and Merchants Trust Company of Chambersburg (the Bank) and Franklin Future Fund Inc.  Farmers and Merchants Trust Company of Chambersburg is a commercial bank that has one wholly-owned subsidiary, Franklin Financial Properties Corp. Franklin Financial Property Corp. holds real estate assets that are leased by the Bank. Franklin Future Fund Inc. is a non-bank investment company. The activities of non-bank entities are not significant to the consolidated totals.  All significant intercompany transactions and account balances have been eliminated.

In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the consolidated financial position, results of operations, and cash flows as of March  31, 2014, and for all other periods presented have been made.

Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted.  It is suggested that these consolidated financial statements be read in conjunction with the audited consolidated financial statements and notes thereto included in the Corporation’s 2013 Annual Report on Form 10-K.  The consolidated results of operations for the period ended March  31, 2014 are not necessarily indicative of the operating results for the full year.  Management has evaluated subsequent events for potential recognition and/or disclosure through the date these consolidated financial statements were issued.

The consolidated balance sheet at December 31, 2013 has been derived from the audited consolidated financial statements at that date, but does not include all of the information and footnotes required by GAAP for complete consolidated financial statements.

For purposes of reporting cash flows, cash and cash equivalents include cash and due from banks, interest-bearing deposits in other banks and federal funds sold.  Generally, federal funds are purchased and sold for one-day periods. 

Earnings per share are computed based on the weighted average number of shares outstanding during each period end.  A reconciliation of the weighted average shares outstanding used to calculate basic earnings per share and diluted earnings per share follows:

	For the Three Months Ended
	March 31
(Dollars and shares in thousands, except per share data)	2014		2013
Weighted average shares outstanding (basic)		4,172		4,112
Impact of common stock equivalents		5		6
Weighted average shares outstanding (diluted)		4,177		4,118
Anti-dilutive options excluded from calculation		40		58
Net income	$	1,826	$	1,551
Basic earnings per share	$	0.44	$	0.38
Diluted earnings per share	$	0.44	$	0.38

Note 2. Recent Accounting Pronouncements

Receivables (Topic 310): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans Upon Foreclosure. ASU 2014-04 “Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans Upon Foreclosure” clarifies that a creditor is considered to have physical possession of residential real estate that is collateral for a residential mortgage loan when it obtains legal title to the collateral or a deed in lieu of foreclosure or similar legal agreement is completed.  Consequently, it should reclassify the loan to other real estate owned at that time.  ASU 2014-04 applies to all creditors who obtain physical possession resulting from an in substance repossession or foreclosure of residential real estate property collateralizing a consumer mortgage loan in satisfaction of a receivable.  The ASU does not apply to commercial real estate loans, as the foreclosure process and applicable laws for those assets are significantly different from residential real estate.  The ASU is effective for public business entities for annual periods, and interim

5

periods within those annual periods, beginning after December 15, 2014.  The Corporation does not believe ASU 2014-04 will have a material effect on its financial statements.

Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists.  ASU 2013-11 “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists,” require an entity with an unrecognized tax benefit that is ‘not available’ or not intended to be used at the reporting date to present the unrecognized tax benefit as a liability that should not be combined with deferred tax assets.  Otherwise, the unrecognized tax benefit should be presented as a reduction to the related deferred tax asset.  The assessment of whether a deferred tax asset is available is based on the unrecognized tax benefit and deferred tax asset that exist at the reporting date and should be made presuming disallowance of the tax position at the reporting date.  The amendments in ASU 2013-11 are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013.  The Corporation adopted this ASU 2013-11 at March 31, 2014.

Note 3. Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss included in shareholders' equity are as follows:

	March 31,		December 31,
	2014		2013
(Dollars in thousands)
Net unrealized gains (losses) on securities	$	679	$	(741)
Tax effect		(231)		252
Net of tax amount		448		(489)
Net unrealized losses on derivatives		(474)		(561)
Tax effect		161		191
Net of tax amount		(313)		(370)
Accumulated pension adjustment		(5,814)		(5,814)
Tax effect		1,977		1,977
Net of tax amount		(3,837)		(3,837)
Total accumulated other comprehensive loss	$	(3,702)	$	(4,696)

Note 4. Guarantees

The Corporation does not issue any guarantees that would require liability recognition or disclosure, other than its standby letters of credit.  Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party.  Generally, all letters of credit, when issued, have expiration dates within one year.  The credit risk involved in issuing letters of credit is essentially the same as those that are involved in extending loan facilities to customers. The Bank generally holds collateral and/or personal guarantees supporting these commitments.  The Bank had $20.4 million and $20.2 million of standby letters of credit as of March  31, 2014 and December 31, 2013, respectively. Management believes that the proceeds obtained through a liquidation of collateral and the enforcement of guarantees would be sufficient to cover the potential amount of future payments required under the corresponding guarantees.  The amount of the liability as of March  31, 2014 and December 31, 2013 for guarantees under standby letters of credit issued was not material.

6

Note 5. Investments

The amortized cost and estimated fair value of investment securities available for sale as of March 31, 2014 and December 31, 2013 is as follows:

(Dollars in thousands)			Gross		Gross
	Amortized		unrealized		unrealized		Fair
March 31, 2014	cost		gains		losses		value
Equity securities	$	1,472	$	544	$	-	$	2,016
U.S. Government agency securities		14,547		88		(96)		14,539
Municipal securities		55,531		1,568		(976)		56,123
Corporate debt securities		1,001		1		-		1,002
Trust preferred securities		5,928		-		(833)		5,095
Agency mortgage-backed securities		80,500		826		(444)		80,882
Private-label mortgage-backed securities		1,918		48		(44)		1,922
Asset-backed securities		50		-		(3)		47
	$	160,947	$	3,075	$	(2,396)	$	161,626

(Dollars in thousands)			Gross		Gross
	Amortized		unrealized		unrealized		Fair
December 31, 2013	cost		gains		losses		value
Equity securities	$	1,472	$	499	$	(1)	$	1,970
U.S. Government agency securities		11,771		94		(114)		11,751
Municipal securities		56,861		1,400		(1,404)		56,857
Corporate debt securities		1,002		-		(1)		1,001
Trust preferred securities		5,922		-		(871)		5,051
Agency mortgage-backed securities		81,352		726		(1,051)		81,027
Private-label mortgage-backed securities		1,984		16		(31)		1,969
Asset-backed securities		51		-		(3)		48
	$	160,415	$	2,735	$	(3,476)	$	159,674

At March 31, 2014 and December 31, 2013, the fair value of investment securities pledged to secure public funds, trust balances, repurchase agreements, deposit and other obligations totaled $104.8 million and $107.6 million, respectively.

7

The amortized cost and estimated fair value of debt securities at March 31, 2014, by contractual maturity are shown below.Actual maturities may differ from contractual maturities because of prepayment or call options embedded in the securities.

(Dollars in thousands)	Amorized cost		Fair value
Due in one year or less	$	1,446	$	1,458
Due after one year through five years		13,149		13,676
Due after five years through ten years		26,751		26,868
Due after ten years		35,711		34,804
		77,057		76,806
Mortgage-backed securities		82,418		82,804
	$	159,475	$	159,610

The following table provides additional detail about trust preferred securities as of March 31, 2014:

Trust Preferred Securities

(Dollars in thousands)
Deal Name	Single Issuer or Pooled	Class	Amortized Cost		Fair Value		Gross Unrealized Gain (Loss)		Lowest Credit Rating Assigned	Number of Banks Currently Performing	Deferrals and Defaults as % of Original Collateral	Expected Deferral/ Defaults as a Percentage of Remaining Performing Collateral
Huntington Cap Trust	Single	Preferred Stock	$	937	$	811	$	(126)	BB+	1	None	None
Huntington Cap Trust II	Single	Preferred Stock		886		780		(106)	BB+	1	None	None
BankAmerica Cap III	Single	Preferred Stock		961		795		(166)	BB+	1	None	None
Wachovia Cap Trust II	Single	Preferred Stock		276		245		(31)	BBB+	1	None	None
Corestates Captl Tr II	Single	Preferred Stock		933		830		(103)	BBB+	1	None	None
Chase Cap VI JPM	Single	Preferred Stock		961		830		(131)	BBB	1	None	None
Fleet Cap Tr V	Single	Preferred Stock		974		804		(170)	BB+	1	None	None
			$	5,928	$	5,095	$	(833)

The following table provides additional detail about private label mortgage-backed securities as of March 31, 2014:

Private Label Mortgage Backed Securities

(Dollars in thousands)						Gross					Cumulative
	Origination	Amortized		Fair		Unrealized		Collateral	Lowest Credit	Credit	OTTI
Description	Date	Cost		Value		Gain (Loss)		Type	Rating Assigned	Support %	Charges
RALI 2004-QS4 A7	3/1/2004	$	157	$	164	$	7	ALT A	BBB+	12.55	$	-
MALT 2004-6 7A1	6/1/2004		426		446		20	ALT A	CCC	14.26		-
RALI 2005-QS2 A1	2/1/2005		318		331		13	ALT A	C	5.82		10
RALI 2006-QS4 A2	4/1/2006		593		565		(28)	ALT A	D	-		293
GSR 2006-5F 2A1	5/1/2006		94		102		8	Prime	D	-		15
RALI 2006-QS8 A1	7/28/2006		330		314		(16)	ALT A	D	-		197
		$	1,918	$	1,922	$	4				$	515

8

Impairment:

The investment portfolio contained 84 securities with $68.8 million of temporarily impaired fair value and $2.4 million in unrealized losses at March 31, 2014.

For securities with an unrealized loss, Management applies a systematic methodology in order to perform an assessment of the potential for other-than-temporary impairment.  In the case of debt securities, investments considered for other-than-temporary impairment: (1) had a specified maturity or repricing date; (2) were generally expected to be redeemed at par, and (3) were expected to achieve a recovery in market value within a reasonable period of time. In addition, the Bank considers whether it intends to sell these securities or whether it will be forced to sell these securities before the earlier of amortized cost recovery or maturity. Equity securities are assessed for other-than-temporary impairment based on the length of time of impairment, dollar amount of the impairment and general market and financial conditions relating to specific issues.  The impairment identified on debt and equity securities and subject to assessment at March 31, 2014, was deemed to be temporary and required no further adjustments to the financial statements, unless otherwise noted.

The following table reflects temporary impairment in the investment portfolio (excluding restricted stock), aggregated by investment category, length of time that individual securities have been in a continuous unrealized loss position and the number of securities in each category as of March 31, 2014 and December 31, 2013:

	March 31, 2014
	Less than 12 months					12 months or more					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(Dollars in thousands)	Value		Losses		Count	Value		Losses		Count	Value		Losses		Count
U.S. Government agency securities	$	4,051	$	(37)	5	$	5,593	$	(59)	11	$	9,644	$	(96)	16
Municipal securities		12,526		(483)	16		5,762		(493)	9		18,288		(976)	25
Trust preferred securities		-		-	-		5,095		(833)	7		5,095		(833)	7
Agency mortgage-backed securities		31,497		(358)	29		3,371		(86)	4		34,868		(444)	33
Private-label mortgage-backed securities		-		-	-		879		(44)	2		879		(44)	2
Asset-backed securities		-		-	-		5		(3)	1		5		(3)	1
Total temporarily impaired securities	$	48,074	$	(878)	50	$	20,705	$	(1,518)	34	$	68,779	$	(2,396)	84

	December 31, 2013
	Less than 12 months					12 months or more					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(Dollars in thousands)	Value		Losses		Count	Value		Losses		Count	Value		Losses		Count
Equity securities	$	22	$	(1)	1	$	-	$	-	-	$	22	$	(1)	1
U.S. Government agency securities		3,971		(85)	7		3,807		(29)	7		7,778		(114)	14
Municipal securities		16,770		(1,022)	24		3,160		(382)	4		19,930		(1,404)	28
Corporate debt securities		-		-	-		1,001		(1)	1		1,001		(1)	1
Trust preferred securities		-		-	-		5,051		(871)	7		5,051		(871)	7
Agency mortgage-backed securities		40,395		(999)	38		2,213		(52)	4		42,608		(1,051)	42
Private-label mortgage-backed securities		-		-	-		911		(31)	2		911		(31)	2
Asset-backed securities		-		-	-		48		(3)	3		48		(3)	3
Total temporarily impaired securities	$	61,158	$	(2,107)	70	$	16,191	$	(1,369)	28	$	77,349	$	(3,476)	98

The municipal bond portfolio has the largest unrealized loss at $1.0 million, $400 thousand less than at the prior-year end.  The unrealized loss in this portfolio is deemed to be non-credit related and no other-than-temporary impairment charges have been recorded.

The trust preferred portfolio contains seven securities with a fair value of $5.1 million and an unrealized loss of $833 thousand. The trust-preferred securities held by the Bank are single entity issues, not pooled trust preferred securities.  Therefore, the impairment review of these securities is based only on the issuer and the security cannot be impaired by the performance of other issuers as if it was a pooled trust-preferred bond. All of the Bank’s trust preferred securities are single issue, variable rate notes with long maturities (2027 – 2028).  None of these bonds have suspended or missed a

9

dividend payment. At March 31, 2014, the Bank believes it will be able to collect all interest and principal due on these bondsand no other-than-temporary-impairment charges were recorded. 

The PLMBS sector shows a gross unrealized loss of $44 thousand. These bonds were all rated AAA at time of purchase, but have since experienced rating declines. Some have experienced increased delinquencies and defaults, while others have seen the credit support increase as the bonds paid-down. The Bank monitors the performance of the PLMBS investments on a regular basis and reviews delinquencies, default rates, credit support levels and various cash flow stress test scenarios. In determining the credit related loss, Management considers all principal past due 60 days or more as a loss. If additional principal moves beyond 60 days past due, it will also be considered a loss. As a result of the analysis on PLMBS it was determined that no impairment charge was required at quarter end. The Bank has recorded $515 thousand of cumulative impairment charges on this portfolio. Management continues to monitor these securities and it is possible that additional write-downs may occur if current loss trends continue. The Bank is currently participating in a class-action lawsuit against one PLMBS servicer that centers on defective warranties and representations made as part of the underwriting process.

The Bank held $1.9 million of restricted stock at March 31, 2014.  Except for $30 thousand, this investment represents stock in FHLB Pittsburgh. The Bank is required to hold this stock to be a member of FHLB and it is carried at cost of $100 per share.

FHLB stock is evaluated for impairment primarily based on an assessment of the ultimate recoverability of its cost. As a government sponsored entity, FHLB has the ability to raise funding through the U.S. Treasury that can be used to support its operations.  There is not a public market for FHLB stock and the benefits of FHLB membership (e.g., liquidity and low cost funding) add value to the stock beyond purely financial measures. Management intends to remain a member of the FHLB and believes that it will be able to fully recover the cost basis of this investment.

10

Note 6. Loans

The Bank reports its loan portfolio based on the primary collateral of the loan. It further classifies these loans by the primary purpose, either consumer or commercial. The Bank’s mortgage loans include long-term loans to individuals and businesses secured by mortgages on the borrower’s real property.  Construction loans are made to finance the purchase of land and the construction of residential and commercial buildings thereon, and are secured by mortgages on real estate.  Commercial loans are made to businesses of various sizes for a variety of purposes including construction, property, plant and equipment, and working capital.  Commercial loans also include loans to government municipalities.  Commercial lending is concentrated in the Bank’s primary market, but also includes purchased loan participations. Consumer loans are comprised of installment, home equity and unsecured personal lines of credit. 

A summary of loans outstanding, by primary collateral, at the end of the reporting periods is as follows:

						Change
(Dollars in thousands)	March 31, 2014			December 31, 2013		Amount	%
Residential Real Estate 1-4 Family
Consumer first liens	$	103,107	$	103,573	$	(466)	(0.4)
Consumer junior liens and lines of credit		34,606		34,636		(30)	(0.1)
Total consumer		137,713		138,209		(496)	(0.4)
Commercial first lien		62,002		58,466		3,536	6.0
Commercial junior liens and lines of credit		5,338		5,939		(601)	(10.1)
Total commercial		67,340		64,405		2,935	4.6
Total residential real estate 1-4 family		205,053		202,614		2,439	1.2
Residential real estate - construction
Consumer		3,188		3,960		(772)	(19.5)
Commercial		8,565		8,559		6	0.1
Total residential real estate construction		11,753		12,519		(766)	(6.1)
Commercial real estate		322,450		329,373		(6,923)	(2.1)
Commercial		178,986		170,327		8,659	5.1
Total commercial		501,436		499,700		1,736	0.3
Consumer		7,816		8,580		(764)	(8.9)
		726,058		723,413		2,645	0.4
Less: Allowance for loan losses		(9,745)		(9,702)		(43)	(0.4)
Net Loans	$	716,313	$	713,711	$	2,602	0.4
Included in the loan balances are the following:
Net unamortized deferred loan costs	$	446	$	372
Unamortized discount on purchased loans	$	(74)	$	(92)
Loans pledged as collateral for borrowings and commitments from:
FHLB	$	582,983	$	607,524
Federal Reserve Bank		64,669		45,809
	$	647,652	$	653,333

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Note 7. Loan Quality

The following table presents, by class, the Allowance for Loan Losses (ALL) for the periods ended:

	Residential Real Estate 1-4 Family
			Junior Liens &				Commercial
(Dollars in thousands)	First Liens		Lines of Credit		Construction		Real Estate		Commercial		Consumer		Total
Allowance at December 31, 2013	$	1,108	$	278	$	291	$	5,571	$	2,306	$	148	$	9,702
Charge-offs		(16)		-		(27)		(114)		(1)		(43)		(201)
Recoveries		3		-		-		-		20		23		46
Provision		38		(2)		110		52		(16)		16		198
Allowance at March 31, 2014	$	1,133	$	276	$	374	$	5,509	$	2,309	$	144	$	9,745
Allowance at December 31, 2012	$	913	$	306	$	899	$	6,450	$	1,620	$	191	$	10,379
Charge-offs		-		(45)		-		(171)		(7)		(44)		(267)
Recoveries		8		-		-		-		7		13		28
Provision		52		35		(62)		403		352		23		803
Allowance at March 31, 2013	$	973	$	296	$	837	$	6,682	$	1,972	$	183	$	10,943

The following table presents, by class, loans that were evaluated for the ALL under the specific reserve (individually) and those that were evaluated under the general reserve (collectively) and the amount of the ALL established in each class as of March 31, 2014 and December 31, 2013:

	Residential Real Estate 1-4 Family
			Junior Liens &				Commercial
(Dollars in thousands)	First Liens		Lines of Credit		Construction		Real Estate		Commercial		Consumer		Total
March 31, 2014
Loans evaluated for allowance:
Individually	$	2,310	$	51	$	530	$	25,029	$	1,953	$	-	$	29,873
Collectively		162,799		39,893		11,223		297,421		177,033		7,816		696,185
Total	$	165,109	$	39,944	$	11,753	$	322,450	$	178,986	$	7,816	$	726,058
Allowance established for loans evaluated:
Individually	$	-	$	-	$	-	$	247	$	968	$	-	$	1,215
Collectively		1,133		276		374		5,262		1,341		144		8,530
Allowance at March 31, 2014	$	1,133	$	276	$	374	$	5,509	$	2,309	$	144	$	9,745
December 31, 2013
Loans evaluated for allowance:
Individually	$	2,354	$	50	$	537	$	25,107	$	1,996	$	-	$	30,044
Collectively		159,685		40,525		11,982		304,266		168,331		8,580		693,369
Total	$	162,039	$	40,575	$	12,519	$	329,373	$	170,327	$	8,580	$	723,413
Allowance established for loans evaluated:
Individually	$	9	$	-	$	-	$	89	$	1,002	$	-	$	1,100
Collectively		1,099		278		291		5,482		1,304		148		8,602
Allowance at December 31, 2013	$	1,108	$	278	$	291	$	5,571	$	2,306	$	148	$	9,702

12

The following table shows additional information about those loans considered to be impaired at March 31, 2014 and December 31, 2013:

	Impaired Loans
	With No Allowance				With Allowance
(Dollars in thousands)			Unpaid					Unpaid
	Recorded		Principal		Recorded		Principal		Related
March 31, 2014	Investment		Balance		Investment		Balance		Allowance
Residential Real Estate 1-4 Family
First liens	$	3,181	$	3,649	$	-	$	-	$	-
Junior liens and lines of credit		110		135		-		-		-
Total		3,291		3,784		-		-		-
Residential real estate - construction		530		553		-		-		-
Commercial real estate		23,607		28,724		1,468		2,362		247
Commercial		140		144		1,928		2,029		968
Consumer		-		-		-		-		-
Total	$	27,568	$	33,205	$	3,396	$	4,391	$	1,215

December 31, 2013
Residential Real Estate 1-4 Family
First liens	$	3,030	$	3,500	$	9	$	39	$	9
Junior liens and lines of credit		108		127		-		-		-
Total		3,138		3,627		9		39		9
Residential real estate - construction		537		556		-		-		-
Commercial real estate		24,188		30,334		966		1,043		89
Commercial		88		89		1,970		2,043		1,002
Consumer		-		-		-		-		-
Total	$	27,951	$	34,606	$	2,945	$	3,125	$	1,100

The following table shows the average of impaired loans and related interest income for the three months ended March 31, 2014 and 2013:

	Three Months Ended				Three Months Ended
	March 31, 2014				March 31, 2013
	Average		Interest		Average		Interest
(Dollars in thousands)	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
Residential Real Estate 1-4 Family
First liens	$	3,218	$	14	$	3,626	$	4
Junior liens and lines of credit		126		4		742		1
Total		3,344		18		4,368		5
Residential real estate - construction		532		5		556		-
Commercial real estate		25,665		244		30,087		38
Commercial		2,092		31		4,480		-
Consumer		-		-		-		-
Total	$	31,633	$	298	$	39,491	$	43

13

The following table presents the aging of payments of the loan portfolio:

(Dollars in thousands)			Loans Past Due and Still Accruing										Total
	Current		30-59 Days		60-89 Days		90 Days+		Total		Non-Accrual		Loans
March 31, 2014
Residential Real Estate 1-4 Family
First liens	$	161,013	$	1,514	$	9	$	229	$	1,752	$	2,344	$	165,109
Junior liens and lines of credit		39,618		163		13		59		235		91		39,944
Total		200,631		1,677		22		288		1,987		2,435		205,053
Residential real estate - construction		10,641		373		209		-		582		530		11,753
Commercial real estate		300,573		2,912		-		-		2,912		18,965		322,450
Commercial		176,392		47		140		-		187		2,407		178,986
Consumer		7,703		93		13		7		113		-		7,816
Total	$	695,940	$	5,102	$	384	$	295	$	5,781	$	24,337	$	726,058

December 31, 2013
Residential Real Estate 1-4 Family
First liens	$	156,916	$	1,725	$	497	$	302	$	2,524	$	2,599	$	162,039
Junior liens and lines of credit		40,204		204		19		41		264		107		40,575
Total		197,120		1,929		516		343		2,788		2,706		202,614
Residential real estate - construction		11,458		523		-		-		523		538		12,519
Commercial real estate		309,531		634		-		207		841		19,001		329,373
Commercial		167,747		78		60		44		182		2,398		170,327
Consumer		8,430		117		23		10		150		-		8,580
Total	$	694,286	$	3,281	$	599	$	604	$	4,484	$	24,643	$	723,413

14

The following table reports the internal credit rating for the loan portfolio.  Consumer purpose loans (mortgage, home equity and installment) are assigned a rating of either pass or substandard.  Substandard consumer loans are comprised of loans 90 days or more past due and still accruing and nonaccrual loans.  Commercial loans may be assigned any rating in accordance with the Bank’s internal risk rating system.

(Dollars in thousands)	Pass		Special Mention		Substandard		Doubtful		Total
March 31, 2014
Residential Real Estate 1-4 Family
First liens	$	156,291	$	2,513	$	6,305	$	-	$	165,109
Junior liens and lines of credit		39,548		40		356		-		39,944
Total		195,839		2,553		6,661		-		205,053
Residential real estate - construction		10,148		-		1,605		-		11,753
Commercial real estate		283,566		4,508		34,376		-		322,450
Commercial		163,184		3,228		12,574		-		178,986
Consumer		7,809		-		7		-		7,816
Total	$	660,546	$	10,289	$	55,223	$	-	$	726,058

December 31, 2013
Residential Real Estate 1-4 Family
First liens	$	150,762	$	3,653	$	7,624	$	-	$	162,039
Junior liens and lines of credit		40,102		66		407		-		40,575
Total		190,864		3,719		8,031		-		202,614
Residential real estate - construction		10,955		-		1,564		-		12,519
Commercial real estate		281,857		11,861		35,655		-		329,373
Commercial		154,888		3,393		12,046		-		170,327
Consumer		8,570		-		10		-		8,580
Total	$	647,134	$	18,973	$	57,306	$	-	$	723,413

15

The following table presents information on the Bank’s Troubled Debt Restructuring (TDR) loans:

					Troubled Debt Restructings
					That Have Defaulted on
(Dollars in thousands)	Troubled Debt Restructings				Modified Terms YTD
	Number of	Recorded			Number of	Recorded
	Contracts	Investment	Performing*	Nonperforming*	Contracts	Investment
March 31, 2014
Residential real estate - construction	1	$               530	$                    -	$                  530	-	$                     -
Residential real estate	5	608	608	-	-	-
Commercial real estate	12	15,723	14,188	1,535	-	-
Total	18	$          16,861	$          14,796	$               2,065	-	$                     -
December 31, 2013
Residential real estate - construction	1	$               537	$                    -	$                  537	-	$                     -
Residential real estate	5	625	625	-	-
Commercial real estate	12	15,877	14,318	1,559	-	-
Total	18	$          17,039	$          14,943	$               2,096	-	$                     -

*The performing status is determined by the loan’s compliance with the modified terms.

There were no new TDR loans made during 2014.

The following table reports TDR loans during 2013, concession granted and the recorded investmentas ofMarch 31, 2013:

	New During Period
	Number of	Pre-TDR	After-TDR	Recorded
Three Months Ended March 31, 2013	Contracts	Modification	Modification	Investment	Concession
Commercial real estate	1	$            2,444	$            2,731	$               2,727	multiple

16

Note 8. Pension

The components of pension expense for the periods presented are as follows:

	Three Months Ended March 31
(Dollars in thousands)	2014		2013
Components of net periodic cost:
Service cost	$	86	$	114
Interest cost		197		179
Expected return on plan assets		(290)		(312)
Recognized net actuarial loss		82		159
Net period cost	$	75	$	140

The Bank expects its pension expense to decrease to approximately $275 thousand in 2014 compared to $560 thousand in 2013. 

Note 9.  Fair Value Measurements and Fair Values of Financial Instruments

Management uses its best judgment in estimating the fair value of the Corporation’s financial instruments; however, there are inherent weaknesses in any estimation technique.  Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts the Corporation could have realized in a sales transaction on the dates indicated.  The estimated fair value amounts have been measured as of their respective year-ends and have not been re-evaluated or updated for purposes of these financial statements subsequent to those respective dates.  As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates maybe different than the amounts reported at each year-end.

FASB ASC Topic 820, “Financial Instruments”, requires disclosure of the fair value of financial assets and liabilities, including those financial assets and liabilities that are not measured and reported at fair value on a recurring and nonrecurring basis. The Corporation does not report any nonfinancial assets at fair value. FASB ASC Topic 820 establishes a fair value hierarchy that prioritizes the inputs to valuation methods used to measure fair value.  The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).  The three levels of the fair value hierarchy under FASB ASC Topic 820 are as follows:

Level 1: Valuation is based on unadjusted, quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2:  Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.  There may be substantial differences in the assumptions used for securities within the same level.  For example, prices for U.S. Agency securities have fewer assumptions and are closer to level 1 valuations than the private label mortgage backed securities that require more assumptions and are closer to level 3 valuations.

Level 3: Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect the Corporation’s assumptions regarding what market participants would assume when pricing a financial instrument. 

An asset’s or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

The following methods and assumptions were used to estimate the fair values of the Corporation’s financial instruments at March 31, 2014 and December 31, 2013.

Cash and Cash Equivalents:  For these short-term instruments, the carrying amount is a reasonable estimate of fair value.

Investment securities:  The fair value of investment securities is determined in accordance with the methods described under FASB ASC Topic 820 as discussed below.

17

Restricted stock:  The carrying value of restricted stock approximates its fair value based on redemption provisions for the restricted stock.

Loans held for sale: The fair value of loans held for sale is determined by the price set between the Bank and the purchaser prior to origination. These loans are usually sold at par.

Net loans:  The fair value of fixed-rate loans is estimated for each major type of loan (e.g. real estate, commercial, industrial and agricultural and consumer) by discounting the future cash flows associated with such loans using rates currently offered for loans with similar terms to borrowers of comparable credit quality.  The model considers scheduled principal maturities, repricing characteristics, prepayment assumptions and interest cash flows.  The discount rates used are estimated based upon consideration of a number of factors including the treasury yield curve, expense and service charge factors. For variable rate loans that reprice frequently and have no significant change in credit quality, carrying values approximate the fair value.

Accrued Interest Receivable:  The carrying amount is a reasonable estimate of fair value.

Mortgage servicing rights:  The fair value of mortgage servicing rights is based on observable market prices when available or the present value of expected future cash flows when not available.  Assumptions such as loan default rates, costs to service, and prepayment speeds significantly affect the estimate of future cash flows. Mortgage servicing rights are carried at the lower of cost or fair value.

Deposits, Securities sold under agreements to repurchase and Long-term debt:  The fair value of demand deposits, savings accounts, and money market deposits is the amount payable on demand at the reporting date.  The fair value of fixed-rate certificates of deposit and long-term debt is estimated by discounting the future cash flows using rates approximating those currently offered for certificates of deposit and borrowings with similar remaining maturities.  For securities sold under agreements to repurchase, the carrying value approximates a reasonable estimate of the fair value.

Accrued interest payable:  The carrying amount is a reasonable estimate of fair value.

Derivatives:  The fair value of the interest rate swaps is based on other similar financial instruments and is classified as Level 2.

The following information regarding the fair value of the Corporation’s financial instruments should not be interpreted as an estimate of the fair value of the entire Corporation since a fair value calculation is only provided for a limited portion of the Corporation’s assets and liabilities.  Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Corporation’s disclosures and those of other companies may not be meaningful. 

18

The fair value of the Corporation's financial instruments are as follows:

	March 31, 2014
	Carrying		Fair
(Dollars in thousands)	Amount		Value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	79,381	$	79,381	$	79,381	$	-	$	-
Investment securities available for sale		161,626		161,626		2,016		159,610		-
Restricted stock		1,906		1,906		-		1,906		-
Loans held for sale		156		156		-		156		-
Net loans		716,313		722,589		-		-		722,589
Accrued interest receivable		2,812		2,812		-		2,812		-
Mortgage servicing rights		176		176		-		-		176
Financial liabilities:
Deposits	$	892,885	$	893,360	$	-	$	893,360	$	-
Securities sold under agreements to repurchase		15,905		15,905		-		15,095		-
Long-term debt		12,401		12,905		-		12,905		-
Accrued interest payable		273		273		-		273		-
Interest rate swaps		474		474		-		474		-
	December 31, 2013
	Carrying		Fair
(Dollars in thousands)	Amount		Value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	40,745	$	40,745	$	40,745	$	-	$	-
Investment securities available for sale		159,674		159,674		1,970		157,704		-
Restricted stock		1,906		1,906		-		1,906		-
Loans held for sale		349		349		-		349		-
Net loans		713,711		722,119		-		-		722,119
Accrued interest receivable		3,087		3,087		-		3,087		-
Mortgage servicing rights		184		184		-		-		184
Financial liabilities:
Deposits	$	845,724	$	846,289	$	-	$	846,289	$	-
Securities sold under agreements to repurchase		23,834		23,834		-		23,834		-
Long-term debt		12,403		12,999		-		12,999		-
Accrued interest payable		229		229		-		229		-
Interest rate swaps		561		561		-		561		-

19

Recurring Fair Value Measurements

For financial assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used at March 31, 2014 and December 31, 2013 are as follows:

(Dollars in Thousands)	Fair Value at March 31, 2014
Asset  Description	Level 1		Level 2		Level 3		Total
Equity securities	$	2,016	$	-	$	-	$	2,016
Obligations of U.S. Government agencies		-		14,539		-		14,539
Obligations of state and political subdivisions		-		56,123		-		56,123
Corporate debt securities		-		1,002		-		1,002
Trust Preferred Securities		-		5,095		-		5,095
Agency mortgage-backed securities		-		80,882		-		80,882
Private-label mortgage-backed securities		-		1,922		-		1,922
Asset-backed securities		-		47		-		47
Total assets	$	2,016	$	159,610	$	-	$	161,626
Liability Description
Interest rate swaps	$	-	$	474	$	-	$	474
Total liabilities	$	-	$	474	$	-	$	474

(Dollars in Thousands)	Fair Value at December 31, 2013
Asset  Description	Level 1		Level 2		Level 3		Total
Equity securities	$	1,970	$	-	$	-	$	1,970
Obligations of U.S. Government agencies		-		11,751		-		11,751
Obligations of state and political subdivisions		-		56,857		-		56,857
Corporate debt securities		-		1,001		-		1,001
Trust Preferred Securities		-		5,051		-		5,051
Agency mortgage-backed securities		-		81,027		-		81,027
Private-label mortgage-backed securities		-		1,969		-		1,969
Asset-backed securities		-		48		-		48
Total assets	$	1,970	$	157,704	$	-	$	159,674
Liability Description
Interest rate swaps	$	-	$	561	$	-	$	561
Total liabilities	$	-	$	561	$	-	$	561

The Corporation used the following methods and significant assumptions to estimate the fair values for financial assets measured at fair value on a recurring basis.

Investment securities:  Level 1 securities represent equity securities that are valued using quoted market prices from nationally recognized markets. Level 2 securities represent debt securities that are valued using a mathematical model based upon the specific characteristics of a security in relationship to quoted prices for similar securities.    

Interest rate swaps: The interest rate swaps are valued using a discounted cash flow model that uses verifiable market environment inputs to calculate the fair value. This method is not dependent on the input of any significant judgments or assumptions by Management.  

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Nonrecurring Fair Value Measurements

For financial assets measured at fair value on a nonrecurring basis, the fair value measurements by level within the fair value hierarchy used at March 31, 2014 and December 31, 2013 are as follows:

(Dollars in Thousands)
	Fair Value at March 31, 2014
Asset  Description	Level 1		Level 2		Level 3		Total
Impaired loans (1)	$	-	$	-	$	3,054	$	3,054
Other real estate owned (1)		-		-		892		892
Mortgage servicing rights		-		-		176		176
Total assets	$	-	$	-	$	4,122	$	4,122

(Dollars in Thousands)	Fair Value at December 31, 2013
Asset  Description	Level 1		Level 2		Level 3		Total
Impaired loans (1)	$	-	$	-	$	8,588	$	8,588
Other real estate owned (1)		-		-		498		498
Mortgage servicing rights		-		-		184		184
Total assets	$	-	$	-	$	9,270	$	9,270

(1) Includes assets directly charged-down to fair value during the year-to-date period.

The Corporation used the following methods and significant assumptions to estimate the fair values for financial assets measured at fair value on a nonrecurring basis.

Impaired loans: Impaired loans are reported at the fair value of the underlying collateral if repayment is expected solely from the collateral.  Collateral values are estimated using Level 3 inputs based on customized discounting criteria. 

Other real estate: The fair value of other real estate, upon initial recognition, is estimated using Level 2 inputs within the fair value hierarchy based on observable market data and Level 3 inputs based on customized discounting criteria.  In connection with the measurement and initial recognition of the foregoing assets, the Corporation recognizes charge-offs through the allowance for loan losses. 

Mortgage servicing rights: The fair value of mortgage servicing rights, upon initial recognition, is estimated using a valuation model that calculates the present value of estimated future net servicing income.  The model incorporates Level 3 assumptions such as cost to service, discount rate, prepayment speeds, default rates and losses. 

The Corporation did not record any liabilities at fair value for which measurement of the fair value was made on a nonrecurring basis at March 31, 2014. For financial assets and liabilities measured at fair value on a recurring basis, there were no transfers of financial assets or liabilities between Level 1 and Level 2 during the period ending March 31, 2014.

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The following table presents additional quantitative information about Level 3 assets measured at fair value on a nonrecurring basis:

	Quantitative Information about Level 3 Fair Value Measurements
(Dollars in Thousands)	at March 31, 2014
				Range
Asset  Description	Fair Value	Valuation Technique	Unobservable Input	(Weighted Average)
Impaired loans (1)	$                   3,054	Appraisal	Appraisal Adjustments (2)	0% - 100% (38.40%)
			Cost to sell	0% - 10%  (4.32%)
Other real estate owned (1)	892	Appraisal	Appraisal Adjustments (2)
			Cost to sell	8% (8%)
Mortgage servicing rights	176	Discounted Cash Flow (3)
	at December 31, 2013
Impaired loans (1)	$                   8,588	Appraisal	Appraisal Adjustments (2)	0% - 60% (5%)
			Cost to sell	5% - 13.5%  (7%)
Other real estate owned (1)	498	Appraisal	Appraisal Adjustments (2)
			Cost to sell	8% (8%)
Mortgage servicing rights	184	Discounted Cash Flow (3)
(1) Includes assets directly charged-down to fair value during the year-to-date period.
(2) Qualitative adjustments are discounts specific to each asset and are made as needed.
(3) Valuation and inputs are determined by a third-party pricing service without adjustment.

Note 10.  Financial Derivatives

The Board of Directors has given Management authorization to enter into additional derivative activity including interest rate swaps, caps and floors, forward-rate agreements, options and futures contracts in order to hedge interest rate risk.  The Bank is exposed to credit risk equal to the positive fair value of a derivative instrument, if any, as a positive fair value indicates that the counterparty to the agreement is financially liable to the Bank.  To limit this risk, counterparties must have an investment grade long-term debt rating and individual counterparty credit exposure is limited by Board approved parameters.  Management anticipates continuing to use derivatives, as permitted by its Board-approved policy, to manage interest rate risk.

Information regarding the interest rate swaps as of March 31, 2014 follows:

(Dollars in thousands)						Amount Expected to
						be Expensed into
Notional		Maturity	Interest Rate			Earnings within the
Amount		Date	Fixed	Variable		next 12 Months
$	10,000	5/30/2015	3.87%	0.05%	$	383

Fair Value of Derivative Instruments in the Consolidated Balance Sheets were as follows as of March 31, 2014 and December 31, 2013:

Fair Value of Derivative Instruments
(Dollars in thousands)		Balance Sheet
Date	Type	Location	Fair Value
March 31, 2014	Interest rate contracts	Other liabilities	$	474
December 31, 2013	Interest rate contracts	Other liabilities	$	561

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The Effect of Derivative Instruments on the Statement of Income for the Three Months Ended March 31, 2014 and 2013  follows:

Derivatives in ASC Topic 815 Cash Flow Hedging Relationships
(Dollars in thousands)							Amount of Gain
						Location of	or (Loss)
						Gain or (Loss)	Recognized in
						Recognized in	Income on
			Location of	Amount of Gain		Income on	Derivatives
	Amount of Gain		Gain or (Loss)	or (Loss)		Derivative (Ineffective	(Ineffective Portion
	or (Loss)		Reclassified from	Reclassified from		Portion and Amount	and Amount
	Recognized in OCI		Accumulated OCI	Accumulated OCI		Excluded from	Excluded from
	net of tax on Derivative		into Income	into Income		Effectiveness	Effectiveness
Date / Type	(Effective Portion)		(Effective Portion)	(Effective Portion)		Testing)	Testing)
Interest rate contracts
March 31, 2014	$	57	Interest Expense	$	(95)	Other income (expense)	$	-
March 31, 2013	$	120	Interest Expense	$	(180)	Other income (expense)	$	-

Interest Rate Swap Agreements (“Swap Agreements”)

The Bank has entered into interest rate swap agreements as part of its asset/liability management program.  The swap agreements are free-standing derivatives and are recorded at fair value in the Corporation’s consolidated statements of condition.  The Bank is party to master netting arrangements with its financial institution counterparties; however, the Bank does not offset assets and liabilities under these arrangements for financial statement presentation purposes.  The master netting arrangements provide for a single net settlement of all swap agreements, as well as collateral, in the event of default on, or termination of, any one contract.  Collateral, in the form of marketable securities, is posted by the counterparty with net liability positions in accordance with contract thresholds. 

Securities Sold Under Agreements to Repurchase (“Repurchase Agreements”)

The Bank enters into agreements under which it sells securities subject to an obligation to repurchase the same or similar securities.  Under these arrangements, the Bank may transfer legal control over the assets but still retain effective control through an agreement that both entitles and obligates the Bank to repurchase the agreements.  As a result, these repurchase agreements are accounted for as collateralized financing arrangements (i.e., secured borrowings) and not as a sale and subsequent repurchase of securities.  The obligation to repurchase the securities is reflected as a liability in the Corporation’s consolidated statements of condition, while the securities underlying the repurchase agreements remain in the respective investment securities asset accounts.  In other words, there is no offsetting or netting of the investment securities assets with the repurchase agreement liabilities.  In addition, as the Bank does not enter into reverse repurchase agreements, there is no such offsetting to be done with repurchase agreements.

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The following table presents the liabilities subject to an enforceable master netting arrangement or repurchase agreements as of March 31, 2014 and December 31, 2013.  As of these dates, all of the Bank’s swap agreements with institutional counterparties were in a liability position.  Therefore, there were no assets to be recognized in the consolidated statements of condition.  The swap agreements we have with our commercial banking customers are not subject to an enforceable master netting arrangement, and therefore, are excluded from this table.

						Net Amounts		Gross Amounts Not Offset in the
		Gross		Gross Amounts		of Liabilities		Statements of Condition
		Amounts of		Offset in the		Presented in the
		Recognized		Statements of		Statements of		Financial		Cash Collateral		Net
(Dollars in thousands)		Liabilities		Condition		Condition		Instruments		Pledged		Amount
Interest Rate Swap Agreements
March 31, 2014	$	474	$	-	$	474	$	474	$	-	$	-
December 31, 2013	$	561	$	-	$	561	$	561	$	-	$	-

1Note 11. Reclassification

Certain prior period amounts may have been reclassified to conform to the current year presentation.  Such reclassifications did not affect reported net income.

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Management’s Discussion and Analysis of Results of Operations and Financial Condition

For the Three Months Ended March  31, 2014 and 2013

Forward Looking Statements

Certain statements appearing herein which are not historical in nature are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  Such forward-looking statements refer to a future period or periods, reflecting management’s current views as to likely future developments, and use words such as “may,” “will,” “expect,” “believe,” “estimate,” “anticipate,” or similar terms.  Because forward-looking statements involve certain risks, uncertainties and other factors over which the Corporation has no direct control, actual results could differ materially from those contemplated in such statements.  These factors include (but are not limited to) the following: general economic conditions, changes in interest rates, changes in the Corporation’s cost of funds, changes in government monetary policy, changes in government regulation and taxation of financial institutions, changes in the rate of inflation, changes in technology, the intensification of competition within the Corporation’s market area, and other similar factors.

Critical Accounting Policies

Management has identified critical accounting policies for the Corporation to include Allowance for Loan Losses, Mortgage Servicing Rights, Financial Derivatives, Temporary Investment Impairment and Stock-based Compensation.  There were no changes to the critical accounting policies disclosed in the 2013 Annual Report on Form 10-K in regards to application or related judgments and estimates used.  Please refer to Item 7 of the Corporation’s 2013 Annual Report on Form 10-K for a more detailed disclosure of the critical accounting policies.

Results of Operations

Year-to-Date Summary

At March  31, 2014, total assets were $1.026 billion, an increase of $41.9 million from December 31, 2013. Net loans increased to $716.3 million and total deposits increased to $892.9 million.  The Corporation reported net income for the first three months of 2014 of $1.8 million.  This is a 17.7% increase versus net income of $1.6 million for the same period in 2013. Total revenue (interest income and noninterest income) decreased $532 thousand year-over-year. Interest income decreased $528 thousand,  while interest expense decreasedby  $412 thousand, resulting in a $116 thousand decrease in net interest income. The provision for loan losses was $198 thousand for the period, $605 thousand less than in 2013.  Noninterest income remained steady at $2.4 million, whilenoninterest expense increased 1.4%  due primarily to increases in net occupancy expense.   Diluted earnings per share increased to $.44 in 2014 from $.38 in 2013.  

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Key performance ratios as of, or for the three months ended March  31, 2014 and 2013 are listed below:

	March 31,
	2014		2013
Performance measurements
Return on average assets*		0.74%		0.60%
Return on average equity*		7.72%		6.85%
Return on average tangible assets (1)*		0.76%		0.63%
Return on average tangible equity (1)*		8.78%		7.91%
Efficiency ratio (1)		72.64%		71.30%
Net interest margin*		3.57%		3.45%
Current dividend yield*		3.70%		4.25%
Dividend payout ratio		38.83%		45.00%
Shareholders' Value (per common share)
Diluted earnings per share	$	0.44	$	0.38
Basic earnings per share		0.44		0.38
Regular cash dividends paid		0.17		0.17
Book value		23.37		22.55
Tangible book value (1)		21.07		20.12
Market value		18.38		16.01
Market value/book value ratio		78.65%		71.00%
Price/earnings multiple*		10.44		10.53
Safety and Soundness
Risk-based capital ratio (Total)		14.53%		13.06%
Leverage ratio (Tier 1)		9.26%		8.40%
Common equity ratio		9.52%		8.81%
Tangible common equity ratio (1)		8.66%		7.94%
Nonperforming loans/gross loans		3.39%		4.64%
Nonperforming assets/total assets		2.82%		3.80%
Allowance for loan losses as a % of loans		1.34%		1.47%
Net charge-offs/average loans*		0.09%		0.13%
Trust assets under management (fair value)	$	569,810	$	547,212
* Annualized
(1) See GAAP versus Non-GAAP disclosures that follow

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GAAP versus Non-GAAP Disclosure – The Corporation supplements its traditional GAAP measurements with Non-GAAP measurements. The Non-GAAP measurements include Return on Average Tangible Assets, Return on Average Tangible Equity, Tangible Book Value and Tangible Common Equity ratio. As a result of merger transactions, intangible assets (primarily goodwill, core deposit intangibles and customer list) were created. The Non-GAAP disclosures are intended to eliminate the effects of the intangible assets and allow for better comparisons to periods when such assets did not exist.  However, not all companies use the same calculation methods for the same non-GAAP measurements and therefore may not be comparable. The following table shows the adjustments made between the GAAP and NON-GAAP measurements:

GAAP Measurement	Calculation
Return on Average Assets	Net Income / Average Assets
Return on Average Equity	Net Income / Average Equity
Book Value	Total Shareholders’ Equity / Shares Outstanding
Common Equity Ratio	Total Shareholders’ Equity / Total Assets
Non- GAAP Measurement	Calculation
Return on Average Tangible Assets	Net Income plus Intangible Amortization (net of tax) / Average Assets less Average Intangible Assets
Return on Average Tangible Equity	Net Income plus Intangible Amortization (net of tax) / Average Equity less Average Intangible Assets
Tangible Book Value	Total Shareholders’ Equity less Intangible Assets / Shares outstanding
Tangible Common Equity Ratio	Total Shareholders’ Equity less Intangible Assets / Total Assets less Intangible Assets

Comparison of the three months ended March 31, 2014 to the three months ended March 31, 2013:

Net Interest Income

The most important source of the Corporation’s earnings is net interest income, which is defined as the difference between income on interest-earning assets and the expense of interest-bearing liabilities supporting those assets.  Principal categories of interest-earning assets are loans and securities, while deposits, securities sold under agreements to repurchase (Repos), short-term borrowings and long-term debt are the principal categories of interest-bearing liabilities.  Demand deposits enhance net interest income because they are noninterest-bearing deposits. For the purpose of this discussion, balance sheet items refer to the average balance for the year and net interest income is adjusted to a fully taxable-equivalent basis.  This tax-equivalent adjustment facilitates performance comparisons between taxable and tax-free assets by increasing the tax-free income by an amount equivalent to the Federal income taxes that would have been paid if this income were taxable at the Corporation’s 34% Federal statutory rate. 

Tax equivalent net interest income for the first quarter of 2014 decreased $47 thousand quarter over quarter.  Average interest-earning assets decreased $40.2 million from 2013,  and the yield on these assets decreased by 3 basis points.  The average balance of investment securities increased $25.1 million while average loans decreased $28.6 million (4.0%) quarter over quarter.  Average mortgage loans increased $9.3 million, but the increase was offset by a decrease in the average balance of commercial loans and consumer loans.  Average commercial loans decreased $33.4 million, as commercial loans continue to run-off.  Average consumer loans, including home equity loans, decreased $4.6 million, as consumers continue to borrow less.

Interest expense was $830 thousand for the first quarter, a decrease of $412 thousand from the 2013 total of $1.2 million.  Average interest-bearing liabilities decreased $47.4 million to $783.4 million for 2014 from an average balance of $830.8 million in 2013.  The average cost of these liabilities decreased from .61% in 2013 to .43% in 2014.  Average interest-bearing deposits decreased $18.2 million, due to decreases in time deposits ($66.0 million). The cost of interest-bearing deposits decreased from .58% to .38%.  Securities sold under agreements to repurchase (Repos) decreased $29.2 million on average over the prior year quarter while the average rate remained constant at .15% in both years. The average balance of long-term debt decreased by $19 thousand,due to amortizations. 

The changes in the balance sheet and interest rates resulted in a decrease in tax equivalent net interest income of $47 thousand to $8.2 million in 2014 compared to $8.3 million in 2013.  This decrease was due to an $87 thousand decrease from lower volume, which was partially offset by a $40 thousand increase in rates.

The Bank’s net interest margin increased from 3.45% in 2013 to 3.57% in 2014.  The increase in the net interest margin is the result of a decrease in the rate on interest-earning assetsof 3 basis points, compared toalarger decrease in the yield on interest-bearing liabilities of 18 basis points. 

27

The following table presents average balances, tax-equivalent (T/E) interest income, and yields earned or rates paid on the assets or liabilities.  All nontaxable interest income has been adjusted to a tax-equivalent basis using a tax rate of 34%.

	For the Three Months Ended March 31,
	2014						2013
	Average		Income or		Average		Average		Income or		Average
(Dollars in thousands)	balance		expense		yield/rate		balance		expense		yield/rate
Interest-earning assets:
Interest-bearing obligations of other
banks and federal funds sold	$	46,183	$	39		0.34%	$	82,889	$	58		0.28%
Investment securities:
Taxable		120,526		666		2.24%		95,341		371		1.58%
Nontaxable		41,084		537		5.23%		41,130		553		5.45%
Loans:
Commercial		573,238		5,994		4.18%		606,596		6,583		4.40%
Residential mortgage		82,727		860		4.22%		73,417		854		4.72%
Home equity loans and lines		59,376		786		5.37%		61,213		900		5.96%
Consumer		8,370		151		7.32%		11,107		173		6.32%
Loans		723,711		7,791		4.31%		752,333		8,510		4.59%
Total interest-earning assets		931,504		9,033		3.93%		971,693		9,492		3.96%
Other assets		71,207						73,189
Total assets	$	1,002,711					$	1,044,882
Interest-bearing liabilities:
Deposits:
Interest-bearing checking	$	188,008		49		0.11%	$	146,276		24		0.07%
Money Management		391,350		422		0.44%		387,988		548		0.57%
Savings		60,930		12		0.08%		58,145		17		0.12%
Time		112,385		219		0.79%		178,432		514		1.17%
Total interest-bearing deposits		752,673		702		0.38%		770,841		1,103		0.58%
Securities sold under agreements to repurchase		18,303		7		0.15%		47,521		18		0.15%
Long- term debt		12,401		121		3.91%		12,420		121		3.95%
Total interest-bearing liabilities		783,377		830		0.43%		830,782		1,242		0.61%
Noninterest-bearing deposits		116,076						114,633
Other liabilities		7,272						7,625
Shareholders' equity		95,986						91,842
Total liabilities and shareholders' equity	$	1,002,711					$	1,044,882
T/E net interest income/Net interest margin				8,203		3.57%				8,250		3.45%
Tax equivalent adjustment				(459)						(390)
Net interest income			$	7,744					$	7,860

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Provision for Loan Losses

For 2014, the Bank recorded net charge-offs of $155 thousand compared to $239 thousand in 2013. The charge-offs were offset by the first quarter provision expense of $198 thousand and as a result, the allowance for loan losses (ALL) increased $43 thousand over year-end 2013.  For more information refer to the Loan Quality and Allowance for Loan Losses discussion in the Financial Condition section.

Noninterest Income

For the first quarter of 2014, noninterest income decreased $4 thousand from the same period in 2013.  Investment and trust service fees increased due to higher recurring asset management fees and higher estate fees. Loan service charges decreased as mortgage production declined in 2014 compared to 2013, and from lower service charges on commercial and consumer loans.Mortgage banking fees increased, as 2014 had areversal of previously recorded impairment charges compared to an impairment charge in the prior year, as well as lower amortization costs in 2014 compared to 2013.  Deposit service charges increased due to higher account analysis fees and higher retail and commercial overdraft fees.  Other service charges and fees increased primarily due to increases in ATM fees, while debit card income also increased.   Other real estate owned decreased from prior year due to a write-down in 2014, while no write-downs were taken in 2013. No securities gains or other than temporary impairment charges were recorded during either period.   

The following table presents a comparison of noninterest income for the three months ended March 31, 2014 and 2013:

	March 31				Change
(Dollars in thousands)	2014		2013		Amount		%
Noninterest Income
Investment and trust services fees	$	1,091	$	1,019	$	72		7.1
Loan service charges		167		250		(83)		(33.2)
Mortgage banking activities		12		(22)		34		(154.5)
Deposit service charges and fees		464		436		28		6.4
Other service charges and fees		267		221		46		20.8
Debit card income		306		285		21		7.4
Increase in cash surrender value of life insurance		143		152		(9)		(5.9)
Other real estate owned		(122)		-		(122)		N/A
Other		52		43		9		20.9
Total noninterest income	$	2,380	$	2,384	$	(4)		(0.2)

Noninterest Expense

Noninterest expense for the first quarter of 2014 increased $106 thousand compared to the same period in 2013.  The increase in salaries and benefits was primarily due to annual salary adjustments ($142 thousand) and an incentive program ($135 thousand), but these increases were partially offset by a $199 thousand decrease in health insurance and a $65 thousand decrease in pension expense.  Health insurance expense declined due to lower claims expense during the quarter from the Bank’s participation in a self-insured health insurance plan.  Occupancy and equipment expense increased due to higher costs for snow removal and utilities in 2014 compared to 2013.   Banks shares tax expense decreased year over year due to a change in the calculation.  Other expenses increased due to increases in supply expenses and directors fees.

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The following table presents a comparison of noninterest expense for the three months ended March 31, 2014 and 2013:

(Dollars in thousands)	March 31				Change
Noninterest Expense	2014		2013		Amount		%
Salaries and benefits	$	4,251	$	4,214	$	37		0.9
Net occupancy expense		675		568		107		18.8
Furniture and equipment expense		254		247		7		2.8
Advertising		316		335		(19)		(5.7)
Legal and professional fees		265		279		(14)		(5.0)
Data processing		391		394		(3)		(0.8)
Pennsylvania bank shares tax		173		205		(32)		(15.6)
Intangible amortization		104		106		(2)		(1.9)
FDIC insurance		232		245		(13)		(5.3)
ATM/debit card processing		179		181		(2)		(1.1)
Other		848		808		40		5.0
Total noninterest expense	$	7,688	$	7,582	$	106		1.4

Provision for Income Taxes

For the first quarter of 2014 the Corporation recorded a Federal income tax expense of $412 thousand compared to $308 thousand for the same quarter in 2013.  While pretax income was higher in 2014 due to less provision expense, this was partially offset by a larger benefit from tax exempt income during the quarter.  As a result, the effective tax rate increased year over year to 18.4% for the first quarter of 2014 compared to 16.6% for 2013.  All taxable income for the Corporation is taxed at a rate of 34%.

Financial Condition

Summary:

At March 31, 2014, assets totaled $1.026billion, an increase of $41.9 million from the 2013 year-end balance of $984.6million. Investment securities increased $2.0 million, while net loans increased $2.6 million. Deposits were up $47.2 million in the first quarter of 2014 due to increases in noninterest bearing, interest bearing and money management deposits. Shareholders’ equity increased $2.3 million during the first three months as retained earnings increased approximately $1.1million, other comprehensive loss improved $994 thousand and the Corporation’s Dividend Reinvestment Plan (DRIP) added an additional $170 thousand in new capital.

Cash and Cash Equivalents:

Cash and cash equivalents totaled $79.4 million at March 31, 2014, an increase of $38.6 million from the prior year-end balance of $40.7 million.  The increase is due to large inflows of deposits as well as slow loan growth opportunities.  Interest-bearing depositsare held primarily at the Federal Reserve.

Investment Securities: 

The composition of the investment portfolio is unchanged since year-end 2013. Municipal securities and U.S. Agency mortgage-backed securities continue to comprise the greatest portion of the portfolio at 35% and 50% of the portfolio, respectively. The Bank invested $6.8 million during the first quarter divided almost equally between U.S. Agency securities and U.S. Agency mortgage-backed securities.  

The investment portfolio had a net unrealized loss of $679 thousand at the end of the quarter, slightly lower than at year-end 2013. The trust-preferred sector continues to report the largest net unrealized loss.

The portfolio averaged $161.6 million with a yield of 3.0% for the first quarter. This compares to an average of $136.5 million and a yield of 2.74% for the same period in 2013.  The improvement in the yield is primarily the result of a slow-down in prepayments on mortgage-backed securities.

The equity portfolio is comprised of bank stocks and the Bank and the Corporation each maintain separate equity portfolios.  In April 2014, the equity portfolio was reduced by approximately 30% as the Corporation took advantage of

30

price increases and sold selected holdings.   The municipal bond portfolio is well diversified geographically (issuers from within 27 states) and is comprised primarily of general obligation bonds (71%).  Most municipal bonds have credit enhancements in the form of private bond insurance or other credit support. The largest geographic municipal bond exposure is to nineteen issuers in the state of Texas with a fair value of $9.0 million and eleven issuers in the state of Pennsylvania with a fair value of $6.0 million. The municipal bond portfolio contains $53.7 million of bonds rated A or higher, $623 thousand rated lower than A (but above noninvestment grade), and $1.8 million that are not rated by Moody’s rating agency.  No municipal bonds are rated below investment grade. The Bank holds one variable rate corporate bond in the financial services sector, rated A3 by Moody’s and is scheduled to mature in 2014.

The holdings of trust preferred investments and private-label mortgage-backed securities are unchanged since year-end and are detailed in tables included in this note.

The amortized cost and estimated fair value of investment securities available for sale as of March 31, 2014 and December 31, 2013 is as follows:

(Dollars in thousands)			Gross		Gross
	Amortized		unrealized		unrealized		Fair
March 31, 2014	cost		gains		losses		value
Equity securities	$	1,472	$	544	$	-	$	2,016
U.S. Government agency securities		14,547		88		(96)		14,539
Municipal securities		55,531		1,568		(976)		56,123
Corporate debt securities		1,001		1		-		1,002
Trust preferred securities		5,928		-		(833)		5,095
Agency mortgage-backed securities		80,500		826		(444)		80,882
Private-label mortgage-backed securities		1,918		48		(44)		1,922
Asset-backed securities		50		-		(3)		47
	$	160,947	$	3,075	$	(2,396)	$	161,626

(Dollars in thousands)			Gross		Gross
	Amortized		unrealized		unrealized		Fair
December 31, 2013	cost		gains		losses		value
Equity securities	$	1,472	$	499	$	(1)	$	1,970
U.S. Government agency securities		11,771		94		(114)		11,751
Municipal securities		56,861		1,400		(1,404)		56,857
Corporate debt securities		1,002		-		(1)		1,001
Trust preferred securities		5,922		-		(871)		5,051
Agency mortgage-backed securities		81,352		726		(1,051)		81,027
Private-label mortgage-backed securities		1,984		16		(31)		1,969
Asset-backed securities		51		-		(3)		48
	$	160,415	$	2,735	$	(3,476)	$	159,674

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The following table provides additional detail about the Bank’s trust preferred securities as of March 31, 2014:  

(Dollars in thousands)
Deal Name	Single Issuer or Pooled	Class	Amortized Cost		Fair Value		Gross Unrealized Gain (Loss)		Lowest Credit Rating Assigned	Number of Banks Currently Performing	Deferrals and Defaults as % of Original Collateral	Expected Deferral/ Defaults as a Percentage of Remaining Performing Collateral
Huntington Cap Trust	Single	Preferred Stock	$	937	$	811	$	(126)	BB+	1	None	None
Huntington Cap Trust II	Single	Preferred Stock		886		780		(106)	BB+	1	None	None
BankAmerica Cap III	Single	Preferred Stock		961		795		(166)	BB+	1	None	None
Wachovia Cap Trust II	Single	Preferred Stock		276		245		(31)	BBB+	1	None	None
Corestates Captl Tr II	Single	Preferred Stock		933		830		(103)	BBB+	1	None	None
Chase Cap VI JPM	Single	Preferred Stock		961		830		(131)	BBB	1	None	None
Fleet Cap Tr V	Single	Preferred Stock		974		804		(170)	BB+	1	None	None
			$	5,928	$	5,095	$	(833)

The following table provides additional detail about private label mortgage-backed securities as of March 31, 2014:

(Dollars in thousands)						Gross					Cumulative
	Origination	Amortized		Fair		Unrealized		Collateral	Lowest Credit	Credit	OTTI
Description	Date	Cost		Value		Gain (Loss)		Type	Rating Assigned	Support %	Charges
RALI 2004-QS4 A7	3/1/2004	$	157	$	164	$	7	ALT A	BBB+	12.55	$	-
MALT 2004-6 7A1	6/1/2004		426		446		20	ALT A	CCC	14.26		-
RALI 2005-QS2 A1	2/1/2005		318		331		13	ALT A	C	5.82		10
RALI 2006-QS4 A2	4/1/2006		593		565		(28)	ALT A	D	-		293
GSR 2006-5F 2A1	5/1/2006		94		102		8	Prime	D	-		15
RALI 2006-QS8 A1	7/28/2006		330		314		(16)	ALT A	D	-		197
		$	1,918	$	1,922	$	4				$	515

The investment portfolio contained 84 securities with $68.8 million of temporarily impaired fair value and $2.4 million in unrealized losses at March 31, 2014.

For securities with an unrealized loss, Management applies a systematic methodology in order to perform an assessment of the potential for other-than-temporary impairment.  In the case of debt securities, investments considered for other-than-temporary impairment: (1) had a specified maturity or repricing date; (2) were generally expected to be redeemed at par, and (3) were expected to achieve a recovery in market value within a reasonable period of time. In addition, the Bank considers whether it intends to sell these securities or whether it will be forced to sell these securities before the earlier of amortized cost recovery or maturity. Equity securities are assessed for other-than-temporary impairment based on the length of time of impairment, dollar amount of the impairment and general market and financial conditions relating to specific issues.  The impairment identified on debt and equity securities and subject to assessment at March 31, 2014, was deemed to be temporary and required no further adjustments to the financial statements, unless otherwise noted.

The following table reflects temporary impairment in the investment portfolio (excluding restricted stock), aggregated by investment category, length of time that individual securities have been in a continuous unrealized loss position and the number of securities in each category as of March 31, 2014 and December 31, 2013:

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	March 31, 2014
	Less than 12 months					12 months or more					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(Dollars in thousands)	Value		Losses		Count	Value		Losses		Count	Value		Losses		Count
U.S. Government agency securities	$	4,051	$	(37)	5	$	5,593	$	(59)	11	$	9,644	$	(96)	16
Municipal securities		12,526		(483)	16		5,762		(493)	9		18,288		(976)	25
Trust preferred securities		-		-	-		5,095		(833)	7		5,095		(833)	7
Agency mortgage-backed securities		31,497		(358)	29		3,371		(86)	4		34,868		(444)	33
Private-label mortgage-backed securities		-		-	-		879		(44)	2		879		(44)	2
Asset-backed securities		-		-	-		5		(3)	1		5		(3)	1
Total temporarily impaired securities	$	48,074	$	(878)	50	$	20,705	$	(1,518)	34	$	68,779	$	(2,396)	84

	December 31, 2013
	Less than 12 months					12 months or more					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(Dollars in thousands)	Value		Losses		Count	Value		Losses		Count	Value		Losses		Count
Equity securities	$	22	$	(1)	1	$	-	$	-	-	$	22	$	(1)	1
U.S. Government agency securities		3,971		(85)	7		3,807		(29)	7		7,778		(114)	14
Municipal securities		16,770		(1,022)	24		3,160		(382)	4		19,930		(1,404)	28
Corporate debt securities		-		-	-		1,001		(1)	1		1,001		(1)	1
Trust preferred securities		-		-	-		5,051		(871)	7		5,051		(871)	7
Agency mortgage-backed securities		40,395		(999)	38		2,213		(52)	4		42,608		(1,051)	42
Private-label mortgage-backed securities		-		-	-		911		(31)	2		911		(31)	2
Asset-backed securities		-		-	-		48		(3)	3		48		(3)	3
Total temporarily impaired securities	$	61,158	$	(2,107)	70	$	16,191	$	(1,369)	28	$	77,349	$	(3,476)	98

The municipal bond portfolio has the largest unrealized loss at $1.0 million, $400 thousand less than at the prior-year end.  The unrealized loss in this portfolio is deemed to be non-credit related and no other-than-temporary impairment charges have been recorded.

The trust preferred portfolio contains seven securities with a fair value of $5.1 million and an unrealized loss of $833 thousand. The trust-preferred securities held by the Bank are single entity issues, not pooled trust preferred securities.  Therefore, the impairment review of these securities is based only on the issuer and the security cannot be impaired by the performance of other issuers as if it was a pooled trust-preferred bond. All of the Bank’s trust preferred securities are single issue, variable rate notes with long maturities (2027 – 2028).  None of these bonds have suspended or missed a dividend payment. At March 31, 2014, the Bank believes it will be able to collect all interest and principal due on these bondsand no other-than-temporary-impairment charges were recorded. 

The PLMBS sector shows a gross unrealized loss of $44 thousand. These bonds were all rated AAA at time of purchase, but have since experienced rating declines. Some have experienced increased delinquencies and defaults, while others have seen the credit support increase as the bonds paid-down. The Bank monitors the performance of the PLMBS investments on a regular basis and reviews delinquencies, default rates, credit support levels and various cash flow stress test scenarios. In determining the credit related loss, Management considers all principal past due 60 days or more as a loss. If additional principal moves beyond 60 days past due, it will also be considered a loss. As a result of the analysis on PLMBS it was determined that no impairment charge was required at quarter end. The Bank has recorded $515 thousand of cumulative impairment charges on this portfolio. Management continues to monitor these securities and it is possible that additional write-downs may occur if current loss trends continue. The Bank is currently participating in a class-action lawsuit against one PLMBS servicer that centers on defective warranties and representations made as part of the underwriting process.

The following table represents the cumulative credit losses on securities recognized in earnings as of March 31, 2014 and 2013.  

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(Dollars in thousands)	Three Months Ended
	3/31/2014		3/31/2013
Balance of cumulative credit-related OTTI at January 1	$	515	$	490
Additions for credit-related OTTI not previously recognized		-		-
Additional increases for credit-related OTTI previously recognized when there is no intent to sell
and no requirement to sell before recovery of amortized cost basis		-		-
Decreases for previously recognized credit-related OTTI because there was an intent to sell		-		-
Reduction for increases in cash flows expected to be collected		-		-
Balance of credit-related OTTI at March 31	$	515	$	490

The Bank held $1.9 million of restricted stock at March 31, 2014.  Except for $30 thousand, this investment represents stock in FHLB Pittsburgh. The Bank is required to hold this stock to be a member of FHLB and it is carried at cost of $100 per share.

FHLB stock is evaluated for impairment primarily based on an assessment of the ultimate recoverability of its cost. As a government sponsored entity, FHLB has the ability to raise funding through the U.S. Treasury that can be used to support its operations.  There is not a public market for FHLB stock and the benefits of FHLB membership (e.g., liquidity and low cost funding) add value to the stock beyond purely financial measures. Management intends to remain a member of the FHLB and believes that it will be able to fully recover the cost basis of this investment.

Loans: 

Residential real estate:  This category is comprised of consumer purpose loans secured by residential real estate and to a lesser extent, commercial purpose loans secured by residential real estate.  The consumer purpose category represents traditional residential mortgage loans and home equity products (primarily junior liens and lines of credit). Commercial purpose loans in this category represent loans made for various business needs, but are secured with residential real estate. In addition to the real estate collateral, it is possible that additional security is provided by personal guarantees or UCC filings. These loans are underwritten as commercial loans and are not originated to be sold.

Total residential real estate loans increased $2.4 millionover 2013, primarily in the commercial first lien category.  In the first quarter of 2014, the Bank originated $3.7 million in mortgages, including approximately $1.4 million for a fee through a third party brokerage agreement. The Bank does not originate or hold any loans that would be considered sub-prime or Alt-A, and does not generally originate mortgages outside of its primary market area.

Home equity lending has continued to be slow and the Bank has seen both the fixed rate loan product and the variable rate line product continue to decline in 2014. Many consumers have seen equity in their homes disappear or have been reluctant to borrow due to uncertainty in the economy. Despite low rates, the Bank expects that home equity lending will not pick up significantly until the overall economy improves.

Residential real estate construction:  The largest component of this category represents loans to residential real estate developers ($8.6 million), while loans for individuals to construct personal residences totaled $3.2 million at March 31, 2014.  The Bank’s exposure to residential construction loans is concentrated primarily in south central Pennsylvania.

Real estate construction loans, including residential real estate and land development loans, frequently provide an interest reserve in order to assist the developer during the development stage when minimal cash flow is generated. All real estate construction loans are underwritten in the same manner, regardless of the use of an interest reserve. Real estate construction loans are monitored on a regular basis by either an independent third party inspector or the assigned loan officer depending on loan amount or complexity of the project. This monitoring process includes at a minimum, the submission of invoices and AIA documents of costs incurred by the borrower, on-site inspections, and a signature by the assigned loan officer for disbursement of funds.  The Bank has no residential real estate construction loans with an interest reserve.

Commercial loans and commercial real estate: Loans in this category include commercial, industrial, farm, agricultural, land development and municipal government loans. Collateral for these loans may include commercial real estate, farm real estate, equipment or other business assets. Total commercial real estate loans decreased to $322.5 million from $329.4 million at the end of 2013.  At March 31, 2014, the Bank had $8.6 million in land development real estate construction loans funded with an interest reserve and capitalized $19  thousand of interest from these reserves on active projects.  The largest sectors (by collateral) in the commercial real estate category are: land development ($55.2 million), farm land ($37.8 million), office buildings ($36.9 million), hotels and motels ($35.0 million), and auto dealerships ($18.7 million). Commercial loans increased by 5.1% compared to year end an increase of $8.7 million.   The largest sectors (by industry) in the commercial loan category are: utilities ($29.6 million), manufacturing ($28.8 million), public

34

administration ($19.5 million), retail trade ($15.7 million) and construction ($15.4 million).  The Bank is very active in its market in pursuing commercial lending opportunities, but supplements in-market growth with purchased loan participations. The Bank purchases commercial loan participations in an effort to increase its commercial lending and diversify its loan mix, both geographically and by industry sector.  Purchased loans are originated primarily within the south central Pennsylvania market and are purchased from only a few select counter parties. These loans usually represent an opportunity to participate in larger credits that are not available in market, with the benefit of lower origination and servicing costs.  In the first quarter of 2014, the Bank purchased $1.3 million of loan participations and commitments.  At March 31, 2014, the Bank held $125.5 million in purchased loan participations in its portfolio. 

Consumer loans decreased $764 thousand due primarily to regular payments and maturities.  The Bank believes consumer portfolio will continue to run-down, as consumers are unwilling to increase their debt.

The following table presents a summary of loans outstanding, by primary collateral as of:

						Change
(Dollars in thousands)	March 31, 2014			December 31, 2013		Amount	%
Residential Real Estate 1-4 Family
Consumer first liens	$	103,107	$	103,573	$	(466)	(0.4)
Consumer junior liens and lines of credit		34,606		34,636		(30)	(0.1)
Total consumer		137,713		138,209		(496)	(0.4)
Commercial first lien		62,002		58,466		3,536	6.0
Commercial junior liens and lines of credit		5,338		5,939		(601)	(10.1)
Total commercial		67,340		64,405		2,935	4.6
Total residential real estate 1-4 family		205,053		202,614		2,439	1.2
Residential real estate - construction
Consumer		3,188		3,960		(772)	(19.5)
Commercial		8,565		8,559		6	0.1
Total residential real estate construction		11,753		12,519		(766)	(6.1)
Commercial real estate		322,450		329,373		(6,923)	(2.1)
Commercial		178,986		170,327		8,659	5.1
Total commercial		501,436		499,700		1,736	0.3
Consumer		7,816		8,580		(764)	(8.9)
		726,058		723,413		2,645	0.4
Less: Allowance for loan losses		(9,745)		(9,702)		(43)	(0.4)
Net Loans	$	716,313	$	713,711	$	2,602	0.4
Included in the loan balances are the following:
Net unamortized deferred loan costs	$	446	$	372
Unamortized discount on purchased loans	$	(74)	$	(92)
Loans pledged as collateral for borrowings and commitments from:
FHLB	$	582,983	$	607,524
Federal Reserve Bank		64,669		45,809
	$	647,652	$	653,333

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Loan Quality:

Management utilizes a risk rating scale ranging from 1 (Prime) to 9 (Loss) to evaluate loan quality. This risk rating scale is used primarily for commercial purpose loans. Consumer purpose loans are identified as either a pass or substandard rating. Substandard consumer loans are loans that are 90 days or more past due and still accruing.  Loans rated 1 – 4 are considered pass credits. Loans that are rated 5 are pass credits, but have been identified as credits that are likely to warrant additional attention and monitoring. Loans rated 6 (Special Mention) or worse begin to receive enhanced monitoring and reporting by the Bank. Loans rated 7 (Substandard) or 8 (Doubtful) exhibit the greatest financial weakness and present the greatest possible risk of loss to the Bank. Nonaccrual loans are rated no better than 7.   The following factors represent some of the factors used in determining the risk rating of a borrower: cash flow, debt coverage, liquidity, management, and collateral. Risk ratings, for pass credits, are generally reviewed annually for term debt and at renewal for revolving or renewing debt. The Bank monitors loan quality by reviewing four measurements: (1) loans rated 6 or worse (collectively “watch list”), (2) delinquent loans, (3) other real estate owned (OREO), and (4) net-charge-offs. Management compares trends in these measurements with the Bank’s internally established targets, as well as its national peer group.

Watch list loans exhibit financial weaknesses that increase the potential risk of default or loss to the Bank. However, inclusion on the watch list, does not by itself, mean a loss is certain. The watch list includes both performing and nonperforming loans. Watch list loans totaled $65.5 million at quarter-end compared to $76.3 million at the prior year- end. The watch list is comprised of $10.3 million rated 6 and $55.2 million rated 7. The Bank has no loans rated 8-doubtful or 9-loss.  The credit composition of the portfolio, by primary collateral is shown in Note 7 of the accompanying financial statement. Included in the substandard loan total is $24.3 million of nonaccrual loans. The Bank’s Loan Management Committee reviews these loans and risk ratings on a quarterly basis in order to proactively identify and manage problem loans. In addition, a committee meets monthly to discuss possible workout strategies for OREO and all credits rated 7 or worse. Management also tracks other commercial loan risk measurements including high loan to value loans, concentrations, participations and policy exceptions and reports these to the Credit Risk Oversight Committee of the Board of Directors. The Bank also uses a third-party consultant to assist with internal loan review with a goal of reviewing 60% of commercial loans each year. The FDIC defines certain supervisory loan-to-value lending limits.  The Bank’s internal loan–to-value limits are all equal to, or have a lower loan-to-value limit, than the supervisory limits.  At March 31, 2014, the Bank had loans of $24.8 million that exceeded the supervisory limit.

Delinquent loans are a result of borrowers’ cash flow and/or alternative sources of cash being insufficient to repay loans.  The Bank’s likelihood of collateral liquidation to repay the loans becomes more probable the further behind a borrower falls, particularly when loans reach 90 days or more past due. Management monitors the performance status of loans by the use of an aging report. The aging report can provide an early indicator of loans that may become severely delinquent and possibly result in a loss to the Bank.  See Note 7 in the accompanying financial statements for a note that presents the aging of payments in the loan portfolio.

Nonaccruing loans generally represent Management’s determination that the borrower will be unable to repay the loan in accordance with its contractual terms and that collateral liquidation may or may not fully repay both interest and principal. It is the Bank’s policy to evaluate the probable collectability of principal and interest due under terms of loan contracts for all loans 90-days or more, nonaccrual loans, or impaired loans. Further, it is the Bank’s policy to discontinue accruing interest on loans that are not adequately secured and in the process of collection.  Upon determination of nonaccrual status, the Bank subtracts any current year accrued and unpaid interest from its income, and any prior year accrued and unpaid interest from the allowance for loan losses.  Management continually monitors the status of nonperforming loans, the value of any collateral and potential of risk of loss.  Nonaccrual loans are rated no better than 7 (Substandard).

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Loan quality, as measured by the balance of nonperforming loans, is virtually unchanged from year-end. However, the performance ratios related to nonperforming loans, has improved since December 31, 2013. The following table presents a summary of nonperforming assets:

(Dollars in thousands)	March 31, 2014		December 31, 2013
Nonaccrual loans
Residential Real Estate 1-4 Family
First liens	$	2,344	$	2,599
Junior liens and lines of credit		91		107
Total		2,435		2,706
Residential real estate - construction		530		538
Commercial real estate		18,965		19,001
Commercial		2,407		2,398
Total nonaccrual loans		24,337		24,643
Loans past due 90 days or more and not included above
Residential Real Estate 1-4 Family
First liens		229		302
Junior liens and lines of credit		59		41
Total		288		343
Commercial real estate		-		207
Commercial		-		44
Consumer		7		10
Total loans past due 90 days or more and still accruing		295		604
Total nonperforming loans		24,632		25,247
Other real estate owned		4,307		4,708
Total nonperforming assets	$	28,939	$	29,955
Nonaccrual loans to total gross loans		3.35%		3.41%
Nonperforming loans to total gross loans		3.39%		3.49%
Nonperforming assets to total assets		2.82%		3.04%
Allowance for loan losses to nonperforming loans		39.56%		38.43%

The following table identifies the most significant loans in nonaccrual status. These nine nonaccrual loans account for 86% of the total nonaccrual balance. The table also indicates those significant nonccrual loans that are classified as troubled debt restructurings (TDR). A TDR loan is maintained on nonaccrual status until a satisfactory repayment history is established.  It is possible that other nonaccrual loans could be removed from nonaccrual status in 2014.  However, it is also possible that other loans may become delinquent and nonperforming loans could remain at a high level due to lengthy workout periods on these loans. All loans on the watch list that are not on nonaccrual or past due 90 days more are considered potential problem loans. Potential problem loans at March 31, 2014 totaled $40.9 million compared to $51.0 million at year-end 2013.

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The following table provides information on the most significant nonaccrual loans as of March 31, 2014.

				ALL	Nonaccrual	TDR			Last
(Dollars in thousands)		Balance		Reserve	Date	Status	Collateral	Location	Appraisal(1)
Credit 1 - Commercial real estate	$	3,040	$	-	Dec-10	N	1st lien on 92 acres undeveloped commercial real estate	PA	Dec-13	$	3,304
Credit 2 - Residential real estate and commercial real estate		927		-	Aug-11	N	1st lien on commercial and residential properties and 70 acres of farmland	PA	Jun-13	$	1,272
Credit 3 - Residential real estate		2,065		-	Mar-12	Y	1st and 2nd liens on commercial real estate, residential real estate and business assets	PA	Oct-13	$	4,320
Credit 4 - Residential real estate		883		-	Jun-12	N	1st lien residential development land - 75 acres	WV	Oct-13	$	1,250
							2nd lien residential real estate	PA
Credit 5 - Residential real estate		1,135		-	Apr-12	N	1st and 2nd liens on residential real estate	PA	May-13	$	1,935
Credit 6 - Commercial real estate		7,351		-	Sep-12	Y	1st lien residential real estate development -379 acres and other commercial and residential properties	PA	Oct-13	$	8,932
Credit 7 - Commercial real estate		2,049		-	Oct-12	N	1st lien on commercial refrigerated warehouse	PA	Feb-13	$	5,995
Credit 8 - Commercial / commercial real estate		2,529		959	Mar-13	N	Liens on land, commercial and residential real estate and business assets	PA	Feb-14	$	3,268
Credit 9 - Commercial real estate		873		-	Mar-14	N	1st lien on commercial real estate	PA	Nov-10	$	1,550
	$	20,852	$	959

(1) Appraisal value, as reported, does not reflect the pay-off of any senior liens or the cost to liquidate the collateral, but does reflect only the Bank’s share of the collateral if it is a participated loan.

Credit 1 has been charged down by $3.5 million since being placed on nonaccrual due to declining appraisal values.  This credit is part of a participated loan and the lead bank has begun foreclosure action. Credit 2 is in the process of foreclosure and the real estate is listed for sale.  Credit 3 is a TDR that is not performing in accordance with the modified terms. Credit 4 has been written down by $1.6 million since being placed on nonaccrual, including a write-down of $1.2 million in 2013.  Foreclosure has been delayed as the borrower is considering a settlement offer. Credit 5contiues to explore external financing to pay off its loan and the real estate is listed for sale.  Credit 6 is a TDR and is performing in accordance with its modified terms.   Credit 7 was paid off in April 2014.  Credit 8, the borrower and guarantor have filed bankruptcy. Credit 9 is a new nonaccrual loan in 2014.

In addition to monitoring nonaccrual loans, the Bank also closely monitors impaired loans and troubled debt restructurings (TDR).  A loan is considered to be impaired when, based on current information and events, it is probable that the Bank will be unable to collect all interest and principal payments due according to the originally contracted terms of the loan agreement.  Nonaccrual loans and TDR loans are always considered impaired. For impaired loans with balances less than $100 thousand and consumer purpose loans, a specific reserve analysis is not performed and these loans are added to the general allocation pool. In accordance with financial accounting standards, TDR loans are always considered impaired until they are paid off.  However, an impaired TDR loan can be a performing loan. Impaired loans totaled $31.0 million at quarter-end compared to $30.9 million at year-end 2013. Included in the impaired loan total is $16.9 million of TDR loans. Note 7 of the accompanying financial statements provides additional information on the composition of the impaired loans, including the allowance for loan loss that has been established for impaired loans.

A loan is considered a troubled debt restructuring (TDR) if the creditor (the Bank), for economic or legal reasons related to the debtor’s financial difficulties, grants a concession to the debtor that it would not otherwise consider. These concessions may include lowering the rate, extending the maturity, reamortization of the payment, or a combination of multiple concessions.   The Bank reviews all loans rated 6 or worse when it is providing a loan restructure, modification

38

or new credit facility to determine if the action is a TDR.  If a TDR loan is placed on nonaccrual status, it remains on nonaccrual status for at least six months to ensure performance. All TDR loans except one, Credit 3 in the table of significant nonaccrual loans, are in compliance with their modified terms. See Note 7 in the accompanying financial statements for a note that identifies TDR loans in the portfolio.

The Bank holds $4.3 million of other real estate owned (OREO), comprised of seven properties compared to $4.7 million and eight properties at December 31, 2013.  The most significant OREO holdings are listed in the table below. Property 1 was written down by $120 thousand in the first quarter of 2014 due to  a lower appraisal and one parcel of this property was sold with a $2 thousand loss. During 2014, the Bank has incurred a net loss of $122 thousand on OREO and an expense of $17 thousand to hold and maintain OREO.

The following table provides additional information on significant other real estate owned properties:

March 31, 2014
(Dollars in thousands)	Date
	Acquired		Balance	Collateral	Location	Last Appraisal
Property 1 (2 properties)	2011	$	892	unimproved and improved real estate for residential development on two tracts	PA	Jan-14	$	970
Property 2	2012		2,758	1st, 2nd, and 3rd liens residential development land - four tracts with 200 acres	PA	Aug-12	$	3,251
		$	3,650

At March 31, 2014, the Bank had $801 thousand of residential properties in the process of foreclosure compared to $1.1 million at the end of 2013.

Allowance for Loan Losses:

Management performs a monthly evaluation of the adequacy of the allowance for loan losses (ALL). The ALL is determined by segmenting the loan portfolio based on the loan’s collateral. The Bank further classifies the portfolio based on the primary purpose of the loan, either consumer or commercial.  When calculating the ALL, consideration is given to a variety of factors in establishing this estimate including, but not limited to, current economic conditions, diversification of the loan portfolio, delinquency statistics, results of internal loan reviews, historical charge-offs, the adequacy of the underlying collateral (if collateral dependent) and other relevant factors. The Bank begins enhanced monitoring of all loans rated 6 (OAEM) or worse, and obtains a new appraisal or asset valuation for any loan rated 7 (substandard) or worse. Management, at its discretion, may determine that additional adjustments to the appraisal or valuation are required.  Valuation adjustments will be made as necessary based on factors, including, but not limited to: the economy, deferred maintenance, industry, type of property/equipment, age of the appraisal, etc. and the knowledge Management has about a particular situation. In addition, the cost to sell or liquidate the collateral is also estimated and deducted from the valuation in order to determine the net realizable value to the Bank.When determining the allowance for loan losses, certain factors involved in the evaluation are inherently subjective and require material estimates that may be susceptible to significant change, including the amounts and timing of future cash flows expected to be received on impaired loans. Management monitors the adequacy of the allowance for loan losses on an ongoing basis and reports its adequacy quarterly to the Credit Risk Oversight Committee of the Board of Directors. Management believes that the allowance for loan losses at March 31, 2014 is adequate.

The analysis for determining the ALL is consistent with guidance set forth in generally accepted accounting principles (GAAP) and the Interagency Policy Statement on the Allowance for Loan and Lease Losses. The analysis has two components, specific and general allocations. The specific component addresses specific reserves established for impaired loans. A loan is considered to be impaired when, based on current information and events, it is probable that the Bank will be unable to collect all interest and principal payments due according to the originally contracted terms of the loan agreement.  Collateral values discounted for market conditions and selling costs are used to establish specific allocations for impaired loans. It is possible that as a result of the credit analysis, a specific reserve is not required for an impaired loan. For impaired loans with balances less than $100 thousand and consumer purpose loans, a specific reserve analysis is

39

not performed and these loans are added to the general allocation pool.   Note 7 in the accompanying financial statements provides additional information about the ALL established for impaired loans.

The general allocation component addresses the reserves established for pools of homogenous loans. The general component includes a quantitative and qualitative analysis. When calculating the general allocation, the Bank segregates its loan portfolio into the following sectors based primarily on the type of supporting collateral:  residential real estate, commercial, industrial or agricultural real estate; commercial and industrial (C&I non-real estate), and consumer.  The residential real estate sector is further segregated by first lien loans, junior liens and home equity products, and residential real estate construction. The quantitative analysis uses the Bank’s eight quarter rolling historical loan loss experience adjusted for factors derived from current economic and market conditions that have been determined to have an effect on the probability and magnitude of a loss.   The historical loss experience factor was .97% of gross loans at March 31, 2014 compared to .99% at December 31, 2013.  The qualitative analysis utilizes a risk matrix that incorporates qualitative and environmental factors such as: loan volume, management, loan review process, credit concentrations, competition, and legal and regulatory issues. These factors are each risk rated from minimal to high risk and in total can add up to a maximum qualitative factor of 37.5 basis points. At quarter-end, this factor was 20.5 basis points unchanged from year-end 2013.  These factors are determined on the basis of Management’s observation, judgment and experience. 

Real estate appraisals and collateral valuations are an important part of the Bank’s process for determining potential loss on collateral dependent loans and thereby have a direct effect on the determination of loan reserves, charge-offs and the calculation of the allowance for loan losses.  As long as the loan remains a performing loan, no further updates to appraisals are required. If a loan or relationship migrates to risk rating of 7 or worse, an evaluation for impairment status is made based on the current information available at the time of downgrade and a new appraisal or collateral valuation is obtained. We believe this practice complies with the regulatory guidance dated December 12, 2010.

In determining the allowance for loan losses, Management, at its discretion, may determine that additional adjustments to the fair value obtained from an appraisal or collateral valuation are required. Adjustments will be made as necessary based on factors, including, but not limited to the economy, deferred maintenance, industry, type of property or equipment etc., and the knowledge Management has about a particular situation. In addition, the cost to sell or liquidate the collateral is also estimated and deducted from the valuation in order to determine the net realizable value to the Bank. If an appraisal is not available, Management may make its best estimate of the real value of the collateral or use last known market value and apply appropriate discounts.  If an adjustment is made to the collateral valuation, this will be documented with appropriate support and reported to the Loan Management Committee.

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The following table shows the loans that were evaluated for the allowance for loan losses under a specific reserve (individually) and those that were evaluated under a general reserve (collectively), and the amount of the allowance established in each loan class as of March 31, 2014:

	Residential Real Estate 1-4 Family
			Junior Liens &				Commercial
(Dollars in thousands)	First Liens		Lines of Credit		Construction		Real Estate		Commercial		Consumer		Total
March 31, 2014
Loans evaluated for allowance:
Individually	$	2,310	$	51	$	530	$	25,029	$	1,953	$	-	$	29,873
Collectively		162,799		39,893		11,223		297,421		177,033		7,816		696,185
Total	$	165,109	$	39,944	$	11,753	$	322,450	$	178,986	$	7,816	$	726,058
Allowance established for loans evaluated:
Individually	$	-	$	-	$	-	$	247	$	968	$	-	$	1,215
Collectively		1,133		276		374		5,262		1,341		144		8,530
Allowance at March 31, 2014	$	1,133	$	276	$	374	$	5,509	$	2,309	$	144	$	9,745

During the first quarter of 2014, $198 thousand was added to the allowance for loan losses (ALL) thorough the provision for loan loss expense.  This is a sizable reduction from the provision expense of $803 thousand for the same period in 2013.

Charged-off loans usually result from: (1) a borrower being legally relieved of loan repayment responsibility through bankruptcy,(2)insufficient collateral sale proceeds to repay a loan; or (3) the borrower and/or guarantor does not own other assets that, if sold, would generate sufficient sale proceeds to repay a loan.

The Bank recorded net loan charge-offs of only $155 thousand for the first quarter compared to $239 thousand for the first quarter of 2013.

The following table presents an analysis of the allowance for loan losses for the periods ended:

	Residential Real Estate 1-4 Family
			Junior Liens &				Commercial
(Dollars in thousands)	First Liens		Lines of Credit		Construction		Real Estate		Commercial		Consumer		Total
Allowance at December 31, 2013	$	1,108	$	278	$	291	$	5,571	$	2,306	$	148	$	9,702
Charge-offs		(16)		-		(27)		(114)		(1)		(43)		(201)
Recoveries		3		-		-		-		20		23		46
Provision		38		(2)		110		52		(16)		16		198
Allowance at March 31, 2014	$	1,133	$	276	$	374	$	5,509	$	2,309	$	144	$	9,745
Allowance at December 31, 2012	$	913	$	306	$	899	$	6,450	$	1,620	$	191	$	10,379
Charge-offs		-		(45)		-		(171)		(7)		(44)		(267)
Recoveries		8		-		-		-		7		13		28
Provision		52		35		(62)		403		352		23		803
Allowance at March 31, 2013	$	973	$	296	$	837	$	6,682	$	1,972	$	183	$	10,943

		March 31, 2014		December 31, 2013		March 31, 2013
Net loans charged-off as a percentage of average gross loans		0.09%		0.49%		0.13%
Net loans charged-off as a percentage of the provision for loan losses		78.28%		123.18%		29.76%
Allowance as a percentage of loans		1.34%		1.34%		1.47%
Net charge-offs	$	155	$	3,597	$	239

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Deposits: 

Total deposits increased $47.2 million during the first three months of 2014 to $892.9 million. Non-interest bearing deposits decreased $7.1 million, while savings and interest-bearing checking increased $43.7 million and time deposits decreased $3.6 million. The increase in non-interest bearing checking accounts occurred primarily insmall business checking accounts ($3.8 million) and municipal checking accounts ($2.0 million). Interest bearing checking increased by $10.1 million, primarily from commercial deposits.  The Bank’s Money Management product increased $30.1 million due primarily to an increase in commercial deposits.  Retail time deposits decreased since year-end, as customers moved funds to more liquid accounts.  As of March 31, 2014, the Bank had $5.1 million in CDARS reciprocal time deposits included in brokered time deposits.  

						Change
(Dollars in thousands)	March 31, 2014		December 31, 2013			Amount	%
Noninterest-bearing checking	$	128,670	$	121,565	$	7,105	5.8
Interest-bearing checking		190,545		180,450		10,095	5.6
Money management		400,478		370,401		30,077	8.1
Savings		62,879		59,394		3,485	5.9
Total interest-bearing checking and savings		653,902		610,245		43,657	7.2
Retail time deposits		105,196		108,283		(3,087)	(2.9)
Brokered time deposits		5,117		5,631		(514)	(9.1)
Total time deposits		110,313		113,914		(3,601)	(3.2)
Total deposits	$	892,885	$	845,724	$	47,161	5.6
Overdrawn deposit accounts reclassified as loans	$	96	$	106

Borrowings:

The balance of securities sold under agreements to repurchase, which are accounted for as collateralized financings, decreased $7.9 million from year-end.  The Bank is transitioning customers from this product to a deposit sweep product, which provides full FDIC coverage.  This will free-up collateral that was required to cover these balances and will increase the Bank’s liquidity. The long-term debt from the FHLB decreased due to scheduled amortization. 

Shareholders’ Equity:

Total shareholders’ equity increased $2.3 million to $97.7 million at March 31, 2014, compared to $95.4 million at the end of 2013.  The increase in retained earnings from the Corporation’s net income of $1.8 million was partially offset by the cash dividend of $709 thousand. The Corporation’s dividend payout ratio is 38.8% for the first quarter of 2014 compared to 45.0% in 2013.  

As part of its quarterly dividend decision, the Corporation considers current and future income projections, dividend yield, payout ratio, and current and future capital ratios. In January 2014, the Board of Directors declared a $.17 per share regular quarterly dividend for the first quarter of 2014.  This compares to a regular quarterly cash dividend of $.17 paid in the first quarter of 2013.  

In addition, the Corporation considers how dividend decisions may affect the Dividend Reinvestment Plan (DRIP), which has raised $170 thousand in new capital this year with 9,795 new shares purchased.  The Corporation continually explores other sources of capital as part of its capital management plan for the Corporation and the Bank.  The Corporation did not repurchase any shares of the Corporation’s common stock during the first three months of 2014.  

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Capital adequacy is currently defined by regulatory agencies through the use of several minimum required ratios.  At March 31, 2014, the Corporation was well capitalized as defined by the banking regulatory agencies.  Regulatory capital ratios for the Corporation and the Bank are shown below:

			Regulatory Ratios
				Well Capitalized
(Dollars in thousands)	March 31, 2014	December 31, 2013	Minimum	Minimum
Total Risk-based Capital Ratio
Franklin Financial Services Corporation	14.53%	14.24%	8.00%	N/A
Farmers & Merchants Trust Company	14.08%	13.78%	8.00%	10.00%
Tier 1 Risk-based Capital Ratio
Franklin Financial Services Corporation	13.25%	12.97%	4.00%	N/A
Farmers & Merchants Trust Company	12.82%	12.52%	4.00%	6.00%
Tier 1 Leverage Ratio
Franklin Financial Services Corporation	9.26%	9.14%	4.00%	N/A
Farmers & Merchants Trust Company	8.94%	8.81%	4.00%	5.00%

Economy

The Corporation’s primary market area includes Franklin, Fulton, Cumberland and Huntingdon County, PA.  This area is diverse in demographic and economic makeup.  County populations range from a low of approximately 15,000 in Fulton County to over 220,000 in Cumberland County. Unemployment in the Bank’s market area has remained virtually unchanged over the past year and ranges from a low of 4.8% in Cumberland County to high of 7.4% in Fulton County.  The market area has a diverse economic base and local industries include, warehousing, truck & rail shipping centers, light and heavy manufacturers, health-care, higher education institutions, farming and agriculture, and a varied service sector.  The Corporation’s primary market area is located in south central Pennsylvania and provides easy access to the major metropolitan markets on the east coast via trucking and rail transportation. Because of this, warehousing and distribution companies continue to find the area attractive. The local economy is not overly dependent on any one industry or business and Management believes that the Bank’s primary market area continues to be well suited for growth as the recession eases.

The following provides selected economic data for the Bank’s primary market:

Economic Data

	March 31, 2014	December 31, 2013
Unemployment Rate (seasonally adjusted)
Market area range (1)	5.4% - 10.3%	5.9% - 9.2%
Pennsylvania	6.2%	7.3%
United States	6.7%	6.7%
Housing Price Index - year over year change
PA, nonmetropolitan statistical area	0.8%	1.3%
United States	4.8%	4.6%
Franklin County Building Permits - year over year change
Residential, estimated	16.0%	18.2%
Multifamily, estimated	-51.0%	-68.5%
(1) Franklin, Cumberland, Fulton and Huntingdon Counties

         Unlike many companies, the assets and liabilities of the Corporation are financial in nature. As such, interest rates and changes in interest rates may have a more significant effect on the Corporation’s financial results than on other types of industries. Because of this, the Corporation watches the actions of the Federal Reserve Open Market Committee

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(FOMC) as it makes decisions about interest rate changes. The FOMC continues to hold short-term rates at historic lows.  The FOMC recently announced that it would continue tits tapering of bond purchases that it began at the end of 2013.  In addition, it removed its unemployment target, but maintained the inflation target as it considers an increase in the Fed Funds rate.  These actions have led many analysts to believe that the FOMC will begin to increase rates in 2015.

Liquidity

The Corporation must meet the financial needs of the customers that it serves, while providing a satisfactory return on the shareholders’ investment.  In order to accomplish this, the Corporation must maintain sufficient liquidity in order to respond quickly to the changing level of funds required for both loan and deposit activity.  The goal of liquidity management is to meet the ongoing cash flow requirements of depositors who want to withdraw funds and of borrowers who request loan disbursements. The Bank regularly reviews it liquidity position by measuring its projected net cash flows (in and out) at a 30 and 90-day interval.  The Bank stresses this measurement by assuming a level of deposit out-flows that have not historically been realized. In addition to this forecast, other funding sources are reviewed as a method to provide emergency funding if necessary.  The objective of this measurement is to identify the amount of cash that could be raised quickly without the need to liquidate assets.  The Bank also stresses its liquidity position utilizing different longer-term scenarios.  The varying degrees of stress create pressure on deposit flows in its local market, reduce access to wholesale funding and limit access of funds available through brokered deposit channels. In addition to stressing cash flow, specific liquidity risk indicators are monitored to help identify risk areas.  This analysis will help identify and quantify the potential cash surplus/deficit over a variety of time horizons to ensure the Bank has adequate funding resources.  Assumptions used for liquidity stress testing are subjective.  Should an evolving liquidity situation or business cycle present new data, potential assumption changes will be considered.  The Bank believes it can meet all anticipated liquidity demands.

Historically, the Corporation has satisfied its liquidity needs from earnings, repayment of loans and amortizing investment securities, maturing investment securities, loan` sales, deposit growth and its ability to access existing lines of credit.  All investment securities are classified as available for sale; therefore, securities that are not pledged as collateral for borrowings are an additional source of readily available liquidity, either by selling the security or, more preferably, to provide collateral for additional borrowing. At March 31, 2014, the Bank had approximately $105 million (fair value) in its investment portfolio pledged as collateral for deposits and Repos.  Another source of available liquidity for the Bank is a line of credit with the FHLB.  At March 31, 2014, the Bank had approximately $35 million available on this line of credit and $16 million of unsecured lines of credit at correspondent banks. At March 31, 2014, the Bank had an excess borrowing capacity of $233.2 million, which includes the amount available on the line of credit. 

The FHLB system has always been a major source of funding for community banks. The capital level of the Pittsburgh FHLB, and the entire FHLB system, has been strained due to the declining value of mortgage related assets. The Pittsburgh FHLB has already implemented steps to improve its capital position that included a suspension of its dividend and an end to its practice of redeeming members’ stock. Both of these actions are not favorable to the Bank. There are no indicators that lead the Bank to believe the FHLB will discontinue its lending function. If that were to occur, it would have a negative effect on the Bank and it is unlikely that the Bank could replace the level of FHLB funding in a short time. Another action that may be considered by FHLB to increase its capital is to have a capital call on its member banks. This would require the member banks to invest more capital into the FHLB when most banks would prefer not make such an investment. 

The Bank has established credit at the Federal Reserve Discount Window and as of quarter-end had the ability to borrow approximately $45 million. 

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Off Balance Sheet Commitments

The Corporation’s financial statements do not reflect various commitments that are made in the normal course of business, which may involve some liquidity risk.  These commitments consist mainly of unfunded loans and letters of credit made under the same standards as on-balance sheet instruments.  Because these instruments have fixed maturity dates, and because many of them will expire without being drawn upon, they do not generally present any significant liquidity risk to the Corporation.  Unused commitments and standby letters of credit totaled $233.2 million and $239.6 million, respectively, at March 31, 2014 and December 31, 2013.

The Corporation has entered into various contractual obligations to make future payments.  These obligations include time deposits, long-term debt, operating leases, deferred compensation and pension payments.  These amounts have not changed materially from those reported in the Corporation’s 2013 Annual Report on Form 10-K.

Item 3.  Quantitative and Qualitative Disclosures about Market Risk

There were no material changes in the Corporation’s exposure to market risk during the three months ended March 31, 2014. For more information on market risk refer to the Corporation’s 2013 Annual Report on Form 10-K.

Item 4.  Controls and Procedures

Evaluation of Controls and Procedures

The Corporation carried out an evaluation, under the supervision and with the participation of the Corporation’s management, including the Corporation’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of its disclosure controls and procedures, as defined in Exchange Act Rules 13a-15(e) and 15d-15(e). Based upon the evaluation, the Corporation’s Chief Executive Officer and Chief Financial Officer concluded that as of March 31, 2014, the Corporation’s disclosure controls and procedures are effective. Disclosure controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed in the Corporation’s reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

The management of the Corporation is responsible for establishing and maintaining adequate internal control over financial reporting. The Corporation’s internal control system is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Part II – OTHER INFORMATION

Item 1.Legal Proceedings

The nature of the Corporation’s business generates a certain amount of litigation involving matters arising in the ordinary course of business.  However, in management’s opinion, there are no proceedings pending to which the Corporation is a party or to which our property is subject, which, if determined adversely to the Corporation, would be material in relation to our shareholders’ equity or financial condition.  In addition, no material proceedings are pending or are known to be threatened or contemplated against us by governmental authorities or other parties.

Item 1A. Risk Factors 

There were no material changes in the Corporation’s risk factors during the three months ended March 31, 2014. For more information, refer to the Corporation’s 2013 Annual Report on Form 10-K.

45

Item 2.   Unregistered  Sales of Equity Securities and Use of Proceeds

None

Item 3.   Defaults by the Company on its Senior Securities

None

Item 4.   Mine Safety Disclosures

Not Applicable

Item 5.   Other Information

None

Item 6. Exhibits

Exhibits

3.1   Articles of Incorporation of the Corporation.  (Filed as Exhibit 3.1 to Annual Report on Form 10-K for the year ended December 31, 2005 and incorporated herein by reference.)

3.2   Bylaws of the Corporation. (Filed as Exhibit 99 to Current Report on Form 8-K filed on December 20, 2004 and incorporated herein by reference.)

31.1 Rule 13a – 14(a)/15d-14(a) Certifications – Principal Executive Officer

31.2 Rule 13a – 14(a)/15d-14(a) Certifications – Principal Financial Officer

32.1 Section 1350 Certifications – Principal Executive Officer

32.2 Section 1350 Certifications – Principal Financial Officer

101 Interactive Data File (XBRL)

46

FRANKLIN FINANCIAL SERVICES CORPORATION

and SUBSIDIARIES

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Franklin Financial Services Corporation

May 9, 2014	/s/ William E. Snell, Jr
	William E. Snell, Jr.
	President and Chief Executive Officer
	(Authorized Officer)

May 9, 2014	/s/ Mark R. Hollar
	Mark R. Hollar
	Treasurer and Chief Financial Officer
	(Principal Financial Officer)

47

EX-31.1

Exhibit 31.1

Rule 13a-14(a)/15d-14(a) Certifications

I, William E. Snell, Jr., certify that:

1. I have reviewed this quarterly report on Form 10-Q of Franklin Financial Services Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

a)All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting

Date:  May 9, 2014

/s/ William E. Snell, Jr.

William E. Snell, Jr.

President and Chief Executive Officer

EX-31.2

Exhibit 31.2

Rule 13a-14(a)/15d-14(a) Certifications

I, Mark R. Hollar, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Franklin Financial Services Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this  report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

a)All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting

Date:  May 9, 2014

/s/ Mark R. Hollar

Mark R. Hollar

Treasurer and Chief Financial Officer

EX-32.1

Exhibit 32.1

Certification Pursuant to 18 U.S.C. Section 1350,

As Adopted Pursuant to Section 906 of the Sarbanes–Oxley Act of 2002

In connection with the Quarterly Report of Franklin Financial Services Corporation (the “Corporation”) on Form 10-Q, for the period ending March 31, 2014, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, William E. Snell, Jr., Chief Executive Officer of the Corporation, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes–Oxley Act of 2002 that:

(1) The report fully complies with the requirements of Section 13(a) or 15(d) of the Securities and Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/ William E. Snell, Jr.

William E. Snell, Jr.

Chief Executive Officer

May 9, 2014

EX-32.2

Exhibit 32.2

Certification Pursuant to 18 U.S.C. Sections 1350,

As Adopted Pursuant to Section 906 of the Sarbanes–Oxley Act of 2002

In connection with the Quarterly Report of Franklin Financial Services Corporation (the “Corporation”) on Form 10-Q for the period ending March 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Mark R. Hollar, Chief Financial Officer of the Corporation, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes–Oxley Act of 2002 that:

(1) The report fully complies with the requirements of Section 13(a) or 15(d) of the Securities and Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/ Mark R. Hollar

Mark R. Hollar

Chief Financial Officer

May 9, 2014

XML

Loan Quality (Allowance For Loan Losses, By Loan Segment) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013	Dec. 31, 2013
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance, Beginning Balance	$ 9,702	$ 10,379
Charge-offs	(201)	(267)
Recoveries	46	28
Provision	198	803
Allowance, Ending Balance	9,745	10,943
Loans evaluated for allowance individually	29,873		30,044
Loans evaluated for allowance collectively	696,185		693,369
Total Loans	726,058		723,413
Allowance established for loans evaluated individually	1,215		1,100
Allowance established for loan evaluated collectively	8,530		8,602
Residential Real Estate First Liens [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance, Beginning Balance	1,108	913
Charge-offs	(16)
Recoveries	3	8
Provision	38	52
Allowance, Ending Balance	1,133	973
Loans evaluated for allowance individually	2,310		2,354
Loans evaluated for allowance collectively	162,799		159,685
Total Loans	165,109		162,039
Allowance established for loans evaluated individually			9
Allowance established for loan evaluated collectively	1,133		1,099
Residential Real Estate Junior Liens & Lines of Credit [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance, Beginning Balance	278	306
Charge-offs		(45)
Provision	(2)	35
Allowance, Ending Balance	276	296
Loans evaluated for allowance individually	51		50
Loans evaluated for allowance collectively	39,893		40,525
Total Loans	39,944		40,575
Allowance established for loan evaluated collectively	276		278
Residential Real Estate - Construction [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance, Beginning Balance	291	899
Charge-offs	(27)
Provision	110	(62)
Allowance, Ending Balance	374	837
Loans evaluated for allowance individually	530		537
Loans evaluated for allowance collectively	11,223		11,982
Total Loans	11,753		12,519
Allowance established for loan evaluated collectively	374		291
Commercial Real Estate [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance, Beginning Balance	5,571	6,450
Charge-offs	(114)	(171)
Provision	52	403
Allowance, Ending Balance	5,509	6,682
Loans evaluated for allowance individually	25,029		25,107
Loans evaluated for allowance collectively	297,421		304,266
Total Loans	322,450		329,373
Allowance established for loans evaluated individually	247		89
Allowance established for loan evaluated collectively	5,262		5,482
Commercial [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance, Beginning Balance	2,306	1,620
Charge-offs	(1)	(7)
Recoveries	20	7
Provision	(16)	352
Allowance, Ending Balance	2,309	1,972
Loans evaluated for allowance individually	1,953		1,996
Loans evaluated for allowance collectively	177,033		168,331
Total Loans	178,986		170,327
Allowance established for loans evaluated individually	968		1,002
Allowance established for loan evaluated collectively	1,341		1,304
Consumer [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance, Beginning Balance	148	191
Charge-offs	(43)	(44)
Recoveries	23	13
Provision	16	23
Allowance, Ending Balance	144	183
Loans evaluated for allowance collectively	7,816		8,580
Total Loans	7,816		8,580
Allowance established for loan evaluated collectively	$ 144		$ 148

XML

Fair Value Measurements And Fair Values Of Financial Instruments (Schedule Of Fair Value An A Nonrecurring Basis) (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2014		Dec. 31, 2013
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring	$ 4,122		$ 9,270
Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring	4,122		9,270
Impaired Loans [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring	3,054	[1]	8,588	[1]
Impaired Loans [Member] | Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring	3,054	[1]	8,588	[1]
Other Real Estate Owned [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring	892	[1]	498	[1]
Other Real Estate Owned [Member] | Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring	892	[1]	498	[1]
Mortgage Servicing Rights [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring	176		184
Mortgage Servicing Rights [Member] | Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring	$ 176		$ 184

[1] Includes assets directly charged-down to fair value during the year-to-date period.

XML

Fair Value Measurements And Fair Values Of Financial Instruments (Fair Value, By Balance Sheet Grouping) (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2014	Dec. 31, 2013
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Interest rate swaps	$ 474	$ 561
Carrying Amount [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and cash equivalents	79,381	40,745
Investment securities available for sale	161,626	159,674
Restricted stock	1,906	1,906
Loans held for sale	156	349
Net loans	716,313	713,711
Accrued interest receivable	2,812	3,087
Mortgage servicing rights	176	184
Deposits	892,885	845,724
Securities sold under agreements to repurchase	15,905	23,834
Long-term debt	12,401	12,403
Accrued interest payable	273	229
Interest rate swaps	474	561
Fair Value [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and cash equivalents	79,381	40,745
Investment securities available for sale	161,626	159,674
Restricted stock	1,906	1,906
Loans held for sale	156	349
Net loans	722,589	722,119
Accrued interest receivable	2,812	3,087
Mortgage servicing rights	176	184
Deposits	893,360	846,289
Securities sold under agreements to repurchase	15,905	23,834
Long-term debt	12,905	12,999
Accrued interest payable	273	229
Interest rate swaps	474	561
Level 1 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and cash equivalents	79,381	40,745
Investment securities available for sale	2,016	1,970
Level 2 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Investment securities available for sale	159,610	157,704
Restricted stock	1,906	1,906
Loans held for sale	156	349
Accrued interest receivable	2,812	3,087
Deposits	893,360	846,289
Securities sold under agreements to repurchase	15,095	23,834
Long-term debt	12,905	12,999
Accrued interest payable	273	229
Interest rate swaps	474	561
Level 3 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Net loans	722,589	722,119
Mortgage servicing rights	$ 176	$ 184

XML

Investments (Unrealized Gain (loss) On Investments) (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2014	Dec. 31, 2013
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	$ 160,947	$ 160,415
Gross Unrealized Gains	3,075	2,735
Gross Unrealized Losses	(2,396)	(3,476)
Fair Value	161,626	159,674
Equity Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	1,472	1,472
Gross Unrealized Gains	544	499
Gross Unrealized Losses		(1)
Fair Value	2,016	1,970
U.S. Government Agency Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	14,547	11,771
Gross Unrealized Gains	88	94
Gross Unrealized Losses	(96)	(114)
Fair Value	14,539	11,751
Municipal Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	55,531	56,861
Gross Unrealized Gains	1,568	1,400
Gross Unrealized Losses	(976)	(1,404)
Fair Value	56,123	56,857
Corporate Debt Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	1,001	1,002
Gross Unrealized Gains	1
Gross Unrealized Losses		(1)
Fair Value	1,002	1,001
Trust Preferred Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	5,928	5,922
Gross Unrealized Losses	(833)	(871)
Fair Value	5,095	5,051
Agency Mortgage-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	80,500	81,352
Gross Unrealized Gains	826	726
Gross Unrealized Losses	(444)	(1,051)
Fair Value	80,882	81,027
Private-Label Mortgage-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	1,918	1,984
Gross Unrealized Gains	48	16
Gross Unrealized Losses	(44)	(31)
Fair Value	1,922	1,969
Asset-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	50	51
Gross Unrealized Losses	(3)	(3)
Fair Value	$ 47	$ 48

XML

Loan Quality (Tables)

3 Months Ended

Mar. 31, 2014

Loan Quality [Abstract]

Allowance For Loan Losses, By Loan Segment

The following table presents, by class, the Allowance for Loan Losses (ALL) for the periods ended:

	Residential Real Estate 1-4 Family
			Junior Liens &				Commercial
(Dollars in thousands)	First Liens		Lines of Credit		Construction		Real Estate		Commercial		Consumer		Total
Allowance at December 31, 2013	$	1,108	$	278	$	291	$	5,571	$	2,306	$	148	$	9,702
Charge-offs		(16)		-		(27)		(114)		(1)		(43)		(201)
Recoveries		3		-		-		-		20		23		46
Provision		38		(2)		110		52		(16)		16		198
Allowance at March 31, 2014	$	1,133	$	276	$	374	$	5,509	$	2,309	$	144	$	9,745
Allowance at December 31, 2012	$	913	$	306	$	899	$	6,450	$	1,620	$	191	$	10,379
Charge-offs		-		(45)		-		(171)		(7)		(44)		(267)
Recoveries		8		-		-		-		7		13		28
Provision		52		35		(62)		403		352		23		803
Allowance at March 31, 2013	$	973	$	296	$	837	$	6,682	$	1,972	$	183	$	10,943

The following table presents, by class, loans that were evaluated for the ALL under the specific reserve (individually) and those that were evaluated under the general reserve (collectively) and the amount of the ALL established in each class as of March 31, 2014 and December 31, 2013:

	Residential Real Estate 1-4 Family
			Junior Liens &				Commercial
(Dollars in thousands)	First Liens		Lines of Credit		Construction		Real Estate		Commercial		Consumer		Total
March 31, 2014
Loans evaluated for allowance:
Individually	$	2,310	$	51	$	530	$	25,029	$	1,953	$	-	$	29,873
Collectively		162,799		39,893		11,223		297,421		177,033		7,816		696,185
Total	$	165,109	$	39,944	$	11,753	$	322,450	$	178,986	$	7,816	$	726,058
Allowance established for loans evaluated:
Individually	$	-	$	-	$	-	$	247	$	968	$	-	$	1,215
Collectively		1,133		276		374		5,262		1,341		144		8,530
Allowance at March 31, 2014	$	1,133	$	276	$	374	$	5,509	$	2,309	$	144	$	9,745
December 31, 2013
Loans evaluated for allowance:
Individually	$	2,354	$	50	$	537	$	25,107	$	1,996	$	-	$	30,044
Collectively		159,685		40,525		11,982		304,266		168,331		8,580		693,369
Total	$	162,039	$	40,575	$	12,519	$	329,373	$	170,327	$	8,580	$	723,413
Allowance established for loans evaluated:
Individually	$	9	$	-	$	-	$	89	$	1,002	$	-	$	1,100
Collectively		1,099		278		291		5,482		1,304		148		8,602
Allowance at December 31, 2013	$	1,108	$	278	$	291	$	5,571	$	2,306	$	148	$	9,702

Impaired Financing Receivables

The following table shows additional information about those loans considered to be impaired at March 31, 2014 and December 31, 2013:

	Impaired Loans
	With No Allowance				With Allowance
(Dollars in thousands)			Unpaid					Unpaid
	Recorded		Principal		Recorded		Principal		Related
March 31, 2014	Investment		Balance		Investment		Balance		Allowance
Residential Real Estate 1-4 Family
First liens	$	3,181	$	3,649	$	-	$	-	$	-
Junior liens and lines of credit		110		135		-		-		-
Total		3,291		3,784		-		-		-
Residential real estate - construction		530		553		-		-		-
Commercial real estate		23,607		28,724		1,468		2,362		247
Commercial		140		144		1,928		2,029		968
Consumer		-		-		-		-		-
Total	$	27,568	$	33,205	$	3,396	$	4,391	$	1,215

December 31, 2013
Residential Real Estate 1-4 Family
First liens	$	3,030	$	3,500	$	9	$	39	$	9
Junior liens and lines of credit		108		127		-		-		-
Total		3,138		3,627		9		39		9
Residential real estate - construction		537		556		-		-		-
Commercial real estate		24,188		30,334		966		1,043		89
Commercial		88		89		1,970		2,043		1,002
Consumer		-		-		-		-		-
Total	$	27,951	$	34,606	$	2,945	$	3,125	$	1,100

The following table shows the average of impaired loans and related interest income for the three months ended March 31, 2014 and 2013:

	Three Months Ended				Three Months Ended
	March 31, 2014				March 31, 2013
	Average		Interest		Average		Interest
(Dollars in thousands)	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
Residential Real Estate 1-4 Family
First liens	$	3,218	$	14	$	3,626	$	4
Junior liens and lines of credit		126		4		742		1
Total		3,344		18		4,368		5
Residential real estate - construction		532		5		556		-
Commercial real estate		25,665		244		30,087		38
Commercial		2,092		31		4,480		-
Consumer		-		-		-		-
Total	$	31,633	$	298	$	39,491	$	43

Aging Of Payments Of The Loan Portfolio

(Dollars in thousands)			Loans Past Due and Still Accruing										Total
	Current		30-59 Days		60-89 Days		90 Days+		Total		Non-Accrual		Loans
March 31, 2014
Residential Real Estate 1-4 Family
First liens	$	161,013	$	1,514	$	9	$	229	$	1,752	$	2,344	$	165,109
Junior liens and lines of credit		39,618		163		13		59		235		91		39,944
Total		200,631		1,677		22		288		1,987		2,435		205,053
Residential real estate - construction		10,641		373		209		-		582		530		11,753
Commercial real estate		300,573		2,912		-		-		2,912		18,965		322,450
Commercial		176,392		47		140		-		187		2,407		178,986
Consumer		7,703		93		13		7		113		-		7,816
Total	$	695,940	$	5,102	$	384	$	295	$	5,781	$	24,337	$	726,058

December 31, 2013
Residential Real Estate 1-4 Family
First liens	$	156,916	$	1,725	$	497	$	302	$	2,524	$	2,599	$	162,039
Junior liens and lines of credit		40,204		204		19		41		264		107		40,575
Total		197,120		1,929		516		343		2,788		2,706		202,614
Residential real estate - construction		11,458		523		-		-		523		538		12,519
Commercial real estate		309,531		634		-		207		841		19,001		329,373
Commercial		167,747		78		60		44		182		2,398		170,327
Consumer		8,430		117		23		10		150		-		8,580
Total	$	694,286	$	3,281	$	599	$	604	$	4,484	$	24,643	$	723,413

Internal Credit Rating For The Loan Portfolio

(Dollars in thousands)	Pass		Special Mention		Substandard		Doubtful		Total
March 31, 2014
Residential Real Estate 1-4 Family
First liens	$	156,291	$	2,513	$	6,305	$	-	$	165,109
Junior liens and lines of credit		39,548		40		356		-		39,944
Total		195,839		2,553		6,661		-		205,053
Residential real estate - construction		10,148		-		1,605		-		11,753
Commercial real estate		283,566		4,508		34,376		-		322,450
Commercial		163,184		3,228		12,574		-		178,986
Consumer		7,809		-		7		-		7,816
Total	$	660,546	$	10,289	$	55,223	$	-	$	726,058

December 31, 2013
Residential Real Estate 1-4 Family
First liens	$	150,762	$	3,653	$	7,624	$	-	$	162,039
Junior liens and lines of credit		40,102		66		407		-		40,575
Total		190,864		3,719		8,031		-		202,614
Residential real estate - construction		10,955		-		1,564		-		12,519
Commercial real estate		281,857		11,861		35,655		-		329,373
Commercial		154,888		3,393		12,046		-		170,327
Consumer		8,570		-		10		-		8,580
Total	$	647,134	$	18,973	$	57,306	$	-	$	723,413

Troubled Debt Restructuring Loans

The following table presents information on the Bank’s Troubled Debt Restructuring (TDR) loans:

					Troubled Debt Restructings
					That Have Defaulted on
(Dollars in thousands)	Troubled Debt Restructings				Modified Terms YTD
	Number of	Recorded			Number of	Recorded
	Contracts	Investment	Performing*	Nonperforming*	Contracts	Investment
March 31, 2014
Residential real estate - construction	1	$               530	$                    -	$                  530	-	$                     -
Residential real estate	5	608	608	-	-	-
Commercial real estate	12	15,723	14,188	1,535	-	-
Total	18	$          16,861	$          14,796	$               2,065	-	$                     -
December 31, 2013
Residential real estate - construction	1	$               537	$                    -	$                  537	-	$                     -
Residential real estate	5	625	625	-	-
Commercial real estate	12	15,877	14,318	1,559	-	-
Total	18	$          17,039	$          14,943	$               2,096	-	$                     -

*The performing status is determined by the loan’s compliance with the modified terms.

There were no new TDR loans made during 2014.

The following table reports TDR loans during 2013, concession granted and the recorded investmentas ofMarch 31, 2013:

	New During Period
	Number of	Pre-TDR	After-TDR	Recorded
Three Months Ended March 31, 2013	Contracts	Modification	Modification	Investment	Concession
Commercial real estate	1	$            2,444	$            2,731	$               2,727	multiple

XML

Financial Derivatives (Schedule Of Interest Rate Swap) (Details) (Interest Rate Swap Maturing 5/30/2013 [Member], USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2014
Interest Rate Swap Maturing 5/30/2013 [Member]
Derivative [Line Items]
Notional Amount	$ 10,000
Maturity Date	May 30, 2015
Fixed Interest Rate	3.87%
Variable Interest Rate	0.05%
Amount Expected to be Expensed into Earnings within the next 12 Months	$ 383

XML

Loan Quality (Internal Credit Rating For The Loan Portfolio) (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2014	Dec. 31, 2013
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	$ 726,058	$ 723,413
Pass [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	660,546	647,134
Special Mention [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	10,289	18,973
Substandard [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	55,223	57,306
Doubtful [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount
Residential Real Estate First Liens [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	165,109	162,039
Residential Real Estate First Liens [Member] | Pass [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	156,291	150,762
Residential Real Estate First Liens [Member] | Special Mention [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	2,513	3,653
Residential Real Estate First Liens [Member] | Substandard [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	6,305	7,624
Residential Real Estate First Liens [Member] | Doubtful [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount
Residential Real Estate Junior Liens & Lines of Credit [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	39,944	40,575
Residential Real Estate Junior Liens & Lines of Credit [Member] | Pass [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	39,548	40,102
Residential Real Estate Junior Liens & Lines of Credit [Member] | Special Mention [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	40	66
Residential Real Estate Junior Liens & Lines of Credit [Member] | Substandard [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	356	407
Residential Real Estate Junior Liens & Lines of Credit [Member] | Doubtful [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount
Residential Real Estate 1-4 Family [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	205,053	202,614
Residential Real Estate 1-4 Family [Member] | Pass [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	195,839	190,864
Residential Real Estate 1-4 Family [Member] | Special Mention [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	2,553	3,719
Residential Real Estate 1-4 Family [Member] | Substandard [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	6,661	8,031
Residential Real Estate 1-4 Family [Member] | Doubtful [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount
Residential Real Estate - Construction [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	11,753	12,519
Residential Real Estate - Construction [Member] | Pass [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	10,148	10,955
Residential Real Estate - Construction [Member] | Substandard [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	1,605	1,564
Residential Real Estate - Construction [Member] | Doubtful [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount
Commercial Real Estate [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	322,450	329,373
Commercial Real Estate [Member] | Pass [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	283,566	281,857
Commercial Real Estate [Member] | Special Mention [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	4,508	11,861
Commercial Real Estate [Member] | Substandard [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	34,376	35,655
Commercial Real Estate [Member] | Doubtful [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount
Commercial [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	178,986	170,327
Commercial [Member] | Pass [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	163,184	154,888
Commercial [Member] | Special Mention [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	3,228	3,393
Commercial [Member] | Substandard [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	12,574	12,046
Commercial [Member] | Doubtful [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount
Consumer [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	7,816	8,580
Consumer [Member] | Pass [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	7,809	8,570
Consumer [Member] | Substandard [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	7	10
Consumer [Member] | Doubtful [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount

XML

Investments (Schedule Of Unrealized Loss On Investments) (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2014 security	Dec. 31, 2013 security
Schedule of Available-for-sale Securities [Line Items]
Less than 12 months: Fair Value	$ 48,074	$ 61,158
Less than 12 months: Unrealized Losses	(878)	(2,107)
Less than 12 months: Count	50	70
12 months or more: Fair Value	20,705	16,191
12 months or more: Unrealized Losses	(1,518)	(1,369)
12 months or more: Count	34	28
Fair Value	68,779	77,349
Unrealized Losses	(2,396)	(3,476)
Count	84	98
Equity Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Less than 12 months: Fair Value		22
Less than 12 months: Unrealized Losses		(1)
Less than 12 months: Count		1
Fair Value		22
Unrealized Losses		(1)
Count		1
U.S. Government Agency Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Less than 12 months: Fair Value	4,051	3,971
Less than 12 months: Unrealized Losses	(37)	(85)
Less than 12 months: Count	5	7
12 months or more: Fair Value	5,593	3,807
12 months or more: Unrealized Losses	(59)	(29)
12 months or more: Count	11	7
Fair Value	9,644	7,778
Unrealized Losses	(96)	(114)
Count	16	14
Municipal Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Less than 12 months: Fair Value	12,526	16,770
Less than 12 months: Unrealized Losses	(483)	(1,022)
Less than 12 months: Count	16	24
12 months or more: Fair Value	5,762	3,160
12 months or more: Unrealized Losses	(493)	(382)
12 months or more: Count	9	4
Fair Value	18,288	19,930
Unrealized Losses	(976)	(1,404)
Count	25	28
Corporate Debt Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
12 months or more: Fair Value		1,001
12 months or more: Unrealized Losses		(1)
12 months or more: Count		1
Fair Value		1,001
Unrealized Losses		(1)
Count		1
Trust Preferred Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
12 months or more: Fair Value	5,095	5,051
12 months or more: Unrealized Losses	(833)	(871)
12 months or more: Count	7	7
Fair Value	5,095	5,051
Unrealized Losses	(833)	(871)
Count	7	7
Agency Mortgage-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Less than 12 months: Fair Value	31,497	40,395
Less than 12 months: Unrealized Losses	(358)	(999)
Less than 12 months: Count	29	38
12 months or more: Fair Value	3,371	2,213
12 months or more: Unrealized Losses	(86)	(52)
12 months or more: Count	4	4
Fair Value	34,868	42,608
Unrealized Losses	(444)	(1,051)
Count	33	42
Private-Label Mortgage-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
12 months or more: Fair Value	879	911
12 months or more: Unrealized Losses	(44)	(31)
12 months or more: Count	2	2
Fair Value	879	911
Unrealized Losses	(44)	(31)
Count	2	2
Asset-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
12 months or more: Fair Value	5	48
12 months or more: Unrealized Losses	(3)	(3)
12 months or more: Count	1	3
Fair Value	5	48
Unrealized Losses	$ (3)	$ (3)
Count	1	3

XML

Financial Derivatives (Schedule Of Effect Of Derivative Instruments On The Statement Of Income) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Derivative Instruments, Gain (Loss) [Line Items]
Amount of Gain or (Loss) Recognized in OCI net of tax on (Effective Portion)	$ 57	$ 120
Location of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)	Interest Expense	Interest Expense
Location of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)	Other income (expense)	Other income (expense)
Interest Expense [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)	(95)	(180)
Other Income (Expense) [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Amount of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion)

XML

Fair Value Measurements And Fair Values Of Financial Instruments (Schedule Of Fair Value, Assets And Liabilities Measured On Recurring Basis) (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2014	Dec. 31, 2013
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	$ 161,626	$ 159,674
Total assets	161,626	159,674
Interest rate swaps	474	561
Total liabilities	474	561
Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total assets	2,016	1,970
Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total assets	159,610	157,704
Interest rate swaps	474	561
Total liabilities	474	561
Equity Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	2,016	1,970
Equity Securities [Member] | Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	2,016	1,970
U.S. Government Agency Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	14,539	11,751
U.S. Government Agency Securities [Member] | Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	14,539	11,751
Municipal Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	56,123	56,857
Municipal Securities [Member] | Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	56,123	56,857
Corporate Debt Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	1,002	1,001
Corporate Debt Securities [Member] | Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	1,002	1,001
Trust Preferred Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	5,095	5,051
Trust Preferred Securities [Member] | Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	5,095	5,051
Agency Mortgage-Backed Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	80,882	81,027
Agency Mortgage-Backed Securities [Member] | Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	80,882	81,027
Private-Label Mortgage-Backed Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	1,922	1,969
Private-Label Mortgage-Backed Securities [Member] | Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	1,922	1,969
Asset-Backed Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	47	48
Asset-Backed Securities [Member] | Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	$ 47	$ 48

XML

Basis Of Presentation

3 Months Ended

Mar. 31, 2014

Basis Of Presentation [Abstract]

Basis Of Presentation

FRANKLIN FINANCIAL SERVICES CORPORATION and SUBSIDIARIES

UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 - Basis of Presentation

The consolidated financial statements include the accounts of Franklin Financial Services Corporation (the Corporation), and its wholly-owned subsidiaries, Farmers and Merchants Trust Company of Chambersburg (the Bank) and Franklin Future Fund Inc.  Farmers and Merchants Trust Company of Chambersburg is a commercial bank that has one wholly-owned subsidiary, Franklin Financial Properties Corp.  Franklin Financial Property Corp. holds real estate assets that are leased by the Bank. Franklin Future Fund Inc. is a non-bank investment company. The activities of non-bank entities are not significant to the consolidated totals.  All significant intercompany transactions and account balances have been eliminated.

In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the consolidated financial position, results of operations, and cash flows as of March 31, 2014, and for all other periods presented have been made.

Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted.  It is suggested that these consolidated financial statements be read in conjunction with the audited consolidated financial statements and notes thereto included in the Corporation’s 2013 Annual Report on Form 10-K.  The consolidated results of operations for the period ended March 31, 2014 are not necessarily indicative of the operating results for the full year.  Management has evaluated subsequent events for potential recognition and/or disclosure through the date these consolidated financial statements were issued.

The consolidated balance sheet at December 31, 2013 has been derived from the audited consolidated financial statements at that date, but does not include all of the information and footnotes required by GAAP for complete consolidated financial statements.

For purposes of reporting cash flows, cash and cash equivalents include cash and due from banks, interest-bearing deposits in other banks and federal funds sold.  Generally, federal funds are purchased and sold for one-day periods. 

Earnings per share are computed based on the weighted average number of shares outstanding during each period end.  A reconciliation of the weighted average shares outstanding used to calculate basic earnings per share and diluted earnings per share follows:

	For the Three Months Ended
	March 31
(Dollars and shares in thousands, except per share data)	2014		2013
Weighted average shares outstanding (basic)		4,172		4,112
Impact of common stock equivalents		5		6
Weighted average shares outstanding (diluted)		4,177		4,118
Anti-dilutive options excluded from calculation		40		58
Net income	$	1,826	$	1,551
Basic earnings per share	$	0.44	$	0.38
Diluted earnings per share	$	0.44	$	0.38

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Loan Quality (Troubled Debt Restructuring Loans) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended																						3 Months Ended
	Mar. 31, 2014 contract	Dec. 31, 2013 contract	Mar. 31, 2014 Performing [Member]		Dec. 31, 2013 Performing [Member]		Mar. 31, 2014 Nonperforming [Member]		Dec. 31, 2013 Nonperforming [Member]		Mar. 31, 2014 Residential Real Estate - Construction [Member] contract	Dec. 31, 2013 Residential Real Estate - Construction [Member] contract	Mar. 31, 2014 Residential Real Estate - Construction [Member] Nonperforming [Member]		Dec. 31, 2013 Residential Real Estate - Construction [Member] Nonperforming [Member]		Mar. 31, 2014 Residential Real Estate 1-4 Family [Member] contract	Dec. 31, 2013 Residential Real Estate 1-4 Family [Member] contract	Mar. 31, 2014 Residential Real Estate 1-4 Family [Member] Performing [Member]		Dec. 31, 2013 Residential Real Estate 1-4 Family [Member] Performing [Member]		Mar. 31, 2013 Commercial Real Estate [Member] contract	Mar. 31, 2014 Commercial Real Estate [Member] contract	Dec. 31, 2013 Commercial Real Estate [Member] contract	Mar. 31, 2014 Commercial Real Estate [Member] Performing [Member]		Dec. 31, 2013 Commercial Real Estate [Member] Performing [Member]		Mar. 31, 2014 Commercial Real Estate [Member] Nonperforming [Member]		Dec. 31, 2013 Commercial Real Estate [Member] Nonperforming [Member]
Financing Receivable, Modifications [Line Items]
Troubled Debt Restructurings: Number of Contracts	18	18									1	1					5	5						12	12
Troubled Debt Restructurings: Recorded Investment	$ 16,861	$ 17,039	$ 14,796	[1]	$ 14,943	[1]	$ 2,065	[1]	$ 2,096	[1]	$ 530	$ 537	$ 530	[1]	$ 537	[1]	$ 608	$ 625	$ 608	[1]	$ 625	[1]		$ 15,723	$ 15,877	$ 14,188	[1]	$ 14,318	[1]	$ 1,535	[1]	$ 1,559	[1]
Troubled Debt Restructurings That Have Defaulted on Modified Terms YTD: Number of Contracts
Troubled Debt Restructurings That Have Defaulted on Modified Terms YTD: Recorded Investment
Troubled Debt Restructurings, New During Period, Number of Contracts	0																						1
Troubled Debt Restructurings, New During Period, Pre-TDR Modification																							2,444
Troubled Debt Restructurings, New During Period, After-TDR Modification																							2,731
Troubled Debt Restructurings, New During Period, Recorded Investment																							$ 2,727

[1] The performing status is determined by the loan’s compliance with the modified terms.

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Basis Of Presentation (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Basis Of Presentation [Abstract]
Weighted average shares outstanding (basic)	4,172	4,112
Impact of common stock equivalents	5	6
Weighted average shares outstanding (diluted)	4,177	4,118
Anti-dilutive options excluded from calculation	40	58
Net income	$ 1,826	$ 1,551
Basic earnings per share	$ 0.44	$ 0.38
Diluted earnings per share	$ 0.44	$ 0.38

XML

Financial Derivatives (Tables)

3 Months Ended

Mar. 31, 2014

Financial Derivatives [Abstract]

Schedule Of Interest Rate Swap

(Dollars in thousands)						Amount Expected to
						be Expensed into
Notional		Maturity	Interest Rate			Earnings within the
Amount		Date	Fixed	Variable		next 12 Months
$	10,000	5/30/2015	3.87%	0.05%	$	383

Schedule Of Fair Value Of Derivative Instruments

Fair Value of Derivative Instruments
(Dollars in thousands)		Balance Sheet
Date	Type	Location	Fair Value
March 31, 2014	Interest rate contracts	Other liabilities	$	474
December 31, 2013	Interest rate contracts	Other liabilities	$	561

Schedule Of Effect Of Derivative Instruments On The Statement Of Income

Derivatives in ASC Topic 815 Cash Flow Hedging Relationships
(Dollars in thousands)							Amount of Gain
						Location of	or (Loss)
						Gain or (Loss)	Recognized in
						Recognized in	Income on
			Location of	Amount of Gain		Income on	Derivatives
	Amount of Gain		Gain or (Loss)	or (Loss)		Derivative (Ineffective	(Ineffective Portion
	or (Loss)		Reclassified from	Reclassified from		Portion and Amount	and Amount
	Recognized in OCI		Accumulated OCI	Accumulated OCI		Excluded from	Excluded from
	net of tax on Derivative		into Income	into Income		Effectiveness	Effectiveness
Date / Type	(Effective Portion)		(Effective Portion)	(Effective Portion)		Testing)	Testing)
Interest rate contracts
March 31, 2014	$	57	Interest Expense	$	(95)	Other income (expense)	$	-
March 31, 2013	$	120	Interest Expense	$	(180)	Other income (expense)	$	-

Schedule Of Derivative Instruments Subject To Master Netting Arrangement Or Repurchase Agreement

						Net Amounts		Gross Amounts Not Offset in the
		Gross		Gross Amounts		of Liabilities		Statements of Condition
		Amounts of		Offset in the		Presented in the
		Recognized		Statements of		Statements of		Financial		Cash Collateral		Net
(Dollars in thousands)		Liabilities		Condition		Condition		Instruments		Pledged		Amount
Interest Rate Swap Agreements
March 31, 2014	$	474	$	-	$	474	$	474	$	-	$	-
December 31, 2013	$	561	$	-	$	561	$	561	$	-	$	-

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Pension (Narrative) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2014
Pension [Abstract]
Defined Benefit Plan, Expected Future Benefit Payments, Remainder of Fiscal Year		$ 275
Pension Expense	$ 560

XML

Accumulated Other Comprehensive Loss (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2014	Dec. 31, 2013
Accumulated Other Comprehensive Loss [Abstract]
Net unrealized gains (losses) on securities	$ 679	$ (741)
Tax effect	(231)	252
Net of tax amount	448	(489)
Net unrealized losses on derivatives	(474)	(561)
Tax effect	161	191
Net of tax amount	(313)	(370)
Accumulated pension adjustment	(5,814)	(5,814)
Tax effect	1,977	1,977
Net of tax amount	(3,837)	(3,837)
Total accumulated other comprehensive loss	$ (3,702)	$ (4,696)

XML

Guarantees (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Dec. 31, 2013
Guarantees [Abstract]
Standby Letters of Credit Outstanding	$ 20.4	$ 20.2
Letters of credit, Expiration period	1 year

XML

Consolidated Statements Of Cash Flows (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Cash flows from operating activities
Net income	$ 1,826	$ 1,551
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	372	385
Net amortization of loans and investment securities	428	461
Amortization and net change in mortgage servicing rights valuation	8	50
Amortization of intangibles	104	106
Provision for loan losses	198	803
Loans originated for sale	(1,443)	(2,648)
Proceeds from sale of loans	1,636	2,388
Writedown on other real estate owned	120
Net loss on sale or disposal of other real estate/other repossessed assets	2
Increase in cash surrender value of life insurance	(143)	(152)
Decrease in other assets	185	69
Increase in other liabilities	440	412
Other, net	(94)	747
Net cash provided by operating activities	3,639	4,172
Cash flows from investing activities
Proceeds from maturities and paydowns of securities available for sale	5,844	9,853
Purchase of investment securities available for sale	(6,816)	(11,620)
Net decrease in restricted stock		521
Net (increase) decrease in loans	(2,787)	6,859
Proceeds from sale of other real estate/other repossessed assets	279
Capital expenditures	(218)	(222)
Net cash (used in) provided by in investing activities	(3,698)	5,391
Cash flows from financing activities
Net increase in demand deposits, NOW and savings accounts	50,762	28,138
Net decrease in time deposits	(3,601)	(400)
Net decrease in repurchase agreements	(7,929)	(2,844)
Long-term debt payments	(2)	(2)
Dividends paid	(709)	(698)
Treasury stock issued under stock option plans	4	3
Common stock issued under dividend reinvestment plan	170	193
Net cash provided by financing activities	38,695	24,390
Increase in cash and cash equivalents	38,636	33,953
Cash and cash equivalents as of January 1	40,745	77,834
Cash and cash equivalents as of March 31	79,381	111,787
Supplemental Disclosures of Cash Flow Information
Cash paid during the year for: Interest on deposits and other borrowed funds	786	1,121
Cash paid during the year for: Income taxes	20
Noncash Activities
Loans transferred to Other Real Estate		$ 293

XML

Investments (Narrative) (Details) (USD $)	3 Months Ended
	Mar. 31, 2014 security	Dec. 31, 2013 security
Schedule of Available-for-sale Securities [Line Items]
Securities pledged as collateral	$ 104,800,000	$ 107,600,000
Number of temporarily impaired securities	84	98
Fair value of temporarily impaired securities	68,779,000	77,349,000
Unrealized losses	2,396,000	3,476,000
Other Than Temporary Impairment Losses, Investments Available-for-Sale Securities, Portion Recognized In Earnings, Net, Qualitative Disclosures Methodology	The PLMBS sector shows a gross unrealized loss of $44 thousand. These bonds were all rated AAA at time of purchase, but have since experienced rating declines. Some have experienced increased delinquencies and defaults, while others have seen the credit support increase as the bonds paid-down. The Bank monitors the performance of the PLMBS investments on a regular basis and reviews delinquencies, default rates, credit support levels and various cash flow stress test scenarios. In determining the credit related loss, Management considers all principal past due 60 days or more as a loss. If additional principal moves beyond 60 days past due, it will also be considered a loss. As a result of the analysis on PLMBS it was determined that no impairment charge was required at quarter end. The Bank has recorded $515 thousand of cumulative impairment charges on this portfolio. Management continues to monitor these securities and it is possible that additional write-downs may occur if current loss trends continue. The Bank is currently participating in a class-action lawsuit against one PLMBS servicer that centers on defective warranties and representations made as part of the underwriting process.
Restricted stock	1,906,000	1,906,000
Municipal Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Number of temporarily impaired securities	25	28
Fair value of temporarily impaired securities	18,288,000	19,930,000
Unrealized losses	976,000	1,404,000
Change in unrealized losses	400,000
Trust Preferred Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Gross Unrealized Gain (Loss)	833,000
Number of temporarily impaired securities	7	7
Fair value of temporarily impaired securities	5,095,000	5,051,000
Unrealized losses	833,000	871,000
Investment Maturity Year Range Start	2027
Investment Maturity Year Range End	2028
Private-Label Mortgage-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Gross Unrealized Gain (Loss)	(4,000)
Cumulative OTTI Charges	515,000
Number of temporarily impaired securities	2	2
Fair value of temporarily impaired securities	879,000	911,000
Unrealized losses	44,000	31,000
Non FHLB Stock [Member]
Schedule of Available-for-sale Securities [Line Items]
Restricted stock	$ 30,000
Restricted Stock - FHLB Pittsburgh [Member]
Schedule of Available-for-sale Securities [Line Items]
Restricted Stock Cost	$ 100

XML

Loan Quality (Impaired Financing Receivables) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013	Dec. 31, 2013
Financing Receivable, Impaired [Line Items]
Recorded Investment With No Allowance	$ 27,568		$ 27,951
Unpaid Principal Balance With No Allowance	33,205		34,606
Recorded Investment With Allowance	3,396		2,945
Unpaid Principal Balance With Allowance	4,391		3,125
Related Allowance	1,215		1,100
Average Recorded Investment	31,633	39,491
Interest Income Recognized	298	43
Residential Real Estate First Liens [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment With No Allowance	3,181		3,030
Unpaid Principal Balance With No Allowance	3,649		3,500
Recorded Investment With Allowance			9
Unpaid Principal Balance With Allowance			39
Related Allowance			9
Average Recorded Investment	3,218	3,626
Interest Income Recognized	14	4
Residential Real Estate Junior Liens & Lines of Credit [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment With No Allowance	110		108
Unpaid Principal Balance With No Allowance	135		127
Average Recorded Investment	126	742
Interest Income Recognized	4	1
Residential Real Estate 1-4 Family [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment With No Allowance	3,291		3,138
Unpaid Principal Balance With No Allowance	3,784		3,627
Recorded Investment With Allowance			9
Unpaid Principal Balance With Allowance			39
Related Allowance			9
Average Recorded Investment	3,344	4,368
Interest Income Recognized	18	5
Residential Real Estate - Construction [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment With No Allowance	530		537
Unpaid Principal Balance With No Allowance	553		556
Average Recorded Investment	532	556
Interest Income Recognized	5
Commercial Real Estate [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment With No Allowance	23,607		24,188
Unpaid Principal Balance With No Allowance	28,724		30,334
Recorded Investment With Allowance	1,468		966
Unpaid Principal Balance With Allowance	2,362		1,043
Related Allowance	247		89
Average Recorded Investment	25,665	30,087
Interest Income Recognized	244	38
Commercial [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment With No Allowance	140		88
Unpaid Principal Balance With No Allowance	144		89
Recorded Investment With Allowance	1,928		1,970
Unpaid Principal Balance With Allowance	2,029		2,043
Related Allowance	968		1,002
Average Recorded Investment	2,092	4,480
Interest Income Recognized	31
Consumer [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment With No Allowance
Unpaid Principal Balance With No Allowance
Recorded Investment With Allowance
Unpaid Principal Balance With Allowance
Related Allowance
Average Recorded Investment
Interest Income Recognized

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Financial Derivatives (Schedule Of Derivative Instruments Subject To Master Netting Arrangement Or Repurchase Agreement) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended	12 Months Ended
	Mar. 31, 2014	Dec. 31, 2013
Financial Derivatives [Abstract]
Gross Amounts of Recognized Liabilities	$ 474	$ 561
Gross Amounts Offset in the Statements of Condition	0	0
Net Amounts of Liabilities Presented in the Statements of Condition	474	561
Gross Amounts Not Offset in the Statements of Condition	474	561
Gross Amounts Not Offset in the Statements of Condition, Cash Collateral Pledged	$ 0	$ 0

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Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Mar. 31, 2014	Dec. 31, 2013
Assets
Cash and due from banks	$ 16,806	$ 13,542
Interest-bearing deposits in other banks	62,575	27,203
Total cash and cash equivalents	79,381	40,745
Investment securities available for sale, at fair value	161,626	159,674
Restricted stock	1,906	1,906
Loans held for sale	156	349
Loans	726,058	723,413
Allowance for loan losses	(9,745)	(9,702)
Net Loans	716,313	713,711
Premises and equipment, net	16,006	16,145
Bank owned life insurance	21,673	21,530
Goodwill	9,016	9,016
Other intangible assets	594	698
Other real estate owned	4,307	4,708
Deferred tax assets, net	5,065	5,445
Other assets	10,408	10,660
Total assets	1,026,451	984,587
Deposits
Noninterest-bearing checking	128,670	121,565
Money management, savings and interest checking	653,902	610,245
Time	110,313	113,914
Total Deposits	892,885	845,724
Securities sold under agreements to repurchase	15,905	23,834
Long-term debt	12,401	12,403
Other liabilities	7,587	7,238
Total liabilities	928,778	889,199
Stockholders' equity
Common stock, $1 par value per share,15,000,000 shares authorized with 4,570,495 shares issued and 4,178,691 shares outstanding at March 31, 2014 and 4,560,700 shares issued and 4,168,673 shares outstanding at December 31, 2013	4,571	4,561
Capital stock without par value, 5,000,000 shares authorized with no shares issued and outstanding
Additional paid-in capital	36,796	36,636
Retained earnings	67,014	65,897
Accumulated other comprehensive loss	(3,702)	(4,696)
Treasury stock, 391,804 at March 31, 2014 and 392,027 shares at December 31, 2013, at cost	(7,006)	(7,010)
Total shareholders' equity	97,673	95,388
Total liabilities and shareholders' equity	$ 1,026,451	$ 984,587

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Pension (Schedule Of Net Periodic Pension Costs) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Pension [Abstract]
Service cost	$ 86	$ 114
Interest cost	197	179
Expected return on plan assets	(290)	(312)
Recognized net actuarial loss	82	159
Net period cost	$ 75	$ 140

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Consolidated Statements Of Changes In Shareholders' Equity (USD $) In Thousands	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	Accumulated Other Comprehensive Loss [Member]	Treasury Stock [Member]	Total
Balance at Dec. 31, 2012	$ 4,503	$ 35,788	$ 62,475	$ (4,050)	$ (7,082)	$ 91,634
Net income			1,551			1,551
Other comprehensive income				237		237
Cash dividends declared			(698)			(698)
Treasury shares issued under stock option plans		(1)			4	3
Common stock issued under dividend reinvestment plan	13	180				193
Balance at Mar. 31, 2013	4,516	35,967	63,328	(3,813)	(7,078)	92,920
Balance at Dec. 31, 2013	4,561	36,636	65,897	(4,696)	(7,010)	95,388
Net income			1,826			1,826
Other comprehensive income				994		994
Cash dividends declared			(709)			(709)
Treasury shares issued under stock option plans					4	4
Common stock issued under dividend reinvestment plan	10	160				170
Balance at Mar. 31, 2014	$ 4,571	$ 36,796	$ 67,014	$ (3,702)	$ (7,006)	$ 97,673

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Investments (Schedule Of Trust Preferred Securities) (Details) (USD $) In Thousands, unless otherwise specified			3 Months Ended
	Mar. 31, 2014	Dec. 31, 2013	Mar. 31, 2014 Trust Preferred Securities: Huntington Cap Trust [Member] Lowest Credit Rating Assigned: Standard & Poor's, BB+ Rating [Member]	Mar. 31, 2014 Trust Preferred Securities: Huntington Cap Trust II [Member] Lowest Credit Rating Assigned: Standard & Poor's, BB+ Rating [Member]	Mar. 31, 2014 Trust Preferred Securities: BankAmerica Cap III [Member] Lowest Credit Rating Assigned: Standard & Poor's, BB+ Rating [Member]	Mar. 31, 2014 Trust Preferred Securities: Wachovia Cap Trust II [Member] Lowest Credit Rating Assigned: Standard & Poor's, BBB+ Rating [Member]	Mar. 31, 2014 Trust Preferred Securities: Corestates Captl Tr II [Member] Lowest Credit Rating Assigned: Standard & Poor's, BBB+ Rating [Member]	Mar. 31, 2014 Trust Preferred Securities: Chase Cap VI JPM [Member] Lowest Credit Rating Assigned: Standard & Poor's, BBB Rating [Member]	Mar. 31, 2014 Trust Preferred Securities: Fleet Cap Tr V [Member] Lowest Credit Rating Assigned: Standard & Poor's, BB+ Rating [Member]	Mar. 31, 2014 Trust Preferred Securities [Member]	Dec. 31, 2013 Trust Preferred Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Single Issuer or Polled			Single	Single	Single	Single	Single	Single	Single
Class			Preferred Stock	Preferred Stock	Preferred Stock	Preferred Stock	Preferred Stock	Preferred Stock	Preferred Stock
Amortized Cost	$ 160,947	$ 160,415	$ 937	$ 886	$ 961	$ 276	$ 933	$ 961	$ 974	$ 5,928	$ 5,922
Investment securities available for sale, at fair value	161,626	159,674	811	780	795	245	830	830	804	5,095	5,051
Gross Unrealized Gain (Loss)			$ (126)	$ (106)	$ (166)	$ (31)	$ (103)	$ (131)	$ (170)	$ (833)
Lowest Credit Rating Assigned			BB+	BB+	BB+	BBB+	BBB+	BBB	BB+
Number of Banks Currently Performing			1	1	1	1	1	1	1
Deferrals and Defaults as % of Original Collateral			0.00%	0.00%	0.00%	0.00%	0.00%	0.00%	0.00%
Expected Deferral/Defaults as a Percentage of Remaining Performing Collateral			0.00%	0.00%	0.00%	0.00%	0.00%	0.00%	0.00%

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Accumulated Other Comprehensive Loss (Tables)

3 Months Ended

Mar. 31, 2013

Accumulated Other Comprehensive Loss [Abstract]

Schedule Of Accumulated Other Comprehensive Loss

	March 31,		December 31,
	2014		2013
(Dollars in thousands)
Net unrealized gains (losses) on securities	$	679	$	(741)
Tax effect		(231)		252
Net of tax amount		448		(489)
Net unrealized losses on derivatives		(474)		(561)
Tax effect		161		191
Net of tax amount		(313)		(370)
Accumulated pension adjustment		(5,814)		(5,814)
Tax effect		1,977		1,977
Net of tax amount		(3,837)		(3,837)
Total accumulated other comprehensive loss	$	(3,702)	$	(4,696)

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Investments (Private Label Mortgage Backed Securities) (Details) (USD $) In Thousands, unless otherwise specified			3 Months Ended
	Mar. 31, 2014	Dec. 31, 2013	Mar. 31, 2014 RALI2004-QS4 A7 [Member] Lowest Credit Rating Assigned: Standard & Poor's, BBB+ Rating [Member]	Mar. 31, 2014 MALT2004-6 7A1 [Member] Lowest Credit Rating Assigned: Standard & Poor's, CCC Rating [Member]	Mar. 31, 2014 RALI2005-QS2 A1 [Member] Lowest Credit Rating Assigned: Standard & Poor's, C Rating [Member]	Mar. 31, 2014 RALI2006-QS4 A2 [Member] Lowest Credit Rating Assigned: Standard & Poor's, D Rating [Member]	Mar. 31, 2014 GSR 2006-5F 2A1 [Member] Lowest Credit Rating Assigned: Standard & Poor's, D Rating [Member]	Mar. 31, 2014 RALI2006-QS8 A1 [Member] Lowest Credit Rating Assigned: Standard & Poor's, D Rating [Member]	Mar. 31, 2014 Private-Label Mortgage-Backed Securities [Member]	Dec. 31, 2013 Private-Label Mortgage-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Origination Date			Mar. 01, 2004	Jun. 01, 2004	Feb. 01, 2005	Apr. 01, 2006	May 01, 2006	Jul. 28, 2006
Amortized Cost	$ 160,947	$ 160,415	$ 157	$ 426	$ 318	$ 593	$ 94	$ 330	$ 1,918	$ 1,984
Investment securities available for sale, at fair value	161,626	159,674	164	446	331	565	102	314	1,922	1,969
Gross Unrealized Gain (Loss)			7	20	13	(28)	8	(16)	4
Collateral Type			ALT A	ALT A	ALT A	ALT A	Prime	ALT A
Lowest Credit Rating Assigned to Private Label Mortgage Backed Securities			BBB+	CCC	C	D	D	D
Credit Support %			12.55%	14.26%	5.82%
Cumulative OTTI Charges					$ 10	$ 293	$ 15	$ 197	$ 515

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Loans (Tables)

3 Months Ended

Mar. 31, 2014

Loans [Abstract]

Schedule Of Loans Outstanding

						Change
(Dollars in thousands)	March 31, 2014			December 31, 2013		Amount	%
Residential Real Estate 1-4 Family
Consumer first liens	$	103,107	$	103,573	$	(466)	(0.4)
Consumer junior liens and lines of credit		34,606		34,636		(30)	(0.1)
Total consumer		137,713		138,209		(496)	(0.4)
Commercial first lien		62,002		58,466		3,536	6.0
Commercial junior liens and lines of credit		5,338		5,939		(601)	(10.1)
Total commercial		67,340		64,405		2,935	4.6
Total residential real estate 1-4 family		205,053		202,614		2,439	1.2
Residential real estate - construction
Consumer		3,188		3,960		(772)	(19.5)
Commercial		8,565		8,559		6	0.1
Total residential real estate construction		11,753		12,519		(766)	(6.1)
Commercial real estate		322,450		329,373		(6,923)	(2.1)
Commercial		178,986		170,327		8,659	5.1
Total commercial		501,436		499,700		1,736	0.3
Consumer		7,816		8,580		(764)	(8.9)
		726,058		723,413		2,645	0.4
Less: Allowance for loan losses		(9,745)		(9,702)		(43)	(0.4)
Net Loans	$	716,313	$	713,711	$	2,602	0.4
Included in the loan balances are the following:
Net unamortized deferred loan costs	$	446	$	372
Unamortized discount on purchased loans	$	(74)	$	(92)
Loans pledged as collateral for borrowings and commitments from:
FHLB	$	582,983	$	607,524
Federal Reserve Bank		64,669		45,809
	$	647,652	$	653,333

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Consolidated Statements Of Changes In Shareholders' Equity (Parenthetical) (USD $)	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Common Stock, Dividends, Per Share, Declared	$ 0.17	$ 0.17
Treasury shares issued under stock option plan, shares	223	204
Common Stock [Member]
Common stock issued under dividend reinvestment plan, shares	9,795	12,633

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Consolidated Balance Sheets (Parenthetical) (USD $)	Mar. 31, 2014	Dec. 31, 2013
Consolidated Balance Sheets [Abstract]
Common Stock, Par or Stated Value Per Share	$ 1	$ 1
Common Stock, Shares Authorized	15,000,000	15,000,000
Common Stock, Shares, Issued	4,570,495	4,560,700
Common Stock, Shares, Outstanding	4,178,691	4,168,673
Capital stock, no par value	$ 0	$ 0
Capital Stock, Shares Authorized	5,000,000	5,000,000
Capital Stock, Shares, Issued	0	0
Capital Stock, Shares, Outstanding	0	0
Treasury Stock, Shares	391,804	392,027

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Fair Value Measurements And Fair Values Of Financial Instruments

3 Months Ended

Mar. 31, 2014

Fair Value Measurements And Fair Values Of Financial Instruments [Abstract]

Fair Value Measurements And Fair Values Of Financial Instruments

Note 9.  Fair Value Measurements and Fair Values of Financial Instruments

Management uses its best judgment in estimating the fair value of the Corporation’s financial instruments; however, there are inherent weaknesses in any estimation technique.  Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts the Corporation could have realized in a sales transaction on the dates indicated.  The estimated fair value amounts have been measured as of their respective year-ends and have not been re-evaluated or updated for purposes of these financial statements subsequent to those respective dates.  As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates maybe different than the amounts reported at each year-end.

FASB ASC Topic 820, “Financial Instruments”, requires disclosure of the fair value of financial assets and liabilities, including those financial assets and liabilities that are not measured and reported at fair value on a recurring and nonrecurring basis. The Corporation does not report any nonfinancial assets at fair value. FASB ASC Topic 820 establishes a fair value hierarchy that prioritizes the inputs to valuation methods used to measure fair value.  The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).  The three levels of the fair value hierarchy under FASB ASC Topic 820 are as follows:

Level 1: Valuation is based on unadjusted, quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2:  Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.  There may be substantial differences in the assumptions used for securities within the same level.  For example, prices for U.S. Agency securities have fewer assumptions and are closer to level 1 valuations than the private label mortgage backed securities that require more assumptions and are closer to level 3 valuations.

Level 3: Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect the Corporation’s assumptions regarding what market participants would assume when pricing a financial instrument. 

An asset’s or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

The following methods and assumptions were used to estimate the fair values of the Corporation’s financial instruments at March 31, 2014 and December 31, 2013.

Cash and Cash Equivalents:  For these short-term instruments, the carrying amount is a reasonable estimate of fair value.

Investment securities:  The fair value of investment securities is determined in accordance with the methods described under FASB ASC Topic 820 as discussed below.

Restricted stock:  The carrying value of restricted stock approximates its fair value based on redemption provisions for the restricted stock.

Loans held for sale: The fair value of loans held for sale is determined by the price set between the Bank and the purchaser prior to origination. These loans are usually sold at par.

Net loans:  The fair value of fixed-rate loans is estimated for each major type of loan (e.g. real estate, commercial, industrial and agricultural and consumer) by discounting the future cash flows associated with such loans using rates currently offered for loans with similar terms to borrowers of comparable credit quality.  The model considers scheduled principal maturities, repricing characteristics, prepayment assumptions and interest cash flows.  The discount rates used are estimated based upon consideration of a number of factors including the treasury yield curve, expense and service charge factors. For variable rate loans that reprice frequently and have no significant change in credit quality, carrying values approximate the fair value.

Accrued Interest Receivable:  The carrying amount is a reasonable estimate of fair value.

Mortgage servicing rights:  The fair value of mortgage servicing rights is based on observable market prices when available or the present value of expected future cash flows when not available.  Assumptions such as loan default rates, costs to service, and prepayment speeds significantly affect the estimate of future cash flows. Mortgage servicing rights are carried at the lower of cost or fair value.

Deposits, Securities sold under agreements to repurchase and Long-term debt:  The fair value of demand deposits, savings accounts, and money market deposits is the amount payable on demand at the reporting date.  The fair value of fixed-rate certificates of deposit and long-term debt is estimated by discounting the future cash flows using rates approximating those currently offered for certificates of deposit and borrowings with similar remaining maturities.  For securities sold under agreements to repurchase, the carrying value approximates a reasonable estimate of the fair value.

Accrued interest payable:  The carrying amount is a reasonable estimate of fair value.

Derivatives:  The fair value of the interest rate swaps is based on other similar financial instruments and is classified as Level 2.

The following information regarding the fair value of the Corporation’s financial instruments should not be interpreted as an estimate of the fair value of the entire Corporation since a fair value calculation is only provided for a limited portion of the Corporation’s assets and liabilities.  Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Corporation’s disclosures and those of other companies may not be meaningful. 

The fair value of the Corporation's financial instruments are as follows:

	March 31, 2014
	Carrying		Fair
(Dollars in thousands)	Amount		Value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	79,381	$	79,381	$	79,381	$	-	$	-
Investment securities available for sale		161,626		161,626		2,016		159,610		-
Restricted stock		1,906		1,906		-		1,906		-
Loans held for sale		156		156		-		156		-
Net loans		716,313		722,589		-		-		722,589
Accrued interest receivable		2,812		2,812		-		2,812		-
Mortgage servicing rights		176		176		-		-		176
Financial liabilities:
Deposits	$	892,885	$	893,360	$	-	$	893,360	$	-
Securities sold under agreements to repurchase		15,905		15,905		-		15,095		-
Long-term debt		12,401		12,905		-		12,905		-
Accrued interest payable		273		273		-		273		-
Interest rate swaps		474		474		-		474		-
	December 31, 2013
	Carrying		Fair
(Dollars in thousands)	Amount		Value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	40,745	$	40,745	$	40,745	$	-	$	-
Investment securities available for sale		159,674		159,674		1,970		157,704		-
Restricted stock		1,906		1,906		-		1,906		-
Loans held for sale		349		349		-		349		-
Net loans		713,711		722,119		-		-		722,119
Accrued interest receivable		3,087		3,087		-		3,087		-
Mortgage servicing rights		184		184		-		-		184
Financial liabilities:
Deposits	$	845,724	$	846,289	$	-	$	846,289	$	-
Securities sold under agreements to repurchase		23,834		23,834		-		23,834		-
Long-term debt		12,403		12,999		-		12,999		-
Accrued interest payable		229		229		-		229		-
Interest rate swaps		561		561		-		561		-

Recurring Fair Value Measurements

For financial assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used at March 31, 2014 and December 31, 2013 are as follows:

(Dollars in Thousands)	Fair Value at March 31, 2014
Asset  Description	Level 1		Level 2		Level 3		Total
Equity securities	$	2,016	$	-	$	-	$	2,016
Obligations of U.S. Government agencies		-		14,539		-		14,539
Obligations of state and political subdivisions		-		56,123		-		56,123
Corporate debt securities		-		1,002		-		1,002
Trust Preferred Securities		-		5,095		-		5,095
Agency mortgage-backed securities		-		80,882		-		80,882
Private-label mortgage-backed securities		-		1,922		-		1,922
Asset-backed securities		-		47		-		47
Total assets	$	2,016	$	159,610	$	-	$	161,626
Liability Description
Interest rate swaps	$	-	$	474	$	-	$	474
Total liabilities	$	-	$	474	$	-	$	474

(Dollars in Thousands)	Fair Value at December 31, 2013
Asset  Description	Level 1		Level 2		Level 3		Total
Equity securities	$	1,970	$	-	$	-	$	1,970
Obligations of U.S. Government agencies		-		11,751		-		11,751
Obligations of state and political subdivisions		-		56,857		-		56,857
Corporate debt securities		-		1,001		-		1,001
Trust Preferred Securities		-		5,051		-		5,051
Agency mortgage-backed securities		-		81,027		-		81,027
Private-label mortgage-backed securities		-		1,969		-		1,969
Asset-backed securities		-		48		-		48
Total assets	$	1,970	$	157,704	$	-	$	159,674
Liability Description
Interest rate swaps	$	-	$	561	$	-	$	561
Total liabilities	$	-	$	561	$	-	$	561

The Corporation used the following methods and significant assumptions to estimate the fair values for financial assets measured at fair value on a recurring basis.

Investment securities:  Level 1 securities represent equity securities that are valued using quoted market prices from nationally recognized markets. Level 2 securities represent debt securities that are valued using a mathematical model based upon the specific characteristics of a security in relationship to quoted prices for similar securities.    

Interest rate swaps: The interest rate swaps are valued using a discounted cash flow model that uses verifiable market environment inputs to calculate the fair value. This method is not dependent on the input of any significant judgments or assumptions by Management.  

Nonrecurring Fair Value Measurements

For financial assets measured at fair value on a nonrecurring basis, the fair value measurements by level within the fair value hierarchy used at March 31, 2014 and December 31, 2013 are as follows:

(Dollars in Thousands)
	Fair Value at March 31, 2014
Asset  Description	Level 1		Level 2		Level 3		Total
Impaired loans (1)	$	-	$	-	$	3,054	$	3,054
Other real estate owned (1)		-		-		892		892
Mortgage servicing rights		-		-		176		176
Total assets	$	-	$	-	$	4,122	$	4,122

(Dollars in Thousands)	Fair Value at December 31, 2013
Asset  Description	Level 1		Level 2		Level 3		Total
Impaired loans (1)	$	-	$	-	$	8,588	$	8,588
Other real estate owned (1)		-		-		498		498
Mortgage servicing rights		-		-		184		184
Total assets	$	-	$	-	$	9,270	$	9,270

(1) Includes assets directly charged-down to fair value during the year-to-date period.

The Corporation used the following methods and significant assumptions to estimate the fair values for financial assets measured at fair value on a nonrecurring basis.

Impaired loans: Impaired loans are reported at the fair value of the underlying collateral if repayment is expected solely from the collateral.  Collateral values are estimated using Level 3 inputs based on customized discounting criteria. 

Other real estate: The fair value of other real estate, upon initial recognition, is estimated using Level 2 inputs within the fair value hierarchy based on observable market data and Level 3 inputs based on customized discounting criteria.  In connection with the measurement and initial recognition of the foregoing assets, the Corporation recognizes charge-offs through the allowance for loan losses. 

Mortgage servicing rights: The fair value of mortgage servicing rights, upon initial recognition, is estimated using a valuation model that calculates the present value of estimated future net servicing income.  The model incorporates Level 3 assumptions such as cost to service, discount rate, prepayment speeds, default rates and losses. 

The Corporation did not record any liabilities at fair value for which measurement of the fair value was made on a nonrecurring basis at March 31, 2014. For financial assets and liabilities measured at fair value on a recurring basis, there were no transfers of financial assets or liabilities between Level 1 and Level 2 during the period ending March 31, 2014.

The following table presents additional quantitative information about Level 3 assets measured at fair value on a nonrecurring basis:

	Quantitative Information about Level 3 Fair Value Measurements
(Dollars in Thousands)	at March 31, 2014
				Range
Asset  Description	Fair Value	Valuation Technique	Unobservable Input	(Weighted Average)
Impaired loans (1)	$                   3,054	Appraisal	Appraisal Adjustments (2)	0% - 100%  (38.40%)
			Cost to sell	0% - 10%  (4.32%)
Other real estate owned (1)	892	Appraisal	Appraisal Adjustments (2)
			Cost to sell	8%  (8%)
Mortgage servicing rights	176	Discounted Cash Flow (3)
	at December 31, 2013
Impaired loans (1)	$                   8,588	Appraisal	Appraisal Adjustments (2)	0% - 60%  (5%)
			Cost to sell	5% - 13.5%  (7%)
Other real estate owned (1)	498	Appraisal	Appraisal Adjustments (2)
			Cost to sell	8%  (8%)
Mortgage servicing rights	184	Discounted Cash Flow (3)
(1) Includes assets directly charged-down to fair value during the year-to-date period.
(2) Qualitative adjustments are discounts specific to each asset and are made as needed.
(3) Valuation and inputs are determined by a third-party pricing service without adjustment.

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Document And Entity Information	3 Months Ended
	Mar. 31, 2014	Apr. 30, 2014
Document And Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Mar. 31, 2014
Document Fiscal Period Focus	Q1
Document Fiscal Year Focus	2014
Entity Registrant Name	FRANKLIN FINANCIAL SERVICES CORP /PA/
Entity Central Index Key	0000723646
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		4,180,073
Trading Symbol	fraf

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Financial Derivatives

3 Months Ended

Mar. 31, 2014

Financial Derivatives [Abstract]

Financial Derivatives

Note 10.  Financial Derivatives

The Board of Directors has given Management authorization to enter into additional derivative activity including interest rate swaps, caps and floors, forward-rate agreements, options and futures contracts in order to hedge interest rate risk.  The Bank is exposed to credit risk equal to the positive fair value of a derivative instrument, if any, as a positive fair value indicates that the counterparty to the agreement is financially liable to the Bank.  To limit this risk, counterparties must have an investment grade long-term debt rating and individual counterparty credit exposure is limited by Board approved parameters.  Management anticipates continuing to use derivatives, as permitted by its Board-approved policy, to manage interest rate risk.

Information regarding the interest rate swaps as of March 31, 2014 follows:

(Dollars in thousands)						Amount Expected to
						be Expensed into
Notional		Maturity	Interest Rate			Earnings within the
Amount		Date	Fixed	Variable		next 12 Months
$	10,000	5/30/2015	3.87%	0.05%	$	383

Fair Value of Derivative Instruments in the Consolidated Balance Sheets were as follows as of March 31, 2014 and December 31, 2013:

Fair Value of Derivative Instruments
(Dollars in thousands)		Balance Sheet
Date	Type	Location	Fair Value
March 31, 2014	Interest rate contracts	Other liabilities	$	474
December 31, 2013	Interest rate contracts	Other liabilities	$	561

The Effect of Derivative Instruments on the Statement of Income for the Three Months Ended March 31, 2014 and 2013  follows:

Derivatives in ASC Topic 815 Cash Flow Hedging Relationships
(Dollars in thousands)							Amount of Gain
						Location of	or (Loss)
						Gain or (Loss)	Recognized in
						Recognized in	Income on
			Location of	Amount of Gain		Income on	Derivatives
	Amount of Gain		Gain or (Loss)	or (Loss)		Derivative (Ineffective	(Ineffective Portion
	or (Loss)		Reclassified from	Reclassified from		Portion and Amount	and Amount
	Recognized in OCI		Accumulated OCI	Accumulated OCI		Excluded from	Excluded from
	net of tax on Derivative		into Income	into Income		Effectiveness	Effectiveness
Date / Type	(Effective Portion)		(Effective Portion)	(Effective Portion)		Testing)	Testing)
Interest rate contracts
March 31, 2014	$	57	Interest Expense	$	(95)	Other income (expense)	$	-
March 31, 2013	$	120	Interest Expense	$	(180)	Other income (expense)	$	-

Interest Rate Swap Agreements (“Swap Agreements”)

The Bank has entered into interest rate swap agreements as part of its asset/liability management program.  The swap agreements are free-standing derivatives and are recorded at fair value in the Corporation’s consolidated statements of condition.  The Bank is party to master netting arrangements with its financial institution counterparties; however, the Bank does not offset assets and liabilities under these arrangements for financial statement presentation purposes.  The master netting arrangements provide for a single net settlement of all swap agreements, as well as collateral, in the event of default on, or termination of, any one contract.  Collateral, in the form of marketable securities, is posted by the counterparty with net liability positions in accordance with contract thresholds. 

Securities Sold Under Agreements to Repurchase (“Repurchase Agreements”)

The Bank enters into agreements under which it sells securities subject to an obligation to repurchase the same or similar securities.  Under these arrangements, the Bank may transfer legal control over the assets but still retain effective control through an agreement that both entitles and obligates the Bank to repurchase the agreements.  As a result, these repurchase agreements are accounted for as collateralized financing arrangements (i.e., secured borrowings) and not as a sale and subsequent repurchase of securities.  The obligation to repurchase the securities is reflected as a liability in the Corporation’s consolidated statements of condition, while the securities underlying the repurchase agreements remain in the respective investment securities asset accounts.  In other words, there is no offsetting or netting of the investment securities assets with the repurchase agreement liabilities.  In addition, as the Bank does not enter into reverse repurchase agreements, there is no such offsetting to be done with repurchase agreements.

The following table presents the liabilities subject to an enforceable master netting arrangement or repurchase agreements as of March 31, 2014 and December 31, 2013.  As of these dates, all of the Bank’s swap agreements with institutional counterparties were in a liability position.  Therefore, there were no assets to be recognized in the consolidated statements of condition.  The swap agreements we have with our commercial banking customers are not subject to an enforceable master netting arrangement, and therefore, are excluded from this table.

						Net Amounts		Gross Amounts Not Offset in the
		Gross		Gross Amounts		of Liabilities		Statements of Condition
		Amounts of		Offset in the		Presented in the
		Recognized		Statements of		Statements of		Financial		Cash Collateral		Net
(Dollars in thousands)		Liabilities		Condition		Condition		Instruments		Pledged		Amount
Interest Rate Swap Agreements
March 31, 2014	$	474	$	-	$	474	$	474	$	-	$	-
December 31, 2013	$	561	$	-	$	561	$	561	$	-	$	-

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Consolidated Statements Of Income (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Interest income
Loans, including fees	$ 7,511	$ 8,297
Interest and dividends on investments: Taxable interest	641	353
Interest and dividends on investments: Tax exempt interest	358	376
Interest and dividends on investments: Dividend income	25	18
Deposits and obligations of other banks	39	58
Total interest income	8,574	9,102
Interest expense
Deposits	702	1,103
Securities sold under agreements to repurchase	7	18
Long-term debt	121	121
Total interest expense	830	1,242
Net interest income	7,744	7,860
Provision for loan losses	198	803
Net interest income after provision for loan losses	7,546	7,057
Noninterest income
Investment and trust services fees	1,091	1,019
Loan service charges	167	250
Mortgage banking activities	12	(22)
Deposit service charges and fees	464	436
Other service charges and fees	267	221
Debit card income	306	285
Increase in cash surrender value of life insurance	143	152
Other real estate owned losses, net	(122)
Other	52	43
Total noninterest income	2,380	2,384
Noninterest expense
Salaries and employee benefits	4,251	4,214
Net occupancy expense	675	568
Furniture and equipment expense	254	247
Advertising	316	335
Legal and professional fees	265	279
Data processing	391	394
Pennsylvania bank shares tax	173	205
Intangible amortization	104	106
FDIC insurance	232	245
ATM/debit card processing	179	181
Other	848	808
Total noninterest expense	7,688	7,582
Income before federal income tax expense	2,238	1,859
Federal income tax expense	412	308
Net income	$ 1,826	$ 1,551
Per share
Basic earnings per share	$ 0.44	$ 0.38
Diluted earnings per share	$ 0.44	$ 0.38
Cash dividends declared	$ 0.17	$ 0.17

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Guarantees

3 Months Ended

Mar. 31, 2014

Guarantees [Abstract]

Guarantees

Note 4. Guarantees

The Corporation does not issue any guarantees that would require liability recognition or disclosure, other than its standby letters of credit.  Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party.  Generally, all letters of credit, when issued, have expiration dates within one year.  The credit risk involved in issuing letters of credit is essentially the same as those that are involved in extending loan facilities to customers. The Bank generally holds collateral and/or personal guarantees supporting these commitments.  The Bank had $20.4 million and $20.2 million of standby letters of credit as of March 31, 2014 and December 31, 2013, respectively. Management believes that the proceeds obtained through a liquidation of collateral and the enforcement of guarantees would be sufficient to cover the potential amount of future payments required under the corresponding guarantees.  The amount of the liability as of March 31, 2014 and December 31, 2013 for guarantees under standby letters of credit issued was not material.

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Accumulated Other Comprehensive Loss

3 Months Ended

Mar. 31, 2014

Accumulated Other Comprehensive Loss [Abstract]

Accumulated Other Comprehensive Loss

Note 3. Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss included in shareholders' equity are as follows:

	March 31,		December 31,
	2014		2013
(Dollars in thousands)
Net unrealized gains (losses) on securities	$	679	$	(741)
Tax effect		(231)		252
Net of tax amount		448		(489)
Net unrealized losses on derivatives		(474)		(561)
Tax effect		161		191
Net of tax amount		(313)		(370)
Accumulated pension adjustment		(5,814)		(5,814)
Tax effect		1,977		1,977
Net of tax amount		(3,837)		(3,837)
Total accumulated other comprehensive loss	$	(3,702)	$	(4,696)

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Investments (Tables)

3 Months Ended

Mar. 31, 2014

Investments [Abstract]

Unrealized Gain (Loss) On Investments

(Dollars in thousands)			Gross		Gross
	Amortized		unrealized		unrealized		Fair
March 31, 2014	cost		gains		losses		value
Equity securities	$	1,472	$	544	$	-	$	2,016
U.S. Government agency securities		14,547		88		(96)		14,539
Municipal securities		55,531		1,568		(976)		56,123
Corporate debt securities		1,001		1		-		1,002
Trust preferred securities		5,928		-		(833)		5,095
Agency mortgage-backed securities		80,500		826		(444)		80,882
Private-label mortgage-backed securities		1,918		48		(44)		1,922
Asset-backed securities		50		-		(3)		47
	$	160,947	$	3,075	$	(2,396)	$	161,626

(Dollars in thousands)			Gross		Gross
	Amortized		unrealized		unrealized		Fair
December 31, 2013	cost		gains		losses		value
Equity securities	$	1,472	$	499	$	(1)	$	1,970
U.S. Government agency securities		11,771		94		(114)		11,751
Municipal securities		56,861		1,400		(1,404)		56,857
Corporate debt securities		1,002		-		(1)		1,001
Trust preferred securities		5,922		-		(871)		5,051
Agency mortgage-backed securities		81,352		726		(1,051)		81,027
Private-label mortgage-backed securities		1,984		16		(31)		1,969
Asset-backed securities		51		-		(3)		48
	$	160,415	$	2,735	$	(3,476)	$	159,674

Amortized Cost And Fair Value Of Debt Securities, By Contractual Maturity

(Dollars in thousands)	Amorized cost		Fair value
Due in one year or less	$	1,446	$	1,458
Due after one year through five years		13,149		13,676
Due after five years through ten years		26,751		26,868
Due after ten years		35,711		34,804
		77,057		76,806
Mortgage-backed securities		82,418		82,804
	$	159,475	$	159,610

Schedule Of Trust Preferred Securities

(Dollars in thousands)
Deal Name	Single Issuer or Pooled	Class	Amortized Cost		Fair Value		Gross Unrealized Gain (Loss)		Lowest Credit Rating Assigned	Number of Banks Currently Performing	Deferrals and Defaults as % of Original Collateral	Expected Deferral/ Defaults as a Percentage of Remaining Performing Collateral
Huntington Cap Trust	Single	Preferred Stock	$	937	$	811	$	(126)	BB+	1	None	None
Huntington Cap Trust II	Single	Preferred Stock		886		780		(106)	BB+	1	None	None
BankAmerica Cap III	Single	Preferred Stock		961		795		(166)	BB+	1	None	None
Wachovia Cap Trust II	Single	Preferred Stock		276		245		(31)	BBB+	1	None	None
Corestates Captl Tr II	Single	Preferred Stock		933		830		(103)	BBB+	1	None	None
Chase Cap VI JPM	Single	Preferred Stock		961		830		(131)	BBB	1	None	None
Fleet Cap Tr V	Single	Preferred Stock		974		804		(170)	BB+	1	None	None
			$	5,928	$	5,095	$	(833)

Private Label Mortgage Backed Securities

(Dollars in thousands)						Gross					Cumulative
	Origination	Amortized		Fair		Unrealized		Collateral	Lowest Credit	Credit	OTTI
Description	Date	Cost		Value		Gain (Loss)		Type	Rating Assigned	Support %	Charges
RALI 2004-QS4 A7	3/1/2004	$	157	$	164	$	7	ALT A	BBB+	12.55	$	-
MALT 2004-6 7A1	6/1/2004		426		446		20	ALT A	CCC	14.26		-
RALI 2005-QS2 A1	2/1/2005		318		331		13	ALT A	C	5.82		10
RALI 2006-QS4 A2	4/1/2006		593		565		(28)	ALT A	D	-		293
GSR 2006-5F 2A1	5/1/2006		94		102		8	Prime	D	-		15
RALI 2006-QS8 A1	7/28/2006		330		314		(16)	ALT A	D	-		197
		$	1,918	$	1,922	$	4				$	515

Schedule Of Unrealized Loss On Investments

	March 31, 2014
	Less than 12 months					12 months or more					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(Dollars in thousands)	Value		Losses		Count	Value		Losses		Count	Value		Losses		Count
U.S. Government agency securities	$	4,051	$	(37)	5	$	5,593	$	(59)	11	$	9,644	$	(96)	16
Municipal securities		12,526		(483)	16		5,762		(493)	9		18,288		(976)	25
Trust preferred securities		-		-	-		5,095		(833)	7		5,095		(833)	7
Agency mortgage-backed securities		31,497		(358)	29		3,371		(86)	4		34,868		(444)	33
Private-label mortgage-backed securities		-		-	-		879		(44)	2		879		(44)	2
Asset-backed securities		-		-	-		5		(3)	1		5		(3)	1
Total temporarily impaired securities	$	48,074	$	(878)	50	$	20,705	$	(1,518)	34	$	68,779	$	(2,396)	84

	December 31, 2013
	Less than 12 months					12 months or more					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(Dollars in thousands)	Value		Losses		Count	Value		Losses		Count	Value		Losses		Count
Equity securities	$	22	$	(1)	1	$	-	$	-	-	$	22	$	(1)	1
U.S. Government agency securities		3,971		(85)	7		3,807		(29)	7		7,778		(114)	14
Municipal securities		16,770		(1,022)	24		3,160		(382)	4		19,930		(1,404)	28
Corporate debt securities		-		-	-		1,001		(1)	1		1,001		(1)	1
Trust preferred securities		-		-	-		5,051		(871)	7		5,051		(871)	7
Agency mortgage-backed securities		40,395		(999)	38		2,213		(52)	4		42,608		(1,051)	42
Private-label mortgage-backed securities		-		-	-		911		(31)	2		911		(31)	2
Asset-backed securities		-		-	-		48		(3)	3		48		(3)	3
Total temporarily impaired securities	$	61,158	$	(2,107)	70	$	16,191	$	(1,369)	28	$	77,349	$	(3,476)	98

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Reclassifications

3 Months Ended

Mar. 31, 2014

Reclassifications [Abstract]

Reclassifications

1Note 11. Reclassification

Certain prior period amounts may have been reclassified to conform to the current year presentation.  Such reclassifications did not affect reported net income.

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Loan Quality

3 Months Ended

Mar. 31, 2014

Loan Quality [Abstract]

Loan Quality

Note 7. Loan Quality

The following table presents, by class, the Allowance for Loan Losses (ALL) for the periods ended:

	Residential Real Estate 1-4 Family
			Junior Liens &				Commercial
(Dollars in thousands)	First Liens		Lines of Credit		Construction		Real Estate		Commercial		Consumer		Total
Allowance at December 31, 2013	$	1,108	$	278	$	291	$	5,571	$	2,306	$	148	$	9,702
Charge-offs		(16)		-		(27)		(114)		(1)		(43)		(201)
Recoveries		3		-		-		-		20		23		46
Provision		38		(2)		110		52		(16)		16		198
Allowance at March 31, 2014	$	1,133	$	276	$	374	$	5,509	$	2,309	$	144	$	9,745
Allowance at December 31, 2012	$	913	$	306	$	899	$	6,450	$	1,620	$	191	$	10,379
Charge-offs		-		(45)		-		(171)		(7)		(44)		(267)
Recoveries		8		-		-		-		7		13		28
Provision		52		35		(62)		403		352		23		803
Allowance at March 31, 2013	$	973	$	296	$	837	$	6,682	$	1,972	$	183	$	10,943

The following table presents, by class, loans that were evaluated for the ALL under the specific reserve (individually) and those that were evaluated under the general reserve (collectively) and the amount of the ALL established in each class as of March 31, 2014 and December 31, 2013:

	Residential Real Estate 1-4 Family
			Junior Liens &				Commercial
(Dollars in thousands)	First Liens		Lines of Credit		Construction		Real Estate		Commercial		Consumer		Total
March 31, 2014
Loans evaluated for allowance:
Individually	$	2,310	$	51	$	530	$	25,029	$	1,953	$	-	$	29,873
Collectively		162,799		39,893		11,223		297,421		177,033		7,816		696,185
Total	$	165,109	$	39,944	$	11,753	$	322,450	$	178,986	$	7,816	$	726,058
Allowance established for loans evaluated:
Individually	$	-	$	-	$	-	$	247	$	968	$	-	$	1,215
Collectively		1,133		276		374		5,262		1,341		144		8,530
Allowance at March 31, 2014	$	1,133	$	276	$	374	$	5,509	$	2,309	$	144	$	9,745
December 31, 2013
Loans evaluated for allowance:
Individually	$	2,354	$	50	$	537	$	25,107	$	1,996	$	-	$	30,044
Collectively		159,685		40,525		11,982		304,266		168,331		8,580		693,369
Total	$	162,039	$	40,575	$	12,519	$	329,373	$	170,327	$	8,580	$	723,413
Allowance established for loans evaluated:
Individually	$	9	$	-	$	-	$	89	$	1,002	$	-	$	1,100
Collectively		1,099		278		291		5,482		1,304		148		8,602
Allowance at December 31, 2013	$	1,108	$	278	$	291	$	5,571	$	2,306	$	148	$	9,702

The following table shows additional information about those loans considered to be impaired at March 31, 2014 and December 31, 2013:

	Impaired Loans
	With No Allowance				With Allowance
(Dollars in thousands)			Unpaid					Unpaid
	Recorded		Principal		Recorded		Principal		Related
March 31, 2014	Investment		Balance		Investment		Balance		Allowance
Residential Real Estate 1-4 Family
First liens	$	3,181	$	3,649	$	-	$	-	$	-
Junior liens and lines of credit		110		135		-		-		-
Total		3,291		3,784		-		-		-
Residential real estate - construction		530		553		-		-		-
Commercial real estate		23,607		28,724		1,468		2,362		247
Commercial		140		144		1,928		2,029		968
Consumer		-		-		-		-		-
Total	$	27,568	$	33,205	$	3,396	$	4,391	$	1,215

December 31, 2013
Residential Real Estate 1-4 Family
First liens	$	3,030	$	3,500	$	9	$	39	$	9
Junior liens and lines of credit		108		127		-		-		-
Total		3,138		3,627		9		39		9
Residential real estate - construction		537		556		-		-		-
Commercial real estate		24,188		30,334		966		1,043		89
Commercial		88		89		1,970		2,043		1,002
Consumer		-		-		-		-		-
Total	$	27,951	$	34,606	$	2,945	$	3,125	$	1,100

The following table shows the average of impaired loans and related interest income for the three months ended March 31, 2014 and 2013:

	Three Months Ended				Three Months Ended
	March 31, 2014				March 31, 2013
	Average		Interest		Average		Interest
(Dollars in thousands)	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
Residential Real Estate 1-4 Family
First liens	$	3,218	$	14	$	3,626	$	4
Junior liens and lines of credit		126		4		742		1
Total		3,344		18		4,368		5
Residential real estate - construction		532		5		556		-
Commercial real estate		25,665		244		30,087		38
Commercial		2,092		31		4,480		-
Consumer		-		-		-		-
Total	$	31,633	$	298	$	39,491	$	43

The following table presents the aging of payments of the loan portfolio:

(Dollars in thousands)			Loans Past Due and Still Accruing										Total
	Current		30-59 Days		60-89 Days		90 Days+		Total		Non-Accrual		Loans
March 31, 2014
Residential Real Estate 1-4 Family
First liens	$	161,013	$	1,514	$	9	$	229	$	1,752	$	2,344	$	165,109
Junior liens and lines of credit		39,618		163		13		59		235		91		39,944
Total		200,631		1,677		22		288		1,987		2,435		205,053
Residential real estate - construction		10,641		373		209		-		582		530		11,753
Commercial real estate		300,573		2,912		-		-		2,912		18,965		322,450
Commercial		176,392		47		140		-		187		2,407		178,986
Consumer		7,703		93		13		7		113		-		7,816
Total	$	695,940	$	5,102	$	384	$	295	$	5,781	$	24,337	$	726,058

December 31, 2013
Residential Real Estate 1-4 Family
First liens	$	156,916	$	1,725	$	497	$	302	$	2,524	$	2,599	$	162,039
Junior liens and lines of credit		40,204		204		19		41		264		107		40,575
Total		197,120		1,929		516		343		2,788		2,706		202,614
Residential real estate - construction		11,458		523		-		-		523		538		12,519
Commercial real estate		309,531		634		-		207		841		19,001		329,373
Commercial		167,747		78		60		44		182		2,398		170,327
Consumer		8,430		117		23		10		150		-		8,580
Total	$	694,286	$	3,281	$	599	$	604	$	4,484	$	24,643	$	723,413

The following table reports the internal credit rating for the loan portfolio.  Consumer purpose loans (mortgage, home equity and installment) are assigned a rating of either pass or substandard.  Substandard consumer loans are comprised of loans 90 days or more past due and still accruing and nonaccrual loans.  Commercial loans may be assigned any rating in accordance with the Bank’s internal risk rating system.

(Dollars in thousands)	Pass		Special Mention		Substandard		Doubtful		Total
March 31, 2014
Residential Real Estate 1-4 Family
First liens	$	156,291	$	2,513	$	6,305	$	-	$	165,109
Junior liens and lines of credit		39,548		40		356		-		39,944
Total		195,839		2,553		6,661		-		205,053
Residential real estate - construction		10,148		-		1,605		-		11,753
Commercial real estate		283,566		4,508		34,376		-		322,450
Commercial		163,184		3,228		12,574		-		178,986
Consumer		7,809		-		7		-		7,816
Total	$	660,546	$	10,289	$	55,223	$	-	$	726,058

December 31, 2013
Residential Real Estate 1-4 Family
First liens	$	150,762	$	3,653	$	7,624	$	-	$	162,039
Junior liens and lines of credit		40,102		66		407		-		40,575
Total		190,864		3,719		8,031		-		202,614
Residential real estate - construction		10,955		-		1,564		-		12,519
Commercial real estate		281,857		11,861		35,655		-		329,373
Commercial		154,888		3,393		12,046		-		170,327
Consumer		8,570		-		10		-		8,580
Total	$	647,134	$	18,973	$	57,306	$	-	$	723,413

The following table presents information on the Bank’s Troubled Debt Restructuring (TDR) loans:

					Troubled Debt Restructings
					That Have Defaulted on
(Dollars in thousands)	Troubled Debt Restructings				Modified Terms YTD
	Number of	Recorded			Number of	Recorded
	Contracts	Investment	Performing*	Nonperforming*	Contracts	Investment
March 31, 2014
Residential real estate - construction	1	$               530	$                    -	$                  530	-	$                     -
Residential real estate	5	608	608	-	-	-
Commercial real estate	12	15,723	14,188	1,535	-	-
Total	18	$          16,861	$          14,796	$               2,065	-	$                     -
December 31, 2013
Residential real estate - construction	1	$               537	$                    -	$                  537	-	$                     -
Residential real estate	5	625	625	-	-
Commercial real estate	12	15,877	14,318	1,559	-	-
Total	18	$          17,039	$          14,943	$               2,096	-	$                     -

*The performing status is determined by the loan’s compliance with the modified terms.

There were no new TDR loans made during 2014.

The following table reports TDR loans during 2013, concession granted and the recorded investmentas ofMarch 31, 2013:

	New During Period
	Number of	Pre-TDR	After-TDR	Recorded
Three Months Ended March 31, 2013	Contracts	Modification	Modification	Investment	Concession
Commercial real estate	1	$            2,444	$            2,731	$               2,727	multiple

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Investments

15 Months Ended

Mar. 31, 2013

Investments [Abstract]

Investments

Note 5. Investments

The amortized cost and estimated fair value of investment securities available for sale as of March 31, 2014 and December 31, 2013 is as follows:

(Dollars in thousands)			Gross		Gross
	Amortized		unrealized		unrealized		Fair
March 31, 2014	cost		gains		losses		value
Equity securities	$	1,472	$	544	$	-	$	2,016
U.S. Government agency securities		14,547		88		(96)		14,539
Municipal securities		55,531		1,568		(976)		56,123
Corporate debt securities		1,001		1		-		1,002
Trust preferred securities		5,928		-		(833)		5,095
Agency mortgage-backed securities		80,500		826		(444)		80,882
Private-label mortgage-backed securities		1,918		48		(44)		1,922
Asset-backed securities		50		-		(3)		47
	$	160,947	$	3,075	$	(2,396)	$	161,626

(Dollars in thousands)			Gross		Gross
	Amortized		unrealized		unrealized		Fair
December 31, 2013	cost		gains		losses		value
Equity securities	$	1,472	$	499	$	(1)	$	1,970
U.S. Government agency securities		11,771		94		(114)		11,751
Municipal securities		56,861		1,400		(1,404)		56,857
Corporate debt securities		1,002		-		(1)		1,001
Trust preferred securities		5,922		-		(871)		5,051
Agency mortgage-backed securities		81,352		726		(1,051)		81,027
Private-label mortgage-backed securities		1,984		16		(31)		1,969
Asset-backed securities		51		-		(3)		48
	$	160,415	$	2,735	$	(3,476)	$	159,674

At March 31, 2014 and December 31, 2013, the fair value of investment securities pledged to secure public funds, trust balances, repurchase agreements, deposit and other obligations totaled $104.8 million and $107.6 million, respectively.

The amortized cost and estimated fair value of debt securities at March 31, 2014, by contractual maturity are shown below.Actual maturities may differ from contractual maturities because of prepayment or call options embedded in the securities.

(Dollars in thousands)	Amorized cost		Fair value
Due in one year or less	$	1,446	$	1,458
Due after one year through five years		13,149		13,676
Due after five years through ten years		26,751		26,868
Due after ten years		35,711		34,804
		77,057		76,806
Mortgage-backed securities		82,418		82,804
	$	159,475	$	159,610

The following table provides additional detail about trust preferred securities as of March 31, 2014:

Trust Preferred Securities

(Dollars in thousands)
Deal Name	Single Issuer or Pooled	Class	Amortized Cost		Fair Value		Gross Unrealized Gain (Loss)		Lowest Credit Rating Assigned	Number of Banks Currently Performing	Deferrals and Defaults as % of Original Collateral	Expected Deferral/ Defaults as a Percentage of Remaining Performing Collateral
Huntington Cap Trust	Single	Preferred Stock	$	937	$	811	$	(126)	BB+	1	None	None
Huntington Cap Trust II	Single	Preferred Stock		886		780		(106)	BB+	1	None	None
BankAmerica Cap III	Single	Preferred Stock		961		795		(166)	BB+	1	None	None
Wachovia Cap Trust II	Single	Preferred Stock		276		245		(31)	BBB+	1	None	None
Corestates Captl Tr II	Single	Preferred Stock		933		830		(103)	BBB+	1	None	None
Chase Cap VI JPM	Single	Preferred Stock		961		830		(131)	BBB	1	None	None
Fleet Cap Tr V	Single	Preferred Stock		974		804		(170)	BB+	1	None	None
			$	5,928	$	5,095	$	(833)

The following table provides additional detail about private label mortgage-backed securities as of March 31, 2014:

Private Label Mortgage Backed Securities

(Dollars in thousands)						Gross					Cumulative
	Origination	Amortized		Fair		Unrealized		Collateral	Lowest Credit	Credit	OTTI
Description	Date	Cost		Value		Gain (Loss)		Type	Rating Assigned	Support %	Charges
RALI 2004-QS4 A7	3/1/2004	$	157	$	164	$	7	ALT A	BBB+	12.55	$	-
MALT 2004-6 7A1	6/1/2004		426		446		20	ALT A	CCC	14.26		-
RALI 2005-QS2 A1	2/1/2005		318		331		13	ALT A	C	5.82		10
RALI 2006-QS4 A2	4/1/2006		593		565		(28)	ALT A	D	-		293
GSR 2006-5F 2A1	5/1/2006		94		102		8	Prime	D	-		15
RALI 2006-QS8 A1	7/28/2006		330		314		(16)	ALT A	D	-		197
		$	1,918	$	1,922	$	4				$	515

Impairment:

The investment portfolio contained 84 securities with $68.8 million of temporarily impaired fair value and $2.4 million in unrealized losses at March 31, 2014.

For securities with an unrealized loss, Management applies a systematic methodology in order to perform an assessment of the potential for other-than-temporary impairment.  In the case of debt securities, investments considered for other-than-temporary impairment: (1) had a specified maturity or repricing date; (2) were generally expected to be redeemed at par, and (3) were expected to achieve a recovery in market value within a reasonable period of time. In addition, the Bank considers whether it intends to sell these securities or whether it will be forced to sell these securities before the earlier of amortized cost recovery or maturity. Equity securities are assessed for other-than-temporary impairment based on the length of time of impairment, dollar amount of the impairment and general market and financial conditions relating to specific issues.  The impairment identified on debt and equity securities and subject to assessment at March 31, 2014, was deemed to be temporary and required no further adjustments to the financial statements, unless otherwise noted.

The following table reflects temporary impairment in the investment portfolio (excluding restricted stock), aggregated by investment category, length of time that individual securities have been in a continuous unrealized loss position and the number of securities in each category as of March 31, 2014 and December 31, 2013:

	March 31, 2014
	Less than 12 months					12 months or more					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(Dollars in thousands)	Value		Losses		Count	Value		Losses		Count	Value		Losses		Count
U.S. Government agency securities	$	4,051	$	(37)	5	$	5,593	$	(59)	11	$	9,644	$	(96)	16
Municipal securities		12,526		(483)	16		5,762		(493)	9		18,288		(976)	25
Trust preferred securities		-		-	-		5,095		(833)	7		5,095		(833)	7
Agency mortgage-backed securities		31,497		(358)	29		3,371		(86)	4		34,868		(444)	33
Private-label mortgage-backed securities		-		-	-		879		(44)	2		879		(44)	2
Asset-backed securities		-		-	-		5		(3)	1		5		(3)	1
Total temporarily impaired securities	$	48,074	$	(878)	50	$	20,705	$	(1,518)	34	$	68,779	$	(2,396)	84

	December 31, 2013
	Less than 12 months					12 months or more					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(Dollars in thousands)	Value		Losses		Count	Value		Losses		Count	Value		Losses		Count
Equity securities	$	22	$	(1)	1	$	-	$	-	-	$	22	$	(1)	1
U.S. Government agency securities		3,971		(85)	7		3,807		(29)	7		7,778		(114)	14
Municipal securities		16,770		(1,022)	24		3,160		(382)	4		19,930		(1,404)	28
Corporate debt securities		-		-	-		1,001		(1)	1		1,001		(1)	1
Trust preferred securities		-		-	-		5,051		(871)	7		5,051		(871)	7
Agency mortgage-backed securities		40,395		(999)	38		2,213		(52)	4		42,608		(1,051)	42
Private-label mortgage-backed securities		-		-	-		911		(31)	2		911		(31)	2
Asset-backed securities		-		-	-		48		(3)	3		48		(3)	3
Total temporarily impaired securities	$	61,158	$	(2,107)	70	$	16,191	$	(1,369)	28	$	77,349	$	(3,476)	98

The municipal bond portfolio has the largest unrealized loss at $1.0 million, $400 thousand less than at the prior-year end.  The unrealized loss in this portfolio is deemed to be non-credit related and no other-than-temporary impairment charges have been recorded.

The trust preferred portfolio contains seven securities with a fair value of $5.1 million and an unrealized loss of $833 thousand. The trust-preferred securities held by the Bank are single entity issues, not pooled trust preferred securities.  Therefore, the impairment review of these securities is based only on the issuer and the security cannot be impaired by the performance of other issuers as if it was a pooled trust-preferred bond. All of the Bank’s trust preferred securities are single issue, variable rate notes with long maturities (2027 – 2028).  None of these bonds have suspended or missed a dividend payment. At March 31, 2014, the Bank believes it will be able to collect all interest and principal due on these bondsand no other-than-temporary-impairment charges were recorded. 

The PLMBS sector shows a gross unrealized loss of $44 thousand. These bonds were all rated AAA at time of purchase, but have since experienced rating declines. Some have experienced increased delinquencies and defaults, while others have seen the credit support increase as the bonds paid-down. The Bank monitors the performance of the PLMBS investments on a regular basis and reviews delinquencies, default rates, credit support levels and various cash flow stress test scenarios. In determining the credit related loss, Management considers all principal past due 60 days or more as a loss. If additional principal moves beyond 60 days past due, it will also be considered a loss. As a result of the analysis on PLMBS it was determined that no impairment charge was required at quarter end. The Bank has recorded $515 thousand of cumulative impairment charges on this portfolio. Management continues to monitor these securities and it is possible that additional write-downs may occur if current loss trends continue. The Bank is currently participating in a class-action lawsuit against one PLMBS servicer that centers on defective warranties and representations made as part of the underwriting process.

The Bank held $1.9 million of restricted stock at March 31, 2014.  Except for $30 thousand, this investment represents stock in FHLB Pittsburgh. The Bank is required to hold this stock to be a member of FHLB and it is carried at cost of $100 per share.

FHLB stock is evaluated for impairment primarily based on an assessment of the ultimate recoverability of its cost. As a government sponsored entity, FHLB has the ability to raise funding through the U.S. Treasury that can be used to support its operations.  There is not a public market for FHLB stock and the benefits of FHLB membership (e.g., liquidity and low cost funding) add value to the stock beyond purely financial measures. Management intends to remain a member of the FHLB and believes that it will be able to fully recover the cost basis of this investment.

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Loans

3 Months Ended

Mar. 31, 2014

Loans [Abstract]

Loans

Note 6. Loans

The Bank reports its loan portfolio based on the primary collateral of the loan. It further classifies these loans by the primary purpose, either consumer or commercial. The Bank’s mortgage loans include long-term loans to individuals and businesses secured by mortgages on the borrower’s real property.  Construction loans are made to finance the purchase of land and the construction of residential and commercial buildings thereon, and are secured by mortgages on real estate.  Commercial loans are made to businesses of various sizes for a variety of purposes including construction, property, plant and equipment, and working capital.  Commercial loans also include loans to government municipalities.  Commercial lending is concentrated in the Bank’s primary market, but also includes purchased loan participations. Consumer loans are comprised of installment, home equity and unsecured personal lines of credit. 

A summary of loans outstanding, by primary collateral, at the end of the reporting periods is as follows:

						Change
(Dollars in thousands)	March 31, 2014			December 31, 2013		Amount	%
Residential Real Estate 1-4 Family
Consumer first liens	$	103,107	$	103,573	$	(466)	(0.4)
Consumer junior liens and lines of credit		34,606		34,636		(30)	(0.1)
Total consumer		137,713		138,209		(496)	(0.4)
Commercial first lien		62,002		58,466		3,536	6.0
Commercial junior liens and lines of credit		5,338		5,939		(601)	(10.1)
Total commercial		67,340		64,405		2,935	4.6
Total residential real estate 1-4 family		205,053		202,614		2,439	1.2
Residential real estate - construction
Consumer		3,188		3,960		(772)	(19.5)
Commercial		8,565		8,559		6	0.1
Total residential real estate construction		11,753		12,519		(766)	(6.1)
Commercial real estate		322,450		329,373		(6,923)	(2.1)
Commercial		178,986		170,327		8,659	5.1
Total commercial		501,436		499,700		1,736	0.3
Consumer		7,816		8,580		(764)	(8.9)
		726,058		723,413		2,645	0.4
Less: Allowance for loan losses		(9,745)		(9,702)		(43)	(0.4)
Net Loans	$	716,313	$	713,711	$	2,602	0.4
Included in the loan balances are the following:
Net unamortized deferred loan costs	$	446	$	372
Unamortized discount on purchased loans	$	(74)	$	(92)
Loans pledged as collateral for borrowings and commitments from:
FHLB	$	582,983	$	607,524
Federal Reserve Bank		64,669		45,809
	$	647,652	$	653,333

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Pension

3 Months Ended

Mar. 31, 2014

Pension [Abstract]

Pension

Note 8. Pension

The components of pension expense for the periods presented are as follows:

	Three Months Ended March 31
(Dollars in thousands)	2014		2013
Components of net periodic cost:
Service cost	$	86	$	114
Interest cost		197		179
Expected return on plan assets		(290)		(312)
Recognized net actuarial loss		82		159
Net period cost	$	75	$	140

The Bank expects its pension expense to decrease to approximately $275 thousand in 2014 compared to $560 thousand in 2013. 

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Investments (Amortized Cost And Fair Value Of Debt Securities, By Contractual Maturity) (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2014
Investments [Abstract]
Due in one year or less, Amortized cost	$ 1,446
Due after one year through five years, Amortized cost	13,149
Due after five years through ten years, Amortized cost	26,751
Due after ten years, Amortized cost	35,711
Amortized Cost Contractual Maturities Subtotal	77,057
Mortgage-backed securities, Amortized cost	82,418
Available-for-sale Securities, Debt Maturities, Amortized Cost Basis	159,475
Due in one year or less, Fair value	1,458
Due after one year through five years, Fair value	13,676
Due after five years through ten years, Fair value	26,868
Due after ten years, Fair value	34,804
Fair Value Contractual Maturities Subtotal	76,806
Mortgage-backed securities, Fair value	82,804
Available-for-sale Securities, Debt Securities, Fair Value	$ 159,610

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Financial Derivatives (Schedule Of Fair Value Of Derivative Instruments) (Details) (USD $) In Thousands, unless otherwise specified			3 Months Ended	12 Months Ended
	Mar. 31, 2014	Dec. 31, 2013	Mar. 31, 2014 Interest Rate Swap Maturing 5/30/2013 [Member] Other Liabilities [Member]	Dec. 31, 2013 Interest Rate Swap Maturing 5/30/2015 [Member] Other Liabilities [Member]
Derivatives, Fair Value [Line Items]
Type			Interest rate contracts	Interest rate contracts
Balance Sheet Location			Other liabilities	Other liabilities
Fair Value	$ 474	$ 561	$ 474	$ 561

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Basis Of Presentation (Tables)

3 Months Ended

Mar. 31, 2014

Basis Of Presentation [Abstract]

Schedule Of Earnings Per Share, Basic And Diluted

	For the Three Months Ended
	March 31
(Dollars and shares in thousands, except per share data)	2014		2013
Weighted average shares outstanding (basic)		4,172		4,112
Impact of common stock equivalents		5		6
Weighted average shares outstanding (diluted)		4,177		4,118
Anti-dilutive options excluded from calculation		40		58
Net income	$	1,826	$	1,551
Basic earnings per share	$	0.44	$	0.38
Diluted earnings per share	$	0.44	$	0.38

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Pension (Tables)

3 Months Ended

Mar. 31, 2014

Pension [Abstract]

Schedule Of Net Periodic Pension Costs

	Three Months Ended March 31
(Dollars in thousands)	2014		2013
Components of net periodic cost:
Service cost	$	86	$	114
Interest cost		197		179
Expected return on plan assets		(290)		(312)
Recognized net actuarial loss		82		159
Net period cost	$	75	$	140

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Fair Value Measurements And Fair Value Of Financial Instruments (Additional Qualitative Information About Level 3 Assets) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		12 Months Ended
	Mar. 31, 2014		Dec. 31, 2013
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring	$ 4,122		$ 9,270
Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring	4,122		9,270
Impaired Loans [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring	3,054	[1]	8,588	[1]
Impaired Loans [Member] | Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring	3,054	[1]	8,588	[1]
Fair Value Measurements, Valuation Techniques	Appraisal		Appraisal
Impaired Loans [Member] | Level 3 [Member] | Minimum [Member] | Unobservable Input Appraisal Adjustments [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value Inputs, Discount Rate	0.00%	[2]	0.00%	[2]
Impaired Loans [Member] | Level 3 [Member] | Minimum [Member] | Unobservable Input Cost to sell [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value Inputs, Discount Rate	0.00%		5.00%
Impaired Loans [Member] | Level 3 [Member] | Maximum [Member] | Unobservable Input Appraisal Adjustments [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value Inputs, Discount Rate	100.00%	[2]	60.00%	[2]
Impaired Loans [Member] | Level 3 [Member] | Maximum [Member] | Unobservable Input Cost to sell [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value Inputs, Discount Rate	10.00%		13.50%
Impaired Loans [Member] | Level 3 [Member] | Weighted Average [Member] | Unobservable Input Appraisal Adjustments [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value Inputs, Discount Rate	38.40%	[2]	5.00%	[2]
Impaired Loans [Member] | Level 3 [Member] | Weighted Average [Member] | Unobservable Input Cost to sell [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value Inputs, Discount Rate	4.32%		7.00%
Other Real Estate Owned [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring	892	[1]	498	[1]
Other Real Estate Owned [Member] | Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring	892	[1]	498	[1]
Fair Value Measurements, Valuation Techniques	Appraisal		Appraisal
Other Real Estate Owned [Member] | Level 3 [Member] | Unobservable Inputs, Appraisal Adjustments And Cost To Sell [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value Inputs, Discount Rate	8.00%		8.00%
Other Real Estate Owned [Member] | Level 3 [Member] | Weighted Average [Member] | Unobservable Inputs, Appraisal Adjustments And Cost To Sell [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value Inputs, Discount Rate	8.00%		8.00%
Mortgage Servicing Rights [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring	176		184
Mortgage Servicing Rights [Member] | Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring	$ 176		$ 184
Fair Value Measurements, Valuation Techniques	Discounted Cash Flow (3)	[3]	Discounted Cash Flow (3)	[3]

[1] Includes assets directly charged-down to fair value during the year-to-date period.

[2] Qualitative adjustments are discounts specific to each asset and are made as needed.

[3] Valuation and inputs are determined by a third-party pricing service without adjustment.

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Loan Quality (Aging Of Payments Of The Loan Portfolio) (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2014	Dec. 31, 2013
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	$ 695,940	$ 694,286
30-59 Days	5,102	3,281
60-89 Days	384	599
90+ Days	295	604
Total	5,781	4,484
Non-accrual loans	24,337	24,643
Total Loans	726,058	723,413
Residential Real Estate First Liens [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	161,013	156,916
30-59 Days	1,514	1,725
60-89 Days	9	497
90+ Days	229	302
Total	1,752	2,524
Non-accrual loans	2,344	2,599
Total Loans	165,109	162,039
Residential Real Estate Junior Liens & Lines of Credit [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	39,618	40,204
30-59 Days	163	204
60-89 Days	13	19
90+ Days	59	41
Total	235	264
Non-accrual loans	91	107
Total Loans	39,944	40,575
Residential Real Estate 1-4 Family [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	200,631	197,120
30-59 Days	1,677	1,929
60-89 Days	22	516
90+ Days	288	343
Total	1,987	2,788
Non-accrual loans	2,435	2,706
Total Loans	205,053	202,614
Residential Real Estate - Construction [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	10,641	11,458
30-59 Days	373	523
60-89 Days	209
Total	582	523
Non-accrual loans	530	538
Total Loans	11,753	12,519
Commercial Real Estate [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	300,573	309,531
30-59 Days	2,912	634
90+ Days		207
Total	2,912	841
Non-accrual loans	18,965	19,001
Total Loans	322,450	329,373
Commercial [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	176,392	167,747
30-59 Days	47	78
60-89 Days	140	60
90+ Days		44
Total	187	182
Non-accrual loans	2,407	2,398
Total Loans	178,986	170,327
Consumer [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	7,703	8,430
30-59 Days	93	117
60-89 Days	13	23
90+ Days	7	10
Total	113	150
Total Loans	$ 7,816	$ 8,580

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Consolidated Statements Of Comprehensive Income (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2014		Mar. 31, 2013
Consolidated Statements Of Comprehensive Income [Abstract]
Net income	$ 1,826		$ 1,551
Securities:
Unrealized gains arising during the period	1,420		177
Tax effect	(483)		(60)
Net of tax amount	937		117
Derivatives:
Unrealized losses arising during the period	(8)		2
Reclassification adjustment for losses included in net income	95	[1]	180	[1]
Net unrealized gains	87		182
Tax effect	(30)		(62)
Net of tax amount	57		120
Total other comprehensive income	994		237
Total Comprehensive Income	2,820		1,788
Derivative/interest expense on deposits	$ (32)		$ (61)

[1] Derivatives / interest expense on deposits

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Recent Accounting Pronouncements

3 Months Ended

Mar. 31, 2014

Recent Accounting Pronouncements [Abstract]

Recent Accounting Pronouncements

Note 2. Recent Accounting Pronouncements

Receivables (Topic 310): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans Upon Foreclosure. ASU 2014-04 “Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans Upon Foreclosure” clarifies that a creditor is considered to have physical possession of residential real estate that is collateral for a residential mortgage loan when it obtains legal title to the collateral or a deed in lieu of foreclosure or similar legal agreement is completed.  Consequently, it should reclassify the loan to other real estate owned at that time.  ASU 2014-04 applies to all creditors who obtain physical possession resulting from an in substance repossession or foreclosure of residential real estate property collateralizing a consumer mortgage loan in satisfaction of a receivable.  The ASU does not apply to commercial real estate loans, as the foreclosure process and applicable laws for those assets are significantly different from residential real estate.  The ASU is effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2014.  The Corporation does not believe ASU 2014-04 will have a material effect on its financial statements.

Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists.  ASU 2013-11 “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists,” require an entity with an unrecognized tax benefit that is ‘not available’ or not intended to be used at the reporting date to present the unrecognized tax benefit as a liability that should not be combined with deferred tax assets.  Otherwise, the unrecognized tax benefit should be presented as a reduction to the related deferred tax asset.  The assessment of whether a deferred tax asset is available is based on the unrecognized tax benefit and deferred tax asset that exist at the reporting date and should be made presuming disallowance of the tax position at the reporting date.  The amendments in ASU 2013-11 are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013.  The Corporation adopted this ASU 2013-11 at March 31, 2014.

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Fair Value Measurements And Fair Values Of Financial Instruments (Tables)

3 Months Ended

Mar. 31, 2014

Fair Value Measurements And Fair Values Of Financial Instruments [Abstract]

Fair Value, By Balance Sheet Grouping

	March 31, 2014
	Carrying		Fair
(Dollars in thousands)	Amount		Value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	79,381	$	79,381	$	79,381	$	-	$	-
Investment securities available for sale		161,626		161,626		2,016		159,610		-
Restricted stock		1,906		1,906		-		1,906		-
Loans held for sale		156		156		-		156		-
Net loans		716,313		722,589		-		-		722,589
Accrued interest receivable		2,812		2,812		-		2,812		-
Mortgage servicing rights		176		176		-		-		176
Financial liabilities:
Deposits	$	892,885	$	893,360	$	-	$	893,360	$	-
Securities sold under agreements to repurchase		15,905		15,905		-		15,095		-
Long-term debt		12,401		12,905		-		12,905		-
Accrued interest payable		273		273		-		273		-
Interest rate swaps		474		474		-		474		-
	December 31, 2013
	Carrying		Fair
(Dollars in thousands)	Amount		Value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	40,745	$	40,745	$	40,745	$	-	$	-
Investment securities available for sale		159,674		159,674		1,970		157,704		-
Restricted stock		1,906		1,906		-		1,906		-
Loans held for sale		349		349		-		349		-
Net loans		713,711		722,119		-		-		722,119
Accrued interest receivable		3,087		3,087		-		3,087		-
Mortgage servicing rights		184		184		-		-		184
Financial liabilities:
Deposits	$	845,724	$	846,289	$	-	$	846,289	$	-
Securities sold under agreements to repurchase		23,834		23,834		-		23,834		-
Long-term debt		12,403		12,999		-		12,999		-
Accrued interest payable		229		229		-		229		-
Interest rate swaps		561		561		-		561		-

Schedule Of Fair Value, Assets And Liabilities Measured On Recurring Basis

(Dollars in Thousands)	Fair Value at March 31, 2014
Asset  Description	Level 1		Level 2		Level 3		Total
Equity securities	$	2,016	$	-	$	-	$	2,016
Obligations of U.S. Government agencies		-		14,539		-		14,539
Obligations of state and political subdivisions		-		56,123		-		56,123
Corporate debt securities		-		1,002		-		1,002
Trust Preferred Securities		-		5,095		-		5,095
Agency mortgage-backed securities		-		80,882		-		80,882
Private-label mortgage-backed securities		-		1,922		-		1,922
Asset-backed securities		-		47		-		47
Total assets	$	2,016	$	159,610	$	-	$	161,626
Liability Description
Interest rate swaps	$	-	$	474	$	-	$	474
Total liabilities	$	-	$	474	$	-	$	474

(Dollars in Thousands)	Fair Value at December 31, 2013
Asset  Description	Level 1		Level 2		Level 3		Total
Equity securities	$	1,970	$	-	$	-	$	1,970
Obligations of U.S. Government agencies		-		11,751		-		11,751
Obligations of state and political subdivisions		-		56,857		-		56,857
Corporate debt securities		-		1,001		-		1,001
Trust Preferred Securities		-		5,051		-		5,051
Agency mortgage-backed securities		-		81,027		-		81,027
Private-label mortgage-backed securities		-		1,969		-		1,969
Asset-backed securities		-		48		-		48
Total assets	$	1,970	$	157,704	$	-	$	159,674
Liability Description
Interest rate swaps	$	-	$	561	$	-	$	561
Total liabilities	$	-	$	561	$	-	$	561

Fair Value Measurements, Nonrecurring

(Dollars in Thousands)
	Fair Value at March 31, 2014
Asset  Description	Level 1		Level 2		Level 3		Total
Impaired loans (1)	$	-	$	-	$	3,054	$	3,054
Other real estate owned (1)		-		-		892		892
Mortgage servicing rights		-		-		176		176
Total assets	$	-	$	-	$	4,122	$	4,122

(Dollars in Thousands)	Fair Value at December 31, 2013
Asset  Description	Level 1		Level 2		Level 3		Total
Impaired loans (1)	$	-	$	-	$	8,588	$	8,588
Other real estate owned (1)		-		-		498		498
Mortgage servicing rights		-		-		184		184
Total assets	$	-	$	-	$	9,270	$	9,270

(1) Includes assets directly charged-down to fair value during the year-to-date period.

Fair Value Inputs, Assets, Quantitative Information

	Quantitative Information about Level 3 Fair Value Measurements
(Dollars in Thousands)	at March 31, 2014
				Range
Asset  Description	Fair Value	Valuation Technique	Unobservable Input	(Weighted Average)
Impaired loans (1)	$                   3,054	Appraisal	Appraisal Adjustments (2)	0% - 100%  (38.40%)
			Cost to sell	0% - 10%  (4.32%)
Other real estate owned (1)	892	Appraisal	Appraisal Adjustments (2)
			Cost to sell	8%  (8%)
Mortgage servicing rights	176	Discounted Cash Flow (3)
	at December 31, 2013
Impaired loans (1)	$                   8,588	Appraisal	Appraisal Adjustments (2)	0% - 60%  (5%)
			Cost to sell	5% - 13.5%  (7%)
Other real estate owned (1)	498	Appraisal	Appraisal Adjustments (2)
			Cost to sell	8%  (8%)
Mortgage servicing rights	184	Discounted Cash Flow (3)
(1) Includes assets directly charged-down to fair value during the year-to-date period.
(2) Qualitative adjustments are discounts specific to each asset and are made as needed.
(3) Valuation and inputs are determined by a third-party pricing service without adjustment.

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Loans (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Dec. 31, 2013	Mar. 31, 2013	Dec. 31, 2012
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	$ 726,058	$ 723,413
Allowance for loan losses	(9,745)	(9,702)	(10,943)	(10,379)
Net Loans	716,313	713,711
Change Amount	2,645
Change %	0.40%
Allowance for loan losses, Change Amount	(43)
Allowance for loan losses, Change %	(0.40%)
Net Loans, Change Amount	2,602
Net Loans, Change %	0.40%
Net unamortized deferred loan costs included in the loan balances	446	372
Unamortized deferred loan costs included in the loan balances	(74)	(92)
Loans pledged as collateral for borrowings and commitments from: FHLB	582,983	607,524
Loans pledged as collateral for borrowings and commitments from :Federal Reserve Bank	64,669	45,809
Total loans pledged as collateral	647,652	653,333
Residential Real Estate 1-4 Family Consumer First Liens [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	103,107	103,573
Change Amount	(466)
Change %	(0.40%)
Residential Real Estate 1-4 Family Consumer Junior Liens And Lines Of Credit [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	34,606	34,636
Change Amount	(30)
Change %	(0.10%)
Residential Real Estate 1-4 Family Consumer [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	137,713	138,209
Change Amount	(496)
Change %	(0.40%)
Residential Real Estate 1-4 Family Commercial first lien [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	62,002	58,466
Change Amount	3,536
Change %	6.00%
Residential Real Estate 1-4 Family Commercial junior liens and lines of credit [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	5,338	5,939
Change Amount	(601)
Change %	(10.10%)
Residential Real Estate 1-4 Family Commercial [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	67,340	64,405
Change Amount	2,935
Change %	4.60%
Residential Real Estate 1-4 Family [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	205,053	202,614
Change Amount	2,439
Change %	1.20%
Residential Real Estate- Construction Consumer [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	3,188	3,960
Change Amount	(772)
Change %	(19.50%)
Residential Real Estate- Construction Commercial [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	8,565	8,559
Change Amount	6
Change %	0.10%
Residential Real Estate - Construction [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	11,753	12,519
Allowance for loan losses	(374)	(291)	(837)	(899)
Change Amount	(766)
Change %	(6.10%)
Commercial Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	322,450	329,373
Allowance for loan losses	(5,509)	(5,571)	(6,682)	(6,450)
Change Amount	(6,923)
Change %	(2.10%)
Commercial [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	178,986	170,327
Allowance for loan losses	(2,309)	(2,306)	(1,972)	(1,620)
Change Amount	8,659
Change %	5.10%
Total Commercial [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	501,436	499,700
Change Amount	1,736
Change %	0.30%
Consumer [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	7,816	8,580
Allowance for loan losses	(144)	(148)	(183)	(191)
Change Amount	$ (764)
Change %	(8.90%)

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Basis Of Presentation (Policy)

3 Months Ended

Mar. 31, 2014

Basis Of Presentation [Abstract]

Consolidation

The consolidated financial statements include the accounts of Franklin Financial Services Corporation (the Corporation), and its wholly-owned subsidiaries, Farmers and Merchants Trust Company of Chambersburg (the Bank) and Franklin Future Fund Inc.  Farmers and Merchants Trust Company of Chambersburg is a commercial bank that has one wholly-owned subsidiary, Franklin Financial Properties Corp.  Franklin Financial Property Corp. holds real estate assets that are leased by the Bank. Franklin Future Fund Inc. is a non-bank investment company. The activities of non-bank entities are not significant to the consolidated totals.  All significant intercompany transactions and account balances have been eliminated.

In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the consolidated financial position, results of operations, and cash flows as of March 31, 2014, and for all other periods presented have been made.

Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted.  It is suggested that these consolidated financial statements be read in conjunction with the audited consolidated financial statements and notes thereto included in the Corporation’s 2013 Annual Report on Form 10-K.  The consolidated results of operations for the period ended March 31, 2014 are not necessarily indicative of the operating results for the full year.  Management has evaluated subsequent events for potential recognition and/or disclosure through the date these consolidated financial statements were issued.

The consolidated balance sheet at December 31, 2013 has been derived from the audited consolidated financial statements at that date, but does not include all of the information and footnotes required by GAAP for complete consolidated financial statements.

For purposes of reporting cash flows, cash and cash equivalents include cash and due from banks, interest-bearing deposits in other banks and federal funds sold.  Generally, federal funds are purchased and sold for one-day periods. 

Earnings Per Share

Earnings per share are computed based on the weighted average number of shares outstanding during each period end.