10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2013

¨ 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, PA	17201-0819
(Address of principal executive offices)	(Zip Code)

(717) 264-6116

 (Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act

NONE

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, par value $1.00 per share

(Title of class)

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ Nox

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 periods 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.

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

The aggregate market value of the 3,786,319 shares of the Registrant's common stock held by nonaffiliates of the Registrant as of June 30, 2013 based on the price of such shares was $60,581,104.

There were 4,176,588 outstanding shares of the Registrant's common stock as of February 28, 2014.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive annual proxy statement to be filed, pursuant to Reg. 14A within 120 days after December 31, 2013, are incorporated into Part III.

FRANKLIN FINANCIAL SERVICES CORPORATION

FORM 10-K

INDEX

		Page
Part I
Item 1.	Business	3
Item 1A.	Risk Factors	6
Item 1B.	Unresolved Staff Comments	7
Item 2.	Properties	7
Item 3.	Legal Proceedings	7
Item 4.	Mine Safety Disclosures	7
Part II
Item 5.	Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of  Equity Securities	7
Item 6.	Selected Financial Data	11
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	12
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	36
Item 8.	Financial Statements and Supplementary Data	39
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	84
Item 9A.	Controls and Procedures	84
Item 9B.	Other Information	86
Part III
Item 10.	Directors, Executive Officer and Corporate Governance	86
Item 11.	Executive Compensation	86
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	86
Item 13.	Certain Relationships and Related Transaction, and Director Independence	86
Item 14.	Principal Accountant Fees and Services	87
Part IV
Item 15.	Exhibits and Financial Statement Schedules	87
Signatures		88
Index of Exhibits		89

2

Part I

Item 1. Business

General

Franklin Financial Services Corporation (the “Corporation”) was organized as a Pennsylvania business corporation on June 1, 1983 and is a registered bank holding company under the Bank Holding Company Act of 1956, as amended (the “BHCA”). On January 16, 1984, pursuant to a plan of reorganization approved by the shareholders of Farmers and Merchants Trust Company of Chambersburg (“F&M Trust” or “the Bank”) and the appropriate regulatory agencies, the Corporation acquired all the shares of F&M Trust and issued its own shares to former F&M Trust shareholders on a share-for-share basis.

The Corporation’s common stock is thinly traded in the over-the-counter market. The Corporation’s stock is listed under the symbol “FRAF” on the OTCQB Market Tier of the OTC Markets, a trading platform operated by OTC Markets Group for companies that are current in their reporting with a U.S. regulator. The Corporation’s Internet address is www.franklinfin.com. Electronic copies of the Corporation’s 2013 Annual Report on Form 10-K are available free of charge by visiting the “Investor Information” section of www.franklinfin.com. Electronic copies of quarterly reports on Form 10-Q and current reports on Form 8-K are also available at this Internet address. These reports are posted as soon as reasonably practicable after they are electronically filed with the Securities and Exchange Commission (SEC).

The Corporation conducts substantially all of its business through its direct banking subsidiary, F&M Trust, which is wholly owned. F&M Trust, established in 1906, is a full-service, Pennsylvania-chartered commercial bank and trust company, which is not a member of the Federal Reserve System. F&M Trust operates twenty-five community banking offices in Franklin, Cumberland, Fulton and Huntingdon Counties, Pennsylvania, and engages in general commercial, retail banking and trust services normally associated with community banks and its deposits are insured (up to applicable limits) by the Federal Deposit Insurance Corporation (the “FDIC”). F&M Trust offers a wide variety of banking services to businesses, individuals, and governmental entities. These services include, but are not necessarily limited to, accepting and maintaining checking, savings, and time deposit accounts, providing investment and trust services, making loans and providing safe deposit facilities. Franklin Future Fund Inc., a direct subsidiary of the Corporation, is a non-bank investment company that makes venture capital investments within the Corporation’s primary market area. During the first quarter of 2012, Franklin Realty Services Corporation (an inactive real-estate brokerage company and subsidiary of the Bank as of December 31, 2011) merged with Franklin Financial Properties Corp. (a subsidiary of the Corporation at December 31, 2011) with Franklin Financial Properties Corp. becoming the surviving entity and subsidiary of the Bank. Franklin Financial Properties Corp. is a “qualified real estate subsidiary” established to hold real estate assets used by F&M Trust in its banking operations.

F&M Trust is not dependent upon a single customer or a few customers for a material part of its business. Thus, the loss of any customer or identifiable group of customers would not materially affect the business of the Corporation or the Bank in an adverse manner. Also, none of the Bank’s business is seasonal. The Bank’s lending activities consist primarily of commercial real estate, construction and land development, agricultural, commercial and industrial loans, installment and revolving loans to consumers and residential mortgage loans. Secured and unsecured commercial and industrial loans, including accounts receivable and inventory financing, and commercial equipment financing, are made to small and medium-sized businesses, individuals, governmental entities, and non-profit organizations. F&M Trust also participates in Pennsylvania Housing Finance Agency programs and is a Small Business Administration approved lender.

The Bank classifies loans in this report by the type of collateral, primarily residential or commercial and agricultural real estate. Loans secured by residential real estate loans may be further broken down into consumer or commercial purpose. Consumer purpose residential real estate loans represent traditional residential mortgages and home equity products. Both of these products are underwritten in generally the same manner; however, home equity products may present greater risk since many of these loans are secured by a second lien position where the Bank may or may not hold the first lien position. Commercial purpose residential real estate loans represent loans made to businesses, but are secured by residential real estate. These loans are underwritten as commercial loans and the repayment ability may be dependent on the business operation, despite the residential collateral. In addition to the real estate collateral, it is possible that personal guarantees or UCC filings on business assets provide additional security. In certain situations, the Bank acquires properties through foreclosure on delinquent loans. The Bank initially records these properties at the estimated fair value less cost to sell with subsequent adjustments to fair value recorded as needed.

Commercial and agricultural real estate loans are secured by properties such as hotels, warehouses, apartment buildings, retail sites, and farmland or agricultural related properties. These loans are highly dependent on the business operations for repayment. Compared to residential real estate, this collateral may be more difficult to sell in the event of a delinquency.

Construction loans are made to finance the purchase of land and the construction of residential and commercial buildings, and are secured by mortgages on real estate. These loans are primarily comprised of loans to consumers to build a home, and loans to contractors and developers to construct residential properties for resale or rental. Construction loans present various risks that include, but are not limited to: schedule delays, cost overruns, changes in economic conditions during the construction period, and the inability to sell or rent the property upon completion.

Commercial loans are made to businesses and government municipalities of various sizes for a variety of purposes including operations, property, plant and equipment, and working capital. These loans are highly dependent on the business operations for repayment and are generally secured by business assets and personal guarantees. As such, this collateral may be more difficult to sell in the event of a delinquency. Commercial lending, including commercial real estate, is concentrated in the Bank’s primary market, but also includes purchased loan participations originated primarily in south-central Pennsylvania.

Consumer loans are comprised of installment, indirect (primarily automobile) and unsecured personal lines of credit. While some of these loans are secured, the collateral behind the loans is often comprised of assets that lose value quickly (e.g. automobiles) and if repossessed, may not fully satisfy the loan in the event of default. Repayment of these loans is highly dependent on the borrowers’ financial condition that can be affected by economic factors beyond their control and personal circumstances.

F&M Trust’s Investment and Trust Services Department offers all of the personal and corporate trust services normally associated with trust departments including: estate planning and administration, corporate and personal trust fund management, pension, profit sharing and other employee benefit funds management, and custodial services. F&M Trust through licensed members of its Investment and Trust Services Department sells mutual funds, annuities and selected insurance products.

3

The political matters in Washington D.C., and the economy seemed to be the major events of 2013. The country went over the “fiscal cliff”, only to be pulled back after a temporary government shut down, that in many ways went unnoticed. The much anticipated roll-out of the enrollment process for the Affordable Care Act failed badly and has not yet achieved the desired numbers of new enrollees or the desired demographic mix. During 2013, the Federal Reserve continued its policy of quantitative easing (QE) and holding the line on short-term rates. The QE efforts were designed to inject money into the economy via bond purchases and to drive down long-term interest rates and spur hiring and investments. In December 2013, the Federal Reserve announced that it would begin to taper its bond purchases by reducing the purchases from $85 billion a month to $75 billion a month. It announced another $10 billion reduction in purchases in January 2014. Additional tapering is expected throughout 2014, but how the economy is going to respond to this action appears uncertain at this time. In addition to QE, the Federal Reserve continued to hold the line on short-term interest rates keeping the fed funds rate in a range of 0% -.25%. The Federal Reserve had previously stated that it would maintain the low rate environment until the unemployment rate fell below 6.5%. While the unemployment rate fell to 6.7% at the end of 2013, there are mixed opinions as to the reasons for the improvement in the rate. Therefore, the Federal Reserve has moved off the unemployment rate as an official target for an increase in short-term rates and has signaled that it will look to the inflation rate as a signal to move rates. At this time, it appears as if the short-term rates will remain low until well into 2015. A prolonged period of low rates is not beneficial to improving the Bank’s net interest margin. Commercial lending activity remained slow in 2013 with fewer credit worthy customers and many banks chasing a small group of good credit customers. Residential mortgage lending declined slightly as a mid-year uptick in rates slowed refinance activity. For more economic information about the Corporation’s market area, see the Economy discussion in Item 7, Management’s Discussion and Analysis.

With short-term interest rates remaining at very low levels during 2013 and the continued financial uncertainty of the economy, consumers continue to move deposits to short-term, liquid deposit products. As a result, the Bank has experienced a reduction in longer-term certificates of deposit and an increase in money management accounts. Until short-term rates increase and the economy begins to recover, the Bank expects that customers will continue to prefer shorter, liquid deposits and certificates of deposit will continue to decline.

Competition

The Corporation and its banking subsidiary operate in a highly competitive environment. The principal market of F&M Trust is in south central Pennsylvania, primarily the counties of Franklin, Cumberland, Fulton and Huntingdon. There are 24 competing commercial banks that have offices within the Corporation’s primary market area. These banks range from large regional banks to independent community banks. In addition, credit unions, savings and loan associations, mortgage banks, brokerage firms and other competitors with only an Internet site are present in the market. The Bank has 25 community offices and approximately 11% of the total deposits. The majority of the Bank’s loan and deposit customers are in Franklin County. There are 6 commercial bank competitors in Franklin County and the Bank has approximately 29% of the deposit market share.

Because of increasing competition, profit margins in the traditional banking business of lending and gathering deposits have declined and many nonbanking institutions offer services similar to those offered by the Bank. Some competitors have access to resources (e.g., financial and technological) that are unavailable to the Bank, thereby creating a competitive disadvantage for the Bank in terms of product and service pricing and delivery. The Bank utilizes various strategies including its long history of local customer service and convenience as part of a relationship management culture, a wide variety of products and services and, to a lesser extent, the pricing of loans and deposits, to compete. F&M Trust is the largest financial institution headquartered in Franklin County and had total assets of approximately $985 million on December 31, 2013.

Staff

As of December 31, 2013, the Corporation and its banking subsidiary had 275 full-time equivalent employees. The officers of the Corporation are employees of the Bank. Most employees participate in pension, incentive compensation plans, 401(k) plan and employee stock purchase plans and are provided with group life and health insurance. Management considers employee relations to be excellent.

Supervision and Regulation

Various requirements and restrictions under the laws of the United States and under Pennsylvania law affect the Corporation and its subsidiaries.

General

The Corporation is registered as a bank holding company and is subject to supervision and regulation by the Board of Governors of the Federal Reserve System under the Bank Holding Act of 1956, as amended. The Corporation has also made an effective election to be treated as a "financial holding company." Financial holding companies are bank holding companies that meet certain minimum capital and other standards and are therefore entitled to engage in financially related activities on an expedited basis; see further discussion below. Bank holding companies are required to file periodic reports with and are subject to examination by the Federal Reserve Board. The Federal Reserve Board has issued regulations under the Bank Holding Company Act that require a bank holding company to serve as a source of financial and managerial strength to its subsidiary banks. As a result, the Federal Reserve Board, pursuant to such regulations, may require the Corporation to stand ready to use its resources to provide adequate capital funds to its Bank subsidiary during periods of financial stress or adversity.

The Bank Holding Company Act prohibits the Corporation from acquiring direct or indirect control of more than 5% of the outstanding shares of any class of voting stock, or substantially all of the assets of any bank, or from merging or consolidating with another bank holding company, without prior approval of the Federal Reserve Board. Additionally, the Bank Holding Company Act prohibits the Corporation from engaging in or from acquiring ownership or control of more than 5% of the outstanding shares of any class of voting stock of any company engaged in a non-banking business, unless such business is determined by the Federal Reserve Board to be so closely related to banking as to be a proper incident thereto. Federal law and Pennsylvania law also require persons or entities desiring to acquire certain levels of share ownership (generally, 10% or more, or 5% or more for another bank holding company) of the Corporation to first obtain prior approval from the Federal Reserve and the Pennsylvania Department of Banking.

As a Pennsylvania bank holding company for purposes of the Pennsylvania Banking Code, the Corporation is also subject to regulation and examination by the Pennsylvania Department of Banking.

The Bank is a state chartered bank that is not a member of the Federal Reserve System, and its deposits are insured (up to applicable limits) by the Federal Deposit Insurance Corporation (FDIC). Accordingly, the Bank's primary federal regulator is the FDIC, and the Bank is subject to extensive regulation and examination by the FDIC and the Pennsylvania Department of Banking. The Bank is also subject to requirements and restrictions under federal and state law, including requirements to maintain reserves against deposits, restrictions on the types and amounts of loans that may be granted and the interest that may be charged thereon, and limitations on the types of investments that may be made and the types of services that may be offered. The Bank is subject to extensive regulation and reporting requirements in a variety of areas, including helping to prevent money laundering, to preserve financial privacy, and to properly report late payments, defaults, and denials of loan applications. The Community Reinvestment Act requires the Bank to help meet the credit needs of the entire community where the Bank operates, including low and moderate-income neighborhoods. The Bank's rating under the Community Reinvestment Act (CRA), assigned by the FDIC pursuant to an examination of the Bank, is important in determining whether the bank may receive approval for, or utilize certain streamlined procedures in, applications to engage in new activities. The Bank’s present CRA rating is “satisfactory.” Various consumer laws and regulations also affect the operations of the Bank. In addition to the impact of regulation, commercial banks are affected significantly by the actions of the Federal Reserve Board as it attempts to control the money supply and credit availability in order to influence the economy.

4

Capital Adequacy Guidelines

Bank holding companies are required to comply with the Federal Reserve Board's risk-based capital guidelines. The required minimum ratio of total capital to risk-weighted assets (including certain off-balance sheet activities, such as standby letters of credit) is 8%. At least half of the total capital is required to be "Tier 1 capital," consisting principally of common shareholders' equity less certain intangible assets. The remainder ("Tier 2 capital") may consist of certain preferred stock, a limited amount of subordinated debt, certain hybrid capital instruments and other debt securities, and a limited amount of the general loan loss allowance and deferred tax accounts. The risk-based capital guidelines are required to take adequate account of interest rate risk, concentration of credit risk, and risks of nontraditional activities.

In addition to the risk-based capital guidelines, the Federal Reserve Board requires a bank holding company to maintain a leverage ratio of a minimum level of Tier 1 capital (as determined under the risk-based capital guidelines) equal to 3% of average total consolidated assets for those bank holding companies which have the highest regulatory examination ratings and are not contemplating or experiencing significant growth or expansion. All other bank holding companies are required to maintain a ratio of at least 1% to 2% above the stated minimum. The Bank is subject to almost identical capital requirements adopted by the FDIC. In addition to FDIC capital requirements, the Pennsylvania Department of Banking also requires state chartered banks to maintain a 6% leverage capital level and 10% risk based capital, defined substantially the same as the federal regulations.

Basel III

In July 2013, Federal banking regulators approved the final rules from the Basel Committee on Banking Supervision for the regulation of capital requirements for U.S banks, generally referred to as “Basel III.” Basel III imposes significantly higher capital requirements and more restrictive leverage and liquidity ratios than those currently in place. The capital ratios to be considered “well capitalized” under Basel III are: common equity of 6.5%, Tier 1 leverage of 5%, Tier 1 risk-based capital of 8%, and Total Risk-Based capital of 10%. The common equity ratio is a new capital ratio under Basel III and the Tier 1 risk-based capital ratio of 8% has been increased from 6%. In addition, a capital conservation buffer of 2.5% above the minimum capital ratios is required to avoid any capital distribution restrictions. Certain components of the new capital requirements are effective January, 2015 with others being phased in through January 1, 2019. As of December 31, 2013, the Management believes that the Bank would remain “well capitalized’ under the new rules.

Prompt Corrective Action Rules

The federal banking agencies have regulations defining the levels at which an insured institution would be considered "well capitalized," "adequately capitalized," "undercapitalized," "significantly undercapitalized" and "critically undercapitalized." The applicable federal bank regulator for a depository institution could, under certain circumstances, reclassify a "well-capitalized" institution as "adequately capitalized" or require an "adequately capitalized" or "undercapitalized" institution to comply with supervisory actions as if it were in the next lower category. Such a reclassification could be made if the regulatory agency determines that the institution is in an unsafe or unsound condition (which could include unsatisfactory examination ratings). At December 31, 2013, the Corporation and the Bank each satisfied the criteria to be classified as "well capitalized" within the meaning of applicable regulations.

Regulatory Restrictions on Dividends

Dividend payments by the Bank to the Corporation are subject to the Pennsylvania Banking Code, the Federal Deposit Insurance Act, and the regulations of the FDIC. Under the Banking Code, no dividends may be paid except from "accumulated net earnings" (generally, retained earnings). The Federal Reserve Board and the FDIC have formal and informal policies which provide that insured banks and bank holding companies should generally pay dividends only out of current operating earnings, with some exceptions. The Prompt Corrective Action Rules, described above, further limit the ability of banks to pay dividends, because banks that are not classified as well capitalized or adequately capitalized may not pay dividends.

Volker Rule

In December 2013, Federal banking regulators issued rules for complying with the Volker Rule provision of the Dodd-Frank Act. The Bank does not engage in, or expects to engage in, any transactions that are considered “covered activities” as defined by the Volker Rule. Therefore, the Bank does not have any compliance obligations under the Volker Rule.

Ability to Repay / Qualified Mortgages

In July 2013, the Consumer Finance Protection Bureau adopted the final rules that implement the Ability to Repay (ATR) / Qualified Mortgages (QM) provisions of the Dodd-Frank Act. Regulators believe that the ATR/QM rules will prevent many of the loose underwriting practices that contributed to the mortgage crisis in 2008. The ATR/QM rule applies to almost all closed-end consumer credit transactions secured by a dwelling. The ATR rule provides eight specific factors that must be considered during the underwriting process. QMs generally have three types of requirements: restrictions on loan features, points and fees, and underwriting criteria. A QM is presumed to comply with the ATR requirements. The ATR/QM rule was effective January 10, 2014. The Bank believes compliance with the new rules will increase our compliance costs, may affect the volume of residential mortgage loans that we originate, and may subject us to increased potential liability related to our residential mortgage loan activities.

Stress Testing

The Dodd-Frank Act requires stress testing by bank holding companies and banks having more than $10 billion but less than $50 billion of consolidated assets. Stress tests assess the potential impact of scenarios on the consolidated earnings, balance sheet and capital of a bank holding company or bank over a designated planning horizon of nine quarters, taking into account the organization’s current condition, risks, exposures, strategies and activities. Although this provision of the Dodd-Frank Act and related regulations do not apply to the Corporation and the Bank because of their smaller sizes, federal banking regulators have indicated that stress testing is a “best practice” that is expected of all banks.

Pennsylvania Regulation and Supervision

In December 2012, the “Banking Law Modernization Package” became effective. The law permits banks to disclose formal enforcement actions initiated by the Pennsylvania Department of Banking and Securities, clarifies that the Department has examination and enforcement authority over subsidiaries as well as affiliates of regulated banks, and bolsters the Department’s enforcement authority over its regulated institutions by clarifying its ability to remove directors, officers and employees from institutions for violations of laws or orders or for any unsafe or unsound practice or breach of fiduciary duty. The Department also may assess civil money penalties of up to $25,000 per violation.

FDIC Insurance

The Bank is a member of the Deposit Insurance Fund (DIF), which is administered by the FDIC. The FDIC insures deposit accounts at the Bank, generally up to a maximum of $250,000 for each separately insured depositor. The FDIC charges a premium to depository institutions for deposit insurance. This rate is based on the risk category of the institution and the total premium is based on average total assets less average tangible equity. As of December 31, 2013, the Bank was in risk category 1 and its assessment rate was approximately 9 basis points of the assessment base. Dodd-Frank established a new minimum DIF ratio set at 1.35% of estimated insured deposits. The FDIC is required to attain this ratio by September 30, 2020 and its efforts to achieve this ratio could greatly influence future premium rates.

Insurance of deposits may be terminated by the FDIC upon a finding that an institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC. We do not currently know of any practice, condition or violation that might lead to termination of our deposit insurance.

In addition to the FDIC assessments, the Financing Corporation (“FICO”) is authorized to impose and collect, with the approval of the Federal Deposit Insurance Corporation, assessments for anticipated payments, issuance costs and custodial fees on bonds issued by the FICO in the 1980s to recapitalize the former Federal Savings and Loan Insurance Corporation. The bonds issued by the FICO are due to mature from 2017 to 2019. The Bank’s FICO assessment was approximately $61 thousand in 2013 and was included in FDIC insurance expense.

New Legislation

Congress is often considering new financial industry legislation, and the federal banking agencies routinely propose new regulations. The Corporation cannot predict how any new legislation, or new rules adopted by the federal banking agencies, may affect its business in the future.

5

Selected Statistical Information

Certain statistical information is included in this report as part of Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Item 1A. Risk Factors

The following is a summary of the primary risks associated with the Corporation’s business, financial condition and results of operations, and common stock.

Risk Factors Relating to the Corporation

A focus on real estate related loans may increase the risk of substantial credit losses.

The Bank offers a variety of loan products, including residential mortgage, consumer, construction and commercial loans. The Bank requires real estate as collateral for many of its loans. At December 31, 2013, approximately 75% of its loans were secured by real estate. Loans to fund residential real estate construction are 2% of total loans; loans secured by residential real estate are 28% of the total, and commercial, industrial and agricultural real estate loans total 45% of the total loan portfolio. These real estate loans are located primarily in the Bank’s market area of south central Pennsylvania. Real estate values tend to follow changes in general economic cycles. As a result, if a loan becomes delinquent as the result of an economic downturn and the Bank becomes dependent on the real estate collateral as a source of repayment, it is likely that the value of the real estate collateral has also declined. A decline in real estate values means it is possible that the real estate collateral may be insufficient to cover the outstanding balance of a delinquent or foreclosed loan, resulting in a loss to the Bank. In addition, the real estate collateral is concentrated in a small market area of south central Pennsylvania. As a result, localized events that affect real estate prices and collateral values could have a more negative affect on the Bank as compared to other competitors with a more geographically diverse portfolio. As the Bank grows, it is expected that the percentage of real estate loans, specifically commercial real estate, will grow. Risk of loan default is unavoidable in the banking industry, and Management tries to limit exposure to this risk by carefully monitoring the amount of loans in specific industries and by exercising prudent lending practices and securing appropriate collateral. However, this risk cannot be eliminated and substantial credit losses could result in reduced earnings or losses.

The allowance for loan losses may prove to be insufficient to absorb inherent losses in our loan portfolio.

The Bank maintains an allowance for loan losses that Management believes is appropriate to provide for any inherent losses in the loan portfolio. The amount of the allowance is determined through a periodic review and consideration of several factors, including an ongoing review of the quality, size and diversity of our loan portfolio; evaluation of nonperforming loans; historical loan loss experience; and the amount and quality of collateral, including guarantees, securing the loan.

Although Management believes the loan loss allowance is adequate to absorb inherent losses in the loan portfolio, such losses cannot be predicted and the allowance may not be adequate. Excessive loan losses could have a material adverse effect on the Bank’s financial condition and results of operations.

The Bank’s lending limit is smaller than many of our competitors, which affects the size of the loans it can offer customers.

The Bank’s lending limit is approximately $14.6 million. Accordingly, the size of the loans that can be offered to customers is less than the size of loans that many of our competitors, with larger lending limits, can offer. This limit affects the Bank’s ability to seek relationships with larger businesses in its market area. Loan amounts in excess of the lending limits can be accommodated through the sale of participations in such loans to other banks. However, there can be no assurance that the Bank will be successful in attracting or maintaining customers seeking larger loans or that it will be able to engage in participation of such loans or on terms favorable to the Bank.

There is strong competition in the Bank’s primary market areas.

The Bank encounters strong competition from other financial institutions in its primary market area, which consists of Franklin, Cumberland, Fulton and Huntingdon Counties, Pennsylvania. In addition, established financial institutions not already operating in the Bank’s primary market area may open branches there at future dates or can compete in the market via the Internet. In the conduct of certain aspects of banking business, the Bank also competes with savings institutions, credit unions, mortgage banking companies, consumer finance companies, insurance companies and other institutions, some of which are not subject to the same degree of regulation or restrictions as are imposed upon the Bank. Many of these competitors have substantially greater resources and lending limits and can offer services that the Bank does not provide. In addition, many of these competitors have numerous branch offices located throughout their extended market areas that provide them with a competitive advantage. No assurance can be given that such competition will not have an adverse effect on the Bank’s financial condition and results of operations.

Changes in interest rates could have an adverse impact upon our results of operations.

The Bank’s profitability is in part a function of the spread between interest rates earned on investments, loans and other interest-earning assets and the interest rates paid on deposits and other interest-bearing liabilities. Recently, interest rate spreads have generally narrowed due to changing market conditions and competitive pricing pressure. Interest rates are highly sensitive to many factors that are beyond the Bank’s control, including general economic conditions and policies of various governmental and regulatory agencies and, in particular, the Board of Governors of the Federal Reserve System. Changes in monetary policy, including changes in interest rates, will influence not only the interest received on loans and investment securities and the amount of interest we pay on deposits and borrowings, but will also affect the Bank’s ability to originate loans and obtain deposits and the value of our investment portfolio. If the rate of interest paid on deposits and other borrowings increases more than the rate of interest earned on loans and other investments, the Bank’s net interest income, and therefore earnings, could be adversely affected. Earnings could also be adversely affected if the rates on loans and other investments fall more quickly than those on deposits and other borrowings. While Management takes measures to guard against interest rate risk, there can be no assurance that such measures will be effective in minimizing the exposure to interest rate risk.

Risk Factors Relating to the Common Stock

There is a limited trading market for the Corporation’s common stock.

There is currently only a limited public market for the Corporation’s common stock. It is quoted on the OTCQB Market Tier of the OTC Markets under the symbol “FRAF” (www.otcmarkets.com/stock/FRAF/quote). Because it is thinly traded, you may not be able to resell your shares of common stock for a price that is equal to the price that you paid for your shares. The Corporation currently has no plans to apply to have its common stock listed for trading on any stock exchange or the NASDAQ market.

6

The Bank's ability to pay dividends to the Corporation is subject to regulatory limitations that may affect the Corporation’s ability to pay dividends to its shareholders.

As a holding company, the Corporation is a separate legal entity from the Bank and does not have significant operations of its own. It currently depends upon the Bank's cash and liquidity to pay dividends to its shareholders. The Corporation cannot assure you that in the future the Bank will have the capacity to pay dividends to the Corporation. Various statutes and regulations limit the availability of dividends from the Bank. It is possible; depending upon the Bank's financial condition and other factors, that the Bank’s regulators could assert that payment of dividends by the Bank to the Corporation would constitute an unsafe or unsound practice. In the event that the Bank is unable to pay dividends to the Corporation, the Corporation may not be able to pay dividends to its shareholders.

Item 1B. Unresolved Staff Comments

None

Item 2. Properties

The Corporation’s headquarters is located in the main office of F&M Trust at 20 South Main Street, Chambersburg, Pennsylvania. This location also houses a community banking office as well as operational support services for the Bank. The Corporation owns or leases thirty-eight properties in Franklin, Cumberland, Fulton and Huntingdon Counties, Pennsylvania, for banking operations, as described below:

Property	Owned		Leased
Community Banking Offices		18		7
Remote ATM Sites		3		6
Other Properties		2		2

Item 3. Legal Proceedings

The nature of our 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 nor are known to be threatened or contemplated against us by governmental authorities or other parties.

Item 4. Mine Safety Disclosures

Not Applicable

Part II

Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities

Market and Dividend Information

The Corporation’s common stock is thinly traded in the over-the-counter market. It is quoted on the OTCQB Market Tier of the OTC Markets under the symbol “FRAF” (www.otcmarkets.com/stock/FRAF/quote). Current price information is available from account executives at most brokerage firms as well as the registered market makers of Franklin Financial Services Corporation common stock as listed below under Shareholders’ Information.

The range of high and low bid prices is shown in the following table for the years 2013 and 2012, as well as cash dividends declared for those periods. The bids reflect interdealer quotations, do not include retail mark-ups, markdowns or commissions, and may not necessarily represent actual transactions. The closing price of Franklin Financial Services Corporation common stock recorded from an actual transaction on December 31, 2013 was $17.10. The Corporation had 1,984 shareholders of record as of December 31, 2013.

7

Market and Dividend Information

Bid Price Range Per Share

	2013						2012
					Dividends						Dividends
(Dollars per share)	High		Low		Declared		High		Low		Declared
First quarter	$	17.05	$	13.81	$	0.17	$	15.85	$	12.30	$	0.27
Second quarter		16.25		15.75		0.17		15.75		12.86		0.17
Third quarter		16.60		15.85		0.17		14.29		13.10		0.17
Fourth quarter		17.10		15.95		0.17		14.75		13.65		0.17
					$	0.68					$	0.78

For limitations on the Corporation’s ability to pay dividends, see “Supervision and Regulation – Regulatory Restrictions on Dividends” in Item 1 above.

The information related to equity compensation plans is incorporated by reference to the materials set forth under the heading “ Executive Compensation – Compensation Tables” in the Corporation’s Proxy Statement for the 2014 Annual Meeting of Shareholders.

Common Stock Repurchases:

The Corporation frequently authorizes the repurchase of its common stock through a stock repurchase plan. The common shares of the Corporation are purchased in the open market or in privately negotiated transactions. The Corporation uses the repurchased common stock (Treasury stock) for general corporate purposes including stock dividends and splits, employee benefit and executive compensation plans, and the dividend reinvestment plan. The Corporation did not repurchase any shares in 2013 or 2012.

The following graph compares the cumulative total return to shareholders of Franklin Financial with the NASDAQ – Total U.S. Index (a broad market index prepared by the Center for Research in Security Prices at the University of Chicago Graduate School of Business) and with the Northeast OTC-BB and Pink Banks Index (an industry-specific index prepared by SNL Financial LC) for the five year period ended December 31, 2013, in each case assuming an initial investment of $100 on December 31, 2008 and the reinvestment of all dividends.

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	Period Ending
Index	12/31/08		12/31/09		12/31/10		12/31/11		12/31/12		12/31/13
Franklin Financial Services Corporation	$	100.00	$	95.36	$	113.51	$	81.73	$	97.89	$	124.76
NASDAQ Composite	$	100.00	$	145.36	$	171.74	$	170.38	$	200.63	$	281.22
SNL Northeast OTC-BB & Pink Banks	$	100.00	$	93.96	$	102.31	$	100.15	$	115.36	$	136.17

9

Shareholders’ Information

Dividend Reinvestment Plan:

Franklin Financial Services Corporation offers a dividend reinvestment program whereby shareholders of the Corporation’s common stock may reinvest their dividends in additional shares of the Corporation. Beneficial owners of shares of the Corporation’s common stock may participate in the program by making appropriate arrangements through their bank, broker or other nominee. Information concerning this optional program is available by contacting the Corporate Secretary at 20 South Main Street, P.O. Box 6010, Chambersburg, PA 17201-6010, telephone 717-264-6116.

Dividend Direct Deposit Program:

Franklin Financial Services Corporation offers a dividend direct deposit program whereby shareholders of the Corporation’s common stock may choose to have their dividends deposited directly into the bank account of their choice on the dividend payment date. Information concerning this optional program is available by contacting the Corporate Secretary at 20 South Main Street, P.O. Box 6010, Chambersburg, PA 17201-6010, telephone 717-264-6116.

Annual Meeting:

The Annual Shareholders’ Meeting will be held on Tuesday, April 29, 2014, at the Orchard Restaurant & Banquet Facility, 1580 Orchard Drive, Chambersburg, PA. The Business Meeting will begin at 9:00 a.m. with breakfast provided.

Websites:

Franklin Financial Services Corporation:	www.franklinfin.com
Farmers & Merchants Trust Company:	www.fmtrustonline.com

Stock Information:

The following brokers are registered as market makers of Franklin Financial Services Corporation’s common stock:

RBC Wealth Management	2101 Oregon Pike, Lancaster, PA 17601	800-456-9234
Boenning & Scattergood, Inc.	4 Tower Bridge, 200 Bar Harbor Drive, Suite 300,
	West Conshohocken, PA 19428	800-883-1212
Stifel, Nicolaus & Co	20 Ash Street, Suite 400, Conshohocken, PA  19428	800-223-6807
Raymond James and Associates, Inc.	222 South Riverside Plaza, 7th Floor, Chicago, IL  60606	866-353-7522

Registrar and Transfer Agent:

The registrar and transfer agent for Franklin Financial Services Corporation is Registrar and Transfer Company, 10 Commerce Drive, Cranford, NJ 07016-3572. Telephone 1-800-456-0596.

10

Item 6. Selected Financial Data

	Summary of Selected Financial Data for the Year Ended December 31
	2013			2012			2011			2010			2009
(Dollars in thousands, except per share)
Summary of operations
Interest income	$	36,042		$	39,142		$	41,791		$	43,284		$	43,757
Interest expense		4,378			6,890			9,154			12,443			14,674
Net interest income		31,664			32,252			32,637			30,841			29,083
Provision for loan losses		2,920			5,225			7,524			3,235			3,438
Net interest income after provision for loan losses		28,744			27,027			25,113			27,606			25,645
Noninterest income		9,877			9,451			10,200			9,366			8,880
Noninterest expense		31,094			30,601			28,333			26,423			25,929
Income before income taxes		7,527			5,877			6,980			10,549			8,596
Income tax		1,295			512			411			2,937			2,011
Net income	$	6,232		$	5,365		$	6,569		$	7,612		$	6,585
Performance measurements
Return on average assets		0.61	%		0.51	%		0.66	%		0.78	%		0.69	%
Return on average equity		6.72	%		6.00	%		7.68	%		9.34	%		8.69	%
Return on average tangible assets (1)		0.64	%		0.55	%		0.70	%		0.82	%		0.74	%
Return on average tangible equity (1)		7.86	%		7.14	%		9.30	%		11.27	%		10.79	%
Efficiency ratio (2)		72.01	%		70.44	%		63.46	%		63.43	%		65.35	%
Net interest margin		3.47	%		3.50	%		3.73	%		3.53	%		3.44	%
Current dividend yield		3.98	%		4.86	%		8.74	%		5.92	%		6.61	%
Dividend payout ratio		45.09	%		59.09	%		65.05	%		55.10	%		62.95	%
Shareholders' Value (per common share)
Diluted earnings per share	$	1.51		$	1.32		$	1.66		$	1.96		$	1.71
Basic earnings per share		1.51			1.32			1.66			1.96			1.71
Regular cash dividends paid		0.68			0.78			1.08			1.08			1.08
Book value		22.88			22.31			21.67			21.09			20.39
Tangible book value (3)		20.55			19.84			19.04			18.28			17.38
Market value		17.10			14.00			12.35			18.25			16.33
Market value/book value ratio		74.74	%		62.75	%		56.99	%		86.53	%		80.09	%
Price/earnings multiple		11.32			10.61			7.44			9.31			9.55
Balance Sheet Highlights
Total assets	$	984,587		$	1,027,363		$	990,248		$	951,889		$	979,373
Investment securities		159,674			133,328			125,301			117,616			143,288
Loans, net		713,711			743,200			756,687			739,841			730,626
Deposits and customer repurchase agreements		869,558			916,649			841,089			785,495			794,220
Shareholders' equity		95,388			91,634			87,182			82,639			78,766
Safety and Soundness
Risk-based capital ratio (Total)		14.24	%		12.60	%		12.14	%		11.73	%		10.89	%
Leverage ratio (Tier 1)		9.14	%		8.29	%		8.40	%		8.16	%		7.50	%
Common equity ratio		9.69	%		8.92	%		8.80	%		8.68	%		8.04	%
Tangible common equity ratio (4)		8.79	%		8.01	%		7.82	%		7.61	%		6.94	%
Nonperforming loans/gross loans		3.49	%		4.90	%		2.94	%		3.68	%		2.47	%
Nonperforming assets/total assets		3.04	%		4.10	%		2.60	%		2.96	%		1.93	%
Allowance for loan losses as a % of loans		1.34	%		1.38	%		1.27	%		1.18	%		1.21	%
Net charge-offs/average loans		0.49	%		0.60	%		0.86	%		0.45	%		0.26	%
Average equity to average asset ratio		9.01	%		8.60	%		8.63	%		8.36	%		7.98	%
Trust assets under management (fair value)	$	574,680		$	520,434		$	481,536		$	490,420		$	460,233

(1) Excludes goodwill, intangibles and intangible amortization expense, net of tax

(2) Noninterest expense / tax equivalent net interest income plus noninterest income less net securities gains

(3) Total shareholders' equity less goodwill and intangibles / shares outstanding

(4) Total shareholders' equity less goodwill and intangibles / total assets less goodwill and intangibles

11

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Application of Critical Accounting Policies:

Disclosure of the Corporation’s significant accounting policies is included in Note 1 to the consolidated financial statements. These policies are particularly sensitive requiring significant judgments, estimates and assumptions to be made by Management. Senior management has discussed the development of such estimates, and related Management Discussion and Analysis disclosure, with the Audit Committee of the Board of Directors. The following accounting policies are the ones identified by management to be critical to the results of operations:

Allowance for Loan Losses – The allowance for loan losses is the estimated amount considered adequate to cover credit losses inherent in the loan portfolio at the balance sheet date. The allowance is established through the provision for loan losses, charged against income. In determining the allowance for loan losses, Management makes significant estimates and, accordingly, has identified this policy as probably the most critical for the Corporation.

Management performs a monthly evaluation of the adequacy of the allowance for loan losses by asset class. 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, borrowers’ actual or perceived financial and managerial strengths, the adequacy of the underlying collateral (if collateral dependent) and other relevant factors. This evaluation is inherently subjective, as it requires 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.

The analysis has two components, specific and general allocations. Expected cash flow or collateral values discounted for market conditions and selling costs are used to establish specific allocations. The Bank’s historical loan loss experience and other qualitative factors derived from economic and market conditions are used to establish general allocations for the remainder of the portfolio. The allowance for loan losses was $9.7 million at December 31, 2013.

Management monitors the adequacy of the allowance for loan losses on an ongoing basis and reports its adequacy assessment quarterly to the Credit Risk Oversight Committee of the Board of Directors.

Financial Derivative – As part of its interest rate risk management strategy, the Bank has entered into an interest rate swap agreement. A swap agreement is a contract between two parties to exchange cash flows based upon an underlying notional amount. Under the swap agreement, the Bank pays a fixed rate and receives a variable rate from an unrelated financial institution serving as counter-party to the agreement. The swap is designated as a cash flow hedge and is designed to minimize the variability in cash flows of the Bank’s variable rate liabilities attributable to changes in interest rates. The swap in effect converts a portion of a variable rate liability to a fixed rate liability.

The interest rate swap is recorded on the balance sheet at fair value as an asset or liability. To the extent the swap is effective in accomplishing its objective, changes in the fair value are recorded in other comprehensive income. To the extent the swap is not effective, changes in fair value are recorded in interest expense. Cash flow hedges are determined to be highly effective when the Bank achieves offsetting changes in the cash flows of the risk being hedged. The Bank measures the effectiveness of the hedges on a quarterly basis and it has determined the hedges are highly effective. Fair value is heavily dependent upon the market’s expectations for interest rates over the remaining term of the swaps.

Restricted Stock - Restricted stock, which is carried at cost, consists of stock of the Federal Home Loan Bank of Pittsburgh (FHLB) and Atlantic Central Bankers Bank (ACBB). Management evaluates the restricted stock for impairment in accordance with ASC Topic 320. Management’s determination of whether these investments are impaired is based on their assessment of the ultimate recoverability of their cost rather than by recognizing temporary declines in value. The determination of whether a decline affects the ultimate recoverability of their cost is influenced by criteria such as (1) the significance of the decline in net assets of the banks as compared to the capital stock amount for the banks and the length of time this situation has persisted, (2) commitments by the banks to make payments required by law or regulation and (3) the impact of legislative and regulatory changes on institutions and, accordingly, on the customer base of the banks.

Stock-based Compensation – The Corporation has two stock compensation plans in place consisting of an Employee Stock Purchase Plan (ESPP) and an Incentive Stock Option Plan (ISOP).

The Corporation accounts for stock compensation plans in accordance with FASB Accounting Standards Codification Topic 718, “Stock Compensation.” ASC Topic 718 requires compensation costs related to share-based payment transactions to be recognized in the financial statements (with limited exceptions). The amount of compensation cost is measured on the grant-date fair value of the equity or liability instruments issued. Compensation cost is recognized over the period that an employee provides services in exchange for the award.

The Corporation calculates the compensation cost of the options by using the Black-Scholes method to determine the fair value of the options granted. In calculating the fair value of the options, the Corporation makes assumptions regarding the risk-free rate of return, the expected volatility of the Corporation’s common stock, dividend yield and the expected life of the option. These assumptions are made independently for the ESPP and the ISOP and if changed, would change the compensation cost of the options and net income. Note 1 of the accompanying financial statements provides additional information about stock option expense.

Federal Income Taxes – Deferred income taxes are provided on the liability method whereby deferred tax assets are recognized for deductible temporary differences and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance, when in the opinion of management, it is more likely than not that some portion or all deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted through the provision for income taxes for the effects of changes in tax laws and rates on the date of enactment. ASC Topic 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Benefits from tax positions should be recognized in the financial statements only when it is more-likely-than-not that the tax position will be sustained upon examination by the appropriate taxing authority that would have full knowledge of all relevant information. A tax position that meets the more-likely-than-not recognition threshold is measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not recognition threshold should be derecognized in the first subsequent financial reporting period in which that threshold is no longer met. ASC Topic 740, “Income Taxes” also provides guidance on the accounting for and disclosure of unrecognized tax benefits, interest and penalties.

Temporary Investment Impairment – Investment securities are written down to their net realizable value when there is impairment in value that is considered to be “other-than-temporary.” The determination of whether or not “other-than-temporary” impairment exists is a matter of judgment. Management reviews investment securities regularly for possible impairment that is “other-than-temporary” by analyzing the facts and circumstances of each investment and the expectations for that investment’s performance. “Other-than-temporary” impairment in the value of an investment may be indicated by the length of time and the extent to which market value has been less than cost; the financial condition and near term prospects of the issuer; and whether the Corporation has the intent to sell or is likely to be forced to sell the investment prior to any anticipated recovery in market value.

12

GAAP versus Non-GAAP Presentations – 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

Results of Operations:

Management’s Overview

The following discussion and analysis is intended to assist the reader in reviewing the financial information presented and should be read in conjunction with the consolidated financial statements and other financial data presented elsewhere herein.

Franklin Financial Services Corporation reported a 16.2% increase in net income for 2013. Net interest income declined by 1.8%; however, the bottom line was increased by a significant reduction in the provision for loan losses. The Corporation saw a reduction in loan charge-offs and an improvement in the quality of its loan portfolio that allowed for a lower provision expense. Noninterest income increased by 4.5% due primarily to an increase in fee income from investment and trust services and a reduction in losses on other real estate owned (OREO). Noninterest expense held steady during the year with only a 1.6% increase over 2012. Diluted earnings per share increased from $1.32 in 2012 to $1.51 in 2013, and the Corporation declared and paid a dividend of $0.68 per share. After closing at more than $1.0 billion in assets on December 31, 2012, the balance sheet contracted during 2013 and closed 2013 at $984.6 million. Net loans decreased $29.5 million, primarily in the commercial loan portfolio. Deposits declined $28.7 million due to reductions in the brokered CD portfolio from scheduled maturities and prepayments of higher rate CDs. Shareholders’ equity continued to increase during the year from retained earnings and investments from the dividend reinvestment plan. Other key performance measurements are presented above in Item 6, Selected Financial Data.

A more detailed discussion of the areas that had the greatest effect on the reported results follows.

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. 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. The components of net interest income are detailed in Tables 1, 2 and 3.

2013 versus 2012

Summary: Tax equivalent net interest income (Table 1) declined by 2% during 2013. The average balance of interest-earning assets declined during the year and the yield on these assets fell by 29 basis points; therefore, tax-equivalent interest income declined (see Table 3). Likewise, Table 3 also shows that the average balance of interest-bearing liabilities declined during the year and the cost of these deposits also fell by 29 basis points. As a result, tax-equivalent net interest income declined by $675 thousand and the net interest margin as a percentage of earning assets fell from 3.50% in 2012 to 3.47% in 2013. Table 2 shows that changes in interest rates had a larger negative effect on net interest income than did the changes in the balance sheet.

Assets: Table 3 shows the average balance and yield on the major asset classes on the Corporation’s balance sheet. Average interest earning assets and the yield on these assets declined during 2013. The low interest rate environment that continues to be supported by Federal Reserve actions continues to push asset yields down on both new assets and the repricing of existing assets.

The investment portfolio averaged $152.6 million in 2013 compared to $134.7 million in 2012. Despite the increase in the average balance, the yield on the portfolio declined from 2.96% in 2012 to 2.68% in 2013. The Bank purchased $69.1 million of new securities in 2013, primarily in the U.S. Government Agency mortgaged backed securities sector.

Average loan balances fell during the year, with every category showing a reduction from the 2012 averages except for residential mortgages. The commercial loan portfolio declined $34.3 million and the yield fell by 20 basis points during the year. The low interest rate environment continues to be an incentive for pre-payments and refinancing, and good quality credits are in demand by many lenders eager to increase volume. As a result, the Bank has lost some balances to prices that it felt was unable to match. Approximately 86% of the commercial loan portfolio is variable rate with rates tied to short-term market rates like Prime or Libor. Until there is an increase in short-term rates, the yield on the commercial loan portfolio is likely to decline.

The bank retained more of its mortgage production in 2013; therefore, the average balance increased during the year. However, the yield on the mortgage portfolio declined year over year. The Bank retained primarily shorter term mortgages and sold longer term mortgages in the secondary market. With a slight increase in mortgage rates during the year, refinancing activity slowed. The Bank believes that mortgage activity in 2014 will see a shift from refinance to purchase activity.

13

Consumer lending, including home equity products, continued to decline. Home equity products declined, on average by approximately $7 million compared to 2012 and the yield fell by 32 basis points. The Bank’s home equity loan products are fixed rate and the home equity line of credit products are variable rate. Both products have seen new production rates decline, but the lower volume was the largest factor contributing to the decline in interest income on these products.

Liabilities: Table 3 shows the average balance and cost of the major interest-bearing liabilities classes on the Corporation’s balance sheet. The average balance of interest-bearing liabilities declined by $15.9 million in 2013 and the cost fell by 29 basis points. Every category of interest-bearing deposits, except time deposits (CDs) increased during the year. The interest-bearing checking and money management accounts showed the largest balance increases. The increase in interest checking and money management came primarily in the municipal account categories in the Bank’s fully insured deposit products. The average balance of CDs declined primarily due to a reduction in brokered CDs. The reduction in brokered CDs was due to action taken by the Bank to “call” and payoff higher rate brokered CDs, and by scheduled maturities. The cost of interest-bearing deposits fell from .70% in 2012 to .50% in 2013 driven down by an 18 basis point reduction on the rate of the money management product.

The average balance of securities sold under agreements to repurchase declined by $19.2 million as the Bank has been transitioning these accounts to a fully insured checking account product. The Bank is going to continue this process in 2014 and expects that all repurchase accounts will be closed by the end of 2014. Average long-term debt declined significantly year over year due to the Bank prepaying $33.1 million of FHLB advances in 2012. The Bank did not prepay any FHLB advances in 2013 or take any new advances.

Table 2 shows that both volume and rate factors contributed to the reduction in interest expense in 2013.

2012 versus 2011

Summary: The Corporation’s 2012 net interest income was virtually flat compared to 2011. Tax equivalent net interest income for the year was $33.9 million compared to $34.4 million in 2011, a decline of 1.3%. Despite an increase of $48.0 million in average earning assets for 2012 compared to 2011, the margin was negatively affected by the low interest rate environment that pushed asset yields down faster than liability costs. As a result, the net interest margin as a percentage of earning assets fell to 3.50% in 2012 compared to 3.73% in 2011. The larger balance sheet increased net interest income by $248 thousand, but lower rates drove net interest income down by $680 thousand, resulting in a net decline of $432 thousand year over year.

Assets: Average interest earning assets for 2012 grew by 5.2% over the 2011 average. Despite the growth, lower yielding assets resulted in a decline of $2.6 million in interest income compared to 2011. The assets produced a yield of 4.22% compared to 4.73% in 2011. The mix of assets and lower rates resulted in $2.7 million less tax equivalent interest income than in 2011. Table 2 presents information on the affect that changes in volume (balance sheet size) and the changes in rates have on tax-equivalent interest income. Table 3 presents information on the average balance and yields on average earning assets.

Throughout the year, the Bank experienced strong deposit growth, but loan balances were down slightly and average investments increased minimally. Therefore, interest-bearing deposits at banks (the Bank’s lowest yielding asset class) absorbed the increase in funds and was $48.9 million more in 2012 than in the prior year.

The investment portfolio increased by $2.3 million on average with the allocation between taxable and nontaxable securities remaining fairly consistent. Low interest rates on new purchases have driven the yield on the portfolio down from 3.41% in 2011 to 2.96% in 2012. The Bank purchased $43.7 million in new securities during the year, primarily in the municipal and U.S. Agency mortgage backed securities sectors.

The loan portfolio averaged $761.5 million for 2012 and earned an average yield of 4.81%. Compared to 2011, the average balance declined by $3.2 million and the yield fell by 28 basis points. The increase in the average balance of the commercial loan portfolio was not enough to offset the continued decline of consumer related loan balances. The loan portfolio generated $36.6 million of interest income, $2.3 million less than in 2011. Lower rates in 2012 were responsible for $2.0 million (85%) of the reduction in loan interest. In addition, the increase in the Bank’s nonperforming loans negatively affected interest income.

Commercial loans increased by $9.5 million over the 2011 average portfolio balance. Commercial lending activity was slow in 2012 and there was not a lot of opportunity to lend new dollars. New loans continued to be booked at lower rates and existing loans repriced downward. Approximately 83% of the commercial loan portfolio is variable rate. The portfolio was also affected by several large municipal loans that refinanced via a bond issue at rates the Bank was unwilling to match. Like the overall loan portfolio, interest income from the commercial portfolio was negatively affected the most by lower rates in 2012.

For 2012, the average balance of the residential mortgage portfolio remained flat compared to the prior year after several years of declining balances. Mortgage lending was strong due to the low rates, and those consumers with good credit and equity in their homes, took advantage of refinancing opportunities. In 2012, the Bank held more of its mortgage production in its portfolio than in past years and this offset the amortization and pay-offs in the portfolio. The Bank did not retain all mortgages originated in 2012, only those identified as part of a selective retention program.

Consumer lending, including home equity products, continued to decline. Home equity products declined, on average by approximately $12 million compared to 2011 and the yield fell by 58 basis points. The Bank’s home equity loan products are fixed rate and the home equity line of credit products are variable rate. Both products have seen new production rates decline, but the lower volume was the largest factor contributing to the decline in interest income on these products.

Liabilities: Interest-bearing liabilities increased 5.1% to $828.4 million on average for 2012. The cost of these funds fell from 1.16% in 2011 to .83% in 2012. Interest-bearing deposits increased 9.8% on average and the cost fell from .99% in 2011 to .70% in 2012. The cost of all interest-bearing liabilities decreased year over year and these rate reductions were the largest contributor to lower interest expense in 2012. Table 2 presents information on the affect that changes in volume (balances sheet size) and changes in rates have on interest expense. Table 3 presents information on the average balance and cost of interest-bearing liabilities.

The Money Management product was the Bank’s largest funding source in 2012 and it increased 18.4% on average over 2011. The rate on this product declined by 35 basis points during the year and was the primary reason for the $718 thousand decrease in interest expense. All customer segments in this product grew during the year with the balance of the fully-insured option product more than doubling.

The sweep repurchase product declined by more than $8 million during the year and the rate fell by 10 basis points to .15%. The balance of this product is highly dependent on the operating cash flow needs of its commercial users, but some money did move to the fully-insured Money Management product.

Long-term debt is comprised of advances from FHLB Pittsburgh. The Bank did not take any new advances during 2012. The decline in the average balance was primarily the result of the Bank pre-paying $33.1 million of debt that had scheduled maturities in 2012 and 2013.

14

Table 1. Net Interest Income

(Dollars in thousands)	2013		% Change			2012		% Change			2011
Interest income	$	36,042		(7.9	)	$	39,142		(6.3	)	$	41,791
Interest expense		4,378		(36.5	)		6,890		(24.7	)		9,154
Net interest income		31,664		(1.8	)		32,252		(1.2	)		32,637
Tax equivalent adjustment		1,596					1,683					1,730
Tax equivalent net interest income	$	33,260		(2.0	)	$	33,935		(1.3	)	$	34,367

Table 2 identifies increases and decreases in tax equivalent net interest income to either changes in average volume or to changes in average rates for interest-earning assets and interest-bearing liabilities. Numerous and simultaneous balance and rate changes occur during the year. The amount of change that is not due solely to volume or rate is allocated proportionally to both. All nontaxable interest income has been adjusted to a tax-equivalent basis, using a tax rate of 34%.

Table 2. Rate-Volume Analysis of Tax Equivalent Net Interest Income

	2013 Compared to 2012									2012 Compared to 2011
Increase (Decrease) due to:	Increase (Decrease) due to:									Increase (Decrease) due to:
(Dollars in thousands)	Volume			Rate			Net			Volume			Rate			Net
Interest earned on:
Interest-bearing obligations in other banks and Federal funds sold	$	(6	)	$	12		$	6		$	140		$	8		$	148
Investment securities:
Taxable		271			(213	)		58			(14	)		(611	)		(625	)
Nontaxable		138			(101	)		37			155			(61	)		94
Loans:
Commercial, industrial and agricultural		(1,544	)		(1,219	)		(2,763	)		454			(1,388	)		(934	)
Residential mortgage		801			(529	)		272			12			(210	)		(198	)
Home equity loans and lines		(412	)		(206	)		(618	)		(754	)		(434	)		(1,188	)
Consumer		(158	)		(21	)		(179	)		(60	)		67			7
Loans		(1,313	)		(1,975	)		(3,288	)		(348	)		(1,965	)		(2,313	)
Total net change in interest income		(910	)		(2,277	)		(3,187	)		(67	)		(2,629	)		(2,696	)
Interest expense on:
Interest-bearing checking		40			30			70			10			(26	)		(16	)
Money market deposit accounts		132			(692	)		(560	)		512			(1,230	)		(718	)
Savings accounts		5			(16	)		(11	)		5			(6	)		(1	)
Time deposits		(556	)		(277	)		(833	)		(115	)		(626	)		(741	)
Securities sold under agreements to repurchase		(28	)		(2	)		(30	)		(19	)		(53	)		(72	)
Short-term borrowings		-			-			-			(1	)		-			(1	)
Long-term debt		(1,054	)		(94	)		(1,148	)		(707	)		(8	)		(715	)
Total net change in interest expense		(1,461	)		(1,051	)		(2,512	)		(315	)		(1,949	)		(2,264	)
Change in net interest income	$	551		$	(1,226	)	$	(675	)	$	248		$	(680	)	$	(432	)

15

The following table presents average balances, tax-equivalent (T/E) interest income and expense, 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%.

Table 3. Analysis of Net Interest Income

	2013								2012								2011
	Average		Income or			Average			Average		Income or			Average			Average		Income or			Average
(Dollars in thousands)	balance		expense			yield/rate			balance		expense			yield/rate			balance		expense			yield/rate
Interest-earning assets:
Interest-bearing obligations of other banks and federal funds sold	$	70,115	$	213			0.30	%	$	72,056	$	207			0.29	%	$	23,129	$	59			0.26	%
Investment securities:
Taxable		110,194		1,863			1.69	%		94,914		1,805			1.90	%		95,462		2,430			2.55	%
Nontaxable		42,399		2,221			5.24	%		39,822		2,184			5.48	%		37,015		2,090			5.65	%
Loans:
Commercial, industrial and agricultural		587,359		25,889			4.41	%		621,702		28,652			4.61	%		612,201		29,586			4.83	%
Residential mortgage		78,185		3,366			4.31	%		60,704		3,094			5.10	%		60,474		3,292			5.44	%
Home equity loans and lines		59,706		3,443			5.77	%		66,719		4,061			6.09	%		78,691		5,249			6.67	%
Consumer		9,902		643			6.49	%		12,334		822			6.66	%		13,278		815			6.14	%
Loans		735,152		33,341			4.54	%		761,459		36,629			4.81	%		764,644		38,942			5.09	%
Total interest-earning assets		957,860		37,638			3.93	%		968,251		40,825			4.22	%		920,250		43,521			4.73	%
Other assets		72,035								73,565								71,616
Total assets	$	1,029,895							$	1,041,816							$	991,866
Interest-bearing liabilities:
Deposits:
Interest-bearing checking	$	172,079		156			0.09	%	$	122,870		86			0.07	%	$	110,707		102			0.09	%
Money Management		387,607		1,886			0.49	%		366,857		2,446			0.67	%		309,870		3,164			1.02	%
Savings		60,147		53			0.09	%		55,113		64			0.12	%		51,143		65			0.13	%
Time		147,915		1,744			1.18	%		193,120		2,577			1.33	%		200,306		3,318			1.66	%
Total interest-bearing deposits		767,748		3,839			0.50	%		737,960		5,173			0.70	%		672,026		6,649			0.99	%
Securities sold under agreements to repurchase		32,407		48			0.15	%		51,558		78			0.15	%		60,136		150			0.25	%
Short- term borrowings		3		-			0.75	%		-		-			-			192		1			0.74	%
Long- term debt		12,409		491			3.96	%		38,920		1,639			4.21	%		55,705		2,354			4.23	%
Total interest-bearing liabilities		812,567		4,378			0.54	%		828,438		6,890			0.83	%		788,059		9,154			1.16	%
Noninterest-bearing deposits		116,724								110,657								106,115
Other liabilities		7,818								13,170								12,120
Shareholders' equity		92,786								89,551								85,572
Total liabilities and shareholders' equity	$	1,029,895							$	1,041,816							$	991,866
T/E net interest income/Net interest margin				33,260			3.47	%				33,935			3.50	%				34,367			3.73	%
Tax equivalent adjustment				(1,596	)							(1,683	)							(1,730	)
Net interest income			$	31,664							$	32,252							$	32,637

Provision for Loan Losses

For 2013, the Bank recorded net charge-offs of $3.6 million compared to $4.6 million in 2012. The charge-offs were more than the 2013 provision expense of $2.9 million and as a result, the allowance for loan losses (ALL) decreased $677 thousand over year-end 2012. At December 31, 2013, the ALL was $9.7 million or 1.34% of total loans compared to a ratio 1.38% at the end of 2012. Nonperforming assets declined during the year and Management closely monitors the credit quality of the portfolio in order to ensure that an appropriate ALL is maintained. As part of this process, Management performs a comprehensive analysis of the loan portfolio considering delinquencies trends and events, current economic conditions, and other relevant factors to determine the adequacy of the allowance for loan losses and the provision for loan losses. For more information, refer to the Loan Quality discussion and Tables 12 -17.

16

Noninterest Income

The following table presents a comparison of noninterest income for the years ended December 31, 2013 and 2012:

Table 4. Noninterest Income

	December 31						Change
(Dollars in thousands)	2013			2012			Amount			%
Noninterest Income
Investment and trust services fees	$	4,429		$	4,087		$	342			8.4
Loan service charges		879			1,210			(331	)		(27.4	)
Mortgage banking activities		47			6			41			683.3
Deposit service charges and fees		1,831			1,925			(94	)		(4.9	)
Other service charges and fees		907			864			43			5.0
Debit card income		1,236			1,161			75			6.5
Increase in cash surrender value of life insurance		605			652			(47	)		(7.2	)
Other real estate owned (losses) net		(255	)		(582	)		327			56.2
Other		240			184			56			30.4
Net OTTI losses recognized in income		(75	)		(100	)		25			25.0
Securities gains (losses), net		33			44			(11	)		(25.0	)
Total noninterest income	$	9,877		$	9,451		$	426			4.5

2013 versus 2012

Investment and Trust Services: These fees are comprised of asset management fees, estate administration and settlement fees, employee benefit plans and commissions from the sale of insurance and investment products through the Bank’s Personal Investment Centers. Asset management fees are recurring in nature and are affected by the market value of the assets. Asset management fees increased $285 thousand and estate fees increased $123 thousand over 2012. Commissions from the sale of insurance and investment products declined slightly compared to the 2012 commissions. Trust assets under management increased to $574.7 million at year-end, compared to $520.4 million at the end of 2012. During 2013, the Bank converted to a new trust operation system that it believes will better serve both the Bank and its customer’s needs for trust services.

Loan service charges: The Bank recorded its fifth consecutive year of flat or declining loan fees. This category includes loan origination fees, offset by those fees that are deferred, as well as production fees for originating mortgages for sale in the secondary market, and any fees for loan services that are charged after origination, e.g.: late fees or debt protection. The primary causes of the reduction in 2013 were lower mortgage production fees as refinance activity slowed in 2013 and an increase in deferred loan fees on consumer loans.

Mortgage banking fees: Mortgage banking fees consist primarily of fees for servicing mortgage loans originated and sold by the Bank. The fees for servicing mortgages declined in 2013 as the portfolio of mortgages serviced for others ($34.6 million) continues to pay down. Loans originated for the secondary market are done on a fee basis and these fees are recorded in loan service charges. For loans that were previously sold with servicing retained, mortgage servicing rights (MSR) are recorded and represent the Bank’s rights to receive future fee income from servicing these loans. MSR are measured and carried at the lower of cost or market value and are amortized over the expected life of the asset. In 2013, the MSR amortization, net of impairment charges, was $51 thousand compared to $133 thousand in 2012. While the Bank does not expect to originate and sell mortgages with servicing retained in the future, it will retain the existing servicing portfolio until those loans are paid-off.

Deposit fees: This category is comprised primarily of fees from overdrafts, an overdraft protection program, service charges, and account analysis fees. During 2013, the fees declined slightly compared to 2012. The primary factor contributing to this decrease was a reduction of $77 thousand in fees from the Bank’s overdraft protection program. Commercial account analysis and deposit fees, as well as all other retail deposit fees remained relatively flat when compared to 2012.

Debit card and other service charges and fees: Debit card income continues to be one the of best fee generators for the Bank. The Bank expects the upward trend in these fees to continue as more consumers and businesses have and use debit cards. Debit card fees are comprised of both a retail and business card program. The business debit card offers a cash back rewards program based on usage and it continues to grow in popularity.

Other fees and service charges: This category includes fees for wire transfers, ATM activity fees and safe deposit box rentals, and no single category showed a significant increase in 2013.

Other real estate owned gains (losses), net: This category shows the net gains or losses on the sale of, or write-downs on, other real estate owned.

Securities gains and losses, and OTTI charges: In 2013, other-than-temporary-impairment charges were recorded on two private label mortgage backed securities and three equity securities that were considered other than temporarily impaired. Security gains were generated primarily by the sale of equity securities.

17

The following table presents a comparison of noninterest income for the years ended December 31, 2012 and 2011:

Table 4.1 Noninterest Income

	December 31						Change
(Dollars in thousands)	2012			2011			Amount			%
Noninterest Income
Investment and trust services fees	$	4,087		$	3,953		$	134			3.4
Loan service charges		1,210			1,198			12			1.0
Mortgage banking activities		6			(72	)		78			108.3
Deposit service charges and fees		1,925			2,142			(217	)		(10.1	)
Other service charges and fees		864			614			250			40.7
Debit card income		1,161			1,024			137			13.4
Increase in cash surrender value of life insurance		652			682			(30	)		(4.4	)
Other real estate owned (losses) gains, net		(582	)		22			(604	)		(2,745.5	)
Other		184			720			(536	)		(74.4	)
Net OTTI losses recognized in income		(100	)		(240	)		140			58.3
Securities gains (losses), net		44			157			(113	)		(72.0	)
Total noninterest income	$	9,451		$	10,200		$	(749	)		(7.3	)

2012 versus 2011

Investment and Trust Services: Asset management fees were flat year over year while estate fees increased $186 thousand compared to 2011. Fees generated from the Personal Investment Centers decreased slightly due to lower commissions on the sale of investments. Trust assets under management were $520.4 million at year-end, compared to $481.5 million in 2011.

Loan service charges: This category remained flat for 2012 compared to 2011 Fees earned for originating mortgages increased by $211 thousand, including an increase of $106 thousand for mortgages originated to be sold in the secondary market. Commercial loan service charges decreased compared to 2011 due to less prepayment fees. Consumer loan fees, including a debt protection program, totaled $136 thousand, down $32 thousand from 2011.

Mortgage banking fees: Fees from servicing mortgages declined by $24 thousand as the portfolio of mortgages serviced for others continues to pay down. In 2012, the MSR amortization, net of impairment charges, was $133 thousand compared to $235 thousand in 2011.

Deposit fees: Total deposit fees fell by $217 thousand during the year. Contributing to this decrease was a reduction of $193 thousand in retail overdraft fees. Commercial account analysis fees and overdrafts increased slightly during the year to $468 thousand. The Bank recorded $949 thousand in fees from a retail and commercial overdraft protection program compared to $912 thousand in 2011.

Other service charges and fees: This category increased $250 thousand primarily due to ATM interchange fees that were netted against ATM operating expenses in prior periods and included in noninterest expense. Also included in this category are fees for wire transfers, ATM activity fees and safe deposit box rentals.

Other real estate owned gains (losses), net: A net loss of $582 thousand was recorded in 2012 compared to a net gain of $22 thousand in 2011. Included in the 2012 total was a write-down of $349 thousand in the fourth quarter and a $217 thousand loss on a sale during the third quarter of 2012.

Other: This category decreased due to a recovery of $538 thousand in 2011 related to prior period legal expenses as a lawsuit was decided in the Bank’s favor.

Securities gains and losses: In 2012, other-than-temporary-impairment charges of $100 thousand were recorded on three private label mortgage backed securities that were considered other than temporarily impaired. The 2011 OTTI charges of $240 thousand were recorded on three equity securities and two private label mortgage backed securities.

18

Noninterest Expense

The following table presents a comparison of noninterest expense for the years ended December 31, 2013 and 2012:

Table 5. Noninterest Expense

(Dollars in thousands)	December 31				Change
Noninterest Expense	2013		2012		Amount			%
Salaries and employee benefits	$	16,590	$	16,626	$	(36	)		(0.2	)
Net occupancy expense		2,259		2,024		235			11.6
Furniture and equipment expense		975		875		100			11.4
Advertising		1,384		1,401		(17	)		(1.2	)
Legal and professional fees		1,172		1,170		2			0.2
Data processing		1,713		1,642		71			4.3
Pennsylvania bank shares tax		815		745		70			9.4
Intangible amortization		425		435		(10	)		(2.3	)
FDIC insurance		979		1,093		(114	)		(10.4	)
ATM/debit card processing		706		630		76			12.1
Other		4,076		3,960		116			2.9
Total noninterest expense	$	31,094	$	30,601	$	493			1.6

2013 versus 2012

Salaries and benefits: This category is the largest noninterest expense category and these expenses remained essentially unchanged as compared to the prior year. Salary expense increased by $299 thousand and health insurance expense increased $253 thousand during 2013. The increase in salary expense is due primarily to normal changes in staffing levels and salary adjustments. Health insurance increased due to higher claim expense in the Bank’s self-funded plan. Offsetting these increases was a reduction in pension expense of $513 thousand as the result of a $6.0 million contribution to the plan at the end of 2012. See Note 14 of the accompanying consolidated financial statements for additional information on benefit plans. All other employee benefit expenses remained consistent with 2012 levels.

Net Occupancy: This category includes all of the expense associated with the properties and facilities used for bank operations such as depreciation, leases, maintenance, utilities and real estate taxes. The increase during 2013 is due to a full year of lease and operating costs for two community offices that were not in-service for a full year in 2012.

Legal and professional fees: This category consists of fees paid to outside legal counsel, consultants, and audit fees. In total, these fees remained flat year over year; however, the Bank recorded higher consulting fees that were partially offset by a reduction in appraisal fees. Internal audit fees increased slightly during the year, while external audit fees remained flat.

Data processing: The largest cost in this category is the expense associated with the Bank’s core processing system and related services, and accounted for $1.3 million of the total data processing costs.

Other: Other noninterest expense increased less than 3% in 2013. The lines items in this category showing the largest increases were director’s fees (up $41 thousand), telephone expense (up $25 thousand) and postage expense (up $17 thousand). These increases were partially offset by numerous other line items that had decreases year-over-year. Loan collection and foreclosure expense was $239 thousand in 2013 versus $255 thousand in 2012. The cost to carry OREO increased from $49 thousand in 2012 to $137 thousand in 2013. In 2012, the Bank incurred $439 thousand in penalties for prepaying FHLB debt that was not recorded in 2013. However, in the fourth quarter of 2013, the Bank recorded a nonrecurring expense of $667 thousand for a deferred compensation plan assumed by the Bank from its 2006 acquisition of Fulton Bancshares Corporation. At the time of the acquisition, information provided by the FDIC to the Bank indicated that this payout was a non-permissible payment and therefore not accrued in prior years. The FDIC decision was challenged by the beneficiary of the payment, and more than 7 years later, the FDIC reversed its decision thereby permitting the payment and resulting in an expense to the Bank.

19

The following table presents a comparison of noninterest expense for the years ended December 31, 2012 and 2011:

Table 5.1 Noninterest Expense

(Dollars in thousands)	December 31				Change
Noninterest Expense	2012		2011		Amount			%
Salaries and employee benefits	$	16,626	$	15,195	$	1,431			9.4
Net occupancy expense		2,024		2,006		18			0.9
Furniture and equipment expense		875		837		38			4.5
Advertising		1,401		1,335		66			4.9
Legal and professional fees		1,170		1,069		101			9.4
Data processing		1,642		1,462		180			12.3
Pennsylvania bank shares tax		745		681		64			9.4
Intangible amortization		435		446		(11	)		(2.5	)
FDIC insurance		1,093		1,084		9			0.8
ATM/debit card processing		630		332		298			89.8
Other		3,960		3,886		74			1.9
Total noninterest expense	$	30,601	$	28,333	$	2,268			8.0

Salaries and benefits: This category increased $1.4 million, or approximately 9% in 2012. The largest contributors to this increase are salary expense and pension expense. Salary expense increased by $882 thousand while pension expense increased $368 thousand due to the continued low interest rate environment. The expense for all other employee benefits remained consistent with 2011 levels, including health insurance, which increased only $28 thousand over 2011.

Advertising: Advertising costs increased by $66 thousand over 2011. Advertising and promotion efforts in 2012 focused on brand recognition in our various markets and a deposit acquisition campaign designed to take advantage of some local deposit market disruption. In 2012, a new community office opened in Mechanicsburg, PA and special promotional efforts were taken to announce and market its opening. In addition, the Bank released a new version of its website (www.fmtrustonline.com) and introduced a mobile banking application in early 2013. The expenses associated with these projects were recognized in 2012.

Legal and professional fees: This category consists of fees paid to outside legal counsel, consultants, and audit fees. These fees increased slightly over 2011. Internal and external audit fees remained flat over 2011 and consulting fees increased $19 thousand, primarily due to external loan review services.

Data processing: The largest cost in this category is the expense associated with the Bank’s core processing system and related services, and accounted for $1.2 million of the total data processing cost of $1.6 million.

Other: Other noninterest expense was $4.0 million in 2012, representing just a 1.9% increase over 2011. The Bank continued to prepay FHLB debt in 2012 and incurred $439 thousand in penalties compared to $344 thousand in 2011. Charitable donations to local organizations, loan collection, and the Bank’s capital stock tax increased over 2011, while postage costs decreased. Loan collection expense was $255 thousand in 2012 compared to $288 thousand in 2011.

Provision for Income Taxes

The Corporation recorded a Federal income tax expense of $1.3 million in 2013 compared to $512 thousand in 2012 and $411 thousand in 2011. The effective tax rate for 2013, 2012, and 2011 was 17.2%, 8.7% and 5.9%, respectively. Pretax income was $1.7 million more than in 2012; therefore, the tax benefit of tax-free income to pre-tax income was less and the effective tax rate increased. The 2013 tax-free benefit from tax-free assets was approximately 21% of pre-tax income compared to 29% in 2012. In 2011, a tax adjustment artificially reduced the effective tax rate in 2011. During the second quarter of 2011, an internal review discovered that tax-exempt commercial loans booked in the fourth quarter of 2008, during 2009, 2010 and the first quarter of 2011 were not properly coded as tax-exempt in the Bank’s core processing system. This resulted in the income from these loans being recorded as taxable income and the benefit of the tax-exempt status was not reflected in the Corporation’s income tax calculation. After a thorough review of the affected loans to determine the unrecorded tax benefit, and consultation with the Corporation’s internal and external audit firms, the Corporation deemed the adjustment to be immaterial to the consolidated financial statements for the current and prior years and therefore, no prior period adjustment was required. The Corporation recorded the past income tax benefits during the second quarter of 2011. The adjustment to income tax expense made in the second quarter was a credit of approximately $660 thousand attributable to the years 2008, 2009 and 2010 and approximately $95 thousand attributable to the first quarter of 2011. This adjustment is reflected in the 2011 income tax expense. Had the tax adjustment of $660 thousand been allocated proportionally to the years it was generated, the effective tax rate for 2011 would have been 15.3%. For a more comprehensive analysis of Federal income tax expense refer to Note 11 of the accompanying financial statements.

Financial Condition

One method of evaluating the Corporation’s condition is in terms of its sources and uses of funds. Assets represent uses of funds while liabilities represent sources of funds. At December 31, 2013, total assets decreased approximately 4% over the prior year to $984.6 million from $1.027 billion at the end of 2012.

Interest Bearing Deposits in Other Banks:

This asset decreased by $30.0 million year over year, but averaged $70.1 million for the year. The large variance between the average balance and the ending balance was due to the seasonality of a large dollar deposit account that is cash flow intensive. At year-end, approximately $5 million was held by other banks in the form of short-term certificates of deposit. Approximately $21 million was held in an interest-bearing account at the Federal Reserve.

20

Investment Securities:

The investment portfolio serves as a mechanism to invest funds if funding sources out pace lending activity, to provide liquidity for lending and operations, and provide collateral for deposits and borrowings. The Corporation invests in taxable and tax-free debt securities, and equity securities as part of its investment strategy. The mix of taxable and tax-free debt securities are determined by the Bank’s Investment Committee and investing decisions are made as a component of balance sheet management. Debt securities include U.S. Government Agencies, U.S. Government Agency mortgage-backed securities, non-agency mortgage-backed securities, state and municipal government bonds, corporate debt and trust preferred securities. The equity portfolio consists of bank stocks only and is considered to be longer-term with a focus on capital appreciation. Tables 6 - 9 provide additional detail about the investment portfolio. All securities are classified as available for sale and all investment balances refer to fair value.

The following table presents amortized cost and estimated fair value of investment securities by type at December 31 for the past three years:

Table 6. Investment Securities at Amortized Cost and Estimated Fair Value

	2013				2012				2011
	Cost		Fair Value		Cost		Fair Value		Cost		Fair Value
(Dollars in thousands)
Equity securities	$	1,472	$	1,970	$	2,104	$	1,941	$	2,105	$	1,759
U.S. Government agency securities		11,771		11,751		12,657		12,809		13,159		13,229
Municipal securities		56,861		56,857		58,395		61,216		42,490		45,081
Corporate debt securities		1,002		1,001		1,005		994		2,484		2,414
Trust preferred securities		5,922		5,051		5,905		4,830		5,890		4,618
Agency mortgage-backed securities		81,352		81,027		48,121		49,066		54,314		55,285
Private-label mortgage-backed securities		1,984		1,969		2,539		2,426		3,366		2,867
Asset-backed securities		51		48		59		46		66		48
	$	160,415	$	159,674	$	130,785	$	133,328	$	123,874	$	125,301

The following table presents analysis of investment securities at December 31, 2013 by maturity, and the weighted average yield for each maturity presented. The yields presented in this table are calculated using tax-equivalent interest and the amortized cost.

Table 7. Maturity Distribution of Investment Portfolio

						After one year					After five years					After ten
	One year or less					through five years					through ten years					years					Total
	Fair					Fair					Fair					Fair					Fair
(Dollars in thousands)	Value		Yield			Value		Yield			Value		Yield			Value		Yield			Value		Yield
Available for Sale
U.S. Government agency securities	$	-		-		$	2,301		1.02	%	$	3,115		1.54	%	$	6,335		0.87	%	$	11,751		1.07	%
Municipal securities		478		5.75	%		11,814		5.86	%		20,124		4.56	%		24,441		4.13	%		56,857		4.66	%
Corporate debt securities		1,001		0.56	%		-		-			-		-			-		-			1,001		0.56	%
Trust preferred securities		-		-			-		-			-		-			5,051		1.62	%		5,051		1.62	%
Agency mortgage-backed securities		-		-			1,521		1.66	%		3,596		3.60	%		75,910		2.08	%		81,027		2.14	%
Private-label mortgage-backed securities		-		-			-		-			-		-			1,969		5.50	%		1,969		5.50	%
Asset-backed securities		36		0.46	%		-		-			-		-			12		3.87	%		48		0.97	%
	$	1,515		2.20	%	$	15,636		4.74	%	$	26,835		4.08	%	$	113,718		2.42	%	$	157,704		2.93	%

As shown in Table 3 and Table 6, the average balance and the ending balance of the investment portfolio increased during the year as the loan portfolio declined. Interest rates continue to remain low and cash flows were reinvested in the portfolio at lower rates, consequently, the yield on the portfolio continued to decline. The yield declined to 2.68% for 2013 compared to 2.96% in 2012. U.S. Agency mortgage backed securities and municipal bonds continue to comprise the largest sectors by fair value of the portfolio, approximately 87% in total. The Bank expects that the portfolio will continue to remain concentrated in these investment sectors. The portfolio produced $37.4 million in cash flows in 2013 while $69.1 million was invested into the portfolio during the year. The majority of the investment purchases were made in the U.S. Agency mortgage backed securities sector, resulting in a sizable increase in this sector during the year. For the year, the Corporation recorded net securities gains of $33 thousand and other-than-temporary impairment charges of $75 thousand.

Equities: The equity portfolio is comprised entirely of bank stocks with the Bank and the Corporation each holding separate portfolios. The stocks held in the portfolio range from community banks to large national banks. During 2013, both the Bank and the Corporation began the process of reducing the size of their equity portfolios. It is expected that both portfolios will continue to be reduced.

Municipal Bonds: The Bank’s municipal bond portfolio is well diversified geographically and is comprised of both tax-exempt (75% of the portfolio) and taxable (25% if the portfolio) municipal bonds. General obligation bonds comprise 72% of the municipal portfolio and revenue bonds 18%. The portfolio holds one hundred seven separate issues within twenty-seven states. The largest dollar exposure is to issuers in the state of Texas ($9.8 million / 20 issues) and Pennsylvania ($6.1 million / 11 issues). The majority of the bonds (79%) have either private bond insurance or have some other type of credit enhancement. When purchasing municipal bonds, the Bank looks primarily to the underlying credit of the issuer as a sign of credit quality and then to any credit enhancement. Approximately $54 million of the portfolio is rated “A” or higher by Moody and the weighted average rating of the portfolio is “Aa3”. The Bank owns six issues for $2.4 million that are not rated by a nationally recognized rating agency.

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Corporate Bonds: There is one variable rate bond in the corporate bond portfolio in the financial services sector. This bond is rated A3 by Moody’s and is scheduled to mature in 2014.

Trust Preferred Bonds: The following table provides additional detail about the Bank’s trust preferred securities at December 31, 2013. The holdings remain the same as at the prior year end, but the unrealized loss has declined from $1.1 million to $871 thousand year-over-year. The credit ratings for each bond are similar to the ratings one year prior. Trust preferred securities are typically issued by a subsidiary grantor trust of a bank holding company, which uses the proceeds of the equity issuance to purchase deeply subordinated debt issued by the bank holding company. Trust-preferred securities can reflect single entity issues or a group of entities (pooled trust preferred). Pooled trust preferred securities have been the subject of significant write-downs due in some cases from the default of one issuer in the pool that then impairs the entire pool. All of the Bank’s issues are single issuer, variable rate notes with long final maturities (2027-2028) that continue to pay dividends.

Table 8. 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	$	936	$	809	$	(127	)	BB+		1	None	None
Huntington Cap Trust II	Single	Preferred Stock		885		778		(107	)	BB+		1	None	None
BankAmerica Cap III	Single	Preferred Stock		960		793		(167	)	BB+		1	None	None
Wachovia Cap Trust II	Single	Preferred Stock		275		245		(30	)	BBB+		1	None	None
Corestates Captl Tr II	Single	Preferred Stock		932		829		(103	)	BBB+		1	None	None
Chase Cap VI JPM	Single	Preferred Stock		960		798		(162	)	BBB		1	None	None
Fleet Cap Tr V	Single	Preferred Stock		974		799		(175	)	BB+		1	None	None
			$	5,922	$	5,051	$	(871	)

Mortgage-backed Securities: This sector holds $83.0 million or 52% of the total portfolio. The majority of this sector ($81.0 million) is comprised of U.S. Government Agency MBS. In addition, the Bank holds six private label mortgage-backed securities (PLMBS) with a fair value of $2.0 million and an amortized cost of $2.0 million. The PLMBS bonds paid down by more than $500 thousand in 2013.

The Bank’s PLMBS portfolio is comprised primarily of Alt-A loans. Alt-A loans are first-lien residential mortgages that generally conform to traditional “prime” credit guidelines; however, loan factors such as the loan-to-value ratio, loan documentation, occupancy status or property type cause these loans not to qualify for standard underwriting programs. The Alt-A product in the Bank’s portfolio is comprised of fixed-rate mortgages that were originated between 2004 and 2006 and all were originally rated AAA. The bonds issued in 2006 are experiencing the highest delinquency and loss rates. All of these bonds originally had some type of credit support tranche to absorb any loss prior to losses at the senior tranche held by the Bank, but this has eroded completely on some bonds as they have started to experience losses. The Bank recorded other-than-temporary impairment charges of $25 thousand on two PLMBS in 2013. Based on the performance of some of the PLMBS, it appears as if the underwriting standards that were represented in the offering, and resulted in the AAA rating, were not followed. As a result, the Bank purchased some securities based on these misrepresentations, and it is most likely that these securities would not have been purchased had all the information been reported correctly. The Bank is participating in a lawsuit against certain issuers related to these misrepresentations. The following table provides additional detail about the Bank’s PLMBS at December 31, 2013.

Table 8.1 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	$	184	$	184	$	-		ALT A	BBB+		12.38	$	-
MALT 2004-6 7A1		6/1/2004		435		441		6		ALT A	CCC		14.26		-
RALI 2005-QS2 A1		2/1/2005		326		335		9		ALT A	CC		5.93		10
RALI 2006-QS4 A2		4/1/2006		607		583		(24	)	ALT A	D		-		293
GSR 2006-5F 2A1		5/1/2006		97		98		1		Prime	D		-		15
RALI 2006-QS8 A1		7/28/2006		335		328		(7	)	ALT A	D		-		197
			$	1,984	$	1,969	$	(15	)					$	515

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Impairment:

Table 9 reflects the 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 December 31, 2013 and 2012.

The condition of the portfolio at year-end 2013, as measured by the dollar amount of temporarily impaired securities, has weakened. The municipal bond portfolio recorded the largest unrealized loss, but the agency mortgage backed portfolio shows the greatest number of securities with an unrealized loss.

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 December 31, 2013, was deemed to be temporary and required no further adjustments to the financial statements, unless otherwise noted.

Table 9. Temporary Impairment

	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

	December 31, 2012
	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	$	226	$	(20	)		3	$	1,236	$	(235	)		13	$	1,462	$	(255	)		16
U.S. Government agency securities		938		(1	)		1		3,346		(3	)		6		4,284		(4	)		7
Municipal securities		8,789		(163	)		10		-		-			-		8,789		(163	)		10
Corporate debt securities		-		-			-		994		(11	)		1		994		(11	)		1
Trust preferred securities		-		-			-		4,830		(1,075	)		7		4,830		(1,075	)		7
Agency mortgage-backed securities		6,869		(68	)		8		2,664		(16	)		6		9,533		(84	)		14
Private-label mortgage-backed securities		-		-			-		1,875		(123	)		5		1,875		(123	)		5
Asset-backed securities		-		-			-		46		(13	)		3		46		(13	)		3
Total temporarily impaired securities	$	16,822	$	(252	)		22	$	14,991	$	(1,476	)		41	$	31,813	$	(1,728	)		63

The unrealized losses in the municipal bond sector increased by $1.2 million, on 18 additional securities, as compared to year-end 2012. Intermediate and long-term interest rates increased during 2013 and this resulted in decline in value of these fixed rate securities. At December 31, 2013, the Bank believes it will be able to collect all interest and principal due on these bonds and that it will not be forced to sell these bonds prior to maturity. Therefore, no other-than-temporary-impairment charges were recorded.

The unrealized loss in the trust preferred sector declined by $204 thousand compared to the prior year-end and market prices continued to show improvement during 2013. All of the Bank’s trust preferred securities are variable rate notes with long maturities (2027 – 2028) from companies that received money (and in some cases paid back) from the Troubled Asset Relief Program (TARP), continue to pay dividends and have raised capital. The credit ratings on this portfolio are similar to the prior year and no bonds have missed or suspended any payments. At December 31, 2013, the Bank believes it will be able to collect all interest and principal due on these bonds and that it will not be forced to sell these bonds prior to maturity. Therefore, no other-than-temporary-impairment charges were recorded.

The Agency mortgage-backed securities portfolio has had a $967 thousand increase in unrealized losses since the end of 2012. This increase is driven by market interest rates since these bonds have essentially no credit risk.

The PLMBS sector continues to show a gross unrealized loss of $31 thousand on two securities. The majority of this sector is comprised of “Alt-A” PLMBS. 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 Alt-A 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 three bonds contained losses that were considered other-than-temporary. Management determined $25 thousand was credit related and therefore, recorded an impairment charge of $25 thousand against earnings in 2013. The market for PLMBS continues to be weak and Management believes that this factor accounts for a portion of the unrealized losses that is not attributable to credit issues. Management continues to monitor these securities and it is possible that additional write-downs may occur if current loss trends continue. The Bank is 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 resolution of this action is unknown at this time. For additional detail on the Bank’s PLMBS, see Table 8.1.

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The Bank held $1.9 million of restricted stock at the end of 2013. The restricted stock is comprised primarily of an investment in the Federal Home Loan Bank of Pittsburgh (FHLB). FHLB stock is carried at a cost of $100 per share. During 2013, FHLB repurchased $1.7 million in stock and began paying a dividend. 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 it 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. If FHLB stock were deemed to be impaired, the write-down for the Bank could be significant. 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:

Average gross loans for 2013 decreased by $26.3 million to $735.2 million compared to $761.5 million in 2012. Residential mortgage loans were the only loan category to show an increase in average balances during the year, but the increase was more than offset by a decline in average commercial and consumer loans during the year. The yield on the portfolio declined again in 2013 after another year of low interest rates, dropping to 4.54% in 2013 from 4.81% in 2012. Table 3 presents detail on the 2013 average balances and yields earned on loans for the past three years. The following table shows loans outstanding, by primary collateral, as of December 31 for the past 5 years.

Table 10. Loan Portfolio

	December 31
(Dollars in thousands)	2013						2012						2011						2010						2009
	Balance			% Change			Balance			% Change			Balance			% Change			Balance			% Change			Balance
Residential real estate 1-4 family
Consumer first lien	$	103,573			10.4		$	93,790			8.1		$	86,767			(11.9	)	$	98,528			(11.4	)	$	111,252
Consumer junior lien and lines of credit		34,636			(2.4	)		35,494			(11.9	)		40,290			(11.8	)		45,669			(12.0	)		51,903
Total consumer		138,209			6.9			129,284			1.8			127,057			(11.9	)		144,197			(11.6	)		163,155
Commercial first lien		58,466			(3.9	)		60,809			10.3			55,130			20.9			45,600			46.7			31,078
Commercial junior liens and lines of credit		5,939			(12.6	)		6,794			(13.4	)		7,846			(28.8	)		11,025			15.4			9,557
Total commercial		64,405			(4.7	)		67,603			7.3			62,976			11.2			56,625			39.4			40,635
Total residential real estate 1-4 family		202,614			2.9			196,887			3.6			190,033			(5.4	)		200,822			(1.5	)		203,790
Residential real estate construction
Consumer purpose		3,960			21.7			3,255			135.7			1,381			(27.2	)		1,897			7.5			1,765
Commercial purpose		8,559			(29.7	)		12,177			(38.8	)		19,901			(74.4	)		77,660			(6.3	)		82,884
Total residential real estate construction		12,519			(18.9	)		15,432			(27.5	)		21,282			(73.2	)		79,557			(6.0	)		84,649
Commercial real estate		329,373			(9.5	)		363,874			1.4			358,974			18.0			304,195			7.2			283,839
Commercial		170,327			2.2			166,734			(8.7	)		182,694			24.6			146,672			1.8			144,035
Total commercial		499,700			(5.8	)		530,608			(2.0	)		541,668			20.1			450,867			5.4			427,874
Consumer		8,580			(19.5	)		10,652			(20.7	)		13,427			(22.8	)		17,396			(25.2	)		23,250
Total loans		723,413			(4.0	)		753,579			(1.7	)		766,410			2.4			748,642			1.2			739,563
Less: Allowance for loan losses		(9,702	)		(6.5	)		(10,379	)		6.7			(9,723	)		10.5			(8,801	)		(1.5	)		(8,937	)
Net loans	$	713,711			(4.0	)	$	743,200			(1.8	)	$	756,687			2.3		$	739,841			1.3		$	730,626

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). Total residential real estate loans increased over 2012 as the result of an increase in residential first lien mortgages. The Bank retained more consumer mortgages in its portfolio in 2013 than in 2012. The loans that were retained were identified as part of a selective retention program designed to hold mortgages the Bank believes will have a shorter than average life. The Bank expects to continue the selective retention program in 2014 and for this balance to increase in 2014. In 2013, the Bank originated $37.2 million in mortgages, including approximately $10 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. During mid-year 2013, the Bank saw an increase in purchase money mortgages and a slow-down in refinancing as rates increased slightly during mid-year. The Bank expects 2014 activity to be primarily purchase money mortgages.

Home equity lending was slow during 2013 and the new production was unable to offset the run-off and the balance of home equity loans declined slightly compared to 2012. The majority of the home equity production in 2013 was in the line-of-credit product that offers a variable rate and was offered with promotional pricing during the year. However, line-of-credit originations do not always result in a dollar for dollar increase in new balances. Despite low rates, the Bank expects that home equity lending will not pick up significantly in 2014.

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.

24

Residential real estate construction: The largest component of this category represents loans to residential real estate developers of $8.6 million, while loans for individuals to construct personal residences totaled $4.0 million at December 31, 2013. This category continued to decline again in 2013 as the residential real estate market for new construction is still slow. The Bank’s exposure to residential construction loans is concentrated primarily in south central Pennsylvania. Real estate construction loans, especially 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. At December 31, 2013, the Bank had $7.7 million in residential real estate construction loans funded with an interest reserve and capitalized $79 thousand of interest from these reserves on active projects in 2013. 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.

Commercial loans: Commercial loans continue to be the largest loan category on the balance sheet; however, these loans declined 5.8% compared to the end of 2012. In 2013, the Bank approved approximately $133 million in commercial loans and commitments with approximately $88 million in new money advances. Low rates continue to make variable rate loans attractive to borrowers. However, in today’s low rate environment, the extremely low rates squeeze loan profitability. The competition for good quality loans continues to be strong with the best customers able to attract multiple offers. In addition, where the Bank was able to book new loans with rate floors in prior years, the competitive environment has seen the use of rate floors more difficult to obtain. The Bank offers competitive products, but believes it is not always in the best long-term interest of the Bank to match every competitive offer; therefore, it is likely that the Bank will lose some balances due solely to pricing.

Commercial real estate (CRE): This category includes commercial, industrial, farm and agricultural loans, where real estate serves as the primary collateral for the loan. This loan category declined by $34.5 million over the prior year. The decreases in 2013 were not centered on any one type of commercial real estate and both the originated and purchased loan portfolios declined. In addition, CRE charge-offs of $2.9 million contributed to part of the reduction year over year. The largest sectors (by collateral) in CRE are: land development ($57.4 million), hotels and motels ($39.7 million), farm land ($37.1 million), and office buildings ($36.7 million).

Commercial (C&I): This category includes commercial, industrial, farm, agricultural, and municipal loans. Collateral for these loans may include business assets or equipment, personal guarantees, or other non-real estate collateral. C&I loans increased $3.6 million over the 2012 ending balance. During 2013, the Bank saw a reduction of approximately $16 million in C&I loans, offset by an increase of approximately $20 million in tax-free municipal loans. The largest sectors (by industry) are: municipal loans ($63.1 million), manufacturing ($21.5 million), utilities ($18.9 million), retail trade ($15.2 million) and construction ($14.3 million).

The Bank is 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 2013, the Bank purchased $20.4 million of loan participations and commitments. The amount purchased in 2013 is less than the amount of participations purchased in 2012. At December 31, 2013, the Bank held $109.7 million in purchased loan participations in its portfolio compared to $142.9 million at the prior year-end. When the Bank is not the lead bank in the loan participation, it often sees these loans payoff unexpectedly and with no input from the Bank about refinancing options. The Bank expects that commercial lending will continue to be the primary area of loan growth in the future via in-market and loan participation activity: however, it does not expect loan production to be substantially higher in 2014. To enhance these growth opportunities, the Bank continues to partner with two Small Business Development Centers at local universities and is a designated Small Business Administration lender.

Consumer loans: This category is comprised of direct, indirect (automobile), unsecured personal lines of credit, and continues to show a downward trend in outstanding balances. This category declined by $2.1 million from 2012. Most of the decrease occurred in the indirect lending portfolio. The Bank’s indirect lending portfolio is $1.4 million, down from $3.7 million at year-end 2012. The Bank exited this line of business in the first quarter of 2010 and no new originations have been booked since then. This portfolio also contains $3.6 million of unsecured personal lines of credit and this balance is virtually unchanged from the prior year-end. With exiting the indirect lending business, the unwillingness of consumers to increase their debt, and the highly price competitive nature of consumer lending, the consumer portfolio is expected to continue to run-down throughout 2014.

Table 11. Maturities and Interest Rate Terms of Selected Loans

The following table presents the stated maturities (or earlier call dates) of selected loans as of December 31, 2013. Residential mortgage and consumer loans are excluded from the presentation.

	Less than				Over
(Dollars in thousands)	1 year		1-5 years		5 years		Total
Loans:
Residential real estate construction	$	11,074	$	1,235	$	210	$	12,519
Commercial real estate		56,138		47,312		225,923		329,373
Commercial		57,653		34,824		77,850		170,327
	$	124,865	$	83,371	$	303,983	$	512,219

Loans with fixed and variable interest rates at December 31, 2013 are shown below:

	Less than				Over
(Dollars in thousands)	1 year		1-5 years		5 years		Total
Loans with fixed rates	$	18,090	$	27,717	$	25,748	$	71,555
Loans with variable rates		106,775		55,654		278,235		440,664
	$	124,865	$	83,371	$	303,983	$	512,219

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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 represents 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 $76.3 million at year-end compared to $104.3 million at the prior year-end. The watch list is comprised of $19.0 million rated 6, and $57.3 million rated 7. The Bank has no loans rated 8 (Doubtful) or 9 (Loss). The composition of the watch list loans, by primary collateral, is shown in Note 6 of the accompanying financial statements and includes all those loans rates lower than “pass”. Included in the 2013 substandard loan total is $24.6 million of nonaccrual loans. Of the nonaccrual loans, the most significant nonaccrual loans are reported on Table 13. 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 December 31, 2013, the Bank had loans of $30.4 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 6 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).

Loan quality has improved during 2013, as measured by the balance of nonperforming loans (Table 12). Nonperforming loans have decreased by $11.7 million with the majority of the decrease coming in the commercial real estate sector. Table 13 identifies the most significant loans in nonaccrual status. These nonaccrual loans account for 85% of the total nonaccrual balance. During 2013, the primary changes to the significant nonaccrual list was a payoff of approximately $2.4 million, a return to accrual status of approximately $2.5 million, and partial charge-offs of $2.2 million. Credits 8 and 9 on Table 13 were added to nonaccrual status in 2013. Also included in the nonaccrual total are $10.1 million of loans classified as troubled debt restructurings (TDR), including credits 3 and 6 on Table 13. A TDR loan is maintained on nonaccrual status until a satisfactory repayment history is established. All of the Bank’s TDR loans are in compliance with the modified terms except one, credit 3 on Table 13. 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 December 31, 2013 totaled $51.0 million compared to $67.3 million at December 31, 2012.

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The following table presents a five year summary of nonperforming assets as of December 31 of each year:

Table 12. Nonperforming Assets

	December 31
(Dollars in thousands)	2013			2012			2011			2010			2009
Nonaccrual loans
Residential real estate 1-4 family
First liens	$	2,599		$	3,584		$	1,749		$	691		$	345
Junior liens and lines of credit		107			758			282			122			-
Total		2,706			4,342			2,031			813			345
Residential real estate construction		538			557			-			6,500			4,040
Commercial real estate		19,001			28,659			14,278			13,003			5,654
Commercial		2,398			2,836			1,447			1,668			124
Consumer		-			-			-			-			30
Total nonaccrual loans		24,643			36,394			17,756			21,984			10,193
Loans past due 90 days or more and still accruing
Residential real estate 1-4 family
First liens		302			120			2,516			1,093			3,060
Junior liens and lines of credit		41			112			301			833			494
Total		343			232			2,817			1,926			3,554
Residential real estate construction		-			-			121			911			1,426
Commercial real estate		207			-			1,627			2,343			1,926
Commercial		44			315			100			244			960
Consumer		10			16			107			125			195
Total loans past due 90 days or more and still accruing		604			563			4,772			5,549			8,061
Total nonperforming loans		25,247			36,957			22,528			27,533			18,254
Repossessed assets		-			-			6			-			18
Other real estate owned		4,708			5,127			3,224			618			642
Total nonperforming assets	$	29,955		$	42,084		$	25,758		$	28,151		$	18,272
Nonperforming loans to total gross loans		3.49	%		4.90	%		2.94	%		3.68	%		2.47	%
Nonperforming assets to total assets		3.04	%		4.10	%		2.60	%		2.96	%		1.93	%
Allowance for loan losses to nonperforming loans		38.43	%		28.08	%		43.16	%		31.97	%		48.96	%

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The following table provides information on the most significant nonaccrual loans as of December 31, 2013.

Table 13. Significant Nonaccrual Loans

December 31, 2013
(Dollars in thousands)
			ALL		Nonaccrual					Last
	Balance		Reserve		Date		Collateral	Location		Appraisal(1)
Credit 1	$	3,040	$	-		Dec-10	1st lien on 92 acres undeveloped commercial real estate		PA		Dec-13
Commercial real estate										$	3,304
Credit 2		977		-		Aug-11	1st lien on commercial and residential properties and 70 acres of farm land (2 loans)		PA		Jun-13
Residential real estate										$	1,272
Commercial real estate
Credit 3		2,096		-		Mar-12	1st and 2nd liens on commercial real estate, residential real estate and business assets		PA		Oct-13
Residential real estate										$	4,184
Credit 4		883		-		Jun-12	1st lien residential development land - 75 acres		WV		Oct-13
Residential real estate							2nd lien residential real estate		PA	$	1,250
Credit 5		1,154		-		Apr-12	1st and 2nd liens on residential real estate		PA		May-13
Residential real estate										$	1,935
Credit 6		7,436		-		Sep-12	1st lien residential real estate development -376 acres and other commercial and		PA		Oct-13
Commercial real estate							residential properties			$	8,932
Credit 7		2,049		-		Oct-12	1st lien commercial refrigerated warehouse		PA		Feb-13
Commercial real estate										$	5,995
Credit 8		2,590		993		Mar-13	Liens on land, commercial and residential real estate and business assets		PA		Nov-13
Commercial / Commercial real estate										$	3,394
Credit 9		800		-		Sep-13	1st lien on 12 improved residential building lots and 1st lien on 43 acres		PA		Jun-13
Residential real estate										$	1,410
	$	21,025	$	993

(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, including a write-down of $548 thousand in 2013. This credit is part of a participated loan and the foreclosure process is held up in court. Credit 2 is in the process of foreclosure. Credit 3 is a TDR that is not performing in accordance with the modified terms and is more than 90 days past due. Credit 4 has been written down by $1.6 million, including a write-down of $1.2 million in 2013. Credit 5 was written-down by $398 thousand in 2013 and the property is listed for sale. Credit 6 provided additional real estate collateral in 2013 and was restructured as a TDR. The Bank anticipates that this credit will return to performing status in 2014. Credit 7 is a participated loan and the lead bank is developing a workout strategy that will pay-off the Bank in the first quarter of 2014. Credit 8 is new nonaccrual loan in 2013 and the borrower and guarantor have filed bankruptcy. Credit 9 is a new nonaccrual loan in 2013 was written down by $451 thousand.

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 (excluding consumer purpose loans) and TDR loans are 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 $30.9 million at year-end compared to $39.4 million at December 31, 2012. Included in the impaired loan total are $17.0 million of TDR loans. Note 6 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 interest rate, extending the maturity, reamortization of payment, or a combination of multiple concessions. The Bank reviews all loans rated 6 or worse when it is providing a loan restructure, modification 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. See Note 6 in the accompanying financial statements for a note that identifies TDR loans in the portfolio. 

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The Bank holds $4.7 million of other real estate owned (OREO), comprised of eight properties compared to $5.1 million and ten properties at December 31, 2012. The most significant OREO holdings are listed in Table 14. During 2013, the Bank recorded losses on the sales of, or write-downs on OREO of $256 thousand that is recorded in other income. The Bank also incurred $137 thousand in expense to hold and maintain OREO. The following table provides additional information on significant other real estate owned properties. 

Table 14. Other Real Estate Owned

December 31, 2013
(Dollars in thousands)	Date							Last
	Acquired		Balance		Collateral	Location		Appraisal
Property 1 (3 properties)		2011	$	1,294	Unimproved and improved real estate for residential development on four separate tracts totaling 150 acres		PA	$	Nov-12 1,500
Property 2		2012		2,758	1st, 2nd, and 3rd liens residential development land - four tracts with 294 acres		PA	$	Aug-12 3,292
			$	4,052

At December 31, 2013, the Bank had $1.1 million of residential properties in the process of foreclosure compared to $121 thousand at the end of 2012.

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 December 31, 2013 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. However, it is possible that as a result of the credit analysis, a specific reserve is not required for an impaired loan. The balance of impaired loans declined in 2013, but the ALL for these loans increased. The majority of the ALL on impaired loans has been established for credit 8 on Table 13. Note 6 of 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 historical loss experience factor for the general allocation was .99% of gross loans at December 31, 2013, compared to 1.05% at the prior year-end. The decrease is due primarily to the decrease in charge-offs during the eight quarter historical review period, primarily in the commercial loan sector. 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 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 qualitative factor of 37.5 basis points. At December 31, 2013, the qualitative factor was 20.5 basis points, compared to 21.5 basis points at December 31, 2012. 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.

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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.

The following table shows, by loan segment, the activity in the ALL, the amount of the allowance established in each category and the loans that were evaluated for the ALL under a specific reserve (individually) and those that were evaluated under a general reserve (collectively) as of December 31, 2013.

Table 15. Allowance by Loan Segment

										Commercial
(Dollars in thousands)	Residential Real Estate 1-4 Family									Industrial &			Commercial
				Junior Liens &						Agricultural			Industrial &
	First Liens			Lines of Credit			Construction			Real Estate			Agricultural			Consumer			Total
Allowance at December 31, 2012	$	913		$	306		$	899		$	6,450		$	1,620		$	191		$	10,379
Charge-offs		(547	)		(45	)		-			(2,855	)		(363	)		(162	)		(3,972	)
Recoveries		13			-			-			203			100			59			375
Provision		729			17			(608	)		1,773			949			60			2,920
Allowance at December 31, 2013	$	1,108		$	278		$	291		$	5,571		$	2,306		$	148		$	9,702
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
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

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The following table shows the allocation of the allowance for loan losses by loan category as of December 31 for each of the past five years.

Table 16. Allocation of the Allowance for Loan Losses

(Dollars in thousands)	2013				2012				2011				2010				2009
			% of				% of				% of				% of				% of
	Balance		Allowance		Balance		Allowance		Balance		Allowance		Balance		Allowance		Balance		Allowance
Residential real estate 1-4 family
First liens	$	1,108		11	$	913		9	$	1,049		11	$	600		7	$	550		6
Junior liens and lines of credit		278		3		306		3		308		3		352		4		278		3
Total		1,386		14		1,219		12		1,357		14		952		11		828		9
Residential real estate construction		291		3		899		9		1,222		13		2,596		29		3,087		35
Commercial real estate		5,571		57		6,450		62		5,257		54		3,358		38		4,175		47
Commercial		2,306		24		1,620		16		1,651		17		1,578		18		752		8
Consumer		148		2		191		2		236		2		317		4		95		1
	$	9,702		100	$	10,379		100	$	9,723		100	$	8,801		100	$	8,937		100

The allocation of the allowance for loan losses is based on estimates and is not intended to imply limitations on the usage of the allowance. The entire allowance is available to absorb any losses without regard to the category in which the loan is classified.

The percentage of the loans in each category to total gross loans as of December 31 for each of the past five years:

	2013			2012			2011			2010			2009
Residential real estate 1-4 family
First liens		22	%		21	%		19	%		19	%		19	%
Junior liens and lines of credit		6	%		6	%		6	%		8	%		9	%
Total		28	%		27	%		25	%		27	%		28	%
Residential real estate construction		2	%		2	%		3	%		11	%		11	%
Commercial real estate		45	%		48	%		47	%		40	%		38	%
Commercial		24	%		22	%		24	%		20	%		20	%
Consumer		1	%		1	%		1	%		2	%		3	%
		100	%		100	%		100	%		100	%		100	%

The Bank added $2.9 million to the ALL through the provision for loan loss expense in 2013 compared to $5.2 million in the prior year. Net charge-offs totaled $3.6 million for the year exceeding the provision expense, and as a result the ALL decreased $677 thousand. The net loan charge-off ratio decreased to 0.49% for the year compared to 0.60% for the prior year and the ALL coverage ratio decreased slightly to 1.34% from 1.38% at the prior year-end.

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

The Bank recorded net loan charge-offs of $3.6 million in 2013, $1.0 million less than in 2012, and 2013 was the second straight year of a decline in net charge-offs. Nearly every loan category showed a decline in gross charge-offs for 2013. The two commercial loan categories accounted for 81% of the gross charge-offs in 2013. The most significant charge-offs totaled $2.6 million and were comprised of charge-offs on credits 1, 4, 5 and 9 as discussed in Table 13.

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Table 17. Historical Allowance for Loan Losses

	December 31
(Dollars in thousands)	2013			2012			2011			2010			2009
Balance at beginning of year	$	10,379		$	9,723		$	8,801		$	8,937		$	7,357
Charge-offs:
Residential real estate 1-4 family
First liens		(547	)		(251	)		(324	)		(107	)		-
Junior liens and lines of credit		(45	)		(71	)		(202	)		(165	)		(94	)
Total		(592	)		(322	)		(526	)		(272	)		(94	)
Residential real estate construction		-			-			(2,352	)		(982	)		(724	)
Commercial real estate		(2,855	)		(3,298	)		(3,817	)		(1,736	)		(63	)
Commercial		(363	)		(861	)		(115	)		(232	)		(567	)
Consumer		(162	)		(236	)		(237	)		(452	)		(681	)
Total charge-offs		(3,972	)		(4,717	)		(7,047	)		(3,674	)		(2,129	)
Recoveries:
Residential real estate 1-4 family
First liens		13			1			30			19			25
Junior liens and lines of credit		-			25			10			10			-
Total		13			26			40			29			25
Residential real estate construction		-			-			-			53			-
Commercial real estate		203			13			306			18			-
Commercial		100			21			11			61			61
Consumer		59			88			88			142			185
Total recoveries		375			148			445			303			271
Net charge-offs		(3,597	)		(4,569	)		(6,602	)		(3,371	)		(1,858	)
Provision for loan losses		2,920			5,225			7,524			3,235			3,438
Balance at end of year	$	9,702		$	10,379		$	9,723		$	8,801		$	8,937
Ratios:
Net charge-offs/average gross loans		0.49	%		0.60	%		0.86	%		0.45	%		0.26	%
Net charge-offs/provision for loan losses		123.18	%		87.44	%		87.75	%		104.20	%		54.04	%
ALL as a percentage of loans		1.34	%		1.38	%		1.27	%		1.18	%		1.21	%

Goodwill:

The Bank has $9.0 million of goodwill recorded on its balance sheet as the result of corporate acquisitions. Goodwill is not amortized, nor deductible for tax purposes. However, goodwill is tested for impairment at least annually in accordance with ASC Topic 350. Goodwill was tested for impairment as of August 31, 2013. The impairment test was conducted following the step-one test under ASC Topic 350 rather than the qualitative assessment permitted under ASU 2011-08. The Corporation chose not to use the qualitative assessment method for the August 31, 2013 test primarily due to the fact that the Corporation’s stock price is trading below its book value. The Corporation uses several different weighted methods to determine the fair value of the reporting unit under the step-one test, including a dividend analysis, comparable sale transactions, and change of control premium estimates. If the step-one test fails, a more comprehensive step-two test is performed before a final determination of impairment is made. If goodwill is determined to be impaired, an impairment write-down is charged to results of operations in the period in which the impairment is determined. As a result of the step-one test, the estimated fair value of the Corporation exceeded its carrying value by approximately 12% (compared to 5% in 2012) and Management determined goodwill was not impaired. The increase in the valuation excess compared to 2012 is primarily the result of an increase in the Corporation’s stock price during 2013. At December 31, 2013, Management subsequently considered certain qualitative factors affecting the Corporation and determined that it was not likely that the results of the prior test had changed and it determined that goodwill was not impaired at year-end. For more information on Goodwill refer to Note 8 of the accompanying financial statements.

Deposits:

The Bank depends on deposits generated by its community banking offices as its primary source of funds. The Bank offers numerous deposit products including demand deposits (noninterest and interest-bearing accounts), savings, money management accounts, and time deposits (certificates of deposits/CDs). Table 18 shows a comparison of the major deposit categories over a five year period, including balances and the percentage change in balances year-over-year. Table 3 presented previously, shows the average balance of the major deposit categories and the average cost of these deposits over a three year period.. In January 2013, the Bank introduced a fully FDIC insured product that is available as either a demand deposit account or as an interest-bearing checking account. This product is designed to replace the Bank’s collateralized sweep repurchase product and to provide an option for accounts that were previously fully-insured under the Transaction Account Guarantee program that expired on December 31, 2012.

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Table 18. Deposits

	December 31
(Dollars in thousands)	2013					2012					2011					2010					2009
			%					%					%					%
	Balance		Change			Balance		Change			Balance		Change			Balance		Change			Balance
Noninterest-bearing checking	$	121,565		(1.7	)	$	123,623		18.6		$	104,245		15.4		$	90,317		16.3		$	77,675
Interest-bearing checking		180,450		33.2			135,454		15.3			117,479		13.0			103,918		6.4			97,636
Money management		370,401		(2.5	)		380,079		16.5			326,219		12.6			289,763		19.0			243,600
Savings		59,394		3.9			57,165		10.5			51,728		7.5			48,138		2.5			46,986
Retail time deposits		108,283		(15.3	)		127,861		(13.3	)		147,479		(8.6	)		161,399		(22.2	)		207,338
Brokered time deposits		5,631		(88.8	)		50,258		23.1			40,836		0.1			40,796		(37.4	)		65,130
Total deposits	$	845,724		(3.3	)	$	874,440		11.0		$	787,986		7.3		$	734,331		(0.5	)	$	738,365

Noninterest-bearing checking: Noninterest-bearing demand deposit accounts represent a very valuable funding source to the Bank. The category declined slightly during 2013 with the decline occurring primarily in the small business checking product.

Interest-bearing checking: This category saw a significant increase in both the ending and average balance for the year compared to 2012. The growth in this category occurred primarily in the new fully-insured interest-bearing checking account that was introduced in 2013. This account attracted commercial and large dollar accounts that lost the full FDIC insurance at the end of 2012. In addition, the Bank actively moved many of its Repo accounts into this fully-insured product.

Money management: This category showed a slight decrease year over year after several years of double digit percentage growth. However, the average 2013 balance for this category was larger than it was in 2012. All account types (retail, commercial, and municipal) showed an increase in balances year-over- year. However, these increases were more than offset by a decline in the Bank’s fully insured money management product used primarily by municipal customers. The Bank has one significant municipal account and the seasonality of its cash flow can affect the ending and average balance of the fully insured money management product.

Savings: Savings accounts increased 3.9% during the year and represent the fifth consecutive year of growth. Retail savings accounts and IRA savings accounted for the largest growth categories within this product.

Time deposits: Retail time deposits have declined for the fourth consecutive year. Retail time deposits greater than $100 thousand totaled $25.9 compared to $32.1 million at year-end 2012. Consumers do not seem to be inclined to invest in longer maturity deposits as they want more liquid accounts and are afraid of missing out on the opportunity to take advantage of rising rates, whenever that may occur. As a result of this sentiment, the Bank has seen some maturing CDs migrate to the Money Management product and new CDs being written for short-terms. In 2013, the Bank retained or replaced 75% of the scheduled 2013 retail CD maturities. In 2014, 59% of the Bank’s retail CDs will mature.

As the Bank accumulated cash during the year, the Bank decided to “call” $32.1 million of its brokered CDs in order to prepay the CDs and reduce its cost of funds. In addition, $15 million of brokered CDs matured in 2013. At year-end 2013 the Bank had $5.6 million placed into the CDARS program that allows the Bank to offer full FDIC coverage to large depositors, but with the convenience to the customer of only having to deal with one bank. The Bank solicits these deposits from within its market and it believes they present no greater risk than any other local deposit. However, regulatory guidance requires that these deposits be classified as brokered deposits. The Bank had no wholesale brokered CDs at year-end.

The Bank continues to review different methods of funding growth that include traditional deposits and other wholesale sources. Competition from other local financial institutions, internet banks and brokerages will continue to be a challenge for the Bank in its efforts to attract new and retain existing deposit accounts. This competition is not expected to lessen in the future.

The following table shows the maturity of outstanding time deposits of $100,000 or more at December 31, 2013:

Table 19. Time Deposits of $100,000 or More

	Retail		Brokered		Total
(Dollars in thousands)	Time Deposits		Time Deposits		Time Deposits
Maturity distribution:
Within three months	$	4,601	$	450	$	5,051
Over three through six months		5,128		-		5,128
Over six through twelve months		4,576		2,319		6,895
Over twelve months		11,644		2,557		14,201
Total	$	25,949	$	5,326	$	31,275

Borrowings:

Short-term Borrowings: In addition to deposits, the Bank uses securities sold under repurchase agreements (Repo), which are accounted for as collateralized financings, and borrowings from FHLB as additional funding sources. The Bank enters into Repo agreements as part of a cash management product offered to commercial and municipal customers. These are overnight borrowings by the Bank that are collateralized with U.S. Government and U.S. Agency securities. The Bank is attempting to move its Repo accounts into a fully-insured sweep deposit product that was introduced in January 2013 and this initiative is responsible for the reduction of both the ending and average balances in 2013. The Bank intends to continue to move the Repo accounts to the new deposit account during 2014. By moving accounts out of the Repo, the Bank can free up its investment collateral and improve its liquidity position by having less pledged collateral.

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Short-term borrowings from the FHLB are in the form of a revolving term commitment. The short-term FHLB borrowings are used as overnight borrowings to fund the short-term liquidity needs of the Bank. These borrowings reprice on a daily basis and the interest rate fluctuates with short-term market interest rates. At December 31, 2013, the available amount on this line of credit was $35 million. The following table resents information about the Bank’s Repo product and short-term borrowings.

Table 20. Short-Term Borrowings and Securities Sold Under Agreements to Repurchase

(Dollars in thousands)	2013					2012					2011
	Short-Term		Repurchase			Short-Term		Repurchase			Short-Term			Repurchase
	Borrowings		Agreements			Borrowings		Agreements			Borrowings			Agreements
Ending balance	$	-	$	23,834		$	-	$	42,209		$	-		$	53,103
Average balance		-		32,407			-		51,558			192			60,136
Maximum month-end balance		-		52,880			-		57,279			1,800			71,485
Weighted-average interest rate		-		0.15	%		-		0.15	%		0.74	%		0.25	%

Long-term Debt: Long-term debt is comprised entirely of FHLB term loans either payable at maturity or amortizing advances. All of the loans have fixed interest rates. These loans are used on an as needed basis to lock in term funding and are sometimes used to fund specific asset transactions. The Bank did not take any new FHLB advances, or prepay any existing advances in 2013. In 2012, the Bank prepaid $33.1 million of advances that were scheduled to mature in 2012 and 2013. See Note 10 of the accompanying consolidated financial statements for more information.

Shareholders’ Equity:

Shareholders’ equity increased $3.8 million to $95.4 million at December 31, 2013. The Corporation added $3.4 million to retained earnings after declaring $2.8 million in dividends. The Dividend Reinvestment Plan (DRIP) added $926 thousand in new capital during 2013. The Corporation declared regular cash dividends per share of $.68 in 2013 versus $.78 in 2012. The dividend payout ratio was 45.1% in 2013 compared to 59.1% in 2012. The Corporation made no repurchases of its stock in 2013 or 2012.

The Board of Directors has in the past authorized the repurchase of the Corporation’s $1.00 par value common stock. The repurchased shares can be held as treasury shares available for issuance in connection with future stock dividends and stock splits, employee benefit plans, executive compensation plans, the Dividend Reinvestment Plan and other appropriate corporate purposes. The term of the repurchase plans is normally 1 year. For additional information on Shareholders’ Equity refer to Note 17 of the accompanying consolidated financial statements. There was no stock repurchase plan in place during 2013.

The Corporation’s dividend reinvestment plan (DRIP) allows for shareholders to purchase additional shares of the Corporation’s common stock by reinvesting cash dividends paid on their shares or through optional cash payments. The Corporation has authorized common stock to be issued under the amended plan. During 2013, 57,320 shares of common stock were purchased through the dividend reinvestment plan at a value of $926 thousand and 738,204 shares remain to be issued.

A strong capital position is important to the Corporation as it provides a solid foundation for the future growth of the Corporation, as well as instills confidence in the Bank by depositors, regulators and investors, and is considered essential by Management. The Corporation is continually exploring other sources of capital as part of its capital management plan for the Corporation and the Bank.

Common measures of adequate capitalization for banking institutions are capital ratios. These ratios indicate the proportion of permanently committed funds to the total asset base. Guidelines issued by federal and state regulatory authorities require both banks and bank holding companies to meet minimum leverage capital ratios and risk-based capital ratios.

The leverage ratio compares Tier 1 capital to average assets while the risk-based ratio compares Tier 1 and total capital to risk-weighted assets and off-balance-sheet activity in order to make capital levels more sensitive to the risk profiles of individual banks. Tier 1 capital is comprised of common stock, additional paid-in capital, retained earnings and components of other comprehensive income, reduced by goodwill and other intangible assets. Total capital is comprised of Tier 1 capital plus the allowable portion of the allowance for loan losses.

Current regulatory capital guidelines call for a minimum leverage ratio of 4.0% and minimum Tier 1 and total capital ratios of 4.0% and 8.0%, respectively. Well-capitalized banks are determined to have leverage capital ratios greater than or equal to 5.0% and Tier 1 and total capital ratios greater than or equal to 6.0% and 10.0%, respectively. Table 21 presents the capital ratios for the consolidated Corporation at December 31, 2012, 2011 and 2010. At year-end 2013, the Corporation and its banking subsidiary exceeded all regulatory capital requirements. The Corporation is not aware of any future events or transactions, outside its control, that are expected to significantly affect its capital position. The Bank did not participate in the Troubled Asset Relief Program (TARP) established by the Emergency Economic Stabilization Act of 2008 (EESA) that was designed to provide capital injections to banks through the purchase of preferred stock, and it did not participate in the Small Business Lending Fund created in 2011.

In July 2013, Federal banking regulators approved the final rules from the Basel Committee on Banking Supervision for the regulation of capital requirements for U.S banks, generally referred to as “Basel III.” Basel III imposes significantly higher capital requirements and more restrictive leverage and liquidity ratios than those currently in place. The capital ratios to be considered “well capitalized” under Basel III are: common equity of 6.5%, Tier 1 leverage of 5%, Tier 1 risk-based capital of 8%, and Total Risk-Based capital of 10%. The common equity ratio is a new capital ratio under Basel III and the Tier 1 risk-based capital ratio of 8% has been increased from 6%. In addition, a capital conservation buffer of 2.5% above the minimum capital ratios is required to avoid any capital distribution restrictions. Certain components of the new capital requirements are effective January, 2015 with others being phased in through January 1, 2019. As of December 31, 2013, the Management believes that the Bank would remain “well capitalized’ under the new rules.

For additional information on capital adequacy refer to Note 2 of the accompanying consolidated financial statements.

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The following table provides information on the Corporation’s capital ratio.

Table 21. Capital Ratios

	December 31
	2013			2012			2011
Total risk-based capital ratio		14.24	%		12.60	%		12.14	%
Tier 1 risk-based capital ratio		12.97	%		11.36	%		10.89	%
Tier 1 leverage ratio		9.14	%		8.29	%		8.40	%

Local 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 238,000 in Cumberland County. Unemployment in the Bank’s market area has remained virtually unchanged over the past year and ranges from a low of 5.6% in Cumberland County to high of 9.2% 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

	December 31
	2013			2012
Unemployment Rate (seasonally adjusted)
Market area range (1)		5.6 - 9.2%			6.8% - 10%
Pennsylvania		7.3	%		7.9	%
United States		6.7	%		7.8	%
Housing Price Index - year over year change
PA, nonmetropolitan statistical area		1.3	%		0.8	%
United States		4.6	%		-0.3	%
Franklin County Building Permits - year over year change
Residential, estimated		18.2	%		-42.5	%
Multifamily, estimated		-68.5	%		210.9	%

(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 (FOMC) as it makes decisions about interest rate changes and monetary policy. The FOMC continues to hold short-term rates at historic lows. The FOMC announced in 2012 that it would hold short-term rates at the current levels until the unemployment rate falls to 6.5% and the inflation rate does not go above 2.5%. Recently, the FOMC announced that the unemployment target was not a hard target and rates could remain low even if unemployment falls below the original goal of 6.5%. With the current unemployment rate hovering just under 7%, and recent FOMC comments, many believe that the low rate environment will be ongoing well into 2015. A continued period of low rates will continue to have negative effects on the Bank’s net interest margin as assets continue to be booked or repriced at lower rates, and liabilities rates cannot be lowered significantly. During 2013, the Federal Reserve continued its policy of quantitative easing (QE) and holding the line on short-term rates. The QE efforts were designed to inject money into the economy via bond purchases and to drive down long-term interest rates and spur hiring and investments. In December 2013, the Federal Reserve announced that it would begin to taper its bond purchases by reducing the purchases from $85 billion a month to $75 billion a month. It announced another $10 billion reduction in purchases in January 2014 and is expected to continue tapering through 2014.

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.

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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 December 31, 2013, the Bank had approximately $108 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 December 31, 2013, the Bank had approximately $38 million available on this line of credit and $16 million of unsecured lines of credit at correspondent banks.

In December 2011, FHLB notified the Bank it was being placed on full collateral delivery status. This status means that the Bank’s ability to borrow from FHLB is reduced to the value of the collateral physically delivered to FHLB. Prior to this change, the Bank’s borrowing capacity was determined by the value of all real estate loan collateral pledged to FHLB. The credit status of the Bank is determined by an internal scorecard developed by the FHLB in its sole discretion. In September 2013, the Bank was notified that it was released from collateral delivery. At December 31, 2013, the Bank had a maximum borrowing capacity of $77.2 million, which includes the amount available on the line of credit. The Bank expects its FHLB borrowing capacity to increase significantly during the first quarter of 2014 as it finalizes the FHLB reporting process after being released from collateral delivery. In February 2014, the Bank was notified its maximum borrowing capacity had increased to $170 million.

The FHLB system has always been a major source of funding for community banks. There are no indicators that lead the Bank to believe the FHLB will discontinue its lending function or restrict the Bank’s ability to borrow. If either of these events 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.

The Bank has established credit at the Federal Reserve Discount Window and as of year-end had the ability to borrow approximately $46 million.

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 loans and lines of credit. Because these unfunded instruments have fixed maturity dates and 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 $219.4 million and $20.2 million, respectively, at December 31, 2013, compared to $223.6 million and $28.2 million, respectively, at December 31, 2012. See Note 18 of the accompanying consolidated financial statements for more information on commitments and contingencies.

Management believes that any amounts actually drawn upon can be funded in the normal course of operations. The Corporation has no investment in or financial relationship with any unconsolidated entities that are reasonably likely to have a material effect on liquidity.

The following table represents the Corporation’s aggregate on and off balance sheet contractual obligations to make future payments as of December 31, 2013.

Table 22. Contractual Obligations

(Dollars in thousands)

	1 year						Over
	and under		Years 2-3		Years 4-5		5 years		Total
Time deposits	$	66,619	$	34,453	$	12,842	$	-	$	113,914
Long-term debt		2,008		10,016		18		361		12,403
Operating leases		667		1,087		1,005		5,486		8,245
Deferred compensation		162		320		316		265		1,063
Estimated future pension payments		915		1,870		1,927		5,010		9,722
Total	$	70,371	$	47,746	$	16,108	$	11,122	$	145,347

The Corporation is not aware of any known trends, demands, commitments, events or uncertainties which would result in any material increase or decrease in liquidity. The Corporation has also entered into an interest rate swap agreement as part of its interest rate risk management strategy. See Note 14 of the accompanying financial statements for more information on financial derivatives.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Market Risk

In the course of its normal business operations, the Corporation is exposed to certain market risks. The Corporation has no foreign currency exchange rate risk, no commodity price risk or material equity price risk. However, it is exposed to interest rate risk. All interest rate risk arises in connection with financial instruments entered into for purposes other than trading. Financial instruments, which are sensitive to changes in market interest rates, include fixed and variable-rate loans, fixed-income securities, derivatives, interest-bearing deposits and other borrowings.

Changes in interest rates can have an impact on the Corporation’s net interest income and the economic value of equity. The objective of interest rate risk management is to identify and manage the sensitivity of net interest income and economic value of equity to changing interest rates in order to achieve consistent earnings that are not contingent upon favorable trends in interest rates.

The Corporation uses several tools to measure and evaluate interest rate risk. One tool is interest rate sensitivity or gap analysis. Gap analysis classifies assets and liabilities by repricing and maturity characteristics and provides management with an indication of how different interest rate scenarios will impact net interest income. Table 23 presents a gap analysis of the Corporation’s balance sheet at December 31, 2013. A positive gap in the under one-year time interval suggests that, all else being equal, the Corporation’s near-term earnings would rise in a higher interest rate environment and decline in a lower rate environment. A negative gap suggests the opposite result. At December 31, 2013, the Corporation’s cumulative gap position at one year was negative. However, the incremental benefit of future rate decreases has been reduced as the rates paid on the Bank’s liabilities have been reduced greatly, leaving little room for future rate decreases. In addition certain liabilities may or may not be repriced with the same magnitude or at the same time as market rates. These circumstances are not captured by a gap analysis. Consequently, gap analysis is not a good indicator of future earnings.

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Another tool for analyzing interest rate risk is financial simulation modeling which captures the effect of not only changing interest rates but also other sources of cash flow variability including loan and securities prepayments and customer preferences. Financial simulation modeling forecasts both net interest income and the economic value of equity under a variety of different interest rate environments that cannot be captured with a gap analysis. The Corporation regularly measures the effects of yield curve rate changes, including rate ramps, shocks and yield curve twists. The magnitude of each change scenario may vary depending on the current interest rate environment. As part of this simulation, the effect of the rate change is held constant for year two of the simulation. In addition, different rate change scenarios and yield curve structures are utilized depending on the current level of interest rates.

As indicated in Table 24, the financial simulation analysis indicated that as of December 31, 2013, prospective net interest income over a one year time period increases with higher market interest rates. This suggests the balance sheet is asset sensitive. As market rates ramp up 2% over the first year, more assets reprice immediately and funding costs lag behind therefore, net interest income improves. In a falling rate environment, net interest income declines. Due to the current level of interest rates, most liability costs will not be able to move down by a full market rate decrease. However, asset yields have more room for downward movement. Therefore, if rates fall and remain low for a prolonged period, the more net interest income is negatively affected. The Corporation has established limits to the change in net interest income of 10% from the base scenario in year one.

Economic value of equity (EVE) is defined as the estimated discounted present value of assets minus the discounted present value of liabilities and is a surrogate for long-term earnings. EVE measures the degree to which the economic value of a bank changes under different rate scenarios. EVE focuses on a longer-term time horizon and captures all balance sheet cash flows and is more effective in considering embedded options. The discount rates used in the EVE calculation are based on market rates for like assets and liabilities and the balance sheet position is held constant in order to isolate the risk of interest rate changes. The Corporation established limits to the change in EVE sensitivity of 10% per 100 basis point rate change. At December 31, 2013, the Corporation was within this limit for all scenarios except the down 1% scenario.

Computations of prospective effects of hypothetical interest rate changes are based on many assumptions, including relative levels of market interest rates, loan prepayments and deposit repricing. Certain shortcomings are inherent in the computation of discounted present value and, if key relationships do not unfold as assumed, actual values may differ from those presented. Further, the computations do not contemplate any actions Management could undertake in response to changes in market interest rates.

The following tables show interest rate sensitivity for the Corporation.

Table 23. Interest Rate Sensitivity Analysis

(Dollars in thousands)	1-90			91-181			182-365			1-5		Beyond
	Days			Days			Days			Years		5 Years		Total
Interest-earning assets:
Interest -bearing deposits in other banks	$	27,203		$	-		$	-		$	-	$	-	$	27,203
Investment securities and restricted stock		19,372			6,757			12,629			68,821		54,001		161,580
Loans		288,357			21,812			105,998			211,739		95,856		723,762
Interest rate swaps (receive side)		10,000			-			-			-		-		10,000
Total interest-earning assets		344,932			28,569			118,627			280,560		149,857		922,545
Interest-bearing liabilities:
Interest-bearing checking		180,450			-			-			-		-		180,450
Money market deposit accounts		370,401			-			-			-		-		370,401
Savings		59,394			-			-			-		-		59,394
Time		21,522			20,313			24,784			47,295		-		113,914
Securities sold under agreements to repurchase		23,834			-			-			-		-		23,834
Short-tem borrowings		-			-			-			-		-		-
Long-term debt		2			2			2,004			10,034		361		12,403
Interest rate swaps (pay side)		-			-			-			10,000		-		10,000
Total interest-bearing liabilities	$	655,603		$	20,315		$	26,788		$	67,329	$	361	$	770,396
Interest rate gap	$	(310,671	)	$	8,254		$	91,839		$	213,231	$	149,496	$	152,149
Cumulative interest rate gap	$	(310,671	)	$	(302,417	)	$	(210,578	)	$	2,653	$	152,149

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Table 24. Sensitivity to Changes in Market Interest Rates

(Dollars in thousands)	Net Interest Income					Economic Value of Equity (EVE)
Change in rates over one year (basis points)	Projected		% Change			Projected		% Change
+200	$	32,990		3.4	%	$	152,659		5.7	%
+100	$	32,478		1.8	%	$	152,311		5.5	%
unchanged	$	31,918		-		$	144,438		-
(100)	$	30,872		-3.3	%	$	120,280		-16.7	%

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 “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, change 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.

Impact of Inflation

The impact of inflation upon financial institutions such as the Corporation differs from its effect upon other commercial enterprises. Unlike most other commercial enterprises, virtually all of the assets of the Corporation are monetary in nature. As a result, interest rates have a more significant impact on the Corporation’s performance than do the effects of general levels of inflation. Although inflation (and inflation expectations) may affect the interest rate environment, it is not possible to measure with any precision the impact of future inflation upon the Corporation.

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Item 8. Financial Statements and Supplementary Data

Report of Independent Registered Public Accounting Firm

Board of Directors and Shareholders

Franklin Financial Services Corporation

Chambersburg, Pennsylvania

We have audited the accompanying consolidated balance sheet of Franklin Financial Services Corporation and its subsidiaries (the “Corporation”) as of December 31, 2013, and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Corporation’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Franklin Financial Services Corporation and its subsidiaries as of December 31, 2013, and the results of their operations and their cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Corporation’s internal control over financial reporting as of December 31, 2013, based on criteria established in Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 10, 2014 expressed an unqualified opinion.

/s/ BDO USA, LLP

Harrisburg, Pennsylvania

March 10, 2014

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Report of Independent Registered Public Accounting Firm

Board of Directors and Shareholders

Franklin Financial Services Corporation

Chambersburg, Pennsylvania

We have audited the accompanying consolidated balance sheet of Franklin Financial Services Corporation and its subsidiaries (the “Corporation”) as of December 31, 2012, and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity and cash flows for the years ended December 31, 2012 and 2011. These consolidated financial statements are the responsibility of the Corporation’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Franklin Financial Services Corporation and its subsidiaries as of December 31, 2012, and the results of their operations and their cash flows for the years ended December 31, 2012 and 2011, in conformity with accounting principles generally accepted in the United States of America.

/s/ ParenteBeard LLC

Wilkes-Barre, Pennsylvania

March 11, 2013

40

Consolidated Balance Sheets

(Dollars in thousands, except per share data)	December 31
	2013			2012
Assets
Cash and due from banks	$	13,542		$	20,578
Interest-bearing deposits in other banks		27,203			57,256
Total cash and cash equivalents		40,745			77,834
Investment securities available for sale, at fair value		159,674			133,328
Restricted stock		1,906			3,571
Loans held for sale		349			67
Loans		723,413			753,579
Allowance for loan losses		(9,702	)		(10,379	)
Net Loans		713,711			743,200
Premises and equipment, net		16,145			17,037
Bank owned life insurance		21,530			20,925
Goodwill		9,016			9,016
Other intangible assets		698			1,123
Other real estate owned		4,708			5,127
Deferred tax asset, net		5,445			5,461
Other assets		10,660			10,674
Total assets	$	984,587		$	1,027,363
Liabilities
Deposits
Noninterest-bearing checking	$	121,565		$	123,623
Money management, savings and interest checking		610,245			572,698
Time		113,914			178,119
Total Deposits		845,724			874,440
Securities sold under agreements to repurchase		23,834			42,209
Long-term debt		12,403			12,410
Other liabilities		7,238			6,670
Total liabilities		889,199			935,729
Shareholders' equity
Common stock, $1 par value per share,15,000,000 shares authorized with
4,560,700 shares issued and 4,168,673 shares outstanding at December 31, 2013 and
4,503,380 shares issued and 4,107,346 shares outstanding at December 31, 2012		4,561			4,503
Capital stock without par value, 5,000,000 shares authorized with no
shares issued and outstanding		-			-
Additional paid-in capital		36,636			35,788
Retained earnings		65,897			62,475
Accumulated other comprehensive loss		(4,696	)		(4,050	)
Treasury stock, 392,027 and 396,034 shares at cost at December 31, 2013 and 2012,
respectively		(7,010	)		(7,082	)
Total shareholders' equity		95,388			91,634
Total liabilities and shareholders' equity	$	984,587		$	1,027,363

The accompanying notes are an integral part of these financial statements.

41

Consolidated Statements of Income

(Dollars in thousands, except per share data)

	Years ended December 31
	2013			2012			2011
Interest income
Loans, including fees	$	32,457		$	35,647		$	37,937
Interest and dividends on investments:
Taxable interest		1,783			1,725			2,318
Tax exempt interest		1,509			1,483			1,395
Dividend income		80			80			82
Deposits and obligations of other banks		213			207			59
Total interest income		36,042			39,142			41,791
Interest expense
Deposits		3,839			5,173			6,649
Securities sold under agreements to repurchase		48			78			150
Short-term borrowings		-			-			1
Long-term debt		491			1,639			2,354
Total interest expense		4,378			6,890			9,154
Net interest income		31,664			32,252			32,637
Provision for loan losses		2,920			5,225			7,524
Net interest income after provision for loan losses		28,744			27,027			25,113
Noninterest income
Investment and trust services fees		4,429			4,087			3,953
Loan service charges		879			1,210			1,198
Mortgage banking activities		47			6			(72	)
Deposit service charges and fees		1,831			1,925			2,142
Other service charges and fees		907			864			614
Debit card income		1,236			1,161			1,024
Increase in cash surrender value of life insurance		605			652			682
Other real estate owned (losses) gains, net		(255	)		(582	)		22
Other		240			184			720
Net OTTI losses recognized in earnings		(75	)		(100	)		(240	)
Securities gains (losses), net		33			44			157
Total noninterest income		9,877			9,451			10,200
Noninterest expense
Salaries and employee benefits		16,590			16,626			15,195
Net occupancy expense		2,259			2,024			2,006
Furniture and equipment expense		975			875			837
Advertising		1,384			1,401			1,335
Legal and professional fees		1,172			1,170			1,069
Data processing		1,713			1,642			1,462
Pennsylvania bank shares tax		815			745			681
Intangible amortization		425			435			446
FDIC insurance		979			1,093			1,084
ATM/debit card processing		706			630			332
Other		4,076			3,960			3,886
Total noninterest expense		31,094			30,601			28,333
Income before federal income taxes		7,527			5,877			6,980
Federal income tax expense		1,295			512			411
Net income	$	6,232		$	5,365		$	6,569
Per share
Basic earnings per share	$	1.51		$	1.32		$	1.66
Diluted earnings per share	$	1.51		$	1.32		$	1.66
Cash dividends declared	$	0.68		$	0.78		$	1.08

The accompanying notes are an integral part of these financial statements.

42

Consolidated Statements of Comprehensive Income

	Years ended December 31
(Dollars in thousands)	2013			2012			2011
Net Income	$	6,232		$	5,365		$	6,569
Securities:
Unrealized (losses) gains arising during the period		(3,326	)		1,060			2,370
Reclassification adjustment for net losses included in net income		42			56			83
Net unrealized (losses) gains		(3,284	)		1,116			2,453
Tax effect		1,117			(380	)		(834	)
Net of tax amount		(2,167	)		736			1,619
Derivatives:
Unrealized gains (losses) arising during the period		17			(101	)		(713	)
Reclassification adjustment for losses included in net income		525			736			727
Net unrealized gains		542			635			14
Tax effect		(184	)		(215	)		(6	)
Net of tax amount		358			420			8
Pension:
Change in plan assets and benefit obligations		1,762			(114	)		(1,691	)
Net unrealized gains (losses)		1,762			(114	)		(1,691	)
Tax effect		(599	)		39			575
Net of tax amount		1,163			(75	)		(1,116	)
Total other comprehensive (loss) income		(646	)		1,081			511
Total Comprehensive Income	$	5,586		$	6,446		$	7,080

The accompanying notes are an integral part of these financial statements.

43

Consolidated Statements of Changes in Shareholders' Equity

For years ended December 31, 2013, 2012, and 2011:

									Accumulated
			Additional						Other
	Common		Paid-in			Retained			Comprehensive			Treasury
(Dollars in thousands, except per share data)	Stock		Capital			Earnings			Loss			Stock			Total
Balance at December 31, 2010	$	4,317	$	33,096		$	57,984		$	(5,642	)	$	(7,116	)	$	82,639
Net income		-		-			6,569			-			-			6,569
Other comprehensive income		-		-			-			511			-			511
Cash dividends declared, $1.08 per share		-		-			(4,273	)		-			-			(4,273	)
Treasury shares issued under stock option plans, 1,776 shares		-		(2	)		-			-			32			30
Common stock issued under dividend reinvestment plan, 102,200 shares		102		1,604			-			-			-			1,706
Balance at December 31, 2011		4,419		34,698			60,280			(5,131	)		(7,084	)		87,182
Net income		-		-			5,365			-			-			5,365
Other comprehensive income		-		-			-			1,081			-			1,081
Cash dividends declared, $0.78 per share		-		-			(3,170	)		-			-			(3,170	)
Treasury shares issued under stock option plans, 140 shares		-		-			-			-			2			2
Common stock issued under dividend reinvestment plan, 84,122 shares		84		1,090			-			-			-			1,174
Balance at December 31, 2012		4,503		35,788			62,475			(4,050	)		(7,082	)		91,634
Net income		-		-			6,232			-			-			6,232
Other comprehensive loss		-		-			-			(646	)		-			(646	)
Cash dividends declared, $0.68 per share		-		-			(2,810	)		-			-			(2,810	)
Treasury shares issued under stock option plans, 4,007 shares		-		(20	)		-			-			72			52
Common stock issued under dividend reinvestment plan, 57,320 shares		58		868			-			-			-			926
Balance at December 31, 2013	$	4,561	$	36,636		$	65,897		$	(4,696	)	$	(7,010	)	$	95,388

The accompanying notes are an integral part of these financial statements.

44

Consolidated Statements of Cash Flows

	Years ended December 31
	2013			2012			2011
(Dollars in thousands)
Cash flows from operating activities
Net income	$	6,232		$	5,365		$	6,569
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		1,488			1,405			1,407
Net amortization of loans and investment securities		1,860			1,511			975
Amortization and net change in mortgage servicing rights valuation		50			133			235
Amortization of intangibles		425			435			446
Provision for loan losses		2,920			5,225			7,524
Net realized gains on sales and calls of securities		(33	)		(44	)		(157	)
Impairment writedown on securities recognized in earnings		75			100			240
Loans originated for sale		(10,207	)		(13,125	)		-
Proceeds from sale of loans		9,925			13,058			-
Writedown on other real estate owned		255			435			-
Net loss (gain) on sale or disposal of other real estate/other repossessed assets		-			147			(22	)
Increase in cash surrender value of life insurance		(605	)		(652	)		(682	)
Gain from surrender of life insurance policy		(22	)		-			-
Contribution to pension plan		-			(6,783	)		(2,112	)
Decrease (increase) in interest receivable and other assets		1,656			(141	)		(78	)
Increase in interest payable and other liabilities		880			3,842			699
Deferred tax expense (benefit)		348			367			(91	)
Other, net		150			(718	)		135
Net cash provided by operating activities		15,397			10,560			15,088
Cash flows from investing activities
Proceeds from sales and calls of securities available for sale		5,188			494			9,772
Proceeds from maturities and paydowns of securities available for sale		32,184			34,789			21,713
Net decrease in restricted stock		1,665			1,451			1,137
Purchase of investment securities available for sale		(69,100	)		(43,673	)		(37,562	)
Net decrease (increase) in loans		26,375			3,938			(28,393	)
Proceeds from sale of other real estate/other repossessed assets		554			788			517
Proceeds from surrender of life insurance policy		105			-			-
Capital expenditures		(527	)		(2,297	)		(742	)
Net cash used in investing activities		(3,556	)		(4,510	)		(33,558	)
Cash flows from financing activities
Net increase in demand deposits, NOW, and savings accounts		35,489			96,650			67,535
Net decrease in time deposits		(64,205	)		(10,196	)		(13,880	)
Net (decrease) increase in short-term borrowings and repurchase agreements		(18,375	)		(10,894	)		1,939
Long-term debt payments		(7	)		(35,926	)		(22,549	)
Dividends paid		(2,810	)		(3,170	)		(4,273	)
Treasury stock issued under stock option plans		52			2			30
Common stock issued under dividend reinvestment plan		926			1,174			1,706
Net cash (used in) provided by financing activities		(48,930	)		37,640			30,508
(Decrease) increase in cash and cash equivalents		(37,089	)		43,690			12,038
Cash and cash equivalents as of January 1		77,834			34,144			22,106
Cash and cash equivalents as of December 31	$	40,745		$	77,834		$	34,144
Supplemental Disclosures of Cash Flow Information
Cash paid during the year for:
Interest on deposits and other borrowed funds	$	4,497		$	7,102		$	9,350
Income taxes	$	725		$	-		$	2,425
Noncash Activities
Loans transferred to Other Real Estate	$	390		$	4,195		$	3,726

The accompanying notes are an integral part of these financial statements.

45

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Summary of Significant Accounting Policies

The accounting policies of Franklin Financial Services Corporation and its subsidiaries conform to generally accepted accounting principles and to general industry practices. A summary of the more significant accounting policies, which have been consistently applied in the preparation of the accompanying consolidated financial statements, follows:

Principles of 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 and Franklin Future Fund Inc. Farmers and Merchants Trust Company of Chambersburg is a commercial bank (the Bank) that has one wholly-owned subsidiary, Franklin Financial Properties Corp., which holds real estate assets that are leased by the Bank. Franklin Future Fund Inc. is a non-bank investment company that makes venture capital investments within the Corporation’s primary market area. The activities of non-bank entities are not significant to the consolidated totals. All significant intercompany transactions have been eliminated in consolidation. Management has evaluated subsequent events for potential recognition and/or disclosure through the date these consolidated financial statements were issued.

Nature of Operations– The Corporation conducts substantially all of its business through its subsidiary bank, Farmers and Merchants Trust Company, which serves its customer base through twenty-five community-banking offices located in Franklin, Cumberland, Fulton and Huntingdon Counties, Pennsylvania. These counties are considered to be the Corporation’s primary market area. The Bank is a community-oriented commercial bank that emphasizes customer service and convenience. As part of its strategy, the Bank has sought to develop a variety of products and services that meet the needs of both its retail and commercial customers. The Corporation and the Bank are subject to the regulations of various federal and state agencies and undergo periodic examinations by these regulatory authorities.

Use of Estimates in the Preparation of Financial Statements – The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, and the assessment of other than temporary impairment of investment securities and impairment of restricted stock, the value of mortgage servicing rights and derivatives, and the valuation allowance on the deferred tax asset.

Significant Group Concentrations of Credit Risk – Most of the Corporation’s activities are with customers located within its primary market area. Note 4 of the consolidated financial statements shows the types of securities in which the Corporation invests. Note 5 of the consolidated financial statements shows the types of lending in which the Corporation engages. The Corporation does not have any significant concentrations of any one industry or customer.

Statement of Cash Flows – 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.

Investment Securities – Management classifies its securities at the time of purchase as available for sale or held to maturity. At December 31, 2013 and 2012, all securities were classified as available for sale, meaning that the Corporation intends to hold them for an indefinite period of time, but not necessarily to maturity. Available for sale securities are stated at estimated fair value, adjusted for amortization of premiums and accretion of discounts which are recognized as adjustments of interest income through call date or maturity. The related unrealized holding gains and losses are reported as other comprehensive income or loss, net of tax, until realized. Declines in the fair value of held-to-maturity and available-for-sale securities to amounts below cost that are deemed to be other-than-temporary are reflected in earnings as realized losses. In estimating the other-than-temporary impairment losses, management considers (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) determines if the Corporation does not intend to sell the security or it if is not more likely than not that the Corporation will be required to sell the security before recovery of its amortized cost. When a determination is made that an other-than-temporary impairment exists but the Corporationdoes not intend to sell the debt security and it is not more likely than not that it will be required to sell the debt security prior to its anticipated recovery, the other-than-temporary impairment is separated into (a) the amount of the total other-than-temporary impairment related to a decrease in cash flows expected to be collected from the debt security (the credit loss) and (b) the amount of the total other-than-temporary impairment related to all other factors. The amount of the total other-than-temporary impairment related to the credit loss is recognized in earnings. The amount of the total other-than-temporary impairment related to all other factors is recognized in other comprehensive income. Realized securities gains and losses are computed using the specific identification method. Gains or losses on the disposition of investment securities are based on the net proceeds and the adjusted carrying amount of the specific security sold. Any decision to sell a security classified as available for sale would be based on various factors, including significant movement in interest rates, changes in maturity or mix of the Bank’s assets and liabilities, liquidity needs, regulatory capital considerations and other similar factors.

Restricted Stock– Restricted stock, which is carried at cost, consists of stock of the Federal Home Loan Bank of Pittsburgh (FHLB) and Atlantic Central Bankers Bank (ACBB). The Bank held $1.9 million of restricted stock at the end of 2013. With the exception of $30 thousand, this investment represents stock in the FHLB that the Bank is required to hold in order to be a member of FHLB and is carried at a cost of $100 per share. Federal law requires a member institution of the FHLB to hold FHLB stock according to a predetermined formula. Management evaluates the restricted stock for impairment in accordance with ASC Topic 320. Management’s determination of whether these investments are impaired is based on their assessment of the ultimate recoverability of their cost rather than by recognizing temporary declines in value. The determination of whether a decline affects the ultimate recoverability of their cost is influenced by criteria such as (1) the significance of the decline in net assets of the banks as compared to the capital stock amount for the banks and the length of time this situation has persisted, (2) commitments by the banks to make payments required by law or regulation and (3) the impact of legislative and regulatory changes on institutions and, accordingly, on the customer base of the banks. 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 or ACBB stock and the benefits of 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. Management believes no impairment charge is necessary related to the FHLB or ACBB restricted stock as of December 31, 2013.

Financial Derivatives – The Corporation uses interest rate swaps, which it has designated as cash-flow hedges, to manage interest rate risk associated with variable-rate funding sources. All such derivatives are recognized on the balance sheet at estimated fair value in other assets or liabilities as appropriate. To the extent the derivatives are effective and meet the requirements for hedge accounting, changes in fair value are recognized in other comprehensive income with income statement reclassification occurring as the hedged item affects earnings. Conversely, changes in fair value attributable to ineffectiveness or to derivatives that do not qualify as hedges are recognized as they occur in the income statement’s interest expense account associated with the hedged item.

46

Interest rate derivative financial instruments receive hedge accounting treatment only if they are designated as a hedge and are expected to be, and are, effective in substantially reducing interest rate risk arising from the assets and liabilities identified as exposing the Corporation to risk. Those derivative financial instruments that do not meet the hedging criteria discussed below would be classified as trading activities and would be recorded at fair value with changes in fair value recorded in income. Derivative hedge contracts must meet specific effectiveness tests (i.e., over time the change in their fair values due to the designated hedge risk must be within 80 to 125 percent of the opposite change in the fair values of the hedged assets or liabilities). Changes in fair value of the derivative financial instruments must be effective at offsetting changes in the fair value of the hedged items due to the designated hedge risk during the term of the hedge. Further, if the underlying financial instrument differs from the hedged asset or liability, there must be a clear economic relationship between the prices of the two financial instruments. If periodic assessments indicate derivatives no longer provide an effective hedge, the derivatives contracts would be closed out and settled or classified as a trading activity.

Cash flows resulting from the derivative financial instruments that are accounted for as hedges of assets and liabilities are classified in the cash flow statement in the same category as the cash flows of the items being hedged.

Loans – Loans, that management has the intent and ability to hold for the foreseeable future or until maturity or payoff, are stated at the outstanding unpaid principal balances, net of any deferred fees. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the yield (interest income) of the related loans using the interest method. The Corporation is generally amortizing these amounts over the contractual life of the loan.

The accrual of interest is generally discontinued when the contractual payment of principal or interest has become 90 days past due or management has serious doubts about further collectibility of principal or interest, even though the loan is currently performing. A loan may remain on accrual status if it is in the process of collection and is either guaranteed or well secured. When a loan is placed on nonaccrual status, unpaid interest credited to income in the current year is reversed and unpaid interest accrued in a prior year is charged against the allowance for loan losses. Payments received on nonaccrual loans are applied initially against principal, then interest income, late charges and any other expenses. Generally, loans are restored to accrual status when the obligation is brought current, has performed in accordance with the contractual terms for a reasonable period of time and the ultimate collectibility of the total contractual principal and interest is no longer in doubt. Consumer loans are typically charged off no later than 180 days past due. Past due status is based on contractual terms of the loans.

Loans Held for Sale – Mortgage loans originated and intended for sale in the secondary market at the time of origination are carried at the lower of cost or estimated fair value (determined on an aggregate basis). All sales are made without recourse. Loans held for sale at December 31, 2013 represent loans originated through a third-party brokerage agreement for a fee and present no price risk to the Bank.

Loan Servicing – Servicing assets are recognized as separate assets when rights are acquired through sale of financial assets. A portion of the cost of originating the loan is allocated to the servicing right based on relative fair value. Fair value is based on a valuation model that calculates the present value of estimated future net servicing income. The valuation model incorporates assumptions that market participants would use in estimating future net servicing income, such as the cost to service, the discount rate, prepayment speeds, default rates and losses. Capitalized servicing rights are reported in other assets and are amortized into noninterest income in proportion to, and over the periods of, the estimated future net servicing income of the underlying financial assets. Servicing rights are evaluated for impairment based upon the fair value of the rights as compared to amortized cost. For the purpose of computing impairment, mortgage servicing rights are stratified based on risk characteristics of the underlying loans that are expected to have the most impact on projected prepayments including loan type, interest rate and term. Impairment is recognized through a valuation allowance to the extent that fair value is less than the capitalized amount. If the Corporation later determines that all or a portion of the impairment no longer exists, a reduction of the allowance may be recorded as an increase to income. Servicing fee income is recorded for fees earned for servicing loans. The fees are based on a contractual percentage of the outstanding principal or a fixed amount per loan and are recorded as income when earned. The amortization of mortgage servicing rights is netted against loan servicing fee income. Loans serviced by the Bank for the benefit of others totaled $34.6 million, $46.16 million and $65.6 million at December 31, 2013, 2012 and 2011, respectively.

Allowance for Loan Losses – The allowance for loan losses is established through provisions for loan losses charged against income. Loans deemed to be uncollectible are charged against the allowance for loan losses, and subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is maintained at a level considered adequate to provide for losses that can be reasonably anticipated. Management’s periodic evaluation of the adequacy of the allowance is based on the Bank’s past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions and other relevant factors. This evaluation is inherently subjective, as it requires 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.

A loan is considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis for commercial and commercial real estate loans either by the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.

The Corporation’s allowance for possible loan losses consists of two elements: (1) specific valuation allowances established for probable losses on specific loans and (2) historical valuation allowances calculated based on historical loan loss experience for similar loans with similar characteristics and trends, adjusted, as necessary to reflect the impact general economic conditions and other qualitative risk factors both internal and external to the Corporation.

Large groups of smaller balance homogeneous loans are collectively evaluated for impairment using historical charge-offs as the starting point in estimating loss. Accordingly, the Corporation may not separately identify individual consumer and residential loans for impairment disclosures.

Premises and Equipment – Premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets or the lease term for lease hold improvements, whichever is shorter. When assets are retired or sold, the asset cost and related accumulated depreciation are eliminated from the respective accounts, and any resultant gain or loss is included in net income.

The cost of maintenance and repairs is charged to operating expense as incurred, and the cost of major additions and improvements is capitalized.

47

Intangible Assets – The Bank has $9.0 million of goodwill recorded on its balance sheet as the result of corporate acquisitions. Goodwill is not amortized, nor deductible for tax purposes. However, goodwill is tested for impairment at least annually in accordance with ASC Topic 350. Goodwill was tested for impairment as of August 31, 2013. The impairment test was conducted following the step-one test under ASC Topic 350 rather than the qualitative assessment permitted under ASU 2011-08. The Corporation chose not to use the qualitative assessment method for the August 31, 2013 test primarily due to the fact that the Corporation’s stock price is trading below its book value. The Corporation uses several different weighted methods to determine the fair value of the reporting unit under the step-one test, including a dividend analysis, comparable sale transactions, and change of control premium estimates. If the step-one test fails, a more comprehensive step-two test is performed before a final determination of impairment is made. If goodwill is determined to be impaired, an impairment write-down is charged to results of operations in the period in which the impairment is determined. As a result of the step-one test, the estimated fair value of the Corporation exceeded its carrying value by approximately 12% (compared to 5% in 2012) and Management determined goodwill was not impaired. The increase in the valuation excess compared to 2012 is primarily the result of an increase in the Corporation’s stock price during 2013. At December 31, 2013, Management subsequently considered certain qualitative factors affecting the Corporation and determined that it was not likely that the results of the prior test had changed and it determined that goodwill was not impaired at year-end. For more information on Goodwill refer to Note 8 of the accompanying financial statements. The customer list is amortized over 10 years using the sum-of-the-years digits method.

Bank Owned Life Insurance – The Bank invests in bank owned life insurance (“BOLI”) as a source of funding for employee benefit expenses. The Bank purchases life insurance coverage on the lives of a select group of employees. The Bank is the owner and beneficiary of the policies and records the investment at the cash surrender value of the underlying policies. Income from the increase in cash surrender value of the policies is included in noninterest income.

Other Real Estate Owned (OREO) – Foreclosed real estate (OREO) is comprised of property acquired through a foreclosure proceeding or an acceptance of a deed in lieu of foreclosure. Balances are initially reflected at the estimated fair value less any estimated disposition costs, with subsequent adjustments made to reflect further declines in value. Any losses realized upon disposition of the property, and holding costs prior thereto, are charged against income. All properties are actively marketed to potential buyers.

Transfers of Financial Assets – Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Corporation, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Corporation does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

Federal Income Taxes – Deferred income taxes are provided on the liability method whereby deferred tax assets are recognized for deductible temporary differences and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance, when in the opinion of management, it is more likely than not that some portion or all deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted through the provision for income taxes for the effects of changes in tax laws and rates on the date of enactment. ASC Topic 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Benefits from tax positions should be recognized in the financial statements only when it is more-likely-than-not that the tax position will be sustained upon examination by the appropriate taxing authority that would have full knowledge of all relevant information. A tax position that meets the more-likely-than-not recognition threshold is measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not recognition threshold should be derecognized in the first subsequent financial reporting period in which that threshold is no longer met. ASC Topic 740, “Income Taxes” also provides guidance on the accounting for and disclosure of unrecognized tax benefits, interest and penalties.

Advertising Expenses – Advertising costs are expensed as incurred.

Treasury Stock – The acquisition of treasury stock is recorded under the cost method. The subsequent disposition or sale of the treasury stock is recorded using the average cost method.

Investment and Trust Services – Assets held in a fiduciary capacity are not assets of the Corporation and therefore are not included in the consolidated financial statements. Trust assets under management at December 31, 2013 were $574.7 million and $520.4 million at the prior year-end. Revenue from investment and trust services is recognized on the accrual basis.

Off-Balance Sheet Financial Instruments – In the ordinary course of business, the Bank has entered into off-balance sheet financial instruments consisting of commitments to extend credit and letters of credit. Such financial instruments are recorded on the balance sheet when they are funded. The amount of any liability for the credit risk associated with off-balance sheet financial instruments is recorded in other liabilities and was not material to the financial position of the Corporation at December 31, 2013 or 2012.

Stock-Based Compensation – The Corporation accounts for stock based compensation in accordance with the ASC Topic 718, “ Stock Compensation.” ASC Topic 718 requires compensation costs related to share-based payment transactions to be recognized in the financial statements (with limited exceptions). The amount of compensation cost is measured based on the grant-date fair value of the equity or liability instruments issued. Compensation cost is recognized over the period that an employee provides services in exchange for the award. Compensation expense was $0 in 2013, 2012 and 2011.

Pension – The provision for pension expense was actuarially determined using the projected unit credit actuarial cost method. The funding policy is to contribute an amount sufficient to meet the requirements of ERISA, subject to Internal Revenue Code contribution limitations.

In accordance with ASC Topic 715, ”Compensation – Retirement Benefits”, the Corporation recognizes the plan’s over-funded or under-funded status as an asset or liability with an offsetting adjustment to Accumulated Other Comprehensive Income (AOCI). ASC Topic 715 requires the determination of the fair value of a plan’s assets at the company’s year-end and the recognition of actuarial gains and losses, prior service costs or credits, transition assets or obligations as a component of AOCI. These amounts were previously netted against the plan’s funded status in the Corporation’s consolidated Balance Sheet. These amounts will be subsequently recognized as components of net periodic benefit costs. Further, actuarial gains and losses that arise in subsequent periods that are not initially recognized as a component of net periodic benefit costs will be recognized as a component of AOCI. Those amounts will subsequently be recorded as component of net periodic benefit costs as they are amortized during future periods.

Earnings per share – Earnings per share are computed based on the weighted average number of shares outstanding during each year. The Corporation’s basic earnings per share are calculated as net income divided by the weighted average number of shares outstanding. For diluted earnings per share, net income is divided by the weighted average number of shares outstanding plus the incremental number of shares added as a result of converting common stock equivalents, calculated using the treasury stock method. The Corporation’s common stock equivalents consist of stock options.

A reconciliation of the weighted average shares outstanding used to calculate basic earnings per share and diluted earnings per share follows:

48

(Dollars in thousands, except per share data)	2013		2012		2011
Weighted average shares outstanding (basic)		4,135		4,072		3,962
Impact of common stock equivalents		4		2		1
Weighted average shares outstanding (diluted)		4,139		4,074		3,963
Anti-dilutive options excluded from calculation		56		87		70
Net income	$	6,232	$	5,365	$	6,569
Basic earnings per share	$	1.51	$	1.32	$	1.66
Diluted earnings per share	$	1.51	$	1.32	$	1.66

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

Segment Reporting – The Bank acts as an independent community financial services provider and offers traditional banking and related financial services to individual, business and government customers. Through its community office and automated teller machine network, the Bank offers a full array of commercial and retail financial services, including the taking of time, savings and demand deposits; the making of commercial, consumer and mortgage loans; and the providing of safe deposit services. The Bank also performs personal, corporate, pension and fiduciary services through its Investment and Trust Services Department and Personal Investment Center.

Management does not separately allocate expenses, including the cost of funding loan demand, between the commercial, retail, mortgage banking and trust operations of the Bank. As such, discrete information is not available and segment reporting would not be meaningful.

Comprehensive Income – Comprehensive income is reflected in the Consolidated Statements of Comprehensive Income and includes net income and unrealized gains or losses, net of tax, on investment securities and derivatives and the change in plan assets and benefit obligations on the Bank’s pension plan, net of tax.

Recent Accounting Pronouncements:

Investments-Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Qualified Affordable Housing Projects. ASU 2014-01 “Accounting for Investments in Qualified Affordable Housing Projects” permits a reporting entity that invests in qualified affordable housing projects to account for the investments using a proportional amortization method if certain conditions are met. If an entity elects the proportional amortization method, it will amortize the initial cost of the investment in proportion to the tax credits and other tax benefits received and recognize the net investment performance in the income statement as a component of income tax expense. Otherwise, the entity would apply either the equity method or the cost method, if appropriate. ASU 2014-01 applies to all reporting entities that invest in qualified affordable housing projects through limited liability entities that are flow-through entities for tax purposes as follows; 1. Reporting entities that meet the conditions for and that elect to use the proportional amortization method will apply all of the ASU’s amendment and establish new accounting and disclosure standards, 2. For reporting entities that do not meet the conditions for or that do not elect the proportional amortization method, only the ASU’s disclosure requirement apply. The ASU is effective for public business entities for annual periods and interim reporting periods within those annual periods beginning after December 15, 2014. The Corporation does not believe ASU 2014-01 will have a material effect on its financial statements.

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 does not believe ASU 2013-11 will have a material effect on its financial statements.

Derivatives and Hedging (Topic 815): Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes. ASU 2013-10 “Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes,” permit the use of the Fed Funds Effective Swap Rate (also referred to as the Overnight Index Swap Rate, or OIS) as a benchmark interest rate for hedge accounting purposes. Previous U.S. GAAP permitted only the interest rates on direct U.S. Treasury obligations and, for practical reasons, the LIBOR swap rate to be used as benchmark interest rates. ASU 2013-10 is effective prospectively for qualifying new or redesignated hedging relationship entered into on or after July 17, 2013.

Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. ASU 2013-02 “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income,” requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. The amendments are effective prospectively for reporting periods beginning after December 15, 2012. The Corporation adopted this ASU at March 31, 2013.

49

Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities. The objective of this ASU is to address the limitation of ASU 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities. This ASU clarifies that the scope of ASU 2011-11 applies to derivatives accounted for in accordance with Topic 815, Derivatives and Hedging, which includes bifurcated embedded derivatives, repurchase agreements and reverse repurchase agreements. It also applies to securities borrowing and lending transactions that are offset in accordance with Section 210-20-45 or Section 215-10-45 or subject to an enforceable master netting arrangement or similar agreement. This Update will provide users of financial statements with comparable information as it relates to certain reconciling differences between financial statements prepared in accordance with U.S. GAAP and those prepared in accordance with International Financial Reporting Standards. This update requires that the gross amounts of the asset and offsetting liabilities be disclosed in the notes to the financial statements. The provisions of this ASU are effective for fiscal years beginning on or after January 1, 2013 and interim periods within those annual periods, the same effective date as Update 2011-11. The required disclosures are to be retrospectively applied for all comparative periods presented. The Corporation adopted this ASU at March 31, 2013.

Note 2. Regulatory Matters

The Bank is limited as to the amount it may lend to the Corporation, unless such loans are collateralized by specific obligations. State regulations also limit the amount of dividends the Bank can pay to the Corporation and are generally limited to the Bank’s accumulated net earnings, which were $68.7 million at December 31, 2013. In addition, dividends paid by the Bank to the Corporation would be prohibited if the effect thereof would cause the Bank’s capital to be reduced below applicable minimum capital requirements. The Corporation and the Bank are subject to various regulatory capital requirements administered by federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Corporation’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgements by the regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Corporation and the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital (as defined) to average assets (as defined). Although not adopted in regulation form, the Pennsylvania Department of Banking utilizes capital standards requiring a minimum leverage capital ratio of 6% and a risk-based capital ratio of 10%, defined substantially the same as those by the FDIC. Management believes, as of December 31, 2013, that the Corporation and the Bank met all capital adequacy requirements to which it is subject.

As of December 31, 2013, the most recent notification from the FDIC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the institution’s category.

In July 2013, Federal banking regulators approved the final rules from the Basel Committee on Banking Supervision for the regulation of capital requirements for U.S, generally referred to as “Basel III.” Basel III imposes significantly higher capital requirements and more restrictive leverage and liquidity ratios than those currently in place. The capital ratios to be considered “well capitalized” under Basel III are: common equity of 6.5%, Tier 1 leverage of 5%, Tier 1 risk-based capital of 8%, and Total Risk-Based capital of 10%. The common equity ratio is a new capital ratio under Basel III and the Tier 1 risk-based capital ratio of 8% has been increased from 6%. In addition, a capital conservation buffer of 2.5% above the minimum capital ratios is required to avoid any capital distribution restrictions. Certain components of the new capital requirements are effective January, 2015 with others being phased in through January 1, 2019. As of December 31, 2013, the Management believes that the Bank would remain “well capitalized’ under the new rules.

The table that follows presents the total risk-based, Tier 1 risk-based and Tier 1 leverage requirements for the Corporation and the Bank as defined by the FDIC. Actual capital amounts and ratios are also presented.

	As of December 31, 2013
						Minimum to be					Minimum to be
	Actual					Adequately Capitalized					Well Capitalized
(Dollars in thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total Risk-based Capital Ratio
Corporation	$	99,598		14.24	%	$	55,940		≥  8.00	%		N/A		N/A
Bank		95,942		13.78	%		55,696		≥  8.00	%	$	69,620		≥  10.00	%
Tier 1 Risk-based Capital Ratio
Corporation	$	90,659		12.97	%	$	27,970		≥  4.00	%		N/A		N/A
Bank		87,146		12.52	%		27,848		≥  4.00	%	$	41,772		≥  6.00	%
Tier 1 Leverage Ratio
Corporation	$	90,659		9.14	%	$	39,661		≥  4.00	%		N/A		N/A
Bank		87,146		8.81	%		39,559		≥  4.00	%	$	49,448		≥  5.00	%

50

	As of December 31, 2012
						Minimum to be					Minimum to be
	Actual					Adequately Capitalized					Well Capitalized
(Dollars in thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total Risk-based Capital Ratio
Corporation	$	95,268		12.60	%	$	60,465		≥  8.00	%		N/A		N/A
Bank		92,056		12.22	%		60,244		≥  8.00	%	$	75,305		≥  10.00	%
Tier 1 Risk-based Capital Ratio
Corporation	$	85,843		11.36	%	$	30,232		≥  4.00	%		N/A		N/A
Bank		82,631		10.97	%		30,122		≥  4.00	%	$	45,183		≥  6.00	%
Tier 1 Leverage Ratio
Corporation	$	85,843		8.29	%	$	41,439		≥  4.00	%		N/A		N/A
Bank		82,631		7.99	%		41,392		≥  4.00	%	$	51,740		≥  5.00	%

Note 3. Restricted Cash Balances

The Bank is required to maintain reserves against its deposit liabilities in the form of vault cash and/or balances with the Federal Reserve Bank. Deposit reserves that the Bank was required to hold were approximately $2.0 million and $838 thousand at December 31, 2013 and 2012, respectively and were satisfied by the Bank’s vault cash.

Note 4. Investments

The investment portfolio serves as a mechanism to invest funds if funding sources out pace lending activity, to provide liquidity for lending and operations, and provide collateral for deposits and borrowings. The Corporation invests in taxable and tax-free debt securities, and equity securities as part of its investment strategy. The mix of taxable and tax-free debt securities are determined by the Bank’s Investment Committee and investing decisions are made as a component of balance sheet management. Debt securities include U.S. Government Agencies, U.S. Government Agency mortgage-backed securities, non-agency mortgage-backed securities, state and municipal government bonds, corporate debt and trust preferred securities. The equity portfolio consists of bank stocks only and is considered to be longer-term with a focus on capital appreciation. All securities are classified as available for sale and all investment balances refer to fair value.

Equities: The equity portfolio is comprised entirely of bank stocks with the Bank and the Corporation each holding separate portfolios. The stocks held in the portfolio range from community banks to large national banks. During 2013, both the Bank and the Corporation began the process of reducing the size of their equity portfolios. It is expected that both portfolios will continue to be reduced.

Municipal Bonds: Approximately $54 million of the portfolio is rated “A” or higher by Moody and the weighted average rating of the portfolio is “Aa3”. The Bank owns six issues for $2.4 million that are not rated by a nationally recognized rating agency.

Corporate Bonds: There is one variable rate bond in the corporate bond portfolio in the financial services sector. This bond is rated A3 by Moody’s and is scheduled to mature in 2013.

Trust Preferred Bonds: The following table provides additional detail about the Bank’s trust preferred securities at December 31, 2013. The holdings remain the same as at the prior year end, but the unrealized loss has declined from $1.1 million to $871 thousand. The credit ratings for each bond are similar to the rating one year prior. Trust preferred securities are typically issued by a subsidiary grantor trust of a bank holding company, which uses the proceeds of the equity issuance to purchase deeply subordinated debt issued by the bank holding company. Trust-preferred securities can reflect single entity issues or a group of entities (pooled trust preferred). Pooled trust preferred securities have been the subject of significant write-downs due in some cases from the default of one issuer in the pool that then impairs the entire pool. All of the Bank’s issues are single issuer, variable rate notes with long final maturities (2027-2028) that continue to pay dividends.

Mortgage-backed Securities: This sector holds $83.0 million or 52% of the total portfolio. The majority of this sector ($81.0 million) is comprised of U.S. Government Agency MBS. In addition, the Bank holds six private label mortgage-backed securities (PLMBS) with a fair value of $2.0 million and an amortized cost of $2.0 million. The PLMBS bonds paid down by more than $500 thousand in 2013.

The Bank’s PLMBS portfolio is comprised primarily of Alt-A loans. Alt-A loans are first-lien residential mortgages that generally conform to traditional “prime” credit guidelines; however, loan factors such as the loan-to-value ratio, loan documentation, occupancy status or property type cause these loans not to qualify for standard underwriting programs. The Alt-A product in the Bank’s portfolio is comprised of fixed-rate mortgages that were originated between 2003 and 2006 and all were originally rated AAA. The bonds issued in 2006 are experiencing the highest delinquency and loss rates. All of these bonds originally had some type of credit support tranche to absorb any loss prior to losses at the senior tranche held by the Bank, but this has eroded completely on some bonds as they have started to experience losses. The Bank recorded other-than-temporary impairment charges of $75 thousand on two PLMBS and three equity securities in 2013. Based on the performance of some the PLMBS, it appears as if the underwriting standards that were represented in the offering, and resulted in the AAA rating, were not followed. As a result, the Bank purchased some securities based on these misrepresentations, and it is most likely that these securities would not have been purchased had all the information been reported correctly. The Bank is participating in a lawsuit against certain issuers related to these misrepresentations.

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The amortized cost and estimated fair value of investment securities available for sale as of December 31, 2013 and 2012 is as follows:

(Dollars in thousands)			Gross		Gross
	Amortized		unrealized		unrealized			Fair
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

(Dollars in thousands)			Gross		Gross
	Amortized		unrealized		unrealized			Fair
2012	cost		gains		losses			value
Equity securities	$	2,104	$	92	$	(255	)	$	1,941
U.S. Government agency securities		12,657		156		(4	)		12,809
Municipal securities		58,395		2,984		(163	)		61,216
Corporate debt securities		1,005		-		(11	)		994
Trust preferred securities		5,905		-		(1,075	)		4,830
Agency mortgage-backed securities		48,121		1,029		(84	)		49,066
Private-label mortgage-backed securities		2,539		10		(123	)		2,426
Asset-backed securities		59		-		(13	)		46
	$	130,785	$	4,271	$	(1,728	)	$	133,328

At December 31, 2013 and 2012, the fair value of investment securities pledged to secure public funds, trust balances, repurchase agreements, deposit and other obligations totaled $107.6 million and $119.8 million, respectively.

The amortized cost and estimated fair value of debt securities at December 31, 2013, by contractual maturity are shown below. Actual maturities may differ from contractual maturities because of prepayment or call options embedded in the securities.

	Amortized		Fair
(Dollars in thousands)	cost		value
Due in one year or less	$	1,513	$	1,515
Due after one year through five years		13,540		14,115
Due after five years through ten years		23,229		23,239
Due after ten years		37,325		35,839
		75,607		74,708
Mortgage-backed securities		83,336		82,996
	$	158,943	$	157,704

The composition of the net realized securities gains (losses) for the years ended December 31, 2013, 2012 and 2011 is as follows:

(Dollars in thousands)	2013			2012			2011
Gross gains realized	$	185		$	45		$	195
Gross losses realized		(152	)		(1	)		(38	)
Net gains realized	$	33		$	44		$	157
Tax provision applicable to net securities gains	$	11		$	15		$	53

Impairment:

The condition of the portfolio at year-end 2013, as measured by the dollar amount of temporarily impaired securities, has weakened. The municipal bond portfolio recorded the largest unrealized loss, but the agency mortgage backed portfolio shows the greatest number of securities with an unrealized loss.

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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 December 31, 2013, was deemed to be temporary and required no further adjustments to the financial statements, unless otherwise noted.

	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

	December 31, 2012
	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	$	226	$	(20	)		3	$	1,236	$	(235	)		13	$	1,462	$	(255	)		16
U.S. Government agency securities		938		(1	)		1		3,346		(3	)		6		4,284		(4	)		7
Municipal securities		8,789		(163	)		10		-		-			-		8,789		(163	)		10
Corporate debt securities		-		-			-		994		(11	)		1		994		(11	)		1
Trust preferred securities		-		-			-		4,830		(1,075	)		7		4,830		(1,075	)		7
Agency mortgage-backed securities		6,869		(68	)		8		2,664		(16	)		6		9,533		(84	)		14
Private-label mortgage-backed securities		-		-			-		1,875		(123	)		5		1,875		(123	)		5
Asset-backed securities		-		-			-		46		(13	)		3		46		(13	)		3
Total temporarily impaired securities	$	16,822	$	(252	)		22	$	14,991	$	(1,476	)		41	$	31,813	$	(1,728	)		63

53

The unrealized loss in the trust preferred sector declined by approximately $200 thousand compared to the prior year-end and market prices continued to show improvement during 2013. All of the Bank’s trust preferred securities are variable rate notes with long maturities (2027 – 2028) from companies that received money (and in some cases paid back) from the Troubled Asset Relief Program (TARP), continue to pay dividends and have raised capital. The credit ratings on this portfolio are similar to the prior year and no bonds have missed or suspended any payments. At December 31, 2013, the Bank believes it will be able to collect all interest and principal due on these bonds and that it will not be forced to sell these bonds prior to maturity. Therefore, no other-than-temporary-impairment charges were recorded.

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	$	936	$	809	$	(127	)	BB+		1	None	None
Huntington Cap Trust II	Single	Preferred Stock		885		778		(107	)	BB+		1	None	None
BankAmerica Cap III	Single	Preferred Stock		960		793		(167	)	BB+		1	None	None
Wachovia Cap Trust II	Single	Preferred Stock		275		245		(30	)	BBB+		1	None	None
Corestates Captl Tr II	Single	Preferred Stock		932		829		(103	)	BBB+		1	None	None
Chase Cap VI JPM	Single	Preferred Stock		960		798		(162	)	BBB		1	None	None
Fleet Cap Tr V	Single	Preferred Stock		974		799		(175	)	BB+		1	None	None
			$	5,922	$	5,051	$	(871	)

The PLMBS sector continues to show a gross unrealized loss of $31 thousand on two securities. The majority of this sector is comprised of “Alt-A” PLMBS. 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 Alt-A 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 two bonds contained losses that were considered other-than-temporary. Management determined $25 thousand was credit related and therefore, recorded an impairment charge of $25 thousand against earnings in 2013. The market for PLMBS continues to be weak and Management believes that this factor accounts for a portion of the unrealized losses that is not attributable to credit issues. Management continues to monitor these securities and it is possible that additional write-downs may occur if current loss trends continue. The Bank is 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 resolution of this action is unknown at this time. For additional detail on the Bank’s PLMBS see the following table.

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	$	184	$	184	$	-		ALT A	BBB+		12.38	$	-
MALT 2004-6 7A1		6/1/2004		435		441		6		ALT A	CCC		14.26		-
RALI 2005-QS2 A1		2/1/2005		326		335		9		ALT A	CC		5.93		10
RALI 2006-QS4 A2		4/1/2006		607		583		(24	)	ALT A	D		-		293
GSR 2006-5F 2A1		5/1/2006		97		98		1		Prime	D		-		15
RALI 2006-QS8 A1		7/28/2006		335		328		(7	)	ALT A	D		-		197
			$	1,984	$	1,969	$	(15	)					$	515

The following table represents the cumulative credit losses on debt securities recognized in earnings as of December 31, 2013.

(Dollars in thousands)	Twelve Months Ended
	2013		2012
Balance of cumulative credit-related OTTI at January 1	$	490	$	390
Additions for credit-related OTTI not previously recognized		25		100
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 December 31	$	515	$	490

54

The Bank held $1.9 million of restricted stock at the end of 2013. The restricted stock is comprised primarily of an investment in the Federal Home Loan Bank of Pittsburgh (FHLB). FHLB stock is carried at a cost of $100 per share. During 2013, FHLB repurchased $1.7 million in stock and began paying a dividend. 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 it 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. If FHLB stock were deemed to be impaired, the write-down for the Bank could be significant. 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.

Note 5. 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:

(Dollars in thousands)	December 31, 2013			December 31, 2012
Residential Real Estate 1-4 Family
Consumer first liens	$	103,573		$	93,790
Consumer junior liens and lines of credit		34,636			35,494
Total consumer		138,209			129,284
Commercial first lien		58,466			60,809
Commercial junior liens and lines of credit		5,939			6,794
Total		64,405			67,603
Total residential real estate 1-4 family		202,614			196,887
Residential real estate - construction
Consumer purpose		3,960			3,255
Commercial purpose		8,559			12,177
Total residential real estate construction		12,519			15,432
Commercial real estate		329,373			363,874
Commercial		170,327			166,734
Total commercial		499,700			530,608
Consumer		8,580			10,652
		723,413			753,579
Less: Allowance for loan losses		(9,702	)		(10,379	)
Net Loans	$	713,711		$	743,200
Included in the loan balances are the following:
Net unamortized deferred loan costs	$	372		$	456
Unamortized discount on purchased loans	$	(92	)	$	(129	)
Loans pledged as collateral for borrowings and commitments from:
FHLB	$	607,524		$	657,684
Federal Reserve Bank		45,809			54,194
	$	653,333		$	711,878

Loans to directors and executive officers and related interests and affiliated enterprises were as follows:

(Dollars in thousands)	2013			2012
Balance at beginning of year	$	16,925		$	10,871
New loans made		3,749			8,358
Repayments		(2,321	)		(2,304	)
Balance at end of year	$	18,353		$	16,925

55

Note 6. 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 pass or substandard. Substandard consumer loans are loans that are 90 days or more past due and still accruing or on nonaccrual. 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 (Other Assets Especially Mentioned - OAEM) 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 (OAEM) 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 $76.3 million at year-end compared to $104.3 million at the prior year-end. The watch list is comprised of $19.0 million rated 6, and $57.3 million rated 7. The Bank has no loans rated 8 (Doubtful) or 9 (Loss). This note shows that the balance of every loan category on the watch list has declined from the end of 2012, including an upgrade of the 2012 loan rated 8 to a rating of 7 in 2013. This loan was restructured as a TDR in 2013 and the Bank obtained additional collateral during the year; consequently, the loan rating was upgraded. Included in the 2013 substandard loan total is $24.6 million of nonaccrual loans.

The following table reports on the credit rating for those loans in the portfolio that are assigned an individual credit rating as of December 31, 2013 and 2012

(Dollars in thousands)	Pass		Special Mention		Substandard		Doubtful		Total
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
December 31, 2012
Residential Real Estate 1-4 Family
First liens	$	139,549	$	6,277	$	8,773	$	-	$	154,599
Junior liens and lines of credit		40,584		175		1,529		-		42,288
Total		180,133		6,452		10,302		-		196,887
Residential real estate - construction		11,284		2,922		1,226		-		15,432
Commercial real estate		299,075		20,221		41,828		2,750		363,874
Commercial		148,195		3,120		15,419		-		166,734
Consumer		10,636		-		16		-		10,652
Total	$	649,323	$	32,715	$	68,791	$	2,750	$	753,579

56

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. The following table presents the aging of payments in the loan portfolio as of December 31, 2013 and 2012.

(Dollars in thousands)			Loans Past Due and Still Accruing										Total
	Current		30-59 Days		60-89 Days		90 Days+		Total		Non-Accrual		Loans
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
December 31, 2012
Residential Real Estate 1-4 Family
First liens	$	147,236	$	2,862	$	797	$	120	$	3,779	$	3,584	$	154,599
Junior liens and lines of credit		40,741		449		228		112		789		758		42,288
Total		187,977		3,311		1,025		232		4,568		4,342		196,887
Residential real estate - construction		14,875		-		-		-		-		557		15,432
Commercial real estate		334,822		64		329		-		393		28,659		363,874
Commercial		163,387		161		35		315		511		2,836		166,734
Consumer		10,339		258		39		16		313		-		10,652
Total	$	711,400	$	3,794	$	1,428	$	563	$	5,785	$	36,394	$	753,579

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 past due, 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).

57

The following table provides additional information on significant nonaccrual loans.

December 31, 2013
(Dollars in thousands)
			ALL		Nonaccrual					Last
	Balance		Reserve		Date		Collateral	Location		Appraisal(1)
Credit 1	$	3,040	$	-		Dec-10	1st lien on 92 acres undeveloped commercial		PA		Dec-13
Commercial real estate							real estate			$	3,304
Credit 2		977		-		Aug-11	1st lien on commercial and residential properties		PA		Jun-13
Residential real estate							and 70 acres of farm land (2 loans)			$	1,272
Commercial real estate
Credit 3		2,096		-		Mar-12	1st and 2nd liens on commercial real estate,		PA		Oct-13
Residential real estate							residential real estate and business assets			$	4,184
Credit 4		883		-		Jun-12	1st lien residential development land - 75 acres		WV		Oct-13
Residential real estate							2nd lien residential real estate		PA	$	1,250
Credit 5		1,154		-		Apr-12	1st and 2nd liens on residential real estate		PA		May-13
Residential real estate										$	1,935
Credit 6		7,436		-		Sep-12	1st lien residential real estate development -376 acres		PA		Oct-13
Commercial real estate							and other commercial and residential properties			$	8,932
Credit 7		2,049		-		Oct-12	1st lien commercial refrigerated warehouse		PA		Feb-13
Commercial real estate										$	5,995
Credit 8		2,590		993		Mar-13	Liens on land, commercial and residential real		PA		Nov-13
Commercial / Commercial real estate							estate and business assets			$	3,394
Credit 9		800		-		Sep-13	1st lien on 12 improved residential building lots		PA		Jun-13
Residential real estate							and 1st lien on 43 acres			$	1,410
	$	21,025	$	993

(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.

Interest not recognized on nonaccrual loans was $96 thousand, $800 thousand and $319 thousand for the years ended December 31, 2013, 2012 and 2011, respectively. In addition to monitoring nonaccrual loans, the Bank also closely monitors impaired loans and troubled debt restructurings. 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, excluding consumer purpose loans, and TDR loans are 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. Impaired loans totaled $30.9 million at year-end 2013 compared to $39.4 million at December 31, 2012.

58

The following table for additional information on impaired loans.

	Impaired Loans
	With No Allowance				With Allowance
(Dollars in thousands)			Unpaid				Unpaid
	Recorded		Principal		Recorded		Principal		Related
December 31, 2013	Investment		Balance		Investment		Balance		Allowance
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
December 31, 2012
Residential Real Estate 1-4 Family
First liens	$	3,504	$	3,715	$	80	$	80	$	20
Junior liens and lines of credit		691		707		-		-		-
Total		4,195		4,422		80		80		20
Residential real estate - construction		557		567		-		-		-
Commercial real estate		28,346		31,937		2,603		3,194		357
Commercial		2,495		2,584		1,088		1,145		470
Consumer		-		-		-		-		-
Total	$	35,593	$	39,510	$	3,771	$	4,419	$	847

	Twelve Months Ended				Twelve Months Ended
	December 31, 2013				December 31, 2012
	Average		Interest		Average		Interest
(Dollars in thousands)	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
Residential Real Estate 1-4 Family
First liens	$	3,365	$	4	$	4,070	$	58
Junior liens and lines of credit		417		-		744		1
Total		3,782		4		4,814		59
Residential real estate - construction		544		-		458		-
Commercial real estate		31,730		118		26,815		151
Commercial		2,112		-		4,060		111
Consumer		-		-		1		-
Total	$	38,168	$	122	$	36,148	$	321

59

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 interest rate, extending the maturity, reamortization of payment, or a combination of multiple concessions. The Bank reviews all loans rated 5 or worse when it is providing a loan restructure, modification 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. However, TDR loans are always considered impaired until paid-off. All TDR loans are in compliance with their modified terms except one, credit 3 on the significant nonaccrual table contained in this note. The following table identifies TDR loans as of December 31, 2013 and 2012:

									Troubled Debt Restructurings That Have Defaulted on
(Dollars in thousands)	Troubled Debt Restructurings								Modified Terms YTD
	Number of		Recorded						Number of		Recorded
	Contracts		Investment		Performing*		Nonperforming*		Contracts		Investment
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		-	$	-
December 31, 2012
Residential real estate - construction		2	$	1,482	$	1,482	$	-
Residential real estate		4		467		467		-
Commercial		2		1,812		1,812		-
Commercial real estate		11		7,669		7,669		-		-	$	-
Total		19	$	11,430	$	11,430	$	-		-	$	-

*The performing status is determined by the loans compliance with the modified terms.

The following table reports new TDR loans made during 2013, concession granted and the recorded investment at December 31, 2013.

(Dollars in thousands)	New During Period
	Number of		Pre-TDR		After-TDR		Recorded
Twelve Months Ended December 31, 2013	Contracts		Modification		Modification		Investment		Concession
Residential real estate		2	$	286	$	323	$	311	multiple
Commercial real estate		2		10,458		10,745		10,493	multiple
Total		4	$	10,744	$	11,068	$	10,804

The following table reports new TDR loans made during 2012, concession granted and the recorded investment as of December 31, 2012.

(Dollars in thousands)	New During Period
	Number of		Pre-TDR		After-TDR		Recorded
Twelve Months Ended December 31, 2012	Contracts		Modification		Modification		Investment		Concession
Real estate construction		3	$	2,073	$	1,897	$	1,482	multiple
Residential real estate		2		371		390		379	multiple
Commercial		2		2,223		2,223		1,812	maturity
Commercial real estate		4		2,616		3,006		2,957	multiple
		11	$	7,283	$	7,516	$	6,630

60

The Bank holds $4.7 million of other real estate owned (OREO), comprised of eight properties compared to $5.1 million and ten properties at December 31, 2012. During 2013, the Bank recorded losses on the sales of, or write-downs on OREO of $255 thousand that is recorded in other income. The Bank also incurred $137 thousand in expense to hold and maintain OREO The following table provides additional information on significant other real estate owned properties.

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

December 31, 2013
(Dollars in thousands)	Date					Last
	Acquired	Balance		Collateral	Location	Appraisal
Property 1 (3 properties)	2011	$	1,294	Unimproved and improved real estate for residential development on four separate tracts totaling 150 acres	PA	$	Nov-12 1,500
Property 2	2012		2,758	1st, 2nd, and 3rd liens residential development land - four tracts with 294 acres	PA	$	Aug-12 3,292
		$	4,052

At December 31, 2013, the Bank had $1.1 million of residential properties in the process of foreclosure compared to $121 thousand at the end of 2012.

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 December 31, 2013 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. However, it is possible that as a result of the credit analysis, a specific reserve is not required for an impaired loan. 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 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 qualitative factor of 37.5 basis points. 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. 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, by loan class, the activity in the ALL, for the years ended December 31, 2013, 2012 and 2011.

										Commercial
	Residential Real Estate 1-4 Family									Industrial &			Commercial
				Junior Liens &						Agricultural			Industrial &
(Dollars in thousands)	First Liens			Lines of Credit			Construction			Real Estate			Agricultural			Consumer			Total
Allowance at December 31, 2010	$	600		$	352		$	2,596		$	3,358		$	1,578		$	317		$	8,801
Charge-offs		(324	)		(202	)		(2,352	)		(3,817	)		(115	)		(237	)		(7,047	)
Recoveries		30			10			-			306			11			88			445
Provision		743			148			978			5,410			177			68			7,524
Allowance at December 31, 2011	$	1,049		$	308		$	1,222		$	5,257		$	1,651		$	236		$	9,723
Allowance at December 31, 2011	$	1,049		$	308		$	1,222		$	5,257		$	1,651		$	236		$	9,723
Charge-offs		(251	)		(71	)		-			(3,298	)		(861	)		(236	)		(4,717	)
Recoveries		1			25			-			13			21			88			148
Provision		114			44			(323	)		4,478			809			103			5,225
Allowance at December 31, 2012	$	913		$	306		$	899		$	6,450		$	1,620		$	191		$	10,379
Allowance at December 31, 2012	$	913		$	306		$	899		$	6,450		$	1,620		$	191		$	10,379
Charge-offs		(547	)		(45	)		-			(2,855	)		(363	)		(162	)		(3,972	)
Recoveries		13			-			-			203			100			59			375
Provision		729			17			(608	)		1,773			949			60			2,920
Allowance at December 31, 2013	$	1,108		$	278		$	291		$	5,571		$	2,306		$	148		$	9,702

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The following table shows, by loan class, the loans that were evaluated for the ALL under a specific reserve (individually) and those that were evaluated under a general reserve (collectively), and the amount of the allowance established in each category as of December 31, 2013 and 2012.

							Commercial
	Residential Real Estate 1-4 Family						Industrial &		Commercial
			Junior Liens &				Agricultural		Industrial &
(Dollars in thousands)	First Liens		Lines of Credit		Construction		Real Estate		Agricultural		Consumer		Total
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
December 31, 2012
Loans evaluated for allowance:
Individually	$	3,583	$	692	$	557	$	30,949	$	3,583	$	-	$	39,364
Collectively		151,016		41,596		14,875		332,925		163,151		10,652		714,215
Total	$	154,599	$	42,288	$	15,432	$	363,874	$	166,734	$	10,652	$	753,579
Allowance established for loans evaluated:
Individually	$	20	$	3	$	-	$	357	$	467	$	-	$	847
Collectively		893		303		899		6,093		1,153		191		9,532
Allowance at December 31, 2012	$	913	$	306	$	899	$	6,450	$	1,620	$	191	$	10,379

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Note 7. Premises and Equipment

Premises and equipment consist of:

		December 31
(Dollars in thousands)	Estimated Life	2013			2012
Land		$	3,033		$	3,033
Buildings and leasehold improvements	15 - 30 years, or lease term		23,488			23,526
Furniture, fixtures and equipment	3  - 10 years		14,202			15,053
Total cost			40,723			41,612
Less: Accumulated depreciation			(24,578	)		(24,575	)
Net premises and equipment		$	16,145		$	17,037

The following table shows the amount of depreciation and rental expense for the years ended December 31:

	2013		2012		2011
Depreciation expense	$	1,419	$	1,301	$	1,293
Rent expense on leases	$	673	$	472	$	406

The Corporation leases various premises and equipment for use in banking operations. Some of these leases provide renewal options of varying terms. The rental cost of these optional renewals is not included below. At December 31, 2013, future minimum payments on these leases are as follows:

(Dollars in thousands)
2014	$	667
2015		561
2016		526
2017		499
2018		506
2019 and beyond		5,486
	$	8,245

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Note 8. Goodwill and Intangible Assets

The following table summarizes the changes in goodwill:

	For the years ended
	December 31
(Dollars in thousands)	2013		2012
Beginning balance	$	9,016	$	9,016
Goodwill acquired		-		-
Adjustment to goodwill		-		-
Ending balance	$	9,016	$	9,016

The following table summarizes the other intangible assets at December 31:

	Core Deposit						Customer List
	2013			2012			2013			2012
Gross carrying amount	$	3,252		$	3,252		$	589		$	589
Accumulated amortization		(2,710	)		(2,349	)		(433	)		(369	)
Net carrying amount	$	542		$	903		$	156		$	220

The following table shows the amortization expense for the years ended December 31:

(Dollars in thousands)	2013		2012		2011
Amortization expense	$	425	$	435	$	446

Core deposit intangibles are amortized over the estimated life of the acquired core deposits. At December 31, 2013 the remaining life was 1.5 years. The customer list intangible is amortized over the estimated life of the acquired customer list. At December 31, 2013, the remaining life was 4.9 years. The following table shows the expected amortization expense for intangible assets:

(Dollars in thousands)
2014	$	414
2015		223
2016		31
2017		21
2018		9
	$	698

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Note 9. Deposits

Deposits are summarized as follows:

	December 31
(Dollars in thousands)	2013		2012
Noninterest-bearing checking	$	121,565	$	123,623
Interest-bearing checking		180,450		135,454
Money management		370,401		380,079
Savings		59,394		57,165
Total interest-bearing checking and savings		610,245		572,698
Retail time deposits		108,283		127,861
Brokered time deposits		5,631		50,258
Total time deposits		113,914		178,119
Total deposits	$	845,724	$	874,440
Overdrawn deposit accounts reclassified as loans	$	106	$	128

The following table shows the maturity of outstanding time deposits of $100,000 or more at December 31, 2013:

	Retail		Brokered		Total
(Dollars in thousands)	Time Deposits		Time Deposits		Time Deposits
Maturity distribution:
Within three months	$	4,601	$	450	$	5,051
Over three through six months		5,128		-		5,128
Over six through twelve months		4,576		2,319		6,895
Over twelve months		11,644		2,557		14,201
Total	$	25,949	$	5,326	$	31,275

At December 31, 2013 the scheduled maturities of time deposits are as follows:

	Retail		Brokered		Total
	Time Deposits		Time Deposits		Time Deposits
(Dollars in thousands)
2014	$	63,603	$	3,016	$	66,619
2015		21,529		2,509		24,038
2016		10,415		-		10,415
2017		12,736		106		12,842
2018		-		-		-
2019 and beyond		-		-		-
	$	108,283	$	5,631	$	113,914

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Note 10. Securities Sold Under Agreements to Repurchase, Short-Term Borrowings and Long-Term Debt

The Bank's short-term borrowings are comprised of securities sold under agreements to repurchase and a line-of-credit with the Federal Home Loan Bank of Pittsburgh (Open Repo Plus). Securities sold under agreements to repurchase are overnight borrowings between the Bank and its commercial and municipal depositors. These accounts reprice weekly. Open Repo Plus is a revolving term commitment used on an overnight basis. The term of this commitment may not exceed 364 days and it reprices daily at market rates. These borrowings are described below:

	December 31
	2013					2012
	Repurchase			FHLB		Repurchase			FHLB
(Dollars in thousands)	Agreements			Open Repo		Agreements			Open Repo
Ending balance	$	23,834		$	-	$	42,209		$	-
Weighted average rate at year end		0.15	%		-		0.15	%		-
Range of interest rates paid at year end		0.15	%		-		0.15	%		-
Maximum month-end balance during the year	$	52,880		$	-	$	57,279		$	-
Average balance during the year	$	32,407		$	-	$	51,558		$	-
Weighted average interest rate during the year		0.15	%		-		0.15	%		-

The collateral for securities sold under agreements to repurchase consists of U.S. Government and U.S. Government agency securities with a fair value of $32.0 million and $54.1 million, respectively, at December 31, 2013 and 2012.

A summary of long-term debt at the end of the reporting period follows:

	December 31
(Dollars in thousands)	2013		2012
Loans from the Federal Home Loan Bank	$	12,403	$	12,410

The loans from the FHLB are comprised of term loans payable at maturity and amortizing advances. These loans have fixed interest rates ranging from 3.70% to 5.60% (weighted average rate of 3.90%) and final maturities ranging from November 2014 to November 2039. All borrowings from the FHLB are collateralized by FHLB stock, mortgage-backed securities and first mortgage loans.

The scheduled amortization and maturities of the FHLB borrowings at December 31, 2013 are as follows:

(Dollars in thousands)
2014	$	2,008
2015		10,008
2016		8
2017		9
2018		9
2019 and beyond		361
	$	12,403

The Corporation’s maximum borrowing capacity with the FHLB at December 31, 2013 was $77.2 million. The total amount available to borrow at year-end was approximately $64.8 million.

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Note 11. Federal Income Taxes

The temporary differences which give rise to significant portions of deferred tax assets and liabilities are as follows:

(Dollars in thousands)	December 31
Deferred Tax Assets	2013			2012
Allowance for loan losses	$	3,299		$	3,529
Deferred compensation		1,015			1,102
Purchase accounting		50			63
Deferred loan fees and costs, net		160			160
Capital loss carryover		887			887
Other than temporary impairment of investments		538			512
Accumulated other comprehensive loss		2,420			2,087
AMT Credit		226			968
Other		1,062			703
		9,657			10,011
Valuation allowance		(1,250	)		(1,232	)
Total gross deferred tax assets		8,407			8,779
Deferred Tax Liabilities
Core deposit intangibles		184			307
Depreciation		184			179
Joint ventures and partnerships		53			62
Pension		2,425			2,615
Mortgage servicing rights		63			80
Customer list		53			75
Total gross deferred tax liabilities		2,962			3,318
Net deferred tax asset	$	5,445		$	5,461

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based on the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that the Bank will realize the benefits of these deferred tax assets.

The components of the provision for Federal income taxes attributable to income from operations were as follows:

	For the Years Ended December 31
(Dollars in thousands)	2013		2012		2011
Current tax expense	$	947	$	145	$	502
Deferred tax expense (benefit)		348		367		(91	)
Income tax provision	$	1,295	$	512	$	411

For the years ended December 31, 2013, 2012, and 2011, the income tax provisions are different from the tax expense which would be computed by applying the Federal statutory rate to pretax operating earnings. A reconciliation between the tax provision at the statutory rate and the tax provision at the effective tax rate is as follows:

	For the Years Ended December 31
(Dollars in thousands)	2013			2012			2011
Tax provision at statutory rate	$	2,559		$	1,998		$	2,373
Income on tax-exempt loans and securities		(1,212	)		(1,251	)		(1,167	)
Nondeductible interest expense relating to carrying  tax-exempt obligations		30			43			63
Dividends received exclusion		(15	)		(17	)		(20	)
Income from bank owned life insurance		(185	)		(217	)		(226	)
Valuation allowance		-			-			32
Life insurance proceeds		111			-			-
Other, net		7			(44	)		(644	)
Income tax provision	$	1,295		$	512		$	411
Effective income tax rate		17.2	%		8.7	%		5.9	%

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During the second quarter of 2011, an internal review discovered that tax-exempt commercial loans booked in the fourth quarter of 2008, during 2009, 2010 and the first quarter of 2011 were not properly coded as tax-exempt in the Bank’s core processing system. This resulted in the income from these loans being recorded as taxable income and the benefit of the tax-exempt status was not reflected in the Corporation’s income tax calculation. After a thorough review of the affected loans to determine the unrecorded tax benefit, and consultation with the Corporation’s internal and external audit firms, the Corporation deemed the adjustment to be immaterial to the consolidated financial statements for the current and prior years and therefore, no prior period adjustment was required. The Corporation recorded the past income tax benefits during the second quarter of 2011. The adjustment to income tax expense made in the second quarter of 2011 was a credit of approximately $660 thousand attributable to the years 2008, 2009 and 2010 and approximately $95 thousand attributable to the first quarter of 2011. This adjustment is reflected in the 2011 income tax expense. The tax adjustment of $660 thousand is reflected in the other, net line item of the reconciliation of the tax provision shown above. Had the tax adjustment of $660 thousand been allocated proportionally to the years it was generated, the effective tax rate for 2011 would have been 15.3%.

At December 31, 2013, the Corporation had a capital loss carryover of $2.6 million. This loss carryover can only be offset with capital gains for federal income tax purposes. The tax benefit of this carryover is $887 thousand and the Corporation has recorded a valuation allowance of $887 thousand against the capital loss carryover.

The Corporation recognizes interest accrued related to unrecognized tax benefits and penalties in income tax expense for all periods presented. The Corporation is no longer subject to U.S. Federal examinations by tax authorities for the years before 2010.

Note 12. Accumulated Other Comprehensive Loss

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

	December 31
	2013			2012
(Dollars in thousands)
Net unrealized gains on securities	$	(741	)	$	2,543
Tax effect		252			(865	)
Net of tax amount		(489	)		1,678
Net unrealized losses on derivatives		(561	)		(1,103	)
Tax effect		191			375
Net of tax amount		(370	)		(728	)
Accumulated pension adjustment		(5,814	)		(7,576	)
Tax effect		1,977			2,576
Net of tax amount		(3,837	)		(5,000	)
Total accumulated other comprehensive loss	$	(4,696	)	$	(4,050	)

Note 13. Financial Derivatives

As part of managing interest rate risk, the Bank has entered into interest rate swap agreements as vehicles to partially hedge cash flows associated with interest expense on variable rate deposit accounts. Under the swap agreements, the Bank receives a variable rate and pays a fixed rate. Such agreements are generally entered into with counterparties that meet established credit standards and most contain collateral provisions protecting the at-risk party. The Bank considers the credit risk inherent in these contracts to be negligible. Interest rate swap agreements derive their value from underlying interest rates. These transactions involve both credit and market risk. The notional amounts are amounts on which calculations, payments, and the value of the derivative are based. The notional amounts do not represent direct credit exposures. Direct credit exposure is limited to the net difference between the calculated amounts to be received and paid, if any. Such difference, which represents the fair value of the swap, is reflected on the Corporation’s balance sheet.

The Corporation is exposed to credit-related losses in the event of nonperformance by the counterparty to these agreements. The Corporation controls the credit risk of its financial contracts through credit approvals, limits and monitoring procedures, and does not expect the counterparty to fail its obligations.

The primary focus of the Corporation’s asset/liability management program is to monitor the sensitivity of the Corporation’s net portfolio value and net income under varying interest rate scenarios to take steps to control its risks. On a quarterly basis, the Corporation simulates the net portfolio value and net interest income expected to be earned over a twelve-month period following the date of simulation. The simulation is based upon projection of market interest rates at varying levels and estimates the impact of such market rates on the levels of interest-earning assets and interest-bearing liabilities during the measurement period. Based upon the outcome of the simulation analysis, the Corporation considers the use of derivatives as a means of reducing the volatility of net portfolio value and projected net income within certain ranges of projected changes in interest rates. The Corporation evaluates the effectiveness of entering into any derivative instrument agreement by measuring the cost of such an agreement in relation to the reduction in net portfolio value and net income volatility within an assumed range of interest rates.

During 2008, the Bank entered into two swap transactions with each swap having a notional amount of $10 million. One swap matured in 2013 and the second swap matures in 2015. According to the terms of each transaction, the Bank pays fixed-rate interest payments and receives floating-rate payments. The variable rate is indexed to the 91-day Treasury Bill auction (discount) rate and resets weekly. The swaps were entered into in order to hedge the Corporation’s exposure to changes in cash flows attributable to the effect of interest rate changes on variable-rate liabilities. At December 31, 2013, the fair value of the swaps was negative $561 thousand and was recognized in accumulated other comprehensive loss, net of tax. The fair value of assets pledged as collateral for the swaps was $2.2 million at December 31, 2013 and 2012.

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Information regarding the interest rate swaps as of December 31, 2013 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	%		0.07	%	$	380

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

Fair Value of Derivative Instruments
(Dollars in thousands)		Balance Sheet
Date	Type	Location	Fair Value
December 31, 2013	Interest rate contracts	Other liabilities	$	561
December 31, 2012	Interest rate contracts	Other liabilities	$	1,103

The Effect of Derivative Instruments on the Statement of Income for the years ended December 31, 2013, 2012 and 2011 follows:

Derivatives in ASC Topic 815 Cash Flow Hedging Relationships
(Dollars in thousands)									Amount of Gain
Date	Type	Amount of Gain or (Loss) Recognized in OCI net of tax on Derivative (Effective Portion)		Location of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)	Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)			Location of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)	or (Loss) Recognized in Income on Derivatives (Ineffective Portion and Amount Excluded from Effectiveness Testing)
December 31, 2013	Interest rate contracts	$	358	Interest Expense	$	(525	)	Other income (expense)	$	-
December 31, 2012	Interest rate contracts	$	420	Interest Expense	$	(736	)	Other income (expense)	$	-
December 31, 2011	Interest rate contracts	$	8	Interest Expense	$	(727	)	Other income (expense)	$	-

Note 14. Benefit Plans

The Bank has a 401(k) plan covering substantially all employees of F&M Trust who have completed one year and 1,000 hours of service. In 2013, employee contributions to the plan were matched at 100% up to 4% of each participant’s deferrals plus 50% of the next 2% of deferrals from participants’ eligible compensation. Under this plan, the maximum amount of employee contributions in any given year is defined by Internal Revenue Service regulations. In addition, a 100% discretionary profit sharing contribution of up to 2% of each employee’s eligible compensation is possible provided net income targets are achieved. The Personnel Committee of the Corporation’s Board of Directors approves the established net income targets annually. The related expense for the 401(k) plan, and the profit sharing plan as approved by the Board of Directors, was approximately $442 thousand in 2013, $425 thousand in 2012 and $394 thousand in 2011.

The Bank has a noncontributory pension plan covering substantially all employees of F&M Trust who meet certain age and service requirements. Benefits are based on years of service and the employee’s compensation using a career average formula for all employees. The pension plan was closed to new participants on April 1, 2007. The change to a career average formula in 2008 affected future pension benefits for some employees more than others, primarily long-term employees. In an attempt to minimize the affect of the change on these employees the Bank added the following benefits: (1) an additional annual contribution over 10 years to the 401(k) plan for pension participants that were deemed to have a significant expected shortfall as a result of the change to a career average formula; and (2) contributions to a non-qualified deferred compensation plan for current or potential highly-compensated employees that were deemed to have a significant expected shortfall as a result of the change to a career average formula. The annual contribution to the non-qualified plan ranges from 1% to 9% of the covered employee’s salary depending on such factors as the employee’s length of service and time to retirement. Any contribution made to the non-qualified plan is in lieu of the additional contribution made to the 401(k) plan identified as change number 1 above. The expense associated with the additional plans described above was $30 thousand in 2013 and $42 thousand in both 2012 and 2011. The Bank’s funding policy is to contribute annually the amount required to meet the minimum funding requirements of the Employee Retirement Income Security Act of 1974. Contributions are intended to provide not only for the benefits attributed to service to date but also for those expected to be earned in the future. However, due to the low rate environment in 2012, the funding status of the pension plan, and the Bank’s excess cash position earning a low return, the Bank made an additional contribution, above the required minimum contribution, of $6.0 million to the pension plan in December 2012. This action brought the plan to a fully funded status and will significantly reduce future pension expense. In 2012, the Bank changed the source of the discount rate used to calculate the benefit obligation, to the Citigroup Above Median Pension Discount Curve from the Citigroup Pension Discount Curve and Liability Index. The new curve represents bonds that are more like the pension plan assets in terms of duration and quality, and generally results in a higher discount rate.

70

The low interest rate environment has negatively affected pension plan returns and as a result, the Bank continues to incur a significant pension expense, $560 thousand in 2013, $1.1 million in 2012, and $705 thousand in 2011. The reduction in pension expense in 2013 is due primarily to the return from the larger asset base. The Bank expects the 2014 pension expense to be similar to the 2013 expense.

Pension plan asset classes include cash, fixed income securities and equities. The fixed income portion is comprised of Government Bonds, Corporate Bonds and Taxable Municipal Bonds; the equity portion is comprised of financial institution equities and individual corporate equities across a broad range of sectors. Investments are made on the basis of sound economic principles and in accordance with established guidelines. Target allocations of fund assets measured at fair value are as follows: fixed income, a range of 60%-90%, equities, a range of 10% to 30% and cash as needed. The allocation as of December 31, 2013 is shown in a table within this note. The Bank manages its pension portfolio in order to closely align the duration of the assets with the duration of the pension liability.

On a regular basis, the Pension and Benefits Committee (the “Committee”) monitors the allocation to each asset class. Due to changes in market conditions, the asset allocation may vary from time to time. The Committee is responsible to direct the rebalancing of Plan assets when allocations are not within the established guidelines and to ensure that such action is implemented. The Bank attempts to allocate the pension assets in a manner that the cash flow from the assets is similar to the cash flow of the liabilities. This has and will continue to result in a smaller allocation of equity investments and a higher allocation of longer duration bonds. By closely matching the asset and liability cash flow, large fluctuations in projected benefit obligations should be reduced.

Specific guidelines for fixed income investments are that no individual bond shall have a rating of less than an A as rated by Standard and Poor’s and Moody’s at the time of purchase. If the rating subsequently falls below an A rating, the Committee, at its next quarterly meeting, will discuss the merits of retaining that particular security. Allowable securities include obligations of the U.S. Government and its agencies, CDs, commercial paper, corporate obligations and insured municipal bonds.

General guidelines for equities are that a diversified common stock program is used and that diversification patterns can be changed with the ongoing analysis of the outlook for economic and financial conditions. Specific guidelines for equities include a sector cap and an individual stock cap. The guidelines for the sector cap direct that because the Plan sponsor is a bank, a significantly large exposure to the financial sector is permissible; therefore, there is no sector cap for financial equities. All other sectors are limited to 25% of the equity component. The individual stock cap guidelines direct that no one stock may represent more than 5% of the total equity portfolio.

The Committee revisits and determines the expected long-term rate of return on Plan assets annually. The policy of the Committee has been to take a conservative approach to all Plan assumptions. The expected long-term rate of return was reduced to 7% and it is likely that this rate will continue to decline in future years. This rate is reviewed annually and historical investment returns play a significant role in determining what this rate should be.

71

The following table sets forth the plan’s funded status, based on the December 31, 2013, 2012 and 2011 actuarial valuations.

	For the Years Ended December 31
(Dollars in thousands)	2013			2012			2011
Change in projected benefit obligation
Benefit obligation at beginning of measurement year	$	18,648		$	17,138		$	14,252
Service cost		456			460			358
Interest cost		715			716			729
Actuarial loss		(1,798	)		1,093			2,570
Benefits paid		(740	)		(759	)		(771	)
Benefit obligation at end of measurement year		17,281			18,648			17,138
Change in plan assets
Fair value of plan assets at beginning of measurement year		18,764			11,658			9,056
Actual return on plan assets net of expenses		576			1,082			1,261
Employer contribution		-			6,783			2,112
Benefits paid		(740	)		(759	)		(771	)
Fair value of plan assets at end of measurement year		18,600			18,764			11,658
Funded status of projected benefit obligation	$	1,319		$	116		$	(5,480	)

Amounts recognized in accumulated other comprehensive	For the Years Ended December 31
income (loss), net of tax	2013			2012			2011
Net actuarial loss	$	(6,159	)	$	(8,047	)	$	(8,059	)
Prior service cost obligation		345			471			597
		(5,814	)		(7,576	)		(7,462	)
Tax effect		1,977			2,576			2,537
Net amount recognized in accumulated other comprehensive loss	$	(3,837	)	$	(5,000	)	$	(4,925	)

	For the Years Ended December 31
Components of net periodic pension cost	2013			2012			2011
Service cost	$	456		$	460		$	358
Interest cost		715			716			729
Expected return on plan assets		(1,247	)		(788	)		(757	)
Amortization of prior service cost		(125	)		(125	)		(126	)
Recognized net actuarial loss		761			810			501
Net periodic pension cost	$	560		$	1,073		$	705

72

	For the Years Ended December 31
	2013			2012			2011
Assumptions used to determine benefit obligations:
Discount rate		4.76	%		3.89	%		4.18	%
Rate of compensation increase		4.00	%		4.00	%		4.00	%
Assumptions used to determine net periodic benefit cost:
Discount rate		3.89	%		4.18	%		5.28	%
Expected long-term return on plan assets		7.00	%		7.00	%		7.50	%
Rate of compensation increase		4.00	%		4.00	%		4.50	%
Asset allocations:
Cash and cash equivalents		10	%		35	%		3	%
Common stocks		33	%		22	%		25	%
Corporate bonds		6	%		3	%		7	%
Municipal bonds		43	%		38	%		62	%
Investment fund - debt		7	%		-			-
Insurance contracts		1	%		2	%		3	%
Total		100	%		100	%		100	%
Shares of the Corporation's common stock held in the plan
Value of shares  (in thousands)	$	49		$	40		$	36
Percent of total plan assets		0.3	%		0.2	%		0.3	%

	For the Years Ended December 31
Reconciliation of Funded Status	2013			2012			2011
Funded Status	$	1,319		$	116		$	(5,480	)
Unrecognized net actuarial loss		6,159			8,047			8,059
Unrecognized prior service cost		(345	)		(471	)		(597	)
Net Asset recognized	$	7,133		$	7,692		$	1,982
Accumulated Benefit Obligation	$	16,596		$	17,859		$	16,532

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The following table sets forth by level, within the fair value hierarchy, the Plan's investments at fair value as of December 31, 2013 and 2012. For more information on the levels within the fair value hierarchy, please refer to Note 20.

(Dollars in Thousands)	December 31, 2013
Asset  Description	Fair Value		Level 1		Level 2		Level 3
Cash and cash equivalents	$	1,753	$	1,753	$	-	$	-
Common stocks		6,210		6,210		-		-
Corporate bonds		1,162		-		1,162		-
Municipal bonds		8,041		-		8,041		-
Investment fund - debt		1,312		-		1,312		-
Cash value of life insurance		91		-		-		91
Deposit in immediate participation guarantee contract		31		-		-		31
Total assets	$	18,600	$	7,963	$	10,515	$	122

(Dollars in Thousands)	December 31, 2012
Asset  Description	Fair Value		Level 1		Level 2		Level 3
Cash and cash equivalents	$	6,506	$	6,506	$	-	$	-
Common stocks		4,128		4,128		-		-
Corporate bonds		603		-		603		-
Municipal bonds		7,213		-		7,213		-
Cash value of life insurance		87		-		-		87
Deposit in immediate participation guarantee contract		227		-		-		227
Total assets	$	18,764	$	10,634	$	7,816	$	314

The following table sets forth a summary of the changes in the fair value of the Plan's level 3 investments for the years ended December 31, 2013 and 2012:

			Deposits in
			Immediate
	Cash Value		Participation
	of  Life		Guarantee
	Insurance		Contract
Balance - January 1, 2013	$	87	$	227
Unrealized gain (loss)  relating to investments held at the reporting date		4		10
Purchases, sales, issuances and settlement, net		-		(206	)
Balance - December 31, 2013	$	91	$	31
Balance - January 1, 2012	$	83	$	240
Unrealized gain (loss)  relating to investments held at the reporting date		4		3
Purchases, sales, issuances and settlement, net		-		(16	)
Balance - December 31, 2012	$	87	$	227

Contributions

The Bank does not expect to make a pension contribution in 2014.

Estimated future benefit payments at December 31, 2013 (in thousands)

2014	$	915
2015		896
2016		974
2017		968
2018		959
2019-2022		5,010
	$	9,722

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Note 15. Stock Purchase Plans

In 2004, the Corporation adopted the Employee Stock Purchase Plan of 2004 (ESPP), replacing the ESPP of 1994 that expired in 2004. Under the ESPP of 2004, options for 250,000 shares of stock can be issued to eligible employees. The number of shares that can be purchased by each participant is defined by the plan and the Board of Directors sets the option price. However, the option price cannot be less than 90% of the fair market value of a share of the Corporation’s common stock on the date the option is granted. The Board of Directors also determines the expiration date of the options; however, no option may have a term that exceeds 1 year from the grant date. ESPP options are exercisable immediately upon grant. Any shares related to unexercised options are available for future grant. As of December 31, 2013, there are 202,132 shares available for future grants. The Board of Directors may amend, suspend or terminate the ESPP at any time. The grant price of the 2013 ESPP options was set at 95% of the stock’s fair value at the time of the award. There was no compensation expense recognized in 2013, 2012 or 2011 for the ESPP.

In 2002, the Corporation adopted the Incentive Stock Option Plan of 2002 (ISOP). The plan had a 10 year life with regard to awarding options and expired in 2012. However, awards granted prior to expiration of the plan will continue to be exercisable in accordance with the plan. In 2013, the Corporation approved the Incentive Stock Option Plan of 2013. Under the 2013 ISOP, options for 354,877 shares of stock where authorized to be issued to selected Officers, as defined in the plan. The number of options available to be awarded to each eligible Officer is determined by the Board of Directors, but is limited with respect to the aggregate fair value of the options as defined in the plan. The exercise price of the option may be no less than 100% of the fair value of a share of the Corporation’s common stock on the date the option is granted. The options have a life of 10 years and may be exercised only after the optionee has completed 6 months of continuous employment with the Corporation or its Subsidiary immediately following the grant date, or upon a change of control as defined in the plan. If awards are granted, the Corporation uses the “simplified” method for estimating the expected term of the ISO award. The risk-free interest rate is the U.S. Treasury rate commensurate with the expected average life of the option at the date of grant. There were no shares issued in 2013 under the 2013 ISOP. At December 31, 2013 there were 354,877 shares available for issue under the 2013 ISOP.

The ESPP and ISOP options outstanding at December 31, 2013 are all exercisable. The ESPP options expire on July 2, 2014 and the ISOP options expire 10 years from the grant date. The following table summarizes the stock option activity:

(Dollars in thousands except share and per share data)
	ESPP			Weighted Average		Aggregate
	Options			Price Per Share		Intrinsic Value
Balance Outstanding at December 31, 2010		24,181			16.81
Granted		26,792			16.75
Exercised		(1,776	)		16.80
Expired		(23,502	)		16.81
Balance Outstanding at December 31, 2011		25,695			16.75
Granted		38,904			12.64
Exercised		(140	)		12.64
Expired		(26,832	)		16.58
Balance Outstanding at December 31, 2012		37,627		$	12.64
Granted		34,417			15.24
Exercised		(4,007	)		12.84
Expired		(35,758	)		12.77
Balance Outstanding at December 31, 2013		32,279		$	15.24	$	60

	ISOP			Weighted Average
	Options			Price Per Share
Balance Outstanding at December 31, 2010		82,874			23.42
Granted		-			-
Exercised		-			-
Forfeited		-			-
Balance Outstanding at December 31, 2011		82,874			23.42
Granted		-			-
Exercised		-			-
Forfeited		(20,550	)		21.89
Balance Outstanding at December 31, 2012		62,324		$	23.93
Granted		-			-
Exercised		-			-
Forfeited		(6,499	)		21.51
Balance Outstanding at December 31, 2013		55,825		$	24.21	-

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The following table provides information about the options outstanding at December 31, 2013:

	Options						Weighted
	Outstanding		Exercise Price or		Weighted Average		Average Remaining
Stock Option Plan	and Exercisable		Price Range		Exercise Price		Life (years)
Employee Stock Purchase Plan		32,279		$15.24	$	15.24		0.5
Incentive Stock Option Plan		10,200		$16.11	$	16.11		5.2
Incentive Stock Option Plan		14,925		$23.77		23.77		4.1
Incentive Stock Option Plan		30,700		$24.92  -  $27.68		27.11		1.5
ISOP Total/Average		55,825			$	24.21		2.9

Note 16. Deferred Compensation Agreement

The Corporation has entered into deferred compensation agreements with four directors that provides for the payment of benefits over a ten-year period, beginning at age 65. At inception, the present value of the obligations under these deferred compensation agreements amounted to approximately $600 thousand, which is being accrued over the estimated remaining service period of these officers and directors. Expense associated with the agreements was $18 thousand for 2013 and $20 thousand for 2012 and 2011. Payments for the directors deferred compensation plan are scheduled through 2022.

The Corporation has two deferred compensation agreements it recorded as part of its acquisition of Fulton Bancshares Corporation in 2006. In the fourth quarter of 2013, the Bank recorded a nonrecurring expense of $667 thousand for one of the deferred compensation plans assumed by the Bank. At the time of the acquisition, information provided by the FDIC to the Bank indicated that this payout was a non-permissible payment and therefore not accrued in prior years. The FDIC decision was challenged by the beneficiary of the payment, and more than 7 years later, the FDIC reversed its decision thereby permitting the payment and resulted in an expense to the Bank. No future expense will be recognized for these plans. Payments for the deferred compensation agreements are scheduled through 2021.

Note 17. Shareholders’ Equity

The Board of Directors regularly authorizes the repurchase of the Corporation’s $1.00 par value common stock. The repurchased shares will be held as Treasury shares available for issuance in connection with future stock dividends and stock splits, employee benefit plans, executive compensation plans, the Dividend Reinvestment Plan and other appropriate corporate purposes. The term of the repurchase plans is normally 1 year. The Corporation held 392,027 and 396,034 shares at cost at December 31, 2013 and 2012, respectively.

The Corporation’s dividend reinvestment plan (DRIP) allows for shareholders to purchase additional shares of the Corporation’s common stock by reinvesting cash dividends paid on their shares or through optional cash payments. The Corporation has authorized one million (1,000,000) shares of its currently authorized common stock to be issued under the amended plan. During 2013, 57,320 shares of common stock were purchased through the dividend reinvestment plan at a value of $926 thousand and 738,204 shares remain to be issued.

Note 18. Commitments and Contingencies

In the normal course of business, the Bank is a party to financial instruments that are not reflected in the accompanying financial statements and are commonly referred to as off-balance-sheet instruments. These financial instruments are entered into primarily to meet the financing needs of the Bank’s customers and include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk not recognized in the consolidated balance sheet.

The Corporation’s exposure to credit loss in the event of nonperformance by other parties to the financial instruments for commitments to extend credit and standby letters of credit is represented by the contract or notional amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as they do for on-balance-sheet instruments.

Unless noted otherwise, the Bank does not require collateral or other security to support financial instruments with credit risk. The Bank had the following outstanding commitments as of December 31:

(Dollars in thousands)	2013		2012
Financial instruments whose contract amounts represent credit risk
Commercial commitments to extend credit	$	175,702	$	182,060
Consumer commitments to extend credit (secured)		38,097		36,303
Consumer commitments to extend credit (unsecured)		5,555		5,275
	$	219,354	$	223,638
Standby letters of credit	$	20,151	$	28,157

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses with the exception of home equity lines and personal lines of credit and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank, is based on management’s credit evaluation of the counterparty. Collateral for most commercial commitments varies but may include accounts receivable, inventory, property, plant, and equipment, and income-producing commercial properties. Collateral for secured consumer commitments consists of liens on residential real estate.

76

Standby letters of credit are instruments issued by the Bank, which guarantee the beneficiary payment by the Bank in the event of default by the Bank’s customer in the nonperformance of an obligation or service. Most standby letters of credit are extended for one-year periods. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Bank holds collateral supporting those commitments for which collateral is deemed necessary primarily in the form of certificates of deposit and liens on real estate. Management believes that the proceeds obtained through a liquidation of such collateral would be sufficient to cover the maximum potential amount of future payments required under the corresponding guarantees. The current amount of the liability as of December 31, 2013 and 2012 for guarantees under standby letters of credit issued is not material.

Most of the Bank’s business activity is with customers located within its primary market and does not involve any significant concentrations of credit to any one entity or industry.

In the normal course of business, the Corporation has commitments, lawsuits, contingent liabilities and claims. However, the Corporation does not expect that the outcome of these matters will have a material adverse effect on its consolidated financial position or results of operations.

Note 19. 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 December 31, 2012 and 2011.

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.

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. Other borrowings consist of a line of credit with the FHLB at a variable interest rate and securities sold under agreements to repurchase, for which 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.

77

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

	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		-

	December 31, 2012
	Carrying		Fair
(Dollars in thousands)	Amount		Value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	77,834	$	77,834	$	77,834	$	-	$	-
Investment securities available for sale		133,328		133,328		1,941		131,387		-
Restricted stock		3,571		3,571		-		3,571		-
Loans held for sale		67		67		-		67		-
Net loans		743,200		759,490		-		-		759,490
Accrued interest receivable		3,178		3,178		-		3,178		-
Mortgage servicing rights		235		235		-		-		235
Financial liabilities:
Deposits	$	874,440	$	876,240	$	-	$	876,240	$	-
Securities sold under agreements to repurchase		42,209		42,209		-		42,209		-
Long-term debt		12,410		13,718		-		13,718		-
Accrued interest payable		348		348		-		348		-
Interest rate swaps		1,103		1,103		-		1,103		-

78

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 December 31, 2013 and 2012 are as follows:

(Dollars in Thousands)	Fair Value at December 31, 2013
Asset  Description	Level 1		Level 2		Level 3		Total
Equity securities	$	1,970	$	-	$	-	$	1,970
U.S. Government agency securities		-		11,751		-		11,751
Municipal securities		-		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

(Dollars in Thousands)	Fair Value at December 31, 2012
Asset  Description	Level 1		Level 2		Level 3		Total
Equity securities	$	1,941	$	-	$	-	$	1,941
U.S. Government agency securities		-		12,809		-		12,809
Municipal securities		-		61,216		-		61,216
Corporate debt securities		-		994		-		994
Trust Preferred Securities		-		4,830		-		4,830
Agency mortgage-backed securities		-		49,066		-		49,066
Private-label mortgage-backed securities		-		2,426		-		2,426
Asset-backed securities		-		46		-		46
Total assets	$	1,941	$	131,387	$	-	$	133,328
Liability Description
Interest rate swaps	$	-	$	1,103	$	-	$	1,103
Total liabilities	$	-	$	1,103	$	-	$	1,103

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.

79

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 December 31, 2013 and 2012 are as follows:

(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

(Dollars in Thousands)	Fair Value at December 31, 2012
Asset  Description	Level 1		Level 2		Level 3		Total
Impaired loans (1)	$	-	$	-	$	9,235	$	9,235
Other real estate owned (1)		-		-		4,352		4,352
Mortgage servicing rights		-		-		235		235
Total assets	$	-	$	-	$	13,822	$	13,822

(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 December 31, 2013. 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 December 31, 2013.

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

(Dollars in Thousands)	Quantitative Information about Level 3 Fair Value Measurements
					Range
December 31, 2013	Fair Value		Valuation Technique	Unobservable Input	(Weighted Average)
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)
					Range
December 31, 2012		Fair Value	Valuation Technique	Unobservable Input	(Weighted Average)
Impaired loans (1)	$	9,235	Appraisal	Appraisal Adjustments (2)	0% - 100% (11%)
				Cost to sell	5% - 25%  (7%)
Other real estate owned (1)		5,127	Appraisal	Appraisal Adjustments (2)
				Cost to sell	8% (8%)
Mortgage servicing rights		235	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.

80

Note 20. Parent Company (Franklin Financial Services Corporation) Financial Information

Balance Sheets	December 31
(Dollars in thousands)	2013		2012
Assets:
Cash and cash equivalents	$	601	$	375
Investment securities, available for sale		914		692
Equity investment in subsidiaries		91,746		88,501
Other assets		2,235		2,066
Total assets	$	95,496	$	91,634
Liabilities:
Other liabilities	$	108	$	-
Total liabilities		108		-
Shareholders' equity		95,388		91,634
Total liabilities and shareholders' equity	$	95,496	$	91,634

Statements of Income	Years Ended December 31
(Dollars in thousands)	2013			2012			2011
Income:
Dividends from Bank subsidiary	$	2,529		$	2,680		$	3,231
Interest and dividend income		31			29			28
Net OTTI losses recognized in earnings		(50	)		-			(4	)
Securities gains (losses), net		30			(1	)		(37	)
		2,540			2,708			3,218
Expenses:
Operating expenses		752			734			728
Income before income taxes and equity in undistributed income of subsidiaries		1,788			1,974			2,490
Income tax benefit		259			249			236
Equity in undistributed income of subsidiaries		4,185			3,142			3,843
Net income	$	6,232		$	5,365		$	6,569

Statements of Comprehensive Income
	Years ended December 31
(Dollars in thousands)	2013			2012			2011
Net Income	$	6,232		$	5,365		$	6,569
Securities:
Unrealized gains (losses) arising during the period		425			73			(164	)
Reclassification adjustment for net losses (gains) included in net income		20			1			41
Net unrealized gains (losses)		445			74			(123	)
Tax effect		(151	)		(25	)		42
Net of tax amount		294			49			(81	)
Total other comprehensive income (loss)		294			49			(81	)
Total Comprehensive Income	$	6,526		$	5,414		$	6,488

81

Statements of Cash Flows	Years Ended December 31
(Dollars in thousands)	2013			2012			2011
Cash flows from operating activities
Net income	$	6,232		$	5,365		$	6,569
Adjustments to reconcile net income to net cash provided
by operating activities:
Equity in undistributed income of subsidiary		(4,185	)		(3,142	)		(3,843	)
Securities losses (gains)		(30	)		1			37
OTTI writedown on equity securities		50			-			4
Increase in other assets		(211	)		(256	)		(245	)
Decrease in other liabilities		-			(12	)		(238	)
Other, net		(110	)		(6	)		103
Net cash provided by operating activities		1,746			1,950			2,387
Cash flows from investing activities
Proceeds from sales of investment securities		312			-			81
Net cash provided by investing activities		312			-			81
Cash flows from financing activities
Dividends paid		(2,810	)		(3,170	)		(4,273	)
Treausry stock issued under stock option plans		52			2			30
Common stock issued under dividend reinvestment plan		926			1,174			1,706
Net cash used in financing activities		(1,832	)		(1,994	)		(2,537	)
Increase (decrease) in cash and cash equivalents		226			(44	)		(69	)
Cash and cash equivalents as of January 1		375			419			488
Cash and cash equivalents as of December 31	$	601		$	375		$	419

82

Note 21. Quarterly Results of Operations (unaudited)

The following is a summary of the quarterly results of consolidated operations of Franklin Financial for the years ended December 31, 2013 and 2012:

(Dollars in thousands, except per share)	Three months ended
2013	March 31		June 30			September 30			December 31
Interest income	$	9,102	$	8,876		$	8,941		$	9,123
Interest expense		1,242		1,296			945			896
Net interest income		7,860		7,580			7,996			8,227
Provision for loan losses		803		803			350			965
Other noninterest income		2,384		2,422			2,529			2,584
Securities gains (losses)		-		(21	)		(25	)		4
Noninterest expense		7,582		7,625			7,382			8,503
Income before income taxes		1,859		1,553			2,768			1,347
Federal  income tax expense (benefit)		308		198			583			206
Net Income	$	1,551	$	1,355		$	2,185		$	1,141
Basic earnings per share	$	0.38	$	0.33		$	0.53		$	0.27
Diluted earnings per share	$	0.38	$	0.33		$	0.53		$	0.27
Dividends declared per share	$	0.17	$	0.17		$	0.17		$	0.17

(Dollars in thousands, except per share)	Three months ended
2012	March 31		June 30		September 30			December 31
Interest income	$	9,951	$	10,002	$	9,728		$	9,463
Interest expense		1,967		1,811		1,692			1,422
Net interest income		7,984		8,191		8,036			8,041
Provision for loan losses		1,950		825		825			1,625
Other noninterest income		2,563		2,472		2,236			2,236
Securities (losses) gains		-		21		(27	)		(50	)
Noninterest expense		7,010		7,597		7,355			8,640
Income before income taxes		1,587		2,262		2,065			(38	)
Federal income tax expense (benefit)		218		356		318			(382	)
Net Income	$	1,369	$	1,906	$	1,747		$	344
Basic earnings per share	$	0.34	$	0.47	$	0.43		$	0.08
Diluted earnings per share	$	0.34	$	0.47	$	0.43		$	0.08
Dividends declared per share	$	0.27	$	0.17	$	0.17		$	0.17

Due to rounding, the sum of the quarters may not equal the amount reported for the year.

83

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. 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 December 31, 2013, 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.

Management Report on Internal Control Over Financial Reporting

Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2013, using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework (1992). Based on this assessment, management concluded that, as of December 31, 2013, the Corporation’s internal control over financial reporting is effective based on those criteria.

There were no changes during the fourth quarter of 2013 in the Corporation’s internal control over financial reporting which materially affected, or which are reasonably likely to affect, the Corporation’s internal control over financial reporting.

The Corporation’s independent registered public accounting firm has audited the effectiveness of the Corporation’s internal control over financial reporting as of December 31, 2013. Their report is included herein.

84

Report of Independent Registered Public Accounting Firm

Board of Directors and Shareholders

Franklin Financial Services Corporation

Chambersburg, Pennsylvania

We have audited Franklin Financial Services Corporation and its subsidiaries’ (the “Corporation”) internal control over financial reporting as of December 31, 2013, based on criteria established in Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). The Corporation’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Corporation’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A corporation’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. A corporation’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the corporation; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the corporation are being made only in accordance with authorizations of management and directors of the corporation; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the corporation’s assets that could have a material effect on the financial statements.

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.

In our opinion, the Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2013, based on the COSO criteria.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Franklin Financial Services Corporation and its subsidiaries as of December 31, 2013 and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for the year then ended, and our report dated March 10, 2014 expressed an unqualified opinion.

/s/ BDO USA, LLP

Harrisburg, Pennsylvania

March 10, 2014

85

Item 9B. Other Information

None

Part III

Item 10. Directors, Executive Officers and Corporate Governance

The information required by this Item relating to the directors and executive officers of the Corporation is incorporated herein by reference to the information set forth under the heading “INFORMATION CONCERNING THE ELECTION OF DIRECTORS - Information about Nominees, Continuing Directors and Executive Officers” and under the heading “ADDITIONAL INFORMATION – Key Employees” appearing in the Corporation's proxy statement dated March 17, 2014.

The information required by this item relating to compliance with Section 16(a) of the Exchange Act is incorporated herein by reference to the information set forth under the heading “ADDITIONAL INFORMATION - Compliance with Section 16(a) of the Exchange Act” appearing in the Corporation's proxy statement dated March 17, 2014.

The information required by this item relating to the Corporation's code of ethics is incorporated herein by reference to the information set forth under the heading “INFORMATION CONCERNING CORPORATE GOVERNANCE POLICIES, PRACTICES AND PROCEDURES” appearing in the Corporation's proxy statement dated March 17, 2014. The Corporation will file on Form 8-K any amendments to, or waivers from, the code of ethics applicable to any of its directors or executive officers.

The information required by this item relating to material changes to the procedures by which the Corporation's shareholders may recommend nominees to the Board of Directors is incorporated herein by reference to the information set forth under the heading “INFORMATION CONCERNING THE ELECTION OF DIRECTORS - Nominations for Election of Directors” appearing in the Corporation's proxy statement dated March 17, 2014.

The information required by this item relating to the Corporation's audit committee and relating to an audit committee financial expert is incorporated herein by reference to the information set forth under the heading “BOARD STRUCTURE AND COMMITTEES - Audit Committee” appearing, in the Corporation's proxy statement dated March 17, 2014.

Item 11. Executive Compensation

The information required by this item relating to executive compensation is incorporated herein by reference to the information set forth under the heading “EXECUTIVE COMPENSATION” appearing in the Corporation's proxy statement dated March 17, 2014; provided, however, that the information set forth under the subheading “Compensation Committee Report” is intended to be furnished and not filed.

The information required by this item relating to the compensation committee interlocks and insider participation is incorporated herein by reference to the information set forth under the heading “BOARD STRUCTURE AND COMMITTEES - Compensation Committee Interlocks and Insider Participation” appearing in the Corporation's proxy statement dated March 17, 2014.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this item relating to securities authorized for issuance under executive compensation plans is incorporated herein by reference to the information set forth under the heading “EXECUTIVE COMPENSATION – Compensation Tables and Additional Compensation Disclosure” appearing in the Corporation's proxy statement dated March 17, 2014.

The information required by this item relating to security ownership of certain beneficial owners is incorporated herein by reference to the information set forth under the heading “GENERAL INFORMATION - Voting of Shares and Principal Holders Thereof'” appearing in the Corporation's proxy statement dated March 17, 2014.

The information required by this item relating to security ownership of management is incorporated herein by reference to the information set forth under the heading “INFORMATION CONCERNING THE ELECTION OF DIRECTORS - Information about Nominees, Continuing Directors and Executive Officers” appearing in the Corporation's proxy statement dated March 17, 2014.

Item 13. Certain Relationships and Related Transactions, and Director Independence

The information required by this item relating to transactions with related persons is incorporated herein by reference to the information set forth under the heading “ADDITIONAL INFORMATION - Transactions with Related Persons” appearing in the Corporation's proxy statement dated March 17, 2014.

The information required by this item relating to director independence is incorporated herein by reference to the information set forth under the heading “INFORMATION CONCERNING THE ELECTION OF DIRECTORS -Director Independence “ and under the heading “ADDITIONAL INFORMATION - Transactions with Related Persons” appearing in the Corporation's proxy statement dated March 17, 2014.

86

Item 14. Principal Accountant Fees and Services

The information required by this item relating to principal accountant fees and services is incorporated herein by reference to the information set forth under the heading “RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS” appearing in the Corporation's proxy statement dated March 17, 2014.

Part IV

Item 15. Exhibits and Financial Statement Schedules

(a) The following documents are filed as part of this report:

(1) The following Consolidated Financial Statements of the Corporation:

Reports of Independent Registered Public Accounting Firms

Consolidated Balance Sheets – December 31, 2013 and 2012,

Consolidated Statements of Income – Years ended December 31, 2013, 2012 and 2011,

Consolidated Statements of Comprehensive Income – Years ended December 31, 2013, 2012 and 2011,

Consolidated Statements of Changes in Shareholders’ Equity – Years ended December 31, 2013, 2012 and 2011,

Consolidated Statements of Cash Flows - Years ended December 31, 2013, 2012 and 2011,

Notes to Consolidated Financial Statements.

(2) All financial statement schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and have therefore been omitted.

(3) The following exhibits are part of this report:

3.1	Articles of Incorporation of the Corporation
3.2	Bylaws of the Corporation
4.	Instruments defining the rights of security holders, including indentures, are contained in the Articles of Incorporation (Exhibit 3.1) and the Bylaws (Exhibit 3.2)
10.1	Deferred Compensation Agreements with Bank Directors*
10.2	Directors’ Deferred Compensation Plan*
10.3	Incentive Stock Option Plan of 2002*
10.4	Management Group Pay for Performance Plan*
10.5	Directors Pay for Performance Plan*
10.6	Incentive Stock Option Plan of 2013*
14.	Code of Ethics posted on the Corporation’s website
21	Subsidiaries of the Corporation
23.1	Consent of BDO USA, LLP
23.2	Consent of ParenteBeard LLC
31.1	Rule 13a-14(a)/15d-14(a) Certification (Chief Executive Officer)
31.2	Rule 13a-14(a)/15d-14(a) Certification (Chief Financial Officer)
32.1	Section 1350 Certification (Chief Executive Officer)
32.2	Section 1350 Certification (Chief Financial Officer)
101	Interactive Data File (XBRL)

* Compensatory plan or arrangement.

(b) The exhibits required to be filed as part of this report are submitted as a separate section of this report.

(c) Financial Statement Schedules: None.

87

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities and 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
By:	/s/ William E. Snell, Jr.
	William E. Snell, Jr.
	President and Chief Executive Officer

Dated: March 10, 2014

Pursuant to the requirements of the Securities and Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/ G. Warren Elliott	Chairman of the Board and Director	March 10, 2014
G. Warren Elliott
/s/ William E. Snell, Jr.	President and Chief Executive Officer and Director	March 10, 2014
William E. Snell, Jr.	(Principal Executive Officer)
/s/ Mark R. Hollar	Treasurer and Chief Financial Officer (Principal	March 10, 2014
Mark R. Hollar	Financial and Accounting Officer)
/s/ Charles S. Bender II	Director	March 10, 2014
Charles S. Bender II
/s/ Martin R. Brown	Director	March 10, 2014
Martin R. Brown
/s/ Daniel J. Fisher	Director	March 10, 2014
Daniel J. Fisher
/s/ Donald A. Fry	Director	March 10, 2014
Donald A. Fry
/s/ Allan E. Jennings, Jr.	Director	March 10, 2014
Allan E. Jennings, Jr.
/s/ Richard E. Jordan, III	Director	March 10, 2014
Richard E. Jordan, III
/s/ Stanley J. Kerlin	Director	March 10, 2014
Stanley J. Kerlin
/s/ Donald H. Mowery	Director	March 10, 2014
Donald H. Mowery
/s/ Stephen E. Patterson	Director	March 10, 2014
Stephen E. Patterson
/s/ Martha B. Walker	Director	March 10, 2014
Martha B. Walker

88

Exhibit Index for the Year

Ended December 31, 2013

Item	Description
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.)
4.	Instruments defining the rights of securities holders, including indentures, are contained in the Articles of Incorporation (Exhibit 3.1) and Bylaws (Exhibit 3.2)
10.1	Deferred Compensation Agreements with Bank Directors.  (Filed as Exhibit 10.1 to Annual Report on Form 10-K for the year ended December 31, 2005 and incorporated herein by reference.)*
10.2	Director’s Deferred Compensation Plan.  (Filed as Exhibit 10.2 to Annual Report on Form 10-K for the year ended December 31, 2007 and incorporated herein by reference.)*
10.3	Incentive Stock Option Plan of 2002 (Filed as Exhibit 99.1 to Registration Statement No. 333-90348 on Form S-8 and incorporated herein by reference.)*
10.4	Management Group Pay for Performance Program (Filed as Exhibit 10.4 to Annual Report on Form 10-K for the year ended December 31, 2006 and incorporated herein by reference.)*
10.5	Directors Pay for Performance Program  (Filed as Exhibit 10.5 to Annual Report on Form 10-K for the year ended December 31, 2007 and incorporated herein by reference.)*
10.6	Incentive Stock Option Plan of 2013 (Filed as Exhibit 10.1 to Registration Statement No. 333-193655 on Form S-8 filed January 30, 2014 and incorporated herein by reference)*
14.	Code of Ethics posted on the Corporation’s website
21.	Subsidiaries of Corporation - filed herewith
23.1	Consent of BDO USA, LLP – filed herewith
23.2	Consent of ParenteBeard LLC  – filed herewith
31.1	Rule 13a-14(a)/15d-14(a) Certification (Chief Executive Officer) – filed herewith
31.2	Rule 13a-14(a)/15d-14(a) Certification (Chief Financial Officer) – filed herewith
32.1	Section 1350 Certification (Chief Executive Officer) – filed herewith
32.2	Section 1350 Certification (Chief Financial Officer) – filed herewith
101	Interactive Data File (XBRL)

* Compensatory plan or arrangement.

89

EX-21

EXHIBIT 21

FRANKLIN FINANCIAL SERVICES CORPORATION

SUBIDIARIES

	FRANKLIN FINANCIAL
	SERVICES CORPORATION
	CHAMBERSBURG, PA
FARMERS AND MERCHANTS		FRANKLIN FUTURE
TRUST COMPANY OF		FUND
CHAMBERSBURG, PA		CHAMBERSBURG, PA
DIRECT - 100%		DIRECT - 100%
FRANKLIN FINANCIAL
PROPERTIES CORPORATION
CHAMBERSBURG, PA
INDIRECT - 100%

EX-23.1

EXHIBIT 23.1

Consent of Independent Registered Public Accounting Firm

Franklin Financial Services Corporation

Chambersburg, Pennsylvania

We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-169186) and Forms S-8 (No. 333-117604, No. 333-90348 and No. 333-193655) of our reports dated March 10, 2014, relating to the consolidated financial statements and the effectiveness of Franklin Financial Services Corporation’s internal control over financial reporting appearing in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2013.

/s/ BDO USA, LLP

Harrisburg, Pennsylvania

March 10, 2014

EX-23.2

EXHIBIT 23.2

Consent of Independent Registered Public Accounting Firm

Franklin Financial Services Corporation

Chambersburg, Pennsylvania

We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-169186) and Forms S-8 (No. 333-117604, No. 333-90348, and No. 333-1936555) of Franklin Financial Service Corporation and subsidiaries of our report dated March 11, 2013 relating to the consolidated financial statements of Franklin Financial Services Corporation and subsidiaries, which appears in this Form 10-K.

/s/ ParenteBeard LLC

Wilkes-Barre, Pennsylvania

March 10, 2014

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 annual report on Form 10-K 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: March 10, 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 annual report on Form 10-K 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: March 10, 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 Annual Report of Franklin Financial Services Corporation (the “Corporation”) on Form 10-K, for the period ending December 31, 2013, 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

March 10, 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 Annual Report of Franklin Financial Services Corporation (the “Corporation”) on Form 10-K for the period ending December 31, 2013 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

March 10, 2014

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Securities Sold Under Agreements To Repurchase, Short-Term Borrowings And Long-Term Debt (Tables)

12 Months Ended

Dec. 31, 2013

Securities Sold Under Agreements To Repurchase, Short-Term Borrowings And Long-Term Debt [Abstract]

FHLB Short Term Borrowings

	December 31
	2013				2012
	Repurchase		FHLB		Repurchase		FHLB
(Dollars in thousands)	Agreements		Open Repo		Agreements		Open Repo
Ending balance	$	23,834	$	-	$	42,209	$	-
Weighted average rate at year end		0.15%		-		0.15%		-
Range of interest rates paid at year end		0.15%		-		0.15%		-
Maximum month-end balance during the year	$	52,880	$	-	$	57,279	$	-
Average balance during the year	$	32,407	$	-	$	51,558	$	-
Weighted average interest rate during the year		0.15%		-		0.15%		-

FHLB Long-Term Debt

	December 31
(Dollars in thousands)	2013		2012
Loans from the Federal Home Loan Bank	$	12,403	$	12,410

Schedule Of Maturities

(Dollars in thousands)
2014	$	2,008
2015		10,008
2016		8
2017		9
2018		9
2019 and beyond		361
	$	12,403

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Shareholders' Equity (Details) (USD $) In Thousands, except Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Equity, Class of Treasury Stock [Line Items]
Common stock, par value	$ 1.00	$ 1
Repurchase plan period, in years	1 year
Shares held at cost	392,027	396,034
Common stock shares authorized	15,000,000	15,000,000
Common stock issued under dividend reinvestment plan, shares	57,320	84,122	102,200
Common stock issued under dividend reinvestment plan	$ 926	$ 1,174	$ 1,706
Dividend Reinvestment Plan (DRIP) [Member]
Equity, Class of Treasury Stock [Line Items]
Common stock shares authorized	1,000,000
Common stock issued under dividend reinvestment plan, shares	57,320
Dividend Reinvestment plan shares remain to be issues	738,204

XML

Investments (Narrative) (Details) (USD $)	12 Months Ended
	Dec. 31, 2013 security	Dec. 31, 2012 security	Dec. 31, 2011
Schedule of Available-for-sale Securities [Line Items]
Other than Temporary Impairment Losses, Investments, Portion Recognized in Earnings, Net	$ 75,000	$ 100,000	$ 240,000
Available-for-sale Securities	159,674,000	133,328,000
Amortized Cost	160,415,000	130,785,000
Proceeds from sales and calls of investment securities available for sale	5,188,000	494,000	9,772,000
Securities pledged as collateral	107,600,000	119,800,000
Gross Unrealized Losses	3,476,000	1,728,000
Cumulative OTTI Charges	515,000	490,000	390,000
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value	77,349,000	31,813,000
Available-for-sale, Securities in Unrealized Loss Positions, Qualitative Disclosure, Number of Positions	98	63
Restricted stock	1,906,000	3,571,000
Net decrease in restricted stock	1,665,000	1,451,000	1,137,000
Period in which credit related loss is determined, days past due	60 days
Federal Home Loan Bank of Pittsburgh [Member]
Schedule of Available-for-sale Securities [Line Items]
Restricted stock	30,000
Restricted stock cost, per share	$ 100
Equity Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Number of investments with other than temporary impairment charges	3
Available-for-sale Securities	1,970,000	1,941,000
Amortized Cost	1,472,000	2,104,000
Gross Unrealized Losses	1,000	255,000
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value	22,000	1,462,000
Available-for-sale, Securities in Unrealized Loss Positions, Qualitative Disclosure, Number of Positions	1	16
Municipal Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale Securities	56,857,000	61,216,000
Amortized Cost	56,861,000	58,395,000
Gross Unrealized Losses	1,404,000	163,000
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value	19,930,000	8,789,000
Available-for-sale, Securities in Unrealized Loss Positions, Qualitative Disclosure, Number of Positions	28	10
Corporate Debt Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale Securities	1,001,000	994,000
Amortized Cost	1,002,000	1,005,000
Gross Unrealized Losses	1,000	11,000
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value	1,001,000	994,000
Available-for-sale, Securities in Unrealized Loss Positions, Qualitative Disclosure, Number of Positions	1	1
Trust Preferred Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Other than Temporary Impairment Losses, Investments, Portion Recognized in Earnings, Net	0
Available-for-sale Securities	5,051,000	4,830,000
Amortized Cost	5,922,000	5,905,000
Change in Unrealized Losses	200,000
Gross Unrealized Gain (Loss)	871,000
Gross Unrealized Losses	871,000	1,075,000
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value	5,051,000	4,830,000
Available-for-sale, Securities in Unrealized Loss Positions, Qualitative Disclosure, Number of Positions	7	7
Mortgage Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Percent of Investment Portfolio	52.00%
Available-for-sale Securities	83,000,000
Agency Mortgage-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale Securities	81,027,000	49,066,000
Amortized Cost	81,352,000	48,121,000
Gross Unrealized Losses	1,051,000	84,000
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value	42,608,000	9,533,000
Available-for-sale, Securities in Unrealized Loss Positions, Qualitative Disclosure, Number of Positions	42	14
Private-Label Mortgage-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Other than Temporary Impairment Losses, Investments, Portion Recognized in Earnings, Net	25,000
Number of investments	6
Number of investments with other than temporary impairment charges	2
Available-for-sale Securities	1,969,000	2,426,000
Amortized Cost	1,984,000	2,539,000
Proceeds from sales and calls of investment securities available for sale	500,000
Gross Unrealized Gain (Loss)	15,000
Gross Unrealized Losses	31,000	123,000
Cumulative OTTI Charges	515,000
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value	911,000	1,875,000
Available-for-sale, Securities in Unrealized Loss Positions, Qualitative Disclosure, Number of Positions	2	5
PLMBS And Equity Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Other than Temporary Impairment Losses, Investments, Portion Recognized in Earnings, Net	75,000
Moody's, A3 Rating [Member] | Municipal Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale Securities	54,000,000
Moody's, A3 Rating [Member] | Corporate Debt Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Number of investments	1
No Agency Rating [Member] | Municipal Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Number of investments	6
Available-for-sale Securities	2,400,000
Two Securities [Member] | Private-Label Mortgage-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Gross Unrealized Gain (Loss)	$ 31,000
Available-for-sale, Securities in Unrealized Loss Positions, Qualitative Disclosure, Number of Positions	2

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Quarterly Results Of Operations (Tables)

12 Months Ended

Dec. 31, 2013

Quarterly Results Of Operations [Abstract]

Schedule Of Quarterly Financial Information

(Dollars in thousands, except per share)	Three months ended
2013	March 31		June 30		September 30		December 31
Interest income	$	9,102	$	8,876	$	8,941	$	9,123
Interest expense		1,242		1,296		945		896
Net interest income		7,860		7,580		7,996		8,227
Provision for loan losses		803		803		350		965
Other noninterest income		2,384		2,422		2,529		2,584
Securities gains (losses)		-		(21)		(25)		4
Noninterest expense		7,582		7,625		7,382		8,503
Income before income taxes		1,859		1,553		2,768		1,347
Federal  income tax expense (benefit)		308		198		583		206
Net Income	$	1,551	$	1,355	$	2,185	$	1,141
Basic earnings per share	$	0.38	$	0.33	$	0.53	$	0.27
Diluted earnings per share	$	0.38	$	0.33	$	0.53	$	0.27
Dividends declared per share	$	0.17	$	0.17	$	0.17	$	0.17

(Dollars in thousands, except per share)	Three months ended
2012	March 31		June 30		September 30		December 31
Interest income	$	9,951	$	10,002	$	9,728	$	9,463
Interest expense		1,967		1,811		1,692		1,422
Net interest income		7,984		8,191		8,036		8,041
Provision for loan losses		1,950		825		825		1,625
Other noninterest income		2,563		2,472		2,236		2,236
Securities (losses) gains		-		21		(27)		(50)
Noninterest expense		7,010		7,597		7,355		8,640
Income before income taxes		1,587		2,262		2,065		(38)
Federal income tax expense (benefit)		218		356		318		(382)
Net Income	$	1,369	$	1,906	$	1,747	$	344
Basic earnings per share	$	0.34	$	0.47	$	0.43	$	0.08
Diluted earnings per share	$	0.34	$	0.47	$	0.43	$	0.08
Dividends declared per share	$	0.27	$	0.17	$	0.17	$	0.17

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Parent Company (Franklin Financial Services Corporation) Financial Information (Schedule Of Condensed Cash Flow Statement) (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Condensed Financial Statements, Captions [Line Items]
Net income	$ 6,232	$ 5,365	$ 6,569
Securities losses (gains)	(33)	(44)	(157)
Net OTTI losses recognized in earnings	75	100	240
Increase in other assets	1,656	(141)	(78)
Other, net	150	(718)	135
Net cash provided by operating activities	15,397	10,560	15,088
Proceeds from sales of investment securities	5,188	494	9,772
Net cash used in investing activities	(3,556)	(4,510)	(33,558)
Dividends paid	(2,810)	(3,170)	(4,273)
Treasury stock issued under stock option plans	52	2	30
Common stock issued under dividend reinvestment plan	926	1,174	1,706
Net cash (used in) provided by financing activities	(48,930)	37,640	30,508
Increase (decrease) in cash and cash equivalents	(37,089)	43,690	12,038
Cash and cash equivalents as of January 1	77,834	34,144	22,106
Cash and cash equivalents as of December 31	40,745	77,834	34,144
Parent [Member]
Condensed Financial Statements, Captions [Line Items]
Net income	6,232	5,365	6,569
Equity in undistributed income of subsidiary	(4,185)	(3,142)	(3,843)
Securities losses (gains)	(30)	1	37
Net OTTI losses recognized in earnings	50		4
Increase in other assets	(211)	(256)	(245)
Decrease in other liabilities		(12)	(238)
Other, net	(110)	(6)	103
Net cash provided by operating activities	1,746	1,950	2,387
Proceeds from sales of investment securities	312		81
Net cash used in investing activities	312		81
Dividends paid	(2,810)	(3,170)	(4,273)
Treasury stock issued under stock option plans	52	2	30
Common stock issued under dividend reinvestment plan	926	1,174	1,706
Net cash (used in) provided by financing activities	(1,832)	(1,994)	(2,537)
Increase (decrease) in cash and cash equivalents	226	(44)	(69)
Cash and cash equivalents as of January 1	375	419	488
Cash and cash equivalents as of December 31	$ 601	$ 375	$ 419

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Loan Quality (Troubled Debt Restructing Performance Status) (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013 loan		Dec. 31, 2012 loan
Financing Receivable, Modifications [Line Items]
Total Number of Contracts	18		19
Recorded Investment	$ 17,039		$ 11,430
Residential Real Estate - Construction [Member]
Financing Receivable, Modifications [Line Items]
Total Number of Contracts	1		2
Recorded Investment	537		1,482
Residential Real Estate 1-4 Family [Member]
Financing Receivable, Modifications [Line Items]
Total Number of Contracts	5		4
Recorded Investment	625		467
Commercial [Member]
Financing Receivable, Modifications [Line Items]
Total Number of Contracts			2
Recorded Investment			1,812
Commercial Real Estate [Member]
Financing Receivable, Modifications [Line Items]
Total Number of Contracts	12		11
Recorded Investment	15,877		7,669
Performing Financing Receivable [Member]
Financing Receivable, Modifications [Line Items]
Recorded Investment	14,943	[1]	11,430	[1]
Performing Financing Receivable [Member] | Residential Real Estate - Construction [Member]
Financing Receivable, Modifications [Line Items]
Recorded Investment			1,482	[1]
Performing Financing Receivable [Member] | Residential Real Estate 1-4 Family [Member]
Financing Receivable, Modifications [Line Items]
Recorded Investment	625	[1]	467	[1]
Performing Financing Receivable [Member] | Commercial [Member]
Financing Receivable, Modifications [Line Items]
Recorded Investment			1,812	[1]
Performing Financing Receivable [Member] | Commercial Real Estate [Member]
Financing Receivable, Modifications [Line Items]
Recorded Investment	14,318	[1]	7,669	[1]
Nonperforming Financing Receivable [Member]
Financing Receivable, Modifications [Line Items]
Recorded Investment	2,096	[1]
Nonperforming Financing Receivable [Member] | Residential Real Estate - Construction [Member]
Financing Receivable, Modifications [Line Items]
Recorded Investment	537	[1]
Nonperforming Financing Receivable [Member] | Commercial Real Estate [Member]
Financing Receivable, Modifications [Line Items]
Recorded Investment	$ 1,559	[1]

[1] The performing status is determined by the loans compliance with the modified terms.

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Investments (Unrealized Gain (Loss) On Investments) (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	$ 160,415	$ 130,785
Gross Unrealized Gains	2,735	4,271
Gross Unrealized Losses	(3,476)	(1,728)
Fair Value	159,674	133,328
Equity Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	1,472	2,104
Gross Unrealized Gains	499	92
Gross Unrealized Losses	(1)	(255)
Fair Value	1,970	1,941
U.S. Government Agency Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	11,771	12,657
Gross Unrealized Gains	94	156
Gross Unrealized Losses	(114)	(4)
Fair Value	11,751	12,809
Municipal Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	56,861	58,395
Gross Unrealized Gains	1,400	2,984
Gross Unrealized Losses	(1,404)	(163)
Fair Value	56,857	61,216
Corporate Debt Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	1,002	1,005
Gross Unrealized Losses	(1)	(11)
Fair Value	1,001	994
Trust Preferred Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	5,922	5,905
Gross Unrealized Losses	(871)	(1,075)
Fair Value	5,051	4,830
Agency Mortgage-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	81,352	48,121
Gross Unrealized Gains	726	1,029
Gross Unrealized Losses	(1,051)	(84)
Fair Value	81,027	49,066
Private-Label Mortgage-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	1,984	2,539
Gross Unrealized Gains	16	10
Gross Unrealized Losses	(31)	(123)
Fair Value	1,969	2,426
Asset-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	51	59
Gross Unrealized Losses	(3)	(13)
Fair Value	$ 48	$ 46

XML

Goodwill And Intangible Assets (Narrative) (Details)	12 Months Ended
	Dec. 31, 2013
Core Deposits [Member]
Finite-Lived Intangible Assets [Line Items]
Intangible assets remaining life, in years	1 year 6 months
Customer Lists [Member]
Finite-Lived Intangible Assets [Line Items]
Intangible assets remaining life, in years	4 years 10 months 24 days

XML

Benefit Plans (Schedule Of Funded Status) (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Benefit Plans [Abstract]
Funded Status	$ 1,319	$ 116	$ (5,480)
Unrecognized net actuarial loss	6,159	8,047	8,059
Unrecognized prior service cost	(345)	(471)	(597)
Net Asset recognized	7,133	7,692	1,982
Accumulated Benefit Obligation	$ 16,596	$ 17,859	$ 16,532

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

12 Months Ended

Dec. 31, 2013

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

Fair Value, By Balance Sheet Grouping

	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		-
	December 31, 2012
	Carrying		Fair
(Dollars in thousands)	Amount		Value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	77,834	$	77,834	$	77,834	$	-	$	-
Investment securities available for sale		133,328		133,328		1,941		131,387		-
Restricted stock		3,571		3,571		-		3,571		-
Loans held for sale		67		67		-		67		-
Net loans		743,200		759,490		-		-		759,490
Accrued interest receivable		3,178		3,178		-		3,178		-
Mortgage servicing rights		235		235		-		-		235
Financial liabilities:
Deposits	$	874,440	$	876,240	$	-	$	876,240	$	-
Securities sold under agreements to repurchase		42,209		42,209		-		42,209		-
Long-term debt		12,410		13,718		-		13,718		-
Accrued interest payable		348		348		-		348		-
Interest rate swaps		1,103		1,103		-		1,103		-

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

(Dollars in Thousands)	Fair Value at December 31, 2013
Asset  Description	Level 1		Level 2		Level 3		Total
Equity securities	$	1,970	$	-	$	-	$	1,970
U.S. Government agency securities		-		11,751		-		11,751
Municipal securities		-		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

(Dollars in Thousands)	Fair Value at December 31, 2012
Asset  Description	Level 1		Level 2		Level 3		Total
Equity securities	$	1,941	$	-	$	-	$	1,941
U.S. Government agency securities		-		12,809		-		12,809
Municipal securities		-		61,216		-		61,216
Corporate debt securities		-		994		-		994
Trust Preferred Securities		-		4,830		-		4,830
Agency mortgage-backed securities		-		49,066		-		49,066
Private-label mortgage-backed securities		-		2,426		-		2,426
Asset-backed securities		-		46		-		46
Total assets	$	1,941	$	131,387	$	-	$	133,328
Liability Description
Interest rate swaps	$	-	$	1,103	$	-	$	1,103
Total liabilities	$	-	$	1,103	$	-	$	1,103

Schedule Of Fair Value On A Nonrecurring Basis

(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

(Dollars in Thousands)	Fair Value at December 31, 2012
Asset  Description	Level 1		Level 2		Level 3		Total
Impaired loans (1)	$	-	$	-	$	9,235	$	9,235
Other real estate owned (1)		-		-		4,352		4,352
Mortgage servicing rights		-		-		235		235
Total assets	$	-	$	-	$	13,822	$	13,822

Fair Value Inputs, Assets, Quantitative Information

(Dollars in Thousands)	Quantitative Information about Level 3 Fair Value Measurements
				Range
December 31, 2013	Fair Value	Valuation Technique	Unobservable Input	(Weighted Average)
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)
				Range
December 31, 2012	Fair Value	Valuation Technique	Unobservable Input	(Weighted Average)
Impaired loans (1)	$                   9,235	Appraisal	Appraisal Adjustments (2)	0% - 100%(11%)
			Cost to sell	5% - 25%(7%)
Other real estate owned (1)	5,127	Appraisal	Appraisal Adjustments (2)
			Cost to sell	8%(8%)
Mortgage servicing rights	235	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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Investments (Tables)

12 Months Ended

Dec. 31, 2013

Investments [Abstract]

Unrealized Gain (Loss) On Investments

(Dollars in thousands)			Gross		Gross
	Amortized		unrealized		unrealized		Fair
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

(Dollars in thousands)			Gross		Gross
	Amortized		unrealized		unrealized		Fair
2012	cost		gains		losses		value
Equity securities	$	2,104	$	92	$	(255)	$	1,941
U.S. Government agency securities		12,657		156		(4)		12,809
Municipal securities		58,395		2,984		(163)		61,216
Corporate debt securities		1,005		-		(11)		994
Trust preferred securities		5,905		-		(1,075)		4,830
Agency mortgage-backed securities		48,121		1,029		(84)		49,066
Private-label mortgage-backed securities		2,539		10		(123)		2,426
Asset-backed securities		59		-		(13)		46
	$	130,785	$	4,271	$	(1,728)	$	133,328

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

	Amortized		Fair
(Dollars in thousands)	cost		value
Due in one year or less	$	1,513	$	1,515
Due after one year through five years		13,540		14,115
Due after five years through ten years		23,229		23,239
Due after ten years		37,325		35,839
		75,607		74,708
Mortgage-backed securities		83,336		82,996
	$	158,943	$	157,704

Gain (Loss) On Investments

(Dollars in thousands)	2013		2012		2011
Gross gains realized	$	185	$	45	$	195
Gross losses realized		(152)		(1)		(38)
Net gains realized	$	33	$	44	$	157
Tax provision applicable to net securities gains	$	11	$	15	$	53

Temporary Impairment In The Investment Portfolio

	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

	December 31, 2012
	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	$	226	$	(20)	3	$	1,236	$	(235)	13	$	1,462	$	(255)	16
U.S. Government agency securities		938		(1)	1		3,346		(3)	6		4,284		(4)	7
Municipal securities		8,789		(163)	10		-		-	-		8,789		(163)	10
Corporate debt securities		-		-	-		994		(11)	1		994		(11)	1
Trust preferred securities		-		-	-		4,830		(1,075)	7		4,830		(1,075)	7
Agency mortgage-backed securities		6,869		(68)	8		2,664		(16)	6		9,533		(84)	14
Private-label mortgage-backed securities		-		-	-		1,875		(123)	5		1,875		(123)	5
Asset-backed securities		-		-	-		46		(13)	3		46		(13)	3
Total temporarily impaired securities	$	16,822	$	(252)	22	$	14,991	$	(1,476)	41	$	31,813	$	(1,728)	63

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	$	936	$	809	$	(127)	BB+	1	None	None
Huntington Cap Trust II	Single	Preferred Stock		885		778		(107)	BB+	1	None	None
BankAmerica Cap III	Single	Preferred Stock		960		793		(167)	BB+	1	None	None
Wachovia Cap Trust II	Single	Preferred Stock		275		245		(30)	BBB+	1	None	None
Corestates Captl Tr II	Single	Preferred Stock		932		829		(103)	BBB+	1	None	None
Chase Cap VI JPM	Single	Preferred Stock		960		798		(162)	BBB	1	None	None
Fleet Cap Tr V	Single	Preferred Stock		974		799		(175)	BB+	1	None	None
			$	5,922	$	5,051	$	(871)

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	$	184	$	184	$	-	ALT A	BBB+	12.38	$	-
MALT 2004-6 7A1	6/1/2004		435		441		6	ALT A	CCC	14.26		-
RALI 2005-QS2 A1	2/1/2005		326		335		9	ALT A	CC	5.93		10
RALI 2006-QS4 A2	4/1/2006		607		583		(24)	ALT A	D	-		293
GSR 2006-5F 2A1	5/1/2006		97		98		1	Prime	D	-		15
RALI 2006-QS8 A1	7/28/2006		335		328		(7)	ALT A	D	-		197
		$	1,984	$	1,969	$	(15)				$	515

Other Than Temporary Impairment, Credit Losses Recognized In Earnings

(Dollars in thousands)	Twelve Months Ended
	2013			2012
Balance of cumulative credit-related OTTI at January 1	$	490	$	390
Additions for credit-related OTTI not previously recognized		25		100
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 December 31	$	515	$	490

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Goodwill And Intangible Assets (Schedule Of Goodwill) (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012
Goodwill And Intangible Assets [Abstract]
Goodwill, Beginning Balance	$ 9,016	$ 9,016
Goodwill acquired
Adjustment to goodwill
Goodwill, Ending Balance	$ 9,016	$ 9,016

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Parent Company (Franklin Financial Services Corporation) Financial Information (Schedule Of Condensed Balance Sheet) (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Condensed Financial Statements, Captions [Line Items]
Cash and cash equivalents	$ 40,745	$ 77,834	$ 34,144	$ 22,106
Investment securities, available for sale	159,674	133,328
Other Assets	10,660	10,674
Total assets	984,587	1,027,363
Other Liabilities	7,238	6,670
Total liabilities	889,199	935,729
Shareholders' equity	95,388	91,634
Total liabilities and shareholders' equity	984,587	1,027,363
Parent [Member]
Condensed Financial Statements, Captions [Line Items]
Cash and cash equivalents	601	375	419	488
Investment securities, available for sale	914	692
Equity investment in subsidiaries	91,746	88,501
Other Assets	2,235	2,066
Total assets	95,496	91,634
Other Liabilities	108
Total liabilities	108
Shareholders' equity	95,388	91,634
Total liabilities and shareholders' equity	$ 95,496	$ 91,634

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Loan Quality (Allowance For Loan Losses, By Loan Segment) (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Financing Receivable, Allowance for Credit Losses [Line Items]
ALL, Beginning Balance	$ 10,379	$ 9,723	$ 8,801
Charge-offs	(3,972)	(4,717)	(7,047)
Recoveries	375	148	445
Provision	2,920	5,225	7,524
ALL, Ending Balance	9,702	10,379	9,723
Residential Real Estate First Liens [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
ALL, Beginning Balance	913	1,049	600
Charge-offs	(547)	(251)	(324)
Recoveries	13	1	30
Provision	729	114	743
ALL, Ending Balance	1,108	913	1,049
Residential Real Estate Junior Liens & Lines Of Credit [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
ALL, Beginning Balance	306	308	352
Charge-offs	(45)	(71)	(202)
Recoveries		25	10
Provision	17	44	148
ALL, Ending Balance	278	306	308
Residential Real Estate - Construction [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
ALL, Beginning Balance	899	1,222	2,596
Charge-offs			(2,352)
Provision	(608)	(323)	978
ALL, Ending Balance	291	899	1,222
Commercial Real Estate [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
ALL, Beginning Balance	6,450	5,257	3,358
Charge-offs	(2,855)	(3,298)	(3,817)
Recoveries	203	13	306
Provision	1,773	4,478	5,410
ALL, Ending Balance	5,571	6,450	5,257
Commercial [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
ALL, Beginning Balance	1,620	1,651	1,578
Charge-offs	(363)	(861)	(115)
Recoveries	100	21	11
Provision	949	809	177
ALL, Ending Balance	2,306	1,620	1,651
Consumer [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
ALL, Beginning Balance	191	236	317
Charge-offs	(162)	(236)	(237)
Recoveries	59	88	88
Provision	60	103	68
ALL, Ending Balance	$ 148	$ 191	$ 236

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Securities Sold Under Agreements To Repurchase, Short-Term Borrowings And Long-Term Debt (Schedule Of Maturities) (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012
Securities Sold Under Agreements To Repurchase, Short-Term Borrowings And Long-Term Debt [Abstract]
2014	$ 2,008
2015	10,008
2016	8
2017	9
2018	9
2019 and beyond	361
Long-term Federal Home Loan Bank Advances, Total	$ 12,403	$ 12,410

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Investments (Gain (Loss) On Investments) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended						12 Months Ended
	Dec. 31, 2013	Sep. 30, 2013	Jun. 30, 2013	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Investments [Abstract]
Gross gains realized							$ 185	$ 45	$ 195
Gross losses realized							(152)	(1)	(38)
Net gains realized	4	(25)	(21)	(50)	(27)	21	33	44	157
Tax provision applicable to net securities gains	$ 11			$ 15			$ 11	$ 15	$ 53

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Stock Purchase Plans (Schedule Of Share-based Compensation, Stock Options, Activity) (Details) (USD $) In Thousands, except Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2013 ESPP [Member]	Dec. 31, 2012 ESPP [Member]	Dec. 31, 2011 ESPP [Member]	Dec. 31, 2013 ISOP [Member]	Dec. 31, 2012 ISOP [Member]	Dec. 31, 2010 ISOP [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Balance Outstanding	37,627	25,695	24,181	62,324	82,874	82,874
Options Granted	34,417	38,904	26,792
Options Exercised	(4,007)	(140)	(1,776)
Options Expired	(35,758)	(26,832)	(23,502)
Options Forfeited				(6,499)	(20,550)
Balance Outstanding	32,279	37,627	25,695	55,825	62,324	82,874
Weighted Average Price Per Share: Balance Outstanding	$ 12.64	$ 16.75	$ 16.81	$ 23.93	$ 23.42	$ 23.42
Weighted Average Price Per Share: Granted	$ 15.24	$ 12.64	$ 16.75
Weighted Average Price Per Share: Exercised	$ 12.84	$ 12.64	$ 16.80
Weighted Average Price Per Share: Expired	$ 12.77	$ 16.58	$ 16.81
Weighted Average Price Per Share: Forfeited				$ 21.51	$ 21.89
Weighted Average Price Per Share: Balance Outstanding	$ 15.24	$ 12.64	$ 16.75	$ 24.21	$ 23.93	$ 23.42
Aggregate Intrinsic Value	$ 60

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Premises And Equipment (Schedule Of Depreciation And Rent Expense) (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Premises And Equipment [Abstract]
Depreciation expense	$ 1,419	$ 1,301	$ 1,293
Rent expense on leases	$ 673	$ 472	$ 406

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Securities Sold Under Agreements To Repurchase, Short-Term Borrowings And Long-Term Debt (Narrative) (Details) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012
Securities Sold Under Agreements To Repurchase, Short-Term Borrowings And Long-Term Debt [Abstract]
Federal Home Loan Bank, Advances, General Debt Obligations, Disclosures, General Description of Terms	The Bank's short-term borrowings are comprised of securities sold under agreements to repurchase and a line-of-credit with the Federal Home Loan Bank of Pittsburgh (Open Repo Plus). Securities sold under agreements to repurchase are overnight borrowings between the Bank and its commercial and municipal depositors. These accounts reprice weekly. Open Repo Plus is a revolving term commitment used on an overnight basis. The term of this commitment may not exceed 364 days and it reprices daily at market rates
Federal Home Loan Bank, Advances, General Debt Obligations, Amount of Available, Unused Funds	$ 64.8
Assets Sold under Agreements to Repurchase, Market Value	32.0	54.1
Federal Home Loan Bank, Advances, General Debt Obligations, Disclosures, Interest Rate, Range from	3.70%
Federal Home Loan Bank, Advances, General Debt Obligations, Disclosures, Interest Rate, Range to	5.60%
Federal Home Loan Bank, Advances, General Debt Obligations, Disclosures, Weighted Average Interest Rate	3.90%
FHLB Maturity Range	November 2014 to November 2039
Federal Home Loan Bank, Advances, General Debt Obligations, Maximum Amount Available	$ 77.2

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Goodwill And Intangible Assets (Amortization Expense) (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Goodwill And Intangible Assets [Abstract]
Amortization expense	$ 425	$ 435	$ 446

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Securities Sold Under Agreements To Repurchase, Short-Term Borrowings And Long-Term Debt (FHLB Short Term Borrowings) (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012
Federal Home Loan Bank, Advances, Branch of FHLB Bank [Line Items]
Securities sold under agreements to repurchase	$ 23,834	$ 42,209
Repurchase Agreements [Member]
Federal Home Loan Bank, Advances, Branch of FHLB Bank [Line Items]
Securities sold under agreements to repurchase	23,834	42,209
Weighted average rate at year end	0.15%	0.15%
Range of interest rates paid at year end	0.15%	0.15%
Maximum month-end balance during the year	52,880	57,279
Average balance during the year	$ 32,407	$ 51,558
Weighted average interest rate during the year	0.15%	0.15%

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Premises And Equipment (Operating Leases And Lessee Disclosure) (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013
Premises And Equipment [Abstract]
2014	$ 667
2015	561
2016	526
2017	499
2018	506
2019 and beyond	5,486
Operating Leases, Future Minimum Payments Due, Total	$ 8,245

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Loan Quality (New Troubled Debt Restructurings) (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013 loan	Dec. 31, 2012 loan
Financing Receivable, Modifications [Line Items]
Number of Contracts	4	11
Pre-TDR Modification	$ 10,744	$ 7,283
After-TDR Modification	11,068	7,516
Recorded Investment	10,804	6,630
Residential Real Estate - Construction [Member]
Financing Receivable, Modifications [Line Items]
Number of Contracts		3
Pre-TDR Modification		2,073
After-TDR Modification		1,897
Recorded Investment		1,482
Concession		multiple
Residential Real Estate 1-4 Family [Member]
Financing Receivable, Modifications [Line Items]
Number of Contracts	2	2
Pre-TDR Modification	286	371
After-TDR Modification	323	390
Recorded Investment	311	379
Concession	multiple	multiple
Commercial [Member]
Financing Receivable, Modifications [Line Items]
Number of Contracts		2
Pre-TDR Modification		2,223
After-TDR Modification		2,223
Recorded Investment		1,812
Concession		maturity
Commercial Real Estate [Member]
Financing Receivable, Modifications [Line Items]
Number of Contracts	2	4
Pre-TDR Modification	10,458	2,616
After-TDR Modification	10,745	3,006
Recorded Investment	$ 10,493	$ 2,957
Concession	multiple	multiple

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Shareholders' Equity

12 Months Ended

Dec. 31, 2013

Shareholders' Equity [Abstract]

Shareholders' Equity

Note 17. Shareholders’ Equity

The Board of Directors regularly authorizes the repurchase of the Corporation’s $1.00 par value common stock. The repurchased shares will be held as Treasury shares available for issuance in connection with future stock dividends and stock splits, employee benefit plans, executive compensation plans, the Dividend Reinvestment Plan and other appropriate corporate purposes. The term of the repurchase plans is normally 1 year.  The Corporation held 392,027 and 396,034 shares at cost at December 31, 2013 and 2012, respectively.

The Corporation’s dividend reinvestment plan (DRIP) allows for shareholders to purchase additional shares of the Corporation’s common stock by reinvesting cash dividends paid on their shares or through optional cash payments. The Corporation has authorized one million (1,000,000) shares of its currently authorized common stock to be issued under the amended plan.  During 2013, 57,320 shares of common stock were purchased through the dividend reinvestment plan at a value of $926 thousand and 738,204 shares remain to be issued.

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Summary Of Significant Accounting Policies (Schedule Of Earnings Per Share Basic And Diluted) (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2013	Sep. 30, 2013	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Summary Of Significant Accounting Policies [Abstract]
Weighted average shares outstanding (basic)									4,135	4,072	3,962
Impact of common stock equivalents									4	2	1
Weighted average shares outstanding (diluted)									4,139	4,074	3,963
Anti-dilutive options excluded from the calculation									56	87	70
Net income	$ 1,141	$ 2,185	$ 1,355	$ 1,551	$ 344	$ 1,747	$ 1,906	$ 1,369	$ 6,232	$ 5,365	$ 6,569
Basic earnings per share	$ 0.27	$ 0.53	$ 0.33	$ 0.38	$ 0.08	$ 0.43	$ 0.47	$ 0.34	$ 1.51	$ 1.32	$ 1.66
Diluted earnings per share	$ 0.27	$ 0.53	$ 0.33	$ 0.38	$ 0.08	$ 0.43	$ 0.47	$ 0.34	$ 1.51	$ 1.32	$ 1.66

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Financial Derivatives (Tables)

12 Months Ended

Dec. 31, 2013

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%	0.07%	$	380

Schedule Of Fair Value Of Derivative Instruments

Fair Value of Derivative Instruments
(Dollars in thousands)		Balance Sheet
Date	Type	Location	Fair Value
December 31, 2013	Interest rate contracts	Other liabilities	$	561
December 31, 2012	Interest rate contracts	Other liabilities	$	1,103

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)
December 31, 2013	Interest rate contracts	$	358	Interest Expense	$	(525)	Other income (expense)	$	-
December 31, 2012	Interest rate contracts	$	420	Interest Expense	$	(736)	Other income (expense)	$	-
December 31, 2011	Interest rate contracts	$	8	Interest Expense	$	(727)	Other income (expense)	$	-

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Premises And Equipment (Property, Plant And Equipment) (Details) (USD $) In Thousands, unless otherwise specified									12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2013 Land [Member]	Dec. 31, 2012 Land [Member]	Dec. 31, 2013 Building And Leasehold Improvements [Member]	Dec. 31, 2012 Building And Leasehold Improvements [Member]	Dec. 31, 2013 Furniture, Fixtures And Equipment [Member]	Dec. 31, 2012 Furniture, Fixtures And Equipment [Member]	Dec. 31, 2013 Maximum [Member] Building And Leasehold Improvements [Member]	Dec. 31, 2013 Maximum [Member] Furniture, Fixtures And Equipment [Member]	Dec. 31, 2013 Minimum [Member] Building And Leasehold Improvements [Member]	Dec. 31, 2013 Minimum [Member] Furniture, Fixtures And Equipment [Member]
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Useful Life									30 years	10 years	15 years	3 years
Property, Plant and Equipment, Gross	$ 40,723	$ 41,612	$ 3,033	$ 3,033	$ 23,488	$ 23,526	$ 14,202	$ 15,053
Less: Accumulated depreciation	(24,578)	(24,575)
Net premises and equipment	$ 16,145	$ 17,037

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Financial Derivatives (Schedule Of Fair Value Of Derivative Instruments) (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012
Financial Derivatives [Abstract]
Type	Interest rate contracts	Interest rate contracts
Balance Sheet Location	Other liabilities	Other liabilities
Fair Value	$ 561	$ 1,103

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Goodwill And Intangible Assets (Tables)

12 Months Ended

Dec. 31, 2013

Goodwill And Intangible Assets [Abstract]

Schedule Of Goodwill

	For the years ended
	December 31
(Dollars in thousands)	2013		2012
Beginning balance	$	9,016	$	9,016
Goodwill acquired		-		-
Adjustment to goodwill		-		-
Ending balance	$	9,016	$	9,016

Schedule Of Other Intangible Assets

	Core Deposit				Customer List
	2013		2012		2013		2012
Gross carrying amount	$	3,252	$	3,252	$	589	$	589
Accumulated amortization		(2,710)		(2,349)		(433)		(369)
Net carrying amount	$	542	$	903	$	156	$	220

Amortization Expense

(Dollars in thousands)	2013		2012		2011
Amortization expense	$	425	$	435	$	446

Schedule Of Expected Amortization Expense

(Dollars in thousands)
2014	$	414
2015		223
2016		31
2017		21
2018		9
	$	698

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Regulatory Matters (Schedule Of The Total Risk-Based, Tier 1 Risk-Based And Tier 1 Leverage Requirements) (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012
Compliance with Regulatory Capital Requirements under Banking Regulations [Line Items]
Total Risk-based Capital Ratio: Amount	$ 99,598	$ 95,268
Total Risk-based Capital Ratio: Ratio	14.24%	12.60%
Total Risk-based Capital Ratio: Mimimum to be Adequately Capitalized Amount	55,940	60,465
Total Risk-based Capital Ratio: Mimimum to be Adequately Capitalized Ratio	8.00%	8.00%
Tier 1 Risk-based Capital Ratio: Amount	90,659	85,843
Tier 1 Risk-based Capital Ratio: Ratio	12.97%	11.36%
Tier 1 Risk-based Capital Ratio: Minimum to be Adequately Capitalized Amount	27,970	30,232
Tier 1 Risk-based Capital Ratio: Minimum to be Adequately Capitalized Ratio	4.00%	4.00%
Tier 1 Leverage Ratio: Amount	90,659	85,843
Tier 1 Leverage Ratio: Ratio	9.14%	8.29%
Tier 1 Leverage Ratio: Minimum to be Adequately Capitalized Amount	39,661	41,439
Tier 1 Leverage Ratio: Minimum to be Adequately Capitalized Ratio	4.00%	4.00%
Bank [Member]
Compliance with Regulatory Capital Requirements under Banking Regulations [Line Items]
Total Risk-based Capital Ratio: Amount	95,942	92,056
Total Risk-based Capital Ratio: Ratio	13.78%	12.22%
Total Risk-based Capital Ratio: Mimimum to be Adequately Capitalized Amount	55,696	60,244
Total Risk-based Capital Ratio: Mimimum to be Adequately Capitalized Ratio	8.00%	8.00%
Total Risk-based Capital Ratio: Mimimum to be Well Capitalized Amount	69,620	75,305
Total Risk-based Capital Ratio: Mimimum to be Well Capitalized Ratio	10.00%	10.00%
Tier 1 Risk-based Capital Ratio: Amount	87,146	82,631
Tier 1 Risk-based Capital Ratio: Ratio	12.52%	10.97%
Tier 1 Risk-based Capital Ratio: Minimum to be Adequately Capitalized Amount	27,848	30,122
Tier 1 Risk-based Capital Ratio: Minimum to be Adequately Capitalized Ratio	4.00%	4.00%
Tier 1 Risk-based Capital Ratio: Minimum to be Well Capitalized Amount	41,772	45,183
Tier 1 Risk-based Capital Ratio: Minimum to be Well Capitalized Ratio	6.00%	6.00%
Tier 1 Leverage Ratio: Amount	87,146	82,631
Tier 1 Leverage Ratio: Ratio	8.81%	7.99%
Tier 1 Leverage Ratio: Minimum to be Adequately Capitalized Amount	39,559	41,392
Tier 1 Leverage Ratio: Minimum to be Adequately Capitalized Ratio	4.00%	4.00%
Tier 1 Leverage Ratio: Minimum to be Well Capitalized Amount	$ 49,448	$ 51,740
Tier 1 Leverage Ratio: Minimum to be Well Capitalized Ratio	5.00%	5.00%

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Loan Quality (Schedule Of Additional Nonaccrual Information) (Details) (USD $) In Thousands, unless otherwise specified										12 Months Ended										12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010	Dec. 31, 2013 Total Non Accrual Disclosure [Member]	Dec. 31, 2013 Commercial Real Estate [Member]	Dec. 31, 2012 Commercial Real Estate [Member]	Dec. 31, 2011 Commercial Real Estate [Member]	Dec. 31, 2010 Commercial Real Estate [Member]	Dec. 31, 2013 Commercial Real Estate [Member] Credit 1 [Member] acre		Dec. 31, 2013 Commercial Real Estate [Member] Credit 6 [Member] acre		Dec. 31, 2013 Commercial Real Estate [Member] Credit 7 [Member]		Dec. 31, 2013 Residential Real Estate And Commercial Real Estate [Member] Credit 2 [Member] acre		Dec. 31, 2013 Residential Real Estate 1-4 Family [Member]	Dec. 31, 2012 Residential Real Estate 1-4 Family [Member]	Dec. 31, 2013 Residential Real Estate 1-4 Family [Member] Credit 3 [Member]		Dec. 31, 2013 Residential Real Estate 1-4 Family [Member] Credit 4 [Member] acre		Dec. 31, 2013 Residential Real Estate 1-4 Family [Member] Credit 5 [Member]		Dec. 31, 2013 Residential Real Estate 1-4 Family [Member] Credit 9 [Member] property acre		Dec. 31, 2013 Commercial/Commercial Real Estate [Member] Credit 8 [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Nonaccrual loans	$ 24,643	$ 36,394			$ 21,025	$ 19,001	$ 28,659			$ 3,040		$ 7,436		$ 2,049		$ 977		$ 2,706	$ 4,342	$ 2,096		$ 883		$ 1,154		$ 800		$ 2,590
Allowance for loan losses	9,702	10,379	9,723	8,801	993	5,571	6,450	5,257	3,358																			993
Nonaccrual Date										2010-12		2012-09		2012-10		2011-08				2012-03		2012-06		2012-04		2013-09		2013-03
Last Appraisal Date										2013-12	[1]	2013-10	[1]	2013-02	[1]	2013-06	[1]			2013-10	[1]	2013-10	[1]	2013-05	[1]	2013-06	[1]	2013-11	[1]
Last Appraisal Amount										$ 3,304	[1]	$ 8,932	[1]	$ 5,995	[1]	$ 1,272	[1]			$ 4,184	[1]	$ 1,250	[1]	$ 1,935	[1]	$ 1,410	[1]	$ 3,394	[1]
Area of acreage										92		376				70						75				43
Number of improved building lots																										12

[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.

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Deferred Compensation Agreement (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended			3 Months Ended	12 Months Ended
	Dec. 31, 2013 employee	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2013 Fulton Bancshares Corporation [Member]	Dec. 31, 2013 Fulton Bancshares Corporation [Member] employee
Deferred Compensation Arrangement with Individual, Share-based Payments [Line Items]
Benefit payment period, in years	10 years
Age at which benefit payaments begin	65 years
Obligation under deferred compensation agreements	$ 600
Expense associated with agreements	$ 18	$ 20	$ 20	$ 667
Number of Agreements	4				2
Years after FDIC ruling, overturned decision, in years					7 years

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Investments (Other Than Temporary Impairment, Credit Losses Recognized In Earnings) (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012
Investments [Abstract]
Balance of cumulative credit related OTTI at January 1	$ 490	$ 390
Additions for credit-related OTTI not previously recognized	25	100
Additions for credit-related OTTI previously recognized when there is no intent to sell and no requirement to sell before recovery of amortized cost basis
Decrease 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 December 31	$ 515	$ 490

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Parent Company (Franklin Financial Services Corporation) Financial Information (Tables)

12 Months Ended

Dec. 31, 2013

Parent Company (Franklin Financial Services Corporation) Financial Information [Abstract]

Schedule Of Condensed Balance Sheet

Balance Sheets	December 31
(Dollars in thousands)	2013		2012
Assets:
Cash and cash equivalents	$	601	$	375
Investment securities, available for sale		914		692
Equity investment in subsidiaries		91,746		88,501
Other assets		2,235		2,066
Total assets	$	95,496	$	91,634
Liabilities:
Other liabilities	$	108	$	-
Total liabilities		108		-
Shareholders' equity		95,388		91,634
Total liabilities and shareholders' equity	$	95,496	$	91,634

Schedule Of Condensed Income Statement

Statements of Income	Years Ended December 31
(Dollars in thousands)	2013		2012		2011
Income:
Dividends from Bank subsidiary	$	2,529	$	2,680	$	3,231
Interest and dividend income		31		29		28
Net OTTI losses recognized in earnings		(50)		-		(4)
Securities gains (losses), net		30		(1)		(37)
		2,540		2,708		3,218
Expenses:
Operating expenses		752		734		728
Income before income taxes and equity in undistributed income of subsidiaries		1,788		1,974		2,490
Income tax benefit		259		249		236
Equity in undistributed income of subsidiaries		4,185		3,142		3,843
Net income	$	6,232	$	5,365	$	6,569

Schedule Of Condensed Comprehensive Income Statement

		Years ended December 31
(Dollars in thousands)		2013		2012		2011
Net Income	$	6,232	$	5,365	$	6,569
Securities:
Unrealized gains (losses) arising during the period		425		73		(164)
Reclassification adjustment for net losses (gains) included in net income		20		1		41
Net unrealized gains (losses)		445		74		(123)
Tax effect		(151)		(25)		42
Net of tax amount		294		49		(81)
Total other comprehensive income (loss)		294		49		(81)
Total Comprehensive Income	$	6,526	$	5,414	$	6,488

Schedule Of Condensed Cash Flow Statement

Statements of Cash Flows	Years Ended December 31
(Dollars in thousands)	2013		2012		2011
Cash flows from operating activities
Net income	$	6,232	$	5,365	$	6,569
Adjustments to reconcile net income to net cash provided
by operating activities:
Equity in undistributed income of subsidiary		(4,185)		(3,142)		(3,843)
Securities losses (gains)		(30)		1		37
OTTI writedown on equity securities		50		-		4
Increase in other assets		(211)		(256)		(245)
Decrease in other liabilities		-		(12)		(238)
Other, net		(110)		(6)		103
Net cash provided by operating activities		1,746		1,950		2,387
Cash flows from investing activities
Proceeds from sales of investment securities		312		-		81
Net cash provided by investing activities		312		-		81
Cash flows from financing activities
Dividends paid		(2,810)		(3,170)		(4,273)
Treausry stock issued under stock option plans		52		2		30
Common stock issued under dividend reinvestment plan		926		1,174		1,706
Net cash used in financing activities		(1,832)		(1,994)		(2,537)
Increase (decrease) in cash and cash equivalents		226		(44)		(69)
Cash and cash equivalents as of January 1		375		419		488
Cash and cash equivalents as of December 31	$	601	$	375	$	419

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Summary Of Significant Accounting Policies

12 Months Ended

Dec. 31, 2013

Summary Of Significant Accounting Policies [Abstract]

Summary Of Significant Accounting Policies

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Summary of Significant Accounting Policies

The accounting policies of Franklin Financial Services Corporation and its subsidiaries conform to generally accepted accounting principles and to general industry practices.  A summary of the more significant accounting policies, which have been consistently applied in the preparation of the accompanying consolidated financial statements, follows:

Principles of 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 and Franklin Future Fund Inc. Farmers and Merchants Trust Company of Chambersburg is a commercial bank (the Bank) that has one wholly-owned subsidiary, Franklin Financial Properties Corp., which holds real estate assets that are leased by the Bank.  Franklin Future Fund Inc. is a non-bank investment company that makes venture capital investments within the Corporation’s primary market area.  The activities of non-bank entities are not significant to the consolidated totals.  All significant intercompany transactions have been eliminated in consolidation.  Management has evaluated subsequent events for potential recognition and/or disclosure through the date these consolidated financial statements were issued.

Nature of Operations– The Corporation conducts substantially all of its business through its subsidiary bank, Farmers and Merchants Trust Company, which serves its customer base through twenty-five community-banking offices located in Franklin, Cumberland, Fulton and Huntingdon Counties, Pennsylvania. These counties are considered to be the Corporation’s primary market area.  The Bank is a community-oriented commercial bank that emphasizes customer service and convenience.  As part of its strategy, the Bank has sought to develop a variety of products and services that meet the needs of both its retail and commercial customers.  The Corporation and the Bank are subject to the regulations of various federal and state agencies and undergo periodic examinations by these regulatory authorities. 

Use of Estimates in the Preparation of Financial Statements – The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions.  These estimates and assumptions affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.  Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, and the assessment of other than temporary impairment of investment securities and impairment of restricted stock, the value of mortgage servicing rights and derivatives, and the valuation allowance on the deferred tax asset.

Significant Group Concentrations of Credit Risk – Most of the Corporation’s activities are with customers located within its primary market area.  Note 4 of the consolidated financial statements shows the types of securities in which the Corporation invests.  Note 5 of the consolidated financial statements shows the types of lending in which the Corporation engages.  The Corporation does not have any significant concentrations of any one industry or customer.

Statement of Cash Flows – 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.

Investment Securities – Management classifies its securities at the time of purchase as available for sale or held to maturity. At December 31, 2013 and 2012, all securities were classified as available for sale, meaning that the Corporation intends to hold them for an indefinite period of time, but not necessarily to maturity. Available for sale securities are stated at estimated fair value, adjusted for amortization of premiums and accretion of discounts which are recognized as adjustments of interest income through call date or maturity.  The related unrealized holding gains and losses are reported as other comprehensive income or loss, net of tax, until realized.  Declines in the fair value of held-to-maturity and available-for-sale securities to amounts below cost that are deemed to be other-than-temporary are reflected in earnings as realized losses.  In estimating the other-than-temporary impairment losses, management considers (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) determines if the Corporation does not intend to sell the security or it if is not more likely than not that the Corporation will be required to sell the security before recovery of its amortized cost. When a determination is made that an other-than-temporary impairment exists but the Corporationdoes not intend to sell the debt security and it is not more likely than not that it will be required to sell the debt security prior to its anticipated recovery, the other-than-temporary impairment is separated into (a) the amount of the total other-than-temporary impairment related to a decrease in cash flows expected to be collected from the debt security (the credit loss) and (b) the amount of the total other-than-temporary impairment related to all other factors. The amount of the total other-than-temporary impairment related to the credit loss is recognized in earnings. The amount of the total other-than-temporary impairment related to all other factors is recognized in other comprehensive income. Realized securities gains and losses are computed using the specific identification method. Gains or losses on the disposition of investment securities are based on the net proceeds and the adjusted carrying amount of the specific security sold. Any decision to sell a security classified as available for sale would be based on various factors, including significant movement in interest rates, changes in maturity or mix of the Bank’s assets and liabilities, liquidity needs, regulatory capital considerations and other similar factors.

Restricted Stock– Restricted stock, which is carried at cost, consists of stock of the Federal Home Loan Bank of Pittsburgh (FHLB) and Atlantic Central Bankers Bank (ACBB).  The Bank held $1.9 million of restricted stock at the end of 2013. With the exception of $30 thousand, this investment represents stock in the FHLB that the Bank is required to hold in order to be a member of FHLB and is carried at a cost of $100 per share.  Federal law requires a member institution of the FHLB to hold FHLB stock according to a predetermined formula. Management evaluates the restricted stock for impairment in accordance with ASC Topic 320.  Management’s determination of whether these investments are impaired is based on their assessment of the ultimate recoverability of their cost rather than by recognizing temporary declines in value.  The determination of whether a decline affects the ultimate recoverability of their cost is influenced by criteria such as (1) the significance of the decline in net assets of the banks as compared to the capital stock amount for the banks and the length of time this situation has persisted, (2) commitments by the banks to make payments required by law or regulation and (3) the impact of legislative and regulatory changes on institutions and, accordingly, on the customer base of the banks.  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 or ACBB stock and the benefits of 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. Management believes no impairment charge is necessary related to the FHLB or ACBB restricted stock as of December 31, 2013.

Financial Derivatives – The Corporation uses interest rate swaps, which it has designated as cash-flow hedges, to manage interest rate risk associated with variable-rate funding sources.  All such derivatives are recognized on the balance sheet at estimated fair value in other assets or liabilities as appropriate.  To the extent the derivatives are effective and meet the requirements for hedge accounting, changes in fair value are recognized in other comprehensive income with income statement reclassification occurring as the hedged item affects earnings.  Conversely, changes in fair value attributable to ineffectiveness or to derivatives that do not qualify as hedges are recognized as they occur in the income statement’s interest expense account associated with the hedged item.

Interest rate derivative financial instruments receive hedge accounting treatment only if they are designated as a hedge and are expected to be, and are, effective in substantially reducing interest rate risk arising from the assets and liabilities identified as exposing the Corporation to risk.  Those derivative financial instruments that do not meet the hedging criteria discussed below would be classified as trading activities and would be recorded at fair value with changes in fair value recorded in income.  Derivative hedge contracts must meet specific effectiveness tests (i.e., over time the change in their fair values due to the designated hedge risk must be within 80 to 125 percent of the opposite change in the fair values of the hedged assets or liabilities).  Changes in fair value of the derivative financial instruments must be effective at offsetting changes in the fair value of the hedged items due to the designated hedge risk during the term of the hedge.  Further, if the underlying financial instrument differs from the hedged asset or liability, there must be a clear economic relationship between the prices of the two financial instruments.  If periodic assessments indicate derivatives no longer provide an effective hedge, the derivatives contracts would be closed out and settled or classified as a trading activity.

Cash flows resulting from the derivative financial instruments that are accounted for as hedges of assets and liabilities are classified in the cash flow statement in the same category as the cash flows of the items being hedged.

Loans – Loans, that management has the intent and ability to hold for the foreseeable future or until maturity or payoff, are stated at the outstanding unpaid principal balances, net of any deferred fees.  Interest income is accrued on the unpaid principal balance.  Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the yield (interest income) of the related loans using the interest method.  The Corporation is generally amortizing these amounts over the contractual life of the loan.

The accrual of interest is generally discontinued when the contractual payment of principal or interest has become 90 days past due or management has serious doubts about further collectibility of principal or interest, even though the loan is currently performing.  A loan may remain on accrual status if it is in the process of collection and is either guaranteed or well secured.  When a loan is placed on nonaccrual status, unpaid interest credited to income in the current year is reversed and unpaid interest accrued in a prior year is charged against the allowance for loan losses.  Payments received on nonaccrual loans are applied initially against principal,then interest income, late charges and any other expenses.  Generally, loans are restored to accrual status when the obligation is brought current, has performed in accordance with the contractual terms for a reasonable period of time and the ultimate collectibility of the total contractual principal and interest is no longer in doubt.  Consumer loans are typically charged off no later than 180 days past due.  Past due status is based on contractual terms of the loans.

Loans Held for Sale – Mortgage loans originated and intended for sale in the secondary market at the time of origination are carried at the lower of cost or estimated fair value (determined on an aggregate basis).  All sales are made without recourse.  Loans held for sale at December 31, 2013 represent loans originated through a third-party brokerage agreement for a fee and present no price risk to the Bank.

Loan Servicing – Servicing assets are recognized as separate assets when rights are acquired through sale of financial assets.  A portion of the cost of originating the loan is allocated to the servicing right based on relative fair value.  Fair value is based on a valuation model that calculates the present value of estimated future net servicing income.  The valuation model incorporates assumptions that market participants would use in estimating future net servicing income, such as the cost to service, the discount rate, prepayment speeds, default rates and losses.  Capitalized servicing rights are reported in other assets and are amortized into noninterest income in proportion to, and over the periods of, the estimated future net servicing income of the underlying financial assets.  Servicing rights are evaluated for impairment based upon the fair value of the rights as compared to amortized cost.  For the purpose of computing impairment, mortgage servicing rights are stratified based on risk characteristics of the underlying loans that are expected to have the most impact on projected prepayments including loan type, interest rate and term.  Impairment is recognized through a valuation allowance to the extent that fair value is less than the capitalized amount.  If the Corporation later determines that all or a portion of the impairment no longer exists, a reduction of the allowance may be recorded as an increase to income.  Servicing fee income is recorded for fees earned for servicing loans.  The fees are based on a contractual percentage of the outstanding principal or a fixed amount per loan and are recorded as income when earned.  The amortization of mortgage servicing rights is netted against loan servicing fee income.  Loans serviced by the Bank for the benefit of others totaled $34.6 million, $46.16 million and $65.6 million at December 31, 2013, 2012 and 2011, respectively.

Allowance for Loan Losses – The allowance for loan losses is established through provisions for loan losses charged against income.  Loans deemed to be uncollectible are charged against the allowance for loan losses, and subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is maintained at a level considered adequate to provide for losses that can be reasonably anticipated.  Management’s periodic evaluation of the adequacy of the allowance is based on the Bank’s past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions and other relevant factors.  This evaluation is inherently subjective, as it requires 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.

A loan is considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement.  Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due.  Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired.  Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed.  Impairment is measured on a loan by loan basis for commercial and commercial real estate loans either by the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.

The Corporation’s allowance for possible loan losses consists of two elements: (1) specific valuation allowances established for probable losses on specific loans and (2) historical valuation allowances calculated based on historical loan loss experience for similar loans with similar characteristics and trends, adjusted, as necessary to reflect the impact general economic conditions and other qualitative risk factors both internal and external to the Corporation.

Large groups of smaller balance homogeneous loans are collectively evaluated for impairment using historical charge-offs as the starting point in estimating loss.  Accordingly, the Corporation may not separately identify individual consumer and residential loans for impairment disclosures.

Premises and Equipment – Premises and equipment are stated at cost less accumulated depreciation and amortization.  Depreciation is computed using the straight-line method over the estimated useful lives of the related assets or the lease term for lease hold improvements, whichever is shorter.  When assets are retired or sold, the asset cost and related accumulated depreciation are eliminated from the respective accounts, and any resultant gain or loss is included in net income.

The cost of maintenance and repairs is charged to operating expense as incurred, and the cost of major additions and improvements is capitalized.

Intangible Assets – The Bank has $9.0 million of goodwill recorded on its balance sheet as the result of corporate acquisitions.  Goodwill is not amortized, nor deductible for tax purposes.   However, goodwill is tested for impairment at least annually in accordance with ASC Topic 350.   Goodwill was tested for impairment as of August 31, 2013. The impairment test was conducted following the step-one test under ASC Topic 350 rather than the qualitative assessment permitted under ASU 2011-08. The Corporation chose not to use the qualitative assessment method for the August 31, 2013 test primarily due to the fact that the Corporation’s stock price is trading below its book value. The Corporation uses several different weighted methods to determine the fair value of the reporting unit under the step-one test, including a dividend analysis, comparable sale transactions, and change of control premium estimates. If the step-one test fails, a more comprehensive step-two test is performed before a final determination of impairment is made. If goodwill is determined to be impaired, an impairment write-down is charged to results of operations in the period in which the impairment is determined.  As a result of the step-one test, the estimated fair value of the Corporation exceeded its carrying value by approximately 12% (compared to 5% in 2012) and Management determined goodwill was not impaired.  The increase in the valuation excess compared to 2012 is primarily the result of an increase in the Corporation’s stock price during 2013. At December 31, 2013, Management subsequently considered certain qualitative factors affecting the Corporation and determined that it was not likely that the results of the prior test had changed and it determined that goodwill was not impaired at year-end. For more information on Goodwill refer to Note 8 of the accompanying financial statements. The customer list is amortized over 10 years using the sum-of-the-years digits method.

Bank Owned Life Insurance – The Bank invests in bank owned life insurance (“BOLI”) as a source of funding for employee benefit expenses.  The Bank purchases life insurance coverage on the lives of a select group of employees.  The Bank is the owner and beneficiary of the policies and records the investment at the cash surrender value of the underlying policies.  Income from the increase in cash surrender value of the policies is included in noninterest income.

Other Real Estate Owned (OREO) – Foreclosed real estate (OREO) is comprised of property acquired through a foreclosure proceeding or an acceptance of a deed in lieu of foreclosure.  Balances are initially reflected at the estimated fair value less any estimated disposition costs, with subsequent adjustments made to reflect further declines in value.  Any losses realized upon disposition of the property, and holding costs prior thereto, are charged against income. All properties are actively marketed to potential buyers.

Transfers of Financial Assets – Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered.  Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Corporation, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Corporation does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

Federal Income Taxes – Deferred income taxes are provided on the liability method whereby deferred tax assets are recognized for deductible temporary differences and deferred tax liabilities are recognized for taxable temporary differences.  Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases.  Deferred tax assets are reduced by a valuation allowance, when in the opinion of management, it is more likely than not that some portion or all deferred tax assets will not be realized.  Deferred tax assets and liabilities are adjusted through the provision for income taxes for the effects of changes in tax laws and rates on the date of enactment. ASC Topic 740   prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Benefits from tax positions should be recognized in the financial statements only when it is more-likely-than-not that the tax position will be sustained upon examination by the appropriate taxing authority that would have full knowledge of all relevant information. A tax position that meets the more-likely-than-not recognition threshold is measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not recognition threshold should be derecognized in the first subsequent financial reporting period in which that threshold is no longer met. ASC Topic 740, “Income Taxes” also provides guidance on the accounting for and disclosure of unrecognized tax benefits, interest and penalties.

Advertising Expenses – Advertising costs are expensed as incurred.

Treasury Stock – The acquisition of treasury stock is recorded under the cost method.  The subsequent disposition or sale of the treasury stock is recorded using the average cost method.

Investment and Trust Services – Assets held in a fiduciary capacity are not assets of the Corporation and therefore are not included in the consolidated financial statements.  Trust assets under management at December 31, 2013 were $574.7 million and $520.4 million at the prior year-end.  Revenue from investment and trust services is recognized on the accrual basis.

Off-Balance Sheet Financial Instruments – In the ordinary course of business, the Bank has entered into off-balance sheet financial instruments consisting of commitments to extend credit and letters of credit. Such financial instruments are recorded on the balance sheet when they are funded.  The amount of any liability for the credit risk associated with off-balance sheet financial instruments is recorded in other liabilities and was not material to the financial position of the Corporation at December 31, 2013 or 2012.

Stock-Based Compensation – The Corporation accounts for stock based compensation in accordance with the ASC Topic 718, “ Stock Compensation.”  ASC Topic 718 requires compensation costs related to share-based payment transactions to be recognized in the financial statements (with limited exceptions).  The amount of compensation cost is measured based on the grant-date fair value of the equity or liability instruments issued.  Compensation cost is recognized over the period that an employee provides services in exchange for the award.  Compensation expense was $0 in 2013, 2012 and 2011.  

Pension – The provision for pension expense was actuarially determined using the projected unit credit actuarial cost method.  The funding policy is to contribute an amount sufficient to meet the requirements of ERISA, subject to Internal Revenue Code contribution limitations.

In accordance with ASC Topic 715, ”Compensation – Retirement Benefits”, the Corporation recognizes the plan’s over-funded or under-funded status as an asset or liability with an offsetting adjustment to Accumulated Other Comprehensive Income (AOCI).  ASC Topic 715 requires the determination of the fair value of a plan’s assets at the company’s year-end and the recognition of actuarial gains and losses, prior service costs or credits, transition assets or obligations as a component of AOCI.  These amounts were previously netted against the plan’s funded status in the Corporation’s consolidated Balance Sheet. These amounts will be subsequently recognized as components of net periodic benefit costs.  Further, actuarial gains and losses that arise in subsequent periods that are not initially recognized as a component of net periodic benefit costs will be recognized as a component of AOCI.  Those amounts will subsequently be recorded as component of net periodic benefit costs as they are amortized during future periods.

Earnings per share – Earnings per share are computed based on the weighted average number of shares outstanding during each year.  The Corporation’s basic earnings per share are calculated as net income divided by the weighted average number of shares outstanding.  For diluted earnings per share, net income is divided by the weighted average number of shares outstanding plus the incremental number of shares added as a result of converting common stock equivalents, calculated using the treasury stock method.  The Corporation’s common stock equivalents consist of stock options.  

A reconciliation of the weighted average shares outstanding used to calculate basic earnings per share and diluted earnings per share follows:

(Dollars in thousands, except per share data)	2013		2012		2011
Weighted average shares outstanding (basic)		4,135		4,072		3,962
Impact of common stock equivalents		4		2		1
Weighted average shares outstanding (diluted)		4,139		4,074		3,963
Anti-dilutive options excluded from calculation		56		87		70
Net income	$	6,232	$	5,365	$	6,569
Basic earnings per share	$	1.51	$	1.32	$	1.66
Diluted earnings per share	$	1.51	$	1.32	$	1.66

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

Segment Reporting – The Bank acts as an independent community financial services provider and offers traditional banking and related financial services to individual, business and government customers.  Through its community office and automated teller machine network, the Bank offers a full array of commercial and retail financial services, including the taking of time, savings and demand deposits; the making of commercial, consumer and mortgage loans; and the providing of safe deposit services.  The Bank also performs personal, corporate, pension and fiduciary services through its Investment and Trust Services Department and Personal Investment Center.

Management does not separately allocate expenses, including the cost of funding loan demand, between the commercial, retail, mortgage banking and trust operations of the Bank.  As such, discrete information is not available and segment reporting would not be meaningful.

Comprehensive Income – Comprehensive income is reflected in the Consolidated Statements of Comprehensive Income and includes net income and unrealized gains or losses, net of tax, on investment securities and derivatives and the change in plan assets and benefit obligations on the Bank’s pension plan, net of tax.

Recent Accounting Pronouncements: 

Investments-Equity Method and Joint Ventures(Topic 323): Accounting for Investments in Qualified Affordable Housing Projects.  ASU 2014-01“Accounting for Investments in Qualified Affordable Housing Projects” permits a reporting entity that invests in qualified affordable housing projects to account for the investments using a proportional amortization method if certain conditions are met.  If an entity elects the proportional amortization method, it will amortize the initial cost of the investment in proportion to the tax credits and other tax benefits received and recognize the net investment performance in the income statement as a component of income tax expense.  Otherwise, the entity would apply either the equity method or the cost method, if appropriate.  ASU 2014-01 applies to all reporting entities that invest in qualified affordable housing projects through limited liability entities that are flow-through entities for tax purposes as follows; 1.  Reporting entities that meet the conditions for and that elect to use the proportional amortization method will apply all of the ASU’s amendment and establish new accounting and disclosure standards, 2. For reporting entities that do not meet the conditions for or that do not elect the proportional amortization method, only the ASU’s disclosure requirement apply.  The ASU is effective for public business entities for annual periods and interim reporting periods within those annual periods beginning after December 15, 2014.  The Corporation does not believe ASU 2014-01 will have a material effect on its financial statements.

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 does not believe ASU 2013-11 will have a material effect on its financial statements.

Derivatives and Hedging (Topic 815): Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes.  ASU 2013-10 “Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes,” permit the use of the Fed Funds Effective Swap Rate (also referred to as the Overnight Index Swap Rate, or OIS) as a benchmark interest rate for hedge accounting purposes.  Previous U.S. GAAP permitted only the interest rates on direct U.S. Treasury obligations and, for practical reasons, the LIBOR swap rate to be used as benchmark interest rates.  ASU 2013-10 is effective prospectively for qualifying new or redesignated hedging relationship entered into on or after July 17, 2013.

Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.  ASU 2013-02 “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income,” requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component.  In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period.  The amendments are effective prospectively for reporting periods beginning after December 15, 2012.  The Corporation adopted this ASU at March 31, 2013.

Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities.  The objective of this ASU is to address the limitation of ASU 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities.  This ASU clarifies that the scope of ASU 2011-11 applies to derivatives accounted for in accordance with Topic 815, Derivatives and Hedging, which includes bifurcated embedded derivatives, repurchase agreements and reverse repurchase agreements.  It also applies to securities borrowing and lending transactions that are offset in accordance with Section 210-20-45 or Section 215-10-45 or subject to an enforceable master netting arrangement or similar agreement.  This Update will provide users of financial statements with comparable information as it relates to certain reconciling differences between financial statements prepared in accordance with U.S. GAAP and those prepared in accordance with International Financial Reporting Standards.  This update requires that the gross amounts of the asset and offsetting liabilities be disclosed in the notes to the financial statements.  The provisions of this ASU are effective for fiscal years beginning on or after January 1, 2013 and interim periods within those annual periods, the same effective date as Update 2011-11.  The required disclosures are to be retrospectively applied for all comparative periods presented.  The Corporation adopted this ASU at March 31, 2013.

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Fair Value Measurements And Fair Values Of Financial Instruments (Schedule Of Fair Value On A Nonrecurring Basis) (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013		Dec. 31, 2012
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans	$ 30,900		$ 39,400
Other real estate owned	4,708		5,127
Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Mortgage servicing rights	184		235
Fair Value, Measurements, Nonrecurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans	8,588	[1]	9,235	[1]
Other real estate owned	498	[1]	4,352	[1]
Mortgage servicing rights	184		235
Total assets	9,270		13,822
Fair Value, Measurements, Nonrecurring [Member] | Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans		[1]		[1]
Other real estate owned		[1]		[1]
Mortgage servicing rights
Total assets
Fair Value, Measurements, Nonrecurring [Member] | Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans		[1]		[1]
Other real estate owned		[1]		[1]
Mortgage servicing rights
Total assets
Fair Value, Measurements, Nonrecurring [Member] | Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans	8,588	[1]	9,235	[1]
Other real estate owned	498	[1]	4,352	[1]
Mortgage servicing rights	184		235
Total assets	$ 9,270		$ 13,822

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

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Loans (Schedule Of Loans Outstanding) (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	$ 723,413	$ 753,579
Less: Allowance for loan losses	(9,702)	(10,379)	(9,723)	(8,801)
Net Loans	713,711	743,200
Net unamortized deferred loan costs included in the loan balances	372	456
Unamortized deferred loan costs included in the loan balances	(92)	(129)
Loans pledged as collateral for borrowings and commitmensts from: FHLB	607,524	657,684
Loans pledged as collateral for borrowings and commitments from: Federal Reserve Bank	45,809	54,194
Total loans pledged as collateral	653,333	711,878
Residential Real Estate 1-4 Family Consumer First Liens [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	103,573	93,790
Residential Real Estate 1-4 Family Consumer Junior Liens And Lines Of Credit [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	34,636	35,494
Residential Real Eestate 1-4 Family Consumer [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	138,209	129,284
Residential Real Estate 1-4 Family Commercial First Lien [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	58,466	60,809
Residential Real Estate 1-4 Family Commercial Junior Liens And Lines Of Credit [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	5,939	6,794
Residential Real Estate 1-4 Family Commercial [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	64,405	67,603
Residential Real Estate 1-4 Family [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	202,614	196,887
Residential Real Estate- Construction Consumer Purpose [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	3,960	3,255
Residential Real Estate- Construction Commercial Purpose [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	8,559	12,177
Residential Real Estate - Construction [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	12,519	15,432
Less: Allowance for loan losses	(291)	(899)	(1,222)	(2,596)
Commercial Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	329,373	363,874
Less: Allowance for loan losses	(5,571)	(6,450)	(5,257)	(3,358)
Commercial [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	170,327	166,734
Less: Allowance for loan losses	(2,306)	(1,620)	(1,651)	(1,578)
Total Commercial [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	499,700	530,608
Consumer [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	8,580	10,652
Less: Allowance for loan losses	$ (148)	$ (191)	$ (236)	$ (317)

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Benefit Plans (Tables)

12 Months Ended

Dec. 31, 2013

Benefit Plans [Abstract]

Schedule Of Accumulated And Projected Benefit Obligations

	For the Years Ended December 31
(Dollars in thousands)	2013		2012		2011
Change in projected benefit obligation
Benefit obligation at beginning of measurement year	$	18,648	$	17,138	$	14,252
Service cost		456		460		358
Interest cost		715		716		729
Actuarial loss		(1,798)		1,093		2,570
Benefits paid		(740)		(759)		(771)
Benefit obligation at end of measurement year		17,281		18,648		17,138
Change in plan assets
Fair value of plan assets at beginning of measurement year		18,764		11,658		9,056
Actual return on plan assets net of expenses		576		1,082		1,261
Employer contribution		-		6,783		2,112
Benefits paid		(740)		(759)		(771)
Fair value of plan assets at end of measurement year		18,600		18,764		11,658
Funded status of projected benefit obligation	$	1,319	$	116	$	(5,480)

Schedule Of Amounts Recognized In Other Comprehensive Income (Loss)

Amounts recognized in accumulated other comprehensive	For the Years Ended December 31
income (loss), net of tax	2013		2012		2011
Net actuarial loss	$	(6,159)	$	(8,047)	$	(8,059)
Prior service cost obligation		345		471		597
		(5,814)		(7,576)		(7,462)
Tax effect		1,977		2,576		2,537
Net amount recognized in accumulated other comprehensive loss	$	(3,837)	$	(5,000)	$	(4,925)

Schedule Of Net Benefit Costs

	For the Years Ended December 31
Components of net periodic pension cost	2013		2012		2011
Service cost	$	456	$	460	$	358
Interest cost		715		716		729
Expected return on plan assets		(1,247)		(788)		(757)
Amortization of prior service cost		(125)		(125)		(126)
Recognized net actuarial loss		761		810		501
Net periodic pension cost	$	560	$	1,073	$	705

Schedule Of Assumptions Used

	For the Years Ended December 31
	2013		2012		2011
Assumptions used to determine benefit obligations:
Discount rate		4.76%		3.89%		4.18%
Rate of compensation increase		4.00%		4.00%		4.00%
Assumptions used to determine net periodic benefit cost:
Discount rate		3.89%		4.18%		5.28%
Expected long-term return on plan assets		7.00%		7.00%		7.50%
Rate of compensation increase		4.00%		4.00%		4.50%
Asset allocations:
Cash and cash equivalents		10%		35%		3%
Common stocks		33%		22%		25%
Corporate bonds		6%		3%		7%
Municipal bonds		43%		38%		62%
Investment fund - debt		7%		-		-
Insurance contracts		1%		2%		3%
Total		100%		100%		100%
Shares of the Corporation's common stock held in the plan
Value of shares  (in thousands)	$	49	$	40	$	36
Percent of total plan assets		0.3%		0.2%		0.3%

Schedule Of Net Funded Status

	For the Years Ended December 31
Reconciliation of Funded Status	2013		2012		2011
Funded Status	$	1,319	$	116	$	(5,480)
Unrecognized net actuarial loss		6,159		8,047		8,059
Unrecognized prior service cost		(345)		(471)		(597)
Net Asset recognized	$	7,133	$	7,692	$	1,982
Accumulated Benefit Obligation	$	16,596	$	17,859	$	16,532

Schedule Of Amounts Recognized In Balance Sheet

The following table sets forth by level, within the fair value hierarchy, the Plan's investments at fair value as of December 31, 2013 and 2012. For more information on the levels within the fair value hierarchy, please refer to Note 20.

(Dollars in Thousands)	December 31, 2013
Asset  Description	Fair Value		Level 1		Level 2		Level 3
Cash and cash equivalents	$	1,753	$	1,753	$	-	$	-
Common stocks		6,210		6,210		-		-
Corporate bonds		1,162		-		1,162		-
Municipal bonds		8,041		-		8,041		-
Investment fund - debt		1,312		-		1,312		-
Cash value of life insurance		91		-		-		91
Deposit in immediate participation guarantee contract		31		-		-		31
Total assets	$	18,600	$	7,963	$	10,515	$	122

(Dollars in Thousands)	December 31, 2012
Asset  Description	Fair Value		Level 1		Level 2		Level 3
Cash and cash equivalents	$	6,506	$	6,506	$	-	$	-
Common stocks		4,128		4,128		-		-
Corporate bonds		603		-		603		-
Municipal bonds		7,213		-		7,213		-
Cash value of life insurance		87		-		-		87
Deposit in immediate participation guarantee contract		227		-		-		227
Total assets	$	18,764	$	10,634	$	7,816	$	314

Schedule Of Changes In Fair Value Of Plan Assets

			Deposits in
			Immediate
	Cash Value		Participation
	of  Life		Guarantee
	Insurance		Contract
Balance - January 1, 2013	$	87	$	227
Unrealized gain (loss)  relating to investments held at the reporting date		4		10
Purchases, sales, issuances and settlement, net		-		(206)
Balance - December 31, 2013	$	91	$	31
Balance - January 1, 2012	$	83	$	240
Unrealized gain (loss)  relating to investments held at the reporting date		4		3
Purchases, sales, issuances and settlement, net		-		(16)
Balance - December 31, 2012	$	87	$	227

Schedule Of Expected Benefit Payments

2014	$	915
2015		896
2016		974
2017		968
2018		959
2019-2022		5,010
	$	9,722

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Quarterly Results Of Operations

12 Months Ended

Dec. 31, 2013

Quarterly Results Of Operations [Abstract]

Quarterly Results Of Operations

Note 21. Quarterly Results of Operations  (unaudited)

The following is a summary of the quarterly results of consolidated operations of Franklin Financial for the years ended December 31, 2013 and 2012:

(Dollars in thousands, except per share)	Three months ended
2013	March 31		June 30		September 30		December 31
Interest income	$	9,102	$	8,876	$	8,941	$	9,123
Interest expense		1,242		1,296		945		896
Net interest income		7,860		7,580		7,996		8,227
Provision for loan losses		803		803		350		965
Other noninterest income		2,384		2,422		2,529		2,584
Securities gains (losses)		-		(21)		(25)		4
Noninterest expense		7,582		7,625		7,382		8,503
Income before income taxes		1,859		1,553		2,768		1,347
Federal  income tax expense (benefit)		308		198		583		206
Net Income	$	1,551	$	1,355	$	2,185	$	1,141
Basic earnings per share	$	0.38	$	0.33	$	0.53	$	0.27
Diluted earnings per share	$	0.38	$	0.33	$	0.53	$	0.27
Dividends declared per share	$	0.17	$	0.17	$	0.17	$	0.17

(Dollars in thousands, except per share)	Three months ended
2012	March 31		June 30		September 30		December 31
Interest income	$	9,951	$	10,002	$	9,728	$	9,463
Interest expense		1,967		1,811		1,692		1,422
Net interest income		7,984		8,191		8,036		8,041
Provision for loan losses		1,950		825		825		1,625
Other noninterest income		2,563		2,472		2,236		2,236
Securities (losses) gains		-		21		(27)		(50)
Noninterest expense		7,010		7,597		7,355		8,640
Income before income taxes		1,587		2,262		2,065		(38)
Federal income tax expense (benefit)		218		356		318		(382)
Net Income	$	1,369	$	1,906	$	1,747	$	344
Basic earnings per share	$	0.34	$	0.47	$	0.43	$	0.08
Diluted earnings per share	$	0.34	$	0.47	$	0.43	$	0.08
Dividends declared per share	$	0.27	$	0.17	$	0.17	$	0.17

Due to rounding, the sum of the quarters may not equal the amount reported for the year.

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Parent Company (Franklin Financial Services Corporation) Financial Information

12 Months Ended

Dec. 31, 2013

Parent Company (Franklin Financial Services Corporation) Financial Information [Abstract]

Parent Company (Franklin Financial Services Corporation) Financial Information

Note 20. Parent Company (Franklin Financial Services Corporation) Financial Information

Balance Sheets	December 31
(Dollars in thousands)	2013		2012
Assets:
Cash and cash equivalents	$	601	$	375
Investment securities, available for sale		914		692
Equity investment in subsidiaries		91,746		88,501
Other assets		2,235		2,066
Total assets	$	95,496	$	91,634
Liabilities:
Other liabilities	$	108	$	-
Total liabilities		108		-
Shareholders' equity		95,388		91,634
Total liabilities and shareholders' equity	$	95,496	$	91,634

Statements of Income	Years Ended December 31
(Dollars in thousands)	2013		2012		2011
Income:
Dividends from Bank subsidiary	$	2,529	$	2,680	$	3,231
Interest and dividend income		31		29		28
Net OTTI losses recognized in earnings		(50)		-		(4)
Securities gains (losses), net		30		(1)		(37)
		2,540		2,708		3,218
Expenses:
Operating expenses		752		734		728
Income before income taxes and equity in undistributed income of subsidiaries		1,788		1,974		2,490
Income tax benefit		259		249		236
Equity in undistributed income of subsidiaries		4,185		3,142		3,843
Net income	$	6,232	$	5,365	$	6,569

Statements of Comprehensive Income

		Years ended December 31
(Dollars in thousands)		2013		2012		2011
Net Income	$	6,232	$	5,365	$	6,569
Securities:
Unrealized gains (losses) arising during the period		425		73		(164)
Reclassification adjustment for net losses (gains) included in net income		20		1		41
Net unrealized gains (losses)		445		74		(123)
Tax effect		(151)		(25)		42
Net of tax amount		294		49		(81)
Total other comprehensive income (loss)		294		49		(81)
Total Comprehensive Income	$	6,526	$	5,414	$	6,488

Statements of Cash Flows	Years Ended December 31
(Dollars in thousands)	2013		2012		2011
Cash flows from operating activities
Net income	$	6,232	$	5,365	$	6,569
Adjustments to reconcile net income to net cash provided
by operating activities:
Equity in undistributed income of subsidiary		(4,185)		(3,142)		(3,843)
Securities losses (gains)		(30)		1		37
OTTI writedown on equity securities		50		-		4
Increase in other assets		(211)		(256)		(245)
Decrease in other liabilities		-		(12)		(238)
Other, net		(110)		(6)		103
Net cash provided by operating activities		1,746		1,950		2,387
Cash flows from investing activities
Proceeds from sales of investment securities		312		-		81
Net cash provided by investing activities		312		-		81
Cash flows from financing activities
Dividends paid		(2,810)		(3,170)		(4,273)
Treausry stock issued under stock option plans		52		2		30
Common stock issued under dividend reinvestment plan		926		1,174		1,706
Net cash used in financing activities		(1,832)		(1,994)		(2,537)
Increase (decrease) in cash and cash equivalents		226		(44)		(69)
Cash and cash equivalents as of January 1		375		419		488
Cash and cash equivalents as of December 31	$	601	$	375	$	419

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Benefit Plans (Schedule Of Accumulated And Projected Benefit Obligations) (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Benefit Plans [Abstract]
Benefit obligation at beginning of measurement year	$ 18,648	$ 17,138	$ 14,252
Service cost	456	460	358
Interest cost	715	716	729
Actuarial loss	(1,798)	1,093	2,570
Benefits paid	(740)	(759)	(771)
Benefit obligation at end of measurement year	17,281	18,648	17,138
Fair value of plan assets at beginning of measurement year	18,764	11,658	9,056
Actual return on plan assets net of expenses	576	1,082	1,261
Employer Contribution		6,783	2,112
Fair value of plan assets at end of measurement year	18,600	18,764	11,658
Funded status of projected benefit obligation at end of measurement year	$ 1,319	$ 116	$ (5,480)

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Investments (Amortized Cost And Fair Value Of Debt Securities, By Contractual Maturity) (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013
Investments [Abstract]
Due in one year or less, Amortized cost	$ 1,513
Due after one year through five years, Amortized cost	13,540
Due after five years through ten years, Amortized cost	23,229
Due after ten years, Amortized cost	37,325
Amortized Cost Contractual Maturities Subtotal	75,607
Mortgage-backed securities, Amortized cost	83,336
Available-for-sale Securities, Debt Maturities, Amortized Cost Basis	158,943
Due in one year or less, Fair value	1,515
Due after one year through five years, Fair value	14,115
Due after five years through ten years, Fair value	23,239
Due after ten years, Fair value	35,839
Fair Value Contractual Maturities Subtotal	74,708
Mortgage-backed securities, Fair value	82,996
Available-for-sale Securities, Debt Securities, Fair Value	$ 157,704

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Stock Purchase Plans (Tables)

12 Months Ended

Dec. 31, 2013

Stock Purchase Plans [Abstract]

Schedule Of Share-Based Compensation, Stock Options, Activity

(Dollars in thousands except share and per share data)
	ESPP	Weighted Average			Aggregate
	Options	Price Per Share			Intrinsic Value
Balance Outstanding at December 31, 2010	24,181		16.81
Granted	26,792		16.75
Exercised	(1,776)		16.80
Expired	(23,502)		16.81
Balance Outstanding at December 31, 2011	25,695		16.75
Granted	38,904		12.64
Exercised	(140)		12.64
Expired	(26,832)		16.58
Balance Outstanding at December 31, 2012	37,627	$	12.64
Granted	34,417		15.24
Exercised	(4,007)		12.84
Expired	(35,758)		12.77
Balance Outstanding at December 31, 2013	32,279	$	15.24	$	60

	ISOP	Weighted Average
	Options	Price Per Share
Balance Outstanding at December 31, 2010	82,874		23.42
Granted	-		-
Exercised	-		-
Forfeited	-		-
Balance Outstanding at December 31, 2011	82,874		23.42
Granted	-		-
Exercised	-		-
Forfeited	(20,550)		21.89
Balance Outstanding at December 31, 2012	62,324	$	23.93
Granted	-		-
Exercised	-		-
Forfeited	(6,499)		21.51
Balance Outstanding at December 31, 2013	55,825	$	24.21	-

Share-Based Compensation Arrangement By Share-Based Payment Award, Options, Vested And Expected To Vest, Outstanding And Exercisable

	Options				Weighted
	Outstanding	Exercise Price or	Weighted Average		Average Remaining
Stock Option Plan	and Exercisable	Price Range	Exercise Price		Life (years)
Employee Stock Purchase Plan	32,279	$ 15.24	$	15.24	0.5
Incentive Stock Option Plan	10,200	$ 16.11	$	16.11	5.2
Incentive Stock Option Plan	14,925	$ 23.77		23.77	4.1
Incentive Stock Option Plan	30,700	$24.92  -  $27.68		27.11	1.5
ISOP Total/Average	55,825		$	24.21	2.9

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Summary Of Significant Accounting Policies (Policy)

12 Months Ended

Dec. 31, 2013

Summary Of Significant Accounting Policies [Abstract]

Principles Of Consolidation

Principles of 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 and Franklin Future Fund Inc. Farmers and Merchants Trust Company of Chambersburg is a commercial bank (the Bank) that has one wholly-owned subsidiary, Franklin Financial Properties Corp., which holds real estate assets that are leased by the Bank.  Franklin Future Fund Inc. is a non-bank investment company that makes venture capital investments within the Corporation’s primary market area.  The activities of non-bank entities are not significant to the consolidated totals.  All significant intercompany transactions have been eliminated in consolidation.  Management has evaluated subsequent events for potential recognition and/or disclosure through the date these consolidated financial statements were issued.

Nature Of Operations

Nature of Operations– The Corporation conducts substantially all of its business through its subsidiary bank, Farmers and Merchants Trust Company, which serves its customer base through twenty-five community-banking offices located in Franklin, Cumberland, Fulton and Huntingdon Counties, Pennsylvania. These counties are considered to be the Corporation’s primary market area.  The Bank is a community-oriented commercial bank that emphasizes customer service and convenience.  As part of its strategy, the Bank has sought to develop a variety of products and services that meet the needs of both its retail and commercial customers.  The Corporation and the Bank are subject to the regulations of various federal and state agencies and undergo periodic examinations by these regulatory authorities. 

Use Of Estimates In The Preparation Of Financial Statements

Use of Estimates in the Preparation of Financial Statements – The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions.  These estimates and assumptions affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.  Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, and the assessment of other than temporary impairment of investment securities and impairment of restricted stock, the value of mortgage servicing rights and derivatives, and the valuation allowance on the deferred tax asset.

Significant Group Concentrations Of Credit Risk

Significant Group Concentrations of Credit Risk – Most of the Corporation’s activities are with customers located within its primary market area.  Note 4 of the consolidated financial statements shows the types of securities in which the Corporation invests.  Note 5 of the consolidated financial statements shows the types of lending in which the Corporation engages.  The Corporation does not have any significant concentrations of any one industry or customer.

Statement Of Cash Flows

Statement of Cash Flows – 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.

Investment Securities

Investment Securities – Management classifies its securities at the time of purchase as available for sale or held to maturity. At December 31, 2013 and 2012, all securities were classified as available for sale, meaning that the Corporation intends to hold them for an indefinite period of time, but not necessarily to maturity. Available for sale securities are stated at estimated fair value, adjusted for amortization of premiums and accretion of discounts which are recognized as adjustments of interest income through call date or maturity.  The related unrealized holding gains and losses are reported as other comprehensive income or loss, net of tax, until realized.  Declines in the fair value of held-to-maturity and available-for-sale securities to amounts below cost that are deemed to be other-than-temporary are reflected in earnings as realized losses.  In estimating the other-than-temporary impairment losses, management considers (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) determines if the Corporation does not intend to sell the security or it if is not more likely than not that the Corporation will be required to sell the security before recovery of its amortized cost. When a determination is made that an other-than-temporary impairment exists but the Corporationdoes not intend to sell the debt security and it is not more likely than not that it will be required to sell the debt security prior to its anticipated recovery, the other-than-temporary impairment is separated into (a) the amount of the total other-than-temporary impairment related to a decrease in cash flows expected to be collected from the debt security (the credit loss) and (b) the amount of the total other-than-temporary impairment related to all other factors. The amount of the total other-than-temporary impairment related to the credit loss is recognized in earnings. The amount of the total other-than-temporary impairment related to all other factors is recognized in other comprehensive income. Realized securities gains and losses are computed using the specific identification method. Gains or losses on the disposition of investment securities are based on the net proceeds and the adjusted carrying amount of the specific security sold. Any decision to sell a security classified as available for sale would be based on various factors, including significant movement in interest rates, changes in maturity or mix of the Bank’s assets and liabilities, liquidity needs, regulatory capital considerations and other similar factors.

Restricted Stock

Restricted Stock– Restricted stock, which is carried at cost, consists of stock of the Federal Home Loan Bank of Pittsburgh (FHLB) and Atlantic Central Bankers Bank (ACBB).  The Bank held $1.9 million of restricted stock at the end of 2013. With the exception of $30 thousand, this investment represents stock in the FHLB that the Bank is required to hold in order to be a member of FHLB and is carried at a cost of $100 per share.  Federal law requires a member institution of the FHLB to hold FHLB stock according to a predetermined formula. Management evaluates the restricted stock for impairment in accordance with ASC Topic 320.  Management’s determination of whether these investments are impaired is based on their assessment of the ultimate recoverability of their cost rather than by recognizing temporary declines in value.  The determination of whether a decline affects the ultimate recoverability of their cost is influenced by criteria such as (1) the significance of the decline in net assets of the banks as compared to the capital stock amount for the banks and the length of time this situation has persisted, (2) commitments by the banks to make payments required by law or regulation and (3) the impact of legislative and regulatory changes on institutions and, accordingly, on the customer base of the banks.  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 or ACBB stock and the benefits of 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. Management believes no impairment charge is necessary related to the FHLB or ACBB restricted stock as of December 31, 2013.

Financial Derivatives

Financial Derivatives – The Corporation uses interest rate swaps, which it has designated as cash-flow hedges, to manage interest rate risk associated with variable-rate funding sources.  All such derivatives are recognized on the balance sheet at estimated fair value in other assets or liabilities as appropriate.  To the extent the derivatives are effective and meet the requirements for hedge accounting, changes in fair value are recognized in other comprehensive income with income statement reclassification occurring as the hedged item affects earnings.  Conversely, changes in fair value attributable to ineffectiveness or to derivatives that do not qualify as hedges are recognized as they occur in the income statement’s interest expense account associated with the hedged item.

Interest rate derivative financial instruments receive hedge accounting treatment only if they are designated as a hedge and are expected to be, and are, effective in substantially reducing interest rate risk arising from the assets and liabilities identified as exposing the Corporation to risk.  Those derivative financial instruments that do not meet the hedging criteria discussed below would be classified as trading activities and would be recorded at fair value with changes in fair value recorded in income.  Derivative hedge contracts must meet specific effectiveness tests (i.e., over time the change in their fair values due to the designated hedge risk must be within 80 to 125 percent of the opposite change in the fair values of the hedged assets or liabilities).  Changes in fair value of the derivative financial instruments must be effective at offsetting changes in the fair value of the hedged items due to the designated hedge risk during the term of the hedge.  Further, if the underlying financial instrument differs from the hedged asset or liability, there must be a clear economic relationship between the prices of the two financial instruments.  If periodic assessments indicate derivatives no longer provide an effective hedge, the derivatives contracts would be closed out and settled or classified as a trading activity.

Cash flows resulting from the derivative financial instruments that are accounted for as hedges of assets and liabilities are classified in the cash flow statement in the same category as the cash flows of the items being hedged.

Loans

Loans – Loans, that management has the intent and ability to hold for the foreseeable future or until maturity or payoff, are stated at the outstanding unpaid principal balances, net of any deferred fees.  Interest income is accrued on the unpaid principal balance.  Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the yield (interest income) of the related loans using the interest method.  The Corporation is generally amortizing these amounts over the contractual life of the loan.

The accrual of interest is generally discontinued when the contractual payment of principal or interest has become 90 days past due or management has serious doubts about further collectibility of principal or interest, even though the loan is currently performing.  A loan may remain on accrual status if it is in the process of collection and is either guaranteed or well secured.  When a loan is placed on nonaccrual status, unpaid interest credited to income in the current year is reversed and unpaid interest accrued in a prior year is charged against the allowance for loan losses.  Payments received on nonaccrual loans are applied initially against principal,then interest income, late charges and any other expenses.  Generally, loans are restored to accrual status when the obligation is brought current, has performed in accordance with the contractual terms for a reasonable period of time and the ultimate collectibility of the total contractual principal and interest is no longer in doubt.  Consumer loans are typically charged off no later than 180 days past due.  Past due status is based on contractual terms of the loans.

Loans Held For Sale

Loans Held for Sale – Mortgage loans originated and intended for sale in the secondary market at the time of origination are carried at the lower of cost or estimated fair value (determined on an aggregate basis).  All sales are made without recourse.  Loans held for sale at December 31, 2013 represent loans originated through a third-party brokerage agreement for a fee and present no price risk to the Bank.

Loan Servicing

Loan Servicing – Servicing assets are recognized as separate assets when rights are acquired through sale of financial assets.  A portion of the cost of originating the loan is allocated to the servicing right based on relative fair value.  Fair value is based on a valuation model that calculates the present value of estimated future net servicing income.  The valuation model incorporates assumptions that market participants would use in estimating future net servicing income, such as the cost to service, the discount rate, prepayment speeds, default rates and losses.  Capitalized servicing rights are reported in other assets and are amortized into noninterest income in proportion to, and over the periods of, the estimated future net servicing income of the underlying financial assets.  Servicing rights are evaluated for impairment based upon the fair value of the rights as compared to amortized cost.  For the purpose of computing impairment, mortgage servicing rights are stratified based on risk characteristics of the underlying loans that are expected to have the most impact on projected prepayments including loan type, interest rate and term.  Impairment is recognized through a valuation allowance to the extent that fair value is less than the capitalized amount.  If the Corporation later determines that all or a portion of the impairment no longer exists, a reduction of the allowance may be recorded as an increase to income.  Servicing fee income is recorded for fees earned for servicing loans.  The fees are based on a contractual percentage of the outstanding principal or a fixed amount per loan and are recorded as income when earned.  The amortization of mortgage servicing rights is netted against loan servicing fee income.  Loans serviced by the Bank for the benefit of others totaled $34.6 million, $46.16 million and $65.6 million at December 31, 2013, 2012 and 2011, respectively.

Allowance For Loan Losses

Allowance for Loan Losses – The allowance for loan losses is established through provisions for loan losses charged against income.  Loans deemed to be uncollectible are charged against the allowance for loan losses, and subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is maintained at a level considered adequate to provide for losses that can be reasonably anticipated.  Management’s periodic evaluation of the adequacy of the allowance is based on the Bank’s past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions and other relevant factors.  This evaluation is inherently subjective, as it requires 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.

A loan is considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement.  Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due.  Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired.  Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed.  Impairment is measured on a loan by loan basis for commercial and commercial real estate loans either by the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.

The Corporation’s allowance for possible loan losses consists of two elements: (1) specific valuation allowances established for probable losses on specific loans and (2) historical valuation allowances calculated based on historical loan loss experience for similar loans with similar characteristics and trends, adjusted, as necessary to reflect the impact general economic conditions and other qualitative risk factors both internal and external to the Corporation.

Large groups of smaller balance homogeneous loans are collectively evaluated for impairment using historical charge-offs as the starting point in estimating loss.  Accordingly, the Corporation may not separately identify individual consumer and residential loans for impairment disclosures.

Premises And Equipment

Premises and Equipment – Premises and equipment are stated at cost less accumulated depreciation and amortization.  Depreciation is computed using the straight-line method over the estimated useful lives of the related assets or the lease term for lease hold improvements, whichever is shorter.  When assets are retired or sold, the asset cost and related accumulated depreciation are eliminated from the respective accounts, and any resultant gain or loss is included in net income.

The cost of maintenance and repairs is charged to operating expense as incurred, and the cost of major additions and improvements is capitalized.

Intangible Assets

Intangible Assets – The Bank has $9.0 million of goodwill recorded on its balance sheet as the result of corporate acquisitions.  Goodwill is not amortized, nor deductible for tax purposes.   However, goodwill is tested for impairment at least annually in accordance with ASC Topic 350.   Goodwill was tested for impairment as of August 31, 2013. The impairment test was conducted following the step-one test under ASC Topic 350 rather than the qualitative assessment permitted under ASU 2011-08. The Corporation chose not to use the qualitative assessment method for the August 31, 2013 test primarily due to the fact that the Corporation’s stock price is trading below its book value. The Corporation uses several different weighted methods to determine the fair value of the reporting unit under the step-one test, including a dividend analysis, comparable sale transactions, and change of control premium estimates. If the step-one test fails, a more comprehensive step-two test is performed before a final determination of impairment is made. If goodwill is determined to be impaired, an impairment write-down is charged to results of operations in the period in which the impairment is determined.  As a result of the step-one test, the estimated fair value of the Corporation exceeded its carrying value by approximately 12% (compared to 5% in 2012) and Management determined goodwill was not impaired.  The increase in the valuation excess compared to 2012 is primarily the result of an increase in the Corporation’s stock price during 2013. At December 31, 2013, Management subsequently considered certain qualitative factors affecting the Corporation and determined that it was not likely that the results of the prior test had changed and it determined that goodwill was not impaired at year-end. For more information on Goodwill refer to Note 8 of the accompanying financial statements. The customer list is amortized over 10 years using the sum-of-the-years digits method.

Bank Owned Life Insurance

Bank Owned Life Insurance – The Bank invests in bank owned life insurance (“BOLI”) as a source of funding for employee benefit expenses.  The Bank purchases life insurance coverage on the lives of a select group of employees.  The Bank is the owner and beneficiary of the policies and records the investment at the cash surrender value of the underlying policies.  Income from the increase in cash surrender value of the policies is included in noninterest income.

Other Real Estate Owned (OREO)

Other Real Estate Owned (OREO) – Foreclosed real estate (OREO) is comprised of property acquired through a foreclosure proceeding or an acceptance of a deed in lieu of foreclosure.  Balances are initially reflected at the estimated fair value less any estimated disposition costs, with subsequent adjustments made to reflect further declines in value.  Any losses realized upon disposition of the property, and holding costs prior thereto, are charged against income. All properties are actively marketed to potential buyers.

Transfers Of Financial Assets

Transfers of Financial Assets – Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered.  Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Corporation, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Corporation does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

Federal Income Taxes

Federal Income Taxes – Deferred income taxes are provided on the liability method whereby deferred tax assets are recognized for deductible temporary differences and deferred tax liabilities are recognized for taxable temporary differences.  Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases.  Deferred tax assets are reduced by a valuation allowance, when in the opinion of management, it is more likely than not that some portion or all deferred tax assets will not be realized.  Deferred tax assets and liabilities are adjusted through the provision for income taxes for the effects of changes in tax laws and rates on the date of enactment. ASC Topic 740   prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Benefits from tax positions should be recognized in the financial statements only when it is more-likely-than-not that the tax position will be sustained upon examination by the appropriate taxing authority that would have full knowledge of all relevant information. A tax position that meets the more-likely-than-not recognition threshold is measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not recognition threshold should be derecognized in the first subsequent financial reporting period in which that threshold is no longer met. ASC Topic 740, “Income Taxes” also provides guidance on the accounting for and disclosure of unrecognized tax benefits, interest and penalties.

Advertising Expenses

Advertising Expenses – Advertising costs are expensed as incurred.

Treasury Stock

Treasury Stock – The acquisition of treasury stock is recorded under the cost method.  The subsequent disposition or sale of the treasury stock is recorded using the average cost method.

Investment And Trust Services

Investment and Trust Services – Assets held in a fiduciary capacity are not assets of the Corporation and therefore are not included in the consolidated financial statements.  Trust assets under management at December 31, 2013 were $574.7 million and $520.4 million at the prior year-end.  Revenue from investment and trust services is recognized on the accrual basis.

Off-Balance Sheet Financial Instruments

Off-Balance Sheet Financial Instruments – In the ordinary course of business, the Bank has entered into off-balance sheet financial instruments consisting of commitments to extend credit and letters of credit. Such financial instruments are recorded on the balance sheet when they are funded.  The amount of any liability for the credit risk associated with off-balance sheet financial instruments is recorded in other liabilities and was not material to the financial position of the Corporation at December 31, 2013 or 2012.

Stock-Based Compensation

Stock-Based Compensation – The Corporation accounts for stock based compensation in accordance with the ASC Topic 718, “ Stock Compensation.”  ASC Topic 718 requires compensation costs related to share-based payment transactions to be recognized in the financial statements (with limited exceptions).  The amount of compensation cost is measured based on the grant-date fair value of the equity or liability instruments issued.  Compensation cost is recognized over the period that an employee provides services in exchange for the award.  Compensation expense was $0 in 2013, 2012 and 2011.  

Pension

Pension – The provision for pension expense was actuarially determined using the projected unit credit actuarial cost method.  The funding policy is to contribute an amount sufficient to meet the requirements of ERISA, subject to Internal Revenue Code contribution limitations.

In accordance with ASC Topic 715, ”Compensation – Retirement Benefits”, the Corporation recognizes the plan’s over-funded or under-funded status as an asset or liability with an offsetting adjustment to Accumulated Other Comprehensive Income (AOCI).  ASC Topic 715 requires the determination of the fair value of a plan’s assets at the company’s year-end and the recognition of actuarial gains and losses, prior service costs or credits, transition assets or obligations as a component of AOCI.  These amounts were previously netted against the plan’s funded status in the Corporation’s consolidated Balance Sheet. These amounts will be subsequently recognized as components of net periodic benefit costs.  Further, actuarial gains and losses that arise in subsequent periods that are not initially recognized as a component of net periodic benefit costs will be recognized as a component of AOCI.  Those amounts will subsequently be recorded as component of net periodic benefit costs as they are amortized during future periods.

Earnings Per Share

Earnings per share – Earnings per share are computed based on the weighted average number of shares outstanding during each year.  The Corporation’s basic earnings per share are calculated as net income divided by the weighted average number of shares outstanding.  For diluted earnings per share, net income is divided by the weighted average number of shares outstanding plus the incremental number of shares added as a result of converting common stock equivalents, calculated using the treasury stock method.  The Corporation’s common stock equivalents consist of stock options.  

A reconciliation of the weighted average shares outstanding used to calculate basic earnings per share and diluted earnings per share follows:

(Dollars in thousands, except per share data)	2013		2012		2011
Weighted average shares outstanding (basic)		4,135		4,072		3,962
Impact of common stock equivalents		4		2		1
Weighted average shares outstanding (diluted)		4,139		4,074		3,963
Anti-dilutive options excluded from calculation		56		87		70
Net income	$	6,232	$	5,365	$	6,569
Basic earnings per share	$	1.51	$	1.32	$	1.66
Diluted earnings per share	$	1.51	$	1.32	$	1.66

Reclassifications

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

Segment Reporting

Segment Reporting – The Bank acts as an independent community financial services provider and offers traditional banking and related financial services to individual, business and government customers.  Through its community office and automated teller machine network, the Bank offers a full array of commercial and retail financial services, including the taking of time, savings and demand deposits; the making of commercial, consumer and mortgage loans; and the providing of safe deposit services.  The Bank also performs personal, corporate, pension and fiduciary services through its Investment and Trust Services Department and Personal Investment Center.

Management does not separately allocate expenses, including the cost of funding loan demand, between the commercial, retail, mortgage banking and trust operations of the Bank.  As such, discrete information is not available and segment reporting would not be meaningful.

Comprehensive Income

Comprehensive Income – Comprehensive income is reflected in the Consolidated Statements of Comprehensive Income and includes net income and unrealized gains or losses, net of tax, on investment securities and derivatives and the change in plan assets and benefit obligations on the Bank’s pension plan, net of tax.

Recent Accounting Pronouncements

Recent Accounting Pronouncements: 

Investments-Equity Method and Joint Ventures(Topic 323): Accounting for Investments in Qualified Affordable Housing Projects.  ASU 2014-01“Accounting for Investments in Qualified Affordable Housing Projects” permits a reporting entity that invests in qualified affordable housing projects to account for the investments using a proportional amortization method if certain conditions are met.  If an entity elects the proportional amortization method, it will amortize the initial cost of the investment in proportion to the tax credits and other tax benefits received and recognize the net investment performance in the income statement as a component of income tax expense.  Otherwise, the entity would apply either the equity method or the cost method, if appropriate.  ASU 2014-01 applies to all reporting entities that invest in qualified affordable housing projects through limited liability entities that are flow-through entities for tax purposes as follows; 1.  Reporting entities that meet the conditions for and that elect to use the proportional amortization method will apply all of the ASU’s amendment and establish new accounting and disclosure standards, 2. For reporting entities that do not meet the conditions for or that do not elect the proportional amortization method, only the ASU’s disclosure requirement apply.  The ASU is effective for public business entities for annual periods and interim reporting periods within those annual periods beginning after December 15, 2014.  The Corporation does not believe ASU 2014-01 will have a material effect on its financial statements.

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 does not believe ASU 2013-11 will have a material effect on its financial statements.

Derivatives and Hedging (Topic 815): Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes.  ASU 2013-10 “Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes,” permit the use of the Fed Funds Effective Swap Rate (also referred to as the Overnight Index Swap Rate, or OIS) as a benchmark interest rate for hedge accounting purposes.  Previous U.S. GAAP permitted only the interest rates on direct U.S. Treasury obligations and, for practical reasons, the LIBOR swap rate to be used as benchmark interest rates.  ASU 2013-10 is effective prospectively for qualifying new or redesignated hedging relationship entered into on or after July 17, 2013.

Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.  ASU 2013-02 “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income,” requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component.  In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period.  The amendments are effective prospectively for reporting periods beginning after December 15, 2012.  The Corporation adopted this ASU at March 31, 2013.

Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities.  The objective of this ASU is to address the limitation of ASU 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities.  This ASU clarifies that the scope of ASU 2011-11 applies to derivatives accounted for in accordance with Topic 815, Derivatives and Hedging, which includes bifurcated embedded derivatives, repurchase agreements and reverse repurchase agreements.  It also applies to securities borrowing and lending transactions that are offset in accordance with Section 210-20-45 or Section 215-10-45 or subject to an enforceable master netting arrangement or similar agreement.  This Update will provide users of financial statements with comparable information as it relates to certain reconciling differences between financial statements prepared in accordance with U.S. GAAP and those prepared in accordance with International Financial Reporting Standards.  This update requires that the gross amounts of the asset and offsetting liabilities be disclosed in the notes to the financial statements.  The provisions of this ASU are effective for fiscal years beginning on or after January 1, 2013 and interim periods within those annual periods, the same effective date as Update 2011-11.  The required disclosures are to be retrospectively applied for all comparative periods presented.  The Corporation adopted this ASU at March 31, 2013.

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Summary Of Significant Accounting Policies (Tables)

12 Months Ended

Dec. 31, 2013

Summary Of Significant Accounting Policies [Abstract]

Schedule Of Earnings Per Share, Basic And Diluted

(Dollars in thousands, except per share data)	2013		2012		2011
Weighted average shares outstanding (basic)		4,135		4,072		3,962
Impact of common stock equivalents		4		2		1
Weighted average shares outstanding (diluted)		4,139		4,074		3,963
Anti-dilutive options excluded from calculation		56		87		70
Net income	$	6,232	$	5,365	$	6,569
Basic earnings per share	$	1.51	$	1.32	$	1.66
Diluted earnings per share	$	1.51	$	1.32	$	1.66

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Consolidated Statements Of Cash Flows (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Cash flows from operating activities
Net income	$ 6,232	$ 5,365	$ 6,569
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	1,488	1,405	1,407
Net amortization of loans and investment securities	1,860	1,511	975
Amortization and net change in mortgage servicing rights valuation	50	133	235
Amortization of intangibles	425	435	446
Provision for loan losses	2,920	5,225	7,524
Net realized gains on sales and calls of securities	(33)	(44)	(157)
Impairment writedown on securities recognized in earnings	75	100	240
Loans originated for sale	(10,207)	(13,125)
Proceeds from sale of loans	9,925	13,058
Writedown on other real estate owned	255	435
Net loss (gain) on sale or disposal of other real estate/other repossessed assets		147	(22)
Increase in cash surrender value of life insurance	(605)	(652)	(682)
Gain from surrender of life insurance policy	(22)
Contribution to pension plan		(6,783)	(2,112)
Decrease (increase) in interest receivable and other assets	1,656	(141)	(78)
Increase in interest payable and other liabilities	880	3,842	699
Deferred tax expense (benefit)	348	367	(91)
Other, net	150	(718)	135
Net cash provided by operating activities	15,397	10,560	15,088
Cash flows from investing activities
Proceeds from sales and calls of investment securities available for sale	5,188	494	9,772
Proceeds from maturities and paydowns of securities available for sale	32,184	34,789	21,713
Net decrease in restricted stock	1,665	1,451	1,137
Purchase of investment securities available for sale	(69,100)	(43,673)	(37,562)
Net decrease (increase) in loans	26,375	3,938	(28,393)
Proceeds from sale of other real estate/other repossessed assets	554	788	517
Proceeds from surrender of life insurance policy	105
Capital expenditures	(527)	(2,297)	(742)
Net cash used in investing activities	(3,556)	(4,510)	(33,558)
Cash flows from financing activities
Net increase in demand deposits, NOW, and savings accounts	35,489	96,650	67,535
Net decrease in time deposits	(64,205)	(10,196)	(13,880)
Net (decrease) increase in short-term borrowings and repurchase agreements	(18,375)	(10,894)	1,939
Long-term debt payments	(7)	(35,926)	(22,549)
Dividends paid	(2,810)	(3,170)	(4,273)
Treasury stock issued under stock option plans	52	2	30
Common stock issued under dividend reinvestment plan	926	1,174	1,706
Net cash (used in) provided by financing activities	(48,930)	37,640	30,508
(Decrease) increase in cash and cash equivalents	(37,089)	43,690	12,038
Cash and cash equivalents as of January 1	77,834	34,144	22,106
Cash and cash equivalents as of December 31	40,745	77,834	34,144
Supplemental Disclosures of Cash Flow Information
Cash paid during the year for: Interest on deposits and other borrowed funds	4,497	7,102	9,350
Cash paid during the year for: Income taxes	725		2,425
Noncash Activities
Loans transferred to Other Real Estate	$ 390	$ 4,195	$ 3,726

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Regulatory Matters (Tables)

12 Months Ended

Dec. 31, 2013

Regulatory Matters [Abstract]

Schedule Of The Total Risk-Based, Tier 1 Risk-Based And Tier 1 Leverage Requirements

	As of December 31, 2013
				Minimum to be				Minimum to be
	Actual			Adequately Capitalized				Well Capitalized
(Dollars in thousands)	Amount		Ratio	Amount			Ratio	Amount			Ratio
Total Risk-based Capital Ratio
Corporation	$	99,598	14.24%	$	55,940	>	8.00%		N/A		N/A
Bank		95,942	13.78%		55,696	>	8.00%	$	69,620	>	10.00%
Tier 1 Risk-based Capital Ratio
Corporation	$	90,659	12.97%	$	27,970	>	4.00%		N/A		N/A
Bank		87,146	12.52%		27,848	>	4.00%	$	41,772	>	6.00%
Tier 1 Leverage Ratio
Corporation	$	90,659	9.14%	$	39,661	>	4.00%		N/A		N/A
Bank		87,146	8.81%		39,559	>	4.00%	$	49,448	>	5.00%

	As of December 31, 2012
				Minimum to be				Minimum to be
	Actual			Adequately Capitalized				Well Capitalized
(Dollars in thousands)	Amount		Ratio	Amount			Ratio	Amount			Ratio
Total Risk-based Capital Ratio
Corporation	$	95,268	12.60%	$	60,465	>	8.00%		N/A		N/A
Bank		92,056	12.22%		60,244	>	8.00%	$	75,305	>	10.00%
Tier 1 Risk-based Capital Ratio
Corporation	$	85,843	11.36%	$	30,232	>	4.00%		N/A		N/A
Bank		82,631	10.97%		30,122	>	4.00%	$	45,183	>	6.00%
Tier 1 Leverage Ratio
Corporation	$	85,843	8.29%	$	41,439	>	4.00%		N/A		N/A
Bank		82,631	7.99%		41,392	>	4.00%	$	51,740	>	5.00%

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Deposits (Schedule Of Deposits) (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012
Deposits [Abstract]
Demand, noninterest-bearing checking	$ 121,565	$ 123,623
Interest-bearing checking	180,450	135,454
Money Management	370,401	380,079
Savings	59,394	57,165
Total interest-bearing checking and savings	610,245	572,698
Retail time deposits	108,283	127,861
Brokered time deposts	5,631	50,258
Total time deposits	113,914	178,119
Deposits	845,724	874,440
Overdrawn deposit accounts reclassified as loans	$ 106	$ 128

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Fair Value Measurements And Fair Values Of Financial Instruments (Fair Value, By Balance Sheet Grouping) (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Interest rate swaps	$ 561	$ 1,103
Carrying Amount [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and cash equivalents	40,745	77,834
Investment securities available for sale	159,674	133,328
Restricted Stock	1,906	3,571
Loans held for sale	349	67
Net loans	713,711	743,200
Accrued interest receivable	3,087	3,178
Mortgage servicing rights	184	235
Deposits	845,724	874,440
Securities sold under agreements to repurchase	23,834	42,209
Long-term debt	12,403	12,410
Accrued interest payable	229	348
Interest rate swaps	561	1,103
Fair Value [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and cash equivalents	40,745	77,834
Investment securities available for sale	159,674	133,328
Restricted Stock	1,906	3,571
Loans held for sale	349	67
Net loans	722,119	759,490
Accrued interest receivable	3,087	3,178
Mortgage servicing rights	184	235
Deposits	846,289	876,240
Securities sold under agreements to repurchase	23,834	42,209
Long-term debt	12,999	13,718
Accrued interest payable	229	348
Interest rate swaps	561	1,103
Level 1 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and cash equivalents	40,745	77,834
Investment securities available for sale	1,970	1,941
Level 2 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Investment securities available for sale	157,704	131,387
Restricted Stock	1,906	3,571
Loans held for sale	349	67
Accrued interest receivable	3,087	3,178
Deposits	846,289	876,240
Securities sold under agreements to repurchase	23,834	42,209
Long-term debt	12,999	13,718
Accrued interest payable	229	348
Interest rate swaps	561	1,103
Level 3 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Net loans	722,119	759,490
Mortgage servicing rights	$ 184	$ 235

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Federal Income Taxes (Tables)

12 Months Ended

Dec. 31, 2013

Federal Income Taxes [Abstract]

Schedule Of Deferred Tax Assets And Liabilities

(Dollars in thousands)	December 31
Deferred Tax Assets	2013		2012
Allowance for loan losses	$	3,299	$	3,529
Deferred compensation		1,015		1,102
Purchase accounting		50		63
Deferred loan fees and costs, net		160		160
Capital loss carryover		887		887
Other than temporary impairment of investments		538		512
Accumulated other comprehensive loss		2,420		2,087
AMT Credit		226		968
Other		1,062		703
		9,657		10,011
Valuation allowance		(1,250)		(1,232)
Total gross deferred tax assets		8,407		8,779
Deferred Tax Liabilities
Core deposit intangibles		184		307
Depreciation		184		179
Joint ventures and partnerships		53		62
Pension		2,425		2,615
Mortgage servicing rights		63		80
Customer list		53		75
Total gross deferred tax liabilities		2,962		3,318
Net deferred tax asset	$	5,445	$	5,461

Schedule Of Components Of Income Tax Expense (Benefit)

	For the Years Ended December 31
(Dollars in thousands)	2013		2012		2011
Current tax expense	$	947	$	145	$	502
Deferred tax expense (benefit)		348		367		(91)
Income tax provision	$	1,295	$	512	$	411

Schedule Of Effective Income Tax Rate Reconciliation

	For the Years Ended December 31
(Dollars in thousands)	2013		2012		2011
Tax provision at statutory rate	$	2,559	$	1,998	$	2,373
Income on tax-exempt loans and securities		(1,212)		(1,251)		(1,167)
Nondeductible interest expense relating to carrying  tax-exempt obligations		30		43		63
Dividends received exclusion		(15)		(17)		(20)
Income from bank owned life insurance		(185)		(217)		(226)
Valuation allowance		-		-		32
Life insurance proceeds		111		-		-
Other, net		7		(44)		(644)
Income tax provision	$	1,295	$	512	$	411
Effective income tax rate		17.2%		8.7%		5.9%

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Restricted Cash Balances (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012
Restricted Cash Balances [Abstract]
Restricted Cash and Cash Equivalents	$ 2,000	$ 838

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Loan Quality (Schedule Of Other Real Estate Owned) (Details) (USD $) In Thousands, unless otherwise specified			12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2013 OREO Property 1 [Member] acre property	Dec. 31, 2013 OREO Property 2 [Member] acre	Dec. 31, 2013 OREO Properties With Write-down [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Date Acquired			2011	2012
Other Real Estate	$ 4,708	$ 5,127	$ 1,294	$ 2,758	$ 4,052
Last Appraisal Date			2012-11	2012-08
Last Appraisal Amount			$ 1,500	$ 3,292
Area of acreage			150	294
Number of properties			3

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Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012
Assets
Cash and due from banks	$ 13,542	$ 20,578
Interest-bearing deposits in other banks	27,203	57,256
Total cash and cash equivalents	40,745	77,834
Investment securities available for sale, at fair value	159,674	133,328
Restricted stock	1,906	3,571
Loans held for sale	349	67
Loans	723,413	753,579
Less: Allowance for loan losses	(9,702)	(10,379)
Net Loans	713,711	743,200
Premises and equipment, net	16,145	17,037
Bank owned life insurance	21,530	20,925
Goodwill	9,016	9,016
Other intangible assets	698	1,123
Other real estate owned	4,708	5,127
Deferred tax assets, net	5,445	5,461
Other assets	10,660	10,674
Total assets	984,587	1,027,363
Deposits
Noninterest-bearing checking	121,565	123,623
Money management, savings and interest checking	610,245	572,698
Time	113,914	178,119
Total Deposits	845,724	874,440
Securities sold under agreements to repurchase	23,834	42,209
Long-term debt	12,403	12,410
Other liabilities	7,238	6,670
Total liabilities	889,199	935,729
Stockholders' equity
Common stock, $1 par value per share,15,000,000 shares authorized with 4,560,700 shares issued and 4,168,673 shares outstanding at December 31, 2013 and 4,503,380 shares issued and 4,107,346 shares outstanding at December 31, 2012	4,561	4,503
Capital stock without par value, 5,000,000 shares authorized with no shares issued and outstanding
Additional paid-in capital	36,636	35,788
Retained earnings	65,897	62,475
Accumulated other comprehensive loss	(4,696)	(4,050)
Treasury stock, 392,027 and 396,034 shares at cost at December 31, 2013 and 2012, respectively	(7,010)	(7,082)
Total shareholders' equity	95,388	91,634
Total liabilities and shareholders' equity	$ 984,587	$ 1,027,363

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Commitments And Contingencies (Tables)

12 Months Ended

Dec. 31, 2013

Commitments And Contingencies [Abstract]

Commitments And Contingencies

(Dollars in thousands)		2013		2012
Financial instruments whose contract amounts represent credit risk
Commercial commitments to extend credit	$	175,702	$	182,060
Consumer commitments to extend credit (secured)		38,097		36,303
Consumer commitments to extend credit (unsecured)		5,555		5,275
	$	219,354	$	223,638
Standby letters of credit	$	20,151	$	28,157

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Financial Derivatives (Schedule Of Interest Rate Swap) (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2008
Financial Derivatives [Abstract]
Notional Amount	$ 10,000	$ 10,000
Maturity Date	May 30, 2015
Fixed Interest Rate	3.87%
Variable Interest Rate	0.07%
Amount Expected To Be Expensed Into Earnings Within The Next Twelve Months	$ 380

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Commitments And Contingencies (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012
Commercial Commitments To Extend Credit [Member]
Supply Commitment [Line Items]
Supply Commitment, Remaining Minimum Amount Committed	$ 175,702	$ 182,060
Consumer Commitments To Extend Credit (Secured) [Member]
Supply Commitment [Line Items]
Supply Commitment, Remaining Minimum Amount Committed	38,097	36,303
Consumer Commitments To Extend Credit (Unsecured) [Member]
Supply Commitment [Line Items]
Supply Commitment, Remaining Minimum Amount Committed	5,555	5,275
Commitments To Extend Credit [Member]
Supply Commitment [Line Items]
Supply Commitment, Remaining Minimum Amount Committed	219,354	223,638
Standby Letters Of Credit [Member]
Supply Commitment [Line Items]
Supply Commitment, Remaining Minimum Amount Committed	$ 20,151	$ 28,157
Standby letters of credit extention period, in years	1 year

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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, 2010	$ 4,317	$ 33,096	$ 57,984	$ (5,642)	$ (7,116)	$ 82,639
Net income			6,569			6,569
Other comprehensive (loss) income				511		511
Cash dividends declared			(4,273)			(4,273)
Treasury shares issued under stock option plans		(2)			32	30
Common stock issued under dividend reinvestment plan	102	1,604				1,706
Balance at Dec. 31, 2011	4,419	34,698	60,280	(5,131)	(7,084)	87,182
Net income			5,365			5,365
Other comprehensive (loss) income				1,081		1,081
Cash dividends declared			(3,170)			(3,170)
Treasury shares issued under stock option plans					2	2
Common stock issued under dividend reinvestment plan	84	1,090				1,174
Balance at Dec. 31, 2012	4,503	35,788	62,475	(4,050)	(7,082)	91,634
Net income			6,232			6,232
Other comprehensive (loss) income				(646)		(646)
Cash dividends declared			(2,810)			(2,810)
Treasury shares issued under stock option plans		(20)			72	52
Common stock issued under dividend reinvestment plan	58	868				926
Balance at Dec. 31, 2013	$ 4,561	$ 36,636	$ 65,897	$ (4,696)	$ (7,010)	$ 95,388

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Accumulated Other Comprehensive Loss (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Accumulated Other Comprehensive Loss [Abstract]
Net unrealized gains on securities	$ (741)	$ 2,543
Tax effect	252	(865)
Net of tax amount	(489)	1,678
Net unrealized losses on derivatives	(561)	(1,103)
Tax effect	191	375
Net of tax amount	(370)	(728)
Accumulated pension adjustment	(5,814)	(7,576)	(7,462)
Tax effect	1,977	2,576	2,537
Net of tax amount	(3,837)	(5,000)	(4,925)
Total accumulated other comprehensive loss	$ (4,696)	$ (4,050)

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Investments (Schedule Of Trust Preferred Securities) (Details) (USD $) In Thousands, unless otherwise specified			12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2013 Trust Preferred Securities: Huntington Cap Trust [Member]	Dec. 31, 2013 Trust Preferred Securities: Huntington Cap Trust II [Member]	Dec. 31, 2013 Trust Preferred Securities: BankAmerica Cap III [Member]	Dec. 31, 2013 Trust Preferred Securities: Wachovia Cap Trust II [Member]	Dec. 31, 2013 Trust Preferred Securities: Corestates Captl Tr II [Member]	Dec. 31, 2013 Trust Preferred Securities: Chase Cap VI JPM [Member]	Dec. 31, 2013 Trust Preferred Securities: Fleet Cap Tr V [Member]	Dec. 31, 2013 Trust Preferred Securities [Member]	Dec. 31, 2012 Trust Preferred Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Single Issuer or Polled			Single	Single	Single	Single	Single	Single	Single
Amortized Cost	$ 160,415	$ 130,785	$ 936	$ 885	$ 960	$ 275	$ 932	$ 960	$ 974	$ 5,922	$ 5,905
Investment securities available for sale, at fair value	159,674	133,328	809	778	793	245	829	798	799	5,051	4,830
Gross Unrealized Gain (Loss)			$ (127)	$ (107)	$ (167)	$ (30)	$ (103)	$ (162)	$ (175)	$ (871)
Lowest Credit Rating Assigned			BB+	BB+	BB+	BBB+	BBB+	BBB	BB+
Number of Banks Currently Performing			1	1	1	1	1	1	1

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Benefit Plans (Narrative) (Details) (USD $)	1 Months Ended	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Defined Benefit Plan Disclosure [Line Items]
Term of service completed before eligible for coverage		1 year 1000 hours
Employer matching contributions to the plan		100.00%
Maximum percentage of employee eligible compensation the employee may contribute to the plan		4.00%
Additional employer matching contributions of participant's deferral		50.00%
Maximum additional annual contributions per employee deferral percent		2.00%
Percent of discretionary profit sharing contribution		100.00%
Maximum discretionary profit sharing percent of eligible compensation		2.00%
Additional annual contribution period for 401(k) plan, years		10 years
Related plan expense		$ 442,000	$ 425,000	$ 394,000
Additional contribution to plan	6,000,000
Pension expense		560,000	1,073,000	705,000
Defined Benefit Plan, General Guidelines Plan Asset Allocations		5.00%
Change in expected long-term rate of return		7.00%
Fixed Income [Member]
Defined Benefit Plan Disclosure [Line Items]
Defined Benefit Plan, Target Plan Asset Allocations Range Minimum		60.00%
Defined Benefit Plan, Target Plan Asset Allocations Range Maximum		90.00%
Equities [Member]
Defined Benefit Plan Disclosure [Line Items]
Defined Benefit Plan, Target Plan Asset Allocations Range Minimum		10.00%
Defined Benefit Plan, Target Plan Asset Allocations Range Maximum		30.00%
Defined Benefit Plan, General Guidelines Plan Asset Allocations		25.00%
Non-Qualified Plan [Member]
Defined Benefit Plan Disclosure [Line Items]
Maximum percentage of employee eligible compensation the employee may contribute to the plan		9.00%
Minimum additional annual contributions per employee deferral percent		1.00%
Related plan expense		$ 30,000	$ 42,000	$ 42,000

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Loan Quality (Tables)

12 Months Ended

Dec. 31, 2013

Loan Quality [Abstract]

Internal Credit Rating For The Loan Portfolio

(Dollars in thousands)	Pass		Special Mention		Substandard		Doubtful		Total
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

December 31, 2012
Residential Real Estate 1-4 Family
First liens	$	139,549	$	6,277	$	8,773	$	-	$	154,599
Junior liens and lines of credit		40,584		175		1,529		-		42,288
Total		180,133		6,452		10,302		-		196,887
Residential real estate - construction		11,284		2,922		1,226		-		15,432
Commercial real estate		299,075		20,221		41,828		2,750		363,874
Commercial		148,195		3,120		15,419		-		166,734
Consumer		10,636		-		16		-		10,652
Total	$	649,323	$	32,715	$	68,791	$	2,750	$	753,579

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
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

December 31, 2012
Residential Real Estate 1-4 Family
First liens	$	147,236	$	2,862	$	797	$	120	$	3,779	$	3,584	$	154,599
Junior liens and lines of credit		40,741		449		228		112		789		758		42,288
Total		187,977		3,311		1,025		232		4,568		4,342		196,887
Residential real estate - construction		14,875		-		-		-		-		557		15,432
Commercial real estate		334,822		64		329		-		393		28,659		363,874
Commercial		163,387		161		35		315		511		2,836		166,734
Consumer		10,339		258		39		16		313		-		10,652
Total	$	711,400	$	3,794	$	1,428	$	563	$	5,785	$	36,394	$	753,579

Schedule Of Additional Nonaccrual Information

December 31, 2013
(Dollars in thousands)
				ALL	Nonaccrual				Last
		Balance		Reserve	Date	Collateral	Location		Appraisal(1)
Credit 1	$	3,040	$	-	Dec-10	1st lien on 92 acres undeveloped commercial real estate	PA		Dec-13
Commercial real estate								$	3,304
Credit 2		977		-	Aug-11	1st lien on commercial and residential properties and 70 acres of farm land (2 loans)	PA		Jun-13
Residential real estate								$	1,272
Commercial real estate
Credit 3		2,096		-	Mar-12	1st and 2nd liens on commercial real estate, residential real estate and business assets	PA		Oct-13
Residential real estate								$	4,184
Credit 4		883		-	Jun-12	1st lien residential development land - 75 acres	WV		Oct-13
Residential real estate						2nd lien residential real estate	PA	$	1,250
Credit 5		1,154		-	Apr-12	1st and 2nd liens on residential real estate	PA		May-13
Residential real estate								$	1,935
Credit 6		7,436		-	Sep-12	1st lien residential real estate development - 376 acres and other commercial and residential properties	PA		Oct-13
Commercial real estate								$	8,932
Credit 7		2,049		-	Oct-12	1st lien commercial refrigerated warehouse	PA		Feb-13
Commercial real estate								$	5,995
Credit 8		2,590		993	Mar-13	Liens on land, commercial and residential real estate and business assets	PA		Nov-13
Commercial/commercial real estate								$	3,394
Credit 9		800		-	Sep-13	1st lien on 12 improved residential building lots and 1st lien on 43 acres	PA		Jun-13
Residential real estate								$	1,410
	$	21,025	$	993

(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.

Impaired Financing Receivables

The following table for additional information on impaired loans.

	Impaired Loans
	With No Allowance				With Allowance
(Dollars in thousands)			Unpaid					Unpaid
	Recorded		Principal		Recorded		Principal		Related
December 31, 2013	Investment		Balance		Investment		Balance		Allowance
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

December 31, 2012
Residential Real Estate 1-4 Family
First liens	$	3,504	$	3,715	$	80	$	80	$	20
Junior liens and lines of credit		691		707		-		-		-
Total		4,195		4,422		80		80		20
Residential real estate - construction		557		567		-		-		-
Commercial real estate		28,346		31,937		2,603		3,194		357
Commercial		2,495		2,584		1,088		1,145		470
Consumer		-		-		-		-		-
Total	$	35,593	$	39,510	$	3,771	$	4,419	$	847

	Twelve Months Ended				Twelve Months Ended
	December 31, 2013				December 31, 2012
	Average		Interest		Average		Interest
(Dollars in thousands)	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
Residential Real Estate 1-4 Family
First liens	$	3,365	$	4	$	4,070	$	58
Junior liens and lines of credit		417		-		744		1
Total		3,782		4		4,814		59
Residential real estate - construction		544		-		458		-
Commercial real estate		31,730		118		26,815		151
Commercial		2,112		-		4,060		111
Consumer		-		-		1		-
Total	$	38,168	$	122	$	36,148	$	321

Troubled Debt Restructing Loans

								Troubled Debt Restructurings
								That Have Defaulted on
(Dollars in thousands)	Troubled Debt Restructurings							Modified Terms YTD
	Number of	Recorded						Number of	Recorded
	Contracts	Investment			Performing*		Nonperforming*	Contracts	Investment
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	-	$	-

December 31, 2012
Residential real estate - construction	2	$	1,482	$	1,482	$	-
Residential real estate	4		467		467		-
Commercial	2		1,812		1,812		-
Commercial real estate	11		7,669		7,669		-	-	$	-
Total	19	$	11,430	$	11,430	$	-	-	$	-

*The performing status is determined by the loans compliance with the modified terms.

The following table reports new TDR loans made during 2013, concession granted and the recorded investment at December 31, 2013.

(Dollars in thousands)	New During Period
	Number of	Pre-TDR		After-TDR		Recorded
Twelve Months Ended December 31, 2013	Contracts	Modification		Modification		Investment		Concession
Residential real estate	2	$	286	$	323	$	311	multiple
Commercial real estate	2		10,458		10,745		10,493	multiple
Total	4	$	10,744	$	11,068	$	10,804

The following table reports new TDR loans made during 2012, concession granted and the recorded investment as of December 31, 2012.

(Dollars in thousands)	New During Period
	Number of	Pre-TDR		After-TDR		Recorded
Twelve Months Ended December 31, 2012	Contracts	Modification		Modification		Investment		Concession
Real estate construction	3	$	2,073	$	1,897	$	1,482	multiple
Residential real estate	2		371		390		379	multiple
Commercial	2		2,223		2,223		1,812	maturity
Commercial real estate	4		2,616		3,006		2,957	multiple
	11	$	7,283	$	7,516	$	6,630

Schedule Of Other Real Estate Owned

December 31, 2013
(Dollars in thousands)	Date						Last
	Acquired		Balance	Collateral	Location		Appraisal
Property 1 (3 properties)	2011	$	1,294	Unimproved and improved real estate for residential development on four separate tracts totaling 150 acres	PA		Nov-12
						$	1,500
Property 2	2012		2,758	1st, 2nd, and 3rd liens residential development land - four tracts with 294 acres	PA		Aug-12
						$	3,292
		$	4,052

Allowance For Loan Losses, By Loan Segment

The following table shows, by loan class, the activity in the ALL, for the years ended December 31, 2013, 2012 and 2011.

							Commercial
	Residential Real Estate 1-4 Family						Industrial &		Commercial
			Junior Liens &				Agricultural		Industrial &
(Dollars in thousands)	First Liens		Lines of Credit		Construction		Real Estate		Agricultural		Consumer		Total
Allowance at December 31, 2010	$	600	$	352	$	2,596	$	3,358	$	1,578	$	317	$	8,801
Charge-offs		(324)		(202)		(2,352)		(3,817)		(115)		(237)		(7,047)
Recoveries		30		10		-		306		11		88		445
Provision		743		148		978		5,410		177		68		7,524
Allowance at December 31, 2011	$	1,049	$	308	$	1,222	$	5,257	$	1,651	$	236	$	9,723
Allowance at December 31, 2011	$	1,049	$	308	$	1,222	$	5,257	$	1,651	$	236	$	9,723
Charge-offs		(251)		(71)		-		(3,298)		(861)		(236)		(4,717)
Recoveries		1		25		-		13		21		88		148
Provision		114		44		(323)		4,478		809		103		5,225
Allowance at December 31, 2012	$	913	$	306	$	899	$	6,450	$	1,620	$	191	$	10,379
Allowance at December 31, 2012	$	913	$	306	$	899	$	6,450	$	1,620	$	191	$	10,379
Charge-offs		(547)		(45)		-		(2,855)		(363)		(162)		(3,972)
Recoveries		13		-		-		203		100		59		375
Provision		729		17		(608)		1,773		949		60		2,920
Allowance at December 31, 2013	$	1,108	$	278	$	291	$	5,571	$	2,306	$	148	$	9,702

The following table shows, by loan class, the loans that were evaluated for the ALL under a specific reserve (individually) and those that were evaluated under a general reserve (collectively), and the amount of the allowance established in each category as of December 31, 2013 and 2012.

							Commercial
	Residential Real Estate 1-4 Family						Industrial &		Commercial
			Junior Liens &				Agricultural		Industrial &
(Dollars in thousands)	First Liens		Lines of Credit		Construction		Real Estate		Agricultural		Consumer		Total
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
December 31, 2012
Loans evaluated for allowance:
Individually	$	3,583	$	692	$	557	$	30,949	$	3,583	$	-	$	39,364
Collectively		151,016		41,596		14,875		332,925		163,151		10,652		714,215
Total	$	154,599	$	42,288	$	15,432	$	363,874	$	166,734	$	10,652	$	753,579
Allowance established for loans evaluated:
Individually	$	20	$	3	$	-	$	357	$	467	$	-	$	847
Collectively		893		303		899		6,093		1,153		191		9,532
Allowance at December 31, 2012	$	913	$	306	$	899	$	6,450	$	1,620	$	191	$	10,379

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Loan Quality (Internal Credit Rating For The Loan Portfolio) (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	$ 723,413	$ 753,579
Pass [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	647,134	649,323
Special Mention [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	18,973	32,715
Substandard [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	57,306	68,791
Doubtful [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount		2,750
Residential Real Estate First Liens [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	162,039	154,599
Residential Real Estate First Liens [Member] | Pass [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	150,762	139,549
Residential Real Estate First Liens [Member] | Special Mention [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	3,653	6,277
Residential Real Estate First Liens [Member] | Substandard [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	7,624	8,773
Residential Real Estate Junior Liens & Lines Of Credit [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	40,575	42,288
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	40,102	40,584
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	66	175
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	407	1,529
Residential Real Estate 1-4 Family [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	202,614	196,887
Residential Real Estate 1-4 Family [Member] | Pass [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	190,864	180,133
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	3,719	6,452
Residential Real Estate 1-4 Family [Member] | Substandard [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	8,031	10,302
Residential Real Estate - Construction [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	12,519	15,432
Residential Real Estate - Construction [Member] | Pass [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	10,955	11,284
Residential Real Estate - Construction [Member] | Special Mention [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount		2,922
Residential Real Estate - Construction [Member] | Substandard [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	1,564	1,226
Commercial Real Estate [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	329,373	363,874
Commercial Real Estate [Member] | Pass [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	281,857	299,075
Commercial Real Estate [Member] | Special Mention [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	11,861	20,221
Commercial Real Estate [Member] | Substandard [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	35,655	41,828
Commercial Real Estate [Member] | Doubtful [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount		2,750
Commercial [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	170,327	166,734
Commercial [Member] | Pass [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	154,888	148,195
Commercial [Member] | Special Mention [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	3,393	3,120
Commercial [Member] | Substandard [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	12,046	15,419
Consumer [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	8,580	10,652
Consumer [Member] | Pass [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	8,570	10,636
Consumer [Member] | Substandard [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	$ 10	$ 16

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Benefit Plans

12 Months Ended

Dec. 31, 2013

Benefit Plans [Abstract]

Benefit Plans

Note 14.  Benefit Plans

The Bank has a 401(k) plan covering substantially all employees of F&M Trust who have completed one year and 1,000 hours of service.  In 2013, employee contributions to the plan were matched at 100% up to 4% of each participant’s deferrals plus 50% of the next 2% of deferrals from participants’ eligible compensation. Under this plan, the maximum amount of employee contributions in any given year is defined by Internal Revenue Service regulations. In addition, a 100% discretionary profit sharing contribution of up to 2% of each employee’s eligible compensation is possible provided net income targets are achieved.  The Personnel Committee of the Corporation’s Board of Directors approves the established net income targets annually. The related expense for the 401(k) plan, and the profit sharing plan as approved by the Board of Directors, was approximately $442 thousand in 2013, $425 thousand in 2012 and $394 thousand in 2011. 

The Bank has a noncontributory pension plan covering substantially all employees of F&M Trust who meet certain age and service requirements.  Benefits are based on years of service and the employee’s compensation using a career average formula for all employees. The pension plan was closed to new participants on April 1, 2007. The change to a career average formula in 2008 affected future pension benefits for some employees more than others, primarily long-term employees. In an attempt to minimize the affect of the change on these employees the Bank added the following benefits: (1) an additional annual contribution over 10 years to the 401(k) plan for pension participants that were deemed to have a significant expected shortfall as a result of the change to a career average formula; and (2) contributions to a non-qualified deferred compensation plan for current or potential highly-compensated employees that were deemed to have a significant expected shortfall as a result of the change to a career average formula.  The annual contribution to the non-qualified plan ranges from 1% to 9% of the covered employee’s salary depending on such factors as the employee’s length of service and time to retirement. Any contribution made to the non-qualified plan is in lieu of the additional contribution made to the 401(k) plan identified as change number 1 above.  The expense associated with the additional plans described above was $30 thousand in 2013 and $42 thousand in both 2012 and 2011. The Bank’s funding policy is to contribute annually the amount required to meet the minimum funding requirements of the Employee Retirement Income Security Act of 1974.  Contributions are intended to provide not only for the benefits attributed to service to date but also for those expected to be earned in the future. However, due to the low rate environment in 2012, the funding status of the pension plan, and the Bank’s excess cash position earning a low return, the Bank made an additional contribution, above the required minimum contribution, of $6.0 million to the pension plan in December 2012. This action brought the plan to a fully funded status and will significantly reduce future pension expense.  In 2012, the Bank changed the source of the discount rate used to calculate the benefit obligation, to the Citigroup Above Median Pension Discount Curve from the Citigroup Pension Discount Curve and Liability Index.  The new curve represents bonds that are more like the pension plan assets in terms of duration and quality, and generally results in a higher discount rate.

The low interest rate environment has negatively affected pension plan returns and as a result, the Bank continues to incur a significant pension expense, $560 thousand in 2013, $1.1 million in 2012, and $705 thousand in 2011. The reduction in pension expense in 2013 is due primarily to the return from the larger asset base.  The Bank expects the 2014 pension expense to be similar to the 2013 expense.

Pension plan asset classes include cash, fixed income securities and equities.  The fixed income portion is comprised of Government Bonds, Corporate Bonds and Taxable Municipal Bonds; the equity portion is comprised of financial institution equities and individual corporate equities across a broad range of sectors.  Investments are made on the basis of sound economic principles and in accordance with established guidelines.  Target allocations of fund assets measured at fair value are as follows: fixed income, a range of 60%-90%, equities, a range of 10% to 30% and cash as needed. The allocation as of December 31, 2013 is shown in a table within this note.  The Bank manages its pension portfolio in order to closely align the duration of the assets with the duration of the pension liability.

On a regular basis, the Pension and Benefits Committee (the “Committee”) monitors the allocation to each asset class.  Due to changes in market conditions, the asset allocation may vary from time to time.  The Committee is responsible to direct the rebalancing of Plan assets when allocations are not within the established guidelines and to ensure that such action is implemented. The Bank attempts to allocate the pension assets in a manner that the cash flow from the assets is similar to the cash flow of the liabilities. This has and will continue to result in a smaller allocation of equity investments and a higher allocation of longer duration bonds. By closely matching the asset and liability cash flow, large fluctuations in projected benefit obligations should be reduced. 

Specific guidelines for fixed income investments are that no individual bond shall have a rating of less than an A as rated by Standard and Poor’s and Moody’s at the time of purchase.  If the rating subsequently falls below an A rating, the Committee, at its next quarterly meeting, will discuss the merits of retaining that particular security.  Allowable securities include obligations of the U.S. Government and its agencies, CDs, commercial paper, corporate obligations and insured municipal bonds.

General guidelines for equities are that a diversified common stock program is used and that diversification patterns can be changed with the ongoing analysis of the outlook for economic and financial conditions.  Specific guidelines for equities include a sector cap and an individual stock cap. The guidelines for the sector cap direct that because the Plan sponsor is a bank, a significantly large exposure to the financial sector is permissible; therefore, there is no sector cap for financial equities.  All other sectors are limited to 25% of the equity component.  The individual stock cap guidelines direct that no one stock may represent more than 5% of the total equity portfolio.

The Committee revisits and determines the expected long-term rate of return on Plan assets annually.  The policy of the Committee has been to take a conservative approach to all Plan assumptions.  The expected long-term rate of return was reduced to 7% and it is likely that this rate will continue to decline in future years. This rate is reviewed annually and historical investment returns play a significant role in determining what this rate should be.

The following table sets forth the plan’s funded status, based on the December 31, 2013, 2012 and 2011 actuarial valuations.

	For the Years Ended December 31
(Dollars in thousands)	2013		2012		2011
Change in projected benefit obligation
Benefit obligation at beginning of measurement year	$	18,648	$	17,138	$	14,252
Service cost		456		460		358
Interest cost		715		716		729
Actuarial loss		(1,798)		1,093		2,570
Benefits paid		(740)		(759)		(771)
Benefit obligation at end of measurement year		17,281		18,648		17,138
Change in plan assets
Fair value of plan assets at beginning of measurement year		18,764		11,658		9,056
Actual return on plan assets net of expenses		576		1,082		1,261
Employer contribution		-		6,783		2,112
Benefits paid		(740)		(759)		(771)
Fair value of plan assets at end of measurement year		18,600		18,764		11,658
Funded status of projected benefit obligation	$	1,319	$	116	$	(5,480)

Amounts recognized in accumulated other comprehensive	For the Years Ended December 31
income (loss), net of tax	2013		2012		2011
Net actuarial loss	$	(6,159)	$	(8,047)	$	(8,059)
Prior service cost obligation		345		471		597
		(5,814)		(7,576)		(7,462)
Tax effect		1,977		2,576		2,537
Net amount recognized in accumulated other comprehensive loss	$	(3,837)	$	(5,000)	$	(4,925)

	For the Years Ended December 31
Components of net periodic pension cost	2013		2012		2011
Service cost	$	456	$	460	$	358
Interest cost		715		716		729
Expected return on plan assets		(1,247)		(788)		(757)
Amortization of prior service cost		(125)		(125)		(126)
Recognized net actuarial loss		761		810		501
Net periodic pension cost	$	560	$	1,073	$	705

	For the Years Ended December 31
	2013		2012		2011
Assumptions used to determine benefit obligations:
Discount rate		4.76%		3.89%		4.18%
Rate of compensation increase		4.00%		4.00%		4.00%
Assumptions used to determine net periodic benefit cost:
Discount rate		3.89%		4.18%		5.28%
Expected long-term return on plan assets		7.00%		7.00%		7.50%
Rate of compensation increase		4.00%		4.00%		4.50%
Asset allocations:
Cash and cash equivalents		10%		35%		3%
Common stocks		33%		22%		25%
Corporate bonds		6%		3%		7%
Municipal bonds		43%		38%		62%
Investment fund - debt		7%		-		-
Insurance contracts		1%		2%		3%
Total		100%		100%		100%
Shares of the Corporation's common stock held in the plan
Value of shares  (in thousands)	$	49	$	40	$	36
Percent of total plan assets		0.3%		0.2%		0.3%

	For the Years Ended December 31
Reconciliation of Funded Status	2013		2012		2011
Funded Status	$	1,319	$	116	$	(5,480)
Unrecognized net actuarial loss		6,159		8,047		8,059
Unrecognized prior service cost		(345)		(471)		(597)
Net Asset recognized	$	7,133	$	7,692	$	1,982
Accumulated Benefit Obligation	$	16,596	$	17,859	$	16,532

The following table sets forth by level, within the fair value hierarchy, the Plan's investments at fair value as of December 31, 2013 and 2012. For more information on the levels within the fair value hierarchy, please refer to Note 20.

(Dollars in Thousands)	December 31, 2013
Asset  Description	Fair Value		Level 1		Level 2		Level 3
Cash and cash equivalents	$	1,753	$	1,753	$	-	$	-
Common stocks		6,210		6,210		-		-
Corporate bonds		1,162		-		1,162		-
Municipal bonds		8,041		-		8,041		-
Investment fund - debt		1,312		-		1,312		-
Cash value of life insurance		91		-		-		91
Deposit in immediate participation guarantee contract		31		-		-		31
Total assets	$	18,600	$	7,963	$	10,515	$	122

(Dollars in Thousands)	December 31, 2012
Asset  Description	Fair Value		Level 1		Level 2		Level 3
Cash and cash equivalents	$	6,506	$	6,506	$	-	$	-
Common stocks		4,128		4,128		-		-
Corporate bonds		603		-		603		-
Municipal bonds		7,213		-		7,213		-
Cash value of life insurance		87		-		-		87
Deposit in immediate participation guarantee contract		227		-		-		227
Total assets	$	18,764	$	10,634	$	7,816	$	314

The following table sets forth a summary of the changes in the fair value of the Plan's level 3 investments for the years ended December 31, 2013 and 2012:

			Deposits in
			Immediate
	Cash Value		Participation
	of  Life		Guarantee
	Insurance		Contract
Balance - January 1, 2013	$	87	$	227
Unrealized gain (loss)  relating to investments held at the reporting date		4		10
Purchases, sales, issuances and settlement, net		-		(206)
Balance - December 31, 2013	$	91	$	31
Balance - January 1, 2012	$	83	$	240
Unrealized gain (loss)  relating to investments held at the reporting date		4		3
Purchases, sales, issuances and settlement, net		-		(16)
Balance - December 31, 2012	$	87	$	227

Contributions

The Bank does not expect to make a pension contribution in 2014.

Estimated future benefit payments at December 31, 2013 (in thousands)

2014	$	915
2015		896
2016		974
2017		968
2018		959
2019-2022		5,010
	$	9,722

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Premises And Equipment (Tables)

12 Months Ended

Dec. 31, 2013

Premises And Equipment [Abstract]

Property, Plant And Equipment

		December 31
(Dollars in thousands)	Estimated Life	2013		2012
Land		$	3,033	$	3,033
Buildings and leasehold improvements	15 - 30 years, or lease term		23,488		23,526
Furniture, fixtures and equipment	3  - 10 years		14,202		15,053
Total cost			40,723		41,612
Less: Accumulated depreciation			(24,578)		(24,575)
Net premises and equipment		$	16,145	$	17,037

Schedule Of Depreciation And Rent Expense

	2013		2012		2011
Depreciation expense	$	1,419	$	1,301	$	1,293
Rent expense on leases	$	673	$	472	$	406

Operating Leases Of Lessee Disclosure

(Dollars in thousands)
2014	$	667
2015		561
2016		526
2017		499
2018		506
2019 and beyond		5,486
	$	8,245

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Financial Derivatives (Schedule Of Effect Of Derivative Instruments On The Statement Of Income) (Details) (Interest Rate Contract [Member], USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Interest Rate Contract [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Amount of Gain or (Loss) Recognized in OCI net of tax on (Effective Portion)	$ 358	$ 420	$ 8
Location of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)	Interest Expense	Interest Expense	Interest Expense
Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)	$ (525)	$ (736)	$ (727)
Location of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)	Other income (expense)	Other income (expense)	Other income (expense)

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Deferred Compensation Agreement

12 Months Ended

Dec. 31, 2013

Deferred Compensation Agreement [Abstract]

Deferred Compensation Agreement

Note 16. Deferred Compensation Agreement

The Corporation has entered into deferred compensation agreements with four directors that provides for the payment of benefits over a ten-year period, beginning at age 65.  At inception, the present value of the obligations under these deferred compensation agreements amounted to approximately $600 thousand, which is being accrued over the estimated remaining service period of these officers and directors.  Expense associated with the agreements was $18 thousand for 2013 and  $20 thousand for 2012 and 2011.  Payments for the directors deferred compensation plan are scheduled through 2022.

The Corporation has two deferred compensation agreements it recorded as part of its acquisition of Fulton Bancshares Corporation in 2006.  In the fourth quarter of 2013, the Bank recorded a nonrecurring expense of $667 thousand for one of the deferred compensation plans assumed by the Bank. At the time of the acquisition, information provided by the FDIC to the Bank indicated that this payout was a non-permissible payment and therefore not accrued in prior years. The FDIC decision was challenged by the beneficiary of the payment, and more than 7 years later, the FDIC reversed its decision thereby permitting the payment and resulted in an expense to the Bank.No future expense will be recognized for these plans. Payments for the deferred compensation agreements are scheduled through 2021.

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Loan Quality (Impaired Financing Receivables) (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012
Financing Receivable, Impaired [Line Items]
Recorded Investment With No Allowance	$ 27,951	$ 35,593
Unpaid Principal Balance With No Allowance	34,606	39,510
Recorded Investment With Allowance	2,945	3,771
Unpaid Principal Balance With Allowance	3,125	4,419
Related Allowance	1,100	847
Residential Real Estate First Liens [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment With No Allowance	3,030	3,504
Unpaid Principal Balance With No Allowance	3,500	3,715
Recorded Investment With Allowance	9	80
Unpaid Principal Balance With Allowance	39	80
Related Allowance	9	20
Residential Real Estate Junior Liens & Lines Of Credit [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment With No Allowance	108	691
Unpaid Principal Balance With No Allowance	127	707
Residential Real Estate 1-4 Family [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment With No Allowance	3,138	4,195
Unpaid Principal Balance With No Allowance	3,627	4,422
Recorded Investment With Allowance	9	80
Unpaid Principal Balance With Allowance	39	80
Related Allowance	9	20
Residential Real Estate - Construction [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment With No Allowance	537	557
Unpaid Principal Balance With No Allowance	556	567
Commercial Real Estate [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment With No Allowance	24,188	28,346
Unpaid Principal Balance With No Allowance	30,334	31,937
Recorded Investment With Allowance	966	2,603
Unpaid Principal Balance With Allowance	1,043	3,194
Related Allowance	89	357
Commercial [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment With No Allowance	88	2,495
Unpaid Principal Balance With No Allowance	89	2,584
Recorded Investment With Allowance	1,970	1,088
Unpaid Principal Balance With Allowance	2,043	1,145
Related Allowance	1,002	470
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

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Stock Purchase Plans (Narrative) (Details) (USD $) In Thousands, except Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Term of service completed before eligible for coverage	1 year 1000 hours
ESPP [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares available for issuance	250,000
Minimum percent of fair value market option price	90.00%
Expiration date, maximum term from grant date, in years	1 year
Compensation expense	$ 0	$ 0	$ 0
Number of shares available for fututre grants	202,132
Grant price, percent of the stock's fair value at the time of award	95.00%
Option expiration date	Jul. 02, 2014
ISOP [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares available for issuance	354,877
Minimum percent of fair value market option price	100.00%
Period of incentive stock option plan, in years	10 years
Option term, in years	10 years
Term of service completed before eligible for coverage	6 months
Shares issued	0

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Consolidated Statements Of Changes In Shareholders' Equity (Parenthetical) (USD $)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Consolidated Statements Of Changes In Shareholders' Equity [Abstract]
Cash dividends declared	$ 0.68	$ 0.78	$ 1.08
Treasury shares issued under stock option plan, shares	4,007	140	1,776
Common stock issued under dividend reinvestment plan, shares	57,320	84,122	102,200

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Consolidated Balance Sheets (Parenthetical) (USD $)	Dec. 31, 2013	Dec. 31, 2012
Consolidated Balance Sheets [Abstract]
Common Stock, Par or Stated Value Per Share	$ 1.00	$ 1
Common Stock, Shares Authorized	15,000,000	15,000,000
Common Stock, Shares, Issued	4,560,700	4,503,380
Common Stock, Shares, Outstanding	4,168,673	4,107,346
Capital stock, no par value
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	392,027	396,034

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Deposits

12 Months Ended

Dec. 31, 2013

Deposits [Abstract]

Deposits

Note 9. Deposits

Deposits are summarized as follows:

	December 31
(Dollars in thousands)	2013		2012
Noninterest-bearing checking	$	121,565	$	123,623
Interest-bearing checking		180,450		135,454
Money management		370,401		380,079
Savings		59,394		57,165
Total interest-bearing checking and savings		610,245		572,698
Retail time deposits		108,283		127,861
Brokered time deposits		5,631		50,258
Total time deposits		113,914		178,119
Total deposits	$	845,724	$	874,440
Overdrawn deposit accounts reclassified as loans	$	106	$	128

The following table shows the maturity of outstanding time deposits of $100,000 or more at December 31, 2013:

	Retail		Brokered		Total
(Dollars in thousands)	Time Deposits		Time Deposits		Time Deposits
Maturity distribution:
Within three months	$	4,601	$	450	$	5,051
Over three through six months		5,128		-		5,128
Over six through twelve months		4,576		2,319		6,895
Over twelve months		11,644		2,557		14,201
Total	$	25,949	$	5,326	$	31,275

At December 31, 2013 the scheduled maturities of time deposits are as follows:

	Retail		Brokered		Total
	Time Deposits		Time Deposits		Time Deposits
(Dollars in thousands)
2014	$	63,603	$	3,016	$	66,619
2015		21,529		2,509		24,038
2016		10,415		-		10,415
2017		12,736		106		12,842
2018		-		-		-
2019 and beyond		-		-		-
	$	108,283	$	5,631	$	113,914

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Benefit Plans (Schedule Of Assumptions Used) (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Defined Benefit Plan Disclosure [Line Items]
Assumptions used to determine benefit obligations as of measurement date: Discount rate	4.76%	3.89%	4.18%
Assumptions used to determine benefit obligations as of measurement date: Rate of compensation increase	4.00%	4.00%	4.00%
Assumptions used to determine net periodic benefit cost: Discount rate	3.89%	4.18%	5.28%
Assumptions used to determine net periodic benefit cost: Expected long-term return on plan assets	7.00%	7.00%	7.50%
Assumptions used to determine net periodic benefit cost: Rate of compensation increase	4.00%	4.00%	4.50%
Asset allocations as of measurement date:	100.00%	100.00%	100.00%
Shares of the Corporation's common stock held in the plan, Value of shares (in thousands)	$ 49	$ 40	$ 36
Shares of the Corporation's common stock held in the plan, Percent of total plan assets	0.30%	0.20%	0.30%
Cash And Cash Equivalents [Member]
Defined Benefit Plan Disclosure [Line Items]
Asset allocations as of measurement date:	10.00%	35.00%	3.00%
Equity Securities [Member]
Defined Benefit Plan Disclosure [Line Items]
Asset allocations as of measurement date:	33.00%	22.00%	25.00%
Corporate Debt Securities [Member]
Defined Benefit Plan Disclosure [Line Items]
Asset allocations as of measurement date:	6.00%	3.00%	7.00%
Municipal Securities [Member]
Defined Benefit Plan Disclosure [Line Items]
Asset allocations as of measurement date:	43.00%	38.00%	62.00%
Investment Fund-Debt [Member]
Defined Benefit Plan Disclosure [Line Items]
Asset allocations as of measurement date:	7.00%
Insurance contracts [Member]
Defined Benefit Plan Disclosure [Line Items]
Asset allocations as of measurement date:	1.00%	2.00%	3.00%

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Federal Income Taxes (Schedule Of Effective Income Tax Rate Reconciliation) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2013	Sep. 30, 2013	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Federal Income Taxes [Abstract]
Tax provision at statutory rate									$ 2,559	$ 1,998	$ 2,373
Income on tax-exempt loans and securities									(1,212)	(1,251)	(1,167)
Nondeductible interest expense relating to carrying tax-exempt obligations									30	43	63
Dividends received exclusion									(15)	(17)	(20)
Income from bank owned life insurance									(185)	(217)	(226)
Valuataion allowance											32
Life insurance proceeds									111
Other, net									7	(44)	(644)
Income tax provision	$ 206	$ 583	$ 198	$ 308	$ (382)	$ 318	$ 356	$ 218	$ 1,295	$ 512	$ 411
Effective income tax rate									17.20%	8.70%	5.90%

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Federal Income Taxes (Schedule Of Deferred Tax Assets And Liabilities) (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012
Federal Income Taxes [Abstract]
Allowance for loan losses	$ 3,299	$ 3,529
Deferred compensation	1,015	1,102
Purchase accounting	50	63
Deferred loan fees and costs, net	160	160
Capital loss carryover	887	887
Other than temporary impairment of investments	538	512
Accumulated other comprehensive loss	2,420	2,087
AMT Credit	226	968
Other	1,062	703
Deferred Tax Assets, Gross, Total	9,657	10,011
Valuation allowance	(1,250)	(1,232)
Total gross deferred tax assets	8,407	8,779
Core deposits intangibles	184	307
Depreciation	184	179
Joint ventures and partnerships	53	62
Pension	2,425	2,615
Mortgage servicing rights	63	80
Customer list	53	75
Total gross deferred tax liabilities	2,962	3,318
Net deferred tax asset	$ 5,445	$ 5,461

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Quarterly Results Of Operations (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2013	Sep. 30, 2013	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Quarterly Results Of Operations [Abstract]
Interest income	$ 9,123	$ 8,941	$ 8,876	$ 9,102	$ 9,463	$ 9,728	$ 10,002	$ 9,951	$ 36,042	$ 39,142	$ 41,791
Interest expense	896	945	1,296	1,242	1,422	1,692	1,811	1,967	4,378	6,890	9,154
Net interest income	8,227	7,996	7,580	7,860	8,041	8,036	8,191	7,984	31,664	32,252	32,637
Provision for loan losses	965	350	803	803	1,625	825	825	1,950	2,920	5,225	7,524
Other noninterest income	2,584	2,529	2,422	2,384	2,236	2,236	2,472	2,563	240	184	720
Securities gains (losses)	4	(25)	(21)		(50)	(27)	21		33	44	157
Noninterest expense	8,503	7,382	7,625	7,582	8,640	7,355	7,597	7,010	31,094	30,601	28,333
Income before income taxes	1,347	2,768	1,553	1,859	(38)	2,065	2,262	1,587	7,527	5,877	6,980
Federal income tax expense (benefit)	206	583	198	308	(382)	318	356	218	1,295	512	411
Net income	$ 1,141	$ 2,185	$ 1,355	$ 1,551	$ 344	$ 1,747	$ 1,906	$ 1,369	$ 6,232	$ 5,365	$ 6,569
Basic earnings per share	$ 0.27	$ 0.53	$ 0.33	$ 0.38	$ 0.08	$ 0.43	$ 0.47	$ 0.34	$ 1.51	$ 1.32	$ 1.66
Diluted earnings per share	$ 0.27	$ 0.53	$ 0.33	$ 0.38	$ 0.08	$ 0.43	$ 0.47	$ 0.34	$ 1.51	$ 1.32	$ 1.66
Dividends declared per share	$ 0.17	$ 0.17	$ 0.17	$ 0.17	$ 0.17	$ 0.17	$ 0.17	$ 0.27	$ 0.68	$ 0.78	$ 1.08

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Parent Company (Franklin Financial Services Corporation) Financial Information (Schedule Of Condensed Income Statement) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2013	Sep. 30, 2013	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Condensed Financial Statements, Captions [Line Items]
Net OTTI losses recognized in earnings									$ (75)	$ (100)	$ (240)
Securities gains (losses), net	4	(25)	(21)		(50)	(27)	21		33	44	157
Income before federal income taxes	1,347	2,768	1,553	1,859	(38)	2,065	2,262	1,587	7,527	5,877	6,980
Income tax benefit	(206)	(583)	(198)	(308)	382	(318)	(356)	(218)	(1,295)	(512)	(411)
Net income	1,141	2,185	1,355	1,551	344	1,747	1,906	1,369	6,232	5,365	6,569
Parent [Member]
Condensed Financial Statements, Captions [Line Items]
Dividends from Bank subsidiary									2,529	2,680	3,231
Interest and dividend subsidiary									31	29	28
Net OTTI losses recognized in earnings									(50)		(4)
Securities gains (losses), net									30	(1)	(37)
Income									2,540	2,708	3,218
Operating Expenses									752	734	728
Income before federal income taxes									1,788	1,974	2,490
Income tax benefit									259	249	236
Equity in undistributed income of subsidiaries									4,185	3,142	3,843
Net income									$ 6,232	$ 5,365	$ 6,569

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Document and Entity Information (USD $)	12 Months Ended
	Dec. 31, 2013	Feb. 28, 2014	Jun. 30, 2013
Document and Entity Information [Abstract]
Document Type	10-K
Amendment Flag	false
Document Period End Date	Dec. 31, 2013
Document Fiscal Period Focus	FY
Document Fiscal Year Focus	2013
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		4,176,588
Entity Current Reporting Status	Yes
Entity Public Float			$ 60,581,104
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	No
Trading Symbol	fraf

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Securities Sold Under Agreements To Repurchase, Short-Term Borrowings And Long-Term Debt

12 Months Ended

Dec. 31, 2013

Securities Sold Under Agreements To Repurchase, Short-Term Borrowings And Long-Term Debt [Abstract]

Securities Sold Under Agreements To Repurchase, Short-Term Borrowings And Long-Term Debt

Note 10. Securities Sold Under Agreements to Repurchase, Short-Term Borrowings and Long-Term Debt

The Bank's short-term borrowings are comprised of securities sold under agreements to repurchase and a line-of-credit with the Federal Home Loan Bank of Pittsburgh (Open Repo Plus).  Securities sold under agreements to repurchase are overnight borrowings between the Bank and its commercial and municipal depositors. These accounts reprice weekly.  Open Repo Plus is a revolving term commitment used on an overnight basis.  The term of this commitment may not exceed 364 days and it reprices daily at market rates.These borrowings are described below:

	December 31
	2013				2012
	Repurchase		FHLB		Repurchase		FHLB
(Dollars in thousands)	Agreements		Open Repo		Agreements		Open Repo
Ending balance	$	23,834	$	-	$	42,209	$	-
Weighted average rate at year end		0.15%		-		0.15%		-
Range of interest rates paid at year end		0.15%		-		0.15%		-
Maximum month-end balance during the year	$	52,880	$	-	$	57,279	$	-
Average balance during the year	$	32,407	$	-	$	51,558	$	-
Weighted average interest rate during the year		0.15%		-		0.15%		-

The collateral for securities sold under agreements to repurchase consists of U.S. Government and U.S. Government agency securities with a fair value of $32.0 million and $54.1 million, respectively, at December 31, 2013 and 2012.

A summary of long-term debt at the end of the reporting period follows:

	December 31
(Dollars in thousands)	2013		2012
Loans from the Federal Home Loan Bank	$	12,403	$	12,410

The loans from the FHLB are comprised of term loans payable at maturity and amortizing advances.  These loans have fixed interest rates ranging from 3.70% to 5.60% (weighted average rate of 3.90%) and final maturities ranging from November 2014 to November 2039. All borrowings from the FHLB are collateralized by FHLB stock, mortgage-backed securities and first mortgage loans.

The scheduled amortization and maturities of the FHLB borrowings at December 31, 2013 are as follows:

(Dollars in thousands)
2014	$	2,008
2015		10,008
2016		8
2017		9
2018		9
2019 and beyond		361
	$	12,403

The Corporation’s maximum borrowing capacity with the FHLB at December 31, 2013 was $77.2 million.  The total amount available to borrow at year-end was approximately $64.8 million.

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Goodwill And Intangible Assets (Schedule Of Other Intangible Assets) (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012
Finite-Lived Intangible Assets [Line Items]
Net carrying amount	$ 698	$ 1,123
Core Deposits [Member]
Finite-Lived Intangible Assets [Line Items]
Gross carrying amount	3,252	3,252
Accumulated amortizatoin	(2,710)	(2,349)
Net carrying amount	542	903
Customer Lists [Member]
Finite-Lived Intangible Assets [Line Items]
Gross carrying amount	589	589
Accumulated amortizatoin	(433)	(369)
Net carrying amount	$ 156	$ 220

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Federal Income Taxes (Narrative) (Details) (USD $)	3 Months Ended		12 Months Ended
	Jun. 30, 2011	Mar. 31, 2011	Dec. 31, 2011	Dec. 31, 2013	Dec. 31, 2012
Tax Credit Carryforward [Line Items]
Adjustment to income tax expense	$ 660,000	$ 95,000
Effective tax rate had the tax adjustment been allocated proportionally to the years it was generated			15.30%
Capital loss carryover				887,000	887,000
Capital Loss Carryover [Member]
Tax Credit Carryforward [Line Items]
Carryforward amount				2,600,000
Valuation allowance				$ 887,000

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Consolidated Statements Of Income (USD $) In Thousands, except Per Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Interest income
Loans, including fees	$ 32,457	$ 35,647	$ 37,937
Interest and dividends on investments:
Taxable interest	1,783	1,725	2,318
Tax exempt interest	1,509	1,483	1,395
Dividend income	80	80	82
Deposits and obligations of other banks	213	207	59
Total interest income	36,042	39,142	41,791
Interest expense
Deposits	3,839	5,173	6,649
Securities sold under agreements to repurchase	48	78	150
Short-term borrowings			1
Long-term debt	491	1,639	2,354
Total interest expense	4,378	6,890	9,154
Net interest income	31,664	32,252	32,637
Provision for loan losses	2,920	5,225	7,524
Net interest income after provision for loan losses	28,744	27,027	25,113
Noninterest income
Investment and trust services fees	4,429	4,087	3,953
Loan service charges	879	1,210	1,198
Mortgage banking activities	47	6	(72)
Deposit service charges and fees	1,831	1,925	2,142
Other service charges and fees	907	864	614
Debit card income	1,236	1,161	1,024
Increase in cash surrender value of life insurance	605	652	682
Other real estate owned (losses) gains, net	(255)	(582)	22
Other	240	184	720
Net OTTI losses recognized in earnings	(75)	(100)	(240)
Securities gains (losses), net	33	44	157
Total noninterest income	9,877	9,451	10,200
Noninterest expense
Salaries and employee benefits	16,590	16,626	15,195
Net occupancy expense	2,259	2,024	2,006
Furniture and equipment expense	975	875	837
Advertising	1,384	1,401	1,335
Legal and professional fees	1,172	1,170	1,069
Data processing	1,713	1,642	1,462
Pennsylvania bank shares tax	815	745	681
Intangible amortization	425	435	446
FDIC insurance	979	1,093	1,084
ATM/debit card processing	706	630	332
Other	4,076	3,960	3,886
Total noninterest expense	31,094	30,601	28,333
Income before federal income taxes	7,527	5,877	6,980
Federal income tax expense	1,295	512	411
Net income	$ 6,232	$ 5,365	$ 6,569
Per share
Basic earnings per share	$ 1.51	$ 1.32	$ 1.66
Diluted earnings per share	$ 1.51	$ 1.32	$ 1.66
Cash dividends declared	$ 0.68	$ 0.78	$ 1.08

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Investments

12 Months Ended

Dec. 31, 2013

Investments [Abstract]

Investments

Note 4. Investments

The investment portfolio serves as a mechanism to invest funds if funding sources out pace lending activity, to provide liquidity for lending and operations, and provide collateral for deposits and borrowings. The Corporation invests in taxable and tax-free debt securities, and equity securities as part of its investment strategy.  The mix of taxable and tax-free debt securities are determined by the Bank’s Investment Committee and investing decisions are made as a component of balance sheet management. Debt securities include U.S. Government Agencies, U.S. Government Agency mortgage-backed securities, non-agency mortgage-backed securities, state and municipal government bonds, corporate debt and trust preferred securities.  The equity portfolio consists of bank stocks only and is considered to be longer-term with a focus on capital appreciation.  All securities are classified as available for sale and all investment balances refer to fair value.

Equities:  The equity portfolio is comprised entirely of bank stocks with the Bank and the Corporation each holding separate portfolios. The stocks held in the portfolio range from community banks to large national banks. During 2013, both the Bank and the Corporation began the process of reducing the size of their equity portfolios.It is expected that both portfolios will continue to be reduced.

Municipal Bonds:  Approximately $54 million of the portfolio is rated “A” or higher by Moody and the weighted average rating of the portfolio is “Aa3”.   The Bank owns six issues for $2.4 million that are not rated by a nationally recognized rating agency.

Corporate Bonds:  There is one variable rate bond in the corporate bond portfolio in the financial services sector. This bond is rated A3 by Moody’s  and is scheduled to mature in 2013.

Trust Preferred Bonds:  The following table provides additional detail about the Bank’s trust preferred securities at December 31, 2013. The holdings remain the same as at the prior year end, but the unrealized loss has declined from $1.1 million to $871 thousand. The credit ratings for each bond are similar to the rating one year prior. Trust preferred securities are typically issued by a subsidiary grantor trust of a bank holding company, which uses the proceeds of the equity issuance to purchase deeply subordinated debt issued by the bank holding company.  Trust-preferred securities can reflect single entity issues or a group of entities (pooled trust preferred). Pooled trust preferred securities have been the subject of significant write-downs due in some cases from the default of one issuer in the pool that then impairs the entire pool. All of the Bank’s issues are single issuer, variable rate notes with long final maturities (2027-2028) that continue to pay dividends.

Mortgage-backed Securities:  This sector holds $83.0 million or 52% of the total portfolio. The majority of this sector ($81.0 million) is comprised of U.S. Government Agency MBS. In addition, the Bank holds six private label mortgage-backed securities (PLMBS) with a fair value of $2.0 million and an amortized cost of $2.0 million.  The PLMBS bonds paid down by more than $500 thousand in 2013.

The Bank’s PLMBS portfolio is comprised primarily of Alt-A loans. Alt-A loans are first-lien residential mortgages that generally conform to traditional “prime” credit guidelines; however, loan factors such as the loan-to-value ratio, loan documentation, occupancy status or property type cause these loans not to qualify for standard underwriting programs.  The Alt-A product in the Bank’s portfolio is comprised of fixed-rate mortgages that were originated between 2003 and 2006 and all were originally rated AAA. The bonds issued in 2006 are experiencing the highest delinquency and loss rates. All of these bonds originally had some type of credit support tranche to absorb any loss prior to losses at the senior tranche held by the Bank, but this has eroded completely on some bonds as they have started to experience losses. The Bank recorded other-than-temporary impairment charges of $75 thousand on two PLMBS and three equity securities in 2013.  Based on the performance of some the PLMBS, it appears as if the underwriting standards that were represented in the offering, and resulted in the AAA rating, were not followed. As a result, the Bank purchased some securities based on these misrepresentations, and it is most likely that these securities would not have been purchased had all the information been reported correctly. The Bank is participating in a lawsuit against certain issuers related to these misrepresentations.  

The amortized cost and estimated fair value of investment securities available for sale as of December 31, 2013 and 2012 is as follows:

(Dollars in thousands)			Gross		Gross
	Amortized		unrealized		unrealized		Fair
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

(Dollars in thousands)			Gross		Gross
	Amortized		unrealized		unrealized		Fair
2012	cost		gains		losses		value
Equity securities	$	2,104	$	92	$	(255)	$	1,941
U.S. Government agency securities		12,657		156		(4)		12,809
Municipal securities		58,395		2,984		(163)		61,216
Corporate debt securities		1,005		-		(11)		994
Trust preferred securities		5,905		-		(1,075)		4,830
Agency mortgage-backed securities		48,121		1,029		(84)		49,066
Private-label mortgage-backed securities		2,539		10		(123)		2,426
Asset-backed securities		59		-		(13)		46
	$	130,785	$	4,271	$	(1,728)	$	133,328

At December 31, 2013 and 2012, the fair value of investment securities pledged to secure public funds, trust balances, repurchase agreements, deposit and other obligations totaled $107.6 million and $119.8 million, respectively.

The amortized cost and estimated fair value of debt securities at December 31, 2013, by contractual maturity are shown below.Actual maturities may differ from contractual maturities because of prepayment or call options embedded in the securities.

	Amortized		Fair
(Dollars in thousands)	cost		value
Due in one year or less	$	1,513	$	1,515
Due after one year through five years		13,540		14,115
Due after five years through ten years		23,229		23,239
Due after ten years		37,325		35,839
		75,607		74,708
Mortgage-backed securities		83,336		82,996
	$	158,943	$	157,704

The composition of the net realized securities gains (losses) for the years ended December 31, 2013, 2012 and 2011 is as follows:

(Dollars in thousands)	2013		2012		2011
Gross gains realized	$	185	$	45	$	195
Gross losses realized		(152)		(1)		(38)
Net gains realized	$	33	$	44	$	157
Tax provision applicable to net securities gains	$	11	$	15	$	53

Impairment:

The condition of the portfolio at year-end 2013, as measured by the dollar amount of temporarily impaired securities, has weakened. The municipal bond portfolio recorded the largest unrealized loss, but the agency mortgage backed portfolio shows the greatest number of securities with an unrealized loss.

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 December 31, 2013, was deemed to be temporary and required no further adjustments to the financial statements, unless otherwise noted.

	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

	December 31, 2012
	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	$	226	$	(20)	3	$	1,236	$	(235)	13	$	1,462	$	(255)	16
U.S. Government agency securities		938		(1)	1		3,346		(3)	6		4,284		(4)	7
Municipal securities		8,789		(163)	10		-		-	-		8,789		(163)	10
Corporate debt securities		-		-	-		994		(11)	1		994		(11)	1
Trust preferred securities		-		-	-		4,830		(1,075)	7		4,830		(1,075)	7
Agency mortgage-backed securities		6,869		(68)	8		2,664		(16)	6		9,533		(84)	14
Private-label mortgage-backed securities		-		-	-		1,875		(123)	5		1,875		(123)	5
Asset-backed securities		-		-	-		46		(13)	3		46		(13)	3
Total temporarily impaired securities	$	16,822	$	(252)	22	$	14,991	$	(1,476)	41	$	31,813	$	(1,728)	63

The unrealized loss in the trust preferred sector declined by approximately $200 thousand compared to the prior year-end and market prices continued to show improvement during 2013. All of the Bank’s trust preferred securities are variable rate notes with long maturities (2027 – 2028) from companies that received money (and in some cases paid back) from the Troubled Asset Relief Program (TARP), continue to pay dividends and have raised capital.  The credit ratings on this portfolio are similar to the prior year and no bonds have missed or suspended any payments. At December 31, 2013, the Bank believes it will be able to collect all interest and principal due on these bonds and that it will not be forced to sell these bonds prior to maturity. Therefore, no other-than-temporary-impairment charges were recorded.

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	$	936	$	809	$	(127)	BB+	1	None	None
Huntington Cap Trust II	Single	Preferred Stock		885		778		(107)	BB+	1	None	None
BankAmerica Cap III	Single	Preferred Stock		960		793		(167)	BB+	1	None	None
Wachovia Cap Trust II	Single	Preferred Stock		275		245		(30)	BBB+	1	None	None
Corestates Captl Tr II	Single	Preferred Stock		932		829		(103)	BBB+	1	None	None
Chase Cap VI JPM	Single	Preferred Stock		960		798		(162)	BBB	1	None	None
Fleet Cap Tr V	Single	Preferred Stock		974		799		(175)	BB+	1	None	None
			$	5,922	$	5,051	$	(871)

The PLMBS sector continues to show a gross unrealized loss of $31 thousand on two securities.  The majority of this sector is comprised of “Alt-A” PLMBS. 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 Alt-A 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 two bonds contained losses that were considered other-than-temporary. Management determined $25 thousand was credit related and therefore, recorded an impairment charge of $25 thousand against earnings in 2013.  The market for PLMBS continues to be weak and Management believes that this factor accounts for a portion of the unrealized losses that is not attributable to credit issues. Management continues to monitor these securities and it is possible that additional write-downs may occur if current loss trends continue. The Bank is 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 resolution of this action is unknown at this time. For additional detail on the Bank’s PLMBS see the following table.

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	$	184	$	184	$	-	ALT A	BBB+	12.38	$	-
MALT 2004-6 7A1	6/1/2004		435		441		6	ALT A	CCC	14.26		-
RALI 2005-QS2 A1	2/1/2005		326		335		9	ALT A	CC	5.93		10
RALI 2006-QS4 A2	4/1/2006		607		583		(24)	ALT A	D	-		293
GSR 2006-5F 2A1	5/1/2006		97		98		1	Prime	D	-		15
RALI 2006-QS8 A1	7/28/2006		335		328		(7)	ALT A	D	-		197
		$	1,984	$	1,969	$	(15)				$	515

The following table represents the cumulative credit losses on debt securities recognized in earnings as of December 31, 2013.  

(Dollars in thousands)	Twelve Months Ended
	2013			2012
Balance of cumulative credit-related OTTI at January 1	$	490	$	390
Additions for credit-related OTTI not previously recognized		25		100
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 December 31	$	515	$	490

The Bank held $1.9 million of restricted stock at the end of 2013. The restricted stock is comprised primarily of an investment in the Federal Home Loan Bank of Pittsburgh (FHLB). FHLB stock is carried at a cost of $100 per share. During 2013, FHLB repurchased $1.7 million in stock and began paying a dividend. 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 it 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. If FHLB stock were deemed to be impaired, the write-down for the Bank could be significant. 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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Restricted Cash Balances

12 Months Ended

Dec. 31, 2013

Restricted Cash Balances [Abstract]

Restricted Cash Balances

Note 3. Restricted Cash Balances

The Bank is required to maintain reserves against its deposit liabilities in the form of vault cash and/or balances with the Federal Reserve Bank.  Deposit reserves that the Bank was required to hold were approximately $2.0 million and $838 thousand at December 31, 2013 and 2012, respectively and were satisfied by the Bank’s vault cash.

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Stock Purchase Plans

12 Months Ended

Dec. 31, 2013

Stock Purchase Plans [Abstract]

Stock Purchase Plans

Note 15. Stock Purchase Plans

In 2004, the Corporation adopted the Employee Stock Purchase Plan of 2004 (ESPP), replacing the ESPP of 1994 that expired in 2004. Under the ESPP of 2004, options for 250,000 shares of stock can be issued to eligible employees. The number of shares that can be purchased by each participant is defined by the plan and the Board of Directors sets the option price. However, the option price cannot be less than 90% of the fair market value of a share of the Corporation’s common stock on the date the option is granted.  The Board of Directors also determines the expiration date of the options; however, no option may have a term that exceeds 1 year from the grant date. ESPP options are exercisable immediately upon grant.  Any shares related to unexercised options are available for future grant.  As of December 31, 2013, there are 202,132 shares available for future grants. The Board of Directors may amend, suspend or terminate the ESPP at any time.  The grant price of the 2013 ESPP options was set at 95% of the stock’s fair value at the time of the award.  There was no compensation expense recognized in 2013, 2012 or 2011 for the ESPP. 

In 2002, the Corporation adopted the Incentive Stock Option Plan of 2002 (ISOP). The plan had a 10 year life with regard to awarding options and expired in 2012.  However, awards granted prior to expiration of the plan will continue to be exercisable in accordance with the plan. In 2013, the Corporation approved the Incentive Stock Option Plan of 2013. Under the 2013 ISOP, options for 354,877 shares of stock where authorized to be issued to selected Officers, as defined in the plan.  The number of options available to be awarded to each eligible Officer is determined by the Board of Directors, but is limited with respect to the aggregate fair value of the options as defined in the plan.  The exercise price of the option may be no less than 100% of the fair value of a share of the Corporation’s common stock on the date the option is granted.  The options have a life of 10 years and may be exercised only after the optionee has completed 6 months of continuous employment with the Corporation or its Subsidiary immediately following the grant date, or upon a change of control as defined in the plan.  If awards are granted, the Corporation uses the “simplified” method for estimating the expected term of the ISO award.  The risk-free interest rate is the U.S. Treasury rate commensurate with the expected average life of the option at the date of grant. There were no shares issued in 2013 under the 2013 ISOP. At December 31, 2013 there were 354,877 shares available for issue under the 2013 ISOP.

The ESPP and ISOP options outstanding at December 31, 2013 are all exercisable.  The ESPP options expire on July 2, 2014 and the ISOP options expire 10 years from the grant date.  The following table summarizes the stock option activity:

(Dollars in thousands except share and per share data)
	ESPP	Weighted Average			Aggregate
	Options	Price Per Share			Intrinsic Value
Balance Outstanding at December 31, 2010	24,181		16.81
Granted	26,792		16.75
Exercised	(1,776)		16.80
Expired	(23,502)		16.81
Balance Outstanding at December 31, 2011	25,695		16.75
Granted	38,904		12.64
Exercised	(140)		12.64
Expired	(26,832)		16.58
Balance Outstanding at December 31, 2012	37,627	$	12.64
Granted	34,417		15.24
Exercised	(4,007)		12.84
Expired	(35,758)		12.77
Balance Outstanding at December 31, 2013	32,279	$	15.24	$	60

	ISOP	Weighted Average
	Options	Price Per Share
Balance Outstanding at December 31, 2010	82,874		23.42
Granted	-		-
Exercised	-		-
Forfeited	-		-
Balance Outstanding at December 31, 2011	82,874		23.42
Granted	-		-
Exercised	-		-
Forfeited	(20,550)		21.89
Balance Outstanding at December 31, 2012	62,324	$	23.93
Granted	-		-
Exercised	-		-
Forfeited	(6,499)		21.51
Balance Outstanding at December 31, 2013	55,825	$	24.21	-

The following table provides information about the options outstanding at December 31, 2013:

	Options				Weighted
	Outstanding	Exercise Price or	Weighted Average		Average Remaining
Stock Option Plan	and Exercisable	Price Range	Exercise Price		Life (years)
Employee Stock Purchase Plan	32,279	$ 15.24	$	15.24	0.5
Incentive Stock Option Plan	10,200	$ 16.11	$	16.11	5.2
Incentive Stock Option Plan	14,925	$ 23.77		23.77	4.1
Incentive Stock Option Plan	30,700	$24.92  -  $27.68		27.11	1.5
ISOP Total/Average	55,825		$	24.21	2.9

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Federal Income Taxes

12 Months Ended

Dec. 31, 2013

Federal Income Taxes [Abstract]

Federal Income Taxes

Note 11. Federal Income Taxes

The temporary differences which give rise to significant portions of deferred tax assets and liabilities are as follows:

(Dollars in thousands)	December 31
Deferred Tax Assets	2013		2012
Allowance for loan losses	$	3,299	$	3,529
Deferred compensation		1,015		1,102
Purchase accounting		50		63
Deferred loan fees and costs, net		160		160
Capital loss carryover		887		887
Other than temporary impairment of investments		538		512
Accumulated other comprehensive loss		2,420		2,087
AMT Credit		226		968
Other		1,062		703
		9,657		10,011
Valuation allowance		(1,250)		(1,232)
Total gross deferred tax assets		8,407		8,779
Deferred Tax Liabilities
Core deposit intangibles		184		307
Depreciation		184		179
Joint ventures and partnerships		53		62
Pension		2,425		2,615
Mortgage servicing rights		63		80
Customer list		53		75
Total gross deferred tax liabilities		2,962		3,318
Net deferred tax asset	$	5,445	$	5,461

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized.  The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during periods in which those temporary differences become deductible.  Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment.  Based on the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that the Bank will realize the benefits of these deferred tax assets.

The components of the provision for Federal income taxes attributable to income from operations were as follows:

	For the Years Ended December 31
(Dollars in thousands)	2013		2012		2011
Current tax expense	$	947	$	145	$	502
Deferred tax expense (benefit)		348		367		(91)
Income tax provision	$	1,295	$	512	$	411

For the years ended December 31, 2013, 2012, and 2011, the income tax provisions are different from the tax expense which would be computed by applying the Federal statutory rate to pretax operating earnings.  A reconciliation between the tax provision at the statutory rate and the tax provision at the effective tax rate is as follows:

	For the Years Ended December 31
(Dollars in thousands)	2013		2012		2011
Tax provision at statutory rate	$	2,559	$	1,998	$	2,373
Income on tax-exempt loans and securities		(1,212)		(1,251)		(1,167)
Nondeductible interest expense relating to carrying  tax-exempt obligations		30		43		63
Dividends received exclusion		(15)		(17)		(20)
Income from bank owned life insurance		(185)		(217)		(226)
Valuation allowance		-		-		32
Life insurance proceeds		111		-		-
Other, net		7		(44)		(644)
Income tax provision	$	1,295	$	512	$	411
Effective income tax rate		17.2%		8.7%		5.9%

During the second quarter of 2011, an internal review discovered that tax-exempt commercial loans booked in the fourth quarter of 2008, during 2009, 2010 and the first quarter of 2011 were not properly coded as tax-exempt in the Bank’s core processing system. This resulted in the income from these loans being recorded as taxable income and the benefit of the tax-exempt status was not reflected in the Corporation’s income tax calculation. After a thorough review of the affected loans to determine the unrecorded tax benefit, and consultation with the Corporation’s internal and external audit firms, the Corporation deemed the adjustment to be immaterial to the consolidated financial statements for the current and prior years and therefore, no prior period adjustment was required. The Corporation recorded the past income tax benefits during the second quarter of 2011. The adjustment to income tax expense made in the second quarter of 2011 was a credit of approximately $660 thousand attributable to the years 2008, 2009 and 2010 and approximately $95 thousand attributable to the first quarter of 2011.  This adjustment is reflected in the 2011 income tax expense.  The tax adjustment of $660 thousand is reflected in the other, net line item of the reconciliation of the tax provision shown above. Had the tax adjustment of $660 thousand been allocated proportionally to the years it was generated, the effective tax rate for 2011 would have been 15.3%.

At December 31, 2013, the Corporation had a capital loss carryover of $2.6 million.  This loss carryover can only be offset with capital gains for federal income tax purposes.  The tax benefit of this carryover is $887 thousand and the Corporation has recorded a valuation allowance of $887 thousand against the capital loss carryover.

The Corporation recognizes interest accrued related to unrecognized tax benefits and penalties in income tax expense for all periods presented.  The Corporation is no longer subject to U.S. Federal examinations by tax authorities for the years before 2010.

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Deposits (Maturity Of Time Deposits Of $100,000 Or More) (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013
Deposits [Line Items]
Within three months	$ 5,051
Over three through six months	5,128
Over six through twelve months	6,895
Over twelve months	14,201
Total	31,275
Retail Time Deposits [Member]
Deposits [Line Items]
Within three months	4,601
Over three through six months	5,128
Over six through twelve months	4,576
Over twelve months	11,644
Total	25,949
Brokered Time Deposits [Member]
Deposits [Line Items]
Within three months	450
Over six through twelve months	2,319
Over twelve months	2,557
Total	$ 5,326

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Premises And Equipment

12 Months Ended

Dec. 31, 2013

Premises And Equipment [Abstract]

Premises And Equipment

Note 7. Premises and Equipment

Premises and equipment consist of:

		December 31
(Dollars in thousands)	Estimated Life	2013		2012
Land		$	3,033	$	3,033
Buildings and leasehold improvements	15 - 30 years, or lease term		23,488		23,526
Furniture, fixtures and equipment	3  - 10 years		14,202		15,053
Total cost			40,723		41,612
Less: Accumulated depreciation			(24,578)		(24,575)
Net premises and equipment		$	16,145	$	17,037

The following table shows the amount of depreciation and rental expense for the years ended December 31:

	2013		2012		2011
Depreciation expense	$	1,419	$	1,301	$	1,293
Rent expense on leases	$	673	$	472	$	406

The Corporation leases various premises and equipment for use in banking operations.  Some of these leases provide renewal options of varying terms.  The rental cost of these optional renewals is not included below.  At December 31, 2013, future minimum payments on these leases are as follows:

(Dollars in thousands)
2014	$	667
2015		561
2016		526
2017		499
2018		506
2019 and beyond		5,486
	$	8,245

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Investments (Private Label Mortgage Backed Securities) (Details) (USD $) In Thousands, unless otherwise specified				12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2013 RALI2004-QS4 A7 [Member]	Dec. 31, 2013 MALT2004-6 7A1 [Member]	Dec. 31, 2013 RALI2005-QS2 A1 [Member]	Dec. 31, 2013 RALI2006-QS4 A2 [Member]	Dec. 31, 2013 GSR 2006-5F 2A1 [Member]	Dec. 31, 2013 RALI2006-QS8 A1 [Member]	Dec. 31, 2013 Private-Label Mortgage-Backed Securities [Member]	Dec. 31, 2012 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	$ 160,415	$ 130,785		$ 184	$ 435	$ 326	$ 607	$ 97	$ 335	$ 1,984	$ 2,539
Investment securities available for sale, at fair value	159,674	133,328		184	441	335	583	98	328	1,969	2,426
Gross Unrealized Gain (Loss)					6	9	(24)	1	(7)	(15)
Collateral Type				ALT A	ALT A	ALT A	ALT A	Prime	ALT A
Lowest Credit Rating Assigned				BBB+	CCC	CC	D	D	D
Credit Support %				12.38%	14.26%	5.93%
Cumulative OTTI Charges	$ 515	$ 490	$ 390			$ 10	$ 293	$ 15	$ 197	$ 515

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Stock Purchase Plans (Share-based Compensation Arrangement By Share-based Payment Award, Options, Vested And Expected To Vest, Outstanding And Exercisable) (Details) (USD $)	12 Months Ended
	Dec. 31, 2013
ESPP [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options Outstanding and Exercisable	32,279
Price Range, Upper Range Limit	$ 15.24
Weighted Average Exercise Price	$ 15.24
Weighted Average Remaining Life (years)	6 months
ISOP [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options Outstanding and Exercisable	55,825
Weighted Average Exercise Price	$ 24.21
Weighted Average Remaining Life (years)	2 years 10 months 24 days
ISOP [Member] | $16.11 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options Outstanding and Exercisable	10,200
Price Range, Upper Range Limit	$ 16.11
Weighted Average Exercise Price	$ 16.11
Weighted Average Remaining Life (years)	5 years 2 months 12 days
ISOP [Member] | $23.77 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options Outstanding and Exercisable	14,925
Price Range, Upper Range Limit	$ 23.77
Weighted Average Exercise Price	$ 23.77
Weighted Average Remaining Life (years)	4 years 1 month 6 days
ISOP [Member] | $24.92-$27.68 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options Outstanding and Exercisable	30,700
Price Range, Lower Range Limit	$ 24.92
Price Range, Upper Range Limit	$ 27.68
Weighted Average Exercise Price	$ 27.11
Weighted Average Remaining Life (years)	1 year 6 months

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Loans

12 Months Ended

Dec. 31, 2013

Loans [Abstract]

Loans

Note 5. 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:

(Dollars in thousands)	December 31, 2013			December 31, 2012
Residential Real Estate 1-4 Family
Consumer first liens	$	103,573	$	93,790
Consumer junior liens and lines of credit		34,636		35,494
Total consumer		138,209		129,284
Commercial first lien		58,466		60,809
Commercial junior liens and lines of credit		5,939		6,794
Total		64,405		67,603
Total residential real estate 1-4 family		202,614		196,887
Residential real estate - construction
Consumer purpose		3,960		3,255
Commercial purpose		8,559		12,177
Total residential real estate construction		12,519		15,432
Commercial real estate		329,373		363,874
Commercial		170,327		166,734
Total commercial		499,700		530,608
Consumer		8,580		10,652
		723,413		753,579
Less: Allowance for loan losses		(9,702)		(10,379)
Net Loans	$	713,711	$	743,200
Included in the loan balances are the following:
Net unamortized deferred loan costs	$	372	$	456
Unamortized discount on purchased loans	$	(92)	$	(129)
Loans pledged as collateral for borrowings and commitments from:
FHLB	$	607,524	$	657,684
Federal Reserve Bank		45,809		54,194
	$	653,333	$	711,878

Loans to directors and executive officers and related interests and affiliated enterprises were as follows:

(Dollars in thousands)	2013		2012
Balance at beginning of year	$	16,925	$	10,871
New loans made		3,749		8,358
Repayments		(2,321)		(2,304)
Balance at end of year	$	18,353	$	16,925

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Loan Quality

12 Months Ended

Dec. 31, 2013

Loan Quality [Abstract]

Loan Quality

Note 6. 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 pass or substandard. Substandard consumer loans are loans that are 90 days or more past due and still accruing or on nonaccrual.  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 (Other Assets Especially Mentioned - OAEM) 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  (OAEM) 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 $76.3 million at year-end compared to $104.3 million at the prior year-end. The watch list is comprised of $19.0 million rated 6, and $57.3 million rated 7.  The Bank has no loans rated 8 (Doubtful) or 9 (Loss). This note shows that the balance of every loan category on the watch list has declined from the end of 2012, including an upgrade of the 2012 loan rated 8 to a rating of 7 in 2013. This loan was restructured as a TDR in 2013 and the Bank obtained additional collateral during the year; consequently, the loan rating was upgraded. Included in the 2013 substandard loan total is $24.6 million of nonaccrual loans.

The following table reports on the credit rating for those loans in the portfolio that are assigned an individual credit rating as of December 31, 2013 and 2012  

(Dollars in thousands)	Pass		Special Mention		Substandard		Doubtful		Total
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

December 31, 2012
Residential Real Estate 1-4 Family
First liens	$	139,549	$	6,277	$	8,773	$	-	$	154,599
Junior liens and lines of credit		40,584		175		1,529		-		42,288
Total		180,133		6,452		10,302		-		196,887
Residential real estate - construction		11,284		2,922		1,226		-		15,432
Commercial real estate		299,075		20,221		41,828		2,750		363,874
Commercial		148,195		3,120		15,419		-		166,734
Consumer		10,636		-		16		-		10,652
Total	$	649,323	$	32,715	$	68,791	$	2,750	$	753,579

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.  The following table presents the aging of payments in the loan portfolio as of December 31, 2013 and 2012.

(Dollars in thousands)			Loans Past Due and Still Accruing										Total
	Current		30-59 Days		60-89 Days		90 Days+		Total		Non-Accrual		Loans
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

December 31, 2012
Residential Real Estate 1-4 Family
First liens	$	147,236	$	2,862	$	797	$	120	$	3,779	$	3,584	$	154,599
Junior liens and lines of credit		40,741		449		228		112		789		758		42,288
Total		187,977		3,311		1,025		232		4,568		4,342		196,887
Residential real estate - construction		14,875		-		-		-		-		557		15,432
Commercial real estate		334,822		64		329		-		393		28,659		363,874
Commercial		163,387		161		35		315		511		2,836		166,734
Consumer		10,339		258		39		16		313		-		10,652
Total	$	711,400	$	3,794	$	1,428	$	563	$	5,785	$	36,394	$	753,579

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 past due, 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).

The following table provides additional information on significant nonaccrual loans.

December 31, 2013
(Dollars in thousands)
				ALL	Nonaccrual				Last
		Balance		Reserve	Date	Collateral	Location		Appraisal(1)
Credit 1	$	3,040	$	-	Dec-10	1st lien on 92 acres undeveloped commercial real estate	PA		Dec-13
Commercial real estate								$	3,304
Credit 2		977		-	Aug-11	1st lien on commercial and residential properties and 70 acres of farm land (2 loans)	PA		Jun-13
Residential real estate								$	1,272
Commercial real estate
Credit 3		2,096		-	Mar-12	1st and 2nd liens on commercial real estate, residential real estate and business assets	PA		Oct-13
Residential real estate								$	4,184
Credit 4		883		-	Jun-12	1st lien residential development land - 75 acres	WV		Oct-13
Residential real estate						2nd lien residential real estate	PA	$	1,250
Credit 5		1,154		-	Apr-12	1st and 2nd liens on residential real estate	PA		May-13
Residential real estate								$	1,935
Credit 6		7,436		-	Sep-12	1st lien residential real estate development - 376 acres and other commercial and residential properties	PA		Oct-13
Commercial real estate								$	8,932
Credit 7		2,049		-	Oct-12	1st lien commercial refrigerated warehouse	PA		Feb-13
Commercial real estate								$	5,995
Credit 8		2,590		993	Mar-13	Liens on land, commercial and residential real estate and business assets	PA		Nov-13
Commercial/commercial real estate								$	3,394
Credit 9		800		-	Sep-13	1st lien on 12 improved residential building lots and 1st lien on 43 acres	PA		Jun-13
Residential real estate								$	1,410
	$	21,025	$	993

(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.

Interest not recognized on nonaccrual loans was $96 thousand, $800 thousand and $319 thousand for the years ended December 31, 2013, 2012 and 2011, respectively. In addition to monitoring nonaccrual loans, the Bank also closely monitors impaired loans and troubled debt restructurings.  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, excluding consumer purpose loans, and TDR loans are 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. Impaired loans totaled $30.9 million at year-end 2013 compared to $39.4 million at December 31, 2012.

The following table for additional information on impaired loans.

	Impaired Loans
	With No Allowance				With Allowance
(Dollars in thousands)			Unpaid					Unpaid
	Recorded		Principal		Recorded		Principal		Related
December 31, 2013	Investment		Balance		Investment		Balance		Allowance
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

December 31, 2012
Residential Real Estate 1-4 Family
First liens	$	3,504	$	3,715	$	80	$	80	$	20
Junior liens and lines of credit		691		707		-		-		-
Total		4,195		4,422		80		80		20
Residential real estate - construction		557		567		-		-		-
Commercial real estate		28,346		31,937		2,603		3,194		357
Commercial		2,495		2,584		1,088		1,145		470
Consumer		-		-		-		-		-
Total	$	35,593	$	39,510	$	3,771	$	4,419	$	847

	Twelve Months Ended				Twelve Months Ended
	December 31, 2013				December 31, 2012
	Average		Interest		Average		Interest
(Dollars in thousands)	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
Residential Real Estate 1-4 Family
First liens	$	3,365	$	4	$	4,070	$	58
Junior liens and lines of credit		417		-		744		1
Total		3,782		4		4,814		59
Residential real estate - construction		544		-		458		-
Commercial real estate		31,730		118		26,815		151
Commercial		2,112		-		4,060		111
Consumer		-		-		1		-
Total	$	38,168	$	122	$	36,148	$	321

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 interest rate, extending the maturity, reamortization of payment, or a combination of multiple concessions.  The Bank reviews all loans rated 5 or worse when it is providing a loan restructure, modification 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. However, TDR loans are always considered impaired until paid-off. All TDR loans are in compliance with their modified terms except one, credit 3 on the significant nonaccrual table contained in this note.  The following table identifies TDR loans as of December 31, 2013 and 2012:

								Troubled Debt Restructurings
								That Have Defaulted on
(Dollars in thousands)	Troubled Debt Restructurings							Modified Terms YTD
	Number of	Recorded						Number of	Recorded
	Contracts	Investment			Performing*		Nonperforming*	Contracts	Investment
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	-	$	-

December 31, 2012
Residential real estate - construction	2	$	1,482	$	1,482	$	-
Residential real estate	4		467		467		-
Commercial	2		1,812		1,812		-
Commercial real estate	11		7,669		7,669		-	-	$	-
Total	19	$	11,430	$	11,430	$	-	-	$	-

*The performing status is determined by the loans compliance with the modified terms.

The following table reports new TDR loans made during 2013, concession granted and the recorded investment at December 31, 2013.

(Dollars in thousands)	New During Period
	Number of	Pre-TDR		After-TDR		Recorded
Twelve Months Ended December 31, 2013	Contracts	Modification		Modification		Investment		Concession
Residential real estate	2	$	286	$	323	$	311	multiple
Commercial real estate	2		10,458		10,745		10,493	multiple
Total	4	$	10,744	$	11,068	$	10,804

The following table reports new TDR loans made during 2012, concession granted and the recorded investment as of December 31, 2012.

(Dollars in thousands)	New During Period
	Number of	Pre-TDR		After-TDR		Recorded
Twelve Months Ended December 31, 2012	Contracts	Modification		Modification		Investment		Concession
Real estate construction	3	$	2,073	$	1,897	$	1,482	multiple
Residential real estate	2		371		390		379	multiple
Commercial	2		2,223		2,223		1,812	maturity
Commercial real estate	4		2,616		3,006		2,957	multiple
	11	$	7,283	$	7,516	$	6,630

The Bank holds $4.7 million of other real estate owned (OREO), comprised of eight properties compared to $5.1 million and ten properties at December 31, 2012.   During 2013, the Bank recorded losses on the sales of, or write-downs on OREO of $255 thousand that is recorded in other income. The Bank also incurred $137 thousand in expense to hold and maintain OREO   The following table provides additional information on significant other real estate owned properties.

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

December 31, 2013
(Dollars in thousands)	Date						Last
	Acquired		Balance	Collateral	Location		Appraisal
Property 1 (3 properties)	2011	$	1,294	Unimproved and improved real estate for residential development on four separate tracts totaling 150 acres	PA		Nov-12
						$	1,500
Property 2	2012		2,758	1st, 2nd, and 3rd liens residential development land - four tracts with 294 acres	PA		Aug-12
						$	3,292
		$	4,052

At December 31, 2013, the Bank had $1.1 million of residential properties in the process of foreclosure compared to $121 thousand at the end of 2012.

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 December 31, 2013 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. However, it is possible that as a result of the credit analysis, a specific reserve is not required for an impaired loan. 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 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 qualitative factor of 37.5 basis points. 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. 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.

The following table shows, by loan class, the activity in the ALL, for the years ended December 31, 2013, 2012 and 2011.

							Commercial
	Residential Real Estate 1-4 Family						Industrial &		Commercial
			Junior Liens &				Agricultural		Industrial &
(Dollars in thousands)	First Liens		Lines of Credit		Construction		Real Estate		Agricultural		Consumer		Total
Allowance at December 31, 2010	$	600	$	352	$	2,596	$	3,358	$	1,578	$	317	$	8,801
Charge-offs		(324)		(202)		(2,352)		(3,817)		(115)		(237)		(7,047)
Recoveries		30		10		-		306		11		88		445
Provision		743		148		978		5,410		177		68		7,524
Allowance at December 31, 2011	$	1,049	$	308	$	1,222	$	5,257	$	1,651	$	236	$	9,723
Allowance at December 31, 2011	$	1,049	$	308	$	1,222	$	5,257	$	1,651	$	236	$	9,723
Charge-offs		(251)		(71)		-		(3,298)		(861)		(236)		(4,717)
Recoveries		1		25		-		13		21		88		148
Provision		114		44		(323)		4,478		809		103		5,225
Allowance at December 31, 2012	$	913	$	306	$	899	$	6,450	$	1,620	$	191	$	10,379
Allowance at December 31, 2012	$	913	$	306	$	899	$	6,450	$	1,620	$	191	$	10,379
Charge-offs		(547)		(45)		-		(2,855)		(363)		(162)		(3,972)
Recoveries		13		-		-		203		100		59		375
Provision		729		17		(608)		1,773		949		60		2,920
Allowance at December 31, 2013	$	1,108	$	278	$	291	$	5,571	$	2,306	$	148	$	9,702

The following table shows, by loan class, the loans that were evaluated for the ALL under a specific reserve (individually) and those that were evaluated under a general reserve (collectively), and the amount of the allowance established in each category as of December 31, 2013 and 2012.

							Commercial
	Residential Real Estate 1-4 Family						Industrial &		Commercial
			Junior Liens &				Agricultural		Industrial &
(Dollars in thousands)	First Liens		Lines of Credit		Construction		Real Estate		Agricultural		Consumer		Total
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
December 31, 2012
Loans evaluated for allowance:
Individually	$	3,583	$	692	$	557	$	30,949	$	3,583	$	-	$	39,364
Collectively		151,016		41,596		14,875		332,925		163,151		10,652		714,215
Total	$	154,599	$	42,288	$	15,432	$	363,874	$	166,734	$	10,652	$	753,579
Allowance established for loans evaluated:
Individually	$	20	$	3	$	-	$	357	$	467	$	-	$	847
Collectively		893		303		899		6,093		1,153		191		9,532
Allowance at December 31, 2012	$	913	$	306	$	899	$	6,450	$	1,620	$	191	$	10,379

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Goodwill And Intangible Assets

12 Months Ended

Dec. 31, 2013

Goodwill And Intangible Assets [Abstract]

Goodwill And Intangible Assets

Note 8. Goodwill and Intangible Assets

The following table summarizes the changes in goodwill:

	For the years ended
	December 31
(Dollars in thousands)	2013		2012
Beginning balance	$	9,016	$	9,016
Goodwill acquired		-		-
Adjustment to goodwill		-		-
Ending balance	$	9,016	$	9,016

The following table summarizes the other intangible assets at December 31:

	Core Deposit				Customer List
	2013		2012		2013		2012
Gross carrying amount	$	3,252	$	3,252	$	589	$	589
Accumulated amortization		(2,710)		(2,349)		(433)		(369)
Net carrying amount	$	542	$	903	$	156	$	220

The following table shows the amortization expense for the years ended December 31:

(Dollars in thousands)	2013		2012		2011
Amortization expense	$	425	$	435	$	446

Core deposit intangibles are amortized over the estimated life of the acquired core deposits.  At December 31, 2013 the remaining lifewas 1.5 years.  The customer list intangible is amortized over the estimated life of the acquired customer list.  At December 31, 2013,the remaining life was 4.9 years. The following table shows the expected amortization expense for intangible assets:

(Dollars in thousands)
2014	$	414
2015		223
2016		31
2017		21
2018		9
	$	698

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Loan Quality (Narrative) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2013 property loan	Sep. 30, 2013	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2012 loan property	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2013 property loan	Dec. 31, 2012 loan property	Dec. 31, 2011
Financing Receivable, Allowance for Credit Losses [Line Items]
Period in which consumer loans are substandard, in days									90 days
Loans	$ 723,413				$ 753,579				$ 723,413	$ 753,579
Nonaccrual loans	24,643				36,394				24,643	36,394
Increase (Decrease) in loans									(26,375)	(3,938)	28,393
Write-down									(3,972)	(4,717)	(7,047)
Impaired Financing Receivable, Recorded Investment	30,900				39,400				30,900	39,400
Loans and Leases Receivable, Impaired, Interest Lost on Nonaccrual Loans									96	800	319
Total Number of Contracts	18				19				18	19
Total Recorded Investment	17,039				11,430				17,039	11,430
Other Real Estate	4,708				5,127				4,708	5,127
Number of OREO Properties	8				10				8	10
Other Real Estate, Period Increase (Decrease)									(255)	(582)	22
Other Real Estate, Valuation Adjustments									(255)	(435)
Other real estate owned, holding and maintaining expense									137
Properties in foreclosure	1,100				121				1,100	121
Provision for loan losses	965	350	803	803	1,625	825	825	1,950	2,920	5,225	7,524
Consumer [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans	8,580				10,652				8,580	10,652
Write-down									(162)	(236)	(237)
Watch List [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans	76,300				104,300				76,300	104,300
Credit 6 [Member] | Watch List [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans	19,000								19,000
Credit 7 [Member] | Watch List [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans	57,300								57,300
Credit 8 And 9 [Member] | Watch List [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans	0								0
Maximum [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Qualitative factor, basis points									0.375%
Maximum [Member] | Consumer [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Impaired loans balances, added to general allocation pool	$ 100								$ 100

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Parent Company (Franklin Financial Services Corporation) Financial Information (Schedule Of Condensed Comprehensive Income Statement) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2013	Sep. 30, 2013	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Condensed Financial Statements, Captions [Line Items]
Net income	$ 1,141	$ 2,185	$ 1,355	$ 1,551	$ 344	$ 1,747	$ 1,906	$ 1,369	$ 6,232	$ 5,365	$ 6,569
Unrealized (losses) gains arising during the period									(3,326)	1,060	2,370
Reclassification adjustment for net losses (gains) included in net income									42	56	83
Net unrealized (losses) gains									(3,284)	1,116	2,453
Tax effect									1,117	(380)	(834)
Net of tax amount									(2,167)	736	1,619
Total other comprehensive income (loss)									(646)	1,081	511
Total Comprehensive Income									5,586	6,446	7,080
Parent [Member]
Condensed Financial Statements, Captions [Line Items]
Net income									6,232	5,365	6,569
Unrealized (losses) gains arising during the period									425	73	(164)
Reclassification adjustment for net losses (gains) included in net income									20	1	41
Net unrealized (losses) gains									445	74	(123)
Tax effect									(151)	(25)	42
Net of tax amount									294	49	(81)
Total other comprehensive income (loss)									294	49	(81)
Total Comprehensive Income									$ 6,526	$ 5,414	$ 6,488

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Deposits (Maturities Of Time Deposits) (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012
Deposits [Line Items]
2014	$ 66,619
2015	24,038
2016	10,415
2017	12,842
Total time deposits	113,914	178,119
Retail Time Deposits [Member]
Deposits [Line Items]
2014	63,603
2015	21,529
2016	10,415
2017	12,736
Total time deposits	108,283
Brokered Time Deposits [Member]
Deposits [Line Items]
2014	3,016
2015	2,509
2017	106
Total time deposits	$ 5,631

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Loan Quality (Aging Of Payments Of The Loan Portfolio) (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	$ 694,286	$ 711,400
30-59 Days	3,281	3,794
60-89 Days	599	1,428
90+ Days	604	563
Total	4,484	5,785
Nonaccrual loans	24,643	36,394
Total Loans	723,413	753,579
Residential Real Estate First Liens [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	156,916	147,236
30-59 Days	1,725	2,862
60-89 Days	497	797
90+ Days	302	120
Total	2,524	3,779
Nonaccrual loans	2,599	3,584
Total Loans	162,039	154,599
Residential Real Estate Junior Liens & Lines Of Credit [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	40,204	40,741
30-59 Days	204	449
60-89 Days	19	228
90+ Days	41	112
Total	264	789
Nonaccrual loans	107	758
Total Loans	40,575	42,288
Residential Real Estate 1-4 Family [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	197,120	187,977
30-59 Days	1,929	3,311
60-89 Days	516	1,025
90+ Days	343	232
Total	2,788	4,568
Nonaccrual loans	2,706	4,342
Total Loans	202,614	196,887
Residential Real Estate - Construction [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	11,458	14,875
30-59 Days	523
Total	523
Nonaccrual loans	538	557
Total Loans	12,519	15,432
Commercial Real Estate [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	309,531	334,822
30-59 Days	634	64
60-89 Days		329
90+ Days	207
Total	841	393
Nonaccrual loans	19,001	28,659
Total Loans	329,373	363,874
Commercial [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	167,747	163,387
30-59 Days	78	161
60-89 Days	60	35
90+ Days	44	315
Total	182	511
Nonaccrual loans	2,398	2,836
Total Loans	170,327	166,734
Consumer [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	8,430	10,339
30-59 Days	117	258
60-89 Days	23	39
90+ Days	10	16
Total	150	313
Total Loans	$ 8,580	$ 10,652

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Benefit Plans (Schedule Of Net Benefit Costs) (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Benefit Plans [Abstract]
Service cost	$ 456	$ 460	$ 358
Interest cost	715	716	729
Expected return on plan assets	(1,247)	(788)	(757)
Amortization of prior service cost	(125)	(125)	(126)
Recognized net actuarial loss	761	810	501
Net periodic pension cost	$ 560	$ 1,073	$ 705

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Loans (Schedule Of Loans To Related Parties) (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012
Loans [Abstract]
Balance at beginning of year	$ 16,925	$ 10,871
New loans made	3,749	8,358
Repayments	(2,321)	(2,304)
Balance at end of year	$ 18,353	$ 16,925

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Federal Income Taxes (Schedule Of Components Of Income Tax Expense(Benefit)) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2013	Sep. 30, 2013	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Federal Income Taxes [Abstract]
Current tax expense									$ 947	$ 145	$ 502
Deferred tax expense (benefit)									348	367	(91)
Income tax provision	$ 206	$ 583	$ 198	$ 308	$ (382)	$ 318	$ 356	$ 218	$ 1,295	$ 512	$ 411

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Loans (Tables)

12 Months Ended

Dec. 31, 2013

Loans [Abstract]

Schedule Of Loans Outstanding

(Dollars in thousands)	December 31, 2013			December 31, 2012
Residential Real Estate 1-4 Family
Consumer first liens	$	103,573	$	93,790
Consumer junior liens and lines of credit		34,636		35,494
Total consumer		138,209		129,284
Commercial first lien		58,466		60,809
Commercial junior liens and lines of credit		5,939		6,794
Total		64,405		67,603
Total residential real estate 1-4 family		202,614		196,887
Residential real estate - construction
Consumer purpose		3,960		3,255
Commercial purpose		8,559		12,177
Total residential real estate construction		12,519		15,432
Commercial real estate		329,373		363,874
Commercial		170,327		166,734
Total commercial		499,700		530,608
Consumer		8,580		10,652
		723,413		753,579
Less: Allowance for loan losses		(9,702)		(10,379)
Net Loans	$	713,711	$	743,200
Included in the loan balances are the following:
Net unamortized deferred loan costs	$	372	$	456
Unamortized discount on purchased loans	$	(92)	$	(129)
Loans pledged as collateral for borrowings and commitments from:
FHLB	$	607,524	$	657,684
Federal Reserve Bank		45,809		54,194
	$	653,333	$	711,878

Schedule Of Loans To Related Parties

(Dollars in thousands)	2013		2012
Balance at beginning of year	$	16,925	$	10,871
New loans made		3,749		8,358
Repayments		(2,321)		(2,304)
Balance at end of year	$	18,353	$	16,925

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Regulatory Matters (Narrative) (Details) (USD $) In Millions, unless otherwise specified	Dec. 31, 2013	Jul. 31, 2013	Dec. 31, 2013 Bank [Member]	Dec. 31, 2012 Bank [Member]
Compliance with Regulatory Capital Requirements under Banking Regulations [Line Items]
Amount Available for Dividend Distribution without Prior Approval from Regulatory Agency	$ 68.7
Minimum leverage capital ratio			6.00%	6.00%
risk-based capital ratio			10.00%	10.00%
Capital Ratios, Basel III, Common Equity		6.50%
Capital Ratios, Basel III, Tier One Leverage		5.00%
Capital Ratios, Basel III, Tier One Risk Based Capital		8.00%
Capital Ratios, Basel III, Total Risk Based Capital		10.00%
Capital Ratios, Basel III, Capital Conservation Buffer		2.50%

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Financial Derivatives

12 Months Ended

Dec. 31, 2013

Financial Derivatives [Abstract]

Financial Derivatives

Note 13.  Financial Derivatives

As part of managing interest rate risk, the Bank has entered into interest rate swap agreements as vehicles to partially hedge cash flows associated with interest expense on variable rate deposit accounts.  Under the swap agreements, the Bank receives a variable rate and pays a fixed rate. Such agreements are generally entered into with counterparties that meet established credit standards and most contain collateral provisions protecting the at-risk party.  The Bank considers the credit risk inherent in these contracts to be negligible.  Interest rate swap agreements derive their value from underlying interest rates.  These transactions involve both credit and market risk.  The notional amounts are amounts on which calculations, payments, and the value of the derivative are based.  The notional amounts do not represent direct credit exposures.  Direct credit exposure is limited to the net difference between the calculated amounts to be received and paid, if any.  Such difference, which represents the fair value of the swap, is reflected on the Corporation’s balance sheet.

The Corporation is exposed to credit-related losses in the event of nonperformance by the counterparty to these agreements.  The Corporation controls the credit risk of its financial contracts through credit approvals, limits and monitoring procedures, and does not expect the counterparty to fail its obligations.

The primary focus of the Corporation’s asset/liability management program is to monitor the sensitivity of the Corporation’s net portfolio value and net income under varying interest rate scenarios to take steps to control its risks.  On a quarterly basis, the Corporation simulates the net portfolio value and net interest income expected to be earned over a twelve-month period following the date of simulation.  The simulation is based upon projection of market interest rates at varying levels and estimates the impact of such market rates on the levels of interest-earning assets and interest-bearing liabilities during the measurement period.  Based upon the outcome of the simulation analysis, the Corporation considers the use of derivatives as a means of reducing the volatility of net portfolio value and projected net income within certain ranges of projected changes in interest rates.  The Corporation evaluates the effectiveness of entering into any derivative instrument agreement by measuring the cost of such an agreement in relation to the reduction in net portfolio value and net income volatility within an assumed range of interest rates.

During 2008, the Bank entered into two swap transactions with each swap having a notional amount of $10 million. One swap matured in 2013 and the second swap matures in 2015. According to the terms of each transaction, the Bank pays fixed-rate interest payments and receives floating-rate payments.  The variable rate is indexed to the 91-day Treasury Bill auction (discount) rate and resets weekly. The swaps were entered into in order   to hedge the Corporation’s exposure to changes in cash flows attributable to the effect of interest rate changes on variable-rate liabilities.  At December 31, 2013, the fair value of the swaps was negative $561 thousand and was recognized in accumulated other comprehensive loss, net of tax.  The fair value of assets pledged as collateral for the swaps was $2.2 million at December 31, 2013 and 2012.

Information regarding the interest rate swaps as of December 31, 2013 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%	0.07%	$	380

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

Fair Value of Derivative Instruments
(Dollars in thousands)		Balance Sheet
Date	Type	Location	Fair Value
December 31, 2013	Interest rate contracts	Other liabilities	$	561
December 31, 2012	Interest rate contracts	Other liabilities	$	1,103

The Effect of Derivative Instruments on the Statement of Income for the years ended December 31, 2013, 2012 and 2011 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)
December 31, 2013	Interest rate contracts	$	358	Interest Expense	$	(525)	Other income (expense)	$	-
December 31, 2012	Interest rate contracts	$	420	Interest Expense	$	(736)	Other income (expense)	$	-
December 31, 2011	Interest rate contracts	$	8	Interest Expense	$	(727)	Other income (expense)	$	-

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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	Dec. 31, 2013	Dec. 31, 2012
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment securities available for sale, at fair value	$ 159,674	$ 133,328
Total assets	159,674	133,328
Interest rate swaps	561	1,103
Total liabilities	561	1,103
Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total assets	1,970	1,941
Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total assets	157,704	131,387
Interest rate swaps	561	1,103
Total liabilities	561	1,103
Equity Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment securities available for sale, at fair value	1,970	1,941
Equity Securities [Member] | Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment securities available for sale, at fair value	1,970	1,941
U.S. Government Agency Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment securities available for sale, at fair value	11,751	12,809
U.S. Government Agency Securities [Member] | Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment securities available for sale, at fair value	11,751	12,809
Municipal Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment securities available for sale, at fair value	56,857	61,216
Municipal Securities [Member] | Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment securities available for sale, at fair value	56,857	61,216
Corporate Debt Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment securities available for sale, at fair value	1,001	994
Corporate Debt Securities [Member] | Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment securities available for sale, at fair value	1,001	994
Trust Preferred Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment securities available for sale, at fair value	5,051	4,830
Trust Preferred Securities [Member] | Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment securities available for sale, at fair value	5,051	4,830
Agency Mortgage-Backed Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment securities available for sale, at fair value	81,027	49,066
Agency Mortgage-Backed Securities [Member] | Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment securities available for sale, at fair value	81,027	49,066
Private-Label Mortgage-Backed Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment securities available for sale, at fair value	1,969	2,426
Private-Label Mortgage-Backed Securities [Member] | Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment securities available for sale, at fair value	1,969	2,426
Asset-Backed Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment securities available for sale, at fair value	48	46
Asset-Backed Securities [Member] | Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment securities available for sale, at fair value	$ 48	$ 46

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Commitments And Contingencies

12 Months Ended

Dec. 31, 2013

Commitments And Contingencies [Abstract]

Commitments And Contingencies

Note 18. Commitments and Contingencies

In the normal course of business, the Bank is a party to financial instruments that are not reflected in the accompanying financial statements and are commonly referred to as off-balance-sheet instruments.  These financial instruments are entered into primarily to meet the financing needs of the Bank’s customers and include commitments to extend credit and standby letters of credit.  Those instruments involve, to varying degrees, elements of credit and interest rate risk not recognized in the consolidated balance sheet.

The Corporation’s exposure to credit loss in the event of nonperformance by other parties to the financial instruments for commitments to extend credit and standby letters of credit is represented by the contract or notional amount of those instruments.  The Bank uses the same credit policies in making commitments and conditional obligations as they do for on-balance-sheet instruments.

Unless noted otherwise, the Bank does not require collateral or other security to support financial instruments with credit risk.  The Bank had the following outstanding commitments as of December 31:

(Dollars in thousands)		2013		2012
Financial instruments whose contract amounts represent credit risk
Commercial commitments to extend credit	$	175,702	$	182,060
Consumer commitments to extend credit (secured)		38,097		36,303
Consumer commitments to extend credit (unsecured)		5,555		5,275
	$	219,354	$	223,638
Standby letters of credit	$	20,151	$	28,157

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract.  Commitments generally have fixed expiration dates or other termination clauses with the exception of home equity lines and personal lines of credit and may require payment of a fee.  Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.  The Bank evaluates each customer’s creditworthiness on a case-by-case basis.  The amount of collateral obtained, if deemed necessary by the Bank, is based on management’s credit evaluation of the counterparty.  Collateral for most commercial commitments varies but may include accounts receivable, inventory, property, plant, and equipment, and income-producing commercial properties.  Collateral for secured consumer commitments consists of liens on residential real estate.

Standby letters of credit are instruments issued by the Bank, which guarantee the beneficiary payment by the Bank in the event of default by the Bank’s customer in the nonperformance of an obligation or service.  Most standby letters of credit are extended for one-year periods.  The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.  The Bank holds collateral supporting those commitments for which collateral is deemed necessary primarily in the form of certificates of deposit and liens on real estate. Management believes that the proceeds obtained through a liquidation of such collateral would be sufficient to cover the maximum potential amount of future payments required under the corresponding guarantees.  The current amount of the liability as of December 31, 2013 and 2012 for guarantees under standby letters of credit issued is not material.

Most of the Bank’s business activity is with customers located within its primary market and does not involve any significant concentrations of credit to any one entity or industry.

In the normal course of business, the Corporation has commitments, lawsuits, contingent liabilities and claims.  However, the Corporation does not expect that the outcome of these matters will have a material adverse effect on its consolidated financial position or results of operations.

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Financial Derivatives (Narrative) (Details) (USD $)	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2008 contract
Financial Derivatives [Abstract]
Swap transactions			2
Notional amount per swap	$ 10,000,000		$ 10,000,000
Net unrealized losses on derivatives	(561,000)	(1,103,000)
The fair value of assets pledged as collateral for swaps	$ 2,200,000	$ 2,200,000

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Summary Of Significant Accounting Policies (Narrative) (Details) (USD $)	12 Months Ended
	Dec. 31, 2013 store	Dec. 31, 2012	Dec. 31, 2011
Summary Of Significant Accounting Policies [Line Items]
Number of Stores	25
Restricted stock	$ 1,906,000	$ 3,571,000
Servicing Asset	34,600,000	46,160,000	65,600,000
Goodwill	9,016,000	9,016,000	9,016,000
Goodwill, Fair Value above carrying value, percentage	12.00%	5.00%
Assets Held-in-trust	574,700,000	520,400,000
Share-based Compensation	0	0	0
Days past due when accrual of interest is discontinued	90 days
Consumer loans typical charge-off period, in days	180 days
Customer Lists [Member]
Summary Of Significant Accounting Policies [Line Items]
Amortized useful life	10 years
Federal Home Loan Bank of Pittsburgh [Member]
Summary Of Significant Accounting Policies [Line Items]
Restricted stock	$ 30,000
Restricted Stock Cost	$ 100
Maximum [Member]
Summary Of Significant Accounting Policies [Line Items]
Designated Hedge Risk Percent Range	125.00%
Minimum [Member]
Summary Of Significant Accounting Policies [Line Items]
Designated Hedge Risk Percent Range	80.00%

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Benefit Plans (Schedule Of Amount Recognized In Balance Sheet) (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Defined Benefit Plan Disclosure [Line Items]
Defined Benefit Plan, Fair Value of Plan Assets	$ 18,600	$ 18,764	$ 11,658	$ 9,056
Fair Value [Member]
Defined Benefit Plan Disclosure [Line Items]
Defined Benefit Plan, Fair Value of Plan Assets	18,600	18,764
Fair Value [Member] | Cash And Cash Equivalents [Member]
Defined Benefit Plan Disclosure [Line Items]
Defined Benefit Plan, Fair Value of Plan Assets	1,753	6,506
Fair Value [Member] | Equity Securities [Member]
Defined Benefit Plan Disclosure [Line Items]
Defined Benefit Plan, Fair Value of Plan Assets	6,210	4,128
Fair Value [Member] | Corporate Debt Securities [Member]
Defined Benefit Plan Disclosure [Line Items]
Defined Benefit Plan, Fair Value of Plan Assets	1,162	603
Fair Value [Member] | Municipal Securities [Member]
Defined Benefit Plan Disclosure [Line Items]
Defined Benefit Plan, Fair Value of Plan Assets	8,041	7,213
Fair Value [Member] | Investment Fund-Debt [Member]
Defined Benefit Plan Disclosure [Line Items]
Defined Benefit Plan, Fair Value of Plan Assets	1,312
Fair Value [Member] | Cash Value Of Life Insurance [Member]
Defined Benefit Plan Disclosure [Line Items]
Defined Benefit Plan, Fair Value of Plan Assets	91	87
Fair Value [Member] | Deposit In Immediate Participation [Member]
Defined Benefit Plan Disclosure [Line Items]
Defined Benefit Plan, Fair Value of Plan Assets	31	227
Level 1 [Member]
Defined Benefit Plan Disclosure [Line Items]
Defined Benefit Plan, Fair Value of Plan Assets	7,963	10,634
Level 1 [Member] | Cash And Cash Equivalents [Member]
Defined Benefit Plan Disclosure [Line Items]
Defined Benefit Plan, Fair Value of Plan Assets	1,753	6,506
Level 1 [Member] | Equity Securities [Member]
Defined Benefit Plan Disclosure [Line Items]
Defined Benefit Plan, Fair Value of Plan Assets	6,210	4,128
Level 2 [Member]
Defined Benefit Plan Disclosure [Line Items]
Defined Benefit Plan, Fair Value of Plan Assets	10,515	7,816
Level 2 [Member] | Corporate Debt Securities [Member]
Defined Benefit Plan Disclosure [Line Items]
Defined Benefit Plan, Fair Value of Plan Assets	1,162	603
Level 2 [Member] | Municipal Securities [Member]
Defined Benefit Plan Disclosure [Line Items]
Defined Benefit Plan, Fair Value of Plan Assets	8,041	7,213
Level 2 [Member] | Investment Fund-Debt [Member]
Defined Benefit Plan Disclosure [Line Items]
Defined Benefit Plan, Fair Value of Plan Assets	1,312
Level 3 [Member]
Defined Benefit Plan Disclosure [Line Items]
Defined Benefit Plan, Fair Value of Plan Assets	122	314
Level 3 [Member] | Cash Value Of Life Insurance [Member]
Defined Benefit Plan Disclosure [Line Items]
Defined Benefit Plan, Fair Value of Plan Assets	91	87
Level 3 [Member] | Deposit In Immediate Participation [Member]
Defined Benefit Plan Disclosure [Line Items]
Defined Benefit Plan, Fair Value of Plan Assets	$ 31	$ 227

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Accumulated Other Comprehensive Loss (Tables)

12 Months Ended

Dec. 31, 2013

Accumulated Other Comprehensive Loss [Abstract]

Schedule Of Accumulated Other Comprehensive Loss

	December 31
	2013		2012
(Dollars in thousands)
Net unrealized gains on securities	$	(741)	$	2,543
Tax effect		252		(865)
Net of tax amount		(489)		1,678
Net unrealized losses on derivatives		(561)		(1,103)
Tax effect		191		375
Net of tax amount		(370)		(728)
Accumulated pension adjustment		(5,814)		(7,576)
Tax effect		1,977		2,576
Net of tax amount		(3,837)		(5,000)
Total accumulated other comprehensive loss	$	(4,696)	$	(4,050)

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Benefit Plans (Schedule Of Expected Benefit Payments) (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013
Benefit Plans [Abstract]
2014	$ 915
2015	896
2016	974
2017	968
2018	959
2019-2022	5,010
Defined Benefit, Expected Future Benefit Payments	$ 9,722

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Consolidated Statements Of Comprehensive Income (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Consolidated Statements Of Comprehensive Income [Abstract]
Net income	$ 6,232	$ 5,365	$ 6,569
Securities:
Unrealized (losses) gains arising during the period	(3,326)	1,060	2,370
Reclassification adjustment for net losses included in net income	42	56	83
Net unrealized (losses) gains	(3,284)	1,116	2,453
Tax effect	1,117	(380)	(834)
Net of tax amount	(2,167)	736	1,619
Derivatives:
Unrealized gains (losses) arising during the period	17	(101)	(713)
Reclassification adjustment for losses included in net income	525	736	727
Net unrealized gains	542	635	14
Tax effect	(184)	(215)	(6)
Net of tax amount	358	420	8
Pension:
Change in plan assets and benefit obligations	1,762	(114)	(1,691)
Net unrealized gain (losses)	1,762	(114)	(1,691)
Tax effect	(599)	39	575
Net of tax amount	1,163	(75)	(1,116)
Total other comprehensive (loss) income	(646)	1,081	511
Total Comprehensive Income	$ 5,586	$ 6,446	$ 7,080

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Securities Sold Under Agreements To Repurchase, Short-Term Borrowings And Long-Term Debt (FHLB Long-Term Debt) (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012
Securities Sold Under Agreements To Repurchase, Short-Term Borrowings And Long-Term Debt [Abstract]
Long-term debt	$ 12,403	$ 12,410

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Regulatory Matters

12 Months Ended

Dec. 31, 2013

Regulatory Matters [Abstract]

Regulatory Matters

Note 2.  Regulatory Matters

The Bank is limited as to the amount it may lend to the Corporation, unless such loans are collateralized by specific obligations. State regulations also limit the amount of dividends the Bank can pay to the Corporation and are generally limited to the Bank’s accumulated net earnings, which were $68.7 million at December 31, 2013.  In addition, dividends paid by the Bank to the Corporation would be prohibited if the effect thereof would cause the Bank’s capital to be reduced below applicable minimum capital requirements.  The Corporation and the Bank are subject to various regulatory capital requirements administered by federal banking agencies.  Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Corporation’s financial statements.  Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices.  The capital amounts and classification are also subject to qualitative judgements by the regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Corporation and the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital (as defined) to average assets (as defined).  Although not adopted in regulation form, the Pennsylvania Department of Banking utilizes capital standards requiring a minimum leverage capital ratio of 6% and a risk-based capital ratio of 10%, defined substantially the same as those by the FDIC.  Management believes, as of December 31, 2013, that the Corporation and the Bank met all capital adequacy requirements to which it is subject. 

As of December 31, 2013, the most recent notification from the FDIC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action.  To be categorized as well capitalized, the Bank must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the table.  There are no conditions or events since that notification that management believes have changed the institution’s category.

In July 2013, Federal banking regulators approved the final rules from the Basel Committee on Banking Supervision for the regulation of capital requirements for U.S, generally referred to as “Basel III.”  Basel III imposes significantly higher capital requirements and more restrictive leverage and liquidity ratios than those currently in place.  The capital ratios to be considered “well capitalized” under Basel III are: common equity of 6.5%, Tier 1 leverage of 5%, Tier 1 risk-based capital of 8%, and Total Risk-Based capital of 10%.  The common equity ratio is a new capital ratio under Basel III and the Tier 1 risk-based capital ratio of 8% has been increased from 6%. In addition, a capital conservation buffer of 2.5% above the minimum capital ratios is required to avoid any capital distribution restrictions.  Certain components of the new capital requirements are effective January, 2015 with others being phased in through January 1, 2019.  As of December 31, 2013, the Management believes that the Bank would remain “well capitalized’ under the new rules.

The table that follows presents the total risk-based, Tier 1 risk-based and Tier 1 leverage requirements for the Corporation and the Bank as defined by the FDIC.  Actual capital amounts and ratios are also presented.

	As of December 31, 2013
				Minimum to be				Minimum to be
	Actual			Adequately Capitalized				Well Capitalized
(Dollars in thousands)	Amount		Ratio	Amount			Ratio	Amount			Ratio
Total Risk-based Capital Ratio
Corporation	$	99,598	14.24%	$	55,940	>	8.00%		N/A		N/A
Bank		95,942	13.78%		55,696	>	8.00%	$	69,620	>	10.00%
Tier 1 Risk-based Capital Ratio
Corporation	$	90,659	12.97%	$	27,970	>	4.00%		N/A		N/A
Bank		87,146	12.52%		27,848	>	4.00%	$	41,772	>	6.00%
Tier 1 Leverage Ratio
Corporation	$	90,659	9.14%	$	39,661	>	4.00%		N/A		N/A
Bank		87,146	8.81%		39,559	>	4.00%	$	49,448	>	5.00%

	As of December 31, 2012
				Minimum to be				Minimum to be
	Actual			Adequately Capitalized				Well Capitalized
(Dollars in thousands)	Amount		Ratio	Amount			Ratio	Amount			Ratio
Total Risk-based Capital Ratio
Corporation	$	95,268	12.60%	$	60,465	>	8.00%		N/A		N/A
Bank		92,056	12.22%		60,244	>	8.00%	$	75,305	>	10.00%
Tier 1 Risk-based Capital Ratio
Corporation	$	85,843	11.36%	$	30,232	>	4.00%		N/A		N/A
Bank		82,631	10.97%		30,122	>	4.00%	$	45,183	>	6.00%
Tier 1 Leverage Ratio
Corporation	$	85,843	8.29%	$	41,439	>	4.00%		N/A		N/A
Bank		82,631	7.99%		41,392	>	4.00%	$	51,740	>	5.00%

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Investments (Temporary Impairment In The Investment Portfolio) (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013 security	Dec. 31, 2012 security
Schedule of Available-for-sale Securities [Line Items]
Less than 12 months: Fair Value	$ 61,158	$ 16,822
Less than 12 months: Unrealized Losses	(2,107)	(252)
Less than 12 months: Count	70	22
12 months or more: Fair Value	16,191	14,991
12 months or more: Unrealized Losses	(1,369)	(1,476)
12 months or more: Count	28	41
Fair Value	77,349	31,813
Unrealized Losses	(3,476)	(1,728)
Count	98	63
Equity Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Less than 12 months: Fair Value	22	226
Less than 12 months: Unrealized Losses	(1)	(20)
Less than 12 months: Count	1	3
12 months or more: Fair Value		1,236
12 months or more: Unrealized Losses		(235)
12 months or more: Count		13
Fair Value	22	1,462
Unrealized Losses	(1)	(255)
Count	1	16
U.S. Government Agency Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Less than 12 months: Fair Value	3,971	938
Less than 12 months: Unrealized Losses	(85)	(1)
Less than 12 months: Count	7	1
12 months or more: Fair Value	3,807	3,346
12 months or more: Unrealized Losses	(29)	(3)
12 months or more: Count	7	6
Fair Value	7,778	4,284
Unrealized Losses	(114)	(4)
Count	14	7
Municipal Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Less than 12 months: Fair Value	16,770	8,789
Less than 12 months: Unrealized Losses	(1,022)	(163)
Less than 12 months: Count	24	10
12 months or more: Fair Value	3,160
12 months or more: Unrealized Losses	(382)
12 months or more: Count	4
Fair Value	19,930	8,789
Unrealized Losses	(1,404)	(163)
Count	28	10
Corporate Debt Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
12 months or more: Fair Value	1,001	994
12 months or more: Unrealized Losses	(1)	(11)
12 months or more: Count	1	1
Fair Value	1,001	994
Unrealized Losses	(1)	(11)
Count	1	1
Trust Preferred Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
12 months or more: Fair Value	5,051	4,830
12 months or more: Unrealized Losses	(871)	(1,075)
12 months or more: Count	7	7
Fair Value	5,051	4,830
Unrealized Losses	(871)	(1,075)
Count	7	7
Agency Mortgage-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Less than 12 months: Fair Value	40,395	6,869
Less than 12 months: Unrealized Losses	(999)	(68)
Less than 12 months: Count	38	8
12 months or more: Fair Value	2,213	2,664
12 months or more: Unrealized Losses	(52)	(16)
12 months or more: Count	4	6
Fair Value	42,608	9,533
Unrealized Losses	(1,051)	(84)
Count	42	14
Private-Label Mortgage-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
12 months or more: Fair Value	911	1,875
12 months or more: Unrealized Losses	(31)	(123)
12 months or more: Count	2	5
Fair Value	911	1,875
Unrealized Losses	(31)	(123)
Count	2	5
Asset-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
12 months or more: Fair Value	48	46
12 months or more: Unrealized Losses	(3)	(13)
12 months or more: Count	3	3
Fair Value	48	46
Unrealized Losses	$ (3)	$ (13)
Count	3	3

XML

Goodwill And Intangible Assets (Schedule Of Expected Amortization Expense) (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013
Goodwill And Intangible Assets [Abstract]
2014	$ 414
2015	223
2016	31
2017	21
2018	9
Future Amortization Expense Intangibles	$ 698

XML

Benefit Plans (Schedule Of Changes In Fair Value Of Plan Assets) (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012
Cash Value Of Life Insurance [Member]
Defined Benefit Plan Disclosure [Line Items]
Beginning Balance	$ 87	$ 83
Unrealized gain (loss) relating to investments held at the reporting date	4	4
Ending Balance	91	87
Deposit In Immediate Participation [Member]
Defined Benefit Plan Disclosure [Line Items]
Beginning Balance	227	240
Unrealized gain (loss) relating to investments held at the reporting date	10	3
Purchases, sales, issuances and settlement, net	(206)	(16)
Ending Balance	$ 31	$ 227

XML

Loan Quality (Average Impaired Financing Receivables) (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012
Financing Receivable, Impaired [Line Items]
Average Recorded Investment	$ 38,168	$ 36,148
Interest Income Recognized	122	321
Residential Real Estate First Liens [Member]
Financing Receivable, Impaired [Line Items]
Average Recorded Investment	3,365	4,070
Interest Income Recognized	4	58
Residential Real Estate Junior Liens & Lines Of Credit [Member]
Financing Receivable, Impaired [Line Items]
Average Recorded Investment	417	744
Interest Income Recognized		1
Residential Real Estate 1-4 Family [Member]
Financing Receivable, Impaired [Line Items]
Average Recorded Investment	3,782	4,814
Interest Income Recognized	4	59
Residential Real Estate - Construction [Member]
Financing Receivable, Impaired [Line Items]
Average Recorded Investment	544	458
Commercial Real Estate [Member]
Financing Receivable, Impaired [Line Items]
Average Recorded Investment	31,730	26,815
Interest Income Recognized	118	151
Commercial [Member]
Financing Receivable, Impaired [Line Items]
Average Recorded Investment	2,112	4,060
Interest Income Recognized		111
Consumer [Member]
Financing Receivable, Impaired [Line Items]
Average Recorded Investment		$ 1

XML

Fair Value Measurements And Fair Values Of Financial Instruments

12 Months Ended

Dec. 31, 2013

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

Fair Value Measurements And Fair Value Of Financial Instruments

Note 19.  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 December 31, 2012 and 2011.

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.

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.  Other borrowings consist of a line of credit with the FHLB at a variable interest rate and securities sold under agreements to repurchase, for which 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:

	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		-
	December 31, 2012
	Carrying		Fair
(Dollars in thousands)	Amount		Value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	77,834	$	77,834	$	77,834	$	-	$	-
Investment securities available for sale		133,328		133,328		1,941		131,387		-
Restricted stock		3,571		3,571		-		3,571		-
Loans held for sale		67		67		-		67		-
Net loans		743,200		759,490		-		-		759,490
Accrued interest receivable		3,178		3,178		-		3,178		-
Mortgage servicing rights		235		235		-		-		235
Financial liabilities:
Deposits	$	874,440	$	876,240	$	-	$	876,240	$	-
Securities sold under agreements to repurchase		42,209		42,209		-		42,209		-
Long-term debt		12,410		13,718		-		13,718		-
Accrued interest payable		348		348		-		348		-
Interest rate swaps		1,103		1,103		-		1,103		-

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 December 31, 2013 and 2012 are as follows:

(Dollars in Thousands)	Fair Value at December 31, 2013
Asset  Description	Level 1		Level 2		Level 3		Total
Equity securities	$	1,970	$	-	$	-	$	1,970
U.S. Government agency securities		-		11,751		-		11,751
Municipal securities		-		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

(Dollars in Thousands)	Fair Value at December 31, 2012
Asset  Description	Level 1		Level 2		Level 3		Total
Equity securities	$	1,941	$	-	$	-	$	1,941
U.S. Government agency securities		-		12,809		-		12,809
Municipal securities		-		61,216		-		61,216
Corporate debt securities		-		994		-		994
Trust Preferred Securities		-		4,830		-		4,830
Agency mortgage-backed securities		-		49,066		-		49,066
Private-label mortgage-backed securities		-		2,426		-		2,426
Asset-backed securities		-		46		-		46
Total assets	$	1,941	$	131,387	$	-	$	133,328
Liability Description
Interest rate swaps	$	-	$	1,103	$	-	$	1,103
Total liabilities	$	-	$	1,103	$	-	$	1,103

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 December 31, 2013 and 2012 are as follows:

(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

(Dollars in Thousands)	Fair Value at December 31, 2012
Asset  Description	Level 1		Level 2		Level 3		Total
Impaired loans (1)	$	-	$	-	$	9,235	$	9,235
Other real estate owned (1)		-		-		4,352		4,352
Mortgage servicing rights		-		-		235		235
Total assets	$	-	$	-	$	13,822	$	13,822

(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 December 31, 2013. 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 December 31, 2013.

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

(Dollars in Thousands)	Quantitative Information about Level 3 Fair Value Measurements
				Range
December 31, 2013	Fair Value	Valuation Technique	Unobservable Input	(Weighted Average)
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)
				Range
December 31, 2012	Fair Value	Valuation Technique	Unobservable Input	(Weighted Average)
Impaired loans (1)	$                   9,235	Appraisal	Appraisal Adjustments (2)	0% - 100%(11%)
			Cost to sell	5% - 25%(7%)
Other real estate owned (1)	5,127	Appraisal	Appraisal Adjustments (2)
			Cost to sell	8%(8%)
Mortgage servicing rights	235	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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Fair Value Measurements And Fair Values Of Financial Instruments (Fair Value Inputs, Assets, Quantitative Information) (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013		Dec. 31, 2012
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Impaired loans	$ 30,900		$ 39,400
Other real estate owned	4,708		5,127
Level 3 [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Mortgage servicing rights	184		235
Impaired Loans [Member] | Level 3 [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Impaired loans	8,588	[1]	9,235	[1]
Valuation Technique	Appraisal		Appraisal
Other Real Estate Owned [Member] | Level 3 [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Other real estate owned	498	[1]	5,127	[1]
Valuation Technique	Appraisal		Appraisal
Mortgage Servicing Rights [Member] | Level 3 [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Mortgage servicing rights	$ 184		$ 235
Valuation Technique	Discounted Cash Flow (3)	[2]	Discounted Cash Flow (3)	[2]
Appraisal Adjustments [Member] | Impaired Loans [Member] | Level 3 [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Unobservable Input	Appraisal Adjustments (2)	[3]	Appraisal Adjustments (2)	[3]
Appraisal Adjustments [Member] | Impaired Loans [Member] | Minimum [Member] | Level 3 [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Fair Value Inputs, Discount Rate	0.00%		0.00%
Appraisal Adjustments [Member] | Impaired Loans [Member] | Maximum [Member] | Level 3 [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Fair Value Inputs, Discount Rate	60.00%		100.00%
Appraisal Adjustments [Member] | Impaired Loans [Member] | Weighted Average [Member] | Level 3 [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Fair Value Inputs, Discount Rate	5.00%		11.00%
Appraisal Adjustments [Member] | Other Real Estate Owned [Member] | Level 3 [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Unobservable Input	Appraisal Adjustments (2)	[3]	Appraisal Adjustments (2)	[3]
Cost To Sell [Member] | Impaired Loans [Member] | Level 3 [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Unobservable Input	Cost to sell		Cost to sell
Cost To Sell [Member] | Impaired Loans [Member] | Minimum [Member] | Level 3 [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Fair Value Inputs, Discount Rate	5.00%		5.00%
Cost To Sell [Member] | Impaired Loans [Member] | Maximum [Member] | Level 3 [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Fair Value Inputs, Discount Rate	13.50%		25.00%
Cost To Sell [Member] | Impaired Loans [Member] | Weighted Average [Member] | Level 3 [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Fair Value Inputs, Discount Rate	7.00%		7.00%
Cost To Sell [Member] | Other Real Estate Owned [Member] | Level 3 [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Unobservable Input	Cost to sell		Cost to sell
Fair Value Inputs, Discount Rate	8.00%		8.00%
Cost To Sell [Member] | Other Real Estate Owned [Member] | Weighted Average [Member] | Level 3 [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Fair Value Inputs, Discount Rate	8.00%		8.00%

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

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

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

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Loan Quality (Allowance For Loan Losses And Recorded Investment In Financing Receivables Individually And Collectively) (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans evaluated for allowance individually	$ 30,044	$ 39,364
Loans evaluated for allowance collectively	693,369	714,215
Total Loans	723,413	753,579
ALL established for loans individually	1,100	847
ALL established for loan evaluated collectively	8,602	9,532
ALL, Ending Balance	9,702	10,379	9,723	8,801
Residential Real Estate First Liens [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans evaluated for allowance individually	2,354	3,583
Loans evaluated for allowance collectively	159,685	151,016
Total Loans	162,039	154,599
ALL established for loans individually	9	20
ALL established for loan evaluated collectively	1,099	893
ALL, Ending Balance	1,108	913	1,049	600
Residential Real Estate Junior Liens & Lines Of Credit [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans evaluated for allowance individually	50	692
Loans evaluated for allowance collectively	40,525	41,596
Total Loans	40,575	42,288
ALL established for loans individually		3
ALL established for loan evaluated collectively	278	303
ALL, Ending Balance	278	306	308	352
Residential Real Estate - Construction [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans evaluated for allowance individually	537	557
Loans evaluated for allowance collectively	11,982	14,875
Total Loans	12,519	15,432
ALL established for loan evaluated collectively	291	899
ALL, Ending Balance	291	899	1,222	2,596
Commercial Real Estate [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans evaluated for allowance individually	25,107	30,949
Loans evaluated for allowance collectively	304,266	332,925
Total Loans	329,373	363,874
ALL established for loans individually	89	357
ALL established for loan evaluated collectively	5,482	6,093
ALL, Ending Balance	5,571	6,450	5,257	3,358
Commercial [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans evaluated for allowance individually	1,996	3,583
Loans evaluated for allowance collectively	168,331	163,151
Total Loans	170,327	166,734
ALL established for loans individually	1,002	467
ALL established for loan evaluated collectively	1,304	1,153
ALL, Ending Balance	2,306	1,620	1,651	1,578
Consumer [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans evaluated for allowance collectively	8,580	10,652
Total Loans	8,580	10,652
ALL established for loan evaluated collectively	148	191
ALL, Ending Balance	$ 148	$ 191	$ 236	$ 317

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Deposits (Tables)

12 Months Ended

Dec. 31, 2013

Deposits [Abstract]

Schedule Of Deposits

	December 31
(Dollars in thousands)	2013		2012
Noninterest-bearing checking	$	121,565	$	123,623
Interest-bearing checking		180,450		135,454
Money management		370,401		380,079
Savings		59,394		57,165
Total interest-bearing checking and savings		610,245		572,698
Retail time deposits		108,283		127,861
Brokered time deposits		5,631		50,258
Total time deposits		113,914		178,119
Total deposits	$	845,724	$	874,440
Overdrawn deposit accounts reclassified as loans	$	106	$	128

Maturity Of Time Deposits Of $100,000 Or More

	Retail		Brokered		Total
(Dollars in thousands)	Time Deposits		Time Deposits		Time Deposits
Maturity distribution:
Within three months	$	4,601	$	450	$	5,051
Over three through six months		5,128		-		5,128
Over six through twelve months		4,576		2,319		6,895
Over twelve months		11,644		2,557		14,201
Total	$	25,949	$	5,326	$	31,275

Maturities Of Time Deposits

	Retail		Brokered		Total
	Time Deposits		Time Deposits		Time Deposits
(Dollars in thousands)
2014	$	63,603	$	3,016	$	66,619
2015		21,529		2,509		24,038
2016		10,415		-		10,415
2017		12,736		106		12,842
2018		-		-		-
2019 and beyond		-		-		-
	$	108,283	$	5,631	$	113,914

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Accumulated Other Comprehensive Loss

12 Months Ended

Dec. 31, 2013

Accumulated Other Comprehensive Loss [Abstract]

Accumulated Other Comprehensive Loss

Note 12. Accumulated Other Comprehensive Loss

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

	December 31
	2013		2012
(Dollars in thousands)
Net unrealized gains on securities	$	(741)	$	2,543
Tax effect		252		(865)
Net of tax amount		(489)		1,678
Net unrealized losses on derivatives		(561)		(1,103)
Tax effect		191		375
Net of tax amount		(370)		(728)
Accumulated pension adjustment		(5,814)		(7,576)
Tax effect		1,977		2,576
Net of tax amount		(3,837)		(5,000)
Total accumulated other comprehensive loss	$	(4,696)	$	(4,050)

XML

Benefit Plans (Schedule Of Amounts Recognized In Other Comprehensive Income) (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Benefit Plans [Abstract]
Net Actuarial loss	$ (6,159)	$ (8,047)	$ (8,059)
Prior service cost obligation	345	471	597
Accumulated pension adjustment	(5,814)	(7,576)	(7,462)
Tax effect	1,977	2,576	2,537
Net amount recognized in accumulated other comprehensive loss	$ (3,837)	$ (5,000)	$ (4,925)