10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

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

For the quarterly period ended June  30, 2016

☐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)

Not Applicable

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

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

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

Large accelerated filer  ☐       Accelerated filer  ☒         Non-accelerated filer  ☐       Smaller reporting company  ☐

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

There were 4,302,395 outstanding shares of the Registrant’s common stock as of July31, 2016.

INDEX

Part I - FINANCIAL INFORMATION
Item 1	Financial Statements
	Consolidated Balance Sheets as of June  30, 2016 and December 31, 2015 (unaudited)	1
	Consolidated Statements of Income for the Three and Six Months ended June  30, 2016	2
	and 2015 (unaudited)
	Consolidated Statements of Comprehensive Income for the Three and SixMonths ended	3
	June  30, 2016 and 2015 (unaudited)
	Consolidated Statements of Changes in Shareholders’ Equity for the Six Months	4
	ended June30, 2016and 2015 (unaudited)
	Consolidated Statements of Cash Flows for the Six Months ended June  30, 2016	5
	and 2015 (unaudited)
	Notes to Consolidated Financial Statements (unaudited)	6
Item 2	Management’s Discussion and Analysis ofResults of Operations and Financial Condition	28
Item 3	Quantitative and Qualitative Disclosures about Market Risk	53
Item 4	Controls and Procedures	53
Part II - OTHER INFORMATION
Item 1	Legal Proceedings	54
Item 1A	Risk Factors	54
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	54
Item 3	Defaults Upon Senior Securities	54
Item 4	Mine Safety Disclosures	54
Item 5	Other Information	54
Item 6	Exhibits	54
SIGNATURE PAGE		56
EXHIBITS

Part I FINANCIAL INFORMATION

Item 1 Financial Statements

Consolidated Balance Sheets

(Dollars in thousands, except share and per share data)(unaudited)	June 30		December 31
	2016		2015
Assets
Cash and due from banks	$	15,668	$	20,664
Interest-bearing deposits in other banks		25,381		18,502
Total cash and cash equivalents		41,049		39,166
Investment securities available for sale, at fair value		163,557		159,473
Restricted stock		436		782
Loans held for sale		487		461
Loans		826,656		782,016
Allowance for loan losses		(10,318)		(10,086)
Net Loans		816,338		771,930
Premises and equipment, net		14,414		14,759
Bank owned life insurance		22,196		22,364
Goodwill		9,016		9,016
Other real estate owned		6,194		6,451
Deferred tax asset, net		3,947		4,758
Other assets		6,412		6,135
Total assets	$	1,084,046	$	1,035,295
Liabilities
Deposits
Noninterest-bearing checking	$	162,515	$	152,095
Money management, savings and interest checking		722,413		680,686
Time		80,626		85,731
Total Deposits		965,554		918,512
Other liabilities		2,544		5,407
Total liabilities		968,098		923,919
Shareholders' equity
Common stock, $1 par value per share,15,000,000 shares authorized with
4,685,049 shares issued and 4,301,648 shares outstanding at June 30, 2016 and
4,659,319 shares issued and 4,275,879 shares outstanding at December 31, 2015		4,685		4,659
Capital stock without par value, 5,000,000 shares authorized with no
shares issued and outstanding		-		-
Additional paid-in capital		39,454		38,778
Retained earnings		81,090		78,517
Accumulated other comprehensive loss		(2,356)		(3,722)
Treasury stock, 383,401 shares at June 30, 2016 and 383,440 shares at
December 31, 2015, at cost		(6,925)		(6,856)
Total shareholders' equity		115,948		111,376
Total liabilities and shareholders' equity	$	1,084,046	$	1,035,295
The accompanying notes are an integral part of these unaudited financial statements.

1

Consolidated Statements of Income

	For the Three Months Ended				For the Six Months Ended
(Dollars in thousands, except per share data) (unaudited)	June 30				June 30
	2016		2015		2016		2015
Interest income
Loans, including fees:	$	7,964	$	7,477	$	16,053	$	14,853
Interest and dividends on investments:
Taxable interest		584		613		1,160		1,248
Tax exempt interest		357		408		723		817
Dividend income		4		8		10		60
Deposits and obligations of other banks		79		72		141		127
Total interest income		8,988		8,578		18,087		17,105
Interest expense
Deposits		548		619		1,091		1,260
Short-term borrowings		-		-		2		-
Total interest expense		548		619		1,093		1,260
Net interest income		8,440		7,959		16,994		15,845
Provision for loan losses		1,875		310		2,175		635
Net interest income after provision for loan losses		6,565		7,649		14,819		15,210
Noninterest income
Investment and trust services fees		1,218		1,388		2,472		2,651
Loan service charges		189		314		415		496
Deposit service charges and fees		602		586		1,180		1,077
Other service charges and fees		313		311		616		607
Debit card income		375		356		722		675
Increase in cash surrender value of life insurance		132		140		267		279
Net (loss) gain on sale of other real estate owned		(2)		-		(10)		32
OTTI losses on debt securities		-		-		(20)		(20)
Gain on conversion of investment security		-		-		-		728
Securities gains, net		2		8		3		8
Other		27		13		164		237
Total noninterest income		2,856		3,116		5,809		6,770
Noninterest expense
Salaries and employee benefits		4,346		4,203		8,716		8,286
Occupancy, net		553		556		1,152		1,172
Furniture and equipment		218		239		434		470
Advertising		262		283		543		471
Legal and professional		394		203		691		499
Data processing		504		556		1,001		1,023
Pennsylvania bank shares tax		260		206		496		402
Intangible amortization		-		90		-		181
FDIC insurance		169		160		326		308
ATM/debit card processing		200		186		428		373
Foreclosed real estate		13		7		76		19
Telecommunications		90		118		209		235
Other		721		852		1,453		1,711
Total noninterest expense		7,730		7,659		15,525		15,150
Income before federal income tax expense		1,691		3,106		5,103		6,830
Federal income tax expense		130		632		815		1,472
Net income	$	1,561	$	2,474	$	4,288	$	5,358
Per share
Basic earnings per share	$	0.36	$	0.58	$	1.00	$	1.27
Diluted earnings per share	$	0.36	$	0.58	$	1.00	$	1.26
Cash dividends declared	$	0.21	$	0.19	$	0.40	$	0.36

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

2

Consolidated Statements of Comprehensive Income

	For the Three Months Ended				For the Six Months Ended
	June 30				June 30
(Dollars in thousands) (unaudited)	2016		2015		2016		2015
Net Income	$	1,561	$	2,474	$	4,288	$	5,358
Securities:
Unrealized gains arising during the period		1,006		(1,239)		2,051		(536)
Reclassification adjustment for (gains) losses included in net income (1)		(2)		(8)		17		(716)
Net unrealized gains (losses)		1,004		(1,247)		2,068		(1,252)
Tax effect		(340)		424		(702)		426
Net of tax amount		664		(823)		1,366		(826)
Derivatives:
Unrealized gains arising during the period		-		32		-		31
Reclassification adjustment for losses included in net income (2)		-		64		-		160
Net unrealized gains		-		96		-		191
Tax effect		-		(32)		-		(65)
Net of tax amount		-		64		-		126
Total other comprehensive income (loss)		664		(759)		1,366		(700)
Total Comprehensive Income	$	2,225	$	1,715	$	5,654	$	4,658
Reclassification adjustment / Statement line item	Tax  expense (benefit)
(1) Securities / gain on conversion & securities (gains) losses, net	$	1	$	3	$	(6)	$	243
(2) Derivatives / interest expense on deposits		-		(22)		-		(54)
The accompanying notes are an integral part of these unaudited financial statements.

3

Consolidated Statements of Changes in Shareholders' Equity

For the SixMonths EndedJune30, 2016 and 2015:

							Accumulated
			Additional				Other
	Common		Paid-in		Retained		Comprehensive		Treasury
(Dollars in thousands, except per share data) (unaudited)	Stock		Capital		Earnings		Loss		Stock		Total
Balance at December 31, 2014	$	4,607	$	37,504	$	71,452	$	(3,100)	$	(6,942)	$	103,521
Net income		-		-		5,358		-		-		5,358
Other comprehensive loss		-		-		-		(700)		-		(700)
Cash dividends declared, $.36 per share		-		-		(1,522)		-		-		(1,522)
Treasury shares issued under employer stock option plans, 4,518 shares		-		5		-		-		81		86
Common stock issued under dividend reinvestment plan, 18,507 shares		18		417		-		-		-		435
Balance at June 30, 2015	$	4,625	$	37,926	$	75,288	$	(3,800)	$	(6,861)	$	107,178
Balance at December 31, 2015	$	4,659	$	38,778	$	78,517	$	(3,722)	$	(6,856)	$	111,376
Net income		-		-		4,288		-		-		4,288
Other comprehensive income		-		-		-		1,366		-		1,366
Cash dividends declared, $.40 per share		-		-		(1,715)		-		-		(1,715)
Acquisition of 15,521 shares of treasury stock		-		-		-		-		(350)		(350)
Treasury shares issued under employer stock purchase plan, 188 shares		-		1		-		-		278		279
Treasury shares issued under dividend reinvestment plan, 15,372 shares		-		82		-		-		3		85
Common stock issued under dividend reinvestment plan, 25,230 shares		25		527		-		-		-		552
Common stock issued under incentive stock option plan, 500 shares		1		8		-		-		-		9
Stock option compensation expense		-		58		-		-		-		58
Balance at June 30, 2016	$	4,685	$	39,454	$	81,090	$	(2,356)	$	(6,925)	$	115,948
The accompanying notes are an integral part of these unaudited financial statements.

4

Consolidated Statements of Cash Flows

	Six Months Ended June 30
	2016		2015
(Dollars in thousands) (unaudited)
Cash flows from operating activities
Net income	$	4,288	$	5,358
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		666		675
Net amortization of loans and investment securities		794		796
Amortization and net change in mortgage servicing rights valuation		27		9
Amortization of intangibles		-		181
Provision for loan losses		2,175		635
Gain on sales of securities		(3)		(8)
Impairment write-down on securities recognized in earnings		20		20
Gain on conversion of investment security		-		(728)
Loans originated for sale		(4,963)		(3,812)
Proceeds from sale of loans		4,937		2,446
Write-down of other real estate owned		46		-
Write-down on premises and equipment		-		60
Net loss (gain) on sale or disposal of other real estate/other repossessed assets		10		(32)
Increase in cash surrender value of life insurance		(267)		(279)
Stock option compensation		58		-
(Increase) decrease in other assets		(504)		1,380
(Decrease) in other liabilities		(2,588)		(2,195)
Net cash provided by operating activities		4,696		4,506
Cash flows from investing activities
Proceeds from sales and calls of investment securities available for sale		1,765		1,381
Proceeds from maturities and pay-downs of securities available for sale		11,929		14,132
Purchase of investment securities available for sale		(16,605)		(21,689)
Net decrease (increase) in restricted stock		346		(1)
Net increase in loans		(46,522)		(7,256)
Capital expenditures		(288)		(190)
Proceeds from surrender of life insurance policy		436		-
Proceeds from sale of other real estate		224		129
Net cash used in investing activities		(48,715)		(13,494)
Cash flows from financing activities
Net increase in demand deposits, interest-bearing checking, and savings accounts		52,147		41,406
Net decrease in time deposits		(5,105)		(6,528)
Net decrease in repurchase agreements		-		(9,079)
Dividends paid		(1,715)		(1,522)
Common stock issued under stock option plans		288		86
Common stock issued under dividend reinvestment plan		637		435
Purchase of treasury stock		(350)		-
Net cash provided by financing activities		45,902		24,798
Increase in cash and cash equivalents		1,883		15,810
Cash and cash equivalents as of January 1		39,166		48,593
Cash and cash equivalents as of June 30	$	41,049	$	64,403
Supplemental Disclosures of Cash Flow Information
Cash paid during the year for:
Interest on deposits and other borrowed funds	$	1,097	$	1,304
Income taxes	$	2,100	$	1,513
Noncash Activities
Loans transferred to Other Real Estate	$	23	$	449
The accompanying notes are an integral part of these unaudited financial statements.

5

FRANKLIN FINANCIAL SERVICES CORPORATION and SUBSIDIARIES

UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 - Basis of Presentation

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

In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the consolidated financial position, results of operations, and cash flows as of June  30, 2016, and for all other periods presented have been made.

Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted.  It is suggested that these consolidated financial statements be read in conjunction with the audited consolidated financial statements and notes thereto included in the Corporation’s 2015 Annual Report on Form 10-K.  The consolidated results of operations for the three and six month periods ended June30, 2016 are not necessarily indicative of the operating results for the full year.  Management has evaluated subsequent events for potential recognition and/or disclosure through the date these consolidated financial statements were issued.

The consolidated balance sheet at December 31, 2015 has been derived from the audited consolidated financial statements at that date, but does not include all of the information and footnotes required by GAAP for complete consolidated financial statements.

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

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

	For the Three Months Ended				For the Six Months Ended
	June 30				June 30
(Dollars and shares in thousands, except per share data)	2016		2015		2016		2015
Weighted average shares outstanding (basic)		4,294		4,234		4,289		4,228
Impact of common stock equivalents		4		11		3		8
Weighted average shares outstanding (diluted)		4,298		4,245		4,292		4,236
Anti-dilutive options excluded from calculation		43		13		44		28
Net income	$	1,561	$	2,474	$	4,288	$	5,358
Basic earnings per share	$	0.36	$	0.58	$	1.00	$	1.27
Diluted earnings per share	$	0.36	$	0.58	$	1.00	$	1.26

Note 2. Recent Accounting Pronouncements

Financial Instruments – Credit Losses (Topic 326). In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.”  ASU 2016-13 requires credit losses on most financial assets measured at amortized cost and certain other instruments to be measured using an expected credit loss model (referred to as the current expected credit loss (CECL) model).  Under this model, entities will estimate credit losses over the entire contractual term of the instrument (considering estimated prepayments, but not expected extensions or modifications unless reasonable expectation of a troubled debt restructuring exists) from the date of initial recognition of that instrument.  The ASU replaces the current accounting model for purchased credit impaired loans and debt securities.  The allowance for credit losses for purchased financial assets with a more-than insignificant amount of credit deterioration since origination (“PCD assets”), should be determined in a similar manner to other financial assets measured on an amortized cost basis.  However, upon initial recognition, the allowance for credit losses is added to the purchase price (“gross up approach”) to determine the initial amortized cost basis.  The subsequent account for PCD financial assets is the same expected loss model described above.  The ASU is effective for fiscal years

6

beginning after December 15, 2019, including interim periods within those fiscal years.  Early adoption is permitted as of the fiscal year beginning after December 15, 2018, including interim periods within those fiscal years.  The Corporation is currently evaluating the impact of the pending adoption of the new standard on its consolidated financial statements.

Revenue from Contracts with Customers (Topic 606). The amendments in this Update (ASU 2014-09) establish a comprehensive revenue recognition standard for virtually all industries under U.S. GAAP, including those that previously followed industry-specific guidance such as the real estate, construction and software industries. The revenue standard’s core principle is built on the contract between a vendor and a customer for the provision of goods and services. It attempts to depict the exchange of rights and obligations between the parties in the pattern of revenue recognition based on the consideration to which the vendor is entitled. To accomplish this objective, the standard requires five basic steps: (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The ASU is effective for public entities for annual periods beginning after December 15, 2016, including interim periods therein. Three basic transition methods are available – full retrospective, retrospective with certain practical expedients, and a cumulative effect approach. Under the third alternative, an entity would apply the new revenue standard only to contracts that are incomplete under legacy U.S. GAAP at the date of initial application (e.g. January 1, 2017) and recognize the cumulative effect of the new standard as an adjustment to the opening balance of retained earnings. That is, prior years would not be restated and additional disclosures would be required to enable users of the financial statements to understand the impact of adopting the new standard in the current year compared to prior years that are presented under legacy U.S. GAAP. Early adoption is prohibited under U.S. GAAP. The Corporation does not believe ASU 2014-09 will have a material effect on its financial statements.

Financial Instruments – Overall (Topic 825-10). In January 2016, the FASB issued ASU 2016-01, “Financial Instruments – Overall (Topic 825-10): “Recognition and Measurement of Financial Assets and Financial Liabilities.” ASU 2016-01 amends the guidance on the classification and measurement of financial instruments.  Some of the amendments in ASU 2016-01 include the following: 1) requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income; 2) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; 3) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; and 4) requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value; among others.  For public business entities, the amendments of ASU 2016-01 are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.  The Corporation does not believe ASU 2016-01 will have a material effect on its financial statements.

Leases (Topic 842). In February 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-02, Leases.  From the lessee’s perspective, the new standard established a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months.  Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement for a lessees.  From the lessor’s perspective, the new standard requires a lessor to classify leases as either sales-type, finance or operating.  A lease will be treated as a sale if it transfers all of the risks and rewards, as well as control of the underlying asset, to the lessee.  If risks and rewards are conveyed without the transfer of control, the lease is treated as financing.  If the lessor doesn’t convey risks and rewards or control, an operating lease results.

The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.  A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available.  A modified retrospective transition approach is required for lessors for sales-type, direct financing, and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available.  The Corporation is currently evaluating the impact of the pending adoption of the new standard on its consolidated financial statements.

7

Note 3. Accumulated Other Comprehensive Loss

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

	June 30		December 31,
	2016		2015
(Dollars in thousands)
Net unrealized gains on securities	$	3,206	$	1,138
Tax effect		(1,089)		(387)
Net of tax amount		2,117		751
Accumulated pension adjustment		(6,777)		(6,777)
Tax effect		2,304		2,304
Net of tax amount		(4,473)		(4,473)
Total accumulated other comprehensive loss	$	(2,356)	$	(3,722)

Note 4. Guarantees

The Corporation does not issue any guarantees that would require liability recognition or disclosure, other than its standby letters of credit.  Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party.  Generally, all letters of credit, when issued, have expiration dates within one year.  The credit risk involved in issuing letters of credit is essentially the same as those that are involved in extending loan facilities to customers. The Bank generally holds collateral and/or personal guarantees supporting these commitments.  The Bank had $29.4million and $25.9 million of standby letters of credit as of June 30, 2016 and December 31, 2015, respectively. Management believes that the proceeds obtained through a liquidation of collateral and the enforcement of guarantees would be sufficient to cover the potential amount of future payments required under the corresponding guarantees.  The amount of the liability as of June  30, 2016and December 31, 2015 for guarantees under standby letters of credit issued was not material.

8

Note 5. Investments

The amortized cost and estimated fair value of investment securities available for sale as of June  30, 2016 and December 31, 2015are as follows:

(Dollars in thousands)			Gross		Gross
	Amortized		unrealized		unrealized		Fair
June 30, 2016	cost		gains		losses		value
Equity securities	$	164	$	76	$	-	$	240
U.S. Government and Agency securities		13,104		339		(17)		13,426
Municipal securities		68,430		2,354		(43)		70,741
Trust preferred securities		5,968		-		(798)		5,170
Agency mortgage-backed securities		71,448		1,310		(35)		72,723
Private-label mortgage-backed securities		1,201		27		(5)		1,223
Asset-backed securities		36		-		(2)		34
	$	160,351	$	4,106	$	(900)	$	163,557

(Dollars in thousands)			Gross		Gross
	Amortized		unrealized		unrealized		Fair
December 31, 2015	cost		gains		losses		value
Equity securities	$	164	$	69	$	-	$	233
U.S. Government and Agency securities		13,705		164		(33)		13,836
Municipal securities		67,851		1,555		(218)		69,188
Trust preferred securities		5,958		-		(669)		5,289
Agency mortgage-backed securities		69,284		621		(386)		69,519
Private-label mortgage-backed securities		1,335		39		(2)		1,372
Asset-backed securities		38		-		(2)		36
	$	158,335	$	2,448	$	(1,310)	$	159,473

At June30, 2016and December 31, 2015, the fair value of investment securities pledged to secure public funds, trust balances, deposit and other obligations totaled $69.4 million and $79.6 million, respectively.

The amortized cost and estimated fair value of debt securities at June  30, 2016, by contractual maturity are shown below.Actual maturities may differ from contractual maturities because of prepayment or call options embedded in the securities.

(Dollars in thousands)	Amortized cost		Fair value
Due in one year or less	$	2,618	$	2,641
Due after one year through five years		11,175		11,516
Due after five years through ten years		28,597		29,698
Due after ten years		45,148		45,516
		87,538		89,371
Mortgage-backed securities		72,649		73,946
	$	160,187	$	163,317

9

The composition of the net realized securities gains for the three and six months ended are as follows:

	For the Three Months Ended				For the Six Months Ended
	June 30				June 30
(Dollars in thousands)	2016		2015		2016		2015
Gross gains realized	$	2	$	-	$	3	$	8
Gross losses realized		-		-		-		-
Conversion gain		-		-		-		728
Net gains realized	$	2	$	-	$	3	$	736

The following table provides additional detail about trust preferred securities as of June 30, 2016:

Trust Preferred Securities

(Dollars in thousands)
Deal Name	Maturity	Single Issuer or Pooled	Class	Amortized Cost		Fair Value		Gross Unrealized Gain (Loss)		Lowest Credit Rating Assigned
BankAmerica Cap III	1/15/2027	Single	Preferred Stock	$	966	$	832	$	(134)	BB+
Wachovia Cap Trust II	1/15/2027	Single	Preferred Stock		279		254		(25)	BBB
Huntington Cap Trust	2/1/2027	Single	Preferred Stock		944		795		(149)	BB
Corestates Captl Tr II	2/15/2027	Single	Preferred Stock		941		848		(93)	BBB+
Huntington Cap Trust II	6/15/2028	Single	Preferred Stock		897		767		(130)	BB
Chase Cap VI JPM	8/1/2028	Single	Preferred Stock		965		832		(133)	BBB-
Fleet Cap Tr V	12/18/2028	Single	Preferred Stock		976		842		(134)	BB+
				$	5,968	$	5,170	$	(798)

The following table provides additional detail about private label mortgage-backed securities as of June  30, 2016:

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
MALT 2004-6 7A1	6/1/2004	$	322	$	319	$	(3)	ALT A	CCC	15.07	$	-
RALI 2005-QS2 A1	2/1/2005		176		187		11	ALT A	CC	4.83		10
RALI 2006-QS4 A2	4/1/2006		425		423		(2)	ALT A	D	-		323
GSR 2006-5F 2A1	5/1/2006		53		60		7	Prime	D	-		15
RALI 2006-QS8 A1	7/28/2006		225		234		9	ALT A	D	-		227
		$	1,201	$	1,223	$	22				$	575

Impairment:

The investment portfolio contained thirty-seven securities with $21.0 million of temporarily impaired fair value and $900 thousand in unrealized losses at June 30, 2016. The total unrealized loss position has improved from a  $1.3 million unrealized loss at year-end 2015. 

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

10

conditions relating to specific issues.  The impairment identified on debt and equity securities and subject to assessment at June 30, 2016, was deemed to be temporary and required no further adjustments to the financial statements, unless otherwise noted.

The following table reflects temporary impairment in the investment portfolio (excluding restricted stock), aggregated by investment category, length of time that individual securities have been in a continuous unrealized loss position and the number of securities in each category as of June30, 2016  and December 31, 2015:

	June 30, 2016
	Less than 12 months					12 months or more					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(Dollars in thousands)	Value		Losses		Count	Value		Losses		Count	Value		Losses		Count
U.S. Government and Agency securities	$	-	$	-	-	$	3,612	$	(17)	10	$	3,612	$	(17)	10
Municipal securities		-		-	-		2,328		(43)	3		2,328		(43)	3
Trust preferred securities		-		-	-		5,170		(798)	7		5,170		(798)	7
Agency mortgage-backed securities		3,218		(2)	3		5,929		(33)	11		9,147		(35)	14
Private-label mortgage-backed securities		319		(3)	1		423		(2)	1		742		(5)	2
Asset-backed securities		-		-	-		5		(2)	1		5		(2)	1
Total temporarily impaired securities	$	3,537	$	(5)	4	$	17,467	$	(895)	33	$	21,004	$	(900)	37

	December 31, 2015
	Less than 12 months					12 months or more					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(Dollars in thousands)	Value		Losses		Count	Value		Losses		Count	Value		Losses		Count
U.S. Government and Agency securities	$	479	$	(1)	3	$	4,364	$	(32)	10	$	4,843	$	(33)	13
Municipal securities		5,806		(35)	8		4,785		(183)	7		10,591		(218)	15
Trust preferred securities		-		-	-		5,289		(669)	7		5,289		(669)	7
Agency mortgage-backed securities		18,977		(215)	29		7,394		(171)	13		26,371		(386)	42
Private-label mortgage-backed securities		-		-	-		246		(2)	1		246		(2)	1
Asset-backed securities		-		-	-		5		(2)	1		5		(2)	1
Total temporarily impaired securities	$	25,262	$	(251)	40	$	22,083	$	(1,059)	39	$	47,345	$	(1,310)	79

The unrealized loss in the municipal bond portfolio decreased to $43 thousand from $218 thousand at December 31, 2015 as market prices improved during the quarter.  There are three securities in this portfolio with an unrealized loss and the loss in this portfolio is deemed to be non-credit related and no other-than-temporary impairment charges have been recorded.

The trust preferred portfolio contains seven securities with a fair value of $5.2 million and an unrealized loss of $798 thousand The trust-preferred securities held by the Bank are single entity issues, not pooled trust preferred securities.  Therefore, the impairment review of these securities is based only on the issuer and the security cannot be impaired by the performance of other issuers as if it was a pooled trust-preferred bond. All of the Bank’s trust preferred securities are single issue, variable rate notes with long maturities (2027 – 2028).  None of these bonds have suspended or missed a dividend payment. At June 30, 2016, the Bank believes it will be able to collect all interest and principal due on these bondsand no other-than-temporary-impairment charges were recorded. 

There are two PLMBS bonds showing a small unrealized loss of $5 thousand.  However, the PLMBS sector as a whole is showing an unrealized gain of $22 thousand at quarter end.  This is primarily a result of the cumulative OTTI charges recorded on this portfolio.  Due to the nature of these bonds, they are evaluated closely. These bonds were all rated AAA at time of purchase, but have since experienced rating declines. Some have experienced increased delinquencies and defaults, while others have seen the credit support increase as the bonds paid-down. The Bank monitors the performance of the PLMBS investments on a regular basis and reviews delinquencies, default rates, credit support levels and various cash flow stress test scenarios. In determining the credit related loss, Management considers all principal past due 60 days or more as a loss. If additional principal moves beyond 60 days past due, it will also be considered a loss.  The Bank recorded a $20 thousand impairment charge during the first quarter of 2016 and has recorded

11

$575 thousand of cumulative impairment charges on this portfolio. Management continues to monitor these securities and it is possible that additional write-downs may occur if current loss trends continue.

The following table represents the cumulative credit losses on debt securities recognized in earnings as of June  30:

(Dollars in thousands)	Six Months Ended
	2016		2015
Balance of cumulative credit-related OTTI at January 1	$	555	$	535
Additions for credit-related OTTI not previously recognized		20		20
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 June 30	$	575	$	555

The Bank held $436 thousand of restricted stock at June 30, 2016.  Except for $30 thousand, this investment represents stock in FHLB Pittsburgh. The Bank is required to hold this stock to be a member of FHLB and it is carried at cost of $100 per share. The level of FHLB stock held is determined by FHLB and is comprised of a minimum membership amount plus a variable activity amount. FHLB stock is evaluated for impairment primarily based on an assessment of the ultimate recoverability of its cost. As a government sponsored entity, FHLB has the ability to raise funding through the U.S. Treasury that can be used to support its operations.  There is not a public market for FHLB stock and the benefits of FHLB membership (e.g., liquidity and low cost funding) add value to the stock beyond purely financial measures. Management intends to remain a member of the FHLB and believes that it will be able to fully recover the cost basis of this investment.  

Note 6. Loans

The Bank reports its loan portfolio based on the primary collateral of the loan. It further classifies these loans by the primary purpose, either consumer or commercial. The Bank’s residential real estate loans include long-term loans to individuals and businesses secured by mortgages on the borrower’s real property and include home equity loans.  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 real estate loans include construction, owner and non-owner occupied properties and farm real estate.  Commercial loans are made to businesses of various sizes for a variety of purposes including property, plant and equipment, working capital and 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 loans and unsecured personal lines of credit. 

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

						Change
(Dollars in thousands)	June 30, 2016		December 31, 2015			Amount	%
Residential Real Estate 1-4 Family
Consumer first liens	$	101,113	$	103,698	$	(2,585)	(2.5)
Commercial first lien		62,424		57,780		4,644	8.0
Total first liens		163,537		161,478		2,059	1.3
Consumer junior liens and lines of credit		46,106		44,996		1,110	2.5
Commercial junior liens and lines of credit		5,908		5,917		(9)	(0.2)
Total junior liens and lines of credit		52,014		50,913		1,101	2.2
Total residential real estate 1-4 family		215,551		212,391		3,160	1.5
Residential real estate - construction
Consumer		1,067		545		522	95.8
Commercial		7,253		7,343		(90)	(1.2)
Total residential real estate construction		8,320		7,888		432	5.5
Commercial real estate		371,786		340,695		31,091	9.1
Commercial		226,307		215,942		10,365	4.8
Total commercial		598,093		556,637		41,456	7.4
Consumer		4,692		5,100		(408)	(8.0)
		826,656		782,016		44,640	5.7
Less: Allowance for loan losses		(10,318)		(10,086)		(232)	2.3
Net Loans	$	816,338	$	771,930	$	44,408	5.8
Included in the loan balances are the following:
Net unamortized deferred loan fees	$	225	$	436
Loans pledged as collateral for borrowings and commitments from:
FHLB	$	583,567	$	643,449
Federal Reserve Bank		42,060		45,111
	$	625,627	$	688,560

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Note 7. Loan Quality

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

	Residential Real Estate 1-4 Family
			Junior Liens &				Commercial
(Dollars in thousands)	First Liens		Lines of Credit		Construction		Real Estate		Commercial		Consumer		Unallocated		Total
ALL at March 31, 2016	$	997	$	316	$	199	$	6,181	$	1,510	$	99	$	1,040	$	10,342
Charge-offs		(46)		-		-		(1,951)		(3)		(42)		-		(2,042)
Recoveries		1		-		-		14		106		22		-		143
Provision		71		3		6		1,696		(17)		18		98		1,875
ALL at June 30, 2016	$	1,023	$	319	$	205	$	5,940	$	1,596	$	97	$	1,138	$	10,318
ALL at December 31, 2015	$	989	$	308	$	194	$	5,649	$	1,519	$	102	$	1,325	$	10,086
Charge-offs		(49)		-		-		(1,954)		(66)		(84)		-		(2,153)
Recoveries		33		-		-		14		121		42		-		210
Provision		50		11		11		2,231		22		37		(187)		2,175
ALL at June 30, 2016	$	1,023	$	319	$	205	$	5,940	$	1,596	$	97	$	1,138	$	10,318
ALL at March 31, 2015	$	1,016	$	268	$	249	$	5,137	$	1,353	$	116	$	1,071	$	9,210
Charge-offs		(43)		-		(21)		-		(17)		(26)		-		(107)
Recoveries		1		-		-		14		8		14		-		37
Provision		40		13		(22)		28		96		8		147		310
ALL at June 30, 2015	$	1,014	$	281	$	206	$	5,179	$	1,440	$	112	$	1,218	$	9,450
ALL at December 31, 2014	$	994	$	271	$	214	$	4,978	$	1,515	$	127	$	1,012	$	9,111
Charge-offs		(43)		-		(21)		-		(218)		(78)		-		(360)
Recoveries		3		-		-		14		14		33		-		64
Provision		60		10		13		187		129		30		206		635
ALL at June 30, 2015	$	1,014	$	281	$	206	$	5,179	$	1,440	$	112	$	1,218	$	9,450

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The following table presents, by class, loans that were evaluated for the ALL under the specific reserve (individually) and those that were evaluated under the general reserve (collectively) and the amount of the ALL established in each class as of June30, 2016 and December 31, 2015:

	Residential Real Estate 1-4 Family
			Junior Liens &				Commercial
(Dollars in thousands)	First Liens		Lines of Credit		Construction		Real Estate		Commercial		Consumer		Unallocated		Total
June 30, 2016
Loans evaluated for ALL:
Individually	$	396	$	52	$	491	$	17,082	$	-	$	-	$	-	$	18,021
Collectively		163,141		51,962		7,829		354,704		226,307		4,692		-		808,635
Total	$	163,537	$	52,014	$	8,320	$	371,786	$	226,307	$	4,692	$	-	$	826,656
ALL established for loans evaluated:
Individually	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Collectively		1,023		319		205		5,940		1,596		97		1,138		10,318
ALL at June 30, 2016	$	1,023	$	319	$	205	$	5,940	$	1,596	$	97	$	1,138	$	10,318
December 31, 2015
Loans evaluated for ALL:
Individually	$	930	$	51	$	502	$	14,309	$	230	$	-	$	-	$	16,022
Collectively		160,548		50,862		7,386		326,386		215,712		5,100		-		765,994
Total	$	161,478	$	50,913	$	7,888	$	340,695	$	215,942	$	5,100	$	-	$	782,016
ALL established for loans evaluated:
Individually	$	-	$	-	$	-	$	-	$	9	$	-	$	-	$	9
Collectively		989		308		194		5,649		1,510		102		1,325		10,077
ALL at December 31, 2015	$	989	$	308	$	194	$	5,649	$	1,519	$	102	$	1,325	$	10,086

15

The following table shows additional information about those loans considered to be impaired at June  30, 2016 and December 31, 2015:

	Impaired Loans
	With No Allowance				With Allowance
(Dollars in thousands)			Unpaid					Unpaid
	Recorded		Principal		Recorded		Principal		Related
June 30, 2016	Investment		Balance		Investment		Balance		Allowance
Residential Real Estate 1-4 Family
First liens	$	921	$	996	$	-	$	-	$	-
Junior liens and lines of credit		63		75		-		-		-
Total		984		1,071		-		-		-
Residential real estate - construction		491		540		-		-		-
Commercial real estate		17,357		19,910		-		-		-
Commercial		25		37		-		-		-
Total	$	18,857	$	21,558	$	-	$	-	$	-

December 31, 2015
Residential Real Estate 1-4 Family
First liens	$	1,523	$	1,725	$	-	$	-	$	-
Junior liens and lines of credit		105		133		-		-		-
Total		1,628		1,858		-		-		-
Residential real estate - construction		502		546		-		-		-
Commercial real estate		14,431		15,007				-		-
Commercial		267		330		9		10		9
Total	$	16,828	$	17,741	$	9	$	10	$	9

16

The following table shows the average of impaired loans and related interest income for the three and six months ended June  30, 2016 and 2015:

	Three Months Ended				Six Months Ended
	June 30, 2016				June 30, 2016
	Average		Interest		Average		Interest
(Dollars in thousands)	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
Residential Real Estate 1-4 Family
First liens	$	926	$	6	$	998	$	12
Junior liens and lines of credit		63		-		67		-
Total		989		6		1,065		12
Residential real estate - construction		494		-		498		-
Commercial real estate		19,345		117		19,555		239
Commercial		34		-		39		-
Total	$	20,862	$	123	$	21,157	$	251
	Three Months Ended				Six Months Ended
	June 30, 2015				June 30, 2015
	Average		Interest		Average		Interest
(Dollars in thousands)	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
Residential Real Estate 1-4 Family
First liens	$	1,618	$	9	$	1,723	$	16
Junior liens and lines of credit		117		-		131		-
Total		1,735		9		1,854		16
Residential real estate - construction		516		-		723		-
Commercial real estate		21,756		174		21,971		327
Commercial		361		-		1,012		-
Total	$	24,368	$	183	$	25,560	$	343

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

(Dollars in thousands)			Loans Past Due and Still Accruing										Total
	Current		30-59 Days		60-89 Days		90 Days+		Total		Non-Accrual		Loans
June 30, 2016
Residential Real Estate 1-4 Family
First liens	$	162,601	$	102	$	393	$	14	$	509	$	427	$	163,537
Junior liens and lines of credit		51,764		154		-		33		187		63		52,014
Total		214,365		256		393		47		696		490		215,551
Residential real estate - construction		7,652		117		-		60		177		491		8,320
Commercial real estate		362,157		2,415		96		306		2,817		6,812		371,786
Commercial		225,802		381		53		46		480		25		226,307
Consumer		4,674		18		-		-		18		-		4,692
Total	$	814,650	$	3,187	$	542	$	459	$	4,188	$	7,818	$	826,656

December 31, 2015
Residential Real Estate 1-4 Family
First liens	$	159,998	$	44	$	416	$	214	$	674	$	806	$	161,478
Junior liens and lines of credit		50,541		217		50		-		267		105		50,913
Total		210,539		261		466		214		941		911		212,391
Residential real estate - construction		7,209		177		-		-		177		502		7,888
Commercial real estate		330,953		5,713		196		152		6,061		3,681		340,695
Commercial		215,449		210		5		2		217		276		215,942
Consumer		5,041		55		4		-		59		-		5,100
Total	$	769,191	$	6,416	$	671	$	368	$	7,455	$	5,370	$	782,016

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

	Pass		Special Mention		Substandard		Doubtful
(Dollars in thousands)	(1-5)		(6)		(7)		(8)		Total
June 30, 2016
Residential Real Estate 1-4 Family
First liens	$	160,151	$	2,003	$	1,383	$	-	$	163,537
Junior liens and lines of credit		51,796		28		190		-		52,014
Total		211,947		2,031		1,573		-		215,551
Residential real estate - construction		7,488		-		832		-		8,320
Commercial real estate		352,191		1,758		17,837		-		371,786
Commercial		223,082		1,161		2,064		-		226,307
Consumer		4,692		-		-		-		4,692
Total	$	799,400	$	4,950	$	22,306	$	-	$	826,656

December 31, 2015
Residential Real Estate 1-4 Family
First liens	$	157,514	$	2,122	$	1,842	$	-	$	161,478
Junior liens and lines of credit		50,685		28		200		-		50,913
Total		208,199		2,150		2,042		-		212,391
Residential real estate - construction		7,386		-		502		-		7,888
Commercial real estate		319,985		6,175		14,535		-		340,695
Commercial		213,492		1,978		472		-		215,942
Consumer		5,100		-		-		-		5,100
Total	$	754,162	$	10,303	$	17,551	$	-	$	782,016

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

								Troubled Debt Restructurings
								That Have Defaulted on
								Modified Terms in the
(Dollars in thousands)	Troubled Debt Restructurings							Last Twelve Months
	Number of	Recorded						Number of	Recorded
	Contracts	Investment		Performing*		Nonperforming*		Contracts	Investment
June 30, 2016
Residential real estate - construction	1	$	491	$	491	$	-	-	$	-
Residential real estate	4		645		494		151	-		-
Commercial real estate	11		12,351		12,351		-	-		-
Total	16	$	13,487	$	13,336	$	151	-	$	-
December 31, 2015
Residential real estate - construction	1	$	502	$	502	$	-	-	$	-
Residential real estate	4		654		503		151	-		-
Commercial real estate	10		12,125		12,125		-	-		-
Total	15	$	13,281	$	13,130	$	151	-	$	-

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

The following table reports new TDR loans during 2016, concession granted and the recorded investment as of June  30, 2016:

	New During Period
	Number of		Pre-TDR		After-TDR		Recorded
Six Months Ended June 30, 2016	Contracts		Modification		Modification		Investment	Concession
Commercial real estate	1	$	525	$	525	$	515	multiple

There were no new TDR loans made inthe first six months of 2015.

Note 8. OREO

Changes in other real estate owned during the three months ended June 30, 2016 and 2015 were as follows:

	June 30
(Dollars in thousands)	2016		2015
Balance at January 1	$	6,451	$	3,666
Additions		23		449
Proceeds from dispositions		(224)		(129)
(Loss) gain on sales, net		(10)		32
Valuation adjustment		(46)		-
Balance at June 30	$	6,194	$	4,018

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Note 9. Pension

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

	Three Months Ended June 30				Six Months Ended June 30
(Dollars in thousands)	2016		2015		2016		2015
Components of net periodic cost:
Service cost	$	83	$	92	$	164	$	192
Interest cost		180		172		360		350
Expected return on plan assets		(290)		(296)		(583)		(592)
Recognized net actuarial loss		120		123		231		254
Net period cost	$	93	$	91	$	172	$	204

The Bank expects its pension expense to increase to approximately $809 thousand in 2016 compared to $387 thousand in 2015, due to a pension settlement expense of approximately $450,000 that will be recorded during the second half of 2016.  No pension contributions were made or are expected to be made in 2016.

Note 10.  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 period-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 June 30, 2016and December 31, 2015.

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

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

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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 (including impaired 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.

Deposits andShort-term borrowings:  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 is estimated by discounting the future cash flows using rates approximating those currently offered for certificates of deposit with similar remaining maturities.  For short-term borrowings, the carrying value approximates a reasonable estimate of the fair value.

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

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. 

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

	June 30, 2016
	Carrying		Fair
(Dollars in thousands)	Amount		Value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	41,049	$	41,049	$	41,049	$	-	$	-
Investment securities available for sale		163,557		163,557		240		163,317		-
Restricted stock		436		436		-		436		-
Loans held for sale		487		487		-		487		-
Net loans		816,338		824,266		-		-		824,266
Accrued interest receivable		3,151		3,151		-		3,151		-
Financial liabilities:
Deposits	$	965,554	$	965,439	$	-	$	965,439	$	-
Accrued interest payable		120		120		-		120		-
	December 31, 2015
	Carrying		Fair
(Dollars in thousands)	Amount		Value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	39,166	$	39,166	$	39,166	$	-	$	-
Investment securities available for sale		159,473		159,473		233		159,240		-
Restricted stock		782		782		-		782		-
Loans held for sale		461		461		-		461		-
Net loans		771,930		779,742		-		-		779,742
Accrued interest receivable		3,164		3,164		-		3,164		-
Financial liabilities:
Deposits	$	918,512	$	918,401	$	-	$	918,401	$	-
Accrued interest payable		124		124		-		124		-

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Recurring Fair Value Measurements

For financial assets and liabilities measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used at June 30, 2016 and December 31, 2015 are as follows:

(Dollars in Thousands	Fair Value at June 30, 2016
Asset  Description	Level 1		Level 2		Level 3		Total
Equity securities	$	240	$	-	$	-	$	240
U.S. Government and Agency securities		-		13,426		-		13,426
Municipal securities		-		70,741		-		70,741
Trust Preferred Securities		-		5,170		-		5,170
Agency mortgage-backed securities		-		72,723		-		72,723
Private-label mortgage-backed securities		-		1,223		-		1,223
Asset-backed securities		-		34		-		34
Total assets	$	240	$	163,317	$	-	$	163,557

(Dollars in Thousands)	Fair Value at December 31, 2015
Asset  Description	Level 1		Level 2		Level 3		Total
Equity securities	$	233	$	-	$	-	$	233
U.S. Government and Agency securities		-		13,836		-		13,836
Municipal securities		-		69,188		-		69,188
Trust Preferred Securities		-		5,289		-		5,289
Agency mortgage-backed securities		-		69,519		-		69,519
Private-label mortgage-backed securities		-		1,372		-		1,372
Asset-backed securities		-		36		-		36
Total assets	$	233	$	159,240	$	-	$	159,473

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

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

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Nonrecurring Fair Value Measurements

For financial assets measured at fair value on a nonrecurring basis, the fair value measurements by level within the fair value hierarchy used at June 30, 2016 and December 31, 2015are as follows:

(Dollars in Thousands)
	Fair Value at June 30, 2016
Asset  Description	Level 1		Level 2		Level 3		Total
Impaired loans (1)	$	-	$	-	$	3,363	$	3,363
Other real estate owned (1)		-		-		225		225
Total assets	$	-	$	-	$	3,588	$	3,588

(Dollars in Thousands)	Fair Value at December 31, 2015
Asset  Description	Level 1		Level 2		Level 3		Total
Premises held-for-sale (1)	$	-	$	-	$	225	$	225
Other real estate owned (1)		-		-		6,128		6,128
Total assets	$	-	$	-	$	6,353	$	6,353

(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.

Premises held-for-sale: The fair value of premises held for sale, upon initial recognition, is estimated using Level 3 inputs within the fair value hierarchy.

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.  Subsequent charge-offs are recognized as an expense.

The Corporation did not record any liabilities at fair value for which measurement of the fair value was made on a nonrecurring basis at June 30, 2016. 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 June 30, 2016.

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

		Quantitative Information about Level 3 Fair Value Measurements
(Dollars in Thousands)		at June 30, 2016
					Range
Asset  Description		Fair Value	Valuation Technique	Unobservable Input	(Weighted Average)
Impaired loans (1)	$	3,363	Appraisal	Appraisal Adjustments (2)	100% (100%)
				Cost to sell	8%  (8%)
Other real estate owned (1)		225	Appraisal	Cost to sell	8% (8%)
		at December 31, 2015
Premises held-for-sale (1)	$	225	Appraisal	-	-
Other real estate owned (1)		6,128	Appraisal	Cost to sell	8% (8%)
(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.

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Note 11.  Financial Derivatives

The Board of Directors has given Management authorization to enter into derivative activity including interest rate swaps, caps and floors, forward-rate agreements, options and futures contracts in order to hedge interest rate risk.  The Bank is exposed to credit risk equal to the positive fair value of a derivative instrument, if any, as a positive fair value indicates that the counterparty to the agreement is financially liable to the Bank.  To limit this risk, counterparties must have an investment grade long-term debt rating and individual counterparty credit exposure is limited by Board approved parameters.  The final swap transaction matured in 2015.

The Effect of Derivative Instruments on the Statement of Income for the Three and Six Months Ended June  30, 2016 and 2015 follows:

Derivatives in ASC Topic 815 Cash Flow Hedging Relationships
(Dollars in thousands)							Amount of Gain
						Location of	or (Loss)
						Gain or (Loss)	Recognized in
						Recognized in	Income on
			Location of	Amount of Gain		Income on	Derivatives
	Amount of Gain		Gain or (Loss)	or (Loss)		Derivative (Ineffective	(Ineffective Portion
	or (Loss)		Reclassified from	Reclassified from		Portion and Amount	and Amount
	Recognized in OCI		Accumulated OCI	Accumulated OCI		Excluded from	Excluded from
	net of tax on Derivative		into Income	into Income		Effectiveness	Effectiveness
Date / Type	(Effective Portion)		(Effective Portion)	(Effective Portion)		Testing)	Testing)
Interest rate contracts
Three months ended:
June 30, 2016	$	-	Interest Expense	$	-	Other income (expense)	$	-
June 30, 2015	$	64	Interest Expense	$	(64)	Other income (expense)	$	-
Six months ended:
June 30, 2016	$	-	Interest Expense	$	-	Other income (expense)	$	-
June 30, 2015	$	126	Interest Expense	$	(160)	Other income (expense)	$	-

Interest Rate Swap Agreements (“Swap Agreements”)

As of June  30, 2016, the Bank had no swap agreements outstanding. The Bank had entered into interest rate swap agreements as part of its asset/liability management program.  The swap agreements were free-standing derivatives and were recorded at fair value in the Corporation’s consolidated statements of condition.  The Bank was party to master netting arrangements with its financial institution counterparties; however, the Bank did not offset assets and liabilities under these arrangements for financial statement presentation purposes.  The master netting arrangements provided for a single net settlement of all swap agreements, as well as collateral, in the event of default on, or termination of, any one contract.  Collateral, in the form of marketable securities, was posted by the counterparty with net liability positions in accordance with contract thresholds. 

Note 12. Capital Ratios

Capital adequacy is currently defined by regulatory agencies through the use of several minimum required ratios.  In July 2013, Federal banking regulators approved the final rules from the Basel Committee on Banking Supervision for the regulation of capital requirements for bank holding companies and U.S banks, generally referred to as “Basel III.” The Basel III standards were effective for the Corporation and the Bank, effective January 1, 2015 (subject to a phase-in period for certain provisions).  Basel III imposes significantly higher capital requirements and more restrictive leverage and liquidity ratios than those previously in place.  The capital ratios to be considered “well capitalized” under Basel III are: (1) Common Equity Tier 1(CET1) of 6.5%, (2) Tier 1 Leverage of 5%, (3)Tier 1 Risk-Based Capital of 8%, and (4) Total Risk-Based Capital of 10%.  The CET1 ratio is a new capital ratio under Basel III and the Tier 1 risk-based capital ratio of 8% has been increased from 6%. The rules also include changes in the risk weights of certain assets to better reflect credit and other risk exposures. In addition, a capital conservation buffer will be phased-in beginning January 1, 2016 at 0.625%, increasing each year until fully implemented in 2019 at 2.5% above the minimum capital ratios required to avoid any capital distribution restrictions. The capital conservation buffer will be applicable to all of the capital ratios except for the Tier1 Leverage ratio. When fully implemented, the capital conservation buffer will have the effect of

26

increasing the minimum capital ratios by 2.5%.  As of June  30, 2016, the Bank was “well capitalized’ under the Basel III requirements and believes it would be “well capitalized” on a fully-phased in basis had such a requirement been in effect.

The following table summarizes regulatory capital information as of June  30, 2016 and December 31, 2015(restated) for the Corporation and the Bank.  The adequately capitalized minimum ratios, except for the Tier 1 Leverage Ratio, include the 0.625% Capital Conservation buffer effective for 2016.

			Regulatory Ratios
			Adequately	Well
			Capitalized	Capitalized
(Dollars in thousands)	June 30, 2016	December 31, 2015	Minimum	Minimum
Common Equity Tier 1 Risk-based Capital Ratio (1)
Franklin Financial Services Corporation	14.64%	14.77%	5.125%	N/A
Farmers & Merchants Trust Company	14.59%	14.76%	5.125%	6.50%
Tier 1 Risk-based Capital Ratio (2)
Franklin Financial Services Corporation	14.64%	14.77%	6.625%	N/A
Farmers & Merchants Trust Company	14.59%	14.76%	6.625%	8.00%
Total Risk-based Capital Ratio (3)
Franklin Financial Services Corporation	15.90%	16.03%	8.625%	N/A
Farmers & Merchants Trust Company	15.85%	16.02%	8.625%	10.00%
Tier 1 Leverage Ratio (4)
Franklin Financial Services Corporation	10.20%	10.38%	4.000%	N/A
Farmers & Merchants Trust Company	10.17%	10.37%	4.000%	5.00%
(1) Common equity Tier 1 capital/ total risk-weighted assets (2) Tier 1 capital / total risk-weighted assets
(3) Total risk-based capital / total risk-weighted assets, (4) Tier 1 capital / average quarterly assets

31Note 13. Reclassification

Certain prior period amounts may have been reclassified to conform to the current year presentation.  Such reclassifications did not affect the Corporation’s financial position or results of operations.

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

For the Three and Six Months Ended June  30, 2016and 2015

Forward Looking Statements

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

Critical Accounting Policies

Management has identified critical accounting policies for the Corporation.  These policies are particularly sensitive, requiring significant judgements, estimates and assumptions to be made by Management. There were no changes to the critical accounting policies disclosed in the 2015 Annual Report on Form 10-K in regards to application or related judgments and estimates used.  Please refer to Item 7 of the Corporation’s 2015 Annual Report on Form 10-K for a more detailed disclosure of the critical accounting policies.

Results of Operations

Year-to-Date Summary

At June  30, 2016, total assets were $1.084 billion, an increase of $48.8 million from December 31, 2015. Net loans increased to $816.3 million and total deposits increased to $965.6 million.  The Corporation reported net income for the first six months of 2016 of $4.3 million.  This is a 20.0%  decrease versus net income of $5.4 million for the same period in 2015.  Net income for 2016 wasnegatively affected by a provision for loan loss expense that was $1.5 million more than 2015, while 2015 was enhanced by two nonrecurring events that increased noninterest income by $899 thousand. Despite the nonrecurring events in 2015, total revenue (interest income and noninterest income) for the first half of 2016 increased slightly, by  $21 thousand year-over-year. Interest income increased $982 thousand,  while interest expense decreasedby  $167 thousand, resulting in a $1.1millionincrease in net interest income. The provision for loan losses was $2.2million for the first six months of 2016, $1.5millionmore than in 2015.  Noninterest income decreased $961 thousand, whilenoninterest expense increased $375 thousand. Income tax expense decreased from $1.5 million in 2015 to $815 thousand in 2016. The effective tax rate decreased from 21.6% in 2015 to 16.0% in 2016.Diluted earnings per share decreased to $1.00 in 2016 from $1.26 in 2015.  

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Key performance ratios as of, or for the six months ended June30, 2016and 2015and the year ended December 31, 2015are listed below:

	June 30		December 31,		June 30
	2016		2015		2015
(Dollars in thousands, except per share)
Balance Sheet Highlights
Total assets	$	1,084,046	$	1,035,295	$	1,028,539
Investment securities		163,557		159,473		176,424
Loans, net		816,338		771,930		723,762
Deposits		965,554		918,512		916,059
Shareholders' equity		115,948		111,376		107,178
Summary of Operations
Interest income	$	18,087	$	34,615	$	17,105
Interest expense		1,093		2,371		1,260
Net interest income		16,994		32,244		15,845
Provision for loan losses		2,175		1,285		635
Net interest income after provision for loan losses		14,819		30,959		15,210
Noninterest income		5,809		12,652		6,770
Noninterest expense		15,525		31,136		15,150
Income before income taxes		5,103		12,475		6,830
Income tax		815		2,271		1,472
Net income	$	4,288	$	10,204	$	5,358
Performance Measurements
Return on average assets*		0.80%		1.00%		1.07%
Return on average equity*		7.56%		9.52%		10.28%
Return on average tangible assets (1)*		0.81%		1.02%		1.09%
Return on average tangible equity (1)*		8.21%		10.52%		11.40%
Efficiency ratio (1)		65.04%		67.39%		66.11%
Net interest margin*		3.63%		3.59%		3.60%
Current dividend yield*		3.54%		3.23%		3.10%
Dividend payout ratio		40.00%		30.76%		28.41%
Shareholders' Value (per common share)
Diluted earnings per share	$	1.00	$	2.40	$	1.26
Basic earnings per share		1.00		2.40		1.27
Regular cash dividends paid		0.40		0.74		0.36
Book value		26.95		26.05		25.27
Tangible book value (1)		24.86		23.94		23.15
Market value		23.73		23.50		24.55
Market value/book value ratio		88.05%		90.21%		97.15%
Price/earnings multiple*		11.87		9.79		9.74
Safety and Soundness
Risk-based capital ratio (Total)		15.90%		16.03%		15.73%
Leverage ratio (Tier 1)		10.20%		10.38%		10.17%
Common equity ratio (Tier 1)		14.64%		14.77%		14.48%
Nonperforming loans/gross loans		1.00%		0.73%		1.30%
Nonperforming assets/total assets		1.33%		1.18%		1.32%
Allowance for loan losses as a % of loans		1.25%		1.29%		1.29%
Net charge-offs/average loans*		0.48%		0.04%		0.08%
Trust assets under management (fair value)	$	606,334	$	586,664	$	598,085

*Annualized

(1) See the section titled “GAAP versus Non-GAAP Presentation” that follows.

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GAAP versus non-GAAP Presentations – The Corporation supplements its traditional GAAP measurements with certain non-GAAP measurements to evaluate its performance and to eliminate the effect of intangible assets.  By eliminating intangible assets, the Corporation believes it presents a measurement that is comparable to companies that have no intangible assets or to companies that have eliminated intangible assets in similar calculations. However, not all companies may use the same calculation method for each measurement. The non-GAAP measurements are not intended to be used as a substitute for the related GAAP measurements. The following table shows the calculation of the non-GAAP measurements.

(Dollars in thousands, except per share)		Six months ended				Six months ended
		June 30, 2016		December 31, 2015		June 30, 2015
Return on Average Tangible Assets (non-GAAP)
Net income	$	4,288	$	10,204	$	5,358
Plus intangible amortization (net of tax)		-		119		119
Net income (non-GAAP)		4,288		10,323		5,477
Average assets		1,066,183		1,021,275		1,011,516
Less average intangible assets		(9,016)		(9,066)		(9,116)
Average assets (non-GAAP)		1,057,167		1,012,209		1,002,400
Return on average tangible assets (non-GAAP)		0.81%		1.02%		1.09%
Return on Tangible Equity (non-GAAP)
Net income	$	4,288	$	10,204	$	5,358
Plus intangible amortization (net of tax)		-		119		119
Net income (non-GAAP)		4,288		10,323		5,477
Average shareholders' equity		113,452		107,175		105,171
Less average intangible assets		(9,016)		(9,066)		(9,116)
Average shareholders' equity (non-GAAP)		104,436		98,109		96,055
Return on average tangible equity (non-GAAP)		8.21%		10.52%		11.40%
Tangible Book Value (per share) (non-GAAP)
Shareholders' equity	$	115,948	$	111,376	$	107,178
Less intangible assets		(9,016)		(9,016)		(9,016)
Shareholders' equity (non-GAAP)		106,932		102,360		98,162
Shares outstanding (in thousands)		4,302		4,276		4,241
Tangible book value (non-GAAP)		24.86		23.94		23.15
Efficiency Ratio
Noninterest expense	$	15,525	$	31,136	$	15,150
Net interest income plus noninterest income		22,803		44,896		22,615
Plus tax equivalent adjustment to net interest income		1,051		2,023		1,016
Less net securities gains (losses), and OTTI		(17)		716		716
Net interest income plus noninterest income		23,871		46,203		22,915
Efficiency ratio		65.04%		67.39%		66.11%

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Comparison of the three months ended June  30, 2016 to the three months ended June  30, 2015:

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, short-term borrowings and long-term debt are the principal categories of interest-bearing liabilities.  Demand deposits enhance net interest income because they are noninterest-bearing deposits. For the purpose of this discussion, balance sheet items refer to the average balance for the year and net interest income is adjusted to a fully taxable-equivalent basis.  This tax-equivalent adjustment facilitates performance comparisons between taxable and tax-free assets by increasing the tax-free income by an amount equivalent to the Federal income taxes that would have been paid if this income were taxable at the Corporation’s 34% Federal statutory rate. 

Tax equivalent net interest income for the second quarter of 2016increased $489 thousand quarter over quarter.  Average interest-earning assets increased $53.7 million from 2015,  while the yield on these assets decreased to 3.78% in 2016 from 3.80% in 2015.  The average balance of investment securities decreased $17.1 million while average loans increased $84.5 million quarter over quarter.  Average commercial loans increased $81.2 million and average consumerand home equity loansincreased $7.0 million.  These increases were partially offset by a decrease of $3.6 million in the average balance of mortgage loans.

Interest expense was $548 thousand for the second quarter, a decrease of $71 thousand from the 2015 total of $619 thousand.  Average interest-bearing depositsincreased $29.5 million to $799.6 million for the second quarter of 2016 from an average balance of $770.1 million in the same period in 2015.  The average cost of these deposits decreased from 0.32% in 2015 to  0.28% in 2016. 

Tax equivalent net interest income increased $489 thousand to $9.0 million in the second quarter of 2016 compared to $8.5 million in the same period in 2015.  Changes in the balance sheet contributed $732 thousand to this increase, but this was reduced by $243 thousand due to lower rates.

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

	For the Three Months Ended June 30,
	2016					2015
	Average		Income or		Average	Average		Income or		Average
(Dollars in thousands)	balance		expense		yield/rate	balance		expense		yield/rate
Interest-earning assets:
Interest-bearing obligations of other
banks and federal funds sold	$	38,400	$	79	0.83%	$	52,114	$	72	0.55%
Investment securities:
Taxable		108,168		588	2.19%		121,383		621	2.05%
Tax Exempt		51,679		535	4.14%		55,611		613	4.41%
Investments		159,847		1,123	2.83%		176,994		1,234	2.80%
Loans:
Commercial, industrial and agricultural		660,177		6,725	4.03%		578,985		6,134	4.22%
Residential mortgage		76,832		768	4.00%		80,474		829	4.14%
Home equity loans and lines		71,413		756	4.26%		63,650		745	4.69%
Consumer		5,715		60	4.22%		6,490		79	4.88%
Loans		814,137		8,309	4.05%		729,599		7,787	4.25%
Total interest-earning assets		1,012,384	$	9,511	3.78%		958,707	$	9,093	3.80%
Other assets		67,771					66,770
Total assets	$	1,080,155				$	1,025,477
Interest-bearing liabilities:
Deposits:
Interest-bearing checking	$	253,299	$	81	0.13%	$	227,943		67	0.12%
Money Management		390,985		333	0.34%		382,738		387	0.41%
Savings		73,323		14	0.08%		65,738		12	0.07%
Time		81,957		120	0.59%		93,687		153	0.66%
Total interest-bearing deposits		799,564		548	0.28%		770,106		619	0.32%
Other borrowings		6		-	0.58%		-		-	-
Total interest-bearing liabilities		799,570		548	0.28%		770,106		619	0.32%
Noninterest-bearing deposits		161,209					142,621
Other liabilities		5,003					6,751
Shareholders' equity		114,373					105,999
Total liabilities and shareholders' equity	$	1,080,155				$	1,025,477
T/E net interest income/Net interest margin				8,963	3.56%				8,474	3.55%
Tax equivalent adjustment				(523)					(515)
Net interest income			$	8,440				$	7,959

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Provision for Loan Losses

Theincrease in the provision expense was due to a higher level of charge-offs and growth in the loan portfolio compared to $310 thousand in 2015.  Provision expense for the second quarter was $1.9 million.  For more information refer to the Loan Quality and Allowance for Loan Losses discussion in the Financial Condition section.

Noninterest Income

For the second quarter of 2016, noninterest income decreased $260 thousand from the same period in 2015.  Investment and trust service fees decreased due to a decline in estate fees and investment commissions from 2015 to 2016.  Loan service charges decreased due to a large prepayment penalty in the second quarter of 2015.  Deposit service charges increased due to increased enrollment and use of the Bank’s overdraft program.  The change in debit card income was due to increased usage by customers in the second quarter of 2016, compared to the same period in 2015.  

The following table presents a comparison of noninterest income for the three months ended June 30, 2016 and 2015.

	For the Three Months Ended
	June 30				Change
(Dollars in thousands)	2016		2015		Amount		%
Noninterest Income
Investment and trust services fees	$	1,218	$	1,388	$	(170)	(12.2)
Loan service charges		189		314		(125)	(39.8)
Deposit service charges and fees		602		586		16	2.7
Other service charges and fees		313		311		2	0.6
Debit card income		375		356		19	5.3
Increase in cash surrender value of life insurance		132		140		(8)	(5.7)
Net (loss) gain on sale of other real estate owned		(2)		-		(2)	N/A
Securities gains, net		2		8		(6)	(75.0)
Other		27		13		14	107.7
Total noninterest income	$	2,856	$	3,116	$	(260)	(8.3)

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Noninterest Expense

Noninterest expense for the second quarter of 2016increased $71 thousand compared to the same period in 2015.  The increase in salaries and benefits was primarily due to a $150 thousand increase in salary expense due to merit increases.  Legal and professional fees increased due to fees associated with a lawsuit brought against the Corporation in 2015.  This lawsuit was more thoroughly described on a Form 8-K that was filed on July 29, 2016.  It is expected that the Corporation will incur additional legal expenses until this lawsuit is resolved.  The shares tax increase was due to growth in the Bank’s balance sheet and shareholders’ equity that resulted in a higher premium. Intangible amortization expense decreased as the core deposit intangible was fully amortized as of June 2015.  Data processing expenses decreased due to timing of invoices due to a change in vendors.Other expenses decreased due to several one-time expenses the Bank took in the second quarter of 2015 related to branch assets taken out of service.

The following table presents a comparison of noninterest expense for the three months ended June  30, 2016 and 2015:

	For the Three Months Ended
(Dollars in thousands)	June 30				Change
Noninterest Expense	2016		2015		Amount		%
Salaries and benefits	$	4,346	$	4,203	$	143	3.4
Net occupancy expense		553		556		(3)	(0.5)
Furniture and equipment expense		218		239		(21)	(8.8)
Advertising		262		283		(21)	(7.4)
Legal and professional fees		394		203		191	94.1
Data processing		504		556		(52)	(9.4)
Pennsylvania bank shares tax		260		206		54	26.2
Intangible amortization		-		90		(90)	(100.0)
FDIC insurance		169		160		9	5.6
ATM/debit card processing		200		186		14	7.5
Foreclosed real estate		13		7		6	85.7
Telecommunications		90		118		(28)	(23.7)
Other		721		852		(131)	(15.4)
Total noninterest expense	$	7,730	$	7,659	$	71	0.9

Provision for Income Taxes

For the second quarter of 2016, the Corporation recorded a Federal income tax expense of $130 thousand compared to $632 thousand for the same quarter in 2015. The effective tax rate was7.7% for the second quarter of 2016 compared to 20.3% for the same period in 2015.  The decrease was due to a reduction in pretax income, due to increased provision expense and nonrecurring items in 2015. The variances from the federal statutory rate are generally due to tax-exempt income from investments, loans and bank-owned life insurance. All taxable income for the Corporation is taxed at a rate of 34%.

Comparison of the six months ended June  30, 2016 to the six months ended June  30, 2015:

Net Interest Income

Tax equivalent net interest income for the first half of 2016increased $1.2 millionyear over year.  Average interest-earning assets increased $54.5 million from 2015,  while the yield on these assets decreased slightly to 3.85% in 2016 from 3.87% in 2015.  The average balance of investment securities decreased $17.5 million while average loans increased $80.0 million year over year.  Average commercial loans increased $76.6 million and average consumerand home equity loansincreased $6.5 million.  These increases were partially offset by a decrease of $3.2 million in the average balance of mortgage loans.

Interest expense was $1.1 million for the firsthalf of 2016, a decrease of $167 thousand from the 2015 total of $1.3 million.  Average interest-bearing depositsincreased $31.8 million to $791.2 million for 2016 from an average balance of $759.4 million in 2015.  The average cost of these deposits decreased from 0.33% in 2015 to  0.28% in 2016. 

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Tax equivalent net interest income increased $1.2 million to $18.0 million in 2016 compared to $16.9 million in 2015.  Changes in the balance sheet contributed $1.4 millionto this increase, but this was reduced by $210 thousand due to lower rates.

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

	For the Six Months Ended June 30,
	2016					2015
	Average		Income or		Average	Average		Income or		Average
(Dollars in thousands)	balance		expense		yield/rate	balance		expense		yield/rate
Interest-earning assets:
Interest-bearing obligations of other
banks and federal funds sold	$	34,639	$	141	0.82%	$	42,577	$	127	0.60%
Investment securities:
Taxable		106,962		1,170	2.20%		120,988		1,308	2.18%
Tax Exempt		51,571		1,085	4.21%		55,083		1,225	4.45%
Investments		158,533		2,255	2.86%		176,071		2,533	2.90%
Loans:
Commercial, industrial and agricultural		651,542		13,548	4.11%		574,924		12,147	4.22%
Residential mortgage		77,727		1,555	4.00%		80,902		1,653	4.10%
Home equity loans and lines		71,166		1,511	4.27%		63,778		1,496	4.73%
Consumer		5,635		128	4.57%		6,478		165	5.14%
Loans		806,070		16,742	4.12%		726,082		15,461	4.25%
Total interest-earning assets		999,242	$	19,138	3.85%		944,730	$	18,121	3.87%
Other assets		66,941					66,786
Total assets	$	1,066,183				$	1,011,516
Interest-bearing liabilities:
Deposits:
Interest-bearing checking	$	245,539	$	153	0.13%	$	216,313		120	0.11%
Money Management		390,626		666	0.34%		383,423		803	0.42%
Savings		71,637		27	0.08%		64,487		24	0.08%
Time		83,415		245	0.59%		95,180		313	0.66%
Total interest-bearing deposits		791,217		1,091	0.28%		759,403		1,260	0.33%
Securities sold under agreements to repurchase		-		-	-		50		-	0.15%
Other borrowings		791		2	0.60%		12		-	0.30%
Total interest-bearing liabilities		792,008		1,093	0.28%		759,465		1,260	0.33%
Noninterest-bearing deposits		155,456					139,399
Other liabilities		5,267					7,481
Shareholders' equity		113,452					105,171
Total liabilities and shareholders' equity	$	1,066,183				$	1,011,516
T/E net interest income/Net interest margin				18,045	3.63%				16,861	3.60%
Tax equivalent adjustment				(1,051)					(1,016)
Net interest income			$	16,994				$	15,845

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Provision for Loan Losses

The increase in the provision expense was due to a higher level of charge-offs and growth in the loan portfolio compared to $635 thousand in 2015.  Provision expense for the first six months of 2016 was $2.2 million.  For more information refer to the Loan Quality and Allowance for Loan Losses discussion in the Financial Condition section.

Noninterest Income

For the first half of 2016, noninterest income decreased $961 thousand from the same period in 2015.  Investment and trust service fees decreased due to a decline in estate fees and insurance commissions from 2015 to 2016.  Loan service charges decreased due less loan prepayment fees in 2016, compared to 2015.  Deposit service charges increased due to increased enrollment and use of the Bank’s overdraft program.  The change in debit card income was due to increased usage by customers in 2016.  During 2016, two properties held as other real estate owned were sold at a loss compared to one property sold at a gain in 2015.  The Corporation recorded a nonrecurring gain on the conversion of an investment security in 2015.  Other income in 2015 included a $171 thousand gain from an investment the Corporation owned in an offshore insurance company that liquidated and paid out the investors.  

The following table presents a comparison of noninterest income for the six months ended June 30, 2016 and 2015.

	For the Six Months Ended
	June 30				Change
(Dollars in thousands)	2016		2015		Amount		%
Noninterest Income
Investment and trust services fees	$	2,472	$	2,651	$	(179)	(6.8)
Loan service charges		415		496		(81)	(16.3)
Deposit service charges and fees		1,180		1,077		103	9.6
Other service charges and fees		616		607		9	1.5
Debit card income		722		675		47	7.0
Increase in cash surrender value of life insurance		267		279		(12)	(4.3)
Net (loss) gain on sale of other real estate owned		(10)		32		(42)	(131.3)
OTTI losses on debt securities		(20)		(20)		-	-
Gain on conversion of investment security		-		728		(728)	(100.0)
Securities gains, net		3		8		(5)	(62.5)
Other		164		237		(73)	(30.8)
Total noninterest income	$	5,809	$	6,770	$	(961)	(14.2)

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Noninterest Expense

Noninterest expense for the firsthalf of 2016increased $375 thousand compared to the same period in 2015.  The increase in salaries and benefits was primarily due to a $288 thousand increase in salary expense due to merit increases and $58 thousand for stock option expense, compared to none in 2015.  Net occupancy expense decreased compared to prior year due to less expenses for snow removal in 2016.  Advertising expense increased due to customer acquisition promotions.  Legal and professional fees increased due to fees associated with a lawsuit brought against the Corporation in 2015.  This lawsuit was more thoroughly described on a Form 8-K that was filed on July 29, 2016.  It is expected that the Corporation will incur additional legal expenses until this lawsuit is resolved. The shares tax increase was due to growth in the Bank’s balance sheet and shareholders’ equity that resulted in a higher premium. Intangible amortization expense decreased as the core deposit intangible was fully amortized as of June 2015.  ATM/Debit card processing increased due to the purchase of EMV debit card inventory.Foreclosed real estate expense increased in 2016, due to a $46 thousand write-down on one property.  Other expense decreased due to a one-time expense taken in 2015 to fund a deferred director’s compensation plan and several one-time expenses the Bank took in 2015 related to branch assets taken out of service.

The following table presents a comparison of noninterest expense for the six months ended June  30, 2016 and 2015:

	For the Six Months Ended
(Dollars in thousands)	June 30				Change
Noninterest Expense	2016		2015		Amount		%
Salaries and benefits	$	8,716	$	8,286	$	430	5.2
Net occupancy expense		1,152		1,172		(20)	(1.7)
Furniture and equipment expense		434		470		(36)	(7.7)
Advertising		543		471		72	15.3
Legal and professional fees		691		499		192	38.5
Data processing		1,001		1,023		(22)	(2.2)
Pennsylvania bank shares tax		496		402		94	23.4
Intangible amortization		-		181		(181)	(100.0)
FDIC insurance		326		308		18	5.8
ATM/debit card processing		428		373		55	14.7
Foreclosed real estate		76		19		57	300.0
Telecommunications		209		235		(26)	(11.1)
Other		1,453		1,711		(258)	(15.1)
Total noninterest expense	$	15,525	$	15,150	$	375	2.5

Provision for Income Taxes

For the firsthalf of 2016, the Corporation recorded a Federal income tax expense of $815 thousand compared to $1.5 million for the same period in 2015. The effective tax rate was16.0% for the firsthalf of 2016 compared to 21.6% for the same period in 2015.  The decrease was due to a reduction in pretax income, due to increased provision expense and nonrecurring items in 2015. The variances from the federal statutory rate are generally due to tax-exempt income from investments, loans and bank-owned life insurance. All taxable income for the Corporation is taxed at a rate of 34%.

Financial Condition

Summary:

At June 30, 2016, assets totaled $1.084billion, an increase of $48.8 million from the 2015 year-end balance of $1.035 billion. Investment securities increased $4.1 million, while net loans increased $44.4 million (5.6%). Deposits increased  $47.0 million (5.1%) for the first six months of 2016 due to increases in every deposit category except time deposits. Shareholders’ equity increased $4.6 million during the first six months as retained earnings increased $2.6million, accumulated other comprehensive loss decreased  $1.4 million and the Corporation’s Dividend Reinvestment Plan (DRIP) added an additional $637 thousand in new capital.

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Cash and Cash Equivalents:

Cash and cash equivalents totaled $41.0 million at June 30, 2016,  anincrease of approximately $2 million from the prior year-end balance of $39.2 million.  Interest-bearing deposits are held primarily at the Federal Reserve ($4.6 million) and in short-term bank owned certificates of deposit ($20.6 million).

Investment Securities:

The investment portfolio has increased $2.0 million on a cost basis, since year-end 2015. The composition of the portfolio has remained consistent with municipal securities and U.S. Agency mortgage-backed securities comprising the greatest portion of the portfolio at approximately 43% and 44% of the portfolio fair value, respectively. The Bank invested $16.6 million during the first half of 2016 with the purchases spread between, U.S. Agency mortgage-backed securities and municipal securities.  The average life of the portfolio was 3.81 years. 

The investment portfolio had a net unrealized gain of $3.2 million at June 30, 2016 compared to $1.1 million at the prior year-end. The increase in the unrealized gain is due primarily to the decline in intermediate and long term interest rates.  The portfolio averaged $158.5 million with a yield of 2.86% for the first half of 2016. This compares to an average of $176.1 million and a yield of 2.90% for the same period in 2015. 

The Bank holds only one equity security, a Pennsylvania community bank. The municipal bond portfolio is well diversified geographically (issuers from within 30 states) and is comprised primarily of general obligation bonds (74%).  Many municipal bonds have credit enhancements in the form of private bond insurance or other credit support. The largest geographic municipal bond exposure is to 16 issuers in the state of Pennsylvania with a fair value of $9.0 million and 15 issuers in the state of Texas with a fair value of $9.2 million. The average rating of the municipal portfolio from Moody’s is Aa2. It contains $67.8 million of bonds rated A3 or higher and one bond of $600 thousand that is not rated by Moody’s rating agency.  No municipal bonds are rated below investment grade.

The holdings of trust preferred investments and private-label mortgage-backed securities (PLMBS) are unchanged since year-end and are detailed in separate tables.

The amortized cost and estimated fair value of investment securities available for sale as of June 30, 2016 and December 31, 2015 is as follows:

(Dollars in thousands)			Gross		Gross
	Amortized		unrealized		unrealized		Fair
June 30, 2016	cost		gains		losses		value
Equity securities	$	164	$	76	$	-	$	240
U.S. Government and Agency securities		13,104		339		(17)		13,426
Municipal securities		68,430		2,354		(43)		70,741
Trust preferred securities		5,968		-		(798)		5,170
Agency mortgage-backed securities		71,448		1,310		(35)		72,723
Private-label mortgage-backed securities		1,201		27		(5)		1,223
Asset-backed securities		36		-		(2)		34
	$	160,351	$	4,106	$	(900)	$	163,557

(Dollars in thousands)			Gross		Gross
	Amortized		unrealized		unrealized		Fair
December 31, 2015	cost		gains		losses		value
Equity securities	$	164	$	69	$	-	$	233
U.S. Government and Agency securities		13,705		164		(33)		13,836
Municipal securities		67,851		1,555		(218)		69,188
Trust preferred securities		5,958		-		(669)		5,289
Agency mortgage-backed securities		69,284		621		(386)		69,519
Private-label mortgage-backed securities		1,335		39		(2)		1,372
Asset-backed securities		38		-		(2)		36
	$	158,335	$	2,448	$	(1,310)	$	159,473

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The following table provides additional detail about the Bank’s trust preferred securities as of June 30, 2016:  

(Dollars in thousands)
Deal Name	Maturity	Single Issuer or Pooled	Class	Amortized Cost		Fair Value		Gross Unrealized Gain (Loss)		Lowest Credit Rating Assigned
BankAmerica Cap III	1/15/2027	Single	Preferred Stock	$	966	$	832	$	(134)	BB+
Wachovia Cap Trust II	1/15/2027	Single	Preferred Stock		279		254		(25)	BBB
Huntington Cap Trust	2/1/2027	Single	Preferred Stock		944		795		(149)	BB
Corestates Captl Tr II	2/15/2027	Single	Preferred Stock		941		848		(93)	BBB+
Huntington Cap Trust II	6/15/2028	Single	Preferred Stock		897		767		(130)	BB
Chase Cap VI JPM	8/1/2028	Single	Preferred Stock		965		832		(133)	BBB-
Fleet Cap Tr V	12/18/2028	Single	Preferred Stock		976		842		(134)	BB+
				$	5,968	$	5,170	$	(798)

The following table provides additional detail about private label mortgage-backed securities as of June 30, 2016:

(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
MALT 2004-6 7A1	6/1/2004	$	322	$	319	$	(3)	ALT A	CCC	15.07	$	-
RALI 2005-QS2 A1	2/1/2005		176		187		11	ALT A	CC	4.83		10
RALI 2006-QS4 A2	4/1/2006		425		423		(2)	ALT A	D	-		323
GSR 2006-5F 2A1	5/1/2006		53		60		7	Prime	D	-		15
RALI 2006-QS8 A1	7/28/2006		225		234		9	ALT A	D	-		227
		$	1,201	$	1,223	$	22				$	575

The investment portfolio contained thirty-seven securities with $21.0 million of temporarily impaired fair value and $900 thousand in unrealized losses at June 30, 2016. The total unrealized loss position has improved from a $1.3 million unrealized loss at year-end 2015. 

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 June 30, 2016, was deemed to be temporary and required no further adjustments to the financial statements, unless otherwise noted.

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The following table reflects temporary impairment in the investment portfolio (excluding restricted stock), aggregated by investment category, length of time that individual securities have been in a continuous unrealized loss position and the number of securities in each category as of June 30, 2016 and December 31, 2015:

	June 30, 2016
	Less than 12 months								12 months or more									Total
	Fair		Unrealized						Fair		Unrealized							Fair				Unrealized
(Dollars in thousands)	Value		Losses				Count		Value		Losses				Count			Value				Losses				Count
U.S. Government and Agency securities	$	-	$		-		-		$	3,612	$		(17)		10			$		3,612		$		(17)		10
Municipal securities		-			-		-			2,328			(43)		3					2,328				(43)		3
Trust preferred securities		-			-		-			5,170			(798)		7					5,170				(798)		7
Agency mortgage-backed securities		3,218			(2)		3			5,929			(33)		11					9,147				(35)		14
Private-label mortgage-backed securities		319			(3)		1			423			(2)		1					742				(5)		2
Asset-backed securities		-			-		-			5			(2)		1					5				(2)		1
Total temporarily impaired securities	$	3,537	$		(5)		4		$	17,467	$		(895)		33			$		21,004		$		(900)		37
	December 31, 2015
	Less than 12 months								12 months or more								Total
	Fair			Unrealized					Fair			Unrealized					Fair				Unrealized
(Dollars in thousands)	Value			Losses				Count	Value			Losses				Count	Value				Losses				Count
U.S. Government and Agency securities	$	479		$		(1)		3	$	4,364		$		(32)		10	$		4,843		$		(33)		13
Municipal securities		5,806				(35)		8		4,785				(183)		7			10,591				(218)		15
Trust preferred securities		-				-		-		5,289				(669)		7			5,289				(669)		7
Agency mortgage-backed securities		18,977				(215)		29		7,394				(171)		13			26,371				(386)		42
Private-label mortgage-backed securities		-				-		-		246				(2)		1			246				(2)		1
Asset-backed securities		-				-		-		5				(2)		1			5				(2)		1
Total temporarily impaired securities	$	25,262		$		(251)		40	$	22,083		$		(1,059)		39	$		47,345		$		(1,310)		79

The unrealized loss in the municipal bond portfolio decreased to $43 thousand from $218 thousand at December 31, 2015 as market prices improved during the quarter.  There are three securities in this portfolio with an unrealized loss and the loss in this portfolio is deemed to be non-credit related and no other-than-temporary impairment charges have been recorded.

The trust preferred portfolio contains seven securities with a fair value of $5.2 million and an unrealized loss of $798 thousand The trust-preferred securities held by the Bank are single entity issues, not pooled trust preferred securities.  Therefore, the impairment review of these securities is based only on the issuer and the security cannot be impaired by the performance of other issuers as if it was a pooled trust-preferred bond. All of the Bank’s trust preferred securities are single issue, variable rate notes with long maturities (2027 – 2028).  None of these bonds have suspended or missed a dividend payment. At June 30, 2016, the Bank believes it will be able to collect all interest and principal due on these bondsand no other-than-temporary-impairment charges were recorded. 

There are two PLMBS bonds showing a small unrealized loss of $5 thousand.  However, the PLMBS sector as a whole is showing an unrealized gain of $22 thousand at quarter end.  This is primarily a result of the cumulative OTTI charges recorded on this portfolio.  Due to the nature of these bonds, they are evaluated closely. These bonds were all rated AAA at time of purchase, but have since experienced rating declines. Some have experienced increased delinquencies and defaults, while others have seen the credit support increase as the bonds paid-down. The Bank monitors the performance of the PLMBS investments on a regular basis and reviews delinquencies, default rates, credit support levels and various cash flow stress test scenarios. In determining the credit related loss, Management considers all principal past due 60 days or more as a loss. If additional principal moves beyond 60 days past due, it will also be considered a loss.  The Bank recorded a $20 thousand impairment charge during the first quarter of 2016 and has recorded $575 thousand of cumulative impairment charges on this portfolio. Management continues to monitor these securities and it is possible that additional write-downs may occur if current loss trends continue.

The Bank held $436 thousand of restricted stock at June 30, 2016.  Except for $30 thousand, this investment represents stock in FHLB Pittsburgh. The Bank is required to hold this stock to be a member of FHLB and it is carried at cost of $100 per share. The level of FHLB stock held is determined by FHLB and is comprised of a minimum

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

Loans:

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

Total residential real estate loans increased $3.2 million over 2015, primarily in the commercial first lien and consumer junior liens and lines of credit categories due to a home equity special promotion in 2015 and 2016.  For the first six months of 2016, the Bank originated $5.0 million in mortgages, including approximately $5.0 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.

Residential real estate construction:  The largest component of this category represents loans to residential real estate developers ($7.3 million), while loans for individuals to construct personal residences totaled $1.1 million thousand at June 30, 2016.  The Bank’s exposure to residential construction loans is concentrated primarily in south central Pennsylvania.

Real estate construction loans, including residential real estate and land development loans, occasionally 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 June 30, 2016, the Bank had $5.1 million in residential real estate construction loans funded with an interest reserve and capitalized $56 thousand of interest from these reserves on active projects.  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 real estate (CRE):This category includes commercial, industrial, farm and agricultural loans, where real estate serves as the primary collateral for the loans. Total commercial real estate loans increased to $371.8 million from $340.7 million at the end of 2015, an increase of $31.1 million.  The increases were primarily in commercial construction and multi-family units. The largest sectors (by collateral) in the commercial real estate category are: office buildings ($54.3 million), hotels and motels ($49.7 million), land development ($39.7 million), apartment units ($36.4 million), and auto dealerships ($31.9 million).

Commercial(C&I):This category includes commercial, industrial, farm, agricultural, and municipal loans.  C&I loans increased $10.4 million to $226.3 million at June 30, 2016, compared to $215.9 million at the end of 2015.    The largest sectors (by industry) in the commercial loan category are: retail trade ($24.7 million), construction ($16.5 million) and health care ($15.2 million).  At June 30, 2016, the Bank had $114.6 million in municipal loans. The Bank is very active in its market in pursuing commercial lending opportunities, but supplements in-market growth with purchased loan participations, when appropriate. 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.  For the first six months of 2016, the Bank purchased $10.3 million of loan participations and commitments.  At June  30, 2016, the Bank held $132.2 million in purchased loan participations in its portfolio.

Consumer loans decreased $408 thousand due primarily to regular payments and maturities.  The Bank believes the consumer portfolio will continue to run-down, as consumers are unwilling to increase their debt. The majority of the Bank’s consumer loans, approximately $3.0 million, are personal lines of credit.

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

						Change
(Dollars in thousands)	June 30, 2016		December 31, 2015			Amount	%
Residential Real Estate 1-4 Family
Consumer first liens	$	101,113	$	103,698	$	(2,585)	(2.5)
Commercial first lien		62,424		57,780		4,644	8.0
Total first liens		163,537		161,478		2,059	1.3
Consumer junior liens and lines of credit		46,106		44,996		1,110	2.5
Commercial junior liens and lines of credit		5,908		5,917		(9)	(0.2)
Total junior liens and lines of credit		52,014		50,913		1,101	2.2
Total residential real estate 1-4 family		215,551		212,391		3,160	1.5
Residential real estate - construction
Consumer		1,067		545		522	95.8
Commercial		7,253		7,343		(90)	(1.2)
Total residential real estate construction		8,320		7,888		432	5.5
Commercial real estate		371,786		340,695		31,091	9.1
Commercial		226,307		215,942		10,365	4.8
Total commercial		598,093		556,637		41,456	7.4
Consumer		4,692		5,100		(408)	(8.0)
		826,656		782,016		44,640	5.7
Less: Allowance for loan losses		(10,318)		(10,086)		(232)	2.3
Net Loans	$	816,338	$	771,930	$	44,408	5.8
Included in the loan balances are the following:
Net unamortized deferred loan fees	$	225	$	436
Loans pledged as collateral for borrowings and commitments from:
FHLB	$	583,567	$	643,449
Federal Reserve Bank		42,060		45,111
	$	625,627	$	688,560

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Loan Quality:

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

Watch list loans exhibit financial weaknesses that increase the potential risk of default or loss to the Bank. However, inclusion on the watch list, does not by itself, mean a loss is certain. The watch list totaled $27.3 million at quarter end and includes both performing and nonperforming loans.  It is comprised of $5.0 million rated 6 and $22.3 million rated 7. The Bank has no loans rated 8-doubtful or 9-loss. The watch totaled $31.6 million at March 31, 2016 and $27.9 million at the prior year-end. While essentially unchanged since year-end, the watch list at June 30, 2016 is $4.3 million less than reported at March 31, 2016 ($31.6 million).  The quarter-to-quarter reduction is due primarily to a charge-off of $1.9 million (see the Allowance for Loan Losses discussion) and a pay down of $1.5 million on a commercial line-of-credit.  The credit composition of the portfolio, by primary collateral is shown in Note 7 of the accompanying financial statements. 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 June 30, 2016, the Bank had loans of $30.6 million that exceeded the supervisory limit.

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

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

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Loan quality, as measured by the balance of nonperforming loans, has declined from year-end. The increase in nonaccrual loans occurred in the commercial real estate category due to one loan (Credit 4 on the Significant Nonaccrual Loan table) for $3.4 million transferred to nonaccrual in 2016.  The following table presents a summary of nonperforming assets:

(Dollars in thousands)	June 30, 2016		December 31, 2015
Nonaccrual loans
Residential Real Estate 1-4 Family
First liens	$	427	$	806
Junior liens and lines of credit		63		105
Total		490		911
Residential real estate - construction		491		502
Commercial real estate		6,812		3,681
Commercial		25		276
Total nonaccrual loans		7,818		5,370
Loans past due 90 days or more and not included above
Residential Real Estate 1-4 Family
First liens		14		214
Junior liens and lines of credit		33		-
Total		47		214
Residential real estate - construction		60		-
Commercial real estate		306		152
Commercial		46		-
Consumer		-		2
Total loans past due 90 days or more and still accruing		459		368
Total nonperforming loans		8,277		5,738
Other real estate owned		6,194		6,451
Total nonperforming assets	$	14,471	$	12,189
Nonperforming loans to total gross loans		1.00%		0.73%
Nonperforming assets to total assets		1.33%		1.18%
Allowance for loan losses to nonperforming loans		124.66%		175.78%

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The following table identifies the most significant loans in nonaccrual status. These four nonaccrual loans account for 88% of the total nonaccrual balance. The table also indicates those significant nonaccrual loans that are classified as troubled debt restructurings (TDR). A TDR loan is maintained on nonaccrual status until a satisfactory repayment history is established.  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 June 30, 2016 totaled $19.0 million compared to $22.1 million at year-end 2015.

				ALL	Nonaccrual	TDR			Last
(Dollars in thousands)		Balance		Reserve	Date	Status	Collateral	Location	Appraisal(1)
Credit 1 - Commercial real estate		515		-	Aug-11	Y	1st lien on commercial and residential properties and 70 acres of farmland	PA	Nov-15	$	944
Credit 2 - Residential real estate		1,782		-	Mar-12	Y	1st and 2nd liens on commercial real estate, residential real estate and business assets	PA	Jan-16	$	3,810
Credit 3 - Commercial real estate		1,201		-	Dec-14	N	Hotel and entertainment complex	PA	Apr-16	$	4,000
Credit 4 - Commercial real estate		3,363		-	Mar-16	N	Hotel	PA	Apr-16	$	3,656
	$	6,861	$	-

(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 was restructured (TDR) into a new loan at the end of the first quarter of 2016. It will remain as nonaccrual for at least 6 months to ensure compliance with the modified terms. Credit 2 is a TDR that is performing in accordance with the modified terms. Credit 3 is a hotel and entertainment complex being operated as part of an estate liquidation and is currently listed for sale.  Credit 4 is a hotel that was transferred to nonaccrual at March 31, 2016. This loan is a participated loan and the Bank is not the lead bank. As part of the loan work-out, the borrower has entered into a forbearance agreement that requires the sale of the property. The Bank recorded a $1.9 million charge-off on this credit during the second quarter of 2016 (see the Allowance for Loan Losses Discussion).

In addition to monitoring nonaccrual loans, the Bank also closely monitors impaired loans and troubled debt restructurings (TDR).  A loan is considered to be impaired when, based on current information and events, it is probable that the Bank will be unable to collect all interest and principal payments due according to the originally contracted terms of the loan agreement.  Nonaccrual loans and TDR loans are always considered impaired. For impaired commercial loans with balances less than $250 thousand and all 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 $18.9 million at quarter-end compared to $16.8 million at year-end 2015.

A loan is considered a troubled debt restructuring (TDR) if the creditor (the Bank), for economic or legal reasons related to the debtor’s financial difficulties, grants a concession to the debtor that it would not otherwise consider. These concessions may include lowering the rate, extending the maturity, reamortization of the payment, or a combination of multiple concessions.   The Bank reviews all loans rated 6 or worse when it is providing a loan restructure, modification or new credit facility to determine if the action is a TDR.  If a TDR loan is placed on nonaccrual status, it remains on nonaccrual status for at least six months to ensure performance. All TDR loans are in compliance with their modified terms. See Note 7 in the accompanying financial statements for information on TDR loans in the portfolio.

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The following table shows the composition of impaired loans as of:

	June 30, 2016
(Dollars in thousands)	Nonaccrual				Accruing		Total
	Non-TDR		TDR		TDR		Impaired
Residential Real Estate 1-4 Family
First liens	$	276	$	151	$	494	$	921
Junior liens and lines of credit		63		-		-		63
Total		339		151		494		984
Residential real estate - construction		-		491		-		491
Commercial real estate		5,006		1,806		10,545		17,357
Commercial		25		-		-		25
Total	$	5,370	$	2,448	$	11,039	$	18,857

Allowance for Loan Losses:

Management performs a quarterly 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 June 30, 2016 is adequate.

The analysis for determining the ALL is consistent with guidance set forth in generally accepted accounting principles (GAAP) and the Interagency Policy Statement on the Allowance for Loan and Lease Losses. The analysis has two components, specific and general allocations. The specific component addresses specific reserves established for impaired loans. A loan is considered to be impaired when, based on current information and events, it is probable that the Bank will be unable to collect all interest and principal payments due according to the originally contracted terms of the loan agreement.  Collateral values discounted for market conditions and selling costs are used to establish specific allocations for impaired loans. It is possible that as a result of the credit analysis, a specific reserve is not required for an impaired loan. For impaired commercial loans with balances less than $250 thousand and all consumer purpose loans, a specific reserve analysis is not performed and these loans are added to the general allocation pool. At June 30, 2016, impaired loans totaled $18.9 million compared to $16.8 million at year-end 2015. Credit four in the significant nonaccrual table was identified as impaired during the first quarter of 2016 and is primarily responsible for the increase in impaired loans since year-end 2015.  The Bank does not have a specific reserve established for any of its impaired loans. At year-end 2015, the Bank had one impaired loan with a specific reserve of $9 thousand that paid-off during the first quarter of 2016. Note 7 in the accompanying financial statements provide additional information about the ALL established for impaired loans.

The general allocation component addresses the reserves established for pools of homogenous loans. The general component includes a quantitative and qualitative analysis. When calculating the general allocation, the Bank segregates its loan portfolio into the following sectors based primarily on the type of supporting collateral:  residential real estate, commercial, industrial or agricultural real estate; commercial and industrial (C&I non-real estate), and consumer.  The residential real estate sector is further segregated by first lien loans, junior liens and home equity products, and residential real estate construction. The quantitative analysis uses the Bank’s twenty 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. Prior to 2015, the Bank was using an eight quarter rolling history for the quantitative analysis. The change to a longer historical period is based upon improving charge-offs and a more stable and

46

slowly improving economy.   As credit quality improved the Bank began to see lower charge-offs.  The Bank believes that an eight quarter historical period presented the loss history during a very favorable period and it may not accurately reflect historical trends.  It believes that a twenty quarter period covers a longer economic cycle and more accurately reflects its loss history and therefore is a more appropriate factor for calculating the general reserve in the current environment.  The historical loss experience factor for the general allocation was 1.02% of gross loans ($8.5 million) at June 30, 2016 compared to 1.07% and $8.4 million at the prior year-end.  Included in the general loan loss reserve is an unallocated reserve of $1.1 million compared to $1.3 million at December 31, 2015.

The qualitative analysis utilizes a risk matrix that incorporates qualitative and environmental factors such as: loan volume, management, loan review process, credit concentrations, competition, and legal and regulatory issues. These factors are each risk rated from minimal to high risk and in total can add up to a maximum qualitative factor of 37.5 basis points. At quarter-end, this factor was 22.5 basis points compared to 21.5 at year-end 2015.  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 the loans that were evaluated for the allowance for loan losses under a specific reserve (individually) and those that were evaluated under a general reserve (collectively), and the amount of the allowance established in each loan class as of June  30, 2016 and December 31, 2015:

	Residential Real Estate
	1-4 Family
			Junior Liens &				Commercial
(Dollars in thousands)	First Liens		Lines of Credit		Construction		Real Estate		Commercial		Consumer		Unallocated		Total
June 30, 2016
Loans evaluated for ALL:
Individually	$	396	$	52	$	491	$	17,082	$	-	$	-	$	-	$	18,021
Collectively		163,141		51,962		7,829		354,704		226,307		4,692		-		808,635
Total	$	163,537	$	52,014	$	8,320	$	371,786	$	226,307	$	4,692	$	-	$	826,656
ALL established for loans evaluated:
Individually	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Collectively		1,023		319		205		5,940		1,596		97		1,138		10,318
ALL at June 30, 2016	$	1,023	$	319	$	205	$	5,940	$	1,596	$	97	$	1,138	$	10,318
December 31, 2015
Loans evaluated for ALL:
Individually	$	930	$	51	$	502	$	14,309	$	230	$	-	$	-	$	16,022
Collectively		160,548		50,862		7,386		326,386		215,712		5,100		-		765,994
Total	$	161,478	$	50,913	$	7,888	$	340,695	$	215,942	$	5,100	$	-	$	782,016
ALL established for loans evaluated:
Individually	$	-	$	-	$	-	$	-	$	9	$	-	$	-	$	9
Collectively		989		308		194		5,649		1,510		102		1,325		10,077
ALL at December 31, 2015	$	989	$	308	$	194	$	5,649	$	1,519	$	102	$	1,325	$	10,086

During the first six months of 2016, the Bank recorded $2.2 million for the loan loss provision expense compared to $635 thousand during the prior year.  Charged-off loans usually result from: (1) a borrower being legally relieved of loan repayment responsibility through bankruptcy,(2)insufficient collateral sale proceeds to repay a loan; or (3) the borrower and/or guarantor does not own other assets that, if sold, would generate sufficient sale proceeds to repay a loan. The Bank recorded net loan charge-offs of $1.9 million for the six months of 2016.

In the second quarter of 2016, the Bank recorded a charge-off of $1.9 million on a commercial real estate loan (Credit 4 of the Significant Nonaccrual Loan table).  The loan represents the Bank’s portion of a participated loan transaction. The Bank is not the lead lender. The Bank placed the loan on nonaccrual at March 31, 2016 with a specific loan loss reserve of $74 thousand. The reserve was determined using a September 2015 property appraisal obtained by the lead bank that showed a collateral value in excess of $19.0 million. Based on its ownership percentage, the Bank discounted the appraised value by 30% plus costs, to calculate its specific loan loss reserve. The bank group negotiated a forbearance agreement with the borrower that requires the sale of the property.  A specialty broker was engaged by the lead bank to provide an opinion of value and to sell the property. The broker’s opinion of value was less than half the September 2015 appraised value. Due to the significant decline in value since the 2015 appraisal, the Bank raised questions about the broker’s valuation with the bank group.   Despite objections raised by the Bank, the lead bank listed the property at a price consistent with the broker’s valuation.  This decision resulted in the charge-off on this credit. The Bank does not know when the property will be sold or at what price. It is possible that that an additional charge-off may be required. 

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

	Residential Real Estate 1-4 Family
			Junior Liens &				Commercial
(Dollars in thousands)	First Liens		Lines of Credit		Construction		Real Estate		Commercial		Consumer		Unallocated		Total
ALL at March 31, 2016	$	997	$	316	$	199	$	6,181	$	1,510	$	99	$	1,040	$	10,342
Charge-offs		(46)		-		-		(1,951)		(3)		(42)		-		(2,042)
Recoveries		1		-		-		14		106		22		-		143
Provision		71		3		6		1,696		(17)		18		98		1,875
ALL at June 30, 2016	$	1,023	$	319	$	205	$	5,940	$	1,596	$	97	$	1,138	$	10,318
ALL at December 31, 2015	$	989	$	308	$	194	$	5,649	$	1,519	$	102	$	1,325	$	10,086
Charge-offs		(49)		-		-		(1,954)		(66)		(84)		-		(2,153)
Recoveries		33		-		-		14		121		42		-		210
Provision		50		11		11		2,231		22		37		(187)		2,175
ALL at June 30, 2016	$	1,023	$	319	$	205	$	5,940	$	1,596	$	97	$	1,138	$	10,318

	Six months ended		Year ended		Six months ended
	June 30, 2016		December 31, 2015		June 30, 2015
Net loans charged-off as a percentage of average gross loans		0.48%		0.04%		0.08%
Net loans charged-off as a percentage of the provision for loan losses		0.89%		24.12%		46.61%
Allowance as a percentage of loans		1.25%		1.29%		1.29%
Net charge-offs	$	1,943	$	310	$	296

Other Real Estate Owned:

The Bank holds $6.2 million of other real estate owned (OREO), comprised of six properties compared to $6.5 million and seven properties at December 31, 2015.  The most significant OREO holdings are listed in the table below. Property 1 was part of a participated loan and the workout is being handled by the lead bank.  In early May 2016, an agreement of sale was executed.  The agreement allows for a lengthy due diligence and approval process prior to settlement.  Therefore, the final outcome is not certain.  Property 2 was part of a participated loan and the workout is being handled by the lead bank.  During 2016, the Bank sold two properties for a loss of $10 thousand, recorded a write down of $46 thousand on one property and incurred expense of $76 thousand to hold and maintain OREO. Note 8 of the accompanying financial statements provides additional information on activity in OREO.

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

June 30, 2016
(Dollars in thousands)	Date
	Acquired		Balance	Collateral	Location
Property 1	2012		2,508	1st, 2nd, and 3rd liens residential development land - four tracts with 196 acres	PA
Property 2	2015		3,039	1st lien on 90 acres undeveloped commercial real estate	PA
		$	5,547

At June 30, 2016, the Bank had $315 thousand of residential properties in the process of foreclosure compared to $218thousand at the end of 2015.

49

Deposits: 

Total deposits increased $47.0 million during the first six months of 2016 to $965.6 million. Non-interest bearing deposits increased $10.4 million, while savings and interest-bearing checking increased $41.7 million and time deposits decreased $5.1 million. The increase in non-interest bearing checking accounts occurred primarily insmall business checking accounts ($9.4 million).  Interest bearing checking increased by $21.1 million, primarily from commercial deposits.  The Bank’s Money Management product increased $16.0 million, primarily from commercial deposits.Retail time deposits decreased since year-end, as customers moved funds to more liquid accounts.  As of June  30, 2016, the Bank had $3.3 million in CDARS reciprocal time deposits included in brokered time deposits.  

						Change
(Dollars in thousands)	June 30, 2016		December 31, 2015			Amount	%
Noninterest-bearing checking	$	162,515	$	152,095	$	10,420	6.9
Interest-bearing checking		253,256		232,181		21,075	9.1
Money management		395,293		379,331		15,962	4.2
Savings		73,864		69,174		4,690	6.8
Total interest-bearing checking and savings		722,413		680,686		41,727	6.1
Retail time deposits		77,359		82,468		(5,109)	(6.2)
Brokered time deposits		3,267		3,263		4	0.1
Total time deposits		80,626		85,731		(5,105)	(6.0)
Total deposits	$	965,554	$	918,512	$	47,042	5.1
Overdrawn deposit accounts reclassified as loans	$	185	$	128

Borrowings:

The Corporation had no borrowings at June 30, 2016. 

Shareholders’ Equity:

Total shareholders’ equity increased $4.6 million to $115.9 million at June  30, 2016, compared to $111.4 million at the end of 2015.  The increase in retained earnings from the Corporation’s net income of $4.3 million was partially offset by the cash dividend of $1.7 million. The Corporation’s dividend payout ratio is 40.0% for the first six months of 2016 compared to 28.4% in 2015.  

As part of its quarterly dividend decision, the Corporation considers current and future income projections, dividend yield, payout ratio, and current and future capital ratios. Year-to-date, the Corporation paid dividends of $0.40 per share, compared to $0.36 for the same period in 2015,  an 11.1% increase.  For the second quarter of 2016, the Corporation paid a $0.21 per share dividend, compared to $0.19 paid in the second quarter of 2015.  On July 28, 2016 the Board of Directors declared a $0.21 per share regular quarterly dividend for the third quarter of 2016, which will be paid on August 24, 2016.

In addition, the Corporation considers how dividend decisions may affect the Dividend Reinvestment Plan (DRIP), which has raised $637 thousand in new capital this year with 40,602 new shares purchased.  On April 14, 2016, the Board of Directors approved a stock repurchase program that authorizes the repurchase of up to $350,000 in shares of common stock during each calendar quarter through March 31, 2017. In April 2016, the Corporation repurchased 15,521 shares of its common stock for $350 thousand.

50

In July 2013, Federal banking regulators approved the final rules from the Basel Committee on Banking Supervision for the regulation of capital requirements for bank holding companies and U.S banks, generally referred to as “Basel III.” The Basel III standards were effective for the Corporation and the Bank, effective January 1, 2015 (subject to a phase-in period for certain provisions).  Basel III imposes significantly higher capital requirements and more restrictive leverage and liquidity ratios than those previously in place.  The capital ratios to be considered “well capitalized” under Basel III are: (1) Common Equity Tier 1(CET1) of 6.5%, (2) Tier 1 Leverage of 5%, (3)Tier 1 Risk-Based Capital of 8%, and (4) Total Risk-Based Capital of 10%.  The CET1 ratio is a new capital ratio under Basel III and the Tier 1 risk-based capital ratio of 8% has been increased from 6%. The rules also include changes in the risk weights of certain assets to better reflect credit and other risk exposures. In addition, a capital conservation buffer will be phased-in beginning January 1, 2016 at 0.625%, increasing each year until fully implemented in 2019 at 2.5% above the minimum capital ratios required to avoid any capital distribution restrictions. The capital conservation buffer will be applicable to all of the capital ratios except for the Tier1 Leverage ratio. When fully implemented, the capital conservation buffer will have the effect of increasing the minimum capital ratios by 2.5%.  As of June 30, 2016, the Bank was “well capitalized’ under the Basel III requirements and believes it would be “well capitalized” on a fully-phased in basis had such a requirement been in effect.

The following table summarizes regulatory capital information as of June  30, 2016 and December 31, 2015 (restated) for the Corporation and the Bank.  The adequately capitalized minimum ratios, except for the Tier 1 Leverage Ratio, include the 0.625% Capital Conservation buffer effective for 2016.

			Regulatory Ratios
			Adequately	Well
			Capitalized	Capitalized
(Dollars in thousands)	June 30, 2016	December 31, 2015	Minimum	Minimum
Common Equity Tier 1 Risk-based Capital Ratio (1)
Franklin Financial Services Corporation	14.64%	14.77%	5.125%	N/A
Farmers & Merchants Trust Company	14.59%	14.76%	5.125%	6.50%
Tier 1 Risk-based Capital Ratio (2)
Franklin Financial Services Corporation	14.64%	14.77%	6.625%	N/A
Farmers & Merchants Trust Company	14.59%	14.76%	6.625%	8.00%
Total Risk-based Capital Ratio (3)
Franklin Financial Services Corporation	15.90%	16.03%	8.625%	N/A
Farmers & Merchants Trust Company	15.85%	16.02%	8.625%	10.00%
Tier 1 Leverage Ratio (4)
Franklin Financial Services Corporation	10.20%	10.38%	4.000%	N/A
Farmers & Merchants Trust Company	10.17%	10.37%	4.000%	5.00%
(1) Common equity Tier 1 capital/ total risk-weighted assets (2) Tier 1 capital / total risk-weighted assets
(3) Total risk-based capital / total risk-weighted assets, (4) Tier 1 capital / average quarterly assets

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 4.2% in Cumberland County to high of 6.4% in Huntingdon 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.

51

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

Economic Data

	June 30, 2016	December 31, 2015
Unemployment Rate (seasonally adjusted)
Market area range (1)	4.2% - 6.4%	3.5 - 5.5%
Pennsylvania	5.5%	5.0%
United States	4.9%	5.0%
Housing Price Index - year over year change
PA, nonmetropolitan statistical area	-0.2%	2.0%
United States	5.4%	5.6%
Franklin County Building Permits - year over year change
Residential, estimated	-11.3%	-15.6%
Multifamily, estimated	43.8%	-65.0%
(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. The FOMC continues to hold short-term rates at historic lows.  It continues to monitor employment and inflation data as it considers the timing of an increase in the Fed Funds rate. 

Liquidity

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

Historically, the Corporation has satisfied its liquidity needs from earnings, repayment of loans and amortizing investment securities, maturing investment securities, loan` sales, deposit growth and its ability to access existing lines of credit.  All investment securities are classified as available for sale; therefore, securities that are not pledged as collateral for borrowings are an additional source of readily available liquidity, either by selling the security or, more preferably, to provide collateral for additional borrowing. At June 30, 2016, the Bank had approximately $69.4 million (fair value) in its investment portfolio pledged as collateral for deposits.  Another source of available liquidity for the Bank is a line of credit with the FHLB.  At June  30, 2016, the Bank had approximately $130 million available on this line of credit and $6.0 million of unsecured lines of credit at a correspondent bank. At  June  30, 2016, the Bank had an excess borrowing capacity at FHLB of $272.9 million, which includes the amount available on the line of credit.  The Bank has established credit at the Federal Reserve Discount Window and as of quarter-end had the ability to borrow approximately $23 million. 

52

Off Balance Sheet Commitments

The Corporation’s financial statements do not reflect various commitments that are made in the normal course of business, which may involve some liquidity risk.  These commitments consist mainly of unfunded loans and letters of credit made under the same standards as on-balance sheet instruments.  Because these instruments have fixed maturity dates, and because many of them will expire without being drawn upon, they do not generally present any significant liquidity risk to the Corporation.  Unused commitments and standby letters of credit totaled $309.0 million and $291.4 million, respectively, at June  30, 2016 and December 31, 2015.

The Corporation has entered into various contractual obligations to make future payments.  These obligations include time deposits, long-term debt, operating leases, deferred compensation and pension payments.  These amounts have not changed materially from those reported in the Corporation’s 2015 Annual Report on Form 10-K.

Item 3.  Quantitative and Qualitative Disclosures about Market Risk

There were no material changes in the Corporation’s exposure to market risk during the sixmonths ended June  30, 2016. For more information on market risk refer to the Corporation’s 2015 Annual Report on Form 10-K.

Item 4.  Controls and Procedures

Evaluation of Controls and Procedures

The Corporation carried out an evaluation, under the supervision and with the participation of the Corporation’s management, including the Corporation’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of its disclosure controls and procedures, as defined in Exchange Act Rules 13a-15(e) and 15d-15(e). Based upon the evaluation, the Corporation’s Chief Executive Officer and Chief Financial Officer concluded that as of June  30, 2016, 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. There were no changes in the Corporation’s internal control over financial reporting during the quarterly period ended June  30, 2016, that have materially affected, or are reasonably likely to materially affect, the internal control over financial reporting.

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.

53

Part II – OTHER INFORMATION

Item 1.Legal Proceedings

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

Item 1A. Risk Factors 

There were no material changes in the Corporation’s risk factors during the sixmonths ended June  30, 2016. For more information, refer to the Corporation’s 2015 Annual Report on Form 10-K.

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

The Board of Directors approved a stock repurchase plan on April 14, 2016 that authorizes the repurchase of up to $350,000 in shares of common stock during each calendar quarter through March 31, 2017. 

As of June 30, 2016, 15,521 shares have been purchased under this plan.  The following table reports stock repurchases made during the second quarter and total shares repurchased under this plan:

(Dollars in thousands, except per share)			Weighted		Dollar Amount of		Dollar Amount of
			Average		Shares Purchased		Shares that May
	Number of		Price Paid		as Part of Publically		Yet Be Purchased
Period	Shares Purchased		per Share		Announced Program		Under Program
April 2016	15,521	$	22.55	$	350	$	1,050
	15,521	$	22.55

Item 3.   Defaults by the Company on its Senior Securities

None

Item 4.   Mine Safety Disclosures

Not Applicable

Item 5.   Other Information

None

Item 6.   Exhibits

Exhibits

3.1   Articles of Incorporation of the Corporation.  (Filed as Exhibit 3.1 to Annual Report on Form 10-K for the year ended December 31, 2015 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, 2014 and incorporated herein by reference.)

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

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

32.1 Section 1350 Certifications – Principal Executive Officer

32.2 Section 1350 Certifications – Principal Financial Officer

101 Interactive Data File (XBRL)

54

FRANKLIN FINANCIAL SERVICES CORPORATION

and SUBSIDIARIES

SIGNATURES

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

Franklin Financial Services Corporation

August8, 2016	/s/ Timothy G. Henry
	Timothy G. Henry
	Chief Executive Office and President
	(Principal Executive Officer)
August 8, 2016	/s/ Mark R. Hollar
	Mark R. Hollar
	Treasurer and Chief Financial Officer
	(Principal Financial and Accounting Officer)

55

EX-31.1

Exhibit 31.1

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

I, TimothyG.  Henry, certify that:

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

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

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

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

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

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

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

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

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

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

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

Date:  August8, 2016

/s/ TimothyG.  Henry

TimothyG.  Henry

Chief Executive Officer

EX-31.2

Exhibit 31.2

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

I, Mark R. Hollar, certify that:

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

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

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

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

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

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

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

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

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

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

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

Date:  August8, 2016

/s/ Mark R. Hollar

Mark R. Hollar

Treasurer and Chief Financial Officer

EX-32.1

Exhibit 32.1

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

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

In connection with the Quarterly Report of Franklin Financial Services Corporation (the “Corporation”) on Form 10-Q, for the period ending June  30, 2016, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, TimothyG.  Henry, 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/ TimothyG.  Henry

TimothyG.  Henry

Chief Executive Officer

August8, 2016

EX-32.2

Exhibit 32.2

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

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

In connection with the Quarterly Report of Franklin Financial Services Corporation (the “Corporation”) on Form 10-Q for the period ending June  30, 2016 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

August8, 2016

XML

Document And Entity Information - shares	6 Months Ended
	Jun. 30, 2016	Jul. 31, 2016
Document And Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2016
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2016
Entity Registrant Name	FRANKLIN FINANCIAL SERVICES CORP /PA/
Entity Central Index Key	0000723646
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		4,302,395
Trading Symbol	fraf

XML

Consolidated Balance Sheets - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Assets
Cash and due from banks	$ 15,668	$ 20,664
Interest-bearing deposits in other banks	25,381	18,502
Total cash and cash equivalents	41,049	39,166
Investment securities available for sale, at fair value	163,557	159,473
Restricted stock	436	782
Loans held for sale	487	461
Loans	826,656	782,016
Allowance for loan losses	(10,318)	(10,086)
Net Loans	816,338	771,930
Premises and equipment, net	14,414	14,759
Bank owned life insurance	22,196	22,364
Goodwill	9,016	9,016
Other real estate owned	6,194	6,451
Deferred tax assets, net	3,947	4,758
Other assets	6,412	6,135
Total assets	1,084,046	1,035,295
Deposits
Noninterest-bearing checking	162,515	152,095
Money management, savings and interest checking	722,413	680,686
Time	80,626	85,731
Total Deposits	965,554	918,512
Other liabilities	2,544	5,407
Total liabilities	968,098	923,919
Shareholders' equity
Common stock, $1 par value per share,15,000,000 shares authorized with 4,685,049 shares issued and 4,301,648 shares outstanding at June 30, 2016 and 4,659,319 shares issued and 4,275,879 shares outstanding at December 31, 2015	4,685	4,659
Capital stock without par value, 5,000,000 shares authorized with no shares issued and outstanding
Additional paid-in capital	39,454	38,778
Retained earnings	81,090	78,517
Accumulated other comprehensive loss	(2,356)	(3,722)
Treasury stock, 383,401 shares at June 30, 2016 and 383,440 shares at December 31, 2015, at cost	(6,925)	(6,856)
Total shareholders' equity	115,948	111,376
Total liabilities and shareholders' equity	$ 1,084,046	$ 1,035,295

XML

Consolidated Balance Sheets (Parenthetical) - $ / shares	Jun. 30, 2016	Dec. 31, 2015
Consolidated Balance Sheets [Abstract]
Common Stock, Par or Stated Value Per Share	$ 1	$ 1
Common Stock, Shares Authorized	15,000,000	15,000,000
Common Stock, Shares, Issued	4,685,049	4,659,319
Common Stock, Shares, Outstanding	4,301,648	4,275,879
Capital stock, no par value	$ 0	$ 0
Capital Stock, Shares Authorized	5,000,000	5,000,000
Capital Stock, Shares, Issued	0	0
Capital Stock, Shares, Outstanding	0	0
Treasury Stock, Shares	383,401	383,440

XML

Consolidated Statements Of Income - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Interest income
Loans, including fees:	$ 7,964	$ 7,477	$ 16,053	$ 14,853
Interest and dividends on investments:
Taxable interest	584	613	1,160	1,248
Tax exempt interest	357	408	723	817
Dividend income	4	8	10	60
Deposits and obligations of other banks	79	72	141	127
Total interest income	8,988	8,578	18,087	17,105
Interest expense
Deposits	548	619	1,091	1,260
Short-term borrowings			2
Total interest expense	548	619	1,093	1,260
Net interest income	8,440	7,959	16,994	15,845
Provision for loan losses	1,875	310	2,175	635
Net interest income after provision for loan losses	6,565	7,649	14,819	15,210
Noninterest income
Investment and trust services fees	1,218	1,388	2,472	2,651
Loan service charges	189	314	415	496
Deposit service charges and fees	602	586	1,180	1,077
Other service charges and fees	313	311	616	607
Debit card income	375	356	722	675
Increase in cash surrender value of life insurance	132	140	267	279
Net (loss) gain on sale of other real estate owned	(2)		(10)	32
OTTI losses on debt securities			(20)	(20)
Gain on conversion of investment security				728
Securities gains, net	2	8	3	8
Other	27	13	164	237
Total noninterest income	2,856	3,116	5,809	6,770
Noninterest expense
Salaries and employee benefits	4,346	4,203	8,716	8,286
Ocupancy, net	553	556	1,152	1,172
Furniture and equipment	218	239	434	470
Advertising	262	283	543	471
Legal and professional	394	203	691	499
Data processing	504	556	1,001	1,023
Pennsylvania bank shares tax	260	206	496	402
Intangible amortization		90		181
FDIC insurance	169	160	326	308
ATM/debit card processing	200	186	428	373
Foreclosed real estate	13	7	76	19
Telecommunications	90	118	209	235
Other	721	852	1,453	1,711
Total noninterest expense	7,730	7,659	15,525	15,150
Income before federal income tax expense	1,691	3,106	5,103	6,830
Federal income tax expense	130	632	815	1,472
Net income	$ 1,561	$ 2,474	$ 4,288	$ 5,358
Per share
Basic earnings per share	$ 0.36	$ 0.58	$ 1.00	$ 1.27
Diluted earnings per share	0.36	0.58	1.00	1.26
Cash dividends declared	$ 0.21	$ 0.19	$ 0.40	$ 0.36

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Consolidated Statements Of Comprehensive Income - USD ($) $ in Thousands		3 Months Ended		6 Months Ended
		Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Consolidated Statements Of Comprehensive Income [Abstract]
Net income		$ 1,561	$ 2,474	$ 4,288	$ 5,358
Securities:
Unrealized gains arising during the period		1,006	(1,239)	2,051	(536)
Reclassification adjustment for (gains) losses included in net income	[1]	(2)	(8)	17	(716)
Net unrealized gains (losses)		1,004	(1,247)	2,068	(1,252)
Tax effect		(340)	424	(702)	426
Net of tax amount		664	(823)	1,366	(826)
Derivatives:
Unrealized gains arising during the period			32		31
Reclassification adjustment for losses included in net income	[2]		64		160
Net unrealized gains			96		191
Tax effect			(32)		(65)
Net of tax amount			64		126
Total other comprehensive income (loss)		664	(759)	1,366	(700)
Total Comprehensive Income		2,225	1,715	5,654	4,658
Reclassification adjustment / Statement line item
Securities / gain on conversion & securities (gains) losses, net		$ 1	3	$ (6)	243
Derivatives / interest expense on deposits			$ (22)		$ (54)

[1] Securities / gain on conversion & securities (gains) losses, net

[2] Derivatives / interest expense on deposits

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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, 2014	$ 4,607	$ 37,504	$ 71,452	$ (3,100)	$ (6,942)	$ 103,521
Net income			5,358			5,358
Other comprehensive income				(700)		(700)
Cash dividends declared			(1,522)			(1,522)
Treasury shares issued under employer stock option/purchase plans		5			81	86
Common stock issued under dividend reinvestment plan	18	417				435
Balance at Jun. 30, 2015	4,625	37,926	75,288	(3,800)	(6,861)	107,178
Balance at Dec. 31, 2015	4,659	38,778	78,517	(3,722)	(6,856)	111,376
Net income			4,288			4,288
Other comprehensive income				1,366		1,366
Cash dividends declared			(1,715)			(1,715)
Acquisition of 15,521 shares of treasury stock					(350)	(350)
Treasury shares issued under employer stock option/purchase plans		1			278	279
Treasury shares issued under dividend reinvestment plan		82			3	85
Common stock issued under dividend reinvestment plan	25	527				552
Common stock issued under incentive stock option plan	1	8				9
Stock option compensation expense		58				58
Balance at Jun. 30, 2016	$ 4,685	$ 39,454	$ 81,090	$ (2,356)	$ (6,925)	$ 115,948

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Consolidated Statements Of Changes In Shareholders' Equity (Parenthetical) - $ / shares	6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015
Common Stock, Dividends, Per Share, Declared	$ 0.40	$ 0.36
Acquisition of treasury stock, shares	15,521
Treasury shares issued under dividend reinvestment plan, shares	15,372
Treasury shares issued under stock option plan, shares	188	4,518
Common stock issued under stock option plans, shares	500
Common Stock [Member]
Common stock issued under dividend reinvestment plan, shares	25,230	18,507

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Consolidated Statements Of Cash Flows - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015
Cash flows from operating activities
Net income	$ 4,288	$ 5,358
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	666	675
Net amortization of loans and investment securities	794	796
Amortization and net change in mortgage servicing rights valuation	27	9
Amortization of intangibles		181
Provision for loan losses	2,175	635
Gain on sales of securities	(3)	(8)
Impairment write-down on securities recognized in earnings	20	20
Gain on conversion of investment security		(728)
Loans originated for sale	(4,963)	(3,812)
Proceeds from sale of loans	4,937	2,446
Write-down on other real estate owned	46
Writedown of premise and equipment		60
Net loss (gain) on sale or disposal of other real estate/other repossessed assets	10	(32)
Increase in cash surrender value of life insurance	(267)	(279)
Stock option compensation	58
(Increase) decrease in other assets	(504)	1,380
(Decrease) in other liabilities	(2,588)	(2,195)
Net cash provided by operating activities	4,696	4,506
Cash flows from investing activities
Proceeds from sales and calls of investment securities available for sale	1,765	1,381
Proceeds from maturities and pay-downs of securities available for sale	11,929	14,132
Purchase of investment securities available for sale	(16,605)	(21,689)
Net decrease (increase) in restricted stock	346	(1)
Net increase in loans	(46,522)	(7,256)
Capital expenditures	(288)	(190)
Proceeds from surrender of life insurance policy	436
Proceeds from sale of other real estate	224	129
Net cash used in investing activities	(48,715)	(13,494)
Cash flows from financing activities
Net increase in demand deposits, interest-bearing checking, and savings accounts	52,147	41,406
Net decrease in time deposits	(5,105)	(6,528)
Net decrease in repurchase agreements		(9,079)
Dividends paid	(1,715)	(1,522)
Common stock issued under stock option plans	288	86
Common stock issued under dividend reinvestment plan	637	435
Purchase of treasury stock	(350)
Net cash provided by financing activities	45,902	24,798
Increase in cash and cash equivalents	1,883	15,810
Cash and cash equivalents as of January 1	39,166	48,593
Cash and cash equivalents as of June 30	41,049	64,403
Supplemental Disclosures of Cash Flow Information
Cash paid during the year for: Interest on deposits and other borrowed funds	1,097	1,304
Cash paid during the year for: Income taxes	2,100	1,513
Noncash Activities
Loans transferred to Other Real Estate	$ 23	$ 449

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Basis Of Presentation

6 Months Ended

Jun. 30, 2016

Basis Of Presentation [Abstract]

Basis Of Presentation

Note 1 - Basis of Presentation

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

In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the consolidated financial position, results of operations, and cash flows as of June 30, 2016, and for all other periods presented have been made.

Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted.  It is suggested that these consolidated financial statements be read in conjunction with the audited consolidated financial statements and notes thereto included in the Corporation’s 2015 Annual Report on Form 10-K.  The consolidated results of operations for the three and six month periods ended June 30, 2016 are not necessarily indicative of the operating results for the full year.  Management has evaluated subsequent events for potential recognition and/or disclosure through the date these consolidated financial statements were issued.

The consolidated balance sheet at December 31, 2015 has been derived from the audited consolidated financial statements at that date, but does not include all of the information and footnotes required by GAAP for complete consolidated financial statements.

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

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

	For the Three Months Ended				For the Six Months Ended
	June 30				June 30
(Dollars and shares in thousands, except per share data)	2016		2015		2016		2015
Weighted average shares outstanding (basic)		4,294		4,234		4,289		4,228
Impact of common stock equivalents		4		11		3		8
Weighted average shares outstanding (diluted)		4,298		4,245		4,292		4,236
Anti-dilutive options excluded from calculation		43		13		44		28
Net income	$	1,561	$	2,474	$	4,288	$	5,358
Basic earnings per share	$	0.36	$	0.58	$	1.00	$	1.27
Diluted earnings per share	$	0.36	$	0.58	$	1.00	$	1.26

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Recent Accounting Pronouncements

6 Months Ended

Jun. 30, 2016

Recent Accounting Pronouncements [Abstract]

Recent Accounting Pronouncements

Note 2. Recent Accounting Pronouncements

Financial Instruments – Credit Losses (Topic 326). In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.”  ASU 2016-13 requires credit losses on most financial assets measured at amortized cost and certain other instruments to be measured using an expected credit loss model (referred to as the current expected credit loss (CECL) model).  Under this model, entities will estimate credit losses over the entire contractual term of the instrument (considering estimated prepayments, but not expected extensions or modifications unless reasonable expectation of a troubled debt restructuring exists) from the date of initial recognition of that instrument.  The ASU replaces the current accounting model for purchased credit impaired loans and debt securities.  The allowance for credit losses for purchased financial assets with a more-than insignificant amount of credit deterioration since origination (“PCD assets”), should be determined in a similar manner to other financial assets measured on an amortized cost basis.  However, upon initial recognition, the allowance for credit losses is added to the purchase price (“gross up approach”) to determine the initial amortized cost basis.  The subsequent account for PCD financial assets is the same expected loss model described above.  The ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.  Early adoption is permitted as of the fiscal year beginning after December 15, 2018, including interim periods within those fiscal years.  The Corporation is currently evaluating the impact of the pending adoption of the new standard on its consolidated financial statements.

Revenue from Contracts with Customers (Topic 606). The amendments in this Update (ASU 2014-09) establish a comprehensive revenue recognition standard for virtually all industries under U.S. GAAP, including those that previously followed industry-specific guidance such as the real estate, construction and software industries. The revenue standard’s core principle is built on the contract between a vendor and a customer for the provision of goods and services. It attempts to depict the exchange of rights and obligations between the parties in the pattern of revenue recognition based on the consideration to which the vendor is entitled. To accomplish this objective, the standard requires five basic steps: (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The ASU is effective for public entities for annual periods beginning after December 15, 2016, including interim periods therein. Three basic transition methods are available – full retrospective, retrospective with certain practical expedients, and a cumulative effect approach. Under the third alternative, an entity would apply the new revenue standard only to contracts that are incomplete under legacy U.S. GAAP at the date of initial application (e.g. January 1, 2017) and recognize the cumulative effect of the new standard as an adjustment to the opening balance of retained earnings. That is, prior years would not be restated and additional disclosures would be required to enable users of the financial statements to understand the impact of adopting the new standard in the current year compared to prior years that are presented under legacy U.S. GAAP. Early adoption is prohibited under U.S. GAAP. The Corporation does not believe ASU 2014-09 will have a material effect on its financial statements.

Financial Instruments – Overall (Topic 825-10). In January 2016, the FASB issued ASU 2016-01, “Financial Instruments – Overall (Topic 825-10): “Recognition and Measurement of Financial Assets and Financial Liabilities.” ASU 2016-01 amends the guidance on the classification and measurement of financial instruments.  Some of the amendments in ASU 2016-01 include the following: 1) requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income; 2) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; 3) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; and 4) requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value; among others.  For public business entities, the amendments of ASU 2016-01 are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.  The Corporation does not believe ASU 2016-01 will have a material effect on its financial statements.

Leases (Topic 842). In February 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-02, Leases.  From the lessee’s perspective, the new standard established a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months.  Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement for a lessees.  From the lessor’s perspective, the new standard requires a lessor to classify leases as either sales-type, finance or operating.  A lease will be treated as a sale if it transfers all of the risks and rewards, as well as control of the underlying asset, to the lessee.  If risks and rewards are conveyed without the transfer of control, the lease is treated as financing.  If the lessor doesn’t convey risks and rewards or control, an operating lease results.

The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.  A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available.  A modified retrospective transition approach is required for lessors for sales-type, direct financing, and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available.  The Corporation is currently evaluating the impact of the pending adoption of the new standard on its consolidated financial statements.

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Accumulated Other Comprehensive Loss

6 Months Ended

Jun. 30, 2016

Accumulated Other Comprehensive Loss [Abstract]

Accumulated Other Comprehensive Loss

Note 3. Accumulated Other Comprehensive Loss

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

	June 30		December 31,
	2016		2015
(Dollars in thousands)
Net unrealized gains on securities	$	3,206	$	1,138
Tax effect		(1,089)		(387)
Net of tax amount		2,117		751
Accumulated pension adjustment		(6,777)		(6,777)
Tax effect		2,304		2,304
Net of tax amount		(4,473)		(4,473)
Total accumulated other comprehensive loss	$	(2,356)	$	(3,722)

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Guarantees

6 Months Ended

Jun. 30, 2016

Guarantees [Abstract]

Guarantees

Note 4. Guarantees

The Corporation does not issue any guarantees that would require liability recognition or disclosure, other than its standby letters of credit.  Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party.  Generally, all letters of credit, when issued, have expiration dates within one year.  The credit risk involved in issuing letters of credit is essentially the same as those that are involved in extending loan facilities to customers. The Bank generally holds collateral and/or personal guarantees supporting these commitments.  The Bank had $29.4million and $25.9 million of standby letters of credit as of June 30, 2016 and December 31, 2015, respectively. Management believes that the proceeds obtained through a liquidation of collateral and the enforcement of guarantees would be sufficient to cover the potential amount of future payments required under the corresponding guarantees.  The amount of the liability as of June 30, 2016 and December 31, 2015 for guarantees under standby letters of credit issued was not material.

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Investments

6 Months Ended

Jun. 30, 2016

Investments [Abstract]

Investments

Note 5. Investments

The amortized cost and estimated fair value of investment securities available for sale as of June 30, 2016 and December 31, 2015 are as follows:

(Dollars in thousands)			Gross		Gross
	Amortized		unrealized		unrealized		Fair
June 30, 2016	cost		gains		losses		value
Equity securities	$	164	$	76	$	-	$	240
U.S. Government and Agency securities		13,104		339		(17)		13,426
Municipal securities		68,430		2,354		(43)		70,741
Trust preferred securities		5,968		-		(798)		5,170
Agency mortgage-backed securities		71,448		1,310		(35)		72,723
Private-label mortgage-backed securities		1,201		27		(5)		1,223
Asset-backed securities		36		-		(2)		34
	$	160,351	$	4,106	$	(900)	$	163,557

(Dollars in thousands)			Gross		Gross
	Amortized		unrealized		unrealized		Fair
December 31, 2015	cost		gains		losses		value
Equity securities	$	164	$	69	$	-	$	233
U.S. Government and Agency securities		13,705		164		(33)		13,836
Municipal securities		67,851		1,555		(218)		69,188
Trust preferred securities		5,958		-		(669)		5,289
Agency mortgage-backed securities		69,284		621		(386)		69,519
Private-label mortgage-backed securities		1,335		39		(2)		1,372
Asset-backed securities		38		-		(2)		36
	$	158,335	$	2,448	$	(1,310)	$	159,473

At June 30, 2016 and December 31, 2015, the fair value of investment securities pledged to secure public funds, trust balances, deposit and other obligations totaled $69.4 million and $79.6 million, respectively.

The amortized cost and estimated fair value of debt securities at June 30, 2016, by contractual maturity are shown below.Actual maturities may differ from contractual maturities because of prepayment or call options embedded in the securities.

(Dollars in thousands)	Amortized cost		Fair value
Due in one year or less	$	2,618	$	2,641
Due after one year through five years		11,175		11,516
Due after five years through ten years		28,597		29,698
Due after ten years		45,148		45,516
		87,538		89,371
Mortgage-backed securities		72,649		73,946
	$	160,187	$	163,317

The composition of the net realized securities gains for the three and six months ended are as follows:

	For the Three Months Ended				For the Six Months Ended
	June 30				June 30
(Dollars in thousands)	2016		2015		2016		2015
Gross gains realized	$	2	$	-	$	3	$	8
Gross losses realized		-		-		-		-
Conversion gain		-		-		-		728
Net gains realized	$	2	$	-	$	3	$	736

The following table provides additional detail about trust preferred securities as of June 30, 2016:

Trust Preferred Securities

(Dollars in thousands)
Deal Name	Maturity	Single Issuer or Pooled	Class	Amortized Cost		Fair Value		Gross Unrealized Gain (Loss)		Lowest Credit Rating Assigned
BankAmerica Cap III	1/15/2027	Single	Preferred Stock	$	966	$	832	$	(134)	BB+
Wachovia Cap Trust II	1/15/2027	Single	Preferred Stock		279		254		(25)	BBB
Huntington Cap Trust	2/1/2027	Single	Preferred Stock		944		795		(149)	BB
Corestates Captl Tr II	2/15/2027	Single	Preferred Stock		941		848		(93)	BBB+
Huntington Cap Trust II	6/15/2028	Single	Preferred Stock		897		767		(130)	BB
Chase Cap VI JPM	8/1/2028	Single	Preferred Stock		965		832		(133)	BBB-
Fleet Cap Tr V	12/18/2028	Single	Preferred Stock		976		842		(134)	BB+
				$	5,968	$	5,170	$	(798)

The following table provides additional detail about private label mortgage-backed securities as of June 30, 2016:

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
MALT 2004-6 7A1	6/1/2004	$	322	$	319	$	(3)	ALT A	CCC	15.07	$	-
RALI 2005-QS2 A1	2/1/2005		176		187		11	ALT A	CC	4.83		10
RALI 2006-QS4 A2	4/1/2006		425		423		(2)	ALT A	D	-		323
GSR 2006-5F 2A1	5/1/2006		53		60		7	Prime	D	-		15
RALI 2006-QS8 A1	7/28/2006		225		234		9	ALT A	D	-		227
		$	1,201	$	1,223	$	22				$	575

Impairment:

The investment portfolio contained thirty-seven securities with $21.0 million of temporarily impaired fair value and $900 thousand in unrealized losses at June 30, 2016. The total unrealized loss position has improved from a $1.3 million unrealized loss at year-end 2015. 

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 June 30, 2016, was deemed to be temporary and required no further adjustments to the financial statements, unless otherwise noted.

The following table reflects temporary impairment in the investment portfolio (excluding restricted stock), aggregated by investment category, length of time that individual securities have been in a continuous unrealized loss position and the number of securities in each category as of June 30, 2016 and December 31, 2015:

	June 30, 2016
	Less than 12 months					12 months or more					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(Dollars in thousands)	Value		Losses		Count	Value		Losses		Count	Value		Losses		Count
U.S. Government and Agency securities	$	-	$	-	-	$	3,612	$	(17)	10	$	3,612	$	(17)	10
Municipal securities		-		-	-		2,328		(43)	3		2,328		(43)	3
Trust preferred securities		-		-	-		5,170		(798)	7		5,170		(798)	7
Agency mortgage-backed securities		3,218		(2)	3		5,929		(33)	11		9,147		(35)	14
Private-label mortgage-backed securities		319		(3)	1		423		(2)	1		742		(5)	2
Asset-backed securities		-		-	-		5		(2)	1		5		(2)	1
Total temporarily impaired securities	$	3,537	$	(5)	4	$	17,467	$	(895)	33	$	21,004	$	(900)	37

	December 31, 2015
	Less than 12 months					12 months or more					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(Dollars in thousands)	Value		Losses		Count	Value		Losses		Count	Value		Losses		Count
U.S. Government and Agency securities	$	479	$	(1)	3	$	4,364	$	(32)	10	$	4,843	$	(33)	13
Municipal securities		5,806		(35)	8		4,785		(183)	7		10,591		(218)	15
Trust preferred securities		-		-	-		5,289		(669)	7		5,289		(669)	7
Agency mortgage-backed securities		18,977		(215)	29		7,394		(171)	13		26,371		(386)	42
Private-label mortgage-backed securities		-		-	-		246		(2)	1		246		(2)	1
Asset-backed securities		-		-	-		5		(2)	1		5		(2)	1
Total temporarily impaired securities	$	25,262	$	(251)	40	$	22,083	$	(1,059)	39	$	47,345	$	(1,310)	79

The unrealized loss in the municipal bond portfolio decreased to $43 thousand from $218 thousand at December 31, 2015 as market prices improved during the quarter.  There are three securities in this portfolio with an unrealized loss and the loss in this portfolio is deemed to be non-credit related and no other-than-temporary impairment charges have been recorded.

The trust preferred portfolio contains seven securities with a fair value of $5.2 million and an unrealized loss of $798 thousand The trust-preferred securities held by the Bank are single entity issues, not pooled trust preferred securities.  Therefore, the impairment review of these securities is based only on the issuer and the security cannot be impaired by the performance of other issuers as if it was a pooled trust-preferred bond. All of the Bank’s trust preferred securities are single issue, variable rate notes with long maturities (2027 – 2028).  None of these bonds have suspended or missed a dividend payment. At June 30, 2016, the Bank believes it will be able to collect all interest and principal due on these bondsand no other-than-temporary-impairment charges were recorded. 

There are two PLMBS bonds showing a small unrealized loss of $5 thousand.  However, the PLMBS sector as a whole is showing an unrealized gain of $22 thousand at quarter end.  This is primarily a result of the cumulative OTTI charges recorded on this portfolio.  Due to the nature of these bonds, they are evaluated closely. These bonds were all rated AAA at time of purchase, but have since experienced rating declines. Some have experienced increased delinquencies and defaults, while others have seen the credit support increase as the bonds paid-down. The Bank monitors the performance of the PLMBS investments on a regular basis and reviews delinquencies, default rates, credit support levels and various cash flow stress test scenarios. In determining the credit related loss, Management considers all principal past due 60 days or more as a loss. If additional principal moves beyond 60 days past due, it will also be considered a loss.  The Bank recorded a $20 thousand impairment charge during the first quarter of 2016 and has recorded $575 thousand of cumulative impairment charges on this portfolio. Management continues to monitor these securities and it is possible that additional write-downs may occur if current loss trends continue.

The following table represents the cumulative credit losses on debt securities recognized in earnings as of June 30:

(Dollars in thousands)	Six Months Ended
	2016		2015
Balance of cumulative credit-related OTTI at January 1	$	555	$	535
Additions for credit-related OTTI not previously recognized		20		20
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 June 30	$	575	$	555

The Bank held $436 thousand of restricted stock at June 30, 2016.  Except for $30 thousand, this investment represents stock in FHLB Pittsburgh. The Bank is required to hold this stock to be a member of FHLB and it is carried at cost of $100 per share. The level of FHLB stock held is determined by FHLB and is comprised of a minimum membership amount plus a variable activity amount. FHLB stock is evaluated for impairment primarily based on an assessment of the ultimate recoverability of its cost. As a government sponsored entity, FHLB has the ability to raise funding through the U.S. Treasury that can be used to support its operations.  There is not a public market for FHLB stock and the benefits of FHLB membership (e.g., liquidity and low cost funding) add value to the stock beyond purely financial measures. Management intends to remain a member of the FHLB and believes that it will be able to fully recover the cost basis of this investment.    

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Loans

6 Months Ended

Jun. 30, 2016

Loans [Abstract]

Loans

Note 6. Loans

The Bank reports its loan portfolio based on the primary collateral of the loan. It further classifies these loans by the primary purpose, either consumer or commercial. The Bank’s residential real estate loans include long-term loans to individuals and businesses secured by mortgages on the borrower’s real property and include home equity loans.  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 real estate loans include construction, owner and non-owner occupied properties and farm real estate.  Commercial loans are made to businesses of various sizes for a variety of purposes including property, plant and equipment, working capital and 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 loans and unsecured personal lines of credit. 

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

						Change
(Dollars in thousands)	June 30, 2016		December 31, 2015			Amount	%
Residential Real Estate 1-4 Family
Consumer first liens	$	101,113	$	103,698	$	(2,585)	(2.5)
Commercial first lien		62,424		57,780		4,644	8.0
Total first liens		163,537		161,478		2,059	1.3
Consumer junior liens and lines of credit		46,106		44,996		1,110	2.5
Commercial junior liens and lines of credit		5,908		5,917		(9)	(0.2)
Total junior liens and lines of credit		52,014		50,913		1,101	2.2
Total residential real estate 1-4 family		215,551		212,391		3,160	1.5
Residential real estate - construction
Consumer		1,067		545		522	95.8
Commercial		7,253		7,343		(90)	(1.2)
Total residential real estate construction		8,320		7,888		432	5.5
Commercial real estate		371,786		340,695		31,091	9.1
Commercial		226,307		215,942		10,365	4.8
Total commercial		598,093		556,637		41,456	7.4
Consumer		4,692		5,100		(408)	(8.0)
		826,656		782,016		44,640	5.7
Less: Allowance for loan losses		(10,318)		(10,086)		(232)	2.3
Net Loans	$	816,338	$	771,930	$	44,408	5.8
Included in the loan balances are the following:
Net unamortized deferred loan fees	$	225	$	436
Loans pledged as collateral for borrowings and commitments from:
FHLB	$	583,567	$	643,449
Federal Reserve Bank		42,060		45,111
	$	625,627	$	688,560

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Loan Quality

6 Months Ended

Jun. 30, 2016

Loan Quality [Abstract]

Loan Quality

Note 7. Loan Quality

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

	Residential Real Estate 1-4 Family
			Junior Liens &				Commercial
(Dollars in thousands)	First Liens		Lines of Credit		Construction		Real Estate		Commercial		Consumer		Unallocated		Total
ALL at March 31, 2016	$	997	$	316	$	199	$	6,181	$	1,510	$	99	$	1,040	$	10,342
Charge-offs		(46)		-		-		(1,951)		(3)		(42)		-		(2,042)
Recoveries		1		-		-		14		106		22		-		143
Provision		71		3		6		1,696		(17)		18		98		1,875
ALL at June 30, 2016	$	1,023	$	319	$	205	$	5,940	$	1,596	$	97	$	1,138	$	10,318
ALL at December 31, 2015	$	989	$	308	$	194	$	5,649	$	1,519	$	102	$	1,325	$	10,086
Charge-offs		(49)		-		-		(1,954)		(66)		(84)		-		(2,153)
Recoveries		33		-		-		14		121		42		-		210
Provision		50		11		11		2,231		22		37		(187)		2,175
ALL at June 30, 2016	$	1,023	$	319	$	205	$	5,940	$	1,596	$	97	$	1,138	$	10,318
ALL at March 31, 2015	$	1,016	$	268	$	249	$	5,137	$	1,353	$	116	$	1,071	$	9,210
Charge-offs		(43)		-		(21)		-		(17)		(26)		-		(107)
Recoveries		1		-		-		14		8		14		-		37
Provision		40		13		(22)		28		96		8		147		310
ALL at June 30, 2015	$	1,014	$	281	$	206	$	5,179	$	1,440	$	112	$	1,218	$	9,450
ALL at December 31, 2014	$	994	$	271	$	214	$	4,978	$	1,515	$	127	$	1,012	$	9,111
Charge-offs		(43)		-		(21)		-		(218)		(78)		-		(360)
Recoveries		3		-		-		14		14		33		-		64
Provision		60		10		13		187		129		30		206		635
ALL at June 30, 2015	$	1,014	$	281	$	206	$	5,179	$	1,440	$	112	$	1,218	$	9,450

The following table presents, by class, loans that were evaluated for the ALL under the specific reserve (individually) and those that were evaluated under the general reserve (collectively) and the amount of the ALL established in each class as of June 30, 2016 and December 31, 2015:

	Residential Real Estate 1-4 Family
			Junior Liens &				Commercial
(Dollars in thousands)	First Liens		Lines of Credit		Construction		Real Estate		Commercial		Consumer		Unallocated		Total
June 30, 2016
Loans evaluated for ALL:
Individually	$	396	$	52	$	491	$	17,082	$	-	$	-	$	-	$	18,021
Collectively		163,141		51,962		7,829		354,704		226,307		4,692		-		808,635
Total	$	163,537	$	52,014	$	8,320	$	371,786	$	226,307	$	4,692	$	-	$	826,656
ALL established for loans evaluated:
Individually	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Collectively		1,023		319		205		5,940		1,596		97		1,138		10,318
ALL at June 30, 2016	$	1,023	$	319	$	205	$	5,940	$	1,596	$	97	$	1,138	$	10,318
December 31, 2015
Loans evaluated for ALL:
Individually	$	930	$	51	$	502	$	14,309	$	230	$	-	$	-	$	16,022
Collectively		160,548		50,862		7,386		326,386		215,712		5,100		-		765,994
Total	$	161,478	$	50,913	$	7,888	$	340,695	$	215,942	$	5,100	$	-	$	782,016
ALL established for loans evaluated:
Individually	$	-	$	-	$	-	$	-	$	9	$	-	$	-	$	9
Collectively		989		308		194		5,649		1,510		102		1,325		10,077
ALL at December 31, 2015	$	989	$	308	$	194	$	5,649	$	1,519	$	102	$	1,325	$	10,086

The following table shows additional information about those loans considered to be impaired at June 30, 2016 and December 31, 2015:

	Impaired Loans
	With No Allowance				With Allowance
(Dollars in thousands)			Unpaid					Unpaid
	Recorded		Principal		Recorded		Principal		Related
June 30, 2016	Investment		Balance		Investment		Balance		Allowance
Residential Real Estate 1-4 Family
First liens	$	921	$	996	$	-	$	-	$	-
Junior liens and lines of credit		63		75		-		-		-
Total		984		1,071		-		-		-
Residential real estate - construction		491		540		-		-		-
Commercial real estate		17,357		19,910		-		-		-
Commercial		25		37		-		-		-
Total	$	18,857	$	21,558	$	-	$	-	$	-

December 31, 2015
Residential Real Estate 1-4 Family
First liens	$	1,523	$	1,725	$	-	$	-	$	-
Junior liens and lines of credit		105		133		-		-		-
Total		1,628		1,858		-		-		-
Residential real estate - construction		502		546		-		-		-
Commercial real estate		14,431		15,007				-		-
Commercial		267		330		9		10		9
Total	$	16,828	$	17,741	$	9	$	10	$	9

The following table shows the average of impaired loans and related interest income for the three and six months ended June 30, 2016 and 2015:

	Three Months Ended				Six Months Ended
	June 30, 2016				June 30, 2016
	Average		Interest		Average		Interest
(Dollars in thousands)	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
Residential Real Estate 1-4 Family
First liens	$	926	$	6	$	998	$	12
Junior liens and lines of credit		63		-		67		-
Total		989		6		1,065		12
Residential real estate - construction		494		-		498		-
Commercial real estate		19,345		117		19,555		239
Commercial		34		-		39		-
Total	$	20,862	$	123	$	21,157	$	251
	Three Months Ended				Six Months Ended
	June 30, 2015				June 30, 2015
	Average		Interest		Average		Interest
(Dollars in thousands)	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
Residential Real Estate 1-4 Family
First liens	$	1,618	$	9	$	1,723	$	16
Junior liens and lines of credit		117		-		131		-
Total		1,735		9		1,854		16
Residential real estate - construction		516		-		723		-
Commercial real estate		21,756		174		21,971		327
Commercial		361		-		1,012		-
Total	$	24,368	$	183	$	25,560	$	343

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

(Dollars in thousands)			Loans Past Due and Still Accruing										Total
	Current		30-59 Days		60-89 Days		90 Days+		Total		Non-Accrual		Loans
June 30, 2016
Residential Real Estate 1-4 Family
First liens	$	162,601	$	102	$	393	$	14	$	509	$	427	$	163,537
Junior liens and lines of credit		51,764		154		-		33		187		63		52,014
Total		214,365		256		393		47		696		490		215,551
Residential real estate - construction		7,652		117		-		60		177		491		8,320
Commercial real estate		362,157		2,415		96		306		2,817		6,812		371,786
Commercial		225,802		381		53		46		480		25		226,307
Consumer		4,674		18		-		-		18		-		4,692
Total	$	814,650	$	3,187	$	542	$	459	$	4,188	$	7,818	$	826,656

December 31, 2015
Residential Real Estate 1-4 Family
First liens	$	159,998	$	44	$	416	$	214	$	674	$	806	$	161,478
Junior liens and lines of credit		50,541		217		50		-		267		105		50,913
Total		210,539		261		466		214		941		911		212,391
Residential real estate - construction		7,209		177		-		-		177		502		7,888
Commercial real estate		330,953		5,713		196		152		6,061		3,681		340,695
Commercial		215,449		210		5		2		217		276		215,942
Consumer		5,041		55		4		-		59		-		5,100
Total	$	769,191	$	6,416	$	671	$	368	$	7,455	$	5,370	$	782,016

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

	Pass		Special Mention		Substandard		Doubtful
(Dollars in thousands)	(1-5)		(6)		(7)		(8)		Total
June 30, 2016
Residential Real Estate 1-4 Family
First liens	$	160,151	$	2,003	$	1,383	$	-	$	163,537
Junior liens and lines of credit		51,796		28		190		-		52,014
Total		211,947		2,031		1,573		-		215,551
Residential real estate - construction		7,488		-		832		-		8,320
Commercial real estate		352,191		1,758		17,837		-		371,786
Commercial		223,082		1,161		2,064		-		226,307
Consumer		4,692		-		-		-		4,692
Total	$	799,400	$	4,950	$	22,306	$	-	$	826,656

December 31, 2015
Residential Real Estate 1-4 Family
First liens	$	157,514	$	2,122	$	1,842	$	-	$	161,478
Junior liens and lines of credit		50,685		28		200		-		50,913
Total		208,199		2,150		2,042		-		212,391
Residential real estate - construction		7,386		-		502		-		7,888
Commercial real estate		319,985		6,175		14,535		-		340,695
Commercial		213,492		1,978		472		-		215,942
Consumer		5,100		-		-		-		5,100
Total	$	754,162	$	10,303	$	17,551	$	-	$	782,016

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

								Troubled Debt Restructurings
								That Have Defaulted on
								Modified Terms in the
(Dollars in thousands)	Troubled Debt Restructurings							Last Twelve Months
	Number of	Recorded						Number of	Recorded
	Contracts	Investment		Performing*		Nonperforming*		Contracts	Investment
June 30, 2016
Residential real estate - construction	1	$	491	$	491	$	-	-	$	-
Residential real estate	4		645		494		151	-		-
Commercial real estate	11		12,351		12,351		-	-		-
Total	16	$	13,487	$	13,336	$	151	-	$	-
December 31, 2015
Residential real estate - construction	1	$	502	$	502	$	-	-	$	-
Residential real estate	4		654		503		151	-		-
Commercial real estate	10		12,125		12,125		-	-		-
Total	15	$	13,281	$	13,130	$	151	-	$	-

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

The following table reports new TDR loans during 2016, concession granted and the recorded investment as of June  30, 2016:

	New During Period
	Number of		Pre-TDR		After-TDR		Recorded
Six Months Ended June 30, 2016	Contracts		Modification		Modification		Investment	Concession
Commercial real estate	1	$	525	$	525	$	515	multiple

There were no new TDR loans made inthe first six months of 2015.

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OREO

6 Months Ended

Jun. 30, 2016

OREO [Abstract]

OREO

Note 8. OREO

Changes in other real estate owned during the three months ended June 30, 2016 and 2015 were as follows:

	June 30
(Dollars in thousands)	2016		2015
Balance at January 1	$	6,451	$	3,666
Additions		23		449
Proceeds from dispositions		(224)		(129)
(Loss) gain on sales, net		(10)		32
Valuation adjustment		(46)		-
Balance at June 30	$	6,194	$	4,018

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Pension

6 Months Ended

Jun. 30, 2016

Pension [Abstract]

Pension

Note 9. Pension

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

	Three Months Ended June 30				Six Months Ended June 30
(Dollars in thousands)	2016		2015		2016		2015
Components of net periodic cost:
Service cost	$	83	$	92	$	164	$	192
Interest cost		180		172		360		350
Expected return on plan assets		(290)		(296)		(583)		(592)
Recognized net actuarial loss		120		123		231		254
Net period cost	$	93	$	91	$	172	$	204

The Bank expects its pension expense to increase to approximately $809 thousand in 2016 compared to $387 thousand in 2015, due to a pension settlement expense of approximately $450,000 that will be recorded during the second half of 2016.  No pension contributions were made or are expected to be made in 2016.

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Fair Value Measurements And Fair Values Of Financial Instruments

6 Months Ended

Jun. 30, 2016

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

Fair Value Measurements And Fair Values Of Financial Instruments

Note 10.  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 period-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 June 30, 2016and December 31, 2015.

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

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

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

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

Net loans (including impaired 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.

Deposits andShort-term borrowings:  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 is estimated by discounting the future cash flows using rates approximating those currently offered for certificates of deposit with similar remaining maturities.  For short-term borrowings, the carrying value approximates a reasonable estimate of the fair value.

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

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:

	June 30, 2016
	Carrying		Fair
(Dollars in thousands)	Amount		Value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	41,049	$	41,049	$	41,049	$	-	$	-
Investment securities available for sale		163,557		163,557		240		163,317		-
Restricted stock		436		436		-		436		-
Loans held for sale		487		487		-		487		-
Net loans		816,338		824,266		-		-		824,266
Accrued interest receivable		3,151		3,151		-		3,151		-
Financial liabilities:
Deposits	$	965,554	$	965,439	$	-	$	965,439	$	-
Accrued interest payable		120		120		-		120		-
	December 31, 2015
	Carrying		Fair
(Dollars in thousands)	Amount		Value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	39,166	$	39,166	$	39,166	$	-	$	-
Investment securities available for sale		159,473		159,473		233		159,240		-
Restricted stock		782		782		-		782		-
Loans held for sale		461		461		-		461		-
Net loans		771,930		779,742		-		-		779,742
Accrued interest receivable		3,164		3,164		-		3,164		-
Financial liabilities:
Deposits	$	918,512	$	918,401	$	-	$	918,401	$	-
Accrued interest payable		124		124		-		124		-

Recurring Fair Value Measurements

For financial assets and liabilities measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used at June 30, 2016 and December 31, 2015 are as follows:

(Dollars in Thousands	Fair Value at June 30, 2016
Asset  Description	Level 1		Level 2		Level 3		Total
Equity securities	$	240	$	-	$	-	$	240
U.S. Government and Agency securities		-		13,426		-		13,426
Municipal securities		-		70,741		-		70,741
Trust Preferred Securities		-		5,170		-		5,170
Agency mortgage-backed securities		-		72,723		-		72,723
Private-label mortgage-backed securities		-		1,223		-		1,223
Asset-backed securities		-		34		-		34
Total assets	$	240	$	163,317	$	-	$	163,557

(Dollars in Thousands)	Fair Value at December 31, 2015
Asset  Description	Level 1		Level 2		Level 3		Total
Equity securities	$	233	$	-	$	-	$	233
U.S. Government and Agency securities		-		13,836		-		13,836
Municipal securities		-		69,188		-		69,188
Trust Preferred Securities		-		5,289		-		5,289
Agency mortgage-backed securities		-		69,519		-		69,519
Private-label mortgage-backed securities		-		1,372		-		1,372
Asset-backed securities		-		36		-		36
Total assets	$	233	$	159,240	$	-	$	159,473

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

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

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 June 30, 2016 and December 31, 2015are as follows:

(Dollars in Thousands)
	Fair Value at June 30, 2016
Asset  Description	Level 1		Level 2		Level 3		Total
Impaired loans (1)	$	-	$	-	$	3,363	$	3,363
Other real estate owned (1)		-		-		225		225
Total assets	$	-	$	-	$	3,588	$	3,588

(Dollars in Thousands)	Fair Value at December 31, 2015
Asset  Description	Level 1		Level 2		Level 3		Total
Premises held-for-sale (1)	$	-	$	-	$	225	$	225
Other real estate owned (1)		-		-		6,128		6,128
Total assets	$	-	$	-	$	6,353	$	6,353

(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.

Premises held-for-sale: The fair value of premises held for sale, upon initial recognition, is estimated using Level 3 inputs within the fair value hierarchy.

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.  Subsequent charge-offs are recognized as an expense.

The Corporation did not record any liabilities at fair value for which measurement of the fair value was made on a nonrecurring basis at June 30, 2016. 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 June 30, 2016.

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

		Quantitative Information about Level 3 Fair Value Measurements
(Dollars in Thousands)		at June 30, 2016
					Range
Asset  Description		Fair Value	Valuation Technique	Unobservable Input	(Weighted Average)
Impaired loans (1)	$	3,363	Appraisal	Appraisal Adjustments (2)	100%  (100%)
				Cost to sell	8%  (8%)
Other real estate owned (1)		225	Appraisal	Cost to sell	8%  (8%)
		at December 31, 2015
Premises held-for-sale (1)	$	225	Appraisal	-	-
Other real estate owned (1)		6,128	Appraisal	Cost to sell	8%  (8%)
(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.

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Financial Derivatives

6 Months Ended

Jun. 30, 2016

Financial Derivatives [Abstract]

Financial Derivatives

Note 11.  Financial Derivatives

The Board of Directors has given Management authorization to enter into derivative activity including interest rate swaps, caps and floors, forward-rate agreements, options and futures contracts in order to hedge interest rate risk.  The Bank is exposed to credit risk equal to the positive fair value of a derivative instrument, if any, as a positive fair value indicates that the counterparty to the agreement is financially liable to the Bank.  To limit this risk, counterparties must have an investment grade long-term debt rating and individual counterparty credit exposure is limited by Board approved parameters.  The final swap transaction matured in 2015.

The Effect of Derivative Instruments on the Statement of Income for the Three and Six Months Ended June 30, 2016 and 2015 follows:

Derivatives in ASC Topic 815 Cash Flow Hedging Relationships
(Dollars in thousands)							Amount of Gain
						Location of	or (Loss)
						Gain or (Loss)	Recognized in
						Recognized in	Income on
			Location of	Amount of Gain		Income on	Derivatives
	Amount of Gain		Gain or (Loss)	or (Loss)		Derivative (Ineffective	(Ineffective Portion
	or (Loss)		Reclassified from	Reclassified from		Portion and Amount	and Amount
	Recognized in OCI		Accumulated OCI	Accumulated OCI		Excluded from	Excluded from
	net of tax on Derivative		into Income	into Income		Effectiveness	Effectiveness
Date / Type	(Effective Portion)		(Effective Portion)	(Effective Portion)		Testing)	Testing)
Interest rate contracts
Three months ended:
June 30, 2016	$	-	Interest Expense	$	-	Other income (expense)	$	-
June 30, 2015	$	64	Interest Expense	$	(64)	Other income (expense)	$	-
Six months ended:
June 30, 2016	$	-	Interest Expense	$	-	Other income (expense)	$	-
June 30, 2015	$	126	Interest Expense	$	(160)	Other income (expense)	$	-

Interest Rate Swap Agreements (“Swap Agreements”)

As of June 30, 2016, the Bank had no swap agreements outstanding. The Bank had entered into interest rate swap agreements as part of its asset/liability management program.  The swap agreements were free-standing derivatives and were recorded at fair value in the Corporation’s consolidated statements of condition.  The Bank was party to master netting arrangements with its financial institution counterparties; however, the Bank did not offset assets and liabilities under these arrangements for financial statement presentation purposes.  The master netting arrangements provided for a single net settlement of all swap agreements, as well as collateral, in the event of default on, or termination of, any one contract.  Collateral, in the form of marketable securities, was posted by the counterparty with net liability positions in accordance with contract thresholds. 

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Capital Ratios

6 Months Ended

Jun. 30, 2016

Capital Ratios [Abstract]

Capital Ratios

Note 12. Capital Ratios

Capital adequacy is currently defined by regulatory agencies through the use of several minimum required ratios.  In July 2013, Federal banking regulators approved the final rules from the Basel Committee on Banking Supervision for the regulation of capital requirements for bank holding companies and U.S banks, generally referred to as “Basel III.” The Basel III standards were effective for the Corporation and the Bank, effective January 1, 2015 (subject to a phase-in period for certain provisions).  Basel III imposes significantly higher capital requirements and more restrictive leverage and liquidity ratios than those previously in place.  The capital ratios to be considered “well capitalized” under Basel III are: (1) Common Equity Tier 1(CET1) of 6.5%, (2) Tier 1 Leverage of 5%, (3)Tier 1 Risk-Based Capital of 8%, and (4) Total Risk-Based Capital of 10%.  The CET1 ratio is a new capital ratio under Basel III and the Tier 1 risk-based capital ratio of 8% has been increased from 6%. The rules also include changes in the risk weights of certain assets to better reflect credit and other risk exposures. In addition, a capital conservation buffer will be phased-in beginning January 1, 2016 at 0.625%, increasing each year until fully implemented in 2019 at 2.5% above the minimum capital ratios required to avoid any capital distribution restrictions. The capital conservation buffer will be applicable to all of the capital ratios except for the Tier1 Leverage ratio. When fully implemented, the capital conservation buffer will have the effect of increasing the minimum capital ratios by 2.5%.  As of June 30, 2016, the Bank was “well capitalized’ under the Basel III requirements and believes it would be “well capitalized” on a fully-phased in basis had such a requirement been in effect.

The following table summarizes regulatory capital information as of June 30, 2016 and December 31, 2015 (restated) for the Corporation and the Bank.  The adequately capitalized minimum ratios, except for the Tier 1 Leverage Ratio, include the 0.625% Capital Conservation buffer effective for 2016.

			Regulatory Ratios
			Adequately	Well
			Capitalized	Capitalized
(Dollars in thousands)	June 30, 2016	December 31, 2015	Minimum	Minimum
Common Equity Tier 1 Risk-based Capital Ratio (1)
Franklin Financial Services Corporation	14.64%	14.77%	5.125%	N/A
Farmers & Merchants Trust Company	14.59%	14.76%	5.125%	6.50%
Tier 1 Risk-based Capital Ratio (2)
Franklin Financial Services Corporation	14.64%	14.77%	6.625%	N/A
Farmers & Merchants Trust Company	14.59%	14.76%	6.625%	8.00%
Total Risk-based Capital Ratio (3)
Franklin Financial Services Corporation	15.90%	16.03%	8.625%	N/A
Farmers & Merchants Trust Company	15.85%	16.02%	8.625%	10.00%
Tier 1 Leverage Ratio (4)
Franklin Financial Services Corporation	10.20%	10.38%	4.000%	N/A
Farmers & Merchants Trust Company	10.17%	10.37%	4.000%	5.00%
(1) Common equity Tier 1 capital/ total risk-weighted assets (2) Tier 1 capital / total risk-weighted assets
(3) Total risk-based capital / total risk-weighted assets, (4) Tier 1 capital / average quarterly assets

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Reclassification

6 Months Ended

Jun. 30, 2016

Reclassification [Abstract]

Reclassification

31Note 13. Reclassification

Certain prior period amounts may have been reclassified to conform to the current year presentation.  Such reclassifications did not affect the Corporation’s financial position or results of operations.

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Basis Of Presentation (Policy)

6 Months Ended

Jun. 30, 2016

Basis Of Presentation [Abstract]

Consolidation

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

In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the consolidated financial position, results of operations, and cash flows as of June 30, 2016, and for all other periods presented have been made.

Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted.  It is suggested that these consolidated financial statements be read in conjunction with the audited consolidated financial statements and notes thereto included in the Corporation’s 2015 Annual Report on Form 10-K.  The consolidated results of operations for the three and six month periods ended June 30, 2016 are not necessarily indicative of the operating results for the full year.  Management has evaluated subsequent events for potential recognition and/or disclosure through the date these consolidated financial statements were issued.

The consolidated balance sheet at December 31, 2015 has been derived from the audited consolidated financial statements at that date, but does not include all of the information and footnotes required by GAAP for complete consolidated financial statements.

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

Earnings Per Share

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

	For the Three Months Ended				For the Six Months Ended
	June 30				June 30
(Dollars and shares in thousands, except per share data)	2016		2015		2016		2015
Weighted average shares outstanding (basic)		4,294		4,234		4,289		4,228
Impact of common stock equivalents		4		11		3		8
Weighted average shares outstanding (diluted)		4,298		4,245		4,292		4,236
Anti-dilutive options excluded from calculation		43		13		44		28
Net income	$	1,561	$	2,474	$	4,288	$	5,358
Basic earnings per share	$	0.36	$	0.58	$	1.00	$	1.27
Diluted earnings per share	$	0.36	$	0.58	$	1.00	$	1.26

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Basis Of Presentation (Tables)

6 Months Ended

Jun. 30, 2016

Basis Of Presentation [Abstract]

Schedule Of Earnings Per Share, Basic And Diluted

	For the Three Months Ended				For the Six Months Ended
	June 30				June 30
(Dollars and shares in thousands, except per share data)	2016		2015		2016		2015
Weighted average shares outstanding (basic)		4,294		4,234		4,289		4,228
Impact of common stock equivalents		4		11		3		8
Weighted average shares outstanding (diluted)		4,298		4,245		4,292		4,236
Anti-dilutive options excluded from calculation		43		13		44		28
Net income	$	1,561	$	2,474	$	4,288	$	5,358
Basic earnings per share	$	0.36	$	0.58	$	1.00	$	1.27
Diluted earnings per share	$	0.36	$	0.58	$	1.00	$	1.26

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Accumulated Other Comprehensive Loss (Tables)

6 Months Ended

Jun. 30, 2016

Accumulated Other Comprehensive Loss [Abstract]

Schedule Of Accumulated Other Comprehensive Loss

	June 30		December 31,
	2016		2015
(Dollars in thousands)
Net unrealized gains on securities	$	3,206	$	1,138
Tax effect		(1,089)		(387)
Net of tax amount		2,117		751
Accumulated pension adjustment		(6,777)		(6,777)
Tax effect		2,304		2,304
Net of tax amount		(4,473)		(4,473)
Total accumulated other comprehensive loss	$	(2,356)	$	(3,722)

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Investments (Tables)

6 Months Ended

Jun. 30, 2016

Investments [Abstract]

Unrealized Gain (Loss) On Investments

(Dollars in thousands)			Gross		Gross
	Amortized		unrealized		unrealized		Fair
June 30, 2016	cost		gains		losses		value
Equity securities	$	164	$	76	$	-	$	240
U.S. Government and Agency securities		13,104		339		(17)		13,426
Municipal securities		68,430		2,354		(43)		70,741
Trust preferred securities		5,968		-		(798)		5,170
Agency mortgage-backed securities		71,448		1,310		(35)		72,723
Private-label mortgage-backed securities		1,201		27		(5)		1,223
Asset-backed securities		36		-		(2)		34
	$	160,351	$	4,106	$	(900)	$	163,557

(Dollars in thousands)			Gross		Gross
	Amortized		unrealized		unrealized		Fair
December 31, 2015	cost		gains		losses		value
Equity securities	$	164	$	69	$	-	$	233
U.S. Government and Agency securities		13,705		164		(33)		13,836
Municipal securities		67,851		1,555		(218)		69,188
Trust preferred securities		5,958		-		(669)		5,289
Agency mortgage-backed securities		69,284		621		(386)		69,519
Private-label mortgage-backed securities		1,335		39		(2)		1,372
Asset-backed securities		38		-		(2)		36
	$	158,335	$	2,448	$	(1,310)	$	159,473

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

(Dollars in thousands)	Amortized cost		Fair value
Due in one year or less	$	2,618	$	2,641
Due after one year through five years		11,175		11,516
Due after five years through ten years		28,597		29,698
Due after ten years		45,148		45,516
		87,538		89,371
Mortgage-backed securities		72,649		73,946
	$	160,187	$	163,317

Composition Of Net Realized Securities Gains

	For the Three Months Ended				For the Six Months Ended
	June 30				June 30
(Dollars in thousands)	2016		2015		2016		2015
Gross gains realized	$	2	$	-	$	3	$	8
Gross losses realized		-		-		-		-
Conversion gain		-		-		-		728
Net gains realized	$	2	$	-	$	3	$	736

Schedule Of Trust Preferred Securities

(Dollars in thousands)
Deal Name	Maturity	Single Issuer or Pooled	Class	Amortized Cost		Fair Value		Gross Unrealized Gain (Loss)		Lowest Credit Rating Assigned
BankAmerica Cap III	1/15/2027	Single	Preferred Stock	$	966	$	832	$	(134)	BB+
Wachovia Cap Trust II	1/15/2027	Single	Preferred Stock		279		254		(25)	BBB
Huntington Cap Trust	2/1/2027	Single	Preferred Stock		944		795		(149)	BB
Corestates Captl Tr II	2/15/2027	Single	Preferred Stock		941		848		(93)	BBB+
Huntington Cap Trust II	6/15/2028	Single	Preferred Stock		897		767		(130)	BB
Chase Cap VI JPM	8/1/2028	Single	Preferred Stock		965		832		(133)	BBB-
Fleet Cap Tr V	12/18/2028	Single	Preferred Stock		976		842		(134)	BB+
				$	5,968	$	5,170	$	(798)

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
MALT 2004-6 7A1	6/1/2004	$	322	$	319	$	(3)	ALT A	CCC	15.07	$	-
RALI 2005-QS2 A1	2/1/2005		176		187		11	ALT A	CC	4.83		10
RALI 2006-QS4 A2	4/1/2006		425		423		(2)	ALT A	D	-		323
GSR 2006-5F 2A1	5/1/2006		53		60		7	Prime	D	-		15
RALI 2006-QS8 A1	7/28/2006		225		234		9	ALT A	D	-		227
		$	1,201	$	1,223	$	22				$	575

Schedule Of Unrealized Loss On Investments

	June 30, 2016
	Less than 12 months					12 months or more					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(Dollars in thousands)	Value		Losses		Count	Value		Losses		Count	Value		Losses		Count
U.S. Government and Agency securities	$	-	$	-	-	$	3,612	$	(17)	10	$	3,612	$	(17)	10
Municipal securities		-		-	-		2,328		(43)	3		2,328		(43)	3
Trust preferred securities		-		-	-		5,170		(798)	7		5,170		(798)	7
Agency mortgage-backed securities		3,218		(2)	3		5,929		(33)	11		9,147		(35)	14
Private-label mortgage-backed securities		319		(3)	1		423		(2)	1		742		(5)	2
Asset-backed securities		-		-	-		5		(2)	1		5		(2)	1
Total temporarily impaired securities	$	3,537	$	(5)	4	$	17,467	$	(895)	33	$	21,004	$	(900)	37

	December 31, 2015
	Less than 12 months					12 months or more					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(Dollars in thousands)	Value		Losses		Count	Value		Losses		Count	Value		Losses		Count
U.S. Government and Agency securities	$	479	$	(1)	3	$	4,364	$	(32)	10	$	4,843	$	(33)	13
Municipal securities		5,806		(35)	8		4,785		(183)	7		10,591		(218)	15
Trust preferred securities		-		-	-		5,289		(669)	7		5,289		(669)	7
Agency mortgage-backed securities		18,977		(215)	29		7,394		(171)	13		26,371		(386)	42
Private-label mortgage-backed securities		-		-	-		246		(2)	1		246		(2)	1
Asset-backed securities		-		-	-		5		(2)	1		5		(2)	1
Total temporarily impaired securities	$	25,262	$	(251)	40	$	22,083	$	(1,059)	39	$	47,345	$	(1,310)	79

Other Than Temporary Impairment, Credit Losses Recognized In Earnings

(Dollars in thousands)	Six Months Ended
	2016		2015
Balance of cumulative credit-related OTTI at January 1	$	555	$	535
Additions for credit-related OTTI not previously recognized		20		20
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 June 30	$	575	$	555

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Loans (Tables)

6 Months Ended

Jun. 30, 2016

Loans [Abstract]

Schedule Of Loans Outstanding

						Change
(Dollars in thousands)	June 30, 2016		December 31, 2015			Amount	%
Residential Real Estate 1-4 Family
Consumer first liens	$	101,113	$	103,698	$	(2,585)	(2.5)
Commercial first lien		62,424		57,780		4,644	8.0
Total first liens		163,537		161,478		2,059	1.3
Consumer junior liens and lines of credit		46,106		44,996		1,110	2.5
Commercial junior liens and lines of credit		5,908		5,917		(9)	(0.2)
Total junior liens and lines of credit		52,014		50,913		1,101	2.2
Total residential real estate 1-4 family		215,551		212,391		3,160	1.5
Residential real estate - construction
Consumer		1,067		545		522	95.8
Commercial		7,253		7,343		(90)	(1.2)
Total residential real estate construction		8,320		7,888		432	5.5
Commercial real estate		371,786		340,695		31,091	9.1
Commercial		226,307		215,942		10,365	4.8
Total commercial		598,093		556,637		41,456	7.4
Consumer		4,692		5,100		(408)	(8.0)
		826,656		782,016		44,640	5.7
Less: Allowance for loan losses		(10,318)		(10,086)		(232)	2.3
Net Loans	$	816,338	$	771,930	$	44,408	5.8
Included in the loan balances are the following:
Net unamortized deferred loan fees	$	225	$	436
Loans pledged as collateral for borrowings and commitments from:
FHLB	$	583,567	$	643,449
Federal Reserve Bank		42,060		45,111
	$	625,627	$	688,560

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Loan Quality (Tables)

6 Months Ended

Jun. 30, 2016

Loan Quality [Abstract]

Allowance For Loan Losses, By Loan Segment

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

	Residential Real Estate 1-4 Family
			Junior Liens &				Commercial
(Dollars in thousands)	First Liens		Lines of Credit		Construction		Real Estate		Commercial		Consumer		Unallocated		Total
ALL at March 31, 2016	$	997	$	316	$	199	$	6,181	$	1,510	$	99	$	1,040	$	10,342
Charge-offs		(46)		-		-		(1,951)		(3)		(42)		-		(2,042)
Recoveries		1		-		-		14		106		22		-		143
Provision		71		3		6		1,696		(17)		18		98		1,875
ALL at June 30, 2016	$	1,023	$	319	$	205	$	5,940	$	1,596	$	97	$	1,138	$	10,318
ALL at December 31, 2015	$	989	$	308	$	194	$	5,649	$	1,519	$	102	$	1,325	$	10,086
Charge-offs		(49)		-		-		(1,954)		(66)		(84)		-		(2,153)
Recoveries		33		-		-		14		121		42		-		210
Provision		50		11		11		2,231		22		37		(187)		2,175
ALL at June 30, 2016	$	1,023	$	319	$	205	$	5,940	$	1,596	$	97	$	1,138	$	10,318
ALL at March 31, 2015	$	1,016	$	268	$	249	$	5,137	$	1,353	$	116	$	1,071	$	9,210
Charge-offs		(43)		-		(21)		-		(17)		(26)		-		(107)
Recoveries		1		-		-		14		8		14		-		37
Provision		40		13		(22)		28		96		8		147		310
ALL at June 30, 2015	$	1,014	$	281	$	206	$	5,179	$	1,440	$	112	$	1,218	$	9,450
ALL at December 31, 2014	$	994	$	271	$	214	$	4,978	$	1,515	$	127	$	1,012	$	9,111
Charge-offs		(43)		-		(21)		-		(218)		(78)		-		(360)
Recoveries		3		-		-		14		14		33		-		64
Provision		60		10		13		187		129		30		206		635
ALL at June 30, 2015	$	1,014	$	281	$	206	$	5,179	$	1,440	$	112	$	1,218	$	9,450

The following table presents, by class, loans that were evaluated for the ALL under the specific reserve (individually) and those that were evaluated under the general reserve (collectively) and the amount of the ALL established in each class as of June 30, 2016 and December 31, 2015:

	Residential Real Estate 1-4 Family
			Junior Liens &				Commercial
(Dollars in thousands)	First Liens		Lines of Credit		Construction		Real Estate		Commercial		Consumer		Unallocated		Total
June 30, 2016
Loans evaluated for ALL:
Individually	$	396	$	52	$	491	$	17,082	$	-	$	-	$	-	$	18,021
Collectively		163,141		51,962		7,829		354,704		226,307		4,692		-		808,635
Total	$	163,537	$	52,014	$	8,320	$	371,786	$	226,307	$	4,692	$	-	$	826,656
ALL established for loans evaluated:
Individually	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Collectively		1,023		319		205		5,940		1,596		97		1,138		10,318
ALL at June 30, 2016	$	1,023	$	319	$	205	$	5,940	$	1,596	$	97	$	1,138	$	10,318
December 31, 2015
Loans evaluated for ALL:
Individually	$	930	$	51	$	502	$	14,309	$	230	$	-	$	-	$	16,022
Collectively		160,548		50,862		7,386		326,386		215,712		5,100		-		765,994
Total	$	161,478	$	50,913	$	7,888	$	340,695	$	215,942	$	5,100	$	-	$	782,016
ALL established for loans evaluated:
Individually	$	-	$	-	$	-	$	-	$	9	$	-	$	-	$	9
Collectively		989		308		194		5,649		1,510		102		1,325		10,077
ALL at December 31, 2015	$	989	$	308	$	194	$	5,649	$	1,519	$	102	$	1,325	$	10,086

Impaired Financing Receivables

The following table shows additional information about those loans considered to be impaired at June 30, 2016 and December 31, 2015:

	Impaired Loans
	With No Allowance				With Allowance
(Dollars in thousands)			Unpaid					Unpaid
	Recorded		Principal		Recorded		Principal		Related
June 30, 2016	Investment		Balance		Investment		Balance		Allowance
Residential Real Estate 1-4 Family
First liens	$	921	$	996	$	-	$	-	$	-
Junior liens and lines of credit		63		75		-		-		-
Total		984		1,071		-		-		-
Residential real estate - construction		491		540		-		-		-
Commercial real estate		17,357		19,910		-		-		-
Commercial		25		37		-		-		-
Total	$	18,857	$	21,558	$	-	$	-	$	-

December 31, 2015
Residential Real Estate 1-4 Family
First liens	$	1,523	$	1,725	$	-	$	-	$	-
Junior liens and lines of credit		105		133		-		-		-
Total		1,628		1,858		-		-		-
Residential real estate - construction		502		546		-		-		-
Commercial real estate		14,431		15,007				-		-
Commercial		267		330		9		10		9
Total	$	16,828	$	17,741	$	9	$	10	$	9

The following table shows the average of impaired loans and related interest income for the three and six months ended June 30, 2016 and 2015:

	Three Months Ended				Six Months Ended
	June 30, 2016				June 30, 2016
	Average		Interest		Average		Interest
(Dollars in thousands)	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
Residential Real Estate 1-4 Family
First liens	$	926	$	6	$	998	$	12
Junior liens and lines of credit		63		-		67		-
Total		989		6		1,065		12
Residential real estate - construction		494		-		498		-
Commercial real estate		19,345		117		19,555		239
Commercial		34		-		39		-
Total	$	20,862	$	123	$	21,157	$	251
	Three Months Ended				Six Months Ended
	June 30, 2015				June 30, 2015
	Average		Interest		Average		Interest
(Dollars in thousands)	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
Residential Real Estate 1-4 Family
First liens	$	1,618	$	9	$	1,723	$	16
Junior liens and lines of credit		117		-		131		-
Total		1,735		9		1,854		16
Residential real estate - construction		516		-		723		-
Commercial real estate		21,756		174		21,971		327
Commercial		361		-		1,012		-
Total	$	24,368	$	183	$	25,560	$	343

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
June 30, 2016
Residential Real Estate 1-4 Family
First liens	$	162,601	$	102	$	393	$	14	$	509	$	427	$	163,537
Junior liens and lines of credit		51,764		154		-		33		187		63		52,014
Total		214,365		256		393		47		696		490		215,551
Residential real estate - construction		7,652		117		-		60		177		491		8,320
Commercial real estate		362,157		2,415		96		306		2,817		6,812		371,786
Commercial		225,802		381		53		46		480		25		226,307
Consumer		4,674		18		-		-		18		-		4,692
Total	$	814,650	$	3,187	$	542	$	459	$	4,188	$	7,818	$	826,656

December 31, 2015
Residential Real Estate 1-4 Family
First liens	$	159,998	$	44	$	416	$	214	$	674	$	806	$	161,478
Junior liens and lines of credit		50,541		217		50		-		267		105		50,913
Total		210,539		261		466		214		941		911		212,391
Residential real estate - construction		7,209		177		-		-		177		502		7,888
Commercial real estate		330,953		5,713		196		152		6,061		3,681		340,695
Commercial		215,449		210		5		2		217		276		215,942
Consumer		5,041		55		4		-		59		-		5,100
Total	$	769,191	$	6,416	$	671	$	368	$	7,455	$	5,370	$	782,016

Internal Credit Rating For The Loan Portfolio

	Pass		Special Mention		Substandard		Doubtful
(Dollars in thousands)	(1-5)		(6)		(7)		(8)		Total
June 30, 2016
Residential Real Estate 1-4 Family
First liens	$	160,151	$	2,003	$	1,383	$	-	$	163,537
Junior liens and lines of credit		51,796		28		190		-		52,014
Total		211,947		2,031		1,573		-		215,551
Residential real estate - construction		7,488		-		832		-		8,320
Commercial real estate		352,191		1,758		17,837		-		371,786
Commercial		223,082		1,161		2,064		-		226,307
Consumer		4,692		-		-		-		4,692
Total	$	799,400	$	4,950	$	22,306	$	-	$	826,656

December 31, 2015
Residential Real Estate 1-4 Family
First liens	$	157,514	$	2,122	$	1,842	$	-	$	161,478
Junior liens and lines of credit		50,685		28		200		-		50,913
Total		208,199		2,150		2,042		-		212,391
Residential real estate - construction		7,386		-		502		-		7,888
Commercial real estate		319,985		6,175		14,535		-		340,695
Commercial		213,492		1,978		472		-		215,942
Consumer		5,100		-		-		-		5,100
Total	$	754,162	$	10,303	$	17,551	$	-	$	782,016

Troubled Debt Restructuring Loans

								Troubled Debt Restructurings
								That Have Defaulted on
								Modified Terms in the
(Dollars in thousands)	Troubled Debt Restructurings							Last Twelve Months
	Number of	Recorded						Number of	Recorded
	Contracts	Investment		Performing*		Nonperforming*		Contracts	Investment
June 30, 2016
Residential real estate - construction	1	$	491	$	491	$	-	-	$	-
Residential real estate	4		645		494		151	-		-
Commercial real estate	11		12,351		12,351		-	-		-
Total	16	$	13,487	$	13,336	$	151	-	$	-
December 31, 2015
Residential real estate - construction	1	$	502	$	502	$	-	-	$	-
Residential real estate	4		654		503		151	-		-
Commercial real estate	10		12,125		12,125		-	-		-
Total	15	$	13,281	$	13,130	$	151	-	$	-

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

The following table reports new TDR loans during 2016, concession granted and the recorded investment as of June  30, 2016:

	New During Period
	Number of		Pre-TDR		After-TDR		Recorded
Six Months Ended June 30, 2016	Contracts		Modification		Modification		Investment	Concession
Commercial real estate	1	$	525	$	525	$	515	multiple

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OREO (Tables)

6 Months Ended

Jun. 30, 2016

OREO [Abstract]

Summary Of Changes In Other Real Estate Owned

	June 30
(Dollars in thousands)	2016		2015
Balance at January 1	$	6,451	$	3,666
Additions		23		449
Proceeds from dispositions		(224)		(129)
(Loss) gain on sales, net		(10)		32
Valuation adjustment		(46)		-
Balance at June 30	$	6,194	$	4,018

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Pension (Tables)

6 Months Ended

Jun. 30, 2016

Pension [Abstract]

Schedule Of Net Periodic Pension Costs

	Three Months Ended June 30				Six Months Ended June 30
(Dollars in thousands)	2016		2015		2016		2015
Components of net periodic cost:
Service cost	$	83	$	92	$	164	$	192
Interest cost		180		172		360		350
Expected return on plan assets		(290)		(296)		(583)		(592)
Recognized net actuarial loss		120		123		231		254
Net period cost	$	93	$	91	$	172	$	204

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

6 Months Ended

Jun. 30, 2016

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

Fair Value, By Balance Sheet Grouping

	June 30, 2016
	Carrying		Fair
(Dollars in thousands)	Amount		Value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	41,049	$	41,049	$	41,049	$	-	$	-
Investment securities available for sale		163,557		163,557		240		163,317		-
Restricted stock		436		436		-		436		-
Loans held for sale		487		487		-		487		-
Net loans		816,338		824,266		-		-		824,266
Accrued interest receivable		3,151		3,151		-		3,151		-
Financial liabilities:
Deposits	$	965,554	$	965,439	$	-	$	965,439	$	-
Accrued interest payable		120		120		-		120		-
	December 31, 2015
	Carrying		Fair
(Dollars in thousands)	Amount		Value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	39,166	$	39,166	$	39,166	$	-	$	-
Investment securities available for sale		159,473		159,473		233		159,240		-
Restricted stock		782		782		-		782		-
Loans held for sale		461		461		-		461		-
Net loans		771,930		779,742		-		-		779,742
Accrued interest receivable		3,164		3,164		-		3,164		-
Financial liabilities:
Deposits	$	918,512	$	918,401	$	-	$	918,401	$	-
Accrued interest payable		124		124		-		124		-

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

(Dollars in Thousands	Fair Value at June 30, 2016
Asset  Description	Level 1		Level 2		Level 3		Total
Equity securities	$	240	$	-	$	-	$	240
U.S. Government and Agency securities		-		13,426		-		13,426
Municipal securities		-		70,741		-		70,741
Trust Preferred Securities		-		5,170		-		5,170
Agency mortgage-backed securities		-		72,723		-		72,723
Private-label mortgage-backed securities		-		1,223		-		1,223
Asset-backed securities		-		34		-		34
Total assets	$	240	$	163,317	$	-	$	163,557

(Dollars in Thousands)	Fair Value at December 31, 2015
Asset  Description	Level 1		Level 2		Level 3		Total
Equity securities	$	233	$	-	$	-	$	233
U.S. Government and Agency securities		-		13,836		-		13,836
Municipal securities		-		69,188		-		69,188
Trust Preferred Securities		-		5,289		-		5,289
Agency mortgage-backed securities		-		69,519		-		69,519
Private-label mortgage-backed securities		-		1,372		-		1,372
Asset-backed securities		-		36		-		36
Total assets	$	233	$	159,240	$	-	$	159,473

Schedule Of Fair Value An A Nonrecurring Basis

(Dollars in Thousands)
	Fair Value at June 30, 2016
Asset  Description	Level 1		Level 2		Level 3		Total
Impaired loans (1)	$	-	$	-	$	3,363	$	3,363
Other real estate owned (1)		-		-		225		225
Total assets	$	-	$	-	$	3,588	$	3,588

(Dollars in Thousands)	Fair Value at December 31, 2015
Asset  Description	Level 1		Level 2		Level 3		Total
Premises held-for-sale (1)	$	-	$	-	$	225	$	225
Other real estate owned (1)		-		-		6,128		6,128
Total assets	$	-	$	-	$	6,353	$	6,353

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

Fair Value Inputs, Assets, Quantitative Information

		Quantitative Information about Level 3 Fair Value Measurements
(Dollars in Thousands)		at June 30, 2016
					Range
Asset  Description		Fair Value	Valuation Technique	Unobservable Input	(Weighted Average)
Impaired loans (1)	$	3,363	Appraisal	Appraisal Adjustments (2)	100%  (100%)
				Cost to sell	8%  (8%)
Other real estate owned (1)		225	Appraisal	Cost to sell	8%  (8%)
		at December 31, 2015
Premises held-for-sale (1)	$	225	Appraisal	-	-
Other real estate owned (1)		6,128	Appraisal	Cost to sell	8%  (8%)
(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.

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Financial Derivatives (Tables)

6 Months Ended

Jun. 30, 2016

Financial Derivatives [Abstract]

Schedule Of Effect Of Derivative Instruments On The Statement Of Income

Derivatives in ASC Topic 815 Cash Flow Hedging Relationships
(Dollars in thousands)							Amount of Gain
						Location of	or (Loss)
						Gain or (Loss)	Recognized in
						Recognized in	Income on
			Location of	Amount of Gain		Income on	Derivatives
	Amount of Gain		Gain or (Loss)	or (Loss)		Derivative (Ineffective	(Ineffective Portion
	or (Loss)		Reclassified from	Reclassified from		Portion and Amount	and Amount
	Recognized in OCI		Accumulated OCI	Accumulated OCI		Excluded from	Excluded from
	net of tax on Derivative		into Income	into Income		Effectiveness	Effectiveness
Date / Type	(Effective Portion)		(Effective Portion)	(Effective Portion)		Testing)	Testing)
Interest rate contracts
Three months ended:
June 30, 2016	$	-	Interest Expense	$	-	Other income (expense)	$	-
June 30, 2015	$	64	Interest Expense	$	(64)	Other income (expense)	$	-
Six months ended:
June 30, 2016	$	-	Interest Expense	$	-	Other income (expense)	$	-
June 30, 2015	$	126	Interest Expense	$	(160)	Other income (expense)	$	-

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Capital Ratios (Tables)

6 Months Ended

Jun. 30, 2016

Capital Ratios [Abstract]

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

			Regulatory Ratios
			Adequately	Well
			Capitalized	Capitalized
(Dollars in thousands)	June 30, 2016	December 31, 2015	Minimum	Minimum
Common Equity Tier 1 Risk-based Capital Ratio (1)
Franklin Financial Services Corporation	14.64%	14.77%	5.125%	N/A
Farmers & Merchants Trust Company	14.59%	14.76%	5.125%	6.50%
Tier 1 Risk-based Capital Ratio (2)
Franklin Financial Services Corporation	14.64%	14.77%	6.625%	N/A
Farmers & Merchants Trust Company	14.59%	14.76%	6.625%	8.00%
Total Risk-based Capital Ratio (3)
Franklin Financial Services Corporation	15.90%	16.03%	8.625%	N/A
Farmers & Merchants Trust Company	15.85%	16.02%	8.625%	10.00%
Tier 1 Leverage Ratio (4)
Franklin Financial Services Corporation	10.20%	10.38%	4.000%	N/A
Farmers & Merchants Trust Company	10.17%	10.37%	4.000%	5.00%
(1) Common equity Tier 1 capital/ total risk-weighted assets (2) Tier 1 capital / total risk-weighted assets
(3) Total risk-based capital / total risk-weighted assets, (4) Tier 1 capital / average quarterly assets

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Basis Of Presentation (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Basis Of Presentation [Abstract]
Weighted average shares outstanding (basic)	4,294	4,234	4,289	4,228
Impact of common stock equivalents	4	11	3	8
Weighted average shares outstanding (diluted)	4,298	4,245	4,292	4,236
Anti-dilutive options excluded from calculation	43	13	44	28
Net income	$ 1,561	$ 2,474	$ 4,288	$ 5,358
Basic earnings per share	$ 0.36	$ 0.58	$ 1.00	$ 1.27
Diluted earnings per share	$ 0.36	$ 0.58	$ 1.00	$ 1.26

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Accumulated Other Comprehensive Loss (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Accumulated Other Comprehensive Loss [Abstract]
Net unrealized gains on securities	$ 3,206	$ 1,138
Tax effect	(1,089)	(387)
Net of tax amount	2,117	751
Accumulated pension adjustment	(6,777)	(6,777)
Tax effect	2,304	2,304
Net of tax amount	(4,473)	(4,473)
Total accumulated other comprehensive loss	$ (2,356)	$ (3,722)

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Guarantees (Details) - USD ($) $ in Millions	6 Months Ended
	Jun. 30, 2016	Dec. 31, 2015
Guarantor Obligations [Line Items]
Letters of credit, Expiration period	1 year
Financial Standby Letter of Credit [Member]
Guarantor Obligations [Line Items]
Guarantees, carrying amount	$ 29.4	$ 25.9

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Investments (Narrative) (Details) $ / shares in Units, $ in Thousands	3 Months Ended	6 Months Ended
	Mar. 31, 2016 USD ($)	Jun. 30, 2016 USD ($) security $ / shares	Jun. 30, 2015 USD ($)	Dec. 31, 2015 USD ($) security	Dec. 31, 2014 USD ($)
Schedule of Available-for-sale Securities [Line Items]
Restricted stock		$ 436		$ 782
Impairment write-down on securities recognized in earnings		$ 20	$ 20
Number of temporarily impaired securities | security		37		79
Securities pledged as collateral		$ 69,400		$ 79,600
Available-for-sale Securities		163,557		159,473
Gross Unrealized Losses		900		1,310
Cumulative OTTI Charges		575	$ 555	555	$ 535
Fair value of temporarily impaired securities		$ 21,004		$ 47,345
Federal Home Loan Bank of Pittsburgh [Member]
Schedule of Available-for-sale Securities [Line Items]
Restricted stock per share | $ / shares		$ 100
Non-Federal Home Loan Bank Of Pittsburgh [Member]
Schedule of Available-for-sale Securities [Line Items]
Restricted stock		$ 30
Municipal Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Number of temporarily impaired securities | security		3		15
Available-for-sale Securities		$ 70,741		$ 69,188
Gross Unrealized Gain (Loss)		43
Gross Unrealized Losses		43		218
Fair value of temporarily impaired securities		$ 2,328		$ 10,591
Trust Preferred Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Number of temporarily impaired securities | security		7		7
Available-for-sale Securities		$ 5,170		$ 5,289
Gross Unrealized Gain (Loss)		(798)
Gross Unrealized Losses		798		669
Fair value of temporarily impaired securities		$ 5,170		$ 5,289
Private-Label Mortgage-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Impairment write-down on securities recognized in earnings	$ 20
Number of temporarily impaired securities | security		2		1
Available-for-sale Securities		$ 1,223		$ 1,372
Gross Unrealized Gain (Loss)		22
Gross Unrealized Losses		5		2
Cumulative OTTI Charges		575
Fair value of temporarily impaired securities		$ 742		$ 246
Period of determining credit related loss, in days		60 days

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Investments (Unrealized Gain (loss) On Investments) (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	$ 160,351	$ 158,335
Gross Unrealized Gains	4,106	2,448
Gross Unrealized Losses	(900)	(1,310)
Available for sale	163,557	159,473
Equity Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	164	164
Gross Unrealized Gains	76	69
Available for sale	240	233
U.S. Government And Agency Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	13,104	13,705
Gross Unrealized Gains	339	164
Gross Unrealized Losses	(17)	(33)
Available for sale	13,426	13,836
Municipal Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	68,430	67,851
Gross Unrealized Gains	2,354	1,555
Gross Unrealized Losses	(43)	(218)
Available for sale	70,741	69,188
Trust Preferred Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	5,968	5,958
Gross Unrealized Losses	(798)	(669)
Available for sale	5,170	5,289
Agency Mortgage-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	71,448	69,284
Gross Unrealized Gains	1,310	621
Gross Unrealized Losses	(35)	(386)
Available for sale	72,723	69,519
Private-Label Mortgage-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	1,201	1,335
Gross Unrealized Gains	27	39
Gross Unrealized Losses	(5)	(2)
Available for sale	1,223	1,372
Asset-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	36	38
Gross Unrealized Losses	(2)	(2)
Available for sale	$ 34	$ 36

XML

Investments (Amortized Cost And Fair Value Of Debt Securities, By Contractual Maturity) (Details) $ in Thousands	Jun. 30, 2016 USD ($)
Investments [Abstract]
Due in one year or less, Amortized cost	$ 2,618
Due after one year through five years, Amortized cost	11,175
Due after five years through ten years, Amortized cost	28,597
Due after ten years, Amortized cost	45,148
Amortized Cost Contractual Maturities Subtotal	87,538
Mortgage-backed securities, Amortized cost	72,649
Available-for-sale Securities, Debt Maturities, Amortized Cost Basis	160,187
Due in one year or less, Fair value	2,641
Due after one year through five years, Fair value	11,516
Due after five years through ten years, Fair value	29,698
Due after ten years, Fair value	45,516
Fair Value Contractual Maturities Subtotal	89,371
Mortgage-backed securities, Fair value	73,946
Available-for-sale Securities, Debt Securities, Fair Value	$ 163,317

XML

Investments (Composition Of Net Realized Securities Gains (Details) - USD ($) $ in Thousands	3 Months Ended	6 Months Ended
	Jun. 30, 2016	Jun. 30, 2016	Jun. 30, 2015
Investments [Abstract]
Gross gains realized	$ 2	$ 3	$ 8
Conversion gains			728
Net gains realized	$ 2	$ 3	$ 736

XML

Investments (Schedule Of Trust Preferred Securities) (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2016	Dec. 31, 2015
Schedule of Available-for-sale Securities [Line Items]
Amortized cost	$ 160,351	$ 158,335
Fair Value	163,557	159,473
Trust Preferred Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized cost	5,968	5,958
Fair Value	5,170	$ 5,289
Unrealized Gain (Loss)	$ (798)
Lowest Credit Rating Assigned: Standard & Poor's, BB Rating [Member] | Trust Preferred Securities: Huntington Cap Trust [Member]
Schedule of Available-for-sale Securities [Line Items]
Maturity	Feb. 01, 2027
Single issuer or pooled	Single
Class	Preferred Stock
Amortized cost	$ 944
Fair Value	795
Unrealized Gain (Loss)	$ (149)
Lowest Credit Rating Assigned: Standard & Poor's, BB Rating [Member] | Trust Preferred Securities: Huntington Cap Trust II [Member]
Schedule of Available-for-sale Securities [Line Items]
Maturity	Jun. 15, 2028
Single issuer or pooled	Single
Class	Preferred Stock
Amortized cost	$ 897
Fair Value	767
Unrealized Gain (Loss)	$ (130)
Lowest Credit Rating Assigned: Standard & Poor's, BBB- Rating [Member] | Trust Preferred Securities: Chase Cap VI JPM [Member]
Schedule of Available-for-sale Securities [Line Items]
Maturity	Aug. 01, 2028
Single issuer or pooled	Single
Class	Preferred Stock
Amortized cost	$ 965
Fair Value	832
Unrealized Gain (Loss)	$ (133)
Lowest Credit Rating Assigned: Standard & Poor's, BB+ Rating [Member] | Trust Preferred Securities: BankAmerica Cap III [Member]
Schedule of Available-for-sale Securities [Line Items]
Maturity	Jan. 15, 2027
Single issuer or pooled	Single
Class	Preferred Stock
Amortized cost	$ 966
Fair Value	832
Unrealized Gain (Loss)	$ (134)
Lowest Credit Rating Assigned: Standard & Poor's, BB+ Rating [Member] | Trust Preferred Securities: Fleet Cap Tr V [Member]
Schedule of Available-for-sale Securities [Line Items]
Maturity	Dec. 18, 2028
Single issuer or pooled	Single
Class	Preferred Stock
Amortized cost	$ 976
Fair Value	842
Unrealized Gain (Loss)	$ (134)
Lowest Credit Rating Assigned: Standard & Poor's, BBB+ Rating [Member] | Trust Preferred Securities: Corestates Captl Tr II [Member]
Schedule of Available-for-sale Securities [Line Items]
Maturity	Feb. 15, 2027
Single issuer or pooled	Single
Class	Preferred Stock
Amortized cost	$ 941
Fair Value	848
Unrealized Gain (Loss)	$ (93)
Lowest Credit Rating Assigned: Standard & Poor's, BBB Rating [Member] | Trust Preferred Securities: Wachovia Cap Trust II [Member]
Schedule of Available-for-sale Securities [Line Items]
Maturity	Jan. 15, 2027
Single issuer or pooled	Single
Class	Preferred Stock
Amortized cost	$ 279
Fair Value	254
Unrealized Gain (Loss)	$ (25)

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Investments (Private Label Mortgage Backed Securities) (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2016	Dec. 31, 2015	Jun. 30, 2015	Dec. 31, 2014
Schedule of Available-for-sale Securities [Line Items]
Amortized cost	$ 160,351	$ 158,335
Available for sale	163,557	159,473
Cumulative OTTI Charges	575	555	$ 555	$ 535
Private-Label Mortgage-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized cost	1,201	1,335
Available for sale	1,223	$ 1,372
Unrealized Gain (Loss)	22
Cumulative OTTI Charges	$ 575
Lowest Credit Rating Assigned: Standard & Poor's, CCC Rating [Member] | MALT2004-6 7A1 [Member]
Schedule of Available-for-sale Securities [Line Items]
Origination Date	Jun. 01, 2004
Amortized cost	$ 322
Available for sale	319
Unrealized Gain (Loss)	$ (3)
Collateral Type	ALT A
Credit Support %	15.07%
Lowest Credit Rating Assigned: Standard & Poor's, CC Rating [Member] | RALI2005-QS2 A1 [Member]
Schedule of Available-for-sale Securities [Line Items]
Origination Date	Feb. 01, 2005
Amortized cost	$ 176
Available for sale	187
Unrealized Gain (Loss)	$ 11
Collateral Type	ALT A
Credit Support %	4.83%
Cumulative OTTI Charges	$ 10
Lowest Credit Rating Assigned: Standard & Poor's, D Rating [Member] | RALI2006-QS4 A2 [Member]
Schedule of Available-for-sale Securities [Line Items]
Origination Date	Apr. 01, 2006
Amortized cost	$ 425
Available for sale	423
Unrealized Gain (Loss)	$ (2)
Collateral Type	ALT A
Cumulative OTTI Charges	$ 323
Lowest Credit Rating Assigned: Standard & Poor's, D Rating [Member] | GSR 2006-5F 2A1 [Member]
Schedule of Available-for-sale Securities [Line Items]
Origination Date	May 01, 2006
Amortized cost	$ 53
Available for sale	60
Unrealized Gain (Loss)	$ 7
Collateral Type	Prime
Cumulative OTTI Charges	$ 15
Lowest Credit Rating Assigned: Standard & Poor's, D Rating [Member] | RALI2006-QS8 A1 [Member]
Schedule of Available-for-sale Securities [Line Items]
Origination Date	Jul. 28, 2006
Amortized cost	$ 225
Available for sale	234
Unrealized Gain (Loss)	$ 9
Collateral Type	ALT A
Cumulative OTTI Charges	$ 227

XML

Investments (Schedule Of Unrealized Loss On Investments) (Details) $ in Thousands	Jun. 30, 2016 USD ($) security	Dec. 31, 2015 USD ($) security
Schedule of Available-for-sale Securities [Line Items]
Less than 12 months: Fair Value	$ 3,537	$ 25,262
Less than 12 months: Unrealized Losses	$ (5)	$ (251)
Less than 12 months: Count | security	4	40
12 months or more: Fair Value	$ 17,467	$ 22,083
12 months or more: Unrealized Losses	$ (895)	$ (1,059)
12 months or more: Count | security	33	39
Fair Value	$ 21,004	$ 47,345
Unrealized Losses	$ (900)	$ (1,310)
Count | security	37	79
U.S. Government And Agency Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Less than 12 months: Fair Value		$ 479
Less than 12 months: Unrealized Losses		$ (1)
Less than 12 months: Count | security		3
12 months or more: Fair Value	$ 3,612	$ 4,364
12 months or more: Unrealized Losses	$ (17)	$ (32)
12 months or more: Count | security	10	10
Fair Value	$ 3,612	$ 4,843
Unrealized Losses	$ (17)	$ (33)
Count | security	10	13
Municipal Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Less than 12 months: Fair Value		$ 5,806
Less than 12 months: Unrealized Losses		$ (35)
Less than 12 months: Count | security		8
12 months or more: Fair Value	$ 2,328	$ 4,785
12 months or more: Unrealized Losses	$ (43)	$ (183)
12 months or more: Count | security	3	7
Fair Value	$ 2,328	$ 10,591
Unrealized Losses	$ (43)	$ (218)
Count | security	3	15
Trust Preferred Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
12 months or more: Fair Value	$ 5,170	$ 5,289
12 months or more: Unrealized Losses	$ (798)	$ (669)
12 months or more: Count | security	7	7
Fair Value	$ 5,170	$ 5,289
Unrealized Losses	$ (798)	$ (669)
Count | security	7	7
Agency Mortgage-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Less than 12 months: Fair Value	$ 3,218	$ 18,977
Less than 12 months: Unrealized Losses	$ (2)	$ (215)
Less than 12 months: Count | security	3	29
12 months or more: Fair Value	$ 5,929	$ 7,394
12 months or more: Unrealized Losses	$ (33)	$ (171)
12 months or more: Count | security	11	13
Fair Value	$ 9,147	$ 26,371
Unrealized Losses	$ (35)	$ (386)
Count | security	14	42
Private-Label Mortgage-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Less than 12 months: Fair Value	$ 319
Less than 12 months: Unrealized Losses	$ (3)
Less than 12 months: Count | security	1
12 months or more: Fair Value	$ 423	$ 246
12 months or more: Unrealized Losses	$ (2)	$ (2)
12 months or more: Count | security	1	1
Fair Value	$ 742	$ 246
Unrealized Losses	$ (5)	$ (2)
Count | security	2	1
Asset-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
12 months or more: Fair Value	$ 5	$ 5
12 months or more: Unrealized Losses	$ (2)	$ (2)
12 months or more: Count | security	1	1
Fair Value	$ 5	$ 5
Unrealized Losses	$ (2)	$ (2)
Count | security	1	1

XML

Investments (Other Than Temporary Impairment, Credit Losses Recognized In Earnings) (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015
Investments [Abstract]
Balance of cumulative credit-related OTTI at January 1	$ 555	$ 535
Additions for credit-related OTTI not previously recognized	20	20
Additions 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
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 June 30	$ 575	$ 555

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Loans (Schedule Of Loans Outstanding) (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2015	Jun. 30, 2015	Mar. 31, 2015	Dec. 31, 2014
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	$ 826,656		$ 782,016
Less: Allowance for loan losses	(10,318)	$ (10,342)	(10,086)	$ (9,450)	$ (9,210)	$ (9,111)
Net Loans	816,338		771,930
Change Amount	$ 44,640
Change %	5.70%
Allowance for loan losses, Change Amount	$ (232)
Allowance for loan losses, Change %	2.30%
Net Loans, Change Amount	$ 44,408
Net Loans, Change %	5.80%
Net unamortized deferred loan fees	$ 225		436
Loans pledged as collateral for borrowings and commitments from: FHLB	583,567		643,449
Loans pledged as collateral for borrowings and commitments from :Federal Reserve Bank	42,060		45,111
Total loans pledged as collateral	625,627		688,560
Residential Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	215,551		212,391
Change Amount	$ 3,160
Change %	1.50%
Residential Real Estate - Construction [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	$ 8,320		7,888
Less: Allowance for loan losses	(205)	(199)	(194)	(206)	(249)	(214)
Change Amount	$ 432
Change %	5.50%
Commercial Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	$ 371,786		340,695
Less: Allowance for loan losses	(5,940)	(6,181)	(5,649)	(5,179)	(5,137)	(4,978)
Change Amount	$ 31,091
Change %	9.10%
Commercial [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	$ 226,307		215,942
Less: Allowance for loan losses	(1,596)	(1,510)	(1,519)	(1,440)	(1,353)	(1,515)
Change Amount	$ 10,365
Change %	4.80%
Total Commercial [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	$ 598,093		556,637
Change Amount	$ 41,456
Change %	7.40%
Consumer [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	$ 4,692		5,100
Less: Allowance for loan losses	(97)	(99)	(102)	(112)	(116)	(127)
Change Amount	$ (408)
Change %	(8.00%)
Consumer First Liens [Member] | Residential Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	$ 101,113		103,698
Change Amount	$ (2,585)
Change %	(2.50%)
Consumer Junior Liens And Lines Of Credit [Member] | Residential Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	$ 46,106		44,996
Change Amount	$ 1,110
Change %	2.50%
Consumer [Member] | Residential Real Estate - Construction [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	$ 1,067		545
Change Amount	$ 522
Change %	95.80%
Commercial Junior Liens And Lines Of Credit [Member] | Residential Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	$ 5,908		5,917
Change Amount	$ (9)
Change %	(0.20%)
Commercial [Member] | Residential Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	$ 62,424		57,780
Change Amount	$ 4,644
Change %	8.00%
Commercial [Member] | Residential Real Estate - Construction [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	$ 7,253		7,343
Change Amount	$ (90)
Change %	(1.20%)
First Liens [Member] | Residential Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	$ 163,537		161,478
Less: Allowance for loan losses	(1,023)	$ (997)	(989)	$ (1,014)	$ (1,016)	$ (994)
Change Amount	$ 2,059
Change %	1.30%
Junior Lines And Lines Of Credit [Member] | Residential Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	$ 52,014		$ 50,913
Change Amount	$ 1,101
Change %	2.20%

XML

Loan Quality (Allowance For Loan Losses, By Loan Segment) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Dec. 31, 2015
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance, Beginning Balance	$ 10,342	$ 9,210	$ 10,086	$ 9,111
Charge-offs	(2,042)	(107)	(2,153)	(360)
Recoveries	143	37	210	64
Provision	1,875	310	2,175	635
Allowance, Ending Balance	10,318	9,450	10,318	9,450
Loans evaluated for allowance individually					$ 18,021	$ 16,022
Loans evaluated for allowance collectively					808,635	765,994
Total Loans					826,656	782,016
Allowance established for loans evaluated individually						9
Allowance established for loan evaluated collectively					10,318	10,077
Total Allowance	10,342	9,210	10,086	9,111	10,318	10,086
Residential Real Estate [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Total Loans					215,551	212,391
Residential Real Estate - Construction [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance, Beginning Balance	199	249	194	214
Charge-offs		(21)		(21)
Provision	6	(22)	11	13
Allowance, Ending Balance	205	206	205	206
Loans evaluated for allowance individually					491	502
Loans evaluated for allowance collectively					7,829	7,386
Total Loans					8,320	7,888
Allowance established for loan evaluated collectively					205	194
Total Allowance	199	249	194	214	205	194
Commercial Real Estate [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance, Beginning Balance	6,181	5,137	5,649	4,978
Charge-offs	(1,951)		(1,954)
Recoveries	14	14	14	14
Provision	1,696	28	2,231	187
Allowance, Ending Balance	5,940	5,179	5,940	5,179
Loans evaluated for allowance individually					17,082	14,309
Loans evaluated for allowance collectively					354,704	326,386
Total Loans					371,786	340,695
Allowance established for loan evaluated collectively					5,940	5,649
Total Allowance	6,181	5,137	5,649	4,978	5,940	5,649
Commercial [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance, Beginning Balance	1,510	1,353	1,519	1,515
Charge-offs	(3)	(17)	(66)	(218)
Recoveries	106	8	121	14
Provision	(17)	96	22	129
Allowance, Ending Balance	1,596	1,440	1,596	1,440
Loans evaluated for allowance individually						230
Loans evaluated for allowance collectively					226,307	215,712
Total Loans					226,307	215,942
Allowance established for loans evaluated individually						9
Allowance established for loan evaluated collectively					1,596	1,510
Total Allowance	1,510	1,353	1,519	1,515	1,596	1,519
Consumer [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance, Beginning Balance	99	116	102	127
Charge-offs	(42)	(26)	(84)	(78)
Recoveries	22	14	42	33
Provision	18	8	37	30
Allowance, Ending Balance	97	112	97	112
Loans evaluated for allowance collectively					4,692	5,100
Total Loans					4,692	5,100
Allowance established for loan evaluated collectively					97	102
Total Allowance	99	116	102	127	97	102
Unallocated [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance, Beginning Balance	1,040	1,071	1,325	1,012
Provision	98	147	(187)	206
Allowance, Ending Balance	1,138	1,218	1,138	1,218
Allowance established for loan evaluated collectively					1,138	1,325
Total Allowance	1,040	1,071	1,325	1,012	1,138	1,325
First Liens [Member] | Residential Real Estate [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance, Beginning Balance	997	1,016	989	994
Charge-offs	(46)	(43)	(49)	(43)
Recoveries	1	1	33	3
Provision	71	40	50	60
Allowance, Ending Balance	1,023	1,014	1,023	1,014
Loans evaluated for allowance individually					396	930
Loans evaluated for allowance collectively					163,141	160,548
Total Loans					163,537	161,478
Allowance established for loan evaluated collectively					1,023	989
Total Allowance	997	1,016	989	994	1,023	989
Junior Liens & Lines Of Credit [Member] | Residential Real Estate [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance, Beginning Balance	316	268	308	271
Provision	3	13	11	10
Allowance, Ending Balance	319	281	319	281
Loans evaluated for allowance individually					52	51
Loans evaluated for allowance collectively					51,962	50,862
Total Loans					52,014	50,913
Allowance established for loan evaluated collectively					319	308
Total Allowance	$ 316	$ 268	$ 308	$ 271	$ 319	$ 308

XML

Loan Quality (Impaired Financing Receivables) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015	Dec. 31, 2015
Financing Receivable, Impaired [Line Items]
Recorded Investment With No Allowance	$ 18,857		$ 18,857		$ 16,828
Unpaid Principal Balance With No Allowance	21,558		21,558		17,741
Recorded Investment With Allowance					9
Unpaid Principal Balance With Allowance					10
Related Allowance					9
Average Recorded Investment	20,862	$ 24,368	21,157	$ 25,560
Interest Income Recognized	123	183	251	343
Residential Real Estate [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment With No Allowance	984		984		1,628
Unpaid Principal Balance With No Allowance	1,071		1,071		1,858
Average Recorded Investment	989	1,735	1,065	1,854
Interest Income Recognized	6	9	12	16
Residential Real Estate [Member] | First Liens [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment With No Allowance	921		921		1,523
Unpaid Principal Balance With No Allowance	996		996		1,725
Average Recorded Investment	926	1,618	998	1,723
Interest Income Recognized	6	9	12	16
Residential Real Estate [Member] | Junior Liens & Lines Of Credit [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment With No Allowance	63		63		105
Unpaid Principal Balance With No Allowance	75		75		133
Average Recorded Investment	63	117	67	131
Interest Income Recognized
Residential Real Estate - Construction [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment With No Allowance	491		491		502
Unpaid Principal Balance With No Allowance	540		540		546
Average Recorded Investment	494	516	498	723
Interest Income Recognized
Commercial Real Estate [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment With No Allowance	17,357		17,357		14,431
Unpaid Principal Balance With No Allowance	19,910		19,910		15,007
Average Recorded Investment	19,345	21,756	19,555	21,971
Interest Income Recognized	117	174	239	327
Commercial [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment With No Allowance	25		25		267
Unpaid Principal Balance With No Allowance	37		37		330
Recorded Investment With Allowance					9
Unpaid Principal Balance With Allowance					10
Related Allowance					$ 9
Average Recorded Investment	$ 34	361	$ 39	1,012
Interest Income Recognized

XML

Loan Quality (Aging Of Payments Of The Loan Portfolio) (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	$ 814,650	$ 769,191
Loans Past Due and Still Accruing	4,188	7,455
Non-accrual loans	7,818	5,370
Total Loans	826,656	782,016
Financing Receivables, 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans Past Due and Still Accruing	3,187	6,416
Financing Receivables, 60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans Past Due and Still Accruing	542	671
Financing Receivables, 90 Days+ Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans Past Due and Still Accruing	459	368
Residential Real Estate [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	214,365	210,539
Loans Past Due and Still Accruing	696	941
Non-accrual loans	490	911
Total Loans	215,551	212,391
Residential Real Estate [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans Past Due and Still Accruing	256	261
Residential Real Estate [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans Past Due and Still Accruing	393	466
Residential Real Estate [Member] | Financing Receivables, 90 Days+ Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans Past Due and Still Accruing	47	214
Residential Real Estate [Member] | First Liens [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	162,601	159,998
Loans Past Due and Still Accruing	509	674
Non-accrual loans	427	806
Total Loans	163,537	161,478
Residential Real Estate [Member] | First Liens [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans Past Due and Still Accruing	102	44
Residential Real Estate [Member] | First Liens [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans Past Due and Still Accruing	393	416
Residential Real Estate [Member] | First Liens [Member] | Financing Receivables, 90 Days+ Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans Past Due and Still Accruing	14	214
Residential Real Estate [Member] | Junior Liens & Lines Of Credit [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	51,764	50,541
Loans Past Due and Still Accruing	187	267
Non-accrual loans	63	105
Total Loans	52,014	50,913
Residential Real Estate [Member] | Junior Liens & Lines Of Credit [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans Past Due and Still Accruing	154	217
Residential Real Estate [Member] | Junior Liens & Lines Of Credit [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans Past Due and Still Accruing		50
Residential Real Estate [Member] | Junior Liens & Lines Of Credit [Member] | Financing Receivables, 90 Days+ Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans Past Due and Still Accruing	33
Residential Real Estate - Construction [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	7,652	7,209
Loans Past Due and Still Accruing	177	177
Non-accrual loans	491	502
Total Loans	8,320	7,888
Residential Real Estate - Construction [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans Past Due and Still Accruing	117	177
Residential Real Estate - Construction [Member] | Financing Receivables, 90 Days+ Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans Past Due and Still Accruing	60
Commercial Real Estate [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	362,157	330,953
Loans Past Due and Still Accruing	2,817	6,061
Non-accrual loans	6,812	3,681
Total Loans	371,786	340,695
Commercial Real Estate [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans Past Due and Still Accruing	2,415	5,713
Commercial Real Estate [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans Past Due and Still Accruing	96	196
Commercial Real Estate [Member] | Financing Receivables, 90 Days+ Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans Past Due and Still Accruing	306	152
Commercial [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	225,802	215,449
Loans Past Due and Still Accruing	480	217
Non-accrual loans	25	276
Total Loans	226,307	215,942
Commercial [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans Past Due and Still Accruing	381	210
Commercial [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans Past Due and Still Accruing	53	5
Commercial [Member] | Financing Receivables, 90 Days+ Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans Past Due and Still Accruing	46	2
Consumer [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	4,674	5,041
Loans Past Due and Still Accruing	18	59
Total Loans	4,692	5,100
Consumer [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans Past Due and Still Accruing	$ 18	55
Consumer [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans Past Due and Still Accruing		$ 4

XML

Loan Quality (Internal Credit Rating For The Loan Portfolio) (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	$ 826,656	$ 782,016
Pass [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	799,400	754,162
Special Mention [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	4,950	10,303
Substandard [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	22,306	17,551
Doubtful [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount
Residential Real Estate [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	215,551	212,391
Residential Real Estate [Member] | Pass [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	211,947	208,199
Residential Real Estate [Member] | Special Mention [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	2,031	2,150
Residential Real Estate [Member] | Substandard [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	1,573	2,042
Residential Real Estate [Member] | Doubtful [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount
Residential Real Estate [Member] | First Liens [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	163,537	161,478
Residential Real Estate [Member] | First Liens [Member] | Pass [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	160,151	157,514
Residential Real Estate [Member] | First Liens [Member] | Special Mention [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	2,003	2,122
Residential Real Estate [Member] | First Liens [Member] | Substandard [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	1,383	1,842
Residential Real Estate [Member] | First Liens [Member] | Doubtful [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount
Residential Real Estate [Member] | Junior Liens & Lines Of Credit [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	52,014	50,913
Residential Real Estate [Member] | Junior Liens & Lines Of Credit [Member] | Pass [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	51,796	50,685
Residential Real Estate [Member] | Junior Liens & Lines Of Credit [Member] | Special Mention [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	28	28
Residential Real Estate [Member] | Junior Liens & Lines Of Credit [Member] | Substandard [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	190	200
Residential Real Estate [Member] | Junior Liens & Lines Of Credit [Member] | Doubtful [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount
Residential Real Estate - Construction [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	8,320	7,888
Residential Real Estate - Construction [Member] | Pass [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	7,488	7,386
Residential Real Estate - Construction [Member] | Substandard [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	832	502
Residential Real Estate - Construction [Member] | Doubtful [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount
Commercial Real Estate [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	371,786	340,695
Commercial Real Estate [Member] | Pass [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	352,191	319,985
Commercial Real Estate [Member] | Special Mention [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	1,758	6,175
Commercial Real Estate [Member] | Substandard [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	17,837	14,535
Commercial Real Estate [Member] | Doubtful [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount
Commercial [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	226,307	215,942
Commercial [Member] | Pass [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	223,082	213,492
Commercial [Member] | Special Mention [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	1,161	1,978
Commercial [Member] | Substandard [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	2,064	472
Commercial [Member] | Doubtful [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount
Consumer [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	4,692	5,100
Consumer [Member] | Pass [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	4,692	5,100
Consumer [Member] | Doubtful [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount

XML

Loan Quality (Troubled Debt Restructuring Loans) (Details) $ in Thousands		6 Months Ended
		Jun. 30, 2016 USD ($) contract	Jun. 30, 2015 contract	Dec. 31, 2015 USD ($) contract
Financing Receivable, Modifications [Line Items]
Troubled Debt Restructurings: Number of Contracts | contract		16		15
Troubled Debt Restructurings: Recorded Investment		$ 13,487		$ 13,281
Troubled Debt Restructurings That Have Defaulted on Modified Terms YTD: Number of Contracts | contract
Troubled Debt Restructurings That Have Defaulted on Modified Terms YTD: Recorded Investment
Troubled Debt Restructurings, New During Period, Number of Contracts | contract			0
Performing [Member]
Financing Receivable, Modifications [Line Items]
Troubled Debt Restructurings: Recorded Investment	[1]	13,336		13,130
Nonperforming [Member]
Financing Receivable, Modifications [Line Items]
Troubled Debt Restructurings: Recorded Investment	[1]	$ 151		$ 151
Residential Real Estate - Construction [Member]
Financing Receivable, Modifications [Line Items]
Troubled Debt Restructurings: Number of Contracts | contract		1		1
Troubled Debt Restructurings: Recorded Investment		$ 491		$ 502
Troubled Debt Restructurings That Have Defaulted on Modified Terms YTD: Number of Contracts | contract
Troubled Debt Restructurings That Have Defaulted on Modified Terms YTD: Recorded Investment
Residential Real Estate - Construction [Member] | Performing [Member]
Financing Receivable, Modifications [Line Items]
Troubled Debt Restructurings: Recorded Investment	[1]	$ 491		$ 502
Residential Real Estate [Member]
Financing Receivable, Modifications [Line Items]
Troubled Debt Restructurings: Number of Contracts | contract		4		4
Troubled Debt Restructurings: Recorded Investment		$ 645		$ 654
Troubled Debt Restructurings That Have Defaulted on Modified Terms YTD: Number of Contracts | contract
Troubled Debt Restructurings That Have Defaulted on Modified Terms YTD: Recorded Investment
Residential Real Estate [Member] | Performing [Member]
Financing Receivable, Modifications [Line Items]
Troubled Debt Restructurings: Recorded Investment	[1]	494		503
Residential Real Estate [Member] | Nonperforming [Member]
Financing Receivable, Modifications [Line Items]
Troubled Debt Restructurings: Recorded Investment	[1]	$ 151		$ 151
Commercial Real Estate [Member]
Financing Receivable, Modifications [Line Items]
Troubled Debt Restructurings: Number of Contracts | contract		11		10
Troubled Debt Restructurings: Recorded Investment		$ 12,351		$ 12,125
Troubled Debt Restructurings That Have Defaulted on Modified Terms YTD: Number of Contracts | contract
Troubled Debt Restructurings That Have Defaulted on Modified Terms YTD: Recorded Investment
New During Period, Number of Contracts | contract		1
New During Period, Pre-TDR Modification		$ 525
New During Period, After-TDR Modification		525
New During Period, Recorded Investment		515
Commercial Real Estate [Member] | Performing [Member]
Financing Receivable, Modifications [Line Items]
Troubled Debt Restructurings: Recorded Investment	[1]	$ 12,351		$ 12,125

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

XML

OREO (Details) - USD ($) $ in Thousands	3 Months Ended
	Jun. 30, 2016	Jun. 30, 2015
OREO [Abstract]
Additions	$ 23	$ 449
Proceeds from dispositions	(224)	(129)
(Loss) gain on sales, net	(10)	32
Valuation adjustment	(46)
Balance at the end of the period	$ 6,194	$ 4,018

XML

Pension (Narrative) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015	Dec. 31, 2015
Pension [Abstract]
Expected pension expense			$ 809
Pension Contributions			0
Pension settlement expense			450
Pension expense	$ 93	$ 91	$ 172	$ 204	$ 387

XML

Pension (Schedule Of Net Periodic Pension Costs) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015	Dec. 31, 2015
Pension [Abstract]
Service cost	$ 83	$ 92	$ 164	$ 192
Interest cost	180	172	360	350
Expected return on plan assets	(290)	(296)	(583)	(592)
Recognized net actuarial loss	120	123	231	254
Net periodic pension cost	$ 93	$ 91	$ 172	$ 204	$ 387

XML

Fair Value Measurements And Fair Values Of Financial Instruments (Narrative) (Details)	Jun. 30, 2016 USD ($)
Fair Value Measurements And Fair Values Of Financial Instruments [Abstract]
Liabilities, nonrecurring basis	$ 0
Assets, Level 1 to Level 2 Transfers	0
Liabilities, Level 1 to Level 2 Transfers	$ 0

XML

Fair Value Measurements And Fair Values Of Financial Instruments (Fair Value, By Balance Sheet Grouping) (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Investment securities available for sale, at fair value	$ 163,557	$ 159,473
Carrying Amount [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and cash equivalents	41,049	39,166
Investment securities available for sale, at fair value	163,557	159,473
Restricted stock	436	782
Loans held for sale	487	461
Net loans	816,338	771,930
Accrued interest receivable	3,151	3,164
Deposits	965,554	918,512
Accrued interest payable	120	124
Fair Value [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and cash equivalents	41,049	39,166
Investment securities available for sale, at fair value	163,557	159,473
Restricted stock	436	782
Loans held for sale	487	461
Net loans	824,266	779,742
Accrued interest receivable	3,151	3,164
Deposits	965,439	918,401
Accrued interest payable	120	124
Level 1 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and cash equivalents	41,049	39,166
Investment securities available for sale, at fair value	240	233
Level 2 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Investment securities available for sale, at fair value	163,317	159,240
Restricted stock	436	782
Loans held for sale	487	461
Accrued interest receivable	3,151	3,164
Deposits	965,439	918,401
Accrued interest payable	120	124
Level 3 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Net loans	$ 824,266	$ 779,742

XML

Fair Value Measurements And Fair Values Of Financial Instruments (Schedule Of Fair Value, Assets And Liabilities Measured On Recurring Basis) (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	$ 163,557	$ 159,473
Total assets	163,557	159,473
Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	240	233
Total assets	240	233
Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	163,317	159,240
Total assets	163,317	159,240
Equity Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	240	233
Equity Securities [Member] | Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	240	233
U.S. Government And Agency Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	13,426	13,836
U.S. Government And Agency Securities [Member] | Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	13,426	13,836
Municipal Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	70,741	69,188
Municipal Securities [Member] | Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	70,741	69,188
Trust Preferred Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	5,170	5,289
Trust Preferred Securities [Member] | Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	5,170	5,289
Agency Mortgage-Backed Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	72,723	69,519
Agency Mortgage-Backed Securities [Member] | Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	72,723	69,519
Private-Label Mortgage-Backed Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	1,223	1,372
Private-Label Mortgage-Backed Securities [Member] | Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	1,223	1,372
Asset-Backed Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	34	36
Asset-Backed Securities [Member] | Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	$ 34	$ 36

XML

Fair Value Measurements And Fair Values Of Financial Instruments (Schedule Of Fair Value An A Nonrecurring Basis) (Details) - USD ($) $ in Thousands		Jun. 30, 2016	Dec. 31, 2015
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring		$ 3,588	$ 6,353
Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring		3,588	6,353
Impaired Loans [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring	[1]	3,363
Impaired Loans [Member] | Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring	[1]	3,363
Premises Held-For-Sale [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring	[1]		225
Premises Held-For-Sale [Member] | Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring	[1]		225
Other Real Estate Owned [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring	[1]	225	6,128
Other Real Estate Owned [Member] | Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring	[1]	$ 225	$ 6,128

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

XML

Fair Value Measurements And Fair Values Of Financial Instruments (Fair Value Inputs, Assets, Quantitative Information) (Details) - USD ($) $ in Thousands		6 Months Ended	12 Months Ended
		Jun. 30, 2016	Dec. 31, 2015
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring		$ 3,588	$ 6,353
Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring		3,588	6,353
Impaired Loans [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring	[1]	3,363
Impaired Loans [Member] | Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring	[1]	$ 3,363
Fair Value Measurements, Valuation Techniques		Appraisal
Impaired Loans [Member] | Level 3 [Member] | Appraisal Adjustments [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value Inputs, Discount Rate		100.00%
Impaired Loans [Member] | Level 3 [Member] | Cost To Sell [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value Inputs, Discount Rate		8.00%
Impaired Loans [Member] | Level 3 [Member] | Weighted Average [Member] | Appraisal Adjustments [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value Inputs, Discount Rate		100.00%
Impaired Loans [Member] | Level 3 [Member] | Weighted Average [Member] | Cost To Sell [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value Inputs, Discount Rate		8.00%
Premises Held-For-Sale [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring	[1]		225
Premises Held-For-Sale [Member] | Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring	[1]		225
Other Real Estate Owned [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring	[1]	$ 225	6,128
Other Real Estate Owned [Member] | Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring	[1]	$ 225	$ 6,128
Fair Value Measurements, Valuation Techniques		Appraisal
Other Real Estate Owned [Member] | Level 3 [Member] | Cost To Sell [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value Inputs, Discount Rate		8.00%	8.00%
Other Real Estate Owned [Member] | Level 3 [Member] | Weighted Average [Member] | Cost To Sell [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value Inputs, Discount Rate		8.00%	8.00%

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

XML

Financial Derivatives (Narrative) (Details) $ in Thousands	Jun. 30, 2016 USD ($)
Interest Rate Swap Maturing [Member]
Derivative [Line Items]
Derivative, net	$ 0

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Financial Derivatives (Schedule Of Effect Of Derivative Instruments On The Statement Of Income) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Derivative Instruments, Gain (Loss) [Line Items]
Amount of Gain or (Loss) Recognized in OCI net of tax on Derivative (Effective Portion)		$ 64		$ 126
Interest Expense [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)		(64)		(160)
Other Income (Expense) [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Amount of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)

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Capital Ratios (Narrative) (Details)		6 Months Ended
		Jun. 30, 2016		Dec. 31, 2015
Compliance with Regulatory Capital Requirements under Banking Regulations [Line Items]
Capital Ratios, Basel III, Capital Conservation Buffer		0.625%
Future Capital Ratios Basel III Capital Conservation Buffer		2.50%
Adequately capitalized minimum ratios capital conservation buffer		0.625%
Farmers & Merchants Trust Company [Member]
Compliance with Regulatory Capital Requirements under Banking Regulations [Line Items]
Common Equity Tier 1 Risk-based Capital Ratio: Well Capitalized Minimum: Ratio	[1]	6.50%
Tier 1 Risk-based Capital Ratio: Well Capitalized Minimum: Ratio		8.00%	[2]	6.00%
Tier 1 Leverage Ratio: Well Capitalized Minimum: Ratio	[3]	5.00%
Total Risk-based Capital Ratio: Well Capitalized Minimum: Ratio	[4]	10.00%

[1] Common equity Tier 1 capital/ total risk-weighted assets

[2] Tier 1 capital / total risk-weighted assets

[3] Tier 1 capital / average quarterly assets

[4] Total risk-based capital / total risk-weighted assets

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Capital Ratios (Schedule Of The Total Risk-based, Tier 1 Risk-based And Tier 1 Leverage Requirements) (Details)		Jun. 30, 2016		Dec. 31, 2015
Franklin Financial Service Corporation [Member]
Compliance with Regulatory Capital Requirements under Banking Regulations [Line Items]
Common Equity Tier 1 Risk-based Capital Ratio: Ratio	[1]	14.64%		14.77%
Common Equity Tier 1 Risk-based Capital Ratio: Adequately Capitalized Minimum: Ratio	[1]	5.125%
Tier 1 Risk-based Capital Ratio: Ratio	[2]	14.64%		14.77%
Tier 1 Risk-based Capital Ratio: Adequately Capitalized Minimum: Ratio	[2]	6.625%
Total Risk-based Capital Ratio: Ratio	[3]	15.90%		16.03%
Total Risk-based Capital Ratio: Adequately Capitalized Minimum: Ratio	[3]	8.625%
Tier 1 Leverage Ratio: Ratio	[4]	10.20%		10.38%
Tier 1 Leverage Ratio: Adequately Capitalized Minimum: Ratio	[4]	4.00%
Farmers & Merchants Trust Company [Member]
Compliance with Regulatory Capital Requirements under Banking Regulations [Line Items]
Common Equity Tier 1 Risk-based Capital Ratio: Ratio	[1]	14.59%		14.76%
Common Equity Tier 1 Risk-based Capital Ratio: Adequately Capitalized Minimum: Ratio	[1]	5.125%
Common Equity Tier 1 Risk-based Capital Ratio: Well Capitalized Minimum: Ratio	[1]	6.50%
Tier 1 Risk-based Capital Ratio: Ratio	[2]	14.59%		14.76%
Tier 1 Risk-based Capital Ratio: Adequately Capitalized Minimum: Ratio	[2]	6.625%
Tier 1 Risk-based Capital Ratio: Well Capitalized Minimum: Ratio		8.00%	[2]	6.00%
Total Risk-based Capital Ratio: Ratio	[3]	15.85%		16.02%
Total Risk-based Capital Ratio: Adequately Capitalized Minimum: Ratio	[3]	8.625%
Total Risk-based Capital Ratio: Well Capitalized Minimum: Ratio	[3]	10.00%
Tier 1 Leverage Ratio: Ratio	[4]	10.17%		10.37%
Tier 1 Leverage Ratio: Adequately Capitalized Minimum: Ratio	[4]	4.00%
Tier 1 Leverage Ratio: Well Capitalized Minimum: Ratio	[4]	5.00%

[1] Common equity Tier 1 capital/ total risk-weighted assets

[2] Tier 1 capital / total risk-weighted assets

[3] Total risk-based capital / total risk-weighted assets

[4] Tier 1 capital / average quarterly assets