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, 2017

☐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,”  “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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

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

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company  ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

There were 4,340,631 outstanding shares of the Registrant’s common stock as of July 31, 2017.

INDEX

Part I - FINANCIAL INFORMATION
Item 1	Financial Statements
	Consolidated Balance Sheets as of June  30, 2017 and December 31, 2016 (unaudited)	1
	Consolidated Statements of Income for the Threeand Six Months ended June  30, 2017	2
	and 2016 (unaudited)
	Consolidated Statements of Comprehensive Income for the Threeand Six Months ended	3
	June  30, 2017 and 2016 (unaudited)
	Consolidated Statements of Changes in Shareholders’ Equity for the SixMonths	3
	ended June30, 2017and 2016 (unaudited)
	Consolidated Statements of Cash Flows for the SixMonths ended June  30, 2017	4
	and 2016 (unaudited)
	Notes to Consolidated Financial Statements (unaudited)	5
Item 2	Management’s Discussion and Analysis ofResults of Operations and Financial Condition	28
Item 3	Quantitative and Qualitative Disclosures about Market Risk	48
Item 4	Controls and Procedures	48
Part II - OTHER INFORMATION
Item 1	Legal Proceedings	49
Item 1A	Risk Factors	49
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	49
Item 3	Defaults Upon Senior Securities	49
Item 4	Mine Safety Disclosures	49
Item 5	Other Information	49
Item 6	Exhibits	50
SIGNATURE PAGE		51
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
	2017		2016
Assets
Cash and due from banks	$	14,937	$	16,888
Interest-bearing deposits in other banks		30,812		19,777
Total cash and cash equivalents		45,749		36,665
Investment securities available for sale, at fair value		136,036		143,875
Restricted stock		456		1,767
Loans held for sale		834		540
Loans		901,414		893,873
Allowance for loan losses		(11,307)		(11,075)
Net Loans		890,107		882,798
Premises and equipment, net		13,897		14,058
Bank owned life insurance		22,721		22,459
Goodwill		9,016		9,016
Other real estate owned		3,115		4,915
Deferred tax asset, net		6,180		5,844
Other assets		6,544		5,506
Total assets	$	1,134,655	$	1,127,443
Liabilities
Deposits
Noninterest-bearing checking	$	173,030	$	170,345
Money management, savings and interest checking		762,254		737,140
Time		72,094		74,635
Total Deposits		1,007,378		982,120
Short-term borrowings		-		24,270
Other liabilities		4,917		4,560
Total liabilities		1,012,295		1,010,950
Shareholders' equity
Common stock, $1 par value per share,15,000,000 shares authorized with
4,688,349 shares issued and 4,340,430 shares outstanding at June 30, 2017 and
4,688,349 shares issued and 4,316,836 shares outstanding at December 31, 2016		4,688		4,688
Capital stock without par value, 5,000,000 shares authorized with no
shares issued and outstanding		-		-
Additional paid-in capital		40,096		39,752
Retained earnings		87,498		83,081
Accumulated other comprehensive loss		(3,542)		(4,215)
Treasury stock, 347,919 shares at June 30, 2017 and 371,513 shares at
December 31, 2016, at cost		(6,380)		(6,813)
Total shareholders' equity		122,360		116,493
Total liabilities and shareholders' equity	$	1,134,655	$	1,127,443
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
	2017		2016		2017		2016
Interest income
Loans, including fees	$	9,039	$	7,964	$	17,678	$	16,053
Interest and dividends on investments:
Taxable interest		518		584		1,049		1,160
Tax exempt interest		286		357		587		723
Dividend income		7		4		20		10
Deposits and obligations of other banks		88		79		149		141
Total interest income		9,938		8,988		19,483		18,087
Interest expense
Deposits		590		548		1,156		1,091
Short-term borrowings		-		-		15		2
Total interest expense		590		548		1,171		1,093
Net interest income		9,348		8,440		18,312		16,994
Provision for loan losses		50		1,875		170		2,175
Net interest income after provision for loan losses		9,298		6,565		18,142		14,819
Noninterest income
Investment and trust services fees		1,342		1,218		2,637		2,472
Loan service charges		309		189		455		415
Deposit service charges and fees		585		602		1,178		1,180
Other service charges and fees		332		313		656		616
Debit card income		362		375		738		722
Increase in cash surrender value of life insurance		131		132		262		267
Net loss on sale of other real estate owned		-		(2)		-		(10)
OTTI losses on debt securities		-		-		-		(20)
Securities gains, net		-		2		2		3
Other		94		27		153		164
Total noninterest income		3,155		2,856		6,081		5,809
Noninterest expense
Salaries and employee benefits		4,871		4,346		9,497		8,716
Occupancy, net		535		553		1,119		1,152
Furniture and equipment		226		218		457		434
Advertising		294		262		541		543
Legal and professional		381		394		671		691
Data processing		535		504		1,076		1,001
Pennsylvania bank shares tax		243		260		486		496
FDIC insurance		93		169		199		326
ATM/debit card processing		222		200		440		428
Foreclosed real estate		13		13		71		76
Telecommunications		102		90		202		209
Other		646		721		1,359		1,453
Total noninterest expense		8,161		7,730		16,118		15,525
Income before federal income tax expense		4,292		1,691		8,105		5,103
Federal income tax expense		950		130		1,743		815
Net income	$	3,342	$	1,561	$	6,362	$	4,288
Per share
Basic earnings per share	$	0.77	$	0.36	$	1.47	$	1.00
Diluted earnings per share	$	0.77	$	0.36	$	1.46	$	1.00
Cash dividends declared	$	0.24	$	0.21	$	0.45	$	0.40

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)	2017		2016		2017		2016
Net Income	$	3,342	$	1,561	$	6,362	$	4,288
Securities:
Unrealized gains arising during the period		567		1,006		1,021		2,051
Reclassification adjustment for net (gains) losses and OTTI
included in net income (1)		-		(2)		(2)		17
Net unrealized gains		567		1,004		1,019		2,068
Tax effect		(193)		(340)		(346)		(702)
Net of tax amount		374		664		673		1,366
Total other comprehensive income		374		664		673		1,366
Total Comprehensive Income	$	3,716	$	2,225	$	7,035	$	5,654
Reclassification adjustment / Statement line item	Tax  expense (benefit)
(1) Securities / securities (gains) losses and OTTI losses, net	$	-	$	1	$	1	$	(6)
The accompanying notes are an integral part of these unaudited financial statements.

Consolidated Statements of Changes in Shareholders' Equity

For the SixMonths EndedJune30, 2017 and 2016

							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, 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
Balance at December 31, 2016	$	4,688	$	39,752	$	83,081	$	(4,215)	$	(6,813)	$	116,493
Net income		-		-		6,362		-		-		6,362
Other comprehensive income		-		-		-		673		-		673
Cash dividends declared, $.45 per share		-		-		(1,945)		-		-		(1,945)
Treasury shares issued under employee stock purchase plan, 6,327 shares		-		26		-		-		116		142
Treasury shares issued under dividend reinvestment plan, 17,267 shares		-		211		-		-		317		528
Stock option compensation expense		-		107		-		-		-		107
Balance at June 30, 2017	$	4,688	$	40,096	$	87,498	$	(3,542)	$	(6,380)	$	122,360
The accompanying notes are an integral part of these unaudited financial statements.

3

Consolidated Statements of Cash Flows

	Six Months Ended June 30
	2017		2016
(Dollars in thousands) (unaudited)
Cash flows from operating activities
Net income	$	6,362	$	4,288
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		651		666
Net amortization of loans and investment securities		802		794
Amortization and net change in mortgage servicing rights valuation		27		27
Provision for loan losses		170		2,175
Gain on sales of securities		(2)		(3)
Impairment write-down on securities recognized in earnings		-		20
Loans originated for sale		(3,571)		(4,963)
Proceeds from sale of loans		3,277		4,937
Write-down of other real estate owned		49		46
Write-down on premises and equipment available for sale		45		-
Net loss (gain) on sale or disposal of other real estate/other repossessed assets		-		10
Increase in cash surrender value of life insurance		(262)		(267)
Stock option compensation		107		58
Decrease in other assets		(1,431)		(504)
Increase (decrease) in other liabilities		2		(2,588)
Net cash provided by operating activities		6,226		4,696
Cash flows from investing activities
Proceeds from sales and calls of investment securities available for sale		475		1,765
Proceeds from maturities and pay-downs of securities available for sale		11,452		11,929
Purchase of investment securities available for sale		(3,900)		(16,605)
Net decrease in restricted stock		1,311		346
Net increase in loans		(7,448)		(46,522)
Capital expenditures		(650)		(288)
Proceeds from surrender of life insurance policy		-		436
Proceeds from sale of other assets		154		-
Proceeds from sale of other real estate		1,751		224
Net cash provided by (used in) investing activities		3,145		(48,715)
Cash flows from financing activities
Net increase in demand deposits, interest-bearing checking, and savings accounts		27,799		52,147
Net decrease in time deposits		(2,541)		(5,105)
Net decrease in short-term borrowings		(24,270)		-
Dividends paid		(1,945)		(1,715)
Treasury shares issued under employee stock purchase plan		142		279
Treasury shares issued under dividend reinvestment plan		528		85
Common stock issued under stock option plans		-		9
Common stock issued under dividend reinvestment plan		-		552
Purchase of Treasury shares		-		(350)
Net cash (used) provided by financing activities		(287)		45,902
Increase in cash and cash equivalents		9,084		1,883
Cash and cash equivalents as of January 1		36,665		39,166
Cash and cash equivalents as of June 30	$	45,749	$	41,049
Supplemental Disclosures of Cash Flow Information
Cash paid during the year for:
Interest on deposits and other borrowed funds	$	1,177	$	1,097
Income taxes	$	3,405	$	2,100
Noncash Activities:
Loans transferred to Other Real Estate	$	-	$	23
The accompanying notes are an integral part of these unaudited financial statements.

4

FRANKLIN FINANCIAL SERVICES CORPORATION and SUBSIDIARIES

UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 - Basis of Presentation

The consolidated financial statements include the accounts of Franklin Financial Services Corporation (the Corporation), and its wholly-owned subsidiaries, Farmers and Merchants Trust Company of Chambersburg (the Bank) and Franklin Future Fund Inc.  Farmers and Merchants Trust Company of Chambersburg is a commercial bank that has one wholly-owned subsidiary, Franklin Financial Properties Corp. Franklin Financial 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, 2017, 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 2016 Annual Report on Form 10-K.  The consolidated results of operations for the three month periods ended June30, 2017 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, 2016 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)	2017		2016		2017		2016
Weighted average shares outstanding (basic)		4,331		4,294		4,326		4,289
Impact of common stock equivalents		21		4		21		3
Weighted average shares outstanding (diluted)		4,352		4,298		4,347		4,292
Anti-dilutive options excluded from calculation		-		43		-		44
Net income	$	3,342	$	1,561	$	6,362	$	4,288
Basic earnings per share	$	0.77	$	0.36	$	1.47	$	1.00
Diluted earnings per share	$	0.77	$	0.36	$	1.46	$	1.00

5

Note 2. Recent Accounting Pronouncements

Standard	Description	Effective Date	Effect on the financial statements or other significant matters
ASU 2016-15, Statements of Cash Flow (Topic 320): Classification of Certain Cash Receipts and Cash Payments	The standard clarifies how certain cash receipts and cash payments are presented and classified in the statement of cash flows.  The amendments are intended to reduce diversity in practice.  The standard contains additional guidance clarifying when an entity should separate cash receipts and cash payments and classify them into more than one class of cash flows (including when reasonable judgement is required to estimate and allocate cash flows) versus when an entity should classify the aggregate amount into one class of cash flows on the basis of predominance.	January 1, 2018	We do not expect this guidance will have an effect on the Corporation's consolidated financial statements.
ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments	This standard 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.	January 1, 2020	We have formed an implementation team led by the Corporation's Risk Management function. The team is reviewing the requirements of the ASU and evaluating methods and models for implementation.  The Corporation believes the new standard will result in earlier recognition of additions to the allowance for loan losses and possibly a larger allowance for loan loss balance with a corresponding increase in the provision for loan losses in results of operations; however, the Corporation is continuing to evaluate the impact of the pending adoption of the new standard on its consolidated financial statements.
ASU 2014-09, Revenue from Contracts with Customers (Topic 606)	The amendments in this Update (ASU 2014-09) establish a comprehensive revenue recognition standard. 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. Three basic transition methods are available – full retrospective, retrospective with certain practical expedients, and a cumulative effect approach.	January 1, 2018	The majority of our revenue comes from net interest income, and is explicitly out of scope of the guidance.  The contracts in noninterest income that are in scope of the guidance are primarily related to service charges and fees on deposit accounts, investment and trust income and other service charges and fees.  We are analyzing the contracts in scope to determine if our current accounting will change.
ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities	The standard amends the guidance on the classification and measurement of financial instruments.  Some of the amendments include the following: 1) requires equity investments 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.	January 1, 2018	We do not expect this guidance will have a material effect on the Corporation's consolidated financial statements.  We do not have a significant number of AFS equity securities.  Additionally we do not have financial liabilities accounted for under the fair value option.  The adoption of this guidance is not expected to be material.

6

ASU 2016-02, Leases (Topic 842)	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.	January 1, 2019	The Corporation currently has real estate and equipment leases that it classifies as operating leases that are not recognized on the balance sheet.  Under the new standard, these leases will move onto the balance sheet.  The Corporation has identified a lease accounting model it expects to use to implement the standard.  It is expected the model will be functional during the fourth quarter of 2017, but the Corporation does not plan to early adopt the standard. The Corporation believes the new standard will not have a material effect on its consolidated financial statements.
ASU 2017-04, Goodwill (Topic 350)	This guidance, among other things, removes step 2 of the goodwill impairment test thus eliminating the need to determine the fair value of individual assets and liabilities of the reporting unit.  Upon adoption of this standard, goodwill impairment will be the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the carrying amount of goodwill.  This may result in more or less impairment being recognized than under the current guidance.	January 1, 2020	We do not currently expect this guidance to have a material effect on the Corporation's consolidated financial statements based upon the most recent goodwill impairment analysis.
ASU 2016-09, Stock Compensation (Topic 718): Improvements to Employee Share-based Payment Accounting	The standard requires entities to recognize the income tax effects of share-based awards in the income statement when the awards vest or are settled (i.e. the additional paid-in capital pools will be eliminated).  The guidance on employers' accounting for an employee's use of shares to satisfy the employer's statutory income tax withholding obligation and for forfeitures is changing.  The standard also provides an entity the option to make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures when they occur.	January 1, 2017	We adopted the standard during the first quarter of 2017.  Due to the type of stock compensation plans used by the Corporation, there was no effect on the Corporation's consolidated financial statements.
ASU 2017-09,  Premium Amortization on Purchased Callable Debt Securities	The standard shortens the amortization period for premiums on purchased callable debt securities to the earliest call date, rather than amortizing over the full contractual term.  The standard does change the standard for securities held at a discount.  The amendments require companies to reset the effective yield using the payment terms of the debt security if the call option is not exercised on the earliest call date.  If the security has additional future called dates, any excess of the amortized cost basis over the amount repayable by the issuer at the next call date should be amortized to the next call date.	January 1, 2017	We adopted the standard during the first quarter of 2017, and there was no effect on the Corporation's consolidated financial statements.
ASU 2017-07, Employee Benefits Plan (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost	This standard requires an employer to report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period.  The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations.  The amendments in this update also allow only the service cost component to be eligible for capitalization when applicable.	January 1, 2018	We do not expect this standard will have an effect on the Corporation's 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
	2017		2016
(Dollars in thousands)
Net unrealized gains (losses) on securities	$	999	$	(20)
Tax effect		(339)		7
Net of tax amount		660		(13)
Accumulated pension adjustment		(6,366)		(6,366)
Tax effect		2,164		2,164
Net of tax amount		(4,202)		(4,202)
Total accumulated other comprehensive loss	$	(3,542)	$	(4,215)

Note 4. Investments

The amortized cost and estimated fair value of investment securities available for sale as of June  30, 2017 and December 31, 2016are as follows:

(Dollars in thousands)			Gross		Gross
	Amortized		unrealized		unrealized		Fair
June 30, 2017	cost		gains		losses		value
Equity securities	$	164	$	192	$	-	$	356
U.S. Government and Agency securities		12,032		134		(34)		12,132
Municipal securities		60,505		1,032		(192)		61,345
Trust preferred securities		5,989		3		(203)		5,789
Agency mortgage-backed securities		55,370		387		(386)		55,371
Private-label mortgage-backed securities		946		68		-		1,014
Asset-backed securities		31		-		(2)		29
	$	135,037	$	1,816	$	(817)	$	136,036

(Dollars in thousands)			Gross		Gross
	Amortized		unrealized		unrealized		Fair
December 31, 2016	cost		gains		losses		value
Equity securities	$	164	$	126	$	-	$	290
U.S. Government and Agency securities		12,598		148		(26)		12,720
Municipal securities		62,763		793		(571)		62,985
Trust preferred securities		5,979		-		(518)		5,461
Agency mortgage-backed securities		61,305		431		(452)		61,284
Private-label mortgage-backed securities		1,053		56		(5)		1,104
Asset-backed securities		33		-		(2)		31
	$	143,895	$	1,554	$	(1,574)	$	143,875

At June30, 2017and December 31, 2016, the fair value of investment securities pledged to secure public funds, trust balances, deposit and other obligations totaled $73.0 million and  $79.1 million, respectively.

8

The amortized cost and estimated fair value of debt securities at June  30, 2017, 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	$	951	$	954
Due after one year through five years		11,535		11,701
Due after five years through ten years		35,626		36,037
Due after ten years		30,445		30,603
		78,557		79,295
Mortgage-backed securities		56,316		56,385
	$	134,873	$	135,680

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)	2017		2016		2017		2016
Gross gains realized	$	-	$	2	$	2	$	3
Gross losses realized		-		-		-		-
Net gains realized	$	-	$	2	$	2	$	3

The following table provides additional detail about trust preferred securities as of June30, 2017:

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	$	968	$	932	$	(36)	BB+
Wachovia Cap Trust II	1/15/2027	Single	Preferred Stock		280		283		3	BBB
Huntington Cap Trust	2/1/2027	Single	Preferred Stock		948		899		(49)	BB
Corestates Captl Tr II	2/15/2027	Single	Preferred Stock		945		945		-	BBB+
Huntington Cap Trust II	6/15/2028	Single	Preferred Stock		903		845		(58)	BB
Chase Cap VI JPM	8/1/2028	Single	Preferred Stock		967		939		(28)	BBB-
Fleet Cap Tr V	12/18/2028	Single	Preferred Stock		978		946		(32)	BB+
				$	5,989	$	5,789	$	(200)

The following table provides additional detail about private label mortgage-backed securities as of June  30, 2017:

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	$	252	$	254	$	2	ALT A	CCC	16.24	$	-
RALI 2005-QS2 A1	2/1/2005		129		144		15	ALT A	CC	0.71		15
RALI 2006-QS4 A2	4/1/2006		356		381		25	ALT A	Caa3	-		323
GSR 2006-5F 2A1	5/1/2006		35		42		7	Prime	D	-		15
RALI 2006-QS8 A1	7/28/2006		174		193		19	ALT A	Ca	-		242
		$	946	$	1,014	$	68				$	595

9

Impairment:

The investment portfolio contained eighty-three securities with $45.5 million of temporarily impaired fair value and $817 thousand in unrealized losses at June 30, 2017. The total unrealized loss position has improved from a $1.6 million unrealized loss at year-end 2016. 

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, 2017, 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, 2017 and December 31, 2016:

	June 30, 2017
	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	$	1,596	$	(9)	4	$	3,020	$	(25)	9	$	4,616	$	(34)	13
Municipal securities		6,671		(120)	12		2,146		(72)	3		8,817		(192)	15
Trust preferred securities		-		-	-		4,561		(203)	5		4,561		(203)	5
Agency mortgage-backed securities		19,063		(229)	32		8,457		(157)	17		27,520		(386)	49
Asset-backed securities		-		-	-		4		(2)	1		4		(2)	1
Total temporarily impaired securities	$	27,330	$	(358)	48	$	18,188	$	(459)	35	$	45,518	$	(817)	83

	December 31, 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	$	789	$	(9)	1	$	3,413	$	(17)	10	$	4,202	$	(26)	11
Municipal securities		23,407		(417)	43		1,598		(154)	2		25,005		(571)	45
Trust preferred securities		-		-	-		5,461		(518)	7		5,461		(518)	7
Agency mortgage-backed securities		26,995		(359)	39		4,656		(93)	11		31,651		(452)	50
Private-label mortgage-backed securities		281		(5)	1		-		-	-		281		(5)	1
Asset-backed securities		-		-	-		4		(2)	1		4		(2)	1
Total temporarily impaired securities	$	51,472	$	(790)	84	$	15,132	$	(784)	31	$	66,604	$	(1,574)	115

The unrealized loss in the municipal bond portfolio decreased to $192 thousand from $571 thousand at December 31, 2016 as market prices improved during the quarter.  There are fifteen 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 five securities with a fair value of $4.6 million and an unrealized loss of $203 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, 2017, 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. 

10

The PLMBS sector is showing an unrealized gain of $68 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 has recorded $595 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
	2017		2016
Balance of cumulative credit-related OTTI at January 1	$	595	$	555
Additions for credit-related OTTI not previously recognized		-		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	$	595	$	575

The Bank held $456 thousand of restricted stock at June 30, 2017.  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 5. Loans

The Bank reports its loan portfolio based on the primary collateral of the loan. It further classifies these loans by the primary purpose, either consumer or commercial. The Bank’s 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. 

11

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

(Dollars in thousands)	June 30, 2017		December 31, 2016
Residential Real Estate 1-4 Family
Consumer first liens	$	100,072	$	103,125
Commercial first lien		63,178		65,445
Total first liens		163,250		168,570
Consumer junior liens and lines of credit		44,213		44,817
Commercial junior liens and lines of credit		5,480		5,396
Total junior liens and lines of credit		49,693		50,213
Total residential real estate 1-4 family		212,943		218,783
Residential real estate - construction
Consumer		1,298		1,350
Commercial		9,928		7,625
Total residential real estate construction		11,226		8,975
Commercial real estate		386,784		390,584
Commercial		285,780		270,826
Total commercial		672,564		661,410
Consumer		4,681		4,705
		901,414		893,873
Less: Allowance for loan losses		(11,307)		(11,075)
Net Loans	$	890,107	$	882,798
Included in the loan balances are the following:
Net unamortized deferred loan costs	$	279	$	242
Loans pledged as collateral for borrowings and commitments from:
FHLB	$	702,224	$	711,682
Federal Reserve Bank		36,951		41,152
	$	739,175	$	752,834

12

Note 6. Loan Quality and Allowance for Loan Losses

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, 2017	$	1,100	$	321	$	274	$	6,126	$	1,984	$	99	$	1,374	$	11,278
Charge-offs		(5)		-		-		(5)		(2)		(24)		-		(36)
Recoveries		-		1		-		-		4		10		-		15
Provision		(20)		-		7		(69)		37		15		80		50
ALL at June 30, 2017	$	1,075	$	322	$	281	$	6,052	$	2,023	$	100	$	1,454	$	11,307
ALL at December 31, 2016	$	1,105	$	323	$	224	$	6,109	$	1,893	$	100	$	1,321	$	11,075
Charge-offs		(13)		-		-		(5)		(2)		(52)		-		(72)
Recoveries		1		1		-		-		106		26		-		134
Provision		(18)		(2)		57		(52)		26		26		133		170
ALL at June 30, 2017	$	1,075	$	322	$	281	$	6,052	$	2,023	$	100	$	1,454	$	11,307
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

13

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, 2017and December 31, 2016:

	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, 2017
Loans evaluated for ALL:
Individually	$	818	$	106	$	473	$	11,345	$	100	$	-	$	-	$	12,842
Collectively		162,432		49,587		10,753		375,439		285,680		4,681		-		888,572
Total	$	163,250	$	49,693	$	11,226	$	386,784	$	285,780	$	4,681	$	-	$	901,414
ALL established for loans evaluated:
Individually	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Collectively		1,075		322		281		6,052		2,023		100		1,454		11,307
ALL at June 30, 2017	$	1,075	$	322	$	281	$	6,052	$	2,023	$	100	$	1,454	$	11,307
December 31, 2016
Loans evaluated for ALL:
Individually	$	628	$	52	$	480	$	13,523	$	-	$	-	$	-	$	14,683
Collectively		167,942		50,161		8,495		377,061		270,826		4,705		-		879,190
Total	$	168,570	$	50,213	$	8,975	$	390,584	$	270,826	$	4,705	$	-	$	893,873
ALL established for loans evaluated:
Individually	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Collectively		1,105		323		224		6,109		1,893		100		1,321		11,075
ALL at December 31, 2016	$	1,105	$	323	$	224	$	6,109	$	1,893	$	100	$	1,321	$	11,075

14

The following table shows additional information about those loans considered to be impaired at June  30, 2017and December 31, 2016:

	Impaired Loans
	With No Allowance				With Allowance
(Dollars in thousands)			Unpaid					Unpaid
	Recorded		Principal		Recorded		Principal		Related
June 30, 2017	Investment		Balance		Investment		Balance		Allowance
Residential Real Estate 1-4 Family
First liens	$	1,161	$	1,231	$	-	$	-	$	-
Junior liens and lines of credit		115		120		-		-		-
Total		1,276		1,351		-		-		-
Residential real estate - construction		473		533		-		-		-
Commercial real estate		11,345		11,808		-		-		-
Commercial		121		133		-		-		-
Total	$	13,215	$	13,825	$	-	$	-	$	-

December 31, 2016
Residential Real Estate 1-4 Family
First liens	$	956	$	1,030	$	-	$	-	$	-
Junior liens and lines of credit		85		93		-		-		-
Total		1,041		1,123		-		-		-
Residential real estate - construction		480		535		-		-		-
Commercial real estate		13,523		14,133				-		-
Commercial		23		35		-		-		-
Total	$	15,067	$	15,826	$	-	$	-	$	-

15

The following table shows the average of impaired loans and related interest income for the three and sixmonths ended June  30, 2017and 2016:

	Three Months Ended				Six Months Ended
	June 30, 2017				June 30, 2017
	Average		Interest		Average		Interest
(Dollars in thousands)	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
Residential Real Estate 1-4 Family
First liens	$	1,168	$	10	$	1,039	$	20
Junior liens and lines of credit		115		-		100		-
Total		1,283		10		1,139		20
Residential real estate - construction		476		-		478		-
Commercial real estate		12,043		102		12,104		218
Commercial		122		-		73		-
Total	$	13,924	$	112	$	13,794	$	238
	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

16

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, 2017
Residential Real Estate 1-4 Family
First liens	$	162,334	$	174	$	294	$	61	$	529	$	387	$	163,250
Junior liens and lines of credit		49,481		97		-		8		105		107		49,693
Total		211,815		271		294		69		634		494		212,943
Residential real estate - construction		10,753		-		-		-		-		473		11,226
Commercial real estate		384,513		117		185		-		302		1,969		386,784
Commercial		285,493		122		44		-		166		121		285,780
Consumer		4,647		26		8		-		34		-		4,681
Total	$	897,221	$	536	$	531	$	69	$	1,136	$	3,057	$	901,414

December 31, 2016
Residential Real Estate 1-4 Family
First liens	$	166,689	$	1,236	$	414	$	-	$	1,650	$	231	$	168,570
Junior liens and lines of credit		50,031		96		-		-		96		86		50,213
Total		216,720		1,332		414		-		1,746		317		218,783
Residential real estate - construction		8,495		-		-		-		-		480		8,975
Commercial real estate		384,658		858		447		665		1,970		3,956		390,584
Commercial		270,478		250		75		-		325		23		270,826
Consumer		4,672		30		3		-		33		-		4,705
Total	$	885,023	$	2,470	$	939	$	665	$	4,074	$	4,776	$	893,873

17

The following table reports the internal credit rating for the loan portfolio.  Consumer purpose loans are assigned a rating of either pass or substandard based on the performance status of the loans.  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, 2017
Residential Real Estate 1-4 Family
First liens	$	161,904	$	-	$	1,346	$	-	$	163,250
Junior liens and lines of credit		49,579		-		114		-		49,693
Total		211,483		-		1,460		-		212,943
Residential real estate - construction		10,146		-		1,080		-		11,226
Commercial real estate		375,919		-		10,865		-		386,784
Commercial		282,122		-		3,658		-		285,780
Consumer		4,681		-		-		-		4,681
Total	$	884,351	$	-	$	17,063	$	-	$	901,414

December 31, 2016
Residential Real Estate 1-4 Family
First liens	$	167,199	$	227	$	1,144	$	-	$	168,570
Junior liens and lines of credit		50,017		28		168		-		50,213
Total		217,216		255		1,312		-		218,783
Residential real estate - construction		8,220		-		755		-		8,975
Commercial real estate		377,283		-		13,301		-		390,584
Commercial		267,901		957		1,968		-		270,826
Consumer		4,705		-		-		-		4,705
Total	$	875,325	$	1,212	$	17,336	$	-	$	893,873

18

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, 2017
Residential real estate - construction	1	$	473	$	473	$	-	-	$	-
Residential real estate	5		864		713		151	1		151
Commercial real estate	11		11,186		10,591		595	1		595
Total	17	$	12,523	$	11,777	$	746	2	$	746
December 31, 2016
Residential real estate - construction	1	$	480	$	480	$	-	-	$	-
Residential real estate	5		875		724		151	1		151
Commercial real estate	11		12,064		10,814		1,250	1		1,250
Total	17	$	13,419	$	12,018	$	1,401	2	$	1,401

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

There were no new TDR loans during 2017.

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	$	504	multiple

Note 7. Other Real Estate Owned

Changes in other real estate owned during thesix months ended June30, 2017 and 2016 were as follows:

	June 30
(Dollars in thousands)	2017		2016
Balance at beginning of the period	$	4,915	$	6,451
Additions		-		23
Proceeds from dispositions		(1,751)		(224)
(Loss) gain on sales, net		-		(10)
Valuation adjustment		(49)		(46)
Balance at the end of the period	$	3,115	$	6,194

19

Note 8. 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)	2017		2016		2017		2016
Components of net periodic cost:
Service cost	$	79	$	83	$	157	$	164
Interest cost		167		180		333		360
Expected return on plan assets		(268)		(290)		(536)		(583)
Recognized net actuarial loss		137		120		274		231
Net period cost	$	115	$	93	$	228	$	172

The Bank expects its pension expense to decrease to approximately $459 thousand in 2017 compared to $922 thousand in 2016. This decrease is due to a pension settlement expense of approximately $564 thousand that was recorded in the second half of 2016, as a result of lump sum distributions.  No pension contributions were made or are expected to be made in 2017.

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

Management uses its best judgment in estimating the fair value of the Corporation’s financial instruments; however, there are inherent weaknesses in any estimation technique.  Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts the Corporation could have realized in a sales transaction on the dates indicated.  The estimated fair value amounts have been measured as of their respective 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 June30, 2017and December 31, 2016.

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.

20

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. 

21

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

	June 30, 2017
	Carrying		Fair
(Dollars in thousands)	Amount		Value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	45,749	$	45,749	$	45,749	$	-	$	-
Investment securities available for sale		136,036		136,036		356		135,680		-
Restricted stock		456		456		-		456		-
Loans held for sale		834		834		-		834		-
Net loans		890,107		891,933		-		-		891,933
Accrued interest receivable		3,409		3,409		-		3,409		-
Financial liabilities:
Deposits	$	1,007,378	$	1,006,804	$	-	$	1,006,804	$	-
Accrued interest payable		110		110		-		110		-
	December 31, 2016
	Carrying		Fair
(Dollars in thousands)	Amount		Value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	36,665	$	36,665	$	36,665	$	-	$	-
Investment securities available for sale		143,875		143,875		290		143,585		-
Restricted stock		1,767		1,767		-		1,767		-
Loans held for sale		540		540		-		540		-
Net loans		882,798		889,910		-		-		889,910
Accrued interest receivable		3,592		3,592		-		3,592		-
Financial liabilities:
Deposits	$	982,120	$	981,949	$	-	$	981,949	$	-
Short-term debt		24,270		24,270		24,270		-		-
Accrued interest payable		116		116		-		116		-

22

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, 2017and December 31, 2016 are as follows:

(Dollars in Thousands	Fair Value at June 30, 2017
Asset  Description	Level 1		Level 2		Level 3		Total
Equity securities	$	356	$	-	$	-	$	356
U.S. Government and Agency securities		-		12,132		-		12,132
Municipal securities		-		61,345		-		61,345
Trust Preferred Securities		-		5,789		-		5,789
Agency mortgage-backed securities		-		55,371		-		55,371
Private-label mortgage-backed securities		-		1,014		-		1,014
Asset-backed securities		-		29		-		29
Total assets	$	356	$	135,680	$	-	$	136,036

(Dollars in Thousands)	Fair Value at December 31, 2016
Asset  Description	Level 1		Level 2		Level 3		Total
Equity securities	$	290	$	-	$	-	$	290
U.S. Government and Agency securities		-		12,720		-		12,720
Municipal securities		-		62,985		-		62,985
Trust Preferred Securities		-		5,461		-		5,461
Agency mortgage-backed securities		-		61,284		-		61,284
Private-label mortgage-backed securities		-		1,104		-		1,104
Asset-backed securities		-		31		-		31
Total assets	$	290	$	143,585	$	-	$	143,875

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.    

23

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, 2017and December 31, 2016are as follows:

(Dollars in Thousands)
	Fair Value at June 30, 2017
Asset  Description	Level 1		Level 2		Level 3		Total
Other real estate owned (1)		-		-		177		177
Total assets	$	-	$	-	$	177	$	177

(Dollars in Thousands)	Fair Value at December 31, 2016
Asset  Description	Level 1		Level 2		Level 3		Total
Premises held-for-sale (1)	$	-	$	-	$	200	$	200
Other real estate owned (1)		-		-		2,407		2,407
Total assets	$	-	$	-	$	2,607	$	2,607

(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.

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, 2017. 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, 2017.

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

(Dollars in Thousands)		Quantitative Information about Level 3 Fair Value Measurements
					Range
June 30, 2017		Fair Value	Valuation Technique	Unobservable Input	(Weighted Average)
Other real estate owned		177	Appraisal	N/A	-
				Cost to sell	8% (8%)
					Range
December 31, 2016		Fair Value	Valuation Technique	Unobservable Input	(Weighted Average)
Premises held-for-sale	$	200	Appraisal	Qualitative adjustment	5% (5%)
Other real estate owned		2,407	Appraisal	N/A	-
				Cost to sell	8% (8%)

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Note 10. 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%,  1.25% for 2017, 1.875% for 2018 and 2.50% for 2019 and thereafter.  The capital conservation buffer will be applicable to all of the capital ratios except for the Tier1 Leverage ratio. The capital conservation buffer is equal to the lowest value of the three applicable capital ratios less the regulatory minimum for each respective capital measurement.  The Bank’s capital conservation buffer at June  30, 2017 was 8.72% (total risk-based capital 16.72% less 8.00%) compared to the 2017 regulatory buffer of 1.25%.  Compliance with the capital conservation buffer is required in order to avoid limitations to certain capital distributions.  As of June  30, 2017, 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, 2017 and December 31, 2016for the Corporation and the Bank. 

			Regulatory Ratios
			Adequately	Well
			Capitalized	Capitalized
(Dollars in thousands)	June 30, 2017	December 31, 2016	Minimum	Minimum
Common Equity Tier 1 Risk-based Capital Ratio (1)
Franklin Financial Services Corporation	15.52%	14.41%	4.500%	N/A
Farmers & Merchants Trust Company	15.46%	14.29%	4.500%	6.50%
Tier 1 Risk-based Capital Ratio (2)
Franklin Financial Services Corporation	15.52%	14.41%	6.000%	N/A
Farmers & Merchants Trust Company	15.46%	14.29%	6.000%	8.00%
Total Risk-based Capital Ratio (3)
Franklin Financial Services Corporation	16.78%	15.67%	8.000%	N/A
Farmers & Merchants Trust Company	16.72%	15.55%	8.000%	10.00%
Tier 1 Leverage Ratio (4)
Franklin Financial Services Corporation	10.39%	10.11%	4.000%	N/A
Farmers & Merchants Trust Company	10.35%	10.02%	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 11. 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.

Ne

3

25

1Note 12. Contingencies

The nature of the Corporation’s business generates a certain amount of litigation involving matters arising in the ordinary course of business, including, without limitation, the Kalan et al. v. Farmers and Merchants Trust Company of Chambersburg, et al. case filed in the United States District Court of the Eastern District of Pennsylvania.

In management’s opinion, we are not able to anticipate, at the present time, whether the ultimate aggregate liability, if any, arising out of such litigation will have a material adverse effect on our financial position.  We cannot now determine,  whether or not any claims asserted against us, including the disclosed matter, will have a material adverse effect on our results of operations in any future reporting period, which will depend on, among other things, the amount of loss resulting from the claim and the amount of income otherwise reported for the reporting period.  At the date of this filing, we are unable to provide an evaluation of the likelihood of an unfavorable outcome or an estimate of the amount or range of potential loss and, accordingly, have not yet established any specific accrual for this matter.  In addition, no material proceedings are pending or are known to be threatened or contemplated against us by governmental authorities.

26

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

For the Three and Six Months Ended June  30, 2017and 2016

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 2016 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 2016 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, 2017, total assets were $1.135 billion.  The investment portfolio declined during the year as maturing cash flow was reinvested in the loan portfolio.  Growth in the loan portfolio was primarily in commercial loans.  However, this growth was tempered by approximately $14 million in loan participations which were repurchased by the lead banks. Overall, deposits increased from growth in noninterest-bearing and interest-bearing checking and savings accounts, partially offset by a decrease in time deposits. Net income increased due to the growth in interest income from the loan portfolio as well as a decrease in provision for loan losses.The provision for loan losses decreased due to an improvement in loan quality and higher provision for loan losses in 2016 related to a large commercial loan charge-off.  The increase in noninterest income was primarilyfrom Investment and Trust Service nonrecurring fee income from assets under management and loan service charges from past due fees collected on the pay-off of a large nonaccrual loan.  Noninterest expense increased primarily from increases in salaries and benefits.  

27

Key performance ratios as of, or for the three months ended June  30, 2017and 2016and the year ended December 31, 2016are listed below:

	June 30		December 31		June 30
	2017		2016		2016
(Dollars in thousands, except per share)
Balance Sheet Highlights
Total assets	$	1,134,655	$	1,127,443	$	1,084,046
Investment securities		136,036		143,875		163,557
Loans, net		890,107		882,798		816,338
Deposits		1,007,378		982,120		965,554
Shareholders' equity		122,360		116,493		115,948
Summary of Operations
Interest income	$	19,483	$	36,979	$	18,087
Interest expense		1,171		2,245		1,093
Net interest income		18,312		34,734		16,994
Provision for loan losses		170		3,775		2,175
Net interest income after provision for loan losses		18,142		30,959		14,819
Noninterest income		6,081		11,605		5,809
Noninterest expense		16,118		33,175		15,525
Income before income taxes		8,105		9,389		5,103
Federal income tax expense		1,743		1,302		815
Net income	$	6,362	$	8,087	$	4,288
Performance Measurements
Return on average assets*		1.13%		0.74%		0.80%
Return on average equity*		10.75%		7.04%		7.56%
Return on average tangible assets (1)*		1.14%		0.75%		0.81%
Return on average tangible equity (1)*		11.64%		7.64%		8.21%
Efficiency ratio (1)		62.77%		68.26%		65.08%
Net interest margin		3.72%		3.62%		3.63%
Shareholders' Value (per common share)
Diluted earnings per share	$	1.46	$	1.88	$	1.00
Basic earnings per share		1.47		1.88		1.00
Regular cash dividends paid		0.45		0.82		0.4
Book value		28.19		26.99		26.95
Tangible book value (1)		26.12		24.90		24.93
Market value		32.00		28.60		23.73
Market value/book value ratio		113.52%		105.97%		88.05%
Price/earnings multiple*		10.88		15.21		11.87
Current dividend yield*		3.00%		2.94%		3.54%
Dividend payout ratio		30.57%		43.56%		40.00%
Safety and Soundness
Risk-based capital ratio (Total)		16.25%		15.67%		15.90%
Leverage ratio (Tier 1)		10.31%		10.11%		10.20%
Common equity ratio (Tier 1)		14.99%		14.41%		14.77%
Nonperforming loans/gross loans		0.35%		0.61%		1.00%
Nonperforming assets/total assets		0.55%		0.92%		1.33%
Allowance for loan losses as a % of loans		1.25%		1.24%		1.25%
Net (recoveries) charge-offs/average loans*		-0.10%		0.33%		0.48%
Trust assets under management (fair value)	$	652,862	$	622,630	$	606,334

*Annualized

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

28

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		Twelve months ended		Six months ended
		June 30, 2017		December 31, 2016		June 30, 2016
Return on Average Tangible Assets (non-GAAP)
Net income	$	6,362	$	8,087	$	4,288
Average assets		1,124,610		1,088,047		1,066,183
Less average intangible assets		(9,016)		(9,016)		(9,016)
Average assets (non-GAAP)		1,115,594		1,079,031		1,057,167
Return on average tangible assets (non-GAAP)		1.14%		0.75%		0.81%
Return on Tangible Equity (non-GAAP)
Net income	$	6,362	$	8,087	$	4,288
Average shareholders' equity		118,373		114,884		113,452
Less average intangible assets		(9,016)		(9,016)		(9,016)
Average shareholders' equity (non-GAAP)		109,357		105,868		104,436
Return on average tangible equity (non-GAAP)		11.64%		7.64%		8.21%
Tangible Book Value (per share) (non-GAAP)
Shareholders' equity	$	122,360	$	116,493	$	115,948
Less intangible assets		(9,016)		(9,016)		(9,016)
Shareholders' equity (non-GAAP)		113,344		107,477		106,932
Shares outstanding (in thousands)		4,340		4,317		4,290
Tangible book value (non-GAAP)		26.12		24.90		24.93
Efficiency Ratio
Noninterest expense	$	16,118	$	33,175	$	15,525
Net interest income		18,312		34,734		16,994
Plus tax equivalent adjustment to net interest income		1,285		2,246		1,051
Plus noninterest income, net of securities gains/losses & OTTI		6,079		11,623		5,826
Total revenue		13,518		48,603		23,871
Efficiency ratio		62.77%		68.26%		65.04%

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. 

29

Comparison of the three months ended June 30, 2017to the three months ended June 30, 2016:

Tax equivalent net interest income increased $1.1 million to $10.0 million in the second quarter of 2017 compared to $8.9 million in the same period in 2016.  Balance sheet volume contributed $751 thousand to this increase and changes in interest rates added $299 thousand.

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
	2017					2016
	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	$	29,614	$	88	1.19%	$	38,400	$	79	0.83%
Investment securities:
Taxable		91,167		525	2.31%		108,168		588	2.19%
Tax Exempt		44,494		429	3.86%		51,679		535	4.14%
Investments		135,661		954	2.82%		159,847		1,123	2.83%
Loans:
Commercial, industrial and agricultural		754,164		7,943	4.17%		660,177		6,725	4.03%
Residential mortgage		75,147		745	3.97%		76,832		768	4.00%
Home equity loans and lines		71,368		815	4.58%		71,413		756	4.26%
Consumer		4,656		58	5.00%		5,715		60	4.22%
Loans		905,335		9,561	4.19%		814,137		8,309	4.05%
Total interest-earning assets		1,070,610	$	10,603	3.97%		1,012,384	$	9,511	3.78%
Other assets		63,074					67,771
Total assets	$	1,133,684				$	1,080,155
Interest-bearing liabilities:
Deposits:
Interest-bearing checking	$	277,619	$	89	0.13%	$	253,299	$	81	0.13%
Money Management		410,610		364	0.36%		390,985		333	0.34%
Savings		79,218		30	0.15%		73,323		14	0.08%
Time		73,094		107	0.59%		81,957		120	0.59%
Total interest-bearing deposits		840,541		590	0.28%		799,564		548	0.28%
Other borrowings		11		-	1.06%		6		-	0.58%
Total interest-bearing liabilities		840,552		590	0.28%		799,570		548	0.28%
Noninterest-bearing deposits		168,005					161,209
Other liabilities		5,384					5,003
Shareholders' equity		119,743					114,373
Total liabilities and shareholders' equity	$	1,133,684				$	1,080,155
T/E net interest income/Net interest margin				10,013	3.75%				8,963	3.56%
Tax equivalent adjustment				(665)					(523)
Net interest income			$	9,348				$	8,440

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Provision for Loan Losses

Provision expense for the second quarter was $50 thousand, compared to $1.9 million in 2016.  The decrease in the provision expense was due to low net growth in the loan portfolio, as there were several large participation loanrepurchases in the second quarter of 2017 by the lead banks, an improvement in loan quality and higher provision expense in 2016 related to a large commercial loan charge-off.   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 2017, noninterest income increased $299 thousand from the same period in 2016.  Investment and trust service fees increased due to an increase in recurring fee income from assets under management in 2017. Loan service charges increased from past due fees collected from a large pay-off on a nonaccrual loan.  Other income was higher due to a vendor rebate. 

The following table presents a comparison of noninterest income for the three months ended June 30, 2017 and 2016.

	For the Three Months Ended
	June 30				Change
(Dollars in thousands)	2017		2016		Amount		%
Noninterest Income
Investment and trust services fees	$	1,342	$	1,218	$	124	10.2
Loan service charges		309		189		120	63.5
Deposit service charges and fees		585		602		(17)	(2.8)
Other service charges and fees		332		313		19	6.1
Debit card income		362		375		(13)	(3.5)
Increase in cash surrender value of life insurance		131		132		(1)	(0.8)
Net loss on sale of other real estate owned		-		(2)		2	100.0
Securities gains (losses), net		-		2		(2)	(100.0)
Other		94		27		67	248.1
Total noninterest income	$	3,155	$	2,856	$	299	10.5

Noninterest Expense

Noninterest expense for the second quarter of 2017 increased $431 thousand compared to the same period in 2016.  The increase in salaries and benefits was primarily due to $255 thousand increase for incentive plans, $94 thousand increase in health insurance costs,  $80 thousand increase in salary expense due to merit increases and increased staffing levels and $37 thousand increase in stock option compensation compared to the same period in 2016.  The change in data processing expenses is due to increased utilization of the Bank’s mobile banking platforms.  FDIC insurance decreased as the Bank’s base assessment rate decreased.  Other expenses decreased due to collection of legal fees ($52 thousand) from a pay-off on a large nonaccrual loan.

The following table presents a comparison of noninterest expense for the three months ended June 30, 2017 and 2016:

	For the Three Months Ended
(Dollars in thousands)	June 30				Change
Noninterest Expense	2017		2016		Amount		%
Salaries and benefits	$	4,871	$	4,346	$	525	12.1
Occupancy, net		535		553		(18)	(3.3)
Furniture and equipment		226		218		8	3.7
Advertising		294		262		32	12.2
Legal and professional		381		394		(13)	(3.3)
Data processing		535		504		31	6.2
Pennsylvania bank shares tax		243		260		(17)	(6.5)
FDIC insurance		93		169		(76)	(45.0)
ATM/debit card processing		222		200		22	11.0
Foreclosed real estate		13		13		-	-
Telecommunications		102		90		12	13.3
Other		646		721		(75)	(10.4)
Total noninterest expense	$	8,161	$	7,730	$	431	5.6

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Provision for Income Taxes

For the second quarter of 2017, the Corporation recorded a Federal income tax expense of $950 thousand compared to $130 thousand for the same quarter in 2016. The effective tax rate was 22.1% for the second quarter of 2017 compared to 7.7% for the same period in 2016.  The increase in the effective tax rate was due to an increase in pretax income in 2017. Pre-tax income increased $2.6 million in 2017 due to an increase in net interest income and a $1.8 million decrease in the provision for loan losses expense. 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, 2017to the six months ended June 30, 2016:

Net Interest Income

Tax equivalent net interest income increased $1.6 million to $19.6 million in the first half of 2017 compared to $18.0 million in the same period in 2016.  Balance sheet volume contributed $1.5 million to this increase and changes in interest rates added $13 thousand.

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
	2017					2016
	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	$	25,199	$	149	1.19%	$	34,639	$	141	0.82%
Investment securities:
Taxable		92,957		1,070	2.32%		106,962		1,170	2.20%
Tax Exempt		45,423		880	3.88%		51,571		1,085	4.21%
Investments		138,380		1,950	2.84%		158,533		2,255	2.86%
Loans:
Commercial, industrial and agricultural		745,665		15,432	4.12%		651,542		13,548	4.11%
Residential mortgage		75,826		1,499	3.95%		77,727		1,555	4.00%
Home equity loans and lines		71,833		1,614	4.53%		71,166		1,511	4.27%
Consumer		4,686		124	5.34%		5,635		128	4.57%
Loans		898,010		18,669	4.14%		806,070		16,742	4.12%
Total interest-earning assets		1,061,589	$	20,768	3.95%		999,242	$	19,138	3.85%
Other assets		63,021					66,941
Total assets	$	1,124,610				$	1,066,183
Interest-bearing liabilities:
Deposits:
Interest-bearing checking	$	266,740	$	167	0.13%	$	245,539		153	0.13%
Money Management		416,401		729	0.35%		390,626		666	0.34%
Savings		78,059		50	0.13%		71,637		27	0.08%
Time		73,590		210	0.58%		83,415		245	0.59%
Total interest-bearing deposits		834,790		1,156	0.28%		791,217		1,091	0.28%
Other borrowings		3,720		15	0.82%		791		2	0.60%
Total interest-bearing liabilities		838,510		1,171	0.28%		792,008		1,093	0.28%
Noninterest-bearing deposits		162,566					155,456
Other liabilities		5,161					5,267
Shareholders' equity		118,373					113,452
Total liabilities and shareholders' equity	$	1,124,610				$	1,066,183
T/E net interest income/Net interest margin				19,597	3.72%				18,045	3.63%
Tax equivalent adjustment				(1,285)					(1,051)
Net interest income			$	18,312				$	16,994

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Provision for Loan Losses

Provision expense for the first half of 2017 was $170 thousand, compared to $2.2 million in 2016.  The decrease in the provision for loan losses expense was due to low net growth in the loan portfolio, as there were several large participation loan repurchases in 2017 by the lead banks, an improvement in loan quality and a higher provision expense in 2016 related to a large commercial loan charge-off.  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 2017, noninterest income increased $272 thousand from the same period in 2016.  Investment and trust service fees increased due to an increase in recurring fee income from assets under management in 2017. Loan service charges increased from past due fees ($160 thousand) collected from a large pay-off on a nonaccrual loan and a large prepayment penalty ($60 thousand) was collected in 2016.  The change in debit card income was due to increased usage by customers in the first half of 2017, compared to the same period in 2016. Other income was higher in 2016, due to a $76 thousand gain from the proceeds of a bank owned life insurance policy. 

The following table presents a comparison of noninterest income for the six months ended June 30, 2017 and 2016.

	For the Six Months Ended
	June 30				Change
(Dollars in thousands)	2017		2016		Amount		%
Noninterest Income
Investment and trust services fees	$	2,637	$	2,472	$	165	6.7
Loan service charges		455		415		40	9.6
Deposit service charges and fees		1,178		1,180		(2)	(0.2)
Other service charges and fees		656		616		40	6.5
Debit card income		738		722		16	2.2
Increase in cash surrender value of life insurance		262		267		(5)	(1.9)
Net loss on sale of other real estate owned		-		(10)		10	100.0
OTTI losses on debt securities		-		(20)		20	100.0
Securities gains (losses), net		2		3		(1)	(33.3)
Other		153		164		(11)	(6.7)
Total noninterest income	$	6,081	$	5,809	$	272	4.7

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Noninterest Expense

Noninterest expense for the first half of 2017 increased $593 thousand compared to the same period in 2016.  The increase in salaries and benefits was due primarily to $209 thousand increase for incentive plans, $117 thousand increase in health insurance costs,  $192 thousand increase in salary expense due to merit increases and increased staffing levels, $56 thousand increase in pension expense and $49 thousand increase in stock option compensation compared to the same period in 2016.  The change in data processing expenses is due to increased utilization of the Bank’s mobile banking platforms.  FDIC insurance decreased as the Bank’s base assessment rate decreased.Other expenses decreased due to collection of legal fees ($52 thousand) from a pay-off on a large nonaccrual loan in 2017.

The following table presents a comparison of noninterest expense for the six months ended June 30, 2017 and 2016:

	For the Six Months Ended
(Dollars in thousands)	June 30				Change
Noninterest Expense	2017		2016		Amount		%
Salaries and benefits	$	9,497	$	8,716	$	781	9.0
Occupancy, net		1,119		1,152		(33)	(2.9)
Furniture and equipment		457		434		23	5.3
Advertising		541		543		(2)	(0.4)
Legal and professional		671		691		(20)	(2.9)
Data processing		1,076		1,001		75	7.5
Pennsylvania bank shares tax		486		496		(10)	(2.0)
FDIC insurance		199		326		(127)	(39.0)
ATM/debit card processing		440		428		12	2.8
Foreclosed real estate		71		76		(5)	(6.6)
Telecommunications		202		209		(7)	(3.3)
Other		1,359		1,453		(94)	(6.5)
Total noninterest expense	$	16,118	$	15,525	$	593	3.8

Provision for Income Taxes

For the first half of 2017, the Corporation recorded a Federal income tax expense of $1.7 million compared to $815 thousand for the same period in 2016. The effective tax rate was 21.5% for the first half of 2017 compared to 16.0% for the same period in 2016.  The increase in the effective tax rate was due primarily to an increase in pretax income in 2017. Pre-tax income increased $3.0 million in 2017 due to an increase in net interest income and a $1.8 million decrease in the provision for loan losses expense.  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, 2017, assets totaled $1.135 billion, an increase of $7.2 million from the 2016 year-end balance of $1.127 billion. Investment securities decreased $7.8 million, while net loans increased $7.3 million (0.8%) due to growth in the commercial loan portfolio. Deposits increased $25.3 million (2.6%) during the first six months of 2017, mainly in interest-bearing deposits. Shareholders’ equity increased $5.9 million during the first six months as retained earnings increased $4.4 million, accumulated other comprehensive loss decreased $673 thousand and the Corporation’s Dividend Reinvestment Plan (DRIP) added an additional $528 thousand in new capital.

Cash and Cash Equivalents:

Cash and cash equivalents totaled $45.7 million at June 30, 2017, an increase of $9.1 million from the prior year-end balance of $36.7 million.  Interest-bearing deposits are held primarily at the Federal Reserve ($24.0 million) and in short-term bank owned certificates of deposit ($6.5 million).

Investment Securities:

The investment portfolio has decreased $8.9 million on a cost basis, since year-end 2016. 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 45% and 41% of the portfolio fair value, respectively.  The average life of the portfolio was 3.73 years. 

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The investment portfolio had a net unrealized gain of $999 thousand at June 30, 2017 compared to a net unrealized loss of $20 thousand at the prior year-end. The increase in the unrealized gain is due primarily to the change in interest rates.  The portfolio averaged $138.4 million with a yield of 2.84% for the first six months of 2017. This compares to an average of $158.5 million and a yield of 2.86% for the same period in 2016. 

The Bank holds only one equity security, a Pennsylvania community bank. The municipal bond portfolio is well diversified geographically (issuers from within 28 states) and is comprised primarily of general obligation bonds (75%).  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 14 issuers in the state of Texas with a fair value of $8.5 million and 10 issuers in the state of Pennsylvania with a fair value of $6.1 million. The average rating of the municipal portfolio from Moody’s is Aa2. It contains $59.9 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, 2017 and December 31, 2016 is as follows:

(Dollars in thousands)			Gross		Gross
	Amortized		unrealized		unrealized		Fair
June 30, 2017	cost		gains		losses		value
Equity securities	$	164	$	192	$	-	$	356
U.S. Government and Agency securities		12,032		134		(34)		12,132
Municipal securities		60,505		1,032		(192)		61,345
Trust preferred securities		5,989		3		(203)		5,789
Agency mortgage-backed securities		55,370		387		(386)		55,371
Private-label mortgage-backed securities		946		68		-		1,014
Asset-backed securities		31		-		(2)		29
	$	135,037	$	1,816	$	(817)	$	136,036

(Dollars in thousands)			Gross		Gross
	Amortized		unrealized		unrealized		Fair
December 31, 2016	cost		gains		losses		value
Equity securities	$	164	$	126	$	-	$	290
U.S. Government and Agency securities		12,598		148		(26)		12,720
Municipal securities		62,763		793		(571)		62,985
Trust preferred securities		5,979		-		(518)		5,461
Agency mortgage-backed securities		61,305		431		(452)		61,284
Private-label mortgage-backed securities		1,053		56		(5)		1,104
Asset-backed securities		33		-		(2)		31
	$	143,895	$	1,554	$	(1,574)	$	143,875

The investment portfolio contained eighty-three securities with $45.5 million of temporarily impaired fair value and $817 thousand in unrealized losses at June 30, 2017. The total unrealized loss position has improved from a $1.6 million unrealized loss at year-end 2016. 

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, 2017, 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, 2017 and December 31, 2016:

	June 30, 2017
	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	$	1,596	$	(9)	4	$	3,020	$	(25)	9	$	4,616	$	(34)	13
Municipal securities		6,671		(120)	12		2,146		(72)	3		8,817		(192)	15
Trust preferred securities		-		-	-		4,561		(203)	5		4,561		(203)	5
Agency mortgage-backed securities		19,063		(229)	32		8,457		(157)	17		27,520		(386)	49
Asset-backed securities		-		-	-		4		(2)	1		4		(2)	1
Total temporarily impaired securities	$	27,330	$	(358)	48	$	18,188	$	(459)	35	$	45,518	$	(817)	83

	December 31, 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	$	789	$	(9)	1	$	3,413	$	(17)	10	$	4,202	$	(26)	11
Municipal securities		23,407		(417)	43		1,598		(154)	2		25,005		(571)	45
Trust preferred securities		-		-	-		5,461		(518)	7		5,461		(518)	7
Agency mortgage-backed securities		26,995		(359)	39		4,656		(93)	11		31,651		(452)	50
Private-label mortgage-backed securities		281		(5)	1		-		-	-		281		(5)	1
Asset-backed securities		-		-	-		4		(2)	1		4		(2)	1
Total temporarily impaired securities	$	51,472	$	(790)	84	$	15,132	$	(784)	31	$	66,604	$	(1,574)	115

The unrealized loss in the municipal bond portfolio decreased to $192 thousand from $571 thousand at December 31, 2016 as market prices improved during the quarter.  There are fifteen 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 five securities with a fair value of $4.6 million and an unrealized loss of $203 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, 2017, the Bank believes it will be able to collect all interest and principal due on these bondsand no other-than-temporary-impairment charges were recorded. 

The PLMBS sector is showing an unrealized gain of $68 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 has recorded $595 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 $456 thousand of restricted stock at June 30, 2017.  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

36

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 decreased $5.8 million over 2016, primarily in the consumer first lien and consumer junior liens and lines of credit categories due to pay downs.  For the first six months of 2017, the Bank originated $4.1 million in mortgages, including approximately $3.6 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 ($9.9 million), while loans for individuals to construct personal residences totaled $1.3 millionat June 30, 2017.  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, 2017, the Bank had $1.3 million in residential real estate construction loans funded with an interest reserve and capitalized $48 thousand of interest from these reserves on active projects.  These loans were comprised of $303 in residential construction and $1.0 million in commercial construction (reported in the commercial real estate category).  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 (depending on the complexity of the project) detailing 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 decreased to $386.8 million from $390.6 million at the end of 2016, a decrease of $3.8 million.  The decrease was primarily in multi-family units, as an $8.9 million participation loan was purchased by the lead bank in April. The largest sectors (by collateral) in the commercial real estate category are: office buildings ($57.5 million), land development ($45.3 million),hotels and motels ($44.4 million), auto dealerships ($31.9 million) and manufacturing ($31.3 million).

Commercial(C&I):This category includes commercial, industrial, farm, agricultural, and municipal loans.  C&I loans increased $15.0 million to $285.8 million at June  30, 2017, compared to $270.8 million at the end of 2016, primarily in the municipal loan portfolio. The largest sectors (by industry) in the commercial loan category are: public administration ($82.9million), utilities ($36.7 million), educational services ($28.0 million) and retail trade ($25.7 million).  At June 30, 2017, the Bank had $173.9 million in tax-free loans. The Bank continues to reduce its portfolio of purchased participation commercial loans. At June 30, 2017, the Bank held $118.2 million in purchased loan participations in its portfolio, a decrease of $15.1 million from December 31, 2016 ($14.0 million due to participation loan purchases by the lead banks).  The Bank expects that commercial lending will continue to be the primary area of loan growth in the future, via in-market lending, but it expects new purchase participations to decline. 

Consumer loans: This category decreased $24 thousand due primarily to regular payments and maturities. The majority of the Bank’s consumer loans, approximately $3.3 million, are personal lines of credit. The Bank believes the consumer portfolio will continue to decline.

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

						Change
(Dollars in thousands)	June 30, 2017		December 31, 2016			Amount	%
Residential Real Estate 1-4 Family
Consumer first liens	$	100,072	$	103,125	$	(3,053)	(3.0)
Commercial first lien		63,178		65,445		(2,267)	(3.5)
Total first liens		163,250		168,570		(5,320)	(3.2)
Consumer junior liens and lines of credit		44,213		44,817		(604)	(1.3)
Commercial junior liens and lines of credit		5,480		5,396		84	1.6
Total junior liens and lines of credit		49,693		50,213		(520)	(1.0)
Total residential real estate 1-4 family		212,943		218,783		(5,840)	(2.7)
Residential real estate - construction
Consumer		1,298		1,350		(52)	(3.9)
Commercial		9,928		7,625		2,303	30.2
Total residential real estate construction		11,226		8,975		2,251	25.1
Commercial real estate		386,784		390,584		(3,800)	(1.0)
Commercial		285,780		270,826		14,954	5.5
Total commercial		672,564		661,410		11,154	1.7
Consumer		4,681		4,705		(24)	(0.5)
		901,414		893,873		7,541	0.8
Less: Allowance for loan losses		(11,307)		(11,075)		(232)	2.1
Net Loans	$	890,107	$	882,798	$	7,309	0.8

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 based on the performance status of the loans. 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-Substandard.   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 primary measurements: (1) loans rated 6-Special Mention or worse (collectively “watch list”), (2) delinquent loans, (3) net-charge-offs, and other real estate owned (OREO).

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 $17.0 million at quarter end and includes both performing and nonperforming loans.  It is comprised entirely of loans rate 7- Substandard. The Bank has no loans rated 6-Special Mention, 8-Doubtful or 9-Loss. Included in the substandard total are $3.1 million of nonaccrual loans.  The watch list totaled $18.5 million at December 31, 2016. The credit composition of the portfolio, by primary collateral is shown in Note 6 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-Substandard 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, 2017, the Bank had loans of $31.1 million that exceeded the supervisory limit.

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Delinquent loans are a result of borrowers’ cash flow and/or alternative sources of cash being insufficient to repay loans.  The Bank’s likelihood of collateral liquidation to repay the loans becomes more probable the further behind a borrower falls, particularly when loans reach 90 days or more past due. Management monitors the performance status of loans by the use of an aging report. The aging report can provide an early indicator of loans that may become severely delinquent and possibly result in a loss to the Bank.  See Note 6 in the accompanying financial statements for a table that presents the aging of payments in the loan portfolio.

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

Loan quality, as measured by the balance of nonperforming loans has improved since year-end 2016. Nonaccrual loans have decreased $1.7 million since year-end 2016. This reduction was due to the pay-off of a $1.1 million loan that had been in nonaccrual status since December 2014 and a partial pay-down of $655 thousand on another loan.  OREO declined during the year due to the sale in the first quarter of 2017 of a property that was carried at $1.8 million. Total OREO is essentially unchanged since the end of the first quarter.

The following table presents a summary of nonperforming assets:

(Dollars in thousands)	June 30, 2017		December 31, 2016
Nonaccrual loans
Residential Real Estate 1-4 Family
First liens	$	387	$	231
Junior liens and lines of credit		107		86
Total		494		317
Residential real estate - construction		473		480
Commercial real estate		1,969		3,956
Commercial		121		23
Total nonaccrual loans		3,057		4,776
Loans past due 90 days or more and not included above
Residential Real Estate 1-4 Family
First liens		61		-
Junior liens and lines of credit		8		-
Total		69		-
Commercial real estate		-		665
Total loans past due 90 days or more and still accruing		69		665
Total nonperforming loans		3,126		5,441
Other real estate owned		3,115		4,915
Total nonperforming assets	$	6,241	$	10,356
Nonperforming loans to total gross loans		0.35%		0.61%
Nonperforming assets to total assets		0.55%		0.92%
Allowance for loan losses to nonperforming loans		361.71%		203.55%

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The following table identifies the most significant loans in nonaccrual status. These two nonaccrual loans account for 75% 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, 2017 totaled $13.9 million compared to $17.1 million at year-end 2016.  The following table provides information on the most significant nonaccrual loans as of June 30, 2017:

(Dollars in thousands)
				ALL	Nonaccrual	TDR			Last
		Balance		Reserve	Date	Status	Collateral	Location	Appraisal(1)
Credit 1		1,688		-	Mar-12	Y	1st and 2nd liens on commercial real estate, residential real estate and business assets	PA	Jan-16	$	3,810
Credit 2		595		-	Sep-16	Y	1st lien on farmland	PA	Jul-14	$	2,391
	$	2,283	$	-

(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 is a TDR that is performing in accordance with the modified terms. Credit 2 paid down $655 thousand during the second quarter from the sale of real estate.

In addition to monitoring nonaccrual loans, the Bank also closely monitors impaired loans and troubled debt restructurings (TDR).  A loan is considered to be impaired when, based on current information and events, it is probable that the Bank will be unable to collect all interest and principal payments due according to the originally contracted terms of the loan agreement.  Nonaccrual loans (excluding consumer purpose loans) and TDR loans are considered impaired.

A loan is considered a troubled debt restructuring 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, re-amortization of the payment, or a combination of multiple concessions.   The Bank reviews all loans rated 6-Special Mention 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.

In accordance with financial accounting standards, TDR loans are always considered impaired until they are paid off or in certain circumstances, refinanced.  However, an impaired TDR loan can be a performing loan. Impaired loans totaled $13.2 million at quarter-end compared to $15.1 million at year-end 2016.

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

	June 30, 2017
(Dollars in thousands)	Nonaccrual				Accruing		Accruing		Total
	Non-TDR		TDR		TDR		Other (1)		Impaired
Residential Real Estate 1-4 Family
First liens	$	236	$	151	$	713	$	61	$	1,161
Junior liens and lines of credit		107		-		-		8		115
Total		343		151		713		69		1,276
Residential real estate - construction		-		473		-		-		473
Commercial real estate		159		1,810		9,376		-		11,345
Commercial		121		-		-		-		121
Total	$	623	$	2,434	$	10,089	$	69	$	13,215
1) impaired consumer purpose loans not yet on nonaccrual

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 (Special Mention) 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,

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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, 2017 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. These loans totaled $372 thousand at June 30, 2017 and are comprised primarily of loans secured by residential real estate. Management does not believe that excluding these loans from the specific reserve analysis presents any additional risk.  At June 30, 2017, impaired loans totaled $13.2 million compared to $15.1 million at year-end 2016. The Bank currently has no specific reserve established for any loans.  Note 6 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.  The historical loss experience factor for the general allocation was .83% ($7.5 million) of gross loans, compared to .84% at December 31, 2016.

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 June 30, 2017, these factors totaled 26 basis points ($2.3 million), unchanged from year-end 2016.  The risk assessment of factors is determined on the basis of Management’s observation, judgment and experience.  In addition to two factors above, there is an unallocated reserve of $1.5 million at June 30, 2017 compared to $1.3 million at the prior year-end.

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-Substandard 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, 2017 and December 31, 2016:

	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, 2017
Loans evaluated for ALL:
Individually	$	818	$	106	$	473	$	11,346	$	99	$	-	$	-	$	12,842
Collectively		162,432		49,587		10,753		375,438		285,681		4,681		-		888,572
Total	$	163,250	$	49,693	$	11,226	$	386,784	$	285,780	$	4,681	$	-	$	901,414
ALL established for loans evaluated:
Individually	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Collectively		1,075		322		281		6,052		2,023		100		1,454		11,307
ALL at June 30, 2017	$	1,075	$	322	$	281	$	6,052	$	2,023	$	100	$	1,454	$	11,307
December 31, 2016
Loans evaluated for ALL:
Individually	$	628	$	52	$	480	$	13,523	$	-	$	-	$	-	$	14,683
Collectively		167,942		50,161		8,495		377,061		270,826		4,705		-		879,190
Total	$	168,570	$	50,213	$	8,975	$	390,584	$	270,826	$	4,705	$	-	$	893,873
ALL established for loans evaluated:
Individually	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Collectively		1,105		323		224		6,109		1,893		100		1,321		11,075
ALL at December 31, 2016	$	1,105	$	323	$	224	$	6,109	$	1,893	$	100	$	1,321	$	11,075

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. Charged-off loans decrease the Bank’s allowance for loan losses (ALL), while the recovery of previously charge-off loans and the provision for loan loss expense increase the ALL.

Year-to-date, the Bank recorded a net recovery on previously charged-off loans of $62 thousand. For the same period of 2016, the Bank recorded $1.9 million in net charge-offs, primarily the result of a $1.9 million charge-off on a commercial real estate loan.

The Bank recorded $50 thousand for the loan loss provision expense for the second quarter of 2017 and $170 thousand on a year-to-date basis.  This compares to $1.9 million for the second quarter of 2017 and $2.2 million for the 2016 year-to-date period.  The change in the provision expense year-over-year is due to the following: 1) several large participated loans repurchased by the lead banks during the second quarter of 2017, tempering net loan growth, 2) credit quality has improved during 2017, and 3) the 2016 charge-off of $1.9 million previously mentioned.  

For the first six months of 2017, the allowance for loan losses increased $232 thousand to $11.3 million, or 1.25% of gross loans.

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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, 2017	$	1,100	$	321	$	274	$	6,126	$	1,984	$	99	$	1,374	$	11,278
Charge-offs		(5)		-		-		(5)		(2)		(24)		-		(36)
Recoveries		-		1		-		-		4		10		-		15
Provision		(20)		-		7		(69)		37		15		80		50
ALL at June 30, 2017	$	1,075	$	322	$	281	$	6,052	$	2,023	$	100	$	1,454	$	11,307
ALL at December 31, 2016	$	1,105	$	323	$	224	$	6,109	$	1,893	$	100	$	1,321	$	11,075
Charge-offs		(13)		-		-		(5)		(2)		(52)		-		(72)
Recoveries		1		1		-		-		106		26		-		134
Provision		(18)		(2)		57		(52)		26		26		133		170
ALL at June 30, 2017	$	1,075	$	322	$	281	$	6,052	$	2,023	$	100	$	1,454	$	11,307

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

	Six months ended		Year ended		Six months ended
	June 30, 2017		December 31, 2016		June 30, 2016
Net loans charged-off as a percentage of average gross loans		-0.01%		0.33%		0.48%
Net loans charged-off as a percentage of the provision for loan losses		-36.47%		73.80%		0.89%
Allowance as a percentage of loans		1.25%		1.24%		1.25%
Net (recoveries) charge-offs	$	(62)	$	2,786	$	1,943

Other Real Estate Owned:

The Bank holds $3.1 million of other real estate owned (OREO), comprised of five properties compared to $4.9 million on the same five properties at December 31, 2016. A portion of one property carried at $1.8 million was sold during the first quarter of 2017.  The most significant OREO holding is one property carried at $2.5 million (81% of total OREO) that is secured by 196 acres of land intended for residential real estate development. This property is under contract to be sold; however, the agreement allows for a due diligence period until November 2017. Therefore, the final outcome is not certain. This property was part of a participated loan and the workout is being handled by the lead bank.  During 2017, the Bank recorded a write down of $49 thousand on one property and incurred expense of $22 thousand to hold and maintain OREO. Note 7 of the accompanying financial statements provides additional information on activity in OREO.

The Bank had $90 thousand of residential properties in the process of foreclosure atJune  30, 2017 and December 31, 2016.

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Deposits: 

Total deposits increased $25.3 million during the first six months of 2017 to $1.007 billion. Non-interest bearing deposits increased $2.7 million, while interest-bearing checking and savings increased $25.1 million and time deposits decreased $2.5 million. Interest bearing checking increased by $33.2 million, primarily from nonprofit deposits.  The Bank’s Money Management product decreased $12.3 million, primarily in retail and municipal accounts.  Retail time deposits decreased since year-end, as customers moved funds to more liquid accounts. 

As of June  30, 2017, the Bank had $163.3 million placed in the ICS program ($99.0 million in interesting-bearing checking and $64.3 million in money management) and $3.4 million in reciprocal time deposits in the CDARS program included in brokered time deposits.  These programs allow the Bank to offer full FDIC coverage to large depositors, but with the convenience to the customer of only having to deal with one bank.  The Bank solicits these deposits from within its market and it believes they present no greater risk than any other local deposit.  However, regulatory guidance requires that these deposits be classified as brokered deposits.  The Bank had no wholesale brokered CDs at June 30, 2017.

						Change
(Dollars in thousands)	June 30, 2017		December 31, 2016			Amount	%
Noninterest-bearing checking	$	173,030	$	170,345	$	2,685	1.6
Interest-bearing checking		275,067		241,906		33,161	13.7
Money management		407,997		420,309		(12,312)	(2.9)
Savings		79,190		74,925		4,265	5.7
Total interest-bearing checking and savings		762,254		737,140		25,114	3.4
Retail time deposits		68,720		71,264		(2,544)	(3.6)
Brokered time deposits		3,374		3,371		3	0.1
Total time deposits		72,094		74,635		(2,541)	(3.4)
Total deposits	$	1,007,378	$	982,120	$	25,258	2.6
Overdrawn deposit accounts reclassified as loans	$	163	$	181

Borrowings:

The Corporation had no short-term borrowings at June 30, 2017, compared to $24.3 million at December 31, 2016. 

Shareholders’ Equity:

Total shareholders’ equity increased $5.9 million to $122.4 million at June 30, 2017, compared to $116.5 million at the end of 2016.  The increase in retained earnings from the Corporation’s net income of $6.4 million was partially offset by the cash dividend of $1.9 million. The Corporation’s dividend payout ratio was 30.6% for the first six months of 2017 compared to 43.6% in 2016.

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. For the second quarter of 2017, the Corporation paid a $0.24 per share dividend, compared to $0.21 paid in the second quarter of 2016. On July 13, 2017 the Board of Directors declared a $0.24 per share regular quarterly dividend for the third quarter of 2017, which will be paid on August 23, 2017.

In addition, the Corporation considers how dividend decisions may affect the Dividend Reinvestment Plan (DRIP), which has raised $528 thousand in new capital this year with 17,267 new shares purchased.  No shares were repurchased in the first half of 2017.  The 2016 stock repurchase plan expired on March 31, 2017 and there is currently no repurchase plan in place.

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%, 1.25% for 2017, 1.875% for 2018 and 2.50% for 2019 and thereafter.  The capital conservation buffer will be applicable to all of the capital ratios except for the Tier1 Leverage ratio. The capital conservation buffer is equal to the lowest value of the three applicable capital ratios less the regulatory minimum for each respective capital

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measurement.  The Bank’s capital conservation buffer at June 30, 2017 was 8.72% (total risk-based capital 16.72% less 8.00%) compared to the 2017 regulatory buffer of 1.25%.  Compliance with the capital conservation buffer is required in order to avoid limitations to certain capital distributions.  As of June 30, 2017, 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, 2017 and December 31, 2016 for the Corporation and the Bank. 

			Regulatory Ratios
			Adequately	Well
			Capitalized	Capitalized
(Dollars in thousands)	June 30, 2017	December 31, 2016	Minimum	Minimum
Common Equity Tier 1 Risk-based Capital Ratio (1)
Franklin Financial Services Corporation	15.52%	14.41%	4.500%	N/A
Farmers & Merchants Trust Company	15.46%	14.29%	4.500%	6.50%
Tier 1 Risk-based Capital Ratio (2)
Franklin Financial Services Corporation	15.52%	14.41%	6.000%	N/A
Farmers & Merchants Trust Company	15.46%	14.29%	6.000%	8.00%
Total Risk-based Capital Ratio (3)
Franklin Financial Services Corporation	16.78%	15.67%	8.000%	N/A
Farmers & Merchants Trust Company	16.72%	15.55%	8.000%	10.00%
Tier 1 Leverage Ratio (4)
Franklin Financial Services Corporation	10.39%	10.11%	4.000%	N/A
Farmers & Merchants Trust Company	10.35%	10.02%	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 Counties, Pennsylvania.  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 4.1% in Cumberland County to 5.7% 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.

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

Economic Data

	June 30, 2017	December 31, 2016
Unemployment Rate (seasonally adjusted)
Market area range (1)	4.1% - 5.7%	4.2 - 6.6%
Pennsylvania	5.0%	5.7%
United States	4.3%	4.6%
Housing Price Index - year over year change
PA, nonmetropolitan statistical area	1.6%	2.8%
United States	5.5%	5.6%
Building Permits - year over year change -12 moths
Harrisburg-Carlisle, PA MSA & Chambersburg-Waynesboro, PA MSA
Residential, estimated	-2.0%	20.9%
Multifamily, estimated	-28.3%	-31.7%
(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. In June 2017, the FOMC increased the federal funds rate target range by .25%, its fourth such increase since December 31, 2015.  Despite these actions, the yield curve has flattened during the year.  The Federal Reserve also announced it would begin to reduce the size of its balance sheet by not reinvesting cash-flow from maturing assets.  Looking throughout 2017, the FOMC continues to state that the timing and magnitude of rate increases will be data dependent; therefore, the likelihood of any rate increase or decrease in 2017 is unknown, despite predictions of more increases.  

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 the measurements 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 helps 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, 2017, the Bank had approximately $73.0 million (fair value) in its investment portfolio pledged as collateral for deposits.  The Bank also has access to other wholesale funding via the brokered CD market.

46

The FHLB system has always been a major funding source for community banks.  The Bank’s maximum borrowing capacity with the FHLB at June 30, 2017 was $307 million with $307 million available to borrow.  There are no indicators that lead the Bank to believe the FHLB would discontinue its lending function or restrict the Bank’s ability to borrow if either of these events were to occur, it would have a negative effect on the Bank and it is unlikely that the Bank could replace the level of FHLB funding in a short time. 

The Bank has established credit at the Federal Reserve Discount Window and as of quarter-end had the ability to borrow approximately $21 million. 

Off Balance Sheet Commitments

The Corporation’s financial statements do not reflect various commitments that are made in the normal course of business, which may involve some liquidity risk.  These commitments consist mainly of unfunded loans and letters of credit made under the same standards as on-balance sheet 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 $295.2 million and $301.3 million, respectively, at June  30, 2017 and December 31, 2016.

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 2016 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, 2017. For more information on market risk refer to the Corporation’s 2016 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, 2017, 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, 2017, 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.

47

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 including, without limitation, the Kalan et al. v. Farmers and Merchants Trust Company of Chambersburg, et al. (Case No. 2:15-CV-01435-WB) case filed in the United States District Court for the Eastern District of Pennsylvania and described in our current reports on Form 8-K filed July 29, 2016 and July 28, 2017.  The impact that any matter may have upon our results of operation or financial condition in any future reporting period will depend upon, among other things, the amount of loss resulting from such matter and the amount of income otherwise reported for the period.  No material proceedings are pending or are known to be threatened or contemplated against us by governmental authorities.

We establish accruals for legal proceedings when information related to the loss contingencies represented by those matters indicates both that a loss is probable and that the amount of loss can be reasonably estimated.  When we are able to do so, we also determine estimates of possible losses or ranges of possible losses, whether in excess of any related accrued liability or where there is no accrued liability.

We have not yet established any specific accrual for the Kalan matter because we are not yet able to provide an evaluation of the likelihood of an unfavorable outcome or an estimate of the amount or range of potential loss.  The damages sought by the Plaintiffs are as yet unspecified and uncertain.  It is as yet unclear as to whether the case will be allowed to proceed as a class action and, if so, how the class would be defined.  The case presents a number of legal uncertainties yet to be resolved including, whether Plaintiffs’ claims are timely and whether, as a directed trustee, the Bank could be liable for the Plaintiffs’ claims.  There are significant facts in dispute and discovery is in early stages.

These assessments are based upon our analysis of currently available information and are subject to significant judgment and a variety of assumptions and uncertainties.  As new information is obtained, we may change our assessments and, as a result, take or adjust the amounts of our accruals and change our estimates of possible losses or ranges of possible losses.  Due to the inherent subjectivity of the assessments and unpredictability of outcomes of legal proceedings, any amounts that may be accrued or included in estimates of possible losses or ranges of possible losses may not represent the actual loss to the Corporation from the Kalan or any other legal proceeding.  Our exposure and ultimate losses may be higher, possibly significantly higher, than amounts we may accrue or amounts we may estimate.

Item 1A. Risk Factors 

Except as set forth below, there were no material changes in the Corporation’s risk factors during the six months ended June  30, 2017. For more information, refer to the Corporation’s 2016 Annual Report on Form 10-K.

Our business and financial results could be impacted materially by adverse results in legal proceedings.

The nature of the Corporation’s business generates a certain amount of litigation involving matters arising in the ordinary course of business (and, in some cases, from the activities of companies we have acquired).  These legal proceedings, whether founded or unfounded, could result in reputation damage and have an adverse effect on our financial condition and results of operation if they are not resolved in a manner favorable to the Corporation.  Although we establish accruals for legal proceedings when information related to the loss contingencies represented by these matters indicates that both a loss is probable and that the amount of the loss can be reasonably estimated, we do not have accruals for all legal proceedings where we face a risk of loss.  In addition, due to the inherent subjectivity of the assessments and unpredictability of outcomes of legal proceedings, any amounts that may be accrued or included in estimates of possible losses or ranges of possible losses may not represent the actual loss to the Corporation.  We discuss these matters further in Part II, Item 1 Legal Proceedings and in Note 12 Contingencies in the Notes to Consolidated Financial Statements in Part I, Item 1 of this Report.

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

None

Item 3.   Defaults by the Company on its Senior Securities

None

Item 4.   Mine Safety Disclosures

Not Applicable

Item 5.   Other Information

None

48

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, 2014 and incorporated herein by reference.)

3.2   Bylaws of the Corporation. (Filed as Exhibit 3.2 to Annual Report on Form 10-K for the year ended December 31, 2016 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)

49

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

August4, 2017	/s/ Timothy G. Henry
	Timothy G. Henry
	Chief Executive Office and President
	(Principal Executive Officer)
August4, 2017	/s/ Mark R. Hollar
	Mark R. Hollar
	Treasurer and Chief Financial Officer
	(Principal Financial and Accounting Officer)

50

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:  August4, 2017

/s/ TimothyG.  Henry

TimothyG.  Henry

President and Chief Executive Officer

EX-31.2

Exhibit 31.2

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

I, Mark R. Hollar, certify that:

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

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

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

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

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

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

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

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

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

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

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

Date:  August4, 2017

/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, 2017, 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

President and Chief Executive Officer

August4, 2017

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, 2017 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

August4, 2017

XML

Document And Entity Information - shares	6 Months Ended
	Jun. 30, 2017	Jul. 31, 2017
Document And Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2017
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2017
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		4,340,631
Trading Symbol	fraf

XML

Consolidated Balance Sheets - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016
Assets
Cash and due from banks	$ 14,937	$ 16,888
Interest-bearing deposits in other banks	30,812	19,777
Total cash and cash equivalents	45,749	36,665
Investment securities available for sale, at fair value	136,036	143,875
Restricted stock	456	1,767
Loans held for sale	834	540
Loans	901,414	893,873
Allowance for loan losses	(11,307)	(11,075)
Net Loans	890,107	882,798
Premises and equipment, net	13,897	14,058
Bank owned life insurance	22,721	22,459
Goodwill	9,016	9,016
Other real estate owned	3,115	4,915
Deferred tax asset, net	6,180	5,844
Other assets	6,544	5,506
Total assets	1,134,655	1,127,443
Deposits
Noninterest-bearing checking	173,030	170,345
Money management, savings and interest checking	762,254	737,140
Time	72,094	74,635
Total Deposits	1,007,378	982,120
Short-term borrowings		24,270
Other liabilities	4,917	4,560
Total liabilities	1,012,295	1,010,950
Shareholders' equity
Common stock, $1 par value per share, 15,000,000 shares authorized with 4,688,349 shares issued and 4,340,430 shares outstanding at June 30, 2017 and 4,688,349 shares issued and 4,316,836 shares outstanding at December 31, 2016	4,688	4,688
Capital stock without par value, 5,000,000 shares authorized with no shares issued and outstanding
Additional paid-in capital	40,096	39,752
Retained earnings	87,498	83,081
Accumulated other comprehensive loss	(3,542)	(4,215)
Treasury stock, 347,919 shares at June 30, 2017 and 371,513 shares at December 31, 2016, at cost	(6,380)	(6,813)
Total shareholders' equity	122,360	116,493
Total liabilities and shareholders' equity	$ 1,134,655	$ 1,127,443

XML

Consolidated Balance Sheets (Parenthetical) - $ / shares	Jun. 30, 2017	Dec. 31, 2016
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	4,688,349	4,688,349
Common Stock, Shares, Outstanding	4,340,430	4,316,836
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	347,919	371,513

XML

Consolidated Statements Of Income - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Interest income
Loans, including fees	$ 9,039	$ 7,964	$ 17,678	$ 16,053
Interest and dividends on investments:
Taxable interest	518	584	1,049	1,160
Tax exempt interest	286	357	587	723
Dividend income	7	4	20	10
Deposits and obligations of other banks	88	79	149	141
Total interest income	9,938	8,988	19,483	18,087
Interest expense
Deposits	590	548	1,156	1,091
Short-term borrowings			15	2
Total interest expense	590	548	1,171	1,093
Net interest income	9,348	8,440	18,312	16,994
Provision for loan losses	50	1,875	170	2,175
Net interest income after provision for loan losses	9,298	6,565	18,142	14,819
Noninterest income
Investment and trust services fees	1,342	1,218	2,637	2,472
Loan service charges	309	189	455	415
Deposit service charges and fees	585	602	1,178	1,180
Other service charges and fees	332	313	656	616
Debit card income	362	375	738	722
Increase in cash surrender value of life insurance	131	132	262	267
Net loss on sale of other real estate owned		(2)		(10)
OTTI losses on debt securities				(20)
Securities gains, net		2	2	3
Other	94	27	153	164
Total noninterest income	3,155	2,856	6,081	5,809
Noninterest expense
Salaries and employee benefits	4,871	4,346	9,497	8,716
Occupancy, net	535	553	1,119	1,152
Furniture and equipment	226	218	457	434
Advertising	294	262	541	543
Legal and professional	381	394	671	691
Data processing	535	504	1,076	1,001
Pennsylvania bank shares tax	243	260	486	496
FDIC insurance	93	169	199	326
ATM/debit card processing	222	200	440	428
Foreclosed real estate	13	13	71	76
Telecommunications	102	90	202	209
Other	646	721	1,359	1,453
Total noninterest expense	8,161	7,730	16,118	15,525
Income before federal income tax expense	4,292	1,691	8,105	5,103
Federal income tax expense	950	130	1,743	815
Net income	$ 3,342	$ 1,561	$ 6,362	$ 4,288
Per share
Basic earnings per share	$ 0.77	$ 0.36	$ 1.47	$ 1.00
Diluted earnings per share	0.77	0.36	1.46	1.00
Cash dividends declared	$ 0.24	$ 0.21	$ 0.45	$ 0.40

XML

Consolidated Statements Of Comprehensive Income - USD ($) $ in Thousands		3 Months Ended		6 Months Ended
		Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Consolidated Statements Of Comprehensive Income [Abstract]
Net income		$ 3,342	$ 1,561	$ 6,362	$ 4,288
Securities:
Unrealized gains arising during the period		567	1,006	1,021	2,051
Reclassification adjustment for net (gains) losses and OTTI included in net income	[1]		(2)	(2)	17
Net unrealized gains		567	1,004	1,019	2,068
Tax effect		(193)	(340)	(346)	(702)
Net of tax amount		374	664	673	1,366
Total other comprehensive income		374	664	673	1,366
Total Comprehensive Income		$ 3,716	2,225	7,035	5,654
Reclassification adjustment / Statement line item: Tax expense (benefit)
Securities / securities (gains) losses and OTTI losses, net			$ 1	$ 1	$ (6)

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

XML

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, 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 employee stock option/purchase plans		1			278	279
Treasury shares issued under dividend reinvestment plan		82			3	85
Common stock issued under dividend reinvestment plan, 25,230 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 Jun. 30, 2016	4,685	39,454	81,090	(2,356)	(6,925)	115,948
Balance at Dec. 31, 2016	4,688	39,752	83,081	(4,215)	(6,813)	116,493
Net income			6,362			6,362
Other comprehensive income				673		673
Cash dividends declared			(1,945)			(1,945)
Treasury shares issued under employee stock option/purchase plans		26			116	142
Treasury shares issued under dividend reinvestment plan		211			317	528
Stock option compensation expense		107				107
Balance at Jun. 30, 2017	$ 4,688	$ 40,096	$ 87,498	$ (3,542)	$ (6,380)	$ 122,360

XML

Consolidated Statements Of Changes In Shareholders' Equity (Parenthetical) - $ / shares	6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016
Consolidated Statements Of Changes In Shareholders' Equity [Abstract]
Common Stock, Dividends, Per Share, Declared	$ 0.45	$ 0.40
Acquisition of treasury stock, shares		15,521
Treasury shares issued under stock option plan, shares	6,327	188
Treasury shares issued under dividend reinvestment plan, shares	17,267	15,372
Common stock issued under dividend reinvestment plan, shares		25,230
Common stock issued under stock option plans, shares		500

XML

Consolidated Statements Of Cash Flows - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016
Cash flows from operating activities
Net income	$ 6,362	$ 4,288
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	651	666
Net amortization of loans and investment securities	802	794
Amortization and net change in mortgage servicing rights valuation	27	27
Provision for loan losses	170	2,175
Gain on sales of securities	(2)	(3)
Impairment write-down on securities recognized in earnings		20
Loans originated for sale	(3,571)	(4,963)
Proceeds from sale of loans	3,277	4,937
Write-down of other real estate owned	49	46
Write-down on premise and equipment available for sale	45
Net loss (gain) on sale or disposal of other real estate/other repossessed assets		10
Increase in cash surrender value of life insurance	(262)	(267)
Stock option compensation	107	58
Decrease in other assets	(1,431)	(504)
Increase (decrease) in other liabilities	2	(2,588)
Net cash provided by operating activities	6,226	4,696
Cash flows from investing activities
Proceeds from sales and calls of investment securities available for sale	475	1,765
Proceeds from maturities and pay-downs of securities available for sale	11,452	11,929
Purchase of investment securities available for sale	(3,900)	(16,605)
Net decrease in restricted stock	1,311	346
Net increase in loans	(7,448)	(46,522)
Capital expenditures	(650)	(288)
Proceeds from surrender of life insurance policy		436
Proceeds from sale of other assets	154
Proceeds from sale of other real estate	1,751	224
Net cash provided by (used in) investing activities	3,145	(48,715)
Cash flows from financing activities
Net increase in demand deposits, interest-bearing checking, and savings accounts	27,799	52,147
Net decrease in time deposits	(2,541)	(5,105)
Net decrease in short-term borrowings	(24,270)
Dividends paid	(1,945)	(1,715)
Treasury shares issued under employee stock purchase plan	142	279
Treasury shares issued under dividend reinvestment plan	528	85
Common stock issued under stock option plans		9
Common stock issued under dividend reinvestment plan		552
Purchase of Treasury shares		(350)
Net cash (used) provided by financing activities	(287)	45,902
Increase in cash and cash equivalents	9,084	1,883
Cash and cash equivalents as of January 1	36,665	39,166
Cash and cash equivalents as of June 30	45,749	41,049
Supplemental Disclosures of Cash Flow Information
Cash paid during the year for: Interest on deposits and other borrowed funds	1,177	1,097
Cash paid during the year for: Income taxes	$ 3,405	2,100
Noncash Activities
Loans transferred to Other Real Estate		$ 23

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Basis Of Presentation

6 Months Ended

Jun. 30, 2017

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, 2017, 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 2016 Annual Report on Form 10-K.  The consolidated results of operations for the three month periods ended June  30, 2017 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, 2016 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)	2017		2016		2017		2016
Weighted average shares outstanding (basic)		4,331		4,294		4,326		4,289
Impact of common stock equivalents		21		4		21		3
Weighted average shares outstanding (diluted)		4,352		4,298		4,347		4,292
Anti-dilutive options excluded from calculation		-		43		-		44
Net income	$	3,342	$	1,561	$	6,362	$	4,288
Basic earnings per share	$	0.77	$	0.36	$	1.47	$	1.00
Diluted earnings per share	$	0.77	$	0.36	$	1.46	$	1.00

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Recent Accounting Pronouncements

6 Months Ended

Jun. 30, 2017

Recent Accounting Pronouncements [Abstract]

Recent Accounting Pronouncements

Note 2. Recent Accounting Pronouncements

Standard	Description	Effective Date	Effect on the financial statements or other significant matters
ASU 2016-15, Statements of Cash Flow (Topic 320): Classification of Certain Cash Receipts and Cash Payments	The standard clarifies how certain cash receipts and cash payments are presented and classified in the statement of cash flows.  The amendments are intended to reduce diversity in practice.  The standard contains additional guidance clarifying when an entity should separate cash receipts and cash payments and classify them into more than one class of cash flows (including when reasonable judgement is required to estimate and allocate cash flows) versus when an entity should classify the aggregate amount into one class of cash flows on the basis of predominance.	January 1, 2018	We do not expect this guidance will have an effect on the Corporation's consolidated financial statements.
ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments	This standard 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.	January 1, 2020	We have formed an implementation team led by the Corporation's Risk Management function. The team is reviewing the requirements of the ASU and evaluating methods and models for implementation.  The Corporation believes the new standard will result in earlier recognition of additions to the allowance for loan losses and possibly a larger allowance for loan loss balance with a corresponding increase in the provision for loan losses in results of operations; however, the Corporation is continuing to evaluate the impact of the pending adoption of the new standard on its consolidated financial statements.
ASU 2014-09, Revenue from Contracts with Customers (Topic 606)	The amendments in this Update (ASU 2014-09) establish a comprehensive revenue recognition standard. 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. Three basic transition methods are available – full retrospective, retrospective with certain practical expedients, and a cumulative effect approach.	January 1, 2018	The majority of our revenue comes from net interest income, and is explicitly out of scope of the guidance.  The contracts in noninterest income that are in scope of the guidance are primarily related to service charges and fees on deposit accounts, investment and trust income and other service charges and fees.  We are analyzing the contracts in scope to determine if our current accounting will change.
ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities	The standard amends the guidance on the classification and measurement of financial instruments.  Some of the amendments include the following: 1) requires equity investments 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.	January 1, 2018	We do not expect this guidance will have a material effect on the Corporation's consolidated financial statements.  We do not have a significant number of AFS equity securities.  Additionally we do not have financial liabilities accounted for under the fair value option.  The adoption of this guidance is not expected to be material.
ASU 2016-02, Leases (Topic 842)	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.	January 1, 2019	The Corporation currently has real estate and equipment leases that it classifies as operating leases that are not recognized on the balance sheet.  Under the new standard, these leases will move onto the balance sheet.  The Corporation has identified a lease accounting model it expects to use to implement the standard.  It is expected the model will be functional during the fourth quarter of 2017, but the Corporation does not plan to early adopt the standard. The Corporation believes the new standard will not have a material effect on its consolidated financial statements.
ASU 2017-04, Goodwill (Topic 350)	This guidance, among other things, removes step 2 of the goodwill impairment test thus eliminating the need to determine the fair value of individual assets and liabilities of the reporting unit.  Upon adoption of this standard, goodwill impairment will be the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the carrying amount of goodwill.  This may result in more or less impairment being recognized than under the current guidance.	January 1, 2020	We do not currently expect this guidance to have a material effect on the Corporation's consolidated financial statements based upon the most recent goodwill impairment analysis.
ASU 2016-09, Stock Compensation (Topic 718): Improvements to Employee Share-based Payment Accounting	The standard requires entities to recognize the income tax effects of share-based awards in the income statement when the awards vest or are settled (i.e. the additional paid-in capital pools will be eliminated).  The guidance on employers' accounting for an employee's use of shares to satisfy the employer's statutory income tax withholding obligation and for forfeitures is changing.  The standard also provides an entity the option to make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures when they occur.	January 1, 2017	We adopted the standard during the first quarter of 2017.  Due to the type of stock compensation plans used by the Corporation, there was no effect on the Corporation's consolidated financial statements.
ASU 2017-09,  Premium Amortization on Purchased Callable Debt Securities	The standard shortens the amortization period for premiums on purchased callable debt securities to the earliest call date, rather than amortizing over the full contractual term.  The standard does change the standard for securities held at a discount.  The amendments require companies to reset the effective yield using the payment terms of the debt security if the call option is not exercised on the earliest call date.  If the security has additional future called dates, any excess of the amortized cost basis over the amount repayable by the issuer at the next call date should be amortized to the next call date.	January 1, 2017	We adopted the standard during the first quarter of 2017, and there was no effect on the Corporation's consolidated financial statements.
ASU 2017-07, Employee Benefits Plan (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost	This standard requires an employer to report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period.  The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations.  The amendments in this update also allow only the service cost component to be eligible for capitalization when applicable.	January 1, 2018	We do not expect this standard will have an effect on the Corporation's consolidated financial statements.

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Accumulated Other Comprehensive Loss

6 Months Ended

Jun. 30, 2017

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
	2017		2016
(Dollars in thousands)
Net unrealized gains (losses) on securities	$	999	$	(20)
Tax effect		(339)		7
Net of tax amount		660		(13)
Accumulated pension adjustment		(6,366)		(6,366)
Tax effect		2,164		2,164
Net of tax amount		(4,202)		(4,202)
Total accumulated other comprehensive loss	$	(3,542)	$	(4,215)

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Investments

6 Months Ended

Jun. 30, 2017

Investments [Abstract]

Investments

Note 4. Investments

The amortized cost and estimated fair value of investment securities available for sale as of June 30, 2017 and December 31, 2016 are as follows:

(Dollars in thousands)			Gross		Gross
	Amortized		unrealized		unrealized		Fair
June 30, 2017	cost		gains		losses		value
Equity securities	$	164	$	192	$	-	$	356
U.S. Government and Agency securities		12,032		134		(34)		12,132
Municipal securities		60,505		1,032		(192)		61,345
Trust preferred securities		5,989		3		(203)		5,789
Agency mortgage-backed securities		55,370		387		(386)		55,371
Private-label mortgage-backed securities		946		68		-		1,014
Asset-backed securities		31		-		(2)		29
	$	135,037	$	1,816	$	(817)	$	136,036

(Dollars in thousands)			Gross		Gross
	Amortized		unrealized		unrealized		Fair
December 31, 2016	cost		gains		losses		value
Equity securities	$	164	$	126	$	-	$	290
U.S. Government and Agency securities		12,598		148		(26)		12,720
Municipal securities		62,763		793		(571)		62,985
Trust preferred securities		5,979		-		(518)		5,461
Agency mortgage-backed securities		61,305		431		(452)		61,284
Private-label mortgage-backed securities		1,053		56		(5)		1,104
Asset-backed securities		33		-		(2)		31
	$	143,895	$	1,554	$	(1,574)	$	143,875

At June 30, 2017 and December 31, 2016, the fair value of investment securities pledged to secure public funds, trust balances, deposit and other obligations totaled $73.0 million and  $79.1 million, respectively.

The amortized cost and estimated fair value of debt securities at June 30, 2017, 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	$	951	$	954
Due after one year through five years		11,535		11,701
Due after five years through ten years		35,626		36,037
Due after ten years		30,445		30,603
		78,557		79,295
Mortgage-backed securities		56,316		56,385
	$	134,873	$	135,680

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)	2017		2016		2017		2016
Gross gains realized	$	-	$	2	$	2	$	3
Gross losses realized		-		-		-		-
Net gains realized	$	-	$	2	$	2	$	3

The following table provides additional detail about trust preferred securities as of June 30, 2017:

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	$	968	$	932	$	(36)	BB+
Wachovia Cap Trust II	1/15/2027	Single	Preferred Stock		280		283		3	BBB
Huntington Cap Trust	2/1/2027	Single	Preferred Stock		948		899		(49)	BB
Corestates Captl Tr II	2/15/2027	Single	Preferred Stock		945		945		-	BBB+
Huntington Cap Trust II	6/15/2028	Single	Preferred Stock		903		845		(58)	BB
Chase Cap VI JPM	8/1/2028	Single	Preferred Stock		967		939		(28)	BBB-
Fleet Cap Tr V	12/18/2028	Single	Preferred Stock		978		946		(32)	BB+
				$	5,989	$	5,789	$	(200)

The following table provides additional detail about private label mortgage-backed securities as of June 30, 2017:

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	$	252	$	254	$	2	ALT A	CCC	16.24	$	-
RALI 2005-QS2 A1	2/1/2005		129		144		15	ALT A	CC	0.71		15
RALI 2006-QS4 A2	4/1/2006		356		381		25	ALT A	Caa3	-		323
GSR 2006-5F 2A1	5/1/2006		35		42		7	Prime	D	-		15
RALI 2006-QS8 A1	7/28/2006		174		193		19	ALT A	Ca	-		242
		$	946	$	1,014	$	68				$	595

Impairment:

The investment portfolio contained eighty-three securities with $45.5 million of temporarily impaired fair value and $817 thousand in unrealized losses at June 30, 2017. The total unrealized loss position has improved from a $1.6 million unrealized loss at year-end 2016. 

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, 2017, 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, 2017 and December 31, 2016:

	June 30, 2017
	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	$	1,596	$	(9)	4	$	3,020	$	(25)	9	$	4,616	$	(34)	13
Municipal securities		6,671		(120)	12		2,146		(72)	3		8,817		(192)	15
Trust preferred securities		-		-	-		4,561		(203)	5		4,561		(203)	5
Agency mortgage-backed securities		19,063		(229)	32		8,457		(157)	17		27,520		(386)	49
Asset-backed securities		-		-	-		4		(2)	1		4		(2)	1
Total temporarily impaired securities	$	27,330	$	(358)	48	$	18,188	$	(459)	35	$	45,518	$	(817)	83

	December 31, 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	$	789	$	(9)	1	$	3,413	$	(17)	10	$	4,202	$	(26)	11
Municipal securities		23,407		(417)	43		1,598		(154)	2		25,005		(571)	45
Trust preferred securities		-		-	-		5,461		(518)	7		5,461		(518)	7
Agency mortgage-backed securities		26,995		(359)	39		4,656		(93)	11		31,651		(452)	50
Private-label mortgage-backed securities		281		(5)	1		-		-	-		281		(5)	1
Asset-backed securities		-		-	-		4		(2)	1		4		(2)	1
Total temporarily impaired securities	$	51,472	$	(790)	84	$	15,132	$	(784)	31	$	66,604	$	(1,574)	115

The unrealized loss in the municipal bond portfolio decreased to $192 thousand from $571 thousand at December 31, 2016 as market prices improved during the quarter.  There are fifteen 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 five securities with a fair value of $4.6 million and an unrealized loss of $203 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, 2017, the Bank believes it will be able to collect all interest and principal due on these bondsand no other-than-temporary-impairment charges were recorded. 

The PLMBS sector is showing an unrealized gain of $68 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 has recorded $595 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
	2017		2016
Balance of cumulative credit-related OTTI at January 1	$	595	$	555
Additions for credit-related OTTI not previously recognized		-		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	$	595	$	575

The Bank held $456 thousand of restricted stock at June 30, 2017.  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, 2017

Loans [Abstract]

Loans

Note 5. Loans

The Bank reports its loan portfolio based on the primary collateral of the loan. It further classifies these loans by the primary purpose, either consumer or commercial. The Bank’s 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:

(Dollars in thousands)	June 30, 2017		December 31, 2016
Residential Real Estate 1-4 Family
Consumer first liens	$	100,072	$	103,125
Commercial first lien		63,178		65,445
Total first liens		163,250		168,570
Consumer junior liens and lines of credit		44,213		44,817
Commercial junior liens and lines of credit		5,480		5,396
Total junior liens and lines of credit		49,693		50,213
Total residential real estate 1-4 family		212,943		218,783
Residential real estate - construction
Consumer		1,298		1,350
Commercial		9,928		7,625
Total residential real estate construction		11,226		8,975
Commercial real estate		386,784		390,584
Commercial		285,780		270,826
Total commercial		672,564		661,410
Consumer		4,681		4,705
		901,414		893,873
Less: Allowance for loan losses		(11,307)		(11,075)
Net Loans	$	890,107	$	882,798
Included in the loan balances are the following:
Net unamortized deferred loan costs	$	279	$	242
Loans pledged as collateral for borrowings and commitments from:
FHLB	$	702,224	$	711,682
Federal Reserve Bank		36,951		41,152
	$	739,175	$	752,834

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Loan Quality And Allowance For Loan Losses

6 Months Ended

Jun. 30, 2017

Loan Quality And Allowance For Loan Losses [Abstract]

Loan Quality And Allowance For Loan Losses

Note 6. Loan Quality and Allowance for Loan Losses

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, 2017	$	1,100	$	321	$	274	$	6,126	$	1,984	$	99	$	1,374	$	11,278
Charge-offs		(5)		-		-		(5)		(2)		(24)		-		(36)
Recoveries		-		1		-		-		4		10		-		15
Provision		(20)		-		7		(69)		37		15		80		50
ALL at June 30, 2017	$	1,075	$	322	$	281	$	6,052	$	2,023	$	100	$	1,454	$	11,307
ALL at December 31, 2016	$	1,105	$	323	$	224	$	6,109	$	1,893	$	100	$	1,321	$	11,075
Charge-offs		(13)		-		-		(5)		(2)		(52)		-		(72)
Recoveries		1		1		-		-		106		26		-		134
Provision		(18)		(2)		57		(52)		26		26		133		170
ALL at June 30, 2017	$	1,075	$	322	$	281	$	6,052	$	2,023	$	100	$	1,454	$	11,307
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

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, 2017 and December 31, 2016:

	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, 2017
Loans evaluated for ALL:
Individually	$	818	$	106	$	473	$	11,345	$	100	$	-	$	-	$	12,842
Collectively		162,432		49,587		10,753		375,439		285,680		4,681		-		888,572
Total	$	163,250	$	49,693	$	11,226	$	386,784	$	285,780	$	4,681	$	-	$	901,414
ALL established for loans evaluated:
Individually	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Collectively		1,075		322		281		6,052		2,023		100		1,454		11,307
ALL at June 30, 2017	$	1,075	$	322	$	281	$	6,052	$	2,023	$	100	$	1,454	$	11,307
December 31, 2016
Loans evaluated for ALL:
Individually	$	628	$	52	$	480	$	13,523	$	-	$	-	$	-	$	14,683
Collectively		167,942		50,161		8,495		377,061		270,826		4,705		-		879,190
Total	$	168,570	$	50,213	$	8,975	$	390,584	$	270,826	$	4,705	$	-	$	893,873
ALL established for loans evaluated:
Individually	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Collectively		1,105		323		224		6,109		1,893		100		1,321		11,075
ALL at December 31, 2016	$	1,105	$	323	$	224	$	6,109	$	1,893	$	100	$	1,321	$	11,075

The following table shows additional information about those loans considered to be impaired at June 30, 2017 and December 31, 2016:

	Impaired Loans
	With No Allowance				With Allowance
(Dollars in thousands)			Unpaid					Unpaid
	Recorded		Principal		Recorded		Principal		Related
June 30, 2017	Investment		Balance		Investment		Balance		Allowance
Residential Real Estate 1-4 Family
First liens	$	1,161	$	1,231	$	-	$	-	$	-
Junior liens and lines of credit		115		120		-		-		-
Total		1,276		1,351		-		-		-
Residential real estate - construction		473		533		-		-		-
Commercial real estate		11,345		11,808		-		-		-
Commercial		121		133		-		-		-
Total	$	13,215	$	13,825	$	-	$	-	$	-

December 31, 2016
Residential Real Estate 1-4 Family
First liens	$	956	$	1,030	$	-	$	-	$	-
Junior liens and lines of credit		85		93		-		-		-
Total		1,041		1,123		-		-		-
Residential real estate - construction		480		535		-		-		-
Commercial real estate		13,523		14,133				-		-
Commercial		23		35		-		-		-
Total	$	15,067	$	15,826	$	-	$	-	$	-

The following table shows the average of impaired loans and related interest income for the three and six months ended June 30, 2017and 2016:

	Three Months Ended				Six Months Ended
	June 30, 2017				June 30, 2017
	Average		Interest		Average		Interest
(Dollars in thousands)	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
Residential Real Estate 1-4 Family
First liens	$	1,168	$	10	$	1,039	$	20
Junior liens and lines of credit		115		-		100		-
Total		1,283		10		1,139		20
Residential real estate - construction		476		-		478		-
Commercial real estate		12,043		102		12,104		218
Commercial		122		-		73		-
Total	$	13,924	$	112	$	13,794	$	238
	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

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, 2017
Residential Real Estate 1-4 Family
First liens	$	162,334	$	174	$	294	$	61	$	529	$	387	$	163,250
Junior liens and lines of credit		49,481		97		-		8		105		107		49,693
Total		211,815		271		294		69		634		494		212,943
Residential real estate - construction		10,753		-		-		-		-		473		11,226
Commercial real estate		384,513		117		185		-		302		1,969		386,784
Commercial		285,493		122		44		-		166		121		285,780
Consumer		4,647		26		8		-		34		-		4,681
Total	$	897,221	$	536	$	531	$	69	$	1,136	$	3,057	$	901,414

December 31, 2016
Residential Real Estate 1-4 Family
First liens	$	166,689	$	1,236	$	414	$	-	$	1,650	$	231	$	168,570
Junior liens and lines of credit		50,031		96		-		-		96		86		50,213
Total		216,720		1,332		414		-		1,746		317		218,783
Residential real estate - construction		8,495		-		-		-		-		480		8,975
Commercial real estate		384,658		858		447		665		1,970		3,956		390,584
Commercial		270,478		250		75		-		325		23		270,826
Consumer		4,672		30		3		-		33		-		4,705
Total	$	885,023	$	2,470	$	939	$	665	$	4,074	$	4,776	$	893,873

The following table reports the internal credit rating for the loan portfolio.  Consumer purpose loans are assigned a rating of either pass or substandard based on the performance status of the loans.  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, 2017
Residential Real Estate 1-4 Family
First liens	$	161,904	$	-	$	1,346	$	-	$	163,250
Junior liens and lines of credit		49,579		-		114		-		49,693
Total		211,483		-		1,460		-		212,943
Residential real estate - construction		10,146		-		1,080		-		11,226
Commercial real estate		375,919		-		10,865		-		386,784
Commercial		282,122		-		3,658		-		285,780
Consumer		4,681		-		-		-		4,681
Total	$	884,351	$	-	$	17,063	$	-	$	901,414

December 31, 2016
Residential Real Estate 1-4 Family
First liens	$	167,199	$	227	$	1,144	$	-	$	168,570
Junior liens and lines of credit		50,017		28		168		-		50,213
Total		217,216		255		1,312		-		218,783
Residential real estate - construction		8,220		-		755		-		8,975
Commercial real estate		377,283		-		13,301		-		390,584
Commercial		267,901		957		1,968		-		270,826
Consumer		4,705		-		-		-		4,705
Total	$	875,325	$	1,212	$	17,336	$	-	$	893,873

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, 2017
Residential real estate - construction	1	$	473	$	473	$	-	-	$	-
Residential real estate	5		864		713		151	1		151
Commercial real estate	11		11,186		10,591		595	1		595
Total	17	$	12,523	$	11,777	$	746	2	$	746
December 31, 2016
Residential real estate - construction	1	$	480	$	480	$	-	-	$	-
Residential real estate	5		875		724		151	1		151
Commercial real estate	11		12,064		10,814		1,250	1		1,250
Total	17	$	13,419	$	12,018	$	1,401	2	$	1,401

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

There were no new TDR loans during 2017.

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	$	504	multiple

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Other Real Estate Owned

6 Months Ended

Jun. 30, 2017

Other Real Estate Owned [Abstract]

Other Real Estate Owned

Note 7. Other Real Estate Owned

Changes in other real estate owned during the six months ended June 30, 2017 and 2016 were as follows:

	June 30
(Dollars in thousands)	2017		2016
Balance at beginning of the period	$	4,915	$	6,451
Additions		-		23
Proceeds from dispositions		(1,751)		(224)
(Loss) gain on sales, net		-		(10)
Valuation adjustment		(49)		(46)
Balance at the end of the period	$	3,115	$	6,194

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Pension

6 Months Ended

Jun. 30, 2017

Pension [Abstract]

Pension

Note 8. 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)	2017		2016		2017		2016
Components of net periodic cost:
Service cost	$	79	$	83	$	157	$	164
Interest cost		167		180		333		360
Expected return on plan assets		(268)		(290)		(536)		(583)
Recognized net actuarial loss		137		120		274		231
Net period cost	$	115	$	93	$	228	$	172

The Bank expects its pension expense to decrease to approximately $459 thousand in 2017 compared to $922 thousand in 2016. This decrease is due to a pension settlement expense of approximately $564 thousand that was recorded in the second half of 2016, as a result of lump sum distributions.  No pension contributions were made or are expected to be made in 2017.

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Fair Value Measurements And Fair Values Of Financial Instruments

6 Months Ended

Jun. 30, 2017

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

Fair Value Measurements And Fair Values Of Financial Instruments

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

Management uses its best judgment in estimating the fair value of the Corporation’s financial instruments; however, there are inherent weaknesses in any estimation technique.  Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts the Corporation could have realized in a sales transaction on the dates indicated.  The estimated fair value amounts have been measured as of their respective 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, 2017and December 31, 2016.

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, 2017
	Carrying		Fair
(Dollars in thousands)	Amount		Value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	45,749	$	45,749	$	45,749	$	-	$	-
Investment securities available for sale		136,036		136,036		356		135,680		-
Restricted stock		456		456		-		456		-
Loans held for sale		834		834		-		834		-
Net loans		890,107		891,933		-		-		891,933
Accrued interest receivable		3,409		3,409		-		3,409		-
Financial liabilities:
Deposits	$	1,007,378	$	1,006,804	$	-	$	1,006,804	$	-
Accrued interest payable		110		110		-		110		-
	December 31, 2016
	Carrying		Fair
(Dollars in thousands)	Amount		Value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	36,665	$	36,665	$	36,665	$	-	$	-
Investment securities available for sale		143,875		143,875		290		143,585		-
Restricted stock		1,767		1,767		-		1,767		-
Loans held for sale		540		540		-		540		-
Net loans		882,798		889,910		-		-		889,910
Accrued interest receivable		3,592		3,592		-		3,592		-
Financial liabilities:
Deposits	$	982,120	$	981,949	$	-	$	981,949	$	-
Short-term debt		24,270		24,270		24,270		-		-
Accrued interest payable		116		116		-		116		-

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, 2017 and December 31, 2016 are as follows:

(Dollars in Thousands	Fair Value at June 30, 2017
Asset  Description	Level 1		Level 2		Level 3		Total
Equity securities	$	356	$	-	$	-	$	356
U.S. Government and Agency securities		-		12,132		-		12,132
Municipal securities		-		61,345		-		61,345
Trust Preferred Securities		-		5,789		-		5,789
Agency mortgage-backed securities		-		55,371		-		55,371
Private-label mortgage-backed securities		-		1,014		-		1,014
Asset-backed securities		-		29		-		29
Total assets	$	356	$	135,680	$	-	$	136,036

(Dollars in Thousands)	Fair Value at December 31, 2016
Asset  Description	Level 1		Level 2		Level 3		Total
Equity securities	$	290	$	-	$	-	$	290
U.S. Government and Agency securities		-		12,720		-		12,720
Municipal securities		-		62,985		-		62,985
Trust Preferred Securities		-		5,461		-		5,461
Agency mortgage-backed securities		-		61,284		-		61,284
Private-label mortgage-backed securities		-		1,104		-		1,104
Asset-backed securities		-		31		-		31
Total assets	$	290	$	143,585	$	-	$	143,875

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, 2017 and December 31, 2016are as follows:

(Dollars in Thousands)
	Fair Value at June 30, 2017
Asset  Description	Level 1		Level 2		Level 3		Total
Other real estate owned (1)		-		-		177		177
Total assets	$	-	$	-	$	177	$	177

(Dollars in Thousands)	Fair Value at December 31, 2016
Asset  Description	Level 1		Level 2		Level 3		Total
Premises held-for-sale (1)	$	-	$	-	$	200	$	200
Other real estate owned (1)		-		-		2,407		2,407
Total assets	$	-	$	-	$	2,607	$	2,607

(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.

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, 2017. 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, 2017.

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

(Dollars in Thousands)		Quantitative Information about Level 3 Fair Value Measurements
					Range
June 30, 2017		Fair Value	Valuation Technique	Unobservable Input	(Weighted Average)
Other real estate owned		177	Appraisal	N/A	-
				Cost to sell	8%  (8%)
					Range
December 31, 2016		Fair Value	Valuation Technique	Unobservable Input	(Weighted Average)
Premises held-for-sale	$	200	Appraisal	Qualitative adjustment	5%  (5%)
Other real estate owned		2,407	Appraisal	N/A	-
				Cost to sell	8%  (8%)

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Capital Ratios

6 Months Ended

Jun. 30, 2017

Capital Ratios [Abstract]

Capital Ratios

Note 10. 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%,  1.25% for 2017, 1.875% for 2018 and 2.50% for 2019 and thereafter.  The capital conservation buffer will be applicable to all of the capital ratios except for the Tier1 Leverage ratio. The capital conservation buffer is equal to the lowest value of the three applicable capital ratios less the regulatory minimum for each respective capital measurement.  The Bank’s capital conservation buffer at June 30, 2017 was 8.72% (total risk-based capital 16.72% less 8.00%) compared to the 2017 regulatory buffer of 1.25%.  Compliance with the capital conservation buffer is required in order to avoid limitations to certain capital distributions.  As of June 30, 2017, 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, 2017 and December 31, 2016 for the Corporation and the Bank. 

			Regulatory Ratios
			Adequately	Well
			Capitalized	Capitalized
(Dollars in thousands)	June 30, 2017	December 31, 2016	Minimum	Minimum
Common Equity Tier 1 Risk-based Capital Ratio (1)
Franklin Financial Services Corporation	15.52%	14.41%	4.500%	N/A
Farmers & Merchants Trust Company	15.46%	14.29%	4.500%	6.50%
Tier 1 Risk-based Capital Ratio (2)
Franklin Financial Services Corporation	15.52%	14.41%	6.000%	N/A
Farmers & Merchants Trust Company	15.46%	14.29%	6.000%	8.00%
Total Risk-based Capital Ratio (3)
Franklin Financial Services Corporation	16.78%	15.67%	8.000%	N/A
Farmers & Merchants Trust Company	16.72%	15.55%	8.000%	10.00%
Tier 1 Leverage Ratio (4)
Franklin Financial Services Corporation	10.39%	10.11%	4.000%	N/A
Farmers & Merchants Trust Company	10.35%	10.02%	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, 2017

Reclassification [Abstract]

Reclassification

31Note 11. 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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Contingencies

6 Months Ended

Jun. 30, 2017

Contingencies [Abstract]

Contingencies

Ne

3

1Note 12. Contingencies

The nature of the Corporation’s business generates a certain amount of litigation involving matters arising in the ordinary course of business, including, without limitation, the Kalan et al. v. Farmers and Merchants Trust Company of Chambersburg, et al. case filed in the United States District Court of the Eastern District of Pennsylvania.

In management’s opinion, we are not able to anticipate, at the present time, whether the ultimate aggregate liability, if any, arising out of such litigation will have a material adverse effect on our financial position.  We cannot now determine,  whether or not any claims asserted against us, including the disclosed matter, will have a material adverse effect on our results of operations in any future reporting period, which will depend on, among other things, the amount of loss resulting from the claim and the amount of income otherwise reported for the reporting period.  At the date of this filing, we are unable to provide an evaluation of the likelihood of an unfavorable outcome or an estimate of the amount or range of potential loss and, accordingly, have not yet established any specific accrual for this matter.  In addition, no material proceedings are pending or are known to be threatened or contemplated against us by governmental authorities.

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Basis Of Presentation (Policy)

6 Months Ended

Jun. 30, 2017

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, 2017, 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 2016 Annual Report on Form 10-K.  The consolidated results of operations for the three month periods ended June  30, 2017 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, 2016 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)	2017		2016		2017		2016
Weighted average shares outstanding (basic)		4,331		4,294		4,326		4,289
Impact of common stock equivalents		21		4		21		3
Weighted average shares outstanding (diluted)		4,352		4,298		4,347		4,292
Anti-dilutive options excluded from calculation		-		43		-		44
Net income	$	3,342	$	1,561	$	6,362	$	4,288
Basic earnings per share	$	0.77	$	0.36	$	1.47	$	1.00
Diluted earnings per share	$	0.77	$	0.36	$	1.46	$	1.00

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Basis Of Presentation (Tables)

6 Months Ended

Jun. 30, 2017

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)	2017		2016		2017		2016
Weighted average shares outstanding (basic)		4,331		4,294		4,326		4,289
Impact of common stock equivalents		21		4		21		3
Weighted average shares outstanding (diluted)		4,352		4,298		4,347		4,292
Anti-dilutive options excluded from calculation		-		43		-		44
Net income	$	3,342	$	1,561	$	6,362	$	4,288
Basic earnings per share	$	0.77	$	0.36	$	1.47	$	1.00
Diluted earnings per share	$	0.77	$	0.36	$	1.46	$	1.00

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Recent Accounting Pronouncements (Tables)

6 Months Ended

Jun. 30, 2017

Recent Accounting Pronouncements [Abstract]

Recent Accounting Pronouncements

Standard	Description	Effective Date	Effect on the financial statements or other significant matters
ASU 2016-15, Statements of Cash Flow (Topic 320): Classification of Certain Cash Receipts and Cash Payments	The standard clarifies how certain cash receipts and cash payments are presented and classified in the statement of cash flows.  The amendments are intended to reduce diversity in practice.  The standard contains additional guidance clarifying when an entity should separate cash receipts and cash payments and classify them into more than one class of cash flows (including when reasonable judgement is required to estimate and allocate cash flows) versus when an entity should classify the aggregate amount into one class of cash flows on the basis of predominance.	January 1, 2018	We do not expect this guidance will have an effect on the Corporation's consolidated financial statements.
ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments	This standard 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.	January 1, 2020	We have formed an implementation team led by the Corporation's Risk Management function. The team is reviewing the requirements of the ASU and evaluating methods and models for implementation.  The Corporation believes the new standard will result in earlier recognition of additions to the allowance for loan losses and possibly a larger allowance for loan loss balance with a corresponding increase in the provision for loan losses in results of operations; however, the Corporation is continuing to evaluate the impact of the pending adoption of the new standard on its consolidated financial statements.
ASU 2014-09, Revenue from Contracts with Customers (Topic 606)	The amendments in this Update (ASU 2014-09) establish a comprehensive revenue recognition standard. 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. Three basic transition methods are available – full retrospective, retrospective with certain practical expedients, and a cumulative effect approach.	January 1, 2018	The majority of our revenue comes from net interest income, and is explicitly out of scope of the guidance.  The contracts in noninterest income that are in scope of the guidance are primarily related to service charges and fees on deposit accounts, investment and trust income and other service charges and fees.  We are analyzing the contracts in scope to determine if our current accounting will change.
ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities	The standard amends the guidance on the classification and measurement of financial instruments.  Some of the amendments include the following: 1) requires equity investments 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.	January 1, 2018	We do not expect this guidance will have a material effect on the Corporation's consolidated financial statements.  We do not have a significant number of AFS equity securities.  Additionally we do not have financial liabilities accounted for under the fair value option.  The adoption of this guidance is not expected to be material.
ASU 2016-02, Leases (Topic 842)	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.	January 1, 2019	The Corporation currently has real estate and equipment leases that it classifies as operating leases that are not recognized on the balance sheet.  Under the new standard, these leases will move onto the balance sheet.  The Corporation has identified a lease accounting model it expects to use to implement the standard.  It is expected the model will be functional during the fourth quarter of 2017, but the Corporation does not plan to early adopt the standard. The Corporation believes the new standard will not have a material effect on its consolidated financial statements.
ASU 2017-04, Goodwill (Topic 350)	This guidance, among other things, removes step 2 of the goodwill impairment test thus eliminating the need to determine the fair value of individual assets and liabilities of the reporting unit.  Upon adoption of this standard, goodwill impairment will be the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the carrying amount of goodwill.  This may result in more or less impairment being recognized than under the current guidance.	January 1, 2020	We do not currently expect this guidance to have a material effect on the Corporation's consolidated financial statements based upon the most recent goodwill impairment analysis.
ASU 2016-09, Stock Compensation (Topic 718): Improvements to Employee Share-based Payment Accounting	The standard requires entities to recognize the income tax effects of share-based awards in the income statement when the awards vest or are settled (i.e. the additional paid-in capital pools will be eliminated).  The guidance on employers' accounting for an employee's use of shares to satisfy the employer's statutory income tax withholding obligation and for forfeitures is changing.  The standard also provides an entity the option to make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures when they occur.	January 1, 2017	We adopted the standard during the first quarter of 2017.  Due to the type of stock compensation plans used by the Corporation, there was no effect on the Corporation's consolidated financial statements.
ASU 2017-09,  Premium Amortization on Purchased Callable Debt Securities	The standard shortens the amortization period for premiums on purchased callable debt securities to the earliest call date, rather than amortizing over the full contractual term.  The standard does change the standard for securities held at a discount.  The amendments require companies to reset the effective yield using the payment terms of the debt security if the call option is not exercised on the earliest call date.  If the security has additional future called dates, any excess of the amortized cost basis over the amount repayable by the issuer at the next call date should be amortized to the next call date.	January 1, 2017	We adopted the standard during the first quarter of 2017, and there was no effect on the Corporation's consolidated financial statements.
ASU 2017-07, Employee Benefits Plan (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost	This standard requires an employer to report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period.  The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations.  The amendments in this update also allow only the service cost component to be eligible for capitalization when applicable.	January 1, 2018	We do not expect this standard will have an effect on the Corporation's consolidated financial statements.

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Accumulated Other Comprehensive Loss (Tables)

6 Months Ended

Jun. 30, 2017

Accumulated Other Comprehensive Loss [Abstract]

Schedule Of Accumulated Other Comprehensive Loss

	June 30		December 31
	2017		2016
(Dollars in thousands)
Net unrealized gains (losses) on securities	$	999	$	(20)
Tax effect		(339)		7
Net of tax amount		660		(13)
Accumulated pension adjustment		(6,366)		(6,366)
Tax effect		2,164		2,164
Net of tax amount		(4,202)		(4,202)
Total accumulated other comprehensive loss	$	(3,542)	$	(4,215)

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Investments (Tables)

6 Months Ended

Jun. 30, 2017

Investments [Abstract]

Unrealized Gain (Loss) On Investments

(Dollars in thousands)			Gross		Gross
	Amortized		unrealized		unrealized		Fair
June 30, 2017	cost		gains		losses		value
Equity securities	$	164	$	192	$	-	$	356
U.S. Government and Agency securities		12,032		134		(34)		12,132
Municipal securities		60,505		1,032		(192)		61,345
Trust preferred securities		5,989		3		(203)		5,789
Agency mortgage-backed securities		55,370		387		(386)		55,371
Private-label mortgage-backed securities		946		68		-		1,014
Asset-backed securities		31		-		(2)		29
	$	135,037	$	1,816	$	(817)	$	136,036

(Dollars in thousands)			Gross		Gross
	Amortized		unrealized		unrealized		Fair
December 31, 2016	cost		gains		losses		value
Equity securities	$	164	$	126	$	-	$	290
U.S. Government and Agency securities		12,598		148		(26)		12,720
Municipal securities		62,763		793		(571)		62,985
Trust preferred securities		5,979		-		(518)		5,461
Agency mortgage-backed securities		61,305		431		(452)		61,284
Private-label mortgage-backed securities		1,053		56		(5)		1,104
Asset-backed securities		33		-		(2)		31
	$	143,895	$	1,554	$	(1,574)	$	143,875

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

(Dollars in thousands)	Amortized cost		Fair value
Due in one year or less	$	951	$	954
Due after one year through five years		11,535		11,701
Due after five years through ten years		35,626		36,037
Due after ten years		30,445		30,603
		78,557		79,295
Mortgage-backed securities		56,316		56,385
	$	134,873	$	135,680

Composition Of Net Realized Securities Gains

	For the Three Months Ended				For the Six Months Ended
	June 30				June 30
(Dollars in thousands)	2017		2016		2017		2016
Gross gains realized	$	-	$	2	$	2	$	3
Gross losses realized		-		-		-		-
Net gains realized	$	-	$	2	$	2	$	3

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	$	968	$	932	$	(36)	BB+
Wachovia Cap Trust II	1/15/2027	Single	Preferred Stock		280		283		3	BBB
Huntington Cap Trust	2/1/2027	Single	Preferred Stock		948		899		(49)	BB
Corestates Captl Tr II	2/15/2027	Single	Preferred Stock		945		945		-	BBB+
Huntington Cap Trust II	6/15/2028	Single	Preferred Stock		903		845		(58)	BB
Chase Cap VI JPM	8/1/2028	Single	Preferred Stock		967		939		(28)	BBB-
Fleet Cap Tr V	12/18/2028	Single	Preferred Stock		978		946		(32)	BB+
				$	5,989	$	5,789	$	(200)

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	$	252	$	254	$	2	ALT A	CCC	16.24	$	-
RALI 2005-QS2 A1	2/1/2005		129		144		15	ALT A	CC	0.71		15
RALI 2006-QS4 A2	4/1/2006		356		381		25	ALT A	Caa3	-		323
GSR 2006-5F 2A1	5/1/2006		35		42		7	Prime	D	-		15
RALI 2006-QS8 A1	7/28/2006		174		193		19	ALT A	Ca	-		242
		$	946	$	1,014	$	68				$	595

Schedule Of Unrealized Loss On Investments

	June 30, 2017
	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	$	1,596	$	(9)	4	$	3,020	$	(25)	9	$	4,616	$	(34)	13
Municipal securities		6,671		(120)	12		2,146		(72)	3		8,817		(192)	15
Trust preferred securities		-		-	-		4,561		(203)	5		4,561		(203)	5
Agency mortgage-backed securities		19,063		(229)	32		8,457		(157)	17		27,520		(386)	49
Asset-backed securities		-		-	-		4		(2)	1		4		(2)	1
Total temporarily impaired securities	$	27,330	$	(358)	48	$	18,188	$	(459)	35	$	45,518	$	(817)	83

	December 31, 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	$	789	$	(9)	1	$	3,413	$	(17)	10	$	4,202	$	(26)	11
Municipal securities		23,407		(417)	43		1,598		(154)	2		25,005		(571)	45
Trust preferred securities		-		-	-		5,461		(518)	7		5,461		(518)	7
Agency mortgage-backed securities		26,995		(359)	39		4,656		(93)	11		31,651		(452)	50
Private-label mortgage-backed securities		281		(5)	1		-		-	-		281		(5)	1
Asset-backed securities		-		-	-		4		(2)	1		4		(2)	1
Total temporarily impaired securities	$	51,472	$	(790)	84	$	15,132	$	(784)	31	$	66,604	$	(1,574)	115

Other Than Temporary Impairment, Credit Losses Recognized In Earnings

(Dollars in thousands)	Six Months Ended
	2017		2016
Balance of cumulative credit-related OTTI at January 1	$	595	$	555
Additions for credit-related OTTI not previously recognized		-		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	$	595	$	575

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Loans (Tables)

6 Months Ended

Jun. 30, 2017

Loans [Abstract]

Schedule Of Loans Outstanding

(Dollars in thousands)	June 30, 2017		December 31, 2016
Residential Real Estate 1-4 Family
Consumer first liens	$	100,072	$	103,125
Commercial first lien		63,178		65,445
Total first liens		163,250		168,570
Consumer junior liens and lines of credit		44,213		44,817
Commercial junior liens and lines of credit		5,480		5,396
Total junior liens and lines of credit		49,693		50,213
Total residential real estate 1-4 family		212,943		218,783
Residential real estate - construction
Consumer		1,298		1,350
Commercial		9,928		7,625
Total residential real estate construction		11,226		8,975
Commercial real estate		386,784		390,584
Commercial		285,780		270,826
Total commercial		672,564		661,410
Consumer		4,681		4,705
		901,414		893,873
Less: Allowance for loan losses		(11,307)		(11,075)
Net Loans	$	890,107	$	882,798
Included in the loan balances are the following:
Net unamortized deferred loan costs	$	279	$	242
Loans pledged as collateral for borrowings and commitments from:
FHLB	$	702,224	$	711,682
Federal Reserve Bank		36,951		41,152
	$	739,175	$	752,834

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Loan Quality And Allowance For Loan Losses (Tables)

6 Months Ended

Jun. 30, 2017

Loan Quality And Allowance For Loan Losses [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, 2017	$	1,100	$	321	$	274	$	6,126	$	1,984	$	99	$	1,374	$	11,278
Charge-offs		(5)		-		-		(5)		(2)		(24)		-		(36)
Recoveries		-		1		-		-		4		10		-		15
Provision		(20)		-		7		(69)		37		15		80		50
ALL at June 30, 2017	$	1,075	$	322	$	281	$	6,052	$	2,023	$	100	$	1,454	$	11,307
ALL at December 31, 2016	$	1,105	$	323	$	224	$	6,109	$	1,893	$	100	$	1,321	$	11,075
Charge-offs		(13)		-		-		(5)		(2)		(52)		-		(72)
Recoveries		1		1		-		-		106		26		-		134
Provision		(18)		(2)		57		(52)		26		26		133		170
ALL at June 30, 2017	$	1,075	$	322	$	281	$	6,052	$	2,023	$	100	$	1,454	$	11,307
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

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, 2017 and December 31, 2016:

	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, 2017
Loans evaluated for ALL:
Individually	$	818	$	106	$	473	$	11,345	$	100	$	-	$	-	$	12,842
Collectively		162,432		49,587		10,753		375,439		285,680		4,681		-		888,572
Total	$	163,250	$	49,693	$	11,226	$	386,784	$	285,780	$	4,681	$	-	$	901,414
ALL established for loans evaluated:
Individually	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Collectively		1,075		322		281		6,052		2,023		100		1,454		11,307
ALL at June 30, 2017	$	1,075	$	322	$	281	$	6,052	$	2,023	$	100	$	1,454	$	11,307
December 31, 2016
Loans evaluated for ALL:
Individually	$	628	$	52	$	480	$	13,523	$	-	$	-	$	-	$	14,683
Collectively		167,942		50,161		8,495		377,061		270,826		4,705		-		879,190
Total	$	168,570	$	50,213	$	8,975	$	390,584	$	270,826	$	4,705	$	-	$	893,873
ALL established for loans evaluated:
Individually	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Collectively		1,105		323		224		6,109		1,893		100		1,321		11,075
ALL at December 31, 2016	$	1,105	$	323	$	224	$	6,109	$	1,893	$	100	$	1,321	$	11,075

Impaired Financing Receivables

The following table shows additional information about those loans considered to be impaired at June 30, 2017 and December 31, 2016:

	Impaired Loans
	With No Allowance				With Allowance
(Dollars in thousands)			Unpaid					Unpaid
	Recorded		Principal		Recorded		Principal		Related
June 30, 2017	Investment		Balance		Investment		Balance		Allowance
Residential Real Estate 1-4 Family
First liens	$	1,161	$	1,231	$	-	$	-	$	-
Junior liens and lines of credit		115		120		-		-		-
Total		1,276		1,351		-		-		-
Residential real estate - construction		473		533		-		-		-
Commercial real estate		11,345		11,808		-		-		-
Commercial		121		133		-		-		-
Total	$	13,215	$	13,825	$	-	$	-	$	-

December 31, 2016
Residential Real Estate 1-4 Family
First liens	$	956	$	1,030	$	-	$	-	$	-
Junior liens and lines of credit		85		93		-		-		-
Total		1,041		1,123		-		-		-
Residential real estate - construction		480		535		-		-		-
Commercial real estate		13,523		14,133				-		-
Commercial		23		35		-		-		-
Total	$	15,067	$	15,826	$	-	$	-	$	-

The following table shows the average of impaired loans and related interest income for the three and six months ended June 30, 2017and 2016:

	Three Months Ended				Six Months Ended
	June 30, 2017				June 30, 2017
	Average		Interest		Average		Interest
(Dollars in thousands)	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
Residential Real Estate 1-4 Family
First liens	$	1,168	$	10	$	1,039	$	20
Junior liens and lines of credit		115		-		100		-
Total		1,283		10		1,139		20
Residential real estate - construction		476		-		478		-
Commercial real estate		12,043		102		12,104		218
Commercial		122		-		73		-
Total	$	13,924	$	112	$	13,794	$	238
	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

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, 2017
Residential Real Estate 1-4 Family
First liens	$	162,334	$	174	$	294	$	61	$	529	$	387	$	163,250
Junior liens and lines of credit		49,481		97		-		8		105		107		49,693
Total		211,815		271		294		69		634		494		212,943
Residential real estate - construction		10,753		-		-		-		-		473		11,226
Commercial real estate		384,513		117		185		-		302		1,969		386,784
Commercial		285,493		122		44		-		166		121		285,780
Consumer		4,647		26		8		-		34		-		4,681
Total	$	897,221	$	536	$	531	$	69	$	1,136	$	3,057	$	901,414

December 31, 2016
Residential Real Estate 1-4 Family
First liens	$	166,689	$	1,236	$	414	$	-	$	1,650	$	231	$	168,570
Junior liens and lines of credit		50,031		96		-		-		96		86		50,213
Total		216,720		1,332		414		-		1,746		317		218,783
Residential real estate - construction		8,495		-		-		-		-		480		8,975
Commercial real estate		384,658		858		447		665		1,970		3,956		390,584
Commercial		270,478		250		75		-		325		23		270,826
Consumer		4,672		30		3		-		33		-		4,705
Total	$	885,023	$	2,470	$	939	$	665	$	4,074	$	4,776	$	893,873

Internal Credit Rating For The Loan Portfolio

	Pass		Special Mention		Substandard		Doubtful
(Dollars in thousands)	(1-5)		(6)		(7)		(8)		Total
June 30, 2017
Residential Real Estate 1-4 Family
First liens	$	161,904	$	-	$	1,346	$	-	$	163,250
Junior liens and lines of credit		49,579		-		114		-		49,693
Total		211,483		-		1,460		-		212,943
Residential real estate - construction		10,146		-		1,080		-		11,226
Commercial real estate		375,919		-		10,865		-		386,784
Commercial		282,122		-		3,658		-		285,780
Consumer		4,681		-		-		-		4,681
Total	$	884,351	$	-	$	17,063	$	-	$	901,414

December 31, 2016
Residential Real Estate 1-4 Family
First liens	$	167,199	$	227	$	1,144	$	-	$	168,570
Junior liens and lines of credit		50,017		28		168		-		50,213
Total		217,216		255		1,312		-		218,783
Residential real estate - construction		8,220		-		755		-		8,975
Commercial real estate		377,283		-		13,301		-		390,584
Commercial		267,901		957		1,968		-		270,826
Consumer		4,705		-		-		-		4,705
Total	$	875,325	$	1,212	$	17,336	$	-	$	893,873

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, 2017
Residential real estate - construction	1	$	473	$	473	$	-	-	$	-
Residential real estate	5		864		713		151	1		151
Commercial real estate	11		11,186		10,591		595	1		595
Total	17	$	12,523	$	11,777	$	746	2	$	746
December 31, 2016
Residential real estate - construction	1	$	480	$	480	$	-	-	$	-
Residential real estate	5		875		724		151	1		151
Commercial real estate	11		12,064		10,814		1,250	1		1,250
Total	17	$	13,419	$	12,018	$	1,401	2	$	1,401

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

There were no new TDR loans during 2017.

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	$	504	multiple

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Other Real Estate Owned (Tables)

6 Months Ended

Jun. 30, 2017

Other Real Estate Owned [Abstract]

Summary Of Changes In Other Real Estate Owned

	June 30
(Dollars in thousands)	2017		2016
Balance at beginning of the period	$	4,915	$	6,451
Additions		-		23
Proceeds from dispositions		(1,751)		(224)
(Loss) gain on sales, net		-		(10)
Valuation adjustment		(49)		(46)
Balance at the end of the period	$	3,115	$	6,194

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Pension (Tables)

6 Months Ended

Jun. 30, 2017

Pension [Abstract]

Schedule Of Net Periodic Pension Costs

	Three Months Ended June 30				Six Months Ended June 30
(Dollars in thousands)	2017		2016		2017		2016
Components of net periodic cost:
Service cost	$	79	$	83	$	157	$	164
Interest cost		167		180		333		360
Expected return on plan assets		(268)		(290)		(536)		(583)
Recognized net actuarial loss		137		120		274		231
Net period cost	$	115	$	93	$	228	$	172

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

6 Months Ended

Jun. 30, 2017

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

Fair Value, By Balance Sheet Grouping

	June 30, 2017
	Carrying		Fair
(Dollars in thousands)	Amount		Value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	45,749	$	45,749	$	45,749	$	-	$	-
Investment securities available for sale		136,036		136,036		356		135,680		-
Restricted stock		456		456		-		456		-
Loans held for sale		834		834		-		834		-
Net loans		890,107		891,933		-		-		891,933
Accrued interest receivable		3,409		3,409		-		3,409		-
Financial liabilities:
Deposits	$	1,007,378	$	1,006,804	$	-	$	1,006,804	$	-
Accrued interest payable		110		110		-		110		-
	December 31, 2016
	Carrying		Fair
(Dollars in thousands)	Amount		Value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	36,665	$	36,665	$	36,665	$	-	$	-
Investment securities available for sale		143,875		143,875		290		143,585		-
Restricted stock		1,767		1,767		-		1,767		-
Loans held for sale		540		540		-		540		-
Net loans		882,798		889,910		-		-		889,910
Accrued interest receivable		3,592		3,592		-		3,592		-
Financial liabilities:
Deposits	$	982,120	$	981,949	$	-	$	981,949	$	-
Short-term debt		24,270		24,270		24,270		-		-
Accrued interest payable		116		116		-		116		-

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

(Dollars in Thousands	Fair Value at June 30, 2017
Asset  Description	Level 1		Level 2		Level 3		Total
Equity securities	$	356	$	-	$	-	$	356
U.S. Government and Agency securities		-		12,132		-		12,132
Municipal securities		-		61,345		-		61,345
Trust Preferred Securities		-		5,789		-		5,789
Agency mortgage-backed securities		-		55,371		-		55,371
Private-label mortgage-backed securities		-		1,014		-		1,014
Asset-backed securities		-		29		-		29
Total assets	$	356	$	135,680	$	-	$	136,036

(Dollars in Thousands)	Fair Value at December 31, 2016
Asset  Description	Level 1		Level 2		Level 3		Total
Equity securities	$	290	$	-	$	-	$	290
U.S. Government and Agency securities		-		12,720		-		12,720
Municipal securities		-		62,985		-		62,985
Trust Preferred Securities		-		5,461		-		5,461
Agency mortgage-backed securities		-		61,284		-		61,284
Private-label mortgage-backed securities		-		1,104		-		1,104
Asset-backed securities		-		31		-		31
Total assets	$	290	$	143,585	$	-	$	143,875

Schedule Of Fair Value On A Nonrecurring Basis

(Dollars in Thousands)
	Fair Value at June 30, 2017
Asset  Description	Level 1		Level 2		Level 3		Total
Other real estate owned (1)		-		-		177		177
Total assets	$	-	$	-	$	177	$	177

(Dollars in Thousands)	Fair Value at December 31, 2016
Asset  Description	Level 1		Level 2		Level 3		Total
Premises held-for-sale (1)	$	-	$	-	$	200	$	200
Other real estate owned (1)		-		-		2,407		2,407
Total assets	$	-	$	-	$	2,607	$	2,607

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

Fair Value Inputs, Assets, Quantitative Information

(Dollars in Thousands)		Quantitative Information about Level 3 Fair Value Measurements
					Range
June 30, 2017		Fair Value	Valuation Technique	Unobservable Input	(Weighted Average)
Other real estate owned		177	Appraisal	N/A	-
				Cost to sell	8%  (8%)
					Range
December 31, 2016		Fair Value	Valuation Technique	Unobservable Input	(Weighted Average)
Premises held-for-sale	$	200	Appraisal	Qualitative adjustment	5%  (5%)
Other real estate owned		2,407	Appraisal	N/A	-
				Cost to sell	8%  (8%)

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Capital Ratios (Tables)

6 Months Ended

Jun. 30, 2017

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, 2017	December 31, 2016	Minimum	Minimum
Common Equity Tier 1 Risk-based Capital Ratio (1)
Franklin Financial Services Corporation	15.52%	14.41%	4.500%	N/A
Farmers & Merchants Trust Company	15.46%	14.29%	4.500%	6.50%
Tier 1 Risk-based Capital Ratio (2)
Franklin Financial Services Corporation	15.52%	14.41%	6.000%	N/A
Farmers & Merchants Trust Company	15.46%	14.29%	6.000%	8.00%
Total Risk-based Capital Ratio (3)
Franklin Financial Services Corporation	16.78%	15.67%	8.000%	N/A
Farmers & Merchants Trust Company	16.72%	15.55%	8.000%	10.00%
Tier 1 Leverage Ratio (4)
Franklin Financial Services Corporation	10.39%	10.11%	4.000%	N/A
Farmers & Merchants Trust Company	10.35%	10.02%	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, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Basis Of Presentation [Abstract]
Weighted average shares outstanding (basic)	4,331	4,294	4,326	4,289
Impact of common stock equivalents	21	4	21	3
Weighted average shares outstanding (diluted)	4,352	4,298	4,347	4,292
Anti-dilutive options excluded from calculation		43		44
Net income	$ 3,342	$ 1,561	$ 6,362	$ 4,288
Basic earnings per share	$ 0.77	$ 0.36	$ 1.47	$ 1.00
Diluted earnings per share	$ 0.77	$ 0.36	$ 1.46	$ 1.00

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Accumulated Other Comprehensive Loss (Details) - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016
Accumulated Other Comprehensive Loss [Abstract]
Net unrealized gains (losses) on securities	$ 999	$ (20)
Tax effect	(339)	7
Net of tax amount	660	(13)
Accumulated pension adjustment	(6,366)	(6,366)
Tax effect	2,164	2,164
Net of tax amount	(4,202)	(4,202)
Total accumulated other comprehensive loss	$ (3,542)	$ (4,215)

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Investments (Narrative) (Details) $ / shares in Units, $ in Thousands	6 Months Ended
	Jun. 30, 2017 USD ($) security $ / shares	Dec. 31, 2016 USD ($) security	Jun. 30, 2016 USD ($)	Dec. 31, 2015 USD ($)
Schedule of Available-for-sale Securities [Line Items]
Restricted stock	$ 456	$ 1,767
Number of temporarily impaired securities | security	83	115
Securities pledged as collateral	$ 73,000	$ 79,100
Gross Unrealized Losses	817	1,574
Cumulative OTTI Charges	595	595	$ 575	$ 555
Fair value of temporarily impaired securities	45,518	$ 66,604
Other-than-temporary-impairment charges	$ 0
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	15	45
Gross Unrealized Losses	$ 192	$ 571
Fair value of temporarily impaired securities	$ 8,817	$ 25,005
Trust Preferred Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Number of temporarily impaired securities | security	5	7
Gross Unrealized Gain (Loss)	$ (200)
Gross Unrealized Losses	203	$ 518
Fair value of temporarily impaired securities	4,561	$ 5,461
Private-Label Mortgage-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Number of temporarily impaired securities | security		1
Gross Unrealized Gain (Loss)	68
Gross Unrealized Losses		$ 5
Cumulative OTTI Charges	$ 595
Fair value of temporarily impaired securities		$ 281

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Investments (Unrealized Gain (loss) On Investments) (Details) - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	$ 135,037	$ 143,895
Gross Unrealized Gains	1,816	1,554
Gross Unrealized Losses	(817)	(1,574)
Available for sale	136,036	143,875
Equity Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	164	164
Gross Unrealized Gains	192	126
Available for sale	356	290
U.S. Government And Agency Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	12,032	12,598
Gross Unrealized Gains	134	148
Gross Unrealized Losses	(34)	(26)
Available for sale	12,132	12,720
Municipal Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	60,505	62,763
Gross Unrealized Gains	1,032	793
Gross Unrealized Losses	(192)	(571)
Available for sale	61,345	62,985
Trust Preferred Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	5,989	5,979
Gross Unrealized Gains	3
Gross Unrealized Losses	(203)	(518)
Available for sale	5,789	5,461
Agency Mortgage-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	55,370	61,305
Gross Unrealized Gains	387	431
Gross Unrealized Losses	(386)	(452)
Available for sale	55,371	61,284
Private-Label Mortgage-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	946	1,053
Gross Unrealized Gains	68	56
Gross Unrealized Losses		(5)
Available for sale	1,014	1,104
Asset-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	31	33
Gross Unrealized Losses	(2)	(2)
Available for sale	$ 29	$ 31

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Investments (Amortized Cost And Fair Value Of Debt Securities, By Contractual Maturity) (Details) $ in Thousands	Jun. 30, 2017 USD ($)
Investments [Abstract]
Due in one year or less, Amortized cost	$ 951
Due after one year through five years, Amortized cost	11,535
Due after five years through ten years, Amortized cost	35,626
Due after ten years, Amortized cost	30,445
Amortized Cost Contractual Maturities Subtotal	78,557
Mortgage-backed securities, Amortized cost	56,316
Available-for-sale Securities, Debt Maturities, Amortized Cost Basis	134,873
Due in one year or less, Fair value	954
Due after one year through five years, Fair value	11,701
Due after five years through ten years, Fair value	36,037
Due after ten years, Fair value	30,603
Fair Value Contractual Maturities Subtotal	79,295
Mortgage-backed securities, Fair value	56,385
Available-for-sale Securities, Debt Securities, Fair Value	$ 135,680

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Investments (Composition Of Net Realized Securities Gains (Details) - USD ($) $ in Thousands	3 Months Ended	6 Months Ended
	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Investments [Abstract]
Gross gains realized	$ 2	$ 2	$ 3
Net gains realized	$ 2	$ 2	$ 3

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Investments (Schedule Of Unrealized Loss On Investments) (Details) $ in Thousands	Jun. 30, 2017 USD ($) security	Dec. 31, 2016 USD ($) security
Schedule of Available-for-sale Securities [Line Items]
Less than 12 months: Fair Value	$ 27,330	$ 51,472
Less than 12 months: Unrealized Losses	$ (358)	$ (790)
Less than 12 months: Count | security	48	84
12 months or more: Fair Value	$ 18,188	$ 15,132
12 months or more: Unrealized Losses	$ (459)	$ (784)
12 months or more: Count | security	35	31
Fair Value	$ 45,518	$ 66,604
Unrealized Losses	$ (817)	$ (1,574)
Count | security	83	115
U.S. Government And Agency Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Less than 12 months: Fair Value	$ 1,596	$ 789
Less than 12 months: Unrealized Losses	$ (9)	$ (9)
Less than 12 months: Count | security	4	1
12 months or more: Fair Value	$ 3,020	$ 3,413
12 months or more: Unrealized Losses	$ (25)	$ (17)
12 months or more: Count | security	9	10
Fair Value	$ 4,616	$ 4,202
Unrealized Losses	$ (34)	$ (26)
Count | security	13	11
Municipal Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Less than 12 months: Fair Value	$ 6,671	$ 23,407
Less than 12 months: Unrealized Losses	$ (120)	$ (417)
Less than 12 months: Count | security	12	43
12 months or more: Fair Value	$ 2,146	$ 1,598
12 months or more: Unrealized Losses	$ (72)	$ (154)
12 months or more: Count | security	3	2
Fair Value	$ 8,817	$ 25,005
Unrealized Losses	$ (192)	$ (571)
Count | security	15	45
Trust Preferred Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
12 months or more: Fair Value	$ 4,561	$ 5,461
12 months or more: Unrealized Losses	$ (203)	$ (518)
12 months or more: Count | security	5	7
Fair Value	$ 4,561	$ 5,461
Unrealized Losses	$ (203)	$ (518)
Count | security	5	7
Agency Mortgage-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Less than 12 months: Fair Value	$ 19,063	$ 26,995
Less than 12 months: Unrealized Losses	$ (229)	$ (359)
Less than 12 months: Count | security	32	39
12 months or more: Fair Value	$ 8,457	$ 4,656
12 months or more: Unrealized Losses	$ (157)	$ (93)
12 months or more: Count | security	17	11
Fair Value	$ 27,520	$ 31,651
Unrealized Losses	$ (386)	$ (452)
Count | security	49	50
Private-Label Mortgage-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Less than 12 months: Fair Value		$ 281
Less than 12 months: Unrealized Losses		$ (5)
Less than 12 months: Count | security		1
Fair Value		$ 281
Unrealized Losses		$ (5)
Count | security		1
Asset-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
12 months or more: Fair Value	$ 4	$ 4
12 months or more: Unrealized Losses	$ (2)	$ (2)
12 months or more: Count | security	1	1
Fair Value	$ 4	$ 4
Unrealized Losses	$ (2)	$ (2)
Count | security	1	1

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Investments (Schedule Of Trust Preferred Securities) (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2017	Dec. 31, 2016
Schedule of Available-for-sale Securities [Line Items]
Amortized cost	$ 135,037	$ 143,895
Fair Value	136,036	143,875
Trust Preferred Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized cost	5,989	5,979
Fair Value	5,789	$ 5,461
Unrealized Gain (Loss)	$ (200)
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	$ 948
Fair Value	899
Unrealized Gain (Loss)	$ (49)
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	$ 903
Fair Value	845
Unrealized Gain (Loss)	$ (58)
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	$ 967
Fair Value	939
Unrealized Gain (Loss)	$ (28)
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	$ 968
Fair Value	932
Unrealized Gain (Loss)	$ (36)
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	$ 978
Fair Value	946
Unrealized Gain (Loss)	$ (32)
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	$ 945
Fair Value	$ 945
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	$ 280
Fair Value	283
Unrealized Gain (Loss)	$ 3

XML

Investments (Private Label Mortgage Backed Securities) (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2017	Dec. 31, 2016	Jun. 30, 2016	Dec. 31, 2015
Schedule of Available-for-sale Securities [Line Items]
Amortized cost	$ 135,037	$ 143,895
Available for sale	136,036	143,875
Cumulative OTTI Charges	595	595	$ 575	$ 555
Private-Label Mortgage-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized cost	946	1,053
Available for sale	1,014	$ 1,104
Unrealized Gain (Loss)	68
Cumulative OTTI Charges	$ 595
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	$ 252
Available for sale	254
Unrealized Gain (Loss)	$ 2
Collateral Type	ALT A
Credit Support %	16.24%
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	$ 129
Available for sale	144
Unrealized Gain (Loss)	$ 15
Collateral Type	ALT A
Credit Support %	0.71%
Cumulative OTTI Charges	$ 15
Lowest Credit Rating Assigned: Caa3 Rating [Member] | RALI2006-QS4 A2 [Member]
Schedule of Available-for-sale Securities [Line Items]
Origination Date	Apr. 01, 2006
Amortized cost	$ 356
Available for sale	381
Unrealized Gain (Loss)	$ 25
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	$ 35
Available for sale	42
Unrealized Gain (Loss)	$ 7
Collateral Type	Prime
Cumulative OTTI Charges	$ 15
Lowest Credit Rating Assigned: Ca Rating [Member] | RALI2006-QS8 A1 [Member]
Schedule of Available-for-sale Securities [Line Items]
Origination Date	Jul. 28, 2006
Amortized cost	$ 174
Available for sale	193
Unrealized Gain (Loss)	$ 19
Collateral Type	ALT A
Cumulative OTTI Charges	$ 242

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Investments (Other Than Temporary Impairment, Credit Losses Recognized In Earnings) (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016
Investments [Abstract]
Balance of cumulative credit-related OTTI at January 1	$ 595	$ 555
Additions for credit-related OTTI not previously recognized		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	$ 595	$ 575

XML

Loans (Schedule Of Loans Outstanding) (Details) - USD ($) $ in Thousands	Jun. 30, 2017	Mar. 31, 2017	Dec. 31, 2016	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2015
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	$ 901,414		$ 893,873
Less: Allowance for loan losses	(11,307)	$ (11,278)	(11,075)	$ (10,318)	$ (10,342)	$ (10,086)
Net Loans	890,107		882,798
Net unamortized deferred loan costs	279		242
Loans pledged as collateral for borrowings and commitments from: FHLB	702,224		711,682
Loans pledged as collateral for borrowings and commitments from :Federal Reserve Bank	36,951		41,152
Total	739,175		752,834
Residential Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	212,943		218,783
Residential Real Estate - Construction [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	11,226		8,975
Less: Allowance for loan losses	(281)	(274)	(224)	(205)	(199)	(194)
Commercial Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	386,784		390,584
Less: Allowance for loan losses	(6,052)	(6,126)	(6,109)	(5,940)	(6,181)	(5,649)
Commercial [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	285,780		270,826
Less: Allowance for loan losses	(2,023)	(1,984)	(1,893)	(1,596)	(1,510)	(1,519)
Total Commercial [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	672,564		661,410
Consumer [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	4,681		4,705
Less: Allowance for loan losses	(100)	(99)	(100)	(97)	(99)	(102)
Consumer First Liens [Member] | Residential Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	100,072		103,125
Consumer Junior Liens And Lines Of Credit [Member] | Residential Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	44,213		44,817
Consumer [Member] | Residential Real Estate - Construction [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	1,298		1,350
Commercial Junior Liens And Lines Of Credit [Member] | Residential Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	5,480		5,396
Commercial [Member] | Residential Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	63,178		65,445
Commercial [Member] | Residential Real Estate - Construction [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	9,928		7,625
First Liens [Member] | Residential Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	163,250		168,570
Less: Allowance for loan losses	(1,075)	$ (1,100)	(1,105)	$ (1,023)	$ (997)	$ (989)
Junior Lines And Lines Of Credit [Member] | Residential Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	$ 49,693		$ 50,213

XML

Loan Quality And Allowance For Loan Losses (Allowance For Loan Losses, By Loan Segment) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Dec. 31, 2016
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance, Beginning Balance	$ 11,278	$ 10,342	$ 11,075	$ 10,086
Charge-offs	(36)	(2,042)	(72)	(2,153)
Recoveries	15	143	134	210
Provision	50	1,875	170	2,175
Allowance, Ending Balance	11,307	10,318	11,307	10,318
Loans evaluated for allowance individually					$ 12,842	$ 14,683
Loans evaluated for allowance collectively					888,572	879,190
Total Loans					901,414	893,873
Allowance established for loan evaluated collectively					11,307	11,075
Total Allowance	11,278	10,342	11,075	10,086	11,307	11,075
Residential Real Estate [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Total Loans					212,943	218,783
Residential Real Estate - Construction [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance, Beginning Balance	274	199	224	194
Provision	7	6	57	11
Allowance, Ending Balance	281	205	281	205
Loans evaluated for allowance individually					473	480
Loans evaluated for allowance collectively					10,753	8,495
Total Loans					11,226	8,975
Allowance established for loan evaluated collectively					281	224
Total Allowance	274	199	224	194	281	224
Commercial Real Estate [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance, Beginning Balance	6,126	6,181	6,109	5,649
Charge-offs	(5)	(1,951)	(5)	(1,954)
Recoveries		14		14
Provision	(69)	1,696	(52)	2,231
Allowance, Ending Balance	6,052	5,940	6,052	5,940
Loans evaluated for allowance individually					11,345	13,523
Loans evaluated for allowance collectively					375,439	377,061
Total Loans					386,784	390,584
Allowance established for loan evaluated collectively					6,052	6,109
Total Allowance	6,126	6,181	6,109	5,649	6,052	6,109
Commercial [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance, Beginning Balance	1,984	1,510	1,893	1,519
Charge-offs	(2)	(3)	(2)	(66)
Recoveries	4	106	106	121
Provision	37	(17)	26	22
Allowance, Ending Balance	2,023	1,596	2,023	1,596
Loans evaluated for allowance individually					100
Loans evaluated for allowance collectively					285,680	270,826
Total Loans					285,780	270,826
Allowance established for loan evaluated collectively					2,023	1,893
Total Allowance	1,984	1,510	1,893	1,519	2,023	1,893
Consumer [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance, Beginning Balance	99	99	100	102
Charge-offs	(24)	(42)	(52)	(84)
Recoveries	10	22	26	42
Provision	15	18	26	37
Allowance, Ending Balance	100	97	100	97
Loans evaluated for allowance collectively					4,681	4,705
Total Loans					4,681	4,705
Allowance established for loan evaluated collectively					100	100
Total Allowance	99	99	100	102	100	100
Unallocated [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance, Beginning Balance	1,374	1,040	1,321	1,325
Provision	80	98	133	(187)
Allowance, Ending Balance	1,454	1,138	1,454	1,138
Allowance established for loan evaluated collectively					1,454	1,321
Total Allowance	1,374	1,040	1,321	1,325	1,454	1,321
First Liens [Member] | Residential Real Estate [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance, Beginning Balance	1,100	997	1,105	989
Charge-offs	(5)	(46)	(13)	(49)
Recoveries		1	1	33
Provision	(20)	71	(18)	50
Allowance, Ending Balance	1,075	1,023	1,075	1,023
Loans evaluated for allowance individually					818	628
Loans evaluated for allowance collectively					162,432	167,942
Total Loans					163,250	168,570
Allowance established for loan evaluated collectively					1,075	1,105
Total Allowance	1,100	997	1,105	989	1,075	1,105
Junior Liens & Lines Of Credit [Member] | Residential Real Estate [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance, Beginning Balance	321	316	323	308
Recoveries	1		1
Provision		3	(2)	11
Allowance, Ending Balance	322	319	322	319
Loans evaluated for allowance individually					106	52
Loans evaluated for allowance collectively					49,587	50,161
Total Loans					49,693	50,213
Allowance established for loan evaluated collectively					322	323
Total Allowance	$ 321	$ 316	$ 323	$ 308	$ 322	$ 323

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Loan Quality And Allowance For Loan Losses (Impaired Financing Receivables) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016	Dec. 31, 2016
Financing Receivable, Impaired [Line Items]
Recorded Investment With No Allowance	$ 13,215		$ 13,215		$ 15,067
Unpaid Principal Balance With No Allowance	13,825		13,825		15,826
Recorded Investment With Allowance
Unpaid Principal Balance With Allowance
Related Allowance
Average Recorded Investment	13,924	$ 20,862	13,794	$ 21,157
Interest Income Recognized	112	123	238	251
Residential Real Estate [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment With No Allowance	1,276		1,276		1,041
Unpaid Principal Balance With No Allowance	1,351		1,351		1,123
Recorded Investment With Allowance
Unpaid Principal Balance With Allowance
Related Allowance
Average Recorded Investment	1,283	989	1,139	1,065
Interest Income Recognized	10	6	20	12
Residential Real Estate [Member] | First Liens [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment With No Allowance	1,161		1,161		956
Unpaid Principal Balance With No Allowance	1,231		1,231		1,030
Recorded Investment With Allowance
Unpaid Principal Balance With Allowance
Related Allowance
Average Recorded Investment	1,168	926	1,039	998
Interest Income Recognized	10	6	20	12
Residential Real Estate [Member] | Junior Liens & Lines Of Credit [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment With No Allowance	115		115		85
Unpaid Principal Balance With No Allowance	120		120		93
Recorded Investment With Allowance
Unpaid Principal Balance With Allowance
Related Allowance
Average Recorded Investment	115	63	100	67
Interest Income Recognized
Residential Real Estate - Construction [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment With No Allowance	473		473		480
Unpaid Principal Balance With No Allowance	533		533		535
Recorded Investment With Allowance
Unpaid Principal Balance With Allowance
Related Allowance
Average Recorded Investment	476	494	478	498
Interest Income Recognized
Commercial Real Estate [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment With No Allowance	11,345		11,345		13,523
Unpaid Principal Balance With No Allowance	11,808		11,808		14,133
Recorded Investment With Allowance
Unpaid Principal Balance With Allowance
Related Allowance
Average Recorded Investment	12,043	19,345	12,104	19,555
Interest Income Recognized	102	117	218	239
Commercial [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment With No Allowance	121		121		23
Unpaid Principal Balance With No Allowance	133		133		35
Recorded Investment With Allowance
Unpaid Principal Balance With Allowance
Related Allowance
Average Recorded Investment	$ 122	34	$ 73	39
Interest Income Recognized

XML

Loan Quality And Allowance For Loan Losses (Aging Of Payments Of The Loan Portfolio) (Details) - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	$ 897,221	$ 885,023
Loans Past Due and Still Accruing	1,136	4,074
Non-accrual loans	3,057	4,776
Total Loans	901,414	893,873
30 - 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans Past Due and Still Accruing	536	2,470
60 - 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans Past Due and Still Accruing	531	939
90 Days+ Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans Past Due and Still Accruing	69	665
Residential Real Estate [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	211,815	216,720
Loans Past Due and Still Accruing	634	1,746
Non-accrual loans	494	317
Total Loans	212,943	218,783
Residential Real Estate [Member] | 30 - 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans Past Due and Still Accruing	271	1,332
Residential Real Estate [Member] | 60 - 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans Past Due and Still Accruing	294	414
Residential Real Estate [Member] | 90 Days+ Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans Past Due and Still Accruing	69
Residential Real Estate [Member] | First Liens [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	162,334	166,689
Loans Past Due and Still Accruing	529	1,650
Non-accrual loans	387	231
Total Loans	163,250	168,570
Residential Real Estate [Member] | First Liens [Member] | 30 - 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans Past Due and Still Accruing	174	1,236
Residential Real Estate [Member] | First Liens [Member] | 60 - 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans Past Due and Still Accruing	294	414
Residential Real Estate [Member] | First Liens [Member] | 90 Days+ Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans Past Due and Still Accruing	61
Residential Real Estate [Member] | Junior Liens & Lines Of Credit [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	49,481	50,031
Loans Past Due and Still Accruing	105	96
Non-accrual loans	107	86
Total Loans	49,693	50,213
Residential Real Estate [Member] | Junior Liens & Lines Of Credit [Member] | 30 - 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans Past Due and Still Accruing	97	96
Residential Real Estate [Member] | Junior Liens & Lines Of Credit [Member] | 90 Days+ Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans Past Due and Still Accruing	8
Residential Real Estate - Construction [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	10,753	8,495
Non-accrual loans	473	480
Total Loans	11,226	8,975
Commercial Real Estate [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	384,513	384,658
Loans Past Due and Still Accruing	302	1,970
Non-accrual loans	1,969	3,956
Total Loans	386,784	390,584
Commercial Real Estate [Member] | 30 - 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans Past Due and Still Accruing	117	858
Commercial Real Estate [Member] | 60 - 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans Past Due and Still Accruing	185	447
Commercial Real Estate [Member] | 90 Days+ Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans Past Due and Still Accruing		665
Commercial [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	285,493	270,478
Loans Past Due and Still Accruing	166	325
Non-accrual loans	121	23
Total Loans	285,780	270,826
Commercial [Member] | 30 - 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans Past Due and Still Accruing	122	250
Commercial [Member] | 60 - 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans Past Due and Still Accruing	44	75
Consumer [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	4,647	4,672
Loans Past Due and Still Accruing	34	33
Total Loans	4,681	4,705
Consumer [Member] | 30 - 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans Past Due and Still Accruing	26	30
Consumer [Member] | 60 - 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans Past Due and Still Accruing	$ 8	$ 3

XML

Loan Quality And Allowance For Loan Losses (Internal Credit Rating For The Loan Portfolio) (Details) - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	$ 901,414	$ 893,873
Pass [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	884,351	875,325
Special Mention [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount		1,212
Substandard [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	17,063	17,336
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	212,943	218,783
Residential Real Estate [Member] | Pass [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	211,483	217,216
Residential Real Estate [Member] | Special Mention [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount		255
Residential Real Estate [Member] | Substandard [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	1,460	1,312
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	163,250	168,570
Residential Real Estate [Member] | First Liens [Member] | Pass [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	161,904	167,199
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		227
Residential Real Estate [Member] | First Liens [Member] | Substandard [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	1,346	1,144
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	49,693	50,213
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	49,579	50,017
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
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	114	168
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	11,226	8,975
Residential Real Estate - Construction [Member] | Pass [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	10,146	8,220
Residential Real Estate - Construction [Member] | Substandard [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	1,080	755
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	386,784	390,584
Commercial Real Estate [Member] | Pass [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	375,919	377,283
Commercial Real Estate [Member] | Substandard [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	10,865	13,301
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	285,780	270,826
Commercial [Member] | Pass [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	282,122	267,901
Commercial [Member] | Special Mention [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount		957
Commercial [Member] | Substandard [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	3,658	1,968
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	4,681	4,705
Consumer [Member] | Pass [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	4,681	4,705
Consumer [Member] | Doubtful [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount

XML

Loan Quality And Allowance For Loan Losses (Troubled Debt Restructuring Loans) (Details) $ in Thousands		6 Months Ended
		Jun. 30, 2017 USD ($) item contract	Jun. 30, 2016 USD ($) item	Dec. 31, 2016 USD ($) contract
Financing Receivable, Modifications [Line Items]
Troubled Debt Restructurings: Number of Contracts | contract		17		17
Troubled Debt Restructurings: Recorded Investment		$ 12,523		$ 13,419
Troubled Debt Restructurings That Have Defaulted on Modified Terms in the Last Twelve Months: Number of Contracts | contract		2		2
Troubled Debt Restructurings That Have Defaulted on Modified Terms in the Last Twelve Months: Recorded Investment		$ 746		$ 1,401
New During Period, Number of Contracts | item		0
Performing [Member]
Financing Receivable, Modifications [Line Items]
Troubled Debt Restructurings: Recorded Investment	[1]	$ 11,777		12,018
Nonperforming [Member]
Financing Receivable, Modifications [Line Items]
Troubled Debt Restructurings: Recorded Investment	[1]	$ 746		$ 1,401
Residential Real Estate - Construction [Member]
Financing Receivable, Modifications [Line Items]
Troubled Debt Restructurings: Number of Contracts | contract		1		1
Troubled Debt Restructurings: Recorded Investment		$ 473		$ 480
Troubled Debt Restructurings That Have Defaulted on Modified Terms in the Last Twelve Months: Number of Contracts | contract
Troubled Debt Restructurings That Have Defaulted on Modified Terms in the Last Twelve Months: Recorded Investment
Residential Real Estate - Construction [Member] | Performing [Member]
Financing Receivable, Modifications [Line Items]
Troubled Debt Restructurings: Recorded Investment	[1]	$ 473		$ 480
Residential Real Estate [Member]
Financing Receivable, Modifications [Line Items]
Troubled Debt Restructurings: Number of Contracts | contract		5		5
Troubled Debt Restructurings: Recorded Investment		$ 864		$ 875
Troubled Debt Restructurings That Have Defaulted on Modified Terms in the Last Twelve Months: Number of Contracts | contract		1		1
Troubled Debt Restructurings That Have Defaulted on Modified Terms in the Last Twelve Months: Recorded Investment		$ 151		$ 151
Residential Real Estate [Member] | Performing [Member]
Financing Receivable, Modifications [Line Items]
Troubled Debt Restructurings: Recorded Investment	[1]	713		724
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		11
Troubled Debt Restructurings: Recorded Investment		$ 11,186		$ 12,064
Troubled Debt Restructurings That Have Defaulted on Modified Terms in the Last Twelve Months: Number of Contracts | contract		1		1
Troubled Debt Restructurings That Have Defaulted on Modified Terms in the Last Twelve Months: Recorded Investment		$ 595		$ 1,250
New During Period, Number of Contracts | item			1
New During Period, Pre-TDR Modification			$ 525
New During Period, After-TDR Modification			525
New During Period, Recorded Investment			$ 504
Commercial Real Estate [Member] | Performing [Member]
Financing Receivable, Modifications [Line Items]
Troubled Debt Restructurings: Recorded Investment	[1]	10,591		10,814
Commercial Real Estate [Member] | Nonperforming [Member]
Financing Receivable, Modifications [Line Items]
Troubled Debt Restructurings: Recorded Investment	[1]	$ 595		$ 1,250

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

XML

Other Real Estate Owned (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016
Other Real Estate Owned [Abstract]
Balance at beginning of the period	$ 4,915	$ 6,451
Additions		23
Proceeds from dispositions	(1,751)	(224)
(Loss) gain on sales, net		(10)
Valuation adjustment	(49)	(46)
Balance at the end of the period	$ 3,115	$ 6,194

XML

Pension (Narrative) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016	Dec. 31, 2016
Pension [Abstract]
Expected pension expense			$ 459
Pension Contributions			0
Pension settlement expense			564
Pension expense	$ 115	$ 93	$ 228	$ 172	$ 922

XML

Pension (Schedule Of Net Periodic Pension Costs) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016	Dec. 31, 2016
Pension [Abstract]
Service cost	$ 79	$ 83	$ 157	$ 164
Interest cost	167	180	333	360
Expected return on plan assets	(268)	(290)	(536)	(583)
Recognized net actuarial loss	137	120	274	231
Net pension cost	$ 115	$ 93	$ 228	$ 172	$ 922

XML

Fair Value Measurements And Fair Values Of Financial Instruments (Narrative) (Details)	Jun. 30, 2017 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, 2017	Dec. 31, 2016
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Available for sale	$ 136,036	$ 143,875
Carrying Amount [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and cash equivalents	45,749	36,665
Available for sale	136,036	143,875
Restricted stock	456	1,767
Loans held for sale	834	540
Net loans	890,107	882,798
Accrued interest receivable	3,409	3,592
Deposits	1,007,378	982,120
Short-term Debt		24,270
Accrued interest payable	110	116
Fair Value [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and cash equivalents	45,749	36,665
Available for sale	136,036	143,875
Restricted stock	456	1,767
Loans held for sale	834	540
Net loans	891,933	889,910
Accrued interest receivable	3,409	3,592
Deposits	1,006,804	981,949
Short-term Debt		24,270
Accrued interest payable	110	116
Level 1 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and cash equivalents	45,749	36,665
Available for sale	356	290
Short-term Debt		24,270
Level 2 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Available for sale	135,680	143,585
Restricted stock	456	1,767
Loans held for sale	834	540
Accrued interest receivable	3,409	3,592
Deposits	1,006,804	981,949
Accrued interest payable	110	116
Level 3 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Net loans	$ 891,933	$ 889,910

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, 2017	Dec. 31, 2016
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	$ 136,036	$ 143,875
Total assets	136,036	143,875
Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	356	290
Total assets	356	290
Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	135,680	143,585
Total assets	135,680	143,585
Equity Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	356	290
Equity Securities [Member] | Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	356	290
U.S. Government And Agency Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	12,132	12,720
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	12,132	12,720
Municipal Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	61,345	62,985
Municipal Securities [Member] | Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	61,345	62,985
Trust Preferred Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	5,789	5,461
Trust Preferred Securities [Member] | Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	5,789	5,461
Agency Mortgage-Backed Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	55,371	61,284
Agency Mortgage-Backed Securities [Member] | Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	55,371	61,284
Private-Label Mortgage-Backed Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	1,014	1,104
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	1,014	1,104
Asset-Backed Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	29	31
Asset-Backed Securities [Member] | Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	$ 29	$ 31

XML

Fair Value Measurements And Fair Values Of Financial Instruments (Schedule Of Fair Value An A Nonrecurring Basis) (Details) - USD ($) $ in Thousands		Jun. 30, 2017	Dec. 31, 2016
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring		$ 177	$ 2,607
Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring		177	2,607
Premises Held-For-Sale [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring	[1]		200
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]		200
Other Real Estate Owned [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring	[1]	177	2,407
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]	$ 177	$ 2,407

[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, 2017	Dec. 31, 2016
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring		$ 177	$ 2,607
Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring		177	2,607
Premises Held-For-Sale [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring	[1]		200
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]		$ 200
Premises Held-For-Sale [Member] | Level 3 [Member] | Qualitative Adjustment [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value Inputs, Discount Rate			5.00%
Premises Held-For-Sale [Member] | Level 3 [Member] | Weighted Average [Member] | Qualitative Adjustment [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value Inputs, Discount Rate			5.00%
Other Real Estate Owned [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring	[1]	177	$ 2,407
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]	$ 177	$ 2,407
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

Capital Ratios (Narrative) (Details)		6 Months Ended
		Jun. 30, 2017		Dec. 31, 2016
Compliance with Regulatory Capital Requirements under Banking Regulations [Line Items]
Capital Ratios, Basel III, Capital Conservation Buffer		1.25%		0.625%
Capital Ratios, Basel III, Capital Conservation Buffer, Year Two		1.875%
Capital Ratios, Basel III, Capital Conservation Buffer, Year Three		2.50%
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%
Capital ratios, capital conservation buffer		8.72%
Total Risk-based Capital Ratio: Adequately Capitalized Minimum: Ratio	[4]	8.00%
Total Risk-based Capital Ratio: Ratio	[4]	16.72%		15.55%

[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

XML

Capital Ratios (Schedule Of The Total Risk-based, Tier 1 Risk-based And Tier 1 Leverage Requirements) (Details)		Jun. 30, 2017		Dec. 31, 2016
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]	15.52%		14.41%
Common Equity Tier 1 Risk-based Capital Ratio: Adequately Capitalized Minimum: Ratio	[1]	4.50%
Tier 1 Risk-based Capital Ratio: Ratio	[2]	15.52%		14.41%
Tier 1 Risk-based Capital Ratio: Adequately Capitalized Minimum: Ratio	[2]	6.00%
Total Risk-based Capital Ratio: Ratio	[3]	16.78%		15.67%
Total Risk-based Capital Ratio: Adequately Capitalized Minimum: Ratio	[3]	8.00%
Tier 1 Leverage Ratio: Ratio	[4]	10.39%		10.11%
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]	15.46%		14.29%
Common Equity Tier 1 Risk-based Capital Ratio: Adequately Capitalized Minimum: Ratio	[1]	4.50%
Common Equity Tier 1 Risk-based Capital Ratio: Well Capitalized Minimum: Ratio	[1]	6.50%
Tier 1 Risk-based Capital Ratio: Ratio	[2]	15.46%		14.29%
Tier 1 Risk-based Capital Ratio: Adequately Capitalized Minimum: Ratio	[2]	6.00%
Tier 1 Risk-based Capital Ratio: Well Capitalized Minimum: Ratio		8.00%	[2]	6.00%
Total Risk-based Capital Ratio: Ratio	[3]	16.72%		15.55%
Total Risk-based Capital Ratio: Adequately Capitalized Minimum: Ratio	[3]	8.00%
Total Risk-based Capital Ratio: Well Capitalized Minimum: Ratio	[3]	10.00%
Tier 1 Leverage Ratio: Ratio	[4]	10.35%		10.02%
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