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 March 31, 2018

☐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, a smaller reporting company, or an emerging growth 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 ☐

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.  ☐

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

There were 4,366,279 outstanding shares of the Registrant’s common stock as of April  30, 2018.

INDEX

Part I - FINANCIAL INFORMATION
Item 1	Financial Statements
	Consolidated Balance Sheets as of March  31, 2018 and December 31, 2017 (unaudited)	1
	Consolidated Statements of Income for the ThreeMonths ended March  31, 2018	2
	and 2017 (unaudited)
	Consolidated Statements of Comprehensive Income for the ThreeMonths ended	3
	March  31, 2018 and 2017 (unaudited)
	Consolidated Statements of Changes in Shareholders’ Equity for the ThreeMonths	3
	ended March31, 2018and 2017 (unaudited)
	Consolidated Statements of Cash Flows for the ThreeMonths ended March  31, 2018	4
	and 2017 (unaudited)
	Notes to Consolidated Financial Statements (unaudited)	5
Item 2	Management’s Discussion and Analysis ofResults of Operations and Financial Condition	23
Item 3	Quantitative and Qualitative Disclosures about Market Risk	40
Item 4	Controls and Procedures	40
Part II - OTHER INFORMATION
Item 1	Legal Proceedings	41
Item 1A	Risk Factors	41
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	42
Item 3	Defaults Upon Senior Securities	42
Item 4	Mine Safety Disclosures	42
Item 5	Other Information	43
Item 6	Exhibits	43
SIGNATURE PAGE		44

Part I FINANCIAL INFORMATION

Item 1 Financial Statements

Consolidated Balance Sheets

(Dollars in thousands, except share and per share data)(unaudited)	March 31,		December 31,
	2018		2017
Assets
Cash and due from banks	$	14,148	$	21,433
Interest-bearing deposits in other banks		27,934		37,170
Total cash and cash equivalents		42,082		58,603
Debt securities available for sale, at fair value		133,322		126,971
Equity securities		410		365
Restricted stock		456		456
Loans held for sale		—		442
Loans		942,653		943,700
Allowance for loan losses		(11,989)		(11,792)
Net Loans		930,664		931,908
Premises and equipment, net		13,576		13,741
Bank owned life insurance		23,108		22,980
Goodwill		9,016		9,016
Other real estate owned		2,592		2,598
Deferred tax asset, net		6,062		5,803
Other assets		7,254		6,930
Total assets	$	1,168,542	$	1,179,813
Liabilities
Deposits
Non-interest bearing checking	$	193,237	$	196,853
Money management, savings and interest checking		774,837		774,857
Time		66,387		75,471
Total deposits		1,034,461		1,047,181
Other liabilities		16,957		17,488
Total liabilities		1,051,418		1,064,669
Shareholders' equity
Common stock, $1 par value per share,15,000,000 shares authorized with
4,695,617 shares issued and 4,364,812 shares outstanding at March 31, 2018 and
4,689,099 shares issued and 4,354,788 shares outstanding at December 31, 2017		4,696		4,689
Capital stock without par value, 5,000,000 shares authorized with no
shares issued and outstanding		—		—
Additional paid-in capital		40,668		40,396
Retained earnings		84,876		82,218
Accumulated other comprehensive loss		(7,010)		(6,028)
Treasury stock, 330,805 shares at March 31, 2018 and 334,311 shares at
December 31, 2017, at cost		(6,106)		(6,131)
Total shareholders' equity		117,124		115,144
Total liabilities and shareholders' equity	$	1,168,542	$	1,179,813

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

1

Consolidated Statements of Income

	For the Three Months Ended
(Dollars in thousands, except per share data) (unaudited)	March 31,
	2018		2017
Interest income
Loans, including fees	$	9,577	$	8,639
Interest and dividends on investments:
Taxable interest		513		531
Tax exempt interest		274		301
Dividend income		6		13
Deposits and obligations of other banks		118		62
Total interest income		10,488		9,546
Interest expense
Deposits		795		566
Short-term borrowings		—		15
Total interest expense		795		581
Net interest income		9,693		8,965
Provision for loan losses		200		120
Net interest income after provision for loan losses		9,493		8,845
Noninterest income
Investment and trust services fees		1,397		1,295
Loan service charges		231		147
Deposit service charges and fees		574		592
Other service charges and fees		333		324
Debit card income		385		375
Increase in cash surrender value of life insurance		128		131
Debt securities gains, net		—		2
Change in fair value of equity securities		45		—
Other		55		59
Total noninterest income		3,148		2,925
Noninterest Expense
Salaries and employee benefits		4,986		4,591
Occupancy, furniture and equipment, net		815		815
Advertising		427		247
Legal and professional		329		290
Data processing		596		541
Pennsylvania bank shares tax		239		243
FDIC Insurance		129		106
ATM/debit card processing		238		218
Foreclosed real estate		14		58
Telecommunications		109		100
Other		766		748
Total noninterest expense		8,648		7,957
Income before federal income taxes		3,993		3,813
Federal income tax expense		491		793
Net income	$	3,502	$	3,020
Per share
Basic earnings per share	$	0.80	$	0.70
Diluted earnings per share	$	0.80	$	0.70
Cash dividends declared	$	0.24	$	0.21

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

2

Consolidated Statements of Comprehensive Income

	For the Three Months Ended
	March 31,
(Dollars in thousands) (unaudited)	2018		2017
Net Income	$	3,502	$	3,020
Debt Securities:
Unrealized (losses) gains arising during the period		(1,043)		454
Reclassification adjustment included in net income (1)		—		(2)
Net unrealized gains		(1,043)		452
Tax effect		262		(153)
Net of tax amount		(781)		299
Total other comprehensive (loss) income		(781)		299
Total Comprehensive Income	$	2,721	$	3,319
Reclassification adjustment / Statement line item	Tax  expense (benefit)
(1) Debt securities gains, net	$	—	$	1

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

Consolidated Statements of Changes in Shareholders' Equity

For the three months ended March 31, 2018 and 2017

							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, 2016	$	4,688	$	39,752	$	83,081	$	(4,215)	$	(6,813)	$	116,493
Net income		—		—		3,020		—		—		3,020
Other comprehensive income		—		—		—		299		—		299
Cash dividends declared, $.21 per share		—		—		(907)		—		—		(907)
Treasury shares issued under employee stock purchase plan, 1,126 shares		—		4		—		—		21		25
Treasury shares issued under dividend reinvestment plan, 7,463 shares		—		84		—		—		137		221
Stock option compensation expense		—		27		—		—		—		27
Balance at March 31, 2017	$	4,688	$	39,867	$	85,194	$	(3,916)	$	(6,655)	$	119,178
Balance at December 31, 2017	$	4,689	$	40,396	$	82,218	$	(6,028)	$	(6,131)	$	115,144
Cumulative adjustment for fair value of equity securities		—		—		201		(201)		—		—
Net income		—		—		3,502		—		—		3,502
Other comprehensive income		—		—		—		(781)		—		(781)
Cash dividends declared, $.24 per share		—		—		(1,045)		—		—		(1,045)
Acquisition of 2,605 shares of treasury stock		—		—		—		—		(88)		(88)
Treasury shares issued under employee stock purchase plan, 200 shares		—		2		—		—		4		6
Treasury shares issued under dividend reinvestment plan, 5,911 shares		—		97		—		—		109		206
Common stock issued under incentive stock option plan, 6,518 shares		7		142		—		—		—		149
Stock option compensation expense		—		31		—		—		—		31
Balance at March 31, 2018	$	4,696	$	40,668	$	84,876	$	(7,010)	$	(6,106)	$	117,124

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

3

Consolidated Statements of Cash Flows

	Three Months Ended March 31,
	2018		2017
(Dollars in thousands) (unaudited)
Cash flows from operating activities
Net income	$	3,502	$	3,020
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		333		332
Net amortization of loans and investment securities		438		369
Amortization and net change in mortgage servicing rights valuation		—		14
Provision for loan losses		200		120
Equity investments recorded at fair value through income		(45)		—
Debt securities gains, net		—		(2)
Loans originated for sale		(2,527)		(1,220)
Proceeds from sale of loans		2,969		1,312
Write-down of other real estate owned		6		45
Write-down on premises and equipment available for sale		—		49
Loss on sale of premises		17		—
Increase in cash surrender value of life insurance		(128)		(131)
Stock option compensation		31		27
Contribution to pension plan		(1,000)		—
Decrease in other assets		(448)		(1,409)
Increase in other liabilities		148		619
Net cash provided by operating activities		3,496		3,145
Cash flows from investing activities
Proceeds from sales and calls of investment securities available for sale		—		475
Proceeds from maturities and pay-downs of securities available for sale		5,726		6,246
Purchase of investment securities available for sale		(13,380)		—
Net decrease in restricted stock		—		1,331
Net decrease (increase) in loans		1,031		(9,517)
Capital expenditures		(107)		34
Proceeds from sale of other assets		117		—
Proceeds from sale of other real estate		—		1,751
Net cash (used in) provided by investing activities		(6,613)		320
Cash flows from financing activities
Net (decrease) increase in demand deposits, interest-bearing checking, and savings accounts		(3,636)		25,360
Net decrease in time deposits		(9,084)		(886)
Net decrease in short-term borrowings		—		(24,270)
Dividends paid		(1,045)		(907)
Treasury shares issued under employee stock purchase plan		6		25
Treasury shares issued under dividend reinvestment plan		206		221
Common stock issued under stock option plans		149		—
Net cash used in financing activities		(13,404)		(457)
(Decrease) increase in cash and cash equivalents		(16,521)		3,008
Cash and cash equivalents as of January 1		58,603		39,166
Cash and cash equivalents as of March 31	$	42,082	$	42,174
Supplemental Disclosures of Cash Flow Information
Cash paid during the year for:
Interest on deposits and other borrowed funds	$	792	$	566
Income taxes	$	—	$	1,002

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 March 31, 2018, 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 2017 Annual Report on Form 10-K.  The consolidated results of operations for the threemonth period ended March 31, 2018 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, 2017 has been derived from the audited consolidated financial statements at that date, but does not include all of the information and footnotes required by GAAP for complete consolidated financial statements.

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

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

	For the Three Months Ended
	March 31,
(Dollars and shares in thousands, except per share data)	2018		2017
Weighted average shares outstanding (basic)		4,359		4,321
Impact of common stock equivalents		28		20
Weighted average shares outstanding (diluted)		4,387		4,341
Anti-dilutive options excluded from calculation		—		14
Net income	$	3,502	$	3,020
Basic earnings per share	$	0.80	$	0.70
Diluted earnings per share	$	0.80	$	0.70

5

Note 2. Recent Accounting Pronouncements

Standard	Description	Effective Date	Effect on the financial statements or other significant matters
ASU 2018-02, Income Statement (Topic 220), Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income	Under ASU 2018-02, entities are allowed, but not required, to reclassify from Accumulated Other Comprehensive Income (AOCI) to retained earnings stranded tax effects resulting from the new federal corporate income tax rate of the Tax Cuts and Jobs Act (the Act).  The reclassification could include other stranded tax effects that related to the Act but do not directly related to the change in the federal rate.  Tax effects that are stranded in AOCI for other reasons may not be reclassified.  Entities also will have an option to adopt the standard retrospectively or in the period of adoption.	January 1, 2018	The Corporation adopted the provisions of the ASU in the fourth quarter of 2017.  The Company reclassified the disproportionate tax effect resulting from the Act by increasing retained earnings by $992 thousand and reducing AOCI by $992 thousand.
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 classifies 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	The Corporation adopted the provisions of the ASU on January 1, 2018 and it had no material effect on the 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	The Corporation adopted the provisions of the ASU on January 1, 2018 and it had no material effect on the consolidated financial statements.  The service cost is reported in Salaries and Benefits expense and the nonservice cost is included in Other Expense on the Consolidated Statement of Income, which totaled $35 thousand reclassified for the first quarter of 2017.
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 Corporation adopted this ASU on January 1, 2018, on a modified retrospective approach, and it did not have a material effect on the Corporation's consolidated financial statements.  See Note 11. Revenue Recognition for more information.

6

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	The Corporation adopted the provisions of the ASU on January 1, 2018 and it had no material effect on the consolidated financial statements. The Corporation reclassified the fair value of equity securities by increasing retained earnings by $201 thousand and decreasing AOCI by $201 thousand.  In addition, according to the standard, the Corporation measured the fair value of the loan portfolio as of March 31, 2018 using an exit price notion.  See Note 9. Fair Value  Measurements and Fair Values of Financial Instruments for more information.
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 in the form of a lease liability (the present value of a lessee's obligation to make lease payments) and a right-of-use asset (an asset that represents the lessee's right to use a specified asset for the lease term).  The offsetting transactions will gross-up the Consolidated Balance Sheet, but the Corporation has not yet determined this amount. The Corporation has acquired a lease accounting model to implement the standard.  The model has been installed and will be used in a test mode during 2018, but the Corporation does not plan to early adopt the standard. The Corporation currently expects that the new standard will not have a material effect on its consolidated results of operations.
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.

7

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 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.  The Corporation expects to have its methodology and process complete by the end of 2018 so that it can run the new CECL model during 2019 in test mode, prior to the 2020 implementation.

Note 3. Accumulated Other Comprehensive Loss

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

	March 31,		December 31,
	2018		2017
(Dollars in thousands)
Net unrealized (losses) gains on debt securities	$	(1,090)	$	154
Tax effect		229		(33)
Net of tax amount		(861)		121
Accumulated pension adjustment		(7,784)		(7,784)
Tax effect		1,635		1,635
Net of tax amount		(6,149)		(6,149)
Total accumulated other comprehensive loss	$	(7,010)	$	(6,028)

Note 4. Investments

Available for Sale (AFS) Securities

The amortized cost and estimated fair value of AFS securities available for sale as of March 31, 2018 and December 31, 2017are as follows:

(Dollars in thousands)			Gross		Gross
	Amortized		unrealized		unrealized		Fair
March 31, 2018	cost		gains		losses		value
U.S. Government and Agency securities	$	10,534	$	22	$	(74)	$	10,482
Municipal securities		63,520		409		(619)		63,310
Trust preferred securities		6,007		1		(159)		5,849
Agency mortgage-backed securities		53,494		105		(852)		52,747
Private-label mortgage-backed securities		830		79		—		909
Asset-backed securities		27		—		(2)		25
	$	134,412	$	616	$	(1,706)	$	133,322

8

(Dollars in thousands)			Gross		Gross
	Amortized		unrealized		unrealized		Fair
December 31, 2017	cost		gains		losses		value
Equity securities	$	164	$	201	$	—	$	365
U.S. Government and Agency securities		11,451		64		(43)		11,472
Municipal securities		57,374		650		(252)		57,772
Trust preferred securities		6,000		—		(183)		5,817
Agency mortgage-backed securities		51,307		197		(567)		50,937
Private-label mortgage-backed securities		858		88		—		946
Asset-backed securities		28		—		(1)		27
	$	127,182	$	1,200	$	(1,046)	$	127,336

At March 31, 2018and December 31, 2017, the fair value of AFS securities pledged to secure public funds and trust depositstotaled $78.9 million and  $84.1 million, respectively.

The amortized cost and estimated fair value of debt securities at March 31, 2018, 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	$	5,174	$	5,199
Due after one year through five years		45,530		45,705
Due after five years through ten years		25,583		25,062
Due after ten years		3,801		3,700
		80,088		79,666
Mortgage-backed securities		54,324		53,656
	$	134,412	$	133,322

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

	For the Three Months Ended
	March 31,
(Dollars in thousands)	2018		2017
Gross gains realized	$	—	$	2
Gross losses realized		—		—
Net gains realized	$	—	$	2

Impairment:

The AFSinvestment portfolio contained 166 securities with $92.1 million of temporarily impaired fair value and $1.7 million in unrealized losses at March 31, 2018. The total unrealized loss position has increased from a $1.0 million unrealized loss at year-end 2017. 

For securities with an unrealized loss, Management applies a systematic methodology in order to perform an assessment of the potential for other-than-temporary impairment.  In the case of debt securities, investments considered for other-than-temporary impairment: (1) had a specified maturity or repricing date; (2) were generally expected to be redeemed at par, and (3) were expected to achieve a recovery in market value within a reasonable period of time. In addition, the Bank considers whether it intends to sell these securities or whether it will be forced to sell these securities before the earlier of amortized cost recovery or maturity. Equity securities are assessed for other-than-temporary impairment based on the length of time of impairment, dollar amount of the impairment and general market and financial conditions relating to specific issues.  The impairment identified on debt and equity securities and subject to assessment at March 31, 2018, was deemed to be temporary and required no further adjustments to the financial statements, unless otherwise noted.

9

The following table reflects temporary impairment in the AFS portfolio, aggregated by investment category, length of time that individual securities have been in a continuous unrealized loss position and the number of securities in each category as of March 31, 2018 and December 31, 2017:

	March 31, 2018
	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	$	5,588	$	(37)	7	$	3,331	$	(37)	10	$	8,919	$	(74)	17
Municipal securities		26,203		(339)	41		7,365		(280)	14		33,568		(619)	55
Trust preferred securities		1,867		(50)	2		3,700		(109)	4		5,567		(159)	6
Agency mortgage-backed securities		25,164		(337)	46		18,900		(515)	40		44,064		(852)	86
Asset-backed securities		18		(1)	1		5		(1)	1		23		(2)	2
Total temporarily impaired   securities	$	58,840	$	(764)	97	$	33,301	$	(942)	69	$	92,141	$	(1,706)	166

	December 31, 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	$	2,315	$	(11)	5	$	3,528	$	(32)	10	$	5,843	$	(43)	15
Municipal securities		13,767		(89)	22		7,507		(163)	14		21,274		(252)	36
Trust preferred securities		1,216		(12)	2		4,601		(171)	5		5,817		(183)	7
Agency mortgage-backed securities		16,287		(129)	29		20,563		(438)	39		36,850		(567)	68
Asset-backed securities		—		—	—		4		(1)	1		4		(1)	1
Total temporarily impaired   securities	$	33,585	$	(241)	58	$	36,203	$	(805)	69	$	69,788	$	(1,046)	127

The following table represents the cumulative credit losses on AFS securities recognized in earnings for:

	Three Months Ended
(Dollars in thousands)	March 31,
	2018		2017
Balance of cumulative credit-related OTTI at January 1	$	595	$	595
Additions for credit-related OTTI not previously recognized		—		—
Additional increases for credit-related OTTI previously recognized when there is
no intent to sell and no requirement to sell before recovery of amortized cost basis		—		—
Decreases for previously recognized credit-related OTTI because there was an intent to sell		—		—
Reduction for increases in cash flows expected to be collected		—		—
Balance of credit-related OTTI at March 31	$	595	$	595

Equity Securities at fair value

The Corporation owns one equity investment.  At March 31, 2018, this investment was reported at fair value ($410 thousand) with changes in value report through income.  At December 31, 2017, this investment was reported at fair value with changes in value recorded through other comprehensive income and was included in the Available for Sale Securities table of this note.

Restricted Stock at Cost

The Bank held $456 thousand of restricted stock at March 31, 2018.  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

10

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. 

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

	March 31,		December 31,
(Dollars in thousands)	2018		2017
Residential Real Estate 1-4 Family
Consumer first liens	$	93,897	$	97,159
Commercial first lien		61,790		61,275
Total first liens		155,687		158,434
Consumer junior liens and lines of credit		43,842		45,043
Commercial junior liens and lines of credit		5,014		5,328
Total junior liens and lines of credit		48,856		50,371
Total residential real estate 1-4 family		204,543		208,805
Residential real estate - construction
Consumer		2,756		1,813
Commercial		8,735		8,088
Total residential real estate construction		11,491		9,901
Commercial real estate		433,821		428,428
Commercial		287,680		291,519
Total commercial		721,501		719,947
Consumer		5,118		5,047
		942,653		943,700
Less: Allowance for loan losses		(11,989)		(11,792)
Net Loans	$	930,664	$	931,908
Included in the loan balances are the following:
Net unamortized deferred loan costs	$	40	$	98
Loans pledged as collateral for borrowings and commitments from:
FHLB	$	735,979	$	737,313
Federal Reserve Bank		35,137		35,740
	$	771,116	$	773,053

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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
	First		Junior Liens &				Commercial
(Dollars in thousands)	Liens		Lines of Credit		Construction		Real Estate		Commercial		Consumer		Unallocated		Total
ALL at December 31, 2017	$	1,060	$	330	$	224	$	6,526	$	2,110	$	105	$	1,437	$	11,792
Charge-offs		—		—		—		—		—		(26)		—		(26)
Recoveries		1		—		—		—		8		14		—		23
Provision		(18)		(10)		36		172		(45)		11		54		200
ALL at March 31, 2018	$	1,043	$	320	$	260	$	6,698	$	2,073	$	104	$	1,491	$	11,989
ALL at December 31, 2016	$	1,105	$	323	$	224	$	6,109	$	1,893	$	100	$	1,321	$	11,075
Charge-offs		(8)		—		—		—		—		(28)		—		(36)
Recoveries		1		—		—		—		102		16		—		119
Provision		2		(2)		50		17		(11)		11		53		120
ALL at March 31, 2017	$	1,100	$	321	$	274	$	6,126	$	1,984	$	99	$	1,374	$	11,278

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The following table presents, by class, loans that were evaluated for the ALL under the specific reserve (individually) and those that were evaluated under the general reserve (collectively) and the amount of the ALL established in each class as of March 31, 2018and December 31, 2017:

	Residential Real Estate 1-4 Family
	First		Junior Liens &				Commercial
(Dollars in thousands)	Liens		Lines of Credit		Construction		Real Estate		Commercial		Consumer		Unallocated		Total
March 31, 2018
Loans evaluated for ALL:
Individually	$	454	$	—	$	466	$	10,878	$	—	$	—	$	—	$	11,798
Collectively		155,233		48,856		11,025		422,943		287,680		5,118		—		930,855
Total	$	155,687	$	48,856	$	11,491	$	433,821	$	287,680	$	5,118	$	—	$	942,653
ALL established for   loans evaluated:
Individually	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Collectively		1,043		320		260		6,698		2,073		104		1,491		11,989
ALL at March 31, 2018	$	1,043	$	320	$	260	$	6,698	$	2,073	$	104	$	1,491	$	11,989
December 31, 2017
Loans evaluated for ALL:
Individually	$	459	$	—	$	466	$	10,981	$	—	$	—	$	—	$	11,906
Collectively		157,975		50,371		9,435		417,447		291,519		5,047		—		931,794
Total	$	158,434	$	50,371	$	9,901	$	428,428	$	291,519	$	5,047	$	—	$	943,700
ALL established for   loans evaluated:
Individually	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Collectively		1,060		330		224		6,526		2,110		105		1,437		11,792
ALL at December 31, 2017	$	1,060	$	330	$	224	$	6,526	$	2,110	$	105	$	1,437	$	11,792

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The following table shows additional information about those loans considered to be impaired at March 31, 2018and December 31, 2017:

	Impaired Loans
	With No Allowance				With Allowance
(Dollars in thousands)			Unpaid				Unpaid
	Recorded		Principal		Recorded		Principal		Related
March 31, 2018	Investment		Balance		Investment		Balance		Allowance
Residential Real Estate 1-4 Family
First liens	$	803	$	882	$	—	$	—	$	—
Junior liens and lines of credit		—		—		—		—		—
Total		803		882		—		—		—
Residential real estate - construction		466		531		—		—		—
Commercial real estate		10,949		11,435		—		—		—
Commercial		183		198		—		—		—
Total	$	12,401	$	13,046	$	—	$	—	$	—

December 31, 2017
Residential Real Estate 1-4 Family
First liens	$	869	$	950	$	—	$	—	$	—
Junior liens and lines of credit		—		—		—		—		—
Total		869		950		—		—		—
Residential real estate - construction		466		531		—		—		—
Commercial real estate		11,061		11,541		—		—		—
Commercial		187		201		—		—		—
Total	$	12,583	$	13,223	$	—	$	—	$	—

The following table shows the average of impaired loans and related interest income for the threemonths ended March 31, 2018and 2017:

	Three Months Ended				Three Months Ended
	March 31, 2018				March 31, 2017
	Average		Interest		Average		Interest
(Dollars in thousands)	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
Residential Real Estate 1-4 Family
First liens	$	805	$	11	$	919	$	10
Junior liens and lines of credit		—		—		85		—
Total		805		11		1,004		10
Residential real estate - construction		466		—		479		—
Commercial real estate		10,994		105		13,519		116
Commercial		185		—		23		—
Total	$	12,450	$	116	$	15,025	$	126

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

(Dollars in thousands)			Loans Past Due and Still Accruing										Total
	Current		30-59 Days		60-89 Days		90 Days+		Total		Non-Accrual		Loans
March 31, 2018
Residential Real Estate 1-4 Family
First liens	$	155,126	$	398	$	56	$	—	$	454	$	107	$	155,687
Junior liens and lines of credit		48,743		85		28		—		113		—		48,856
Total		203,869		483		84		—		567		107		204,543
Residential real estate - construction		11,025		—		—		—		—		466		11,491
Commercial real estate		431,542		348		—		89		437		1,842		433,821
Commercial		287,289		54		154		—		208		183		287,680
Consumer		5,100		15		3		—		18		—		5,118
Total	$	938,825	$	900	$	241	$	89	$	1,230	$	2,598	$	942,653

December 31, 2017
Residential Real Estate 1-4 Family
First liens	$	157,247	$	485	$	534	$	—	$	1,019	$	168	$	158,434
Junior liens and lines of credit		50,202		139		30		—		169		—		50,371
Total		207,449		624		564		—		1,188		168		208,805
Residential real estate - construction		9,435		—		—		—		—		466		9,901
Commercial real estate		425,806		421		347		—		768		1,854		428,428
Commercial		291,221		111		—		—		111		187		291,519
Consumer		5,017		23		7		—		30		—		5,047
Total	$	938,928	$	1,179	$	918	$	—	$	2,097	$	2,675	$	943,700

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
March 31, 2018
Residential Real Estate 1-4 Family
First liens	$	155,040	$	—	$	647	$	—	$	155,687
Junior liens and lines of credit		48,856		—		—		—		48,856
Total		203,896		—		647		—		204,543
Residential real estate - construction		10,370		—		1,121		—		11,491
Commercial real estate		423,072		2,393		8,356		—		433,821
Commercial		286,905		—		775		—		287,680
Consumer		5,117		—		1		—		5,118
Total	$	929,360	$	2,393	$	10,900	$	—	$	942,653

December 31, 2017
Residential Real Estate 1-4 Family
First liens	$	157,395	$	—	$	1,039	$	—	$	158,434
Junior liens and lines of credit		50,371		—		—		—		50,371
Total		207,766		—		1,039		—		208,805
Residential real estate - construction		8,893		—		1,008		—		9,901
Commercial real estate		419,277		680		8,471		—		428,428
Commercial		289,916		—		1,603		—		291,519
Consumer		5,047		—		—		—		5,047
Total	$	930,899	$	680	$	12,121	$	—	$	943,700

15

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

								Troubled Debt Restructurings
								Within the Last 12 Months
								That Have Defaulted
(Dollars in thousands)	Troubled Debt Restructurings							On Modified Terms
	Number of	Recorded						Number of	Recorded
	Contracts	Investment		Performing*		Nonperforming*		Contracts	Investment
March 31, 2018
Residential real estate - construction	1	$	466	$	—	$	466	—	$	—
Residential real estate	5		732		696		36	—		—
Commercial real estate	11		10,878		9,107		1,771	—		—
Total	17	$	12,076	$	9,803	$	2,273	—	$	—
December 31, 2017
Residential real estate - construction	1	$	466	$	466	$	—	—	$	—
Residential real estate	5		737		701		36	—		—
Commercial real estate	11		10,983		10,388		595	—		—
Total	17	$	12,186	$	11,555	$	631	—	$	—

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

There were no new TDR loans during 2018 and 2017.

Note 7. Other Real Estate Owned

Changes in other real estate owned during thethree months ended March 31, 2018 and 2017 were as follows:

	March 31,
(Dollars in thousands)	2018		2017
Balance at beginning of the period	$	2,598	$	4,915
Additions		—		—
Proceeds from dispositions		—		(1,751)
Loss on sales, net		—		—
Valuation adjustment		(6)		(49)
Balance at the end of the period	$	2,592	$	3,115

Note 8. Pension

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

	Three Months Ended
	March 31,
(Dollars in thousands)	2018		2017
Components of net periodic cost:
Service cost	$	90	$	78
Interest cost		138		166
Expected return on plan assets		(279)		(268)
Recognized net actuarial loss		176		137
Net period cost	$	125	$	113

The Bank expects its pension expense to increase to approximately $500 thousand in 2018 compared to $459 thousand in 2017, due primarily to increases in interest costs and recognized net actuarial losses.  A pension contribution of $1.0 million was made in first quarter of 2018. The service cost component of pension expense is in the salaries and benefits line on the income statement.  All other cost components are in the other expense line on the income statement.

16

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.

On January 1, 2018, the Corporation adopted ASU 2016-01, which requires the use of the exit price notion to measure the fair value of financial instruments.

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. 

17

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

	March 31, 2018
	Carrying		Fair
(Dollars in thousands)	Amount		Value		Level 1		Level 2		Level 3
Financial assets, carried at cost:
Cash and cash equivalents	$	42,082	$	42,082	$	42,082	$	—	$	—
Restricted stock		456		456		—		456		—
Net loans		930,664		908,491		—		—		908,491
Accrued interest receivable		3,410		3,410		—		3,410		—
Financial assets, available for sale
Debt securities		133,322		133,322		—		133,322		—
Financial assets, fair value
Equity securities		410		410		410		—		—
Financial liabilities:
Deposits	$	1,034,461	$	1,033,575	$	—	$	1,033,575	$	—
Accrued interest payable		152		152		—		152		—
	December 31, 2017
	Carrying		Fair
(Dollars in thousands)	Amount		Value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	58,603	$	58,603	$	58,603	$	—	$	—
Investment securities available for sale		127,336		127,336		365		126,971		—
Restricted stock		456		456		—		45		—
Loans held for sale		442		442		—		442		—
Net loans		931,908		929,891		—		—		929,891
Accrued interest receivable		3,847		3,847		—		3,847		—
Financial liabilities:
Deposits	$	1,047,181	$	1,046,476	$	—	$	1,046,476	$	—
Accrued interest payable		149		149		—		149		—

18

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 March 31, 2018 and December 31, 2017 are as follows:

(Dollars in Thousands	Fair Value at March 31, 2018
Asset  Description	Level 1		Level 2		Level 3		Total
Equity securities, at fair value	$	410	$	—	$	—	$	410
Available for sale:
U.S. Government and Agency securities		—		10,482		—		10,482
Municipal securities		—		63,310		—		63,310
Trust Preferred Securities		—		5,849		—		5,849
Agency mortgage-backed securities		—		52,747		—		52,747
Private-label mortgage-backed securities		—		909		—		909
Asset-backed securities		—		25		—		25
Total assets	$	410	$	133,322	$	—	$	133,732

(Dollars in Thousands)	Fair Value at December 31, 2017
Asset  Description	Level 1		Level 2		Level 3		Total
Equity securities	$	365	$	—	$	—	$	365
U.S. Government and Agency securities		—		11,472		—		11,472
Municipal securities		—		57,772		—		57,772
Trust Preferred Securities		—		5,817		—		5,817
Agency mortgage-backed securities		—		50,937		—		50,937
Private-label mortgage-backed securities		—		946		—		946
Asset-backed securities		—		27		—		27
Total assets	$	365	$	126,971	$	—	$	127,336

Investment securities:  Level 1 securities represent equity securities that are valued using quoted market prices form 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 March 31, 2018 and December 31, 2017 are as follows:

(Dollars in Thousands)
	Fair Value at March 31, 2018
Asset  Description	Level 1		Level 2		Level 3		Total
Other real estate owned (1)	$	—	$	—	$	32	$	32
Total assets	$	—	$	—	$	32	$	32

(Dollars in Thousands)	Fair Value at December 31, 2017
Asset  Description	Level 1		Level 2		Level 3		Total
Other real estate owned (1)	$	—	$	—	$	90	$	90
Total assets	$	—	$	—	$	90	$	90

(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

19

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 March 31, 2018. For financial assets and liabilities measured at fair value on a recurring basis, there were no transfers of financial assets or liabilities between Level 1 and Level 2 during the period ending March 31, 2018.

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
March 31, 2018		Fair Value	Valuation Technique	Unobservable Input	(Weighted Average)
Other real estate owned	$	32	Sales Contract	N/A	—
					Range
December 31, 2017		Fair Value	Valuation Technique	Unobservable Input	(Weighted Average)
Other real estate owned	$	90	Appraisal	N/A	—
				Cost to sell	8% (8%)

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 March 31, 2018 was 7.55% (total risk-based capital 15.55% less 8.00%) compared to the 2018 regulatory buffer of 1.875%.  Compliance with the capital conservation buffer is required in order to avoid limitations to certain capital distributions.  As of March 31, 2018, 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.

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The following table summarizes regulatory capital information as of March 31, 2018 and December 31, 2017for the Corporation and the Bank. 

			Regulatory Ratios
			Adequately	Well
	March 31,	December 31,	Capitalized	Capitalized
(Dollars in thousands)	2018	2017	Minimum	Minimum
Common Equity Tier 1 Risk-based Capital Ratio (1)
Franklin Financial Services Corporation	14.30%	14.06%	4.500%	N/A
Farmers & Merchants Trust Company	14.16%	13.93%	4.500%	6.50%
Tier 1 Risk-based Capital Ratio (2)
Franklin Financial Services Corporation	14.30%	14.06%	6.000%	N/A
Farmers & Merchants Trust Company	14.16%	13.93%	6.000%	8.00%
Total Risk-based Capital Ratio (3)
Franklin Financial Services Corporation	15.55%	15.31%	8.000%	N/A
Farmers & Merchants Trust Company	15.41%	15.19%	8.000%	10.00%
Tier 1 Leverage Ratio (4)
Franklin Financial Services Corporation	9.95%	9.73%	4.000%	N/A
Farmers & Merchants Trust Company	9.86%	9.64%	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

Note 11. Revenue Recognition

The Corporation adopted ASC 606 on January 1, 2018 using the modified retrospective approach applied to all contracts initiated on or after the effective date, and for contracts which have remaining obligations as of the effective date. Results for the reporting period beginning January 1, 2018 are presented under ASC 606 while the prior period results continue to be reported under legacy GAAP. Adoption of the standard did not have a material effect on any of the reported periods. The Corporation did not record a cumulative effect adjustment to the beginning retained earnings balance as of January 1, 2018 from the adoption of ASC 606 as it was determined the transition adjustment was immaterial to Corporation’s consolidated financial statements.

All of the Corporation’s revenue from contracts with customers within the scope of ASC 606 is recognized in non-interest income as presented in our consolidated statements of income. Revenue generating activities that fall within the scope of ASC 606 are described as follows:

Investment and Trust Service Fees - these represent fees from wealth management (assets under management), fees from the management and settlement of estates and commissions from the sale of investment and insurance a products.

· Asset management fees are generally assessed based on a tiered fee schedule, based on the value of assets under management, and are recognized monthly when the service obligation is completed. Fees recognized in the first quarter of 2018 totaled $1.3 million.

· Fees for estate management services are based on the estimated fair value of the estate. These fees are generally recognized monthly over an 18 month period that Management has determined to represent the average time to fulfill the performance obligation of the contract. Management has the discretion to adjust this time period as needed based upon the nature and complexity of an individual estate. Fees recognized in the first quarter of 2018 totaled $61 thousand.

· Commissions from the sale of investment and insurance products are recognized upon the completion of the transaction.  Fees recognized in the first quarter of 2018 totaled $68 thousand.

Loan Service Charges – these represent fees on loans for services or charges that occur after the loan has been booked, for example, late payment fees. These also include fees for mortgages settled for a third party mortgage company. All of these fees are transactional in nature and are recognized upon completion of the transaction which represents the performance obligation.

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Deposit Service Charges and Fees – these represent fees from deposit customers for transaction based, account maintenance, and overdraft services. Transaction based fees include, but are not limited to stop payment fees and overdraft fees. These fees are recognized at the time of the transaction when the performance obligation has been fulfilled. Account maintenance fees and account analysis fee are earned over the course of a month, representing the period of the performance obligation, and are recognized monthly.

Debit Card Income – this represents interchange fees from cardholder transactions conducted through the card payment network. Cardholders use the debit card to conduct point-of-sale transactions that produce interchange fees. The fees are transaction based and the fee is recognized with the processing of the transaction.  These fees are reported net of cardholder rewards.

Other Service Charges and Fees – these are comprised primarily of merchant card fees, credit card fees, ATM surcharges and interchange fees and wire transfer fees. Merchant card fees represent fees the Bank earns from a third party for enrolling a customer in the processor’s program. Credit card fees represent a fee earned by the Bank for a successful referral to a card-issuing company. ATM surcharges and interchange fees are the result of Bank customers conducting ATM transactions that generate fee income and are processed through multiple card networks. All of these fees are transaction based and are recognized at the time of the transaction.

Gains/Losses on the Sale of Other Real Estate – these are recognized when control of the property transfers to the buyer.

Increases in the cash surrender value of life insurance and security transactions are not within the scope of ASC 606.

Contract Balances

A contract asset balance occurs when an entity performs a service for a customer before the customer pays consideration (resulting in a contract receivable) or before payment is due (resulting in a contract asset).  A contract liability balance is an entity’s obligation to transfer a service to a customer for which the entity has already received payment (or payment is due) from the customer. The Company’s noninterest revenue streams are largely based on transactional activity, or standard month-end revenue accruals such as asset management fees based on month-end market values.  Consideration is often received immediately or shortly after the Company satisfies its performance obligation and revenue is recognized.  The Company does not typically enter into longer-term revenue contracts with customers, and therefore, does not experience significant contract balances. 

Contract Acquisition Costs

The Corporation expenses all contract acquisition costs as costs are incurred.

1Note 12. Contingencies

The nature of the Corporation’s business generates a certain amount of litigation.

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

These assessments are based on 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 the 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 any legal proceeding.  Our exposure and ultimate losses may be higher, possibly significantly higher, than amounts we may accrue or amounts we may estimate.

In management’s opinion, we do not anticipate, at the present time, that the ultimate aggregate liability, if any, arising out of all litigation to which the Corporation is a party will have a material adverse effect on our financial position.  We cannot now determine, however, whether or not any claim asserted against us, other than the Kalan case described below, will have a material adverse effect on our results of operations in any future reporting period, which will depend on, amount other things, the amount of loss resulting from the claim and the amount of income otherwise reported for the reporting period.  Thus, at March 31, 2018, 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 with respect to such other matters and, accordingly, have not yet established any specific accrual for such other matters.

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No material proceedings are pending or are known to be threatened or contemplated against us by governmental authorities.

On April 11, 2018, the Bank entered into settlement agreements with the named plaintiffs, certain members of the settlement class and certain of the other remaining defendants in 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, to make definitive the terms and conditions of settlement set forth in the Class Action Settlement Term Sheet entered into on December 29, 2017, following a mediation of the case.  The settlement agreements provide for the Bank to make a settlement payment of $10 million in full and final settlement of all claims that the named plaintiffs and members of the settlement class have brought or could have brought against F&M Trust.  The settlement agreements further provide for general releases by the parties.  On April 11, 2018, the named plaintiffs filed with the court a motion for preliminary approval of the settlement.  On April 12, 2018, the court entered an order setting a hearing on the motion for preliminary approval for May 4, 2018.  The Corporation has accrued the $10 million settlement payment in the Kalan case as an expense for the year ended December 31, 2017.

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

For the Three MonthsEnded March  31, 2018and 2017

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 2017 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 2017 Annual Report on Form 10-K for a more detailed disclosure of the critical accounting policies.

Results of Operations

Year-to-Date Summary

At March 31, 2018, total assets were $1.169 billion.  The investment portfolio increased during the first quarterand the loan portfolio remained relatively unchanged, as loan payoffs and amortization outpaced originations.  New loan originations totaled approximately $32 million, but were offset by payoffs of approximately $18 million.  All deposit categories, except savings,decreased slightly during the first quarter primarily in retail non-maturity deposits and short-term municipal time deposits. Net interest income increased due to the growth in interest income from the loan portfolio.The provision for loan lossesincreased due to a change in the loan portfolio mix.  The increase in noninterest income was primarilyfrom asset management feesin the Bank’s Investment and Trust Services department and loan service charges.  Noninterest expense increased primarily from increases in salaries and benefits, and advertising expense.  

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Key performance ratios as of, or for thethree months ended March 31, 2018 and 2017and the year ended December 31, 2017are listed below:

	March 31,		December 31,		March 31,
	2018		2017		2017
(Dollars in thousands, except per share)
Balance Sheet Highlights
Total assets	$	1,168,542	$	1,179,813	$	1,131,134
Investment securities		133,322		127,336		137,182
Loans, net		930,664		931,908		892,251
Deposits		1,034,461		1,047,181		1,006,594
Shareholders' equity		117,124		115,144		119,178
Summary of Operations
Interest income	$	10,488	$	39,885	$	9,546
Interest expense		795		2,491		581
Net interest income		9,693		37,394		8,965
Provision for loan losses		200		670		120
Net interest income after provision for loan losses		9,493		36,724		8,845
Noninterest income		3,148		12,189		2,925
Noninterest expense		8,648		43,172		7,957
Income before income taxes		3,993		5,741		3,813
Federal income tax expense		491		3,565		793
Net income	$	3,502	$	2,176	$	3,020
Performance Measurements
Return on average assets*		1.21%		0.19%		1.08%
Return on average equity*		12.17%		1.80%		10.33%
Return on average tangible equity (1)*		13.20%		1.94%		11.19%
Efficiency ratio (1)		65.68%		82.59%		63.62%
Net interest margin*		3.72%		3.72%		3.69%
Shareholders' Value (per common share)
Diluted earnings per share	$	0.80	$	0.50	$	0.70
Basic earnings per share		0.80		0.50		0.70
Regular cash dividends paid		0.24		0.93		$0.21
Book value		26.83		26.44		27.55
Tangible book value (1)		24.77		24.37		25.47
Market value		36.54		37.36		30.45
Market value/book value ratio		136.19%		141.30%		110.53%
Price/earnings multiple*		11.42		74.72		10.88
Current dividend yield*		2.63%		2.49%		2.76%
Dividend payout ratio		29.84%		185.25%		30.03%
Safety and Soundness
Risk-based capital ratio (Total)		15.55%		15.31%		16.25%
Leverage ratio (Tier 1)		9.95%		9.73%		10.31%
Common equity ratio (Tier 1)		14.30%		14.06%		14.99%
Nonperforming loans/gross loans		0.29%		0.28%		0.58%
Nonperforming assets/total assets		0.46%		0.45%		0.74%
Allowance for loan losses as a % of loans		1.27%		1.25%		1.25%
Net (recoveries) loan charge-offs/average loans*		0.00%		-0.01%		-0.04%
Assets under Management
Trust assets under management (fair value)	$	684,648	$	686,941	$	639,110
Held at third-party brokers (fair value)		152,728		158,145		147,676

*Annualized

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

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

(Dollars in thousands, except per share)	Three Months Ended		Twelve Months Ended		Three Months Ended
	March 31, 2018		December 31, 2017		March 31, 2017
Return on Tangible Equity (non-GAAP)
Net income	$	3,502	$	2,176	$	3,020
Average shareholders' equity		115,129		120,993		116,989
Less average intangible assets		(9,016)		(9,016)		(9,016)
Average shareholders' equity (non-GAAP)		106,113		111,977		107,973
Return on average tangible equity (non-GAAP)		13.20%		1.94%		11.19%
Tangible Book Value (per share) (non-GAAP)
Shareholders' equity	$	117,124	$	115,144	$	119,178
Less intangible assets		(9,016)		(9,016)		(9,016)
Shareholders' equity (non-GAAP)		108,108		106,128		110,162
Shares outstanding (in thousands)		4,365		4,355		4,325
Tangible book value (non-GAAP)		24.77		24.37		25.47
Efficiency Ratio
Noninterest expense	$	8,648	$	43,172	$	7,957
Net interest income		9,693		37,394		8,965
Plus tax equivalent adjustment to net interest income		370		2,690		619
Plus noninterest income, net of securities transactions		3,103		12,186		2,923
Total revenue		13,166		52,270		12,507
Efficiency ratio		65.68%		82.59%		63.62%

Net Interest Income

The largest 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 21% Federal statutory rate. 

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Comparison of the three months ended March 31, 2018to the three months ended March 31, 2017:

Tax equivalent net interest income increased $479 thousand to $10.1 million in the first quarter of 2018 compared to $9.6 million in the same period in 2017.  Balance sheet volume contributed $441 thousand to this increase and changes in interest rates added $38 thousand.  Due to the lower corporate tax rate, the benefit of tax-exempt income was less in 2018 as compared to 2017.

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 21% for 2018 and 34% for 2017.

	For the Three Months Ended March 31,
	2018					2017
	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	$	29,478	$	118	1.62%	$	20,735	$	62	1.21%
Investment securities:
Taxable		86,783		519	2.43%		94,766		544	2.33%
Tax Exempt		44,253		344	3.11%		46,363		452	3.89%
Investments		131,036		863	2.67%		141,129		996	2.86%
Loans:
Commercial, industrial and agricultural		787,614		8,261	4.20%		737,071		7,489	4.06%
Residential mortgage		71,927		733	4.07%		76,512		753	3.94%
Home equity loans and lines		71,423		809	4.59%		72,305		799	4.48%
Consumer		5,075		74	5.91%		4,716		66	5.68%
Loans		936,039		9,877	4.23%		890,604		9,107	4.10%
Total interest-earning assets		1,096,553	$	10,858	4.02%		1,052,468	$	10,165	3.92%
Other assets		62,845					62,966
Total assets	$	1,159,398				$	1,115,434
Interest-bearing liabilities:
Deposits:
Interest-bearing checking	$	281,421	$	177	0.26%	$	255,741	$	77	0.12%
Money Management		416,555		442	0.43%		422,255		365	0.35%
Savings		80,253		56	0.28%		76,887		20	0.11%
Time		71,452		120	0.68%		74,089		104	0.57%
Total interest-bearing deposits		849,681		795	0.38%		828,972		566	0.28%
Other borrowings		22		—	2.02%		7,470		15	0.82%
Total interest-bearing liabilities		849,703		795	0.38%		836,442		581	0.28%
Noninterest-bearing deposits		177,101					157,067
Other liabilities		17,465					4,936
Shareholders' equity		115,129					116,989
Total liabilities and shareholders' equity	$	1,159,398				$	1,115,434
T/E net interest income/Net interest margin				10,063	3.72%				9,584	3.69%
Tax equivalent adjustment				(370)					(619)
Net interest income			$	9,693				$	8,965

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Provision for Loan Losses

Provision for loan loss expense for the first quarter was $200 thousand, compared to $120 thousand in 2017.  The increase in the provision expense was due to a change in the mix of the loan portfolio. For more information refer to the Loan Quality and Allowance for Loan Losses discussion in the Financial Condition section.

Noninterest Income

For the first quarter of 2018, noninterest income increased$223 thousand from the same period in 2017.  Investment and trust service fees increased due to growth in assets under managementand investment commissions. Loan service charges increased from highermortgage production fees and commercial prepayment penalties.The change in the fair value of equity investments recorded through income was $45 thousand.  In 2017 the change in fair value of equity investments was recorded through other comprehensive income.

The following table presents a comparison of noninterest income for the three months ended March 31, 2018 and 2017.

	For the Three Months Ended
	March 31,				Change
(Dollars in thousands)	2018		2017		Amount		%
Noninterest Income
Investment and trust services fees	$	1,397	$	1,295	$	102	7.9
Loan service charges		231		147		84	57.1
Deposit service charges and fees		574		592		(18)	(3.0)
Other service charges and fees		333		324		9	2.8
Debit card income		385		375		10	2.7
Increase in cash surrender value of life insurance		128		131		(3)	(2.3)
Change in fair value of equity securities		45		—		45	N/A
Debt securities gains, net		—		2		(2)	N/A
Other		55		59		(4)	(6.8)
Total noninterest income	$	3,148	$	2,925	$	223	7.6

Noninterest Expense

Noninterest expense for the firstquarter of 2018 increased $691 thousand compared to the same period in 2017.  The increase in salaries and benefits was primarily due toan increase in salary expense ($269 thousand) from merit increases and increased staffing levels, employer taxes ($74 thousand) andincentive plans($46 thousand) compared to the same period in 2017.  Advertising increased due to digital marketing initiatives and projects.  Data Processing fees increased due to the implementation of new software.

The following table presents a comparison of noninterest expense for the three months ended March 31, 2018 and 2017

	For the Three Months Ended
(Dollars in thousands)	March 31,				Change
Noninterest Expense	2018		2017		Amount		%
Salaries and benefits	$	4,986	$	4,591	$	395	8.6
Occupancy, furniture and equipment, net		815		815		—	—
Advertising		427		247		180	72.9
Legal and professional		329		290		39	13.4
Data processing		596		541		55	10.2
Pennsylvania bank shares tax		239		243		(4)	(1.6)
FDIC insurance		129		106		23	21.7
ATM/debit card processing		238		218		20	9.2
Foreclosed real estate		14		58		(44)	(75.9)
Telecommunications		109		100		9	9.0
Other		766		748		18	2.4
Total noninterest expense	$	8,648	$	7,957	$	691	8.7

Provision for Income Taxes

For the first quarter of 2018, the Corporation recorded a Federal income tax expense of $491 thousand compared to $793 thousand for the same quarter in 2017. The effective tax rate was 12.3% for the first quarter of 2018 compared to 20.8% for the same period in 2017.  The decrease in income tax expense and the effective tax rate was due to the passage

28

of the Tax Cuts and Jobs Act of 2017.  The variances from the federal statutory rate are generally due to tax-exempt income from investments, loans and bank-owned life insurance. The federal statutory tax rate is 21% for 2018 and was 34% in 2017.

Financial Condition

Summary:

At March31, 2018, assets totaled $1.169 billion, a decrease of $11.3 million from the 2017 year-end balance of $1.180 billion. Debt securities increased $6.4 million, while net loans decreased $1.2 million due to maturities and payoffsin the commercial loan portfolio. Deposits decreased $12.7 million (1.2%) during the first three months of 2018, mainly in short-term municipal time deposits and noninterest-bearing deposits. The increase in retained earnings from the Corporation’s net income of $3.5 million was partially offset by the cash dividend of $1.0 million.The Corporation’s Dividend Reinvestment Plan (DRIP) added an additional $206 thousand in new capital, $171 thousand from the reinvestment of quarterly dividends and $35 thousand of optional cash contributions.  

Cash and Cash Equivalents:

Cash and cash equivalents totaled $42.1 million at March  31, 2018, a decrease of $16.5 million from the prior year-end balance of $58.6 million.  Interest-bearing deposits are held primarily at the Federal Reserve ($20.8 million) and in short-term bank owned certificates of deposit ($6.2 million).

Investment Securities:

AFS Securities

The AFS securities portfolio has increased $7.4 million on a cost basis, since year-end 2017. 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 47% and 40% of the portfolio fair value, respectively.  The average life of the portfolio was 3.90 years. 

TheAFS securities portfolio had a net unrealized loss of $1.1 million at March 31, 2018 compared to a net unrealized loss of $47 thousand (excluding equity securities) at the prior year-end. The increase in the unrealized loss is due primarily to the change in interest rates.  The portfolio averaged $131 million with a yield of 2.67% for the first three months of 2018. This compares to an average of $141.1 million and a yield of 2.86% for the same period in 2017. 

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 (73%).  Many municipal bonds have credit enhancements in the form of private bond insurance or other credit support. The largest geographic municipal bond exposure is to 16 issuers in the state of Texas with a fair value of $9.1 million and 9 issuers in the state of Pennsylvania with a fair value of $5.5 million. The average rating of the municipal portfolio from Moody’s is AA. It contains $61.3 million of bonds rated A3 or higher.  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 AFS securities available for sale as of March 31, 2018 and December 31, 2017 is as follows:

(Dollars in thousands)			Gross		Gross
	Amortized		unrealized		unrealized		Fair
March 31, 2018	cost		gains		losses		value
U.S. Government and Agency securities	$	10,534	$	22	$	(74)	$	10,482
Municipal securities		63,520		409		(619)		63,310
Trust preferred securities		6,007		1		(159)		5,849
Agency mortgage-backed securities		53,494		105		(852)		52,747
Private-label mortgage-backed securities		830		79		—		909
Asset-backed securities		27		—		(2)		25
	$	134,412	$	616	$	(1,706)	$	133,322

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(Dollars in thousands)			Gross		Gross
	Amortized		unrealized		unrealized		Fair
December 31, 2017	cost		gains		losses		value
Equity securities	$	164	$	201	$	—	$	365
U.S. Government and Agency securities		11,451		64		(43)		11,472
Municipal securities		57,374		650		(252)		57,772
Trust preferred securities		6,000		—		(183)		5,817
Agency mortgage-backed securities		51,307		197		(567)		50,937
Private-label mortgage-backed securities		858		88		—		946
Asset-backed securities		28		—		(1)		27
	$	127,182	$	1,200	$	(1,046)	$	127,336

The AFS securities portfolio contained 166 securities with $92.1 million of temporarily impaired fair value and $1.7 million in unrealized losses at March 31, 2018. The total unrealized loss position has increased from a $1.0 million unrealized loss at year-end 2017. 

For securities with an unrealized loss, Management applies a systematic methodology in order to perform an assessment of the potential for other-than-temporary impairment.  In the case of debt securities, investments considered for other-than-temporary impairment: (1) had a specified maturity or repricing date; (2) were generally expected to be redeemed at par, and (3) were expected to achieve a recovery in market value within a reasonable period of time. In addition, the Bank considers whether it intends to sell these securities or whether it will be forced to sell these securities before the earlier of amortized cost recovery or maturity. Equity securities are assessed for other-than-temporary impairment based on the length of time of impairment, dollar amount of the impairment and general market and financial conditions relating to specific issues.  The impairment identified on debt and equity securities and subject to assessment at March 31, 2018, 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 AFS securities portfolio (excluding restricted stock), aggregated by investment category, length of time that individual securities have been in a continuous unrealized loss position and the number of securities in each category as of March 31, 2018 and December 31, 2017:

	March 31, 2018
	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	$	5,588	$	(37)	7	$	3,331	$	(37)	10	$	8,919	$	(74)	17
Municipal securities		26,203		(339)	41		7,365		(280)	14		33,568		(619)	55
Trust preferred securities		1,867		(50)	2		3,700		(109)	4		5,567		(159)	6
Agency mortgage-backed securities		25,164		(337)	46		18,900		(515)	40		44,064		(852)	86
Asset-backed securities		18		(1)	1		5		(1)	1		23		(2)	2
Total temporarily impaired   securities	$	58,840	$	(764)	97	$	33,301	$	(942)	69	$	92,141	$	(1,706)	166

	December 31, 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	$	2,315	$	(11)	5	$	3,528	$	(32)	10	$	5,843	$	(43)	15
Municipal securities		13,767		(89)	22		7,507		(163)	14		21,274		(252)	36
Trust preferred securities		1,216		(12)	2		4,601		(171)	5		5,817		(183)	7
Agency mortgage-backed securities		16,287		(129)	29		20,563		(438)	39		36,850		(567)	68
Asset-backed securities		—		—	—		4		(1)	1		4		(1)	1
Total temporarily impaired   securities	$	33,585	$	(241)	58	$	36,203	$	(805)	69	$	69,788	$	(1,046)	127

The unrealized loss in the municipal bond portfolio increased to $619 thousand from $252 thousand at December 31, 2017 as interest rates rose during the quarter.  There are fifty-five 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 six securities with a fair value of $5.6 million and an unrealized loss of $159 thousand.  The trust-preferred securities held by the Bank are single entity issues, not pooled trust preferred securities.  Therefore, the impairment review of these securities is based only on the issuer and the security cannot be impaired by the performance of other issuers as if it was a pooled trust-preferred bond. All of the Bank’s trust preferred securities are single issue, variable rate notes with long maturities (2027 – 2028).  None of these bonds have suspended or missed a dividend payment. At March 31, 2018, 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.

Equity securities at Fair Value

The Corporation owns one equity investment. At March 31, 2018, this investment was reported at fair value ($410 thousand) with changes in value reported through income.  At December 31, 2017, this investment was reported at fair value with changes in value recorded through other comprehensive income.

Restricted Stock at Cost

The Bank held $456 thousand of restricted stock at March 31, 2018.  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

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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 $4.3 million over 2017, primarily due to pay downs.  For the first threemonths of 2018, the Bank originated $4.4 million in mortgages, including approximately $2.5 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 ($8.7 million), while loans for individuals to construct personal residences totaled $2.8 millionat March  31, 2018.  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 March  31, 2018, the Bank had $16.1 million in residential real estate construction loans funded with an interest reserve and capitalized $131 thousand of interest from these reserves on active projects.  These loans were comprised of $908 thousand in residential construction and $15.2 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 increased to $433.8 million from $428.4 million at the end of 2017, anincrease of $5.4 million.  The increase was primarily in hotels and motels, offset by a decrease in multi-family units, as a $3.5 million participation loan paid-off. The largest sectors (by collateral) in the commercial real estate category are: hotels and motels ($61.7 million), office buildings ($56.2 million), land development ($48.3 million), manufacturing facilities ($37.9 million) and auto dealerships ($35.0 million).

Commercial (C&I):  This category includes commercial, industrial, farm, agricultural, and municipal loans.  C&I loans decreased $3.8 million to $287.7 million at March  31, 2018, compared to $291.5 million at the end of 2017, primarily due toa loan participation payoff.At March  31, 2018, the Bank had approximately $176 million in tax-free loans. The largest sectors (by industry) in the commercial C&I category are: public administration ($81.5 million), utilities ($35.8 million), educational services ($30.2 million) and retail trade ($23.3million).  The Bank continues to reduce its portfolio of purchased participation commercial loans. At March 31, 2018, the Bank held $108.9 million in purchased loan participations in its portfolio, a decrease of $6.4 million from December 31, 2017.  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 increased $71 thousand over year-endand is mainly comprised of unsecured personal lines of credit.

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

	March 31,		December 31,			Change
(Dollars in thousands)	2018		2017			Amount	%
Residential Real Estate 1-4 Family
Consumer first liens	$	93,897	$	97,159	$	(3,262)	(3.4)
Commercial first lien		61,790		61,275		515	0.8
Total first liens		155,687		158,434		(2,747)	(1.7)
Consumer junior liens and lines of credit		43,842		45,043		(1,201)	(2.7)
Commercial junior liens and lines of credit		5,014		5,328		(314)	(5.9)
Total junior liens and lines of credit		48,856		50,371		(1,515)	(3.0)
Total residential real estate 1-4 family		204,543		208,805		(4,262)	(2.0)
Residential real estate - construction
Consumer		2,756		1,813		943	52.0
Commercial		8,735		8,088		647	8.0
Total residential real estate construction		11,491		9,901		1,590	16.1
Commercial real estate		433,821		428,428		5,393	1.3
Commercial		287,680		291,519		(3,839)	(1.3)
Total commercial		721,501		719,947		1,554	0.2
Consumer		5,118		5,047		71	1.4
		942,653		943,700		(1,047)	(0.1)
Less: Allowance for loan losses		(11,989)		(11,792)		(197)	1.7
Net Loans	$	930,664	$	931,908	$	(1,244)	(0.1)

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 (4) 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 $13.3 million at quarter end and includes both performing and nonperforming loans.  It is comprised entirely of loans rate 6-Special Mention and 7- Substandard. The Bank has no loans rated 8-Doubtful or 9-Loss. Included in the substandard total are $2.6 million of nonaccrual loans.  The watch list totaled $12.8 million at December 31, 2017. The credit composition of the portfolio, by primary collateral is shown in Note 6 of the accompanying financial statements.

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

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accruing interest on loans that are not adequately secured and in the process of collection.  Upon determination of nonaccrual status, the Bank subtracts any current year accrued and unpaid interest from its income, and any prior year accrued and unpaid interest from the allowance for loan losses.  Management continually monitors the status of nonperforming loans, the value of any collateral and potential of risk of loss.  Nonaccrual loans are rated no better than 7-Substandard.

The 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. However, in certain instances, the Bank may make a loan that exceeds the supervisory loan-to-value limit.  At March 31, 2018 the Bank had loans of $21.3 million (2.26% of gross loans) that exceeded the supervisory limit, compared to 3.2% at year-end 2017.

Loan quality, as measured by the balance of nonperforming loans has is unchanged since year-end 2017. Potential problem loans, defined as watch list loans less loans on nonaccrual or past due more than 90 days at  March 31, 2018 totaled $10.6 million compared to $10.1 million at year-end 2017.  The balance of OREO declined slightly due to a write-down based on the anticipated sale of a property in the second quarter of 2018. See Note 7 in the accompanying financial statements for additional information about OREO.

The following table presents a summary of nonperforming assets as of:

	March 31,		December 31,
(Dollars in thousands)	2018		2017
Nonaccrual loans
Residential Real Estate 1-4 Family
First liens	$	107	$	168
Junior liens and lines of credit		—		—
Total		107		168
Residential real estate - construction		466		466
Commercial real estate		1,842		1,854
Commercial		183		187
Total nonaccrual loans		2,598		2,675
Loans past due 90 days or more and still accruing
Commercial real estate		89		—
Total loans past due 90 days or more and still accruing		89		—
Total nonperforming loans		2,687		2,675
Other real estate owned		2,592		2,598
Total nonperforming assets	$	5,279	$	5,273
Nonperforming loans to total gross loans		0.29%		0.28%
Nonperforming assets to total assets		0.44%		0.45%
Allowance for loan losses to nonperforming loans		446.19%		440.82%

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The following table identifies the most significant loans in nonaccrual status. These two nonaccrual loans account for 83% of the total nonaccrual balance.

(Dollars in thousands)
				ALL	Nonaccrual	TDR			Last
		Balance		Reserve	Date	Status	Collateral	Location	Appraisal(1)
Credit 1	$	1,642	$	—	Mar-12	Y	1st and 2nd liens on commercial real estate, residential real estate and business assets	PA	Nov-17	$	3,914
Credit 2		595		—	Sep-16	Y	1st lien on farmland	PA	Jul-14	$	1,526
	$	2,237	$	—

(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 now delinquent under the modified terms. Credit 2 is listed for sale, in the process of foreclosure and is filing for bankruptcy.

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 $12.4 million at quarter-end compared to $12.6 million at year-end 2017.

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

	March 31, 2018
(Dollars in thousands)	Nonaccrual				Accruing		Total
	Non-TDR		TDR		TDR		Impaired
Residential Real Estate 1-4 Family
First liens	$	71	$	36	$	696	$	803
Junior liens and lines of credit		—		—		—		—
Total		71		36		696		803
Residential real estate - construction		—		466		—		466
Commercial real estate		71		1,771		9,107		10,949
Commercial		183		—		—		183
Total	$	325	$	2,273	$	9,803	$	12,401

Allowance for Loan Losses:

Management monitors loan performance on a monthly basis and 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. 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, 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

35

an ongoing basis and reports its adequacy quarterly to the Credit Risk Oversight Committee of the Board of Directors.  Management believes that the allowance for loan losses at March 31. 2018 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 $602 thousand at March 31, 2018 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.  The Bank currently has no specific reserve established for any loans.  Note 6 in the accompanying financial statements provides additional information about the ALL established for impaired loans.

The general allocation component addresses the reserves established for pools of homogenous loans. The general component includes a quantitative and qualitative analysis. When calculating the general allocation, the Bank segregates its loan portfolio into the following sectors based primarily on the type of supporting collateral:  residential real estate, commercial, industrial or agricultural real estate; commercial and industrial (C&I non-real estate), and consumer. Each sector may be further segregated by type of collateral, lien position, or owner/nonowner occupancy. 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 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.

The following table shows the composition of the allowance for loan losses.

(Dollars in thousands)	3/31/2018			12/31/2017
Allowance Component		Balance	% of Loans		Balance	% of Loans
General - Quantitative	$	7,952	0.84	$	7,808	0.83
General - Qualitative		2,544	0.27		2,547	0.27
Specific		—	—		—	—
Unallocated		1,493	0.16		1,437	0.15
	$	11,989	1.27	$	11,792	1.25

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 March 31, 2018 and December 31, 2017:

	Residential Real Estate 1-4 Family
	First		Junior Liens &				Commercial
(Dollars in thousands)	Liens		Lines of Credit		Construction		Real Estate		Commercial		Consumer		Unallocated		Total
March 31, 2018
Loans evaluated for ALL:
Individually	$	454	$	—	$	466	$	10,878	$	—	$	—	$	—	$	11,798
Collectively		155,233		48,856		11,025		422,943		287,680		5,118		—		930,855
Total	$	155,687	$	48,856	$	11,491	$	433,821	$	287,680	$	5,118	$	—	$	942,653
ALL established for   loans evaluated:
Individually	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Collectively		1,043		320		260		6,698		2,073		104		1,491		11,989
ALL at March 31, 2018	$	1,043	$	320	$	260	$	6,698	$	2,073	$	104	$	1,491	$	11,989
December 31, 2017
Loans evaluated for ALL:
Individually	$	459	$	—	$	466	$	10,981	$	—	$	—	$	—	$	11,906
Collectively		157,975		50,371		9,435		417,447		291,519		5,047		—		931,794
Total	$	158,434	$	50,371	$	9,901	$	428,428	$	291,519	$	5,047	$	—	$	943,700
ALL established for   loans evaluated:
Individually	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Collectively		1,060		330		224		6,526		2,110		105		1,437		11,792
ALL at December 31, 2017	$	1,060	$	330	$	224	$	6,526	$	2,110	$	105	$	1,437	$	11,792

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 loan charge-offs of $3 thousand compared to net recoveries of $83 thousand for the same period in 2017. The Bank recorded $200 thousand for the loan loss provision expense for the first quarter of 2018 compared to $120 thousand for the first quarter of 2017.  See Note 6 in the accompanying financial statements for additional information about the allowance for loan losses.

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

	Residential Real Estate 1-4 Family
	First		Junior Liens &				Commercial
(Dollars in thousands)	Liens		Lines of Credit		Construction		Real Estate		Commercial		Consumer		Unallocated		Total
ALL at December 31, 2017	$	1,060	$	330	$	224	$	6,526	$	2,110	$	105	$	1,437	$	11,792
Charge-offs		—		—		—		—		—		(26)		—		(26)
Recoveries		1		—		—		—		8		14		—		23
Provision		(18)		(10)		36		172		(45)		11		54		200
ALL at March 31, 2018	$	1,043	$	320	$	260	$	6,698	$	2,073	$	104	$	1,491	$	11,989

37

The allocation of the allowance for loan losses is based on estimates and is not intended to imply limitations on the usage of the allowance.  The entire allowance is available to absorb any losses without regard to the category in which the loan is classified. The following table shows the ALL and charge-off ratios for the periods ended:

	Three Months Ended		Year ended		Three Months Ended
	March 31, 2018		December 31, 2017		March 31, 2017
Net (recoveries) charge-offs/average loans		0.00%		-0.01%		-0.01%
Net loan charge-offs (recoveries) as a percentage of the provision for loan losses		1.50%		-7.01%		-69.17%
Allowance for loan losses as a % of loans		1.27%		1.25%		1.25%
Net charge-offs (recoveries)	$	3	$	(47)	$	(83)

Other Real Estate Owned:

The Bank holds $2.6 million of other real estate owned (OREO), comprised of three properties, unchanged from year-end 2017.  The most significant OREO holding is one property carried at $2.5 million (97% 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 that has been extended until May 2018. 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 2018, the Bank recorded write downs of $6 thousand and incurred expense of $8 thousand to hold and maintain OREO. Note 7 of the accompanying financial statements provides additional information on activity in OREO.

Deposits: 

Total deposits decreased $12.7 million during the first three months of 2018 to $1.034 billion. Non-interest bearing deposits decreased $3.6 million (primarily in small business accounts), while total interest-bearing checking and savings,  of $774.8 million at March 31, 2018,remained unchanged and time deposits decreased $9.1 million. Interest bearing checking decreased by $2.6 million, primarily in retail deposits and the Bank’s Money Management product decreased $1.6 million, primarily in retail accounts.  Time deposits decreased since year-end from maturities of short-term municipal deposits. 

As of March 31, 2018, the Bank had $153.0 million placed in the ICS program ($101.1 million in interesting-bearing checking and $51.9 million in money management) and $3.3 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 March 31, 2018.

	March 31,		December 31,			Change
(Dollars in thousands)	2018		2017			Amount	%
Noninterest-bearing checking	$	193,237	$	196,853	$	(3,616)	(1.8)
Interest-bearing checking		278,369		280,944		(2,575)	(0.9)
Money management		413,417		415,045		(1,628)	(0.4)
Savings		83,051		78,868		4,183	5.3
Total interest-bearing checking and savings		774,837		774,857		(20)	(0.0)
Time deposits		63,126		72,211		(9,085)	(12.6)
Brokered time deposits		3,261		3,260		1	0.0
Total time deposits		66,387		75,471		(9,084)	(12.0)
Total deposits	$	1,034,461	$	1,047,181	$	(12,720)	(1.2)
Overdrawn deposit accounts reclassified as loans	$	250	$	154

Borrowings:

The Corporation had no short-term borrowings at March  31, 2018 and December 31, 2017. 

Shareholders’ Equity:

Total shareholders’ equity increased $2.0 million to $117.1 million at March 31, 2018, compared to $115.1 million at the end of 2017.  The increase in retained earnings from the Corporation’s net income of $3.5 million was partially offset by the cash dividend of $1.0 million. The Corporation’s dividend payout ratio was 29.8% for the first three months of 2018 compared to 30.0% in 2017.  

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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 first quarter of 2018, the Corporation paid a $0.24 per share dividend, compared to $0.21 paid in the first quarter of 2017. On April5, 2018 the Board of Directors declared a $0.27 per share regular quarterly dividend for thesecond quarter of 2018, which will be paid on May  23, 2018.

In addition, the Corporation considers how dividend decisions may affect the Dividend Reinvestment Plan (DRIP), which has raised $206 thousand in new capital this year with 5,911 shares issued. On October 12, 2017, the Board of Directors authorized the repurchase of up to 100,000 shares of the Corporation’s $1.00 par value common stock at market prices in open market or privately negotiated transactions beginning October 16, 2017 and continuing through September 30, 2018.  During the first three months of 2018, 2,605 shares were repurchased, compared to no shares repurchased in the first three months of 2017. 

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 March 31, 2018 was 7.55% (total risk-based capital 15.55% less 8.00%) compared to the 2018 regulatory buffer of 1.875%.  Compliance with the capital conservation buffer is required in order to avoid limitations to certain capital distributions.  As of March 31, 2018, 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 March 31, 2018 and December 31, 2017 for the Corporation and the Bank.

			Regulatory Ratios
			Adequately	Well
	March 31,	December 31,	Capitalized	Capitalized
(Dollars in thousands)	2018	2017	Minimum	Minimum
Common Equity Tier 1 Risk-based Capital Ratio (1)
Franklin Financial Services Corporation	14.30%	14.06%	4.500%	N/A
Farmers & Merchants Trust Company	14.16%	13.93%	4.500%	6.50%
Tier 1 Risk-based Capital Ratio (2)
Franklin Financial Services Corporation	14.30%	14.06%	6.000%	N/A
Farmers & Merchants Trust Company	14.16%	13.93%	6.000%	8.00%
Total Risk-based Capital Ratio (3)
Franklin Financial Services Corporation	15.55%	15.31%	8.000%	N/A
Farmers & Merchants Trust Company	15.41%	15.19%	8.000%	10.00%
Tier 1 Leverage Ratio (4)
Franklin Financial Services Corporation	9.95%	9.73%	4.000%	N/A
Farmers & Merchants Trust Company	9.86%	9.64%	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

39

approximately 15,000 in Fulton County to over 249,000 in Cumberland County. Unemployment in the Bank’s market area has remained virtually unchanged over the past year and ranges from a low of 4.0% in Cumberland County to 7.9% 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.

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

Economic Data

	March 31,	December 31,
	2018	2017
Unemployment Rate (seasonally adjusted)
Market area range (1)	4.0% - 7.9%	3.4 - 4.5%
Pennsylvania	4.8%	4.6%
United States	4.1%	4.1%
Housing Price Index - year over year change
PA, nonmetropolitan statistical area	1.6%	2.3%
United States	6.3%	6.3%
Building Permits - year over year change -12 moths
Harrisburg-Carlisle, PA MSA & Chambersburg-Waynesboro, PA MSA
Residential, estimated	12.4%	5.2%
Multifamily, estimated	-7.2%	-27.8%
(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 March 2018, the FOMC increased the federal funds rate target range by .25%, its fifth such increase since December 31, 2016.  Despite these actions, the yield curve has flattened during the year.  Looking through the remainder of 2018, 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 for the rest of 2018 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.

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Historically, the Corporation has satisfied its liquidity needs from earnings, repayment of loans and amortizing investment securities, maturing investment securities, loan` sales, deposit growth and its ability to access existing lines of credit.  All investment securities are classified as available for sale; therefore, securities that are not pledged as collateral for borrowings are an additional source of readily available liquidity, either by selling the security or, more preferably, to provide collateral for additional borrowing. At March 31, 2018, the Bank had $78.9million (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.

The FHLB system has always been a major funding source for community banks.  The Bank’s maximum borrowing capacity with the FHLB at March 31, 2018 was $332 million with $332 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 would 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 $19 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 $343.1 million and $300.1 million, respectively, at March 31, 2018 and December 31, 2017.

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 2017 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 threemonths ended March 31, 2018. For more information on market risk refer to the Corporation’s 2017 Annual Report on Form 10-K.

Item 4.  Controls and Procedures

Evaluation of Controls and Procedures

The Corporation carried out an evaluation, under the supervision and with the participation of the Corporation’s management, including the Corporation’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of its disclosure controls and procedures, as defined in Exchange Act Rules 13a-15(e) and 15d-15(e). Based upon the evaluation, the Corporation’s Chief Executive Officer and Chief Financial Officer concluded that as of March 31, 2018, 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 March 31, 2018, 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.

41

Part II – OTHER INFORMATION

Item 1.Legal Proceedings

The nature of the Corporation’s business generates a certain amount of litigation.

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, July 28, 2017, November 3, 2017, January 2, 2018 and April 13, 2018.  On April 11, 2018, F&M Trust entered into settlement agreements with the named plaintiffs, certain members of the settlement class and certain of the other remaining defendants in the Kalan case to make definitive the terms and conditions of settlement set forth in the Class Action Settlement Term Sheet entered into on December 29, 2017, described in our current report on Form 8-K filed January 2, 2018, following a mediation of the case.  The settlement agreements provide for F&M Trust to make a settlement payment of $10 million in full and final settlement of all claims that the named plaintiffs and members of the settlement class have brought or could have brought against F&M Trust.  The settlement agreements further provide for general releases by the parties.

On April 11, 2018, the named plaintiffs filed with the court a motion for preliminary approval of the settlement.  On April 12, 2018, the court entered an order setting a hearing on the motion for preliminary approval for May 4, 2018.

The Corporation accrued the $10 million settlement payment as an expense for the year ended December 31, 2017.

In management’s opinion, there are no other proceedings pending to which the Corporation is a party or to which its property is subject which, if determined adversely to the Corporation, would be material.  No material proceedings are pending or are known to be threatened or contemplated against us by any governmental authorities.

Item 1A. Risk Factors 

Except as set forth below, there were no material changes in the Corporation’s risk factors during the three months ended March 31, 2018. For more information, refer to the Corporation’s 2017 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.

42

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

(Dollars in thousands, except per share)
Period	Number of Shares Purchased		Weighted Average Price Paid per Share		Dollar Amount of Shares Purchased as Part of Publically Announced Program	Shares Yet To Be Purchased Under Program
March 2018	2,605	$	33.80	$	88	97,395
	2,605	$	33.80

These shares were acquired through stock swap transactions by the exercise of incentive stock options.

Item 3.   Defaults by the Company on its Senior Securities

None

Item 4.   Mine Safety Disclosures

Not Applicable

43

Item 5.   Other Information

None

Item 6.   Exhibits

Exhibits

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

44

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

May7, 2018	/s/ Timothy G. Henry
	Timothy G. Henry
	Chief Executive Office and President
	(Principal Executive Officer)
May7, 2018	/s/ Mark R. Hollar
	Mark R. Hollar
	Treasurer and Chief Financial Officer
	(Principal Financial and Accounting Officer)

45

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:  May 7, 2018

/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:  May7, 2018

/s/ Mark R. Hollar

Mark R. Hollar

Treasurer and Chief Financial Officer

EX-32.1

Exhibit 32.1

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

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

In connection with the Quarterly Report of Franklin Financial Services Corporation (the “Corporation”) on Form 10-Q, for the period ending March  31, 2018, 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

May7, 2018

EX-32.2

Exhibit 32.2

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

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

In connection with the Quarterly Report of Franklin Financial Services Corporation (the “Corporation”) on Form 10-Q for the period ending March  31, 2018 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

May7, 2018

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	Mar. 31, 2018	Apr. 30, 2018
Document And Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Mar. 31, 2018
Document Fiscal Period Focus	Q1
Document Fiscal Year Focus	2018
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		4,366,279
Trading Symbol	fraf

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Consolidated Balance Sheets - USD ($) $ in Thousands	Mar. 31, 2018	Dec. 31, 2017
Assets
Cash and due from banks	$ 14,148	$ 21,433
Interest-bearing deposits in other banks	27,934	37,170
Total cash and cash equivalents	42,082	58,603
Debt securities available for sale, at fair value	133,322	126,971
Equity securities	410	365
Restricted stock	456	456
Loans held for sale		442
Loans	942,653	943,700
Allowance for loan losses	(11,989)	(11,792)
Net Loans	930,664	931,908
Premises and equipment, net	13,576	13,741
Bank owned life insurance	23,108	22,980
Goodwill	9,016	9,016
Other real estate owned	2,592	2,598
Deferred tax asset, net	6,062	5,803
Other assets	7,254	6,930
Total assets	1,168,542	1,179,813
Deposits
Non-interest bearing checking	193,237	196,853
Money management, savings and interest checking	774,837	774,857
Time	66,387	75,471
Total deposits	1,034,461	1,047,181
Other liabilities	16,957	17,488
Total liabilities	1,051,418	1,064,669
Shareholders' equity
Common stock, $1 par value per share, 15,000,000 shares authorized with 4,695,617 shares issued and 4,364,812 shares outstanding at March 31, 2018 and 4,689,099 shares issued and 4,354,788 shares outstanding at December 31, 2017	4,696	4,689
Capital stock without par value, 5,000,000 shares authorized with no shares issued and outstanding
Additional paid-in capital	40,668	40,396
Retained earnings	84,876	82,218
Accumulated other comprehensive loss	(7,010)	(6,028)
Treasury stock, 330,805 shares at March 31, 2018 and 334,311 shares at December 31, 2017, at cost	(6,106)	(6,131)
Total shareholders' equity	117,124	115,144
Total liabilities and shareholders' equity	$ 1,168,542	$ 1,179,813

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Consolidated Balance Sheets (Parenthetical) - $ / shares	Mar. 31, 2018	Dec. 31, 2017
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	4,695,617	4,689,099
Common Stock, Shares, Outstanding	4,364,812	4,354,788
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	330,805	334,311

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Consolidated Statements Of Income - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Interest income
Loans, including fees	$ 9,577	$ 8,639
Interest and dividends on investments:
Taxable interest	513	531
Tax exempt interest	274	301
Dividend income	6	13
Deposits and obligations of other banks	118	62
Total interest income	10,488	9,546
Interest expense
Deposits	795	566
Short-term borrowings		15
Total interest expense	795	581
Net interest income	9,693	8,965
Provision for loan losses	200	120
Net interest income after provision for loan losses	9,493	8,845
Noninterest income
Investment and trust services fees	1,397	1,295
Loan service charges	231	147
Deposit service charges and fees	574	592
Other service charges and fees	333	324
Debit card income	385	375
Increase in cash surrender value of life insurance	128	131
Debt securities gains, net		2
Change in fair value of equity securities	45
Other	55	59
Total noninterest income	3,148	2,925
Noninterest Expense
Salaries and employee benefits	4,986	4,591
Occupancy, furniture and equipment, net	815	815
Advertising	427	247
Legal and professional	329	290
Data processing	596	541
Pennsylvania bank shares tax	239	243
FDIC Insurance	129	106
ATM/debit card processing	238	218
Foreclosed real estate	14	58
Telecommunications	109	100
Other	766	748
Total noninterest expense	8,648	7,957
Income before federal income taxes	3,993	3,813
Federal income tax expense	491	793
Net income	$ 3,502	$ 3,020
Per share
Basic earnings per share	$ 0.80	$ 0.70
Diluted earnings per share	0.80	0.70
Cash dividends declared	$ 0.24	$ 0.21

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Consolidated Statements Of Comprehensive Income - USD ($) $ in Thousands		3 Months Ended
		Mar. 31, 2018	Mar. 31, 2017
Consolidated Statements Of Comprehensive Income [Abstract]
Net income		$ 3,502	$ 3,020
Debt Securities:
Unrealized (losses) gains arising during the period		(1,043)	454
Reclassification adjustment included in net income	[1]		(2)
Net unrealized gains		(1,043)	452
Tax effect		262	(153)
Net of tax amount		(781)	299
Total other comprehensive (loss) income		(781)	299
Total Comprehensive Income		$ 2,721	3,319
Reclassification adjustment / Statement line item: Tax expense (benefit)
Debt securities gains, net			$ 1

[1] Debt securities gains, net

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Consolidated Statements Of Changes In Shareholders' Equity - USD ($) $ in Thousands	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	Accumulated Other Comprehensive Loss [Member]	Treasury Stock [Member]	Total
Balance at Dec. 31, 2016	$ 4,688	$ 39,752	$ 83,081	$ (4,215)	$ (6,813)	$ 116,493
Net income			3,020			3,020
Other comprehensive income				299		299
Cash dividends declared			(907)			(907)
Treasury shares issued under employee stock purchase plan		4			21	25
Treasury shares issued under dividend reinvestment plan		84			137	221
Stock option compensation expense		27				27
Balance at Mar. 31, 2017	4,688	39,867	85,194	(3,916)	(6,655)	119,178
Balance at Dec. 31, 2017	4,689	40,396	82,218	(6,028)	(6,131)	115,144
Cumulative adjustment for fair value of equity securities			201	(201)
Net income			3,502			3,502
Other comprehensive income				(781)		(781)
Cash dividends declared			(1,045)			(1,045)
Acquisition of 2,605 shares of treasury stock					(88)	(88)
Treasury shares issued under employee stock purchase plan		2			4	6
Treasury shares issued under dividend reinvestment plan		97			109	206
Common stock issued under incentive stock option plan, 6,518	7	142				149
Stock option compensation expense		31				31
Balance at Mar. 31, 2018	$ 4,696	$ 40,668	$ 84,876	$ (7,010)	$ (6,106)	$ 117,124

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Consolidated Statements Of Changes In Shareholders' Equity (Parenthetical) - $ / shares	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Consolidated Statements Of Changes In Shareholders' Equity [Abstract]
Common Stock, Dividends, Per Share, Declared	$ 0.24	$ 0.21
Acquisition of treasury stock, shares	2,605
Treasury shares issued under stock option plan, shares	200	1,126
Treasury shares issued under dividend reinvestment plan, shares	5,911	7,463
Common stock issued under dividend reinvestment plan, shares	6,518

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Consolidated Statements Of Cash Flows - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Cash flows from operating activities
Net income	$ 3,502	$ 3,020
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	333	332
Net amortization of loans and investment securities	438	369
Amortization and net change in mortgage servicing rights valuation		14
Provision for loan losses	200	120
Equity investments recorded at fair value through income	(45)
Debt securities gains, net		(2)
Loans originated for sale	(2,527)	(1,220)
Proceeds from sale of loans	2,969	1,312
Write-down of other real estate owned	6	45
Write-down on premises and equipment available for sale		49
Loss on sale of premises	17
Increase in cash surrender value of life insurance	(128)	(131)
Stock option compensation	31	27
Contribution to pension plan	(1,000)
Decrease in other assets	(448)	(1,409)
Increase in other liabilities	148	619
Net cash provided by operating activities	3,496	3,145
Cash flows from investing activities
Proceeds from sales and calls of investment securities available for sale		475
Proceeds from maturities and pay-downs of securities available for sale	5,726	6,246
Purchase of investment securities available for sale	(13,380)
Net decrease in restricted stock		1,331
Net decrease (increase) in loans	1,031	(9,517)
Capital expenditures	(107)	34
Proceeds from sale of other assets	117
Proceeds from sale of other real estate		1,751
Net cash (used in) provided by investing activities	(6,613)	320
Cash flows from financing activities
Net (decrease) increase in demand deposits, interest-bearing checking, and savings accounts	(3,636)	25,360
Net decrease in time deposits	(9,084)	(886)
Net decrease in short-term borrowings		(24,270)
Dividends paid	(1,045)	(907)
Treasury shares issued under employee stock purchase plan	6	25
Treasury shares issued under dividend reinvestment plan	206	221
Common stock issued under stock option plans	149
Net cash used in financing activities	(13,404)	(457)
(Decrease) increase in cash and cash equivalents	(16,521)	3,008
Cash and cash equivalents as of January 1	58,603	39,166
Cash and cash equivalents as of March 31	42,082	42,174
Supplemental Disclosures of Cash Flow Information
Cash paid during the year for: Interest on deposits and other borrowed funds	$ 792	566
Cash paid during the year for: Income taxes		$ 1,002

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Basis Of Presentation

3 Months Ended

Mar. 31, 2018

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 March 31, 2018, 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 2017 Annual Report on Form 10-K.  The consolidated results of operations for the three month period ended March 31, 2018 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, 2017 has been derived from the audited consolidated financial statements at that date, but does not include all of the information and footnotes required by GAAP for complete consolidated financial statements.

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

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

	For the Three Months Ended
	March 31,
(Dollars and shares in thousands, except per share data)	2018		2017
Weighted average shares outstanding (basic)		4,359		4,321
Impact of common stock equivalents		28		20
Weighted average shares outstanding (diluted)		4,387		4,341
Anti-dilutive options excluded from calculation		—		14
Net income	$	3,502	$	3,020
Basic earnings per share	$	0.80	$	0.70
Diluted earnings per share	$	0.80	$	0.70

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Recent Accounting Pronouncements

3 Months Ended

Mar. 31, 2018

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 2018-02, Income Statement (Topic 220), Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income	Under ASU 2018-02, entities are allowed, but not required, to reclassify from Accumulated Other Comprehensive Income (AOCI) to retained earnings stranded tax effects resulting from the new federal corporate income tax rate of the Tax Cuts and Jobs Act (the Act).  The reclassification could include other stranded tax effects that related to the Act but do not directly related to the change in the federal rate.  Tax effects that are stranded in AOCI for other reasons may not be reclassified.  Entities also will have an option to adopt the standard retrospectively or in the period of adoption.	January 1, 2018	The Corporation adopted the provisions of the ASU in the fourth quarter of 2017.  The Company reclassified the disproportionate tax effect resulting from the Act by increasing retained earnings by $992 thousand and reducing AOCI by $992 thousand.
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 classifies 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	The Corporation adopted the provisions of the ASU on January 1, 2018 and it had no material effect on the 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	The Corporation adopted the provisions of the ASU on January 1, 2018 and it had no material effect on the consolidated financial statements.  The service cost is reported in Salaries and Benefits expense and the nonservice cost is included in Other Expense on the Consolidated Statement of Income, which totaled $35 thousand reclassified for the first quarter of 2017.
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 Corporation adopted this ASU on January 1, 2018, on a modified retrospective approach, and it did not have a material effect on the Corporation's consolidated financial statements.  See Note 11. Revenue Recognition for more information.
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	The Corporation adopted the provisions of the ASU on January 1, 2018 and it had no material effect on the consolidated financial statements. The Corporation reclassified the fair value of equity securities by increasing retained earnings by $201 thousand and decreasing AOCI by $201 thousand.  In addition, according to the standard, the Corporation measured the fair value of the loan portfolio as of March 31, 2018 using an exit price notion.  See Note 9. Fair Value  Measurements and Fair Values of Financial Instruments for more information.
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 in the form of a lease liability (the present value of a lessee's obligation to make lease payments) and a right-of-use asset (an asset that represents the lessee's right to use a specified asset for the lease term).  The offsetting transactions will gross-up the Consolidated Balance Sheet, but the Corporation has not yet determined this amount. The Corporation has acquired a lease accounting model to implement the standard.  The model has been installed and will be used in a test mode during 2018, but the Corporation does not plan to early adopt the standard. The Corporation currently expects that the new standard will not have a material effect on its consolidated results of operations.
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 2016-13, 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 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.  The Corporation expects to have its methodology and process complete by the end of 2018 so that it can run the new CECL model during 2019 in test mode, prior to the 2020 implementation.

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Accumulated Other Comprehensive Loss

3 Months Ended

Mar. 31, 2018

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:

	March 31,		December 31,
	2018		2017
(Dollars in thousands)
Net unrealized (losses) gains on debt securities	$	(1,090)	$	154
Tax effect		229		(33)
Net of tax amount		(861)		121
Accumulated pension adjustment		(7,784)		(7,784)
Tax effect		1,635		1,635
Net of tax amount		(6,149)		(6,149)
Total accumulated other comprehensive loss	$	(7,010)	$	(6,028)

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Investments

3 Months Ended

Mar. 31, 2018

Investments [Abstract]

Investments

Note 4. Investments

Available for Sale (AFS) Securities

The amortized cost and estimated fair value of AFS securities available for sale as of March 31, 2018 and December 31, 2017 are as follows:

(Dollars in thousands)			Gross		Gross
	Amortized		unrealized		unrealized		Fair
March 31, 2018	cost		gains		losses		value
U.S. Government and Agency securities	$	10,534	$	22	$	(74)	$	10,482
Municipal securities		63,520		409		(619)		63,310
Trust preferred securities		6,007		1		(159)		5,849
Agency mortgage-backed securities		53,494		105		(852)		52,747
Private-label mortgage-backed securities		830		79		—		909
Asset-backed securities		27		—		(2)		25
	$	134,412	$	616	$	(1,706)	$	133,322

(Dollars in thousands)			Gross		Gross
	Amortized		unrealized		unrealized		Fair
December 31, 2017	cost		gains		losses		value
Equity securities	$	164	$	201	$	—	$	365
U.S. Government and Agency securities		11,451		64		(43)		11,472
Municipal securities		57,374		650		(252)		57,772
Trust preferred securities		6,000		—		(183)		5,817
Agency mortgage-backed securities		51,307		197		(567)		50,937
Private-label mortgage-backed securities		858		88		—		946
Asset-backed securities		28		—		(1)		27
	$	127,182	$	1,200	$	(1,046)	$	127,336

At March 31, 2018and December 31, 2017, the fair value of AFS securities pledged to secure public funds and trust deposits totaled $78.9 million and  $84.1 million, respectively.

The amortized cost and estimated fair value of debt securities at March 31, 2018, 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	$	5,174	$	5,199
Due after one year through five years		45,530		45,705
Due after five years through ten years		25,583		25,062
Due after ten years		3,801		3,700
		80,088		79,666
Mortgage-backed securities		54,324		53,656
	$	134,412	$	133,322

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

	For the Three Months Ended
	March 31,
(Dollars in thousands)	2018		2017
Gross gains realized	$	—	$	2
Gross losses realized		—		—
Net gains realized	$	—	$	2

Impairment:

The AFSinvestment portfolio contained 166 securities with $92.1 million of temporarily impaired fair value and $1.7 million in unrealized losses at March 31, 2018. The total unrealized loss position has increased from a $1.0 million unrealized loss at year-end 2017. 

For securities with an unrealized loss, Management applies a systematic methodology in order to perform an assessment of the potential for other-than-temporary impairment.  In the case of debt securities, investments considered for other-than-temporary impairment: (1) had a specified maturity or repricing date; (2) were generally expected to be redeemed at par, and (3) were expected to achieve a recovery in market value within a reasonable period of time. In addition, the Bank considers whether it intends to sell these securities or whether it will be forced to sell these securities before the earlier of amortized cost recovery or maturity. Equity securities are assessed for other-than-temporary impairment based on the length of time of impairment, dollar amount of the impairment and general market and financial conditions relating to specific issues.  The impairment identified on debt and equity securities and subject to assessment at March 31, 2018, 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 AFS portfolio, aggregated by investment category, length of time that individual securities have been in a continuous unrealized loss position and the number of securities in each category as of March 31, 2018 and December 31, 2017:

	March 31, 2018
	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	$	5,588	$	(37)	7	$	3,331	$	(37)	10	$	8,919	$	(74)	17
Municipal securities		26,203		(339)	41		7,365		(280)	14		33,568		(619)	55
Trust preferred securities		1,867		(50)	2		3,700		(109)	4		5,567		(159)	6
Agency mortgage-backed securities		25,164		(337)	46		18,900		(515)	40		44,064		(852)	86
Asset-backed securities		18		(1)	1		5		(1)	1		23		(2)	2
Total temporarily impaired   securities	$	58,840	$	(764)	97	$	33,301	$	(942)	69	$	92,141	$	(1,706)	166

	December 31, 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	$	2,315	$	(11)	5	$	3,528	$	(32)	10	$	5,843	$	(43)	15
Municipal securities		13,767		(89)	22		7,507		(163)	14		21,274		(252)	36
Trust preferred securities		1,216		(12)	2		4,601		(171)	5		5,817		(183)	7
Agency mortgage-backed securities		16,287		(129)	29		20,563		(438)	39		36,850		(567)	68
Asset-backed securities		—		—	—		4		(1)	1		4		(1)	1
Total temporarily impaired   securities	$	33,585	$	(241)	58	$	36,203	$	(805)	69	$	69,788	$	(1,046)	127

The following table represents the cumulative credit losses on AFS securities recognized in earnings for:

	Three Months Ended
(Dollars in thousands)	March 31,
	2018		2017
Balance of cumulative credit-related OTTI at January 1	$	595	$	595
Additions for credit-related OTTI not previously recognized		—		—
Additional increases for credit-related OTTI previously recognized when there is
no intent to sell and no requirement to sell before recovery of amortized cost basis		—		—
Decreases for previously recognized credit-related OTTI because there was an intent to sell		—		—
Reduction for increases in cash flows expected to be collected		—		—
Balance of credit-related OTTI at March 31	$	595	$	595

Equity Securities at fair value

The Corporation owns one equity investment.  At March 31, 2018, this investment was reported at fair value ($410 thousand) with changes in value report through income.  At December 31, 2017, this investment was reported at fair value with changes in value recorded through other comprehensive income and was included in the Available for Sale Securities table of this note.

Restricted Stock at Cost

The Bank held $456 thousand of restricted stock at March 31, 2018.  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

3 Months Ended

Mar. 31, 2018

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:

	March 31,		December 31,
(Dollars in thousands)	2018		2017
Residential Real Estate 1-4 Family
Consumer first liens	$	93,897	$	97,159
Commercial first lien		61,790		61,275
Total first liens		155,687		158,434
Consumer junior liens and lines of credit		43,842		45,043
Commercial junior liens and lines of credit		5,014		5,328
Total junior liens and lines of credit		48,856		50,371
Total residential real estate 1-4 family		204,543		208,805
Residential real estate - construction
Consumer		2,756		1,813
Commercial		8,735		8,088
Total residential real estate construction		11,491		9,901
Commercial real estate		433,821		428,428
Commercial		287,680		291,519
Total commercial		721,501		719,947
Consumer		5,118		5,047
		942,653		943,700
Less: Allowance for loan losses		(11,989)		(11,792)
Net Loans	$	930,664	$	931,908
Included in the loan balances are the following:
Net unamortized deferred loan costs	$	40	$	98
Loans pledged as collateral for borrowings and commitments from:
FHLB	$	735,979	$	737,313
Federal Reserve Bank		35,137		35,740
	$	771,116	$	773,053

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Loan Quality and Allowance for Loan Losses

3 Months Ended

Mar. 31, 2018

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
	First		Junior Liens &				Commercial
(Dollars in thousands)	Liens		Lines of Credit		Construction		Real Estate		Commercial		Consumer		Unallocated		Total
ALL at December 31, 2017	$	1,060	$	330	$	224	$	6,526	$	2,110	$	105	$	1,437	$	11,792
Charge-offs		—		—		—		—		—		(26)		—		(26)
Recoveries		1		—		—		—		8		14		—		23
Provision		(18)		(10)		36		172		(45)		11		54		200
ALL at March 31, 2018	$	1,043	$	320	$	260	$	6,698	$	2,073	$	104	$	1,491	$	11,989
ALL at December 31, 2016	$	1,105	$	323	$	224	$	6,109	$	1,893	$	100	$	1,321	$	11,075
Charge-offs		(8)		—		—		—		—		(28)		—		(36)
Recoveries		1		—		—		—		102		16		—		119
Provision		2		(2)		50		17		(11)		11		53		120
ALL at March 31, 2017	$	1,100	$	321	$	274	$	6,126	$	1,984	$	99	$	1,374	$	11,278

The following table presents, by class, loans that were evaluated for the ALL under the specific reserve (individually) and those that were evaluated under the general reserve (collectively) and the amount of the ALL established in each class as of March 31, 2018and December 31, 2017:

	Residential Real Estate 1-4 Family
	First		Junior Liens &				Commercial
(Dollars in thousands)	Liens		Lines of Credit		Construction		Real Estate		Commercial		Consumer		Unallocated		Total
March 31, 2018
Loans evaluated for ALL:
Individually	$	454	$	—	$	466	$	10,878	$	—	$	—	$	—	$	11,798
Collectively		155,233		48,856		11,025		422,943		287,680		5,118		—		930,855
Total	$	155,687	$	48,856	$	11,491	$	433,821	$	287,680	$	5,118	$	—	$	942,653
ALL established for   loans evaluated:
Individually	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Collectively		1,043		320		260		6,698		2,073		104		1,491		11,989
ALL at March 31, 2018	$	1,043	$	320	$	260	$	6,698	$	2,073	$	104	$	1,491	$	11,989
December 31, 2017
Loans evaluated for ALL:
Individually	$	459	$	—	$	466	$	10,981	$	—	$	—	$	—	$	11,906
Collectively		157,975		50,371		9,435		417,447		291,519		5,047		—		931,794
Total	$	158,434	$	50,371	$	9,901	$	428,428	$	291,519	$	5,047	$	—	$	943,700
ALL established for   loans evaluated:
Individually	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Collectively		1,060		330		224		6,526		2,110		105		1,437		11,792
ALL at December 31, 2017	$	1,060	$	330	$	224	$	6,526	$	2,110	$	105	$	1,437	$	11,792

The following table shows additional information about those loans considered to be impaired at March 31, 2018and December 31, 2017:

	Impaired Loans
	With No Allowance				With Allowance
(Dollars in thousands)			Unpaid				Unpaid
	Recorded		Principal		Recorded		Principal		Related
March 31, 2018	Investment		Balance		Investment		Balance		Allowance
Residential Real Estate 1-4 Family
First liens	$	803	$	882	$	—	$	—	$	—
Junior liens and lines of credit		—		—		—		—		—
Total		803		882		—		—		—
Residential real estate - construction		466		531		—		—		—
Commercial real estate		10,949		11,435		—		—		—
Commercial		183		198		—		—		—
Total	$	12,401	$	13,046	$	—	$	—	$	—

December 31, 2017
Residential Real Estate 1-4 Family
First liens	$	869	$	950	$	—	$	—	$	—
Junior liens and lines of credit		—		—		—		—		—
Total		869		950		—		—		—
Residential real estate - construction		466		531		—		—		—
Commercial real estate		11,061		11,541		—		—		—
Commercial		187		201		—		—		—
Total	$	12,583	$	13,223	$	—	$	—	$	—

The following table shows the average of impaired loans and related interest income for the three months ended March 31, 2018and 2017:

	Three Months Ended				Three Months Ended
	March 31, 2018				March 31, 2017
	Average		Interest		Average		Interest
(Dollars in thousands)	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
Residential Real Estate 1-4 Family
First liens	$	805	$	11	$	919	$	10
Junior liens and lines of credit		—		—		85		—
Total		805		11		1,004		10
Residential real estate - construction		466		—		479		—
Commercial real estate		10,994		105		13,519		116
Commercial		185		—		23		—
Total	$	12,450	$	116	$	15,025	$	126

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

(Dollars in thousands)			Loans Past Due and Still Accruing										Total
	Current		30-59 Days		60-89 Days		90 Days+		Total		Non-Accrual		Loans
March 31, 2018
Residential Real Estate 1-4 Family
First liens	$	155,126	$	398	$	56	$	—	$	454	$	107	$	155,687
Junior liens and lines of credit		48,743		85		28		—		113		—		48,856
Total		203,869		483		84		—		567		107		204,543
Residential real estate - construction		11,025		—		—		—		—		466		11,491
Commercial real estate		431,542		348		—		89		437		1,842		433,821
Commercial		287,289		54		154		—		208		183		287,680
Consumer		5,100		15		3		—		18		—		5,118
Total	$	938,825	$	900	$	241	$	89	$	1,230	$	2,598	$	942,653

December 31, 2017
Residential Real Estate 1-4 Family
First liens	$	157,247	$	485	$	534	$	—	$	1,019	$	168	$	158,434
Junior liens and lines of credit		50,202		139		30		—		169		—		50,371
Total		207,449		624		564		—		1,188		168		208,805
Residential real estate - construction		9,435		—		—		—		—		466		9,901
Commercial real estate		425,806		421		347		—		768		1,854		428,428
Commercial		291,221		111		—		—		111		187		291,519
Consumer		5,017		23		7		—		30		—		5,047
Total	$	938,928	$	1,179	$	918	$	—	$	2,097	$	2,675	$	943,700

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
March 31, 2018
Residential Real Estate 1-4 Family
First liens	$	155,040	$	—	$	647	$	—	$	155,687
Junior liens and lines of credit		48,856		—		—		—		48,856
Total		203,896		—		647		—		204,543
Residential real estate - construction		10,370		—		1,121		—		11,491
Commercial real estate		423,072		2,393		8,356		—		433,821
Commercial		286,905		—		775		—		287,680
Consumer		5,117		—		1		—		5,118
Total	$	929,360	$	2,393	$	10,900	$	—	$	942,653

December 31, 2017
Residential Real Estate 1-4 Family
First liens	$	157,395	$	—	$	1,039	$	—	$	158,434
Junior liens and lines of credit		50,371		—		—		—		50,371
Total		207,766		—		1,039		—		208,805
Residential real estate - construction		8,893		—		1,008		—		9,901
Commercial real estate		419,277		680		8,471		—		428,428
Commercial		289,916		—		1,603		—		291,519
Consumer		5,047		—		—		—		5,047
Total	$	930,899	$	680	$	12,121	$	—	$	943,700

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

								Troubled Debt Restructurings
								Within the Last 12 Months
								That Have Defaulted
(Dollars in thousands)	Troubled Debt Restructurings							On Modified Terms
	Number of	Recorded						Number of	Recorded
	Contracts	Investment		Performing*		Nonperforming*		Contracts	Investment
March 31, 2018
Residential real estate - construction	1	$	466	$	—	$	466	—	$	—
Residential real estate	5		732		696		36	—		—
Commercial real estate	11		10,878		9,107		1,771	—		—
Total	17	$	12,076	$	9,803	$	2,273	—	$	—
December 31, 2017
Residential real estate - construction	1	$	466	$	466	$	—	—	$	—
Residential real estate	5		737		701		36	—		—
Commercial real estate	11		10,983		10,388		595	—		—
Total	17	$	12,186	$	11,555	$	631	—	$	—

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

There were no new TDR loans during 2018 and 2017.

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Other Real Estate Owned

3 Months Ended

Mar. 31, 2018

Other Real Estate Owned [Abstract]

Other Real Estate Owned

Note 7. Other Real Estate Owned

Changes in other real estate owned during thethree months ended March 31, 2018 and 2017 were as follows:

	March 31,
(Dollars in thousands)	2018		2017
Balance at beginning of the period	$	2,598	$	4,915
Additions		—		—
Proceeds from dispositions		—		(1,751)
Loss on sales, net		—		—
Valuation adjustment		(6)		(49)
Balance at the end of the period	$	2,592	$	3,115

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Pension

3 Months Ended

Mar. 31, 2018

Pension [Abstract]

Pension

Note 8. Pension

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

	Three Months Ended
	March 31,
(Dollars in thousands)	2018		2017
Components of net periodic cost:
Service cost	$	90	$	78
Interest cost		138		166
Expected return on plan assets		(279)		(268)
Recognized net actuarial loss		176		137
Net period cost	$	125	$	113

The Bank expects its pension expense to increase to approximately $500 thousand in 2018 compared to $459 thousand in 2017, due primarily to increases in interest costs and recognized net actuarial losses.  A pension contribution of $1.0 million was made in first quarter of 2018. The service cost component of pension expense is in the salaries and benefits line on the income statement.  All other cost components are in the other expense line on the income statement.

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Fair Value Measurements And Fair Values Of Financial Instruments

3 Months Ended

Mar. 31, 2018

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.

On January 1, 2018, the Corporation adopted ASU 2016-01, which requires the use of the exit price notion to measure the fair value of financial instruments.

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

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

	March 31, 2018
	Carrying		Fair
(Dollars in thousands)	Amount		Value		Level 1		Level 2		Level 3
Financial assets, carried at cost:
Cash and cash equivalents	$	42,082	$	42,082	$	42,082	$	—	$	—
Restricted stock		456		456		—		456		—
Net loans		930,664		908,491		—		—		908,491
Accrued interest receivable		3,410		3,410		—		3,410		—
Financial assets, available for sale
Debt securities		133,322		133,322		—		133,322		—
Financial assets, fair value
Equity securities		410		410		410		—		—
Financial liabilities:
Deposits	$	1,034,461	$	1,033,575	$	—	$	1,033,575	$	—
Accrued interest payable		152		152		—		152		—
	December 31, 2017
	Carrying		Fair
(Dollars in thousands)	Amount		Value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	58,603	$	58,603	$	58,603	$	—	$	—
Investment securities available for sale		127,336		127,336		365		126,971		—
Restricted stock		456		456		—		45		—
Loans held for sale		442		442		—		442		—
Net loans		931,908		929,891		—		—		929,891
Accrued interest receivable		3,847		3,847		—		3,847		—
Financial liabilities:
Deposits	$	1,047,181	$	1,046,476	$	—	$	1,046,476	$	—
Accrued interest payable		149		149		—		149		—

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 March 31, 2018and December 31, 2017 are as follows:

(Dollars in Thousands	Fair Value at March 31, 2018
Asset  Description	Level 1		Level 2		Level 3		Total
Equity securities, at fair value	$	410	$	—	$	—	$	410
Available for sale:
U.S. Government and Agency securities		—		10,482		—		10,482
Municipal securities		—		63,310		—		63,310
Trust Preferred Securities		—		5,849		—		5,849
Agency mortgage-backed securities		—		52,747		—		52,747
Private-label mortgage-backed securities		—		909		—		909
Asset-backed securities		—		25		—		25
Total assets	$	410	$	133,322	$	—	$	133,732

(Dollars in Thousands)	Fair Value at December 31, 2017
Asset  Description	Level 1		Level 2		Level 3		Total
Equity securities	$	365	$	—	$	—	$	365
U.S. Government and Agency securities		—		11,472		—		11,472
Municipal securities		—		57,772		—		57,772
Trust Preferred Securities		—		5,817		—		5,817
Agency mortgage-backed securities		—		50,937		—		50,937
Private-label mortgage-backed securities		—		946		—		946
Asset-backed securities		—		27		—		27
Total assets	$	365	$	126,971	$	—	$	127,336

Investment securities:  Level 1 securities represent equity securities that are valued using quoted market prices form 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 March 31, 2018and December 31, 2017 are as follows:

(Dollars in Thousands)
	Fair Value at March 31, 2018
Asset  Description	Level 1		Level 2		Level 3		Total
Other real estate owned (1)	$	—	$	—	$	32	$	32
Total assets	$	—	$	—	$	32	$	32

(Dollars in Thousands)	Fair Value at December 31, 2017
Asset  Description	Level 1		Level 2		Level 3		Total
Other real estate owned (1)	$	—	$	—	$	90	$	90
Total assets	$	—	$	—	$	90	$	90

(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 March 31, 2018. For financial assets and liabilities measured at fair value on a recurring basis, there were no transfers of financial assets or liabilities between Level 1 and Level 2 during the period ending March 31, 2018.

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
March 31, 2018		Fair Value	Valuation Technique	Unobservable Input	(Weighted Average)
Other real estate owned	$	32	Sales Contract	N/A	—
					Range
December 31, 2017		Fair Value	Valuation Technique	Unobservable Input	(Weighted Average)
Other real estate owned	$	90	Appraisal	N/A	—
				Cost to sell	8%  (8%)

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Capital Ratios

3 Months Ended

Mar. 31, 2018

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 March 31, 2018 was 7.55% (total risk-based capital 15.55% less 8.00%) compared to the 2018 regulatory buffer of 1.875%.  Compliance with the capital conservation buffer is required in order to avoid limitations to certain capital distributions.  As of March 31, 2018, 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 March 31, 2018 and December 31, 2017 for the Corporation and the Bank. 

			Regulatory Ratios
			Adequately	Well
	March 31,	December 31,	Capitalized	Capitalized
(Dollars in thousands)	2018	2017	Minimum	Minimum
Common Equity Tier 1 Risk-based Capital Ratio (1)
Franklin Financial Services Corporation	14.30%	14.06%	4.500%	N/A
Farmers & Merchants Trust Company	14.16%	13.93%	4.500%	6.50%
Tier 1 Risk-based Capital Ratio (2)
Franklin Financial Services Corporation	14.30%	14.06%	6.000%	N/A
Farmers & Merchants Trust Company	14.16%	13.93%	6.000%	8.00%
Total Risk-based Capital Ratio (3)
Franklin Financial Services Corporation	15.55%	15.31%	8.000%	N/A
Farmers & Merchants Trust Company	15.41%	15.19%	8.000%	10.00%
Tier 1 Leverage Ratio (4)
Franklin Financial Services Corporation	9.95%	9.73%	4.000%	N/A
Farmers & Merchants Trust Company	9.86%	9.64%	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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Revenue Recognition

3 Months Ended

Mar. 31, 2018

Revenue Recognition [Abstract]

Revenue Recognition

Note 11. Revenue Recognition

The Corporation adopted ASC 606 on January 1, 2018 using the modified retrospective approach applied to all contracts initiated on or after the effective date, and for contracts which have remaining obligations as of the effective date. Results for the reporting period beginning January 1, 2018 are presented under ASC 606 while the prior period results continue to be reported under legacy GAAP. Adoption of the standard did not have a material effect on any of the reported periods. The Corporation did not record a cumulative effect adjustment to the beginning retained earnings balance as of January 1, 2018 from the adoption of ASC 606 as it was determined the transition adjustment was immaterial to Corporation’s consolidated financial statements.

All of the Corporation’s revenue from contracts with customers within the scope of ASC 606 is recognized in non-interest income as presented in our consolidated statements of income. Revenue generating activities that fall within the scope of ASC 606 are described as follows:

Investment and Trust Service Fees - these represent fees from wealth management (assets under management), fees from the management and settlement of estates and commissions from the sale of investment and insurance a products.

· Asset management fees are generally assessed based on a tiered fee schedule, based on the value of assets under management, and are recognized monthly when the service obligation is completed. Fees recognized in the first quarter of 2018 totaled $1.3 million.

· Fees for estate management services are based on the estimated fair value of the estate. These fees are generally recognized monthly over an 18 month period that Management has determined to represent the average time to fulfill the performance obligation of the contract. Management has the discretion to adjust this time period as needed based upon the nature and complexity of an individual estate. Fees recognized in the first quarter of 2018 totaled $61 thousand.

· Commissions from the sale of investment and insurance products are recognized upon the completion of the transaction.  Fees recognized in the first quarter of 2018 totaled $68 thousand.

Loan Service Charges – these represent fees on loans for services or charges that occur after the loan has been booked, for example, late payment fees. These also include fees for mortgages settled for a third party mortgage company. All of these fees are transactional in nature and are recognized upon completion of the transaction which represents the performance obligation.

Deposit Service Charges and Fees – these represent fees from deposit customers for transaction based, account maintenance, and overdraft services. Transaction based fees include, but are not limited to stop payment fees and overdraft fees. These fees are recognized at the time of the transaction when the performance obligation has been fulfilled. Account maintenance fees and account analysis fee are earned over the course of a month, representing the period of the performance obligation, and are recognized monthly.

Debit Card Income – this represents interchange fees from cardholder transactions conducted through the card payment network. Cardholders use the debit card to conduct point-of-sale transactions that produce interchange fees. The fees are transaction based and the fee is recognized with the processing of the transaction.  These fees are reported net of cardholder rewards.

Other Service Charges and Fees – these are comprised primarily of merchant card fees, credit card fees, ATM surcharges and interchange fees and wire transfer fees. Merchant card fees represent fees the Bank earns from a third party for enrolling a customer in the processor’s program. Credit card fees represent a fee earned by the Bank for a successful referral to a card-issuing company. ATM surcharges and interchange fees are the result of Bank customers conducting ATM transactions that generate fee income and are processed through multiple card networks. All of these fees are transaction based and are recognized at the time of the transaction.

Gains/Losses on the Sale of Other Real Estate – these are recognized when control of the property transfers to the buyer.

Increases in the cash surrender value of life insurance and security transactions are not within the scope of ASC 606.

Contract Balances

A contract asset balance occurs when an entity performs a service for a customer before the customer pays consideration (resulting in a contract receivable) or before payment is due (resulting in a contract asset).  A contract liability balance is an entity’s obligation to transfer a service to a customer for which the entity has already received payment (or payment is due) from the customer. The Company’s noninterest revenue streams are largely based on transactional activity, or standard month-end revenue accruals such as asset management fees based on month-end market values.  Consideration is often received immediately or shortly after the Company satisfies its performance obligation and revenue is recognized.  The Company does not typically enter into longer-term revenue contracts with customers, and therefore, does not experience significant contract balances. 

Contract Acquisition Costs

The Corporation expenses all contract acquisition costs as costs are incurred.

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Contingencies

3 Months Ended

Mar. 31, 2018

Contingencies [Abstract]

Contingencies

1Note 12. Contingencies

The nature of the Corporation’s business generates a certain amount of litigation.

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

These assessments are based on 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 the 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 any legal proceeding.  Our exposure and ultimate losses may be higher, possibly significantly higher, than amounts we may accrue or amounts we may estimate.

In management’s opinion, we do not anticipate, at the present time, that the ultimate aggregate liability, if any, arising out of all litigation to which the Corporation is a party will have a material adverse effect on our financial position.  We cannot now determine, however, whether or not any claim asserted against us, other than the Kalan case described below, will have a material adverse effect on our results of operations in any future reporting period, which will depend on, amount other things, the amount of loss resulting from the claim and the amount of income otherwise reported for the reporting period.  Thus, at March 31, 2018, 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 with respect to such other matters and, accordingly, have not yet established any specific accrual for such other matters.

No material proceedings are pending or are known to be threatened or contemplated against us by governmental authorities.

On April 11, 2018, the Bank entered into settlement agreements with the named plaintiffs, certain members of the settlement class and certain of the other remaining defendants in 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, to make definitive the terms and conditions of settlement set forth in the Class Action Settlement Term Sheet entered into on December 29, 2017, following a mediation of the case.  The settlement agreements provide for the Bank to make a settlement payment of $10 million in full and final settlement of all claims that the named plaintiffs and members of the settlement class have brought or could have brought against F&M Trust.  The settlement agreements further provide for general releases by the parties.  On April 11, 2018, the named plaintiffs filed with the court a motion for preliminary approval of the settlement.  On April 12, 2018, the court entered an order setting a hearing on the motion for preliminary approval for May 4, 2018.  The Corporation has accrued the $10 million settlement payment in the Kalan case as an expense for the year ended December 31, 2017.

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Basis Of Presentation (Policy)

3 Months Ended

Mar. 31, 2018

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 March 31, 2018, 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 2017 Annual Report on Form 10-K.  The consolidated results of operations for the three month period ended March 31, 2018 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, 2017 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
	March 31,
(Dollars and shares in thousands, except per share data)	2018		2017
Weighted average shares outstanding (basic)		4,359		4,321
Impact of common stock equivalents		28		20
Weighted average shares outstanding (diluted)		4,387		4,341
Anti-dilutive options excluded from calculation		—		14
Net income	$	3,502	$	3,020
Basic earnings per share	$	0.80	$	0.70
Diluted earnings per share	$	0.80	$	0.70

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Recent Accounting Pronouncements (Policy)

3 Months Ended

Mar. 31, 2018

Recent Accounting Pronouncements [Abstract]

Recent Accounting Pronouncements, Policy

Standard	Description	Effective Date	Effect on the financial statements or other significant matters
ASU 2018-02, Income Statement (Topic 220), Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income	Under ASU 2018-02, entities are allowed, but not required, to reclassify from Accumulated Other Comprehensive Income (AOCI) to retained earnings stranded tax effects resulting from the new federal corporate income tax rate of the Tax Cuts and Jobs Act (the Act).  The reclassification could include other stranded tax effects that related to the Act but do not directly related to the change in the federal rate.  Tax effects that are stranded in AOCI for other reasons may not be reclassified.  Entities also will have an option to adopt the standard retrospectively or in the period of adoption.	January 1, 2018	The Corporation adopted the provisions of the ASU in the fourth quarter of 2017.  The Company reclassified the disproportionate tax effect resulting from the Act by increasing retained earnings by $992 thousand and reducing AOCI by $992 thousand.
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 classifies 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	The Corporation adopted the provisions of the ASU on January 1, 2018 and it had no material effect on the 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	The Corporation adopted the provisions of the ASU on January 1, 2018 and it had no material effect on the consolidated financial statements.  The service cost is reported in Salaries and Benefits expense and the nonservice cost is included in Other Expense on the Consolidated Statement of Income, which totaled $35 thousand reclassified for the first quarter of 2017.
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 Corporation adopted this ASU on January 1, 2018, on a modified retrospective approach, and it did not have a material effect on the Corporation's consolidated financial statements.  See Note 11. Revenue Recognition for more information.
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	The Corporation adopted the provisions of the ASU on January 1, 2018 and it had no material effect on the consolidated financial statements. The Corporation reclassified the fair value of equity securities by increasing retained earnings by $201 thousand and decreasing AOCI by $201 thousand.  In addition, according to the standard, the Corporation measured the fair value of the loan portfolio as of March 31, 2018 using an exit price notion.  See Note 9. Fair Value  Measurements and Fair Values of Financial Instruments for more information.
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 in the form of a lease liability (the present value of a lessee's obligation to make lease payments) and a right-of-use asset (an asset that represents the lessee's right to use a specified asset for the lease term).  The offsetting transactions will gross-up the Consolidated Balance Sheet, but the Corporation has not yet determined this amount. The Corporation has acquired a lease accounting model to implement the standard.  The model has been installed and will be used in a test mode during 2018, but the Corporation does not plan to early adopt the standard. The Corporation currently expects that the new standard will not have a material effect on its consolidated results of operations.
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 2016-13, 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 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.  The Corporation expects to have its methodology and process complete by the end of 2018 so that it can run the new CECL model during 2019 in test mode, prior to the 2020 implementation.

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Basis Of Presentation (Tables)

3 Months Ended

Mar. 31, 2018

Basis Of Presentation [Abstract]

Schedule Of Earnings Per Share, Basic And Diluted

	For the Three Months Ended
	March 31,
(Dollars and shares in thousands, except per share data)	2018		2017
Weighted average shares outstanding (basic)		4,359		4,321
Impact of common stock equivalents		28		20
Weighted average shares outstanding (diluted)		4,387		4,341
Anti-dilutive options excluded from calculation		—		14
Net income	$	3,502	$	3,020
Basic earnings per share	$	0.80	$	0.70
Diluted earnings per share	$	0.80	$	0.70

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Accumulated Other Comprehensive Loss (Tables)

3 Months Ended

Mar. 31, 2018

Accumulated Other Comprehensive Loss [Abstract]

Schedule Of Accumulated Other Comprehensive Loss

	March 31,		December 31,
	2018		2017
(Dollars in thousands)
Net unrealized (losses) gains on debt securities	$	(1,090)	$	154
Tax effect		229		(33)
Net of tax amount		(861)		121
Accumulated pension adjustment		(7,784)		(7,784)
Tax effect		1,635		1,635
Net of tax amount		(6,149)		(6,149)
Total accumulated other comprehensive loss	$	(7,010)	$	(6,028)

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Investments (Tables)

3 Months Ended

Mar. 31, 2018

Investments [Abstract]

Unrealized Gain (Loss) On Investments

(Dollars in thousands)			Gross		Gross
	Amortized		unrealized		unrealized		Fair
March 31, 2018	cost		gains		losses		value
U.S. Government and Agency securities	$	10,534	$	22	$	(74)	$	10,482
Municipal securities		63,520		409		(619)		63,310
Trust preferred securities		6,007		1		(159)		5,849
Agency mortgage-backed securities		53,494		105		(852)		52,747
Private-label mortgage-backed securities		830		79		—		909
Asset-backed securities		27		—		(2)		25
	$	134,412	$	616	$	(1,706)	$	133,322

(Dollars in thousands)			Gross		Gross
	Amortized		unrealized		unrealized		Fair
December 31, 2017	cost		gains		losses		value
Equity securities	$	164	$	201	$	—	$	365
U.S. Government and Agency securities		11,451		64		(43)		11,472
Municipal securities		57,374		650		(252)		57,772
Trust preferred securities		6,000		—		(183)		5,817
Agency mortgage-backed securities		51,307		197		(567)		50,937
Private-label mortgage-backed securities		858		88		—		946
Asset-backed securities		28		—		(1)		27
	$	127,182	$	1,200	$	(1,046)	$	127,336

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

(Dollars in thousands)	Amortized cost		Fair value
Due in one year or less	$	5,174	$	5,199
Due after one year through five years		45,530		45,705
Due after five years through ten years		25,583		25,062
Due after ten years		3,801		3,700
		80,088		79,666
Mortgage-backed securities		54,324		53,656
	$	134,412	$	133,322

Composition Of Net Realized Securities Gains

	For the Three Months Ended
	March 31,
(Dollars in thousands)	2018		2017
Gross gains realized	$	—	$	2
Gross losses realized		—		—
Net gains realized	$	—	$	2

Schedule Of Unrealized Loss On Investments

	March 31, 2018
	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	$	5,588	$	(37)	7	$	3,331	$	(37)	10	$	8,919	$	(74)	17
Municipal securities		26,203		(339)	41		7,365		(280)	14		33,568		(619)	55
Trust preferred securities		1,867		(50)	2		3,700		(109)	4		5,567		(159)	6
Agency mortgage-backed securities		25,164		(337)	46		18,900		(515)	40		44,064		(852)	86
Asset-backed securities		18		(1)	1		5		(1)	1		23		(2)	2
Total temporarily impaired   securities	$	58,840	$	(764)	97	$	33,301	$	(942)	69	$	92,141	$	(1,706)	166

	December 31, 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	$	2,315	$	(11)	5	$	3,528	$	(32)	10	$	5,843	$	(43)	15
Municipal securities		13,767		(89)	22		7,507		(163)	14		21,274		(252)	36
Trust preferred securities		1,216		(12)	2		4,601		(171)	5		5,817		(183)	7
Agency mortgage-backed securities		16,287		(129)	29		20,563		(438)	39		36,850		(567)	68
Asset-backed securities		—		—	—		4		(1)	1		4		(1)	1
Total temporarily impaired   securities	$	33,585	$	(241)	58	$	36,203	$	(805)	69	$	69,788	$	(1,046)	127

Other Than Temporary Impairment, Credit Losses Recognized In Earnings

	Three Months Ended
(Dollars in thousands)	March 31,
	2018		2017
Balance of cumulative credit-related OTTI at January 1	$	595	$	595
Additions for credit-related OTTI not previously recognized		—		—
Additional increases for credit-related OTTI previously recognized when there is
no intent to sell and no requirement to sell before recovery of amortized cost basis		—		—
Decreases for previously recognized credit-related OTTI because there was an intent to sell		—		—
Reduction for increases in cash flows expected to be collected		—		—
Balance of credit-related OTTI at March 31	$	595	$	595

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Loans (Tables)

3 Months Ended

Mar. 31, 2018

Loans [Abstract]

Schedule Of Loans Outstanding

	March 31,		December 31,
(Dollars in thousands)	2018		2017
Residential Real Estate 1-4 Family
Consumer first liens	$	93,897	$	97,159
Commercial first lien		61,790		61,275
Total first liens		155,687		158,434
Consumer junior liens and lines of credit		43,842		45,043
Commercial junior liens and lines of credit		5,014		5,328
Total junior liens and lines of credit		48,856		50,371
Total residential real estate 1-4 family		204,543		208,805
Residential real estate - construction
Consumer		2,756		1,813
Commercial		8,735		8,088
Total residential real estate construction		11,491		9,901
Commercial real estate		433,821		428,428
Commercial		287,680		291,519
Total commercial		721,501		719,947
Consumer		5,118		5,047
		942,653		943,700
Less: Allowance for loan losses		(11,989)		(11,792)
Net Loans	$	930,664	$	931,908
Included in the loan balances are the following:
Net unamortized deferred loan costs	$	40	$	98
Loans pledged as collateral for borrowings and commitments from:
FHLB	$	735,979	$	737,313
Federal Reserve Bank		35,137		35,740
	$	771,116	$	773,053

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Loan Quality and Allowance for Loan Losses (Tables)

3 Months Ended

Mar. 31, 2018

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
	First		Junior Liens &				Commercial
(Dollars in thousands)	Liens		Lines of Credit		Construction		Real Estate		Commercial		Consumer		Unallocated		Total
ALL at December 31, 2017	$	1,060	$	330	$	224	$	6,526	$	2,110	$	105	$	1,437	$	11,792
Charge-offs		—		—		—		—		—		(26)		—		(26)
Recoveries		1		—		—		—		8		14		—		23
Provision		(18)		(10)		36		172		(45)		11		54		200
ALL at March 31, 2018	$	1,043	$	320	$	260	$	6,698	$	2,073	$	104	$	1,491	$	11,989
ALL at December 31, 2016	$	1,105	$	323	$	224	$	6,109	$	1,893	$	100	$	1,321	$	11,075
Charge-offs		(8)		—		—		—		—		(28)		—		(36)
Recoveries		1		—		—		—		102		16		—		119
Provision		2		(2)		50		17		(11)		11		53		120
ALL at March 31, 2017	$	1,100	$	321	$	274	$	6,126	$	1,984	$	99	$	1,374	$	11,278

The following table presents, by class, loans that were evaluated for the ALL under the specific reserve (individually) and those that were evaluated under the general reserve (collectively) and the amount of the ALL established in each class as of March 31, 2018and December 31, 2017:

	Residential Real Estate 1-4 Family
	First		Junior Liens &				Commercial
(Dollars in thousands)	Liens		Lines of Credit		Construction		Real Estate		Commercial		Consumer		Unallocated		Total
March 31, 2018
Loans evaluated for ALL:
Individually	$	454	$	—	$	466	$	10,878	$	—	$	—	$	—	$	11,798
Collectively		155,233		48,856		11,025		422,943		287,680		5,118		—		930,855
Total	$	155,687	$	48,856	$	11,491	$	433,821	$	287,680	$	5,118	$	—	$	942,653
ALL established for   loans evaluated:
Individually	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Collectively		1,043		320		260		6,698		2,073		104		1,491		11,989
ALL at March 31, 2018	$	1,043	$	320	$	260	$	6,698	$	2,073	$	104	$	1,491	$	11,989
December 31, 2017
Loans evaluated for ALL:
Individually	$	459	$	—	$	466	$	10,981	$	—	$	—	$	—	$	11,906
Collectively		157,975		50,371		9,435		417,447		291,519		5,047		—		931,794
Total	$	158,434	$	50,371	$	9,901	$	428,428	$	291,519	$	5,047	$	—	$	943,700
ALL established for   loans evaluated:
Individually	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Collectively		1,060		330		224		6,526		2,110		105		1,437		11,792
ALL at December 31, 2017	$	1,060	$	330	$	224	$	6,526	$	2,110	$	105	$	1,437	$	11,792

Impaired Financing Receivables

The following table shows additional information about those loans considered to be impaired at March 31, 2018and December 31, 2017:

	Impaired Loans
	With No Allowance				With Allowance
(Dollars in thousands)			Unpaid				Unpaid
	Recorded		Principal		Recorded		Principal		Related
March 31, 2018	Investment		Balance		Investment		Balance		Allowance
Residential Real Estate 1-4 Family
First liens	$	803	$	882	$	—	$	—	$	—
Junior liens and lines of credit		—		—		—		—		—
Total		803		882		—		—		—
Residential real estate - construction		466		531		—		—		—
Commercial real estate		10,949		11,435		—		—		—
Commercial		183		198		—		—		—
Total	$	12,401	$	13,046	$	—	$	—	$	—

December 31, 2017
Residential Real Estate 1-4 Family
First liens	$	869	$	950	$	—	$	—	$	—
Junior liens and lines of credit		—		—		—		—		—
Total		869		950		—		—		—
Residential real estate - construction		466		531		—		—		—
Commercial real estate		11,061		11,541		—		—		—
Commercial		187		201		—		—		—
Total	$	12,583	$	13,223	$	—	$	—	$	—

The following table shows the average of impaired loans and related interest income for the three months ended March 31, 2018and 2017:

	Three Months Ended				Three Months Ended
	March 31, 2018				March 31, 2017
	Average		Interest		Average		Interest
(Dollars in thousands)	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
Residential Real Estate 1-4 Family
First liens	$	805	$	11	$	919	$	10
Junior liens and lines of credit		—		—		85		—
Total		805		11		1,004		10
Residential real estate - construction		466		—		479		—
Commercial real estate		10,994		105		13,519		116
Commercial		185		—		23		—
Total	$	12,450	$	116	$	15,025	$	126

Aging Of Payments Of The Loan Portfolio

(Dollars in thousands)			Loans Past Due and Still Accruing										Total
	Current		30-59 Days		60-89 Days		90 Days+		Total		Non-Accrual		Loans
March 31, 2018
Residential Real Estate 1-4 Family
First liens	$	155,126	$	398	$	56	$	—	$	454	$	107	$	155,687
Junior liens and lines of credit		48,743		85		28		—		113		—		48,856
Total		203,869		483		84		—		567		107		204,543
Residential real estate - construction		11,025		—		—		—		—		466		11,491
Commercial real estate		431,542		348		—		89		437		1,842		433,821
Commercial		287,289		54		154		—		208		183		287,680
Consumer		5,100		15		3		—		18		—		5,118
Total	$	938,825	$	900	$	241	$	89	$	1,230	$	2,598	$	942,653

December 31, 2017
Residential Real Estate 1-4 Family
First liens	$	157,247	$	485	$	534	$	—	$	1,019	$	168	$	158,434
Junior liens and lines of credit		50,202		139		30		—		169		—		50,371
Total		207,449		624		564		—		1,188		168		208,805
Residential real estate - construction		9,435		—		—		—		—		466		9,901
Commercial real estate		425,806		421		347		—		768		1,854		428,428
Commercial		291,221		111		—		—		111		187		291,519
Consumer		5,017		23		7		—		30		—		5,047
Total	$	938,928	$	1,179	$	918	$	—	$	2,097	$	2,675	$	943,700

Internal Credit Rating For The Loan Portfolio

	Pass		Special Mention		Substandard		Doubtful
(Dollars in thousands)	(1-5)		(6)		(7)		(8)		Total
March 31, 2018
Residential Real Estate 1-4 Family
First liens	$	155,040	$	—	$	647	$	—	$	155,687
Junior liens and lines of credit		48,856		—		—		—		48,856
Total		203,896		—		647		—		204,543
Residential real estate - construction		10,370		—		1,121		—		11,491
Commercial real estate		423,072		2,393		8,356		—		433,821
Commercial		286,905		—		775		—		287,680
Consumer		5,117		—		1		—		5,118
Total	$	929,360	$	2,393	$	10,900	$	—	$	942,653

December 31, 2017
Residential Real Estate 1-4 Family
First liens	$	157,395	$	—	$	1,039	$	—	$	158,434
Junior liens and lines of credit		50,371		—		—		—		50,371
Total		207,766		—		1,039		—		208,805
Residential real estate - construction		8,893		—		1,008		—		9,901
Commercial real estate		419,277		680		8,471		—		428,428
Commercial		289,916		—		1,603		—		291,519
Consumer		5,047		—		—		—		5,047
Total	$	930,899	$	680	$	12,121	$	—	$	943,700

Troubled Debt Restructuring Loans

								Troubled Debt Restructurings
								Within the Last 12 Months
								That Have Defaulted
(Dollars in thousands)	Troubled Debt Restructurings							On Modified Terms
	Number of	Recorded						Number of	Recorded
	Contracts	Investment		Performing*		Nonperforming*		Contracts	Investment
March 31, 2018
Residential real estate - construction	1	$	466	$	—	$	466	—	$	—
Residential real estate	5		732		696		36	—		—
Commercial real estate	11		10,878		9,107		1,771	—		—
Total	17	$	12,076	$	9,803	$	2,273	—	$	—
December 31, 2017
Residential real estate - construction	1	$	466	$	466	$	—	—	$	—
Residential real estate	5		737		701		36	—		—
Commercial real estate	11		10,983		10,388		595	—		—
Total	17	$	12,186	$	11,555	$	631	—	$	—

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

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Other Real Estate Owned (Tables)

3 Months Ended

Mar. 31, 2018

Other Real Estate Owned [Abstract]

Summary Of Changes In Other Real Estate Owned

	March 31,
(Dollars in thousands)	2018		2017
Balance at beginning of the period	$	2,598	$	4,915
Additions		—		—
Proceeds from dispositions		—		(1,751)
Loss on sales, net		—		—
Valuation adjustment		(6)		(49)
Balance at the end of the period	$	2,592	$	3,115

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Pension (Tables)

3 Months Ended

Mar. 31, 2018

Pension [Abstract]

Schedule Of Net Periodic Pension Costs

	Three Months Ended
	March 31,
(Dollars in thousands)	2018		2017
Components of net periodic cost:
Service cost	$	90	$	78
Interest cost		138		166
Expected return on plan assets		(279)		(268)
Recognized net actuarial loss		176		137
Net period cost	$	125	$	113

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

3 Months Ended

Mar. 31, 2018

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

Fair Value, By Balance Sheet Grouping

	March 31, 2018
	Carrying		Fair
(Dollars in thousands)	Amount		Value		Level 1		Level 2		Level 3
Financial assets, carried at cost:
Cash and cash equivalents	$	42,082	$	42,082	$	42,082	$	—	$	—
Restricted stock		456		456		—		456		—
Net loans		930,664		908,491		—		—		908,491
Accrued interest receivable		3,410		3,410		—		3,410		—
Financial assets, available for sale
Debt securities		133,322		133,322		—		133,322		—
Financial assets, fair value
Equity securities		410		410		410		—		—
Financial liabilities:
Deposits	$	1,034,461	$	1,033,575	$	—	$	1,033,575	$	—
Accrued interest payable		152		152		—		152		—
	December 31, 2017
	Carrying		Fair
(Dollars in thousands)	Amount		Value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	58,603	$	58,603	$	58,603	$	—	$	—
Investment securities available for sale		127,336		127,336		365		126,971		—
Restricted stock		456		456		—		45		—
Loans held for sale		442		442		—		442		—
Net loans		931,908		929,891		—		—		929,891
Accrued interest receivable		3,847		3,847		—		3,847		—
Financial liabilities:
Deposits	$	1,047,181	$	1,046,476	$	—	$	1,046,476	$	—
Accrued interest payable		149		149		—		149		—

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

(Dollars in Thousands	Fair Value at March 31, 2018
Asset  Description	Level 1		Level 2		Level 3		Total
Equity securities, at fair value	$	410	$	—	$	—	$	410
Available for sale:
U.S. Government and Agency securities		—		10,482		—		10,482
Municipal securities		—		63,310		—		63,310
Trust Preferred Securities		—		5,849		—		5,849
Agency mortgage-backed securities		—		52,747		—		52,747
Private-label mortgage-backed securities		—		909		—		909
Asset-backed securities		—		25		—		25
Total assets	$	410	$	133,322	$	—	$	133,732

(Dollars in Thousands)	Fair Value at December 31, 2017
Asset  Description	Level 1		Level 2		Level 3		Total
Equity securities	$	365	$	—	$	—	$	365
U.S. Government and Agency securities		—		11,472		—		11,472
Municipal securities		—		57,772		—		57,772
Trust Preferred Securities		—		5,817		—		5,817
Agency mortgage-backed securities		—		50,937		—		50,937
Private-label mortgage-backed securities		—		946		—		946
Asset-backed securities		—		27		—		27
Total assets	$	365	$	126,971	$	—	$	127,336

Schedule Of Fair Value On A Nonrecurring Basis

(Dollars in Thousands)
	Fair Value at March 31, 2018
Asset  Description	Level 1		Level 2		Level 3		Total
Other real estate owned (1)	$	—	$	—	$	32	$	32
Total assets	$	—	$	—	$	32	$	32

(Dollars in Thousands)	Fair Value at December 31, 2017
Asset  Description	Level 1		Level 2		Level 3		Total
Other real estate owned (1)	$	—	$	—	$	90	$	90
Total assets	$	—	$	—	$	90	$	90

(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
March 31, 2018		Fair Value	Valuation Technique	Unobservable Input	(Weighted Average)
Other real estate owned	$	32	Sales Contract	N/A	—
					Range
December 31, 2017		Fair Value	Valuation Technique	Unobservable Input	(Weighted Average)
Other real estate owned	$	90	Appraisal	N/A	—
				Cost to sell	8%  (8%)

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Capital Ratios (Tables)

3 Months Ended

Mar. 31, 2018

Capital Ratios [Abstract]

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

			Regulatory Ratios
			Adequately	Well
	March 31,	December 31,	Capitalized	Capitalized
(Dollars in thousands)	2018	2017	Minimum	Minimum
Common Equity Tier 1 Risk-based Capital Ratio (1)
Franklin Financial Services Corporation	14.30%	14.06%	4.500%	N/A
Farmers & Merchants Trust Company	14.16%	13.93%	4.500%	6.50%
Tier 1 Risk-based Capital Ratio (2)
Franklin Financial Services Corporation	14.30%	14.06%	6.000%	N/A
Farmers & Merchants Trust Company	14.16%	13.93%	6.000%	8.00%
Total Risk-based Capital Ratio (3)
Franklin Financial Services Corporation	15.55%	15.31%	8.000%	N/A
Farmers & Merchants Trust Company	15.41%	15.19%	8.000%	10.00%
Tier 1 Leverage Ratio (4)
Franklin Financial Services Corporation	9.95%	9.73%	4.000%	N/A
Farmers & Merchants Trust Company	9.86%	9.64%	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
	Mar. 31, 2018	Mar. 31, 2017
Basis Of Presentation [Abstract]
Weighted average shares outstanding (basic)	4,359	4,321
Impact of common stock equivalents	28	20
Weighted average shares outstanding (diluted)	4,387	4,341
Anti-dilutive options excluded from calculation		14
Net income	$ 3,502	$ 3,020
Basic earnings per share	$ 0.80	$ 0.70
Diluted earnings per share	$ 0.80	$ 0.70

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Recent Accounting Pronouncements (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2018 USD ($)
Accounting Standards Update 2017-07 [Member]
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
New accounting pronouncement in accounting principle, effect of adoption quantification	$ 35
Retained Earnings [Member]
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Tax Cuts And Jobs Act Of 2017, Reclassification From AOCI To Retained	992
Cumulative adjustment for fair value of equity securities	201
Accumulated Other Comprehensive Loss [Member]
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Tax Cuts And Jobs Act Of 2017, Reclassification From AOCI To Retained	(992)
Cumulative adjustment for fair value of equity securities	$ (201)

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Accumulated Other Comprehensive Loss (Details) - USD ($) $ in Thousands	Mar. 31, 2018	Dec. 31, 2017
Accumulated Other Comprehensive Loss [Abstract]
Net unrealized (losses) gains on debt securities	$ (1,090)	$ 154
Tax effect	229	(33)
Net of tax amount	(861)	121
Accumulated pension adjustment	(7,784)	(7,784)
Tax effect	1,635	1,635
Net of tax amount	(6,149)	(6,149)
Total accumulated other comprehensive loss	$ (7,010)	$ (6,028)

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Investments (Narrative) (Details) $ / shares in Units, $ in Thousands	3 Months Ended
	Mar. 31, 2018 USD ($) security $ / shares	Dec. 31, 2017 USD ($) security
Schedule of Available-for-sale Securities [Line Items]
Restricted stock	$ 456	$ 456
Number of temporarily impaired securities | security	166	127
Fair value of temporarily impaired securities	$ 92,141	$ 69,788
Unrealized Losses	$ 1,706	1,046
Equity securities held | security	1
Securities pledged as collateral	$ 78,900	$ 84,100
Equity Securities, FV NI	$ 410
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

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Investments (Unrealized Gain (loss) On Investments) (Details) - USD ($) $ in Thousands	Mar. 31, 2018	Dec. 31, 2017
Schedule of Available-for-sale Securities [Line Items]
Amortized cost	$ 134,412
Gross unrealized gains	616
Gross unrealized losses	(1,706)
Available for sale	133,322	$ 126,971
Before Adoption Of ASU 2016-01 [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized cost		127,182
Gross unrealized gains		1,200
Gross unrealized losses		(1,046)
Available for sale		127,336
Equity Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized cost		164
Gross unrealized gains		201
Available for sale		365
U.S. Government And Agency Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized cost	10,534	11,451
Gross unrealized gains	22	64
Gross unrealized losses	(74)	(43)
Available for sale	10,482	11,472
Municipal Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized cost	63,520	57,374
Gross unrealized gains	409	650
Gross unrealized losses	(619)	(252)
Available for sale	63,310	57,772
Trust Preferred Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized cost	6,007	6,000
Gross unrealized gains	1
Gross unrealized losses	(159)	(183)
Available for sale	5,849	5,817
Agency Mortgage-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized cost	53,494	51,307
Gross unrealized gains	105	197
Gross unrealized losses	(852)	(567)
Available for sale	52,747	50,937
Private-Label Mortgage-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized cost	830	858
Gross unrealized gains	79	88
Available for sale	909	946
Asset-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized cost	27	28
Gross unrealized losses	(2)	(1)
Available for sale	$ 25	$ 27

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Investments (Amortized Cost And Fair Value Of Debt Securities, By Contractual Maturity) (Details) $ in Thousands	Mar. 31, 2018 USD ($)
Investments [Abstract]
Due in one year or less, Amortized cost	$ 5,174
Due after one year through five years, Amortized cost	45,530
Due after five years through ten years, Amortized cost	25,583
Due after ten years, Amortized cost	3,801
Amortized Cost Contractual Maturities Subtotal	80,088
Mortgage-backed securities, Amortized cost	54,324
Available-for-sale Securities, Debt Maturities, Amortized cost	134,412
Due in one year or less, Fair value	5,199
Due after one year through five years, Fair value	45,705
Due after five years through ten years, Fair value	25,062
Due after ten years, Fair value	3,700
Fair Value Contractual Maturities Subtotal	79,666
Mortgage-backed securities, Fair value	53,656
Available-for-sale Securities, Debt Securities, Fair Value	$ 133,322

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Investments (Composition Of Net Realized Securities Gains) (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Investments [Abstract]
Gross gains realized		$ 2
Gross losses realized
Net gains realized		$ 2

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Investments (Schedule Of Unrealized Loss On Investments) (Details) $ in Thousands	Mar. 31, 2018 USD ($) security	Dec. 31, 2017 USD ($) security
Schedule of Available-for-sale Securities [Line Items]
Less than 12 months: Fair Value	$ 58,840	$ 33,585
Less than 12 months: Unrealized Losses	$ (764)	$ (241)
Less than 12 months: Count | security	97	58
12 months or more: Fair Value	$ 33,301	$ 36,203
12 months or more: Unrealized Losses	$ (942)	$ (805)
12 months or more: Count | security	69	69
Fair Value	$ 92,141	$ 69,788
Unrealized Losses	$ (1,706)	$ (1,046)
Count | security	166	127
U.S. Government And Agency Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Less than 12 months: Fair Value	$ 5,588	$ 2,315
Less than 12 months: Unrealized Losses	$ (37)	$ (11)
Less than 12 months: Count | security	7	5
12 months or more: Fair Value	$ 3,331	$ 3,528
12 months or more: Unrealized Losses	$ (37)	$ (32)
12 months or more: Count | security	10	10
Fair Value	$ 8,919	$ 5,843
Unrealized Losses	$ (74)	$ (43)
Count | security	17	15
Municipal Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Less than 12 months: Fair Value	$ 26,203	$ 13,767
Less than 12 months: Unrealized Losses	$ (339)	$ (89)
Less than 12 months: Count | security	41	22
12 months or more: Fair Value	$ 7,365	$ 7,507
12 months or more: Unrealized Losses	$ (280)	$ (163)
12 months or more: Count | security	14	14
Fair Value	$ 33,568	$ 21,274
Unrealized Losses	$ (619)	$ (252)
Count | security	55	36
Trust Preferred Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Less than 12 months: Fair Value	$ 1,867	$ 1,216
Less than 12 months: Unrealized Losses	$ (50)	$ (12)
Less than 12 months: Count | security	2	2
12 months or more: Fair Value	$ 3,700	$ 4,601
12 months or more: Unrealized Losses	$ (109)	$ (171)
12 months or more: Count | security	4	5
Fair Value	$ 5,567	$ 5,817
Unrealized Losses	$ (159)	$ (183)
Count | security	6	7
Agency Mortgage-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Less than 12 months: Fair Value	$ 25,164	$ 16,287
Less than 12 months: Unrealized Losses	$ (337)	$ (129)
Less than 12 months: Count | security	46	29
12 months or more: Fair Value	$ 18,900	$ 20,563
12 months or more: Unrealized Losses	$ (515)	$ (438)
12 months or more: Count | security	40	39
Fair Value	$ 44,064	$ 36,850
Unrealized Losses	$ (852)	$ (567)
Count | security	86	68
Asset-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Less than 12 months: Fair Value	$ 18
Less than 12 months: Unrealized Losses	$ (1)
Less than 12 months: Count | security	1
12 months or more: Fair Value	$ 5	$ 4
12 months or more: Unrealized Losses	$ (1)	$ (1)
12 months or more: Count | security	1	1
Fair Value	$ 23	$ 4
Unrealized Losses	$ (2)	$ (1)
Count | security	2	1

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Investments (Other Than Temporary Impairment, Credit Losses Recognized In Earnings) (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Investments [Abstract]
Balance of cumulative credit-related OTTI at January 1	$ 595	$ 595
Additions for credit-related OTTI not previously recognized
Additional increases for credit-related OTTI previously recognized when there is no intent to sell and no requirement to sell before recovery of amortized cost basis
Decreases for previously recognized credit-related OTTI because there was an intent to sell
Reduction for increases in cash flows expected to be collected
Balance of credit-related OTTI at March 31	$ 595	$ 595

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Loans (Schedule Of Loans Outstanding) (Details) - USD ($) $ in Thousands	Mar. 31, 2018	Dec. 31, 2017	Mar. 31, 2017	Dec. 31, 2016
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	$ 942,653	$ 943,700
Less: Allowance for loan losses	(11,989)	(11,792)	$ (11,278)	$ (11,075)
Net Loans	930,664	931,908
Net unamortized deferred loan costs	40	98
Loans pledged as collateral for borrowings and commitments from: FHLB	735,979	737,313
Loans pledged as collateral for borrowings and commitments from :Federal Reserve Bank	35,137	35,740
Total	771,116	773,053
Residential Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	204,543	208,805
Residential Real Estate - Construction [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	11,491	9,901
Less: Allowance for loan losses	(260)	(224)	(274)	(224)
Commercial Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	433,821	428,428
Less: Allowance for loan losses	(6,698)	(6,526)	(6,126)	(6,109)
Commercial [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	287,680	291,519
Less: Allowance for loan losses	(2,073)	(2,110)	(1,984)	(1,893)
Total Commercial [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	721,501	719,947
Consumer [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	5,118	5,047
Less: Allowance for loan losses	(104)	(105)	(99)	(100)
Consumer First Liens [Member] | Residential Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	93,897	97,159
Consumer Junior Liens And Lines Of Credit [Member] | Residential Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	43,842	45,043
Consumer [Member] | Residential Real Estate - Construction [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	2,756	1,813
Commercial Junior Liens And Lines Of Credit [Member] | Residential Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	5,014	5,328
Commercial [Member] | Residential Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	61,790	61,275
Commercial [Member] | Residential Real Estate - Construction [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	8,735	8,088
First Liens [Member] | Residential Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	155,687	158,434
Less: Allowance for loan losses	(1,043)	(1,060)	$ (1,100)	$ (1,105)
Junior Lines And Lines Of Credit [Member] | Residential Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	$ 48,856	$ 50,371

XML

Loan Quality and Allowance for Loan Losses (Allowance For Loan Losses, By Loan Segment) (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017	Dec. 31, 2017	Dec. 31, 2016
Financing Receivable, Allowance for Credit Losses [Line Items]
Charge-offs	$ (26)	$ (36)
Recoveries	23	119
Provision	200	120
Loans evaluated for allowance individually	11,798		$ 11,906
Loans evaluated for allowance collectively	930,855		931,794
Total Loans	942,653		943,700
Allowance established for loan evaluated collectively	11,989		11,792
Total Allowance	11,989	11,278	11,792	$ 11,075
Residential Real Estate [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Total Loans	204,543		208,805
Residential Real Estate - Construction [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Provision	36	50
Loans evaluated for allowance individually	466		466
Loans evaluated for allowance collectively	11,025		9,435
Total Loans	11,491		9,901
Allowance established for loan evaluated collectively	260		224
Total Allowance	260	274	224	224
Commercial Real Estate [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Provision	172	17
Loans evaluated for allowance individually	10,878		10,981
Loans evaluated for allowance collectively	422,943		417,447
Total Loans	433,821		428,428
Allowance established for loan evaluated collectively	6,698		6,526
Total Allowance	6,698	6,126	6,526	6,109
Commercial [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Recoveries	8	102
Provision	(45)	(11)
Loans evaluated for allowance collectively	287,680		291,519
Total Loans	287,680		291,519
Allowance established for loan evaluated collectively	2,073		2,110
Total Allowance	2,073	1,984	2,110	1,893
Consumer [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Charge-offs	(26)	(28)
Recoveries	14	16
Provision	11	11
Loans evaluated for allowance collectively	5,118		5,047
Total Loans	5,118		5,047
Allowance established for loan evaluated collectively	104		105
Total Allowance	104	99	105	100
Unallocated [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Provision	54	53
Allowance established for loan evaluated collectively	1,491		1,437
Total Allowance	1,491	1,374	1,437	1,321
First Liens [Member] | Residential Real Estate [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Charge-offs		(8)
Recoveries	1	1
Provision	(18)	2
Loans evaluated for allowance individually	454		459
Loans evaluated for allowance collectively	155,233		157,975
Total Loans	155,687		158,434
Allowance established for loan evaluated collectively	1,043		1,060
Total Allowance	1,043	1,100	1,060	1,105
Junior Liens & Lines Of Credit [Member] | Residential Real Estate [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Provision	(10)	(2)
Loans evaluated for allowance collectively	48,856		50,371
Total Loans	48,856		50,371
Allowance established for loan evaluated collectively	320		330
Total Allowance	$ 320	$ 321	$ 330	$ 323

XML

Loan Quality and Allowance for Loan Losses (Impaired Financing Receivables) (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017	Dec. 31, 2017
Financing Receivable, Impaired [Line Items]
Recorded Investment With No Allowance	$ 12,401		$ 12,583
Unpaid Principal Balance With No Allowance	13,046		13,223
Recorded Investment With Allowance
Unpaid Principal Balance With Allowance
Related Allowance
Average Recorded Investment	12,450	$ 15,025
Interest Income Recognized	116	126
Residential Real Estate [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment With No Allowance	803		869
Unpaid Principal Balance With No Allowance	882		950
Recorded Investment With Allowance
Unpaid Principal Balance With Allowance
Related Allowance
Average Recorded Investment	805	1,004
Interest Income Recognized	11	10
Residential Real Estate [Member] | First Liens [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment With No Allowance	803		869
Unpaid Principal Balance With No Allowance	882		950
Recorded Investment With Allowance
Unpaid Principal Balance With Allowance
Related Allowance
Average Recorded Investment	805	919
Interest Income Recognized	11	10
Residential Real Estate [Member] | Junior Liens & Lines Of Credit [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment With Allowance
Unpaid Principal Balance With Allowance
Related Allowance
Average Recorded Investment		85
Residential Real Estate - Construction [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment With No Allowance	466		466
Unpaid Principal Balance With No Allowance	531		531
Recorded Investment With Allowance
Unpaid Principal Balance With Allowance
Related Allowance
Average Recorded Investment	466	479
Commercial Real Estate [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment With No Allowance	10,949		11,061
Unpaid Principal Balance With No Allowance	11,435		11,541
Recorded Investment With Allowance
Unpaid Principal Balance With Allowance
Related Allowance
Average Recorded Investment	10,994	13,519
Interest Income Recognized	105	116
Commercial [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment With No Allowance	183		187
Unpaid Principal Balance With No Allowance	198		201
Recorded Investment With Allowance
Unpaid Principal Balance With Allowance
Related Allowance
Average Recorded Investment	$ 185	$ 23

XML

Loan Quality and Allowance for Loan Losses (Aging Of Payments Of The Loan Portfolio) (Details) - USD ($) $ in Thousands	Mar. 31, 2018	Dec. 31, 2017
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	$ 938,825	$ 938,928
Loans Past Due and Still Accruing	1,230	2,097
Non-accrual loans	2,598	2,675
Total Loans	942,653	943,700
30 - 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans Past Due and Still Accruing	900	1,179
60 - 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans Past Due and Still Accruing	241	918
90 Days+ Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans Past Due and Still Accruing	89
Residential Real Estate [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	203,869	207,449
Loans Past Due and Still Accruing	567	1,188
Non-accrual loans	107	168
Total Loans	204,543	208,805
Residential Real Estate [Member] | 30 - 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans Past Due and Still Accruing	483	624
Residential Real Estate [Member] | 60 - 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans Past Due and Still Accruing	84	564
Residential Real Estate [Member] | First Liens [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	155,126	157,247
Loans Past Due and Still Accruing	454	1,019
Non-accrual loans	107	168
Total Loans	155,687	158,434
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	398	485
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	56	534
Residential Real Estate [Member] | Junior Liens & Lines Of Credit [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	48,743	50,202
Loans Past Due and Still Accruing	113	169
Total Loans	48,856	50,371
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	85	139
Residential Real Estate [Member] | Junior Liens & Lines Of Credit [Member] | 60 - 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans Past Due and Still Accruing	28	30
Residential Real Estate - Construction [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	11,025	9,435
Non-accrual loans	466	466
Total Loans	11,491	9,901
Commercial Real Estate [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	431,542	425,806
Loans Past Due and Still Accruing	437	768
Non-accrual loans	1,842	1,854
Total Loans	433,821	428,428
Commercial Real Estate [Member] | 30 - 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans Past Due and Still Accruing	348	421
Commercial Real Estate [Member] | 60 - 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans Past Due and Still Accruing		347
Commercial Real Estate [Member] | 90 Days+ Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans Past Due and Still Accruing	89
Commercial [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	287,289	291,221
Loans Past Due and Still Accruing	208	111
Non-accrual loans	183	187
Total Loans	287,680	291,519
Commercial [Member] | 30 - 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans Past Due and Still Accruing	54	111
Commercial [Member] | 60 - 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans Past Due and Still Accruing	154
Consumer [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	5,100	5,017
Loans Past Due and Still Accruing	18	30
Total Loans	5,118	5,047
Consumer [Member] | 30 - 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans Past Due and Still Accruing	15	23
Consumer [Member] | 60 - 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans Past Due and Still Accruing	$ 3	$ 7

XML

Loan Quality and Allowance for Loan Losses (Internal Credit Rating For The Loan Portfolio) (Details) - USD ($) $ in Thousands	Mar. 31, 2018	Dec. 31, 2017
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	$ 942,653	$ 943,700
Pass [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	929,360	930,899
Special Mention [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	2,393	680
Substandard [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	10,900	12,121
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	204,543	208,805
Residential Real Estate [Member] | Pass [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	203,896	207,766
Residential Real Estate [Member] | Substandard [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	647	1,039
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	155,687	158,434
Residential Real Estate [Member] | First Liens [Member] | Pass [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	155,040	157,395
Residential Real Estate [Member] | First Liens [Member] | Substandard [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	647	1,039
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	48,856	50,371
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	48,856	50,371
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	11,491	9,901
Residential Real Estate - Construction [Member] | Pass [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	10,370	8,893
Residential Real Estate - Construction [Member] | Substandard [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	1,121	1,008
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	433,821	428,428
Commercial Real Estate [Member] | Pass [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	423,072	419,277
Commercial Real Estate [Member] | Special Mention [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	2,393	680
Commercial Real Estate [Member] | Substandard [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	8,356	8,471
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	287,680	291,519
Commercial [Member] | Pass [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	286,905	289,916
Commercial [Member] | Substandard [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	775	1,603
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	5,118	5,047
Consumer [Member] | Pass [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	5,117	5,047
Consumer [Member] | Substandard [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	1
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		3 Months Ended
		Mar. 31, 2018 USD ($) item contract	Mar. 31, 2017 item	Dec. 31, 2017 USD ($) contract
Financing Receivable, Modifications [Line Items]
Troubled Debt Restructurings: Number of Contracts | contract		17		17
Troubled Debt Restructurings: Recorded Investment		$ 12,076		$ 12,186
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
New During Period, Number of Contracts | item		0	0
Performing [Member]
Financing Receivable, Modifications [Line Items]
Troubled Debt Restructurings: Recorded Investment	[1]	$ 9,803		11,555
Nonperforming [Member]
Financing Receivable, Modifications [Line Items]
Troubled Debt Restructurings: Recorded Investment	[1]	$ 2,273		$ 631
Residential Real Estate - Construction [Member]
Financing Receivable, Modifications [Line Items]
Troubled Debt Restructurings: Number of Contracts | contract		1		1
Troubled Debt Restructurings: Recorded Investment		$ 466		$ 466
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]			$ 466
Residential Real Estate - Construction [Member] | Nonperforming [Member]
Financing Receivable, Modifications [Line Items]
Troubled Debt Restructurings: Recorded Investment	[1]	$ 466
Residential Real Estate [Member]
Financing Receivable, Modifications [Line Items]
Troubled Debt Restructurings: Number of Contracts | contract		5		5
Troubled Debt Restructurings: Recorded Investment		$ 732		$ 737
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 [Member] | Performing [Member]
Financing Receivable, Modifications [Line Items]
Troubled Debt Restructurings: Recorded Investment	[1]	696		701
Residential Real Estate [Member] | Nonperforming [Member]
Financing Receivable, Modifications [Line Items]
Troubled Debt Restructurings: Recorded Investment	[1]	$ 36		$ 36
Commercial Real Estate [Member]
Financing Receivable, Modifications [Line Items]
Troubled Debt Restructurings: Number of Contracts | contract		11		11
Troubled Debt Restructurings: Recorded Investment		$ 10,878		$ 10,983
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
Commercial Real Estate [Member] | Performing [Member]
Financing Receivable, Modifications [Line Items]
Troubled Debt Restructurings: Recorded Investment	[1]	9,107		10,388
Commercial Real Estate [Member] | Nonperforming [Member]
Financing Receivable, Modifications [Line Items]
Troubled Debt Restructurings: Recorded Investment	[1]	$ 1,771		$ 595

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

XML

Other Real Estate Owned (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Other Real Estate Owned [Abstract]
Balance at beginning of the period	$ 2,598	$ 4,915
Proceeds from dispositions		(1,751)
Valuation adjustment	(6)	(49)
Balance at the end of the period	$ 2,592	$ 3,115

XML

Pension (Narrative) (Details) - USD ($) $ in Thousands	3 Months Ended		12 Months Ended
	Mar. 31, 2018	Mar. 31, 2017	Dec. 31, 2017
Pension [Abstract]
Expected pension expense	$ 500
Pension Contributions	1,000
Pension expense	$ 125	$ 113	$ 459

XML

Pension (Schedule Of Net Periodic Pension Costs) (Details) - USD ($) $ in Thousands	3 Months Ended		12 Months Ended
	Mar. 31, 2018	Mar. 31, 2017	Dec. 31, 2017
Pension [Abstract]
Service cost	$ 90	$ 78
Interest cost	138	166
Expected return on plan assets	(279)	(268)
Recognized net actuarial loss	176	137
Net period cost	$ 125	$ 113	$ 459

XML

Fair Value Measurements And Fair Values Of Financial Instruments (Narrative) (Details)	Mar. 31, 2018 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	Mar. 31, 2018	Dec. 31, 2017
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Available for sale	$ 133,322	$ 126,971
Equity Securities, FV NI	410
Carrying Amount [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and cash equivalents	42,082	58,603
Restricted stock	456	456
Loans held for sale		442
Net loans	930,664	931,908
Accrued interest receivable	3,410	3,847
Available for sale	133,322
Equity Securities, FV NI	410
Deposits	1,034,461	1,047,181
Accrued interest payable	152	149
Fair Value [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and cash equivalents	42,082	58,603
Restricted stock	456	456
Loans held for sale		442
Net loans	908,491	929,891
Accrued interest receivable	3,410	3,847
Available for sale	133,322
Equity Securities, FV NI	410
Deposits	1,033,575	1,046,476
Accrued interest payable	152	149
Level 1 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and cash equivalents	42,082	58,603
Equity Securities, FV NI	410
Level 2 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Restricted stock	456	45
Loans held for sale		442
Accrued interest receivable	3,410	3,847
Available for sale	133,322
Deposits	1,033,575	1,046,476
Accrued interest payable	152	149
Level 3 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Net loans	$ 908,491	929,891
Before Adoption Of ASU 2016-01 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Available for sale		127,336
Before Adoption Of ASU 2016-01 [Member] | Carrying Amount [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Available for sale		127,336
Before Adoption Of ASU 2016-01 [Member] | Fair Value [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Available for sale		127,336
Before Adoption Of ASU 2016-01 [Member] | Level 1 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Available for sale		365
Before Adoption Of ASU 2016-01 [Member] | Level 2 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Available for sale		$ 126,971

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	Mar. 31, 2018	Dec. 31, 2017
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Equity securities, at fair value	$ 410
Available for sale	133,322	$ 126,971
Fair Value, Measurements, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Equity securities, at fair value	410
Total assets	133,732	127,336
Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Equity securities, at fair value	410
Level 1 [Member] | Fair Value, Measurements, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Equity securities, at fair value	410
Total assets	410	365
Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	133,322
Level 2 [Member] | Fair Value, Measurements, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total assets	133,322	126,971
Equity Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale		365
Equity Securities [Member] | Fair Value, Measurements, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale		365
Equity Securities [Member] | Level 1 [Member] | Fair Value, Measurements, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale		365
U.S. Government And Agency Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	10,482	11,472
U.S. Government And Agency Securities [Member] | Fair Value, Measurements, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	10,482	11,472
U.S. Government And Agency Securities [Member] | Level 2 [Member] | Fair Value, Measurements, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	10,482	11,472
Municipal Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	63,310	57,772
Municipal Securities [Member] | Fair Value, Measurements, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	63,310	57,772
Municipal Securities [Member] | Level 2 [Member] | Fair Value, Measurements, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	63,310	57,772
Trust Preferred Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	5,849	5,817
Trust Preferred Securities [Member] | Fair Value, Measurements, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	5,849	5,817
Trust Preferred Securities [Member] | Level 2 [Member] | Fair Value, Measurements, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	5,849	5,817
Agency Mortgage-Backed Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	52,747	50,937
Agency Mortgage-Backed Securities [Member] | Fair Value, Measurements, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	52,747	50,937
Agency Mortgage-Backed Securities [Member] | Level 2 [Member] | Fair Value, Measurements, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	52,747	50,937
Private-Label Mortgage-Backed Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	909	946
Private-Label Mortgage-Backed Securities [Member] | Fair Value, Measurements, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	909	946
Private-Label Mortgage-Backed Securities [Member] | Level 2 [Member] | Fair Value, Measurements, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	909	946
Asset-Backed Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	25	27
Asset-Backed Securities [Member] | Fair Value, Measurements, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	25	27
Asset-Backed Securities [Member] | Level 2 [Member] | Fair Value, Measurements, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	$ 25	$ 27

XML

Fair Value Measurements And Fair Values Of Financial Instruments (Schedule Of Fair Value On A Nonrecurring Basis) (Details) - USD ($) $ in Thousands		Mar. 31, 2018	Dec. 31, 2017
Fair Value, Measurements, Nonrecurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring		$ 32	$ 90
Level 3 [Member] | Fair Value, Measurements, Nonrecurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring		32	90
Other Real Estate Owned [Member] | Fair Value, Measurements, Nonrecurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring	[1]	32	90
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		32	90
Other Real Estate Owned [Member] | Level 3 [Member] | Fair Value, Measurements, Nonrecurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring	[1]	$ 32	$ 90

[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) - Other Real Estate Owned [Member] - Level 3 [Member] - USD ($) $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2018	Dec. 31, 2017
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring	$ 32	$ 90
Fair Value Measurements, Valuation Techniques	Sales Contract
Cost To Sell [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value Inputs, Discount Rate		8.00%
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%

XML

Capital Ratios (Narrative) (Details)		3 Months Ended
		Mar. 31, 2018		Dec. 31, 2017
Compliance with Regulatory Capital Requirements under Banking Regulations [Line Items]
Total Risk-based Capital Ratio: Ratio		15.55%
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%
Bank [Member]
Compliance with Regulatory Capital Requirements under Banking Regulations [Line Items]
Tier 1 Leverage Ratio: Ratio	[1]	9.86%		9.64%
Common Equity Tier 1 Risk-based Capital Ratio: Ratio	[2]	14.16%		13.93%
Common Equity Tier 1 Risk-based Capital Ratio: Well Capitalized Minimum: Ratio	[2]	6.50%
Tier 1 Risk-based Capital Ratio: Well Capitalized Minimum: Ratio		8.00%	[3]	6.00%
Tier 1 Leverage Ratio: Well Capitalized Minimum: Ratio	[1]	5.00%
Total Risk-based Capital Ratio: Well Capitalized Minimum: Ratio	[4]	10.00%
Capital ratios, capital conservation buffer		7.55%
Total Risk-based Capital Ratio: Adequately Capitalized Minimum: Ratio	[4]	8.00%
Total Risk-based Capital Ratio: Ratio	[4]	15.41%		15.19%

[1] Tier 1 capital / average quarterly assets

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

[3] Tier 1 capital / total risk-weighted 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)		Mar. 31, 2018		Dec. 31, 2017
Compliance with Regulatory Capital Requirements under Banking Regulations [Line Items]
Total Risk-based Capital Ratio: Ratio		15.55%
Franklin Financial Services Corporation [Member]
Compliance with Regulatory Capital Requirements under Banking Regulations [Line Items]
Common Equity Tier 1 Risk-based Capital Ratio: Ratio	[1]	14.30%		14.06%
Common Equity Tier 1 Risk-based Capital Ratio: Adequately Capitalized Minimum: Ratio	[1]	4.50%
Tier 1 Risk-based Capital Ratio: Ratio	[2]	14.30%		14.06%
Tier 1 Risk-based Capital Ratio: Adequately Capitalized Minimum: Ratio	[2]	6.00%
Total Risk-based Capital Ratio: Ratio	[3]	15.55%		15.31%
Total Risk-based Capital Ratio: Adequately Capitalized Minimum: Ratio	[3]	8.00%
Tier 1 Leverage Ratio: Ratio	[4]	9.95%		9.73%
Tier 1 Leverage Ratio: Adequately Capitalized Minimum: Ratio	[4]	4.00%
Bank [Member]
Compliance with Regulatory Capital Requirements under Banking Regulations [Line Items]
Common Equity Tier 1 Risk-based Capital Ratio: Ratio	[1]	14.16%		13.93%
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]	14.16%		13.93%
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]	15.41%		15.19%
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]	9.86%		9.64%
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

XML

Revenue Recognition (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2018 USD ($)
Revenue Recognition [Abstract]
Asset management fees	$ 1,300
Estate management services Fees recognition period	18 months
Estate management services fees	$ 61
Commissions from sale of investment and insurance products	$ 68

XML

Contingencies (Narrative) (Details) $ in Millions	Dec. 31, 2017 USD ($)
Contingencies [Abstract]
Accrued settlement payment	$ 10