8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of

The Securities Exchange Act of 1934

Date of Report: April 27, 2010

(Date of earliest event reported):  April 27, 2010

FRANKLIN FINANCIAL SERVICES CORPORATION

(Exact name of registrant as specified in its new charter)

Pennsylvania	0-12126	25-1440803
(State or other jurisdiction	(Commission	(IRS Employer
of incorporation)	File Number)	Indent. No.)

20 South Main Street, Chambersburg, PA	17201
(Address of principal executive office)	(Zip Code)

Registrant's telephone number, including area code                     (717) 264-6116

N/A

(Former name or former address, if changes since last report)

Check the appropriate box below if the Form 8-K is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a –12 under the Exchange Act (17 CFR 240.14a –12)

o Pre-commencement communications pursuant to Rule 14d – 2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e – 4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 7.01 Regulation FD Disclosure.

Franklin Financial Services Corporation  (the “Company”) is holding its annual meeting of shareholders on April 27, 2010. The text of the remarks of Charles M. Sioberg, Chairman of the Board of the Company, and of William E. Snell, Jr., President and Chief Executive Officer of the Company, to be delivered at this meeting are attached hereto as Exhibits 99.1 and 99.2, respectively, and are incorporated herein by reference.

Item 9.01  Financial Statements and Exhibits.

(d) Exhibits.

99 .1 Remarks of Charles M. Sioberg, Chairman of the Board of the Company, to be delivered at the meeting of the shareholders on April 27, 2010.

99 .2 Remarks of William E. Snell, Jr., President and Chief Executive Officer of the Company, to be delivered at the meeting of the shareholders on April 27, 2010.

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 hereunto duly authorized.

FRANKLIN FINANCIAL SERVICES CORPORATION
By:	/s/ William E. Snell, Jr.
	William E. Snell, Jr., President
	and Chief Executive Officer

Dated: April 27, 2009

 

EXHIBIT INDEX

Exhibit Number	Description
99.1	Remarks of Charles M. Sioberg, Chairman of the Board of the Company, to be delivered at the meeting of the shareholders on April 27, 2010.
99.2	Remarks of William E. Snell, Jr., President and Chief Executive Officer of the Company, to be delivered at the meeting of the shareholders on April 27, 2010.

EX-99.1

"A Voice for More Regulation — And a Cautionary Word Against"

The last several years my talks at this meeting have dealt with the condition of the economy and it’s impact on our industry.

This year - - I want to focus on the Administration’s current proposals for Financial Regulatory Reform — and it’s likely impact on our company.

As we all know -

This nation's banks are one of the most heavily regulated industries in the country.

Bankers routinely comply with more than 6,000 pages of regulations intended to protect the safety and soundness of customer deposits and the banking system as a whole.

So you wouldn't expect a bank - or bankers - to come out in favor of more regulation.

Yet that's just what I am suggesting — up to a point.

We absolutely support the Obama administration's proposal to develop ways of handling the failure of a large financial institution - so it doesn't send shock waves throughout the economy.

And, - we want to get away from taxpayers having to prop up such an institution because someone thinks it's "too big to fail."

It's also important that we close the regulatory gaps that have allowed unregulated - and lightly regulated businesses – like mortgage brokers — to create the kind of problems that have recently devastated our economy.

However - there is one reform advocated by the administration that will do more harm than good — and that's the proposal for a new Consumer Financial Protection Agency, or (CFPA).

It's hard to argue against anything called "consumer protection."

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Yet when you peel back the labels, - the CFPA would allow the government to decide what products the banks in our town can offer to our customers.

And, - it would add yet another agency in Washington - to send yet another set of examiners into our already over-regulated community bank.

Following the passage of the health-care bill, - financial regulatory reform is now the Obama administration’s top domestic legislative priority.

President Obama has met with congressional leaders from both parties to discuss such reform and to gain support for his plan.

Politically, this plan appears to be headed down the same road as the health-care plan.

The Senate Banking Committee approved its version of the reform legislation on March 22 by a 13-10 party-line vote, - and no Republicans have said they would support the measure.

We can expect to see more partisanship - as liberals, who are still smarting from enduring a series of compromises on health care reform and job legislation - seek an opportunity to reassert their power on what they characterize as “Wall Street Reform”

Thomas Carlyle, the 19th century Victorian essayist, unflatteringly described classical liberalism as “anarchy plus a constable.”  Carlyle clearly hated the system – but he described it accurately.

Liberals think it will be difficult for conservatives to mount a full-scale opposition to financial reform - particularly as voters near the midterm elections this fall.

Once again, this is all about politics - about incumbents fighting for their seats and getting re-elected.

The proposal to create Consumer Financial Protection Agency goes far beyond what its proponents are willing to reveal.

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Under the guise of consolidating and coordinating enforcement of consumer protection laws - - the proposal will instead create an enormous federal bureaucracy whose role is to substitute governments' financial preferences for individuals' preferences.

By micro-managing the design, marketing, delivery, and price of financial products - - this new agency will replace individual choice and free market competition - with central government direction and controls.

Simply put - government officials – not consumers – will be designing and deciding what financial products consumers should have.

We believe that the government should focus on strengthening and improving the extensive system of existing regulations - and ensure strong oversight of lightly supervised non-bank lenders and their intermediaries.

To the contrary, we believe that the proposed Consumer Financial Protection Agency will most assuredly have undesirable consequences for consumers -

These negative consequences will include:

·  Designing a standard financial product for the “average” consumer, which may poorly serve some Americans - because they have other than “average” financial needs.

·  Certain products and services that are currently popular - will no longer be available for many consumers, as banks will only be allowed to offer the “standard” version approved by the Agency.

·  Requiring "standard" products will result in far fewer choices for consumers - because "alternative" products will expose financial entities to additional regulatory actions, such as:

o  Second-guessing by the new agency, including mandatory after-the-fact changes in provisions, terms, rates, and features;

o  New examinations, reports and inquiries;

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o  Elaborate new disclosures;

o  Potential penalties, including fines, rewriting or rescission of contracts, refunds, and limitations on business activities;

o  Enforcement by state attorneys general;

o  Possible lawsuits.

The proposed agency will result in a huge new bureaucracy that consumers will ultimately pay for – and here’s why;

·  The proposal gives the new agency primary authority to enforce (or eliminate) existing rules - and exclusive authority to write new rules.

·  The proposal gives the agency the power to examine and require reporting from a broad variety of businesses that offer financial products or services – whether they are inside or outside the jurisdiction of the federal banking agencies.

·  The costs for funding such an agency - tasked with designing standard government financial products, and regulating countless businesses would be enormous.

These costs will be borne by fees imposed on financial entities, and of course, ultimately be passed on to consumers;

The net result will be that consumers will end up paying for this huge new agency, which will surely cost multiple billions of dollars each year.

The proposed agency will have a significant negative impact on community banks like ours.

·  Keep in mind - thousands of community banks across the country never made one subprime loan - and are not responsible for the current crisis.

·  Mandating that financial institutions offer government-designed products will result in competitive disadvantages for community banks.

This is because:

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o  Departing from the menu of government-designed products will be risky and costly, making it very difficult – if not impossible for banks like ours – to offer them.

o  Large financial institutions have greater economies of scale and will be much better situated to absorb these increased costs and risks.

o  Increased regulatory costs - and unequal competition from large institutions - will ultimately drive already over regulated community banks out of the business of offering these "standard" products.

·  Community banks have always enjoyed the advantage of tailoring their products to meet the needs of their local customers - such tailoring of products will be severely discouraged by the proposed new agency.

·  The administration’s proposal essentially separates regulation of the financial integrity and health of financial entities - from regulation of the products and services they offer.

What the administration has proposed - quite literally puts one agency in charge of bank safety and another in charge of consumer protection.

We believe this strategy to be flawed.

·  It is important to remember that one person's deposit is another person's loan.

It is folly to try to regulate deposits and loans separately from the business judgments that allow banks to intermediate between them.

Ultimately, the two are inextricably linked and reliant upon each other. 

It is a recipe for chaos in the marketplace because consumer protection and financial integrity are two sides of the same coin.

Consider, for example, the rules that govern how long banks can hold a customer's check before making the deposited funds available.

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Of course, customers would like the shortest possible hold times.

But this desire needs to be balanced with complex operational issues related to check clearing - and potential fraud.

In this instance it makes no sense to separate consumer rules from other banking rules.

·  Separating consumer protection from safety and soundness will surely result in each regulator only having part of the information – and will consequently lead to contradictory goals with no resolution mechanism for solving conflicts

Banks will find themselves in the untenable position of having to violate one regulation or another – and pay the price for doing so.

·  We know that historically, separating oversight of the safety and soundness of Fannie Mae and Freddie Mac - from their mission – contributed significantly to their inadequate supervision and ultimately their downfall.

The proposed agency does not address the root causes of the current financial problems

·  This proposal defers to the states as the first line of defense – and, in reality, adds little to their enforcement.

It ignores the fact that the states have always had the authority to more stringently regulate non-bank lenders – which were primary contributors to the recent financial crisis – but historically the states simply failed to adequately regulate them.

·  The SEC – which failed to regulate Bernie Madoff, - choosing to ignore evidence brought to its attention - is left intact - and the products and services offered by investment houses are not brought within the new agency's jurisdiction.

·  Insurance products are exempted from the oversight of this new agency - as if the insurance industry is not a part of the financial community – we all remember AIG!

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The fact is the proposed agency does not address the root causes of the current financial problem.

Traditional banks like ours did not sell the toxic mortgages that led to the housing bust - and subsequently a recession.

And we're not AIG or Bear Stearns or Lehman Brothers - none of which - by the way - were banks.

F&M Trust has served our neighbors, families, and local businesses for 104 years.

We are here for our community.

And we actually represent the solution to this financial crisis - because we're the ones who are still lending.

Just as it would be a mistake for government to micro-manage how your physician practices medicine, it would also be a mistake to micro-manage the very institutions that had nothing to do with creating this recession.

We can’t renew our economy by throwing traditional banks under the bus.

More red tape isn't going to bind up the nation's wounds. It's going to strangle the one part of the economy that is still lending - helping grow small businesses - promoting home ownership - and supporting consumer spending.

We are the key to economic growth and job creation.

We know our communities better than any Washington bureaucrat ever will.

The notion that Washington can dictate what financial products we must offer is contrary to everything we know about good business and good government.

Piling on more rules and statutes will not produce something different than it has in the past.

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Reliance on affirmative principles of truth-telling in accounting statements, and a duty of care is preferable.

Deregulation is not some kind of libertarian mantra but an absolute necessity if we are to exit the current crisis.

Banks like ours are intensively regulated and federally insured financial institutions - - dedicated to serving our customers and growing our communities.

We are a true “community bank” because we're part of the good things that happen here in the Cumberland Valley.

So as Congress rushes to pass financial reform legislation before the upcoming elections, I'm asking all of us to think about the consequences that some of these reforms would have.

The good and the bad.

I encourage you to contact your Congressional Representatives to let them know where you stand on this issue.

And I hope all of us - - - especially Congress and the current administration - - - -  will remember one of the lessons learned in this financial crisis.

If something sounds too good to be true, it probably is.

At this time, I’d like to turn it over to our president, Bill Snell, for details on our company’s 2009 results and plans for 2010 . . . Bill

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EX-99.2

2010 Annual Meeting Speech

GOOD MORNING!  I’m delighted that so many of you could join us today.  Before I begin my remarks, I would like to introduce our Board of Directors whose dedication, support, and guidance is very much appreciated.  Please stand as I call your name.

Chuck Sioberg, Chairman of the Board, Chuck Bender, Marty Brown, Warren Elliott, Don Fry, Skip Jennings, Stanley Kerlin, Jerry Miller, Steve Patterson, and Marty Walker.

I would like to take this opportunity to recognize and thank Kurt Suter who retired from the Franklin Financial Board of Directors at the end of January 2010 for his seven years of dedicated service.  His insight will be missed.

Finally, some distinguished professionals who serve your company in attendance today:

-  Dean Dusinberre of Rhoads & Sinon, Attorneys-at-Law, our SEC Counsel;

-  Keith Cenekofsky of ParenteBeard LLC, our Certified Public Accountants;

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- Marylynn Darmstaetter representing Fulton Financial Advisors, our transfer agent for Franklin Financial stock       AND

-  Jim Weaver of Weaver Consulting and Asset Management.  You’ll hear more from Jim later in the program when he presents his annual economic forecast and market update.

Franklin Financial reported earnings of $6,585,000 in 2009, representing a 23.4% decrease from our 2008 earnings of $8,595,000.  Diluted earnings per share decreased from $2.24 per share in 2008 to $1.71 per share in 2009.

2009 may have been the most challenging year in the financial services industry since the Great Depression.  As 2008 ended, it was clear that we were in a recession and 2009 began with the passage of the largest ever government spending and economic stimulus plan in an effort to jump-start the economy.  Despite this initiative, the economy continued further into recession and unemployment continued to climb, reaching double digits.  Consumer loan delinquency and foreclosures increased, as did business failures.  And the Federal Reserve maintained short-term rates at historic lows.   These conditions created a difficult operating environment for many banks during 2009 as net interest margins fell and loan losses increased.  As the recession continued, bank failures increased from 25 in 2008 to 140 in 2009.  As of March 31, 2010, 41 banks have already been closed.

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Franklin Financial was not immune to this challenging environment but fared much better than many of its peers. Although the media has repeatedly reported that “banks have stopped lending”, we continued to support both consumers and businesses in our marketplace, registering exceptional growth in both loans and deposits during 2009.

Some key factors negatively impacting our financial performance in 2009 included:

· A 3.85% decrease in Net Interest Income on a fully tax equivalent basis (FTE) from $31,488,000 in 2008 to $30,277,000 in 2009.  Although growth in loan volume positively impacted FTE Net Interest Income, the Federal Reserve’s action to significantly lower short-term interest rates in December 2008, led to a repricing of loan yields which was not offset as quickly by the repricing of deposit costs.

· FDIC insurance premiums increased from $105,000 in 2008 to $1,397,000 in 2009 reflecting both a seven basis point increase in the deposit insurance assessment rate as well as a special assessment as of June 30, 2009.

· An increase in our Provision for Loan Losses from $1,193,000 in 2008 to $3,438,000 in 2009 as a result of continued loan growth as well as an increase in Net Charge-offs and Nonperforming Assets.

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· A $588,000 increase in Pension Expense relating to the low interest rate environment.

· Other Than Temporarily Impaired write-downs on financial services stocks in our investment portfolio in the amount of $422,000 and net losses on the sale of other securities totaling $522,000.

As a shareholder, you received a 1% increase in regular cash dividends from $1.07 in 2008 to $1.08 in 2009.  Our current annual dividend payout represents a 6.5% return based upon the closing price of Franklin Financial stock at March 31, 2010.  Regular cash dividends have grown at an average rate of 4.2% over the past five years.

The market value of a share of Franklin Financial stock decreased 10.5% from a closing price of $18.25 at year-end 2008 to $16.33 at December 31, 2009.  We are not optimistic that financial services stocks will show a significant recovery until investors again regain confidence in both the economic recovery as well as the future earnings capacity of our industry.

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Franklin Financial’s total assets reached $979,373,000 at December 31, 2009, representing an 8.5% increase over 2008.  Net loans grew by 9.2% on a year-over-year basis.  Average loan outstandings increased 14.5% in 2009.  Commercial loan demand remained strong resulting in $235,000,000 of closed loan transactions which increased the average loan outstandings in this portfolio by 26.7%.  Average consumer loan outstandings decreased 5.8% as consumers “pulled in their horns” and focused on reducing debt and increasing savings.  The lower interest rate environment did, however, create a “refi boom” in residential mortgage closings.  Closings in 2009 increased to $49,500,000 from $27,800,000 in 2008.  Average residential mortgage outstandings declined by 12.5% as we continue to hold fewer mortgage originations in our portfolio.

We experienced strong deposit growth in 2009 as consumers and businesses built liquidity and moved funds out of higher risk investments.  Total deposits and repurchase agreements as measured at year-end increased by 14.8% while average deposits and repurchase agreements increased 11.8%.  In addition to significant growth in Certificate of Deposit balances as a result of several successful promotions, average core deposits (i.e. checking, savings, and interest bearing checking) increased by 3.8%  while our Money Management Accounts increased by 3.4%.

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Our financial condition remains strong as evidenced by a Total Risk-Based Capital Ratio of 10.89% and a Leverage Capital Ratio of 7.50%.  These ratios remain above the levels that federal regulators require for an institution to be considered “well capitalized”.

Our Tangible Capital Ratio, was 7.47% at year-end.  This ratio has increasingly been the focus of both regulators and investors seeking to measure true capital adequacy.

Franklin Financial’s safety and soundness indicators continue to compare favorably to peers.  As a result of the continued loan growth as well as an increase in net charge-offs from .19% in 2008 to .26% in 2009 and an increase in Nonperforming Assets/Total Assets to 1.93%, we increased our Provision for Loan Losses by $2,245,000.  Accordingly, our Allowance for Loan Losses as a percentage of Total Loans increased from 1.09% at year-end 2008 to 1.21% at December 31, 2009.

The market value of assets under management by our Investment and Trust Services Department declined from $497,215,000 at year-end 2008 to $460,233,000 as of December 31, 2009, reflecting decreased market valuations.  Assets under management as reported does not include approximately $97,700,000 in assets held at third party brokers at December 31, 2009 compared to $72,100,000 at year-end 2008.  Investment and Trust Services fee income, including revenue generated through the Personal Investment Centers increased modestly from $3,500,000 in 2008 to $3,519,000 in 2009 again reflecting depressed market valuations through most of 2009.

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We continue to introduce products and services providing added convenience to our customers and prospective customers.  During the first quarter, we added the capability of accepting both residential mortgage and home equity loan applications online.  In addition to the ability to review our current interest rates and programs as well as to be notified electronically as interest rates change, the system features a “Check Status” feature enabling the applicant(s) to determine the status of an in process application and the capability of issuing a prequalification approval letter online.  The volume of on-line applications to date has consistently exceeded our expectations.

Our Investment and Trust Services Department introduced a new software system with the ability to create a truly comprehensive financial plan. The response from both existing and prospective customers has been very positive. Additionally, our tax preparation services were outsourced to FAST-TAX, which offers state of the art capabilities.

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In October, we converted to a new online bill pay solution which enabled us to increase the percentage of all bill pay transactions that are processed electronically from less than 20% to more than 70%.  Customers have the option to receive and pay their bills electronically.  We are delighted that our customers have embraced this new platform as utilization more than doubled during the first four months.

Our small business initiative continues to produce measurable results.  F&M Trust executed multi-year contracts to partner with the Small Business Development Centers (SBDCs) at Shippensburg University and St. Francis University to present educational programs and workshops for aspiring, as well as existing small business owners throughout our marketplace.  We will continue to be the exclusive sponsor of the “First Step” and “Business Planning” workshops conducted by the SBDCs.  F&M Trust’s Small Business Relationship Managers participate in each workshop, presenting a segment focused on financing options.  In addition to providing entrepreneurs with education, information, and tools to build and sustain successful businesses which will directly benefit our local economy, partnering with these SBDCs has provided F&M Trust with an opportunity to increase our penetration of the small business market.

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In the first quarter of 2010, we rolled out a Small Business Contact program targeted at specific businesses which will feature a DVD highlighting the Small Business Services of F&M Trust.  We are also evaluating opportunities to add a Small Business segment to the Money Clinic.  F&M Trust introduced the Money Clinic in 2008 to provide basic financial information and to increase the “money skills” and “Financial IQ” of customers and prospective customers.  The initial focus of the Money Clinic (www.mymoneyclinic.com) was toward Generation X and Generation Y consumers.  The information on the web site is general, and visitors can be directed to an F&M Trust professional about financial solutions for their specific situation.

Operational efficiency was greatly enhanced following the implementation of “branch capture.”  We added additional functionality to our check processing system by installing software that “reads” the hand written amounts on checks.  Currently, this system is able to “read” more than 80% of the items automatically.  We also deployed equipment in our community offices to electronically scan items such as deposits and loan payments taken over the teller line and transmit them to our check processing system.  This technology, which also supports Franklin Busine$$ e-deposit (remote deposit capture) for our business customers, has enabled us to standardize our daily cut-off times across all of our community offices and to avoid delays during inclement weather in transporting items to our check processing center.

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We also made an additional investment in upgrading our community office network during 2009.  The Carlisle Crossing Office was expanded to accommodate the growth of our Cumberland County Regional and Commercial Services staff.  In addition to completing a major renovation to our Philadelphia Avenue office started in the fourth quarter of 2008, both our St. Thomas and Shippensburg offices received upgrades.

Our ATM network will expand again in 2010 with new drive-up units at Ayr Town Center in McConnellsburg and in the Riverview Business Center in Mount Union.  Both locations, originally planned for 2009, will be operational by June 30th.  We have also commenced renovations to the former Community Trust office on Market Street in Camp Hill to add a drive-up and retail banking lobby.  In addition to Investment & Trust Services as well as consumer banking, we will also offer our small business and commercial banking products and services at this location.  This facility is scheduled to be operational in the third quarter.

Franklin Financial’s first quarter earnings, which were released this morning, reflect the current economic and regulatory environment.  Your company earned $1,974,000 in the first quarter of 2010, a 6% decrease from the $2,101,000 earned in 2009.  Diluted earnings per share were $0.51 in the first quarter of 2010 versus $0.55 per share last year.

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Although Net Interest Income increased by 5% compared with last year’s First Quarter, we did incur an 8% increase in Non-Interest Expense … primarily Salaries and Benefits, FDIC Insurance Premiums, and Legal Fees.

In light of the uncertain economic and regulatory environment, the Board of Directors of Franklin Financial determined that it would not be prudent to increase the dividend for the second quarter as has been our custom for many years.  Accordingly, on April 8th, the Board declared a $.27 per share regular quarterly dividend for the second quarter of 2010.

Total regular cash dividends paid during the first two quarters of 2010 will be $.54 per share.  The regular cash dividend for the second quarter will be paid on May 28th to shareholders of record at the close of business on May 7, 2010.

I anticipate that 2010 will be another challenging year for financial institutions.  In addition to continued high unemployment and related asset quality issues, as well as new regulations, the biggest uncertainty for F&M Trust and the financial services industry remains what actions the FDIC will take in order to maintain the solvency of the Deposit Insurance Fund as the pace of bank failures is anticipated to continue through at least 2011.  The FDIC’s action to require insured financial institutions to prepay insurance premiums for 2010, 2011, and 2012 as of December 30, 2009 added approximately $43 billion to the Deposit Insurance Fund.  However, the FDIC estimates that at least $100 billion will be required to handle projected bank failures in 2010 and 2011.  I anticipate that the FDIC’s loss estimate will continue to grow as we move through 2010.

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Your interest and support as Franklin Financial shareholders is sincerely appreciated.

Are there any questions from the floor?                              

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