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What changed in FRANKLIN FINANCIAL SERVICES CORP /PA/'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of FRANKLIN FINANCIAL SERVICES CORP /PA/'s 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+226 added−215 removedSource: 10-K (2025-03-14) vs 10-K (2024-03-11)

Top changes in FRANKLIN FINANCIAL SERVICES CORP /PA/'s 2024 10-K

226 paragraphs added · 215 removed · 187 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

44 edited+9 added−4 removed148 unchanged
Biggest changeBecause the Bank’s commercial loan portfolio is concentrated in south-central Pennsylvania, the ability to repay these loans could be affected by deterioration of the economy in this region. As commercial lending continues to be the primary driver of loan growth, these new loans may present additional risk due to a lack of repayment history with the Bank.
Biggest changeThe repayment of commercial loans is highly dependent upon the success of the business activity and as such maybe more susceptible to risk of loss during a downturn in the economy. Because the Bank’s commercial loan portfolio is concentrated in south-central Pennsylvania, the ability to repay these loans could be affected by deterioration of the economy in this region.
Additionally, the Bank Holding Company Act prohibits the Corporation from engaging in or from acquiring ownership or control of more than 5% of the outstanding shares of any 5 Table of Contents class of voting stock of any company engaged in a non - banking business, unless such business is determined by the Federal Reserve to be so closely related to banking as to be a proper incident thereto.
Additionally, the Bank Holding Company Act 5 Table of Contents prohibits the Corporation from engaging in or from acquiring ownership or control of more than 5% of the outstanding shares of any class of voting stock of any company engaged in a non - banking business, unless such business is determined by the Federal Reserve to be so closely related to banking as to be a proper incident thereto.
As of December 31, 2023, the Bank was “well capitalized’ under the Basel III requirements. For additional information on the capital ratios, see the section titled Shareholders’ Equity and Table 13. In 2019, the Community Bank Leverage Ratio (CBLR) was approved by federal banking agencies as an optional capital measure available to Qualifying Community Banking Organizations (QCBO).
As of December 31, 2024, the Bank was “well capitalized’ under the Basel III requirements. For additional information on the capital ratios, see the section titled Shareholders’ Equity and Table 13. In 2019, the Community Bank Leverage Ratio (CBLR) was approved by federal banking agencies as an optional capital measure available to Qualifying Community Banking Organizations (QCBO).
The FDIC charges a premium to depository institutions for deposit insurance. This rate is based on the risk category of the institution and the total premium is based on average total assets less average tangible equity. As of December 31, 2023, the Bank was considered well capitalized and its assessment rate was approximately 5.8 basis points of the assessment base.
The FDIC charges a premium to depository institutions for deposit insurance. This rate is based on the risk category of the institution and the total premium is based on average total assets less average tangible equity. As of December 31, 2024, the Bank was considered well capitalized and its assessment rate was approximately 5.8 basis points of the assessment base.
Financial institutions were directed to review the interagency guidance on “Concentrations in Commercial Real Estate Lending, Sound Risk Management Practices” issued in 2006 providing that a financial institution is potentially exposed to significant CRE concentration risk, and should employ enhanced risk management practices where (1) total non-owner occupied CRE loans represent 300% or more of total capital, and (2) the outstanding balance of the CRE loan portfolio has increased by 50% or more during the prior 36 months.
Financial institutions were directed to review the interagency guidance on “Concentrations in Commercial Real Estate Lending, Sound Risk Management Practices” issued in 2006 providing that a financial institution is potentially exposed to significant CRE concentration risk, and should employ enhanced risk management practices where (1) total non-owner occupied CRE loans, as defined by regulatory guidance, represent 300% or more of total capital, and (2) the outstanding balance of the CRE loan portfolio has increased by 50% or more during the prior 36 months.
Such a reclassification could be made if the regulatory agency determines that the institution is in an unsafe or unsound condition (which could include unsatisfactory examination ratings). At December 31, 2023, the Bank satisfied the criteria to be classified as "well capitalized" within the meaning of applicable regulations.
Such a reclassification could be made if the regulatory agency determines that the institution is in an unsafe or unsound condition (which could include unsatisfactory examination ratings). At December 31, 2024, the Bank satisfied the criteria to be classified as "well capitalized" within the meaning of applicable regulations.
In addition, the previously mentioned bank failures and instabilities and future bank failures and instabilities may result in an increase of FDIC deposit insurance premiums and/or result in special FDIC deposit insurance assessments, which also may adversely affect the Corporation’s financial condition, operations, results thereof or stock price. The Corporation cannot predict the impact, timing or duration of such events.
In addition, future bank failures and instabilities may result in an increase of FDIC deposit insurance premiums and/or result in special FDIC deposit insurance assessments, which also may adversely affect the Corporation’s financial condition, operations, results thereof or stock price. The Corporation cannot predict the impact, timing or duration of such events.
F&M Trust operates twenty-two community banking offices in Franklin, Cumberland, Fulton and Huntingdon Counties, Pennsylvania; and Washington County, Maryland. It also has a location in Dauphin County, PA that serves as a regional support center for Commercial, and Wealth Management services.
F&M Trust operates twenty-three community banking offices in Franklin, Cumberland, Dauphin, Fulton and Huntingdon Counties, Pennsylvania; and Washington County, Maryland. It also has a location in Dauphin County, PA that serves as a regional support center for Commercial, and Wealth Management services.
Although the Company’s common stock is quoted on the Nasdaq Capital Market, the volume of trades on any given day has been limited historically, as a result of which shareholders might not have been able to sell or purchase the Company’s common stock at the volume, price or time desired.
Although the Corporation’s common stock is quoted on the Nasdaq Capital Market, the volume of trades on any given day has been limited historically, as a result of which shareholders might not have been able to sell or purchase the Corporation’s common stock at the volume, price or time desired.
The Corporation’s common stock is listed under the symbol “FRAF” on the Nasdaq Capital Market. The Corporation’s internet address is www.franklinfin.com. Electronic copies of the Corporation’s 2023 Annual Report on Form 10-K are available free of charge by visiting the “Investor Information” section of www.franklinfin.com.
The Corporation’s common stock is listed under the symbol “FRAF” on the Nasdaq Capital Market. The Corporation’s internet address is www.franklinfin.com. Electronic copies of the Corporation’s 2024 Annual Report on Form 10-K are available free of charge by visiting the “Investor Information” section of www.franklinfin.com.
Dodd-Frank created a new, independent federal agency called the Consumer Financial Protection Bureau (CFPB), which is granted broad rulemaking, supervisory and enforcement powers under various federal consumer financial protection laws, including the Equal Credit Opportunity Act, Truth in Lending Act, Real Estate Settlement Procedures Act, Fair Credit Reporting Act, Fair Debt Collection Act, the Consumer Financial Privacy provisions of the Gramm-Leach-Bliley Act and certain other statutes.
Dodd-Frank created an independent federal agency called the Consumer Financial Protection Bureau (CFPB), which is granted broad rulemaking, supervisory and enforcement powers under various federal consumer financial protection laws, including the Equal Credit Opportunity Act, Truth in Lending Act, Real Estate Settlement Procedures Act, Fair Credit Reporting Act, Fair Debt Collection Act, the Consumer Financial Privacy provisions of the Gramm-Leach-Bliley Act and certain other statutes.
These risks include, but are not limited to, market risk and loss of confidence in the financial services sector, and/or specific banks; deterioration of securities and loan portfolios; deposit volatility and reductions with higher volumes and 12 Table of Contents occurring over shorter periods of time; increased liquidity demand and utilization of sources of liquidity; and interest rate volatility and abrupt, sudden and greater than usual rate changes.
These risks include, but are not limited to, market risk and loss of confidence in the financial services sector, and/or specific banks; deterioration of securities and loan portfolios; deposit volatility and reductions with higher volumes and occurring over shorter periods of time; increased liquidity demand and utilization of sources of liquidity; and interest rate volatility and abrupt, sudden and greater than usual rate changes.
We discuss these matters further in Part I Item 3 Legal Proceedings and in Note 21 Commitments and Contingencies in the Notes to Consolidated Financial Statements in Part II Item 8 of this Report. Public health crises such as epidemics or pandemics could materially and adversely impact our business .
We discuss these matters further in Part I Item 3 Legal Proceedings and in Note 21 Commitments and Contingencies in the Notes to Consolidated Financial Statements in Part II Item 8 of this Report. ‎ 11 Table of Contents Public health crises such as epidemics or pandemics could materially and adversely impact our business .
However, there can be no assurance that the Bank will be successful in 9 Table of Contents attracting or maintaining customers seeking larger loans or that it will be able to engage in participation of such loans or on terms favorable to the Bank. There is strong competition in the Bank’s primary market areas and its geographic diversification is limited.
However, there can be no assurance that the Bank will be successful in attracting or maintaining customers seeking larger loans or that it will be able to engage in participation of such loans or on terms favorable to the Bank. There is strong competition in the Bank’s primary market areas and its geographic diversification is limited.
On January 16, 1984, pursuant to a plan of reorganization approved by the shareholders of Farmers and Merchants Trust Company of Chambersburg (“F&M Trust” or “the Bank”) and the appropriate regulatory agencies, the Corporation acquired all the shares of F&M Trust and issued its own shares to former F&M Trust shareholders on a share-for-share basis.
On January 16, 1984, pursuant to a plan of reorganization approved by the shareholders of Farmers and Merchants Trust Company of Chambersburg (“F&M Trust” or “the Bank”) and the appropriate regulatory agencies, the Corporation exchanged all of the shares of F&M Trust and issued its own shares of the Corporation to former F&M Trust shareholders on a one share – for - one share basis.
Accordingly, the size of the loans that can be offered to customers is less than the size of loans that many of our competitors, with larger lending limits, can offer. This limit affects the Bank’s ability to seek relationships with larger businesses in its market area.
Accordingly, the size of the loans that can be offered to customers is less than the size of loans that many of our competitors, with larger lending limits, can offer. This limit affects 9 Table of Contents the Bank’s ability to seek relationships with larger businesses in its market area.
Commercial loans are a significant portion of our loan portfolio. The Bank continues to grow its commercial loan portfolio. Commercial purpose loans account for 82% ($1.026 billion) of the total loan portfolio. These loans are made to businesses for a variety of commercial purposes and may include fixed and variable rate loans, term loans, and lines of credit.
Commercial loans are a significant portion of our loan portfolio. The Bank continues to grow its commercial loan portfolio. Commercial purpose loans account for 79% ($1.111 billion) of the total loan portfolio. These loans are made to businesses for a variety of commercial purposes and may include fixed and variable rate loans, term loans, and lines of credit.
Supervision and Regulation Various requirements and restrictions under the laws of the United States and under Pennsylvania law affect the Corporation and its subsidiaries.
Supervision and Regulation Various requirements and restrictions under the laws of the United States and the Commonwealth of Pennsylvania affect the Corporation and its subsidiaries.
F&M Trust is the largest financial institution headquartered in Franklin County, PA and had total assets of approximately $1.8 billion on December 31, 2023. Human Capital Company Overview and Values. At F&M Trust, we recognize that our employees are fundamental to the realization of our vision and the execution of our ongoing strategy.
F&M Trust is the largest financial institution headquartered in Franklin County, PA and had total assets of approximately $2.2 billion on December 31, 2024. Human Capital Company Overview and Values. At F&M Trust, we recognize that our employees are fundamental to the realization of our vision and the execution of our ongoing strategy.
The capital conservation buffer is equal to the lowest value of the three applicable capital ratios less the regulatory minimum (“adequately capitalized”) for each respective capital measurement. The Bank’s capital conservation buffer at December 31, 2023 was 5.63%. Compliance with the capital conservation buffer is required in order to avoid limitations on certain capital distributions, especially dividends.
The capital conservation buffer is equal to the lowest value of the three applicable capital ratios less the regulatory minimum (“adequately capitalized”) for each respective capital measurement. The Bank’s capital conservation buffer at December 31, 2024 was 4.96%. Compliance with the capital conservation buffer is required in order to avoid limitations on certain capital distributions, especially dividends.
Dodd-Frank permits states to adopt consumer protection laws and standards that are more stringent than those adopted at the federal level and, in certain circumstances, permits state attorneys general to enforce compliance with both the state and federal laws and regulations. Most of the Dodd-Frank rules and regulations have been implemented.
Dodd-Frank permits states to adopt consumer protection laws and standards that are more stringent than those adopted at the federal level and, in certain circumstances, permits state attorneys general to enforce compliance with both the state and federal laws and regulations.
The Bank offers a variety of loan products, including residential mortgage, consumer, construction and commercial loans. The Bank requires real estate as collateral for many of its loans. At December 31, 2023, approximately 80 % ($1.008 billion) of its loans were secured by real estate.
The Bank offers a variety of loan products, including residential mortgage, consumer, construction and commercial loans. The Bank requires real estate as collateral for many of its loans. At December 31, 2024, approximately 83 % ($1.159 billion) of its loans were secured by real estate.
Through our unwavering commitment to our employees and our values, we are confident in our ability to sustain our independence as a community bank and continue delivering exceptional service and value to our customers, communities, and shareholders for years to come. 4 Table of Contents Diversity, Equity, and Inclusion (DEI).
Through our unwavering commitment to our employees and our values, we are confident in our ability to sustain our independence as a community bank and continue delivering exceptional service and value to our customers, communities, and shareholders for years to come. 4 Table of Contents Equal Employment Opportunity & Workplace Inclusion.
Thirty-seven percent ($572.1 million) of all deposits are in the Bank’s money management product. The interest rate on these deposits generally follows market rates. A large or continuous increase in market rates could result in a rapid increase in the interest expense of these deposits.
Thirty-eight percent ($694.9 million) of all deposits are in the Bank’s money management product. The interest rate on these deposits generally follows market rates. A large or continuous increase in market rates could result in a rapid increase in the interest expense of these deposits.
The agencies state in the CRE Statement that they will focus on those financial institutions that have recently experienced, or whose lending strategy plans for, substantial growth in CRE lending activity, or that operate in markets or loan segments with increasing growth or risk fundamentals. Pennsylvania Regulation and Supervision In December 2012, the “Banking Law Modernization Package” became effective.
The agencies state in the CRE Statement that they will focus on those financial institutions that have recently experienced, or whose lending strategy plans for, substantial growth in CRE lending activity, or that operate in markets or loan segments with increasing growth or risk fundamentals.
In 2023, F&M Trust donated over $480 thousand to 296 organizations in our communities and funded 323 scholarships for $156 thousand to kindergarten through 12th grade and Pre-kindergarten schools and organizations through the Pennsylvania Educational Improvement Tax Credit program. In addition, employees of the Bank provided 2,043 volunteer hours to 91 different service organizations.
In 2024, F&M Trust donated over $591 thousand to 325 organizations in our communities and funded 392 scholarships for $227 thousand to kindergarten through 12th grade and Pre-kindergarten schools and organizations through the Pennsylvania Educational Improvement Tax Credit program. In addition, employees of the Bank provided 2,132 volunteer hours to 90 different service organizations.
Excessive credit losses could have a material adverse effect on the Bank’s financial condition and results of operations. The Bank’s lending limit is smaller than many of our competitors, which affects the size of the loans it can offer customers . The Bank’s lending limit is approximately $47.0 million.
Excessive credit losses could have a material adverse effect on the Bank’s financial condition and results of operations. The Bank’s lending limit is smaller than many of our competitors, which affects the size of the loans it can offer customers . At December 31, 2024, the Bank’s in-house policy lending limit was $29.6 million.
An epidemic or pandemic (such as COVID-19) may cause prolonged global, national, or regional recessionary economic conditions or longer lasting effects on economic conditions than currently exist, which could have a material adverse effect on our business, results of operations and financial condition. 11 Table of Contents As a result, the demand for our products and services may be significantly impacted, which could adversely affect our revenue and results of operations.
An epidemic or pandemic (such as COVID-19) may cause prolonged global, national, or regional recessionary economic conditions or longer lasting effects on economic conditions than currently exist, which could have a material adverse effect on our business, results of operations and financial condition.
While the Corporation believes its business continuity plan and efforts to evaluate the business continuity plans of critical third-party service providers help mitigate risks, disruptions or failures affecting any of these systems may cause interruptions in service to customers, damage to the Corporation's reputation, and loss or liability to the Corporation.
While the Corporation believes its business continuity plan and efforts to evaluate the business continuity plans of critical third-party service providers help mitigate risks, disruptions or failures affecting any of these systems may cause interruptions in service to customers, damage to the Corporation's reputation, and loss or liability to the Corporation. ‎ 12 Table of Contents Negative developments affecting the banking industry, including bank failures or concerns regarding liquidity may have a material adverse effect on the Corporation.
There are 35 competing commercial banks that have offices within the Corporation’s primary market area. These banks range from large regional banks to independent community banks. In addition, credit unions, mortgage banks, brokerage firms and other on-line competitors compete within the market.
The competing banks in this market range from large regional banks to independent community banks. In addition, credit unions, mortgage banks, brokerage firms and other on-line competitors compete within the market.
These bank failures and bank instabilities and future bank failures and instabilities have created and may continue to create market and other risks, for all financial institutions and banks, including the Corporation.
In the recent past, the financial services industry has been impacted by bank failures and by financial instability at various banks. Bank failures and bank instabilities, and future bank failures and instabilities, have created and may continue to create market and other risks, for all financial institutions and banks, including the Corporation.
The Bank attempts to mitigate these risks through its underwriting and loan review process; however, this risk cannot be eliminated, and substantial credit losses could result in reduced earnings or losses.
As commercial lending continues to be the primary driver of loan growth, these new loans may present additional risk due to a lack of repayment history with the Bank. The Bank attempts to mitigate these risks through its underwriting and loan review process; however, this risk cannot be eliminated, and substantial credit losses could result in reduced earnings or losses.
Commercial purpose loans may be secured by real estate, business assets and equipment, personal guarantees, or non-real estate collateral. Commercial purpose loans secured by real estate were $782.9 million at December 31, 2023 and account for 76% of the total commercial loan portfolio. These loans contain all the risks associated with real estate lending as discussed above.
Commercial purpose loans may be secured by real estate, business assets and equipment, personal guarantees, or non-real estate collateral. Commercial purpose loans secured by real estate were $880.1 million at December 31, 2024 and account for 79% of the total commercial loan portfolio or 63% of the total portfolio of the Bank.
These new rules and regulations have and will continue to significantly change the current bank regulatory structure and affect the lending, deposit and operating activities of financial institutions, including the Corporation. It remains difficult to anticipate or predict the overall future financial impact the Dodd-Frank Act will have on the Corporation, our customers, our financial condition and results of operations.
The Dodd-Frank rules and regulations have and will continue to significantly change the current bank regulatory structure and affect the lending, deposit and operating activities of financial institutions, including the Corporation.
These numbers underscore the strong sense of loyalty and commitment among our employees. Community Involvement . The Bank’s commitment to community service reflects our core values. We aim to give back to the communities where we live and work and believe this commitment helps in our efforts to attract and retain employees.
We aim to give back to the communities where we live and work and believe this commitment helps in our efforts to attract and retain employees.
The survey assesses key engagement drivers, including Organization, Job & Career, Co-worker/Team, Leader, and Diversity, Equity, and Inclusion (DEI) engagement. Competitive Pay and Benefits. F&M Trust’s compensation program is designed to align the compensation of our employees with the Bank’s performance and to provide the proper incentives to attract, retain, and motivate employees to achieve the Bank’s strategic growth objectives.
F&M Trust’s compensation program is designed to align the compensation of our employees with the Bank’s performance and to provide the proper incentives to attract, retain, and motivate employees to achieve the Bank’s strategic growth objectives.
The Corporation continues to monitor and implement rules and regulations as they are adopted and modified, and to evaluate their application to our current and future operations. Community Reinvestment Act The Community Reinvestment Act (CRA) requires the Bank to help meet the credit needs of the entire community where the Bank operates, including low and moderate-income neighborhoods.
Community Reinvestment Act The Community Reinvestment Act (CRA) requires the Bank to help meet the credit needs of the entire community where the Bank operates, including low and moderate-income neighborhoods.
The following table shows the Bank’s market share where it operates retail banking offices as reported on the June 30, 2023 FDIC Summary of Deposits Report: (Dollars in thousands) F&M Trust County, State # of Locations Deposits Market Deposits Market Share Franklin, PA 13 $ 1,027,967 $ 2,731,797 37.63% Cumberland, PA 8 378,683 11,053,104 3.43% Fulton, PA 2 83,735 244,936 34.19% Huntingdon, PA 1 27,487 720,626 3.81% Washington, MD 1 6,153 3,272,678 0.19% 25 $ 1,524,025 $ 18,023,141 8.46% With increasing competition, many nonbanking institutions offer services similar to those offered by the Bank.
The following table shows the Bank’s market share where it operates deposit taking banking offices as reported on the June 30, 2024 FDIC Summary of Deposits Report: (Dollars in thousands) F&M Trust County, State # of Locations Deposits Market Deposits Market Share Franklin, PA 12 $ 1,075,350 $ 2,885,333 37.27% Cumberland, PA 6 382,645 11,173,591 3.42% Fulton, PA 2 92,139 209,514 43.98% Huntingdon, PA 1 27,374 727,198 3.76% Washington, MD 1 19,112 3,275,562 0.58% 22 $ 1,596,620 $ 18,271,198 8.74% With increasing competition, many nonbanking institutions offer services similar to those offered by the Bank.
To ensure a positive and productive working environment for all our employees, F&M Trust has a robust focus on employee engagement. Central to this initiative is our annual engagement survey conducted by an independent third party. In 2023, we achieved an outstanding survey response rate of 94%, marking the sixth consecutive year of best-in-class participation levels.
It reflects how willing employees are to go above and beyond, as well as their dedication to building a future with F&M Trust. A cornerstone of our engagement efforts is our annual employee engagement survey, conducted by an independent third party. In 2024, we achieved an outstanding 94% response rate, marking the seventh consecutive year of best-in-class participation.
At F&M Trust, we are deeply committed to fostering a workplace that values diversity, promotes equity, and embraces inclusion. We recognize that our success as an organization is intrinsically linked to the diverse perspectives, experiences, and talents of our employees.
At F&M Trust, we are deeply committed to fostering a workplace that upholds equal employment opportunity, promotes fairness, and cultivates an inclusive culture. Our success as an organization depends on the contributions of all employees, and we are dedicated to maintaining a work environment that is equitable, supportive, and welcoming to everyone.
In addition, commercial real estate collateral may be more difficult to liquidate for repayment purposes than residential real estate. The repayment of commercial loans is highly dependent upon the success of the business activity and as such maybe more susceptible to risk of loss during a downturn in the economy.
These loans contain all the risks associated with real estate lending as discussed above. In addition, commercial real estate collateral may be more difficult to liquidate for repayment purposes than residential real estate.
In the event that the Bank is unable to pay dividends to the Corporation, the Corporation may not be able to pay dividends to its shareholders. Item 1B. U nresolved Staff Comments None
In the event that the Bank is unable to pay dividends to the Corporation, the Corporation may not be able to pay dividends to its shareholders. Pennsylvania Business Corporation Law and various anti-takeover provisions under the Corporation’s articles of incorporation and bylaws could impede the takeover of the Corporation.
The Bank’s compensation philosophy is to provide pay opportunities at the median level of prevailing industry practices among community banking companies of similar asset size and market type. Employee Training and Development. To empower our employees to unleash their full potential, we offer a comprehensive range of training and development programs, opportunities, and resources tailored to their needs.
The Bank’s compensation philosophy is to provide pay opportunities at the median level of prevailing industry practices among community banking companies of similar asset size and market type. Retention. Monitoring employee turnover rates is crucial for us. Retaining our talented and committed personnel is essential for our continued success. In 2024, our total voluntary turnover rate was 10.10%.
Our wellness program boasts high levels of employee participation, with over 75% of our workforce completing health risk assessments and biometric screenings in 2023. Retention. Monitoring employee turnover rates is crucial for us, as we understand that retaining our talented and committed personnel is essential for our continued success. In 2023, our Total Voluntary Turnover rate was 12.77%.
Our wellness program boasts high levels of employee participation, with over 75% of our workforce completing health risk assessments and 72% completing biometric screenings in 2024. Competitive Pay and Benefits.
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Therefore, we are dedicated to continuously enhancing our DEI efforts to create a more vibrant, innovative, and equitable workplace for all. As of December 31, 2023, we had 306 employees in our workforce, nearly all of whom were full-time and of which the majority were women. Engagement.
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We uphold these principles in full compliance with all relevant laws and regulations. Engagement. We are dedicated to fostering a positive and productive work environment where employees feel valued, motivated, and connected to our organization. Employee engagement—defined as the enthusiasm and commitment individuals have toward their work and the company—is a key priority for us.
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The "Intent to Stay" metric from our most recent employee engagement survey indicated that 85% of our workforce plans to remain with the Bank for at least three years or more. Over 45% of our employees expressed their intention to stay with the Bank for more than ten years.
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Our overall engagement score reached 83%, highlighting our employees’ strong connection to F&M Trust and our shared commitment to success. Employee Training and Development. To empower our employees to unleash their full potential, we offer a comprehensive range of training and development programs, opportunities, and resources tailored to their needs.
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Negative developments affecting the banking industry, including bank failures or concerns regarding liquidity, have eroded customer confidence in the banking system and may have a material adverse effect on the Corporation.
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The long-term and short-term commitment metrics from our most recent employee engagement survey were measured higher than the financial services industry benchmarks, which underscores a strong sense of loyalty to the bank among our employees. Community Involvement . The Bank’s commitment to community service reflects our core values.
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In the recent past, the financial services industry has been impacted by bank failures (Silicon Valley Bank, Signature Bank, and First Republic Bank) and by financial instability at various additional banks.
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It remains difficult to anticipate or predict the overall future and long-term financial impact the Dodd-Frank Act will have on the Corporation, our customers, our financial condition and results of operations. The Corporation continues to monitor and implement rules and regulations as they are adopted and modified, and to evaluate their application to our current and future operations.
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As of December 31, 2024, the Bank’s non-owner occupied CRE loans were 343% of total capital. Pennsylvania Regulation and Supervision In December 2012, the “Banking Law Modernization Package” became effective.
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As a result, the demand for our products and services may be significantly impacted, which could adversely affect our revenue and results of operations.
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Various Pennsylvania laws affecting business corporations may have the effect of discouraging offers to acquire the Corporation, even if the acquisition would be advantageous to stockholders.
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In addition, the Corporation has various anti-takeover measures in place under its articles of incorporation and bylaws, including a supermajority vote requirement for mergers, a staggered Board of Directors, and the absence of cumulative voting.
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Any one or more of these measures may impede the takeover of the Corporation without the approval of the Board of Directors and may prevent stockholders from taking part in a transaction in which they could realize a premium over the current market price of the Corporation common stock. 13 Table of Contents Item 1B. U nresolved Staff Comments None

Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

4 edited+12 added−2 removed2 unchanged
Biggest changeThe Board Enterprise Risk Management Committee is responsible for oversight of the Corporation’s cybersecurity and information security program and regularly reviews and evaluates information security and cybersecurity risks provided by management. To date, risks from cybersecurity threats or incidents have not materially affected the Corporation.
Biggest changeAlong with the CTO and CRO, the Executive Enterprise Risk Management Committee (EERM)and the Board Enterprise Risk Management Committee (BERM) are responsible for oversight of the Corporation’s cybersecurity and information security program and regularly reviews and evaluates information security and cybersecurity risks provided by management.
The Corporation conducts periodic testing of software, hardware, defensive capabilities, and other information security systems utilizing both internal processes and third-party consultants. Testing procedures are supplemented by regular cyber threat exercises and employee training.
The Corporation conducts periodic testing of software, hardware, defensive capabilities, and other information security systems utilizing both internal processes and third-party consultants. Testing procedures are supplemented by regular cyber threat exercises and employee training. Threat simulation exercises are used to develop and refine the Corporation’s incident response plans.
The Corporation assesses vendor risk as a part of its vendor management process, which requires a pre-acquisition diligence review, including the review of the vendor’s information security policy for all vendors determined to be a “critical vendor”.
The Corporation also addresses cyber risks posed by its relationships with third-party vendors. The Corporation assesses vendor risk as a part of its vendor management process, which requires a pre-acquisition diligence review, including the review of the vendor’s information security policy for all vendors determined to be a “critical vendor”.
The vendor management process also requires a review of all critical vendors annually and all critical vendors are reported to the Board of Directors. The Corporation’s information security program is led by the Chief Technology Officer in conjunction with the Chief Risk Office and the Executive Enterprise Risk Management Committee.
The vendor management process also requires a review of all critical vendors annually and all critical vendors are reported to the Board of Directors. An incident response plan is in place to ensure swift and effective action in the event of a cybersecurity incident.
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Item 1C. Cybersecurity The Corporation has developed an information security program to assess, identify, and monitor cybersecurity risks. The Corporation regularly assesses cybersecurity risks arising from the operating environment and attempts to identify the likelihood and severity of the risk and the possible impact of the risk on the Corporation, its customers, and employees.
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Item 1C. Cybersecurity The Corporation is exposed to a variety of cybersecurity risks that could adversely affect our operations, reputation, and financial results. Cybersecurity incidents, including data breaches, denial of service attacks, malware, ransomware, phishing, and other intrusions, could compromise the confidentiality, integrity, or availability of sensitive information and disrupt our systems.
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Threat simulation exercises are used to develop and refine the Corporation’s incident response plans and employees undergo cybersecurity awareness training on a regular basis. 13 Table of Contents The Corporation also addresses cyber risks posed by its relationships with third-party vendors.
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Such incidents could result in unauthorized access to customer or employee information, financial losses, regulatory penalties, and litigation. Our dependence on technology to deliver banking services and manage our operations increases the potential impact of cybersecurity risks.
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The Corporation has developed an information security program to protect the confidentiality, integrity, and availability of our data, information systems, and digital assets from disruption, breach, or theft. As a financial institution we store and protect nonpublic data related to customers, employees, and business operations. Securing this data at all times is critical to our business.
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The Corporation’s information security program was developed to assess, identify, and monitor cybersecurity risks. The cybersecurity framework utilized by the Corporation is based on recommendations from the National Institute of Standards and Technology (NIST), ISO/IEC 27001 & 27002, Federal Financial Institutions Examination Council (FFIEC), industry standards and best practices, and other applicable regulatory guidance.
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We maintain robust cybersecurity policies and procedures identify risks and mitigate where feasible. Policies and procedures address; vendor management and third-party risk, incident response, disaster recovery and business continuity, electronic banking, data classification and retention.
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The Corporation’s information security program is led by the Chief Technology Officer (CTO) in conjunction with the Chief Risk Officer (CRO) having over 50 years of combined experience in financial services risk management, and information security. Their experience includes incident response, vendor management, disaster recovery and business continuity, breach mitigation as well as relevant professional certification.
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Key risk indicators (KRIs) are regularly reported to the EERM Committee and BERM for review on a quarterly basis or as needed. The CRO provides updates to the Board of Directors multiple times a year and as needed. This includes facilitating training for the Board on cybersecurity risks and threats.
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The Board of Directors is also responsible for reviewing and approval policies critical to the information security program annually. All employees participate in annual cybersecurity training courses conducted by the Training department with oversight from the CTO. Additional training exercises are administered throughout the year to increase cybersecurity awareness and address relevant risks.
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A defense-in-depth strategy is utilized to provide various layers of defense to identify and protect against risks to the Corporations network and computer systems. We utilize industry standards such as but not limited to; advanced firewall, content filtering, email gateway protections, endpoint detection and response software, and data loss prevention software.
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Access to systems is granted on an as needed basis as it relates to the job functions of an individual. All access changes must be requested based on job function and approved by the appropriate departments. Changes are reviewed monthly, and all access rights to all significant systems are reviewed and verified annually.
Added
The plan defines the Incident Response Team (IRT) which includes representatives from executive management, critical business lines, and communications. The plan outlines responsibilities of the IRT to meet in the event of an incident and ensure proper containment, investigation and forensic analysis, recovery procedures, and notifications are made within the parameters of all applicable laws and regulations.
Added
The IRT participate in testing of the plan at least annually through simulated cyberattack exercises. The Board of Directors reviews and approves the plan annually. 14 Table of Contents To date, risks from cybersecurity threats or incidents have not materially affected the Corporation .

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeThe Corporation owns or leases thirty-five properties in Franklin, Cumberland, Dauphin, Fulton and Huntingdon Counties, Pennsylvania; and Washington County, Maryland, for banking operations, as described below: Property Owned Leased Facilities used in Banking Operations 16 11 Remote ATM Sites 3 5 The Bank’s properties are adequate for the purposes intended.
Biggest changeThe Corporation owns or leases thirty-five properties in Franklin, Cumberland, Dauphin, Fulton and Huntingdon Counties, Pennsylvania; and Washington County, Maryland, for banking operations, as described below: Property Owned Leased Facilities used in Banking Operations 17 10 Remote ATM Sites 3 5 The Bank’s properties are adequate for the purposes intended.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeThus, at December 31, 2023, 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.
Biggest changeThus, at December 31, 2024, 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.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeItem 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities Market and Dividend Information The Corporation had 1 ,536 shareholders of record as of December 31, 2023.
Biggest changeItem 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities Market and Shareholder Information The Corporation’s common stock trades on the Nasdaq Capital Market under the system FRAF. The Corporation had 1 ,493 shareholders of record as of December 31, 2024.
Only shareholders will be granted access to the meeting as described in the Franklin Financial Services Corporation 2024 Proxy Statement. Websites: Franklin Financial Services Corporation: www.franklinfin.com Farmers & Merchants Trust Company: www.fmtrust.bank Stock Information: The Corporation’s common stock is traded on the Nasdaq Capital Market under the symbol “FRAF”.
Only shareholders will be granted access to the meeting as described in the Franklin Financial Services Corporation 2025 Proxy Statement. Websites: Franklin Financial Services Corporation: www.franklinfin.com Farmers & Merchants Trust Company: www.fmtrust.bank Stock Information: The Corporation’s common stock is traded on the Nasdaq Capital Market under the symbol “FRAF”.
Securities Authorized for Issuance under Equity Compensation Plans The information related to equity compensation plans is incorporated by reference to the materials set forth under the heading “Executive Compensation – Compensation Tables” in the Corporation’s Proxy Statement for the 2024 Annual Meeting of Shareholders.
Securities Authorized for Issuance under Equity Compensation Plans The information related to equity compensation plans is incorporated by reference to the materials set forth under the heading “Executive Compensation – Compensation Tables” in the Corporation’s Proxy Statement for the 2025 Annual Meeting of Shareholders.
Performance Graph The following graph compares the cumulative total return to shareholders of Franklin Financial with selected market indices and a bank peer group, consisting of Mid-Atlantic Banks with assets between $1 billion - $2 billion as of September 30, 2023; for the five-year period ended December 31, 2023, in each case assuming an initial investment of $100 on December 31, 2018 and the reinvestment of all dividends.
Performance Graph The following graph compares the cumulative total return to shareholders of Franklin Financial with selected market indices and a bank peer group, consisting of Mid-Atlantic Banks with assets between $1.5 billion - $2.5 billion as of September 30, 2024; for the five-year period ended December 31, 2024, in each case assuming an initial investment of $100 on December 31, 2019 and the reinvestment of all dividends.
Information concerning this optional program is available by contacting the Corporate Secretary at 717-264-611, or: Corporate Secretary 1500 Nitterhouse Drive, P.O. Box 6010 Chambersburg, PA 17201-6010 Annual Meeting: The Annual Meeting of the shareholders of Franklin Financial Services Corporation will be held Tuesday, April 23, 2024 at 9:00 a.m. in a virtual meeting format only.
Information concerning this optional program is available by contacting the Corporate Secretary at 717-264-6116, or: Corporate Secretary 1500 Nitterhouse Drive, P.O. Box 6010 Chambersburg, PA 17201-6010 Annual Meeting: The Annual Meeting of the shareholders of Franklin Financial Services Corporation will be held Tuesday, April 29, 2025 at 9:00 a.m. in a virtual meeting format only.
BMI Banks - Mid-Atlantic Region Index $ 100.00 $ 142.19 $ 128.53 $ 162.33 $ 137.10 $ 166.23 Peer Group* $ 100.00 $ 112.40 $ 90.80 $ 116.46 $ 121.78 $ 120.76 *Peer Group consists of Mid Atlantic Banks with Assets between $1B-$2B as of 12/31/2023 ‎ 16 Table of Contents Shareholders’ Information Dividend Reinvestment Plan: Franklin Financial Services Corporation offers a dividend reinvestment program whereby shareholders of the Corporation’s common stock may reinvest their dividend, or make optional cash payment, to purchase additional shares of the Corporation.
BMI Banks - Mid-Atlantic Region Index $ 100.00 $ 90.39 $ 114.16 $ 96.42 $ 116.90 $ 162.46 Peer Group* $ 100.00 $ 79.67 $ 102.20 $ 109.72 $ 110.45 $ 129.69 *Peer Group consists of Mid Atlantic Banks with Assets between $1.5B-$2.5B as of 9/30/2024 ‎ 17 Table of Contents Shareholders’ Information Dividend Reinvestment Plan: Franklin Financial Services Corporation offers a dividend reinvestment program whereby shareholders of the Corporation’s common stock may reinvest their dividend, or make optional cash payment, to purchase additional shares of the Corporation.
Information is provided by S&P Global Market Intelligence. 15 Table of Contents Period Ending Index 12/31/18 12/31/19 12/31/20 12/31/21 12/31/22 12/31/23 Franklin Financial Services Corporation $ 100.00 $ 126.80 $ 92.45 $ 117.89 $ 133.80 $ 122.03 NASDAQ Composite $ 100.00 $ 136.69 $ 198.10 $ 242.03 $ 163.28 $ 236.17 S&P U.S.
Information is provided by S&P Global Market Intelligence. 16 Table of Contents Period Ending Index 12/31/19 12/31/20 12/31/21 12/31/22 12/31/23 12/31/24 Franklin Financial Services Corporation $ 100.00 $ 72.91 $ 92.97 $ 105.52 $ 96.24 $ 94.90 NASDAQ Composite Index $ 100.00 $ 144.92 $ 177.06 $ 119.45 $ 172.77 $ 223.87 S&P U.S.
There were no shares purchased during the fourth quarter of 2023. In December 2023, an open market repurchase plan was approved to repurchase 150,000 shares over a one-year period.
In January 2025, an open market repurchase plan was approved to repurchase 150,000 shares through December 31, 2025.
Added
The following table shows stock repurchase activity under approved plans: Period Number of Shares Purchased as Part of Publicly Announced Program Weighted Average Price Paid per Share Dollar Amount of Shares Purchased as Part of Publicly Announced Program Maximum Number of Shares Yet To Be Purchased Under Program October 2024 4,441 $ 30.05 $ 133,446 125,480 November 2024 — $ — $ — 125,480 December 2024 — $ — $ — 125,480 4,441 $ 133,446 The shares reported above were part of a repurchase plan that expired on December 31, 2024.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeAnalysis of Net Interest Income 2023 2022 Average Income or Average Average Income or Average (Dollars in thousands) balance expense yield/rate balance expense yield/rate Interest-earning assets: Interest-earning deposits in other banks $ 50,451 $ 2,407 4.77% $ 159,610 $ 2,483 1.56% Investment securities: Taxable 406,937 14,846 3.65% 424,703 9,975 2.35% Tax exempt 54,416 1,523 2.80% 85,566 2,593 3.03% Investment securities 461,353 16,369 3.55% 510,269 12,568 2.46% Loans: Residential real estate 1-4 family: First liens 173,986 7,912 4.55% 139,577 5,629 4.03% Junior liens and lines of credit 72,623 4,050 5.58% 73,200 2,378 3.25% Residential real estate - construction 21,124 1,303 6.17% 21,737 1,013 4.66% Commercial real estate 626,817 33,204 5.30% 550,772 23,802 4.32% Commercial 243,045 12,080 4.97% 241,395 9,532 3.95% Consumer 6,285 531 8.45% 5,938 425 7.16% Loans 1,143,880 59,080 5.16% 1,032,619 42,779 4.14% Total interest-earning assets 1,655,684 $ 77,856 4.70% 1,702,499 $ 57,830 3.40% Other assets 95,489 87,300 Total assets $ 1,751,173 $ 1,789,799 Interest-bearing liabilities: Deposits: Interest checking $ 459,447 $ 2,078 0.45% $ 543,553 $ 879 0.16% Money Management 568,521 13,801 2.43% 588,728 2,542 0.43% Savings 117,026 183 0.16% 128,203 101 0.08% Time 91,512 2,781 3.04% 64,273 294 0.46% Total interest-bearing deposits 1,236,506 18,843 1.52% 1,324,757 3,816 0.29% Subordinate notes 19,642 1,051 5.35% 19,605 1,047 5.34% Federal Reserve Bank borrowings 53,041 2,374 4.48% — — 0.00% Federal Home Loan Bank advances 14,704 857 5.83% — — 0.00% Total interest-bearing liabilities 1,323,893 23,125 1.75% 1,344,362 4,863 0.36% Noninterest-bearing deposits 293,001 306,102 Other liabilities 14,871 11,052 Shareholders' equity 119,408 128,283 Total liabilities and shareholders' equity $ 1,751,173 $ 1,789,799 T/E net interest income/Net interest margin 54,731 3.31% 52,967 3.11% Tax equivalent adjustment (1,094) (1,381) Net interest income $ 53,637 $ 51,586 Net Interest Spread 2.95% 3.04% Cost of Funds 1.43% 0.29% Cost of Deposits 1.23% 0.23% Provision for Credit Losses In 2023, the Bank recorded gross loan charge-offs of $422 thousand, which were partially offset by $246 thousand of recoveries, resulting in net loan charge-offs of $176 thousand.
Biggest changeAnalysis of Net Interest Income 2024 2023 Average Income or Average Average Income or Average (Dollars in thousands) balance expense yield/rate balance expense yield/rate Interest-earning assets: Interest-earning deposits in other banks $ 176,041 $ 9,237 5.25% $ 50,451 $ 2,407 4.77% Investment securities: Taxable 432,684 17,127 3.96% 406,937 14,846 3.65% Tax exempt 50,868 1,322 2.60% 54,416 1,523 2.80% Investment securities 483,552 18,449 3.82% 461,353 16,369 3.55% Loans: Residential real estate 1-4 family: First liens 222,572 11,442 5.14% 173,986 7,912 4.55% Junior liens and lines of credit 76,515 4,635 6.06% 72,623 4,050 5.58% Residential real estate - construction 28,096 1,954 6.95% 21,124 1,303 6.17% Commercial real estate 747,037 42,975 5.75% 626,817 33,204 5.30% Commercial 241,554 13,052 5.40% 243,045 12,080 4.97% Consumer 7,322 645 8.81% 6,285 531 8.45% Loans 1,323,096 74,703 5.65% 1,143,880 59,080 5.16% Total interest-earning assets 1,982,689 $ 102,389 5.16% 1,655,684 $ 77,856 4.70% Other assets 91,137 95,489 Total assets $ 2,073,826 $ 1,751,173 Interest-bearing liabilities: Deposits: Interest checking $ 416,770 $ 2,632 0.63% $ 459,447 $ 2,078 0.45% Money Management 627,163 18,782 2.99% 568,521 13,801 2.43% Savings 101,335 173 0.17% 117,026 183 0.16% Time 177,281 7,615 4.30% 84,428 2,415 2.86% Brokered 33,183 1,704 5.14% 7,084 366 5.17% Total interest-bearing deposits 1,355,732 30,906 2.28% 1,236,506 18,843 1.52% Subordinate notes 19,680 1,050 5.34% 19,642 1,051 5.35% Federal Reserve Bank borrowings 41,667 1,962 4.71% 53,041 2,374 4.48% Federal Home Loan Bank advances 219,883 10,019 4.56% 14,704 857 5.83% Total interest-bearing liabilities 1,636,962 43,937 2.68% 1,323,893 23,125 1.75% Noninterest-bearing deposits 282,460 293,001 Other liabilities 16,564 14,871 Shareholders' equity 137,840 119,408 Total liabilities and shareholders' equity $ 2,073,826 $ 1,751,173 T/E net interest income/Net interest margin 58,452 2.95% 54,731 3.31% Tax equivalent adjustment (938) (1,094) Net interest income $ 57,514 $ 53,637 Net Interest Spread 2.48% 2.95% Cost of Funds 2.29% 1.43% Cost of Deposits 1.89% 1.23% Provision for Credit Losses In 2024, the Bank recorded gross loan charge-offs of $560 thousand, which were partially offset by $186 thousand of recoveries, resulting in net loan charge-offs of $374 thousand.
Maturity Distribution of Investment Portfolio After one year After five years After ten One year or less through five years through ten years years Total Fair Fair Fair Fair Fair (Dollars in thousands) Value Yield Value Yield Value Yield Value Yield Value Yield Available for Sale U.S.
Maturity Distribution of Investment Portfolio One year or less After one year through five years After five years through ten years After ten years Total Fair Fair Fair Fair Fair (Dollars in thousands) Value Yield Value Yield Value Yield Value Yield Value Yield Available for Sale U.S.
The Corporation paid an issuance fee of 2% of the total issue is being amortized to the maturity date of each issue on a pro-rata basis. The notes are recorded on the consolidated balance sheet net of unamortized debt issuance costs. The proceeds are intended to be used for general corporate purposes.
The Corporation paid an issuance fee of 2% of the total issue and is being amortized to the maturity date of each issue on a pro-rata basis. The notes are recorded on the consolidated balance sheet net of unamortized debt issuance costs. The proceeds are intended to be used for general corporate purposes.
These assumptions may include, but are not limited to: macroeconomic factors, banking industry conditions, banking merger and acquisition trends, the Bank’s historical financial performance, the Corporation’s stock price, forecast Bank financial performance, and change of control premiums. Management determined the Bank’s goodwill was likely not impaired in 2023 and did not make a further assessment.
These assumptions may include, but are not limited to: macroeconomic factors, banking industry conditions, banking merger and acquisition trends, the Bank’s historical financial performance, the Corporation’s stock price, forecast Bank financial performance, and change of control premiums. Management determined the Bank’s goodwill was likely not impaired in 2024 and did not make a further assessment.
Goodwill is not amortized, nor deductible for tax purposes. However, goodwill is tested for impairment at least annually in accordance with ASC Topic 350. Goodwill was tested for impairment as of August 31, 2023. The 2023 test was conducted using a qualitative assessment method that requires the use of significant assumptions in order to make a determination of impairment.
Goodwill is not amortized, nor deductible for tax purposes. However, goodwill is tested for impairment at least annually in accordance with ASC Topic 350. Goodwill was tested for impairment as of August 31, 2024. The 2024 test was conducted using a qualitative assessment method that requires the use of significant assumptions in order to make a determination of impairment.
The Bank meets the criteria of a QCBO but did not opt-in to the CBLR. The consolidated asset limit on small bank holding companies is $3 billion and a company with assets under that limit is not subject to the consolidated capital rules but may file reports that include capital amounts and ratios.
The Bank met the criteria of a QCBO but did not opt-in to the CBLR. The consolidated asset limit on small bank holding companies is $3 billion and a company with assets under that limit is not subject to the consolidated capital rules but may file reports that include capital amounts and ratios.
Local Economy The Corporation’s primary market area includes Franklin, Fulton, Cumberland, Huntingdon, and Dauphin County, PA, and Washington County, MD. This area is diverse in demographic and economic composition. County populations range from a low of approximately 15,000 in Fulton County to over 280,000 in Dauphin County.
Local Economy The Corporation’s primary market area includes Franklin, Fulton, Cumberland, Huntingdon, and Dauphin County, PA, and Washington County, MD. This area is diverse in demographic and economic composition. County populations range from a low of approximately 15,000 in Fulton County to over 289,000 in Dauphin County.
The largest dollar exposures are in the states of Texas (15%), California (13%) and Pennsylvania (12%). When purchasing municipal bonds, the Bank looks primarily to the underlying credit of the issuer as a sign of credit quality and then to any credit enhancement. The entire portfolio is rated “A” or higher by a nationally recognized statistical rating organization.
The largest dollar exposures are in the states of Texas (16%), California (13%) and Pennsylvania (13%). When purchasing municipal bonds, the Bank looks primarily to the underlying credit of the issuer as a sign of credit quality and then to any credit enhancement. The entire portfolio is rated “A” or higher by a nationally recognized statistical rating organization.
Impairment : For securities with an unrealized loss, the Bank considers: (1) the extent to which the fair value is less than amortized cost; (2) adverse conditions specifically related to the security, industry or geographic area; (3) the payment structure of the debt security and the likelihood of the issuer being able to make payments that increase in the future; (4) failure of the issuer of the security to make scheduled interest or principal payments; and (5) any changes to the rating of the security by a rating agency.
Allowance for Credit Losses : For securities with an unrealized loss, the Bank considers: (1) the extent to which the fair value is less than amortized cost; (2) adverse conditions specifically related to the security, industry or geographic area; (3) the payment structure of the debt security and the likelihood of the issuer being able to make payments that increase in the future; (4) failure of the issuer of the security to make scheduled interest or principal payments; and (5) any changes to the rating of the security by a rating agency.
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 represent some of the factors used in determining the risk rating of a borrower: cash flow, debt coverage, liquidity, management, and 30 Table of Contents collateral.
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 represent some of the factors used in determining the risk rating of a borrower: cash flow, debt coverage, liquidity, management, and collateral.
For more information, refer to the Loan Quality discussion and Table 10. 24 Table of Contents Noninterest Income The following table presents a comparison of noninterest income for the years ended December 31, 2023 and 2022: Table 4.
For more information, refer to the Loan Quality discussion and Table 10. 24 Table of Contents Noninterest Income The following table presents a comparison of noninterest income for the years ended December 31, 2024 and 2023: Table 4.
The Corporation’s 2023 and 2022 effective tax rate was lower than its statutory rate due to the effect of tax-exempt income from certain investment securities, loans, and bank owned life insurance.
The Corporation’s 2024 and 2023 effective tax rate was lower than its statutory rate due to the effect of tax-exempt income from certain investment securities, loans, and bank owned life insurance.
Numerous and simultaneous balance and rate changes occur during the year. The amount of change that is not due solely to volume or rate is allocated proportionally to both. 22 Table of Contents Table 2.
Numerous and simultaneous balance and rate changes occur during the year. The amount of change that is not due solely to volume or rate is allocated proportionally to both. Table 2.
It is the Bank’s policy to evaluate the probable collectability of principal and interest due under terms of loan contracts for all loans 90-days or more, nonaccrual loans, or impaired loans. Further, it is the Bank’s policy to discontinue accruing interest on loans that are not adequately secured and in the process of collection.
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 31 Table of Contents more, nonaccrual loans, or impaired loans. Further, it is the Bank’s policy to discontinue accruing interest on loans that are not adequately secured and in the process of collection.
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 36 Table of Contents Bank’s primary market area continues to be well suited for growth.
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 Corporation is continually exploring other sources of capital as part of its capital management plan for the Corporation and the Bank. 35 Table of Contents Common measures of adequate capitalization for banking institutions are capital ratios. These ratios indicate the proportion of permanently committed funds to the total asset base.
The Corporation is continually exploring other sources of capital as part of its capital management plan for the Corporation and the Bank. Common measures of adequate capitalization for banking institutions are capital ratios. These ratios indicate the proportion of permanently committed funds to the total asset base.
At December 31, 2023, Management subsequently considered certain qualitative factors affecting the Corporation and determined that it was not likely that the results of the prior test had changed, and it determined that goodwill was not impaired at year-end. 33 Table of Contents Deposits: The Bank depends on deposits generated in the normal course of business as its primary source of funds.
At December 31, 2024, Management subsequently considered certain qualitative factors affecting the Corporation and determined that it was not likely that the results of the prior test had changed, and it determined that goodwill was not impaired at year-end. 34 Table of Contents Deposits: The Bank depends on deposits generated in the normal course of business as its primary source of funds.
The 2022 impairment test was also conducted using a qualitative assessment and Management determined the Bank’s goodwill was likely not impaired in 2022 and did not make a further assessment.
The 2023 impairment test was also conducted using a qualitative assessment and Management determined the Bank’s goodwill was likely not impaired in 2023 and did not make a further assessment.
Watch list loans exhibit financial weaknesses that increase the potential risk of default or loss to the Bank. However, inclusion on the watch list, does not by itself, mean a loss is certain. The watch list includes both performing and nonperforming loans. Watch list loans totaled $17.2 million at year-end compared to $11.6 million one year earlier.
Watch list loans exhibit financial weaknesses that increase the potential risk of default or loss to the Bank. However, inclusion on the watch list, does not by itself, mean a loss is certain. The watch list includes both performing and nonperforming loans. Watch list loans totaled $21.5 million at year-end compared to $17.2 million one year earlier.
These policies are particularly sensitive requiring significant judgments, estimates and assumptions to be made by Management. Senior management has discussed the development of such estimates, and related Management Discussion and Analysis disclosure, with the Audit Committee of the Board of Directors.
These policies are particularly sensitive requiring significant judgments, estimates and assumptions to be made by Management. 20 Table of Contents Senior management has discussed the development of such estimates, and related Management Discussion and Analysis disclosure, with the Audit Committee of the Board of Directors.
This total was comprised of $1.0 million from the reinvestment of quarterly dividends and $312 thousand of optional cash purchases.
This total was comprised of $1.0 million from the reinvestment of quarterly dividends and $730 thousand of optional cash purchases.
The Bank’s municipal bond portfolio is well diversified geographically and is comprised of both tax-exempt (35% of the portfolio) and taxable (65% of the portfolio) municipal bonds. Sixty-nine percent of the portfolio are general obligation bonds and thirty-two percent are revenue bonds. The portfolio holds bonds from 154 issuers within 34 states.
The Bank’s municipal bond portfolio is well diversified geographically and is comprised of both tax-exempt (35% of the portfolio) and taxable (65% of the portfolio) municipal bonds. Sixty-eight percent of the portfolio are general obligation bonds and thirty-two percent are revenue bonds. The portfolio holds bonds from 151 issuers within 34 states.
Included in the watch list are $147 thousand of nonaccrual loans at year-end 2023, compared to $120 thousand at year-end 2022. The composition of the watch list (loans rated 6, 7 or 8), by primary collateral, is shown in Note 6 of the accompanying financial statements.
Included in the watch list are $266 thousand of nonaccrual loans at year-end 2024, compared to $147 thousand at year-end 2023. The composition of the watch list (loans rated 6, 7 or 8), by primary collateral, is shown in Note 6 of the accompanying financial statements.
Investment Securities at Amortized Cost and Estimated Fair Value 2023 2022 Amortized Fair Amortized Fair (Dollars in thousands) Cost value Cost value U.S.
Investment Securities at Amortized Cost and Estimated Fair Value 2024 2023 Amortized Fair Amortized Fair (Dollars in thousands) Cost value Cost value U.S.
The ACL is increased or decreased through the provision for credit losses. 32 Table of Contents The following table shows the allocation of the allowance for loan losses and other loan performance ratios, by class, as of December 31, 2023 and 2022: Table 10.
The ACL is increased or decreased through the provision for credit losses. 33 Table of Contents The following table shows the allocation of the allowance for credit losses and other loan performance ratios, by class, as of December 31, 2024 and 2023: Table 10.
The following inputs are used to calculate the quantitative component for the loan pool: Segregating loans into homogeneous pools by the FRB Call Code which is primarily a collateral-based and secondarily a purpose-based segmentation. The average remaining life of each pool is calculated using the weighted average remaining maturity method (WARM).
The pooled reserve is calculated using a quantitative and qualitative component for the loan pools. ‎ 32 Table of Contents The following inputs are used to calculate the quantitative component for the loan pool: Segregating loans into homogeneous pools by the FRB Call Code which is primarily a collateral-based and secondarily a purpose-based segmentation. The average remaining life of each pool is calculated using the weighted average remaining maturity method (WARM).
All investment securities are classified as available for sale; therefore, marketable securities that are unencumbered as collateral for borrowings are an additional source of 37 Table of Contents readily available liquidity (approximately $164.8 million fair value), either by selling the security or, more preferably, to provide collateral for additional borrowing.
All investment securities are classified as 38 Table of Contents available for sale; therefore, marketable securities that are unencumbered as collateral for borrowings are an additional source of readily available liquidity (approximately $301.4 million fair value), either by selling the security or, more preferably, to provide collateral for additional borrowing.
The following provides selected economic data for the Bank’s primary market at December 31: Economic Data 2023 2022 Unemployment Rate (seasonally adjusted) Market area range (1) 2.4% - 3.5% 2.4% - 4.1% Pennsylvania 3.4% 4.0% Maryland 1.7% 4.3% United States 3.7% 3.7% Housing Price Index - year over year change PA, nonmetropolitan statistical area 4.6% 14.3% United States 4.8% 16.6% Building Permits - year over year change -12 months Harrisburg-Carlisle, PA MSA, Chambersburg-Waynesboro, PA MSA and Hagerstown, MD MSA Residential, estimated -15.4% -3.6% Multifamily, estimated -50.7% 260.9% (1) Franklin, Cumberland, Fulton and Huntingdon County, PA and Washington County, MD The assets and liabilities of the Corporation are financial in nature, as such, the pricing of products, customer demand for certain types of products, and the value of assets and liabilities are greatly influenced by interest rates.
The following provides selected economic data for the Bank’s primary market at December 31: 37 Table of Contents Economic Data 2024 2023 Unemployment Rate (not seasonally adjusted) Market area range (1) 2.7% - 3.8% 2.4% - 3.5% Pennsylvania (seasonally adjusted) 3.4% 3.4% Maryland (seasonally adjusted) 3.0% 1.7% United States (seasonally adjusted) 4.2% 3.7% Housing Price Index - year over year change PA, nonmetropolitan statistical area 9.5% 4.6% United States 5.1% 4.8% Building Permits - year over year change -12 months (2) Residential, estimated 6.1% -15.4% Multifamily, estimated 46.0% -50.7% (1) Cumberland, Dauphin, Franklin, Fulton and Huntingdon County, PA, Washington County, MD and State of Maryland (2) Harrisburg-Carlisle, PA MSA, Chambersburg-Waynesboro, PA MSA and Hagerstown, MD Martinsburg, WV MSA The assets and liabilities of the Corporation are financial in nature, as such, the pricing of products, customer demand for certain types of products, and the value of assets and liabilities are greatly influenced by interest rates.
Government Agency, or a government sponsored entity securitized by pools of residential mortgages and other loan assets. Non-Agency Mortgage & Asset-backed Securities (ABS) : This sector holds $104.0 million, or 22%, of the total portfolio. This sector is comprised of senior private label first-lien commercial and residential mortgages.
Government Agency, or a government sponsored entity securitized by pools of residential mortgages and other loan assets. Non-Agency Mortgage & Asset-backed Securities (ABS) : This sector holds $149.2 million, or 29%, of the total portfolio. This sector is comprised of senior private label first-lien commercial and residential mortgages.
As senior position bonds, they benefit from credit support in the form of junior tranches and reserve funds that absorb loss prior to the senior bonds. This sector has $83.0 million of its fair value investment grade rated by nationally recognized statistical rating organizations while $21.0 million of its fair value is nonrated.
As senior position bonds, they benefit from credit support in the form of junior tranches and reserve funds that absorb loss prior to the senior bonds. This sector has $132.6 million of its fair value rated investment grade by a nationally recognized statistical rating organizations while $16.6 million of its fair value is nonrated.
The weighted average life of the portfolio is 5.0 years, the effective duration (which measures the change in fair value for a 1% change in interest rates) is 3.7%, and $207.4 million (fair value) is pledged as collateral for deposits. The Bank has no investments in a single issuer that exceeds 10% of shareholders equity, except for U.S. Treasuries.
The weighted average life of the portfolio is 5.6 years, the effective duration (which measures the change in fair value for a 1% change in interest rates) is 4.8%, and $177.9 million (fair value) is pledged as collateral for deposits. The Bank has no investments in a single issuer that exceeds 10% of shareholders equity, except for U.S. Treasuries.
The Bank estimates that approximately 91% of its deposits are FDIC insured or collateralized as of December 31, 2023. 34 Table of Contents At December 31, 2023, time deposits in excess of the FDIC insurance limit and time deposits that are otherwise uninsured by maturity were as follows: Table 12.
The Bank estimates that approximately 85% of its deposits are FDIC insured or collateralized as of December 31, 2024. 35 Table of Contents At December 31, 2024, time deposits in excess of the FDIC insurance limit and time deposits that are otherwise uninsured by maturity were as follows: Table 12.
The Bank’s capital conservation buffer at December 31, 2023 was 5.63%. Compliance with the capital conservation buffer is required in order to avoid limitations on certain capital distributions, especially dividends. As of December 31, 2023, the Bank was “well capitalized’ under the Basel III requirements.
The Bank’s capital conservation buffer at December 31, 2024 was 4.96%. Compliance with the capital conservation buffer is required in order to avoid limitations on certain capital distributions, especially dividends. As of December 31, 2024, the Bank was “well capitalized’ under the Basel III requirements.
Consumer loans: This category is comprised of installment loans and personal lines of credit and increased $616 thousand in 2023 over 2022 ending balances. Table 9. Maturities and Interest Rate Terms of Selected Loans The following table presents the stated maturities (or earlier call dates) of selected loans as of December 31, 2023.
Consumer loans: This category is comprised of installment loans and personal lines of credit and increased $2.0 thousand in 2024 over 2023 ending balances. 30 Table of Contents Table 9. Maturities and Interest Rate Terms of Selected Loans The following table presents the stated maturities (or earlier call dates) of selected loans as of December 31, 2024.
This category also includes $57 thousand of PPP loans that are 100% guaranteed by the SBA, compared to $179 thousand at December 31, 2022.
This category also includes $7 thousand of PPP loans that are 100% guaranteed by the SBA, compared to $57 thousand at December 31, 2023.
Other service charges and fees: The most significant items in this category include fees from the Bank’s merchant card program and ATM fees. Merchant card fees increased $28 thousand while ATM fees increased $83 thousand. Debit card income: Debit card fees are comprised of both a retail and business card program.
Other service charges and fees: The most significant items in this category include fees from the Bank’s merchant card program and ATM fees. ATM fees increased $184 thousand. Debit card income: Debit card fees are comprised of both a retail and business card program. Retail fees increased by $93 thousand, while business card fees increased $29 thousand.
Only reciprocal deposits that exceed 20% of liabilities are considered brokered deposits. At December 31, 2023, the Bank’s reciprocal deposits were 15.5% of total liabilities. The Bank continually reviews different methods of funding growth that include traditional deposits and other wholesale sources.
Only reciprocal deposits that exceed 20% of liabilities are considered brokered deposits. At December 31, 2024, the Bank’s reciprocal deposits were 16.2% of total liabilities. The Bank continually reviews different methods of funding growth that include traditional deposits and other wholesale sources.
The following table shows the Bank’s available liquidity at December 31, 2023.
The following table shows the Bank’s available liquidity at December 31, 2024.
As a noninterest bearing account, these deposits contributed approximately 36 basis points to the net interest margin. Interest-bearing checking: This category saw a decrease of $42.0 million in the ending balance compared to the prior year and a decrease of $84.1 million compared to the prior year average primarily in retail accounts in 2023.
As a noninterest bearing account, these deposits contributed approximately 37 basis points to the net interest margin. Interest-bearing checking: This category saw a decrease of $36.6 million in the ending balance compared to the prior year and a decrease of $42.7 million compared to the prior year average primarily, in retail accounts in 2024.
However, in certain instances, the Bank may make a loan that exceeds the supervisory loan-to-value limit. At December 31, 2022, the Bank had loans of $13.7 million (1.1% of gross loans) that exceeded the supervisory loan-to value limit, compared to 1.2% at the prior year end.
However, in certain instances, the Bank may make a loan that exceeds the supervisory loan-to-value limit. At December 31, 2024, the Bank had loans of $14.1 million (1.0% of gross loans) that exceeded the supervisory loan-to value limit, compared to 1.1% at the prior year end.
The tax-equivalent yield on the portfolio increased from 2.46% in 2022 to 3.55% in 2023. U.S. Agency mortgage-backed securities and municipal bonds continue to comprise the largest sectors by fair value of the portfolio, approximately 28% and 29% respectively. The 27 Table of Contents Bank expects that the portfolio will continue to remain concentrated in these investment sectors.
The tax-equivalent yield on the portfolio increased from 3.55% in 2023 to 3.82% in 2024. U.S. Agency mortgage-backed securities and non-agency mortgage-backed securities comprise the largest sectors by fair value of the portfolio, approximately 33% and 29% 27 Table of Contents respectively. The Bank expects that the portfolio will continue to remain concentrated in these investment sectors.
The effective tax rate was 14.6% for 2022 and 13.7% for 2023, which reflects the benefit of $367 thousand in tax credits recorded during 2023. Without tax credits, the Bank’s effective tax rate was 16.0%.
The effective tax rate was 16.6% for 2024 and 13.7% for 2023, which reflects the benefit of $367 thousand in tax credits recorded during 2023. Without the tax credits, the Bank’s effective tax rate would have been 16.0% in 2023.
Residential real estate construction: The largest component of this category, $13.8 million, represents loans for individuals to construct personal residences, while loans to residential real estate developers and home builders totaled $12.1 million at December 31, 2023. The Bank’s exposure to residential construction loans is concentrated primarily in south central Pennsylvania.
Residential real estate construction: The largest component of this category, $20.7 million, represents loans for individuals to construct personal residences, while loans to residential real estate developers and home builders totaled $11.7 million at December 31, 2024. The Bank’s exposure to residential construction loans is concentrated primarily in south central Pennsylvania.
Management’s Discussion and Analysis of Financial Condition and Results of Operations Summary of Selected Financial Data as of and for the Year Ended December 31 2023 2022 2021 2020 2019 (Dollars in thousands, except per share) Balance Sheet Highlights Total assets $ 1,836,039 $ 1,699,579 $ 1,773,806 $ 1,535,038 $ 1,269,157 Debt securities available for sale, at fair value 472,503 487,247 530,292 397,331 187,873 Loans, net 1,240,933 1,036,866 983,746 992,915 922,609 Deposits 1,537,978 1,551,448 1,584,359 1,354,573 1,125,392 Shareholders' equity 132,136 114,197 157,065 145,176 127,528 Summary of Operations Interest income $ 76,762 $ 56,449 $ 47,573 $ 45,939 $ 49,235 Interest expense 23,125 4,863 2,902 3,978 7,113 Net interest income 53,637 51,586 44,671 41,961 42,122 Provision for credit losses - loans 2,589 650 (2,100) 4,625 237 Provision for credit losses - unfunded commitments 135 — — — — Net interest income after provision for credit losses 50,913 50,936 46,771 37,336 41,885 Noninterest income 14,851 15,250 19,488 15,084 15,424 Noninterest expense 50,011 48,691 43,245 39,362 38,314 Income before income taxes 15,753 17,495 23,014 13,058 18,995 Federal income tax expense 2,155 2,557 3,398 258 2,880 Net income $ 13,598 $ 14,938 $ 19,616 $ 12,800 $ 16,115 Performance Measurements Return on average assets 0.78% 0.83% 1.17% 0.91% 1.29% Return on average equity 11.39% 11.64% 13.20% 9.56% 13.17% Return on average tangible equity (1) 12.32% 12.52% 14.05% 10.24% 14.22% Efficiency ratio (1) 70.75% 71.21% 66.12% 67.32% 65.36% Net interest margin, fully tax equivalent 3.31% 3.11% 2.88% 3.21% 3.68% Shareholders' Value (per common share) Diluted earnings per share $ 3.10 $ 3.36 $ 4.42 $ 2.93 $ 3.67 Basic earnings per share 3.11 3.38 4.44 2.94 3.68 Regular cash dividends paid 1.28 1.28 1.25 1.20 1.17 Book value 30.23 26.01 35.36 33.07 29.30 Tangible book value (1) 28.17 23.96 33.34 31.02 27.23 Market value* 31.55 36.10 33.10 27.03 38.69 Market value/book value ratio 104.37% 138.79% 93.61% 81.74% 132.05% Market value/tangible book value ratio 112.01% 150.67% 99.29% 87.13% 142.11% Price/earnings multiple year-to-date 10.18 10.74 7.49 9.23 10.54 Dividend yield** 4.06% 3.55% 3.87% 4.44% 3.10% Dividend payout ratio 41.15% 37.88% 28.16% 40.83% 31.74% Safety and Soundness Average equity/average assets 6.82% 7.17% 8.89% 9.48% 9.78% Risk-based capital ratio (Total) 14.45% 17.21% 18.41% 17.69% 16.08% Leverage ratio (Tier 1) 9.01% 8.95% 8.52% 8.69% 9.72% Common equity ratio (Tier 1) 11.82% 14.22% 15.20% 14.32% 14.82% Nonperforming loans/gross loans 0.01% 0.01% 0.74% 0.87% 0.42% Nonperforming assets/total assets 0.01% 0.01% 0.42% 0.57% 0.31% Allowance for credit loss/loans 1.28% 1.35% 1.51% 1.66% 1.28% Net loan (charge-offs) recoveries/average loans -0.02% -0.15% 0.04% 0.02% -0.07% Assets under Management Wealth Management Services (fair value) $ 1,094,747 $ 904,317 $ 946,964 $ 836,381 $ 790,949 Held at third-party brokers (fair value) 135,423 116,398 118,046 112,624 127,976 (1) See the section titled "GAAP versus Non-GAAP Presentation" that follows. * Based on the closing price of FRAF as quoted on the Nasdaq Capital Market for all years shown. ** Based on annualized 4th quarter dividend and year-end market value. 18 Table of Contents 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.
Management’s Discussion and Analysis of Financial Condition and Results of Operations Summary of Selected Financial Data as of and for the Year Ended December 31 2024 2023 2022 2021 2020 (Dollars in thousands, except per share) Balance Sheet Highlights Total assets $ 2,197,841 $ 1,836,039 $ 1,699,579 $ 1,773,806 $ 1,535,038 Debt securities available for sale, at fair value 508,604 472,503 487,247 530,292 397,331 Loans, net 1,380,424 1,240,933 1,036,866 983,746 992,915 Deposits 1,815,647 1,537,978 1,551,448 1,584,359 1,354,573 Other borrowings 200,000 130,000 — — — Shareholders' equity 144,716 132,136 114,197 157,065 145,176 Summary of Operations Interest income $ 101,451 $ 76,762 $ 56,449 $ 47,573 $ 45,939 Interest expense 43,937 23,125 4,863 2,902 3,978 Net interest income 57,514 53,637 51,586 44,671 41,961 Provision for credit losses - loans 1,975 2,589 650 (2,100) 4,625 Provision for credit losses - unfunded commitments 8 135 — — — Total provision for credit losses 1,983 2,724 650 (2,100) 4,625 Net interest income after provision for credit losses 55,531 50,913 50,936 46,771 37,336 Noninterest income 13,679 14,851 15,250 19,488 15,084 Noninterest expense 55,895 50,011 48,691 43,245 39,362 Income before income taxes 13,315 15,753 17,495 23,014 13,058 Income tax expense 2,216 2,155 2,557 3,398 258 Net income $ 11,099 $ 13,598 $ 14,938 $ 19,616 $ 12,800 Performance Measurements Return on average assets 0.54% 0.78% 0.83% 1.17% 0.91% Return on average equity 8.05% 11.39% 11.64% 13.20% 9.56% Return on average tangible equity (1) 8.62% 12.32% 12.52% 14.05% 10.24% Efficiency ratio (1) 73.36% 70.75% 71.21% 66.12% 67.32% Net interest margin, fully tax equivalent 2.95% 3.31% 3.11% 2.88% 3.21% Shareholders' Value (per common share) Diluted earnings per share $ 2.51 $ 3.10 $ 3.36 $ 4.42 $ 2.93 Basic earnings per share 2.52 3.11 3.38 4.44 2.94 Regular cash dividends paid 1.28 1.28 1.28 1.25 1.2 Book value 32.69 30.23 26.01 35.36 33.07 Tangible book value (1) 30.65 28.17 23.96 33.34 31.02 Market value* 29.90 31.55 36.10 33.10 27.03 Market value/book value ratio 91.47% 104.37% 138.79% 93.61% 81.74% Market value/tangible book value ratio 97.54% 112.01% 150.67% 99.29% 87.13% Price/earnings multiple year-to-date 11.91 10.18 10.74 7.49 9.23 Dividend yield** 4.28% 4.06% 3.55% 3.87% 4.44% Dividend payout ratio 50.72% 41.15% 37.88% 28.16% 40.83% Safety and Soundness Average equity/average assets 6.65% 6.82% 7.17% 8.89% 9.48% Risk-based capital ratio (Total) 13.85% 14.45% 17.21% 18.41% 17.69% Leverage ratio (Tier 1) 7.92% 9.01% 8.95% 8.52% 8.69% Common equity ratio (Tier 1) 11.31% 11.82% 14.22% 15.20% 14.32% Nonperforming loans/gross loans 0.02% 0.01% 0.01% 0.74% 0.87% Nonperforming assets/total assets 0.01% 0.01% 0.01% 0.42% 0.57% Allowance for credit loss/loans 1.26% 1.28% 1.35% 1.51% 1.66% Net loan (charge-offs) recoveries/average loans -0.03% -0.02% -0.15% 0.04% 0.02% Assets under Management Wealth Management Services (fair value) $ 1,169,282 $ 1,094,747 $ 904,317 $ 946,964 $ 836,381 Held at third-party brokers (fair value) 139,872 135,423 116,398 118,046 112,624 (1) See the section titled "GAAP versus Non-GAAP Presentation" that follows. * Based on the closing price of FRAF as quoted on the Nasdaq Capital Market for all years shown. ** Based on annualized 4th quarter dividend and year-end market value. 19 Table of Contents 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.
Corporate Bonds : This sector is comprised primarily of $19.2 million of subordinate debt from 44 different community bank issuers. Agency Mortgage & Asset-backed Securities (MBS) : This sector holds $132.6 million, or 28%, of the total portfolio. This sector is comprised of bonds issued and guaranteed by the U.S. Government, a U.S.
Corporate Bonds : This sector is comprised primarily of $20.1 million of subordinate debt from 44 different community bank issuers. Agency Mortgage & Asset-backed Securities (MBS) : This sector holds $169.8 million, or 33%, of the total portfolio. This sector is comprised of bonds issued and guaranteed by the U.S. Government, a U.S.
See Note 17 of the accompanying consolidated financial statements for additional information on benefit plans. Net Occupancy: This category includes all of the expense associated with the properties and facilities used for bank operations such as depreciation, leases, maintenance, utilities and real estate taxes. Depreciation increased during 2023 from a full year of depreciation of its new headquarters building.
See Note 17 of the accompanying consolidated financial statements for additional information on benefit plans. Net Occupancy: This category includes all of the expense associated with the properties and facilities used for bank operations such as depreciation, leases, maintenance, utilities and real estate taxes.
At December 31, 2023, the Bank had $63.4 million in real estate construction loans funded with an interest reserve and capitalized $1.4 million of interest in 2023 from these reserves on active projects for commercial construction.
At December 31, 2024, the Bank had $71.9 million in real estate construction loans funded with an interest reserve and capitalized $3.2 million of interest in 2024 from these reserves on active projects for commercial construction.
The Bank’s total exposure (including unfunded commitments) to purchased participations was $135.4 million at December 31, 2023 and $90.0 million at December 31, 2022. The loan participations are comprised of $26.0 million of commercial loans and $71.8 million of CRE loans, reported in the respective loan segment.
The Bank’s total exposure (including unfunded commitments) to purchased participations was $133.1 million at December 31, 2024 and $135.4 million at December 31, 2023. The loan participations are comprised of $28.4 million of commercial loans and $78.8 million of CRE loans, reported in the respective loan segment.
Long-term interest-earning deposits decreased from $14.0 million at December 31, 2022 to $6.2 million at December 31, 2023. The average balance of interest-earning deposits decreased to $50.5 million in 2023 compared to $159.3 million in 2022.
Long-term interest-earning deposits decreased from $6.2 million at December 31, 2023 to $1.5 million at December 31, 2024. The average balance of interest-earning deposits increased to $176.0 million in 2024 compared to $50.5 million in 2023.
The yield on earning assets (Table 3) increased to 4.70% for 2023 from 3.40% for 2022. The benefit provided by tax-exempt income was $1.1 million in 2023. Table 1.
The yield on earning assets (Table 3) increased to 5.16% for 2024 from 4.70% for 2023. The benefit provided by tax-exempt income was $938 thousand in 2024. Table 1.
Summary Franklin Financial Services Corporation reported consolidated earnings of $13.6 million ($3.10 per diluted share) for 2023 compared with $14.9 million ($3.36 per diluted share) for the same period in 2022. Year-to-date, net interest income was $53.6 million, an increase of 4.0% compared to $51.6 million for the same period in 2022.
Summary Franklin Financial Services Corporation reported consolidated earnings of $11.1 million ($2.51 per diluted share) for 2024 compared with $13.6 million ($3.10 per diluted share) for the same period in 2023. Year-to-date, net interest income was $57.5 million, an increase of 7.2% compared to $53.6 million for the same period in 2023.
On a year-over-year comparison, the net interest margin was 3.31% for 2023 compared to 3.11% in 2022. The increase in the 2023 net interest margin was due primarily to a 1.30% increase in the yield on earning assets from 3.40% in 2022 to 4.70% in 2023 as all asset classes had higher yields in 2023.
On a year-over-year comparison, the net interest margin was 2.95% for 2024 compared to 3.31% in 2023. The increase in the 2024 net interest margin was due primarily to a 0.46% increase in the yield on earning assets from 4.70% in 2023 to 5.16% in 2024 as all asset classes had higher yields in 2024.
Capital Ratios 2023 2022 Corporation Bank Corporation Bank Common Equity Tier 1 risk-based capital ratio 11.82% 12.38% 14.22% 14.63% Total risk-based capital ratio 14.45% 13.63% 17.21% 15.88% Tier 1 risk-based capital ratio 11.82% 12.38% 14.22% 14.63% Tier 1 leverage ratio 9.01% 9.44% 8.95% 9.21% For additional information on capital adequacy refer to Note 2 of the accompanying consolidated financial statements.
Capital Ratios 2024 2023 Corporation Bank Corporation Bank Common Equity Tier 1 risk-based capital ratio 11.31% 11.71% 11.82% 12.38% Total risk-based capital ratio 13.85% 12.96% 14.45% 13.63% Tier 1 risk-based capital ratio 11.31% 11.71% 11.82% 12.38% Tier 1 leverage ratio 7.92% 8.20% 9.01% 9.44% For additional information on capital adequacy refer to Note 2 of the accompanying consolidated financial statements.
The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. The Committee judges that the risks to achieving its employment and inflation goals are moving into better balance. The economic outlook is uncertain, and the Committee remains highly attentive to inflation risks.
The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. The Committee judges that the risks to achieving its employment and inflation goals are roughly in balance. The economic outlook is uncertain, and the Committee is attentive to the risks to both sides of its dual mandate.
Deposit fees: This category is comprised primarily of fees from overdrafts, an overdraft protection program, service charges, and account analysis fees. The decrease of $35 thousand in this category was due to a lower volume of overdraft fees.
Due to higher origination volume, the Bank sold more loans in 2024 compared to 2023. Deposit fees: This category is comprised primarily of fees from overdrafts, an overdraft protection program, service charges, and account analysis fees. The decrease of $44 thousand in this category was due to a lower volume of overdraft fees.
Uninsured deposits: Aggregate estimated uninsured deposits at December 31, 2023 were $299.9 million (19.5% of total deposits) compared to $299.2 million (19.3% of total deposits) at December 31, 2022. Certain Bank deposits may not be insured but are fully collateralized by other assets.
Uninsured deposits: Aggregate estimated uninsured deposits at December 31, 2024 were $411.6 million (22.7% of total deposits) compared to $299.9 million (19.5% of total deposits) at December 31, 2023 utilizing Call Report methodology. Certain Bank deposits may not be insured but are fully collateralized by other assets.
Retail fees increased by $289 thousand, while business card fees were flat year over year. The business debit card offers a cash back rewards program based on usage, while the retail debit card offers reward points based on usage. Debit card income is reported net of reward program expense.
The business debit card offers a cash back rewards program based on usage, while the retail debit card offers reward points based on usage. Debit card income is reported net of reward program expense.
Tier 1 capital is comprised of common stock, additional paid-in capital, retained earnings and components of other comprehensive income, reduced by goodwill and other intangible assets. Total capital is comprised of Tier 1 capital plus the allowable portion of the allowance for loan losses.
Tier 1 capital is comprised of common stock, additional paid-in capital, retained earnings and components of other comprehensive income, reduced by goodwill and other intangible assets.
Total residential real estate loans increased $57.3 million in 2023, primarily in consumer first lien loans. In 2023, the Bank originated $92.4 million in mortgages compared to $81.7 million in 2022, including approximately $14.0 million for sale in the secondary market.
Total residential real estate loans increased $45.0 million in 2024, primarily in consumer first lien loans. In 2024, the Bank originated $123.1 million in mortgages compared to $92.4 million in 2023, including approximately $43.1 million for sale in the secondary market.
Data processing: The largest cost in this category is the expense associated with the Bank’s core processing system and related services and accounted for $2.0 million of the total data processing costs in 2023 and $2.3 million in 2022.
Data processing: The largest cost in this category is the expense associated with the Bank’s core processing system and related services and accounted for $2.2 million of the total data processing costs in 2024 and $2.0 million in 2023. The increase in 2024 was due primarily to increases in software expenses.
The ACL is determined for two distinct categories of loans: 1) loans evaluated individually for expected credit losses (specific reserve), and 2) loans evaluated collectively for expected credit losses (pooled reserve).
The ACL for loans is an estimate of the losses expected to be realized over the life of the loan portfolio. The ACL is determined for two distinct categories of loans: 1) loans evaluated individually for expected credit losses (specific reserve), and 2) loans evaluated collectively for expected credit losses (pooled reserve).
The portfolio returned $72.4 million of principal cash flow in 2023 while $50.3 million was invested into the portfolio during the year. Municipal Bonds : This sector holds $138.6 million or 29% of the total portfolio and the amortized cost decreased by $24.7 million year over year.
The portfolio returned $97.3 million of principal cash flow in 2024 while $136.3 million was invested into the portfolio during the year. Municipal Bonds : This sector holds $133.6 million or 26% of the total portfolio and the amortized cost decreased by $4.8 million year over year.
Net (losses) gains on sales of debt securities : The Bank took losses of $1.1 million on the sale of investment securities as part of portfolio restructuring.
Net (losses) gains on sales of debt securities : The Bank took losses of $4.3 million on the sale of investment securities as part of a portfolio restructuring during the fourth quarter of 2024.
The decrease was driven primarily by a loss of $1.1 million from the sale of securities as part of a portfolio restructuring in 2023, partially offset by increases in wealth management fees and debit card income. ‎ Noninterest expense was $50.0 million in 2023 compared to $48.7 million in 2022.
The decrease was driven primarily by a loss of $3.4 million, net of tax loss, on the sale of securities as part of a portfolio restructuring in the fourth quarter of 2024, which was partially offset by increases in wealth management fees and debit card income. ‎ Noninterest expense was $55.9 million in 2024 compared to $50.0 million in 2023.
The ACL for unfunded commitments was $2.0 million on December 31, 2023, compared to $1.5 million on December 31, 2022. Noninterest income was $14.9 million compared to $15.3 million in 2022.
The ACL for unfunded commitments was $2.0 million on December 31, 2024, unchanged from December 31, 2023. Noninterest income was $13.7 million compared to $14.9 million in 2023.
The Corporation’s dividend reinvestment plan (DRIP) allows for shareholders to purchase additional shares of the Corporation’s common stock by reinvesting cash dividends paid on their shares or through optional cash payments. The Dividend Reinvestment Plan (DRIP) added $1.4 million to capital during 2023.
Additional information on Shareholders’ Equity is reported in Note 20 of the accompanying consolidated financial statements. The Corporation’s dividend reinvestment plan (DRIP) allows for shareholders to purchase additional shares of the Corporation’s common stock by reinvesting cash dividends paid on their shares or through optional cash payments. The Dividend Reinvestment Plan (DRIP) added $1.7 million to capital during 2024.
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.
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.
Within the loan portfolio, average commercial loan balances increased $77.7 million during the year and residential mortgages increased $33.2 million. Total deposits averaged $1.530 billion for 2023, a decrease of $101.4 million (6.2%) from the average balance for 2022. All deposit categories reported a year-over-year decrease in average balances, except for time deposits.
Within the loan portfolio, average commercial loan balances increased $118.7 million during the year and residential mortgages increased $52.5 million. Total deposits averaged $1.638 billion for 2024, an increase of $108.7 million (7.1%) from the average balance for 2023. All deposit categories reported a year-over-year decrease in average balances, except for money management and time deposits.
This monitoring 29 Table of Contents process includes, at a minimum, the submission of invoices or 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.
This monitoring process includes, at a minimum, the submission of invoices or 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. All real estate construction loans are underwritten in the same manner, regardless of the use of an interest reserve.
Other: The largest increases in this category were in directors’ fees ($141 thousand) and charitable donations ($135 thousand). All other increases are due primarily to overall higher operating expenses. Provision for Income Taxes In 2023, the Corporation recorded a Federal income tax expense of $2.2 million compared to $2.6 million in 2022.
Other: The largest increases in this category were in armored car expense ($100 thousand) due to additional services and amortization of solar tax credits ($235 thousand). All other increases are due primarily to overall higher operating expenses. Provision for Income Taxes In 2024, the Corporation recorded a Federal income tax expense of $2.0 million compared to $2.2 million in 2023.
(Dollars in thousands, except per share) For the Year Ended December 31 2023 2022 2021 2020 2019 Return on Average Tangible Equity (non-GAAP) Net income $ 13,598 $ 14,938 $ 19,616 $ 12,800 $ 16,115 Average shareholders' equity 119,408 128,283 148,637 133,958 122,377 Less average intangible assets (9,016) (9,016) (9,016) (9,016) (9,016) Average shareholders' equity (non-GAAP) 110,392 119,267 139,621 124,942 113,361 Return on average tangible equity (non-GAAP) 12.32% 12.52% 14.05% 10.24% 14.22% Tangible Book Value (per share) (non-GAAP) Shareholders' equity $ 132,136 $ 114,197 $ 157,065 $ 145,176 $ 127,528 Less intangible assets (9,016) (9,016) (9,016) (9,016) (9,016) Shareholders' equity (non-GAAP) 123,120 105,181 148,049 136,160 118,512 Shares outstanding (in thousands) 4,371 4,390 4,441 4,389 4,353 Tangible book value (non-GAAP) 28.17 23.96 33.34 31.02 27.23 Efficiency Ratio (non-GAAP) Noninterest expense $ 50,011 $ 48,691 $ 43,245 $ 39,362 $ 38,314 Net interest income 53,637 51,586 44,671 41,961 42,122 Plus tax equivalent adjustment to net interest income 1,094 1,381 1,466 1,407 1,393 Plus noninterest income, net of securities transactions 15,954 15,410 19,271 15,104 15,102 Total revenue 70,685 68,377 65,408 58,472 58,617 Efficiency ratio (non-GAAP) 70.75% 71.21% 66.12% 67.32% 65.36% Results of Operations : Management’s Overview The following discussion and analysis is intended to assist the reader in reviewing the financial information presented and should be read in conjunction with the consolidated financial statements and other financial data presented elsewhere herein.
(Dollars in thousands, except per share) For the Year Ended December 31 2024 2023 2022 2021 2020 Return on Average Tangible Equity (non-GAAP) Net income $ 11,099 $ 13,598 $ 14,938 $ 19,616 $ 12,800 Average shareholders' equity 137,840 119,408 128,283 148,637 133,958 Less average intangible assets (9,016) (9,016) (9,016) (9,016) (9,016) Average shareholders' equity (non-GAAP) 128,824 110,392 119,267 139,621 124,942 Return on average tangible equity (non-GAAP) 8.62% 12.32% 12.52% 14.05% 10.24% Tangible Book Value (per share) (non-GAAP) Shareholders' equity $ 144,716 $ 132,136 $ 114,197 $ 157,065 $ 145,176 Less intangible assets (9,016) (9,016) (9,016) (9,016) (9,016) Shareholders' equity (non-GAAP) 135,700 123,120 105,181 148,049 136,160 Shares outstanding (in thousands) 4,427 4,371 4,390 4,441 4,389 Tangible book value (non-GAAP) 30.65 28.17 23.96 33.34 31.02 Efficiency Ratio (non-GAAP) Noninterest expense $ 55,895 $ 50,011 $ 48,691 $ 43,245 $ 39,362 Net interest income 57,514 53,637 51,586 44,671 41,961 Plus tax equivalent adjustment to net interest income 938 1,094 1,381 1,466 1,407 Plus noninterest income, net of securities transactions 17,737 15,954 15,410 19,271 15,104 Total revenue 76,189 70,685 68,377 65,408 58,472 Efficiency ratio (non-GAAP) 73.36% 70.75% 71.21% 66.12% 67.32% 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.
This evaluation is inherently subjective, as it requires 31 Table of Contents material assumptions and estimates that may be susceptible to significant change, including the amounts and timing of future cash flows expected to be received on loans evaluated individually.
This evaluation is inherently subjective, as it requires material assumptions and estimates that may be susceptible to significant change, including the amounts and timing of future cash flows expected to be received on loans evaluated individually. Loans evaluated individually for credit losses are primarily commercial purpose loans that do not share similar characteristics with those loans evaluated in the pool.
The cost of these accounts increased by 29 basis points. Money management: The year over year balance increased $2.5 million and the average balance decreased $20.2 million compared to the 2022 average balance. The cost of this product increased by 200 basis points during the year as market rates increased. Savings: Savings accounts decreased $22.8 million during the year.
The cost of these accounts increased by 18 basis points year over year. Money management: The year over year balance increased $122.8 million and the average balance increased $58.6 million compared to the 2023 average balance. The cost of this product increased by 56 basis points during the year as market rates increased.
The cost of this product increased by 8 basis points during the year as market rates increased. Time deposits: Time deposits increased by $75.1 million in 2023 with an increase in the average balance of $27.2 million as customers locked in higher interest rates. The cost of these accounts increased from .46% to 3.04% as market rates increased.
Savings: Savings accounts decreased $9.3 million during the year. The cost of this product increased by 1 basis points during the year as market rates increased. Time deposits: Time deposits increased by $183.5 million in 2024 with an increase in the average balance of $119.0 million as customers locked in higher interest rates.
Loan quality, as measured by nonaccrual loans, totaled $147 thousand at December 31, 2023 compared to $120 thousand at December 31, 2022 and the nonperforming loan to total loans ratio was 0.01% at December 31, 2023 and 2022. Loans past due 90-days or more, but still accruing, totaled $5 thousand at December 31, 2023.
Loan quality, as measured by nonaccrual loans, totaled $266 thousand at December 31, 2024 compared to $147 thousand at December 31, 2023 and the nonperforming loan to total loans ratio was 0.02% at December 31, 2024 compared to 0.01% at December 31, 2023.
Nonservice pension: The decrease in the nonservice pension expense was due to a $684 thousand reduction in pension settlement costs related to lump-sum pension payouts during 2022 and lower asset returns and amortization. Lease Termination: The lease termination was for a long-term lease held for a new community office that will not be constructed.
Nonservice pension: The change in the nonservice pension expense was due to higher asset returns and amortization. Lease Termination: The lease termination in 2023 was for a long-term land lease held for a new community office that will not be constructed.
At December 31, 2023, total assets increased 8.0% over the prior year to $1.84 billion from $1.70 billion at the end of 2022.
At December 31, 2024, total assets increased 19.7% over the prior year to $2.198 billion from $1.836 billion at the end of 2023.
The increase in the provision for credit loss was due primarily to growth in the loan portfolio. The ACL ratio for loans was 1.28% on December 31, 2023, compared to 1.35% on December 31, 2022. For 2023, the provision for credit losses on unfunded commitments was $135 thousand compared to $0 for 2022.
The ACL ratio for loans was 1.26% on December 31, 2024, compared to 1.28% on December 31, 2023. For 2024, the provision for credit losses on unfunded commitments was $8 thousand compared to $135 thousand for 2023.
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. 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.
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.
Noninterest Income Change (Dollars in thousands) 2023 2022 Amount % Noninterest Income Wealth management fees $ 7,512 $ 7,152 $ 360 5.0 Loan service charges 811 724 87 12.0 Gain on sale of loans 199 770 (571) (74.2) Deposit service charges and fees 2,492 2,527 (35) (1.4) Other service charges and fees 1,852 1,724 128 7.4 Debit card income 2,157 1,868 289 15.5 Increase in cash surrender value of life insurance 448 436 12 2.8 Net (losses) gains on sales of debt securities (1,119) (91) (1,028) 1,129.7 Change in fair value of equity securities 16 (69) 85 (123.2) Other 483 209 274 131.1 Total $ 14,851 $ 15,250 $ (399) (2.6) The most significant changes in noninterest income are discussed below: Wealth management fees: These fees are comprised of asset management fees, estate administration and settlement fees, employee benefit plans, and commissions from the sale of insurance and investment products.
Noninterest Income Change (Dollars in thousands) 2024 2023 Amount % Noninterest Income Wealth management fees $ 8,538 $ 7,512 $ 1,026 13.7 Loan service charges 987 811 176 21.7 Gain on sale of loans 565 199 366 183.9 Deposit service charges and fees 2,448 2,492 (44) (1.8) Other service charges and fees 2,040 1,852 188 10.2 Debit card income 2,279 2,157 122 5.7 Increase in cash surrender value of life insurance 457 448 9 2.0 Net (losses) gains on sales of debt securities (4,267) (1,119) (3,148) 281.3 Change in fair value of equity securities 209 16 193 1,206.3 Other 423 483 (60) (12.4) Total $ 13,679 $ 14,851 $ (1,172) (7.9) The most significant changes in noninterest income are discussed below: Wealth management fees: These fees are comprised of asset management fees, estate administration and settlement fees, employee benefit plans, and commissions from the sale of insurance and investment products.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeThe objective of interest rate risk management is to identify and manage the sensitivity of net interest income and economic value of equity to changing interest rates in order to achieve consistent earnings that are not contingent upon favorable trends in interest rates. 38 Table of Contents The Corporation’s primary tool for analyzing interest rate risk is financial simulation modeling which captures the effect of not only changing interest rates but also other sources of cash flow variability including loan and securities prepayments and customer preferences.
Biggest changeThe Corporation’s primary tool for analyzing interest rate risk is financial simulation modeling which captures the effect of not only changing interest rates but also other sources of cash flow variability including loan and securities prepayments and customer 39 Table of Contents preferences.
Although inflation (and inflation expectations) may affect the interest rate environment, it is not possible to measure with any precision the impact of future inflation upon the Corporation. ‎ 39 Table of Contents
Although inflation (and inflation expectations) may affect the interest rate environment, it is not possible to measure with any precision the impact of future inflation upon the Corporation. ‎ 40 Table of Contents
Sensitivity to Changes in Market Interest Rates (Dollars in thousands) Net Interest Income Change in rates (basis points) Projected % Change +300 $ 48,500 (7.5)% +200 $ 50,000 (4.8)% +100 $ 51,300 (2.3)% unchanged $ 52,500 — (100) $ 52,000 (0.9)% (200) $ 51,700 (1.5)% (300) $ 51,400 (2.1)% Impact of Inflation The impact of inflation upon financial institutions such as the Corporation differs from its effect upon other commercial enterprises.
Sensitivity to Changes in Market Interest Rates (Dollars in thousands) Net Interest Income Change in rates (basis points) Projected % Change +300 $ 64,596 4.4% +200 $ 63,852 3.2% +100 $ 62,972 1.8% unchanged $ 61,879 — (100) $ 60,570 (2.1)% (200) $ 59,645 (3.6)% (300) $ 58,606 (5.3)% Impact of Inflation The impact of inflation upon financial institutions such as the Corporation differs from its effect upon other commercial enterprises.
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The objective of interest rate risk management is to identify and manage the sensitivity of net interest income and economic value of equity to changing interest rates in order to achieve consistent earnings that are not contingent upon favorable trends in interest rates.

Other FRAF 10-K year-over-year comparisons