News Release - January 30, 2013
Franklin Financial Services Corporation
Kenneth C. Ditzler (717) 261-3665

Franklin Financial reports drop in 4th Quarter net income;

contributes to YTD earnings slide

(Chambersburg, PA) Franklin Financial Services Corporation, the bank holding company of F&M Trust, reported earnings of $5,365,000 for 2012 compared to 2011 earnings of $6,569,000, a decrease of

18.3%. Net income for the quarter ended December 31, 2012 was $344,000 compared to 2011 fourth quarter earnings of $1,903,000.
On a per share basis, diluted earnings were $0.08 and $1.32 for the quarter and twelve months ended December 31, 2012 compared to $0.47 and $1.66 for the same periods in 2011.
"Earnings in the fourth quarter were significantly impacted by a tightening in net interest margin, lower non-interest income and increased nonrecurring expenses, which ultimately were a drag on revenue for the year. The nonrecurring expenses were related to a variety of items including legal expenses and penalties on the prepayment of high interest rate FHLB debt," commented William E. Snell, Jr., president and CEO.
"As I commented previously, the economic recovery in south central Pennsylvania has lagged behind the overall national trend which has experienced a slight improvement despite the prolonged period of high unemployment, increased loan delinquency, and low interest rate environment. In general, credit quality remains a critical focus for many banks in the area, as values on real estate used for collateral remain low and businesses feel the effects of the economic downturn," remarked Snell. "The factors that continue to challenge the financial services industry for the past several years include weak quality loan demand, compressed net interest rate margins, increased compliance costs and reduced fee income
resulting from new regulations, as well as non-current loans and loan losses. We believe that strategic risk management is critical during periods of earnings compression like these."
Total assets were $1.027 billion at December 31, 2012, a 3.7% increase from assets at December
31, 2011. Average deposits and repurchase agreements grew by 7.4% to $900.2 million, and average net loans slipped 0.5% to $751.5 million. At year-end, total deposits and repurchase agreements grew by
9.0% to $916.6 million, while net loans were down 1.8% to $743.2 million. In addition, the market value of trust assets under management increased by 8.1% to $520.4 million at December 31, 2012.
Franklin Financial is an independent, locally owned and operated bank holding company headquartered in Chambersburg, Pennsylvania. Its wholly-owned subsidiary, F&M Trust, has twenty-six community banking offices throughout Cumberland, Franklin, Fulton and Huntingdon counties located in Boiling Springs, Camp Hill, Carlisle, Chambersburg, Greencastle, Hustontown, McConnellsburg, Mechanicsburg, Mont Alto, Marion, Newville, Orbisonia, Shippensburg, St. Thomas, Warfordsburg and Waynesboro. Franklin Financial stock is quoted on the OTCQB Market Tier of the OTC Markets under the symbol 'FRAF'.

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

Management considers subsequent events occurring after the balance sheet date for matters which may require adjustment to, or disclosure in, the consolidated financial statements. The review period for subsequent events extends up to and including the filing date of a public company's consolidated financial statements when filed with the Securities and Exchange Commission ("SEC"). Accordingly, the financial information in this announcement is subject to change.

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