Franklin Financial Services, Chambersburg, PA (FRAF)

The Case of a Deeply-Rooted Pennsylvania Money Tree

If you're looking for a safe place to earn a solid dividend at a bargain price, Franklin Financial Services might just be your money tree. You can buy this undervalued bank's stock today at $13.60, earn a 5% dividend for the foreseeable future, and obtain a reasonable chance of doubling your money.

Disclosure: As of this posting, I own shares of FRAF and may subsequently either dispose of them or purchase more.

Prospective Buyers	F.N.B. Corp, Hermitage, PA (FNB) M&T Bank Corp, Buffalo, NY (MTB) PNC Financial Services, Pittsburgh, PA (PNC)
Financial Snapshot (as of 3/31/2012)	Total assets: $1.067B Book value per share: $21.75 NPAs to assets: 3.9% Price to book: 66% Market cap: $56M Dividend yield: 4.9% Trailing 12-month return on assets: 0.6% Trailing 12-month return on equity: 7.1%
The Crew	G Warren Elliott, Chairman William Snell Jr, President and CEO Mark Hollar, Senior VP, Treasurer, and CFO
The Skinny	How undervalued is FRAF's stock price? Over the past 12 months, the KBW Bank Index climbed 12.2%, while FRAF stock fell 17% The average bank in the KBW Index trades at 124% of book value, while investors can now buy FRAF at 61% of book value The average bank in the KBW Index trades at 15x earnings, while FRAF is trading at 8x earnings Therefore, Franklin Financial Services is effectively trading at a 50% discount  Why is FRAF so cheap? Most investors have never heard of it FRAF recently cut its dividend so many people who did own it appear to be selling Current EPS of $1.60 is well below historical level of $2.50 NPAs were still rising in Q1 and may not have peaked Brokerage firms do not appear to be following FRAF What would make the stock price double? When NPAs start to decline… Then earnings and book value will grow… And people will start to trust that the dividend will not be cut again… Then FRAF could trade at book value  What makes this stock relatively safe? The bank has been around for over 100 years and is very conservative Its managers don’t pay themselves exorbitant salaries or take big risks It has maintained profitability through the Great Recession It never took TARP Regional unemployment is significantly below the national average
Sources	Franklin Financial Services website 2011 Annual Report SNL Corporate Profile Franklin County Development Corporation website Yahoo! Finance Key Statistics