Franklin Financial Q3 Profit Climbs 59.4% to $8.5 Million

Franklin Financial Services Corporation (FRAF ), the bank holding company of F&M Trust headquartered in Chambersburg, Pennsylvania, reported net income of $8.5 million for the third quarter of 2026 in results released October 27, 2026, a 59.4% increase from $5.4 million in the third quarter of 2025. Diluted earnings per share were $1.89, compared to $1.19 a year earlier, and basic earnings per share were $1.90, compared to $1.20. The company also reported that its Board of Directors on October 15, 2026 declared a $0.34 per share regular quarterly cash dividend for the fourth quarter of 2026, payable November 25, 2026 to shareholders of record at the close of business on November 6, 2026.

For the first nine months of 2026, net income was $21.8 million, or $4.84 per diluted share, compared to $15.2 million, or $3.39 per diluted share, for the same period of 2025, an increase of 43.5%. The company’s annualized return on average assets was 1.43% for the quarter and 1.26% for the nine months, while annualized return on average equity was 18.53% and 16.18% and annualized net interest margin was 3.58% and 3.54% for the respective periods. For the third quarter of 2025, those annualized figures were 0.93%, 13.39% and 3.32%.

Income Statement Detail

Net interest income for the third quarter of 2026 was $20.2 million, compared to $18.2 million for the third quarter of 2025, an increase of $2.0 million, or 11.0%. The company attributed the improvement primarily to a decrease in interest expense, stating that the increase in interest income from loans was partially offset by a decrease in interest income from the investment portfolio.

The third-quarter provision for credit losses on loans was a reversal of $867 thousand, compared to a $1.3 million provision expense in the same quarter of 2025, a change the company said was driven by increased loan recoveries during the period and a decrease in the historical loss rate used in the allowance calculation. The provision for credit losses on unfunded commitments was $1.4 million, compared to a reversal of $53 thousand a year earlier, due to the establishment of a $1.5 million reserve on a letter of credit related to a non-accrual commercial real estate construction loan.

Noninterest income totaled $5.4 million for the quarter, compared to $4.8 million a year earlier, with the company citing increases in wealth management fees, loan service charges from prepayment penalties, and bank-owned life insurance from new purchases, partially offset by a reduction in the gain on sale of loans as the Bank held more loans in its portfolio. Noninterest expense was $14.4 million, a decrease of $756 thousand, or 5.0%, from $15.1 million in the prior-year quarter, primarily in employee benefits related to health insurance. The effective income tax rate was 19.9%, compared to 19.6%.

For the nine months, net interest income was $58.1 million versus $51.0 million, an increase of $7.0 million, or 13.8%. The provision for credit losses on loans was $935 thousand versus $2.7 million, with the 2025 figure including an $894 thousand expense for one of the nonaccrual commercial real estate construction loans described in the company’s balance sheet disclosures. Noninterest income rose 10.2% to $15.9 million, noninterest expense rose 0.5% to $44.4 million, and the effective income tax rate was 20.0% versus 19.2%.

Balance Sheet and Credit Quality

Total assets were $2.365 billion on September 30, 2026, up 5.6% from $2.239 billion on December 31, 2025. Debt securities available for sale increased $10.9 million, or 2.4%, due primarily to purchases net of paydowns, and the portfolio carried a net unrealized loss of $46.0 million, compared to $26.8 million at year-end 2025.

Net loans increased $62.4 million, or 4.1%, to $1.603 billion, driven by increases of $44.8 million in commercial real estate loans and $49.2 million in residential 1-4 family loans, partially offset by a $28.4 million decrease in commercial (C&I) loans. Commercial real estate loans totaled $948.4 million, with apartments ($143.1 million), hotels and motels ($108.4 million) and office buildings ($99.4 million) the largest collateral segments, primarily in the Bank’s market area of south-central Pennsylvania. The Bank’s commercial real estate non-owner occupied concentration ratio was 327.3% of risk-based capital, down from 349.9% on December 31, 2025.

Deposits increased $121.6 million, or 6.6%, to $1.957 billion, with 19.4% of total deposits in noninterest-bearing checking accounts, compared to 16.9% at year-end 2025. The cost of total deposits for the first nine months of 2026 was 1.50%, down from 1.91% for the same period of 2025, and fell to 1.46% for the third quarter of 2026. The Bank estimated that approximately 90% of its deposits were FDIC insured or collateralized as of September 30, 2026.

Shareholders’ equity increased $2.5 million to $177.7 million from year-end 2025, as a $17.2 million increase in retained earnings, net of $4.5 million in dividends, was offset by a $15.2 million increase in accumulated other comprehensive loss during the first nine months of 2026. Book value was $39.48 per share, and tangible book value per share, a measure the company designates as non-GAAP, rose to $37.48 from $37.10 on December 31, 2025. Under an open-market repurchase plan approved in December 2025 covering 150,000 shares over a one-year period, the company repurchased 14,950 shares in the first nine months of 2026 to fund its dividend reinvestment plan and employee stock purchase plan. The company stated the Bank was considered well-capitalized under regulatory guidance as of September 30, 2026.

Nonperforming loans totaled $17.8 million on September 30, 2026, or 1.1% of total gross loans, compared to $8.5 million, or 0.55%, on December 31, 2025, and were comprised primarily of three commercial real estate loans totaling $17.5 million to two unrelated borrowers. One borrower holds two construction loans totaling $8.9 million on a mixed-use commercial project: a $7.0 million loan that has matured and a $1.9 million loan that is part of a $2.5 million commitment made during the second quarter of 2026 to fully enclose the property, protect the collateral and pay all past-due construction costs, under a forbearance agreement signed by the developer that established specific performance criteria and remedies. Based on a discounted as-is appraisal received in the third quarter of 2026, the Bank maintained a $1.2 million specific reserve for the loan. The second borrower holds an $8.6 million commercial real estate loan secured by six commercial office buildings, a purchased participation in which the Bank is not the lead lender; the loan was placed on nonaccrual status during the second quarter of 2026 and carried a $628 thousand specific reserve as of September 30, 2026.

The allowance for credit losses to loans ratio was 1.32% at both September 30, 2026 and December 31, 2025. The allowance for credit losses on unfunded commitments rose to $3.4 million from $1.9 million, an increase due to the $1.5 million reserve on the letter of credit tied to the non-accrual construction loan.

Wealth management fees were $2.4 million for the third quarter of 2026, up 7.1% from $2.3 million a year earlier, and $7.3 million for the first nine months of 2026, up 5.8% from $6.9 million. Assets under management were $1.471 billion on September 30, 2026, including $1.317 billion in wealth management and $154.3 million held at third-party brokers, according to the release’s table.

The company’s efficiency ratio, a measure it designates as non-GAAP, was 55.69% for the third quarter of 2026, compared to 65.19% a year earlier, and the quarterly dividend payout ratio was 17.93%. Market value per share was $61.82 on September 30, 2026, compared to $46.00 on September 30, 2025, per the company’s key performance ratio table.