Franklin Financial's Third-Quarter Profit Rises 59%

The Tip Desk · October 27, 2026 · 3 min read

Net interest income reached $20.2 million as the annualized net interest margin expanded 8 bps to 3.58%.

Franklin Financial Services Corporation (FRAF), the Chambersburg, Pa., holding company of F&M Trust, reported third-quarter net income of $8.5 million, or $1.89 a share diluted, up 59.4% from $5.4 million, or $1.19 a share, a year earlier.

The sequential step-up in profitability was sharper than in the second quarter, when net income was $6.6 million, or $1.47 a share. Return on average equity was 18.53% annualized in the third quarter, versus 14.80% in the second, and return on average assets was 1.43%, versus 1.14%.

Net interest income rose $844 thousand, or 4.4%, sequentially to $20.2 million from $19.3 million in the second quarter. The annualized net interest margin expanded 8 bps to 3.58% after a 3 bps sequential compression to 3.50% in the second quarter from 3.53% in the first. The company said the year-over-year improvement was driven primarily by a decrease in interest expense, as higher loan interest income was partially offset by lower investment income. Deposit interest expense was $7.2 million and total interest expense was $9.6 million in the third quarter.

The provision for credit losses on loans swung to an $867 thousand reversal after a $1.6 million provision in the second quarter. The bank attributed the reversal to increased loan recoveries and a lower historical loss rate. Provision for credit losses on unfunded commitments was $1.4 million, versus $39 thousand in the second quarter, reflecting a $1.5 million reserve on a letter of credit tied to a nonaccrual commercial real estate construction loan.

Nonperforming loans were $17.8 million, or 1.11% of gross loans, on September 30, 2026, versus 1.10% of gross loans on June 30. The nonperformers were concentrated in three CRE loans to two unrelated borrowers, including two construction loans totaling $8.9 million to one borrower on a mixed-use project. The allowance for credit losses to loans was 1.32%.

Net loans increased $14.3 million sequentially to $1.603 billion on September 30, after a $37.2 million sequential increase in the second quarter. Total deposits rose $32.8 million sequentially to $1.957 billion. Noninterest-bearing checking was 19.4% of total deposits, compared with 16.9% at year-end 2025.

Noninterest income increased $288 thousand sequentially to $5.4 million. Wealth management fees were $2.4 million, down from $2.6 million in the second quarter, while assets under management were $1.471 billion on September 30. Loan service charges rose to $480 thousand from $289 thousand; gain on sale of loans fell to $93 thousand from $227 thousand.

Noninterest expense declined $217 thousand sequentially to $14.4 million, and the efficiency ratio improved to 55.69% from 59.07%. The company said the year-over-year expense decrease was primarily in employee benefits related to health insurance.

The board declared a $0.34 a share regular quarterly cash dividend for the fourth quarter of 2026, matching the $0.34 dividend declared for the third quarter.