·

Net Income: $6.6 million ($1.47 per diluted share) for the second quarter of 2026 compared to $5.9 million ($1.32 per diluted share) for the second quarter of 2025, an increase of 11.9%. 

·

Wealth Management: Fees were $2.6 million, an increase of 6.1% from $2.4 million in the second quarter of 2025.  Assets under management were $1.5 billion on June 30, 2026. 

·

Asset Growth:   $2.335 billion in assets on June 30, 2026, compared to $2.239 billion at year-end 2025, an increase of 4.3% (8.6% annualized).

·

Loan Growth: Total net loans of $1.589 billion on June 30, 2026, an increase of 3.1% (6.2% annualized) from December 31, 2025.

·

Deposit Growth: Total deposits of $1.925 billion on June 30, 2026, an increase of 4.8% (9.6% annualized) from December 31, 2025.

·

Quarterly Performance Metrics: Return on Average Assets (ROA) 1.14%, Return on Average Equity (ROE) 14.80%, and Net Interest Margin (NIM) of 3.50% on an annualized basis, compared to a ROA of 1.04%, ROE of 15.64%, and NIM of 3.21% for the second quarter of 2025.

·

On July 16, 2026, the Board of Directors declared a $0.34 per share regular quarterly cash dividend for the third quarter of 2026 to be paid on August 26, 2026, to shareholders of record at the close of business on August 7, 2026. 

·

Net Income: $13.2 million ($2.94 per diluted share) compared to $9.8 million ($2.20 per diluted share) for the six months ended June 30, 2025, an increase of 34.8%. 

·

Wealth Management: Fees were $4.9 million, an increase of 5.2% from $4.6 million for the first six months of 2025.

·

Year-to-Date Performance Metrics: Return on Average Assets (ROA) 1.17%, Return on Average Equity (ROE) 14.96%, and Net Interest Margin (NIM) of 3.52% on an annualized basis, compared to a ROA of 0.89%, ROE of 13.27%, and NIM of 3.13% for the comparable period in 2025.

·

Debt Securities Available for Sale: Decreased $2.2 million, or (0.5%), net of purchases, due primarily to paydowns.  On June 30, 2026, the net unrealized loss in the portfolio was $29.1 million compared to $26.8 million at year-end 2025.

·

Net  Loans: Increased $48.2 million or 3.1% (6.2% annualized) over the year-end 2025 balance, primarily from an increase of $45.8 million in commercial real estate (CRE) loans and $24.7 million in residential 1-4 family loans, which was partially offset by a decrease of $19.6 million in commercial (C&I) loans. As of June 30, 2026, CRE loans totaled $949.4 million with the largest collateral segments being: apartment buildings ($161.9 million), hotels and motels ($105.8 million), and office buildings ($100.1 million), primarily in the Bank's market area of south-central Pennsylvania. The Bank’s CRE non-owner occupied concentration ratio was 348.2% of risk-based capital as of June 30, 2026, down from 349.9% on December 31, 2025.

·

Deposits: Increased $88.8 million or 4.8% (9.6% annualized)) from year-end 2025. The majority of the growth occurred in noninterest-bearing checking accounts and money management accounts, which was partially offset by a decrease in interest-bearing checking and savings accounts. At June 30, 2026, 17.7% of total deposits were in noninterest checking accounts, compared to 16.9% at year-end 2025. For the first six months of 2026, the cost of total deposits was 1.51%, a decrease from 1.85% for the full year of 2025. On June 30, 2026, the Bank estimated that approximately 90% of its deposits were FDIC insured or collateralized.

·

Shareholders' Equity: Increased $8.6 million to $183.8 million on June 30, 2026 from year-end 2025, and retained earnings increased $10.2 million, net of dividends of $3.0 million, over the same period.  The accumulated other comprehensive loss (AOCI) increased $1.9 million during the first six months of 2026 to $23.5 million. On June 30, 2026, the book value of the Corporation's common stock was $40.91 per share and tangible book value (1) increased $1.81 per share from December 31, 2025 to $38.90 per share.  In December 2025, an open market repurchase plan was approved to repurchase 150,000 shares over a one-year period and 10,950 shares were repurchased in the first six months of 2026 under the approved plan to fund the dividend reinvestment plan.  The Bank is considered to be well-capitalized under regulatory guidance as of June 30, 2026.

·

Average Assets:  Average interest-earning assets for the first six months of 2026 were $2.198 billion, compared to $2.146 billion for the same period in 2025, an increase of 2.5%. This increase occurred primarily in the loan portfolio which increased 8.8%, driven by a $82.2 million (9.9%) increase in commercial real estate loans and a $44.0 million (17.6%) increase in first lien 1-4 residential real estate loans. The yield on earning assets decreased from 5.28% for the first six months of 2025 to 5.25% for the first six months of 2026. The yield on the loan portfolio increased by 9 basis points, but this increase was partially offset as higher yielding investments continued to paydown and the yield on interest-earning deposits in other banks declined. The yield on earning assets was 5.22% for the second quarter of 2026.   Total deposits averaged $1.878 billion for the first six months of 2026, an increase of $26.7 million (1.4%) over the average balance for the same period in 2025.  The cost of total deposits decreased from 1.95% for the first six months of 2025 to 1.51% for the first six months of 2026 and decreased to 1.50% for the second quarter of 2026.

·

Nonperforming Assets: Nonperforming loans (nonaccrual loans and loans 90 days past due and still accruing) totaled $17.7 million on June 30, 2026, compared to $8.5 million on December 31, 2025, an increase of $9.2 million due to the addition of an $8.8 million CRE loan to nonaccrual status during the second quarter of 2026.  Nonperforming loans were 1.1% of total gross loans on June 30, 2026 compared to 0.55% on December 31, 2025. The nonperforming loans are comprised primarily of two (2) CRE loans to unrelated borrowers totaling $17.4 million.  Of these two CRE loans, one is for a matured $7.0 million construction loan on a mixed-use commercial project.  During the second quarter, the Bank committed to provide additional funding of up to $2.5 million (with $1.6 million advanced as of June 30, 2026) to fully enclose the property and protect the collateral, and to pay all past due construction costs. As part of this funding commitment, a forbearance agreement was signed by the developer that ceased all construction until funding from new sources was acquired, established specific performance criteria for the developer, and established specific remedies for the Bank in the event of non-compliance with the forbearance agreement.   Based on a discounted “as-is” appraisal received in the first quarter of 2026 and the additional funding committed, the Bank increased its specific reserve from $1.0 million on March 31, 2026, to $1.2 million on June 30, 2026. The second CRE loan totals $8.8 million and is secured by six (6) commercial office buildings. This loan is a purchased participation loan where the Bank is not the lead lender. The loan was placed on nonaccrual status during the second quarter of 2026, and as of June 30, 2026, the Bank has a specific reserve of $734 thousand based on a recent appraisal. 

·

Allowance for Credit Losses (ACL): The ACL to loans ratio was 1.36% on June 30, 2026, compared to 1.32% on December 31, 2025.  The increase is driven by the increase in the specific reserves previously discussed above. The allowance for credit losses (ACL) for unfunded commitments was $2.0 million on June 30, 2026, and $1.9 million on December 31, 2025.

·

Net income: Net income for the second quarter of 2026 was $6.6 million ($1.47 per diluted share) compared to $5.90 million ($1.32 per diluted share) for the second quarter of 2025, an increase of 11.9%.

·

Net Interest Income: $19.3 million for the second quarter of 2026 compared to $17.2 million for the second quarter of 2025, an increase of $2.1 million, or 12.2%.  The improvement was driven primarily by a decrease in interest expense, as the increase in interest from loans was partially offset by a decrease in interest from the investment portfolio.

·

Provision for Credit Losses: For the second quarter of 2026, the provision for credit losses on loans was $1.6 million compared to $704 thousand for the same quarter of 2025. The increased provision for credit losses on loans was due primarily to an increase in the specific reserve on two nonaccrual loans discussed above.   The provision for credit losses on unfunded commitments was $39 thousand for the second quarter of 2026 compared to a reversal of $69 thousand for the second quarter of 2025. 

·

Noninterest Income: Noninterest income totaled $5.1 million for the second quarter of 2026 compared to $5.1 million for the same quarter of 2025. As compared to the prior year quarter, wealth management fees and the gain on sale of loans increased, but the increase was nearly offset by a state sales tax refund recorded in the second quarter of 2025.   

·

Noninterest Expense: For the second quarter of 2026 was $14.6 million compared to $14.4 million for the second quarter of 2025 (an increase of 1.5%).  The increase in salary expense was more than offset by a decrease in health insurance expense during the quarter, and other operating expense increased $230 thousand.

·

Income Tax: The effective income tax rate was 19.9% for the second quarter of 2026  and  19.3% for the same period in 2025.  

·

Net income: Net income for the second quarter of 2026 was $6.6 million ($1.47 per diluted share) compared to $5.90 million ($1.32 per diluted share) for the second quarter of 2025, an increase of 11.9%.

·

Net Interest Income: $19.3 million for the second quarter of 2026 compared to $17.2 million for the second quarter of 2025, an increase of $2.1 million, or 12.2%.  The improvement was driven primarily by a decrease in interest expense, as the increase in interest from loans was partially offset by a decrease in interest from the investment portfolio.

·

Provision for Credit Losses: For the first six months of 2026, the provision for credit losses on loans was $1.8 million compared to $1.5 million for the same period of 2025. The provision for credit losses on unfunded commitments was $58 thousand for the first six months of 2026 compared to a reversal of $40 thousand for the same period of 2025.

·

Noninterest Income: Noninterest income totaled $10.5 million for the first six months of 2026 compared to $9.7 million for the same period of 2025, an increase of 8.7%. The increase was spread across nearly all fee income categories with the largest increases in wealth management fees and gains on loan sales and deposit fees.

·

Noninterest Expense: For the first six months of 2026, noninterest expense was $30.0 million compared to $29.0 million for the same period of 2025 (an increase of 3.4%).   The increases occurred primarily in salaries, professional fees, and Pennsylvania shares tax, and were partially offset by a decrease in FDIC insurance premiums.

·

Income Tax: The effective income tax rate was 20.0% for the six months of 2026 and 19.0% for the same period in 2025.

(1)

Non-GAAP measure.  See GAAP versus Non-GAAP Reconciliation Presentations that follows.  





FRANKLIN FINANCIAL SERVICES CORPORATION (unaudited)



Income Statement

For the Three Months Ended

For the Six Months Ended

(Dollars in thousands, except per share data)

6/30/2026

3/31/2026

6/30/2025

6/30/2026

6/30/2025

% Change



Interest income

Loans, including fees

$

$

$

$

$

Interest and dividends on investments:

Taxable interest

-24.1%

Tax exempt interest

-1.9%

Dividend income

Interest-earning deposits in other banks

-28.2%

Total interest income

Interest expense

Deposits

-21.5%

FHLB overnight borrowings and advances

Subordinate notes

-23.1%

Total interest expense

-17.4%

Net interest income

Provision for credit losses - loans

Provision for credit losses - unfunded commitments

-245.0%

Total provision for credit losses

Net interest income after credit loss expense

Noninterest income

Wealth management fees

Loan service charges

Gain on sale of loans

Deposit service charges and fees

Other service charges and fees

Debit card income

Increase in cash surrender value of life insurance

Change in fair value of equity securities

 —

 —

 —

-100.0%

Other

-1.8%

Total noninterest income

Noninterest Expense

Salaries

Employee benefits

-0.7%

Net occupancy

Marketing and advertising

Legal and professional

Data processing

Pennsylvania bank shares tax

FDIC Insurance

-10.9%

ATM/debit card processing

Telecommunications

Other

Total noninterest expense

Income before income taxes

Income tax expense

Net income

$

$

$

$

$

Per share

Basic earnings per share

$

$

$

$

$

Diluted earnings per share

$

$

$

$

$





Consolidated Balance Sheet (as of)

6/30/2026

3/31/2026

6/30/2025

(Dollars in thousands, except per share data)

Assets

Cash and due from banks

$

$

$

Short-term interest-earning deposits in other banks

Total cash and cash equivalents

Long-term interest-earning deposits in other banks

Debt securities available for sale, at fair value

Restricted stock

Loans held for sale

Loans

Allowance for credit losses

Net Loans

Other assets

Total assets



Liabilities

Deposits

Noninterest-bearing checking

Money management, savings, and interest checking

Time

Total deposits

Federal Home Loan Bank advances

Subordinate notes

Other liabilities

Total liabilities

Shareholders' equity

Common Stock

Additional paid-in capital

Retained earnings

Accumulated other comprehensive loss

Treasury stock

Total shareholders' equity

Total liabilities and shareholders' equity

$

$

$



Assets Under Management as of (fair value)

6/30/2026

3/31/2026

6/30/2025

Wealth Management

$

$

$

Held at third party brokers

Total assets under management

$

$

$





Key performance ratios as of or for the period ended as shown:

As of or for the Three Months Ended

As of or for the Six Months Ended

Performance Measurements

6/30/2026

3/31/2026

6/30/2025

6/30/2026

6/30/2025

Return on average assets*

Return on average equity*

Efficiency ratio (1)

Net interest margin*



Shareholders' Value (per common share)

Diluted earnings per share

$

$

$

$

$

Regular cash dividend paid

$

$

$

$

$

Dividend payout ratio

Book value, per share

$

$

$

Tangible book value (1)

$

$

$

Market value, per share

$

$

$

Market value/book value ratio

Market value/tangible book value ratio

Price/earnings multiple*

Current quarter dividend yield*



Safety and Soundness

Net loans recovered (charged-off)/average loans*

-0.12%

-0.03%

-0.07%

Nonperforming loans / gross loans

Nonperforming assets / total assets

Allowance for credit losses / loans



* Annualized

(1) Non-GAAP measurement.  See GAAP versus Non-GAAP disclosure reconciliation





Non-GAAP

(Dollars in thousands, except per share)

As of



6/30/2026

3/31/2026

6/30/2025

Tangible Book Value (per share) (non-GAAP)

Shareholders' equity

$

$

$

Less intangible assets

Tangible book value



Shares outstanding (in thousands)



 Tangible book value per share

$

$

$







For the three months ended

For the Year to date period ended

Efficiency Ratio (non-GAAP)

6/30/2026

3/31/2026

6/30/2025

6/30/2026

6/30/2025

Noninterest expense

$

$

$

$

$



Net interest income  

Plus tax equivalent adjustment to net interest income

Plus noninterest income, net of securities gains/losses

Total revenue

$

$

$

$

$



 Efficiency ratio: noninterest expense /total revenue