Franklin Financial Earnings Surge 95% Y/Y in Q2, Stock Slips

Core Viewpoint - Franklin Financial Services Corporation (FRAF) reported strong financial performance for the second quarter of 2025, with significant year-over-year growth in net income and revenue, despite a recent decline in share price following earnings release [1][2]. Financial Performance - Net income for the second quarter surged 94.8% year-over-year to $5.9 million ($1.32 per diluted share) from $3 million (66 cents per diluted share) [2]. - For the first half of 2025, net income rose 53.7% to $9.8 million ($2.20 per diluted share) compared to $6.4 million ($1.43 per diluted share) in the same period of 2024 [3]. - Revenue growth was primarily driven by a 21.3% increase in net interest income to $17.2 million from $14.2 million a year earlier [2]. Key Business Metrics - Total assets increased 4.1% to $2.29 billion as of June 30, 2025 [4]. - Total net loans rose 8.7% to $1.5 billion, with a notable $68.9 million increase in commercial real estate loans, totaling $872.2 million [4]. - Deposits increased 4.3% to $1.89 billion, primarily driven by money management accounts [5]. Management Commentary - Management emphasized disciplined growth and asset quality management, despite an increase in non-performing loans from $266 thousand to $10.8 million [6]. - The allowance for credit losses remained steady at 1.26% of loans [6]. - Executives highlighted progress in commercial real estate lending and wealth management, with assets under management growing 6.9% year-over-year to $1.36 billion [7]. Performance Drivers - Loan portfolio growth, particularly in commercial real estate, was the primary driver of performance, leading to a 15.4% year-over-year increase in average loan balances [8]. - The yield on interest-earning assets improved to 5.30% from 5.10% in the prior-year period [8]. - Deposit costs rose from 1.74% to 1.95% year-over-year but moderated to 1.90% in the second quarter, contributing to a net interest margin increase to 3.21% from 2.99% [9]. Non-Interest Income and Expenses - Non-interest income climbed 17.3% to $5.1 million for the quarter, supported by higher wealth management fees and loan-related charges [10]. - Operating expenses increased only 0.4% year-over-year to $14.4 million, indicating cost discipline [10]. Other Developments - In January 2025, the company authorized a share repurchase plan for up to 150,000 shares, with 6,700 shares repurchased by June 30 [12]. - The board declared a third-quarter dividend of 33 cents per share, a 3.1% increase over the previous year [12].