Franklin Financial Q4 Earnings Rise Y/Y on Loan Growth, Higher Margins

Core View - Franklin Financial Services Corporation (FRAF) shares have shown a mixed performance post fourth-quarter 2025 earnings release, gaining 2% compared to the S&P 500's 0.4% return during the same period [1] Financial Performance - For Q4 2025, net income rose to $6 million, or $1.35 per diluted share, from $487 thousand, or 11 cents per diluted share, in the prior year, significantly impacted by a $3.4 million after-tax loss on investment securities in the previous period [2] - Full-year net income increased 91.2% year over year to $21.2 million, or $4.74 per diluted share, from $11.1 million, or $2.51 per diluted share, in 2024 [3] - Net interest income for Q4 climbed 23.3% to $18.6 million, while full-year net interest income rose 21.1% to $69.6 million [3] Balance Sheet and Growth Metrics - Total assets reached $2.239 billion at Dec. 31, 2025, up 1.9% year over year, with net loans increasing 11.6% to $1.541 billion, driven by commercial real estate and residential lending [4] - Total deposits grew 1.1% to $1.836 billion, despite a $65 million payoff in brokered deposits during Q4 [4] Performance Ratios - Return on average assets improved to 1.05% from 0.09%, and return on average equity increased to 14.20% from 1.32% [5] - Net interest margin expanded to 3.4% from 2.92% year over year [5] Management Insights - Management emphasized strong core earnings and balance sheet positioning, highlighting loan growth and improved margins as key drivers [6] - Wealth management fees increased 4.6% year over year to $2.3 million, with assets under management totaling $1.421 billion at year-end [6] Influencing Factors - Higher net interest income was supported by increased average earning assets and improved asset yields, with the yield on earning assets rising to 5.31% for 2025 from 5.16% in 2024 [7] - Non-interest income increased sharply year over year, primarily due to the absence of a sizable pre-tax securities loss from the prior year [7] Expense Trends - Non-interest expenses rose 8.4% in Q4 and 6.7% for the full year, driven by higher salaries, benefits, advertising, and FDIC insurance premiums [8] - Credit quality metrics showed some deterioration, with nonaccrual loans rising to 0.55% of total gross loans at year-end [8] Capital Management - In 2025, the company redeemed $9 million of its $15 million fixed-to-floating subordinated notes due in 2030, using excess cash [11] - Shareholders' equity increased 21.1% year over year, supported by higher retained earnings and a reduction in accumulated other comprehensive loss [11] - The company continued share repurchase activities and declared a quarterly cash dividend, representing a 3.1% increase over the prior year's comparable dividend [11]