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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2024

or

¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from__________ to___________

Commission file number 001-38884

FRANKLIN FINANCIAL SERVICES CORPORATION

(Exact name of registrant as specified in its charter)

Pennsylvania

25-1440803

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

1500 Nitterhouse Drive, Chambersburg, PA

17201-0819

(Address of principal executive offices)

(Zip Code)

(717) 264-6116

(Registrant's telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:



Title of class

Symbol

Name of exchange on which registered

Common stock

FRAF

Nasdaq Capital Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer x Smaller reporting company x Emerging growth company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act) Yes ¨ No x

There were 4,415,707 outstanding shares of the Registrant’s common stock as of October 31, 2024.

INDEX

Part I - FINANCIAL INFORMATION

Item 1

Financial Statements

Consolidated Balance Sheets as of September 30, 2024 and December 31, 2023 (unaudited)

1

Consolidated Statements of Income for the Three and Nine Months ended September 30, 2024 and 2023 (unaudited)

2

Consolidated Statements of Comprehensive Income for the Three and Nine Months ended

3

September 30, 2024 and 2023 (unaudited)

Consolidated Statements of Changes in Shareholders’ Equity for the Three and Nine Months

4

ended September 30, 2024 and 2023 (unaudited)

Consolidated Statements of Cash Flows for the Nine Months ended September 30, 2024

5

and 2023 (unaudited)

Notes to Consolidated Financial Statements (unaudited)

6

Item 2

Management’s Discussion and Analysis ofResults of Operations and Financial Condition

28

Item 3

Quantitative and Qualitative Disclosures about Market Risk

46

Item 4

Controls and Procedures 

46

Part II - OTHER INFORMATION

Item 1

Legal Proceedings

48

Item 1A

Risk Factors

48

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

48

Item 3

Defaults Upon Senior Securities

48

Item 4

Mine Safety Disclosures

48

Item 5

Other Information

48

Item 6

Exhibits

49

SIGNATURE PAGE

49

Part I FINANCIAL INFORMATION

Item 1. Financial Statements

Consolidated Balance Sheets

(Dollars in thousands, except share and per share data)

(unaudited)

September 30,

December 31,

2024

2023

Assets

Cash and due from banks

$

26,278 

$

19,505 

Short-term interest-earning deposits in other banks

210,039 

3,635 

Total cash and cash equivalents

236,317 

23,140 

Long-term interest-earning deposits in other banks

1,749 

6,229 

Debt securities available for sale, at fair value

466,485 

472,503 

Equity securities

655 

427 

Restricted stock

9,175 

2,375 

Loans held for sale

2,725 

213 

Loans

1,365,893 

1,256,985 

Allowance for credit losses

(17,507)

(16,052)

Net Loans

1,348,386 

1,240,933 

Premises and equipment, net

29,162 

28,543 

Right of use asset

4,251 

4,680 

Bank owned life insurance

22,618 

22,758 

Goodwill

9,016 

9,016 

Deferred tax asset, net

9,135 

11,801 

Other assets

11,689 

13,421 

Total assets

$

2,151,363 

$

1,836,039 

Liabilities

Deposits

Noninterest-bearing checking

$

303,207 

$

273,050 

Money management, savings, and interest checking

1,177,009 

1,132,482 

Time

243,275 

132,446 

Total deposits

1,723,491 

1,537,978 

Federal Reserve Bank borrowings

40,000 

90,000 

FHLB advances

200,000 

40,000 

Subordinate notes

19,691 

19,661 

Lease liability

4,403 

4,816 

Other liabilities

13,850 

11,448 

Total liabilities

2,001,435 

1,703,903 

Commitments and contingent liabilities

 

 

Shareholders' equity

Common stock, $1 par value per share,15,000,000 shares authorized with

4,710,972 shares issued and 4,418,753 shares outstanding at September 30, 2024 and

4,710,972 shares issued and 4,371,231 shares outstanding at December 31, 2023

4,711 

4,711 

Capital stock no par value, 5,000,000 shares authorized with no

shares issued and outstanding

—

—

Additional paid-in capital

43,697 

43,646 

Retained earnings

140,388 

133,993 

Accumulated other comprehensive loss

(30,885)

(40,940)

Treasury stock, 292,219 shares at September 30, 2024 and 339,741 shares at

December 31, 2023, at cost

(7,983)

(9,274)

Total shareholders' equity

149,928 

132,136 

Total liabilities and shareholders' equity

$

2,151,363 

$

1,836,039 

The accompanying notes are an integral part of these unaudited financial statements. 

1

Consolidated Statements of Income

For the Three Months Ended

For the Nine Months Ended

(Dollars in thousands, except per share data) (unaudited)

September 30,

September 30,

2024

2023

2024

2023

Interest income

Loans, including fees

$

19,082

$

15,308

$

54,363

$

41,712

Interest and dividends on investments:

Taxable interest

4,011

3,838

11,825

10,615

Tax exempt interest

273

277

822

956

Dividend income

227

11

477

30

Interest-earning deposits in other banks

2,460

720

7,107

1,934

Total interest income

26,053

20,154

74,594

55,247

Interest expense

Deposits

8,127

5,127

21,649

12,934

FHLB overnight borrowings and advances

2,525

789

7,813

1,518

Federal Reserve Bank borrowings

485

267

1,925

267

Subordinate notes

264

264

789

790

Total interest expense

11,401

6,447

32,176

15,509

Net interest income

14,652

13,707

42,418

39,738

Provision for credit losses - loans

474

866

1,524

1,857

Provision for (reversal of) credit losses - unfunded commitments

11

9

(41)

79

Total provision for credit losses

485

875

1,483

1,936

Net interest income after credit loss expense

14,167

12,832

40,935

37,802

Noninterest income

Wealth management fees

2,097

1,783

6,366

5,576

Loan service charges

303

235

690

658

Gain on sale of loans

193

33

367

150

Deposit service charges and fees

628

649

1,814

1,848

Other service charges and fees

532

472

1,542

1,334

Debit card income

597

568

1,703

1,618

Increase in cash surrender value of life insurance

116

114

340

333

Net losses on sales of debt securities

—

—

—

(1,119)

Change in fair value of equity securities

303

7

228

(25)

Other

84

152

342

393

Total noninterest income

4,853

4,013

13,392

10,766

Noninterest Expense

Salaries and employee benefits

8,081

6,982

24,213

21,202

Net occupancy

1,150

1,093

3,480

3,315

Marketing and advertising

428

531

1,565

1,600

Legal and professional

490

588

1,521

1,593

Data processing

1,439

1,300

4,321

3,478

Pennsylvania bank shares tax

119

174

363

571

FDIC Insurance

550

230

1,280

610

ATM/debit card processing

307

320

969

920

Telecommunications

110

103

329

300

Nonservice pension

(7)

(29)

(43)

(88)

Lease termination

—

—

—

495

Other

1,250

906

3,563

2,868

Total noninterest expense

13,917

12,198

41,561

36,864

Income before federal income taxes

5,103

4,647

12,766

11,704

Federal income tax expense

885

788