Franklin Financial Services Reports Strong Q1 2025 Performance

Shares of Franklin Financial Services Corporation (FRAF) have experienced a 1.5% decline since the release of their first-quarter 2025 results, underperforming compared to the S&P 500 index, which rose by 0.6%. However, in the past month, the stock has shown considerable strength, gaining 8.7% against the S&P 500’s 1.6% drop, possibly reflecting renewed investor confidence due to solid quarterly results.

Earnings & Revenue Figures

In the first quarter of 2025, Franklin Financial reported a net income of $3.9 million, or 88 cents per diluted share, marking a 16.7% increase from the $3.4 million, or 77 cents per share, reported in the same quarter of 2024.

This revenue growth was supported by a 15.2% rise in net interest income, reaching $15.6 million, up from $13.6 million year over year. Additionally, non-interest income increased by 8.9% to $4.6 million, primarily driven by higher wealth management fees. The company’s net interest margin expanded to 3.05% from 2.88%, thanks to improved loan yields and careful balance sheet management.

Balance Sheet Growth Through Loans and Deposits

Franklin Financial’s total assets grew by 12.2% year over year to $2.26 billion as of March 31, 2025. Net loans rose by 14% to $1.44 billion, largely fueled by growth in commercial real estate loans, particularly those related to apartment buildings, hotels, and office buildings.

Deposits increased 19.8% year over year to $1.87 billion, with significant growth in money management and non-interest-bearing checking accounts. The cost of total deposits for the quarter was 2.02%, slightly higher than 1.70% from the previous year but down from 2.06% in the last quarter.

Insights from Leadership

Outgoing CEO Tim Henry attributed the improved performance to groundwork laid in previous years, emphasizing infrastructure development, disciplined balance sheet management, and increased loans and deposits.

“We are pleased to be able to post strong first quarter results as we continue to work to improve our efficiency and profitability across all areas of the Bank,” Henry remarked. His retirement on May 2 will conclude his tenure, with current president Craig Best set to take over as CEO.

Factors Contributing to Earnings Improvement

Loan growth of $57.3 million since the end of 2024, primarily from commercial real estate, necessitated a provision for credit losses of $779,000, an increase from $452,000 in Q1 2024. This indicates a cautious lending approach, consistent with the rise in loan balances. The yield on interest-earning assets improved to 5.25% from 5.03%, while the cost of interest-bearing liabilities increased to 2.64%, resulting in slightly compressed spreads.

Meanwhile, non-interest expenses rose by 9.7% year over year to $14.6 million, attributed to higher salaries, data processing, and FDIC insurance costs. Despite the rise in expenses, the bank’s efficiency remains manageable relative to its income generation. The effective federal income tax rate increased to 18.5% from 16.1% in the prior year.

Dividend Announcement

Franklin Financial declared a dividend of 33 cents per share for the second quarter, marking a 3.1% increase from the first quarter. This decision reflects management’s confidence in sustained earnings and capital strength. The dividend payout ratio for the first quarter was 36.2%, a decrease from 41.6% in the same quarter last year.

Additional Developments

During the quarter, the board authorized a share repurchase plan for up to 150,000 shares over a year; however, no shares were repurchased in Q1. This move aims to enhance shareholder value based on market conditions and capital requirements. Additionally, there was a decrease of $3.7 million in accumulated other comprehensive loss, leading to an improved book value per share of $33.99, up from $30.55 a year earlier.

With a stable capital base, a growing asset portfolio, and a disciplined approach to expenses, Franklin Financial appears positioned for further growth under new leadership. The bank remains well-capitalized and focused on enhancing shareholder returns through dividends and potential share repurchases.