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What changed in FRANKLIN FINANCIAL SERVICES CORP /PA/'s 10-K — 2024 vs 2025

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Paragraph-level year-over-year comparison of FRANKLIN FINANCIAL SERVICES CORP /PA/'s 2024 and 2025 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2025 report.

+238 added−209 removedSource: 10-K (2026-03-13) vs 10-K (2025-03-14)

Top changes in FRANKLIN FINANCIAL SERVICES CORP /PA/'s 2025 10-K

238 paragraphs added · 209 removed · 175 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

44 edited+18 added−8 removed149 unchanged
Biggest changeRisk Factors Relating to the Common Stock The stock market can be volatile, and fluctuations in our operating results and other factors could cause our stock price to decline. The stock market has experienced, and may continue to experience, fluctuations that significantly impact the market prices of securities issued by many companies and financial institutions specifically.
Biggest changeAny adverse effects from tariffs or a trade war could materially and negatively impact our financial condition, results of operations, and future growth prospects. 13 Table of Contents Risk Factors Relating to the Common Stock The stock market can be volatile, and fluctuations in our operating results and other factors could cause our stock price to decline.
Additionally, the Bank Holding Company Act 5 Table of Contents prohibits the Corporation from engaging in or from acquiring ownership or control of more than 5% of the outstanding shares of any class of voting stock of any company engaged in a non - banking business, unless such business is determined by the Federal Reserve to be so closely related to banking as to be a proper incident thereto.
Additionally, the Bank Holding Company Act prohibits the Corporation from engaging in or from acquiring ownership or control of more than 5% of the outstanding shares of any 5 Table of Contents class of voting stock of any company engaged in a non - banking business, unless such business is determined by the Federal Reserve to be so closely related to banking as to be a proper incident thereto.
Risk Factors The following is a summary of the primary risks associated with the Corporation’s business, financial condition and results of operations, and common stock. 8 Table of Contents Risk Factors Relating to the Corporation Real estate related loans are a significant portion of our loan portfolio.
Risk Factors 8 Table of Contents The following is a summary of the primary risks associated with the Corporation’s business, financial condition and results of operations, and common stock. Risk Factors Relating to the Corporation Real estate related loans are a significant portion of our loan portfolio.
The long-term and short-term commitment metrics from our most recent employee engagement survey were measured higher than the financial services industry benchmarks, which underscores a strong sense of loyalty to the bank among our employees. Community Involvement . The Bank’s commitment to community service reflects our core values.
Additionally, the long-term and short-term commitment metrics from our most recent employee engagement survey were measured higher than the financial services industry benchmarks, which underscores a strong sense of loyalty to the bank among our employees. Community Involvement . The Bank’s commitment to community service reflects our core values.
The Corporation’s operations could be affected by climate change. The Corporation’s business, as well as the operations and activities of our clients, could be negatively impacted by climate change. Climate change presents both immediate and long-term risks to the Corporation and its clients, and these risks are expected to increase over time.
The Corporation’s business, as well as the operations and activities of our clients, could be negatively impacted by climate change. Climate change presents both immediate and long-term risks to the Corporation and its clients, and these risks are expected to increase over time.
A large component of fee income is dependent on stock market values. Fee income from the Bank’s Wealth Management Department comprises a large percentage of total noninterest income. Fee income from Wealth Management Department is comprised primarily of asset management fees as measured by the market value of assets under management.
A large component of fee income is dependent on stock market values. Fee income from the Bank’s Wealth Management department comprises a large percentage (48%) of total noninterest income. Fee income from Wealth Management department is comprised primarily of asset management fees as measured by the market value of assets under management.
As of December 31, 2024, the Bank was “well capitalized’ under the Basel III requirements. For additional information on the capital ratios, see the section titled Shareholders’ Equity and Table 13. In 2019, the Community Bank Leverage Ratio (CBLR) was approved by federal banking agencies as an optional capital measure available to Qualifying Community Banking Organizations (QCBO).
As of December 31, 2025, the Bank was “well capitalized’ under the Basel III requirements. For additional information on the capital ratios, see the section titled Shareholders’ Equity and Table 13. In 2019, the Community Bank Leverage Ratio (CBLR) was approved by federal banking agencies as an optional capital measure available to Qualifying Community Banking Organizations (QCBO).
F&M Trust is the largest financial institution headquartered in Franklin County, PA and had total assets of approximately $2.2 billion on December 31, 2024. Human Capital Company Overview and Values. At F&M Trust, we recognize that our employees are fundamental to the realization of our vision and the execution of our ongoing strategy.
F&M Trust is the largest financial institution headquartered in Franklin County, PA and had total assets of approximately $2.2 billion on December 31, 2025. Human Capital Company Overview and Values. At F&M Trust, we recognize that our employees are fundamental to the realization of our vision and the execution of our ongoing strategy.
Such a reclassification could be made if the regulatory agency determines that the institution is in an unsafe or unsound condition (which could include unsatisfactory examination ratings). At December 31, 2024, the Bank satisfied the criteria to be classified as "well capitalized" within the meaning of applicable regulations.
Such a reclassification could be made if the regulatory agency determines that the institution is in an unsafe or unsound condition (which could include unsatisfactory examination ratings). At December 31, 2025, the Bank satisfied the criteria to be classified as "well capitalized" within the meaning of applicable regulations.
Cyber security risks for financial institutions have significantly increased in recent years in part because of the proliferation of new technologies, the use of the Internet and telecommunications technologies to conduct financial transactions, and the increased sophistication and activities of organized crime, hackers, terrorists and other external parties, including foreign state actors.
Cyber security risks for financial institutions have significantly increased in recent years in part because of the proliferation of new technologies (including artificial intelligence), the use of the Internet and telecommunications technologies to conduct financial transactions, and the increased sophistication and activities of organized crime, hackers, terrorists and other external parties, including foreign state actors.
Our overall engagement score reached 83%, highlighting our employees’ strong connection to F&M Trust and our shared commitment to success. Employee Training and Development. To empower our employees to unleash their full potential, we offer a comprehensive range of training and development programs, opportunities, and resources tailored to their needs.
Our overall engagement score reached 85%, highlighting our employees’ strong connection to F&M Trust and our shared commitment to success. Employee Training and Development. To empower our employees to unleash their full potential, we offer a comprehensive range of training and development programs, opportunities, and resources tailored to their needs.
The Corporation’s common stock is listed under the symbol “FRAF” on the Nasdaq Capital Market. The Corporation’s internet address is www.franklinfin.com. Electronic copies of the Corporation’s 2024 Annual Report on Form 10-K are available free of charge by visiting the “Investor Information” section of www.franklinfin.com.
The Corporation’s common stock is listed under the symbol “FRAF” on the Nasdaq Capital Market. The Corporation’s internet address is www.franklinfin.com. Electronic copies of the Corporation’s 2025 Annual Report on Form 10-K are available free of charge by visiting the “Investor Information” section of www.franklinfin.com.
If usage of this product slows or regulatory changes negatively affect the fees that can be charged for such services, it may greatly reduce fee income and have a material adverse effect on our financial condition and results of operations. A large percentage of deposits may be highly sensitive to changes in interest rates .
If usage of this product slows or regulatory changes negatively affect the fees that can be charged for such services, it may greatly reduce fee income and have a material adverse effect on our financial condition and results of operations. 11 Table of Contents A large percentage of deposits may be highly sensitive to changes in interest rates .
Federal and state banking regulators and supervisory authorities, investors, and other stakeholders have increasingly viewed financial institutions as important in helping to address the risks related to climate change both directly and with respect to their clients, which may result in financial institutions coming under increased pressure regarding the disclosure and management of their climate risks and related lending and investment activities.
Federal and state banking regulators and supervisory authorities, investors, and other stakeholders have increasingly viewed financial institutions as important in helping to address the risks related to climate change both directly and with respect to their 12 Table of Contents clients, which may result in financial institutions coming under increased pressure regarding the disclosure and management of their climate risks and related lending and investment activities.
Any one or more of these measures may impede the takeover of the Corporation without the approval of the Board of Directors and may prevent stockholders from taking part in a transaction in which they could realize a premium over the current market price of the Corporation common stock. 13 Table of Contents Item 1B. U nresolved Staff Comments None
Any one or more of these measures may impede the takeover of the Corporation without the approval of the Board of Directors and may prevent stockholders from taking part in a transaction in which they could realize a premium over the current market price of the Corporation common stock. Item 1B. U nresolved Staff Comments None
Ongoing legislative or regulatory uncertainties and changes regarding climate risk management and practices may result in higher regulatory, compliance, credit, reputational risks and costs, and potentially affect customer relationships. Severe weather, natural disasters, acts of war or terrorism, and other external events could negatively impact the Corporation’s business.
Ongoing legislative or regulatory uncertainties and changes regarding climate risk management and practices may result in higher regulatory, compliance, credit, reputational risks and costs, and potentially affect customer relationships. Severe weather, natural disasters, acts of war or terrorism, public health crises, and other external events could negatively impact the Corporation’s business.
The Bank met the criteria of a QCBO but did not opt-in to the CBLR.
The Bank met the criteria of QCBO but did not opt-in to the CBLR.
Accordingly, the size of the loans that can be offered to customers is less than the size of loans that many of our competitors, with larger lending limits, can offer. This limit affects 9 Table of Contents the Bank’s ability to seek relationships with larger businesses in its market area.
Accordingly, the size of the loans that can be offered to customers is less than the size of loans that many of our competitors, with larger lending limits, can offer. This limit affects the Bank’s ability to seek relationships with larger businesses in its market area.
The Bank’s compensation philosophy is to provide pay opportunities at the median level of prevailing industry practices among community banking companies of similar asset size and market type. Retention. Monitoring employee turnover rates is crucial for us. Retaining our talented and committed personnel is essential for our continued success. In 2024, our total voluntary turnover rate was 10.10%.
The Bank’s compensation philosophy is to provide pay opportunities at the median level of prevailing industry practices among community banking companies of similar asset size and market type. Retention. Monitoring employee turnover rates is crucial for us. Retaining our talented and committed personnel is essential for our continued success. In 2025, our total voluntary turnover rate was 7.03%.
Commercial loans are a significant portion of our loan portfolio. The Bank continues to grow its commercial loan portfolio. Commercial purpose loans account for 79% ($1.111 billion) of the total loan portfolio. These loans are made to businesses for a variety of commercial purposes and may include fixed and variable rate loans, term loans, and lines of credit.
Commercial loans are a significant portion of our loan portfolio. The Bank continues to grow its commercial loan portfolio. Commercial purpose loans account for 78% ($1.224 billion) of the total loan portfolio. These loans are made to businesses for a variety of commercial purposes and may include fixed and variable rate loans, term loans, and lines of credit.
It reflects how willing employees are to go above and beyond, as well as their dedication to building a future with F&M Trust. A cornerstone of our engagement efforts is our annual employee engagement survey, conducted by an independent third party. In 2024, we achieved an outstanding 94% response rate, marking the seventh consecutive year of best-in-class participation.
It reflects how willing employees are to go above and beyond, as well as their dedication to building a future with F&M Trust. A cornerstone of our engagement efforts is our annual employee engagement survey, conducted by an independent third party. In 2025, we achieved an outstanding 93% response rate, marking the eighth consecutive year of best-in-class participation.
The FDIC charges a premium to depository institutions for deposit insurance. This rate is based on the risk category of the institution and the total premium is based on average total assets less average tangible equity. As of December 31, 2024, the Bank was considered well capitalized and its assessment rate was approximately 5.8 basis points of the assessment base.
The FDIC charges a premium to depository institutions for deposit insurance. This rate is based on the risk category of the institution and the total premium is based on average total assets less average tangible equity. As of December 31, 2025, the Bank was considered well capitalized and its assessment rate was approximately 9.2 basis points of the assessment base.
The capital conservation buffer is equal to the lowest value of the three applicable capital ratios less the regulatory minimum (“adequately capitalized”) for each respective capital measurement. The Bank’s capital conservation buffer at December 31, 2024 was 4.96%. Compliance with the capital conservation buffer is required in order to avoid limitations on certain capital distributions, especially dividends.
The capital conservation buffer is equal to the lowest value of the three applicable capital ratios less the regulatory minimum (“adequately capitalized”) for each respective capital measurement. The Bank’s capital conservation buffer at December 31, 2025 was 5.27%. Compliance with the capital conservation buffer is required in order to avoid limitations on certain capital distributions, especially dividends.
The Bank offers a variety of loan products, including residential mortgage, consumer, construction and commercial loans. The Bank requires real estate as collateral for many of its loans. At December 31, 2024, approximately 83 % ($1.159 billion) of its loans were secured by real estate.
The Bank offers a variety of loan products, including residential mortgage, consumer, construction and commercial loans. The Bank requires real estate as collateral for many of its loans. At December 31, 2025, approximately 85 % ($1.326 billion) of its loans were secured by real estate.
The unpredictable nature of events such as severe weather, natural disasters, acts of war or terrorism, and other adverse external events could have a significant impact on the Corporation’s ability to conduct business.
The unpredictable nature of events such as severe weather, natural disasters, acts of war or terrorism (international or domestic), public health crises, geopolitical events, and other adverse external events could have a significant impact on the Corporation’s ability to conduct business.
As of December 31, 2024, the Bank’s non-owner occupied CRE loans were 343% of total capital. Pennsylvania Regulation and Supervision In December 2012, the “Banking Law Modernization Package” became effective.
As of December 31, 2025, the Bank’s non-owner occupied CRE loans were 350% of total regulatory capital compared to 343% on December 31, 2024. Pennsylvania Regulation and Supervision In December 2012, the “Banking Law Modernization Package” became effective.
Excessive credit losses could have a material adverse effect on the Bank’s financial condition and results of operations. The Bank’s lending limit is smaller than many of our competitors, which affects the size of the loans it can offer customers . At December 31, 2024, the Bank’s in-house policy lending limit was $29.6 million.
Excessive credit losses could have a material adverse effect on the Bank’s financial condition and results of operations. 9 Table of Contents The Bank’s lending limit is smaller than many of our competitors, which affects the size of the loans it can offer customers . At December 31, 2025, the Bank’s in-house policy lending limit was $32.7 million.
Therefore, any significant negative change in the value of assets under management due to stock market fluctuations could greatly reduce fee income and have a material adverse effect on our financial condition and results of operations. 10 Table of Contents A large component of fee income is dependent on two deposit services.
As such, the market values are directly related to stock market values. Therefore, any significant negative change in the value of assets under management due to stock market fluctuations could greatly reduce fee income and have a material adverse effect on our financial condition and results of operations. A large component of fee income is dependent on two deposit services.
Our wellness program boasts high levels of employee participation, with over 75% of our workforce completing health risk assessments and 72% completing biometric screenings in 2024. Competitive Pay and Benefits.
Our wellness program boasts high levels of employee participation, with over 51% of our workforce completing health risk assessments and 71% completing biometric screenings in 2025. Competitive Pay and Benefits.
The Bank utilizes various strategies including its long history of local customer service and convenience as part of a relationship management culture, a wide variety of products and services and, to a lesser extent, the pricing of loans and deposits, to compete.
In addition, credit unions increasingly compete with banks for deposits and certain types of loans. The Bank utilizes various strategies including its long history of local customer service and convenience as part of a relationship management culture, a wide variety of products and services and, to a lesser extent, the pricing of loans and deposits, to compete.
Commercial purpose loans may be secured by real estate, business assets and equipment, personal guarantees, or non-real estate collateral. Commercial purpose loans secured by real estate were $880.1 million at December 31, 2024 and account for 79% of the total commercial loan portfolio or 63% of the total portfolio of the Bank.
Commercial purpose loans may be secured by real estate, business assets and equipment, personal guarantees, or non-real estate collateral. Commercial purpose loans secured by real estate were $998.4 million at December 31, 2025 and account for 82% of the total commercial loan portfolio or 64% of the total portfolio of the Bank.
In 2024, F&M Trust donated over $591 thousand to 325 organizations in our communities and funded 392 scholarships for $227 thousand to kindergarten through 12th grade and Pre-kindergarten schools and organizations through the Pennsylvania Educational Improvement Tax Credit program. In addition, employees of the Bank provided 2,132 volunteer hours to 90 different service organizations.
In 2025, F&M Trust donated over $785 thousand to 324 organizations in our communities and funded 341 scholarships for $318 thousand to kindergarten through 12th grade, Pre-kindergarten schools and organizations through the Pennsylvania Educational Improvement Tax Credit program. In addition, employees of the Bank provided 2,474 volunteer hours to 105 different service organizations.
Thirty-eight percent ($694.9 million) of all deposits are in the Bank’s money management product. The interest rate on these deposits generally follows market rates. A large or continuous increase in market rates could result in a rapid increase in the interest expense of these deposits.
As of December 31, 2025, 42% ($771.2 million) of all deposits are in the Bank’s money management product. The interest rate on these deposits generally follows market rates. A large or continuous increase in market rates could result in a rapid increase in the interest expense of these deposits.
While the Corporation believes its business continuity plan and efforts to evaluate the business continuity plans of critical third-party service providers help mitigate risks, disruptions or failures affecting any of these systems may cause interruptions in service to customers, damage to the Corporation's reputation, and loss or liability to the Corporation. ‎ 12 Table of Contents Negative developments affecting the banking industry, including bank failures or concerns regarding liquidity may have a material adverse effect on the Corporation.
While the Corporation believes its business continuity plan and efforts to evaluate the business continuity plans of critical third-party service providers help mitigate risks, disruptions or failures affecting any of these systems may cause interruptions in service to customers, damage to the Corporation's reputation, and loss or liability to the Corporation.
Some competitors may have access to resources (e.g., financial and technological) sooner than they are available to the Bank, or that may be unavailable to the Bank, thereby creating a competitive disadvantage for the Bank in terms of product, service pricing and delivery. In addition, credit unions increasingly compete with banks for deposits and certain types of loans.
Some competitors may have access to resources (e.g., financial and technological) greater than, and more quickly than, are available to the Bank, or that may be unavailable to the Bank, thereby creating a competitive disadvantage for the Bank in terms of product, service pricing and delivery.
In the recent past, the financial services industry has been impacted by bank failures and by financial instability at various banks. Bank failures and bank instabilities, and future bank failures and instabilities, have created and may continue to create market and other risks, for all financial institutions and banks, including the Corporation.
Bank failures and bank instabilities, and future bank failures and instabilities, have created and may continue to create market and other risks, for all financial institutions and banks, including the Corporation.
A decline in real estate values means it is possible that the real estate collateral may be insufficient to cover the outstanding balance of a delinquent or foreclosed loan, resulting in a loss to the Bank. In addition, the real estate collateral is concentrated in the Bank’s primary market area.
A decline in real estate values means it is possible that the real estate collateral may be insufficient to cover the outstanding balance of a delinquent or foreclosed loan, resulting in a loss to the Bank. The Bank’s CRE concentration ratio was 349.9% of risk-based capital at December 31, 2025.
The Bank engages in general commercial, retail banking and trust services normally associated with community banks and its deposits are insured (up to applicable legal limits) by the Federal Deposit Insurance Corporation (the “FDIC”). F&M Trust offers a wide variety of banking services to businesses, individuals, and governmental entities.
F&M Trust operates twenty-three community banking offices in Franklin, Cumberland, Dauphin, Fulton and Huntingdon Counties, Pennsylvania; and Washington County, Maryland. The Bank engages in general commercial and retail banking services normally associated with community banks and its deposits are insured (up to applicable legal limits) by the Federal Deposit Insurance Corporation (the “FDIC”).
Localized events such as plant closures or layoffs may affect real estate prices and collateral values and could have a more negative affect on the Bank as compared to other competitors with a more geographically diverse portfolio. As the Bank grows, it is expected that real estate secured loans will continue to comprise a significant part of its balance sheet.
In addition, the real estate collateral is concentrated in the Bank’s primary market area. Localized events such as plant closures or layoffs may affect real estate prices and collateral values and could have a more negative effect on the Bank as compared to other competitors with a more geographically diverse portfolio.
Market fluctuations could adversely affect our stock price. These fluctuations have often been unrelated or disproportionate to the operating performance of particular companies.
The stock market has experienced, and may continue to experience, fluctuations that significantly impact the market prices of securities issued by many companies and financial institutions specifically. Market fluctuations could adversely affect our stock price. These fluctuations have often been unrelated or disproportionate to the operating performance of particular companies.
We discuss these matters further in Part I Item 3 Legal Proceedings and in Note 21 Commitments and Contingencies in the Notes to Consolidated Financial Statements in Part II Item 8 of this Report. ‎ 11 Table of Contents Public health crises such as epidemics or pandemics could materially and adversely impact our business .
We discuss these matters further in Part I Item 3 Legal Proceedings and in Note 21 Commitments and Contingencies in the Notes to Consolidated Financial Statements in Part II Item 8 of this Report. The Corporation’s operations could be affected by climate change.
Cyber threats may also subject the Corporation to regulatory investigations, litigation or enforcement, require the payment of regulatory fines or penalties or undertaking costly remediation efforts.
Cyber threats may also subject the Corporation to regulatory investigations, litigation or enforcement, require the payment of regulatory fines or penalties or undertaking costly remediation efforts. Further, we may face unknown or contingent liabilities arising from cybersecurity incidents or data breaches that previously occurred at companies we acquire.
These services include, but are not necessarily limited to, accepting and maintaining checking, savings, and time deposit accounts, providing wealth management services, making loans and providing safe deposit facilities.
F&M Trust offers a wide variety of banking services to businesses, individuals, and governmental entities. These services include, but are not necessarily limited to, accepting and maintaining checking, savings, and time deposit accounts, making loans and providing safe deposit facilities. It also provides investment and trust services through its Wealth Management segment.
The following table shows the Bank’s market share where it operates deposit taking banking offices as reported on the June 30, 2024 FDIC Summary of Deposits Report: (Dollars in thousands) F&M Trust County, State # of Locations Deposits Market Deposits Market Share Franklin, PA 12 $ 1,075,350 $ 2,885,333 37.27% Cumberland, PA 6 382,645 11,173,591 3.42% Fulton, PA 2 92,139 209,514 43.98% Huntingdon, PA 1 27,374 727,198 3.76% Washington, MD 1 19,112 3,275,562 0.58% 22 $ 1,596,620 $ 18,271,198 8.74% With increasing competition, many nonbanking institutions offer services similar to those offered by the Bank.
The following table shows the Bank’s market share where it operates deposit taking banking offices as reported on the June 30, 2025 FDIC Summary of Deposits Report: (Dollars in thousands) F&M Trust County, State # of Locations Deposits Market Deposits Market Share Franklin, PA 12 $ 1,270,316 $ 3,719,925 34.15% Cumberland, PA 6 443,912 11,642,442 3.81% Dauphin, PA 1 40,700 7,647,085 0.53% Fulton, PA 2 89,597 188,621 47.50% Huntingdon, PA 1 32,696 757,710 4.32% Washington, MD 1 25,581 3,275,973 0.78% 23 $ 1,902,802 $ 27,231,756 6.99% With increasing competition, many nonbanking institutions offer services similar to those offered by the Bank.
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F&M Trust operates twenty-three community banking offices in Franklin, Cumberland, Dauphin, Fulton and Huntingdon Counties, Pennsylvania; and Washington County, Maryland. It also has a location in Dauphin County, PA that serves as a regional support center for Commercial, and Wealth Management services.
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As the Bank grows, it is expected that real estate secured loans will continue to comprise a significant part of its balance sheet.
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As such, the market values are directly related to stock market values.
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Such incidents may not have been discovered, disclosed, or if previously discovered fully-remediated before closing, and the acquired company’s representations, warranties, and indemnities may be limited in scope, duration, or recoverability.
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An epidemic or pandemic (such as COVID-19) may cause prolonged global, national, or regional recessionary economic conditions or longer lasting effects on economic conditions than currently exist, which could have a material adverse effect on our business, results of operations and financial condition.
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As a result, we could incur costs or liabilities after an acquisition relating to regulatory investigations, litigation, remediation efforts, reputational harm, or customer and partner claims, which could adversely affect its business, financial condition, and results of operations. 10 Table of Contents In general, cyber incidents can result from deliberate attacks or unintentional events.
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As a result, the demand for our products and services may be significantly impacted, which could adversely affect our revenue and results of operations.
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The Corporation has observed an increased level of attention in the industry focused on cyber-attacks that include, but are not limited to, gaining unauthorized access to digital systems for purposes of misappropriating assets or sensitive information, corrupting data, or causing operational disruption.
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Furthermore, the effects of an epidemic or pandemic could result in the recognition of credit losses in our loan portfolios and an increase in our allowance for credit losses, particularly if businesses are restricted or are required to close.
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While the Corporation maintains insurance coverage that may, subject to policy terms and conditions including significant self-insured deductibles, cover or ameliorate certain financial aspects of cyber risks, such insurance coverage may be insufficient to cover all losses.
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Similarly, because of changing economic and market conditions affecting issuers, we may be required to recognize impairments on the securities we hold as well as reductions in other comprehensive income.
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The Corporation may use artificial intelligence (AI) in its business, and challenges with properly managing its use could result in disruption of its internal operations, reputational harm, competitive harm, legal liability and adversely affect its results of operations and stock price.
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Our business operations may also be disrupted if significant portions of our workforce are unable to work effectively, including because of illness, quarantines, government actions, or other restrictions in connection with the pandemic.
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The Corporation may incorporate AI solutions into platforms that deliver products and services to its customers, including solutions developed by third parties whose AI is integrated into its products and services.
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The extent to which an epidemic or pandemic impacts our business, results of operations, and financial conditions, as well as our regulatory capital and liquidity ratios, will depend on factors which are highly uncertain and cannot be predicted, including the scope and duration of an epidemic or pandemic and actions taken by governmental authorities and other third parties in response to the epidemic or pandemic.
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The Corporation's business could be harmed and it may be exposed to legal liability and reputational risk if the AI it uses is or is alleged to be deficient, inaccurate, or biased because the AI algorithms are flawed, insufficient, of poor quality, or reflect unwanted forms of bias, particularly if third party AI integrated with its platforms produces false or "hallucinatory" inferences.
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Data practices by the Corporation or others that result in controversy could impair the acceptance of AI, which could undermine the decisions, predictions, or analysis that AI applications produce. The Corporation's customers and potential customers may express adverse opinions concerning its use of AI and machine learning that could result in brand or reputational harm, competitive harm, or legal liability.
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If the Corporation develops Generative AI, its content creation may require additional investment as testing for bias, accuracy and unintended, harmful impact is often complex and may be costly.
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As a result, the Corporation may need to increase the cost of its products and services which may make it less competitive, particularly if its competitors incorporate AI more quickly or successfully. Governmental bodies have implemented laws and are considering further regulation of AI (including machine learning), which could negatively impact the Corporation's ability to use and develop AI.
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The Corporation is unable to predict how application of existing laws, including federal and state privacy and data protection laws, and adoption of new laws and regulations applicable to AI will affect it but it is likely that compliance with such laws and regulations will increase its compliance costs and such increase may be substantial and adversely affect its results of operations.
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Furthermore, its use of Generative AI and other forms of AI may expose us to risks relating to intellectual property ownership and licensing rights, including copyright of Generative AI and other AI output as these issues have not been fully interpreted by federal courts or been fully addressed by federal or state legislation or regulations.
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Negative developments affecting the banking industry, including bank failures or concerns regarding liquidity may have a material adverse effect on the Corporation. In the recent past, the financial services industry has been impacted by bank failures and by financial instability at various banks.
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Changes to trade policies and tariffs can have an adverse impact on our business and our customers. Changes in trade policies, including the imposition of tariffs or the escalation of a trade war, could negatively impact the economic conditions in the markets we serve.
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Our customers – particularly local businesses engaged in agriculture, manufacturing, and retail – may face higher costs for imported goods and materials, reduced export demand, and supply chain disruptions due to increased tariffs. These challenges could lead to lower revenues, reduced profitability, and potential layoffs, all of which may impair our customers’ ability to meet their financial obligations.
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Furthermore, prolonged trade tensions and economic uncertainty could lead to market volatility, declining asset values, and weakened consumer confidence. If our customers experience financial stress, we could see an increase in loan delinquencies and credit losses, negatively affecting our asset quality and overall financial performance.
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Additionally, any decline in local economic activity could reduce loan demand, deposit growth, and fee income, which are critical to our long-term success. While we actively monitor economic and policy developments, we cannot predict the outcome of trade negotiations or the full impact of tariffs and trade restrictions on our business, customers, and the broader economy.

Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

6 edited+2 added−1 removed11 unchanged
Biggest changeThe Corporation’s information security program is led by the Chief Technology Officer (CTO) in conjunction with the Chief Risk Officer (CRO) having over 50 years of combined experience in financial services risk management, and information security. Their experience includes incident response, vendor management, disaster recovery and business continuity, breach mitigation as well as relevant professional certification.
Biggest changePolicies and procedures address; vendor management and third-party risk, incident response, disaster recovery and business continuity, electronic banking, data classification and retention. The Corporation’s information security program is led by the Chief Technology Officer (CTO) in conjunction with the Chief Risk Officer (CRO) having over 50 years of combined experience in financial services risk management, and information security.
The IRT participate in testing of the plan at least annually through simulated cyberattack exercises. The Board of Directors reviews and approves the plan annually. 14 Table of Contents To date, risks from cybersecurity threats or incidents have not materially affected the Corporation .
The IRT participate in testing of the plan at least annually through simulated cyberattack exercises. The Board of Directors reviews and approves the plan annually. To date, risks from cybersecurity threats or incidents have not materially affected the Corporation .
For more information on how cybersecurity risk could materially affect the Company’s business strategy, results of operations, or financial condition, please refer to Item 1A Risk Factors.
For more information on how cybersecurity risk could materially affect the Company’s business strategy, results of operations, or financial condition, please refer to Item 1A Risk Factors. 15 Table of Contents
The Corporation’s information security program was developed to assess, identify, and monitor cybersecurity risks. The cybersecurity framework utilized by the Corporation is based on recommendations from the National Institute of Standards and Technology (NIST), ISO/IEC 27001 & 27002, Federal Financial Institutions Examination Council (FFIEC), industry standards and best practices, and other applicable regulatory guidance.
The cybersecurity framework utilized by the Corporation is based on recommendations from the National Institute of Standards and Technology (NIST), ISO/IEC 27001 & 27002, Federal Financial Institutions Examination Council (FFIEC), industry standards and best practices, and other applicable regulatory guidance. We maintain robust cybersecurity policies and procedures identify risks and mitigate where feasible.
The Corporation has developed an information security program to protect the confidentiality, integrity, and availability of our data, information systems, and digital assets from disruption, breach, or theft. As a financial institution we store and protect nonpublic data related to customers, employees, and business operations. Securing this data at all times is critical to our business.
As a financial institution we store and protect nonpublic data related to customers, employees, and business operations. Securing this data at all times is critical to our business. The Corporation’s information security program was developed to assess, identify, and monitor cybersecurity risks.
Such incidents could result in unauthorized access to customer or employee information, financial losses, regulatory penalties, and litigation. Our dependence on technology to deliver banking services and manage our operations increases the potential impact of cybersecurity risks.
Such incidents could result in unauthorized access to customer or employee information, financial losses, regulatory penalties, and litigation.
Removed
We maintain robust cybersecurity policies and procedures identify risks and mitigate where feasible. Policies and procedures address; vendor management and third-party risk, incident response, disaster recovery and business continuity, electronic banking, data classification and retention.
Added
Our dependence on technology to deliver banking services and manage our operations increases the potential impact of cybersecurity risks. 14 Table of Contents The Corporation has developed an information security program to protect the confidentiality, integrity, and availability of our data, information systems, and digital assets from disruption, breach, or theft.
Added
Their experience includes incident response, vendor management, disaster recovery and business continuity, breach mitigation as well as relevant professional certification.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeThe Corporation owns or leases thirty-five properties in Franklin, Cumberland, Dauphin, Fulton and Huntingdon Counties, Pennsylvania; and Washington County, Maryland, for banking operations, as described below: Property Owned Leased Facilities used in Banking Operations 17 10 Remote ATM Sites 3 5 The Bank’s properties are adequate for the purposes intended.
Biggest changeThe Corporation owns or leases properties in Franklin, Cumberland, Dauphin, Fulton and Huntingdon Counties, Pennsylvania; and Washington County, Maryland, for banking operations, as described below: Property Owned Leased Facilities used in Banking Operations 16 10 Remote ATM Sites 3 5 The Bank’s properties are adequate for the purposes intended.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeNo material proceedings are pending or are known to be threatened or contemplated against us by governmental authorities. In management’s opinion, there are no other proceedings pending to which the Corporation is a party or to which its property is subject which, if determined adversely to the Corporation, would be material.
Biggest changeNo material proceedings are pending or are known to be threatened or contemplated against us by governmental authorities. In management’s opinion, there are no other proceedings pending to which the Corporation is a party or to which its property is subject which, if determined adversely to the Corporation, would be material. Item 4. Mine Safety Disclosures Not Applicable Part II
Thus, at December 31, 2024, we are unable to provide an evaluation of the likelihood of an unfavorable outcome or an estimate of the amount or range of potential loss with respect to such other matters and, accordingly, have not yet established any specific accrual for such other matters.
Thus, at December 31, 2025, we are unable to provide an evaluation of the likelihood of an unfavorable outcome or an estimate of the amount or range of potential loss with respect to such other matters and, accordingly, have not yet established any specific accrual for such other matters.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeSecurities Authorized for Issuance under Equity Compensation Plans The information related to equity compensation plans is incorporated by reference to the materials set forth under the heading “Executive Compensation – Compensation Tables” in the Corporation’s Proxy Statement for the 2025 Annual Meeting of Shareholders.
Biggest changeRestrictions on the Payment of Dividends For limitations on the Corporation’s ability to pay dividends, see “Supervision and Regulation – Regulatory Restrictions on Dividends” in Item 1 above. 16 Table of Contents Securities Authorized for Issuance under Equity Compensation Plans The information related to equity compensation plans is incorporated by reference to the materials set forth under the heading “Executive Compensation – Compensation Tables” in the Corporation’s Proxy Statement for the 2025 Annual Meeting of Shareholders.
Only shareholders will be granted access to the meeting as described in the Franklin Financial Services Corporation 2025 Proxy Statement. Websites: Franklin Financial Services Corporation: www.franklinfin.com Farmers & Merchants Trust Company: www.fmtrust.bank Stock Information: The Corporation’s common stock is traded on the Nasdaq Capital Market under the symbol “FRAF”.
Only shareholders will be granted access to the meeting as described in the Franklin Financial Services Corporation 2026 Proxy Statement. Websites: Franklin Financial Services Corporation: www.franklinfin.com Farmers & Merchants Trust Company: www.fmtrust.bank Stock Information: The Corporation’s common stock is traded on the Nasdaq Capital Market under the symbol “FRAF”.
Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities Market and Shareholder Information The Corporation’s common stock trades on the Nasdaq Capital Market under the system FRAF. The Corporation had 1 ,493 shareholders of record as of December 31, 2024.
Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities Market and Shareholder Information The Corporation’s common stock trades on the Nasdaq Capital Market under the system FRAF. The Corporation had 1 ,493 shareholders of record as of December 31, 2025.
Performance Graph The following graph compares the cumulative total return to shareholders of Franklin Financial with selected market indices and a bank peer group, consisting of Mid-Atlantic Banks with assets between $1.5 billion - $2.5 billion as of September 30, 2024; for the five-year period ended December 31, 2024, in each case assuming an initial investment of $100 on December 31, 2019 and the reinvestment of all dividends.
Performance Graph The following graph compares the cumulative total return to shareholders of Franklin Financial with selected market indices and a bank peer group, consisting of Mid-Atlantic Banks with assets between $1.5 billion - $2.5 billion as of September 30, 2025; for the five-year period ended December 31, 2025, in each case assuming an initial investment of $100 on December 31, 2020 and the reinvestment of all dividends.
Information concerning this optional program is available by contacting the Corporate Secretary at 717-264-6116, or: Corporate Secretary 1500 Nitterhouse Drive, P.O. Box 6010 Chambersburg, PA 17201-6010 Annual Meeting: The Annual Meeting of the shareholders of Franklin Financial Services Corporation will be held Tuesday, April 29, 2025 at 9:00 a.m. in a virtual meeting format only.
Information concerning this optional program is available by contacting the Corporate Secretary at 717-264-6116, or: Corporate Secretary 1500 Nitterhouse Drive, P.O. Box 6010 Chambersburg, PA 17201-6010 Annual Meeting: The Annual Meeting of the shareholders of Franklin Financial Services Corporation will be held Tuesday, April 28, 2026 at 9:00 a.m. in a virtual meeting format only.
In January 2025, an open market repurchase plan was approved to repurchase 150,000 shares through December 31, 2025.
In December 2025, an open market repurchase plan was approved to repurchase 150,000 shares through December 31, 2026.
The following table shows stock repurchase activity under approved plans: Period Number of Shares Purchased as Part of Publicly Announced Program Weighted Average Price Paid per Share Dollar Amount of Shares Purchased as Part of Publicly Announced Program Maximum Number of Shares Yet To Be Purchased Under Program October 2024 4,441 $ 30.05 $ 133,446 125,480 November 2024 — $ — $ — 125,480 December 2024 — $ — $ — 125,480 4,441 $ 133,446 The shares reported above were part of a repurchase plan that expired on December 31, 2024.
The following table shows stock repurchase activity under approved plans: Period Number of Shares Purchased as Part of Publicly Announced Program Weighted Average Price Paid per Share Dollar Amount of Shares Purchased as Part of Publicly Announced Program Maximum Number of Shares Yet To Be Purchased Under Program October 2025 — $ — $ — 137,200 November 2025 6,500 $ 52.22 $ 339,840 130,700 December 2025 — $ — $ — 130,700 6,500 $ 339,840 The shares reported above were part of a repurchase plan that expired on December 31, 2025.
BMI Banks - Mid-Atlantic Region Index $ 100.00 $ 90.39 $ 114.16 $ 96.42 $ 116.90 $ 162.46 Peer Group* $ 100.00 $ 79.67 $ 102.20 $ 109.72 $ 110.45 $ 129.69 *Peer Group consists of Mid Atlantic Banks with Assets between $1.5B-$2.5B as of 9/30/2024 ‎ 17 Table of Contents Shareholders’ Information Dividend Reinvestment Plan: Franklin Financial Services Corporation offers a dividend reinvestment program whereby shareholders of the Corporation’s common stock may reinvest their dividend, or make optional cash payment, to purchase additional shares of the Corporation.
BMI Banks - Mid-Atlantic Region Index $ 100.00 $ 126.30 $ 106.67 $ 129.34 $ 179.73 $ 247.07 Peer Group* $ 100.00 $ 129.35 $ 132.58 $ 138.86 $ 154.09 $ 185.24 *Peer Group consists of Mid Atlantic Banks with Assets between $1.5B-$2.5B as of 9/30/2025 ‎ 18 Table of Contents Shareholders’ Information Dividend Reinvestment Plan: Franklin Financial Services Corporation offers a dividend reinvestment program whereby shareholders of the Corporation’s common stock may reinvest their dividend, or make optional cash payment, to purchase additional shares of the Corporation.
Information is provided by S&P Global Market Intelligence. 16 Table of Contents Period Ending Index 12/31/19 12/31/20 12/31/21 12/31/22 12/31/23 12/31/24 Franklin Financial Services Corporation $ 100.00 $ 72.91 $ 92.97 $ 105.52 $ 96.24 $ 94.90 NASDAQ Composite Index $ 100.00 $ 144.92 $ 177.06 $ 119.45 $ 172.77 $ 223.87 S&P U.S.
Information is provided by S&P Global Market Intelligence. 17 Table of Contents Period Ending Index 12/31/20 12/31/21 12/31/22 12/31/23 12/31/24 12/31/25 Franklin Financial Services Corporation $ 100.00 $ 127.52 $ 144.73 $ 132.00 $ 130.17 $ 225.82 NASDAQ Composite Index $ 100.00 $ 122.18 $ 82.43 $ 119.22 $ 154.48 $ 187.14 S&P U.S.
Removed
Restrictions on the Payment of Dividends For limitations on the Corporation’s ability to pay dividends, see “Supervision and Regulation – Regulatory Restrictions on Dividends” in Item 1 above.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeAnalysis of Net Interest Income 2024 2023 Average Income or Average Average Income or Average (Dollars in thousands) balance expense yield/rate balance expense yield/rate Interest-earning assets: Interest-earning deposits in other banks $ 176,041 $ 9,237 5.25% $ 50,451 $ 2,407 4.77% Investment securities: Taxable 432,684 17,127 3.96% 406,937 14,846 3.65% Tax exempt 50,868 1,322 2.60% 54,416 1,523 2.80% Investment securities 483,552 18,449 3.82% 461,353 16,369 3.55% Loans: Residential real estate 1-4 family: First liens 222,572 11,442 5.14% 173,986 7,912 4.55% Junior liens and lines of credit 76,515 4,635 6.06% 72,623 4,050 5.58% Residential real estate - construction 28,096 1,954 6.95% 21,124 1,303 6.17% Commercial real estate 747,037 42,975 5.75% 626,817 33,204 5.30% Commercial 241,554 13,052 5.40% 243,045 12,080 4.97% Consumer 7,322 645 8.81% 6,285 531 8.45% Loans 1,323,096 74,703 5.65% 1,143,880 59,080 5.16% Total interest-earning assets 1,982,689 $ 102,389 5.16% 1,655,684 $ 77,856 4.70% Other assets 91,137 95,489 Total assets $ 2,073,826 $ 1,751,173 Interest-bearing liabilities: Deposits: Interest checking $ 416,770 $ 2,632 0.63% $ 459,447 $ 2,078 0.45% Money Management 627,163 18,782 2.99% 568,521 13,801 2.43% Savings 101,335 173 0.17% 117,026 183 0.16% Time 177,281 7,615 4.30% 84,428 2,415 2.86% Brokered 33,183 1,704 5.14% 7,084 366 5.17% Total interest-bearing deposits 1,355,732 30,906 2.28% 1,236,506 18,843 1.52% Subordinate notes 19,680 1,050 5.34% 19,642 1,051 5.35% Federal Reserve Bank borrowings 41,667 1,962 4.71% 53,041 2,374 4.48% Federal Home Loan Bank advances 219,883 10,019 4.56% 14,704 857 5.83% Total interest-bearing liabilities 1,636,962 43,937 2.68% 1,323,893 23,125 1.75% Noninterest-bearing deposits 282,460 293,001 Other liabilities 16,564 14,871 Shareholders' equity 137,840 119,408 Total liabilities and shareholders' equity $ 2,073,826 $ 1,751,173 T/E net interest income/Net interest margin 58,452 2.95% 54,731 3.31% Tax equivalent adjustment (938) (1,094) Net interest income $ 57,514 $ 53,637 Net Interest Spread 2.48% 2.95% Cost of Funds 2.29% 1.43% Cost of Deposits 1.89% 1.23% Provision for Credit Losses In 2024, the Bank recorded gross loan charge-offs of $560 thousand, which were partially offset by $186 thousand of recoveries, resulting in net loan charge-offs of $374 thousand.
Biggest changeAnalysis of Net Interest Income 2025 2024 Average Income or Average Average Income or Average (Dollars in thousands) balance expense yield/rate balance expense yield/rate Interest-earning assets: Interest-earning deposits in other banks $ 176,089 $ 7,641 4.34% $ 176,041 $ 9,237 5.25% Investment securities: Taxable securities 433,269 17,650 4.07% 423,088 16,442 3.89% Tax-exempt securities 49,511 1,310 2.65% 50,868 1,322 2.60% Restricted stock 8,863 781 8.81% 9,596 685 7.14% Total investment securities 491,643 19,741 4.02% 483,552 18,449 3.82% Gross Loans: Residential real estate 1-4 family: First liens 263,557 14,932 5.67% 222,572 11,442 5.14% Junior liens and lines of credit 87,410 5,177 5.92% 76,515 4,635 6.06% Residential real estate - construction 45,862 3,089 6.74% 28,096 1,954 6.95% Commercial real estate 865,233 51,324 5.93% 747,037 42,975 5.75% Commercial 234,148 12,613 5.39% 241,554 13,052 5.40% Consumer 8,531 758 8.89% 7,322 645 8.81% Total gross loans 1,504,741 87,893 5.84% 1,323,096 74,703 5.65% Total interest-earning assets 2,172,473 $ 115,275 5.31% 1,982,689 $ 102,389 5.16% Noninterest-earning assets 90,773 91,137 Total assets $ 2,263,246 $ 2,073,826 Interest-bearing liabilities: Deposits: Interest checking $ 414,021 $ 2,516 0.61% $ 416,770 $ 2,632 0.63% Money management 759,135 19,467 2.56% 627,163 18,782 2.99% Savings 95,255 91 0.10% 101,335 173 0.17% Time 219,629 8,681 3.95% 177,281 7,615 4.30% Time - brokered 84,790 3,939 4.65% 33,183 1,704 5.14% Total interest-bearing deposits 1,572,830 34,694 2.21% 1,355,732 30,906 2.28% Subordinate notes 17,453 1,281 7.34% 19,680 1,050 5.34% Federal Reserve Bank borrowings — — --- 41,667 1,962 4.71% Federal Home Loan Bank borrowings 200,000 8,750 4.38% 219,883 10,019 4.56% Total interest-bearing liabilities 1,790,283 44,725 2.50% 1,636,962 43,937 2.68% Noninterest checking 299,381 282,460 Other liabilities 16,944 16,564 Shareholders' equity 156,638 137,840 Total liabilities and shareholders' equity $ 2,263,246 $ 2,073,826 T/E net interest income/Net interest margin 70,550 3.25% 58,452 2.95% Tax equivalent adjustment (904) (938) Net interest income $ 69,646 $ 57,514 Net interest spread 2.81% 2.48% Cost of funds 2.14% 2.29% Cost of deposits 1.85% 1.89% Provision for Credit Losses In 2025, the Bank recorded gross loan charge-offs of $167 thousand, which were partially offset by $139 thousand of recoveries, resulting in net loan charge-offs of $28 thousand.
Goodwill is not amortized, nor deductible for tax purposes. However, goodwill is tested for impairment at least annually in accordance with ASC Topic 350. Goodwill was tested for impairment as of August 31, 2024. The 2024 test was conducted using a qualitative assessment method that requires the use of significant assumptions in order to make a determination of impairment.
Goodwill is not amortized, nor deductible for tax purposes. However, goodwill is tested for impairment at least annually in accordance with ASC Topic 350. Goodwill was tested for impairment as of August 31, 2025. The 2025 test was conducted using a qualitative assessment method that requires the use of significant assumptions in order to make a determination of impairment.
These assumptions may include, but are not limited to: macroeconomic factors, banking industry conditions, banking merger and acquisition trends, the Bank’s historical financial performance, the Corporation’s stock price, forecast Bank financial performance, and change of control premiums. Management determined the Bank’s goodwill was likely not impaired in 2024 and did not make a further assessment.
These assumptions may include, but are not limited to: macroeconomic factors, banking industry conditions, banking merger and acquisition trends, the Bank’s historical financial performance, the Corporation’s stock price, forecast Bank financial performance, and change of control premiums. Management determined the Bank’s goodwill was likely not impaired and did not make a further assessment.
Modifications to borrowers experiencing financial difficulty may include interest rate reductions, principal or interest forgiveness, forbearances, term extensions, and other actions intended to minimize economic loss and to avoid foreclosure or repossession of collateral. At December 31, 2024 and 2023, the Bank had no modified loans to borrowers experiencing financial difficulty.
Modifications to borrowers experiencing financial difficulty may include interest rate reductions, principal or interest forgiveness, forbearances, term extensions, and other actions intended to minimize economic loss and to avoid foreclosure or repossession of collateral. At December 31, 2025 and 2024, the Bank had no modified loans to borrowers experiencing financial difficulty.
Management’s periodic evaluation of the adequacy of the ACL for loans is based on the Bank’s past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, current economic forecasts and conditions, diversification of the loan portfolio, delinquency statistics, results of internal loan reviews, borrowers’ actual or perceived financial and managerial strengths, and other relevant factors.
Management’s periodic evaluation of the adequacy of the ACL for loans is based on the Bank’s past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, current economic forecasts and conditions, diversification of the loan portfolio, delinquency statistics, results of internal loan reviews, borrowers’ actual 33 Table of Contents or perceived financial and managerial strengths, and other relevant factors.
The Board of Directors frequently authorizes the repurchase of the Corporation’s $1.00 par value common stock. Information regarding stock repurchase plans in place during the year are included in Item 5 Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities.
The Board of Directors periodically authorizes the repurchase of the Corporation’s $1.00 par value common stock. Information regarding stock repurchase plans in place during the year are included in Item 5 Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities.
Total capital is comprised of Tier 1 capital plus the allowable portion of the allowance for loan losses. 36 Table of Contents The Corporation, as a bank holding company, is required to comply with the capital adequacy standards established by Federal Reserve Board. The Bank is required to comply with capital adequacy standards established by the FDIC.
Total capital is comprised of Tier 1 capital plus the allowable portion of the allowance for loan losses. 37 Table of Contents The Corporation, as a bank holding company, is required to comply with the capital adequacy standards established by Federal Reserve Board. The Bank is required to comply with capital adequacy standards established by the FDIC.
These policies are particularly sensitive requiring significant judgments, estimates and assumptions to be made by Management. 20 Table of Contents Senior management has discussed the development of such estimates, and related Management Discussion and Analysis disclosure, with the Audit Committee of the Board of Directors.
These policies are particularly sensitive requiring significant judgments, estimates and assumptions to be made by Management. 21 Table of Contents Senior management has discussed the development of such estimates, and related Management Discussion and Analysis disclosure, with the Audit Committee of the Board of Directors.
The following provides selected economic data for the Bank’s primary market at December 31: 37 Table of Contents Economic Data 2024 2023 Unemployment Rate (not seasonally adjusted) Market area range (1) 2.7% - 3.8% 2.4% - 3.5% Pennsylvania (seasonally adjusted) 3.4% 3.4% Maryland (seasonally adjusted) 3.0% 1.7% United States (seasonally adjusted) 4.2% 3.7% Housing Price Index - year over year change PA, nonmetropolitan statistical area 9.5% 4.6% United States 5.1% 4.8% Building Permits - year over year change -12 months (2) Residential, estimated 6.1% -15.4% Multifamily, estimated 46.0% -50.7% (1) Cumberland, Dauphin, Franklin, Fulton and Huntingdon County, PA, Washington County, MD and State of Maryland (2) Harrisburg-Carlisle, PA MSA, Chambersburg-Waynesboro, PA MSA and Hagerstown, MD Martinsburg, WV MSA The assets and liabilities of the Corporation are financial in nature, as such, the pricing of products, customer demand for certain types of products, and the value of assets and liabilities are greatly influenced by interest rates.
The following provides selected economic data for the Bank’s primary market at December 31: 38 Table of Contents Economic Data 2025 2024 Unemployment Rate (not seasonally adjusted) Market area range (1) 3.5% - 4.8% 2.7% - 3.8% Pennsylvania (seasonally adjusted) 4.1% 3.4% Maryland (seasonally adjusted) 3.8% 3.0% United States (seasonally adjusted) 4.6% 4.2% Housing Price Index - year over year change PA, nonmetropolitan statistical area 4.9% 9.5% MD, nonmetropolitan statistical area 9.8% 2.1% United States 9.8% 5.1% Building Permits - year over year change -12 months (2) Residential, estimated -9.2% 6.1% Multifamily, estimated -3.6% 46.0% (1) Cumberland, Dauphin, Franklin, Fulton and Huntingdon County, PA, Washington County, MD and State of Maryland (2) Harrisburg-Carlisle, PA MSA, Chambersburg-Waynesboro, PA MSA and Hagerstown, MD Martinsburg, WV MSA The assets and liabilities of the Corporation are financial in nature, as such, the pricing of products, customer demand for certain types of products, and the value of assets and liabilities are greatly influenced by interest rates.
The largest dollar exposures are in the states of Texas (16%), California (13%) and Pennsylvania (13%). When purchasing municipal bonds, the Bank looks primarily to the underlying credit of the issuer as a sign of credit quality and then to any credit enhancement. The entire portfolio is rated “A” or higher by a nationally recognized statistical rating organization.
The largest dollar exposures are in the states of Texas (15%), Pennsylvania (13%) and California (12%). When purchasing municipal bonds, the Bank looks primarily to the underlying credit of the issuer as a sign of credit quality and then to any credit enhancement. The entire portfolio is rated “A” or higher by a nationally recognized statistical rating organization.
The Bank does not originate or hold any loans that would be considered sub-prime or Alt-A and does not generally originate mortgages outside of its primary market area. Commercial purpose loans in this category represent loans made for various business needs but are secured with residential real estate.
The Bank 30 Table of Contents does not originate or hold any loans that would be considered sub-prime or Alt-A and does not generally originate mortgages outside of its primary market area. Commercial purpose loans in this category represent loans made for various business needs but are secured with residential real estate.
Table 3, previously presented, shows the average balances and yields earned on loans for the past two years. 28 Table of Contents The following table shows loans outstanding, by class, as of December 31 for the past 2 years. Table 8.
Table 3, previously presented, shows the average balances and yields earned on loans for the past two years. The following table shows loans outstanding, by class, as of December 31 for the past 2 years. Table 8.
It is the Bank’s policy to evaluate the probable collectability of principal and interest due under terms of loan contracts for all loans 90-days or 31 Table of Contents more, nonaccrual loans, or impaired loans. Further, it is the Bank’s policy to discontinue accruing interest on loans that are not adequately secured and in the process of collection.
It is the Bank’s policy to evaluate the probable collectability of principal and interest due under terms of loan contracts for all loans 90-days or more, nonaccrual loans, or impaired loans. Further, it is the Bank’s policy to discontinue accruing interest on loans that are not adequately secured and in the process of collection.
For a more comprehensive analysis of Federal income tax expense refer to Note 14 of the accompanying consolidated financial statements. . 26 Table of Contents Financial Condition One method of evaluating the Corporation’s condition is in terms of its sources and uses of funds. Assets represent uses of funds while liabilities represent sources of funds.
For a more comprehensive analysis of income tax expense, refer to Note 14 of the accompanying consolidated financial statements. . 27 Table of Contents Financial Condition One method of evaluating the Corporation’s condition is in terms of its sources and uses of funds. Assets represent uses of funds while liabilities represent sources of funds.
At December 31, 2024, Management subsequently considered certain qualitative factors affecting the Corporation and determined that it was not likely that the results of the prior test had changed, and it determined that goodwill was not impaired at year-end. 34 Table of Contents Deposits: The Bank depends on deposits generated in the normal course of business as its primary source of funds.
At December 31, 2025, Management subsequently considered certain qualitative factors affecting the Corporation and determined that it was not likely that the results of the prior test had changed, and it determined that goodwill was not impaired at year-end. 35 Table of Contents Deposits: The Bank depends on deposits generated in the normal course of business as its primary source of funds.
The 2023 impairment test was also conducted using a qualitative assessment and Management determined the Bank’s goodwill was likely not impaired in 2023 and did not make a further assessment.
The 2024 impairment test was also conducted using a qualitative assessment and Management determined the Bank’s goodwill was likely not impaired in 2024 and did not make a further assessment.
Additional information on Shareholders’ Equity is reported in Note 20 of the accompanying consolidated financial statements. The Corporation’s dividend reinvestment plan (DRIP) allows for shareholders to purchase additional shares of the Corporation’s common stock by reinvesting cash dividends paid on their shares or through optional cash payments. The Dividend Reinvestment Plan (DRIP) added $1.7 million to capital during 2024.
Additional information on Shareholders’ Equity is reported in Note 20 of the accompanying consolidated financial statements. The Corporation’s dividend reinvestment plan (DRIP) allows for shareholders to purchase additional shares of the Corporation’s common stock by reinvesting cash dividends paid on their shares or through optional cash payments. The Dividend Reinvestment Plan (DRIP) added $1.2 million to capital during 2025.
Watch list loans exhibit financial weaknesses that increase the potential risk of default or loss to the Bank. However, inclusion on the watch list, does not by itself, mean a loss is certain. The watch list includes both performing and nonperforming loans. Watch list loans totaled $21.5 million at year-end compared to $17.2 million one year earlier.
Watch list loans exhibit financial weaknesses that increase the potential risk of default or loss to the Bank. However, inclusion on the watch list, does not by itself mean a loss is certain. The watch list includes both performing and nonperforming loans. Watch list loans totaled $58.8 million at year-end compared to $21.5 million one year earlier.
This total was comprised of $1.0 million from the reinvestment of quarterly dividends and $730 thousand of optional cash purchases.
This total was comprised of $1.0 million from the reinvestment of quarterly dividends and $213 thousand of optional cash purchases.
However, in certain instances, the Bank may make a loan that exceeds the supervisory loan-to-value limit. At December 31, 2024, the Bank had loans of $14.1 million (1.0% of gross loans) that exceeded the supervisory loan-to value limit, compared to 1.1% at the prior year end.
However, in certain instances, the Bank may make a loan that exceeds the supervisory loan-to-value limit. At December 31, 2025, the Bank had loans of $16.0 million (1.0% of gross loans) that exceeded the supervisory loan-to value limit, compared to 1.0% at the prior year end.
The ACL is increased or decreased through the provision for credit losses. 33 Table of Contents The following table shows the allocation of the allowance for credit losses and other loan performance ratios, by class, as of December 31, 2024 and 2023: Table 10.
The ACL is increased or decreased through the provision for credit losses. 34 Table of Contents The following table shows the allocation of the allowance for credit losses and other loan performance ratios, by class, as of December 31, 2025 and 2024: Table 10.
Commercial : This category includes commercial, industrial, farm, agricultural, and tax-free loans. Collateral for these loans may include business assets or equipment, personal guarantees, or other non-real estate collateral. Commercial loans decreased $12.1 million over the 2023 ending balance. At December 31, 2024, the Bank had approximately $105 million of tax-free loans in its portfolio.
Commercial : This category includes commercial, industrial, farm, agricultural, and tax-free loans. Collateral for these loans may include business assets or equipment, personal guarantees, or other non-real estate collateral. Commercial loans decreased $5.1 million over the 2024 ending balance. At December 31, 2025, the Bank had approximately $102 million of tax-free loans in its portfolio.
The pooled reserve is calculated using a quantitative and qualitative component for the loan pools. ‎ 32 Table of Contents The following inputs are used to calculate the quantitative component for the loan pool: Segregating loans into homogeneous pools by the FRB Call Code which is primarily a collateral-based and secondarily a purpose-based segmentation. The average remaining life of each pool is calculated using the weighted average remaining maturity method (WARM).
The following inputs are used to calculate the quantitative component for the loan pool: Segregating loans into homogeneous pools by the FRB Call Code which is primarily a collateral-based and secondarily a purpose-based segmentation. The average remaining life of each pool is calculated using the weighted average remaining maturity method (WARM).
Data processing: The largest cost in this category is the expense associated with the Bank’s core processing system and related services and accounted for $2.2 million of the total data processing costs in 2024 and $2.0 million in 2023. The increase in 2024 was due primarily to increases in software expenses.
Data processing: The largest cost in this category is the expense associated with the Bank’s core processing system and related services and accounted for $2.4 million of the total data processing costs in 2025 and $2.2 million in 2024. The increase in total data processing expenses for 2025 was due primarily to increases in the core processing system.
For more information, refer to the Loan Quality discussion and Table 10. 24 Table of Contents Noninterest Income The following table presents a comparison of noninterest income for the years ended December 31, 2024 and 2023: Table 4.
For more information, refer to the Loan Quality discussion and Table 10. 25 Table of Contents Noninterest Income The following table presents a comparison of noninterest income for the years ended December 31, 2025 and 2024: Table 4.
Consumer loans: This category is comprised of installment loans and personal lines of credit and increased $2.0 thousand in 2024 over 2023 ending balances. 30 Table of Contents Table 9. Maturities and Interest Rate Terms of Selected Loans The following table presents the stated maturities (or earlier call dates) of selected loans as of December 31, 2024.
Consumer loans: This category is comprised of installment loans and personal lines of credit and increased $804 thousand in 2025 over 2024 ending balances. 31 Table of Contents Table 9. Maturities and Interest Rate Terms of Selected Loans The following table presents the stated maturities (or earlier call dates) of selected loans as of December 31, 2025.
All investment securities are classified as 38 Table of Contents available for sale; therefore, marketable securities that are unencumbered as collateral for borrowings are an additional source of readily available liquidity (approximately $301.4 million fair value), either by selling the security or, more preferably, to provide collateral for additional borrowing.
All investment securities are classified as available for sale; therefore, marketable securities that are unencumbered as collateral for borrowings are an additional source of 39 Table of Contents readily available liquidity (approximately $93.6 million fair value), either by selling the security or, more preferably, to provide collateral for additional borrowing.
The Bank estimates that approximately 85% of its deposits are FDIC insured or collateralized as of December 31, 2024. 35 Table of Contents At December 31, 2024, time deposits in excess of the FDIC insurance limit and time deposits that are otherwise uninsured by maturity were as follows: Table 12.
The Bank estimates that approximately 87% of its deposits are FDIC insured or collateralized as of December 31, 2025. 36 Table of Contents At December 31, 2025, time deposits in excess of the FDIC insurance limit and time deposits that are otherwise uninsured by maturity were as follows: Table 12.
The Bank’s capital conservation buffer at December 31, 2024 was 4.96%. Compliance with the capital conservation buffer is required in order to avoid limitations on certain capital distributions, especially dividends. As of December 31, 2024, the Bank was “well capitalized’ under the Basel III requirements.
The Bank’s capital conservation buffer at December 31, 2025 was 5.27%. Compliance with the capital conservation buffer is required in order to avoid limitations on certain capital distributions, especially dividends. As of December 31, 2025, the Bank was “well capitalized’ under the Basel III requirements.
Management’s Discussion and Analysis of Financial Condition and Results of Operations Summary of Selected Financial Data as of and for the Year Ended December 31 2024 2023 2022 2021 2020 (Dollars in thousands, except per share) Balance Sheet Highlights Total assets $ 2,197,841 $ 1,836,039 $ 1,699,579 $ 1,773,806 $ 1,535,038 Debt securities available for sale, at fair value 508,604 472,503 487,247 530,292 397,331 Loans, net 1,380,424 1,240,933 1,036,866 983,746 992,915 Deposits 1,815,647 1,537,978 1,551,448 1,584,359 1,354,573 Other borrowings 200,000 130,000 — — — Shareholders' equity 144,716 132,136 114,197 157,065 145,176 Summary of Operations Interest income $ 101,451 $ 76,762 $ 56,449 $ 47,573 $ 45,939 Interest expense 43,937 23,125 4,863 2,902 3,978 Net interest income 57,514 53,637 51,586 44,671 41,961 Provision for credit losses - loans 1,975 2,589 650 (2,100) 4,625 Provision for credit losses - unfunded commitments 8 135 — — — Total provision for credit losses 1,983 2,724 650 (2,100) 4,625 Net interest income after provision for credit losses 55,531 50,913 50,936 46,771 37,336 Noninterest income 13,679 14,851 15,250 19,488 15,084 Noninterest expense 55,895 50,011 48,691 43,245 39,362 Income before income taxes 13,315 15,753 17,495 23,014 13,058 Income tax expense 2,216 2,155 2,557 3,398 258 Net income $ 11,099 $ 13,598 $ 14,938 $ 19,616 $ 12,800 Performance Measurements Return on average assets 0.54% 0.78% 0.83% 1.17% 0.91% Return on average equity 8.05% 11.39% 11.64% 13.20% 9.56% Return on average tangible equity (1) 8.62% 12.32% 12.52% 14.05% 10.24% Efficiency ratio (1) 73.36% 70.75% 71.21% 66.12% 67.32% Net interest margin, fully tax equivalent 2.95% 3.31% 3.11% 2.88% 3.21% Shareholders' Value (per common share) Diluted earnings per share $ 2.51 $ 3.10 $ 3.36 $ 4.42 $ 2.93 Basic earnings per share 2.52 3.11 3.38 4.44 2.94 Regular cash dividends paid 1.28 1.28 1.28 1.25 1.2 Book value 32.69 30.23 26.01 35.36 33.07 Tangible book value (1) 30.65 28.17 23.96 33.34 31.02 Market value* 29.90 31.55 36.10 33.10 27.03 Market value/book value ratio 91.47% 104.37% 138.79% 93.61% 81.74% Market value/tangible book value ratio 97.54% 112.01% 150.67% 99.29% 87.13% Price/earnings multiple year-to-date 11.91 10.18 10.74 7.49 9.23 Dividend yield** 4.28% 4.06% 3.55% 3.87% 4.44% Dividend payout ratio 50.72% 41.15% 37.88% 28.16% 40.83% Safety and Soundness Average equity/average assets 6.65% 6.82% 7.17% 8.89% 9.48% Risk-based capital ratio (Total) 13.85% 14.45% 17.21% 18.41% 17.69% Leverage ratio (Tier 1) 7.92% 9.01% 8.95% 8.52% 8.69% Common equity ratio (Tier 1) 11.31% 11.82% 14.22% 15.20% 14.32% Nonperforming loans/gross loans 0.02% 0.01% 0.01% 0.74% 0.87% Nonperforming assets/total assets 0.01% 0.01% 0.01% 0.42% 0.57% Allowance for credit loss/loans 1.26% 1.28% 1.35% 1.51% 1.66% Net loan (charge-offs) recoveries/average loans -0.03% -0.02% -0.15% 0.04% 0.02% Assets under Management Wealth Management Services (fair value) $ 1,169,282 $ 1,094,747 $ 904,317 $ 946,964 $ 836,381 Held at third-party brokers (fair value) 139,872 135,423 116,398 118,046 112,624 (1) See the section titled "GAAP versus Non-GAAP Presentation" that follows. * Based on the closing price of FRAF as quoted on the Nasdaq Capital Market for all years shown. ** Based on annualized 4th quarter dividend and year-end market value. 19 Table of Contents GAAP versus non-GAAP Presentations – The Corporation supplements its traditional GAAP measurements with certain non-GAAP measurements to evaluate its performance and to eliminate the effect of intangible assets.
Management’s Discussion and Analysis of Financial Condition and Results of Operations Summary of Selected Financial Data as of and for the Year Ended December 31 (Dollars in thousands, except per share) 2025 2024 2023 2022 2021 Balance Sheet Highlights Total assets $ 2,239,018 $ 2,197,841 $ 1,836,039 $ 1,699,579 $ 1,773,806 Debt securities available for sale, at fair value 454,586 508,604 472,503 487,247 530,292 Loans, net 1,540,583 1,380,424 1,240,933 1,036,866 983,746 Deposits 1,835,772 1,815,647 1,537,978 1,551,448 1,584,359 Other borrowings 200,000 200,000 130,000 — — Shareholders' equity 175,242 144,716 132,136 114,197 157,065 Summary of Operations Interest income $ 114,371 $ 101,451 $ 76,762 $ 56,449 $ 47,573 Interest expense 44,725 43,937 23,125 4,863 2,902 Net interest income 69,646 57,514 53,637 51,586 44,671 Provision for credit losses - loans 3,030 1,975 2,589 650 (2,100) Provision for credit losses - unfunded commitments (131) 8 135 — — Total provision for credit losses 2,899 1,983 2,724 650 (2,100) Net interest income after provision for credit losses 66,747 55,531 50,913 50,936 46,771 Noninterest income 19,176 13,679 14,851 15,250 19,488 Noninterest expense 59,656 55,895 50,011 48,691 43,245 Income before income taxes 26,267 13,315 15,753 17,495 23,014 Income tax expense 5,041 2,216 2,155 2,557 3,398 Net income $ 21,226 $ 11,099 $ 13,598 $ 14,938 $ 19,616 Performance Measurements Return on average assets 0.94% 0.54% 0.78% 0.83% 1.17% Return on average equity 13.55% 8.05% 11.39% 11.64% 13.20% Return on average tangible equity (1) 14.38% 8.62% 12.32% 12.52% 14.05% Efficiency ratio (1) 66.48% 73.36% 70.75% 71.21% 66.12% Net interest margin, fully tax equivalent 3.25% 2.95% 3.31% 3.11% 2.88% Shareholders' Value (per common share) Diluted earnings per share $ 4.74 $ 2.51 $ 3.10 $ 3.36 $ 4.42 Basic earnings per share 4.76 2.52 3.11 3.38 4.44 Regular cash dividends paid 1.31 1.28 1.28 1.28 1.25 Book value 39.11 32.69 30.23 26.01 35.36 Tangible book value (1) 37.10 30.65 28.17 23.96 33.34 Market value* 50.20 29.90 31.55 36.10 33.10 Market value/book value ratio 128.36% 91.47% 104.37% 138.79% 93.61% Market value/tangible book value ratio 135.33% 97.54% 112.01% 150.67% 99.29% Price/earnings multiple year-to-date 10.59 11.91 10.18 10.74 7.49 Dividend yield** 2.63% 4.28% 4.06% 3.55% 3.87% Dividend payout ratio 27.54% 50.72% 41.15% 37.88% 28.16% Safety and Soundness Average equity/average assets 6.92% 6.65% 6.82% 7.17% 8.89% Risk-based capital ratio (Total) 13.27% 13.85% 14.45% 17.21% 18.41% Leverage ratio (Tier 1) 8.17% 7.92% 9.01% 8.95% 8.52% Common equity ratio (Tier 1) 11.45% 11.31% 11.82% 14.22% 15.20% Nonperforming loans/gross loans 0.55% 0.02% 0.01% 0.01% 0.74% Nonperforming assets/total assets 0.38% 0.01% 0.01% 0.01% 0.42% Allowance for credit loss/loans 1.32% 1.26% 1.28% 1.35% 1.51% Net loan (charge-offs) recoveries/average loans 0.00% -0.03% -0.02% -0.15% 0.04% Assets under Management Wealth Management Services (fair value) $ 1,273,421 $ 1,169,282 $ 1,094,747 $ 904,317 $ 946,964 Held at third-party brokers (fair value) 147,880 139,872 135,423 116,398 118,046 $ 1,421,301 $ 1,309,154 $ 1,230,170 $ 1,020,715 $ 1,065,010 (1) See the section titled "GAAP versus Non-GAAP Presentation" that follows. * Based on the closing price of FRAF as quoted on the Nasdaq Capital Market ** Based on annualized 4th quarter dividend and year-end market value. 20 Table of Contents GAAP versus non-GAAP Presentations – The Corporation supplements its traditional GAAP measurements with certain non-GAAP measurements to evaluate its performance and to eliminate the effect of intangible assets.
Net (losses) gains on sales of debt securities : The Bank took losses of $4.3 million on the sale of investment securities as part of a portfolio restructuring during the fourth quarter of 2024.
The Bank took losses of $4.3 million on the sale of investment securities as part of a portfolio restructuring during the fourth quarter of 2024.
The Corporation’s 2024 and 2023 effective tax rate was lower than its statutory rate due to the effect of tax-exempt income from certain investment securities, loans, and bank owned life insurance.
The Corporation’s 2025 and 2024 effective tax rates were lower than its statutory rate due to the effect of tax-exempt income from certain investment securities, loans, and bank owned life insurance.
Investment Securities: AFS Securities The investment portfolio serves as a mechanism to invest funds if funding sources out pace lending activity, to provide liquidity for lending and operations, and provide collateral for deposits and borrowings. The mix of securities and investing decisions are made as a component of balance sheet management. Debt securities include U.S. Government Agencies, U.S.
Investment Securities: Available for Sale (AFS) Securities The investment portfolio serves as a mechanism to invest funds if funding sources out pace lending activity, to provide liquidity for lending and operations, and provide collateral for deposits and borrowings. The mix of securities and investing decisions are made as a component of balance sheet management.
For 2024, the Corporation recorded $2.0 million as a provision for credit loss on loans. These changes resulted in an increase in the allowance for credit losses (ACL) on loans to $17.7 million at year-end 2024 (1.26% of total loans), compared to $16.1 million at year-end 2023 (1.28% of total loans).
For 2025, the Corporation recorded $3.0 million as a provision for credit loss on loans. These changes resulted in an increase in the allowance for credit losses (ACL) on loans to $20.7 million at year-end 2025 (1.32% of total loans), compared to $17.7 million at year-end 2024 (1.26% of total loans).
Asset management fees are recurring in nature and are affected by the fair value of assets under management at the time the fees are recognized. Asset management fees totaled $7.8 million for 2024 and $6.9 million for 2023. The fair value of trust assets under management was $1.169 billion at year-end, compared to $1.095 billion at the end of 2023.
Asset management fees are recurring in nature and are affected by the fair value of assets under management at the time the fees are recognized. Asset management fees totaled $8.4 million for 2025 and $7.8 million for 2024. The fair value of assets under management was $1.421 billion at year-end, compared to $1.169 billion at the end of 2024.
Residential real estate construction: The largest component of this category, $20.7 million, represents loans for individuals to construct personal residences, while loans to residential real estate developers and home builders totaled $11.7 million at December 31, 2024. The Bank’s exposure to residential construction loans is concentrated primarily in south central Pennsylvania.
Residential real estate construction: The largest component of this category, $29.6 million, represents loans for individuals to construct personal residences, while loans to residential real estate developers and home builders totaled $24.5 million at December 31, 2025. The Bank’s exposure to residential construction loans is concentrated primarily in south central Pennsylvania.
(Dollars in thousands, except per share) For the Year Ended December 31 2024 2023 2022 2021 2020 Return on Average Tangible Equity (non-GAAP) Net income $ 11,099 $ 13,598 $ 14,938 $ 19,616 $ 12,800 Average shareholders' equity 137,840 119,408 128,283 148,637 133,958 Less average intangible assets (9,016) (9,016) (9,016) (9,016) (9,016) Average shareholders' equity (non-GAAP) 128,824 110,392 119,267 139,621 124,942 Return on average tangible equity (non-GAAP) 8.62% 12.32% 12.52% 14.05% 10.24% Tangible Book Value (per share) (non-GAAP) Shareholders' equity $ 144,716 $ 132,136 $ 114,197 $ 157,065 $ 145,176 Less intangible assets (9,016) (9,016) (9,016) (9,016) (9,016) Shareholders' equity (non-GAAP) 135,700 123,120 105,181 148,049 136,160 Shares outstanding (in thousands) 4,427 4,371 4,390 4,441 4,389 Tangible book value (non-GAAP) 30.65 28.17 23.96 33.34 31.02 Efficiency Ratio (non-GAAP) Noninterest expense $ 55,895 $ 50,011 $ 48,691 $ 43,245 $ 39,362 Net interest income 57,514 53,637 51,586 44,671 41,961 Plus tax equivalent adjustment to net interest income 938 1,094 1,381 1,466 1,407 Plus noninterest income, net of securities transactions 17,737 15,954 15,410 19,271 15,104 Total revenue 76,189 70,685 68,377 65,408 58,472 Efficiency ratio (non-GAAP) 73.36% 70.75% 71.21% 66.12% 67.32% Forward-Looking Statements Certain statements appearing herein which are not historical in nature are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
(Dollars in thousands, except per share) For the Year Ended December 31 2025 2024 2023 2022 2021 Return on Average Tangible Equity (non-GAAP) Net income $ 21,226 $ 11,099 $ 13,598 $ 14,938 $ 19,616 Average shareholders' equity 156,638 137,840 119,408 128,283 148,637 Less average intangible assets (9,016) (9,016) (9,016) (9,016) (9,016) Average shareholders' equity (non-GAAP) $ 147,622 $ 128,824 $ 110,392 $ 119,267 $ 139,621 Return on average tangible equity (non-GAAP) 14.38% 8.62% 12.32% 12.52% 14.05% Tangible Book Value (per share) (non-GAAP) Shareholders' equity $ 175,242 $ 144,716 $ 132,136 $ 114,197 $ 157,065 Less intangible assets (9,016) (9,016) (9,016) (9,016) (9,016) Shareholders' equity (non-GAAP) $ 166,226 $ 135,700 $ 123,120 $ 105,181 $ 148,049 Shares outstanding (in thousands) 4,481 4,427 4,371 4,390 4,441 Tangible book value (non-GAAP) $ 37.10 $ 30.65 $ 28.17 $ 23.96 $ 33.34 Efficiency Ratio (non-GAAP) Noninterest expense $ 59,656 $ 55,895 $ 50,011 $ 48,691 $ 43,245 Net interest income 69,646 57,514 53,637 51,586 44,671 Plus tax equivalent adjustment to net interest income 904 938 1,094 1,381 1,466 Plus noninterest income, net of securities transactions 19,183 17,737 15,954 15,410 19,271 Total revenue $ 89,733 $ 76,189 $ 70,685 $ 68,377 $ 65,408 Efficiency ratio (non-GAAP) 66.48% 73.36% 70.75% 71.21% 66.12% Forward-Looking Statements Certain statements appearing herein which are not historical in nature are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
Uninsured deposits: Aggregate estimated uninsured deposits at December 31, 2024 were $411.6 million (22.7% of total deposits) compared to $299.9 million (19.5% of total deposits) at December 31, 2023 utilizing Call Report methodology. Certain Bank deposits may not be insured but are fully collateralized by other assets.
Uninsured deposits: Aggregate estimated uninsured deposits at December 31, 2025 were $399.8 million (21.8% of total deposits) compared to $411.6 million (22.7% of total deposits) at December 31, 2024 utilizing Call Report methodology. Certain Bank deposits may not be insured but are fully collateralized by other assets.
The provision for credit losses for unfunded commitments was $8 thousand for 2024 with reserve balance of $2.0 million at year-end 2024, unchanged from year-end 2023. Management closely monitors the credit quality of the portfolio in order to ensure that an appropriate ACL is maintained.
The provision for credit losses for unfunded commitments was a reversal of $131 thousand for 2025 with a reserve balance of $1.9 million at year-end 2025, a decrease from $2.0 million at year-end 2024. Management closely monitors the credit quality of the portfolio in order to ensure that an appropriate ACL is maintained.
See Note 17 of the accompanying consolidated financial statements for additional information on benefit plans. Net Occupancy: This category includes all of the expense associated with the properties and facilities used for bank operations such as depreciation, leases, maintenance, utilities and real estate taxes.
See Note 17 of the accompanying consolidated financial statements for additional information on benefit plans. Net Occupancy: This category includes all of the expense associated with the properties and facilities used for bank operations such as depreciation, leases, maintenance, utilities and real estate taxes. The increase in 2025 was due primarily to overall higher operating expenses.
Long-term interest-earning deposits decreased from $6.2 million at December 31, 2023 to $1.5 million at December 31, 2024. The average balance of interest-earning deposits increased to $176.0 million in 2024 compared to $50.5 million in 2023.
Long-term interest-earning deposits decreased from $1.5 million at December 31, 2024 to $999 thousand at December 31, 2025. The average balance of interest-earning deposits increased to $176.1 million in 2025 compared to $176.0 million in 2024.
Capital Ratios 2024 2023 Corporation Bank Corporation Bank Common Equity Tier 1 risk-based capital ratio 11.31% 11.71% 11.82% 12.38% Total risk-based capital ratio 13.85% 12.96% 14.45% 13.63% Tier 1 risk-based capital ratio 11.31% 11.71% 11.82% 12.38% Tier 1 leverage ratio 7.92% 8.20% 9.01% 9.44% For additional information on capital adequacy refer to Note 2 of the accompanying consolidated financial statements.
Capital Ratios 2025 2024 Corporation Bank Corporation Bank Common Equity Tier 1 risk-based capital ratio 11.45% 12.02% 11.31% 11.71% Total risk-based capital ratio 13.27% 13.27% 13.85% 12.96% Tier 1 risk-based capital ratio 11.45% 12.02% 11.31% 11.71% Tier 1 leverage ratio 8.17% 8.57% 7.92% 8.20% For additional information on capital adequacy refer to Note 2 of the accompanying consolidated financial statements.
At December 31, 2024, the Bank had $71.9 million in real estate construction loans funded with an interest reserve and capitalized $3.2 million of interest in 2024 from these reserves on active projects for commercial construction.
At December 31, 2025, the Bank had $109.4 million in real estate construction loans funded with an interest reserve and capitalized $4.1 million of interest in 2025 from these reserves on active projects for commercial construction.
This tax-equivalent adjustment facilitates performance comparisons between taxable and tax-free assets by increasing the tax-free income by an amount equivalent to the Federal income taxes that would have been paid if this income were taxable at the Corporation’s 21% Federal statutory rate. The components of net interest income are detailed in Tables 1, 2 and 3.
This tax-equivalent adjustment facilitates performance comparisons between taxable and tax-free assets by increasing the tax-free income by an amount equivalent to the Federal income taxes that would have been paid if this income were taxable at the Corporation’s 21% Federal statutory rate.
Loan quality, as measured by nonaccrual loans, totaled $266 thousand at December 31, 2024 compared to $147 thousand at December 31, 2023 and the nonperforming loan to total loans ratio was 0.02% at December 31, 2024 compared to 0.01% at December 31, 2023.
Loan quality, as measured by nonaccrual loans, totaled $8.5 million at December 31, 2025 compared to $266 thousand at December 31, 2024 and the nonperforming loan to total loans ratio was 0.55% at December 31, 2025 compared to 0.02% at December 31, 2024.
Due to higher origination volume, the Bank sold more loans in 2024 compared to 2023. Deposit fees: This category is comprised primarily of fees from overdrafts, an overdraft protection program, service charges, and account analysis fees. The decrease of $44 thousand in this category was due to a lower volume of overdraft fees.
Due to higher origination volume, the Bank sold more loans in 2025 compared to the prior year. Deposit fees: This category is comprised primarily of fees from overdrafts, an overdraft protection program, service charges, and account analysis fees.
(Dollars in thousands) Liquidity Source Capacity Outstanding Available Federal Home Loan Bank $ 562,697 $ 200,000 $ 362,697 Federal Reserve Bank Discount Window 64,575 — 64,575 Correspondent Banks 76,000 — 76,000 Total $ 703,272 $ 200,000 $ 503,272 Off Balance Sheet Commitments The Corporation’s financial statements do not reflect various commitments that are made in the normal course of business, which may involve some liquidity risk.
(Dollars in thousands) Liquidity Source Capacity Outstanding Available Federal Home Loan Bank $ 734,597 $ 200,000 $ 534,597 Federal Reserve Bank Discount Window 131,072 — 131,072 Correspondent Banks 76,000 — 76,000 Total $ 941,669 $ 200,000 $ 741,669 Off Balance Sheet Commitments The Corporation’s financial statements do not reflect various commitments that are made in the normal course of business, which may involve some liquidity risk.
Total residential real estate loans increased $45.0 million in 2024, primarily in consumer first lien loans. In 2024, the Bank originated $123.1 million in mortgages compared to $92.4 million in 2023, including approximately $43.1 million for sale in the secondary market.
Total residential real estate loans increased $45.6 million in 2025, primarily in consumer first lien loans. In 2025, the Bank originated $136.1 million in mortgages compared to $123.1 million in 2024, including approximately $44.7 million for sale in the secondary market.
At December 31, 2024, total assets increased 19.7% over the prior year to $2.198 billion from $1.836 billion at the end of 2023.
At December 31, 2025, total assets increased 1.9% over the prior year to $2.239 billion from $2.198 billion at the end of 2024.
Average gross loans for 2024 increased by $179.2 million to $1.323 billion. Commercial real estate, mortgage and consumer loans showed an increase in average balances during the year, which was partially offset by a decline in commercial loans during the year. The yield on the portfolio increased in 2024 to 5.65% from 5.16% in 2023.
Commercial real estate, mortgage and consumer loans showed an increase in average balances during the year, which was partially offset by a decline in commercial loans during the year. The yield on the portfolio increased in 2025 to 5.84% from 5.65% in 2024.
Table 1 shows the change in tax-equivalent net interest income year over year. Changes in interest income and expense are driven by changes in balance (volume) and changes in the average rate on interest-earning assets and interest-bearing liabilities. The changes attributable to rate or volume are shown in Table 2.
The components of net interest income are detailed in Tables 1, 2 and 3. ‎ 23 Table of Contents Table 1 shows the change in tax-equivalent net interest income year over year. Changes in interest income and expense are driven by changes in balance (volume) and changes in the average rate on interest-earning assets and interest-bearing liabilities.
Estate fees were $508 thousand in 2024 compared to $295 thousand in 2023. By the nature of an estate settlement, these fees are considered nonrecurring. Commissions from the sale of insurance and investment products decreased by $58 thousand compared to 2023.
Estate fees were $458 thousand in 2025 compared to $508 thousand in 2024. By the nature of an estate settlement, these fees are considered nonrecurring. Commissions from the sale of insurance and investment products increased by $21 thousand compared to the prior year.
The cost of these accounts increased from 3.04% to 4.43% as market rates increased. Included in this category is $87.1 million of brokered CDs, which increased $78.4 million over the prior year end balance of $8.7 million.
The cost of these accounts decreased from 4.43% to 4.15% as market rates decreased. Included in this category is $22.1 million of brokered CDs, which decreased $65.0 million over the prior year end balance of $87.1 million.
(Dollars in thousands) Financial instruments whose contract amounts represent credit risk 2024 2023 Commercial commitments to extend credit $ 328,806 $ 325,982 Consumer commitments to extend credit (secured) 135,776 112,157 Consumer commitments to extend credit (unsecured) 5,352 5,964 $ 469,934 $ 444,103 Standby letters of credit $ 28,815 $ 19,851 ACL - Unfunded Commitments (1) $ 2,030 $ 2,022 (1) Reported in Other Liabilities on the Consolidated Balance Sheets Management believes that any amounts actually drawn upon can be funded in the normal course of operations.
(Dollars in thousands) Financial instruments whose contract amounts represent credit risk 2025 2024 Commercial commitments to extend credit $ 300,228 $ 328,806 Consumer commitments to extend credit (secured) 153,183 135,776 Consumer commitments to extend credit (unsecured) 7,083 5,352 $ 460,494 $ 469,934 Standby letters of credit $ 29,880 $ 28,815 ACL - Unfunded Commitments (1) $ 1,899 $ 2,030 (1) Reported in Other Liabilities on the Consolidated Balance Sheets Management believes that any amounts actually drawn upon can be funded in the normal course of operations.
The ACL for loans is an estimate of the losses expected to be realized over the life of the loan portfolio. The ACL is determined for two distinct categories of loans: 1) loans evaluated individually for expected credit losses (specific reserve), and 2) loans evaluated collectively for expected credit losses (pooled reserve).
The ACL is determined for two distinct categories of loans: 1) loans evaluated individually for expected credit losses (specific reserve), and 2) loans evaluated collectively for expected credit losses (pooled reserve).
The Bank’s total exposure (including unfunded commitments) to purchased participations was $133.1 million at December 31, 2024 and $135.4 million at December 31, 2023. The loan participations are comprised of $28.4 million of commercial loans and $78.8 million of CRE loans, reported in the respective loan segment.
The Bank’s total exposure (including unfunded commitments) to purchased participations was $129.3 million at December 31, 2025 and $133.1 million at December 31, 2024. The loan participations are comprised of $26.6 million of commercial loans and $74.2 million of CRE loans, reported in the respective loan segment.
The tax-equivalent yield on the portfolio increased from 3.55% in 2023 to 3.82% in 2024. U.S. Agency mortgage-backed securities and non-agency mortgage-backed securities comprise the largest sectors by fair value of the portfolio, approximately 33% and 29% 27 Table of Contents respectively. The Bank expects that the portfolio will continue to remain concentrated in these investment sectors.
The tax-equivalent yield on the portfolio increased from 3.75% in 2024 to 3.93% in 2025. Municipal bonds and Agency mortgage-backed securities comprise the largest sectors by fair value of the portfolio, approximately 30% and 29% respectively. The Bank expects that the portfolio will continue to remain concentrated in these investment sectors.
Reciprocal deposits: At year-end 2024, the Bank had $288.9 million placed in the IntraFi Network deposit program ($124.0 million in interest-bearing checking and $164.9 million in money management) and $39.6 million of time deposits placed into the CDARS program.
Reciprocal deposits: At year-end 2025, the Bank had $324.5 million placed in the IntraFi Network deposit program ($124.8 million in interest-bearing checking and $199.6 million in money management) and $24.5 million of time deposits placed into the CDARS program.
The following table presents the largest sectors by industry in the commercial category: (Dollars in thousands) December 31, 2024 December 31, 2023 Commercial Amount % of Commercial Amount % of Commercial Public administration $ 43,184 19% $ 44,717 18% Utilities 38,498 17% 41,961 17% Real estate, rental & leasing 23,162 10% 25,016 10% Retail trade 18,267 8% 18,589 8% Manufacturing 16,930 7% 17,254 7% Participations: At December 31, 2024, the outstanding commercial participations were $107.2 million (9.6% of commercial purpose loans and 7.7% of total gross loans), compared to $97.8 million (9.5% of commercial purpose loans and 7.8% of total gross loans) at the prior year-end.
The following table presents the largest sectors by industry in the commercial category: (Dollars in thousands) December 31, 2025 December 31, 2024 Commercial Amount % of Commercial Amount % of Commercial Public administration $ 40,095 18% $ 43,184 19% Utilities 35,621 16% 38,498 17% Manufacturing 19,930 9% 16,930 7% Real estate, rental & leasing 19,049 8% 23,162 10% Arts, Entertainment & Recreation 15,459 7% 12,919 1% Participations: At December 31, 2025, the outstanding commercial participations were $100.8 million (8.2% of commercial purpose loans and 6.5% of total gross loans), compared to $107.2 million (9.6% of commercial purpose loans and 7.7% of total gross loans) at the prior year-end.
Shareholders’ Equity : Shareholders’ equity increased by $12.6 million to $144.7 million at December 31, 2024. Retained earnings increased $5.5 million in 2024 from earnings of $11.1 million offset by dividends paid of $5.6 million ($1.28 per share). The dividend payout ratio was 50.7% in 2024 compared to 41.2% in 2023.
Shareholders’ Equity : Shareholders’ equity increased by $30.5 million to $175.2 million at December 31, 2025. Retained earnings increased $15.4 million in 2025 from earnings of $21.2 million offset by dividends paid of $5.8 million ($1.31 per share). The dividend payout ratio was 27.5% in 2025 compared to 50.7% in 2024.
The Bank’s municipal bond portfolio is well diversified geographically and is comprised of both tax-exempt (35% of the portfolio) and taxable (65% of the portfolio) municipal bonds. Sixty-eight percent of the portfolio are general obligation bonds and thirty-two percent are revenue bonds. The portfolio holds bonds from 151 issuers within 34 states.
The Bank’s municipal bond portfolio is well diversified geographically and is comprised of both tax-exempt (37% of the portfolio) and taxable (63% of the portfolio) municipal bonds. Seventy percent (70%) of the portfolio are general obligation bonds and thirty percent (30%) are revenue bonds. The portfolio holds bonds from 150 issuers within 32 states.
Only reciprocal deposits that exceed 20% of liabilities are considered brokered deposits. At December 31, 2024, the Bank’s reciprocal deposits were 16.2% of total liabilities. The Bank continually reviews different methods of funding growth that include traditional deposits and other wholesale sources.
Only reciprocal deposits that exceed 20% of liabilities are considered brokered deposits fo r regulatory reporting purposes . At December 31, 2025, the Bank’s reciprocal deposits were 17.0% of total liabilities compared to 16.1% at prior year-end. The Bank continually reviews different methods of funding growth that include traditional deposits and other wholesale sources.
The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals.
In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals.
The following table shows the Bank’s available liquidity at December 31, 2024.
The following table shows the Bank’s available liquidity from borrowing sources at December 31, 2025.
Nonaccruing loans generally represent Management’s determination that the borrower will be unable to repay the loan in accordance with its contractual terms and that collateral liquidation may or may not fully repay both interest and principal.
See Note 6 in the accompanying financial statements for information on the age of payments in the loan portfolio. 32 Table of Contents Nonaccruing loans generally represent Management’s determination that the borrower will be unable to repay the loan in accordance with its contractual terms and that collateral liquidation may or may not fully repay both interest and principal.
The business debit card offers a cash back rewards program based on usage, while the retail debit card offers reward points based on usage. Debit card income is reported net of reward program expense.
The business debit card offers a cash back rewards program based on usage, while the retail debit card offers reward points based on usage. Debit card income is reported net of reward program expenses. Net (losses) gains on sales of debt securities : For 2025, there were no sales of debt securities.
Summary Franklin Financial Services Corporation reported consolidated earnings of $11.1 million ($2.51 per diluted share) for 2024 compared with $13.6 million ($3.10 per diluted share) for the same period in 2023. Year-to-date, net interest income was $57.5 million, an increase of 7.2% compared to $53.6 million for the same period in 2023.
Summary Franklin Financial Services Corporation reported consolidated earnings of $21.2 million ($4.74 per diluted share) for 2025 compared with $11.1 million ($2.51 per diluted share) for the same period in 2024. Net income for 2025 was $21.2 million ($4.74 per diluted share) compared to $11.1 million ($2.51 per diluted share) for 2024, an increase of 91.2%.
Savings: Savings accounts decreased $9.3 million during the year. The cost of this product increased by 1 basis points during the year as market rates increased. Time deposits: Time deposits increased by $183.5 million in 2024 with an increase in the average balance of $119.0 million as customers locked in higher interest rates.
Savings: These accounts increased $1.5 million during the year while the average balance decreased $6.1 million compared to the 2024 average balance. The cost of this product decreased by 7 basis points during the year as market rates decreased. Time deposits: Total time deposits decreased by $91.6 million in 2025 with an increase in the average balance of $94.0 million.
As a noninterest bearing account, these deposits contributed approximately 37 basis points to the net interest margin. Interest-bearing checking: This category saw a decrease of $36.6 million in the ending balance compared to the prior year and a decrease of $42.7 million compared to the prior year average primarily, in retail accounts in 2024.
As a noninterest bearing account, these deposits contributed approximately 35 basis points to the net interest margin. Interest-bearing checking: This category increased $14.0 million in the ending balance compared to the prior year and decreased $2.7 million compared to the prior year average in 2025. The cost of these accounts decreased by 2 basis points year over year.
Noninterest Income Change (Dollars in thousands) 2024 2023 Amount % Noninterest Income Wealth management fees $ 8,538 $ 7,512 $ 1,026 13.7 Loan service charges 987 811 176 21.7 Gain on sale of loans 565 199 366 183.9 Deposit service charges and fees 2,448 2,492 (44) (1.8) Other service charges and fees 2,040 1,852 188 10.2 Debit card income 2,279 2,157 122 5.7 Increase in cash surrender value of life insurance 457 448 9 2.0 Net (losses) gains on sales of debt securities (4,267) (1,119) (3,148) 281.3 Change in fair value of equity securities 209 16 193 1,206.3 Other 423 483 (60) (12.4) Total $ 13,679 $ 14,851 $ (1,172) (7.9) The most significant changes in noninterest income are discussed below: Wealth management fees: These fees are comprised of asset management fees, estate administration and settlement fees, employee benefit plans, and commissions from the sale of insurance and investment products.
Noninterest Income Change (Dollars in thousands) 2025 2024 Amount % Noninterest Income Wealth management fees $ 9,169 $ 8,538 $ 631 7.4 Loan service charges 984 987 (3) (0.3) Gain on sale of loans 672 565 107 18.9 Deposit service charges and fees 2,535 2,448 87 3.6 Other service charges and fees 2,023 2,040 (17) (0.8) Debit card income 2,370 2,279 91 4.0 Increase in cash surrender value of life insurance 469 457 12 2.6 Net (losses) gains on sales of debt securities — (4,267) 4,267 (100.0) Change in fair value of equity securities (7) 209 (216) (103.3) Other 961 423 538 127.2 Total $ 19,176 $ 13,679 $ 5,497 40.2 The most significant changes in noninterest income are discussed below: Wealth management fees: These fees are comprised of asset management fees, estate administration and settlement fees, employee benefit plans, and commissions from the sale of insurance and investment products.
The yield on earning assets (Table 3) increased to 5.16% for 2024 from 4.70% for 2023. The benefit provided by tax-exempt income was $938 thousand in 2024. Table 1.
The changes attributable to rate or volume are shown in Table 2. The yield on earning assets (Table 3) increased to 5.31% for 2025 from 5.16% for 2024. The benefit provided by tax-exempt income was $904 thousand in 2025. Table 1.
The portfolio returned $97.3 million of principal cash flow in 2024 while $136.3 million was invested into the portfolio during the year. Municipal Bonds : This sector holds $133.6 million or 26% of the total portfolio and the amortized cost decreased by $4.8 million year over year.
The portfolio returned $72.5 million of principal cash flow in 2025 while no funds were invested into the portfolio during the year. Municipal Bonds : This sector holds $137.8 million or 30% of the total portfolio and the amortized cost decreased by $2.2 million year over year.
The cost of these accounts increased by 18 basis points year over year. Money management: The year over year balance increased $122.8 million and the average balance increased $58.6 million compared to the 2023 average balance. The cost of this product increased by 56 basis points during the year as market rates increased.
Money management: The year over year balance increased $76.4 million and the average balance increased $132.0 million compared to the 2024 average balance. The cost of this product decreased by 43 basis points during the year as market rates decreased.
Other key performance measurements are presented elsewhere in Item 7 of this report. A more detailed discussion of the areas that had the greatest effect on the reported results follows.
The allowance for credit losses ( ACL) for unfunded commitments was $1.9 million and $2.0 million on December 31, 2025, and 2024, respectively. Other key performance measurements are presented elsewhere in Item 7 of this report. A more detailed discussion of the areas that had the greatest effect on the reported results follows.
Loan Performance Ratios (Dollars in thousands) Residential Real Estate 1-4 Family Junior Liens & Commercial First Liens Lines of Credit Construction Real Estate Commercial Consumer Total 2024 Loans at December 31, 2024 $ 240,601 $ 82,234 $ 32,427 $ 803,365 $ 230,597 $ 8,853 $ 1,398,077 Average Loans for 2024 222,572 76,515 28,096 747,037 241,554 7,322 1,323,096 Nonaccrual Loans at December 31, 2024 — — — — 266 — 266 Allowance for Credit Losses at December 31, 2024 1,497 461 376 12,004 3,182 133 17,653 Net Recoveries/(Charge-offs) for 2024 3 — 14 2 (329) (64) (374) Loans/Total Gross Loans at December 31, 2024 17% 6% 2% 57% 16% 1% 100% Nonaccrual Loans/Total Gross Loans at December 31, 2024 0.00% 0.00% 0.00% 0.00% 0.12% 0.00% 0.02% Allowance for Credit Loss/Gross Loans at December 31, 2024 0.62% 0.56% 1.16% 1.49% 1.38% 1.50% 1.26% Net Recoveries (Charge-offs)/Average Loans for 2024 0.00% 0.00% 0.05% 0.00% -0.14% -0.87% -0.03% Allowance for Credit Loss/Nonaccrual Loans at December 31, 2024 6,636.47% 2023 Loans at December 31, 2023 $ 205,288 $ 72,561 $ 25,900 $ 703,767 $ 242,654 $ 6,815 $ 1,256,985 Average Loans for 2023 173,986 72,623 21,124 626,817 243,045 6,285 1,143,880 Nonaccrual Loans at December 31, 2023 — — — — 147 — 147 Allowance for Credit Losses at December 31, 2023 1,296 419 296 10,657 3,290 94 16,052 Net Recoveries/(Charge-offs) for 2023 2 — 49 1 (193) (35) (176) Loans/Total Gross Loans at December 31, 2023 16% 6% 2% 56% 19% 1% 100% Nonaccrual Loans/Total Gross Loans at December 31, 2023 0.00% 0.00% 0.00% 0.00% 0.06% 0.00% 0.01% Allowance for Credit Loss/Gross Loans at December 31, 2023 0.63% 0.58% 1.14% 1.51% 1.36% 1.38% 1.28% Net Recoveries (Charge-offs)/Average Loans for 2023 0.00% 0.00% 0.23% 0.00% -0.08% -0.56% -0.02% Allowance for Credit Loss/Nonaccrual Loans at December 31, 2023 10,919.73% Goodwill : The Bank has $9.0 million of goodwill recorded on its balance sheet as the result of corporate acquisitions.
Loan Performance Ratios (Dollars in thousands) Residential Real Estate 1-4 Family Junior Liens & Commercial First Liens Lines of Credit Construction Real Estate Commercial Consumer Total 2025 Loans at December 31, 2025 $ 276,897 $ 91,489 $ 54,125 $ 903,571 $ 225,499 $ 9,657 $ 1,561,238 Average Loans for 2025 263,557 87,410 45,862 865,233 234,148 8,531 1,504,741 Nonaccrual Loans at December 31, 2025 — 20 — 8,148 345 — 8,513 Allowance for Credit Losses at December 31, 2025 1,665 500 652 14,042 3,641 155 20,655 Net Recoveries/(Charge-offs) for 2025 — — 11 1 57 (97) (28) Loans/Total Gross Loans at December 31, 2025 18% 6% 3% 58% 14% 1% 100% Nonaccrual Loans/Total Gross Loans at December 31, 2025 0.00% 0.02% 0.00% 0.90% 0.15% 0.00% 0.55% Allowance for Credit Loss/Gross Loans at December 31, 2025 0.60% 0.55% 1.20% 1.55% 1.61% 1.61% 1.32% Net Recoveries (Charge-offs)/Average Loans for 2025 0.00% 0.00% 0.02% 0.00% 0.02% -1.14% 0.00% Allowance for Credit Loss/Nonaccrual Loans at December 31, 2025 242.63% 2024 Loans at December 31, 2024 $ 240,601 $ 82,234 $ 32,427 $ 803,365 $ 230,597 $ 8,853 $ 1,398,077 Average Loans for 2024 222,572 76,515 28,096 747,037 241,554 7,322 1,323,096 Nonaccrual Loans at December 31, 2024 — — — — 266 — 266 Allowance for Credit Losses at December 31, 2024 1,497 461 376 12,004 3,182 133 17,653 Net Recoveries/(Charge-offs) for 2024 3 — 14 2 (329) (64) (374) Loans/Total Gross Loans at December 31, 2024 17% 6% 2% 57% 16% 1% 100% Nonaccrual Loans/Total Gross Loans at December 31, 2024 0.00% 0.00% 0.00% 0.00% 0.12% 0.00% 0.02% Allowance for Credit Loss/Gross Loans at December 31, 2024 0.62% 0.56% 1.16% 1.49% 1.38% 1.50% 1.26% Net Recoveries (Charge-offs)/Average Loans for 2024 0.00% 0.00% 0.05% 0.00% -0.14% -0.87% -0.03% Allowance for Credit Loss/Nonaccrual Loans at December 31, 2024 6,636.47% Goodwill : The Bank has $9.0 million of goodwill recorded on its balance sheet as the result of corporate acquisitions.
In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities.
In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee is strongly committed to supporting maximum employment and returning inflation to its 2 percent objective.
The debt securities in a loss position and subject to evaluation at December 31, 2024 and 2023, were determined not to be attributable to credit related factors; therefore, the Bank does not have an allowance for credit loss for these investments.
The debt securities in a loss position and subject to evaluation at December 31, 2025 and 2024, were determined not to be attributable to credit related factors; therefore, the Bank does not have an allowance for credit loss for these investments. 29 Table of Contents Restricted Stock at Cost The Bank held $8.9 million of restricted stock at the end of 2025 of which all but $30 thousand is stock in the FHLB, carried at a cost of $100 per share.
Allowance for Credit Losses: Allowance for Credit Losses – Loans The ACL for loans is established through provisions for credit losses charged against income. Loans deemed to be uncollectible are charged against the ACL, and subsequent recoveries, if any, are credited to the ACL.
Loans deemed to be uncollectible are charged against the ACL, and subsequent recoveries, if any, are credited to the ACL. The ACL for loans is an estimate of the losses expected to be realized over the life of the loan portfolio.
Delinquent loans are a result of borrowers’ cash flow and/or alternative sources of cash being insufficient to repay loans. The Bank’s likelihood of collateral liquidation to repay the loans becomes more probable the further behind a borrower falls, particularly when loans reach 90 days or more past due.
The Bank’s likelihood of collateral liquidation to repay the loans becomes more probable the further behind a borrower falls, particularly when loans reach 90 days or more past due. Management monitors the performance status of loans by the use of an ageing report.
All securities are classified as available for sale and all investment balances refer to fair value, unless noted otherwise. The following table presents the amortized cost and estimated fair value of investment securities by type at December 31 for the past two years: Table 6.
The following table presents the amortized cost and estimated fair value of investment securities by type at December 31 for the past two years: Table 6. Investment Securities at Amortized Cost and Estimated Fair Value 2025 2024 Amortized Fair Amortized Fair (Dollars in thousands) Cost value Cost value U.S.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

3 edited+0 added−1 removed8 unchanged
Biggest changeThe Corporation’s primary tool for analyzing interest rate risk is financial simulation modeling which captures the effect of not only changing interest rates but also other sources of cash flow variability including loan and securities prepayments and customer 39 Table of Contents preferences.
Biggest changeThe objective of interest rate risk management is to identify and manage the sensitivity of net interest income and economic value of equity to changing interest rates in order to achieve consistent earnings that are not contingent upon favorable trends in interest rates. 40 Table of Contents The Corporation’s primary tool for analyzing interest rate risk is financial simulation modeling which captures the effect of not only changing interest rates but also other sources of cash flow variability including loan and securities prepayments and customer preferences.
Although inflation (and inflation expectations) may affect the interest rate environment, it is not possible to measure with any precision the impact of future inflation upon the Corporation. ‎ 40 Table of Contents
Although inflation (and inflation expectations) may affect the interest rate environment, it is not possible to measure with any precision the impact of future inflation upon the Corporation. ‎ 41 Table of Contents
Sensitivity to Changes in Market Interest Rates (Dollars in thousands) Net Interest Income Change in rates (basis points) Projected % Change +300 $ 64,596 4.4% +200 $ 63,852 3.2% +100 $ 62,972 1.8% unchanged $ 61,879 — (100) $ 60,570 (2.1)% (200) $ 59,645 (3.6)% (300) $ 58,606 (5.3)% Impact of Inflation The impact of inflation upon financial institutions such as the Corporation differs from its effect upon other commercial enterprises.
Sensitivity to Changes in Market Interest Rates (Dollars in thousands) Net Interest Income Change in rates (basis points) Projected % Change +300 $ 80,379 6.4% +200 $ 78,828 4.3% +100 $ 77,248 2.2% unchanged $ 75,561 — (100) $ 73,276 (3.0)% (200) $ 71,177 (5.8)% (300) $ 68,749 (9.0)% Impact of Inflation The impact of inflation upon financial institutions such as the Corporation differs from its effect upon other commercial enterprises.
Removed
The objective of interest rate risk management is to identify and manage the sensitivity of net interest income and economic value of equity to changing interest rates in order to achieve consistent earnings that are not contingent upon favorable trends in interest rates.

Other FRAF 10-K year-over-year comparisons