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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2026

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

For the transition period from__________ to___________

Commission file number 001-38884

FRANKLIN FINANCIAL SERVICES CORPORATION

(Exact name of registrant as specified in its charter)


Pennsylvania	25-1440803
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)


1500 Nitterhouse Drive, Chambersburg, PA	17201-0819
(Address of principal executive offices)	(Zip Code)

(717) 264-6116

(Registrant's telephone number, including area code)

Not Applicable

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

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



Title of class	Symbol	Name of exchange on which registered
Common stock	FRAF	Nasdaq Capital Market

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

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

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

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

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

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

There were 4,493,032 outstanding shares of the Registrant’s common stock as of April 30, 2026.

INDEX


Part I - FINANCIAL INFORMATION

Item 1	Financial Statements
	Consolidated Balance Sheets as of March 31, 2026 and December 31, 2025 (unaudited)	1
	Consolidated Statements of Income for the Three Months ended March 31, 2026 and 2025 (unaudited)	2
	Consolidated Statements of Comprehensive Income for the Three Months ended	3
	March 31, 2026 and 2025 (unaudited)
	Consolidated Statements of Changes in Shareholders’ Equity for the Three Months	3
	ended March 31, 2026 and 2025 (unaudited)
	Consolidated Statements of Cash Flows for the Three Months ended March 31, 2026	4
	and 2025 (unaudited)
	Notes to Consolidated Financial Statements (unaudited)	5

Item 2	Management’s Discussion and Analysis ofResults of Operations and Financial Condition	29
Item 3	Quantitative and Qualitative Disclosures about Market Risk	45
Item 4	Controls and Procedures	45

Part II - OTHER INFORMATION

Item 1	Legal Proceedings	46
Item 1A	Risk Factors	46
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	46
Item 3	Defaults Upon Senior Securities	46
Item 4	Mine Safety Disclosures	46
Item 5	Other Information	46
Item 6	Exhibits	47
SIGNATURE PAGE		48

Part I FINANCIAL INFORMATION

Item 1. Financial Statements

Consolidated Balance Sheets



(Dollars in thousands, except share and per share data)	(unaudited)
	March 31,		December 31,
	2026		2025
Assets
Cash and due from banks	$	23,976	$	22,446
Short-term interest-earning deposits in other banks		186,801		105,275
Total cash and cash equivalents		210,777		127,721
Long-term interest-earning deposits in other banks		750		999
Debt securities available for sale, at fair value		436,483		454,586
Restricted stock		8,897		8,897
Loans held for sale		1,850		18,929
Loans		1,572,426		1,561,238
Allowance for credit losses		(20,729)		(20,655)
Net Loans		1,551,697		1,540,583
Premises and equipment, net		26,739		27,138
Right of use asset		4,199		3,657
Bank owned life insurance		22,384		23,207
Goodwill		9,016		9,016
Deferred tax asset, net		8,328		7,881
Other assets		16,398		16,404
Total assets	$	2,297,518	$	2,239,018

Liabilities
Deposits
Noninterest-bearing checking	$	331,658	$	310,251
Money management, savings, and interest checking		1,319,494		1,301,198
Time		238,558		224,323
Total deposits		1,889,710		1,835,772
Federal Home Loan Bank advances		200,000		200,000
Subordinate notes		10,850		10,845
Lease liability		4,392		3,840
Other liabilities		13,822		13,319
Total liabilities		2,118,774		2,063,776

Commitments and contingent liabilities (see Note 16)

Shareholders' equity
Common stock, $1 par value per share,15,000,000 shares authorized with
4,710,972 shares issued and 4,493,002 shares outstanding at March 31, 2026 and
4,710,972 shares issued and 4,481,149 shares outstanding at December 31, 2025		4,711		4,711
Capital stock no par value, 5,000,000 shares authorized with no
shares issued and outstanding		—		—
Additional paid-in capital		43,776		43,932
Retained earnings		160,001		154,844
Accumulated other comprehensive loss		(23,265)		(21,589)
Treasury stock, 217,970 shares at March 31, 2026 and 229,823 shares at
December 31, 2025, at cost		(6,479)		(6,656)
Total shareholders' equity		178,744		175,242
Total liabilities and shareholders' equity	$	2,297,518	$	2,239,018

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

Consolidated Statements of Income



	For the Three Months Ended
(Dollars in thousands, except per share data) (unaudited)	March 31,
	2026		2025
Interest income
Loans, including fees	$	22,567	$	19,864
Interest and dividends on investments:
Taxable interest		3,616		4,825
Tax exempt interest		266		270
Dividend income		202		191
Interest-earning deposits in other banks		1,119		1,908
Total interest income		27,770		27,058
Interest expense
Deposits		6,887		9,030
FHLB overnight borrowings and advances		2,157		2,158
Subordinate notes		205		264
Total interest expense		9,249		11,452
Net interest income		18,521		15,606
Provision for credit losses - loans		202		750
Provision for credit losses - unfunded commitments		19		29
Total provision for credit losses		221		779
Net interest income after credit loss expense		18,300		14,827
Noninterest income
Wealth management fees		2,306		2,215
Loan service charges		238		209
Gain on sale of loans		318		109
Deposit service charges and fees		647		605
Other service charges and fees		482		483
Debit card income		618		558
Increase in cash surrender value of life insurance		132		115
Change in fair value of equity securities		—		(7)
Other		619		275
Total noninterest income		5,360		4,562
Noninterest Expense
Salaries		6,237		6,176
Employee benefits		2,788		2,330
Net occupancy		1,241		1,225
Marketing and advertising		426		433
Legal and professional		695		527
Data processing		1,540		1,557
Pennsylvania bank shares tax		254		160
FDIC Insurance		483		545
ATM/debit card processing		377		340
Telecommunications		135		106
Other		1,177		1,178
Total noninterest expense		15,353		14,577
Income before income taxes		8,307		4,812
Income tax expense		1,670		890
Net income	$	6,637	$	3,922
Per share
Basic earnings per share	$	1.48	$	0.88
Diluted earnings per share	$	1.48	$	0.88

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

Consolidated Statements of Comprehensive Income (Loss)



	For the Three Months Ended
	March 31,
(Dollars in thousands) (unaudited)	2026		2025
Net Income	$	6,637	$	3,922

Debt Securities:
Unrealized gains (loss) arising during the period		(2,020)		6,523
Reclassification adjustment for gains (loss) realized in income on fair value hedge (1)		(101)		(1,900)
Net unrealized gains (loss)		(2,121)		4,623
Tax effect		445		(971)
Net of tax amount		(1,676)		3,652

Total Comprehensive Income (Loss)	$	4,961	$	7,574

(1) Reclassified to interest income

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

Consolidated Statements of Changes in Shareholders’ Equity

For the three months ended March 31, 2026 and 2025



								Accumulated
				Additional				Other
	Shares	Common		Paid-in		Retained		Comprehensive		Treasury
(Dollars in thousands, except per share data) (unaudited)	Outstanding	Stock		Capital		Earnings		Income (Loss)		Stock		Total
Balance at January 1, 2026	4,481,149	$	4,711		43,932	$	154,844	$	(21,589)	$	(6,656)	$	175,242
Net income			—		—		6,637		—		—		6,637
Other comprehensive gain			—		—		—		(1,676)		—		(1,676)
Cash dividends declared, $0.33 per share			—		—		(1,480)		—		—		(1,480)
Acquisition of treasury stock	(9,753)		—		52		—		—		(457)		(405)
Treasury shares issued under dividend reinvestment plan	5,064		—		115		—		—		149		264
Stock Compensation Plans:
Treasury shares issued	16,542		—		(479)		—		—		485		6
Compensation expense			—		156		—		—		—		156
Balance at March 31, 2026	4,493,002	$	4,711	$	43,776	$	160,001	$	(23,265)	$	(6,479)	$	178,744



Balance at January 1, 2025	4,427,362	$	4,711	$	43,791	$	139,463	$	(35,508)	$	(7,741)	$	144,716
Net income			—		—		3,922		—		—		3,922
Other comprehensive gain			—		—		—		3,652		—		3,652
Cash dividends declared, $0.32 per share			—		—		(1,418)		—		—		(1,418)
Acquisition of treasury stock	(3,922)		—		—		—		—		(142)		(142)
Treasury shares issued under dividend reinvestment plan	12,352		—		107		—		—		337		444
Stock Compensation Plans:
Treasury shares issued	18,590		—		(485)		—		—		508		23
Compensation expense			—		194		—		—		—		194
Balance at March 31, 2025	4,454,382	$	4,711	$	43,607	$	141,967	$	(31,856)	$	(7,038)	$	151,391

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

Consolidated Statements of Cash Flows



	Three Months Ended ‎March 31,
	2026		2025
(Dollars in thousands) (unaudited)
Cash flows from operating activities
Net income	$	6,637	$	3,922
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		513		537
Net amortization of loans and investment securities		112		71
Amortization of subordinate debt issuance costs		5		11
Provision for credit losses		221		779
Loss on sale of equity securities		—		7
Loans originated for sale		(11,103)		(6,986)
Proceeds from sale of loans		28,500		7,774
Gain on sale of loans held for sale		(318)		(109)
Gain on sale of premise		(33)		—
Increase in cash surrender value of life insurance		(132)		(115)
Gain from claims on life insurance policies		(351)		—
Stock based compensation		156		194
Net (decrease) increase in other assets		(567)		1,607
Net increase in other liabilities		455		1,131
Net cash provided by operating activities		24,095		8,823
Cash flows from investing activities
Net decrease in long-term interest-earning deposits in other banks		249		250
Proceeds from maturities, calls and pay-downs of securities available for sale		17,214		19,643
Purchase of investment securities available for sale		(1,203)		—
Decrease in restricted stock		—		10
Net increase in loans		(11,642)		(58,135)
Proceeds from surrender of life insurance policies		1,306		—
Proceeds from sale of equity securities		—		161
Proceeds from sale of premises		830		—
Capital expenditures		(116)		(246)
Net cash provided by (used in) investing activities		6,638		(38,317)
Cash flows from financing activities
Net increase in demand deposits, interest-bearing checking, and savings accounts		39,703		56,305
Net increase (decrease) in time deposits		14,235		(4,375)
Dividends paid		(1,480)		(1,418)
Purchase of Treasury shares		(405)		(142)
Cash received from option exercises		6		23
Treasury shares issued under dividend reinvestment plan		264		444
Net cash provided by financing activities		52,323		50,837
Increase in cash and cash equivalents		83,056		21,343
Cash and cash equivalents at the beginning of the period		127,721		203,613
Cash and cash equivalents at the end of the period	$	210,777	$	224,956
Supplemental Disclosures of Cash Flow Information
Cash paid during the period for:
Interest on deposits and other borrowed funds	$	9,303	$	12,146
Noncash Activities
Lease liabilities arising from obtaining right-of-use assets		692		131

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

FRANKLIN FINANCIAL SERVICES CORPORATION and SUBSIDIARIES

UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Basis of Presentation

The consolidated financial statements include the accounts of Franklin Financial Services Corporation (the Corporation), and its wholly owned subsidiaries, Farmers and Merchants Trust Company of Chambersburg (the Bank) and Franklin Future Fund Inc. Farmers and Merchants Trust Company of Chambersburg is a commercial bank that has one wholly owned subsidiary, Franklin Financial Properties Corp. Franklin Financial Properties Corp. holds real estate assets that are leased by the Bank. Franklin Future Fund Inc. is a non-bank investment company. The activities of the non-bank subsidiary are not significant to the consolidated totals. All significant intercompany transactions and account balances have been eliminated.

In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the consolidated financial position, results of operations, and cash flows as of March 31, 2026, and for all other periods presented have been made.

Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted. It is suggested that these consolidated financial statements be read in conjunction with the audited consolidated financial statements and notes thereto included in the Corporation’s 2025 Annual Report on Form 10-K. The consolidated results of operations for the three months ended March 31, 2026 are not necessarily indicative of the operating results for the full year. Management has evaluated subsequent events for potential recognition and/or disclosure through the date these consolidated financial statements were issued.

The consolidated balance sheet at December 31, 2025 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by GAAP for complete consolidated financial statements.

For purposes of reporting cash flows, cash and cash equivalents include cash and due from banks, interest-bearing deposits in other banks and cash items with original maturities less than 90 days.

Earnings per share are computed based on the weighted average number of shares outstanding during each period end. A reconciliation of the weighted average shares outstanding used to calculate basic earnings per share and diluted earnings per share follows:



	For the Three Months Ended
	March 31,
(Dollars and shares in thousands, except per share data)	2026		2025
Weighted average shares outstanding (basic)		4,474		4,436
Impact of common stock equivalents		12		15
Weighted average shares outstanding (diluted)		4,486		4,451
Anti-dilutive options excluded from calculation		—		—
Net income	$	6,637	$	3,922
Basic earnings per share	$	1.48	$	0.88
Diluted earnings per share	$	1.48	$	0.88

‎

Note 2. Recent Accounting Pronouncements

Recently adopted accounting standards

ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures

Description

This ASU is intended to improve the transparency of income tax disclosures by requiring consistent categories and greater disaggregation of information in the rate reconciliation table and income taxes paid to be disaggregated by jurisdiction. It also includes certain amendments to improve the effectiveness of income tax disclosures.

Effective Date

Effective for annual periods beginning after December 15, 2024.

Effect on the Consolidated Financial Statements

The Corporation adopted the ASU retrospectively in 2025. The adoption of this standard resulted in additional disclosures in the Corporation's Consolidated Financial Statements, but it did not materially impact the Corporation's results of operations.

Recently issued but not yet effective accounting standards

ASU 2024-03, Income Statement Expense Disaggregation Disclosures (Subtopic 220-40) Disaggregation of Income Statement Expense

Description

This ASU will change the disclosures about a public business entity's expenses and address requests from investors for more detailed information about the types of expenses (for example, employee compensation, depreciation, and amortization) in expense captions.

Effective Date

Fiscal years beginning after December 31, 2026 and interim periods within fiscal years beginning after December 31, 2027. Early adoption is permitted.

Effect on the Consolidated Financial Statements

The ASU is not expected to have an impact on the Corporation's financial statements.

ASU 2025-08, Financial Instruments - Credit Losses (Topic 326) Purchased Loans

Description

This ASU amends the guidance on the accounting for certain purchased loans. The new guidance makes significant changes to the accounting for certain acquired seasoned loans subject to the current expected credit loss model.

Effective Date

Effective beginning January 1, 2027. Early adoption is permitted.

Effect on the Consolidated Financial Statements

The ASU is not expected to have a significant impact on the Corporation's financial statements.

Note 3. Accumulated Other Comprehensive Income (Loss)

The components of accumulated other comprehensive income (loss), net of income tax effects, included in shareholders' equity, are as follows:



	March 31,		December 31,
(Dollars in thousands)	2026		2025

Net unrealized (losses) gains on debt securities	$	(28,838)	$	(26,717)
Tax effect		6,057		5,611
Net of tax amount	$	(22,782)	$	(21,106)

Accumulated pension adjustment	$	(611)	$	(611)
Tax effect		128		128
Net of tax amount	$	(483)	$	(483)

Total accumulated other comprehensive (loss) income	$	(23,265)	$	(21,589)

‎

Note 4. Investments

Available for Sale (AFS) Securities

The amortized cost and estimated fair value of AFS securities as of March 31, 2026 and December 31, 2025 are as follows:



(Dollars in thousands)			Gross		Gross
	Amortized		unrealized		unrealized		Fair
March 31, 2026	cost		gains		losses		Value
U.S. Treasury	$	35,802	$	—	$	(2,713)	$	33,089
Municipal		153,992		—		(17,185)		136,807
Corporate		11,690		—		(765)		10,925
Agency MBS & CMO		133,388		122		(6,276)		127,234
Non-Agency MBS & CMO		104,004		295		(2,069)		102,230
Asset-backed		26,445		95		(342)		26,198
Total	$	465,321	$	512	$	(29,350)	$	436,483



(Dollars in thousands)			Gross		Gross
	Amortized		unrealized		unrealized		Fair
December 31, 2025	cost		gains		losses		value
U.S. Treasury	$	35,880	$	—	$	(2,617)	$	33,263
Municipal		154,301		—		(16,462)		137,839
Corporate		15,536		—		(861)		14,675
Agency MBS & CMO		135,308		136		(5,584)		129,860
Non-Agency MBS & CMO		112,860		477		(1,669)		111,668
Asset-backed		27,519		78		(316)		27,281
Total	$	481,404	$	691	$	(27,509)	$	454,586

At March 31, 2026 and December 31, 2025, the fair value of debt securities pledged to secure public deposits, trust deposits, FHLB borrowing commitments and Federal Reserve Bank discount window availability totaled $343.4 million and $353.5 million, respectively. The Bank has no investment in a single obligor that exceeds 10% of shareholders’ equity, except for securities issued by the U.S. Treasury and U.S. government sponsored entities.

The amortized cost and estimated fair value of debt securities at March 31, 2026, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities because of prepayment or call options embedded in the securities. Securities not due at a single maturity date are presented separately.



(Dollars in thousands)	Amortized ‎cost		Fair ‎value
Due in one year or less	$	994	$	991
Due after one year through five years		58,130		54,364
Due after five years through ten years		84,780		74,365
Due after ten years		57,580		51,101
		201,484		180,821
MBS, CMO & ABS		263,837		255,662
Total	$	465,321	$	436,483

Credit Impairment:

The debt securities portfolio contained 464 securities in an unrealized loss position having a fair value of $393.9 million, with $29.4 million in unrealized losses at March 31, 2026, an increase of $1.8 million from the prior year-end.

AFS securities in an unrealized loss position are evaluated for credit impairment at least quarterly. For these securities, the Bank considers: (1) the extent to which the fair value is less than amortized cost; (2) adverse conditions specifically related to the security, industry or geographic area; (3) the payment structure of the debt security and the likelihood of the issuer being able to make payments that increase in the future; (4) failure of the issuer of the security to make scheduled interest or principal payments; and (5) any changes to the rating of the security by a rating agency. In addition, the Bank

considers whether it intends to sell these securities or whether it will be forced to sell these securities before the earlier of amortized cost recovery or maturity. The Bank does not have the intent to sell and does not believe it will more likely than not be required to sell any of these securities prior to a recovery of their fair value to amortized cost. The unrealized losses identified on debt securities and subject to evaluation at March 31, 2026 and December 31, 2025, 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 following table summarizes debt securities in the AFS portfolio in an unrealized loss position for which an allowance for credit losses has not been recorded, aggregated by investment category, length of time that individual securities have been in continuous unrealized loss position and the number of securities in each category as of March 31, 2026 and December 31, 2025:



	March 31, 2026
	Less than 12 months					12 months or more					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(Dollars in thousands)	Value		Losses		Count	Value		Losses		Count	Value		Losses		Count

U.S. Treasury	$	—	$	—	—	$	33,089	$	(2,713)	13	$	33,089	$	(2,713)	13
Municipal		880		(124)	2		135,927		(17,061)	164		136,807

FRANKLIN FINANCIAL SERVICES CORP /PA/ 10-Q