A measure of stressed loans, meaning assets that are no longer collecting interest or are severely past due, more than doubled at a south-central Pennsylvania community bank between the first and second quarters of 2026. Franklin Financial Services Corporation (Nasdaq: FRAF), the holding company for F&M Trust, reported that nonperforming assets as a share of total assets rose to 0.76 percent in the second quarter from 0.37 percent in the first. The bank still earned $1.47 in diluted earnings per share for the quarter, up from $1.32 in the second quarter of 2025.
Net interest income climbs as funding costs ease
Net interest margin, the spread between what a bank earns on loans and investments and what it pays depositors, came in at 3.50 percent for the second quarter, up from 3.21 percent in the same period a year ago. Quarterly net interest income reached $19.3 million, against $17.2 million in Q2 2025.
The yield on earning assets was 5.22 percent. The cost of deposits was 1.50 percent. Total loans stood at $1.61 billion at June 30, 2026, up from $1.52 billion a year earlier, and total deposits reached $1.92 billion. The quarterly dividend per share rose a cent, to $0.34.
Nonperforming assets break from the bank's own track record
The 0.76 percent nonperforming asset ratio sits well above the bank's self-reported five-year average of 0.27 percent for nonperforming loans as a share of gross loans. The allowance for credit losses, the reserve a bank sets aside to absorb potential loan losses, ticked up to 1.36 percent of total loans from 1.25 percent a year ago. Franklin Financial's five-year average net charge-off ratio is 0.03 percent.
Net income for the quarter was $6.6 million. Return on average assets was 1.14 percent, and return on average equity was 14.80 percent. Tangible book value per share reached $39.90, up from $33.20 a year ago. Tier 1 common equity stood at 11.93 percent.
Wealth management generates nearly half of non-interest income
F&M Trust's wealth management arm, which has operated since the bank's founding in 1906, reported $1.5 billion in assets under management as of June 30, 2026. The division produced $9.2 million in annual fees and $5.2 million in annual profit in 2025, accounting for 48 percent of the bank's non-interest income that year.
The bank operates 22 locations across south-central Pennsylvania and Washington County, Maryland, with a 34 percent deposit market share in Franklin County. Total assets as of June 30, 2026 were $2.3 billion.