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Table of Contents




















For the transition period from ______________to______________________






Commonwealth of Pennsylvania I.R.S. Employer Identification No: 23-3017653


Blakely And Drinker Streets

Dunmore, Pennsylvania 18512

TELEPHONE NUMBER (570) 342-8281




Title of each class


Trading Symbol(s)


Name of each exchange on which registered

Common Stock, without par value




The NASDAQ Stock Market, LLC




Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes ☐  No ☒


Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes ☐  No ☒


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 ☒  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 ☒ 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 definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer ☐

Non-accelerated filer ☒

Accelerated filer ☐


Smaller reporting company 

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 has filed a report on the attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.


If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.


Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to § 240.10D-1(b). ☐


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


The aggregate market value of the voting common stock held by non-affiliates of the registrant was $231.3 million as of June 30, 2023, based on the closing price of $48.59. The number of shares of common stock outstanding as of February 29, 2024 was 5,734,097.




Portions of the Registrant’s definitive Proxy Statement to be used in connection with the 2024 Annual Meeting of Shareholders are incorporated herein by reference in partial response to Part III.






Fidelity D & D Bancorp, Inc.
2023 Annual Report on Form 10-K
Table of Contents



Part I.


Item 1.



Item 1A.

Risk Factors


Item 1B.

Unresolved Staff Comments


Item 1C. Cybersecurity 16

Item 2.



Item 3.

Legal Proceedings


Item 4.

Mine Safety Disclosures



Part II.


Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities


Item 6.



Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operation


Item 7A.

Quantitative and Qualitative Disclosures About Market Risk


Item 8.

Report of Independent Registered Public Accounting Firm 


Item 8.

Financial Statements and Supplementary Data


Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure


Item 9A.

Controls and Procedures


Item 9B.

Other Information


Item 9C.

Disclosure Relating to Foreign Jurisdictions that Prevent Inspections



Part III.


Item 10.

Directors, Executive Officers and Corporate Governance


Item 11.

Executive Compensation


Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters


Item 13.

Certain Relationships and Related Transactions, and Director Independence


Item 14.

Principal Accountant Fees and Services



Part IV.


Item 15.

Exhibits and Financial Statement Schedules



Item 16.

Form 10-K Summary















Forward-Looking Statements


Certain of the matters discussed in this Annual Report on Form 10-K may constitute forward-looking statements for purposes of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, and as such may involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. The words “expect,” “anticipate,” “intend,” “plan,” “believe,” “estimate,” and similar expressions are intended to identify such forward-looking statements.


The Company’s actual results may differ materially from the results anticipated in these forward-looking statements due to a variety of factors, including, without limitation:


  local, regional and national economic conditions and changes thereto;
  the short-term and long-term effects of inflation, and rising costs to the Company, its customers and on the economy;
  the risks of changes and volatility of interest rates on the level and composition of deposits, loan demand, and the values of loan collateral, securities and interest rate protection agreements, as well as interest rate risks;
  securities markets and monetary fluctuations and volatility;
  disruption of credit and equity markets;
  impacts of the capital and liquidity requirements of the Basel III standards and other regulatory pronouncements, regulations and rules;
  governmental monetary and fiscal policies, as well as legislative and regulatory changes;
  effects of short- and long-term federal budget and tax negotiations and their effect on economic and business conditions;
  the costs and effects of litigation and of unexpected or adverse outcomes in such litigation;
  the impact of new or changes in existing laws and regulations, including laws and regulations concerning taxes, banking, securities and insurance and their application with which the Company and its subsidiaries must comply;
  the effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Financial Accounting Standards Board and other accounting standard setters;
  the effects of competition from other commercial banks, thrifts, mortgage banking firms, consumer finance companies, credit unions, securities brokerage firms, insurance companies, money market and other mutual funds and other financial institutions operating in our market area and elsewhere, including institutions operating locally, regionally, nationally and internationally, together with such competitors offering banking products and services by mail, telephone, computer and the internet;
  the effects of economic conditions of any pandemic, epidemic or other health-related crisis such as COVID-19 and responses thereto on current customers and the operations of the Company, specifically the effect of the economy on loan customers’ ability to repay loans;
  the effects of bank failures, banking system instability, deposit fluctuations, loan and securities value changes;

technological changes;

  the interruption or breach in security of our information systems, continually evolving cybersecurity and other technological risks and attacks resulting in failures or disruptions in customer account management, general ledger processing and loan or deposit updates and potential impacts resulting therefrom including additional costs, reputational damage, regulatory penalties, and financial losses;

acquisitions and integration of acquired businesses;

  the failure of assumptions underlying the establishment of reserves for loan losses and estimations of values of collateral and various financial assets and liabilities;

acts of war or terrorism; and

  the risk that our analyses of these risks and forces could be incorrect and/or that the strategies developed to address them could be unsuccessful.


The Company cautions readers not to place undue reliance on forward-looking statements, which reflect analyses only as of the date of this document. The Company has no obligation to update any forward-looking statements to reflect events or circumstances after the date of this document.




Readers should review the risk factors described in this document and other documents that we file or furnish, from time- to-time, with the Securities and Exchange Commission, including quarterly reports filed on Form 10-Q and any current reports filed or furnished on Form 8-K.




Fidelity D & D Bancorp, Inc. (the Company) was incorporated in the Commonwealth of Pennsylvania, on August 10, 1999, and is a bank holding company, whose wholly-owned state chartered commercial bank subsidiary is The Fidelity Deposit and Discount Bank (the Bank) (collectively, the Company). The Company is headquartered at Blakely and Drinker Streets in Dunmore, Pennsylvania. The Company's primary market area (service area) is comprised of the Borough of Dunmore and the surrounding communities within Lackawanna and Luzerne counties in Northeastern Pennsylvania and Northampton County in Eastern Pennsylvania.


Federal and state banking laws contain numerous provisions that affect various aspects of the business and operations of the Company and the Bank. The Company is subject to, among others, the regulations of the Securities and Exchange Commission (the SEC) and the Federal Reserve Board (the FRB) and the Bank is subject to, among others, the regulations of the Pennsylvania Department of Banking and Securities, the Federal Deposit Insurance Corporation (the FDIC) and the rules promulgated by the Consumer Financial Protection Bureau (the CFPB) but continues to be examined and supervised by federal banking regulators for consumer compliance purposes. Refer to Part II, Item 7 “Supervision and Regulation” for descriptions of and references to applicable statutes and regulations which are not intended to be complete descriptions of these provisions or their effects on the Company or the Bank. They are summaries only and are qualified in their entirety by reference to such statutes and regulations. Applicable regulations relate to, among other things:


•   operations

•   consolidation

•   disclosure

•   securities

•   reserves

•   community reinvestment

•   risk management

•   dividends

•   mergers

•   consumer compliance

•   branches

•   capital adequacy


The Bank is examined periodically by the Pennsylvania Department of Banking and Securities and the FDIC.


The Bank has offered a full range of traditional banking services since it commenced operations in 1903. The Bank has a personal and corporate trust department and also provides alternative financial and insurance products with asset management services. A full list of services provided by the Bank is detailed in the section entitled “Products and Services” contained within the 2023 Annual Report to Shareholders, incorporated by reference. In 2023, the Company had 15.24% of Lackawanna County’s total deposit market share ranking 3rd in total deposits, 6.43% of Luzerne County’s total deposit market share ranking 7th in total deposits and 7.10% of Northampton County’s total deposit market share ranking 6th in total deposits.


The banking business is highly competitive, and the success and profitability of the Company depends principally on its ability to compete in its market area. Competition includes, among other sources: local community banks; savings banks; regional banks; nationwide banks; credit unions; savings & loans; insurance companies; money market funds; mutual funds; small loan companies and other financial services companies. The Company has been able to compete effectively with other financial institutions by emphasizing customer service enhanced by local decision making. These efforts enable the Company to establish long-term customer relationships and build customer loyalty by providing products and services designed to address their specific needs.


The banking industry is affected by general economic conditions including the effects of inflation, recession, unemployment, real estate values, trends in national and global economies and other factors beyond the Company’s control. The Company’s success is dependent, to a significant degree, on economic conditions in its service area. An economic recession or a delayed economic recovery over a prolonged period of time in the Company’s market could cause an increase in the level of the Company’s non-performing assets and credit losses, and thereby cause operating losses, impairment of liquidity and erosion of capital. There are no concentrations of loans or customers that, if lost, would have a material adverse effect on the continued business of the Company. There is no material concentration within a single industry or a group of related industries that is vulnerable to the risk of a near-term severe impact.


The Company’s profitability is significantly affected by general economic and competitive conditions, changes in market interest rates, government policies and actions of regulatory authorities. The Company’s loan portfolio is comprised principally of residential real estate, consumer, commercial and commercial real estate loans. The properties underlying the Company’s mortgages are concentrated in Northeastern and Eastern Pennsylvania. Credit risk, which represents the possibility of the Company not recovering amounts due from its borrowers, is significantly related to local economic conditions in the areas where the properties are located as well as the Company’s underwriting standards. Economic conditions affect the market value of the underlying collateral as well as the levels of adequate cash flow and revenue generation from income-producing commercial properties.




During 2023, the national unemployment rate rose to 3.7% compared to 3.5% at the end of 2022. The unemployment rates in the Company’s local statistical markets, Scranton-Wilkes-Barre-Hazleton and Allentown-Bethlehem-Easton, dropped to 3.5% and 3.3%, respectively, from 4.5% and 3.7%, respectively, at the end of 2022. The local economy has been volatile in recent years and generally lags the national market trends. The Company’s credit function strives to mitigate the negative impact of economic conditions by maintaining disciplined underwriting principles for commercial and consumer lending and ensuring that home mortgage underwriting adheres to the standards of secondary market makers. These types of business activities involve a number of risks. Refer to Item 1A, “Risk Factors” for material risks and uncertainties that management believes affect the Company.


The Company’s website address is http://www.bankatfidelity.com. The Company makes available free of charge on or through this website the annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K and amendments to those reports as soon as reasonably practical after filing with the SEC. This reference to the Company’s website shall not, under any circumstances, be deemed to incorporate the information available at such Internet address into this Form 10-K or other SEC filings. The information available at the Company’s website is not part of this Form 10-K or any other report filed by the Company with the SEC. The SEC also maintains an internet site that contains reports, proxy and information statements and other information about the Company at http://www.sec.gov.


The Company’s accounting policies and procedures are designed to comply with accounting principles generally accepted in the United States of America (GAAP). Refer to “Critical Accounting Policies,” which are incorporated by reference in Part II, Item 7.


Human Capital


Mission and Core Values


Mission:  We are Fidelity Bank. We are passionate about success and committed to building strong relationships through exceptional experiences. We will be the best bank for our bankers to work, our clients to bank, our shareholders to invest and for our community to prosper. 


Our bankers are our first stakeholders by design as their actions, knowledge and focus on the client experience drive our success. We continuously invest in our bankers by offering competitive total compensation, a strong benefit package for themselves and their families, opportunity to invest in the Company through stock ownership, continuous learning, career development and programs to engage and enhance the work experience.


Fidelity Bankers have a voice in the Company and are called upon to provide opinions and ideas through dialogue programs with the CEO, Service Quality Surveys and the annual Climate Survey. Collectively, they have assisted in the development of the Core Values:
















Culturally, the Fidelity Model Experience provides a strategic vision to build a performance-based corporation. It guides all bankers on solidifying internal and external relationships and becoming the Trusted Financial Advisor for clients.




As of December 31, 2023, the Company employed 313 bankers within its network located in Northeast and Lehigh Valley, Pennsylvania. The Company employed 22 part-time bankers and 291 full-time bankers. Employment levels are aligned with the needs of the business.


Health and Wellness


The Company provides a strong health benefit package to bankers, including medical, dental and vision insurances, life insurance, long- and short-term disability coverage and flexible spending accounts. Packages include options to cover family members according to established guidelines, creating a focus on caring for both the personal and professional needs of the banker. The Telemedicine program creates an optional, ease of use method for health provider access, providing quality care for routine ailments and illnesses.




Each year, the benefit suite is reviewed, repriced and evaluated for strength and value. Care is taken to provide a cost contained package while requiring bankers to share in the cost of healthcare. Additional programs are vetted and added where meaningful. Bankers may enroll and view benefit information through a Company Benefits Portal, providing access to insurance policies, forms, pricing, and general benefit information.  Additionally, access is available directly through the medical plan insurer, giving all participants an avenue to gain pertinent information including medical care records, health and wellness articles on prevention, specific illnesses and diseases, physicians and facilities and cost of care comparisons.


The Company provides support to bankers in the form of an Employee Assistance Program through a confidential provider.  Bankers make use of the program for personal and professional struggles and continue to have ongoing access to round-the-clock support at no charge, including confidential counseling, work-life solutions, legal support and financial guidance.


In addition to benefit packages, the Company offers paid time off for vacation, sick and personal time, as it is an important part of balancing a fulfilling work and personal life.  Bankers have opportunities to earn additional days off through various programs.


The Company has a robust program to support community volunteerism and gives all bankers paid time off to spend hours in service to non-profits, schools, elder programs and other organizations.  The program helps to create community sustainability through our bankers’ time, talent and treasure and it develops deeper relationships with our bankers who work side-by-side for common causes.


Diversity and Inclusion


The Company is committed to promoting a diverse and inclusive workforce and values the strength it brings to the organization.  Hiring practices include outreach to organizations representing groups of color and ethnicity, veteran status, disabled persons and women.  Recruitment sources are varied to reach a broad audience.  These practices have resulted in a continuously increased diverse representation and an enhanced ability to provide for the diverse needs of the communities we serve.  The Affirmative Action Plan monitors the Company's success in creating equal employment opportunities for bankers and applicants and guides staff in hiring practices.


Training and Development


The investment into the continuous improvement of all bankers is evident in the bank’s commitment of training dollars and resources.  Key Performance Indicators (KPIs), tracked quarterly, outline training goals bank-wide and training dollars spent.  The Company has a devoted training team and all bankers are offered and encouraged to participate in continuous training initiatives.  Innovative programs, including Fidelity Bank University, leadership training, the education assistance program, enrichment programs through conferences, seminars and workshops and options for certifications are offered to educate bankers at all levels.


The bank monitors other Human Capital KPIs tracking banker activities; KPIs include and are not limited to community service and participation goals, turnover, new hire retention and climate survey scores. Results are monitored against goals.


The Company believes banker engagement is a tenet of its success.  The practice of giving each banker a voice, providing fair compensation and opportunity for stock ownership, recognizing exceptional service through a formalized recognition program, providing a quality benefit and retirement package, promoting career development opportunities and delivering strong programs and processes creates a strong and engaged workforce.  The programs assist in aligning the interests of the bankers with those of the shareholders and they provide further incentive to bankers to enhance the financial results of the Company.





An investment in the Company’s common stock is subject to risks inherent to the Company’s business. The material risks and uncertainties that management believes affect the Company are described below. Before making an investment decision, you should carefully consider the risks and uncertainties described below together with all of the other information included or incorporated by reference in this report. The risks and uncertainties described below are not the only ones facing the Company. Additional risks and uncertainties that management is not aware of or focused on or that management currently deems immaterial may also impair the Company’s business operations. This report is qualified in its entirety by these risk factors.


If any of the following risks actually occur, the Company’s financial condition and results of operations could be materially and adversely affected. If this were to happen, the value of the Company’s common stock could decline significantly, and you could lose all or part of your investment.




Risks Related to the Companys Business


The short-term and long-term effects of inflation and rising costs may adversely affect the Companys financial performance.


Inflation, both in the short-term and/or in the long-term, may adversely affect the Company’s business in that it may increase our overall costs even if it does not adversely affect every aspect of our business evenly. The Company employs various strategies to manage its costs but there is no assurance that these strategies will be successful in containing costs as higher rates of inflation may result in increased costs for goods and services, including employee salaries and benefits, which may adversely affect the Company’s results of operation and financial performance. Inflation may also increase the cost of doing business for the Company’s borrowers thereby affecting the creditworthiness of current or prospective customers.


The Companys business is subject to interest rate risk and variations in interest rates may negatively affect its financial performance.


Changes in the interest rate environment may reduce profits. The Company’s earnings and cash flows are largely dependent upon its net interest income. Net interest income is the difference between the interest earned on loans, securities and other interest-earning assets, and interest paid on deposits, borrowings and other interest-bearing liabilities. As prevailing interest rates change, net interest spreads are affected by the difference between the maturities and re-pricing characteristics of interest-earning assets and interest-bearing liabilities. In addition, loan volume and yields are affected by market interest rates on loans, and rising interest rates generally are associated with a lower volume of loan originations. An increase in the general level of interest rates may also adversely affect the ability of certain borrowers to pay the interest on and principal of their obligations. Accordingly, changes in levels of market interest rates could materially adversely affect the Company’s net interest spread, asset quality, loan origination volume and overall profitability.


The Company is subject to lending risk.


There are inherent risks associated with the Company’s lending activities. These risks include, among other things, the impact of changes in interest rates and changes in the economic conditions in the markets where the Company operates as well as those across the Commonwealth of Pennsylvania and the United States. Increases in interest rates and/or weakening economic conditions could adversely impact the ability of borrowers to repay outstanding loans or the value of the collateral securing these loans. The Company is also subject to various laws and regulations that affect its lending activities. Failure to comply with applicable laws and regulations could subject the Company to regulatory enforcement action that could result in the assessment of significant civil money penalties against the Company.


Commercial, commercial real estate and real estate construction loans are generally viewed as having more risk of default than residential real estate loans or consumer loans. These types of loans are also typically larger than residential real estate loans and consumer loans. Because these loans generally have larger balances than residential real estate loans and consumer loans, the deterioration of one or a few of these loans could cause a significant increase in non-performing loans. An increase in non-performing loans could result in a net loss of earnings from these loans, an increase in the provision for possible credit losses and an increase in loan charge-offs, all of which could have a material adverse effect on the Company’s financial condition and results of operations.



The Company is subject to commercial real estate volatility that may result in increases in non-performing loans that could have an adverse impact on our financial condition and results of operations.


The commercial real estate market nationally, regionally, and locally has recently been subject to increased levels of volatility.  Many believe that commercial real estate in the commercial office sector is undergoing a fundamental transformation and change that started during the recent pandemic but also continues due to evolving workplace environments.  These changes in the marketplace affect the demand for commercial office space which in turn may affect the credit status, profitability, and collectability, of existing and future commercial real estate office sector loans.  As explained above in greater detail in the risk factor for Lending Risk, volatility and increases in non-performing loans could have an adverse impact on the Company’s financial condition and results of operations.




The Companys allowance for credit losses may be insufficient.


The Company maintains an allowance for credit losses, which is a reserve established through a provision for credit losses charged to expense, that represents management’s best estimate of probable losses that have been incurred and are expected within the existing portfolio of loans. The allowance, in the judgment of management, is necessary to reserve for estimated credit losses and risks inherent in the loan portfolio. The level of the allowance reflects management’s continuing evaluation of industry concentrations; specific credit risks; loan loss experience; current loan portfolio quality; present economic, political and regulatory conditions, reasonable and supportable forecasts and unidentified losses inherent in the current loan portfolio. The determination of the appropriate level of the allowance for credit losses inherently involves a high degree of subjectivity and requires the Company to make significant estimates of current credit risks and future trends, all of which may undergo material changes. Changes in economic conditions affecting borrowers, new information regarding existing loans, identification of additional problem loans and other factors, both within and outside of the Company’s control, may require an increase in the allowance for credit losses. In addition, bank regulatory agencies periodically review the Company’s allowance for credit losses and may require an increase in the provision for credit losses or the recognition of further loan charge-offs, based on judgments different than those of management. Further, if charge-offs in future periods exceed the allowance for credit losses, the Company will need additional provisions to increase the allowance for credit losses. Any increases in the allowance for credit losses will result in a decrease in net income and capital and may have a material adverse effect on the Company’s financial condition and results of operations.


The Company adopted a new accounting standard update that results in a significant change in how we recognize credit losses and may have a material impact on our financial condition or results of operations.


In June 2016, the Company adopted a new accounting standard update (“ASU”) entitled “Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments,” which replaced the “incurred loss” model for recognizing credit losses with an “expected loss” model referred to as the Current Expected Credit Loss (“CECL”) model. Under the CECL model, banks are required to present certain financial assets carried at amortized cost, such as loans held for investment and held-to-maturity debt securities, at the net amount expected to be collected. The measurement of expected credit losses is based on information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. This measurement will take place at the time the financial asset is first added to the balance sheet and periodically thereafter. This differs significantly from the “incurred loss” model required under previous generally accepted accounting principles (“GAAP”), which delays recognition until it is probable a loss has been incurred.


The new CECL standard became effective for the Company on January 1, 2023. The CECL model may create more volatility in the level of the allowance for credit losses. If the Company is required to materially increase the level of its allowance for credit losses and reserve for unfunded commitments for any reason, such increase could adversely affect its business, financial condition and results of operations. The adoption of CECL is discussed further in Footnote 1, "Nature of Operations and Summary of Significant Accounting Policies," of Part II, Item 8 “Financial Statements and Supplementary Data”, which is incorporated herein by reference.


If we conclude that the decline in value of any of our investment securities is a credit loss, we will be required to book a contra-asset.


We review our investment securities portfolio at each quarter-end reporting period to determine whether the fair value is below the current carrying value. When the fair value of any of our investment securities has declined below its carrying value, we are required to assess whether the decline is a credit loss. If a decline in value is deemed to be credit losses, a contra-asset is recorded on both HTM and AFS securities, limited by the amount that the fair value is less than the amortized cost basis.


The Basel III and other regulatory capital requirements may require us to maintain higher levels of capital, which could reduce our profitability.


Basel III targets higher levels of base capital, certain capital buffers and a migration toward common equity as the key source of regulatory capital. Although the new capital requirements are phased in over the next decade and may change substantially before final implementation, Basel III signals a growing effort by domestic and international bank regulatory agencies to require financial institutions, including depository institutions, to maintain higher levels of capital. The direction of the Basel III implementation activities or other regulatory requirements could require additional capital to support our business risk profile prior to final implementation of the Basel III standards. If the Company and the Bank are required to maintain higher levels of capital, the Company and the Bank may have fewer opportunities to invest capital into interest-earning assets, which could limit the profitable business operations available to the Company and the Bank and adversely impact our financial condition and results of operations.




The Company may need, or be compelled, to raise additional capital in the future, but that capital may not be available when it is needed and on terms favorable to current shareholders.


Federal banking regulators require the Company and Bank to maintain adequate levels of capital to support their operations. These capital levels are determined and dictated by law, regulation and banking regulatory agencies. In addition, capital levels are also determined by the Company’s management and board of directors based on capital levels that they believe are necessary to support the Company’s business operations. The Company is evaluating its present and future capital requirements and needs, is developing a comprehensive capital plan and is analyzing capital raising alternatives, methods and options. Even if the Company succeeds in meeting the current regulatory capital requirements, the Company may need to raise additional capital in the near future to support possible loan losses during future periods or to meet future regulatory capital requirements.


Further, the Company’s regulators may require it to increase its capital levels. If the Company raises capital through the issuance of additional shares of its common stock or other securities, it may dilute the ownership interests of current investors and may dilute the per-share book value and earnings per share of its common stock. Furthermore, it may have an adverse impact on the Company’s stock price. New investors may also have rights, preferences and privileges senior to the Company’s current shareholders, which may adversely impact its current shareholders. The Company’s ability to raise additional capital will depend on conditions in the capital markets at that time, which are outside its control, and on its financial performance. Accordingly, the Company cannot assure you of its ability to raise additional capital on terms and time frames acceptable to it or to raise additional capital at all. If the Company cannot raise additional capital in sufficient amounts when needed, its ability to comply with regulatory capital requirements could be materially impaired. Additionally, the inability to raise capital in sufficient amounts may adversely affect the Company’s operations, financial condition and results of operations.


The Company is subject to environmental liability risk associated with lending activities.


A significant portion of the Company’s loan portfolio is secured by real property. During the ordinary course of business, the Company may foreclose on and take title to properties securing certain loans. In doing so, there is a risk that hazardous or toxic substances could be found on these properties. If hazardous or toxic substances are found, the Company may be liable for remediation costs, as well as for personal injury and property damage. Environmental laws may require the Company to incur substantial expense and may materially reduce the affected property’s value or limit the Company’s ability to use or sell the affected property. In addition, future laws or more stringent interpretations or enforcement policies with respect to existing laws may increase the Company’s exposure to environmental liability. Although the Company has policies and procedures to perform an environmental review before initiating any foreclosure action on real property, these reviews may not be sufficient to detect all potential environmental hazards. The remediation costs and any other financial liabilities associated with an environmental hazard could have a material adverse effect on the Company’s financial condition and results of operations.


The Companys profitability depends significantly on economic conditions in the Commonwealth of Pennsylvania and the local regions in which it conducts business.


The Company’s success depends primarily on the general economic conditions of the Commonwealth of Pennsylvania and the specific local markets in which the Company operates. Unlike larger national or other regional banks that are more geographically diversified, the Company provides banking and financial services to customers primarily in Lackawanna and Luzerne Counties in Northeastern Pennsylvania and Northampton County in Eastern Pennsylvania. The local economic conditions in these areas have a significant impact on the demand for the Company’s products and services as well as the ability of the Company’s customers to repay loans, the value of the collateral securing loans and the stability of the Company’s deposit funding sources. A significant decline in general economic conditions caused by inflation, recession, acts of terrorism, an outbreak of hostilities or other international or domestic occurrences or instability, unemployment, changes in securities markets or other factors could impact these local economic conditions and, in turn, have a material adverse effect on the Company’s financial condition and results of operations.


There is no assurance that the Company will be able to successfully compete with others for business.


The Company competes for loans, deposits and investment dollars with numerous regional and national banks and other community banking institutions, as well as other kinds of financial institutions and enterprises, such as securities firms, insurance companies, savings associations, credit unions, mortgage brokers and private lenders. Many competitors have substantially greater resources than the Company does, and operate under less stringent regulatory environments. The differences in resources and regulations may make it more difficult for the Company to compete profitably, reduce the rates that it can earn on loans and on its investments, increase the rates it must offer on deposits and other funds, and adversely affect its overall financial condition and earnings.




The Company is subject to extensive government regulation and supervision.


The Company, primarily through the Bank, is subject to extensive federal and state regulation and supervision. Banking regulations are primarily intended to protect depositors’ funds, federal deposit insurance funds and the banking system as a whole, not shareholders. These regulations affect the Company’s lending practices, capital structure, investment practices, dividend policy and growth, among other things. Federal or commonwealth regulatory agencies continually review banking laws, regulations and policies for possible changes. Changes to statutes, regulations or regulatory policies, including changes in interpretation or implementation of statutes, regulations or policies, could affect the Company in substantial and unpredictable ways. Such changes could subject the Company to additional costs, limit the types of financial services and products the Company may offer and/or increase the ability of non-banks to offer competing financial services and products, among other things. Failure to comply with laws, regulations or policies could result in sanctions by regulatory agencies, civil money penalties and/or reputation damage, which could have a material adverse effect on the Company’s business, financial condition and results of operations. While the Company has policies and procedures designed to prevent any such violations, there can be no assurance that such violations will not occur.


The Companys controls and procedures may fail or be circumvented.


Management regularly reviews and updates the Company’s internal controls, disclosure controls and procedures, and corporate governance policies and procedures. Any system of controls, however well designed and operated, is based in part on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the system are met. Any failure or circumvention of the Company’s controls and procedures or failure to comply with regulations related to controls and procedures could have a material adverse effect on the Company’s business, results of operations and financial condition.


New lines of business or new products and services may subject the Company to additional risks.


From time-to-time, the Company may implement new lines of business or offer new products and services within existing lines of business. There are substantial risks and uncertainties associated with these efforts, particularly in instances where the markets are not fully developed. In developing and marketing new lines of business and/or new products and services the Company may invest significant time and resources. Initial timetables for the introduction and development of new lines of business and/or new products or services may not be achieved and price and profitability targets may not prove feasible. External factors, such as compliance with regulations, competitive alternatives, and shifting market preferences, may also impact the successful implementation of a new line of business or a new product or service. Furthermore, any new line of business and/or new product or service could have a significant impact on the effectiveness of the Company’s system of internal controls. Failure to successfully manage these risks in the development and implementation of new lines of business or new products or services could have a material adverse effect on the Company’s business, results of operations and financial condition.


The Companys future acquisitions could dilute your ownership and may cause it to become more susceptible to adverse economic events.


The Company may use its common stock to acquire other companies or make investments in banks and other complementary businesses in the future. The Company may issue additional shares of common stock to pay for future acquisitions, which would dilute your ownership interest in the Company. Future business acquisitions could be material to the Company, and the degree of success achieved in acquiring and integrating these businesses into the Company could have a material effect on the value of the Company’s common stock. In addition, any acquisition could require it to use substantial cash or other liquid assets or to incur debt. In those events, it could become more susceptible to economic downturns and competitive pressures.


The Company may not be able to attract and retain skilled people.


The Company’s success depends, in large part, on its ability to attract and retain key people. Competition for the best people in most activities engaged in by the Company can be intense and the Company may not be able to hire people or to retain them. The unexpected loss of services of one or more of the Company’s key personnel could have a material adverse impact on the Company’s business because of their skills, knowledge of the Company’s market, years of industry experience and the difficulty of promptly finding qualified replacement personnel.




The Companys communications, information and technology systems may experience a failure, interruption or breach in security.


The Company relies heavily on communications, information and technology systems to conduct its business. Any failure, interruption or breach in security of these systems could result in failures or disruptions in the Company’s customer relationship management, general ledger, deposit, loan and other systems or result in corruption, loss or compromise of confidential corporate or customer data. The risks are greater if the issue is extensive, long-lasting, or results in financial losses to its customers. Such failures, interruptions or breaches in security may arise from events such as severe weather, acts of vandalism, telecommunications outages, human error, or cyber -attacks.


These risks also arise to the extent the Company’s third-party service providers experience failures, interruptions and breaches in security. The Company is also exposed to the risk of a disruption at a common service provider used by its third-party service providers. Even with attempts to diversify the reliance upon any one third-party, the Company may not be able to mitigate the risk of its vendors’ use of common service providers.


The Company has policies and procedures designed to prevent or limit the effect of the failure, interruption or security breach of its information systems, however there can be no assurance that any such failures, interruptions or security breaches will not occur. The occurrence of any failures, interruptions or security breaches of the Company’s information systems could damage the Company’s reputation, result in a loss of customer business, subject the Company to additional regulatory scrutiny, or expose the Company to civil litigation and possible financial liability, any of which could have a material adverse effect on the Company’s financial condition and results of operations.


The Company continually encounters technological change.


The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology-driven products and services. The effective use of technology increases efficiency and enables financial institutions to better serve customers and to reduce costs. The Company’s future success depends, in part, upon its ability to address the needs of its customers by using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in the Company’s operations. Many of the Company’s competitors have substantially greater resources to invest in technological improvements. The Company may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to its customers. Failure to successfully keep pace with technological change affecting the financial services industry could have a material adverse impact on the Company’s business and, in turn, the Company’s financial condition and results of operations.


The operations of our business, including our interaction with customers, are increasingly done via electronic means, and this has increased our risks related to cyber security.


We are exposed to the risk of cyber-attacks in the normal course of business. In general, cyber incidents can result from deliberate attacks or unintentional events. We have 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. To combat against these attacks, policies and procedures are in place to prevent, limit, or ameliorate the effect or financial impact of the possible security breach of our information systems and we have insurance against some cyber-risks and attacks. While we have not incurred any material losses related to cyber-attacks, nor are we aware of any specific or threatened cyber-incidents as of the date of this report, we may incur substantial costs and suffer other negative consequences if we fall victim to successful cyber-attacks.  Such negative consequences could include remediation costs that may include liability for stolen assets or information and repairing system damage that may have been caused; deploying additional personnel and protection technologies, training employees, and engaging third party experts and consultants; lost revenues resulting from unauthorized use of proprietary information or the failure to retain or attract customers following an attack; litigation; and reputational damage adversely affecting customer or investor confidence.




The Company may use artificial intelligence (AI) in its business, and challenges with properly managing its use could result in disruption of our internal operations, reputational harm, competitive harm, legal liability and adversely affect our results of operations and stock price.


The Company 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. Its business could be harmed and the Company may be exposed to legal liability and reputational risk if the AI the Company 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.


Data practices by the Company or others that result in controversy could impair the acceptance of AI, which could undermine the decisions, predictions, or analysis that AI applications produce.  Its 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. If the Company 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. As a result, the Company 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 its ability to use and develop AI. The Company 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. 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.


The Company is subject to claims and litigation pertaining to fiduciary responsibility.


From time-to-time, customers make claims and take legal action pertaining to the Company’s performance of its fiduciary responsibilities. Whether customer claims and legal action related to the Company’s performance of its fiduciary responsibilities are founded or unfounded, if such claims and legal actions are not resolved in a manner favorable to the Company, they may result in significant financial liability and/or adversely affect the market perception of the Company and its products and services as well as impact customer demand for those products and services. Any financial liability or reputation damage could have a material adverse effect on the Company’s business, which, in turn, could have a material adverse effect on the Company’s financial condition and results of operations.


Pennsylvania Business Corporation Law and various anti-takeover provisions under our articles and bylaws could impede the takeover of the Company.


Various Pennsylvania laws affecting business corporations may have the effect of discouraging offers to acquire the Company, even if the acquisition would be advantageous to shareholders. In addition, we have various anti-takeover measures in place under our articles of incorporation and bylaws, including a supermajority vote requirement for mergers, a staggered board of directors, and the absence of cumulative voting. Any one or more of these measures may impede the takeover of the Company without the approval of our board of directors and may prevent our shareholders from taking part in a transaction in which they could realize a premium over the current market price of our common stock.




The Company is a holding company and relies on dividends from its banking subsidiary for substantially all of its revenue and its ability to make dividends, distributions, and other payments.


As a bank holding company, the Company’s ability to pay dividends depends primarily on its receipt of dividends from its subsidiary bank.  Dividend payments from the bank are subject to legal and regulatory limitations, generally based on net profits and retained earnings, imposed by bank regulatory agencies. The ability of the bank to pay dividends is also subject to profitability, financial condition, regulatory capital requirements, capital expenditures and other cash flow requirements. There is no assurance that the bank will be able to pay dividends in the future or that the Company will generate cash flow to pay dividends in the future. The Company’s failure to pay dividends on its common stock may have a material adverse effect on the market price of its common stock.


The Companys banking subsidiary may be required to pay higher FDIC insurance premiums or special assessments which may adversely affect its earnings.


The Company generally is unable to control the amount of premiums or special assessments that its subsidiary is required to pay for FDIC insurance. Any future changes in the calculation or assessment of FDIC insurance premiums may have a material adverse effect on our results of operations, financial condition, and our ability to continue to pay dividends on our common stock at the current rate or at all.


Severe weather, natural disasters, acts of war or terrorism, global instability, pandemics and other external events could significantly impact the Companys business.


Severe weather, natural disasters, acts of war or terrorism, global instability, pandemics and other adverse external events could have a significant impact on the Company’s ability to conduct business. Such events could affect the stability of the Company’s deposit base, impair the ability of borrowers to repay outstanding loans, impair the value of collateral securing loans, cause significant property damage, result in loss of revenue and/or cause the Company to incur additional expenses. Severe weather or natural disasters, acts of war or terrorism, global instability, pandemics or other adverse external events may occur in the future. Although management has established disaster recovery policies and procedures, the occurrence of any such event could have a material adverse effect on the Company’s business, which, in turn, could have a material adverse effect on the Company’s financial condition and results of operations.


The increasing use of social media platforms presents new risks and challenges and our inability or failure to recognize, respond to and effectively manage the accelerated impact of social media could materially adversely impact our business.


There has been a marked increase in the use of social media platforms, including weblogs (blogs), social media websites, and other forms of Internet-based communications which allow individuals access to a broad audience of consumers and other interested persons. Social media practices in the banking industry are evolving, which creates uncertainty and risk of noncompliance with regulations applicable to our business. Consumers value readily available information concerning businesses and their goods and services and often act on such information without further investigation and without regard to its accuracy. Many social media platforms immediately publish the content their subscribers and participants post, often without filters or checks on accuracy of the content posted. Information posted on such platforms at any time may be adverse to our interests and/or may be inaccurate. The dissemination of information online could harm our business, prospects, financial condition, and results of operations, regardless of the information’s accuracy. The harm may be immediate without affording us an opportunity for redress or correction.




Other risks associated with the use of social media include improper disclosure of proprietary information, negative comments about our business, exposure of personally identifiable information, fraud, out-of-date information, and improper use by employees and customers. The inappropriate use of social media by our customers or employees could result in negative consequences including remediation costs including training for employees, additional regulatory scrutiny and possible regulatory penalties, litigation or negative publicity that could damage our reputation adversely affecting customer or investor confidence.


Risks Associated with the Companys Common Stock


The Companys stock price can be volatile.


Stock price volatility may make it more difficult for you to resell your common stock when you want and at prices you find attractive. The Company’s stock price can fluctuate significantly in response to a variety of factors including, among other things:



Actual or anticipated variations in quarterly results of operations.


Recommendations by securities analysts.


Operating and stock price performance of other companies that investors deem comparable to the Company.


News reports relating to trends, concerns and other issues in the financial services industry.


Perceptions in the marketplace regarding the Company and/or its competitors.


New technology used, or services offered, by competitors.


Significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or involving the Company or its competitors.


Failure to integrate acquisitions or realize anticipated benefits from acquisitions.


Changes in government regulations.


Geopolitical conditions such as acts or threats of terrorism or military conflicts.


General market fluctuations, industry factors and general economic and political conditions and events, such as economic slowdowns or recessions, interest rate changes or credit loss trends, could also cause the Company’s stock price to decrease regardless of operating results.


The trading volume in the Companys common stock is less than that of other larger financial services companies.


The Company’s common stock is listed for trading on Nasdaq and the trading volume in its common stock is less than that of other larger financial services companies. A public trading market having the desired characteristics of depth, liquidity and orderliness depends on the presence in the marketplace of willing buyers and sellers of the Company’s common stock at any given time. This presence depends on the individual decisions of investors and general economic and market conditions over which the Company has no control. Given the lower trading volume of the Company’s common stock, significant sales of the Company’s common stock, or the expectation of these sales, could cause the Company’s stock price to fall.


Furthermore, from time to time, the Company’s common stock may be included in certain and various stock market indices. Inclusion in these indices may positively impact the price, trading volume, and liquidity of the Company’s common stock, in part, because index funds or other institutional investors often purchase securities that are in these indices. Conversely, if the Company’s market capitalization falls below the minimum necessary to be included in any of the indices at any annual reconstitution date, the opposite could occur. Further, the Company’s inclusion in indices may be weighted based on the size of its market capitalization, so even if the Company’s market capitalization remains above the amount required to be included on these indices, if its market capitalization is below the amount it was on the most recent reconstitution date, the Company’s common stock could be weighted at a lower level, holders attempting to track the composition of these indices will be required to sell the Company’s common stock to match the reweighting of the indices.




Risks Associated with the Companys Industry


Future governmental regulation and legislation could limit the Companys future growth.


The Company is a registered bank holding company, and its subsidiary bank is a depository institution whose deposits are insured by the FDIC. As a result, the Company is subject to various regulations and examinations by various regulatory authorities. In general, statutes establish the corporate governance and eligible business activities for the Company, certain acquisition and merger restrictions, limitations on inter-company transactions such as loans and dividends, capital adequacy requirements, requirements for anti-money laundering programs and other compliance matters, among other regulations. The Company is extensively regulated under federal and state banking laws and regulations that are intended primarily for the protection of depositors, federal deposit insurance funds and the banking system as a whole. Compliance with these statutes and regulations is important to the Company’s ability to engage in new activities and consummate additional acquisitions.


In addition, the Company is subject to changes in federal and state tax laws as well as changes in banking and credit regulations, accounting principles and governmental economic and monetary policies. The Company cannot predict whether any of these changes may adversely and materially affect it. Federal and state banking regulators also possess broad powers to take supervisory actions as they deem appropriate. These supervisory actions may result in higher capital requirements, higher insurance premiums and limitations on the Company’s activities that could have a material adverse effect on its business and profitability. While these statutes are generally designed to minimize potential loss to depositors and the FDIC insurance funds, they do not eliminate risk, and compliance with such statutes increases the Company’s expense, requires management’s attention and can be a disadvantage from a competitive standpoint with respect to non-regulated competitors.


The earnings of financial services companies are significantly affected by general business and economic conditions.


The Company’s operations and profitability are impacted by general business and economic conditions in the United States and abroad. These conditions include short-term and long-term interest rates, inflation, money supply, political issues, legislative and regulatory changes, fluctuations in both debt and equity capital markets, broad trends in industry and finance, and the strength of the U.S. economy and the local economies in which the Company operates, all of which are beyond the Company’s control. Deterioration in economic conditions could result in an increase in loan delinquencies and non-performing assets, decreases in loan collateral values and a decrease in demand for the Company’s products and services, among other things, any of which could have a material adverse impact on the Company’s financial condition and results of operations.


Financial services companies depend on the accuracy and completeness of information about customers and counterparties.


In deciding whether to extend credit or enter into other transactions, the Company may rely on information furnished by or on behalf of customers and counterparties, including financial statements, credit reports and other financial information. The Company may also rely on representations of those customers, counterparties or other third parties, such as independent auditors, as to the accuracy and completeness of that information. Reliance on inaccurate or misleading financial statements, credit reports or other financial information could have a material adverse impact on the Company’s business and, in turn, the Company’s financial condition and results of operations.


Consumers may decide not to use banks to complete their financial transactions.


Technology and other changes are allowing parties to complete financial transactions that historically have involved banks through alternative methods. For example, consumers can now maintain funds that would have historically been held as bank deposits in brokerage accounts or mutual funds. Consumers can also complete transactions such as paying bills and/or transferring funds directly without the assistance of banks. The process of eliminating banks as intermediaries, known as “disintermediation,” could result in the loss of fee income, as well as the loss of customer deposits and the related income generated from those deposits. The loss of these revenue streams and the lower cost deposits as a source of funds could have a material adverse effect on the Company’s financial condition and results of operations.




A protracted government shutdown or issues relating to debt and the deficit may adversely affect the Company.


Extended shutdowns of parts of the federal government could negatively impact the financial performance of certain customers and could impact customers’ future access to certain loan and guarantee programs. As a result, this could impact the Company’s business, financial condition and results of operations.


As a result of past difficulties of the federal government to reach agreement over federal debt and issues connected with the debt ceiling, certain rating agencies placed the United States government's long-term sovereign debt rating on their equivalent of negative watch and announced the possibility of a rating downgrade. The rating agencies, due to constraints related to the rating of the United States, also placed government-sponsored enterprises in which the Company invests and receives lines of credit on negative watch and a downgrade of the United States government's credit rating would trigger a similar downgrade in the credit rating of these government-sponsored enterprises. Furthermore, the credit rating of other entities, such as state and local governments, may also be downgraded should the United States government's credit rating be downgraded. The impact that a credit rating downgrade may have on the national and local economy could have an adverse effect on the Company’s financial condition and results of operations.


The regulatory environment for the financial services is being significantly impacted by financial regulatory reform initiatives in the United States and elsewhere, including Dodd-Frank and regulations promulgated to implement it.


The Dodd-Frank Act comprehensively reforms the regulation of financial institutions and their products and services. Dodd-Frank requires various federal regulatory agencies to implement numerous rules and regulations. Because federal agencies are granted broad discretion in drafting these rules and regulations, many of the details and the full impact of Dodd-Frank may not be known for many months or years.


Dodd-Frank, like other financial industry reforms, has had and will continue to have a significant effect on our entire industry. Although it is difficult to predict with certainty the magnitude and extend of these effects at this time, we believe compliance with Dodd-Frank, its interpretive regulations, rules, and initiatives will negatively impact revenue and increase the cost of doing business. Additional expenses associated with compliance with the Act, currently and on an ongoing basis, are likely to continue and the effects of full implementation of the Act may limit our ability to pursue certain business opportunities.








Being a financial services company, the Company encounters inherent cybersecurity risks and threats, which also affect its customers, suppliers, and third-party service providers. Throughout operations, the Company handles and processes data for its customers, employees, partners, and suppliers, understanding that a cybersecurity incident impacting any of these entities could significantly impact its operations and performance. As part of the financial services sector, the Company is held to rigorous regulatory compliance standards. To effectively manage these risks and meet regulatory demands, the Company has implemented a comprehensive, risk-based information security program. This program is designed in alignment with regulatory requirements and the guiding principles of the Federal Financial Institutions Examination Council (FFIEC) handbook and the National Institute of Standards and Technology (NIST) Cybersecurity Framework (CSF).


Information Security Governance and Oversight


The Board of Directors assumes ultimate responsibility for overseeing the Company's information security program. The Company has established an Information Technology Steering Committee (ITSC), comprised of leaders from various departments across the organization, tasked with governing and overseeing the information security program. The ITSC underscores its commitment to treating cybersecurity as a business risk rather than solely a technical concern. The Chief Information Security Officer, reporting to the SVP, General Counsel, is entrusted with leading the cybersecurity risk assessment process. This includes identifying risks, assessing inherent likelihood and impact, evaluating existing mitigating controls, calculating residual risk scores, and recommending risk responses to both the ITSC and the Board of Directors.




Information Security Program


The Company's program aims to identify, protect, detect, respond, and recover from cyber threats, striving to prevent cybersecurity incidents to the extent feasible. Simultaneously, it enhances our resilience to minimize the impact of a cybersecurity event. The program is designed to be agile, proactive, and responsive to changes in the evolving threat landscape. It employs a layered cybersecurity approach, encompassing the following key elements:



A Security Incident Response Plan (SIRP) detailing procedures and protocols to respond effectively and efficiently to cybersecurity events.


A user awareness program featuring regular social engineering testing and training to keep our employees informed about cybersecurity best practices, potential threats, and effective responses to mitigate risks.


A continuous vulnerability management program designed to validate the efficacy of our patch management strategy. It prioritizes the remediation of vulnerabilities posing risks to the organization, our customers, and partners.


Protective technical security controls, reducing the likelihood of a cybersecurity incident.


Detection, response, and recovery capabilities, mitigating the impact of cybersecurity incidents.


A vendor management program, designed to manage and mitigate risks associated with leveraging suppliers and third-party service providers.


Third-party penetration testing and internal and external vulnerability assessments, validating the effectiveness of our security controls.


IT controls audits conducted by both internal and external auditors to ensure compliance with regulatory requirements, as well as our internal corporate policies and procedures.


Regular reporting to the Board of Directors, providing insights into our cybersecurity posture and ongoing initiatives.


By implementing these measures, the Company strives to maintain a strong cybersecurity posture, safeguarding the organization, customers, and partners from potential threats while ensuring compliance with industry standards and regulations.


Notwithstanding the Company's defensive measures and processes, the threat posed by cyber-attacks is extremely serious. The Company may not be successful in preventing or mitigating all cybersecurity incidents that could have a material adverse effect on the Company. While the Company has not, to date, detected a significant compromise, significant data loss or any material financial losses related to cybersecurity attacks, internal systems and those of our customers and third-party service providers are under constant threat. It is possible that the Company could experience a future significant cybersecurity event. The Company expects risks and exposures related to cybersecurity attacks to remain high for the foreseeable future. For further discussion of risks related to cybersecurity, see "Item 1A Risk Factors."





As of December 31, 2023, the Company and the Bank operated 21 full-service banking offices, of which eleven were owned and ten were leased. The Pittston branch property is subject to a lease with a company of which director, William J. Joyce, Sr., is a partner. With the exception of the Pittston branch, none of the lessors of the properties leased by the Company are affiliated with the Company and all of the properties are located in the Commonwealth of Pennsylvania. The Company is headquartered at its owner-occupied main branch located on the corner of Blakely and Drinker Streets in Dunmore, PA. Executive and administrative, commercial lending, trust and asset management services are located at the Main Branch. The Company also operates a financial center in downtown Scranton, PA. Executive, mortgage and consumer lending, finance, operations and a full-service call center are located in this building. During 2022, the Company purchased the Scranton Electric Building for a future corporate headquarters in Scranton, PA, which is in the process to be placed on the National Register of Historic Places.  Demolition of non-historical interior improvements is currently underway to allow for the next phase of planned remodeling with the expected completion ready for 2025. We believe each of our facilities is suitable and adequate to meet our current operational needs and intended purposes.


The Company also operates a wealth management office in Minersville, PA under a short-term lease agreement.




Additionally, the Company has a limited production office in Scranton, PA that is currently leased for certain commercial lenders and credit department employees.


The Company acquired a leased building in Scranton from the merger with Landmark. The branch in the building was closed in September 2021 and the building was converted into a training center during 2022. 


Foreclosed assets held-for-sale includes other real estate owned (ORE). The Company had one ORE property as of December 31, 2023. Upon possession, foreclosed properties are recorded on the Company’s balance sheet at the lower of cost or fair value. For a further discussion of ORE properties, see “Foreclosed assets held-for-sale”, located in the comparison of financial condition section of managements’ discussion and analysis.




The nature of the Company’s business generates some litigation involving matters arising in the ordinary course of business. However, in the opinion of the Company after consulting with legal counsel, no legal proceedings are pending, which, if determined adversely to the Company or the Bank, would have a material effect on the Company’s undivided profits or financial condition or results of operations. No legal proceedings are pending other than ordinary routine litigation incidental to the business of the Company and the Bank. In addition, to management’s knowledge, no governmental authorities have initiated or contemplated any material legal actions against the Company or the Bank.



Not Applicable










The common stock of the Company is listed on Nasdaq and traded on The NASDAQ Global Market under the symbol “FDBC.” Shareholders requesting information about the Company’s common stock may contact:


Salvatore R. DeFrancesco, Jr., Treasurer

Fidelity D & D Bancorp, Inc.

Blakely and Drinker Streets

Dunmore, PA 18512

(570) 342-8281


Dividends are determined and declared by the Board of Directors of the Company. The Company expects to continue to pay regular quarterly cash dividends in the future; however, future dividends are dependent upon earnings, financial condition, capital strength and other factors of the Company. For a further discussion of regulatory capital requirements see Note 15, “Regulatory Matters,” contained within the notes to the consolidated financial statements, incorporated by reference in Part II, Item 8.


The Company offers a dividend reinvestment plan (DRP) for its shareholders. The DRP provides shareholders with a convenient and economical method of investing cash dividends payable on their common stock and the opportunity to make voluntary optional cash payments to purchase additional shares of the Company’s common stock.  Participants pay no brokerage commissions or service charges when they acquire additional shares of common stock through the DRP. The administrator may purchase shares directly from the Company, in the open market, in negotiated transactions with third parties or using a combination of these methods.


The Company had approximately 1,631 shareholders at December 31, 2023 and 1,623 shareholders as of February 29, 2024. The number of shareholders is the actual number of distinct shareholders of record. Each security depository is considered a single shareholder for purposes of determining the approximate number of shareholders.




Performance graph


The following graph and table compare the cumulative total shareholder return on the Company’s common stock against the cumulative total return of the NASDAQ Composite and KBW NASDAQ Bank index (the KBW NASDAQ index) for the period of five fiscal years commencing January 1, 2019, and ending December 31, 2023. The graph illustrates the cumulative investment return to shareholders, based on the assumption that a $100 investment was made on December 31, 2018, in each of: the Company’s common stock, the NASDAQ Composite and the KBW NASDAQ index. As of December 31, 2023, the KBW NASDAQ index consisted of 24 banks. A listing of the banks that comprise the KBW NASDAQ index can be found on the Company’s website at www.bankatfidelity.com and then on the bottom of the page clicking on, Investor Relations, Stock Info, The KBW NASDAQ Bank index in the drop-down menu. All cumulative total returns are computed assuming the reinvestment of dividends into the applicable securities. The shareholder return shown on the graph and table below is not necessarily indicative of future performance:





Period Ending














Fidelity D & D Bancorp, Inc.

  100.00     98.62     104.47     98.00     80.81     102.56

NASDAQ Composite Index

  100.00     136.69     198.10     242.03     163.28     236.17


  100.00     136.13     122.09     168.88     132.75     131.57




ITEM 6:  [Reserved]





Critical accounting policies


The presentation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect many of the reported amounts and disclosures. Actual results could differ from these estimates.


A material estimate that is particularly susceptible to significant change relates to the determination of the allowance for credit losses. Management believes that the allowance for credit losses at December 31, 2023 is adequate and reasonable to cover expected losses. Given the subjective nature of identifying and estimating loan losses, it is likely that well-informed individuals could make different assumptions and could, therefore, calculate a materially different allowance amount. While management uses available information to recognize losses on loans, changes in economic conditions and reasonable and supportable forecasts may necessitate revisions in the future. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for credit losses. Such agencies may require the Company to recognize adjustments to the allowance based on their judgment of information available to them at the time of their examination. On January 1, 2023, the company adopted ASU 2016-13 (Topic 326), which replaced the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (or CECL) methodology. 


Another material estimate is the calculation of fair values of the Company’s investment securities. Fair values of investment securities are determined by pricing provided by a third-party vendor, who is a provider of financial market data, analytics and related services to financial institutions. Based on experience, management is aware that estimated fair values of investment securities tend to vary among valuation services. Accordingly, when selling investment securities, price quotes may be obtained from more than one source. As described in Notes 1 and 4 of the consolidated financial statements, incorporated by reference in Part II, Item 8, the Company’s investment securities are classified as available-for-sale (AFS) or held-to-maturity (HTM). AFS securities are carried at fair value on the consolidated balance sheets, with unrealized gains and losses, net of income tax, reported separately within shareholders’ equity as a component of accumulated other comprehensive income (loss) (AOCI). Debt securities, for which the Company has the positive intent and ability to hold to maturity, are reported at amortized cost. On occasion, the Company may transfer securities from AFS to HTM at fair value on the date of transfer.


The fair value of residential mortgage loans, classified as held-for-sale (HFS), is obtained from the Federal National Mortgage Association (FNMA) or the Federal Home Loan Bank (FHLB). Generally, the market to which the Company sells residential mortgages it originates for sale is restricted and price quotes from other sources are not typically obtained. On occasion, the Company may transfer loans from the loan portfolio to loans HFS. Under these circumstances, pricing may be obtained from other entities and the loans are transferred at the lower of cost or market value and simultaneously sold. For a further discussion on the accounting treatment of HFS loans, see the section entitled “Loans held-for-sale,” contained within this management’s discussion and analysis.


The Company accounts for business combinations under the acquisition method of accounting. The application of this method of accounting requires the use of significant estimates and assumptions in the determination of the fair value of assets acquired and liabilities assumed in order to properly allocate purchase price consideration between assets that are amortized, accreted or depreciated from those that are recorded as goodwill. Estimates of the fair values of assets acquired and liabilities assumed are based upon assumptions that management believes to be reasonable.


Goodwill is recorded on the consolidated balance sheets as the excess of liabilities assumed over identifiable assets acquired on the acquisition date. Goodwill is recorded at its net carrying value which represents estimated fair value. Goodwill is tested for impairment on at least an annual basis. There was no goodwill impairment at December 31, 2023. Other acquired intangible assets that have finite lives, such as core deposit intangibles, are amortized over their estimated useful lives and subject to periodic impairment testing.


All significant accounting policies are contained in Note 1, “Nature of Operations and Summary of Significant Accounting Policies”, within the notes to consolidated financial statements and incorporated by reference in Part II, Item 8.


The following discussion and analysis presents the significant changes in the financial condition and in the results of operations of the Company as of December 31, 2023 and 2022 and for each of the years then ended. This discussion should be read in conjunction with the consolidated financial statements and notes thereto included in Part II, Item 8 of this report.




Non-GAAP Financial Measures


The following are non-GAAP financial measures which provide useful insight to the reader of the consolidated financial statements but should be considered supplemental to GAAP used to prepare the Company’s financial statements and should not be read in isolation or relied upon as a substitute for GAAP measures. In addition, the Company’s non-GAAP measures may not be comparable to non-GAAP measures of other companies. The Company’s tax rate used to calculate the fully-taxable equivalent (FTE) adjustment was 21% at December 31, 2023, 2022, 2021, 2020 and 2019.


The following table reconciles the non-GAAP financial measures of FTE net interest income:


(dollars in thousands)






Interest income (GAAP)

  $ 93,835     $ 78,672  

Adjustment to FTE

    2,850       2,738  

Interest income adjusted to FTE (non-GAAP)

    96,685       81,410  

Interest expense (GAAP)

    31,788       6,398  

Net interest income adjusted to FTE (non-GAAP)

  $ 64,897     $ 75,012  


The efficiency ratio is non-interest expenses as a percentage of FTE net interest income plus non-interest income less gain/(loss) on sales of securities. The following table reconciles the non-GAAP financial measures of the efficiency ratio to GAAP:


(dollars in thousands)






Efficiency Ratio (non-GAAP)


Non-interest expenses (GAAP)

  $ 51,870     $ 51,361  

Net interest income (GAAP)

    62,047       72,274  

Plus: taxable equivalent adjustment

    2,850       2,738  

Non-interest income (GAAP)

    11,405       16,642  

Less: (Loss) gain on sales of securities

    (6,468 )     4  

Net interest income (FTE) plus adjusted non-interest income (non-GAAP)

  $ 82,770     $ 91,650  

Efficiency ratio (non-GAAP)

    62.67 %     56.04 %


The following table provides a reconciliation of the tangible common equity (non-GAAP) and the calculation of tangible book value per share, tangible common equity ratio and adjusted tangible common equity ratio:


(dollars in thousands)






Tangible Book Value per Share (non-GAAP)


Total assets (GAAP)

  $ 2,503,159     $ 2,378,372  

Less: Intangible assets, primarily goodwill

    (20,812 )     (21,168 )

Tangible assets

    2,482,347       2,357,204  

Total shareholders' equity (GAAP)

    189,479       162,950  

Less: Intangible assets, primarily goodwill

    (20,812 )     (21,168 )

Tangible common equity

  $ 168,667     $ 141,782  

Common shares outstanding, end of period

    5,703,636       5,630,794  

Tangible Common Book Value per Share (non-GAAP)

  $ 29.57     $ 25.18  

Tangible Common Equity Ratio (non-GAAP)

    6.79 %     6.01 %

Unrealized losses on held-to-maturity securities, net of tax

    (21,375 )     (28,017 )

Adjusted tangible common equity ratio (non-GAAP)

    5.93 %     4.83 %




The following tables provides a reconciliation of the Company’s earnings results under GAAP to comparative non-GAAP results excluding gain/loss on the sale of available-for-sale debt securities:





(dollars in thousands except per share data)


Income before income taxes


Provision for income taxes


Net income


Diluted earnings per share


Results of operations (GAAP)

  $ 20,256     $ 2,046     $ 18,210     $ 3.19  

Add: Loss (gain) on the sale of available-for-sale debt securities

    6,468       1,358       5,110       0.89  

Adjusted earnings (non-GAAP)

  $ 26,724     $ 3,404     $ 23,320     $ 4.08  





(dollars in thousands except per share data)


Income before income taxes


Provision for income taxes


Net income


Diluted earnings per share


Results of operations (GAAP)

  $ 35,468     $ 5,447     $ 30,021     $ 5.29  

Add: Loss (gain) on the sale of available-for-sale debt securities

    (4 )     (1 )     (3 )     -  

Adjusted earnings (non-GAAP)

  $ 35,464     $ 5,446     $ 30,018     $ 5.29  


The following table provides a reconciliation of pre-provision net revenue (PPNR) to average assets (non-GAAP):


(dollars in thousands)






Pre-Provision Net Revenue to Average Assets


Income before taxes (GAAP)

  $ 20,256     $ 35,468  

Plus: Provision for credit losses

    1,326       2,087  

Total pre-provision net revenue (non-GAAP)

  $ 21,582     $ 37,555  

Average assets

  $ 2,405,096     $ 2,399,576  

Pre-Provision Net Revenue to Average Assets (non-GAAP)

    0.90 %     1.57 %




Comparison of Financial Condition as of December 31, 2023

and 2022 and Results of Operations for each of the Years then Ended


Executive Summary


The Company generated $18.2 million in net income in 2023, or $3.19 diluted earnings per share, down $11.8 million, or 39%, from $30.0 million, or $5.29 diluted earnings per share, in 2022. The Company’s net interest income performance has been reduced by asset yields being outpaced by the rapid growth of rates paid on deposits. Federal Open Market Committee (FOMC) officials raised the federal funds rate 425 basis points during 2022 and another 100 basis points during 2023. The Company expects the fed funds rate cuts to begin during 2024 once inflation slows toward the Fed's target level to begin easing. For 2024, the Company currently maintains a loan pipeline which we expect will grow the loan portfolio which will be funded by borrowing capacity until the point deposit growth will be able to pay down these short-term borrowings. The focus is to manage net interest income through a declining forecasted rate cycle by exercising disciplined and proactive loan pricing and managing deposit costs to maintain a reasonable spread, to the extent possible, in order to address further margin compression. From a financial condition and performance perspective, our mission for 2024 will be to continue to strengthen our capital position through retained earnings to support growth initiatives by implementing strategic and targeted marketing and revenue enhancing strategies, continuing to improve loan yields while managing the cost of deposits, growing and cultivating more of our wealth management and business services and managing credit risk at tolerable levels thereby maintaining overall asset quality.

Nationally, the unemployment rate rose from 3.5% at December 31, 2022 to 3.7% at December 31, 2023. The unemployment rates in the Scranton - Wilkes-Barre - Hazleton (market area north) and the Allentown – Bethlehem - Easton (market area south) Metropolitan Statistical Areas (local) decreased with both at a lower level than the national unemployment rate. According to the U.S. Bureau of Labor Statistics, the local unemployment rates at December 31, 2023 were 3.5% in the market area north and 3.3% in the market area south, respectively, a decrease of 1.0 and 0.4 percentage points from the 4.5% and 3.7%, respectively, at December 31, 2022. The rising rate environment and historically low inventory has reduced the amount of home purchases from 2022 levels. The median home values in the Scranton-Wilkes-Barre-Hazleton metro and Allentown-Bethlehem-Easton metro each increased 5.9% and 6.3% from a year ago, according to Zillow, an online database advertising firm providing access to its real estate search engines to various media outlets, and values are expected to grow 5.8% and 5.4% in the next year. In light of these expectations, we are uncertain if real estate values could continue to increase at these levels with the current elevated rate environment, however we will continue to monitor the economic climate in our region and scrutinize growth prospects with credit quality as a principal consideration.


Due to volatility in the levels of borrowings during October 2023 and the increasing expected dependency on borrowing capacity from experiencing deposit fluctuations while funding loan growth, the Company evaluated a liquidity strategy to deleverage the reliance on short-term borrowings.  As a result of this evaluation, in November 2023, the Company sold certain available-for-sale securities with a carrying value of $35.6 million for a $6.5 million loss recognized in gain (loss) on sale of available-for-sale debt securities. The $29.1 million in proceeds received were used to pay down short-term borrowings that replenished available borrowing capacity at that time, while eliminating 425 basis points in negative spread as one means to improve future earnings.


Gains/losses on the sale of available-for-sale securities incurred during 2023 and 2022 were not a part of the Company’s normal operations. Excluding the gain/loss on the sale of securities of $5.1 million on a non-GAAP basis, net of tax, adjusted net income would have been $23.3 million, or $4.08 adjusted diluted earnings per share, for the year ended December 31, 2023, a $6.7 million decrease compared to adjusted net income for 2022. For more detail on adjusted net income which is a non-GAAP measurement, refer to the “Non-GAAP Financial Measures” located above within this management’s discussion and analysis.


For the years ended December 31, 2023 and 2022, tangible common book value per share (non-GAAP) was $29.57 and $25.18, respectively, an increase of 17.4%. The increase in tangible book value was due primarily to an increase in retained earnings from net income and improvements in accumulated other comprehensive income. These non-GAAP measures should be reviewed in connection with the reconciliation of these non-GAAP ratios. See “Non-GAAP Financial Measures” located above within this management’s discussion and analysis.


During 2023, the Company’s assets grew by 5% primarily from growth in the loan portfolio. In 2024, we expect total loans to increase and a decline in the investment portfolio. The increase in the loan portfolio is expected to be funded primarily by deposit growth supplemented by short-term borrowings, when necessary. No long-term FHLB advances are currently expected to be used in 2024.


Non-performing assets represented 0.13% of total assets as of December 31, 2023, up from 0.12% at the prior year end. Non-performing assets to total assets were higher during 2023 mostly due to the amount (or dollar value) of non-performing assets increasing to a lesser extent than the growth in total assets.




Branch managers, relationship bankers, mortgage originators and our business service partners are all focused on developing a mutually profitable full banking relationship with our clients. We understand our markets, offer products and services along with financial advice that is appropriate for our community, clients and prospects. The Company continues to focus on the trusted financial advisor model by utilizing the team approach of experienced bankers that are fully engaged and dedicated towards maintaining and growing profitable relationships.


During 2024, the Company currently expects to operate in a modestly declining interest rate environment during the second half of the year. Management is primarily reliant on the Federal Open Market Committee's statements and forecast.  The Company’s net interest income performance has been reduced by asset yields being outpaced by higher cost of funds compressing net interest spread. Although expectations are for the FOMC to reduce rates in the second half of 2024, the Company may continue to experience pressure to further increase rates paid on deposits in the near future. For 2024, the Company currently expects to maintain net interest margin at the same level as 2023.


Financial Condition


Consolidated assets increased $124.8 million, or 5%, to $2.5 billion as of December 31, 2023 from $2.4 billion at December 31, 2022. The increase in assets occurred primarily from loan portfolio growth and higher excess cash balances. The Company used short-term borrowings to fund loan growth and maintain excess cash balances. During 2023, the investment portfolio declined as the Company sold longer term available-for-sale securities as part of a liquidity and net interest margin enhancement strategy.


The following table is a comparison of condensed balance sheet data as of December 31:


(dollars in thousands)








Cash and cash equivalents

  $ 111,949       4.5 %   $ 29,091       1.2 %

Investment securities

    568,273       22.7       643,606       27.1  

Restricted investments in bank stock

    3,905       0.2       5,268       0.2  

Loans and leases, net (including loans HFS)

    1,667,749       66.5       1,548,662       65.1  

Bank premises and equipment

    34,232       1.4       31,307       1.3  

Life insurance cash surrender value

    54,572       2.2       54,035       2.3  

Other assets

    62,479       2.5       66,403       2.8  

Total assets

  $ 2,503,159       100.0 %   $ 2,378,372       100.0 %



Total deposits

  $ 2,158,425       86.2 %   $ 2,166,913       91.1 %

Secured borrowings

    7,372       0.3       7,619       0.3  

Short-term borrowings

    117,000       4.7       12,940       0.5  

Other liabilities

    30,883       1.2       27,950       1.2  

Total liabilities

    2,313,680       92.4       2,215,422       93.1  

Shareholders' equity

    189,479       7.6       162,950       6.9  

Total liabilities and shareholders' equity

  $ 2,503,159       100.0 %   $ 2,378,372       100.0 %


A comparison of net changes in selected balance sheet categories as of December 31, are as follows:









(dollars in thousands)













  $ 124,787       5     $ 100,726       5     $ (8,488 )     (0 )   $ 103,813       505     $ -       -  


    (40,732 )     (2 )     (35,954 )     (2 )     (2,952 )     (0 )     9,939       94       -       -  


    719,594       42       682,812       43       660,360       44       10,620       100       (5,000 )     (100 )


    689,583       68       648,880       69       673,768       81       (37,839 )     (100 )     (10,000 )     (67 )


    28,825       3       21,878       2       65,554       9       (38,527 )     (50 )     (16,704 )     (53 )


* Earning assets include interest-bearing deposits with financial institutions, gross loans and leases, loans held-for-sale, available-for-sale and held-to-maturity securities and restricted investments in bank stock excluding loans placed on non-accrual status.




For more information about the Company's capital, see Footnote 15, "Regulatory Matters," of Part II, Item 8 “Financial Statements and Supplementary Data”, which is incorporated herein by reference and the "Capital Resources" section of management’s discussion and analysis contained herein.


Funds Provided:




The Company is a community based commercial depository financial institution, member FDIC, which offers a variety of deposit products with varying ranges of interest rates and terms. Generally, deposits are obtained from consumers, businesses and public entities within the communities that surround the Company’s 21 branch offices and all deposits are insured by the FDIC up to the full extent permitted by law. Deposit products consist of transaction accounts including: savings; clubs; interest-bearing checking; money market and non-interest bearing checking (DDA). The Company also offers short- and long-term time deposits or certificates of deposit (CDs). CDs are deposits with stated maturities which can range from seven days to ten years. Cash flow from deposits is influenced by economic conditions, changes in the interest rate environment, pricing and competition. To determine interest rates on its deposit products, the Company considers local competition, spreads to earning-asset yields, liquidity position and rates charged for alternative sources of funding such as short-term borrowings and FHLB advances.


The following table represents the components of total deposits as of December 31:



December 31, 2023


December 31, 2022


(dollars in thousands)










Interest-bearing checking

  $ 710,094       32.9


  $ 664,439       30.7


Savings and clubs

    203,446       9.4       238,174       11.0  

Money market

    495,773       23.0       544,468       25.1  

Certificates of deposit

    212,969       9.9       117,224       5.4  

Total interest-bearing

    1,622,282       75.2       1,564,305       72.2  

Non-interest bearing

    536,143       24.8       602,608       27.8  

Total deposits

  $ 2,158,425       100.0


  $ 2,166,913       100.0



Total deposits decreased $8.5 million, or less than 1%, to $2.2 billion at December 31, 2023 from $2.2 billion at December 31, 2022. Non-interest bearing checking accounts decreased $66.5 million primarily due to declines in personal and business checking accounts attributed to increases in consumer spending due to inflation, ongoing post-pandemic demand and the move to interest-bearing products. Money market accounts decreased $48.7 million primarily due to the transfer of trust sweep accounts with a balance of $69.2 million at the end of 2022 to interest-bearing checking accounts in 2023.  Excluding this transfer, money market balances increased primarily due to a new relationship with an insurance company. Savings and club accounts also decreased $34.7 million primarily due to personal savings declines and shifts to CDs and money market accounts. Interest-bearing checking accounts increased $45.7 million during 2023 primarily due to the transfer of trust sweep accounts from a money market product to interest-bearing checking.  Declines in other interest-bearing checking balances stemmed primarily from expected outflow of public funds from municipalities withdrawing American Rescue Plan Act funds along with personal and business account decreases. The Company focuses on obtaining a full-banking relationship with existing core operating checking account customers as well as forming new customer relationships. The Company will continue to execute on its relationship development strategy, explore the demographics within its marketplace and develop targeted programs for its customers to maintain and grow core deposits. For 2023, the Company experienced deposit balance declines as clients transferred their deposits to investments to earn higher interest and pay down debts and consumer spending. We currently expect this trend of cash usage, due to the impact of inflation on consumer and business spending and deposit mix shifts caused by the highly competitive interest rate environment, to continue throughout 2024. Seasonal public deposit fluctuations are expected to remain volatile and at times may partially offset future deposit growth. 


Partially offsetting these non-maturing deposit decreases, CDs increased $95.7 million, or 82%, during 2023. CD balances started to increase as promotional rate offerings expanded. Customers transferred approximately $52 million in balances from other products to CDs in 2023 to earn higher yields. The Company expects the highly competitive deposit environment to continue into early 2024 with promotional money market and CDs continuing to gain favor. As a result, the Company expects the majority of deposit growth in 2024 to stem from the CD portfolio. 




The Company uses the Certificate of Deposit Account Registry Service (CDARS) reciprocal program and Insured Cash Sweep (ICS) reciprocal program to obtain FDIC insurance protection for customers who have large deposits that at times may exceed the FDIC maximum insured amount of $250,000. The Company had $1.4 million and $0 in CDARs as of December 31, 2023 and 2022, respectively. As of December 31, 2023 and 2022, ICS reciprocal deposits represented $151.4 million and $26.3 million, or 7% and 1%, of total deposits which are included in interest-bearing checking accounts in the table above. The $125.1 million increase in ICS deposits is primarily due to several large business relationships that transferred deposits to ICS accounts from other interest-bearing checking and money market accounts held at the bank.


As of December 31, 2023, total uninsured deposits were estimated to be $820.6 million, or 38% of total deposits. The estimate of uninsured deposits is based on the same methodologies and assumptions used for regulatory reporting requirements. The Company aggregates deposit products by taxpayer identification number and classifies into ownership categories to estimate amounts over the FDIC insurance limit. As of December 31, 2023, the ratio of uninsured and non-collateralized deposits to total deposits was approximately 23%. Collateralized deposits totaled $321.7 million, or 15%, of total deposits as of December 31, 2023.


The maturity distribution of certificates of deposit that meet or exceed the FDIC limit, by account, at December 31, 2023 is as follows:


(dollars in thousands)


Three months or less

  $ 12,310  

More than three months to six months


More than six months to twelve months


More than twelve months



  $ 72,577  


Approximately 77% of the CDs, with a weighted-average interest rate of 3.56%, are scheduled to mature in 2024 and an additional 20%, with a weighted-average interest rate of 3.60%, are scheduled to mature in 2025. Renewing CDs are currently expected to re-price to higher market rates depending on the rate on the maturing CD, the pace and direction of interest rate movements, the shape of the yield curve, competition, the rate profile of the maturing accounts and depositor preference for alternative, non-term products. The Company plans to continue to address repricing CDs in the ordinary course of business on a relationship pricing basis and is prepared to match rates when prudent to maintain relationships. The Company will continue to develop CD promotional programs when the Company deems that it is economically feasible to do so or when demand exists. The Company will consider the needs of the customers and simultaneously be mindful of the liquidity levels, borrowing rates and the interest rate sensitivity exposure of the Company.


Short-term borrowings


Borrowings are used as a complement to deposit generation as an alternative funding source whereby the Company will borrow under advances from the FHLB of Pittsburgh and other correspondent banks for asset growth and liquidity needs.


Short-term borrowings may include overnight balances with FHLB's line of credit and/or correspondent bank’s federal funds lines which the Company may require to fund daily liquidity needs such as deposit outflow, loan demand and operations. The Company used $117.0 million in short-term borrowings to fund loan growth and an increase in interest-bearing cash balances for 2023. The short-term borrowings included $57.0 million borrowed through the Federal Reserve Bank Term Funding Program (BTFP) up to one year with a weighted average rate of 4.49% by pledging $57.0 million in securities. As of December 31, 2023, the short-term borrowings also included $60.0 million from the Federal Reserve borrower-in-custody program. As of December 31, 2023, the Company had the ability to borrow an additional $70.4 million from the Federal Reserve borrower-in-custody program, full availability of $145.9 million in overnight borrowings with the FHLB open-repo line of credit and $20.0 million from lines of credit with correspondent banks.


In November 2023, the Company sold securities and used $29.1 million in proceeds received to pay down short-term borrowings that replenished available borrowing capacity at that time.


Information with respect to the Company’s short-term borrowing’s maximum and average outstanding balances and interest rates are contained in Note 8, “Short-term Borrowings,” of the notes to consolidated financial statements incorporated by reference in Part II, Item 8.




Secured borrowings


As of December 31, 2023 and 2022, the Company had 8 secured borrowing agreements with third parties with a carrying value of $7.4 million and $7.6 million, respectively, related to certain sold loan participations that did not qualify for sales treatment acquired from Landmark. Secured borrowings are expected to decrease for 2024 from scheduled amortization and, when possible, early pay-offs.


FHLB advances


The Company had no FHLB advances as of December 31, 2023 and 2022. As of December 31, 2023, the Company had the ability to borrow up to $656.8 million from the FHLB, net of any overnight borrowings utilized. The Company does not expect to have any FHLB advances in 2024.


Funds Deployed:


Investment Securities


The Company’s investment policy is designed to complement its lending activities, provide monthly cash flow, manage interest rate sensitivity and generate a favorable return without incurring excessive interest rate and credit risk while managing liquidity at acceptable levels. In establishing investment strategies, the Company considers its business, growth strategies or restructuring plans, the economic environment, the interest rate sensitivity position, the types of securities in its portfolio, permissible purchases, credit quality, maturity and re-pricing terms, call or average-life intervals and investment concentrations. The Company’s policy prescribes permissible investment categories that meet the policy standards and management is responsible for structuring and executing the specific investment purchases within these policy parameters. Management buys and sells investment securities from time-to-time depending on market conditions, business trends, liquidity needs, capital levels and structuring strategies. Investment security purchases provide a way to quickly invest excess liquidity in order to generate additional earnings. The Company generally earns a positive interest spread by assuming interest rate risk using deposits or borrowings to purchase securities with longer maturities.


At the time of purchase, management classifies investment securities into one of three categories: trading, available-for-sale (AFS) or held-to-maturity (HTM). To date, management has not purchased any securities for trading purposes. Some of the securities the Company purchases are classified as AFS even though there is no immediate intent to sell them. The AFS designation affords management the flexibility to sell securities and position the balance sheet in response to capital levels, liquidity needs or changes in market conditions. Debt securities AFS are carried at fair value on the consolidated balance sheets with unrealized gains and losses, net of deferred income taxes, reported separately within shareholders’ equity as a component of accumulated other comprehensive income (AOCI). Securities designated as HTM are carried at amortized cost and represent debt securities that the Company has the ability and intent to hold until maturity. For the year ended December 31, 2023, AOCI improved by $14.7 million primarily due to the change in fair value of the Company's investment securities.


On April 1, 2022, the Company transferred agency and municipal bonds with a book value of $245.5 million from AFS to HTM in order to apply the accounting for securities HTM to mitigate the effect AFS accounting has on the balance sheet. The bonds that were transferred had the highest price volatility and consisted of fixed-rate securities representing 70% of the agency portfolio, 70% of the taxable municipal portfolio each laddered out on the short to intermediate part of the yield curve and 35% of the tax-exempt municipal portfolio on the long end of the yield curve were identified as the best candidates given the Company’s ability to hold those bonds to maturity. The market value of the securities on the date of the transfer was $221.7 million, after netting unrealized losses totaling $18.9 million. The $18.9 million, net of deferred taxes, recorded discount will be accreted into interest income, offset by the amortization of previously recognized losses in AOCI, over the life of the bonds. As of December 31, 2023, the carrying value of held-to-maturity securities was $224.2 million, net of $15.7 million in remaining transferred discount.


The Company utilized a fair value hedge to designate and swap a portion of the fixed rate AFS portfolio. The Company has an approved Derivative Policy that requires Board pre-approval on such balance sheet hedging activities as well as ongoing reporting to its ALCO Committee. The Board has approved up to $200 million in notional amount of pay-fixed interest rate swap and the Company has executed on $100 million to date.


During September 2023, the Company entered into a $100 million interest rate swap with a third-party financial institution to limit the risk to the investment portfolio of rising interest rates. The interest rate swap was designated as a fair value hedge and utilized a pay fixed interest rate swap to hedge the change in fair value attributable to the movement in the Secured Overnight Financing Rate ("SOFR"). The Company designated $50 million of the swap's notional balance as a hedge against the closed portfolio of 20-year mortgage-backed securities and $50 million as a hedge against the closed portfolio of tax-free municipal bonds. As of December 31, 2023, the Company recorded the fair value of the swap of $2.2 million in accrued interest payable and other liabilities on the consolidated balance sheet offset by a $2.2 million increase to the carrying value of designated investment securities.




As of December 31, 2023, the carrying value of investment securities amounted to $568.3 million, or 23% of total assets, compared to $643.6 million, or 27% of total assets, as of December 31, 2022. On December 31, 2023, 34% of the carrying value of the investment portfolio was comprised of U.S. Government Sponsored Enterprise residential mortgage-backed securities (MBS – GSE residential or mortgage-backed securities) that amortize and provide monthly cash flow that the Company can use for reinvestment, loan demand, unexpected deposit outflow, facility expansion or operations. The mortgage-backed securities portfolio includes only pass-through bonds issued by Fannie Mae, Freddie Mac and the Government National Mortgage Association (GNMA).


The Company’s municipal (obligations of states and political subdivisions) portfolio is comprised of tax-free municipal bonds with a book value of $201.7 million ($182.8 million including the remaining net unrealized loss transferred on HTM securities) and taxable municipal bonds with a book value of $92.0 ($82.8 million including the remaining net unrealized loss transferred on HTM securities) million. The overall credit ratings of these municipal bonds was as follows: 36% AAA, 63% AA, and 1% A. For municipal securities HTM, the Company utilized a third-party model to analyze whether a credit loss reserve is needed for these bonds. The amount of the credit loss reserve calculated was immaterial because of the underlying strong credit quality of the municipal portfolio.


During 2023, the carrying value of total investments decreased $75.3 million, or 12%. The decline was primarily due to the sale of investment securities with an amortized cost of $66.8 million during 2023. Additionally, principal reductions during 2023 totaled $25.0 million. Partially offsetting these decreases, there was an improvement in the unrealized loss position of $16.3 million in the AFS portfolio. The Company attempts to maintain a well-diversified and proportionate investment portfolio that is structured to complement the strategic direction of the Company. Its growth typically supplements the lending activities but also considers the current and forecasted economic conditions, the Company’s liquidity needs and interest rate risk profile, to the extent possible.


A comparison of total investment securities as of December 31 follows:



December 31, 2023


December 31, 2022


(dollars in thousands)






Book yield


Reprice term (years)






Book yield


Reprice term (years)


HTM securities:


Obligations of states & political subdivisions - tax exempt

  $ 83,483       14.8 %     2.1 %     20.8     $ 83,426       13.0 %     3.8 %     21.8  

Obligations of states & political subdivisions - taxable

    59,368       10.4       2.1       11.3       59,012       9.1       3.1       12.3  

Agency - GSE

    81,382       14.3       1.4       6.4       80,306       12.5       2.6       7.4  

Total HTM securities

  $ 224,233       39.5 %     1.8 %     13.1     $ 222,744       34.6 %     3.2 %     14.1  

AFS debt securities:


MBS - GSE residential

  $ 193,698       34.1




    6.0     $ 217,435       33.8





Obligations of states & political subdivisions - tax exempt

    99,323       17.5       2.4       11.7       149,131       23.2       2.6       11.4  

Obligations of states & political subdivisions - taxable

    23,474       4.1       1.6       5.6       22,763       3.5       1.6       6.6  

Agency - GSE

    27,545       4.8       1.2       4.3       31,533       4.9       1.4       4.6  

Total AFS debt securities

  $ 344,040       60.5 %     1.9 %     7.4     $ 420,862       65.4 %     2.0 %     8.0  

Total securities

  $ 568,273       100.0




    9.6     $ 643,606       100.0






The investment securities portfolio contained no private label mortgage-backed securities, collateralized mortgage obligations, collateralized debt obligations, or trust preferred securities. The portfolio had no adjustable-rate instruments as of December 31, 2023 and 2022.




Investment securities were comprised of AFS and HTM securities as of December 31, 2023 and December 31, 2022. The AFS securities were recorded with a net unrealized loss of $51.6 million and a net unrealized loss of $67.9 million as of December 31, 2023 and 2022, respectively. Of the $16.3 million net improvement; $10.6 million was attributable to municipal securities; $4.8 million was attributable to mortgage-backed securities and $0.9 million was attributable to agency securities. During 2022, securities with net unrealized losses totaling $23.9 million were transferred to HTM, of which $2.3 million and $1.7 million was accreted into other comprehensive income for the years ended December 31, 2023 and 2022. The direction and magnitude of the change in value of the Company’s investment portfolio is attributable to the direction and magnitude of the change in interest rates along the treasury yield curve. Generally, the values of debt securities move in the opposite direction of the changes in interest rates. As interest rates along the treasury yield curve rise, especially at the intermediate and long end, the values of debt securities tend to decline. Whether or not the value of the Company’s investment portfolio will change above or below its amortized cost will be largely dependent on the direction and magnitude of interest rate movements and the duration of the debt securities within the Company’s investment portfolio. Management does not consider the reduction in value attributable to changes in credit quality. Correspondingly, when interest rates decline, the market values of the Company’s debt securities portfolio could be subject to market value increases.


As of December 31, 2023, the Company had $294.8 million in public deposits, or 14% of total deposits. Pennsylvania state law requires the Company to maintain pledged securities on public and trust deposits or otherwise obtain a FHLB letter of credit or FDIC insurance for these customers. The Company also pledges securities for derivative instruments and certain borrowed funds. As of December 31, 2023, the balance of pledged securities required was $380.7 million, or 67% of total securities.


Quarterly, management performs a review of the investment portfolio to determine the causes of declines in the fair value of each security. The Company uses inputs provided by independent third parties to determine the fair value of its investment securities portfolio. Inputs provided by the third parties are reviewed and corroborated by management. Evaluations of the causes of the unrealized losses are performed to determine whether credit losses on debt securities exist. Considerations such as the Company’s intent and ability to hold the securities until or sell prior to maturity, recoverability of the invested amounts over the intended holding period, the length of time and the severity in pricing decline below cost, the interest rate environment, the receipt of amounts contractually due and whether or not there is an active market for the securities, for example, are applied, along with an analysis of the financial condition of the issuer for management to make a realistic judgment of the probability that the Company will be unable to collect all amounts (principal and interest) due in determining whether a security has credit losses. If a decline in value is deemed to be a credit loss, a contra-asset is recorded on both HTM and AFS securities, limited by the amount that the fair value is less than the amortized cost basis. During the year ended December 31, 2023, the Company did not incur any credit losses on debit securities from its investment securities portfolio.


During January 2023 with the 10-year U.S. Treasury yield declining, $31.2 million of securities were able to be sold yielding 3.62% (FTE yield of 4.33%) at a breakeven level. These proceeds were used to pay down FHLB overnight borrowings costing 4.80% at that time. Due to volatility in the levels of borrowings during October 2023 and the increasing expected dependency on borrowing capacity from experiencing deposit fluctuations while funding loan growth, the Company evaluated a liquidity strategy to deleverage the reliance on short-term borrowings. As a result of this evaluation, in November 2023, the Company sold longer term available-for-sale general market tax-free municipal securities with a carrying value of $35.6 million with a weighted average yield of 1.28% with a 13.5 year weighted average maturity as part of a liquidity and net interest margin enhancement strategy for a $6.5 million loss recognized in gain (loss) on sale of available-for-sale debt securities. The $29.1 million in proceeds received were used to retire short-term borrowings with a cost of approximately 5.50%. While the Company has ample funding sources available, management felt it prudent to create additional capacity for the borrowings over the near term should the banking industry again experience funding pressures as it did in March of this past year.  In addition, since the municipal securities sold were purchased in a much lower rate environment, there is an immediate improvement in net interest margin (NIM) of over 5 bps as a result of paying down the borrowing with the sale proceeds. The sale removes a 422 basis point negative spread and will contribute towards incrementally improving net interest income, earnings per share and NIM every year starting in 2024. The cost savings from paying down the advances with the sale of low yielding bonds will also allow the pre-tax loss of $6.5 million realized on the sale to be fully recouped prior to the term of the bonds sold. 


Restricted investments in bank stock


Investment in Federal Home Loan Bank (FHLB) stock is required for membership in the organization and is carried at cost since there is no market value available. The amount the Company is required to invest is dependent upon the relative size of outstanding borrowings the Company has with the FHLB of Pittsburgh. Excess stock is repurchased from the Company at par if the amount of borrowings decline to a predetermined level. In addition, the Company earns a return or dividend based on the amount invested. Atlantic Community Bankers Bank (ACBB) stock totaled $82 thousand as of December 31, 2023 and 2022. The balance in FHLB stock was $3.8 million and $5.2 million as of December 31, 2023 and 2022, respectively. The dividends received from the FHLB totaled $298 thousand and $164 thousand for the years ended December 31, 2023 and 2022, respectively.