UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2024

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________to______________________

Commission file number: 001-38229

FIDELITY D & D BANCORP, INC.

STATE OF INCORPORATION:	IRS EMPLOYER IDENTIFICATION NO:
Pennsylvania	23-3017653

Address of principal executive offices:

Blakely & Drinker St.

Dunmore, Pennsylvania 18512

TELEPHONE: 570-342-8281

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

Title of each class	Trading Symbols(s)	Name of each exchange on which registered
Common stock, without par value	FDBC	The NASDAQ Stock Market, LLC

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 subjected 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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐ 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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

The number of outstanding shares of Common Stock of Fidelity D & D Bancorp, Inc. on April 30, 2024, the latest practicable date, was 5,735,732 shares.

FIDELITY D & D BANCORP, INC.

Form 10-Q March 31, 2024

Index

Part I. Financial Information		Page
Item 1.	Financial Statements (unaudited):
	Consolidated Balance Sheets as of March 31, 2024 and December 31, 2023	3
	Consolidated Statements of Income for the three months ended March 31, 2024 and 2023	4
	Consolidated Statements of Comprehensive Income for the three months ended March 31, 2024 and 2023	5
	Consolidated Statements of Changes in Shareholders’ Equity for the three months ended March 31, 2024 and 2023	6
	Consolidated Statements of Cash Flows for the three months ended March 31, 2024 and 2023	7
	Notes to Consolidated Financial Statements (Unaudited)	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	36
Item 3.	Quantitative and Qualitative Disclosure about Market Risk	54
Item 4.	Controls and Procedures	59
Part II. Other Information
Item 1.	Legal Proceedings	59
Item 1A.	Risk Factors	59
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	59
Item 3.	Defaults upon Senior Securities	59
Item 4.	Mine Safety Disclosures	59
Item 5.	Other Information	59
Item 6.	Exhibits	60
Signatures		62

2

PART I – Financial Information

Item 1: Financial Statements

Fidelity D & D Bancorp, Inc. and Subsidiary

Consolidated Balance Sheets                

(Unaudited)
(dollars in thousands)	March 31, 2024			December 31, 2023
Assets:
Cash and due from banks	$	34,454		$	28,949
Interest-bearing deposits with financial institutions		38,279			83,000
Total cash and cash equivalents		72,733			111,949
Available-for-sale securities		334,404			344,040
Held-to-maturity securities (fair value of $193,973 in 2024; $197,176 in 2023)		224,612			224,233
Restricted investments in bank stock		3,959			3,905
Loans and leases, net (allowance for credit losses of $18,886 in 2024; $18,806 in 2023)		1,678,142			1,666,292
Loans held-for-sale (fair value $277 in 2024; $1,483 in 2023)		271			1,457
Foreclosed assets held-for-sale		220			1
Bank premises and equipment, net		34,899			34,232
Leased property under finance leases, net		1,116			1,173
Right-of-use assets		9,056			7,771
Cash surrender value of bank owned life insurance		54,921			54,572
Accrued interest receivable		9,398			9,092
Goodwill		19,628			19,628
Core deposit intangible, net		1,100			1,184
Other assets		24,437			23,630
Total assets	$	2,468,896		$	2,503,159
Liabilities:
Deposits:
Interest-bearing	$	1,678,172		$	1,622,282
Non-interest-bearing		537,824			536,143
Total deposits		2,215,996			2,158,425
Allowance for credit losses on off-balance sheet credit exposures		894			944
Finance lease obligation		1,151			1,201
Operating lease liabilities		9,935			8,549
Short-term borrowings		25,000			117,000
Secured borrowings		7,299			7,372
Accrued interest payable and other liabilities		16,986			20,189
Total liabilities		2,277,261			2,313,680
Shareholders' equity:
Preferred stock authorized 5,000,000 shares with no par value; none issued		-			-
Capital stock, no par value (10,000,000 shares authorized; shares issued and outstanding; 5,735,732 at March 31, 2024; and 5,703,636 at December 31, 2023)		118,438			117,695
Retained earnings		131,111			128,251
Accumulated other comprehensive loss		(57,914	)		(56,467	)
Treasury stock, at cost (10 shares at March 31, 2024 and 38 shares at December 31, 2023)		-			-
Total shareholders' equity		191,635			189,479
Total liabilities and shareholders' equity	$	2,468,896		$	2,503,159

See notes to unaudited consolidated financial statements

3

Fidelity D & D Bancorp, Inc. and Subsidiary

Consolidated Statements of Income

(Unaudited)	Three months ended
(dollars in thousands except per share data)	March 31, 2024			March 31, 2023
Interest income:
Loans and leases:
Taxable	$	20,929		$	18,119
Nontaxable		1,204			899
Interest-bearing deposits with financial institutions		376			31
Restricted investments in bank stock		81			106
Investment securities:
U.S. government agency and corporations		1,488			1,520
States and political subdivisions (nontaxable)		1,104			1,217
States and political subdivisions (taxable)		443			446
Total interest income		25,625			22,338
Interest expense:
Deposits		9,941			4,618
Secured borrowings		121			111
Other short-term borrowings		620			584
Total interest expense		10,682			5,313
Net interest income		14,943			17,025
Provision for credit losses on loans		125			180
Net provision (benefit) for credit losses on unfunded loan commitments		(50	)		225
Net interest income after provision for credit losses		14,868			16,620
Other income:
Service charges on deposit accounts		957			922
Interchange fees		1,297			1,251
Service charges on loans		304			298
Fees from trust fiduciary activities		848			695
Fees from financial services		268			222
Fees and other revenue		342			619
Earnings on bank-owned life insurance		349			321
Gain (loss) on write-down, sale or disposal of:
Loans		203			164
Available-for-sale debt securities		-			(1	)
Premises and equipment		4			(2	)
Total other income		4,572			4,489
Other expenses:
Salaries and employee benefits		7,131			6,515
Premises and equipment		2,159			2,127
Data processing and communication		742			677
Advertising and marketing		732			893
Professional services		1,062			925
Automated transaction processing		425			429
Office supplies and postage		203			181
PA shares tax		26			(32	)
Loan collection		3			13
Other real estate owned		1			1
FDIC assessment		298			168
Other		907			960
Total other expenses		13,689			12,857
Income before income taxes		5,751			8,252
Provision for income taxes		694			1,212
Net income	$	5,057		$	7,040
Per share data:
Net income - basic	$	0.88		$	1.25
Net income - diluted	$	0.88		$	1.24
Dividends	$	0.38		$	0.36

See notes to unaudited consolidated financial statements

4

Fidelity D & D Bancorp, Inc. and Subsidiary

Consolidated Statements of Comprehensive Income
(Unaudited)	Three months ended March 31,
(dollars in thousands)	2024			2023
Net income	$	5,057		$	7,040
Other comprehensive (loss) gain, before tax:
Unrealized holding (loss) gain on available-for-sale debt securities		(2,416	)		9,824
Reclassification adjustment for net losses (gains) realized in income		-			1
Amortization of unrealized loss on held-to-maturity securities		584			572
Net unrealized (loss) gain		(1,832	)		10,397
Tax effect		385			(2,183	)
Unrealized (loss) gain, net of tax		(1,447	)		8,214
Other comprehensive (loss) income, net of tax		(1,447	)		8,214
Total comprehensive income, net of tax	$	3,610		$	15,254

See notes to unaudited consolidated financial statements

5

Fidelity D & D Bancorp, Inc. and Subsidiary

Consolidated Statements of Changes in Shareholders' Equity

For the Three Months Ended March 31, 2024 and 2023
(Unaudited)									Accumulated
									other
	Capital stock					Retained			comprehensive			Treasury
(dollars in thousands)	Shares			Amount		earnings			income (loss)			Stock			Total
Balance, December 31, 2022		5,630,794		$	115,611	$	119,754		$	(71,152	)	$	(1,263	)	$	162,950
Cumulative-effect adjustment for adoption of ASU 2016-13 (Footnote 1)							(1,326	)								(1,326	)
Net income							7,040									7,040
Other comprehensive income										8,214						8,214
Issuance of common stock through Employee Stock Purchase Plan		7,294			302											302
Re-issuance of common stock through Dividend Reinvestment Plan		8,104			79								303			382
Issuance of common stock from vested restricted share grants through stock compensation plans		20,449			-											-
Stock-based compensation expense					445											445
Repurchase of shares to cover withholdings		(1,386	)		-								(68	)		(68	)
Cash dividends declared							(2,052	)								(2,052	)
Balance, March 31, 2023		5,665,255		$	116,437	$	123,416		$	(62,938	)	$	(1,028	)	$	175,887
Balance, December 31, 2023		5,703,636		$	117,695	$	128,251		$	(56,467	)	$	-		$	189,479
Net income							5,057									5,057
Other comprehensive loss										(1,447	)					(1,447	)
Issuance of common stock through Employee Stock Purchase Plan		6,764			280											280
Re-issuance of common stock through Dividend Reinvestment Plan		1,645			4								79			83
Forfeited restricted dividend reinvestment shares		(11	)										-			-
Issuance of common stock from vested restricted share grants through stock compensation plans		25,304			-											-
Stock-based compensation expense					459											459
Repurchase of shares to cover withholdings		(1,606	)		-								(79	)		(79	)
Cash dividends declared							(2,197	)								(2,197	)
Balance, March 31, 2024		5,735,732		$	118,438	$	131,111		$	(57,914	)	$	-		$	191,635

See notes to unaudited consolidated financial statements

6

Fidelity D & D Bancorp, Inc. and Subsidiary

Consolidated Statements of Cash Flows

(Unaudited)	Three months ended March 31,
(dollars in thousands)	2024			2023
Cash flows from operating activities:
Net income	$	5,057		$	7,040
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and accretion		1,372			1,188
Provision for credit losses on loans		125			180
Net (benefit) provision for credit losses on unfunded loan commitments		(50	)		225
Deferred income tax expense (benefit)		219			(71	)
Stock-based compensation expense		459			445
Proceeds from sale of loans held-for-sale		10,857			11,105
Originations of loans held-for-sale		(9,588	)		(9,795	)
Earnings from bank-owned life insurance		(349	)		(321	)
Gain from bank-owned life insurance claim		-			(142	)
Net gain from sales of loans		(203	)		(164	)
Net loss from sales of investment securities		-			1
Net (gain) loss from write-down and disposal of bank premises and equipment		(4	)		2
Operating lease payments		8			22
Change in:
Accrued interest receivable		(306	)		(179	)
Other assets		(575	)		(895	)
Accrued interest payable and other liabilities		(1,688	)		(1,589	)
Net cash provided by operating activities		5,334			7,052
Cash flows from investing activities:
Available-for-sale securities:
Proceeds from sales		-			31,208
Proceeds from maturities, calls and principal pay-downs		4,992			7,142
Increase in restricted investments in bank stock		(54	)		(700	)
Net increase in loans and leases		(12,881	)		(63,082	)
Principal portion of lease payments received under direct finance leases		1,138			1,407
Purchases of bank premises and equipment		(1,303	)		(718	)
Proceeds from death benefits received on bank-owned life insurance		-			931
Proceeds from sale of bank premises and equipment		19			22
Net cash used in investing activities		(8,089	)		(23,790	)
Cash flows from financing activities:
Net increase (decrease) in deposits		57,573			(23,812	)
Net (decrease) increase in other borrowings		(92,072	)		75,991
Repayment of finance lease obligation		(49	)		(59	)
Proceeds from employee stock purchase plan participants		280			302
Repurchase of shares to cover withholdings		(79	)		(68	)
Dividends paid, net of dividends reinvested		(2,114	)		(1,669	)
Net cash (used in) provided by financing activities		(36,461	)		50,685
Net (decrease) increase in cash and cash equivalents		(39,216	)		33,947
Cash and cash equivalents, beginning		111,949			29,091
Cash and cash equivalents, ending	$	72,733		$	63,038

See notes to unaudited consolidated financial statements

7

Fidelity D & D Bancorp, Inc. and Subsidiary

Consolidated Statements of Cash Flows (continued)

(Unaudited)	Three months ended March 31,
(dollars in thousands)	2024			2023
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest	$	11,355		$	5,075
Income tax		-			-
Supplemental Disclosures of Non-cash Investing Activities:
Net change in unrealized losses on available-for-sale securities		(2,416	)		9,825
Cumulative-effect adjustment for adoption of ASU 2016-13		-			(1,326	)
Amortization of unrealized losses on securities transferred from available-for-sale to held-to-maturity		584			572
Transfers from/(to) loans to/(from) foreclosed assets held-for-sale		219			(82	)
Transfers to loans from loans held-for-sale, net		-			(205	)
Right-of-use asset		1,391			-
Lease liability		1,483			-

See notes to unaudited consolidated financial statements

8

FIDELITY D & D BANCORP, INC.

Notes to Consolidated Financial Statements

(Unaudited)

1. Nature of operations and critical accounting policies

Nature of operations

Fidelity D & D Bancorp, Inc. (the Company) is a bank holding company and the parent of The Fidelity Deposit and Discount Bank (the Bank). The Bank is a commercial bank and trust company chartered under the laws of the Commonwealth of Pennsylvania and a wholly-owned subsidiary of the Company. Having commenced operations in 1903, the Bank is committed to provide superior customer service, while offering a full range of banking products and financial and trust services to both our consumer and commercial customers from our main office located in Dunmore and other branches located throughout Lackawanna, Northampton and Luzerne Counties and Wealth Management offices in Schuylkill and Lebanon Counties.

Principles of consolidation

The accompanying unaudited consolidated financial statements of the Company and the Bank have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) for interim financial information and with the instructions to this Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnote disclosures required by GAAP for complete financial statements. In the opinion of management, all normal recurring adjustments necessary for a fair presentation of the financial condition and results of operations for the periods have been included. All significant inter-company balances and transactions have been eliminated in consolidation.

For additional information and disclosures required under U.S. GAAP, refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

Management is responsible for the fairness, integrity and objectivity of the unaudited financial statements included in this report. Management prepared the unaudited financial statements in accordance with U.S. GAAP. In meeting its responsibility for the financial statements, management depends on the Company's accounting systems and related internal controls. These systems and controls are designed to provide reasonable but not absolute assurance that the financial records accurately reflect the transactions of the Company, the Company’s assets are safeguarded and that the financial statements present fairly the financial condition and results of operations of the Company.

In the opinion of management, the consolidated balance sheets as of March 31, 2024 and December 31, 2023 and the related consolidated statements of income, consolidated statements of comprehensive income, consolidated statements of changes in shareholders’ equity and consolidated statements of cash flows for the three months ended March 31, 2024 and 2023 present fairly the financial condition and results of operations of the Company. All material adjustments required for a fair presentation have been made. These adjustments are of a normal recurring nature. 

In preparing these consolidated financial statements, the Company evaluated the events and transactions that occurred after March 31, 2024 through the date these consolidated financial statements were issued.

This Quarterly Report on Form 10-Q should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2023, and the notes included therein, included within the Company’s Annual Report filed on Form 10-K.

Critical accounting policies

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported periods. Actual results could differ from those estimates.

A 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 buying or selling investment securities, price quotes may be obtained from more than one source. All of the Company’s debt securities are classified as available-for-sale (AFS) or held-to-maturity (HTM). AFS debt 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 (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.

Another 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  March 31, 2024 is adequate and reasonable to cover expected losses. Given the subjective nature of identifying and estimating loan losses, it is reasonably possible 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 current 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.

9

 

Management continually evaluates the credit quality of the Company’s loan portfolio and performs a formal review of the adequacy of the allowance for credit losses (ACL) on a quarterly basis. The allowance reflects management’s best estimate of the amount of credit losses in the loan portfolio. When estimating the net amount expected to be collected, management considers the effects of past events, current conditions, and reasonable and supportable forecasts of the collectability of the Company’s financial assets. Those estimates may be susceptible to significant change. Credit losses are charged directly against the allowance when loans are deemed to be uncollectible. Recoveries from previously charged-off loans are added to the allowance when received.

The methodology to analyze the adequacy of the ACL is based on seven primary components:

● Data: The quality of the Company’s data is critically important as a foundation on which the ACL estimate is generated. For its estimate, the Company uses both internal and external data with a preference toward internal data where possible. Data is complete, accurate, and relevant, and subjected to appropriate governance and controls.

● Segmentation: Financial assets are segmented based on similar risk characteristics.

● Estimated term of financial assets: The estimated term of financial assets is a significant driver of ACL estimates. Financial assets or pools of financial assets with shorter estimated maturities typically result in a lower reserve than those with longer estimated maturities. As the average life of a financial asset or pool of assets increases, there generally is a corresponding increase to the ACL estimate because the likelihood of default is considered over a longer time frame. As such, pool-based assumptions for a pool’s estimated term (i.e., average life) are based on the contractual maturity of the financial assets within the pool and adjusted in accordance with GAAP, if appropriate. Key assumptions for the estimated term of financial assets are prepayment rates for amortizing financial assets and curtailment rates for non-amortizing financial assets.

● Credit loss measurement method: Multiple measurement methods for estimating ACLs are allowable per ASC Topic 326. The Company applies different estimation methods to different groups of financial assets. The discounted cash flow method is used for the Commercial & Industrial, Commercial Real Estate Non-Owner Occupied, Commercial Real Estate Owner Occupied, Commercial Construction, Home Equity Installment Loan, Home Equity Line of Credit, Residential Real Estate, and Residential Construction pools. The weighted average remaining maturity (WARM) method is used for the Municipal, Non-Recourse Auto, Recourse Auto, Direct Finance Lease, and Consumer Other pools.

● Reasonable and supportable forecasts: ASC Topic 326 requires Management to consider reasonable and supportable forecasts that affect expected collectability of financial assets. As such, the Company’s forecasts incorporate anticipated changes in the economic environment that may affect credit loss estimates over a time horizon when Management can reasonably support and document expectations. Forward-looking information may reflect positive or negative expectations relative to the current environment. As of the reporting date, management is using the median Federal Open Market Committee (FOMC) National Gross Domestic Product (GDP) and Unemployment Rate forecasts as well as the Federal Housing Finance Agency (FHFA) House Price Index (HPI) for its reasonable and supportable forecasts. The Company currently uses a 12 month (4 quarter) reasonable and supportable forecast period.

● Reversion period: ASC Topic 326 does not require management to estimate a reasonable and supportable forecast for the entire estimated life of financial assets. Management may apply reversion techniques for the estimated life remaining after considering the reasonable and supportable forecast period, which allows Management to apply a historical loss rate to latter periods of the financial asset’s life. The Company currently uses a 12 month (4 quarter) straight-line reversion period.

● Qualitative factor adjustments: The Company’s ACL estimate considers all significant factors relevant to the expected collectability of its financial assets as of the reporting date; Qualitative factors reflect the impact of conditions not captured elsewhere, such as the historical loss data or within the economic forecast. The qualitative considerations can be captured directly within measurement models or as additional components in the overall ACL methodologies. Currently, the Company uses the following qualitative factors:

o levels of and trends in delinquencies and non-accrual loans;

o levels of and trends in charge-offs and recoveries;

o trends in volume and terms of loans;

o changes in risk selection and underwriting standards;

o changes in lending policies and legal and regulatory requirements;

o experience, ability and depth of lending management;

o national and local economic trends and conditions; 

o changes in credit concentrations; and

o changes in underlying collateral.

Assets are evaluated on a collective (or pool) basis or individually, as applicable consistent with ASC Topic 326. In accordance with ASC Topic 326, the Company will evaluate individual instruments for expected credit losses when those instruments do not share similar risk characteristics with instruments evaluated using a collective (pooled) basis. In contrast to legacy accounting standards, this criterion is broader than the “impairment” concept as management may evaluate assets individually even when no specific expectation of collectability is in place. Instruments will not be included in both collective and individual analysis. Individual analysis will establish a specific reserve for instruments in scope.

For individually evaluated assets, an ACL is determined separately for each financial asset. As of the reporting date, the Company is using the collateral and cash flow methods.

ASC Topic 326 defines a collateral-dependent asset as a financial asset for which the repayment is expected to be provided substantially through the operation or sale of the collateral when the borrower, based on Management’s assessment, is experiencing financial difficulty. The ACL for a collateral-dependent loan is measured using the fair value of collateral, regardless of whether foreclosure is probable. The fair value of collateral must be adjusted for estimated costs to sell if repayment or satisfaction of the asset depends on the sale of the collateral. If repayment is dependent only on the operation of the collateral, and not on the sale of the collateral, the fair value of the collateral would not be adjusted for estimated costs to sell. If the fair value of the collateral, adjusted for costs to sell if applicable, is less than the amortized cost basis of the collateral-dependent asset, the difference is recorded as an ACL.

The Company’s policy is to charge-off unsecured consumer loans when they become 90 days or more past due as to principal and interest. In the other portfolio segments, amounts are charged-off at the point in time when the Company deems the balance, or a portion thereof, to be uncollectible.

10

 

If the individually evaluated asset is determined to not be collateral dependent, the ACL is measured based on the expected cash flows. This measurement is based on the amount and timing of cash flows; the effective interest rate (EIR) is used to discount the cash flows; and the basis for the determination of cash flows, including consideration of past events, current conditions, and reasonable and supportable forecasts about the future. These cash flows are discounted back by the EIR and compared to the amortized cost basis of the asset. If the present value of cash flows is less than the amortized cost, an ACL is recorded. When the present value of cash flows is equal to or greater than the amortized cost, no ACL is recorded.

An unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies.

2. New accounting pronouncements

In March 2023, the FASB issued ASU 2023-02, Investments - Equity Method and Joint Ventures (Topic 323). The amendments in this update permit reporting entities to elect to account for their tax equity investments, regardless of the tax credit program from which the income tax credits are received, using the proportional amortization method if certain conditions are met. The amendments are effective for the Company this reporting period with no impacts on the consolidated financial statements. 

In October 2023, the FASB issued ASU 2023-06, Disclosure Improvements. The amendments in this update are the result of the FASB's decision to incorporate into the Codification certain disclosures referred by the SEC that overlap with, but require incremental information to, generally accepted accounting principles (GAAP). The amendments in this update represent changes to clarify or improve disclosure and presentation requirements of a variety of topics in the Codification. For entities subject to the SEC's existing requirements, the effective date for each amendment will be the date on which the SEC's removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective, with early adoption prohibited. The amendments in this update should be applied prospectively. The adoption is not expected to have a material impact on the consolidated financial statements but could change certain disclosures in SEC filings.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 840): Improvements to Income Tax Disclosures. The amendments in this update require that public business entities on an annual basis (1) disclose specific categories in the rate reconciliation and (2) provide additional information for reconciling items that meet a quantitative threshold. The amendments in this update also require that all entities disclose on an annual basis the amount of income taxes paid disaggregated by federal, state, and foreign taxes and the amount of income taxes paid disaggregated by individual jurisdictions in which income taxes paid is equal to or greater than 5 percent of total income taxes paid. The amendments will require the disclosure of pre-tax income disaggregated between domestic and foreign, as well as income tax expense disaggregated by federal, state, and foreign. The amendment also eliminates certain disclosures related to unrecognized tax benefits and certain temporary differences. This ASU is effective for fiscal years beginning after December 15, 2024.  Early adoption is permitted in any annual period where financial statements have not yet been issued. The amendments should be applied on a prospective basis but retrospective application is permitted. The Company does not expect adoption of the standard to have a material impact on its consolidated financial statements.

3. Accumulated other comprehensive income

The following tables illustrate the changes in accumulated other comprehensive income by component and the details about the components of accumulated other comprehensive income as of and for the periods indicated:

As of and for the three months ended March 31, 2024
	Unrealized gains
	(losses) on			Securities
	available-for-sale			transferred to
(dollars in thousands)	debt securities			held-to-maturity			Total
Beginning balance	$	(40,760	)	$	(15,707	)	$	(56,467	)
Other comprehensive loss before reclassifications, net of tax		(1,908	)		-			(1,908	)
Amounts reclassified from accumulated other comprehensive income, net of tax		-			461			461
Net current-period other comprehensive loss		(1,908	)		461			(1,447	)
Ending balance	$	(42,668	)	$	(15,246	)	$	(57,914	)

As of and for the three months ended March 31, 2023
	Unrealized gains
	(losses) on			Securities
	available-for-sale			transferred to
(dollars in thousands)	debt securities			held-to-maturity			Total
Beginning balance	$	(53,624	)	$	(17,528	)	$	(71,152	)
Other comprehensive income before reclassifications, net of tax		7,761			-			7,761