10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2021

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

For the transition period from__________ to___________

Commission file number 001-38884

FRANKLIN FINANCIAL SERVICES CORPORATION

(Exact name of registrant as specified in its charter)

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

20 South Main Street, Chambersburg, PA	17201-0819
(Address of principal executive offices)	(Zip Code)

(717) 264-6116

(Registrant's telephone number, including area code)

Not Applicable

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

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

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

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

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

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

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

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

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

There were 4,419,107 outstanding shares of the Registrant’s common stock as of April 30, 2021.

INDEX

Part I - FINANCIAL INFORMATION
Item 1	Financial Statements
	Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020 (unaudited)	2
	Consolidated Statements of Income for the Three Months ended March 31, 2021	2
	and 2020 (unaudited)
	Consolidated Statements of Comprehensive Income for the Three Months ended	2
	March 31, 2021 and 2020 (unaudited)
	Consolidated Statements of Changes in Shareholders’ Equity for the Three Months	2
	ended March 31, 2021 and 2020 (unaudited)
	Consolidated Statements of Cash Flows for the Three Months ended March 31, 2021	2
	and 2020 (unaudited)
	Notes to Consolidated Financial Statements (unaudited)	2
Item 2	Management’s Discussion and Analysis ofResults of Operations and Financial Condition	2
Item 3	Quantitative and Qualitative Disclosures about Market Risk	2
Item 4	Controls and Procedures	2
Part II - OTHER INFORMATION
Item 1	Legal Proceedings	2
Item 1A	Risk Factors	2
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	2
Item 3	Defaults Upon Senior Securities	2
Item 4	Mine Safety Disclosures	2
Item 5	Other Information	2
Item 6	Exhibits	2
SIGNATURE PAGE		2

Part I FINANCIAL INFORMATION

Item 1. Financial Statements

Consolidated Balance Sheets

(Dollars in thousands, except share and per share data)	(unaudited)
	March 31,		December 31,
	2021		2020
Assets
Cash and due from banks	$	17,117	$	17,059
Short-term interest-bearing deposits in other banks		90,505		40,087
Total cash and cash equivalents		107,622		57,146
Long-term interest-bearing deposits in other banks		10,995		12,741
Debt securities available for sale, at fair value		422,178		396,940
Equity securities		444		391
Restricted stock		468		468
Loans held for sale		4,699		9,446
Loans		1,000,933		1,009,704
Allowance for loan losses		(16,136)		(16,789)
Net Loans		984,797		992,915
Premises and equipment, net		12,971		13,105
Right of use asset		5,153		5,272
Bank owned life insurance		22,403		22,288
Goodwill		9,016		9,016
Deferred tax asset, net		6,135		2,401
Other assets		10,678		12,909
Total assets	$	1,597,559	$	1,535,038
Liabilities
Deposits
Noninterest-bearing checking	$	290,015	$	259,060
Money management, savings, and interest checking		1,057,678		1,019,348
Time		73,349		76,165
Total deposits		1,421,042		1,354,573
Subordinate notes		19,564		19,555
Lease liability		5,225		5,332
Other liabilities		11,029		10,402
Total liabilities		1,456,860		1,389,862
Commitments and contingent liabilities
Shareholders' equity
Common stock, $1 par value per share,15,000,000 shares authorized with
4,710,872 shares issued and 4,407,583 shares outstanding at March 31, 2021 and
4,710,872 shares issued and 4,389,355 shares outstanding at December 31, 2020		4,711		4,711
Capital stock no par value, 5,000,000 shares authorized with no
shares issued and outstanding		—		—
Additional paid-in capital		42,513		42,589
Retained earnings		106,032		102,520
Accumulated other comprehensive (loss) income		(5,166)		3,190
Treasury stock, 303,289 shares at March 31, 2021 and 321,517 shares at
December 31, 2020, at cost		(7,391)		(7,834)
Total shareholders' equity		140,699		145,176
Total liabilities and shareholders' equity	$	1,597,559	$	1,535,038

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

1

Consolidated Statements of Income

	For the Three Months Ended
(Dollars in thousands, except per share data) (unaudited)	March 31,
	2021		2020
Interest income
Loans, including fees	$	9,381	$	10,168
Interest and dividends on investments:
Taxable interest		1,623		1,062
Tax exempt interest		532		171
Dividend income		3		6
Interesting-bearing deposits in other banks		53		258
Total interest income		11,592		11,665
Interest expense
Deposits		485		1,413
Subordinate notes		263		—
Total interest expense		748		1,413
Net interest income		10,844		10,252
(Recovery of) provision for loan losses		(800)		3,000
Net interest income after provision for loan losses		11,644		7,252
Noninterest income
Investment and trust services fees		1,636		1,445
Loan service charges		196		141
Gain on sale of loans		782		144
Deposit service charges and fees		468		565
Other service charges and fees		396		347
Debit card income		517		418
Increase in cash surrender value of Bank owned life insurance		115		124
Bank owned life insurance gain		—		812
Net losses on sales of debt securities		—		(10)
Change in fair value of equity securities		54		(127)
Other		63		30
Total noninterest income		4,227		3,889
Noninterest Expense
Salaries and employee benefits		5,658		5,535
Net occupancy		910		830
Marketing and advertising		345		455
Legal and professional		475		395
Data processing		929		806
Pennsylvania bank shares tax		92		175
FDIC Insurance		202		60
ATM/debit card processing		296		264
Telecommunications		129		105
Nonservice pension		205		88
Other		924		815
Total noninterest expense		10,165		9,528
Income before federal income taxes		5,706		1,613
Federal income tax expense (benefit)		876		(106)
Net income	$	4,830	$	1,719
Per share
Basic earnings per share	$	1.10	$	0.40
Diluted earnings per share	$	1.09	$	0.39

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

2

Consolidated Statements of Comprehensive Income

	For the Three Months Ended
	March 31,
(Dollars in thousands) (unaudited)	2021		2020
Net Income	$	4,830	$	1,719
Debt Securities:
Unrealized (losses) gains arising during the period		(10,577)		2,048
Reclassification adjustment for losses included in net income (1)		—		10
Net unrealized (losses) gains		(10,577)		2,058
Tax effect		2,221		(432)
Net of tax amount		(8,356)		1,626
Total other comprehensive (loss) income		(8,356)		1,626
Total Comprehensive (Loss) Income	$	(3,526)	$	3,345
(1) Reclassified to net gains on sales of debt securities

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

Consolidated Statements of Changes in Shareholders’ Equity

For the three months ended March 31, 2021 and 2020

								Accumulated
				Additional				Other
	Number	Common		Paid-in		Retained		Comprehensive		Treasury
(Dollars in thousands, except per share data) (unaudited)	of Shares	Stock		Capital		Earnings		(Loss) Income		Stock		Total
Balance at January 1, 2021	4,389,355	$	4,711	$	42,589	$	102,520	$	3,190	$	(7,834)	$	145,176
Net income			—		—		4,830		—		—		4,830
Other comprehensive income			—		—		—		(8,356)		—		(8,356)
Cash dividends declared, $0.30 per share			—		—		(1,318)		—		—		(1,318)
Acquisition of treasury stock	(474)		—		—		—		—		(13)		(13)
Treasury shares issued under dividend reinvestment plan	11,682		—		40		—		—		285		325
Stock Compensation Plans:
Treasury shares issued	7,020		—		(164)		—		—		171		7
Compensation expense			—		48		—		—		—		48
Balance at March 31, 2021	4,407,583	$	4,711	$	42,513	$	106,032	$	(5,166)	$	(7,391)	$	140,699

Balance at January 1, 2020	4,352,753	$	4,710	$	42,268	$	94,946	$	(5,986)	$	(8,410)	$	127,528
Net income			—		—		1,719		—		—		1,719
Other comprehensive income			—		—		—		1,626		—		1,626
Cash dividends declared, $0.30 per share			—		—		(1,306)		—		—		(1,306)
Acquisition of treasury stock	(36,401)		—		—		—		—		(1,172)		(1,172)
Treasury shares issued under dividend reinvestment plan	20,124		—		75		—		—		485		560
Stock Compensation Plans:
Treasury shares issued	71		—		1		—		—		2		3
Common shares issued	973		1		15		—		—		—		16
Compensation expense			—		31		—		—		—		31
Balance at March 31, 2020	4,337,520	$	4,711	$	42,390	$	95,359	$	(4,360)	$	(9,095)	$	129,005

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

3

Consolidated Statements of Cash Flows

	Three Months Ended ‎March 31,
	2021		2020
(Dollars in thousands) (unaudited)
Cash flows from operating activities
Net income	$	4,830	$	1,719
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		324		331
Net amortization of loans and investment securities		124		340
Amortization of subordinate debt issuance costs		10		—
(Recovery of) provision for loan losses		(800)		3,000
(Increase) decrease in fair value of equity securities		(54)		127
Debt securities losses, net		—		10
Loans originated for sale		(28,992)		(9,223)
Proceeds from sale of loans		34,521		8,656
Gain on sale of loans		(782)		(144)
Increase in cash surrender value of bank owned life insurance		(115)		(124)
Gains from surrender of life insurance policies		—		(812)
Stock option compensation		48		31
Decrease (increase) in other assets		668		(1,139)
Increase (decrease) in other liabilities		667		(281)
Net cash provided by operating activities		10,449		2,491
Cash flows from investing activities
Net decrease (increase) in long-term interest-bearing deposits in other banks		1,746		(1,992)
Proceeds from sales and calls of investment securities available for sale		—		165
Proceeds from maturities and pay-downs of securities available for sale		9,367		10,941
Purchase of investment securities available for sale		(45,827)		(29,974)
Net decrease (increase) in loans		9,439		(2,077)
Capital expenditures		(168)		(174)
Net cash used in investing activities		(25,443)		(23,111)
Cash flows from financing activities
Net increase (decrease) in demand deposits, interest-bearing checking, and savings accounts		69,285		(2,452)
Net decrease in time deposits		(2,816)		(5,507)
Dividends paid		(1,318)		(1,306)
Purchase of Treasury shares		(13)		(1,172)
Cash received from option exercises		7		19
Treasury shares issued under dividend reinvestment plan		325		560
Net cash provided by (used in) financing activities		65,470		(9,858)
Increase (decrease) in cash and cash equivalents		50,476		(30,478)
Cash and cash equivalents at the beginning of the period		57,146		83,828
Cash and cash equivalents at the end of the period	$	107,622	$	53,350
Supplemental Disclosures of Cash Flow Information
Cash paid during the year for:
Interest on deposits and other borrowed funds	$	513	$	1,547
Income taxes	$	—	$	—
Noncash Activities
Lease liabilities arising from obtaining right-of-use assets	$	—	$	105
Life insurance claim receivable	$	—	$	3,613

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

4

FRANKLIN FINANCIAL SERVICES CORPORATION and SUBSIDIARIES

UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Basis of Presentation

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

In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the consolidated financial position, results of operations, and cash flows as of March 31, 2021, and for all other periods presented have been made.

Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted. It is suggested that these consolidated financial statements be read in conjunction with the audited consolidated financial statements and notes thereto included in the Corporation’s 2020 Annual Report on Form 10-K. The consolidated results of operations for the three-month period ended March 31, 2021 are not necessarily indicative of the operating results for the full year. Management has evaluated subsequent events for potential recognition and/or disclosure through the date these consolidated financial statements were issued.

The consolidated balance sheet at December 31, 2020 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by GAAP for complete consolidated financial statements.

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

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

	For the Three Months Ended
	March 31,
(Dollars and shares in thousands, except per share data)	2021		2020
Weighted average shares outstanding (basic)		4,396		4,347
Impact of common stock equivalents		19		14
Weighted average shares outstanding (diluted)		4,415		4,361
Anti-dilutive options excluded from calculation		61		50
Net income	$	4,830	$	1,719
Basic earnings per share	$	1.10	$	0.40
Diluted earnings per share	$	1.09	$	0.39

‎

5

Note 2. Recent Accounting Pronouncements

Recently issued but not yet effective accounting standards
ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
Description	This standard requires credit losses on most financial assets measured at amortized cost and certain other instruments to be measured using an expected credit loss model (referred to as the current expected credit loss (CECL) model). Under this model, entities will estimate credit losses over the entire contractual term of the instrument (considering estimated prepayments, but not expected extensions or modifications unless reasonable expectation of a troubled debt restructuring exists) from the date of initial recognition of that instrument. The ASU replaces the current accounting model for purchased credit impaired loans and debt securities. The allowance for credit losses for purchased financial assets with a more-than insignificant amount of credit deterioration since origination (“PCD assets”), should be determined in a similar manner to other financial assets measured on an amortized cost basis. However, upon initial recognition, the allowance for credit losses is added to the purchase price to determine the initial amortized cost basis. The subsequent accounting for PCD financial assets is the same expected loss model described above.
Effective Date	January 1, 2023
Effect on the Consolidated Financial Statements	We have formed an implementation team led by the Corporation's Risk Management function. The team is reviewing the requirements of the ASU and evaluating methods and models for implementation. As of the beginning of the first reporting period in which the new standard is adopted, the Corporation expects to recognize a one-time cumulative-effect adjustment to the allowance for loan losses, which will flow through retained earnings. After adoption, the new standard will result in earlier recognition of additions to the allowance for loan losses and possibly a larger allowance for loan loss balance with a corresponding increase in the provision for loan losses in results of operations; however, the Corporation is continuing to evaluate the impact of the pending adoption of the new standard on its consolidated financial statements. A third-party vendor has been selected to assist with the CECL calculations and the implementation process has started. The Corporation expects to be able to run the CECL model in test mode in 2021.
ASU 2019-05, Financial Instruments - Credit Losses (Topic 326): Targeted Transition Relief
Description	This ASU allows entities to irrevocably elect, upon adoption of ASU 2016-13, the fair value option on financial instruments that (1) were previously recorded at amortized cost and (2) are within the scope of ASC 326-20 if the instruments are eligible for the fair value option under ASC 825-10. The fair value option election does not apply to held-to-maturity debt securities. Entities are required to make this election on an instrument-by-instrument basis. ASU 2019-05 has the same effective date as ASU 2016-13. On October 16,2019, FASB approved its August 2019 proposal to grant certain small public companies a delay in the effective date of ASU 2016-13. For the Corporation, the delay makes the ASU effective January 2023. Since the Corporation currently meets the SEC definition of a small reporting company, the delay will be applied to the Corporation. Early adoption is permitted.
Effective Date	January 1, 2023
Effect on the Consolidated Financial Statements	The Corporation will continue to review the ASU as part of its adoption of ASU 2016-13.
ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting
Description	This ASU provides temporary, optional guidance to ease the potential burden in accounting for, or recognizing the effects of, the transition away from the LIBOR or other interbank offered rate on financial reporting. To help with the transition to new reference rates, the ASU provides optional expedients and exceptions for applying GAAP to affected contract modifications and hedge accounting relationships. The main provisions include: (1) a change in a contract's reference interest rate would be accounted for as a continuation of that contract rather than as the creation of a new one for contracts, including loans, debts, leases, and other arrangements that meet specific criteria, and (2) when updating its hedging strategies in response to reference rate reform, an entity would be allowed to preserve its accounting. The guidance is applicable only to contracts or hedge accounting relationships that reference LIBOR or another reference rate expected to be discontinued. Because the guidance is meant to help entities through the transition period, it will be in effect for a limited time and will not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, for which an entity has elected certain optional expedients that are retained through the end of the hedging relationship.
Effective Date	March 12, 2020 through December 31, 2022
Effect on the Consolidated Financial Statements	The Corporation will continue to review the ASU as part of its adoption but does not expect it to have a material effect on the consolidated financial statements.

6

Note 3. Accumulated Other Comprehensive Income (Loss)

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

	March 31,		December 31,
(Dollars in thousands)	2021		2020
Net unrealized gains on debt securities	$	1,994	$	12,571
Tax effect		(419)		(2,640)
Net of tax amount	$	1,575	$	9,931
Accumulated pension adjustment	$	(8,533)	$	(8,533)
Tax effect		1,792		1,792
Net of tax amount	$	(6,741)	$	(6,741)
Total accumulated other comprehensive (loss)/income	$	(5,166)	$	3,190

Note 4. Investments

Available for Sale (AFS) Securities

The amortized cost and estimated fair value of AFS securities as of March 31, 2021 and December 31, 2020 are as follows:

(Dollars in thousands)			Gross		Gross
	Amortized		unrealized		unrealized		Fair
March 31, 2021	cost		gains		losses		value
U.S. Government and Agency securities	$	21,070	$	16	$	(170)	$	20,916
Municipal securities		235,808		5,582		(4,132)		237,258
Corporate securities		22,268		153		(264)		22,157
Agency mortgage-backed securities		85,429		1,360		(815)		85,974
Private-label mortgage-backed securities		11,966		45		(62)		11,949
Asset-backed securities		43,643		390		(109)		43,924
	$	420,184	$	7,546	$	(5,552)	$	422,178

(Dollars in thousands)			Gross		Gross
	Amortized		unrealized		unrealized		Fair
December 31, 2020	cost		gains		losses		value
U.S. Government and Agency securities	$	12,594	$	20	$	(40)	$	12,574
Municipal securities		236,253		11,020		(219)		247,054
Corporate securities		20,421		22		(155)		20,288
Agency mortgage-backed securities		70,443		1,905		(107)		72,241
Private-label mortgage-backed securities		8,412		56		(15)		8,453
Asset-backed securities		36,246		249		(165)		36,330
	$	384,369	$	13,272	$	(701)	$	396,940

At March 31, 2021 and December 31, 2020, the fair value of debt securities pledged to secure public funds and trust deposits totaled $129.1 million and $137.4 million, respectively. The Bank has no investment in a single issuer that exceeds 10% of shareholders’ equity.

The amortized cost and estimated fair value of debt securities at March 31, 2021, by contractual maturity are shown below. Actual maturities may differ from contractual maturities because of prepayment or call options embedded in the securities. Securities not due at a single maturity date are presented separately.

7

(Dollars in thousands)	Amortized ‎cost		Fair ‎value
Due in one year or less	$	2,361	$	2,367
Due after one year through five years		21,738		22,274
Due after five years through ten years		174,745		178,862
Due after ten years		80,302		76,828
		279,146		280,331
Mortgage-backed and asset-backed securities		141,038		141,847
	$	420,184	$	422,178

The composition of the net realized gains (losses) on debt securities for the three months ended are as follows:

	For the Three Months Ended
	March 31,
(Dollars in thousands)	2021		2020
Proceeds	$	—	$	165
Gross gains realized		—		—
Gross losses realized		—		(10)
Net (losses) gains realized	$	—	$	(10)
Tax benefit (provision) on net (losses) gains realized	$	—	$	2

Impairment:

The debt securities portfolio contained 205 securities with $178.6 million of temporarily impaired fair value and $5.6 million in unrealized losses at March 31, 2021. The total unrealized loss position has increased $4.9 million since year-end 2020.

For securities with an unrealized loss, Management applies a systematic methodology in order to perform an assessment of the potential for other-than-temporary impairment. In the case of debt securities, investments considered for other-than-temporary impairment: (1) had a specified maturity or repricing date; (2) were generally expected to be redeemed at par; and (3) were expected to achieve a recovery in market value within a reasonable period of time. In addition, the Bank considers whether it intends to sell these securities or whether it will be forced to sell these securities before the earlier of amortized cost recovery or maturity. The impairment identified on debt securities and subject to assessment at March 31, 2021, was deemed to be temporary and required no further adjustments to the financial statements, unless otherwise noted.

‎

8

The following table reflects temporary impairment in the AFS portfolio, aggregated by investment category, length of time that individual securities have been in a continuous unrealized loss position and the number of securities in each category as of March 31, 2021 and December 31, 2020:

	March 31, 2021
	Less than 12 months					12 months or more					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(Dollars in thousands)	Value		Losses		Count	Value		Losses		Count	Value		Losses		Count
U.S. Government and Agency ‎  securities	$	9,832	$	(134)	7	$	7,629	$	(36)	15	$	17,461	$	(170)	22
Municipal securities		97,958		(4,132)	107		—		—	—		97,958		(4,132)	107
Corporate securities		9,677		(173)	19		2,806		(91)	3		12,483		(264)	22
Agency mortgage-backed securities		31,182		(809)	32		1,504		(6)	3		32,686		(815)	35
Private-label mortgage-backed securities		6,828		(62)	5		—		—	—		6,828		(62)	5
Asset-backed securities		3,236		(29)	3		7,983		(80)	11		11,219		(109)	14
Total temporarily impaired ‎  securities	$	158,713	$	(5,339)	173	$	19,922	$	(213)	32	$	178,635	$	(5,552)	205

	December 31, 2020
	Less than 12 months					12 months or more					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(Dollars in thousands)	Value		Losses		Count	Value		Losses		Count	Value		Losses		Count
U.S. Government and Agency ‎  securities	$	3,966	$	(21)	5	$	4,185	$	(19)	11	$	8,151	$	(40)	16
Municipal securities		27,022		(219)	28		—		—	—		27,022		(219)	28
Corporate securities		7,576		(37)	13		3,040		(118)	4		10,616		(155)	17
Agency mortgage-backed securities		18,390		(101)	17		3,355		(6)	5		21,745		(107)	22
Private-label mortgage-backed securities		2,506		(15)	2		—		—	—		2,506		(15)	2
Asset-backed securities		1,458		(12)	2		11,452		(153)	15		12,910		(165)	17
Total temporarily impaired ‎  securities	$	60,918	$	(405)	67	$	22,032	$	(296)	35	$	82,950	$	(701)	102

The following table represents the cumulative credit losses on debt securities recognized in earnings for:

	Three Months Ended
(Dollars in thousands)	March 31,
	2021		2020
Balance of cumulative credit-related OTTI at January 1	$	272	$	272
Decreases for previously recognized credit losses on securities that paid off		(15)		—
Balance of credit-related OTTI at March 31	$	257	$	272

Equity Securities at Fair Value

The Corporation owns one equity investment with a readily determinable fair value. At March 31, 2021 and December 31, 2020, this investment was reported at fair value of $444 thousand and $391 thousand, respectively, with changes in value reported through income.

Note 5. Loans

The Bank reports its loan portfolio based on the primary collateral of the loan. It further classifies these loans by the primary purpose, either consumer or commercial. The Bank’s residential real estate loans include long-term loans to individuals and businesses secured by mortgages on the borrower’s real property and include home equity loans. Construction loans are made to finance the purchase of land and the construction of residential and commercial buildings thereon and are secured by mortgages on real estate. Commercial real estate loans include construction, owner and non-owner occupied properties and farm real estate. Commercial loans are made to businesses of various sizes for a variety of purposes including property, plant and equipment, working capital and loans to government municipalities. Commercial lending is concentrated in the Bank’s primary market, but also includes purchased loan participations. Consumer loans are comprised of installment loans and unsecured personal lines of credit.

9

Each class of loans involves a different kind of risk. However, risk factors such as changes in interest rates, general economic conditions and changes in collateral values are common across all classes. The risk of each loan class is presented below.

Residential Real Estate 1-4 Family

The largest risk in residential real estate loans to retail customers is the borrower’s inability to repay the loan due to the loss of the primary source of income. The Bank attempts to mitigate this risk through prudent underwriting standards including employment history, current financial condition and credit history. These loans are generally owner occupied and serve as the borrower’s primary residence. Commercial purpose loans, secured by residential real estate, are usually dependent upon repayment from the rental income or other business purposes. These loans are generally non-owner occupied. In addition to the real estate collateral, these loans may have personal guarantees or UCC filings on other business assets. If a payment default occurs on a 1-4 family residential real estate loan, the collateral serves as a source of repayment, but may be subject to a change in value due to economic conditions.

Residential Real Estate Construction

This class includes loans to individuals for construction of a primary residence and tocontractors and developers to improve real estate and construct residential properties. Construction loans to individuals generally bear the same risk as 1-4 family residential loans. Additional risks may include cost overruns, delays in construction or contractor problems.

Loans to contractors and developers are primarily dependent on the sale of improved lots or finished homes for repayment. Risks associated with these loans include the borrower’s character and capacity to complete a development, the effect of economic conditions on the valuation of lots or homes, cost overruns, delays in construction or contractor problems. In addition to real estate collateral, these loans may have personal guarantees or UCC filings on other business assets, depending on the financial strength and experience of the developer. Real estate construction loans are monitored on a regular basis by either an independent third party or the responsible loan officer, depending on the size and complexity of the project. This monitoring process includes at a minimum, the submission of invoices or American Institute of Architects (AIA) documents detailing the cost incurred by the borrower, on-site inspections, and an authorizing signature for disbursement of funds.

Commercial Real Estate

Commercial real estate loans may be secured by various types of commercial property including retail space, office buildings, warehouses, hotels and motel, manufacturing facilities, and agricultural land.

Commercial real estate loans present a higher level of risk than residential real estate loans. Repayment of these loans is normally dependent on cash-flow generated by the operation of a business that utilizes the real estate. The successful operation of the business, and therefore repayment ability, may be affected by general economic conditions outside of the control of the operator. On most commercial real estate loans ongoing monitoring of cash flow and other financial performance indictors is completed annually through financial statement analysis. In addition, the value of the collateral may be negatively affected by economic conditions and may be insufficient to repay the loan in the event of default. In the event of foreclosure, commercial real estate may be more difficult to liquidate than residential real estate.

Commercial

Commercial loans are made for various business purposes to finance equipment, inventory, accounts receivables, and operating liquidity. These loans are generally secured by business assets or equipment, non-real estate collateral and/or personal guarantees.

Commercial loans present a higher level of credit risk than other loans because repayment ability is usually dependent on cash-flow from a business operation that can be affected by general economic conditions. On most Commercial loans ongoing monitoring of cash flow and other financial performance indictors at least annually through financial statement analysis. In the event of a default, collateral for these loans may be more difficult to liquidate, and the valuation of the collateral may decline more quickly than loans secured by other types of collateral.

Loans to governmental municipalities are also included in the Commercial class. These loans generally have less risk than Commercial & Industrial (C&I) loans due to the taxing authority of the municipality and its ability to assess fees on services.

This class also includes loans made as part of the Paycheck Protection Program (PPP). The PPP is a small business loan program designed to assist in allowing small businesses to keep workers on the payroll during the COVID-19 pandemic. When workers are kept on the payroll for the qualifying period, the loan could be forgiven if the small business incurs eligible expenses. The PPP loans are 100 percent guaranteed by the SBA and have a maturity of two years or five years with a fixed interest rate of 1% for the life of the loan. Because the PPP loans are 100% guaranteed by the SBA, they present no credit risk to the Bank once the SBA guarantee is fulfilled, if necessary. However, if the SBA does not grant loan forgiveness, the PPP loan would present the same risk factors as any other commercial loan. The PPP loan is only designed to cover short-term operating needs of the borrower. If the economy does not recover quickly from the pandemic and the borrower experiences long-term operational problems beyond the PPP funding, the performance of other loans to these customers could begin to deteriorate.

10

Consumer

These loans are made for a variety of reasons to consumers and include term loans and personal lines-of credit. The loans may be secured or unsecured. Repayment is primarily dependent on the income of the borrower and to a lesser extent the sale of collateral. The underwriting of these loans is based on the consumer’s ability and willingness to repay and is determined by the borrower’s employment history, current financial condition and credit background. Collateral for these loans, if any, usually depreciates quickly and therefore, may not be adequate to repay the loan if it is repossessed. Therefore, the overall health of the economy, including unemployment rates and wages, will have an effect on the credit quality in this loan class.

‎

11

A summary of loans outstanding, by class, at the end of the reporting periods is as follows:

	March 31,		December 31,
(Dollars in thousands)	2021		2020
Residential Real Estate 1-4 Family
Consumer first liens	$	73,991	$	77,373
Commercial first lien		58,018		59,851
Total first liens		132,009		137,224
Consumer junior liens and lines of credit		61,707		60,935
Commercial junior liens and lines of credit		4,244		4,425
Total junior liens and lines of credit		65,951		65,360
Total residential real estate 1-4 family		197,960		202,584
Residential real estate - construction
Consumer		7,804		6,751
Commercial		10,814		9,558
Total residential real estate construction		18,618		16,309
Commercial real estate		493,544		503,977
Commercial		283,705		281,257
Total commercial		777,249		785,234
Consumer		7,106		5,577
		1,000,933		1,009,704
Less: Allowance for loan losses		(16,136)		(16,789)
Net Loans	$	984,797	$	992,915
Included in the loan balances are the following:
Net unamortized deferred loan (fees) costs	$	(374)	$	8
Paycheck Protection Program (PPP) loans (included in Commercial loans above)
Two-year loans	$	3,455	$	5,378
Five-year loans		52,418		46,912
Total Paycheck Protection Program loans	$	55,873	$	52,290
Net unamortized deferred PPP loan fees (included in Net unamortized deferred loan fees above)
Two-year loans	$	(63)	$	(165)
Five-year loans		(1,617)		(1,178)
Total net unamortized deferred PPP loan fees	$	(1,680)	$	(1,343)
Loans pledged as collateral for borrowings and commitments from:
FHLB	$	695,190	$	840,850
Federal Reserve Bank		50,682		50,605
	$	745,872	$	891,455

12

Note 6. Loan Quality and Allowance for Loan Losses

The following table presents, by class, the activity in the Allowance for Loan Losses (ALL) for the periods shown:

	Residential Real Estate 1-4 Family
	First		Junior Liens &				Commercial
(Dollars in thousands)	Liens		Lines of Credit		Construction		Real Estate		Commercial		Consumer		Unallocated		Total
ALL at December 31, 2020	$	555	$	226	$	294	$	9,163	$	5,679	$	97	$	775	$	16,789
Charge-offs		—		—		—		(13)		(5)		(18)		—		(36)
Recoveries		—		169		—		—		7		7		—		183
Provision		(108)		(184)		24		(365)		(208)		27		14		(800)
ALL at March 31, 2021	$	447	$	211	$	318	$	8,785	$	5,473	$	113	$	789	$	16,136
ALL at December 31, 2019	$	416	$	119	$	186	$	6,607	$	4,022	$	84	$	532	$	11,966
Charge-offs		-		—		—		—		(220)		(30)		—		(250)
Recoveries		3		—		—		—		5		6		—		14
Provision		144		59		82		1,660		889		38		128		3,000
ALL at March 31, 2020	$	563	$	178	$	268	$	8,267	$	4,696	$	98	$	660	$	14,730

The following table presents, by class, loans that were evaluated for the ALL under the specific reserve (individually) and those that were evaluated under the general reserve (collectively) and the amount of the ALL established in each class as of March 31, 2021 and December 31, 2020:

	Residential Real Estate 1-4 Family
	First		Junior Liens &				Commercial
(Dollars in thousands)	Liens		Lines of Credit		Construction		Real Estate		Commercial		Consumer		Unallocated		Total
March 31, 2021
Loans evaluated for ALL:
Individually	$	631	$	—	$	511	$	16,000	$	—	$	—	$	—	$	17,142
Collectively		131,378		65,951		18,107		477,544		283,705		7,106		—		983,791
Total	$	132,009	$	65,951	$	18,618	$	493,544	$	283,705	$	7,106	$	—	$	1,000,933
ALL established for ‎  loans evaluated:
Individually	$	—	$	—	$	—	$	228	$	—	$	—	$	—	$	228
Collectively		447		211		318		8,557		5,473		113		789		15,908
ALL at March 31, 2021	$	447	$	211	$	318	$	8,785	$	5,473	$	113	$	789	$	16,136
December 31, 2020
Loans evaluated for ALL:
Individually	$	637	$	—	$	512	$	16,104	$	—	$	—	$	—	$	17,253
Collectively		136,587		65,360		15,797		487,873		281,257		5,577		—		992,451
Total	$	137,224	$	65,360	$	16,309	$	503,977	$	281,257	$	5,577	$	—	$	1,009,704
ALL established for ‎  loans evaluated:
Individually	$	—	$	—	$	—	$	228	$	—	$	—	$	—	$	228
Collectively		555		226		294		8,935		5,679		97		775		16,561
ALL at December 31, 2020	$	555	$	226	$	294	$	9,163	$	5,679	$	97	$	775	$	16,789

‎

13

The following table shows additional information about those loans considered to be impaired at March 31, 2021 and December 31, 2020:

	Impaired Loans
	With No Allowance				With Allowance
(Dollars in thousands)			Unpaid				Unpaid
	Recorded		Principal		Recorded		Principal		Related
March 31, 2021	Investment		Balance		Investment		Balance		Allowance
Residential Real Estate 1-4 Family
First liens	$	631	$	631	$	—	$	—	$	—
Junior liens and lines of credit		—		—		—		—		—
Total		631		631		—		—		—
Residential real estate - construction		511		729		—		—		—
Commercial real estate		10,259		10,987		5,741		5,741		228
Commercial		—		—		—		—		—
Total	$	11,401	$	12,347	$	5,741	$	5,741	$	228

December 31, 2020
Residential Real Estate 1-4 Family
First liens	$	637	$	637	$	—	$	—	$	—
Junior liens and lines of credit		—		—		—		—		—
Total		637		637		—		—		—
Residential real estate - construction		512		729		—		—		—
Commercial real estate		10,402		11,107		5,702		5,702		228
Commercial		—		—		—		—		—
Total	$	11,551	$	12,473	$	5,702	$	5,702	$	228

The following table shows the average of impaired loans and related interest income for the three months ended March 31, 2021 and 2020:

	Three Months Ended
	March 31, 2021
	Average		Interest
(Dollars in thousands)	Recorded		Income
	Investment		Recognized
Residential Real Estate 1-4 Family
First liens	$	634	$	8
Junior liens and lines of credit		—		—
Total		634		8
Residential real estate - construction		512		—
Commercial real estate		16,043		91
Commercial		—		—
Total	$	17,189	$	99
	Three Months Ended
	March 31, 2020
	Average		Interest
(Dollars in thousands)	Recorded		Income
	Investment		Recognized
Residential Real Estate 1-4 Family
First liens	$	656	$	10
Junior liens and lines of credit		—		—
Total		656		10
Residential real estate - construction		521		—
Commercial real estate		10,899		94
Commercial		—		—
Total	$	12,076	$	104

‎

14

The following table presents the aging of payments of the loan portfolio:

(Dollars in thousands)			Loans Past Due and Still Accruing										Total
	Current		30-59 Days		60-89 Days		90 Days+		Total		Non-Accrual		Loans
March 31, 2021
Residential Real Estate 1-4 Family
First liens	$	131,794	$	174	$	—	$	—	$	174	$	41	$	132,009
Junior liens and lines of credit		65,768		136		38		—		174		9		65,951
Total		197,562		310		38		—		348		50		197,960
Residential real estate - construction		18,107		—		—		—		—		511		18,618
Commercial real estate		485,377		—		—		—		—		8,167		493,544
Commercial		283,548		50		—		—		50		107		283,705
Consumer		7,091		12		2		1		15		—		7,106
Total	$	991,685	$	372	$	40	$	1	$	413	$	8,835	$	1,000,933

December 31, 2020
Residential Real Estate 1-4 Family
First liens	$	137,056	$	43	$	58	$	26	$	127	$	41	$	137,224
Junior liens and lines of credit		65,212		115		23		—		138		10		65,360
Total		202,268		158		81		26		265		51		202,584
Residential real estate - construction		15,797		—		—		—		—		512		16,309
Commercial real estate		495,609		74		261		—		335		8,033		503,977
Commercial		280,930		219		—		—		219		108		281,257
Consumer		5,525		38		2		12		52		—		5,577
Total	$	1,000,129	$	489	$	344	$	38	$	871	$	8,704	$	1,009,704

‎

15

The following table reports the risk rating for those loans in the portfolio that are assigned an individual risk rating. Consumer purpose loans are assigned a rating of either pass or substandard based on the performance status of the loans. Substandard consumer loans are comprised of loans 90 days or more past due and still accruing, and nonaccrual loans. Commercial purpose loans may be assigned any rating in accordance with the Bank’s internal risk rating system.

	Pass		OAEM		Substandard		Doubtful
(Dollars in thousands)	(1-5)		(6)		(7)		(8)		Total
March 31, 2021
Residential Real Estate 1-4 Family
First liens	$	131,968	$	—	$	41	$	—	$	132,009
Junior liens and lines of credit		65,942		—		9		—		65,951
Total		197,910		—		50		—		197,960
Residential real estate - construction		18,107		—		511		—		18,618
Commercial real estate		438,443		36,607		18,494		—		493,544
Commercial		273,579		9,841		285		—		283,705
Consumer		7,105		—		1		—		7,106
Total	$	935,144	$	46,448	$	19,341	$	—	$	1,000,933

December 31, 2020
Residential Real Estate 1-4 Family
First liens	$	137,156	$	—	$	68	$	—	$	137,224
Junior liens and lines of credit		65,350		—		10		—		65,360
Total		202,506		—		78		—		202,584
Residential real estate - construction		15,797		—		512		—		16,309
Commercial real estate		449,478		35,947		18,552		—		503,977
Commercial		270,272		10,698		287		—		281,257
Consumer		5,565		—		12		—		5,577
Total	$	943,618	$	46,645	$	19,441	$	—	$	1,009,704

The following table presents information on the Bank’s Troubled Debt Restructuring (TDR) loans as of:

								Troubled Debt Restructurings
								Within the Last 12 Months
								That Have Defaulted
(Dollars in thousands)	Troubled Debt Restructurings							On Modified Terms
	Number of	Recorded						Number of	Recorded
	Contracts	Investment		Performing*		Nonperforming*		Contracts	Investment
March 31, 2021
Residential real estate - construction	1	$	433	$	433	$	—	—	$	—
Residential real estate	4		631		631		—	—		—
Commercial real estate - owner occupied	4		1,213		1,213		—	—		—
Commercial real estate - farm land	6		2,224		1,542		682	—		—
Commercial real estate - construction and land development	2		6,038		6,038		—	—		—
Commercial real estate	2		322		117		205	—		—
Total	19	$	10,861	$	9,974	$	887	—	$	—
December 31, 2020
Residential real estate - construction	1	$	434	$	434	$	—	—	$	—
Residential real estate	4		637		637		—	—		—
Commercial real estate - owner occupied	4		1,224		1,224		—	—		—
Commercial real estate - farm land	6		2,257		2,257		—	—		—
Commercial real estate - construction and land development	2		6,129		6,129		—	—		—
Commercial real estate	2		330		122		208	—		—
Total	19	$	11,011	$	10,803	$	208	—	$	—

*The performing status is determined by the loan’s compliance with the modified terms.

‎

16

There were no new TDR loans during the first quarter of 2021.

The following table reports new TDR loans during 2020, concession granted and the recorded investment as of March 31, 2021:

	New During Period
Twelve Months Ended	Number of		Pre-TDR		After-TDR		Recorded
December 31, 2020	Contracts		Modification		Modification		Investment	Concession
Commercial real estate - farm land	1	$	650	$	650	$	682	multiple
Commercial real estate - owner occupied	2		426		426		425	maturity
	3	$	1,076	$	1,076	$	1,107

Loans that have been modified on a good-faith basis in response to COVID-19 to borrowers who were classified as current prior to any relief are not TDRs as outlined in the March 22, 2020 Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus or Section 4013 of the CARES Act. Such short-term modifications (e.g., six months) may include payment deferrals, fee waivers, extension of payment terms or other delays in payment that are insignificant. Loans may be modified under Section 4013 until the earlier of January 1, 2022 or the 60th day after the end of the COVID-19 national emergency declared by the President. As of March 31, 2021, the Bank has granted $68.1 million loan deferrals or modifications (approximately 7% of gross loans) outstanding.

Note 7. Leases

The Corporation leases various assets in the course of its operations that are subject to recognition on the balance sheet. The Corporation considers all of its leases to be operating leases and it has no finance leases. The leased assets are comprised of equipment, and buildings and land (collectively real estate). The equipment leases are shorter-term than the real estate leases, and generally have a fixed payment over a defined term without renewal options. Certain equipment leases have purchase options and it was determined the option was not reasonably certain to be exercised. The real estate leases are longer-term and may contain renewal options after the initial term, but none of the real estate leases contain a purchase option. The renewal options on real estate leases were reviewed and if it was determined the option was reasonably certain to be renewed, the option term was considered in the determination of the lease liability. There is only one real estate lease with a variable payment based on an index included in the lease liability. None of the leases contain any restrictive covenants and there are no significant leases that have not yet commenced. The discount rate used to determine the lease liability is based on the Bank’s fully secured borrowing rate from the Federal Home Loan Bank for a term similar to the lease term. Operating lease expense is included in net occupancy expense in the consolidated statements of income.

Lease costs:

The components of total lease cost were as follows:

	Three Months Ended ‎March 31,
(Dollars in thousands)	2021		2020
Operating lease cost	$	174	$	158
Short-term lease cost		—		2
Variable lease cost		24		14
Total lease cost	$	198	$	174

‎

17

Supplemental Lease Information:

	Three Months Ended ‎March 31,
(Dollars in thousands)	2021		2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	162	$	152
Weighted-average remaining lease term (years)		11.5		12.8
Weighted-average discount rate		3.34%		3.53%

Lease Obligations:

Future undiscounted lease payments for operating leases with initial terms of one year or more as of March 31, 2021 are as follows:

(Dollars in thousands)
2021	$	494
2022		640
2023		650
2024		628
2025		588
2026 and beyond		3,395
Undiscounted cash flow		6,395
Imputed Interest		(1,170)
Total lease liability	$	5,225

Note 8. Other Real Estate Owned

The Bank had no other real estate owned at March 31, 2021 and December 31, 2020.

Note 9. Derivatives

The Corporation is exposed to certain risks arising from both its business operations and economic conditions.  The Corporation principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Corporation manages economic risks, including interest rate, liquidity, and credit risk, primarily by managing the amount, sources, and duration of its assets and liabilities. 

The Corporation’s existing credit derivatives result from participations in interest rate swaps provided by external lenders as part of loan participation arrangements.  Derivatives not designated as hedges are not speculative and result from a service the Corporation provides to certain lenders which participate in loans.

‎

18

The table below presents the fair value of the Corporation’s derivative financial instruments as well as their classification on the Balance Sheet.

	Fair Value of Derivative Instruments
	Derivative Liabilities
(Dollars in thousands)	March 31, 2021				December 31, 2020
	Notional amount	Balance Sheet Location		Fair Value	Notional amount	Balance Sheet Location		Fair Value
Derivatives not designated as hedging instruments
Other Contracts	6,790	Other Liabilities	$	17	6,836	Other Liabilities	$	40
Total derivatives not designated as hedging instruments			$	17			$	40

The table below presents the effect of the Corporation’s derivative financial instruments that are not designated as hedging instruments on the Income Statement.

Effect of Derivatives Not Designated as Hedging Instruments on the Statement of Financial Performance
Derivatives Not Designated as Hedging Instruments under Subtopic 815-20	Location of Gain or (Loss) Recognized in Income on Derivative	Amount of Gain or (Loss) Recognized in Income on Derivatives
(Dollars in thousands)		Three Months Ended
		March 31, 2021		March 31, 2020
Other Contracts	Other income	$	23	$	(36)

As of March 31, 2021, the fair value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $17 thousand.  

Note 10. Pension

The components of pension expense for the periods presented are as follows:

	Three Months Ended
	March 31,
(Dollars in thousands)	2021		2020
Components of net periodic cost:
Service cost	$	99	$	83
Interest cost		87		131
Expected return on plan assets		(274)		(269)
Settlement expense		108		—
Recognized net actuarial loss		285		226
Total pension expense	$	305	$	171

The service cost component of pension expense is recorded in the salaries and employee benefits line and all other cost components are recorded in the nonservice pension line of the Consolidated Statements of Income.

Note 11. Fair Value Measurements and Fair Values of Financial Instruments

Management uses its best judgment in estimating the fair value of the Corporation’s financial instruments; however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts the Corporation could have realized in a sales transaction on the dates indicated. The estimated fair value amounts have been measured as of their respective period-ends and have not been re-evaluated or updated for purposes of these financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates maybe different than the amounts reported at each year-end. The Corporation uses the exit price notion to measure the fair value of financial instruments.

FASB ASC Topic 820, “Financial Instruments”, requires disclosure of the fair value of financial assets and liabilities, including those financial assets and liabilities that are not measured and reported at fair value on a recurring and nonrecurring basis. The Corporation does not report any nonfinancial assets at fair value. FASB ASC Topic 820

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establishes a fair value hierarchy that prioritizes the inputs to valuation methods used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under FASB ASC Topic 820 are as follows:

Level 1: Valuation is based on unadjusted, quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2: Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market. There may be substantial differences in the assumptions used for securities within the same level. For example, prices for U.S. Agency securities have fewer assumptions and are closer to level 1 valuations than the private label mortgage-backed securities that require more assumptions and are closer to level 3 valuations.

Level 3: Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect the Corporation’s assumptions regarding what market participants would assume when pricing a financial instrument.

An asset’s or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

The following information regarding the fair value of the Corporation’s financial instruments should not be interpreted as an estimate of the fair value of the entire Corporation since a fair value calculation is only provided for a limited portion of the Corporation’s assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Corporation’s disclosures and those of other companies may not be meaningful.

The following methods and assumptions were used to estimate the fair values of the Corporation’s financial instruments measured at fair value on a recurring and nonrecurring basis.

Equity Securities: Equity securities are valued using quoted market prices from nationally recognized markets (Level 1). Equity securities are measured at fair value on a recurring basis.

Investment securities: Fair values of investment securities available-for-sale were primarily measured using information from a third-party pricing service. This service provides pricing information by utilizing evaluated pricing models supported with market data information. Standard inputs include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data from market research publications. Level 2 investment securities are primarily comprised of debt securities issued by states and municipalities, corporations, mortgage-backed securities issued by government agencies, and government-sponsored enterprises. Fair values were estimated primarily by obtaining quoted prices for similar assets in active markets or through the use of pricing models. Investment securities are measured at fair value on a recurring basis.

Impaired Loans: The fair value of impaired loans with specific allocations of the allowance for loan losses is generally based on recent real estate appraisals conducted by an independent, licensed appraiser, less cost to sell. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach (Level 2). If the appraiser makes an adjustment to account for differences between the comparable sales and income data available for similar loans, or if management adjusts the appraised value, then the fair value is considered Level 3. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification. Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted in accordance with the allowance policy. No partial charge-offs on impaired loans were taken in the first quarter of 2021. Impaired loans are measured at fair value on a nonrecurring basis.

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Recurring Fair Value Measurements

For financial assets and liabilities measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used at March 31, 2021 and December 31, 2020 are as follows:

(Dollars in thousands)	Fair Value at March 31, 2021
Asset Description	Level 1		Level 2		Level 3		Total
Equity securities, at fair value	$	444	$	—	$	—	$	444
Available for sale:
U.S. Government and Agency securities		9,832		11,084		—		20,916
Municipal securities		—		237,258		—		237,258
Corporate securities		—		22,157		—		22,157
Agency mortgage-backed securities		—		85,974		—		85,974
Private-label mortgage-backed securities		—		11,949		—		11,949
Asset-backed securities		—		43,924		—		43,924
Total assets	$	10,276	$	412,346	$	—	$	422,622

(Dollars in thousands)	Fair Value at December 31, 2020
Asset Description	Level 1		Level 2		Level 3		Total
Equity securities, at fair value	$	391	$	—	$	—	$	391
Available for sale:
U.S. Government and Agency securities		—		12,574		—		12,574
Municipal securities		—		247,054		—		247,054
Corporate securities		—		20,288		—		20,288
Agency mortgage-backed securities		—		72,241		—		72,241
Private-label mortgage-backed securities		—		8,453		—		8,453
Asset-backed securities		—		36,330		—		36,330
Total assets	$	391	$	396,940	$	—	$	397,331

The fair value of derivative liabilities measured at fair value at March 31, 2021 and December 31, 2020 was $17 thousand and $40 thousand, respectively, and was considered immaterial.

Nonrecurring Fair Value Measurements

There were no assets measured at fair value on a nonrecurring basis as of March 31, 2021 and the following table presents the fair value measurement by level within the fair value hierarchy used at December 31, 2020:

(Dollars in Thousands)	Fair Value at December 31, 2020
Asset Description	Level 1		Level 2		Level 3		Total
Impaired loans (1)	$	—	$	—	$	5,474	$	5,474
Total assets	$	—	$	—	$	5,474	$	5,474

(1)Includes assets directly charged-down to fair value during the year-to-date period.

The Corporation did not record any liabilities at fair value for which measurement of the fair value was made on a nonrecurring basis at March 31, 2021. For financial assets and liabilities measured at fair value on a recurring basis, there were no transfers of financial assets or liabilities between Level 1 and Level 2 during the period ending March 31, 2021.

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There were no assets measured at fair value on a nonrecurring basis at March 31, 2021 and the following table presents additional quantitative information about Level 3 assets measured at fair value on a nonrecurring basis at December 31, 2020:

(Dollars in thousands)					Range
December 31, 2020		Fair Value	Valuation Technique	Unobservable Input	Weighted Average
Impaired loans	$	5,474	Appraisal	Appraisal Adjustment on	0%-100% (66%)
				Non-real estate assets
				Cost to sell	8%
(1) Includes assets directly charged-down to fair value during the year-to-date period.

The carrying amounts and estimated fair value of financial instruments not carried at fair value are as follows:

	March 31, 2021
	Carrying		Fair
(Dollars in thousands)	Amount		Value		Level 1		Level 2		Level 3
Financial assets, carried at cost:
Cash and cash equivalents	$	107,622	$	107,622	$	107,622	$	—	$	—
Long-term interest-bearing deposits in other banks		10,995		10,995		10,995		—		—
Loans held for sale		4,699		4,799		—		4,799		—
Net loans		984,797		1,013,427		—		—		1,013,427
Accrued interest receivable		6,045		6,045		—		—		6,045
Financial liabilities:
Deposits	$	1,421,042	$	1,433,518	$	—	$	1,433,518	$	—
Subordinate notes		19,564		20,086		—		20,086		—
Accrued interest payable		415		415		—		415		—
	December 31, 2020
	Carrying		Fair
(Dollars in thousands)	Amount		Value		Level 1		Level 2		Level 3
Financial assets, carried at cost:
Cash and cash equivalents	$	57,146	$	57,146	$	57,146	$	—	$	—
Long-term interest-bearing deposits in other banks		12,741		12,741		12,741		—		—
Loans held for sale		9,446		9,446		—	9,446	9,446		—
Net loans		992,915		990,867		—		—		990,867
Accrued interest receivable		6,410		6,410		—		—		6,410
Financial liabilities:
Deposits	$	1,354,573	$	1,355,086	$	—	$	1,355,086	$	—
Subordinate notes		19,555		19,750		—		19,750		—
Accrued interest payable		180		180		—		180		—

Note 12. Subordinated Notes

At March 31, 2021, the Corporation had $20.0 million of unsecured subordinated debt notes payable, $15.0 million which mature on September 1, 2030 and $5.0 million which mature on September 1, 2035. The notes are recorded on the consolidated balance sheet net of remaining debt issuance costs totaling $435.7 thousand at March 31, 2021, which is being amortized on a pro-rata basis over a 5-year and 10-year period, based on the call dates of the notes, on an effective interest method. The subordinated notes totaling $15.0 million have a fixed interest rate of 5.00% through September 1, 2025, then convert to a variable rate of 90-day Secured Overnight Financing Rate (SOFR) plus 4.93% for the applicable interest periods through maturity. The subordinated notes totaling $5.0 million have a fixed interest rate of 5.25% through September 1, 2030, then convert to a variable rate of 90-day SOFR plus 4.92% for the applicable interest periods through maturity. The Corporation may, at its option, redeem the notes, in whole or in part, at any time 5-years prior to the maturity. The notes are structured to qualify as Tier 2 Capital for the Corporation and there are no debt covenants on the notes.

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Note 13. Capital Ratios

Capital adequacy for the Bank is currently defined by regulatory agencies through the use of several minimum required ratios. The capital ratios to be considered “well capitalized” are: (1) Common Equity Tier 1 (CET1) of 6.5%, (2) Tier 1 Leverage of 5%, (3) Tier 1 Risk-Based Capital of 8%, and (4) Total Risk-Based Capital of 10%. In addition, a capital conservation buffer of 2.50% is applicable to all of the capital ratios except for the Tier 1 Leverage ratio. The capital conservation buffer is equal to the lowest value of the three applicable capital ratios less the regulatory minimum for each respective capital measurement. The Bank’s capital conservation buffer at March 31, 2021 was 7.89% compared to the regulatory buffer of 2.50%. Compliance with the capital conservation buffer is required in order to avoid limitations to certain capital distributions and is in addition to the minimum required capital requirements. As of March 31, 2021, the Bank was “well capitalized”.

In 2019, the Community Bank Leverage Ratio (CBLR) was approved by federal banking agencies as an optional capital measure available to Qualifying Community Banking Organizations (QCBO). If a bank qualifies as a QCBR and maintains a CBLR of 9% or greater, the bank would be considered “well-capitalized” for regulatory capital purposes and exempt from complying with the risk-based capital rule described above. The CBLR rule took effect January 1, 2020 and banks could opt-in through an election in the first quarter 2020 regulatory filing. The Bank met the criteria of a QCBR but did not opt-in to the CBLR.

The Bank is participating in the PPP and the Paycheck Protection Program Liquidity Facility (PPPLF) to fund PPP Loans. In accordance with regulatory guidance, PPP loans pledged as collateral for PPPLF, and PPPLF advances, are excluded from leverage capital ratios. PPP loans will also carry a 0% risk-weight for risk-based capital rules.

The consolidated asset limit on small bank holding companies is $3.0 billion and a company with assets under that limit is not subject to the consolidated capital rules but may file reports that include capital amounts and ratios. The Corporation has elected to file those reports.

The following table summarizes the regulatory capital requirements and results as of March 31, 2021 and December 31, 2020 for the Corporation and the Bank:

			Regulatory Ratios
			Adequately	Well
	March 31,	December 31,	Capitalized	Capitalized
(Dollars in thousands)	2021	2020	Minimum	Minimum
Common Equity Tier 1 Risk-based Capital Ratio (1)
Franklin Financial Services Corporation	14.80%	14.32%	N/A	N/A
Farmers & Merchants Trust Company	14.63%	14.07%	4.50%	6.50%
Tier 1 Risk-based Capital Ratio (2)
Franklin Financial Services Corporation	14.80%	14.32%	N/A	N/A
Farmers & Merchants Trust Company	14.63%	14.07%	6.00%	8.00%
Total Risk-based Capital Ratio (3)
Franklin Financial Services Corporation	18.18%	17.69%	N/A	N/A
Farmers & Merchants Trust Company	15.89%	15.33%	8.00%	10.00%
Tier 1 Leverage Ratio (4)
Franklin Financial Services Corporation	8.76%	8.69%	N/A	N/A
Farmers & Merchants Trust Company	8.65%	8.54%	4.00%	5.00%
(1) Common equity Tier 1 capital/ total risk-weighted assets (2) Tier 1 capital / total risk-weighted assets
(3) Total risk-based capital / total risk-weighted assets, (4) Tier 1 capital / average quarterly assets

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Note 14. Revenue Recognition

All of the Corporation’s revenue from contracts with customers within the scope of ASC 606 is recognized in non-interest income as presented in its consolidated statements of income. Revenue generating activities that fall within the scope of ASC 606 are described as follows:

Investment and Trust Service Fees – these represent fees from wealth management (assets under management), fees from the management and settlement of estates and commissions from the sale of investment and insurance products.

Asset management fees are generally assessed based on a tiered fee schedule, based on the value of assets under management, and are recognized monthly when the service obligation is completed. Fees recognized were $1.5 million for the first quarter of 2021 and $1.3 million for the first quarter of 2020.

Fees for estate management services are based on the estimated fair value of the estate. These fees are generally recognized monthly over an 18-month period that Management has determined to represent the average time to fulfill the performance obligations of the contract. Management has the discretion to adjust this time period as needed based upon the nature and complexity of an individual estate. Fees recognized were $84 thousand for the first quarter of 2021, compared to $33 thousand for the first quarter of 2020.

Commissions from the sale of investment and insurance products are recognized upon the completion of the transaction. Commissions recognized were $37 thousand for the first quarter of 2021, compared to $74 thousand for the first quarter 2020.

Loan Service Charges – these represent fees on loans for services or charges that occur after the loan has been booked, for example, late payment fees. These also include fees for mortgages settled for third-party mortgage companies. All of these fees are transactional in nature and are recognized upon completion of the transaction which represents the performance obligation.

Deposit Service Charges and Fees – these represent fees from deposit customers for transaction based, account maintenance, and overdraft services. Transaction based fees include, but are not limited to, stop payment fees and overdraft fees. These fees are recognized at the time of the transaction when the performance obligation has been fulfilled. Account maintenance fees and account analysis fees are earned over the course of a month, representing the period of the performance obligation, and are recognized monthly.

Debit Card Income – this represents interchange fees from cardholder transactions conducted through the card payment network. Cardholders use the debit card to conduct point-of-sale transactions that produce interchange fees. The fees are transaction based and the fee is recognized with the processing of the transaction. These fees are reported net of cardholder rewards.

Other Service Charges and Fees – these are comprised primarily of merchant card fees, credit card fees, ATM surcharges and interchange fees and wire transfer fees. Merchant card fees represent fees the Bank earns from a third party for enrolling a customer in the processor’s program. Credit card fees represent a fee earned by the Bank for a successful referral to a card-issuing company. ATM surcharges and interchange fees are the result of Bank customers conducting ATM transactions that generate fee income and are processed through multiple card networks. All of these fees are transaction based and are recognized at the time of the transaction.

Gains/Losses on the Sale of Other Real Estate – these are recognized when control of the property transfers to the buyer.

Contract Balances

A contract asset balance occurs when an entity performs a service for a customer before the customer pays consideration (resulting in a contract receivable) or before payment is due (resulting in a contract asset). A contract liability balance is an entity’s obligation to transfer a service to a customer for which the entity has already received payment (or payment is due) from the customer. The Company’s noninterest revenue streams are largely based on transactional activity, or standard month-end revenue accruals such as asset management fees based on month-end market values. Consideration is often received immediately or shortly after the Company satisfies its performance obligation and revenue is recognized. The Company does not typically enter into longer-term revenue contracts with customers, and therefore, does not experience significant contract balances.

Contract Acquisition Costs

The Corporation expenses all contract acquisition costs as costs are incurred.

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1Note 15. Commitments and Contingencies

In the normal course of business, the Bank is a party to financial instruments that are not reflected in the accompanying financial statements and are commonly referred to as off-balance-sheet instruments. These financial instruments are entered into primarily to meet the financing needs of the Bank’s customers and include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk not recognized in the consolidated balance sheet.

The Corporation’s exposure to credit loss in the event of nonperformance by other parties to the financial instruments for commitments to extend credit and standby letters of credit is represented by the contract or notional amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as they do for on-balance-sheet instruments.

The Bank had the following outstanding commitments for the periods presented:

	March 31,		December 31,
(Dollars in thousands)	2021		2020
Financial instruments whose contract amounts represent credit risk
Commercial commitments to extend credit	$	280,806	$	280,939
Consumer commitments to extend credit (secured)		74,989		71,761
Consumer commitments to extend credit (unsecured)		5,456		5,224
	$	361,251	$	357,924
Standby letters of credit	$	21,260	$	22,334

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses with the exception of home equity lines and personal lines of credit and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank, is based on Management’s credit evaluation of the counterparty. Collateral for most commercial commitments varies but may include accounts receivable, inventory, property, plant, and equipment, and income-producing commercial properties. Collateral for secured consumer commitments consists of liens on residential real estate.

Standby letters of credit are instruments issued by the Bank, which guarantee the beneficiary payment by the Bank in the event of default by the Bank’s customer in the nonperformance of an obligation or service. Most standby letters of credit are extended for one-year periods. Generally, the credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Bank holds collateral supporting those commitments for which collateral is deemed necessary primarily in the form of certificates of deposit and liens on real estate. Management believes that the proceeds obtained through a liquidation of such collateral would be sufficient to cover the maximum potential amount of future payments required under the corresponding guarantees. In the second quarter of 2018, the Bank established a $2.4 million allowance against letters of credit issued in connection with a commercial borrower that declared bankruptcy. In the first quarter of 2020, the Bank reversed $250 thousand of this reserve as one letter of credit was cancelled. At March 31, 2021 this reserve was $2.1 million. Except for the liability recorded for standby letters of credit, liabilities for credit loss associated with off-balance sheet commitments were not material at March 31, 2021 and December 31, 2020.

Most of the Bank’s business activity is with customers located within its primary market and does not involve any significant concentrations of credit to any one entity or industry.

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Legal Proceedings

The nature of the Corporation’s business generates a certain amount of litigation.

The Corporation establishes accruals for legal proceedings when information related to the loss contingencies represented by those matters indicates both that a loss is probable, and the amount of the loss can be reasonably estimated. When the Corporation is able to do so, it also determines estimates of possible losses, whether in excess of any accrued liability or where there is no accrued liability.

These assessments are based on the analysis of currently available information and are subject to significant judgment and a variety of assumptions and uncertainties. As new information is obtained, the Corporation may change its assessments and, as a result, take or adjust the amounts of its accruals and change its estimates of possible losses or ranges of possible losses. Due to the inherent subjectivity of the assessments and the unpredictability of outcomes of legal proceedings, any amounts that may be accrued or included in estimates of possible losses or ranges of possible losses may not represent the actual loss to the Corporation from any legal proceeding. Its exposure and ultimate losses may be higher, possibly significantly higher, than amounts it may accrue or amounts it may estimate.

In management’s opinion, the Corporation does not anticipate, at the present time, that the ultimate aggregate liability, if any, arising out of all litigation to which the Corporation is a party at this time will have a material adverse effect on its financial position. The Corporation cannot now determine, however, whether or not any claim asserted against it will have a material adverse effect on its results of operations in any future reporting period, which will depend on, among other things, the amount of loss resulting from the claim and the amount of income otherwise reported for the reporting period. Thus, at March 31, 2021, the Corporation is unable to provide an evaluation of the likelihood of an unfavorable outcome or an estimate of the amount or range of potential loss with respect to such other matters and, accordingly, have not yet established any specific accrual for such other matters.

Note 16. Reclassification

Certain prior period amounts may have been reclassified to conform to the current year presentation. Such reclassifications did not affect prior year net income or shareholders’ equity.

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Item 2. Management’s Discussion and Analysis of Results of Operations and Financial Condition

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

For the Three Months Ended March 31, 2021 and 2020

Forward Looking Statements

Certain statements appearing herein which are not historical in nature are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements refer to a future period or periods, reflecting management’s current views as to likely future developments, and use words such as “may,” “will,” “expect,” “believe,” “estimate,” “anticipate,” or similar terms. Because forward-looking statements involve certain risks, uncertainties and other factors over which the Corporation has no direct control, actual results could differ materially from those contemplated in such statements. These factors include (but are not limited to) the following: general economic conditions, particularly with regard to the negative impact of severe, wide-ranging and continuing disruptions caused by, and resulting from, the spread of the coronavirus COVID-19 pandemic and affects thereof, including governmental responses thereto, changes in interest rates, changes in the Corporation’s cost of funds, changes in government monetary policy, changes in government regulation and taxation of financial institutions, changes in the rate of inflation, changes in technology, the intensification of competition within the Corporation’s market area, and other similar factors. We caution readers not to place undue reliance on these forward-looking statements. They only reflect management’s analysis as of this date. The Corporation does not revise or update these forward-looking statements to reflect events or changed circumstances.

Critical Accounting Policies

Management has identified critical accounting policies for the Corporation. These policies are particularly sensitive, requiring significant judgements, estimates and assumptions to be made by Management. There were no changes to the critical accounting policies disclosed in the 2020 Annual Report on Form 10-K in regards to application or related judgments and estimates used. Please refer to Item 7 of the Corporation’s 2020 Annual Report on Form 10-K for a more detailed disclosure of the critical accounting policies.

Results of Operations

Summary

Franklin Financial Services Corporation reported consolidated earnings of $4.8 million ($1.09 per diluted share) for the first quarter of 2021 compared with $1.7 million ($.39 per diluted share) for the same period in 2020, and $4.6 million ($1.04 per diluted share) for the fourth quarter of 2020. 

Net interest income was $10.8 million, inclusive of $765 thousand of interest and fees from Paycheck Protection Program (PPP) loans, for the first quarter of 2021 compared to $10.3 million for the first quarter of 2020. The net interest margin for the first quarter fell from 3.53% in 2020 to 3.03% in 2021. The year-to-date yield on earning assets fell by 0.77% from 4.00% in 2020 to 3.23% in 2021 as all asset classes had lower yields as market rates decreased over the year. The cost of interest-bearing deposits fell from 0.61% in 2020 to 0.18% in 2021 as the Bank reduced deposit rates to offset lower asset yields. The cost of total deposits fell from 0.51% in 2020 to 0.14% in 2021.

Earning assets for the first quarter of 2021 averaged $1.5 billion compared to $1.2 billion for the same period in 2020. The average balance of the investment portfolio increased $212.3 million over the same comparative period, primarily in the municipal bond portfolio. The average balance of the loan portfolio increased from $934.5 million in the first quarter of 2020 to $1.0 billion in 2021. The average balance of the commercial loan portfolio increased $65.3 million over the first quarter of 2020. The increase is primarily due to the addition of PPP loans which totaled $55.9 million at March 31, 2021 and averaged $54.6 million for the quarter. The average balance of deposits for the first quarter of 2021 increased $268.0 million over the same quarter in 2020 with every deposit category increasing except for time deposits.

The provision for loan loss expense for the first quarter of 2021 was ($800 thousand), representing a reversal of previously recorded provision for loan loss expense. This expense reversal compares to a provision for loan loss

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expense of $3.0 million in the first quarter of 2020. The 2020 provision expense was the result of an increase in several qualitative factors in the allowance for loan loss calculation due to the economic effects and impact of the COVID-19 pandemic. As of March 31, several qualitative factors were reduced reflecting a potential lower risk of loss in the loan portfolio, thereby, resulting in a reversal of the provision for loan loss expense. The allowance for loan loss ratio was 1.61% of gross loans as of March 31, 2021, compared to 1.66% at December 31, 2020. Excluding the PPP loans, the allowance for loan loss ratio was 1.71% at the end of the first quarter of 2021.
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Noninterest income totaled $4.2 million for the first quarter of 2021, an increase of $338 thousand over the comparable quarter of 2020. The largest increases comparable quarter-over-quarter were increases in Investment and Trust Service fees ($191 thousand), gain on the sale of mortgages ($638 thousand) and the fair value of equity securities ($181 thousand). These increases were partially offset by a decrease of $812 thousand from a gain on a bank owned life insurance policy recorded in 2020.

Noninterest expense for the first quarter of 2021 was $10.2 million compared to $9.5 million in 2020. Salaries and benefits, and data processing expense each increased $123 thousand quarter-over-quarter, while FDIC insurance increased $142 thousand.

The effective tax rate for the first quarter of 2021 was 15.4% compared to -6.6% for the first quarter of 2020. The increase in the effective tax rate was due primarily to higher pre-tax income drive by the large change in the provision for loan loss expense quarter over quarter. The benefit of tax-exempt income increased only slightly quarter over quarter.

Total assets at March 31, 2021 were $1.598 billion compared $1.535 billion at December 31, 2020. Significant balance sheet changes since December 31, 2020 include:

Short-term interest-bearing deposits in other banks increased $50.4 million and the investment portfolio increased $25.2 million.
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The net loan portfolio decreased $8.1 million during 2021 over the year-end 2020 balance. The reduction occurred primarily in the commercial loan portfolio, with a decrease in commercial real estate loans partially offset by an increase in PPP loans. The Bank held $55.9 million in PPP loans at March 31, 2021 with $1.7 million of net deferred PPP fees remaining to be recognized. The Bank is recognizing the PPP fees over the contractual life of the PPP loans (two years or five years). As PPP loans are granted forgiveness by the SBA, fee recognition will accelerate.

At March 31, 2020, the Bank had $68.1 million of modified loans compared to $67.6 million at year-end 2020 and $196.5 million at June 30, 2020. The current balance is comprised primarily of 20 unrelated loans to hotels for $46.5 million, three unrelated loans in the entertainment sector for $14.1 million and one loan for $4.7 million in rental real estate. The majority of these loans are making some form of payment and will come out of the modified terms during the second quarter of 2021.
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Deposits increased $66.5 million (4.9%) over year-end 2020, with all deposit products showing an increase except time deposits. Based on current information known to Management, the increases seem to stem from government stimulus payments to consumers, businesses and municipalities, lower spending as economic activity slowed during the pandemic and a sense of security offered by bank deposits in uncertain economic times.
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Shareholders’ equity decreased $4.5 million from the end of 2020, due primarily to a decrease of $8.4 million in accumulated other comprehensive income (AOCI) as the value of the investment portfolio declined during the quarter. Retained earnings increased $3.5 million from year-end 2020. At March 31, 2021, the book value of the Corporation’s common stock was $31.92 per share and the tangible book value was $29.87 per share. In December 2020, an open market repurchase plan was approved to repurchase 150,000 shares over a one-year period and no shares have been repurchased under the plan as of March 31, 2021. 

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Key performance ratios as of, or for the three months ended March 31, 2021 and 2020 and the year ended December 31, 2020 are listed below:

	March 31,		December 31,		March 31,
(Dollars in thousands, except per share)	2021		2020		2020
Balance Sheet Highlights
Total assets	$	1,597,559	$	1,535,038	$	1,262,126
Investment and equity securities		422,622		397,331		208,353
Loans, net		984,797		992,915		921,656
Deposits		1,421,042		1,354,573		1,117,433
Shareholders' equity		140,699		145,176		129,005
Summary of Operations
Interest income	$	11,592	$	45,939	$	11,665
Interest expense		748		3,978		1,413
Net interest income		10,844		41,961		10,252
(Recovery of) provision for loan losses		(800)		4,625		3,000
Net interest income after provision for loan losses		11,644		37,336		7,252
Noninterest income		4,227		15,084		3,889
Noninterest expense		10,165		39,362		9,528
Income before income taxes		5,706		13,058		1,613
Federal income tax expense (benefit)		876		258		(106)
Net income	$	4,830	$	12,800	$	1,719
Performance Measurements
Return on average assets*		1.23%		0.91%		0.54%
Return on average equity*		13.47%		9.56%		5.31%
Return on average tangible equity (1)*		14.37%		10.24%		5.70%
Efficiency ratio (1)		66.06%		67.32%		65.36%
Net interest margin*		3.03%		3.21%		3.53%
Shareholders' Value (per common share)
Diluted earnings per share	$	1.09	$	2.93	$	0.39
Basic earnings per share		1.10		2.94		0.40
Regular cash dividends declared		0.30		1.20		0.30
Book value		31.92		33.07		29.74
Tangible book value (1)		29.87		31.02		27.66
Market value		31.18		27.03		27.45
Market value/book value ratio		97.68%		81.74%		92.30%
Market value/tangible book value ratio		104.37%		87.13%		99.24%
Price/earnings multiple*		7.15		9.23		17.60
Current quarter dividend yield*		3.85%		4.44%		4.37%
Dividend payout ratio year-to-date		27.29%		40.83%		75.97%
Safety and Soundness
Average equity/average assets		9.16%		9.48%		10.24%
Risk-based capital ratio (Total)		18.18%		17.69%		15.99%
Leverage ratio (Tier 1)		8.76%		8.69%		9.85%
Common equity ratio (Tier 1)		14.80%		14.32%		14.73%
Nonperforming loans/gross loans		0.88%		0.87%		0.40%
Nonperforming assets/total assets		0.55%		0.57%		0.29%
Allowance for loan losses as a % of loans		1.61%		1.66%		1.57%
Net loans (recovered) charged-off/average loans*		-0.06%		-0.02%		0.10%
Assets under Management
Trust assets under management (fair value)	$	860,794	$	836,381	$	674,189
Held at third-party brokers (fair value)		118,180		112,624		109,145

*Year-to-date annualized

(1)   See the section titled “GAAP versus Non-GAAP Presentation” that follows.

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GAAP versus non-GAAP Presentations – The Corporation supplements its traditional GAAP measurements with certain non-GAAP measurements to evaluate its performance and to eliminate the effect of intangible assets.  By eliminating intangible assets (Goodwill), the Corporation believes it presents a measurement that is comparable to companies that have no intangible assets or to companies that have eliminated intangible assets in similar calculations. However, not all companies may use the same calculation method for each measurement. The non-GAAP measurements are not intended to be used as a substitute for the related GAAP measurements. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, our reported results prepared in accordance with GAAP. In the event of such a disclosure or release, the Securities and Exchange Commission’s Regulation G requires: (i) the presentation of the most directly comparable financial measure calculated and presented in accordance with GAAP and (ii) a reconciliation of the differences between the non-GAAP financial measure presented and the most directly comparable financial measure calculated and presented in accordance with GAAP. The following table shows the calculation of the non-GAAP measurements.

(Dollars in thousands, except per share)	Three Months Ended		Twelve Months Ended		Three Months Ended
	March 31, 2021		December 31, 2020		March 31, 2020
Return on Tangible Equity (non-GAAP)
Net income	$	4,830	$	12,800	$	1,719
Average shareholders' equity		143,439		133,958		129,613
Less average intangible assets		(9,016)		(9,016)		(9,016)
Average tangible equity (non-GAAP)		134,423		124,942		120,597
Return on average tangible equity (non-GAAP)*		14.37%		10.24%		5.70%
Tangible Book Value (per share) (non-GAAP)
Shareholders' equity	$	140,699	$	145,176	$	129,005
Less intangible assets		(9,016)		(9,016)		(9,016)
Tangible book value (non-GAAP)		131,683		136,160		119,989
Shares outstanding (in thousands)		4,408		4,389		4,338
Tangible book value per share (non-GAAP)		29.87		31.02		27.66
Efficiency Ratio
Noninterest expense	$	10,165	$	39,362	$	9,528
Net interest income		10,844		41,961		10,252
Plus tax equivalent adjustment to net interest income		370		1,407		300
Plus noninterest income, net of securities transactions		4,173		15,104		4,026
Total revenue		15,387		58,472		14,578
Efficiency ratio (Noninterest expense/total revenue)		66.06%		67.32%		65.36%
* Year-to-date annualized

Net Interest Income

The largest source of the Corporation’s earnings is net interest income, which is defined as the difference between income on interest-earning assets and the expense of interest-bearing liabilities supporting those assets. Principal categories of interest-earning assets are loans and securities, while deposits, short-term borrowings and long-term debt are the principal categories of interest-bearing liabilities. Demand deposits enhance net interest income because they are noninterest-bearing deposits. For the purpose of this discussion, balance sheet items refer to the average balance for the year and net interest income is adjusted to a fully taxable-equivalent basis. This tax-equivalent adjustment facilitates performance comparisons between taxable and tax-free assets by increasing the tax-free income by an amount equivalent to the Federal income taxes that would have been paid if this income were taxable at the Corporation’s 21% Federal statutory rate.

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Comparison of the three months ended March 31, 2021 to the three months ended March 31, 2020:

Tax equivalent net interest income increased $662 thousand to $11.2 million in the first quarter of 2021 compared to $10.6 million for the same period in 2020. Balance sheet volume contributed $1.7 million to tax equivalent net interest but was offset by a $1.0 million reduction due to rates.

The following table presents average balances, tax-equivalent (T/E) interest income, and yields earned or rates paid on the assets or liabilities. Nonaccrual loans are included in the average loan balance used to calculate the yield. All nontaxable interest income has been adjusted to a tax-equivalent basis using a tax rate of 21%.

	For the Three Months Ended March 31,
	2021					2020
	Average		Income or		Average	Average		Income or		Average
(Dollars in thousands)	balance		expense		yield/rate	balance		expense		yield/rate
Interest-earning assets:
Interest-bearing obligations in other banks	$	78,930	$	53	0.27%	$	68,975	$	258	1.50%
Investment securities:
Taxable		315,673		1,626	2.09%		172,319		1,068	2.49%
Tax Exempt		92,773		668	2.88%		23,861		216	3.62%
Investments		408,446		2,294	2.28%		196,180		1,284	2.63%
Loans:
Commercial, industrial and agricultural		858,360		8,372	3.90%		793,085		8,890	4.45%
Residential mortgage		67,886		603	3.58%		68,346		728	4.27%
Home equity loans and lines		81,920		525	2.60%		67,179		680	4.07%
Consumer		6,714		115	6.95%		5,929		125	8.48%
Loans		1,014,880		9,615	3.80%		934,539		10,423	4.43%
Total interest-earning assets		1,502,256	$	11,962	3.23%		1,199,694	$	11,965	4.00%
Other assets		62,905					65,814
Total assets	$	1,565,161				$	1,265,508
Interest-bearing liabilities:
Deposits:
Interest-bearing checking	$	426,410	$	113	0.11%	$	325,300	$	274	0.34%
Money Management		513,083		199	0.16%		432,270		740	0.69%
Savings		106,046		15	0.06%		84,059		58	0.28%
Time		74,146		158	0.86%		87,774		341	1.56%
Total interest-bearing deposits		1,119,685		485	0.18%		929,403		1,413	0.61%
Subordinated Notes		19,558		263	5.37%		—		—	—
Total interest-bearing liabilities		1,139,243		748	0.27%		929,403		1,413	0.61%
Noninterest-bearing deposits		266,491					188,735
Other liabilities		15,988					17,757
Shareholders' equity		143,439					129,613
Total liabilities and shareholders' equity	$	1,565,161				$	1,265,508
T/E net interest income/Net interest margin				11,214	3.03%				10,552	3.53%
Tax equivalent adjustment				(370)					(300)
Net interest income			$	10,844				$	10,252
Net Interest Spread					2.96%					3.39%
Cost of Funds					0.22%					0.51%
Cost of Deposits					0.14%					0.51%

Provision for Loan Losses

The Bank recorded a reversal of $800 thousand in the provision for loan loss for the first quarter, compared to an expense of $3.0 million in the first quarter of 2020. For more information refer to the Loan Quality and Allowance for Loan Losses discussion in the Financial Condition section.

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Noninterest Income

For the first quarter of 2021, noninterest income increased $338 thousand from the same period in 2020. Gain on sale of loans increased as mortgage production was higher in 2021 compared to 2020. Deposit fees and service charges decreased primarily in lower overdraft protection fees. Other income was higher in 2020 due to improvement in the market value of a swap.

The following table presents a comparison of noninterest income for the three months ended March 31, 2021 and 2020:

	For the Three Months Ended
	March 31,				Change
(Dollars in thousands)	2021		2020		Amount		%
Noninterest Income
Investment and trust services fees	$	1,636	$	1,445	$	191	13.2
Loan service charges		196		141		55	39.0
Gain on sale of loans		782		144		638	443.1
Deposit service charges and fees		468		565		(97)	(17.2)
Other service charges and fees		396		347		49	14.1
Debit card income		517		418		99	23.7
Increase in cash surrender value of life insurance		115		124		(9)	(7.3)
Bank owned life insurance gain		—		812		(812)	(100.0)
Net losses on sales of debt securities		—		(10)		10	100.0
Change in fair value of equity securities		54		(127)		181	142.5
Other		63		30		33	110.0
Total noninterest income	$	4,227	$	3,889	$	338	8.7

Noninterest Expense

Noninterest expense for the first quarter of 2021 increased $637 thousand compared to the same period in 2020. Due to the continuation of lockdowns from the pandemic, many expense items were held in check, such as business travel, education and community activities. Salary expense increased primarily due to higher mortgage commissions from increased mortgage production and health insurance costs. Data processing increased due to higher usage of mobile banking. FDIC insurance expense increased primarily due to growth of the Bank’s balance sheet. Nonservice pension increased due to pension settlement expenses.

The following table presents a comparison of noninterest expense for the three months ended March 31, 2021 and 2020:

	For the Three Months Ended
(Dollars in thousands)	March 31,				Change
Noninterest Expense	2021		2020		Amount		%
Salaries and benefits	$	5,658	$	5,535	$	123	2.2
Net occupancy		910		830		80	9.6
Marketing and advertising		345		455		(110)	(24.2)
Legal and professional		475		395		80	20.3
Data processing		929		806		123	15.3
Pennsylvania bank shares tax		92		175		(83)	(47.4)
FDIC insurance		202		60		142	(236.7)
ATM/debit card processing		296		264		32	12.1
Telecommunications		129		105		24	22.9
Nonservice pension		205		88		117	133.0
Other		924		815		109	13.4
Total noninterest expense	$	10,165	$	9,528	$	637	6.7

Provision for Income Taxes

For the first quarter of 2021, the Corporation recorded a Federal income tax expense of $876 thousand compared to a tax benefit of $106 thousand for the same quarter in 2020. The effective tax rate for the first quarter of 2021 was 15.4% compared to -6.6% for the first quarter of 2020. The increase in the effective tax rate was due primarily to higher pre-tax income driven by the large change in the provision for loan loss expense quarter-over-quarter. The benefit of tax-exempt income increased only slightly quarter-over-quarter. The federal statutory tax rate is 21% for 2021 and 2020.

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Financial Condition

Cash and Cash Equivalents:

Cash and cash equivalents totaled $107.6 million at March 31, 2021, an increase of $50.5 million from the prior year-end balance of $57.1 million. Interest-bearing deposits are held primarily at the Federal Reserve ($90.2 million).

Investment Securities:

AFS Securities: The AFS securities portfolio has increased $35.8 million on a cost basis since year-end 2020. The portfolio is comprised primarily municipal securities and U.S. Agency mortgage-backed securities at approximately 56% and 20% of the portfolio fair value, respectively. The average life of the portfolio was 7.18 years.

The AFS securities portfolio had a net unrealized gain of $2.0 million at March 31, 2021 compared to a net unrealized gain of $12.6 million at the prior year-end. The portfolio averaged $408.4 million with a yield of 2.28% for the first three months of 2021. This compares to an average of $196.2 million and a yield of 2.63% for the same period in 2020.

The municipal bond portfolio is well diversified geographically (228 issuers) and is comprised primarily of general obligation bonds (64%). Many municipal bonds have credit enhancements in the form of private bond insurance or other credit support. The largest geographic municipal bond exposure is in the states of Texas (16%), California (12%), Michigan (10%), and Pennsylvania (10%). The average rating of the municipal portfolio from Moody’s is AA. No municipal bonds are rated below investment grade.

Temporary impairment in the investment portfolio, measured by gross unrealized losses, was $5.6 million, compared to $701 thousand at December 31, 2020. The municipal bond portfolio had the largest unrealized loss of $4.1 million, 74.4% of the total unrealized loss ($5.6 million). There are one hundred and seven securities in this portfolio with an unrealized loss and the loss in this portfolio is deemed to be non-credit related and no other-than-temporary impairment charges have been recorded.

The corporate portfolio is comprised of 5 variable rate bank issued trust preferred securities with a fair value of $4.1 million and 39 fixed rate bank issued subordinated notes with a fair value of $18.1 million. This portfolio has an unrealized loss of $264 thousand on twenty-two securities with a fair value of $12.5 million. The trust-preferred securities held by the Bank are single entity issues, not pooled trust preferred securities. None of these issuers have suspended or missed a dividend or interest payment. At March 31, 2021, the Bank believes it will be able to collect all interest and principal due on these bonds and no other-than-temporary-impairment charges were recorded.

The unrealized loss in the asset-backed securities portfolio decreased $56 thousand from December 31, 2020. FFELP (Federal Family Education Loan Program) bonds make up the majority of this sector and have a 97% guarantee from the U.S. Department of Education. The FFELP bonds are all rated AAA. Management fully expects to be paid back at par and no other-than-temporary impairment charges have been recorded.

Restricted Stock at Cost: The Bank held $468 thousand of restricted stock at March 31, 2021. Except for $30 thousand, this investment represents stock in FHLB Pittsburgh. The Bank is required to hold this stock to be a member of FHLB and it is carried at cost of $100 per share. The level of FHLB stock held is determined by FHLB and is comprised of a minimum membership amount plus a variable activity amount. FHLB stock is evaluated for impairment primarily based on an assessment of the ultimate recoverability of its cost. As a government sponsored entity, FHLB has the ability to raise funding through the U.S. Treasury that can be used to support its operations. There is not a public market for FHLB stock and the benefits of FHLB membership (e.g., liquidity and low-cost funding) add value to the stock beyond purely financial measures. Management intends to remain a member of the FHLB and believes that it will be able to fully recover the cost basis of this investment.

See Note 4 of the accompanying financial statements for additional information on Investment Securities.

Loans:

Residential real estate: This category is comprised of consumer purpose loans secured by residential real estate and to a lesser extent, commercial purpose loans secured by residential real estate. The consumer purpose category represents traditional residential mortgage loans and home equity products (primarily junior liens and lines of credit). Commercial purpose loans in this category represent loans made for various business needs but are secured with residential real estate. In addition to the real estate collateral, it is possible that additional security is provided by personal guarantees or UCC filings. These loans are underwritten as commercial loans and are not originated to be sold.

Total residential real estate loans decreased $4.6 million over year-end 2020, as paydowns exceeded originations in the Bank’s mortgage portfolio. For the first three months of 2021, the Bank originated $29.0 million and sold $34.5 million in mortgages through third party brokerage agreements. The Bank does not originate or hold any loans that would be considered sub-prime or Alt-A and does not generally originate mortgages outside of its primary market area.

Residential real estate construction: This category contains loans for the vertical construction of 1-4 family residential properties. The largest component of this category represents loans to residential real estate developers ($10.8 million),

33

while loans for individuals to construct personal residences totaled $7.8 million at March 31, 2021. The Bank’s exposure to residential construction loans is concentrated primarily in south central Pennsylvania. Real estate construction loans, including residential real estate and land development loans, occasionally provide an interest reserve in order to assist the developer during the development stage when minimal cash flow is generated. All real estate construction loans are underwritten in the same manner, regardless of the use of an interest reserve.

Commercial real estate (CRE): This category includes commercial, industrial, farm and agricultural loans and land development loans, where real estate serves as the primary collateral for the loans. Total commercial real estate loans decreased to $493.5 million from $504.0 million at the end of 2020, as originations did not keep pace with pay-downs. The largest sectors (by collateral) in the commercial real estate category are: hotels and motels ($71.9 million), office building ($51.9 million), land development ($51.8 million), manufacturing facility ($37.7 million) and shopping centers ($34.9 million). The majority of the Bank’s hotel exposure is located along the Interstate 81 (I-81) corridor through south-central Pennsylvania. The portfolio is comprised of properties operating under 17 flagged brands and 3 independent operators.

Also included in CRE are real estate construction loans totaling $81.7 million. At March 31, 2021, the Bank had $31.1 million in real estate construction loans funded with an interest reserve and capitalized $140 thousand of interest in 2021 from these reserves on active projects for commercial construction. Real estate construction loans are monitored on a regular basis by either an independent third-party inspector or the assigned loan officer depending on loan amount or complexity of the project. This monitoring process includes at a minimum, the submission of invoices and American Institute of Architects (AIA) documents (depending on the complexity of the project) detailing costs incurred by the borrower, on-site inspections, and a signature by the assigned loan officer for disbursement of funds.

Commercial: This category includes commercial, industrial, farm, agricultural, and municipal loans. Commercial loans increased $2.4 million to $283.7 million at March 31, 2021, compared to $281.3 million at the end of 2020, primarily due to PPP originations. At March 31, 2021, the Bank had approximately $145 million in tax-free loans in the commercial portfolio. The largest sectors (by industry) in the commercial category are: public administration ($62.5 million), utilities ($55.0 million), educational services ($18.4 million), real estate rental and leasing ($17.5 million) and manufacturing ($10.3 million). This category also includes $55.9 million of PPP loans that are 100% guaranteed by the SBA.

Participations: The Bank may supplement its own commercial loan production by purchasing loan participations. These participations are primarily located in south-central Pennsylvania. At March 31, 2021, the outstanding commercial participations accounted for 7.1%, or $70.9 million, of total gross loans compared to 6.8% and $68.7 million at December 31, 2020. The Bank’s total exposure (including outstanding balances and unfunded commitments) to purchased participations is $83.1 million, compared to $84.0 million at December 31, 2020. The commercial loan participations are comprised of $17.1 million of Commercial loans and $53.8 million of CRE loans, reported in the respective loan class.

Consumer loans: This category increased by $1.5 million to $7.1 million at March 31, 2021, compared to $5.6 million at prior year-end and is mainly comprised of unsecured personal lines of credit.

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The following table presents a summary of loans outstanding, by class as of:

	March 31,		December 31,			Change
(Dollars in thousands)	2021		2020			Amount	%
Residential Real Estate 1-4 Family
Consumer first liens	$	73,991	$	77,373	$	(3,382)	(4.4)
Commercial first lien		58,018		59,851		(1,833)	(3.1)
Total first liens		132,009		137,224		(5,215)	(3.8)
Consumer junior liens and lines of credit		61,707		60,935		772	1.3
Commercial junior liens and lines of credit		4,244		4,425		(181)	(4.1)
Total junior liens and lines of credit		65,951		65,360		591	0.9
Total residential real estate 1-4 family		197,960		202,584		(4,624)	(2.3)
Residential real estate - construction
Consumer		7,804		6,751		1,053	15.6
Commercial		10,814		9,558		1,256	13.1
Total residential real estate construction		18,618		16,309		2,309	14.2
Commercial real estate		493,544		503,977		(10,433)	(2.1)
Commercial		283,705		281,257		2,448	0.9
Total commercial		777,249		785,234		(7,985)	(1.0)
Consumer		7,106		5,577		1,529	27.4
		1,000,933		1,009,704		(8,771)	(0.9)
Less: Allowance for loan losses		(16,136)		(16,789)		653	(3.9)
Net Loans	$	984,797	$	992,915	$	(8,118)	(0.8)

Paycheck Protection Program (PPP) loans (included in Commercial loans above)
Two-year loans	$	3,455	$	5,378
Five-year loans		52,418		46,912
Total Paycheck Protection Program loans	$	55,873	$	52,290	$	3,583	6.9

Loan Quality:

Management utilizes a risk rating scale ranging from 1-Prime to 9-Loss to evaluate loan quality. This risk rating scale is used primarily for commercial purpose loans. Consumer purpose loans are identified as either a pass or substandard rating based on the performance status of the loans. Substandard consumer loans are loans that are 90 days or more past due and still accruing. Loans rated 1 – 4 are considered pass credits. Loans rated 5 are pass credits but have been identified as credits that are likely to warrant additional attention and monitoring. Loans rated 6-Other Asset Especially Mentioned (OAEM) or worse begin to receive enhanced monitoring and reporting by the Bank. Loans rated 7-Substandard or 8-Doubtful exhibit the greatest financial weakness and present the greatest possible risk of loss to the Bank. Nonaccrual loans are rated no better than 7-Substandard. The following factors represent some of the factors used in determining the risk rating of a borrower: cash flow, debt coverage, liquidity, management, and collateral. Risk ratings, for pass credits, are generally reviewed annually for term debt and at renewal for revolving or renewing debt. The Bank monitors loan quality by reviewing three primary measurements: (1) loans rated 6-OAEM or worse (collectively “watch list”), (2) delinquent loans, and (3) net-charge-offs.

Watch list loans exhibit financial weaknesses that increase the potential risk of default or loss to the Bank. However, inclusion on the watch list, does not by itself, mean a loss is certain. The watch list totaled $65.8 million at quarter end compared to $66.1 million at December 31, 2020. The composition of the loans in the watch list as of March 31, 2021 is essentially unchanged from the prior year-end. The watch list includes both performing and nonperforming loans. Included in the watchlist total are $8.8 million of nonaccrual loans. The credit composition of the watch list (loans rated 6, 7, or 8), by primary collateral is shown in Note 6 of the accompanying financial statements.

Delinquent loans are a result of borrowers’ cash flow and/or alternative sources of cash being insufficient to repay loans. The Bank’s likelihood of collateral liquidation to repay the loans becomes more probable the further behind a borrower falls, particularly when loans reach 90 days or more past due. Management monitors the performance status of loans by the use of an aging report. The aging report can provide an early indicator of loans that may become severely

35

delinquent and possibly result in a loss to the Bank. See Note 6 in the accompanying financial statements for a table that presents the aging of payments in the loan portfolio.

Nonaccruing loans generally represent Management’s determination that the borrower will be unable to repay the loan in accordance with its contractual terms and that collateral liquidation may or may not fully repay both interest and principal. It is the Bank’s policy to evaluate the probable collectability of principal and interest due under terms of loan contracts for all loans 90-days or more past due, nonaccrual loans, or impaired loans. Further, it is the Bank’s policy to discontinue accruing interest on loans that are not adequately secured and in the process of collection. Upon determination of nonaccrual status, the Bank subtracts any current year accrued and unpaid interest from its income, and any prior year accrued and unpaid interest from the allowance for loan losses. Management continually monitors the status of nonperforming loans, the value of any collateral and potential of risk of loss. Nonaccrual loans are rated no better than 7-Substandard.

The Bank’s Loan Management Committee reviews these loans and risk ratings on a quarterly basis in order to proactively identify and manage problem loans. In addition, a committee meets monthly to discuss possible workout strategies for all credits rated 7-Substandard or worse. Management also tracks other commercial loan risk measurements including high loan to value loans, concentrations, participations and policy exceptions and reports these to the Board Enterprise Risk Management Committee of the Board of Directors. The Bank also uses an external loan review consultant to assist with internal loan review with a goal of reviewing 80% of commercial loans each year. The FDIC defines certain supervisory loan-to-value lending limits. The Bank’s internal loan–to-value limits are all equal to or have a lower loan-to-value limit than the supervisory limits. However, in certain instances, the Bank may make a loan that exceeds the supervisory loan-to-value limit. At March 31, 2021, the Bank had loans of $21.8 million (2.2% of gross loans) that exceeded the supervisory limit, compared to 2.3% at year-end 2020. Potential problem loans, defined as watch list loans less loans on nonaccrual or past due more than 90 days totaled $57.0 million at quarter end compared to $53.2 million at December 31, 2020.

Loan quality, as measured by nonperforming loans is nearly unchanged during the first quarter of 2021 with $8.8 million of nonperforming loans and a nonperforming loan ratio of .88%

The following table presents a summary of nonperforming assets as of:

	March 31,		December 31,
(Dollars in thousands)	2021		2020
Nonaccrual loans
Residential Real Estate 1-4 Family
First liens	$	41	$	41
Junior liens and lines of credit		9		10
Total		50		51
Residential real estate - construction		511		512
Commercial real estate		8,167		8,033
Commercial		107		108
Total nonaccrual loans		8,835		8,704
Loans past due 90 days or more and still accruing
Residential Real Estate 1-4 Family
First liens		—		26
Junior liens and lines of credit		—		—
Total		—		26
Commercial real estate		—		—
Consumer		1		12
Total loans past due 90 days or more and still accruing		1		38
Total nonperforming loans		8,836		8,742
Other real estate owned		—		—
Total nonperforming assets	$	8,836	$	8,742
Nonperforming loans to total gross loans		0.88%		0.87%
Nonperforming assets to total assets		0.55%		0.57%
Allowance for loan losses to nonperforming loans		182.62%		192.05%

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The following table identifies the most significant loans in nonaccrual status. These two nonaccrual loans account for 79% of the total nonaccrual balance.

(Dollars in thousands)
				ALL	Nonaccrual	TDR			Collateral
		Balance		Reserve	Date	Status	Collateral	Location	Value (1)
Credit 1	$	1,245	$	—	Mar-12	Y	1st and 2nd liens on commercial real estate, residential real estate and business assets	PA	$	2,820
Credit 2		5,741		228	Sep-20	N	1st and 2nd liens on commercial real estate (hotel) and all related business assets	PA	$	5,474
	$	6,986	$	228
(1) Includes any estimated discount on appraised value and cost to sell.

In addition to monitoring nonaccrual loans, the Bank also closely monitors impaired loans and troubled debt restructurings (TDR). A loan is considered to be impaired when, based on current information and events, it is probable that the Bank will be unable to collect all interest and principal payments due according to the originally contracted terms of the loan agreement. Nonaccrual loans (excluding consumer purpose loans) and TDR loans are considered impaired.

A loan is considered a troubled debt restructuring if the creditor (the Bank), for economic or legal reasons related to the debtor’s financial difficulties, grants a concession to the debtor that it would not otherwise consider. These concessions may include lowering the rate, extending the maturity, re-amortization of the payment, or a combination of multiple concessions. The Bank reviews all loans rated 6-OAEM or worse when it is providing a loan restructure, modification or new credit facility to determine if the action is a TDR. If a TDR loan is placed on nonaccrual status, it remains on nonaccrual status for at least six months to ensure performance.

Loans that have been modified on a good-faith basis in response to COVID-19 to borrowers who were classified as current prior to any relief are not TDRs as outlined in the March 22, 2020 Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus or Section 4013 of the CARES Act. Loans may be modified under Section 4013 until the earlier of January 1, 2022 or the 60^th day after the end of the COVID-19 national emergency declared by the President. Consequently, loan delinquencies and nonaccrual loans could continue to increase during the remainder of 2021 if modified loans are not able to return to a performing status.

In accordance with financial accounting standards, TDR loans are always considered impaired until they are paid off or in certain circumstances, refinanced. However, an impaired TDR loan can be a performing loan. Impaired loans totaled $17.1 million compared to $17.3 million at year-end 2020.

Loan Deferrals. As the economy quickly contracted in 2020 as the result of the pandemic, the Bank began to receive requests for payment modifications. Unlike past economic downturns, bank regulators provided favorable guidance for banks allowing them wide latitude to make modifications. Under guidance provided by the CARES Act and a joint regulatory agency statement issued by banking agencies, banks could, under certain circumstances, avoid reporting loan modifications as delinquent, nonperforming or as a trouble debt restructuring. As of March 31, 2021, the Bank has granted approximately $68 million in loan deferrals or modifications (approximately 7% of gross loans), unchanged from year-end 2020, but down significantly from 19% of gross loans at June 30, 2020. These modifications include the deferral of principal and interest payments, deferral of interest payments for interest only lines of credit or providing for an interest only payment. Any interest that is deferred is due and payable at the end of the deferral period. Principal that is deferred will be added to the end of the loan as an extension of the maturity date or as a balloon payment, depending on the loan structure. The Bank will continue to accrue interest during the deferral period. The majority of deferrals were for an initial period of 3 months with the potential for additional deferrals after review. If a borrower requested an additional deferral, the Bank required a review of updated financial reports and forecast prior to granting it.

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The following tables show loan deferrals made as of March 31, 2021 by North American Industry Classification System (NAICS) code and type of collateral.

					Percent of	Collateral
(Dollars in thousands)	Number of			Percent of	Risk-based	Real Estate		Non-Real Estate
Industry Description	Loans		Balance	Gross Loans	Capital (1)	secured		secured
Hotels	19	$	45,597	5%	34%	$	45,591	$	6
Arts, Entertainment, and Recreation	2		13,613	1%	10%		13,613		—
Real Estate, Rental & Leasing	2		7,122	< 1%	5%		7,122		—
Food Service	1		871	< 1%	1%		871		—
Other Services (except Public Administration)	2		926	< 1%	< 1%		926		—
Total	26	$	68,129	7%	50%	$	68,123	$	6
(1) Based on Bank's Risk-based Capital

The following tables show the type of modifications by industry as of March 31, 2021, and the same sectors one quarter earlier at December 31, 2020.

March 31, 2021	Type of Modification
(Dollars in thousands)	Principal Deferred		Interest Only Loans		Principal & Interest
Industry Description	Interest Only Payments		Payments Deferred		Payments Deferred			Total
Hotels	$	39,417	$	—	$	6,180	$	45,597
Arts, Entertainment & Recreation		13,613		—		—		13,613
Real Estate, Rental & Leasing		2,403		4,719		—		7,122
Food Service		—		871		—		871
Other Services		—		—		926		926
Total	$	55,433	$	5,590	$	7,106	$	68,129
December 31, 2020	Type of Modification
(Dollars in thousands)	Principal Deferred		Interest Only Loans		Principal & Interest
Industry Description	Interest Only Payments		Payments Deferred		Payments Deferred			Total
Hotels	$	40,304	$	—	$	6,183	$	46,487
Arts, Entertainment & Recreation		13,613		—		462		14,075
Real Estate, Rental & Leasing		—		4,718		—		4,718
Food Service		—		882		724		1,606
Other Services		—		—		671		671
Total	$	53,917	$	5,600	$	8,040	$	67,557

The performance of these loans as they come out of the deferral period will be critical in predicting the credit quality of the loans in the future.

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Industry Exposure. The Bank believes its greatest risk exposure to modified loans is in the hotel sector. The following table presents additional information on the modified hotel loans.

March 31, 2021
(Dollars in thousands, except average daily rate)
Modified Balance	$	45,597
Loans with principal payment deferred, paying interest	$	39,417
Loans with deferred principal and interest	$	6,180
Expected modification expiration
1-3 months	$	38,755
4-6 months	$	6,842
Number of Loans Modified		19
Average Balance	$	2,400
Average Loan-to-Value		59%
Risk Rated: 5 - Pass	$	1,623
Risk Rated: 6 - Other Asset Especially Mentioned	$	30,191
Risk Rated: 7 - Substandard	$	13,783
March 2021 Daily Occupancy*		45%
March 2020 Daily Occupancy*		35%
March 2021 Average Daily Rate*	$	66
March 2020 Average Daily Rate*	$	67
Hotel Flags		12

*Daily occupancy and average daily rate represent data reported for the primary markets in which the hotels operate and may or may not represent the experience of any specific property in the portfolio.

Paycheck Protection Program. In March 2020, Congress passed the CARES Act to provide economic relief to small business and consumers affect by the COVID-19 pandemic. Included in this Act was the Paycheck Protection Program (PPP) administered by the Small Business Administration (SBA). The PPP is a small business loan program designed to assist in allowing small businesses to keep workers on the payroll during the COVID-19 pandemic. When workers are kept on the payroll for the qualifying period, the loan could be forgiven if the small business incurs eligible expenses. The PPP loans are 100 percent guaranteed by the SBA and have a maturity of two-years or five-years with a fixed interest rate of 1% for the life of the loan. Borrowers of PPP loans do not have to make payments on the loan for the first six months, and the loans will fully amortize for the remainder of the two- or five-year terms.

In December 2020, Congress passed a second stimulus package that provided for a second round of funding for small business, that meet certain eligibility requirements, through the PPP. PPP loans under the second round of funding are for a 5-year term with a fixed interest rate of 1% and initial principal payments deferred for up to 10 months under certain circumstances.

The SBA paid originating banks a processing fee ranging from 1% to 5% of the loan, depending on the loan balance for round 1 of PPP funding. The SBA will pay processing fees to originating banks for round 2 of PPP funding at levels similar to those paid in round 1. The Bank will recognize these fees in interest income over the contractual life (two or five years) of the loan. As PPP loans are granted forgiveness by the SBA, fee recognition will accelerate. At March 31, 2021, the Bank had $1.9 million of PPP fees remaining to be recognized.

At March 31, 2021 the Bank held $55.9 million in PPP loans, $52.4 million with a 5-year maturity $3.5 million with a 2-year maturity. The Bank began accepting round 2 PPP applications in January 2021.

The PPP loans are 100% guaranteed by the SBA, thereby presenting no credit risk to the Bank once the SBA guarantee is fulfilled, if necessary. However, the PPP loan is only designed to cover short-term operating needs of the borrower. If the economy does not recover quickly from the pandemic and the borrower experiences long-term operational problems beyond the PPP funding, the performance of other loans to these customers could begin to deteriorate.

Allowance for Loan Losses:

Management monitors loan performance on a monthly basis and performs a quarterly evaluation of the adequacy of the allowance for loan losses. The ALL is determined by segmenting the loan portfolio based on the loan’s collateral. When calculating the ALL, consideration is given to a variety of factors in establishing this estimate including, but not limited to, current economic conditions, diversification of the loan portfolio, delinquency statistics, results of internal loan reviews, historical charge-offs, the adequacy of the underlying collateral (if collateral dependent) and other relevant factors. The Bank begins enhanced monitoring of all loans rated 6-OAEM, or worse, and obtains a new appraisal or asset

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valuation for any placed on nonaccrual and rated 7-Substandard or worse. Management, at its discretion, may determine that additional adjustments to the appraisal or valuation are required. Valuation adjustments will be made as necessary based on factors, including, but not limited to; the economy, deferred maintenance, industry, type of property/equipment, age of the appraisal, etc. and the knowledge Management has about a particular situation. In addition, the cost to sell or liquidate the collateral is also estimated and deducted from the valuation in order to determine the net realizable value to the Bank. When determining the allowance for loan losses, certain factors involved in the evaluation are inherently subjective and require material estimates that may be susceptible to significant change, including the amounts and timing of future cash flows expected to be received on impaired loans. Management monitors the adequacy of the allowance for loan losses on an ongoing basis and reports its adequacy quarterly to the Board Enterprise Risk Management Committee of the Board of Directors. Management believes that the allowance for loan losses at March 31, 2021 is adequate.

The analysis for determining the ALL is consistent with guidance set forth in generally accepted accounting principles (GAAP) and the Interagency Policy Statement on the Allowance for Loan and Lease Losses. The analysis has three components; specific, general and unallocated. The specific component addresses specific reserves established for impaired loans. A loan is considered to be impaired when, based on current information and events, it is probable that the Bank will be unable to collect all interest and principal payments due according to the originally contracted terms of the loan agreement. Collateral values discounted for market conditions and selling costs are used to establish specific allocations for impaired loans. However, it is possible that as a result of the credit analysis, a specific reserve is not required for an impaired loan. Commercial loans with a balance less than $250 thousand, and all consumer purpose loans are not included in the specific reserve analysis as impaired loans but are added to the general allocation pool. These loans totaled $262 thousand at March 31, 2021 and are comprised primarily of loans secured by residential real estate. Management does not believe that excluding these loans from the specific reserve analysis presents any additional risk. Loans that are evaluated for a specific reserve, but not needing a specific reserve are not added back to the general allocation pool. There was a $228 thousand specific reserve established for one impaired loan at March 31, 2021 unchanged from year-end 2020.

The general allocation component addresses the reserves established for pools of homogenous loans. The general component includes a quantitative and qualitative analysis. When calculating the general allocation, the Bank segregates its loan portfolio into the following segments based primarily on the type of supporting collateral: residential real estate, commercial, industrial or agricultural real estate; commercial and industrial (C&I non-real estate), and consumer. Each segment may be further segregated by type of collateral, lien position, or owner/nonowner occupied properties. The quantitative analysis uses the Bank’s twenty quarter rolling historical loan loss experience as determined for each loan segment to determine a loss factor applicable to each loan segment. PPP loans, because of the SBA guarantee, are excluded from the quantitative analysis. The allowance established as a result of the quantitative analysis was $3.7 million compared to $3.6 million at year-end 2020.

The qualitative analysis utilizes a risk matrix that incorporates four primary risk factors: economic conditions, delinquency, classified loans, and level of risk, and assigns a risk score (as measured in basis points) to each factor. The economic condition factor is primarily based on unemployment rates. The delinquency factor considers the level of past due loans and charge-offs. The classified loan factor considers the internal credit risk score of the portfolio. The level of risk factor considers operational factors such as: loan volume, management, loan review process, credit concentrations, competition, and legal and regulatory issues. The risk score (as measured in basis points) for each of the four risk factors is minimal, low, moderate, high and very high and is determined independently for commercial loans, residential mortgage loans and consumer loans. During 2020, as a result of the negative effects of the pandemic on the economy, the Bank increased the basis point risk factor for certain qualitative components. In addition, the Bank carved out the portfolio of modified loans for a qualitative assessment separate from the overall commercial loan portfolio. This allowed for assignment of an increased qualitative risk score on this portfolio. As of March 31, several qualitative factors were reduced reflecting a lower risk of loss in the loan portfolio. This is the second consecutive quarter of a reduction in certain qualitative factors and the qualitative allowance declined to $11.5 million at March 31, 2021 down from $12.1 million at year-end 2020 and from a high of $12.6 million at September 30, 2020. PPP loans, because of the SBA guarantee, were excluded from the qualitative analysis.

The unallocated component is maintained to cover uncertainties that could affect Management’s estimate of probable loss. The unallocated component of the ALL reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio. The unallocated allowance was $789 thousand at March 31, 2021.

Real estate appraisals and collateral valuations are an important part of the Bank’s process for determining potential loss on collateral dependent loans and thereby have a direct effect on the determination of loan reserves, charge-offs and the calculation of the allowance for loan losses. As long as the loan remains a performing loan, no further updates to appraisals are required. If a loan or relationship migrates to nonaccrual and a risk rating of 7-Substandard or worse, an

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evaluation for impairment status is made based on the current information available at the time of downgrade and a new appraisal or collateral valuation is obtained. We believe this practice complies with the regulatory guidance.

In determining the allowance for loan losses, Management, at its discretion, may determine that additional adjustments to the fair value obtained from an appraisal or collateral valuation are required. Adjustments will be made as necessary based on factors, including, but not limited to the economy, deferred maintenance, industry, type of property or equipment etc., and the knowledge Management has about a particular situation. In addition, the cost to sell or liquidate the collateral is also estimated and deducted from the valuation in order to determine the net realizable value to the Bank. If an appraisal is not available, Management may make its best estimate of the real value of the collateral or use last known market value and apply appropriate discounts.  If an adjustment is made to the collateral valuation, this will be documented with appropriate support and reported to the Loan Management Committee.

The following table shows, by loan segment, the activity in the ALL, the amount of allowance established in each category and the loans that were evaluated for the ALL under a specific reserve (individually) and those that were evaluated under a general reserve (collectively) as of March 31, 2021.

	Residential Real Estate 1-4 Family
	First		Junior Liens &				Commercial
(Dollars in thousands)	Liens		Lines of Credit		Construction		Real Estate		Commercial		Consumer		Unallocated		Total
ALL at December 31, 2020	$	555	$	226	$	294	$	9,163	$	5,679	$	97	$	775	$	16,789
Charge-offs		—		—		—		(13)		(5)		(18)		—		(36)
Recoveries		—		169		—		—		7		7		—		183
Provision		(108)		(184)		24		(365)		(208)		27		14		(800)
ALL at March 31, 2021	$	447	$	211	$	318	$	8,785	$	5,473	$	113	$	789	$	16,136
ALL at December 31, 2019	$	416	$	119	$	186	$	6,607	$	4,022	$	84	$	532	$	11,966
Charge-offs		-		—		—		—		(220)		(30)		—		(250)
Recoveries		3		—		—		—		5		6		—		14
Provision		144		59		82		1,660		889		38		128		3,000
ALL at March 31, 2020	$	563	$	178	$	268	$	8,267	$	4,696	$	98	$	660	$	14,730

	Residential Real Estate 1-4 Family
	First		Junior Liens &				Commercial
(Dollars in thousands)	Liens		Lines of Credit		Construction		Real Estate		Commercial		Consumer		Unallocated		Total
March 31, 2021
Loans evaluated for ALL:
Individually	$	631	$	—	$	511	$	16,000	$	—	$	—	$	—	$	17,142
Collectively		131,378		65,951		18,107		477,544		283,705		7,106		—		983,791
Total	$	132,009	$	65,951	$	18,618	$	493,544	$	283,705	$	7,106	$	—	$	1,000,933
ALL established for ‎  loans evaluated:
Individually	$	—	$	—	$	—	$	228	$	—	$	—	$	—	$	228
Collectively		447		211		318		8,557		5,473		113		789		15,908
ALL at March 31, 2021	$	447	$	211	$	318	$	8,785	$	5,473	$	113	$	789	$	16,136
December 31, 2020
Loans evaluated for ALL:
Individually	$	637	$	—	$	512	$	16,104	$	—	$	—	$	—	$	17,253
Collectively		136,587		65,360		15,797		487,873		281,257		5,577		—		992,451
Total	$	137,224	$	65,360	$	16,309	$	503,977	$	281,257	$	5,577	$	—	$	1,009,704
ALL established for ‎  loans evaluated:
Individually	$	—	$	—	$	—	$	228	$	—	$	—	$	—	$	228
Collectively		555		226		294		8,935		5,679		97		775		16,561
ALL at December 31, 2020	$	555	$	226	$	294	$	9,163	$	5,679	$	97	$	775	$	16,789

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The allocation of the allowance for loan losses is based on estimates and is not intended to imply limitations on the usage of the allowance. The entire allowance is available to absorb any losses without regard to the category in which the loan is classified.

The following table shows the ALL and charge-off ratios for the periods ended:

	Three Months Ended		Year Ended			Three Months Ended
	March 31, 2021			December 31, 2020		March 31, 2020
Net charge-offs (recoveries)/average loans*		-0.06%			-0.02%		0.10%
Net loan charge-offs (recoveries) as a percentage of the provision for loan losses		-18.38%			-4.28%		7.87%
Allowance for loan losses as a % of loans		1.61%			1.66%		1.57%
Net (recoveries) charge-offs	$	(147)		$	(198)	$	236
* Annualized

Deposits:

Total deposits increased $66.5 million during the first three months of 2021 to $1.421 billion. Noninterest-bearing deposits increased $31.0 million (primarily in small business and retail checking deposits) and interest-bearing checking and savings deposits increased $38.3 million, while time deposits decreased $2.8 million. Interest-bearing checking increased by $19.5 million in retail and commercial deposits, while the Bank’s Money Management increased $18.0 million. Based on current information known to Management, the increases seem to stem from government stimulus payments to consumers, businesses and municipalities, lower spending as economic activity slowed during the pandemic and a sense of security offered by bank deposits in uncertain economic times. The decrease in time deposits is primarily in retail accounts.

As of March 31, 2021, the Bank had $187.0 million placed in the IntraFi Network deposit program ($135.8 million in interest-bearing checking and $51.2 million in money management) and $4.4 million in reciprocal time deposits in the CDARS program included in time deposits. These programs allow the Bank to offer full FDIC coverage to large depositors, but with the convenience to the customer of only having to deal with one bank. The Bank solicits these deposits from within its market and it believes they present no greater risk than any other local deposit. Only reciprocal deposits that exceed 20% of liabilities are considered brokered deposits. At March 31, 2021, the Bank’s reciprocal deposits were 13.2% of total liabilities compared to 12.9% at year-end 2020.

The following table presents a summary of deposits for the periods ended:

	March 31,		December 31,			Change
(Dollars in thousands)	2021		2020			Amount	%
Noninterest-bearing checking	$	290,015	$	259,060	$	30,955	11.9
Interest-bearing checking		428,679		409,178		19,501	4.8
Money management		519,035		501,017		18,018	3.6
Savings		109,964		109,153		811	0.7
Total interest-bearing checking and savings		1,057,678		1,019,348		38,330	3.8
Time deposits		73,349		76,165		(2,816)	(3.7)
Total deposits	$	1,421,042	$	1,354,573	$	66,469	4.9
Overdrawn deposit accounts reclassified as loans	$	90	$	86

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Borrowings:

On August 4, 2020 the Corporation completed the sale of a subordinated debt note offering. The Corporation sold $15.0 million of subordinated debt notes with a maturity date of September 1, 2030. These notes are noncallable for 5 years and carry a fixed interest rate of 5% per year for 5 years and then convert to floating rate of SOFR plus 4.93% per year for the remainder of the term. The notes can be redeemed at par beginning 5 years prior to maturity. The Corporation also sold $5.0 million of subordinated debt notes with a maturity date of September 1, 2035. These notes are noncallable for 10 years and carry a fixed interest rate of 5.25% per year for 10 years and then convert to floating rate of SOFR plus 4.92% per year for the remainder of the term. The notes can be redeemed at par beginning 5 years prior to maturity. The notes are structured to qualify as Tier 2 capital for the Corporation and any funds it invests in the Bank qualify as Tier 1 capital at the Bank. The Corporation paid an issuance fee of 2% of the total issue that will be amortized to the call date of each issue on a pro-rata basis. The proceeds are intended to be used for general corporate purposes.

Shareholders’ Equity:

Total shareholders’ equity decreased $4.5 million to $140.7 million at March 31, 2021, from $145.2 million at the end of 2020, due primarily to a decrease of $8.4 million in accumulated other comprehensive income (AOCI) as the fair value of the investment portfolio declined during the quarter. The Corporation’s net earnings of $4.8 million were partially offset by the cash dividend of $1.3 million. The Corporation’s Dividend Reinvestment Plan (DRIP) added $100 thousand in new capital from optional cash contributions and $225 thousand from the reinvestment of quarterly dividends. The Corporation’s dividend payout ratio was 27.29% for the first three months of 2021.

As part of its quarterly dividend decision, the Corporation considers current and future income projections, dividend yield, payout ratio, and current and future capital ratios. For the first quarter of 2021, the Corporation paid a $0.30 per share dividend, compared to $0.30 paid in the fourth quarter of 2020. On April 8, 2021 the Board of Directors declared a $0.31 per share regular quarterly dividend for the second quarter of 2021, which will be paid on May 26, 2021.

On December 17, 2020, the Board of Directors authorized the 2020 Repurchase Plan for the repurchase of up to 150,000 shares of the Corporation’s $1.00 par value common stock at market prices in open market or privately negotiated transactions beginning December 18, 2020 and expiring on December 18, 2021. No shares were repurchased during the first quarter of 2021. The Corporation is monitoring the market and intends to repurchase shares when and if the opportunity arises in accordance with applicable law, regulations and plan authorizations.

Capital adequacy for the Bank is currently defined by regulatory agencies through the use of several minimum required ratios. The capital ratios to be considered “well capitalized” are: (1) Common Equity Tier 1 (CET1) of 6.5%, (2) Tier 1 Leverage of 5%, (3) Tier 1 Risk-Based Capital of 8%, and (4) Total Risk-Based Capital of 10%. In addition, a capital conservation buffer of 2.50% is applicable to all of the capital ratios except for the Tier 1 Leverage ratio. The capital conservation buffer is equal to the lowest value of the three applicable capital ratios less the regulatory minimum for each respective capital measurement. The Bank’s capital conservation buffer at March 31, 2021 was 7.89% compared to the 2020 regulatory buffer of 2.50%. Compliance with the capital conservation buffer is required in order to avoid limitations to certain capital distributions and is in addition to the minimum required capital requirements. As of March 31, 2021, the Bank was “well capitalized”.

In 2019, the Community Bank Leverage Ratio (CBLR) was approved by federal banking agencies as an optional capital measure available to Qualifying Community Banking Organizations (QCBO). If a bank qualifies as a QCBR and maintains a CBLR of 9% or greater, the bank would be considered “well-capitalized” for regulatory capital purposes and exempt from complying with the risk-based capital rule described above. The CBLR rule took effect January 1, 2020 and banks could opt-in through an election in the first quarter 2020 regulatory filing. The Bank met the criteria of a QCBR but did not opt-in to the CBLR.

The Bank is participating in the Paycheck Protection Program (PPP) and the Paycheck Protection Program Liquidity Facility (PPPLF) to fund PPP Loans. In accordance with regulatory guidance, PPP loans pledged as collateral for PPPLF, and PPPLF advances, are excluded from leverage capital ratios. PPP loans will also carry a 0% risk-weight for risk-based capital rules.

The consolidated asset limit on small bank holding companies is $3 billion and a company with assets under that limit is not subject to the consolidated capital rules but may file reports that include capital amounts and ratios. The Corporation has elected to file those reports.

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The following table summarizes the regulatory capital requirements and results as of March 31, 2021 and December 31, 2020 for the Corporation and the Bank:

			Regulatory Ratios
			Adequately	Well
	March 31,	December 31,	Capitalized	Capitalized
(Dollars in thousands)	2021	2020	Minimum	Minimum
Common Equity Tier 1 Risk-based Capital Ratio (1)
Franklin Financial Services Corporation	14.80%	14.32%	N/A	N/A
Farmers & Merchants Trust Company	14.63%	14.07%	4.50%	6.50%
Tier 1 Risk-based Capital Ratio (2)
Franklin Financial Services Corporation	14.80%	14.32%	N/A	N/A
Farmers & Merchants Trust Company	14.63%	14.07%	6.00%	8.00%
Total Risk-based Capital Ratio (3)
Franklin Financial Services Corporation	18.18%	17.69%	N/A	N/A
Farmers & Merchants Trust Company	15.89%	15.33%	8.00%	10.00%
Tier 1 Leverage Ratio (4)
Franklin Financial Services Corporation	8.76%	8.69%	N/A	N/A
Farmers & Merchants Trust Company	8.65%	8.54%	4.00%	5.00%
(1) Common equity Tier 1 capital/ total risk-weighted assets (2) Tier 1 capital / total risk-weighted assets
(3) Total risk-based capital / total risk-weighted assets, (4) Tier 1 capital / average quarterly assets

Economy

The Corporation’s primary market area includes Franklin, Fulton, Cumberland and Huntingdon Counties, Pennsylvania. This area is diverse in demographic and economic makeup. County populations range from a low of approximately 15,000 in Fulton County to over 250,000 in Cumberland County. Unemployment in the Bank’s market area ranged from 5.7% in Cumberland County to 10.5% in Huntingdon County, as of the end of February. The market area has a diverse economic base and local industries include warehousing, truck & rail shipping centers, light and heavy manufacturers, healthcare, higher education institutions, farming and agriculture, and a varied service sector. The Corporation’s primary market area is located in South Central PA and provides easy access to the major metropolitan markets on the east coast via trucking and rail transportation. Because of this, warehousing and distribution companies continue to find the area attractive. The local economy is not overly dependent on any one industry or business and Management believes that the Bank’s primary market area continues to be well suited for growth.

As of March 31, 2021, COVID-19 cases have been declining, vaccinations have increased, and lockdowns and restrictions have eased. With these, it appears the economy is set to begin a recovery, but the extent of any such recovery is still uncertain.

Impact of Inflation

The impact of inflation upon financial institutions such as the Corporation differs from its effect upon other commercial enterprises. Unlike many companies, the assets and liabilities of the Corporation are financial in nature. As such, interest rates and changes in interest rates may have a more significant effect on the Corporation’s financial results than on other types of industries. Because of this, the Corporation watches the actions of the Federal Reserve Open Market Committee (FOMC) as it makes decisions about interest rate changes and how such changes affect market rates and the Corporation. Although inflation (and inflation expectations) may affect the interest rate environment, it is not possible to measure with any precision the effect of inflation on the Corporation.

Liquidity

The Corporation must meet the financial needs of the customers that it serves, while providing a satisfactory return on the shareholders’ investment. In order to accomplish this, the Corporation must maintain sufficient liquidity in order to respond quickly to the changing level of funds required for both loan and deposit activity. The goal of liquidity management is to meet the ongoing cash flow requirements of depositors who want to withdraw funds and of borrowers who request loan disbursements. The Bank regularly reviews it liquidity position by measuring its projected net cash

44

flows (in and out) at a 30 and 90-day interval. The Bank stresses the measurements by assuming a level of deposit out-flows that have not historically been realized. In addition to this forecast, other funding sources are reviewed as a method to provide emergency funding if necessary. The objective of this measurement is to identify the amount of cash that could be raised quickly without the need to liquidate assets. The Bank also stresses its liquidity position utilizing different longer-term scenarios. The varying degrees of stress create pressure on deposit flows in its local market, reduce access to wholesale funding and limit access of funds available through brokered deposit channels. In addition to stressing cash flow, specific liquidity risk indicators are monitored to help identify risk areas. This analysis helps identify and quantify the potential cash surplus/deficit over a variety of time horizons to ensure the Bank has adequate funding resources. Assumptions used for liquidity stress testing are subjective. Should an evolving liquidity situation or business cycle present new data, potential assumption changes will be considered. The Bank believes it can meet all anticipated liquidity demands.

Historically, the Corporation has satisfied its liquidity needs from earnings, repayment of loans and amortizing investment securities, maturing investment securities, loan` sales, deposit growth and its ability to access existing lines of credit. All investment securities are classified as available for sale; therefore, securities that are unencumbered (approximately $302.2 million fair value) as collateral for borrowings are an additional source of readily available liquidity, either by selling the security or, more preferably, to provide collateral for additional borrowing. The Bank also has access to other wholesale funding via the brokered CD market.

The FHLB system has always been a major funding source for the Bank. There are no current indicators that lead the Bank to believe the FHLB would discontinue its lending function or restrict the Bank’s ability to borrow. If either of these events would occur, it would have a negative effect on the Bank, and it is unlikely that the Bank could replace the level of FHLB funding in a short time. The Bank has established credit at the Federal Reserve Discount Window and at correspondent banks.

The following table shows the Bank’s available liquidity at March 31, 2021.

(Dollars in thousands)
Liquidity Source		Capacity		Outstanding		Available
Federal Home Loan Bank	$	366,092	$	—	$	366,092
Federal Reserve Bank Discount Window		23,920		—		23,920
Correspondent Banks		21,000		—		21,000
Paycheck Protection Program Liquidity Facility		55,873		—		55,873
Total	$	466,885	$	—	$	466,885

Pandemic Effect on Liquidity: The Bank is closely monitoring its liquidity needs as loans are modified and delinquencies are expected to increase. The Bank expects to see a reduction in monthly cash flow from loan deferrals, as discussed in the Loan Quality section. The Bank expects to be able to absorb this reduction through its current liquidity resources. To support its liquidity position, the Bank is participating in the Paycheck Protection Program Liquidity Facility (PPPLF) established by the Federal Reserve to fund loans made through the Paycheck Protection Program sponsored by the Small Business Administration. The PPPLF is a term financing facility with a fixed interest rate of 0.35% and a maturity equal to the maturity date of the PPP loans (2 years or 5 years). Loans made through the PPP are used as collateral for PPPLF funding. The PPPLF will allow the Bank to fully fund its PPP loans at a low fixed rate without having to access its normal liquidity sources described above. The Bank believes it can meet all anticipated liquidity demands of the pandemic through its current liquidity sources and the government sponsored programs.

Off Balance Sheet Commitments

The Corporation’s financial statements do not reflect various commitments that are made in the normal course of business, which may involve some liquidity risk. These commitments consist mainly of unfunded loans and letters of credit made under the same standards as on-balance sheet instruments. Because these instruments have fixed maturity dates, and because many of them will expire without being drawn upon, they do not generally present any significant liquidity risk to the Corporation. Unused commitments and standby letters of credit totaled $382.5 million and $380.3 million, respectively, at March 31, 2021 and December 31, 2020. In the second quarter of 2018, the Bank established a $2.4 million allowance against letters of credit issued in connection with a commercial borrower that declared bankruptcy. In the first quarter of 2020, the Bank reversed $250 thousand of this reserve as one letter of credit was cancelled. At March 31, 2021, this reserve was $2.1 million.

45

The Corporation has entered into various contractual obligations to make future payments. These obligations include time deposits, long-term debt, operating leases, deferred compensation and pension payments. These amounts have not changed materially from those reported in the Corporation’s 2020 Annual Report on Form 10-K.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

There were no material changes in the Corporation’s exposure to market risk during the three months ended March 31, 2021. For more information on market risk refer to the Corporation’s 2020 Annual Report on Form 10-K.

Item 4. Controls and Procedures

Evaluation of Controls and Procedures

The Corporation carried out an evaluation, under the supervision and with the participation of the Corporation’s management, including the Corporation’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of its disclosure controls and procedures, as defined in Exchange Act Rules 13a-15(e) and 15d-15(e). Based upon the evaluation, the Corporation’s Chief Executive Officer and Chief Financial Officer concluded that as of March 31, 2021, the Corporation’s disclosure controls and procedures are effective. Disclosure controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed in the Corporation’s reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. There were no changes in the Corporation’s internal control over financial reporting during the quarterly period ended March 31, 2021, that have materially affected, or are reasonably likely to materially affect, the internal control over financial reporting.

The management of the Corporation is responsible for establishing and maintaining adequate internal control over financial reporting. The Corporation’s internal control system is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

‎

46

Part II – OTHER INFORMATION

Item 1. Legal Proceedings

The nature of the Corporation’s business generates a certain amount of litigation.

In management’s opinion, there are no other proceedings pending to which the Corporation is a party or to which its property is subject which, if determined adversely to the Corporation, would be material. No material proceedings are pending or are known to be threatened or contemplated against us by any governmental authorities.

Item 1A. Risk Factors

There were no material changes in the Corporation’s risk factors during the three months ended March 31, 2021. For more information, refer to the Corporation’s 2020 Annual Report on Form 10-K.

‎

47

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On December 17, 2020, the Board of Directors authorized the 2020 Repurchase Plan for the repurchase of up to 150,000 shares of the Corporation’s $1.00 par value common stock at market prices in open market or privately negotiated transactions beginning December 18, 2020 and expiring on December 18, 2021. No shares were repurchased during the first quarter of 2021. The Corporation is monitoring the market and intends to repurchase shares when and if the opportunity arises in accordance with applicable law, regulations and plan authorities.

Item 3. Defaults by the Company on its Senior Securities

None

Item 4. Mine Safety Disclosures

Not Applicable

‎

48

Item 5. Other Information

None

Item 6.   Exhibits

Exhibits

3.1	Amended and Restated Articles of Incorporation of the Corporation (Filed as Exhibit 3.1 to Quarterly Report on Form 10-Q for the quarter ended June 30, 2020 and incorporated herein by reference).
3.2	Bylaws of the Corporation. (Filed as Exhibit 3.2 to Current Report on Form 8-K, as filed with the commission on December 21, 2018 and incorporated herein by reference.)
31.1	Rule 13a – 14(a)/15d-14(a) Certifications – Principal Executive Officer
31.2	Rule 13a – 14(a)/15d-14(a) Certifications – Principal Financial Officer
32.1	Section 1350 Certifications – Principal Executive Officer
32.2	Section 1350 Certifications – Principal Financial Officer
101	Interactive Data File (XBRL)
104	Cover Page Interactive Data File (the cover page XBRL tags are imbedded in the XBRL document)

‎

49

FRANKLIN FINANCIAL SERVICES CORPORATION

and SUBSIDIARIES

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Franklin Financial Services Corporation

May 10, 2021	/s/ Timothy G. Henry
	Timothy G. Henry
	Chief Executive Office and President
	(Principal Executive Officer)
May 10, 2021	/s/ Mark R. Hollar
	Mark R. Hollar
	Treasurer and Chief Financial Officer
	(Principal Financial and Accounting Officer)

50

EX-31.1

Exhibit 31.1

Rule 13a-14(a)/15d-14(a) Certifications

I, TimothyG.  Henry, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Franklin Financial Services Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  May 10, 2021

/s/ TimothyG.  Henry

TimothyG.  Henry

President and Chief Executive Officer

EX-31.2

Exhibit 31.2

Rule 13a-14(a)/15d-14(a) Certifications

I, Mark R. Hollar, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Franklin Financial Services Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this  report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  May 10, 2021

/s/ Mark R. Hollar

Mark R. Hollar

Treasurer and Chief Financial Officer

EX-32.1

Exhibit 32.1

Certification Pursuant to 18 U.S.C. Section 1350,

As Adopted Pursuant to Section 906 of the Sarbanes–Oxley Act of 2002

In connection with the Quarterly Report of Franklin Financial Services Corporation (the “Corporation”) on Form 10-Q, for the period ending March 31, 2021, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, TimothyG.  Henry, Chief Executive Officer of the Corporation, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes–Oxley Act of 2002 that:

(1) The report fully complies with the requirements of Section 13(a) or 15(d) of the Securities and Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/ TimothyG.  Henry

TimothyG.  Henry

President and Chief Executive Officer

May 10, 2021

EX-32.2

Exhibit 32.2

Certification Pursuant to 18 U.S.C. Sections 1350,

As Adopted Pursuant to Section 906 of the Sarbanes–Oxley Act of 2002

In connection with the Quarterly Report of Franklin Financial Services Corporation (the “Corporation”) on Form 10-Q for the period ending March 31, 2021 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Mark R. Hollar, Chief Financial Officer of the Corporation, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes–Oxley Act of 2002 that:

(1) The report fully complies with the requirements of Section 13(a) or 15(d) of the Securities and Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/ Mark R. Hollar

Mark R. Hollar

Chief Financial Officer

May 10, 2021

XML

Document And Entity Information - shares	3 Months Ended
	Mar. 31, 2021	Apr. 30, 2021
Document And Entity Information [Abstract]
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Mar. 31, 2021
Current Fiscal Year End Date	--12-31
Document Transition Report	false
Entity File Number	001-38884
Entity Registrant Name	FRANKLIN FINANCIAL SERVICES CORPORATION
Entity Incorporation, State or Country Code	PA
Entity Tax Identification Number	25-1440803
Entity Address, Address Line One	20 South Main Street
Entity Address, City or Town	Chambersburg
Entity Address, State or Province	PA
Entity Address, Postal Zip Code	17201-0819
City Area Code	717
Local Phone Number	264-6116
Title of 12(b) Security	Common stock
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Trading Symbol	FRAF
Security Exchange Name	NASDAQ
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		4,419,107
Entity Central Index Key	0000723646
Document Fiscal Year Focus	2021
Document Fiscal Period Focus	Q1
Amendment Flag	false

XML

Consolidated Balance Sheets - USD ($)	Mar. 31, 2021	Dec. 31, 2020
Assets
Cash and due from banks	$ 17,117,000	$ 17,059,000
Short-term interest-bearing deposits in other banks	90,505,000	40,087,000
Total cash and cash equivalents	107,622,000	57,146,000
Long-term interest-bearing deposits in other banks	10,995,000	12,741,000
Debt securities available for sale, at fair value	422,178,000	396,940,000
Equity securities	444,000	391,000
Restricted stock	468,000	468,000
Loans held for sale	4,699,000	9,446,000
Loans	1,000,933,000	1,009,704,000
Allowance for loan losses	(16,136,000)	(16,789,000)
Net Loans	984,797,000	992,915,000
Premises and equipment, net	12,971,000	13,105,000
Right of use asset	5,153,000	5,272,000
Bank owned life insurance	22,403,000	22,288,000
Goodwill	9,016,000	9,016,000
Other real estate owned	0	0
Deferred tax asset, net	6,135,000	2,401,000
Other assets	10,678,000	12,909,000
Total assets	1,597,559,000	1,535,038,000
Deposits
Noninterest-bearing checking	290,015,000	259,060,000
Money management, savings and interest checking	1,057,678,000	1,019,348,000
Time	73,349,000	76,165,000
Total deposits	1,421,042,000	1,354,573,000
Subordinate notes	19,564,000	19,555,000
Lease liability	5,225,000	5,332,000
Other liabilities	11,029,000	10,402,000
Total liabilities	1,456,860,000	1,389,862,000
Commitments and contingent liabilities
Shareholders' equity
Common stock, $1 par value per share,15,000,000 shares authorized with 4,710,872 shares issued and 4,407,583 shares outstanding at March 31, 2021 and 4,710,872 shares issued and 4,389,355 shares outstanding at December 31, 2020	4,711,000	4,711,000
Capital stock no par value, 5,000,000 shares authorized with no shares issued and outstanding
Additional paid-in capital	42,513,000	42,589,000
Retained earnings	106,032,000	102,520,000
Accumulated other comprehensive income (loss)	(5,166,000)	3,190,000
Treasury stock, 303,289 shares at March 31, 2021 and 321,517 shares at December 31, 2020, at cost	(7,391,000)	(7,834,000)
AOCI, Net of tax amount	140,699,000	145,176,000
Total liabilities and shareholders' equity	$ 1,597,559,000	$ 1,535,038,000

XML

Consolidated Balance Sheets (Parenthetical) - $ / shares	Mar. 31, 2021	Dec. 31, 2020
Consolidated Balance Sheets [Abstract]
Common Stock, Par or Stated Value Per Share	$ 1	$ 1
Common Stock, Shares Authorized	15,000,000	15,000,000
Common Stock, Shares, Issued	4,710,872	4,710,872
Common Stock, Shares, Outstanding	4,407,583	4,389,355
Capital stock, no par value	$ 0	$ 0
Capital Stock, Shares Authorized	5,000,000	5,000,000
Capital Stock, Shares, Issued	0	0
Capital Stock, Shares, Outstanding	0	0
Treasury Stock, Shares	303,289	321,517

XML

Consolidated Statements Of Income - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Interest income
Loans, including fees	$ 9,381	$ 10,168
Interest and dividends on investments:
Taxable interest	1,623	1,062
Tax exempt interest	532	171
Dividend income	3	6
Interesting-bearing deposits in other banks	53	258
Total interest income	11,592	11,665
Interest expense
Deposits	485	1,413
Subordinate notes	263
Total interest expense	748	1,413
Net interest income	10,844	10,252
(Recovery of) provision for loan losses	(800)	3,000
Net interest income after provision for loan losses	11,644	7,252
Noninterest income
Investment and trust services fees	1,636	1,445
Loan service charges	196	141
Gain on sale of loans	782	144
Deposit service charges and fees	468	565
Other service charges and fees	396	347
Debit card income	517	418
Increase in cash surrender value of life insurance	115	124
Bank owned life insurance gain		812
Net losses on sales of debt securities		(10)
Change in fair value of equity securities	54	(127)
Other	63	30
Total noninterest income	4,227	3,889
Noninterest Expense
Salaries and employee benefits	5,658	5,535
Net occupancy	910	830
Marketing and advertising	345	455
Legal and professional	475	395
Data processing	929	806
Pennsylvania bank shares tax	92	175
FDIC Insurance		60
FDIC Insurance	202
ATM/debit card processing	296	264
Telecommunications	129	105
Nonservice pension	205	88
Other	924	815
Total noninterest expense	10,165	9,528
Income before federal income taxes	5,706	1,613
Federal income tax expense	876	(106)
Net income	$ 4,830	$ 1,719
Per share
Basic earnings per share	$ 1.10	$ 0.40
Diluted earnings per share	$ 1.09	$ 0.39

XML

Consolidated Statements Of Comprehensive Income - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Consolidated Statements Of Comprehensive Income [Abstract]
Net income	$ 4,830	$ 1,719
Debt Securities:
Unrealized (losses) gains arising during the period	(10,577)	2,048
Reclassification adjustment for losses (gains) included in net income		10
Net unrealized (losses) gains	(10,577)	2,058
Tax effect	2,221	(432)
Net of tax amount	(8,356)	1,626
Total other comprehensive (loss) income	(8,356)	1,626
Total Comprehensive (Loss) Income	$ (3,526)	$ 3,345

XML

Consolidated Statements Of Changes In Shareholders' Equity - USD ($)	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	Accumulated Other Comprehensive Income (Loss) [Member]	Treasury Stock [Member]	Total
Balance at Dec. 31, 2019	$ 4,710,000	$ 42,268,000	$ 94,946,000	$ (5,986,000)	$ (8,410,000)	$ 127,528,000
Balance, shares at Dec. 31, 2019	4,352,753
Net income (loss)			1,719,000			1,719,000
Other comprehensive income (loss)				1,626,000		1,626,000
Cash dividends declared, $0.30 per share			(1,306,000)			(1,306,000)
Acquisition of treasury stock					$ (1,172,000)	(1,172,000)
Acquisition of treasury stock, shares					(36,401)
Treasury shares issued under dividend reinvestment plan		75,000			$ 485,000	560,000
Treasury shares issued under dividend reinvestment plan, shares	20,124
Stock Compensation Plans:
Treasury shares issued		1,000			2,000	3,000
Treasury shares issued, shares	71
Common shares issued	$ 1,000	15,000				16,000
Common shares issued, shares	973
Compensation expense		31,000				31,000
Balance at Mar. 31, 2020	$ 4,711,000	42,390,000	95,359,000	(4,360,000)	(9,095,000)	129,005,000
Balance, shares at Mar. 31, 2020	4,337,520
Balance at Dec. 31, 2020	$ 4,711,000	42,589,000	102,520,000	3,190,000	(7,834,000)	$ 145,176,000
Balance, shares at Dec. 31, 2020	4,389,355					4,389,355
Net income (loss)			4,830,000			$ 4,830,000
Other comprehensive income (loss)				(8,356,000)		(8,356,000)
Cash dividends declared, $0.30 per share			(1,318,000)			(1,318,000)
Acquisition of treasury stock					$ (13,000)	(13,000)
Acquisition of treasury stock, shares					(474)
Treasury shares issued under dividend reinvestment plan		40,000			$ 285,000	325,000
Treasury shares issued under dividend reinvestment plan, shares	11,682
Stock Compensation Plans:
Treasury shares issued		(164,000)			171,000	7,000
Treasury shares issued, shares	7,020
Compensation expense		48,000				48,000
Balance at Mar. 31, 2021	$ 4,711,000	$ 42,513,000	$ 106,032,000	$ (5,166,000)	$ (7,391,000)	$ 140,699,000
Balance, shares at Mar. 31, 2021	4,407,583					4,407,583

XML

Consolidated Statements Of Changes In Shareholders' Equity (Parenthetical) - $ / shares	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Consolidated Statements Of Changes In Shareholders' Equity [Abstract]
Dividend declared per share	$ 0.30	$ 0.30

XML

Consolidated Statements Of Cash Flows - USD ($)	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Cash flows from operating activities
Net income	$ 4,830,000	$ 1,719,000
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	324,000	331,000
Net amortization of loans and investment securities	124,000	340,000
Amortization of subordinate debt issuance costs	10,000
(Recovery of) provision for loan losses	(800,000)	3,000,000
(Increase) decrease in fair value of equity securities	(54,000)	127,000
Debt securities losses, net		10,000
Loans originated for sale	(28,992,000)	(9,223,000)
Proceeds from sale of loans	34,521,000	8,656,000
Gain on sale of loans	(782,000)	(144,000)
Increase in cash surrender value of life insurance	(115,000)	(124,000)
Gain from surrender of life insurance policy		(812,000)
Stock option compensation	48,000	31,000
Decrease (increase) in other assets	668,000	(1,139,000)
Increae (decrease) in other liabilities	667,000	(281,000)
Net cash provided by operating activities	10,449,000	2,491,000
Cash flows from investing activities
Net decrease (increase) in long-term interest-bearing deposits in other banks	1,746,000	(1,992,000)
Proceeds from sales and calls of investment securities available for sale		165,000
Proceeds from maturities and pay-downs of securities available for sale	9,367,000	10,941,000
Purchase of investment securities available for sale	(45,827,000)	(29,974,000)
Net decrease (increase) in loans	9,439,000	(2,077,000)
Capital expenditures	(168,000)	(174,000)
Net cash used in investing activities	(25,443,000)	(23,111,000)
Cash flows from financing activities
Net increase (decrease) in demand deposits, interest-bearing checking, and savings accounts	69,285,000	(2,452,000)
Net decrease in time deposits	(2,816,000)	(5,507,000)
Dividends paid	(1,318,000)	(1,306,000)
Purchase of Treasury shares	(13,000)	(1,172,000)
Cash received from option exercises	7,000	19,000
Treasury shares issued under dividend reinvestment plan	325,000	560,000
Net cash provided by (used in) financing activities	65,470,000	(9,858,000)
Increase (decrease) in cash and cash equivalents	50,476,000	(30,478,000)
Cash and cash equivalents at the beginning of the period	57,146,000	83,828,000
Cash and cash equivalents at the end of the period	107,622,000	53,350,000
Supplemental Disclosures of Cash Flow Information
Cash paid during the year for: Interest on deposits and other borrowed funds	$ 513,000	1,547,000
Noncash Activities
Lease liabilities arising from obtaining right-of-use assets		105,000
Life insurance claim receivable		$ 3,613,000

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Basis Of Presentation

3 Months Ended

Mar. 31, 2021

Basis Of Presentation [Abstract]

Basis Of Presentation

Note 1. Basis of Presentation

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

In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the consolidated financial position, results of operations, and cash flows as of March 31, 2021, and for all other periods presented have been made.

Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted. It is suggested that these consolidated financial statements be read in conjunction with the audited consolidated financial statements and notes thereto included in the Corporation’s 2020 Annual Report on Form 10-K. The consolidated results of operations for the three-month period ended March 31, 2021 are not necessarily indicative of the operating results for the full year. Management has evaluated subsequent events for potential recognition and/or disclosure through the date these consolidated financial statements were issued.

The consolidated balance sheet at December 31, 2020 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by GAAP for complete consolidated financial statements.

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

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

	For the Three Months Ended
	March 31,
(Dollars and shares in thousands, except per share data)	2021		2020
Weighted average shares outstanding (basic)		4,396		4,347
Impact of common stock equivalents		19		14
Weighted average shares outstanding (diluted)		4,415		4,361
Anti-dilutive options excluded from calculation		61		50
Net income	$	4,830	$	1,719
Basic earnings per share	$	1.10	$	0.40
Diluted earnings per share	$	1.09	$	0.39

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Recent Accounting Pronouncements

3 Months Ended

Mar. 31, 2021

Recent Accounting Pronouncements [Abstract]

Recent Accounting Pronouncements

Note 2. Recent Accounting Pronouncements

Recently issued but not yet effective accounting standards
ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
Description	This standard requires credit losses on most financial assets measured at amortized cost and certain other instruments to be measured using an expected credit loss model (referred to as the current expected credit loss (CECL) model). Under this model, entities will estimate credit losses over the entire contractual term of the instrument (considering estimated prepayments, but not expected extensions or modifications unless reasonable expectation of a troubled debt restructuring exists) from the date of initial recognition of that instrument. The ASU replaces the current accounting model for purchased credit impaired loans and debt securities. The allowance for credit losses for purchased financial assets with a more-than insignificant amount of credit deterioration since origination (“PCD assets”), should be determined in a similar manner to other financial assets measured on an amortized cost basis. However, upon initial recognition, the allowance for credit losses is added to the purchase price to determine the initial amortized cost basis. The subsequent accounting for PCD financial assets is the same expected loss model described above.
Effective Date	January 1, 2023
Effect on the Consolidated Financial Statements	We have formed an implementation team led by the Corporation's Risk Management function. The team is reviewing the requirements of the ASU and evaluating methods and models for implementation. As of the beginning of the first reporting period in which the new standard is adopted, the Corporation expects to recognize a one-time cumulative-effect adjustment to the allowance for loan losses, which will flow through retained earnings. After adoption, the new standard will result in earlier recognition of additions to the allowance for loan losses and possibly a larger allowance for loan loss balance with a corresponding increase in the provision for loan losses in results of operations; however, the Corporation is continuing to evaluate the impact of the pending adoption of the new standard on its consolidated financial statements. A third-party vendor has been selected to assist with the CECL calculations and the implementation process has started. The Corporation expects to be able to run the CECL model in test mode in 2021.
ASU 2019-05, Financial Instruments - Credit Losses (Topic 326): Targeted Transition Relief
Description	This ASU allows entities to irrevocably elect, upon adoption of ASU 2016-13, the fair value option on financial instruments that (1) were previously recorded at amortized cost and (2) are within the scope of ASC 326-20 if the instruments are eligible for the fair value option under ASC 825-10. The fair value option election does not apply to held-to-maturity debt securities. Entities are required to make this election on an instrument-by-instrument basis. ASU 2019-05 has the same effective date as ASU 2016-13. On October 16,2019, FASB approved its August 2019 proposal to grant certain small public companies a delay in the effective date of ASU 2016-13. For the Corporation, the delay makes the ASU effective January 2023. Since the Corporation currently meets the SEC definition of a small reporting company, the delay will be applied to the Corporation. Early adoption is permitted.
Effective Date	January 1, 2023
Effect on the Consolidated Financial Statements	The Corporation will continue to review the ASU as part of its adoption of ASU 2016-13.
ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting
Description	This ASU provides temporary, optional guidance to ease the potential burden in accounting for, or recognizing the effects of, the transition away from the LIBOR or other interbank offered rate on financial reporting. To help with the transition to new reference rates, the ASU provides optional expedients and exceptions for applying GAAP to affected contract modifications and hedge accounting relationships. The main provisions include: (1) a change in a contract's reference interest rate would be accounted for as a continuation of that contract rather than as the creation of a new one for contracts, including loans, debts, leases, and other arrangements that meet specific criteria, and (2) when updating its hedging strategies in response to reference rate reform, an entity would be allowed to preserve its accounting. The guidance is applicable only to contracts or hedge accounting relationships that reference LIBOR or another reference rate expected to be discontinued. Because the guidance is meant to help entities through the transition period, it will be in effect for a limited time and will not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, for which an entity has elected certain optional expedients that are retained through the end of the hedging relationship.
Effective Date	March 12, 2020 through December 31, 2022
Effect on the Consolidated Financial Statements	The Corporation will continue to review the ASU as part of its adoption but does not expect it to have a material effect on the consolidated financial statements.

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Accumulated Other Comprehensive Income (Loss)

3 Months Ended

Mar. 31, 2021

Accumulated Other Comprehensive Income (Loss) [Abstract]

Accumulated Other Comprehensive Income (Loss)

Note 3. Accumulated Other Comprehensive Income (Loss)

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

	March 31,		December 31,
(Dollars in thousands)	2021		2020
Net unrealized gains on debt securities	$	1,994	$	12,571
Tax effect		(419)		(2,640)
Net of tax amount	$	1,575	$	9,931
Accumulated pension adjustment	$	(8,533)	$	(8,533)
Tax effect		1,792		1,792
Net of tax amount	$	(6,741)	$	(6,741)
Total accumulated other comprehensive (loss)/income	$	(5,166)	$	3,190

 

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Investments

3 Months Ended

Mar. 31, 2021

Investments [Abstract]

Investments

Note 4. Investments

Available for Sale (AFS) Securities

The amortized cost and estimated fair value of AFS securities as of March 31, 2021 and December 31, 2020 are as follows:

(Dollars in thousands)			Gross		Gross
	Amortized		unrealized		unrealized		Fair
March 31, 2021	cost		gains		losses		value
U.S. Government and Agency securities	$	21,070	$	16	$	(170)	$	20,916
Municipal securities		235,808		5,582		(4,132)		237,258
Corporate securities		22,268		153		(264)		22,157
Agency mortgage-backed securities		85,429		1,360		(815)		85,974
Private-label mortgage-backed securities		11,966		45		(62)		11,949
Asset-backed securities		43,643		390		(109)		43,924
	$	420,184	$	7,546	$	(5,552)	$	422,178

(Dollars in thousands)			Gross		Gross
	Amortized		unrealized		unrealized		Fair
December 31, 2020	cost		gains		losses		value
U.S. Government and Agency securities	$	12,594	$	20	$	(40)	$	12,574
Municipal securities		236,253		11,020		(219)		247,054
Corporate securities		20,421		22		(155)		20,288
Agency mortgage-backed securities		70,443		1,905		(107)		72,241
Private-label mortgage-backed securities		8,412		56		(15)		8,453
Asset-backed securities		36,246		249		(165)		36,330
	$	384,369	$	13,272	$	(701)	$	396,940

At March 31, 2021 and December 31, 2020, the fair value of debt securities pledged to secure public funds and trust deposits totaled $129.1 million and $137.4 million, respectively. The Bank has no investment in a single issuer that exceeds 10% of shareholders’ equity.

The amortized cost and estimated fair value of debt securities at March 31, 2021, by contractual maturity are shown below. Actual maturities may differ from contractual maturities because of prepayment or call options embedded in the securities. Securities not due at a single maturity date are presented separately.

(Dollars in thousands)	Amortized ‎cost		Fair ‎value
Due in one year or less	$	2,361	$	2,367
Due after one year through five years		21,738		22,274
Due after five years through ten years		174,745		178,862
Due after ten years		80,302		76,828
		279,146		280,331
Mortgage-backed and asset-backed securities		141,038		141,847
	$	420,184	$	422,178

The composition of the net realized gains (losses) on debt securities for the three months ended are as follows:

	For the Three Months Ended
	March 31,
(Dollars in thousands)	2021		2020
Proceeds	$	—	$	165
Gross gains realized		—		—
Gross losses realized		—		(10)
Net (losses) gains realized	$	—	$	(10)
Tax benefit (provision) on net (losses) gains realized	$	—	$	2

Impairment:

The debt securities portfolio contained 205 securities with $178.6 million of temporarily impaired fair value and $5.6 million in unrealized losses at March 31, 2021. The total unrealized loss position has increased $4.9 million since year-end 2020.

For securities with an unrealized loss, Management applies a systematic methodology in order to perform an assessment of the potential for other-than-temporary impairment. In the case of debt securities, investments considered for other-than-temporary impairment: (1) had a specified maturity or repricing date; (2) were generally expected to be redeemed at par; and (3) were expected to achieve a recovery in market value within a reasonable period of time. In addition, the Bank considers whether it intends to sell these securities or whether it will be forced to sell these securities before the earlier of amortized cost recovery or maturity. The impairment identified on debt securities and subject to assessment at March 31, 2021, was deemed to be temporary and required no further adjustments to the financial statements, unless otherwise noted.

‎

The following table reflects temporary impairment in the AFS portfolio, aggregated by investment category, length of time that individual securities have been in a continuous unrealized loss position and the number of securities in each category as of March 31, 2021 and December 31, 2020:

	March 31, 2021
	Less than 12 months					12 months or more					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(Dollars in thousands)	Value		Losses		Count	Value		Losses		Count	Value		Losses		Count
U.S. Government and Agency ‎  securities	$	9,832	$	(134)	7	$	7,629	$	(36)	15	$	17,461	$	(170)	22
Municipal securities		97,958		(4,132)	107		—		—	—		97,958		(4,132)	107
Corporate securities		9,677		(173)	19		2,806		(91)	3		12,483		(264)	22
Agency mortgage-backed securities		31,182		(809)	32		1,504		(6)	3		32,686		(815)	35
Private-label mortgage-backed securities		6,828		(62)	5		—		—	—		6,828		(62)	5
Asset-backed securities		3,236		(29)	3		7,983		(80)	11		11,219		(109)	14
Total temporarily impaired ‎  securities	$	158,713	$	(5,339)	173	$	19,922	$	(213)	32	$	178,635	$	(5,552)	205

	December 31, 2020
	Less than 12 months					12 months or more					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(Dollars in thousands)	Value		Losses		Count	Value		Losses		Count	Value		Losses		Count
U.S. Government and Agency ‎  securities	$	3,966	$	(21)	5	$	4,185	$	(19)	11	$	8,151	$	(40)	16
Municipal securities		27,022		(219)	28		—		—	—		27,022		(219)	28
Corporate securities		7,576		(37)	13		3,040		(118)	4		10,616		(155)	17
Agency mortgage-backed securities		18,390		(101)	17		3,355		(6)	5		21,745		(107)	22
Private-label mortgage-backed securities		2,506		(15)	2		—		—	—		2,506		(15)	2
Asset-backed securities		1,458		(12)	2		11,452		(153)	15		12,910		(165)	17
Total temporarily impaired ‎  securities	$	60,918	$	(405)	67	$	22,032	$	(296)	35	$	82,950	$	(701)	102

The following table represents the cumulative credit losses on debt securities recognized in earnings for:

	Three Months Ended
(Dollars in thousands)	March 31,
	2021		2020
Balance of cumulative credit-related OTTI at January 1	$	272	$	272
Decreases for previously recognized credit losses on securities that paid off		(15)		—
Balance of credit-related OTTI at March 31	$	257	$	272

Equity Securities at Fair Value

The Corporation owns one equity investment with a readily determinable fair value. At March 31, 2021 and December 31, 2020, this investment was reported at fair value of $444 thousand and $391 thousand, respectively, with changes in value reported through income.

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Loans

3 Months Ended

Mar. 31, 2021

Loans [Abstract]

Loans

Note 5. Loans

The Bank reports its loan portfolio based on the primary collateral of the loan. It further classifies these loans by the primary purpose, either consumer or commercial. The Bank’s residential real estate loans include long-term loans to individuals and businesses secured by mortgages on the borrower’s real property and include home equity loans. Construction loans are made to finance the purchase of land and the construction of residential and commercial buildings thereon and are secured by mortgages on real estate. Commercial real estate loans include construction, owner and non-owner occupied properties and farm real estate. Commercial loans are made to businesses of various sizes for a variety of purposes including property, plant and equipment, working capital and loans to government municipalities. Commercial lending is concentrated in the Bank’s primary market, but also includes purchased loan participations. Consumer loans are comprised of installment loans and unsecured personal lines of credit.

Each class of loans involves a different kind of risk. However, risk factors such as changes in interest rates, general economic conditions and changes in collateral values are common across all classes. The risk of each loan class is presented below.

Residential Real Estate 1-4 Family

The largest risk in residential real estate loans to retail customers is the borrower’s inability to repay the loan due to the loss of the primary source of income. The Bank attempts to mitigate this risk through prudent underwriting standards including employment history, current financial condition and credit history. These loans are generally owner occupied and serve as the borrower’s primary residence. Commercial purpose loans, secured by residential real estate, are usually dependent upon repayment from the rental income or other business purposes. These loans are generally non-owner occupied. In addition to the real estate collateral, these loans may have personal guarantees or UCC filings on other business assets. If a payment default occurs on a 1-4 family residential real estate loan, the collateral serves as a source of repayment, but may be subject to a change in value due to economic conditions.

Residential Real Estate Construction

This class includes loans to individuals for construction of a primary residence and tocontractors and developers to improve real estate and construct residential properties. Construction loans to individuals generally bear the same risk as 1-4 family residential loans. Additional risks may include cost overruns, delays in construction or contractor problems.

Loans to contractors and developers are primarily dependent on the sale of improved lots or finished homes for repayment. Risks associated with these loans include the borrower’s character and capacity to complete a development, the effect of economic conditions on the valuation of lots or homes, cost overruns, delays in construction or contractor problems. In addition to real estate collateral, these loans may have personal guarantees or UCC filings on other business assets, depending on the financial strength and experience of the developer. Real estate construction loans are monitored on a regular basis by either an independent third party or the responsible loan officer, depending on the size and complexity of the project. This monitoring process includes at a minimum, the submission of invoices or American Institute of Architects (AIA) documents detailing the cost incurred by the borrower, on-site inspections, and an authorizing signature for disbursement of funds.

Commercial Real Estate

Commercial real estate loans may be secured by various types of commercial property including retail space, office buildings, warehouses, hotels and motel, manufacturing facilities, and agricultural land.

Commercial real estate loans present a higher level of risk than residential real estate loans. Repayment of these loans is normally dependent on cash-flow generated by the operation of a business that utilizes the real estate. The successful operation of the business, and therefore repayment ability, may be affected by general economic conditions outside of the control of the operator. On most commercial real estate loans ongoing monitoring of cash flow and other financial performance indictors is completed annually through financial statement analysis. In addition, the value of the collateral may be negatively affected by economic conditions and may be insufficient to repay the loan in the event of default. In the event of foreclosure, commercial real estate may be more difficult to liquidate than residential real estate.

Commercial

Commercial loans are made for various business purposes to finance equipment, inventory, accounts receivables, and operating liquidity. These loans are generally secured by business assets or equipment, non-real estate collateral and/or personal guarantees.

Commercial loans present a higher level of credit risk than other loans because repayment ability is usually dependent on cash-flow from a business operation that can be affected by general economic conditions. On most Commercial loans ongoing monitoring of cash flow and other financial performance indictors at least annually through financial statement analysis. In the event of a default, collateral for these loans may be more difficult to liquidate, and the valuation of the collateral may decline more quickly than loans secured by other types of collateral.

Loans to governmental municipalities are also included in the Commercial class. These loans generally have less risk than Commercial & Industrial (C&I) loans due to the taxing authority of the municipality and its ability to assess fees on services.

This class also includes loans made as part of the Paycheck Protection Program (PPP). The PPP is a small business loan program designed to assist in allowing small businesses to keep workers on the payroll during the COVID-19 pandemic. When workers are kept on the payroll for the qualifying period, the loan could be forgiven if the small business incurs eligible expenses. The PPP loans are 100 percent guaranteed by the SBA and have a maturity of two years or five years with a fixed interest rate of 1% for the life of the loan. Because the PPP loans are 100% guaranteed by the SBA, they present no credit risk to the Bank once the SBA guarantee is fulfilled, if necessary. However, if the SBA does not grant loan forgiveness, the PPP loan would present the same risk factors as any other commercial loan. The PPP loan is only designed to cover short-term operating needs of the borrower. If the economy does not recover quickly from the pandemic and the borrower experiences long-term operational problems beyond the PPP funding, the performance of other loans to these customers could begin to deteriorate.

Consumer

These loans are made for a variety of reasons to consumers and include term loans and personal lines-of credit. The loans may be secured or unsecured. Repayment is primarily dependent on the income of the borrower and to a lesser extent the sale of collateral. The underwriting of these loans is based on the consumer’s ability and willingness to repay and is determined by the borrower’s employment history, current financial condition and credit background. Collateral for these loans, if any, usually depreciates quickly and therefore, may not be adequate to repay the loan if it is repossessed. Therefore, the overall health of the economy, including unemployment rates and wages, will have an effect on the credit quality in this loan class.

‎

A summary of loans outstanding, by class, at the end of the reporting periods is as follows:

	March 31,		December 31,
(Dollars in thousands)	2021		2020
Residential Real Estate 1-4 Family
Consumer first liens	$	73,991	$	77,373
Commercial first lien		58,018		59,851
Total first liens		132,009		137,224
Consumer junior liens and lines of credit		61,707		60,935
Commercial junior liens and lines of credit		4,244		4,425
Total junior liens and lines of credit		65,951		65,360
Total residential real estate 1-4 family		197,960		202,584
Residential real estate - construction
Consumer		7,804		6,751
Commercial		10,814		9,558
Total residential real estate construction		18,618		16,309
Commercial real estate		493,544		503,977
Commercial		283,705		281,257
Total commercial		777,249		785,234
Consumer		7,106		5,577
		1,000,933		1,009,704
Less: Allowance for loan losses		(16,136)		(16,789)
Net Loans	$	984,797	$	992,915
Included in the loan balances are the following:
Net unamortized deferred loan (fees) costs	$	(374)	$	8
Paycheck Protection Program (PPP) loans (included in Commercial loans above)
Two-year loans	$	3,455	$	5,378
Five-year loans		52,418		46,912
Total Paycheck Protection Program loans	$	55,873	$	52,290
Net unamortized deferred PPP loan fees (included in Net unamortized deferred loan fees above)
Two-year loans	$	(63)	$	(165)
Five-year loans		(1,617)		(1,178)
Total net unamortized deferred PPP loan fees	$	(1,680)	$	(1,343)
Loans pledged as collateral for borrowings and commitments from:
FHLB	$	695,190	$	840,850
Federal Reserve Bank		50,682		50,605
	$	745,872	$	891,455

 

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Loan Quality And Allowance For Loan Losses

3 Months Ended

Mar. 31, 2021

Loan Quality And Allowance For Loan Losses [Abstract]

Loan Quality And Allowance For Loan Losses

Note 6. Loan Quality and Allowance for Loan Losses

The following table presents, by class, the activity in the Allowance for Loan Losses (ALL) for the periods shown:

	Residential Real Estate 1-4 Family
	First		Junior Liens &				Commercial
(Dollars in thousands)	Liens		Lines of Credit		Construction		Real Estate		Commercial		Consumer		Unallocated		Total
ALL at December 31, 2020	$	555	$	226	$	294	$	9,163	$	5,679	$	97	$	775	$	16,789
Charge-offs		—		—		—		(13)		(5)		(18)		—		(36)
Recoveries		—		169		—		—		7		7		—		183
Provision		(108)		(184)		24		(365)		(208)		27		14		(800)
ALL at March 31, 2021	$	447	$	211	$	318	$	8,785	$	5,473	$	113	$	789	$	16,136
ALL at December 31, 2019	$	416	$	119	$	186	$	6,607	$	4,022	$	84	$	532	$	11,966
Charge-offs		-		—		—		—		(220)		(30)		—		(250)
Recoveries		3		—		—		—		5		6		—		14
Provision		144		59		82		1,660		889		38		128		3,000
ALL at March 31, 2020	$	563	$	178	$	268	$	8,267	$	4,696	$	98	$	660	$	14,730

The following table presents, by class, loans that were evaluated for the ALL under the specific reserve (individually) and those that were evaluated under the general reserve (collectively) and the amount of the ALL established in each class as of March 31, 2021 and December 31, 2020:

	Residential Real Estate 1-4 Family
	First		Junior Liens &				Commercial
(Dollars in thousands)	Liens		Lines of Credit		Construction		Real Estate		Commercial		Consumer		Unallocated		Total
March 31, 2021
Loans evaluated for ALL:
Individually	$	631	$	—	$	511	$	16,000	$	—	$	—	$	—	$	17,142
Collectively		131,378		65,951		18,107		477,544		283,705		7,106		—		983,791
Total	$	132,009	$	65,951	$	18,618	$	493,544	$	283,705	$	7,106	$	—	$	1,000,933
ALL established for ‎  loans evaluated:
Individually	$	—	$	—	$	—	$	228	$	—	$	—	$	—	$	228
Collectively		447		211		318		8,557		5,473		113		789		15,908
ALL at March 31, 2021	$	447	$	211	$	318	$	8,785	$	5,473	$	113	$	789	$	16,136
December 31, 2020
Loans evaluated for ALL:
Individually	$	637	$	—	$	512	$	16,104	$	—	$	—	$	—	$	17,253
Collectively		136,587		65,360		15,797		487,873		281,257		5,577		—		992,451
Total	$	137,224	$	65,360	$	16,309	$	503,977	$	281,257	$	5,577	$	—	$	1,009,704
ALL established for ‎  loans evaluated:
Individually	$	—	$	—	$	—	$	228	$	—	$	—	$	—	$	228
Collectively		555		226		294		8,935		5,679		97		775		16,561
ALL at December 31, 2020	$	555	$	226	$	294	$	9,163	$	5,679	$	97	$	775	$	16,789

‎

The following table shows additional information about those loans considered to be impaired at March 31, 2021 and December 31, 2020:

	Impaired Loans
	With No Allowance				With Allowance
(Dollars in thousands)			Unpaid				Unpaid
	Recorded		Principal		Recorded		Principal		Related
March 31, 2021	Investment		Balance		Investment		Balance		Allowance
Residential Real Estate 1-4 Family
First liens	$	631	$	631	$	—	$	—	$	—
Junior liens and lines of credit		—		—		—		—		—
Total		631		631		—		—		—
Residential real estate - construction		511		729		—		—		—
Commercial real estate		10,259		10,987		5,741		5,741		228
Commercial		—		—		—		—		—
Total	$	11,401	$	12,347	$	5,741	$	5,741	$	228

December 31, 2020
Residential Real Estate 1-4 Family
First liens	$	637	$	637	$	—	$	—	$	—
Junior liens and lines of credit		—		—		—		—		—
Total		637		637		—		—		—
Residential real estate - construction		512		729		—		—		—
Commercial real estate		10,402		11,107		5,702		5,702		228
Commercial		—		—		—		—		—
Total	$	11,551	$	12,473	$	5,702	$	5,702	$	228

The following table shows the average of impaired loans and related interest income for the three months ended March 31, 2021 and 2020:

	Three Months Ended
	March 31, 2021
	Average		Interest
(Dollars in thousands)	Recorded		Income
	Investment		Recognized
Residential Real Estate 1-4 Family
First liens	$	634	$	8
Junior liens and lines of credit		—		—
Total		634		8
Residential real estate - construction		512		—
Commercial real estate		16,043		91
Commercial		—		—
Total	$	17,189	$	99
	Three Months Ended
	March 31, 2020
	Average		Interest
(Dollars in thousands)	Recorded		Income
	Investment		Recognized
Residential Real Estate 1-4 Family
First liens	$	656	$	10
Junior liens and lines of credit		—		—
Total		656		10
Residential real estate - construction		521		—
Commercial real estate		10,899		94
Commercial		—		—
Total	$	12,076	$	104

‎

The following table presents the aging of payments of the loan portfolio:

(Dollars in thousands)			Loans Past Due and Still Accruing										Total
	Current		30-59 Days		60-89 Days		90 Days+		Total		Non-Accrual		Loans
March 31, 2021
Residential Real Estate 1-4 Family
First liens	$	131,794	$	174	$	—	$	—	$	174	$	41	$	132,009
Junior liens and lines of credit		65,768		136		38		—		174		9		65,951
Total		197,562		310		38		—		348		50		197,960
Residential real estate - construction		18,107		—		—		—		—		511		18,618
Commercial real estate		485,377		—		—		—		—		8,167		493,544
Commercial		283,548		50		—		—		50		107		283,705
Consumer		7,091		12		2		1		15		—		7,106
Total	$	991,685	$	372	$	40	$	1	$	413	$	8,835	$	1,000,933

December 31, 2020
Residential Real Estate 1-4 Family
First liens	$	137,056	$	43	$	58	$	26	$	127	$	41	$	137,224
Junior liens and lines of credit		65,212		115		23		—		138		10		65,360
Total		202,268		158		81		26		265		51		202,584
Residential real estate - construction		15,797		—		—		—		—		512		16,309
Commercial real estate		495,609		74		261		—		335		8,033		503,977
Commercial		280,930		219		—		—		219		108		281,257
Consumer		5,525		38		2		12		52		—		5,577
Total	$	1,000,129	$	489	$	344	$	38	$	871	$	8,704	$	1,009,704

‎

The following table reports the risk rating for those loans in the portfolio that are assigned an individual risk rating. Consumer purpose loans are assigned a rating of either pass or substandard based on the performance status of the loans. Substandard consumer loans are comprised of loans 90 days or more past due and still accruing, and nonaccrual loans. Commercial purpose loans may be assigned any rating in accordance with the Bank’s internal risk rating system.

	Pass		OAEM		Substandard		Doubtful
(Dollars in thousands)	(1-5)		(6)		(7)		(8)		Total
March 31, 2021
Residential Real Estate 1-4 Family
First liens	$	131,968	$	—	$	41	$	—	$	132,009
Junior liens and lines of credit		65,942		—		9		—		65,951
Total		197,910		—		50		—		197,960
Residential real estate - construction		18,107		—		511		—		18,618
Commercial real estate		438,443		36,607		18,494		—		493,544
Commercial		273,579		9,841		285		—		283,705
Consumer		7,105		—		1		—		7,106
Total	$	935,144	$	46,448	$	19,341	$	—	$	1,000,933

December 31, 2020
Residential Real Estate 1-4 Family
First liens	$	137,156	$	—	$	68	$	—	$	137,224
Junior liens and lines of credit		65,350		—		10		—		65,360
Total		202,506		—		78		—		202,584
Residential real estate - construction		15,797		—		512		—		16,309
Commercial real estate		449,478		35,947		18,552		—		503,977
Commercial		270,272		10,698		287		—		281,257
Consumer		5,565		—		12		—		5,577
Total	$	943,618	$	46,645	$	19,441	$	—	$	1,009,704

The following table presents information on the Bank’s Troubled Debt Restructuring (TDR) loans as of:

								Troubled Debt Restructurings
								Within the Last 12 Months
								That Have Defaulted
(Dollars in thousands)	Troubled Debt Restructurings							On Modified Terms
	Number of	Recorded						Number of	Recorded
	Contracts	Investment		Performing*		Nonperforming*		Contracts	Investment
March 31, 2021
Residential real estate - construction	1	$	433	$	433	$	—	—	$	—
Residential real estate	4		631		631		—	—		—
Commercial real estate - owner occupied	4		1,213		1,213		—	—		—
Commercial real estate - farm land	6		2,224		1,542		682	—		—
Commercial real estate - construction and land development	2		6,038		6,038		—	—		—
Commercial real estate	2		322		117		205	—		—
Total	19	$	10,861	$	9,974	$	887	—	$	—
December 31, 2020
Residential real estate - construction	1	$	434	$	434	$	—	—	$	—
Residential real estate	4		637		637		—	—		—
Commercial real estate - owner occupied	4		1,224		1,224		—	—		—
Commercial real estate - farm land	6		2,257		2,257		—	—		—
Commercial real estate - construction and land development	2		6,129		6,129		—	—		—
Commercial real estate	2		330		122		208	—		—
Total	19	$	11,011	$	10,803	$	208	—	$	—

*The performing status is determined by the loan’s compliance with the modified terms.

‎

There were no new TDR loans during the first quarter of 2021.

The following table reports new TDR loans during 2020, concession granted and the recorded investment as of March 31, 2021:

	New During Period
Twelve Months Ended	Number of		Pre-TDR		After-TDR		Recorded
December 31, 2020	Contracts		Modification		Modification		Investment	Concession
Commercial real estate - farm land	1	$	650	$	650	$	682	multiple
Commercial real estate - owner occupied	2		426		426		425	maturity
	3	$	1,076	$	1,076	$	1,107

Loans that have been modified on a good-faith basis in response to COVID-19 to borrowers who were classified as current prior to any relief are not TDRs as outlined in the March 22, 2020 Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus or Section 4013 of the CARES Act. Such short-term modifications (e.g., six months) may include payment deferrals, fee waivers, extension of payment terms or other delays in payment that are insignificant. Loans may be modified under Section 4013 until the earlier of January 1, 2022 or the 60th day after the end of the COVID-19 national emergency declared by the President. As of March 31, 2021, the Bank has granted $68.1 million loan deferrals or modifications (approximately 7% of gross loans) outstanding.

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Leases

3 Months Ended

Mar. 31, 2021

Leases [Abstract]

Leases

Note 7. Leases

The Corporation leases various assets in the course of its operations that are subject to recognition on the balance sheet. The Corporation considers all of its leases to be operating leases and it has no finance leases. The leased assets are comprised of equipment, and buildings and land (collectively real estate). The equipment leases are shorter-term than the real estate leases, and generally have a fixed payment over a defined term without renewal options. Certain equipment leases have purchase options and it was determined the option was not reasonably certain to be exercised. The real estate leases are longer-term and may contain renewal options after the initial term, but none of the real estate leases contain a purchase option. The renewal options on real estate leases were reviewed and if it was determined the option was reasonably certain to be renewed, the option term was considered in the determination of the lease liability. There is only one real estate lease with a variable payment based on an index included in the lease liability. None of the leases contain any restrictive covenants and there are no significant leases that have not yet commenced. The discount rate used to determine the lease liability is based on the Bank’s fully secured borrowing rate from the Federal Home Loan Bank for a term similar to the lease term. Operating lease expense is included in net occupancy expense in the consolidated statements of income.

Lease costs:

The components of total lease cost were as follows:

	Three Months Ended ‎March 31,
(Dollars in thousands)	2021		2020
Operating lease cost	$	174	$	158
Short-term lease cost		—		2
Variable lease cost		24		14
Total lease cost	$	198	$	174

‎

Supplemental Lease Information:

	Three Months Ended ‎March 31,
(Dollars in thousands)	2021		2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	162	$	152
Weighted-average remaining lease term (years)		11.5		12.8
Weighted-average discount rate		3.34%		3.53%

Lease Obligations:

Future undiscounted lease payments for operating leases with initial terms of one year or more as of March 31, 2021 are as follows:

(Dollars in thousands)
2021	$	494
2022		640
2023		650
2024		628
2025		588
2026 and beyond		3,395
Undiscounted cash flow		6,395
Imputed Interest		(1,170)
Total lease liability	$	5,225

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Other Real Estate Owned

3 Months Ended

Mar. 31, 2021

Other Real Estate Owned [Abstract]

Other Real Estate Owned

Note 8. Other Real Estate Owned

The Bank had no other real estate owned at March 31, 2021 and December 31, 2020.

 

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Derivatives

3 Months Ended

Mar. 31, 2021

Derivatives [Abstract]

Derivatives

Note 9. Derivatives

The Corporation is exposed to certain risks arising from both its business operations and economic conditions.  The Corporation principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Corporation manages economic risks, including interest rate, liquidity, and credit risk, primarily by managing the amount, sources, and duration of its assets and liabilities. 

The Corporation’s existing credit derivatives result from participations in interest rate swaps provided by external lenders as part of loan participation arrangements.  Derivatives not designated as hedges are not speculative and result from a service the Corporation provides to certain lenders which participate in loans.

‎

The table below presents the fair value of the Corporation’s derivative financial instruments as well as their classification on the Balance Sheet.

	Fair Value of Derivative Instruments
	Derivative Liabilities
(Dollars in thousands)	March 31, 2021				December 31, 2020
	Notional amount	Balance Sheet Location		Fair Value	Notional amount	Balance Sheet Location		Fair Value
Derivatives not designated as hedging instruments
Other Contracts	6,790	Other Liabilities	$	17	6,836	Other Liabilities	$	40
Total derivatives not designated as hedging instruments			$	17			$	40

The table below presents the effect of the Corporation’s derivative financial instruments that are not designated as hedging instruments on the Income Statement.

Effect of Derivatives Not Designated as Hedging Instruments on the Statement of Financial Performance
Derivatives Not Designated as Hedging Instruments under Subtopic 815-20	Location of Gain or (Loss) Recognized in Income on Derivative	Amount of Gain or (Loss) Recognized in Income on Derivatives
(Dollars in thousands)		Three Months Ended
		March 31, 2021		March 31, 2020
Other Contracts	Other income	$	23	$	(36)

As of March 31, 2021, the fair value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $17 thousand.  

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Pension

3 Months Ended

Mar. 31, 2021

Pension [Abstract]

Pension

Note 10. Pension

The components of pension expense for the periods presented are as follows:

	Three Months Ended
	March 31,
(Dollars in thousands)	2021		2020
Components of net periodic cost:
Service cost	$	99	$	83
Interest cost		87		131
Expected return on plan assets		(274)		(269)
Settlement expense		108		—
Recognized net actuarial loss		285		226
Total pension expense	$	305	$	171

The service cost component of pension expense is recorded in the salaries and employee benefits line and all other cost components are recorded in the nonservice pension line of the Consolidated Statements of Income.

 

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Fair Value Measurements And Fair Values Of Financial Instruments

3 Months Ended

Mar. 31, 2021

Fair Value Measurements And Fair Values Of Financial Instruments [Abstract]

Fair Value Measurements And Fair Values Of Financial Instruments

Note 11. Fair Value Measurements and Fair Values of Financial Instruments

Management uses its best judgment in estimating the fair value of the Corporation’s financial instruments; however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts the Corporation could have realized in a sales transaction on the dates indicated. The estimated fair value amounts have been measured as of their respective period-ends and have not been re-evaluated or updated for purposes of these financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates maybe different than the amounts reported at each year-end. The Corporation uses the exit price notion to measure the fair value of financial instruments.

FASB ASC Topic 820, “Financial Instruments”, requires disclosure of the fair value of financial assets and liabilities, including those financial assets and liabilities that are not measured and reported at fair value on a recurring and nonrecurring basis. The Corporation does not report any nonfinancial assets at fair value. FASB ASC Topic 820

establishes a fair value hierarchy that prioritizes the inputs to valuation methods used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under FASB ASC Topic 820 are as follows:

Level 1: Valuation is based on unadjusted, quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2: Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market. There may be substantial differences in the assumptions used for securities within the same level. For example, prices for U.S. Agency securities have fewer assumptions and are closer to level 1 valuations than the private label mortgage-backed securities that require more assumptions and are closer to level 3 valuations.

Level 3: Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect the Corporation’s assumptions regarding what market participants would assume when pricing a financial instrument.

An asset’s or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

The following information regarding the fair value of the Corporation’s financial instruments should not be interpreted as an estimate of the fair value of the entire Corporation since a fair value calculation is only provided for a limited portion of the Corporation’s assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Corporation’s disclosures and those of other companies may not be meaningful.

The following methods and assumptions were used to estimate the fair values of the Corporation’s financial instruments measured at fair value on a recurring and nonrecurring basis.

Equity Securities: Equity securities are valued using quoted market prices from nationally recognized markets (Level 1). Equity securities are measured at fair value on a recurring basis.

Investment securities: Fair values of investment securities available-for-sale were primarily measured using information from a third-party pricing service. This service provides pricing information by utilizing evaluated pricing models supported with market data information. Standard inputs include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data from market research publications. Level 2 investment securities are primarily comprised of debt securities issued by states and municipalities, corporations, mortgage-backed securities issued by government agencies, and government-sponsored enterprises. Fair values were estimated primarily by obtaining quoted prices for similar assets in active markets or through the use of pricing models. Investment securities are measured at fair value on a recurring basis.

Impaired Loans: The fair value of impaired loans with specific allocations of the allowance for loan losses is generally based on recent real estate appraisals conducted by an independent, licensed appraiser, less cost to sell. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach (Level 2). If the appraiser makes an adjustment to account for differences between the comparable sales and income data available for similar loans, or if management adjusts the appraised value, then the fair value is considered Level 3. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification. Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted in accordance with the allowance policy. No partial charge-offs on impaired loans were taken in the first quarter of 2021. Impaired loans are measured at fair value on a nonrecurring basis.

‎

Recurring Fair Value Measurements

For financial assets and liabilities measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used at March 31, 2021 and December 31, 2020 are as follows:

(Dollars in thousands)	Fair Value at March 31, 2021
Asset Description	Level 1		Level 2		Level 3		Total
Equity securities, at fair value	$	444	$	—	$	—	$	444
Available for sale:
U.S. Government and Agency securities		9,832		11,084		—		20,916
Municipal securities		—		237,258		—		237,258
Corporate securities		—		22,157		—		22,157
Agency mortgage-backed securities		—		85,974		—		85,974
Private-label mortgage-backed securities		—		11,949		—		11,949
Asset-backed securities		—		43,924		—		43,924
Total assets	$	10,276	$	412,346	$	—	$	422,622

(Dollars in thousands)	Fair Value at December 31, 2020
Asset Description	Level 1		Level 2		Level 3		Total
Equity securities, at fair value	$	391	$	—	$	—	$	391
Available for sale:
U.S. Government and Agency securities		—		12,574		—		12,574
Municipal securities		—		247,054		—		247,054
Corporate securities		—		20,288		—		20,288
Agency mortgage-backed securities		—		72,241		—		72,241
Private-label mortgage-backed securities		—		8,453		—		8,453
Asset-backed securities		—		36,330		—		36,330
Total assets	$	391	$	396,940	$	—	$	397,331

The fair value of derivative liabilities measured at fair value at March 31, 2021 and December 31, 2020 was $17 thousand and $40 thousand, respectively, and was considered immaterial.

Nonrecurring Fair Value Measurements

There were no assets measured at fair value on a nonrecurring basis as of March 31, 2021 and the following table presents the fair value measurement by level within the fair value hierarchy used at December 31, 2020:

(Dollars in Thousands)	Fair Value at December 31, 2020
Asset Description	Level 1		Level 2		Level 3		Total
Impaired loans (1)	$	—	$	—	$	5,474	$	5,474
Total assets	$	—	$	—	$	5,474	$	5,474

(1)Includes assets directly charged-down to fair value during the year-to-date period.

The Corporation did not record any liabilities at fair value for which measurement of the fair value was made on a nonrecurring basis at March 31, 2021. For financial assets and liabilities measured at fair value on a recurring basis, there were no transfers of financial assets or liabilities between Level 1 and Level 2 during the period ending March 31, 2021.

‎

There were no assets measured at fair value on a nonrecurring basis at March 31, 2021 and the following table presents additional quantitative information about Level 3 assets measured at fair value on a nonrecurring basis at December 31, 2020:

(Dollars in thousands)					Range
December 31, 2020		Fair Value	Valuation Technique	Unobservable Input	Weighted Average
Impaired loans	$	5,474	Appraisal	Appraisal Adjustment on	0%-100% (66%)
				Non-real estate assets
				Cost to sell	8%
(1) Includes assets directly charged-down to fair value during the year-to-date period.

The carrying amounts and estimated fair value of financial instruments not carried at fair value are as follows:

	March 31, 2021
	Carrying		Fair
(Dollars in thousands)	Amount		Value		Level 1		Level 2		Level 3
Financial assets, carried at cost:
Cash and cash equivalents	$	107,622	$	107,622	$	107,622	$	—	$	—
Long-term interest-bearing deposits in other banks		10,995		10,995		10,995		—		—
Loans held for sale		4,699		4,799		—		4,799		—
Net loans		984,797		1,013,427		—		—		1,013,427
Accrued interest receivable		6,045		6,045		—		—		6,045
Financial liabilities:
Deposits	$	1,421,042	$	1,433,518	$	—	$	1,433,518	$	—
Subordinate notes		19,564		20,086		—		20,086		—
Accrued interest payable		415		415		—		415		—
	December 31, 2020
	Carrying		Fair
(Dollars in thousands)	Amount		Value		Level 1		Level 2		Level 3
Financial assets, carried at cost:
Cash and cash equivalents	$	57,146	$	57,146	$	57,146	$	—	$	—
Long-term interest-bearing deposits in other banks		12,741		12,741		12,741		—		—
Loans held for sale		9,446		9,446		—	9,446	9,446		—
Net loans		992,915		990,867		—		—		990,867
Accrued interest receivable		6,410		6,410		—		—		6,410
Financial liabilities:
Deposits	$	1,354,573	$	1,355,086	$	—	$	1,355,086	$	—
Subordinate notes		19,555		19,750		—		19,750		—
Accrued interest payable		180		180		—		180		—

 

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Subordinate Notes

3 Months Ended

Mar. 31, 2021

Subordinate Notes [Abstract]

Subordinate Notes

Note 12. Subordinated Notes

At March 31, 2021, the Corporation had $20.0 million of unsecured subordinated debt notes payable, $15.0 million which mature on September 1, 2030 and $5.0 million which mature on September 1, 2035. The notes are recorded on the consolidated balance sheet net of remaining debt issuance costs totaling $435.7 thousand at March 31, 2021, which is being amortized on a pro-rata basis over a 5-year and 10-year period, based on the call dates of the notes, on an effective interest method. The subordinated notes totaling $15.0 million have a fixed interest rate of 5.00% through September 1, 2025, then convert to a variable rate of 90-day Secured Overnight Financing Rate (SOFR) plus 4.93% for the applicable interest periods through maturity. The subordinated notes totaling $5.0 million have a fixed interest rate of 5.25% through September 1, 2030, then convert to a variable rate of 90-day SOFR plus 4.92% for the applicable interest periods through maturity. The Corporation may, at its option, redeem the notes, in whole or in part, at any time 5-years prior to the maturity. The notes are structured to qualify as Tier 2 Capital for the Corporation and there are no debt covenants on the notes.

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Capital Ratios

3 Months Ended

Mar. 31, 2021

Capital Ratios [Abstract]

Capital Ratios

Note 13. Capital Ratios

Capital adequacy for the Bank is currently defined by regulatory agencies through the use of several minimum required ratios. The capital ratios to be considered “well capitalized” are: (1) Common Equity Tier 1 (CET1) of 6.5%, (2) Tier 1 Leverage of 5%, (3) Tier 1 Risk-Based Capital of 8%, and (4) Total Risk-Based Capital of 10%. In addition, a capital conservation buffer of 2.50% is applicable to all of the capital ratios except for the Tier 1 Leverage ratio. The capital conservation buffer is equal to the lowest value of the three applicable capital ratios less the regulatory minimum for each respective capital measurement. The Bank’s capital conservation buffer at March 31, 2021 was 7.89% compared to the regulatory buffer of 2.50%. Compliance with the capital conservation buffer is required in order to avoid limitations to certain capital distributions and is in addition to the minimum required capital requirements. As of March 31, 2021, the Bank was “well capitalized”.

In 2019, the Community Bank Leverage Ratio (CBLR) was approved by federal banking agencies as an optional capital measure available to Qualifying Community Banking Organizations (QCBO). If a bank qualifies as a QCBR and maintains a CBLR of 9% or greater, the bank would be considered “well-capitalized” for regulatory capital purposes and exempt from complying with the risk-based capital rule described above. The CBLR rule took effect January 1, 2020 and banks could opt-in through an election in the first quarter 2020 regulatory filing. The Bank met the criteria of a QCBR but did not opt-in to the CBLR.

The Bank is participating in the PPP and the Paycheck Protection Program Liquidity Facility (PPPLF) to fund PPP Loans. In accordance with regulatory guidance, PPP loans pledged as collateral for PPPLF, and PPPLF advances, are excluded from leverage capital ratios. PPP loans will also carry a 0% risk-weight for risk-based capital rules.

The consolidated asset limit on small bank holding companies is $3.0 billion and a company with assets under that limit is not subject to the consolidated capital rules but may file reports that include capital amounts and ratios. The Corporation has elected to file those reports.

The following table summarizes the regulatory capital requirements and results as of March 31, 2021 and December 31, 2020 for the Corporation and the Bank:

			Regulatory Ratios
			Adequately	Well
	March 31,	December 31,	Capitalized	Capitalized
(Dollars in thousands)	2021	2020	Minimum	Minimum
Common Equity Tier 1 Risk-based Capital Ratio (1)
Franklin Financial Services Corporation	14.80%	14.32%	N/A	N/A
Farmers & Merchants Trust Company	14.63%	14.07%	4.50%	6.50%
Tier 1 Risk-based Capital Ratio (2)
Franklin Financial Services Corporation	14.80%	14.32%	N/A	N/A
Farmers & Merchants Trust Company	14.63%	14.07%	6.00%	8.00%
Total Risk-based Capital Ratio (3)
Franklin Financial Services Corporation	18.18%	17.69%	N/A	N/A
Farmers & Merchants Trust Company	15.89%	15.33%	8.00%	10.00%
Tier 1 Leverage Ratio (4)
Franklin Financial Services Corporation	8.76%	8.69%	N/A	N/A
Farmers & Merchants Trust Company	8.65%	8.54%	4.00%	5.00%
(1) Common equity Tier 1 capital/ total risk-weighted assets (2) Tier 1 capital / total risk-weighted assets
(3) Total risk-based capital / total risk-weighted assets, (4) Tier 1 capital / average quarterly assets

 

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Revenue Recognition

3 Months Ended

Mar. 31, 2021

Revenue Recognition [Abstract]

Revenue Recognition

‎

Note 14. Revenue Recognition

All of the Corporation’s revenue from contracts with customers within the scope of ASC 606 is recognized in non-interest income as presented in its consolidated statements of income. Revenue generating activities that fall within the scope of ASC 606 are described as follows:

Investment and Trust Service Fees – these represent fees from wealth management (assets under management), fees from the management and settlement of estates and commissions from the sale of investment and insurance products.

Asset management fees are generally assessed based on a tiered fee schedule, based on the value of assets under management, and are recognized monthly when the service obligation is completed. Fees recognized were $1.5 million for the first quarter of 2021 and $1.3 million for the first quarter of 2020.

Fees for estate management services are based on the estimated fair value of the estate. These fees are generally recognized monthly over an 18-month period that Management has determined to represent the average time to fulfill the performance obligations of the contract. Management has the discretion to adjust this time period as needed based upon the nature and complexity of an individual estate. Fees recognized were $84 thousand for the first quarter of 2021, compared to $33 thousand for the first quarter of 2020.

Commissions from the sale of investment and insurance products are recognized upon the completion of the transaction. Commissions recognized were $37 thousand for the first quarter of 2021, compared to $74 thousand for the first quarter 2020.

Loan Service Charges – these represent fees on loans for services or charges that occur after the loan has been booked, for example, late payment fees. These also include fees for mortgages settled for third-party mortgage companies. All of these fees are transactional in nature and are recognized upon completion of the transaction which represents the performance obligation.

Deposit Service Charges and Fees – these represent fees from deposit customers for transaction based, account maintenance, and overdraft services. Transaction based fees include, but are not limited to, stop payment fees and overdraft fees. These fees are recognized at the time of the transaction when the performance obligation has been fulfilled. Account maintenance fees and account analysis fees are earned over the course of a month, representing the period of the performance obligation, and are recognized monthly.

Debit Card Income – this represents interchange fees from cardholder transactions conducted through the card payment network. Cardholders use the debit card to conduct point-of-sale transactions that produce interchange fees. The fees are transaction based and the fee is recognized with the processing of the transaction. These fees are reported net of cardholder rewards.

Other Service Charges and Fees – these are comprised primarily of merchant card fees, credit card fees, ATM surcharges and interchange fees and wire transfer fees. Merchant card fees represent fees the Bank earns from a third party for enrolling a customer in the processor’s program. Credit card fees represent a fee earned by the Bank for a successful referral to a card-issuing company. ATM surcharges and interchange fees are the result of Bank customers conducting ATM transactions that generate fee income and are processed through multiple card networks. All of these fees are transaction based and are recognized at the time of the transaction.

Gains/Losses on the Sale of Other Real Estate – these are recognized when control of the property transfers to the buyer.

Contract Balances

A contract asset balance occurs when an entity performs a service for a customer before the customer pays consideration (resulting in a contract receivable) or before payment is due (resulting in a contract asset). A contract liability balance is an entity’s obligation to transfer a service to a customer for which the entity has already received payment (or payment is due) from the customer. The Company’s noninterest revenue streams are largely based on transactional activity, or standard month-end revenue accruals such as asset management fees based on month-end market values. Consideration is often received immediately or shortly after the Company satisfies its performance obligation and revenue is recognized. The Company does not typically enter into longer-term revenue contracts with customers, and therefore, does not experience significant contract balances.

Contract Acquisition Costs

The Corporation expenses all contract acquisition costs as costs are incurred.

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Commitments And Contingencies

3 Months Ended

Mar. 31, 2021

Commitments And Contingencies [Abstract]

Commitments And Contingencies

‎

1Note 15. Commitments and Contingencies

In the normal course of business, the Bank is a party to financial instruments that are not reflected in the accompanying financial statements and are commonly referred to as off-balance-sheet instruments. These financial instruments are entered into primarily to meet the financing needs of the Bank’s customers and include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk not recognized in the consolidated balance sheet.

The Corporation’s exposure to credit loss in the event of nonperformance by other parties to the financial instruments for commitments to extend credit and standby letters of credit is represented by the contract or notional amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as they do for on-balance-sheet instruments.

The Bank had the following outstanding commitments for the periods presented:

	March 31,		December 31,
(Dollars in thousands)	2021		2020
Financial instruments whose contract amounts represent credit risk
Commercial commitments to extend credit	$	280,806	$	280,939
Consumer commitments to extend credit (secured)		74,989		71,761
Consumer commitments to extend credit (unsecured)		5,456		5,224
	$	361,251	$	357,924
Standby letters of credit	$	21,260	$	22,334

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses with the exception of home equity lines and personal lines of credit and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank, is based on Management’s credit evaluation of the counterparty. Collateral for most commercial commitments varies but may include accounts receivable, inventory, property, plant, and equipment, and income-producing commercial properties. Collateral for secured consumer commitments consists of liens on residential real estate.

Standby letters of credit are instruments issued by the Bank, which guarantee the beneficiary payment by the Bank in the event of default by the Bank’s customer in the nonperformance of an obligation or service. Most standby letters of credit are extended for one-year periods. Generally, the credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Bank holds collateral supporting those commitments for which collateral is deemed necessary primarily in the form of certificates of deposit and liens on real estate. Management believes that the proceeds obtained through a liquidation of such collateral would be sufficient to cover the maximum potential amount of future payments required under the corresponding guarantees. In the second quarter of 2018, the Bank established a $2.4 million allowance against letters of credit issued in connection with a commercial borrower that declared bankruptcy. In the first quarter of 2020, the Bank reversed $250 thousand of this reserve as one letter of credit was cancelled. At March 31, 2021 this reserve was $2.1 million. Except for the liability recorded for standby letters of credit, liabilities for credit loss associated with off-balance sheet commitments were not material at March 31, 2021 and December 31, 2020.

Most of the Bank’s business activity is with customers located within its primary market and does not involve any significant concentrations of credit to any one entity or industry.

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Legal Proceedings

The nature of the Corporation’s business generates a certain amount of litigation.

The Corporation establishes accruals for legal proceedings when information related to the loss contingencies represented by those matters indicates both that a loss is probable, and the amount of the loss can be reasonably estimated. When the Corporation is able to do so, it also determines estimates of possible losses, whether in excess of any accrued liability or where there is no accrued liability.

These assessments are based on the analysis of currently available information and are subject to significant judgment and a variety of assumptions and uncertainties. As new information is obtained, the Corporation may change its assessments and, as a result, take or adjust the amounts of its accruals and change its estimates of possible losses or ranges of possible losses. Due to the inherent subjectivity of the assessments and the unpredictability of outcomes of legal proceedings, any amounts that may be accrued or included in estimates of possible losses or ranges of possible losses may not represent the actual loss to the Corporation from any legal proceeding. Its exposure and ultimate losses may be higher, possibly significantly higher, than amounts it may accrue or amounts it may estimate.

In management’s opinion, the Corporation does not anticipate, at the present time, that the ultimate aggregate liability, if any, arising out of all litigation to which the Corporation is a party at this time will have a material adverse effect on its financial position. The Corporation cannot now determine, however, whether or not any claim asserted against it will have a material adverse effect on its results of operations in any future reporting period, which will depend on, among other things, the amount of loss resulting from the claim and the amount of income otherwise reported for the reporting period. Thus, at March 31, 2021, the Corporation is unable to provide an evaluation of the likelihood of an unfavorable outcome or an estimate of the amount or range of potential loss with respect to such other matters and, accordingly, have not yet established any specific accrual for such other matters.

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Reclassification

3 Months Ended

Mar. 31, 2021

Reclassification [Abstract]

Reclassification

Note 16. Reclassification

Certain prior period amounts may have been reclassified to conform to the current year presentation. Such reclassifications did not affect prior year net income or shareholders’ equity.

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Basis Of Presentation (Policy)

3 Months Ended

Mar. 31, 2021

Basis Of Presentation [Abstract]

Consolidation

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

In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the consolidated financial position, results of operations, and cash flows as of March 31, 2021, and for all other periods presented have been made.

Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted. It is suggested that these consolidated financial statements be read in conjunction with the audited consolidated financial statements and notes thereto included in the Corporation’s 2020 Annual Report on Form 10-K. The consolidated results of operations for the three-month period ended March 31, 2021 are not necessarily indicative of the operating results for the full year. Management has evaluated subsequent events for potential recognition and/or disclosure through the date these consolidated financial statements were issued.

The consolidated balance sheet at December 31, 2020 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by GAAP for complete consolidated financial statements.

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

Earnings Per Share

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

	For the Three Months Ended
	March 31,
(Dollars and shares in thousands, except per share data)	2021		2020
Weighted average shares outstanding (basic)		4,396		4,347
Impact of common stock equivalents		19		14
Weighted average shares outstanding (diluted)		4,415		4,361
Anti-dilutive options excluded from calculation		61		50
Net income	$	4,830	$	1,719
Basic earnings per share	$	1.10	$	0.40
Diluted earnings per share	$	1.09	$	0.39

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Basis Of Presentation (Tables)

3 Months Ended

Mar. 31, 2021

Basis Of Presentation [Abstract]

Schedule Of Earnings Per Share, Basic And Diluted

	For the Three Months Ended
	March 31,
(Dollars and shares in thousands, except per share data)	2021		2020
Weighted average shares outstanding (basic)		4,396		4,347
Impact of common stock equivalents		19		14
Weighted average shares outstanding (diluted)		4,415		4,361
Anti-dilutive options excluded from calculation		61		50
Net income	$	4,830	$	1,719
Basic earnings per share	$	1.10	$	0.40
Diluted earnings per share	$	1.09	$	0.39

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Recent Accounting Pronouncements (Tables)

3 Months Ended

Mar. 31, 2021

Recent Accounting Pronouncements [Abstract]

Recent Accounting Pronouncements

Recently issued but not yet effective accounting standards
ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
Description	This standard requires credit losses on most financial assets measured at amortized cost and certain other instruments to be measured using an expected credit loss model (referred to as the current expected credit loss (CECL) model). Under this model, entities will estimate credit losses over the entire contractual term of the instrument (considering estimated prepayments, but not expected extensions or modifications unless reasonable expectation of a troubled debt restructuring exists) from the date of initial recognition of that instrument. The ASU replaces the current accounting model for purchased credit impaired loans and debt securities. The allowance for credit losses for purchased financial assets with a more-than insignificant amount of credit deterioration since origination (“PCD assets”), should be determined in a similar manner to other financial assets measured on an amortized cost basis. However, upon initial recognition, the allowance for credit losses is added to the purchase price to determine the initial amortized cost basis. The subsequent accounting for PCD financial assets is the same expected loss model described above.
Effective Date	January 1, 2023
Effect on the Consolidated Financial Statements	We have formed an implementation team led by the Corporation's Risk Management function. The team is reviewing the requirements of the ASU and evaluating methods and models for implementation. As of the beginning of the first reporting period in which the new standard is adopted, the Corporation expects to recognize a one-time cumulative-effect adjustment to the allowance for loan losses, which will flow through retained earnings. After adoption, the new standard will result in earlier recognition of additions to the allowance for loan losses and possibly a larger allowance for loan loss balance with a corresponding increase in the provision for loan losses in results of operations; however, the Corporation is continuing to evaluate the impact of the pending adoption of the new standard on its consolidated financial statements. A third-party vendor has been selected to assist with the CECL calculations and the implementation process has started. The Corporation expects to be able to run the CECL model in test mode in 2021.
ASU 2019-05, Financial Instruments - Credit Losses (Topic 326): Targeted Transition Relief
Description	This ASU allows entities to irrevocably elect, upon adoption of ASU 2016-13, the fair value option on financial instruments that (1) were previously recorded at amortized cost and (2) are within the scope of ASC 326-20 if the instruments are eligible for the fair value option under ASC 825-10. The fair value option election does not apply to held-to-maturity debt securities. Entities are required to make this election on an instrument-by-instrument basis. ASU 2019-05 has the same effective date as ASU 2016-13. On October 16,2019, FASB approved its August 2019 proposal to grant certain small public companies a delay in the effective date of ASU 2016-13. For the Corporation, the delay makes the ASU effective January 2023. Since the Corporation currently meets the SEC definition of a small reporting company, the delay will be applied to the Corporation. Early adoption is permitted.
Effective Date	January 1, 2023
Effect on the Consolidated Financial Statements	The Corporation will continue to review the ASU as part of its adoption of ASU 2016-13.
ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting
Description	This ASU provides temporary, optional guidance to ease the potential burden in accounting for, or recognizing the effects of, the transition away from the LIBOR or other interbank offered rate on financial reporting. To help with the transition to new reference rates, the ASU provides optional expedients and exceptions for applying GAAP to affected contract modifications and hedge accounting relationships. The main provisions include: (1) a change in a contract's reference interest rate would be accounted for as a continuation of that contract rather than as the creation of a new one for contracts, including loans, debts, leases, and other arrangements that meet specific criteria, and (2) when updating its hedging strategies in response to reference rate reform, an entity would be allowed to preserve its accounting. The guidance is applicable only to contracts or hedge accounting relationships that reference LIBOR or another reference rate expected to be discontinued. Because the guidance is meant to help entities through the transition period, it will be in effect for a limited time and will not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, for which an entity has elected certain optional expedients that are retained through the end of the hedging relationship.
Effective Date	March 12, 2020 through December 31, 2022
Effect on the Consolidated Financial Statements	The Corporation will continue to review the ASU as part of its adoption but does not expect it to have a material effect on the consolidated financial statements.

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Accumulated Other Comprehensive Income (Loss) (Tables)

3 Months Ended

Mar. 31, 2021

Accumulated Other Comprehensive Income (Loss) [Abstract]

Schedule Of Accumulated Other Comprehensive Income (Loss)

	March 31,		December 31,
(Dollars in thousands)	2021		2020
Net unrealized gains on debt securities	$	1,994	$	12,571
Tax effect		(419)		(2,640)
Net of tax amount	$	1,575	$	9,931
Accumulated pension adjustment	$	(8,533)	$	(8,533)
Tax effect		1,792		1,792
Net of tax amount	$	(6,741)	$	(6,741)
Total accumulated other comprehensive (loss)/income	$	(5,166)	$	3,190

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Investments (Tables)

3 Months Ended

Mar. 31, 2021

Investments [Abstract]

Unrealized Gain (Loss) On Investments

(Dollars in thousands)			Gross		Gross
	Amortized		unrealized		unrealized		Fair
March 31, 2021	cost		gains		losses		value
U.S. Government and Agency securities	$	21,070	$	16	$	(170)	$	20,916
Municipal securities		235,808		5,582		(4,132)		237,258
Corporate securities		22,268		153		(264)		22,157
Agency mortgage-backed securities		85,429		1,360		(815)		85,974
Private-label mortgage-backed securities		11,966		45		(62)		11,949
Asset-backed securities		43,643		390		(109)		43,924
	$	420,184	$	7,546	$	(5,552)	$	422,178

(Dollars in thousands)			Gross		Gross
	Amortized		unrealized		unrealized		Fair
December 31, 2020	cost		gains		losses		value
U.S. Government and Agency securities	$	12,594	$	20	$	(40)	$	12,574
Municipal securities		236,253		11,020		(219)		247,054
Corporate securities		20,421		22		(155)		20,288
Agency mortgage-backed securities		70,443		1,905		(107)		72,241
Private-label mortgage-backed securities		8,412		56		(15)		8,453
Asset-backed securities		36,246		249		(165)		36,330
	$	384,369	$	13,272	$	(701)	$	396,940

Amortized Cost And Fair Value Of Debt Securities, By Contractual Maturity

(Dollars in thousands)	Amortized ‎cost		Fair ‎value
Due in one year or less	$	2,361	$	2,367
Due after one year through five years		21,738		22,274
Due after five years through ten years		174,745		178,862
Due after ten years		80,302		76,828
		279,146		280,331
Mortgage-backed and asset-backed securities		141,038		141,847
	$	420,184	$	422,178

Composition Of Net Realized Securities Gains

	For the Three Months Ended
	March 31,
(Dollars in thousands)	2021		2020
Proceeds	$	—	$	165
Gross gains realized		—		—
Gross losses realized		—		(10)
Net (losses) gains realized	$	—	$	(10)
Tax benefit (provision) on net (losses) gains realized	$	—	$	2

Schedule Of Unrealized Loss On Investments

The following table reflects temporary impairment in the AFS portfolio, aggregated by investment category, length of time that individual securities have been in a continuous unrealized loss position and the number of securities in each category as of March 31, 2021 and December 31, 2020:

	March 31, 2021
	Less than 12 months					12 months or more					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(Dollars in thousands)	Value		Losses		Count	Value		Losses		Count	Value		Losses		Count
U.S. Government and Agency ‎  securities	$	9,832	$	(134)	7	$	7,629	$	(36)	15	$	17,461	$	(170)	22
Municipal securities		97,958		(4,132)	107		—		—	—		97,958		(4,132)	107
Corporate securities		9,677		(173)	19		2,806		(91)	3		12,483		(264)	22
Agency mortgage-backed securities		31,182		(809)	32		1,504		(6)	3		32,686		(815)	35
Private-label mortgage-backed securities		6,828		(62)	5		—		—	—		6,828		(62)	5
Asset-backed securities		3,236		(29)	3		7,983		(80)	11		11,219		(109)	14
Total temporarily impaired ‎  securities	$	158,713	$	(5,339)	173	$	19,922	$	(213)	32	$	178,635	$	(5,552)	205

	December 31, 2020
	Less than 12 months					12 months or more					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(Dollars in thousands)	Value		Losses		Count	Value		Losses		Count	Value		Losses		Count
U.S. Government and Agency ‎  securities	$	3,966	$	(21)	5	$	4,185	$	(19)	11	$	8,151	$	(40)	16
Municipal securities		27,022		(219)	28		—		—	—		27,022		(219)	28
Corporate securities		7,576		(37)	13		3,040		(118)	4		10,616		(155)	17
Agency mortgage-backed securities		18,390		(101)	17		3,355		(6)	5		21,745		(107)	22
Private-label mortgage-backed securities		2,506		(15)	2		—		—	—		2,506		(15)	2
Asset-backed securities		1,458		(12)	2		11,452		(153)	15		12,910		(165)	17
Total temporarily impaired ‎  securities	$	60,918	$	(405)	67	$	22,032	$	(296)	35	$	82,950	$	(701)	102

Other Than Temporary Impairment, Credit Losses Recognized In Earnings

	Three Months Ended
(Dollars in thousands)	March 31,
	2021		2020
Balance of cumulative credit-related OTTI at January 1	$	272	$	272
Decreases for previously recognized credit losses on securities that paid off		(15)		—
Balance of credit-related OTTI at March 31	$	257	$	272

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Loans (Tables)

3 Months Ended

Mar. 31, 2021

Loans [Abstract]

Schedule Of Loans Outstanding

	March 31,		December 31,
(Dollars in thousands)	2021		2020
Residential Real Estate 1-4 Family
Consumer first liens	$	73,991	$	77,373
Commercial first lien		58,018		59,851
Total first liens		132,009		137,224
Consumer junior liens and lines of credit		61,707		60,935
Commercial junior liens and lines of credit		4,244		4,425
Total junior liens and lines of credit		65,951		65,360
Total residential real estate 1-4 family		197,960		202,584
Residential real estate - construction
Consumer		7,804		6,751
Commercial		10,814		9,558
Total residential real estate construction		18,618		16,309
Commercial real estate		493,544		503,977
Commercial		283,705		281,257
Total commercial		777,249		785,234
Consumer		7,106		5,577
		1,000,933		1,009,704
Less: Allowance for loan losses		(16,136)		(16,789)
Net Loans	$	984,797	$	992,915
Included in the loan balances are the following:
Net unamortized deferred loan (fees) costs	$	(374)	$	8
Paycheck Protection Program (PPP) loans (included in Commercial loans above)
Two-year loans	$	3,455	$	5,378
Five-year loans		52,418		46,912
Total Paycheck Protection Program loans	$	55,873	$	52,290
Net unamortized deferred PPP loan fees (included in Net unamortized deferred loan fees above)
Two-year loans	$	(63)	$	(165)
Five-year loans		(1,617)		(1,178)
Total net unamortized deferred PPP loan fees	$	(1,680)	$	(1,343)
Loans pledged as collateral for borrowings and commitments from:
FHLB	$	695,190	$	840,850
Federal Reserve Bank		50,682		50,605
	$	745,872	$	891,455

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Loan Quality And Allowance For Loan Losses (Tables)

3 Months Ended

Mar. 31, 2021

Loan Quality And Allowance For Loan Losses [Abstract]

Allowance For Loan Losses, By Loan Segment

The following table presents, by class, the activity in the Allowance for Loan Losses (ALL) for the periods shown:

	Residential Real Estate 1-4 Family
	First		Junior Liens &				Commercial
(Dollars in thousands)	Liens		Lines of Credit		Construction		Real Estate		Commercial		Consumer		Unallocated		Total
ALL at December 31, 2020	$	555	$	226	$	294	$	9,163	$	5,679	$	97	$	775	$	16,789
Charge-offs		—		—		—		(13)		(5)		(18)		—		(36)
Recoveries		—		169		—		—		7		7		—		183
Provision		(108)		(184)		24		(365)		(208)		27		14		(800)
ALL at March 31, 2021	$	447	$	211	$	318	$	8,785	$	5,473	$	113	$	789	$	16,136
ALL at December 31, 2019	$	416	$	119	$	186	$	6,607	$	4,022	$	84	$	532	$	11,966
Charge-offs		-		—		—		—		(220)		(30)		—		(250)
Recoveries		3		—		—		—		5		6		—		14
Provision		144		59		82		1,660		889		38		128		3,000
ALL at March 31, 2020	$	563	$	178	$	268	$	8,267	$	4,696	$	98	$	660	$	14,730

The following table presents, by class, loans that were evaluated for the ALL under the specific reserve (individually) and those that were evaluated under the general reserve (collectively) and the amount of the ALL established in each class as of March 31, 2021 and December 31, 2020:

	Residential Real Estate 1-4 Family
	First		Junior Liens &				Commercial
(Dollars in thousands)	Liens		Lines of Credit		Construction		Real Estate		Commercial		Consumer		Unallocated		Total
March 31, 2021
Loans evaluated for ALL:
Individually	$	631	$	—	$	511	$	16,000	$	—	$	—	$	—	$	17,142
Collectively		131,378		65,951		18,107		477,544		283,705		7,106		—		983,791
Total	$	132,009	$	65,951	$	18,618	$	493,544	$	283,705	$	7,106	$	—	$	1,000,933
ALL established for ‎  loans evaluated:
Individually	$	—	$	—	$	—	$	228	$	—	$	—	$	—	$	228
Collectively		447		211		318		8,557		5,473		113		789		15,908
ALL at March 31, 2021	$	447	$	211	$	318	$	8,785	$	5,473	$	113	$	789	$	16,136
December 31, 2020
Loans evaluated for ALL:
Individually	$	637	$	—	$	512	$	16,104	$	—	$	—	$	—	$	17,253
Collectively		136,587		65,360		15,797		487,873		281,257		5,577		—		992,451
Total	$	137,224	$	65,360	$	16,309	$	503,977	$	281,257	$	5,577	$	—	$	1,009,704
ALL established for ‎  loans evaluated:
Individually	$	—	$	—	$	—	$	228	$	—	$	—	$	—	$	228
Collectively		555		226		294		8,935		5,679		97		775		16,561
ALL at December 31, 2020	$	555	$	226	$	294	$	9,163	$	5,679	$	97	$	775	$	16,789

Impaired Financing Receivables

The following table shows additional information about those loans considered to be impaired at March 31, 2021 and December 31, 2020:

	Impaired Loans
	With No Allowance				With Allowance
(Dollars in thousands)			Unpaid				Unpaid
	Recorded		Principal		Recorded		Principal		Related
March 31, 2021	Investment		Balance		Investment		Balance		Allowance
Residential Real Estate 1-4 Family
First liens	$	631	$	631	$	—	$	—	$	—
Junior liens and lines of credit		—		—		—		—		—
Total		631		631		—		—		—
Residential real estate - construction		511		729		—		—		—
Commercial real estate		10,259		10,987		5,741		5,741		228
Commercial		—		—		—		—		—
Total	$	11,401	$	12,347	$	5,741	$	5,741	$	228

December 31, 2020
Residential Real Estate 1-4 Family
First liens	$	637	$	637	$	—	$	—	$	—
Junior liens and lines of credit		—		—		—		—		—
Total		637		637		—		—		—
Residential real estate - construction		512		729		—		—		—
Commercial real estate		10,402		11,107		5,702		5,702		228
Commercial		—		—		—		—		—
Total	$	11,551	$	12,473	$	5,702	$	5,702	$	228

The following table shows the average of impaired loans and related interest income for the three months ended March 31, 2021 and 2020:

	Three Months Ended
	March 31, 2021
	Average		Interest
(Dollars in thousands)	Recorded		Income
	Investment		Recognized
Residential Real Estate 1-4 Family
First liens	$	634	$	8
Junior liens and lines of credit		—		—
Total		634		8
Residential real estate - construction		512		—
Commercial real estate		16,043		91
Commercial		—		—
Total	$	17,189	$	99
	Three Months Ended
	March 31, 2020
	Average		Interest
(Dollars in thousands)	Recorded		Income
	Investment		Recognized
Residential Real Estate 1-4 Family
First liens	$	656	$	10
Junior liens and lines of credit		—		—
Total		656		10
Residential real estate - construction		521		—
Commercial real estate		10,899		94
Commercial		—		—
Total	$	12,076	$	104

Aging Of Payments Of The Loan Portfolio

The following table presents the aging of payments of the loan portfolio:

(Dollars in thousands)			Loans Past Due and Still Accruing										Total
	Current		30-59 Days		60-89 Days		90 Days+		Total		Non-Accrual		Loans
March 31, 2021
Residential Real Estate 1-4 Family
First liens	$	131,794	$	174	$	—	$	—	$	174	$	41	$	132,009
Junior liens and lines of credit		65,768		136		38		—		174		9		65,951
Total		197,562		310		38		—		348		50		197,960
Residential real estate - construction		18,107		—		—		—		—		511		18,618
Commercial real estate		485,377		—		—		—		—		8,167		493,544
Commercial		283,548		50		—		—		50		107		283,705
Consumer		7,091		12		2		1		15		—		7,106
Total	$	991,685	$	372	$	40	$	1	$	413	$	8,835	$	1,000,933

December 31, 2020
Residential Real Estate 1-4 Family
First liens	$	137,056	$	43	$	58	$	26	$	127	$	41	$	137,224
Junior liens and lines of credit		65,212		115		23		—		138		10		65,360
Total		202,268		158		81		26		265		51		202,584
Residential real estate - construction		15,797		—		—		—		—		512		16,309
Commercial real estate		495,609		74		261		—		335		8,033		503,977
Commercial		280,930		219		—		—		219		108		281,257
Consumer		5,525		38		2		12		52		—		5,577
Total	$	1,000,129	$	489	$	344	$	38	$	871	$	8,704	$	1,009,704

Internal Credit Rating For The Loan Portfolio

The following table reports the risk rating for those loans in the portfolio that are assigned an individual risk rating. Consumer purpose loans are assigned a rating of either pass or substandard based on the performance status of the loans. Substandard consumer loans are comprised of loans 90 days or more past due and still accruing, and nonaccrual loans. Commercial purpose loans may be assigned any rating in accordance with the Bank’s internal risk rating system.

	Pass		OAEM		Substandard		Doubtful
(Dollars in thousands)	(1-5)		(6)		(7)		(8)		Total
March 31, 2021
Residential Real Estate 1-4 Family
First liens	$	131,968	$	—	$	41	$	—	$	132,009
Junior liens and lines of credit		65,942		—		9		—		65,951
Total		197,910		—		50		—		197,960
Residential real estate - construction		18,107		—		511		—		18,618
Commercial real estate		438,443		36,607		18,494		—		493,544
Commercial		273,579		9,841		285		—		283,705
Consumer		7,105		—		1		—		7,106
Total	$	935,144	$	46,448	$	19,341	$	—	$	1,000,933

December 31, 2020
Residential Real Estate 1-4 Family
First liens	$	137,156	$	—	$	68	$	—	$	137,224
Junior liens and lines of credit		65,350		—		10		—		65,360
Total		202,506		—		78		—		202,584
Residential real estate - construction		15,797		—		512		—		16,309
Commercial real estate		449,478		35,947		18,552		—		503,977
Commercial		270,272		10,698		287		—		281,257
Consumer		5,565		—		12		—		5,577
Total	$	943,618	$	46,645	$	19,441	$	—	$	1,009,704

Troubled Debt Restructuring Loans

The following table presents information on the Bank’s Troubled Debt Restructuring (TDR) loans as of:

								Troubled Debt Restructurings
								Within the Last 12 Months
								That Have Defaulted
(Dollars in thousands)	Troubled Debt Restructurings							On Modified Terms
	Number of	Recorded						Number of	Recorded
	Contracts	Investment		Performing*		Nonperforming*		Contracts	Investment
March 31, 2021
Residential real estate - construction	1	$	433	$	433	$	—	—	$	—
Residential real estate	4		631		631		—	—		—
Commercial real estate - owner occupied	4		1,213		1,213		—	—		—
Commercial real estate - farm land	6		2,224		1,542		682	—		—
Commercial real estate - construction and land development	2		6,038		6,038		—	—		—
Commercial real estate	2		322		117		205	—		—
Total	19	$	10,861	$	9,974	$	887	—	$	—
December 31, 2020
Residential real estate - construction	1	$	434	$	434	$	—	—	$	—
Residential real estate	4		637		637		—	—		—
Commercial real estate - owner occupied	4		1,224		1,224		—	—		—
Commercial real estate - farm land	6		2,257		2,257		—	—		—
Commercial real estate - construction and land development	2		6,129		6,129		—	—		—
Commercial real estate	2		330		122		208	—		—
Total	19	$	11,011	$	10,803	$	208	—	$	—

*The performing status is determined by the loan’s compliance with the modified terms.

‎

There were no new TDR loans during the first quarter of 2021.

The following table reports new TDR loans during 2020, concession granted and the recorded investment as of March 31, 2021:

	New During Period
Twelve Months Ended	Number of		Pre-TDR		After-TDR		Recorded
December 31, 2020	Contracts		Modification		Modification		Investment	Concession
Commercial real estate - farm land	1	$	650	$	650	$	682	multiple
Commercial real estate - owner occupied	2		426		426		425	maturity
	3	$	1,076	$	1,076	$	1,107

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Leases (Tables)

3 Months Ended

Mar. 31, 2021

Leases [Abstract]

Schedule Of Lease Costs

	Three Months Ended ‎March 31,
(Dollars in thousands)	2021		2020
Operating lease cost	$	174	$	158
Short-term lease cost		—		2
Variable lease cost		24		14
Total lease cost	$	198	$	174

Schedule Of Measurement Of Lease Liabilities

	Three Months Ended ‎March 31,
(Dollars in thousands)	2021		2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	162	$	152
Weighted-average remaining lease term (years)		11.5		12.8
Weighted-average discount rate		3.34%		3.53%

Schedule Of Future Minimum Payments Operating Leases

(Dollars in thousands)
2021	$	494
2022		640
2023		650
2024		628
2025		588
2026 and beyond		3,395
Undiscounted cash flow		6,395
Imputed Interest		(1,170)
Total lease liability	$	5,225

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Derivatives (Tables)

3 Months Ended

Mar. 31, 2021

Derivatives [Abstract]

Schedule Of Fair Value Of Derivative Instruments

	Fair Value of Derivative Instruments
	Derivative Liabilities
(Dollars in thousands)	March 31, 2021				December 31, 2020
	Notional amount	Balance Sheet Location		Fair Value	Notional amount	Balance Sheet Location		Fair Value
Derivatives not designated as hedging instruments
Other Contracts	6,790	Other Liabilities	$	17	6,836	Other Liabilities	$	40
Total derivatives not designated as hedging instruments			$	17			$	40

Schedule Of Effect Of Derivative Instruments On The Statement Of Income

Effect of Derivatives Not Designated as Hedging Instruments on the Statement of Financial Performance
Derivatives Not Designated as Hedging Instruments under Subtopic 815-20	Location of Gain or (Loss) Recognized in Income on Derivative	Amount of Gain or (Loss) Recognized in Income on Derivatives
(Dollars in thousands)		Three Months Ended
		March 31, 2021		March 31, 2020
Other Contracts	Other income	$	23	$	(36)

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Pension (Tables)

3 Months Ended

Mar. 31, 2021

Pension [Abstract]

Schedule Of Net Periodic Pension Costs

	Three Months Ended
	March 31,
(Dollars in thousands)	2021		2020
Components of net periodic cost:
Service cost	$	99	$	83
Interest cost		87		131
Expected return on plan assets		(274)		(269)
Settlement expense		108		—
Recognized net actuarial loss		285		226
Total pension expense	$	305	$	171

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Fair Value Measurements And Fair Values Of Financial Instruments (Tables)

3 Months Ended

Mar. 31, 2021

Fair Value Measurements And Fair Values Of Financial Instruments [Abstract]

Schedule Of Fair Value, Assets And Liabilities Measured On Recurring Basis

(Dollars in thousands)	Fair Value at March 31, 2021
Asset Description	Level 1		Level 2		Level 3		Total
Equity securities, at fair value	$	444	$	—	$	—	$	444
Available for sale:
U.S. Government and Agency securities		9,832		11,084		—		20,916
Municipal securities		—		237,258		—		237,258
Corporate securities		—		22,157		—		22,157
Agency mortgage-backed securities		—		85,974		—		85,974
Private-label mortgage-backed securities		—		11,949		—		11,949
Asset-backed securities		—		43,924		—		43,924
Total assets	$	10,276	$	412,346	$	—	$	422,622

(Dollars in thousands)	Fair Value at December 31, 2020
Asset Description	Level 1		Level 2		Level 3		Total
Equity securities, at fair value	$	391	$	—	$	—	$	391
Available for sale:
U.S. Government and Agency securities		—		12,574		—		12,574
Municipal securities		—		247,054		—		247,054
Corporate securities		—		20,288		—		20,288
Agency mortgage-backed securities		—		72,241		—		72,241
Private-label mortgage-backed securities		—		8,453		—		8,453
Asset-backed securities		—		36,330		—		36,330
Total assets	$	391	$	396,940	$	—	$	397,331

Schedule Of Fair Value On A Nonrecurring Basis

(Dollars in Thousands)	Fair Value at December 31, 2020
Asset Description	Level 1		Level 2		Level 3		Total
Impaired loans (1)	$	—	$	—	$	5,474	$	5,474
Total assets	$	—	$	—	$	5,474	$	5,474

(1)Includes assets directly charged-down to fair value during the year-to-date period.

Fair Value Inputs, Assets, Quantitative Information

(Dollars in thousands)					Range
December 31, 2020		Fair Value	Valuation Technique	Unobservable Input	Weighted Average
Impaired loans	$	5,474	Appraisal	Appraisal Adjustment on	0%-100% (66%)
				Non-real estate assets
				Cost to sell	8%
(1) Includes assets directly charged-down to fair value during the year-to-date period.

Fair Value, By Balance Sheet Grouping

	March 31, 2021
	Carrying		Fair
(Dollars in thousands)	Amount		Value		Level 1		Level 2		Level 3
Financial assets, carried at cost:
Cash and cash equivalents	$	107,622	$	107,622	$	107,622	$	—	$	—
Long-term interest-bearing deposits in other banks		10,995		10,995		10,995		—		—
Loans held for sale		4,699		4,799		—		4,799		—
Net loans		984,797		1,013,427		—		—		1,013,427
Accrued interest receivable		6,045		6,045		—		—		6,045
Financial liabilities:
Deposits	$	1,421,042	$	1,433,518	$	—	$	1,433,518	$	—
Subordinate notes		19,564		20,086		—		20,086		—
Accrued interest payable		415		415		—		415		—
	December 31, 2020
	Carrying		Fair
(Dollars in thousands)	Amount		Value		Level 1		Level 2		Level 3
Financial assets, carried at cost:
Cash and cash equivalents	$	57,146	$	57,146	$	57,146	$	—	$	—
Long-term interest-bearing deposits in other banks		12,741		12,741		12,741		—		—
Loans held for sale		9,446		9,446		—	9,446	9,446		—
Net loans		992,915		990,867		—		—		990,867
Accrued interest receivable		6,410		6,410		—		—		6,410
Financial liabilities:
Deposits	$	1,354,573	$	1,355,086	$	—	$	1,355,086	$	—
Subordinate notes		19,555		19,750		—		19,750		—
Accrued interest payable		180		180		—		180		—

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Capital Ratios (Tables)

3 Months Ended

Mar. 31, 2021

Capital Ratios [Abstract]

Schedule Of The Total Risk-based, Tier 1 Risk-based And Tier 1 Leverage Requirements

			Regulatory Ratios
			Adequately	Well
	March 31,	December 31,	Capitalized	Capitalized
(Dollars in thousands)	2021	2020	Minimum	Minimum
Common Equity Tier 1 Risk-based Capital Ratio (1)
Franklin Financial Services Corporation	14.80%	14.32%	N/A	N/A
Farmers & Merchants Trust Company	14.63%	14.07%	4.50%	6.50%
Tier 1 Risk-based Capital Ratio (2)
Franklin Financial Services Corporation	14.80%	14.32%	N/A	N/A
Farmers & Merchants Trust Company	14.63%	14.07%	6.00%	8.00%
Total Risk-based Capital Ratio (3)
Franklin Financial Services Corporation	18.18%	17.69%	N/A	N/A
Farmers & Merchants Trust Company	15.89%	15.33%	8.00%	10.00%
Tier 1 Leverage Ratio (4)
Franklin Financial Services Corporation	8.76%	8.69%	N/A	N/A
Farmers & Merchants Trust Company	8.65%	8.54%	4.00%	5.00%
(1) Common equity Tier 1 capital/ total risk-weighted assets (2) Tier 1 capital / total risk-weighted assets
(3) Total risk-based capital / total risk-weighted assets, (4) Tier 1 capital / average quarterly assets

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Commitments And Contingencies (Tables)

3 Months Ended

Mar. 31, 2021

Commitments And Contingencies [Abstract]

Outstanding Commitments

	March 31,		December 31,
(Dollars in thousands)	2021		2020
Financial instruments whose contract amounts represent credit risk
Commercial commitments to extend credit	$	280,806	$	280,939
Consumer commitments to extend credit (secured)		74,989		71,761
Consumer commitments to extend credit (unsecured)		5,456		5,224
	$	361,251	$	357,924
Standby letters of credit	$	21,260	$	22,334

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Basis Of Presentation (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Basis Of Presentation [Abstract]
Weighted average shares outstanding (basic)	4,396	4,347
Impact of common stock equivalents	19	14
Weighted average shares outstanding (diluted)	4,415	4,361
Anti-dilutive options excluded from calculation	61	50
Net income	$ 4,830	$ 1,719
Basic earnings per share	$ 1.10	$ 0.40
Diluted earnings per share	$ 1.09	$ 0.39

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Recent Accounting Pronouncements (Recent Accounting Pronouncements) (Details) - USD ($)	Mar. 31, 2021	Dec. 31, 2020
Recent Accounting Pronouncements [Abstract]
Right of use asset	$ 5,153,000	$ 5,272,000

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Accumulated Other Comprehensive Income (Loss) (Details) - USD ($)	Mar. 31, 2021	Dec. 31, 2020	Mar. 31, 2020	Dec. 31, 2019
Accumulated Other Comprehensive Income (Loss) [Line Items]
AOCI, Net of tax amount	$ 140,699,000	$ 145,176,000	$ 129,005,000	$ 127,528,000
Debt Securities [Member]
Accumulated Other Comprehensive Income (Loss) [Line Items]
AOCI, Before tax	1,994,000	12,571,000
AOCI, Tax effect	(419,000)	(2,640,000)
AOCI, Net of tax amount	1,575,000	9,931,000
Pension [Member]
Accumulated Other Comprehensive Income (Loss) [Line Items]
AOCI, Before tax	(8,533,000)	(8,533,000)
AOCI, Tax effect	1,792,000	1,792,000
AOCI, Net of tax amount	(6,741,000)	(6,741,000)
Accumulated Other Comprehensive Income (Loss) [Member]
Accumulated Other Comprehensive Income (Loss) [Line Items]
AOCI, Net of tax amount	$ (5,166,000)	$ 3,190,000	$ (4,360,000)	$ (5,986,000)

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Investments (Narrative) (Details)	3 Months Ended
	Mar. 31, 2021 USD ($) item	Dec. 31, 2020 USD ($) item
Schedule of Available-for-sale Securities [Line Items]
Fair Value	$ 422,178,000	$ 396,940,000
Number of temporarily impaired securities | item	205	102
Unrealized Losses	$ 5,552,000	$ 701,000
Restricted stock	468,000	468,000
Equity securities	$ 444,000	391,000
Corporate Debt Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Number of temporarily impaired securities | item	205
Temporarily impaired fair value	$ 178,600,000
Unrealized Losses	5,600,000	4,900,000
Public Funds And Trust Deposits [Member]
Schedule of Available-for-sale Securities [Line Items]
Fair Value	$ 129,100,000	$ 137,400,000

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Investments (Unrealized Gain (Loss) On Investments) (Details) - USD ($)	Mar. 31, 2021	Dec. 31, 2020
Schedule of Available-for-sale Securities [Line Items]
Amortized cost	$ 420,184,000	$ 384,369,000
Gross unrealized gains	7,546,000	13,272,000
Gross unrealized losses	(5,552,000)	(701,000)
Fair Value	422,178,000	396,940,000
U.S. Government And Agency Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized cost	21,070,000	12,594,000
Gross unrealized gains	16,000	20,000
Gross unrealized losses	(170,000)	(40,000)
Fair Value	20,916,000	12,574,000
Municipal Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized cost	235,808,000	236,253,000
Gross unrealized gains	5,582,000	11,020,000
Gross unrealized losses	(4,132,000)	(219,000)
Fair Value	237,258,000	247,054,000
Corporate Securities
Schedule of Available-for-sale Securities [Line Items]
Amortized cost	22,268,000	20,421,000
Gross unrealized gains	153,000	22,000
Gross unrealized losses	(264,000)	(155,000)
Fair Value	22,157,000	20,288,000
Agency Mortgage-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized cost	85,429,000	70,443,000
Gross unrealized gains	1,360,000	1,905,000
Gross unrealized losses	(815,000)	(107,000)
Fair Value	85,974,000	72,241,000
Private-Label Mortgage-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized cost	11,966,000	8,412,000
Gross unrealized gains	45,000	56,000
Gross unrealized losses	(62,000)	(15,000)
Fair Value	11,949,000	8,453,000
Asset-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized cost	43,643,000	36,246,000
Gross unrealized gains	390,000	249,000
Gross unrealized losses	(109,000)	(165,000)
Fair Value	$ 43,924,000	$ 36,330,000

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Investments (Amortized Cost And Fair Value Of Debt Securities, By Contractual Maturity) (Details) - USD ($)	Mar. 31, 2021	Dec. 31, 2020
Investments [Abstract]
Due in one year or less, Amortized cost	$ 2,361,000
Due after one year through five years, Amortized cost	21,738,000
Due after five years through ten years, Amortized cost	174,745,000
Due after ten years, Amortized cost	80,302,000
Amortized Cost Contractual Maturities Subtotal	279,146,000
Mortgage-backed securities, Amortized cost	141,038,000
Available-for-sale Securities, Debt Maturities, Amortized cost	420,184,000
Due in one year or less, Fair value	2,367,000
Due after one year through five years, Fair value	22,274,000
Due after five years through ten years, Fair value	178,862,000
Due after ten years, Fair value	76,828,000
Fair Value Contractual Maturities Subtotal	280,331,000
Mortgage-backed securities, Fair value	141,847,000
Available-for-sale Securities, Debt Securities, Fair Value	$ 422,178,000	$ 396,940,000

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Investments (Composition Of Net Realized Securities Gains) (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2020 USD ($)
Investments [Abstract]
Proceeds	$ 165
Gross losses realized	(10)
Net gains (losses) realized	(10)
Tax (provision) benefit on net gains (losses) realized	$ 2

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Investments (Schedule Of Unrealized Loss On Investments) (Details)	Mar. 31, 2021 USD ($) item	Dec. 31, 2020 USD ($) item
Schedule of Available-for-sale Securities [Line Items]
Less than 12 months: Fair Value	$ 158,713,000	$ 60,918,000
Less than 12 months: Unrealized Losses	$ (5,339,000)	$ (405,000)
Less than 12 months: Count | item	173	67
12 months or more: Fair Value	$ 19,922,000	$ 22,032,000
12 months or more: Unrealized Losses	$ (213,000)	$ (296,000)
12 months or more: Count | item	32	35
Fair Value	$ 178,635,000	$ 82,950,000
Unrealized Losses	$ (5,552,000)	$ (701,000)
Count | item	205	102
U.S. Government And Agency Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Less than 12 months: Fair Value	$ 9,832,000	$ 3,966,000
Less than 12 months: Unrealized Losses	$ (134,000)	$ (21,000)
Less than 12 months: Count | item	7	5
12 months or more: Fair Value	$ 7,629,000	$ 4,185,000
12 months or more: Unrealized Losses	$ (36,000)	$ (19,000)
12 months or more: Count | item	15	11
Fair Value	$ 17,461,000	$ 8,151,000
Unrealized Losses	$ (170,000)	$ (40,000)
Count | item	22	16
Municipal Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Less than 12 months: Fair Value	$ 97,958,000	$ 27,022,000
Less than 12 months: Unrealized Losses	$ (4,132,000)	$ (219,000)
Less than 12 months: Count | item	107	28
Fair Value	$ 97,958,000	$ 27,022,000
Unrealized Losses	$ (4,132,000)	$ (219,000)
Count | item	107	28
Corporate Debt Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Unrealized Losses	$ (5,600,000)	$ (4,900,000)
Count | item	205
Corporate Securities
Schedule of Available-for-sale Securities [Line Items]
Less than 12 months: Fair Value	$ 9,677,000	7,576,000
Less than 12 months: Unrealized Losses	$ (173,000)	$ (37,000)
Less than 12 months: Count | item	19	13
12 months or more: Fair Value	$ 2,806,000	$ 3,040,000
12 months or more: Unrealized Losses	$ (91,000)	$ (118,000)
12 months or more: Count | item	3	4
Fair Value	$ 12,483,000	$ 10,616,000
Unrealized Losses	$ (264,000)	$ (155,000)
Count | item	22	17
Agency Mortgage-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Less than 12 months: Fair Value	$ 31,182,000	$ 18,390,000
Less than 12 months: Unrealized Losses	$ (809,000)	$ (101,000)
Less than 12 months: Count | item	32	17
12 months or more: Fair Value	$ 1,504,000	$ 3,355,000
12 months or more: Unrealized Losses	$ (6,000)	$ (6,000)
12 months or more: Count | item	3	5
Fair Value	$ 32,686,000	$ 21,745,000
Unrealized Losses	$ (815,000)	$ (107,000)
Count | item	35	22
Private-Label Mortgage-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Less than 12 months: Fair Value	$ 6,828,000	$ 2,506,000
Less than 12 months: Unrealized Losses	$ (62,000)	$ (15,000)
Less than 12 months: Count | item	5	2
Fair Value	$ 6,828,000	$ 2,506,000
Unrealized Losses	$ (62,000)	$ (15,000)
Count | item	5	2
Asset-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Less than 12 months: Fair Value	$ 3,236,000	$ 1,458,000
Less than 12 months: Unrealized Losses	$ (29,000)	$ (12,000)
Less than 12 months: Count | item	3	2
12 months or more: Fair Value	$ 7,983,000	$ 11,452,000
12 months or more: Unrealized Losses	$ (80,000)	$ (153,000)
12 months or more: Count | item	11	15
Fair Value	$ 11,219,000	$ 12,910,000
Unrealized Losses	$ (109,000)	$ (165,000)
Count | item	14	17

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Investments (Other Than Temporary Impairment, Credit Losses Recognized In Earnings) (Details) - USD ($)	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Investments [Abstract]
Beginning balance of cumulative credit-related OTTI	$ 272,000	$ 272,000
Reduction for increases in cash flows expected to be collected	(15,000)
Ending balance of credit-related OTTI	$ 257,000	$ 272,000

XML

Loans (Narrative) (Details)	3 Months Ended
	Mar. 31, 2021
Financing Receivable, Allowance for Credit Losses [Line Items]
PPP Program, guarantee percentage	100.00%
PPP program, interest rate	1.00%
Minimum [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
PPP Program, maturity period	2 years
Maximum [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
PPP Program, maturity period	5 years

XML

Loans (Schedule Of Loans Outstanding) (Details) - USD ($)	Mar. 31, 2021	Dec. 31, 2020
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	$ 1,000,933,000	$ 1,009,704,000
Less: Allowance for loan losses	(16,136,000)	(16,789,000)
Net Loans	984,797,000	992,915,000
Loans pledged as collateral for borrowings and commitments from: FHLB	695,190,000	840,850,000
Loans pledged as collateral for borrowings and commitments from :Federal Reserve Bank	50,682,000	50,605,000
Total	745,872,000	891,455,000
Residential Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	197,960,000	202,584,000
Residential Real Estate - Construction [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	18,618,000	16,309,000
Less: Allowance for loan losses	(318,000)	(294,000)
Commercial Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	493,544,000	503,977,000
Less: Allowance for loan losses	(8,785,000)	(9,163,000)
Commercial [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	283,705,000	281,257,000
Less: Allowance for loan losses	(5,473,000)	(5,679,000)
Total Commercial [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	777,249,000	785,234,000
Consumer [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	7,106,000	5,577,000
Less: Allowance for loan losses	(113,000)	(97,000)
Consumer First Liens [Member] | Residential Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	73,991,000	77,373,000
Consumer Junior Liens And Lines Of Credit [Member] | Residential Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	61,707,000	60,935,000
Consumer [Member] | Residential Real Estate - Construction [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	7,804,000	6,751,000
Commercial First Lien [Member] | Residential Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	58,018,000	59,851,000
Commercial Junior Liens And Lines Of Credit [Member] | Residential Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	4,244,000	4,425,000
Commercial [Member] | Residential Real Estate - Construction [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	10,814,000	9,558,000
First Liens [Member] | Residential Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	132,009,000	137,224,000
Less: Allowance for loan losses	(447,000)	(555,000)
Junior Lines And Lines Of Credit [Member] | Residential Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	$ 65,951,000	$ 65,360,000

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Loan Quality And Allowance For Loan Losses (Narrative) (Details) $ in Millions	3 Months Ended
	Mar. 31, 2021 USD ($)
Loan Quality And Allowance For Loan Losses [Abstract]
Short-term Modification Period	6 months
Loan Deferral Or Modification, Granted, Amount	$ 68.1
Loan Deferral Or Modification Granted, Percentage Of Gross Loans	7.00%

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Loan Quality And Allowance For Loan Losses (Allowance For Loan Losses, By Loan Segment) (Details) - USD ($)	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020	Dec. 31, 2020
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance, Beginning Balance	$ 16,789,000	$ 11,966,000
Charge-offs	(36,000)	(250,000)
Recoveries	183,000	14,000
Provision	(800,000)	3,000,000
Allowance, Ending Balance	16,136,000	14,730,000
Loans evaluated for allowance individually	17,142,000		$ 17,253,000
Loans evaluated for allowance collectively	983,791,000		992,451,000
Total Loans	1,000,933,000		1,009,704,000
Allowance established for loans evaluated individually	228,000		228,000
Allowance established for loan evaluated collectively	15,908,000		16,561,000
Total Allowance	16,136,000		16,789,000
Residential Real Estate [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Total Loans	197,960,000		202,584,000
Residential Real Estate - Construction [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance, Beginning Balance	294,000	186,000
Provision	24,000	82,000
Allowance, Ending Balance	318,000	268,000
Loans evaluated for allowance individually	511,000		512,000
Loans evaluated for allowance collectively	18,107,000		15,797,000
Total Loans	18,618,000		16,309,000
Allowance established for loan evaluated collectively	318,000		294,000
Total Allowance	318,000		294,000
Commercial Real Estate [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance, Beginning Balance	9,163,000	6,607,000
Charge-offs	(13,000)
Provision	(365,000)	1,660,000
Allowance, Ending Balance	8,785,000	8,267,000
Loans evaluated for allowance individually	16,000,000		16,104,000
Loans evaluated for allowance collectively	477,544,000		487,873,000
Total Loans	493,544,000		503,977,000
Allowance established for loans evaluated individually	228,000		228,000
Allowance established for loan evaluated collectively	8,557,000		8,935,000
Total Allowance	8,785,000		9,163,000
Commercial [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance, Beginning Balance	5,679,000	4,022,000
Charge-offs	(5,000)	(220,000)
Recoveries	7,000	5,000
Provision	(208,000)	889,000
Allowance, Ending Balance	5,473,000	4,696,000
Loans evaluated for allowance collectively	283,705,000		281,257,000
Total Loans	283,705,000		281,257,000
Allowance established for loan evaluated collectively	5,473,000		5,679,000
Total Allowance	5,473,000		5,679,000
Consumer [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance, Beginning Balance	97,000	84,000
Charge-offs	(18,000)	(30,000)
Recoveries	7,000	6,000
Provision	27,000	38,000
Allowance, Ending Balance	113,000	98,000
Loans evaluated for allowance collectively	7,106,000		5,577,000
Total Loans	7,106,000		5,577,000
Allowance established for loan evaluated collectively	113,000		97,000
Total Allowance	113,000		97,000
Unallocated [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance, Beginning Balance	775,000	532,000
Provision	14,000	128,000
Allowance, Ending Balance	789,000	660,000
Allowance established for loan evaluated collectively	789,000		775,000
Total Allowance	789,000		775,000
First Liens [Member] | Residential Real Estate [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance, Beginning Balance	555,000	416,000
Recoveries		3,000
Provision	(108,000)	144,000
Allowance, Ending Balance	447,000	563,000
Loans evaluated for allowance individually	631,000		637,000
Loans evaluated for allowance collectively	131,378,000		136,587,000
Total Loans	132,009,000		137,224,000
Allowance established for loan evaluated collectively	447,000		555,000
Total Allowance	447,000		555,000
Junior Liens & Lines Of Credit [Member] | Residential Real Estate [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance, Beginning Balance	226,000	119,000
Recoveries	169,000
Provision	(184,000)	59,000
Allowance, Ending Balance	211,000	$ 178,000
Loans evaluated for allowance collectively	65,951,000		65,360,000
Total Loans	65,951,000		65,360,000
Allowance established for loan evaluated collectively	211,000		226,000
Total Allowance	$ 211,000		$ 226,000

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Loan Quality And Allowance For Loan Losses (Impaired Financing Receivables) (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020	Dec. 31, 2020
Financing Receivable, Impaired [Line Items]
Recorded Investment With No Allowance	$ 11,401		$ 11,551
Unpaid Principal Balance With No Allowance	12,347		12,473
Recorded Investment With Allowance	5,741		5,702
Unpaid Principal Balance With Allowance	5,741		5,702
Related Allowance	228		228
Average Recorded Investment	17,189	$ 12,076
Interest Income Recognized	99	104
Residential Real Estate [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment With No Allowance	631		637
Unpaid Principal Balance With No Allowance	631		637
Average Recorded Investment	634	656
Interest Income Recognized	8	10
Residential Real Estate [Member] | First Liens [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment With No Allowance	631		637
Unpaid Principal Balance With No Allowance	631		637
Average Recorded Investment	634	656
Interest Income Recognized	8	10
Residential Real Estate - Construction [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment With No Allowance	511		512
Unpaid Principal Balance With No Allowance	729		729
Average Recorded Investment	512	521
Commercial Real Estate [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment With No Allowance	10,259		10,402
Unpaid Principal Balance With No Allowance	10,987		11,107
Recorded Investment With Allowance	5,741		5,702
Unpaid Principal Balance With Allowance	5,741		5,702
Related Allowance	228		$ 228
Average Recorded Investment	16,043	10,899
Interest Income Recognized	$ 91	$ 94

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Loan Quality And Allowance For Loan Losses (Aging Of Payments Of The Loan Portfolio) (Details) - USD ($)	Mar. 31, 2021	Dec. 31, 2020
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	$ 413,000	$ 871,000
Non-accrual loans	8,835,000	8,704,000
Total Loans	1,000,933,000	1,009,704,000
Current [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	991,685,000	1,000,129,000
30 - 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	372,000	489,000
60 - 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	40,000	344,000
90 Days+ Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	1,000	38,000
Residential Real Estate [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	348,000	265,000
Non-accrual loans	50,000	51,000
Total Loans	197,960,000	202,584,000
Residential Real Estate [Member] | Current [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	197,562,000	202,268,000
Residential Real Estate [Member] | 30 - 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	310,000	158,000
Residential Real Estate [Member] | 60 - 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	38,000	81,000
Residential Real Estate [Member] | 90 Days+ Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans		26,000
Residential Real Estate [Member] | First Liens [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	174,000	127,000
Non-accrual loans	41,000	41,000
Total Loans	132,009,000	137,224,000
Residential Real Estate [Member] | First Liens [Member] | Current [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	131,794,000	137,056,000
Residential Real Estate [Member] | First Liens [Member] | 30 - 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	174,000	43,000
Residential Real Estate [Member] | First Liens [Member] | 60 - 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans		58,000
Residential Real Estate [Member] | First Liens [Member] | 90 Days+ Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans		26,000
Residential Real Estate [Member] | Junior Liens & Lines Of Credit [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	174,000	138,000
Non-accrual loans	9,000	10,000
Total Loans	65,951,000	65,360,000
Residential Real Estate [Member] | Junior Liens & Lines Of Credit [Member] | Current [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	65,768,000	65,212,000
Residential Real Estate [Member] | Junior Liens & Lines Of Credit [Member] | 30 - 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	136,000	115,000
Residential Real Estate [Member] | Junior Liens & Lines Of Credit [Member] | 60 - 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	38,000	23,000
Residential Real Estate - Construction [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual loans	511,000	512,000
Total Loans	18,618,000	16,309,000
Residential Real Estate - Construction [Member] | Current [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	18,107,000	15,797,000
Commercial Real Estate [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans		335,000
Non-accrual loans	8,167,000	8,033,000
Total Loans	493,544,000	503,977,000
Commercial Real Estate [Member] | Current [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	485,377,000	495,609,000
Commercial Real Estate [Member] | 30 - 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans		74,000
Commercial Real Estate [Member] | 60 - 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans		261,000
Commercial [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	50,000	219,000
Non-accrual loans	107,000	108,000
Total Loans	283,705,000	281,257,000
Commercial [Member] | Current [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	283,548,000	280,930,000
Commercial [Member] | 30 - 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	50,000	219,000
Consumer [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	15,000	52,000
Total Loans	7,106,000	5,577,000
Consumer [Member] | Current [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	7,091,000	5,525,000
Consumer [Member] | 30 - 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	12,000	38,000
Consumer [Member] | 60 - 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	2,000	2,000
Consumer [Member] | 90 Days+ Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	$ 1,000	$ 12,000

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Loan Quality And Allowance For Loan Losses (Internal Credit Rating For The Loan Portfolio) (Details) - USD ($)	Mar. 31, 2021	Dec. 31, 2020
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	$ 1,000,933,000	$ 1,009,704,000
Pass [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	935,144,000	943,618,000
Special Mention [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	46,448,000	46,645,000
Substandard [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	19,341,000	19,441,000
Doubtful [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount
Residential Real Estate [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	197,960,000	202,584,000
Residential Real Estate [Member] | Pass [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	197,910,000	202,506,000
Residential Real Estate [Member] | Substandard [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	50,000	78,000
Residential Real Estate [Member] | Doubtful [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount
Residential Real Estate [Member] | First Liens [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	132,009,000	137,224,000
Residential Real Estate [Member] | First Liens [Member] | Pass [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	131,968,000	137,156,000
Residential Real Estate [Member] | First Liens [Member] | Substandard [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	41,000	68,000
Residential Real Estate [Member] | First Liens [Member] | Doubtful [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount
Residential Real Estate [Member] | Junior Liens & Lines Of Credit [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	65,951,000	65,360,000
Residential Real Estate [Member] | Junior Liens & Lines Of Credit [Member] | Pass [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	65,942,000	65,350,000
Residential Real Estate [Member] | Junior Liens & Lines Of Credit [Member] | Substandard [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	9,000	10,000
Residential Real Estate [Member] | Junior Liens & Lines Of Credit [Member] | Doubtful [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount
Residential Real Estate - Construction [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	18,618,000	16,309,000
Residential Real Estate - Construction [Member] | Pass [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	18,107,000	15,797,000
Residential Real Estate - Construction [Member] | Substandard [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	511,000	512,000
Residential Real Estate - Construction [Member] | Doubtful [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount
Commercial Real Estate [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	493,544,000	503,977,000
Commercial Real Estate [Member] | Pass [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	438,443,000	449,478,000
Commercial Real Estate [Member] | Special Mention [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	36,607,000	35,947,000
Commercial Real Estate [Member] | Substandard [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	18,494,000	18,552,000
Commercial Real Estate [Member] | Doubtful [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount
Commercial [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	283,705,000	281,257,000
Commercial [Member] | Pass [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	273,579,000	270,272,000
Commercial [Member] | Special Mention [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	9,841,000	10,698,000
Commercial [Member] | Substandard [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	285,000	287,000
Commercial [Member] | Doubtful [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount
Consumer [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	7,106,000	5,577,000
Consumer [Member] | Pass [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	7,105,000	5,565,000
Consumer [Member] | Substandard [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	1,000	12,000
Consumer [Member] | Doubtful [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount

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Loan Quality And Allowance For Loan Losses (Troubled Debt Restructuring Loans) (Details) $ in Thousands		12 Months Ended
		Dec. 31, 2020 USD ($) item contract	Mar. 31, 2021 USD ($) contract
Financing Receivable, Modifications [Line Items]
Troubled Debt Restructurings: Number of Contracts | contract		19	19
Troubled Debt Restructurings: Recorded Investment		$ 11,011	$ 10,861
Troubled Debt Restructurings That Have Defaulted on Modified Terms in the Last Twelve Months: Number of Contracts | contract
Troubled Debt Restructurings That Have Defaulted on Modified Terms in the Last Twelve Months: Recorded Investment
Troubled Debt Restructurings, New During Period, Number of Contracts | item		3
New During Period, Pre-TDR Modification		$ 1,076
New During Period, After-TDR Modification		1,076
Performing [Member]
Financing Receivable, Modifications [Line Items]
Troubled Debt Restructurings: Recorded Investment	[1]	10,803	9,974
Nonperforming [Member]
Financing Receivable, Modifications [Line Items]
Troubled Debt Restructurings: Recorded Investment	[1]	$ 208	$ 887
Residential Real Estate - Construction [Member]
Financing Receivable, Modifications [Line Items]
Troubled Debt Restructurings: Number of Contracts | contract		1	1
Troubled Debt Restructurings: Recorded Investment		$ 434	$ 433
Troubled Debt Restructurings That Have Defaulted on Modified Terms in the Last Twelve Months: Number of Contracts | contract
Troubled Debt Restructurings That Have Defaulted on Modified Terms in the Last Twelve Months: Recorded Investment
Residential Real Estate - Construction [Member] | Performing [Member]
Financing Receivable, Modifications [Line Items]
Troubled Debt Restructurings: Recorded Investment	[1]	$ 434	$ 433
Residential Real Estate [Member]
Financing Receivable, Modifications [Line Items]
Troubled Debt Restructurings: Number of Contracts | contract		4	4
Troubled Debt Restructurings: Recorded Investment		$ 637	$ 631
Troubled Debt Restructurings That Have Defaulted on Modified Terms in the Last Twelve Months: Number of Contracts | contract
Troubled Debt Restructurings That Have Defaulted on Modified Terms in the Last Twelve Months: Recorded Investment
Residential Real Estate [Member] | Performing [Member]
Financing Receivable, Modifications [Line Items]
Troubled Debt Restructurings: Recorded Investment	[1]	$ 637	$ 631
Commercial Real Estate - Owner Occupied [Member]
Financing Receivable, Modifications [Line Items]
Troubled Debt Restructurings: Number of Contracts | contract		4	4
Troubled Debt Restructurings: Recorded Investment		$ 1,224	$ 1,213
Troubled Debt Restructurings That Have Defaulted on Modified Terms in the Last Twelve Months: Number of Contracts | contract
Troubled Debt Restructurings That Have Defaulted on Modified Terms in the Last Twelve Months: Recorded Investment
Troubled Debt Restructurings, New During Period, Number of Contracts | item		2
New During Period, Pre-TDR Modification		$ 426
New During Period, After-TDR Modification		426
Commercial Real Estate - Owner Occupied [Member] | Performing [Member]
Financing Receivable, Modifications [Line Items]
Troubled Debt Restructurings: Recorded Investment	[1]	$ 1,224	$ 1,213
Commercial Real Estate - Farm Land [Member]
Financing Receivable, Modifications [Line Items]
Troubled Debt Restructurings: Number of Contracts | contract		6	6
Troubled Debt Restructurings: Recorded Investment		$ 2,257	$ 2,224
Troubled Debt Restructurings That Have Defaulted on Modified Terms in the Last Twelve Months: Number of Contracts | contract
Troubled Debt Restructurings That Have Defaulted on Modified Terms in the Last Twelve Months: Recorded Investment
Troubled Debt Restructurings, New During Period, Number of Contracts | item		1
New During Period, Pre-TDR Modification		$ 650
New During Period, After-TDR Modification		650
Commercial Real Estate - Farm Land [Member] | Performing [Member]
Financing Receivable, Modifications [Line Items]
Troubled Debt Restructurings: Recorded Investment	[1]	$ 2,257	1,542
Commercial Real Estate - Farm Land [Member] | Nonperforming [Member]
Financing Receivable, Modifications [Line Items]
Troubled Debt Restructurings: Recorded Investment	[1]		$ 682
Commercial Real Estate - Construction And Land [Member]
Financing Receivable, Modifications [Line Items]
Troubled Debt Restructurings: Number of Contracts | contract		2	2
Troubled Debt Restructurings: Recorded Investment		$ 6,129	$ 6,038
Troubled Debt Restructurings That Have Defaulted on Modified Terms in the Last Twelve Months: Number of Contracts | contract
Troubled Debt Restructurings That Have Defaulted on Modified Terms in the Last Twelve Months: Recorded Investment
Commercial Real Estate - Construction And Land [Member] | Performing [Member]
Financing Receivable, Modifications [Line Items]
Troubled Debt Restructurings: Recorded Investment	[1]	$ 6,129	$ 6,038
Commercial Real Estate [Member]
Financing Receivable, Modifications [Line Items]
Troubled Debt Restructurings: Number of Contracts | contract		2	2
Troubled Debt Restructurings: Recorded Investment		$ 330	$ 322
Troubled Debt Restructurings That Have Defaulted on Modified Terms in the Last Twelve Months: Number of Contracts | contract
Troubled Debt Restructurings That Have Defaulted on Modified Terms in the Last Twelve Months: Recorded Investment
Commercial Real Estate [Member] | Performing [Member]
Financing Receivable, Modifications [Line Items]
Troubled Debt Restructurings: Recorded Investment	[1]	122	117
Commercial Real Estate [Member] | Nonperforming [Member]
Financing Receivable, Modifications [Line Items]
Troubled Debt Restructurings: Recorded Investment	[1]	$ 208	$ 205

[1] The performing status is determined by the loan’s compliance with the modified terms.

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Leases (Narrative) (Details) - USD ($)	Mar. 31, 2021	Dec. 31, 2020
Leases [Abstract]
Right of use asset	$ 5,153,000	$ 5,272,000
Lease liability	$ 5,225,000	$ 5,332,000

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Leases (Schedule Of Lease Costs) (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Leases [Abstract]
Operating lease cost	$ 174	$ 158
Short-term lease cost		2
Variable lease cost	24	14
Total lease cost	$ 198	$ 174

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Leases (Schedule Of Measurement Of Lease Liabilities) (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Leases [Abstract]
Operating cash flows from operating leases	$ 162	$ 152
Weighted-average remaining lease term (years)	11 years 6 months	12 years 9 months 18 days
Weighted-average discount rate	3.34%	3.53%

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Leases (Schedule Of Future Minimum Payments Operating Leases) (Details) - USD ($)	Mar. 31, 2021	Dec. 31, 2020
Leases [Abstract]
2021	$ 494,000
2022	640,000
2023	650,000
2024	628,000
2025	588,000
2026 and beyond	3,395,000
Undiscounted cash flow	6,395,000
Imputed Interest	(1,170,000)
Total lease liability	$ 5,225,000	$ 5,332,000

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Other Real Estate Owned (Details) - USD ($)	Mar. 31, 2021	Dec. 31, 2020
Other Real Estate Owned [Abstract]
Other real estate owned	$ 0	$ 0
Balance at the end of the period	$ 0

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Derivatives (Narrative) (Details) $ in Thousands	Mar. 31, 2021 USD ($)
Derivatives [Abstract]
Derivative, net	$ 17

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Derivatives (Schedule Of Fair Value Of Derivative Instruments) (Details) - Not Designated as Hedging Instrument [Member] - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Derivatives, Fair Value [Line Items]
Fair Value	$ 17	$ 40
Other Contracts [Member]
Derivatives, Fair Value [Line Items]
Notional Amount	6,790	6,836
Fair Value	$ 17	$ 40

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Derivatives (Schedule Of Effect Of Derivative Instruments On The Statement Of Income) (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Other Contracts [Member] | Other Income (Expense) [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Amount of Gain or (Loss) Recognized in Income on Derivatives	$ 23	$ (36)

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Pension (Narrative) (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Pension [Abstract]
Pension expense	$ 305	$ 171

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Pension (Schedule Of Net Periodic Pension Costs) (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Pension [Abstract]
Service cost	$ 99	$ 83
Interest cost	87	131
Expected return on plan assets	(274)	(269)
Settlement expense	108
Recognized net actuarial loss	285	226
Total pension expense	$ 305	$ 171

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Fair Value Measurements And Fair Values Of Financial Instruments (Narrative) (Details) - USD ($)	3 Months Ended
	Mar. 31, 2021	Dec. 31, 2020
Derivative liabilities	$ 17,000	$ 40,000
Total liabilities	0
Assets, Level 1 to Level 2 Transfers	0
Liabilities, Level 1 to Level 2 Transfers	0
Partial charge-offs on impaired loans	0
Fair Value, Nonrecurring [Member]
Assets, Fair Value Disclosure	$ 0	$ 5,474,000

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Fair Value Measurements And Fair Values Of Financial Instruments (Schedule Of Fair Value, Assets And Liabilities Measured On Recurring Basis) (Details) - USD ($)	Mar. 31, 2021	Dec. 31, 2020
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Equity securities, at fair value	$ 444,000	$ 391,000
Available for sale	422,178,000	396,940,000
Fair Value, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total assets	422,622,000	397,331,000
Level 1 [Member] | Fair Value, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total assets	10,276,000	391,000
Level 2 [Member] | Fair Value, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total assets	412,346,000	396,940,000
Equity Securities [Member] | Fair Value, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Equity securities, at fair value	444,000	391,000
Equity Securities [Member] | Level 1 [Member] | Fair Value, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Equity securities, at fair value	444,000	391,000
U.S. Government And Agency Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	20,916,000	12,574,000
U.S. Government And Agency Securities [Member] | Fair Value, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	20,916,000	12,574,000
U.S. Government And Agency Securities [Member] | Level 1 [Member] | Fair Value, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	9,832,000
U.S. Government And Agency Securities [Member] | Level 2 [Member] | Fair Value, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	11,084,000	12,574,000
Municipal Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	237,258,000	247,054,000
Municipal Securities [Member] | Fair Value, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	237,258,000	247,054,000
Municipal Securities [Member] | Level 2 [Member] | Fair Value, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	237,258,000	247,054,000
Corporate Securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	22,157,000	20,288,000
Corporate Securities | Fair Value, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	22,157,000	20,288,000
Corporate Securities | Level 2 [Member] | Fair Value, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	22,157,000	20,288,000
Agency Mortgage-Backed Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	85,974,000	72,241,000
Agency Mortgage-Backed Securities [Member] | Fair Value, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	85,974,000	72,241,000
Agency Mortgage-Backed Securities [Member] | Level 2 [Member] | Fair Value, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	85,974,000	72,241,000
Private-Label Mortgage-Backed Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	11,949,000	8,453,000
Private-Label Mortgage-Backed Securities [Member] | Fair Value, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	11,949,000	8,453,000
Private-Label Mortgage-Backed Securities [Member] | Level 2 [Member] | Fair Value, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	11,949,000	8,453,000
Asset-Backed Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	43,924,000	36,330,000
Asset-Backed Securities [Member] | Fair Value, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	43,924,000	36,330,000
Asset-Backed Securities [Member] | Level 2 [Member] | Fair Value, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	$ 43,924,000	$ 36,330,000

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Fair Value Measurements And Fair Values Of Financial Instruments (Schedule Of Fair Value On A Nonrecurring Basis) (Details) - Fair Value, Nonrecurring [Member] - USD ($)	Mar. 31, 2021	Dec. 31, 2020
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure	$ 0	$ 5,474,000
Significant Unobservable Inputs (Level 3) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure		5,474,000
Impaired Loans [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure		5,474,000
Impaired Loans [Member] | Significant Unobservable Inputs (Level 3) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure		$ 5,474,000

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Fair Value Measurements And Fair Values Of Financial Instruments (Fair Value Inputs, Assets, Quantitative Information) (Details) - Impaired Loans [Member] - Significant Unobservable Inputs (Level 3) [Member] $ in Thousands	Dec. 31, 2020 USD ($)
Appraisal Adjustment [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure	$ 5,474
Cost To Sell [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Quantitative Information Percentage	8.00%
Minimum [Member] | Appraisal Adjustment [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Quantitative Information Percentage	0.00%
Maximum [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Quantitative Information Percentage	100.00%
Weighted Average [Member] | Appraisal Adjustment [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Quantitative Information Percentage	66.00%

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Fair Value Measurements And Fair Values Of Financial Instruments (Fair Value, By Balance Sheet Grouping) (Details) - USD ($)	Mar. 31, 2021	Dec. 31, 2020
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Debt securities available for sale, at fair value	$ 422,178,000	$ 396,940,000
Equity securities, at fair value	444,000	391,000
Carrying Amount [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and cash equivalents	107,622,000	57,146,000
Long-term interest-bearing deposits in other banks	10,995,000	12,741,000
Loans held for sale	4,699,000	9,446,000
Net loans	984,797,000	992,915,000
Accrued interest receivable	6,045,000	6,410,000
Deposits	1,421,042,000	1,354,573,000
Subordinate notes	19,564,000	19,555,000
Accrued interest payable	415,000	180,000
Fair Value [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and cash equivalents	107,622,000	57,146,000
Long-term interest-bearing deposits in other banks	10,995,000	12,741,000
Loans held for sale	4,799,000	9,446,000
Net loans	1,013,427,000	990,867,000
Accrued interest receivable	6,045,000	6,410,000
Deposits	1,433,518,000	1,355,086,000
Subordinate notes	20,086,000	19,750,000
Accrued interest payable	415,000	180,000
Level 1 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and cash equivalents	107,622,000	57,146,000
Long-term interest-bearing deposits in other banks	10,995,000	12,741,000
Level 2 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Loans held for sale	4,799,000	9,446,000
Deposits	1,433,518,000	1,355,086,000
Subordinate notes	20,086,000	19,750,000
Accrued interest payable	415,000	180,000
Significant Unobservable Inputs (Level 3) [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Net loans	1,013,427,000	990,867,000
Accrued interest receivable	$ 6,045,000	$ 6,410,000

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Subordinated Notes (Narrative) (Details) - USD ($)	3 Months Ended
	Mar. 31, 2021	Dec. 31, 2020
Federal Home Loan Bank, Advances, Branch of FHLB Bank [Line Items]
Subordinate notes	$ 19,564,000	$ 19,555,000
Debt issuance costs	$ 435,700,000
Redemption period	5 years
Minimum [Member]
Federal Home Loan Bank, Advances, Branch of FHLB Bank [Line Items]
Amortization period	5 years
Maximum [Member]
Federal Home Loan Bank, Advances, Branch of FHLB Bank [Line Items]
Amortization period	10 years
Maturing September 1, 2030 [Member]
Federal Home Loan Bank, Advances, Branch of FHLB Bank [Line Items]
Subordinate notes	$ 15,000,000.0
Maturing September 1, 2035 [Member]
Federal Home Loan Bank, Advances, Branch of FHLB Bank [Line Items]
Subordinate notes	5,000,000.0
Through September 1, 2025 [Member]
Federal Home Loan Bank, Advances, Branch of FHLB Bank [Line Items]
Subordinate notes	$ 15,000,000.0
Interest rate	5.00%
After September 1, 2025 [Member] | Secured Overnight Financing Rate (SOFR) Overnight Index Swap Rate [Member]
Federal Home Loan Bank, Advances, Branch of FHLB Bank [Line Items]
Basis spread on variable rate	4.93%
Through September 1, 2030 [Member]
Federal Home Loan Bank, Advances, Branch of FHLB Bank [Line Items]
Subordinate notes	$ 5,000,000.0
Interest rate	5.25%
After September 1, 2030 [Member] | Secured Overnight Financing Rate (SOFR) Overnight Index Swap Rate [Member]
Federal Home Loan Bank, Advances, Branch of FHLB Bank [Line Items]
Basis spread on variable rate	4.92%
Subordinated Debt [Member]
Federal Home Loan Bank, Advances, Branch of FHLB Bank [Line Items]
Subordinate notes	$ 20,000,000.0

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Capital Ratios (Narrative) (Details) $ in Billions	3 Months Ended	12 Months Ended
	Mar. 31, 2021 USD ($)	Dec. 31, 2020
Compliance with Regulatory Capital Requirements under Banking Regulations [Line Items]
Debt Instrument, Redemption Period	5 years
Capital Ratios, Basel III, Capital Conservation Buffer, Year Three	2.50%
Community Bank Leverage Ratio, Minimum		9.00%
Paycheck Protection Program, Risk-Weight For Risk-Based Capital Rules	0.00%
Consolidated asset limit on small bank holding companies	$ 3
Bank [Member]
Compliance with Regulatory Capital Requirements under Banking Regulations [Line Items]
Common Equity Tier 1 Risk-based Capital Ratio: Ratio	14.63	14.07
Tier One Leverage Capital to Average Assets	8.65	8.54
Common Equity Tier 1 Risk-based Capital Ratio: Well Capitalized Minimum: Ratio	6.50%
Tier 1 Risk-based Capital Ratio: Well Capitalized Minimum: Ratio	8.00
Tier 1 Leverage Ratio: Well Capitalized Minimum: Ratio	5.00
Total Risk-based Capital Ratio: Well Capitalized Minimum: Ratio	10.00
Capital ratios, capital conservation buffer	7.89%
Total Risk-based Capital Ratio: Ratio	15.89	15.33

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Capital Ratios (Schedule Of The Total Risk-based, Tier 1 Risk-based And Tier 1 Leverage Requirements) (Details)	Mar. 31, 2021	Dec. 31, 2020
Franklin Financial Services Corporation [Member]
Compliance with Regulatory Capital Requirements under Banking Regulations [Line Items]
Common Equity Tier 1 Risk-based Capital Ratio: Ratio	14.80	14.32
Tier 1 Risk-based Capital Ratio: Ratio	14.80	14.32
Total Risk-based Capital Ratio: Ratio	18.18	17.69
Tier 1 Leverage Ratio: Ratio	8.76	8.69
Bank [Member]
Compliance with Regulatory Capital Requirements under Banking Regulations [Line Items]
Common Equity Tier 1 Risk-based Capital Ratio: Ratio	14.63	14.07
Common Equity Tier 1 Risk-based Capital Ratio: Adequately Capitalized Minimum: Ratio	4.50
Common Equity Tier 1 Risk-based Capital Ratio: Well Capitalized Minimum: Ratio	6.50%
Tier 1 Risk-based Capital Ratio: Ratio	14.63	14.07
Tier 1 Risk-based Capital Ratio: Adequately Capitalized Minimum: Ratio	6.00
Tier 1 Risk-based Capital Ratio: Well Capitalized Minimum: Ratio	8.00
Total Risk-based Capital Ratio: Ratio	15.89	15.33
Total Risk-based Capital Ratio: Adequately Capitalized Minimum: Ratio	8.00
Total Risk-based Capital Ratio: Well Capitalized Minimum: Ratio	10.00
Tier 1 Leverage Ratio: Ratio	8.65	8.54
Tier 1 Leverage Ratio: Adequately Capitalized Minimum: Ratio	4.00
Tier 1 Leverage Ratio: Well Capitalized Minimum: Ratio	5.00

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Revenue Recognition (Narrative) (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Disaggregation of Revenue [Line Items]
Investment and trust services fees	$ 1,636	$ 1,445
Estate management services Fees recognition period	18 months
Asset Management Fees [Member]
Disaggregation of Revenue [Line Items]
Investment and trust services fees	$ 1,500	1,500
Estate Management Services Fees [Member]
Disaggregation of Revenue [Line Items]
Investment and trust services fees	84	33
Commisions [Member]
Disaggregation of Revenue [Line Items]
Investment and trust services fees	$ 37	$ 74

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Commitments And Contingencies (Narrative) (Details) - USD ($) $ in Thousands		3 Months Ended
	Jun. 30, 2018	Mar. 31, 2021
Commitments And Contingencies [Abstract]
Allowance against letters of credit	$ 2,400	$ 2,100
Letters of credit cancelled		$ 250

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Commitments And Contingencies (Outstanding Commitments ) (Details) - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Commercial Commitments To Extend Credit [Member]
Loss Contingencies [Line Items]
Commitments outstanding	$ 280,806	$ 280,939
Consumer Commitments To Extend Credit (Secured) [Member]
Loss Contingencies [Line Items]
Commitments outstanding	74,989	71,761
Consumer Commitments To Extend Credit (Unsecured) [Member]
Loss Contingencies [Line Items]
Commitments outstanding	5,456	5,224
Commitments To Extend Credit [Member]
Loss Contingencies [Line Items]
Commitments outstanding	361,251	357,924
Standby Letters of Credit [Member]
Loss Contingencies [Line Items]
Commitments outstanding	$ 21,260	$ 22,334