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 September 30, 2022

or

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

For the transition period from__________ to___________

Commission file number 001-38884

FRANKLIN FINANCIAL SERVICES CORPORATION

(Exact name of registrant as specified in its charter)

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

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

(717) 264-6116

(Registrant's telephone number, including area code)

Not Applicable

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

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

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

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

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

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

Large accelerated filer ¨ Accelerated filer ¨ 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 4,387,060 outstanding shares of the Registrant’s common stock as of October 31, 2022.

INDEX

Part I - FINANCIAL INFORMATION
Item 1	Financial Statements
	Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021 (unaudited)	1
	Consolidated Statements of Income for the Three and Nine Months ended September 30, 2022	2
	and 2021 (unaudited)
	Consolidated Statements of Comprehensive Income for the Three and Nine Months ended	3
	September 30, 2022 and 2021 (unaudited)
	Consolidated Statements of Changes in Shareholders’ Equity for the Three and Nine Months	4
	ended September 30, 2022 and 2021 (unaudited)
	Consolidated Statements of Cash Flows for the Nine Months ended September 30, 2022	5
	and 2021 (unaudited)
	Notes to Consolidated Financial Statements (unaudited)	6
Item 2	Management’s Discussion and Analysis ofResults of Operations and Financial Condition	29
Item 3	Quantitative and Qualitative Disclosures about Market Risk	46
Item 4	Controls and Procedures	46
Part II - OTHER INFORMATION
Item 1	Legal Proceedings	47
Item 1A	Risk Factors	47
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	47
Item 3	Defaults Upon Senior Securities	47
Item 4	Mine Safety Disclosures	47
Item 5	Other Information	48
Item 6	Exhibits	48
SIGNATURE PAGE		49

Part I FINANCIAL INFORMATION

Item 1. Financial Statements

Consolidated Balance Sheets

(Dollars in thousands, except share and per share data)	(unaudited)
	September 30,		December 31,
	2022		2021
Assets
Cash and due from banks	$	24,274	$	10,463
Short-term interest-earning deposits in other banks		185,882		164,686
Total cash and cash equivalents		210,156		175,149
Long-term interest-earning deposits in other banks		12,476		10,492
Debt securities available for sale, at fair value		492,032		529,811
Equity securities		435		481
Restricted stock		644		495
Loans held for sale		2,349		2,827
Loans		1,048,507		998,812
Allowance for loan losses		(14,989)		(15,066)
Net Loans		1,033,518		983,746
Premises and equipment, net		29,198		19,190
Right of use asset		6,170		4,759
Bank owned life insurance		22,200		21,874
Goodwill		9,016		9,016
Deferred tax asset, net		17,816		3,314
Other assets		11,152		12,652
Total assets	$	1,847,162	$	1,773,806
Liabilities
Deposits
Noninterest-bearing checking	$	317,719	$	298,403
Money management, savings, and interest checking		1,327,406		1,211,703
Time		59,858		74,253
Total deposits		1,704,983		1,584,359
Subordinate notes		19,615		19,588
Lease liability		6,293		4,857
Other liabilities		8,120		7,937
Total liabilities		1,739,011		1,616,741
Commitments and contingent liabilities
Shareholders' equity
Common stock, $1 par value per share,15,000,000 shares authorized with
4,710,972 shares issued and 4,395,650 shares outstanding at September 30, 2022 and
4,710,972 shares issued and 4,441,443 shares outstanding at December 31, 2021		4,711		4,711
Capital stock no par value, 5,000,000 shares authorized with no
shares issued and outstanding		—		—
Additional paid-in capital		43,377		43,085
Retained earnings		123,579		116,612
Accumulated other comprehensive loss		(55,101)		(547)
Treasury stock, 315,322 shares at September 30, 2022 and 269,529 shares at
December 31, 2021, at cost		(8,415)		(6,796)
Total shareholders' equity		108,151		157,065
Total liabilities and shareholders' equity	$	1,847,162	$	1,773,806

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

1

Consolidated Statements of Income

	For the Three Months Ended				For the Nine Months Ended
(Dollars in thousands, except per share data) (unaudited)	September 30,				September 30,
	2022		2021		2022		2021
Interest income
Loans, including fees	$	10,767	$	9,805	$	29,589	$	28,373
Interest and dividends on investments:
Taxable interest		2,728		1,906		6,739		5,284
Tax exempt interest		521		526		1,570		1,588
Dividend income		5		1		14		17
Interesting-bearing deposits in other banks		1,022		66		1,542		178
Total interest income		15,043		12,304		39,454		35,440
Interest expense
Deposits		717		447		1,684		1,390
Subordinate notes		263		263		787		788
Total interest expense		980		710		2,471		2,178
Net interest income		14,063		11,594		36,983		33,262
Provision for loan losses		—		—		—		(1,900)
Net interest income after provision for loan losses		14,063		11,594		36,983		35,162
Noninterest income
Investment and trust services fees		1,661		1,740		5,407		5,282
Loan service charges		177		224		533		647
Gain on sale of loans		183		529		692		1,866
Deposit service charges and fees		629		674		1,885		1,613
Other service charges and fees		443		397		1,293		1,214
Debit card income		497		550		1,393		1,642
Increase in cash surrender value of Bank owned life insurance		109		109		326		336
Bank owned life insurance gain		—		147		—		147
Net (losses) gains on sales of debt securities		(15)		—		(34)		91
Change in fair value of equity securities		(61)		(9)		(46)		83
Gain on sale of premise		—		1,776		—		1,776
Other		40		45		190		202
Total noninterest income		3,663		6,182		11,639		14,899
Noninterest Expense
Salaries and employee benefits		7,089		5,958		20,500		17,861
Net occupancy		1,124		908		3,077		2,675
Marketing and advertising		433		413		1,391		1,153
Legal and professional		581		579		1,580		1,552
Data processing		1,146		1,040		3,544		2,857
Pennsylvania bank shares tax		335		308		813		708
FDIC Insurance		197		181		550		563
ATM/debit card processing		359		342		1,065		967
Telecommunications		114		101		313		314
Nonservice pension		69		257		207		651
Other		753		899		2,456		1,964
Total noninterest expense		12,200		10,986		35,496		31,265
Income before federal income taxes		5,526		6,790		13,126		18,796
Federal income tax expense		895		928		1,905		2,833
Net income	$	4,631	$	5,862	$	11,221	$	15,963
Per share
Basic earnings per share	$	1.05	$	1.32	$	2.53	$	3.61
Diluted earnings per share	$	1.05	$	1.31	$	2.52	$	3.60

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

2

Consolidated Statements of Comprehensive Income (Loss)

	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
(Dollars in thousands) (unaudited)	2022		2021		2022		2021
Net Income	$	4,631	$	5,862	$	11,221	$	15,963
Debt Securities:
Unrealized losses arising during the period		(20,409)		(3,819)		(69,090)		(6,698)
Reclassification adjustment for losses (gains) included in net income (1)		15		—		34		(91)
Net unrealized losses		(20,394)		(3,819)		(69,056)		(6,789)
Tax effect		4,283		802		14,502		1,426
Net of tax amount		(16,111)		(3,017)		(54,554)		(5,363)
Total other comprehensive loss		(16,111)		(3,017)		(54,554)		(5,363)
Total Comprehensive (Loss) Income	$	(11,480)	$	2,845	$	(43,333)	$	10,600
(1) Reclassified to net (losses) gains on sales of debt securities

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

3

Consolidated Statements of Changes in Shareholders’ Equity

For the three and nine months ended September 30, 2022 and 2021

								Accumulated
				Additional				Other
	Shares	Common		Paid-in		Retained		Comprehensive		Treasury
(Dollars in thousands, except per share data) (unaudited)	Outstanding	Stock		Capital		Earnings		Income (Loss)		Stock		Total
Balance at July 1, 2022	4,422,280	$	4,711	$	43,248	$	120,354	$	(38,990)	$	(7,526)	$	121,797
Net income			—		—		4,631		—		—		4,631
Other comprehensive loss			—		—		—		(16,111)		—		(16,111)
Cash dividends declared, $0.32 per share			—		—		(1,406)		—		—		(1,406)
Acquisition of treasury stock	(38,409)		—		—		—		—		(1,202)		(1,202)
Treasury shares issued under dividend reinvestment plan	9,245		—		49		—		—		246		295
Stock Compensation Plans:
Treasury shares issued	2,534		—		(51)		—		—		67		16
Compensation expense			—		131		—		—		—		131
Balance at September 30, 2022	4,395,650	$	4,711	$	43,377	$	123,579	$	(55,101)	$	(8,415)	$	108,151
Balance at January 1, 2022	4,441,443	$	4,711	$	43,085	$	116,612	$	(547)	$	(6,796)	$	157,065
Net income			—		—		11,221		—		—		11,221
Other comprehensive loss			—		—		—		(54,554)		—		(54,554)
Cash dividends declared, $0.96 per share			—		—		(4,254)		—		—		(4,254)
Acquisition of treasury stock	(86,449)		—		—		—		—		(2,664)		(2,664)
Treasury shares issued under dividend reinvestment plan	29,757		—		176		—		—		766		942
Stock Compensation Plans:
Treasury shares issued	10,899		—		(236)		—		—		279		43
Compensation expense			—		352		—		—		—		352
Balance at September 30, 2022	4,395,650	$	4,711	$	43,377	$	123,579	$	(55,101)	$	(8,415)	$	108,151

Balance at July 1, 2021	4,425,092	$	4,711	$	42,774	$	109,930	$	844	$	(7,103)	$	151,156
Net income			—		—		5,862		—		—		5,862
Other comprehensive income			—		—		—		(3,017)		—		(3,017)
Cash dividends declared, $0.32 per share			—		—		(1,414)		—		—		(1,414)
Acquisition of treasury stock	(12,089)		—		—		—		—		(387)		(387)
Treasury shares issued under dividend reinvestment plan	18,226		—		129		—		—		458		587
Stock Compensation Plans:
Treasury shares issued	218		—		—		—		—		5		5
Compensation expense			—		46		—		—		—		46
Balance at September 30, 2021	4,431,447	$	4,711	$	42,949	$	114,378	$	(2,173)	$	(7,027)	$	152,838
Balance at January 1, 2021	4,389,355	$	4,711	$	42,589	$	102,520	$	3,190	$	(7,834)	$	145,176
Net income			—		—		15,963		—		—		15,963
Other comprehensive income			—		—		—		(5,363)		—		(5,363)
Cash dividends declared, $0.93 per share			—		—		(4,105)		—		—		(4,105)
Acquisition of treasury stock	(35,718)		—		—		—		—		(1,105)		(1,105)
Treasury shares issued under dividend reinvestment plan	66,235		—		381		—		—		1,630		2,011
Stock Compensation Plans:
Treasury shares issued	11,575		—		(182)		—		—		282		100
Compensation expense			—		161		—		—		—		161
Balance at September 30, 2021	4,431,447	$	4,711	$	42,949	$	114,378	$	(2,173)	$	(7,027)	$	152,838

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

4

Consolidated Statements of Cash Flows

	Nine Months Ended ‎September 30,
	2022		2021
(Dollars in thousands) (unaudited)
Cash flows from operating activities
Net income	$	11,221	$	15,963
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		1,049		925
Net amortization of loans and investment securities		3,207		503
Amortization of subordinate debt issuance costs		27		26
Provision for loan losses		—		(1,900)
Change in fair value of equity securities		46		(83)
Realized losses (gains) on sales of debt securities		34		(91)
Loans originated for sale		(40,342)		(81,204)
Proceeds from sale of loans		41,512		88,402
Gain on sale of loans held for sale		(692)		(1,866)
Increase in cash surrender value of life insurance		(326)		(336)
Decrease in fair value of derivative		(17)		(20)
Gains from surrender of life insurance policies		—		(147)
Stock option compensation		352		161
Decrease in other assets		1,679		4,184
Decrease in other liabilities		(4)		(647)
Net cash provided by operating activities		17,746		23,870
Cash flows from investing activities
Net (increase) decrease in long-term interest-bearing deposits in other banks		(1,984)		1,999
Proceeds from sale of AFS securities		1,082		16,060
Proceeds from maturities and pay-downs of securities available for sale		31,013		27,057
Purchase of investment securities available for sale		(66,499)		(200,913)
Net increase in restricted stock		(149)		(27)
Net increase in loans		(49,886)		(6,240)
Proceeds from surrender of bank owned life insurance policy		—		685
Capital expenditures		(11,007)		(7,367)
Net cash used in investing activities		(97,430)		(168,746)
Cash flows from financing activities
Net increase in demand deposits, interest-bearing checking, and savings accounts		135,019		195,443
Net decrease in time deposits		(14,395)		(5,721)
Dividends paid		(4,254)		(4,105)
Purchase of Treasury shares		(2,664)		(1,105)
Cash received from option exercises		43		100
Treasury shares issued under dividend reinvestment plan		942		2,011
Net cash provided by financing activities		114,691		186,623
Increase in cash and cash equivalents		35,007		41,747
Cash and cash equivalents at the beginning of the period		175,149		57,146
Cash and cash equivalents at the end of the period	$	210,156	$	98,893
Supplemental Disclosures of Cash Flow Information
Cash paid during the year for:
Interest on deposits and other borrowed funds	$	2,208	$	2,268
Income taxes		58		1,872
Noncash Activities
Lease liabilities arising from obtaining right-of-use assets	$	1,867	$	—

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

5

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 September 30, 2022, 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 2021 Annual Report on Form 10-K. The consolidated results of operations for the three-month and nine-month periods ended September 30, 2022 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, 2021 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				For the Nine Months Ended
	September 30,				September 30,
(Dollars and shares in thousands, except per share data)	2022		2021		2022		2021
Weighted average shares outstanding (basic)		4,401		4,441		4,432		4,421
Impact of common stock equivalents		23		26		21		19
Weighted average shares outstanding (diluted)		4,424		4,467		4,453		4,440
Anti-dilutive options excluded from calculation		29		30		30		31
Net income	$	4,631	$	5,862	$	11,221	$	15,963
Basic earnings per share	$	1.05	$	1.32	$	2.53	$	3.61
Diluted earnings per share	$	1.05	$	1.31	$	2.52	$	3.60

‎

6

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 is running the CECL model in test mode in 2022.
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 continues to review the ASU as part of its adoption of ASU 2016-13.
ASU 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures
Description	This ASU will eliminate the recognition and measurement accounting guidance for Troubled Debt Restructurings (TDRs) by creditors in Subtopic 310-40, while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty.
Effective Date	January 1, 2023
Effect on the Consolidated Financial Statements	The Corporation is reviewing 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 continues to review the ASU as part of its adoption but does not expect it to have a material effect on the consolidated financial statements.

7

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:

	September 30,		December 31,
(Dollars in thousands)	2022		2021
Net unrealized (losses) gains on debt securities	$	(64,962)	$	4,094
Tax effect		13,642		(860)
Net of tax amount	$	(51,320)	$	3,234
Accumulated pension adjustment	$	(4,786)	$	(4,786)
Tax effect		1,005		1,005
Net of tax amount	$	(3,781)	$	(3,781)
Total accumulated other comprehensive loss	$	(55,101)	$	(547)

Note 4. Investments

Available for Sale (AFS) Securities

The amortized cost and estimated fair value of AFS securities as of September 30, 2022 and December 31, 2021 are as follows:

(Dollars in thousands)			Gross		Gross
	Amortized		unrealized		unrealized		Fair
September 30, 2022	cost		gains		losses		value
U.S. Treasury	$	92,305	$	—	$	(12,396)	$	79,909
Municipal		203,370		24		(34,133)		169,261
Corporate		26,311		—		(1,689)		24,622
Agency mortgage & asset-backed		169,537		38		(12,555)		157,020
Non-Agency mortgage & asset-backed		65,471		2		(4,253)		61,220
Total	$	556,994	$	64	$	(65,026)	$	492,032

(Dollars in thousands)			Gross		Gross
	Amortized		unrealized		unrealized		Fair
December 31, 2021	cost		gains		losses		value
U.S. Treasury	$	84,896	$	88	$	(698)	$	84,286
Municipal		206,501		7,148		(1,422)		212,227
Corporate		24,794		333		(188)		24,939
Agency mortgage & asset-backed		178,614		1,157		(2,086)		177,685
Non-Agency mortgage & asset-backed		30,912		34		(272)		30,674
Total	$	525,717	$	8,760	$	(4,666)	$	529,811

At September 30, 2022 and December 31, 2021, the fair value of debt securities pledged to secure public funds and trust deposits totaled $222.7 million and $160.3 million, respectively. The Bank has no investment in a single issuer that exceeds 10% of shareholders’ equity, except for securities issued by the U.S. Treasury and U.S. government sponsored entities.

8

The amortized cost and estimated fair value of debt securities at September 30, 2022, 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	$	3,971	$	3,942
Due after one year through five years		14,689		14,121
Due after five years through ten years		150,057		130,188
Due after ten years		153,269		125,541
		321,986		273,792
Mortgage & asset-backed		235,008		218,240
	$	556,994	$	492,032

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

	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
(Dollars in thousands)	2022		2021		2022		2021
Proceeds	$	1,000	$	—	$	1,082	$	16,060
Gross gains realized		—		—		—		169
Gross losses realized		(15)		—		(34)		(78)
Net (losses) gains realized	$	(15)	$	—	$	(34)	$	91
Tax benefit (provision) on net (losses) gains realized	$	3	$	—	$	7	$	(19)

Impairment:

The debt securities portfolio contained 599 securities with $475.4 million of temporarily impaired fair value and $65.0 million in unrealized losses at September 30, 2022. The total unrealized loss position has increased $60.1 million since year-end 2021 due to an increase in market interest rates.

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 municipal bond portfolio, which has the largest unrealized loss, is well diversified geographically (201 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 (14%), California (11%), Pennsylvania (11%), and Michigan (10%). The average rating of the municipal portfolio from Moody’s is AA. No municipal bonds are rated below investment grade. The impairment identified on debt securities and subject to assessment at September 30, 2022, 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 September 30, 2022 and December 31, 2021:

	September 30, 2022
	Less than 12 months					12 months or more					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(Dollars in thousands)	Value		Losses		Count	Value		Losses		Count	Value		Losses		Count
U.S. Treasury	$	16,836	$	(1,864)	11	$	63,073	$	(10,532)	19	$	79,909	$	(12,396)	30
Municipal		132,404		(22,568)	167		34,527		(11,565)	49		166,931		(34,133)	216
Corporate		15,560		(1,053)	31		7,412		(636)	15		22,972		(1,689)	46
Agency mortgage & asset-backed		67,183		(3,158)	158		80,796		(9,397)	89		147,979		(12,555)	247
Non-Agency mortgage & asset-backed		45,802		(2,962)	47		11,762		(1,291)	13		57,564		(4,253)	60
Total temporarily impaired	$	277,785	$	(31,605)	414	$	197,570	$	(33,421)	185	$	475,355	$	(65,026)	599

9

	December 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. Treasury	$	76,383	$	(698)	21	$	—	$	—	—	$	76,383	$	(698)	21
Municipal		38,997		(910)	44		15,404		(512)	16		54,401		(1,422)	60
Corporate		8,954		(132)	17		1,694		(56)	3		10,648		(188)	20
Agency mortgage & asset-backed		96,923		(1,669)	94		15,991		(417)	18		112,914		(2,086)	112
Non-Agency mortgage & asset-backed		15,215		(215)	11		1,964		(57)	3		17,179		(272)	14
Total temporarily impaired	$	236,472	$	(3,624)	187	$	35,053	$	(1,042)	40	$	271,525	$	(4,666)	227

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

	Nine Months Ended
(Dollars in thousands)	September 30,
	2022		2021
Balance of cumulative credit-related OTTI at January 1	$	257	$	272
Decreases for previously recognized credit losses on securities that paid off or sold		(257)		(15)
Balance of credit-related OTTI at September 30	$	—	$	257

Equity Securities at Fair Value

The Corporation owns one equity investment with a readily determinable fair value. At September 30, 2022 and December 31, 2021, this investment was reported at fair value of $435 thousand and $481 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.

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

10

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 motels, 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 real estate loans ongoing monitoring of cash flow and other financial performance indictors is completed 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, administered by the Small Business Administration (SBA). 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 1.00% 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. However, if the SBA does not grant loan forgiveness, the PPP loan would present the same risk factors as any other commercial loan.

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:

	September 30,		December 31,
(Dollars in thousands)	2022		2021
Residential Real Estate 1-4 Family
Consumer first liens	$	78,686	$	71,828
Commercial first lien		60,219		60,655
Total first liens		138,905		132,483
Consumer junior liens and lines of credit		70,423		67,103
Commercial junior liens and lines of credit		4,326		4,841
Total junior liens and lines of credit		74,749		71,944
Total residential real estate 1-4 family		213,654		204,427
Residential real estate - construction
Consumer		11,125		8,278
Commercial		12,776		12,379
Total residential real estate construction		23,901		20,657
Commercial real estate		571,426		522,779
Commercial		233,427		244,543
Total commercial		804,853		767,322
Consumer		6,099		6,406
		1,048,507		998,812
Less: Allowance for loan losses		(14,989)		(15,066)
Net Loans	$	1,033,518	$	983,746
Included in the loan balances are the following:
Net unamortized deferred loan costs	$	2,013	$	1,289
Loans pledged as collateral for borrowings and commitments from:
FHLB	$	646,878	$	614,828
Federal Reserve Bank		49,191		45,453
	$	696,069	$	660,281
Paycheck Protection Program (included in commercial loans)	$	205	$	7,755

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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 June 30, 2022	$	465	$	245	$	289	$	8,096	$	5,076	$	119	$	725	$	15,015
Charge-offs		—		—		—		—		(6)		(33)		—		(39)
Recoveries		—		1		—		—		8		4		—		13
Provision		(4)		3		75		9		(33)		38		(88)		—
ALL at September 30, 2022	$	461	$	249	$	364	$	8,105	$	5,045	$	128	$	637	$	14,989
ALL at December 31, 2021	$	475	$	252	$	325	$	8,168	$	5,127	$	130	$	589	$	15,066
Charge-offs		(20)		—		—		—		(69)		(79)		—		(168)
Recoveries		47		2		—		—		20		22		—		91
Provision		(41)		(5)		39		(63)		(33)		55		48		—
ALL at September 30, 2022	$	461	$	249	$	364	$	8,105	$	5,045	$	128	$	637	$	14,989
ALL at June 30, 2021	$	459	$	220	$	349	$	7,878	$	5,309	$	102	$	738	$	15,055
Charge-offs		—		—		—		—		(3)		(126)		—		(129)
Recoveries		—		—		—		—		436		4		—		440
Provision		33		25		18		810		(856)		157		(187)		—
ALL at September 30, 2021	$	492	$	245	$	367	$	8,688	$	4,886	$	137	$	551	$	15,366
ALL at December 31, 2020	$	555	$	226	$	294	$	9,163	$	5,679	$	97	$	775	$	16,789
Charge-offs		—		—		(28)		(13)		(11)		(162)		—		(214)
Recoveries		—		170		—		1		497		23		—		691
Provision		(63)		(151)		101		(463)		(1,279)		179		(224)		(1,900)
ALL at September 30, 2021	$	492	$	245	$	367	$	8,688	$	4,886	$	137	$	551	$	15,366

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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 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
September 30, 2022
Loans evaluated for ALL:
Individually	$	631	$	—	$	—	$	9,021	$	—	$	—	$	—	$	9,652
Collectively		138,274		74,749		23,901		562,405		233,427		6,099		—		1,038,855
Total	$	138,905	$	74,749	$	23,901	$	571,426	$	233,427	$	6,099	$	—	$	1,048,507
ALL established for ‎  loans evaluated:
Individually	$	—	$	—	$	—	$	415	$	—	$	—	$	—	$	415
Collectively		461		249		364		7,690		5,045		128		637		14,574
ALL at September 30, 2022	$	461	$	249	$	364	$	8,105	$	5,045	$	128	$	637	$	14,989
December 31, 2021
Loans evaluated for ALL:
Individually	$	661	$	—	$	424	$	10,520	$	—	$	—	$	—	$	11,605
Collectively		131,822		71,944		20,233		512,259		244,543		6,406		—		987,207
Total	$	132,483	$	71,944	$	20,657	$	522,779	$	244,543	$	6,406	$	—	$	998,812
ALL established for ‎  loans evaluated:
Individually	$	—	$	—	$	—	$	698	$	—	$	—	$	—	$	698
Collectively		475		252		325		7,470		5,127		130		589		14,368
ALL at December 31, 2021	$	475	$	252	$	325	$	8,168	$	5,127	$	130	$	589	$	15,066

‎

14

The following table shows additional information about those loans considered to be impaired as of the periods shown:

	Impaired Loans
	With No Allowance				With Allowance
(Dollars in thousands)			Unpaid				Unpaid
	Recorded		Principal		Recorded		Principal		Related
September 30, 2022	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		—		—		—		—		—
Commercial real estate		3,725		3,725		5,296		5,796		415
Commercial		—		—		—		—		—
Total	$	4,356	$	4,356	$	5,296	$	5,796	$	415

December 31, 2021
Residential Real Estate 1-4 Family
First liens	$	661	$	661	$	—	$	—	$	—
Junior liens and lines of credit		—		—		—		—		—
Total		661		661		—		—		—
Residential real estate - construction		424		729		—		—		—
Commercial real estate		4,942		5,405		5,578		5,764		698
Commercial		—		—		—		—		—
Total	$	6,027	$	6,795	$	5,578	$	5,764	$	698

The following table shows the average balance of impaired loans and related interest income for the periods shown:

	Three Months Ended				Nine Months Ended
	September 30, 2022				September 30, 2022
	Average		Interest		Average		Interest
(Dollars in thousands)	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
Residential Real Estate 1-4 Family
First liens	$	635	$	6	$	646	$	23
Junior liens and lines of credit		—		—		—		—
Total		635		6		646		23
Residential real estate - construction		—		—		141		105
Commercial real estate		9,082		46		9,571		320
Commercial		—		—		—		—
Total	$	9,717	$	52	$	10,358	$	448
	Three Months Ended				Nine Months Ended
	September 30, 2021				September 30, 2021
	Average		Interest		Average		Interest
(Dollars in thousands)	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
Residential Real Estate 1-4 Family
First liens	$	663	$	8	$	655	$	24
Junior liens and lines of credit		—		—		—		—
Total		663		8		655		24
Residential real estate - construction		428		—		483		—
Commercial real estate		15,450		122		15,813		310
Commercial		—		—		—		—
Total	$	16,541	$	130	$	16,951	$	334

‎

15

At September 30, 2022, the Bank had $38 thousand of residential properties in the process of foreclosure compared to $157 thousand at the end of 2021. 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
September 30, 2022
Residential Real Estate 1-4 Family
First liens	$	138,437	$	241	$	107	$	—	$	348	$	120	$	138,905
Junior liens and lines of credit		74,515		147		49		—		196		38		74,749
Total		212,952		388		156		—		544		158		213,654
Residential real estate - construction		23,901		—		—		—		—		—		23,901
Commercial real estate		565,301		592		105		—		697		5,428		571,426
Commercial		233,274		139		14		—		153		—		233,427
Consumer		6,055		35		2		7		44		—		6,099
Total	$	1,041,483	$	1,154	$	277	$	7	$	1,438	$	5,586	$	1,048,507

December 31, 2021
Residential Real Estate 1-4 Family
First liens	$	132,224	$	96	$	113	$	—	$	209	$	50	$	132,483
Junior liens and lines of credit		71,788		118		—		—		118		38		71,944
Total		204,012		214		113		—		327		88		204,427
Residential real estate - construction		20,233		—		—		—		—		424		20,657
Commercial real estate		515,487		293		187		—		480		6,812		522,779
Commercial		244,377		106		—		—		106		60		244,543
Consumer		6,368		27		11		—		38		—		6,406
Total	$	990,477	$	640	$	311	$	—	$	951	$	7,384	$	998,812

‎

16

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
September 30, 2022
Residential Real Estate 1-4 Family
First liens	$	138,785	$	—	$	120	$	—	$	138,905
Junior liens and lines of credit		74,711		—		38		—		74,749
Total		213,496		—		158		—		213,654
Residential real estate - construction		23,901		—		—		—		23,901
Commercial real estate		555,485		1,104		14,837		—		571,426
Commercial		230,737		2,571		119		—		233,427
Consumer		6,099		—		—		—		6,099
Total	$	1,029,718	$	3,675	$	15,114	$	—	$	1,048,507

December 31, 2021
Residential Real Estate 1-4 Family
First liens	$	132,433	$	—	$	50	$	—	$	132,483
Junior liens and lines of credit		71,906		—		38		—		71,944
Total		204,339		—		88		—		204,427
Residential real estate - construction		20,233		—		424		—		20,657
Commercial real estate		486,903		19,006		16,870		—		522,779
Commercial		244,315		49		179		—		244,543
Consumer		6,406		—		—		—		6,406
Total	$	962,196	$	19,055	$	17,561	$	—	$	998,812

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
September 30, 2022
Residential real estate - construction	—	$	—	$	—	$	—	—	$	—
Residential real estate	5		631		631		—	—		—
Commercial real estate - owner occupied	3		795		795		—	—		—
Commercial real estate - farm land	3		1,482		1,482		—	—		—
Commercial real estate - construction and land development	1		1,360		1,360		—	—		—
Commercial real estate - other	1		87		87		—	—		—
Total	13	$	4,355	$	4,355	$	—	—	$	—
December 31, 2021
Residential real estate - construction	1	$	424	$	—	$	424	—	$	—
Residential real estate	5		661		661		—	—		—
Commercial real estate - owner occupied	4		1,161		1,161		—	—		—
Commercial real estate - farm land	4		1,664		1,664		—	—		—
Commercial real estate - construction and land development	1		1,360		1,360		—	—		—
Commercial real estate - other	2		294		294		—	—		—
Total	17	$	5,564	$	5,140	$	424	—	$	—

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

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17

There were no new TDR loans during the three or nine month periods ending September 30, 2022.

The following table reports new TDR loans during 2021, concession granted and the recorded investment as of September 30, 2022:

(Dollars in thousands)	New During Period
Twelve Months Ended	Number of		Pre-TDR		After-TDR		Recorded
December 31, 2021	Contracts		Modification		Modification		Investment	Concession
Residential real estate	1	$	41	$	50	$	40	multiple

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 may include 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 ‎September 30,				Nine Months Ended ‎September 30,
(Dollars in thousands)	2022		2021		2022		2021
Operating lease cost	$	193	$	174	$	566	$	522
Short-term lease cost		44		95		296		95
Variable lease cost		40		25		95		74
Total lease cost	$	277	$	294	$	957	$	691

Supplemental Lease Information:

	Nine Months Ended ‎September 30,
(Dollars in thousands)	2022		2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	550	$	491
Weighted-average remaining lease term (years)		12.1		11.2
Weighted-average discount rate		3.35%		3.36%

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18

Lease Obligations:

Future undiscounted lease payments for operating leases with initial terms of one year or more as of September 30, 2022 are as follows:

(Dollars in thousands)
2022	$	201
2023		818
2024		803
2025		752
2026		650
2027 and beyond		4,591
Undiscounted cash flow		7,815
Imputed Interest		(1,522)
Total lease liability	$	6,293

Note 8. Other Real Estate Owned

The Bank had no other real estate owned at September 30, 2022 and December 31, 2021.

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)		September 30, 2022					December 31, 2021
		Notional amount	Balance Sheet Location		Fair Value		Notional amount	Balance Sheet Location		Fair Value
Derivatives not designated as hedging instruments
Other Contracts	$	6,513	Other Liabilities	$	4	$	6,653	Other Liabilities	$	21
Total derivatives not designated as hedging instruments				$	4				$	21

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 as Hedging Instruments on the Income Statement
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				Nine Months Ended
		September 30, 2022		September 30, 2021		September 30, 2022		September 30, 2021
Other Contracts	Other income	$	4	$	3	$	17	$	20

As of September 30, 2022, 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 $4 thousand.  

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Note 10. Pension

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

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(Dollars in thousands)	2022		2021		2022		2021
Components of net periodic cost:
Service cost	$	86	$	107	$	257	$	312
Interest cost		168		96		504		279
Expected return on plan assets		(249)		(280)		(746)		(834)
Settlement expense		—		158		—		356
Recognized net actuarial loss		150		283		449		850
Total pension expense	$	155	$	364	$	464	$	963

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 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.

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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 third quarter of 2022. Impaired loans are measured at fair value on a nonrecurring basis.

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21

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 September 30, 2022 and December 31, 2021 are as follows:

(Dollars in thousands)	Fair Value at September 30, 2022
Asset Description	Level 1		Level 2		Level 3		Total
Equity securities, at fair value	$	435	$	—	$	—	$	435
Available for sale:
U.S. Treasury		79,909		—		—		79,909
Municipal		—		169,261		—		169,261
Corporate		—		24,622		—		24,622
Agency mortgage & asset-backed		—		157,020		—		157,020
Non-Agency mortgage & asset-backed		—		61,220		—		61,220
Total assets	$	80,344	$	412,123	$	—	$	492,467

(Dollars in thousands)	Fair Value at December 31, 2021
Asset Description	Level 1		Level 2		Level 3		Total
Equity securities, at fair value	$	481	$	—	$	—	$	481
Available for sale:
U.S. Treasury		84,286		—		—		84,286
Municipal		—		212,227		—		212,227
Corporate		—		24,939		—		24,939
Agency mortgage and asset-backed		—		177,685		—		177,685
Non-Agency mortgage and asset-backed		—		30,674		—		30,674
Total assets	$	84,767	$		$	—	$	530,292

The fair value of derivative liabilities measured at fair value at September 30, 2022 and December 31, 2021 was $4 thousand and $21 thousand, respectively, and was considered immaterial.

Nonrecurring Fair Value Measurements

For financial assets measured at fair value on a nonrecurring basis, the fair value measurements by level within the fair value hierarchy used at September 30, 2022 and December 31, 2021 are as follows:

(Dollars in Thousands)	Fair Value at September 30, 2022
Asset Description	Level 1		Level 2		Level 3		Total
Impaired loans (1)	$	—	$	—	$	4,881	$	4,881
Total assets	$	—	$	—	$	4,881	$	4,881

(Dollars in Thousands)	Fair Value at December 31, 2021
Asset Description	Level 1		Level 2		Level 3		Total
Impaired loans (1)	$	—	$	—	$	4,880	$	4,880
Total assets	$	—	$	—	$	4,880	$	4,880

(1)Includes assets that may have been charged-down to fair value during the reporting period or have a specific reserve established.

The Corporation did not record any liabilities at fair value for which measurement of the fair value was made on a nonrecurring basis at September 30, 2022. 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 September 30, 2022.

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22

The following table presents additional quantitative information about Level 3 assets measured at fair value on a nonrecurring basis at September 30, 2022 and December 31, 2021:

(Dollars in thousands)					Range
September 30, 2022		Fair Value	Valuation Technique	Unobservable Input	(Weighted Average)
Impaired loans	$	4,881	Appraisal	Appraisal Adjustment on:
				Real estate assets	20% (20%)
				Cost to sell	8%
				Non-real estate assets	50% - 100% (83%)
				Cost to sell	8%
					Range
December 31, 2021		Fair Value	Valuation Technique	Unobservable Input	(Weighted Average)
Impaired Loans	$	4,880	Appraisal	Appraisal Adjustment on:
				Real estate assets	20% (20%)
				Cost to sell	8%
				Non-real estate assets	50% - 100% (83%)
				Cost to sell	8%

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

	September 30, 2022
	Carrying		Fair
(Dollars in thousands)	Amount		Value		Level 1		Level 2		Level 3
Financial assets, carried at cost:
Cash and cash equivalents	$	210,156	$	210,156	$	210,156	$	—	$	—
Long-term interest-bearing deposits in other banks		12,476		12,476		12,476		—		—
Loans held for sale		2,349		2,382		—		2,382		—
Net loans		1,033,518		977,145		—		—		977,145
Accrued interest receivable		5,784		5,784		—		—		5,784
Financial liabilities:
Deposits	$	1,704,983	$	1,703,580	$	—	$	1,703,580	$	—
Subordinate notes		19,615		17,838		—		17,838		—
Accrued interest payable		346		346		—		346		—
	December 31, 2021
	Carrying		Fair
(Dollars in thousands)	Amount		Value		Level 1		Level 2		Level 3
Financial assets, carried at cost:
Cash and cash equivalents	$	175,149	$	175,149	$	175,149	$	—	$	—
Long-term interest-bearing deposits in other banks		10,492		10,492		10,492		—		—
Loans held for sale		2,827		2,940		—		2,940		—
Net loans		983,746		1,003,580		—		—		1,003,580
Accrued interest receivable		5,217		5,217		—		—		5,217
Financial liabilities:
Deposits	$	1,584,359	$	1,616,128	$	—	$	1,616,128	$	—
Subordinate notes		19,588		19,909		—		19,909		—
Accrued interest payable		83		83		—		83		—

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Note 12. Subordinated Notes

At September 30, 2022, 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 $385 thousand at September 30, 2022, 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.

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 2.5% 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 September 30, 2022 was 7.61% compared to the regulatory buffer of 2.5%. 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 September 30, 2022, 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 QCBO 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 QCBO but did not opt-in to the CBLR.

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.

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The following table summarizes the regulatory capital requirements and results as of September 30, 2022 and December 31, 2021 for the Corporation and the Bank:

			Regulatory Ratios
			Adequately	Well
	September 30,	December 31,	Capitalized	Capitalized
(Dollars in thousands)	2022	2021	Minimum	Minimum
Common Equity Tier 1 Risk-based Capital Ratio (1)
Franklin Financial Services Corporation	14.29%	15.20%	N/A	N/A
Farmers & Merchants Trust Company	14.36%	15.28%	4.50%	6.50%
Tier 1 Risk-based Capital Ratio (2)
Franklin Financial Services Corporation	14.29%	15.20%	N/A	N/A
Farmers & Merchants Trust Company	14.36%	15.28%	6.00%	8.00%
Total Risk-based Capital Ratio (3)
Franklin Financial Services Corporation	17.34%	18.41%	N/A	N/A
Farmers & Merchants Trust Company	15.61%	16.54%	8.00%	10.00%
Tier 1 Leverage Ratio (4)
Franklin Financial Services Corporation	8.59%	8.52%	N/A	N/A
Farmers & Merchants Trust Company	8.63%	8.57%	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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25

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 third quarter of 2022, compared to $1.6 million in the third quarter of 2021 and $4.9 million for the first nine months of 2022 and 2021.

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 $113 thousand for the third quarter of 2022, compared to $130 thousand in the third quarter of 2021 and $415 thousand for the first nine months of 2022, compared to $313 thousand for the first nine months of 2021.

Commissions from the sale of investment and insurance products are recognized upon the completion of the transaction. Commissions recognized were $29 thousand for the third quarter of 2022, compared to $34 thousand for the third quarter of 2021 and $104 thousand for the first nine months of 2022, compared to $118 thousand for the first nine months of 2021.

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:

	September 30,		December 31,
(Dollars in thousands)	2022		2021
Financial instruments whose contract amounts represent credit risk
Commercial commitments to extend credit	$	282,414	$	288,075
Consumer commitments to extend credit (secured)		92,729		82,095
Consumer commitments to extend credit (unsecured)		5,331		5,389
	$	380,474	$	375,559
Standby letters of credit	$	30,317	$	23,284

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. In the second quarter of 2021, the Bank reversed $636 thousand of this reserve as a second letter of credit was cancelled. At September 30, 2022, this reserve was $1.5 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 September 30, 2022 and December 31, 2021.

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 September 30, 2022, 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 and Nine Months Ended September 30, 2022 and 2021

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 the rates of inflation and the effects of inflation, 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 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 2021 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 2021 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 $4.6 million ($1.05 per diluted share) for the third quarter ended September 30, 2022, compared to $5.9 million ($1.31 per diluted share) for the third quarter ended September 30, 2021, and $3.6 million ($.80 per diluted share) for the second quarter of 2022. Year-to-date consolidated 2022 net income was $11.2 million ($2.52 per diluted share) compared to $16.0 million ($3.60 per diluted share) for the same nine-month period in 2021. Net income for both the third quarter of 2021 and the year-to-date period of 2021 was enhanced by a gain on the sale of the Bank’s prior headquarters building, and net income for the year-to-date period of 2021 was enhanced by a reversal of $1.9 million in the provision for loan losses.

A summary of operating results for the third quarter of 2022 and year-to-date 2022 are as follows:

Net interest income was $14.1 million for the third quarter of 2022 compared to $11.6 million for the third quarter of 2021. The third quarter of 2021 included $1.2 million of Paycheck Protection Program (PPP) interest and fees compared to $0 for the third quarter of 2022. Year-to-date, net interest income was $37.0 million (including $388 thousand of PPP interest and fees) compared to $33.3 million for the same period in 2021 (including $2.8 million of PPP interest and fees). The net interest margin increased to 3.28% for the third quarter of 2022 from 2.89% for the same quarter of the prior year. On a year-to-date comparison, the net interest margin was 2.96% for the first nine months of 2022 compared to 2.91% in 2021. The yield on earning assets increased in the third quarter 2022 versus 2021 comparison (up 0.44%) and year-over-year (up 0.06%). The year-to-date cost of interest-bearing deposits was 0.17% compared to 0.16% for 2021 while the cost of total deposits was 0.14% and 0.13% respectively in 2022 and 2021.
‎ 

Earning assets for the third quarter of 2022 averaged $1.7 billion compared to $1.6 billion for the same period in 2021, and year-to-date average earnings assets increased 9% from $1.6 billion to $1.7 billion. Year-to-date the average balance of interest-earning cash increased $72.2 million, and the investment portfolio increased $50.4 million.  The average balance of the loan portfolio increased $16 million for the first nine

29

months of 2022 compared to 2021. The growth in the year-to-date average balance of the loan portfolio was negatively affected by a decrease of $22.0 million in the average balance of PPP loans over the comparative periods. The average balance of deposits for the year increased $173.2 million over the same period in 2021 with every deposit category increasing except for time deposits which decreased by 19.4% over the period. 
‎

There was no provision for loan loss expense for the third quarter and year-to-date periods of 2022.  In 2021, the provision for loan loss expense was $0 for the third quarter and a reversal of $1.9 million for the first nine months of 2021. During 2020, the allowance for loan loss was increased through the provision expense due to increased economic uncertainty stemming from the pandemic. As these risks lessened in 2021, loans reserves were released via a reversal in the provision for loan loss.  Based on loan growth in 2022 and stable credit quality indicators it was determined no additional provision expense was needed during the first nine months of the year. The allowance for loan loss ratio was 1.43% of gross loans as of September 30, 2022, compared to 1.51% at December 31, 2021.
‎ 

Noninterest income totaled $3.7 million for the third quarter of 2022 compared to $6.2 million in the third quarter of 2021, a decline of $2.5 million (40.7%). This change was due primarily to a $346 thousand decrease on the gain on sale of mortgages and a one-time $1.8 million gain on the sale of the Bank’s prior headquarters building in the third quarter of 2021.  Year-to-date, noninterest income decreased $3.3 million (21.9%) to $11.6 million compared to $14.9 million the prior year. The change was primarily from a decrease of $1.2 million in the gains on sale of mortgages and the previously mentioned gain on the sale of the Bank’s prior headquarters building.  
‎ 

Noninterest expense for the third quarter of 2022 was $12.2 million compared to $11.0 million for the third quarter of 2021, an increase of 11.1%.  Year-to-date, noninterest expense was $35.5 million compared to $31.3 million in 2021, an increase of 13.5%. The categories contributing to this increase were: salaries and benefits ($2.6 million), data processing ($687 thousand) , net occupancy ($402 thousand) and other expense ($492 thousand). Salaries and benefits increased primarily in employee compensation due to higher staffing levels, incentive compensation and health insurance costs. The increase in data processing is related to the implementation of a Customer Relationship Management system, while net occupancy increased from expenses for new leased space for community offices. Other expense increased due to a reversal of $636 thousand off-balance sheet liability during the second quarter of 2021. 

Total assets at September 30, 2022 were $1.847 billion compared to $1.774 billion at December 31, 2021. Significant balance sheet changes since December 31, 2021, include:  

Short-term interest-earning deposits in other banks increased $21.2 million. The amortized cost basis of the investment portfolio increased $31.3 million; however, the fair value of the portfolio decreased by $37.8 million due to higher market interest rates during the nine month period.
‎ 

The net loan portfolio increased $49.8 million during 2022 over the year-end 2021 balance.  The largest increase occurred in the commercial real estate portfolio ($48.6 million) which was partially offset by a decrease of $11.1 million in non-real estate commercial loans.  The Bank held $205 thousand in PPP loans at September 30, 2022, a decrease of $7.6 million since year-end 2021, and all PPP fees have been recognized.

Deposits increased $120.6 million (7.6%) over year-end 2021, with all deposit products showing an increase except time deposits. Interest-bearing checking accounts showed the largest increase ($80.7 million – 15.8%), primarily in commercial and municipal accounts.  
‎ 

Shareholders’ equity decreased $48.9 million since the end of 2021. Retained earnings increased $7.0 million, after $4.3 million in dividend payments. Accumulated other comprehensive income (AOCI) decreased by $54.6 million as the fair value of the investment portfolio declined during the year due to higher market interest rates. At September 30, 2022, the book value of the Corporation’s common stock was $24.60 per share and the tangible book value was $22.55 per share. In December 2021, an open market repurchase plan was approved to repurchase 150,000 shares over a one-year period and 85,343 shares have been repurchased under the plan as of September 30, 2022. The Bank is considered to be well- capitalized under the regulatory guidance as of September 30. 2022.

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Key performance ratios as of, or for the nine months ended September 30, 2022 and 2021 and the year ended December 31, 2021 are listed below:

	September 30,		December 31,		September 30,
(Dollars in thousands, except per share)	2022		2021		2021
Balance Sheet Highlights
Total assets	$	1,847,162	$	1,773,806	$	1,732,441
Investment and equity securities		492,467		530,292		546,261
Loans, net		1,033,518		983,746		1,002,802
Deposits		1,704,983		1,584,359		1,544,295
Shareholders' equity		108,151		157,065		152,838
Summary of Operations
Interest income	$	39,454	$	47,573	$	35,440
Interest expense		2,471		2,902		2,178
Net interest income		36,983		44,671		33,262
Provision for loan losses		—		(2,100)		(1,900)
Net interest income after provision for loan losses		36,983		46,771		35,162
Noninterest income		11,639		19,488		14,899
Noninterest expense		35,496		43,245		31,265
Income before income taxes		13,126		23,014		18,796
Federal income tax expense		1,905		3,398		2,833
Net income	$	11,221	$	19,616	$	15,963
Performance Measurements
Return on average assets*		0.83%		1.17%		1.29%
Return on average equity*		11.12%		13.20%		14.46%
Return on average tangible equity (1)*		11.89%		14.05%		15.40%
Efficiency ratio (1)		71.34%		66.12%		63.70%
Net interest margin*		2.96%		2.88%		2.91%
Shareholders' Value (per common share)
Diluted earnings per share	$	2.52	$	4.42	$	3.60
Basic earnings per share		2.53		4.44		3.61
Regular cash dividends declared		0.96		1.25		0.93
Book value		24.60		35.36		34.49
Tangible book value (1)		22.55		33.34		32.46
Market value		31.56		33.10		31.77
Market value/book value ratio		128.29%		93.61%		92.11%
Market value/tangible book value ratio		139.95%		99.29%		97.88%
Price/earnings multiple*		9.39		7.49		6.62
Current quarter dividend yield		4.06%		3.87%		3.90%
Dividend payout ratio year-to-date		37.91%		28.16%		25.72%
Safety and Soundness
Average equity/average assets		7.49%		8.89%		8.94%
Risk-based capital ratio (Total)		17.34%		18.41%		18.16%
Leverage ratio (Tier 1)		8.59%		8.52%		8.53%
Common equity ratio (Tier 1)		14.29%		15.20%		14.91%
Nonaccrual loans/gross loans		0.53%		0.74%		0.85%
Nonperforming assets/total assets		0.30%		0.42%		0.50%
Allowance for loan losses as a % of loans		1.43%		1.51%		1.51%
Net loans (charged-off) recovered/average loans*		-0.01%		0.04%		0.06%
Assets under Management
Trust assets under management (fair value)	$	810,954	$	946,964	$	907,441
Held at third-party brokers (fair value)		104,127		118,046		115,120

*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 as of, or for the nine months ended September 30, 2022 and 2021 and the year ended December 31, 2021.

(Dollars in thousands, except per share)
	September 30, 2022		December 31, 2021		September 30, 2021
Return on Tangible Equity (non-GAAP)
Net income	$	11,221	$	19,616	$	15,963
Average shareholders' equity		134,898		148,637		147,198
Less average intangible assets		(9,016)		(9,016)		(9,016)
Average tangible equity (non-GAAP)		125,882		139,621		138,182
Return on average tangible equity (non-GAAP)*		11.89%		14.05%		15.40%
Tangible Book Value (per share) (non-GAAP)
Shareholders' equity	$	108,151	$	157,065	$	152,838
Less intangible assets		(9,016)		(9,016)		(9,016)
Tangible book value (non-GAAP)		99,135		148,049		143,822
Shares outstanding (in thousands)		4,396		4,441		4,431
Tangible book value per share (non-GAAP)	$	22.55	$	33.34	$	32.46
Efficiency Ratio
Noninterest expense	$	35,496	$	43,245	$	31,265
Net interest income		36,983		44,671		33,262
Plus tax equivalent adjustment to net interest income		1,055		1,466		1,098
Plus noninterest income, net of securities transactions		11,719		19,271		14,725
Total revenue		49,757		65,408		49,085
Efficiency ratio (Noninterest expense/total revenue)		71.34%		66.12%		63.70%
* 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.

32

Comparison of the three months ended September 30, 2022 to the three months ended September 30, 2021:

Tax equivalent net interest income increased $2.4 million to $14.4 million in the third quarter of 2022 compared to $12.0 million for the same period in 2021. Balance sheet volume contributed $402 thousand to the increase and a change in rates added $2.1 million.

The following table presents average balances, tax-equivalent (T/E) interest income, and yields earned or rates paid on the assets or liabilities. Loans are presented by primary loan purpose and 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 September 30,
	2022					2021
	Average		Income or		Average	Average		Income or		Average
(Dollars in thousands)	balance		expense		yield/rate	balance		expense		yield/rate
Interest-earning assets:
Interest-earning obligations in other banks	$	181,609	$	1,022	2.23%	$	109,617	$	66	0.24%
Investment securities:
Taxable		429,336		2,733	2.52%		434,380		1,907	1.74%
Tax Exempt		84,624		659	3.09%		91,742		663	2.89%
Investments		513,959		3,392	2.62%		526,122		2,570	1.94%
Loans:
Commercial, industrial and agricultural		884,290		9,473	4.25%		845,154		8,785	4.09%
Residential mortgage		71,363		631	3.51%		70,614		604	3.48%
Home equity loans and lines		88,349		765	3.44%		84,133		535	2.52%
Consumer		5,798		107	7.32%		6,968		109	6.21%
Loans		1,049,799		10,976	4.15%		1,006,869		10,033	3.92%
Total interest-earning assets		1,745,367	$	15,390	3.50%		1,642,608	$	12,669	3.06%
Other assets		92,531					70,210
Total assets	$	1,837,898				$	1,712,818
Interest-bearing liabilities:
Deposits:
Interest-bearing checking	$	575,766	$	206	0.14%	$	489,639	$	138	0.11%
Money Management		601,941		426	0.28%		544,660		208	0.15%
Savings		130,842		19	0.06%		114,224		16	0.06%
Time		61,688		66	0.42%		69,602		85	0.48%
Total interest-bearing deposits		1,370,237		717	0.21%		1,218,125		447	0.15%
Subordinated Notes		19,609		263	5.36%		19,575		263	5.37%
Total interest-bearing liabilities		1,389,846		980	0.28%		1,237,700		710	0.23%
Noninterest-bearing deposits		313,781					305,617
Other liabilities		10,659					15,201
Shareholders' equity		123,612					154,300
Total liabilities and shareholders' equity	$	1,837,898				$	1,712,818
T/E net interest income/Net interest margin				14,410	3.28%				11,959	2.89%
Tax equivalent Adjustment				(347)					(365)
Net interest income			$	14,063				$	11,594
Net Interest Spread					3.22%					2.83%
Cost of Funds					0.23%					0.18%
Cost of Deposits					0.17%					0.12%

Provision for Loan Losses

The Bank had provision for loan loss expense of $0 for each of the third quarters of 2022 and 2021, respectively. 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 third quarter of 2022, noninterest income decreased $2.5 million from the same period in 2021. Investment and trust service fees and loan service charges decreased slightly, while gains on sale of loans decreased as the volume of mortgages sold decreased. Debit card income decreased primarily due to the introduction of a customer rewards program. The life insurance gain in 2021 was from a bank-owned life insurance policy. The gain on sale of premise in 2021 was from the sale of the prior headquarters at 20 South Main Street Chambersburg, PA as previously reported.

The following table presents a comparison of noninterest income for the three months ended September 30, 2022 and 2021:

	For the Three Months Ended
	September 30,				Change
(Dollars in thousands)	2022		2021		Amount		%
Noninterest Income
Investment and trust services fees	$	1,661	$	1,740	$	(79)	(4.5)
Loan service charges		177		224		(47)	(21.0)
Gain on sale of loans		183		529		(346)	(65.4)
Deposit service charges and fees		629		674		(45)	(6.7)
Other service charges and fees		443		397		46	11.6
Debit card income		497		550		(53)	(9.6)
Increase in cash surrender value of life insurance		109		109		—	—
Bank owned life insurance gain		—		147		(147)	(100.0)
Net (losses) gains on sales of debt securities		(15)		—		(15)	NA
Change in fair value of equity securities		(61)		(9)		(52)	577.8
Gain on sale of premise		—		1,776		(1,776)	(100.0)
Other		40		45		(5)	(11.1)
Total noninterest income	$	3,663	$	6,182	$	(2,519)	(40.7)

Noninterest Expense

Noninterest expense for the third quarter of 2022 increased $1.2 million compared to the same period in 2021. Salary expense increased primarily due to additional expense for incentive compensation programs and new positions. Net occupancy increased primarily from depreciation on the Bank’s new headquarters. Marketing and advertising expense increased primarily from sponsorships of community events. Data processing expenses were higher due primarily to the implementation of a customer relationship management system that began in the fourth quarter of 2021. Nonservice pension costs decreased as 2021 included pension settlement expenses. Other expenses decreased in 2022 primarily due to lower state tax expense.

The following table presents a comparison of noninterest expense for the three months ended September 30, 2022 and 2021:

	For the Three Months Ended
(Dollars in thousands)	September 30,				Change
Noninterest Expense	2022		2021		Amount		%
Salaries and benefits	$	7,089	$	5,958	$	1,131	19.0
Net occupancy		1,124		908		216	23.8
Marketing and advertising		433		413		20	4.8
Legal and professional		581		579		2	0.3
Data processing		1,146		1,040		106	10.2
Pennsylvania bank shares tax		335		308		27	8.8
FDIC insurance		197		181		16	8.8
ATM/debit card processing		359		342		17	5.0
Telecommunications		114		101		13	12.9
Nonservice pension		69		257		(188)	(73.2)
Other		753		899		(146)	(16.2)
Total noninterest expense	$	12,200	$	10,986	$	1,214	11.1

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Provision for Income Taxes

For the third quarter of 2022, the Corporation recorded a Federal income tax expense of $895 thousand compared to $928 thousand for the same quarter in 2021. The effective tax rate for the third quarter of 2022 was 16.2% compared to 13.7% for the third quarter of 2021. The federal statutory tax rate is 21% for 2022 and 2021.

Comparison of the nine months ended September 30, 2022 to the nine months ended September 30, 2021:

Tax equivalent net interest income increased $3.6 million to $38.0 million in the first nine months of 2022 compared to $34.4 million for the same period in 2021. Balance sheet volume contributed $1.3 million to the increase and a change in rates added $2.3 million.

The following table presents average balances, tax-equivalent (T/E) interest income, and yields earned or rates paid on the assets or liabilities. Loans are presented by primary loan purpose and 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 Nine Months Ended September 30,
	2022					2021
	Average		Income or		Average	Average		Income or		Average
(Dollars in thousands)	balance		expense		yield/rate	balance		expense		yield/rate
Interest-earning assets:
Interest-earning obligations in other banks	$	176,523	$	1,542	1.17%	$	104,340	$	178	0.23%
Investment securities:
Taxable		428,572		6,753	2.11%		374,436		5,301	1.89%
Tax Exempt		88,558		1,980	2.99%		92,310		1,997	2.89%
Investments		517,130		8,733	2.26%		466,746		7,298	2.09%
Loans:
Commercial, industrial and agricultural		863,933		26,239	4.06%		850,191		25,355	3.94%
Residential mortgage		67,589		1,765	3.49%		68,413		1,792	3.51%
Home equity loans and lines		86,896		1,922	2.96%		83,052		1,577	2.54%
Consumer		5,918		307	6.94%		6,929		338	6.52%
Loans		1,024,336		30,233	3.95%		1,008,585		29,062	3.82%
Total interest-earning assets		1,717,989	$	40,509	3.15%		1,579,671	$	36,538	3.09%
Other assets		83,627					66,296
Total assets	$	1,801,614				$	1,645,967
Interest-bearing liabilities:
Deposits:
Interest-bearing checking	$	541,865	$	508	0.13%	$	463,368	$	372	0.11%
Money Management		594,796		917	0.21%		529,257		612	0.15%
Savings		127,936		55	0.06%		110,792		47	0.06%
Time		66,176		205	0.41%		71,946		359	0.67%
Total interest-bearing deposits		1,330,773		1,684	0.17%		1,175,363		1,390	0.16%
Subordinated Notes		19,600		787	5.34%		19,567		788	5.37%
Total interest-bearing liabilities		1,350,373		2,471	0.24%		1,194,930		2,178	0.24%
Noninterest-bearing deposits		306,358					288,558
Other liabilities		9,985					15,281
Shareholders' equity		134,898					147,198
Total liabilities and shareholders' equity	$	1,801,614				$	1,645,967
T/E net interest income/Net interest margin				38,038	2.96%				34,360	2.91%
Tax equivalent Adjustment				(1,055)					(1,098)
Net interest income			$	36,983				$	33,262
Net Interest Spread					2.91%					2.85%
Cost of Funds					0.20%					0.20%
Cost of Deposits					0.14%					0.13%

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Provision for Loan Losses

The Bank had provision for loan loss expense of $0 for the first nine months of 2022, compared to a reversal of $1.9 million in the first nine months of 2021. For more information refer to the Loan Quality and Allowance for Loan Losses discussion in the Financial Condition section.

Noninterest Income

For the first nine months of 2022, noninterest income decreased $3.3 million from the same period in 2021. Investment and trust service fees increased primarily due to an increase in asset management fees. Gains on sale of loans decreased as the volume of mortgages sold decreased. Deposit service charges increased from a new product introduced in the third quarter of 2021. Debit card income decreased due to the introduction of a customer rewards program. The life insurance gain in 2021 was from a bank-owned life insurance policy. The gain on sale of premise in 2021 was from the sale of the prior headquarters at 20 South Main Street Chambersburg, PA as previously reported.

The following table presents a comparison of noninterest income for the nine months ended September 30, 2022 and 2021:

	For the Nine Months Ended
	September 30,				Change
(Dollars in thousands)	2022		2021		Amount		%
Noninterest Income
Investment and trust services fees	$	5,407	$	5,282	$	125	2.4
Loan service charges		533		647		(114)	(17.6)
Gain on sale of loans		692		1,866		(1,174)	(62.9)
Deposit service charges and fees		1,885		1,613		272	16.9
Other service charges and fees		1,293		1,214		79	6.5
Debit card income		1,393		1,642		(249)	(15.2)
Increase in cash surrender value of life insurance		326		336		(10)	(3.0)
Bank owned life insurance gain		—		147		(147)	(100.0)
Net (losses) gains on sales of debt securities		(34)		91		(125)	(137.4)
Change in fair value of equity securities		(46)		83		(129)	(155.4)
Gain on sale of premise		—		1,776		(1,776)	(100.0)
Other		190		202		(12)	(5.9)
Total noninterest income	$	11,639	$	14,899	$	(3,260)	(21.9)

Noninterest Expense

Noninterest expense for the first nine months of 2022 increased $4.2 million compared to the same period in 2021. Salary expense increased primarily due to additional expense for incentive compensation programs and new positions and increased health insurance expenses, offset by a decrease in commissions. Net occupancy increased due to depreciation on the Bank’s new headquarters and rent for new community office locations. Marketing and advertising expense increased primarily from sponsorships of community events. Data processing expenses were higher due primarily to the implementation of a customer relationship management (CRM) system that began in the fourth quarter of 2021. The CRM is expected to enhance operational efficiency and customer service going forward. Nonservice pension costs decreased as 2021 included pension settlement expenses. Other expenses increased due to a reversal of $636 thousand for an off-balance sheet liability during the second quarter of 2021.

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The following table presents a comparison of noninterest expense for the nine months ended September 30, 2022 and 2021:

	For the Nine Months Ended
(Dollars in thousands)	September 30,				Change
Noninterest Expense	2022		2021		Amount		%
Salaries and employee benefits	$	20,500	$	17,861	$	2,639	14.8
Net occupancy		3,077		2,675		402	15.0
Marketing and advertising		1,391		1,153		238	20.6
Legal and professional		1,580		1,552		28	1.8
Data processing		3,544		2,857		687	24.0
Pennsylvania bank shares tax		813		708		105	14.8
FDIC insurance		550		563		(13)	(2.3)
ATM/debit card processing		1,065		967		98	10.1
Telecommunications		313		314		(1)	(0.3)
Nonservice pension		207		651		(444)	(68.2)
Other		2,456		1,964		492	25.1
Total noninterest expense	$	35,496	$	31,265	$	4,231	13.5

Provision for Income Taxes

For the first nine months of 2022, the Corporation recorded a Federal income tax expense of $1.9 million compared to $2.8 million for the same quarter in 2021. The effective tax rate for the first nine months of 2022 was 14.5% compared to 15.1% for the first nine months of 2021. The federal statutory tax rate is 21% for 2022 and 2021.

Financial Condition

Cash and Cash Equivalents:

Cash and cash equivalents totaled $210.1 million at September 30, 2022, an increase of $35.0 million from the prior year-end balance of $175.1 million. Interest-earning deposits are held primarily at the Federal Reserve ($180.5 million).

Investment Securities:

AFS Securities: The AFS securities portfolio has increased $31.3 million on an amortized cost basis since year-end 2021. The portfolio is comprised primarily of municipal securities and mortgage and asset-backed securities issued by U.S. Agencies at approximately 34% and 32% of the portfolio fair value, respectively. The weighted average life of the portfolio was 5.5 years.

The AFS securities portfolio had a net unrealized loss of $65.0 million at September 30, 2022 compared to a net unrealized gain of $4.1 million at the prior year-end due primarily to an increase in market interest rates. The portfolio averaged $517.1 million with a tax-equivalized yield of 2.26% for the nine months ended September 30, 2022. This compares to an average of $466.7 million and a tax-equivalized yield of 2.09% for the same period in 2021.

The municipal bond portfolio is well diversified geographically (201 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 (14%), California (11%), Pennsylvania (11%), and Michigan (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 $65.0 million, compared to $4.7 million at December 31, 2021. The municipal bond portfolio had the largest unrealized loss of $34.1 million, 52% of the total unrealized loss ($65.0 million). There are 216 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 predominantly of 46 fixed rate bank issued subordinated notes with a fair value of $20.6 million. This portfolio has an unrealized loss of $1.7 million on 46 securities with a fair value of $23.0 million. At September 30, 2022, 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 non-agency mortgage and asset-backed securities portfolio increased $4.0 million from December 31, 2021. Many of these securities have credit enhancement in the form of overcollateralization. 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 $644 thousand of restricted stock at September 30, 2022. Except for $30 thousand, this investment represents stock in FHLB Pittsburgh. The Bank is required to hold this stock to be a member of

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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 increased by $9.2 million over year-end 2021. For the first nine months of 2022, the Bank originated $40.3 million of mortgages held for sale and sold $41.5 million 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 ($12.8 million), while loans for individuals to construct personal residences totaled $11.1 million at September 30, 2022. 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 increased to $571.4 million from $522.8 million at the end of 2021. The largest sectors (by collateral) in the commercial real estate category are: apartment buildings ($90.9 million), hotels and motels ($78.0 million), office buildings ($55.5 million), shopping centers ($52.2 million), and development land ($46.8 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 18 flagged brands and 3 independent operators.

Also included in CRE are real estate construction loans totaling $108.6 million. At September 30, 2022, the Bank had $35.8 million in real estate construction loans funded with an interest reserve and capitalized $568 thousand of interest in 2022 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 decreased $11.1 million to $233.4 million at September 30, 2022, compared to $244.5 million at the end of 2021 primarily due to $7.6 million of PPP forgiveness. At September 30, 2022, the balance of PPP loans was $205 thousand, down from $7.8 million at year-end. At September 30, 2022, the Bank had approximately $120.0 million in tax-free loans. The largest sectors (by industry) in the commercial category are: public administration ($51.0 million), utilities ($43.5 million), real estate rental and leasing ($23.9 million), manufacturing ($19.2 million) and construction ($13.5 million).

Participations: The Bank may supplement its own commercial loan production by purchasing loan participations. These participations are primarily located in south-central Pennsylvania. At September 30, 2022, the outstanding commercial participations were $66.9 million, 8.3% of commercial purpose loans and 6.4% of total gross loans compared to $77.5 million at December 31, 2021, 10.1% of commercial purpose loans and 7.8% of total gross loans. The Bank’s total exposure (including outstanding balances and unfunded commitments) to purchased participations is $88.9 million, compared to $95.9 million at December 31, 2021. The commercial loan participations are comprised of $11.4 million of Commercial loans and $55.5 million of CRE loans, reported in the respective loan class.

Consumer loans: This category decreased by $307 thousand to $6.1 million at September 30, 2022, compared to $6.4 million at prior year-end and is comprised primarily of unsecured personal lines of credit.

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

	September 30,		December 31,			Change
(Dollars in thousands)	2022		2021			Amount	%
Residential Real Estate 1-4 Family
Consumer first liens	$	78,686	$	71,828	$	6,858	9.5
Commercial first lien		60,219		60,655		(436)	(0.7)
Total first liens		138,905		132,483		6,422	4.8
Consumer junior liens and lines of credit		70,423		67,103		3,320	4.9
Commercial junior liens and lines of credit		4,326		4,841		(515)	(10.6)
Total junior liens and lines of credit		74,749		71,944		2,805	3.9
Total residential real estate 1-4 family		213,654		204,427		9,227	4.5
Residential real estate - construction
Consumer		11,125		8,278		2,847	34.4
Commercial		12,776		12,379		397	3.2
Total residential real estate construction		23,901		20,657		3,244	15.7
Commercial real estate		571,426		522,779		48,647	9.3
Commercial		233,427		244,543		(11,116)	(4.5)
Total commercial		804,853		767,322		37,531	4.9
Consumer		6,099		6,406		(307)	(4.8)
		1,048,507		998,812		49,695	5.0
Less: Allowance for loan losses		(14,989)		(15,066)		77	(0.5)
Net Loans	$	1,033,518	$	983,746	$	49,772	5.1

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 $18.8 million at September 30, 2022 compared to $36.6 million at December 31, 2021. The watch list includes both performing and nonperforming loans. Included in the watchlist total are $5.6 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 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

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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 September 30, 2022, the Bank had loans of $14.0 million (1.3% of gross loans) that exceeded the supervisory limit, compared to 1.8% at year-end 2021.

Loan quality improved, as measured by nonaccrual loans, which decreased $1.8 million during the first nine months of 2022 from $7.4 million to $5.6 million and the nonaccrual loan to total loans ratio decreased from 0.74% to 0.53% at September 30, 2022. Loans past due 90-days or more, but still accruing, totaled $7 thousand at September 30, 2022.

In addition to monitoring nonaccrual loans, the Bank also closely monitors impaired loans and troubled debt restructurings (TDR). A loan is considered 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 TDR 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.

In accordance with financial accounting standards, TDR loans are always considered impaired until they are paid off or in certain circumstances, refinanced. At September 30, 2022, there were 13 TDR loans with a balance of $4.4 million, and all loans were performing in accordance with the modified terms. Impaired loans, including TDR loans, totaled $9.7 million compared to $11.6 million at year-end 2021.

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 (ALL). 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 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 ALL 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 September 30, 2022 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 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

40

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. 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 $415 thousand specific reserve established for one impaired loan ($5.3 million) at September 30, 2022 compared to a specific reserve of $698 thousand at year-end 2021 on the same loan.

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 $3.0 million compared to $2.8 million at year-end 2021.

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 or very high and is determined independently for commercial loans, residential mortgage loans and consumer loans. The qualitative allowance declined to $10.9 million at September 30, 2022 from $11.0 million at year-end 2021. PPP loans, because of the SBA guarantee, are 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 $637 thousand at September 30, 2022.

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 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 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.

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The following table shows the allocation of the allowance for loan losses and other loan performance ratios, by class, as of September 30, 2022 and December 31, 2021:

(Dollars in thousands)	Residential Real Estate 1-4 Family
			Junior Liens &				Commercial
	First Liens		Lines of Credit		Construction		Real Estate		Commercial		Consumer		Unallocated		Total
2022
Loans at September 30, 2022	$	138,905	$	74,749	$	23,901	$	571,426	$	233,427	$	6,099	$	—	$	1,048,507
Average Loans through September 30, 2022		138,242		72,932		20,720		543,413		243,111		5,918		—		1,024,336
Nonaccrual Loans at September 30, 2022		120		38		—		5,428		—		—		—		5,586
Allowance for Loan Loss at September 30, 2022		461		249		364		8,105		5,045		128		637		14,989
YTD Net (Charge-offs)/Recoveries at September 30, 2022		27		2		—		—		(49)		(57)		—		(77)
Loans/Total Gross Loans at September 30, 2022		13%		7%		2%		54%		22%		1%		—		100%
Nonaccrual Loans/Total Gross Loans at September 30, 2022		0.09%		0.05%		0.00%		0.95%		0.00%		0.00%		—		0.53%
Allowance for Loan Loss at September 30, 2022		0.33%		0.33%		1.52%		1.42%		2.16%		2.10%		—		1.43%
Net (Charge-offs) Recoveries/Average Loans at September 30, 2022*		0.08%		0.01%		0.00%		0.00%		-0.08%		-3.85%		—		-0.01%
Allowance for Loan Loss/Nonaccrual Loans at September 30, 2022																268.33%

2021
Loans at December 31, 2021	$	132,483	$	71,944	$	20,657	$	522,779	$	244,543	$	6,406	$	—	$	998,812
Average Loans for 2021		138,249		68,467		19,533		504,441		270,557		6,855		—		1,008,102
Nonaccrual Loans at December 31, 2021		50		38		424		6,812		60		—		—		7,384
Allowance for Loan Losses at December 31, 2021		475		252		325		8,168		5,127		130		589		15,066
Net Recoveries/(Charge-offs) for 2021		—		170		(28)		(56)		455		(164)		—		377
Loans/Total Gross Loans at December 31, 2021		13%		7%		2%		52%		24%		1%		—		100%
Nonaccrual Loans/Total Gross Loans at December 31, 2021		0.04%		0.05%		2.05%		1.30%		0.02%		0.00%		—		0.74%
Allowance for Loan Loss/Gross Loans at December 31, 2021		0.36%		0.35%		1.57%		1.56%		2.10%		2.03%		—		1.51%
Net Recoveries(Charge-offs)/Average Loans for 2021		0.00%		0.25%		-0.14%		-0.01%		0.17%		-2.39%		—		0.04%
Allowance for Loan Loss/Nonaccrual Loans at December 31, 2021																204.04%
*Annualized

Deposits:

Total deposits increased $120.6 million during the first nine months of 2022 to $1.705 billion. Noninterest-bearing deposits increased $19.3 million (primarily in small business deposits) and interest-bearing checking and savings deposits increased $115.7 million, while time deposits decreased $14.4 million. Interest-bearing checking increased by $80.7 million primarily in state/municipal and commercial deposits, while the Bank’s Money Management increased $24.8 million, and savings increased $10.2 million. The decrease in time deposits is primarily in retail accounts.

As of September 30, 2022, the Bank had deposits of $272.8 million placed in the IntraFi Network deposit program ($206.1 million in interest-bearing checking and $66.7 million in money management) and $3.4 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 September 30, 2022, the Bank’s reciprocal deposits were 15.7% of total liabilities compared to 16.0% at year-end 2021.

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

	September 30,		December 31,			Change
(Dollars in thousands)	2022		2021			Amount	%
Noninterest-bearing checking	$	317,719	$	298,403	$	19,316	6.5
Interest-bearing checking		592,636		511,969		80,667	15.8
Money management		604,642		579,826		24,816	4.3
Savings		130,128		119,908		10,220	8.5
Total interest-bearing checking and savings		1,327,406		1,211,703		115,703	9.5
Time deposits		59,858		74,253		(14,395)	(19.4)
Total deposits	$	1,704,983	$	1,584,359	$	120,624	7.6
Overdrawn deposit accounts reclassified as loans	$	122	$	103

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 5.00% 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 $48.9 million to $108.2 million as of September 30, 2022 from December 31, 2021, due primarily to a decrease of $54.6 million in accumulated other comprehensive income (AOCI) as the fair value of the investment portfolio declined during 2022. Retained earnings increased $7.0 million as net earnings of $11.2 million were partially offset by cash dividends of $4.3 million. The Corporation’s Dividend Reinvestment Plan (DRIP) added $175 thousand in new capital from optional cash contributions and $769 thousand from the reinvestment of quarterly dividends. The Corporation’s dividend payout ratio was 37.91% for the first nine months of 2022 compared to 25.72% for the first nine 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 third quarter of 2022, the Corporation paid a $0.32 per share dividend, compared to $0.32 paid in the second quarter of 2022. On October 13, 2022, the Board of Directors declared a $0.32 per share regular quarterly dividend for the fourth quarter of 2022, which will be paid on November 23, 2022.

On December 20, 2021, the Board of Directors authorized the 2021 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 20, 2021 and expiring on December 19, 2022. The Corporation repurchased 37,893 shares during the third quarter of 2022 and 84,684 shares year-to-date. A total of 85,343 shares have been repurchased under the current plan. 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 2.5% 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 September 30, 2022 was 7.61% compared to the regulatory buffer of 2.5%. 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 September 30, 2022, 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 QCBO 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

43

banks could opt-in through an election in the first quarter 2020 regulatory filing. The Bank met the criteria of a QCBO but did not opt-in to the CBLR.

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 September 30, 2022 and December 31, 2021 for the Corporation and the Bank:

			Regulatory Ratios
			Adequately	Well
	September 30,	December 31,	Capitalized	Capitalized
(Dollars in thousands)	2022	2021	Minimum	Minimum
Common Equity Tier 1 Risk-based Capital Ratio (1)
Franklin Financial Services Corporation	14.29%	15.20%	N/A	N/A
Farmers & Merchants Trust Company	14.36%	15.28%	4.50%	6.50%
Tier 1 Risk-based Capital Ratio (2)
Franklin Financial Services Corporation	14.29%	15.20%	N/A	N/A
Farmers & Merchants Trust Company	14.36%	15.28%	6.00%	8.00%
Total Risk-based Capital Ratio (3)
Franklin Financial Services Corporation	17.34%	18.41%	N/A	N/A
Farmers & Merchants Trust Company	15.61%	16.54%	8.00%	10.00%
Tier 1 Leverage Ratio (4)
Franklin Financial Services Corporation	8.59%	8.52%	N/A	N/A
Farmers & Merchants Trust Company	8.63%	8.57%	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 and Washington County, Maryland. 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 3.6% in Cumberland County to 5.7% in Huntingdon County, as of the end of May. 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.

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

44

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 its liquidity position by measuring its projected net cash 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 $273 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 September 30, 2022.

(Dollars in thousands)
Liquidity Source		Capacity		Outstanding		Available
Federal Home Loan Bank	$	380,398	$	—	$	380,398
Federal Reserve Bank Discount Window		30,665		—		30,665
Correspondent Banks		56,000		—		56,000
Total	$	467,063	$	—	$	467,063

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 $410.8 million and $398.8 million, respectively, at September 30, 2022 and December 31, 2021. 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. In the second quarter of 2021, the Bank reversed $636 thousand of this reserve as a second letter of credit was cancelled. At September 30, 2022, this reserve was $1.5 million.

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 2021 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 nine months ended September 30, 2022. For more information on market risk refer to the Corporation’s 2021 Annual Report on Form 10-K.

45

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 September 30, 2022, 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 September 30, 2022, 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 the ordinary course of business.

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 to the Corporation’s financial condition or results of operations. 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 and nine months ended September 30, 2022. For more information, refer to the Corporation’s 2021 Annual Report on Form 10-K.

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

On December 20, 2021, the Board of Directors authorized the 2021 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 20, 2021 and expiring on December 19, 2022. The following table presents the activity under this plan during the third quarter of 2022.

Period	Number of Shares Purchased as Part of Publicly Announced Program		Weighted Average Price Paid per Share		Dollar Amount of Shares Purchased as Part of Publicly Announced Program	Maximum Number of Shares Yet To Be Purchased Under Program
July 2022	29,027	$	31.11	$	903,050	73,523
August 2022	746	$	32.03		23,891	72,777
September 2022	8,120	$	31.86		258,743	64,657
	37,893			$	1,185,684

Item 3. Defaults by the Company on its Senior Securities

None

Item 4. Mine Safety Disclosures

Not Applicable

‎

47

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 on Form 8-K, as Exhibit 99 with the commission on September 2, 2022 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)

‎

48

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

November 4, 2022	/s/ Timothy G. Henry
	Timothy G. Henry
	Chief Executive Officer and President
	(Principal Executive Officer)
November 4, 2022	/s/ Mark R. Hollar
	Mark R. Hollar
	Treasurer and Chief Financial Officer
	(Principal Financial and Accounting Officer)

49

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:  November4, 2022

/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:  November4, 2022

/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 September  30, 2022, 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

November4, 2022

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 September  30, 2022 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

November4, 2022

XML

Document And Entity Information - shares	9 Months Ended
	Sep. 30, 2022	Oct. 31, 2022
Document And Entity Information [Abstract]
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Sep. 30, 2022
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	1500 Nitterhouse Drive
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
Trading Symbol	FRAF
Security Exchange Name	NASDAQ
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
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		4,387,060
Entity Central Index Key	0000723646
Document Fiscal Year Focus	2022
Document Fiscal Period Focus	Q3
Amendment Flag	false

XML

Consolidated Balance Sheets - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021
Assets
Cash and due from banks	$ 24,274	$ 10,463
Short-term interest-earning deposits in other banks	185,882	164,686
Total cash and cash equivalents	210,156	175,149
Long-term interest-earning deposits in other banks	12,476	10,492
Debt securities available for sale, at fair value	492,032	529,811
Equity securities	435	481
Restricted stock	644	495
Loans held for sale	2,349	2,827
Loans	1,048,507	998,812
Allowance for loan losses	(14,989)	(15,066)
Net Loans	1,033,518	983,746
Premises and equipment, net	29,198	19,190
Right of use asset	6,170	4,759
Bank owned life insurance	22,200	21,874
Goodwill	9,016	9,016
Deferred tax asset, net	17,816	3,314
Other assets	11,152	12,652
Total assets	1,847,162	1,773,806
Deposits
Noninterest-bearing checking	317,719	298,403
Money management, savings, and interest checking	1,327,406	1,211,703
Time	59,858	74,253
Total deposits	1,704,983	1,584,359
Subordinate notes	19,615	19,588
Lease liability	6,293	4,857
Other liabilities	8,120	7,937
Total liabilities	1,739,011	1,616,741
Commitments and contingent liabilities
Shareholders' equity
Common stock, $1 par value per share,15,000,000 shares authorized with 4,710,972 shares issued and 4,395,650 shares outstanding at September 30, 2022 and 4,710,972 shares issued and 4,441,443 shares outstanding at December 31, 2021	4,711	4,711
Capital stock no par value, 5,000,000 shares authorized with no shares issued and outstanding
Additional paid-in capital	43,377	43,085
Retained earnings	123,579	116,612
Accumulated other comprehensive loss	(55,101)	(547)
Treasury stock, 315,322 shares at September 30, 2022 and 269,529 shares at December 31, 2021, at cost	(8,415)	(6,796)
Total shareholders' equity	108,151	157,065
Total liabilities and shareholders' equity	$ 1,847,162	$ 1,773,806

XML

Consolidated Balance Sheets (Parenthetical) - $ / shares	Sep. 30, 2022	Dec. 31, 2021
Consolidated Balance Sheets [Abstract]
Common Stock, Par Value Per Share	$ 1	$ 1
Common Stock, Shares Authorized	15,000,000	15,000,000
Common Stock, Shares, Issued	4,710,972	4,710,972
Common Stock, Shares, Outstanding	4,395,650	4,441,443
Capital Stock, No Par Value
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	315,322	269,529

XML

Consolidated Statements Of Income - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021
Interest income
Loans, including fees	$ 10,767	$ 9,805	$ 29,589	$ 28,373
Interest and dividends on investments:
Taxable interest	2,728	1,906	6,739	5,284
Tax exempt interest	521	526	1,570	1,588
Dividend income	5	1	14	17
Interesting-bearing deposits in other banks	1,022	66	1,542	178
Total interest income	15,043	12,304	39,454	35,440
Interest expense
Deposits	717	447	1,684	1,390
Subordinate notes	263	263	787	788
Total interest expense	980	710	2,471	2,178
Net interest income	14,063	11,594	36,983	33,262
Provision for loan losses				(1,900)
Net interest income after provision for loan losses	14,063	11,594	36,983	35,162
Noninterest income
Investment and trust services fees	1,661	1,740	5,407	5,282
Loan service charges	177	224	533	647
Gain on sale of loans	183	529	692	1,866
Deposit service charges and fees	629	674	1,885	1,613
Other service charges and fees	443	397	1,293	1,214
Debit card income	497	550	1,393	1,642
Increase in cash surrender value of Bank owned life insurance	109	109	326	336
Bank owned life insurance gain		147		147
Net (losses) gains on sales of debt securities	(15)		(34)	91
Change in fair value of equity securities	(61)	(9)	(46)	83
Gain on sale of premises		1,776		1,776
Other	40	45	190	202
Total noninterest income	3,663	6,182	11,639	14,899
Noninterest Expense
Salaries and employee benefits	7,089	5,958	20,500	17,861
Net occupancy	1,124	908	3,077	2,675
Marketing and advertising	433	413	1,391	1,153
Legal and professional	581	579	1,580	1,552
Data processing	1,146	1,040	3,544	2,857
Pennsylvania bank shares tax	335	308	813	708
FDIC Insurance	197	181	550	563
ATM/debit card processing	359	342	1,065	967
Telecommunications	114	101	313	314
Nonservice pension	69	257	207	651
Other	753	899	2,456	1,964
Total noninterest expense	12,200	10,986	35,496	31,265
Income before federal income taxes	5,526	6,790	13,126	18,796
Federal income tax expense	895	928	1,905	2,833
Net income	$ 4,631	$ 5,862	$ 11,221	$ 15,963
Per share
Basic earnings per share	$ 1.05	$ 1.32	$ 2.53	$ 3.61
Diluted earnings per share	$ 1.05	$ 1.31	$ 2.52	$ 3.60

XML

Consolidated Statements of Comprehensive Income (Loss) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021
Consolidated Statements of Comprehensive Income (Loss) [Abstract]
Net income	$ 4,631	$ 5,862	$ 11,221	$ 15,963
Debt Securities:
Unrealized losses arising during the period	(20,409)	(3,819)	(69,090)	(6,698)
Reclassification adjustment for losses (gains) included in net income	15		34	(91)
Net unrealized losses	(20,394)	(3,819)	(69,056)	(6,789)
Tax effect	4,283	802	14,502	1,426
Net of tax amount	(16,111)	(3,017)	(54,554)	(5,363)
Total other comprehensive loss	(16,111)	(3,017)	(54,554)	(5,363)
Total Comprehensive (Loss) Income	$ (11,480)	$ 2,845	$ (43,333)	$ 10,600

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Consolidated Statements Of Changes In Shareholders' Equity - USD ($) $ in Thousands	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, 2020	$ 4,711	$ 42,589	$ 102,520	$ 3,190	$ (7,834)	$ 145,176
Balance, shares at Dec. 31, 2020	4,389,355
Net income			15,963			15,963
Other comprehensive loss				(5,363)		(5,363)
Cash dividends declared			(4,105)			(4,105)
Acquisition of treasury stock					$ (1,105)	(1,105)
Acquisition of treasury stock, shares					(35,718)
Treasury shares issued under dividend reinvestment plan		381			$ 1,630	2,011
Treasury shares issued under dividend reinvestment plan, shares					66,235
Stock Compensation Plans:
Treasury shares issued		(182)			$ 282	100
Treasury shares issued, shares					11,575
Compensation expense		161				161
Balance at Sep. 30, 2021	$ 4,711	42,949	114,378	(2,173)	$ (7,027)	152,838
Balance, shares at Sep. 30, 2021	4,431,447
Balance at Jun. 30, 2021	$ 4,711	42,774	109,930	844	(7,103)	151,156
Balance, shares at Jun. 30, 2021	4,425,092
Net income			5,862			5,862
Other comprehensive loss				(3,017)		(3,017)
Cash dividends declared			(1,414)			(1,414)
Acquisition of treasury stock					$ (387)	(387)
Acquisition of treasury stock, shares					(12,089)
Treasury shares issued under dividend reinvestment plan		129			$ 458	587
Treasury shares issued under dividend reinvestment plan, shares					18,226
Stock Compensation Plans:
Treasury shares issued					$ 5	5
Treasury shares issued, shares					218
Compensation expense		46				46
Balance at Sep. 30, 2021	$ 4,711	42,949	114,378	(2,173)	$ (7,027)	152,838
Balance, shares at Sep. 30, 2021	4,431,447
Balance at Dec. 31, 2021	$ 4,711	43,085	116,612	(547)	(6,796)	$ 157,065
Balance, shares at Dec. 31, 2021	4,441,443					4,441,443
Net income			11,221			$ 11,221
Other comprehensive loss				(54,554)		(54,554)
Cash dividends declared			(4,254)			(4,254)
Acquisition of treasury stock					$ (2,664)	(2,664)
Acquisition of treasury stock, shares					(86,449)
Treasury shares issued under dividend reinvestment plan		176			$ 766	942
Treasury shares issued under dividend reinvestment plan, shares					29,757
Stock Compensation Plans:
Treasury shares issued		(236)			$ 279	43
Treasury shares issued, shares					10,899
Compensation expense		352				352
Balance at Sep. 30, 2022	$ 4,711	43,377	123,579	(55,101)	$ (8,415)	$ 108,151
Balance, shares at Sep. 30, 2022	4,395,650					4,395,650
Balance at Jun. 30, 2022	$ 4,711	43,248	120,354	(38,990)	(7,526)	$ 121,797
Balance, shares at Jun. 30, 2022	4,422,280
Net income			4,631			4,631
Other comprehensive loss				(16,111)		(16,111)
Cash dividends declared			(1,406)			(1,406)
Acquisition of treasury stock					$ (1,202)	(1,202)
Acquisition of treasury stock, shares					(38,409)
Treasury shares issued under dividend reinvestment plan		49			$ 246	295
Treasury shares issued under dividend reinvestment plan, shares					9,245
Stock Compensation Plans:
Treasury shares issued		(51)			$ 67	16
Treasury shares issued, shares					2,534
Compensation expense		131				131
Balance at Sep. 30, 2022	$ 4,711	$ 43,377	$ 123,579	$ (55,101)	$ (8,415)	$ 108,151
Balance, shares at Sep. 30, 2022	4,395,650					4,395,650

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Consolidated Statements Of Changes In Shareholders' Equity (Parenthetical) - $ / shares	3 Months Ended		9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021
Consolidated Statements Of Changes In Shareholders' Equity [Abstract]
Dividend declared per share	$ 0.32	$ 0.32	$ 0.96	$ 0.93

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Consolidated Statements Of Cash Flows - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021
Cash flows from operating activities
Net income	$ 11,221	$ 15,963
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	1,049	925
Net amortization of loans and investment securities	3,207	503
Amortization of subordinate debt issuance costs	27	26
Provision for loan losses		(1,900)
Change in fair value of equity securities	46	(83)
Realized losses (gains) on sales of debt securities	34	(91)
Loans originated for sale	(40,342)	(81,204)
Proceeds from sale of loans	41,512	88,402
Gain on sale of loans held for sale	(692)	(1,866)
Increase in cash surrender value of life insurance	(326)	(336)
Decrease in fair value of derivative	(17)	(20)
Gains from surrender of life insurance policies		(147)
Stock option compensation	352	161
Decrease in other assets	1,679	4,184
Decrease in other liabilities	(4)	(647)
Net cash provided by operating activities	17,746	23,870
Cash flows from investing activities
Net (Increase) decrease in long-term interest-bearing deposits in other banks	(1,984)	1,999
Proceeds from sale of AFS securities	1,082	16,060
Proceeds from maturities and pay-downs of securities available for sale	31,013	27,057
Purchase of investment securities available for sale	(66,499)	(200,913)
Net increase in restricted stock	(149)	(27)
Net increase in loans	(49,886)	(6,240)
Proceeds from surrender of bank owned life insurance policy		685
Capital expenditures	(11,007)	(7,367)
Net cash used in investing activities	(97,430)	(168,746)
Cash flows from financing activities
Net increase in demand deposits, interest-bearing checking, and savings accounts	135,019	195,443
Net decrease in time deposits	(14,395)	(5,721)
Dividends paid	(4,254)	(4,105)
Purchase of Treasury shares	(2,664)	(1,105)
Cash received from option exercises	43	100
Treasury shares issued under dividend reinvestment plan	942	2,011
Net cash provided by financing activities	114,691	186,623
Increase in cash and cash equivalents	35,007	41,747
Cash and cash equivalents at the beginning of the period	175,149	57,146
Cash and cash equivalents at the end of the period	210,156	98,893
Cash paid during the year for:
Interest on deposits and other borrowed funds	2,208	2,268
Income taxes	58	$ 1,872
Noncash Activities
Lease liabilities arising from obtaining right-of-use assets	$ 1,867

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Basis Of Presentation

9 Months Ended

Sep. 30, 2022

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 September 30, 2022, 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 2021 Annual Report on Form 10-K. The consolidated results of operations for the three-month and nine-month periods ended September 30, 2022 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, 2021 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				For the Nine Months Ended
	September 30,				September 30,
(Dollars and shares in thousands, except per share data)	2022		2021		2022		2021
Weighted average shares outstanding (basic)		4,401		4,441		4,432		4,421
Impact of common stock equivalents		23		26		21		19
Weighted average shares outstanding (diluted)		4,424		4,467		4,453		4,440
Anti-dilutive options excluded from calculation		29		30		30		31
Net income	$	4,631	$	5,862	$	11,221	$	15,963
Basic earnings per share	$	1.05	$	1.32	$	2.53	$	3.61
Diluted earnings per share	$	1.05	$	1.31	$	2.52	$	3.60

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Recent Accounting Pronouncements

9 Months Ended

Sep. 30, 2022

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 is running the CECL model in test mode in 2022.
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 continues to review the ASU as part of its adoption of ASU 2016-13.
ASU 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures
Description	This ASU will eliminate the recognition and measurement accounting guidance for Troubled Debt Restructurings (TDRs) by creditors in Subtopic 310-40, while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty.
Effective Date	January 1, 2023
Effect on the Consolidated Financial Statements	The Corporation is reviewing 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 continues 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)

9 Months Ended

Sep. 30, 2022

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:

	September 30,		December 31,
(Dollars in thousands)	2022		2021
Net unrealized (losses) gains on debt securities	$	(64,962)	$	4,094
Tax effect		13,642		(860)
Net of tax amount	$	(51,320)	$	3,234
Accumulated pension adjustment	$	(4,786)	$	(4,786)
Tax effect		1,005		1,005
Net of tax amount	$	(3,781)	$	(3,781)
Total accumulated other comprehensive loss	$	(55,101)	$	(547)

 

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Investments

9 Months Ended

Sep. 30, 2022

Investments [Abstract]

Investments

Note 4. Investments

Available for Sale (AFS) Securities

The amortized cost and estimated fair value of AFS securities as of September 30, 2022 and December 31, 2021 are as follows:

(Dollars in thousands)			Gross		Gross
	Amortized		unrealized		unrealized		Fair
September 30, 2022	cost		gains		losses		value
U.S. Treasury	$	92,305	$	—	$	(12,396)	$	79,909
Municipal		203,370		24		(34,133)		169,261
Corporate		26,311		—		(1,689)		24,622
Agency mortgage & asset-backed		169,537		38		(12,555)		157,020
Non-Agency mortgage & asset-backed		65,471		2		(4,253)		61,220
Total	$	556,994	$	64	$	(65,026)	$	492,032

(Dollars in thousands)			Gross		Gross
	Amortized		unrealized		unrealized		Fair
December 31, 2021	cost		gains		losses		value
U.S. Treasury	$	84,896	$	88	$	(698)	$	84,286
Municipal		206,501		7,148		(1,422)		212,227
Corporate		24,794		333		(188)		24,939
Agency mortgage & asset-backed		178,614		1,157		(2,086)		177,685
Non-Agency mortgage & asset-backed		30,912		34		(272)		30,674
Total	$	525,717	$	8,760	$	(4,666)	$	529,811

At September 30, 2022 and December 31, 2021, the fair value of debt securities pledged to secure public funds and trust deposits totaled $222.7 million and $160.3 million, respectively. The Bank has no investment in a single issuer that exceeds 10% of shareholders’ equity, except for securities issued by the U.S. Treasury and U.S. government sponsored entities.

The amortized cost and estimated fair value of debt securities at September 30, 2022, 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	$	3,971	$	3,942
Due after one year through five years		14,689		14,121
Due after five years through ten years		150,057		130,188
Due after ten years		153,269		125,541
		321,986		273,792
Mortgage & asset-backed		235,008		218,240
	$	556,994	$	492,032

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

	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
(Dollars in thousands)	2022		2021		2022		2021
Proceeds	$	1,000	$	—	$	1,082	$	16,060
Gross gains realized		—		—		—		169
Gross losses realized		(15)		—		(34)		(78)
Net (losses) gains realized	$	(15)	$	—	$	(34)	$	91
Tax benefit (provision) on net (losses) gains realized	$	3	$	—	$	7	$	(19)

Impairment:

The debt securities portfolio contained 599 securities with $475.4 million of temporarily impaired fair value and $65.0 million in unrealized losses at September 30, 2022. The total unrealized loss position has increased $60.1 million since year-end 2021 due to an increase in market interest rates.

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 municipal bond portfolio, which has the largest unrealized loss, is well diversified geographically (201 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 (14%), California (11%), Pennsylvania (11%), and Michigan (10%). The average rating of the municipal portfolio from Moody’s is AA. No municipal bonds are rated below investment grade. The impairment identified on debt securities and subject to assessment at September 30, 2022, 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 September 30, 2022 and December 31, 2021:

	September 30, 2022
	Less than 12 months					12 months or more					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(Dollars in thousands)	Value		Losses		Count	Value		Losses		Count	Value		Losses		Count
U.S. Treasury	$	16,836	$	(1,864)	11	$	63,073	$	(10,532)	19	$	79,909	$	(12,396)	30
Municipal		132,404		(22,568)	167		34,527		(11,565)	49		166,931		(34,133)	216
Corporate		15,560		(1,053)	31		7,412		(636)	15		22,972		(1,689)	46
Agency mortgage & asset-backed		67,183		(3,158)	158		80,796		(9,397)	89		147,979		(12,555)	247
Non-Agency mortgage & asset-backed		45,802		(2,962)	47		11,762		(1,291)	13		57,564		(4,253)	60
Total temporarily impaired	$	277,785	$	(31,605)	414	$	197,570	$	(33,421)	185	$	475,355	$	(65,026)	599

	December 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. Treasury	$	76,383	$	(698)	21	$	—	$	—	—	$	76,383	$	(698)	21
Municipal		38,997		(910)	44		15,404		(512)	16		54,401		(1,422)	60
Corporate		8,954		(132)	17		1,694		(56)	3		10,648		(188)	20
Agency mortgage & asset-backed		96,923		(1,669)	94		15,991		(417)	18		112,914		(2,086)	112
Non-Agency mortgage & asset-backed		15,215		(215)	11		1,964		(57)	3		17,179		(272)	14
Total temporarily impaired	$	236,472	$	(3,624)	187	$	35,053	$	(1,042)	40	$	271,525	$	(4,666)	227

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

	Nine Months Ended
(Dollars in thousands)	September 30,
	2022		2021
Balance of cumulative credit-related OTTI at January 1	$	257	$	272
Decreases for previously recognized credit losses on securities that paid off or sold		(257)		(15)
Balance of credit-related OTTI at September 30	$	—	$	257

Equity Securities at Fair Value

The Corporation owns one equity investment with a readily determinable fair value. At September 30, 2022 and December 31, 2021, this investment was reported at fair value of $435 thousand and $481 thousand, respectively, with changes in value reported through income.

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Loans

9 Months Ended

Sep. 30, 2022

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 motels, 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 real estate loans ongoing monitoring of cash flow and other financial performance indictors is completed 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, administered by the Small Business Administration (SBA). 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 1.00% 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. However, if the SBA does not grant loan forgiveness, the PPP loan would present the same risk factors as any other commercial loan.

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:

	September 30,		December 31,
(Dollars in thousands)	2022		2021
Residential Real Estate 1-4 Family
Consumer first liens	$	78,686	$	71,828
Commercial first lien		60,219		60,655
Total first liens		138,905		132,483
Consumer junior liens and lines of credit		70,423		67,103
Commercial junior liens and lines of credit		4,326		4,841
Total junior liens and lines of credit		74,749		71,944
Total residential real estate 1-4 family		213,654		204,427
Residential real estate - construction
Consumer		11,125		8,278
Commercial		12,776		12,379
Total residential real estate construction		23,901		20,657
Commercial real estate		571,426		522,779
Commercial		233,427		244,543
Total commercial		804,853		767,322
Consumer		6,099		6,406
		1,048,507		998,812
Less: Allowance for loan losses		(14,989)		(15,066)
Net Loans	$	1,033,518	$	983,746
Included in the loan balances are the following:
Net unamortized deferred loan costs	$	2,013	$	1,289
Loans pledged as collateral for borrowings and commitments from:
FHLB	$	646,878	$	614,828
Federal Reserve Bank		49,191		45,453
	$	696,069	$	660,281
Paycheck Protection Program (included in commercial loans)	$	205	$	7,755

 

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Loan Quality And Allowance For Loan Losses

9 Months Ended

Sep. 30, 2022

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 June 30, 2022	$	465	$	245	$	289	$	8,096	$	5,076	$	119	$	725	$	15,015
Charge-offs		—		—		—		—		(6)		(33)		—		(39)
Recoveries		—		1		—		—		8		4		—		13
Provision		(4)		3		75		9		(33)		38		(88)		—
ALL at September 30, 2022	$	461	$	249	$	364	$	8,105	$	5,045	$	128	$	637	$	14,989
ALL at December 31, 2021	$	475	$	252	$	325	$	8,168	$	5,127	$	130	$	589	$	15,066
Charge-offs		(20)		—		—		—		(69)		(79)		—		(168)
Recoveries		47		2		—		—		20		22		—		91
Provision		(41)		(5)		39		(63)		(33)		55		48		—
ALL at September 30, 2022	$	461	$	249	$	364	$	8,105	$	5,045	$	128	$	637	$	14,989
ALL at June 30, 2021	$	459	$	220	$	349	$	7,878	$	5,309	$	102	$	738	$	15,055
Charge-offs		—		—		—		—		(3)		(126)		—		(129)
Recoveries		—		—		—		—		436		4		—		440
Provision		33		25		18		810		(856)		157		(187)		—
ALL at September 30, 2021	$	492	$	245	$	367	$	8,688	$	4,886	$	137	$	551	$	15,366
ALL at December 31, 2020	$	555	$	226	$	294	$	9,163	$	5,679	$	97	$	775	$	16,789
Charge-offs		—		—		(28)		(13)		(11)		(162)		—		(214)
Recoveries		—		170		—		1		497		23		—		691
Provision		(63)		(151)		101		(463)		(1,279)		179		(224)		(1,900)
ALL at September 30, 2021	$	492	$	245	$	367	$	8,688	$	4,886	$	137	$	551	$	15,366

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 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
September 30, 2022
Loans evaluated for ALL:
Individually	$	631	$	—	$	—	$	9,021	$	—	$	—	$	—	$	9,652
Collectively		138,274		74,749		23,901		562,405		233,427		6,099		—		1,038,855
Total	$	138,905	$	74,749	$	23,901	$	571,426	$	233,427	$	6,099	$	—	$	1,048,507
ALL established for ‎  loans evaluated:
Individually	$	—	$	—	$	—	$	415	$	—	$	—	$	—	$	415
Collectively		461		249		364		7,690		5,045		128		637		14,574
ALL at September 30, 2022	$	461	$	249	$	364	$	8,105	$	5,045	$	128	$	637	$	14,989
December 31, 2021
Loans evaluated for ALL:
Individually	$	661	$	—	$	424	$	10,520	$	—	$	—	$	—	$	11,605
Collectively		131,822		71,944		20,233		512,259		244,543		6,406		—		987,207
Total	$	132,483	$	71,944	$	20,657	$	522,779	$	244,543	$	6,406	$	—	$	998,812
ALL established for ‎  loans evaluated:
Individually	$	—	$	—	$	—	$	698	$	—	$	—	$	—	$	698
Collectively		475		252		325		7,470		5,127		130		589		14,368
ALL at December 31, 2021	$	475	$	252	$	325	$	8,168	$	5,127	$	130	$	589	$	15,066

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The following table shows additional information about those loans considered to be impaired as of the periods shown:

	Impaired Loans
	With No Allowance				With Allowance
(Dollars in thousands)			Unpaid				Unpaid
	Recorded		Principal		Recorded		Principal		Related
September 30, 2022	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		—		—		—		—		—
Commercial real estate		3,725		3,725		5,296		5,796		415
Commercial		—		—		—		—		—
Total	$	4,356	$	4,356	$	5,296	$	5,796	$	415

December 31, 2021
Residential Real Estate 1-4 Family
First liens	$	661	$	661	$	—	$	—	$	—
Junior liens and lines of credit		—		—		—		—		—
Total		661		661		—		—		—
Residential real estate - construction		424		729		—		—		—
Commercial real estate		4,942		5,405		5,578		5,764		698
Commercial		—		—		—		—		—
Total	$	6,027	$	6,795	$	5,578	$	5,764	$	698

The following table shows the average balance of impaired loans and related interest income for the periods shown:

	Three Months Ended				Nine Months Ended
	September 30, 2022				September 30, 2022
	Average		Interest		Average		Interest
(Dollars in thousands)	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
Residential Real Estate 1-4 Family
First liens	$	635	$	6	$	646	$	23
Junior liens and lines of credit		—		—		—		—
Total		635		6		646		23
Residential real estate - construction		—		—		141		105
Commercial real estate		9,082		46		9,571		320
Commercial		—		—		—		—
Total	$	9,717	$	52	$	10,358	$	448
	Three Months Ended				Nine Months Ended
	September 30, 2021				September 30, 2021
	Average		Interest		Average		Interest
(Dollars in thousands)	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
Residential Real Estate 1-4 Family
First liens	$	663	$	8	$	655	$	24
Junior liens and lines of credit		—		—		—		—
Total		663		8		655		24
Residential real estate - construction		428		—		483		—
Commercial real estate		15,450		122		15,813		310
Commercial		—		—		—		—
Total	$	16,541	$	130	$	16,951	$	334

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At September 30, 2022, the Bank had $38 thousand of residential properties in the process of foreclosure compared to $157 thousand at the end of 2021. 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
September 30, 2022
Residential Real Estate 1-4 Family
First liens	$	138,437	$	241	$	107	$	—	$	348	$	120	$	138,905
Junior liens and lines of credit		74,515		147		49		—		196		38		74,749
Total		212,952		388		156		—		544		158		213,654
Residential real estate - construction		23,901		—		—		—		—		—		23,901
Commercial real estate		565,301		592		105		—		697		5,428		571,426
Commercial		233,274		139		14		—		153		—		233,427
Consumer		6,055		35		2		7		44		—		6,099
Total	$	1,041,483	$	1,154	$	277	$	7	$	1,438	$	5,586	$	1,048,507

December 31, 2021
Residential Real Estate 1-4 Family
First liens	$	132,224	$	96	$	113	$	—	$	209	$	50	$	132,483
Junior liens and lines of credit		71,788		118		—		—		118		38		71,944
Total		204,012		214		113		—		327		88		204,427
Residential real estate - construction		20,233		—		—		—		—		424		20,657
Commercial real estate		515,487		293		187		—		480		6,812		522,779
Commercial		244,377		106		—		—		106		60		244,543
Consumer		6,368		27		11		—		38		—		6,406
Total	$	990,477	$	640	$	311	$	—	$	951	$	7,384	$	998,812

‎

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
September 30, 2022
Residential Real Estate 1-4 Family
First liens	$	138,785	$	—	$	120	$	—	$	138,905
Junior liens and lines of credit		74,711		—		38		—		74,749
Total		213,496		—		158		—		213,654
Residential real estate - construction		23,901		—		—		—		23,901
Commercial real estate		555,485		1,104		14,837		—		571,426
Commercial		230,737		2,571		119		—		233,427
Consumer		6,099		—		—		—		6,099
Total	$	1,029,718	$	3,675	$	15,114	$	—	$	1,048,507

December 31, 2021
Residential Real Estate 1-4 Family
First liens	$	132,433	$	—	$	50	$	—	$	132,483
Junior liens and lines of credit		71,906		—		38		—		71,944
Total		204,339		—		88		—		204,427
Residential real estate - construction		20,233		—		424		—		20,657
Commercial real estate		486,903		19,006		16,870		—		522,779
Commercial		244,315		49		179		—		244,543
Consumer		6,406		—		—		—		6,406
Total	$	962,196	$	19,055	$	17,561	$	—	$	998,812

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
September 30, 2022
Residential real estate - construction	—	$	—	$	—	$	—	—	$	—
Residential real estate	5		631		631		—	—		—
Commercial real estate - owner occupied	3		795		795		—	—		—
Commercial real estate - farm land	3		1,482		1,482		—	—		—
Commercial real estate - construction and land development	1		1,360		1,360		—	—		—
Commercial real estate - other	1		87		87		—	—		—
Total	13	$	4,355	$	4,355	$	—	—	$	—
December 31, 2021
Residential real estate - construction	1	$	424	$	—	$	424	—	$	—
Residential real estate	5		661		661		—	—		—
Commercial real estate - owner occupied	4		1,161		1,161		—	—		—
Commercial real estate - farm land	4		1,664		1,664		—	—		—
Commercial real estate - construction and land development	1		1,360		1,360		—	—		—
Commercial real estate - other	2		294		294		—	—		—
Total	17	$	5,564	$	5,140	$	424	—	$	—

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

‎

There were no new TDR loans during the three or nine month periods ending September 30, 2022.

The following table reports new TDR loans during 2021, concession granted and the recorded investment as of September 30, 2022:

(Dollars in thousands)	New During Period
Twelve Months Ended	Number of		Pre-TDR		After-TDR		Recorded
December 31, 2021	Contracts		Modification		Modification		Investment	Concession
Residential real estate	1	$	41	$	50	$	40	multiple

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Leases

9 Months Ended

Sep. 30, 2022

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 may include 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 ‎September 30,				Nine Months Ended ‎September 30,
(Dollars in thousands)	2022		2021		2022		2021
Operating lease cost	$	193	$	174	$	566	$	522
Short-term lease cost		44		95		296		95
Variable lease cost		40		25		95		74
Total lease cost	$	277	$	294	$	957	$	691

Supplemental Lease Information:

	Nine Months Ended ‎September 30,
(Dollars in thousands)	2022		2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	550	$	491
Weighted-average remaining lease term (years)		12.1		11.2
Weighted-average discount rate		3.35%		3.36%

‎

Lease Obligations:

Future undiscounted lease payments for operating leases with initial terms of one year or more as of September 30, 2022 are as follows:

(Dollars in thousands)
2022	$	201
2023		818
2024		803
2025		752
2026		650
2027 and beyond		4,591
Undiscounted cash flow		7,815
Imputed Interest		(1,522)
Total lease liability	$	6,293

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Other Real Estate Owned

9 Months Ended

Sep. 30, 2022

Other Real Estate Owned [Abstract]

Other Real Estate Owned

Note 8. Other Real Estate Owned

The Bank had no other real estate owned at September 30, 2022 and December 31, 2021.

 

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Derivatives

9 Months Ended

Sep. 30, 2022

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)		September 30, 2022					December 31, 2021
		Notional amount	Balance Sheet Location		Fair Value		Notional amount	Balance Sheet Location		Fair Value
Derivatives not designated as hedging instruments
Other Contracts	$	6,513	Other Liabilities	$	4	$	6,653	Other Liabilities	$	21
Total derivatives not designated as hedging instruments				$	4				$	21

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 as Hedging Instruments on the Income Statement
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				Nine Months Ended
		September 30, 2022		September 30, 2021		September 30, 2022		September 30, 2021
Other Contracts	Other income	$	4	$	3	$	17	$	20

As of September 30, 2022, 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 $4 thousand.  

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Pension

9 Months Ended

Sep. 30, 2022

Pension [Abstract]

Pension

Note 10. Pension

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

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(Dollars in thousands)	2022		2021		2022		2021
Components of net periodic cost:
Service cost	$	86	$	107	$	257	$	312
Interest cost		168		96		504		279
Expected return on plan assets		(249)		(280)		(746)		(834)
Settlement expense		—		158		—		356
Recognized net actuarial loss		150		283		449		850
Total pension expense	$	155	$	364	$	464	$	963

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

9 Months Ended

Sep. 30, 2022

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 third quarter of 2022. 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 September 30, 2022 and December 31, 2021 are as follows:

(Dollars in thousands)	Fair Value at September 30, 2022
Asset Description	Level 1		Level 2		Level 3		Total
Equity securities, at fair value	$	435	$	—	$	—	$	435
Available for sale:
U.S. Treasury		79,909		—		—		79,909
Municipal		—		169,261		—		169,261
Corporate		—		24,622		—		24,622
Agency mortgage & asset-backed		—		157,020		—		157,020
Non-Agency mortgage & asset-backed		—		61,220		—		61,220
Total assets	$	80,344	$	412,123	$	—	$	492,467

(Dollars in thousands)	Fair Value at December 31, 2021
Asset Description	Level 1		Level 2		Level 3		Total
Equity securities, at fair value	$	481	$	—	$	—	$	481
Available for sale:
U.S. Treasury		84,286		—		—		84,286
Municipal		—		212,227		—		212,227
Corporate		—		24,939		—		24,939
Agency mortgage and asset-backed		—		177,685		—		177,685
Non-Agency mortgage and asset-backed		—		30,674		—		30,674
Total assets	$	84,767	$		$	—	$	530,292

The fair value of derivative liabilities measured at fair value at September 30, 2022 and December 31, 2021 was $4 thousand and $21 thousand, respectively, and was considered immaterial.

Nonrecurring Fair Value Measurements

For financial assets measured at fair value on a nonrecurring basis, the fair value measurements by level within the fair value hierarchy used at September 30, 2022 and December 31, 2021 are as follows:

(Dollars in Thousands)	Fair Value at September 30, 2022
Asset Description	Level 1		Level 2		Level 3		Total
Impaired loans (1)	$	—	$	—	$	4,881	$	4,881
Total assets	$	—	$	—	$	4,881	$	4,881

(Dollars in Thousands)	Fair Value at December 31, 2021
Asset Description	Level 1		Level 2		Level 3		Total
Impaired loans (1)	$	—	$	—	$	4,880	$	4,880
Total assets	$	—	$	—	$	4,880	$	4,880

(1)Includes assets that may have been charged-down to fair value during the reporting period or have a specific reserve established.

The Corporation did not record any liabilities at fair value for which measurement of the fair value was made on a nonrecurring basis at September 30, 2022. 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 September 30, 2022.

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The following table presents additional quantitative information about Level 3 assets measured at fair value on a nonrecurring basis at September 30, 2022 and December 31, 2021:

(Dollars in thousands)					Range
September 30, 2022		Fair Value	Valuation Technique	Unobservable Input	(Weighted Average)
Impaired loans	$	4,881	Appraisal	Appraisal Adjustment on:
				Real estate assets	20% (20%)
				Cost to sell	8%
				Non-real estate assets	50% - 100% (83%)
				Cost to sell	8%
					Range
December 31, 2021		Fair Value	Valuation Technique	Unobservable Input	(Weighted Average)
Impaired Loans	$	4,880	Appraisal	Appraisal Adjustment on:
				Real estate assets	20% (20%)
				Cost to sell	8%
				Non-real estate assets	50% - 100% (83%)
				Cost to sell	8%

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

	September 30, 2022
	Carrying		Fair
(Dollars in thousands)	Amount		Value		Level 1		Level 2		Level 3
Financial assets, carried at cost:
Cash and cash equivalents	$	210,156	$	210,156	$	210,156	$	—	$	—
Long-term interest-bearing deposits in other banks		12,476		12,476		12,476		—		—
Loans held for sale		2,349		2,382		—		2,382		—
Net loans		1,033,518		977,145		—		—		977,145
Accrued interest receivable		5,784		5,784		—		—		5,784
Financial liabilities:
Deposits	$	1,704,983	$	1,703,580	$	—	$	1,703,580	$	—
Subordinate notes		19,615		17,838		—		17,838		—
Accrued interest payable		346		346		—		346		—
	December 31, 2021
	Carrying		Fair
(Dollars in thousands)	Amount		Value		Level 1		Level 2		Level 3
Financial assets, carried at cost:
Cash and cash equivalents	$	175,149	$	175,149	$	175,149	$	—	$	—
Long-term interest-bearing deposits in other banks		10,492		10,492		10,492		—		—
Loans held for sale		2,827		2,940		—		2,940		—
Net loans		983,746		1,003,580		—		—		1,003,580
Accrued interest receivable		5,217		5,217		—		—		5,217
Financial liabilities:
Deposits	$	1,584,359	$	1,616,128	$	—	$	1,616,128	$	—
Subordinate notes		19,588		19,909		—		19,909		—
Accrued interest payable		83		83		—		83		—

 

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Subordinated Notes

9 Months Ended

Sep. 30, 2022

Subordinated Notes [Abstract]

Subordinated Notes

Note 12. Subordinated Notes

At September 30, 2022, 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 $385 thousand at September 30, 2022, 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

9 Months Ended

Sep. 30, 2022

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 2.5% 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 September 30, 2022 was 7.61% compared to the regulatory buffer of 2.5%. 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 September 30, 2022, 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 QCBO 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 QCBO but did not opt-in to the CBLR.

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 September 30, 2022 and December 31, 2021 for the Corporation and the Bank:

			Regulatory Ratios
			Adequately	Well
	September 30,	December 31,	Capitalized	Capitalized
(Dollars in thousands)	2022	2021	Minimum	Minimum
Common Equity Tier 1 Risk-based Capital Ratio (1)
Franklin Financial Services Corporation	14.29%	15.20%	N/A	N/A
Farmers & Merchants Trust Company	14.36%	15.28%	4.50%	6.50%
Tier 1 Risk-based Capital Ratio (2)
Franklin Financial Services Corporation	14.29%	15.20%	N/A	N/A
Farmers & Merchants Trust Company	14.36%	15.28%	6.00%	8.00%
Total Risk-based Capital Ratio (3)
Franklin Financial Services Corporation	17.34%	18.41%	N/A	N/A
Farmers & Merchants Trust Company	15.61%	16.54%	8.00%	10.00%
Tier 1 Leverage Ratio (4)
Franklin Financial Services Corporation	8.59%	8.52%	N/A	N/A
Farmers & Merchants Trust Company	8.63%	8.57%	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

9 Months Ended

Sep. 30, 2022

Revenue Recognition [Abstract]

Revenue Recognition

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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 third quarter of 2022, compared to $1.6 million in the third quarter of 2021 and $4.9 million for the first nine months of 2022 and 2021.

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 $113 thousand for the third quarter of 2022, compared to $130 thousand in the third quarter of 2021 and $415 thousand for the first nine months of 2022, compared to $313 thousand for the first nine months of 2021.

Commissions from the sale of investment and insurance products are recognized upon the completion of the transaction. Commissions recognized were $29 thousand for the third quarter of 2022, compared to $34 thousand for the third quarter of 2021 and $104 thousand for the first nine months of 2022, compared to $118 thousand for the first nine months of 2021.

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

9 Months Ended

Sep. 30, 2022

Commitments And Contingencies [Abstract]

Commitments And Contingencies

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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:

	September 30,		December 31,
(Dollars in thousands)	2022		2021
Financial instruments whose contract amounts represent credit risk
Commercial commitments to extend credit	$	282,414	$	288,075
Consumer commitments to extend credit (secured)		92,729		82,095
Consumer commitments to extend credit (unsecured)		5,331		5,389
	$	380,474	$	375,559
Standby letters of credit	$	30,317	$	23,284

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. In the second quarter of 2021, the Bank reversed $636 thousand of this reserve as a second letter of credit was cancelled. At September 30, 2022, this reserve was $1.5 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 September 30, 2022 and December 31, 2021.

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 September 30, 2022, 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

9 Months Ended

Sep. 30, 2022

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)

9 Months Ended

Sep. 30, 2022

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 September 30, 2022, 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 2021 Annual Report on Form 10-K. The consolidated results of operations for the three-month and nine-month periods ended September 30, 2022 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, 2021 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				For the Nine Months Ended
	September 30,				September 30,
(Dollars and shares in thousands, except per share data)	2022		2021		2022		2021
Weighted average shares outstanding (basic)		4,401		4,441		4,432		4,421
Impact of common stock equivalents		23		26		21		19
Weighted average shares outstanding (diluted)		4,424		4,467		4,453		4,440
Anti-dilutive options excluded from calculation		29		30		30		31
Net income	$	4,631	$	5,862	$	11,221	$	15,963
Basic earnings per share	$	1.05	$	1.32	$	2.53	$	3.61
Diluted earnings per share	$	1.05	$	1.31	$	2.52	$	3.60

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Basis Of Presentation (Tables)

9 Months Ended

Sep. 30, 2022

Basis Of Presentation [Abstract]

Schedule Of Earnings Per Share, Basic And Diluted

	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
(Dollars and shares in thousands, except per share data)	2022		2021		2022		2021
Weighted average shares outstanding (basic)		4,401		4,441		4,432		4,421
Impact of common stock equivalents		23		26		21		19
Weighted average shares outstanding (diluted)		4,424		4,467		4,453		4,440
Anti-dilutive options excluded from calculation		29		30		30		31
Net income	$	4,631	$	5,862	$	11,221	$	15,963
Basic earnings per share	$	1.05	$	1.32	$	2.53	$	3.61
Diluted earnings per share	$	1.05	$	1.31	$	2.52	$	3.60

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Recent Accounting Pronouncements (Tables)

9 Months Ended

Sep. 30, 2022

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 is running the CECL model in test mode in 2022.
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 continues to review the ASU as part of its adoption of ASU 2016-13.
ASU 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures
Description	This ASU will eliminate the recognition and measurement accounting guidance for Troubled Debt Restructurings (TDRs) by creditors in Subtopic 310-40, while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty.
Effective Date	January 1, 2023
Effect on the Consolidated Financial Statements	The Corporation is reviewing 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 continues 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)

9 Months Ended

Sep. 30, 2022

Accumulated Other Comprehensive Income (Loss) [Abstract]

Schedule Of Accumulated Other Comprehensive Income (Loss)

	September 30,		December 31,
(Dollars in thousands)	2022		2021
Net unrealized (losses) gains on debt securities	$	(64,962)	$	4,094
Tax effect		13,642		(860)
Net of tax amount	$	(51,320)	$	3,234
Accumulated pension adjustment	$	(4,786)	$	(4,786)
Tax effect		1,005		1,005
Net of tax amount	$	(3,781)	$	(3,781)
Total accumulated other comprehensive loss	$	(55,101)	$	(547)

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Investments (Tables)

9 Months Ended

Sep. 30, 2022

Investments [Abstract]

Unrealized Gain (Loss) On Investments

(Dollars in thousands)			Gross		Gross
	Amortized		unrealized		unrealized		Fair
September 30, 2022	cost		gains		losses		value
U.S. Treasury	$	92,305	$	—	$	(12,396)	$	79,909
Municipal		203,370		24		(34,133)		169,261
Corporate		26,311		—		(1,689)		24,622
Agency mortgage & asset-backed		169,537		38		(12,555)		157,020
Non-Agency mortgage & asset-backed		65,471		2		(4,253)		61,220
Total	$	556,994	$	64	$	(65,026)	$	492,032

(Dollars in thousands)			Gross		Gross
	Amortized		unrealized		unrealized		Fair
December 31, 2021	cost		gains		losses		value
U.S. Treasury	$	84,896	$	88	$	(698)	$	84,286
Municipal		206,501		7,148		(1,422)		212,227
Corporate		24,794		333		(188)		24,939
Agency mortgage & asset-backed		178,614		1,157		(2,086)		177,685
Non-Agency mortgage & asset-backed		30,912		34		(272)		30,674
Total	$	525,717	$	8,760	$	(4,666)	$	529,811

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

(Dollars in thousands)	Amortized ‎cost		Fair ‎value
Due in one year or less	$	3,971	$	3,942
Due after one year through five years		14,689		14,121
Due after five years through ten years		150,057		130,188
Due after ten years		153,269		125,541
		321,986		273,792
Mortgage & asset-backed		235,008		218,240
	$	556,994	$	492,032

Schedule Of Gain (Loss) On Investments

	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
(Dollars in thousands)	2022		2021		2022		2021
Proceeds	$	1,000	$	—	$	1,082	$	16,060
Gross gains realized		—		—		—		169
Gross losses realized		(15)		—		(34)		(78)
Net (losses) gains realized	$	(15)	$	—	$	(34)	$	91
Tax benefit (provision) on net (losses) gains realized	$	3	$	—	$	7	$	(19)

Schedule Of Unrealized Loss On Investments

	September 30, 2022
	Less than 12 months					12 months or more					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(Dollars in thousands)	Value		Losses		Count	Value		Losses		Count	Value		Losses		Count
U.S. Treasury	$	16,836	$	(1,864)	11	$	63,073	$	(10,532)	19	$	79,909	$	(12,396)	30
Municipal		132,404		(22,568)	167		34,527		(11,565)	49		166,931		(34,133)	216
Corporate		15,560		(1,053)	31		7,412		(636)	15		22,972		(1,689)	46
Agency mortgage & asset-backed		67,183		(3,158)	158		80,796		(9,397)	89		147,979		(12,555)	247
Non-Agency mortgage & asset-backed		45,802		(2,962)	47		11,762		(1,291)	13		57,564		(4,253)	60
Total temporarily impaired	$	277,785	$	(31,605)	414	$	197,570	$	(33,421)	185	$	475,355	$	(65,026)	599

	December 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. Treasury	$	76,383	$	(698)	21	$	—	$	—	—	$	76,383	$	(698)	21
Municipal		38,997		(910)	44		15,404		(512)	16		54,401		(1,422)	60
Corporate		8,954		(132)	17		1,694		(56)	3		10,648		(188)	20
Agency mortgage & asset-backed		96,923		(1,669)	94		15,991		(417)	18		112,914		(2,086)	112
Non-Agency mortgage & asset-backed		15,215		(215)	11		1,964		(57)	3		17,179		(272)	14
Total temporarily impaired	$	236,472	$	(3,624)	187	$	35,053	$	(1,042)	40	$	271,525	$	(4,666)	227

Other Than Temporary Impairment, Credit Losses Recognized In Earnings

	Nine Months Ended
(Dollars in thousands)	September 30,
	2022		2021
Balance of cumulative credit-related OTTI at January 1	$	257	$	272
Decreases for previously recognized credit losses on securities that paid off or sold		(257)		(15)
Balance of credit-related OTTI at September 30	$	—	$	257

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Loans (Tables)

9 Months Ended

Sep. 30, 2022

Loans [Abstract]

Schedule Of Loans Outstanding

	September 30,		December 31,
(Dollars in thousands)	2022		2021
Residential Real Estate 1-4 Family
Consumer first liens	$	78,686	$	71,828
Commercial first lien		60,219		60,655
Total first liens		138,905		132,483
Consumer junior liens and lines of credit		70,423		67,103
Commercial junior liens and lines of credit		4,326		4,841
Total junior liens and lines of credit		74,749		71,944
Total residential real estate 1-4 family		213,654		204,427
Residential real estate - construction
Consumer		11,125		8,278
Commercial		12,776		12,379
Total residential real estate construction		23,901		20,657
Commercial real estate		571,426		522,779
Commercial		233,427		244,543
Total commercial		804,853		767,322
Consumer		6,099		6,406
		1,048,507		998,812
Less: Allowance for loan losses		(14,989)		(15,066)
Net Loans	$	1,033,518	$	983,746
Included in the loan balances are the following:
Net unamortized deferred loan costs	$	2,013	$	1,289
Loans pledged as collateral for borrowings and commitments from:
FHLB	$	646,878	$	614,828
Federal Reserve Bank		49,191		45,453
	$	696,069	$	660,281
Paycheck Protection Program (included in commercial loans)	$	205	$	7,755

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Loan Quality And Allowance For Loan Losses (Tables)

9 Months Ended

Sep. 30, 2022

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 June 30, 2022	$	465	$	245	$	289	$	8,096	$	5,076	$	119	$	725	$	15,015
Charge-offs		—		—		—		—		(6)		(33)		—		(39)
Recoveries		—		1		—		—		8		4		—		13
Provision		(4)		3		75		9		(33)		38		(88)		—
ALL at September 30, 2022	$	461	$	249	$	364	$	8,105	$	5,045	$	128	$	637	$	14,989
ALL at December 31, 2021	$	475	$	252	$	325	$	8,168	$	5,127	$	130	$	589	$	15,066
Charge-offs		(20)		—		—		—		(69)		(79)		—		(168)
Recoveries		47		2		—		—		20		22		—		91
Provision		(41)		(5)		39		(63)		(33)		55		48		—
ALL at September 30, 2022	$	461	$	249	$	364	$	8,105	$	5,045	$	128	$	637	$	14,989
ALL at June 30, 2021	$	459	$	220	$	349	$	7,878	$	5,309	$	102	$	738	$	15,055
Charge-offs		—		—		—		—		(3)		(126)		—		(129)
Recoveries		—		—		—		—		436		4		—		440
Provision		33		25		18		810		(856)		157		(187)		—
ALL at September 30, 2021	$	492	$	245	$	367	$	8,688	$	4,886	$	137	$	551	$	15,366
ALL at December 31, 2020	$	555	$	226	$	294	$	9,163	$	5,679	$	97	$	775	$	16,789
Charge-offs		—		—		(28)		(13)		(11)		(162)		—		(214)
Recoveries		—		170		—		1		497		23		—		691
Provision		(63)		(151)		101		(463)		(1,279)		179		(224)		(1,900)
ALL at September 30, 2021	$	492	$	245	$	367	$	8,688	$	4,886	$	137	$	551	$	15,366

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 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
September 30, 2022
Loans evaluated for ALL:
Individually	$	631	$	—	$	—	$	9,021	$	—	$	—	$	—	$	9,652
Collectively		138,274		74,749		23,901		562,405		233,427		6,099		—		1,038,855
Total	$	138,905	$	74,749	$	23,901	$	571,426	$	233,427	$	6,099	$	—	$	1,048,507
ALL established for ‎  loans evaluated:
Individually	$	—	$	—	$	—	$	415	$	—	$	—	$	—	$	415
Collectively		461		249		364		7,690		5,045		128		637		14,574
ALL at September 30, 2022	$	461	$	249	$	364	$	8,105	$	5,045	$	128	$	637	$	14,989
December 31, 2021
Loans evaluated for ALL:
Individually	$	661	$	—	$	424	$	10,520	$	—	$	—	$	—	$	11,605
Collectively		131,822		71,944		20,233		512,259		244,543		6,406		—		987,207
Total	$	132,483	$	71,944	$	20,657	$	522,779	$	244,543	$	6,406	$	—	$	998,812
ALL established for ‎  loans evaluated:
Individually	$	—	$	—	$	—	$	698	$	—	$	—	$	—	$	698
Collectively		475		252		325		7,470		5,127		130		589		14,368
ALL at December 31, 2021	$	475	$	252	$	325	$	8,168	$	5,127	$	130	$	589	$	15,066

Impaired Financing Receivables

The following table shows additional information about those loans considered to be impaired as of the periods shown:

	Impaired Loans
	With No Allowance				With Allowance
(Dollars in thousands)			Unpaid				Unpaid
	Recorded		Principal		Recorded		Principal		Related
September 30, 2022	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		—		—		—		—		—
Commercial real estate		3,725		3,725		5,296		5,796		415
Commercial		—		—		—		—		—
Total	$	4,356	$	4,356	$	5,296	$	5,796	$	415

December 31, 2021
Residential Real Estate 1-4 Family
First liens	$	661	$	661	$	—	$	—	$	—
Junior liens and lines of credit		—		—		—		—		—
Total		661		661		—		—		—
Residential real estate - construction		424		729		—		—		—
Commercial real estate		4,942		5,405		5,578		5,764		698
Commercial		—		—		—		—		—
Total	$	6,027	$	6,795	$	5,578	$	5,764	$	698

The following table shows the average balance of impaired loans and related interest income for the periods shown:

	Three Months Ended				Nine Months Ended
	September 30, 2022				September 30, 2022
	Average		Interest		Average		Interest
(Dollars in thousands)	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
Residential Real Estate 1-4 Family
First liens	$	635	$	6	$	646	$	23
Junior liens and lines of credit		—		—		—		—
Total		635		6		646		23
Residential real estate - construction		—		—		141		105
Commercial real estate		9,082		46		9,571		320
Commercial		—		—		—		—
Total	$	9,717	$	52	$	10,358	$	448
	Three Months Ended				Nine Months Ended
	September 30, 2021				September 30, 2021
	Average		Interest		Average		Interest
(Dollars in thousands)	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
Residential Real Estate 1-4 Family
First liens	$	663	$	8	$	655	$	24
Junior liens and lines of credit		—		—		—		—
Total		663		8		655		24
Residential real estate - construction		428		—		483		—
Commercial real estate		15,450		122		15,813		310
Commercial		—		—		—		—
Total	$	16,541	$	130	$	16,951	$	334

Aging Of Payments Of The Loan Portfolio

At September 30, 2022, the Bank had $38 thousand of residential properties in the process of foreclosure compared to $157 thousand at the end of 2021. 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
September 30, 2022
Residential Real Estate 1-4 Family
First liens	$	138,437	$	241	$	107	$	—	$	348	$	120	$	138,905
Junior liens and lines of credit		74,515		147		49		—		196		38		74,749
Total		212,952		388		156		—		544		158		213,654
Residential real estate - construction		23,901		—		—		—		—		—		23,901
Commercial real estate		565,301		592		105		—		697		5,428		571,426
Commercial		233,274		139		14		—		153		—		233,427
Consumer		6,055		35		2		7		44		—		6,099
Total	$	1,041,483	$	1,154	$	277	$	7	$	1,438	$	5,586	$	1,048,507

December 31, 2021
Residential Real Estate 1-4 Family
First liens	$	132,224	$	96	$	113	$	—	$	209	$	50	$	132,483
Junior liens and lines of credit		71,788		118		—		—		118		38		71,944
Total		204,012		214		113		—		327		88		204,427
Residential real estate - construction		20,233		—		—		—		—		424		20,657
Commercial real estate		515,487		293		187		—		480		6,812		522,779
Commercial		244,377		106		—		—		106		60		244,543
Consumer		6,368		27		11		—		38		—		6,406
Total	$	990,477	$	640	$	311	$	—	$	951	$	7,384	$	998,812

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
September 30, 2022
Residential Real Estate 1-4 Family
First liens	$	138,785	$	—	$	120	$	—	$	138,905
Junior liens and lines of credit		74,711		—		38		—		74,749
Total		213,496		—		158		—		213,654
Residential real estate - construction		23,901		—		—		—		23,901
Commercial real estate		555,485		1,104		14,837		—		571,426
Commercial		230,737		2,571		119		—		233,427
Consumer		6,099		—		—		—		6,099
Total	$	1,029,718	$	3,675	$	15,114	$	—	$	1,048,507

December 31, 2021
Residential Real Estate 1-4 Family
First liens	$	132,433	$	—	$	50	$	—	$	132,483
Junior liens and lines of credit		71,906		—		38		—		71,944
Total		204,339		—		88		—		204,427
Residential real estate - construction		20,233		—		424		—		20,657
Commercial real estate		486,903		19,006		16,870		—		522,779
Commercial		244,315		49		179		—		244,543
Consumer		6,406		—		—		—		6,406
Total	$	962,196	$	19,055	$	17,561	$	—	$	998,812

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
September 30, 2022
Residential real estate - construction	—	$	—	$	—	$	—	—	$	—
Residential real estate	5		631		631		—	—		—
Commercial real estate - owner occupied	3		795		795		—	—		—
Commercial real estate - farm land	3		1,482		1,482		—	—		—
Commercial real estate - construction and land development	1		1,360		1,360		—	—		—
Commercial real estate - other	1		87		87		—	—		—
Total	13	$	4,355	$	4,355	$	—	—	$	—
December 31, 2021
Residential real estate - construction	1	$	424	$	—	$	424	—	$	—
Residential real estate	5		661		661		—	—		—
Commercial real estate - owner occupied	4		1,161		1,161		—	—		—
Commercial real estate - farm land	4		1,664		1,664		—	—		—
Commercial real estate - construction and land development	1		1,360		1,360		—	—		—
Commercial real estate - other	2		294		294		—	—		—
Total	17	$	5,564	$	5,140	$	424	—	$	—

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

‎

There were no new TDR loans during the three or nine month periods ending September 30, 2022.

The following table reports new TDR loans during 2021, concession granted and the recorded investment as of September 30, 2022:

(Dollars in thousands)	New During Period
Twelve Months Ended	Number of		Pre-TDR		After-TDR		Recorded
December 31, 2021	Contracts		Modification		Modification		Investment	Concession
Residential real estate	1	$	41	$	50	$	40	multiple

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Leases (Tables)

9 Months Ended

Sep. 30, 2022

Leases [Abstract]

Schedule Of Lease Costs

	Three Months Ended ‎September 30,				Nine Months Ended ‎September 30,
(Dollars in thousands)	2022		2021		2022		2021
Operating lease cost	$	193	$	174	$	566	$	522
Short-term lease cost		44		95		296		95
Variable lease cost		40		25		95		74
Total lease cost	$	277	$	294	$	957	$	691

Schedule Of Measurement Of Lease Liabilities

	Nine Months Ended ‎September 30,
(Dollars in thousands)	2022		2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	550	$	491
Weighted-average remaining lease term (years)		12.1		11.2
Weighted-average discount rate		3.35%		3.36%

Schedule Of Future Minimum Payments Operating Leases

(Dollars in thousands)
2022	$	201
2023		818
2024		803
2025		752
2026		650
2027 and beyond		4,591
Undiscounted cash flow		7,815
Imputed Interest		(1,522)
Total lease liability	$	6,293

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Derivatives (Tables)

9 Months Ended

Sep. 30, 2022

Derivatives [Abstract]

Schedule Of Fair Value Of Derivative Instruments

		Fair Value of Derivative Instruments
		Derivative Liabilities
(Dollars in thousands)		September 30, 2022					December 31, 2021
		Notional amount	Balance Sheet Location		Fair Value		Notional amount	Balance Sheet Location		Fair Value
Derivatives not designated as hedging instruments
Other Contracts	$	6,513	Other Liabilities	$	4	$	6,653	Other Liabilities	$	21
Total derivatives not designated as hedging instruments				$	4				$	21

Schedule Of Effect Of Derivative Instruments On The Statement Of Income

Effect of Derivatives as Hedging Instruments on the Income Statement
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				Nine Months Ended
		September 30, 2022		September 30, 2021		September 30, 2022		September 30, 2021
Other Contracts	Other income	$	4	$	3	$	17	$	20

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Pension (Tables)

9 Months Ended

Sep. 30, 2022

Pension [Abstract]

Schedule Of Net Periodic Pension Costs

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(Dollars in thousands)	2022		2021		2022		2021
Components of net periodic cost:
Service cost	$	86	$	107	$	257	$	312
Interest cost		168		96		504		279
Expected return on plan assets		(249)		(280)		(746)		(834)
Settlement expense		—		158		—		356
Recognized net actuarial loss		150		283		449		850
Total pension expense	$	155	$	364	$	464	$	963

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

9 Months Ended

Sep. 30, 2022

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 September 30, 2022
Asset Description	Level 1		Level 2		Level 3		Total
Equity securities, at fair value	$	435	$	—	$	—	$	435
Available for sale:
U.S. Treasury		79,909		—		—		79,909
Municipal		—		169,261		—		169,261
Corporate		—		24,622		—		24,622
Agency mortgage & asset-backed		—		157,020		—		157,020
Non-Agency mortgage & asset-backed		—		61,220		—		61,220
Total assets	$	80,344	$	412,123	$	—	$	492,467

(Dollars in thousands)	Fair Value at December 31, 2021
Asset Description	Level 1		Level 2		Level 3		Total
Equity securities, at fair value	$	481	$	—	$	—	$	481
Available for sale:
U.S. Treasury		84,286		—		—		84,286
Municipal		—		212,227		—		212,227
Corporate		—		24,939		—		24,939
Agency mortgage and asset-backed		—		177,685		—		177,685
Non-Agency mortgage and asset-backed		—		30,674		—		30,674
Total assets	$	84,767	$		$	—	$	530,292

Schedule Of Fair Value On A Nonrecurring Basis

(Dollars in Thousands)	Fair Value at September 30, 2022
Asset Description	Level 1		Level 2		Level 3		Total
Impaired loans (1)	$	—	$	—	$	4,881	$	4,881
Total assets	$	—	$	—	$	4,881	$	4,881

(Dollars in Thousands)	Fair Value at December 31, 2021
Asset Description	Level 1		Level 2		Level 3		Total
Impaired loans (1)	$	—	$	—	$	4,880	$	4,880
Total assets	$	—	$	—	$	4,880	$	4,880

(1)Includes assets that may have been charged-down to fair value during the reporting period or have a specific reserve established.

Fair Value Inputs, Assets, Quantitative Information

(Dollars in thousands)					Range
September 30, 2022		Fair Value	Valuation Technique	Unobservable Input	(Weighted Average)
Impaired loans	$	4,881	Appraisal	Appraisal Adjustment on:
				Real estate assets	20% (20%)
				Cost to sell	8%
				Non-real estate assets	50% - 100% (83%)
				Cost to sell	8%
					Range
December 31, 2021		Fair Value	Valuation Technique	Unobservable Input	(Weighted Average)
Impaired Loans	$	4,880	Appraisal	Appraisal Adjustment on:
				Real estate assets	20% (20%)
				Cost to sell	8%
				Non-real estate assets	50% - 100% (83%)
				Cost to sell	8%

Fair Value, By Balance Sheet Grouping

	September 30, 2022
	Carrying		Fair
(Dollars in thousands)	Amount		Value		Level 1		Level 2		Level 3
Financial assets, carried at cost:
Cash and cash equivalents	$	210,156	$	210,156	$	210,156	$	—	$	—
Long-term interest-bearing deposits in other banks		12,476		12,476		12,476		—		—
Loans held for sale		2,349		2,382		—		2,382		—
Net loans		1,033,518		977,145		—		—		977,145
Accrued interest receivable		5,784		5,784		—		—		5,784
Financial liabilities:
Deposits	$	1,704,983	$	1,703,580	$	—	$	1,703,580	$	—
Subordinate notes		19,615		17,838		—		17,838		—
Accrued interest payable		346		346		—		346		—
	December 31, 2021
	Carrying		Fair
(Dollars in thousands)	Amount		Value		Level 1		Level 2		Level 3
Financial assets, carried at cost:
Cash and cash equivalents	$	175,149	$	175,149	$	175,149	$	—	$	—
Long-term interest-bearing deposits in other banks		10,492		10,492		10,492		—		—
Loans held for sale		2,827		2,940		—		2,940		—
Net loans		983,746		1,003,580		—		—		1,003,580
Accrued interest receivable		5,217		5,217		—		—		5,217
Financial liabilities:
Deposits	$	1,584,359	$	1,616,128	$	—	$	1,616,128	$	—
Subordinate notes		19,588		19,909		—		19,909		—
Accrued interest payable		83		83		—		83		—

 

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Capital Ratios (Tables)

9 Months Ended

Sep. 30, 2022

Capital Ratios [Abstract]

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

			Regulatory Ratios
			Adequately	Well
	September 30,	December 31,	Capitalized	Capitalized
(Dollars in thousands)	2022	2021	Minimum	Minimum
Common Equity Tier 1 Risk-based Capital Ratio (1)
Franklin Financial Services Corporation	14.29%	15.20%	N/A	N/A
Farmers & Merchants Trust Company	14.36%	15.28%	4.50%	6.50%
Tier 1 Risk-based Capital Ratio (2)
Franklin Financial Services Corporation	14.29%	15.20%	N/A	N/A
Farmers & Merchants Trust Company	14.36%	15.28%	6.00%	8.00%
Total Risk-based Capital Ratio (3)
Franklin Financial Services Corporation	17.34%	18.41%	N/A	N/A
Farmers & Merchants Trust Company	15.61%	16.54%	8.00%	10.00%
Tier 1 Leverage Ratio (4)
Franklin Financial Services Corporation	8.59%	8.52%	N/A	N/A
Farmers & Merchants Trust Company	8.63%	8.57%	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)

9 Months Ended

Sep. 30, 2022

Commitments And Contingencies [Abstract]

Outstanding Commitments

	September 30,		December 31,
(Dollars in thousands)	2022		2021
Financial instruments whose contract amounts represent credit risk
Commercial commitments to extend credit	$	282,414	$	288,075
Consumer commitments to extend credit (secured)		92,729		82,095
Consumer commitments to extend credit (unsecured)		5,331		5,389
	$	380,474	$	375,559
Standby letters of credit	$	30,317	$	23,284

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Basis Of Presentation (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021
Basis Of Presentation [Abstract]
Weighted average shares outstanding (basic)	4,401	4,441	4,432	4,421
Impact of common stock equivalents	23	26	21	19
Weighted average shares outstanding (diluted)	4,424	4,467	4,453	4,440
Anti-dilutive options excluded from calculation	29	30	30	31
Net income	$ 4,631	$ 5,862	$ 11,221	$ 15,963
Basic earnings per share	$ 1.05	$ 1.32	$ 2.53	$ 3.61
Diluted earnings per share	$ 1.05	$ 1.31	$ 2.52	$ 3.60

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Accumulated Other Comprehensive Income (Loss) (Details) - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021
Accumulated Other Comprehensive Income (Loss) [Line Items]
Total accumulated other comprehensive loss	$ (55,101)	$ (547)
Accumulated Other Comprehensive Income (Loss), Debt Securities [Member]
Accumulated Other Comprehensive Income (Loss) [Line Items]
Accumulated other comprehensive loss, Before tax	(64,962)	4,094
Accumulated other comprehensive loss, Tax effect	13,642	(860)
Total accumulated other comprehensive loss	(51,320)	3,234
Accumulated Other Comprehensive Income (Loss), Pension [Member]
Accumulated Other Comprehensive Income (Loss) [Line Items]
Accumulated other comprehensive loss, Before tax	(4,786)	(4,786)
Accumulated other comprehensive loss, Tax effect	1,005	1,005
Total accumulated other comprehensive loss	$ (3,781)	$ (3,781)

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Investments (Narrative) (Details) $ in Thousands	9 Months Ended
	Sep. 30, 2022 USD ($) security item	Dec. 31, 2021 USD ($) security
Schedule of Available-for-sale Securities [Line Items]
Fair value	$ 492,032	$ 529,811
Number of investments in a single issuer exceeds 10% of shareholders' equity | item	0
Percent of shareholders equity benchmark for investments in a single issuer	10.00%
Number of debt securities | security	599	227
Fair value of temporarily impaired securities	$ 475,355	$ 271,525
Unrealized Losses	65,026	4,666
Total unrealized loss position increased over prior year	$ 60,100
Number Of Bond Issuers | item	201
Number Of Bonds Below Investment Grade | item	0
General Obligation Bonds	64.00%
Equity securities	$ 435	481
Texas [Member]
Schedule of Available-for-sale Securities [Line Items]
Percent of Investment Portfolio	14.00%
Pennsylvania [Member]
Schedule of Available-for-sale Securities [Line Items]
Percent of Investment Portfolio	11.00%
CALIFORNIA
Schedule of Available-for-sale Securities [Line Items]
Percent of Investment Portfolio	11.00%
MICHIGAN
Schedule of Available-for-sale Securities [Line Items]
Percent of Investment Portfolio	10.00%
Corporate [Member]
Schedule of Available-for-sale Securities [Line Items]
Fair value	$ 24,622	$ 24,939
Number of debt securities | security	46	20
Fair value of temporarily impaired securities	$ 22,972	$ 10,648
Unrealized Losses	1,689	188
Public Funds And Trust Deposits [Member]
Schedule of Available-for-sale Securities [Line Items]
Fair value	$ 222,700	$ 160,300
Equity Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Number of equity investments | item	1

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Investments (Unrealized Gain (Loss) On Investments) (Details) - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021
Schedule of Available-for-sale Securities [Line Items]
Amortized cost	$ 556,994	$ 525,717
Gross unrealized gains	64	8,760
Gross unrealized losses	(65,026)	(4,666)
Fair value	492,032	529,811
U.S Treasury Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized cost	92,305	84,896
Gross unrealized gains		88
Gross unrealized losses	(12,396)	(698)
Fair value	79,909	84,286
Municipal [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized cost	203,370	206,501
Gross unrealized gains	24	7,148
Gross unrealized losses	(34,133)	(1,422)
Fair value	169,261	212,227
Corporate [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized cost	26,311	24,794
Gross unrealized gains		333
Gross unrealized losses	(1,689)	(188)
Fair value	24,622	24,939
Agency Mortgage-Backed & asset-backed [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized cost	169,537	178,614
Gross unrealized gains	38	1,157
Gross unrealized losses	(12,555)	(2,086)
Fair value	157,020	177,685
Non-Agency mortgage & asset-backed [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized cost	65,471	30,912
Gross unrealized gains	2	34
Gross unrealized losses	(4,253)	(272)
Fair value	$ 61,220	$ 30,674

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Investments (Amortized Cost And Fair Value Of Debt Securities, By Contractual Maturity) (Details) - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021
Schedule of Available-for-sale Securities [Line Items]
Amortized cost	$ 556,994	$ 525,717
Fair Value	492,032	$ 529,811
Debt Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Due in one year or less, Amortized cost	3,971
Due after one year through five years, Amortized cost	14,689
Due after five years through ten years, Amortized cost	150,057
Due after ten years, Amortized cost	153,269
Amortized cost	321,986
Due in one year or less, Fair value	3,942
Due after one year through five years, Fair value	14,121
Due after five years through ten years, Fair value	130,188
Due after ten years, Fair value	125,541
Fair Value	273,792
Mortgage And Asset-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Mortgage-backed securities, Amortized cost	235,008
Mortgage-backed securities, Fair value	$ 218,240

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Investments (Composition Of Net Realized Securities Gains (Losses)) (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021
Investments [Abstract]
Proceeds	$ 1,000		$ 1,082	$ 16,060
Gross gains realized				169
Gross losses realized	(15)		(34)	(78)
Net (losses) gains realized	(15)		(34)	91
Tax benefit (provision) on net (losses) gains realized	$ 3		$ 7	$ (19)

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Investments (Schedule Of Unrealized Loss On Investments) (Details) $ in Thousands	Sep. 30, 2022 USD ($) security	Dec. 31, 2021 USD ($) security
Schedule of Available-for-sale Securities [Line Items]
Less than 12 months: Fair Value	$ 277,785	$ 236,472
Less than 12 months: Unrealized Losses	$ (31,605)	$ (3,624)
Less than 12 months: Count | security	414	187
12 months or more: Fair Value	$ 197,570	$ 35,053
12 months or more: Unrealized Losses	$ (33,421)	$ (1,042)
12 months or more: Count | security	185	40
Fair Value	$ 475,355	$ 271,525
Unrealized Losses	$ (65,026)	$ (4,666)
Count | security	599	227
U.S Treasury Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Less than 12 months: Fair Value	$ 16,836	$ 76,383
Less than 12 months: Unrealized Losses	$ (1,864)	$ (698)
Less than 12 months: Count | security	11	21
12 months or more: Fair Value	$ 63,073
12 months or more: Unrealized Losses	$ (10,532)
12 months or more: Count | security	19
Fair Value	$ 79,909	$ 76,383
Unrealized Losses	$ (12,396)	$ (698)
Count | security	30	21
Municipal [Member]
Schedule of Available-for-sale Securities [Line Items]
Less than 12 months: Fair Value	$ 132,404	$ 38,997
Less than 12 months: Unrealized Losses	$ (22,568)	$ (910)
Less than 12 months: Count | security	167	44
12 months or more: Fair Value	$ 34,527	$ 15,404
12 months or more: Unrealized Losses	$ (11,565)	$ (512)
12 months or more: Count | security	49	16
Fair Value	$ 166,931	$ 54,401
Unrealized Losses	$ (34,133)	$ (1,422)
Count | security	216	60
Corporate [Member]
Schedule of Available-for-sale Securities [Line Items]
Less than 12 months: Fair Value	$ 15,560	$ 8,954
Less than 12 months: Unrealized Losses	$ (1,053)	$ (132)
Less than 12 months: Count | security	31	17
12 months or more: Fair Value	$ 7,412	$ 1,694
12 months or more: Unrealized Losses	$ (636)	$ (56)
12 months or more: Count | security	15	3
Fair Value	$ 22,972	$ 10,648
Unrealized Losses	$ (1,689)	$ (188)
Count | security	46	20
Agency Mortgage-Backed & asset-backed [Member]
Schedule of Available-for-sale Securities [Line Items]
Less than 12 months: Fair Value	$ 67,183	$ 96,923
Less than 12 months: Unrealized Losses	$ (3,158)	$ (1,669)
Less than 12 months: Count | security	158	94
12 months or more: Fair Value	$ 80,796	$ 15,991
12 months or more: Unrealized Losses	$ (9,397)	$ (417)
12 months or more: Count | security	89	18
Fair Value	$ 147,979	$ 112,914
Unrealized Losses	$ (12,555)	$ (2,086)
Count | security	247	112
Non-Agency mortgage & asset-backed [Member]
Schedule of Available-for-sale Securities [Line Items]
Less than 12 months: Fair Value	$ 45,802	$ 15,215
Less than 12 months: Unrealized Losses	$ (2,962)	$ (215)
Less than 12 months: Count | security	47	11
12 months or more: Fair Value	$ 11,762	$ 1,964
12 months or more: Unrealized Losses	$ (1,291)	$ (57)
12 months or more: Count | security	13	3
Fair Value	$ 57,564	$ 17,179
Unrealized Losses	$ (4,253)	$ (272)
Count | security	60	14

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Investments (Other Than Temporary Impairment, Credit Losses Recognized In Earnings) (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021
Investments [Abstract]
Beginning balance of cumulative credit-related OTTI	$ 257	$ 272
Decreases for previously recognized credit losses on securities that paid off or sold	(257)	(15)
Ending balance of credit-related OTTI		$ 257

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Loans (Narrative) (Details)	9 Months Ended
	Sep. 30, 2022
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

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Loans (Schedule Of Loans Outstanding) (Details) - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	$ 1,048,507	$ 998,812
Less: Allowance for loan losses	(14,989)	(15,066)
Net Loans	1,033,518	983,746
Net unamortized deferred loan costs	2,013	1,289
Total	696,069	660,281
Residential Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	213,654	204,427
Residential Real Estate - Construction [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	23,901	20,657
Less: Allowance for loan losses	(364)	(325)
Commercial Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	571,426	522,779
Less: Allowance for loan losses	(8,105)	(8,168)
Commercial [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	233,427	244,543
Less: Allowance for loan losses	(5,045)	(5,127)
Total Commercial [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	804,853	767,322
Consumer [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	6,099	6,406
Less: Allowance for loan losses	(128)	(130)
Consumer First Liens [Member] | Residential Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	78,686	71,828
Consumer Junior Liens And Lines Of Credit [Member] | Residential Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	70,423	67,103
Consumer [Member] | Residential Real Estate - Construction [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	11,125	8,278
Commercial First Lien [Member] | Residential Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	60,219	60,655
Commercial Junior Liens And Lines Of Credit [Member] | Residential Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	4,326	4,841
Commercial [Member] | Residential Real Estate - Construction [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	12,776	12,379
First Liens [Member] | Residential Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	138,905	132,483
Less: Allowance for loan losses	(461)	(475)
Junior Lines And Lines Of Credit [Member] | Residential Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	74,749	71,944
PPP [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	205,000	7,755,000
FHLB [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Net loans	646,878	614,828
Federal Reserve Bank Advances [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Net loans	$ 49,191	$ 45,453

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Loan Quality And Allowance For Loan Losses (Narrative) (Details) - USD ($)	Sep. 30, 2022	Dec. 31, 2021
Loan Quality And Allowance For Loan Losses [Abstract]
Loan Deferral Or Modification, Granted, Amount	$ 38,000	$ 157,000

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Loan Quality And Allowance For Loan Losses (Allowance For Loan Losses, By Loan Segment) (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021	Dec. 31, 2021
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance, Beginning Balance	$ 15,015	$ 15,055	$ 15,066	$ 16,789
Charge-offs	(39)	(129)	(168)	(214)
Recoveries	13	440	91	691
Provision				(1,900)
Allowance, Ending Balance	14,989	15,366	14,989	15,366
Loans evaluated for allowance individually	9,652		9,652		$ 11,605
Loans evaluated for allowance collectively	1,038,855		1,038,855		987,207
Total Loans	1,048,507		1,048,507		998,812
Allowance established for loans evaluated individually	415		415		698
Allowance established for loan evaluated collectively	14,574		14,574		14,368
Total Allowance	14,989		14,989		15,066
Residential Real Estate [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Total Loans	213,654		213,654		204,427
Residential Real Estate - Construction [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance, Beginning Balance	289	349	325	294
Charge-offs				(28)
Provision	75	18	39	101
Allowance, Ending Balance	364	367	364	367
Loans evaluated for allowance individually					424
Loans evaluated for allowance collectively	23,901		23,901		20,233
Total Loans	23,901		23,901		20,657
Allowance established for loan evaluated collectively	364		364		325
Total Allowance	364		364		325
Commercial Real Estate [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance, Beginning Balance	8,096	7,878	8,168	9,163
Charge-offs				(13)
Recoveries				1
Provision	9	810	(63)	(463)
Allowance, Ending Balance	8,105	8,688	8,105	8,688
Loans evaluated for allowance individually	9,021		9,021		10,520
Loans evaluated for allowance collectively	562,405		562,405		512,259
Total Loans	571,426		571,426		522,779
Allowance established for loans evaluated individually	415		415		698
Allowance established for loan evaluated collectively	7,690		7,690		7,470
Total Allowance	8,105		8,105		8,168
Commercial [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance, Beginning Balance	5,076	5,309	5,127	5,679
Charge-offs	(6)	(3)	(69)	(11)
Recoveries	8	436	20	497
Provision	(33)	(856)	(33)	(1,279)
Allowance, Ending Balance	5,045	4,886	5,045	4,886
Loans evaluated for allowance collectively	233,427		233,427		244,543
Total Loans	233,427		233,427		244,543
Allowance established for loan evaluated collectively	5,045		5,045		5,127
Total Allowance	5,045		5,045		5,127
Consumer [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance, Beginning Balance	119	102	130	97
Charge-offs	(33)	(126)	(79)	(162)
Recoveries	4	4	22	23
Provision	38	157	55	179
Allowance, Ending Balance	128	137	128	137
Loans evaluated for allowance collectively	6,099		6,099		6,406
Total Loans	6,099		6,099		6,406
Allowance established for loan evaluated collectively	128		128		130
Total Allowance	128		128		130
Unallocated [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance, Beginning Balance	725	738	589	775
Provision	(88)	(187)	48	(224)
Allowance, Ending Balance	637	551	637	551
Allowance established for loan evaluated collectively	637		637		589
Total Allowance	637		637		589
First Liens [Member] | Residential Real Estate [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance, Beginning Balance	465	459	475	555
Charge-offs			(20)
Recoveries			47
Provision	(4)	33	(41)	(63)
Allowance, Ending Balance	461	492	461	492
Loans evaluated for allowance individually	631		631		661
Loans evaluated for allowance collectively	138,274		138,274		131,822
Total Loans	138,905		138,905		132,483
Allowance established for loan evaluated collectively	461		461		475
Total Allowance	461		461		475
Junior Liens & Lines Of Credit [Member] | Residential Real Estate [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance, Beginning Balance	245	220	252	226
Recoveries	1		2	170
Provision	3	25	(5)	(151)
Allowance, Ending Balance	249	$ 245	249	$ 245
Loans evaluated for allowance collectively	74,749		74,749		71,944
Total Loans	74,749		74,749		71,944
Allowance established for loan evaluated collectively	249		249		252
Total Allowance	$ 249		$ 249		$ 252

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Loan Quality And Allowance For Loan Losses (Impaired Financing Receivables) (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021	Dec. 31, 2021
Financing Receivable, Impaired [Line Items]
Recorded Investment With No Allowance	$ 4,356		$ 4,356		$ 6,027
Unpaid Principal Balance With No Allowance	4,356		4,356		6,795
Recorded Investment With Allowance	5,296		5,296		5,578
Unpaid Principal Balance With Allowance	5,796		5,796		5,764
Related Allowance	415		415		698
Average Recorded Investment	9,717	$ 16,541	10,358	$ 16,951
Interest Income Recognized	52	130	448	334
Residential Real Estate [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment With No Allowance	631		631		661
Unpaid Principal Balance With No Allowance	631		631		661
Average Recorded Investment	635	663	646	655
Interest Income Recognized	6	8	23	24
Residential Real Estate [Member] | First Liens [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment With No Allowance	631		631		661
Unpaid Principal Balance With No Allowance	631		631		661
Average Recorded Investment	635	663	646	655
Interest Income Recognized	6	8	23	24
Residential Real Estate - Construction [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment With No Allowance					424
Unpaid Principal Balance With No Allowance					729
Average Recorded Investment		428	141	483
Interest Income Recognized			105
Commercial Real Estate [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment With No Allowance	3,725		3,725		4,942
Unpaid Principal Balance With No Allowance	3,725		3,725		5,405
Recorded Investment With Allowance	5,296		5,296		5,578
Unpaid Principal Balance With Allowance	5,796		5,796		5,764
Related Allowance	415		415		$ 698
Average Recorded Investment	9,082	15,450	9,571	15,813
Interest Income Recognized	$ 46	$ 122	$ 320	$ 310

XML

Loan Quality And Allowance For Loan Losses (Aging Of Payments Of The Loan Portfolio) (Details) - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	$ 696,069	$ 660,281
Non-accrual loans	5,586	7,384
Total Loans	1,048,507	998,812
Current [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	1,041,483	990,477
30 - 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	1,154	640
60 - 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	277	311
90 Days+ Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	7
Total Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	1,438	951
Residential Real Estate [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual loans	158	88
Total Loans	213,654	204,427
Residential Real Estate [Member] | Current [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	212,952	204,012
Residential Real Estate [Member] | 30 - 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	388	214
Residential Real Estate [Member] | 60 - 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	156	113
Residential Real Estate [Member] | Total Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	544	327
Residential Real Estate [Member] | First Liens [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual loans	120	50
Total Loans	138,905	132,483
Residential Real Estate [Member] | First Liens [Member] | Current [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	138,437	132,224
Residential Real Estate [Member] | First Liens [Member] | 30 - 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	241	96
Residential Real Estate [Member] | First Liens [Member] | 60 - 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	107	113
Residential Real Estate [Member] | First Liens [Member] | Total Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	348	209
Residential Real Estate [Member] | Junior Liens & Lines Of Credit [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual loans	38	38
Total Loans	74,749	71,944
Residential Real Estate [Member] | Junior Liens & Lines Of Credit [Member] | Current [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	74,515	71,788
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	147	118
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	49
Residential Real Estate [Member] | Junior Liens & Lines Of Credit [Member] | Total Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	196	118
Residential Real Estate - Construction [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual loans		424
Total Loans	23,901	20,657
Residential Real Estate - Construction [Member] | Current [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	23,901	20,233
Commercial Real Estate [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual loans	5,428	6,812
Total Loans	571,426	522,779
Commercial Real Estate [Member] | Current [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	565,301	515,487
Commercial Real Estate [Member] | 30 - 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	592	293
Commercial Real Estate [Member] | 60 - 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	105	187
Commercial Real Estate [Member] | Total Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	697	480
Commercial [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual loans		60
Total Loans	233,427	244,543
Commercial [Member] | Current [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	233,274	244,377
Commercial [Member] | 30 - 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	139	106
Commercial [Member] | 60 - 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	14
Commercial [Member] | Total Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	153	106
Consumer [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Loans	6,099	6,406
Consumer [Member] | Current [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	6,055	6,368
Consumer [Member] | 30 - 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	35	27
Consumer [Member] | 60 - 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	2	11
Consumer [Member] | 90 Days+ Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	7
Consumer [Member] | Total Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	$ 44	$ 38

XML

Loan Quality And Allowance For Loan Losses (Internal Credit Rating For The Loan Portfolio) (Details) - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	$ 1,048,507	$ 998,812
Pass [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	1,029,718	962,196
Special Mention [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	3,675	19,055
Substandard [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	15,114	17,561
Residential Real Estate [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	213,654	204,427
Residential Real Estate [Member] | Pass [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	213,496	204,339
Residential Real Estate [Member] | Substandard [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	158	88
Residential Real Estate [Member] | First Liens [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	138,905	132,483
Residential Real Estate [Member] | First Liens [Member] | Pass [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	138,785	132,433
Residential Real Estate [Member] | First Liens [Member] | Substandard [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	120	50
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	74,749	71,944
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	74,711	71,906
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	38	38
Residential Real Estate - Construction [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	23,901	20,657
Residential Real Estate - Construction [Member] | Pass [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	23,901	20,233
Residential Real Estate - Construction [Member] | Substandard [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount		424
Commercial Real Estate [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	571,426	522,779
Commercial Real Estate [Member] | Pass [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	555,485	486,903
Commercial Real Estate [Member] | Special Mention [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	1,104	19,006
Commercial Real Estate [Member] | Substandard [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	14,837	16,870
Commercial [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	233,427	244,543
Commercial [Member] | Pass [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	230,737	244,315
Commercial [Member] | Special Mention [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	2,571	49
Commercial [Member] | Substandard [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	119	179
Consumer [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	6,099	6,406
Consumer [Member] | Pass [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	$ 6,099	$ 6,406

XML

Loan Quality And Allowance For Loan Losses (Troubled Debt Restructuring Loans) (Details) $ in Thousands	12 Months Ended
	Dec. 31, 2021 USD ($) contract	Sep. 30, 2022 USD ($) contract
Financing Receivable, Modifications [Line Items]
Troubled Debt Restructurings: Number of Contracts | contract	17	13
Troubled Debt Restructurings: Recorded Investment	$ 5,564	$ 4,355
Performing [Member]
Financing Receivable, Modifications [Line Items]
Troubled Debt Restructurings: Recorded Investment	5,140	$ 4,355
Nonperforming [Member]
Financing Receivable, Modifications [Line Items]
Troubled Debt Restructurings: Recorded Investment	$ 424
Residential Real Estate - Construction [Member]
Financing Receivable, Modifications [Line Items]
Troubled Debt Restructurings: Number of Contracts | contract	1
Troubled Debt Restructurings: Recorded Investment	$ 424
Residential Real Estate - Construction [Member] | Nonperforming [Member]
Financing Receivable, Modifications [Line Items]
Troubled Debt Restructurings: Recorded Investment	$ 424
Residential Real Estate [Member]
Financing Receivable, Modifications [Line Items]
Troubled Debt Restructurings: Number of Contracts | contract	5	5
Troubled Debt Restructurings: Recorded Investment	$ 661	$ 631
Residential Real Estate [Member] | Performing [Member]
Financing Receivable, Modifications [Line Items]
Troubled Debt Restructurings: Recorded Investment	$ 661	$ 631
Commercial Real Estate - Owner Occupied [Member]
Financing Receivable, Modifications [Line Items]
Troubled Debt Restructurings: Number of Contracts | contract	4	3
Troubled Debt Restructurings: Recorded Investment	$ 1,161	$ 795
Commercial Real Estate - Owner Occupied [Member] | Performing [Member]
Financing Receivable, Modifications [Line Items]
Troubled Debt Restructurings: Recorded Investment	$ 1,161	$ 795
Commercial Real Estate - Farm Land [Member]
Financing Receivable, Modifications [Line Items]
Troubled Debt Restructurings: Number of Contracts | contract	4	3
Troubled Debt Restructurings: Recorded Investment	$ 1,664	$ 1,482
Troubled Debt Restructurings, New During Period, Number of Contracts | contract	1
New During Period, Pre-TDR Modification	$ 41
New During Period, After-TDR Modification	50
New During Period, Recorded Investment	40
Commercial Real Estate - Farm Land [Member] | Performing [Member]
Financing Receivable, Modifications [Line Items]
Troubled Debt Restructurings: Recorded Investment	$ 1,664	$ 1,482
Commercial Real Estate - Construction And Land [Member]
Financing Receivable, Modifications [Line Items]
Troubled Debt Restructurings: Number of Contracts | contract	1	1
Troubled Debt Restructurings: Recorded Investment	$ 1,360	$ 1,360
Commercial Real Estate - Construction And Land [Member] | Performing [Member]
Financing Receivable, Modifications [Line Items]
Troubled Debt Restructurings: Recorded Investment	$ 1,360	$ 1,360
Commercial Real Estate [Member]
Financing Receivable, Modifications [Line Items]
Troubled Debt Restructurings: Number of Contracts | contract	2	1
Troubled Debt Restructurings: Recorded Investment	$ 294	$ 87
Commercial Real Estate [Member] | Performing [Member]
Financing Receivable, Modifications [Line Items]
Troubled Debt Restructurings: Recorded Investment	$ 294	$ 87

XML

Leases (Schedule Of Lease Costs) (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021
Leases [Abstract]
Operating lease cost	$ 193	$ 174	$ 566	$ 522
Short-term lease cost	44	95	296	95
Variable lease cost	40	25	95	74
Total lease cost	$ 277	$ 294	$ 957	$ 691

XML

Leases (Schedule Of Measurement Of Lease Liabilities) (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021
Leases [Abstract]
Operating cash flows from operating leases	$ 550	$ 491
Weighted-average remaining lease term (years)	12 years 1 month 6 days	11 years 2 months 12 days
Weighted-average discount rate	3.35%	3.36%

XML

Leases (Schedule Of Future Minimum Payments Operating Leases) (Details) - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021
Leases [Abstract]
2022	$ 201
2023	818
2024	803
2025	752
2026	650
2027 and beyond	4,591
Undiscounted cash flow	7,815
Imputed Interest	(1,522)
Total lease liability	$ 6,293	$ 4,857

XML

Other Real Estate Owned (Details) - USD ($)	Sep. 30, 2022	Dec. 31, 2021
Other Real Estate Owned [Abstract]
Other real estate owned	$ 0	$ 0

XML

Derivatives (Narrative) (Details) $ in Thousands	Sep. 30, 2022 USD ($)
Derivatives [Abstract]
Derivative, net	$ 4

XML

Derivatives (Schedule Of Fair Value Of Derivative Instruments) (Details) - Not Designated as Hedging Instrument [Member] - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021
Derivatives, Fair Value [Line Items]
Fair Value	$ 4	$ 21
Other Contracts [Member]
Derivatives, Fair Value [Line Items]
Notional Amount	6,513	6,653
Fair Value	$ 4	$ 21

XML

Derivatives (Schedule Of Effect Of Derivative Instruments On The Statement Of Income) (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021
Other Contracts [Member] | Other Income [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Amount of Gain or (Loss) Recognized in Income on Derivatives	$ 4	$ 3	$ 17	$ 20

XML

Pension (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021
Pension [Abstract]
Service cost	$ 86	$ 107	$ 257	$ 312
Interest cost	168	96	504	279
Expected return on plan assets	(249)	(280)	(746)	(834)
Settlement expense		158		356
Recognized net actuarial loss	150	283	449	850
Total pension expense	$ 155	$ 364	$ 464	$ 963

XML

Fair Value Measurements And Fair Values Of Financial Instruments (Narrative) (Details) - USD ($)	3 Months Ended
	Sep. 30, 2022	Dec. 31, 2021
Fair Value Measurements And Fair Values Of Financial Instruments [Abstract]
Derivative liabilities	$ 4,000	$ 21,000
Total liabilities	0
Partial charge-offs on impaired loans	$ 0

XML

Fair Value Measurements And Fair Values Of Financial Instruments (Schedule Of Fair Value, Assets And Liabilities Measured On Recurring Basis) (Details) - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Equity securities, at fair value	$ 435	$ 481
Available for sale	492,032	529,811
Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total assets	492,467	530,292
Level 1 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total assets	80,344	84,767
Level 2 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total assets	412,123
Equity Securities [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Equity securities, at fair value	435	481
Equity Securities [Member] | Level 1 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Equity securities, at fair value	435	481
U.S. Government And Agency [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale		84,286
U.S. Government And Agency [Member] | Level 1 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale		84,286
Municipal [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	169,261	212,227
Municipal [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	169,261	212,227
Municipal [Member] | Level 2 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	169,261	212,227
Corporate [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	24,622	24,939
Corporate [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	24,622	24,939
Corporate [Member] | Level 2 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	24,622	24,939
Agency Mortgage-Backed & asset-backed [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	157,020	177,685
Agency Mortgage-Backed & asset-backed [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	157,020	177,685
Agency Mortgage-Backed & asset-backed [Member] | Level 2 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	157,020	177,685
Non-Agency mortgage & asset-backed [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	61,220	30,674
Non-Agency mortgage & asset-backed [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	61,220	30,674
Non-Agency mortgage & asset-backed [Member] | Level 2 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	61,220	30,674
U.S Treasury Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	79,909	$ 84,286
U.S Treasury Securities [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	79,909
U.S Treasury Securities [Member] | Level 1 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	$ 79,909

XML

Fair Value Measurements And Fair Values Of Financial Instruments (Schedule Of Fair Value On A Nonrecurring Basis) (Details) - Nonrecurring [Member] - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure	$ 4,881	$ 4,880
Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure	4,881	4,880
Impaired Loans [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure	4,881	4,880
Impaired Loans [Member] | Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure	$ 4,881	$ 4,880

XML

Fair Value Measurements And Fair Values Of Financial Instruments (Fair Value Inputs, Assets, Quantitative Information) (Details) - Nonrecurring [Member] - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure	$ 4,881	$ 4,880
Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure	4,881	4,880
Impaired Loans [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure	4,881	4,880
Impaired Loans [Member] | Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure	$ 4,881	$ 4,880
Impaired Loans [Member] | Level 3 [Member] | Minimum [Member] | Cost to Sell [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Quantitative Information Percentage		50.00%
Impaired Loans, Real Estate Assets [Member] | Level 3 [Member] | Appraisal [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Quantitative Information Percentage	20.00%	20.00%
Impaired Loans, Real Estate Assets [Member] | Level 3 [Member] | Cost to Sell [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Quantitative Information Percentage	8.00%	8.00%
Impaired Loans, Real Estate Assets [Member] | Level 3 [Member] | Weighted Average [Member] | Appraisal [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Quantitative Information Percentage	20.00%	20.00%
Impaired Loans, Non-Real Estate Assets [Member] | Level 3 [Member] | Appraisal [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Quantitative Information Percentage	50.00%
Impaired Loans, Non-Real Estate Assets [Member] | Level 3 [Member] | Cost to Sell [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Quantitative Information Percentage	8.00%	8.00%
Impaired Loans, Non-Real Estate Assets [Member] | Level 3 [Member] | Maximum [Member] | Appraisal [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Quantitative Information Percentage	100.00%	100.00%
Impaired Loans, Non-Real Estate Assets [Member] | Level 3 [Member] | Weighted Average [Member] | Appraisal [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Quantitative Information Percentage	83.00%	83.00%

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Fair Value Measurements And Fair Values Of Financial Instruments (Fair Value, By Balance Sheet Grouping) (Details) - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021
Carrying Amount [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and cash equivalents	$ 210,156	$ 175,149
Long-term interest-bearing deposits in other banks	12,476	10,492
Loans held for sale	2,349	2,827
Net loans	1,033,518	983,746
Accrued interest receivable	5,784	5,217
Deposits	1,704,983	1,584,359
Subordinate notes	19,615	19,588
Accrued interest payable	346	83
Fair Value [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and cash equivalents	210,156	175,149
Long-term interest-bearing deposits in other banks	12,476	10,492
Loans held for sale	2,382	2,940
Net loans	977,145	1,003,580
Accrued interest receivable	5,784	5,217
Deposits	1,703,580	1,616,128
Subordinate notes	17,838	19,909
Accrued interest payable	346	83
Level 1 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and cash equivalents	210,156	175,149
Long-term interest-bearing deposits in other banks	12,476	10,492
Level 2 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Loans held for sale	2,382	2,940
Deposits	1,703,580	1,616,128
Subordinate notes	17,838	19,909
Accrued interest payable	346	83
Level 3 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Net loans	977,145	1,003,580
Accrued interest receivable	$ 5,784	$ 5,217

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Subordinated Notes (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2022	Dec. 31, 2021
Federal Home Loan Bank, Advances, Branch of FHLB Bank [Line Items]
Subordinate notes	$ 19,615	$ 19,588
Debt issuance costs	$ 385,000
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
Maturing September 1, 2035 [Member]
Federal Home Loan Bank, Advances, Branch of FHLB Bank [Line Items]
Subordinate notes	5,000
Through September 1, 2025 [Member]
Federal Home Loan Bank, Advances, Branch of FHLB Bank [Line Items]
Subordinate notes	$ 15,000
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
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

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Capital Ratios (Narrative) (Details) $ in Billions	9 Months Ended	12 Months Ended
	Sep. 30, 2022 USD ($)	Dec. 31, 2021
Compliance with Regulatory Capital Requirements under Banking Regulations [Line Items]
Capital Ratios, Basel III, Capital Conservation Buffer, Year Three	2.50%
Community Bank Leverage Ratio, Minimum		9.00%
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: Well Capitalized Minimum: Ratio	0.065
Tier 1 Risk-based Capital Ratio: Well Capitalized Minimum: Ratio	0.08
Tier 1 Leverage Ratio: Well Capitalized Minimum: Ratio	0.05
Total Risk-based Capital Ratio: Well Capitalized Minimum: Ratio	0.10
Capital ratios, capital conservation buffer	7.61%

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Capital Ratios (Schedule Of The Total Risk-based, Tier 1 Risk-based And Tier 1 Leverage Requirements) (Details)	Sep. 30, 2022	Dec. 31, 2021
Franklin Financial Services Corporation [Member]
Compliance with Regulatory Capital Requirements under Banking Regulations [Line Items]
Common Equity Tier 1 Risk-based Capital Ratio: Ratio	0.1429	0.1520
Tier 1 Risk-based Capital Ratio: Ratio	0.1429	0.1520
Total Risk-based Capital Ratio: Ratio	0.1734	0.1841
Tier 1 Leverage Ratio: Ratio	0.0859	0.0852
Bank [Member]
Compliance with Regulatory Capital Requirements under Banking Regulations [Line Items]
Common Equity Tier 1 Risk-based Capital Ratio: Ratio	0.1436	0.1528
Common Equity Tier 1 Risk-based Capital Ratio: Adequately Capitalized Minimum: Ratio	0.0450
Common Equity Tier 1 Risk-based Capital Ratio: Well Capitalized Minimum: Ratio	0.065
Tier 1 Risk-based Capital Ratio: Ratio	0.1436	0.1528
Tier 1 Risk-based Capital Ratio: Adequately Capitalized Minimum: Ratio	0.0600
Tier 1 Risk-based Capital Ratio: Well Capitalized Minimum: Ratio	0.08
Total Risk-based Capital Ratio: Ratio	0.1561	0.1654
Total Risk-based Capital Ratio: Adequately Capitalized Minimum: Ratio	0.0800
Total Risk-based Capital Ratio: Well Capitalized Minimum: Ratio	0.10
Tier 1 Leverage Ratio: Ratio	0.0863	0.0857
Tier 1 Leverage Ratio: Adequately Capitalized Minimum: Ratio	0.0400
Tier 1 Leverage Ratio: Well Capitalized Minimum: Ratio	0.05

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Revenue Recognition (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021
Disaggregation of Revenue [Line Items]
Investment and trust services fees	$ 1,661	$ 1,740	$ 5,407	$ 5,282
Estate management services Fees recognition period			18 months
Asset Management Fees [Member]
Disaggregation of Revenue [Line Items]
Investment and trust services fees	1,500	1,600	$ 4,900
Estate Management Services Fees [Member]
Disaggregation of Revenue [Line Items]
Investment and trust services fees	113	130	415	313
Commisions [Member]
Disaggregation of Revenue [Line Items]
Investment and trust services fees	$ 29	$ 34	$ 104	$ 118

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Commitments And Contingencies (Narrative) (Details) - USD ($) $ in Thousands		3 Months Ended		9 Months Ended
	Jun. 30, 2018	Sep. 30, 2021	Mar. 31, 2020	Sep. 30, 2022
Commitments And Contingencies [Abstract]
Allowance against letters of credit	$ 2,400			$ 1,500
Letters of credit cancelled		$ 636	$ 250

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Commitments And Contingencies (Outstanding Commitments ) (Details) - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021
Commercial Commitments To Extend Credit [Member]
Loss Contingencies [Line Items]
Commitments outstanding	$ 282,414	$ 288,075
Consumer Commitments To Extend Credit (Secured) [Member]
Loss Contingencies [Line Items]
Commitments outstanding	92,729	82,095
Consumer Commitments To Extend Credit (Unsecured) [Member]
Loss Contingencies [Line Items]
Commitments outstanding	5,331	5,389
Commitments To Extend Credit [Member]
Loss Contingencies [Line Items]
Commitments outstanding	380,474	375,559
Standby Letters of Credit [Member]
Loss Contingencies [Line Items]
Commitments outstanding	$ 30,317	$ 23,284