10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2023

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 4,381,611 outstanding shares of the Registrant’s common stock as of April 30, 2023.

INDEX

Part I - FINANCIAL INFORMATION
Item 1	Financial Statements
	Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022 (unaudited)	1
	Consolidated Statements of Income for the Three Months ended March 31, 2023	2
	and 2022 (unaudited)
	Consolidated Statements of Comprehensive Income for the Three Months ended	3
	March 31, 2023 and 2022 (unaudited)
	Consolidated Statements of Changes in Shareholders’ Equity for the Three Months	3
	ended March 31, 2023 and 2022 (unaudited)
	Consolidated Statements of Cash Flows for the Three Months ended March 31, 2023	4
	and 2022 (unaudited)
	Notes to Consolidated Financial Statements (unaudited)	5
Item 2	Management’s Discussion and Analysis ofResults of Operations and Financial Condition	27
Item 3	Quantitative and Qualitative Disclosures about Market Risk	45
Item 4	Controls and Procedures	45
Part II - OTHER INFORMATION
Item 1	Legal Proceedings	46
Item 1A	Risk Factors	46
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	46
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)
	March 31,		December 31,
	2023		2022
Assets
Cash and due from banks	$	17,954	$	17,883
Short-term interest-earning deposits in other banks		68,609		47,016
Total cash and cash equivalents		86,563		64,899
Long-term interest-earning deposits in other banks		9,477		13,975
Debt securities available for sale, at fair value		457,767		486,836
Equity securities		387		411
Restricted stock		644		644
Loans held for sale		—		283
Loans		1,077,446		1,051,041
Allowance for credit losses		(14,109)		(14,175)
Net Loans		1,063,337		1,036,866
Premises and equipment, net		29,654		30,026
Right of use asset		5,855		6,010
Bank owned life insurance		22,419		22,311
Goodwill		9,016		9,016
Deferred tax asset, net		13,676		15,630
Other assets		12,490		12,672
Total assets	$	1,711,285	$	1,699,579
Liabilities
Deposits
Noninterest-bearing checking	$	298,008	$	299,231
Money management, savings, and interest checking		1,130,527		1,194,827
Time		73,575		57,390
Total deposits		1,502,110		1,551,448
Short-term borrowings		50,000		—
Subordinate notes		19,635		19,623
Lease liability		5,999		6,144
Other liabilities		9,958		8,167
Total liabilities		1,587,702		1,585,382
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 4,402,675 shares outstanding at March 31, 2023 and
4,710,972 shares issued and 4,390,397 shares outstanding at December 31, 2022		4,711		4,711
Capital stock no par value, 5,000,000 shares authorized with no
shares issued and outstanding		—		—
Additional paid-in capital		43,356		43,535
Retained earnings		127,877		125,892
Accumulated other comprehensive loss		(43,996)		(51,287)
Treasury stock, 308,297 shares at March 31, 2023 and 320,575 shares at
December 31, 2022, at cost		(8,365)		(8,654)
Total shareholders' equity		123,583		114,197
Total liabilities and shareholders' equity	$	1,711,285	$	1,699,579

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

1

Consolidated Statements of Income

	For the Three Months Ended
(Dollars in thousands, except per share data) (unaudited)	March 31,
	2023		2022
Interest income
Loans, including fees	$	12,336	$	9,067
Interest and dividends on investments:
Taxable interest		3,451		1,843
Tax exempt interest		365		525
Dividend income		8		1
Interesting-earnings deposits in other banks		423		98
Total interest income		16,583		11,534
Interest expense
Deposits		3,429		463
Short-term borrowings		51		—
Subordinate notes		266		263
Total interest expense		3,746		726
Net interest income		12,837		10,808
Provision for credit losses - loans		467		—
Provision for credit losses - unfunded commitments		62		—
Net interest income after credit loss expense		12,308		10,808
Noninterest income
Investment and trust services fees		1,834		1,828
Loan service charges		302		116
Gain on sale of loans		73		254
Deposit service charges and fees		583		623
Other service charges and fees		432		412
Debit card income		502		458
Increase in cash surrender value of Bank owned life insurance		108		108
Net (losses) gains on sales of debt securities		(602)		—
Change in fair value of equity securities		(24)		11
Other		17		74
Total noninterest income		3,225		3,884
Noninterest Expense
Salaries and employee benefits		6,936		6,347
Net occupancy		1,110		974
Marketing and advertising		519		497
Legal and professional		552		515
Data processing		1,060		1,137
Pennsylvania bank shares tax		223		143
FDIC Insurance		182		183
ATM/debit card processing		294		346
Telecommunications		100		92
Nonservice pension		(29)		69
Other		1,072		963
Total noninterest expense		12,019		11,266
Income before federal income taxes		3,514		3,426
Federal income tax expense		222		414
Net income	$	3,292	$	3,012
Per share
Basic earnings per share	$	0.75	$	0.68
Diluted earnings per share	$	0.75	$	0.67

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

2

Consolidated Statements of Comprehensive Income (Loss)

	For the Three Months Ended
	March 31,
(Dollars in thousands) (unaudited)	2023		2022
Net Income	$	3,292	$	3,012
Debt Securities:
Unrealized gain (losses) arising during the period		8,626		(27,718)
Reclassification adjustment for losses included in net income (1)		602		—
Net unrealized gain/(losses)		9,228		(27,718)
Tax effect		(1,937)		5,821
Net of tax amount		7,291		(21,897)
Total other comprehensive income (loss)		7,291		(21,897)
Total Comprehensive Income (Loss)	$	10,583	$	(18,885)
(1) Reclassified to net losses on sales of debt securities

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

Consolidated Statements of Changes in Shareholders’ Equity

For the three months ended March 31, 2023 and 2022

								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 January 1, 2023	4,390,397	$	4,711	$	43,535	$	125,892	$	(51,287)	$	(8,654)	$	114,197
Cumulative change in accounting principle, net of tax			—		—		98		—		—		98
Net income			—		—		3,292		—		—		3,292
Other comprehensive income			—		—		—		7,291		—		7,291
Cash dividends declared, $0.32 per share			—		—		(1,405)		—		—		(1,405)
Acquisition of treasury stock	(10,108)		—		—		—		—		(316)		(316)
Treasury shares issued under dividend reinvestment plan	8,484		—		48		—		—		229		277
Stock Compensation Plans:
Treasury shares issued	13,902		—		(362)		—		—		376		14
Compensation expense			—		135		—		—		—		135
Balance at March 31, 2023	4,402,675	$	4,711	$	43,356	$	127,877	$	(43,996)	$	(8,365)	$	123,583

Balance at January 1, 2022	4,441,443	$	4,711	$	43,085	$	116,612	$	(547)	$	(6,796)	$	157,065
Net income			—		—		3,012		—		—		3,012
Other comprehensive income			—		—		—		(21,897)		—		(21,897)
Cash dividends declared, $0.32 per share			—		—		(1,421)		—		—		(1,421)
Acquisition of treasury stock	(609)		—		—		—		—		(20)		(20)
Treasury shares issued under dividend reinvestment plan	9,379		—		78		—		—		236		314
Stock Compensation Plans:
Treasury shares issued	6,705		—		(156)		—		—		169		13
Compensation expense			—		70		—		—		—		70
Balance at March 31, 2022	4,456,918	$	4,711	$	43,077	$	118,203	$	(22,444)	$	(6,411)	$	137,136

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

3

Consolidated Statements of Cash Flows

	Three Months Ended ‎March 31,
	2023		2022
(Dollars in thousands) (unaudited)
Cash flows from operating activities
Net income	$	3,292	$	3,012
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		479		267
Net amortization of loans and investment securities		842		711
Amortization of subordinate debt issuance costs		12		10
Provision for credit losses		529		—
Change in fair value of equity securities		24		(11)
Realized losses on sales of debt securities		602		—
Loans originated for sale		(5,007)		(14,086)
Proceeds from sale of loans		5,363		14,025
Gain on sale of loans held for sale		(73)		(254)
Increase in cash surrender value of life insurance		(108)		(108)
Decrease in fair value of derivative		1		(8)
Stock based compensation		135		70
Decrease in other assets		(168)		(581)
Increase in other liabilities		1,794		1,399
Net cash provided by operating activities		7,717		4,446
Cash flows from investing activities
Net decrease (increase) in long-term interest-earning deposits in other banks		4,498		(250)
Proceeds from sales and calls of investment securities available for sale		32,855		—
Proceeds from maturities and pay-downs of securities available for sale		8,452		1,227
Purchase of investment securities available for sale		(4,325)		(11,525)
Net increase in restricted stock		—		(12)
Net increase in loans		(26,654)		(1,978)
Capital expenditures		(111)		(4,261)
Net cash provided by (used in) investing activities		14,715		(16,799)
Cash flows from financing activities
Net (decrease) increase in demand deposits, interest-bearing checking, and savings accounts		(65,523)		17,029
Net increase (decrease) in time deposits		16,185		(5,002)
Net increase in short-term borrowings		50,000		—
Dividends paid		(1,405)		(1,421)
Purchase of Treasury shares		(316)		(20)
Cash received from option exercises		14		13
Treasury shares issued under dividend reinvestment plan		277		314
Net cash (used in) provided by financing activities		(768)		10,913
Increase (decrease) in cash and cash equivalents		21,664		(1,440)
Cash and cash equivalents at the beginning of the period		64,899		175,149
Cash and cash equivalents at the end of the period	$	86,563	$	173,709
Supplemental Disclosures of Cash Flow Information
Cash paid during the year for:
Interest on deposits and other borrowed funds	$	3,268	$	475
Noncash Activities
Lease liabilities arising from obtaining right-of-use assets	$	—	$	30

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

4

FRANKLIN FINANCIAL SERVICES CORPORATION and SUBSIDIARIES

UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Basis of Presentation

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

In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the consolidated financial position, results of operations, and cash flows as of March 31, 2023, 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 2022 Annual Report on Form 10-K. The consolidated results of operations for the three-month period ended March 31, 2023 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, 2022 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by GAAP for complete consolidated financial statements.

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

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

	For the Three Months Ended
	March 31,
(Dollars and shares in thousands, except per share data)	2023		2022
Weighted average shares outstanding (basic)		4,395		4,446
Impact of common stock equivalents		22		24
Weighted average shares outstanding (diluted)		4,417		4,470
Anti-dilutive options excluded from calculation		25		30
Net income	$	3,292	$	3,012
Basic earnings per share	$	0.75	$	0.68
Diluted earnings per share	$	0.75	$	0.67

‎

5

Note 2. Recent Accounting Pronouncements

Recently adopted 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) 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.
	In addition, ASC 326 made changes to the accounting for available-for-sale debt securities. One such change is to require credit losses to be presented as an allowance rather than as a write-down on available-for-sale debt securities. Management does not intend to sell or believes that it is more likely than not they will be required to sell.
	The Corporation adopted ASC 326 using the modified retrospective method for all financial assets measured at amortized cost and off-balance-sheet (OBS) credit exposures. Results for reporting periods beginning after January 1, 2023 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP.
Effective Date	January 1, 2023
Effect on the Consolidated Financial Statements	The Corporation adopted the ASU as of January 1, 2023 and recorded a decrease to the allowance for credit loss (ACL) for loans of $536 thousand, an increase of $412 thousand to the ACL for unfunded commitments, an increase of $98 thousand to retained earnings, and a deferred tax liability of $26 thousand.
	The following table illustrates the impact of ASC 326:
					As Reported		Pre-ASC		Impact of
					Under		326		ASC 326
					ASC 326		Adoption		Adoption
	(Dollars in thousands)
	Assets:
		Loans
			First liens	$	1,555	$	459	$	1,096
			Junior liens & lines of credit		727		234		493
			Construction		248		343		(95)
			Commercial real estate		8,077		7,493		584
			Commercial		2,939		4,846		(1,907)
			Consumer		93		133		(40)
			Unallocated		—		667		(667)
		Allowance for credit losses on loans		$	13,639	$	14,175	$	(536)
	Liabilities:
		Allowance for credit losses on OBS credit exposures		$	1,887	$	1,475	$	412
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 adopted the ASU on January 1, 2023 and did not elect the fair value option on any financial instruments.

6

ASU 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructuring and Vintage Disclosures
Description	ASU 2022-02 eliminates the accounting guidance for troubled debt restructurings in Accounting Standards Codification ("ASC") 310-40, "Receivables - Troubled Debt Restructurings by Creditors" for entities that have adopted the current expected credit loss model introduced by ASU 2016-13, "Financial Instrucments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments." ASU 2022-02 also required that public business entities disclosure current-period gross charge-offs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20, "Financial Instruments - Credit Losses - Measured at Amortized Cost."
Effective Date	January 1, 2023
Effect on the Consolidated Financial Statements	The Corporation adopted the standard on January 1, 2023 and it decreased the balance of loans individually evaluated by $3.0 million, and decreased the balance of performing TDR loans by the same amount.
Recently issued but not yet effective accounting standards
ASU 2023-01, Leases (Topic 842): Common Control Arrangements
Description	This ASU requires entities to determine whether a related party arrangement between entities under common control is a lease. If the arrangement is determined to be a lease, an entity must classify and account for the lease on the same basis as an arrangement with a related party (on the basis of legally enforceable terms and conditions).
Effective Date	January 1, 2024
Effect on the Consolidated Financial Statements	The ASU is not expected to have an impact on the Corporation's financial statements.
ASU 2023-02, Investments - Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proporational Amortization Method
Description	This ASU permits reporting entities to elect to account for their tax equity investments, regardless of the tax credit program from which the income tax credits are received, using the proportional amortization method if certain conditions are met.
Effective Date	January 1, 2024
Effect on the Consolidated Financial Statements	The ASU is not expected to have an impact on the Corporation's financial statements.

Note 3. Accumulated Other Comprehensive Income (Loss)

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

	March 31,		December 31,
(Dollars in thousands)	2023		2022
Net unrealized losses on debt securities	$	(52,269)	$	(61,497)
Tax effect		10,977		12,914
Net of tax amount	$	(41,292)	$	(48,583)
Accumulated pension adjustment	$	(3,423)	$	(3,423)
Tax effect		719		719
Net of tax amount	$	(2,704)	$	(2,704)
Total accumulated other comprehensive (loss)	$	(43,996)	$	(51,287)

‎

7

Note 4. Investments

Available for Sale (AFS) Securities

The amortized cost and estimated fair value of AFS securities as of March 31, 2023 and December 31, 2022 are as follows:

(Dollars in thousands)			Gross		Gross
	Amortized		unrealized		unrealized		Fair
March 31, 2023	cost		gains		losses		Value
U.S. Treasury	$	84,025	$	—	$	(9,762)	$	74,263
Municipal		170,095		—		(24,590)		145,505
Corporate		26,381		—		(2,382)		23,999
Agency mortgage & asset-backed		156,934		68		(10,910)		146,092
Non-Agency mortgage & asset-backed		72,601		28		(4,721)		67,908
Total	$	510,036	$	96	$	(52,365)	$	457,767

(Dollars in thousands)			Gross		Gross
	Amortized		unrealized		unrealized		Fair
December 31, 2022	cost		gains		losses		value
U.S. Treasury	$	101,980	$	—	$	(11,723)	$	90,257
Municipal		186,007		14		(30,566)		155,455
Corporate		26,316		—		(2,077)		24,239
Agency mortgage & asset-backed		163,274		19		(12,358)		150,935
Non-Agency mortgage & asset-backed		70,756		1		(4,807)		65,950
Total	$	548,333	$	34	$	(61,531)	$	486,836

At March 31, 2023 and December 31, 2022, the fair value of debt securities pledged to secure public funds and trust deposits totaled $147.1 million and $208.9 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 March 31, 2023, 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	$	—	$	—
Due after one year through five years		10,911		9,946
Due after five years through ten years		144,217		127,268
Due after ten years		125,373		106,553
		280,501		243,767
Mortgage & asset-backed		229,535		214,000
	$	510,036	$	457,767

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

	For the Three Months Ended
	March 31,
(Dollars in thousands)	2023		2022
Proceeds	$	32,855	$	—
Gross gains realized		12		—
Gross losses realized		(614)		—
Net (losses) gains realized	$	(602)	$	—
Tax benefit (provision) on net (losses) gains realized	$	126	$	—

8

Impairment:

The debt securities portfolio contained 571 securities with $448.6 million of temporarily impaired fair value and $52.4 million in unrealized losses at March 31, 2023. The total unrealized loss position has decreased $9.2 million since year-end 2022 due primarily to a decrease in long-term market interest rates.

AFS securities in an unrealized loss position are evaluated for credit impairment at least quarterly. For these securities, the Bank considers: (1) the extent to which the fair value is less than amortized cost; (2) adverse conditions specifically related to the security, industry or geographic area; (3) the payment structure of the debt security and the likelihood of the issuer being able to make payments that increase in the future; (4) failure of the issuer of the security to make scheduled interest or principal payments; and (5) any changes to the rating of the security by a rating agency. 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 Bank does not have the intent to sell and does not believe it will more likely than not be required to sell any of these securities prior to a recovery of their fair value to amortized cost. The impairment identified on debt securities and subject to evaluation at March 31, 2023, was determined not to be attributable to credit related factors; therefore, the Bank does not have an allowance for credit loss for these investments. During the first quarter of 2023, approximately $33 million of securities was sold as part of a portfolio restructuring to take advantage of higher market interest rates. The loss on these sales was $602 thousand.

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9

The following table reflects impairment in the AFS portfolio, aggregated by investment category, length of time that individual securities have been in a continuous unrealized loss position and the number of securities in each category as of March 31, 2023 and December 31, 2022:

	March 31, 2023
	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	$	—	$	—	—	$	74,263	$	(9,762)	28	$	74,263	$	(9,762)	28
Municipal		1,332		(171)	3		144,173		(24,419)	173		145,505		(24,590)	176
Corporate		7,462		(576)	17		16,537		(1,806)	34		23,999		(2,382)	51
Agency mortgage & asset-backed		17,046		(479)	58		124,043		(10,431)	192		141,089		(10,910)	250
Non-Agency mortgage & asset-backed		27,105		(1,416)	29		36,632		(3,305)	37		63,737		(4,721)	66
Total temporarily impaired	$	52,945	$	(2,642)	107	$	395,648	$	(49,723)	464	$	448,593	$	(52,365)	571

	December 31, 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	$	17,598	$	(183)	3	$	72,659	$	(11,540)	28	$	90,257	$	(11,723)	31
Municipal		73,644		(9,586)	90		80,503		(20,981)	104		154,147		(30,566)	194
Corporate		12,221		(851)	25		10,368		(1,226)	21		22,589		(2,077)	46
Agency mortgage & asset-backed		55,393		(2,747)	139		88,953		(9,611)	113		144,346		(12,358)	252
Non-Agency mortgage & asset-backed		49,301		(3,092)	52		14,207		(1,715)	16		63,508		(4,807)	68
Total temporarily impaired	$	208,157	$	(16,459)	309	$	266,690	$	(45,072)	282	$	474,847	$	(61,531)	591

Equity Securities at Fair Value

The Corporation owns one equity investment with a readily determinable fair value. At March 31, 2023 and December 31, 2022, this investment was reported at fair value of $387 thousand and $411 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 mortgage loans include long-term loans to individuals and businesses secured by mortgages on the borrower’s real property. 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 loans are made to businesses of various sizes for a variety of purposes including construction, property, plant and equipment, and working capital. Commercial loans also include 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, home equity 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. The Bank usually holds a first lien position on these properties but may hold a second lien position in some home equity loans or lines of credit. 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

10

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 to contractors 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 AIA documents detailing the cost incurred by the borrower, on-site inspections, and an authorizing signature for disbursement of funds.

Commercial Real Estate

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

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

Commercial

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

Commercial loans present a higher level of credit risk than other loans because repayment ability is usually dependent on cash-flow from a business operation that can be affected by general economic conditions. On most commercial loans ongoing monitoring of cash flow and other financial performance indicators occur 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:

	March 31,		December 31,
(Dollars in thousands)	2023		2022
Residential Real Estate 1-4 Family
Consumer first liens	$	93,540	$	82,795
Commercial first lien		62,569		61,702
Total first liens		156,109		144,497
Consumer junior liens and lines of credit		68,765		69,561
Commercial junior liens and lines of credit		4,358		4,127
Total junior liens and lines of credit		73,123		73,688
Total residential real estate 1-4 family		229,232		218,185
Residential real estate - construction
Consumer		9,559		13,908
Commercial		9,892		10,485
Total residential real estate construction		19,451		24,393
Commercial real estate		575,516		566,662
Commercial		247,042		235,602
Total commercial		822,558		802,264
Consumer		6,205		6,199
		1,077,446		1,051,041
Less: Allowance for credit losses		(14,109)		(14,175)
Net Loans	$	1,063,337	$	1,036,866
Included in the loan balances are the following:
Net unamortized deferred loan costs	$	1,887	$	2,027
Loans pledged as collateral for borrowings and commitments from:
FHLB	$	585,601	$	585,601
Federal Reserve Bank		91,305		92,922
	$	676,906	$	678,523
Paycheck Protection Program (included in commercial loans)	$	88	$	179

Note 6. Loan Quality and Allowance for Credit Losses

The allowance for credit losses is a valuation account that is deducted from the loans' amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off against the allowance when management believes the collectability of a loan balance is confirmed. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off.

Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience, derived from peer group data, provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in: lending policy, procedures and practice; economic conditions; nature and volume of loans; experience of lending team; volume of past due loans; quality of the loan review system; concentrations of credit; and other external factors.

‎

12

The allowance for credit losses is measured on a collective (pool) basis when similar risk characteristics exist. The Bank measures the ALC using the following inputs to calculate the quantitative component for the pool:

Segregating loans into homogeneous pools by the FRB Call Code which is primarily a collateral-based and secondarily a purpose-based segmentation.

The average remaining life of each pool is calculated using the weighted average remaining maturity method (WARM). The WARM method produces an estimated remaining balance by pool, by year, until maturity.

Using third party data, the Bank determines a reasonable and supportable economic forecast that it believes is likely to exist for the next 4 quarters.

A historical credit loss rate is calculated for each pool, using the average historical loss, by FRB Call Code, for a peer group of Pennsylvania community banks over the last eight quarters. The historical loss rate is calculated over a historical period the Bank believes best represents a period that will be similar to the next 4 quarters.

The historical peer credit loss rate is applied to each WARM bucket though the initial 4 quarter forecast period.

At the end of the forecast period, the credit loss rate applied to each WARM bucket reverts to the peer group historical loss rate for the respective pool.

Collectively these estimated losses represent the quantitative component of the pooled reserve.

This risk factor for each portfolio segment are presented in Note 6 of the accompanying financial statements.

Loans that do not share risk characteristics are evaluated on an individual basis. Loans evaluated individually are not included in the pool evaluation. When management determines that foreclosure is probable or when the borrower is experiencing financial difficulty at the reporting date and repayment is expected to be provided substantially through the sale of the collateral, the expected credit losses are based on the fair value of the collateral at the reporting date, adjusted for any discounts and selling costs as appropriate.

Management monitors loan performance on a monthly basis and performs a quarterly evaluation of the adequacy of the Allowance for Credit Loss for loans (ACL). The Bank begins enhanced monitoring of all loans rated 6–OAEM or worse and obtains a new appraisal or asset valuation for any loans 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 ACL, 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. Management monitors the adequacy of the ACL on an ongoing basis and reports its adequacy quarterly to the Board Enterprise Risk Management Committee of the Board of Directors. Management believes the ACL at March 31, 2023 is adequate.

Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate. The contractual term excludes expected extensions, renewals, and modifications unless either of the following applies: management has a reasonable expectation at the reporting date that a modification will be executed with an individual borrower or the extension or renewal options are included int eh original or modified contract at the reporting date and are not unconditionally cancellable by the Bank.

The Bank categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, and current economic trends, among other factors. 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 performing or nonperforming based on the payment status of the loans. Nonperforming consumer loans are loans that are nonaccrual or 90 days or more past due and still accruing. The Bank uses the following definitions for risk ratings:

Pass (1-5): are considered pass credits with lower or average risk and are not otherwise classified.

OAEM (6): Loans classified as OAEM have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the Company’s credit position at some future date.

13

Substandard (7): Loans classified as Substandard are inadequately protected by the current net worth and paying capacity of the borrower or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

Doubtful (8): Loans classified as Doubtful have all the weaknesses inherent in those classified as Substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.

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14

The following table presents loans by year of origination and internally assigned risk ratings:

(Dollars in thousands, except per share)													Revolving		Revolving
	Term Loans												Loans		Loans
	Amortized Cost Basis by Origination Year												Amortized		Converted
As of March 31	2023		2022		2021		2020		2019		Prior		Cost Basis		to Term		Total
Residential real estate 1-4 family:
Commercial:
Risk rating:
Pass (1-5)	$	2,581	$	9,807	$	12,658	$	10,043	$	3,045	$	25,496	$	2,202	$	975	$	66,807
OAEM (6)		—		—		—		—		—		—		—		—		—
Substandard (7)		—		—		—		—		—		—		120		—		120
Doubtful (8)		—		—		—		—		—		—		—		—		—
Total Commercial		2,581		9,807		12,658		10,043		3,045		25,496		2,322		975		66,927
Consumer:
Performing		8,073		23,784		16,757		12,274		6,032		31,690		47,025		16,566		162,201
Nonperforming		—		—		—		—		—		104		—		—		104
Total Consumer		8,073		23,784		16,757		12,274		6,032		31,794		47,025		16,566		162,305
Total	$	10,654	$	33,591	$	29,415	$	22,317	$	9,077	$	57,290	$	49,347	$	17,541	$	229,232
Residential real estate 1-4 family:
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Residential real estate construction:
Commercial:
Risk rating:
Pass (1-5)	$	594	$	2,869	$	2,316	$	238	$	731	$	3,144	$	—	$	—	$	9,892
OAEM (6)		—		—		—		—		—		—		—		—		—
Substandard (7)		—		—		—		—		—		—		—		—		—
Doubtful (8)		—		—		—		—		—		—		—		—		—
Total Commercial		594		2,869		2,316		238		731		3,144		—		—		9,892
Consumer:
Performing		82		9,477		—		—		—		—		—		—		9,559
Nonperforming		—		—		—		—		—		—		—		—		—
Total Consumer		82		9,477		—		—		—		—		—		—		9,559
Total	$	676	$	12,346	$	2,316	$	238	$	731	$	3,144	$	—	$	—	$	19,451
Residential real estate construction:
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial real estate:
Risk rating:
Pass (1-5)	$	23,385	$	113,854	$	98,742	$	329,898	$	—	$	—	$	5,686	$	—	$	571,565
OAEM (6)		—		—		—		1,089		—		—		—		—		1,089
Substandard (7)		—		—		—		2,812		—		—		50		—		2,862
Doubtful (8)		—		—		—		—		—		—		—		—		—
Total	$	23,385	$	113,854	$	98,742	$	333,799	$	—	$	—	$	5,736	$	—	$	575,516
Commercial real estate:
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial:
Risk rating:
Pass (1-5)	$	15,512	$	37,608	$	46,469	$	102,789	$	—	$	—	$	39,646	$	—	$	242,024
OAEM (6)		—		—		—		—		—		—		—		—		—
Substandard (7)		—		276		—		3,773		—		—		969		—		5,018
Doubtful (8)		—		—		—		—		—		—		—		—		—
Total	$	15,512	$	37,884	$	46,469	$	106,562	$	—	$	—	$	40,615	$	—	$	247,042
Commercial:
Current period gross charge-offs	$	(5)	$	—	$	(81)	$	—	$	—	$	—	$	—	$	—	$	(86)
Consumer:
Performing		2,324		952		534		502		—		—		1,893		—		6,205
Nonperforming		—		—		—		—		—		—		—		—		—
Total	$	2,324	$	952	$	534	$	502	$	—	$	—	$	1,893	$	—	$	6,205
Consumer:
Current period gross charge-offs	$	(13)	$	—	$	(6)	$	—	$	—	$	—	$	(15)	$	—	$	(34)

15

The following table presents the amortized cost basis of loans on nonaccrual status and loans past due over 90 days and still accruing as of March 31, 2023:

(Dollars in thousands)	Nonaccrual and Loans Past Due Over 90 Days+
					Loans Past Due
	Nonaccrual		Nonaccrual		Over 90 Days
	Without ACL		With ACL		Still Accruing
March 31, 2023
Residential Real Estate 1-4 Family
First liens	$	120	$	—	$	104
Junior liens and lines of credit		—		—		2
Total		120		—		106
Residential real estate - construction		—		—		—
Commercial real estate		—		—		—
Commercial		—		—		—
Consumer		—		—		—
Total	$	120	$	—	$	106

The following table reports the risk rating for those loans in the portfolio that were assigned an individual risk rating at December 31, 2022:

	Pass		OAEM		Substandard		Doubtful
(Dollars in thousands)	(1-5)		(6)		(7)		(8)		Total
December 31, 2022
Residential Real Estate 1-4 Family
First liens	$	144,377	$	—	$	120	$	—	$	144,497
Junior liens and lines of credit		73,688		—		—		—		73,688
Total		218,065		—		120		—		218,185
Residential real estate - construction		24,393		—		—		—		24,393
Commercial real estate		562,665		1,095		2,902		—		566,662
Commercial		228,085		2,751		4,766		—		235,602
Consumer		6,199		—		—		—		6,199
Total	$	1,039,407	$	3,846	$	7,788	$	—	$	1,051,041

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16

At March 31, 2023 and December 31, 2022, the Bank had $120 thousand of residential properties in the process of foreclosure. The following table presents the aging of payments of the loan portfolio:

(Dollars in thousands)	Loans Past Due
							Total				Total
	30-59 Days		60-89 Days		90 Days+		Past Due		Current		Loans
March 31, 2023
Residential Real Estate 1-4 Family
First liens	$	70	$	—	$	224	$	294	$	155,815	$	156,109
Junior liens and lines of credit		184		30		2		216		72,907		73,123
Total		254		30		226		510		228,722		229,232
Residential real estate - construction		—		—		—		—		19,451		19,451
Commercial real estate		195		—		—		195		575,321		575,516
Commercial		335		10		—		345		246,697		247,042
Consumer		22		31		—		53		6,152		6,205
Total	$	806	$	71	$	226	$	1,103	$	1,076,343	$	1,077,446

									Total
									Past Due &				Total
December 31, 2022	30-59 Days		60-89 Days		90 Days+		Nonaccrual		Nonaccrual		Current		Loans
Residential Real Estate 1-4 Family
First liens	$	340	$	177	$	—	$	120	$	637	$	143,860	$	144,497
Junior liens and lines of credit		490		—		—		—		490		73,198		73,688
Total		830		177		—		120		1,127		217,058		218,185
Residential real estate - construction		—		—		—		—		—		24,393		24,393
Commercial real estate		649		—		—		—		649		566,013		566,662
Commercial		681		50		—		—		731		234,871		235,602
Consumer		29		5		13		—		47		6,152		6,199
Total	$	2,189	$	232	$	13	$	120	$	2,421	$	2,434	$	1,051,041

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

	Residential Real Estate 1-4 Family
	First		Junior Liens &				Commercial
(Dollars in thousands)	Liens		Lines of Credit		Construction		Real Estate		Commercial		Consumer		Unallocated		Total
ALL at December 31, 2022	$	459	$	234	$	343	$	7,493	$	4,846	$	133	$	667	$	14,175
Impact of adopting ASU 2016-13		1,096		493		(95)		584		(1,907)		(40)		(667)		(536)
Charge-offs		—		—		—		—		(86)		(34)		—		(120)
Recoveries		2		—		39		—		67		15		—		123
Provision		67		(37)		(97)		159		355		20		—		467
ACL at March 31, 2023	$	1,624	$	690	$	190	$	8,236	$	3,275	$	94	$	—	$	14,109
ALL at December 31, 2021	$	475	$	252	$	325	$	8,168	$	5,127	$	130	$	589	$	15,066
Charge-offs		(20)		—		—		—		(1)		(24)		—		(45)
Recoveries		15		1		—		—		5		8		—		29
Provision		10		—		4		(206)		52		11		129		—
ALL at March 31, 2022	$	480	$	253	$	329	$	7,962	$	5,183	$	125	$	718	$	15,050

17

The following table presents, by class, loans that were evaluated for the ACL under the specific reserve (individually) and those that were evaluated under the general reserve (collectively) and the amount of the ACL established in each class as of December 31, 2022:

	Residential Real Estate 1-4 Family
	First		Junior Liens &				Commercial
(Dollars in thousands)	Liens		Lines of Credit		Construction		Real Estate		Commercial		Consumer		Unallocated		Total
December 31, 2022
Loans evaluated for ALL:
Individually	$	619	$	—	$	—	$	2,331	$	—	$	—	$	—	$	2,950
Collectively		143,878		73,688		24,393		564,331		235,602		6,199		—		1,048,091
Total	$	144,497	$	73,688	$	24,393	$	566,662	$	235,602	$	6,199	$	—	$	1,051,041
ALL established for ‎  loans evaluated:
Individually	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Collectively		459		234		343		7,493		4,846		133		667		14,175
ALL at December 31, 2022	$	459	$	234	$	343	$	7,493	$	4,846	$	133	$	667	$	14,175

At March 31, 2023, there were no loans evaluated individually for the ACL.

On January 1, 2023, The Bank adopted ASU 2022-02, “Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures” (“ASU 2022-02”), which eliminated the accounting guidance for troubled debt restructurings (“TDRs”) while enhancing disclosure requirements for certain loan refinancing and restructurings by creditors when a borrower is experiencing financial difficulty. Modifications to borrowers experiencing financial difficulty may include interest rate reductions, principal or interest forgiveness, forbearances, term extensions, and other actions intended to minimize economic loss and to avoid foreclosure or repossession of collateral.

As of March 31, 2023, the Bank did not have any loans made to borrowers experiencing financial difficulties and there were no loans modifications made to borrowers experiencing financial difficulties during the first quarter of 2023.

Prior to the adoption of ASU 2022-02, certain modified loans were reported as TDRs and impaired. The following table presents impaired loans as of December 31, 2022.

	Impaired Loans
	With No Allowance				With Allowance
(Dollars in thousands)			Unpaid				Unpaid
	Recorded		Principal		Recorded		Principal		Related
December 31, 2022	Investment		Balance		Investment		Balance		Allowance
Residential Real Estate 1-4 Family
First liens	$	619	$	619	$	—	$	—	$	—
Junior liens and lines of credit		—		—		—		—		—
Total		619		619		—		—		—
Residential real estate - construction		—		—		—		—		—
Commercial real estate		2,331		2,331		—		—		—
Commercial		—		—		—		—		—
Total	$	2,950	$	2,950	$	—	$	—	$	—

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The following table presents TDR loans as of December 31, 2022:

								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
December 31, 2022
Residential real estate - construction	—	$	—	$	—	$	—	—	$	—
Residential real estate	5		619		619		—	—		—
Commercial real estate - owner occupied	3		783		783		—	—		—
Commercial real estate - farm land	3		1,466		1,466		—	—		—
Commercial real estate - construction and land development	—		—		—		—	—		—
Commercial real estate - other	1		82		82		—	—		—
Total	12	$	2,950	$	2,950	$	—	—	$	—
*The performing status is determined by the loans compliance with the modified terms. Nonperforming is considered 90 days or more past due.

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 ‎March 31,
(Dollars in thousands)	2023		2022
Operating lease cost	$	211	$	173
Short-term lease cost		4		123
Variable lease cost		36		25
Total lease cost	$	251	$	321

Supplemental Lease Information:

	Three Months Ended ‎March 31,
(Dollars in thousands)	2023		2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	206	$	166
Weighted-average remaining lease term (years)		11.8		10.8
Weighted-average discount rate		3.38%		3.37%

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Lease Obligations:

Future undiscounted lease payments for operating leases with initial terms of one year or more as of March 31, 2023 are as follows:

(Dollars in thousands)
2023	$	624
2024		804
2025		752
2026		650
2027		507
2027 and beyond		4,084
Undiscounted cash flow		7,421
Imputed Interest		(1,422)
Total lease liability	$	5,999

Note 8. Other Real Estate Owned

The Bank had no other real estate owned at March 31, 2023 and December 31, 2022.

Note 9. Derivatives

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

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

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

		Fair Value of Derivative Instruments
		Derivative Liabilities
(Dollars in thousands)		March 31, 2023					December 31, 2022
		Notional amount	Balance Sheet Location		Fair Value		Notional amount	Balance Sheet Location		Fair Value
Derivatives not designated as hedging instruments
Other Contracts	$	6,416	Other Liabilities	$	4	$	6,465	Other Liabilities	$	3
Total derivatives not designated as hedging instruments				$	4				$	3

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
		March 31, 2023		March 31, 2022
Other Contracts	Other income	$	(1)	$	8

As of March 31, 2023, 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
	March 31,
(Dollars in thousands)	2023		2022
Components of net periodic cost:
Service cost	$	54	$	86
Interest cost		202		168
Expected return on plan assets		(231)		(249)
Recognized net actuarial loss		—		150
Total pension expense	$	25	$	155

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.

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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.

Collateral Dependent Loans: The fair value of collateral dependent loans with specific allocations of the allowance for credit 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. Collateral dependent loans are evaluated on a quarterly basis for additional impairment and adjusted in accordance with the allowance policy. No partial charge-offs on these loans was taken in the first quarter of 2023. Collateral dependent loans are measured at fair value on a nonrecurring basis.

Recurring Fair Value Measurements

For financial assets and liabilities measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used at March 31, 2023 and December 31, 2022 are as follows:

(Dollars in thousands)	Fair Value at March 31, 2023
Asset Description	Level 1		Level 2		Level 3		Total
Equity securities, at fair value	$	387	$	—	$	—	$	387
Available for sale:
U.S. Treasury		74,263		—		—		74,263
Municipal		—		145,505		—		145,505
Corporate		—		23,999		—		23,999
Agency mortgage & asset-backed		—		146,092		—		146,092
Non-Agency mortgage & asset-backed		—		67,908		—		67,908
Total assets	$	74,650	$	383,504	$	—	$	458,154

(Dollars in thousands)	Fair Value at December 31, 2022
Asset Description	Level 1		Level 2		Level 3		Total
Equity securities, at fair value	$	411	$	—	$	—	$	411
Available for sale:
U.S. Treasury		90,257		—		—		90,257
Municipal		—		155,455		—		155,455
Corporate		—		24,239		—		24,239
Agency mortgage and asset-backed		—		150,935		—		150,935
Non-Agency mortgage and asset-backed		—		65,950		—		65,950
Total assets	$	90,668	$	396,579	$	—	$	487,247

The fair value of derivative liabilities measured at fair value at March 31, 2023 and December 31, 2022 was $4 thousand and $3 thousand, respectively, and was considered immaterial.

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Nonrecurring Fair Value Measurements

The Corporation did not record any assets or liabilities at fair value for which measurement of the fair value was made on a nonrecurring basis at March 31, 2023. For financial assets and liabilities measured at fair value on a recurring basis, there were no transfers of financial assets or liabilities between Level 1 and Level 2 during the period ending March 31, 2023.

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

	March 31, 2023
	Carrying		Fair
(Dollars in thousands)	Amount		Value		Level 1		Level 2		Level 3
Financial assets, carried at cost:
Cash and cash equivalents	$	86,563	$	86,563	$	86,563	$	—	$	—
Long-term interest-bearing deposits in other banks		9,477		9,477		9,477		—		—
Loans held for sale		—		—		—		—		—
Net loans		1,063,337		1,025,387		—		—		1,025,387
Accrued interest receivable		5,784		5,784		—		—		5,784
Financial liabilities:
Deposits	$	1,502,110	$	1,501,309	$	—	$	1,501,309	$	—
Short-term borrowings		50,000		50,000		—		50,000		—
Subordinate notes		19,635		18,167		—		18,167		—
Accrued interest payable		670		670		—		670		—
	December 31, 2022
	Carrying		Fair
(Dollars in thousands)	Amount		Value		Level 1		Level 2		Level 3
Financial assets, carried at cost:
Cash and cash equivalents	$	64,899	$	64,899	$	64,899	$	—	$	—
Long-term interest-bearing deposits in other banks		13,975		13,975		13,975		—		—
Loans held for sale		283		287		—		287		—
Net loans		1,036,866		986,141		—		—		986,141
Accrued interest receivable		6,354		6,354		—		—		6,354
Financial liabilities:
Deposits	$	1,551,448	$	1,550,030	$	—	$	1,550,030	$	—
Subordinate notes		19,623		17,876		—		17,876		—
Accrued interest payable		192		192		—		192		—

Note 12. Deposits

	March 31,		December 31,			Change
(Dollars in thousands)	2023		2022			Amount	%
Noninterest-bearing checking	$	298,008	$	299,231	$	(1,223)	(0.4)
Interest-bearing checking		461,228		496,533		(35,305)	(7.1)
Money management		544,379		569,585		(25,206)	(4.4)
Savings		124,920		128,709		(3,789)	(2.9)
Total interest-bearing checking and savings		1,130,527		1,194,827		(64,300)	(5.4)
Time deposits		73,575		57,390		16,185	28.2
Total deposits	$	1,502,110	$	1,551,448	$	(49,338)	(3.2)
Overdrawn deposit accounts reclassified as loans	$	79	$	103

23

Time deposits greater than $250,000 at March 31, 2023 and December 31, 2022 were $11.7 million and $8.8 million, respectively.

Note 13. Borrowings

At March 31, 2023, the Bank had $50.0 million borrowed from the Federal Reserve’s Bank Term Funding Program (BTFP) to temporarily support its liquidity position. This borrowing has a rate of 4.38% and is due March 22, 2024. At March 31, 2023, the fair value of debt securities pledged for the BTFP was $72.0 million.

At March 31, 2023, 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 $365 thousand at March 31, 2023, which is being amortized on a pro-rata basis, based on the maturity date 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 3

Note 14. 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 March 31, 2023 was 7.99% 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 March 31, 2023, 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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24

The following table summarizes the regulatory capital requirements and results as of March 31, 2023 and December 31, 2022 for the Corporation and the Bank:

			Regulatory Ratios
			Adequately	Well
	March 31,	December 31,	Capitalized	Capitalized
(Dollars in thousands)	2023	2022	Minimum	Minimum
Common Equity Tier 1 Risk-based Capital Ratio (1)
Franklin Financial Services Corporation	14.24%	14.22%	N/A	N/A
Farmers & Merchants Trust Company	14.74%	14.63%	4.50%	6.50%
Tier 1 Risk-based Capital Ratio (2)
Franklin Financial Services Corporation	14.24%	14.22%	N/A	N/A
Farmers & Merchants Trust Company	14.74%	14.63%	6.00%	8.00%
Total Risk-based Capital Ratio (3)
Franklin Financial Services Corporation	17.21%	17.21%	N/A	N/A
Farmers & Merchants Trust Company	15.99%	15.88%	8.00%	10.00%
Tier 1 Leverage Ratio (4)
Franklin Financial Services Corporation	9.58%	8.95%	N/A	N/A
Farmers & Merchants Trust Company	9.92%	9.21%	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

Note 15. 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 $1.6 million for the first quarter of 2023, compared to $1.6 million in the first quarter of 2022.

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 $92 thousand for the first quarter of 2023, compared to $173 thousand in the first quarter of 2022.

Commissions from the sale of investment and insurance products are recognized upon the completion of the transaction. Commissions recognized were $105 thousand for the first quarter of 2023, compared to $31 thousand for the first quarter of 2022.

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.

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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.

1Note 16. Commitments and Contingencies

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

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

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

	March 31,		December 31,
(Dollars in thousands)	2023		2022
Financial instruments whose contract amounts represent credit risk
Commercial commitments to extend credit	$	303,262	$	275,867
Consumer commitments to extend credit (secured)		92,054		93,124
Consumer commitments to extend credit (unsecured)		4,936		5,247
	$	400,252	$	374,238
Standby letters of credit	$	27,819	$	30,734

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

26

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.

On January 1, 2023, the Corporation adopted ASU 2016-13 Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, referred to as the current expected credit loss (CECL) methodology. Upon adoption, $412 thousand was added to the allowance for credit losses (ACL) – unfunded commitments. For the first quarter of 2023, a provision for credit losses-unfunded commitments was recorded and added to the ACL. At March 31, 2023, the ACL-unfunded commitments was $1.9 million compared to $1.5 million at December 31, 2022. The ACL-unfunded commitments is reported in Other Liabilities on the Consolidated Balance Sheet.

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.

Legal Proceedings

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

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

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

In management’s opinion, the Corporation does not anticipate, at the present time, that the ultimate aggregate liability, if any, arising out of all litigation to which the Corporation is a party at this time will have a material adverse effect on its financial position. The Corporation cannot now determine, however, whether or not any claim asserted against it will have a material adverse effect on its results of operations in any future reporting period, which will depend on, among other things, the amount of loss resulting from the claim and the amount of income otherwise reported for the reporting period. Thus, at March 31, 2023, 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 17. 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.

‎

27

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

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

For the Three Months Ended March 31, 2023 and 2022

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, changes in the rates of inflation and the effects of inflation, changes in interest rates, ongoing disruption in the financial services industry caused by the recent failure and continuous instability of certain banks, 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.

On January 1, 2023, the Corporation adopted ASU 2016-13 Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, as amended, which replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (CECL) methodology. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities. It also applies to off-balance sheet credit commitments not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in leases recognized by a lessor in accordance with Topic 842 on leases.

The Company adopted ASC 326 using the modified retrospective method for all financial assets measured at amortized cost, and unfunded credit exposures. Results for reporting periods beginning after January 1, 2023 are presented under ASC 326 while prior period amounts continue to be reported in accordance with the previously applicable incurred loss methodology.

The Corporation has determined this accounting policy to be critical to the results of operations. A summary of the adoption of the new ASU follows:

Investment Securities – Management classifies its debt securities at the time of purchase as available for sale (AFS) or held to maturity (HTM). At March 31, 2023 and December 31, 2022, all debt securities were classified as available for sale, meaning that the Corporation intends to hold them for an indefinite period of time, but not necessarily to maturity. Available for sale debt securities are stated at estimated fair value, adjusted for amortization of premiums and accretion of discounts which are recognized as adjustments of interest income through call date or maturity. The related unrealized gains and losses are reported as other comprehensive income or loss, net of tax, until realized.

With the adoption of CECL on January 1, 2023, the previous concept of other-than-temporary impairment for AFS securities has been eliminated. Under CECL, credit losses on AFS debt securities are recognized in (Allowance for Credit Losses) ACL for investments, through the provision for credit losses, rather than through a direct write-down of the security. In evaluating AFS securities for credit losses, Management considers factors such as delinquency, guarantees, invest grade rating, and specific conditions related to a specific security or industry. If an impaired debt security is sold, any previous ACL on that security is charged-off and any incremental loss will be recognized through earnings. Any improvement in expected credit losses will be recognized by reducing the ACL.

For HTM securities an estimate of current expected credit loss must be established at the time of purchase with changes in estimated credit loss recognized in the ACL through the provision for credit losses.

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Prior to January 1, 2023, declines in the fair value of securities was recorded under the other-than-temporary impairment concept more fully described in the Corporation’s report on Form 10-K as of December 31, 2022.

Realized securities gains and losses are computed using the specific identification method. Gains or losses on the disposition of debt investment securities are recorded on the trade date, based on the net proceeds and the adjusted carrying amount of the specific security sold. Equity investments are carried at fair value with changes in fair value recognized in net income.

Allowance for Credit Losses – Loans

The ACL for loans is established through provisions for credit losses charged against income. Loans deemed to be uncollectible are charged against the ACL, and subsequent recoveries, if any, are credited to the ACL.

The ACL for loans is an estimate of the losses expected to be realized over the life of the loan portfolio. The ACL is determined for two distinct categories of loans: 1) loans evaluated individually for expected credit losses (specific reserve), and 2) loans evaluated collectively for expected credit losses (pooled reserve). Management’s periodic evaluation of the adequacy of the ACL for loans is based on the Bank’s past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions, diversification of the loan portfolio, delinquency statistics, results of internal loan reviews, borrowers’ actual or perceived financial and managerial strengths, and other relevant factors. This evaluation is inherently subjective, as it requires material assumptions and estimates that may be susceptible to significant change, including the amounts and timing of future cash flows expected to be received on impaired loans.

Loans evaluated individually for credit losses are primarily commercial purpose loans that do not share similar characteristics with those loans evaluated in the pool. These loans may exhibit performance characteristics where it is probable that the Bank will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. All commercial purpose loans greater than $250 thousand and rated Substandard (7), Doubtful (8) or on nonaccrual status may be considered for individual evaluation. Impairment is measured on a loan-by-loan basis by one of the following methods: the fair value of the collateral if the loan is collateral dependent, the present value of expected future cash flows discounted at the loan’s effective interest rate or the loan’s obtainable market price. Commercial purpose loans with a balance less than $250 thousand, and consumer purpose loans are not evaluated individually for a specific reserve but are included in the pooled reserve calculation. Loans that are evaluated for a specific reserve, but not needing a specific reserve are not included in the pooled reserve calculation.

The Corporation has elected to exclude accrued interest receivable from the measurement of the ACL. When a loan is placed on nonaccrual status, any outstanding accrued interest is reversed against income. In addition, ASC 326 made changes to the accounting for available-for-sale debt securities. One such change is to require credit losses to be presented as an allowance rather than as a write-down on available-for-sale debt securities management does not intend to sell or believes that it is more likely than not they will be required to sell.

The pooled reserve represents the ACL for pools of homogenous loans, not evaluated individually. The pooled reserve is calculated using a quantitative and qualitative component for the loan pools.

The following inputs are used to calculate the quantitative component for the pool:

Segregating loans into homogeneous pools by the FRB Call Code which is primarily a collateral-based and secondarily a purpose-based segmentation.

The average remaining life of each pool is calculated using the weighted average remaining maturity method (WARM). The WARM method produces an estimated remaining balance by pool, by year, until maturity.

Using third party data, the Bank determines a reasonable and supportable economic forecast that it believes is likely to exist for the next 4 quarters.

A historical credit loss rate is calculated for each pool, using the average historical loss, by FRB Call Code, for a peer group of Pennsylvania community banks over the last eight quarters. The historical loss rate is calculated over a historical period the Bank believes best represents a period that will be similar to the next 4 quarters.

The historical peer credit loss rate is applied to each WARM bucket though the initial 4 quarter forecast period.

At the end of the forecast period, the credit loss rate applied to each WARM bucket reverts to the peer group historical loss rate for the respective pool.

Collectively these estimated losses represent the quantitative component of the pooled reserve.

The qualitative component for the pool utilizes a risk matrix comprised of eight risk factors and assigns a risk level to each factor. The risk factors give consideration to changes in: lending policy, procedures and practice; economic

29

conditions; nature and volume of loans; experience of lending team; volume of past due loans; quality of the loan review system; concentrations of credit; and other external factors. The risk levels are measured in basis points and range from minimal risk (0 basis points) to very high risk (20 basis points); and collectively range from 0 to 160 basis points. The qualitative risk level is determined independently for commercial loans, residential mortgage loans and consumer loans.

The ACL for pooled loans is the sum of the quantitative and qualitative loss estimates.

Allowance for Credit Losses – Unfunded Commitments

The ACL for unfunded commitments is recorded in other liabilities on the consolidated balance sheet. The ACL represents management’s estimate of expected losses from unfunded commitments and is determined by estimating future usage of the commitments, based on historical usage. The estimated loss is calculated in a manner similar to that used for the ACL for loans, previously described. The ACL is increased or decreased through the provision for credit losses.

There were no other changes to the critical accounting policies disclosed in the 2022 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 2022 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 $3.3 million ($0.75 per diluted share) for the first quarter of 2023 compared to $3.0 million ($0.67 per diluted share) for the same period in 2022.

A summary of operating results for the first quarter of 2023 are as follows:

Net interest income was $12.8 million for the first quarter of 2023 compared to $10.8 million for the first quarter of 2022. The net interest margin increased to 3.41% for the first quarter of 2023 from 2.66% for the same quarter of the prior year. The increase in the 2023 net interest margin was due primarily to an increase in the yield on earning assets from 2.83% in 2022 to 4.38% in 2023 as all asset classes had higher yields in 2023. The cost of interest-bearing deposits rose from .15% in the first quarter of 2022 to 1.14% for the first quarter of 2023. Likewise, the total cost of deposits increased from 0.12% for the first quarter of 2022 to 0.92% for the first quarter of 2023 and was 1.02% as of March 31, 2023.
‎ 

Average earning assets for 2023 were $1.7 billion compared to $1.8 billion in 2022, a decrease of 5.5%. In 2023, the average balance of interest-earning cash balances decreased $114.3 million (72.3%), to support loan growth and to offset a decrease in average deposits during the year. The average balance of the investment portfolio decreased $55.4 million (10.5%), and the average balance of the loan portfolio increased $48.6 million (4.9%), over the prior year averages. Within the loan portfolio, average commercial loan balances increased $28.1 million during the year and residential mortgages increased $20.9 million. Total deposits averaged $1.5 billion for 2023, a decrease of $72.3 million (4.6%) over the average balance for 2022, reflecting deposit reductions of more than $64 million in December 2022. All deposit categories reported a year-over-year decrease in average balances, except for savings deposits. 
‎

On January 1, 2023, the Bank adopted a new accounting standard for the calculation of its allowance for credit losses (ACL), referred to as the current expected credit loss (CECL) model. Upon adoption, the Bank recorded a decrease of $536 thousand to the ACL for loans, an increase of $411 thousand to the ACL for unfunded commitments (carried in Other Liabilities on the consolidated balance sheet), and an increase of $98 thousand to retained earnings, and a deferred tax liability of $26 thousand. The provision for credit losses for the first quarter of 2023 was calculated using the CECL model and methodology, while the provision for loan losses for the first quarter of 2022 was calculated under the previous methodology in accordance with GAAP. For the first quarter of 2023, the provision for credit losses was $592 thousand allocated between the provision for loans of $467 thousand and the provision for unfunded commitments of $62 thousand. The provision for loan loss expense for the first quarter of 2022 was $0. The ACL ratio for loans was 1.31% at March 31, 2023 compared to 1.35% at December 31, 2022. The ACL for unfunded commitments was $1.9 million compared to $1.5 million at December 31, 2022.
‎ 

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Noninterest income totaled $3.2 million for the first quarter of 2023 compared to $3.9 million in the first quarter of 2022 (a decrease of 17.0%) and $3.6 million for the fourth quarter of 2022. The decrease year-over-year was due to a decrease of $181 thousand in gains on sale of mortgages and losses on the sale of investment securities of $602 thousand taken as part of a portfolio restructuring. The changes were partially offset by an increase of $186 thousand in loan service charges.

Noninterest expense for the first quarter of 2023 was $12.0 million compared to $11.3 million in the first quarter of 2022 (an increase of 6.7%) and $13.2 million for the fourth quarter of 2022. Contributing to the year-over-year increase was an increase of $570 thousand in salaries and benefits (primarily salaries due to a highly competitive labor market) and net occupancy increased $136 thousand from costs associated with the new headquarters and operations center that was put in service in July 2022. 

The effective federal income tax rate was 6.3% for the first quarter of 2023 and reflects the benefit of a $280 thousand tax credit that was recorded during the quarter. Without the tax credit, the effective rate would have been 14.3%.
‎ 

Total assets at March 31, 2023 were $1.7 billion unchanged from December 31, 2022; however, the composition of the balance sheet changed since year-end. Significant balance sheet changes since December 31, 2022, include:  

Short-term interest-earning deposits in other banks increased $21.6 million (45.9%) and the investment portfolio decreased $29.1 million (6.0%). Approximately $33 million of investments were sold during the quarter as part of a portfolio restructuring to take advantage of higher market interest rates.
‎ 

The net loan portfolio increased $26.4 million (2.5%) over the year-end 2022 balance, primarily from an increase in commercial purpose loans of $31.5 million from year-end 2022.

Deposits decreased $49.3 million (3.2%) over year-end 2022, primarily from a decrease in interest-bearing checking and money management accounts, that was partially offset by an increase in time deposits. The largest decrease occurred in municipal accounts, reversing much of the growth in these account deposits that occurred during 2022 as some accounts sought higher yielding products. Time deposits showed an increase of $16.2 million due to the addition of $8.6 million in brokered CDs and retail depositors seeking higher rates. The Bank’s cost of deposits has increased from .64% at December 31, 2022 to 1.02% at March 31, 2023. At March 31, 2023, the Bank estimated that approximately 92% of its deposits were FDIC insured or collateralized.  

At March 31, 2023, the Bank had borrowed $50.0 million from the Federal Reserve through the Bank Term Funding Program (BTFP) to temporarily support its liquidity position. The Bank has additional funding capacity in the BTPF, the Federal Reserve Discount Window and the Federal Home Loan Bank.
‎ 

Shareholders’ equity increased $9.4 million from December 31, 2022. Retained earnings increased $2.0 million in 2023 and accumulated other comprehensive income (AOCI) increased $7.3 million as the fair value of the investment portfolio increased during the year. At March 31, 2023, the book value of the Corporation’s common stock was $28.07 per share and the tangible book value was $26.02 per share. In December 2022, an open market repurchase plan was approved to repurchase 150,000 shares over a one-year period and 8,752 shares have been repurchased in 2023 and 11,600 shares have been repurchased under the approved plan as of March 31, 2023. The Bank is considered to be well- capitalized under regulatory guidance as of March 31, 2023.

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31

Key performance ratios as of, or for the three months ended March 31, 2023 and 2022 and the year ended December 31, 2022 are listed below:

	March 31,		December 31,		March 31,
(Dollars in thousands, except per share)	2023		2022		2022
Balance Sheet Highlights
Total assets	$	1,711,285	$	1,699,579	$	1,767,061
Investment and equity securities		458,154		487,247		511,969
Loans, net		1,063,337		1,036,866		985,927
Deposits		1,502,110		1,551,448		1,596,386
Shareholders' equity		123,583		114,197		137,136
Summary of Operations
Interest income	$	16,583	$	56,449	$	11,534
Interest expense		3,746		4,863		726
Net interest income		12,837		51,586		10,808
Provision for credit losses		529		650		—
Net interest income after provision for loan losses		12,308		50,936		10,808
Noninterest income		3,225		15,250		3,884
Noninterest expense		12,019		48,691		11,266
Income before income taxes		3,514		17,495		3,426
Federal income tax expense		222		2,557		414
Net income	$	3,292	$	14,938	$	3,012
Performance Measurements
Return on average assets*		0.80%		0.83%		0.69%
Return on average equity*		11.33%		11.64%		7.96%
Return on average tangible equity (1)*		12.11%		12.52%		8.47%
Efficiency ratio (1)		72.02%		71.21%		75.50%
Net interest margin*		3.41%		3.11%		2.66%
Shareholders' Value (per common share)
Diluted earnings per share	$	0.75	$	3.36	$	0.67
Basic earnings per share		0.75		3.38		0.68
Regular cash dividends declared		0.96		1.28		0.93
Book value		28.07		26.01		30.77
Tangible book value (1)		26.02		23.96		28.75
Market value		29.64		36.10		33.58
Market value/book value ratio		105.59%		138.79%		109.13%
Market value/tangible book value ratio		113.91%		150.67%		116.82%
Price/earnings multiple*		9.88		10.74		12.53
Current quarter dividend yield		4.32%		3.55%		3.81%
Dividend payout ratio year-to-date		42.68%		37.88%		47.18%
Safety and Soundness
Average equity/average assets		7.09%		7.17%		8.60%
Risk-based capital ratio (Total)		17.21%		17.21%		18.09%
Leverage ratio (Tier 1)		9.58%		8.95%		8.59%
Common equity ratio (Tier 1)		14.24%		14.22%		14.94%
Nonperforming loans / gross loans		0.02%		0.01%		0.74%
Nonperforming assets/total assets		0.01%		0.01%		0.42%
Allowance for credit losses as a % of loans		1.31%		1.35%		1.50%
Net loans (charged-off) recovered / average loans*		0.00%		-0.15%		-0.01%
Assets under Management
Trust assets under management (fair value)	$	942,025	$	904,317	$	920,597
Held at third-party brokers (fair value)		124,483		116,398		111,742

*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 three months ended March 31, 2023 and 2022 and the year ended December 31, 2022.

(Dollars in thousands, except per share)
	March 31, 2023		December 31, 2022		March 31, 2022
Return on Tangible Equity (non-GAAP)
Net income	$	3,292	$	14,938	$	3,012
Average shareholders' equity		117,785		128,283		151,290
Less average intangible assets		(9,016)		(9,016)		(9,016)
Average tangible equity (non-GAAP)		108,769		119,267		142,274
Return on average tangible equity (non-GAAP)*		12.11%		12.52%		8.47%
Tangible Book Value (per share) (non-GAAP)
Shareholders' equity	$	123,583	$	114,197	$	137,136
Less intangible assets		(9,016)		(9,016)		(9,016)
Tangible book value (non-GAAP)		114,567		105,181		128,120
Shares outstanding (in thousands)		4,403		4,390		4,457
Tangible book value per share (non-GAAP)	$	26.02	$	23.96	$	28.75
Efficiency Ratio
Noninterest expense	$	12,019	$	48,691	$	11,266
Net interest income		12,837		51,586		10,808
Plus tax equivalent adjustment to net interest income		—		1,381		240
Plus noninterest income, net of securities transactions		3,851		15,410		3,873
Total revenue		16,688		68,377		14,921
Efficiency ratio (Noninterest expense/total revenue)		72.02%		71.21%		75.50%
* Year-to-date annualized

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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.

34

Comparison of the three months ended March 31, 2023 to the three months ended March 31, 2022:

Tax equivalent net interest income increased $2.1 million to $13.1 million in the first quarter of 2023 compared to $11.0 million for the same period in 2022. Balance sheet volume contributed $44 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 classified by type of collateral and residential loans include commercial purpose loans 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 March 31,
	2023					2022
	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	$	43,684	$	423	3.92%	$	157,942	$	98	0.25%
Investment securities:
Taxable		407,326		3,459	3.44%		434,489		1,844	1.72%
Tax exempt		63,309		461	2.95%		91,594		615	2.72%
Investments		470,635		3,920	3.38%		526,083		2,459	1.90%
Loans:
Residential real estate 1-4 family:
First liens		150,276		1,614	4.36%		134,206		1,302	3.93%
Junior liens and lines of credit		72,930		925	5.14%		71,470		417	2.37%
Residential real estate - construction		24,408		307	5.09%		21,308		185	3.52%
Commercial real estate		563,219		6,931	4.99%		522,389		4,886	3.79%
Commercial		233,246		2,651	4.61%		246,041		2,327	3.84%
Consumer		6,111		123	8.15%		6,132		100	6.61%
Loans		1,050,190		12,551	4.85%		1,001,546		9,217	3.73%
Total interest-earning assets		1,564,509	$	16,894	4.38%		1,685,571	$	11,774	2.83%
Other assets		96,643					72,830
Total assets	$	1,661,152				$	1,758,401
Interest-bearing liabilities:
Deposits:
Interest-bearing checking	$	470,061	$	410	0.35%	$	509,049	$	142	0.11%
Money Management		557,551		2,739	1.99%		580,399		231	0.16%
Savings		126,898		48	0.15%		123,150		17	0.06%
Time		62,212		232	1.52%		72,416		73	0.41%
Total interest-bearing deposits		1,216,722		3,429	1.14%		1,285,014		463	0.15%
Subordinated notes		19,626		266	5.42%		19,592		263	5.37%
Short-term borrowings		4,667		51	4.40%		—		—	-
Total interest-bearing liabilities		1,241,015		3,746	1.22%		1,304,606		726	0.23%
Noninterest-bearing deposits		288,004					292,041
Other liabilities		14,348					10,464
Shareholders' equity		117,785					151,290
Total liabilities and shareholders' equity	$	1,661,152				$	1,758,401
T/E net interest income/Net interest margin				13,148	3.41%				11,048	2.66%
Tax equivalent adjustment				(311)					(240)
Net interest income			$	12,837				$	10,808
Net Interest Spread					3.16%					2.60%
Cost of Funds					0.99%					0.18%
Cost of Deposits					0.92%					0.12%

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Provision for Credit Losses

For the first quarter of 2023, the provision for credit losses was $592 thousand allocated between the provision for loans of $467 thousand and the provision for unfunded commitments of $62 thousand. The provision for loan loss expense for the first quarter of 2022 was $0. The ACL ratio for loans was 1.31% at March 31, 2023 compared to 1.35% at December 31, 2022. The ACL for unfunded commitments was $1.9 million compared to $1.5 million at December 31, 2022. For more information refer to the Loan Quality and Allowance for Credit Losses discussion in the Financial Condition section.

Noninterest Income

For the first quarter of 2023, noninterest income decreased $659 thousand from the same period in 2022. Loan service charges increased but was offset by a decrease in gains on sale of loans as the volume of mortgages sold decreased. Losses on the sale of investment securities of $602 thousand were taken as part of a portfolio restructuring.

The following table presents a comparison of noninterest income for the three months ended March 31, 2023 and 2022:

	For the Three Months Ended
	March 31,				Change
(Dollars in thousands)	2023		2022		Amount		%
Noninterest Income
Investment and trust services fees	$	1,834	$	1,828	$	6	0.3
Loan service charges		302		116		186	160.3
Gain on sale of loans		73		254		(181)	(71.3)
Deposit service charges and fees		583		623		(40)	(6.4)
Other service charges and fees		432		412		20	4.9
Debit card income		502		458		44	9.6
Increase in cash surrender value of life insurance		108		108		—	—
Net (losses) gains on sales of debt securities		(602)		—		(602)	NA
Change in fair value of equity securities		(24)		11		(35)	(318.2)
Other		17		74		(57)	(77.0)
Total noninterest income	$	3,225	$	3,884	$	(659)	(17.0)

Noninterest Expense

Noninterest expense for the first quarter of 2023 increased $753 thousand compared to the same period in 2022. Salary expense increased primarily due to a highly competitive labor market, while net occupancy increased from costs associated with the new headquarters and operations center that was put in service in July 2022.

The following table presents a comparison of noninterest expense for the three months ended March 31, 2023 and 2022:

	For the Three Months Ended
(Dollars in thousands)	March 31,				Change
Noninterest Expense	2023		2022		Amount		%
Salaries and benefits	$	6,936	$	6,347	$	589	9.3
Net occupancy		1,110		974		136	14.0
Marketing and advertising		519		497		22	4.4
Legal and professional		552		515		37	7.2
Data processing		1,060		1,137		(77)	(6.8)
Pennsylvania bank shares tax		223		143		80	55.9
FDIC insurance		182		183		(1)	(0.5)
ATM/debit card processing		294		346		(52)	(15.0)
Telecommunications		100		92		8	8.7
Nonservice pension		(29)		69		(98)	(142.0)
Other		1,072		963		109	11.3
Total noninterest expense	$	12,019	$	11,266	$	753	6.7

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Provision for Income Taxes

For the first quarter of 2023, the Corporation recorded a Federal income tax expense of $222 thousand compared to $414 thousand for the same quarter in 2022. The effective tax rate for the first quarter of 2023 was 6.3% and reflects the benefit of a $280 thousand tax credit recorded during the quarter. Without the tax credit, the effective rate would have been 14.3% compared to 12.1% for the first quarter of 2022. The federal statutory tax rate is 21% for 2023 and 2022.

Financial Condition

Cash and Cash Equivalents:

Cash and cash equivalents totaled $86.6 million at March 31, 2023, an increase of $21.7 million from the prior year-end balance of $64.9 million. Short-term interest-earning deposits are held primarily at the Federal Reserve ($68.1 million).

Investment Securities:

AFS Securities: The AFS securities portfolio has decreased $38.3 million on an amortized cost basis since year-end 2022. The portfolio is comprised primarily of mortgage and asset-backed securities issued by U.S. Agencies and municipal securities at approximately 32% and 32% of the portfolio fair value, respectively. The weighted average life of the portfolio was 5.6 years and the effective duration is 4.40%.

The AFS securities portfolio had a net unrealized loss of $52.3 million at March 31, 2023 compared to a net unrealized loss of $61.5 million at the prior year-end. This change was primarily due to a decrease in long-term market interest rates. The portfolio averaged $470.6 million with a tax-equivalized yield of 3.38% for the three months ended March 31, 2023. This compares to an average of $526.1 million and a tax-equivalized yield of 1.90% for the same period in 2022. Impairment in the investment portfolio, measured by gross unrealized losses, was $52.4 million, compared to $61.5 million at December 31, 2022.

The municipal bond portfolio had the largest gross unrealized loss of $24.6 million, 47% of the total gross unrealized loss. The municipal bond portfolio is well diversified geographically (161 issuers) and is comprised primarily of general obligation bonds (67%). 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 (15%), Pennsylvania (13%), California (12%), and Michigan (10%). The average rating of the municipal portfolio from Moody’s is AA. No municipal bonds are rated below investment grade.

The corporate portfolio is comprised predominantly of 46 fixed rate community bank issued subordinated notes with a fair value of $20.0 million and gross unrealized losses of $2.1 million. The majority of these securities are not rated.

The non-agency mortgage and asset-backed securities portfolio had a gross unrealized loss of $4.7 million. The majority of these securities, with a fair value of $46.2 million, are investment grade rated while the remaining $21.7 million of fair value are unrated. Many of these securities have credit enhancement in the form of subordination and overcollateralization.

At March 31, 2023, the Bank believes it will be able to collect all interest and principal due on impaired securities and the decline in fair value below amortized cost is due to changing interest rates and not due to credit related factors; therefore, the Bank has no allowance for credit loss for these investments. The Bank does not have the intent to sell, and does not believe it will more likely than not be required to sell, any of these securities prior to a recovery of their fair value to amortized cost.

Restricted Stock at Cost: The Bank held $644 thousand of restricted stock at March 31, 2023. Except for $30 thousand, this investment represents stock in FHLB Pittsburgh. The Bank is required to hold this stock to be a member of FHLB and it is carried at cost of $100 per share. The level of FHLB stock held is determined by FHLB and is comprised of a minimum membership amount plus a variable activity amount. FHLB stock is evaluated for impairment primarily based on an assessment of the ultimate recoverability of its cost. As a government sponsored entity, FHLB has the ability to raise funding through the U.S. Treasury that can be used to support its operations. There is not a public market for FHLB stock and the benefits of FHLB membership (e.g., liquidity and low-cost funding) add value to the stock beyond purely financial measures. Management intends to remain a member of the FHLB and believes that it will be able to fully recover the cost basis of this investment.

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

37

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 $11.0 million over year-end 2022. For the first three months of 2023, the Bank originated $5.0 million of mortgages held for sale and sold $5.4 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 ($9.9 million), while loans for individuals to construct personal residences totaled $9.6 million at March 31, 2023. 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 $575.5 million from $566.7 million at the end of 2022. The largest sectors (by collateral) in the commercial real estate category are: apartment buildings ($97.0 million), hotels and motels ($80.5 million), office buildings ($61.8 million), shopping centers ($55.9 million), and development land ($45.6 million). Within the office building portfolio, approximately 34% of total office building exposure is to owner occupied properties. 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 13 flagged brands and 3 independent operators.

Also included in CRE are real estate construction loans totaling $92.0 million. At March 31, 2023, the Bank had $26.2 million in real estate construction loans funded with an interest reserve and capitalized $251 thousand of interest in 2023 from these reserves on active projects for commercial construction. Real estate construction loans are monitored on a regular basis by either an independent third-party inspector or the assigned loan officer depending on loan amount or complexity of the project. This monitoring process includes at a minimum, the submission of invoices and American Institute of Architects (AIA) documents (depending on the complexity of the project) detailing costs incurred by the borrower, on-site inspections, and a signature by the assigned loan officer for disbursement of funds.

Commercial: This category includes commercial, industrial, farm, agricultural, and municipal loans. Commercial loans increased $11.4 million to $247.0 million at March 31, 2023, compared to $235.6 million at the end of 2022. At March 31, 2023, the balance of PPP loans was $88 thousand, down from $179 thousand at year-end. At March 31, 2023, the Bank had approximately $119.0 million in tax-free loans. The largest sectors (by industry) in the commercial category are: utilities ($42.8 million), public administration ($42.7 million), real estate rental and leasing ($24.9 million), manufacturing ($15.8 million) and retail trade ($13.9 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 March 31, 2023, the outstanding commercial participations were $77.9 million, or 8.7%, of commercial purpose loans and 7.2% of total gross loans compared to $70.6 million at December 31, 2022, or 8.0%, of commercial purpose loans and 6.7% of total gross loans. The Bank’s total exposure (including outstanding balances and unfunded commitments) to purchased participations is $88.6 million, compared to $90.0 million at December 31, 2022. The commercial loan participations are comprised of $27.8 million of Commercial loans and $50.1 million of CRE loans, reported in the respective loan class.

Consumer loans: This category remained unchanged at $6.0 million at March 31, 2023, compared to prior year-end and is comprised primarily of installment loans and personal lines of credit.

‎

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

	March 31,		December 31,			Change
(Dollars in thousands)	2023		2022			Amount	%
Residential Real Estate 1-4 Family
Consumer first liens	$	93,540	$	82,795	$	10,745	13.0
Commercial first lien		62,569		61,702		867	1.4
Total first liens		156,109		144,497		11,612	8.0
Consumer junior liens and lines of credit		68,765		69,561		(796)	(1.1)
Commercial junior liens and lines of credit		4,358		4,127		231	5.6
Total junior liens and lines of credit		73,123		73,688		(565)	(0.8)
Total residential real estate 1-4 family		229,232		218,185		11,047	5.1
Residential real estate - construction
Consumer		9,559		13,908		(4,349)	(31.3)
Commercial		9,892		10,485		(593)	(5.7)
Total residential real estate construction		19,451		24,393		(4,942)	(20.3)
Commercial real estate		575,516		566,662		8,854	1.6
Commercial		247,042		235,602		11,440	4.9
Total commercial		822,558		802,264		20,294	2.5
Consumer		6,205		6,199		6	0.1
		1,077,446		1,051,041		26,405	2.5
Less: Allowance for credit losses		(14,109)		(14,175)		66	(0.5)
Net Loans	$	1,063,337	$	1,036,866	$	26,471	2.6

Loan Quality:

Management monitors loan performance on a monthly basis and performs a quarterly evaluation of the adequacy of the Allowance for Credit Loss for loans (ACL). The Bank begins enhanced monitoring of all loans rated 6–OAEM or worse and obtains a new appraisal or asset valuation for any loans 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 ACL, 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. Management monitors the adequacy of the ACL on an ongoing basis and reports its adequacy quarterly to the Board Enterprise Risk Management Committee of the Board of Directors. Management believes the ACL at March 31, 2023 is adequate.

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 $9.2 million at March 31, 2023 compared to $11.6 million at December 31, 2022. The watch list includes both performing and nonperforming loans. Included in the watchlist total are $120 thousand 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

39

contracts for all loans 90-days or more past due, nonaccrual loans, or impaired loans. Further, it is the Bank’s policy to discontinue accruing interest on loans that are not adequately secured and in the process of collection. Upon determination of nonaccrual status, the Bank subtracts any current year accrued and unpaid interest from its income, and any prior year accrued and unpaid interest from the allowance for loan losses. Management continually monitors the status of nonperforming loans, the value of any collateral and potential of risk of loss. Nonaccrual loans are rated no better than 7-Substandard.

The Bank’s Loan Management Committee reviews these loans and risk ratings on a quarterly basis in order to proactively identify and manage problem loans. In addition, a committee meets monthly to discuss possible workout strategies for all credits rated 7-Substandard or worse. Management also tracks other commercial loan risk measurements including high loan to value loans, concentrations, participations and policy exceptions and reports these to the Board Enterprise Risk Management Committee of the Board of Directors. The Bank also uses an external loan review consultant to assist with internal loan review with a goal of reviewing 80% of commercial loans each year. The FDIC defines certain supervisory loan-to-value lending limits. The Bank’s internal loan–to-value limits are all equal to or have a lower loan-to-value limit than the supervisory limits. However, in certain instances, the Bank may make a loan that exceeds the supervisory loan-to-value limit. At March 31, 2023, the Bank had loans of $11.9 million (6.7% of risk-based capital) that exceeded the supervisory limit, compared to 7.2% at year-end 2022.

Loan quality improved, as measured by nonaccrual loans, which remained unchanged at $120 thousand for the first three months of 2023 compared to December 31, 2022 and the nonperforming loan to total loans ratio decreased from 0.74% to 0.02% at March 31, 2023. Loans past due 90-days or more, but still accruing, totaled $106 thousand at March 31, 2023.

In addition to monitoring nonaccrual loans, the Bank also closely monitors loans to borrowers experiencing financial difficulty 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.

Modifications to borrowers experiencing financial difficulty may include interest rate reductions, principal or interest forgiveness, forbearances, term extensions, and other actions intended to minimize economic loss and to avoid foreclosure or repossession of collateral.

Allowance for Credit Losses:

Allowance for Credit Losses – Loans

The ACL for loans is established through provisions for credit losses charged against income. Loans deemed to be uncollectible are charged against the ACL, and subsequent recoveries, if any, are credited to the ACL.

The ACL for loans is an estimate of the losses expected to be realized over the life of the loan portfolio. The ACL is determined for two distinct categories of loans: 1) loans evaluated individually for expected credit losses (specific reserve), and 2) loans evaluated collectively for expected credit losses (pooled reserve). Management’s periodic evaluation of the adequacy of the ACL for loans is based on the Bank’s past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions, diversification of the loan portfolio, delinquency statistics, results of internal loan reviews, borrowers’ actual or perceived financial and managerial strengths, and other relevant factors. This evaluation is inherently subjective, as it requires material assumptions and estimates that may be susceptible to significant change, including the amounts and timing of future cash flows expected to be received on impaired loans.

Loans evaluated individually for credit losses are primarily commercial purpose loans that do not share similar characteristics with those loans evaluated in the pool. These loans may exhibit performance characteristics where it is probable that the Bank will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. All commercial purpose loans greater than $250 thousand and rated Substandard (7), Doubtful (8) or on nonaccrual status may be considered for individual evaluation. Impairment is measured on a loan-by-loan basis by one of the following methods: the fair value of the collateral if the loan is collateral dependent, the present value of expected future cash flows discounted at the loan’s effective interest rate or the loan’s obtainable market price. Commercial purpose loans with a balance less than $250 thousand, and consumer purpose loans are not evaluated individually for a specific reserve but are included in the pooled reserve calculation. Loans that are evaluated for a specific reserve, but not needing a specific reserve are not included in the pooled reserve calculation.

40

The Corporation has elected to exclude accrued interest receivable from the measurement of the ACL. When a loan is placed on nonaccrual status, any outstanding accrued interest is reversed against income.

The pooled reserve represents the ACL for pools of homogenous loans, not evaluated individually. The pooled reserve is calculated using a quantitative and qualitative component for the loan pools.

The following inputs are used to calculate the quantitative component for the loan pool:

Segregating loans into homogeneous pools by the FRB Call Code which is primarily a collateral-based and secondarily a purpose-based segmentation.

The average remaining life of each pool is calculated using the weighted average remaining maturity method (WARM). The WARM method produces an estimated remaining balance by pool, by year, until maturity.

Using third party data, the Bank determines a reasonable and supportable economic forecast that it believes is likely to exist for the next 4 quarters.

A historical credit loss rate is calculated for each pool, using the average historical loss, by FRB Call Code, for a peer group of Pennsylvania community banks over the last eight quarters. The historical loss rate is calculated over a historical period the Bank believes best represents a period that will be similar to the next 4 quarters.

The historical peer credit loss rate is applied to each WARM bucket though the initial 4 quarter forecast period.

At the end of the forecast period, the credit loss rate applied to each WARM bucket reverts to the peer group historical loss rate for the respective pool.

Collectively these estimated losses represent the quantitative component of the pooled reserve.

The qualitative component for the pool utilizes a risk matrix comprised of eight risk factors and assigns a risk level to each factor. The risk factors give consideration to changes in: lending policy, procedures and practice; economic conditions; nature and volume of loans; experience of lending team; volume of past due loans; quality of the loan review system; concentrations of credit; and other external factors. The risk levels are measured in basis points and range from minimal risk (0 basis points) to very high risk (20 basis points); and collectively range from 0 to 160 basis points. The qualitative risk level is determined independently for commercial loans, residential mortgage loans and consumer loans.

The ACL for pooled loans is the sum of the quantitative and qualitative loss estimates.

Allowance for Credit Losses – Unfunded Commitments

The ACL for unfunded commitments is recorded in other liabilities on the consolidated balance sheet. The ACL represents management’s estimate of expected losses from unfunded commitments and is determined by estimating future usage of the commitments, based on historical usage. The estimated loss is calculated in a manner similar to that used for the ACL for loans, previously described. The ACL is increased or decreased through the provision for credit losses.

41

The following table shows the allocation of the allowance for credit losses and other loan performance ratios, by class, as of March 31, 2023 and December 31, 2022:

(Dollars in thousands)	Residential Real Estate 1-4 Family
			Junior Liens &				Commercial
	First Liens		Lines of Credit		Construction		Real Estate		Commercial		Consumer		Unallocated		Total
2023
Loans at March 31, 2023	$	156,109	$	73,123	$	19,451	$	575,516	$	247,042	$	6,205	$	—	$	1,077,446
Average Loans through March 31, 2023		150,276		72,930		24,408		563,220		233,246		6,111		—		1,050,191
Nonaccrual Loans at March 31, 2023		120		—		—		—		—		—		—		120
Allowance for Credit Loss at March 31, 2023		1,624		690		190		8,236		3,275		94		—		14,109
YTD Net (Charge-offs)/Recoveries at March 31, 2023		2		—		39		—		(19)		(19)		—		3
Loans/Total Gross Loans at March 31, 2023		14%		7%		2%		53%		23%		1%		—		100%
Nonaccrual Loans/Total Gross Loans at March 31, 2023		0.08%		0.00%		0.00%		0.00%		0.00%		0.00%		—		0.01%
Allowance for Credit Loss/Gross Loans at March 31, 2023		1.04%		0.94%		0.98%		1.43%		1.33%		1.51%		—		1.31%
Net (Charge-offs) Recoveries/Average Loans at March 31, 2023*		0.01%		0.00%		0.64%		0.00%		-0.03%		-1.24%		—		0.00%
Allowance for Credit Loss/Nonaccrual Loans at March 31, 2023																11757.50%

2022
Loans at December 31, 2022	$	144,497	$	73,688	$	24,393	$	566,662	$	235,602	$	6,199	$	—	$	1,051,041
Average Loans for 2022		139,577		73,200		21,737		550,772		241,395		5,938		—		1,032,619
Nonaccrual Loans at December 31, 2022		120		—		—		—		—		—		—		120
Allowance for Loan Losses at December 31, 2022		459		234		343		7,493		4,846		133		667		14,175
Net Recoveries/(Charge-offs) for 2022		28		2		—		(1,450)		(45)		(76)		—		(1,541)
Loans/Total Gross Loans at December 31, 2022		14%		7%		2%		54%		22%		1%		—		100%
Nonaccrual Loans/Total Gross Loans at December 31, 2022		0.08%		0.00%		0.00%		0.00%		0.00%		0.00%		—		0.01%
Allowance for Loan Loss/Gross Loans at December 31, 2022		0.32%		0.32%		1.41%		1.32%		2.06%		2.15%		—		1.35%
Net Recoveries(Charge-offs)/Average Loans for 2022		0.02%		0.00%		0.00%		-0.26%		-0.02%		-1.28%		—		-0.15%
Allowance for Loan Loss/Nonaccrual Loans at December 31, 2022																11812.50%
*Annualized

Deposits:

Total deposits decreased $49.3 million during the first three months of 2023 to $1.502 billion. Interest-bearing checking decreased by $35.3 million primarily in state/municipal deposits, while the Bank’s Money Management decreased $25.2 million, primarily in state/municipal deposits. Time deposits increased $16.2 million as customers shifted to higher rate products. The Bank also added $8.6 million of brokered CDs, during the first quarter of 2023.

As of March 31, 2023, the Bank had deposits of $200.8 million placed in the IntraFi Network deposit program ($131.2 million in interest-bearing checking and $67.7 million in money management) and $1.9 million in reciprocal time deposits in the CDARS program included in time deposits. These programs allow the Bank to offer full FDIC coverage to large depositors, but with the convenience to the customer of only having to deal with one bank. The Bank solicits these deposits from within its market and it believes they present no greater risk than any other local deposit. Only reciprocal deposits that exceed 20% of liabilities are considered brokered deposits. At March 31, 2023, the Bank’s reciprocal deposits were 12.6% of total liabilities compared to 12.7% at year-end 2022.

The Bank estimates that approximately 92% of its deposits are FDIC insured or collateralized as of March 31, 2023.

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

	March 31,		December 31,			Change
(Dollars in thousands)	2023		2022			Amount	%
Noninterest-bearing checking	$	298,008	$	299,231	$	(1,223)	(0.4)
Interest-bearing checking		461,228		496,533		(35,305)	(7.1)
Money management		544,379		569,585		(25,206)	(4.4)
Savings		124,920		128,709		(3,789)	(2.9)
Total interest-bearing checking and savings		1,130,527		1,194,827		(64,300)	(5.4)
Time deposits		73,575		57,390		16,185	28.2
Total deposits	$	1,502,110	$	1,551,448	$	(49,338)	(3.2)
Overdrawn deposit accounts reclassified as loans	$	79	$	103

Borrowings:

At March 31, 2023, the Bank had $50.0 million borrowed from the Federal Reserve’s Bank Term Funding Program to temporarily support its liquidity position. This borrowing has a rate of 4.38% and is due March 22, 2024. At March 31, 2023, the fair value of debt securities pledged for the BTFP was $72.0 million.

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 maturity 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 increased $9.4 million to $123.6 million as of March 31, 2023 from December 31, 2022, due primarily to an increase of $7.3 million in accumulated other comprehensive income (AOCI) as the fair value of the investment portfolio improved during 2023. Retained earnings increased $2.0 million as net earnings of $3.3 million were partially offset by cash dividends of $1.4 million. The Corporation’s Dividend Reinvestment Plan (DRIP) added $21 thousand in new capital from optional cash contributions and $256 thousand from the reinvestment of quarterly dividends. The Corporation’s dividend payout ratio was 42.68% for the first three months of 2023 compared to 47.18% for the first three months of 2022.

As part of its quarterly dividend decision, the Corporation considers current and future income projections, dividend yield, payout ratio, and current and future capital ratios. For the first quarter of 2023, the Corporation paid a $0.32 per share dividend, compared to $0.32 paid in the fourth quarter of 2022. On April 13, 2023, the Board of Directors declared a $0.32 per share regular quarterly dividend for the second quarter of 2023, which will be paid on May 24, 2023.

On December 15, 2022, the Board of Directors authorized the 2022 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 22, 2022 and expiring on December 21, 2023. The Corporation repurchased 8,752 shares during the first quarter of 2023. A total of 11,600 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 March 31, 2023 was 7.99% compared to the regulatory buffer of 2.5%. Compliance with the capital conservation buffer is required in order to avoid limitations to

43

certain capital distributions and is in addition to the minimum required capital requirements. As of March 31, 2023, 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 March 31, 2023 and December 31, 2022 for the Corporation and the Bank:

			Regulatory Ratios
			Adequately	Well
	March 31,	December 31,	Capitalized	Capitalized
(Dollars in thousands)	2023	2022	Minimum	Minimum
Common Equity Tier 1 Risk-based Capital Ratio (1)
Franklin Financial Services Corporation	14.24%	14.22%	N/A	N/A
Farmers & Merchants Trust Company	14.74%	14.63%	4.50%	6.50%
Tier 1 Risk-based Capital Ratio (2)
Franklin Financial Services Corporation	14.24%	14.22%	N/A	N/A
Farmers & Merchants Trust Company	14.74%	14.63%	6.00%	8.00%
Total Risk-based Capital Ratio (3)
Franklin Financial Services Corporation	17.21%	17.21%	N/A	N/A
Farmers & Merchants Trust Company	15.99%	15.88%	8.00%	10.00%
Tier 1 Leverage Ratio (4)
Franklin Financial Services Corporation	9.58%	8.95%	N/A	N/A
Farmers & Merchants Trust Company	9.92%	9.21%	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, Huntingdon, and Dauphin 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 260,000 in Cumberland County. Unemployment in the Bank’s market area ranged from 3.3% in Cumberland County, PA and Washington County, MD to 7.4% in Huntingdon County, as of the end of January 2023. 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 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

44

such, interest rates and changes in interest rates may have a more significant effect on the Corporation’s financial results than on other types of industries. Because of this, the Corporation watches the actions of the Federal Reserve Open Market Committee (FOMC) as it makes decisions about interest rate changes and how such changes affect market rates and the Corporation. Although inflation (and inflation expectations) may affect the interest rate environment, it is not possible to measure with any precision the effect of inflation on the Corporation.

Liquidity

The Corporation must meet the financial needs of the customers that it serves, while providing a satisfactory return on the shareholders’ investment. In order to accomplish this, the Corporation must maintain sufficient liquidity in order to respond quickly to the changing level of funds required for both loan and deposit activity. The goal of liquidity management is to meet the ongoing cash flow requirements of depositors who want to withdraw funds and of borrowers who request loan disbursements. The Bank regularly reviews 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 ($238.7 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. At March 31, 2023 the Bank had an outstanding balance of $50.0 million from the Federal Reserve’s Bank Term Funding Program to temporarily support its liquidity position.

The following table shows the Bank’s available liquidity at March 31, 2023.

(Dollars in thousands)
Liquidity Source		Capacity		Outstanding		Available
Federal Home Loan Bank	$	403,692	$	—	$	403,692
Federal Reserve Bank Discount Window		59,513		—		59,513
Fed Bank Term Funding Program		71,858		50,000		21,858
Correspondent Banks		56,000		—		56,000
Total	$	591,063	$	50,000	$	541,063

‎

45

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. At March 31, 2023, the ACL-unfunded commitments was $1.9 million compared to $1.5 million at December 31, 2022. The ACL-unfunded commitments is reported in Other Liabilities on the Consolidated Balance Sheet.

	March 31,		December 31,
(Dollars in thousands)	2023		2022
Financial instruments whose contract amounts represent credit risk
Commercial commitments to extend credit	$	303,262	$	275,867
Consumer commitments to extend credit (secured)		92,054		93,124
Consumer commitments to extend credit (unsecured)		4,936		5,247
	$	400,252	$	374,238
Standby letters of credit	$	27,819	$	30,734

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, except as reported, from those reported in the Corporation’s 2022 Annual Report on Form 10-K.

Management believes that any amounts actually drawn upon can be funded in the normal course of operations. The Corporation has no investment in or financial relationship with any unconsolidated entities that are reasonably likely to have a material effect on liquidity.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

There were no material changes in the Corporation’s exposure to market risk during the three months ended March 31, 2023. For more information on market risk refer to the Corporation’s 2022 Annual Report on Form 10-K.

Item 4. Controls and Procedures

Evaluation of Controls and Procedures

The Corporation carried out an evaluation, under the supervision and with the participation of the Corporation’s management, including the Corporation’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of its disclosure controls and procedures, as defined in Exchange Act Rules 13a-15(e) and 15d-15(e). Based upon the evaluation, the Corporation’s Chief Executive Officer and Chief Financial Officer concluded that as of March 31, 2023, the Corporation’s disclosure controls and procedures are effective. Disclosure controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed in the Corporation’s reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. There were no changes in the Corporation’s internal control over financial reporting during the quarterly period ended March 31, 2023, 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 months ended March 31, 2023 except as described below. For more information, refer to the Corporation’s 2022 Annual Report on Form 10-K.

Recent Negative Developments Affecting the Banking Industry, Including Recent Bank Failures or Concerns Regarding Liquidity, Have Eroded Customer Confidence in the Banking System and May Have a Material Adverse Effect on the Corporation.

During March and April 2023 three significant bank failures occurred (Silicon Valley Bank, Signature Bank, and First Republic Bank). This was and continues to be accompanied by financial instability at certain additional banks. These bank failures and bank instabilities have created and may continue to create market and other risks, for all financial institutions and banks, including the Corporation. These risks include, but are not limited to:

1.Market risk and loss of confidence in the financial services sector, and/or specific banks;

2.Deterioration of securities and loan portfolios;

3.Deposit volatility and reductions with higher volumes and occurring over shorter periods of time;

4.Increased liquidity demand and utilization of sources of liquidity; and

5.Interest rate volatility and abrupt, sudden and greater than usual rate changes.

These factors individually, or in any combination, could materially and adversely affect:

1.Financial condition;

2.Operations and results thereof; and

3.Stock price.

In addition, the previously mentioned bank failures and instabilities may result in an increase of FDIC deposit insurance premiums and/or result in special FDIC deposit insurance assessments, which also may adversely affect the Corporation’s financial condition, operations, results thereof or stock price.

The Corporation cannot predict the impact, timing or duration of such events.

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

On December 15, 2022, the Board of Directors authorized the 2022 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 22, 2022 and expiring on December 21, 2023. The following table presents the activity under this plan during the first quarter of 2023.

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
January 2023	—	$	—	$	—	147,152
February 2023	—	$	—		—	147,152
March 2023	8,752	$	31.12		272,358	138,400
	8,752			$	272,358

47

Item 3. Defaults by the Company on its Senior Securities

None

Item 4. Mine Safety Disclosures

Not Applicable

‎

48

Item 5. Other Information

None

Item 6.   Exhibits

Exhibits

3.1	Amended and Restated Articles of Incorporation of the Corporation (Filed as Exhibit 3.1 to Quarterly Report on Form 10-Q for the quarter ended June 30, 2020 and incorporated herein by reference).
3.2	Bylaws of the Corporation. (Filed 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)

‎

49

FRANKLIN FINANCIAL SERVICES CORPORATION

and SUBSIDIARIES

SIGNATURES

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

Franklin Financial Services Corporation

May 12, 2023	/s/ Timothy G. Henry
	Timothy G. Henry
	Chief Executive Officer and President
	(Principal Executive Officer)
May 12, 2023	/s/ Mark R. Hollar
	Mark R. Hollar
	Treasurer and Chief Financial Officer
	(Principal Financial and Accounting Officer)

50

EX-31.1

Exhibit 31.1

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

I, TimothyG.  Henry, certify that:

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

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

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

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

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

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

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

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

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

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

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

Date:  May12, 2023

/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:  May12, 2023

/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 endingMarch  31, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, TimothyG.  Henry, Chief Executive Officer of the Corporation, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes–Oxley Act of 2002 that:

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

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

/s/ TimothyG.  Henry

TimothyG.  Henry

President and Chief Executive Officer

May 12, 2023

EX-32.2

Exhibit 32.2

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

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

In connection with the Quarterly Report of Franklin Financial Services Corporation (the “Corporation”) on Form 10-Q for the period ending March  31, 2023 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

May12, 2023

XML

Document And Entity Information - shares	3 Months Ended
	Mar. 31, 2023	Apr. 30, 2023
Document And Entity Information [Abstract]
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Mar. 31, 2023
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		4,381,611
Entity Central Index Key	0000723646
Document Fiscal Year Focus	2023
Document Fiscal Period Focus	Q1
Amendment Flag	false

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Consolidated Balance Sheets - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022
Assets
Cash and due from banks	$ 17,954	$ 17,883
Short-term interest-earning deposits in other banks	68,609	47,016
Total cash and cash equivalents	86,563	64,899
Long-term interest-earning deposits in other banks	9,477	13,975
Debt securities available for sale, at fair value	457,767	486,836
Equity securities	387	411
Restricted stock	644	644
Loans held for sale		283
Loans	1,077,446	1,051,041
Allowance for credit losses	(14,109)	(14,175)
Net Loans	1,063,337	1,036,866
Premises and equipment, net	29,654	30,026
Right of use asset	5,855	6,010
Bank owned life insurance	22,419	22,311
Goodwill	9,016	9,016
Deferred tax asset, net	13,676	15,630
Other assets	12,490	12,672
Total assets	1,711,285	1,699,579
Deposits
Noninterest-bearing checking	298,008	299,231
Money management, savings, and interest checking	1,130,527	1,194,827
Time	73,575	57,390
Total deposits	1,502,110	1,551,448
Short-term borrowings	50,000
Subordinate notes	19,635	19,623
Lease liability	5,999	6,144
Other liabilities	9,958	8,167
Total liabilities	1,587,702	1,585,382
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 4,402,675 shares outstanding at March 31, 2023 and 4,710,972 shares issued and 4,390,397 shares outstanding at December 31, 2022	4,711	4,711
Capital stock no par value, 5,000,000 shares authorized with no shares issued and outstanding
Additional paid-in capital	43,356	43,535
Increase of Retained earnings	127,877	125,892
Accumulated other comprehensive loss	(43,996)	(51,287)
Treasury stock, 308,297 shares at March 31, 2023 and 320,575 shares at December 31, 2022, at cost	(8,365)	(8,654)
Total shareholders' equity	123,583	114,197
Total liabilities and shareholders' equity	$ 1,711,285	$ 1,699,579

XML

Consolidated Balance Sheets (Parenthetical) - $ / shares	Mar. 31, 2023	Dec. 31, 2022
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	4,402,675	4,390,397
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	308,297	320,575

XML

Consolidated Statements Of Income - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Interest income
Loans, including fees	$ 12,336	$ 9,067
Interest and dividends on investments:
Taxable interest	3,451	1,843
Tax exempt interest	365	525
Dividend income	8	1
Interesting-earnings deposits in other banks	423	98
Total interest income	16,583	11,534
Interest expense
Deposits	3,429	463
Short-term borrowings	51
Subordinate notes	266	263
Total interest expense	3,746	726
Net interest income	12,837	10,808
Provision for credit losses - loans	467
Provision for credit losses - unfunded commitments	62
Net interest income after credit loss expense	12,308	10,808
Noninterest income
Investment and trust services fees	1,834	1,828
Loan service charges	302	116
Gain on sale of loans	73	254
Deposit service charges and fees	583	623
Other service charges and fees	432	412
Debit card income	502	458
Increase in cash surrender value of Bank owned life insurance	108	108
Net (losses) gains on sales of debt securities	(602)
Change in fair value of equity securities	(24)	11
Other	17	74
Total noninterest income	3,225	3,884
Noninterest Expense
Salaries and employee benefits	6,936	6,347
Net occupancy	1,110	974
Marketing and advertising	519	497
Legal and professional	552	515
Data processing	1,060	1,137
Pennsylvania bank shares tax	223	143
FDIC Insurance	182	183
ATM/debit card processing	294	346
Telecommunications	100	92
Nonservice pension	(29)	69
Other	1,072	963
Total noninterest expense	12,019	11,266
Income before federal income taxes	3,514	3,426
Federal income tax expense	222	414
Net income	$ 3,292	$ 3,012
Per share
Basic earnings per share	$ 0.75	$ 0.68
Diluted earnings per share	$ 0.75	$ 0.67

XML

Consolidated Statements of Comprehensive Income (Loss) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Consolidated Statements of Comprehensive Income (Loss) [Abstract]
Net income	$ 3,292	$ 3,012
Debt Securities:
Unrealized gain (losses) arising during the period	8,626	(27,718)
Reclassification adjustment for losses included in net income (1)	602
Net unrealized gain/(losses)	9,228	(27,718)
Tax effect	(1,937)	5,821
Net of tax amount	7,291	(21,897)
Total other comprehensive income (loss)	7,291	(21,897)
Total Comprehensive Income (Loss)	$ 10,583	$ (18,885)

XML

Consolidated Statements Of Changes In Shareholders' Equity - USD ($) $ in Thousands	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member] Impact of Adoption, Adjustment [Member]	Retained Earnings [Member]	Accumulated Other Comprehensive Income (Loss) [Member]	Treasury Stock [Member]	Impact of Adoption, Adjustment [Member]	Total
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
Net income				3,012				3,012
Other comprehensive loss					(21,897)			(21,897)
Cash dividends declared				(1,421)				(1,421)
Acquisition of treasury stock						$ (20)		(20)
Acquisition of treasury stock, shares						(609)
Treasury shares issued under dividend reinvestment plan		78				$ 236		314
Treasury shares issued under dividend reinvestment plan, shares						9,379
Stock Compensation Plans:
Treasury shares issued		(156)				$ 169		13
Treasury shares issued, shares						6,705
Compensation expense		70						70
Balance at Mar. 31, 2022	$ 4,711	43,077		118,203	(22,444)	$ (6,411)		137,136
Balance, shares at Mar. 31, 2022	4,456,918
Balance (Accounting Standards Update 2016-13 [Member]) at Dec. 31, 2022			$ 98				$ 98
Balance at Dec. 31, 2022	$ 4,711	43,535		125,892	(51,287)	(8,654)		$ 114,197
Balance, shares at Dec. 31, 2022	4,390,397							4,390,397
Net income				3,292				$ 3,292
Other comprehensive loss					7,291			7,291
Cash dividends declared				(1,405)				(1,405)
Acquisition of treasury stock						$ (316)		(316)
Acquisition of treasury stock, shares						(10,108)
Treasury shares issued under dividend reinvestment plan		48				$ 229		277
Treasury shares issued under dividend reinvestment plan, shares						8,484
Stock Compensation Plans:
Treasury shares issued		(362)				$ 376		14
Treasury shares issued, shares						13,902
Compensation expense		135						135
Balance at Mar. 31, 2023	$ 4,711	$ 43,356		$ 127,877	$ (43,996)	$ (8,365)		$ 123,583
Balance, shares at Mar. 31, 2023	4,402,675							4,402,675

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Consolidated Statements Of Changes In Shareholders' Equity (Parenthetical) - $ / shares	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Consolidated Statements Of Changes In Shareholders' Equity [Abstract]
Dividend declared per share	$ 0.32	$ 0.32

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Consolidated Statements Of Cash Flows - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Cash flows from operating activities
Net income	$ 3,292	$ 3,012
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	479	267
Net amortization of loans and investment securities	842	711
Amortization of subordinate debt issuance costs	12	10
Provision for credit losses	529
Change in fair value of equity securities	24	(11)
Realized losses on sales of debt securities	602
Loans originated for sale	(5,007)	(14,086)
Proceeds from sale of loans	5,363	14,025
Gain on sale of loans held for sale	(73)	(254)
Increase in cash surrender value of life insurance	(108)	(108)
Decrease in fair value of derivative	1	(8)
Stock based compensation	135	70
Decrease in other assets	(168)	(581)
Increase in other liabilities	1,794	1,399
Net cash provided by operating activities	7,717	4,446
Cash flows from investing activities
Net decrease (increase) in long-term interest-earning deposits in other banks	4,498	(250)
Proceeds from sales and calls of investment securities available for sale	32,855
Proceeds from maturities and pay-downs of securities available for sale	8,452	1,227
Purchase of investment securities available for sale	(4,325)	(11,525)
Net increase in restricted stock		(12)
Net increase in loans	(26,654)	(1,978)
Capital expenditures	(111)	(4,261)
Net cash provided by (used in) investing activities	14,715	(16,799)
Cash flows from financing activities
Net (decrease) increase in demand deposits, interest-bearing checking, and savings accounts	(65,523)	17,029
Net increase (decrease) in time deposits	16,185	(5,002)
Net increase in short-term borrowings	50,000
Dividends paid	(1,405)	(1,421)
Purchase of Treasury shares	(316)	(20)
Cash received from option exercises	14	13
Treasury shares issued under dividend reinvestment plan	277	314
Net cash (used in) provided by financing activities	(768)	10,913
Increase (decrease) in cash and cash equivalents	21,664	(1,440)
Cash and cash equivalents at the beginning of the period	64,899	175,149
Cash and cash equivalents at the end of the period	86,563	173,709
Cash paid during the year for:
Interest on deposits and other borrowed funds	3,268	475
Noncash Activities
Lease liabilities arising from obtaining right-of-use assets		$ 30

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Basis Of Presentation

3 Months Ended

Mar. 31, 2023

Basis Of Presentation [Abstract]

Basis Of Presentation

Note 1. Basis of Presentation

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

In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the consolidated financial position, results of operations, and cash flows as of March 31, 2023, 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 2022 Annual Report on Form 10-K. The consolidated results of operations for the three-month period ended March 31, 2023 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, 2022 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by GAAP for complete consolidated financial statements.

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

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

	For the Three Months Ended
	March 31,
(Dollars and shares in thousands, except per share data)	2023		2022
Weighted average shares outstanding (basic)		4,395		4,446
Impact of common stock equivalents		22		24
Weighted average shares outstanding (diluted)		4,417		4,470
Anti-dilutive options excluded from calculation		25		30
Net income	$	3,292	$	3,012
Basic earnings per share	$	0.75	$	0.68
Diluted earnings per share	$	0.75	$	0.67

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Recent Accounting Pronouncements

3 Months Ended

Mar. 31, 2023

Recent Accounting Pronouncements [Abstract]

Recent Accounting Pronouncements

Note 2. Recent Accounting Pronouncements

Recently adopted 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) 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.
	In addition, ASC 326 made changes to the accounting for available-for-sale debt securities. One such change is to require credit losses to be presented as an allowance rather than as a write-down on available-for-sale debt securities. Management does not intend to sell or believes that it is more likely than not they will be required to sell.
	The Corporation adopted ASC 326 using the modified retrospective method for all financial assets measured at amortized cost and off-balance-sheet (OBS) credit exposures. Results for reporting periods beginning after January 1, 2023 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP.
Effective Date	January 1, 2023
Effect on the Consolidated Financial Statements	The Corporation adopted the ASU as of January 1, 2023 and recorded a decrease to the allowance for credit loss (ACL) for loans of $536 thousand, an increase of $412 thousand to the ACL for unfunded commitments, an increase of $98 thousand to retained earnings, and a deferred tax liability of $26 thousand.
	The following table illustrates the impact of ASC 326:
					As Reported		Pre-ASC		Impact of
					Under		326		ASC 326
					ASC 326		Adoption		Adoption
	(Dollars in thousands)
	Assets:
		Loans
			First liens	$	1,555	$	459	$	1,096
			Junior liens & lines of credit		727		234		493
			Construction		248		343		(95)
			Commercial real estate		8,077		7,493		584
			Commercial		2,939		4,846		(1,907)
			Consumer		93		133		(40)
			Unallocated		—		667		(667)
		Allowance for credit losses on loans		$	13,639	$	14,175	$	(536)
	Liabilities:
		Allowance for credit losses on OBS credit exposures		$	1,887	$	1,475	$	412
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 adopted the ASU on January 1, 2023 and did not elect the fair value option on any financial instruments.

ASU 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructuring and Vintage Disclosures
Description	ASU 2022-02 eliminates the accounting guidance for troubled debt restructurings in Accounting Standards Codification ("ASC") 310-40, "Receivables - Troubled Debt Restructurings by Creditors" for entities that have adopted the current expected credit loss model introduced by ASU 2016-13, "Financial Instrucments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments." ASU 2022-02 also required that public business entities disclosure current-period gross charge-offs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20, "Financial Instruments - Credit Losses - Measured at Amortized Cost."
Effective Date	January 1, 2023
Effect on the Consolidated Financial Statements	The Corporation adopted the standard on January 1, 2023 and it decreased the balance of loans individually evaluated by $3.0 million, and decreased the balance of performing TDR loans by the same amount.
Recently issued but not yet effective accounting standards
ASU 2023-01, Leases (Topic 842): Common Control Arrangements
Description	This ASU requires entities to determine whether a related party arrangement between entities under common control is a lease. If the arrangement is determined to be a lease, an entity must classify and account for the lease on the same basis as an arrangement with a related party (on the basis of legally enforceable terms and conditions).
Effective Date	January 1, 2024
Effect on the Consolidated Financial Statements	The ASU is not expected to have an impact on the Corporation's financial statements.
ASU 2023-02, Investments - Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proporational Amortization Method
Description	This ASU permits reporting entities to elect to account for their tax equity investments, regardless of the tax credit program from which the income tax credits are received, using the proportional amortization method if certain conditions are met.
Effective Date	January 1, 2024
Effect on the Consolidated Financial Statements	The ASU is not expected to have an impact on the Corporation's financial statements.

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Accumulated Other Comprehensive Income (Loss)

3 Months Ended

Mar. 31, 2023

Accumulated Other Comprehensive Income (Loss) [Abstract]

Accumulated Other Comprehensive Income (Loss)

Note 3. Accumulated Other Comprehensive Income (Loss)

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

	March 31,		December 31,
(Dollars in thousands)	2023		2022
Net unrealized losses on debt securities	$	(52,269)	$	(61,497)
Tax effect		10,977		12,914
Net of tax amount	$	(41,292)	$	(48,583)
Accumulated pension adjustment	$	(3,423)	$	(3,423)
Tax effect		719		719
Net of tax amount	$	(2,704)	$	(2,704)
Total accumulated other comprehensive (loss)	$	(43,996)	$	(51,287)

 

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Investments

3 Months Ended

Mar. 31, 2023

Investments [Abstract]

Investments

‎

Note 4. Investments

Available for Sale (AFS) Securities

The amortized cost and estimated fair value of AFS securities as of March 31, 2023 and December 31, 2022 are as follows:

(Dollars in thousands)			Gross		Gross
	Amortized		unrealized		unrealized		Fair
March 31, 2023	cost		gains		losses		Value
U.S. Treasury	$	84,025	$	—	$	(9,762)	$	74,263
Municipal		170,095		—		(24,590)		145,505
Corporate		26,381		—		(2,382)		23,999
Agency mortgage & asset-backed		156,934		68		(10,910)		146,092
Non-Agency mortgage & asset-backed		72,601		28		(4,721)		67,908
Total	$	510,036	$	96	$	(52,365)	$	457,767

(Dollars in thousands)			Gross		Gross
	Amortized		unrealized		unrealized		Fair
December 31, 2022	cost		gains		losses		value
U.S. Treasury	$	101,980	$	—	$	(11,723)	$	90,257
Municipal		186,007		14		(30,566)		155,455
Corporate		26,316		—		(2,077)		24,239
Agency mortgage & asset-backed		163,274		19		(12,358)		150,935
Non-Agency mortgage & asset-backed		70,756		1		(4,807)		65,950
Total	$	548,333	$	34	$	(61,531)	$	486,836

At March 31, 2023 and December 31, 2022, the fair value of debt securities pledged to secure public funds and trust deposits totaled $147.1 million and $208.9 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 March 31, 2023, 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	$	—	$	—
Due after one year through five years		10,911		9,946
Due after five years through ten years		144,217		127,268
Due after ten years		125,373		106,553
		280,501		243,767
Mortgage & asset-backed		229,535		214,000
	$	510,036	$	457,767

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

	For the Three Months Ended
	March 31,
(Dollars in thousands)	2023		2022
Proceeds	$	32,855	$	—
Gross gains realized		12		—
Gross losses realized		(614)		—
Net (losses) gains realized	$	(602)	$	—
Tax benefit (provision) on net (losses) gains realized	$	126	$	—

Impairment:

The debt securities portfolio contained 571 securities with $448.6 million of temporarily impaired fair value and $52.4 million in unrealized losses at March 31, 2023. The total unrealized loss position has decreased $9.2 million since year-end 2022 due primarily to a decrease in long-term market interest rates.

AFS securities in an unrealized loss position are evaluated for credit impairment at least quarterly. For these securities, the Bank considers: (1) the extent to which the fair value is less than amortized cost; (2) adverse conditions specifically related to the security, industry or geographic area; (3) the payment structure of the debt security and the likelihood of the issuer being able to make payments that increase in the future; (4) failure of the issuer of the security to make scheduled interest or principal payments; and (5) any changes to the rating of the security by a rating agency. 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 Bank does not have the intent to sell and does not believe it will more likely than not be required to sell any of these securities prior to a recovery of their fair value to amortized cost. The impairment identified on debt securities and subject to evaluation at March 31, 2023, was determined not to be attributable to credit related factors; therefore, the Bank does not have an allowance for credit loss for these investments. During the first quarter of 2023, approximately $33 million of securities was sold as part of a portfolio restructuring to take advantage of higher market interest rates. The loss on these sales was $602 thousand.

‎

The following table reflects impairment in the AFS portfolio, aggregated by investment category, length of time that individual securities have been in a continuous unrealized loss position and the number of securities in each category as of March 31, 2023 and December 31, 2022:

	March 31, 2023
	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	$	—	$	—	—	$	74,263	$	(9,762)	28	$	74,263	$	(9,762)	28
Municipal		1,332		(171)	3		144,173		(24,419)	173		145,505		(24,590)	176
Corporate		7,462		(576)	17		16,537		(1,806)	34		23,999		(2,382)	51
Agency mortgage & asset-backed		17,046		(479)	58		124,043		(10,431)	192		141,089		(10,910)	250
Non-Agency mortgage & asset-backed		27,105		(1,416)	29		36,632		(3,305)	37		63,737		(4,721)	66
Total temporarily impaired	$	52,945	$	(2,642)	107	$	395,648	$	(49,723)	464	$	448,593	$	(52,365)	571

	December 31, 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	$	17,598	$	(183)	3	$	72,659	$	(11,540)	28	$	90,257	$	(11,723)	31
Municipal		73,644		(9,586)	90		80,503		(20,981)	104		154,147		(30,566)	194
Corporate		12,221		(851)	25		10,368		(1,226)	21		22,589		(2,077)	46
Agency mortgage & asset-backed		55,393		(2,747)	139		88,953		(9,611)	113		144,346		(12,358)	252
Non-Agency mortgage & asset-backed		49,301		(3,092)	52		14,207		(1,715)	16		63,508		(4,807)	68
Total temporarily impaired	$	208,157	$	(16,459)	309	$	266,690	$	(45,072)	282	$	474,847	$	(61,531)	591

Equity Securities at Fair Value

The Corporation owns one equity investment with a readily determinable fair value. At March 31, 2023 and December 31, 2022, this investment was reported at fair value of $387 thousand and $411 thousand, respectively, with changes in value reported through income.

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Loans

3 Months Ended

Mar. 31, 2023

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 mortgage loans include long-term loans to individuals and businesses secured by mortgages on the borrower’s real property. 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 loans are made to businesses of various sizes for a variety of purposes including construction, property, plant and equipment, and working capital. Commercial loans also include 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, home equity 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. The Bank usually holds a first lien position on these properties but may hold a second lien position in some home equity loans or lines of credit. 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 to contractors 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 AIA documents detailing the cost incurred by the borrower, on-site inspections, and an authorizing signature for disbursement of funds.

Commercial Real Estate

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

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

Commercial

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

Commercial loans present a higher level of credit risk than other loans because repayment ability is usually dependent on cash-flow from a business operation that can be affected by general economic conditions. On most commercial loans ongoing monitoring of cash flow and other financial performance indicators occur 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:

	March 31,		December 31,
(Dollars in thousands)	2023		2022
Residential Real Estate 1-4 Family
Consumer first liens	$	93,540	$	82,795
Commercial first lien		62,569		61,702
Total first liens		156,109		144,497
Consumer junior liens and lines of credit		68,765		69,561
Commercial junior liens and lines of credit		4,358		4,127
Total junior liens and lines of credit		73,123		73,688
Total residential real estate 1-4 family		229,232		218,185
Residential real estate - construction
Consumer		9,559		13,908
Commercial		9,892		10,485
Total residential real estate construction		19,451		24,393
Commercial real estate		575,516		566,662
Commercial		247,042		235,602
Total commercial		822,558		802,264
Consumer		6,205		6,199
		1,077,446		1,051,041
Less: Allowance for credit losses		(14,109)		(14,175)
Net Loans	$	1,063,337	$	1,036,866
Included in the loan balances are the following:
Net unamortized deferred loan costs	$	1,887	$	2,027
Loans pledged as collateral for borrowings and commitments from:
FHLB	$	585,601	$	585,601
Federal Reserve Bank		91,305		92,922
	$	676,906	$	678,523
Paycheck Protection Program (included in commercial loans)	$	88	$	179

 

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Loan Quality And Allowance For Credit Losses

3 Months Ended

Mar. 31, 2023

Loan Quality And Allowance For Credit Losses [Abstract]

Loan Quality and Allowance for Credit Losses

Note 6. Loan Quality and Allowance for Credit Losses

The allowance for credit losses is a valuation account that is deducted from the loans' amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off against the allowance when management believes the collectability of a loan balance is confirmed. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off.

Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience, derived from peer group data, provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in: lending policy, procedures and practice; economic conditions; nature and volume of loans; experience of lending team; volume of past due loans; quality of the loan review system; concentrations of credit; and other external factors.

‎

The allowance for credit losses is measured on a collective (pool) basis when similar risk characteristics exist. The Bank measures the ALC using the following inputs to calculate the quantitative component for the pool:

Segregating loans into homogeneous pools by the FRB Call Code which is primarily a collateral-based and secondarily a purpose-based segmentation.

The average remaining life of each pool is calculated using the weighted average remaining maturity method (WARM). The WARM method produces an estimated remaining balance by pool, by year, until maturity.

Using third party data, the Bank determines a reasonable and supportable economic forecast that it believes is likely to exist for the next 4 quarters.

A historical credit loss rate is calculated for each pool, using the average historical loss, by FRB Call Code, for a peer group of Pennsylvania community banks over the last eight quarters. The historical loss rate is calculated over a historical period the Bank believes best represents a period that will be similar to the next 4 quarters.

The historical peer credit loss rate is applied to each WARM bucket though the initial 4 quarter forecast period.

At the end of the forecast period, the credit loss rate applied to each WARM bucket reverts to the peer group historical loss rate for the respective pool.

Collectively these estimated losses represent the quantitative component of the pooled reserve.

This risk factor for each portfolio segment are presented in Note 6 of the accompanying financial statements.

Loans that do not share risk characteristics are evaluated on an individual basis. Loans evaluated individually are not included in the pool evaluation. When management determines that foreclosure is probable or when the borrower is experiencing financial difficulty at the reporting date and repayment is expected to be provided substantially through the sale of the collateral, the expected credit losses are based on the fair value of the collateral at the reporting date, adjusted for any discounts and selling costs as appropriate.

Management monitors loan performance on a monthly basis and performs a quarterly evaluation of the adequacy of the Allowance for Credit Loss for loans (ACL). The Bank begins enhanced monitoring of all loans rated 6–OAEM or worse and obtains a new appraisal or asset valuation for any loans 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 ACL, 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. Management monitors the adequacy of the ACL on an ongoing basis and reports its adequacy quarterly to the Board Enterprise Risk Management Committee of the Board of Directors. Management believes the ACL at March 31, 2023 is adequate.

Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate. The contractual term excludes expected extensions, renewals, and modifications unless either of the following applies: management has a reasonable expectation at the reporting date that a modification will be executed with an individual borrower or the extension or renewal options are included int eh original or modified contract at the reporting date and are not unconditionally cancellable by the Bank.

The Bank categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, and current economic trends, among other factors. 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 performing or nonperforming based on the payment status of the loans. Nonperforming consumer loans are loans that are nonaccrual or 90 days or more past due and still accruing. The Bank uses the following definitions for risk ratings:

Pass (1-5): are considered pass credits with lower or average risk and are not otherwise classified.

OAEM (6): Loans classified as OAEM have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the Company’s credit position at some future date.

Substandard (7): Loans classified as Substandard are inadequately protected by the current net worth and paying capacity of the borrower or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

Doubtful (8): Loans classified as Doubtful have all the weaknesses inherent in those classified as Substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.

‎

The following table presents loans by year of origination and internally assigned risk ratings:

(Dollars in thousands, except per share)													Revolving		Revolving
	Term Loans												Loans		Loans
	Amortized Cost Basis by Origination Year												Amortized		Converted
As of March 31	2023		2022		2021		2020		2019		Prior		Cost Basis		to Term		Total
Residential real estate 1-4 family:
Commercial:
Risk rating:
Pass (1-5)	$	2,581	$	9,807	$	12,658	$	10,043	$	3,045	$	25,496	$	2,202	$	975	$	66,807
OAEM (6)		—		—		—		—		—		—		—		—		—
Substandard (7)		—		—		—		—		—		—		120		—		120
Doubtful (8)		—		—		—		—		—		—		—		—		—
Total Commercial		2,581		9,807		12,658		10,043		3,045		25,496		2,322		975		66,927
Consumer:
Performing		8,073		23,784		16,757		12,274		6,032		31,690		47,025		16,566		162,201
Nonperforming		—		—		—		—		—		104		—		—		104
Total Consumer		8,073		23,784		16,757		12,274		6,032		31,794		47,025		16,566		162,305
Total	$	10,654	$	33,591	$	29,415	$	22,317	$	9,077	$	57,290	$	49,347	$	17,541	$	229,232
Residential real estate 1-4 family:
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Residential real estate construction:
Commercial:
Risk rating:
Pass (1-5)	$	594	$	2,869	$	2,316	$	238	$	731	$	3,144	$	—	$	—	$	9,892
OAEM (6)		—		—		—		—		—		—		—		—		—
Substandard (7)		—		—		—		—		—		—		—		—		—
Doubtful (8)		—		—		—		—		—		—		—		—		—
Total Commercial		594		2,869		2,316		238		731		3,144		—		—		9,892
Consumer:
Performing		82		9,477		—		—		—		—		—		—		9,559
Nonperforming		—		—		—		—		—		—		—		—		—
Total Consumer		82		9,477		—		—		—		—		—		—		9,559
Total	$	676	$	12,346	$	2,316	$	238	$	731	$	3,144	$	—	$	—	$	19,451
Residential real estate construction:
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial real estate:
Risk rating:
Pass (1-5)	$	23,385	$	113,854	$	98,742	$	329,898	$	—	$	—	$	5,686	$	—	$	571,565
OAEM (6)		—		—		—		1,089		—		—		—		—		1,089
Substandard (7)		—		—		—		2,812		—		—		50		—		2,862
Doubtful (8)		—		—		—		—		—		—		—		—		—
Total	$	23,385	$	113,854	$	98,742	$	333,799	$	—	$	—	$	5,736	$	—	$	575,516
Commercial real estate:
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial:
Risk rating:
Pass (1-5)	$	15,512	$	37,608	$	46,469	$	102,789	$	—	$	—	$	39,646	$	—	$	242,024
OAEM (6)		—		—		—		—		—		—		—		—		—
Substandard (7)		—		276		—		3,773		—		—		969		—		5,018
Doubtful (8)		—		—		—		—		—		—		—		—		—
Total	$	15,512	$	37,884	$	46,469	$	106,562	$	—	$	—	$	40,615	$	—	$	247,042
Commercial:
Current period gross charge-offs	$	(5)	$	—	$	(81)	$	—	$	—	$	—	$	—	$	—	$	(86)
Consumer:
Performing		2,324		952		534		502		—		—		1,893		—		6,205
Nonperforming		—		—		—		—		—		—		—		—		—
Total	$	2,324	$	952	$	534	$	502	$	—	$	—	$	1,893	$	—	$	6,205
Consumer:
Current period gross charge-offs	$	(13)	$	—	$	(6)	$	—	$	—	$	—	$	(15)	$	—	$	(34)

The following table presents the amortized cost basis of loans on nonaccrual status and loans past due over 90 days and still accruing as of March 31, 2023:

(Dollars in thousands)	Nonaccrual and Loans Past Due Over 90 Days+
					Loans Past Due
	Nonaccrual		Nonaccrual		Over 90 Days
	Without ACL		With ACL		Still Accruing
March 31, 2023
Residential Real Estate 1-4 Family
First liens	$	120	$	—	$	104
Junior liens and lines of credit		—		—		2
Total		120		—		106
Residential real estate - construction		—		—		—
Commercial real estate		—		—		—
Commercial		—		—		—
Consumer		—		—		—
Total	$	120	$	—	$	106

The following table reports the risk rating for those loans in the portfolio that were assigned an individual risk rating at December 31, 2022:

	Pass		OAEM		Substandard		Doubtful
(Dollars in thousands)	(1-5)		(6)		(7)		(8)		Total
December 31, 2022
Residential Real Estate 1-4 Family
First liens	$	144,377	$	—	$	120	$	—	$	144,497
Junior liens and lines of credit		73,688		—		—		—		73,688
Total		218,065		—		120		—		218,185
Residential real estate - construction		24,393		—		—		—		24,393
Commercial real estate		562,665		1,095		2,902		—		566,662
Commercial		228,085		2,751		4,766		—		235,602
Consumer		6,199		—		—		—		6,199
Total	$	1,039,407	$	3,846	$	7,788	$	—	$	1,051,041

‎

At March 31, 2023 and December 31, 2022, the Bank had $120 thousand of residential properties in the process of foreclosure. The following table presents the aging of payments of the loan portfolio:

(Dollars in thousands)	Loans Past Due
							Total				Total
	30-59 Days		60-89 Days		90 Days+		Past Due		Current		Loans
March 31, 2023
Residential Real Estate 1-4 Family
First liens	$	70	$	—	$	224	$	294	$	155,815	$	156,109
Junior liens and lines of credit		184		30		2		216		72,907		73,123
Total		254		30		226		510		228,722		229,232
Residential real estate - construction		—		—		—		—		19,451		19,451
Commercial real estate		195		—		—		195		575,321		575,516
Commercial		335		10		—		345		246,697		247,042
Consumer		22		31		—		53		6,152		6,205
Total	$	806	$	71	$	226	$	1,103	$	1,076,343	$	1,077,446

									Total
									Past Due &				Total
December 31, 2022	30-59 Days		60-89 Days		90 Days+		Nonaccrual		Nonaccrual		Current		Loans
Residential Real Estate 1-4 Family
First liens	$	340	$	177	$	—	$	120	$	637	$	143,860	$	144,497
Junior liens and lines of credit		490		—		—		—		490		73,198		73,688
Total		830		177		—		120		1,127		217,058		218,185
Residential real estate - construction		—		—		—		—		—		24,393		24,393
Commercial real estate		649		—		—		—		649		566,013		566,662
Commercial		681		50		—		—		731		234,871		235,602
Consumer		29		5		13		—		47		6,152		6,199
Total	$	2,189	$	232	$	13	$	120	$	2,421	$	2,434	$	1,051,041

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

	Residential Real Estate 1-4 Family
	First		Junior Liens &				Commercial
(Dollars in thousands)	Liens		Lines of Credit		Construction		Real Estate		Commercial		Consumer		Unallocated		Total
ALL at December 31, 2022	$	459	$	234	$	343	$	7,493	$	4,846	$	133	$	667	$	14,175
Impact of adopting ASU 2016-13		1,096		493		(95)		584		(1,907)		(40)		(667)		(536)
Charge-offs		—		—		—		—		(86)		(34)		—		(120)
Recoveries		2		—		39		—		67		15		—		123
Provision		67		(37)		(97)		159		355		20		—		467
ACL at March 31, 2023	$	1,624	$	690	$	190	$	8,236	$	3,275	$	94	$	—	$	14,109
ALL at December 31, 2021	$	475	$	252	$	325	$	8,168	$	5,127	$	130	$	589	$	15,066
Charge-offs		(20)		—		—		—		(1)		(24)		—		(45)
Recoveries		15		1		—		—		5		8		—		29
Provision		10		—		4		(206)		52		11		129		—
ALL at March 31, 2022	$	480	$	253	$	329	$	7,962	$	5,183	$	125	$	718	$	15,050

The following table presents, by class, loans that were evaluated for the ACL under the specific reserve (individually) and those that were evaluated under the general reserve (collectively) and the amount of the ACL established in each class as of December 31, 2022:

	Residential Real Estate 1-4 Family
	First		Junior Liens &				Commercial
(Dollars in thousands)	Liens		Lines of Credit		Construction		Real Estate		Commercial		Consumer		Unallocated		Total
December 31, 2022
Loans evaluated for ALL:
Individually	$	619	$	—	$	—	$	2,331	$	—	$	—	$	—	$	2,950
Collectively		143,878		73,688		24,393		564,331		235,602		6,199		—		1,048,091
Total	$	144,497	$	73,688	$	24,393	$	566,662	$	235,602	$	6,199	$	—	$	1,051,041
ALL established for ‎  loans evaluated:
Individually	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Collectively		459		234		343		7,493		4,846		133		667		14,175
ALL at December 31, 2022	$	459	$	234	$	343	$	7,493	$	4,846	$	133	$	667	$	14,175

At March 31, 2023, there were no loans evaluated individually for the ACL.

On January 1, 2023, The Bank adopted ASU 2022-02, “Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures” (“ASU 2022-02”), which eliminated the accounting guidance for troubled debt restructurings (“TDRs”) while enhancing disclosure requirements for certain loan refinancing and restructurings by creditors when a borrower is experiencing financial difficulty. Modifications to borrowers experiencing financial difficulty may include interest rate reductions, principal or interest forgiveness, forbearances, term extensions, and other actions intended to minimize economic loss and to avoid foreclosure or repossession of collateral.

As of March 31, 2023, the Bank did not have any loans made to borrowers experiencing financial difficulties and there were no loans modifications made to borrowers experiencing financial difficulties during the first quarter of 2023.

Prior to the adoption of ASU 2022-02, certain modified loans were reported as TDRs and impaired. The following table presents impaired loans as of December 31, 2022.

	Impaired Loans
	With No Allowance				With Allowance
(Dollars in thousands)			Unpaid				Unpaid
	Recorded		Principal		Recorded		Principal		Related
December 31, 2022	Investment		Balance		Investment		Balance		Allowance
Residential Real Estate 1-4 Family
First liens	$	619	$	619	$	—	$	—	$	—
Junior liens and lines of credit		—		—		—		—		—
Total		619		619		—		—		—
Residential real estate - construction		—		—		—		—		—
Commercial real estate		2,331		2,331		—		—		—
Commercial		—		—		—		—		—
Total	$	2,950	$	2,950	$	—	$	—	$	—

‎

The following table presents TDR loans as of December 31, 2022:

								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
December 31, 2022
Residential real estate - construction	—	$	—	$	—	$	—	—	$	—
Residential real estate	5		619		619		—	—		—
Commercial real estate - owner occupied	3		783		783		—	—		—
Commercial real estate - farm land	3		1,466		1,466		—	—		—
Commercial real estate - construction and land development	—		—		—		—	—		—
Commercial real estate - other	1		82		82		—	—		—
Total	12	$	2,950	$	2,950	$	—	—	$	—
*The performing status is determined by the loans compliance with the modified terms. Nonperforming is considered 90 days or more past due.

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Leases

3 Months Ended

Mar. 31, 2023

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 ‎March 31,
(Dollars in thousands)	2023		2022
Operating lease cost	$	211	$	173
Short-term lease cost		4		123
Variable lease cost		36		25
Total lease cost	$	251	$	321

Supplemental Lease Information:

	Three Months Ended ‎March 31,
(Dollars in thousands)	2023		2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	206	$	166
Weighted-average remaining lease term (years)		11.8		10.8
Weighted-average discount rate		3.38%		3.37%

‎

Lease Obligations:

Future undiscounted lease payments for operating leases with initial terms of one year or more as of March 31, 2023 are as follows:

(Dollars in thousands)
2023	$	624
2024		804
2025		752
2026		650
2027		507
2027 and beyond		4,084
Undiscounted cash flow		7,421
Imputed Interest		(1,422)
Total lease liability	$	5,999

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Other Real Estate Owned

3 Months Ended

Mar. 31, 2023

Other Real Estate Owned [Abstract]

Other Real Estate Owned

Note 8. Other Real Estate Owned

The Bank had no other real estate owned at March 31, 2023 and December 31, 2022.

 

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Derivatives

3 Months Ended

Mar. 31, 2023

Derivatives [Abstract]

Derivatives

Note 9. Derivatives

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

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

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

		Fair Value of Derivative Instruments
		Derivative Liabilities
(Dollars in thousands)		March 31, 2023					December 31, 2022
		Notional amount	Balance Sheet Location		Fair Value		Notional amount	Balance Sheet Location		Fair Value
Derivatives not designated as hedging instruments
Other Contracts	$	6,416	Other Liabilities	$	4	$	6,465	Other Liabilities	$	3
Total derivatives not designated as hedging instruments				$	4				$	3

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
		March 31, 2023		March 31, 2022
Other Contracts	Other income	$	(1)	$	8

As of March 31, 2023, 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

3 Months Ended

Mar. 31, 2023

Pension [Abstract]

Pension

Note 10. Pension

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

	Three Months Ended
	March 31,
(Dollars in thousands)	2023		2022
Components of net periodic cost:
Service cost	$	54	$	86
Interest cost		202		168
Expected return on plan assets		(231)		(249)
Recognized net actuarial loss		—		150
Total pension expense	$	25	$	155

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

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Fair Value Measurements And Fair Values Of Financial Instruments

3 Months Ended

Mar. 31, 2023

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.

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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.

Collateral Dependent Loans: The fair value of collateral dependent loans with specific allocations of the allowance for credit 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. Collateral dependent loans are evaluated on a quarterly basis for additional impairment and adjusted in accordance with the allowance policy. No partial charge-offs on these loans was taken in the first quarter of 2023. Collateral dependent loans are measured at fair value on a nonrecurring basis.

Recurring Fair Value Measurements

For financial assets and liabilities measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used at March 31, 2023 and December 31, 2022 are as follows:

(Dollars in thousands)	Fair Value at March 31, 2023
Asset Description	Level 1		Level 2		Level 3		Total
Equity securities, at fair value	$	387	$	—	$	—	$	387
Available for sale:
U.S. Treasury		74,263		—		—		74,263
Municipal		—		145,505		—		145,505
Corporate		—		23,999		—		23,999
Agency mortgage & asset-backed		—		146,092		—		146,092
Non-Agency mortgage & asset-backed		—		67,908		—		67,908
Total assets	$	74,650	$	383,504	$	—	$	458,154

(Dollars in thousands)	Fair Value at December 31, 2022
Asset Description	Level 1		Level 2		Level 3		Total
Equity securities, at fair value	$	411	$	—	$	—	$	411
Available for sale:
U.S. Treasury		90,257		—		—		90,257
Municipal		—		155,455		—		155,455
Corporate		—		24,239		—		24,239
Agency mortgage and asset-backed		—		150,935		—		150,935
Non-Agency mortgage and asset-backed		—		65,950		—		65,950
Total assets	$	90,668	$	396,579	$	—	$	487,247

The fair value of derivative liabilities measured at fair value at March 31, 2023 and December 31, 2022 was $4 thousand and $3 thousand, respectively, and was considered immaterial.

Nonrecurring Fair Value Measurements

The Corporation did not record any assets or liabilities at fair value for which measurement of the fair value was made on a nonrecurring basis at March 31, 2023. For financial assets and liabilities measured at fair value on a recurring basis, there were no transfers of financial assets or liabilities between Level 1 and Level 2 during the period ending March 31, 2023.

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

	March 31, 2023
	Carrying		Fair
(Dollars in thousands)	Amount		Value		Level 1		Level 2		Level 3
Financial assets, carried at cost:
Cash and cash equivalents	$	86,563	$	86,563	$	86,563	$	—	$	—
Long-term interest-bearing deposits in other banks		9,477		9,477		9,477		—		—
Loans held for sale		—		—		—		—		—
Net loans		1,063,337		1,025,387		—		—		1,025,387
Accrued interest receivable		5,784		5,784		—		—		5,784
Financial liabilities:
Deposits	$	1,502,110	$	1,501,309	$	—	$	1,501,309	$	—
Short-term borrowings		50,000		50,000		—		50,000		—
Subordinate notes		19,635		18,167		—		18,167		—
Accrued interest payable		670		670		—		670		—
	December 31, 2022
	Carrying		Fair
(Dollars in thousands)	Amount		Value		Level 1		Level 2		Level 3
Financial assets, carried at cost:
Cash and cash equivalents	$	64,899	$	64,899	$	64,899	$	—	$	—
Long-term interest-bearing deposits in other banks		13,975		13,975		13,975		—		—
Loans held for sale		283		287		—		287		—
Net loans		1,036,866		986,141		—		—		986,141
Accrued interest receivable		6,354		6,354		—		—		6,354
Financial liabilities:
Deposits	$	1,551,448	$	1,550,030	$	—	$	1,550,030	$	—
Subordinate notes		19,623		17,876		—		17,876		—
Accrued interest payable		192		192		—		192		—

 

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Deposits

3 Months Ended

Mar. 31, 2023

Deposits [Abstract]

Deposits

Note 12. Deposits

	March 31,		December 31,			Change
(Dollars in thousands)	2023		2022			Amount	%
Noninterest-bearing checking	$	298,008	$	299,231	$	(1,223)	(0.4)
Interest-bearing checking		461,228		496,533		(35,305)	(7.1)
Money management		544,379		569,585		(25,206)	(4.4)
Savings		124,920		128,709		(3,789)	(2.9)
Total interest-bearing checking and savings		1,130,527		1,194,827		(64,300)	(5.4)
Time deposits		73,575		57,390		16,185	28.2
Total deposits	$	1,502,110	$	1,551,448	$	(49,338)	(3.2)
Overdrawn deposit accounts reclassified as loans	$	79	$	103

Time deposits greater than $250,000 at March 31, 2023 and December 31, 2022 were $11.7 million and $8.8 million, respectively.

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Borrowings

3 Months Ended

Mar. 31, 2023

Borrowings [Abstract]

Borrowings

Note 13. Borrowings

At March 31, 2023, the Bank had $50.0 million borrowed from the Federal Reserve’s Bank Term Funding Program (BTFP) to temporarily support its liquidity position. This borrowing has a rate of 4.38% and is due March 22, 2024. At March 31, 2023, the fair value of debt securities pledged for the BTFP was $72.0 million.

At March 31, 2023, 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 $365 thousand at March 31, 2023, which is being amortized on a pro-rata basis, based on the maturity date 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 3

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Capital Ratios

3 Months Ended

Mar. 31, 2023

Capital Ratios [Abstract]

Capital Ratios

Note 14. 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 March 31, 2023 was 7.99% 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 March 31, 2023, 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 March 31, 2023 and December 31, 2022 for the Corporation and the Bank:

			Regulatory Ratios
			Adequately	Well
	March 31,	December 31,	Capitalized	Capitalized
(Dollars in thousands)	2023	2022	Minimum	Minimum
Common Equity Tier 1 Risk-based Capital Ratio (1)
Franklin Financial Services Corporation	14.24%	14.22%	N/A	N/A
Farmers & Merchants Trust Company	14.74%	14.63%	4.50%	6.50%
Tier 1 Risk-based Capital Ratio (2)
Franklin Financial Services Corporation	14.24%	14.22%	N/A	N/A
Farmers & Merchants Trust Company	14.74%	14.63%	6.00%	8.00%
Total Risk-based Capital Ratio (3)
Franklin Financial Services Corporation	17.21%	17.21%	N/A	N/A
Farmers & Merchants Trust Company	15.99%	15.88%	8.00%	10.00%
Tier 1 Leverage Ratio (4)
Franklin Financial Services Corporation	9.58%	8.95%	N/A	N/A
Farmers & Merchants Trust Company	9.92%	9.21%	4.00%	5.00%

(1)Common equity Tier 1 capital / total risk-weighted assets

(2)Tier 1 capital / total risk-weighted assets

(3)Total risk-based capital / total risk-weighted assets

(4)Tier 1 capital / average quarterly assets

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Revenue Recognition

3 Months Ended

Mar. 31, 2023

Revenue Recognition [Abstract]

Revenue Recognition

Note 15. 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 $1.6 million for the first quarter of 2023, compared to $1.6 million in the first quarter of 2022.

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 $92 thousand for the first quarter of 2023, compared to $173 thousand in the first quarter of 2022.

Commissions from the sale of investment and insurance products are recognized upon the completion of the transaction. Commissions recognized were $105 thousand for the first quarter of 2023, compared to $31 thousand for the first quarter of 2022.

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

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

Account maintenance fees and account analysis fees are earned over the course of a month, representing the period of the performance obligation, and are recognized monthly.

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

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

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

Contract Balances

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

Contract Acquisition Costs

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

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Commitments And Contingencies

3 Months Ended

Mar. 31, 2023

Commitments And Contingencies [Abstract]

Commitments And Contingencies

1Note 16. Commitments and Contingencies

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

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

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

	March 31,		December 31,
(Dollars in thousands)	2023		2022
Financial instruments whose contract amounts represent credit risk
Commercial commitments to extend credit	$	303,262	$	275,867
Consumer commitments to extend credit (secured)		92,054		93,124
Consumer commitments to extend credit (unsecured)		4,936		5,247
	$	400,252	$	374,238
Standby letters of credit	$	27,819	$	30,734

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.

On January 1, 2023, the Corporation adopted ASU 2016-13 Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, referred to as the current expected credit loss (CECL) methodology. Upon adoption, $412 thousand was added to the allowance for credit losses (ACL) – unfunded commitments. For the first quarter of 2023, a provision for credit losses-unfunded commitments was recorded and added to the ACL. At March 31, 2023, the ACL-unfunded commitments was $1.9 million compared to $1.5 million at December 31, 2022. The ACL-unfunded commitments is reported in Other Liabilities on the Consolidated Balance Sheet.

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.

Legal Proceedings

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

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

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

In management’s opinion, the Corporation does not anticipate, at the present time, that the ultimate aggregate liability, if any, arising out of all litigation to which the Corporation is a party at this time will have a material adverse effect on its financial position. The Corporation cannot now determine, however, whether or not any claim asserted against it will have a material adverse effect on its results of operations in any future reporting period, which will depend on, among other things, the amount of loss resulting from the claim and the amount of income otherwise reported for the reporting period. Thus, at March 31, 2023, the Corporation is unable to provide an evaluation of the likelihood of an unfavorable outcome or an estimate of the amount or range of potential loss with respect to such other matters and, accordingly, have not yet established any specific accrual for such other matters.

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Reclassification

3 Months Ended

Mar. 31, 2023

Reclassification [Abstract]

Reclassification

Note 17. Reclassification

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

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Basis Of Presentation (Policy)

3 Months Ended

Mar. 31, 2023

Basis Of Presentation [Abstract]

Consolidation

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

In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the consolidated financial position, results of operations, and cash flows as of March 31, 2023, 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 2022 Annual Report on Form 10-K. The consolidated results of operations for the three-month period ended March 31, 2023 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, 2022 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by GAAP for complete consolidated financial statements.

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

Earnings Per Share

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

	For the Three Months Ended
	March 31,
(Dollars and shares in thousands, except per share data)	2023		2022
Weighted average shares outstanding (basic)		4,395		4,446
Impact of common stock equivalents		22		24
Weighted average shares outstanding (diluted)		4,417		4,470
Anti-dilutive options excluded from calculation		25		30
Net income	$	3,292	$	3,012
Basic earnings per share	$	0.75	$	0.68
Diluted earnings per share	$	0.75	$	0.67

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Basis Of Presentation (Tables)

3 Months Ended

Mar. 31, 2023

Basis Of Presentation [Abstract]

Schedule Of Earnings Per Share, Basic And Diluted

	For the Three Months Ended
	March 31,
(Dollars and shares in thousands, except per share data)	2023		2022
Weighted average shares outstanding (basic)		4,395		4,446
Impact of common stock equivalents		22		24
Weighted average shares outstanding (diluted)		4,417		4,470
Anti-dilutive options excluded from calculation		25		30
Net income	$	3,292	$	3,012
Basic earnings per share	$	0.75	$	0.68
Diluted earnings per share	$	0.75	$	0.67

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Recent Accounting Pronouncements (Tables)

3 Months Ended

Mar. 31, 2023

Recent Accounting Pronouncements [Abstract]

Schedule of Impact of ASC 326

Recently adopted 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) 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.
	In addition, ASC 326 made changes to the accounting for available-for-sale debt securities. One such change is to require credit losses to be presented as an allowance rather than as a write-down on available-for-sale debt securities. Management does not intend to sell or believes that it is more likely than not they will be required to sell.
	The Corporation adopted ASC 326 using the modified retrospective method for all financial assets measured at amortized cost and off-balance-sheet (OBS) credit exposures. Results for reporting periods beginning after January 1, 2023 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP.
Effective Date	January 1, 2023
Effect on the Consolidated Financial Statements	The Corporation adopted the ASU as of January 1, 2023 and recorded a decrease to the allowance for credit loss (ACL) for loans of $536 thousand, an increase of $412 thousand to the ACL for unfunded commitments, an increase of $98 thousand to retained earnings, and a deferred tax liability of $26 thousand.
	The following table illustrates the impact of ASC 326:
					As Reported		Pre-ASC		Impact of
					Under		326		ASC 326
					ASC 326		Adoption		Adoption
	(Dollars in thousands)
	Assets:
		Loans
			First liens	$	1,555	$	459	$	1,096
			Junior liens & lines of credit		727		234		493
			Construction		248		343		(95)
			Commercial real estate		8,077		7,493		584
			Commercial		2,939		4,846		(1,907)
			Consumer		93		133		(40)
			Unallocated		—		667		(667)
		Allowance for credit losses on loans		$	13,639	$	14,175	$	(536)
	Liabilities:
		Allowance for credit losses on OBS credit exposures		$	1,887	$	1,475	$	412
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 adopted the ASU on January 1, 2023 and did not elect the fair value option on any financial instruments.

ASU 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructuring and Vintage Disclosures
Description	ASU 2022-02 eliminates the accounting guidance for troubled debt restructurings in Accounting Standards Codification ("ASC") 310-40, "Receivables - Troubled Debt Restructurings by Creditors" for entities that have adopted the current expected credit loss model introduced by ASU 2016-13, "Financial Instrucments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments." ASU 2022-02 also required that public business entities disclosure current-period gross charge-offs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20, "Financial Instruments - Credit Losses - Measured at Amortized Cost."
Effective Date	January 1, 2023
Effect on the Consolidated Financial Statements	The Corporation adopted the standard on January 1, 2023 and it decreased the balance of loans individually evaluated by $3.0 million, and decreased the balance of performing TDR loans by the same amount.
Recently issued but not yet effective accounting standards
ASU 2023-01, Leases (Topic 842): Common Control Arrangements
Description	This ASU requires entities to determine whether a related party arrangement between entities under common control is a lease. If the arrangement is determined to be a lease, an entity must classify and account for the lease on the same basis as an arrangement with a related party (on the basis of legally enforceable terms and conditions).
Effective Date	January 1, 2024
Effect on the Consolidated Financial Statements	The ASU is not expected to have an impact on the Corporation's financial statements.
ASU 2023-02, Investments - Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proporational Amortization Method
Description	This ASU permits reporting entities to elect to account for their tax equity investments, regardless of the tax credit program from which the income tax credits are received, using the proportional amortization method if certain conditions are met.
Effective Date	January 1, 2024
Effect on the Consolidated Financial Statements	The ASU is not expected to have an impact on the Corporation's financial statements.

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Accumulated Other Comprehensive Income (Loss) (Tables)

3 Months Ended

Mar. 31, 2023

Accumulated Other Comprehensive Income (Loss) [Abstract]

Schedule Of Accumulated Other Comprehensive Income (Loss)

	March 31,		December 31,
(Dollars in thousands)	2023		2022
Net unrealized losses on debt securities	$	(52,269)	$	(61,497)
Tax effect		10,977		12,914
Net of tax amount	$	(41,292)	$	(48,583)
Accumulated pension adjustment	$	(3,423)	$	(3,423)
Tax effect		719		719
Net of tax amount	$	(2,704)	$	(2,704)
Total accumulated other comprehensive (loss)	$	(43,996)	$	(51,287)

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Investments (Tables)

3 Months Ended

Mar. 31, 2023

Investments [Abstract]

Unrealized Gain (Loss) On Investments

(Dollars in thousands)			Gross		Gross
	Amortized		unrealized		unrealized		Fair
March 31, 2023	cost		gains		losses		Value
U.S. Treasury	$	84,025	$	—	$	(9,762)	$	74,263
Municipal		170,095		—		(24,590)		145,505
Corporate		26,381		—		(2,382)		23,999
Agency mortgage & asset-backed		156,934		68		(10,910)		146,092
Non-Agency mortgage & asset-backed		72,601		28		(4,721)		67,908
Total	$	510,036	$	96	$	(52,365)	$	457,767

(Dollars in thousands)			Gross		Gross
	Amortized		unrealized		unrealized		Fair
December 31, 2022	cost		gains		losses		value
U.S. Treasury	$	101,980	$	—	$	(11,723)	$	90,257
Municipal		186,007		14		(30,566)		155,455
Corporate		26,316		—		(2,077)		24,239
Agency mortgage & asset-backed		163,274		19		(12,358)		150,935
Non-Agency mortgage & asset-backed		70,756		1		(4,807)		65,950
Total	$	548,333	$	34	$	(61,531)	$	486,836

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

(Dollars in thousands)	Amortized ‎cost		Fair ‎value
Due in one year or less	$	—	$	—
Due after one year through five years		10,911		9,946
Due after five years through ten years		144,217		127,268
Due after ten years		125,373		106,553
		280,501		243,767
Mortgage & asset-backed		229,535		214,000
	$	510,036	$	457,767

Composition Of Net Realized Securities Gains (Losses)

	For the Three Months Ended
	March 31,
(Dollars in thousands)	2023		2022
Proceeds	$	32,855	$	—
Gross gains realized		12		—
Gross losses realized		(614)		—
Net (losses) gains realized	$	(602)	$	—
Tax benefit (provision) on net (losses) gains realized	$	126	$	—

Schedule Of Unrealized Loss On Investments

	March 31, 2023
	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	$	—	$	—	—	$	74,263	$	(9,762)	28	$	74,263	$	(9,762)	28
Municipal		1,332		(171)	3		144,173		(24,419)	173		145,505		(24,590)	176
Corporate		7,462		(576)	17		16,537		(1,806)	34		23,999		(2,382)	51
Agency mortgage & asset-backed		17,046		(479)	58		124,043		(10,431)	192		141,089		(10,910)	250
Non-Agency mortgage & asset-backed		27,105		(1,416)	29		36,632		(3,305)	37		63,737		(4,721)	66
Total temporarily impaired	$	52,945	$	(2,642)	107	$	395,648	$	(49,723)	464	$	448,593	$	(52,365)	571

	December 31, 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	$	17,598	$	(183)	3	$	72,659	$	(11,540)	28	$	90,257	$	(11,723)	31
Municipal		73,644		(9,586)	90		80,503		(20,981)	104		154,147		(30,566)	194
Corporate		12,221		(851)	25		10,368		(1,226)	21		22,589		(2,077)	46
Agency mortgage & asset-backed		55,393		(2,747)	139		88,953		(9,611)	113		144,346		(12,358)	252
Non-Agency mortgage & asset-backed		49,301		(3,092)	52		14,207		(1,715)	16		63,508		(4,807)	68
Total temporarily impaired	$	208,157	$	(16,459)	309	$	266,690	$	(45,072)	282	$	474,847	$	(61,531)	591

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Loans (Tables)

3 Months Ended

Mar. 31, 2023

Loans [Abstract]

Schedule Of Loans Outstanding

	March 31,		December 31,
(Dollars in thousands)	2023		2022
Residential Real Estate 1-4 Family
Consumer first liens	$	93,540	$	82,795
Commercial first lien		62,569		61,702
Total first liens		156,109		144,497
Consumer junior liens and lines of credit		68,765		69,561
Commercial junior liens and lines of credit		4,358		4,127
Total junior liens and lines of credit		73,123		73,688
Total residential real estate 1-4 family		229,232		218,185
Residential real estate - construction
Consumer		9,559		13,908
Commercial		9,892		10,485
Total residential real estate construction		19,451		24,393
Commercial real estate		575,516		566,662
Commercial		247,042		235,602
Total commercial		822,558		802,264
Consumer		6,205		6,199
		1,077,446		1,051,041
Less: Allowance for credit losses		(14,109)		(14,175)
Net Loans	$	1,063,337	$	1,036,866
Included in the loan balances are the following:
Net unamortized deferred loan costs	$	1,887	$	2,027
Loans pledged as collateral for borrowings and commitments from:
FHLB	$	585,601	$	585,601
Federal Reserve Bank		91,305		92,922
	$	676,906	$	678,523
Paycheck Protection Program (included in commercial loans)	$	88	$	179

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Loan Quality And Allowance For Credit Losses (Tables)

3 Months Ended

Mar. 31, 2023

Loan Quality And Allowance For Credit Losses [Abstract]

Schedule of loans by Year of origination and Internally Assigned Risk Ratings

(Dollars in thousands, except per share)													Revolving		Revolving
	Term Loans												Loans		Loans
	Amortized Cost Basis by Origination Year												Amortized		Converted
As of March 31	2023		2022		2021		2020		2019		Prior		Cost Basis		to Term		Total
Residential real estate 1-4 family:
Commercial:
Risk rating:
Pass (1-5)	$	2,581	$	9,807	$	12,658	$	10,043	$	3,045	$	25,496	$	2,202	$	975	$	66,807
OAEM (6)		—		—		—		—		—		—		—		—		—
Substandard (7)		—		—		—		—		—		—		120		—		120
Doubtful (8)		—		—		—		—		—		—		—		—		—
Total Commercial		2,581		9,807		12,658		10,043		3,045		25,496		2,322		975		66,927
Consumer:
Performing		8,073		23,784		16,757		12,274		6,032		31,690		47,025		16,566		162,201
Nonperforming		—		—		—		—		—		104		—		—		104
Total Consumer		8,073		23,784		16,757		12,274		6,032		31,794		47,025		16,566		162,305
Total	$	10,654	$	33,591	$	29,415	$	22,317	$	9,077	$	57,290	$	49,347	$	17,541	$	229,232
Residential real estate 1-4 family:
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Residential real estate construction:
Commercial:
Risk rating:
Pass (1-5)	$	594	$	2,869	$	2,316	$	238	$	731	$	3,144	$	—	$	—	$	9,892
OAEM (6)		—		—		—		—		—		—		—		—		—
Substandard (7)		—		—		—		—		—		—		—		—		—
Doubtful (8)		—		—		—		—		—		—		—		—		—
Total Commercial		594		2,869		2,316		238		731		3,144		—		—		9,892
Consumer:
Performing		82		9,477		—		—		—		—		—		—		9,559
Nonperforming		—		—		—		—		—		—		—		—		—
Total Consumer		82		9,477		—		—		—		—		—		—		9,559
Total	$	676	$	12,346	$	2,316	$	238	$	731	$	3,144	$	—	$	—	$	19,451
Residential real estate construction:
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial real estate:
Risk rating:
Pass (1-5)	$	23,385	$	113,854	$	98,742	$	329,898	$	—	$	—	$	5,686	$	—	$	571,565
OAEM (6)		—		—		—		1,089		—		—		—		—		1,089
Substandard (7)		—		—		—		2,812		—		—		50		—		2,862
Doubtful (8)		—		—		—		—		—		—		—		—		—
Total	$	23,385	$	113,854	$	98,742	$	333,799	$	—	$	—	$	5,736	$	—	$	575,516
Commercial real estate:
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial:
Risk rating:
Pass (1-5)	$	15,512	$	37,608	$	46,469	$	102,789	$	—	$	—	$	39,646	$	—	$	242,024
OAEM (6)		—		—		—		—		—		—		—		—		—
Substandard (7)		—		276		—		3,773		—		—		969		—		5,018
Doubtful (8)		—		—		—		—		—		—		—		—		—
Total	$	15,512	$	37,884	$	46,469	$	106,562	$	—	$	—	$	40,615	$	—	$	247,042
Commercial:
Current period gross charge-offs	$	(5)	$	—	$	(81)	$	—	$	—	$	—	$	—	$	—	$	(86)
Consumer:
Performing		2,324		952		534		502		—		—		1,893		—		6,205
Nonperforming		—		—		—		—		—		—		—		—		—
Total	$	2,324	$	952	$	534	$	502	$	—	$	—	$	1,893	$	—	$	6,205
Consumer:
Current period gross charge-offs	$	(13)	$	—	$	(6)	$	—	$	—	$	—	$	(15)	$	—	$	(34)

Schedule of nonaccrual loans and loans past due over 90 days and still on accrual by class of loans

(Dollars in thousands)	Nonaccrual and Loans Past Due Over 90 Days+
					Loans Past Due
	Nonaccrual		Nonaccrual		Over 90 Days
	Without ACL		With ACL		Still Accruing
March 31, 2023
Residential Real Estate 1-4 Family
First liens	$	120	$	—	$	104
Junior liens and lines of credit		—		—		2
Total		120		—		106
Residential real estate - construction		—		—		—
Commercial real estate		—		—		—
Commercial		—		—		—
Consumer		—		—		—
Total	$	120	$	—	$	106

Internal Credit Rating For The Loan Portfolio

	Pass		OAEM		Substandard		Doubtful
(Dollars in thousands)	(1-5)		(6)		(7)		(8)		Total
December 31, 2022
Residential Real Estate 1-4 Family
First liens	$	144,377	$	—	$	120	$	—	$	144,497
Junior liens and lines of credit		73,688		—		—		—		73,688
Total		218,065		—		120		—		218,185
Residential real estate - construction		24,393		—		—		—		24,393
Commercial real estate		562,665		1,095		2,902		—		566,662
Commercial		228,085		2,751		4,766		—		235,602
Consumer		6,199		—		—		—		6,199
Total	$	1,039,407	$	3,846	$	7,788	$	—	$	1,051,041

Aging Of Payments Of The Loan Portfolio

(Dollars in thousands)	Loans Past Due
							Total				Total
	30-59 Days		60-89 Days		90 Days+		Past Due		Current		Loans
March 31, 2023
Residential Real Estate 1-4 Family
First liens	$	70	$	—	$	224	$	294	$	155,815	$	156,109
Junior liens and lines of credit		184		30		2		216		72,907		73,123
Total		254		30		226		510		228,722		229,232
Residential real estate - construction		—		—		—		—		19,451		19,451
Commercial real estate		195		—		—		195		575,321		575,516
Commercial		335		10		—		345		246,697		247,042
Consumer		22		31		—		53		6,152		6,205
Total	$	806	$	71	$	226	$	1,103	$	1,076,343	$	1,077,446

									Total
									Past Due &				Total
December 31, 2022	30-59 Days		60-89 Days		90 Days+		Nonaccrual		Nonaccrual		Current		Loans
Residential Real Estate 1-4 Family
First liens	$	340	$	177	$	—	$	120	$	637	$	143,860	$	144,497
Junior liens and lines of credit		490		—		—		—		490		73,198		73,688
Total		830		177		—		120		1,127		217,058		218,185
Residential real estate - construction		—		—		—		—		—		24,393		24,393
Commercial real estate		649		—		—		—		649		566,013		566,662
Commercial		681		50		—		—		731		234,871		235,602
Consumer		29		5		13		—		47		6,152		6,199
Total	$	2,189	$	232	$	13	$	120	$	2,421	$	2,434	$	1,051,041

Allowance for Credit Losses (ACL), By Loan Segment

	Residential Real Estate 1-4 Family
	First		Junior Liens &				Commercial
(Dollars in thousands)	Liens		Lines of Credit		Construction		Real Estate		Commercial		Consumer		Unallocated		Total
ALL at December 31, 2022	$	459	$	234	$	343	$	7,493	$	4,846	$	133	$	667	$	14,175
Impact of adopting ASU 2016-13		1,096		493		(95)		584		(1,907)		(40)		(667)		(536)
Charge-offs		—		—		—		—		(86)		(34)		—		(120)
Recoveries		2		—		39		—		67		15		—		123
Provision		67		(37)		(97)		159		355		20		—		467
ACL at March 31, 2023	$	1,624	$	690	$	190	$	8,236	$	3,275	$	94	$	—	$	14,109
ALL at December 31, 2021	$	475	$	252	$	325	$	8,168	$	5,127	$	130	$	589	$	15,066
Charge-offs		(20)		—		—		—		(1)		(24)		—		(45)
Recoveries		15		1		—		—		5		8		—		29
Provision		10		—		4		(206)		52		11		129		—
ALL at March 31, 2022	$	480	$	253	$	329	$	7,962	$	5,183	$	125	$	718	$	15,050

The following table presents, by class, loans that were evaluated for the ACL under the specific reserve (individually) and those that were evaluated under the general reserve (collectively) and the amount of the ACL established in each class as of December 31, 2022:

	Residential Real Estate 1-4 Family
	First		Junior Liens &				Commercial
(Dollars in thousands)	Liens		Lines of Credit		Construction		Real Estate		Commercial		Consumer		Unallocated		Total
December 31, 2022
Loans evaluated for ALL:
Individually	$	619	$	—	$	—	$	2,331	$	—	$	—	$	—	$	2,950
Collectively		143,878		73,688		24,393		564,331		235,602		6,199		—		1,048,091
Total	$	144,497	$	73,688	$	24,393	$	566,662	$	235,602	$	6,199	$	—	$	1,051,041
ALL established for ‎  loans evaluated:
Individually	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Collectively		459		234		343		7,493		4,846		133		667		14,175
ALL at December 31, 2022	$	459	$	234	$	343	$	7,493	$	4,846	$	133	$	667	$	14,175

Impaired Financing Receivables

	Impaired Loans
	With No Allowance				With Allowance
(Dollars in thousands)			Unpaid				Unpaid
	Recorded		Principal		Recorded		Principal		Related
December 31, 2022	Investment		Balance		Investment		Balance		Allowance
Residential Real Estate 1-4 Family
First liens	$	619	$	619	$	—	$	—	$	—
Junior liens and lines of credit		—		—		—		—		—
Total		619		619		—		—		—
Residential real estate - construction		—		—		—		—		—
Commercial real estate		2,331		2,331		—		—		—
Commercial		—		—		—		—		—
Total	$	2,950	$	2,950	$	—	$	—	$	—

Troubled Debt Restructuring Loans

								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
December 31, 2022
Residential real estate - construction	—	$	—	$	—	$	—	—	$	—
Residential real estate	5		619		619		—	—		—
Commercial real estate - owner occupied	3		783		783		—	—		—
Commercial real estate - farm land	3		1,466		1,466		—	—		—
Commercial real estate - construction and land development	—		—		—		—	—		—
Commercial real estate - other	1		82		82		—	—		—
Total	12	$	2,950	$	2,950	$	—	—	$	—
*The performing status is determined by the loans compliance with the modified terms. Nonperforming is considered 90 days or more past due.

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Leases (Tables)

3 Months Ended

Mar. 31, 2023

Leases [Abstract]

Schedule Of Lease Costs

	Three Months Ended ‎March 31,
(Dollars in thousands)	2023		2022
Operating lease cost	$	211	$	173
Short-term lease cost		4		123
Variable lease cost		36		25
Total lease cost	$	251	$	321

Schedule Of Measurement Of Lease Liabilities

	Three Months Ended ‎March 31,
(Dollars in thousands)	2023		2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	206	$	166
Weighted-average remaining lease term (years)		11.8		10.8
Weighted-average discount rate		3.38%		3.37%

Schedule Of Future Minimum Payments Operating Leases

(Dollars in thousands)
2023	$	624
2024		804
2025		752
2026		650
2027		507
2027 and beyond		4,084
Undiscounted cash flow		7,421
Imputed Interest		(1,422)
Total lease liability	$	5,999

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Derivatives (Tables)

3 Months Ended

Mar. 31, 2023

Derivatives [Abstract]

Schedule Of Fair Value Of Derivative Instruments

		Fair Value of Derivative Instruments
		Derivative Liabilities
(Dollars in thousands)		March 31, 2023					December 31, 2022
		Notional amount	Balance Sheet Location		Fair Value		Notional amount	Balance Sheet Location		Fair Value
Derivatives not designated as hedging instruments
Other Contracts	$	6,416	Other Liabilities	$	4	$	6,465	Other Liabilities	$	3
Total derivatives not designated as hedging instruments				$	4				$	3

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
		March 31, 2023		March 31, 2022
Other Contracts	Other income	$	(1)	$	8

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Pension (Tables)

3 Months Ended

Mar. 31, 2023

Pension [Abstract]

Schedule Of Net Periodic Pension Costs

	Three Months Ended
	March 31,
(Dollars in thousands)	2023		2022
Components of net periodic cost:
Service cost	$	54	$	86
Interest cost		202		168
Expected return on plan assets		(231)		(249)
Recognized net actuarial loss		—		150
Total pension expense	$	25	$	155

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

3 Months Ended

Mar. 31, 2023

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

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

(Dollars in thousands)	Fair Value at March 31, 2023
Asset Description	Level 1		Level 2		Level 3		Total
Equity securities, at fair value	$	387	$	—	$	—	$	387
Available for sale:
U.S. Treasury		74,263		—		—		74,263
Municipal		—		145,505		—		145,505
Corporate		—		23,999		—		23,999
Agency mortgage & asset-backed		—		146,092		—		146,092
Non-Agency mortgage & asset-backed		—		67,908		—		67,908
Total assets	$	74,650	$	383,504	$	—	$	458,154

(Dollars in thousands)	Fair Value at December 31, 2022
Asset Description	Level 1		Level 2		Level 3		Total
Equity securities, at fair value	$	411	$	—	$	—	$	411
Available for sale:
U.S. Treasury		90,257		—		—		90,257
Municipal		—		155,455		—		155,455
Corporate		—		24,239		—		24,239
Agency mortgage and asset-backed		—		150,935		—		150,935
Non-Agency mortgage and asset-backed		—		65,950		—		65,950
Total assets	$	90,668	$	396,579	$	—	$	487,247

Fair Value, By Balance Sheet Grouping

	March 31, 2023
	Carrying		Fair
(Dollars in thousands)	Amount		Value		Level 1		Level 2		Level 3
Financial assets, carried at cost:
Cash and cash equivalents	$	86,563	$	86,563	$	86,563	$	—	$	—
Long-term interest-bearing deposits in other banks		9,477		9,477		9,477		—		—
Loans held for sale		—		—		—		—		—
Net loans		1,063,337		1,025,387		—		—		1,025,387
Accrued interest receivable		5,784		5,784		—		—		5,784
Financial liabilities:
Deposits	$	1,502,110	$	1,501,309	$	—	$	1,501,309	$	—
Short-term borrowings		50,000		50,000		—		50,000		—
Subordinate notes		19,635		18,167		—		18,167		—
Accrued interest payable		670		670		—		670		—
	December 31, 2022
	Carrying		Fair
(Dollars in thousands)	Amount		Value		Level 1		Level 2		Level 3
Financial assets, carried at cost:
Cash and cash equivalents	$	64,899	$	64,899	$	64,899	$	—	$	—
Long-term interest-bearing deposits in other banks		13,975		13,975		13,975		—		—
Loans held for sale		283		287		—		287		—
Net loans		1,036,866		986,141		—		—		986,141
Accrued interest receivable		6,354		6,354		—		—		6,354
Financial liabilities:
Deposits	$	1,551,448	$	1,550,030	$	—	$	1,550,030	$	—
Subordinate notes		19,623		17,876		—		17,876		—
Accrued interest payable		192		192		—		192		—

 

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Deposits (Tables)

3 Months Ended

Mar. 31, 2023

Deposits [Abstract]

Schedule Of Deposits

	March 31,		December 31,			Change
(Dollars in thousands)	2023		2022			Amount	%
Noninterest-bearing checking	$	298,008	$	299,231	$	(1,223)	(0.4)
Interest-bearing checking		461,228		496,533		(35,305)	(7.1)
Money management		544,379		569,585		(25,206)	(4.4)
Savings		124,920		128,709		(3,789)	(2.9)
Total interest-bearing checking and savings		1,130,527		1,194,827		(64,300)	(5.4)
Time deposits		73,575		57,390		16,185	28.2
Total deposits	$	1,502,110	$	1,551,448	$	(49,338)	(3.2)
Overdrawn deposit accounts reclassified as loans	$	79	$	103

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Capital Ratios (Tables)

3 Months Ended

Mar. 31, 2023

Capital Ratios [Abstract]

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

			Regulatory Ratios
			Adequately	Well
	March 31,	December 31,	Capitalized	Capitalized
(Dollars in thousands)	2023	2022	Minimum	Minimum
Common Equity Tier 1 Risk-based Capital Ratio (1)
Franklin Financial Services Corporation	14.24%	14.22%	N/A	N/A
Farmers & Merchants Trust Company	14.74%	14.63%	4.50%	6.50%
Tier 1 Risk-based Capital Ratio (2)
Franklin Financial Services Corporation	14.24%	14.22%	N/A	N/A
Farmers & Merchants Trust Company	14.74%	14.63%	6.00%	8.00%
Total Risk-based Capital Ratio (3)
Franklin Financial Services Corporation	17.21%	17.21%	N/A	N/A
Farmers & Merchants Trust Company	15.99%	15.88%	8.00%	10.00%
Tier 1 Leverage Ratio (4)
Franklin Financial Services Corporation	9.58%	8.95%	N/A	N/A
Farmers & Merchants Trust Company	9.92%	9.21%	4.00%	5.00%

(1)Common equity Tier 1 capital / total risk-weighted assets

(2)Tier 1 capital / total risk-weighted assets

(3)Total risk-based capital / total risk-weighted assets

(4)Tier 1 capital / average quarterly assets

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Commitments And Contingencies (Tables)

3 Months Ended

Mar. 31, 2023

Commitments And Contingencies [Abstract]

Outstanding Commitments

	March 31,		December 31,
(Dollars in thousands)	2023		2022
Financial instruments whose contract amounts represent credit risk
Commercial commitments to extend credit	$	303,262	$	275,867
Consumer commitments to extend credit (secured)		92,054		93,124
Consumer commitments to extend credit (unsecured)		4,936		5,247
	$	400,252	$	374,238
Standby letters of credit	$	27,819	$	30,734

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Basis Of Presentation (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Basis Of Presentation [Abstract]
Weighted average shares outstanding (basic)	4,395	4,446
Impact of common stock equivalents	22	24
Weighted average shares outstanding (diluted)	4,417	4,470
Anti-dilutive options excluded from calculation	25	30
Net income	$ 3,292	$ 3,012
Basic earnings per share	$ 0.75	$ 0.68
Diluted earnings per share	$ 0.75	$ 0.67

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Recent Accounting Pronouncements (Narrative) (Details) - USD ($) $ in Thousands	Mar. 31, 2023	Jan. 01, 2023	Dec. 31, 2022	Mar. 31, 2022	Dec. 31, 2021
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Allowance for loan losses	$ 14,109		$ 14,175
Allowance for credit losses	14,109		14,175	$ 15,050	$ 15,066
Increase of Retained earnings	127,877		125,892
Loans evaluated for allowance individually			2,950
Impact of Adoption, Adjustment [Member]
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Allowance for loan losses			(536)
Allowance for credit losses			(536)
Increase of Retained earnings		$ 98
Increase of deferred tax liabilities			26
Loans evaluated for allowance individually			3,000
Accounting Standards Update 2016-13 [Member] | Restatement Adjustment [Member]
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Allowance for credit losses	412
First Liens [Member]
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Allowance for loan losses			459
First Liens [Member] | Impact of Adoption, Adjustment [Member]
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Allowance for loan losses			1,096
OBS [Member]
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Allowance for credit losses			1,475
OBS [Member] | Impact of Adoption, Adjustment [Member]
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Allowance for credit losses			412
Residential Real Estate [Member] | First Liens [Member]
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Allowance for loan losses			459
Allowance for credit losses	1,624		459	480	475
Loans evaluated for allowance individually			619
Residential Real Estate [Member] | First Liens [Member] | Impact of Adoption, Adjustment [Member]
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Allowance for credit losses			1,096
Residential Real Estate [Member] | Junior Liens & Lines Of Credit [Member]
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Allowance for loan losses			234
Allowance for credit losses	690		234	253	252
Residential Real Estate [Member] | Junior Liens & Lines Of Credit [Member] | Impact of Adoption, Adjustment [Member]
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Allowance for credit losses			493
Residential Real Estate - Construction [Member]
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Allowance for loan losses			343
Allowance for credit losses	190		343	329	325
Residential Real Estate - Construction [Member] | Impact of Adoption, Adjustment [Member]
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Allowance for loan losses			(95)
Allowance for credit losses			(95)
Residential Real Estate - Construction [Member] | Junior Liens & Lines Of Credit [Member]
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Allowance for loan losses			234
Residential Real Estate - Construction [Member] | Junior Liens & Lines Of Credit [Member] | Impact of Adoption, Adjustment [Member]
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Allowance for loan losses			493
Commercial Real Estate [Member]
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Allowance for loan losses			7,493
Allowance for credit losses	8,236		7,493	7,962	8,168
Loans evaluated for allowance individually			2,331
Commercial Real Estate [Member] | Impact of Adoption, Adjustment [Member]
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Allowance for loan losses			584
Allowance for credit losses			584
Commercial [Member]
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Allowance for loan losses			4,846
Allowance for credit losses	3,275		4,846	5,183	5,127
Commercial [Member] | Impact of Adoption, Adjustment [Member]
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Allowance for loan losses			(1,907)
Allowance for credit losses			(1,907)
Consumer [Member]
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Allowance for loan losses			133
Allowance for credit losses	$ 94		133	125	130
Consumer [Member] | Impact of Adoption, Adjustment [Member]
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Allowance for loan losses			(40)
Allowance for credit losses			(40)
Unallocated [Member]
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Allowance for loan losses			667
Allowance for credit losses			667	$ 718	$ 589
Unallocated [Member] | Impact of Adoption, Adjustment [Member]
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Allowance for loan losses			(667)
Allowance for credit losses			$ (667)

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Recent Accounting Pronouncements (Schedule of Impact of ASC 326) (Details) - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022	Mar. 31, 2022	Dec. 31, 2021
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Allowance for loan losses	$ 14,109	$ 14,175
Allowance for credit losses	14,109	14,175	$ 15,050	$ 15,066
Impact of Adoption, Adjustment [Member]
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Allowance for loan losses		(536)
Allowance for credit losses		(536)
As Reported Under ASC 326, Adjusted Balance [Member]
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Allowance for loan losses		13,639
OBS [Member]
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Allowance for credit losses		1,475
OBS [Member] | Impact of Adoption, Adjustment [Member]
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Allowance for credit losses		412
OBS [Member] | As Reported Under ASC 326, Adjusted Balance [Member]
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Allowance for credit losses		1,887
First Liens [Member]
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Allowance for loan losses		459
First Liens [Member] | Impact of Adoption, Adjustment [Member]
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Allowance for loan losses		1,096
First Liens [Member] | As Reported Under ASC 326, Adjusted Balance [Member]
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Allowance for loan losses		1,555
Residential Real Estate [Member] | First Liens [Member]
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Allowance for loan losses		459
Allowance for credit losses	1,624	459	480	475
Residential Real Estate [Member] | First Liens [Member] | Impact of Adoption, Adjustment [Member]
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Allowance for credit losses		1,096
Residential Real Estate [Member] | Junior Liens & Lines Of Credit [Member]
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Allowance for loan losses		234
Allowance for credit losses	690	234	253	252
Residential Real Estate [Member] | Junior Liens & Lines Of Credit [Member] | Impact of Adoption, Adjustment [Member]
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Allowance for credit losses		493
Residential Real Estate - Construction [Member]
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Allowance for loan losses		343
Allowance for credit losses	190	343	329	325
Residential Real Estate - Construction [Member] | Impact of Adoption, Adjustment [Member]
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Allowance for loan losses		(95)
Allowance for credit losses		(95)
Residential Real Estate - Construction [Member] | As Reported Under ASC 326, Adjusted Balance [Member]
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Allowance for loan losses		248
Residential Real Estate - Construction [Member] | Junior Liens & Lines Of Credit [Member]
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Allowance for loan losses		234
Residential Real Estate - Construction [Member] | Junior Liens & Lines Of Credit [Member] | Impact of Adoption, Adjustment [Member]
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Allowance for loan losses		493
Residential Real Estate - Construction [Member] | Junior Liens & Lines Of Credit [Member] | As Reported Under ASC 326, Adjusted Balance [Member]
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Allowance for loan losses		727
Commercial Real Estate [Member]
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Allowance for loan losses		7,493
Allowance for credit losses	8,236	7,493	7,962	8,168
Commercial Real Estate [Member] | Impact of Adoption, Adjustment [Member]
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Allowance for loan losses		584
Allowance for credit losses		584
Commercial Real Estate [Member] | As Reported Under ASC 326, Adjusted Balance [Member]
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Allowance for loan losses		8,077
Commercial [Member]
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Allowance for loan losses		4,846
Allowance for credit losses	3,275	4,846	5,183	5,127
Commercial [Member] | Impact of Adoption, Adjustment [Member]
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Allowance for loan losses		(1,907)
Allowance for credit losses		(1,907)
Commercial [Member] | As Reported Under ASC 326, Adjusted Balance [Member]
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Allowance for loan losses		2,939
Consumer [Member]
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Allowance for loan losses		133
Allowance for credit losses	$ 94	133	125	130
Consumer [Member] | Impact of Adoption, Adjustment [Member]
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Allowance for loan losses		(40)
Allowance for credit losses		(40)
Consumer [Member] | As Reported Under ASC 326, Adjusted Balance [Member]
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Allowance for loan losses		93
Unallocated [Member]
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Allowance for loan losses		667
Allowance for credit losses		667	$ 718	$ 589
Unallocated [Member] | Impact of Adoption, Adjustment [Member]
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Allowance for loan losses		(667)
Allowance for credit losses		$ (667)

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Accumulated Other Comprehensive Income (Loss) (Details) - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022
Accumulated Other Comprehensive Income (Loss) [Line Items]
Total accumulated other comprehensive loss	$ (43,996)	$ (51,287)
Accumulated Other Comprehensive Income (Loss), Debt Securities [Member]
Accumulated Other Comprehensive Income (Loss) [Line Items]
Accumulated other comprehensive loss, Before tax	(52,269)	(61,497)
Accumulated other comprehensive loss, Tax effect	10,977	12,914
Total accumulated other comprehensive loss	(41,292)	(48,583)
Accumulated Other Comprehensive Income (Loss), Pension [Member]
Accumulated Other Comprehensive Income (Loss) [Line Items]
Accumulated other comprehensive loss, Before tax	(3,423)	(3,423)
Accumulated other comprehensive loss, Tax effect	719	719
Total accumulated other comprehensive loss	$ (2,704)	$ (2,704)

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Investments (Narrative) (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2023 USD ($) item security	Mar. 31, 2022 USD ($)	Dec. 31, 2022 USD ($) security
Schedule of Available-for-sale Securities [Line Items]
Fair value	$ 457,767		$ 486,836
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	571		591
Fair value of temporarily impaired securities	$ 448,593		$ 474,847
Unrealized Losses	52,365		61,531
Decrease in unrealized loss position	9,200
Equity securities	387		411
Debt Securities, Available-for-sale, Realized Gain (Loss)	(602)
Proceeds from Sale of Debt Securities, Available-for-sale	32,855
Corporate [Member]
Schedule of Available-for-sale Securities [Line Items]
Fair value	$ 23,999		$ 24,239
Number of debt securities | security	51		46
Fair value of temporarily impaired securities	$ 23,999		$ 22,589
Unrealized Losses	2,382		2,077
Public Funds And Trust Deposits [Member]
Schedule of Available-for-sale Securities [Line Items]
Fair value	$ 147,100		$ 208,900
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	Mar. 31, 2023	Dec. 31, 2022
Schedule of Available-for-sale Securities [Line Items]
Amortized cost	$ 510,036	$ 548,333
Gross unrealized gains	96	34
Gross unrealized losses	(52,365)	(61,531)
Fair value	457,767	486,836
U.S Treasury [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized cost	84,025	101,980
Gross unrealized losses	(9,762)	(11,723)
Fair value	74,263	90,257
Municipal [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized cost	170,095	186,007
Gross unrealized gains		14
Gross unrealized losses	(24,590)	(30,566)
Fair value	145,505	155,455
Corporate [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized cost	26,381	26,316
Gross unrealized losses	(2,382)	(2,077)
Fair value	23,999	24,239
Agency Mortgage-Backed & Asset-Backed [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized cost	156,934	163,274
Gross unrealized gains	68	19
Gross unrealized losses	(10,910)	(12,358)
Fair value	146,092	150,935
Non-Agency Mortgage & Asset-Backed [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized cost	72,601	70,756
Gross unrealized gains	28	1
Gross unrealized losses	(4,721)	(4,807)
Fair value	$ 67,908	$ 65,950

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Investments (Amortized Cost And Fair Value Of Debt Securities, By Contractual Maturity) (Details) - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022
Schedule of Available-for-sale Securities [Line Items]
Amortized cost	$ 510,036	$ 548,333
Fair Value	457,767	$ 486,836
Debt Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Due after one year through five years, Amortized cost	10,911
Due after five years through ten years, Amortized cost	144,217
Due after ten years, Amortized cost	125,373
Amortized cost	280,501
Due after one year through five years, Fair value	9,946
Due after five years through ten years, Fair value	127,268
Due after ten years, Fair value	106,553
Fair Value	243,767
Mortgage And Asset-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Mortgage-backed securities, Amortized cost	229,535
Mortgage-backed securities, Fair value	$ 214,000

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Investments (Composition Of Net Realized Securities Gains (Losses)) (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Investments [Abstract]
Proceeds	$ 32,855
Gross gains realized	12
Gross losses realized	(614)
Net (losses) gains realized	(602)
Tax benefit (provision) on net (losses) gains realized	$ 126

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Investments (Schedule Of Unrealized Loss On Investments) (Details) $ in Thousands	Mar. 31, 2023 USD ($) security	Dec. 31, 2022 USD ($) security
Schedule of Available-for-sale Securities [Line Items]
Less than 12 months: Fair Value	$ 52,945	$ 208,157
Less than 12 months: Unrealized Losses	$ (2,642)	$ (16,459)
Less than 12 months: Count | security	107	309
12 months or more: Fair Value	$ 395,648	$ 266,690
12 months or more: Unrealized Losses	$ (49,723)	$ (45,072)
12 months or more: Count | security	464	282
Fair Value	$ 448,593	$ 474,847
Unrealized Losses	$ (52,365)	$ (61,531)
Count | security	571	591
U.S Treasury [Member]
Schedule of Available-for-sale Securities [Line Items]
Less than 12 months: Fair Value		$ 17,598
Less than 12 months: Unrealized Losses		$ (183)
Less than 12 months: Count | security		3
12 months or more: Fair Value	$ 74,263	$ 72,659
12 months or more: Unrealized Losses	$ (9,762)	$ (11,540)
12 months or more: Count | security	28	28
Fair Value	$ 74,263	$ 90,257
Unrealized Losses	$ (9,762)	$ (11,723)
Count | security	28	31
Municipal [Member]
Schedule of Available-for-sale Securities [Line Items]
Less than 12 months: Fair Value	$ 1,332	$ 73,644
Less than 12 months: Unrealized Losses	$ (171)	$ (9,586)
Less than 12 months: Count | security	3	90
12 months or more: Fair Value	$ 144,173	$ 80,503
12 months or more: Unrealized Losses	$ (24,419)	$ (20,981)
12 months or more: Count | security	173	104
Fair Value	$ 145,505	$ 154,147
Unrealized Losses	$ (24,590)	$ (30,566)
Count | security	176	194
Corporate [Member]
Schedule of Available-for-sale Securities [Line Items]
Less than 12 months: Fair Value	$ 7,462	$ 12,221
Less than 12 months: Unrealized Losses	$ (576)	$ (851)
Less than 12 months: Count | security	17	25
12 months or more: Fair Value	$ 16,537	$ 10,368
12 months or more: Unrealized Losses	$ (1,806)	$ (1,226)
12 months or more: Count | security	34	21
Fair Value	$ 23,999	$ 22,589
Unrealized Losses	$ (2,382)	$ (2,077)
Count | security	51	46
Agency Mortgage-Backed & Asset-Backed [Member]
Schedule of Available-for-sale Securities [Line Items]
Less than 12 months: Fair Value	$ 17,046	$ 55,393
Less than 12 months: Unrealized Losses	$ (479)	$ (2,747)
Less than 12 months: Count | security	58	139
12 months or more: Fair Value	$ 124,043	$ 88,953
12 months or more: Unrealized Losses	$ (10,431)	$ (9,611)
12 months or more: Count | security	192	113
Fair Value	$ 141,089	$ 144,346
Unrealized Losses	$ (10,910)	$ (12,358)
Count | security	250	252
Non-Agency Mortgage & Asset-Backed [Member]
Schedule of Available-for-sale Securities [Line Items]
Less than 12 months: Fair Value	$ 27,105	$ 49,301
Less than 12 months: Unrealized Losses	$ (1,416)	$ (3,092)
Less than 12 months: Count | security	29	52
12 months or more: Fair Value	$ 36,632	$ 14,207
12 months or more: Unrealized Losses	$ (3,305)	$ (1,715)
12 months or more: Count | security	37	16
Fair Value	$ 63,737	$ 63,508
Unrealized Losses	$ (4,721)	$ (4,807)
Count | security	66	68

XML

Loans (Narrative) (Details)	3 Months Ended
	Mar. 31, 2023
Financing Receivable, Allowance for Credit Losses [Line Items]
PPP Program, guarantee percentage	100.00%
PPP program, interest rate	1.00%
Minimum [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
PPP Program, maturity period	2 years
Maximum [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
PPP Program, maturity period	5 years

XML

Loans (Schedule Of Loans Outstanding) (Details) - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	$ 1,077,446	$ 1,051,041
Less: Allowance for credit losses	(14,109)	(14,175)
Net Loans	1,063,337	1,036,866
Net unamortized deferred loan costs	1,887	2,027
Total	676,906	678,523
Residential Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	229,232	218,185
Total	229,232
Residential Real Estate - Construction [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	19,451	24,393
Less: Allowance for credit losses		(343)
Total	19,451
Commercial Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	575,516	566,662
Less: Allowance for credit losses		(7,493)
Total	575,516
Commercial [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	247,042	235,602
Less: Allowance for credit losses		(4,846)
Total	247,042
Total Commercial [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	822,558	802,264
Consumer [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	6,205	6,199
Less: Allowance for credit losses		(133)
Total	6,205
Consumer First Liens [Member] | Residential Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	93,540	82,795
Consumer Junior Liens And Lines Of Credit [Member] | Residential Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	68,765	69,561
Consumer [Member] | Residential Real Estate - Construction [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	9,559	13,908
Commercial First Lien [Member] | Residential Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	62,569	61,702
Commercial Junior Liens And Lines Of Credit [Member] | Residential Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	4,358	4,127
Commercial [Member] | Residential Real Estate - Construction [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	9,892	10,485
First Liens [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Less: Allowance for credit losses		(459)
First Liens [Member] | Residential Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	156,109	144,497
Less: Allowance for credit losses		(459)
Junior Lines And Lines Of Credit [Member] | Residential Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	73,123	73,688
PPP [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	88	179
FHLB [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Net loans	585,601	585,601
Federal Reserve Bank Advances [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Net loans	$ 91,305	$ 92,922

XML

Loan Quality And Allowance For Credit Losses (Narrative) (Details) - USD ($)	Mar. 31, 2023	Dec. 31, 2022
Loan Quality And Allowance For Credit Losses [Abstract]
Loan Deferral Or Modification, Granted, Amount	$ 120,000	$ 120,000

XML

Loan Quality and Allowance for Credit Losses (Schedule of loans by Year of origination and Internally Assigned Risk Ratings) (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Dec. 31, 2022
Financing Receivable, Allowance for Credit Losses [Line Items]
Total	$ 676,906	$ 678,523
Residential Real Estate [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
2023	10,654
2022	33,591
2021	29,415
2020	22,317
2019	9,077
Prior	57,290
Revolving Loans Amortized Cost Basis	49,347
Revolving Loans Converted to Term	17,541
Total	229,232
Residential Real Estate [Member] | Residential Real Estate Commercial [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
2023	2,581
2022	9,807
2021	12,658
2020	10,043
2019	3,045
Prior	25,496
Revolving Loans Amortized Cost Basis	2,322
Revolving Loans Converted to Term	975
Total	66,927
Residential Real Estate [Member] | Residential Real Estate Commercial [Member] | Pass [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
2023	2,581
2022	9,807
2021	12,658
2020	10,043
2019	3,045
Prior	25,496
Revolving Loans Amortized Cost Basis	2,202
Revolving Loans Converted to Term	975
Total	66,807
Residential Real Estate [Member] | Residential Real Estate Commercial [Member] | Substandard [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Revolving Loans Amortized Cost Basis	120
Total	120
Residential Real Estate [Member] | Residential Real Estate Consumer [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
2023	8,073
2022	23,784
2021	16,757
2020	12,274
2019	6,032
Prior	31,794
Revolving Loans Amortized Cost Basis	47,025
Revolving Loans Converted to Term	16,566
Total	162,305
Residential Real Estate [Member] | Residential Real Estate Consumer [Member] | Nonperforming [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Prior	104
Total	104
Residential Real Estate [Member] | Residential Real Estate Consumer [Member] | Performing [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
2023	8,073
2022	23,784
2021	16,757
2020	12,274
2019	6,032
Prior	31,690
Revolving Loans Amortized Cost Basis	47,025
Revolving Loans Converted to Term	16,566
Total	162,201
Residential Real Estate - Construction [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
2023	676
2022	12,346
2021	2,316
2020	238
2019	731
Prior	3,144
Total	19,451
Residential Real Estate - Construction [Member] | Residential Real Estate Commercial [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
2023	594
2022	2,869
2021	2,316
2020	238
2019	731
Prior	3,144
Total	9,892
Residential Real Estate - Construction [Member] | Residential Real Estate Commercial [Member] | Pass [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
2023	594
2022	2,869
2021	2,316
2020	238
2019	731
Prior	3,144
Total	9,892
Residential Real Estate - Construction [Member] | Residential Real Estate Consumer [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
2023	82
2022	9,477
Total	9,559
Residential Real Estate - Construction [Member] | Residential Real Estate Consumer [Member] | Performing [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
2023	82
2022	9,477
Total	9,559
Commercial Real Estate [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
2023	23,385
2022	113,854
2021	98,742
2020	333,799
Revolving Loans Amortized Cost Basis	5,736
Total	575,516
Commercial Real Estate [Member] | Pass [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
2023	23,385
2022	113,854
2021	98,742
2020	329,898
Revolving Loans Amortized Cost Basis	5,686
Total	571,565
Commercial Real Estate [Member] | Substandard [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
2020	2,812
Revolving Loans Amortized Cost Basis	50
Total	2,862
Commercial Real Estate [Member] | OAEM [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
2020	1,089
Total	1,089
Commercial [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
2023	15,512
2022	37,884
2021	46,469
2020	106,562
Revolving Loans Amortized Cost Basis	40,615
Total	247,042
Current period gross charge-offs, 2023	(5)
Current period gross charge-offs, 2021	(81)
Current period gross charge-offs, Total	(86)
Commercial [Member] | Pass [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
2023	15,512
2022	37,608
2021	46,469
2020	102,789
Revolving Loans Amortized Cost Basis	39,646
Total	242,024
Commercial [Member] | Substandard [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
2022	276
2020	3,773
Revolving Loans Amortized Cost Basis	969
Total	5,018
Consumer [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
2023	2,324
2022	952
2021	534
2020	502
Revolving Loans Amortized Cost Basis	1,893
Total	6,205
Current period gross charge-offs, 2023	(13)
Current period gross charge-offs, 2021	(6)
Current period gross charge-offs, Revolving loans amortized cost basis	(15)
Current period gross charge-offs, Total	(34)
Consumer [Member] | Performing [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
2023	2,324
2022	952
2021	534
2020	502
Revolving Loans Amortized Cost Basis	1,893
Total	$ 6,205

XML

Loan Quality And Allowance For Credit Losses (Schedule of nonaccrual loans and loans past due over 90 days and still on accrual by class of loans) (Details) $ in Thousands	Mar. 31, 2023 USD ($)
Financing Receivable, Impaired [Line Items]
Nonaccrual, without ACL	$ 120
90 Days+ Past Due [Member]
Financing Receivable, Impaired [Line Items]
Loans past due 90 days or more and still accruing	106
Residential Real Estate [Member]
Financing Receivable, Impaired [Line Items]
Nonaccrual, without ACL	120
Residential Real Estate [Member] | 90 Days+ Past Due [Member]
Financing Receivable, Impaired [Line Items]
Loans past due 90 days or more and still accruing	106
First Liens [Member] | Residential Real Estate [Member]
Financing Receivable, Impaired [Line Items]
Nonaccrual, without ACL	120
First Liens [Member] | Residential Real Estate [Member] | 90 Days+ Past Due [Member]
Financing Receivable, Impaired [Line Items]
Loans past due 90 days or more and still accruing	104
Junior Liens & Lines Of Credit [Member] | Residential Real Estate [Member] | 90 Days+ Past Due [Member]
Financing Receivable, Impaired [Line Items]
Loans past due 90 days or more and still accruing	$ 2

XML

Loan Quality And Allowance For Credit Losses (Internal Credit Rating For The Loan Portfolio) (Details) - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans	$ 1,077,446	$ 1,051,041
Pass [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans		1,039,407
Substandard [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans		7,788
OAEM [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans		3,846
Residential Real Estate [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans	229,232	218,185
Residential Real Estate [Member] | Pass [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans		218,065
Residential Real Estate [Member] | Substandard [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans		120
Residential Real Estate [Member] | First Liens [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans	156,109	144,497
Residential Real Estate [Member] | First Liens [Member] | Pass [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans		144,377
Residential Real Estate [Member] | First Liens [Member] | Substandard [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans		120
Residential Real Estate [Member] | Junior Liens & Lines Of Credit [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans	73,123	73,688
Residential Real Estate [Member] | Junior Liens & Lines Of Credit [Member] | Pass [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans		73,688
Residential Real Estate - Construction [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans	19,451	24,393
Residential Real Estate - Construction [Member] | Pass [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans		24,393
Commercial Real Estate [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans	575,516	566,662
Commercial Real Estate [Member] | Pass [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans		562,665
Commercial Real Estate [Member] | Substandard [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans		2,902
Commercial Real Estate [Member] | OAEM [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans		1,095
Commercial [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans	247,042	235,602
Commercial [Member] | Pass [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans		228,085
Commercial [Member] | Substandard [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans		4,766
Commercial [Member] | OAEM [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans		2,751
Consumer [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans	$ 6,205	6,199
Consumer [Member] | Pass [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans		$ 6,199

XML

Loan Quality And Allowance For Credit Losses (Aging Of Payments Of The Loan Portfolio) (Details) - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	$ 676,906	$ 678,523
Non-accrual loans		120
Total Loans	1,077,446	1,051,041
Current [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	1,076,343	2,434
30 - 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	806	2,189
60 - 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	71	232
90 Days+ Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	226	13
Total Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	1,103	2,421
Residential Real Estate [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	229,232
Non-accrual loans		120
Total Loans	229,232	218,185
Residential Real Estate [Member] | Current [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	228,722	217,058
Residential Real Estate [Member] | 30 - 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	254	830
Residential Real Estate [Member] | 60 - 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	30	177
Residential Real Estate [Member] | 90 Days+ Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	226
Residential Real Estate [Member] | Total Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	510	1,127
Residential Real Estate [Member] | First Liens [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual loans		120
Total Loans	156,109	144,497
Residential Real Estate [Member] | First Liens [Member] | Current [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	155,815	143,860
Residential Real Estate [Member] | First Liens [Member] | 30 - 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	70	340
Residential Real Estate [Member] | First Liens [Member] | 60 - 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans		177
Residential Real Estate [Member] | First Liens [Member] | 90 Days+ Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	224
Residential Real Estate [Member] | First Liens [Member] | Total Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	294	637
Residential Real Estate [Member] | Junior Liens & Lines Of Credit [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Loans	73,123	73,688
Residential Real Estate [Member] | Junior Liens & Lines Of Credit [Member] | Current [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	72,907	73,198
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	184	490
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	30
Residential Real Estate [Member] | Junior Liens & Lines Of Credit [Member] | 90 Days+ Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	2
Residential Real Estate [Member] | Junior Liens & Lines Of Credit [Member] | Total Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	216	490
Residential Real Estate - Construction [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	19,451
Total Loans	19,451	24,393
Residential Real Estate - Construction [Member] | Current [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	19,451	24,393
Commercial Real Estate [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	575,516
Total Loans	575,516	566,662
Commercial Real Estate [Member] | Current [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	575,321	566,013
Commercial Real Estate [Member] | 30 - 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	195	649
Commercial Real Estate [Member] | Total Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	195	649
Commercial [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	247,042
Total Loans	247,042	235,602
Commercial [Member] | Current [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	246,697	234,871
Commercial [Member] | 30 - 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	335	681
Commercial [Member] | 60 - 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	10	50
Commercial [Member] | Total Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	345	731
Consumer [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	6,205
Total Loans	6,205	6,199
Consumer [Member] | Current [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	6,152	6,152
Consumer [Member] | 30 - 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	22	29
Consumer [Member] | 60 - 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	31	5
Consumer [Member] | 90 Days+ Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans		13
Consumer [Member] | Total Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	$ 53	$ 47

XML

Loan Quality And Allowance For Credit Losses (Allowance for Credit Losses (ACL), By Loan Segment) (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022	Dec. 31, 2022
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance, Beginning Balance	$ 14,175	$ 15,066
Charge-offs	(120)	(45)
Recoveries	123	29
Provision	467
Allowance, Ending Balance	14,109	15,050
Loans evaluated for allowance individually			$ 2,950
Loans evaluated for allowance collectively			1,048,091
Total Loans	1,077,446		1,051,041
Allowance established for loan evaluated collectively			14,175
Total Allowance	14,109		14,175
Impact of Adoption, Adjustment [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance, Beginning Balance	(536)
Loans evaluated for allowance individually			3,000
Total Allowance			(536)
Residential Real Estate [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Total Loans	229,232		218,185
Residential Real Estate - Construction [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance, Beginning Balance	343	325
Recoveries	39
Provision	(97)	4
Allowance, Ending Balance	190	329
Loans evaluated for allowance collectively			24,393
Total Loans	19,451		24,393
Allowance established for loan evaluated collectively			343
Total Allowance			343
Residential Real Estate - Construction [Member] | Impact of Adoption, Adjustment [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance, Beginning Balance	(95)
Total Allowance			(95)
Commercial Real Estate [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance, Beginning Balance	7,493	8,168
Provision	159	(206)
Allowance, Ending Balance	8,236	7,962
Loans evaluated for allowance individually			2,331
Loans evaluated for allowance collectively			564,331
Total Loans	575,516		566,662
Allowance established for loan evaluated collectively			7,493
Total Allowance			7,493
Commercial Real Estate [Member] | Impact of Adoption, Adjustment [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance, Beginning Balance	584
Total Allowance			584
Commercial [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance, Beginning Balance	4,846	5,127
Charge-offs	(86)	(1)
Recoveries	67	5
Provision	355	52
Allowance, Ending Balance	3,275	5,183
Loans evaluated for allowance collectively			235,602
Total Loans	247,042		235,602
Allowance established for loan evaluated collectively			4,846
Total Allowance			4,846
Commercial [Member] | Impact of Adoption, Adjustment [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance, Beginning Balance	(1,907)
Total Allowance			(1,907)
Consumer [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance, Beginning Balance	133	130
Charge-offs	(34)	(24)
Recoveries	15	8
Provision	20	11
Allowance, Ending Balance	94	125
Loans evaluated for allowance collectively			6,199
Total Loans	6,205		6,199
Allowance established for loan evaluated collectively			133
Total Allowance			133
Consumer [Member] | Impact of Adoption, Adjustment [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance, Beginning Balance	(40)
Total Allowance			(40)
Unallocated [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance, Beginning Balance	667	589
Provision		129
Allowance, Ending Balance		718
Allowance established for loan evaluated collectively			667
Total Allowance			667
Unallocated [Member] | Impact of Adoption, Adjustment [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance, Beginning Balance	(667)
Total Allowance			(667)
First Liens [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Total Allowance			459
First Liens [Member] | Impact of Adoption, Adjustment [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Total Allowance			1,096
First Liens [Member] | Residential Real Estate [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance, Beginning Balance	459	475
Charge-offs		(20)
Recoveries	2	15
Provision	67	10
Allowance, Ending Balance	1,624	480
Loans evaluated for allowance individually			619
Loans evaluated for allowance collectively			143,878
Total Loans	156,109		144,497
Allowance established for loan evaluated collectively			459
Total Allowance			459
First Liens [Member] | Residential Real Estate [Member] | Impact of Adoption, Adjustment [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance, Beginning Balance	1,096
Junior Liens & Lines Of Credit [Member] | Residential Real Estate [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance, Beginning Balance	234	252
Recoveries		1
Provision	(37)
Allowance, Ending Balance	690	$ 253
Loans evaluated for allowance collectively			73,688
Total Loans	73,123		73,688
Allowance established for loan evaluated collectively			234
Total Allowance			234
Junior Liens & Lines Of Credit [Member] | Residential Real Estate [Member] | Impact of Adoption, Adjustment [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance, Beginning Balance	$ 493
Junior Liens & Lines Of Credit [Member] | Residential Real Estate - Construction [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Total Allowance			234
Junior Liens & Lines Of Credit [Member] | Residential Real Estate - Construction [Member] | Impact of Adoption, Adjustment [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Total Allowance			$ 493

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Loan Quality And Allowance For Credit Losses (Impaired Financing Receivables) (Details) $ in Thousands	Dec. 31, 2022 USD ($)
Financing Receivable, Impaired [Line Items]
Recorded Investment With No Allowance	$ 2,950
Unpaid Principal Balance With No Allowance	2,950
Residential Real Estate [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment With No Allowance	619
Unpaid Principal Balance With No Allowance	619
Residential Real Estate [Member] | First Liens [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment With No Allowance	619
Unpaid Principal Balance With No Allowance	619
Commercial Real Estate [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment With No Allowance	2,331
Unpaid Principal Balance With No Allowance	$ 2,331

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Loan Quality And Allowance For Credit Losses (Troubled Debt Restructuring Loans) (Details) contract in Thousands, $ in Thousands	Dec. 31, 2022 USD ($) contract
Financing Receivable, Modifications [Line Items]
Troubled Debt Restructurings: Number of Contracts | contract	12
Troubled Debt Restructurings: Recorded Investment	$ 2,950
Performing [Member]
Financing Receivable, Modifications [Line Items]
Troubled Debt Restructurings: Recorded Investment	$ 2,950
Residential Real Estate [Member]
Financing Receivable, Modifications [Line Items]
Troubled Debt Restructurings: Number of Contracts | contract	5
Troubled Debt Restructurings: Recorded Investment	$ 619
Residential Real Estate [Member] | Performing [Member]
Financing Receivable, Modifications [Line Items]
Troubled Debt Restructurings: Recorded Investment	$ 619
Commercial Real Estate - Owner Occupied [Member]
Financing Receivable, Modifications [Line Items]
Troubled Debt Restructurings: Number of Contracts | contract	3
Troubled Debt Restructurings: Recorded Investment	$ 783
Commercial Real Estate - Owner Occupied [Member] | Performing [Member]
Financing Receivable, Modifications [Line Items]
Troubled Debt Restructurings: Recorded Investment	$ 783
Commercial Real Estate - Farm Land [Member]
Financing Receivable, Modifications [Line Items]
Troubled Debt Restructurings: Number of Contracts | contract	3
Troubled Debt Restructurings: Recorded Investment	$ 1,466
Commercial Real Estate - Farm Land [Member] | Performing [Member]
Financing Receivable, Modifications [Line Items]
Troubled Debt Restructurings: Recorded Investment	$ 1,466
Commercial Real Estate [Member]
Financing Receivable, Modifications [Line Items]
Troubled Debt Restructurings: Number of Contracts | contract	1
Troubled Debt Restructurings: Recorded Investment	$ 82
Commercial Real Estate [Member] | Performing [Member]
Financing Receivable, Modifications [Line Items]
Troubled Debt Restructurings: Recorded Investment	$ 82

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Leases (Narrative) (Details)	3 Months Ended
	Mar. 31, 2023 item
Leases [Abstract]
Number of leases with a variable payment based on an index	1
Lessee, Operating Lease, Option to Extend	may contain renewal options after the initial term
Lessee, Operating Lease, Restriction or Covenant	None of the leases contain any restrictive covenants

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Leases (Schedule Of Lease Costs) (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Leases [Abstract]
Operating lease cost	$ 211	$ 173
Short-term lease cost	4	123
Variable lease cost	36	25
Total lease cost	$ 251	$ 321

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Leases (Schedule Of Measurement Of Lease Liabilities) (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Leases [Abstract]
Operating cash flows from operating leases	$ 206	$ 166
Weighted-average remaining lease term (years)	11 years 9 months 18 days	10 years 9 months 18 days
Weighted-average discount rate	3.38%	3.37%

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Leases (Schedule Of Future Minimum Payments Operating Leases) (Details) - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022
Leases [Abstract]
2023	$ 624
2024	804
2025	752
2026	650
2027	507
2027 and beyond	4,084
Undiscounted cash flow	7,421
Imputed Interest	(1,422)
Total lease liability	$ 5,999	$ 6,144

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Other Real Estate Owned (Details) - USD ($)	Mar. 31, 2023	Dec. 31, 2022
Other Real Estate Owned [Abstract]
Other real estate owned	$ 0	$ 0

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Derivatives (Narrative) (Details) $ in Thousands	Mar. 31, 2023 USD ($)
Derivatives [Abstract]
Derivative, net	$ 4

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Derivatives (Schedule Of Fair Value Of Derivative Instruments) (Details) - Not Designated as Hedging Instrument [Member] - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022
Derivatives, Fair Value [Line Items]
Fair Value	$ 4	$ 3
Other Contracts [Member]
Derivatives, Fair Value [Line Items]
Notional Amount	6,416	6,465
Fair Value	$ 4	$ 3

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Derivatives (Schedule Of Effect Of Derivative Instruments On The Statement Of Income) (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Other Contracts [Member] | Other Income [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Amount of Gain or (Loss) Recognized in Income on Derivatives	$ (1)	$ 8

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Pension (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Pension [Abstract]
Service cost	$ 54	$ 86
Interest cost	202	168
Expected return on plan assets	(231)	(249)
Recognized net actuarial loss		150
Total pension expense	$ 25	$ 155

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Fair Value Measurements And Fair Values Of Financial Instruments (Narrative) (Details) - USD ($)	3 Months Ended
	Mar. 31, 2023	Dec. 31, 2022
Fair Value Measurements And Fair Values Of Financial Instruments [Abstract]
Derivative liabilities	$ 4,000	$ 3,000
Assets, Fair Value Disclosure	0
Total liabilities	0
Partial charge-offs on impaired loans	$ 0

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Fair Value Measurements And Fair Values Of Financial Instruments (Schedule Of Fair Value, Assets And Liabilities Measured On Recurring Basis) (Details) - USD ($)	Mar. 31, 2023	Dec. 31, 2022
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Equity securities, at fair value	$ 387,000	$ 411,000
Available for sale	457,767,000	486,836,000
Total assets	0
Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total assets	458,154,000	487,247,000
Level 1 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total assets	74,650,000	90,668,000
Level 2 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total assets	383,504,000	396,579,000
Equity Securities [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Equity securities, at fair value	387,000	411,000
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	387,000	411,000
U.S Treasury [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	74,263,000	90,257,000
U.S Treasury [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	74,263,000	90,257,000
U.S Treasury [Member] | Level 1 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	74,263,000	90,257,000
Municipal [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	145,505,000	155,455,000
Municipal [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	145,505,000	155,455,000
Municipal [Member] | Level 2 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	145,505,000	155,455,000
Corporate [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	23,999,000	24,239,000
Corporate [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	23,999,000	24,239,000
Corporate [Member] | Level 2 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	23,999,000	24,239,000
Agency Mortgage-Backed & Asset-Backed [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	146,092,000	150,935,000
Agency Mortgage-Backed & Asset-Backed [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	146,092,000	150,935,000
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	146,092,000	150,935,000
Non-Agency Mortgage & Asset-Backed [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	67,908,000	65,950,000
Non-Agency Mortgage & Asset-Backed [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available for sale	67,908,000	65,950,000
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	$ 67,908,000	$ 65,950,000

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Fair Value Measurements And Fair Values Of Financial Instruments (Schedule Of Fair Value On A Nonrecurring Basis) (Details)	Mar. 31, 2023 USD ($)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure	$ 0

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Fair Value Measurements And Fair Values Of Financial Instruments (Fair Value Inputs, Assets, Quantitative Information) (Details)	Mar. 31, 2023 USD ($)
Fair Value Measurements And Fair Values Of Financial Instruments [Abstract]
Assets, Fair Value Disclosure	$ 0

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Fair Value Measurements And Fair Values Of Financial Instruments (Fair Value, By Balance Sheet Grouping) (Details) - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022
Carrying Amount [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and cash equivalents	$ 86,563	$ 64,899
Long-term interest-bearing deposits in other banks	9,477	13,975
Loans held for sale		283
Net loans	1,063,337	1,036,866
Accrued interest receivable	5,784	6,354
Deposits	1,502,110	1,551,448
Short-term borrowings	50,000
Subordinate notes	19,635	19,623
Accrued interest payable	670	192
Fair Value [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and cash equivalents	86,563	64,899
Long-term interest-bearing deposits in other banks	9,477	13,975
Loans held for sale		287
Net loans	1,025,387	986,141
Accrued interest receivable	5,784	6,354
Deposits	1,501,309	1,550,030
Short-term borrowings	50,000
Subordinate notes	18,167	17,876
Accrued interest payable	670	192
Level 1 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and cash equivalents	86,563	64,899
Long-term interest-bearing deposits in other banks	9,477	13,975
Level 2 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Loans held for sale		287
Deposits	1,501,309	1,550,030
Short-term borrowings	50,000
Subordinate notes	18,167	17,876
Accrued interest payable	670	192
Level 3 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Net loans	1,025,387	986,141
Accrued interest receivable	$ 5,784	$ 6,354

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Deposits (Narrative) (Details) - USD ($) $ in Millions	Mar. 31, 2023	Dec. 31, 2022
Deposits [Abstract]
Time deposits greater than $250,000	$ 11.7	$ 8.8

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Deposits (Schedule Of Deposits) (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022	Dec. 31, 2022
Deposits [Abstract]
Noninterest-bearing checking	$ 298,008		$ 299,231
Interest-bearing checking	461,228		496,533
Money Management	544,379		569,585
Savings	124,920		128,709
Total interest-bearing checking and savings	1,130,527		1,194,827
Time deposits	73,575		57,390
Total deposits	1,502,110		1,551,448
Overdrawn deposit accounts reclassified as loans	79		$ 103
Increase (Decrease) in Deposits [Abstract]
Change, Noninterest-Bearing checking	(1,223)
Change, Interest-bearing checking	(35,305)
Change, Money management	(25,206)
Change, Savings	(3,789)
Change, Interest-bearing Checking and Savings	(64,300)
Change, Time Deposit	16,185	$ (5,002)
Total Deposits	$ (49,338)
Percentage change in deposits [Abstract]
Percentage Chagne in Noninterest-bearing checking	(0.40%)
Percentage Chagne in Interest-bearing checking	(7.10%)
Percentage Chagne in Money Management	(4.40%)
Percentage Chagne in Savings	(2.90%)
Percentage Change in interest-bearing checking and savings	(5.40%)
Percentage Change in Time deposits	28.20%
Percentage Change in Total deposits	(3.20%)

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Borrowings (Narrative) (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022	Dec. 31, 2022
Federal Home Loan Bank, Advances, Branch of FHLB Bank [Line Items]
Amount borrowed	$ 50,000
Subordinate notes	19,635		$ 19,623
Debt issuance costs	$ 365,000
Redemption period	5 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
Federal Reserve Bank Advances [Member]
Federal Home Loan Bank, Advances, Branch of FHLB Bank [Line Items]
Amount borrowed	50,000
Fair value of debt securities pledged	$ 72,000
Interest rate	4.38%

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Capital Ratios (Narrative) (Details) $ in Billions	3 Months Ended	12 Months Ended
	Mar. 31, 2023 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	7.99%

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Capital Ratios (Schedule Of The Total Risk-based, Tier 1 Risk-based And Tier 1 Leverage Requirements) (Details)	Mar. 31, 2023	Dec. 31, 2022
Franklin Financial Services Corporation [Member]
Compliance with Regulatory Capital Requirements under Banking Regulations [Line Items]
Common Equity Tier 1 Risk-based Capital Ratio: Ratio	0.1424	0.1422
Tier 1 Risk-based Capital Ratio: Ratio	0.1424	0.1422
Total Risk-based Capital Ratio: Ratio	0.1721	0.1721
Tier 1 Leverage Ratio: Ratio	0.0958	0.0895
Bank [Member]
Compliance with Regulatory Capital Requirements under Banking Regulations [Line Items]
Common Equity Tier 1 Risk-based Capital Ratio: Ratio	0.1474	0.1463
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	0.1474	0.1463
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	0.1599	0.1588
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	0.0992	0.0921
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
	Mar. 31, 2023	Mar. 31, 2022
Disaggregation of Revenue [Line Items]
Investment and trust services fees	$ 1,834	$ 1,828
Estate management services Fees recognition period	18 months
Asset Management Fees [Member]
Disaggregation of Revenue [Line Items]
Investment and trust services fees	$ 1,600	1,600
Estate Management Services Fees [Member]
Disaggregation of Revenue [Line Items]
Investment and trust services fees	92	173
Commisions [Member]
Disaggregation of Revenue [Line Items]
Investment and trust services fees	$ 105	$ 31

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Commitments And Contingencies (Narrative) (Details) - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022	Mar. 31, 2022	Dec. 31, 2021
Allowance for credit losses	$ 14,109	$ 14,175	$ 15,050	$ 15,066
Restatement Adjustment [Member] | Accounting Standards Update 2016-13 [Member]
Allowance for credit losses	412
Unfunded Loan Commitment [Member] | Accounting Standards Update 2016-13 [Member]
Allowance for credit losses	$ 1,900	$ 1,500

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Commitments And Contingencies (Outstanding Commitments ) (Details) - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022
Commercial Commitments To Extend Credit [Member]
Loss Contingencies [Line Items]
Commitments outstanding	$ 303,262	$ 275,867
Consumer Commitments To Extend Credit (Secured) [Member]
Loss Contingencies [Line Items]
Commitments outstanding	92,054	93,124
Consumer Commitments To Extend Credit (Unsecured) [Member]
Loss Contingencies [Line Items]
Commitments outstanding	4,936	5,247
Commitments To Extend Credit [Member]
Loss Contingencies [Line Items]
Commitments outstanding	400,252	374,238
Standby Letters of Credit [Member]
Loss Contingencies [Line Items]
Commitments outstanding	$ 27,819	$ 30,734