FRANKLIN FINANCIAL SERVICES CORP PA

Previous wording

For the Three Months Ended March 31, 2024 and 2023

Current wording

For the Three and Six Months Ended June 30, 2024 and 2023

Previous wording

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 bank failures and continuing uncertainty of various 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.

Current wording

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 bank failures and uncertainties involving various 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.

Previous wording

A summary of operating results follows:

Current wording

A summary of operating results for Franklin Financial Services Corporation for the three and six months ended June 30, 2024 are as follows:

Previous wording

Total net loans increased 1.6% from December 31, 2023.

Current wording

Total net loans increased $61.3 million (4.9%) to $1.301 billion at June 30, 2024 from $1.241 billion at December 31, 2023.

Previous wording

Total deposits increased 1.4% from the end of 2023. At March 31, 2024, borrowings from the Federal Reserve and Federal Home Loan Bank of Pittsburgh (FHLB) totaled $280.0 million.

Current wording

At June 30, 2024, borrowings from the Federal Home Loan Bank of Pittsburgh (FHLB) were $240.0 million and $40.0 million from the Federal Reserve Bank.

Previous wording

Return on Average Assets (ROA) was 0.67%, Return on Average Equity (ROE) was 10.21% and the Net Interest Margin (NIM) was 2.88%, compared to an ROA of 0.80%, ROE of 11.33% and NIM of 3.41% for the same period in 2023.

Current wording

For the year-to-date period, Return on Assets (ROA) was 0.63%, Return on Equity (ROE) was 9.71% and the Net Interest Margin (NIM) was 2.94%, compared to an ROA of 0.75%, ROE of 10.56% and NIM of 3.35% for the same period in 2023.

Previous wording

On April 11, 2024, the Board of Directors declared a $0.32 per share regular quarterly cash dividend for the second quarter of 2024 to be paid on May 22, 2024 to shareholders of record at the close of business on May 2, 2024.

Current wording

On July 11, 2024, the Board of Directors declared a $0.32 per share regular quarterly cash dividend for the third quarter of 2024 to be paid on August 28, 2024 to shareholders of record at the close of business on August 2, 2024.

Previous wording

Key performance ratios as of, or for the three months ended March 31, 2024 and 2023 and the year ended December 31, 2023 are listed below:

Current wording

Key performance ratios as of, or for the six months ended June 30, 2024 and 2023 and the year ended December 31, 2023 are listed below:

Previous wording

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, 2024 and 2023 and the year ended December 31, 2023.

Current wording

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 six months ended June 30, 2024 and 2023 and the year ended December 31, 2023.

Previous wording

Tax equivalent net interest income increased $659 thousand to $13.8 million in the first quarter of 2024 compared to $13.1 million for the same period in 2023. Tax-equivalent net interest income increased $433 thousand from balance sheet volume changes and $226 thousand from interest rate changes.

Current wording

Tax equivalent net interest income increased $1.0 million to $14.5 million in the second quarter of 2024 compared to $13.5 million for the same period in 2023. Tax-equivalent net interest income increased $433 thousand from balance sheet volume changes and $567 thousand from interest rate changes.

Previous wording

For the first quarter of 2024, the provision for credit losses was $452 thousand allocated between the provision for loans of $490 thousand and a reversal in the provision for unfunded commitments of $38 thousand. The provision for credit loss expense for the first quarter of 2023 was $529 thousand allocated between the provision for loans of $467 thousand and provision for unfunded commitments of $62 thousand. The ACL ratio for loans was 1.29% at March 31, 2024 compared to 1.28% at December 31, 2023. The ACL for unfunded commitments was $2.0 million at March 31, 2024 and December 31, 2023. For more information refer to the Loan Quality and Allowance for Credit Losses discussion in the Financial Condition section.

Current wording

The ACL ratio for loans was 1.29% at June 30, 2024 compared to 1.28% at December 31, 2023. The ACL for unfunded commitments was $2.0 million at June 30, 2024 and December 31, 2023. For more information refer to the Loan Quality and Allowance for Credit Losses discussion in the Financial Condition section.

Previous wording

For the first quarter of 2024, noninterest income increased $963 thousand from the same period in 2023. Wealth Management fees increased, primarily because of growth in assets under management. Deposit fees, other service charges and debit card income increased but were offset by a decrease in loan fees as commercial service charges decreased and the volume of mortgages sold decreased. The increase in other income was due in part to life insurance claims of $86 thousand and a state sales tax refund of $38 thousand. There were no debt securities sales in 2024 compared to a loss of $602 thousand from sales in 2023.

Current wording

For the second quarter of 2024, noninterest income increased $821 thousand from the same period in 2023. Wealth Management fees increased, primarily because of growth in assets under management. Loan service charges, gains on sale of loans, other service charges and debit card income increased but were partially offset by a decrease in deposit fees. The decrease in other income was due, in part, to a nonrecurring IRS refund payment to the bank in 2023. There were no debt securities sales in 2024 compared to a loss of $517 thousand from sales in 2023.

Previous wording

Noninterest expense for the first quarter of 2024 increased $1.3 million compared to the same period in 2023. Salaries and benefits increased $791 thousand primarily in salaries due to a highly competitive labor market and wage increases. Data processing costs increased due to software expenses. FDIC insurance increased due to growth in the balance sheet.

Current wording

Noninterest expense for the second quarter of 2024 increased $1.7 million compared to the same period in 2023. Salaries and benefits increased $1.1 million primarily in salaries due to a highly competitive labor market and wage increases, and an increase in health insurance costs. Data processing costs increased due to software expenses. FDIC insurance increased due to growth in the balance sheet. The increase in other expense is due, in part, to the amortization of solar tax credit investments and taxes paid to states other than Pennsylvania.

Previous wording

For the first quarter of 2024, the Corporation recorded a Federal income tax expense of $624 thousand compared to $222 thousand for the same quarter in 2023. The effective tax rate for the first quarter of 2024 was 15.7% compared to 6.3% for the same period in 2023. The 2023 rate reflects the benefit of $280 thousand in tax credits recorded in the first quarter of 2023. Without the tax credits, the 2023 rate would have been 14.3%. The federal statutory tax rate is 21% for 2024 and 2023.

Current wording

For the first half of 2024, the Corporation recorded a Federal income tax expense of $1.3 million compared to $790 thousand for the same quarter in 2023. The effective tax rate for the first half of 2024 was 16.6% compared to 11.2% for the same period in 2023. The 2023 rate reflects the benefit of $280 thousand in tax credits recorded in the first quarter of 2023. Without the tax credits, the 2023 rate would have been 15.2%. The federal statutory tax rate is 21% for 2024 and 2023.

Previous wording

Cash and cash equivalents totaled $182.6 million at March 31, 2024, an increase of $159.5 million from the prior year-end balance of $23.1 million, as a result of the $200.0 million FHLB advance that has not yet been fully invested. Short-term interest-earning deposits are held primarily at the Federal Reserve ($160.4 million).

Current wording

Cash and cash equivalents totaled $179.7 million at June 30, 2024, an increase of $156.6 million from the prior year-end balance of $23.1 million, as a result of the $200.0 million FHLB advance that has not yet been fully invested. Short-term interest-earning deposits are held primarily at the Federal Reserve ($158.7 million).

Previous wording

AFS Securities: At March 31, 2024, the AFS securities portfolio had an amortized cost of $512.7 million, a decrease of $9.2 million from the prior year-end, and had a fair value of $463.0 million, a decrease of $9.6 million from the prior year-end. The AFS portfolio had a net unrealized loss of $49.8 million at March 31, 2024 compared to a net unrealized loss of $49.4 million at the prior year-end. The AFS portfolio averaged $476.9 million with a tax-equivalized yield of 3.61% for the three months ended March 31, 2024. This compares to an average of $470.6 million and a tax-equivalized yield of 3.38% for the same period in 2023. The weighted average life of the AFS portfolio is 4.8 years and the effective duration (which measures the change in fair value for a 1% change in interest rates) is 4.27%.

Current wording

AFS Securities: At June 30, 2024, the AFS securities portfolio had an amortized cost of $503.8 million, a decrease of $18.1 million from the prior year-end, and had a fair value of $454.5 million, a decrease of $18.0 million from the prior year-end. During the first half of 2024, the portfolio returned $24.5 million of principal while $8.0 million was reinvested into the portfolio. The Bank did not sell any of its holdings during 2024. The AFS portfolio had a net unrealized loss of $49.3 million at June 30, 2024 compared to a net unrealized loss of $49.4 million at the prior year-end. The AFS portfolio averaged $466.7 million with a tax-equivalized yield of 3.82% for the three months ended June 30, 2024. This compares to an average of $454.4 million and a tax-equivalized yield of 3.29% for the same period in 2023.

Previous wording

The AFS portfolio held $83.3 million, or 16% of the total portfolio, of securities issued by the U.S. Treasury and another $137.9 million, or 28% of the total portfolio, of mortgage and asset-backed securities issued by a U.S. Government Agency or a government sponsored entity and securitized by pools of residential mortgages and other loan assets.

Current wording

The AFS portfolio holdings are classified by type of security issuer. U.S. Treasury and Agency mortgage & asset-backed securities are direct obligations of the U.S. Treasury or are issued by a U.S. Government Agency or a government sponsored entity and securitized by pools of residential mortgages and other loan assets. Municipal securities are issued by state and local government entities and consist of taxable and tax-exempt securities. Many municipal securities have credit enhancements in the form of private bond insurance or other credit support. Corporate securities are mostly subordinated notes issued by community banks with the remainder consisting of five trust preferred securities. Non-Agency mortgage & asset-backed securities are issued by private entities and securitized by residential and commercial mortgages as well as other loan assets. Many of these securities benefit from credit enhancements in the form of subordinated tranches and overcollateralization.

Previous wording

Within the municipal portfolio, the Bank held four Build America Bonds with an aggregate book value of $4.5 million and an aggregate par value of $4.0 million as of March 31, 2024. These bonds were issued and purchased at a premium and included a call provision under an extraordinary redemption clause. This call provision was exercised on one bond in the first quarter resulting in accelerated amortization of $143 thousand. Subsequent to quarter-end, a second bond was called with accelerated amortization of $118 thousand. The Bank expects the remaining bonds to be called under this extraordinary redemption clause and if this occurs the remaining premium to amortize as of March 31, 2024 is $238 thousand.

Current wording

At December 31, 2023, the Bank held four Build America Bonds within the municipal portfolio with an amortized cost of $4.6 million. These bonds were purchased at a premium and included a call provision under an extraordinary redemption clause. This call provision was exercised on two bonds during the first half of 2024 resulting in accelerated amortization of $261 thousand. The Bank expects the remaining bonds to be called under this extraordinary redemption clause and if this occurs the remaining premium to amortize as of June 30, 2024 is $319 thousand.

Previous wording

Restricted Stock at Cost: The Bank held $10.3 million of restricted stock at March 31, 2024. 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.

Current wording

Restricted Stock at Cost: The Bank held $10.4 million of restricted stock at June 30, 2024. 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.

Previous wording

Total residential real estate loans increased by $3.4 million over year-end 2023, primarily in consumer first lien loans. For the first three months of 2024, the Bank originated $11.7 million in mortgages compared to $14.4 million for the same period in 2023, including $3.4 million for sale through the secondary market. 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.

Current wording

Total residential real estate loans increased by $18.5 million over year-end 2023, primarily in consumer first lien loans. For the first six months of 2024, the Bank originated $51.6 million in mortgages compared to $35.0 million for the same period in 2023, including $13.3 million for sale through the secondary market. 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.

Previous wording

Residential real estate construction: This category contains loans for the vertical construction of 1-4 family residential properties. The largest component of this category represents loans to residential real estate developers ($12.6 million), while loans for individuals to construct personal residences totaled $16.3 million at March 31, 2024. 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.

Current wording

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 ($15.8 million), while loans for individuals to construct personal residences totaled $11.5 million at June 30, 2024. 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.

Previous wording

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 $721.3 million from $703.8 million at the end of 2023. Included in commercial real estate are approximately $546 million of nonowner occupied loans located primarily in the Bank’s market area of south-central Pennsylvania.

Current wording

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 $743.6 million from $703.8 million at the end of 2023. Included in commercial real estate are approximately $563 million of nonowner occupied loans located primarily in the Bank’s market area of south-central Pennsylvania.

Previous wording

Also included in CRE are real estate construction loans totaling $148.2 million. At March 31, 2024, the Bank had $35.2 million in real estate construction loans funded with an interest reserve and capitalized $568 thousand of interest in the first quarter of 2024 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.

Current wording

Also included in CRE are real estate construction loans totaling $154.7 million. At June 30, 2024, the Bank had $55.3 million in real estate construction loans funded with an interest reserve and capitalized $1.4 million of interest in the first six months of 2024 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.

Previous wording

Commercial: This category includes commercial, industrial, farm, agricultural, and municipal loans. Commercial loans decreased $3.1 million to $239.6 million at March 31, 2024, compared to $242.7 million at the end of 2023. At March 31, 2024, the Bank had approximately $112.3 million in tax-free loans.

Current wording

Commercial: This category includes commercial, industrial, farm, agricultural, and municipal loans. Commercial loans increased $974 thousand to $243.6 million at June 30, 2024, compared to $242.7 million at the end of 2023. At June 30, 2024, the Bank had approximately $111.3 million in tax-free loans.

Previous wording

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, 2024, the outstanding commercial participations were $99.7 million, or 9.6%, of commercial purpose loans and 7.8% of total gross loans compared to $97.8 million at December 31, 2023, or 9.5%, of commercial purpose loans and 7.8% of total gross loans. The Bank’s total exposure (including outstanding balances and unfunded commitments) to purchased participations is $134.1 million, compared to $135.4 million at December 31, 2023. The commercial loan participations are comprised of $26.4 million of Commercial loans and $73.3 million of CRE loans, reported in the respective loan class.

Current wording

Participations: The Bank may supplement its own commercial loan production by purchasing loan participations. These participations are primarily located in south-central Pennsylvania. At June 30, 2024, the outstanding commercial participations were $104.7 million, or 9.8%, of commercial purpose loans and 7.9% of total gross loans compared to $97.8 million at December 31, 2023, or 9.5%, of commercial purpose loans and 7.8% of total gross loans. The Bank’s total exposure (including outstanding balances and unfunded commitments) to purchased participations is $133.9 million, compared to $135.4 million at December 31, 2023. The commercial loan participations are comprised of $30.2 million of Commercial loans and $74.5 million of CRE loans, reported in the respective loan class.

Previous wording

Consumer loans: This category had a balance of $6.6 million at March 31, 2024, compared to $6.8 million at prior year-end and is comprised primarily of installment loans and personal lines of credit.

Current wording

Consumer loans: This category had a balance of $7.4 million at June 30, 2024, compared to $6.8 million at prior year-end and is comprised primarily of installment loans and personal lines of credit.

Previous wording

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 $17.4 million at March 31, 2024 compared to $17.2 million at December 31, 2023. The watch list includes both performing and nonperforming loans. Included in the watchlist total are $490 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.

Current wording

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 $27.9 million at June 30, 2024 compared to $17.2 million at December 31, 2023. The watch list includes both performing and nonperforming loans. Included in the watchlist total are $723 thousand of nonaccrual loans as of June 30, 2024 and $147 thousand as of December 31, 2023. 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.

Previous wording

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 up to 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, 2024, the Bank had loans of $13.1 million (1.0% of gross loans) that exceeded the supervisory limit, compared to 1.1% at year-end 2023.

Current wording

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 up to 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 June 30, 2024, the Bank had loans of $9.3 million (0.7% of gross loans) that exceeded the supervisory limit, compared to 1.1% at year-end 2023.

Previous wording

Loan quality, as measured by nonaccrual loans, totaled $490 thousand at March 31, 2024 compared to $147 thousand at December 31, 2023 and the nonperforming loan to gross loans ratio was 0.04% at March 31, 2024 compared to 0.01% at December 31, 2023. Loans past due 90-days or more, but still accruing, totaled $5 thousand at March 31, 2024.

Current wording

Loan quality, as measured by nonaccrual loans, totaled $723 thousand at June 30, 2024 compared to $147 thousand at December 31, 2023 and the nonperforming loan to gross loans ratio was 0.04% at June 30, 2024 compared to 0.01% at December 31, 2023. Loans past due 90-days or more, but still accruing, totaled $165 thousand at June 30, 2024.

Previous wording

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

Current wording

The ACL for pooled loans is the sum of the quantitative and qualitative loss estimates. At June 30, 2024, approximately 68% of the ACL for Loans was from the qualitative component, unchanged from year-end 2023.

Previous wording

Total deposits increased $21.3 million during the first three months of 2024 to $1.559 billion. Interest-bearing checking decreased by $51.5 million primarily in municipal deposits and savings decreased by $2.5 million, while the Bank’s Money Management increased $17.1 million. Time deposits increased $39.5 million as customers shifted to higher rate products. The Bank has $22.0 million of brokered CDs at March 31, 2024.

Current wording

Total deposits increased $48.5 million during the first half of 2024 to $1.586 billion. Interest-bearing checking decreased by $53.3 million primarily in municipal deposits and savings decreased by $4.2 million, while the Bank’s Money Management increased $44.9 million. Time deposits increased $51.2 million as customers shifted to higher rate products. The Bank has $22.0 million of brokered CDs at June 30, 2024.

Previous wording

As of March 31, 2024, the Bank had deposits of $222.8 million placed in the IntraFi Network deposit program ($105.9 million in interest-bearing checking and $116.9 million in money management) and $18.6 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, 2024, the Bank’s reciprocal deposits were 12.9% of total liabilities compared to 14.3% at year-end 2023.

Current wording

As of June 30, 2024, the Bank had deposits of $222.8 million placed in the IntraFi Network deposit program ($101.1 million in interest-bearing checking and $129.6 million in money management) and $19.4 million in reciprocal time deposits in the CDARS program included in time deposits. These programs allow the Bank to offer full FDIC coverage to large depositors, but with the convenience to the customer of only having to deal with one bank. The Bank solicits these deposits from within its market and it believes they present no greater risk than any other local deposit. Only reciprocal deposits that exceed 20% of liabilities are considered brokered deposits. At June 30, 2024, the Bank’s reciprocal deposits were 13.3% of total liabilities compared to 14.3% at year-end 2023.

Previous wording

At March 31, 2024, the Bank had $40.0 million borrowed from the Federal Reserve’s Bank Term Funding Program (BTFP) with a rate of 4.81% due January 10, 2025. At March 31, 2024, the fair value of debt securities pledged for the BTFP was $76.4 million.

Current wording

At June 30, 2024, the Bank had $40.0 million borrowed from the Federal Reserve’s Bank Term Funding Program (BTFP) with a rate of 4.81% due January 10, 2025. At June 30, 2024, the fair value of debt securities pledged for the BTFP was $44.1 million.

Previous wording

Total shareholders’ equity increased $2.1 million to $134.2 million as of March 31, 2024 from December 31, 2023. Retained earnings increased $2.0 million in 2024 and accumulated other comprehensive income (AOCI) decreased $294 thousand as the fair value of the investment portfolio decreased slightly in the first quarter of 2024. The increase in retained earnings was from net earnings of $3.4 million partially offset by cash dividends of $1.4 million. The Corporation’s Dividend Reinvestment Plan (DRIP) added $75 thousand in new capital from optional cash contributions and $254 thousand from the reinvestment of quarterly dividends. The Corporation’s dividend payout ratio was 41.62% for the first three months of 2024 compared to 42.68% for the first three months of 2023.

Current wording

Total shareholders’ equity increased $4.7 million to $136.8 million as of June 30, 2024 from December 31, 2023. Retained earnings increased $3.6 million in 2024 and accumulated other comprehensive income/(loss) (AOCI) remained essentially unchanged since year-end 2023. The increase in retained earnings was from net income of $6.4 million partially offset by cash dividends of $2.8 million. The Corporation’s Dividend Reinvestment Plan (DRIP) added $644 thousand in new capital from optional cash contributions and $511 thousand from the reinvestment of quarterly dividends. The Corporation’s dividend payout ratio was 43.88% for the first half of 2024 compared to 44.77% for the same period in 2023.

Previous wording

As part of its quarterly dividend decision, the Corporation considers, among other factors, current and future income projections, dividend yield, payout ratio, current and future capital ratios, reserves and allocations. For the first quarter of 2024, the Corporation paid a $0.32 per share dividend, compared to $0.32 paid in the first quarter of 2023. On April 11, 2024, the Board of Directors declared a $0.32 per share regular quarterly dividend for the second quarter of 2024, which will be paid on May 22, 2024.

Current wording

As part of its quarterly dividend decision, the Corporation considers, among other factors, current and future income projections, dividend yield, payout ratio, current and future capital ratios, reserves and allocations. For the second quarter of 2024, the Corporation paid a $0.32 per share dividend, compared to $0.32 paid in the second quarter of 2023. On July 11, 2024, the Board of Directors declared a $0.32 per share regular quarterly dividend for the third quarter of 2024, which will be paid on August 28, 2024.

Previous wording

In December 2023, the Board of Directors authorized a 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 over a one-year period. No shares have been repurchased under the current plan.

Current wording

In December 2023, the Board of Directors authorized a 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 over a one-year period. During the first six months of 2024, the Corporation repurchased 14,684 shares for $440 thousand.

Previous wording

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, 2024 was 5.77% 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, 2024, the Bank was “well capitalized.”

Current wording

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 June 30, 2024 was 5.52% 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 June 30, 2024, the Bank was “well capitalized.”

Previous wording

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 ($173.1 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.

Current wording

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, marketable securities that are unencumbered ($168.0 million fair value) 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.