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What changed in FIDELITY D & D BANCORP INC's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of FIDELITY D & D BANCORP INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+428 added−489 removedSource: 10-K (2024-03-20) vs 10-K (2023-03-20)

Top changes in FIDELITY D & D BANCORP INC's 2023 10-K

428 paragraphs added · 489 removed · 286 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

23 edited+3 added−3 removed16 unchanged
Biggest changeHiring practices include outreach to organizations representing groups of color and ethnicity, veteran status, disabled persons and women. Recruitment sources are varied to reach a broad audience. These practices have resulted in a continuously increased diverse representation and an enhanced ability to provide for the diverse needs of the communities we serve.
Biggest changeDiversity and Inclusion The Company is committed to promoting a diverse and inclusive workforce and values the strength it brings to the organization. Hiring practices include outreach to organizations representing groups of color and ethnicity, veteran status, disabled persons and women. Recruitment sources are varied to reach a broad audience.
Additionally, access is available directly through the medical plan insurer, giving all participants an avenue to gain pertinent information including medical care records, health and wellness articles on prevention, specific illnesses and diseases, physicians and facilities and cost of care comparisons. The Company provides assistance to bankers in the form of an Employee Assistance Program through a confidential provider.
Additionally, access is available directly through the medical plan insurer, giving all participants an avenue to gain pertinent information including medical care records, health and wellness articles on prevention, specific illnesses and diseases, physicians and facilities and cost of care comparisons. The Company provides support to bankers in the form of an Employee Assistance Program through a confidential provider.
Health and Wellness The Company provides a strong health benefit package to bankers, to include medical, dental and vision insurances, life insurance, long- and short-term disability coverage and flexible spending accounts. Packages include options to cover family members according to established guidelines, creating a focus on caring for both the personal and professional needs of the banker.
Health and Wellness The Company provides a strong health benefit package to bankers, including medical, dental and vision insurances, life insurance, long- and short-term disability coverage and flexible spending accounts. Packages include options to cover family members according to established guidelines, creating a focus on caring for both the personal and professional needs of the banker.
An economic recession or a delayed economic recovery over a prolonged period of time in the Company’s market could cause an increase in the level of the Company’s non-performing assets and loan losses, and thereby cause operating losses, impairment of liquidity and erosion of capital.
An economic recession or a delayed economic recovery over a prolonged period of time in the Company’s market could cause an increase in the level of the Company’s non-performing assets and credit losses, and thereby cause operating losses, impairment of liquidity and erosion of capital.
Collectively, they have assisted in the development of the Core Values: ● Relationships ● Integrity ● Commitment ● Passion ● Innovation ● Success 5 Table of Contents Culturally, the Fidelity Model Experience provides a strategic vision to build a performance-based corporation. It guides all bankers on solidifying internal and external relationships and becoming the Trusted Financial Advisor for clients.
Collectively, they have assisted in the development of the Core Values: ● Relationships ● Integrity ● Commitment ● Passion ● Innovation ● Success Culturally, the Fidelity Model Experience provides a strategic vision to build a performance-based corporation. It guides all bankers on solidifying internal and external relationships and becoming the Trusted Financial Advisor for clients.
Our bankers are our first stakeholder by design as their actions, knowledge and focus on the client experience drive our success.
Our bankers are our first stakeholders by design as their actions, knowledge and focus on the client experience drive our success.
The programs assist in aligning the interests of the bankers with those of the shareholders and they provide further incentive to bankers to enhance the financial results of the Company. 6 Table of Contents
The programs assist in aligning the interests of the bankers with those of the shareholders and they provide further incentive to bankers to enhance the financial results of the Company.
The unemployment rates in the Company’s local statistical markets, Scranton-Wilkes-Barre-Hazleton and Allentown-Bethlehem-Easton, dropped to 4.3% and 3.3%, resp ectively, from 4.8% and 4.0%, respectively, at the end of 2021. The local economy has been volatile in recent years and generally lags the national market trends.
The unemployment rates in the Company’s local statistical markets, Scranton-Wilkes-Barre-Hazleton and Allentown-Bethlehem-Easton, dropped to 3.5% and 3.3%, resp ectively, from 4.5% and 3.7%, respectively, at the end of 2022. The local economy has been volatile in recent years and generally lags the national market trends.
Demographics As of December 31, 2022 , the Company employed 320 bankers within its network located in Northeast and Lehigh Valley, Pennsylvania. The Company employed 29 part-time bankers and 291 full-time bankers. Employment levels are aligned with the needs of the business.
Demographics As of December 31, 2023 , the Company employed 313 bankers within its network located in Northeast and Lehigh Valley, Pennsylvania. The Company employed 22 part-time bankers and 291 full-time bankers. Employment levels are aligned with the needs of the business.
During the difficulties experienced throughout the pandemic, bankers made use of the program for personal and professional struggles and continue to have ongoing access to round-the-clock support at no charge, including confidential counseling, work-life solutions, legal support and financial guidance.
Bankers make use of the program for personal and professional struggles and continue to have ongoing access to round-the-clock support at no charge, including confidential counseling, work-life solutions, legal support and financial guidance.
The Company’s credit function strives to mitigate the negative impact of economic conditions by maintaining disciplined underwriting principles for commercial and consumer lending and ensuring that home mortgage underwriting adheres to the standards of secondary market makers.
The Company’s credit function strives to mitigate the negative impact of economic conditions by maintaining disciplined underwriting principles for commercial and consumer lending and ensuring that home mortgage underwriting adheres to the standards of secondary market makers. These types of business activities involve a number of risks.
Economic conditions affect the market value of the underlying collateral as well as the levels of adequate cash flow and revenue generation from income-producing commercial properties. During 2022, the national unemployment rate fell to 3.5% compared to 3.9% at the end of 2021.
Economic conditions affect the market value of the underlying collateral as well as the levels of adequate cash flow and revenue generation from income-producing commercial properties. 4 Table of Contents During 2023, the national unemployment rate rose to 3.7% compared to 3.5% at the end of 2022.
The Company has a devoted training team and all bankers are offered and encouraged to participate in continuous training initiatives. Innovative programs, including Fidelity Bank University, leadership training, the education assistance program, enrichment programs through conferences, seminars and workshops and options for certifications are offered to educate bankers at all levels.
Innovative programs, including Fidelity Bank University, leadership training, the education assistance program, enrichment programs through conferences, seminars and workshops and options for certifications are offered to educate bankers at all levels.
Care is taken to provide a cost contained package while requiring bankers to share in the cost of healthcare. Additional programs are vetted and added where meaningful. Bankers may enroll and view benefit information through a Company Benefits Portal, providing access to insurance policies, forms, pricing, and general benefit information.
Additional programs are vetted and added where meaningful. Bankers may enroll and view benefit information through a Company Benefits Portal, providing access to insurance policies, forms, pricing, and general benefit information.
A full list of services provided by the Bank is detailed in the section entitled “Products and Services” contained within the 2022 Annual Report to Shareholders, incorporated by reference. The service area is comprised of the Borough of Dunmore and the surrounding communities within Lackawanna and Luzerne counties in Northeastern Pennsylvania and Northampton County in Eastern Pennsylvania.
A full list of services provided by the Bank is detailed in the section entitled “Products and Services” contained within the 2023 Annual Report to Shareholders, incorporated by reference.
As it has in the past, the Company continued to pursue property foreclosure, wherever possible, to lessen the negative impact of foreclosed property ownership. Refer to Item 1A, “Risk Factors” for material risks and uncertainties that management believes affect the Company. The Company’s website address is http://www.bankatfidelity.com.
Refer to Item 1A, “Risk Factors” for material risks and uncertainties that management believes affect the Company. The Company’s website address is http://www.bankatfidelity.com.
In addition to benefit packages, the Company offers paid time off for vacation, sick and personal time, as it is an important part of balancing a fulfilling work and personal life. Diversity and Inclusion The Company is committed to promoting a diverse and inclusive workforce and values the strength it brings to the organization.
In addition to benefit packages, the Company offers paid time off for vacation, sick and personal time, as it is an important part of balancing a fulfilling work and personal life. Bankers have opportunities to earn additional days off through various programs.
In 2022, the Company had 14.48% of Lackawanna County’s total deposit market share ranking 2 nd in total deposits, 6.70% of Luzerne County’s total deposit market share ranking 6 th in total deposits and 6.34% of Northampton County’s total deposit market share ranking 7 th in total deposits.
In 2023, the Company had 15.24% of Lackawanna County’s total deposit market share ranking 3 rd in total deposits, 6.43% of Luzerne County’s total deposit market share ranking 7 th in total deposits and 7.10% of Northampton County’s total deposit market share ranking 6 th in total deposits.
The Affirmative Action Plan monitors the Company's success in creating equal employment opportunities for bankers and applicants and guides staff in hiring practices. Training and Development The investment into the continuous improvement of all bankers is evident in the bank’s commitment of training dollars and resources. Key Performance Indicators (KPIs), tracked quarterly, outline training goals bank-wide and training dollars spent.
Training and Development The investment into the continuous improvement of all bankers is evident in the bank’s commitment of training dollars and resources. Key Performance Indicators (KPIs), tracked quarterly, outline training goals bank-wide and training dollars spent. The Company has a devoted training team and all bankers are offered and encouraged to participate in continuous training initiatives.
Telemedicine options, enhanced and delivered through the COVID-19 pandemic create an optional, ease of use method for health provider access. The telemedicine program continues to provide quality care for ongoing COVID-19 cases as well as for routine ailments and illnesses. Each year, the benefit suite is reviewed, repriced and evaluated for strength and value.
The Telemedicine program creates an optional, ease of use method for health provider access, providing quality care for routine ailments and illnesses. 5 Table of Contents Each year, the benefit suite is reviewed, repriced and evaluated for strength and value. Care is taken to provide a cost contained package while requiring bankers to share in the cost of healthcare.
These efforts enable the Company to establish long-term customer relationships and build customer loyalty by providing products and services designed to address their specific needs. 4 Table of Contents The banking industry is affected by general economic conditions including the effects of inflation, recession, unemployment, real estate values, trends in national and global economies and other factors beyond the Company’s control.
The banking industry is affected by general economic conditions including the effects of inflation, recession, unemployment, real estate values, trends in national and global economies and other factors beyond the Company’s control. The Company’s success is dependent, to a significant degree, on economic conditions in its service area.
Competition includes, among other sources: local community banks; savings banks; regional banks; national banks; credit unions; savings & loans; insurance companies; money market funds; mutual funds; small loan companies and other financial services companies. The Company has been able to compete effectively with other financial institutions by emphasizing customer service enhanced by local decision making.
The banking business is highly competitive, and the success and profitability of the Company depends principally on its ability to compete in its market area. Competition includes, among other sources: local community banks; savings banks; regional banks; nationwide banks; credit unions; savings & loans; insurance companies; money market funds; mutual funds; small loan companies and other financial services companies.
Federal and state banking laws contain numerous provisions that affect various aspects of the business and operations of the Company and the Bank.
The Company's primary market area (service area) is comprised of the Borough of Dunmore and the surrounding communities within Lackawanna and Luzerne counties in Northeastern Pennsylvania and Northampton County in Eastern Pennsylvania. Federal and state banking laws contain numerous provisions that affect various aspects of the business and operations of the Company and the Bank.
Removed
On July 1, 2021, the Company completed its acquisition of Landmark Bancorp, Inc. (“Landmark”) of Pittston, Pennsylvania. Landmark was the holding company of Landmark Community Bank (“Landmark Bank”) which operated 5 retail community banking offices in Northeastern Pennsylvania. On May 1, 2020, the Company completed its acquisition of MNB Corporation (“MNB”) of Bangor, Pennsylvania.
Added
The Company has been able to compete effectively with other financial institutions by emphasizing customer service enhanced by local decision making. These efforts enable the Company to establish long-term customer relationships and build customer loyalty by providing products and services designed to address their specific needs.
Removed
MNB was the holding company Merchants Bank of Bangor (“Merchants Bank”) which operated nine bank centers located in Northampton County, Pennsylvania. The banking business is highly competitive, and the success and profitability of the Company depends principally on its ability to compete in its market area.
Added
The Company has a robust program to support community volunteerism and gives all bankers paid time off to spend hours in service to non-profits, schools, elder programs and other organizations. The program helps to create community sustainability through our bankers’ time, talent and treasure and it develops deeper relationships with our bankers who work side-by-side for common causes.
Removed
The Company’s success is dependent, to a significant degree, on economic conditions in Northeastern Pennsylvania, especially within Lackawanna and Luzerne counties and Eastern Pennsylvania, especially Northampton County which the Company defines as its primary market areas.
Added
These practices have resulted in a continuously increased diverse representation and an enhanced ability to provide for the diverse needs of the communities we serve. The Affirmative Action Plan monitors the Company's success in creating equal employment opportunities for bankers and applicants and guides staff in hiring practices.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

39 edited+16 added−3 removed94 unchanged
Biggest changeThe impact that a credit rating downgrade may have on the national and local economy could have an adverse effect on the Company’s financial condition and results of operations. 14 Table of Contents The regulatory environment for the financial services is being significantly impacted by financial regulatory reform initiatives in the United States and elsewhere, including Dodd-Frank and regulations promulgated to implement it.
Biggest changeThe regulatory environment for the financial services is being significantly impacted by financial regulatory reform initiatives in the United States and elsewhere, including Dodd-Frank and regulations promulgated to implement it. The Dodd-Frank Act comprehensively reforms the regulation of financial institutions and their products and services. Dodd-Frank requires various federal regulatory agencies to implement numerous rules and regulations.
The measurement of expected credit losses is to be based on information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. This measurement will take place at the time the financial asset is first added to the balance sheet and periodically thereafter.
The measurement of expected credit losses is based on information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. This measurement will take place at the time the financial asset is first added to the balance sheet and periodically thereafter.
Any one or more of these measures may impede the takeover of the Company without the approval of our board of directors and may prevent our shareholders from taking part in a transaction in which they could realize a premium over the current market price of our common stock. 11 Table of Contents The Company is a holding company and relies on dividends from its banking subsidiary for substantially all of its revenue and its ability to make dividends, distributions, and other payments.
Any one or more of these measures may impede the takeover of the Company without the approval of our board of directors and may prevent our shareholders from taking part in a transaction in which they could realize a premium over the current market price of our common stock. 12 Table of Contents The Company is a holding company and relies on dividends from its banking subsidiary for substantially all of its revenue and its ability to make dividends, distributions, and other payments.
The determination of the appropriate level of the allowance for possible loan losses inherently involves a high degree of subjectivity and requires the Company to make significant estimates of current credit risks and future trends, all of which may undergo material changes.
The determination of the appropriate level of the allowance for credit losses inherently involves a high degree of subjectivity and requires the Company to make significant estimates of current credit risks and future trends, all of which may undergo material changes.
In addition, bank regulatory agencies periodically review the Company’s allowance for loan losses and may require an increase in the provision for possible loan losses or the recognition of further loan charge-offs, based on judgments different than those of management.
In addition, bank regulatory agencies periodically review the Company’s allowance for credit losses and may require an increase in the provision for credit losses or the recognition of further loan charge-offs, based on judgments different than those of management.
Under the CECL model, banks will be required to present certain financial assets carried at amortized cost, such as loans held for investment and held-to-maturity debt securities, at the net amount expected to be collected.
Under the CECL model, banks are required to present certain financial assets carried at amortized cost, such as loans held for investment and held-to-maturity debt securities, at the net amount expected to be collected.
If this were to happen, the value of the Company’s common stock could decline significantly, and you could lose all or part of your investment. Risks Related to the Company ’ s Business The short-term and long-term effects of inflation and rising costs may adversely affect the Company ’ s financial performance.
If this were to happen, the value of the Company’s common stock could decline significantly, and you could lose all or part of your investment. 6 Table of Contents Risks Related to the Company ’ s Business The short-term and long-term effects of inflation and rising costs may adversely affect the Company ’ s financial performance.
The loss of these revenue streams and the lower cost deposits as a source of funds could have a material adverse effect on the Company’s financial condition and results of operations. A protracted government shutdown or issues relating to debt and the deficit may adversely affect the Company.
The loss of these revenue streams and the lower cost deposits as a source of funds could have a material adverse effect on the Company’s financial condition and results of operations. 15 Table of Contents A protracted government shutdown or issues relating to debt and the deficit may adversely affect the Company.
Additional expenses associated with compliance with the Act, currently and on an ongoing basis, are likely to continue and the effects of full implementation of the Act may limit our ability to pursue certain business opportunities. 15 Table of Contents ITEM 1B: UNRESOLVED STAFF COMMENTS None
Additional expenses associated with compliance with the Act, currently and on an ongoing basis, are likely to continue and the effects of full implementation of the Act may limit our ability to pursue certain business opportunities. ITEM 1B: UNRESOLVED STAFF COMMENTS None
The direction of the Basel III implementation activities or other regulatory viewpoints could require additional capital to support our business risk profile prior to final implementation of the Basel III standards.
The direction of the Basel III implementation activities or other regulatory requirements could require additional capital to support our business risk profile prior to final implementation of the Basel III standards.
The unexpected loss of services of one or more of the Company’s key personnel could have a material adverse impact on the Company’s business because of their skills, knowledge of the Company’s market, years of industry experience and the difficulty of promptly finding qualified replacement personnel. 10 Table of Contents The Company ’ s information systems may experience an interruption or breach in security.
The unexpected loss of services of one or more of the Company’s key personnel could have a material adverse impact on the Company’s business because of their skills, knowledge of the Company’s market, years of industry experience and the difficulty of promptly finding qualified replacement personnel. 10 Table of Contents The Company ’ s communications, information and technology systems may experience a failure, interruption or breach in security.
Changes in economic conditions affecting borrowers, new information regarding existing loans, identification of additional problem loans and other factors, both within and outside of the Company’s control, may require an increase in the allowance for possible loan losses.
Changes in economic conditions affecting borrowers, new information regarding existing loans, identification of additional problem loans and other factors, both within and outside of the Company’s control, may require an increase in the allowance for credit losses.
To combat against these attacks, policies and procedures are in place to prevent or limit the effect of the possible security breach of our information systems and we have insurance against some cyber-risks and attacks.
To combat against these attacks, policies and procedures are in place to prevent, limit, or ameliorate the effect or financial impact of the possible security breach of our information systems and we have insurance against some cyber-risks and attacks.
The Company maintains an allowance for possible loan losses, which is a reserve established through a provision for possible loan losses charged to expense, that represents management’s best estimate of probable losses that have been incurred within the existing portfolio of loans.
The Company maintains an allowance for credit losses, which is a reserve established through a provision for credit losses charged to expense, that represents management’s best estimate of probable losses that have been incurred and are expected within the existing portfolio of loans.
The Company relies heavily on communications and information systems to conduct its business. Any failure, interruption or breach in security of these systems could result in failures or disruptions in the Company’s customer relationship management, general ledger, deposit, loan and other systems.
The Company relies heavily on communications, information and technology systems to conduct its business. Any failure, interruption or breach in security of these systems could result in failures or disruptions in the Company’s customer relationship management, general ledger, deposit, loan and other systems or result in corruption, loss or compromise of confidential corporate or customer data.
In June 2016, FASB issued an accounting standard update (“ASU”) entitled “Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments,” which replaces the current “incurred loss” model for recognizing credit losses with an “expected loss” model referred to as the Current Expected Credit Loss (“CECL”) model.
In June 2016, the Company adopted a new accounting standard update (“ASU”) entitled “ Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments ,” which replaced the “incurred loss” model for recognizing credit losses with an “expected loss” model referred to as the Current Expected Credit Loss (“CECL”) model.
The CECL model may create more volatility in the level of the allowance for loan losses. If the Company is required to materially increase the level of its allowance for credit losses and reserve for unfunded commitments for any reason, such increase could adversely affect its business, financial condition and results of operations.
If the Company is required to materially increase the level of its allowance for credit losses and reserve for unfunded commitments for any reason, such increase could adversely affect its business, financial condition and results of operations.
An increase in non-performing loans could result in a net loss of earnings from these loans, an increase in the provision for possible loan losses and an increase in loan charge-offs, all of which could have a material adverse effect on the Company’s financial condition and results of operations. 7 Table of Contents The Company ’ s allowance for possible loan losses may be insufficient.
An increase in non-performing loans could result in a net loss of earnings from these loans, an increase in the provision for possible credit losses and an increase in loan charge-offs, all of which could have a material adverse effect on the Company’s financial condition and results of operations.
Further, the Company’s inclusion in indices may be weighted based on the size of its market capitalization, so even if the Company’s market capitalization remains above the amount required to be included on these indices, if its market capitalization is below the amount it was on the most recent reconstitution date, the Company’s common stock could be weighted at a lower level, holders attempting to track the composition of these indices will be required to sell the Company’s common stock to match the reweighting of the indices.
Further, the Company’s inclusion in indices may be weighted based on the size of its market capitalization, so even if the Company’s market capitalization remains above the amount required to be included on these indices, if its market capitalization is below the amount it was on the most recent reconstitution date, the Company’s common stock could be weighted at a lower level, holders attempting to track the composition of these indices will be required to sell the Company’s common stock to match the reweighting of the indices. 14 Table of Contents Risks Associated with the Company ’ s Industry Future governmental regulation and legislation could limit the Company ’ s future growth.
The allowance, in the judgment of management, is necessary to reserve for estimated loan losses and risks inherent in the loan portfolio. The level of the allowance reflects management’s continuing evaluation of industry concentrations; specific credit risks; loan loss experience; current loan portfolio quality; present economic, political and regulatory conditions and unidentified losses inherent in the current loan portfolio.
The level of the allowance reflects management’s continuing evaluation of industry concentrations; specific credit risks; loan loss experience; current loan portfolio quality; present economic, political and regulatory conditions, reasonable and supportable forecasts and unidentified losses inherent in the current loan portfolio.
The inappropriate use of social media by our customers or employees could result in negative consequences including remediation costs including training for employees, additional regulatory scrutiny and possible regulatory penalties, litigation or negative publicity that could damage our reputation adversely affecting customer or investor confidence. 12 Table of Contents Risks Associated with the Company ’ s Common Stock The Company ’ s stock price can be volatile.
The inappropriate use of social media by our customers or employees could result in negative consequences including remediation costs including training for employees, additional regulatory scrutiny and possible regulatory penalties, litigation or negative publicity that could damage our reputation adversely affecting customer or investor confidence.
Dodd-Frank, like other financial industry reforms, has had and will continue to have a significant effect on our entire industry. Although it is difficult to predict with certainty the magnitude and extend of these effects at this time, we believe compliance with Dodd-Frank, its interpretive regulations, rules, and initiatives will negatively impact revenue and increase the cost of doing business.
Although it is difficult to predict with certainty the magnitude and extend of these effects at this time, we believe compliance with Dodd-Frank, its interpretive regulations, rules, and initiatives will negatively impact revenue and increase the cost of doing business.
The Financial Accounting Standards Board ("FASB") has recently issued an accounting standard update that will result in a significant change in how we recognize credit losses and may have a material impact on our financial condition or results of operations.
The Company adopted a new accounting standard update that results in a significant change in how we recognize credit losses and may have a material impact on our financial condition or results of operations.
Such negative consequences could include remediation costs that may include liability for stolen assets or information and repairing system damage that may have been caused; deploying additional personnel and protection technologies, training employees, and engaging third party experts and consultants; lost revenues resulting from unauthorized use of proprietary information or the failure to retain or attract customers following an attack; litigation; and reputational damage adversely affecting customer or investor confidence.
Such negative consequences could include remediation costs that may include liability for stolen assets or information and repairing system damage that may have been caused; deploying additional personnel and protection technologies, training employees, and engaging third party experts and consultants; lost revenues resulting from unauthorized use of proprietary information or the failure to retain or attract customers following an attack; litigation; and reputational damage adversely affecting customer or investor confidence. 11 Table of Contents The Company may use artificial intelligence (AI) in its business, and challenges with properly managing its use could result in disruption of our internal operations, reputational harm, competitive harm, legal liability and adversely affect our results of operations and stock price.
If we conclude that the decline in value of any of our investment securities is other-than-temporary, we will be required to write down the credit-related portion of the impairment of that security through a charge to earnings. We review our investment securities portfolio at each quarter-end reporting period to determine whether the fair value is below the current carrying value.
If we conclude that the decline in value of any of our investment securities is a credit loss, we will be required to book a contra-asset. We review our investment securities portfolio at each quarter-end reporting period to determine whether the fair value is below the current carrying value.
Stock price volatility may make it more difficult for you to resell your common stock when you want and at prices you find attractive.
Risks Associated with the Company ’ s Common Stock The Company ’ s stock price can be volatile. Stock price volatility may make it more difficult for you to resell your common stock when you want and at prices you find attractive.
Risks Associated with the Company ’ s Industry Future governmental regulation and legislation could limit the Company ’ s future growth. The Company is a registered bank holding company, and its subsidiary bank is a depository institution whose deposits are insured by the FDIC. As a result, the Company is subject to various regulations and examinations by various regulatory authorities.
The Company is a registered bank holding company, and its subsidiary bank is a depository institution whose deposits are insured by the FDIC. As a result, the Company is subject to various regulations and examinations by various regulatory authorities.
These supervisory actions may result in higher capital requirements, higher insurance premiums and limitations on the Company’s activities that could have a material adverse effect on its business and profitability.
Federal and state banking regulators also possess broad powers to take supervisory actions as they deem appropriate. These supervisory actions may result in higher capital requirements, higher insurance premiums and limitations on the Company’s activities that could have a material adverse effect on its business and profitability.
The Basel III capital requirements may require us to maintain higher levels of capital, which could reduce our profitability. Basel III targets higher levels of base capital, certain capital buffers and a migration toward common equity as the key source of regulatory capital.
Basel III targets higher levels of base capital, certain capital buffers and a migration toward common equity as the key source of regulatory capital.
Other risks associated with the use of social media include improper disclosure of proprietary information, negative comments about our business, exposure of personally identifiable information, fraud, out-of-date information, and improper use by employees and customers.
The harm may be immediate without affording us an opportunity for redress or correction. 13 Table of Contents Other risks associated with the use of social media include improper disclosure of proprietary information, negative comments about our business, exposure of personally identifiable information, fraud, out-of-date information, and improper use by employees and customers.
Any increases in the allowance for loan losses will result in a decrease in net income and capital and may have a material adverse effect on the Company’s financial condition and results of operations.
Further, if charge-offs in future periods exceed the allowance for credit losses, the Company will need additional provisions to increase the allowance for credit losses. Any increases in the allowance for credit losses will result in a decrease in net income and capital and may have a material adverse effect on the Company’s financial condition and results of operations.
The Company is extensively regulated under federal and state banking laws and regulations that are intended primarily for the protection of depositors, federal deposit insurance funds and the banking system as a whole.
The Company is extensively regulated under federal and state banking laws and regulations that are intended primarily for the protection of depositors, federal deposit insurance funds and the banking system as a whole. Compliance with these statutes and regulations is important to the Company’s ability to engage in new activities and consummate additional acquisitions.
The Company is currently assessing the impact of CECL. This is discussed further in Footnote 18, "Recent Accounting Pronouncements," of Part II, Item 8 “Financial Statements and Supplementary Data”, which is incorporated herein by reference.
The adoption of CECL is discussed further in Footnote 1, "Nature of Operations and Summary of Significant Accounting Policies," of Part II, Item 8 “Financial Statements and Supplementary Data”, which is incorporated herein by reference.
The dissemination of information online could harm our business, prospects, financial condition, and results of operations, regardless of the information’s accuracy. The harm may be immediate without affording us an opportunity for redress or correction.
The dissemination of information online could harm our business, prospects, financial condition, and results of operations, regardless of the information’s accuracy.
This differs significantly from the “incurred loss” model required under current generally accepted accounting principles (“GAAP”), which delays recognition until it is probable a loss has been incurred. The new CECL standard was originally expected to become effective for the Company on January 1, 2020, and for interim periods within that year.
This differs significantly from the “incurred loss” model required under previous generally accepted accounting principles (“GAAP”), which delays recognition until it is probable a loss has been incurred. The new CECL standard became effective for the Company on January 1, 2023. The CECL model may create more volatility in the level of the allowance for credit losses.
When the fair value of any of our investment securities has declined below its carrying value, we are required to assess whether the decline is other-than-temporary. If we conclude that the decline is other-than-temporary, we will be required to write down the credit-related portion of the impairment of that security through a charge to earnings.
When the fair value of any of our investment securities has declined below its carrying value, we are required to assess whether the decline is a credit loss.
Furthermore, the credit rating of other entities, such as state and local governments, may also be downgraded should the United States government's credit rating be downgraded.
Furthermore, the credit rating of other entities, such as state and local governments, may also be downgraded should the United States government's credit rating be downgraded. The impact that a credit rating downgrade may have on the national and local economy could have an adverse effect on the Company’s financial condition and results of operations.
The Dodd-Frank Act comprehensively reforms the regulation of financial institutions and their products and services. Dodd-Frank requires various federal regulatory agencies to implement numerous rules and regulations. Because federal agencies are granted broad discretion in drafting these rules and regulations, many of the details and the full impact of Dodd-Frank may not be known for many months or years.
Because federal agencies are granted broad discretion in drafting these rules and regulations, many of the details and the full impact of Dodd-Frank may not be known for many months or years. Dodd-Frank, like other financial industry reforms, has had and will continue to have a significant effect on our entire industry.
Compliance with these statutes and regulations is important to the Company’s ability to engage in new activities and consummate additional acquisitions. 13 Table of Contents In addition, the Company is subject to changes in federal and state tax laws as well as changes in banking and credit regulations, accounting principles and governmental economic and monetary policies.
In addition, the Company is subject to changes in federal and state tax laws as well as changes in banking and credit regulations, accounting principles and governmental economic and monetary policies. The Company cannot predict whether any of these changes may adversely and materially affect it.
Removed
Further, if charge-offs in future periods exceed the allowance for possible loan losses, the Company will need additional provisions to increase the allowance for possible loan losses.
Added
The Company is subject to commercial real estate volatility that may result in increases in non-performing loans that could have an adverse impact on our financial condition and results of operations. The commercial real estate market nationally, regionally, and locally has recently been subject to increased levels of volatility.
Removed
In November 2019, FASB agreed to delay implementation of the new CECL standard for certain companies, including those companies that qualify as a smaller reporting company under SEC rules, until January 1, 2023. The Company adopted the new CECL standard as of January 1, 2023.
Added
Many believe that commercial real estate in the commercial office sector is undergoing a fundamental transformation and change that started during the recent pandemic but also continues due to evolving workplace environments.
Removed
The Company cannot predict whether any of these changes may adversely and materially affect it. Federal and state banking regulators also possess broad powers to take supervisory actions as they deem appropriate.
Added
These changes in the marketplace affect the demand for commercial office space which in turn may affect the credit status, profitability, and collectability, of existing and future commercial real estate office sector loans.
Added
As explained above in greater detail in the risk factor for Lending Risk, volatility and increases in non-performing loans could have an adverse impact on the Company’s financial condition and results of operations. 7 Table of Contents The Company ’ s allowance for credit losses may be insufficient.
Added
The allowance, in the judgment of management, is necessary to reserve for estimated credit losses and risks inherent in the loan portfolio.
Added
If a decline in value is deemed to be credit losses, a contra-asset is recorded on both HTM and AFS securities, limited by the amount that the fair value is less than the amortized cost basis. The Basel III and other regulatory capital requirements may require us to maintain higher levels of capital, which could reduce our profitability.
Added
The risks are greater if the issue is extensive, long-lasting, or results in financial losses to its customers. Such failures, interruptions or breaches in security may arise from events such as severe weather, acts of vandalism, telecommunications outages, human error, or cyber -attacks.
Added
These risks also arise to the extent the Company’s third-party service providers experience failures, interruptions and breaches in security. The Company is also exposed to the risk of a disruption at a common service provider used by its third-party service providers.
Added
Even with attempts to diversify the reliance upon any one third-party, the Company may not be able to mitigate the risk of its vendors’ use of common service providers.
Added
The Company may incorporate AI solutions into platforms that deliver products and services to its customers, including solutions developed by third parties whose AI is integrated into its products and services.
Added
Its business could be harmed and the Company may be exposed to legal liability and reputational risk if the AI the Company uses is or is alleged to be deficient, inaccurate, or biased because the AI algorithms are flawed, insufficient, of poor quality, or reflect unwanted forms of bias, particularly if third party AI integrated with its platforms produces false or “hallucinatory” inferences.
Added
Data practices by the Company or others that result in controversy could impair the acceptance of AI, which could undermine the decisions, predictions, or analysis that AI applications produce. Its customers and potential customers may express adverse opinions concerning its use of AI and machine learning that could result in brand or reputational harm, competitive harm, or legal liability.
Added
If the Company develops Generative AI, its content creation may require additional investment as testing for bias, accuracy and unintended, harmful impact is often complex and may be costly.
Added
As a result, the Company may need to increase the cost of its products and services which may make it less competitive, particularly if its competitors incorporate AI more quickly or successfully. Governmental bodies have implemented laws and are considering further regulation of AI (including machine learning), which could negatively impact its ability to use and develop AI.
Added
The Company is unable to predict how application of existing laws, including federal and state privacy and data protection laws, and adoption of new laws and regulations applicable to AI will affect it but it is likely that compliance with such laws and regulations will increase its compliance costs and such increase may be substantial and adversely affect its results of operations.
Added
Furthermore, its use of Generative AI and other forms of AI may expose us to risks relating to intellectual property ownership and licensing rights, including copyright of Generative AI and other AI output as these issues have not been fully interpreted by federal courts or been fully addressed by federal or state legislation or regulations.

Item 2. Properties

Properties — owned and leased real estate

4 edited+1 added−1 removed3 unchanged
Biggest changeThe Company currently owns a property in Wilkes-Barre, PA that will become a full-service branch during 2023. The Company acquired a leased building in Scranton from the merger with Landmark. The branch in the building was closed in September 2021 and the building was converted into a training center during 2022. Foreclosed assets held-for-sale includes other real estate owned (ORE).
Biggest changeThe branch in the building was closed in September 2021 and the building was converted into a training center during 2022. Foreclosed assets held-for-sale includes other real estate owned (ORE). The Company had one ORE property as of December 31, 2023. Upon possession, foreclosed properties are recorded on the Company’s balance sheet at the lower of cost or fair value.
ITEM 2: PROPERTIES As of December 31, 2022, the Company and the Bank operated 21 full-service banking offices, of which eleven were owned and ten were leased. The Pittston branch property is subject to a lease with a company of which director, William J. Joyce, Sr., is a partner.
ITEM 2: PROPERTIES As of December 31, 2023, the Company and the Bank operated 21 full-service banking offices, of which eleven were owned and ten were leased. The Pittston branch property is subject to a lease with a company of which director, William J. Joyce, Sr., is a partner.
For a further discussion of ORE properties, see “Foreclosed assets held-for-sale”, located in the comparison of financial condition section of managements’ discussion and analysis. 16 Table of Contents
For a further discussion of ORE properties, see “Foreclosed assets held-for-sale”, located in the comparison of financial condition section of managements’ discussion and analysis.
We believe each of our facilities is suitable and adequate to meet our current operational needs and intended purposes. The Company also operates a wealth management office in Minersville, PA under a short-term lease agreement. Additionally, the Company has a limited production office in Scranton, PA that is currently leased for certain commercial lenders and credit department employees.
The Company also operates a wealth management office in Minersville, PA under a short-term lease agreement. 17 Table of Contents Additionally, the Company has a limited production office in Scranton, PA that is currently leased for certain commercial lenders and credit department employees. The Company acquired a leased building in Scranton from the merger with Landmark.
Removed
The Company had two ORE properties as of December 31, 2022, which stemmed from two unrelated borrowers. Upon possession, foreclosed properties are recorded on the Company’s balance sheet at the lower of cost or fair value.
Added
We believe each of our facilities is suitable and adequate to meet our current operational needs and intended purposes.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

1 edited+0 added−0 removed2 unchanged
Biggest changeNo legal proceedings are pending other than ordinary routine litigation incidental to the business of the Company and the Bank. In addition, to management’s knowledge, no governmental authorities have initiated or contemplated any material legal actions against the Company or the Bank. ITEM 4: MINE SAFETY DISCLOSURES Not Applicable 17 Table of Contents PART II
Biggest changeNo legal proceedings are pending other than ordinary routine litigation incidental to the business of the Company and the Bank. In addition, to management’s knowledge, no governmental authorities have initiated or contemplated any material legal actions against the Company or the Bank.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

5 edited+1 added−2 removed4 unchanged
Biggest changeThe shareholder return shown on the graph and table below is not necessarily indicative of future performance: Period Ending Index 12/31/17 12/31/18 12/31/19 12/31/20 12/31/21 12/31/22 Fidelity D & D Bancorp, Inc. 100.00 158.27 156.08 165.34 155.10 127.90 NASDAQ Composite Index 100.00 97.16 132.81 192.47 235.15 158.65 KBW NASDAQ Bank Index 100.00 82.29 112.01 100.46 138.97 109.23 19 Table of Contents Purchases of equity securities by the issuer and affiliated purchasers The following information describes the Company's stock repurchases during the fourth quarter of the fiscal year ended December 31, 2022.
Biggest changeThe shareholder return shown on the graph and table below is not necessarily indicative of future performance: Period Ending Index 12/31/18 12/31/19 12/31/20 12/31/21 12/31/22 12/31/23 Fidelity D & D Bancorp, Inc. 100.00 98.62 104.47 98.00 80.81 102.56 NASDAQ Composite Index 100.00 136.69 198.10 242.03 163.28 236.17 KBW NASDAQ Bank Index 100.00 136.13 122.09 168.88 132.75 131.57 20 Table of Contents ITEM 6: [Reserved]
Blakely and Drinker Streets Dunmore, PA 18512 (570) 342-8281 Dividends are determined and declared by the Board of Directors of the Company. The Company expects to continue to pay cash dividends in the future; however, future dividends are dependent upon earnings, financial condition, capital strength and other factors of the Company.
Blakely and Drinker Streets Dunmore, PA 18512 (570) 342-8281 Dividends are determined and declared by the Board of Directors of the Company. The Company expects to continue to pay regular quarterly cash dividends in the future; however, future dividends are dependent upon earnings, financial condition, capital strength and other factors of the Company.
The graph illustrates the cumulative investment return to shareholders, based on the assumption that a $100 investment was made on December 31, 2017, in each of: the Company’s common stock, the NASDAQ Composite and the KBW NASDAQ index. As of December 31, 2022, the KBW NASDAQ index consiste d of 24 bank s.
The graph illustrates the cumulative investment return to shareholders, based on the assumption that a $100 investment was made on December 31, 2018, in each of: the Company’s common stock, the NASDAQ Composite and the KBW NASDAQ index. As of December 31, 2023, the KBW NASDAQ index consiste d of 24 bank s.
Each security depository is considered a single shareholder for purposes of determining the approximate number of shareholders. 18 Table of Contents Performance graph The following graph and table compare the cumulative total shareholder return on the Company’s common stock against the cumulative total return of the NASDAQ Composite and KBW NASDAQ Bank index (the KBW NASDAQ index) for the period of five fiscal years commencing January 1, 2018, and ending December 31, 2022.
Each security depository is considered a single shareholder for purposes of determining the approximate number of shareholders. 19 Table of Contents Performance graph The following graph and table compare the cumulative total shareholder return on the Company’s common stock against the cumulative total return of the NASDAQ Composite and KBW NASDAQ Bank index (the KBW NASDAQ index) for the period of five fiscal years commencing January 1, 2019, and ending December 31, 2023.
The administrator may purchase shares directly from the Company, in the open market, in negotiated transactions with third parties or using a combination of these methods. The Company had approximately 1,663 shareholders at December 31, 2022 an d 1,681 sh areholders as of February 28, 2023. The number of shareholders is the actual number of distinct shareholders of record.
The administrator may purchase shares directly from the Company, in the open market, in negotiated transactions with third parties or using a combination of these methods. The Company had approximat ely 1,631 sh areholders at December 31, 2023 an d 1,623 sh areholders as of February 29, 2024.
Removed
(a) (b) (c) (d) Period Total number of shares (or units) purchased Average price paid per share (or unit) Total number of shares (or units) purchased as part of publicly announced plans or programs Maximum number (or approximate dollar value) of shares (or units) that may yet be purchased under the plans or programs October 1, 2022 to October 31, 2022 715 $ 39.45 715 $ 3,739,242 November 1, 2022 to November 30, 2022 - - - 3,739,242 December 1, 2022 to December 31, 2022 - - - 3,739,242 Total 715 $ 39.45 715 $ 3,739,242 On May 18, 2022, the Company announced that the Board of Directors approved a plan to purchase, in open market and privately negotiated transactions, up to 3% of its outstanding common stock in accordance with all applicable securities laws and regulations, including SEC Rule 10b-18 of the Exchange Act.
Added
The number of shareholders is the actual number of distinct shareholders of record.
Removed
The plan shall terminate on the earlier of the date an aggregate of $5,000,000 of stock have been purchased or August 9, 2023. ITEM 6: [Reserved]

Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

1 edited+0 added−0 removed0 unchanged
Biggest changeItem 6. [Reserved] 20 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation 20 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 64 Item 8. Report of Independent Registered Public Accounting Firm 65 Item 8. Financial Statements and Supplementary Data 65
Biggest changeItem 6. [Reserved] 21 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation 21 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 58 Item 8. Report of Independent Registered Public Accounting Firm 59 Item 8. Financial Statements and Supplementary Data 59

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

212 edited+121 added−194 removed107 unchanged
Biggest changeThe following table reconciles the non-GAAP financial measures of the efficiency ratio to GAAP: (dollars in thousands) 2022 2021 2020 2019 2018 Efficiency Ratio (non-GAAP) Non-interest expenses (GAAP) $ 51,348 $ 50,107 $ 38,319 $ 26,921 $ 25,072 Net interest income (GAAP) 72,274 61,829 44,185 31,715 30,457 Plus: taxable equivalent adjustment 2,738 2,135 1,095 750 718 Non-interest income (GAAP) 16,642 18,287 14,668 10,193 9,200 Net interest income (FTE) plus non-interest income (non-GAAP) $ 91,654 $ 82,251 $ 59,948 $ 42,658 $ 40,375 Efficiency ratio (non-GAAP) 56.02 % 60.92 % 63.92 % 63.11 % 62.10 % 21 Table of Contents The following table provides a reconciliation of the tangible common equity (non-GAAP) and the calculation of tangible book value per share: (dollars in thousands) 2022 2021 2020 2019 2018 Tangible Book Value per Share (non-GAAP) Total assets (GAAP) $ 2,378,372 $ 2,419,104 $ 1,699,510 $ 1,009,927 $ 981,102 Less: Intangible assets, primarily goodwill (21,168 ) (21,569 ) (8,787 ) (209 ) (209 ) Tangible assets 2,357,204 2,397,535 1,690,723 1,009,718 980,893 Total shareholders' equity (GAAP) 162,950 211,729 166,670 106,835 93,557 Less: Intangible assets, primarily goodwill (21,168 ) (21,569 ) (8,787 ) (209 ) (209 ) Tangible common equity $ 141,782 $ 190,160 $ 157,883 $ 106,626 $ 93,348 Common shares outstanding, end of period 5,630,794 5,645,687 4,977,750 3,781,500 3,759,426 Tangible Common Book Value per Share $ 25.18 $ 33.68 $ 31.72 $ 28.20 $ 24.83 The following tables provides a reconciliation of the Company’s earnings results under GAAP to comparative non-GAAP results excluding merger-related expenses and an FHLB prepayment penalty: 2022 (dollars in thousands except per share data) Income before income taxes Provision for income taxes Net income Diluted earnings per share Results of operations (GAAP) $ 35,468 $ 5,447 $ 30,021 $ 5.29 Add: Merger-related expenses - - - - Add: FHLB prepayment penalty - - - - Adjusted earnings (non-GAAP) $ 35,468 $ 5,447 $ 30,021 $ 5.29 2021 (dollars in thousands except per share data) Income before income taxes Provision for income taxes Net income Diluted earnings per share Results of operations (GAAP) $ 28,009 $ 4,001 $ 24,008 $ 4.48 Add: Merger-related expenses 3,033 491 2,542 0.47 Add: FHLB prepayment penalty 369 78 291 0.05 Adjusted earnings (non-GAAP) $ 31,411 $ 4,570 $ 26,841 $ 5.00 2020 (dollars in thousands except per share data) Income before income taxes Provision for income taxes Net income Diluted earnings per share Results of operations (GAAP) $ 15,284 $ 2,249 $ 13,035 $ 2.82 Add: Merger-related expenses 2,452 426 2,026 0.44 Add: FHLB prepayment penalty 481 101 380 0.08 Adjusted earnings (non-GAAP) $ 18,217 $ 2,776 $ 15,441 $ 3.34 22 Table of Contents Comparison of Financial Condition as of December 31, 2022 and 2021 and Results of Operations for each of the Years then Ended Executive Summary The Company generated $30.0 million in net income in 2022, or $5.29 diluted earnings per share, up $6.0 million, or 25%, from $24.0 million, or $4.48 diluted earnings per share, in 2021.
Biggest changeThe following table reconciles the non-GAAP financial measures of the efficiency ratio to GAAP: (dollars in thousands) 2023 2022 Efficiency Ratio (non-GAAP) Non-interest expenses (GAAP) $ 51,870 $ 51,361 Net interest income (GAAP) 62,047 72,274 Plus: taxable equivalent adjustment 2,850 2,738 Non-interest income (GAAP) 11,405 16,642 Less: (Loss) gain on sales of securities (6,468 ) 4 Net interest income (FTE) plus adjusted non-interest income (non-GAAP) $ 82,770 $ 91,650 Efficiency ratio (non-GAAP) 62.67 % 56.04 % The following table provides a reconciliation of the tangible common equity (non-GAAP) and the calculation of tangible book value per share, tangible common equity ratio and adjusted tangible common equity ratio: (dollars in thousands) 2023 2022 Tangible Book Value per Share (non-GAAP) Total assets (GAAP) $ 2,503,159 $ 2,378,372 Less: Intangible assets, primarily goodwill (20,812 ) (21,168 ) Tangible assets 2,482,347 2,357,204 Total shareholders' equity (GAAP) 189,479 162,950 Less: Intangible assets, primarily goodwill (20,812 ) (21,168 ) Tangible common equity $ 168,667 $ 141,782 Common shares outstanding, end of period 5,703,636 5,630,794 Tangible Common Book Value per Share (non-GAAP) $ 29.57 $ 25.18 Tangible Common Equity Ratio (non-GAAP) 6.79 % 6.01 % Unrealized losses on held-to-maturity securities, net of tax (21,375 ) (28,017 ) Adjusted tangible common equity ratio (non-GAAP) 5.93 % 4.83 % 22 Table of Contents The following tables provides a reconciliation of the Company’s earnings results under GAAP to comparative non-GAAP results excluding gain/loss on the sale of available-for-sale debt securities: 2023 (dollars in thousands except per share data) Income before income taxes Provision for income taxes Net income Diluted earnings per share Results of operations (GAAP) $ 20,256 $ 2,046 $ 18,210 $ 3.19 Add: Loss (gain) on the sale of available-for-sale debt securities 6,468 1,358 5,110 0.89 Adjusted earnings (non-GAAP) $ 26,724 $ 3,404 $ 23,320 $ 4.08 2022 (dollars in thousands except per share data) Income before income taxes Provision for income taxes Net income Diluted earnings per share Results of operations (GAAP) $ 35,468 $ 5,447 $ 30,021 $ 5.29 Add: Loss (gain) on the sale of available-for-sale debt securities (4 ) (1 ) (3 ) - Adjusted earnings (non-GAAP) $ 35,464 $ 5,446 $ 30,018 $ 5.29 The following table provides a reconciliation of pre-provision net revenue (PPNR) to average assets (non-GAAP): (dollars in thousands) 2023 2022 Pre-Provision Net Revenue to Average Assets Income before taxes (GAAP) $ 20,256 $ 35,468 Plus: Provision for credit losses 1,326 2,087 Total pre-provision net revenue (non-GAAP) $ 21,582 $ 37,555 Average assets $ 2,405,096 $ 2,399,576 Pre-Provision Net Revenue to Average Assets (non-GAAP) 0.90 % 1.57 % 23 Table of Contents Comparison of Financial Condition as of December 31, 2023 and 2022 and Results of Operations for each of the Years then Ended Executive Summary The Company generated $18.2 million in net income in 2023, or $3.19 diluted earnings per share, down $11.8 million, or 39%, from $30.0 million, or $5.29 diluted earnings per share, in 2022.
Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk-weightings and other factors.
Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk-weightings and other factors.
The bonds that were transferred had the highest price volatility and consisted of fixed-rate securities representing 70% of the agency portfolio, 70% of the taxable municipal portfolio each laddered out on the short to intermediate part of the curve and 35% of the tax-exempt municipal portfolio on the long end of the curve were identified as the best candidates given the Company’s ability to hold those bonds to maturity.
The bonds that were transferred had the highest price volatility and consisted of fixed-rate securities representing 70% of the agency portfolio, 70% of the taxable municipal portfolio each laddered out on the short to intermediate part of the yield curve and 35% of the tax-exempt municipal portfolio on the long end of the yield curve were identified as the best candidates given the Company’s ability to hold those bonds to maturity.
Loans determined to be uncollectible are charged off against the allowance. The required amount of the provision for loan losses, based upon the adequate level of the allowance, is subject to the ongoing analysis of the loan portfolio. The Company’s Special Assets Committee meets periodically to review problem loans.
Loans determined to be uncollectible are charged off against the allowance. The required amount of the provision for credit losses, based upon the adequate level of the allowance, is subject to the ongoing analysis of the loan portfolio. The Company’s Special Assets Committee meets periodically to review problem loans.
Effective April 1, 2022, the Company transferred agency and municipal bonds with a book value of $245.5 million from AFS to HTM in order to apply the accounting for securities HTM to mitigate the effect AFS accounting has on the balance sheet.
On April 1, 2022, the Company transferred agency and municipal bonds with a book value of $245.5 million from AFS to HTM in order to apply the accounting for securities HTM to mitigate the effect AFS accounting has on the balance sheet.
Jobs grew in December 2022 from a year earlier in the Scranton/Wilkes-Barre/Hazleton and Allentown/Bethlehem/Easton metropolitan statistical areas. We believe expanding our market area gives us opportunity for growth and we will continue to monitor the economic climate in our region, scrutinize growth prospects and proactively observe existing credits for early warning signs of risk deterioration.
Jobs grew in December 2023 from a year earlier in the Scranton/Wilkes-Barre/Hazleton and Allentown/Bethlehem/Easton metropolitan statistical areas. We believe expanding our market area gives us opportunity for growth and we will continue to monitor the economic climate in our region, scrutinize growth prospects and proactively observe existing credits for early warning signs of risk deterioration.
Within the table, interest income was FTE adjusted, using the corporate federal tax rate of 21% for 2022, 2021 and 2020, to recognize the income from tax-exempt interest-earning assets as if the interest was taxable. See “Non-GAAP Financial Measures” within this management’s discussion and analysis for the FTE adjustments. This treatment allows a uniform comparison among yields on interest-earning assets.
Within the table, interest income was FTE adjusted, using the corporate federal tax rate of 21% for 2023, 2022 and 2021, to recognize the income from tax-exempt interest-earning assets as if the interest was taxable. See “Non-GAAP Financial Measures” within this management’s discussion and analysis for the FTE adjustments. This treatment allows a uniform comparison among yields on interest-earning assets.
Excess stock is repurchased from the Company at par if the amount of borrowings decline to a predetermined level. In addition, the Company earns a return or dividend based on the amount invested. Atlantic Community Bankers Bank (ACBB) stock totaled $82 thousand as of December 31, 2022 and 2021.
Excess stock is repurchased from the Company at par if the amount of borrowings decline to a predetermined level. In addition, the Company earns a return or dividend based on the amount invested. Atlantic Community Bankers Bank (ACBB) stock totaled $82 thousand as of December 31, 2023 and 2022.
The ALCO recognizes that, in some instances, this ratio may contradict the “earnings at risk” ratio. 59 Table of Contents The following table illustrates the simulated impact of an immediate 200 basis points upward or downward movement in interest rates on net interest income, net income and the change in the economic value (portfolio equity).
The ALCO recognizes that, in some instances, this ratio may contradict the “earnings at risk” ratio. The following table illustrates the simulated impact of an immediate 200 basis points upward or downward movement in interest rates on net interest income, net income and the change in the economic value (portfolio equity).
Dodd-Frank requires publicly traded companies to give shareholders a non-binding vote on executive compensation at least every three years, a non-binding vote regarding the frequency of the vote on executive compensation at least every six years, and a non-binding vote on “golden parachute” payments in connection with approvals of mergers and acquisitions unless previously voted on by shareholders.
Corporate Governance. Dodd-Frank requires publicly traded companies to give shareholders a non-binding vote on executive compensation at least every three years, a non-binding vote regarding the frequency of the vote on executive compensation at least every six years, and a non-binding vote on “golden parachute” payments in connection with approvals of mergers and acquisitions unless previously voted on by shareholders.
Operating lease commitments are obligations under various non-cancelable operating leases on buildings and land used for office space and banking purposes. Capital lease commitments are obligations on buildings and equipment. The following table presents, as of December 31, 2022, the Company’s significant determinable contractual obligations and significant commitments by payment date.
Operating lease commitments are obligations under various non-cancelable operating leases on buildings and land used for office space and banking purposes. Capital lease commitments are obligations on buildings and equipment. The following table presents, as of December 31, 2023, the Company’s significant determinable contractual obligations and significant commitments by payment date.
This process measures and quantifies the impact on net interest income through varying interest rate changes and balance sheet compositions. The use of this model assists the ALCO to gauge the effects of the interest rate changes on interest-sensitive assets and liabilities in order to determine what impact these rate changes will have upon the net interest spread.
This process measures and quantifies the impact on net interest income through varying interest rate changes and balance sheet compositions. The use of this model assists the ALCO in gauging the effects of interest rate changes on interest-sensitive assets and liabilities in order to determine what impact these rate changes will have upon the net interest spread.
In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for loan losses. Such agencies may require the Company to recognize adjustments to the allowance based on their judgment of information available to them at the time of their examination.
In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for credit losses. Such agencies may require the Company to recognize adjustments to the allowance based on their judgment of information available to them at the time of their examination.
In addition, the Company’s non-GAAP measures may not be comparable to non-GAAP measures of other companies. The Company’s tax rate used to calculate the fully-taxable equivalent (FTE) adjustment was 21% at December 31, 2022, 2021, 2020, 2019 and 2018.
In addition, the Company’s non-GAAP measures may not be comparable to non-GAAP measures of other companies. The Company’s tax rate used to calculate the fully-taxable equivalent (FTE) adjustment was 21% at December 31, 2023, 2022, 2021, 2020 and 2019.
Sources of liquidity are cash and cash equivalents, asset maturities and pay-downs within one year, loans HFS, investments AFS, growth of core deposits, utilization of borrowing capacities from the FHLB, correspondent banks, ICS and IntraFi Network One-Way Buy program, the Discount Window of the Federal Reserve Bank of Philadelphia (FRB), Atlantic Community Bankers Bank (ACBB) and proceeds from the issuance of capital stock.
Sources of liquidity are cash and cash equivalents, asset maturities and pay-downs within one year, loans HFS, investments AFS, growth of core deposits, utilization of borrowing capacities from the FHLB, correspondent banks, IntraFi's ICS and One-Way Buy program, the Discount Window of the Federal Reserve Bank of Philadelphia (FRB), Atlantic Community Bankers Bank (ACBB) and proceeds from the issuance of capital stock.
Using either the interest method or straight-line amortization, the deferral is released as credits or charges to loan interest income over the life of the loan. 32 Table of Contents There are no concentrations of loans or customers to several borrowers engaged in similar industries exceeding 10% of total loans that are not otherwise disclosed as a category in the tables above.
Using either the interest method or straight-line amortization, the deferral is released as credits or charges to loan interest income over the life of the loan. There are no concentrations of loans or customers to several borrowers engaged in similar industries exceeding 10% of total loans that are not otherwise disclosed as a category in the tables above.
Impact of Accounting Standards and Interpretations Information with respect to the impact of accounting standards is contained in Note 19, “Recent Accounting Pronouncements”, within the notes to the consolidated financial statements, and incorporated by reference in Part II, Item 8.
Impact of Accounting Standards and Interpretations Information with respect to the impact of accounting standards is contained in Note 18, “Recent Accounting Pronouncements”, within the notes to the consolidated financial statements, and incorporated by reference in Part II, Item 8.
The Special Assets Committee’s focus is on ensuring the pertinent facts are considered regarding not only loans considered for specific reserves, but also the collectability of loans that may be past due.
The Special Assets Committee’s focus is on ensuring the pertinent facts are considered regarding not only loans considered for specific reserves, but also the collectability of loans that may be past due in payment.
Treasury rates rise, investment securities’ pricing declines and fair values of investment securities also decline. While volatility has existed in the yield curve within the past twelve months, a rising rate environment is expected and during the period of rising rates, the Company expects pricing in the bond portfolio to decline.
Treasury rates rise, investment securities’ pricing declines and fair values of investment securities also decline. While volatility has existed in the yield curve within the past twelve months, a declining rate environment is expected and during the period of declining rates, the Company expects pricing in the bond portfolio to improve.
The following discussion and analysis presents the significant changes in the financial condition and in the results of operations of the Company as of December 31, 2022 and 2021 and for each of the years then ended.
The following discussion and analysis presents the significant changes in the financial condition and in the results of operations of the Company as of December 31, 2023 and 2022 and for each of the years then ended.
Strategically deploying no- and low-cost deposits into interest earning-assets is an effective margin-preserving strategy that the Company expects to continue to pursue and expand to help stabilize net interest margin. The Company’s Asset Liability Management (ALM) team meets regularly to discuss among other things, interest rate risk and when deemed necessary adjusts interest rates.
Strategically deploying relationship deposits into interest earning-assets is an effective margin-preserving strategy that the Company expects to continue to pursue and expand to help stabilize net interest margin. The Company’s Asset Liability Management (ALM) team meets regularly to discuss among other things, interest rate risk and when deemed necessary adjusts interest rates.
Considerations such as the Company’s intent and ability to hold the securities until or sell prior to maturity, recoverability of the invested amounts over the intended holding period, the length of time and the severity in pricing decline below cost, the interest rate environment, the receipt of amounts contractually due and whether or not there is an active market for the securities, for example, are applied, along with an analysis of the financial condition of the issuer for management to make a realistic judgment of the probability that the Company will be unable to collect all amounts (principal and interest) due in determining whether a security is other-than-temporarily impaired.
Considerations such as the Company’s intent and ability to hold the securities until or sell prior to maturity, recoverability of the invested amounts over the intended holding period, the length of time and the severity in pricing decline below cost, the interest rate environment, the receipt of amounts contractually due and whether or not there is an active market for the securities, for example, are applied, along with an analysis of the financial condition of the issuer for management to make a realistic judgment of the probability that the Company will be unable to collect all amounts (principal and interest) due in determining whether a security has credit losses.
Dodd-Frank additionally requires that bank regulators issue countercyclical capital requirements so that the required amount of capital increases in times of economic expansion and decreases in times of economic contraction, consistent with safety and soundness. Deposit Insurance.
Dodd-Frank additionally requires that bank regulators issue countercyclical capital requirements so that the required amount of capital increases in times of economic expansion and decreases in times of economic contraction, consistent with safety and soundness. 55 Table of Contents Deposit Insurance.
In light of these expectations, we are uncertain if real estate values could continue to increase at these levels with the continued rising rate environment, however we will continue to monitor the economic climate in our region and scrutinize growth prospects with credit quality as a principal consideration.
In light of these expectations, we are uncertain if real estate values could continue to increase at these levels with the current elevated rate environment, however we will continue to monitor the economic climate in our region and scrutinize growth prospects with credit quality as a principal consideration.
As of December 31, 2022, the unallocated reserve, representing the portion of the allowance not specifically identified with a loan or groups of loans, was less than 1% of the total allowance for loan losses, unchanged from December 31, 2021.
As of December 31, 2023, the unallocated reserve, representing the portion of the allowance not specifically identified with a loan or groups of loans, was less than 1% of the total allowance for credit losses, unchanged from December 31, 2022.
The Company’s earnings are also affected by the level of its non-interest income and expenses and by the provisions for loan losses and income taxes.
The Company’s earnings are also affected by the level of its non-interest income and expenses and by the provisions for credit losses and income taxes.
In addition, there is an annual process to review the interest rate risk policy with the board of directors which includes limits on the impact to earnings from shifts in interest rates. Interest Rate Risk Measurement.
In addition, there is an annual process to review the interest rate risk policy with the board of directors which includes limits on the impact to earnings from shifts in interest rates. 50 Table of Contents Interest Rate Risk Measurement.
Allowance for loan losses Management evaluates the credit quality of the Company’s loan portfolio and performs a formal review of the adequacy of the allowance for loan losses (allowance) on a quarterly basis. The allowance reflects management’s best estimate of the amount of credit losses in the loan portfolio.
Allowance for credit losses Management continually evaluates the credit quality of the Company’s loan portfolio and performs a formal review of the adequacy of the allowance for credit losses (ACL) on a quarterly basis. The allowance reflects management’s best estimate of the amount of expected credit losses in the loan portfolio.
This analysis assumed that the adjusted interest-earning asset and interest-bearing liability levels at December 31, 2022 remained constant.
This analysis assumed that the adjusted interest-earning asset and interest-bearing liability levels at December 31, 2023 remained constant.
The Company does not expect to have any FHLB advances in 2023. 26 Table of Contents Funds Deployed: Investment Securities The Company’s investment policy is designed to complement its lending activities, provide monthly cash flow, manage interest rate sensitivity and generate a favorable return without incurring excessive interest rate and credit risk while managing liquidity at acceptable levels.
The Company does not expect to have any FHLB advances in 2024. Funds Deployed: Investment Securities The Company’s investment policy is designed to complement its lending activities, provide monthly cash flow, manage interest rate sensitivity and generate a favorable return without incurring excessive interest rate and credit risk while managing liquidity at acceptable levels.
If the non-accrual loans that were outstanding as of December 31, 2022 had been performing in accordance with their original terms, the Company would have recognized interest income with respect to such loans of $160 thousand.
If the non-accrual loans that were outstanding as of December 31, 2023 had been performing in accordance with their original terms, the Company would have recognized interest income with respect to such loans of $319 thousand.
We intend to grow all lending portfolios in both the business and retail sectors using growth in market-place low costing deposits to stabilize net interest margin and to enhance revenue performance.
We intend to grow all lending portfolios in both the business and retail sectors using growth in market-place low costing deposits to stabilize net interest margin and to enhance revenue performance. 57 Table of Contents
Recent Legislation and Rulemaking Regulatory Capital Changes In July 2013, the federal banking agencies issued final rules to implement the Basel III regulatory capital reforms and changes required by the Dodd-Frank Act.
Recent Legislation and Rulemaking 54 Table of Contents Regulatory Capital Changes In July 2013, the federal banking agencies issued final rules to implement the Basel III regulatory capital reforms and changes required by the Dodd-Frank Act.
Future Outlook The Company is highly impacted by local economic factors that could influence the performance and strength of our loan portfolios and results of operations. Economic uncertainty continues due to inflationary pressures, rising interest rates and global risks such as war, terrorism and geopolitical instability. A consensus of economists predicts rising short-term rates during 2023.
Future Outlook The Company is highly impacted by local economic factors that could influence the performance and strength of our loan portfolios and results of operations. Economic uncertainty continues due to inflationary pressures, fluctuating interest rates and global risks such as war, terrorism and geopolitical instability. A consensus of economists predicts falling short-term rates during the second half of 2024.
Net interest income is the difference between interest income and interest expense. Interest income is generated from yields earned on interest-earning assets, which consist principally of loans and investment securities. Interest expense is incurred from rates paid on interest-bearing liabilities, which consist of deposits and borrowings.
Interest income is generated from yields earned on interest-earning assets, which consist principally of loans and investment securities. Interest expense is incurred from rates paid on interest-bearing liabilities, which consist of deposits and borrowings.
Cash inflow from interest-earning assets, short-term borrowings and loan payments were used to purchase investment securities and replace maturing and cash runoff of securities, fund the loan portfolio, invest in bank premises and equipment and make net dividend payments. The Company received a large amount of public deposits over the past six years.
Cash inflow from interest-earning assets, the sale of securities, short-term borrowings and loan payments were used to fund the loan portfolio, invest in bank premises and equipment and make net dividend payments. The Company received a large amount of public deposits over the past six years.
At December 31, 2022, the Company maintained a one-year cumulative gap of negative (liability sensitive) $105.5 million, or -4%, of total assets. The effect of this negative gap position provided a mismatch of assets and liabilities which may expose the Company to interest rate risk during periods of rising interest rates.
At December 31, 2023, the Company maintained a one-year cumulative gap of negative (liability sensitive) $185.5 million, or -7%, of total assets. The effect of this negative gap position provided a mismatch of assets and liabilities which may expose the Company to interest rate risk during periods of rising interest rates.
Loans include loans held-for-sale (HFS) and non-accrual loans but exclude the allowance for loan losses. HELOC are included in the residential real estate category since they are secured by real estate. Net deferred loan fee accretion of $0.2 million in 2022, $3.8 million in 2021 and $2.1 million in 2020, respectively, are included in interest income from loans.
Loans include loans held-for-sale (HFS) and non-accrual loans but exclude the allowance for credit losses. HELOC are included in the residential real estate category since they are secured by real estate. Net deferred loan (cost amortization)/ fee accretion of ($0.9 million) in 2023, $0.2 million in 2022 and $3.8 million in 2021, respectively, are included in interest income from loans.
Given the subjective nature of identifying and valuing loan losses, it is likely that well-informed individuals could make different assumptions and could, therefore, calculate a materially different allowance value. While management uses available information to recognize losses on loans, changes in economic conditions may necessitate revisions in the future.
Given the subjective nature of identifying and estimating loan losses, it is likely that well-informed individuals could make different assumptions and could, therefore, calculate a materially different allowance amount. While management uses available information to recognize losses on loans, changes in economic conditions and reasonable and supportable forecasts may necessitate revisions in the future.
Lending commitments include commitments to originate loans and commitments to fund unused lines of credit. 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 and may require payment of a fee.
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 and may require payment of a fee.
The committee is comprised of management, including credit administration officers, loan officers, loan workout officers and collection personnel. The committee reports quarterly to the Credit Administration Committee of the board of directors. 45 Table of Contents Management continuously reviews the risks inherent in the loan portfolio.
The committee is comprised of management, including credit administration officers, loan officers, loan workout officers and collection personnel. 45 Table of Contents Management continuously reviews the risks inherent in the loan portfolio.
The increase was primarily due to higher pre-tax income in 2022. If the federal corporate tax rate is increased, the Company’s net deferred tax liabilities and deferred tax assets will be re-valued upon adoption of the new tax rate. A federal tax rate increase will decrease net deferred tax assets with a corresponding decrease to provision for income taxes.
If the federal corporate tax rate is increased, the Company’s net deferred tax liabilities and deferred tax assets will be re-valued upon adoption of the new tax rate. A federal tax rate increase will increase net deferred tax assets with a corresponding decrease to provision for income taxes.
On the asset side, the prime interest rate, the benchmark rate that banks use as a base rate for adjustable rate loans was also increased 425 basis points during 2022. Consensus economic forecasts are predicting increases in short-term rates throughout 2023.
On the asset side, the Prime interest rate, the benchmark rate that banks use as a base rate for adjustable rate loans was also increased 425 basis points during 2022 and another 100 basis points through 2023. Consensus economic forecasts are predicting gradual declines in short-term rates throughout 2024.
A material estimate that is particularly susceptible to significant change relates to the determination of the allowance for loan losses. Management believes that the allowance for loan losses at December 31, 2022 is adequate and reasonable.
A material estimate that is particularly susceptible to significant change relates to the determination of the allowance for credit losses. Management believes that the allowance for credit losses at December 31, 2023 is adequate and reasonable to cover expected losses.
The Company’s Special Assets Committee meets quarterly, and the applicable lenders discuss each relationship under review and reach a consensus on the appropriate estimated loss amount, if applicable, based on current accounting guidance.
A key control related to the allowance is the Company’s Special Assets Committee. This committee meets quarterly, and the applicable lenders discuss each relationship under review and reach a consensus on the appropriate estimated loss amount, if applicable, based on current accounting guidance.
The median home values in the Scranton-Wilkes-Barre-Hazleton metro and Allentown-Bethlehem-Easton metro each increased 20.4% and 17.9% from a year ago, according to Zillow, an online database advertising firm providing access to its real estate search engines to various media outlets.
The median home values in the Scranton-Wilkes-Barre-Hazleton metro and Allentown-Bethlehem-Easton metro each increased 5.9% and 6.3% from a year ago, according to Zillow, an online database advertising firm providing access to its real estate search engines to various media outlets, and values are expected to grow 5.8% and 5.4% in the next year.
The DRP affords the Company the option to acquire shares in open market purchases and/or issue shares directly from the Company to plan participants. During 2022, the Company acquired shares in the open market to fulfill the needs of the DRP.
The DRP affords the Company the option to acquire shares in open market purchases and/or issue shares directly from the Company to plan participants. During 2023, the Company re-issued treasury shares to fulfill the needs of the DRP.
Securities designated as HTM are carried at amortized cost and represent debt securities that the Company has the ability and intent to hold until maturity. For the year ended December 31, 2022, AOCI was reduced by $71.3 million due to the change in fair value of the Company's investment securities.
Securities designated as HTM are carried at amortized cost and represent debt securities that the Company has the ability and intent to hold until maturity. For the year ended December 31, 2023, AOCI improved by $14.7 million primarily due to the change in fair value of the Company's investment securities.
The portfolio had no adjustable-rate instruments as of December 31, 2022 and 2021. Investment securities were comprised of AFS and HTM securities as of December 31, 2022 and AFS securities as of December 31, 2021.
The portfolio had no adjustable-rate instruments as of December 31, 2023 and 2022. 29 Table of Contents Investment securities were comprised of AFS and HTM securities as of December 31, 2023 and December 31, 2022.
Lower unrealized gains and higher unrealized losses on all types of securities contributed to the net unrealized losses in investment portfolio. Management believes that changes in fair value of the Company’s securities are due to changes in interest rates and not in the creditworthiness of the issuers. Generally, when U.S.
Lower unrealized losses on all types of securities and the sale of securities in a loss position during 2023 contributed to the reduction in net unrealized losses in investment portfolio. Management believes that changes in fair value of the Company’s securities are due to changes in interest rates and not in the creditworthiness of the issuers. Generally, when U.S.
From a financial condition and performance perspective, our mission for 2023 will be to continue to strengthen our capital position through retained earnings by implementing creative marketing and revenue enhancing strategies, continuing to manage the cost of deposits, growing and cultivating more of our wealth management and business services and managing credit risk at tolerable levels thereby maintaining overall asset quality.
From a financial condition and performance perspective, our mission for 2024 will be to continue to strengthen our capital position through retained earnings to support growth initiatives by implementing strategic and targeted marketing and revenue enhancing strategies, continuing to improve loan yields while managing the cost of deposits, growing and cultivating more of our wealth management and business services and managing credit risk at tolerable levels thereby maintaining overall asset quality.
Correspondingly, when interest rates decline, the market values of the Company’s debt securities portfolio could be subject to market value increases. As of December 31, 2022, the Company had $350.7 million in public deposits, or 16% of total deposits.
Correspondingly, when interest rates decline, the market values of the Company’s debt securities portfolio could be subject to market value increases. As of December 31, 2023, the Company had $294.8 million in public deposits, or 14% of total deposits.
The Company’s sources (uses) of capital during the previous five years are indicated below: Cash Other retained DRP Issuance of Changes in Net dividends earnings Earnings and ESPP common stock AOCI and Capital (dollars in thousands) income declared adjustments retained infusion for acquisition other changes retained (utilized) 2022 $ 30,021 $ (7,709 ) $ - $ 22,312 $ 252 $ - $ (71,343 ) $ (48,779 ) 2021 24,008 (6,608 ) - 17,400 270 35,056 (7,667 ) 45,059 2020 13,035 (5,378 ) - 7,657 219 45,408 6,551 59,835 2019 11,576 (4,037 ) (91 ) 7,448 175 - 5,655 13,278 2018 11,006 (3,708 ) 421 7,719 460 - (2,005 ) 6,174 As of December 31, 2022, the Company reported a net unrealized loss position of $71.1 million, net of tax, from the securities AFS portfolio compared to a net unrealized gain of $0.2 million as of December 31, 2021.
The Company’s sources (uses) of capital during the previous five years are indicated below: Cash Other retained Total DRP Issuance of Changes in Net dividends earnings earnings and ESPP common stock AOCI and Capital (dollars in thousands) income declared adjustments retained infusion for acquisition other changes retained (utilized) 2023 $ 18,210 $ (8,387 ) $ (1,326 ) $ 8,497 $ 1,938 $ - $ 16,094 $ 26,529 2022 30,021 (7,709 ) - 22,312 252 - (71,343 ) (48,779 ) 2021 24,008 (6,608 ) - 17,400 270 35,056 (7,667 ) 45,059 2020 13,035 (5,378 ) - 7,657 219 45,408 6,551 59,835 2019 11,576 (4,037 ) (91 ) 7,448 175 - 5,655 13,278 48 Table of Contents As of December 31, 2023, the Company reported a net unrealized loss position of $56.5 million, net of tax, from the securities portfolio compared to a net unrealized loss of $71.2 million as of December 31, 2022.
To help mitigate the impact of the imminent change to the economic landscape, the Company has successfully developed and will continue to strengthen its association with existing customers, develop new business relationships, generate new loan volumes, and retain and generate higher levels of average non-interest bearing deposit balances.
To help mitigate the impact of the imminent change to the economic landscape, the Company has successfully developed and will continue to strengthen its association with existing customers, develop new business relationships and generate new loan volumes.
Bureau of Labor Statistics, the local unemployment rates at December 31, 2022 were 4.3% in the market area north and 3.3% in the market area south, respectively, a decrease of 0.5 and 0.7 percentage points from the 4.8% and 4.0%, respectively, at December 31, 2021.
Bureau of Labor Statistics, the local unemployment rates at December 31, 2023 were 3.5% in the market area north and 3.3% in the market area south, respective ly, a decrease of 1.0 and 0.4 percentage points from the 4.5% and 3.7%, resp ectively, at December 31, 2022.
During the year ended December 31, 2022, residential mortgage loans with principal balances of $78.8 million were sold into the secondary market and the Company recognized net gains of $1.6 million, compared to $159.8 million and $4.1 million, respectively, during the year ended December 31, 2021.
During the year ended December 31, 2023, residential mortgage loans with principal balances of $52.0 million were sold into the secondary market and the Company recognized net gains of $1.0 million, compared to $78.8 million and $1.6 million, respectively, during the year ended December 31, 2022. The Company retains mortgage servicing rights (MSRs) on loans sold into the secondary market.
Net interest income and interest sensitive assets / liabilities Net interest income (FTE) increased $11.0 million, or 17%, from $64.0 million for the year ended December 31, 2021 to $75.0 million for the year ended December 31, 2022, due to interest income increasing more than the increase in interest expense.
Net interest income and interest sensitive assets / liabilities Net interest income (FTE) decreased $10.1 million, or 13%, from $75.0 million for the year ended December 31, 2022 to $64.9 million for the year ended December 31, 2023, due to interest expense increasing more than the increase in interest income.
Failure to meet minimum capital requirements can initiate certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s and the Bank’s financial statements.
Capital Resources The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank’s financial statements.
Secured borrowings are expected to decrease for 2023 from scheduled amortization and, when possible, early pay-offs. FHLB advances The Company had no FHLB advances as of December 31, 2022 and 2021. As of December 31, 2022, the Company had the ability to borrow an additional $602.2 million from the FHLB, including any overnight borrowings.
Secured borrowings are expected to decrease for 2024 from scheduled amortization and, when possible, early pay-offs. FHLB advances The Company had no FHLB advances as of December 31, 2023 and 2022. As of December 31, 2023, the Company had the ability to borrow up to $656.8 million from the FHLB, net of any overnight borrowings utilized.
MSRs are retained so that the Company can foster personal relationships. At December 31, 2021 and 2020, the servicing portfolio balance of sold residential mortgage loans was $430.9 million and $366.5 million, respectively, with mortgage servicing rights of $1.7 million and $1.3 million for the same periods, respectively.
MSRs are retained so that the Company can foster relationships. At December 31, 2023 and 2022, the servicing portfolio balance of sold residential mortgage loans was $477.7 million and $465.7 million, respectively, with mortgage servicing rights of $1.5 million and $1.6 million for the same periods, respectively.
Dodd-Frank requires the FDIC to increase the reserve ratio of the Deposit Insurance Fund from 1.15% to 1.35% of insured deposits by 2020 and eliminates the requirement that the FDIC pay dividends to insured depository institutions when the reserve ratio exceeds certain thresholds.
Dodd-Frank requires the FDIC to increase the reserve ratio of the Deposit Insurance Fund from 1.15% to 1.35% of insured deposits by 2020 and eliminates the requirement that the FDIC pay dividends to insured depository institutions when the reserve ratio exceeds certain thresholds. Dodd-Frank also eliminated the federal statutory prohibition against the payment of interest on business checking accounts.
Non-performing assets to total assets was lower during 2022 mostly due to the amount (or dollar value) of non-performing assets decreasing while there was growth in total assets. 23 Table of Contents Branch managers, relationship bankers, mortgage originators and our business service partners are all focused on developing a mutually profitable full banking relationship with our clients.
Non-performing assets to total assets were higher during 2023 mostly due to the amount (or dollar value) of non-performing assets increasing to a lesser extent than the growth in total assets. 24 Table of Contents Branch managers, relationship bankers, mortgage originators and our business service partners are all focused on developing a mutually profitable full banking relationship with our clients.
In addition, the Company currently intends to pursue a federal historic preservation tax credit which would provide a 20% tax credit on qualified improvements on the historic property.
In addition, the Company currently is in the process of pursuing a federal historic preservation tax credit which would provide a 20% tax credit on qualified improvements on the historic property.
Overview For the year ended December 31, 2022, the Company generated net income of $30.0 million, or $5.29 per diluted share, compared to $24.0 million, or $4.48 per diluted share, for the year ended December 31, 2021.
Overview For the year ended December 31, 2023, the Company generated net income of $18.2 million, or $3.19 per diluted share, compared to $30.0 million, or $5.29 per diluted share, for the year ended December 31, 2022.
As described in Notes 1 and 4 of the consolidated financial statements, incorporated by reference in Part II, Item 8, the Company’s investment securities are classified as available-for-sale (AFS) or held-to-maturity (HTM).
Accordingly, when selling investment securities, price quotes may be obtained from more than one source. As described in Notes 1 and 4 of the consolidated financial statements, incorporated by reference in Part II, Item 8, the Company’s investment securities are classified as available-for-sale (AFS) or held-to-maturity (HTM).
The market value of the securities on the date of the transfer was $221.7 million, after netting unrealized losses totaling $18.9 million. The $18.9 million, net of deferred taxes, will be accreted into other comprehensive income over the life of the bonds.
The market value of the securities on the date of the transfer was $221.7 million, after netting unrealized losses totaling $18.9 million. The $18.9 million, net of deferred taxes, recorded discount will be accreted into interest income, offset by the amortization of previously recognized losses in AOCI, over the life of the bonds.
At December 31, 2022, there were a total of 39 loans to 29 unrelated borrowers with balances that ranged from less than $1 thousand to $0.6 million. At December 31, 2021, there were a total of 31 loans to 28 unrelated borrowers with balances that ranged from less than $1 thousand to $0.7 million.
At December 31, 2022, there were a total of 39 non-accrual loans to 29 unrelated borrowers with balances that ranged from less than $1 thousand to $0.6 million, or $2.5 million in the aggregate.
Many aspects of the Dodd-Frank Act are subject to rulemaking and will take effect over several years, making it difficult to anticipate the overall financial impact on the Company, its customers or the financial industry as a whole.
Many aspects of the Dodd-Frank Act are subject to rulemaking and will take effect over several years, making it difficult to anticipate the overall financial impact on the Company, its customers or the financial industry as a whole. The Company will continue to monitor legislative developments and assess their potential impact on our business. Department of Defense Military Lending Rule.
Pennsylvania state law requires the Company to maintain pledged securities on these public deposits or otherwise obtain a FHLB letter of credit or FDIC insurance for these customers. As of December 31, 2021, the balance of pledged securities required for public and trust deposits was $394.3 million, or 53% of total securities.
Pennsylvania state law requires the Company to maintain pledged securities on public and trust deposits or otherwise obtain a FHLB letter of credit or FDIC insurance for these customers. The Company also pledges securities for derivative instruments and certain borrowed funds. As of December 31, 2023, the balance of pledged securities required was $380.7 million, or 67% of total securities.
Short-term borrowings may include overnight balances with FHLB line of credit and/or correspondent bank’s federal funds lines which the Company may require to fund daily liquidity needs such as deposit outflow, loan demand and operations. The Company used $12.9 million in short-term borrowings to fund loan growth as of December 31, 2022.
Short-term borrowings may include overnight balances with FHLB's line of credit and/or correspondent bank’s federal funds lines which the Company may require to fund daily liquidity needs such as deposit outflow, loan demand and operations. The Company used $117.0 million in short-term borrowings to fund loan growth and an increase in interest-bearing cash balances for 2023.
Therefore, the economic value may normally change beyond the Company’s policy guideline for a short period of time as long as the risk-based capital ratio (after adjusting for the excess equity exposure) is greater than 10%. At December 31, 2022, the Company’s risk-based capital ratio was 14.35%.
Economic value has the most meaning when viewed within the context of risk-based capital. Therefore, the economic value may normally change beyond the Company’s policy guideline for a short period of time as long as the risk-based capital ratio (after adjusting for the excess equity exposure) is greater than 10%.
These instruments involve, to a varying degree, elements of credit, interest rate and liquidity risk. In accordance with GAAP, these instruments are either not recorded in the consolidated financial statements or are recorded in amounts that differ from the notional amounts. Such instruments primarily include lending commitments and lease obligations.
In accordance with GAAP, these instruments are either not recorded in the consolidated financial statements or are recorded in amounts that differ from the notional amounts. Such instruments primarily include lending commitments and lease obligations. Lending commitments include commitments to originate loans and commitments to fund unused lines of credit.
There was one direct finance lease and one non-recourse auto loan totaling $33 thousand that were over 90 days past due as of December 31, 2022 compared to two direct finance leases totaling $64 thousand that were over 90 days past due as of December 31, 2021. All loans were well secured and in the process of collection.
Loans past due 90 days or more accruing totaled $14 thousand, which was comprised of one direct finance lease as of December 31, 2023 compared to one direct finance lease and one non-recourse auto loan totaling $33 thousand as of December 31, 2022. All loans were well secured and in the process of collection.
Total average interest-earning assets increased $310.0 million while the FTE yields earned on these assets rose 14 basis points resulting in $13.8 million of growth in FTE interest income.
Total average interest-earning assets increased $24.1 million while the FTE yields earned on these assets rose 62 basis points resulting in $15.3 million of growth in FTE interest income.
Non-GAAP Financial Measures The following are non-GAAP financial measures which provide useful insight to the reader of the consolidated financial statements but should be supplemental to GAAP used to prepare the Company’s financial statements and should not be read in isolation or relied upon as a substitute for GAAP measures.
This discussion should be read in conjunction with the consolidated financial statements and notes thereto included in Part II, Item 8 of this report. 21 Table of Contents Non-GAAP Financial Measures The following are non-GAAP financial measures which provide useful insight to the reader of the consolidated financial statements but should be considered supplemental to GAAP used to prepare the Company’s financial statements and should not be read in isolation or relied upon as a substitute for GAAP measures.
Residual values for direct finance leases are included in the average balances for consumer loans. Net interest margin is calculated by dividing net interest income-FTE by total average interest-earning assets.
Average balances are based on amortized cost and do not reflect net unrealized gains or losses. Residual values for direct finance leases are included in the average balances for consumer loans. Net interest margin is calculated by dividing net interest income-FTE by total average interest-earning assets.
The final rules call for the following capital requirements: ● A minimum ratio of common tier 1 capital to risk-weighted assets of 4.5%. ● A minimum ratio of tier 1 capital to risk-weighted assets of 6%. ● A minimum ratio of total capital to risk-weighted assets of 8% (no change from current rule). ● A minimum leverage ratio of 4%. 61 Table of Contents In addition, the final rules established a common equity tier 1 capital conservation buffer of 2.5% of risk-weighted assets applicable to all banking organizations.
The final rules call for the following capital requirements: ● A minimum ratio of common tier 1 capital to risk-weighted assets of 4.5%. ● A minimum ratio of tier 1 capital to risk-weighted assets of 6%. ● A minimum ratio of total capital to risk-weighted assets of 8% (no change from current rule). ● A minimum leverage ratio of 4%.
As of December 31, 2022 and 2021, ICS reciprocal deposits represented $26.3 million and $27.6 million, or 1% each, of total deposits which are included in interest-bearing checking accounts in the table above.
The Company had $1.4 million and $0 in CDARs as of December 31, 2023 and 2022, respectively. As of December 31, 2023 and 2022, ICS reciprocal deposits represented $151.4 million and $26.3 million, or 7% and 1%, of total deposits which are included in interest-bearing checking accounts in the table above.
As of December 31, 2022, the Company had the ability to borrow $112.0 million from the Federal Reserve borrower-in-custody program , $145.9 mil lion in overnight borrowings with the FHLB and $31.0 million from lines of credit with correspondent banks.
As of December 31, 2023, the Company had the ability to borrow an additional $70.4 million from the Federal Reserve borrower-in-custody program, full availability of $145.9 million in overnight borrowings with the FHLB open-repo line of credit and $20.0 million from lines of credit with correspondent banks.
Increases in the cash surrender value are recorded as components of non-interest income. The BOLI is profitable from the appreciation of the cash surrender values of the pool of insurance and its tax-free advantage to the Company. This profitability is used to offset a portion of current and future employee benefit costs.
BOLI is classified as a non-interest earning asset. Increases or decreases in the cash surrender value are recorded as components of non-interest income. The BOLI is profitable from the appreciation of the cash surrender values of the pool of insurance and its tax-free advantage to the Company.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The information required by 7A is set forth at Item 7, under “Liquidity” and “Management of interest rate risk and market risk analysis,” contained within management’s discussion and analysis of financial condition and results of operations and incorporated herein by reference. 64 Table of Contents
Biggest changeITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The information required by 7A is set forth at Item 7, under “Liquidity” and “Management of interest rate risk and market risk analysis,” contained within management’s discussion and analysis of financial condition and results of operations and incorporated herein by reference. 58 Table of Contents

Other FDBC 10-K year-over-year comparisons