Hello and welcome to the Annual Meeting of Shareholders of Franklin Financial Services Corporation. Please note that today's meeting is being recorded. During the meeting, we'll have a question-and-answer session. You can submit questions or comments at any time by clicking on the message icon. It is now my pleasure to turn today's meeting over to the Chairman of the Board, Warren Elliott. Mr. Chairman, the floor is yours.
Good morning, and thank you all for joining us today. As Chairman of the Board of Franklin Financial Services Corporation, I hereby call this annual meeting of shareholders to order and appoint Amanda M. Ducey, Secretary of the company, as Secretary of the meeting. The Secretary of the company has filed proof that proper notice of the meeting has been given and that a legal quorum is present in person or by proxy. The meeting is now, therefore, lawfully convened and ready to transact business. To begin, we're going to offer an invocation that's going to be done by Pam Johns, Vice President of Loan Servicing. Pam?
Please join me in a moment of prayer. Father, we come together today to review the accomplishments of F&M Trust and Franklin Financial and to celebrate the successes, too. We are blessed to have you in our midst each day and as we move through the business here before us. Thank you for those who worked to prepare for this meeting, and we ask for your continued guidance on how to best serve our employees, our customers and communities, and our shareholders. Father, in these unsettled times, we pray for the leaders of this organization, our local and state leaders, as well as those leading our nation and around the world. We know that with you, all things are possible and that your plans for us are far better than any we can imagine.
We ask that you lead, guide, and direct these leaders to serve you and not the ways of the world. Protect those who put themselves in harm's way for others, our first responders, police, military. We ask that you shield them as they serve in ways that many of us cannot begin to fathom. Father, we bless all who hear your calling and follow. Be with us today and in the coming weeks and months. May we feel your presence in all that we do, and may our actions be pleasing to you. In Jesus' name we pray. Amen.
Amen.
Thank you, Pam. The minutes of the 2023 annual meeting are available for inspection by contacting the judge of election and may be examined by any shareholder following the meeting. In order to help you to better understand the business of the company, my remarks today and those of other company officers who will speak or respond to questions will include forward-looking statements relating to anticipated financial performance, future operating results, business prospects, new products, and similar matters. These statements represent our best judgment based upon present circumstances and the information now available to us, of what we think may occur in the future, and of course, it is possible that actual results may differ materially from those that we envision today. For a more complete discussion of the subject of forward-looking statements, I refer you to our annual report on Form 10-K.
It's now my pleasure to introduce our board of directors. I am G. Warren Elliott, chairman of the board. We have Timothy G. Henry, our CEO and president, Marty Brown, Kevin Craig, who is our new audit committee chair, Greg Duffy, Dan Fisher, Skip Jennings, the vice chairman of the board, Stanley Kerlin, Don Mowery, Kim Zomp, and Greg Snook. We also have joining us our attorney, Nick Bybel, our assistant corporate secretary and judge of elections, Zoe Clayton, and our auditor, Ian Conry of Crowe. So again, good morning. I'd like to make a few remarks. I recently read that John F. Kennedy once said that the time to repair the roof is when the sun is shining. That caught my attention as I was preparing for today's annual meeting.
As I look back on 2023 for your bank, it was a challenging year, to be sure, but one with good performance. Additionally, we had significant growth in commercial loans and wealth management accounts and the ability to maintain a dividend that has been consistently higher than our peers. In that regard, we can say that the sun was shining on this bank and provided a good time for us to examine how we might prepare ourselves for the future. You will hear shortly from our President and CEO, Tim Henry, the outcome of that inward look that included, among other things, a new three-year strategic plan, adding additional software and technology, and strategically building out our staff complement, all with the focus on continuing to grow to being even more competitive, serving our constituencies better, and ultimately making your company more valuable.
Today's banking world is a challenging one, and when you consider the fact that 7,000 commercial and savings banks have disappeared just since 1995, it speaks volumes to the fact that to just stay in business, you need to work each and every day to be better. The challenge is even greater for community banks like F&M Trust. The mega banks can often offer stiff price-based competition simply because of their scale. But do they offer better service and meet the consumer's needs better? The answer is a resounding no, according to a recent nationwide survey conducted by the Federal Reserve. In that survey, the Fed found that 81% of community bank loan applicants were satisfied with the service that they received. That satisfaction number drops significantly to 68% with large banks, 62% with finance companies, and just 48% with online lenders.
It's no wonder that 60% of all small business loans and 80% of all agricultural loans are with community banks. Some of the reasons that were given as a basis for the customer satisfaction with community banks as part of the survey were: community banks are more timely with decision-making. The bank officers are typically deeply involved in their local community. Community banks work with their customers to ensure that they have access to innovative products and services. Community banks are nimble at using new technology. Community banks are using tougher security standards to protect small business owners and customers from hackers and criminals. Finally, community banks build communities. Unlike larger banks that may take deposits in one state and loan them out to many others, whereas community banks channel their loans to the neighborhoods where their depositors live and work, which help local businesses and communities thrive.
I am proud that F&M Trust is a community bank in every sense of the word and, as guided by our board of directors and management, will remain a community bank. 2023 was a year of investing to better position your bank to continue to deliver financial solutions to meet the needs of our customers, our communities, our employees, and you, our shareholders. I'll close with the fact that I am enthusiastically looking forward to 2024 and beyond for this community bank. As you hear more detail from Tim Henry, my hope is that you will share that same enthusiasm. Thank you. That takes us to our first item of business. The board of directors has earlier chosen Zoe Clayton to serve as judge of election.
She has filed her oath with the secretary of the meeting, and I hereby direct that it be made part of the minutes of this meeting. An affidavit of mailing executed by William Valentin and notarized by a notary public qualified in the county of Middlesex in the state of New Jersey, dated March 22, 2024, has been placed in the corporation's minute book, affirming the mailing of the shareholder letter, proxy card, the proxy statement, and 10-K on March 19, 2024, to the shareholders of record as of the record date of March 4, 2024. The first item of business is the election of directors. The three nominees receiving the highest number of votes will be elected. The board of directors has nominated and recommends the election of Kevin W. Craig, Daniel J. Fisher, Donald H. Mowery. May I have a formal motion with respect to these nominees?
Mr. Chairman, I hereby move the nomination of the following persons for election as directors to Class C to serve for three-year terms: Kevin W. Craig, Daniel J. Fisher, and Donald H. Mowery.
Thank you, Mr. Mirot. Do I have a second?
Mr. Chairman, I second these nominations.
Thank you, Ms. Heebner. In accordance with Section 3.5 of the bylaws, advance notice must be given of the intention of any shareholder to make a nomination from the floor. Since no such notice has been given, any other nominations would be out of order, and I hereby declare the nominations to be closed. The second item of business is the say-on-pay vote. The Dodd-Frank Wall Street Reform and Consumer Protection Act requires that we provide our shareholders with the opportunity to cast a non-binding advisory vote to approve the compensation paid to our named executive officers as disclosed in our proxy statement for this meeting. For the reasons discussed in the compensation discussion and analysis section of the proxy statement, we believe that our executive compensation programs align with our executive compensation philosophy, support its goals, and provide an appropriate balance between risk and reward.
Thus, the board of directors recommends that the shareholders vote for the approval of our compensation paid to our named executive officers as disclosed in the proxy statement. May I have a formal motion with respect to the say-on-pay vote?
Mr. Chairman, I hereby move the adoption of the following resolution: resolve that the compensation of the named executive officers as disclosed in the company's Proxy Statement for the annual meeting held on April 23, 2024, is hereby approved.
Thank you, Mr. Crampton. Do I have a second?
Mr. Chairman, I second this motion.
Thank you, Mr. Culler. The third item of business is the ratification of the selection of auditors. The audit committee of the board has selected Crowe as Franklin Financial's independent registered public accounting firm for 2024. May I have a formal motion to ratify the audit committee selection of auditors?
Mr. Chairman, I hereby move the ratification of the selection of Crowe as Franklin Financial's independent registered public accounting firm for 2024.
Thank you, Ms. Plummer. Do I have a second?
Mr. Chairman, I second this motion.
Thank you, Ms. Miller. Because no further business is on the agenda to come before this meeting, we will move on to voting. The polls are open. If you have previously voted and do not wish to change your vote, there is no need for you to take any action at this time. It's now my pleasure to introduce our Chief Financial Officer, Mark Hollar. Mark recently celebrated an anniversary milestone this year, and we are happy to have him with us. Mark?
Thank you, Mr. Chairman. I'm going to begin my comments with some highlights from our balance sheet for 2023. Total assets at year-end 2023 were $1.8 billion, 8% higher than at the end of 2022, the largest year-end balance sheet in the history of the bank. The balance of the investment portfolio declined by approximately 3% from year-end 2022 and represents the second consecutive year of a decline as we intentionally slowed our investing activity to support loan growth. The investment portfolio continues to be negatively affected by unrealized losses that arose as market rates increased in 2022, but it did show improvement during 2023 as the unrealized loss in the portfolio decreased by $12 million. The weighted average life of the portfolio is five years, and the value of the portfolio changes by approximately 3.7% with every 1% change in interest rates.
Moving to the loan portfolio, net loans increased approximately 29% during 2023, driven by a record year of commercial loan originations, primarily commercial real estate loans in the form of multifamily residential properties and office space. Approximately 74% of commercial real estate is non-owner-occupied, and the majority of it is located in the bank's market area of South Central Pennsylvania. Consumer-related real estate loans increased in 2023 as the bank retained more residential mortgages than in the prior year. Consequently, the bank sold a lower volume of loans in the secondary market, and therefore gains on the sale of loans decreased during the year. Home equity lending was steady, fueled by the bank's new trademarked FlexLock Home Equity product. In 2023, the bank adopted the Current Expected Credit Losses CECL model for calculating its allowance for credit losses.
The CECL model is designed to be a more forward-looking loss assessment model than the incurred loss method previously used. Adoption of the CECL model did not result in a material change to the bank's allowance for credit loss, and as of December 31, 2023, the allowance for credit loss was $16.1 million or 1.28% of gross loans. Deposit balances decreased by 1% in 2023. During the year, time deposits increased 130% as consumers locked in higher rates, but this increase was offset by a decrease in checking account balances. Deposit balances fluctuated during the year as consumers and businesses searched for the best return on the money, and as a result, the bank had to selectively raise interest rates to retain and acquire deposits. Consequently, the cost of deposits increased from 0.23% in 2022 to 1.23% in 2023.
The bank estimates that approximately 91% of its deposits were fully insured or fully collateralized as of December 31, 2023. To supplement deposit funding, the bank has access to liquidity resources at the Federal Home Loan Bank, the Federal Reserve, and other wholesale funding sources. During 2023, we added $8 million to shareholders' equity from retained earnings after paying $5.6 million in dividends to shareholders, a 41% payout ratio. In addition, the unrealized loss in AOCI declined by $10.3 million during the year, which had the effect of increasing shareholder equity by the same amount. For 2023, Franklin Financial earned $13.6 million, $1.3 million or 9% less than the 2022 net income of $14.9 million. Diluted earnings per share were $3.11 for 2023 compared to $3.36 for 2022. For the year, net interest income was $2 million or 4% more than in 2022.
The yield on earning assets increased from 3.40% to 4.7% in 2023, but was partially offset by an increase in the rate paid on interest-bearing liabilities that increased from 0.36% in 2022 to 1.75% in 2023. However, the bank was able to increase its net interest margin from 3.11% in 2022 to 3.31% in 2023. In 2023, the provision for credit losses expense was $2.7 million compared to $650,000 the prior year. The 2023 provision was comprised of $2.6 million for loan growth and $100,000 for unfunded commitments. The increase in the 2023 provision was due primarily to loan growth of $206 million as credit quality remained strong throughout the year. Non-interest income for 2023 declined by $399,000 or 2.6% compared to 2022.
For the year, fees from debit card services and wealth management services increased, and during 2023, assets under management by our wealth management team exceeded $1 billion for the first time. However, these increases were more than offset by a $571,000 decrease in the gain on sale of mortgages and a loss on the sale of debt securities of $1.1 million. During the first half of 2023, the bank sold approximately $40 million of low-yielding debt securities as part of a partial restructuring of the investment portfolio to reinvest at higher yields. Non-interest expense increased $1.3 million or 2.7% compared to 2022. The largest increase year-over-year was a $719,000 increase in salaries and benefits. Within this line item, salaries continued to increase due to a highly competitive and higher-cost labor market.
However, the increase in salaries was partially offset by lower health insurance and pension service costs. Other line items of non-interest expense show an increase in occupancy costs and a one-time lease termination expense of $495,000. For 2023, Franklin Financial produced a return on assets of 0.78% and a return on equity of 11.39%, both slightly lower than in 2022. During the year, the bank saw both the yield on earning assets and the cost of interest-bearing liabilities increase, with a net interest margin improving from 3.11% to 3.31%. The bank maintained strong capital ratios for the year and is considered to be well-capitalized under the regulatory guidance. In supporting the capital position, was an allowance for credit loss coverage ratio of 1.28% at year-end as credit quality measures as measured by non-performing asset ratios, and the level of net charge-off remained strong.
As a shareholder, your company earned $3.10 per share in 2023, and you received $1.28 per share in cash dividends as the company returned 41% of net income to shareholders. At year-end, the book value per share of Franklin Financial stock was $30.23, and the tangible book value was $28.17. Both values continue to be negatively affected by the unrealized loss in the investment portfolio reflected in AOCI, and this AOCI loss creates this AOCI loss equation of approximately $9 per share on both the book and tangible book value for Franklin Financial. This morning, we released our first quarter 2024 earnings of $3.4 million or $0.77 per share. This compares to $3.3 million or $0.75 per share for the first quarter of 2023. In comparison to the first quarter of 2023, net interest income was up $6 million due primarily to a larger balance sheet.
Non-interest income was up 30% due primarily to a loss on the sale of investment securities in the first quarter of 2023 that did not reoccur again in 2024. Excluding the effect of the investment restructuring charge, non-interest income was up 16% compared to the first quarter of 2023. Non-interest expense was up 11% primarily in salaries and benefits due to higher wages and a very competitive labor market, and we are happy to announce that we are reporting total assets of more than $2 billion for the first time with this March 31 release. Finally, on April 11, the board of directors declared a $0.32 per share cash dividend for the second quarter of 2024. Payable on May 22, 2024, to shareholders of record May 2, 2024.
Thank you very much, Mark. Now I'm happy to introduce our President and CEO, Tim Henry. As I indicated, 2023 was a very busy year, and as a result, Tim has been extremely active, and he's here to present an update for you all right now. Tim?
Thank you, Warren, and good morning to everyone who's able to join us today. Mark has just taken you through the numbers, but you may still have the question, was it a good year or a so-so year? Mark did not report record earnings, so you might be inclined to say not a good year. If you watch our stock price, we've gone from November looking like a good year to not looking like a good year to very recently looking better. So what was 2023, a good year or a so-so year? I'm going to tell you that 2023 was a very good year for your company and you, our shareholder, and I'll take a couple of minutes to explain why I think so. Let's start first with the soundness of your company.
In March of 2023, the financial industry and the nation were roiled by failure of several banks and the fear that the industry as a whole would be severely impacted. But at your company, roughly 92% of the deposits were either insured or collateralized through business practices that we've had in place for many years. Our depositors did not have to worry about the safety of their deposits, so they kept them at the bank. The conservative values we hold today of protecting the money that is entrusted to us keeps us thinking from the perspective of what is best in the long term for the customer relationships we value and appreciate. Banking practices that all of a sudden seem new to the industry have been a consistent hallmark of F&M Trust.
Mark shared with you that we continue to be considered a well-capitalized bank under regulatory guidance, and we use our capital to support growth in what has been a traditionally strong area for us, commercial lending. During the year, we were able to add key people to an already good team, and we were able to grow our loan portfolio to record levels while still maintaining very good credit quality. The benefits of this growth, while not seen immediately in the income statement, will be realized by the bank for many years to come. Taken together, this is another sign of long-term thinking and acting. Similarly, our wealth management department, formerly known as Investment and Trust Department, grew to over $1 billion in assets under management for the first time in the bank's history. Interestingly, that growth has been spread across our footprint and not centered in one particular area.
The knowledge, ability, and drive of our people, coupled with support from new systems brought on board, have helped fuel this growth. The fee income that department generates is a wonderful offset to the challenges of depending on net interest income when the yield curve is inverted like it is today. Because of the overall financial strength of the company, we were able to make financial moves in 2023 that, while decreasing our 2023 net income, will have a long-term positive effect on the company. Some of these steps included taking a $1.1 million loss on the sale of debt securities, but then taking the proceeds of that sale and reinvesting them at higher rates. We took a $495,000 lease termination expense that will reward us in the future with decreased expenses.
These steps, with their positive long-term implications, could not have been taken if we were not in a strong financial position. Due to the balance sheet strength of the company and its earning power, we've also been able to invest for the future in people, new markets, and systems. At the beginning of 2023, we were fortunate to have Chad Carroll join us as our Chief Operating Officer. Bringing many years of experience with several large and midsize banking companies, Chad has already made a significant and positive impact on the company, and with his guidance, we will see productivity and efficiency continue to improve at the bank. You may have heard the recent announcement that we are building our first community office in Dauphin County.
We're excited about this opportunity for several reasons, including being able to prototype a new style of community office that we believe will more effectively and efficiently bring to our customers the services they are looking for from their community bank. In the area of new systems, we have added automation to our operations areas, which allow repetitive work to be done by bots, freeing up our existing team members to do higher-value work. During the course of the last 15 months, our shareholders have seen the price of a share of Franklin Financial Services Corporation stock vary greatly for several reasons. One, the financial industry as a whole did not see stock price appreciation as news events like bank failures and the rapidly rising interest rates, as well as strength in other investing sectors captured the focus of investors.
Your company is also faced with the challenge of relatively little buy-sell action in the stock, which can result in the stock price moving up or down on very few shares traded. On the positive side, though, our shareholders have seen consistent evidence that are paying at the higher end of the scale with a dividend yield north of 4%. As we move forward, we'll work to protect our dividend through solid earnings performance, and we'll work to grow the bank to improve our stock liquidity in order to provide our shareholders with a more stable stock price. For those who value community banking, your company has given back in other ways too. This past year, our employees gave back to their communities in a big way, with over 1,300 volunteer hours donated to 62 different service organizations.
Supporting our employees and our communities, your company donated $419,000 to 255 organizations and contributed another $192,000 to fund 342 scholarships for children in pre-kindergarten or kindergarten through 12th grades. We believe in the community bank concept, and we walk the talk by giving back to the communities we do business in. By all measures, 2023 was a challenging year for financial institutions across the country, but it was a very good year for your company. We were able to provide a good dividend return to our shareholders while growing the bank, adding to our capital base, and investing for the future. We did all this without ignoring the communities that we serve. I think these are the keys to long-term growth and success, and I continue to be excited and enthused for the future of your company.
I also want to take this moment to share with you that, in my opinion, you are well-represented by the current board of directors. Your board is highly engaged in what the company is doing strategically. Continually educating themselves through in-person meetings, online training, and attending conferences, the board has worked to improve its own governance while also laying out ambitious goals for the company that will provide for strong performance into the future. I appreciate the efforts that the board and its individual members are making to ensure that we continue to become a better company. I thank you, our shareholders and the board of directors, for your past and ongoing support and the opportunity to be in front of you this morning. Thank you.
Thank you very much, Tim. We're going to pause here a second and just go offline to see if there's any questions that came in on the screen or any that come in in the next minute or two. So hang on, bear with us. At this time, there are no questions online, but please feel free to reach out to us at any time, not just once a year at the annual meeting. Should you have a question, folks would be happy to hear from you and provide whatever information they have. With the submission of the ballots, the polls are now closed. I would now like to call upon the Judge of Elections for her report. Ms. Clayton?
Mr. Chairman, I have inspected the proxies and counted the ballots. I hereby report as Judge of Election that, A, the three nominees have received the highest number of votes cast and have been elected to the board of directors for a three-year term. B, the compensation paid to the named executive officers has been approved by a majority of the votes cast. And C, the audit committee's selection of Crowe as Franklin Financial's independent registered public accounting firm for 2024 has been ratified by a majority of the votes cast.
Thank you, Ms. Clayton. Therefore, I hereby declare that the following persons have been elected to the board of directors, Class C, for a term of three years: Kevin W. Craig, Daniel J. Fisher, Donald H. Mowery. Secondly, the compensation paid to our named executive officers has been approved. And finally, the audit committee's selection of Crowe as Franklin Financial's independent registered public accounting firm for 2024 has been ratified. I want to thank the Judge of Elections. I also want to thank our Secretary, Amanda Ducey, and Matt Weaver. And I thank you all for your continued support and for attending this meeting today. There being no further business to come before this meeting, I declare the meeting to be adjourned. Have a good day, everyone.
This concludes the meeting. You may now disconnect.