SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



ý☑			Quarterly Report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934

for the Quarterly Period Ended ~~September~~June 30, ~~2017.~~

For the Transition Period from to .

(Commission File Number)

PENNS WOODS BANCORP INC.



~~PENNSYLVANIA~~Pennsylvania		~~23-2226454~~
~~(State or other jurisdiction of~~	~~(I.R.S. Employer~~
~~incorporation or organization)~~	~~Identification No.)~~



300 Market Street, P.O. Box 967 ~~Williamsport, Pennsylvania~~		~~17703-0967~~23-2226454
(State or other jurisdiction of	Williamsport		(I.R.S. Employer Identification No.)
incorporation or organization)	Pennsylvania		17703-0967
	(Address of principal executive offices)			(Zip Code)



Large accelerated filero	☐	Accelerated filerx	☐
Non-accelerated filero	☒	~~Small~~ Smaller reporting companyo	☒
		Emerging growth companyo	☐

If an emerging growth company, indicate by check mark if registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ~~YES~~ o NO ý

On ~~November~~August 1, ~~2017~~2022 there were ~~4,688,739~~7,052,242 shares of the Registrant’s common stock outstanding.

PENNS WOODS BANCORP, INC.

INDEX TO QUARTERLY REPORT ON FORM 10-Q

Part I. FINANCIAL INFORMATION

PENNS WOODS BANCORP, INC.

CONSOLIDATED BALANCE SHEET

See accompanying notes to the unaudited consolidated financial statements.

September 30, December 31,
(In Thousands, Except Share Data) 2017 2016
ASSETS:

Noninterest-bearing balances $ 22,042
$ 26,766
Interest-bearing balances in other financial institutions 5,705
16,905
Total cash and cash equivalents 27,747
43,671

Investment securities, available for sale, at fair value 132,313
133,492
Investment securities, trading 210
58
Loans held for sale 1,734
1,953
Loans 1,189,714
1,093,681
Allowance for loan losses (12,933 ) (12,896 )
Loans, net 1,176,781
1,080,785
Premises and equipment, net 25,895
24,275
Accrued interest receivable 4,289
3,672
Bank-owned life insurance 27,827
27,332
Goodwill 17,104
17,104
Intangibles 1,543
1,799
Deferred tax asset 7,984
8,397
Other assets 6,770
6,052
TOTAL ASSETS $ 1,430,197
$ 1,348,590

LIABILITIES:

Interest-bearing deposits $ 843,166
$ 791,937
Noninterest-bearing deposits 310,830
303,277
Total deposits 1,153,996
1,095,214

Short-term borrowings 41,596
13,241
Long-term borrowings 80,998
85,998
Accrued interest payable 483
455
Other liabilities 13,455
15,433
TOTAL LIABILITIES 1,290,528
1,210,341

SHAREHOLDERS’ EQUITY:

Preferred stock, no par value, 3,000,000 shares authorized; no shares issued —
—
Common stock, par value $8.33, 15,000,000 shares authorized; 5,008,720 and 5,007,109 shares issued; 4,688,570 and 4,734,657 outstanding 41,739
41,726
Additional paid-in capital 50,142
50,075
Retained earnings 64,033
61,610
Accumulated other comprehensive loss:

Net unrealized gain (loss) on available for sale securities 73
(639 )
Defined benefit plan (4,203 ) (4,289 )
Treasury stock at cost, 320,150 and 272,452 shares (12,115 ) (10,234 )
TOTAL SHAREHOLDERS’ EQUITY 139,669
138,249
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 1,430,197
$ 1,348,590

PENNS WOODS BANCORP, INC.

CONSOLIDATED STATEMENT OF INCOME

See accompanying notes to the unaudited consolidated financial statements.

PENNS WOODS BANCORP, INC.

CONSOLIDATED STATEMENT OF COMPREHENSIVE (LOSS) INCOME


	Three Months Ended June 30,				Six Months Ended June 30,
(In Thousands)	2022		2021		2022		2021
Net Income	$	4,231	$	3,588	$	7,663	$	7,029
Other comprehensive income (loss):
Unrealized (loss) gain on available for sale securities	(3,995)		1,390		(10,892)		(521)
Tax effect	839		(292)		2,287		109
Net realized loss (gain) on available for sale securities included in net income	10		(137)		12		(275)
Tax effect	(2)		29		(2)		58
Amortization of unrecognized pension loss	18		47		35		93
Tax effect	(4)		(10)		(8)		(20)
Total other comprehensive (loss) income	(3,134)		1,027		(8,568)		(556)
Comprehensive (loss) income	$	1,097	$	4,615	$	(905)	$	6,473

~~PENNS WOODS BANCORP, INC.~~

~~CONSOLIDATED STATEMENT OF INCOME~~

Three Months Ended September 30, Nine Months Ended September 30,
(In Thousands, Except Per Share Data) 2017 2016 2017 2016
INTEREST AND DIVIDEND INCOME:

Loans, including fees $ 11,906
$ 10,541
$ 33,642
$ 31,362
Investment securities:

Taxable 553
601
1,665
1,825
Tax-exempt 319
329
940
1,203
Dividend and other interest income 170
189
592
666
TOTAL INTEREST AND DIVIDEND INCOME 12,948
11,660
36,839
35,056
INTEREST EXPENSE:

Deposits 1,058
909
2,968
2,624
Short-term borrowings 31
7
39
41
Long-term borrowings 407
497
1,220
1,481
TOTAL INTEREST EXPENSE 1,496
1,413
4,227
4,146
NET INTEREST INCOME 11,452
10,247
32,612
30,910
PROVISION FOR LOAN LOSSES 60
258
605
866
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 11,392
9,989
32,007
30,044
NON-INTEREST INCOME:

Service charges 550
585
1,637
1,678
Net securities gains, available for sale 302
253
487
1,174
Net securities (losses) gains, trading (4 ) 8
(2 ) 54
Bank-owned life insurance 166
172
499
516
Gain on sale of loans 455
658
1,316
1,691
Insurance commissions 109
198
399
604
Brokerage commissions 352
290
1,044
817
Debit card fees 514
690
1,450
1,413
Other 296
228
1,325
1,310
TOTAL NON-INTEREST INCOME 2,740
3,082
8,155
9,257
NON-INTEREST EXPENSE:

Salaries and employee benefits 4,738
4,507
14,116
13,433
Occupancy 603
544
1,855
1,630
Furniture and equipment 816
662
2,129
2,042
Software amortization 235
580
750
950
Pennsylvania shares tax 228
220
696
698
Professional fees 560
502
1,816
1,512
Federal Deposit Insurance Corporation deposit insurance 194
202
514
670
Debit card expenses 168
246
478
456
Marketing 315
173
690
568
Intangible amortization 81
90
256
276
Other 1,628
1,013
4,314
4,230
TOTAL NON-INTEREST EXPENSE 9,566
8,739
27,614
26,465
INCOME BEFORE INCOME TAX PROVISION 4,566
4,332
12,548
12,836
INCOME TAX PROVISION 1,282
1,273
3,491
3,307
NET INCOME $ 3,284
$ 3,059
$ 9,057
$ 9,529
EARNINGS PER SHARE - BASIC AND DILUTED $ 0.70
$ 0.65
$ 1.92
$ 2.01
WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC AND DILUTED 4,688,222
4,733,800
4,711,282
4,735,844
DIVIDENDS DECLARED PER SHARE $ 0.47
$ 0.47
$ 1.41
$ 1.41

~~PENNS WOODS BANCORP, INC.~~

~~CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME~~

Three Months Ended September 30, Nine Months Ended September 30,
(In Thousands) 2017 2016 2017 2016
Net Income $ 3,284
$ 3,059
$ 9,057
$ 9,529
Other comprehensive income (loss):

Change in unrealized gain (loss) on available for sale securities 437
(276 ) 1,565
3,039
Tax effect (150 ) 94
(532 ) (1,032 )
Net realized gain on available for sale securities included in net income (302 ) (253 ) (487 ) (1,174 )
Tax effect 104
86
166
398
Amortization of unrecognized pension loss 45
39
129
117
Tax effect (15 ) (13 ) (43 ) (40 )
Total other comprehensive income (loss) 119
(323 ) 798
1,308
Comprehensive income $ 3,403
$ 2,736
$ 9,855
$ 10,837

PENNS WOODS BANCORP, INC.

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

COMMON STOCK
ADDITIONAL
PAID-IN CAPITAL
RETAINED EARNINGS
ACCUMULATED OTHER
COMPREHENSIVE LOSS
TREASURY STOCK
TOTAL
SHAREHOLDERS’ EQUITY
(In Thousands, Except Per Share Data) SHARES AMOUNT
Balance, December 31, 2015 5,004,984
$ 41,708
$ 49,992
$ 58,038
$ (3,799 ) $ (9,660 ) $ 136,279
Net income

9,529

9,529
Other comprehensive income

1,308

1,308
Dividends declared, ($1.41 per share)

(6,678 )

(6,678 )
Common shares issued for employee stock purchase plan 1,617
13
58

71
Purchase of treasury stock (14,600 shares) (574 ) (574 )
Balance, September 30, 2016 5,006,601
$ 41,721
$ 50,050
$ 60,889
$ (2,491 ) $ (10,234 ) $ 139,935

COMMON STOCK
ADDITIONAL
PAID-IN CAPITAL
RETAINED EARNINGS
ACCUMULATED OTHER
COMPREHENSIVE LOSS
TREASURY STOCK
TOTAL
SHAREHOLDERS’ EQUITY
(In Thousands, Except Per Share Data) SHARES AMOUNT
Balance, December 31, 2016 5,007,109
$ 41,726
$ 50,075
$ 61,610
$ (4,928 ) $ (10,234 ) $ 138,249
Net income

9,057

9,057
Other comprehensive income

798

798
Dividends declared, ($1.41 per share)

(6,634 )

(6,634 )
Common shares issued for employee stock purchase plan 1,611
13
67

80
Purchase of treasury stock (47,698 shares) (1,881 ) (1,881 )
Balance, September 30, 2017 5,008,720
$ 41,739
$ 50,142
$ 64,033
$ (4,130 ) $ (12,115 ) $ 139,669


	COMMON STOCK			ADDITIONAL PAID-IN CAPITAL		RETAINED EARNINGS		ACCUMULATED OTHER COMPREHENSIVE LOSS		TREASURY STOCK		NON-CONTROLLING INTEREST		TOTAL SHAREHOLDERS’ EQUITY
(In Thousands, Except Share And Per Share Data)	SHARES	AMOUNT
Balance, March 31, 2021	7,537,242	$	41,873	$	52,818	$	83,948	$	(2,465)	$	(12,115)	$	4	$	164,063
Net income						3,588						5		3,593

Other comprehensive income								1,027						1,027
Stock-based compensation				307										307
Dividends declared ($0.32 per share)						(2,255)								(2,255)
Common shares issued for employee stock purchase plan	1,045	6		19										25
Director Compensation Plan	3,340	18		61										79
Distributions to noncontrolling interest												(4)		(4)

Balance, June 30, 2021	7,541,627	$	41,897	$	53,205	$	85,281	$	(1,438)	$	(12,115)	$	5	$	166,835

PENNS WOODS BANCORP, INC.

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY


	COMMON STOCK			ADDITIONAL PAID-IN CAPITAL		RETAINED EARNINGS		ACCUMULATED OTHER COMPREHENSIVE LOSS		TREASURY STOCK		NON-CONTROLLING INTEREST		TOTAL SHAREHOLDERS’ EQUITY
(In Thousands, Except Share And Per Share Data)	SHARES	AMOUNT
Balance, December 31, 2021	7,550,272	$	41,945	$	53,795	$	89,761	$	(1,112)	$	(12,115)	$	—	$	172,274
Net income						7,663								7,663

Other comprehensive loss								(8,568)						(8,568)
Stock-based compensation				768										768
Cash settlement of options				(1,074)										(1,074)
Dividends declared ($0.64 per share)						(4,521)								(4,521)
Common shares issued for employee stock purchase plan	1,903	11		33										44
Director Compensation Plan	6,990	39		129										168
Purchase of treasury stock 30,000 shares)										(700)				(700)
Balance, June 30, 2022	7,559,165	$	41,995	$	53,651	$	92,903	$	(9,680)	$	(12,815)	$	—	$	166,054


	COMMON STOCK			ADDITIONAL PAID-IN CAPITAL		RETAINED EARNINGS		ACCUMULATED OTHER COMPREHENSIVE LOSS		TREASURY STOCK		NON-CONTROLLING INTEREST		TOTAL SHAREHOLDERS’ EQUITY
(In Thousands, Except Share And Per Share Data)	SHARES	AMOUNT
Balance, December 31, 2020	7,532,576	$	41,847	$	52,523	$	82,769	$	(882)	$	(12,115)	$	4	$	164,146
Net income						7,029						11		7,040

Other comprehensive loss								(556)						(556)
Stock-based compensation				527										527
Dividends declared ($0.64 per share)						(4,517)								(4,517)
Common shares issued for employee stock purchase plan	1,984	11		34										45
Director Compensation Plan	7,067	39		121										160

Distributions to noncontrolling interest												(10)		(10)
Balance, June 30, 2021	7,541,627	$	41,897	$	53,205	$	85,281	$	(1,438)	$	(12,115)	$	5	$	166,835

PENNS WOODS BANCORP, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

Nine Months Ended September 30,
(In Thousands) 2017 2016
OPERATING ACTIVITIES:

Net Income $ 9,057
$ 9,529
Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 1,979
2,394
Amortization of intangible assets 256
276
Provision for loan losses 605
866
Accretion and amortization of investment security discounts and premiums 688
657
Net securities gains, available for sale (487 ) (1,174 )
Originations of loans held for sale (41,503 ) (50,824 )
Proceeds of loans held for sale 43,038
51,112
Gain on sale of loans (1,316 ) (1,691 )
Net securities gains, trading 2
(54 )
Proceeds from the sale of trading securities 332
3,723
Purchases of trading securities (486 ) (3,596 )
Earnings on bank-owned life insurance (499 ) (516 )
Decrease in deferred tax asset 46
952
Other, net (4,361 ) 508
Net cash provided by operating activities 7,351
12,162
INVESTING ACTIVITIES:

Proceeds from sales of available for sale securities 15,443
42,180
Proceeds from calls and maturities of available for sale securities 7,198
19,267
Purchases of available for sale securities (18,434 ) (24,040 )
Net increase in loans (97,109 ) (24,548 )
Acquisition of premises and equipment (2,849 ) (2,347 )
Proceeds from the sale of foreclosed assets 958
486
Purchase of bank-owned life insurance (34 ) (27 )
Proceeds from redemption of regulatory stock 4,844
2,644
Purchases of regulatory stock (6,994 ) (2,569 )
Net cash (used for) provided by investing activities (96,977 ) 11,046
FINANCING ACTIVITIES:

Net increase in interest-bearing deposits 51,229
40,901
Net increase in noninterest-bearing deposits 7,553
15,516
Proceeds from long-term borrowings 30,000
—
Repayment of long-term borrowings (35,000 ) —
Net increase (decrease) in short-term borrowings 28,355
(35,059 )
Dividends paid (6,634 ) (6,678 )
Issuance of common stock 80
71
Purchases of treasury stock (1,881 ) (574 )
Net cash provided by financing activities 73,702
14,177
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (15,924 ) 37,385
CASH AND CASH EQUIVALENTS, BEGINNING 43,671
22,796
CASH AND CASH EQUIVALENTS, ENDING $ 27,747
$ 60,181

PENNS WOODS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The consolidated financial statements include the accounts of Penns Woods Bancorp, Inc. (the “Company”) and its wholly-owned subsidiaries: Woods Investment Company, Inc., Woods Real Estate Development Company, Inc., United Insurance Solutions, LLC., Luzerne Bank, and Jersey Shore State Bank (Jersey Shore State Bank and Luzerne Bank are referred to together as the “Banks”) and Jersey Shore State Bank’s wholly-owned subsidiary, The M Group, Inc. D/B/A The Comprehensive Financial Group (“The M Group”). All significant inter-company balances and transactions have been eliminated in the consolidation.

The interim financial statements are unaudited, but in the opinion of management reflect all adjustments necessary for the fair presentation of results for such periods. The results of operations for any interim period are not necessarily indicative of results for the full year. These financial statements should be read in conjunction with the financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2021.

The accounting policies followed in the presentation of interim financial results are the same as those followed on an annual basis. These policies are presented on pages 39 through 48 of the Form 10-K for the year ended December 31, 2016.

In reference to the attached financial statements, all adjustments are of a normal recurring nature pursuant to Rule 10-01(b) (8) of Regulation S-X.

Nine Months Ended September 30, 2017 Nine Months Ended September 30, 2016
(In Thousands)
Net Unrealized Loss
on Available
for Sale Securities

Defined
Benefit
Plan
Total
Net Unrealized Gain on Available
for Sale Securities

Defined
Benefit
Plan
Total
Beginning balance $ (639 ) $ (4,289 ) $ (4,928 ) $ 258
$ (4,057 ) $ (3,799 )
Other comprehensive income before reclassifications 1,033
—
1,033
2,007
—
2,007
Amounts reclassified from accumulated other comprehensive loss (321 ) 86
(235 ) (776 ) 77
(699 )
Net current-period other comprehensive income 712
86
798
1,231
77
1,308
Ending balance $ 73
$ (4,203 ) $ (4,130 ) $ 1,489
$ (3,980 ) $ (2,491 )

Table of Contents

The reclassifications out of accumulated other comprehensive loss shown, net of tax and parenthesis indicating debits to net income, as of ~~September~~June 30, ~~2017~~2022 and ~~2016~~2021 were as follows:


Details about Accumulated Other Comprehensive Loss Components	Amount Reclassified from Accumulated Other Comprehensive Loss						Affected Line Item in the Consolidated Statement of Income	Details about Accumulated Other Comprehensive Loss Components	Amount Reclassified from Accumulated Other Comprehensive Loss				Affected Line Item in the Consolidated Statement of Income
	Three Months Ended September 30, 2017			Three Months Ended September 30, 2016					Three Months Ended June 30, 2022		Three Months Ended June 30, 2021
Net unrealized (loss) gain on available for sale securities	$	302		$	253		Net securities (losses) gains, available for sale	Net unrealized (loss) gain on available for sale securities	$	(10)	$	137	Net debt securities (losses) gains, available for sale
Income tax effect	(104		)	(86		)	Income tax provision	Income tax effect	2		(29)		Income tax provision
Total reclassifications for the period	$	198		$	167			Total reclassifications for the period	$	(8)	$	108

Net unrecognized pension costs	(45		)	(39		)	Salaries and employee benefits	Net unrecognized pension costs	$	(18)	$	(47)	Other non-interest expense
Income tax effect	15			13			Income tax provision	Income tax effect	4		10		Income tax provision
Total reclassifications for the period	(30		)	(26		)		Total reclassifications for the period	$	(14)	$	(37)


Details about Accumulated Other Comprehensive Loss Components	Amount Reclassified from Accumulated Other Comprehensive Loss						Affected Line Item in the Consolidated Statement of Income	Details about Accumulated Other Comprehensive Loss Components	Amount Reclassified from Accumulated Other Comprehensive Loss				Affected Line Item in the Consolidated Statement of Income
	Nine months ended September 30, 2017			Nine months ended September 30, 2016					Six months ended June 30, 2022		Six months ended June 30, 2021
Net unrealized gain on available for sale securities	$	487		$	1,174		Net securities gains, available for sale
Net unrealized (losses) gain on available for sale securities								Net unrealized (losses) gain on available for sale securities	$	(12)	$	275	Net debt securities (losses) gains, available for sale
Income tax effect	(166		)	(398		)	Income tax provision	Income tax effect	2		(58)		Income tax provision
Total reclassifications for the period	$	321		$	776			Total reclassifications for the period	$	(10)	$	217

Net unrecognized pension costs	(129		)	(117		)	Salaries and employee benefits	Net unrecognized pension costs	$	(35)	$	(93)	Other non-interest expense
Income tax effect	43			40			Income tax provision	Income tax effect	8		20		Income tax provision
Total reclassifications for the period	(86		)	(77		)		Total reclassifications for the period	$	(27)	$	(73)

~~In May 2014, the FASB issued ASU 2014-09,~~ ~~Revenue from Contracts with Customers~~ (a new revenue recognition standard). The Update’s core principle is that a company will recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, this Update specifies the accounting for certain costs to obtain or fulfill a contract with a customer and expands disclosure requirements for revenue recognition. Subsequently, the FASB issued ASU 2015-14, ~~Revenue from Contracts with Customers (Topic 606)~~. The amendments in this Update defer the effective date of ASU 2014-09 for all entities by one year. Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. All other entities should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. Because the guidance does not apply to revenue associated with financial instruments, including loans and securities, we do not expect the new standard, or any of the amendments, to result in a material change from our current accounting for revenue because the majority of the Company's financial instruments are not within the scope of Topic 606. However, we do expect that the standard will result in new disclosure requirements, which are currently being evaluated.

~~In January 2016, the FASB issued ASU 2016-01,~~ ~~Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities~~. This Update applies to all entities that hold financial assets or owe financial liabilities and is intended to provide more useful information on the recognition, measurement, presentation, and disclosure of financial instruments. Among other things, this Update (a) requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income; (b) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; (c) eliminates the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities; (d) eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (e) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (f) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; and (g) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. For all other entities, including not-for-profit entities and

employee benefit plans within the scope of Topics 960 through 965 on plan accounting, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. All entities that are not public business entities may adopt the amendments in this Update earlier as of the fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

~~In February 2016, the FASB issued ASU 2016-02,~~ ~~Leases (Topic 842)~~. The standard requires lessees to recognize the assets and liabilities that arise from leases on the balance sheet. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. A short-term lease is defined as one in which (a) the lease term is 12 months or less and (b) there is not an option to purchase the underlying asset that the lessee is reasonably certain to exercise. For short-term leases, lessees may elect to recognize lease payments over the lease term on a straight-line basis. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within those years. For all other entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2019, and for interim periods within fiscal years beginning after December 15, 2020. The amendments should be applied at the beginning of the earliest period presented using a modified retrospective approach with earlier application permitted as of the beginning of an interim or annual reporting period. The Company is currently assessing the practical expedients it may elect at adoption, but does not anticipate the amendments will have a significant impact on the financial statements. Based on the Company’s preliminary analysis of its current portfolio, the impact to the Company’s balance sheet is estimated to result in less than a 1 percent increase in assets and liabilities. The Company also anticipates additional disclosures to be provided at adoption.

~~In March 2016, the FASB issued ASU 2016-04,~~ ~~Liabilities~~ - ~~Extinguishments of Liabilities (Subtopic 405-20).~~ The standard provides that liabilities related to the sale of prepaid stored-value products within the scope of this Update are financial liabilities. The amendments in the Update provide a narrow-scope exception to the guidance in Subtopic 405-20 to require that breakage for those liabilities be accounted for consistent with the breakage guidance in Topic 606. The amendments in this Update are effective for public business entities, certain not-for-profit entities, and certain employee benefit plans for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. For all other entities, the amendments are effective for financial statements issued for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Earlier application is permitted, including adoption in an interim period. This Update is not expected to have a significant impact on the Company’s financial statements.

~~In March 2016, the FASB issued ASU 2016-08,~~ ~~Revenue from Contracts with Customers (Topic 606).~~ The amendments in this Update affect entities with transactions included within the scope of Topic 606, which includes entities that enter into contracts with customers to transfer goods or services (that are an output of the entity’s ordinary activities) in exchange for consideration. The amendments in this Update do not change the core principle of the guidance in Topic 606; they simply clarify the implementation guidance on principal versus agent considerations. The amendments in this Update are intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations. The amendments in this Update affect the guidance in ASU 2014-09, ~~Revenue from Contracts with Customers (Topic 606),~~ which is not yet effective. The effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements of Update 2014-09. ASU 2015-14, ~~Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date,~~ defers the effective date of Update 2014-09 by one year. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

~~In April 2016, the FASB issued ASU 2016-10,~~ ~~Revenue from Contracts with Customers (Topic 606).~~ The amendments in this Update affect entities with transactions included within the scope of Topic 606, which includes entities that enter into contracts with customers to transfer goods or services in exchange for consideration. The amendments in this Update do not change the core principle for revenue recognition in Topic 606. Instead, the amendments provide (1) more detailed guidance in a few areas and (2) additional implementation guidance and examples based on feedback the FASB received from its stakeholders. The amendments are expected to reduce the degree of judgment necessary to comply with Topic 606, which the FASB expects will reduce the potential for diversity arising in practice and reduce the cost and complexity of applying the guidance. The amendments in this Update affect the guidance in ASU 2014-09, ~~Revenue from Contracts with Customers (Topic 606)~~, which is not yet effective. The effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements in Topic 606 (and any other Topic amended by Update 2014-09). ASU 2015-14, ~~Revenue from Contracts with Customers (Topic 606)~~: ~~Deferral of the Effective Date~~, defers the effective date of Update 2014-09 by one year. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

~~In May 2016, the FASB issued ASU 2016-12,~~ ~~Revenue from Contracts with Customers (Topic 606)~~, which among other things clarifies the objective of the collectability criterion in Topic 606, as well as certain narrow aspects of Topic 606. The amendments in this Update affect the guidance in ASU 2014-09, ~~Revenue from Contracts with Customers (Topic 606)~~, which is not yet effective. The effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements for Topic 606 (and any other Topic amended by Update 2014-09). ASU 2015-14, ~~Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, defers the effective date of Update 2014-09 by one year. This Update is not expected to have a significant impact on the Company’s financial statements~~

In June 2016, the FASB issued ASU 2016-13, Financial Instruments -– Credit Losses: Measurement of Credit Losses on Financial Instruments,, which changes the impairment model for most financial assets. This Update is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The underlying premise of the Update is that financial assets measured at amortized cost should be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The allowance for credit losses should reflect management’s current estimate of credit losses that are expected to occur over the remaining life of a financial asset. The income statement will be ~~effected~~affected for the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. ~~ASU 2016-13 is effective for annual and interim periods beginning after December 15, 2019, and early adoption is permitted for annual and interim periods beginning after December 15, 2018.~~ With certain exceptions, transition to the new requirements will be through a ~~cumulative effect~~cumulative-effect adjustment to opening retained earnings as of the beginning of the first reporting period in which the guidance is adopted. This Update is effective for SEC filers that are eligible to be smaller reporting companies, non-SEC filers, and all other companies, to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company has contracted with a third-party software vendor to assist with the development of our approach in determining the calculations under the new guidance. The Company is currently refining the expected credit losses calculation along with process documentation and data validation testing. We expect to recognize a one-time ~~cumulative effect~~cumulative-effect adjustment to the allowance for loan losses as of ~~the beginning of the first reporting period in which the new standard is effective, but cannot yet determine the magnitude of any such~~January 1, 2023. The Company recognizes that this one-time adjustment ~~or the overall impact of the new guidance on the consolidated financial statements.~~

~~In August 2016, the FASB issued ASU 2016-15,~~ ~~Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments~~, which addresses eight specific cash flow issues with the objective of reducing diversity in practice. Among these include recognizing cash payments for debt prepayment or debt extinguishment as cash outflows for financing activities; cash proceeds received from the settlement of insurance claims should be classified on the basis of the related insurance coverage; and cash proceeds received from the settlement of bank-owned life insurance policies should be classified as cash inflows from investing activities while the cash payments for premiums on bank-owned policies may be classified as cash outflows for investing activities, operating activities, or a combination of investing and operating activities. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. The amendments in this Update should be applied using a retrospective transition method to each period presented. If it is impracticable to apply the amendments retrospectively for some of the issues, the amendments for those issues would be applied prospectively as of the earliest date practicable. The Company ismaterial but currently ~~evaluating~~ the impact to the ~~adoption of the standard will have on the Company’s statement of cash flows.~~financial statements is unknown.

~~In October 2016, the FASB issued ASU 2016-17,~~ ~~Consolidation (Topic 810)~~, which amends the consolidation guidance on how a reporting entity that is the single decision maker of a VIE should treat indirect interests in the entity held through related parties that are under common control with the reporting entity when determining whether it is the primary beneficiary of that VIE. The primary beneficiary of a VIE is the reporting entity that has a controlling financial interest in a VIE and, therefore, consolidates the VIE. A reporting entity has an indirect interest in a VIE if it has a direct interest in a related party that, in turn, has a direct interest in the VIE. Under the amendments, a single decision maker is not required to consider indirect interests held through related parties that are under common control with the single decision maker to be the equivalent of direct interests in their entirety. Instead, a single decision maker is required to include those interests on a proportionate basis consistent with indirect interests held through other related parties. The provisions in ASU 2016-17 are effective for public business entities for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. For all other entities, the Update is effective for fiscal years beginning after December 15, 2016, and interim periods within fiscal years beginning after December 15, 2017. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the Update in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. This Update is not expected to have a significant impact on the Company’s financial statements.

~~In October 2016, the FASB issued ASU 2016-18,~~ ~~Statement of Cash Flows (Topic 230)~~, which requires that a statement of cash flows explains the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The amendments in this Update should be applied using a retrospective transition method to each period presented. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s statement of cash flows.

~~In December 2016, the FASB issued ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers. This Update, among others things, clarifies that guarantee fees within the scope of Topic 460,~~ ~~Guarantees~~, (other than product or service warranties) are not within the scope of Topic 606. The effective date and transition requirements for ASU 2016-20 are the same as the effective date and transition requirements for the new revenue recognition guidance. For public entities with a calendar year-end, the new guidance is effective in the quarter and year beginning January 1, 2018. For all other entities with a calendar year-end, the new guidance is effective in the year ending December 31, 2019, and interim periods in 2020. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

~~In January 2017, the FASB issued ASU 2017-01,~~ ~~Business Combinations (Topic 805), Clarifying the Definition of a Business~~, which provides a more robust framework to use in determining when a set of assets and activities (collectively referred to as a “set”) is a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. This screen reduces the number of transactions that need to be further evaluated. Public business entities should apply the amendments in this Update to annual periods beginning after December 15, 2017, including interim periods within those periods. All other entities should apply the amendments to annual periods beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019. The amendments in this Update should be applied prospectively on or after the effective date. This Update is not expected to have a significant impact on the Company’s financial statements.

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment. To simplify the subsequent measurement of goodwill, the FASB eliminated Step 2 from the goodwill impairment test. In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Instead, under the amendments in this Update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting ~~units~~unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. ~~A public business entity that~~The Update is ~~a U.S. Securities~~effective for smaller reporting companies and ~~Exchange Commission (“SEC”) filer should adopt the amendments in this Update~~all other entities for ~~its annual or any interim goodwill impairment tests in~~ fiscal years beginning after December 15, ~~2019. A public business entity that is not an SEC filer should adopt the amendments in this Update for its annual or any~~2022, and interim ~~goodwill impairment tests in~~periods within those fiscal years beginning after December 15, 2020. All other entities, including not-for-profit entities, that are adopting the amendments in this Update should do so for their annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2021.years. This Update is not expected to have a significant impact on the Company’s financial statements.

In ~~February 2017,~~April 2019, the FASB issued ASU ~~2017-05,~~ 2019-04, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Derivatives, and Hedging (Topic 815); and Financial Instruments (Topic 825), which affects a variety of topics in the Codification and applies to all reporting entities within the scope of the affected accounting guidance. ASU 2019-04 makes

clarifying amendments to certain financial instrument standards. For entities that have not yet adopted ASU 2016-13, the effective dates for the amendments related to ASU 2016-13 are the same as the effective dates in ASU 2016-13. For entities that have adopted ASU 2016-13, the amendments related to ASU 2016-13 are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. For entities that have not yet adopted ASU 2017-12 as of April 25, 2019, the effective dates for the amendments to Topic 815 are the same as the effective dates in ASU 2017-12. For entities that have adopted ASU 2017-12 as of April 25, 2019, the effective date is as of the beginning of the first annual period beginning after April 25, 2019. The amendments related to ASU 2016-01 are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company qualifies as a smaller reporting company and does not expect to early adopt these ASUs.

In May 2019, the FASB issued ASU 2019-05, Financial Instruments – Credit Losses (Topic 326), which allows entities to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost upon adoption of the new credit losses standard. To be eligible for the transition election, the existing financial asset must otherwise be both within the scope of the new credit losses standard and eligible for applying the fair value option in ASC 825-10.3. The election must be applied on an instrument-by-instrument basis and is not available for either available-for-sale or held-to-maturity debt securities. For entities that elect the fair value option, the difference between the carrying amount and the fair value of the financial asset would be recognized through a cumulative-effect adjustment to opening retained earnings as of the date an entity adopted ASU 2016-13. Changes in fair value of that financial asset would subsequently be reported in current earnings. For entities that have not yet adopted the credit losses standard, the ASU is effective when they implement the credit losses standard. For entities that already have adopted the credit losses standard, the ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company qualifies as a smaller reporting company and does not expect to early adopt ASU 2016-13.

In November 2019, the FASB issued ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, to clarify its new credit impairment guidance in ASC 326, based on implementation issues raised by stakeholders. This Update clarified, among other things, that expected recoveries are to be included in the allowance for credit losses for these financial assets; an accounting policy election can be made to adjust the effective interest rate for existing troubled debt restructurings based on the prepayment assumptions instead of the prepayment assumptions applicable immediately prior to the restructuring event; and extends the practical expedient to exclude accrued interest receivable from all additional relevant disclosures involving amortized cost basis. For entities that have not yet adopted ASU 2016-13 as of November 26, 2019, the effective dates for ASU 2019-11 are the same as the effective dates and transition requirements in ASU 2016-13. For entities that have adopted ASU 2016-13, ASU 2019-11 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company qualifies as a smaller reporting company and does not expect to early adopt these ASUs.

In March 2020, the FASB issued ASU 2020-03,Codification Improvements to Financial Instruments. This ASU was issued to improve and clarify various financial instruments topics, including the current expected credit losses (CECL) standard issued in 2016. The ASU includes seven issues that describe the areas of improvement and the related amendments to GAAP; they are intended to make the standards easier to understand and apply and to eliminate inconsistencies, and they are narrow in scope and are not expected to significantly change practice for most entities. Among its provisions, the ASU clarifies that all entities, other than public business entities that elected the fair value option, are required to provide certain fair value disclosures under ASC 825, Financial Instruments, in both interim and annual financial statements. It also clarifies that the contractual term of a net investment in a lease under Topic 842 should be the contractual term used to measure expected credit losses under Topic 326. Amendments related to ASU 2019-04 are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is not permitted before an entity’s adoption of ASU 2016-01. Amendments related to ASU 2016-13 for entities that have not yet adopted that guidance are effective upon adoption of the amendments in ASU 2016-13. Early adoption is not permitted before an entity’s adoption of ASU 2016-13. Amendments related to ASU 2016-13 for entities that have adopted that guidance are effective for fiscal years beginning after December 15, 2019, including interim periods within those years. Other ~~Income-Gains~~amendments are effective upon issuance of this ASU. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

In January 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, March 2020, to provide temporary optional expedients and ~~Losses~~exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates, such as the ~~Derecognition of Nonfinancial Assets (Subtopic 610-20).~~ Secured Overnight Financing Rate. Entities can elect not to apply certain modification accounting requirements to contracts affected by what the guidance calls “reference rate reform” if certain criteria are met. An entity that makes this election would not have to remeasure the contracts at the modification date or reassess a previous accounting determination. Also, entities can elect various optional expedients that would allow them to continue applying hedge accounting for hedging relationships affected by reference rate reform if certain criteria are met, and can make a one-time election to sell and/or reclassify held-to-maturity debt securities that reference an interest rate affected by reference rate reform. The amendments in this ~~Update clarify what constitutes~~ASU are effective for all entities upon

issuance through December 31, 2022. It is too early to predict whether a financial asset within the scope of Subtopic 610-20. The amendments also clarify that entities should identify each distinct nonfinancial asset or in substance nonfinancial asset that is promised to a counterparty and to derecognize each asset when the counterparty obtains control. There is also additional guidance provided for partial sales of a nonfinancial asset and when derecognition,new rate index replacement and the adoption of the ASU will have a material impact on the Company’s financial statements.

In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. This ASU removes from U.S. GAAP the separation models for (1) convertible debt with a cash conversion feature and (2) convertible instruments with a beneficial conversion feature. As a result, entities will not separately present in equity an embedded conversion feature in such debt. Instead, they will account for a convertible debt instrument wholly as debt, and for convertible preferred stock wholly as preferred stock (i.e., as a single unit of account), unless (1) a convertible instrument contains features that require bifurcation as a derivative under ASC 815 or (2) a convertible debt instrument was issued at a substantial premium. This ASU requires entities to provide expanded disclosures about the terms and features of convertible instruments, how the instruments have been reported in the entity’s financial statements, and information about events, conditions, and circumstances that can affect how to assess the amount or timing of an entity’s future cash flows related ~~gain or loss, should be recognized.~~to those instruments. The amendments in this ~~Update are effective at the same time as the amendments in Update 2014-09. Therefore, for public entities, the amendments~~ASU are effective for ~~annual~~public business entities that are not smaller reporting ~~periods~~companies, for fiscal years beginning after December 15, ~~2017, including~~2021, and interim ~~reporting~~ periods within ~~that reporting period.~~those fiscal years. For all other entities, ~~the amendments in~~ this ~~Update are~~ASU is effective for ~~annual reporting periods~~fiscal years beginning after December 15, ~~2018,~~2023, and interim ~~reporting~~ periods within ~~annual reporting periods~~those fiscal years. The guidance may be early adopted for fiscal years beginning after December 15, ~~2019.~~2020, and interim periods within those fiscal years. This Update is not expected to have a significant impact on the Company’s financial ~~statements, or the Company is currently evaluating the impact the adoption.~~statements.

In ~~March 2017,~~November 2020, the FASB issued ASU ~~2017-07,~~ ~~Compensation-Retirement Benefits~~2020-11, Financial Services – Insurance (Topic ~~715)~~944), which was made in consideration of the implications of the Coronavirus Disease 2019 (COVID-19) pandemic on an insurance entity’s ability to effectively implement the amendments in Accounting Standards Update No. 2018-12, Financial Services— Insurance: Targeted Improvements to the Accounting for Long-Duration Contracts (LDTI). The amendments in this Update ~~require that an employer report~~defer the ~~service cost component in the same line item or items~~effective date of LDTI for all entities by one year, as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost as defined in paragraphs 715-30-35-4 and 715-60-35-9 are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. If a separate line item or items are used to present the other components of net benefit cost, that line item or items must be appropriately described. If a separate line item or items are not used, the line item or items used in the income statement to present the other components of net benefit cost must be disclosed. The guidance is effective(1) for public business entities that meet the definition of an SEC filer and are not SRCs, LDTI is effective for ~~annual reporting periods~~fiscal years beginning after December 15, ~~2017,~~2022, and interim periods within ~~that reporting period. For~~those fiscal years; and (2) for all other entities, ~~(including all nonprofit organizations “NPOs”), it~~LDTI is effective for ~~annual periods~~fiscal years beginning after December 15, ~~2018,~~2024, and interim periods within ~~annual periods~~fiscal years beginning after December 15, 2019. This guidance is required to be applied on a retrospective basis for the presentation of the service cost component and the other components of net benefit cost and on a prospective basis for the capitalization of only the service cost component of net benefit cost.2025. This Update is not expected to have a significant impact on the Company’s financial statements.

In ~~March 2017,~~July 2021, the FASB issued ASU ~~2017-08,~~ ~~Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20).~~ ~~The amendments in this Update shorten the amortization period for certain callable debt securities held at~~2021-05, Leases (Topic 842), which amends ASC 842 so that lessors are no longer required to recognize a ~~premium. Specifically,~~selling loss upon commencement of a lease with variable lease payments that, prior to the amendments, ~~require~~would have been classified as a sales-type or direct financing lease. Furthermore, a lessor must classify as an operating lease any lease that would otherwise be classified as a sales-type or direct financing lease and that would result in the ~~premium to be amortized to~~recognition of a selling loss at lease commencement, provided that the ~~earliest call date. The amendments~~lease includes variable lease payments that do not ~~require~~depend on an ~~accounting change for securities held at a discount; the discount continues to be amortized to maturity.~~index or rate. For public business entities ~~the amendments in this Update are effective for fiscal years,~~ and ~~interim periods within those fiscal years, beginning after December 15, 2018. For all other~~certain not-for-profit entities and employee benefit plans that have adopted ASC 842, the amendments are effective for fiscal years beginning after December 15, ~~2019,~~2021, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity should apply the amendments in this Update on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. Additionally, in the period of adoption, an entity should provide disclosures about a change in accounting principle. This Update is not expected to have a significant impact on the Company’s financial statements.

~~In May 2017, the FASB issued ASU 2017-09,~~ ~~Compensation - Stock Compensation (Topic 718)~~, which affects any entity that changes the terms or conditions of a share-based payment award. This Update amends the definition of modification by qualifying that modification accounting does not apply to changes to outstanding share-based payment awards that do not affect the total fair value, vesting requirements, or equity/liability classification of the awards. The amendments in this Update are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period, for (1) public business entities for reporting periods for which financial statements have not yet been issued and (2) all other entities for reporting periods for which financial statements have not yet been made available for issuance. The amendments in this Update should be applied prospectively to an award modified on or after the adoption date. This Update is not expected to have a significant impact on the Company’s financial statements.

~~In May 2017, the FASB issued ASU 2017-10,~~ ~~Service Concession Arrangements (Topic 853)~~, which applies to the accounting by operating entities for service concession arrangements within the scope of Topic 853. The amendments in this Update clarify that the grantor (government), rather than the third-party drivers, is the customer of the operation services in all cases for service concession arrangements within the scope of Topic 853. For an entity that has not adopted Topic 606 before the issuance of this Update, the effective date and transition requirements for the amendments in this Update generally are the same as the effective date and transition requirements for Topic 606 (and any other Topic amended by ASU 2014-09, ~~Revenue from Contracts with Customers (Topic 606)). ASU 2015-14,~~ ~~Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, deferred the effective date of Update 2014-09 by one year. This Update is not expected to have a significant impact on the Company’s financial statements.~~

~~In July 2017, the FASB issued ASU 2017-11,~~ ~~Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), and Derivative and Hedging (Topic 815)~~. The amendments in Part I of this Update change the classification analysis of certain equity-linked financial instruments (or embedded features) with down-round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down-round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down-round feature. For freestanding equity classified financial instruments, the amendments require entities that present earnings per share (“EPS”) in accordance with Topic 260 to recognize the effect of the down-round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS. Convertible instruments with embedded conversion options that have down- round features are now subject to the specialized guidance for contingent beneficial conversion features (in Subtopic 470-20, ~~Debt-Debt with Conversion and Other Options), including related EPS guidance (in~~

Topic 260). The amendments in Part II of this Update recharacterize the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the Accounting Standards Codification, to a scope exception. Those amendments do not have an accounting effect. For public business entities, the amendments in Part I of this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. For all other entities, the amendments in Part I of this Update are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted for all entities, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The amendments in Part I of this Update should be applied either retrospectively to outstanding financial instruments with a down-round feature by means of a cumulative-effect adjustment to the statement of financial position as of the beginning of the first fiscal year and interim period(s) in which the pending content that links to this paragraph is effective or retrospectively to outstanding financial instruments with a down-round feature for each prior reporting period presented in accordance with the guidance on accounting changes in paragraphs 250-10-45-5 through 45-10. The amendments in Part II of this Update do not require any transition guidance because those amendments do not have an accounting effect. This Update is not expected to have a significant impact on the Company’s financial statements.

~~In August 2017, the FASB issued ASU 2017-12,~~ ~~Derivatives and Hedging (Topic 850)~~, the objective of which is to improve the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. In addition, the amendments in this Update make certain targeted improvements to simplify the application and disclosure of the hedge accounting guidance in current general accepted accounting principles. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. For all other entities that have adopted ASC 842, the amendments are effective for fiscal years beginning after December 15, ~~2019,~~2021, and for interim periods within fiscal years beginning after December 15, ~~2020. Early application is~~2022. All entities that have adopted ASC 842 are permitted to early adopt the amendments in any period after issuance. For cash flow and net investment hedges existing at the date of adoption, an entity should apply a cumulative-effect adjustment related to eliminating the separate measurement of ineffectiveness to accumulated other comprehensive income with a corresponding adjustment to the opening balance of retained earningsASU 2021-05. The amendments in ASU 2021-05 are effective as of the ~~beginning of~~same date as the ~~fiscal year that an entity adopts the amendments~~guidance in ~~this Update. The amended presentation and disclosure guidance is required only prospectively. This Update is not expected to have a significant impact on the Company’s financial statements.~~

~~In September 2017, the FASB issued ASU 2017-13,~~ ~~Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic~~ASC 842): ~~Amendments to SEC Paragraphs Pursuant to the Staff Announcement at the July 20, 2017 EITF Meeting and Rescission of Prior SEC Staff Announcements and Observer Comments.~~ ~~The SEC Observer said that the SEC staff would not object if~~ for entities that are considered public business entities only because their financial statements or financial information is required to be included in another entity’s SEC filing use the effective dates for private companies when they adopt ASC 606, ~~Revenue from Contracts with Customers, and ASC 842,~~ ~~Leases. The Update also supersedes certain SEC paragraphs in the Codification related to previous SEC staff announcements and moves other paragraphs, upon adoption of ASC 606 or~~have not adopted ASC 842. This Update is not expected to have a significant impact on the Company’s financial statements.

In March 2022, the FASB issued ASU 2022-02, Financial Instruments - Credit Losses (ASC 326): Troubled Debt Restructurings (TDRs) and Vintage Disclosures. The guidance amends ASC 326 to eliminate the accounting guidance for TDRs by creditors, while enhancing disclosure requirements for certain loan refinancing and restructuring activities by creditors when a borrower is experiencing financial difficulty. Specifically, rather than applying TDR recognition and measurement guidance, creditors will determine whether a modification results in a new loan or continuation of existing loan. These amendments are intended to enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. Additionally, the amendments to ASC 326 require that an entity disclose current-period gross writeoffs by year of origination within the vintage disclosures, which requires that an entity disclose the amortized cost basis of financing receivables by credit quality indicator and class of financing receivable by year of origination. The guidance is only for entities that have adopted the amendments in Update 2016-13 for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. Early adoption using prospective application, including adoption in an interim period where the guidance should be applied as of the beginning of the fiscal year. This Update is not expected to have a significant impact on the Company’s financial statements.

In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820) – Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. This amendment clarifies the guidance in Topic 820, Fair Value Measurement, when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security. It also introduces new disclosure requirements for equity securities subject to contractual sale restrictions that are measured at fair value in accordance with Topic 820. The amendments are effective for fiscal years beginning after

December 15, 2023, and interim periods within those fiscal years. Early adoption is permitted. The amendments will be applied prospectively, with any adjustments from the adoption of the amendments recognized in earnings and disclosed on the date of adoption. This Update is not expected to have a significant impact on the Company’s financial statements.

There are no convertible securities which would affect the denominator in calculating basic and dilutive earnings per share. There were a total of ~~95,000~~919,250 stock options, with an average exercise price of ~~$43.64,~~$25.36, outstanding on ~~September~~June 30, ~~2017.~~2022. These options were excluded, on a weighted average basis, in the computation of diluted earnings per share for the period due to the average market price of common shares of ~~$43.53~~$23.78 being less than the exercise price of the ~~options.~~options issued. There were a total of ~~31,000~~1,075,775 stock options, ~~outstanding for the same period end in 2016 that had~~with an average exercise price of ~~$42.03 and~~$27.31 that were excluded, ~~from~~on a weighted average basis, in the computation of diluted earnings per share ~~because~~for the period due to the average market price of common shares ~~was $41.10~~of $24.43 being less than the strike price for the period. Net income as presented on the consolidated statement of income will be used as the numerator. The following table sets forth the composition of the weighted average common shares (denominator) used in the basic and dilutive earnings per share computation.period ending June 30, 2021.

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Weighted average common shares outstanding - basic 4,688,222
5,006,252
4,711,282
5,005,707
Weighted average treasury stock shares (320,150 ) (272,452 ) (296,514 ) (269,863 )
Weighted average common shares outstanding - diluted 4,368,072
4,733,800
4,414,768
4,735,844


	Three Months Ended June 30,		Six Months Ended June 30,
	2022	2021	2022	2021
Weighted average common shares issued	7,557,402	7,539,892	7,555,113	7,537,629
Weighted average treasury stock shares	(498,357)	(480,225)	(489,341)	(480,225)


Weighted average common shares outstanding - basic and diluted	7,059,045	7,059,667	7,065,772	7,057,404

The amortized cost, gross unrealized gains and losses, and fair values of our investment securities ~~available for sale~~portfolio at ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016~~2021 are as follows:

December 31, 2016
Gross Gross
Amortized Unrealized Unrealized Fair
(In Thousands) Cost Gains Losses Value
Available for sale (AFS):

Mortgage-backed securities $ 9,295
$ 182
$ (164 ) $ 9,313
Asset-backed securities 109
—
—
109
State and political securities 60,777
666
(509 ) 60,934
Other debt securities 53,046
137
(2,065 ) 51,118
Total debt securities 123,227
985
(2,738 ) 121,474
Financial institution equity securities 9,566
969
—
10,535
Non-financial institution equity securities 1,667
—
(184 ) 1,483
Total equity securities 11,233
969
(184 ) 12,018
Total investment securities AFS $ 134,460
$ 1,954
$ (2,922 ) $ 133,492

~~The amortized cost and fair values of trading investment securities at September 30, 2017 and December 31, 2016 are as follows:~~

September 30, 2017
Gross Gross
Amortized Unrealized Unrealized Fair
(In Thousands) Cost Gains Losses Value
Trading:
Financial institution equity securities $ 61
$ 3
$ (1 ) $ 63
Non-financial institution equity securities 157
4
(14 ) 147
Total trading securities $ 218
$ 7
$ (15 ) $ 210

Table of Contents

December 31, 2016
Gross Gross
Amortized Unrealized Unrealized Fair
(In Thousands) Cost Gains Losses Value
Trading:
Financial institution equity securities $ —
$ —
$ —
$ —
Non-financial institution equity securities 56
2
—
58
Total trading securities $ 56
$ 2
$ —
$ 58

Total net trading losses of $4,000 and $2,000 for the three and nine month periods ended September 30, 2017 compared to net trading gains of $8,000 and $54,000 for the three and nine month periods ended September 30, 2016 were included in the Consolidated Statement of Income.

The following tables show the Company’s gross unrealized losses and fair value, aggregated by investment category and length of time, that the individual debt securities have been in a continuous unrealized loss position, at ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016.~~2021.


	June 30, 2022
	Less than Twelve Months				Twelve Months or Greater				Total
			Gross				Gross				Gross
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
(In Thousands)	Value		Losses		Value		Losses		Value		Losses
Available for sale (AFS):
U.S. Government and agency securities	$	980	$	(27)	$	—	$	—	$	980	$	(27)
Mortgage-backed securities	1,375		(145)		—		—		1,375		(145)

State and political securities	100,753		(3,945)		12,228		(1,413)		112,981		(5,358)
Other debt securities	35,886		(1,937)		6,731		(624)		42,617		(2,561)
Total debt securities	$	138,994	$	(6,054)	$	18,959	$	(2,037)	$	157,953	$	(8,091)

September 30, 2017
Less than Twelve Months Twelve Months or Greater Total
Gross Gross Gross
Fair Unrealized Fair Unrealized Fair Unrealized
(In Thousands) Value Losses Value Losses Value Losses
Available for sale (AFS):
Mortgage-backed securities $ 1,048
$ (4 ) $ 2,302
$ (89 ) $ 3,350
$ (93 )
State and political securities 13,651
(120 ) 2,170
(61 ) 15,821
(181 )
Other debt securities 9,689
(145 ) 22,733
(1,056 ) 32,422
(1,201 )
Total debt securities 24,388
(269 ) 27,205
(1,206 ) 51,593
(1,475 )
Non-financial institution equity securities 1,259
(41 ) —
—
1,259
(41 )
Total equity securities 1,259
(41 ) —
—
1,259
(41 )
Total investment securities AFS $ 25,647
$ (310 ) $ 27,205
$ (1,206 ) $ 52,852
$ (1,516 )


	December 31, 2016																December 31, 2021
	Less than Twelve Months					Twelve Months or Greater					Total						Less than Twelve Months				Twelve Months or Greater				Total
			Gross					Gross					Gross						Gross				Gross				Gross
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized				Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
(In Thousands)	Value		Losses			Value		Losses			Value		Losses			(In Thousands)	Value		Losses		Value		Losses		Value		Losses
Available for sale (AFS):																Available for sale (AFS):

Mortgage-backed securities	$	3,572	$	(106	)	$	3,627	$	(58	)	$	7,199	$	(164	)	Mortgage-backed securities	$	1,747	$	(5)	$	—	$	—	$	1,747	$	(5)

State and political securities	26,113		(509		)	—		—			26,113		(509		)	State and political securities	34,203		(398)		7,408		(296)		41,611		(694)
Other debt securities	28,140		(1,179		)	12,240		(886		)	40,380		(2,065		)	Other debt securities	21,446		(301)		1,808		(20)		23,254		(321)
Total debt securities	57,825		(1,794		)	15,867		(944		)	73,692		(2,738		)	Total debt securities	$	57,396	$	(704)	$	9,216	$	(316)	$	66,612	$	(1,020)
Non-financial institution equity securities	727		(140		)	756		(44		)	1,483		(184		)
Total equity securities	727		(140		)	756		(44		)	1,483		(184		)
Total investment securities AFS	$	58,552	$	(1,934	)	$	16,623	$	(988	)	$	75,175	$	(2,922	)

At ~~September~~June 30, ~~2017,~~2022, there were a total of 34209 securities in a continuous unrealized loss position for less than twelve months and 2030 individual securities that were in a continuous unrealized loss position for twelve months or greater.

The Company reviews its position quarterly and has determined that, at ~~September~~June 30, ~~2017,~~2022, the declines outlined in the above table represent temporary declines and the Company does not intend to sell, and does not believe it will be required to sell, these securities before recovery of their cost basis, which may be at maturity. The Company has concluded that the unrealized losses disclosed above are not other than temporary but are the result of interest rate changes, sector credit ratings changes, or company-specific ratings changes that are not expected to result in the non-collection of principal and interest during the period.

The amortized cost and fair value of debt securities at ~~September~~June 30, ~~2017,~~2022, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities since borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

(In Thousands) Amortized Cost Fair Value
Due in one year or less $ 4,839
$ 4,836
Due after one year to five years 45,064
44,918
Due after five years to ten years 54,858
54,301
Due after ten years 14,605
14,775
Total $ 119,366
$ 118,830

Total gross proceeds from sales of debt securities available for sale for the ~~three and nine~~six months ended ~~September~~June 30, ~~2017 were $6,478,000 and $15,443,000, a decrease from~~2022 was $0, compared to $13,574,000 for the ~~2016 totals~~corresponding 2021 period.

The following table represents gross realized gains and losses ~~within~~from the sales of debt securities available for ~~sale portfolio:~~sale:

Three Months Ended September 30, Nine Months Ended September 30,
(In Thousands) 2017 2016 2017 2016
Gross realized gains:

U.S. Government and agency securities $ —
$ 11
$ —
$ 11
Mortgage-backed securities —
29
69
35
State and political securities 313
146
343
784
Other debt securities 5
—
5
258
Financial institution equity securities —
68
288
150
Non-financial institution equity securities —
73
—
217
Total gross realized gains $ 318
$ 327
$ 705
$ 1,455

Gross realized losses:

U.S. Government and agency securities $ —
$ 2
$ —
$ 5
Mortgage-backed securities —
—
—
—
Asset-backed securities —
—
—
—
State and political securities 16
1
17
1
Other debt securities —
26
51
189
Financial institution equity securities —
—
—
—
Non-financial institution equity securities —
45
150
86
Total gross realized losses $ 16
$ 74
$ 218
$ 281

~~The following table represents gross realized gains and losses within the trading portfolios:~~

Three Months Ended September 30, Nine Months Ended September 30,
(In Thousands) 2017 2016 2017 2016
Gross realized gains:

Financial institution equity securities $ 3
$ —
$ 3
$ 6
Non-financial institution equity securities 4
8
12
76
Total gross realized gains $ 7
$ 8
$ 15
$ 82

Gross realized losses:

Financial institution equity securities $ —
$ —
$ —
$ 12
Non-financial institution equity securities 11
—
17
16
Total gross realized losses $ 11
$ —
$ 17
$ 28

There were no impairment charges included in gross realized losses for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 and ~~2016,~~2021, respectively.

Investment securities with a carrying value of approximately ~~$98,157,000~~$171,435,000 and ~~$95,199,000~~$139,435,000 at ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016,~~2021, respectively, were pledged to secure certain deposits, repurchase agreements, and for other purposes as required by law.

At June 30, 2022 and December 31, 2021, we had $1,186,000 and $1,288,000, respectively, in equity securities recorded at fair value. The following is a summary of unrealized and realized gains and losses recognized in net income on equity securities during the three and six months ended June 30, 2022 and 2021:

Management segments the Banks' loan portfolio to a level that enables risk and performance monitoring according to similar risk characteristics. Loans are segmented based on the underlying collateral characteristics. Categories include commercial, financial, and agricultural, real estate, and installment ~~loans to individuals.~~loans. Real estate loans are further segmented into ~~three~~3 categories: residential, commercial, and ~~construction.~~construction, while installment loans are classified as either consumer automobile loans or other installment loans.

The following table presents the related aging categories of loans, by segment, as of ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016:~~2021:

September 30, 2017
Past Due Past Due 90
30 To 89 Days Or More Non-
(In Thousands) Current Days & Still Accruing Accrual Total
Commercial, financial, and agricultural $ 174,993
$ 6
$ 53
$ 247
$ 175,299
Real estate mortgage:

Residential 572,303
1,929
26
1,876
576,134
Commercial 316,493
1,144
—
5,873
323,510
Construction 29,243
9
100
—
29,352
Installment loans to individuals 85,872
625
82
60
86,639
1,178,904
$ 3,713
$ 261
$ 8,056
1,190,934
Net deferred loan fees and discounts (1,220 )

(1,220 )
Allowance for loan losses (12,933 )

(12,933 )
Loans, net $ 1,164,751

$ 1,176,781

December 31, 2016
Past Due Past Due 90
30 To 89 Days Or More Non-
(In Thousands) Current Days & Still Accruing Accrual Total
Commercial, financial, and agricultural $ 145,179
$ 785
$ 14
$ 132
$ 146,110
Real estate mortgage:

Residential 553,053
9,112
587
1,988
564,740
Commercial 296,537
786
268
8,591
306,182
Construction 33,879
771
—
—
34,650
Installment loans to individuals 43,008
202
1
45
43,256
1,071,656
$ 11,656
$ 870
$ 10,756
1,094,938
Net deferred loan fees and discounts (1,257 )

(1,257 )
Allowance for loan losses (12,896 )

(12,896 )
Loans, net $ 1,057,503

$ 1,080,785

~~Purchased loans acquired are recorded at fair value on their purchase date without a carryover of the related allowance for loan losses.~~

The following table presents interest income the Banks would have recorded if interest had been recorded based on the original loan agreement terms and rate of interest for non-accrual loans and interest income recognized on a cash basis for non-accrual loans for the three and nine months ended September 30, 2017 and 2016:

Three Months Ended September 30,
2017 2016
(In Thousands)
Interest Income That
Would Have Been
Recorded Based on
Original Term and Rate

Interest
Income
Recorded on
a Cash Basis

Interest Income That
Would Have Been
Recorded Based on
Original Term and Rate

Interest
Income
Recorded on
a Cash Basis
Commercial, financial, and agricultural $ 8
$ 2
$ 1
$ —
Real estate mortgage:

Residential 29
30
57
68
Commercial 90
23
109
90
Construction —
—

—
Installment 1
1
—
—
$ 128
$ 56
$ 167
$ 158

Nine Months Ended September 30,
2017 2016
(In Thousands)
Interest Income That
Would Have Been
Recorded Based on
Original Term and Rate

Interest
Income
Recorded on
a Cash Basis

Interest Income That
Would Have Been
Recorded Based on
Original Term and Rate

Interest
Income
Recorded on
a Cash Basis
Commercial, financial, and agricultural $ 21
$ 8
$ 5
$ 1
Real estate mortgage:

Residential 123
81
113
95
Commercial 322
42
388
170
Construction —
—
—
—
Installment 3
2
—
—
$ 469
$ 133
$ 506
$ 266


	December 31, 2021
			Past Due		Past Due 90
			30 To 89		Days Or More		Non-
(In Thousands)	Current		Days		& Still Accruing		Accrual		Total
Commercial, financial, and agricultural	$	162,571	$	139	$	—	$	575	$	163,285
Real estate mortgage:
Residential	590,240		4,083		687		837		595,847
Commercial	442,573		224		—		3,937		446,734
Construction	36,701		554		—		40		37,295
Consumer automobile loans	138,775		490		143		—		139,408
Other consumer installment loans	9,199		47		31		—		9,277
	1,380,059		$	5,537	$	861	$	5,389	1,391,846
Net deferred loan fees and discounts	301								301
Allowance for loan losses	(14,176)								(14,176)
Loans, net	$	1,366,184							$	1,377,971

Impaired loans are loans for which it is probable the Banks will not be able to collect all amounts due according to the contractual terms of the loan agreement. The Banks individually evaluate such loans for impairment ~~individually~~ and ~~does~~do not aggregate loans by major risk classifications. The definition of “impaired loans” is not the same as the definition of “non-accrual loans,” although the two categories overlap. The Banks may choose to place a loan on non-accrual status due to payment delinquency or uncertain collectability, while not classifying the loan as impaired. Factors considered by management in determining impairment include payment status and collateral value. The amount of impairment for these types of loans is determined by the difference between the present value of the expected cash flows related to the loan, using the original interest rate, and its recorded value, or as a practical expedient in the case of collateralized loans, the difference between the fair value of the collateral and the recorded amount of the loan. When foreclosure is probable, impairment is measured based on the fair value of the collateral.

Management evaluates individual loans in all of the commercial segments for possible impairment if the loan is greater than $100,000 and if the loan is either on non-accrual status or has a risk rating of ~~substandard.~~substandard or worse. Management may also elect to measure an individual ~~loan for impairment if~~loans of less than $100,000 for impairment on a case-by-case basis.

Mortgage loans on one-to-four family properties and ~~all~~ consumer loans ~~are large groups of smaller-balance homogeneous loans and~~ are measured for impairment ~~collectively.~~collectively with the exception of loans identified as troubled debt restructurings. Loans that experience insignificant payment delays, which are

defined as 90 days or less, generally are not classified as impaired. Management determines the significance of payment delays on a case-by-case basis taking into consideration all circumstances surrounding the loan and the borrower including the length of the delay, the borrower’s prior payment record, and the amount of shortfall in relation to the principal and interest owed. Interest income for impaired loans is recorded consistent ~~with~~to the Banks' ~~policy on non-accrual loans.~~policy.

The following table presents the recorded investment, unpaid principal balance, and related allowance of impaired loans by segment as of ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016:~~2021:

September 30, 2017
Recorded Unpaid Principal Related
(In Thousands) Investment Balance Allowance
With no related allowance recorded:

Commercial, financial, and agricultural $ 1,141
$ 1,141
$ —
Real estate mortgage:

Residential 1,775
1,775
—
Commercial 2,222
2,222
—
Installment loans to individuals —
—
—
5,138
5,138
—
With an allowance recorded:

Commercial, financial, and agricultural 255
255
207
Real estate mortgage:

Residential 1,022
1,070
224
Commercial 8,433
8,529
1,629
Installment loans to individuals —
—
—
9,710
9,854
2,060
Total:

Commercial, financial, and agricultural 1,396
1,396
207
Real estate mortgage:

Residential 2,797
2,845
224
Commercial 10,655
10,751
1,629
Installment loans to individuals —
—
—
$ 14,848
$ 14,992
$ 2,060

Table of Contents


	December 31, 2021
	Recorded		Unpaid Principal		Related
(In Thousands)	Investment		Balance		Allowance
With no related allowance recorded:
Commercial, financial, and agricultural	$	355	$	355	$	—
Real estate mortgage:
Residential	3,874		3,874		—
Commercial	3,105		3,105		—
Construction	105		105		—
Consumer automobile loans	—		—		—
Installment loans to individuals	—		—		—
	7,439		7,439		—
With an allowance recorded:
Commercial, financial, and agricultural	534		3,321		2
Real estate mortgage:
Residential	1,178		1,178		201
Commercial	4,814		4,814		800
Construction	—		—		—
Consumer automobile loans	—		—		—
Installment loans to individuals	20		20		20
	6,546		9,333		1,023
Total:
Commercial, financial, and agricultural	889		3,676		2
Real estate mortgage:
Residential	5,052		5,052		201
Commercial	7,919		7,919		800
Construction	105		105		—
Consumer automobile loans	—		—		—
Installment loans to individuals	20		20		20
	$	13,985	$	16,772	$	1,023

December 31, 2016
Recorded Unpaid Principal Related
(In Thousands) Investment Balance Allowance
With no related allowance recorded:

Commercial, financial, and agricultural $ 109
$ 109
$ —
Real estate mortgage:

Residential 1,584
1,584
—
Commercial 1,833
1,833
—
Installment loans to individuals —
—
—
3,526
3,526
—
With an allowance recorded:

Commercial, financial, and agricultural 132
132
74
Real estate mortgage:

Residential 1,893
1,893
437
Commercial 10,425
10,520
1,668
Installment loans to individuals —
—
—
12,450
12,545
2,179
Total:

Commercial, financial, and agricultural 241
241
74
Real estate mortgage:

Residential 3,477
3,477
437
Commercial 12,258
12,353
1,668
Installment loans to individuals —
—
—
$ 15,976
$ 16,071
$ 2,179

The following table presents the average recorded investment in impaired loans and related interest income recognized for the three and ~~nine~~six months ended ~~for September~~June 30, ~~2017~~2022 and ~~2016:~~2021:


	Three Months Ended June 30,
	2022						2021
(In Thousands)	Average Investment in Impaired Loans		Interest Income Recognized on an Accrual Basis on Impaired Loans		Interest Income Recognized on a Cash Basis on Impaired Loans		Average Investment in Impaired Loans		Interest Income Recognized on an Accrual Basis on Impaired Loans		Interest Income Recognized on a Cash Basis on Impaired Loans
Commercial, financial, and agricultural	$	758	$	5	$	—	$	1,641	$	2	$	—
Real estate mortgage:
Residential	4,773		48		—		5,504		89		—
Commercial	7,446		49		—		9,865		35		—
Construction	32		—		—		118		2		—
Consumer automobile	7		1		—		76		—		—
Other consumer installment loans	19		—		—		10		9		—
	$	13,035	$	103	$	—	$	17,214	$	137	$	—

Three Months Ended September 30,
2017 2016
(In Thousands)
Average
Investment in
Impaired Loans

Interest Income
Recognized on an
Accrual Basis on
Impaired Loans

Interest Income
Recognized on a
Cash Basis on
Impaired Loans

Average
Investment in
Impaired Loans

Interest Income
Recognized on an
Accrual Basis on
Impaired Loans

Interest Income
Recognized on a
Cash Basis on
Impaired Loans
Commercial, financial, and agricultural $ 394
$ 17
$ 1
$ 346
$ 4
$ —
Real estate mortgage:

Residential 3,199
12
34
2,784
23
41
Commercial 12,885
52
23
12,383
83
16
Construction —
—
—
67
—
—
Installment loans to individuals —
—
—
—
—
—
$ 16,478
$ 81
$ 58
$ 15,580
$ 110
$ 57

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	Six Months Ended June 30,
	2022						2021
(In Thousands)	Average Investment in Impaired Loans		Interest Income Recognized on an Accrual Basis on Impaired Loans		Interest Income Recognized on a Cash Basis on Impaired Loans		Average Investment in Impaired Loans		Interest Income Recognized on an Accrual Basis on Impaired Loans		Interest Income Recognized on a Cash Basis on Impaired Loans
Commercial, financial, and agricultural	$	801	$	10	$	—	$	1,382	$	30	$	—
Real estate mortgage:
Residential	4,866		94		—		5,775		98		—
Commercial	7,605		101		—		9,703		65		—
Construction	56		1		—		120		3		—
Consumer automobile	5		1		—		50		—		—
Other consumer installment loans	19		—		—		6		9		—
	$	13,352	$	207	$	—	$	17,036	$	205	$	—

Nine Months Ended September 30,
2017 2016
(In Thousands)
Average
Investment in
Impaired Loans

Interest Income
Recognized on an
Accrual Basis on
Impaired Loans

Interest Income
Recognized on a
Cash Basis on
Impaired Loans

Average
Investment in
Impaired Loans

Interest Income
Recognized on an
Accrual Basis on
Impaired Loans

Interest Income
Recognized on a
Cash Basis on
Impaired Loans
Commercial, financial, and agricultural $ 324
$ 24
$ 7
$ 586
$ 12
$ 1
Real estate mortgage:

Residential 3,212
48
80
4,539
67
68
Commercial 12,635
137
42
16,988
247
96
Construction —
—
—
208
—
—
Installment loans to individuals 8
—
2
—
—
—
$ 16,179
$ 209
$ 131
$ 22,321
$ 326
$ 165

~~Currently, there is $10,000 committed to be advanced in connection with impaired loans.~~

Troubled Debt Restructurings

The loan portfolio also includes certain loans that have been modified in a Troubled Debt Restructuring (“TDR”), where economic concessions have been granted to borrowers who have experienced or are expected to experience financial difficulties. These concessions typically result from loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance, or other actions. Certain TDRs are classified as nonperforming at the time of restructure and may only be returned to performing status after considering the borrower’s sustained repayment performance for a reasonable period, generally six months.

There were ~~two~~0 loan modifications ~~that~~considered to be TDRs completed during the three and six months ended June 30, 2022, respectively. There were 3 and 5 loan modifications considered TDRs completed during the three and ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2021. Loan modifications that are considered TDRs completed during the three and ~~nine~~six months ended ~~September~~June 30, ~~2016~~2021 were as follows:


	Three Months Ended September 30,												Three Months Ended June 30,
	2017					2016						2021
(In Thousands, Except Number of Contracts)	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		(In Thousands, Except Number of Contracts)			Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Commercial, financial, and agricultural	—	$	—	$	—	—	$	—	$	—	Commercial, financial, and agricultural			1	$	949	$	949
Real estate mortgage:											Real estate mortgage:
Residential	—	—		—		2	580		580		Residential			1	178		178
Commercial	2	375		375		—	—		—		Commercial			1	730		730
Construction	—	—		—		—	—		—		Construction			—	—		—
	2	$	375	$	375	2	$	580	$	580				3	$	1,857	$	1,857

Nine Months Ended September 30,
2017 2016
(In Thousands, Except Number of Contracts)
Number
of
Contracts

Pre-Modification
Outstanding
Recorded
Investment

Post-Modification
Outstanding
Recorded
Investment

Number
of
Contracts

Pre-Modification
Outstanding
Recorded
Investment

Post-Modification
Outstanding
Recorded
Investment
Commercial, financial, and agricultural —
$ —
$ —
—
$ —
$ —
Real estate mortgage:

Residential —
—
—
4
922
922
Commercial 2
375
375
1
838
838
Construction —
—
—
—
—
—
2
$ 375
$ 375
5
$ 1,760
$ 1,760

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		Six Months Ended June 30,
	2021
(In Thousands, Except Number of Contracts)			Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Commercial, financial, and agricultural			1	$	949	$	949
Real estate mortgage:
Residential			2	865		865
Commercial			2	855		855
Construction			—	—		—
			5	$	2,669	$	2,669

There ~~were~~was no loan ~~modifications~~modification considered to be ~~TDRs~~a TDR made during the twelve months prior to June 30, 2022 that defaulted during the six months ended June 30, 2022. There was 1 loan modification considered to be a TDR made during the twelve months previous to ~~September~~June 30, ~~2017~~2021 that defaulted during the ~~nine~~six months ended ~~September~~June 30, ~~2017. There were five loan modifications considered TDRs made during the twelve months previous to September 30, 2016 that defaulted during the nine months ended September 30, 2016.~~2021. The defaulted loan ~~types~~type and recorded investments at ~~September~~June 30, ~~2016 are~~2021 were as follows: ~~one commercial loan with a recorded investment of $103,000, one commercial real estate loan with a recorded investment of $239,000, and three~~1 residential real estate loan with a recorded investment of ~~$173,000.~~$687,000.

Troubled debt restructurings amounted to ~~$8,429,000~~$8,692,000 and ~~$9,180,000~~$9,410,000 as of ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016.~~2021, respectively.

The amount of foreclosed residential real estate held at ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016,~~2021, totaled ~~$458,000~~$127,000 and ~~$839,000,~~$339,000, respectively. Consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process at ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016,~~2021, totaled ~~$458,000~~$165,000 and ~~$167,000,~~$193,000, respectively.

The Company began offering short-term loan modifications to provide relief to borrowers during the COVID-19 national emergency. The CARES Act, along with a joint agency statement issued by federal and state banking agencies, provides that short-term modifications made in a good faith basis in response to COVID-19 to loans that are current at the time the modification program is implemented do not need to be accounted for as TDRs. Loan modifications and payment deferrals have been at historically high levels as the impact of the pandemic continues. As of June 30, 2022, the loan modification/deferral program in place has generated deferrals of up to 180 days that have been granted on 1,372 loans with no loan remaining in its deferral period. As of June 30, 2021, the loan modification/deferral program in place had generated deferrals of up to 180 days that were granted on 1,365 loans with 20 loans remaining in their deferral period with an aggregate outstanding balance of $7,931,000.These loan modifications met applicable requirements to not be considered TDRs. The Economic Aid to Hard-Hit Small Businesses, Non-profits and Venues Act (the “Economic Aid Act”) passed in December 2020 extended the CARES Act provisions permitting financial institutions to suspend TDR assessment and reporting requirements under generally accepted accounting principles until the earlier of 60 days after the date that the President terminates the COVID-19 national emergency or January 1, 2022.

Internal Risk Ratings

Management uses a ten point internal risk rating system to monitor the credit quality of the overall loan portfolio. The first ~~six~~6 categories are considered not criticized, and are aggregated as “Pass” rated. The criticized rating categories utilized by management generally follow bank regulatory definitions. The special mention category includes assets that are currently protected but are potentially weak, resulting in an undue and unwarranted credit risk, but not to the point of justifying a substandard classification. Loans in the substandard category have well-defined weaknesses that jeopardize the liquidation of the debt, and have a distinct possibility that some loss will be sustained if the weaknesses are not corrected. All loans greater than 90 days past due are evaluated for substandard classification. Loans in the doubtful category exhibit the same weaknesses found in the substandard ~~loans,~~loans; however, the weaknesses are more pronounced. Such loans are static and collection in full is improbable. However, these loans are not yet rated as loss because certain events may occur which would salvage the debt. Loans classified as loss are considered uncollectible and charge-off is imminent.

To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay a loan as agreed, the Banks have a structured loan rating process with several layers of internal and external oversight. Generally, consumer and residential mortgage loans are included in the pass category unless a specific action, such as bankruptcy, repossession, or death occurs to raise awareness of a possible credit event. An external ~~annual~~semi-annual loan review of large commercial relationships is performed, as well as a sample of smaller transactions. ~~Confirmation~~The 2022 loan review will evaluate 55% of the ~~appropriate risk category is included in the review.~~Banks' average outstanding commercial portfolio which can consist of outstanding loans, commercial real estate mortgages and outstanding

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commitments. Detailed reviews, including plans for resolution, are performed on loans classified as substandard, doubtful, or loss on a quarterly basis.

The following table presents the credit quality categories identified above as of ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016:~~2021:


	June 30, 2022
	Commercial, Financial, and Agricultural		Real Estate Mortgages						Consumer automobile		Other consumer installment loans
(In Thousands)			Residential		Commercial		Construction						Totals
Pass	$	176,987	$	648,929	$	450,530	$	46,914	$	137,656	$	9,614	$	1,470,630
Special Mention	180		273		5,147		—		—		—		5,600
Substandard	1,836		2,757		7,992		104		14		19		12,722
	$	179,003	$	651,959	$	463,669	$	47,018	$	137,670	$	9,633	$	1,488,952


	December 31, 2021
	Commercial, Financial, and Agricultural		Real Estate Mortgages						Consumer automobile		Other consumer installment loans
(In Thousands)			Residential		Commercial		Construction						Totals
Pass	$	160,899	$	592,570	$	432,158	$	36,511	$	139,408	$	9,257	$	1,370,803
Special Mention	234		284		6,108		676		—		—		7,302
Substandard	2,152		2,993		8,468		108		—		20		13,741
	$	163,285	$	595,847	$	446,734	$	37,295	$	139,408	$	9,277	$	1,391,846

September 30, 2017
Commercial, Financial, and Agricultural Real Estate Mortgages Installment Loans to Individuals
(In Thousands) Residential Commercial Construction Totals
Pass $ 170,812
$ 572,591
$ 300,679
$ 29,202
$ 86,639
$ 1,159,923
Special Mention 775
1,287
8,522
—
—
10,584
Substandard 3,712
2,256
14,309
150
—
20,427
$ 175,299
$ 576,134
$ 323,510
$ 29,352
$ 86,639
$ 1,190,934

December 31, 2016
Commercial, Financial, and Agricultural Real Estate Mortgages Installment Loans to Individuals
(In Thousands) Residential Commercial Construction Totals
Pass $ 140,497
$ 561,440
$ 277,916
$ 34,493
$ 43,256
$ 1,057,602
Special Mention 2,943
740
11,143
—
—
14,826
Substandard 2,670
2,560
17,123
157
—
22,510
$ 146,110
$ 564,740
$ 306,182
$ 34,650
$ 43,256
$ 1,094,938

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Allowance for Loan Losses

An allowance for loan losses (“ALL”) is maintained to absorb losses from the loan portfolio. The ALL is based on management’s continuing evaluation of the risk characteristics and credit quality of the loan portfolio, assessment of current economic conditions, diversification and size of the portfolio, adequacy of collateral, past and anticipated future loss experience, and the amount of non-performing loans.

The Banks' methodology for determining the ALL is based on the requirements of ASC Section 310-10-35 for loans individually evaluated for impairment (previously discussed) and ASC Subtopic 450-20 for loans collectively evaluated for impairment, as well as the Interagency Policy Statements on the Allowance for Loan and Lease Losses and other bank regulatory guidance. The total of the ~~two~~2 components represents the Banks' ALL.

Loans that are collectively evaluated for impairment are analyzed with general allowances being made as appropriate. Allowances are segmented based on collateral characteristics previously disclosed, and consistent with credit quality monitoring. Loans that are collectively evaluated for impairment are grouped into ~~two~~2 classes for evaluation. A general allowance is determined for “Pass” rated credits, while a separate pool allowance is provided for “Criticized” rated credits that are not individually evaluated for impairment.

For the general allowances, historical loss trends are used in the estimation of losses in the current portfolio. These historical loss amounts are modified by other qualitative factors. A historical charge-off factor is calculated utilizing a twelve quarter moving average. However, management may adjust the moving average time frame by up to four quarters to adjust for variances in the economic cycle. Management has identified a number of additional qualitative factors which it uses to supplement the historical charge-off factor because these factors are likely to cause estimated credit losses associated with the existing loan pools to differ from historical loss experience. The additional factors that are evaluated quarterly and updated using information obtained from internal, regulatory, and governmental sources are: national and local economic trends and conditions; levels of and trends in delinquency rates and non-accrual loans; trends in volumes and terms of loans; effects of changes in lending policies; experience, ability, and depth of lending staff; value of underlying collateral; and concentrations of credit from a loan type, industry and/or geographic standpoint.

Loans in the criticized pools, which possess certain qualities or characteristics that may lead to collection and loss issues, are closely monitored by management and subject to additional qualitative factors. Management also monitors industry loss factors by loan segment for applicable adjustments to actual loss experience.

Management reviews the loan portfolio on a quarterly basis in order to make appropriate and timely adjustments to the ALL. When information confirms all or part of specific loans to be uncollectible, these amounts are promptly charged off against the ALL.

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Activity in the allowance is presented for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 and ~~2016:~~2021:


	Three Months Ended September 30, 2017																												Three Months Ended June 30, 2022
	Commercial, Financial, and Agricultural				Real Estate Mortgages											Installment Loans to Individuals													Commercial, Financial, and Agricultural				Real Estate Mortgages												Consumer automobile					Other consumer installment
(In Thousands)				Residential				Commercial				Construction							Unallocated				Totals			(In Thousands)						Residential				Commercial				Construction								Unallocated							Totals
Beginning Balance		$	1,731			$	5,337			$	3,727			$	172		$	779			$	1,363			$	13,109		Beginning Balance			$	1,936			$	4,801			$	5,215			$	197				$	1,376				$	114				$	384				$	14,023
Charge-offs	(68		)		(155		)		—				—			(55		)		—				(278		)	Charge-offs			—				(15)				—				—					(48)					(43)					—					(106)
Recoveries	6				16				—				2			18				—				42			Recoveries		41				42				1				28					13					21					—					146
Provision	(81		)		232				300				(26		)	144				(509		)		60			Provision		131				(10)				179				(26)				(34)					18					72					330
Ending Balance	$	1,588			$	5,430			$	4,027			$	148		$	886			$	854			$	12,933		Ending Balance		$	2,108			$	4,818			$	5,395			$	199			$	1,307				$	110				$	456				$	14,393


	Three Months Ended September 30, 2016																												Three Months Ended June 30, 2021
	Commercial, Financial, and Agricultural				Real Estate Mortgages											Installment Loans to Individuals													Commercial, Financial, and Agricultural				Real Estate Mortgages												Consumer automobile					Other consumer installment
(In Thousands)				Residential				Commercial				Construction							Unallocated				Totals			(In Thousands)						Residential				Commercial				Construction								Unallocated							Totals
Beginning Balance		$	1,273			$	5,851			$	4,001			$	143		$	277			$	972			$	12,517		Beginning Balance			$	2,606			$	4,401			$	4,176			$	142				$	1,735				$	235				$	907				$	14,202
Charge-offs	(18		)		(4		)		—				—			(67		)		—				(89		)	Charge-offs			—				(129)				—				—					(127)					(28)					—					(284)
Recoveries	4				8				3				1			16				—				32			Recoveries		9				109				25				—					15					12					—					170
Provision	(9		)		(550		)		642				(29		)	111				93				258			Provision		(769)				238				235				70				201					(175)					550					350
Ending Balance	$	1,250			$	5,305			$	4,646			$	115		$	337			$	1,065			$	12,718		Ending Balance		$	1,846			$	4,619			$	4,436			$	212			$	1,824				$	44				$	1,457				$	14,438


t	Six Months Ended June 30, 2022
	Commercial, Financial, and Agricultural		Real Estate Mortgages						Consumer automobile		Other consumer installment
(In Thousands)			Residential		Commercial		Construction						Unallocated		Totals
Beginning Balance	$	1,946	$	4,701	$	5,336	$	179	$	1,411	$	111	$	492	$	14,176
Charge-offs	—		(15)		(155)		—		(177)		(103)		—		(450)
Recoveries	45		45		2		28		22		45		—		187
Provision	117		87		212		(8)		51		57		(36)		480
Ending Balance	$	2,108	$	4,818	$	5,395	$	199	$	1,307	$	110	$	456	$	14,393

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	Six Months Ended June 30, 2021
	Commercial, Financial, and Agricultural		Real Estate Mortgages						Consumer automobile		Other consumer installment
(In Thousands)			Residential		Commercial		Construction						Unallocated		Totals
Beginning Balance	$	1,936	$	4,460	$	3,635	$	134	$	1,906	$	261	$	1,471	$	13,803
Charge-offs	(35)		(143)		—		—		(223)		(57)		—		(458)
Recoveries	14		112		25		5		32		40		—		228
Provision	(69)		190		776		73		109		(200)		(14)		865
Ending Balance	$	1,846	$	4,619	$	4,436	$	212	$	1,824	$	44	$	1,457	$	14,438

Nine Months Ended September 30, 2017
Commercial, Financial, and Agricultural Real Estate Mortgages Installment Loans to Individuals
(In Thousands) Residential Commercial Construction Unallocated Totals
Beginning Balance $ 1,554
$ 5,383
$ 4,975
$ 178
$ 416
$ 390
$ 12,896
Charge-offs (81 ) (540 ) —
—
(186 ) —
(807 )
Recoveries 117
51
1
7
63
—
239
Provision (2 ) 536
(949 ) (37 ) 593
464
605
Ending Balance $ 1,588
$ 5,430
$ 4,027
$ 148
$ 886
$ 854
$ 12,933

Nine Months Ended September 30, 2016
Commercial, Financial, and Agricultural Real Estate Mortgages Installment Loans to Individuals
(In Thousands) Residential Commercial Construction Unallocated Totals
Beginning Balance $ 1,532
$ 5,116
$ 4,217
$ 160
$ 243
$ 776
$ 12,044
Charge-offs (167 ) (11 ) —
—
(171 ) —
(349 )
Recoveries 56
14
8
6
73
—
157
Provision (171 ) 186
421
(51 ) 192
289
866
Ending Balance $ 1,250
$ 5,305
$ 4,646
$ 115
$ 337
$ 1,065
$ 12,718

The ~~shifts~~shift in allocation ofand the decrease in the loan provision is primarily due to ~~an increase~~changes in ~~residential originations along with a tapering of commercial originations along with~~ the ~~increase in installment~~credit metrics within the loan ~~volume. Within installment loans to individuals is indirect auto lending that was started during 2016.~~portfolio and decreasing economic uncertainty caused by the COVID-19 pandemic including supply chain disruptions.

The Company grants commercial, industrial, residential, and installment loans to customers primarily throughout north-east and central Pennsylvania. Although the Company has a diversified loan portfolio, a substantial portion of its debtors’ ability to honor their contracts is dependent on the economic conditions within this region.

The Company has a concentration of the following to gross loans at ~~September~~June 30, ~~2017~~2022 and ~~2016:~~2021:


	June 30,
	2022		2021
Owners of residential rental properties	19.65	%	18.15	%
Owners of commercial rental properties	16.11	%	13.54	%

September 30,
2017 2016
Owners of residential rental properties 15.34 % 16.64 %
Owners of commercial rental properties 13.45 % 14.11 %

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The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment based on impairment method as of ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016:~~2021:


	June 30, 2022
	Commercial, Financial, and Agricultural		Real Estate Mortgages						Consumer Automobile		Other consumer installment		Unallocated
(In Thousands)			Residential		Commercial		Construction								Totals
Allowance for Loan Losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	1	$	192	$	842	$	—	$	14	$	19	$	—	$	1,068
Collectively evaluated for impairment	2,107		4,626		4,553		199		1,293		91		456		13,325
Total ending allowance balance	$	2,108	$	4,818	$	5,395	$	199	$	1,307	$	110	$	456	$	14,393

Loans:
Individually evaluated for impairment	$	699	$	4,710	$	7,298	$	—	$	14	$	19			$	12,740

Collectively evaluated for impairment	178,304		647,249		456,371		47,018		137,656		9,614				1,476,212
Total ending loans balance	$	179,003	$	651,959	$	463,669	$	47,018	$	137,670	$	9,633			$	1,488,952


	December 31, 2021
	Commercial, Financial, and Agricultural		Real Estate Mortgages						Consumer Automobile		Other consumer installment		Unallocated
(In Thousands)			Residential		Commercial		Construction								Totals
Allowance for Loan Losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	2	$	201	$	800	$	—	$	—	$	20	$	—	$	1,023
Collectively evaluated for impairment	1,944		4,500		4,536		179		1,411		91		492		13,153
Total ending allowance balance	$	1,946	$	4,701	$	5,336	$	179	$	1,411	$	111	$	492	$	14,176

Loans:
Individually evaluated for impairment	$	889	$	5,052	$	7,919	$	105	$	—	$	20			$	13,985

Collectively evaluated for impairment	162,396		590,795		438,815		37,190		139,408		9,257				1,377,861
Total ending loans balance	$	163,285	$	595,847	$	446,734	$	37,295	$	139,408	$	9,277			$	1,391,846

September 30, 2017
Commercial, Financial, and Agricultural Real Estate Mortgages Installment Loans to Individuals Unallocated
(In Thousands) Residential Commercial Construction Totals
Allowance for Loan Losses:

Ending allowance balance attributable to loans:

Individually evaluated for impairment $ 207
$ 224
$ 1,629
$ —
$ —
$ —
$ 2,060
Collectively evaluated for impairment 1,381
5,206
2,398
148
886
854
10,873
Total ending allowance balance $ 1,588
$ 5,430
$ 4,027
$ 148
$ 886
$ 854
$ 12,933

Loans:

Individually evaluated for impairment $ 1,396
$ 2,797
$ 10,655
$ —
$ —

$ 14,848
Collectively evaluated for impairment 173,903
573,337
312,855
29,352
86,639

1,176,086
Total ending loans balance $ 175,299
$ 576,134
$ 323,510
$ 29,352
$ 86,639

$ 1,190,934

~~Table of Contents~~

December 31, 2016
Commercial, Financial, and Agricultural Real Estate Mortgages Installment Loans to Individuals Unallocated
(In Thousands) Residential Commercial Construction Totals
Allowance for Loan Losses:

Ending allowance balance attributable to loans:

Individually evaluated for impairment $ 74
$ 437
$ 1,668
$ —
$ —
$ —
$ 2,179
Collectively evaluated for impairment 1,480
4,946
3,307
178
416
390
10,717
Total ending allowance balance $ 1,554
$ 5,383
$ 4,975
$ 178
$ 416
$ 390
$ 12,896

Loans:

Individually evaluated for impairment $ 241
$ 3,477
$ 12,258
$ —
$ —

$ 15,976
Collectively evaluated for impairment 145,869
561,263
293,924
34,650
43,256

1,078,962
Total ending loans balance $ 146,110
$ 564,740
$ 306,182
$ 34,650
$ 43,256

$ 1,094,938

Note 7. Net Periodic Benefit Cost-Defined Benefit Plans

For a detailed disclosure on the Company’s pension and employee benefits plans, please refer to Note 13 of the Company’s Consolidated Financial Statements included in the Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2021.

The following sets forth the components of the net periodic ~~benefit/cost~~expense/(gain) of the domestic non-contributory defined benefit plan for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 and ~~2016,~~2021, respectively:


	Three Months Ended June 30,				Six Months Ended June 30,
(In Thousands)	2022		2021		2022		2021

Interest cost	$	138	$	127	$	276	$	254
Expected return on plan assets	(413)		(386)		(825)		(772)


Amortization of net loss	18		47		35		93
Net periodic benefit	$	(257)	$	(212)	$	(514)	$	(425)

Three Months Ended September 30, Nine Months Ended September 30,
(In Thousands) 2017 2016 2017 2016
Service cost $ 41
$ 17
$ 124
$ 51
Interest cost 188
193
566
579
Expected return on plan assets (262 ) (251 ) (787 ) (753 )
Amortization of net loss 45
39
129
117
Net periodic benefit cost $ 12
$ (2 ) $ 32
$ (6 )

Table of Contents

Employer Contributions

The Company previously disclosed in its consolidated financial statements, included in the Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2021, that it ~~expected~~does not expect to contribute ~~a minimum of $500,000~~ to its defined benefit plan in ~~2017.~~2022. As of ~~September~~June 30, ~~2017,~~2022, there were 0 contributions ~~of $500,000~~ made to the ~~plan with additional contributions of at least $250,000 anticipated during the remainder of 2017.~~pension plan.

Note 8. ~~Employee~~ Stock Purchase ~~Plan~~Plans

The Company maintains an Employee Stock Purchase Plan (“Plan”). The Plan is intended to encourage employee participation in the ownership and economic progress of the Company. The Plan allows for up to ~~1,000,000~~1,500,000 shares to be purchased by employees. The purchase price of the shares is 95% of market value with an employee eligible to purchase up to the lesser of 15% of base compensation or $12,000 in market value annually. During the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 and ~~2016,~~2021, there were ~~1,611~~1,903 and ~~1,617~~1,984 shares issued under the ~~plan, respectively.~~Plan, respectively, for total proceeds of $44,000 and $45,000.

The Company maintains the 2020 Non-Employee Director Compensation Plan ("Director Plan"). Under this Director Plan, non-employee directors who have not attained specified stock ownership levels are required to receive a portion of their annual compensation in the form of common stock (currently 50%of total annual compensation), with the ability to elect to receive up to 100% of annual compensation in the form of common stock by making a written election prior to the calendar year to which the compensation relates. The Director Plan allows for up to 100,000 shares to be issued. As of June 30 2022, the Company has issued a total of 28,700 shares of common stock to non-employee directors under the Director Plan in lieu of otherwise payable cash compensation with 6,990 and 7,067 shares issued during the six months ended June 30, 2022 and 2021.

~~Table of Contents~~

Note 9. ~~Off Balance~~Off-Balance Sheet Risk

The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments are primarily comprised of commitments to extend credit, standby letters of credit, and credit exposure from the sale of assets with recourse. These instruments involve, to varying degrees, elements of credit, interest rate, or liquidity risk in excess of the amount recognized in the Consolidated Balance Sheet. The contract amounts of these instruments express the extent of involvement the Company has in particular classes of financial instruments.

The Company’s exposure to credit loss from nonperformance by the other party to the financial instruments for commitments to extend credit and standby letters of credit is represented by the contractual amount of these instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. The Company may require collateral or other security to support financial instruments with off-balance sheet credit risk.

Financial instruments whose contract amounts represent credit risk are as follows at ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016:~~2021:


(In Thousands)	June 30, 2022		December 31, 2021
Commitments to extend credit	$	211,827	$	184,364
Standby letters of credit	9,942		7,027
Credit exposure from the sale of assets with recourse	10,339		10,248
	$	232,108	$	201,639

(In Thousands) September 30, 2017 December 31, 2016
Commitments to extend credit $ 270,046
$ 263,487
Standby letters of credit 9,923
6,515
Credit exposure from the sale of assets with recourse 4,699
6,341
$ 284,668
$ 276,343

Commitments to extend credit are legally binding agreements to lend to customers. Commitments generally have fixed expiration dates or other termination clauses and may require payment of fees. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future liquidity requirements. The Company evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company, on an extension of credit is based on management’s credit assessment of the counterparty.

Standby letters of credit represent conditional commitments issued by the Company to guarantee the performance of a customer to a third party. These instruments are issued primarily to support bid or performance related contracts. The coverage period for these instruments is typically a one year period with an annual renewal option subject to prior approval by management. Fees earned from the issuance of these letters are recognized upon expiration of the coverage period. For secured letters of credit, the collateral is typically Bank deposit instruments or customer business assets.

Table of Contents

Note 10. Fair Value Measurements

The following disclosures show the hierarchal disclosure framework associated with the level of pricing observations utilized in measuring assets and liabilities at fair value.



Level I:						Quoted prices are available in active markets for identical assets or liabilities as of the reported date.

Level II:						Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these assets and liabilities include items for which quoted prices are available but traded less frequently, and items that are fair valued using other financial instruments, the parameters of which can be directly observed.

Level III:						Assets and liabilities that have little to no pricing observability as of the reported date. These items do not have two-way markets and are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation.

This hierarchy requires the use of observable market data when available.

~~Table of Contents~~

The following table presents the assets reported on the Consolidated Balance Sheet at their fair value on a recurring basis as of ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016,~~2021, by level within the fair value hierarchy. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.


	June 30, 2022
(In Thousands)	Level I		Level II		Level III		Total
Assets measured on a recurring basis:
Investment securities, available for sale:
U.S. Government and agency securities	$	—	$	980	$	—	$	980
Mortgage-backed securities	—		1,375		—		1,375

State and political securities	—		145,148		—		145,148
Other debt securities	—		44,935		—		44,935
Investment equity securities:

Equity securities	1,186		—		—		1,186

September 30, 2017
(In Thousands) Level I Level II Level III Total
Assets measured on a recurring basis:

Investment securities, available for sale:

Mortgage-backed securities $ —
$ 4,530
$ —
$ 4,530
State and political securities —
62,327
—
62,327
Other debt securities —
51,973
—
51,973
Financial institution equity securities 12,224
—
—
12,224
Non-financial institution equity securities 1,259
—
—
1,259
Investment securities, trading:
Financial institution equity securities 63
—
—
63
Non-financial institution equity securities 147
—
—
147


	December 31, 2021
(In Thousands)	Level I		Level II		Level III		Total
Assets measured on a recurring basis:
Investment securities, available for sale:

Mortgage-backed securities	$	—	$	1,747	$	—	$	1,747

State and political securities	—		116,658		—		116,658
Other debt securities	—		48,005		—		48,005
Investment equity securities:

Equity securities	1,288		—		—		1,288

December 31, 2016
(In Thousands) Level I Level II Level III Total
Assets measured on a recurring basis:

Investment securities, available for sale:

Mortgage-backed securities $ —
$ 9,313
$ —
$ 9,313
Asset-backed securities —
109
—
109
State and political securities —
60,934
—
60,934
Other debt securities —
51,118
—
51,118
Financial institution equity securities 10,535
—
—
10,535
Non-financial institution equity securities 1,483
—
—
1,483
Investment securities, trading:
Non-financial institution equity securities 58
—
—
58

The following table presents the assets reported on the Consolidated Balance Sheet at their fair value on a non-recurring basis as of ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016,~~2021, by level within the fair value hierarchy. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.


	September 30, 2017									June 30, 2022
(In Thousands)	Level I		Level II		Level III		Total		(In Thousands)	Level I		Level II		Level III		Total
Assets measured on a non-recurring basis:									Assets measured on a non-recurring basis:
Impaired loans	$	—	$	—	$	12,788	$	12,788	Impaired loans	$	—	$	—	$	2,041	$	2,041
Other real estate owned	—		—		108		108		Other real estate owned	—		—		127		127

December 31, 2016
(In Thousands) Level I Level II Level III Total
Assets measured on a non-recurring basis:

Impaired loans $ —
$ —
$ 13,797
$ 13,797
Other real estate owned —
—
839
839

Table of Contents


	December 31, 2021
(In Thousands)	Level I		Level II		Level III		Total
Assets measured on a non-recurring basis:
Impaired loans	$	—	$	—	$	2,360	$	2,360
Other real estate owned	—		—		83		83

The following tables present a listing of significant unobservable inputs used in the fair value measurement process for items valued utilizing level III techniques as of ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016:~~2021:

June 30, 2022

Quantitative Information About Level III Fair Value Measurements

(In Thousands)

Fair Value

Valuation Technique(s)

Unobservable Inputs

Range

Weighted Average

Impaired loans

2,041

Appraisal of collateral (1)

Appraisal adjustments (1)

0% to (20)%

(3)%

Other real estate owned

127

Appraisal of collateral (1)

Appraisal adjustments (1)

(20)%

September 30, 2017
Quantitative Information About Level III Fair Value Measurements
(In Thousands) Fair Value Valuation Technique(s) Unobservable Inputs Range Weighted Average
Impaired loans $ 5,753
Discounted cash flow Temporary reduction in payment amount 0 to (100)% (18)%
7,035

Appraisal of collateral (1)

Appraisal adjustments (1)
0 to (20)% (16)%
Other real estate owned $ 108

Appraisal of collateral (1)

Appraisal adjustments (1)
(20)% (20)%

(1) Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses.

December 31, 2021

Quantitative Information About Level III Fair Value Measurements

(In Thousands)

Fair Value

Valuation Technique(s)

Unobservable Inputs

Range

Weighted Average

Impaired loans

2,360

Appraisal of collateral (1)

Appraisal adjustments (1)

0% to (34)%

(15)%

Other real estate owned

Appraisal of collateral (1)

Appraisal adjustments (1)

(20)%

December 31, 2016
Quantitative Information About Level III Fair Value Measurements
(In Thousands) Fair Value Valuation Technique(s) Unobservable Inputs Range Weighted Average
Impaired loans $ 5,304
Discounted cash flow Temporary reduction in payment amount 0 to (70)% (20)%
8,493

Appraisal of collateral (1)

Appraisal adjustments (1)
0 to (20)% (15)%
Other real estate owned $ 839

Appraisal of collateral (1)

Appraisal adjustments (1)
(20)% (20)%

(1) Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses.

The discounted cash flow valuation technique is utilized to determine the fair value of performing impaired loans, while non-performing impaired loans utilize the appraisal of collateral method.

The significant unobservable inputs used in the fair value measurement of the Company’s impaired loans using the discounted cash flow valuation technique include temporary changes in payment amounts and the probability of default. Significant increases (decreases) in payment amounts would result in significantly higher (lower) fair value measurements. The probability of default is 0% for impaired loans using the discounted cash flow valuation technique because all defaulted impaired loans are valued using the appraisal of collateral valuation technique.

The significant unobservable input used in the fair value measurement of the Company’s impaired loans using the appraisal of collateral valuation technique include appraisal adjustments, which are adjustments to appraisals by management for qualitative factors such as economic conditions and estimated liquidation expenses. The significant unobservable input used in the fair value measurement of the Company’s other real estate owned are the same inputs used to value impaired loans using the appraisal of collateral valuation technique.

Note 11. Fair Value of Financial Instruments

The Company is required to disclose fair values for its financial instruments. Fair values are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Also, it is the Company’s general practice and intention to hold most of its financial instruments to maturity and not to engage in trading or sales activities. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These fair values are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions can significantly affect the fair values.

Fair values have been determined by the Company using historical data and an estimation methodology suitable for each category of financial instruments. The Company’s fair values ~~methods, and assumptions~~ are set forth below for the Company’s other financial instruments.

~~Table of Contents~~

As certain assets and liabilities, such as deferred tax assets, premises and equipment, and many other operational elements of the Company, are not considered financial instruments but have value, this fair value of financial instruments would not represent the full market value of the Company.

Table of Contents

The fair values of the Company’s financial instruments not recorded at fair value on a recurring or nonrecurring basis are as follows at ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016:~~2021:


	Carrying		Fair		Fair Value Measurements at June 30, 2022
(In Thousands)	Value		Value		Level I		Level II		Level III
Financial assets:






Loans held for sale (1)	$	3,857	$	3,857	$	3,857	$	—	$	—
Loans, net	1,474,739		1,420,867		—		—		1,420,867



Financial liabilities:

Time deposits	153,679		145,812		—		—		145,812
Short-term borrowings	5,464		5,464		5,464		—		—
Long-term borrowings	112,874		108,433		—		—		108,433

Carrying Fair Fair Value Measurements at September 30, 2017
(In Thousands) Value Value Level I Level II Level III
Financial assets:

Cash and cash equivalents $ 27,747
$ 27,747
$ 27,747
$ —
$ —
Investment securities:

Available for sale 132,313
132,313
13,483
118,830
—
Trading 210
210
210
—
—
Loans held for sale 1,734
1,734
1,734
—
—
Loans, net 1,176,781
1,210,822
—
—
1,210,822
Bank-owned life insurance 27,827
27,827
27,827
—
—
Accrued interest receivable 4,289
4,289
4,289
—
—

Financial liabilities:

Interest-bearing deposits $ 843,166
$ 845,103
$ 637,841
$ —
$ 207,262
Noninterest-bearing deposits 310,830
310,830
310,830
—
—
Short-term borrowings 41,596
41,596
41,596
—
—
Long-term borrowings 80,998
80,787
—
—
80,787
Accrued interest payable 483
483
483
—
—

Carrying Fair Fair Value Measurements at December 31, 2016
(In Thousands) Value Value Level I Level II Level III
Financial assets:

Cash and cash equivalents $ 43,671
$ 43,671
$ 43,671
$ —
$ —
Investment securities:

Available for sale 133,492
133,492
12,018
121,474
—
Trading 58
58
58
—
—
Loans held for sale 1,953
1,953
1,953
—
—
Loans, net 1,080,785
1,088,122
—
—
1,088,122
Bank-owned life insurance 27,332
27,332
27,332
—
—
Accrued interest receivable 3,672
3,672
3,672
—
—

Financial liabilities:

Interest-bearing deposits $ 791,937
$ 789,401
$ 571,768
$ —
$ 217,633
Noninterest-bearing deposits 303,277
303,277
303,277
—
—
Short-term borrowings 13,241
13,241
13,241
—
—
Long-term borrowings 85,998
86,353
—
—
86,353
Accrued interest payable 455
455
455
—
—

~~Cash and Cash Equivalents, Loans Held for Sale, Accrued Interest Receivable, Short-term Borrowings, and Accrued Interest Payable:~~

(1) The ~~fair value~~financial instrument is ~~equal to~~carried at cost at, June 30, 2022 which approximate the ~~carrying value.~~

~~Investment Securities:~~

~~The~~ fair value of ~~investment securities available for sale and trading~~the instruments


	Carrying		Fair		Fair Value Measurements at December 31, 2021
(In Thousands)	Value		Value		Level I		Level II		Level III
Financial assets:





Loans held for sale (1)	$	3,725	$	3,725	$	3,725	$	—	$	—
Loans, net	1,377,971		1,379,787		—		—		1,379,787



Financial liabilities:

Time deposits	205,367		204,512		—		—		204,512
Short-term borrowings	5,747		5,747		5,747		—		—
Long-term borrowings	125,963		127,679		—		—		127,679

(1) The financial instrument is ~~equal to~~carried at cost at, December 31, 2021 which approximate the available quoted market price. If no quoted market price is available, fair value is estimated using the quoted market price for similar securities. Regulatory stocks’ fair value is equal to the carrying value.

~~Table of Contents~~

~~Loans:~~

Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type such as commercial, financial, and agricultural, commercial real estate, residential real estate, construction real estate, and installment loans to individuals. Each loan category is further segmented into fixed and adjustable rate interest terms and by performing and nonperforming categories.

~~The~~ fair value of ~~performing loans~~the instruments

The methods and assumptions used by the Company in estimating fair values of financial instruments is ~~calculated~~in accordance with ASC Topic 825, Financial Instruments, as amended by ~~discounting scheduled cash flows through the estimated maturity using estimated market discount rates that reflect the credit and interest rate risk inherent~~ASU 2016-01 which requires public entities to use exit pricing in the ~~loan. The estimate of maturity is based on the Company’s historical experience with repayments for each loan classification, modified, as required, by an estimate~~calculation of the ~~effect of current economic and lending conditions.~~above tables.

Fair value for significant nonperforming loans is based on recent external appraisals. If appraisals are not available, estimated cash flows are discounted using a rate commensurate with the risk associated with the estimated cash flows. Assumptions regarding credit risk, cash flows, and discounted rates are judgmentally determined using available market information and specific borrower information.

~~Bank-Owned Life Insurance:~~

~~The fair value is equal to the cash surrender value of the life insurance policies.~~

~~Deposits:~~

The fair value of deposits with no stated maturity, such as noninterest-bearing demand deposits, savings, NOW, and money market accounts, is equal to the amount payable on demand. The fair value of certificates of deposit is based on the discounted value of contractual cash flows.

The fair value estimates above do not include the benefit that results from the low-cost funding provided by the deposit liabilities compared to the cost of borrowing funds in the market, commonly referred to as the core deposit intangible.

~~Long Term Borrowings:~~

~~The fair value of long term borrowings is based on the discounted value of contractual cash flows.~~

~~Commitments to Extend Credit, Standby Letters of Credit, and Financial Guarantees Written:~~

There is no material difference between the notional amount and the estimated fair value of off-balance sheet items. The contractual amounts of unfunded commitments and letters of credit are presented in Note 9 (Off Balance Sheet Risk).

Note 12. Stock Options

In ~~2014,~~2020, the Company adopted the 2020 Equity Incentive Plan which replaced the 2014 Equity Incentive Plan that did not have any remaining shares available for issuance. The plans are designed to help the Company attract, retain, and motivate employees and non-employee directors. Incentive stock options, non-qualified stock options, ~~and~~ restricted stock, restricted stock units, and other equity-based awards may be granted as part of the plan.

~~On August 27, 2015,~~As of January 1, 2022, the Company had a total of 1,034,525 stock options outstanding. During the period ended June 30, 2022, the Company issued ~~38,750~~234,000 stock options with a strike price of ~~$42.03~~$24.10 to ~~employees that have~~ a ~~five year vesting period and~~group of employees. The options granted in 2022 all expire ten years from the grant date. ~~On March 24, 2017,~~Of the ~~Company issued 70,000 stock options in total, to a group of employees, that have a strike price of $44.21. The options granted in 2017 all expire ten years from the grant date however, of the 70,000~~234,000 grants awarded ~~46,250~~in 2022, 156,000 of the options ~~have a~~vest in three ~~year vesting period~~years while the 78,000 remaining ~~23,750~~ options vest in five years. During the period ended June 30, 2022, a voluntary cash settlement of 346,725 outstanding stock options with an average strike price of $30.07 was initiated. The repurchase price per outstanding share ranged from $1.4770 to $3.3685 as determined by the utilization of a Black Scholes valuation methodology.

Stock Options Granted
Date Shares Forfeited Outstanding Strike Price Vesting Period Expiration
March 24, 2017 46,250
—
46,250
$ 44.21
3 years 10 years
March 24, 2017 23,750
—
23,750
44.21
5 years 10 years
August 27, 2015 38,750
(13,750 ) 25,000
42.03
5 years 10 years

Table of Contents


Stock Options Granted
Date	Shares	Forfeited	Cash Settlement	Outstanding	Strike Price		Vesting Period	Expiration
January 18, 2022	156,000	—	—	156,000	$	24.10	3 years	10 years
January 18, 2022	78,000	—	—	78,000	24.10		5 years	10 years
April 9, 2021	156,500	—	—	156,500	24.23		3 years	10 years
April 9, 2021	78,000	—	—	78,000	24.23		5 years	10 years
March 11, 2020	119,300	—	—	119,300	25.34		3 years	10 years
March 11, 2020	119,200	—	—	119,200	25.34		5 years	10 years
March 15, 2019	120,900	(15,600)	—	105,300	28.01		3 years	10 years
March 15, 2019	119,100	(15,150)	—	103,950	28.01		5 years	10 years
August 24, 2018	75,300	(11,850)	(63,450)	—	30.67		3 years	10 years
August 24, 2018	149,250	(23,850)	(125,400)	—	30.67		5 years	10 years
January 5, 2018	18,750	—	(18,750)	—	30.07		3 years	10 years
January 5, 2018	18,750	—	(18,750)	—	30.07		5 years	10 years
March 24, 2017	69,375	(11,250)	(58,125)	—	29.47		3 years	10 years
March 24, 2017	35,625	(2,250)	(33,375)	—	29.47		5 years	10 years
August 27, 2015	58,125	(26,250)	(28,875)	3,000	28.02		5 years	10 years

A summary of stock option activity is presented below:


	June 30, 2022
	Shares	Weighted Average Exercise Price
Outstanding, beginning of year	1,034,525	$	27.23
Granted	234,000	24.10
Cash settlement	(346,725)	30.07
Forfeited	(2,550)	29.10
Expired	—	—
Outstanding, end of period	919,250	$	25.36

Exercisable, end of period	108,300	$	28.01

September 30, 2017 September 30, 2016
Shares Weighted Average Exercise Price Shares Weighted Average Exercise Price
Outstanding, beginning of year 26,500
$ 42.03
34,750
$ 42.03
Granted 70,000
44.21
—
—
Exercised —
—
—
—
Forfeited (1,500 ) 42.03
(3,750 ) 42.03
Expired —
—
—
—
Outstanding, end of year 95,000
$ 43.64
31,000
$ 42.03

Exercisable, end of year —
$ —
—
$ —

The estimated fair value of options, including the effect of estimated forfeitures, is recognized as expense on a straightline basis

over the options’ vesting periods while ensuring that the cumulative amount of compensation cost recognized at least equals the

value of the vested portion of the award at that date.

The ~~Company determines the~~ fair value of stock options ~~granted~~is estimated using the Black-Scholes ~~option-pricing~~option pricing model. The ~~risk-free interest rate~~following is ~~based on the United States Treasury bond with~~ a ~~similar term to the expected life~~summary of the assumptions used in this model for stock options atgranted for the ~~grant date.~~ six months ended June 30, 2022:


	Six months ended June 30,
	2022
Risk-free interest rate	1.23		%
Expected ~~volatility was estimated based on the adjusted historic~~ volatility	33		%
Expected Annual dividend	$	1.28
Expected life	6.84 years
Weighted average grant date fair value per option	$	4.28

Table of ~~the Company’s shares. The expected life was estimated to equal the contractual life of the options. The dividend yield rate was based upon recent historical dividends paid on shares.~~Contents

Compensation expense for stock options is recognized using the fair value when the stock options are granted and is amortized over the options' vesting period. Compensation expense ~~with a corresponding increase in contributed surplus,~~ related to stock options was ~~$8,000 and $21,000~~$768,000 for the ~~three and nine month periods~~six months ended ~~September~~June 30, ~~2017~~2022 compared to ~~$6,000 and $17,000~~$527,000 for the same ~~periods~~period of ~~2016.~~2021. The expense level for the six months ended June 30, 2022 was impacted by the voluntary cash settlement of 346,725 stock options which resulted in $183,000 in additional compensation expense and a reduction in additional paid-in capital of $1,074,000. As of ~~September~~June 30, ~~2017, no~~2022, a total of 108,300 stock options were exercisable and the weighted average years to expiration ~~were 9~~of these options was 7.21 years. ~~The fair value of options granted during the three and nine month periods ending September 30, 2017 was approximately zero and $2,173,000 respectively or zero and $31.04 per award.~~ Total unrecognized compensation cost for non-vested ~~shares, $99,000,~~options was $2,088,000 and will be recognized over their weighted average remaining vesting period of ~~3.56~~1.35 years.

Note 13. Leases

The following table shows finance lease right of use assets and finance lease liabilities as of:



(In Thousands)	Statement of Financial Condition classification	June 30, 2022		December 31, 2021
Finance lease right of use assets	Premises and equipment, net	$	7,220	$	7,435
Finance lease liabilities	Long-term borrowings	7,874		7,963

The following table shows the components of finance and operating lease expense for the three and six months ended June 30, 2022 and 2021:


	Three Months Ended June 30,				Six Months Ended June 30,
(In Thousands)	2022		2021		2022		2021

Finance Lease Cost:
Amortization of right-of-use asset	$	107	$	107	$	215	$	259
Interest expense	62		62		123		133
Operating lease cost	71		74		143		150

Variable lease cost	—		—		—		—
Total Lease Cost	$	240	$	243	$	481	$	542

A maturity analysis of operating and finance lease liabilities and reconciliation of the undiscounted cash flows to the total operating lease liability is as follows:



(In Thousands)	Operating		Finance
2022	$	146	$	210
2023	265		421
2024	255		427
2025	257		929
2026	260		387
2027 and thereafter	2,568		9,276
Total undiscounted cash flows	3,751		11,650
Discount on cash flows	(951)		(3,776)
Total lease liability	$	2,800	$	7,874

The following table shows the weighted average remaining lease term and weighted average discount rate for both operating and finance leases outstanding as of June 30, 2022.



	Operating		Finance
Weighted-average term (years)	17.3		23.9
Weighted-average discount rate	3.54	%	3.20	%

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Note ~~13.~~14. Reclassification of Comparative Amounts

Certain comparative amounts for the prior period have been reclassified to conform to current period presentations. Such reclassifications had no effect on net income or shareholders’ equity.

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CAUTIONARY STATEMENT FOR PURPOSES OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

This Report contains certain “forward-looking statements” including statements concerning plans, objectives, future events or performance and assumptions and other statements which are other than statements of historical fact. The Company cautions readers that the following important factors, among others, may have affected and could in the future affect the Company’s actual results and could cause the Company’s actual results for subsequent periods to differ materially from those expressed in any forward-looking statement made by or on behalf of the Company herein: (i) the effect of changes in laws and regulations, including federal and state banking laws and regulations, with which the Company must comply, and the associated costs of compliance with such laws and regulations either currently or in the future as applicable; (ii) the effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies as well as by the Financial Accounting Standards Board, or of changes in the Company’s organization, compensation and benefit plans; (iii) the effect on the Company’s competitive position within its market area of the increasing consolidation within the banking and financial services industries, including the increased competition from larger regional and out-of-state banking organizations as well as non-bank providers of various financial services; (iv) the effect of changes in interest rates; (v) the negative impacts and disruptions of the COVID-19 pandemic and measures taken to contain its spread on our employees, customers, business operations, credit quality, financial position, liquidity and results of operations; (vi) the length and extent of the economic contraction as a result of the COVID-19 pandemic; or (vii) the effect of changes in the business cycle and downturns in the local, regional or national ~~economies;~~economies, including the effects of inflation,; and ~~(vi)~~(viii) the Risk Factors identified in Item 1A of the Company's Annual Report on Form 10-K for the year ended December 31, ~~2016~~2021 and in other filings made by the Company under the Securities Exchange Act of 1934.

~~Table of Contents~~

You should not put undue reliance on any forward-looking statements. These statements speak only as of the date of this Quarterly Report on Form 10-Q, even if subsequently made available by the Company on its website or otherwise. The Company undertakes no obligation to update or revise these statements to reflect events or circumstances occurring after the date of this Quarterly Report on Form 10-Q.

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

EARNINGS SUMMARY

Comparison of the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2022 and ~~2016~~2021

Summary Results

Net income for the three and six months ended ~~September~~June 30, ~~2017~~2022 was ~~$3,284,000~~$4,231,000 and $7,663,000 compared to ~~$3,059,000~~$3,588,000 and $7,029,000 for the same ~~period~~periods of ~~2016 as~~2021. Results for the three and six months ended June 30, 2022 compared to 2021 were impacted by an increase in after-tax securities ~~gains increased $25,000~~losses of $154,000 (from a gain of ~~$172,000~~$111,000 to a loss of ~~$197,000).~~$43,000) for the three month period and an increase in after-tax securities losses of $296,000 (from a gain of $205,000 to a loss of $91,000) for the six month period. Results for the three and six months ended June 30, 2022 were impacted by additional compensation expense of $183,000 (after-tax $145,000) associated with the voluntary cash settlement of 346,725 outstanding stock options. In addition, an after-tax loss of $201,000 related to a branch closure negatively impacted results for the six months ended June 30, 2022. Basic and diluted earnings per share for the three and six months ended ~~September~~June 30, ~~2017~~2022 were $0.60 and ~~2016~~$1.08. Basic and diluted earnings per share for the three and six months ended June 30, 2021 were ~~$0.70~~$0.51 and ~~$0.65, respectively. Return~~$1.00. Annualized return on average assets ~~and~~was 0.88% for three months ended June 30, 2022, compared to 0.76% for the corresponding period of 2021. Annualized return on average assets was 0.80% for the six months ended June 30, 2022, compared to 0.75% for the corresponding period of 2021. Annualized return on average equity ~~were 0.93% and 9.43%~~was 10.15% for the three months ended ~~September~~June 30, ~~2017~~2022, compared to ~~0.91% and~~8.70% for the corresponding period of 2021. Annualized return on average equity was 9.20% for the six months ended June 30, 2022, compared to 8.69% for the corresponding period of ~~2016.~~2021. Net income from core operations (“~~operating~~core earnings”), which is a non-generally accepted accounting principles (GAAP) measure of net income excluding net securities gains or losses, was ~~$3,087,000~~$4.3 million for the three months ended ~~September~~June 30, ~~2017~~2022 compared to ~~$2,887,000~~$3.5 million for the same period of ~~2016. Basic and diluted operating~~2021. Core earnings were $7.8 million for the six months ended June 30, 2022, compared to $6.8 million for the same period of 2021. Core earnings per share for the three months ended ~~September~~June 30, ~~2017~~2022 were ~~$0.66~~$0.61 basic and diluted, compared to ~~$0.61~~$0.49 basic and diluted core earnings per share for the same period of 2021. Core earnings per share for the six months ended June 30, 2022 were $1.10 basic and diluted, compared to $0.97 basic and diluted for the corresponding period of 2016. Impacting the level of operating earnings were several factors including the continued shift of earning assets from the investment portfolio to the loan portfolio as the balance sheet is actively managed to reduce market risk and interest rate risk in a rising rate environment. In addition, the effective tax rate has increased due to the conclusion of the ten year tax credit generation period of several low income elderly housing projects in our market footprint in which the company participates.

~~Net income for the nine months ended September 30, 2017 was $9,057,000 compared to $9,529,000 for the~~ same period of 2016 as after-tax securities gains decreased $490,000 (from a gain of $810,000 to a gain of $320,000). Basic and diluted earnings per share for the nine months ended September 30, 2017 and 2016 were $1.92 and $2.01, respectively. Return on average assets and return on average equity were 0.87% and 8.69% for the nine months ended September 30, 2017 compared to 0.95% and 9.14% for the corresponding period of 2016. Net income from core operations (“operating earnings”) increased to $8,737,000 for the nine months ended September 30, 2017 compared to $8,719,000 for the same period of 2016. Basic and diluted operating earnings per share for the nine months ended September 30, 2017 were $1.85 compared to $1.84 basic and diluted for the corresponding period of 2016.2021.

Management uses the non-GAAP measure of net income from core operations ~~or operating earnings,~~ in its analysis of the Company’s performance. This measure, as used by the Company, adjusts net income by excluding significant gains or losses that are unusual in nature. Because certain of these items and their impact on the Company’s performance are difficult to predict, management believes the presentation of financial measures excluding the impact of such items provides useful supplemental information in evaluating the operating results of the Company’s core businesses. For purposes of this Quarterly Report on Form 10-Q, net income from core operations ~~or operating earnings,~~ means net income adjusted to exclude after-tax net securities gains or ~~losses and bank-owned life insurance gains on death benefit.~~losses. These disclosures should not be viewed as a substitute for net income determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies.

Reconciliation of GAAP and Non-GAAP Financial Measures


(Dollars in Thousands, Except Per Share Data)	Three Months Ended September 30,				Nine Months Ended September 30,				(Dollars in Thousands, Except Per Share Data)	Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016			2022		2021		2022		2021
GAAP net income	$	3,284	$	3,059	$	9,057	$	9,529	GAAP net income	$	4,231	$	3,588	$	7,663	$	7,029
Less: net securities gains, net of tax	197		172		320		810
Non-GAAP operating earnings	$	3,087	$	2,887	$	8,737	$	8,719
Less: net securities (losses) gains, net of tax									Less: net securities (losses) gains, net of tax	(43)		111		(91)		205
Non-GAAP core earnings									Non-GAAP core earnings	$	4,274	$	3,477	$	7,754	$	6,824

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Return on average assets (ROA) 0.93 % 0.91 % 0.87 % 0.95 %
Less: net securities gains, net of tax 0.05 % 0.05 % 0.03 % 0.08 %
Non-GAAP operating ROA 0.88 % 0.86 % 0.84 % 0.87 %


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
GAAP Return on average assets (ROA)	0.88	%	0.76	%	0.80	%	0.75	%
Less: net securities (losses) gains, net of tax	(0.01)	%	0.02	%	(0.01)	%	0.02	%
Non-GAAP core ROA	0.89	%	0.74	%	0.81	%	0.73	%

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		Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021		2022		2021
GAAP Return on average equity (ROE)		10.15	%	8.70	%	9.20	%	8.69	%
Less: net securities (losses) gains, net of tax		(0.10)	%	0.27	%	(0.11)	%	0.25	%
Non-GAAP core ROE	.	10.25	%	8.43	%	9.31	%	8.44	%


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
GAAP Basic earnings per share (EPS)	$	0.60	$	0.51	$	1.08	$	1.00
Less: net securities (losses) gains, net of tax	(0.01)		0.02		(0.02)		0.03
Non-GAAP core operating EPS	$	0.61	$	0.49	$	1.10	$	0.97

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Return on average equity (ROE) 9.43 % 8.69 % 8.69 % 9.14 %
Less: net securities gains, net of tax 0.56 % 0.49 % 0.31 % 0.78 %
Non-GAAP operating ROE 8.87 % 8.20 % 8.38 % 8.36 %


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
GAAP Diluted EPS	$	0.60	$	0.51	$	1.08	$	1.00
Less: net securities (losses) gains, net of tax	(0.01)		0.02		(0.02)		0.03
Non-GAAP diluted core EPS	$	0.61	$	0.49	$	1.10	$	0.97

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Basic earnings per share (EPS) $ 0.70
$ 0.65
$ 1.92
$ 2.01
Less: net securities gains, net of tax 0.04
0.04
0.07
0.17
Non-GAAP basic operating EPS $ 0.66
$ 0.61
$ 1.85
$ 1.84

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Dilutive EPS $ 0.70
$ 0.65
$ 1.92
$ 2.01
Less: net securities gains, net of tax 0.04
0.04
0.07
0.17
Non-GAAP dilutive operating EPS $ 0.66
$ 0.61
$ 1.85
$ 1.84

Interest and Dividend Income

Interest and dividend income for the three and six months ended ~~September~~June 30, ~~2017~~2022 increased ~~to $12,948,000~~$778,000 and $458,000 compared to ~~$11,660,000 for~~ the same ~~period~~periods of ~~2016. Loan portfolio income increased due to the impact of portfolio growth, primarily~~2021. The increase in ~~home equity products and indirect auto lending. The~~ loan portfolio income was due to a increase ~~was~~in the average loan portfolio balance offset partially by a decrease in ~~investment portfolio interest due to~~average rate earned on the portfolio. Investment securities income has been impacted by a ~~slight decline~~decrease in the average ~~taxable equivalent yield~~rate earned on the portfolio as ~~the duration in~~higher yielding legacy investments matured. The size of the investment portfolio ~~continues~~began to ~~be shortened in order to reduce interest rate and market risk in~~increase during the ~~future. This is being undertaken primarily through the sale of long-term municipal bonds that have a maturity date of 2025 or later and securities with a call date within the next five years.~~

~~During the nine~~three months ended ~~September~~June 30, ~~2017, interest and dividend income was $36,839,000, an increase of $1,783,000 over~~2022 which offset the ~~same period of 2016. Interest income on the loan portfolio increased as the growth in the portfolio was countered by a 2 bp decline~~decrease in average ~~yield.~~rate earned. The ~~investment portfolio~~increase in dividend and other interest income ~~decreased as~~is due to the ~~portfolio size was decreased~~increase in ~~order to reduce~~ interest ~~rate~~earned on federal funds sold and ~~market risk, while the yield on the investment portfolio declined 27 bp.~~interest-bearing deposits.

Interest and dividend income composition for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 and ~~2016~~2021 was as follows:


	Three Months Ended
	June 30, 2022				June 30, 2021				Change
(In Thousands)	Amount		% Total		Amount		% Total		Amount		%
Loans including fees	$	13,620	89.70	%	$	13,099	90.93	%	$	521	3.98	%
Investment securities:
Taxable	864		5.69		838		5.82		26		3.10
Tax-exempt	194		1.28		164		1.14		30		18.29
Dividend and other interest income	506		3.33		305		2.11		201		65.90
Total interest and dividend income	$	15,184	100.00	%	$	14,406	100.00	%	$	778	5.40	%


	Three Months Ended															Six Months Ended
	September 30, 2017				September 30, 2016				Change							June 30, 2022				June 30, 2021				Change
(In Thousands)	Amount		% Total		Amount		% Total		Amount			%			(In Thousands)	Amount		% Total		Amount		% Total		Amount		%
Loans including fees	$	11,906	91.95	%	$	10,541	90.40	%	$	1,365		12.95		%	Loans including fees	$	26,658	90.49	%	$	26,444	91.18	%	$	214	0.81	%
Investment securities:															Investment securities:
Taxable	553		4.27		601		5.15		(48		)	(7.99	)		Taxable	1,601		5.43		1,657		5.71		(56)		(3.38)
Tax-exempt	319		2.46		329		2.82		(10		)	(3.04	)		Tax-exempt	358		1.22		335		1.16		23		6.87
Dividend and other interest income	170		1.32		189		1.63		(19		)	(10.05	)		Dividend and other interest income	842		2.86		565		1.95		277		49.03
Total interest and dividend income	$	12,948	100.00	%	$	11,660	100.00	%	$	1,288		11.05		%	Total interest and dividend income	$	29,459	100.00	%	$	29,001	100.00	%	$	458	1.58	%

Nine Months Ended
September 30, 2017 September 30, 2016 Change
(In Thousands) Amount % Total Amount % Total Amount %
Loans including fees $ 33,642
91.32 % $ 31,362
89.46 % $ 2,280
7.27
%
Investment securities:

Taxable 1,665
4.52 1,825
5.21 (160 ) (8.77 )
Tax-exempt 940
2.55 1,203
3.43 (263 ) (21.86 )
Dividend and other interest income 592
1.61 666
1.90 (74 ) (11.11 )
Total interest and dividend income $ 36,839
100.00 % $ 35,056
100.00 % $ 1,783
5.09
%

Table of Contents

Interest Expense

Interest expense for the three and six months ended ~~September~~June 30, ~~2017 increased $83,000 to $1,496,000~~2022 decreased $974,000 and $2,077,000 compared to ~~$1,413,000 for~~ the same ~~period~~periods of ~~2016.~~2021. Interest-bearing deposit rates continued to remain at low levels due to the continued economic impact of COVID-19 and level of excess balance sheet liquidity. The decrease in deposit rates was offset in part by an increase in ~~interest expense is the result of growth within~~average interest-bearing demand deposits. Growth in the deposit portfolio ~~and the lengthening of the time deposit portfolio as part of~~has allowed for a ~~strategy to build balance sheet protection~~decrease in ~~a rising rate environment, offset by~~average long-term borrowings resulting in a decrease in long-term borrowing ~~utilization.~~interest expense.

Interest expense for the nine months ended September 30, 2017 increased $81,000 from the same period of 2016. The reasons noted for the three month period comparison also apply to the nine month period.

Interest expense composition for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 and ~~2016~~2021 was as follows:


	Three Months Ended
	June 30, 2022				June 30, 2021				Change
(In Thousands)	Amount		% Total		Amount		% Total		Amount		%
Deposits	$	710	53.10	%	$	1,489	64.43	%	$	(779)	(52.32)	%
Short-term borrowings	2		0.15		2		0.09		—		—
Long-term borrowings	625		46.75		820		35.48		(195)		(23.78)
Total interest expense	$	1,337	100.00	%	$	2,311	100.00	%	$	(974)	(42.15)	%


	Three Months Ended															Six Months Ended
	September 30, 2017				September 30, 2016				Change							June 30, 2022				June 30, 2021				Change
(In Thousands)	Amount		% Total		Amount		% Total		Amount			%			(In Thousands)	Amount		% Total		Amount		% Total		Amount		%
Deposits	$	1,058	70.72	%	$	909	64.33	%	$	149		16.39		%	Deposits	$	1,498	54.30	%	$	3,173	65.61	%	$	(1,675)	(52.79)	%
Short-term borrowings	31		2.07		7		0.50		24			342.86			Short-term borrowings	3		0.11		4		0.08		(1)		(25.00)
Long-term borrowings	407		27.21		497		35.17		(90		)	(18.11	)		Long-term borrowings	1,258		45.59		1,659		34.31		(401)		(24.17)
Total interest expense	$	1,496	100.00	%	$	1,413	100.00	%	$	83		5.87		%	Total interest expense	$	2,759	100.00	%	$	4,836	100.00	%	$	(2,077)	(42.95)	%

Nine Months Ended
September 30, 2017 September 30, 2016 Change
(In Thousands) Amount % Total Amount % Total Amount %
Deposits $ 2,968
70.22 % $ 2,624
63.29 % $ 344
13.11
%
Short-term borrowings 39
0.92 41
0.99 (2 ) (4.88 )
Long-term borrowings 1,220
28.86 1,481
35.72 (261 ) (17.62 )
Total interest expense $ 4,227
100.00 % $ 4,146
100.00 % $ 81
1.95
%

Net Interest Margin

The net interest margin ~~(“NIM”)~~ for the three and six months ended ~~September~~June 30, ~~2017~~2022 was ~~3.57%~~3.12% and 3.03%, compared to ~~3.37%~~2.78% and 2.83% for the corresponding ~~period~~periods of ~~2016.~~2021. The ~~impact of the decreasing investment portfolio balance was offset by 9.68% growth~~increase in the ~~balance of the average loan portfolio from September 30, 2016 to September 30, 2017. The primary funding~~net interest margin for the ~~loan growth~~three and six month periods was driven by a decline in the rate paid on interest-bearing deposits of 29 and 33 basis points ("bps") as rates paid decreased throughout 2021 and remained at historically low levels during 2022. Leading the decline in the rate paid on interest-bearing deposits were decreases of 98 and 95 bps in the rate paid on time deposits as time deposits issued prior to the COVID-19 pandemic matured. The increase in the earning asset yield was driven by an increase in yield on federal funds sold and interest-bearing deposits due to the rate increases enacted by the Federal Open Market Committee ("FOMC"). For the three and six months ended June 30, 2022 there was an increase in core deposits. These deposits represent a lower cost funding source than time deposits and comprise 81.94% of total deposits at September 30, 2017 compared to 79.60% at September 30, 2016. Limiting the positive impact on the net interest margin caused by the growth in core deposits was the lengthening of the time deposit portfolio.

The NIM for the nine months ended September 30, 2017 was 3.47% compared to 3.45% for the same period of 2016. The impact of the decreasing investment portfolio balance was partially offset by growth in the balance of the average loan portfolio from September 30, 2016 to September 30, 2017. The rate on ~~interest-bearing liabilities decreased slightly as~~federal funds sold of 57 and 30 bps, respectively, while the ~~usage of borrowed funds declined.~~rate on interest bearing deposits increased 57 and 26 bps.

Table of Contents

The following is a schedule of average balances and associated yields for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 and ~~2016:~~2021:


	AVERAGE BALANCES AND INTEREST RATES
	Three Months Ended June 30, 2022						Three Months Ended June 30, 2021
(In Thousands)	Average Balance (1)		Interest		Average Rate		Average Balance (1)		Interest		Average Rate
Assets:
Tax-exempt loans (3)	$	52,886	$	331	2.51	%	$	46,926	$	334	2.85	%
All other loans	1,394,631		13,358		3.84	%	1,285,853		12,835		4.00	%
Total loans (2)	1,447,517		13,689		3.79	%	1,332,779		13,169		3.96	%

Federal funds sold	48,352		154		1.28	%	25,538		45		0.71	%

Taxable securities	154,484		1,048		2.75	%	148,415		1,051		2.87	%
Tax-exempt securities (3)	45,824		245		2.17	%	36,469		208		2.31	%
Total securities	200,308		1,293		2.62	%	184,884		1,259		2.76	%

Interest-bearing deposits	102,172		168		0.66	%	218,868		48		0.09	%

Total interest-earning assets	1,798,349		15,304		3.42	%	1,762,069		14,521		3.31	%

Other assets	131,117						128,402

Total assets	$	1,929,466					$	1,890,471

Liabilities and shareholders’ equity:
Savings	$	248,063	24		0.04	%	$	225,625	28		0.05	%
Super Now deposits	388,002		239		0.25	%	285,672		208		0.29	%
Money market deposits	304,636		210		0.28	%	309,749		256		0.33	%
Time deposits	164,301		237		0.58	%	256,345		997		1.56	%
Total interest-bearing deposits	1,105,002		710		0.26	%	1,077,391		1,489		0.55	%

Short-term borrowings	5,636		2		0.14	%	7,047		2		0.11	%
Long-term borrowings	112,901		625		2.22	%	141,076		820		2.33	%
Total borrowings	118,537		627		2.12	%	148,123		822		2.23	%

Total interest-bearing liabilities	1,223,539		1,337		0.44	%	1,225,514		2,311		0.76	%

Demand deposits	518,467						482,513
Other liabilities	20,708						17,384
Shareholders’ equity	166,752						165,060

Total liabilities and shareholders’ equity	$	1,929,466					$	1,890,471
Interest rate spread (3)					2.98	%					2.55	%
Net interest income/margin (3)			$	13,967	3.12	%			$	12,210	2.78	%

AVERAGE BALANCES AND INTEREST RATES
Three Months Ended September 30, 2017 Three Months Ended September 30, 2016
(In Thousands) Average Balance (1) Interest Average Rate Average Balance (1) Interest Average Rate
Assets:

Tax-exempt loans (3)
$ 53,850
$ 494
3.64 % $ 45,715
$ 452
3.93 %
All other loans 1,105,615
11,580
4.16 % 1,011,393
10,243
4.03 %
Total loans (2)
1,159,465
12,074
4.13 % 1,057,108
10,695
4.02 %

Taxable securities 83,106
674
3.24 % 93,893
725
3.09 %
Tax-exempt securities (3)
53,320
483
3.62 % 49,231
498
4.05 %
Total securities 136,426
1,157
3.39 % 143,124
1,223
3.42 %

Interest-bearing deposits 14,085
49
1.38 % 48,125
65
0.54 %

Total interest-earning assets 1,309,976
13,280
4.02 % 1,248,357
11,983
3.82 %

Other assets 101,035

101,312

Total assets $ 1,411,011

$ 1,349,669

Liabilities and shareholders’ equity:

Savings $ 157,341
15
0.04 % $ 151,464
15
0.04 %
Super Now deposits 203,531
140
0.27 % 184,440
107
0.23 %
Money market deposits 284,155
267
0.37 % 245,643
170
0.28 %
Time deposits 206,563
636
1.22 % 223,082
617
1.10 %
Total interest-bearing deposits 851,590
1,058
0.49 % 804,629
909
0.45 %

Short-term borrowings 19,127
31
0.64 % 15,748
7
0.18 %
Long-term borrowings 81,107
407
1.96 % 91,025
497
2.14 %
Total borrowings 100,234
438
1.71 % 106,773
504
1.85 %

Total interest-bearing liabilities 951,824
1,496
0.62 % 911,402
1,413
0.61 %

Demand deposits 304,244

281,586

Other liabilities 15,708

15,916

Shareholders’ equity 139,235

140,765

Total liabilities and shareholders’ equity $ 1,411,011

$ 1,349,669

Interest rate spread

3.40 %

3.21 %
Net interest income/margin
$ 11,784
3.57 %
$ 10,570
3.37 %

1.Information on this table has been calculated using average daily balance sheets to obtain average balances.

2.Non-accrual loans have been included with loans for the purpose of analyzing net interest earnings.

3.Income and rates on a fully taxable equivalent basis include an adjustment for the difference between annual income

from tax-exempt obligations and the taxable equivalent of such income at the standard ~~34%~~ tax ~~rate.~~

rate of 21%

Table of Contents


	AVERAGE BALANCES AND INTEREST RATES
	Six Months Ended June 30, 2022						Six Months Ended June 30, 2021
(In Thousands)	Average Balance (1)		Interest		Average Rate		Average Balance (1)		Interest		Average Rate
Assets:
Tax-exempt loans (3)	$	50,775	$	639	2.54	%	$	46,177	$	684	2.99	%
All other loans	1,372,810		26,153		3.84	%	1,289,660		25,904		4.05	%
Total loans (2)	1,423,585		26,792		3.80	%	1,335,837		26,588		4.01	%

Federal funds sold	49,171		247		1.01	%	12,840		45		0.71	%

Taxable securities	149,489		1,968		2.67	%	146,740		2,083		2.88	%
Tax-exempt securities (3)	43,416		453		2.12	%	36,420		424		2.36	%
Total securities	192,905		2,421		2.54	%	183,160		2,507		2.78	%

Interest-bearing deposits	129,704		228		0.35	%	207,495		94		0.09	%

Total interest-earning assets	1,795,365		29,688		3.34	%	1,739,332		29,234		3.39	%

Other assets	128,624						126,418

Total assets	$	1,923,989					$	1,865,750

Liabilities and shareholders’ equity:
Savings	$	244,528	46		0.04	%	$	220,161	72		0.07	%
Super Now deposits	379,496		434		0.23	%	287,444		475		0.33	%
Money market deposits	301,744		396		0.26	%	307,885		523		0.34	%
Time deposits	177,487		622		0.71	%	255,408		2,103		1.66	%
Total interest-bearing deposits	1,103,255		1,498		0.27	%	1,070,898		3,173		0.60	%

Short-term borrowings	5,416		3		0.11	%	6,368		4		0.13	%
Long-term borrowings	114,077		1,258		2.23	%	141,279		1,659		2.37	%
Total borrowings	119,493		1,261		2.13	%	147,647		1,663		2.27	%

Total interest-bearing liabilities	1,222,748		2,759		0.46	%	1,218,545		4,836		0.80	%

Demand deposits	512,441						464,237
Other liabilities	22,184						21,227
Shareholders’ equity	16,616						161,741

Total liabilities and shareholders’ equity	$	1,773,989					$	1,865,750
Interest rate spread (3)					2.88	%					2.59	%
Net interest income/margin (3)			$	26,929	3.03	%			$	24,398	2.83	%

1. Information on this table has been calculated using average daily balance sheets to obtain average balances.

AVERAGE BALANCES AND INTEREST RATES
Nine Months Ended September 30, 2017 Nine Months Ended September 30, 2016
(In Thousands) Average Balance (1) Interest Average Rate Average Balance (1) Interest Average Rate
Assets:

Tax-exempt loans (3) $ 46,752
$ 1,315
3.76 % $ 49,204
$ 1,432
3.89 %
All other loans 1,081,148
32,774
4.05 % 999,685
30,417
4.06 %
Total loans (2) 1,127,900
34,089
4.04 % 1,048,889
31,849
4.06 %

Taxable securities 85,417
2,039
3.18 % 95,652
2,344
3.27 %
Tax-exempt securities 50,972
1,424
3.72 % 56,291
1,823
4.32 %
Total securities 136,389
3,463
3.39 % 151,943
4,167
3.66 %

Interest-bearing deposits 27,901
218
1.04 % 38,411
147
0.51 %

Total interest-earning assets 1,292,190
37,770
3.91 % 1,239,243
36,163
3.90 %

Other assets 102,181

99,295

Total assets $ 1,394,371

$ 1,338,538

Liabilities and shareholders’ equity:

Savings $ 157,396
45
0.04 % $ 151,158
43
0.04 %
Super Now deposits 198,560
377
0.25 % 190,190
356
0.25 %
Money market deposits 278,436
713
0.34 % 234,918
471
0.27 %
Time deposits 207,331
1,833
1.18 % 221,676
1,754
1.06 %
Total interest-bearing deposits 841,723
2,968
0.47 % 797,942
2,624
0.44 %

Short-term borrowings 13,714
39
0.26 % 20,273
41
0.27 %
Long-term borrowings 79,881
1,220
2.01 % 91,025
1,481
2.14 %
Total borrowings 93,595
1,259
1.76 % 111,298
1,522
1.80 %

Total interest-bearing liabilities 935,318
4,227
0.60 % 909,240
4,146
0.61 %

Demand deposits 301,567

274,488

Other liabilities 18,455

15,775

Shareholders’ equity 139,031

139,035

Total liabilities and shareholders’ equity $ 1,394,371

$ 1,338,538

Interest rate spread

3.31 %

3.29 %
Net interest income/margin
$ 33,543
3.47 %
$ 32,017
3.45 %
2. Non-accrual loans have been included with loans for the purpose of analyzing net interest earnings.

3. Income and rates on fully taxable equivalent basis include an adjustment for the difference between annual income

from tax-exempt obligations and the taxable equivalent of such income at the standard tax rate of 21%

The following table presents the adjustment to convert net interest income to net interest income on a fully taxable equivalent basis for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 and ~~2016:~~2021:


	Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
(In Thousands)	2017		2016		2017		2016		(In Thousands)	2022		2021		2022		2021
Total interest income	$	12,948	$	11,660	$	36,839	$	35,056	Total interest income	$	15,184	$	14,406	$	29,459	$	29,001
Total interest expense	1,496		1,413		4,227		4,146		Total interest expense	1,337		2,311		2,759		4,836
Net interest income	11,452		10,247		32,612		30,910
Net interest income (GAAP)									Net interest income (GAAP)	13,847		12,095		26,700		24,165
Tax equivalent adjustment	332		323		931		1,107		Tax equivalent adjustment	120		115		229		233
Net interest income (fully taxable equivalent)	$	11,784	$	10,570	$	33,543	$	32,017
Net interest income (fully taxable equivalent) (NON-GAAP)									Net interest income (fully taxable equivalent) (NON-GAAP)	$	13,967	$	12,210	$	26,929	$	24,398

The following table sets forth the respective impact that both volume and rate changes have had on net interest income on a fully taxable equivalent basis for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 and ~~2016:~~2021:

Three Months Ended September 30, Nine Months Ended September 30,
2017 vs. 2016 2017 vs. 2016
Increase (Decrease) Due to Increase (Decrease) Due to
(In Thousands) Volume Rate Net Volume Rate Net
Interest income:

Tax-exempt loans $ 76
$ (34 ) $ 42
$ (70 ) $ (47 ) $ (117 )
All other loans 993
344
1,337
2,384
(27 ) 2,357
Taxable investment securities (86 ) 35
(51 ) (242 ) (63 ) (305 )
Tax-exempt investment securities 40
(55 ) (15 ) (163 ) (236 ) (399 )
Interest bearing deposits (68 ) 52
(16 ) (27 ) 98
71
Total interest-earning assets 955
342
1,297
1,882
(275 ) 1,607

Interest expense:

Savings deposits —
—
—
2
—
2
Super Now deposits 12
21
33
15
6
21
Money market deposits 31
66
97
99
143
242
Time deposits (47 ) 66
19
(68 ) 147
79
Short-term borrowings 2
22
24
(2 ) —
(2 )
Long-term borrowings (51 ) (39 ) (90 ) (176 ) (85 ) (261 )
Total interest-bearing liabilities (53 ) 136
83
(130 ) 211
81
Change in net interest income $ 1,008
$ 206
$ 1,214
$ 2,012
$ (486 ) $ 1,526

The provision for loan losses is based upon management’s quarterly review of the loan portfolio. The purpose of the review is to assess loan quality, identify impaired loans, analyze delinquencies, ascertain loan growth, evaluate potential charge-offs and recoveries, and assess general economic conditions in the markets served. An external independent loan review is also performed annually for the Banks. Management remains committed to an aggressive program of problem loan identification and resolution.

The allowance for loan losses is determined by applying loss factors to outstanding loans by type, excluding loans for which a specific allowance has been determined. Loss factors are based on management’s consideration of the nature of the portfolio segments, changes in mix and volume of the loan portfolio, and historical loan loss experience. In addition, management considers industry standards and trends with respect to non-performing loans and its knowledge and experience with specific lending segments.

Although management believes it uses the best information available to make such determinations and that the allowance for loan losses is adequate at ~~September~~June 30, ~~2017,~~2022, future adjustments could be necessary if circumstances or economic conditions differ substantially from the assumptions used in making the initial determinations. A downturn in the local economy, increased unemployment, and delays in receiving financial information from borrowers could result in increased levels of nonperforming assets, charge-offs, loan loss provisions, and reductions in income. Additionally, as an integral part of the examination process, bank regulatory agencies periodically review the Banks' loan loss allowance. The banking agencies could require the recognition of additions to the loan loss allowance based on their judgment of information available to them at the time of their examination.

When determining the appropriate allowance level, management has attributed the allowance for loan losses to various portfolio segments; however, the allowance is available for the entire portfolio as needed.

The allowance for loan losses increased from ~~$12,896,000~~$14,176,000 at December 31, ~~2016~~2021 to ~~$12,933,000~~$14,393,000 at ~~September~~June 30, ~~2017.~~2022. The increase in ~~the~~ allowance ~~for loan losses~~ was ~~driven by~~due to growth in the loan portfolio. In addition, the increase was limited due to the payoff of a large commercial loan that had a significant specific allocation within the allowance for loan losses. The majority of the loans charged-off had a specific allowance within the allowance for losses. At ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016,~~2021, the allowance for loan losses to total loans was ~~1.09%~~0.97% and ~~1.18%~~1.02%, respectively.

The provision for loan losses totaled ~~$60,000~~$330,000 and ~~$258,000~~$480,000 for the three and six months ended ~~September~~June 30, ~~2017~~2022 and ~~2016 and $605,000 and $866,000~~the amounts for the ~~nine months ended September 30 2017~~corresponding 2021 periods were $350,000 and ~~2016, respectively.~~$865,000. The ~~amount of~~decrease in the provision for loan losses for the three months and six months ended June 30 2022 compared to the corresponding 2021 periods was ~~primarily~~ the result of ~~loan growth offset~~economic improvement along with the 2021 period provision being affected by ~~minimal net charge-offs.~~the continued economic uncertainty caused by COVID-19 and supply chain shortages.

Nonperforming loans decreased to ~~$8,317,000~~$5,100,000 at ~~September~~June 30, ~~2017~~2022 from ~~$11,530,000~~$6,250,000 at ~~September 30, 2016.~~December 31, 2021. The majority of nonperforming loans ~~are centered on~~involve loans that are either in a secured position and have sureties with a strong underlying financial position or have a specific allocation for any impairment recorded within the allowance for loan losses. The ratio of nonperforming loans to total loans was ~~0.70%~~0.34% and ~~1.08%~~0.45% at ~~September~~June 30, ~~2017~~2022 and ~~2016,~~December 31, 2021, respectively, and the ratio of the allowance for loan losses to nonperforming loans was ~~155.50%~~282.22% and ~~110.30%~~226.82% at ~~September~~June 30, ~~2017~~2022 and ~~2016,~~December 31, 2021, respectively. Internal loan review and analysis coupled with changes in the loan ~~growth dictated~~portfolio composition resulted in a provision for loan losses of ~~$605,000~~$330,000 and $480,000 for the ~~nine~~three and six months ended ~~September~~June 30, ~~2017.~~ 2022.

The following is a table showing total nonperforming loans as of:


	Total Nonperforming Loans
(In Thousands)	90 Days Past Due		Non-accrual		Total
June 30, 2022	$	421	$	4,679	$	5,100
March 31, 2022	364		4,917		5,281
December 31, 2021	861		5,389		6,250
September 30, 2021	854		6,909		7,763
June 30, 2021	529		7,402		7,931


	June 30, 2022
	Amount of Allowance for Loan Losses Allocated			Total loans		Allowance for Loan Losses to Total Loans Ratio		Net (Charge-Offs) Recoveries		Average Loans		Ratio of Net (Charge-Offs) Recoveries to Average Loans


(In Thousands)

Commercial, financial, and agricultural	$	2,108		$	179,003	1.18	%	$	45	$	167,240	0.03	%
Real estate mortgage:
Residential	4,818			651,959		0.74	%	30		618,285		—	%
Commercial	5,395			463,669		1.16	%	(153)		449,734		(0.03)	%
Construction	199			47,018		0.42	%	28		42,232		0.07	%
Consumer automobiles	1,307			137,670		0.95	%	(155)		136,536		(0.11)	%
Other consumer installment loans	110			9,633		1.14	%	(58)		9,558		(0.61)	%
Unallocated	456
	$	14,393		$	1,488,952	0.97	%	$	(263)	$	1,423,585	(0.02)	%

Total non-accrual loans outstanding	$	4,679
Non-accrual loans to total loans outstanding	0.31		%
Allowance for loan losses to non-accrual loans	307.61		%

Total Nonperforming Loans
(In Thousands) 90 Days Past Due
Non-accrual
Total
September 30, 2017 $ 261
$ 8,056
$ 8,317
June 30, 2017 1,329
11,169
12,498
March 31, 2017 141
10,730
10,871
December 31, 2016 870
10,756
11,626
September 30, 2016 114
11,416
11,530


	December 31, 2021
	Amount of Allowance for Loan Losses Allocated			Total loans		Allowance for Loan Losses to Total Loans Ratio		Net (Charge-Offs) Recoveries		Average Loans		Ratio of Net (Charge-Offs) Recoveries to Average Loans


(In Thousands)

Commercial, financial, and agricultural	$	1,946		$	163,285	1.19	%	$	(10)	$	175,631	(0.01)	%
Real estate mortgage:
Residential	4,701			595,847		0.79	%	(107)		584,849		(0.02)	%
Commercial	5,336			446,734		1.19	%	95		381,306		0.02	%
Construction	179			37,295		0.48	%	10		41,564		0.02	%
Consumer automobiles	1,411			139,408		1.01	%	(143)		152,496		(0.09)	%
Other consumer installment loans	111			9,277		1.20	%	(112)		9,787		(1.14)	%
Unallocated	492
	$	14,176		$	1,391,846	1.02	%	$	(267)	$	1,345,633	(0.02)	%

Total non-accrual loans outstanding	$	5,389
Non-accrual loans to total loans outstanding	0.39		%
Allowance for loan losses to non-accrual loans	263.05		%

Total non-interest income for the three and six months ended ~~September~~June 30, ~~2017~~2022 compared to the same ~~period~~periods in ~~2016~~2021 decreased ~~$342,000 to $2,740,000.~~$772,000 and $974,000. Excluding net securities gains, non-interest income for the three and six months ended ~~September~~June 30, ~~2017~~2022 decreased ~~$379,000~~$578,000 and $600,000 compared to the same ~~period~~periods in ~~2016. The decrease in gain~~2021. Gain on sale of loans ~~was driven by a shift in~~decreased as the volume of loan sales has declined and the product mix has caused the Company to increasingly act in a broker capacity with the fee income from broker activity included in loan broker commissions. Service charges increased for the three and ~~decreased volume. The changes in insurance and brokerage commissions are~~six month periods primarily due to ~~a change~~an increase in overdraft fees. Brokerage commissions have fluctuated due to changes in the product mix ofand reduced consumer ~~purchases. Debit~~activity. The decrease in debit card fees ~~decreased due to decreased usage~~is a result of an decrease in debit ~~cards.~~card usage.

Total non-interest income for the nine months ended September 30, 2017 compared to the same period in 2016 decreased $1,102,000. Excluding net securities gains, non-interest income decreased $359,000 compared the 2016 period. The reasons noted for the three month period comparison also apply to the nine month period.

Non-interest income composition for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 and ~~2016~~2021 was as follows:


	Six Months Ended
	June 30, 2022				June 30, 2021				Change
(In Thousands)	Amount		% Total		Amount		% Total		Amount		%
Service charges	$	1,004	22.07	%	$	762	13.80	%	$	242	31.76	%
Net debt securities (losses) gains, available for sale	(12)		(0.26)		275		4.98		(287)		104.36
Net equity securities (losses) gains	(103)		(2.26)		(16)		(0.29)		(87)		(543.75)
Net securities (losses) gains, trading	—		—		—		—		—		#DIV/0!
Bank-owned life insurance	331		7.28		335		6.07		(4)		(1.19)
Gain on sale of loans	611		13.43		1,578		28.57		(967)		(61.28)
Insurance commissions	277		6.09		307		5.56		(30)		(9.77)
Brokerage commissions	358		7.87		426		7.71		(68)		(15.96)
Loan broker commissions	912		20.05		677		12.26		235		34.71
Debit card income	736		16.18		778		14.09		(42)		(5.40)
Other	435		9.56		401		7.25		34		8.48
Total non-interest income	$	4,549	100.01	%	$	5,523	100.00	%	$	(974)	(17.64)	%

Nine Months Ended
September 30, 2017 September 30, 2016 Change
(In Thousands) Amount % Total Amount % Total Amount %
Service charges $ 1,637
20.07 % $ 1,678
18.13 % $ (41 ) (2.44 )%
Net securities gains, available for sale 487
5.97
1,174
12.68
(687 ) (58.52 )
Net securities (losses) gains, trading (2 ) (0.02 ) 54
0.58
(56 ) (103.70 )
Bank-owned life insurance 499
6.12
516
5.57
(17 ) (3.29 )
Gain on sale of loans 1,316
16.14
1,691
18.27
(375 ) (22.18 )
Insurance commissions 399
4.89
604
6.52
(205 ) (33.94 )
Brokerage commissions 1,044
12.80
817
8.83
227
27.78
Debit card fees 1,450
17.78
1,413
15.26
37
2.62
Other 1,325
16.25
1,310
14.16
15
1.15
Total non-interest income $ 8,155
100.00 % $ 9,257
100.00 % $ (1,102 ) (11.90 )%

Total non-interest expense increased ~~$827,000~~$172,000 and $1,228,000 for the three and six months ended ~~September~~June 30, ~~2017~~2022 compared to the same ~~period~~periods of ~~2016.~~2021. The increase in salaries and employee benefits is ~~primarily~~ attributable to the current employment environment, employee retention efforts, routine annual wage increases, ~~coupled with an increase~~and the voluntary cash settlement of 346,725 outstanding stock options resulting in $183,000 of compensation expense. Furniture and equipment expenses in addition to occupancy expenses for the ~~cost~~six month period have decreased as maintenance costs and the level of ~~health insurance. Occupancy expense~~depreciation have decreased. Software amortization increased due to ~~various maintenance projects to refresh facilities. Furniture and equipment~~increased software licensing costs. Other expense increased as an acquired building was outfitted. Software amortization decreased as the number of vendors utilized is consolidated. Marketing expenses increased as targeted marketing was increased in the localities were branches will be opened in the next several months. Other non-interest expenses increased primarily due to legal expenses and a reduction in the amortization of investment in limited partnerships as several of the partnerships have reached the end of their tax credit generating life and have been fully amortized.

~~Total non-interest expense~~ for the ~~nine months ended September 30, 2017 compared to the same period in 2016 increased $1,149,000. The reasons noted for the three~~six month period ~~comparison also apply~~primarily from a write down on leasehold improvements of $254,000 related to ~~the nine month period.~~a branch closure.

Non-interest expense composition for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 and ~~2016~~2021 was as follows:


	Six Months Ended
	June 30, 2022				June 30, 2021				Change
(In Thousands)	Amount		% Total		Amount		% Total		Amount		%
Salaries and employee benefits	$	12,405	57.89	%	$	11,270	55.79	%	$	1,135	10.07	%
Occupancy	1,650		7.70		1,693		8.38		(43)		(2.54)
Furniture and equipment	1,638		7.64		1,780		8.81		(142)		(7.98)
Software amortization	472		2.20		406		2.01		66		16.26
Pennsylvania shares tax	785		3.66		724		3.58		61		8.43
Professional fees	1,120		5.23		1,267		6.27		(147)		(11.60)
Federal Deposit Insurance Corporation deposit insurance	430		2.01		485		2.40		(55)		(11.34)

Marketing	284		1.33		203		1.01		81		39.90
Intangible amortization	85		0.40		103		0.51		(18)		(17.48)
Other	2,558		11.94		2,268		11.24		290		12.79
Total non-interest expense	$	21,427	100.00	%	$	20,199	100.00	%	$	1,228	6.08	%

Nine Months Ended
September 30, 2017 September 30, 2016 Change
(In Thousands) Amount % Total Amount % Total Amount %
Salaries and employee benefits $ 14,116
51.11 % $ 13,433
50.76 % $ 683
5.08 %
Occupancy 1,855
6.72
1,630
6.16
225
13.80
Furniture and equipment 2,129
7.71
2,042
7.72
87
4.26
Software amortization 750
2.72
950
3.59
(200 ) (21.05 )
Pennsylvania shares tax 696
2.52
698
2.64
(2 ) (0.29 )
Professional fees 1,816
6.58
1,512
5.71
304
20.11
Federal Deposit Insurance Corporation deposit insurance 514
1.86
670
2.53
(156 ) (23.28 )
Debit card expenses 478
1.73
456
1.72
22
4.82
Marketing 690
2.50
568
2.15
122
21.48
Intangible amortization 256
0.93
276
1.04
(20 ) (7.25 )
Other 4,314
15.62
4,230
15.98
84
1.99
Total non-interest expense $ 27,614
100.00 % $ 26,465
100.00 % $ 1,149
4.34 %

Income taxes increased ~~$9,000~~$190,000 and ~~$184,000~~$95,000 for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 compared to the same periods of ~~2016.~~2021. The effective tax rate for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 was ~~29.39%~~19.16% and ~~25.76%~~17.97% compared to ~~2.15%~~18.44% and ~~20.58%~~18.10% for the same periods of 2016. The primary cause of the increase in tax expense for the three and nine months ended September 30, 2017 compared to 2016 is the impact of a reduction of tax-exempt interest income within the investment portfolio as the portfolio was strategically reduced and a reduction in the amount of federal tax credits recognized from low income elderly housing partnerships. Excluding the impact of securities gains and losses, the effective tax rate for the three and nine months ended September 30, 2017 was 27.66% and 27.57% compared to 29.08% and 24.89% for the same periods of 2016.2021. The Company currently is in a deferred tax asset position. ~~Management has reviewed~~A valuation allowance was established on the ~~deferred tax asset and has determined that~~$1,003,000 of capital loss carryforwards for the ~~asset will be utilized within~~twelve months ended December 31, 2021, which remained unchanged during the ~~appropriate carry forward period and therefore does not require a valuation allowance.~~second quarter of 2022.

Cash and cash equivalents decreased ~~$15,924,000~~$172,870,000 from ~~$43,671,000~~$263,862,000 at December 31, ~~2016~~2021 to ~~$27,747,000~~$90,992,000 at ~~September~~June 30, ~~2017~~2022, primarily as a result of the following activities during the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2022. The decrease in cash and cash equivalents is primarily due to the decrease in interest-bearing balances held with other financial institutions.

Activity regarding loans held for sale resulted in sales proceeds ~~leading~~being less than loan originations, less ~~$1,316,000~~$611,000 in realized gains, by ~~$219,000~~$132,000 for the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2022.

Gross loans increased ~~$96,033,000~~$96,985,000 since December 31, ~~2016~~2021 due primarily to an increase in ~~installment~~both residential and commercial real estate mortgage categories. Consumer automobile loans ~~to individuals. The growth in installment loans was driven by automobile indirect lending. Loan growth has also picked up in our commercial, financial, and agricultural loan products.~~decreased as used car inventories remain at historically low levels.

The allocation of the loan portfolio, by category, as of ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016~~2021 is presented below:

September 30, 2017 December 31, 2016 Change
(In Thousands) Amount % Total Amount % Total Amount %
Commercial, financial, and agricultural $ 175,299
14.73 % $ 146,110
13.36 % $ 29,189
19.98 %
Real estate mortgage:

Residential 576,134
48.43
564,740
51.63
11,394
2.02 %
Commercial 323,510
27.19
306,182
27.99
17,328
5.66 %
Construction 29,352
2.47
34,650
3.17
(5,298 ) (15.29 )%
Installment loans to individuals 86,639
7.28
43,256
3.96
43,383
100.29 %
Net deferred loan fees and discounts (1,220 ) (0.10 ) (1,257 ) (0.11 ) 37
(2.94 )%
Gross loans $ 1,189,714
100.00 % $ 1,093,681
100.00 % $ 96,033
8.78 %

The following table shows the amount of accrual and non-accrual TDRs at ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016:~~2021:

September 30, 2017 December 31, 2016
(In Thousands) Accrual Non-accrual Total Accrual Non-accrual Total
Commercial, financial, and agricultural $ 22
$ 120
$ 142
$ 109
$ 132
$ 241
Real estate mortgage:

Residential 1,199
341
1,540
1,491
541
2,032
Commercial 4,495
2,252
6,747
4,723
2,184
6,907
$ 5,716
$ 2,713
$ 8,429
$ 6,323
$ 2,857
$ 9,180

The fair value of the investment debt securities portfolio at ~~September~~June 30, ~~2017 decreased $1,027,000~~2022 increased $26,028,000 since December 31, ~~2016~~2021, while the amortized cost of the portfolio ~~decreased $2,095,000.~~increased $36,908,000. The increase in the investment portfolio amortized value occurred within the state and political segment of the portfolio. The mortgage-backed segment was reduced as bonds prepaid due to the low interest rate environment. The other debt segment of the investment portfolio is primarily corporate bonds and this segment remained flat. The municipal segment was increased as primarily bonds with a final maturity of one to five years have been purchased. The portfolio continues to be actively managed in order to reduce interest rate and market risk. This is being undertaken primarily through the sale of long-term municipal bonds that have a maturity date of 2025 or later and securities with a call date within the next five years. The proceeds of the bond sales are being deployed into loans and intermediate term corporate bonds and short and intermediate term municipal bonds. The strategy to sell a portion of the long-term bond portfolio does negatively impact current earnings, but this action plays a key role in our long-term asset liability management strategy as the balance sheet is shortened in anticipation of a steadily rising rate environment. The unrealized losses within the debt securities portfolio are the result of market activity, not credit issues/ratings, as approximately ~~87.34%~~90.47% of the debt securities portfolio on an amortized cost basis is currently rated A or higher by either S&P or Moody’s.

The Company considers various factors, which include examples from applicable accounting guidance, when analyzing the available for sale portfolio for possible other than temporary impairment. The Company primarily considers the following factors in its analysis: length of time and severity of the fair value being less than carrying value; reduction of dividend paid (equities); continued payment of dividend/interest, credit rating, and financial condition of an issuer; intent and ability to hold until anticipated recovery (which may be maturity); and general outlook for the economy, specific industry, and entity in question.

The bond portion of the portfolio review is conducted with emphases on several factors. Continued payment of principal and interest is given primary importance with credit rating and financial condition of the issuer following as the next most important. Credit ratings were reviewed with the ratings of the bonds being satisfactory. Bonds that were not currently rated were discussed with a third party and/or underwent an internal financial review. The Company also monitors whether each of the investments incurred a decline in fair value from carrying value of at least 20% for twelve consecutive months or a similar decline of at least 50% for three consecutive months. Each bond is reviewed to determine whether it is a general obligation bond, which is backed by the credit and taxing power of the issuing jurisdiction, or a revenue bond, which is only payable from specified revenues. Based on the review undertaken by the Company, the Company determined that the decline in value of the various bond holdings were temporary and were the result of the general market downturns and interest rate/yield curve changes, not credit issues. The fact that almost all of such bonds are general obligation bonds further solidified the Company’s determination that the decline in the value of these bond holdings is temporary.

The fair value of the equity portfolio continues to fluctuate as the economic and political environment continues to impact stock pricing. The amortized cost of the available for sale equity securities portfolio has ~~increased $1,604,000 to $12,837,000~~remained flat at ~~September~~$1,350,000 for June 30, ~~2017 from $11,233,000 at~~2022 and December 31, ~~2016~~2021 while the fair value ~~increased $1,465,000~~decreased $102,000 over the same time period.

Table of Contents

The equity portion of the portfolio is reviewed for possible other than temporary impairment in a similar manner to the bond portfolio with greater emphasis placed on the length of time the fair value has been less than the carrying value and financial sector outlook. The Company also reviews dividend payment activities. The starting point for the equity analysis is the length and severity of a market price decline. The Company monitors two primary measures: 20% decline in fair value from carrying value for twelve consecutive months and 50% decline for three consecutive months.

The distribution of credit ratings by amortized cost and fair values for the debt security portfolio at ~~September~~June 30, ~~2017~~2022 follows:

Total deposits ~~increased $58,782,000~~decreased $31,736,000 from December 31, ~~2016~~2021 to ~~September~~June 30, ~~2017. The growth was led by an increase~~2022. Time deposits decreased $51,688,000 over this period to a total of $153,679,000 as excess on balance sheet liquidity has allowed for a decrease in ~~money market and NOW~~the reliance on higher rate time deposit ~~accounts from December 31, 2016 to September 30, 2017 of $29,407,000 and $29,091,000, respectively. The~~funding. An increase in core deposits (deposits less time deposits) of $19,952,000 has provided relationship driven funding for the loan and investment portfolios. ~~While~~Emphasis during 2021 and through 2022 has been on increasing the utilization of electronic (internet and mobile) deposit ~~gathering~~banking among our customers. Utilization of internet and mobile banking has increased due to these efforts ~~have centered on core deposits,~~coupled with a change in consumer behavior due to the ~~lengthening of~~business and travel restrictions that were temporarily in effect due to the time deposit portfolio is moving forward as part of the strategy to build balance sheet protection in a rising rate environment. The increase in deposits is the result of our focus on building relationships, not by offering market leading rates. COVID-19 pandemic.

Deposit balances and their changes for the periods being discussed follow:

September 30, 2017 December 31, 2016 Change
(In Thousands) Amount % Total Amount % Total Amount %
Demand deposits $ 310,830
26.94 % $ 303,277
27.69 % $ 7,553
2.49 %
NOW accounts 203,744
17.66
174,653
15.95
29,091
16.66
Money market deposits 274,528
23.79
245,121
22.38
29,407
12.00
Savings deposits 156,437
13.56
153,788
14.04
2,649
1.72
Time deposits 208,457
18.05
218,375
19.94
(9,918 ) (4.54 )
Total deposits $ 1,153,996
100.00 % $ 1,095,214
100.00 % $ 58,782
5.37 %

Total borrowed funds decreased ~~23.53%~~10.15%, or ~~$23,355,000,~~$13,372,000, to ~~$122,594,000~~$118,338,000 at ~~September~~June 30, ~~2017~~2022 compared to ~~$99,239,000~~$131,710,000 at December 31, ~~2016.~~2021. The ~~reduction~~decrease in ~~long-term~~long term borrowings ~~was the result of a maturity. The increase in short-term borrowed funds supplemented deposit growth in the funding of the loan portfolio growth with overnight~~occurred as fixed rate borrowings ~~from the FHLB being the primary source of short-term borrowings. The decline in securities~~matured. Securities sold under ~~agreement~~agreements to repurchase ~~is due to the phasing out~~have decreased as customers balances have decreased.


	June 30, 2022				December 31, 2021				Change
(In Thousands)	Amount		% Total		Amount		% Total		Amount		%
Short-term borrowings:


Securities sold under agreement to repurchase	$	5,464	4.62	%	$	5,747	4.36	%	$	(283)	(4.92)	%
Total short-term borrowings	5,464		4.62		5,747		4.36		(283)		(4.92)
Long-term borrowings:
Long-term FHLB borrowings	105,000		88.72		118,000		89.59		(13,000)		(11.02)
Long-term finance lease	7,874		6.65		7,963		6.05		(89)		(1.12)

Total long-term borrowings	112,874		95.38		125,963		95.64		(13,089)		(10.39)
Total borrowed funds	$	118,338	100.00	%	$	131,710	100.00	%	$	(13,372)	(10.15)	%

Table of ~~a product the bank offers.~~Contents

September 30, 2017 December 31, 2016 Change
(In Thousands) Amount % Total Amount % Total Amount %
Short-term borrowings:

FHLB repurchase agreements $ 32,434
26.46 % $ —
— % $ 32,434
— %
Securities sold under agreement to repurchase 9,162
7.47
13,241
13.34
(4,079 ) (30.81 )
Total short-term borrowings 41,596
33.93
13,241
13.34
28,355
214.15
Long-term borrowings:
Long-term FHLB borrowings 80,625
65.77
85,625
86.28
(5,000 ) (5.84 )
Long-term capital lease 373
0.30
373
0.38
—
—
Total long-term borrowings 80,998
66.07
85,998
86.66
(5,000 ) (5.81 )
Total borrowed funds $ 122,594
100.00 % $ 99,239
100.00 % $ 23,355
23.53 %

Short-Term Borrowings

The following table provides further information in regards to secured borrowings that have been accounted for as repurchase agreements.


	Remaining Contractual Maturity Overnight and Continuous
(In Thousands)	June 30, 2022		December 31, 2021
Investment debt securities pledged, fair value	$	8,231	$	8,881
Repurchase agreements	5,464		5,747

Remaining Contractual Maturity Overnight and Continuous
(In Thousands) September 30, 2017 December 31, 2016
Mortgage-backed and state and political securities pledged, fair value $ 13,884
$ 15,574
Repurchase agreements 9,162
13,241

Capital

The adequacy of the ~~Company��s~~Company’s capital is reviewed on an ongoing basis with reference to the size, composition, and quality of the Company’s resources and regulatory guidelines. Management seeks to maintain a level of capital sufficient to support existing assets and anticipated asset growth, maintain favorable access to capital markets, and preserve high quality credit ratings.

~~Bank holding companies~~Banking institutions are generally required to comply with ~~the Federal Reserve Board’s~~ risk-based capital ~~guidelines.~~guidelines set by bank regulatory agencies. The risk-based capital rules are designed to make regulatory capital requirements more sensitive to differences in risk profiles among banks and bank holding companies and to minimize disincentives for holding liquid assets. Specifically, each is required to maintain certain minimum dollar amounts and ratios of common equity tier I risk-based, tier I risk-based, total risk-based, and tier I leverage capital. In addition to the capital requirements, the Federal Deposit Insurance Corporation Improvements Act ~~(FDICIA)~~("FDICIA") established five capital categories for banks ranging from “well capitalized” to “critically ~~undercapitalized.”~~undercapitalized” for purposes of the FDIC's prompt corrective action rules. To be classified as “well capitalized”, under the prompt corrective action rules, common equity tier I risk-based, tier I risked-based, total risk-based, and tier I leverage capital ratios must be at least 6.5%, 8%, 10%, and 5%, respectively.

~~Table of Contents~~

~~The Company's~~Under existing capital ~~ratios as of September 30, 2017 and December 31, 2016 were as follows:~~

September 30, 2017 December 31, 2016
(In Thousands) Amount Ratio Amount Ratio
Common Equity Tier I Capital (to Risk-weighted Assets)

Actual $ 126,491
11.781 % $ 125,804
12.620 %
For Capital Adequacy Purposes 48,316
4.500
44,849
4.500
Minimum To Maintain Capital Conservation Buffer At Reporting Date 61,737
5.750
51,078
5.125
To Be Well Capitalized 69,790
6.500
64,782
6.500
Total Capital (to Risk-weighted Assets)

Actual $ 128,801
11.996 % $ 133,393
13.380 %
For Capital Adequacy Purposes 85,896
8.000
79,732
8.000
Minimum To Maintain Capital Conservation Buffer At Reporting Date 99,317
9.250
85,961
8.625
To Be Well Capitalized 107,370
10.000
99,665
10.000
Tier I Capital (to Risk-weighted Assets)

Actual $ 126,491
11.781 % $ 125,804
12.620 %
For Capital Adequacy Purposes 64,421
6.000
59,799
6.000
Minimum To Maintain Capital Conservation Buffer At Reporting Date 77,842
7.250
66,028
6.625
To Be Well Capitalized 85,895
8.000
79,732
8.000
Tier I Capital (to Average Assets)

Actual $ 126,491
9.074 % $ 125,804
9.432 %
For Capital Adequacy Purposes 55,760
4.000
53,352
4.000
To Be Well Capitalized 69,700
5.000
66,691
5.000

~~Jersey Shore State Bank's capital ratios as of September 30, 2017 and December 31, 2016 were as follows:~~

September 30, 2017 December 31, 2016
(In Thousands) Amount Ratio Amount Ratio
Common Equity Tier I Capital (to Risk-weighted Assets)

Actual $ 88,724
10.603 % $ 86,397
11.136 %
For Capital Adequacy Purposes 37,655
4.500
34,914
4.500
Minimum To Maintain Capital Conservation Buffer At Reporting Date 48,115
5.750
39,763
5.125
To Be Well Capitalized 54,391
6.500
50,431
6.500
Total Capital (to Risk-weighted Assets)

Actual $ 89,351
10.678 % $ 90,992
11.728 %
For Capital Adequacy Purposes 66,942
8.000
62,069
8.000
Minimum To Maintain Capital Conservation Buffer At Reporting Date 77,402
9.250
66,918
8.625
To Be Well Capitalized 83,678
10.000
77,587
10.000
Tier I Capital (to Risk-weighted Assets) -

Actual $ 88,724
10.603 % $ 86,397
11.136 %
For Capital Adequacy Purposes 50,207
6.000
46,552
6.000
Minimum To Maintain Capital Conservation Buffer At Reporting Date 60,667
7.250
51,401
6.625
To Be Well Capitalized 66,943
8.000
62,069
8.000
Tier I Capital (to Average Assets)

Actual $ 88,724
8.556 % $ 86,397
8.894 %
For Capital Adequacy Purposes 41,479
4.000
38,856
4.000
To Be Well Capitalized 51,849
5.000
48,570
5.000

~~Table of Contents~~

~~Luzerne Bank's capital ratios as of September 30, 2017 and December 31, 2016 were as follows:~~

September 30, 2017 December 31, 2016
(In Thousands) Amount Ratio Amount Ratio
Common Equity Tier I Capital (to Risk-weighted Assets)

Actual $ 31,619
9.916 % $ 31,102
10.165 %
For Capital Adequacy Purposes 14,349
4.500
13,769
4.500
Minimum To Maintain Capital Conservation Buffer At Reporting Date 18,335
5.750
15,682
5.125
To Be Well Capitalized 20,726
6.500
19,889
6.500
Total Capital (to Risk-weighted Assets)

Actual $ 33,011
10.353 % $ 33,589
10.977 %
For Capital Adequacy Purposes 25,508
8.000
24,479
8.000
Minimum To Maintain Capital Conservation Buffer At Reporting Date 29,494
9.250
26,391
8.625
To Be Well Capitalized 31,885
10.000
30,599
10.000
Tier I Capital (to Risk-weighted Assets)

Actual $ 31,619
9.916 % $ 31,102
10.165 %
For Capital Adequacy Purposes 19,132
6.000
18,359
6.000
Minimum To Maintain Capital Conservation Buffer At Reporting Date 23,118
7.250
20,272
6.625
To Be Well Capitalized 25,509
8.000
24,479
8.000
Tier I Capital (to Average Assets)

Actual $ 31,619
8.703 % $ 31,102
8.535 %
For Capital Adequacy Purposes 14,532
4.000
14,576
4.000
To Be Well Capitalized 18,166
5.000
18,220
5.000

~~In July 2013,~~rules, the federal bank regulatory agencies adopted revisions to the agencies’ capital adequacy guidelines and prompt corrective action rules, which were designed to enhance such requirements and implement the revised standards of the Basel Committee on Banking Supervision, commonly referred to as Basel III. The July 2013 final rules generally implement higher minimum capital requirements, add a new common equity tier 1 capital requirement, and establish criteria that instruments must meet to be considered common equity tier 1 capital, additional tier 1 capital or tier 2 capital. The new minimum capital to risk-adjusted assets requirements for banking organizations are a common equity tier 1 capital ratio of 4.5% (6.5% to be considered “well capitalized”) ~~and~~, a tier 1 capital ratio of 6.0%~~, increased from 4.0% (and increased from 6.0% to 8.0%~~ (8.0% to be considered “well capitalized”)~~; the~~, and total capital ratio ~~remains at~~of 8.0% ~~under the new rules~~ (10.0% to be considered “well capitalized”). Under ~~the new~~existing capital rules, in order to avoid limitations on capital distributions (including dividend payments and certain discretionary bonus payments to executive officers), a banking organization must hold a capital conservation buffer comprised of common equity tier 1 capital above its minimum risk-based capital requirements in an amount greater than 2.5% of total risk-weighted assets.

Table of Contents

The ~~new minimum~~Company's capital ~~requirements~~ratios as of June 30, 2022 and December 31, 2021 were ~~effective beginning on January 1, 2015. The~~as follows:


	June 30, 2022				December 31, 2021
(In Thousands)	Amount		Ratio		Amount		Ratio
Common Equity Tier I Capital (to Risk-weighted Assets)
Actual	$	157,230	10.216	%	$	156,439	10.791	%
For Capital Adequacy Purposes	69,258		4.500		65,237		4.500
Minimum To Maintain Capital Conservation Buffer At Reporting Date	107,734		7.000		101,480		7.000
To Be Well Capitalized	100,039		6.500		94,232		6.500
Total Capital (to Risk-weighted Assets)
Actual	$	171,740	11.158	%	$	170,708	11.776	%
For Capital Adequacy Purposes	123,133		8.000		115,970		8.000
Minimum To Maintain Capital Conservation Buffer At Reporting Date	161,612		10.500		152,211		10.500
To Be Well Capitalized	153,916		10.000		144,963		10.000
Tier I Capital (to Risk-weighted Assets)
Actual	$	157,230	10.216	%	$	156,439	10.791	%
For Capital Adequacy Purposes	92,343		6.000		86,983		6.000
Minimum To Maintain Capital Conservation Buffer At Reporting Date	130,820		8.500		123,226		8.500
To Be Well Capitalized	123,125		8.000		115,977		8.000
Tier I Capital (to Average Assets)
Actual	$	157,230	8.274	%	$	156,439	8.397	%
For Capital Adequacy Purposes	76,012		4.000		74,521		4.000
To Be Well Capitalized	95,015		5.000		93,152		5.000

Jersey Shore State Bank's capital ~~contribution buffer requirements phase in over a three-year period beginning January 1, 2016. The Company~~ratios as of June 30, 2022 and ~~the Banks will continue to analyze these new rules~~December 31, 2021 were as follows:


	June 30, 2022				December 31, 2021
(In Thousands)	Amount		Ratio		Amount		Ratio
Common Equity Tier I Capital (to Risk-weighted Assets)
Actual	$	113,053	10.024	%	$	110,682	10.337	%
For Capital Adequacy Purposes	50,752		4.500		48,183		4.500
Minimum To Maintain Capital Conservation Buffer At Reporting Date	78,948		7.000		74,952		7.000
To Be Well Capitalized	73,309		6.500		69,598		6.500
Total Capital (to Risk-weighted Assets)
Actual	$	123,795	10.977	%	$	121,094	11.309	%
For Capital Adequacy Purposes	90,221		8.000		85,662		8.000
Minimum To Maintain Capital Conservation Buffer At Reporting Date	118,416		10.500		112,431		10.500
To Be Well Capitalized	112,777		10.000		107,078		10.000
Tier I Capital (to Risk-weighted Assets)	-				-
Actual	$	113,053	10.024	%	$	110,682	10.337	%
For Capital Adequacy Purposes	67,669		6.000		64,244		6.000
Minimum To Maintain Capital Conservation Buffer At Reporting Date	95,865		8.500		91,013		8.500
To Be Well Capitalized	90,226		8.000		85,659		8.000
Tier I Capital (to Average Assets)
Actual	$	113,053	8.276	%	$	110,682	8.326	%
For Capital Adequacy Purposes	54,641		4.000		53,174		4.000
To Be Well Capitalized	68,302		5.000		66,468		5.000

Table of Contents

Luzerne Bank's capital ratios as of June 30, 2022 and ~~their effects on the business, operations and capital levels of the Company and the Banks.~~December 31, 2021 were as follows:


	June 30, 2022				December 31, 2021
(In Thousands)	Amount		Ratio		Amount		Ratio
Common Equity Tier I Capital (to Risk-weighted Assets)
Actual	$	43,269	10.487	%	$	42,291	11.164	%
For Capital Adequacy Purposes	18,567		4.500		17,047		4.500
Minimum To Maintain Capital Conservation Buffer At Reporting Date	28,882		7.000		26,517		7.000
To Be Well Capitalized	26,819		6.500		24,623		6.500
Total Capital (to Risk-weighted Assets)
Actual	$	47,037	11.400	%	$	46,148	12.182	%
For Capital Adequacy Purposes	33,008		8.000		30,306		8.000
Minimum To Maintain Capital Conservation Buffer At Reporting Date	43,324		10.500		39,776		10.500
To Be Well Capitalized	41,261		10.000		37,882		10.000
Tier I Capital (to Risk-weighted Assets)
Actual	$	43,269	10.487	%	$	42,291	11.164	%
For Capital Adequacy Purposes	24,756		6.000		22,729		6.000
Minimum To Maintain Capital Conservation Buffer At Reporting Date	35,071		8.500		32,199		8.500
To Be Well Capitalized	33,008		8.000		30,305		8.000
Tier I Capital (to Average Assets)
Actual	$	43,269	7.843	%	$	42,291	7.537	%
For Capital Adequacy Purposes	22,068		4.000		22,444		4.000
To Be Well Capitalized	27,584		5.000		28,056		5.000

Liquidity; Interest Rate Sensitivity and Market Risk

The asset/liability committee addresses the liquidity needs of the Company to ensure that sufficient funds are available to meet credit demands and deposit withdrawals as well as to the placement of available funds in the investment portfolio. In assessing liquidity requirements, equal consideration is given to the current position as well as the future outlook.

The following liquidity measures are monitored for compliance and were within the limits cited ~~except for net loans to total deposits,~~ at ~~September~~June 30, ~~2017:~~2022:

1. Net Loans to Total Assets, 85% maximum

2.Net Loans to Total Deposits, 100% maximum

3.Cumulative 90 day Maturity GAP %, +/- ~~20%~~15% maximum

4.Cumulative 1 Year Maturity GAP %, +/- ~~25%~~20% maximum

~~Table of Contents~~

Fundamental objectives of the Company’s asset/liability management process are to maintain adequate liquidity while minimizing interest rate risk. The maintenance of adequate liquidity provides the Company with the ability to meet its financial obligations to depositors, loan customers, and shareholders. Additionally, it provides funds for normal operating expenditures and business opportunities as they arise. The objective of interest rate sensitivity management is to increase net interest income by managing interest sensitive assets and liabilities in such a way that they can be repriced in response to changes in market interest rates.

The Banks, like other financial institutions, must have sufficient funds available to meet liquidity needs for deposit withdrawals, loan commitments and originations, and expenses. In order to control cash flow, the Banks estimate future cash flows from deposits, loan payments, and investment security payments. The primary sources of funds are deposits, principal and interest payments on loans and investment securities, FHLB borrowings, and brokered deposits. Management believes the Banks have adequate resources to meet their normal funding requirements.

Management monitors the Company’s liquidity on both a long and short-term basis, thereby providing management necessary information to react to current balance sheet trends. Cash flow needs are assessed and sources of funds are determined. Funding strategies consider both customer needs and economical cost. Both short and long-term funding needs are addressed by maturities and sales of available for sale and trading investment securities, loan repayments and maturities, and liquidating

Table of Contents

money market investments such as federal funds sold. The use of these resources, in conjunction with access to credit, provides core funding to satisfy depositor, borrower, and creditor needs.

Management monitors and determines the desirable level of liquidity. Consideration is given to loan demand, investment opportunities, deposit pricing and growth potential, as well as the current cost of borrowing funds. The Company has a total current maximum borrowing capacity at the FHLB of ~~$438,674,000.~~$682,627,000. In addition to this credit arrangement, the Company has additional lines of credit with correspondent banks of ~~$52,000,000.~~$100,000,000. Management believes it has sufficient liquidity to satisfy estimated short-term and long-term funding needs. FHLB borrowings totaled ~~$113,059,000~~$105,000,000 as of ~~September~~June 30, ~~2017.~~2022.

Interest rate sensitivity, which is closely related to liquidity management, is a function of the repricing characteristics of the Company’s portfolio of assets and liabilities. Asset/liability management strives to match maturities and rates between loan and investment security assets with the deposit liabilities and borrowings that fund them. Successful asset/liability management results in a balance sheet structure which can cope effectively with market rate fluctuations. The matching process by segments both assets and liabilities into future time periods (usually 12 months, or less) based upon when repricing can be effected. Repriceable assets are subtracted from repriceable liabilities for a specific time period to determine the “gap”, or difference. Once known, the gap is managed based on predictions about future market interest rates. Intentional mismatching, or gapping, can enhance net interest income if market rates move as predicted. However, if market rates behave in a manner contrary to predictions, net interest income will suffer. Gaps, therefore, contain an element of risk and must be prudently managed. In addition to gap management, the Company has an asset/liability management policy which incorporates a market value at risk calculation which is used to determine the effects of interest rate movements on shareholders’ equity and a simulation analysis to monitor the effects of interest rate changes on the Company’s consolidated balance sheet.

The Company currently maintains a ~~GAP~~gap position of being asset sensitive. The Company has strategically taken this position as it has decreased the duration of the earning asset portfolio by adding quality short and intermediate term loans such as home equity loans and the selling of long-term municipal bonds. Lengthening of the liability portfolio is being undertaken to build protection in a rising rate environment.

A market value at risk calculation is utilized to monitor the effects of interest rate changes on the Company’s balance sheet and more specifically shareholders’ equity. The Company does not manage the balance sheet structure in order to maintain compliance with this calculation. The calculation serves as a guideline with greater ~~emphases~~emphasis placed on interest rate sensitivity. Changes to calculation results from period to period are reviewed as changes in results could be a signal of future events. As of the most recent analysis, the results of the market value at risk calculation were within established guidelines due to the strategic direction being taken.

~~Table of Contents~~

Interest Rate Sensitivity

In this analysis the Company examines the result of a 100, 200, 300, and 400 basis point change in market interest rates and the effect on net interest income. It is assumed that the change is instantaneous and that all rates move in a parallel manner. Assumptions are also made concerning prepayment speeds on mortgage loans and mortgage securities.

The following is a rate shock forecast for the twelve month period ending ~~September~~June 30, ~~2018~~2023 assuming a static balance sheet as of ~~September~~June 30, ~~2017.~~2022.


	Parallel Rate Shock in Basis Points																					Parallel Rate Shock in Basis Points
(In Thousands)	-200			-100			Static		+100			+200			+300			+400			(In Thousands)	-200			-100			Static		+100			+200			+300			+400
Net interest income	$	41,960		$	44,460		$	46,574	$	48,284		$	49,787		$	51,179		$	52,592		Net interest income	$	58,925		$	62,220		$	65,407	$	68,509		$	71,676		$	74,855		$	78,037
Change from static	(4,614		)	(2,114		)	—		1,710			3,213			4,605			6,018			Change from static	(6,482)			(3,187)			—		3,102			6,269			9,448			12,630
Percent change from static	-9.91		%	-4.54		%	—		3.67		%	6.90		%	9.89		%	12.92		%	Percent change from static	-9.91		%	-4.87		%	—		4.74		%	9.58		%	14.44		%	19.31		%

The model utilized to create the report presented above makes various estimates at each level of interest rate change regarding cash flow from principal repayment on loans and mortgage-backed securities and/or call activity on investment securities. Actual results could differ significantly from these estimates which would result in significant differences in the calculated projected change. In addition, the limits stated above do not necessarily represent the level of change under which management would undertake specific measures to realign its portfolio in order to reduce the projected level of change. Generally, management believes the Company is well positioned to respond expeditiously when the market interest rate outlook changes.

The asset and liability structure of a financial institution is primarily monetary in nature. Therefore, interest rates rather than inflation have a more significant impact on the Company’s performance. Interest rates are not always affected in the same direction or magnitude as prices of other goods and services, but are reflective of fiscal policy initiatives or economic factors which are not measured by a price index.

Market risk for the Company is comprised primarily of interest rate risk exposure and liquidity risk. Interest rate risk and liquidity risk management is performed at both the level of the Company and the Banks. The Company’s interest rate sensitivity is monitored by management through selected interest rate risk measures produced by an independent third party. There have been no substantial changes in the Company’s gap analysis or simulation analysis compared to the information provided in the Annual Report on Form 10-K for the period ended December 31, ~~2016.~~2021. Additional information and details are provided in the “Liquidity, Interest Rate Sensitivity, and Market Risk” section of “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations.”~~Operations” of that document.

Generally, management believes the Company is well positioned to respond in a timely manner when the market interest rate outlook changes.

Evaluation of Disclosure Controls and Procedures

An analysis was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of ~~September~~June 30, ~~2017.~~2022.

Changes in Internal Control over Financial Reporting

There were no changes in the Company’s internal control over financial reporting that occurred during the quarter ended ~~September~~June 30, ~~2017,~~2022 that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Item 1.Legal Proceedings

~~There are no material changes to the~~Certain risk factors are set forth in Part I, Item 1A, “Risk Factors,” of the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016. Please refer to that section for disclosures regarding the risks and uncertainties related to the Company’s business.~~2021.

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

~~Period~~

~~Total~~

~~Number of~~

~~Shares (or~~

~~Units) Purchased~~

~~Average~~

~~Price Paid~~

~~per Share~~

~~(or Units) Purchased~~

~~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~~

~~Month #1 (July 1 - July 31, 2017)~~

—

~~342,446~~

~~Month #2 (August 1 - August 31, 2017)~~

—

~~342,446~~

~~Month #3 (September 1 - September 30, 2017)~~

—

~~342,446~~

On April 24, 2017, the Board of Directors extended the previously approved authorization to repurchase up to 482,000 shares, or approximately 10%, of the outstanding shares of the Company for an additional year to April 30, 2018. As of September 30, 2017 there have been 91,856 shares repurchased under this plan.

Item 3.Defaults Upon Senior Securities

Item 4.Mine Safety Disclosures

Item 5.Other Information



		PENNS WOODS BANCORP, INC.
		(Registrant)

Date:	~~November 8, 2017~~August 9, 2022	/s/ Richard A. Grafmyre
		Richard A. Grafmyre, Chief Executive Officer
		(Principal Executive Officer)


Date:	~~November 8, 2017~~August 9, 2022	/s/ Brian L. Knepp
		Brian L. Knepp, President and Chief Financial Officer
		(Principal Financial Officer and Principal Accounting
		Officer)



~~Exhibit 31(i)~~		~~Rule 13a-14(a)/Rule 15d-14(a) Certification of Chief Executive Officer~~
~~Exhibit 31(ii)~~		~~Rule 13a-14(a)/Rule 15d-14(a) Certification of Chief Financial Officer~~
~~Exhibit 32(i)~~		~~Section 1350 Certification of Chief Executive Officer~~
~~Exhibit 32(ii)~~		~~Section 1350 Certification of Chief Financial Officer~~
~~Exhibit 101~~		Interactive data file containing the following financial statements formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheet at September 30, 2017 and December 31, 2016; (ii) the Consolidated Statement of Income for the three and nine months ended September 30, 2017 and 2016; (iii) Consolidated Statement of Comprehensive Income for the three and nine months ended September 30, 2017 and 2016; (iv) the Consolidated Statement of Shareholders’ Equity for the nine months ended September 30, 2017 and 2016; (v) the Consolidated Statement of Cash Flows for the nine months ended September 30, 2017 and 2016; and (vi) the Notes to Consolidated Financial Statements. As provided in Rule 406T of Regulation S-T, this interactive data file shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, and shall not be deemed “filed” or part of any registration statement or prospectus for purposes of Section 11 or 12 under the Securities Act of 1933, or otherwise subject to liability under those sections.


			Page
			Number

Part I		Financial Information	~~Page~~
			~~Number~~
~~Part I~~Item 1.		Financial ~~Information~~Statements	3

~~Item 1.~~			~~Financial Statements~~	3

Consolidated Balance Sheet (Unaudited) as of ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016~~2021	3

Consolidated Statement of Income (Unaudited) for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2022 and ~~2016~~2021			4

Consolidated Statement of Comprehensive (Loss) Income (Unaudited) for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2022 and ~~2016~~2021			5

Consolidated Statement of Changes in Shareholders’ Equity (Unaudited) for the ~~Nine~~Three and Six Months Ended ~~September~~June 30, ~~2017~~2022 and ~~2016~~2021			6

Consolidated Statement of Cash Flows (Unaudited) for the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2022 and ~~2016~~2021			78

Notes to Consolidated Financial Statements (Unaudited)			89

Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	3432

Item 3.		Quantitative and Qualitative Disclosures About Market Risk	4948

Item 4.		Controls and Procedures	4948

Part II		Other Information

Item 1.		Legal Proceedings	5049

Item 1A.		Risk Factors	5049

Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	5049

Item 3.		Defaults Upon Senior Securities	5049

Item 4.		Mine Safety Disclosures	5049

Item 5.		Other Information	5049

Item 6.		Exhibits	5150

Signatures			5251

~~Exhibit Index and Exhibits~~		53


SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:					SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid	$	4,199	$	4,091	Interest paid	$	2,958	$	4,987
Income taxes paid	3,950		3,050		Income taxes paid	1,121		2,375
Non-cash investing and financing activities:					Non-cash investing and financing activities:
Right-of-use lease assets obtained in exchange for lessee finance lease liabilities					Right-of-use lease assets obtained in exchange for lessee finance lease liabilities	—		2,653

Transfer of loans to foreclosed real estate	508		83		Transfer of loans to foreclosed real estate	97		—


(In Thousands)	Amortized Cost		Fair Value
Due in one year or less	$	12,892	$	12,827
Due after one year to five years	116,729		112,732
Due after five years to ten years	67,668		63,997
Due after ten years	3,025		2,882
Total	$	200,314	$	192,438



o☐			Transition report pursuant to Section 13 or 15 (d) of the Exchange Act


	June 30,		December 31,
(In Thousands, Except Share And Per Share Data)	2022		2021
ASSETS:
Noninterest-bearing balances	$	26,540	$	19,233
Interest-bearing balances in other financial institutions	24,452		194,629
Federal funds sold	40,000		50,000
Total cash and cash equivalents	90,992		263,862

Investment debt securities, available for sale, at fair value	192,438		166,410
Investment equity securities, at fair value	1,186		1,288

Restricted investment in bank stock	13,458		14,531
Loans held for sale	3,857		3,725
Loans	1,489,132		1,392,147
Allowance for loan losses	(14,393)		(14,176)
Loans, net	1,474,739		1,377,971
Premises and equipment, net	32,671		34,025
Accrued interest receivable	8,246		8,048
Bank-owned life insurance	34,115		33,768
Investment in limited partnerships	4,901		4,607
Goodwill	17,104		17,104
Intangibles	396		480
Operating lease right-of-use asset	2,747		2,851
Deferred tax asset	5,689		2,946
Other assets	9,267		9,193
TOTAL ASSETS	$	1,891,806	$	1,940,809

LIABILITIES:
Interest-bearing deposits	$	1,065,291	$	1,126,955
Noninterest-bearing deposits	524,288		494,360
Total deposits	1,589,579		1,621,315

Short-term borrowings	5,464		5,747
Long-term borrowings	112,874		125,963
Accrued interest payable	452		651
Operating lease liability	2,800		2,898
Other liabilities	14,583		11,961
TOTAL LIABILITIES	1,725,752		1,768,535

SHAREHOLDERS’ EQUITY:
Preferred stock, no par value, 3,000,000 shares authorized; no shares issued	—		—
Common stock, par value $5.55, 22,500,000 shares authorized; 7,559,165 and 7,550,272 shares issued; 7,048,940 and 7,070,047 outstanding	41,995		41,945
Additional paid-in capital	53,651		53,795
Retained earnings	92,903		89,761
Accumulated other comprehensive loss:
Net unrealized (loss) gain on available for sale securities	(6,222)		2,373
Defined benefit plan	(3,458)		(3,485)
Treasury stock at cost, 510,225 and 480,225	(12,815)		(12,115)


TOTAL SHAREHOLDERS' EQUITY	166,054		172,274
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	1,891,806	$	1,940,809



	September 30,			December 31,
(In Thousands, Except Share Data)	2017			2016
ASSETS:
Noninterest-bearing balances	$	22,042		$	26,766
Interest-bearing balances in other financial institutions	5,705			16,905
Total cash and cash equivalents	27,747			43,671

Investment securities, available for sale, at fair value	132,313			133,492
Investment securities, trading	210			58
Loans held for sale	1,734			1,953
Loans	1,189,714			1,093,681
Allowance for loan losses	(12,933		)	(12,896		)
Loans, net	1,176,781			1,080,785
Premises and equipment, net	25,895			24,275
Accrued interest receivable	4,289			3,672
Bank-owned life insurance	27,827			27,332
Goodwill	17,104			17,104
Intangibles	1,543			1,799
Deferred tax asset	7,984			8,397
Other assets	6,770			6,052
TOTAL ASSETS	$	1,430,197		$	1,348,590

LIABILITIES:
Interest-bearing deposits	$	843,166		$	791,937
Noninterest-bearing deposits	310,830			303,277
Total deposits	1,153,996			1,095,214

Short-term borrowings	41,596			13,241
Long-term borrowings	80,998			85,998
Accrued interest payable	483			455
Other liabilities	13,455			15,433
TOTAL LIABILITIES	1,290,528			1,210,341

SHAREHOLDERS’ EQUITY:
Preferred stock, no par value, 3,000,000 shares authorized; no shares issued	—			—
Common stock, par value $8.33, 15,000,000 shares authorized; 5,008,720 and 5,007,109 shares issued; 4,688,570 and 4,734,657 outstanding	41,739			41,726
Additional paid-in capital	50,142			50,075
Retained earnings	64,033			61,610
Accumulated other comprehensive loss:
Net unrealized gain (loss) on available for sale securities	73			(639		)
Defined benefit plan	(4,203		)	(4,289		)
Treasury stock at cost, 320,150 and 272,452 shares	(12,115		)	(10,234		)
TOTAL SHAREHOLDERS’ EQUITY	139,669			138,249
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	1,430,197		$	1,348,590



	Three Months Ended September 30,					Nine Months Ended September 30,
(In Thousands, Except Per Share Data)	2017			2016		2017			2016
INTEREST AND DIVIDEND INCOME:
Loans, including fees	$	11,906		$	10,541	$	33,642		$	31,362
Investment securities:
Taxable	553			601		1,665			1,825
Tax-exempt	319			329		940			1,203
Dividend and other interest income	170			189		592			666
TOTAL INTEREST AND DIVIDEND INCOME	12,948			11,660		36,839			35,056
INTEREST EXPENSE:
Deposits	1,058			909		2,968			2,624
Short-term borrowings	31			7		39			41
Long-term borrowings	407			497		1,220			1,481
TOTAL INTEREST EXPENSE	1,496			1,413		4,227			4,146
NET INTEREST INCOME	11,452			10,247		32,612			30,910
PROVISION FOR LOAN LOSSES	60			258		605			866
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES	11,392			9,989		32,007			30,044
NON-INTEREST INCOME:
Service charges	550			585		1,637			1,678
Net securities gains, available for sale	302			253		487			1,174
Net securities (losses) gains, trading	(4		)	8		(2		)	54
Bank-owned life insurance	166			172		499			516
Gain on sale of loans	455			658		1,316			1,691
Insurance commissions	109			198		399			604
Brokerage commissions	352			290		1,044			817
Debit card fees	514			690		1,450			1,413
Other	296			228		1,325			1,310
TOTAL NON-INTEREST INCOME	2,740			3,082		8,155			9,257
NON-INTEREST EXPENSE:
Salaries and employee benefits	4,738			4,507		14,116			13,433
Occupancy	603			544		1,855			1,630
Furniture and equipment	816			662		2,129			2,042
Software amortization	235			580		750			950
Pennsylvania shares tax	228			220		696			698
Professional fees	560			502		1,816			1,512
Federal Deposit Insurance Corporation deposit insurance	194			202		514			670
Debit card expenses	168			246		478			456
Marketing	315			173		690			568
Intangible amortization	81			90		256			276
Other	1,628			1,013		4,314			4,230
TOTAL NON-INTEREST EXPENSE	9,566			8,739		27,614			26,465
INCOME BEFORE INCOME TAX PROVISION	4,566			4,332		12,548			12,836
INCOME TAX PROVISION	1,282			1,273		3,491			3,307
NET INCOME	$	3,284		$	3,059	$	9,057		$	9,529
EARNINGS PER SHARE - BASIC AND DILUTED	$	0.70		$	0.65	$	1.92		$	2.01
WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC AND DILUTED	4,688,222			4,733,800		4,711,282			4,735,844
DIVIDENDS DECLARED PER SHARE	$	0.47		$	0.47	$	1.41		$	1.41



	Carrying		Fair		Fair Value Measurements at September 30, 2017
(In Thousands)	Value		Value		Level I		Level II		Level III
Financial assets:
Cash and cash equivalents	$	27,747	$	27,747	$	27,747	$	—	$	—
Investment securities:
Available for sale	132,313		132,313		13,483		118,830		—
Trading	210		210		210		—		—
Loans held for sale	1,734		1,734		1,734		—		—
Loans, net	1,176,781		1,210,822		—		—		1,210,822
Bank-owned life insurance	27,827		27,827		27,827		—		—
Accrued interest receivable	4,289		4,289		4,289		—		—

Financial liabilities:
Interest-bearing deposits	$	843,166	$	845,103	$	637,841	$	—	$	207,262
Noninterest-bearing deposits	310,830		310,830		310,830		—		—
Short-term borrowings	41,596		41,596		41,596		—		—
Long-term borrowings	80,998		80,787		—		—		80,787
Accrued interest payable	483		483		483		—		—



	Nine Months Ended
	September 30, 2017				September 30, 2016				Change
(In Thousands)	Amount		% Total		Amount		% Total		Amount			%
Loans including fees	$	33,642	91.32	%	$	31,362	89.46	%	$	2,280		7.27		%
Investment securities:
Taxable	1,665		4.52		1,825		5.21		(160		)	(8.77	)
Tax-exempt	940		2.55		1,203		3.43		(263		)	(21.86	)
Dividend and other interest income	592		1.61		666		1.90		(74		)	(11.11	)
Total interest and dividend income	$	36,839	100.00	%	$	35,056	100.00	%	$	1,783		5.09		%


	Three Months Ended June 30,						Three months ended June 30,
	2022 vs. 2021						2022 vs. 2021
	Increase (Decrease) Due to						Increase (Decrease) Due to
(In Thousands)	Volume		Rate		Net		Volume			Rate		Net
Interest income:
Tax-exempt loans	$	39	$	(42)	$	(3)	$	64		$	(109)	$	(45)
All other loans	1,053		(530)		523		1,627			(1,378)		249
Federal funds sold	57		52		109		176			26		202
Taxable investment securities	43		(46)		(3)		39			(154)		(115)
Tax-exempt investment securities	51		(14)		37		75			(46)		29
Interest bearing deposits	(39)		159		120		(35)			169		134
Total interest-earning assets	1,204		(421)		783		1,946			(1,492)		454

Interest expense:
Savings deposits	3		(7)		(4)		8			(34)		(26)
Super Now deposits	64		(33)		31		126			(167)		(41)
Money market deposits	(4)		(42)		(46)		(10)			(117)		(127)
Time deposits	(276)		(484)		(760)		(515)			(966)		(1,481)
Short-term borrowings	—		—		—		(1)		0	—		(1)
Long-term borrowings	(158)		(37)		(195)		(307)		0	(94)		(401)
Total interest-bearing liabilities	(371)		(603)		(974)		(699)			(1,378)		(2,077)
Change in net interest income	$	1,575	$	182	$	1,757	$	2,645		$	(114)	$	2,531



	Three Months Ended September 30,									Nine Months Ended September 30,
	2017 vs. 2016									2017 vs. 2016
	Increase (Decrease) Due to									Increase (Decrease) Due to
(In Thousands)	Volume			Rate			Net			Volume			Rate			Net
Interest income:
Tax-exempt loans	$	76		$	(34	)	$	42		$	(70	)	$	(47	)	$	(117	)
All other loans	993			344			1,337			2,384			(27		)	2,357
Taxable investment securities	(86		)	35			(51		)	(242		)	(63		)	(305		)
Tax-exempt investment securities	40			(55		)	(15		)	(163		)	(236		)	(399		)
Interest bearing deposits	(68		)	52			(16		)	(27		)	98			71
Total interest-earning assets	955			342			1,297			1,882			(275		)	1,607

Interest expense:
Savings deposits	—			—			—			2			—			2
Super Now deposits	12			21			33			15			6			21
Money market deposits	31			66			97			99			143			242
Time deposits	(47		)	66			19			(68		)	147			79
Short-term borrowings	2			22			24			(2		)	—			(2		)
Long-term borrowings	(51		)	(39		)	(90		)	(176		)	(85		)	(261		)
Total interest-bearing liabilities	(53		)	136			83			(130		)	211			81
Change in net interest income	$	1,008		$	206		$	1,214		$	2,012		$	(486	)	$	1,526


	A- to AAA				B- to BBB+				Not Rated				Total					A- to AAA					B- to BBB+				C- to CCC+				Not Rated				Total
(In Thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		(In Thousands)	Amortized Cost			Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
Available for sale (AFS):																	Available for sale (AFS):
U.S. Government and agency securities																	U.S. Government and agency securities	$	1,007		$	980	$	—	$	—	$	—	$	—	$	—	$	—	$	1,007	$	980
Mortgage-backed securities	$	4,544	$	4,530	$	—	$	—	$	—	$	—	$	4,544	$	4,530	Mortgage-backed securities	1,520		7	1,375		—		—		—		—		—		—		1,520		1,375

State and political securities	61,293		61,751		—		—		575		576		61,868		62,327		State and political securities	149,003			143,858		120		120		—		—		1,180		1,170		150,303		145,148
Other debt securities	38,422		37,917		13,478		13,059		1,054		997		52,954		51,973		Other debt securities	29,704			27,839		1,806		1,769		—		—		15,974		15,327		47,484		44,935
Total debt securities AFS	$	104,259	$	104,198	$	13,478	$	13,059	$	1,629	$	1,573	$	119,366	$	118,830	Total debt securities AFS	$	181,234		$	174,052	$	1,926	$	1,889	$	—	$	—	$	17,154	$	16,497	$	200,314	$	192,438


Period	Total Number of Shares (or Units) Purchased	Average Price Paid per Share (or Units) Purchased		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
Month #1 (March 1 - March 31, 2022)	—	$	—	—	354,000
Month #2 (April 1 - April 30, 2022)	20,000	23.73		20,000	334,000
Month #3 (May 1 - May 31, 2022)	10,000	22.60		10,000	324,000



3(i)						Articles of Incorporation of the Registrant, as presently in effect (incorporated by reference to Exhibit 3(i) of the ~~Registrant’s~~Registrant's Quarterly Report on Form 10-Q for the period ended ~~March 31, 2012)~~September 30, 2019).
3(ii)						Bylaws of the Registrant (incorporated by reference to Exhibit 3(ii) of the ~~Registrant’s~~Registrant's Annual Report on Form 10-K for the year ended December 31, ~~2011)~~2020).
~~10(i)~~ 10.1						Amendment to Employment Agreement, dated ~~October 30, 2017,~~July 15, 2022, between Penns Woods Bancorp, Inc. and Richard A. Grafmyre (incorporated by ~~and~~reference to Exhibit 10.2 of the Registrant's Current Report on Form 8-K filed on July 21, 2022)
10.2						Amendment to Employment Agreement, dated July 15, 2022, between Penns Woods Bancorp, Inc. and Brian L. Knepp (incorporated by reference to Exhibit ~~10 (i)~~10.4 of the Registrant's Current Report on Form 8-K filed on ~~November 2, 2017).~~July 21, 2022)
31(i)						Rule 13a-14(a)/Rule 15d-14(a) Certification of Chief Executive Officer.
31(ii)						Rule 13a-14(a)/Rule 15d-14(a) Certification of Chief Financial Officer.
32(i)						Section 1350 Certification of Chief Executive Officer.
32(ii)						Section 1350 Certification of Chief Financial Officer.
101						Interactive data file containing the following financial statements formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheet at ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016;~~2021; (ii) the Consolidated Statement of Income for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 and ~~2016;~~2021; (iii) Consolidated Statement of Comprehensive Income for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 and ~~2016;~~2021; (iv) the Consolidated Statement of Shareholders’ Equity for the ~~nine~~three and six months ended ~~September~~June 30, ~~2017~~2022 and ~~2016;~~2021; (v) the Consolidated Statement of Cash Flows for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 and ~~2016;~~2021 and (vi) the Notes to Consolidated Financial Statements. As provided in Rule 406T of Regulation S-T, this interactive data file shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, and shall not be deemed “filed” or part of any registration statement or prospectus for purposes of Section 11 or 12 under the Securities Act of 1933, or otherwise subject to liability under those sections.
104						Cover page interactive data file (formatted as inline XBRL and contained in Exhibit 101).