UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


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

for the Quarterly Period Ended ~~June~~September 30, 2023.


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

For the Transition Period from to .

No. 0-17077

(Commission File Number)

PENNS WOODS BANCORP INC.

(Exact name of Registrant as specified in its charter)


Pennsylvania	300 Market Street, P.O. Box 967	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)

(570) 322-1111

Registrant’s telephone number, including area code

Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, $5.55 par value

PWOD

The Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ NO ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ NO ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☐

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. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

On ~~August~~November 1, 2023 there were ~~7,066,486~~7,163,550 shares of the Registrant’s common stock outstanding.

Table of Contents

PENNS WOODS BANCORP, INC.

INDEX TO QUARTERLY REPORT ON FORM 10-Q


		Page
		Number

Part I	Financial Information

Item 1.	Financial Statements	3

Consolidated Balance Sheet (Unaudited) as of ~~June~~September 30, 2023 and December 31, 2022		3

Consolidated Statement of Income (Unaudited) for the Three and ~~Six~~Nine Months Ended ~~June 31,~~September 30, 2023 and 2022		4

Consolidated Statement of Comprehensive Income (Loss) (Unaudited) for the Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2023 and 2022		5

Consolidated Statement of Changes in Shareholders’ Equity (Unaudited) for the Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2023 and 2022		6

Consolidated Statement of Cash Flows (Unaudited) for the ~~Six~~Nine Months Ended ~~June~~September 30, 2023 and 2022		8

Notes to Consolidated Financial Statements (Unaudited)		9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3233

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4849

Item 4.	Controls and Procedures	4849

Part II	Other Information

Item 1.	Legal Proceedings	4950

Item 1A.	Risk Factors	4950

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4950

Item 3.	Defaults Upon Senior Securities	4950

Item 4.	Mine Safety Disclosures	4950

Item 5.	Other Information	4950

Item 6.	Exhibits	5051

Signatures		5152

Table of Contents

Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

PENNS WOODS BANCORP, INC.

CONSOLIDATED BALANCE SHEET

(UNAUDITED)


		June 30,		December 31,			September 30,		December 31,
(In Thousands, Except Share And Per Share Data)	(In Thousands, Except Share And Per Share Data)	2023		2022		(In Thousands, Except Share And Per Share Data)	2023		2022
ASSETS:	ASSETS:					ASSETS:
Noninterest-bearing balances	Noninterest-bearing balances	$	32,265	$	27,390	Noninterest-bearing balances	$	26,651	$	27,390
Interest-bearing balances in other financial institutions	Interest-bearing balances in other financial institutions	12,596		12,943		Interest-bearing balances in other financial institutions	8,939		12,943

Total cash and cash equivalents	Total cash and cash equivalents	44,861		40,333		Total cash and cash equivalents	35,590		40,333

Investment debt securities, available for sale, at fair value	Investment debt securities, available for sale, at fair value	186,626		193,673		Investment debt securities, available for sale, at fair value	184,667		193,673
Investment equity securities, at fair value	Investment equity securities, at fair value	1,143		1,142		Investment equity securities, at fair value	1,072		1,142

Restricted investment in bank stock	Restricted investment in bank stock	24,438		19,171		Restricted investment in bank stock	25,289		19,171
Loans held for sale	Loans held for sale	3,049		3,298		Loans held for sale	4,083		3,298
Loans	Loans	1,769,403		1,639,731		Loans	1,818,461		1,639,731
Allowance for credit losses	Allowance for credit losses	(11,592)		(15,637)		Allowance for credit losses	(12,890)		(15,637)
Loans, net	Loans, net	1,757,811		1,624,094		Loans, net	1,805,571		1,624,094
Premises and equipment, net	Premises and equipment, net	31,180		31,844		Premises and equipment, net	30,746		31,844
Accrued interest receivable	Accrued interest receivable	9,498		9,481		Accrued interest receivable	10,500		9,481
Bank-owned life insurance	Bank-owned life insurance	33,524		34,452		Bank-owned life insurance	33,695		34,452
Investment in limited partnerships	Investment in limited partnerships	8,402		8,656		Investment in limited partnerships	8,275		8,656
Goodwill	Goodwill	16,450		16,450		Goodwill	16,450		16,450
Intangibles	Intangibles	260		327		Intangibles	235		327
Operating lease right-of-use asset	Operating lease right-of-use asset	2,586		2,651		Operating lease right-of-use asset	2,562		2,651
Deferred tax asset	Deferred tax asset	6,332		6,868		Deferred tax asset	6,961		6,868
Other assets	Other assets	9,159		7,640		Other assets	10,772		7,640
TOTAL ASSETS	TOTAL ASSETS	$	2,135,319	$	2,000,080	TOTAL ASSETS	$	2,176,468	$	2,000,080

LIABILITIES:	LIABILITIES:					LIABILITIES:
Interest-bearing deposits	Interest-bearing deposits	$	1,077,820	$	1,037,397	Interest-bearing deposits	$	1,095,760	$	1,037,397
Noninterest-bearing deposits	Noninterest-bearing deposits	475,937		519,063		Noninterest-bearing deposits	471,507		519,063
Total deposits	Total deposits	1,553,757		1,556,460		Total deposits	1,567,267		1,556,460

Short-term borrowings	Short-term borrowings	180,410		153,349		Short-term borrowings	193,746		153,349
Long-term borrowings	Long-term borrowings	202,692		102,783		Long-term borrowings	217,645		102,783
Accrued interest payable	Accrued interest payable	2,129		603		Accrued interest payable	2,716		603
Operating lease liability	Operating lease liability	2,642		2,708		Operating lease liability	2,619		2,708
Other liabilities	Other liabilities	19,287		16,512		Other liabilities	17,935		16,512
TOTAL LIABILITIES	TOTAL LIABILITIES	1,960,917		1,832,415		TOTAL LIABILITIES	2,001,928		1,832,415

SHAREHOLDERS’ EQUITY:	SHAREHOLDERS’ EQUITY:					SHAREHOLDERS’ EQUITY:
Preferred stock, no par value, 3,000,000 shares authorized; no shares issued	Preferred stock, no par value, 3,000,000 shares authorized; no shares issued	—		—		Preferred stock, no par value, 3,000,000 shares authorized; no shares issued	—		—
Common stock, par value $5.55, 22,500,000 shares authorized; 7,573,713 and 7,566,810 shares issued; 7,063,488 and 7,056,585 outstanding		42,077		42,039
Common stock, par value $5.55, 22,500,000 shares authorized; 7,620,250 and 7,566,810 shares issued; 7,110,025 and 7,056,585 outstanding						Common stock, par value $5.55, 22,500,000 shares authorized; 7,620,250 and 7,566,810 shares issued; 7,110,025 and 7,056,585 outstanding	42,335		42,039
Additional paid-in capital	Additional paid-in capital	54,869		54,252		Additional paid-in capital	55,890		54,252
Retained earnings	Retained earnings	104,104		98,147		Retained earnings	104,067		98,147
Accumulated other comprehensive loss:	Accumulated other comprehensive loss:					Accumulated other comprehensive loss:
Net unrealized loss on available for sale securities	Net unrealized loss on available for sale securities	(9,753)		(9,819)		Net unrealized loss on available for sale securities	(10,886)		(9,819)
Defined benefit plan	Defined benefit plan	(4,080)		(4,139)		Defined benefit plan	(4,051)		(4,139)
Treasury stock at cost, 510,225 shares	Treasury stock at cost, 510,225 shares	(12,815)		(12,815)		Treasury stock at cost, 510,225 shares	(12,815)		(12,815)

TOTAL SHAREHOLDERS' EQUITY	TOTAL SHAREHOLDERS' EQUITY	174,402		167,665		TOTAL SHAREHOLDERS' EQUITY	174,540		167,665
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	2,135,319	$	2,000,080	TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	2,176,468	$	2,000,080

See accompanying notes to the unaudited consolidated financial statements.

Table of Contents

PENNS WOODS BANCORP, INC.

CONSOLIDATED STATEMENT OF INCOME

(UNAUDITED)


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands, Except Share And Per Share Data)	(In Thousands, Except Share And Per Share Data)	2023		2022		2023		2022		(In Thousands, Except Share And Per Share Data)	2023		2022		2023		2022
INTEREST AND DIVIDEND INCOME:	INTEREST AND DIVIDEND INCOME:									INTEREST AND DIVIDEND INCOME:
Loans, including fees	Loans, including fees	$	19,846	$	13,620	$	37,851	$	26,658	Loans, including fees	$	21,720	$	15,051	$	59,571	$	41,709
Investment securities:	Investment securities:									Investment securities:
Taxable	Taxable	1,287		864		2,505		1,601		Taxable	1,365		949		3,870		2,550
Tax-exempt	Tax-exempt	118		194		296		358		Tax-exempt	114		236		410		594
Dividend and other interest income	Dividend and other interest income	642		506		1,105		842		Dividend and other interest income	722		628		1,827		1,470
TOTAL INTEREST AND DIVIDEND INCOME	TOTAL INTEREST AND DIVIDEND INCOME	21,893		15,184		41,757		29,459		TOTAL INTEREST AND DIVIDEND INCOME	23,921		16,864		65,678		46,323
INTEREST EXPENSE:	INTEREST EXPENSE:									INTEREST EXPENSE:
Deposits	Deposits	4,851		710		8,223		1,498		Deposits	6,463		693		14,686		2,191
Short-term borrowings	Short-term borrowings	2,232		2		3,672		3		Short-term borrowings	2,412		26		6,084		29
Long-term borrowings	Long-term borrowings	1,424		625		2,178		1,258		Long-term borrowings	1,714		613		3,892		1,871
TOTAL INTEREST EXPENSE	TOTAL INTEREST EXPENSE	8,507		1,337		14,073		2,759		TOTAL INTEREST EXPENSE	10,589		1,332		24,662		4,091
NET INTEREST INCOME	NET INTEREST INCOME	13,386		13,847		27,684		26,700		NET INTEREST INCOME	13,332		15,532		41,016		42,232
(Recovery) provision losses on loans		(614)		330		(605)		480
(Recovery) provision for off balance sheet credit exposures		(566)		—		(504)		—
TOTAL (RECOVERY) PROVISION FOR CREDIT LOSSES		(1,180)		330		(1,109)		480
Provision for loan credit losses										Provision for loan credit losses	1,331		855		726		1,335
Provision (recovery) for off balance sheet credit exposures										Provision (recovery) for off balance sheet credit exposures	41		—		(463)		—
TOTAL PROVISION FOR CREDIT LOSSES										TOTAL PROVISION FOR CREDIT LOSSES	1,372		855		263		1,335
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES	NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES	14,566		13,517		28,793		26,220		NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES	11,960		14,677		40,753		40,897
NON-INTEREST INCOME:	NON-INTEREST INCOME:									NON-INTEREST INCOME:
Service charges	Service charges	516		509		1,012		1,004		Service charges	545		559		1,557		1,563
Net debt securities losses, available for sale	Net debt securities losses, available for sale	(19)		(10)		(80)		(12)		Net debt securities losses, available for sale	(45)		(156)		(125)		(168)
Net equity securities (losses) gains		(20)		(44)		1		(103)
Net equity securities losses										Net equity securities losses	(36)		(55)		(35)		(158)

Bank-owned life insurance	Bank-owned life insurance	166		161		722		331		Bank-owned life insurance	170		170		892		501
Gain on sale of loans	Gain on sale of loans	244		266		475		611		Gain on sale of loans	257		294		732		905
Insurance commissions	Insurance commissions	115		107		280		277		Insurance commissions	136		109		416		386
Brokerage commissions	Brokerage commissions	141		158		306		358		Brokerage commissions	142		142		448		500
Loan broker commissions	Loan broker commissions	317		371		487		912		Loan broker commissions	241		438		728		1,350
Debit card income	Debit card income	340		391		675		736		Debit card income	320		344		995		1,080
Other	Other	222		228		401		435		Other	145		238		546		673
TOTAL NON-INTEREST INCOME	TOTAL NON-INTEREST INCOME	2,022		2,137		4,279		4,549		TOTAL NON-INTEREST INCOME	1,875		2,083		6,154		6,632
NON-INTEREST EXPENSE:	NON-INTEREST EXPENSE:									NON-INTEREST EXPENSE:
Salaries and employee benefits	Salaries and employee benefits	6,312		6,141		12,488		12,405		Salaries and employee benefits	6,290		6,016		18,778		18,421
Occupancy	Occupancy	772		740		1,638		1,650		Occupancy	784		730		2,422		2,380
Furniture and equipment	Furniture and equipment	790		746		1,636		1,638		Furniture and equipment	867		816		2,503		2,454
Software amortization	Software amortization	173		219		356		472		Software amortization	237		188		593		660
Pennsylvania shares tax	Pennsylvania shares tax	279		396		527		785		Pennsylvania shares tax	280		334		807		1,119
Professional fees	Professional fees	906		582		1,594		1,120		Professional fees	719		626		2,313		1,746
Federal Deposit Insurance Corporation deposit insurance	Federal Deposit Insurance Corporation deposit insurance	452		228		697		430		Federal Deposit Insurance Corporation deposit insurance	425		260		1,122		690

Marketing	Marketing	272		220		427		284		Marketing	167		151		594		435
Intangible amortization	Intangible amortization	32		41		67		85		Intangible amortization	25		34		92		119
Other	Other	1,441		1,107		2,897		2,558		Other	1,378		1,165		4,275		3,723
TOTAL NON-INTEREST EXPENSE	TOTAL NON-INTEREST EXPENSE	11,429		10,420		22,327		21,427		TOTAL NON-INTEREST EXPENSE	11,172		10,320		33,499		31,747
INCOME BEFORE INCOME TAX PROVISION	INCOME BEFORE INCOME TAX PROVISION	5,159		5,234		10,745		9,342		INCOME BEFORE INCOME TAX PROVISION	2,663		6,440		13,408		15,782
INCOME TAX PROVISION	INCOME TAX PROVISION	988		1,003		1,916		1,679		INCOME TAX PROVISION	439		1,190		2,355		2,869

NET INCOME AVAILABLE TO COMMON SHAREHOLDERS'	NET INCOME AVAILABLE TO COMMON SHAREHOLDERS'	$	4,171	$	4,231	$	8,829	$	7,663	NET INCOME AVAILABLE TO COMMON SHAREHOLDERS'	$	2,224	$	5,250	$	11,053	$	12,913
EARNINGS PER SHARE - BASIC	EARNINGS PER SHARE - BASIC	$	0.59	$	0.60	$	1.25	$	1.08	EARNINGS PER SHARE - BASIC	$	0.31	$	0.74	$	1.56	$	1.83
EARNINGS PER SHARE - DILUTED	EARNINGS PER SHARE - DILUTED	$	0.59	$	0.60	$	1.25	$	1.08	EARNINGS PER SHARE - DILUTED	$	0.31	$	0.74	$	1.53	$	1.83
WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC	WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC	7,062,018		7,059,045		7,060,218		7,065,772		WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC	7,072,440		7,051,228		7,064,336		7,060,871
WEIGHTED AVERAGE SHARES OUTSTANDING - DILUTED	WEIGHTED AVERAGE SHARES OUTSTANDING - DILUTED	7,062,018		7,059,045		7,060,218		7,065,772		WEIGHTED AVERAGE SHARES OUTSTANDING - DILUTED	7,228,940		7,051,228		7,220,836		7,060,871

See accompanying notes to the unaudited consolidated financial statements.

Table of Contents

PENNS WOODS BANCORP, INC.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands)	(In Thousands)	2023		2022		2023		2022		(In Thousands)	2023		2022		2023		2022
Net Income	Net Income	$	4,171	$	4,231	$	8,829	$	7,663	Net Income	$	2,224	$	5,250	$	11,053	$	12,913
Other comprehensive (loss) income:	Other comprehensive (loss) income:									Other comprehensive (loss) income:
Net unrealized (loss) gain on available for sale securities		(2,329)		(3,995)		4		(10,892)
Net unrealized loss on available for sale securities										Net unrealized loss on available for sale securities	(1,480)		(6,362)		(1,476)		(17,254)
Tax effect	Tax effect	489		839		(1)		2,287		Tax effect	311		1,336		310		3,623
Net realized loss on available for sale securities included in net income	Net realized loss on available for sale securities included in net income	19		10		80		12		Net realized loss on available for sale securities included in net income	45		156		125		168
Tax effect	Tax effect	(4)		(2)		(17)		(2)		Tax effect	(9)		(33)		(26)		(35)
Amortization of unrecognized pension loss	Amortization of unrecognized pension loss	37		18		74		35		Amortization of unrecognized pension loss	37		17		111		52
Tax effect	Tax effect	(7)		(4)		(15)		(8)		Tax effect	(8)		(3)		(23)		(11)
Total other comprehensive (loss) income		(1,795)		(3,134)		125		(8,568)
Total other comprehensive loss										Total other comprehensive loss	(1,104)		(4,889)		(979)		(13,457)
Comprehensive income (loss)	Comprehensive income (loss)	$	2,376	$	1,097	$	8,954	$	(905)	Comprehensive income (loss)	$	1,120	$	361	$	10,074	$	(544)

See accompanying notes to the unaudited consolidated financial statements.

Table of Contents

PENNS WOODS BANCORP, INC.

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

(UNAUDITED)

Three months ended:


		COMMON STOCK			ADDITIONAL PAID-IN CAPITAL				RETAINED EARNINGS		ACCUMULATED OTHER COMPREHENSIVE LOSS		TREASURY STOCK						TOTAL SHAREHOLDERS’ EQUITY			COMMON STOCK						ADDITIONAL PAID-IN CAPITAL		RETAINED EARNINGS			ACCUMULATED OTHER COMPREHENSIVE LOSS				TREASURY STOCK				TOTAL SHAREHOLDERS’ EQUITY
(In Thousands, Except Share And Per Share Data)	(In Thousands, Except Share And Per Share Data)	SHARES	AMOUNT												TOTAL SHAREHOLDERS’ EQUITY	SHARES					AMOUNT		ADDITIONAL PAID-IN CAPITAL	RETAINED EARNINGS		ACCUMULATED OTHER COMPREHENSIVE LOSS	TREASURY STOCK					TOTAL SHAREHOLDERS’ EQUITY
Balance, March 31, 2023		7,570,086	$	42,057			$	54,572			$	102,194	$	(12,038)			$	(12,815)				$							173,970
Balance, June 30, 2023																					Balance, June 30, 2023	7,573,713			$	42,077		$	54,869	$	104,104				$	(13,833)			$	(12,815)			$	174,402

Net income	Net income								4,171										4,171		Net income									2,224											2,224
Other comprehensive loss	Other comprehensive loss										(1,795)								(1,795)		Other comprehensive loss												(1,104)								(1,104)
Stock-based compensation	Stock-based compensation				233														233		Stock-based compensation							229													229

Dividends declared ($0.32 per share)	Dividends declared ($0.32 per share)								(2,261)										(2,261)		Dividends declared ($0.32 per share)									(2,261)											(2,261)
Common shares issued for employee stock purchase plan	Common shares issued for employee stock purchase plan	830	4		14														18		Common shares issued for employee stock purchase plan	1,436			8			26													34
Director Compensation Plan	Director Compensation Plan	2,797	16		50														66		Director Compensation Plan	2,341			13			50													63

Balance, June 30, 2023		7,573,713	$	42,077	$	54,869			$	104,104	$	(13,833)	$	(12,815)					$	174,402
Registered at-the-market shares issuance, net proceeds																					Registered at-the-market shares issuance, net proceeds	34,411			191			562													753
Dividend reinvestment plan																					Dividend reinvestment plan	8,349			46			154													200
Balance, September 30, 2023																					Balance, September 30, 2023	7,620,250			$	42,335		$	55,890	$	104,067		$	(14,937)			$	(12,815)			$	174,540


		COMMON STOCK			ADDITIONAL PAID-IN CAPITAL				RETAINED EARNINGS		ACCUMULATED OTHER COMPREHENSIVE LOSS		TREASURY STOCK						TOTAL SHAREHOLDERS’ EQUITY			COMMON STOCK						ADDITIONAL PAID-IN CAPITAL		RETAINED EARNINGS			ACCUMULATED OTHER COMPREHENSIVE LOSS				TREASURY STOCK				TOTAL SHAREHOLDERS’ EQUITY
(In Thousands, Except Share And Per Share Data)	(In Thousands, Except Share And Per Share Data)	SHARES	AMOUNT												TOTAL SHAREHOLDERS’ EQUITY	SHARES					AMOUNT		ADDITIONAL PAID-IN CAPITAL	RETAINED EARNINGS		ACCUMULATED OTHER COMPREHENSIVE LOSS	TREASURY STOCK					TOTAL SHAREHOLDERS’ EQUITY
Balance, March 31, 2022		7,554,567	$	41,969			$	54,191			$	90,928	$	(6,546)			$	(12,115)				$							168,427
Balance, June 30, 2022																					Balance, June 30, 2022	7,559,165			$	41,995		$	53,651	$	92,903				$	(9,680)			$	(12,815)			$	166,054
Net income	Net income								4,231										4,231		Net income									5,250											5,250

Other comprehensive loss	Other comprehensive loss										(3,134)								(3,134)		Other comprehensive loss												(4,889)								(4,889)
Stock-based compensation	Stock-based compensation				453														453		Stock-based compensation							236													236
Cash settlement of options					(1,074)														(1,074)

Dividends declared ($0.32 per share)	Dividends declared ($0.32 per share)								(2,256)										(2,256)		Dividends declared ($0.32 per share)									(2,257)											(2,257)
Common shares issued for employee stock purchase plan	Common shares issued for employee stock purchase plan	1,023	6		17														23		Common shares issued for employee stock purchase plan	1,057			6			17													23
Director Compensation Plan	Director Compensation Plan	3,575	20		64														84		Director Compensation Plan	2,978			18			54													72

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

Balance, September 30, 2022																					Balance, September 30, 2022	7,563,200			$	42,019		$	53,958	$	95,896		$	(14,569)			$	(12,815)			$	164,489

See accompanying notes to the unaudited consolidated financial statements.

Table of Contents

PENNS WOODS BANCORP, INC.

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

(UNAUDITED)

~~Six~~Nine months ended:


		COMMON STOCK			ADDITIONAL PAID-IN CAPITAL				RETAINED EARNINGS		ACCUMULATED OTHER COMPREHENSIVE LOSS		TREASURY STOCK						TOTAL SHAREHOLDERS’ EQUITY			COMMON STOCK						ADDITIONAL PAID-IN CAPITAL			RETAINED EARNINGS				ACCUMULATED OTHER COMPREHENSIVE LOSS				TREASURY STOCK									TOTAL SHAREHOLDERS’ EQUITY
(In Thousands, Except Share And Per Share Data)	(In Thousands, Except Share And Per Share Data)	SHARES	AMOUNT												TOTAL SHAREHOLDERS’ EQUITY	SHARES					AMOUNT		ADDITIONAL PAID-IN CAPITAL	RETAINED EARNINGS		ACCUMULATED OTHER COMPREHENSIVE LOSS	TREASURY STOCK							TOTAL SHAREHOLDERS’ EQUITY
Balance, December 31, 2022	Balance, December 31, 2022	7,566,810	$	42,039			$	54,252			$	98,147	$	(13,958)			$	(12,815)				$							167,665	Balance, December 31, 2022			7,566,810				$	42,039		$	54,252	$	98,147	$	(13,958)	$	(12,815)			$	167,665
Cumulative effect of adoption of ASU 2016-13	Cumulative effect of adoption of ASU 2016-13								1,647										1,647		Cumulative effect of adoption of ASU 2016-13										1,647																		1,647
Net income	Net income								8,829										8,829		Net income										11,053																	11,053

Other comprehensive income											125								125
Other comprehensive loss																					Other comprehensive loss														(979)													(979)
Stock-based compensation	Stock-based compensation				486														486		Stock-based compensation							715																				715

Dividends declared ($0.64 per share)									(4,519)										(4,519)
Dividends declared ($0.96 per share)																					Dividends declared ($0.96 per share)										(6,780)																	(6,780)
Common shares issued for employee stock purchase plan	Common shares issued for employee stock purchase plan	1,684	9		30														39		Common shares issued for employee stock purchase plan	3,120			17			56																				73
Director Compensation Plan	Director Compensation Plan	5,219	29		101														130		Director Compensation Plan	7,560			42			151																				193

Balance, June 30, 2023		7,573,713	$	42,077	$	54,869			$	104,104	$	(13,833)	$	(12,815)					$	174,402
Registered at-the-market shares issuance, net proceeds																					Registered at-the-market shares issuance, net proceeds	34,411			191			562																				753
Dividend reinvestment plan																					Dividend reinvestment plan	8,349			46			154																				200
Balance, September 30, 2023																					Balance, September 30, 2023	7,620,250			$	42,335		$	55,890		$	104,067			$	(14,937)			$	(12,815)								$	174,540


		COMMON STOCK			ADDITIONAL PAID-IN CAPITAL				RETAINED EARNINGS		ACCUMULATED OTHER COMPREHENSIVE LOSS		TREASURY STOCK						TOTAL SHAREHOLDERS’ EQUITY			COMMON STOCK						ADDITIONAL PAID-IN CAPITAL			RETAINED EARNINGS				ACCUMULATED OTHER COMPREHENSIVE LOSS				TREASURY STOCK									TOTAL SHAREHOLDERS’ EQUITY
(In Thousands, Except Share And Per Share Data)	(In Thousands, Except Share And Per Share Data)	SHARES	AMOUNT												TOTAL SHAREHOLDERS’ EQUITY	SHARES					AMOUNT		ADDITIONAL PAID-IN CAPITAL	RETAINED EARNINGS		ACCUMULATED OTHER COMPREHENSIVE LOSS	TREASURY STOCK							TOTAL SHAREHOLDERS’ EQUITY
Balance, December 31, 2021	Balance, December 31, 2021	7,550,272	$	41,945			$	53,795			$	89,761	$	(1,112)			$	(12,115)				$							172,274	Balance, December 31, 2021			7,550,272				$	41,945		$	53,795	$	89,761	$	(1,112)	$	(12,115)			$	172,274
Net income	Net income								7,663										7,663		Net income										12,913																		12,913

Other comprehensive loss	Other comprehensive loss										(8,568)								(8,568)		Other comprehensive loss														(13,457)													(13,457)
Stock-based compensation	Stock-based compensation				768														768		Stock-based compensation							1,004																				1,004
Cash settlement of options	Cash settlement of options				(1,074)														(1,074)		Cash settlement of options							(1,074)																				(1,074)
Dividends declared ($0.64 per share)									(4,521)										(4,521)
Dividends declared ($0.96 per share)																					Dividends declared ($0.96 per share)										(6,778)																	(6,778)
Common shares issued for employee stock purchase plan	Common shares issued for employee stock purchase plan	1,903	11		33														44		Common shares issued for employee stock purchase plan	2,960			17			50																				67
Director Compensation Plan	Director Compensation Plan	6,990	39		129														168		Director Compensation Plan	9,968			57			183																				240
Purchase of treasury stock ( shares)													(700)						(700)
Purchase of treasury stock (30,000 shares)																					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
Balance, September 30, 2022																					Balance, September 30, 2022	7,563,200			$	42,019		$	53,958		$	95,896			$	(14,569)			$	(12,815)								$	164,489

See accompanying notes to the unaudited consolidated financial statements.

Table of Contents

PENNS WOODS BANCORP, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

(UNAUDITED)


	Nine Months Ended September 30,
(In Thousands)	2023		2022
OPERATING ACTIVITIES:
Net Income	$	11,053	$	12,913
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	2,469		2,660
Loss on sale of premises and equipment	—		275
Amortization of intangible assets	92		119
Provision for credit losses	263		1,335
Stock based compensation	715		1,004
Accretion and amortization of investment security discounts and premiums	361		932
Net debt securities losses, available for sale	125		168
Originations of loans held for sale	(27,183)		(30,644)
Proceeds of loans held for sale	27,130		32,789
Gain on sale of loans	(732)		(905)
Net equity securities losses	35		158


Security trades payable	—		(111)
Earnings on bank-owned life insurance	(892)		(501)
Decrease (increase) in deferred tax asset	191		(653)

Other, net	570		(905)
Net cash provided by operating activities	14,197		18,634
INVESTING ACTIVITIES:
Proceeds from sales of available for sale securities	24,701		4,151
Proceeds from calls and maturities of available for sale securities	18,824		13,116
Proceeds from sales of equity securities	35		—
Purchases of available for sale securities	(36,356)		(57,239)
Net increase in loans	(181,784)		(168,950)
Acquisition of premises and equipment	(396)		(263)
Proceeds from the sale of premises and equipment	—		137
Proceeds from the sale of foreclosed assets	—		46
Purchase of bank-owned life insurance	(7)		(21)
Proceeds from bank-owned life insurance death benefit	1,656		2
Investment in limited partnership	—		(554)
Proceeds from redemption of regulatory stock	32,292		6,692
Purchases of regulatory stock	(38,410)		(6,700)
Net cash used for investing activities	(179,445)		(209,583)
FINANCING ACTIVITIES:
Net increase (decrease) in interest-bearing deposits	58,363		(73,943)
Net (decrease) increase in noninterest-bearing deposits	(47,556)		43,043
Proceeds from long-term borrowings	140,000		—
Repayment of long-term borrowings	(25,000)		(23,000)
Net increase in short-term borrowings	40,397		25,154
Finance lease principal payments	(138)		(134)
Dividends paid	(6,780)		(6,778)

Issuance of common stock	1,219		307
Purchases of treasury stock	—		(700)
Net cash provided by (used for) financing activities	160,505		(36,051)
NET DECREASE IN CASH AND CASH EQUIVALENTS	(4,743)		(227,000)
CASH AND CASH EQUIVALENTS, BEGINNING	40,333		263,862
CASH AND CASH EQUIVALENTS, ENDING	$	35,590	$	36,862

Six Months Ended June 30,
(In Thousands) 2023 2022
OPERATING ACTIVITIES:
Net Income $ 8,829 $ 7,663
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 1,608 1,833
Write down of leasehold improvements — 254
Amortization of intangible assets 67 85
(Recovery) provision for credit losses (1,109) 480
Stock based compensation 486 768
Accretion and amortization of investment security discounts and premiums 281 655
Net securities losses, available for sale 80 12
Originations of loans held for sale (16,843) (21,248)
Proceeds of loans held for sale 17,567 21,727
Gain on sale of loans (475) (611)
Net equity securities (gains) losses (1) 103
Security trades payable 520 896
Earnings on bank-owned life insurance (722) (331)
Decrease (increase) in deferred tax asset 518 (458)
Other, net 4,199 (1,453)
Net cash provided by operating activities 15,005 10,375
INVESTING ACTIVITIES:
Proceeds from sales of available for sale securities 22,725 —
Proceeds from calls and maturities of available for sale securities 8,429 7,500
Purchases of available for sale securities (24,384) (43,812)
Net increase in loans (133,213) (97,345)
Acquisition of premises and equipment (334) (157)
Proceeds from the sale of premises and equipment — 137
Proceeds from the sale of foreclosed assets — 46
Purchase of bank-owned life insurance (6) (18)
Proceeds from bank-owned life insurance death benefit 1,656 2
Investment in limited partnership — (554)
Proceeds from redemption of regulatory stock 18,783 4,385
Purchases of regulatory stock (24,050) (3,312)
Net cash used for investing activities (130,394) (133,128)
FINANCING ACTIVITIES:
Net increase (decrease) in interest-bearing deposits 40,423 (61,664)
Net (decrease) increase in noninterest-bearing deposits (43,126) 29,928
Proceeds from long-term borrowings 110,000 —
Repayment of long-term borrowings (10,000) (13,000)
Net increase (decrease) in short-term borrowings 27,061 (283)
Finance lease principal payments (91) (89)
Dividends paid (4,519) (4,521)
Issuance of common stock 169 212
Purchases of treasury stock — (700)
Net cash provided by (used for) financing activities 119,917 (50,117)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4,528 (172,870)
CASH AND CASH EQUIVALENTS, BEGINNING 40,333 263,862
CASH AND CASH EQUIVALENTS, ENDING $ 44,861 $ 90,992




SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid	$	22,549	$	4,315
Cash settlement of options	—		1,074
Income taxes paid	2,950		2,371
Non-cash investing and financing activities:


Transfer of loans to foreclosed real estate	770		97

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 12,547 $ 2,958
Income taxes paid 2,048 1,121
Non-cash investing and financing activities:
Transfer of loans to foreclosed real estate — 97

See accompanying notes to the unaudited consolidated financial statements.

Table of Contents

PENNS WOODS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. Basis of Presentation

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, 2022.

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.

CECL Adoption and Updated Significant Accounting Policy

On January 1, 2023, the Company adopted ASU 2016-13, Financial Instruments - Credit Losses (ASC Topic 326): Measurement of Credit Losses on Financial Instruments, which replaces the incurred loss methodology, and is referred to as CECL. The measurement of expected credit losses under CECL is applicable to financial assets measured at amortized cost, including loans and HTM debt securities. It also applies to off-balance sheet (“OBS”) credit exposures (loan commitments, standby letters of credit, financial guarantees, and other similar instruments.

The Company adopted CECL using the modified retrospective method for all financial assets measured at amortized cost, net of investments in leases and OBS credit exposures. Results for reporting periods beginning after January 1, 2023 are presented under CECL, while prior period results are reported in accordance with the previously applicable incurred loss methodology. The Company recorded an overall decrease of $3,789,000 to the Allowance for Credit Losses (“ACL”) on January 1, 2023 as a result of the adoption of CECL with an associated increase to retained earnings of $2,993,000 and decrease to deferred tax assets of $796,000. The Company also recorded a liability of $1,703,000 for OBS credit exposures that resulted in a decrease to retained earnings of $1,346,000 and an increase to deferred tax assets of $357,000.

Allowance for Credit Losses: The discussion that follows describes the methodology for determining the ACL under the CECL model that was adopted effective January 1, 2023. The allowance methodology for prior periods is disclosed in the Company’s 2022 Annual Report on Form 10-K.

The Company has elected to exclude accrued interest receivable from the measurement of its ACL. When a loan is placed on non-accrual status, any outstanding accrued interest is reversed against interest income.

Loans: The ACL for loans is an estimate of the expected losses to be realized over the life of the loans in the portfolio. The ACL is determined for two distinct categories of loans: 1) loans evaluated collectively for expected credit losses and 2) loans evaluated individually for expected credit losses. The ACL also includes certain qualitative adjustments to the CECL model.

Loans Evaluated Collectively: Management believes that internal credit ratings are the most relevant credit quality indicator for these types of loans, however; the Company does not assign internal credit ratings to smaller balance, homogeneous loans, such as home equity, residential mortgage, and consumer automobile loans. For these loans, the most relevant credit quality indicator is delinquency status and management evaluates credit quality based on the aging status of the loan. In order to determine the ACL:

Loans aggregated into pools based on similar risk characteristics.

The probability of default "PD" and loss given default rate "LGD" CECL model components are determined based on loss estimates driven by historical experience at the input level.

The PD model component uses "through the economic cycle transition" matrices based on the Company's historical loan and transaction data across each pool of loans.

Table of Contents

The LGD model component calculates a lifetime LGD estimate across each pool of loans utilizing a nonparametric loss curve modeling approach.

Reasonable and supportable forecasts are incorporated into the PD model component.

Cash flow assumptions are established for each loan using maturity date, amortization schedule and interest rate.

A constant prepayment rate is calculated for each loan pool in the CECL model.

Loans Evaluated Individually: Loans evaluated individually for expected credit losses include loans determined to be collateral-dependant.

Loans evaluated individually may have specific allocations assigned. For loans measured using the fair value of collateral, if the analysis determines that sufficient collateral value would be available for repayment of the debt, then no allocations would be assigned to those loans. Collateral could be in the form of real estate or business assets, such as accounts receivable or inventory, in the case of commercial and industrial loans.

For loans secured by real estate, estimated fair values are determined through appraisals performed by third-party appraisers or third party evaluations for commercial real estate loans and our internal appraisal department for 1-4 family real estate secured loans, discounted to arrive at expected net sale proceeds. For collateral dependent loans, estimated real estate fair values are also net of estimated selling costs. When a real estate secured loan is impaired, a decision is made regarding whether an updated appraisal of the real estate is necessary. This decision is based on various considerations, including: the age of the most recent appraisal; the loan-to-value ratio based on the original appraisal; the condition of the property; the Company’s experience and knowledge of the real estate market; the purpose of the loan; market factors; payment status; the strength of any guarantors; and the existence and age of other indications of value such as broker price opinions, among others. The Company generally obtains updated evaluations for collateral dependent loans secured predominantly by real estate every 12 months.

When updated evaluations are not obtained for loans secured by real estate, fair values are estimated based on the original appraisal values, as long as the original appraisal indicated an acceptable loan-to-value position and there has not been a significant deterioration in the collateral value since the original appraisal was performed.

Management regularly reviews loans in the portfolio to assess credit quality indicators and to determine appropriate loan classification. For commercial loans, commercial mortgages and construction loans to commercial borrowers, an internal credit rating process is used. The Company believes that internal credit ratings are the most relevant credit quality indicator for these types of loans. The migration of loans through the various internal credit rating categories is a significant component of the ACL methodology for these loans, which bases the PD on this migration. Assigning credit ratings involves judgment. Credit ratings may be changed based on ongoing monitoring procedures, or if specific loan review assessments identify a deterioration or an improvement in the loan.

The following is a summary of the Company's internal credit rating categories:



•			Pass: These loans do not currently pose undue credit risk and can range from the highest to average quality, depending on the degree of potential risk.


•			Special Mention: These loans have a heightened credit risk, but not to the point of justifying a classification of Substandard. Loans in this category are currently acceptable, but are nevertheless potentially weak.


•			Substandard or Lower: There exists a well-defined weakness or weaknesses that jeopardize the normal repayment of the debt.

The allocation of the ACL is reviewed to evaluate its appropriateness in relation to the overall risk profile of the loan portfolio. The Company considers risk factors such as: local and national economic conditions; trends in delinquencies and non-accrual loans; the diversity of borrower industry types; and the composition of the portfolio by loan type.

Qualitative and Other Adjustments to ACL: In addition to the quantitative credit loss estimates for loans evaluated collectively, qualitative factors that may not be fully captured in the quantitative results are also evaluated. These include changes in lending policy, volume of the portfolio, economy conditions, credit concentrations, level of problem loans, loan review, collateral value, and experience of credit staff. Qualitative adjustments are judgmental and are based on Management’s knowledge of the portfolio and the markets in which the Company operates. Qualitative adjustments are evaluated and approved on a quarterly basis.

Table of Contents

OBS Credit Exposures: The ACL for OBS credit exposures is recorded in other liabilities on the consolidated balance sheet. This ACL represents management’s estimate of expected losses in its unfunded loan commitments and other OBS credit exposures, such as letters of credit and credit recourse on sold residential mortgage loans. The ACL specific to unfunded commitments is determined by estimating future draws and applying the expected loss rates on those draws. Future draws are based on historical averages of utilization rates (i.e., the likelihood of draws taken). The ACL for OBS credit exposures is increased or decreased by charges or reductions to expense, through the provision for credit losses.

The impact from the adoption of CECL is shown below:


		January 1, 2023							January 1, 2023
(In Thousands)	(In Thousands)	Pre-adoption		Adoption impact		As Reported		(In Thousands)	Pre-Adoption		Adoption Impact		As Reported
Assets	Assets							Assets
ACL on loans	ACL on loans							ACL on loans
Commercial, financial, and agricultural	Commercial, financial, and agricultural	$	1,914	$	2,656	$	4,570	Commercial, financial, and agricultural	$	1,914	$	2,656	$	4,570
Real estate mortgage:	Real estate mortgage:							Real estate mortgage:
Residential	Residential	5,061		(3,893)		1,168		Residential	5,061		(3,893)		1,168
Commercial	Commercial	6,110		(2,660)		3,450		Commercial	6,110		(2,660)		3,450
Construction	Construction	188		(96)		92		Construction	188		(96)		92
Consumer automobile loans	Consumer automobile loans	1,617		240		1,857		Consumer automobile loans	1,617		240		1,857
Other consumer installment loans	Other consumer installment loans	109		602		711		Other consumer installment loans	109		602		711
Unallocated	Unallocated	638		(638)		—		Unallocated	638		(638)		—

Liabilities	Liabilities							Liabilities
ACL for unfunded commitments	ACL for unfunded commitments	143		1,703		1,846		ACL for unfunded commitments	143		1,703		1,846
		$	15,780	$	(2,086)	$	13,694		$	15,780	$	(2,086)	$	13,694

Note 2. Accumulated Other Comprehensive Loss

The changes in accumulated other comprehensive loss by component shown net of tax and parenthesis indicating debits, as of ~~June~~September 30, 2023 and 2022 were as follows:


		Three Months Ended June 30, 2023						Three Months Ended June 30, 2022							Three Months Ended September 30, 2023						Three Months Ended September 30, 2022
(In Thousands)	(In Thousands)	Net Unrealized (Loss) Gain on Available for Sale Securities		Defined Benefit Plan		Total		Net Unrealized Gain (Loss) on Available for Sale Securities		Defined Benefit Plan		Total		(In Thousands)	Net Unrealized (Loss) Gain on Available for Sale Securities		Defined Benefit Plan		Total		Net Unrealized (Loss) Gain on Available for Sale Securities		Defined Benefit Plan		Total
Beginning balance	Beginning balance	$	(7,928)	$	(4,110)	$	(12,038)	$	(3,074)	$	(3,472)	$	(6,546)	Beginning balance	$	(9,753)	$	(4,080)	$	(13,833)	$	(6,222)	$	(3,458)	$	(9,680)
Other comprehensive loss before reclassifications	Other comprehensive loss before reclassifications	(1,840)		—		(1,840)		(3,156)		—		(3,156)		Other comprehensive loss before reclassifications	(1,169)		—		(1,169)		(5,026)		—		(5,026)
Amounts reclassified from accumulated other comprehensive loss		15		30		45		8		14		22
Amounts reclassified from accumulated other comprehensive gain														Amounts reclassified from accumulated other comprehensive gain	36		29		65		123		14		137
Net current-period other comprehensive (loss) income	Net current-period other comprehensive (loss) income	(1,825)		30		(1,795)		(3,148)		14		(3,134)		Net current-period other comprehensive (loss) income	(1,133)		29		(1,104)		(4,903)		14		(4,889)

Ending balance	Ending balance	$	(9,753)	$	(4,080)	$	(13,833)	$	(6,222)	$	(3,458)	$	(9,680)	Ending balance	$	(10,886)	$	(4,051)	$	(14,937)	$	(11,125)	$	(3,444)	$	(14,569)

Table of Contents


		Six Months Ended June 30, 2023						Six Months Ended June 30, 2022							Nine Months Ended September 30, 2023						Nine Months Ended September 30, 2022
(In Thousands)	(In Thousands)	Net Unrealized Gain (Loss) on Available for Sale Securities		Defined Benefit Plan		Total		Net Unrealized Gain (Loss) on Available for Sale Securities		Defined Benefit Plan		Total		(In Thousands)	Net Unrealized (Loss) Gain on Available for Sale Securities		Defined Benefit Plan		Total		Net Unrealized Gain (Loss) on Available for Sale Securities		Defined Benefit Plan		Total
Beginning balance	Beginning balance	$	(9,819)	$	(4,139)	$	(13,958)	$	2,373	$	(3,485)	$	(1,112)	Beginning balance	$	(9,819)	$	(4,139)	$	(13,958)	$	2,373	$	(3,485)	$	(1,112)
Other comprehensive income (loss) before reclassifications		3		—		3		(8,605)		—		(8,605)
Other comprehensive loss before reclassifications														Other comprehensive loss before reclassifications	(1,166)		—		(1,166)		(13,631)		—		(13,631)
Amounts reclassified from accumulated other comprehensive gain	Amounts reclassified from accumulated other comprehensive gain	63		59		122		10		27		37		Amounts reclassified from accumulated other comprehensive gain	99		88		187		133		41		174
Net current-period other comprehensive income (loss)		66		59		125		(8,595)		27		(8,568)
Net current-period other comprehensive (loss) income														Net current-period other comprehensive (loss) income	(1,067)		88		(979)		(13,498)		41		(13,457)

Ending balance	Ending balance	$	(9,753)	$	(4,080)	$	(13,833)	$	(6,222)	$	(3,458)	$	(9,680)	Ending balance	$	(10,886)	$	(4,051)	$	(14,937)	$	(11,125)	$	(3,444)	$	(14,569)

The reclassifications out of accumulated other comprehensive loss shown, net of tax and parenthesis indicating debits to net income, as of ~~June~~September 30, 2023 and 2022 were as follows:


Details about Accumulated Other Comprehensive Loss Components	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 June 30, 2023		Three Months Ended June 30, 2022				Three Months Ended September 30, 2023		Three Months Ended September 30, 2022
Net unrealized loss on available for sale securities	Net unrealized loss on available for sale securities	$	(19)	$	(10)	Net debt securities (losses) gains, available for sale	Net unrealized loss on available for sale securities	$	(45)	$	(156)	Net debt securities losses, available for sale
Income tax effect	Income tax effect	4		2		Income tax provision	Income tax effect	9		33		Income tax provision
Total reclassifications for the period	Total reclassifications for the period	$	(15)	$	(8)		Total reclassifications for the period	$	(36)	$	(123)

Net unrecognized pension costs	Net unrecognized pension costs	$	(37)	$	(18)	Other non-interest expense	Net unrecognized pension costs	$	(37)	$	(17)	Other non-interest expense
Income tax effect	Income tax effect	7		4		Income tax provision	Income tax effect	8		3		Income tax provision
Total reclassifications for the period	Total reclassifications for the period	$	(30)	$	(14)		Total reclassifications for the period	$	(29)	$	(14)


Details about Accumulated Other Comprehensive Loss Components	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
		Six months ended June 30, 2023		Six months ended June 30, 2022				Nine months ended September 30, 2023		Nine months ended September 30, 2022
Net unrealized losses on available for sale securities	Net unrealized losses on available for sale securities	$	(80)	$	(12)	Net debt securities losses, available for sale	Net unrealized losses on available for sale securities	$	(125)	$	(168)	Net debt securities losses, available for sale
Income tax effect	Income tax effect	17		2		Income tax provision	Income tax effect	26		35		Income tax provision
Total reclassifications for the period	Total reclassifications for the period	$	(63)	$	(10)		Total reclassifications for the period	$	(99)	$	(133)

Net unrecognized pension costs	Net unrecognized pension costs	$	(74)	$	(35)	Other non-interest expense	Net unrecognized pension costs	$	(111)	$	(52)	Other non-interest expense
Income tax effect	Income tax effect	15		8		Income tax provision	Income tax effect	23		11		Income tax provision
Total reclassifications for the period	Total reclassifications for the period	$	(59)	$	(27)		Total reclassifications for the period	$	(88)	$	(41)

Note 3. Recent Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments, which changes the impairment model for most financial assets. This standard, along with several other subsequent codification updates, replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses that are expected to occur over the remaining life of a financial asset and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The amendments in this update require a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The new current expected credit losses model (“CECL”) will apply to the allowance for loan losses, available-for-sale and held-to-maturity debt securities, purchased financial assets with credit deterioration and certain off-balance sheet credit exposures.

Management has completed its implementation plan, segmentation and testing, and model validation. The implementation plan included drafting of additional controls and policies to govern data uploads to its third-party vendor, balancing and reconciling, testing and auditing of inputs, and review and decision-making surrounding segmentation, methodologies, qualitative factor adjustments, and reasonable and supportable forecasts and reversion techniques. Parallel runs were processed during 2022 and the results were consistent with management's expectations. The implementation plan is currently going through the Company's control structure and internal control testing is being performed.

As a result of adopting this standard, the Company recorded a decrease in its allowance effective January 1, 2023, of $2,086,000. As a result, the Company recorded a decrease in its loan allowance as of January 1, 2023, of $3,789,000; as well as

Table of Contents

an increase in its allowance for off-balance sheet credit exposures of $1,703,000. These estimates are subject to further refinements based on ongoing evaluations of our model, methodologies, and judgments, as well as prevailing economic conditions and forecasts as of the adoption date. The adoption of ASU 2016-13 is not expected to have a significant impact on our regulatory capital ratios.

At adoption, the Company did not have any securities classified as HTM debt securities. No allowance was recorded related to AFS debt securities at the date of adoption, January 1, 2023.

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 unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The Update is effective for smaller reporting companies and all other entities for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. This Update is not expected to have a significant impact on the Company’s financial statements.

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 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 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 ASU are effective for all entities upon issuance through December 31, 2022. ~~It is too early to predict whether a new rate index replacement and the adoption of the ASU will~~This Update did not have a ~~material~~significant 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 to those instruments. The amendments in this ASU are effective for public business entities that are not smaller reporting companies, for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. For all other entities, this ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. The guidance may be early adopted for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. 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. This Update did not have a significant impact on the Company’s financial statements.

Table of Contents

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.

In March 2023, the FASB issued ASU 2023-02, Investments – Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method. ASU 2023-02 permits reporting entities to elect to account for their tax equity investments, regardless of the tax credit program from which the income tax credits are received, using the proportional amortization method if certain conditions are met. ASU 2023-02 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2023. This Update is not expected to have a significant impact on the Company’s financial statements.

In July 2023, the FASB issued ASU 2023-03, Presentation of Financial Statements (Topic 205), Income Statement-Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation-Stock Compensation (Topic 718), which amends or supersedes various SEC paragraphs within the Codification to conform to past SEC announcements and guidance issued by the SEC. The ASU does not provide any new guidance so there is no transition or effective date associated with it. This ASU did not have a significant impact on the Company’s financial statements.

In August 2023, the FASB issued ASU 2023-04, Liabilities (Topic 405), which adds various SEC paragraphs to the Codification to reflect guidance included in SEC Staff Accounting Bulletin 121 on safeguarding crypto assets. The standard does not provide any new guidance so there is no transition or effective date associated with it. This ASU did not have a significant impact on the Company’s financial statements.

Note 4. Per Share Data

There are no convertible securities which would affect the denominator in calculating basic and dilutive earnings per share. There were a total of ~~1,003,000~~1,000,000 stock options, with an average exercise price of ~~$25.56,~~$25.55, outstanding on ~~June~~September 30, 2023. ~~These~~A portion of these options were ~~excluded,~~included, 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 ~~$25.10~~$25.08 for the ~~period~~periods being ~~less~~greater than the strike price. There were a total of ~~919,250~~917,000 stock options, with an average exercise price of ~~$25.36~~$25.35 that 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 $23.78 being less than the strike price for the period ending ~~June~~September 30, 2022.

Three Months Ended June 30, Six Months Ended June 30,
2023 2022 2023 2022
Weighted average common shares issued 7,572,243 7,557,402 7,570,443 7,555,113
Weighted average treasury stock shares (510,225) (498,357) (510,225) (489,341)
Weighted average common shares outstanding - basic and diluted 7,062,018 7,059,045 7,060,218 7,065,772


	Three Months Ended September 30,		Nine Months Ended September 30,
	2023	2022	2023	2022
Weighted average common shares issued	7,582,665	7,561,453	7,574,561	7,557,250
Weighted average treasury stock shares	(510,225)	(510,225)	(510,225)	(496,379)
Weighted average common shares outstanding - basic	7,072,440	7,051,228	7,064,336	7,060,871
Dilutive effect of outstanding stock options	156,500	—	156,500	—
Weighted average common shares outstanding - diluted	7,228,940	7,051,228	7,220,836	7,060,871

Table of Contents

Note 5. Investment Securities

The amortized cost, gross unrealized gains and losses, and fair values of our investment securities portfolio at ~~June~~September 30, 2023 and December 31, 2022 are as follows:

June 30, 2023
Gross Gross
Amortized Unrealized Unrealized Fair
(In Thousands) Cost Gains Losses Value
Available for sale (AFS):
U.S. Government and agency securities $ 4,001 $ — $ (116) $ 3,885
Mortgage-backed securities 9,710 — (380) 9,330
State and political securities 135,251 22 (7,794) 127,479
Other debt securities 50,009 — (4,077) 45,932
Total debt securities $ 198,971 $ 22 $ (12,367) $ 186,626
Investment equity securities:
Equity securities $ 1,350 $ — $ (207) $ 1,143

~~Table of Contents~~


	September 30, 2023
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
(In Thousands)	Cost		Gains		Losses		Value
Available for sale (AFS):
U.S. Government and agency securities	$	4,001	$	—	$	(137)	$	3,864
Mortgage-backed securities	12,101		—		(705)		11,396

State and political securities	129,024		—		(9,177)		119,847
Other debt securities	53,321		—		(3,761)		49,560
Total debt securities	$	198,447	$	—	$	(13,780)	$	184,667

Investment equity securities:

Equity securities	$	1,300	$	—	$	(228)	$	1,072


	December 31, 2022
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
(In Thousands)	Cost		Gains		Losses		Value
Available for sale (AFS):
U.S. Government and agency securities	$	3,002	$	—	$	(106)	$	2,896
Mortgage-backed securities	1,496		—		(214)		1,282

State and political securities	151,426		157		(8,774)		142,809
Other debt securities	50,178		58		(3,550)		46,686
Total debt securities	$	206,102	$	215	$	(12,644)	$	193,673

Investment equity securities:

Equity securities	$	1,350	$	—	$	(208)	$	1,142

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 ~~June~~September 30, 2023 and December 31, 2022.


		June 30, 2023													September 30, 2023
		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)	(In Thousands)	Value		Losses		Value		Losses		Value		Losses		(In Thousands)	Value		Losses		Value		Losses		Value		Losses
Available for sale (AFS):	Available for sale (AFS):													Available for sale (AFS):
U.S. Government and agency securities	U.S. Government and agency securities	$	2,940	$	(58)	$	945	$	(58)	$	3,885	$	(116)	U.S. Government and agency securities	$	967	$	(33)	$	2,897	$	(104)	$	3,864	$	(137)
Mortgage-backed securities	Mortgage-backed securities	8,057		(173)		1,264		(207)		9,321		(380)		Mortgage-backed securities	10,263		(454)		1,125		(251)		11,388		(705)

State and political securities	State and political securities	43,028		(1,456)		81,127		(6,338)		124,155		(7,794)		State and political securities	19,050		(1,013)		97,522		(8,164)		116,572		(9,177)
Other debt securities	Other debt securities	5,363		(267)		40,569		(3,810)		45,932		(4,077)		Other debt securities	10,596		(348)		35,841		(3,413)		46,437		(3,761)
Total debt securities	Total debt securities	$	59,388	$	(1,954)	$	123,905	$	(10,413)	$	183,293	$	(12,367)	Total debt securities	$	40,876	$	(1,848)	$	137,385	$	(11,932)	$	178,261	$	(13,780)

Table of Contents


	December 31, 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	$	2,896	$	(106)	$	—	$	—	$	2,896	$	(106)
Mortgage-backed securities	—		—		1,282		(214)		1,282		(214)

State and political securities	95,444		(4,797)		36,283		(3,977)		131,727		(8,774)
Other debt securities	16,896		(664)		25,144		(2,886)		42,040		(3,550)
Total debt securities	$	115,236	$	(5,567)	$	62,709	$	(7,077)	$	177,945	$	(12,644)

At ~~June~~September 30, 2023, there were a total of 6243 securities in a continuous unrealized loss position for less than twelve months and ~~171~~184 individual securities that were in a continuous unrealized loss position for twelve months or greater. No credit losses occurred for the period ended ~~June~~September 30, 2023.

The Company reviews its position quarterly and has determined that, at ~~June~~September 30, 2023, the declines outlined in the above table represent temporary non-credit 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 credit-related 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.

~~Table of Contents~~

The amortized cost and fair value of debt securities at ~~June~~September 30, 2023, 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)	(In Thousands)	Amortized Cost		Fair Value		(In Thousands)	Amortized Cost		Fair Value
Due in one year or less	Due in one year or less	$	32,438	$	31,949	Due in one year or less	$	39,163	$	38,246
Due after one year to five years	Due after one year to five years	96,817		90,609		Due after one year to five years	88,544		82,446
Due after five years to ten years	Due after five years to ten years	62,073		56,741		Due after five years to ten years	65,437		59,047
Due after ten years	Due after ten years	7,643		7,327		Due after ten years	5,303		4,928
Total	Total	$	198,971	$	186,626	Total	$	198,447	$	184,667

Total gross proceeds from sales of debt securities available for sale for the ~~six~~nine months ended ~~June~~September 30, 2023 was ~~$22,725,000,~~$24,701,000, compared to $0$4,151,000 for the corresponding 2022 period.

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


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands)	(In Thousands)	2023		2022		2023		2022		(In Thousands)	2023		2022		2023		2022
Available for sale (AFS):	Available for sale (AFS):									Available for sale (AFS):
Gross realized gains:	Gross realized gains:									Gross realized gains:

State and political securities	State and political securities	$	91	$	13	$	145	$	14	State and political securities	$	1	$	—	$	146	$	14

Other debt securities										Other debt securities	—		—		—		—
Total gross realized gains										Total gross realized gains	$	1	$	—	$	146	$	14

Gross realized losses:	Gross realized losses:									Gross realized losses:

State and political securities	State and political securities	$	(110)	$	(23)	$	(225)	$	(26)	State and political securities	$	(46)	$	(156)	$	(271)	$	(182)

Investment securities with a carrying value of approximately ~~$100,631,000~~$114,938,000 and $154,946,000 at ~~June~~September 30, 2023 and December 31, 2022, respectively, were pledged to secure certain deposits, repurchase agreements, and for other purposes as required by law.

Table of Contents

At ~~June~~September 30, 2023 and December 31, 2022, we had ~~$1,143,000~~$1,072,000 and $1,142,000, 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~~nine months ended ~~June~~September 30, 2023 and 2022:

Three Months Ended June 30, Six Months Ended June 30,
(In Thousands) 2023 2022 2023 2022
Net (losses) gains recognized in equity securities during the period $ (20) $ (44) $ 1 $ (103)
Less: Net gains realized on the sale of equity securities during the period — — — —
Unrealized (losses) gains recognized in equity securities held at reporting date $ (20) $ (44) $ 1 $ (103)



	Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands)	2023		2022		2023		2022
Net losses recognized in equity securities during the period	$	(37)	$	(55)	$	(36)	$	(158)
Less: Net losses realized on the sale of equity securities during the period	(1)		—		(1)		—
Unrealized losses recognized in equity securities held at reporting date	$	(36)	$	(55)	$	(35)	$	(158)

Note 6. Loans

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. Real estate loans are further segmented into three categories: residential, commercial, and construction, while installment loans are classified as either consumer automobile loans or other installment loans.

~~Table of Contents~~

The following table presents the related aging categories of loans, by class, as of ~~June~~September 30, 2023 and December 31, 2022:


		June 30, 2023									September 30, 2023
		Past Due						Past Due 90			Past Due						Past Due 90
		30 To 89						Days Or More			30 To 89		Past Due 90				Days Or More
(In Thousands)	(In Thousands)	Days		Current		Total		& Still Accruing		(In Thousands)	Days		Days Or More		Current		& Still Accruing		Total
Commercial, financial, and agricultural	Commercial, financial, and agricultural	$	270	$	207,871	$	208,174	$	33	Commercial, financial, and agricultural	$	255	$	33	$	211,185	$	8	$	211,473
Real estate mortgage:	Real estate mortgage:									Real estate mortgage:
Residential	Residential	2,578		740,186		743,705		941		Residential	5,013		1,151		767,618		1,434		773,782
Commercial	Commercial	2,513		515,200		517,713		—		Commercial	775		92		524,799		59		525,666
Construction	Construction	15		53,471		53,486		—		Construction	472		32		55,329		—		55,833
Consumer automobile loans	Consumer automobile loans	1,832		232,985		234,956		139		Consumer automobile loans	1,121		144		238,503		141		239,768
Other consumer installment loans	Other consumer installment loans	126		9,988		10,121		7		Other consumer installment loans	157		4		10,660		36		10,821
		$	7,334	$	1,759,701	1,768,155		$	1,120		$	7,793	$	1,456	$	1,808,094	$	1,678	$	1,817,343
Net deferred loan fees and discounts	Net deferred loan fees and discounts					1,248				Net deferred loan fees and discounts									1,118
Allowance for credit losses	Allowance for credit losses					(11,592)				Allowance for credit losses									(12,890)
Loans, net	Loans, net					$	1,757,811			Loans, net									$	1,805,571

Table of Contents


	December 31, 2022
	Past Due		Past Due 90
	30 To 89		Days Or More		Non-
(In Thousands)	Days		& Still Accruing		Accrual		Current		Total
Commercial, financial, and agricultural	$	94	$	—	$	432	$	189,935	$	190,461
Real estate mortgage:
Residential	5,472		1,120		524		701,093		708,209
Commercial	2,564		60		2,659		495,349		500,632
Construction	511		—		—		42,797		43,308
Consumer automobile loans	2,089		80		—		183,943		186,112
Other consumer installment loans	152		15		—		10,194		10,361
	$	10,882	$	1,275	$	3,615	$	1,623,311	1,639,083
Net deferred loan fees and discounts									648
Allowance for loan losses									(15,637)
Loans, net									$	1,624,094

The Allowance for Credit Losses ("ACL") related to loans consists of loans evaluated collectively and individually for expected credit losses. The ACL related to loans represents an estimate of expected credit losses over the expected life of the loans as of the balance sheet date and is recorded as a reduction to net loans. The ACL for off balance sheet credit exposure includes estimated losses on unfunded loan commitments, letters of credit and other off balance sheet credit exposures and is recorded in other liabilities. The total ACL is increased by charges to expense, through the provision for credit losses, and decreased by charge-offs, net of recoveries.

The following table presents the components of the ACL as of ~~June~~September 30, 2023:

~~June~~September 30,

(In Thousands)

2023

ACL - loans

~~11,592~~12,890

ACL - off balance sheet credit exposure

~~1,199~~1,240

Total ACL

~~12,791~~14,130

~~Table of Contents~~

~~Non-accrual~~Non-Accrual Loans


		June 30, 2023						December 31, 2022			September 30, 2023						December 31, 2022
		Non-accrual Loans									Non-accrual Loans
(In Thousands)	(In Thousands)	With a Related ACL		Without a Related ACL		Total		Total Non-accrual loans		(In Thousands)	With a Related ACL		Without a Related ACL		Total		Total Non-accrual loans
Commercial, financial, and agricultural	Commercial, financial, and agricultural	$	—	$	422	$	422	$	432	Commercial, financial, and agricultural	$	—	$	543	$	543	$	432
Real estate mortgage:	Real estate mortgage:									Real estate mortgage:
Residential	Residential	26		272		298		524		Residential	24		265		289		524
Commercial	Commercial	975		1,461		2,436		2,659		Commercial	947		226		1,173		2,659
Construction	Construction	—		—		—		—		Construction	—		—		—		—
Consumer automobile	Consumer automobile	—		—		—		—		Consumer automobile	—		—		—		—
Other consumer installment loans	Other consumer installment loans	—		—		—		—		Other consumer installment loans	—		—		—		—
		$	1,001	$	2,155	$	3,156	$	3,615		$	971	$	1,034	$	2,005	$	3,615

Total interest income recorded on non-accrual loans at ~~June~~September 30, 2023 totaled ~~$66,000.~~$104,000.

Table of Contents

The following table presents the recorded investment, unpaid principal balance, and related allowance of impaired loans by segment as of December 31, 2022:


	December 31, 2022
	Recorded		Unpaid Principal		Related
(In Thousands)	Investment		Balance		Allowance
With no related allowance recorded:
Commercial, financial, and agricultural	$	295	$	295	$	—
Real estate mortgage:
Residential	3,388		3,388		—
Commercial	2,588		2,588		—
Construction	—		—		—
Consumer automobile loans	—		—		—
Installment loans to individuals	—		—		—
	6,271		6,271		—
With an allowance recorded:
Commercial, financial, and agricultural	403		403		4
Real estate mortgage:
Residential	933		933		111
Commercial	3,607		3,607		827
Construction	—		—		—
Consumer automobile loans	—		—		—
Installment loans to individuals	19		—		19
	4,962		4,943		961
Total:
Commercial, financial, and agricultural	698		698		4
Real estate mortgage:
Residential	4,321		4,321		111
Commercial	6,195		6,195		827
Construction	—		—		—
Consumer automobile loans	—		—		—
Installment loans to individuals	19		—		19
	$	11,233	$	11,214	$	961

~~Table of Contents~~

The following table presents outstanding loan balances of collateral-dependent loans by class as of ~~June~~September 30, 2023:

(In Thousands) Real estate Other* Unsecured** Total
Real estate mortgage:
Residential $ 244 $ — $ — $ 244
Commercial 95 1,225 332 1,652
Total $ 339 $ 1,225 $ 332 $ 1,896

* 90% of loan balances guaranteed by USDA remaining 10% is unsecured


(In Thousands)	Real estate		Unsecured*		Total

Real estate mortgage:
Residential	$	238	$	—	$	238
Commercial	92		332		424



Total	$	330	$	332	$	662

** Loan considered unsecured due to lien position on property

Table of Contents

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


			Three Months Ended June 30,									Three Months Ended September 30,
		2022								2022
(In Thousands)	(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			(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
Commercial, financial, and agricultural	Commercial, financial, and agricultural			$	758	$	5	$	—		Commercial, financial, and agricultural		$	711	$	5	$	—
Real estate mortgage:	Real estate mortgage:										Real estate mortgage:
Residential	Residential			4,773		48		—			Residential		4,586		47		—
Commercial	Commercial			7,446		49		—			Commercial		7,227		50		—
Construction	Construction			32		—		—			Construction		—		—		—
Consumer automobile	Consumer automobile			7		1		—			Consumer automobile		7		—		—
Other consumer installment loans	Other consumer installment loans			19		—		—			Other consumer installment loans		10		—		—
				$	13,035	$	103	$	—				$	12,541	$	102	$	—


			Six Months Ended June 30,								Nine Months Ended September 30,
		2022							2022
(In Thousands)	(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			(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
Commercial, financial, and agricultural	Commercial, financial, and agricultural		$	801	$	10	$	—		Commercial, financial, and agricultural	$	782	$	15	$	—
Real estate mortgage:	Real estate mortgage:									Real estate mortgage:
Residential	Residential		4,866		94		—			Residential	4,765		141		—
Commercial	Commercial		7,605		101		—			Commercial	7,492		151		—
Construction	Construction		56		1		—			Construction	42		1		—
Consumer automobile	Consumer automobile		5		1		—			Consumer automobile	3		1		—
Other consumer installment loans	Other consumer installment loans		19		—		—			Other consumer installment loans	15		—		—
			$	13,352	$	207	$	—			$	13,099	$	309	$	—

Loan Modifications

On January 1, 2023, the Corporation adopted ASU 2022-02. Loan modifications reported below do not include modifications with insignificant payment delays. ASU 2022-02 lists the following factors when considering if the loan modification has insignificant payment delays: (1) the amount of the restructured payments subject to the delay is insignificant relative to the unpaid principal or collateral value of the debt and will result in an insignificant shortfall in the contractual amount due, and (2) the delay in timing of the restructured payment period is insignificant relative to the frequency of payments due under the debt, the debt’s original contractual maturity or the debt’s original expected duration.

~~Table of Contents~~

The ACL incorporates an estimate of lifetime expected credit losses and is recorded upon asset origination or acquisition. The starting point for the estimate of the ACL is historical loss information, which includes losses from modifications of receivables to borrowers experiencing financial difficulty. The Corporation uses a probability of default/loss given default model to determine the allowance for credit losses. An assessment of whether a borrower is experiencing financial difficulty is made on the date of a modification.

There were no loan modifications completed during the three and ~~six~~nine months ended ~~June~~September 30, 2023.

There were no loan modifications considered to be TDRs completed during the three and ~~six~~nine months ended ~~June~~September 30, 2022.

Table of Contents

There were no loan modifications made during the twelve months prior to ~~June~~September 30, 2023 that defaulted during the ~~six~~nine months ended ~~June~~September 30, 2023. There were no loan modifications considered to be a TDR made during the twelve months previous to ~~June~~September 30, 2022 that defaulted during the ~~six~~nine months ended ~~June 31,~~September 30, 2022.

Loans considered modifications amounted to ~~$7,087,000~~$5,233,000 and $7,468,000 as of ~~June~~September 30, 2023 and December 31, 2022, respectively.

The amount of foreclosed residential real estate held at ~~June~~September 30, 2023 and December 31, 2022, totaled ~~$2,112,000~~$588,000 and $950,000, respectively. Consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process at ~~June~~September 30, 2023 and December 31, 2022, totaled ~~$456,000~~$328,000 and $890,000, respectively.

Internal Credit Ratings

Management uses a ten point internal credit rating system to monitor the credit quality of the overall loan portfolio. The first six 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; 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 credit 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 semi-annual loan review of large commercial relationships is performed, as well as a sample of smaller transactions. The 2023 loan review will evaluate 55% of the Banks' average outstanding commercial portfolio which can consist of outstanding loans, commercial real estate mortgages and outstanding commitments. Detailed reviews, including plans for resolution, are performed on loans classified as substandard, doubtful, or loss on a quarterly basis.

Table of Contents

The following table presents the credit quality categories identified above as of ~~June~~September 30, 2023 and December 31, 2022:


		June 30, 2023																			September 30, 2023
(In Thousands)	(In Thousands)	2023		2022		2021		2020		2019		Prior		Revolving Loans		Revolving Loans Converted to Term		Total		(In Thousands)	2023		2022		2021		2020		2019		Prior		Revolving Loans		Revolving Loans Converted to Term		Total
Commercial, financial, and agricultural	Commercial, financial, and agricultural																			Commercial, financial, and agricultural
Pass	Pass	$	22,833	$	57,575	$	43,386	$	34,212	$	7,664	$	10,040	$	31,205	$	126	$	207,041	Pass	$	34,288	$	53,560	$	42,363	$	33,239	$	9,224	$	6,756	$	29,212	$	114	$	208,756
Special Mention	Special Mention	—		—		—		—		—		58		—		—		58		Special Mention	—		201		42		—		—		168		223		—		634
Substandard or Lower	Substandard or Lower	—		—		—		—		—		5		399		671		1,075		Substandard or Lower	—		—		—		85		—		755		490		753		2,083

		$	22,833	$	57,575	$	43,386	$	34,212	$	7,664	$	10,103	$	31,604	$	797	$	208,174		$	34,288	$	53,761	$	42,405	$	33,324	$	9,224	$	7,679	$	29,925	$	867	$	211,473

Current period gross write offs	Current period gross write offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	Current period gross write offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Real estate mortgage:	Real estate mortgage:																			Real estate mortgage:
Residential	Residential																			Residential
Pass	Pass	$	72,751	$	219,710	$	122,575	$	72,789	$	47,250	$	38,553	$	49,094	$	118,722	$	741,444	Pass	$	117,468	$	218,678	$	120,137	$	70,364	$	45,930	$	17,038	$	51,814	$	129,802	$	771,231
Special Mention	Special Mention	—		—		—		—		—		—		—		—		—		Special Mention	—		409		274		—		—		—		—		—		683
Substandard or Lower	Substandard or Lower	—		—		—		—		—		2,186		—		75		2,261		Substandard or Lower	—		—		—		—		—		1,798		—		70		1,868

		$	72,751	$	219,710	$	122,575	$	72,789	$	47,250	$	40,739	$	49,094	$	118,797	$	743,705		$	117,468	$	219,087	$	120,411	$	70,364	$	45,930	$	18,836	$	51,814	$	129,872	$	773,782

Current period gross write offs	Current period gross write offs	$	—	$	—	$	—	$	—	$	—	$	9	$	72	$	—	$	81	Current period gross write offs	$	—	$	—	$	—	$	—	$	—	$	9	$	72	$	—	$	81

Commercial	Commercial																			Commercial
Pass	Pass	$	29,431	$	102,217	$	137,700	$	52,157	$	26,535	$	153,447	$	8,465	$	620	$	510,572	Pass	$	43,594	$	105,217	$	134,960	$	50,535	$	25,913	$	147,471	$	10,827	$	691	$	519,208
Special Mention	Special Mention	—		—		178		—		—		48		—		—		226		Special Mention	—		—		1,065		—		—		48		—		—		1,113
Substandard or Lower	Substandard or Lower	—		—		—		—		63		6,815		—		37		6,915		Substandard or Lower	—		—		—		—		63		5,282		—		—		5,345

		$	29,431	$	102,217	$	137,878	$	52,157	$	26,598	$	160,310	$	8,465	$	657	$	517,713		$	43,594	$	105,217	$	136,025	$	50,535	$	25,976	$	152,801	$	10,827	$	691	$	525,666

Current period gross write offs	Current period gross write offs	$	136	$	—	$	—	$	—	$	—	$	3	$	—	$	—	$	139	Current period gross write offs	$	59	$	—	$	—	$	—	$	—	$	3	$	—	$	—	$	62

Construction	Construction																			Construction
Pass	Pass	$	15,104	$	16,649	$	14,778	$	1,450	$	598	$	4,547	$	267	$	—	$	53,393	Pass	$	21,093	$	13,072	$	15,045	$	1,417	$	402	$	4,452	$	261	$	—	$	55,742
Special Mention	Special Mention	—		—		—		—		—		—		—		—		—		Special Mention	—		—		—		—		—		—		—		—		—
Substandard or Lower	Substandard or Lower	—		—		—		—		—		93		—		—		93		Substandard or Lower	—		—		—		—		—		91		—		—		91

		$	15,104	$	16,649	$	14,778	$	1,450	$	598	$	4,640	$	267	$	—	$	53,486		$	21,093	$	13,072	$	15,045	$	1,417	$	402	$	4,543	$	261	$	—	$	55,833

Current period gross write offs	Current period gross write offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	Current period gross write offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Consumer Automobile	Consumer Automobile																			Consumer Automobile
Pass	Pass	$	80,745	$	92,319	$	24,538	$	20,011	$	10,391	$	6,952	$	—	$	—	$	234,956	Pass	$	101,214	$	85,276	$	21,969	$	17,486	$	8,716	$	5,107	$	—	$	—	$	239,768
Special Mention	Special Mention	—		—		—		—		—		—		—		—		—		Special Mention	—		—		—		—		—		—		—		—		—
Substandard or Lower	Substandard or Lower	—		—		—		—		—		—		—		—		—		Substandard or Lower	—		—		—		—		—		—		—		—		—

		$	80,745	$	92,319	$	24,538	$	20,011	$	10,391	$	6,952	$	—	$	—	$	234,956		$	101,214	$	85,276	$	21,969	$	17,486	$	8,716	$	5,107	$	—	$	—	$	239,768

Current period gross write offs	Current period gross write offs	$	58	$	125	$	65	$	76	$	—	$	6	$	—	$	—	$	330	Current period gross write offs	$	—	$	247	$	136	$	112	$	6	$	7	$	—	$	—	$	508

Installment loans to individuals	Installment loans to individuals																			Installment loans to individuals
Pass	Pass	$	1,677	$	2,707	$	1,460	$	623	$	465	$	3,143	$	—	$	46	$	10,121	Pass	$	2,609	$	2,406	$	1,291	$	558	$	427	$	3,486	$	—	$	44	$	10,821
Special Mention	Special Mention	—		—		—		—		—		—		—		—		—		Special Mention	—		—		—		—		—		—		—		—		—
Substandard or Lower	Substandard or Lower	—		—		—		—		—		—		—		—		—		Substandard or Lower	—		—		—		—		—		—		—		—		—

		$	1,677	$	2,707	$	1,460	$	623	$	465	$	3,143	$	—	$	46	$	10,121		$	2,609	$	2,406	$	1,291	$	558	$	427	$	3,486	$	—	$	44	$	10,821

Current period gross write offs	Current period gross write offs	$	108	$	5	$	21	$	—	$	3	$	6	$	13	$	11	$	167	Current period gross write offs	$	179	$	28	$	20	$	6	$	6	$	19	$	13	$	11	$	282

2122

Table of Contents

The information presented in the table above is not required for periods prior to the adoption of CECL. The following table presents the most comparable required information for the prior period, internal credit ratings for the report loan segments as of December 31, 2022:


	December 31, 2022
	Commercial, Financial, and Agricultural		Real Estate Mortgages						Consumer automobile		Other consumer installment loans
(In Thousands)			Residential		Commercial		Construction						Totals
Pass	$	184,783	$	705,515	$	488,993	$	43,209	$	186,112	$	10,361	$	1,618,973
Special Mention	125		266		4,526		—		—		—		4,917
Substandard	5,553		2,428		7,113		99		—		—		15,193
	$	190,461	$	708,209	$	500,632	$	43,308	$	186,112	$	10,361	$	1,639,083

Allowance for Credit Losses

Maintaining an appropriate Allowance for Credit Losses ("ACL") is dependent on various factors, including the ability to identify potential problem loans in a timely manner. For commercial construction, residential construction, commercial and industrial, and commercial real estate, an internal credit rating process is used. Management believes that internal credit ratings are the most relevant credit quality indicator for these types of loans. The migration of loans through the various internal credit rating categories is a significant component of the ACL methodology for these loans, which bases the probability of default on this migration. Assigning credit ratings involves judgment. The Company's loan review process provide a separate assessment of credit rating accuracy. Credit ratings may be changed based on the ongoing monitoring procedures performed by loan officers or credit administration staff or if specific loan review assessments identify a deterioration or an improvement in the loans.

Management considers the performance of the loan portfolio and its impact on the ACL. The Company does not assign internal Credit ratings to smaller balance, homogeneous loans, such as home equity, residential mortgage, and consumer automobile loans. For these loans, the most relevant credit quality indicator is delinquency status and management evaluates credit quality based on the aging status of the loan.

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 the charge-off and recovery data over the past ten years. 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; 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.

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

2223

Table of Contents

Activity in the allowance is presented for the three and ~~six~~nine months ended ~~June~~September 30, 2023 and 2022:


		Three Months Ended June 30, 2023																														Three Months Ended September 30, 2023
		Commercial, Financial, and Agricultural				Real Estate Mortgages												Consumer automobile			Other consumer installment											Commercial, Financial, and Agricultural		Real Estate Mortgages						Consumer automobile			Other consumer installment
(In Thousands)	(In Thousands)			Residential				Commercial				Construction								Unallocated			Totals		(In Thousands)				Residential					Commercial		Construction						Unallocated			Totals
Beginning Balance	Beginning Balance			$	3,862			$	1,412			$	3,481			$	184				$	2,113	$	682		$	—			$	11,734		Beginning Balance	$	3,019	$	1,078	$	4,191	$	178		$	2,446	$	680	$	—	$	11,592
Charge-offs	Charge-offs	—				(3)				(136)				—				(237)			(79)		—			(455)		Charge-offs				—		—		—		—		(130)			(86)		—		(216)
Recoveries	Recoveries	856				1				22				—				27			21		—			927		Recoveries				106		22		1		—		27			27		—		183
Provision	Provision	(1,699)				(332)				824				(6)				543			56		—			(614)		Provision				788		68		131		20		241			83		—		1,331
Ending Balance	Ending Balance	$	3,019			$	1,078			$	4,191			$	178			$	2,446		$	680	$	—		$	11,592	Ending Balance				$	3,913	$	1,168	$	4,323	$	198	$	2,584		$	704	$	—	$	12,890


		Three Months Ended June 30, 2022																														Three Months Ended September 30, 2022
		Commercial, Financial, and Agricultural				Real Estate Mortgages												Consumer automobile			Other consumer installment											Commercial, Financial, and Agricultural		Real Estate Mortgages						Consumer automobile			Other consumer installment
(In Thousands)	(In Thousands)			Residential				Commercial				Construction								Unallocated			Totals		(In Thousands)				Residential					Commercial		Construction						Unallocated			Totals
Beginning Balance	Beginning Balance			$	1,936			$	4,801			$	5,215			$	197				$	1,376	$	114		$	384			$	14,023		Beginning Balance	$	2,108	$	4,818	$	5,395	$	199		$	1,307	$	110	$	456	$	14,393
Charge-offs	Charge-offs	—				(15)				—				—				(48)			(43)		—			(106)		Charge-offs				(18)		—		—		—		(57)			(85)		—		(160)
Recoveries	Recoveries	41				42				1				28				13			21		—			146		Recoveries				93		1		1		—		10			18		—		123
Provision	Provision	131				(10)				179				(26)				(34)			18		72			330		Provision				(114)		376		140		11		325			75		42		855
Ending Balance	Ending Balance	$	2,108			$	4,818			$	5,395			$	199			$	1,307		$	110	$	456		$	14,393	Ending Balance				$	2,069	$	5,195	$	5,536	$	210	$	1,585		$	118	$	498	$	15,211


t	t	Six Months Ended June 30, 2023																										t				Nine Months Ended September 30, 2023
		Commercial, Financial, and Agricultural				Real Estate Mortgages												Consumer automobile			Other consumer installment											Commercial, Financial, and Agricultural		Real Estate Mortgages						Consumer automobile			Other consumer installment
(In Thousands)	(In Thousands)			Residential				Commercial				Construction								Unallocated			Totals		(In Thousands)				Residential					Commercial		Construction						Unallocated			Totals
Beginning Balance	Beginning Balance			$	1,914			$	5,061			$	6,110			$	188				$	1,617	$	109		$	638			$	15,637		Beginning Balance	$	1,914	$	5,061	$	6,110	$	188		$	1,617	$	109	$	638	$	15,637
Impact of adopting ASC 326	Impact of adopting ASC 326	2,656				(3,893)				(2,660)				(96)				240			602		(638)			(3,789)		Impact of adopting ASC 326				2,656		(3,893)		(2,660)		(96)		240			602		(638)		(3,789)
Charge-offs	Charge-offs	—				(81)				(139)				—				(330)			(167)		—			(717)		Charge-offs				—		(81)		(62)		—		(507)			(283)		—		(933)
Recoveries	Recoveries	961				3				25				—				39			38		—			1,066		Recoveries				1,067		25		26		—		66			65		—		1,249
Provision	Provision	(2,512)				(12)				855				86				880			98		—			(605)		Provision				(1,724)		56		909		106		1,168			211		—		726
Ending Balance	Ending Balance	$	3,019			$	1,078			$	4,191			$	178			$	2,446		$	680	$	—		$	11,592	Ending Balance				$	3,913	$	1,168	$	4,323	$	198	$	2,584		$	704	$	—	$	12,890


		Six Months Ended June 30, 2022																														Nine Months Ended September 30, 2022
		Commercial, Financial, and Agricultural				Real Estate Mortgages												Consumer automobile			Other consumer installment											Commercial, Financial, and Agricultural		Real Estate Mortgages						Consumer automobile			Other consumer installment
(In Thousands)	(In Thousands)			Residential				Commercial				Construction								Unallocated			Totals		(In Thousands)				Residential					Commercial		Construction						Unallocated			Totals
Beginning Balance	Beginning Balance			$	1,946			$	4,701			$	5,336			$	179				$	1,411	$	111		$	492			$	14,176		Beginning Balance	$	1,946	$	4,701	$	5,336	$	179		$	1,411	$	111	$	492	$	14,176
Charge-offs	Charge-offs	—				(15)				(155)				—				(177)			(103)		—			(450)		Charge-offs				(18)		(15)		(155)		—		(234)			(188)		—		(610)
Recoveries	Recoveries	45				45				2				28				22			45		—			187		Recoveries				138		46		3		28		32			63		—		310
Provision	Provision	117				87				212				(8)				51			57		(36)			480		Provision				3		463		352		3		376			132		6		1,335
Ending Balance	Ending Balance	$	2,108			$	4,818			$	5,395			$	199			$	1,307		$	110	$	456		$	14,393	Ending Balance				$	2,069	$	5,195	$	5,536	$	210	$	1,585		$	118	$	498	$	15,211

The shift in allocation and the changes in the provision for credit losses are primarily due to changes in the credit metrics within the loan portfolio coupled with the adoption of CECL on January 1, 2023. The decrease in provision for consumer automobile loans for the three month period was driven by increased net recoveries that offset the impact of increased loan volume, while the increase in provision for the ~~three and six~~nine month ~~periods~~period ended ~~June~~September 30, 2023 ~~for consumer auto~~ was driven by loan volume ~~driven.~~coupled with increased net charge-offs. The increase in provision for commercial, financial, and agricultural for the three month period was primarily the result of loan volume, while the decrease in provision for the ~~three and six~~nine month ~~periods~~period ended ~~June~~September 30, 2023 ~~for commercial, financial, and agricultural~~ was the result of improving credit metrics coupled with a large recovery during the three month period ended June 30, 2023 which effected the historical loss rate calculations. The ~~increase in~~ provision ~~for the three and six month periods ended June 30, 2023~~ for commercial real estate ~~was~~remained steady for the three month period and increased for the nine month period ended September 30, 2023 primarily ~~the result of~~due to growth within this segment of the loan portfolio.

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.

2324

Table of Contents

The Company has a concentration of the following to gross loans at ~~June~~September 30, 2023 and 2022:


		June 30,					September 30,
		2023		2022			2023		2022
Owners of residential rental properties	Owners of residential rental properties	18.79	%	19.65	%	Owners of residential rental properties	18.99	%	19.95	%
Owners of commercial rental properties	Owners of commercial rental properties	14.80	%	16.11	%	Owners of commercial rental properties	14.62	%	16.09	%

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 December 31, 2022:


	December 31, 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	$	4	$	111	$	827	$	—	$	—	$	19	$	—	$	961
Collectively evaluated for impairment	1,910		4,950		5,283		188		1,617		90		638		14,676
Total ending allowance balance	$	1,914	$	5,061	$	6,110	$	188	$	1,617	$	109	$	638	$	15,637

Loans:
Individually evaluated for impairment	$	698	$	4,321	$	6,195	$	—	$	—	$	19			$	11,233

Collectively evaluated for impairment	189,763		703,888		494,437		43,308		186,112		10,342				1,627,850
Total ending loans balance	$	190,461	$	708,209	$	500,632	$	43,308	$	186,112	$	10,361			$	1,639,083

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, 2022.

The following sets forth the components of the net periodic expense/(gain) of the domestic non-contributory defined benefit plan for the three and ~~six~~nine months ended ~~June~~September 30, 2023 and 2022, respectively:


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands)	(In Thousands)	2023		2022		2023		2022		(In Thousands)	2023		2022		2023		2022

Interest cost	Interest cost	$	198	$	138	$	396	$	276	Interest cost	$	198	$	138	$	594	$	414
Expected return on plan assets	Expected return on plan assets	(326)		(413)		(652)		(825)		Expected return on plan assets	(326)		(412)		(978)		(1,237)

Amortization of net loss	Amortization of net loss	37		18		74		35		Amortization of net loss	37		17		111		52
Net periodic benefit	Net periodic benefit	$	(91)	$	(257)	$	(182)	$	(514)	Net periodic benefit	$	(91)	$	(257)	$	(273)	$	(771)

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, 2022, that it does not expect to contribute to its defined benefit plan in 2023. As of ~~June~~September 30, 2023, there were no contributions made to the pension plan.

2425

Table of Contents

Note 8. Stock Purchase 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 1,500,000 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 ~~six~~nine months ended ~~June~~September 30, 2023 and 2022, there were ~~1,684~~3,120 and ~~1,903~~2,960 shares issued under the Plan, respectively, for total proceeds of ~~$39,000~~$73,000 and ~~$44,000.~~$67,000.

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~~September 30, 2023, the Company has issued a total of ~~39,850~~42,191 shares of common stock to non-employee directors under the Director Plan in lieu of otherwise payable cash compensation with ~~5,219~~7,560 and ~~6,990~~9,968 shares issued, respectively, with an associated expense of ~~$130,000~~$193,000 and ~~$168,000~~$240,000 during the ~~three~~nine months ended ~~June~~September 30, 2023 and 2022.

Note 9. 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 ~~June~~September 30, 2023 and December 31, 2022:


(In Thousands)	(In Thousands)	June 30, 2023		December 31, 2022		(In Thousands)	September 30, 2023		December 31, 2022
Commitments to extend credit	Commitments to extend credit	$	159,795	$	169,365	Commitments to extend credit	$	161,270	$	169,365
Standby letters of credit	Standby letters of credit	9,750		9,915		Standby letters of credit	9,467		9,915
Credit exposure from the sale of assets with recourse	Credit exposure from the sale of assets with recourse	7,358		7,358		Credit exposure from the sale of assets with recourse	7,274		7,358
		$	176,903	$	186,638		$	178,011	$	186,638
Allowance for credit losses	Allowance for credit losses	$	1,199	$	143	Allowance for credit losses	$	1,240	$	143

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.

2526

Table of Contents

Note 10. Fair Value Measurements

The following disclosures show the ~~hierarchal~~hierarchical 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.

The following table presents the assets reported on the Consolidated Balance Sheet at their fair value on a recurring basis as of ~~June~~September 30, 2023 and December 31, 2022, 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, 2023									September 30, 2023
(In Thousands)	(In Thousands)	Level I		Level II		Level III		Total		(In Thousands)	Level I		Level II		Level III		Total
Assets measured on a recurring basis:	Assets measured on a recurring basis:									Assets measured on a recurring basis:
Investment securities, available for sale:	Investment securities, available for sale:									Investment securities, available for sale:
U.S. Government and agency securities	U.S. Government and agency securities	$	—	$	3,885	$	—	$	3,885	U.S. Government and agency securities	$	—	$	3,864	$	—	$	3,864
Mortgage-backed securities	Mortgage-backed securities	—		9,330		—		9,330		Mortgage-backed securities	—		11,396		—		11,396

State and political securities	State and political securities	—		127,479		—		127,479		State and political securities	—		119,847		—		119,847
Other debt securities	Other debt securities	—		45,932		—		45,932		Other debt securities	—		49,560		—		49,560
Investment equity securities:	Investment equity securities:									Investment equity securities:

Equity securities	Equity securities	1,143		—		—		1,143		Equity securities	1,072		—		—		1,072


	December 31, 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	$	—	$	2,896	$	—	$	2,896
Mortgage-backed securities	—		1,282		—		1,282

State and political securities	—		142,809		—		142,809
Other debt securities	—		46,686		—		46,686
Investment equity securities:

Equity securities	1,142		—		—		1,142

The following table presents the assets reported on the Consolidated Balance Sheet at their fair value on a non-recurring basis as of ~~June~~September 30, 2023 and December 31, 2022, 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, 2023									September 30, 2023
(In Thousands)	(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:									Assets measured on a non-recurring basis:
Collateral dependent loans	Collateral dependent loans	$	—	$	—	$	1,564	$	1,564	Collateral dependent loans	$	—	$	—	$	331	$	331
Other real estate owned	Other real estate owned	—		—		83		83		Other real estate owned	—		—		853		853

2627

Table of Contents


	December 31, 2022
(In Thousands)	Level I		Level II		Level III		Total
Assets measured on a non-recurring basis:
Impaired loans	$	—	$	—	$	1,923	$	1,923
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 ~~June~~September 30, 2023 and December 31, 2022:

June 30, 2023

September 30, 2023

Quantitative Information About Level III Fair Value Measurements

(In Thousands)

Fair Value

Valuation Technique(s)

Unobservable Inputs

Range

Weighted Average

(In Thousands)

Fair Value

Valuation Technique(s)

Unobservable Inputs

Range

Weighted Average

Collateral dependent loans

1,564

Appraisal of collateral (1)

Appraisal adjustments (1)

(10)% to (24)%

(22)%

Collateral dependent loans

331

Appraisal of collateral (1)

Appraisal adjustments (1)

(15)% to (24)%

(20)%

Other real estate owned

Appraisal of collateral (1)

Appraisal adjustments (1)

(20)%

Other real estate owned

853

Appraisal of collateral (1)

Appraisal adjustments (1)

(20)%

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

December 31, 2022

Quantitative Information About Level III Fair Value Measurements

(In Thousands)

Fair Value

Valuation Technique(s)

Unobservable Inputs

Range

Weighted Average

Impaired loans

1,923

Appraisal of collateral (1)

Appraisal adjustments (1)

0% to (34)%

(14)%

Other real estate owned

Appraisal of collateral (1)

Appraisal adjustments (1)

(20)%

(1) Appraisals may be adjusted 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 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 are set forth below for the Company’s other financial instruments.

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.

2728

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 ~~June~~September 30, 2023 and December 31, 2022:


		Carrying		Fair		Fair Value Measurements at June 30, 2023							Carrying		Fair		Fair Value Measurements at September 30, 2023
(In Thousands)	(In Thousands)	Value		Value		Level I		Level II		Level III		(In Thousands)	Value		Value		Level I		Level II		Level III
Financial assets:	Financial assets:											Financial assets:

Loans held for sale (1)	Loans held for sale (1)	$	3,049	$	3,049	$	3,049	$	—	$	—	Loans held for sale (1)	$	4,083	$	4,083	$	4,083	$	—	$	—
Loans, net	Loans, net	1,757,811		1,723,329		—		—		1,723,329		Loans, net	1,805,571		1,761,944		—		—		1,761,944

Financial liabilities:	Financial liabilities:											Financial liabilities:

Time deposits & brokered deposits	Time deposits & brokered deposits	313,402		307,435		—		—		307,435		Time deposits & brokered deposits	356,244		350,456		—		—		350,456
Short-term borrowings	Short-term borrowings	180,410		180,410		180,410		—		—		Short-term borrowings	193,746		193,746		193,746		—		—
Long-term borrowings	Long-term borrowings	202,692		198,834		—		—		198,834		Long-term borrowings	217,645		238,977		—		—		238,977

(1) The financial instrument is carried at cost at, ~~June~~September 30, 2023 which approximate the fair value of the instruments


	Carrying		Fair		Fair Value Measurements at December 31, 2022
(In Thousands)	Value		Value		Level I		Level II		Level III
Financial assets:





Loans held for sale (1)	$	3,298	$	3,298	$	3,298	$	—	$	—
Loans, net	1,624,094		1,594,073		—		—		1,594,073



Financial liabilities:

Time deposits & brokered deposits	146,282		137,559		—		—		137,559
Short-term borrowings	153,349		153,349		153,349		—		—
Long-term borrowings	102,783		99,118		—		—		99,118

(1) The financial instrument is carried at cost at, December 31, 2022 which approximate the fair value of the instruments

The methods and assumptions used by the Company in estimating fair values of financial instruments is in accordance with ASC Topic 825, Financial Instruments, as amended by ASU 2016-01 which requires public entities to use exit pricing in the calculation of the above tables.

Note 12. Stock Options

In 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, restricted stock, restricted stock units, and other equity-based awards may be granted as part of the plan.

As of January 1, 2023, the Company had a total of 914,000 stock options outstanding. During the ~~six~~nine months ended as of ~~June~~September 30, 2023, the Company issued 89,000 stock options with a strike price of $27.77 to a group of employees. The options granted in 2023 all expire ten years from the grant date. Of the 89,000 grants awarded in 2023, 59,500 of the options vest in three years while the 29,500 remaining options vest in five years.

2829

Table of Contents

Stock options outstanding as of ~~June~~September 30, 2023 are presented below:


Stock Options Granted	Stock Options Granted									Stock Options Granted
Date	Date	Shares	Forfeited	Cash Settlement	Outstanding	Strike Price		Vesting Period	Expiration	Date	Shares	Forfeited	Cash Settlement	Outstanding	Strike Price		Vesting Period	Expiration

January 20, 2023	January 20, 2023	59,500	—	—	59,500	$	27.77	3 years	10 years	January 20, 2023	59,500	—	—	59,500	$	27.77	3 years	10 years
January 20, 2023	January 20, 2023	29,500	—	—	29,500	27.77		5 years	10 years	January 20, 2023	29,500	—	—	29,500	27.77		5 years	10 years
January 18, 2022	January 18, 2022	156,000	—	—	156,000	24.10		3 years	10 years	January 18, 2022	156,000	—	—	156,000	24.10		3 years	10 years
January 18, 2022	January 18, 2022	78,000	—	—	78,000	24.10		5 years	10 years	January 18, 2022	78,000	—	—	78,000	24.10		5 years	10 years
April 9, 2021	April 9, 2021	156,500	—	—	156,500	24.23		3 years	10 years	April 9, 2021	156,500	—	—	156,500	24.23		3 years	10 years
April 9, 2021	April 9, 2021	78,000	—	—	78,000	24.23		5 years	10 years	April 9, 2021	78,000	—	—	78,000	24.23		5 years	10 years
March 11, 2020	March 11, 2020	119,300	—	—	119,300	25.34		3 years	10 years	March 11, 2020	119,300	—	—	119,300	25.34		3 years	10 years
March 11, 2020	March 11, 2020	119,200	—	—	119,200	25.34		5 years	10 years	March 11, 2020	119,200	—	—	119,200	25.34		5 years	10 years
March 15, 2019	March 15, 2019	120,900	(18,300)	—	102,600	28.01		3 years	10 years	March 15, 2019	120,900	(19,800)	—	101,100	28.01		3 years	10 years
March 15, 2019	March 15, 2019	119,100	(17,700)	—	101,400	28.01		5 years	10 years	March 15, 2019	119,100	(19,200)	—	99,900	28.01		5 years	10 years

August 27, 2015	August 27, 2015	58,125	(26,250)	(28,875)	3,000	28.02		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 for the nine months ended September 30, 2023 is presented below:


		June 30, 2023			September 30, 2023
		Shares	Weighted Average Exercise Price				Shares	Weighted Average Exercise Price
Outstanding, beginning of year	Outstanding, beginning of year	914,000	$	25.34		Outstanding, beginning of year	914,000	$	25.34
Granted	Granted	89,000	27.77			Granted	89,000	27.77

Forfeited	Forfeited	—	—			Forfeited	(3,000)	28.01
Expired	Expired	—	—			Expired	—	—
Outstanding, end of period	Outstanding, end of period	1,003,000	$	25.56		Outstanding, end of period	1,000,000	$	25.55

Exercisable, end of period	Exercisable, end of period	224,900	$	26.59		Exercisable, end of period	223,400	$	26.58

The estimated fair value of options, including the effect of estimated forfeitures, is recognized as expense on a straight line 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 fair value of stock options is estimated using the Black-Scholes option pricing model. The following is a summary of the assumptions used in this model for stock options granted for the ~~six~~nine months ended ~~June~~September 30, 2023:


	~~Six~~Nine months ended ~~June~~September 30,
	2023
Risk-free interest rate	3.76		%
Expected volatility	31		%
Expected Annual dividend	$	1.28
Expected life	6.84 years
Weighted average grant date fair value per option	$	6.11

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 related to stock options was ~~$233,000~~$229,000 and ~~$486,000~~$715,000 for the three and ~~six~~nine months ended ~~June~~September 30, 2023 compared to ~~$453,000~~$236,000 and ~~$768,000~~$1,004,000 for the same periods of 2022. As of ~~June~~September 30, 2023, a total of ~~224,900~~223,400 stock options were exercisable and the weighted average years to expiration of these options was ~~6.19~~5.94 years. Total unrecognized compensation cost for non-vested options was ~~$1,673,000~~$1,437,000 and will be recognized over their weighted average remaining vesting period of ~~1.15~~1.08 years.

2930

Table of Contents

Note 13. 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

3031

Table of Contents

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 effects of external events, including natural disasters, national or global health emergencies, and events of armed conflict in other countries; or (vi) the effect of changes in the business cycle and downturns in the local, regional or national economies, including the effects of inflation,; and (vii) the Risk Factors identified in Item 1A of the Company's Annual Report on Form 10-K for the year ended December 31, 2022 and in other filings made by the Company under the Securities Exchange Act of 1934.

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.

Table of Contents

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

EARNINGS SUMMARY

Comparison of the Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2023 and 2022

Summary Results

Net income for the three and ~~six~~nine months ended ~~June~~September 30, 2023 was ~~$4.2~~$2.2 million and ~~$8.8~~$11.1 million, compared to ~~$4.2~~$5.3 million and ~~$7.7~~$12.9 million for the same periods of 2022. Results for the three and ~~six~~nine months ended ~~June~~September 30, 2023 compared to 2022 were impacted by a decrease in net interest income of $2.2 million and $1.2 million as interest expense increased significantly due to the velocity and magnitude of the rate increases enacted by the Federal Open Market Committee ("FOMC"). In addition, results were impacted by a decrease in after-tax securities losses of ~~$12,000~~$77,000 (from a loss of ~~$43,000~~$167,000 to a loss of ~~$31,000)~~$90,000) for the three month period and a decrease in after-tax securities losses of ~~$29,000~~$106,000 (from a loss of ~~$91,000~~$258,000 to a loss of ~~$62,000)~~$152,000) for the ~~six~~nine month period. ~~In addition, bank-owned~~Bank-owned life insurance income increased due to a gain on death benefit of $380,000 during the ~~six~~nine months ended ~~June~~September 30, 2023, while an after-tax loss of $201,000 related to a branch closure negatively impacted the ~~six~~nine months ended ~~June~~September 30, 2022. The provision for credit losses increased $517,000 for the three months ended September 30, 2023 and decreased ~~$1.5 million and $1.6~~$1.1 million for the ~~three and six~~nine months ended ~~June~~September 30, 2023 due ~~primarily~~ to a ~~recovery for credit losses~~provision of $1.4 million and $263,000, respectively, for the ~~three and six months end June 30,~~ 2023 ~~of $1.2 million and $1.1 million, respectively, relating to a commercial loan~~periods compared to a provision of ~~$330,000~~$835,000 and ~~$480,000~~$1.3 million for the 2022 periods. The decrease for the nine month periods was due primarily to a recovery on a commercial loan during the second quarter of 2023. The increase in the provision for credit losses ~~also resulted from improving~~for the 2023 three month period was due primarily to loan portfolio growth as loan portfolio credit metrics continue to improve and loan net charge-offs remain at a ~~minimal level of loan charge-offs.Basic and diluted~~low level. Basic earnings per share for the three and ~~six~~nine months ended ~~June~~September 30, 2023 were ~~$0.59~~$0.31 and ~~$1.25.~~$1.56, while the diluted earnings per share were $0.31 and $1.53 for the periods. Basic and diluted earnings per share for the three and ~~six~~nine months ended ~~June~~September 30, 2022 were ~~$0.60~~$0.74 and ~~$1.08.~~$1.83. Annualized return on average assets was ~~0.80%~~0.41% for three months ended ~~June~~September 30, 2023, compared to ~~0.88%~~1.09% for the corresponding period of 2022. Annualized return on average assets was ~~0.86%~~0.70% for the ~~six~~nine months ended ~~June~~September 30, 2023, compared to ~~0.80% for the corresponding period of 2022.Annualized return on average equity was 9.53% for the three months ended June 30, 2023, compared to 10.15%~~0.89% for the corresponding period of 2022. Annualized return on average equity was ~~10.37%~~5.06% for the ~~six~~three months ended ~~June~~September 30, 2023, compared to ~~9.20%~~12.61% for the corresponding period of 2022. Annualized return on average equity was 8.58% for the nine months ended September 30, 2023, compared to 10.48% for the corresponding period of 2022. Net income from core operations (“core earnings”), which is a non-generally accepted accounting principles (GAAP) measure of net income excluding net securities gains or losses, was ~~$4.2~~$2.3 million and ~~$8.9~~$11.2 million for the three and ~~six~~nine months ended ~~June~~September 30, 2023 compared to ~~$4.3~~$5.4 million and ~~$7.8~~$13.2 million for the same periods of 2022. ~~Core~~Basic core earnings per share for the three and ~~six~~nine months ended ~~June~~September 30, 2023 was ~~$0.60~~$0.32 and ~~$1.26 basic~~$1.58, while the diluted core earnings per share was $0.32 and ~~diluted,~~$1.55, compared to ~~$0.61~~$0.77 and ~~$1.10~~$1.87 basic and diluted core earnings per share for the same periods of 2022.

Management uses the non-GAAP measure of net income from core operations 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 means net income adjusted to exclude after-tax net securities gains or 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 June 30, Six Months Ended June 30,
2023 2022 2023 2022
GAAP net income $ 4,171 $ 4,231 $ 8,829 $ 7,663
Net securities losses, net of tax 31 43 62 91
Non-GAAP core earnings $ 4,202 $ 4,274 $ 8,891 $ 7,754

Three Months Ended June 30, Six Months Ended June 30,
2023 2022 2023 2022
GAAP Return on average assets (ROA) 0.80 % 0.88 % 0.86 % 0.80 %
Net securities losses, net of tax — % 0.01 % 8 — % 0.01 %
Non-GAAP core ROA 0.80 % 0.89 % 0.86 % 0.81 %


(Dollars in Thousands, Except Per Share Data)	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
GAAP net income	$	2,224	$	5,250	$	11,053	$	12,913
Net securities losses, net of tax	64		167		126		258
Non-GAAP core earnings	$	2,288	$	5,417	$	11,179	$	13,171

3233

Table of Contents

Three Months Ended June 30, Six Months Ended June 30,
2023 2022 2023 2022
GAAP Return on average equity (ROE) 9.53 % 10.15 % 10.37 % 9.20 %
Net securities losses, net of tax 0.07 % 0.10 % 0.07 % 0.11 %
Non-GAAP core ROE . 9.60 % 10.25 % 10.44 % 9.31 %


	Three Months Ended September 30,					Nine Months Ended September 30,
	2023		2022			2023		2022
GAAP Return on average assets (ROA)	0.41	%	1.09	%		0.70	%	0.89	%
Net securities losses, net of tax	0.01	%	0.03	%	8	0.01	%	0.02	%
Non-GAAP core ROA	0.42	%	1.12	%		0.71	%	0.91	%

Three Months Ended June 30, Six Months Ended June 30,
2023 2022 2023 2022
GAAP Basic earnings per share (EPS) $ 0.59 $ 0.60 $ 1.25 $ 1.08
Net securities losses, net of tax 0.01 0.01 0.01 0.02
Non-GAAP core operating EPS $ 0.60 $ 0.61 $ 1.26 $ 1.10


		Three Months Ended September 30,				Nine Months Ended September 30,
		2023		2022		2023		2022
GAAP Return on average equity (ROE)		5.06	%	12.61	%	8.58	%	10.48	%
Net securities losses, net of tax		0.14	%	0.41	%	0.09	%	0.21	%
Non-GAAP core ROE	.	5.20	%	13.02	%	8.67	%	10.69	%

Three Months Ended June 30, Six Months Ended June 30,
2023 2022 2023 2022
GAAP Diluted EPS $ 0.59 $ 0.60 $ 1.25 $ 1.08
Net securities losses, net of tax 0.01 0.01 0.01 0.02
Non-GAAP diluted core EPS $ 0.60 $ 0.61 $ 1.26 $ 1.10


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
GAAP Basic earnings per share (EPS)	$	0.31	$	0.74	$	1.56	$	1.83
Net securities losses, net of tax	0.01		0.03		0.02		0.04
Non-GAAP core operating EPS	$	0.32	$	0.77	$	1.58	$	1.87


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
GAAP Diluted EPS	$	0.31	$	0.74	$	1.53	$	1.83
Net securities losses, net of tax	0.01		0.03		0.02		0.04
Non-GAAP diluted core EPS	$	0.32	$	0.77	$	1.55	$	1.87

Interest and Dividend Income

Interest and dividend income for the three and ~~six~~nine months ended ~~June~~September 30, 2023 increased ~~$6,709,000~~$7,057,000 and ~~$12,298,00~~$19,355,00 compared to the same periods of 2022. The increase in loan portfolio income was due to an increase in the average loan portfolio balance coupled with an increase in average rate earned on the portfolio. Investment securities income has been impacted primarily by an increase in the average rate earned on the portfolio as lower yielding legacy investments matured. The increase in dividend and other interest income is due primarily to an increase in dividends received on FHLB restricted stock.

Interest and dividend income composition for the three and ~~six~~nine months ended ~~June~~September 30, 2023 and 2022 was as follows:

Three Months Ended
June 30, 2023 June 30, 2022 Change
(In Thousands) Amount % Total Amount % Total Amount %
Loans including fees $ 19,846 90.65 % $ 13,620 89.70 % $ 6,226 45.71 %
Investment securities:
Taxable 1,287 5.88 864 5.69 423 48.96
Tax-exempt 118 0.54 194 1.28 (76) (39.18)
Dividend and other interest income 642 2.93 506 3.33 136 26.88
Total interest and dividend income $ 21,893 100.00 % $ 15,184 100.00 % $ 6,709 44.18 %


		Six Months Ended													Three Months Ended
		June 30, 2023				June 30, 2022				Change					September 30, 2023				September 30, 2022				Change
(In Thousands)	(In Thousands)	Amount		% Total		Amount		% Total		Amount		%		(In Thousands)	Amount		% Total		Amount		% Total		Amount		%
Loans including fees	Loans including fees	$	37,851	90.65	%	$	26,658	90.49	%	$	11,193	41.99	%	Loans including fees	$	21,720	90.80	%	$	15,051	89.25	%	$	6,669	44.31	%
Investment securities:	Investment securities:													Investment securities:
Taxable	Taxable	2,505		6.00		1,601		5.43		904		56.46		Taxable	1,365		5.71		949		5.63		416		43.84
Tax-exempt	Tax-exempt	296		0.71		358		1.22		(62)		(17.32)		Tax-exempt	114		0.48		236		1.40		(122)		(51.69)
Dividend and other interest income	Dividend and other interest income	1,105		2.64		842		2.86		263		31.24		Dividend and other interest income	722		3.01		628		3.72		94		14.97
Total interest and dividend income	Total interest and dividend income	$	41,757	100.00	%	$	29,459	100.00	%	$	12,298	41.75	%	Total interest and dividend income	$	23,921	100.00	%	$	16,864	100.00	%	$	7,057	41.85	%

3334

Table of Contents


	Nine Months Ended
	September 30, 2023				September 30, 2022				Change
(In Thousands)	Amount		% Total		Amount		% Total		Amount		%
Loans including fees	$	59,571	90.70	%	$	41,709	90.04	%	$	17,862	42.83	%
Investment securities:
Taxable	3,870		5.89		2,550		5.50		1,320		51.76
Tax-exempt	410		0.62		594		1.28		(184)		(30.98)
Dividend and other interest income	1,827		2.79		1,470		3.18		357		24.29
Total interest and dividend income	$	65,678	100.00	%	$	46,323	100.00	%	$	19,355	41.78	%

Interest Expense

Interest expense for the three and ~~six~~nine months ended ~~June~~September 30, 2023 increased ~~$7,170,000~~$9,257,000 and ~~$11,314,000~~$20,571,000 compared to the same periods of 2022. Interest-bearing deposit interest expense increased significantly due a time deposit gathering campaign that generated funding for the increase in the loan portfolio. In addition, competition for deposits along with the impact of the rising rate environment contributed to the increase in deposit interest expense. Brokered deposits have also been utilized as a funding source to supplement in market deposit gathering efforts. Short and long-term borrowing interest expenses increased as borrowings were utilized to fund a portion of the growth in the loan portfolio.

Interest expense composition for the three and ~~six~~nine months ended ~~June~~September 30, 2023 and 2022 was as follows:


		Three Months Ended													Three Months Ended
		June 30, 2023				June 30, 2022				Change					September 30, 2023				September 30, 2022				Change
(In Thousands)	(In Thousands)	Amount		% Total		Amount		% Total		Amount		%		(In Thousands)	Amount		% Total		Amount		% Total		Amount		%
Deposits	Deposits	$	4,851	57.02	%	$	710	53.10	%	$	4,141	583.24	%	Deposits	$	6,463	61.04	%	$	693	52.03	%	$	5,770	832.61	%
Short-term borrowings	Short-term borrowings	2,232		26.24		2		0.15		2,230		n/m		Short-term borrowings	2,412		22.78		26		1.95		2,386		n/m
Long-term borrowings	Long-term borrowings	1,424		16.74		625		46.75		799		127.84		Long-term borrowings	1,714		16.18		613		46.02		1,101		179.61
Total interest expense	Total interest expense	$	8,507	100.00	%	$	1,337	100.00	%	$	7,170	536.28	%	Total interest expense	$	10,589	100.00	%	$	1,332	100.00	%	$	9,257	694.97	%


		Six Months Ended													Nine Months Ended
		June 30, 2023				June 30, 2022				Change					September 30, 2023				September 30, 2022				Change
(In Thousands)	(In Thousands)	Amount		% Total		Amount		% Total		Amount		%		(In Thousands)	Amount		% Total		Amount		% Total		Amount		%
Deposits	Deposits	$	8,223	58.43	%	$	1,498	54.30	%	$	6,725	448.93	%	Deposits	$	14,686	59.55	%	$	2,191	53.56	%	$	12,495	570.29	%
Short-term borrowings	Short-term borrowings	3,672		26.09		3		0.11		3,669		n/m		Short-term borrowings	6,084		24.67		29		0.71		6,055		n/m
Long-term borrowings	Long-term borrowings	2,178		15.48		1,258		45.59		920		73.13		Long-term borrowings	3,892		15.78		1,871		45.73		2,021		108.02
Total interest expense	Total interest expense	$	14,073	100.00	%	$	2,759	100.00	%	$	11,314	410.08	%	Total interest expense	$	24,662	100.00	%	$	4,091	100.00	%	$	20,571	502.84��	%

Net Interest Margin

The net interest margin for the three and ~~six~~nine months ended ~~June~~September 30, 2023 was ~~2.77%~~2.65% and ~~2.92%~~2.82%, compared to ~~3.12%~~3.47% and ~~3.03%~~3.17% for the corresponding periods of 2022. The decrease in the net interest margin for the three and ~~six~~nine month periods was driven by an increase in the rate paid on interest-bearing liabilities of ~~198~~239 and ~~161~~189 basis points ("bps"), respectively. The FOMC rate increases during 2022 and 2023 contributed to the increases in rate paid on interest-bearing liabilities as the rate paid on short-term borrowings increased ~~513~~429 bps and ~~498~~467 bps for the three and ~~six~~nine month periods ended ~~June~~September 30, 2023 compared to the same periods of 2022. Short-term borrowings increased in volume and rate paid as this funding source was utilized to provide funding for the growth in the loan portfolio, resulting in an increase of ~~$2,230,000~~$2.4 million and ~~$3,669,000~~$6.1 million in expense for the three and ~~six~~nine month periods ended ~~June~~September 30, 2023 compared to the same periods of 2022. The rate paid on interest-bearing deposits increased ~~158~~207 and ~~127~~154 bps for the three and ~~six~~nine month periods ended ~~June~~September 30, 2023 compared to the corresponding periods of 2022 due to the FOMC rate actions and an increase in competition for deposits. The rates paid on time deposits significantly contributed to the increase in funding costs as rates paid for the three and ~~six~~nine month periods ended ~~June~~September 30, 2023 compared to the same periods of 2022 increased ~~266~~328 bps and ~~211~~259 bps, respectively, as deposit gathering campaigns initiated in the latter part of 2022 continued throughout 2023. In addition, the rate paid on brokered ~~deposit~~deposits increased 384 bps and 328 bps for the three and nine months ended September 30, 2023 compared to the same periods of 2022. The average balance of brokered deposits increased $97,366,000 and $50,212,000 over the three and nine month periods as they have been utilized to assist with the funding of the loan portfolio ~~growth and contributed to the increase in time deposit funding costs.~~growth. Partially offsetting the

Table of Contents

increase in funding cost was an ~~increases~~increase in the yield on interest-earning assets and growth in the average balance of the earning asset ~~portfolio.~~portfolio compared to the same periods in 2022. The average loan portfolio balance increased ~~$291,207,000~~$276.8 million and ~~$278,882,000~~$278.2 million for the three and ~~six~~nine month periods, respectively, as the average yield on the portfolio increased 8187 and 7176 bps for the same ~~periods resulting in loan interest income on a fully taxable equivalent basis increasing $6,254,000 and $11,250,000.~~periods. The three and ~~six~~nine month periods ended ~~June~~September 30, 2023 were impacted by an increase of ~~109~~113 and 99101 bps in the yield earned on the securities portfolio as legacy securities matured with the funds reinvested at higher rates.

~~Table of Contents~~

The following is a schedule of average balances and associated yields for the three and ~~six~~nine months ended ~~June~~September 30, 2023 and 2022:
AVERAGE BALANCES AND INTEREST RATES
Three Months Ended June 30, 2023 Three Months Ended June 30, 2022
(In Thousands) Average Balance (1) Interest Average Rate Average Balance (1) Interest Average Rate
Assets:
Tax-exempt loans (3)
$ 66,613 $ 461 2.78 % $ 52,886 $ 331 2.51 %
All other loans 1,672,111 19,482 4.67 % 1,394,631 13,358 3.84 %
Total loans (2)
1,738,724 19,943 4.60 % 1,447,517 13,689 3.79 %
Federal funds sold — — n/a 48,352 154 1.28 %
Taxable securities 190,862 1,807 3.84 % 154,484 1,048 2.75 %
Tax-exempt securities (3)
23,310 150 2.61 % 45,824 245 2.17 %
Total securities 214,172 1,957 3.71 % 200,308 1,293 2.62 %
Interest-bearing balances in other financial institutions 9,961 122 4.91 % 102,172 168 0.66 %
Total interest-earning assets 1,962,857 22,022 4.50 % 1,798,349 15,304 3.42 %
Other assets 133,239 131,117
Total assets $ 2,096,096 $ 1,929,466
Liabilities and shareholders’ equity:
Savings $ 232,889 155 0.27 % $ 248,063 24 0.04 %
Super Now deposits 271,438 913 1.35 % 388,002 239 0.25 %
Money market deposits 293,682 1,665 2.27 % 304,636 210 0.28 %
Time deposits 261,947 2,118 3.24 % 164,301 237 0.58 %
Total interest-bearing deposits 1,059,956 4,851 1.84 % 1,105,002 710 0.26 %
Short-term borrowings 169,723 2,232 5.27 % 5,636 2 0.14 %
Long-term borrowings 182,719 1,424 3.13 % 112,901 625 2.22 %
Total borrowings 352,442 3,656 4.16 % 118,537 627 2.12 %
Total interest-bearing liabilities 1,412,398 8,507 2.42 % 1,223,539 1,337 0.44 %
Demand deposits 484,607 518,467
Other liabilities 24,059 20,708
Shareholders’ equity 175,032 166,752
Total liabilities and shareholders’ equity $ 2,096,096 $ 1,929,466
Interest rate spread (3)
2.08 % 2.98 %
Net interest income/margin (3)
$ 13,515 2.77 % $ 13,967 3.12 %


	AVERAGE BALANCES AND INTEREST RATES
	Three Months Ended September 30, 2023						Three Months Ended September 30, 2022
(In Thousands)	Average Balance (1)		Interest		Average Rate		Average Balance (1)		Interest		Average Rate
Assets:
Tax-exempt loans (3)	$	68,243	$	462	2.69	%	$	58,735	$	394	2.66	%
All other loans	1,730,669		21,355		4.90	%	1,463,330		14,740		4.00	%
Total loans (2)	1,798,912		21,817		4.81	%	1,522,065		15,134		3.94	%

Federal funds sold	—		—		—	%	33,641		218		2.57	%

Taxable securities	193,019		1,945		4.09	%	159,721		1,158		2.94	%
Tax-exempt securities (3)	20,777		144		2.81	%	49,177		299		2.47	%
Total securities	213,796		2,089		3.96	%	208,898		1,457		2.83	%

Interest-bearing balances in other financial institutions	11,868		142		4.75	%	34,202		201		2.33	%

Total interest-earning assets	2,024,576		24,048		4.72	%	1,798,806		17,010		3.76	%

Other assets	131,451						130,576

Total assets	$	2,156,027					$	1,929,382

Liabilities and shareholders’ equity:
Savings	$	225,357	181		0.32	%	$	249,083	26		0.04	%
Super Now deposits	244,387		1,174		1.91	%	405,173		287		0.28	%
Money market deposits	294,006		1,862		2.51	%	287,660		200		0.28	%
Time deposits	342,450		3,246		3.76	%	148,968		180		0.48	%
Total interest-bearing deposits	1,106,200		6,463		2.32	%	1,090,884		693		0.25	%

Short-term borrowings	173,364		2,412		5.52	%	8,062		26		1.23	%
Long-term borrowings	204,901		1,714		3.32	%	109,269		613		2.23	%
Total borrowings	378,265		4,126		4.33	%	117,331		639		2.16	%

Total interest-bearing liabilities	1,484,465		10,589		2.83	%	1,208,215		1,332		0.44	%

Demand deposits	471,494						533,681
Other liabilities	24,193						21,008
Shareholders’ equity	175,875						166,478

Total liabilities and shareholders’ equity	$	2,156,027					$	1,929,382
Interest rate spread (3)					1.89	%					3.32	%
Net interest income/margin (3)			$	13,459	2.65	%			$	15,678	3.47	%

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 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% and are reconciled to the equivalent GAAP

measure below the tables.

3536

Table of Contents


		AVERAGE BALANCES AND INTEREST RATES													AVERAGE BALANCES AND INTEREST RATES
		Six Months Ended June 30, 2023						Six Months Ended June 30, 2022							Nine Months Ended September 30, 2023						Nine Months Ended September 30, 2022
(In Thousands)	(In Thousands)	Average Balance (1)		Interest		Average Rate		Average Balance (1)		Interest		Average Rate		(In Thousands)	Average Balance (1)		Interest		Average Rate		Average Balance (1)		Interest		Average Rate
Assets:	Assets:													Assets:
Tax-exempt loans (3)	Tax-exempt loans (3)	$	65,669	$	909	2.79	%	$	50,775	$	639	2.54	%	Tax-exempt loans (3)	$	66,372	$	1,371	2.76	%	$	53,269	$	1,033	2.59	%
All other loans	All other loans	1,636,798		37,133		4.57	%	1,372,810		26,153		3.84	%	All other loans	1,668,596		58,488		4.69	%	1,403,504		40,893		3.90	%
Total loans (2)	Total loans (2)	1,702,467		38,042		4.51	%	1,423,585		26,792		3.80	%	Total loans (2)	1,734,968		59,859		4.61	%	1,456,773		41,926		3.85	%

Federal funds sold	Federal funds sold	—		—		n/a		49,171		247		1.01	%	Federal funds sold	—		—		—	%	43,938		465		1.41	%

Taxable securities	Taxable securities	186,168		3,386		3.67	%	149,489		1,968		2.67	%	Taxable securities	188,477		5,331		3.78	%	152,937		3,126		2.76	%
Tax-exempt securities (3)	Tax-exempt securities (3)	28,409		375		2.66	%	43,416		453		2.12	%	Tax-exempt securities (3)	25,837		519		2.69	%	45,357		752		2.24	%
Total securities	Total securities	214,577		3,761		3.53	%	192,905		2,421		2.54	%	Total securities	214,314		5,850		3.65	%	198,294		3,878		2.64	%

Interest-bearing balances in other financial institutions	Interest-bearing balances in other financial institutions	9,985		224		4.52	%	129,704		228		0.35	%	Interest-bearing balances in other financial institutions	10,619		366		4.61	%	97,520		429		0.59	%

Total interest-earning assets	Total interest-earning assets	1,927,029		42,027		4.20	%	1,795,365		29,688		3.34	%	Total interest-earning assets	1,959,901		66,075		4.41	%	1,796,525		46,698		3.48	%

Other assets	Other assets	132,561						128,624						Other assets	132,133						129,048

Total assets	Total assets	$	2,059,590					$	1,923,989					Total assets	$	2,092,034					$	1,925,573

Liabilities and shareholders’ equity:	Liabilities and shareholders’ equity:													Liabilities and shareholders’ equity:
Savings	Savings	$	238,067	275		0.23	%	$	244,528	46		0.04	%	Savings	$	233,784	456		0.26	%	$	246,063	72		0.04	%
Super Now deposits	Super Now deposits	318,669		1,852		1.17	%	379,496		434		0.23	%	Super Now deposits	293,636		3,026		1.38	%	388,149		721		0.25	%
Money market deposits	Money market deposits	291,719		2,945		2.04	%	301,744		396		0.26	%	Money market deposits	292,490		4,807		2.20	%	296,998		596		0.27	%
Time deposits	Time deposits	225,414		3,151		2.82	%	177,487		622		0.71	%	Time deposits	264,855		6,397		3.23	%	167,876		802		0.64	%
Total interest-bearing deposits	Total interest-bearing deposits	1,073,869		8,223		1.54	%	1,103,255		1,498		0.27	%	Total interest-bearing deposits	1,084,765		14,686		1.81	%	1,099,086		2,191		0.27	%

Short-term borrowings	Short-term borrowings	145,871		3,672		5.09	%	5,416		3		0.11	%	Short-term borrowings	155,136		6,084		5.26	%	6,308		29		0.59	%
Long-term borrowings	Long-term borrowings	151,169		2,178		2.91	%	114,077		1,258		2.23	%	Long-term borrowings	169,276		3,892		3.07	%	112,457		1,871		2.22	%
Total borrowings	Total borrowings	297,040		5,850		3.98	%	119,493		1,261		2.13	%	Total borrowings	324,412		9,976		4.12	%	118,765		1,900		2.14	%

Total interest-bearing liabilities	Total interest-bearing liabilities	1,370,909		14,073		2.07	%	1,222,748		2,759		0.46	%	Total interest-bearing liabilities	1,409,177		24,662		2.34	%	1,217,851		4,091		0.45	%

Demand deposits	Demand deposits	491,356						512,441						Demand deposits	484,662						519,599
Other liabilities	Other liabilities	27,050						22,184						Other liabilities	26,334						23,814
Shareholders’ equity	Shareholders’ equity	170,275						166,616						Shareholders’ equity	171,861						164,309

Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	2,059,590					$	1,923,989					Total liabilities and shareholders’ equity	$	2,092,034					$	1,925,573
Interest rate spread (3)	Interest rate spread (3)					2.13	%					2.88	%	Interest rate spread (3)					2.07	%					3.03	%
Net interest income/margin (3)	Net interest income/margin (3)			$	27,954	2.92	%			$	26,929	3.03	%	Net interest income/margin (3)			$	41,413	2.82	%			$	42,607	3.17	%

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 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% and are reconciled to the equivalent GAAP

measure below the tables.

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 ~~six~~nine months ended ~~June~~September 30, 2023 and 2022:


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands)	(In Thousands)	2023		2022		2023		2022		(In Thousands)	2023		2022		2023		2022
Total interest income	Total interest income	$	21,893	$	15,184	$	41,757	$	29,459	Total interest income	$	23,921	$	16,864	$	65,678	$	46,323
Total interest expense	Total interest expense	8,507		1,337		14,073		2,759		Total interest expense	10,589		1,332		24,662		4,091
Net interest income (GAAP)	Net interest income (GAAP)	13,386		13,847		27,684		26,700		Net interest income (GAAP)	13,332		15,532		41,016		42,232
Tax equivalent adjustment	Tax equivalent adjustment	129		120		270		229		Tax equivalent adjustment	127		146		397		375
Net interest income (fully taxable equivalent) (NON-GAAP)	Net interest income (fully taxable equivalent) (NON-GAAP)	$	13,515	$	13,967	$	27,954	$	26,929	Net interest income (fully taxable equivalent) (NON-GAAP)	$	13,459	$	15,678	$	41,413	$	42,607

3637

Table of Contents

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 ~~six~~nine months ended ~~June~~September 30, 2023 and 2022:


		Three Months Ended June 30,						Six months ended June 30,							Three Months Ended September 30,						Nine months ended September 30,
		2023 vs. 2022						2023 vs. 2022							2023 vs. 2022						2023 vs. 2022
		Increase (Decrease) Due to						Increase (Decrease) Due to							Increase (Decrease) Due to						Increase (Decrease) Due to
(In Thousands)	(In Thousands)	Volume		Rate		Net		Volume		Rate		Net		(In Thousands)	Volume		Rate		Net		Volume		Rate		Net
Interest income:	Interest income:													Interest income:
Tax-exempt loans	Tax-exempt loans	$	92	$	38	$	130	$	202	$	68	$	270	Tax-exempt loans	$	64	$	4	$	68	$	267	$	71	$	338
All other loans	All other loans	2,935		3,189		6,124		5,521		5,459		10,980		All other loans	2,964		3,651		6,615		8,490		9,105		17,595
Federal funds sold	Federal funds sold	(154)		—		(154)		(247)		—		(247)		Federal funds sold	(218)		—		(218)		(465)		—		(465)
Taxable investment securities	Taxable investment securities	283		476		759		562		856		1,418		Taxable investment securities	274		513		787		851		1,354		2,205
Tax-exempt investment securities	Tax-exempt investment securities	(138)		43		(95)		(179)		101		(78)		Tax-exempt investment securities	(193)		38		(155)		(297)		64		(233)
Interest bearing deposits	Interest bearing deposits	(272)		226		(46)		(1,497)		1,493		(4)		Interest bearing deposits	(182)		123		(59)		(325)		262		(63)
Total interest-earning assets	Total interest-earning assets	2,746		3,972		6,718		4,362		7,977		12,339		Total interest-earning assets	2,709		4,329		7,038		8,521		10,856		19,377

Interest expense:	Interest expense:													Interest expense:
Savings deposits	Savings deposits	(2)		133		131		(1)		230		229		Savings deposits	(2)		157		155		(1)		385		384
Super Now deposits	Super Now deposits	(93)		767		674		(80)		1,498		1,418		Super Now deposits	(155)		1,042		887		(104)		2,409		2,305
Money market deposits	Money market deposits	(8)		1,463		1,455		(13)		2,562		2,549		Money market deposits	4		1,658		1,662		(3)		4,214		4,211
Time deposits	Time deposits	216		1,665		1,881		211		2,318		2,529		Time deposits	489		2,577		3,066		699		4,896		5,595
Short-term borrowings	Short-term borrowings	985		1,245		2,230		1,339		2,330		3,669		Short-term borrowings	2,041		345		2,386		4,533		1,522		6,055
Long-term borrowings	Long-term borrowings	480		319		799		474		446		920		Long-term borrowings	706		395		1,101		1,150		872		2,022
Total interest-bearing liabilities	Total interest-bearing liabilities	1,578		5,592		7,170		1,930		9,384		11,314		Total interest-bearing liabilities	3,083		6,174		9,257		6,274		14,298		20,572
Change in net interest income	Change in net interest income	$	1,168	$	(1,620)	$	(452)	$	2,432	$	(1,407)	$	1,025	Change in net interest income	$	(374)	$	(1,845)	$	(2,219)	$	2,247	$	(3,442)	$	(1,195)

Provision for Credit Losses

The provision for credit 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 credit losses is determined by applying loss factors to outstanding loans by ~~type,.~~type. A historical charge-off factor is calculated utilizing the charge-off and recovery data over the past ten years. 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.

Although management believes it uses the best information available to make such determinations and that the allowance for credit losses is adequate at ~~June~~September 30, 2023, 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 credit losses to various portfolio segments; however, the allowance is available for the entire portfolio as needed.

The allowance for credit losses decreased from $15,637,000 at December 31, 2022 to ~~$11,592,000~~$12,890,000 at ~~June~~September 30, 2023. The decrease in allowance was primarily due to the adoption of CECL on January 1, 2023 coupled with net recoveries of ~~$349,000~~$316,000 for the ~~six~~nine months ended ~~June~~September 30, ~~,2023.~~2023. At ~~June~~September 30, 2023 and December 31, 2022, the allowance for credit losses to total loans was ~~0.66%~~0.71% and 0.95%, respectively.

3738

Table of Contents

The three and ~~six~~nine months ended ~~June~~September 30, 2023 had a ~~recovery~~provision for credit losses of ~~$1,180,000~~$1,372,000 and ~~$1,109,000,~~$263,000, respectively, compared to a provision for credit losses of ~~$330,000~~$855,000 and ~~$480,000~~$1,335,000 for the corresponding 2022 periods. The decrease in the provision for credit losses for the nine month period was the result of improving credit metrics, net recoveries during 2023, and the adoption of CECL offset by loan portfolio growth. The increase for the three month period was primarily due to loan portfolio growth.

Nonperforming loans decreased to ~~$4,276,000~~$3,683,000 at ~~June~~September 30, 2023 from $4,890,000 at December 31, 2022. The majority of nonperforming loans involve loans that are either in a secured position and have sureties with a strong underlying financial position or have been classified as impaired and have a specific allocation recorded within the allowance for credit losses. The ratio of ~~non-performing~~nonperforming loans to total loans ratio decreased to ~~0.24%~~0.20% at ~~June~~September 30, 2023 from ~~0.34%~~0.37% at ~~June~~September 30, 2022 and as ~~non-performing~~nonperforming loans have decreased to ~~$4,276,000~~$3,683,000 from ~~$5,100,000~~$5,743,000 at ~~June~~September 30, 2022. Net loan recoveries of ~~$349,000~~$316,000 for the ~~six~~nine months ended ~~June~~September 30, 2023 impacted the allowance for credit losses, which was ~~0.66%~~0.71% of total loans at ~~June~~September 30 2023 compared to 0.97% at ~~June~~September 30, 2022.

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


		Total Nonperforming Loans							Total Nonperforming Loans
(In Thousands)	(In Thousands)	90 Days Past Due		Non-accrual		Total		(In Thousands)	90 Days Past Due		Non-accrual		Total
September 30, 2023								September 30, 2023	$	1,678	$	2,005	$	3,683
June 30, 2023	June 30, 2023	$	1,120	$	3,156	$	4,276	June 30, 2023	1,120		3,156		4,276
March 31, 2023	March 31, 2023	1,215		3,551		4,766		March 31, 2023	1,215		3,551		4,766
December 31, 2022	December 31, 2022	1,275		3,615		4,890		December 31, 2022	1,275		3,615		4,890
September 30, 2022	September 30, 2022	1,161		4,582		5,743		September 30, 2022	1,161		4,582		5,743
June 30, 2022		421		4,679		5,100

Additional allowance for credit losses and net (charge-offs) recoveries information is presented by loan portfolio segment in the tables below. The ~~six~~nine months ending ~~June~~September 30, 2023 was impacted by the CECL adoption reclassification entry disclosed in Note 6. Loans.


		June 30, 2023																						September 30, 2023
		Amount of Allowance for Credit Losses Allocated					Total loans		Allowance for Credit Losses to Total Loans Ratio				Net (Charge-Offs) Recoveries		Average Loans				Ratio of Net (Charge-Offs) Recoveries to Average Loans					Amount of Allowance for Credit Losses Allocated				Total loans					Allowance for Credit Losses to Total Loans Ratio				Net (Charge-Offs) Recoveries						Average Loans				Ratio of Net (Charge-Offs) Recoveries to Average Loans

(In Thousands)	(In Thousands)										(In Thousands)

Commercial, financial, and agricultural	Commercial, financial, and agricultural				$	3,019					$	208,174					1.45	%				$	961							$	199,448									0.48		%			Commercial, financial, and agricultural					$	3,913			$	211,473			1.85	%		$	1,067		$	202,709			0.53	%
Real estate mortgage:	Real estate mortgage:																				Real estate mortgage:
Residential	Residential				1,078						743,705						0.14	%				(78)								724,170									(0.01)		%	Residential				1,168						773,782				0.15	%		(56)				737,749			(0.01)	%
Commercial	Commercial				4,191						517,713						0.81	%				(114)					509,033					(0.02)		%	Commercial			4,323						525,666				0.82		%			(36)				513,035			(0.01)	%
Construction	Construction	178					53,486		0.33	%			—		46,540				—	%	Construction			198					55,833					0.35		%		—						49,358				—		%
Consumer automobiles	Consumer automobiles	2,446					234,956		1.04	%			(291)		213,039				(0.14)	%	Consumer automobiles			2,584				239,768					1.08		%		(441)						221,802					(0.20)		%
Other consumer installment loans	Other consumer installment loans	680					10,121		6.72	%			(129)		10,237				(1.26)	%	Other consumer installment loans			704				10,821					6.51		%		(218)						10,315				(2.11)		%

		$	11,592				$	1,768,155	0.66	%			$	349	$	1,702,467			0.02	%				$	12,890			$	1,817,343				0.71		%		$	316					$	1,734,968			0.02		%

Total non-accrual loans outstanding	Total non-accrual loans outstanding	$	3,156																		Total non-accrual loans outstanding			$	2,005
Non-accrual loans to total loans outstanding	Non-accrual loans to total loans outstanding	0.18		%																	Non-accrual loans to total loans outstanding			0.11		%
Allowance for credit losses to non-accrual loans	Allowance for credit losses to non-accrual loans	367.30		%																	Allowance for credit losses to non-accrual loans			642.89		%

3839

Table of Contents


	December 31, 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	$	1,914		$	190,461	1.00	%	$	165	$	173,433	0.10	%
Real estate mortgage:
Residential	5,061			708,209		0.71	%	26		649,989		—	%
Commercial	6,110			500,632		1.22	%	(150)		466,526		(0.03)	%
Construction	188			43,308		0.43	%	29		44,968		0.06	%
Consumer automobiles	1,617			186,112		0.87	%	(328)		150,261		(0.22)	%
Other consumer installment loans	109			10,361		1.05	%	(191)		9,737		(1.96)	%
Unallocated	638
	$	15,637		$	1,639,083	0.95	%	$	(449)	$	1,494,914	(0.03)	%

Total non-accrual loans outstanding	$	3,615
Non-accrual loans to total loans outstanding	0.22		%
Allowance for loan losses to non-accrual loans	432.56		%

Non-interest Income

Total non-interest income for the three and ~~six~~nine months ended ~~June~~September 30, 2023 compared to the same periods in 2022 decreased ~~$115,000~~$208,000 and ~~$270,000.~~$478,000. Excluding net securities losses, non-interest income for the three and ~~six~~nine months ended ~~June~~September 30, 2023 decreased ~~$130,000~~$338,000 and ~~$306,000~~$644,000 compared to the same periods in 2022. Gain on sale of loans and loan broker commissions decreased as the volume of loan sales has declined as a reduction in housing inventory and higher rates has reduced mortgage activity. Bank-owned life insurance for the nine month period increased due to a gain on death benefit of $380,000 recognized during the first quarter of 2023. Debit card income declined due to volume.

Non-interest income composition for the three and ~~six~~nine months ended ~~June~~September 30, 2023 and 2022 was as follows:


		Three Months Ended													Three Months Ended
		June 30, 2023				June 30, 2022				Change					September 30, 2023				September 30, 2022				Change
(In Thousands)	(In Thousands)	Amount		% Total		Amount		% Total		Amount		%		(In Thousands)	Amount		% Total		Amount		% Total		Amount		%
Service charges	Service charges	$	516	25.52	%	$	509	23.82	%	$	7	1.38	%	Service charges	$	545	29.07	%	$	559	26.84	%	$	(14)	(2.50)	%
Net debt securities losses, available for sale	Net debt securities losses, available for sale	(19)		(0.94)		(10)		(0.47)		(9)		(90.00)		Net debt securities losses, available for sale	(45)		(2.40)		(156)		(7.49)		111		71.15
Net equity securities losses	Net equity securities losses	(20)		(0.99)		(44)		(2.06)		24		54.55		Net equity securities losses	(36)		(1.92)		(55)		(2.64)		19		34.55

Bank-owned life insurance	Bank-owned life insurance	166		8.21		161		7.53		5		3.11		Bank-owned life insurance	170		9.07		170		8.16		—		—
Gain on sale of loans	Gain on sale of loans	244		12.07		266		12.45		(22)		(8.27)		Gain on sale of loans	257		13.71		294		14.11		(37)		(12.59)
Insurance commissions	Insurance commissions	115		5.69		107		5.01		8		7.48		Insurance commissions	136		7.25		109		5.23		27		24.77
Brokerage commissions	Brokerage commissions	141		6.97		158		7.39		(17)		(10.76)		Brokerage commissions	142		7.57		142		6.82		—		—
Loan broker commissions	Loan broker commissions	317		15.68		371		17.36		(54)		(14.56)		Loan broker commissions	241		12.85		438		21.03		(197)		(44.98)
Debit card income	Debit card income	340		16.82		391		18.30		(51)		(13.04)		Debit card income	320		17.07		344		16.51		(24)		(6.98)
Other	Other	222		10.97		228		10.66		(6)		(2.63)		Other	145		7.73		238		11.42		(93)		(39.08)
Total non-interest income	Total non-interest income	$	2,022	100.00	%	$	2,137	100.00	%	$	(115)	(5.38)	%	Total non-interest income	$	1,875	100.00	%	$	2,083	100.00	%	$	(208)	(9.99)	%

3940

Table of Contents


		Six Months Ended													Nine Months Ended
		June 30, 2023				June 30, 2022				Change					September 30, 2023				September 30, 2022				Change
(In Thousands)	(In Thousands)	Amount		% Total		Amount		% Total		Amount		%		(In Thousands)	Amount		% Total		Amount		% Total		Amount		%
Service charges	Service charges	$	1,012	23.65	%	$	1,004	22.07	%	$	8	0.80	%	Service charges	$	1,557	25.30	%	$	1,563	23.57	%	$	(6)	(0.38)	%
Net debt securities losses, available for sale	Net debt securities losses, available for sale	(80)		(1.87)		(12)		(0.26)		(68)		(566.67)		Net debt securities losses, available for sale	(125)		(2.03)		(168)		(2.53)		43		25.60
Net equity securities (losses) gains		1		0.02		(103)		(2.26)		104		100.97
Net equity securities losses														Net equity securities losses	(35)		(0.57)		(158)		(2.38)		123		77.85

Bank-owned life insurance	Bank-owned life insurance	722		16.87		331		7.28		391		118.13		Bank-owned life insurance	892		14.49		501		7.55		391		78.04
Gain on sale of loans	Gain on sale of loans	475		11.10		611		13.43		(136)		(22.26)		Gain on sale of loans	732		11.89		905		13.65		(173)		(19.12)
Insurance commissions	Insurance commissions	280		6.54		277		6.09		3		1.08		Insurance commissions	416		6.76		386		5.82		30		7.77
Brokerage commissions	Brokerage commissions	306		7.15		358		7.87		(52)		(14.53)		Brokerage commissions	448		7.28		500		7.54		(52)		(10.40)
Loan broker commissions	Loan broker commissions	487		11.38		912		20.05		(425)		(46.60)		Loan broker commissions	728		11.83		1,350		20.36		(622)		(46.07)
Debit card income	Debit card income	675		15.77		736		16.18		(61)		(8.29)		Debit card income	995		16.17		1,080		16.28		(85)		(7.87)
Other	Other	401		9.39		435		9.55		(34)		(7.82)		Other	546		8.88		673		10.14		(127)		(18.87)
Total non-interest income	Total non-interest income	$	4,279	100.00	%	$	4,549	100.00	%	$	(270)	(5.94)	%	Total non-interest income	$	6,154	100.00	%	$	6,632	100.00	%	$	(478)	(7.21)	%

Non-interest Expense

Total non-interest expense increased ~~$1,009,000~~$852,000 and ~~$900,000~~$1,752,000 for the three and ~~six~~nine months ended ~~June~~September 30, 2023 compared to the same periods of 2022. The increase in salaries and employee benefits is attributable to the current employment environment and routine annual wage increases. Furniture and equipment expenses in addition to occupancy expenses have ~~remained stable~~increased slightly as increased maintenance costs have been offset by a decrease in the level of depreciation. Software amortization decreases for the nine month period are due to changes in software licensing costs. Marketing costs increased as a time deposit gathering campaign was initiated during the latter part of 2022 and throughout 2023. Pennsylvania shares tax decreased as tax credits were purchased and charitable contributions were made to organizations that resulted in the obtainment of tax credits. Professional fees increased primarily due to legal fees. FDIC insurance expense increased due an increase in the assessment rate.

Non-interest expense composition for the three and ~~six~~nine months ended ~~June~~September 30, 2023 and 2022 was as follows:


		Three Months Ended													Three Months Ended
		June 30, 2023				June 30, 2022				Change					September 30, 2023				September 30, 2022				Change
(In Thousands)	(In Thousands)	Amount		% Total		Amount		% Total		Amount		%		(In Thousands)	Amount		% Total		Amount		% Total		Amount		%
Salaries and employee benefits	Salaries and employee benefits	$	6,312	55.23	%	$	6,141	58.93	%	$	171	2.78	%	Salaries and employee benefits	$	6,290	56.30	%	$	6,016	58.29	%	$	274	4.55	%
Occupancy	Occupancy	772		6.75		740		7.10		32		4.32		Occupancy	784		7.02		730		7.07		54		7.40
Furniture and equipment	Furniture and equipment	790		6.91		746		7.16		44		5.90		Furniture and equipment	867		7.76		816		7.91		51		6.25
Software amortization	Software amortization	173		1.51		219		2.10		(46)		(21.00)		Software amortization	237		2.12		188		1.82		49		26.06
Pennsylvania shares tax	Pennsylvania shares tax	279		2.44		396		3.80		(117)		(29.55)		Pennsylvania shares tax	280		2.51		334		3.24		(54)		(16.17)
Professional fees	Professional fees	906		7.93		582		5.59		324		55.67		Professional fees	719		6.44		626		6.07		93		14.86
Federal Deposit Insurance Corporation deposit insurance	Federal Deposit Insurance Corporation deposit insurance	452		3.95		228		2.19		224		98.25		Federal Deposit Insurance Corporation deposit insurance	425		3.80		260		2.52		165		63.46

Marketing	Marketing	272		2.38		220		2.11		52		23.64		Marketing	167		1.49		151		1.46		16		10.60
Intangible amortization	Intangible amortization	32		0.28		41		0.39		(9)		(21.95)		Intangible amortization	25		0.22		34		0.33		(9)		(26.47)
Other	Other	1,441		12.62		1,107		10.63		334		30.17		Other	1,378		12.34		1,165		11.29		213		18.28
Total non-interest expense	Total non-interest expense	$	11,429	100.00	%	$	10,420	100.00	%	$	1,009	9.68	%	Total non-interest expense	$	11,172	100.00	%	$	10,320	100.00	%	$	852	8.26	%

4041

Table of Contents


		Six Months Ended													Nine Months Ended
		June 30, 2023				June 30, 2022				Change					September 30, 2023				September 30, 2022				Change
(In Thousands)	(In Thousands)	Amount		% Total		Amount		% Total		Amount		%		(In Thousands)	Amount		% Total		Amount		% Total		Amount		%
Salaries and employee benefits	Salaries and employee benefits	$	12,488	55.93	%	$	12,405	57.89	%	$	83	0.67	%	Salaries and employee benefits	$	18,778	56.06	%	$	18,421	58.02	%	$	357	1.94	%
Occupancy	Occupancy	1,638		7.34		1,650		7.70		(12)		(0.73)		Occupancy	2,422		7.23		2,380		7.50		42		1.76
Furniture and equipment	Furniture and equipment	1,636		7.33		1,638		7.64		(2)		(0.12)		Furniture and equipment	2,503		7.47		2,454		7.73		49		2.00
Software amortization	Software amortization	356		1.59		472		2.20		(116)		(24.58)		Software amortization	593		1.77		660		2.08		(67)		(10.15)
Pennsylvania shares tax	Pennsylvania shares tax	527		2.36		785		3.66		(258)		(32.87)		Pennsylvania shares tax	807		2.41		1,119		3.52		(312)		(27.88)
Professional fees	Professional fees	1,594		7.14		1,120		5.23		474		42.32		Professional fees	2,313		6.90		1,746		5.50		567		32.47
Federal Deposit Insurance Corporation deposit insurance	Federal Deposit Insurance Corporation deposit insurance	697		3.12		430		2.01		267		62.09		Federal Deposit Insurance Corporation deposit insurance	1,122		3.35		690		2.17		432		62.61

Marketing	Marketing	427		1.91		284		1.33		143		50.35		Marketing	594		1.77		435		1.37		159		36.55
Intangible amortization	Intangible amortization	67		0.30		85		0.40		(18)		(21.18)		Intangible amortization	92		0.27		119		0.37		(27)		(22.69)
Other	Other	2,897		12.98		2,558		11.94		339		13.25		Other	4,275		12.77		3,723		11.74		552		14.83
Total non-interest expense	Total non-interest expense	$	22,327	100.00	%	$	21,427	100.00	%	$	900	4.20	%	Total non-interest expense	$	33,499	100.00	%	$	31,747	100.00	%	$	1,752	5.52	%

Provision for Income Taxes

Income taxes decreased ~~$15,000~~$751,000 and ~~increased $237,000~~decreased $514,000 for the three and ~~six~~nine months ended ~~June~~September 30, 2023 compared to the same periods of 2022. The effective tax rate for the three and ~~six~~nine months ended ~~June~~September 30, 2023 was ~~19.15%~~16.49% and ~~17.83%~~17.56% compared to ~~19.16%~~18.48% and ~~17.97%~~18.18% for the same periods of 2022. The Company currently is in a deferred tax asset position. A valuation allowance was established on the $1,810,000 of capital loss carryforwards as of December 31, 2022, which remained unchanged during the ~~second~~third quarter of 2023.

ASSET/LIABILITY MANAGEMENT

Cash and Cash Equivalents

Cash and cash equivalents ~~increased $4,528,000~~decreased $4,743,000 from $40,333,000 at December 31, 2022 to ~~$44,861,000~~$35,590,000 at ~~June~~September 30, 2023, primarily as a result of the following activity during the ~~six~~nine months ended ~~June~~September 30, 2023.

Loans Held for Sale

Activity regarding loans held for sale resulted in sales proceeds being ~~greater~~less than loan originations, less ~~$475,000~~$732,000 in realized gains, by ~~$249,000~~$785,000 for the ~~six~~nine months ended ~~June~~September 30, 2023.

Loans

Gross loans increased ~~$129,672,000~~$178,730,000 since December 31, 2022 due primarily to an increase in both residential and commercial real estate mortgage categories in addition to consumer automobile loans.

4142

Table of Contents

The allocation of the loan portfolio, by category, as of ~~June~~September 30, 2023 and December 31, 2022 is presented below:


		June 30, 2023				December 31, 2022				Change					September 30, 2023				December 31, 2022				Change
(In Thousands)	(In Thousands)	Amount		% Total		Amount		% Total		Amount		%		(In Thousands)	Amount		% Total		Amount		% Total		Amount		%
Commercial, financial, and agricultural	Commercial, financial, and agricultural	$	208,174	11.77	%	$	190,461	11.62	%	$	17,713	9.30	%	Commercial, financial, and agricultural	$	211,473	11.63	%	$	190,461	11.62	%	$	21,012	11.03	%
Real estate mortgage:	Real estate mortgage:													Real estate mortgage:
Residential	Residential	743,705		42.03		708,209		43.19		35,496		5.01	%	Residential	773,782		42.55		708,209		43.19		65,573		9.26	%
Commercial	Commercial	517,713		29.26		500,632		30.53		17,081		3.41	%	Commercial	525,666		28.91		500,632		30.53		25,034		5.00	%
Construction	Construction	53,486		3.02		43,308		2.64		10,178		23.50	%	Construction	55,833		3.07		43,308		2.64		12,525		28.92	%
Consumer automobile loans	Consumer automobile loans	234,956		13.28		186,112		11.35		48,844		26.24	%	Consumer automobile loans	239,768		13.19		186,112		11.35		53,656		28.83	%
Other consumer installment loans	Other consumer installment loans	10,121		0.57		10,361		0.63		(240)		(2.32)	%	Other consumer installment loans	10,821		0.60		10,361		0.63		460		4.44	%
Net deferred loan fees and discounts	Net deferred loan fees and discounts	1,248		0.07		648		0.04		600		92.59	%	Net deferred loan fees and discounts	1,118		0.05		648		0.04		470		72.53	%
Gross loans	Gross loans	$	1,769,403	100.00	%	$	1,639,731	100.00	%	$	129,672	7.91	%	Gross loans	$	1,818,461	100.00	%	$	1,639,731	100.00	%	$	178,730	10.90	%

Investments

The fair value of the investment debt securities portfolio at ~~June~~September 30, 2023 decreased ~~$7,047,000~~$9,006,000 since December 31, 2022, while the amortized cost of the portfolio decreased ~~$7,131,000.~~$7,655,000. The decrease in the investment portfolio amortized value occurred within the state and political segment of the portfolio as principal cash flow was partially reinvested with the majority of the cash flow funding loan portfolio growth. The mortgage-backed segment increased as bonds were purchased to provide future cash flow. The other debt segment balances ~~remained constant~~increased slightly as bank subordinated debt was purchased and consists primarily of corporate bonds. The portfolio continues to be actively managed in order to reduce interest rate and market risk. The unrealized losses within the debt securities portfolio are the result of market activity, not credit issues/ratings, as approximately ~~84.02%~~81.26% 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. 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 remained flat at ~~$1,350,000~~$1,300,000 for ~~June~~September 30, 2023 and December 31, 2022 while the fair value ~~increased $1,000~~decreased $70,000 over the same time period.

4243

Table of Contents

The distribution of credit ratings by amortized cost and fair values for the debt security portfolio at ~~June~~September 30, 2023 follows:


		A- to AAA					B- to BBB+				C- to CCC+				Not Rated				Total					A- to AAA					B- to BBB+				C- to CCC+				Not Rated				Total
(In Thousands)	(In Thousands)	Amortized Cost			Fair Value		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):																						Available for sale (AFS):
U.S. Government and agency securities	U.S. Government and agency securities	$	1,503		$	1,467	$	—	$	—	$	—	$	—	$	2,498	$	2,418	$	4,001	$	3,885	U.S. Government and agency securities	$	4,001		$	3,864	$	—	$	—	$	—	$	—	$	—	$	—	$	4,001	$	3,864
Mortgage-backed securities	Mortgage-backed securities	9,710		7	9,330		—		—		—		—		—		—		9,710		9,330		Mortgage-backed securities	12,101		7	11,396		—		—		—		—		—		—		12,101		11,396

State and political securities	State and political securities	131,164			123,481		—		—		—		—		4,087		3,998		135,251		127,479		State and political securities	124,922			115,817		—		—		—		—		4,102		4,030		129,024		119,847
Other debt securities	Other debt securities	24,808			23,051		6,328		5,585		—		—		18,873		17,296		50,009		45,932		Other debt securities	20,227			18,604		7,380		6,717		—		—		25,714		24,239		53,321		49,560
Total debt securities AFS	Total debt securities AFS	$	167,185		$	157,329	$	6,328	$	5,585	$	—	$	—	$	25,458	$	23,712	$	198,971	$	186,626	Total debt securities AFS	$	161,251		$	149,681	$	7,380	$	6,717	$	—	$	—	$	29,816	$	28,269	$	198,447	$	184,667

Financing Activities

Deposits

Total deposits decreased ~~$2,703,000~~$10,807,000 from December 31, 2022 to ~~June~~September 30, 2023. Time deposits increased ~~$88,275,000~~$111,601,000 over this period to a total of ~~$226,224,000~~$249,550,000 as deposit gathering efforts focused on time deposits as customers sought a higher return on their deposit balances. Brokered deposits increased by ~~$78,845,000~~$98,361,000 as usage ~~provides~~provided an alternative to FHLB borrowings and supplemented funding for loan portfolio growth. Core deposits (deposits less time deposits) declined as deposit balances flowed from noninterest-bearing and lower rate products into higher rate products such as time deposit accounts. Emphasis has been on increasing the utilization of electronic (internet and mobile) deposit banking among our customers. Utilization of internet and mobile banking products has increased due to these efforts coupled with a change in consumer behavior over the past several years.

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


		June 30, 2023				December 31, 2022				Change					September 30, 2023				December 31, 2022				Change
(In Thousands)	(In Thousands)	Amount		% Total		Amount		% Total		Amount		%		(In Thousands)	Amount		% Total		Amount		% Total		Amount		%
Demand deposits	Demand deposits	$	475,937	30.63	%	$	519,063	33.35	%	$	(43,126)	(8.31)	%	Demand deposits	$	471,507	30.08	%	$	519,063	33.35	%	$	(47,556)	(9.16)	%
NOW accounts	NOW accounts	238,353		15.34		372,574		23.94		(134,221)		(36.03)		NOW accounts	220,730		14.08		372,574		23.94		(151,844)		(40.76)
Money market deposits	Money market deposits	296,957		19.11		270,589		17.38		26,368		9.74		Money market deposits	291,889		18.62		270,589		17.38		21,300		7.87
Savings deposits	Savings deposits	229,108		14.75		247,952		15.93		(18,844)		(7.60)		Savings deposits	226,897		14.48		247,952		15.93		(21,055)		(8.49)
Time deposits	Time deposits	226,224		14.56		137,949		8.86		88,275		63.99		Time deposits	249,550		15.92		137,949		8.86		111,601		80.90
Brokered deposits	Brokered deposits	87,178		5.61		8,333		0.54		78,845		5.07		Brokered deposits	106,694		6.82		8,333		0.54		98,361		6.32
Total deposits	Total deposits	$	1,553,757	100.00	%	$	1,556,460	100.00	%	$	(2,703)	(0.17)	%	Total deposits	$	1,567,267	100.00	%	$	1,556,460	100.00	%	$	10,807	0.69	%

As of ~~June~~September 30, 2023 and December 31, 2022 the Company had ~~$450,127,000~~$435,931,000 and $617,515,000, respectively, in uninsured deposits. Included in the total uninsured deposits is a concentration of public funds which were collateralized by the Banks in the amount of ~~$89,929,000~~$83,144,000 and $180,252,000 at ~~June~~September 30, 2023 and December 31, 2022, respectively. Total uninsured deposits less collateralized public funds was ~~$360,198,000~~$352,787,000 at ~~June~~September 30, 2023 and $437,263,000 at December 31, 2022.

Borrowed Funds

Total borrowed funds increased ~~49.57%~~60.62%, or ~~$126,970,000,~~$155,259,000, to ~~$383,102,000~~$411,391,000 at ~~June~~September 30, 2023 compared to $256,132,000 at December 31, 2022. The increase in long term borrowings occurred as fixed rate borrowings were initiated to lock in interest rates and to ~~reduce~~provide matched funding for segments of the ~~usage of FHLB overnight borrowings.~~loan portfolio. Short term FHLB borrowings were utilized to provide short term funding for the loan portfolio growth. Securities sold under agreements to repurchase have decreased as customers balances have decreased.

4344

Table of Contents


		June 30, 2023				December 31, 2022				Change					September 30, 2023				December 31, 2022				Change
(In Thousands)	(In Thousands)	Amount		% Total		Amount		% Total		Amount		%		(In Thousands)	Amount		% Total		Amount		% Total		Amount		%
Short-term borrowings:	Short-term borrowings:													Short-term borrowings:
FHLB repurchase agreements	FHLB repurchase agreements	$	125,621	32.79	%	$	148,195	57.86	%	$	(22,574)	(15.23)		FHLB repurchase agreements	$	159,233	38.71	%	$	148,195	57.86	%	$	11,038	7.45
Short-term FHLB borrowings	Short-term FHLB borrowings	50,000		13.05		—		—		50,000		n/a		Short-term FHLB borrowings	30,000		7.29		—		—		30,000		n/a
Securities sold under agreement to repurchase	Securities sold under agreement to repurchase	4,789		1.25		5,154		2.01		(365)		(7.08)		Securities sold under agreement to repurchase	4,513		1.10		5,154		2.01		(641)		(12.44)
Total short-term borrowings	Total short-term borrowings	180,410		47.09		153,349		59.87		27,061		17.65		Total short-term borrowings	193,746		47.10		153,349		59.87		40,397		26.34
Long-term borrowings:	Long-term borrowings:													Long-term borrowings:
Long-term FHLB borrowings	Long-term FHLB borrowings	195,000		50.89		95,000		37.09		100,000		105.26		Long-term FHLB borrowings	210,000		51.04		95,000		37.09		115,000		121.05
Long-term finance lease	Long-term finance lease	7,692		2.01		7,783		3.04		(91)		(1.17)		Long-term finance lease	7,645		1.86		7,783		3.04		(138)		(1.77)

Total long-term borrowings	Total long-term borrowings	202,692		52.91		102,783		40.13		99,909		97.20		Total long-term borrowings	217,645		52.90		102,783		40.13		114,862		111.75
Total borrowed funds	Total borrowed funds	$	383,102	100.00	%	$	256,132	100.00	%	$	126,970	49.57	%	Total borrowed funds	$	411,391	100.00	%	$	256,132	100.00	%	$	155,259	60.62	%

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					Remaining Contractual Maturity Overnight and Continuous
(In Thousands)	(In Thousands)	June 30, 2023		December 31, 2022		(In Thousands)	September 30, 2023		December 31, 2022
Investment debt securities pledged, fair value	Investment debt securities pledged, fair value	$	7,285	$	7,165	Investment debt securities pledged, fair value	$	8,671	$	7,165
Repurchase agreements	Repurchase agreements	4,789		5,154		Repurchase agreements	4,513		5,154

Capital

The adequacy of the 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.

Banking institutions are generally required to comply with risk-based capital 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") established five capital categories for banks ranging from “well capitalized” to “critically 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.

Under existing capital rules, the 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”), a tier 1 capital ratio of 6.0% (8.0% to be considered “well capitalized”), and total capital ratio of 8.0% (10.0% to be considered “well capitalized”). Under 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.

4445

Table of Contents

The Company's capital ratios as of ~~June~~September 30, 2023 and December 31, 2022 were as follows:


		June 30, 2023				December 31, 2022					September 30, 2023				December 31, 2022
(In Thousands)	(In Thousands)	Amount		Ratio		Amount		Ratio		(In Thousands)	Amount		Ratio		Amount		Ratio
Common Equity Tier I Capital (to Risk-weighted Assets)	Common Equity Tier I Capital (to Risk-weighted Assets)									Common Equity Tier I Capital (to Risk-weighted Assets)
Actual	Actual	$	172,025	9.695	%	$	165,346	9.973	%	Actual	$	173,291	9.505	%	$	165,346	9.973	%
For Capital Adequacy Purposes	For Capital Adequacy Purposes	79,847		4.500		74,607		4.500		For Capital Adequacy Purposes	82,042		4.500		74,607		4.500
Minimum To Maintain Capital Conservation Buffer At Reporting Date	Minimum To Maintain Capital Conservation Buffer At Reporting Date	124,206		7.000		116,056		7.000		Minimum To Maintain Capital Conservation Buffer At Reporting Date	127,621		7.000		116,056		7.000
To Be Well Capitalized	To Be Well Capitalized	115,334		6.500		107,766		6.500		To Be Well Capitalized	118,505		6.500		107,766		6.500
Total Capital (to Risk-weighted Assets)	Total Capital (to Risk-weighted Assets)									Total Capital (to Risk-weighted Assets)
Actual	Actual	$	184,983	10.425	%	$	181,127	10.925	%	Actual	$	187,600	10.290	%	$	181,127	10.925	%
For Capital Adequacy Purposes	For Capital Adequacy Purposes	141,953		8.000		132,633		8.000		For Capital Adequacy Purposes	145,850		8.000		132,633		8.000
Minimum To Maintain Capital Conservation Buffer At Reporting Date	Minimum To Maintain Capital Conservation Buffer At Reporting Date	186,314		10.500		174,081		10.500		Minimum To Maintain Capital Conservation Buffer At Reporting Date	191,429		10.500		174,081		10.500
To Be Well Capitalized	To Be Well Capitalized	177,442		10.000		165,791		10.000		To Be Well Capitalized	182,313		10.000		165,791		10.000
Tier I Capital (to Risk-weighted Assets)	Tier I Capital (to Risk-weighted Assets)									Tier I Capital (to Risk-weighted Assets)
Actual	Actual	$	172,025	9.695	%	$	165,346	9.973	%	Actual	$	173,291	9.505	%	$	165,346	9.973	%
For Capital Adequacy Purposes	For Capital Adequacy Purposes	106,462		6.000		99,476		6.000		For Capital Adequacy Purposes	109,389		6.000		99,476		6.000
Minimum To Maintain Capital Conservation Buffer At Reporting Date	Minimum To Maintain Capital Conservation Buffer At Reporting Date	150,821		8.500		140,925		8.500		Minimum To Maintain Capital Conservation Buffer At Reporting Date	154,968		8.500		140,925		8.500
To Be Well Capitalized	To Be Well Capitalized	141,949		8.000		132,635		8.000		To Be Well Capitalized	145,852		8.000		132,635		8.000
Tier I Capital (to Average Assets)	Tier I Capital (to Average Assets)									Tier I Capital (to Average Assets)
Actual	Actual	$	172,025	8.332	%	$	165,346	8.636	%	Actual	$	173,291	8.160	%	$	165,346	8.636	%
For Capital Adequacy Purposes	For Capital Adequacy Purposes	82,585		4.000		76,585		4.000		For Capital Adequacy Purposes	84,947		4.000		76,585		4.000
To Be Well Capitalized	To Be Well Capitalized	103,232		5.000		95,731		5.000		To Be Well Capitalized	106,183		5.000		95,731		5.000

Jersey Shore State Bank's capital ratios as of ~~June~~September 30, 2023 and December 31, 2022 were as follows:


		June 30, 2023				December 31, 2022					September 30, 2023				December 31, 2022
(In Thousands)	(In Thousands)	Amount		Ratio		Amount		Ratio		(In Thousands)	Amount		Ratio		Amount		Ratio
Common Equity Tier I Capital (to Risk-weighted Assets)	Common Equity Tier I Capital (to Risk-weighted Assets)									Common Equity Tier I Capital (to Risk-weighted Assets)
Actual	Actual	$	124,177	9.516	%	$	119,783	9.781	%	Actual	$	124,883	9.396	%	$	119,783	9.781	%
For Capital Adequacy Purposes	For Capital Adequacy Purposes	58,722		4.500		55,109		4.500		For Capital Adequacy Purposes	59,810		4.500		55,109		4.500
Minimum To Maintain Capital Conservation Buffer At Reporting Date	Minimum To Maintain Capital Conservation Buffer At Reporting Date	91,345		7.000		85,725		7.000		Minimum To Maintain Capital Conservation Buffer At Reporting Date	93,038		7.000		85,725		7.000
To Be Well Capitalized	To Be Well Capitalized	84,820		6.500		79,602		6.500		To Be Well Capitalized	86,392		6.500		79,602		6.500
Total Capital (to Risk-weighted Assets)	Total Capital (to Risk-weighted Assets)									Total Capital (to Risk-weighted Assets)
Actual	Actual	$	134,791	10.330	%	$	131,379	10.728	%	Actual	$	136,641	10.281	%	$	131,379	10.728	%
For Capital Adequacy Purposes	For Capital Adequacy Purposes	104,388		8.000		97,971		8.000		For Capital Adequacy Purposes	106,325		8.000		97,971		8.000
Minimum To Maintain Capital Conservation Buffer At Reporting Date	Minimum To Maintain Capital Conservation Buffer At Reporting Date	137,009		10.500		128,587		10.500		Minimum To Maintain Capital Conservation Buffer At Reporting Date	139,552		10.500		128,587		10.500
To Be Well Capitalized	To Be Well Capitalized	130,485		10.000		122,464		10.000		To Be Well Capitalized	132,906		10.000		122,464		10.000
Tier I Capital (to Risk-weighted Assets)	Tier I Capital (to Risk-weighted Assets)	-				-				Tier I Capital (to Risk-weighted Assets)	-				-
Actual	Actual	$	124,177	9.516	%	$	119,783	9.781	%	Actual	$	124,883	9.396	%	$	119,783	9.781	%
For Capital Adequacy Purposes	For Capital Adequacy Purposes	78,296		6.000		73,479		6.000		For Capital Adequacy Purposes	79,746		6.000		73,479		6.000
Minimum To Maintain Capital Conservation Buffer At Reporting Date	Minimum To Maintain Capital Conservation Buffer At Reporting Date	110,919		8.500		104,095		8.500		Minimum To Maintain Capital Conservation Buffer At Reporting Date	112,974		8.500		104,095		8.500
To Be Well Capitalized	To Be Well Capitalized	104,394		8.000		97,972		8.000		To Be Well Capitalized	106,329		8.000		97,972		8.000
Tier I Capital (to Average Assets)	Tier I Capital (to Average Assets)									Tier I Capital (to Average Assets)
Actual	Actual	$	124,177	8.155	%	$	119,783	8.383	%	Actual	$	124,883	7.995	%	$	119,783	8.383	%
For Capital Adequacy Purposes	For Capital Adequacy Purposes	60,908		4.000		57,155		4.000		For Capital Adequacy Purposes	62,481		4.000		57,155		4.000
To Be Well Capitalized	To Be Well Capitalized	76,135		5.000		71,444		5.000		To Be Well Capitalized	78,101		5.000		71,444		5.000

4546

Table of Contents

Luzerne Bank's capital ratios as of ~~June~~September 30, 2023 and December 31, 2022 were as follows:


		June 30, 2023				December 31, 2022					September 30, 2023				December 31, 2022
(In Thousands)	(In Thousands)	Amount		Ratio		Amount		Ratio		(In Thousands)	Amount		Ratio		Amount		Ratio
Common Equity Tier I Capital (to Risk-weighted Assets)	Common Equity Tier I Capital (to Risk-weighted Assets)									Common Equity Tier I Capital (to Risk-weighted Assets)
Actual	Actual	$	46,679	9.810	%	$	43,364	9.877	%	Actual	$	47,865	9.687	%	$	43,364	9.877	%
For Capital Adequacy Purposes	For Capital Adequacy Purposes	21,412		4.500		19,757		4.500		For Capital Adequacy Purposes	22,235		4.500		19,757		4.500
Minimum To Maintain Capital Conservation Buffer At Reporting Date	Minimum To Maintain Capital Conservation Buffer At Reporting Date	33,308		7.000		30,733		7.000		Minimum To Maintain Capital Conservation Buffer At Reporting Date	34,588		7.000		30,733		7.000
To Be Well Capitalized	To Be Well Capitalized	30,929		6.500		28,538		6.500		To Be Well Capitalized	32,118		6.500		28,538		6.500
Total Capital (to Risk-weighted Assets)	Total Capital (to Risk-weighted Assets)									Total Capital (to Risk-weighted Assets)
Actual	Actual	$	49,023	10.303	%	$	47,549	10.830	%	Actual	$	50,416	10.204	%	$	47,549	10.830	%
For Capital Adequacy Purposes	For Capital Adequacy Purposes	38,065		8.000		35,124		8.000		For Capital Adequacy Purposes	39,526		8.000		35,124		8.000
Minimum To Maintain Capital Conservation Buffer At Reporting Date	Minimum To Maintain Capital Conservation Buffer At Reporting Date	49,960		10.500		46,100		10.500		Minimum To Maintain Capital Conservation Buffer At Reporting Date	51,878		10.500		46,100		10.500
To Be Well Capitalized	To Be Well Capitalized	47,581		10.000		43,905		10.000		To Be Well Capitalized	49,408		10.000		43,905		10.000
Tier I Capital (to Risk-weighted Assets)	Tier I Capital (to Risk-weighted Assets)									Tier I Capital (to Risk-weighted Assets)
Actual	Actual	$	46,679	9.810	%	$	43,364	9.877	%	Actual	$	47,865	9.687	%	$	43,364	9.877	%
For Capital Adequacy Purposes	For Capital Adequacy Purposes	28,550		6.000		26,342		6.000		For Capital Adequacy Purposes	29,647		6.000		26,342		6.000
Minimum To Maintain Capital Conservation Buffer At Reporting Date	Minimum To Maintain Capital Conservation Buffer At Reporting Date	40,446		8.500		37,318		8.500		Minimum To Maintain Capital Conservation Buffer At Reporting Date	42,000		8.500		37,318		8.500
To Be Well Capitalized	To Be Well Capitalized	38,066		8.000		35,123		8.000		To Be Well Capitalized	39,529		8.000		35,123		8.000
Tier I Capital (to Average Assets)	Tier I Capital (to Average Assets)									Tier I Capital (to Average Assets)
Actual	Actual	$	46,679	8.215	%	$	43,364	8.260	%	Actual	$	47,865	8.040	%	$	43,364	8.260	%
For Capital Adequacy Purposes	For Capital Adequacy Purposes	22,729		4.000		21,000		4.000		For Capital Adequacy Purposes	23,813		4.000		21,000		4.000
To Be Well Capitalized	To Be Well Capitalized	28,411		5.000		26,249		5.000		To Be Well Capitalized	29,767		5.000		26,249		5.000

During the three months ended September 30, 2023, the Company sold 34,411 shares of common stock in a registered at-the-market offering pursuant to the terms of an equity distribution agreement, dated September 13, 2023 (the “Distribution Agreement”), between D.A. Davidson & Co. (the “Distribution Agent”) and the Company. Under the terms of the Distribution Agreement, the Company paid the Distribution Agent a fee in the amount of 2.75% of the gross proceeds from the sale of such shares, and realized net proceeds of $753,000 from the sales of shares under the Distribution Agreement for the quarter ended September 30, 2023.

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, with the exception of net loans to total deposits that was ~~113%~~115%, at ~~June~~September 30, 2023:

1. Net Loans to Total Assets, 85% maximum

2. Net Loans to Total Deposits, 100% maximum

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

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

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

Table of Contents

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

~~Table of Contents~~

maturities and sales of available for sale and trading investment securities, loan repayments and maturities, and liquidating 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 ~~$812,216,000.~~$830,316,000. In addition to this credit arrangement, the Company has additional lines of credit with correspondent banks of $100,000,000. Management believes it has sufficient liquidity to satisfy estimated short-term and long-term funding needs. FHLB borrowings totaled ~~$370,622,000~~$399,234,000 as of ~~June~~September 30, 2023.

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 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 position of being asset sensitive. The Company has strategically taken this position as it has previously decreased the duration of the earning asset portfolio by adding quality short and intermediate term loans such as home equity loans. The Company has added certain longer-term earning assets due to the significant increase in interest rates. Lengthening of the liability portfolio, primarily time deposits, has been undertaken to build protection during the current 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 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.

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 ~~June~~September 30, 2024 assuming a static balance sheet as of ~~June~~September 30, 2023.


					Parallel Rate Shock in Basis Points																								Parallel Rate Shock in Basis Points
(In Thousands)	(In Thousands)	-300			-200			-100			Static		+100			+200			+300			+400			(In Thousands)	-300			-200			-100			Static		+100			+200			+300			+400
Net interest income	Net interest income	$	58,497		$	60,617		$	62,366		$	63,802	$	64,790		$	65,720		$	66,634		$	67,518		Net interest income	$	60,604		$	62,477		$	64,050		$	65,448	$	66,448		$	67,194		$	67,910		$	68,645
Change from static	Change from static	(5,305)			(3,185)			(1,436)			—		988			1,918			2,832			3,716			Change from static	(4,844)			(2,971)			(1,398)			—		1,000			1,746			2,462			3,197
Percent change from static	Percent change from static	-8.31		%	-4.99		%	-2.25		%	—		1.55		%	3.01		%	4.44		%	5.82		%	Percent change from static	-7.40		%	-4.54		%	-2.14		%	—		1.53		%	2.67		%	3.76		%	4.88		%

Table of Contents

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.

~~Table of Contents~~

Inflation

Substantially all of the Company's assets and liabilities relate to banking activities and are monetary. The consolidated financial statements and related financial data are presented following GAAP. GAAP currently requires the Company to measure the financial position and results of operations in terms of historical dollars, except for securities available for sale, impaired loans, and other real estate loans that are measured at fair value. Changes in the value of money due to rising inflation can cause purchasing power loss.

Management's opinion is that movements in interest rates affect the financial condition and results of operations to a greater degree than changes in the rate of inflation. It should be noted that interest rates and inflation do affect each other but do not always move in correlation with each other. The Company's ability to match the interest sensitivity of its financial assets to the interest sensitivity of its liabilities in its asset/liability management may tend to minimize the effect of changes in interest rates on the Company's performance.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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, 2022. 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” of that document.

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

Item 4. Controls and Procedures

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 ~~June~~September 30, 2023.

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 ~~June~~September 30, 2023 that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

4849

Table of Contents

Part II. OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 1A. Risk Factors

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, 2022, as supplemented by the Company's Quarterly ~~Report~~Reports on Form 10-Q for the ~~quarter~~quarters ended March 31, ~~2023.~~2023 and June 20, 2023, and as follows:

If we are unable to raise additional capital or generate earnings at current levels, our growth may be constrained and certain distributions, including discretionary dividend payments, by our subsidiary Banks to the holding company may be restricted.

Our gross loans increased $178,730,000 since December 31, 2022 to $1,818,461,000 at September 30, 2023, as we continue to emphasize commercial loan growth coupled with growth in indirect auto lending. We expect to continue to emphasize growth in our commercial and consumer loan portfolios, and additional regulatory capital generated through retained earnings and other sources will be necessary to support any such continued growth. At September 30, 2023, each of Jersey Shore State Bank and Luzerne Bank were “well capitalized” as defined by applicable bank regulatory standards. Applicable regulatory capital requirements also require each Bank to maintain a “capital conservation buffer,” consisting solely of tier 1 common equity, of 2.5% above the regulatory minimum capital requirements for each of the tier 1 common equity (“CET1”), tier 1 (“Tier 1”), and total capital (“Total Capital”) ratios. As a result of the capital conservation buffer requirements, if a bank does not maintain CET1, Tier 1 and Total Capital ratios of at least 7%, 8.5%, and 10.5%, respectively, determined as of the end of each calendar quarter, the bank’s ability to make certain discretionary payments, including discretionary dividend payments, are subject to a maximum payout ratio limitation unless the FDIC approves the distribution or payment. At September 30, 2023, each of Jersey Shore State Bank and Luzerne Bank exceeded the capital conservation buffer requirements for applicable capital ratios, except that the Total Capital to risk-weighted assets ratio for each Bank was slightly below the required 10.5% (10.281% for Jersey Shore State Bank and 10.204% for Luzerne Bank). After giving effect to the maximum payout ratio at September 30, 2023, each of Jersey Shore State Bank and Luzerne Bank was permitted to make discretionary dividend payments of up to approximately $6,532,000 and $2,776,000, respectively. As previously indicated, during the three months ended September 30, 2023, the Company sold 34,411 shares of common stock in a registered at-the-market offering resulting in net proceeds of $753,000, substantially all of which proceeds were contributed to the Banks as additional Tier 1 capital to support their lending activities and continued growth, and increase or maintain CET1, Tier 1, and Total Capital Levels to or at amounts required to exceed the 2.5% capital conservation buffer. If we are unable to generate retained earnings or raise capital in amounts necessary to avoid limitations on discretionary dividend payments by the Banks, our continued growth could be adversely affected.

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

The following table provides certain information with respect to the Company's repurchase of common stock during the quarter ended ~~June~~September 30, 2023.


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 ~~(April~~(July 1 - ~~April 30,~~July 31, 2023)	—	$	—	—	~~324,000~~353,000
Month #2 ~~(May~~(August 1 - ~~May~~August 31, 2023)	—	—		—	353,000
Month #3 ~~(June~~(September 1 - ~~June~~September 30, 2023)	—	—		—	353,000

Item 3. Defaults Upon Senior Securities

~~None.~~

None

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

4950

Table of Contents

Item 6. Exhibits


3(i)						Articles of Incorporation of the Registrant (incorporated by reference to Exhibit 3(i) of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2022).
3(ii)						Bylaws of the Registrant (incorporated by reference to Exhibit 3(ii) of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2020).
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 ~~June~~September 30, 2023 and December 31, 2022; (ii) the Consolidated Statement of Income for the three and ~~six~~nine months ended ~~June~~September 30, 2023 and 2022; (iii) Consolidated Statement of Comprehensive Income for the three and ~~six~~nine months ended ~~June~~September 30, 2023 and 2022; (iv) the Consolidated Statement of Shareholders’ Equity for the three and ~~six~~nine months ended ~~June~~September 30, 2023 and 2022; (v) the Consolidated Statement of Cash Flows for the ~~six~~nine months ended ~~June~~September 30, 2023 and 2022 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).

5051

Table of Contents

SIGNATURES

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


		PENNS WOODS BANCORP, INC.
		(Registrant)

Date:	~~August 11,~~November 14, 2023	/s/ Richard A. Grafmyre
		Richard A. Grafmyre, Chief Executive Officer
		(Principal Executive Officer)


Date:	~~August 11,~~November 14, 2023	/s/ Brian L. Knepp
		Brian L. Knepp, President and Chief Financial Officer
		(Principal Financial Officer and Principal Accounting
		Officer)

5152




SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid	$	12,547	$	2,958

Income taxes paid	2,048		1,121
Non-cash investing and financing activities:


Transfer of loans to foreclosed real estate	—		97


(In Thousands)	Real estate		Other*		Unsecured**		Total

Real estate mortgage:
Residential	$	244	$	—	$	—	$	244
Commercial	95		1,225		332		1,652



Total	$	339	$	1,225	$	332	$	1,896