PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Juniata Valley Financial Corp. and Subsidiary

Consolidated Statements of Financial Condition


	(Unaudited)
(Dollars in thousands, except share data)	March 31, 2021		December 31, 2020
ASSETS
Cash and due from banks	$	11,533	$	11,868
Interest bearing deposits with banks		460		19,753
Federal funds sold		10,000		10,000
Cash and cash equivalents		21,993		41,621
Interest bearing time deposits with banks		735		735
Equity securities		1,183		1,091
Debt securities available for sale		301,076		286,415
Restricted investment in bank stock		3,374		3,423
Total loans		437,007		422,661
Less: Allowance for loan losses		(4,056)		(4,094)
Total loans, net of allowance for loan losses		432,951		418,567
Premises and equipment, net		8,686		8,808
Other real estate owned		110		0
Bank owned life insurance and annuities		16,628		16,568
Investment in low income housing partnerships		2,905		3,105
Core deposit and other intangible assets		225		241
Goodwill		9,047		9,047
Mortgage servicing rights		147		158
Accrued interest receivable and other assets		6,573		3,939
Total assets	$	805,633	$	793,718
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Deposits:
Non-interest bearing	$	183,437	$	168,115
Interest bearing		486,023		454,751
Total deposits		669,460		622,866
Short-term borrowings and repurchase agreements		22,622		24,750
Federal Reserve Bank ("FRB") advances		0		27,955
Long-term debt		35,000		35,000
Other interest bearing liabilities		1,557		1,584
Accrued interest payable and other liabilities		4,420		4,966
Total liabilities		733,059		717,121
Commitments and contingent liabilities
Stockholders’ Equity:
Preferred stock, 0 par value: Authorized - 500,000 shares, NaN issued		0		0
Common stock, par value $1.00 per share: Authorized 20,000,000 shares Issued - 5,151,279 shares at March 31, 2021; 5,151,279 shares at December 31, 2020 Outstanding - 5,006,695 shares at March 31, 2021; 5,025,441 shares at December 31, 2020		5,151		5,151
Surplus		24,893		25,011
Retained earnings		45,629		45,096
Accumulated other comprehensive (loss) income		(590)		3,518
Cost of common stock in Treasury: 144,584 shares at March 31, 2021; 125,838 shares at December 31, 2020		(2,509)		(2,179)
Total stockholders’ equity		72,574		76,597
Total liabilities and stockholders’ equity	$	805,633	$	793,718

(Unaudited)
(Dollars in thousands, except share data) September 30, December 31,
2017 2016
ASSETS
Cash and due from banks $ 13,219 $ 9,464
Interest bearing deposits with banks 133 95
Cash and cash equivalents 13,352 9,559

Interest bearing time deposits with banks 350 350
Securities available for sale 159,180 150,488
Restricted investment in Federal Home Loan Bank (FHLB) stock 3,616 3,610
Investment in unconsolidated subsidiary 4,820 4,703
Residential mortgage loans held for sale 117 -
Total loans 382,616 378,297
Less: Allowance for loan losses (2,907 ) (2,723 )
Total loans, net of allowance for loan losses 379,709 375,574
Premises and equipment, net 6,695 6,857
Other real estate owned 576 638
Bank owned life insurance and annuities 14,898 14,631
Investment in low income housing partnership 5,319 3,812
Core deposit and other intangible 210 262
Goodwill 5,448 5,448
Mortgage servicing rights 223 205
Accrued interest receivable and other assets 5,409 4,217
Total assets $ 599,922 $ 580,354

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest bearing $ 109,880 $ 104,006
Interest bearing 363,703 351,816
Total deposits 473,583 455,822

Securities sold under agreements to repurchase 5,207 4,496
Short-term borrowings 27,500 27,700
Long-term debt 25,000 25,000
Other interest bearing liabilities 1,566 1,545
Accrued interest payable and other liabilities 6,618 6,701
Total liabilities 539,474 521,264
Stockholders' Equity:
Preferred stock, no par value: Authorized - 500,000 shares, none issued - -
Common stock, par value $1.00 per share: Authorized 20,000,000 shares
Issued -
4,811,611 shares at September 30, 2017;
4,805,000 shares at December 31, 2016
Outstanding -
4,767,656 shares at September 30, 2017;
4,755,630 shares at December 31, 2016 4,811 4,805
Surplus 18,548 18,476
Retained earnings 40,759 39,945
Accumulated other comprehensive loss (2,839 ) (3,209 )
Cost of common stock in Treasury:
43,955 shares at September 30, 2017;
49,370 shares at December 31, 2016 (831 ) (927 )
Total stockholders' equity 60,448 59,090
Total liabilities and stockholders' equity $ 599,922 $ 580,354

See Notes to Consolidated Financial Statements

Table of Contents

Juniata Valley Financial Corp. and Subsidiary

Consolidated Statements of Income (Unaudited)


	Three Months Ended
(Dollars in thousands, except share data)	March 31,
	2021		2020
Interest and dividend income:
Loans, including fees	$	4,777	$	4,878
Taxable securities		1,006		1,173
Tax-exempt securities		38		23
Other interest income		5		55
Total interest income		5,826		6,129
Interest expense:
Deposits		619		830
Short-term borrowings and repurchase agreements		32		8
FRB advances		18		0
Long-term debt		212		283
Other interest bearing liabilities		2		7
Total interest expense		883		1,128
Net interest income		4,943		5,001
Provision for loan losses		(79)		356
Net interest income after provision for loan losses		5,022		4,645
Non-interest income:
Customer service fees		325		415
Debit card fee income		413		324
Earnings on bank-owned life insurance and annuities		54		64
Trust fees		112		113
Commissions from sales of non-deposit products		80		74
Fees derived from loan activity		104		67
Mortgage banking income		8		16
Gain on sales and calls of securities		4		11
Change in value of equity securities		93		(172)
Other non-interest income		79		82
Total non-interest income		1,272		994
Non-interest expense:
Employee compensation expense		1,969		2,003
Employee benefits		545		728
Occupancy		330		314
Equipment		189		234
Data processing expense		583		501
Professional fees		188		173
Taxes, other than income		124		138
FDIC Insurance premiums		81		40
Gain on other real estate owned		(49)		0
Amortization of intangible assets		16		19
Amortization of investment in low-income housing partnerships		200		200
Other non-interest expense		412		410
Total non-interest expense		4,588		4,760
Income before income taxes		1,706		879
Income tax provision (benefit)		71		(159)
Net income	$	1,635	$	1,038
Earnings per share
Basic	$	0.33	$	0.20
Diluted	$	0.33	$	0.20

Three Months Ended Nine Months Ended
(Dollars in thousands, except share data) September 30, September 30,
2017 2016 2017 2016
Interest income:
Loans, including fees $ 4,607 $ 4,356 $ 13,491 $ 13,155
Taxable securities 729 590 2,128 1,831
Tax-exempt securities 112 100 340 314
Other interest income 9 3 20 13
Total interest income 5,457 5,049 15,979 15,313
Interest expense:
Deposits 561 461 1,555 1,350
Securities sold under agreements to repurchase 8 1 17 3
Short-term borrowings 80 5 212 49
Long-term debt 95 87 274 241
Other interest bearing liabilities 8 7 23 22
Total interest expense 752 561 2,081 1,665
Net interest income 4,705 4,488 13,898 13,648
Provision for loan losses 149 132 389 366
Net interest income after provision for loan losses 4,556 4,356 13,509 13,282
Non-interest income:
Customer service fees 428 471 1,302 1,279
Debit card fee income 274 264 824 769
Earnings on bank-owned life insurance and annuities 93 107 269 284
Trust fees 97 84 324 315
Commissions from sales of non-deposit products 43 43 140 181
Income from unconsolidated subsidiary 49 61 154 163
Fees derived from loan activity 77 58 181 175
Mortgage banking income 83 41 170 106
Gain on sales and calls of securities 2 6 510 134
Gain on sales of loans - - - 113
Gain on life insurance proceeds - 364 - 364
Other non-interest income 73 72 217 212
Total non-interest income 1,219 1,571 4,091 4,095
Non-interest expense:
Employee compensation expense 1,829 1,848 5,326 5,266
Employee benefits 567 564 1,802 1,699
Occupancy 291 278 878 847
Equipment 175 160 504 492
Data processing expense 440 493 1,318 1,358
Director compensation 60 59 183 176
Professional fees 148 130 431 405
Taxes, other than income 111 107 353 319
FDIC Insurance premiums 83 96 250 295
Loss (gain) on sales of other real estate owned 19 50 (26 ) 56
Amortization of intangibles 17 26 52 86
Amortization of investment in low-income housing partnership 173 120 412 359
Merger and acquisition expense - - - 372
Other non-interest expense 529 399 1,457 1,226
Total non-interest expense 4,442 4,330 12,940 12,956
Income before income taxes 1,333 1,597 4,660 4,421
Income tax provision 127 150 701 567
Net income $ 1,206 $ 1,447 $ 3,959 $ 3,854
Earnings per share
Basic $ 0.25 $ 0.30 $ 0.83 $ 0.80
Diluted $ 0.25 $ 0.30 $ 0.83 $ 0.80
Cash dividends declared per share $ 0.22 $ 0.22 $ 0.66 $ 0.66
Weighted average basic shares outstanding 4,767,656 4,804,000 4,764,325 4,800,804
Weighted average diluted shares outstanding 4,778,950 4,805,177 4,772,935 4,801,521

See Notes to Consolidated Financial Statements

Table of Contents

Juniata Valley Financial Corp. and Subsidiary

Consolidated Statements of Comprehensive Income (Unaudited)


(Dollars in thousands)	Three Months Ended March 31,
	2021						2020
	Before Tax		Tax		Net of Tax		Before Tax		Tax		Net of Tax
	Amount		Effect		Amount		Amount		Effect		Amount
Net income	$	1,706	$	(71)	$	1,635	$	879	$	159	$	1,038
Other comprehensive (loss) income:
Available for sale securities:
Unrealized holding (losses) gains arising during the period		(5,911)		1,241		(4,670)		4,948		(1,039)		3,909
Less reclassification adjustment for gains included in net income for sales of debt securities (1) (3)		(4)		1		(3)		(11)		2		(9)
Unrealized gains on cash flow hedge		712		(150)		562		0		0		0
Less reclassification adjustment for losses included in net income (2) (3)		4		(1)		3		0		0		0
Other comprehensive (loss) income		(5,199)		1,091		(4,108)		4,937		(1,037)		3,900
Total comprehensive (loss) income	$	(3,493)	$	1,020	$	(2,473)	$	5,816	$	(878)	$	4,938

Three Months Ended September 30,
2017 2016
Before Net of Before Net of
(Dollars in thousands) Tax Tax Tax Tax Tax Tax
Amount Effect Amount Amount Effect Amount
Net income $ 1,333 $ (127 ) $ 1,206 $ 1,597 $ (150 ) $ 1,447
Other comprehensive income:
Unrealized gains on available for sale securities:
Unrealized holding gains (losses) arising during the period (20 ) 7 (13 ) (267 ) 91 (176 )
Unrealized holding gains (losses) from unconsolidated subsidiary (3 ) - (3 ) (4 ) - (4 )
Less reclassification adjustment for gains included in net income (1) (3) (2 ) 1 (1 ) (6 ) 2 (4 )
Amortization of pension net actuarial cost (2) (3) 57 (20 ) 37 62 (21 ) 41
Other comprehensive income (loss) 32 (12 ) 20 (215 ) 72 (143 )
Total comprehensive income $ 1,365 $ (139 ) $ 1,226 $ 1,382 $ (78 ) $ 1,304

Nine Months Ended September 30,
2017 2016
Before Net of Before Net of
Tax Tax Tax Tax Tax Tax
Amount Effect Amount Amount Effect Amount
Net income $ 4,660 $ (701 ) $ 3,959 $ 4,421 $ (567 ) $ 3,854
Other comprehensive income:
Unrealized gains on available for sale securities:
Unrealized holding gains arising during the period 882 (300 ) 582 2,083 (708 ) 1,375
Unrealized holding gains (losses) from unconsolidated subsidiary 12 - 12 (5 ) - (5 )
Less reclassification adjustment for gains included in net income (1) (3) (510 ) 174 (336 ) (134 ) 46 (88 )
Amortization of pension net actuarial cost (2) (3) 170 (58 ) 112 186 (63 ) 123
Other comprehensive income 554 (184 ) 370 2,130 (725 ) 1,405
Total comprehensive income $ 5,214 $ (885 ) $ 4,329 $ 6,551 $ (1,292 ) $ 5,259

~~See Notes to Consolidated Financial Statements~~

(1)

Amounts are included in (loss) gain on sales and calls of securities on the Consolidated Statements of Income as a separate element within total non-interest income.

(2)

Amounts are included in ~~the computation of net periodic benefit cost~~interest expense on short-term borrowings and ~~are included in employee benefits expense~~repurchase agreements on the Consolidated Statements of ~~Income as a separate element within total non-interest expense.~~Income.

(3)

Income tax amounts are included in the provision for income taxes on the Consolidated Statements of Income.

See Notes to Consolidated Financial Statements

Table of Contents

Juniata Valley Financial Corp. and Subsidiary

Consolidated Statements of ~~Stockholders'~~Stockholders’ Equity (Unaudited)

~~For the Nine Months Ended September 30, 2017~~

Number Accumulated
of Other Total
(Dollars in thousands, except share data) Shares Common Retained Comprehensive Treasury Stockholders'
Outstanding Stock Surplus Earnings Loss Stock Equity
Balance, January 1, 2017 4,755,630 $ 4,805 $ 18,476 $ 39,945 $ (3,209 ) $ (927 ) $ 59,090
Net income 3,959 3,959
Other comprehensive income 370 370
Cash dividends at $0.66 per share (3,145 ) (3,145 )
Stock-based compensation 54 54
Purchase of treasury stock (4,289 ) (86 ) (86 )
Treasury stock issued for stock plans 9,704 (10 ) 182 172
Common stock issued for stock plans 6,611 6 28 34
Balance, September 30, 2017 4,767,656 $ 4,811 $ 18,548 $ 40,759 $ (2,839 ) $ (831 ) $ 60,448
~~Juniata Valley Financial Corp. and Subsidiary~~
~~Consolidated Statements of Stockholders' Equity (Unaudited)~~
~~For the Nine Months Ended September 30, 2016~~

Number Accumulated
of Other Total
(Dollars in thousands, except share data) Shares Common Retained Comprehensive Treasury Stockholders'
Outstanding Stock Surplus Earnings Loss Stock Equity
Balance, January 1, 2016 4,798,086 $ 4,798 $ 18,352 $ 39,015 $ (2,203 ) $ - $ 59,962
Net income 3,854 3,854
Other comprehensive income 1,405 1,405
Cash dividends at $0.66 per share (3,170 ) (3,170 )
Stock-based compensation 50 50
Purchase of treasury stock (1,000 ) (18 ) (18 )
Common stock issued for stock plans 6,914 7 57 - 64
Balance, September 30, 2016 4,804,000 $ 4,805 $ 18,459 $ 39,699 $ (798 ) $ (18 ) $ 62,147
~~See Notes to Consolidated Financial Statements~~
6
~~Juniata Valley Financial Corp. and Subsidiary~~
~~Consolidated Statements of Cash Flows (Unaudited)~~

Three months ended March 31, 2021

Accumulated

(Dollars in thousands, except share data)

Number

Other

Total

of Shares

Common



Retained

Comprehensive

Treasury

Stockholders’


Outstanding

Stock

Surplus

Earnings

Income (Loss)

Stock

Equity
Balance, January 1, 2021

5,025,441

$
5,151

$
25,011

$
45,096

$
3,518

$
(2,179)

$
76,597
Net income







1,635





1,635
Other comprehensive loss







(4,108)



(4,108)
Cash dividends at $0.22 per share







(1,102)





(1,102)
Stock-based compensation





35







35
Purchase of treasury stock

(27,585)

(483)

(483)
Treasury stock issued for stock plans

8,839

(153)

153

—
Balance, March 31, 2021

5,006,695

$
5,151

$
24,893

$
45,629

$
(590)

$
(2,509)

$
72,574

(Dollars in thousands) Nine Months Ended September 30,
2017 2016
Operating activities:
Net income $ 3,959 $ 3,854
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses 389 366
Depreciation 487 447
Net amortization of securities premiums 490 556
Net amortization of loan origination fees 48 31
Deferred net loan origination costs (297 ) (94 )
Amortization of core deposit intangible 52 86
Amortization of investment in low income housing partnership 412 359
Net accretion (amortization) of purchase fair value adjustments 4 (7 )
Net realized gain on sales and calls of securities (510 ) (134 )
Net (gain) loss on sales and valuation of other real estate owned (26 ) 56
Earnings on bank owned life insurance and annuities (269 ) (284 )
Deferred income tax (credit) expense (34 ) 31
Equity in earnings of unconsolidated subsidiary, net of dividends of $49 and $42 (105 ) (121 )
Stock-based compensation expense 54 50
Gain from sale of student loans - (113 )
Mortgage loans originated for sale (3,527 ) (1,582 )
Proceeds from mortgage loans sold to others 3,563 1,822
Mortgage banking income (170 ) (106 )
Gain from life insurance proceeds - (364 )
(Increase) decrease in accrued interest receivable and other assets (1,360 ) 90
Increase (decrease) in accrued interest payable and other liabilities 146 (813 )
Net cash provided by operating activities 3,306 4,130
Investing activities:
Purchases of:
Securities available for sale (42,510 ) (36,505 )
Premises and equipment (324 ) (482 )
Bank owned life insurance and annuities (36 ) (50 )
Proceeds from:
Sales of securities available for sale 21,800 4,273
Maturities of and principal repayments on securities available for sale 12,407 36,190
(Purchase) redemption of FHLB stock (6 ) 636
Sale of student loans - 1,706
Life insurance claim - 1,016
Sale of other real estate owned 617 132
Sale of other assets 25 -
Investment in low income housing partnership (1,919 ) (314 )
Net increase in loans (4,809 ) (550 )
Net cash (used in) provided by investing activities (14,755 ) 6,052
Financing activities:
Net increase in deposits 17,756 6,199
Net increase (decrease) in short-term borrowings and securities sold under agreements to repurchase 511 (16,754 )
Issuance of long-term debt - 10,000
Repayment of long-term debt - (7,500 )
Cash dividends (3,145 ) (3,170 )
Purchase of treasury stock (86 ) (18 )
Common stock issued for employee stock plans 206 64
Net cash provided by (used in) financing activities 15,242 (11,179 )
Net increase (decrease) in cash and cash equivalents 3,793 (997 )
Cash and cash equivalents at beginning of year 9,559 10,458
Cash and cash equivalents at end of period $ 13,352 $ 9,461
Supplemental information:
Interest paid $ 2,051 $ 1,673
Income taxes paid 385 200
Supplemental schedule of noncash investing and financing activities:
Transfer of loans to other real estate owned $ 529 $ 289
Transfer of loans to repossessed vehicles 5 20

Three months ended March 31, 2020

Accumulated

(Dollars in thousands, except share data)

Number

Other

Total

of Shares

Common



Retained

Comprehensive

Treasury

Stockholders’


Outstanding

Stock

Surplus

Earnings

Income (Loss)

Stock

Equity
Balance, January 1, 2020

5,099,729

$
5,142

$
24,898

$
43,954

$
516

$
(803)

$
73,707
Net income







1,038





1,038
Other comprehensive income









3,900



3,900
Cash dividends at $0.22 per share







(1,122)





(1,122)
Stock-based compensation





29







29
Purchase of treasury stock

(15,400)







(186)

(186)
Common stock issued for stock plans

9,530

9

(9)







—
Balance, March 31, 2020

5,093,859

$
5,151

$
24,918

$
43,870

$
4,416

$
(989)

$
77,366

See Notes to Consolidated Financial Statements

7
6

Table of Contents

Juniata Valley Financial Corp. and Subsidiary

Consolidated Statements of Cash Flows (Unaudited)

(Dollars in thousands)

Three Months Ended March 31,


2021

2020
Operating activities:

Net income

$
1,635

$
1,038
Adjustments to reconcile net income to net cash provided by operating activities:




Provision for loan losses

(79)

356
Depreciation

187

206
Net amortization of securities premiums

394

228
Net amortization of loan origination fees

151

5
Deferred net loan origination costs

(92)

(83)
Amortization of intangibles

16

19
Amortization of investment in low income housing partnerships

200

200
Net amortization of purchase fair value adjustments

(48)

(27)
Net realized gain on sales and calls of available for sale securities

(4)

(11)
Change in value of equity securities

(93)

172
Net gain on other real estate owned

(49)

0
Earnings on bank owned life insurance and annuities

(54)

(64)
Deferred income tax (benefit) expense

(9)

125
Stock-based compensation expense

35

29
Proceeds from mortgage loans sold to others

19

20
Mortgage banking income

(8)

(16)
Increase in accrued interest receivable and other assets

(817)

(1,561)
Decrease in accrued interest payable and other liabilities

(573)

(109)
Net cash provided by operating activities

811

527
Investing activities:




Purchases of:




Securities available for sale

(61,579)

(23,275)
Premises and equipment

(65)

(136)
Bank owned life insurance and annuities

(6)

(6)
Proceeds from:


Sales of securities available for sale

16,815

15,704
Maturities of and principal repayments on securities available for sale

23,799

22,339
Redemption of FHLB stock

49

406
Net decrease in interest bearing time deposits with banks

0

490
Net (increase) decrease in loans

(14,377)

10,698
Net cash (used in) provided by investing activities

(35,364)

26,220
Financing activities:




Net increase in deposits

46,593

9,991
Net decrease in short-term borrowings and securities sold under agreements to repurchase

(2,128)

(10,346)
Repayment of FRB advances

(27,955)

0
Cash dividends

(1,102)

(1,122)
Purchase of treasury stock

(483)

(186)
Net cash provided by (used in) financing activities

14,925

(1,663)
Net (decrease) increase in cash and cash equivalents

(19,628)

25,084
Cash and cash equivalents at beginning of year

41,621

12,740
Cash and cash equivalents at end of period

$
21,993

$
37,824

(Dollars in thousands)

Three Months Ended March 31,


2021

2020
Supplemental information:

Interest paid

$
967

$
1,135
Income tax paid

75

0
Supplemental schedule of noncash investing and financing activities:




Transfer of loans to other real estate owned

$
61

$
0
Transfer of loans to repossessed vehicles

$
1

$
0
See Notes to Consolidated Financial Statements

Table of Contents

JUNIATA VALLEY FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. ~~Basis of Presentation and Accounting Policies~~
BASIS OF PRESENTATION AND ACCOUNTING POLICIES
The consolidated financial statements include the accounts of Juniata Valley Financial Corp. (the “Company” or “Juniata”) and its wholly owned subsidiary, The Juniata Valley Bank (the “Bank” or “JVB”). All significant intercompany accounts and transactions have been eliminated.
The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. ~~generally accepted accounting principles (“U.S. GAAP”)~~GAAP for complete consolidated financial statements. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. Actual results may differ from those estimates, and such differences could be material to the financial statements. Additionally, the ongoing effects of the COVID-19 pandemic may negatively impact significant estimates and the assumptions underlying those estimates. Estimates that are particularly susceptible to material change include the determination of the allowance for loan losses, and possible impairment of goodwill and other intangible assets.
In the opinion of management, all adjustments considered necessary for fair presentation have been included. Operating results for the three ~~and nine months~~month period ended ~~September 30, 2017~~March 31, 2021 are not necessarily indicative of the results for the year ending December 31, ~~2017.~~2021. For further information, refer to the consolidated financial statements and notes thereto included in Juniata Valley Financial Corp.’s Annual Report on Form 10-K (“Annual Report”) for the year ended December 31, ~~2016.~~
2020.
The Company has evaluated events and transactions occurring subsequent to the consolidated statement of financial condition date of ~~September 30, 2017~~March 31, 2021 for items that should potentially be recognized or disclosed in these consolidated financial statements. The evaluation was conducted through the date these consolidated financial statements were issued.
~~2. Recent Accounting Standards Updates (ASU)~~
~~Accounting Standards Update 2017-12, Targeted Improvements to Accounting for Hedging Activities~~

~~Issued:~~2. RECENT ACCOUNTING STANDARDS UPDATES~~August 2017~~
~~Summary:~~ASU 2017-12 improves Topic 815 by simplifying and expanding the eligible hedging strategies for financial and nonfinancial risks by more closely aligning hedge accounting with a company’s risk management activities, and also simplifies its application through targeted improvements in key practice areas. This includes expanding the list of items eligible to be hedged and amending the methods used to measure the effectiveness of hedging relationships. In addition, the ASU prescribes how hedging results should be presented and requires incremental disclosures. These changes are intended to allow preparers more flexibility and to enhance the transparency of how hedging results are presented and disclosed. Further, the new standard provides partial relief on the timing of certain aspects of hedge documentation and eliminates the requirement to recognize hedge ineffectiveness separately in earnings in the current period.
~~Effective Date:~~The amendments are effective for public business entities, for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early application is permitted in any interim period after issuance of the amendments for existing hedging relationships on the date of adoption. This Update will have no impact on the Company’s consolidated financial position and results of operations.
~~Accounting Standards Update 2017-09, Scope of Modification Accounting~~
~~Issued:May 2017~~
~~Summary:~~ASU 2017-09 clarifies Topic 718 such that an entity must apply modification accounting to changes in the terms or conditions of a share-based payment award unless all of the following criteria are met:
1. The fair value of the modified award is the same as the fair value of the original award immediately before the modification. The standard indicates that if the modification does not affect any of the inputs to the valuation technique used to value the award, the entity is not required to estimate the value immediately before and after the modification.
2. ~~The vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the modification.~~
8
3. ~~The classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the modification.~~
~~Effective Date:~~The amendments are effective for all entities for fiscal years beginning after December 15, 2017, including interim periods within those years. This Update will have no impact on the Company’s consolidated financial position and results of operations.
~~Accounting Standards Update 2017-08, Premium Amortization on Purchased Callable Debt Securities~~
~~Issued:March 2017~~
~~Summary:~~ASU 2017-08 shortens the amortization period for premiums on purchased callable debt securities to the earliest call date, rather than amortizing over the full contractual term. The ASU does not change the accounting for securities held at a discount.
~~Effective Date:~~The amendments are effective for public business entities for fiscal years beginning after December 15, 2019. This Update will have no impact on the Company’s consolidated financial position and results of operations.
~~Accounting Standards Update 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost~~
~~Issued:March 2017~~
~~Summary:~~~~ASU 2017-07 requires that an employer disaggregate the service cost component from the other components of net benefit cost.~~
~~Effective Date:~~The amendments are effective for public business entities for fiscal years beginning after December 15, 2017. This Update will have no impact on the Company’s consolidated financial position and results of operations.
~~Accounting Standards Update 2017-04, Simplifying the Test for Goodwill Impairment~~
~~Issued:January 2017~~
~~Summary:~~~~ASU 2017-04 eliminates Step 2 of the goodwill impairment test.~~
~~Effective Date:~~The amendments are effective for public business entities for fiscal years beginning after December 15, 2019. This Update will have no impact on the Company’s consolidated financial position and results of operations.
~~Accounting Standards Update 2016-15, Classification of Certain Cash Receipts and Cash Payments~~
~~Issued:August 2016~~
~~Summary:~~~~ASU 2016-15 clarifies how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments are intended to reduce diversity in practice.~~
~~Effective Date:~~The amendments are effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. This Update will have no impact on the Company’s consolidated financial position and results of operations.
~~Accounting Standards Update~~ 2016-13,,Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
Issued:June 2016
Summary:ASU 2016-13 requires credit losses on most financial assets to be measured at amortized cost and certain other instruments to be measured using an expected credit loss model (referred to as the current expected credit loss (“CECL”) model). Under this model, entities will estimate credit losses over the entire contractual term of the instrument (considering estimated prepayments, but not expected extensions or modifications unless reasonable expectation of a troubled debt restructuring exists) from the date of initial recognition of that instrument.
9
The ASU also replaces the current accounting model for purchased credit impaired loans and debt securities. The allowance for credit losses for purchased financial assets with a more-than insignificant amount of credit deterioration since origination (“PCD assets”), should be determined in a similar manner to other financial assets measured on an amortized cost basis. However, upon initial recognition, the allowance for credit losses is added to the purchase price (“gross up approach”) to determine the initial amortized cost basis. The subsequent accounting for PCD financial assets is the same expected loss model described above.
Further, the ASU made certain targeted amendments to the existing impairment model for ~~available-for-sale (AFS)~~available for sale debt securities. For an ~~AFS~~available for sale debt security for which there is neither the intent nor a more-likely-than-not requirement to sell, an entity will record credit losses as an allowance rather than a write-down of the amortized cost basis.

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Effective Date: ~~The new standard is~~On October 16, 2019, the FASB voted and approved to delay the effective date of this ASU for smaller reporting companies until fiscal years beginning after December 15, ~~2019, including interim periods within those fiscal years.~~2022. Since the Company is a smaller reporting company, the delay of the effective date of ASU 2016-13 approved by the FASB applies to the Company. While the Company’s senior management is currently in the process of evaluating the impact of the amended guidance on its consolidated financial statements and disclosures, it ~~currently~~ expects the ~~ALLL~~allowance for loan and lease losses (“ALLL”) to increase upon adoption ~~given that~~because the allowance will be required to cover the full remaining expected life of the portfolio, rather than the incurred loss ~~model~~ under current U.S. GAAP. The extent of this increase is still being evaluated and will depend on economic conditions and the composition of the Company’s loan portfolio at the time of adoption. In preparation, the Company has ~~partnered~~taken steps to prepare for the implementation when it becomes effective by forming an internal taskforce, gathering pertinent data, participating in training courses, and partnering with a software provider ~~specializing~~that specializes in ALLL analysis, ~~and is~~as well as assessing the sufficiency of data currently available through its core database.

~~Accounting Standards Update 2016-02~~~~, Leases~~
~~Issued:~~~~February 2016~~
~~Summary:~~The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement.
~~Effective Date:~~ The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company has determined that the provisions of ASU 2016-02 will result in an increase in assets to recognize the present value of the lease obligations with a corresponding increase in liabilities; however, the Company does not expect this new standard to have a material impact on the Company’s financial position, results of operations or cash flows.
~~Accounting Standards Update 2016-01,~~~~Measurement of Financial Instruments~~
~~Issued:~~~~January 2016~~
~~Summary:~~ The amendments in this Update require all equity investments to be measured at fair value with changes in the fair value recognized through net income (other than those accounted for under equity method of accounting or those that result in consolidation of the investee). The amendments in this Update also require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. In addition, the amendments in this Update eliminate the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities and the requirement to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet for public business entities.
~~Effective Date:~~ For public entities, the amendments in the Update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company currently holds a small portfolio of equity investments for which the fair value fluctuates with market activity. Had ASU 2016-01 become effective on September 30, 2017, the cumulative effect adjustment to income before tax would have been $287,000 (see Note 6). The cumulative adjustment that will be recognized upon adoption of the amendments in this update in the first quarter of 2018 will be dependent upon the size of the equity portfolio and the market values at that time.
10
~~Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606)~~
~~Issued:May 2014~~
~~Summary:~~ The amendments in this Update establish a comprehensive revenue recognition standard for virtually all industries under U.S. GAAP, including those that previously followed industry-specific guidance such as the real estate, construction and software industries. The revenue standard’s core principle is built on the contract between a vendor and a customer for the provision of goods and services. It attempts to depict the exchange of rights and obligations between the parties in the pattern of revenue recognition based on the consideration to which the vendor is entitled. To accomplish this objective, the standard requires five basic steps: (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies a performance obligation.
~~In August 2015, the FASB issuedAccounting Standards Update 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date~~.ASU 2015-14 defers the effective date of the new revenue recognition standard by one year. As such, it now takes effect for public entities in fiscal years beginning after December 15, 2017. All other entities have an additional year. However, early adoption is permitted for any entity that chooses to adopt the new standard as of the original effective date. Early adoption is permitted only as of annual reporting periods beginning after December 15, 2016, including interim periods within that year.
Three basic transition methods are available – full retrospective, retrospective with certain practical expedients, and a cumulative effect approach. Under the third alternative, an entity would apply the new revenue standard only to contracts that are incomplete under legacy U.S. GAAP at the date of initial application (e.g. January 1, 2018) and recognize the cumulative effect of the new standard as an adjustment to the opening balance of retained earnings. That is, prior years would not be restated and additional disclosures would be required to enable users of the financial statements to understand the impact of adopting the new standard in the current year compared to prior years that are presented under legacy U.S. GAAP. Early adoption is prohibited under U.S. GAAP.
Because the amended guidance does not apply to revenue associated with financial instruments, including loans and securities that are accounted for under other U.S. GAAP, the Company’s preliminary analysis suggests that the adoption of this amended guidance is not expected to have a material impact on its consolidated financial statements, although the Company will be subject to expanded disclosure requirements upon adoption for which it is still evaluating, along with the preferred adoption method. The Company is assessing the affect the guidance will have on the recognition processes for wealth and asset management revenue, banking revenue and card and processing revenue. However, there are certain areas of the amended guidance, such as credit card interchange fees programs that are subject to interpretation. The Company is still in the process of analyzing these contracts and has not made a final conclusion regarding the applicability and related impact, if any, on the consolidated financial statements. Accordingly, the results of the Company’s materiality analysis, as well as its selected adoption method, may change as these conclusions are reached.
3. ~~Merger~~
On November 30, 2015, Juniata consummated the merger with FNBPA Bancorp, Inc. (“FNBPA”), a Pennsylvania corporation. FNBPA merged with and into Juniata, with Juniata continuing as the surviving entity. Simultaneously with the consummation of the foregoing merger, First National Bank of Port Allegany (“FNB”), a national banking association and a wholly-owned subsidiary of FNBPA, merged with and into the Bank.
As part of this transaction, FNBPA shareholders received either 2.7813 shares of Juniata’s common stock or $50.34 in cash in exchange for each share of FNBPA common stock. As a result, Juniata issued 607,815 shares of common stock with an acquisition date fair value of approximately $10,637,000, based on Juniata’s closing stock price of $17.50 on November 30, 2015, and cash of $2,208,000, including cash in lieu of fractional shares. The fair value of total consideration paid was $12,845,000.
The assets and liabilities of FNB and FNBPA were recorded on the consolidated balances sheet at their estimated fair value as of November 30, 2015, and their results of operations have been included in the consolidated income statement since such date.
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Included in the purchase price was goodwill and a core deposit intangible of $3,335,000 and $343,000, respectively. The core deposit intangible will be amortized over a ten-year period using a sum of the year’s digits basis. The goodwill will not be amortized, but will be measured annually for impairment or more frequently if circumstances require.
~~The allocation of the purchase price is as follows:~~
(Dollars in thousands)

Purchase price assigned to FNBPA common shares exchanged for 607,815 Juniata common shares $ 10,637
Purchase price assigned to FNBPA common shares exchanged for cash 2,208
Total purchase price 12,845
FNBPA net assets acquired:
Tangible common equity 9,854
Adjustments to reflect assets acquired and liabilities assumed at fair value:
Total fair value adjustments (523 )
Associated deferred income taxes 179
Fair value adjustment to net assets acquired, net of tax (344 )
Total FNBPA net assets acquired 9,510
Goodwill resulting from the merger $ 3,335
~~The following table summarizes the fair value of the assets acquired and liabilities assumed.~~
(Dollars in thousands)

Total purchase price $ 12,845

Net assets acquired
Cash and cash equivalents 3,452
Interest-bearing time deposits 350
Investment securities 35,458
Loans 47,055
Premises and equipment 419
Accrued interest receivable 550
Core deposit and other intangibles 343
Other real estate owned 114
Other assets 763
Deposits (77,665 )
Accrued interest payable (13 )
Other liabilities (1,316 )
9,510
Goodwill $ 3,335
As of November 30, 2015, the merger date, goodwill was recorded at $3,335,000. Accounting Standard Codification (“ASC”) 805 allows for adjustments to goodwill for a period of up to one year after the merger date for information that becomes available that reflects circumstances at the merger date. During 2016, such information became available and goodwill was adjusted by $67,000, to $3,402,000, to reflect adjustments to fair value of two assets.
The fair value of the financial assets acquired included loans receivable with a gross amortized cost basis of $47,797,000. The table below illustrates the fair value adjustments made to the amortized cost basis in order to present a fair value of the loans acquired.
(Dollars in thousands)

Gross amortized cost basis at November 30, 2015 $ 47,797
Market rate adjustment (110 )
Credit fair value adjustment on pools of homogeneous loans (73 )
Credit fair value adjustment on impaired loans (559 )
Fair value of purchased loans at November 30, 2015 $ 47,055
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The market rate adjustment represents the movement in market interest rates, irrespective of credit adjustments, compared to the stated rates of the acquired loans. The credit adjustment made on pools of homogeneous loans represents the changes in credit quality of the underlying borrowers from the loan inception to the acquisition date. The credit adjustment on impaired loans is derived in accordance with ASC 310-30 and represents the portion of the loan balances that has been deemed uncollectible based on the Company’s expectations of future cash flows for each respective loan.
~~The information about the acquired FNBPA impaired loan portfolio as of November 30, 2015 is as follows:~~
(Dollars in thousands)

Contractually required principal and interest at acquisition $ 2,488
Contractual cash flows not expected to be collected (nonaccretable discount) (1,427 )
Expected cash flows at acquisition 1,061
Interest component of expected cash flows (accretable discount) (157 )
Fair value of acquired loans $ 904
The following table presents unaudited pro forma information, in thousands, as if the merger between Juniata and FNBPA had been completed on January 1, 2014. The pro forma information does not necessarily reflect the results of operations that would have occurred had Juniata merged with FNBPA at the beginning of 2014. Supplemental pro forma earnings for 2015 were adjusted to exclude $1,637,000 of merger related costs (exclusive of the corresponding tax impact) incurred in 2015; the results for 2014 were adjusted to include these charges. The pro forma financial information does not include the impact of possible business model changes, nor does it consider any potential impacts of current market conditions or revenues, expense efficiencies or other factors.
(Dollars in thousands, except per share data) Years Ended December 31,
2015 2014
Consolidated net interest income after loan loss provision $ 17,731 $ 17,089
Consolidated non-interest income 4,841 4,745
Consolidated non-interest expense 17,124 18,358
Consolidated net income 4,862 3,353
Consolidated net income per common share $ 1.01 $ 0.70
~~4. Accumulated other Comprehensive loss~~

ACCUMULATED OTHER COMPREHENSIVE INCOME

Components of accumulated other comprehensive ~~loss,~~income, net of tax, consisted of the following:


(Dollars in thousands)
March 31, 2021	Gains and (Losses) on Cash Flow Hedges		Unrealized Gains and (Losses) on Available for Sale Securities		Total
Beginning balance, December 31, 2020	$	(45)	$	3,563	$	3,518
Current period other comprehensive income (loss):
Other comprehensive income (loss) before reclassification		562		(4,670)		(4,108)
Amounts reclassified from accumulated other comprehensive loss		3		(3)		0
Net current period other comprehensive income (loss)		565		(4,673)		(4,108)
Ending balance, March 31, 2021	$	520	$	(1,110)	$	(590)

(Dollars in thousands)
September 30, 2017 December 31, 2016
Unrealized losses on available for sale securities $ (609 ) $ (866 )
Unrecognized expense for defined benefit pension (2,230 ) (2,343 )
Accumulated other comprehensive loss $ (2,839 ) $ (3,209 )


(Dollars in thousands)
December 31, 2020	Gains and (Losses) on Cash Flow Hedges		Unrealized Gains and (Losses) on Available for Sale Securities		Total
Beginning balance, December 31, 2019	$	0	$	516	$	516
Current period other comprehensive income:
Other comprehensive income before reclassification		(38)		3,727		3,689
Amounts reclassified from accumulated other comprehensive income		(7)		(675)		(682)
Net current period other comprehensive income		(45)		3,052		3,007
Reclassification for ASU 2018-02		0		(5)		(5)
Ending balance, December 31, 2020	$	(45)	$	3,563	$	3,518

~~5. Earnings Per Share~~

4. EARNINGS PER SHARE

Basic earnings per share (“EPS”) is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company. Potential common shares that may be issued by the Company relate solely to outstanding stock options and are determined using the treasury stock method.

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The following ~~tables set~~table sets forth the computation of basic and diluted earnings per share:


(Amounts in thousands, except earnings per share data)	Three Months Ended March 31,
	2021		2020
Net income	$	1,635	$	1,038
Weighted-average common shares outstanding		5,017		5,103
Basic earnings per share	$	0.33	$	0.20
Weighted-average common shares outstanding	$	5,017	$	5,103
Common stock equivalents due to effect of stock options		9		8
Total weighted-average common shares and equivalents		5,026		5,111
Diluted earnings per share	$	0.33	$	0.20
Anti-dilutive stock options outstanding		8		5

(Dollars in thousands, except earnings per share data) Three Months Ended September 30,
2017 2016
Net income $ 1,206 $ 1,447
Weighted-average common shares outstanding 4,768 4,804
Basic earnings per share $ 0.25 $ 0.30

Weighted-average common shares outstanding 4,768 4,804
Common stock equivalents due to effect of stock options 11 1
Total weighted-average common shares and equivalents 4,779 4,805
Diluted earnings per share $ 0.25 $ 0.30

Nine Months Ended September 30,
2017 2016
Net income $ 3,959 $ 3,854
Weighted-average common shares outstanding 4,764 4,801
Basic earnings per share $ 0.83 $ 0.80

Weighted-average common shares outstanding 4,764 4,801
Common stock equivalents due to effect of stock options 9 1
Total weighted-average common shares and equivalents 4,773 4,802
Diluted earnings per share $ 0.83 $ 0.80

5. SECURITIES

Equity Securities

Equity securities owned by the Company consist of common stock of various financial services providers. ASC Topic 321, Investments – Equity Securities requires all equity securities within its scope to be measured at fair value with changes in fair value recognized in net income. As of March 31, 2021, the Company had $1,183,000 in equity securities recorded at fair value, and $1,091,000 in equity securities were recorded at fair value at December 31, 2020. The Company recorded a net gain of $93,000 during the three months ended March 31, 2021 and a net loss of $172,000 during the three months ended March 31, 2020 because of the change in fair value of the Company’s equity securities during the applicable period.

Debt Securities Available for Sale

Debt securities classified as available for sale, which include marketable investment securities, are within the scope of ASC Topic 320, Investments – Debt Securities. Topic 320 requires all debt securities within its scope to be stated at fair value, with the unrealized gains and losses, net of tax, reported as a component of other comprehensive income (loss). Securities classified as available for sale are those securities that the Company intends to hold for an indefinite period but not necessarily to maturity. Any decision to sell a security classified as available for sale would be based on various factors, including significant movement in interest rates, changes in maturity mix of the Company’s assets and liabilities, liquidity needs, regulatory capital considerations and other similar factors. Interest and dividends are recognized as income when earned. Premiums and discounts are recognized in interest income using the interest method over the terms of the securities. Gains or losses on the disposition of securities available for sale are based on the net proceeds and the adjusted carrying amount of the securities sold, determined on a specific identification basis.

The Company’s available for sale investment portfolio includes primarily bonds issued by U.S. Government sponsored ~~agencies~~enterprises (approximately ~~22%~~13% of the investment portfolio), mortgage-backed securities issued by Government-sponsored ~~agencies~~entities and backed by residential mortgages (approximately ~~61%~~79%), corporate debt securities (approximately 5%) and municipal bonds (approximately ~~16%~~3%) as of ~~September 30, 2017.~~March 31, 2021. Most of the municipal bonds are general obligation bonds with maturities or pre-refunding dates within 5 years. ~~The remaining 1%~~

Table of ~~the portfolio includes a group of equity investments in other financial institutions.~~Contents

The amortized cost and fair value of securities available for sale as of ~~September 30, 2017~~March 31, 2021 and December 31, ~~2016,~~2020, by contractual maturity, are shown in the tables below. Expected maturities may differ from contractual maturities because the securities may be called or prepaid with or without prepayment penalties.


(Dollars in thousands)	March 31, 2021
					Gross		Gross
	Amortized		Fair		Unrealized		Unrealized
Debt Securities Available for Sale	Cost		Value		Gains		Losses
Type and Maturity
Obligations of U.S. Government sponsored enterprises
After five years but within ten years	$	39,054	$	37,634	$	0	$	(1,420)
		39,054		37,634		0		(1,420)
Obligations of state and political subdivisions
Within one year		30		30		0		0
After one year but within five years		4,705		4,750		45		0
After five years but within ten years		3,294		3,395		139		(38)
		8,029		8,175		184		(38)
Corporate debt securities
After five years but within ten years		15,487		16,039		580		(28)
		15,487		16,039		580		(28)
Mortgage-backed securities		239,912		239,228		2,352		(3,036)
Total	$	302,482	$	301,076	$	3,116	$	(4,522)

	September 30, 2017

(Dollars in thousands)					Gross		Gross			December 31, 2020
	Amortized		Fair		Unrealized		Unrealized
	Cost		Value		Gains		Losses
Securities Available for Sale
														Gross		Gross
										Amortized		Fair		Unrealized		Unrealized
Debt Securities Available for Sale										Cost		Value		Gains		Losses
Type and Maturity
Obligations of U.S. Government agencies and corporations
After one year but within five years	$	15,998	$	15,878	$	-	$	(120	)
Obligations of U.S. Government sponsored enterprises
After five years but within ten years		19,002		18,585		-		(417	)	$	22,994	$	22,949	$	7	$	(52)
		35,000		34,463		-		(537	)
											22,994		22,949		7		(52)
Obligations of state and political subdivisions
Within one year		2,418		2,418		1		(1	)		31		31		0		0
After one year but within five years		12,659		12,781		123		(1	)		4,708		4,767		59		0
After five years but within ten years		10,783		10,746		46		(83	)		3,289		3,484		195		0
		25,860		25,945		170		(85	)

											8,028		8,282		254		0
Corporate debt securities
Within one year											1,033		1,039		6		0
After five years but within ten years											10,058		10,484		485		(59)
											11,091		11,523		491		(59)
Mortgage-backed securities		98,251		97,485		96		(862	)		239,793		243,661		3,999		(131)
Equity securities		1,000		1,287		288		(1	)
Total	$	160,111	$	159,180	$	554	$	(1,485	)	$	281,906	$	286,415	$	4,751	$	(242)

December 31, 2016
(Dollars in thousands) Gross Gross
Amortized Fair Unrealized Unrealized
Cost Value Gains Losses
Securities Available for Sale
Type and Maturity
Obligations of U.S. Government agencies and corporations
After one year but within five years $ 19,495 $ 19,331 $ 13 $ (177 )
After five years but within ten years 17,000 16,468 - (532 )
36,495 35,799 13 (709 )
Obligations of state and political subdivisions
Within one year 2,819 2,820 2 (1 )
After one year but within five years 13,268 13,240 39 (67 )
After five years but within ten years 10,923 10,599 16 (340 )
27,010 26,659 57 (408 )

Mortgage-backed securities 86,670 85,702 114 (1,082 )
Equity securities 1,615 2,328 713 -
Total $ 151,790 $ 150,488 $ 897 $ (2,199 )

Certain obligations of the U.S. Government and state and political subdivisions are pledged to secure public deposits, securities sold under agreements to repurchase and for other purposes as required or permitted by law. The carrying value of the pledged assets was ~~$49,050,000~~$66,521,000 and ~~$36,638,000 at September 30, 2017~~$74,614,000 on March 31, 2021 and December 31, ~~2016,~~2020, respectively.

In addition to cash received from the scheduled maturities of investment securities, some ~~investment~~ securities available for sale are sold or called at current market values during ~~the course of~~ normal operations.

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The following ~~chart~~table summarizes proceeds received from sales or calls of available for sale investment securities transactions and the resulting realized gains and ~~losses.~~losses during the three months ended March 31, 2021 and 2020.


(Dollars in thousands)	Three Months Ended
	March 31,
	2021		2020
Gross proceeds from sales and calls of securities	$	16,815	$	15,704
Securities available for sale:
Gross realized gains from sold and called securities	$	18	$	41
Gross realized losses from sold and called securities		(14)		(30)
Net gains from sales and calls of securities	$	4	$	11

Three Months Ended Nine Months Ended
(Dollars in thousands) September 30, September 30,
2017 2016 2017 2016
Gross proceeds from sales of securities $ 10,166 $ - $ 21,800 $ 4,273
Securities available for sale:
Gross realized gains from sold and called securities $ 30 $ 6 $ 539 $ 49
Gross realized losses from sold and called securities (28 ) - (32 ) (15 )
Gross gains from business combinations - - 3 100

~~ASC~~ Topic 320~~Investments – Debt and Equity Securities~~, clarifies the interaction of the factors that should be considered when determining whether a debt security is other-than-temporarily impaired. ~~For debt securities, management~~Management must assess whether (a) it has the intent to sell the security and (b) it is more likely than not that it will be required to sell the security prior to its anticipated recovery. These steps are taken before an assessment is made as to whether the entity will recover the cost basis of the investment. For equity securities, consideration is given to management’s intention and ability to hold the securities until recovery of unrealized losses in assessing potential other-than-temporary impairment. More specifically, factors considered to determine other-than-temporary impairment status for individual equity holdings include the length of time the stock has remained in an unrealized loss position, the percentage of unrealized loss compared to the carrying cost of the stock, dividend reduction or suspension, market analyst reviews and expectations, and other pertinent factors that would affect expectations for recovery or further decline.

In instances when a determination is made that an other-than-temporary impairment exists and the entity does not intend to sell the debt security and it is not more likely than not that it will be required to sell the debt security prior to its anticipated recovery, the other-than-temporary impairment is separated into the amount of the total other-than-temporary impairment related to a decrease in cash flows expected to be collected from the debt security (the credit loss) and the amount of the total other-than-temporary impairment related to all other factors. The amount of the total other-than-temporary impairment related to the credit loss is recognized in earnings. The amount of the total other-than-temporary impairment related to all other factors is recognized in other comprehensive ~~income (loss).~~

income.

The following ~~table shows~~tables show gross unrealized losses and fair ~~value,~~values of debt securities available for sale, aggregated by category and length of time ~~that~~the individual securities have been in a continuous unrealized loss position at ~~September 30, 2017~~March 31, 2021 and December 31, ~~2016:~~2020:


	Unrealized Losses at March 31, 2021
	Less Than 12 Months					12 Months or More					Total
(Dollars in thousands)	Number					Number					Number
	of	Fair		Unrealized		of	Fair		Unrealized		of	Fair		Unrealized
	Securities	Value		Losses		Securities	Value		Losses		Securities	Value		Losses
Obligations of U.S. Government sponsored enterprises	7	$	37,634	$	(1,420)	0	$	0	$	0	7	$	37,634	$	(1,420)
Obligations of state and political subdivisions	4		1,191		(38)	0		0		0	4		1,191		(38)
Corporate debt securities	2		1,972		(28)	0		0		0	2		1,972		(28)
Mortgage-backed securities	27		143,709		(3,036)	0		0		0	27		143,709		(3,036)
Total temporarily impaired securities	40	$	184,506	$	(4,522)	0	$	0	$	0	40	$	184,506	$	(4,522)

Unrealized Losses at September 30, 2017
Less Than 12 Months 12 Months or More Total
(Dollars in thousands) Fair Unrealized Fair Unrealized Fair Unrealized
Value Losses Value Losses Value Losses
Obligations of U.S. Government agencies and corporations $ 27,680 $ (320 ) $ 6,782 $ (217 ) $ 34,462 $ (537 )
Obligations of state and political subdivisions 6,070 (67 ) 1,695 (18 ) 7,765 (85 )
Mortgage-backed securities 78,495 (862 ) - - 78,495 (862 )
Total debt securities 112,245 (1,249 ) 8,477 (235 ) 120,722 (1,484 )
Equity securities - - 4 (1 ) 4 (1 )
Total temporarily impaired securities $ 112,245 $ (1,249 ) $ 8,481 $ (236 ) $ 120,726 $ (1,485 )


	Unrealized Losses at December 31, 2020
	Less Than 12 Months					12 Months or More					Total
(Dollars in thousands)	Number					Number					Number
	of	Fair		Unrealized		of	Fair		Unrealized		of	Fair		Unrealized
	Securities	Value		Losses		Securities	Value		Losses		Securities	Value		Losses
Obligations of U.S. Government sponsored enterprises	3	$	18,948	$	(52)	0	$	0	$	0	3	$	18,948	$	(52)
Corporate debt securities	1		2,972		(59)	0		0		0	1		2,972		(59)
Mortgage-backed securities	7		43,583		(131)	0		0		0	7		43,583		(131)
Total temporarily impaired securities	11	$	65,503	$	(242)	0	$	0	$	0	11	$	65,503	$	(242)

Unrealized Losses at December 31, 2016
Less Than 12 Months 12 Months or More Total
(Dollars in thousands) Fair Unrealized Fair Unrealized Fair Unrealized
Value Losses Value Losses Value Losses
Obligations of U.S. Government agencies and corporations $ 32,783 $ (709 ) $ - $ - $ 32,783 $ (709 )
Obligations of state and political subdivisions 17,437 (406 ) 300 (2 ) 17,737 (408 )
Mortgage-backed securities 68,989 (1,082 ) - - 68,989 (1,082 )
Total temporarily impaired securities $ 119,209 $ (2,197 ) $ 300 $ (2 ) $ 119,509 $ (2,199 )

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At ~~September 30, 2017, 20~~March 31, 2021, 7 obligations of U.S. Government ~~agency~~sponsored enterprises, 4 obligations of state and ~~corporation~~political subdivisions, 2 corporate debt securities, and NaN mortgage-backed securities had unrealized ~~losses that, in the aggregate, did not exceed 2.0% of amortized cost. Four~~losses. NaN of these securities have been in a continuous loss position for 12twelve months or more.

At September 30, 2017, 12 obligations of state and political subdivisions had unrealized losses that, in the aggregate, did not exceed 1.0% of amortized cost. Four of these securities has been in a continuous loss position for 12 months or more.

At September 30, 2017, 37 mortgage-backed securities had an unrealized loss that did not exceed 1.0% of amortized cost. None of these securities has been in a continuous loss position for 12 months or more.

The mortgage-backed securities in the Company’s portfolio are government sponsored enterprise ~~(GSE)~~(“GSE”) pass-through instruments issued by the Federal National Mortgage Association ~~(FNMA)~~(“FNMA”) or Federal Home Loan Mortgage Corporation ~~(FHLMC)~~(“FHLMC”), which guarantees the timely payment of principal on these investments.

The unrealized losses noted in the tables above are considered ~~to be~~ temporary impairments. The decline in the values of the debt securities is due only to interest rate fluctuations, rather than erosion of issuer credit quality. As a result, the payment of contractual cash flows, including principal repayment, is not at risk. Because the Company does not intend to sell the securities, does not believe the Company will be required to sell the securities before recovery and expects to recover the entire amortized cost basis, ~~none of the~~0 debt securities ~~are~~were deemed to be other-than-temporarily ~~impaired.~~

Equity securities owned by the Company consist of common stock of various financial services providers and are evaluated quarterly for evidence of other-than-temporary impairment. There was one equity security that was in an unrealized loss position for 12 months or more as of September 30, 2017. Management has identified no other-than-temporary impairment as of, orimpaired for the periods ended ~~September 30, 2017, September 30, 2016~~March 31, 2021 and December 31, 2016, respectively, in the equity portfolio. Management continues to track the performance of each stock owned to determine if it is prudent to recognize any other-than-temporary impairment charges. The Company has the ability and intent to hold its equity securities until recovery of unrealized losses.2020, respectively.

7.~~Loans and Related Allowance for Credit Losses~~6. LOANS AND RELATED ALLOWANCE FOR CREDIT LOSSES

Loans that the Company originated and has the intent and ability to hold for the foreseeable future or until maturity or payoff are stated at the outstanding unpaid principal balances, net of any deferred fees or costs and the allowance for loan losses. Loans acquired through a business combination are discussed under the heading “Acquired Loans”. Interest income on all loans, other than nonaccrual loans, is accrued over the term of the loans based on the amount of principal outstanding. Unearned income is amortized to income over the life of the loans, using the interest method.

The loan portfolio ~~is segmented into commercial and consumer loans. Commercial loans are comprised of~~includes the following ~~classes of loans:~~classes: (1) commercial, financial and agricultural, (2) ~~commercial~~ real estate - commercial, (3) real estate - construction, ~~a portion of~~ (4) real estate – mortgage, ~~loans and~~ (5) obligations of states and political ~~subdivisions. Consumer loans are comprised of a portion of (4) mortgage loans~~subdivisions, and (6) personal loans.

~~Loans~~Interest income on ~~which the accrual of interest has been discontinued are designated as non-accrual loans. Accrual of interest on~~consumer, mortgage and commercial loans is ~~generally~~ discontinued ~~when~~and loans are placed on non-accrual status at the time the loan is 90 days delinquent unless the loan is well-secured and in process of collection. Loans are charged off to the extent principal or interest is deemed uncollectible. Past due status is based on the contractual ~~payment~~terms of the loan. In all cases, loans are placed on non-accrual or charged off at an earlier date if collection of principal or interest ~~has become~~is considered doubtful. Non-accrual loans and loans past due 90 days ~~past due or reasonable doubt exists as to the full, timely collection of principal or interest. However, it is the Company’s policy to continue to accrue interest~~still on accrual include both homogeneous loans ~~over 90 days past due as long as (1) they~~that are ~~guaranteed or well secured~~collectively evaluated for impairment and (2) there is an effective means of timely collection in process. When a loan is placed on non-accrual status, all unpaid interest credited to income in the current year is reversed against current period income, and unpaid interest accrued in prior years is charged against the allowance for loan losses.individually classified impaired loans. Interest received on ~~nonaccrual~~such loans ~~generally~~ is ~~either applied against principal~~accounted for on the cash-basis or ~~reported as~~cost-recovery method, until qualifying for return to accrual. Under the cost-recovery method, interest income ~~according~~is not recognized until the loan principal balance is reduced to ~~management’s judgment as to~~zero. Under the ~~collectability of principal. Generally, accruals are resumed on loans only~~cash-basis method, interest income is recorded when the ~~obligation~~payment is received in cash. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought ~~fully~~ current, ~~with respect to interest and principal,~~the loan has performed in accordance with the contractual terms for a reasonable period of time and ~~the ultimate collectability of the total contractual principal and interest is no longer in doubt.~~

future payments are reasonably assured.

The Company originates loans in the portfolio with the intent to hold them until maturity. At the time the Company no longer intends to hold loans to maturity based on asset/liability management practices, the Company transfers loans from its portfolio to held for sale at fair value. Any write-down recorded upon transfer is charged against the allowance for loan losses. Any write-downs recorded after the initial transfers are recorded as a charge to other non-interest expense. Gains or losses recognized upon sale are included in gains on sales of loans, which is a component of non-interest income.

Loans Held for Sale

The Company ~~also originates~~has originated residential mortgage loans with the intent to sell. These individual loans ~~are~~were normally ~~funded by~~sold to the buyer immediately. The Company maintains servicing rights on these loans. ~~Mortgage~~

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When mortgage loans are sold with servicing retained, servicing rights are recognized as an asset upon the sale of a mortgage loan. A portion of the cost of the loan is allocated to the servicing right based upon relative fair value. Servicing rights are intangible assets and are carriedinitially recorded at ~~estimated fair value. Adjustments to~~ fair value ~~are~~with the income statement effect recorded ~~as non-interest income and included in gain on sales of loans in the consolidated statements of income.~~

In a business combination, the Company may acquire loans which it intends to sell. These loans are assigned a fair value by obtaining actual bids on the loans and adjusting for contingencies in the bids. These loans are carried at lower of cost or market value until sold, adjusted periodically if conditions change before the subsequent sale. Adjustments to fair value and gains or losses recognized upon sale are included in gains on sales of ~~loans~~loans. Fair value is based on market prices for comparable mortgage servicing contracts, when available, or alternatively, is based on a valuation model that calculates the present value of estimated future net servicing income. Under the fair value measurement method, the Company measures servicing rights at fair value at each reporting date and reports changes in fair value of servicing assets in earnings in the period in which the changes occur, which are included with mortgage banking income on the income statement. The fair values of servicing rights are subject to fluctuations because of changes in estimated and actual prepayment speeds and default rates and losses.

Servicing fee income, which is reported on the income statement as mortgage banking income, is recorded for fees earned for servicing loans. The fees are based on a ~~component~~contractual percentage of ~~non-interest income.~~

the outstanding principal or a fixed amount per loan and are recorded as income when earned. Late fees and ancillary fees related to loan servicing are not material.

Commercial, Financial and Agricultural Lending

The Company originates commercial, financial and agricultural loans primarily to businesses located in its primary market area and surrounding areas. These loans are used for various business purposes, which include short-term loans and lines of credit to finance machinery and equipment purchases, inventory and accounts receivable. Generally, the maximum term for loans extended on machinery and equipment is shorter and does not exceed the projected useful life of such machinery and equipment. Most business lines of credit are written with a five year maturity, subject to an annual credit review.

Commercial loans are generally secured with short-term assets; however, in many cases, additional collateral, such as real estate, is provided as additional security for the loan. Loan-to-value maximum values have been established by the Company and are specific to the type of collateral. Collateral values may be determined using invoices, inventory reports, accounts receivable aging reports, collateral appraisals, ~~etc.~~

and other methods.

In underwriting commercial loans, an analysis of the borrower’s character, capacity to repay the loan, the adequacy of the borrower’s capital and collateral, as well as an evaluation of conditions affecting the borrower, is performed. ~~Analysis~~Evaluation of the borrower’s past, present and future cash flows is also an important aspect of the Company’s analysis.

Concentration analysis assists in identifying industry specific risk inherent in commercial, financial and agricultural lending. Mitigants include the identification of secondary and tertiary sources of repayment and appropriate increases in oversight.

Commercial, financial and agricultural loans generally present a higher level of risk than certain other types of loans, particularly during slow economic conditions.

~~Commercial~~ Real Estate - Commercial Lending

The Company engages in ~~commercial~~ real estate - commercial lending in its primary market area and surrounding areas. The Company’s ~~commercial~~ real estate - commercial portfolio is secured primarily by residential housing, commercial buildings, raw land and hotels. Generally, ~~commercial~~ real estate - commercial loans have terms that do not exceed 20 years, have loan-to-value ratios of up to 80% of the appraised value of the property and are typically secured by personal guarantees of the borrowers.

As economic conditions deteriorate, the Company reduces its exposure in real estate loans with higher risk characteristics. In underwriting these loans, the Company performs a thorough analysis of the financial condition of the borrower, the borrower’s credit history, and the reliability and predictability of the cash flow generated by the property securing the loan. Appraisals on properties securing commercial real estate loans originated by the Company are performed by independent appraisers.

~~Commercial real~~Table of Contents

Real estate - commercial loans generally present a higher level of risk than certain other types of loans, particularly during slow economic conditions.

Real Estate - Construction Lending

The Company engages in real estate - construction lending in its primary market area and surrounding areas. The Company’s real estate - construction lending consists of commercial and residential site development loans, as well as commercial building construction and residential housing construction loans.

The Company’s commercial real estate - construction loans are generally secured with the subject property, and advances are made in conformity with a pre-determined draw schedule supported by independent inspections. Terms of construction loans depend on the specifics of the project, such as estimated absorption rates, estimated time to complete, etc.

In underwriting commercial real estate - construction loans, the Company performs a thorough analysis of the financial condition of the borrower, the borrower’s credit history and the reliability and predictability of the cash flow generated by the project using feasibility studies, market data, ~~etc.~~and other resources. Appraisals on properties securing ~~commercial~~ real estate - commercial loans originated by the Company are performed by independent appraisers.

Real estate - construction loans generally present a higher level of risk than certain other types of loans, particularly during slow economic conditions. The difficulty of estimating total construction costs adds to the risk as well.

Real Estate - Mortgage Lending

The Company’s real estate - mortgage portfolio is comprised of ~~consumer~~one-to-four family residential mortgages and business loans secured by one-to-four family properties. One-to-four family residential mortgage loan originations, including home equity installment and home equity lines of credit loans, are generated by the Company’s marketing efforts, its present customers, walk-in customers and referrals. These loans originate primarily within the Company’s market area or with customers primarily from the market area.

The Company offers fixed-rate and adjustable rate real estate - mortgage loans with ~~terms~~a term up to a maximum of 25-years for both permanent structures and those under construction. The Company’s one-to-four family residential mortgage originations are secured primarily by properties located in its primary market area and surrounding areas. The majority of the Company’s residential real estate - mortgage loans originate with a loan-to-value of 80% or less. Home equity installment loans are secured by the borrower’s primary residence with a maximum loan-to-value of 80% and a maximum term of 15 years. Home equity lines of credit are secured by the borrower’s primary residence with a maximum loan-to-value of 90% and a maximum term of 20 years.

In underwriting one-to-four family residential real estate loans, the Company evaluates the borrower’s ability to make monthly payments, the borrower’s repayment history and the value of the property securing the loan. The ability to repay is determined by the borrower’s employment history, current financial conditions, and credit background. The analysis is based primarily on the customer’s ability to repay and secondarily on the collateral or security. Most properties securing real estate loans made by the Company are appraised by independent fee appraisers. The Company generally requires mortgage loan borrowers to obtain an attorney’s title opinion or title insurance, and fire and property insurance (including flood insurance, if necessary) in an amount not less than the amount of the loan. The Company does not engage in sub-prime residential mortgage originations.

Residential mortgage loans and home equity loans generally present a lower level of risk than certain other types of consumer loans because they are secured by the borrower’s primary residence. Risk is increased when the Company is in a subordinate position for the loan collateral.

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Obligations of States and Political Subdivisions

The Company lends to local municipalities and other tax-exempt organizations. These loans are primarily tax-anticipation notes and, as such, carry little risk. Historically, the Company has never had a loss on any loan of this type.

Personal Lending

The Company offers a variety of secured and unsecured personal loans, including vehicle loans, mobile home loans and loans secured by savings deposits as well as other types of personal loans.

Personal loan terms vary according to the type and value of collateral and creditworthiness of the borrower. In underwriting personal loans, a thorough analysis of the borrower’s willingness and financial ability to repay the loan as agreed is performed. The ability to repay is determined by the borrower’s employment history, current financial conditions and credit background.

Personal loans may entail greater credit risk than do residential mortgage loans, particularly in the case of personal loans which are unsecured or are secured by rapidly depreciable assets, such as automobiles or recreational equipment. In such cases, any repossessed collateral for a defaulted personal loan may not provide an adequate source of repayment of the outstanding loan balance ~~as a result~~because of the greater likelihood of damage, loss or depreciation. In addition, personal loan collections are dependent on the borrower’s continuing financial stability, and thus are more likely to be affected by adverse personal circumstances. Furthermore, the application of various federal and state laws, including bankruptcy and insolvency laws, may limit the amount which can be recovered on such loans.

Allowance for ~~Credit~~Loan Losses

The allowance for credit losses consists of the allowance for loan losses and the reserve for unfunded lending commitments. The allowance for loan losses (“allowance”) represents management’s estimate of probable incurred losses ~~inherent~~ in the loan portfolio as of the consolidated statement of financial condition date and is recorded as a reduction to loans. The reserve for unfunded lending commitments represents management’s estimate of probable incurred losses ~~inherent~~ in its unfunded lending commitments and is recorded in other liabilities on the consolidated statement of financial condition, when necessary. The amount of the reserve for unfunded lending commitments is not material to the consolidated financial statements. The allowance for loan losses is increased by the provision for loan losses, and decreased by charge-offs, net of ~~recoveries.~~recoveries and loan loss provision credits. Loans deemed to be uncollectible are charged against the allowance for loan losses, and subsequent recoveries, if any, are credited to the allowance.

For financial reporting purposes, the provision for loan losses charged to current operating income is based on ~~management's~~management’s estimates, and actual losses may vary from estimates. These estimates are reviewed and adjusted at least quarterly and are reported in earnings in the periods in which they become known.

Loans included in any class are considered for charge-off when:

·●

principal or interest has been in default for 120 days or more and for which no payment has been received during the previous four months;

·●

all collateral securing the loan has been liquidated and a deficiency balance remains;

·●

a bankruptcy notice is received for an unsecured loan;

·●

a confirming loss event has occurred; or

·●

the loan is deemed to be uncollectible for any other reason.

The allowance ~~for loan losses is maintained at a level considered adequate to offset probable losses on the Company’s existing loans.~~consists of specific and general components. The analysis of the allowance for loan losses relies heavily on changes in observable trends that may indicate potential credit weaknesses. Management’s periodic evaluation of the adequacy of the allowance is based on the Company’s past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions and other relevant factors. This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant revision as more information becomes available.

In addition, regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for loan losses and may require the Company to recognize additions to the allowance for loan losses based on their judgments about information available to them at the time of their examination, which may not be currently available to management. Based on management’s comprehensive analysis of the loan portfolio, management believes the level of the allowance for loan losses as of September 30, 2017 was adequate.

~~There are two components of the allowance: a~~ specific component ~~for~~relates to loans that are ~~deemed to be impaired; and a general component for contingencies.~~

~~A loan is considered to be~~individually classified as impaired when, based on current information and events, it is probable that the Company will be unable to collect ~~the scheduled payments of principal or interest when~~all amounts due according to the contractual terms of the loan agreement. Loans for which the terms have been

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modified resulting in a concession, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings (“TDRs”) and classified as impaired.

The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) enacted on March 27, 2020 permits financial institutions to exclude loan modifications to borrowers affected by the COVID-19 pandemic from TDR treatment if (1) the borrower was not more than 30 days past due as of December 31, 2019, and (2) the loan modification is made between March 1, 2020 and the earlier of December 31, 2020 or 60 days after the end of the coronavirus emergency declaration. This period has since been expanded to the earlier of January 1, 2022 or 60 days after the end of the coronavirus emergency declaration following the passing of the 2021 Consolidated Appropriations Act (“CAA”) on December 27, 2020. A loan modification accounted for in accordance with the CARES Act is not treated as a TDR for accounting or disclosure purposes.

Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loans and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis by the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price or the fair value of the collateral if the loan is collateral dependent. If a loan is impaired, a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral.

~~The estimated fair values of~~Impairment for substantially all of the Company’s impaired loans ~~are~~is measured based on the estimated fair value of the loan’s collateral. For real estate - commercial loans, ~~secured with real estate,~~ estimated fair values are determined primarily through third-party appraisals. When a real estate secured loan becomes impaired, a decision is made regarding whether an updated certified 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 current appraisal and the condition of the property. Appraised values may be discounted to arrive at the estimated selling price of the collateral, which is considered to be the estimated fair value. The discounts also include the estimated costs to sell the property. For commercial, financial and agricultural, and obligations of states and political subdivision loans, ~~secured by non-real estate collateral,~~ estimated fair values are determined based on the borrower’s financial statements, inventory reports, aging accounts receivable, equipment appraisals or invoices. Indications of value from these sources are generally discounted based on the age of the financial information or the quality of the assets. For such loans that are classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The Company generally does not separately identify individual consumer segment loans for impairment ~~disclosures,~~analysis unless such loans are subject to a restructuring agreement.

Troubled debt restructurings are individually evaluated for impairment and included in the separately identified impairment disclosures. Loans whose terms are modified are classified as troubled debt restructurings if the Company grants ~~borrowers’~~borrowers concessions and it is deemed that those borrowers are experiencing financial difficulty. Concessions granted under a troubled debt restructuring generally involve a below-market interest rate based on the loan’s risk characteristics, or an extension of a loan’s stated maturity ~~date. Nonaccrual~~date or a significant delay in payment. Non-accrual troubled debt restructurings are restored to accrual status if principal and interest payments, under the modified terms, are current for a sustained period ~~of time~~ after modification. ~~Loans classified as troubled debt restructurings are designated as impaired.~~

~~The component~~For TDRs that subsequently default, the Company determines the amount of the allowance ~~for contingencies relates to other loans~~on that have been segmented into risk rated categories. The borrower’s overall financial condition, repayment sources, guarantors and value of collateral, if appropriate, are evaluated quarterly or when credit deficiencies arise, such as delinquent loan payments. Credit quality risk ratings include regulatory classifications of special mention, substandard, doubtful and loss. Loans classified as special mention have potential weaknesses that deserve management’s close attention. If uncorrected, the potential weaknesses may result in deterioration of the repayment prospects. Loans classified as substandard have one or more well-defined weaknesses that jeopardize the liquidation of the debt. Substandard loans include loans that are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified doubtful have all the weaknesses inherent in loans classified substandardaccordance with the added characteristic that collection or liquidation in full, on the basis of current conditions and facts, is highly improbable. Loans classified as a loss are considered uncollectible and are charged toaccounting policy for the allowance for loan ~~losses. Loans not classified are rated pass. Specific reserves may be established for larger, individual classified~~losses on loans individually identified as ~~a result~~impaired. The Company incorporates recent historical experience related to TDRs, including the performance of ~~this evaluation, as discussed above. Remaining loans are categorized~~TDRs that subsequently default, into large groups of smaller balance homogeneous loans and are collectively evaluated for impairment. This computation is generally based on historical loss experience adjusted for qualitative factors. The historical loss experience is averaged over a ten-year period for eachthe calculation of the allowance by loan portfolio ~~segments. The ten-year timeframe was selected in order to capture activity over a wide range~~class.

Table of ~~economic conditions and has been consistently used by the Company for the past seven years. Qualitative risk factors are reviewed for relevancy each quarter and include:~~Contents

~~National, regional and local economic and business conditions, as well as the condition of various market segments, including the underlying collateral for collateral dependent loans;~~

~~Nature and volume of the portfolio and terms of loans;~~

~~Experience, ability and depth of lending and credit management staff;~~

~~Volume and severity of past due, classified and nonaccrual loans, as well as other loan modifications;~~

~~Existence and effect of any concentrations of credit and changes in the level of such concentrations; and~~

~~Effect of external factors, including competition.~~

Each factor is assigned a value to reflect improving, stable or declining conditions based on management’s best judgment using relevant information available at the time of the evaluation. Adjustments to the factors are supported through documentation of changes in conditions in a narrative accompanying the allowance for loan loss calculation.

Acquired Loans

Loans that Juniata acquires through business combinations are recorded at fair value with no carryover of the related allowance for loan losses. ~~Fair value~~Some of these loans have shown evidence of credit deterioration since origination. These purchased credit impaired (“PCI”) loans are recorded at the amount paid, such that there is no carryover of the seller’s allowance for loan losses. After acquisition, losses are recognized by an increase in the allowance for loan losses.

Such purchased credit impaired loans ~~involves estimating~~are accounted for individually or aggregated into pools of loans based on common risk characteristics, such as credit score, loan type, and date of origination. Juniata estimates the amount and timing of ~~principal and interest~~expected cash flows ~~expected to be collected on~~for each loan or pool, and the ~~loans and discounting those~~expected cash flows ~~at a market rate of interest.~~

~~The~~in excess of ~~cash flows expected at acquisition over the estimated fair value~~amount paid is ~~referred to~~recorded as ~~the accretable discount and is recognized into~~ interest income over the remaining life of the ~~loan.~~loan or pool (accretable yield). The ~~difference between contractually required payments at acquisition~~excess of the loan’s or pool’s contractual principal and ~~the~~interest over expected cash flows ~~expected to be collected at acquisition~~ is ~~referred to as the nonaccretable discount. The nonaccretable discount includes estimated future credit losses expected to be incurred over~~not recorded (nonaccretable difference).

Over the life of the ~~loan. Subsequent decreases to the~~loan or pool, expected cash flows ~~will require Juniata~~continue to ~~evaluate~~be estimated. If the ~~need for an additional allowance for credit losses. Subsequent improvement in~~present value of expected cash flows ~~will result in~~is less than the ~~reversal~~carrying amount, a loss is recorded as a provision for loan losses. If the present value of ~~a corresponding~~expected cash flows is greater than the carrying amount, it is recognized as part of ~~the nonaccretable discount which Juniata will then reclassify as accretable discount that will be recognized into~~future interest ~~income over the remaining life of the loan.~~income.

~~Acquired~~PCI loans that met the criteria for ~~impaired~~impairment or ~~nonaccrual~~non-accrual of interest prior to the acquisition may be considered performing upon acquisition, regardless of whether the customer is contractually delinquent, if Juniata expects to fully collect the new carrying value (i.e. fair value) of the loans. As such, Juniata may no longer consider the loan to be ~~nonaccrual~~non-accrual or nonperforming and may accrue interest on these loans, including the impact of any accretable discount. In addition, charge-offs on such loans would be first applied to the nonaccretable difference portion of the fair value adjustment.

Loans acquired through business combinations that do not meet the specific criteria of ASC 310-30, but for which a discount is attributable at least in part to credit quality, are also accounted for in accordance with this guidance. As a result, related discounts are recognized subsequently through accretion based on the contractual cash flows of the acquired loans.

Paycheck Protection Program Loans

The CARES Act established the Paycheck Protection Program (“PPP”) which is administered by the Small Business Administration (“SBA”). The PPP is intended to provide economic relief to small businesses nationwide adversely impacted under the COVID-19 Emergency Declaration issued on March 13, 2020. The PPP, which began on April 3, 2020, provides small businesses with funds to cover up to eight weeks of payroll costs, including benefits. It also provides for forgiveness of up to the full principal amount of qualifying loans.

On June 5, 2020, the Paycheck Protection Program Flexibility Act of 2020 (“PPP Flexibility Act”) extended the covered period for loan forgiveness from eight weeks after the date of loan disbursement to 24 weeks. The 24 week period applies to all borrowers, but borrowers that received an SBA loan number before June 5, 2020, have the option to use an eight week period. The PPP Flexibility Act also amended the requirements regarding forgiveness of PPP loans, reducing the portion of PPP loan proceeds that must be used for payroll costs for the full amount of the PPP loan to be eligible for forgiveness from 75% to 60%. Additionally, the PPP Flexibility Act extended the maturity date for PPP loans made on, or after June 5, 2020, from two years to five years; however, lenders and borrowers may mutually agree to modify PPP loans made before such date to reflect the longer maturity.

The SBA began approving PPP forgiveness applications and remitting forgiveness payments to PPP lenders for PPP borrowers on October 2, 2020. On October 8, 2020, the SBA, in consultation with the U.S. Treasury Department, released a simpler loan forgiveness application for PPP loans of $50,000 or less to streamline the PPP forgiveness process to provide financial and administrative relief to American’s smallest businesses and eased the burden on PPP lenders, allowing them to process forgiveness applications more swiftly.

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The CAA provided several amendments to the PPP, including additional funding for first and second draws of PPP loans up to March 31, 2021. On March 30, 2021, the PPP Extension Act of 2021 was signed into law, extending the program to May 31, 2021.

The Company participates in the PPP and has funded 508 first round PPP loans totaling $32,064,000 in 2020 and, as of March 31, 2021, funded 261 second round PPP loans totaling $17,027,000. Juniata has been receiving forgiveness payments from the SBA on first round PPP loans. As of March 31, 2021, 592 PPP loans remained with a total balance of $36,377,000, net of remaining deferred fees of $1,094,000.

Loan Portfolio Classification

The following table presents the loan portfolio by class at March 31, 2021 and December 31, 2020.


(Dollars in thousands)
	March 31, 2021		December 31, 2020
Commercial, financial and agricultural	$	80,884	$	73,057
Real estate - commercial		150,992		122,698
Real estate - construction		40,587		61,051
Real estate - mortgage		138,308		141,438
Obligations of states and political subdivisions		19,916		18,550
Personal		6,320		5,867
Total	$	437,007	$	422,661

The following ~~tables present~~table summarizes the ~~classes~~activity in the allowance for loan losses by loan class, for the three months ended March 31, 2021 and 2020.


(Dollars in thousands)							Obligations
	Commercial,						of states
	financial and		Real estate-		Real estate-		and political		Real estate-
	agricultural		commercial		construction		subdivisions		mortgage		Personal		Total
Three Months Ended
March 31, 2021
Balance, beginning of period	$	302	$	908	$	1,586	$	28	$	1,200	$	70	$	4,094
Provision for loan losses		(6)		612		(668)		2		(33)		14		(79)
Charge-offs		0		0		0		0		0		(5)		(5)
Recoveries		0		0		28		0		16		2		46
Balance, end of period	$	296	$	1,520	$	946	$	30	$	1,183	$	81	$	4,056
March 31, 2020
Balance, beginning of period	$	321	$	754	$	718	$	17	$	1,081	$	70	$	2,961
Provision for loan losses		112		4		154		6		65		15		356
Charge-offs		0		0		0		0		0		(21)		(21)
Recoveries		0		0		32		0		1		4		37
Balance, end of period	$	433	$	758	$	904	$	23	$	1,147	$	68	$	3,333

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The following table summarizes loans by loan class, segregated into the ~~loan portfolio summarized by the aggregate pass rating~~amount required for loans individually evaluated for impairment and the ~~classified ratings of special mention, substandard and doubtful within the Company’s internal risk rating system~~amount required for loans collectively evaluated for impairment as of ~~September 30, 2017~~March 31, 2021 and December 31, ~~2016.~~2020.

(Dollars in thousands) Special
Pass Mention Substandard Doubtful Total
As of September 30, 2017
Commercial, financial and agricultural $ 38,540 $ 8,387 $ 1,617 $ 7 $ 48,551
Real estate - commercial 102,322 24,585 6,014 1,419 134,340
Real estate - construction 22,033 2,674 3,438 - 28,145
Real estate - mortgage 140,281 3,617 3,072 813 147,783
Obligations of states and political subdivisions 12,863 999 - - 13,862
Personal 9,892 36 7 - 9,935
Total $ 325,931 $ 40,298 $ 14,148 $ 2,239 $ 382,616


(Dollars in thousands)							Obligations
	Commercial,						of states
	financial and		Real estate-		Real estate-		and political		Real estate-
	agricultural		commercial		construction		subdivisions		mortgage		Personal		Total
March 31, 2021
Loans allocated by:
individually evaluated for impairment	$	0	$	3,491	$	0	$	0	$	616	$	0	$	4,107
acquired with credit deterioration		0		330		0		0		604		0		934
collectively evaluated for impairment		80,884		147,171		40,587		19,916		137,088		6,320		431,966
	$	80,884	$	150,992	$	40,587	$	19,916	$	138,308	$	6,320	$	437,007
Allowance for loan losses allocated by:
individually evaluated for impairment	$	0	$	0	$	0	$	0	$	1	$	0	$	1
acquired with credit deterioration		0		0		0		0		0		0		0
collectively evaluated for impairment		296		1,520		946		30		1,182		81		4,055
	$	296	$	1,520	$	946	$	30	$	1,183	$	81	$	4,056
December 31, 2020
Loans allocated by:
individually evaluated for impairment	$	0	$	3,483	$	0	$	0	$	744	$	0	$	4,227
acquired with credit deterioration		0		339		0		0		623		0		962
collectively evaluated for impairment		73,057		118,876		61,051		18,550		140,071		5,867		417,472
	$	73,057	$	122,698	$	61,051	$	18,550	$	141,438	$	5,867	$	422,661
Allowance for loan losses allocated by:
individually evaluated for impairment	$	0	$	0	$	0	$	0	$	2	$	0	$	2
acquired with credit deterioration		0		0		0		0		0		0		0
collectively evaluated for impairment		302		908		1,586		28		1,198		70		4,092
	$	302	$	908	$	1,586	$	28	$	1,200	$	70	$	4,094

(Dollars in thousands) Special
Pass Mention Substandard Doubtful Total
As of December 31, 2016
Commercial, financial and agricultural $ 34,510 $ 5,104 $ 1,213 $ - $ 40,827
Real estate - commercial 100,153 15,843 6,726 989 123,711
Real estate - construction 24,702 4,044 6,460 - 35,206
Real estate - mortgage 144,353 4,426 4,496 1,630 154,905
Obligations of states and political subdivisions 12,431 1,185 - - 13,616
Personal 9,970 52 10 - 10,032
Total $ 326,119 $ 30,654 $ 18,905 $ 2,619 $ 378,297

The Company has certain loans in its portfolio that ~~are considered to be~~it considers impaired. It is the policy of the Company to recognize income on impaired loans that have been transferred to nonaccrual status on a cash basis, only to the extent that it exceeds anticipated principal balance recovery. Until an impaired loan is placed on nonaccrual status, income is recognized on the accrual basis. Collateral analysis is performed on each impaired loan at least quarterly, and results are used to determine if a specific reserve is necessary to adjust the carrying value of each individual loan down to the estimated fair value. Generally, specific reserves are carried against impaired loans based upon estimated collateral value until a confirming loss event occurs or until termination of the credit is scheduled through liquidation of the collateral or foreclosure. ~~Charge off~~Consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process at March 31, 2021 and December 31, 2020 totaled $92,000 and $152,000, respectively. Charge-offs will occur when a confirmed loss is identified. Professional appraisals of collateral, discounted for expected selling costs, appraisal age, economic conditions and other known factors, are used to determine the charge-off amount.

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The following ~~tables summarize~~table summarizes information regarding impaired loans by portfolio class as of ~~September 30, 2017~~March 31, 2021 and December 31, ~~2016.~~2020.


(Dollars in thousands)	As of March 31, 2021						As of December 31, 2020
	Recorded		Unpaid Principal		Related		Recorded		Unpaid Principal		Related
	Investment		Balance		Allowance		Investment		Balance		Allowance
Impaired loans
With no related allowance recorded:
Real estate - commercial	$	3,491	$	3,587	$	—	$	3,483	$	3,580	$	—
Acquired with credit deterioration		330		381		—		339		386		—
Real estate – construction		0		882		—		0		894		—
Real estate - mortgage		540		1,274		—		666		1,396		—
Acquired with credit deterioration		604		792		—		623		801		—
With an allowance recorded:
Real estate - mortgage	$	76	$	75	$	1	$	78	$	77	$	2
Total:
Real estate - commercial	$	3,491	$	3,587	$	0	$	3,483	$	3,580	$	0
Acquired with credit deterioration		330		381		0		339		386		0
Real estate - construction		0		882		0		0		894		0
Real estate – mortgage		616		1,349		1		744		1,473		2
Acquired with credit deterioration		604		792		0		623		801		0
	$	5,041	$	6,991	$	1	$	5,189	$	7,134	$	2

As of September 30, 2017 As of December 31, 2016
Unpaid Unpaid
(Dollars in thousands) Recorded Principal Related Recorded Principal Related
Investment Balance Allowance Investment Balance Allowance
Impaired loans
With no related allowance recorded:
Commercial, financial and agricultural $ 356 $ 364 $ - $ 436 $ 439 $ -
Real estate - commercial 5,842 6,830 - 5,499 6,475 -
Acquired with credit deterioration 199 253 - 641 730 -
Real estate - construction - - - 2,455 2,455 -
Real estate - mortgage 2,521 4,047 - 3,345 5,020 -
Acquired with credit deterioration 343 387 - 415 440 -

With an allowance recorded:
Real estate - mortgage $ - $ - $ - $ 712 712 56

Total:
Commercial, financial and agricultural $ 356 $ 364 $ - $ 436 $ 439 $ -
Real estate - commercial 5,842 6,830 - 5,499 6,475 -
Acquired with credit deterioration 199 253 - 641 730 -
Real estate - construction - - - 2,455 2,455 -
Real estate - mortgage 2,521 4,047 - 4,057 5,732 56
Acquired with credit deterioration 343 387 - 415 440 -
$ 9,261 $ 11,881 $ - $ 13,503 $ 16,271 $ 56

Average recorded investment of impaired loans and related interest income recognized for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2021 and ~~2016~~2020 are summarized in the tables below.


(Dollars in thousands)	Three Months Ended March 31, 2021						Three Months Ended March 31, 2020
	Average		Interest		Cash Basis		Average		Interest		Cash Basis
	Recorded		Income		Interest		Recorded		Income		Interest
	Investment		Recognized		Income		Investment		Recognized		Income
Impaired Loans
With no related allowance recorded:
Real estate - commercial	$	2,434	$	13	$	0	$	2,080	$	5	$	12
Acquired with credit deterioration		333		0		0		361		0		0
Real estate - mortgage		603		3		10		1,139		4		11
Acquired with credit deterioration		612		0		0		693		0		0
Personal		0		0		0		9		0		0
With an allowance recorded:
Commercial, financial and agricultural	$		$	0	$	0	$	187	$	0	$	0
Real estate - mortgage		77		0		0		126		0		0
Total:
Commercial, financial and agricultural	$	0	$	0	$	0	$	187	$	0	$	0
Real estate - commercial		2,434		13		0		2,080		5		12
Acquired with credit deterioration		333		0		0		361		0		0
Real estate - mortgage		680		3		10		1,265		4		11
Acquired with credit deterioration		612		0		0		693		0		0
Personal		0		0		0		9		0		0
	$	4,059	$	16	$	10	$	4,595	$	9	$	23

Three Months Ended September 30, 2017 Three Months Ended September 30, 2016
Average Interest Cash Basis Average Interest Cash Basis
(Dollars in thousands) Recorded Income Interest Recorded Income Interest
Investment Recognized Income Investment Recognized Income
Impaired loans
With no related allowance recorded:
Commercial, financial and agricultural $ 351 $ 5 $ - $ 479 $ 7 $ -
Real estate - commercial 5,336 81 - 5,972 84 -
Acquired with credit deterioration 204 - - 679 - -
Real estate - construction - - - 2,561 34 -
Real estate - mortgage 2,795 5 6 3,136 4 14
Acquired with credit deterioration 347 - - 482 - -
Personal - - - 1 - -

With an allowance recorded:
Commercial, financial and agricultural $ 8 $ - $ - $ - $ - $ -
Real estate - commercial 460 - - 50 - -
Real estate - mortgage - - - 826 - -

Total:
Commercial, financial and agricultural $ 359 $ 5 $ - $ 479 $ 7 $ -
Real estate - commercial 5,796 81 - 6,022 84 -
Acquired with credit deterioration 204 - - 679 - -
Real estate - construction - - - 2,561 34 -
Real estate - mortgage 2,795 5 6 3,962 4 14
Acquired with credit deterioration 347 - - 482 - -
Personal - - - 1 - -
$ 9,501 $ 91 $ 6 $ 14,186 $ 129 $ 14

The recorded investment in loans excludes accrued interest receivable and loan origination fees, net due to immateriality. For purposes of this disclosure, the unpaid principal balance is not reduced for partial charge-offs.

Loans on which the accrual of interest has been discontinued are designated as non-accrual loans. Accrual of interest on loans is generally discontinued when the contractual payment of principal or interest has become 90 days past due or reasonable doubt exists as to the full, timely collection of principal or interest. However, it is the Company’s policy to continue to accrue interest on loans over 90 days past due if (1) they are guaranteed or well secured and (2) there is an effective means of timely collection in process. When a loan is placed on non-accrual status, all unpaid interest credited to income in the current year is reversed against current period income, and unpaid interest accrued in prior years is charged

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Nine Months Ended September 30, 2017 Nine Months Ended September 30, 2016
Average Interest Cash Basis Average Interest Cash Basis
(Dollars in thousands) Recorded Income Interest Recorded Income Interest
Investment Recognized Income Investment Recognized Income
Impaired loans
With no related allowance recorded:
Commercial, financial and agricultural $ 396 $ 18 $ - $ 414 $ 23 $ -
Real estate - commercial 5,671 238 - 3,909 252 -
Acquired with credit deterioration 420 - - 742 - -
Real estate - construction 1,228 34 - 1,281 102 -
Real estate - mortgage 2,933 16 19 2,949 22 26
Acquired with credit deterioration 379 - - 526 - -

With an allowance recorded:
Real estate - commercial $ - $ - $ - $ 50 $ - $ -
Real estate - mortgage 356 - - 397 - -

Total:
Commercial, financial and agricultural $ 396 $ 18 $ - $ 414 $ 23 $ -
Real estate - commercial 5,671 238 - 3,959 252 -
Acquired with credit deterioration 420 - - 742 - -
Real estate - construction 1,228 34 - 1,281 102 -
Real estate - mortgage 3,289 16 19 3,346 22 26
Acquired with credit deterioration 379 - - 526 - -
$ 11,383 $ 306 $ 19 $ 10,268 $ 399 $ 26

against the allowance for loan losses. Interest received on nonaccrual loans generally is either applied against principal or reported as interest income, according to management’s judgment as to the collectability of principal. Generally, accruals are resumed on loans only when the obligation is brought fully current with respect to interest and principal, has performed in accordance with the contractual terms for a reasonable period and the ultimate collectability of the total contractual principal and interest is no longer in doubt. The Company’s nonaccrual and charge-off policies are the same, regardless of the loan type.

The following table presents nonaccrual loans by classes of the loan portfolio as of ~~September 30, 2017~~March 31, 2021 and December 31, ~~2016.~~2020.


(Dollars in thousands)
	March 31, 2021		December 31, 2020
Non-accrual loans:
Real estate - commercial	$	39	$	41
Real estate - mortgage		296		381
Total	$	335	$	422

(Dollars in thousands)
September 30, 2017 December 31, 2016
Nonaccrual loans:
Commercial, financial and agricultural $ 7 $ -
Real estate - commercial 1,419 1,016
Real estate - mortgage 2,203 3,717
Total $ 3,629 $ 4,733

The performance and credit quality of the loan portfolio is also monitored by analyzing the age of the loans receivable as determined by the length of time a recorded payment is past due. Past due status is determined by the contractual terms of the loan. The following ~~table presents~~tables present the classes of the loan portfolio summarized by the past due status as of ~~September 30, 2017~~March 31, 2021 and December 31, ~~2016.~~2020.


													Loans
													Past Due
													Greater
(Dollars in thousands)							Greater						than 89
			30‑59 Days		60‑89 Days		than 89		Total Past				Days and
	Current		Past Due(2)		Past Due		Days		Due		Total Loans		Accruing(1)
As of March 31, 2021
Commercial, financial and agricultural	$	80,880	$	4	$	0	$	0	$	4	$	80,884	$	0
Real estate - commercial		150,495		128		0		39		167		150,662		0
Real estate - construction		40,587		0		0		0		0		40,587		0
Real estate - mortgage		137,347		263		63		31		357		137,704		0
Obligations of states and political subdivisions		19,916		0		0		0		0		19,916		0
Personal		6,308		12		0		0		12		6,320		0
Subtotal		435,533		407		63		70		540		436,073		0
Loans acquired with credit deterioration
Real estate - commercial		285		45		0		0		45		330		0
Real estate - mortgage		512		0		0		92		92		604		92
Subtotal		797		45		0		92		137		934		92
	$	436,330	$	452	$	63	$	162	$	677	$	437,007	$	92

Loans Past
Due Greater
30-59 60-89 Greater than 90
(Dollars in thousands) Days Past Days Past than 90 Total Past Total Days and
Due Due Days Due Current Loans Accruing
As of September 30, 2017
Commercial, financial and agricultural $ - $ - $ - $ - $ 48,551 $ 48,551 $ -
Real estate - commercial:
Real estate - commercial 22 - - 22 134,119 134,141 -
Acquired with credit deterioration 170 - 29 199 - 199 29
Real estate - construction - - - - 28,145 28,145 -
Real estate - mortgage:
Real estate - mortgage 653 31 221 905 146,535 147,440 221
Acquired with credit deterioration 112 - 13 125 218 343 13
Obligations of states and political - - - - -
subdivisions - - - 13,862 13,862 -
Personal 71 - - 71 9,864 9,935 -
Total $ 1,028 $ 31 $ 263 $ 1,322 $ 381,294 $ 382,616 $ 263

Loans Past
Due Greater
30-59 60-89 Greater than 90
(Dollars in thousands) Days Past Days Past than 90 Total Past Total Days and
Due Due Days Due Current Loans Accruing
As of December 31, 2016
Commercial, financial and agricultural $ 15 $ - $ 6 $ 21 $ 40,806 $ 40,827 $ 6
Real estate - commercial:
Real estate - commercial 55 - - 55 123,015 123,070 -
Acquired with credit deterioration - - 452 452 189 641 452
Real estate - construction 6 - 508 514 34,692 35,206 508
Real estate - mortgage:
Real estate - mortgage 1,097 57 40 1,194 153,296 154,490 40
Acquired with credit deterioration - - 138 138 277 415 138
Obligations of states and political
subdivisions - - - - 13,616 13,616 -
Personal 25 3 - 28 10,004 10,032 -
Total $ 1,198 $ 60 $ 1,144 $ 2,402 $ 375,895 $ 378,297 $ 1,144

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													Loans
													Past Due
													Greater
(Dollars in thousands)							Greater						than 89
			30‑59 Days		60‑89 Days		than 89		Total Past				Days and
	Current		Past Due(2)		Past Due		Days		Due		Total Loans		Accruing(1)
As of December 31, 2020
Commercial, financial and agricultural	$	73,028	$	7	$	0	$	22	$	29	$	73,057	$	22
Real estate - commercial		122,318		0		0		41		41		122,359		0
Real estate - construction		61,051		0		0		0		0		61,051		0
Real estate - mortgage		139,842		351		453		169		973		140,815		0
Obligations of states and political subdivisions		18,550		0		0		0		0		18,550		0
Personal		5,853		0		14		0		14		5,867		0
Subtotal		420,642		358		467		232		1,057		421,699		22
Loans acquired with credit deterioration
Real estate - commercial		293		0		46		0		46		339		0
Real estate - mortgage		481		50		0		92		142		623		92
Subtotal		774		50		46		92		188		962		92
	$	421,416	$	408	$	513	$	324	$	1,245	$	422,661	$	114

(1)

These loans are guaranteed, or well-secured, and there is an effective means of collection in process.

(2)	Loans are considered past due when the borrower is in arrears on two or more monthly payments.

~~The following table summarizes information regarding~~Troubled Debt Restructurings

As of March 31, 2021 and December 31, 2020, the Company had a recorded investment in troubled debt restructurings ~~by loan portfolio class at September 30, 2017~~of $3,768,000 and ~~December 31, 2016.~~$3,802,000, respectively.


(Dollars in thousands)		Pre-Modification		Post-Modification
	Number of	Outstanding		Outstanding
	Contracts	Recorded Investment		Recorded Investment		Recorded Investment
As of March 31, 2021
Accruing troubled debt restructurings:
Real estate - commercial	2	$	3,461	$	3,484	$	3,449
Real estate - mortgage	6		434		450		319
	8	$	3,895	$	3,934	$	3,768

			Pre-Modification		Post-Modification

(Dollars in thousands)	Number of		Outstanding Recorded		Outstanding Recorded					Pre-Modification		Post-Modification
	Contracts		Investment		Investment		Recorded Investment
As of September 30, 2017
									Number of	Outstanding		Outstanding
									Contracts	Recorded Investment		Recorded Investment		Recorded Investment
As of December 31, 2020
Accruing troubled debt restructurings:
Real estate - commercial									3	$	3,349	$	3,487	$	3,440
Real estate - mortgage		7	$	369	$	397	$	321	7		483		511		362

Non-accruing troubled debt restructurings:
Real estate - mortgage		1		25		25		21
Commercial, financial, agricultural		1		19		20		7
		9	$	413	$	442	$	349
									10	$	3,832	$	3,998	$	3,802

Pre-Modification Post-Modification
(Dollars in thousands) Number of Outstanding Recorded Outstanding Recorded
Contracts Investment Investment Recorded Investment
As of December 31, 2016
Accruing troubled debt restructurings:
Real estate - mortgage 7   $ 369 $ 397 $ 340

Non-accruing troubled debt restructurings:
Real estate - mortgage 1   25 25 23
8   $ 394 $ 422 $ 363

The Company’s troubled debt restructurings are also impaired loans, which may result in a specific allocation and subsequent charge-off if appropriate. As of ~~September 30, 2017,~~March 31, 2021, there were no0 specific reserves carried for troubled debt restructured loans. There were ~~also no defaults of~~0 troubled debt ~~restructurings that took place during the three or nine months ended September 30, 2017 or 2016~~restructured loans in default within 12 months of ~~restructure.~~restructure during the three months ended March 31, 2021 or 2020. On December 31, ~~2016,~~2020, there were no0 specific reserves carried for the troubled debt ~~restructured loans and no~~restructurings, nor any charge-offs ~~relating~~related to the troubled debt ~~restructurings.~~restructured loans. The amended terms of the

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restructured loans vary, ~~whereby~~and may include interest rates that have been reduced, principal payments that have been reduced or deferred for a period of time and/or maturity dates that have been extended.

There were no loan terms modified resulting in troubled debt restructuring during the three months ended ~~September~~March 31, 2021 nor the three months ended March 31, 2020.

The CARES Act permits financial institutions to exclude loan modifications to borrowers affected by the COVID-19 pandemic from TDR treatment if (1) the borrower was not more than 30 ~~2017~~days past due as of December 31, 2019, and (2) the loan modification is made between March 1, 2020 and the earlier of December 31, 2020 or ~~2016.~~ 60 days after the end of the coronavirus emergency declaration. This period has since been expanded to the earlier of January 1, 2022 or 60 days after the end of the coronavirus emergency declaration following the passing of the CAA on December 27, 2020. A loan modification accounted for in accordance with the CARES Act is not treated as a TDR for accounting or disclosure purposes.

In response to the COVID-19 pandemic, the Company established a COVID-19 Modification Program on March 20, 2020 to offer payment relief to certain borrowers. Through this program, the Company has approved interest and/or principal payment deferrals on loans for individuals and businesses affected by the economic impacts of the COVID-19 pandemic. As of March 31, 2021, 1 loan for $4,964,000 remained in deferment status while all other loans previously placed in deferment resumed contractual debt service.

Credit Quality Indicators

The ~~following tables summarize~~Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans ~~whose terms~~as to credit risk. This analysis includes loans to commercial customers with an aggregate loan exposure greater than $500,000 and for lines of credit in excess of $50,000. This analysis is performed on a continuing basis with all such loans reviewed annually. The Company uses the following definitions for risk ratings:

Special Mention. Loans classified as special mention have ~~been modified resulting~~a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in ~~troubled debt restructurings during~~deterioration of the ~~nine month periods ending September 30, 2017~~repayment prospects for the loan or of the institution’s credit position at some future date. Loans in this category are reviewed no less than quarterly.

Substandard. Loans classified as substandard are inadequately protected by the current net worth and ~~2016.~~paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that

Pre-Modification Post-Modification
(Dollars in thousands) Number of Outstanding Recorded Outstanding Recorded
Contracts Investment Investment Recorded Investment
Nine Months Ended September 30, 2017
Accruing troubled debt restructurings:
Commercial, financial, agricultural 1 $ 19 $ 20 $ 7
1 $ 19 $ 20 $ 7

Pre-Modification Post-Modification
(Dollars in thousands) Number of Outstanding Recorded Outstanding Recorded
Contracts Investment Investment Recorded Investment
Nine Months Ended September 30, 2016
Non-accruing troubled debt restructurings:
Real estate - mortgage 1 $ 25 $ 25 $ 24
1 $ 25 $ 25 $ 24

Consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process at September 30, 2017 and December 31, 2016 totaled $1,167,000 and $1,778,000, respectively.

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jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. Loans in this category are reviewed no less than monthly.

Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Loans in this category are reviewed no less than monthly.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass-rated loans.

The following tables ~~summarize~~present the ~~activity in~~classes of the ~~allowance for~~ loan ~~losses~~portfolio summarized by the aggregate pass rating and ~~related investments in loans receivable.~~

Asthe classified ratings of special mention, substandard and ~~for~~doubtful within the ~~periods ended, September 30, 2017~~

Obligations of
Commercial, states and
financial and Real estate - Real estate - Real estate - political
agricultural commercial construction mortgage subdivisions Personal Total
Allowance for loan losses:
Beginning balance, January 1, 2017 $ 318 $ 948 $ 231 $ 1,143 $ - $ 83 $ 2,723
Charge-offs (46 ) (70 ) - (120 ) - (24 ) (260 )
Recoveries 2 - - 45 - 8 55
Provisions 88 277 (29 ) 39 - 14 389
Ending balance, September 30, 2017 $ 362 $ 1,155 $ 202 $ 1,107 $ - $ 81 $ 2,907
individually evaluated for impairment - - - - - - -
collectively evaluated for impairment $ 362 $ 1,155 $ 202 $ 1,107 $ - $ 81 $ 2,907

Loans receivable:
Ending balance $ 48,551 $ 134,340 $ 28,145 $ 147,783 $ 13,862 $ 9,935 $ 382,616
individually evaluated for impairment 356 5,842 - 2,521 - - 8,719
acquired with credit deterioration - 199 - 343 - - 542
collectively evaluated for impairment $ 48,195 $ 128,299 $ 28,145 $ 144,919 $ 13,862 $ 9,935 $ 373,355

AsCompany’s internal risk rating system as of March 31, 2021 and ~~for the periods ended, September 30, 2016~~

Obligations of
Commercial, states and
financial and Real estate - Real estate - Real estate - political
agricultural commercial construction mortgage subdivisions Personal Total
Allowance for loan losses:
Beginning balance, January 1, 2016 $ 264 $ 836 $ 191 $ 1,140 $ - $ 47 $ 2,478
Charge-offs (4 ) (146 ) - (28 ) - (20 ) (198 )
Recoveries - 24 - 1 - 17 42
Provisions 50 143 12 122 - 39 366
Ending balance, September 30, 2016 $ 310 $ 857 $ 203 $ 1,235 $ - $ 83 $ 2,688
individually evaluated for impairment - 50 - 94 - - 144
collectively evaluated for impairment $ 310 $ 807 $ 203 $ 1,141 $ - $ 83 $ 2,544

Loans receivable:
Ending balance $ 38,653 $ 124,586 $ 30,752 $ 159,522 $ 13,857 $ 9,909 $ 377,279
individually evaluated for impairment 353 6,067 2,561 4,056 - - 13,037
acquired with credit deterioration - 650 - 422 - - 1,072
collectively evaluated for impairment $ 38,300 $ 117,869 $ 28,191 $ 155,044 $ 13,857 $ 9,909 $ 363,170

~~As of~~ December 31, ~~2016~~2020.

Obligations of
Commercial, states and
(Dollars in thousands) financial and Real estate - Real estate - Real estate - political
agricultural commercial construction mortgage subdivisions Personal Total
Allowance for loan losses:
Beginning balance, January 1, 2016 $ 264 $ 836 $ 191 $ 1,140 $ - $ 47 $ 2,478
Charge-offs (4 ) (146 ) - (103 ) - (26 ) (279 )
Recoveries - 24 - 15 - 19 58
Provisions 58 234 40 91 - 43 466
Ending balance, December 31, 2016 $ 318 $ 948 $ 231 $ 1,143 $ - $ 83 $ 2,723
individually evaluated for impairment - - - 56 - - 56
collectively evaluated for impairment $ 318 $ 948 $ 231 $ 1,087 $ - $ 83 $ 2,667

Loans receivable:
Ending balance $ 40,827 $ 123,711 $ 35,206 $ 154,905 $ 13,616 $ 10,032 $ 378,297
individually evaluated for impairment 436 5,499 2,455 4,057 - - 12,447
acquired with credit deterioration - 641 - 415 - - 1,056
collectively evaluated for impairment $ 40,391 $ 117,571 $ 32,751 $ 150,433 $ 13,616 $ 10,032 $ 364,794


(Dollars in thousands)			Special
As of March 31, 2021	Pass		Mention		Substandard		Doubtful		Total
Commercial, financial and agricultural	$	79,357	$	596	$	931	$	0	$	80,884
Real estate - commercial		103,747		40,008		7,198		39		150,992
Real estate - construction		36,813		3,634		140		0		40,587
Real estate - mortgage		136,810		278		1,181		39		138,308
Obligations of states and political subdivisions		19,916		0		0		0		19,916
Personal		6,320		0		0		0		6,320
Total	$	382,963	$	44,516	$	9,450	$	78	$	437,007


(Dollars in thousands)			Special
As of December 31, 2020	Pass		Mention		Substandard		Doubtful		Total
Commercial, financial and agricultural	$	71,983	$	495	$	579	$	0	$	73,057
Real estate - commercial		99,828		15,198		7,631		41		122,698
Real estate - construction		36,332		24,644		75		0		61,051
Real estate - mortgage		139,787		289		1,317		45		141,438
Obligations of states and political subdivisions		18,550		0		0		0		18,550
Personal		5,867		0		0		0		5,867
Total	$	372,347	$	40,626	$	9,602	$	86	$	422,661

~~8. Goodwill~~The decline in special mention real estate – construction loans and ~~other intangible assets~~the increase in special mention real estate – commercial loans as of March 31, 2021 compared to December 31, 2020 was largely due to two relationships transitioning from a construction phase to permanent loan status.

7. GOODWILL AND OTHER INTANGIBLE ASSETS

~~Branch Acquisition~~Goodwill

On September 8, 2006, the Company acquired a branch office in Richfield, PA. Goodwill associated with this transaction is carried at ~~September~~$2,046,000. On November 30, ~~2017~~2015, the Company acquired FNBPA Bancorp, Inc. and, as a result, carries goodwill of $3,402,000 relating to the acquisition. On April 30, 2018, the Company acquired the remainder of the outstanding common stock of Liverpool Community Bank and, as a result, carries goodwill of $3,599,000 relating to the acquisition.

Total goodwill at March 31, 2021 and December 31, ~~2016~~2020 was ~~$2,046,000. Core deposit intangible of $431,000 was fully amortized as of September 30, 2016. The core deposit intangible was amortized over a ten-year period on a straight-line basis.~~$9,047,000. Goodwill is not amortized but is ~~measured~~tested annually for impairment, or more frequently if certain events occur which might indicate goodwill has been impaired. ~~Core deposit amortization expense was $7,000 and $29,000 in the three and nine months ending September 30, 2016.~~ There was no0 goodwill impairment ~~of goodwill~~ during the three months ended March 31, 2021 or ~~nine month periods ended September 30, 2017 or 2016.~~March 31, 2020.

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~~FNBPA Acquisition~~

Intangible Assets

On November 30, 2015, ~~the Company acquired FNBPA Bancorp, Inc. (“FNBPA”) and as~~ a ~~result, carries goodwill of $3,402,000 relating to the acquisition. Core~~core deposit intangible in the amount of $303,000 associated with the FNBPA Bancorp, Inc. acquisition was recorded and is being amortized over a ten-year period using a sum of the year’s digits basis. ~~Other intangible assets were identified and recorded as of November 30, 2015, in the amount of $40,000 and are being amortized on a straight-line basis over two years, through November 30, 2017.~~

Amortization expense recognized for the intangibles related to the FNBPA acquisition in the three ~~and nine~~ months ended ~~September~~March 31, 2021 was $7,000.

On April 30, ~~2017~~2018, a core deposit intangible in the amount of $289,000 associated with the Liverpool Community Bank acquisition was ~~$17,000~~recorded and ~~$52,000, respectively. The amortization~~is being amortized over a ten-year period using a sum of the year’s digit basis. Amortization expense recognized ~~during~~for the ~~three and nine months ended September 30, 2016 was $19,000 and $57,000, respectively, for intangibles~~intangible related to the ~~FNBPA acquisition.~~Liverpool Community Bank acquisition in the three months ended March 31, 2021 was $9,000.

The following table shows the amortization schedule for each of the intangible assets recorded.

FNBPA FNBPA Branch
Acquisition Acquisition Acquisition
Core Other Core
(Dollars in thousands) Deposit Intangible Deposit
Intangible Assets Intangible
Beginning Balance at Acquisition Date $ 303 $ 40 $ 431
Amortization expense recorded prior to January 1, 2016 4 2 402
Amortization expense recorded in the twelve months ended December 31, 2016 55 20 29
Unamortized balance as of December 31, 2016 244 18 $ -
Amortization expense recorded in the Nine Months Ended September 30, 2017 37 15
Unamortized balance as of September 30, 2017 $ 207 $ 3

Scheduled remaining amortization expense for years ended:
December 31, 2017 $ 12 $ 3
December 31, 2018 44 -
December 31, 2019 38 -
December 31, 2020 33 -
December 31, 2021 27 -
After December 31, 2021 53 -


(Dollars in thousands)	FNBPA		LCB
	Acquisition		Acquisition
	Core		Core
	Deposit		Deposit
	Intangible		Intangible
Beginning Balance at Acquisition Date	$	303	$	289
Amortization expense recorded prior to January 1, 2020		190		84
Amortization expense recorded in the twelve months
ended December 31, 2020		33		44
Unamortized balance as of December 31, 2020		80		161
Amortization expense recorded in the
three months ended March 31, 2021		7		9
Unamortized balance as of March 31, 2021	$	73	$	152

Scheduled remaining amortization expense for years ended:
December 31, 2021	$	20	$	30
December 31, 2022		22		33
December 31, 2023		16		28
December 31, 2024		10		23
December 31, 2025		5		17
December 31, 2026		—		12
After December 31, 2026		—		9

8. BORROWINGS

Borrowings consisted of the following as of March 31, 2021 and December 31, 2020.


(Dollars in thousands)	March 31,		December 31,
	2021		2020
Securities sold under agreements to repurchase	$	2,622	$	4,750
Short-term debt with FHLB		20,000		20,000
Federal Reserve Bank advances		—		27,955
Long-term debt with FHLB		35,000		35,000
	$	57,622	$	87,705

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Long-term debt is comprised only of FHLB advances with an original maturity of one year or more. The following table summarizes the scheduled maturities of long-term debt as of March 31, 2021.


(Dollars in thousands)	Scheduled		Weighted Average
Year	Maturities		Interest Rate
2022	$	0	0	%
2023		0	0
2024		20,000	2.42
2025		15,000	2.41
2026		0	0
Thereafter		0	0
	$	35,000	2.42	%

9. ~~Investment in Unconsolidated Subsidiary~~

STOCK COMPENSATION PLAN

The Company ~~owns 39.16%~~maintains the 2016 Long-Term Incentive Plan (the “Plan”), that amended and restated the former 2011 Stock Option Plan (the “2011 Plan”). The Plan continues in effect for any outstanding awards under the 2011 Plan in accordance with the terms and conditions governing such awards immediately prior to the effective date of the Plan but expanded the types of awards authorized to include, among others, restricted stock. Under the provisions of the Plan, while active, awards may consist of grants of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock and performance shares to officers and key employees of the Company, as well as directors. The Plan is administered by a committee of the Board of Directors.

The maximum number of shares of common stock that may be issued under the Plan is 300,000 shares, and 152,251 shares were available for grant as of March 31, 2021. Shares of common stock issued under the Plan may be treasury shares or authorized but unissued shares. Forfeited awards are returned to the pool of shares available for grant for future awards.

In the first quarter of 2021, 8,839 restricted shares were awarded to certain officers and all directors. Each of the awards vest after three-years, with no interim vesting. As of March 31, 2021, there was $289,000 of unrecognized compensation cost related to all non-vested restricted stock awards. This cost is expected to be recognized through February 2024.

Compensation expense for stock options granted and restricted stock awarded is measured using the fair value of the award on the grant date and is recognized over the vesting period. The Company recognized $35,000 and $29,000 of expense for the three months ended March 31, 2021 and 2020, respectively, for stock-based compensation.

The following table presents a summary of the status of the Company’s non-vested restricted stock awards as of March 31, 2021, and changes during the period then ended is presented below:


		Weighted
		Average
		Grant Date
	Shares	Fair Value
Non-vested at January 1, 2021	20,175	$	19.62
Vested	(4,460)		19.80
Forfeited	0		0
Granted	8,839		16.55
Non-vested at March 31, 2021	24,554	$	18.48

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NaN stock options were awarded in the first quarter of 2021. Previously granted stock options vest over three to five years and are exercisable at the grant price, which is at least the fair market value of the stock on the grant date. The Plan provides that the option price per share is not to be less than the fair market value of the stock on the day the option was granted, but in no event less than the par value of such stock. Options granted under the Plan are exercisable no earlier than one year after the date of grant and expire ten years after the date of the grant. All options previously granted under the Plans are scheduled to expire by February 17, 2025.

Total options outstanding as of March 31, 2021 have exercise prices between $17.65 and $18.00, with a weighted average exercise price of $17.78 and a weighted average remaining contractual life of 2.53 years.

As of March 31, 2021, there was 0 unrecognized compensation cost related to options granted under the Plan and 0 options were exercised under the Plans during the period.

A summary of the status of the outstanding ~~common~~ stock ~~of Liverpool Community Bank (LCB), Liverpool, PA. This investment is accounted for under the equity method of accounting and is being carried at $4,820,000~~options as of ~~September 30, 2017. The Company increases its investment in LCB for its share of earnings~~March 31, 2021, and decreases its investment by any dividends received from LCB. The investment is evaluated quarterly for impairment. A loss in value of the investment which is determined to be other than a temporary decline would be recognized as a loss inchanges during the period ~~in which such determination~~then ended is made. Evidence of a loss in value might include, but would not necessarily be limited to, absence of an ability to recover the carrying amount of the investment or inability of LCB to sustain an earnings capacity that would justify the current carrying value of the investment. There was no impairment of goodwill relating to LCB during the three or nine month periods ended September 30, 2017 or 2016.presented below:


		Weighted
		Average
		Exercise
	Shares	Price
Outstanding at beginning of year	81,547	$	17.78
Granted	0		0
Exercised	0		0
Forfeited	0		0
Outstanding at end of year	81,547	$	17.78

10. ~~Fair Value Measurement~~

FAIR VALUE MEASUREMENT

Fair value measurement and disclosure guidance defines fair value as the price that would be received to sell an asset or transfer a liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. Additional guidance is provided on determining when the volume and level of activity for the asset or liability has significantly decreased. The guidance also includes guidance on identifying circumstances when a transaction may not be considered orderly.

Fair value measurement and disclosure guidance provides a list of factors that a reporting entity should evaluate to determine whether there has been a significant decrease in the volume and level of activity for the asset or liability in relation to normal market activity for the asset or liability. When the reporting entity concludes there has been a significant decrease in the volume and level of activity for the asset or liability, further analysis of the information from that market is needed, and significant adjustments to the related prices may be necessary to estimate fair value in accordance with fair value measurement and disclosure guidance.

This guidance clarifies that, when there has been a significant decrease in the volume and level of activity for the asset or liability, some transactions may not be orderly. In those situations, the entity must evaluate the weight of the evidence to determine whether the transaction is orderly. The guidance provides a list of circumstances that may indicate that a transaction is not orderly. A transaction price that is not associated with an orderly transaction is given little, if any, weight when estimating fair value.

Fair value measurement and disclosure guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. The price in the principal (or most advantageous) market used to measure the fair value of the asset or liability is not adjusted for transaction costs. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities; it is not a forced transaction. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact and (iv) willing to transact.

Additional guidance is provided on determining when the volume and level of activity for the asset or liability has significantly decreased. The guidance also includes guidance on identifying circumstances when a transaction may not be considered orderly.

Fair value measurement and disclosure guidance ~~requires~~provides a list of factors that a reporting entity should evaluate to determine whether there has been a significant decrease in the ~~use~~volume and level of ~~valuation techniques~~activity for the asset or liability in relation to normal market activity for the asset or liability. When the reporting entity concludes there has been a significant decrease in the volume and level of activity for the asset or liability, further analysis of the information from that ~~are consistent~~market is needed, and significant adjustments to the related prices may be necessary to estimate fair value in accordance with fair value measurement and disclosure guidance.

This guidance clarifies that, when there has been a significant decrease in the ~~market approach,~~volume and level of activity for the ~~income approach and/~~asset or liability, some transactions may not be orderly. In those situations, the ~~cost approach.~~ entity must evaluate the weight of the evidence to

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determine whether the transaction is orderly. The guidance provides a list of circumstances that may indicate that a transaction is not orderly. A transaction price that is not associated with an orderly transaction is given little, if any, weight when estimating fair value.

The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities. The income approach uses valuation techniques to convert future amounts, such as cash flows or earnings, to a single present amount on a discounted basis. The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (replacement cost). Valuation techniques should be consistently applied. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability. Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources, or unobservable, meaning those that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. In that regard, the guidance establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:

Level 1 Inputs – Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity ~~has the ability to~~can access at the measurement date.

Level 2 Inputs – ~~Inputs~~Significant other observable inputs other than ~~quoted prices included in~~ Level 1 ~~that are observable for the asset or liability, either directly or indirectly. These might include~~prices such as quoted prices for similar assets or ~~liabilities in active markets,~~liabilities; quoted prices ~~for identical or similar assets or liabilities~~ in markets that are not ~~active,~~active; or other inputs ~~other than quoted prices~~ that are observable ~~for the asset~~ or ~~liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or~~can be corroborated by observable market ~~data by correlation or other means.~~

data.

Level 3 Inputs – ~~Unobservable~~Significant unobservable inputs ~~for determining the fair values of assets or liabilities~~ that reflect ~~an entity’s~~a company’s own assumptions about the assumptions that market participants would use in pricing ~~the assets~~an asset or ~~liabilities.~~

liability.

An asset’s or liability’s placement in the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

A description of the valuation methodologies used for assets and liabilities measured at fair value, as well as the general classification of such assets and liabilities pursuant to the valuation hierarchy, is set forth below.

In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect counterparty credit quality and the Company’s creditworthiness, among other things, as well as unobservable parameters. Any such valuation adjustments are applied consistently over time. The Company’s valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While management believes the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.

Equities Securities – The fair value of equity securities is based upon quoted prices in active markets and is reported using Level 1 inputs.

Debt Securities Available for Sale – ~~– Debt~~For debt securities ~~classified as~~ available for sale where quoted prices are not available, fair values are calculated based on market prices of similar securities and are reported at fair value utilizing Level 2 inputs. For these securities, the Company obtains fair value measurement from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the ~~bond’s~~debt securities’ terms

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and conditions, among other things. ~~Equity~~For debt securities ~~classified as~~ available for sale where quoted prices or market prices of similar securities are not available, fair values are calculated using other market indicators and are reported at fair value utilizing Level 3 inputs.

Derivatives – The fair values of derivatives are based on valuation models using ~~Level 1 and~~observable market data as of the measurement date utilizing Level 2 inputs.

The Company’s derivatives are comprised of interest rate swaps traded in an over-the-counter market where quoted market prices are not always available; therefore, the fair values are determined using quantitative models that utilize multiple market inputs. The inputs will vary based on the type of curves, prepayment rates and volatility factors used to value the position. Most market inputs are actively quoted and can be validated through external sources, including brokers, market transactions and third-party pricing services.

Impaired Loans – – Certain impaired loans are reported on a non-recurring basis at the fair value of the underlying collateral since repayment is expected solely from the collateral. Fair value is generally determined based upon independent third-party appraisals of the properties, or discounted cash flows based upon the expected proceeds. These assets are included as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements.

Other Real Estate Owned – – Certain assets included in other real estate owned are carried at fair value as a result of impairment and accordingly are presented as measured on a non-recurring basis. Values are estimated using Level 3 inputs, based on appraisals that consider the sales prices of property in the proximate vicinity.

Mortgage Servicing Rights – The fair value of servicing assets is based on the present value of estimated future cash flows on pools of mortgages stratified by rate and maturity date and are considered Level 3 inputs.

The following ~~table summarizes~~tables summarize financial assets and financial liabilities measured at fair value as of ~~September 30, 2017~~March 31, 2021 and December 31, ~~2016,~~2020 segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value. ~~There were no transfers~~


	(Level 1)		(Level 2)		(Level 3)
	Quoted Prices in		Significant		Significant
(Dollars in thousands)	Active Markets		Other		Other
	for Identical		Observable		Unobservable
March 31, 2021	Assets		Inputs		Inputs		Total
Assets measured at fair value on a recurring basis:
Debt securities available for sale:
Obligations of U.S. Government agencies and corporations	$	—	$	37,634	$	—	$	37,634
Obligations of state and political subdivisions		—		8,175		—		8,175
Corporate debt securities		—		14,039		2,000		16,039
Mortgage-backed securities		—		239,228		—		239,228
Total debt securities available for sale	$	—	$	299,076	$	2,000	$	301,076
Equity securities	$	1,183	$	—	$	—	$	1,183
Mortgage servicing rights	$	—	$	—	$	147	$	147
Interest rate swaps	$	—	$	659	$	—	$	659

Assets measured at fair value on a non-recurring basis:
Impaired loans	$	—	$	—	$	78	$	78

Table of ~~assets between fair value Level 1 and Level 2 during the nine months ended September 30, 2017 or 2016.~~Contents


	(Level 1)		(Level 2)		(Level 3)
	Quoted Prices in		Significant		Significant
(Dollars in thousands)	Active Markets		Other		Other
	for Identical		Observable		Unobservable
December 31, 2020	Assets		Inputs		Inputs		Total
Assets measured at fair value on a recurring basis:
Debt securities available for sale:
Obligations of U.S. Government agencies and corporations	$	—	$	22,949	$	—	$	22,949
Obligations of state and political subdivisions		—		8,282		—		8,282
Corporate debt securities		—		9,523		2,000		11,523
Mortgage-backed securities		—		243,661		—		243,661
Total debt securities available for sale	$	—	$	284,415	$	2,000	$	286,415
Equity securities	$	1,091	$	—	$	—	$	1,091
Mortgage servicing rights	$	—	$	—	$	158	$	158
Liabilities measured at fair value on a recurring basis:
Interest rate swaps	$	—	$	57	$	—	$	57

Assets measured at fair value on a non-recurring basis:
Impaired loans	$	—	$	—	$	84	$	84

(Level 1) (Level 2) (Level 3)
Quoted Prices in Significant Significant
Active Markets Other Other
(Dollars in thousands) September 30, for Identical Observable Unobservable
2017 Assets Inputs Inputs
Measured at fair value on a recurring basis:
Debt securities available-for-sale:
Obligations of U.S. Government agencies and corporations $ 34,463 $ - $ 34,463 $ -
Obligations of state and political subdivisions 25,945 - 25,945 -
Mortgage-backed securities 97,485 - 97,485 -
Equity securities available-for-sale 1,287 1,107 180 -

Measured at fair value on a non-recurring basis:
Impaired loans $ 2,239 $ - $ - $ 2,239
Other real estate owned 165 - - 165
Mortgage servicing rights 223 - - 223

(Level 1) (Level 2) (Level 3)
Quoted Prices in Significant Significant
Active Markets Other Other
(Dollars in thousands) December 31, for Identical Observable Unobservable
2016 Assets Inputs Inputs
Measured at fair value on a recurring basis:
Debt securities available-for-sale:
Obligations of U.S. Government agencies and corporations $ 35,799 $ - $ 35,799 $ -
Obligations of state and political subdivisions 26,659 - 26,659 -
Mortgage-backed securities 85,702 - 85,702 -
Equity securities available-for-sale 2,328 2,148 180 -

Measured at fair value on a non-recurring basis:
Impaired loans $ 2,563 $ - $ - $ 2,563
Other real estate owned 358 - - 358
Mortgage servicing rights 205 - - 205

~~The following table presents additional quantitative information about assets~~Assets measured at fair value on a nonrecurring basis ~~and~~ for which Level 3 inputs have been used to determine fair ~~value:~~

(Dollars in thousands)
September 30, 2017 Fair Value
Estimate Valuation Technique Unobservable Input Range Weighted
Average
Impaired loans $ 2,239 Appraisal of collateral (1) Appraisal and liquidation adjustments (2) 0% - 12% 7 %
Other real estate owned 165 Appraisal of collateral (1) Appraisal and liquidation adjustments (2) 13% - 72% 30 %
Mortgage servicing rights 223 Multiple of annual servicing fee Estimated pre-payment speed, based on rate and term 300% - 400% 369 %

(Dollars in thousands)
December 31, 2016 Fair Value
Estimate Valuation Technique Unobservable Input Range Weighted
Average
Impaired loans $ 2,563 Appraisal of collateral (1) Appraisal and liquidation adjustments (2) 7% - 58% 8.9 %
Other real estate owned 358 Appraisal of collateral (1) Appraisal and liquidation adjustments (2) 30 - 72% 46 %
Mortgage servicing rights 205 Multiple of annual servicing fee Estimated pre-payment speed, based on rate and term 300% - 400% 368 %

~~(1)~~

~~Fair value is generally determined through independent appraisals of the underlying collateral that generally include various Level 3 inputs which are not identifiable.~~

~~(2)~~

Appraisals may be adjusted downward by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal.

value are immaterial to the Company’s consolidated financial statements.

Fair Value of Financial Instruments

Management uses its best judgment in estimating the fair value of the Company’s financial instruments; however, there are inherent weaknesses in any estimation technique. Therefore, the fair value estimates reported herein are not necessarily indicative of the amounts the Company could have realized in sales transactions on the dates indicated. The estimated fair value amounts have been measured as of their respective year ends and have not been re-evaluated or updated for purposes of these consolidated financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different from the amounts reported at each quarter end.

The information presented below should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is provided only for a limited portion of the Company’s assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Company’s disclosures and those of other companies may not be meaningful.

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The ~~following describes the estimated fair value of the Company’s financial instruments as well as the significant methods~~carrying amounts and ~~assumptions not previously disclosed used to determine these estimated fair values.~~

Carrying values approximate fair value for cash and due from banks, interest-bearing demand deposits with banks, restricted stock in the Federal Home Loan Bank, loans held for sale, interest receivable, mortgage servicing rights, non-interest bearing deposits, securities sold under agreements to repurchase, short-term borrowings and interest payable. Other than cash and due from banks, which are considered Level 1 inputs, and mortgage servicing rights, which are Level 3 inputs, these instruments are Level 2 inputs.

~~Interest bearing time deposits with banks~~ ~~– The estimated fair value is determined by discounting the contractual future cash flows, using the rates currently offered for deposits of similar remaining maturities.~~

~~Loans~~– For variable-rate loans that reprice frequently and which entail no significant changes in credit risk, carrying values approximated fair value. Substantially all commercial loans and real estate mortgages are variable rate loans. The fair value of other loans (i.e. consumer loans and fixed-rate real estate mortgages) is estimated by calculating the present value of the cash flow difference between the current rate and the market rate, for the average maturity, discounted quarterly at the market rate.

~~Fixed rate time deposits~~ ~~– The estimated fair value is determined by discounting the contractual future cash flows, using the rates currently offered for deposits of similar remaining maturities.~~

~~Long-term debt and other interest-bearing liabilities~~ ~~– The fair value is estimated using discounted cash flow analysis, based on incremental borrowing rates for similar types of arrangements.~~

~~Commitments to extend credit and letters of credit~~ – The fair value of commitments to extend credit is estimated using the fees currently charged to enter into similar agreements, taking into account market interest rates, the remaining terms and present credit-worthiness of the counterparties. The fair value of guarantees and letters of credit is based on fees currently charged for similar agreements.

~~The~~ estimated fair values of the Company’s financial instruments are as follows:


	Financial Instruments
(Dollars in thousands)	March 31, 2021				December 31, 2020
	Carrying		Fair		Carrying		Fair
	Value		Value		Value		Value
Financial assets:
Cash and due from banks	$	11,533	$	11,533	$	11,868	$	11,868
Interest bearing deposits with banks		460		460		19,753		19,753
Federal funds sold		10,000		10,000		0		0
Interest bearing time deposits with banks		735		735		735		735
Securities		302,259		302,259		287,506		287,506
Restricted investment in bank stock		3,374		N/A		3,423		N/A
Loans, net of allowance for loan losses		432,951		434,033		418,567		424,791
Interest rate swaps		659		659		0		0
Accrued interest receivable		2,233		2,233		2,105		2,105

Financial liabilities:
Non-interest bearing deposits	$	183,437	$	183,437	$	168,115	$	168,115
Interest bearing deposits		486,023		489,985		454,751		459,224
Securities sold under agreements to repurchase		2,622		N/A		475		N/A
Short-term borrowings		20,000		20,002		20,000		20,002
FRB advances		0		0		27,955		27,955
Long-term debt		35,000		36,745		35,000		37,365
Interest rate swaps		0		0		57		57
Other interest bearing liabilities		1,557		1,557		1,584		1,585
Accrued interest payable		364		364		448		448

Off-balance sheet financial instruments:
Commitments to extend credit	$	0	$	0	$	0	$	0
Letters of credit		0		0		0		0

Financial Instruments
September 30, 2017 December 31, 2016
(Dollars in thousands) Carrying Fair Carrying Fair
Value Value Value Value
Financial assets:
Cash and due from banks $ 13,219 $ 13,219 $ 9,464 $ 9,464
Interest bearing deposits with banks 133 133 95 95
Interest bearing time deposits with banks 350 350 350 350
Securities 159,180 159,180 150,488 150,488
Restricted investment in FHLB stock 3,616 3,616 3,610 3,610
Loans held for sale 117 117 - -
Loans, net of allowance for loan losses 379,709 374,642 375,574 366,660
Mortgage servicing rights 223 223 205 205
Accrued interest receivable 1,620 1,620 1,582 1,582

Financial liabilities:
Non-interest bearing deposits $ 109,880 $ 109,880 $ 104,006 $ 104,006
Interest bearing deposits 363,703 363,854 351,816 354,628
Securities sold under agreements to repurchase 5,207 5,207 4,496 4,496
Short-term borrowings 27,500 27,500 27,700 27,700
Long-term debt 25,000 24,965 25,000 24,963
Other interest bearing liabilities 1,566 1,568 1,545 1,549
Accrued interest payable 298 298 268 268

Off-balance sheet financial instruments:
Commitments to extend credit $ - $ - $ - $ -
Letters of credit - - - -

The following tables present the carrying amount, fair value and placement in the fair value hierarchy of the Company’s financial instruments not previously disclosed as of ~~September 30, 2017~~March 31, 2021 and December 31, ~~2016. This table excludes~~2020. The tables exclude financial instruments for which the carrying amount approximates fair value.


					(Level 1)		(Level 2)		(Level 3)
					Quoted Prices in		Significant		Significant
(Dollars in thousands)					Active Markets		Other		Other
	Carrying				for Identical		Observable		Unobservable
	Amount		Fair Value		Assets or Liabilities		Inputs		Inputs
March 31, 2021
Financial instruments - Assets
Interest bearing time deposits with banks	$	735	$	735	$	—	$	735	$	—
Loans, net of allowance for loan losses		432,951		434,033		—		—		434,033
Financial instruments - Liabilities
Interest bearing deposits	$	486,023	$	489,985	$	—	$	489,985	$	—
Long-term debt		35,000		36,745		—		36,745		—
Other interest bearing liabilities		1,557		1,557		—		1,557		—

(Level 1) (Level 2) (Level 3)
Quoted Prices in Significant Significant
Active Markets Other Other
(Dollars in thousands) Carrying for Identical Observable Unobservable
Amount Fair Value Assets or Liabilities Inputs Inputs
September 30, 2017
Financial instruments - Assets
Interest bearing time deposits with banks $ 350 $ 350 $ - $ 350 $ -
Loans held for sale 117 117 - 117 -
Loans, net of allowance for loan losses 379,709 374,642 - - 374,642
Financial instruments - Liabilities
Interest bearing deposits $ 363,703 $ 363,854 $ - $ 363,854 $ -
Long-term debt 25,000 24,965 - 24,965 -
Other interest bearing liabilities 1,566 1,568 - 1,568 -

(Level 1) (Level 2) (Level 3)
Quoted Prices in Significant Significant
Active Markets Other Other
(Dollars in thousands) Carrying for Identical Observable Unobservable
Amount Fair Value Assets or Liabilities Inputs Inputs
December 31, 2016
Financial instruments - Assets
Interest bearing time deposits with banks $ 350 $ 350 $ - $ 350 $ -
Loans, net of allowance for loan losses 375,574 366,660 - - 366,660
Financial instruments - Liabilities
Interest bearing deposits $ 351,816 $ 354,628 $ - $ 354,628 $ -
Long-term debt 25,000 24,963 - 24,963 -
Other interest bearing liabilities 1,545 1,549 - 1,549 -

~~11. Defined Benefit Retirement Plan~~

The Company sponsors a defined benefit retirement plan [The Juniata Valley Bank Retirement Plan (“JVB Plan”)], which covers substantially all of its employees employed prior to December 31, 2007. As of January 1, 2008, the JVB Plan was amended to close the plan to new entrants. All active participants as of December 31, 2007 became 100% vested in their accrued benefit and, as long as they remained eligible, continued to accrue benefits until December 31, 2012. The benefits are based on years of service and the employee’s compensation. Effective December 31, 2012, the JVB Plan was amended to cease future service accruals after that date (i.e., it was frozen).

As a result of the FNBPA acquisition, as of November 30, 2015, the Company assumed sponsorship of a second defined benefit retirement plan, the [Retirement Plan for the First National Bank of Port Allegany (“FNB Plan”)], which covers substantially all former FNBPA employees that were employed prior to September 30, 2008. The FNBPA Plan was amended as of December 31, 2015 to cease future service accruals to previously unfrozen participants and is now considered to be “frozen”. Effective December 31, 2016, the FNB Plan was merged into the JVB Plan, which was amended to provide the same benefits to the class of participants previously included in the FNB Plan.

The Company’s funding policy with respect to the JVB Plan is to contribute annually no more than the maximum amount that can be deducted for federal income tax purposes. Contributions are intended to provide for benefits attributed to service through December 31, 2012. The Company made no contributions during the nine months ended September 30, 2017 and is not required to make a contribution in the remainder of 2017; however, it is considering doing so.

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					(Level 1)		(Level 2)		(Level 3)
					Quoted Prices in		Significant		Significant
(Dollars in thousands)					Active Markets		Other		Other
	Carrying				for Identical		Observable		Unobservable
	Amount		Fair Value		Assets or Liabilities		Inputs		Inputs
December 31, 2020
Financial instruments - Assets
Interest bearing time deposits with banks	$	735	$	735	$	—	$	735	$	—
Loans, net of allowance for loan losses		418,567		424,791		—		—		424,791
Financial instruments - Liabilities
Interest bearing deposits	$	454,751	$	459,224	$	—	$	459,224	$	—
Long-term debt		35,000		37,365		—		37,365		—
Other interest bearing liabilities		1,584		1,585		—		1,585		—

Pension expense included the following components for the three and nine month periods ended September 30, 2017 and 2016, with the 2016 year reclassified to include combined results for the JVB Plan and the former FNB Plan:

Three Months Ended Nine Months Ended
(Dollars in thousands) September 30, September 30,
2017 2016 2017 2016
Components of net periodic pension cost:
Interest cost $ 161 $ 167 $ 483 $ 501
Expected return on plan assets (202 ) (199 ) (605 ) (597 )
Recognized net actuarial loss 57 62 170 186
Net periodic pension cost $ 16 $ 30 $ 48 $ 90

Amortization of net actuarial loss recognized in other comprehensive income $ (57 ) $ (62 ) $ (170 ) $ (186 )

Total recognized in net periodic pension cost and other comprehensive income $ (41 ) $ (32 ) $ (122 ) $ (96 )

~~12. Commitments, Contingent Liabilities and Guarantees~~

11. COMMITMENTS, CONTINGENT LIABILITIES AND GUARANTEES

In the ordinary course of business, the Company makes commitments to extend credit to its customers through letters of credit, loan commitments and lines of credit. At ~~September 30, 2017,~~March 31, 2021, the Company had ~~$90,150,000~~$92,688,000 outstanding in loan commitments and other unused lines of credit extended to its customers as compared to ~~$59,984,000~~$95,089,000 at December 31, ~~2016.~~

2020.

The Company does not issue any guarantees that would require liability recognition or disclosure, other than its letters of credit. Letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third-party. Generally, financial and performance letters of credit have expiration dates within one year of issuance, while commercial letters of credit have longer term commitments. The credit risk involved in issuing letters of credit is essentially the same as the risks that are involved in extending loan facilities to customers. The Company generally holds collateral and/or personal guarantees supporting these commitments. The Company had outstanding ~~$2,097,000~~$3,991,000 and ~~$2,300,000~~$2,371,000 of financial and performance letters of credit commitments as of ~~September 30, 2017~~March 31, 2021 and $1,541,000 and $2,365,000 of financial and performance letters of credit commitments as of December 31, ~~2016, respectively.~~2020. Commercial letters of credit as of ~~both September 30, 2017~~March 31, 2021 and December 31, ~~2016~~2020 totaled ~~$12,650,000.~~$7,475,000 and $6,975,000, respectively. Management believes that the proceeds obtained through a liquidation of collateral and the enforcement of guarantees would be sufficient to cover the potential amount of future payments required under the corresponding guarantees. The amount of the liability as of ~~September 30, 2017~~March 31, 2021 for payments under letters of credit issued was not material. Because these instruments have fixed maturity dates, and because many of them will expire without being drawn upon, they do not generally present any significant liquidity risk.

Additionally, the Company has ~~committed to fund and sell~~sold qualifying residential mortgage loans to the ~~Federal Home Loan Bank~~FHLB as part of ~~Pittsburgh~~its Mortgage Partnership Finance Program (“Program”). Under the terms of the Program, there is limited recourse back to the Company for loans that do not perform in accordance with the terms of the loan agreement. Each loan sold under the Program is “credit enhanced” such that the individual loan’s rating is raised to “BBB”, as determined by the FHLB. The Program can be terminated by either the FHLB or the Company, without cause. The FHLB has no obligation to commit to purchase any mortgage loans through, or from, the Company.

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12. REVENUE RECOGNITION

The Company accounts for revenue from contracts with customers under Topic 606. The Company generally acts in a principal capacity, on its own behalf, in most contracts with customers. In such transactions, revenue and related costs to provide these services are recognized on a gross basis in the financial statements. In some cases, the Company acts in an agent capacity, deriving revenue through assisting other entities in transactions with its customers. In such transactions, revenue and the related costs to provide the services are recognized on a net basis in the financial statements. These transactions primarily relate to non-deposit product commissions and fees derived from customers’ use of various interchange and ATM/debit card networks.

All of the Company’s revenue from contracts with customers in the scope of Topic 606 are recognized within non-interest income on the consolidated statements of income, except for the gain/loss on the sale of other real estate owned, which is included in other non-interest expense. Revenue streams not within the scope of Topic 606 included in non-interest income on the consolidated statements of income include earnings on bank-owned life insurance and annuities, income from unconsolidated subsidiary, fees derived from loan activity, mortgage banking income, gain/loss on sales and calls of securities, and the change in value of equity securities.

A description of the Company’s sources of revenue accounted for under Topic 606 are as follows:

Customer Service Fees – fees mainly represent fees from deposit customers for transaction based, account maintenance, and overdraft services. Transaction based fees include, but are not limited to, stop payment and overdraft fees. These fees are recognized at the time of the transaction when the performance obligation has been fulfilled. Account maintenance fees and account analysis fees are earned over the course of a month, representing the period of the performance obligation, and are recognized monthly.

Debit Card Fee Income – consists of interchange fees from cardholder transactions conducted through the card payment network. Cardholders use debit cards to conduct point-of-sale transactions that produce interchange fees. The Company acts in an agent capacity to offer processing services for debit cards to its customers. Fees are recognized with the processing of the transactions and netted against the related fees from such transactions.

Trust Fees – include asset management and estate fees. Asset management fees are generally based on a fee schedule, based upon the market value of the assets under management, and recognized monthly when the service obligation is completed. Asset management fees recognized during the three month periods ended March 31, 2021 and March 31, 2020 totaled $92,000 and $85,000, respectively. Fees for estate management services are based on a specified fee schedule and generally recognized as the following performance obligations are fulfilled: (i) 25% of total estate fee recognized when all estate assets are collected and debts paid, (ii) 50% of the total fee is recognized when the inheritance tax return is filed, and (iii) remaining 25% is recognized when the first and final account is confirmed, settling the estate. Estate fees recognized during the three month periods ended March 31, 2021 and March 31, 2020 totaled $20,000 and $28,000, respectively.

Commissions From Sales Of Non-Deposit Products – include, but are not limited to, brokerage services, employer-based retirement solutions, individual retirement planning, insurance solutions, and fee-based investment advisory services. The Company acts in an agent capacity to offer these services to customers. Revenue is recognized, net of related fees, in the month in which the contract is fulfilled.

Other Non-Interest Income – includes certain revenue streams within the scope of Topic 606 comprised primarily of ATM surcharges, commissions on check orders, and wire transfer fees. ATM surcharges are the result of customers conducting ATM transactions that generate fee income. All of these fees, as well as wire transfer fees, are transaction based and are recognized at the time of the transaction. In addition, the Company acts in an agent capacity to offer checks to its customers and recognizes commissions, net of related fees, when the contract is fulfilled.

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Gains/Losses On Sales Of Other Real Estate Owned – are recognized when control of the property transfers to the buyer, which generally occurs when the deed is executed.

Contract Balances

A contract asset balance occurs when an entity performs a service for a customer before the customer pays consideration (resulting in a contract receivable) or before payment is due (resulting in a contract asset). A contract liability balance is an entity’s obligation to transfer a service to a customer for which the entity has already received payment (or payment is due from the customer). The company’s non-interest revenue streams are largely based on transactional activity, or standard month-end revenue accruals such as asset management fees based on month-end market values. Consideration is often received immediately or shortly after the Company satisfies its performance obligation and revenue is recognized. The Company does not typically enter into longer-term revenue contracts with the customer, and therefore, does not experience significant contract balances.

Contract Acquisition Costs

The Company expenses all contract acquisition costs as costs are incurred.

13. DERIVATIVES

The Company began utilizing interest rate swap agreements as part of its asset liability management strategy to help manage its interest rate risk position in the second quarter of 2020. The notional amount of ~~$10,000,000. As~~the interest rate swaps does not represent amounts exchanged by the parties. The amount exchanged is determined by reference to the notional amount and the other terms of ~~September 30, 2017, $5,788,000 remained~~the individual interest rate swap agreements.

Interest rate swaps with a notional amount totaling $40,000,000 as of March 31, 2021 and December 31, 2020, were designated as cash flow hedges on certain FHLB advances. The interest rate swaps were determined to be ~~delivered~~fully effective during the periods presented, and as such, no amount of ineffectiveness have been included in net income. The aggregate fair value of the swaps is recorded in either other assets or other liabilities on ~~that commitment, $140,000~~the Consolidated Statements of ~~which has been committed~~Condition with changes in fair value recorded in other comprehensive income. The Company expects the hedges to ~~borrowers.~~remain fully effective during the remaining terms of the swaps.

The Company presents derivative positions gross on the balance sheet. The following table reflects the derivatives recorded on the Consolidated Statements of Condition as of March 31, 2021 and December 31, 2020.


(Dollars in thousands)	March 31, 2021				December 31, 2020
	Notional		Fair		Notional		Fair
	Amount		Value		Amount		Value
Included in other assets:
Derivatives designated as hedges:
Interest rate swap - pay fixed / receive floating on 3-month FHLB advance	$	20,000	$	(66)	$	0	$	0
Interest rate swaps - forward-starting on long-term FHLB advances		20,000		725		0		0
Total included in other assets			$	659			$	0

Included in other liabilities:
Derivatives designated as hedges:
Interest rate swap - pay fixed / receive floating on 3-month FHLB advance	$	0	$	0	$	20,000	$	(123)
Interest rate swaps - forward-starting on long-term FHLB advances		0		0		20,000		66
Total included in other liabilities			$	0			$	(57)

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The effect of cash flow hedge accounting on accumulated other comprehensive income for the period ended March 31, 2021 is as follows:


(Dollars in thousands)	March 31, 2021
	Amount of Gain		Location of (Gain)	Amount of (Gain)
	(Loss) Recognized in		Loss Reclassified	Loss Reclassified
	OCI on Derivatives		from OCI into Income	from OCI into Income
Interest rate contracts	$	712	Interest expense on short-term borrowings and repurchase agreements	$	4

The effect of cash flow hedge accounting on the Consolidated Statements of Income for the three months ended March 31, 2021 was as follows:

Location and Amount of Gain or Loss Recognized in Income on Fair Value and Cash Flow Hedging Relationships


	Three Months Ended
(Dollars in thousands)	March 31, 2021
	Interest		Other
	Income		Income
	(Expense)		(Expense)
Effects of cash flow hedging:
Gain on cash flow hedging relationships:
Amount reclassified from AOCI into income	$	(4)	$	0
Total		(4)		0

13~~. Subsequent Events~~14. SUBSEQUENT EVENTS

On ~~October 17, 2017,~~April 20, 2021, the Board of Directors declared a cash dividend of $0.22 per share to shareholders of record on ~~November 15, 2017,~~May 17, 2021, payable on ~~December~~June 1, ~~2017.~~2021.

~~On October 5, 2017, the Company purchased a group annuity to satisfy defined benefit obligations to a group of its retirees. The transaction resulted in settlement charges of $377,000.~~

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

Forward Looking Statements:

The information contained in this Quarterly Report on Form 10-Q contains forward looking statements (as such term is defined in the Securities Exchange Act of 1934 and the regulations thereunder) including statements ~~which~~that are not historical facts or that address trends or ~~management's~~management’s intentions, plans, beliefs, expectations or opinions. ~~Such~~Any forward-looking statement made by us in this document is based only on information currently available to us and speaks only as of the date when made. Juniata undertakes no obligation to publicly update or revise forward looking information, whether as a result of new or updated information, future events, or otherwise. Forward-looking statements are not historical facts or guarantees of future performance, events or results and are subject to potential risks and uncertainties, ~~and may be affected by various factors~~many of which are outside of our control that ~~may~~could cause actual results to differ materially from this forward-looking information. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements ~~including,~~include, without limitation:

·●

the impact of adverse changes in the economy and real estate markets, including protracted periods of low-growth and sluggish loan demand;

·●

the effect of market interest rates ~~particularly following a period of low market interest rates~~ and ~~current market~~ uncertainties, and relative balances of rate-sensitive assets to rate-sensitive liabilities, on net interest margin and net interest income;

·●

the effect of competition on rates of deposit and loan growth and net interest margin;

·●

increases in non-performing assets, which may result in increases in the allowance for credit losses, loan charge-offs and elevated collection and carrying costs related to such non-performing assets;

·●

other income growth, including the impact of regulatory changes which have reduced debit card interchange revenue;

·●

investment securities gains and losses, including other than temporary declines in the value of securities which may result in charges to earnings;

·●

the effects of changes in the applicable federal income tax rate;

●

the level of other expenses, including salaries and employee benefit expenses;

·●

the impact of increased regulatory scrutiny of the banking industry;

·●

the impact of governmental monetary and fiscal policies, as well as legislative and regulatory changes;

●

the results of regulatory examination and supervision processes;

●

the failure of assumptions underlying the establishment of reserves for loan and lease losses, and estimations of collateral values and various financial assets and liabilities;

●

the increasing time and expense associated with regulatory compliance and risk management;

·●

the ~~uncertainty~~ability to implement business strategies, including business acquisition activities and ~~lack of clear regulatory guidance associated with the delay in implementing many of the regulations mandated by the Dodd Frank Act;~~organic branch, product, and service expansion strategies;

·●

capital and liquidity strategies, including the ~~expected~~ impact of the capital and liquidity requirements modified by the Basel III standards;

·●

~~changes in the applicable federal income tax rate that could result in the reversal of net deferred tax assets and the reduction of current tax expense;~~

the effects of changes in accounting policies, standards, and interpretations on the presentation in the Company’s consolidated balance sheets and consolidated statements of income;

·●

the Company’s failure to identify and to address cyber-security risks;

·●

the Company’s ability to keep pace with technological changes;

·●

the Company’s ability to attract and retain talented personnel;

·●

the Company’s reliance on its subsidiary for substantially all of its revenues and its ability to pay dividends;

·●

~~the effects~~acts of ~~changes in relevant accounting principles and guidelines on the Company’s financial condition; and~~war or terrorism;

·●

disruptions due to flooding, severe weather, or other natural disasters;

●

failure of ~~third party~~third-party service providers to perform their contractual ~~obligations.~~obligations; and

●

the scope and duration of the COVID-19 pandemic, actions taken by governmental authorities in response to the pandemic and the direct and indirect impacts of the pandemic on the Company, its customers and third parties.

~~The Company undertakes no obligation to publicly update or revise forward looking information, whether as a result~~Table of ~~new or updated information, future events or otherwise.~~ Contents

For a more complete discussion of certain risks, uncertainties and other factors affecting the Company, refer to the Company’s Risk Factors, contained in Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2020, a copy of which may be obtained from the Company upon request and without charge (except for the exhibits thereto), and Item 1A of Part II of this Quarterly Report on Form 10-Q.

COVID-19 Update:

On March 27, 2020, the CARES Act was signed into law, providing relief from certain requirements under U.S. GAAP. The CARES Act permits the suspension of ASC 310-40 for loan modifications that are made by financial institutions in response to the COVID-19 pandemic if (1) the borrower was not more than 30 days past due as of December 31, 2019, and (2) the loan modification is made between March 1, 2020 and the earlier of December 31, 2020 or 60 days after the end of the coronavirus emergency declaration. This period has since been expanded to the earlier of January 1, 2022 or 60 days after the end of the coronavirus emergency declaration following the passing of the CAA on December 27, 2020. A loan modification accounted for in accordance with the CARES Act is not treated as a TDR for accounting or disclosure purposes.

In response to the COVID-19 pandemic, the Company established a COVID-19 Modification Program on March 20, 2020 to offer payment relief to certain borrowers. Through this program, the Company has approved interest and/or principal payment deferrals on loans for individuals and businesses affected by the economic impacts of the COVID-19 pandemic. As of March 31, 2021, one loan for $4,964,000 remained in deferment status while all other loans previously placed in deferment resumed contractual debt service.

As part of the CARES Act and in recognition of the challenging circumstances faced by small businesses, Congress created the Paycheck Protection Program (“PPP”), in which the Company is a participant. PPP covered loans are fully guaranteed as to principal and accrued interest by the SBA, and therefore, require a zero percent risk weight for risk-based capital requirements. The SBA reimburses PPP lenders for any amount of a PPP covered loan that is forgiven. PPP lenders are not held liable for any representations made by PPP borrowers in connection with a borrower's request for PPP covered loan forgiveness.

The CAA also provided several amendments to the PPP, including additional funding for first and second draws of PPP loans up to March 31, 2021. On March 30, 2021, the PPP Extension Act of 2021 was signed into law, extending the program to May 31, 2021.

The Company participates in the PPP and has funded 508 first round PPP loans totaling $32,064,000 in 2020, and as of March 31, 2021, funded 261 second round PPP loans totaling $17,027,000. Juniata has been receiving forgiveness payments from the SBA on first round PPP loans. As of March 31, 2021, 592 PPP loans remained with a total balance of $36,377,000, net of remaining deferred fees of $1,094,000.

On April 7, 2020, the Federal Reserve Banks extended credit under the Paycheck Protection Program Liquidity Facility (“PPPLF”) to provide liquidity to small business lenders and the broader credit markets, and to help stabilize the financial system. Only PPP covered loans guaranteed by the SBA under the Paycheck Protection Program with respect to both principal and interest, and that are originated by an eligible institution, may be pledged as collateral to the Federal Reserve Banks. The Company participated in the PPPLF and as of March 31, 2021, had repaid all remaining Federal Reserve Bank advances.

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Critical Accounting Policies:

Disclosure of the Company’s significant accounting policies is included in the ~~notes to the consolidated financial statements of the~~ Company’s critical accounting policies in its Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2020. Some of these policies require significant judgments, estimates, and assumptions to be made by management, most particularly in connection with determining the provision for loan losses and the appropriate level of the allowance for loan ~~losses, as well as management’s evaluation of the investment portfolio for other-than-temporary impairment. There have been no changes in critical accounting policies since December 31, 2016.~~losses.

General:

The following discussion relates to the consolidated financial condition of the Company as of ~~September 30, 2017, as~~March 31, 2021, compared to December 31, ~~2016,~~2020, and the consolidated results of operations for the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2021, compared to the same ~~periods~~period in ~~2016.~~2020. This discussion should be read in conjunction with the interim consolidated financial statements and related notes included herein.

Overview:

Juniata Valley Financial Corp. is a Pennsylvania corporation organized in 1983 to be the holding company of The Juniata Valley Bank. The Bank is a state-chartered bank headquartered in Mifflintown, Pennsylvania. Juniata Valley Financial Corp. and its subsidiary bank derive substantially all of their income from banking and bank-related services, including interest earned on residential real estate, commercial mortgage, commercial and consumer loans, interest earned on investment securities and fee income from deposit services and other financial services provided to its customers through 15 locations in Pennsylvania. The Company completed its acquisition of FNBPA Bancorp, Inc. (“FNBPA”) on November 30, 2015, at which time total assets increased by approximately $92 million, or 19%. Juniata Valley Financial Corp. also owns 39.16% of Liverpool Community Bank (“LCB”), located in Liverpool, Pennsylvania. The Company accounts for LCB as an unconsolidated subsidiary using the equity method of accounting.customers.

Financial Condition:

Total assets as of ~~September 30, 2017,~~March 31, 2021, were ~~$599.9 million,~~$805,633,000, an increase of ~~$19.6 million,~~$11,915,000, or ~~3.4%~~1.5%, compared to December 31, ~~2016.~~2020. Comparing ~~the~~asset balances ~~at September 30, 2017~~on March 31, 2021 and December 31, ~~2016,~~2020, total cash and cash equivalents decreased by $19,628,000, as excess cash was used to repay the remaining $27,955,000 in FRB advances in the first quarter of 2021. Over the same period, debt securities available for sale and loans increased by $14,661,000 and $14,346,000, respectively. As of March 31, 2021, total deposits increased by ~~$17.8 million,~~$46,594,000, or 7.5%, compared to December 31, 2020, with ~~noninterest~~growth in both non-interest and interest bearing deposits, ~~increasing $5.9 million~~primarily due to government stimulus payments and interest-bearing deposits increasing $11.9 million. The Company’s investment portfolio increased by $8.7 million and total loans increased by $4.3 million during the nine months ended September 30, 2017.

PPP loan balances on deposit.

The table below shows changes in deposit volumes by type of deposit between December 31, ~~2016~~2020 and ~~September 30, 2017.~~March 31, 2021.


(Dollars in thousands)	March 31,		December 31,		Change
	2021		2020		$		%
Deposits:
Demand, non-interest bearing	$	183,437	$	168,115	$	15,322	9.1	%
Interest bearing demand and money market		196,196		176,469		19,727	11.2
Savings		137,601		123,572		14,029	11.4
Time deposits, $250,000 and more		13,688		13,475		213	1.6
Other time deposits		138,538		141,235		(2,697)	(1.9)
Total deposits	$	669,460	$	622,866	$	46,594	7.5	%

(Dollars in thousands) September 30, December 31, Change
2017 2016 $ %
Deposits:
Demand, non-interest bearing $ 109,880 $ 104,006 $ 5,874 5.6 %
Interest bearing demand and money market 122,833 118,429 4,405 3.7
Savings 99,414 95,449 3,965 4.2
Time deposits, $250,000 and more 7,559 5,773 1,786 30.9
Other time deposits 133,897 132,165 1,731 1.3
Total deposits $ 473,583 $ 455,822 $ 17,761 3.9 %

~~Overall, loans increased $4.3 million, or 1.1%, between December 31, 2016 and September 30, 2017, as~~Table of Contents

As shown in the table below, total loans increased $14,346,000, or 3.4%, between December 31, 2020 and March 31, 2021. PPP loans, which are included in the commercial, financial and agricultural class, accounted for approximately half of the growth, with the rest primarily ~~due to increases~~ in ~~commercial and commercial~~the real estate ~~loans, partially offset by reductions~~– commercial class. Also contributing to the increase in ~~residential~~the real estate ~~and~~– commercial class was the transition of two large relationships from the real estate – construction ~~loans.~~loan class as of December 31, 2020 to permanent loan status in the real estate – commercial loan class as of March 31, 2021.


(Dollars in thousands)	September 30,		December 31,		Change						March 31,		December 31,		Change
	2017		2016		$			%
											2021		2020		$		%
Loans:
Commercial, financial and agricultural	$	48,551	$	40,827	$	7,724			18.9	%	$	80,884	$	73,057	$	7,827	10.7	%
Real estate - commercial		134,340		123,711		10,629			8.6			150,992		122,698		28,294	23.1
Real estate - construction		28,145		35,206		(7,061	)		(20.1	)		40,587		61,051		(20,464)	(33.5)
Real estate - mortgage		147,783		154,905		(7,122	)		(4.6	)		138,308		141,438		(3,130)	(2.2)
Obligations of states and political subdivisions		13,862		13,616		246			1.8			19,916		18,550		1,366	7.4
Personal		9,935		10,032		(97	)		(1.0	)		6,320		5,867		453	7.7
Total loans	$	382,616	$	378,297	$	4,319			1.1	%	$	437,007	$	422,661	$	14,346	3.4	%

A summary of the activity in the allowance for loan losses for each of the ~~nine~~three month periods ended ~~September 30, 2017~~March 31, 2021 and ~~2016~~2020 is presented below.


(Dollars in thousands)	Three months ended March 31,
	2021			2020
Balance of allowance - January 1	$	4,094		$	2,961
Loans charged off		(5)			(21)
Recoveries of loans previously charged off		46			37
Net recoveries		41			16
Provision for loan losses		(79)			356
Balance of allowance - end of period	$	4,056		$	3,333

Ratio of net recoveries during period to average loans outstanding		(0.01)	%		0.00	%

(Dollars in thousands) Periods Ended September 30,
2017 2016
Balance of allowance - January 1 $ 2,723 $ 2,478
Loans charged off (260 ) (198 )
Recoveries of loans previously charged off 55 42
Net charge-offs (205 ) (156 )
Provision for loan losses 389 366
Balance of allowance - end of period $ 2,907 $ 2,688

Ratio of net charge-offs during period to average loans outstanding 0.05 % 0.04 %

Juniata continued to experience favorable asset quality trends and net recoveries during the first quarter of 2021. One loan, in the amount of $4,964,000, placed on payment deferral in accordance with the CARES Act remained in deferment as of March 31, 2021, while all other loans previously placed in deferment resumed contractual debt service. Juniata applied elevated qualitative risk factors to all loan segments in the loan portfolio in its allowance for loan loss analysis in the first quarter of 2021 due to the remaining uncertainty as to the strength of the economy once it fully reopens and the ability of borrowers no longer on payment deferral to continue making payments; however, due to the positive trends noted above and sustained performance of the loan portfolio, the analysis resulted in a provision credit of $79,000 in the first quarter of 2021 compared to a provision expense of $356,000 recorded in the first quarter of 2020.

As of ~~September 30, 2017, 46~~March 31, 2021, 23 loans (exclusive of loans acquired ~~from FNBPA~~ with existing credit deterioration), with aggregate outstanding balances of ~~$8,719,000~~$4,107,000 were individually evaluated for impairment. A collateral analysis was performed on each of these 46 loans in order to establish a portion of the reserve needed to carry the impaired loans at no higher than fair value. ~~There~~As a result of this analysis, two loans, totaling $76,000, were ~~no loans~~ determined to have insufficient collateral ~~thus,~~at March 31, 2021 requiring the establishment of a specific ~~reserve was not required for any of the impaired loans.~~reserves totaling $1,000.

As of ~~September 30, 2017,~~March 31, 2021, there ~~was $40,298,000 in~~were $44,516,000 loans classified as special mention ~~loans~~ compared to ~~$30,654,000~~$40,626,000 at December 31, ~~2016 and $14,148,000~~2020, $9,450,000 in substandard loans at March 31, 2021 compared to ~~$18,905,000~~$9,602,000 at December 31, ~~2016. Causing some of the variance was a $2.5 million relationship that was upgraded from substandard classification~~2020, and $78,000 in doubtful loans at March 31, 2021 compared to $86,000 at December 31, ~~2016 to special mention in 2017. Additionally, there were two relationships totaling $9.1 million that were downgraded to special mention classification in 2017.~~2020.

Table of Contents

Management believes that the ~~specific~~ reserves carried are adequate to cover ~~potential future~~probable incurred losses related to these ~~relationships. Other than~~relationships as ~~described herein, Management does not believe there~~of March 31, 2021. There are ~~any trends, events or~~ uncertainties ~~that are reasonably expected to~~about the lasting effects of the COVID-19 impact on the economy. Such effects could have a material impact on future results of operations if businesses are not able to remain solvent and unemployment remains high. We believe we have sufficient liquidity, or capital ~~resources. Further, based on known information, Management believes~~and loss allowance reserves to withstand losses that ~~the effects of current and past economic conditions and other unfavorable business conditions~~ may ~~influence certain borrowers’ abilities~~occur but continue to ~~comply with their repayment terms, and as such, continues to~~closely monitor the financial strength of ~~these~~ borrowers ~~closely.~~

whose ability to comply with repayment terms may become permanently impaired.

The following is a summary of the Bank’s non-performing loans, exclusive of loans acquired with credit deterioration, on ~~September 30, 2017 as~~March 31, 2021 compared to December 31, ~~2016.~~2020.


(Dollar amounts in thousands)	March 31, 2021			December 31, 2020
Non-performing loans
Non-accrual loans	$	335		$	422
Accruing loans past due 90 days or more		—			22
Total	$	335		$	444

Loans outstanding	$	437,007		$	422,661

Ratio of non-performing loans to loans outstanding		0.08	%		0.11	%

(Dollar amounts in thousands) As of and for the As of and for the
nine months ended year ended
September 30, 2017 December 31, 2016
Non-performing loans
Non-accrual loans $ 3,608 $ 4,733
Accruing loans past due 90 days or more, exclusive of loans acquired with credit deterioration 221 554
Non-accruing restructured loans in default 21 25
Total $ 3,850 $ 5,312

Average loans outstanding 385,623 379,177

Ratio of non-performing loans to average loans outstanding 1.00 % 1.40 %

Total non-performing loans as of March 31, 2021 decreased $109,000 over total non-performing loans as of December 31, 2020. The change was primarily due to foreclosure upon a non-accrual loan during the first quarter of 2021, which reduced non-performing loans by $61,000.

Stockholders’ equity ~~increased~~decreased from December 31, ~~2016~~2020 to ~~September 30, 2017~~March 31, 2021 by ~~$1,358,000,~~$4,023,000, or ~~2.3%. The Company’s net income exceeded dividends paid by $814,000. The adjustment~~5.3%, mainly due to ~~accumulated other comprehensive loss to record the amortization of the net actuarial loss of the Company’s defined benefit retirement plan increased the Company’s equity by $112,000. The change in~~ unrealized ~~gains~~losses resulting from ~~both~~ the change in market value of debt securities available for sale and from the unconsolidated subsidiary increased shareholders’ equity by $258,000 when comparing September 30, 2017 to December 31, 2016. Stock based compensation expense recorded pursuant to the Company’s Stock Option Plan added $54,000 to stockholders’ equity during the nine month period, and payments for exercised stock options and the Employee Stock Purchase Plan added $172,000 and $34,000, respectively. Treasury stock purchases during the nine months ended September 30, 2017 decreased stockholders’ equity by $86,000.

sale.

Subsequent to ~~September 30, 2017,~~March 31, 2021, the following ~~events~~event took place:

~~On October 5, 2017, the Company purchased a group annuity to satisfy defined benefit obligations to a group~~Table of ~~its retirees. The transaction resulted in settlement charges of $377,000.~~Contents

Comparison of the Three Months Ended ~~September 30, 2017~~March 31, 2021 and ~~2016~~2020

Operations Overview:

Net income for the ~~third~~first quarter of ~~2017~~2021 was ~~$1,206,000, a decrease~~$1,635,000, an increase of ~~$241,000, or 16.7%,~~$597,000 when compared to the ~~third~~first quarter of ~~2016. The decrease was primarily due to the recognition of life insurance proceeds of $364,000 in the third quarter of 2016; no similar recognition occurred in the corresponding 2017 period.~~2020. Basic and diluted earnings per share were ~~$0.25~~$0.33 in the ~~third~~first quarter of ~~2017~~2021 compared to ~~$0.30~~basic and diluted earnings per share of $0.20 in the ~~third~~first quarter of ~~2016.~~ 2020.

Annualized return on average equity for the three months ended March 31, 2021 was 8.68%, compared to the return on average equity of 5.54% for the same period in 2020. For the three months ended March 31, annualized return on average assets was 0.82% in 2021, compared to 0.62% in 2020.

Presented below are selected key ratios for the two periods:


	Three Months Ended
	March 31,
	2021		2020
Return on average assets (annualized)	0.82	%	0.62	%
Return on average equity (annualized)	8.68	%	5.54	%
Average equity to average assets	9.48	%	11.28	%
Non-interest income, excluding gain/loss on sales and calls of securities and change in value of equity securities, as a percentage of average assets (annualized)	0.59	%	0.70	%
Non-interest expense as a percentage of average assets (annualized)	2.31	%	2.87	%

Three Months Ended
September 30,
2017 2016
Return on average assets (annualized) 0.81 % 1.02 %
Return on average equity (annualized) 8.00 % 9.35 %
Average equity to average assets 10.10 % 10.87 %

Non-interest income, excluding securities gains, as a percentage of average assets (annualized) 0.82 % 1.10 %

Non-interest expense as a percentage of average assets (annualized) 2.97 % 3.04 %

The discussion that follows further explains changes in the components of net income when comparing the ~~third~~first quarter of ~~2017~~2021 with the ~~third~~first quarter of ~~2016.~~2020.

Net Interest Income:

Net interest income, after the provision for loan losses, was ~~$4,705,000~~$5,022,000 during the three months ended March 31, 2021 when compared to $4,645,000 during the three months ended March 31, 2020. A $79,000 loan loss provision credit was recorded for the ~~third~~three months ended March 31, 2021 while a $356,000 loan loss provision expense was recorded for the three months ended March 31, 2020, a decrease of $435,000 between periods. The decline was mainly the result of continued improvement in asset quality and net recoveries. Total interest income decreased by $303,000 during the first quarter of ~~2017, as~~2021 compared to ~~$4,488,000 in~~ the same ~~quarter~~period in ~~2016.~~ 2020, while total interest expense decreased by $245,000.

Overall, average earning assets increased ~~5.6%~~21.5%, while average interest bearing liabilities increased ~~7.0%~~21.8%. ~~Net~~The net interest margin, on a fully tax equivalent basis, ~~declined 3 basis points~~decreased from 3.32% during the three months ended ~~September 30, 2017~~March 31, 2020 to 2.71% during the three months ended March 31, 2021.

Average loan balances increased by $39,555,000, while interest on loans declined by $101,000 during for the first quarter of 2021 compared to the same period in ~~2016.~~

~~Average loan balances increased by $11,565,000, or 3.1%, and interest on loans was $251,000 higher in the third quarter of 2017 compared to the same period in 2016.~~2020. The increase in the average volume of loans outstanding ~~and the 13 basis point increase in the weighted average yield on loans~~ increased interest income by ~~approximately $144,000 and $107,000, respectively.~~

~~Interest earned on investment securities increased $151,000 in~~$495,000, while the ~~third quarter of 2017 as compared to the third quarter of 2016. The overall pre-tax~~ yield on ~~the investment securities portfolio increased during the period by 16 basis points, adding $67,000 to~~loans decreased interest income ~~while the~~by $596,000.

The average balance of investment securities increased $88,521,000, while interest earned on investment securities declined by ~~$17.8 million, adding $84,000~~$152,000 in the first quarter of 2021 compared to the first quarter of 2020. The increase in average balance on investment securities during the period increased interest ~~income.~~income by $519,000, while the decline in yield on investment securities decreased interest income by $671,000.

~~Total average~~Table of Contents

Average earning assets increased $130,928,000, to $740,892,000, when comparing the three months ended March 31, 2021 to the three months ended March 31, 2020 due to a 43.3% increase in average investment securities, as well as a 10.1% increase in average loans. The yield on earning assets declined to 3.15% during the ~~third quarter of 2017 were $548.3 million, compared to $519.1 million~~three months ended March 31, 2021 from 4.02% during the ~~third quarter~~same period in 2020. The average balance of ~~2016, yielding 3.98% and 3.89%, respectively. Average~~ interest bearing liabilities increased over the period by ~~$27.6 million,~~$97,684,000 compared to the same 2020 period, while ~~average non-interest bearing deposits increased by $1.6 million. The~~the cost to fund interest ~~earning~~bearing assets with interest bearing liabilities ~~increased by 15~~decreased 36 basis points, to ~~0.71%, in~~0.65% during the ~~third~~first quarter of ~~2017~~2021 compared to the ~~third~~same period in 2020. The yields on earning assets and cost of funds were affected by changes in interest rates between the first quarter of ~~2016.~~2021 and the first quarter of 2020.

~~Net~~43

Table of Contents

The table below shows the net interest margin on a fully tax-equivalent basis for the ~~third quarter of 2017 was 3.56%, while it was 3.59% for the same period in 2016.~~three months ended March 31, 2021 and 2020.

Average Balance Sheets and Net Interest Income Analysis


	Three Months Ended						Three Months Ended
(Dollars in thousands)	March 31, 2021						March 31, 2020						Increase (Decrease) Due To (6)
	Average				Yield/		Average				Yield/
	Balance(1)		Interest		Rate		Balance(1)		Interest		Rate		Volume		Rate		Total
ASSETS
Interest earning assets:
Taxable loans (5)	$	398,664	$	4,543	4.56	%	$	361,850	$	4,651	5.14	%	$	473	$	(581)	$	(108)
Tax-exempt loans		31,404		234	2.98			28,663		227	3.17			22		(15)		7
Total loans		430,068		4,777	4.44			390,513		4,878	5.00			495		(596)		(101)
Taxable investment securities		286,778		1,006	1.40			200,322		1,173	2.34			508		(675)		(167)
Tax-exempt investment securities		6,302		38	2.41			4,237		23	2.17			11		4		15
Total investment securities		293,080		1,044	1.42			204,559		1,196	2.34			519		(671)		(152)

Interest bearing deposits		10,855		5	0.19			9,419		42	1.78			6		(43)		(37)
Federal funds sold		6,889		0	0.02			5,473		13	0.95			3		(16)		(13)
Total interest earning assets		740,892		5,826	3.15			609,964		6,129	4.02			1,023		(1,326)		(303)

Other assets (7)		53,987						54,438
Total assets	$	794,879					$	664,402

LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest bearing liabilities:
Interest bearing demand deposits (2)	$	182,591		68	0.15		$	147,316		164	0.45		$	32	$	(128)	$	(96)
Savings deposits		129,408		16	0.05			98,916		25	0.10			8		(17)		(9)
Time deposits		153,161		535	1.40			150,980		641	1.70			16		(122)		(106)
Short-term and long-term borrowings and other interest bearing liabilities		80,676		264	1.31			50,940		298	2.34			273		(307)		(34)
Total interest bearing liabilities		545,836		883	0.65			448,152		1,128	1.01			329		(574)		(245)

Non-interest bearing liabilities:
Demand deposits		168,866						136,328
Other		4,825						4,977
Stockholders’ equity		75,352						74,945
Total liabilities and stockholders’ equity	$	794,879					$	664,402
Net interest income and net interest rate spread			$	4,943	2.50	%			$	5,001	3.01	%	$	694	$	(752)	$	(58)
Net interest margin on interest earning assets (3)					2.67	%					3.28	%
Net interest income and net interest margin - Tax equivalent basis (4)			$	5,016	2.71	%			$	5,067	3.32	%

Three Months Ended Three Months Ended
(Dollars in thousands) September 30, 2017 September 30, 2016
Average Yield/ Average Yield/ Increase (Decrease) Due To (6)
Balance (1) Interest Rate Balance (1) Interest Rate Volume Rate Total
ASSETS
Interest earning assets:
Taxable loans (5) $ 358,478 $ 4,381 4.89 % $ 348,305 $ 4,133 4.75 % $ 138 $ 110 $ 248
Tax-exempt loans 29,737 226 3.04 28,345 223 3.13 6 (3 ) 3
Total loans 388,215 4,607 4.75 376,650 4,356 4.62 144 107 251
Taxable investment securities 135,104 729 2.16 119,693 590 1.97 74 65 139
Tax-exempt investment securities 24,454 112 1.83 22,071 100 1.81 10 2 12
Total investment securities 159,558 841 2.11 141,764 690 1.95 84 67 151

Interest bearing deposits 530 9 6.79 657 3 1.82 (6 ) 12 6
Federal funds sold - - 65 - 0.61 - - -
Total interest earning assets 548,303 5,457 3.98 519,136 5,049 3.89 222 186 408

Other assets (7) 49,289 50,302
Total assets $ 597,592 $ 569,438

LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing liabilities:
Interest bearing demand deposits (2) $ 126,149 114 0.36 $ 123,629 68 0.22 $ 1 $ 45 $ 46
Savings deposits 100,323 26 0.10 97,861 24 0.10 1 1 2
Time deposits 140,859 421 1.20 138,913 369 1.06 (2 ) 54 52
Short-term and long-term borrowings and other interest bearing liabilities 55,653 191 1.37 34,983 100 1.14 73 18 91
Total interest bearing liabilities 422,984 752 0.71 395,386 561 0.56 73 118 191

Non-interest bearing liabilities:
Demand deposits 107,494 105,847
Other 6,787 6,583
Stockholders' equity 60,327 61,622
Total liabilities and stockholders' equity $ 597,592 $ 569,438
Net interest income and net interest rate spread $ 4,705 3.27 % $ 4,488 3.33 % $ 149 $ 68 $ 217
Net interest margin on interest earning assets (3) 3.43 % 3.46 %
Net interest income and net interest margin-Tax equivalent basis (4) $ 4,879 3.56 % $ 4,654 3.59 %

Notes:

~~1) Average balances were calculated using a daily average.~~

~~2) Includes interest-bearing demand and money market accounts.~~

~~3) Net margin on interest earning assets is net interest income divided by average interest earning assets.~~

4)
1) Average balances were calculated using a daily average.
2) Includes interest-bearing demand and money market accounts.
3) Net margin on interest earning assets is net interest income divided by average interest earning assets.
4) Interest on obligations of states and municipalities is not subject to federal income tax. In order to make the net yield comparable on a fully taxable basis, a tax equivalent adjustment is applied against the tax-exempt income utilizing a federal tax rate of 21%.
5) Non-accruing loans are included in the above table until they are charged off.
6) The change in interest due to rate and volume has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each.
7) Includes gross unrealized gains (losses) on securities available for sale.

Table of states and municipalities is not subject to federal income tax. In order to make the net yield comparable on a fully taxable basis, a tax equivalent adjustment is applied against the tax-exempt income utilizing a federal tax rate of 34%.Contents

~~5) Non-accruing loans are included in the above table until they are charged off.~~

~~6) The change in interest due to rate and volume has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each.~~

~~7) Includes gross unrealized gains (losses) on securities available for sale.~~

Provision for Loan Losses:

In the ~~third~~first quarter of ~~2017, the~~2021, a $79,000 loan loss provision ~~for loan losses~~credit was ~~$149,000, as~~recorded, compared to a provision expense of ~~$132,000~~$356,000 in the ~~third~~first quarter of ~~2016.~~2020. Based on an analysis of the allowance of loan losses as of March 31, 2021, the decreased provision was primarily the result of continued improvement in asset quality trends and net recoveries. Management regularly reviews the adequacy of the allowance for loan ~~loss reserve~~losses and makes assessments as to specific loan impairment, historical charge-off expectations, general economic conditions in the Bank’s market area, specific loan quality and other factors. Factors affecting the provision for loan losses were the increased loan balances considered in the analysis and credit concentrations. See the earlier discussion in the Financial Condition section, explaining the information used to determine the provision.

~~Non-interest Income:~~

~~Non-interest income in the third quarter of 2017 was $1,219,000 compared to $1,571,000 in the third quarter of 2016, representing a decrease of $352,000, or 22.4%.~~

Most significantly impacting the comparative third quarter periods was $364,000 in life insurance proceeds recognized in 2016. Excluding securities gains and life insurance proceeds, non-interest income in the third quarters of 2017 and 2016 were $1,217,000 and $1,201,000, respectively, reflecting a 1.3% increase in the 2017 period.

The Company originates mortgages to sell on the secondary market, while retaining the servicing rights; the Company has built a servicing portfolio of approximately $23.4 million as of September 30, 2017. The mortgage servicing right asset, as of September 30, 2017, was $223,000. Mortgage banking income is made up of origination and servicing fees collected from the buyer, origination points collected from the borrower and an adjustment to the fair value of the mortgage servicing rights asset. In the third quarter of 2017, mortgage banking income was $83,000, an increase of $42,000, or 102.4%, from the third quarter of 2016, due to increased mortgage activity.

Customer service fees decreased $43,000, or 9.1%, in the third quarter of 2017, and bank-owned life insurance decreased by $14,000, or 13.1%, compared to the third quarter of 2016. Offsetting these declines were increases in fees derived from loan and trust activity, which grew 32.8% and 15.5%, respectively. Less significant changes in non-interest income categories included slight changes in debit card fee income, income from unconsolidated subsidiary, and other miscellaneous income.

As a percentage of average assets, annualized non-interest income, exclusive of net gains on the sale of securities, was 0.82% in the third quarter of 2017 as compared to 1.10% in the third quarter of 2016. Excluding proceeds from life insurance, the ratio for the third quarter of 2016 was 0.84%

~~Non-interest Expense:~~

Total non-interest expense for the third quarter of 2017 was $4,442,000 which was $112,000, or 2.6%, higher than the third quarter of 2016. The increase was primarily due to the addition of $53,000 in amortization expense in the third quarter of 2017 related to an increase in the investment in a low-income housing community project and an increase of $57,000 in consulting fees and other costs to maintain employee benefits. Foreclosure costs also increased in the three months ended September 30, 2017 over the comparable 2016 period by $16,000.

Noninterest expense decreases in the third quarter of 2017 were recorded in data processing expense, which was $53,000, or 10.8%, less than the third quarter of 2016, with the loss on the sales of foreclosed properties also decreasing by $31,000, or 62.0%, in the 2017 period in comparison to the 2016 period.

~~As a percentage of average assets, annualized non-interest expense was 2.97% in the third quarter of 2017 compared to 3.04% in the third quarter of 2016.~~

~~Provision for income taxes:~~

Income tax expense in the third quarter of 2017 was $127,000 as compared to the $150,000 recorded in the third quarter of 2016. The Company qualifies for a federal tax credit for a low-income housing project investment, and the tax provisions for each period reflect the application of the tax credit. For the third quarter of 2017, the tax credit of $198,000 lowered the effective tax rate from 24.4% to 9.5%. In the third quarter of 2016, the tax credit of $143,000 lowered the effective tax rate from 18.3% to 9.4%.

~~Comparison of the Nine Months Ended September 30, 2017 and 2016~~

~~Operations Overview:~~

Net income for the nine months ended September 30, 2017 was $3,959,000, an increase of $105,000, or 2.7%, compared to the nine months ended September 30, 2016. Basic and diluted earnings per share were $0.83 in the first nine months of 2017, representing an increase of 3.8% from the $0.80 per share earned in the first nine months of 2016. Annualized return on average equity for the first nine months in 2017 was 8.81%, compared to 8.38% for the same period in the prior year, an increase of 5.1%. For the nine months ended September 30, annualized return on average assets was 0.89% in both 2017 and 2016.

~~Presented below are selected key ratios for the two periods:~~

Nine Months Ended
September 30,
2017 2016
Return on average assets (annualized) 0.89 % 0.89 %
Return on average equity (annualized) 8.81 % 8.38 %
Average equity to average assets 10.11 % 10.67 %

Non-interest income, excluding securities gains, as a percentage of average assets (annualized) 0.81 % 0.92 %

Non-interest expense as a percentage of average assets (annualized) 2.91 % 3.01 %

~~The discussion that follows explains changes in the components of net income when comparing the first nine months of 2017 with the first nine months of 2016.~~

~~Net Interest Income:~~

Net interest income was $13,898,000 for the first nine months of 2017, as compared to $13,648,000 for the same period in 2016, an increase of $250,000, or 1.8%. Average earning assets increased by $18.9 million, or 3.6%, while average interest bearing liabilities increased by $16.3 million, or 4.0%. Net interest margin on a fully tax-equivalent basis declined 6 basis points during the nine months ended September 30, 2017 compared to the same period in 2016.

On average, loans outstanding increased by $7.8 million, or 2.1%. Interest on loans increased $336,000, or 2.6%, in the first nine months of 2017 compared to the same period in 2016. The higher volume and weighted average yield on loans increased interest income by $125,000 and $211,000, respectively..

Interest earned on investment securities increased $323,000 in the first nine months of 2017 compared to 2016, with average balances increasing $12.4 million during the period. The overall pre-tax yield on the investment securities portfolio increased during the period by 12 basis points.

Average interest-bearing liabilities increased by $16.3 million, while average noninterest bearing deposits increased $1.1 million during the nine months ended September 30, 2017. The cost of interest bearing liabilities rose 10 basis points as a result of increases in the federal funds borrowing rate in the current period.

Total average earning assets during the first nine months of 2017 were $545.0 million, compared to $526.0 million during the first nine months of 2016, yielding 3.91% in 2017 and 3.88% in the 2016 period. Interest bearing funding costs for earning assets were 0.66% and 0.56% for the first nine months of 2017 and 2016, respectively. Net interest margin on a fully tax-equivalent basis for the first nine months of 2017 was 3.53%. For the same period in 2016, the fully-tax equivalent net interest margin was 3.59%.

~~Average Balance Sheets and Net Interest Income Analysis~~

Nine Months Ended Nine Months Ended
(Dollars in thousands) September 30, 2017 September 30, 2016
Average Yield/ Average Yield/ Increase (Decrease) Due To (6)
Balance (1) Interest Rate Balance (1) Interest Rate Volume Rate Total
ASSETS
Interest earning assets:
Taxable loans (5) $ 354,753 $ 12,798 4.81 % $ 347,183 $ 12,479 4.79 % $ 133 $ 186 $ 319
Tax-exempt loans 30,870 693 2.99 30,671 676 2.94 (8 ) 25 17
Total loans 385,623 13,491 4.66 377,854 13,155 4.64 125 211 336
Taxable investment securities 133,694 2,128 2.12 122,526 1,831 1.99 110 187 297
Tax-exempt investment securities 25,093 340 1.81 23,869 314 1.75 10 16 26
Total investment securities 158,787 2,468 2.07 146,395 2,145 1.95 120 203 323

Interest bearing deposits 556 20 4.80 884 10 1.51 (5 ) 15 10
Federal funds sold - - 902 3 0.44 (1 ) (2 ) (3 )
Total interest earning assets 544,966 15,979 3.91 526,035 15,313 3.88 239 427 666

Other assets (7) 47,949 48,336
Total assets $ 592,915 $ 574,371

LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest bearing liabilities:
Interest bearing demand deposits (2) $ 123,580 281 0.30 $ 121,858 186 0.20 $ 1 $ 94 $ 95
Savings deposits 99,502 74 0.10 97,415 78 0.11 1 (5 ) (4 )
Time deposits 139,343 1,200 1.15 139,966 1,086 1.04 (14 ) 128 114
Short-term and long-term borrowings and other interest bearing liabilities 57,087 526 1.23 41,375 315 1.02 71 140 211
Total interest bearing liabilities 419,512 2,081 0.66 403,257 1,665 0.56 59 357 416

Non-interest bearing liabilities:
Demand deposits 107,136 106,042
Other 6,340 6,410
Stockholders' equity 59,927 61,305
Total liabilities and stockholders' equity $ 592,915 $ 574,371
Net interest income and net interest rate spread $ 13,898 3.25 % $ 13,648 3.32 % $ 180 $ 70 $ 250
Net interest margin on interest earning assets (3) 3.40 % 3.46 %
Net interest income and net interest margin-Tax equivalent basis (4) $ 14,430 3.53 % $ 14,158 3.59 %

~~Notes:~~

~~1) Average balances were calculated using a daily average.~~

~~2) Includes interest-bearing demand and money market accounts.~~

~~3) Net margin on interest earning assets is net interest income divided by average interest earning assets.~~

4) Interest on obligations of states and municipalities is not subject to federal income tax. In order to make the net yield comparable on a fully taxable basis, a tax equivalent adjustment is applied against the tax-exempt income utilizing a federal tax rate of 34%.

~~5) Non-accruing loans are included in the above table until they are charged off.~~

~~6) The change in interest due to rate and volume has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each.~~

~~7) Includes gross unrealized gains (losses) on securities available for sale.~~

~~Provision for Loan Losses:~~

In the first nine months of 2017, the provision for loan losses was $389,000, as compared to a provision of $366,000 in the first nine months of 2016. Management regularly reviews the adequacy of the loan loss reserve and makes assessments as to specific loan impairment, historical charge-off expectations, general economic conditions in the Bank’s market area, specific loan quality and other factors. See the earlier discussion in the Financial Condition section explaining the information used to determine the provision.

Non-interest Income:

Non-interest income in the first ~~nine months~~quarter of ~~2017~~2021 was ~~$4,091,000, a decrease of $4,000, or 0.1%,~~$1,272,000 compared to ~~$4,095,000~~$994,000 in the first ~~nine months~~quarter of ~~2016. Significantly~~2021, an increase of $278,000, or 28.0%.

Most significantly impacting non-interest income ~~comparisons between the two periods were securities gains of $510,000 from an executed tax strategy~~ during the ~~first nine months~~comparative three month periods was the increase in the value of ~~2017 and gains on~~equity securities ~~and loans~~ of ~~$134,000 and $113,000, respectively, during the same period in 2016. Also significantly impacting the nine month comparison was a gain on life insurance proceeds of $364,000 recorded~~$93,000 in the first ~~nine months~~quarter of ~~2016; no similar recognition occurred~~2021 compared to a decrease in the ~~corresponding 2017 period. Excluding all gains, non-interest income~~value of equity securities of $172,000 in the first ~~nine months~~quarter of ~~2017 was $3,581,000,~~2020, as well as an $89,000 increase ~~over the same period~~ in ~~2016 by $97,000, or 2.8%.~~

~~Mortgage banking income increased $64,000, or 60.4%, during the nine months ended September 30, 2017 compared to same period in 2016. Debit~~debit card fee ~~income also increased over the same period in 2016, increasing $55,000, or 7.2%, during the first nine months of 2017 compared to the same period in 2016.~~income. Partially offsetting these increases ~~were lower volumes of sales of non-deposit products resulting in~~was a $90,000 decline ~~in commission income in of $41,000, or 22.7%, during the first nine months of 2017. Less significant changes in non-interest income categories included slight changes~~ in customer service fees earnings on bank-owned life insurance, trust fees, income from unconsolidated subsidiary, fees derived from loan activity, and other non-interest income, combining for an increase in non-interest income of $19,000 in the first ~~nine months~~quarter of ~~2017~~2021 compared to the ~~same time period in 2016.~~

comparable 2020 period.

As a percentage of average assets, annualized non-interest income ~~excluding all gains,~~ was ~~0.81%~~0.64% in the first ~~nine months~~quarter of ~~2017 and 2016.~~

~~Non-interest Expense:~~

~~Total non-interest expense was $12,940,000 for the first nine months of 2017, a $16,000, or 0.1%, decrease in comparison~~2021 compared to ~~the first nine months of 2016. Expenses of $372,000, related to the aforementioned FNBPA acquisition were recorded~~0.60% in the first ~~nine months~~quarter of ~~2016 while no such expenses were incurred~~2020. Excluding the gain/loss on sales and calls of securities and change in value of equity securities, the percentage of average assets to annualized non-interest income was 0.59% in the ~~2017 period. Excluding~~first quarter of 2021 compared to 0.70% in the ~~merger and acquisition expenses, non-interest~~first quarter of 2020.

Non-interest Expense:

Non-interest expense was $4,588,000 for the ~~first nine~~three months ~~of 2016 was $12,584,000, or 2.8%, less than~~ended March 31, 2021 compared to $4,760,000 for the ~~comparable~~same period in ~~2017. The increase~~2020, a decrease of $172,000, or 3.6%.

Non-interest expense decreased in ~~non-interest expense in 2017 was partially attributable to an increase in employee benefit expense~~the first quarter of ~~$103,000 relating to an increase in medical insurance claims year-to-date in 2017~~2021 compared to the same period in ~~2016, as well as an increase~~2020, primarily driven by a decline of ~~$53,000~~$183,000 in ~~amortization~~employee benefits expense ~~from~~due to lower medical claims expenses. Also contributing to the ~~increased investment~~decline in ~~a low-income housing community project. Other~~ non-interest expense ~~increased 18.8% during the nine months ended September 30, 2017 compared to the same period in 2016. Contributing to this increase~~between periods was ~~an increase in electronic banking losses of $85,000 primarily due to fraudulent debit card transactions and increased consulting fees. Other significant variances~~a $49,000 gain on other real estate owned recorded in the first ~~nine months~~quarter of ~~2017 versus~~2021 while no gain was reported in the ~~same period in 2016 included an increase in net gains on sales of foreclosed properties of $82,000 and~~comparable 2020, as well a $45,000 decrease in ~~FDIC premiums~~equipment expense. Partially offsetting these declines during the three months ended March 31, 2021 compared to the comparative 2020 period was an $82,000 increase in data processing expense, predominantly due to ~~improved asset quality.~~

expenses associated with Juniata’s new online deposit account opening platform launched in the fourth quarter of 2020.

As a percentage of average assets, annualized non-interest expense was ~~2.91%~~2.31% in the first ~~nine months~~quarter of ~~2017~~2021 compared to ~~3.01%~~2.87% in the first ~~nine months~~quarter of ~~2016. Excluding merger and acquisition expenses, annualized non-interest~~2020.

Provision for income taxes:

Income tax expense ~~as a percentage~~ of ~~average assets~~$71,000 was ~~2.92%~~recorded in the first ~~nine months~~quarter of ~~2016.~~

~~Provision for~~2021 compared to an income ~~taxes:~~

~~Income~~tax benefit of $159,000 recorded in the first quarter of 2020, primarily due to higher taxable income recorded in the 2021 period. Additionally, under the provisions of the CARES Act, the Company recorded a tax refund in excess of its deferred tax carrying value, resulting in a $57,000 credit to income tax expense in the first ~~nine months~~quarter of ~~2017 was $701,000 as compared to the $567,000 recorded in the first nine months of 2016.~~ 2020.

The Company qualifies for a federal tax credit for ~~its~~a low-income housing project investment, and the tax provisions for each period reflect the application of the tax credit. ~~The~~For the first quarters of 2021 and 2020, the tax ~~credit recorded~~credits were $225,000 in each of the ~~first nine months~~ periods, ~~of 2017~~offsetting $296,000 and ~~2016 was $484,000 and $429,000, respectively, offsetting $1,185,000~~$66,000 in ~~regular~~ tax expense in the ~~2017 period~~first quarter of 2021 and ~~$996,000~~the first quarter of ~~regular tax expense in the 2016 period.~~

Table of Contents

2020, respectively. For the first ~~nine months~~quarter of ~~2017,~~2021, the tax credit lowered the effective tax rate from ~~25.4%~~17.4% to ~~15.0% as~~4.2% compared to the same period in ~~2016, in which~~2020, when the tax credit lowered the effective tax rate from ~~22.5%~~7.5% to ~~12.8%~~(18.1)%.

Liquidity:

The objective of liquidity management is to ensure that sufficient funding is available, at a reasonable cost, to meet the ongoing operational cash needs of the Company and to take advantage of income producing opportunities as they arise. While the desired level of liquidity will vary depending upon a variety of factors, it is the primary goal of the Company to maintain a high level of liquidity in all economic environments. Principal sources of asset liquidity are provided by loans and securities maturing in one year or less, and other short-term investments, such as federal funds sold and cash and due from banks. Liability liquidity, which is more difficult to measure, can be met by attracting deposits and maintaining the core deposit base. The Company is a member of the Federal Home Loan Bank of Pittsburgh for the purpose of providing short-term liquidity when other sources are unable to fill these needs. During the ~~first nine~~three months ~~of 2017,~~ended March 31, 2021, the Company did not borrow overnight borrowings from the Federal Home Loan ~~Bank averaged $26,067,000.~~Bank. As of ~~September 30, 2017,~~March 31, 2021, the Company also had no short-term borrowings, ~~and~~but had $35,000,000 in long-term debt with the Federal Home Loan Bank ~~of $27,500,000 and $25,000,000, respectively, and had~~with a remaining unused borrowing capacity with the Federal Home Loan Bank of ~~$110.6 million.~~

$110,691,000.

Funding derived from securities sold under agreements to repurchase (accounted for as collateralized financing transactions) is available through corporate cash management accounts for business customers. This product gives the Company the ability to pay interest on corporate checking accounts.

In view of the sources previously mentioned, management believes that the ~~Company's~~Company’s liquidity is capable of providing the funds needed to meet operational cash ~~needs.~~needs, including the cash needs arising from funding of PPP loans.

Off-Balance Sheet Arrangements:

The Company’s consolidated financial statements do not reflect various off-balance sheet arrangements that are made in the normal course of business, which may involve some liquidity risk, credit risk, and interest rate risk. These commitments consist mainly of loans approved but not yet funded, unused lines of credit and outstanding letters of credit. Letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third-party. Generally, financial and performance letters of credit have expiration dates within one year of issuance, while commercial letters of credit have longer term commitments. The credit risk involved in issuing letters of credit is essentially the same as the risks that are involved in extending loan facilities to customers. The Company generally holds collateral and/or personal guarantees supporting these commitments. The Company had ~~$2,097,000~~$3,991,000 and ~~$2,300,000~~$2,371,000 of financial and performance letters of credit commitments outstanding as of ~~September 30, 2017~~March 31, 2021 and December 31, ~~2016,~~2020, respectively. Commercial letters of credit as of ~~September 30, 2017~~March 31, 2021 and December 31, ~~2016~~2020 totaled ~~$12,650,000.~~$7,475,000 and $6,975,000, respectively. Management believes that the proceeds obtained through a liquidation of collateral and the enforcement of guarantees would be sufficient to cover the potential amount of future payments required under the corresponding guarantees. The current amount of the liability as of ~~September 30, 2017~~March 31, 2021 for payments under letters of credit issued was not material. Because these instruments have fixed maturity dates, and because many of them will expire without being drawn upon, they do not generally present any significant liquidity risk.

Additionally, the Company has ~~committed to fund and sell~~sold qualifying residential mortgage loans to the ~~Federal Home Loan Bank~~FHLB as part of ~~Pittsburgh~~its Mortgage Partnership Finance Program (“Program”). Under the terms of the Program, there is limited recourse back to the Company for loans that do not perform in accordance with the ~~total amount~~terms of ~~$10,000,000. As of September 30, 2017, $5,788,000 remained~~the loan agreement. Each loan sold under the Program is “credit enhanced” such that the individual loan’s rating is raised to “BBB”, as determined by the FHLB. The Program can be ~~delivered on that commitment, $140,000 of which has been committed to borrowers.~~

The Company is expected to act as a source of financial strength to its unconsolidated subsidiary (LCB). The Company believes that commitment is not reasonably likely to have a material effect on its liquidityterminated by either the FHLB or the ~~availability~~Company, without cause. The FHLB has no obligation to commit to purchase any mortgage through, or from, the Company.

Table of ~~capital resources.~~Contents

Interest Rate Sensitivity:

Interest rate sensitivity management is overseen by the Asset/Liability Management Committee. This process involves the development and implementation of strategies to maximize net interest margin, while minimizing the earnings risk associated with changing interest rates. Traditional gap analysis identifies the maturity and re-pricing terms of all assets and liabilities. A simulation analysis is used to assess earnings and capital at risk from movements in interest rates. ~~See Item 3 for a description of the complete simulation process and results.~~

Capital Adequacy:

Bank regulatory authorities in the United States issue risk-based capital standards. These capital standards relate a banking company’s capital to the risk profile of its assets and provide the basis by which all banking companies and banks are evaluated in terms of capital adequacy. ~~Effective~~

In September 2019, the FDIC finalized a rule to simplify the capital calculation for qualifying community banking organizations (i.e., the community bank leverage ratio (“CBLR framework”)), as required by the Economic Growth, Regulatory Relief and Consumer Protection Act. The CBLR framework was effective on January 1, ~~2015,~~2020 and is designed to reduce the burden of calculating a risk-based capital ~~rules were modified subject~~ratio by removing the requirements for calculating and reporting risk-based capital ratios for qualifying community banking organizations that opt into the framework. Qualifying banking organizations that elect to use the CBLR framework and maintain a ~~transition period for several aspects~~leverage ratio of greater than required minimums will be considered to have satisfied the final rules, including the new minimum capital ratio requirements, the capital conservation buffer and the regulatory capital adjustments and deductions. The new framework is commonly called “BASEL III”. The final rules revised federal regulatory agencies’generally applicable risk-based and leverage capital requirements in the agencies’ capital rules and, ~~their method~~if applicable, will be considered to have met the well-capitalized ratio requirements for ~~calculating risk-weighted assets~~purposes of Section 38 of the Federal Deposit Insurance Act. Under the interim final rules, the community bank leverage ratio minimum requirement is 8.5% for calendar year 2021 and 9.0% for calendar year 2022 and beyond. The interim rule allows for a two-quarter grace period to ~~make them consistent with~~correct a ratio that falls below the required amount, provided the Bank maintains a leverage ratio of 7.5% for calendar year 2021 and 8.0% for calendar year 2022 and beyond.

Under the final rule, an eligible banking organization can opt out of the CBLR framework and revert back to the risk-weighting framework without restriction. As of March 31, 2021, the Bank was a qualifying community banking organization as defined by the federal banking agencies and elected to measure capital adequacy under the CBLR framework. The Bank’s Tier One leverage ratio was 8.3% on March 31, 2021; and therefore, did not meet the minimum requirement of 8.5%, but does qualify for the two-quarter grace period allowed to correct the ratio. In the event an organization fails to meet the CBLR framework requirements following the two-quarter grace period, it will become subject to the Basel III ~~framework.~~ capital requirements, described below.

The final rules apply to all depository institutions, top-tier bank holding companies with total consolidated assets of $500 million or more, and top-tier savings and loan holding companies (“banking organizations”). Among other things, the rules established a new common equity tier 1 (CET1) minimum capital requirement (4.5% of risk-weighted assets) and a higher minimum tier 1 capital requirement (from 4.0% to 6.0% of risk-weighted assets), and assign higher risk weightings (150%) to exposures that are more than 90 days past due or are on nonaccrual status and certain commercial real estate facilities that finance the acquisition, development or construction of real property.

Basel III ~~requires~~risk-based capital standards require financial institutions to maintain: (a) a minimum ratio of ~~CET1~~common equity tier 1 (“CET1”) to risk-weighted assets of at least 4.5%, plus a 2.5% “capital conservation buffer” (which is added to the 4.5% CET1 ratio as that buffer is phased in, effectively resulting in a minimum ratio of CET1 to risk-weighted assets of at least 7.0%); (b) a minimum ratio of tier 1 capital to risk-weighted assets of at least 6.0%, plus the capital conservation buffer (which is added to the 6.0% tier 1 capital ratio as that buffer is phased in, effectively resulting in a minimum tier 1 capital ratio of 8.5% upon full implementation); (c) a minimum ratio of total (that is, tier 1 plus tier 2) capital to risk-weighted assets of at least 8.0%, plus the capital conservation buffer (which is added to the 8.0% total capital ratio as that buffer is phased in, effectively resulting in a minimum total capital ratio of 10.5% upon full implementation)); and (d) a minimum leverage ratio of 3.0%, calculated as the ratio of tier 1 capital balance sheet exposures plus certain off-balance sheet exposures (computed as the average for each quarter of the month-end ratios for the quarter). In addition, the ~~proposed~~ rules also limit a banking organization’s capital distributions and certain discretionary bonus payments if the banking organization does not hold a “capital conservation buffer”. of 2.5% above the minimum standards stated in (a) - (c) above.

~~According~~The CARES Act requires banking organizations to apply a zero percent risk weight to PPP covered loans for risk-based capital requirement purposes. In addition, because of the non-recourse nature of the Federal Reserve's extension of credit to the ~~rules, CET1~~banking organization, the banking organization is comprised of common stock plus related surplus, net of treasury stock and other contra-equity components, retained earnings and accumulated other comprehensive income. However, certain banking institutions, including the Bank, were permittednot exposed to ~~make a one-time election to opt out of the requirement to include most components of AOCI in CET1. This opt-out option was available only until March 31, 2015. The Bank elected to opt-out.~~

At September 30, 2017, the Bank exceeded the regulatory requirements to be considered a "well capitalized" financial institution under the new rules. The Bank’s CET1 and Tier 1 Capital ratio was 12.44%, its Total Capital ratio was 13.20% and its Tier 1 leverage was 8.34%. On a consolidated basis, the Company’s CET1 and Tier 1 Capital ratio was 14.16%, and Total Capital ratio and Tier 1 leverage ratio was 14.93% and 9.51%, respectively.

~~Item 3. Quantitative and Qualitative Disclosures About Market Risk~~

~~Market risk is the exposure to economic loss that arises from changes in the values of certain financial instruments. The types of~~credit or market risk ~~exposures generally faced by financial institutions include equity market price risk, interest rate risk, foreign currency risk and commodity price risk. Due to~~from the ~~nature~~pledged PPP covered loans. Therefore, pledged PPP covered loans are excluded from the banking organization's regulatory capital.

Table of ~~its operations, only equity market price risk and interest rate risk are significant to the Company.~~Contents

Equity market price risk is the risk that changes in the values of equity investments could have a material impact on the financial position or results of operations of the Company. The Company’s equity investments consist of common stocks of publicly traded financial institutions.

There can be volatility in the values of financial institution stocks, but the primary objective of the portfolio is to achieve value appreciation in the long term while earning consistently attractive after-tax yields from dividends. The carrying value of the financial institutions stocks accounted for 0.2% of the Company’s total assets as of September 30, 2017. Management performs an impairment analysis on the entire investment portfolio, including the financial institutions stocks, on a quarterly basis. For the nine months ended September 30, 2017, no “other-than-temporary” impairment was identified. There is no assurance that declines in market values of the common stock portfolio in the future will not result in “other-than-temporary” impairment charges, depending upon facts and circumstances present.

The equity investments in the Company’s portfolio had a cost basis of approximately $1,000,000 and a fair value of $1,287,000 at September 30, 2017. Net unrealized gains in this portfolio were approximately $287,000 at September 30, 2017.

In addition to its equity portfolio, the Company’s investment management and trust services revenue could be impacted by fluctuations in the securities markets. A portion of the Company’s trust revenue is based on the value of the underlying investment portfolios. If securities values decline, the Company’s trust revenue could be negatively impacted.

Interest rate risk creates exposure in two primary areas. First, changes in rates have an impact on the Company’s liquidity position and could affect its ability to meet obligations and continue to grow. Second, movements in interest rates can create fluctuations in the Company’s net interest income and changes in the economic value of equity.

The primary objective of the Company’s asset-liability management process is to maximize current and future net interest income within acceptable levels of interest rate risk while satisfying liquidity and capital requirements. Management recognizes that a certain amount of interest rate risk is inherent, appropriate and necessary to ensure profitability. A simulation analysis is used to assess earnings and capital at risk from movements in interest rates. The model considers three major factors: (1) volume differences; (2) repricing differences; and (3) timing in its income simulation. As of the most recent model run, data was disseminated into appropriate repricing buckets, based upon the static position at that time. The interest-earning assets and interest-bearing liabilities were assigned a multiplier to simulate how much that particular balance sheet item would re-price when interest rates change. Finally, the estimated timing effect of rate changes is applied, and the net interest income effect is determined on a static basis (as if no other factors were present). As the table below indicates, based upon rate shock simulations on a static basis over a one-year period, the net effect of an immediate 100, 200, 300 and 400 basis point rate increase would change net interest income by ($63,000), ($322,000), ($969,000) and ($2,092,000), respectively. The net effect of an immediate 100, 200, 300, and 400 basis point rate decline would change net interest income by ($277), ($121), ($225), and ($348), respectively. The existence of rate floors on variable rate loans aid in mitigating against large fluctuations in the change in net interest income in a decreasing rate environment.

Effect of Interest Rate Risk on Net Interest Income
(Dollars in thousands)
Change in Interest Rates (Basis Points) Total Change in Net Interest Income

400 $ (2,092 )
300 (969 )
200 (322 )
100 (63 )
0 -
(100) (277 )
(200) (121 )
(300) (225 )
(400) (348 )

The Company’s rate risk policies provide for maximum limits on net interest income that can be at risk for 100 through 400 basis point changes in interest rates. The net interest income at risk position remained within the guidelines established by the Company’s asset/liability policy.

~~No material change has been noted in the Bank’s equity value at risk. Please refer to the Annual Report on Form 10-K as of December 31, 2016 for further discussion of this topic.~~

Item 4. Controls and Procedures

Disclosure Controls and Procedures

As of ~~September 30, 2017,~~March 31, 2021, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as defined by the Securities Exchange Act of 1934 (“Exchange Act”), Rule 13a-15(e). Disclosure controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed in Company reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. These controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Based upon 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 the end of the period covered by this quarterly report.

It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system are met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Because of these and other inherent limitations of control systems, there can be no assurance that any design will succeed in achieving its stated goals under all potential conditions, regardless of how remote.

Attached as Exhibits 31 and 32 to this quarterly report are certifications of the Chief Executive Officer and the Chief Financial Officer required by Rule 13a-14(a) and Rule 15d-14(a) of the Exchange Act. This portion of the Company’s quarterly report includes the information concerning the controls evaluation referred to in the certifications and should be read in conjunction with the certifications for a more complete understanding of the topics presented.

Changes in Internal Control Over Financial Reporting

There were no significant changes in the Company’s internal control over financial reporting during the fiscal quarter ended ~~September 30, 2017,~~March 31, 2021, that has materially affected, or is reasonably likely to materially affect, the internal controls over financial reporting.

Table of Contents

PART II - OTHER INFORMATION

~~Item 1.~~

~~LEGAL PROCEEDINGS~~

Item 1. LEGAL PROCEEDINGS

In the opinion of management of the Company, there are no legal or governmental proceedings pending to which the Company or its subsidiary is a party or to which its property is subject, which, if determined adversely to the Company or its subsidiary, would be material in relation to the Company’s or its subsidiary’s financial condition. There are no proceedings pending other than ordinary routine litigation incident to the business of the Company or its subsidiary. In addition, no material proceedings are pending or are known to be threatened or contemplated against the Company or its subsidiary by government authorities.

~~Item 1A.~~

~~RISK FACTORS~~

Item 1A. RISK FACTORS

There have been no other material changes to the risk factors that were disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2020.

~~Item 2.~~

~~UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS~~

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The Company ~~has an active~~periodically repurchases shares of its common stock under the share repurchase program ~~in place, to which there is no expiration date.~~approved by the Board of Directors. In December of 2016, the Board of Directors authorized the repurchase of an additional 200,000 shares of its common stock through its share repurchase program. The program will remain authorized until all approved shares are repurchased, unless terminated by the Board of Directors. As of ~~November 9, 2017, the number of~~May 14, 2021, 32,404 shares remained available to purchase under that ~~may yet be purchased under the program was 173,990.~~program. Transactions pursuant to the repurchase program in the three month period ended ~~September 30, 2017~~March 31, 2021 are shown below.


				Total Number of
				Shares Purchased as	Maximum Number of
	Total Number	Average		Part of Publicly	Shares that May Yet Be
	of Shares	Price Paid		Announced Plans or	Purchased Under the
Period	Purchased	per Share		Programs	Plans or Programs (1)
January 1-31, 2021	—	$	—	—	59,989
February 1-28, 2021	15,585		17.63	15,585	44,404
March 1-31, 2021	12,000		17.40	12,000	32,404

Totals	27,585			27,585	32,404

~~Total Number of~~

~~Shares Purchased as~~

~~Maximum Number of~~

~~Total Number~~

~~Average~~

~~Part of Publicly~~

~~Shares that May Yet Be~~

~~of Shares~~

~~Price Paid~~

~~Announced Plans or~~

~~Purchased Under the~~

~~Period~~

~~Purchased~~

~~per Share~~

~~Programs~~

~~Plans or Programs (1)~~

~~July 1-31, 2017~~

~~173,990~~

~~August 1-31, 2017~~

~~173,990~~

~~September 1-30, 2017~~

~~173,990~~

~~Totals~~

~~173,990~~

No repurchase plan or program expired during the quarter. The Company has no stock repurchase plan or program that it has determined to terminate prior to expiration or under which it does not intend to make further purchases.

Certain regulatory restrictions exist regarding the ability of the Bank to transfer funds to the Company in the form of cash dividends, loans or advances. At ~~September 30, 2017, $33,771,000~~March 31, 2021, $35,808,000 of undistributed earnings of the Bank, included in the consolidated stockholders’ equity, was available for distribution to the Company as dividends without prior regulatory approval, subject to regulatory capital requirements.

~~Item 3.~~

~~DEFAULTS UPON SENIOR SECURITIES~~

Item 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable

~~Item 4.~~

~~MINE SAFETY DISCLOSURES~~

Item 4. MINE SAFETY DISCLOSURES

Not applicable

~~Item 5.~~

~~OTHER INFORMATION~~

Table of Contents

Item 5. OTHER INFORMATION

None

Item 6. EXHIBITS

~~Item 6.~~

~~EXHIBITS~~

3.1		~~3.1 -~~ Amended and Restated Articles of Incorporation (incorporated by reference to Exhibit ~~3 (I)~~3(i) to the Company’s Current Report on Form 8-K ~~Current Report~~ filed with the SEC on November 12, 2015)
3.2
	~~3.2 –~~Amended and Restated Bylaws (incorporated by reference to Exhibit ~~3.2 to the Company’s report on Form 8-K filed with the SEC on December 21, 2007)~~

	~~3.3 - Bylaw Amendment – (incorporated by reference~~3.4 to the Company’s Current Report on Form 8-K filed with the SEC on February ~~28, 2012)~~27, 2019)
31.1
	~~31.1 -~~ Rule 13a – 14(a)/15d – 14(a) Certification of President and Chief Executive Officer
31.2
	~~31.2 -~~ Rule 13a – 14(a)/15d – 14(a) Certification of Chief Financial Officer
32.1
	~~32.1 -~~ Section 1350 Certification of President and Chief Executive Officer
32.2
	~~32.2 -~~ Section 1350 Certification of Chief Financial Officer
101.INS		XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH		Inline XBRL Taxonomy Extension Schema
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase
101.LAB -		Inline XBRL Taxonomy Extension Label Linkbase
101.PRE
	~~101.PRE -~~ Inline XBRL Taxonomy Extension Presentation Linkbase
101.DEF
	~~101.INS - XBRL Instance Document~~

	~~101.SCH - XBRL Taxonomy Extension Schema~~

	~~101.CAL - XBRL Taxonomy Extension Calculation Linkbase~~

	~~101.DEF -~~ Inline XBRL Taxonomy Extension Definition Linkbase

104

Cover Page Interactive Data File (embedded within the Inline XBRL document).

Table of Contents

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.


		Juniata Valley Financial Corp.
		(Registrant)

~~Date:~~	~~11-09-2017~~		~~By:~~
Date:	MAY 14, 2021	By:	/s/ Marcie A. Barber
				Marcie A. Barber, President
				Chief Executive Officer
				(Principal Executive Officer)

Date:	~~11-09-2017~~ May 14, 2021	By:	~~By:~~	/s/ JoAnn N. McMinn
				JoAnn N. McMinn
				Chief Financial Officer
				(Principal Accounting Officer and
				Principal Financial Officer)


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT 1934

For the quarterly period ended March 31, 2021

OR

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the transition period from to
Commission File Number 000-13232
Juniata Valley Financial Corp.
(Exact name of registrant as specified in its charter)

~~Pennsylvania~~	~~23-2235254~~
Pennsylvania	23-2235254
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

Bridge and Main Streets, Mifflintown, Pennsylvania	17059
(Address of principal executive offices)	(Zip Code)


SecuritiesregisteredpursuanttoSection12(b)oftheAct:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
NONE	N/A	N/A

(~~717) 436-8211~~
(855) 582-5101
(Registrant’s telephone number, including area code)


Large accelerated filer ¨☐	Accelerated filer x☐
Non-accelerated filer¨ ~~(Do not check if a smaller reporting company)~~☒	Smaller reporting company ¨☒
	Emerging growth company ¨	☐

~~Class~~
Class		Outstanding as of ~~November 9, 2017~~May 14, 2021
Common Stock ($1.00 par value)		~~4,767,656~~ 5,006,695 shares


PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Statements of Financial ~~Conditionas~~Condition as of ~~September 30, 2017~~March 31, 2021 (Unaudited) and December 31, ~~2016~~2020	3

	Consolidated Statements of Income for the Three Months Ended March 31, 2021 and ~~NineMonths Ended September 30, 2017 and 2016~~2020 (Unaudited)	4

	Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2021 and ~~NineMonths Ended September 30, 2017 and 2016~~2020 (Unaudited)	5

	Consolidated Statements of Stockholders’ ~~Equityfor~~Equity for the ~~Nine~~Three Months Ended ~~September 30, 2017~~March 31, 2021 and ~~2016~~2020 (Unaudited)	6

	Consolidated Statements of Cash Flows for the ~~NineMonths~~Three Months Ended ~~September 30, 2017~~March 31, 2021 and ~~2016~~2020 (Unaudited)	7

	Notes to Consolidated Financial Statements (Unaudited)	8

Item 2.	Management’s Discussion and ~~Analysisof~~Analysis of Financial Condition and Results of Operations	37

Item 3.	~~Quantitative and Qualitative Disclosures about Market Risk~~ Not applicable.	47

Item 4.	Controls and Procedures	48

			PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	49

Item 1A.	Risk Factors	49

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	49

Item 3.	Defaults upon Senior Securities	50 49

Item 4.	Mine Safety Disclosures	50 49

Item 5.	Other Information	50

Item 6.	Exhibits	50

	Signatures	51

	(Unaudited)
(Dollars in thousands, except share data)	September 30,			December 31,
	2017			2016
ASSETS
Cash and due from banks	$	13,219		$	9,464
Interest bearing deposits with banks		133			95
Cash and cash equivalents		13,352			9,559

Interest bearing time deposits with banks		350			350
Securities available for sale		159,180			150,488
Restricted investment in Federal Home Loan Bank (FHLB) stock		3,616			3,610
Investment in unconsolidated subsidiary		4,820			4,703
Residential mortgage loans held for sale		117			-
Total loans		382,616			378,297
Less: Allowance for loan losses		(2,907	)		(2,723	)
Total loans, net of allowance for loan losses		379,709			375,574
Premises and equipment, net		6,695			6,857
Other real estate owned		576			638
Bank owned life insurance and annuities		14,898			14,631
Investment in low income housing partnership		5,319			3,812
Core deposit and other intangible		210			262
Goodwill		5,448			5,448
Mortgage servicing rights		223			205
Accrued interest receivable and other assets		5,409			4,217
Total assets	$	599,922		$	580,354

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest bearing	$	109,880		$	104,006
Interest bearing		363,703			351,816
Total deposits		473,583			455,822

Securities sold under agreements to repurchase		5,207			4,496
Short-term borrowings		27,500			27,700
Long-term debt		25,000			25,000
Other interest bearing liabilities		1,566			1,545
Accrued interest payable and other liabilities		6,618			6,701
Total liabilities		539,474			521,264
Stockholders' Equity:
Preferred stock, no par value: Authorized - 500,000 shares, none issued		-			-
Common stock, par value $1.00 per share: Authorized 20,000,000 shares
Issued -
4,811,611 shares at September 30, 2017;
4,805,000 shares at December 31, 2016
Outstanding -
4,767,656 shares at September 30, 2017;
4,755,630 shares at December 31, 2016		4,811			4,805
Surplus		18,548			18,476
Retained earnings		40,759			39,945
Accumulated other comprehensive loss		(2,839	)		(3,209	)
Cost of common stock in Treasury:
43,955 shares at September 30, 2017;
49,370 shares at December 31, 2016		(831	)		(927	)
Total stockholders' equity		60,448			59,090
Total liabilities and stockholders' equity	$	599,922		$	580,354

	Three Months Ended				Nine Months Ended
(Dollars in thousands, except share data)	September 30,				September 30,
	2017		2016		2017			2016
Interest income:
Loans, including fees	$	4,607	$	4,356	$	13,491		$	13,155
Taxable securities		729		590		2,128			1,831
Tax-exempt securities		112		100		340			314
Other interest income		9		3		20			13
Total interest income		5,457		5,049		15,979			15,313
Interest expense:
Deposits		561		461		1,555			1,350
Securities sold under agreements to repurchase		8		1		17			3
Short-term borrowings		80		5		212			49
Long-term debt		95		87		274			241
Other interest bearing liabilities		8		7		23			22
Total interest expense		752		561		2,081			1,665
Net interest income		4,705		4,488		13,898			13,648
Provision for loan losses		149		132		389			366
Net interest income after provision for loan losses		4,556		4,356		13,509			13,282
Non-interest income:
Customer service fees		428		471		1,302			1,279
Debit card fee income		274		264		824			769
Earnings on bank-owned life insurance and annuities		93		107		269			284
Trust fees		97		84		324			315
Commissions from sales of non-deposit products		43		43		140			181
Income from unconsolidated subsidiary		49		61		154			163
Fees derived from loan activity		77		58		181			175
Mortgage banking income		83		41		170			106
Gain on sales and calls of securities		2		6		510			134
Gain on sales of loans		-		-		-			113
Gain on life insurance proceeds		-		364		-			364
Other non-interest income		73		72		217			212
Total non-interest income		1,219		1,571		4,091			4,095
Non-interest expense:
Employee compensation expense		1,829		1,848		5,326			5,266
Employee benefits		567		564		1,802			1,699
Occupancy		291		278		878			847
Equipment		175		160		504			492
Data processing expense		440		493		1,318			1,358
Director compensation		60		59		183			176
Professional fees		148		130		431			405
Taxes, other than income		111		107		353			319
FDIC Insurance premiums		83		96		250			295
Loss (gain) on sales of other real estate owned		19		50		(26	)		56
Amortization of intangibles		17		26		52			86
Amortization of investment in low-income housing partnership		173		120		412			359
Merger and acquisition expense		-		-		-			372
Other non-interest expense		529		399		1,457			1,226
Total non-interest expense		4,442		4,330		12,940			12,956
Income before income taxes		1,333		1,597		4,660			4,421
Income tax provision		127		150		701			567
Net income	$	1,206	$	1,447	$	3,959		$	3,854
Earnings per share
Basic	$	0.25	$	0.30	$	0.83		$	0.80
Diluted	$	0.25	$	0.30	$	0.83		$	0.80
Cash dividends declared per share	$	0.22	$	0.22	$	0.66		$	0.66
Weighted average basic shares outstanding		4,767,656		4,804,000		4,764,325			4,800,804
Weighted average diluted shares outstanding		4,778,950		4,805,177		4,772,935			4,801,521

	Three Months Ended September 30,
	2017									2016
	Before						Net of			Before						Net of
(Dollars in thousands)	Tax			Tax			Tax			Tax			Tax			Tax
	Amount			Effect			Amount			Amount			Effect			Amount
Net income	$	1,333		$	(127	)	$	1,206		$	1,597		$	(150	)	$	1,447
Other comprehensive income:
Unrealized gains on available for sale securities:
Unrealized holding gains (losses) arising during the period		(20	)		7			(13	)		(267	)		91			(176	)
Unrealized holding gains (losses) from unconsolidated subsidiary		(3	)		-			(3	)		(4	)		-			(4	)
Less reclassification adjustment for gains included in net income (1) (3)		(2	)		1			(1	)		(6	)		2			(4	)
Amortization of pension net actuarial cost (2) (3)		57			(20	)		37			62			(21	)		41
Other comprehensive income (loss)		32			(12	)		20			(215	)		72			(143	)
Total comprehensive income	$	1,365		$	(139	)	$	1,226		$	1,382		$	(78	)	$	1,304

	Nine Months Ended September 30,
	2017									2016
	Before						Net of			Before						Net of
	Tax			Tax			Tax			Tax			Tax			Tax
	Amount			Effect			Amount			Amount			Effect			Amount
Net income	$	4,660		$	(701	)	$	3,959		$	4,421		$	(567	)	$	3,854
Other comprehensive income:
Unrealized gains on available for sale securities:
Unrealized holding gains arising during the period		882			(300	)		582			2,083			(708	)		1,375
Unrealized holding gains (losses) from unconsolidated subsidiary		12			-			12			(5	)		-			(5	)
Less reclassification adjustment for gains included in net income (1) (3)		(510	)		174			(336	)		(134	)		46			(88	)
Amortization of pension net actuarial cost (2) (3)		170			(58	)		112			186			(63	)		123
Other comprehensive income		554			(184	)		370			2,130			(725	)		1,405
Total comprehensive income	$	5,214		$	(885	)	$	4,329		$	6,551		$	(1,292	)	$	5,259

	Number											Accumulated
	of											Other						Total
(Dollars in thousands, except share data)	Shares			Common					Retained			Comprehensive			Treasury			Stockholders'
	Outstanding			Stock		Surplus			Earnings			Loss			Stock			Equity
Balance, January 1, 2017		4,755,630		$	4,805	$	18,476		$	39,945		$	(3,209	)	$	(927	)	$	59,090
Net income										3,959									3,959
Other comprehensive income													370						370
Cash dividends at $0.66 per share										(3,145	)								(3,145	)
Stock-based compensation							54												54
Purchase of treasury stock		(4,289	)													(86	)		(86	)
Treasury stock issued for stock plans		9,704					(10	)								182			172
Common stock issued for stock plans		6,611			6		28												34
Balance, September 30, 2017		4,767,656		$	4,811	$	18,548		$	40,759		$	(2,839	)	$	(831	)	$	60,448


	Three months ended March 31, 2021
								Accumulated
(Dollars in thousands, except share data)	Number							Other				Total
	of Shares	Common				Retained		Comprehensive		Treasury		Stockholders’
	Outstanding	Stock		Surplus		Earnings		Income (Loss)		Stock		Equity
Balance, January 1, 2021	5,025,441	$	5,151	$	25,011	$	45,096	$	3,518	$	(2,179)	$	76,597
Net income							1,635						1,635
Other comprehensive loss									(4,108)				(4,108)
Cash dividends at $0.22 per share							(1,102)						(1,102)
Stock-based compensation					35								35
Purchase of treasury stock	(27,585)										(483)		(483)
Treasury stock issued for stock plans	8,839				(153)						153		—
Balance, March 31, 2021	5,006,695	$	5,151	$	24,893	$	45,629	$	(590)	$	(2,509)	$	72,574

(Dollars in thousands)

Purchase price assigned to FNBPA common shares exchanged for 607,815 Juniata common shares	$	10,637
Purchase price assigned to FNBPA common shares exchanged for cash		2,208
Total purchase price		12,845
FNBPA net assets acquired:
Tangible common equity		9,854
Adjustments to reflect assets acquired and liabilities assumed at fair value:
Total fair value adjustments		(523	)
Associated deferred income taxes		179
Fair value adjustment to net assets acquired, net of tax		(344	)
Total FNBPA net assets acquired		9,510
Goodwill resulting from the merger	$	3,335

(Dollars in thousands)

Gross amortized cost basis at November 30, 2015	$	47,797
Market rate adjustment		(110	)
Credit fair value adjustment on pools of homogeneous loans		(73	)
Credit fair value adjustment on impaired loans		(559	)
Fair value of purchased loans at November 30, 2015	$	47,055

(Dollars in thousands)

Contractually required principal and interest at acquisition	$	2,488
Contractual cash flows not expected to be collected (nonaccretable discount)		(1,427	)
Expected cash flows at acquisition		1,061
Interest component of expected cash flows (accretable discount)		(157	)
Fair value of acquired loans	$	904

(Dollars in thousands, except per share data)	Years Ended December 31,
	2015		2014
Consolidated net interest income after loan loss provision	$	17,731	$	17,089
Consolidated non-interest income		4,841		4,745
Consolidated non-interest expense		17,124		18,358
Consolidated net income		4,862		3,353
Consolidated net income per common share	$	1.01	$	0.70

(Dollars in thousands)
	September 30, 2017			December 31, 2016
Unrealized losses on available for sale securities	$	(609	)	$	(866	)
Unrecognized expense for defined benefit pension		(2,230	)		(2,343	)
Accumulated other comprehensive loss	$	(2,839	)	$	(3,209	)

	Unrealized Losses at September 30, 2017
	Less Than 12 Months					12 Months or More					Total
(Dollars in thousands)	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
Obligations of U.S. Government agencies and corporations	$	27,680	$	(320	)	$	6,782	$	(217	)	$	34,462	$	(537	)
Obligations of state and political subdivisions		6,070		(67	)		1,695		(18	)		7,765		(85	)
Mortgage-backed securities		78,495		(862	)		-		-			78,495		(862	)
Total debt securities		112,245		(1,249	)		8,477		(235	)		120,722		(1,484	)
Equity securities		-		-			4		(1	)		4		(1	)
Total temporarily impaired securities	$	112,245	$	(1,249	)	$	8,481	$	(236	)	$	120,726	$	(1,485	)

	Unrealized Losses at December 31, 2016
	Less Than 12 Months					12 Months or More					Total
(Dollars in thousands)	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
Obligations of U.S. Government agencies and corporations	$	32,783	$	(709	)	$	-	$	-		$	32,783	$	(709	)
Obligations of state and political subdivisions		17,437		(406	)		300		(2	)		17,737		(408	)
Mortgage-backed securities		68,989		(1,082	)		-		-			68,989		(1,082	)
Total temporarily impaired securities	$	119,209	$	(2,197	)	$	300	$	(2	)	$	119,509	$	(2,199	)

(Dollars in thousands)			Special
	Pass		Mention		Substandard		Doubtful		Total
As of September 30, 2017
Commercial, financial and agricultural	$	38,540	$	8,387	$	1,617	$	7	$	48,551
Real estate - commercial		102,322		24,585		6,014		1,419		134,340
Real estate - construction		22,033		2,674		3,438		-		28,145
Real estate - mortgage		140,281		3,617		3,072		813		147,783
Obligations of states and political subdivisions		12,863		999		-		-		13,862
Personal		9,892		36		7		-		9,935
Total	$	325,931	$	40,298	$	14,148	$	2,239	$	382,616

	As of September 30, 2017						As of December 31, 2016
			Unpaid						Unpaid
(Dollars in thousands)	Recorded		Principal		Related		Recorded		Principal		Related
	Investment		Balance		Allowance		Investment		Balance		Allowance
Impaired loans
With no related allowance recorded:
Commercial, financial and agricultural	$	356	$	364	$	-	$	436	$	439	$	-
Real estate - commercial		5,842		6,830		-		5,499		6,475		-
Acquired with credit deterioration		199		253		-		641		730		-
Real estate - construction		-		-		-		2,455		2,455		-
Real estate - mortgage		2,521		4,047		-		3,345		5,020		-
Acquired with credit deterioration		343		387		-		415		440		-

With an allowance recorded:
Real estate - mortgage	$	-	$	-	$	-	$	712		712		56

Total:
Commercial, financial and agricultural	$	356	$	364	$	-	$	436	$	439	$	-
Real estate - commercial		5,842		6,830		-		5,499		6,475		-
Acquired with credit deterioration		199		253		-		641		730		-
Real estate - construction		-		-		-		2,455		2,455		-
Real estate - mortgage		2,521		4,047		-		4,057		5,732		56
Acquired with credit deterioration		343		387		-		415		440		-
	$	9,261	$	11,881	$	-	$	13,503	$	16,271	$	56

	Three Months Ended September 30, 2017						Three Months Ended September 30, 2016
	Average		Interest		Cash Basis		Average		Interest		Cash Basis
(Dollars in thousands)	Recorded		Income		Interest		Recorded		Income		Interest
	Investment		Recognized		Income		Investment		Recognized		Income
Impaired loans
With no related allowance recorded:
Commercial, financial and agricultural	$	351	$	5	$	-	$	479	$	7	$	-
Real estate - commercial		5,336		81		-		5,972		84		-
Acquired with credit deterioration		204		-		-		679		-		-
Real estate - construction		-		-		-		2,561		34		-
Real estate - mortgage		2,795		5		6		3,136		4		14
Acquired with credit deterioration		347		-		-		482		-		-
Personal		-		-		-		1		-		-

With an allowance recorded:
Commercial, financial and agricultural	$	8	$	-	$	-	$	-	$	-	$	-
Real estate - commercial		460		-		-		50		-		-
Real estate - mortgage		-		-		-		826		-		-

Total:
Commercial, financial and agricultural	$	359	$	5	$	-	$	479	$	7	$	-
Real estate - commercial		5,796		81		-		6,022		84		-
Acquired with credit deterioration		204		-		-		679		-		-
Real estate - construction		-		-		-		2,561		34		-
Real estate - mortgage		2,795		5		6		3,962		4		14
Acquired with credit deterioration		347		-		-		482		-		-
Personal		-		-		-		1		-		-
	$	9,501	$	91	$	6	$	14,186	$	129	$	14

	Nine Months Ended September 30, 2017						Nine Months Ended September 30, 2016
	Average		Interest		Cash Basis		Average		Interest		Cash Basis
(Dollars in thousands)	Recorded		Income		Interest		Recorded		Income		Interest
	Investment		Recognized		Income		Investment		Recognized		Income
Impaired loans
With no related allowance recorded:
Commercial, financial and agricultural	$	396	$	18	$	-	$	414	$	23	$	-
Real estate - commercial		5,671		238		-		3,909		252		-
Acquired with credit deterioration		420		-		-		742		-		-
Real estate - construction		1,228		34		-		1,281		102		-
Real estate - mortgage		2,933		16		19		2,949		22		26
Acquired with credit deterioration		379		-		-		526		-		-

With an allowance recorded:
Real estate - commercial	$	-	$	-	$	-	$	50	$	-	$	-
Real estate - mortgage		356		-		-		397		-		-

Total:
Commercial, financial and agricultural	$	396	$	18	$	-	$	414	$	23	$	-
Real estate - commercial		5,671		238		-		3,959		252		-
Acquired with credit deterioration		420		-		-		742		-		-
Real estate - construction		1,228		34		-		1,281		102		-
Real estate - mortgage		3,289		16		19		3,346		22		26
Acquired with credit deterioration		379		-		-		526		-		-
	$	11,383	$	306	$	19	$	10,268	$	399	$	26

													Loans Past
													Due Greater
	30-59		60-89		Greater								than 90
(Dollars in thousands)	Days Past		Days Past		than 90		Total Past				Total		Days and
	Due		Due		Days		Due		Current		Loans		Accruing
As of September 30, 2017
Commercial, financial and agricultural	$	-	$	-	$	-	$	-	$	48,551	$	48,551	$	-
Real estate - commercial:
Real estate - commercial		22		-		-		22		134,119		134,141		-
Acquired with credit deterioration		170		-		29		199		-		199		29
Real estate - construction		-		-		-		-		28,145		28,145		-
Real estate - mortgage:
Real estate - mortgage		653		31		221		905		146,535		147,440		221
Acquired with credit deterioration		112		-		13		125		218		343		13
Obligations of states and political		-		-		-		-						-
subdivisions				-		-		-		13,862		13,862		-
Personal		71		-		-		71		9,864		9,935		-
Total	$	1,028	$	31	$	263	$	1,322	$	381,294	$	382,616	$	263

												Obligations of
	Commercial,											states and
(Dollars in thousands)	financial and			Real estate -			Real estate -		Real estate -			political
	agricultural			commercial			construction		mortgage			subdivisions		Personal			Total
Allowance for loan losses:
Beginning balance, July 1, 2017	$	402		$	1,125		$	172	$	1,093		$	-	$	84		$	2,876
Charge-offs		(9	)		(70	)		-		(37	)		-		(7	)		(123	)
Recoveries		2			-			-		1			-		2			5
Provisions		(33	)		100			30		50			-		2			149
Ending balance, September 30, 2017	$	362		$	1,155		$	202	$	1,107		$	-	$	81		$	2,907

	FNBPA		FNBPA		Branch
	Acquisition		Acquisition		Acquisition
	Core		Other		Core
(Dollars in thousands)	Deposit		Intangible		Deposit
	Intangible		Assets		Intangible
Beginning Balance at Acquisition Date	$	303	$	40	$	431
Amortization expense recorded prior to January 1, 2016		4		2		402
Amortization expense recorded in the twelve months ended December 31, 2016		55		20		29
Unamortized balance as of December 31, 2016		244		18	$	-
Amortization expense recorded in the Nine Months Ended September 30, 2017		37		15
Unamortized balance as of September 30, 2017	$	207	$	3

Scheduled remaining amortization expense for years ended:
December 31, 2017	$	12	$	3
December 31, 2018		44		-
December 31, 2019		38		-
December 31, 2020		33		-
December 31, 2021		27		-
After December 31, 2021		53		-

			(Level 1)		(Level 2)		(Level 3)
			Quoted Prices in		Significant		Significant
			Active Markets		Other		Other
(Dollars in thousands)	September 30,		for Identical		Observable		Unobservable
	2017		Assets		Inputs		Inputs
Measured at fair value on a recurring basis:
Debt securities available-for-sale:
Obligations of U.S. Government agencies and corporations	$	34,463	$	-	$	34,463	$	-
Obligations of state and political subdivisions		25,945		-		25,945		-
Mortgage-backed securities		97,485		-		97,485		-
Equity securities available-for-sale		1,287		1,107		180		-

Measured at fair value on a non-recurring basis:
Impaired loans	$	2,239	$	-	$	-	$	2,239
Other real estate owned		165		-		-		165
Mortgage servicing rights		223		-		-		223

(Dollars in thousands)
September 30, 2017	Fair Value Estimate		Valuation Technique	Unobservable Input	Range	Weighted Average
Impaired loans	$	2,239	Appraisal of collateral (1)	Appraisal and liquidation adjustments (2)	0% - 12%		7	%
Other real estate owned		165	Appraisal of collateral (1)	Appraisal and liquidation adjustments (2)	13% - 72%		30	%
Mortgage servicing rights		223	Multiple of annual servicing fee	Estimated pre-payment speed, based on rate and term	300% - 400%		369	%

	Financial Instruments
	September 30, 2017				December 31, 2016
(Dollars in thousands)	Carrying		Fair		Carrying		Fair
	Value		Value		Value		Value
Financial assets:
Cash and due from banks	$	13,219	$	13,219	$	9,464	$	9,464
Interest bearing deposits with banks		133		133		95		95
Interest bearing time deposits with banks		350		350		350		350
Securities		159,180		159,180		150,488		150,488
Restricted investment in FHLB stock		3,616		3,616		3,610		3,610
Loans held for sale		117		117		-		-
Loans, net of allowance for loan losses		379,709		374,642		375,574		366,660
Mortgage servicing rights		223		223		205		205
Accrued interest receivable		1,620		1,620		1,582		1,582

Financial liabilities:
Non-interest bearing deposits	$	109,880	$	109,880	$	104,006	$	104,006
Interest bearing deposits		363,703		363,854		351,816		354,628
Securities sold under agreements to repurchase		5,207		5,207		4,496		4,496
Short-term borrowings		27,500		27,500		27,700		27,700
Long-term debt		25,000		24,965		25,000		24,963
Other interest bearing liabilities		1,566		1,568		1,545		1,549
Accrued interest payable		298		298		268		268

Off-balance sheet financial instruments:
Commitments to extend credit	$	-	$	-	$	-	$	-
Letters of credit		-		-		-		-

(Dollars in thousands)	Periods Ended September 30,
	2017			2016
Balance of allowance - January 1	$	2,723		$	2,478
Loans charged off		(260	)		(198	)
Recoveries of loans previously charged off		55			42
Net charge-offs		(205	)		(156	)
Provision for loan losses		389			366
Balance of allowance - end of period	$	2,907		$	2,688

Ratio of net charge-offs during period to average loans outstanding		0.05	%		0.04	%

(Dollar amounts in thousands)	As of and for the			As of and for the
	nine months ended			year ended
	September 30, 2017			December 31, 2016
Non-performing loans
Non-accrual loans	$	3,608		$	4,733
Accruing loans past due 90 days or more, exclusive of loans acquired with credit deterioration		221			554
Non-accruing restructured loans in default		21			25
Total	$	3,850		$	5,312

Average loans outstanding		385,623			379,177

Ratio of non-performing loans to average loans outstanding		1.00	%		1.40	%

Effect of Interest Rate Risk on Net Interest Income
(Dollars in thousands)
	Change in Interest Rates (Basis Points)	Total Change in Net Interest Income

	400	$	(2,092	)
	300		(969	)
	200		(322	)
	100		(63	)
	0		-
	(100)		(277	)
	(200)		(121	)
	(300)		(225	)
	(400)		(348	)