PWB donations in 2021
®
Willing Hand Hose Company #1 Montoursville, Ronald McDonald House of Danville, Kiwanis Bald Eagle and Nittany
Valleys, James V Brown Library, YMCA of Centre County, Penn-Mont Academy, New Love Center, Public Library for Union
County, Walker Township Fire Company, Central PA Humane Society, Big Brothers / Big Sisters, Southern Alleghenies
Museum of Art, Saint Vincent DePaul Food Pantry, United Way of Blair County, Central PA Cyclones, Montoursville High
School Varity Club, Lycoming County Historical Society, YMCA of Williamsport, South Williamsport Fire Department,
South Williamsport Youth Football and Cheerleading Association, Clinton County Economic Partnership, Citizen Hose
Company, East Lycoming Little League, Bellefonte Softball Association, Jersey Shore Baseball Boosters, Greater
Susquehanna Chamber of Commerce, Blair County Chamber of Commerce, Warrior Run Bombers, Jersey Shore Area
Chamber of Commerce, Nippenose Valley Little League, Montgomery Borough, South Williamsport Little League,
Central PA Chamber of Commerce, Central Mountain High School Scholarship Award, Clinton Township, Jersey Shore
Lions Club, Mountaintop Area Little League, Jersey Shore Little League, Susquehanna Valley CASA, Jersey Shore Public
Library, Camp Susque, Danville High School Football Boosters, Bellefonte Art Museum, Bellefonte Lions Club, Blair
Bedford Builders Association, Centre County Library & Historical Museum, Faith Centre Food Bank, Habitat For Humanity
of Greater Centre County, Hope Enterprises Foundation, Holy Trinity Catholic School, Historic Bellefonte Cruise,
Montoursville Chamber of Commerce, Antes Fort Historical Days, Jersey Shore Town Meeting Celebration, Lakemont
Park, Lycoming College Wrestling, Williamsport Symphony Orchestra, Keystone Central Foundation, River Valley Regional
YMCA, Susquehanna Health Foundation, Centre County
Youth Services Bureau, Leadership Susquehanna Valley,
Lock Haven University Baseball, Lock Haven University
Foundation, State College High School School Football
Boosters, Salladasburg Little League, Williamsport
Chamber of Commerce, United Way of Centre County,
First Community Foundation Partnership of PA, Muncy
Rotary Club, Central Mountain Lady Wildcat Soccer,
Memorial 9-11 Ride, Jersey Shore Football Boosters,
Konkle Memorial Library Fund, Community Giving
Foundation Danville, Bellefonte Victorian Christmas,
Lock Haven Family Moose Lodge, Kiwanis Club, Mill Hall,
Susquehanna Health Foundation, Greater Susquehanna
Valley Chamber of Commerce, Jersey Shore High School
FBLA, Centre County Down Syndrome Society, Tiadaghton Valley Regional Police Department, Christmas Program,
Duboistown Borough Holiday Celebration, South Williamsport Police Department Christmas Program, The Salvation
Army, Heroes Helping Horses, Jersey Shore Santa House, Junior League of Williamsport, Oval United Methodist Church
Toy Shop, Lewisburg Children’s Museum, Sunny Brook Meadows, Gary Sinise Foundation, Montgomery Lions Club, Avis
Little League, Independent Hose Company No. 1, Willing Hand Hose Company No. 1, Central PA Institute of Science &
Technology, SCORE–Central PA, Central PA Scholarship Fund, Penn-Mont Academy, St. Cyril Preschool and Kindergarten,
Faith United Methodist Church Harvest of Hope, The New Love Center, PA Economy League, Swoyersville Little League,
Maltby Volunteer Fire Department, Greater Pittston Chamber of Commerce, Wyoming County Chamber of Commerce,
Wyoming Seminary, Wilkes University Nursing Program, Kings College, Swoyersville American Legion Post 644,
Wyoming Rotary Club, The Luzerne Foundation, Leadership Wilkes Barre, Step by Step Foundation, Greater Wyoming
Valley Chamber of Commerce, Luzerne County Fair, Dress for Success Luzerne County, Allied Services Foundation, Forty
Fort Park Restoration, Osterhout Free Library, Back Mountain Regional EMS, Luzerne Volunteer Fire Department, Back
Mountain Youth Soccer, Swoyersville Kiwanis, Hazleton Chamber of Commerce, Troop P Camp Cadet, The Dallas
Foundation, Equines for Freedom, F.M. Kirby Center for Performing Arts, Pittston Festival Association, Northeast Sight
Services, Hazleton UNICO, Wilkes-Barre Rotary Charities, Wyoming Valley Art League, Mayor Cusat’s Hazleton
Revitalization Fund, Paint Pittston Pink, Dallas Rotary Charities, Trans Med Ambulance, Dallas Township Old Fashion
Christmas, Hazleton Area Cougars Wrestling Club, Sleep in Heavenly Peace Luzerne County, Gate of Heaven,
Filber t Memorial Fund, Kiwanis Club of the Valley, Hazle Township Volunteer Fire & Rescue Company
2021 Annual Report
MISSION STATEMENT
To be the most significant regional community bank
Performance Highlights
2
3
6
7
8
9
10
11
114
1 Dear Shareholders,
2021 continued to be a challenging year in many ways. The pandemic continued to influence the way many business sectors including
banking operated and tweaked their business models. We addressed the challenges by working with our customer base to ensure their
safety and long-term viability by extending loans and offering payment extensions, while expanding our deposit product e-commerce
solutions. Notwithstanding the challenging environment, our bank achieved strong financial performance. I would like to thank our
employees who contributed greatly to this success as they continued to step up in very adverse conditions to ensure we maintained a
high standard of service. We are proud of their commitment and are fortunate to have our dedicated team.
In 2021 we had strong balance sheet growth as many of our recent growth initiatives continued to pay dividends. Our entrance into Blair
County has produced strong results and we have built a great team to keep the momentum going. We opened another office in the
Bellefonte market of Centre County in early 2021 with much anticipated success. We continue to take a very hard look at our branch
footprint and have plans to consolidate and reposition our service points. We will continue to invest in electronic banking solutions as
consumer banking habits continue to evolve.
Financial Highlights
PWOD continued to return strong results during the past year. Highlights from the period ending December 31, 2021 include:
Twelve Months Ended
December 31, 2021
Twelve Months Ended
December 31, 2020
% Change
$16,033,000
$15,206,000
$2.27
$2.16
$1,621,315,000
$1,494,443,000
$1,415,948,000
$1,230,798,000
$1,377,971,000
$1,330,524,000
$1,940,809,000
$1,834,643,000
5.44%
5.09%
8.49%
15.04%
3.57%
5.79%
Net Income
Basic EPS
Total Deposits
Core Deposits
Net Loans
Total Assets
Final Note
On behalf of the leadership team, all bank employees, and the board of directors we thank you for your support and confidence in our
company. Our ability to drive shareholder value over the past 10 years has been unparalleled by our peer banks as illustrated in the
Growth in Economic Value graph on the next page. Again, thank you.
Sincerely,
Richard A. Grafmyre, CFP®
Chief Executive Officer
2
Performance Highlights
Growth in Economic Value – Since YE 2011
Annual Growth Rates
Tangible Book Value “TBV” + Dividends
TBV + Dividends CAGR – Since YE 2011
180%
160%
140%
120%
100%
80%
60%
40%
20%
0%
PWOD
Peers
10.0%
160%
PWOD
Outperformance
of 23%
129%
8.7%
Peers
2021Q4 ROE(1) + Dividends
18.7%
5.9%
15.1%
2.8%
12.9%
12.3%
Peers
Source: S&P Global Market Intelligence.
Note: Peer group consists of major exchange traded U.S. banks with total assets between $1 billion and $3 billion, excluding merger targets and mutuals.
(1) ROE = Return on Average Tangible Common Equity.
Total Assets
$ in billions
$0.8
$0.9
$1.2
$1.2
$1.3
$1.3
$1.5
$1.7
$1.7
$1.9
$1.8
Tier 1 Capital ($M)
$156
$71
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
CONFIDENTIAL AND PROPRIETARY INFORMATION OF
STEPHENS INC| MEMBER NYSE, SIPC
3 Performance Highlights
Loan Composi�on
2021Q4
Deposit Composi�on
2021Q4
Construc�on
3%
Other
1%
Commercial, Financial,
and Ag.
12%
Auto
10%
CRE
32%
Resi
42%
Time
Deposits
13%
Money
Market
20%
Non-Interest
Bearing
30%
NOW
23%
Savings
14%
Yield on Total Loans:
3.91 %
CRE / TRBC:
241 %
Cost of Interest Bearing Deposits:
Cost of Total Deposits:
Cost of Funds:
0.38 %
0.27 %
0.41 %
Source: Company documents.
Total Loans
$ in millions
$1,800
$1,600
$1,400
$1,200
$1,000
$800
$600
$400
$200
$0
$1,354
$151
$363
$23
$38
$1,343
$156
$373
$20
$39
$1,392
$139
$447
$9
$37
$623
$156
2019
$590
$596
$165
2020
$163
2021
Total Deposits
$ in millions
$1,800
$1,600
$1,400
$1,200
$1,000
$800
$600
$400
$200
$0
$1,324
$378
$216
$219
$177
$335
2019
$1,494
$264
$284
$288
$210
$449
$1,621
$205
$319
$366
$236
$494
2020
2021
Commercial
R/E Residen�al
R/E Commercial
Noninterest Bearing
Savings
NOW
R/E Construc�on
Installment
CONFIDENTIAL AND PROPRIETARY INFORMATION OF
STEPHENS INC| MEMBER NYSE, SIPC
Automobile
Source: Company documents.
Money Market
Time Deposits
4 Performance Highlights
Accounts in thousands
Estatement Accounts
Internet Banking Accounts
42.5
45.2
50.1
13.5
15.7
18.3
24.1
25.2
37.3
33.5
2017
2018
2019
2020
2021
2017
2018
2019
2020
2021
Mobile Banking Users
12.4
10.1
7.8
6.0
4.6
Source: Company documents.
2017
2018
2019
2020
2021
Return on Equity (%)
Return on Average Assets (%)
9.7%
9.9%
0.85%
0.85%
2020
2021
2020
2021
Earnings Per Share
$2.16
$2.27
Source: S&P Global Market Intelligence, Company documents.
CONFIDENTIAL AND PROPRIETARY INFORMATION OF
STEPHENS INC| MEMBER NYSE, SIPC
2020
2021
5 PENNS WOODS BANCORP, INC.
CONSOLIDATED BALANCE SHEET
(In Thousands, Except Share Data)
ASSETS:
Noninterest-bearing balances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest-bearing deposits in other financial institutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal funds sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment debt securities, available for sale, at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment equity securities, at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment securities, trading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted investment in bank stock, at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Premises and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued interest receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bank-owned life insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment in limited partnerships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating lease right of use asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LIABILITIES:
Interest-bearing deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noninterest-bearing deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued interest payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating lease liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SHAREHOLDERS’ EQUITY:
Preferred stock, 0 par value, 3,000,000 shares authorized; 0 shares issued . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common stock, par value $5.55, 22,500,000 shares authorized; 7,550,272 and 7,532,576 shares issued;
7,070,047 and 7,052,351 shares outstanding
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive (loss) gain:
December 31,
2021
2020
$
19,233 $
194,629
50,000
263,862
31,821
181,537
—
213,358
166,410
1,251
37
14,531
3,725
1,392,147
(14,176)
1,377,971
34,025
8,048
33,768
4,607
17,104
480
2,851
2,946
9,193
162,261
1,288
40
15,377
5,239
1,344,327
(13,803)
1,330,524
32,702
8,394
33,638
3,944
17,104
671
3,136
2,526
4,441
$ 1,940,809 $ 1,834,643
$ 1,126,955 $ 1,045,086
449,357
1,494,443
494,360
1,621,315
5,747
125,963
651
2,898
11,961
1,768,535
5,244
153,475
1,112
3,175
13,048
1,670,497
—
—
41,945
53,795
89,761
41,847
52,523
82,769
Net unrealized gain on available for sale securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Defined benefit plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury stock at cost, 480,225 shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL PENNS WOODS BANCORP, INC. SHAREHOLDERS’ EQUITY . . . . . . . . . . . . . . . . . . . . . .
Non controlling interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL SHAREHOLDERS' EQUITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,373
(3,485)
(12,115)
172,274
—
172,274
4,714
(5,596)
(12,115)
164,142
4
164,146
$ 1,940,809 $ 1,834,643
See accompanying notes to the consolidated financial statements.
6 PENNS WOODS BANCORP, INC.
CONSOLIDATED STATEMENT OF INCOME
(In Thousands, Except Per Share Data)
INTEREST AND DIVIDEND INCOME:
Loans, including fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Investment securities:
Taxable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax-exempt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividend and other interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL INTEREST AND DIVIDEND INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
INTEREST EXPENSE:
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL INTEREST EXPENSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NET INTEREST INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
49,718
PROVISION FOR LOAN LOSSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
640
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES . . . . . . . . . . . . . . .
49,078
NON-INTEREST INCOME:
Service charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net debt securities gains, available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net equity securities (losses) gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net securities (losses) gains, trading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bank-owned life insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on sale of loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Insurance commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Brokerage commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loan broker income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debit card income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL NON-INTEREST INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NON-INTEREST EXPENSE:
Salaries and employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Occupancy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Software amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pennsylvania shares tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Professional fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal Deposit Insurance Corporation deposit insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Write down of assets held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on sale of premises and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL NON-INTEREST EXPENSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
INCOME BEFORE INCOME TAX PROVISION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
INCOME TAX PROVISION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CONSOLIDATED NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Earnings attributable to noncontrolling interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NET INCOME ATTRIBUTABLE TO PENNS WOODS BANCORP, INC. . . . . . . . . . . . . . $
EARNINGS PER SHARE - BASIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
EARNINGS PER SHARE - DILUTED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC . . . . . . . . . . . . . . . . . . . . . . .
WEIGHTED AVERAGE SHARES OUTSTANDING - DILUTED . . . . . . . . . . . . . . . . . . . . .
DIVIDENDS PER SHARE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
See accompanying notes to the consolidated financial statements.
Year Ended December 31,
2020
2019
2021
53,232 $
57,217 $
60,384
3,281
655
1,246
58,414
5,545
9
3,142
8,696
1,703
699
(37)
(3)
916
2,474
553
851
2,164
1,511
838
11,669
23,014
3,209
3,522
868
1,350
2,432
963
—
—
545
191
4,811
40,905
3,778
650
993
62,638
10,565
43
3,807
14,415
48,223
2,625
45,598
1,690
1,592
27
(11)
653
4,148
416
970
673
1,280
730
12,168
21,632
2,650
3,411
978
1,289
2,362
939
—
—
261
227
5,319
39,068
19,842
3,794
16,048 $
15
16,033 $
2.27 $
2.27 $
18,698
3,474
15,224 $
18
15,206 $
2.16 $
2.16 $
7,061,818
7,061,818
7,044,542
7,044,542
1.28 $
1.28 $
3,997
660
1,733
66,774
11,443
793
3,723
15,959
50,815
2,735
48,080
2,411
640
89
19
574
1,754
433
1,358
1,058
1,378
738
10,452
21,829
2,712
3,248
871
1,148
2,474
578
475
474
425
264
5,210
39,708
18,824
3,138
15,686
14
15,672
2.23
2.20
7,038,714
7,113,339
1.26
7 PENNS WOODS BANCORP, INC.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(In Thousands)
Year Ended December 31,
2020
2019
2021
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
16,033 $
15,206 $
15,672
Other comprehensive (loss) income:
Change in unrealized (loss) gain on available for sale securities . . . . . . . . . . . . . . . . . . . . .
(2,264)
Tax effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net realized (gain) loss included in net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Accretion) amortization of unrecognized pension and post-retirement items . . . . . . . . . .
Tax effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total other comprehensive (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
475
(699)
147
2,674
(563)
(230)
4,452
(935)
(1,592)
334
(461)
97
1,895
5,469
(1,148)
(640)
134
56
(12)
3,859
Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
15,803 $
17,101 $
19,531
See accompanying notes to the consolidated financial statements.
8
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9
PENNS WOODS BANCORP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
Year Ended December 31,
2020
2019
2021
(In Thousands)
OPERATING ACTIVITIES:
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to net cash provided by operating activities:
$
16,048 $
15,224 $
15,686
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Write down of assets held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss (gain) on sale of premises and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of investment security discounts and premiums, net . . . . . . . . . . . . . . . . . . . .
Securities gains, available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Originations of loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds of loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on sale of loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net equity securities losses (gains) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net securities losses (gains), trading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sales of trading securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of trading securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Security trades receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings on bank-owned life insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Decrease in deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
INVESTING ACTIVITIES:
Investment debt securities available for sale:
Proceeds from sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from calls, maturities and repayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sales of equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (increase) decrease in loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition of premises and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of premises and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from the sale of foreclosed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of bank-owned life insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Distribution of non-controlling interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from bank-owned life insurance death benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment in limited partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from redemption of regulatory stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of regulatory stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash (used for) provided by investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
FINANCING ACTIVITIES:
Net increase in interest-bearing deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net increase in noninterest-bearing deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from long-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayment of long-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net increase (decrease) in short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finance lease principal payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Distributions to non-controlling interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used for) financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . . .
CASH AND CASH EQUIVALENTS, BEGINNING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CASH AND CASH EQUIVALENTS, ENDING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,711
—
18
191
640
960
1,142
(699)
(85,938)
89,926
(2,474)
37
3
—
—
—
(916)
(359)
(4,367)
17,923
17,947
20,997
(46,499)
—
(48,170)
(1,137)
2
335
(30)
(25)
825
(1,070)
3,143
(2,297)
(55,979)
81,869
45,003
—
(30,000)
503
(165)
(9,041)
(17)
408
88,560
50,504
213,358
3,076
—
(14)
227
2,625
854
793
(1,592)
(131,775)
134,916
(4,148)
(27)
11
—
—
—
(653)
309
2,174
22,000
20,767
23,292
(54,043)
—
10,269
(2,668)
336
226
(3,970)
—
248
(3,347)
3,561
(5,410)
(10,739)
55,827
114,611
35,000
(43,333)
324
(112)
(9,020)
(36)
247
153,508
164,769
48,589
$ 263,862 $ 213,358 $
2,951
475
474
264
2,735
680
671
(640)
(61,723)
62,174
(1,754)
(89)
(19)
78
(74)
(6,626)
(574)
814
(1,453)
14,050
23,799
6,845
(40,180)
604
24,010
(2,706)
297
502
(30)
—
—
—
13,934
(8,600)
18,475
90,170
13,932
50,000
(32,608)
(162,945)
(440)
(8,876)
—
89
(50,678)
(18,153)
66,742
48,589
10 UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC. 20549
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2021
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
Commission file number 0-17077
PENNS WOODS BANCORP, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania
(State or other jurisdiction of
incorporation or organization)
300 Market Street, P.O. Box 967
Williamsport,
23-2226454
(I.R.S. Employer Identification No.)
Pennsylvania
(Address of principal executive offices)
17703-0967
(Zip Code)
Registrant’s telephone number, including area code (570) 322-1111
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common stock, $5.55 par value
PWOD
The Nasdaq Global Select Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐
Yes ☒ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ☐
Yes ☒ No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a
smaller reporting company, or emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
11
Large accelerated filer
Non-accelerated filer
☐
☒
Accelerated filer
Smaller reporting company
Emerging growth company
☐
☒
☐
If an emerging growth company, indicate by check mark if registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the
effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.
7262(b)) by the registered public accounting firm that prepared or issued its audit report. [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
State the aggregate market value of the voting stock held by non-affiliates of the registrant $168,202,596 at June 30, 2020.
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class
Common Stock, $5.55 Par Value
Outstanding at March 1, 2022
7,074,044 Shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement prepared in connection with its annual meeting of shareholders to be held
on April 27, 2021 are incorporated by reference in Part III hereof.
12
14
20
23
24
25
25
26
27
28
46
47
95
95
98
98
98
98
98
98
99
101
102
13
ITEM 1
BUSINESS
A. General Development of Business and History
PART I
On January 7, 1983, Penns Woods Bancorp, Inc. (the “Corporation”) was incorporated under the laws of the Commonwealth of
Pennsylvania as a bank holding company. In connection with the organization of the Corporation, Jersey Shore State Bank
("JSSB"), a Pennsylvania state-chartered bank, became a wholly owned subsidiary of the Corporation. On June 1, 2013, the
Corporation acquired Luzerne Bank ("Luzerne") with Luzerne operating as a subsidiary of the Corporation (JSSB and Luzerne
are collectively referred to as the "Banks"). The Corporation’s three other wholly-owned subsidiaries are Woods Real Estate
Development Company, Inc., Woods Investment Company, Inc., and United Insurance Solutions, LLC. The Corporation’s
business has consisted primarily of managing and supervising the Banks, and its principal source of income has been dividends
paid by the Banks and Woods Investment Company, Inc.
The Banks are engaged in commercial and retail banking which includes the acceptance of time, savings, and demand deposits,
the funding of commercial, consumer, and mortgage loans, and safe deposit services. Utilizing a branch office network, ATMs,
Internet, and telephone banking delivery channels, the Banks deliver their products and services to the communities they reside
in.
In October 2000, JSSB acquired The M Group, Inc. D/B/A The Comprehensive Financial Group (“The M Group”). The M
Group, which operates as a subsidiary of JSSB, offers insurance and securities brokerage services. Securities are offered by The
M Group through Cetera Financial Group, a registered broker-dealer.
Neither the Corporation nor the Banks anticipate that compliance with environmental laws and regulations will have any
material effect on capital expenditures, earnings, or their competitive position. The Banks are not dependent on a single
customer or a few customers, the loss of whom would have a material effect on the business of the Banks.
As of December 31, 2021, JSSB employed 247 persons, Luzerne employed 71 persons, and The M Group employed 4 persons
in either a full-time or part-time capacity. The Corporation does not have any employees. The principal officers of the Banks
also serve as officers of the Corporation.
Woods Investment Company, Inc., a Delaware holding company, maintains an investment portfolio that is managed for total
return and to fund dividend payments by the Corporation.
Woods Real Estate Development Company, Inc. serves the Corporation through its acquisition and ownership of certain
properties utilized by the Banks.
United Insurance Solutions, LLC offers property and casualty and auto insurance products within the Corporation's market
footprint. The Corporation became the sole owner of United Insurance Solutions, LLC when it purchased the outstanding 20%
minority interest on October 1, 2021.
We post publicly available reports required to be filed with the SEC on our website, www.pwod.com, as soon as reasonably
practicable after filing such reports with the SEC. The required reports are available free of charge through our website.
Information available on our website is not part of or incorporated by reference into this Report or any other report filed by this
Corporation with the SEC.
B. Regulation and Supervision
The Corporation is a registered bank holding company and, as such is subject to the provisions of the Bank Holding Company
Act of 1956, as amended (the “BHCA”) and to supervision and examination by the Board of Governors of the Federal Reserve
System (the “FRB”). During 2017, the Corporation elected to become a financial holding company under the BHCA and the
regulations of the FRB. The Banks are also subject to the supervision and examination by the Federal Deposit Insurance
Corporation (the “FDIC”), as their primary federal regulator and as the insurer of the Banks' deposits. The Banks are also
regulated and examined by the Pennsylvania Department of Banking and Securities (the “Department”).
The insurance activities of The M Group are subject to regulation by the insurance departments of the various states in which
The M Group conducts business, including principally the Pennsylvania Department of Insurance. The securities brokerage
activities of The M Group are subject to regulation by federal and state securities commissions.
14
The insurance activities of United Insurance Solutions, LLC are subject to regulation by the Pennsylvania Department of
Insurance.
The FRB has issued regulations under the BHCA that require a bank holding company to serve as a source of financial and
managerial strength to its subsidiary banks. As a result, the FRB, pursuant to such regulations, may require the Corporation to
stand ready to use its resources to provide adequate capital funds to the Banks during periods of financial stress or adversity.
The BHCA requires the Corporation to secure the prior approval of the FRB before it can acquire all or substantially all of the
assets of any bank, or acquire ownership or control of 5% or more of any voting shares of any bank. Such a transaction would
also require approval of the Department.
A bank holding company is prohibited under the BHCA from engaging in, or acquiring direct or indirect control of, more than
5% of the voting shares of any company engaged in non-banking activities unless the FRB, by order or regulation, has found
such activities to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. Under the
BHCA, the FRB has the authority to require a bank holding company to terminate any activity or relinquish control of a non-
bank subsidiary (other than a non-bank subsidiary of a bank) upon the FRB’s determination that such activity or control
constitutes a serious risk to the financial soundness and stability of any bank subsidiary of the bank holding company.
In July 2013, the federal bank regulatory agencies adopted revisions to the agencies’ capital adequacy guidelines and prompt
corrective action rules, which were designed to enhance such requirements and implement the revised standards of the Basel
Committee on Banking Supervision, commonly referred to as Basel III. The final rules generally implement higher minimum
capital requirements, add a new common equity tier 1 capital requirement, and establish criteria that instruments must meet to
be considered common equity tier 1 capital, additional tier 1 capital or tier 2 capital. The current minimum capital requirements
are a common equity tier 1 capital ratio of 4.5% (6.5% to be considered “well capitalized”), a tier 1 capital ratio of 6.0%; (8.0%
to be considered “well capitalized”), and a total capital ratio of 8.0% (10.0% to be considered “well capitalized”). In order to
avoid limitations on capital distributions (including dividend payments and certain discretionary bonus payments to executive
officers), as of January 1, 2019, a banking organization must hold a capital conservation buffer comprised of common equity
tier 1 capital above its minimum risk-based capital requirements in an amount greater than 2.5% of total risk-weighted assets.
In addition to the risk-based capital guidelines, the FRB requires each bank holding company to comply with the leverage ratio,
under which the bank holding company must maintain a minimum level of Tier 1 capital to average total consolidated assets of
4.0% (5.0% to be considered "well capitalized"). The Banks are subject to similar capital requirements adopted by the FDIC.
During 2018, the FRB raised the threshold of its "small bank holding company" exemption to the application of consolidated
capital requirements for qualifying small bank holding companies from $1 billion to $3 billion of consolidated assets.
Consequently, qualifying bank holding companies having less than $3 billion of consolidated assets are not subject to the
consolidated capital requirements unless otherwise directed by the FRB.
Under the Economic Growth, Regulatory Relief, and Consumer Protection Act enacted in May 2018, federal banking agencies
adopted the community bank leverage ratio (“CBLR”) framework available to depository institutions having less than $10
billion in total assets and meeting certain other qualifying criteria. The CBLR rules provide that qualifying community banking
organizations that adopt the CBLR framework and that maintain a CBLR in excess of 9% will be considered to have met the
generally applicable leverage and risk-based capital requirements under the banking agencies’ capital rules and the capital ratio
requirements necessary to be considered “well capitalized.” The Corporation has not elected to use the CBLR framework at this
time.
Dividends
Federal and state laws impose limitations on the payment of dividends by the Banks. The Pennsylvania Banking Code and the
policies of the FDIC and the Department generally encourage the Banks to pay dividends from current net income and retained
earnings. The Pennsylvania Banking Code restricts the availability of capital funds for payment of dividends by the Banks to
their accumulated net earnings.
In addition to the dividend restrictions described above, the banking regulators have the authority to prohibit or to limit the
payment of dividends by the Banks if, in the banking regulator’s opinion, payment of a dividend would constitute an unsafe or
unsound practice in light of the financial condition of the Banks.
Under Pennsylvania law, the Corporation may not pay a dividend, if, after giving effect thereto, it would be unable to pay its
debts as they become due in the usual course of business and, after giving effect to the dividend, the total assets of the
Corporation would be less than the sum of its total liabilities plus the amount that would be needed, if the Corporation were to
15
be dissolved at the time of distribution, to satisfy the preferential rights upon dissolution of shareholders whose rights are
superior to those receiving the dividend.
It is also the policy of the FRB that a bank holding company generally may only pay dividends on common stock out of net
income available to common shareholders over the past twelve months and only if the prospective rate of earnings retention
appears consistent with a bank holding company’s capital needs, asset quality, and overall financial condition. A bank holding
company also should not maintain a dividend level that places undue pressure on the capital of such institution’s subsidiaries, or
that may undermine the bank holding company’s ability to serve as a source of strength for such subsidiaries.
C. Regulation of the Banks
The Banks are highly regulated by the FDIC and the Department. The laws that such agencies enforce limit the specific types
of businesses in which the Banks may engage, and the products and services that the Banks may offer to customers. Generally,
these limitations are designed to protect the insurance fund of the FDIC and/or the customers of the Banks, and not the Banks or
their shareholders. From time to time, various types of new federal and state legislation have been proposed that could result in
additional regulation of, and restrictions on, the business of the Banks. It cannot be predicted whether any such legislation will
be adopted or how such legislation would affect business of the Banks. As a consequence of the extensive regulation of
commercial banking activities in the United States, the Banks' business is particularly susceptible to being affected by federal
legislation and regulations that may increase the costs of doing business. Some of the major regulatory provisions that affect
the business of the Banks are discussed briefly below.
Prompt Corrective Action
The FDIC has specified the levels at which an insured institution will be considered “well-capitalized,” “adequately
capitalized,” “undercapitalized,” and “critically undercapitalized.” In the event an institution’s capital deteriorates to the
“undercapitalized” category or below, the Federal Deposit Insurance Act (the “FDIA”) and FDIC regulations prescribe an
increasing amount of regulatory intervention, including: (1) the institution of a capital restoration plan by a bank and a
guarantee of the plan by a parent institution and liability for civil money damages for failure to fulfill its commitment on that
guarantee; and (2) the placement of a hold on increases in assets, number of branches, or lines of business. If capital has
reached the significantly or critically undercapitalized levels, further material restrictions can be imposed, including restrictions
on interest payable on accounts, dismissal of management and (in critically undercapitalized situations) appointment of a
receiver. For well-capitalized institutions, the FDIA provides authority for regulatory intervention where the institution is
deemed to be engaging in unsafe or unsound practices or receives a less than satisfactory examination report rating for asset
quality, management, earnings or liquidity.
Deposit Insurance
The FDIC maintains the Deposit Insurance Fund ("DIF") by assessing depository institutions an insurance premium. The FDIC
insures deposit accounts up to $250,000 per depositor.
Under the FDIC's risk-based assessment system, deposit insurance assessments are based on each insured institution's total
assets less tangible equity, thereby basing deposit insurance assessments on an institution’s total liabilities, not only insured
deposits. Small banks (generally, those with less than $10 billion in assets) are assigned an individual rate based on a formula
using financial data and CAMELS (capital adequacy, asset quality, management, earnings, liquidity, and sensitivity) ratings. A
bank’s assessment is calculated by multiplying its individual assessment rate by its assessment base (average consolidated total
assets less average tangible equity), determined quarterly.
Federal Home Loan Bank System
The Banks are members of the Federal Home Loan Bank of Pittsburgh (the “FHLB”), which is one of 12 regional Federal
Home Loan Banks. Each Federal Home Loan Bank serves as a reserve or central bank for its members within its assigned
region. It is funded primarily from funds deposited by member institutions and proceeds from the sale of consolidated
obligations of the Federal Home Loan Bank System. It makes loans to members (i.e., advances) in accordance with policies
and procedures established by the board of directors of the Federal Home Loan Bank. At December 31, 2021, the Banks had
$118,000,000 in FHLB advances.
As a member, the Banks are required to purchase and maintain stock in the FHLB. The amount of required stock varies based
on the FHLB products utilized by the Banks and the amount of the products utilized. At December 31, 2021, the Banks had
$14,026,000 in stock of the FHLB, which was in compliance with this requirement.
16
Other Legislation
The 2010 Dodd-Frank Act made significant changes to the bank regulatory structure and affects the lending, deposit,
investment, trading and operating activities of financial institutions and their holding companies. The Dodd-Frank Act, among
other things: (i) expands the authority of the FRB to examine bank holding companies and their subsidiaries, including insured
depository institutions; (ii) requires a bank holding company to be well capitalized and well managed to receive approval of an
interstate bank acquisition; (iii) provides mortgage reform provisions regarding a customer’s ability to pay and making more
loans subject to provisions for higher-cost loans and new disclosures; (iv) creates the Consumer Financial Protection Bureau
(the “CFPB”) that has rule making authority for a wide range of consumer protection laws that apply to all banks and has broad
powers to supervise and enforce consumer protection laws; (v) introduces additional corporate governance and executive
compensation requirements on public companies subject to the Securities and Exchange Act of 1934, such as the Corporation;
(vi) permits FDIC-insured banks to pay interest on business demand deposits; (vii) requires that holding companies and other
companies that directly or indirectly control an insured depository institution serve as a source of financial strength to that
institution; (viii) makes permanent the $250,000 limit for federal deposit insurance at all insured depository institutions; and
(ix) permits national and state banks to establish interstate branches to the same extent as the branch host state allows
establishment of in-state branches.
The Dodd-Frank Act also created a new Consumer Financial Protection Bureau with broad powers to supervise and enforce
consumer protection laws. The Consumer Financial Protection Bureau has broad rule-making authority for a wide range of
consumer protection laws that apply to all banks and savings institutions, including the authority to prohibit “unfair, deceptive
or abusive” acts and practices. The Consumer Financial Protection Bureau has examination and enforcement authority over all
banks and savings institutions with more than $10 billion in assets. Banks and savings institutions with $10 billion or less in
assets such as the Banks will continue to be examined for compliance with the consumer laws by their primary bank regulators.
The Dodd-Frank Act also weakens the federal preemption rules that have been applicable for national banks and federal savings
associations, and gives state attorneys general the ability to enforce federal consumer protection laws.
Under the Bank Secrecy Act, a financial institution is required to have systems in place to detect certain types of transactions,
based on the size and nature of the transaction. Financial institutions are generally required to report cash transactions
involving more than $10,000 to the United States Treasury. In addition, financial institutions are required to file suspicious
activity reports for transactions that involve more than $5,000 and that the financial institution knows, suspects or has reason to
suspect, involves illegal funds, is designed to evade the requirements of the law, or has no lawful purpose.
Under the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism
Act, commonly referred to as the “USA PATRIOT Act,” financial institutions are subject to prohibitions against specified
financial transactions and account relationships, as well as enhanced due diligence standards intended to detect, and prevent, the
use of the United States financial system for money laundering and terrorist financing activities. The Patriot Act requires
financial institutions, including banks, to establish anti-money laundering programs, including employee training and
independent audit requirements, meet minimum specified standards, follow minimum standards for customer identification and
maintenance of customer identification records.
The Sarbanes-Oxley Act of 2002 was enacted to enhance penalties for accounting and auditing improprieties at publicly traded
companies and to protect investors by improving the accuracy and reliability of corporate disclosures under the federal
securities laws. The Sarbanes-Oxley Act generally applies to all companies, including the Corporation, that file or are required
to file periodic reports with the Securities and Exchange Commission under the Securities Exchange Act of 1934, or the
Exchange Act. The legislation includes provisions, among other things, governing the services that can be provided by a public
company’s independent auditors and the procedures for approving such services, requiring the chief executive officer and
principal accounting officer to certify certain matters relating to the company’s periodic filings under the Exchange Act,
requiring expedited filings of reports by insiders of their securities transactions and containing other provisions relating to
insider conflicts of interest, increasing disclosure requirements relating to critical financial accounting policies and their
application, increasing penalties for securities law violations, and creating a new public accounting oversight board, a
regulatory body subject to SEC jurisdiction with broad powers to set auditing, quality control, and ethics standards for
accounting firms. In response to the legislation, the national securities exchanges and NASDAQ, adopted new rules relating to
certain governance matters, including the independence of members of a company’s audit committee as a condition to listing or
continued listing.
Congress is often considering financial industry legislation, and the federal banking agencies routinely propose new
regulations. The Corporation cannot predict how any new legislation, or new rules adopted by federal or state banking
agencies, may affect the business of the Corporation and its subsidiaries in the future.
17 Environmental Laws
Environmentally related hazards have become a source of high risk and potential liability for financial institutions relating to
their loans. Environmentally contaminated properties owned by an institution’s borrowers may result in a drastic reduction in
the value of the collateral securing the institution’s loans to such borrowers, high environmental clean up costs to the borrower
affecting its ability to repay the loans, the subordination of any lien in favor of the institution to a state or federal lien securing
clean up costs, and liability to the institution for clean up costs if it forecloses on the contaminated property or becomes
involved in the management of the borrower. The Corporation is not aware of any borrower who is currently subject to any
environmental investigation or clean up proceeding which is likely to have a material adverse effect on the financial condition
or results of operations of the Corporation.
Effect of Government Monetary Policies
The earnings of the Corporation are and will be affected by domestic economic conditions and the monetary and fiscal policies
of the United States Government and its agencies. The monetary policies of the FRB have had, and will likely continue to
have, an important impact on the operating results of commercial banks through its power to implement national monetary
policy in order, among other things, to curb inflation or combat a recession. The FRB has a major effect upon the levels of
bank loans, investments, and deposits through its open market operations in the United States Government securities and
through its regulation of, among other things, the discount rate on borrowings by member banks and the reserve requirements
against member bank deposits. It is not possible to predict the nature and impact of future changes in monetary and fiscal
policies.
DESCRIPTION OF THE BANKS
History and Business
JSSB was incorporated under the laws of the Commonwealth of Pennsylvania as a state bank in 1934 and became a wholly
owned subsidiary of the Corporation on July 12, 1983. As of December 31, 2021, JSSB had total assets of $1,354,455,000;
total shareholders’ equity of $112,101,000; and total deposits of $1,114,490,000. JSSB's deposits are insured by the FDIC for
the maximum amount provided under current law.
Luzerne was acquired by the Corporation on June 1, 2013. As of December 31, 2021, Luzerne had total assets of
$586,199,000; total shareholders’ equity of $56,707,000; and total deposits of $507,892,000. Luzerne's deposits are insured by
the FDIC for the maximum amount provided under current law.
The Banks engage in business as commercial banks, doing business at locations in Lycoming, Clinton, Centre, Montour, Union,
Blair, and Luzerne Counties, Pennsylvania. The Banks offer insurance, securities brokerage services, annuity and mutual fund
investment products, and financial planning through the M Group.
Services offered by the Banks include accepting time, demand and savings deposits including Super NOW accounts, statement
savings accounts, money market accounts, and fixed rate certificates of deposit. Their services also include making secured and
unsecured business and consumer loans that include financing commercial transactions as well as construction and residential
mortgage loans and revolving credit loans with overdraft protection.
The Banks' loan portfolio mix can be classified into three principal categories: commercial and agricultural, real estate, and
consumer. Real estate loans can be further segmented into residential, commercial, and construction. Qualified borrowers are
defined by our loan policy and our underwriting standards. Owner provided equity requirements range from 0% to 35%,
depending on the collateral offered for the loan. Terms are generally restricted to 30 years or less with the exception of
construction and land development, which are generally limited to one and five years, respectively. Real estate appraisals,
property construction verifications, and site visitations comply with our loan policy and with industry regulatory standards.
Prospective residential mortgage customer’s repayment ability is determined from information contained in the application and
recent income tax returns, or other verified income sources. Emphasis is on credit, employment, income, and residency
verification. Broad hazard insurance is always required and flood insurance where applicable. In the case of construction
mortgages, builders risk insurance is requested.
Agricultural loans for the purchase or improvement of real estate must meet the Banks' real estate underwriting criteria.
Agricultural loans made for the purchase of equipment are usually payable in five years, but never more than ten, depending
upon the useful life of the purchased asset. Minimum borrower equity ranges from 0% to 35% depending on the purpose.
18
Livestock financing criteria depends upon the nature of the operation. Agricultural loans are also made for crop production
purposes. Such loans are structured to repay within the production cycle and not carried over into a subsequent year.
Commercial loans are made for the acquisition and improvement of real estate, purchase of equipment, and for working capital
purposes on a seasonal or revolving basis. General purpose working capital loans are also available with repayment expected
within one year. Equipment loans are generally amortized over three to ten years. Insurance coverage with the Banks as loss
payee is required, especially in the case where the equipment is rolling stock. It is also a general policy to collateralize non-real
estate loans with the asset purchased and, depending upon loan terms, junior liens are filed on other available assets. Financial
information required on all commercial mortgages includes the most current three years balance sheets and income statements
and projections on income to be developed through the project. In the case of corporations and partnerships, the principals are
often asked to personally guaranty the entity’s debt.
Seasonal and revolving lines of credit are offered for working capital purposes. Collateral for such a loan may vary but often
includes the pledge of inventory and/or receivables. Drawing availability is usually 50% of inventory and 80% of eligible
receivables. Eligible receivables are defined as invoices less than 90 days delinquent. Exclusive reliance is very seldom placed
on such collateral; therefore, other lienable assets are also taken into the collateral pool. Where reliance is placed on inventory
and accounts receivable, the applicant must provide financial information including agings on a specified basis. In addition, the
guaranty of the principals is usually obtained.
Letter of credit availability is usually limited to standby or performance letters of credit where the customer is well known to
the Banks. The credit criteria is the same as that utilized in making a direct loan. Collateral is obtained in most cases.
Consumer loan products include residential mortgages, home equity loans and lines, automobile financing, personal loans and
lines of credit, overdraft and check lines. Our policy includes standards used in the industry on debt service ratios and terms are
consistent with prudent underwriting standards and the use of proceeds. Verifications are made of employment and residency,
along with credit history.
Second mortgages are confined to equity borrowing and home improvements. Terms are generally fifteen years or less. Loan
to collateral value criteria is 90% or less and verifications are made to determine values. Automobile financing is generally
restricted to five years and done on both an indirect and direct basis. The Banks, as a practice, do not floor plan and therefore
do not discount dealer paper. Small loan requests are to accommodate personal needs such as debt consolidation or the
purchase of small appliances. Overdraft check lines are usually limited to $5,000 or less.
The Banks' investment portfolios are analyzed and priced on a monthly basis. Investments are made in U.S. Treasuries, U.S.
Agency issues, bank qualified tax-exempt municipal bonds, taxable municipal bonds, corporate bonds, and corporate stocks
which consist of Pennsylvania bank stocks. Bonds with BBB or better ratings are used, unless a local issue is purchased that
has a lesser or no rating. Factors taken into consideration when investments are purchased include liquidity, the Corporation’s
tax position, tax equivalent yield, third party investment ratings, and the policies of the Asset/Liability Committee.
The banking environment in Lycoming, Clinton, Centre, Montour, Union, Blair, and Luzerne Counties, Pennsylvania is highly
competitive. The Banks operate twenty-seven full service offices in these markets and compete for loans and deposits with
numerous commercial banks, savings and loan associations, and other financial institutions. The economic base of the region is
developed around small business, health care, educational facilities (college and public schools), light manufacturing industries,
and agriculture.
The Banks have a relatively stable deposit base and no material amount of deposits is obtained from a single depositor or group
of depositors, excluding public entities that account for approximately 9% of total deposits. Although the Banks have regular
opportunities to bid on pools of funds of $100,000 or more in the hands of municipalities, hospitals, and others, it does not rely
on these monies to fund loans or intermediate or longer-term investments.
The Banks have not experienced any significant seasonal fluctuations in the amount of deposits. The Banks have experienced
an outflow of deposits related to municipalities and school districts due to the ongoing Commonwealth of Pennsylvania budget
impasse.
Supervision and Regulation
As referenced elsewhere, the banking business is highly regulated, and the Banks are only able to engage in business activities,
and to provide products and services, that are permitted by applicable law and regulation. In addition, the earnings of the Banks
are affected by the policies of regulatory authorities including the FDIC and the FRB. An important function of the FRB is to
19
regulate the money supply and interest rates. Among the instruments used to implement these objectives are open market
operations in U.S. Government Securities, changes in reserve requirements against member bank deposits, and limitations on
interest rates that member banks may pay on time and savings deposits. These instruments are used in varying combinations to
influence overall growth and distribution of bank loans, and their use may also affect interest rates charged on loans or paid for
deposits.
The policies and regulations of the FRB have had and will probably continue to have a significant effect on the Banks' deposits,
loans and investment growth, as well as the rate of interest earned and paid, and are expected to affect the Banks' operation in
the future. The effect of such policies and regulations upon the future business and earnings of the Banks cannot accurately be
predicted.
ITEM 1A RISK FACTORS
The following sets forth several risk factors that may affect the Corporation's financial condition or results of operations.
Changes in interest rates could reduce our income, cash flows and asset values.
Our income and cash flows and the value of our assets depend to a great extent on the difference between the interest rates we
earn on interest-earning assets, such as loans and investment securities, and the interest rates we pay on interest-bearing
liabilities such as deposits and borrowings. These rates are highly sensitive to many factors which are beyond our control,
including general economic conditions and policies of various governmental and regulatory agencies and, in particular, the
Board of Governors of the Federal Reserve System. Changes in monetary policy, including changes in interest rates, will
influence not only the interest we receive on our loans and investment securities and the amount of interest we pay on deposits
and borrowings but will also affect our ability to originate loans and obtain deposits and the value of our investment portfolio.
If the rate of interest we pay on our deposits and other borrowings increases more than the rate of interest we earn on our loans
and other investments, our net interest income, and therefore our earnings, could be adversely affected. Our earnings also could
be adversely affected if the rates on our loans and other investments fall more quickly than those on our deposits and other
borrowings.
Economic conditions either nationally or locally in areas in which our operations are concentrated may adversely affect
our business.
Deterioration in local, regional, national, or global economic conditions could cause us to experience a reduction in deposits and
new loans, an increase in the number of borrowers who default on their loans, and a reduction in the value of the collateral
securing their loans, all of which could adversely affect our performance and financial condition. Unlike larger banks that are
more geographically diversified, we provide banking and financial services locally. Therefore, we are particularly vulnerable to
adverse local economic conditions.
The COVID-19 pandemic, and the measures taken to control its spread, will continue to adversely impact our
employees, customers, business operations and financial results, and the ultimate impact will depend on future
developments, which are highly uncertain and cannot be predicted.
The COVID-19 pandemic has impacted and is likely to continue to impact the national economy and the regional and local
markets in which we operate, lower equity market valuations, create significant volatility and disruption in capital and debt
markets, and increase unemployment levels. Our business operations may be disrupted if significant portions of our workforce
are unable to work effectively, including because of illness, quarantines, government actions, or other restrictions in connection
with the pandemic. We are subject to heightened cybersecurity, information security and operational risks as a result of work-
from-home arrangements that we have put in place for our employees. Federal Reserve actions to combat the economic
contraction caused by the COVID-19 pandemic, including reductions of the target federal funds rate, could, if prolonged,
adversely affect our net interest income and margins, and our profitability. Closures of businesses and the institution of social
distancing, shelter in place and stay home orders in the communities we serve, have reduced business activity and financial
transactions. While certain of these restrictions have been eased and workplaces in the communities we serve are beginning to
reopen, the pace of reopening is measured, and these government policies and directives are subject to change as the effects and
spread of the COVID-19 pandemic continue to evolve. Changes in customer behavior due to worsening business and economic
conditions or legislative or regulatory initiatives may impact the demand for our products and services, which could adversely
affect our revenue, increase the recognition of credit losses in our loan portfolios and increase our allowance for credit losses.
The extent to which the COVID-19 pandemic will continue to impact our business, results of operations, and financial
condition, as well as our regulatory capital and liquidity ratios, will depend on future developments, including the scope and
duration of the pandemic and actions taken by governmental authorities and other third parties in response to the pandemic, as
20
well as further actions we may take as may be required by government authorities or that we determine are in the best interests
of our employees and customers. There is no certainty that such measures will be sufficient to mitigate the risks posed by the
pandemic.
Many of our loans are secured, in whole or in part, with real estate collateral which is subject to declines in value.
In addition to considering the financial strength and cash flow characteristics of a borrower, we often secure our loans with real
estate collateral. Real estate values and the real estate market are generally affected by, among other things, changes in local,
regional or national economic conditions, fluctuations in interest rates and the availability of loans to potential purchasers,
changes in tax laws and other governmental statutes, regulations and policies, and acts of nature. The real estate collateral
provides an alternate source of repayment in the event of default by the borrower. If real estate prices in our markets decline,
the value of the real estate collateral securing our loans could be reduced. If we are required to liquidate real estate collateral
securing loans during a period of reduced real estate values to satisfy the debt, our earnings and capital could be adversely
affected.
Our information systems may experience an interruption or breach in security.
We rely heavily on communications and information systems to conduct our business. Any failure, interruption or breach in
security of these systems could result in failures or disruptions in our customer-relationship management, general ledger,
deposit, loan and other systems. While we have policies and procedures designed to prevent or limit the effect of the failure,
interruption or security breach of our information systems, there can be no assurance that any such failures, interruptions or
security breaches will not occur; or, if they do occur, that they will be adequately addressed. The occurrence of any failures,
interruptions or security breaches of our information systems could damage our reputation, result in a loss of customer business,
subject us to additional regulatory scrutiny or expose us to civil litigation and possible financial liability; any of which could
have a material adverse effect on our financial condition and results of operations.
We face the risk of cyber-attack to our computer systems.
Our computer systems, software and networks have been and will continue to be vulnerable to unauthorized access, loss or
destruction of data (including confidential client information), account takeovers, unavailability of service, computer viruses or
other malicious code, cyber-attacks and other events. These threats may derive from human error, fraud or malice on the part of
employees or third parties, or may result from accidental technological failure. If one or more of these events occurs, it could
result in the disclosure of confidential client information, damage to our reputation with our clients and the market, additional
costs to us (such as repairing systems or adding new personnel or protection technologies), regulatory penalties and financial
losses, to both us and our clients and customers. Such events could also cause interruptions or malfunctions in our operations
(such as the lack of availability of our online banking system), as well as the operations of our clients, customers or other third
parties. Although we maintain safeguards to protect against these risks, there can be no assurance that we will not suffer losses
in the future that may be material in amount.
Competition may decrease our growth or profits.
We face substantial competition in all phases of our operations from a variety of different competitors, including commercial
banks, savings and loan associations, mutual savings banks, credit unions, consumer finance companies, factoring companies,
leasing companies, insurance companies, and money market mutual funds. There is very strong competition among financial
services providers in our principal service area. Our competitors may have greater resources, higher lending limits, or larger
branch systems than we do. Accordingly, they may be able to offer a broader range of products and services as well as better
pricing for those products and services than we can.
In addition, some of the financial services organizations with which we compete are not subject to the same degree of regulation
as is imposed on federally insured financial institutions. As a result, those non-bank competitors may be able to access funding
and provide various services more easily or at less cost than we can, adversely affecting our ability to compete effectively.
The value of certain investment securities is volatile and future declines or other-than-temporary impairments could
materially adversely affect our future earnings and regulatory capital.
Continued volatility in the market value for certain of our investment securities, whether caused by changes in market
perceptions of credit risk, as reflected in the expected market yield of the security, or actual defaults in the portfolio could result
in significant fluctuations in the value of the securities. This could have a material adverse impact on our accumulated other
comprehensive income/loss and shareholders’ equity depending on the direction of the fluctuations. Furthermore, future
21 downgrades or defaults in these securities could result in future classifications of investment securities as other than temporarily
impaired. This could have a material impact on our future earnings.
We may be adversely affected by government regulation.
The banking industry is heavily regulated. Banking regulations are primarily intended to protect the federal deposit insurance
funds and depositors, not shareholders. Changes in the laws, regulations, and regulatory practices affecting the banking
industry may increase our costs of doing business or otherwise adversely affect us and create competitive advantages for others.
Regulations affecting banks and financial services companies undergo continuous change, and we cannot predict the ultimate
effect of these changes, which could have a material adverse effect on our profitability or financial condition.
The potential exists for additional federal or state laws and regulations, or changes in policy, affecting many aspects of our
operations, including capital levels, lending and funding practices, and liquidity standards. New laws and regulations may
increase our costs of regulatory compliance and of doing business and otherwise affect our operations, and may significantly
affect the markets in which we do business, the markets for and value of our loans and investments, the fees we can charge and
our ongoing operations, costs and profitability.
We rely on our management and other key personnel, and the loss of any of them may adversely affect our operations.
We are and will continue to be dependent upon the services of our executive management team. In addition, we will continue to
depend on our ability to retain and recruit key commercial loan officers. The unexpected loss of services of any key
management personnel or commercial loan officers could have an adverse effect on our business and financial condition
because of their skills, knowledge of our market, years of industry experience, and the difficulty of promptly finding qualified
replacement personnel.
Environmental liability associated with lending activities could result in losses.
In the course of our business, we may foreclose on and take title to properties securing our loans. If hazardous substances were
discovered on any of these properties, we could be liable to governmental entities or third parties for the costs of remediation of
the hazard, as well as for personal injury and property damage. Many environmental laws can impose liability regardless of
whether we knew of, or were responsible for, the contamination. In addition, if we arrange for the disposal of hazardous or
toxic substances at another site, we may be liable for the costs of cleaning up and removing those substances from the site even
if we neither own nor operate the disposal site. Environmental laws may require us to incur substantial expenses and may
materially limit use of properties we acquire through foreclosure, reduce their value or limit our ability to sell them in the event
of a default on the loans they secure. In addition, future laws or more stringent interpretations or enforcement policies with
respect to existing laws may increase our exposure to environmental liability.
Failure to implement new technologies in our operations may adversely affect our growth or profits.
The market for financial services, including banking services and consumer finance services, is increasingly affected by
advances in technology, including developments in telecommunications, data processing, computers, automation, Internet-
based banking, and telebanking. Our ability to compete successfully in our markets may depend on the extent to which we are
able to exploit such technological changes. However, we can provide no assurance that we will be able to properly or timely
anticipate or implement such technologies or properly train our staff to use such technologies. Any failure to adapt to new
technologies could adversely affect our business, financial condition, or operating results.
The Corporation is required to adopt the FASB's accounting standard which requires measurement of certain financial
assets (including loans) using the current expected credit losses (CECL) beginning in calendar year 2023.
Current GAAP requires an incurred loss methodology for recognizing credit losses that delays recognition until it is probable a
loss has been incurred. The FASB's amendment replaces the current incurred loss methodology with a methodology that
reflects expected credit losses and requires consideration of a broader range of reasonableness and supportable information to
inform credit loss estimates. The Corporation is in the process of evaluating the impact of the adoption of this guidance on the
Corporation's financial statements; however, it is anticipated that the allowance for loan losses will increase upon the adoption
of CECL and that the increased allowance level will have the effect of decreasing shareholders' equity and the Corporation's
and Bank's regulatory capital ratios.
22 An investment in our common stock is not an insured deposit.
Our common stock is not a bank deposit and, therefore, is not insured against loss by the FDIC, any other deposit insurance
fund, or by any other public or private entity. Investment in our common stock is subject to the same market forces that affect
the price of common stock in any company.
ITEM 1B UNRESOLVED STAFF COMMENTS
None.
23
ITEM 2
PROPERTIES
The Corporation owns or leases its properties. Listed herewith are the locations of properties owned or leased as of
December 31, 2021, in which the banking offices are located; all properties are in good condition and adequate for the
Corporation's purposes:
Office
Address
Ownership
Jersey Shore State Bank & Subsidiaries
Main Street
Bridge Street
DuBoistown
Williamsport
Montgomery
Lock Haven
Mill Hall
Centre Hall
Zion
State College
Montoursville
Danville
Loyalsock
Lewisburg
Muncy-Hughesville
Altoona
Bellefonte
115 South Main Street, PO Box 5098
Jersey Shore, PA 17740
112 Bridge Street
Jersey Shore, PA 17740
2675 Euclid Avenue
Williamsport, PA 17702
300 Market Street
P.O. Box 967
Williamsport, PA 17703-0967
9094 Rt. 405 Highway
Montgomery, PA 17752
4 West Main Street
Lock Haven, PA 17745
Owned
Owned
Owned
Owned
Owned
Owned
(Inside Wal-Mart), 173 Hogan Boulevard
Under Lease
Mill Hall, PA 17751
2842 Earlystown Road
Centre Hall, PA 16828
100 Cobblestone Road
Bellefonte, PA 16823
2050 North Atherton Street
State College, PA 16803
820 Broad Street
Montoursville, PA 17754
150 Continental Boulevard
Danville, PA 17821
1720 East Third Street
Williamsport, PA 17701
550 North Derr Drive
Lewisburg, PA 17837
3081 Route 405 Highway
Muncy, PA 17756
503 East Plank Road
Altoona, PA 16602
835 East Bishop Street
Bellefone, PA 16823
Land Under Lease
Owned
Land Under Lease
Owned
Under Lease
Owned
Owned
Owned
Under Lease
Under Lease
Owned
The M Group, Inc.
D/B/A The Comprehensive Financial Group Williamsport, PA 17701
1720 East Third Street
24
Office
Luzerne Bank
Address
Ownership
Dallas
Lake
Hazle Twp.
Luzerne
Wilkes-Barre
Conyngham Valley
Pittston
Forty Fort
509 Main Road
Memorial Highway
Dallas, PA 18612
Corners of Rt. 118 & 415
Dallas, PA 18612
10 Dessen Drive
Hazle Twp., PA 18202
118 Main Street
Luzerne, PA 18709
67 Public Square
Wilkes-Barre, PA 18701
669 State Route 93 STE 5
Sugarloaf, PA 18249
285 South Main Street
Pittston, PA 18640
1320 Wyoming Avenue
Forty Fort, PA 18704
Owned
Owned
Owned
Owned
Under Lease
Under Lease
Under Lease
Under Lease
ITEM 3
LEGAL PROCEEDINGS
The Corporation is subject to lawsuits and claims arising out of its business in the ordinary course. In the opinion of
management, after review and consultation with counsel, there are no legal proceedings currently pending or threatened that are
reasonably likely to have a material adverse effect on the consolidated financial position or results of operations of the
Corporation.
ITEM 4 MINE SAFETY DISCLOSURES
Not applicable.
25
PART II
ITEM 5
MARKET FOR THE REGISTRANT’S COMMON STOCK, RELATED STOCKHOLDER MATTERS,
AND ISSUER PURCHASES OF EQUITY SECURITIES
The Corporation’s common stock is listed on the NASDAQ Global Select Market under the symbol “PWOD”. The following
table sets forth (1) the quarterly high and low closing sale prices for a share of the Corporation’s common stock during the
periods indicated, and (2) quarterly dividends on a share of the common stock with respect to each quarter since January 1,
2019.
Price Range
High
Low
Dividends
Declared
2021
First quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
27.78 $
20.55 $
Second quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
26.51
24.42
24.65
23.03
22.78
23.50
2020
First quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
35.36 $
19.05 $
Second quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
27.75
22.83
27.30
20.01
19.61
19.61
2019
First quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
29.67 $
23.23 $
Second quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
30.17
30.93
35.58
26.03
26.87
29.68
0.32
0.32
0.32
0.32
0.32
0.32
0.32
0.32
0.32
0.31
0.31
0.32
The Corporation has paid dividends since the effective date of its formation as a bank holding company. It is the present
intention of the Corporation’s board of directors to continue the dividend payment policy; however, further dividends must
necessarily depend upon earnings, financial condition, appropriate legal restrictions, and other factors relevant at the time the
board of directors of the Corporation considers dividend policy. Cash available for dividend distributions to shareholders of the
Corporation primarily comes from dividends paid by JSSB and Luzerne to the Corporation. Therefore, the restrictions on the
Banks' dividend payments are directly applicable to the Corporation. See also the information appearing in Note 19 to “Notes
to Consolidated Financial Statements” for additional information related to dividend restrictions.
Under the Pennsylvania Business Corporation Law of 1988 a corporation may not pay a dividend, if after giving effect thereto,
the corporation would be unable to pay its debts as they become due in the usual course of business and after giving effect
thereto the total assets of the corporation would be less than the sum of its total liabilities plus the amount that would be needed,
if the corporation were to be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of the
shareholders whose preferential rights are superior to those receiving the dividend.
As of March 1, 2022, the Corporation had approximately 4,511 shareholders of record.
Following is a schedule of the shares of the Corporation’s common stock purchased by the Corporation during the fourth
quarter of 2021.
Period
Month #1 (October 1 - October 31, 2021)
Month #2 (November 1 - November 30, 2021)
Month #3 (December 1 - December 31, 2021)
Total
Number of
Shares (or
Units)
Purchased
Average
Price Paid
per Share
(or Units)
Purchased
—
—
—
Total Number of
Shares (or Units)
Purchased as Part of
Publicly Announced
Plans or Programs
—
—
—
Maximum Number (or
Approximate Dollar Value)
of Shares (or Units) that
May Yet Be Purchased
Under the Plans or Programs
353,000
353,000
353,000
— $
—
—
26
ITEM 6
SELECTED FINANCIAL DATA
The following table sets forth certain financial data for each of the years in the five-year period ended December 31, 2021:
(In Thousands, Except Per Share Data Amounts)
2021
2020
2019
2018
2017
Consolidated Statement of Income Data:
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 58,414
$ 62,638
$ 66,774
$ 58,746
$ 49,977
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . .
Net interest income . . . . . . . . . . . . . . . . . . . . . . . .
Provision for loan losses . . . . . . . . . . . . . . . . . . . .
Net interest income after provision for loan
losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-interest income . . . . . . . . . . . . . . . . . . . . . . .
Non-interest expense . . . . . . . . . . . . . . . . . . . . . .
Income before income tax provision . . . . . . . . . .
Income tax provision . . . . . . . . . . . . . . . . . . . . . .
Consolidated net income . . . . . . . . . . . . . . . . . . .
8,696
49,718
640
49,078
11,669
40,905
19,842
3,794
16,048
Earnings attributable to noncontrolling interest . .
Net income attributable to Penns Woods
Bancorp, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 16,033
15
14,415
48,223
2,625
45,598
12,168
39,068
18,698
3,474
15,224
18
15,959
50,815
2,735
48,080
10,452
39,708
18,824
3,138
15,686
14
10,936
47,810
1,735
46,075
9,461
38,007
17,529
2,819
14,710
6
5,897
44,080
730
43,350
10,744
36,862
17,232
7,459
9,773
—
$ 15,206
$ 15,672
$ 14,704
$
9,773
Consolidated Balance Sheet at End of Period:
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,940,809
$ 1,834,643
$ 1,665,323
$ 1,684,771
$ 1,474,492
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,392,147
1,344,327
1,355,544
1,384,757
1,246,614
Allowance for loan losses . . . . . . . . . . . . . . . . . . .
(14,176)
(13,803)
(11,894)
(13,837)
(12,858)
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,621,315
1,494,443
1,324,005
1,219,903
1,146,320
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . .
125,963
153,475
161,920
138,942
70,970
Shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . .
172,274
164,142
154,960
143,536
138,192
Per Share Data:
Earnings per share - basic . . . . . . . . . . . . . . . . . . . $
Earnings per share - diluted . . . . . . . . . . . . . . . . .
Cash dividends declared . . . . . . . . . . . . . . . . . . . .
$
2.27
2.27
1.28
Book value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
24.37
2.16
2.16
1.28
23.27
$
2.23
2.20
1.26
22.01
$
2.09
2.09
1.25
20.39
$
1.39
1.39
1.25
19.65
Number of shares outstanding, at end of period . .
Weighted average number of shares outstanding -
basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average number of shares outstanding -
diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,070,047
7,061,818
7,061,818
7,052,351
7,040,515
7,037,322
7,033,784
7,044,542
7,038,714
7,035,381
7,058,403
7,044,542
7,113,339
7,035,381
7,058,403
Selected Financial Ratios:
Return on average shareholders’ equity . . . . . . . .
Return on average total assets . . . . . . . . . . . . . . .
Net interest margin . . . . . . . . . . . . . . . . . . . . . . . .
Dividend payout ratio . . . . . . . . . . . . . . . . . . . . . .
Average shareholders’ equity to average total
assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans to deposits, at end of period . . . . . . . . . . . .
9.93 %
0.85 %
2.85 %
56.39 %
8.54 %
85.87 %
9.66 %
0.85 %
2.94 %
59.32 %
8.85 %
89.96 %
10.54 %
0.94 %
3.31 %
56.27 %
10.72 %
0.94 %
3.31 %
59.97 %
6.91 %
0.69 %
3.47 %
90.42 %
8.91 %
102.38 %
8.77 %
113.51 %
10.05 %
108.75 %
27
ITEM 7 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
NET INTEREST INCOME
RESULTS OF OPERATIONS
Net interest income is determined by calculating the difference between the yields earned on interest-earning assets and the
rates paid on interest-bearing liabilities. To compare the tax-exempt asset yields to taxable yields, amounts are adjusted to
taxable equivalents based on the marginal corporate federal tax rate of 21%. The tax equivalent adjustments to net interest
income for 2021, 2020, and 2019 were $449,000, $476,000, and $489,000, respectively.
2021 vs. 2020
Reported net interest income increased $1,495,000 to $49,718,000 for the year ended December 31, 2021 compared to the year
ended December 31, 2020, as the growth in the earning asset portfolio and decline in rate paid on interest-bearing liabilities
more than offset a decrease in the yield on earning assets to 3.35% from 3.80%. Total interest income decreased $4,224,000 or
$4,251,000 on a tax equivalent basis, primarily from a decrease in the tax equivalent yield on the loan portfolio decreasing 28
basis points ("bp"). Tax equivalent interest income on the investment portfolio decreased $541,000 as the yield on the
investment portfolio decreased 54 bp. The decrease in the yield on the earning asset portfolio was driven by the impact of the
continued low interest rate environment resulting from the COVID-19 pandemic.
Interest expense decreased $5,719,000 to $8,696,000 for the year ended December 31, 2021 compared to 2020. The decrease in
interest expense was driven by a 51 bp decrease in the average rate paid on interest-bearing deposits led by a 61 bp decrease in
the average rate paid on time deposits. The decrease in the average rate paid on interest-bearing deposits was offset by an
increase in the balance of the average interest-bearing deposit portfolio of $51,034,000 while the average balance of the time
deposit portfolio decreased $94,554,300. Interest expense on total borrowings decreased $699,000 as the balance of average
total borrowings decreased $32,644,000 due to FHLB long-term borrowings totaling $30,000,000 maturing during the year
ended December 31, 2021. The decrease in the overall rate paid on interest-bearing liabilities is the result of the continued low
interest rate environment.
2020 vs. 2019
Reported net interest income decreased $2,592,000 to $48,223,000 for the year ended December 31, 2020 compared to the year
ended December 31, 2019, as the growth in the earning asset portfolio was offset by a decrease in the yield on earning assets to
3.80% from 4.33%. Total interest income decreased $4,136,000 primarily from a decrease in the tax equivalent yield on the
loan portfolio decreasing 16 basis points ("bp") coupled with a decrease in the average balance of the loan portfolio of
$26,382,000. Tax equivalent interest income on the investment portfolio decreased $688,000 as the yield on the investment
portfolio decreased 65 bp. The decrease in the yield on the earning asset portfolio was driven by the impact of the continued
low interest rate environment resulting from the COVID-19 pandemic.
Interest expense decreased $1,544,000 to $14,415,000 for the year ended December 31, 2020 compared to 2019. The decrease
in interest expense was driven by a 14 bp decrease in the average rate paid on interest-bearing deposits led by a 29 bp decrease
in the average rate paid on money market deposits. The decrease in the average rate paid on interest-bearing deposits was offset
by an increase in the balance of the average interest-bearing deposit portfolio of $45,673,000. Interest expense on total
borrowings decreased $666,000 as the balance of average total borrowings decreased $15,442,000 due to the growth in the
deposit portfolio. The decrease in the overall rate paid on interest-bearing liabilities is the result of the continued low interest
rate environment.
28
AVERAGE BALANCES AND INTEREST RATES
The following tables set forth certain information relating to the Corporation’s average balance sheet and reflect the average
yield on assets and average cost of liabilities for the periods indicated and the average yields earned and rates paid. Such yields
and costs are derived by dividing income or expense by the average balance of assets or liabilities, respectively, for the periods
presented.
(Dollars In Thousands)
Assets:
2021
2020
2019
Average
Balance (1)
Interest
Average
Rate
Average
Balance (1)
Interest
Average
Rate
Average
Balance (1)
Interest
Average
Rate
Tax-exempt loans (3) . . . . . . . . .
$
46,312 $ 1,308
2.82 % $
45,650 $ 1,441
3.16 % $
66,435 $ 2,038
3.07 %
All other loans (4) . . . . . . . . . . . .
1,299,321
52,199
4.02 % 1,304,209
56,079
4.30 % 1,309,806
58,774
4.49 %
Total loans (2) . . . . . . . . . . . . . . .
1,345,633
53,507
3.98 % 1,349,859
57,520
4.26 % 1,376,241
60,812
4.42 %
Fed funds sold
28,395
202
0.71 %
—
—
— %
—
—
— %
Taxable securities . . . . . . . . . . . . .
148,066
4,083
2.80 %
142,714
4,630
3.30 %
134,935
5,306
3.99 %
Tax-exempt securities (3) . . . . . .
36,993
829
2.27 %
28,973
823
2.89 %
25,702
835
3.29 %
Total securities . . . . . . . . . . . . . . .
185,059
4,912
2.69 %
171,687
5,453
3.23 %
160,637
6,141
3.88 %
Interest-bearing deposits . . . . . . .
201,273
242
0.12 %
140,022
141
0.10 %
21,161
310
2.00 %
Total interest-earning assets . . . . .
1,760,360
58,863
3.35 % 1,661,568
63,114
3.80 % 1,558,039
67,263
4.33 %
Other assets . . . . . . . . . . . . . . . . .
129,582
Total assets . . . . . . . . . . . . . . . . . . $ 1,889,942
118,536
$ 1,780,104
111,839
$ 1,669,878
Liabilities and shareholders’
equity:
Savings . . . . . . . . . . . . . . . . . . . . . $ 225,637
Super Now deposits . . . . . . . . . . .
Money market deposits . . . . . . . .
307,446
305,883
116
900
972
0.05 % $ 193,568
256
0.13 % $ 169,832
216
0.13 %
0.29 %
254,177
1,755
0.69 %
231,816
1,758
0.76 %
0.32 %
245,633
1,529
0.62 %
239,317
2,184
0.91 %
Time deposits . . . . . . . . . . . . . . . .
244,341
3,557
1.46 %
338,895
7,025
2.07 %
345,635
7,285
2.11 %
Total interest-bearing deposits . . .
1,083,307
5,545
0.51 % 1,032,273
10,565
1.02 %
986,600
11,443
1.16 %
Short-term borrowings . . . . . . . . .
7,178
9
0.13 %
12,660
43
0.34 %
34,897
793
2.27 %
Long-term borrowings . . . . . . . . .
135,474
3,142
2.32 %
162,636
3,807
2.34 %
155,841
3,723
2.25 %
Total borrowings . . . . . . . . . . . . .
142,652
3,151
2.21 %
175,296
3,850
2.20 %
190,738
4,516
2.25 %
Total interest-bearing liabilities . .
1,225,959
8,696
0.71 % 1,207,569
14,415
1.19 % 1,177,338
15,959
1.34 %
Demand deposits . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . .
Shareholders’ equity . . . . . . . . . .
478,984
23,568
161,431
Total liabilities and shareholders’
equity . . . . . . . . . . . . . . . . . . . . . .
$ 1,889,942
394,210
20,858
157,467
321,443
22,379
148,718
$ 1,780,104
$ 1,669,878
Interest rate spread . . . . . . . . . . . .
Net interest income/margin . . . . .
2.64 %
2.61 %
2.99 %
$ 50,167
2.85 %
$ 48,699
2.94 %
$ 51,304
3.31 %
Information on this table has been calculated using average daily balance sheets to obtain average balances.
1.
2. Non-accrual loans have been included with loans for the purpose of analyzing net interest earnings.
3.
Income and rates on a fully taxable equivalent basis include an adjustment for the difference between annual income from
tax-exempt obligations and the taxable equivalent of such income at the standard tax rate of 21%.
4. Fees on loans are included with interest on loans as follows: 2021 - $852,000; 2020 - $695,000; 2019 - $775,000.
29
Reconciliation of Taxable Equivalent Net Interest Income
(In Thousands)
2021
2020
2019
Total interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
58,414 $
62,638 $
Total interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax equivalent adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,696
49,718
449
14,415
48,223
476
66,774
15,959
50,815
489
Net interest income (fully taxable equivalent) . . . . . . . . . . . . . . . . . . . . . . . $
50,167 $
48,699 $
51,304
Rate/Volume Analysis
The table below sets forth certain information regarding changes in our interest income and interest expense for the periods
indicated. For interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to
(i) changes in volume (changes in average volume multiplied by old rate) and (ii) changes in rates (changes in rate multiplied by
old average volume). Increases and decreases due to both interest rate and volume, which cannot be separated, have been
allocated proportionally to the change due to volume and the change due to interest rate. Income and interest rates are on a
taxable equivalent basis.
(In Thousands)
Interest income:
Year Ended December 31,
2021 vs. 2020
2020 vs. 2019
Increase (Decrease) Due To
Increase (Decrease) Due To
Volume
Rate
Net
Volume
Rate
Net
Loans, tax-exempt . . . . . . . . . . . . . . . . . . . . . . . . . $
2 $
(135) $
(133) $
(600) $
3 $
(597)
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(211)
(3,669)
(3,880)
(248)
(2,447)
(2,695)
Fed funds sold . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxable investment securities . . . . . . . . . . . . . . . .
Tax-exempt investment securities . . . . . . . . . . . . .
Interest-bearing deposits . . . . . . . . . . . . . . . . . . . .
Total interest-earning assets . . . . . . . . . . . . . . . .
Interest expense:
Savings deposits . . . . . . . . . . . . . . . . . . . . . . . . . .
Super Now deposits . . . . . . . . . . . . . . . . . . . . . . . .
Money market deposits . . . . . . . . . . . . . . . . . . . . .
Time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term borrowings . . . . . . . . . . . . . . . . . . . . .
Long-term borrowings . . . . . . . . . . . . . . . . . . . . . .
202
32
104
30
159
3
41
58
—
202
(579)
(547)
(98)
71
6
101
—
62
46
—
(738)
(58)
1,259
(1,428)
—
(676)
(12)
(169)
(4,410)
(4,251)
519
(4,668)
(4,149)
(143)
(896)
(615)
(140)
(855)
(557)
40
80
3
(1,687)
(14)
(633)
(1,781)
(20)
(3,468)
(34)
(132)
(321)
(32)
(665)
44
—
(83)
(658)
(128)
(429)
40
40
(3)
(655)
(260)
(750)
84
Total interest-bearing liabilities . . . . . . . . . . . . .
(2,232)
(3,487)
(5,719)
(286)
(1,258)
(1,544)
Change in net interest income . . . . . . . . . . . . . . . . $ 2,391 $
(923) $ 1,468 $
805 $ (3,410) $
(2,605)
PROVISION FOR LOAN LOSSES
2021 vs. 2020
The provision for loan losses is based upon management’s quarterly review of the loan portfolio. The purpose of the review is
to assess loan quality, identify impaired loans, analyze delinquencies, ascertain loan growth, evaluate potential charge-offs and
recoveries, and assess general economic conditions in the markets served. An external independent loan review is also
performed semi-annually for the Corporation. Management remains committed to an aggressive program of problem loan
identification and resolution.
30
The allowance is calculated by applying loss factors to outstanding loans by type, excluding loans for which a specific
allowance has been determined. Loss factors are based on management’s consideration of the nature of the portfolio segments,
changes in mix and volume of the loan portfolio, and historical loan loss experience. In addition, management considers
industry standards and trends with respect to nonperforming loans and its knowledge and experience with specific lending
segments.
Although management believes that it uses the best information available to make such determinations and that the allowance
for loan losses is adequate at December 31, 2021, future adjustments could be necessary if circumstances or economic
conditions differ substantially from the assumptions used in making the initial determinations. A downturn in the local
economy or employment and delays in receiving financial information from borrowers could result in increased levels of
nonperforming assets and charge-offs, increased loan loss provisions and reductions in interest income. Additionally, as an
integral part of the examination process, bank regulatory agencies periodically review the Banks' loan loss allowance. The
banking regulators could require additions to the loan loss allowance based on their judgment of information available to them
at the time of their examination.
When determining the appropriate allowance level, management has attributed the allowance for loan losses to various portfolio
segments; however, the allowance is available for the entire portfolio as needed.
The allowance for loan losses increased from $13,803,000 at December 31, 2020 to $14,176,000 at December 31, 2021. At
December 31, 2021, the allowance for loan losses was 1.02% of total loans compared to 1.03% of total loans at December 31,
2020.
The provision for loan losses totaled $640,000 for the year ended December 31, 2021 compared to $2,625,000 for the year
ended December 31, 2020. The decrease in the provision was appropriate when considering the economic impact of the
COVID-19 pandemic, reduction in non-performing loans, and level of net charge-offs during 2021. Net charge-offs of
$267,000 represented 0.02% of average loans for the year ended December 31, 2021 compared to net charge-offs of $716,000
or 0.05% of average loans for the year ended December 31, 2020. The impact of the COVID-19 pandemic coupled with supply
chain disruptions led to an increase in the provision related to the commercial real estate mortgage segment of the loan
portfolio. A decrease occurred in the automobile segment of the loan portfolio which coupled with a lower level of
unemployment led to a decreased allowance for loan losses for this segment. Nonperforming loans decreased $4,084,000 as the
economic environment improved as COVID-19 restrictions lessened. The majority of the nonperforming loans are centered on
several loans that are either in a secured position and have sureties with a strong underlying financial position and/or a specific
allowance within the allowance for loan losses. Internal loan review and analysis, level of net charge-offs, decreased level of
nonperforming loans noted previously, and the economic impact of the COVID-19 pandemic, dictated an decrease in the
provision for loan losses. Utilizing both internal and external resources, as noted, senior management has concluded that the
allowance for loan losses remains at a level adequate to provide for probable losses inherent in the loan portfolio.
2020 vs. 2019
The allowance for loan losses increased from $11,894,000 at December 31, 2019 to $13,803,000 at December 31, 2020. At
December 31, 2020, the allowance for loan losses was 1.03% of total loans compared to 0.88% of total loans at December 31,
2019. This increase is due in large part to the economic uncertainty caused by the COVID-19 pandemic.
The provision for loan losses totaled $2,625,000 for the year ended December 31, 2020 compared to $2,735,000 for the year
ended December 31, 2019. The decrease in the provision was appropriate when considering the economic uncertainty caused
by the COVID-19 pandemic and level of net charge-offs during 2020. Net charge-offs of $716,000 represented 0.05% of
average loans for the year ended December 31, 2020 compared to net charge-offs of $4,678,000 or 0.34% of average loans for
the year ended December 31, 2019. The decrease in the loan portfolio was driven by the residential real estate segment that
declined $33,535,000 as consumers refinanced their mortgage as they took advantage of historically low mortgage rates on the
secondary market. Growth occurred in the automobile segment of the portfolio which due to the economic uncertainty and
level of unemployment due to the COVID-19 pandemic required an increased allowance for loan losses. Nonperforming loans
decreased $2,087,000 as a nonperforming loan was paid-off during the fourth quarter of 2020. The majority of the
nonperforming loans are centered on several loans that are either in a secured position and have sureties with a strong
underlying financial position and/or a specific allowance within the allowance for loan losses. Internal loan review and
analysis, level of net charge-offs, decreased level of nonperforming loans noted previously, and the economic uncertainty
caused by the COVID-19 pandemic, dictated an decrease in the provision for loan losses. Utilizing both internal and external
resources, as noted, senior management has concluded that the allowance for loan losses remains at a level adequate to provide
for probable losses inherent in the loan portfolio.
31 NON-INTEREST INCOME
2021 vs. 2020
Total non-interest income decreased $499,000 from the year ended December 31, 2020 to December 31, 2021. Excluding net
security gains, non-interest income increased $450,000 year over year. Bank owned life insurance increased primarily due to
gains recognized on the receipt of death benefits. Debit card income increased $231,000 primarily due to an increase in debit
card usage resulting from a lessening of COVID-19 restrictions and as consumers return to historical purchasing levels. Gain
on sale of loans decreased as an increased proportion of secondary market loan originations were conducted in a broker capacity
which resulted in other income increasing significantly.
2021
2020
Change
(In Thousands)
Amount
% Total
Amount
% Total
Amount
%
Service charges . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,703
14.59 % $ 1,690
13.89 % $
13
0.77 %
Net securities gains, available for sale . . . . . . .
Net equity securities (losses) gains . . . . . . . . . .
Net securities losses, trading . . . . . . . . . . . . . . .
Bank owned life insurance . . . . . . . . . . . . . . . .
Gain on sale of loans . . . . . . . . . . . . . . . . . . . . .
Insurance commissions . . . . . . . . . . . . . . . . . . .
Brokerage commissions . . . . . . . . . . . . . . . . . .
Loan broker income . . . . . . . . . . . . . . . . . . . . .
Debit card income . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
699
(37)
(3)
916
2,474
553
851
2,164
1,511
838
5.99
(0.32)
(0.03)
7.85
21.20
4.74
7.29
18.55
12.95
7.19
1,592
27
(11)
653
4,148
416
970
673
1,280
730
13.08
0.22
(0.09)
5.37
34.09
3.42
7.97
5.53
10.52
6.00
(893)
(64)
8
263
(1,674)
137
(119)
1,491
231
108
(56.09)
(237.04)
(72.73)
40.28
(40.36)
32.93
(12.27)
221.55
18.05
14.79
Total non-interest income . . . . . . . . . . . . . . . . $ 11,669
100.00 % $ 12,168
100.00 % $
(499)
(4.10) %
2020 vs. 2019
Total non-interest income increased $1,716,000 from the year ended December 31, 2019 to December 31, 2020. Excluding net
security gains, non-interest income increased $856,000 year over year. Service charges decreased primarily due to overdraft
income declining as a result of the government actions taken to contain the spread of COVID-19 and economic stimulus
provided by the government. Insurance commissions along with brokerage commissions decreased primarily from the impact
of the uncertainty surrounding the economy. Debit card income decreased $98,000 primarily due to a decline in debit card
usage resulting from the stay at home government actions taken to contain the spread of COVID-19. Gain on sale of loans
increased significantly as the low interest rate environment caused an increase in the number of homeowners who refinanced
their mortgage to take advantage of historically low interest rates.
2020
2019
Change
(In Thousands)
Amount
% Total
Amount
% Total
Amount
%
Service charges . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,690
13.89 % $ 2,411
23.07 % $
(721)
(29.90) %
Net securities gains, available for sale . . . . . . . . .
1,592
Net equity securities gains . . . . . . . . . . . . . . . . . . .
Net securities (losses) gains, trading . . . . . . . . . . .
Bank owned life insurance . . . . . . . . . . . . . . . . . .
27
(11)
653
Gain on sale of loans . . . . . . . . . . . . . . . . . . . . . . .
4,148
Insurance commissions . . . . . . . . . . . . . . . . . . . . .
Brokerage commissions . . . . . . . . . . . . . . . . . . . .
416
970
13.08
0.22
(0.09)
5.37
34.09
3.42
7.97
640
89
19
574
1,754
433
1,358
6.12
0.85
0.18
5.49
16.78
4.14
12.99
952
148.75
(62)
(30)
79
69.66
157.89
13.76
2,394
136.49
(17)
(3.93)
(388)
(28.57)
Loan broker income . . . . . . . . . . . . . . . . . . . . . . .
Debit card income . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
673
1,280
730
Total non-interest income . . . . . . . . . . . . . . . . . . $ 12,168
5.53
10.52
6.00
1,058
1,378
738
100.00 % $ 10,452
10.12
13.18
7.08
(385)
(98)
(8)
100.00 % $ 1,716
(36.39)
(7.11)
(1.08)
16.42 %
32
NON-INTEREST EXPENSE
2021 vs. 2020
Total non-interest expenses increased $1,837,000 from the year ended December 31, 2020 to December 31, 2021. The increase
in salaries and employee benefits was attributable to routine wage and benefit increases in addition to a return to full staffing
levels as branch lobbies were temporarily closed during a period of 2020 due to the COVID-19 pandemic. Occupancy expense
increased primarily due to increased depreciation and maintenance costs as certain projects were delayed due to the COVID-19
pandemic in 2020. Marketing expenses increased as advertising returned to normal levels after being reduced during 2020 due
to the pandemic. Other expenses decreased as general office supply and miscellaneous expenses decreased year over year.
2021
2020
Change
(In Thousands)
Amount
% Total
Amount
% Total
Amount
%
Salaries and employee benefits . . . . . . . . . . . . . . . $ 23,014
56.26 % $ 21,632
55.37 % $ 1,382
6.39 %
Occupancy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture and equipment . . . . . . . . . . . . . . . . . . . .
Software amortization . . . . . . . . . . . . . . . . . . . . . .
Pennsylvania shares tax . . . . . . . . . . . . . . . . . . . . .
Professional fees . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal Deposit Insurance Corporation deposit
insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible amortization . . . . . . . . . . . . . . . . . . . . .
3,209
3,522
868
1,350
2,432
963
545
191
7.85
8.61
2.12
3.30
5.95
2.35
1.33
0.47
2,650
3,411
978
1,289
2,362
939
261
227
6.78
8.73
2.50
3.30
6.05
2.40
0.67
0.58
559
111
21.09
3.25
(110)
(11.25)
61
70
4.73
2.96
24
284
2.56
108.81
(36)
(15.86)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,811
11.76
5,319
13.62
(508)
(9.55)
Total non-interest expense . . . . . . . . . . . . . . . . . $ 40,905
100.00 % $ 39,068
100.00 % $ 1,837
4.70 %
2020 vs. 2019
Total non-interest expenses decreased $640,000 from the year ended December 31, 2019 to December 31, 2020. The decrease
in salaries and employee benefits was attributable to staff layoffs resulting from branch lobbies being temporarily closed during
a period of 2020 due to the COVID-19 pandemic. Furniture and equipment expense and software amortization increased due to
continued enhancement of systems, in particular those related to electronic banking channels. Marketing expenses decreased as
advertising was reduced during 2020 due to the pandemic. The increase in deposit insurance reflects the increase in deposit
balances and the FDIC assessment credit that was recorded during 2019.
(In Thousands)
Amount
% Total
Amount
% Total
Amount
%
Salaries and employee benefits . . . . . . . . . . . . . . . $ 21,632
55.37 % $ 21,829
54.97 % $
(197)
(0.90) %
2020
2019
Change
Occupancy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture and equipment . . . . . . . . . . . . . . . . . . . .
Software amortization . . . . . . . . . . . . . . . . . . . . . .
Pennsylvania shares tax . . . . . . . . . . . . . . . . . . . . .
Professional fees . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal Deposit Insurance Corporation deposit
insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Write down of assets held for sale . . . . . . . . . . . . .
Loss on sale of premises and equipment . . . . . . . .
Marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible amortization . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,650
3,411
978
1,289
2,362
939
—
—
261
227
5,319
6.78
8.73
2.50
3.30
6.05
2.40
—
—
0.67
0.58
13.62
2,712
3,248
871
1,148
2,474
578
475
474
425
264
5,210
6.83
8.18
2.19
2.89
6.23
1.46
1.20
1.19
1.07
0.66
13.13
(62)
(2.29)
163
107
141
5.02
12.28
12.28
(112)
(4.53)
361
62.46
(475)
(474)
(164)
(37)
109
n/a
n/a
(38.59)
(14.02)
2.09
Total non-interest expense . . . . . . . . . . . . . . . . . $ 39,068
100.00 % $ 39,708
100.00 % $
(640)
(1.61) %
33
INCOME TAXES
2021 vs. 2020
The provision for income taxes for the year ended December 31, 2021 resulted in an effective income tax rate of 19.12%
compared to 18.58% for 2020.
2020 vs. 2019
The provision for income taxes for the year ended December 31, 2019 resulted in an effective income tax rate of 18.58%
compared to 16.67% for 2018.
FINANCIAL CONDITION
INVESTMENTS
2021
The fair value of the investment portfolio increased $4,109,000 from December 31, 2020 to December 31, 2021. The increase
in value is the result of growth in the municipal segment of the portfolio as the investment portfolio continues to be actively
managed in order to reduce interest rate and market risk. This strategy is being deployed through selective purchasing of bonds
that mature within ten years. The unrealized losses within the debt securities portfolio are the result of market activity, not
credit issues/ratings, as approximately 85% of the debt securities portfolio on an amortized cost basis is currently rated A or
higher by either S&P or Moody’s.
2020
The fair value of the investment portfolio increased $13,658,000 from December 31, 2019 to December 31, 2020. The increase
in value is the result of growth in the municipal segment of the portfolio as the investment portfolio continues to be actively
managed in order to reduce interest rate and market risk. This strategy is being deployed through selective purchasing of bonds
that mature within ten years. The unrealized losses within the debt securities portfolio are the result of market activity, not
credit issues/ratings, as approximately 83% of the debt securities portfolio on an amortized cost basis is currently rated A or
higher by either S&P or Moody’s.
The carrying amounts of investment securities are summarized as follows for the years ended December 31, 2021, 2020, and
2019:
(In Thousands)
Available for sale (AFS):
2021
2020
2019
Balance
% Portfolio
Balance
% Portfolio
Balance
% Portfolio
Mortgage-backed securities . . . . . . . . . . . . . $
1,747
1.04 % $
2,141
1.31 % $
4,966
State and political securities (tax-exempt) .
State and political securities (taxable) . . . . .
Other bonds, notes and debentures . . . . . . .
38,563
78,095
48,005
23.00 %
34,736
21.23 %
22,575
46.57 %
73,277
44.79 %
59,711
28.63 %
52,107
31.85 %
61,367
Total debt securities . . . . . . . . . . . . . . . . . .
166,410
99.23 % 162,261
99.19 % 148,619
Equity securities:
Other investment equity securities . . . . . . .
Trading securities . . . . . . . . . . . . . . . . . . . .
1,251
37
0.75 %
1,288
0.79 %
1,261
0.02 %
40
0.02 %
51
3.31 %
15.07 %
39.83 %
40.93 %
99.12 %
0.84 %
0.03 %
Total equity securities . . . . . . . . . . . . . . . .
1,288
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 167,698
0.77 %
1,328
100.00 % $ 163,589
0.81 %
1,312
100.00 % $ 149,931
0.88 %
100.00 %
34
The following table shows the maturities and repricing of investment securities, at amortized cost and the weighted average
yields (for tax-exempt obligations on a fully taxable basis assuming a 21% tax rate) at December 31, 2021:
(In Thousands)
Mortgage-backed securities:
Over Year or
Less
Over One Year
Through Five
Years
Over Five
Years Through
Ten Years
Over Ten Years
Amortized Cost
Total
AFS Amount . . . . . . . . . . . . . . . . . . . . . . . . $
—
$
—
$
—
$
1,752
$
1,752
Yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
— %
— %
— %
2.58 %
2.58 %
State and political securities (tax-exempt):
AFS Amount . . . . . . . . . . . . . . . . . . . . . . . .
Yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State and political securities (taxable):
AFS Amount . . . . . . . . . . . . . . . . . . . . . . . .
Yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other bonds, notes, and debentures:
AFS Amount . . . . . . . . . . . . . . . . . . . . . . . .
Yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,564
1.28 %
2,667
1.19 %
2,281
0.87 %
16,937
12,747
1.16 %
2.61 %
37,406
35,268
1.82 %
2.89 %
498
3.65 %
765
1.32 %
37,746
1.71 %
76,106
2.29 %
35,337
10,184
2.47 %
3.18 %
—
— %
47,802
2.56 %
Total Amount . . . . . . . . . . . . . . . . . . . . . . . . . $
12,512
$
89,680
$
58,199
$
3,015
163,406
Total Yield . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.18 %
1.95 %
2.88 %
2.44 %
2.25 %
Equity Securities
Investment Equity Amount . . . . . . . . . . . . .
Trading Amount . . . . . . . . . . . . . . . . . . . . .
Total Investment Portfolio Value . . . . . . . . . .
Total Investment Portfolio Yield . . . . . . . . . .
1,300
50
$ 164,756
2.23 %
All yields represent weighted average yields expressed on a tax equivalent basis. They are calculated on the basis of the cost,
adjusted for amortization of premium and accretion of discount, and effective yields weighted for the scheduled maturity of
each security. The taxable equivalent adjustment represents the difference between annual income from tax-exempt obligations
and the taxable equivalent of such income at the standard 21% tax rate (derived by dividing tax-exempt interest by 79%).
The distribution of credit ratings by amortized cost and estimated fair value for the debt security portfolio at December 31, 2021
follows:
(In Thousands)
Available for sale
A- to AAA
B- to BBB+
C to CCC+
Not Rated
Total
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Mortgage-backed securities .
$ 1,752 $
1,747 $
— $ — $
— $ — $
— $ — $ 1,752 $ 1,747
State and political securities
111,412
114,096
1,259
1,377
Other debt securities . . . . . .
26,204
26,184
5,529
5,603
—
—
—
1,181
1,185
113,852
116,658
—
16,069
16,218
47,802
48,005
Total debt securities . . . . . . .
$ 139,368 $ 142,027 $ 6,788 $ 6,980 $
— $ — $ 17,250 $ 17,403 $ 163,406 $ 166,410
LOAN PORTFOLIO
2021
Gross loans of $1,392,147,000 at December 31, 2021 represented an increase of $47,820,000 from December 31, 2020. The
commercial real estate segment of the loan portfolio had the largest increase from the previous year as emphasis has been
placed on this segment of the portfolio coupled with our entrance into the Altoona market during 2020. Indirect auto lending
declined within the portfolio as supply chain issues limited dealer activity. Indirect auto lending and home equity lines are part
of the overall strategy to maintain the duration of the earning asset portfolio in preparation for a rising interest rate environment.
35
2020
Gross loans of $1,344,327,000 at December 31, 2020 represented a decrease of $11,217,000 from December 31, 2019. The
residential real estate segment of the loan portfolio had the largest decrease from the previous year as the historically low
interest rate environment caused homeowners to refinance their mortgage in the secondary market. Indirect auto lending
continued to grow within the portfolio as the product continued to expand in northeast and central Pennsylvania. Indirect auto
lending and home equity lines are part of the overall strategy to shorten the duration of the earning asset portfolio in preparation
for a rising interest rate environment. Commercial real estate mortgages increased $9,927,000 but remained at approximately
28% of the total loan portfolio.
The amounts of loans outstanding at the indicated dates are shown in the following table according to type of loan at
December 31, 2021, 2020, 2019, 2018, and 2017:
(In Thousands)
Amount
% Total
Amount % Total
Amount
% Total
Amount
% Total
Amount % Total
2021
2020
2019
2018
2017
Commercial,
financial, and
agricultural . . . . . .
Real estate
mortgage:
$ 163,285
11.73 % $ 164,743
12.25 % $ 156,213
11.52 % $ 188,561
13.62 % $ 178,885
14.35 %
Residential . . . . .
Commercial . . . .
595,847
446,734
42.80
32.09
2.68
589,721
373,188
39,309
43.87
27.76
2.92
623,256
363,261
38,067
45.98
26.80
2.81
622,379
371,695
43,523
44.94
26.84
3.14
597,077
332,019
31,683
47.90
26.63
2.54
37,295
Construction . . . .
Consumer
Automobile . . . . .
Other consumer
installment loans .
Net deferred loan
fees and discounts
139,408
10.01
156,403
11.64
150,517
11.10
133,183
9.63
79,714
6.40
9,277
0.67
19,940
1.48
23,043
1.70
24,552
1.77
26,964
2.16
301
0.02
1,023
0.08
1,187
0.09
864
0.06
272
0.02
Gross loans . . . . . . .
$ 1,392,147
100.00 % $ 1,344,327
100.00 % $ 1,355,544
100.00 % $ 1,384,757
100.00 % $ 1,246,614
100.00 %
The amounts of domestic loans at December 31, 2021 are presented below by category and maturity:
(In Thousands)
Loans with variable interest rates:
Commercial,
financial, and
agricultural
Real Estate
Residential
Commercial
Construction
Consumer
automobile
Other
consumer
installment
Total
1 year or less . . . . . . . . . . . . . . $
219 $
1,114 $
218 $
610 $
— $
559 $
2,720
1 through 5 years . . . . . . . . . . .
5 through 15 years . . . . . . . . . .
8,515
37,135
4,182
9,636
65,626
134,918
After 15 years . . . . . . . . . . . . . .
47,801
476,898
261,248
Total floating interest rate loans . .
93,670
547,820
406,020
Loans with fixed interest rates:
1 year or less . . . . . . . . . . . . . .
1 through 5 years . . . . . . . . . . .
5 through 15 years . . . . . . . . . .
After 15 years . . . . . . . . . . . . . .
Total fixed interest rate loans . . . .
1,609
34,576
31,925
1,505
69,615
623
3,536
13,029
30,839
48,027
1,289
6,366
28,184
4,875
40,714
338
8,368
16,918
26,234
164
1,848
4,236
4,813
—
—
—
—
1,200
85,288
52,920
—
11,061
139,408
—
38
2,769
22,671
246,085
805,634
3,366
1,077,110
352
3,483
2,076
—
5,911
5,237
135,097
132,370
42,032
314,736
Total . . . . . . . . . . . . . . . . . . . $ 163,285 $ 595,847 $ 446,734 $ 37,295 $ 139,408 $
9,277
1,391,846
Net deferred loan fees and
discounts . . . . . . . . . . . . . . . . . . . .
301
$ 1,392,147
· The loan maturity information is based upon original loan terms and is not adjusted for “rollovers.” In the ordinary
course of business, loans maturing within one year may be renewed, in whole or in part, at interest rates prevailing at
the date of renewal.
· Scheduled repayments are reported in maturity categories in which the payment is due.
36
The Banks do not make loans that provide for negative amortization, nor do any loans contain conversion features. The Banks
did not have any foreign loans outstanding at December 31, 2021.
The following table shows the amount of accrual and nonaccrual TDRs at December 31, 2021, 2020, and 2019:
(In Thousands)
Accrual
Nonaccrual
Total
Accrual
Nonaccrual
Total
Accrual
Nonaccrual
Total
2021
2020
2019
Commercial, financial,
and agricultural . . . . . . $
Real estate mortgage:
314 $
574 $
888 $
988 $
862 $ 1,850 $ — $ 2,190 $ 2,190
Residential . . . . . . . .
3,999
178
4,177
3,889
90
3,979
4,089
144
4,233
Commercial . . . . . . .
1,836
2,509
4,345
2,107
4,423
6,530
2,127
4,732
6,859
Construction . . . . . .
Other consumer
installment loans . . . . .
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$ 6,149 $ 3,261 $ 9,410 $ 6,984 $ 5,375 $ 12,359 $ 6,216 $ 7,066 $ 13,282
ALLOWANCE FOR LOAN LOSSES
2021
The allowance for loan losses represents the amount which management estimates is adequate to provide for probable losses
inherent in its loan portfolio as of the consolidated balance sheet date. All loan losses are charged to the allowance and all
recoveries are credited to it per the allowance method of providing for loan losses. The allowance for loan losses is established
through a provision for loan losses charged to operations. The provision for loan losses is based upon management’s quarterly
review of the loan portfolio. The purpose of the review is to assess loan quality, identify impaired loans, analyze delinquencies,
ascertain loan growth, evaluate potential charge-offs and recoveries, and assess general economic conditions in the markets
served. An external independent loan review is also performed semi-annually for the Banks. Management remains committed
to an aggressive program of problem loan identification and resolution.
The allowance is calculated by applying loss factors to outstanding loans by type, excluding loans for which a specific
allowance has been determined. Loss factors are based on management’s consideration of the nature of the portfolio segments,
changes in mix and volume of the loan portfolio, and historical loan loss experience. In addition, management considers
industry standards and trends with respect to nonperforming loans and its knowledge and experience with specific lending
segments.
The allowance for loan losses increased from $13,803,000 at December 31, 2020 to $14,176,000 at December 31, 2021. At
December 31, 2021 and 2020, the allowance for loan losses to total loans was 1.02% and 1.03%, respectively. Net loan charge-
offs of $267,000 or 0.02% of average loans for the year ended December 31, 2021 countered the impact of the provision for
loan losses of $640,000. The allowance for loan losses remained stable as the gross loan portfolio increased 3.56% and the
portfolio continued to be impacted by the economic uncertainty that has resulted from the COVID-19 pandemic. The
COVID-19 pandemic has resulted in various businesses operating at less than 100% capacity and supply chain issues.
Management concluded that the allowance for loan losses is adequate to provide for probable losses inherent in its loan
portfolio as of the balance sheet date as noted in the provision for loan losses discussion.
Based on management’s loan-by-loan review, the past performance of the borrowers, and current economic conditions,
including recent business closures and bankruptcy levels, management does not anticipate any current losses related to
nonaccrual, nonperforming, or classified loans above those that have already been considered in its overall judgment of the
adequacy of the allowance for loan losses.
2020
The allowance for loan losses increased from $11,894,000 at December 31, 2019 to $13,803,000 at December 31, 2020. At
December 31, 2020 and 2019, the allowance for loan losses to total loans was 1.03% and 0.88%, respectively. Net loan charge-
offs of $716,000 or 0.05% of average loans for the year ended December 31, 2020 countered the impact of the provision for
loan losses of $2,625,000. Driving the increase in the allowance for loan losses was the economic uncertainty that has resulted
from the COVID-19 pandemic. The COVID-19 pandemic has resulted in various businesses operating at less than 100%
capacity, an increase in the unemployment rate, and an increase in the number of loans that have been granted payment
37
deferrals. In response to the uncertainty in both the business and consumer sectors caused by the COVID-19 pandemic and as
well as the level of precision in estimating the effects of a pandemic, a higher than normal unallocated reserve is considered
necessary. Management concluded that the allowance for loan losses is adequate to provide for probable losses inherent in its
loan portfolio as of the balance sheet date as noted in the provision for loan losses discussion.
(In Thousands)
Amount % Total
Amount % Total
Amount % Total
Amount % Total
Amount % Total
December 31, 2021
December 31, 2020
December 31, 2019
December 31, 2018
December 31, 2017
Allocation of the Allowance For Loan Losses
Balance at end of
period applicable to:
Commercial,
financial, and
agricultural . . . . . . .
Real estate mortgage:
$ 1,946
11.73 % $ 1,936
12.26 % $ 1,779
11.53 % $ 1,680
13.63 % $ 1,177
14.35 %
Residential . . . . . .
4,701
42.81
4,460
43.90
4,306
46.02
5,616
44.97
5,679
47.91
Commercial . . . . .
5,336
32.10
3,635
27.78
3,210
26.82
4,047
26.86
4,277
26.64
Construction . . . . .
179
2.68
134
2.93
118
2.81
143
3.14
155
2.54
Consumer
automobiles . . . . . . .
Other consumer
installment loans . . .
Unallocated . . . . . . . .
1,411
10.02
1,906
11.65
1,780
11.11
1,328
9.62
804
6.40
111
492
0.66
261
—
1,471
1.48
—
278
423
1.71
—
259
764
1.78
—
271
495
2.16
—
$ 14,176
100.00 % $ 13,803
100.00 % $ 11,894
100.00 % $ 13,837
100.00 % $ 12,858
100.00 %
Additional allowance for loan losses and net (charge-offs) recoveries is presented in the tables below.
(In Thousands)
December 31, 2021
Amount of
Allowance for
Loan Losses
Allocated
Total loans
Allowance
for Loan
Losses to
Total Loans
Ratio
Net (Charge-
Offs)
Recoveries
Average
Loans
Ratio of Net
(Charge-Offs)
Recoveries to
Average
Loans
Commercial, financial, and agricultural . . . . .
$
1,946
$
163,285
1.19 % $
(10) $
175,631
(0.01) %
Real estate mortgage:
Residential . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial . . . . . . . . . . . . . . . . . . . . . . . . .
Construction . . . . . . . . . . . . . . . . . . . . . . . . .
4,701
5,336
179
595,847
446,734
37,295
0.79 %
1.19 %
0.48 %
(107)
584,849
95
10
381,306
41,564
(0.02) %
0.02 %
0.02 %
Consumer automobiles . . . . . . . . . . . . . . . . . .
1,411
139,408
1.01 %
(143)
152,496
(0.09) %
Other consumer installment loans . . . . . . . . . .
Unallocated . . . . . . . . . . . . . . . . . . . . . . . . . . . .
111
492
9,277
1.20 %
(112)
9,787
(1.14) %
Total non-accrual loans outstanding
Non-accrual loans to total loans outstanding
Allowance for loan losses to non-accrual loans
$
$
14,176
$ 1,391,846
1.02 % $
(267) $ 1,345,633
(0.02) %
5,389
0.39 %
263.05 %
38
(In Thousands)
December 31, 2020
Amount of
Allowance
Allocated
Total loans
Allowance
for Loan
Losses to
Total Loans
Ratio
Net (Charge-
Offs)
Recoveries
Average
Loans
Ratio of Net
(Charge-Offs)
Recoveries to
Average
Loans
Commercial, financial, and agricultural . . . . . . $
1,936
$
164,743
1.18 % $
(28) $
164,876
(0.02) %
Real estate mortgage:
Residential . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer automobiles . . . . . . . . . . . . . . . . . . .
Other consumer installment loans . . . . . . . . . . .
Unallocated . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total non-accrual loans outstanding
Non-accrual loans to total loans outstanding
$
$
4,460
3,635
134
1,906
261
1,471
589,721
373,188
39,309
156,403
19,940
0.76 %
0.97 %
0.34 %
1.22 %
1.31 %
(205)
606,069
(64)
359,788
11
41,423
(321)
156,063
(109)
21,640
(0.03) %
(0.02) %
0.03 %
(0.21) %
(0.50) %
13,803
$ 1,343,304
1.03 % $
(716) $ 1,349,859
(0.05) %
9,122
0.68 %
Allowance for loan losses to non-accrual loans
151.32 %
(In Thousands)
December 31, 2019
Amount of
Allowance
Allocated
Total loans
Allowance
for Loan
Losses to
Total Loans
Ratio
Net (Charge-
Offs)
Recoveries
Average
Loans
Ratio of Net
(Charge-Offs)
Recoveries to
Average
Loans
Commercial, financial, and agricultural . . . . . . $
1,779
$
156,213
1.14 % $
(2,813) $
181,164
(1.55) %
Real estate mortgage:
Residential . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer automobiles . . . . . . . . . . . . . . . . . . .
Other consumer installment loans . . . . . . . . . . .
Unallocated . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total non-accrual loans outstanding
Non-accrual loans to total loans outstanding
$
$
4,306
3,210
118
1,780
278
423
623,256
363,261
38,067
150,517
0.69 %
0.88 %
0.31 %
1.18 %
(341)
620,941
(149)
365,445
10
39,809
(250)
144,573
23,043
1.21 %
(1,135)
24,309
(0.05) %
(0.04) %
0.03 %
(0.17) %
(4.67) %
11,894
$ 1,354,357
0.88 % $
(4,678) $ 1,376,241
(0.34) %
10,374
0.77 %
Allowance for loan losses to non-accrual loans
114.65 %
Over the last three years, various quantitative and qualitative factors indicate changes in our provision for loan losses. The
provision for commercial and agricultural loans decreased during 2021 due to levels and trends of nonaccrual loans in our
portfolio and a decline in net charge-offs. The provision for residential real estate loans remained flat as the porfolio size
increased slightly and the level of net charge-offs declined modestly. The provision for this loan type is adjusted by national
indices as well as our historical losses. The provision for commercial and construction real estate loans increased as the
economic environment has continued to remain soft as the impact of the COVID-19 pandemic and associated supply chain
issues is felt within the markets we serve. The provision for consumer automobiles decreased due to reduction in indirect loan
volume and a decrease in portfolio size. The provision for other consumer installment loans has decreased as the portfolio
declined to $9,277,000 at December 31, 2021 from $19,940,000 at December 31, 2020. The COVID-19 pandemic and
associated supply chain issues has resulted in various businesses operating at less than 100% capacity. This has caused an
increase in the risk profile of the commercial segment of the loan portfolio resulting in a provision shift from unallocated to the
commercial real estate mortgage segment of the loan portfolio. Average loan amounts are calculated off of end of month
balances.
39
The provision for commercial and agricultural loans decreased during 2020 due to levels and trends of nonaccrual loans in our
portfolio and a decline in charge-offs. The change in the provision for residential real estate loans vary based on our
observations of industry trends during 2020 in national and market area foreclosure rates and the impact of the COVID-19
pandemic. The provision for this loan type is adjusted by national indices as well as our historical losses. The provision for
commercial and construction real estate loans increased as the economic environment has softened as the impact of the
COVID-19 pandemic is felt within the markets we serve. The provision for consumer automobiles decreased slightly due to the
leveling off of indirect loan volume. The provision for other consumer installment loans has decreased as the level of charge-
offs has declined. The COVID-19 pandemic has resulted in various businesses operating at less than 100% capacity, an increase
in the unemployment rate, and an increase in the number of loans that have been granted payment deferrals. In response to the
uncertainty in both the business and consumer sectors caused by the COVID-19 pandemic and as well as the level of precision
in estimating the effects of a pandemic, a higher than normal unallocated reserve is considered necessary.
NONPERFORMING LOANS
The decrease in nonperforming loans during 2021 is primarily due to improved loan portfolio performance despite the
continued impact of the COVID-19 pandemic. The majority of the nonperforming loans are centered on several loans that are
either in a secured position and have sureties with a strong underlying financial position and/or a specific allowance within the
allowance for loan losses.
The following table presents information concerning nonperforming loans. The accrual of interest will be discontinued when
the principal or interest of a loan is in default for 90 days or more, or as soon as payment is questionable, unless the loan is well
secured and in the process of collection. Consumer loans and residential real estate loans secured by 1 to 4 family dwellings are
not ordinarily subject to those guidelines. The reversal of previously accrued but uncollected interest applicable to any loan
placed in a nonaccrual status and the treatment of subsequent payments of either principal or interest is handled in accordance
with GAAP. These principles do not require a write-off of previously accrued interest if principal and interest are ultimately
protected by sound collateral values. A nonperforming loan may be restored to accruing status when:
1. Principal and interest is no longer due and unpaid;
2. It becomes well secured and in the process of collection; and
3. Prospects for future contractual payments are no longer in doubt.
(In Thousands)
Total Nonperforming Loans
90 Days Past Due
Nonaccrual
Total
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
861 $
5,389 $
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,212
2,047
1,274
509
9,122
10,374
15,298
6,759
6,250
10,334
12,421
16,572
7,268
The level of non-accruing loans continues to fluctuate annually and is attributed to the various economic factors experienced
both regionally and nationally. Overall, the portfolio is well secured with a majority of the balance making regular payments or
scheduled to be satisfied in the near future. Presently, there are no significant loans where serious doubts exist as to the ability
of the borrower to comply with the current loan payment terms which are not included in the nonperforming categories as
indicated above.
Management’s judgment in determining the amount of the additions to the allowance charged to operating expense considers
the following factors with no single factor being determinative:
1. Economic conditions and the impact on the loan portfolio;
2. Analysis of past loan charge-offs experienced by category and comparison to outstanding loans;
3. Effect of problem loans on overall portfolio quality; and
4. Reports of examination of the loan portfolio by the Department and the FDIC.
40
DEPOSITS
2021 vs. 2020
Total average deposits increased $135,808,000 or 9.52% from 2020 to 2021. Noninterest-bearing deposits average balance
increased $84,774,000 as customers received funding from various government programs that were designed to combat the
effects of the COVID-19 pandemic while seeking safety in bank deposits.
2020 vs. 2019
Total average deposits increased $118,440,000 or 9.05% from 2020 to 2021. Noninterest-bearing deposits average balance
increased $72,767,000 as customers received funding from various government programs that were designed to combat the
effects of the COVID-19 pandemic.
The average amount and the average rate paid on deposits are summarized below for the years ended December 31, 2021, 2020,
and 2019:
(In Thousands)
2021
2020
2019
Average
Amount
Rate
Average
Amount
Rate
Average
Amount
Noninterest-bearing . . . . . . . . . . . . . . . . . . . . $ 478,984
225,637
Savings . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.00 % $ 394,210
193,568
0.05
Super Now . . . . . . . . . . . . . . . . . . . . . . . . . .
Money Market . . . . . . . . . . . . . . . . . . . . . . . .
Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
307,446
305,883
244,341
0.29
0.32
1.46
254,177
245,633
338,895
Total average deposits . . . . . . . . . . . . . . . . $ 1,562,291
0.36 % $ 1,426,483
0.00 % $ 321,443
169,832
0.13
0.69
0.62
231,816
239,317
2.07
345,635
0.74 % $ 1,308,043
Rate
0.00 %
0.13
0.76
0.91
2.11
0.88 %
The following table shows the scheduled maturities of time deposits that are in excess of the FDIC insurance limit as of
December 31, 2021.
(In Thousands)
Due within 3 months or less . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Due after 3 months and within 6 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Due after 6 months and within 12 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Due after 12 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2021
8,060
26,128
6,938
13,217
54,343
As of December 31, 2021 and 2020 the Company had $656,484,000 and $433,759,000, respectively, in uninsured deposits.
SHAREHOLDERS’ EQUITY
2021
Shareholders’ equity increased $8,128,000 to $172,274,000 at December 31, 2021 compared to December 31, 2020.
Accumulated other comprehensive loss of $1,112,000 at December 31, 2021 increased from a loss of $882,000 at December 31,
2020 as a result of a decrease of $2,341,000 in the net unrealized gain on available for sale securities and a change in the
defined benefit plan of $2,111,000. The current level of shareholders’ equity equates to a book value per share of $24.37 at
December 31, 2021 compared to $23.27 at December 31, 2020, and an equity to asset ratio of 8.88% at December 31, 2021 and
8.95% at December 31, 2020. Dividends declared for the twelve months ended December 31, 2021 and 2020 were $1.28 per
share.
41
2020
Shareholders’ equity increased $9,182,000 to $164,142,000 at December 31, 2020 compared to December 31, 2019. The
change in accumulated other comprehensive loss from $2,777,000 at December 31, 2019 to $882,000 at December 31, 2020 is a
result of an increase in unrealized gains on available for sale securities (from an unrealized gain of $2,455,000 at December 31,
2019 to an unrealized gain of $4,714,000 at December 31, 2020). The amount of accumulated other comprehensive loss at
December 31, 2020 was also impacted by the change in net excess of the projected benefit obligation over the fair value of the
plan assets of the defined benefit pension plan, resulting in an increase in the net loss of $364,000. The current level of
shareholders’ equity equates to a book value per share of $23.27 at December 31, 2020 compared to $22.01 at December 31,
2019, and an equity to asset ratio of 8.95% at December 31, 2020 compared to 9.31% at December 31, 2019. Dividends
declared for the twelve months ended December 31, 2020 and 2019 were $1.28 per share and $1.26 per share, respectively.
Bank regulators have risk based capital guidelines. Under these guidelines the Corporation and each Bank are required to
maintain minimum ratios of core capital and total qualifying capital as a percentage of risk weighted assets and certain off-
balance sheet items. At December 31, 2021, both the Corporation’s and each Bank’s required ratios were well above the
minimum ratios (and including the current capital conservation buffer where applicable) as follows:
Common equity tier 1 capital to risk-weighted assets . . . . . . . . . . . . . .
10.791 % 10.337 %
11.164 %
Tier 1 capital to risk-weighted assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
10.791 % 10.337 %
11.164 %
7.000 %
8.500 %
Total capital to risk-weighted assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
11.776 % 11.309 %
12.182 %
10.500 %
Tier 1 capital to average assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8.397 %
8.326 %
7.537 %
4.000 %
Corporation
Jersey Shore
State Bank
Luzerne
Bank
Minimum
Standards
For a more comprehensive discussion of these requirements, see “Regulation and Supervision” in Item 1 of the Annual Report
on Form 10-K. Management believes that the Corporation and the Banks will continue to exceed regulatory capital
requirements.
RETURN ON EQUITY AND ASSETS
The ratio of net income to average total assets and average shareholders’ equity, and other certain equity ratios are presented as
follows:
Percentage of net income to:
Average total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Percentage of dividends declared to net income . . . . . . . . . . . . . . . . . . . . . .
Percentage of average shareholders’ equity to average total assets . . . . . . . .
0.85 %
9.93 %
56.39 %
8.54 %
0.85 %
9.66 %
59.32 %
8.85 %
0.94 %
10.54 %
56.27 %
8.91 %
2021
2020
2019
LIQUIDITY, INTEREST RATE SENSITIVITY, AND MARKET RISK
The Asset/Liability Committee addresses the liquidity needs of the Corporation to ensure that sufficient funds are available to
meet credit demands and deposit withdrawals as well as to the placement of available funds in the investment portfolio. In
assessing liquidity requirements, equal consideration is given to the current position as well as the future outlook.
The following liquidity measures are monitored for compliance and were within the limits cited at December 31, 2021.
1. Net Loans to Total Assets, 85% maximum
2. Net Loans to Total Deposits, 100% maximum
3. Cumulative 90 day Maturity GAP %, +/- 20% maximum
4. Cumulative 1 Year Maturity GAP %, +/- 25% maximum
Fundamental objectives of the Corporation’s asset/liability management process are to maintain adequate liquidity while
minimizing interest rate risk. The maintenance of adequate liquidity provides the Corporation with the ability to meet its
financial obligations to depositors, loan customers, and shareholders. Additionally, it provides funds for normal operating
expenditures and business opportunities as they arise. The objective of interest rate sensitivity management is to increase net
42
interest income by managing interest sensitive assets and liabilities in such a way that they can be repriced in response to
changes in market interest rates.
The Corporation, like other financial institutions, must have sufficient funds available to meet its liquidity needs for deposit
withdrawals, loan commitments, and expenses. In order to control cash flow, the Corporation estimates future flows of cash
from deposits and loan payments. The primary sources of funds are deposits, principal and interest payments on loans and
mortgage-backed securities, as well as FHLB borrowings. Funds generated are used principally to fund loans and purchase
investment securities. Management believes the Corporation has adequate resources to meet its normal funding requirements.
Management monitors the Corporation’s liquidity on both a short and long-term basis, thereby providing management
necessary information to react to current balance sheet trends. Cash flow needs are assessed and sources of funds are
determined. Funding strategies consider both customer needs and economical cost. Both short and long term funding needs are
addressed by maturities and sales of available for sale investment securities, loan repayments and maturities, and liquidating
money market investments such as federal funds sold. The use of these resources, in conjunction with access to credit, provides
core ingredients to satisfy depositor, borrower, and creditor needs.
Management monitors and determines the desirable level of liquidity. Consideration is given to loan demand, investment
opportunities, deposit pricing and growth potential, as well as the current cost of borrowing funds. The Corporation has a
current borrowing capacity at the FHLB of $599,303,000 with $118,000,000 utilized, leaving $428,698,000 available. In
addition to this credit arrangement, the Corporation has additional lines of credit with correspondent banks of $100,000,000.
The Corporation’s management believes that it has sufficient liquidity to satisfy estimated short-term and long-term funding
needs.
Interest rate sensitivity, which is closely related to liquidity management, is a function of the repricing characteristics of the
Corporation’s portfolio of assets and liabilities. Asset/liability management strives to match maturities and rates between loan
and investment security assets with the deposit liabilities and borrowings that fund them. Successful asset/liability management
results in a balance sheet structure which can cope effectively with market rate fluctuations. The matching process is affected
by segmenting both assets and liabilities into future time periods (usually 12 months or less) based upon when repricing can be
effected. Repriceable assets are subtracted from repriceable liabilities for a specific time period to determine the “gap” or
difference. Once known, the gap is managed based on predictions about future market interest rates. Intentional mismatching,
or gapping, can enhance net interest income if market rates move as predicted. However, if market rates behave in a manner
contrary to predictions, net interest income will suffer. Gaps, therefore, contain an element of risk and must be prudently
managed. In addition to gap management, the Corporation has an asset liability management policy which incorporates a
market value at risk calculation which is used to determine the effects of interest rate movements on shareholders’ equity and a
simulation analysis to monitor the effects of interest rate changes on the Corporation’s balance sheet.
The Corporation currently maintains a gap position of being asset sensitive. The Corporation has strategically taken this
position as it has decreased the duration of the earning asset portfolio by adding quality short and intermediate term loans such
as home equity loans and the selling of long-term municipal bonds. Lengthening of the liability portfolio is being undertaken to
build protection in a rising rate environment.
A market value at risk calculation is utilized to monitor the effects of interest rate changes on the Corporation’s balance sheet
and more specifically shareholders’ equity. The Corporation does not manage the balance sheet structure in order to maintain
compliance with this calculation. The calculation serves as a guideline with greater emphasis placed on interest rate sensitivity.
Changes to calculation results from period to period are reviewed as changes in results could be a signal of future events.
INTEREST RATE SENSITIVITY
In this analysis the Corporation examines the result of various changes in market interest rates in 100 basis point increments and
their effect on net interest income. It is assumed that the change is instantaneous and that all rates move in a parallel manner.
Assumptions are also made concerning prepayment speeds on mortgage loans and mortgage securities.
43 The following is a rate shock forecast for the twelve month period ending December 31, 2022 assuming a static balance sheet as
of December 31, 2021.
(In Thousands)
(200)
(100)
Static
100
200
300
400
Net interest income . . . . . . . . . . $ 48,631
$ 50,893
$ 53,281 $ 56,442
$ 59,830
$ 63,195
$ 66,664
Change from static . . . . . . . . . .
(4,650)
(2,388)
Percent change from static . . . .
-8.73 %
-4.48 %
—
—
3,161
5.93 %
6,549
12.29 %
9,914
13,383
18.61 %
25.12 %
Parallel Rate Shock in Basis Points
The model utilized to create the report presented above makes various estimates at each level of interest rate change regarding
cash flow from principal repayment on loans and mortgage-backed securities and/or call activity on investment securities.
Actual results could differ significantly from these estimates which would result in significant differences in the calculated
projected change. In addition, the limits stated above do not necessarily represent the level of change under which management
would undertake specific measures to realign its portfolio in order to reduce the projected level of change. Generally,
management believes the Corporation is well positioned to respond expeditiously when the market interest rate outlook
changes.
INFLATION
The asset and liability structure of a financial institution is primarily monetary in nature; therefore, interest rates rather than
inflation have a more significant impact on the Corporation’s performance. Interest rates are not always affected in the same
direction or magnitude as prices of other goods and services, but are reflective of fiscal policy initiatives or economic factors
that are not measured by a price index.
CRITICAL ACCOUNTING POLICIES
The Corporation’s accounting policies are integral to understanding the results reported. The accounting policies are described
in detail in Note 1 of the “Notes to Consolidated Financial Statements” included in Item 8 of this Annual Report on Form 10-K.
Our most complex accounting policies require management’s judgment to ascertain the valuation of assets, liabilities,
commitments, and contingencies. We have established detailed policies and control procedures that are intended to ensure
valuation methods are well controlled and applied consistently from period to period. In addition, the policies and procedures
are intended to ensure that the process for changing methodologies occurs in an appropriate manner. The following is a brief
description of our current accounting policies involving significant management valuation judgments.
Other Than Temporary Impairment of Debt Securities
Debt securities are evaluated periodically to determine whether a decline in their value is other than temporary. Management
utilizes criteria such as the magnitude and duration of the decline, in addition to the reason underlying the decline, to determine
whether the loss in value is other than temporary. The term “other than temporary” is not intended to indicate that the decline is
permanent. It indicates that the prospects for a near term recovery of value are not necessarily favorable, or that there is a lack
of evidence to support fair values equal to, or greater than, the carrying value of the investment. Once a decline in value is
determined to be other than temporary, the value of the security is reduced and a corresponding charge to earnings is
recognized. For a full discussion of the Corporation’s methodology of assessing impairment, refer to Note 4 of the “Notes to
Consolidated Financial Statements” included in Item 8 of this Annual Report on Form 10-K.
Allowance for Loan Losses
Arriving at an appropriate level of allowance for loan losses involves a high degree of judgment. The Corporation’s allowance
for loan losses provides for probable losses based upon evaluations of known and inherent risks in the loan portfolio.
Management uses historical information to assess the adequacy of the allowance for loan losses as well as the prevailing
business environment; as it is affected by changing economic conditions and various external factors, which may impact the
portfolio in ways currently unforeseen. The allowance is increased by provisions for loan losses and by recoveries of loans
previously charged-off and reduced by loans charged-off. For a full discussion of the Corporation’s methodology of assessing
the adequacy of the reserve for allowance for loan losses, refer to Note 1 of the “Notes to Consolidated Financial Statements”
included in Item 8 of this Annual Report on Form 10-K.
44
Goodwill and Other Intangible Assets
As discussed in Note 8 of the “Notes to Consolidated Financial Statements,” the Corporation must assess goodwill and other
intangible assets each year for impairment. This assessment involves estimating cash flows for future periods. If the future
cash flows were less than the recorded goodwill and other intangible assets balances, we would be required to take a charge
against earnings to write down the assets to the lower value.
Deferred Tax Assets
Management uses an estimate of future earnings to support their position that the benefit of their deferred tax assets will be
realized. If future income should prove non-existent or less than the amount of the deferred tax assets within the tax years to
which they may be applied, the asset may not be realized and the Corporation’s net income will be reduced. The Corporation’s
deferred tax assets are described further in Note 12 of the “Notes to Consolidated Financial Statements” included in Item 8 of
this Annual Report on Form 10-K.
Pension Benefits
Pension costs and liabilities are dependent on assumptions used in calculating such amounts. These assumptions include
discount rates, benefits earned, interest costs, expected return on plan assets, mortality rates, and other factors. In accordance
with GAAP, actual results that differ from the assumptions are accumulated and amortized over future periods and, therefore,
generally affect recognized expense and the recorded obligation of future periods. While management believes that the
assumptions used are appropriate, differences in actual experience or changes in assumptions may affect the Corporation’s
pension obligations and future expense. Our pension benefits are described further in Note 13 of the “Notes to Consolidated
Financial Statements” included in Item 8 of this Annual Report on Form 10-K.
CONTRACTUAL OBLIGATIONS
The Corporation has various financial obligations, including contractual obligations which may require future cash payments.
The following table presents, as of December 31, 2021, significant fixed and determinable contractual obligations to third
parties by payment date. Further discussion of the nature of each obligation is included in the “Notes to Consolidated Financial
Statements” included in Item 8 of this Annual Report on Form 10-K.
Payments Due In
(In Thousands)
One Year
or Less
One to Three
Years
Three to Five
Years
Over Five
Years
Total
Deposits without a stated maturity . . . . . . . . . . $ 1,415,948 $
— $
— $
— $ 1,415,948
Time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . .
136,281
Repurchase agreements . . . . . . . . . . . . . . . . . . .
Short-term borrowings . . . . . . . . . . . . . . . . . . . .
Long-term borrowings . . . . . . . . . . . . . . . . . . . .
Operating leases . . . . . . . . . . . . . . . . . . . . . . . . .
5,747
—
23,160
291
57,127
—
—
65,380
519
10,605
—
—
30,872
517
1,354
—
—
6,551
2,568
205,367
5,747
—
125,963
3,895
The Corporation’s operating lease obligations represent short and long-term lease and rental payments for branch facilities and
equipment. The Bank leases certain facilities under operating leases which expire on various dates through 2049. Renewal
options are available on the majority of these leases.
CAUTIONARY STATEMENT FOR PURPOSES OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This Report contains certain “forward-looking statements” including statements concerning plans, objectives, future events or
performance and assumptions and other statements which are other than statements of historical fact. The Corporation cautions
readers that the following important factors, among others in addition to the factors discussed in Item 1 - "Business" and in Item
1A - "Risk Factors", may have affected and could in the future affect the Corporation’s actual results and could cause the
Corporation’s actual results for subsequent periods to differ materially from those expressed in any forward-looking statement
made by or on behalf of the Corporation herein: (i) the effect of changes in laws and regulations, including federal and state
banking laws and regulations, with which the Corporation must comply, and the associated costs of compliance with such laws
and regulations either currently or in the future as applicable; (ii) the effect of changes in accounting policies and practices, as
45
may be adopted by the regulatory agencies as well as by the Financial Accounting Standards Board; (iii) the effect on the
Corporation’s competitive position within its market area of the increasing consolidation within the banking and financial
services industries, including the increased competition from larger regional and out-of-state banking organizations as well as
non-bank providers of various financial services; (iv) the effect of changes in interest rates; (v) the effect of changes in the
business cycle and downturns in the local, regional or national economies; and (vi) the effects of health emergencies, including
the spread of infectious diseases or pandemics.
ITEM 7A
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk for the Corporation is comprised primarily from interest rate risk exposure and liquidity risk. Interest rate risk and
liquidity risk management is performed at the Banks' level as well as the Corporation level. The Corporation’s interest rate
sensitivity is monitored by management through selected interest rate risk measures produced internally. Additional
information and details are provided in the Interest Sensitivity section of Item 7 - "Management’s Discussion and Analysis of
Financial Condition and Results of Operations."
Generally, management believes the Corporation is well positioned to respond expeditiously when the market interest rate
outlook changes.
46
ITEM 8
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PENNS WOODS BANCORP, INC.
CONSOLIDATED BALANCE SHEET
(In Thousands, Except Share Data)
ASSETS:
Noninterest-bearing balances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest-bearing deposits in other financial institutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal funds sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment debt securities, available for sale, at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment equity securities, at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment securities, trading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted investment in bank stock, at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Premises and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued interest receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bank-owned life insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment in limited partnerships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating lease right of use asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LIABILITIES:
Interest-bearing deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noninterest-bearing deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued interest payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating lease liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SHAREHOLDERS’ EQUITY:
Preferred stock, 0 par value, 3,000,000 shares authorized; 0 shares issued . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common stock, par value $5.55, 22,500,000 shares authorized; 7,550,272 and 7,532,576 shares issued;
7,070,047 and 7,052,351 shares outstanding
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive (loss) gain:
December 31,
2021
2020
$
19,233 $
194,629
50,000
263,862
31,821
181,537
—
213,358
166,410
1,251
37
14,531
3,725
1,392,147
(14,176)
1,377,971
34,025
8,048
33,768
4,607
17,104
480
2,851
2,946
9,193
162,261
1,288
40
15,377
5,239
1,344,327
(13,803)
1,330,524
32,702
8,394
33,638
3,944
17,104
671
3,136
2,526
4,441
$ 1,940,809 $ 1,834,643
$ 1,126,955 $ 1,045,086
449,357
1,494,443
494,360
1,621,315
5,747
125,963
651
2,898
11,961
1,768,535
5,244
153,475
1,112
3,175
13,048
1,670,497
—
—
41,945
53,795
89,761
41,847
52,523
82,769
Net unrealized gain on available for sale securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Defined benefit plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury stock at cost, 480,225 shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL PENNS WOODS BANCORP, INC. SHAREHOLDERS’ EQUITY . . . . . . . . . . . . . . . . . . . . . .
Non controlling interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL SHAREHOLDERS' EQUITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,373
(3,485)
(12,115)
172,274
—
172,274
4,714
(5,596)
(12,115)
164,142
4
164,146
$ 1,940,809 $ 1,834,643
See accompanying notes to the consolidated financial statements.
47
PENNS WOODS BANCORP, INC.
CONSOLIDATED STATEMENT OF INCOME
(In Thousands, Except Per Share Data)
INTEREST AND DIVIDEND INCOME:
Loans, including fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Investment securities:
Taxable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax-exempt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividend and other interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL INTEREST AND DIVIDEND INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
INTEREST EXPENSE:
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL INTEREST EXPENSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NET INTEREST INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
49,718
PROVISION FOR LOAN LOSSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
640
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES . . . . . . . . . . . . . . .
49,078
NON-INTEREST INCOME:
Service charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net debt securities gains, available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net equity securities (losses) gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net securities (losses) gains, trading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bank-owned life insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on sale of loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Insurance commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Brokerage commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loan broker income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debit card income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL NON-INTEREST INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NON-INTEREST EXPENSE:
Salaries and employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Occupancy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Software amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pennsylvania shares tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Professional fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal Deposit Insurance Corporation deposit insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Write down of assets held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on sale of premises and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL NON-INTEREST EXPENSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
INCOME BEFORE INCOME TAX PROVISION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
INCOME TAX PROVISION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CONSOLIDATED NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Earnings attributable to noncontrolling interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NET INCOME ATTRIBUTABLE TO PENNS WOODS BANCORP, INC. . . . . . . . . . . . . . $
Year Ended December 31,
2020
2019
2021
53,232 $
57,217 $
60,384
3,778
650
993
62,638
10,565
43
3,807
14,415
48,223
2,625
45,598
1,690
1,592
27
(11)
653
4,148
416
970
673
1,280
730
12,168
21,632
2,650
3,411
978
1,289
2,362
939
—
—
261
227
5,319
39,068
18,698
3,474
15,224 $
18
15,206 $
3,997
660
1,733
66,774
11,443
793
3,723
15,959
50,815
2,735
48,080
2,411
640
89
19
574
1,754
433
1,358
1,058
1,378
738
10,452
21,829
2,712
3,248
871
1,148
2,474
578
475
474
425
264
5,210
39,708
18,824
3,138
15,686
14
15,672
3,281
655
1,246
58,414
5,545
9
3,142
8,696
1,703
699
(37)
(3)
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2,474
553
851
2,164
1,511
838
11,669
23,014
3,209
3,522
868
1,350
2,432
963
—
—
545
191
4,811
40,905
19,842
3,794
16,048 $
15
16,033 $
2.27 $
2.27 $
EARNINGS PER SHARE - BASIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
EARNINGS PER SHARE - DILUTED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC . . . . . . . . . . . . . . . . . . . . . . .
WEIGHTED AVERAGE SHARES OUTSTANDING - DILUTED . . . . . . . . . . . . . . . . . . . . .
DIVIDENDS PER SHARE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
7,061,818
7,061,818
7,044,542
7,044,542
1.28 $
1.28 $
2.16 $
2.16 $
2.23
2.20
7,038,714
7,113,339
1.26
See accompanying notes to the consolidated financial statements.
48
PENNS WOODS BANCORP, INC.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(In Thousands)
Year Ended December 31,
2020
2019
2021
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
16,048 $
15,224 $
15,686
Other comprehensive (loss) income:
Change in unrealized (loss) gain on available for sale securities . . . . . . . . . . . . . . . . . . . . .
(2,264)
Tax effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net realized (gain) loss included in net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Accretion) amortization of unrecognized pension and post-retirement items . . . . . . . . . .
Tax effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total other comprehensive (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
475
(699)
147
2,674
(563)
(230)
4,452
(935)
(1,592)
334
(461)
97
5,469
(1,148)
(640)
134
56
(12)
1,895
3,859
Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
15,818 $
17,119 $
19,545
See accompanying notes to the consolidated financial statements.
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N
S
W
O
O
D
S
B
A
N
C
O
R
P
,
I
N
C
.
50
PENNS WOODS BANCORP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
Year Ended December 31,
2020
2019
2021
(In Thousands)
OPERATING ACTIVITIES:
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to net cash provided by operating activities:
$
16,048 $
15,224 $
15,686
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Write down of assets held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss (gain) on sale of premises and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of investment security discounts and premiums, net . . . . . . . . . . . . . . . . . . . .
Securities gains, available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Originations of loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds of loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on sale of loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net equity securities losses (gains) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net securities losses (gains), trading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sales of trading securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of trading securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Security trades receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Security trades payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings on bank-owned life insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Decrease in deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
INVESTING ACTIVITIES:
Investment debt securities available for sale:
Proceeds from sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from calls, maturities and repayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sales of equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (increase) decrease in loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition of premises and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of premises and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from the sale of foreclosed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of bank-owned life insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Distribution of non-controlling interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from bank-owned life insurance death benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment in limited partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from redemption of regulatory stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of regulatory stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash (used for) provided by investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
FINANCING ACTIVITIES:
Net increase in interest-bearing deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net increase in noninterest-bearing deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from long-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayment of long-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net increase (decrease) in short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finance lease principal payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Distributions to non-controlling interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used for) financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . . .
CASH AND CASH EQUIVALENTS, BEGINNING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CASH AND CASH EQUIVALENTS, ENDING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,711
—
18
191
640
960
1,142
(699)
(85,938)
89,926
(2,474)
37
3
—
—
—
(1,455)
(916)
(359)
(2,912)
17,923
17,947
20,997
(46,499)
—
(48,170)
(1,137)
2
335
(30)
(25)
825
(1,070)
3,143
(2,297)
(55,979)
81,869
45,003
—
(30,000)
503
(165)
(9,041)
(17)
408
88,560
50,504
213,358
3,076
—
(14)
227
2,625
854
793
(1,592)
(131,775)
134,916
(4,148)
(27)
11
—
—
—
(1,566)
(653)
309
3,740
22,000
20,767
23,292
(54,043)
—
10,269
(2,668)
336
226
(3,970)
—
248
(3,347)
3,561
(5,410)
(10,739)
55,827
114,611
35,000
(43,333)
324
(112)
(9,020)
(36)
247
153,508
164,769
48,589
$ 263,862 $ 213,358 $
2,951
475
474
264
2,735
680
671
(640)
(61,723)
62,174
(1,754)
(89)
(19)
78
(74)
(6,626)
—
(574)
814
(1,453)
14,050
23,799
6,845
(40,180)
604
24,010
(2,706)
297
502
(30)
—
—
—
13,934
(8,600)
18,475
90,170
13,932
50,000
(32,608)
(162,945)
(440)
(8,876)
—
89
(50,678)
(18,153)
66,742
48,589
51
See accompanying notes to the consolidated financial statements.
(In Thousands)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transfer of loans to foreclosed real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transfer due to adoption of ASU 2016-01, equity securities fair value adjust,
reclassification from AOCI to Retained Earnings, net of tax . . . . . . . . . . . . . . . . . . . . .
Right of use lease assets obtained in exchange for lessee finance lease liabilities . . . . . . . .
Right of use lease assets obtained in exchange for lessee operations lease liabilities . . . . . .
Year Ended December 31,
2020
2021
2019
9,157 $
4,236
83
14,974 $
2,945
232
15,438
3,567
525
—
2,653
—
—
—
—
537
6,026
4,298
See accompanying notes to the consolidated financial statements.
52
PENNS WOODS BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 — OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Penns Woods Bancorp, Inc. and its wholly owned
subsidiaries, Jersey Shore State Bank (“JSSB”), Luzerne Bank ("Luzerne" and collectively with JSSB , the "Banks"), Woods
Real Estate Development Co., Inc., Woods Investment Company, Inc., United Insurance Solutions, LLC, and The M Group Inc.
D/B/A The Comprehensive Financial Group (“The M Group”), a wholly owned subsidiary of JSSB (collectively, the
“Corporation”). All significant intercompany balances and transactions have been eliminated.
Nature of Business
The Banks engage in a full-service commercial banking business, making available to the community a wide range of financial
services including, but not limited to, installment loans, credit cards, mortgage and home equity loans, lines of credit,
construction financing, farm loans, community development loans, loans to non-profit entities and local government, and
various types of demand and time deposits including, but not limited to, checking accounts, savings accounts, money market
deposit accounts, certificates of deposit, and IRAs. Deposits are insured by the Federal Deposit Insurance Corporation
(“FDIC”) to the extent provided by law.
The financial services are provided by the Banks to individuals, partnerships, non-profit organizations, and corporations
through their twenty-five offices located in Clinton, Lycoming, Centre, Montour, Union, Blair, and Luzerne Counties,
Pennsylvania.
Woods Real Estate Development Co., Inc. engages in real estate transactions on behalf of Penns Woods Bancorp, Inc. and the
Banks.
Woods Investment Company, Inc., a Delaware holding company, is engaged in investing activities.
The M Group engages in securities brokerage and financial planning services, which include the sale of life insurance products,
annuities, and estate planning services.
United Insurance Solutions, LLC offers property and casualty and auto insurance products within the Corporation's market
footprint. The Corporation became the sole owner of United Insurance Solutions, LLC when it purchased the outstanding 20%
minority interest on October 1, 2021.
Operations are managed and financial performance is evaluated on a corporate-wide basis. Accordingly, all financial service
operations are considered by management to be aggregated in one reportable operating segment.
Use of Estimates
The preparation of financial statements requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Consolidated Financial
Statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from
those estimates.
Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan
losses, valuation of net deferred tax assets, impairment of goodwill, other than temporary impairment of debt and equity
securities, fair value of financial instruments, and the valuation of real estate acquired through, or in lieu of, foreclosure on
settlement of debt.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and in banks and federal funds sold. Interest-earning deposits mature within 90
days and are carried at cost. Net cash flows are reported for loan, deposit, and short-term borrowing transactions.
53
Restrictions on Cash and Cash Equivalents
Based on deposit levels, the Banks must maintain cash and other reserves with the Federal Reserve Bank of Philadelphia
("FRB").
Investment Securities
Investment securities are classified at the time of purchase, based on management’s intention and ability, as securities held to
maturity, securities available for sale, or securities held for trading. Debt securities acquired with the intent and ability to hold
to maturity are stated at cost, adjusted for amortization of premium and accretion of discount, which are computed using the
interest method and recognized as adjustments of interest income. Certain other debt securities have been classified as available
for sale to serve principally as a source of liquidity. Unrealized holding gains and losses for available for sale securities are
reported as a separate component of shareholders’ equity, net of tax, until realized. Equity securities are carried at fair value.
Unrealized holding gains and losses for equity securities are recognized as a separate component within the income statement.
Realized security gains and losses are computed using the specific identification method for debt securities and the average cost
method for marketable equity securities. Interest and dividends on investment securities are recognized as income when earned.
Securities are periodically reviewed for other-than-temporary impairment based upon a number of factors, including, but not
limited to, the length of time and extent to which the fair value has been less than cost, the financial condition of the underlying
issuer, the ability of the issuer to meet contractual obligations, the likelihood of the security’s ability to recover any decline in
its fair value, whether it is more likely than not that the Corporation would be required to sell the security before its anticipated
recovery in fair value, and a review of the Corporation’s capital adequacy, interest rate risk position, and liquidity. The
assessment of a security’s ability to recover any decline in fair value, the ability of the issuer to meet contractual obligations,
and management’s intent and ability requires considerable judgment. A decline in value that is considered to be other-than-
temporary is recorded as a loss within non-interest income in the Consolidated Statement of Income.
Fair values of investment securities are based on observed market prices. Certain investment securities do not have observed
bid prices and their fair value is based on instruments with similar risk elements. Since regulatory stock is redeemable at par,
the Corporation carries it at cost.
Loans
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff generally are
stated at the principal amount outstanding, net of deferred fees and discounts, unamortized loan fees and costs, and the
allowance for loan losses. Interest on loans is recognized as income when earned on the accrual method. The Corporation’s
general policy has been to stop accruing interest on loans when it is determined a reasonable doubt exists as to the collectability
of additional interest. Income is subsequently recognized only to the extent that cash payments are received provided the loan is
not delinquent in payment and, in management’s judgment, the borrower has the ability and intent to make future principal
payments. Otherwise, payments are applied to the unpaid principal balance of the loan. Loans are restored to accrual status if
certain conditions are met, including but not limited to, the repayment of all unpaid interest and scheduled principal due,
ongoing performance consistent with the contractual agreement, and the future expectation of continued, timely payments.
Loan origination and commitment fees as well as certain direct loan origination costs are being deferred and amortized as an
adjustment to the related loan’s yield over the contractual lives of the related loans.
Allowance for Loan Losses
The allowance for loan losses represents the amount which management estimates is adequate to provide for probable losses
inherent in its loan portfolio as of the Consolidated Balance Sheet date. The allowance method is used in providing for loan
losses. Accordingly, all loan losses are charged to the allowance and all recoveries are credited to it. The allowance for loan
losses is established through a provision for loan losses charged to operations. The provision for loan losses is based upon
management’s quarterly review of the loan portfolio. The purpose of the review is to assess loan quality, identify impaired
loans, analyze delinquencies, ascertain loan growth, evaluate potential charge-offs and recoveries, and assess general economic
conditions in the markets served. An external independent loan review is also performed semi-annually for the Bank.
Management remains committed to an aggressive program of problem loan identification and resolution.
The allowance is calculated by applying loss factors to outstanding loans by type, excluding loans for which a specific
allowance has been determined. Loss factors are based on management’s consideration of the nature of the portfolio segments,
changes in mix and volume of the loan portfolio, historical loan loss experience, and general economic conditions. In addition,
54 management considers industry standards and trends with respect to nonperforming loans and its knowledge and experience
with specific lending segments.
Although management believes that it uses the best information available to make such determinations and that the allowance
for loan losses is adequate at December 31, 2021, future adjustments could be necessary if circumstances or economic
conditions differ substantially from the assumptions used in making the initial determinations. A downturn in the local
economy, rising unemployment, or negative performance trends in financial information from borrowers could be indicators of
subsequent increased levels of nonperforming assets and possible charge-offs, which would normally require increased loan
loss provisions. An integral part of the periodic regulatory examination process is the review of the adequacy of the Banks' loan
loss allowance. The regulatory agencies could require the Banks, based on their evaluation of information available at the time
of their examination, to provide additional loan loss provisions to further supplement the allowance.
Impaired loans are commercial and commercial real estate loans for which it is probable the Banks will not be able to collect all
amounts due according to the contractual terms of the loan agreement. The Banks individually evaluate such loans for
impairment and do not aggregate loans by major risk classifications. The definition of “impaired loans” is not the same as the
definition of “nonaccrual loans,” although the two categories overlap. The Banks may choose to place a loan on nonaccrual
status due to payment delinquency or uncertain collectability, while not classifying the loan as impaired if the loan is not a
commercial or commercial real estate loan. Factors considered by management in determining impairment include payment
status and collateral value. The amount of impairment for these types of loans is determined by the difference between the
present value of the expected cash flows related to the loan, using the original interest rate, and its recorded value, or as a
practical expedient in the case of collateralized loans, the difference between the fair value of the collateral and the recorded
amount of the loans. When foreclosure is probable, impairment is measured based on the fair value of the collateral.
Mortgage loans on one-to-four family properties and all consumer loans are large groups of smaller-balance homogeneous
loans and are measured for impairment collectively. Loans that experience insignificant payment delays, which are defined as
90 days or less, generally are not classified as impaired. Management determines the significance of payment delays on a case-
by-case basis taking into consideration all circumstances surrounding the loan and the borrower including the length of the
delay, the borrower’s prior payment record, and the amount of shortfall in relation to the principal and interest owed.
Loan Charge-off Policies
Loans are generally fully or partially charged down to the fair value of collateral securing the asset when:
•
•
•
•
•
management judges the asset to be uncollectible;
repayment is deemed to be protracted beyond reasonable time frames;
the asset has been classified as a loss by either the internal loan review process or external examiners;
the borrower has filed bankruptcy and the loss becomes evident due to a lack of assets; or
the loan is 180 days past due unless both well secured and in the process of collection.
Troubled Debt Restructurings
In situations where, for economic or legal reasons related to a borrower’s financial difficulties, management may grant a
concession for other than an insignificant period of time to the borrower that would not otherwise be considered, the related
loan is classified as a troubled debt restructuring ("TDR"). Management strives to identify borrowers in financial difficulty
early and work with them to modify to more affordable terms before their loan reaches nonaccrual status. These modified terms
may include rate reductions, principal forgiveness, payment forbearance, and other actions intended to minimize the economic
loss and to avoid foreclosure or repossession of the collateral. In cases where borrowers are granted new terms that provide for
a reduction of either interest or principal, management measures any impairment on the restructuring as noted above for
impaired loans.
In addition to the allowance for the pooled portfolios, management has developed a separate allowance for loans that are
identified as impaired through a TDR. These loans are excluded from pooled loss forecasts and a separate reserve is provided
under the accounting guidance for loan impairment. Consumer loans whose terms have been modified in a TDR are also
individually analyzed for estimated impairment.
55 Loans Held for Sale
In general, fixed rate residential mortgage loans originated by the Banks are held for sale and are carried at cost due to their
short holding period, which can range from less than two weeks to a maximum of thirty days. Sold loans are not serviced by
the Banks. Proceeds from the sale of loans in excess of the carrying value are accounted for as a gain. Total gains on the sale of
loans are shown as a component of non-interest income within the Consolidated Statement of Income.
Foreclosed Assets
Foreclosed assets are carried at the lower of cost or fair value less estimated selling costs. Prior to foreclosure, the value of the
underlying loan is written down to the fair value of the real estate to be acquired by a charge to the allowance for loan losses, if
necessary. Any subsequent write-downs are charged against operating expenses. Net operating expenses and gains and losses
realized from disposition are included in non-interest expense and income, respectively, within the Consolidated Statement of
Income.
Premises and Equipment
Land is carried at cost. Premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed
using straight-line and accelerated methods over the estimated useful lives of the related assets, which range from five to ten
years for furniture, fixtures, and equipment and fifteen to forty years for buildings and improvements. Costs incurred for
routine maintenance and repairs are charged to operations as incurred. Costs of major additions and improvements are
capitalized.
Bank-Owned Life Insurance
The Corporation has purchased life insurance policies on certain officers and directors. Bank-owned life insurance is recorded
at its cash surrender value, or the amount that can be realized. Increases in the cash surrender value are recognized as a
component of non-interest income within the Consolidated Statement of Income.
Goodwill
The Corporation performs an annual impairment analysis of goodwill for its purchased subsidiaries, Luzerne and The M
Group. Based on the fair value of these reporting units, estimated using the expected present value of future cash flows, no
impairment of goodwill was recognized in 2021, 2020, or 2019.
Intangible Assets
At December 31, 2021, the Corporation had intangible assets of $67,000 as a result of the acquisition of Luzerne National Bank
Corporation, which is net of accumulated amortization of $1,947,000. These intangible assets will continue to be amortized
using the sum-of-the-years digits method of amortization over ten years. The Corporation also had intangible assets of
$413,000, which is net of accumulated amortization of $607,000, as a result of the purchase of two books of business related to
investment product sales. The book of business intangible is being amortized using the straight-line method over a period of
ten years.
Investments in Limited Partnerships
The Corporation was a limited partner in one partnership at December 31, 2021 that provides low income elderly housing in the
Corporation’s geographic market area. The carrying value of the Corporation’s investment in the limited partnership was
$4,607,000 at December 31, 2021 and $3,944,000 at December 31, 2020. The investment will be amortized over the ten-year
tax credit receipt period. During 2021, this partnership reached the level of occupancy needed to begin the ten year tax credit
recognition period with $407,000 in amortization recognized in 2021. During 2020 the Corporation exited a partnership that
provides low income elderly housing. This limited partnership had a carrying value of $33,000 at December 31, 2019 and had
amortization of $33,000 and $184,000, for 2020 and 2019, respectively.
Off-Balance Sheet Financial Instruments
In the ordinary course of business, the Corporation enters into off-balance sheet financial instruments. Those instruments
consist of commitments to extend credit and standby letters of credit. When those instruments are funded or become payable,
the Corporation reports the amounts in its financial statements.
56 Marketing Cost
Marketing costs are generally expensed as incurred.
Income Taxes
The Corporation prescribes a recognition threshold and a measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return. Benefits from tax positions should be recognized in
the financial statements only when it is more likely than not that the tax position will be sustained upon examination by the
appropriate taxing authority that would have full knowledge of all relevant information. A tax position that meets the more-
likely-than-not recognition threshold is measured at the largest amount of benefit that is greater than fifty percent likely of being
realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold
should be recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax
positions that no longer meet the more-likely-than-not recognition threshold should be derecognized in the first subsequent
financial reporting period in which that threshold is no longer met.
Deferred tax assets and liabilities result from temporary differences in financial and income tax methods of accounting, and are
reflected at currently enacted income tax rates applicable to the period in which the deferred tax assets or liabilities are expected
to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the
provision for income taxes. The Corporation analyzed its deferred tax asset position and determined that there was not a need
for a valuation allowance due to the Corporation’s ability to generate future ordinary and capital taxable income.
The Corporation when applicable recognizes interest and penalties on income taxes as a component of income tax provision.
Earnings Per Share
The Corporation provides dual presentation of basic and diluted earnings per share. Basic earnings per share is calculated
utilizing net income as reported in the numerator and weighted average shares outstanding in the denominator. The
computation of diluted earnings per share differs in that the dilutive effects of any stock options are adjusted in the
denominator.
Employee Benefits
Pension and employee benefits include contributions, determined actuarially, to a defined benefit retirement plan covering the
eligible employees of JSSB. The plan is funded on a current basis to the extent that it is deductible under existing federal tax
regulations. Pension and other employee benefits also include contributions to a defined contribution Section 401(k) plan
covering eligible employees. Contributions matching those made by eligible employees are funded throughout the year. In
addition, an elective contribution may be made annually at the discretion of the board of directors for the employees of JSSB
with no contributions made since 2015.
The M Group Products and Income Recognition
The M Group product line is comprised primarily of annuities, life insurance, and mutual funds. The revenues generated from
life insurance sales are commission only, as The M Group does not underwrite the policies. Life insurance sales include
permanent and term policies with the majority of the policies written being permanent. Term life insurance policies are written
for 10, 15, 20, and 30 year terms with the majority of the policies being written for 20 years. None of these products are offered
as an integral part of lending activities.
Commissions from the sale of annuities are recognized at the time notice is received from the third party broker/dealer or an
insurance company that the transaction has been accepted and approved, which is also the time when commission income is
received.
Life insurance commissions are recognized at varying points based on the payment option chosen by the customer.
Commissions from monthly and annual payment plans are recognized at the start of each annual period for the life insurance,
while quarterly and semi-annual premium payments are recognized quarterly and semi-annually when the earnings process is
complete. For example, semi-annual payments on the first of January and July would result in commission income recognition
on the first of January and July, while payments on the first of January, April, July, and October would result in commission
income recognition on those dates. The potential for chargebacks only exists for those policies on a monthly payment plan since
57 income is recognized at the beginning of the annual coverage period versus at the time of each monthly payment. No liability is
maintained for chargebacks as these are removed from income at the time of the occurrence.
Accumulated Other Comprehensive Income (Loss)
The Corporation is required to present accumulated other comprehensive income (loss) in a full set of general-purpose financial
statements for all periods presented. Accumulated other comprehensive income (loss) is comprised of unrealized holding gains
(losses) on the available for sale securities portfolio and the unrecognized components of net periodic benefit costs of the
defined benefit pension plan.
Segment Reporting
The Corporation has determined that its only reportable segment is Community Banking.
Reclassification of Comparative Amounts
Certain items previously reported have been reclassified to conform to the current year’s reporting format. Such
reclassifications did not affect net income or shareholders’ equity.
Recent Accounting Pronouncements Not Yet Adopted
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on
Financial Instruments, which changes the impairment model for most financial assets. This Update is intended to improve
financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial
institutions and other organizations. The underlying premise of the Update is that financial assets measured at amortized cost
should be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the
amortized cost basis. The allowance for credit losses should reflect management’s current estimate of credit losses that are
expected to occur over the remaining life of a financial asset. The income statement will be affected for the measurement of
credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that
have taken place during the period. With certain exceptions, transition to the new requirements will be through a cumulative-
effect adjustment to opening retained earnings as of the beginning of the first reporting period in which the guidance is adopted.
This Update is effective for SEC filers that are eligible to be smaller reporting companies, non-SEC filers, and all other
companies, to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. We expect to
recognize a one-time cumulative-effect adjustment to the allowance for loan losses as of the beginning of the first reporting
period in which the new standard is effective but cannot yet determine the magnitude of any such one-time adjustment or the
overall impact of the new guidance on the consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment. To simplify the subsequent
measurement of goodwill, the FASB eliminated Step 2 from the goodwill impairment test. In computing the implied fair value
of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its
assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in
determining the fair value of assets acquired and liabilities assumed in a business combination. Instead, under the amendments
in this Update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a
reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying
amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill
allocated to that reporting unit. The Update is effective for smaller reporting companies and all other entities for fiscal years
beginning after December 15, 2022, and interim periods within those fiscal years. This Update is not expected to have a
significant impact on the Company’s financial statements.
In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments – Credit Losses,
Derivatives, and Hedging (Topic 815); and Financial Instruments (Topic 825), which affects a variety of topics in the
Codification and applies to all reporting entities within the scope of the affected accounting guidance. ASU 2019-04 makes
clarifying amendments to certain financial instrument standards. For entities that have not yet adopted ASU 2016-13, the
effective dates for the amendments related to ASU 2016-13 are the same as the effective dates in ASU 2016-13. For entities that
have adopted ASU 2016-13, the amendments related to ASU 2016-13 are effective for fiscal years beginning after December
15, 2019, including interim periods within those fiscal years. For entities that have not yet adopted ASU 2017-12 as of April 25,
2019, the effective dates for the amendments to Topic 815 are the same as the effective dates in ASU 2017-12. For entities that
have adopted ASU 2017-12 as of April 25, 2019, the effective date is as of the beginning of the first annual period beginning
after April 25, 2019. The amendments related to ASU 2016-01 are effective for fiscal years beginning after December 15, 2019,
including interim periods within those fiscal years. The Company qualifies as a smaller reporting company and does not expect
to early adopt these ASUs.
58 In May 2019, the FASB issued ASU 2019-05, Financial Instruments – Credit Losses (Topic 326), which allows entities to
irrevocably elect the fair value option for certain financial assets previously measured at amortized cost upon adoption of the
new credit losses standard. To be eligible for the transition election, the existing financial asset must otherwise be both within
the scope of the new credit losses standard and eligible for applying the fair value option in ASC 825-10.3. The election must
be applied on an instrument-by-instrument basis and is not available for either available-for-sale or held-to-maturity debt
securities. For entities that elect the fair value option, the difference between the carrying amount and the fair value of the
financial asset would be recognized through a cumulative-effect adjustment to opening retained earnings as of the date an entity
adopted ASU 2016-13. Changes in fair value of that financial asset would subsequently be reported in current earnings. For
entities that have not yet adopted the credit losses standard, the ASU is effective when they implement the credit losses
standard. For entities that already have adopted the credit losses standard, the ASU is effective for fiscal years beginning after
December 15, 2019, including interim periods within those fiscal years. The Company qualifies as a smaller reporting company
and does not expect to early adopt ASU 2016-13.
In November 2019, the FASB issued ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments – Credit
Losses, to clarify its new credit impairment guidance in ASC 326, based on implementation issues raised by stakeholders. This
Update clarified, among other things, that expected recoveries are to be included in the allowance for credit losses for these
financial assets; an accounting policy election can be made to adjust the effective interest rate for existing troubled debt
restructurings based on the prepayment assumptions instead of the prepayment assumptions applicable immediately prior to the
restructuring event; and extends the practical expedient to exclude accrued interest receivable from all additional relevant
disclosures involving amortized cost basis. For entities that have not yet adopted ASU 2016-13 as of November 26, 2019, the
effective dates for ASU 2019-11 are the same as the effective dates and transition requirements in ASU 2016-13. For entities
that have adopted ASU 2016-13, ASU 2019-11 is effective for fiscal years beginning after December 15, 2019, including
interim periods within those fiscal years. The Company qualifies as a smaller reporting company and does not expect to early
adopt these ASUs.
In March 2020, the FASB issued ASU 2020-03, Codification Improvements to Financial Instruments. This ASU was issued to
improve and clarify various financial instruments topics, including the current expected credit losses (CECL) standard issued in
2016. The ASU includes seven issues that describe the areas of improvement and the related amendments to GAAP; they are
intended to make the standards easier to understand and apply and to eliminate inconsistencies, and they are narrow in scope
and are not expected to significantly change practice for most entities. Among its provisions, the ASU clarifies that all entities,
other than public business entities that elected the fair value option, are required to provide certain fair value disclosures under
ASC 825, Financial Instruments, in both interim and annual financial statements. It also clarifies that the contractual term of a
net investment in a lease under Topic 842 should be the contractual term used to measure expected credit losses under Topic
326. Amendments related to ASU 2019-04 are effective for fiscal years beginning after December 15, 2019, including interim
periods within those fiscal years. Early adoption is not permitted before an entity’s adoption of ASU 2016-01. Amendments
related to ASU 2016-13 for entities that have not yet adopted that guidance are effective upon adoption of the amendments in
ASU 2016-13. Early adoption is not permitted before an entity’s adoption of ASU 2016-13. Amendments related to ASU
2016-13 for entities that have adopted that guidance are effective for fiscal years beginning after December 15, 2019, including
interim periods within those years. Other amendments are effective upon issuance of this ASU. The Company is currently
evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.
In January 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference
Rate Reform on Financial Reporting, March 2020, to provide temporary optional expedients and exceptions to the U.S. GAAP
guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market
transition from LIBOR and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing
Rate. Entities can elect not to apply certain modification accounting requirements to contracts affected by what the guidance
calls “reference rate reform” if certain criteria are met. An entity that makes this election would not have to remeasure the
contracts at the modification date or reassess a previous accounting determination. Also, entities can elect various optional
expedients that would allow them to continue applying hedge accounting for hedging relationships affected by reference rate
reform if certain criteria are met, and can make a one-time election to sell and/or reclassify held-to-maturity debt securities that
reference an interest rate affected by reference rate reform. The amendments in this ASU are effective for all entities upon
issuance through December 31, 2022. It is too early to predict whether a new rate index replacement and the adoption of the
ASU will have a material impact on the Company’s financial statements.
In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and
Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40), which simplifies the accounting for certain
financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s
own equity. This ASU removes from U.S. GAAP the separation models for (1) convertible debt with a cash conversion feature
and (2) convertible instruments with a beneficial conversion feature. As a result, entities will not separately present in equity an
embedded conversion feature in such debt. Instead, they will account for a convertible debt instrument wholly as debt, and for
convertible preferred stock wholly as preferred stock (i.e., as a single unit of account), unless (1) a convertible instrument
59 contains features that require bifurcation as a derivative under ASC 815 or (2) a convertible debt instrument was issued at a
substantial premium. This ASU requires entities to provide expanded disclosures about the terms and features of convertible
instruments, how the instruments have been reported in the entity’s financial statements, and information about events,
conditions, and circumstances that can affect how to assess the amount or timing of an entity’s future cash flows related to those
instruments. The amendments in this ASU are effective for public business entities that are not smaller reporting companies, for
fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. For all other entities, this ASU is
effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. The guidance may
be early adopted for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. This Update
is not expected to have a significant impact on the Company’s financial statements.
In October 2020, the FASB issued ASU 2020-08, Codification Improvements to Subtopic 310-20, Receivables – Nonrefundable
Fees and Other Costs, which clarifies that, for each reporting period, an entity should reevaluate whether a callable debt
security is within the scope of ASC 310-20-35-33. For public business entities, ASU 2020-08 is effective for fiscal years, and
interim periods within those fiscal years, beginning after December 15, 2020. Early application is not permitted. For all other
entities, ASU 2020-08 is effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years
beginning after December 15, 2022. This Update is not expected to have a significant impact on the Company’s financial
statements.
In November 2020, the FASB issued ASU 2020-11, Financial Services – Insurance (Topic 944), which was made in
consideration of the implications of the Coronavirus Disease 2019 (COVID-19) pandemic on an insurance entity’s ability to
effectively implement the amendments in Accounting Standards Update No. 2018-12, Financial Services— Insurance:
Targeted Improvements to the Accounting for Long-Duration Contracts (LDTI). The amendments in this Update defer the
effective date of LDTI for all entities by one year, as (1) for public business entities that meet the definition of an SEC filer and
are not SRCs, LDTI is effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal
years; and (2) for all other entities, LDTI is effective for fiscal years beginning after December 15, 2024, and interim periods
within fiscal years beginning after December 15, 2025. This Update is not expected to have a significant impact on the
Company’s financial statements.
In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848), which provides optional temporary
guidance for entities transitioning away from the London Interbank Offered Rate (LIBOR) and other interbank offered rates
(IBORs) to new references rates so that derivatives affected by the discounting transition are explicitly eligible for certain
optional expedients and exceptions within Topic 848. ASU 2021-01 clarifies that the derivatives affected by the discounting
transition are explicitly eligible for certain optional expedients and exceptions in Topic 848. ASU 2021-01 is effective
immediately for all entities. Entities may elect to apply the amendments on a full retrospective basis as of any date from the
beginning of an interim period that includes or is subsequent to March 12, 2020, or on a prospective basis to new modifications
from any date within an interim period that includes or is subsequent to the date of the issuance of a final update, up to the date
that financial statements are available to be issued. The amendments in this update do not apply to contract modifications made,
as well as new hedging relationships entered into, after December 31, 2022, and to existing hedging relationships evaluated for
effectiveness for periods after December 31, 2022, except for certain hedging relationships existing as of December 31, 2022,
that apply certain optional expedients in which the accounting effects are recorded through the end of the hedging relationship.
The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or
results of operations.
In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt – Modifications and Extinguishments
(Subtopic 470-50), Compensation – Stock Compensation (Topic 718), and Derivatives and Hedging – Contracts in Entity’s
Own Equity (Subtopic 815-40), which requires an entity to treat a modification of an equity-classified warrant that does not
cause the warrant to become liability-classified as an exchange of the original warrant for a new warrant. This guidance applies
whether the modification is structured as an amendment to the terms and conditions of the warrant or as termination of the
original warrant and issuance of a new warrant. An entity should measure the effect of a modification as the difference between
the fair value of the modified warrant and the fair value of that warrant immediately before modification. The amendments in
this Update are effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within
those fiscal years. An entity should apply the amendments prospectively to modifications or exchanges occurring on or after the
effective date of the amendments. Early adoption is permitted for all entities, including adoption in an interim period. If an
entity elects to early adopt the amendments in this Update in an interim period, the guidance should be applied as of the
beginning of the fiscal year that includes that interim period. The Company is currently evaluating the impact the adoption of
the standard will have on the Company’s financial position or results of operations.
In July 2021, the FASB issued ASU 2021-05, Leases (Topic 842), which amends ASC 842 so that lessors are no longer
required to recognize a selling loss upon commencement of a lease with variable lease payments that, prior to the amendments,
would have been classified as a sales-type or direct financing lease. Furthermore, a lessor must classify as an operating lease
any lease that would otherwise be classified as a sales-type or direct financing lease and that would result in the recognition of a
selling loss at lease commencement, provided that the lease includes variable lease payments that do not depend on an index or
rate. For public business entities and certain not-for-profit entities and employee benefit plans that have adopted ASC 842, the
60 amendments are effective for fiscal years beginning after December 15, 2021, and for interim periods within those fiscal years.
For all other entities that have adopted ASC 842, the amendments are effective for fiscal years beginning after December 15,
2021, and for interim periods within fiscal years beginning after December 15, 2022. All entities that have adopted ASC 842
are permitted to early adopt the amendments in ASU 2021-05. The amendments in ASU 2021-05 are effective as of the same
date as the guidance in ASC 842 for entities that have not adopted ASC 842. This Update is not expected to have a significant
impact on the Company’s financial statements.
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and
Contract Liabilities from Contracts with Customers Accounting for Contract Assets and Contract Liabilities from Contracts
with Customers, which addresses how an acquirer should recognize and measure revenue contracts acquired in a business
combination. For public business entities, the ASU is effective for fiscal years beginning after December 15, 2022, including
interim periods within those fiscal years. For all other entities, the ASU is effective for fiscal years beginning after December
15, 2023, including interim periods within those fiscal years. This Update is not expected to have a significant impact on the
Company’s financial statements.
In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities
about Government Assistance, which is intended to increase transparency in financial reporting by requiring business entities to
disclose information about certain types of government assistance they receive. The ASU requires the following annual
disclosures about transactions with a government that are accounted for by applying a grant or contribution accounting model
by analogy to other accounting guidance, such as a grant model within FASB Accounting Standards Codification Subtopic
958-605, Not-for-Profit Entities – Revenue Recognition: (a) information about the nature of the transactions and the related
accounting policy used to account for the transactions; (b) the line items on the balance sheet and income statement that are
affected by the transactions, and the amounts applicable to each financial statement line item; and (c) significant terms and
conditions of the transactions, including commitments and contingencies. The ASU is effective for financial statements issued
for annual periods beginning after December 15, 2021. Early application is permitted. An entity should apply the amendments
either (a) prospectively to all transactions within the scope of the ASU that are reflected in financial statements at the date of
initial application and new transactions that are entered into after the date of initial application or (b) retrospectively to those
transactions. This Update is not expected to have a significant impact on the Company’s financial statements.
Stock Split
On September 30, 2019, the Company completed a three-for-two stock split (the “Stock Split”) of the Company’s common
stock. As a result of the Stock Split, on September 30, 2019, each share of the Company’s common stock issued at that time
was changed into one and one-half shares of the Company’s common stock with a stated par value of $5.55 per share. All share
and per share amounts in this release, including in the accompanying financial statements and information, have been restated
for all periods presented to give retroactive effect to the Stock Split.
NOTE 2 - ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The changes in accumulated other comprehensive (loss) income by component shown, net of tax and parenthesis indicating
debits to net income, as of December 31, 2021, 2020, and 2019 were as follows:
Twelve Months Ended
December 31, 2021
Twelve Months Ended
December 31, 2020
Twelve Months Ended
December 31, 2019
Net Unrealized
(Loss) Gain
on Available
for Sale
Securities*
Defined
Benefit
Plan*
Total*
Net Unrealized
Gain (Loss)
on Available
for Sale
Securities*
Defined
Benefit
Plan*
Total*
Net Unrealized
Gain (Loss)
on Available
for Sale
Securities*
Defined
Benefit
Plan*
Total*
(In Thousands)
Beginning balance . . . . . . . . .
$
4,714 $ (5,596) $
(882) $
2,455 $ (5,232) $ (2,777) $
(1,360) $ (5,276) $ (6,636)
Other comprehensive (loss)
income before
reclassifications . . . . . . . . .
Amounts reclassified from
accumulated other
comprehensive (loss)
income . . . . . . . . . . . . . . . .
Net current-period other
comprehensive (loss) income .
(1,789)
1,965
176
3,517
(510)
3,007
4,321
(104)
4,217
(552)
146
(406)
(1,258)
146
(1,112)
(506)
148
(358)
(2,341)
2,111
(230)
2,259
(364)
1,895
3,815
44
3,859
Ending balance . . . . . . . . . . . .
$
2,373 $ (3,485) $ (1,112) $
4,714 $ (5,596) $
(882) $
2,455 $ (5,232) $ (2,777)
61
The adoption of ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial
Assets and Financial Liabilities requires equity securities to run through the income statement and therefore the reclassification
of prior accumulated losses are reflected above.
The reclassifications out of accumulated other comprehensive income shown, net of tax and parenthesis indicating debits to net
income, as of December 31, 2021, 2020, and 2019 were as follows:
(In Thousands)
Amount Reclassified from Accumulated Other Comprehensive Income
Details about Accumulated Other
Comprehensive Income Components
Twelve Months Ended
December 31, 2021
December 31, 2020
December 31, 2019
Affected Line Item
in the Consolidated
Statement of Income
Net realized gain on available
for sale securities . . . . . . . . . . . $
Income tax effect . . . . . . . . . . .
$
Net unrecognized pension
expense . . . . . . . . . . . . . . . . . . . $
Income tax effect . . . . . . . . . . .
$
NOTE 3 - PER SHARE DATA
699 $
(147)
552 $
(186) $
40
(146) $
1,592 $
(334)
1,258 $
(185) $
39
(146) $
Net debt securities (losses)
gain, net available for sale
640
(134) Income tax provision
506
(187) Other non-interest expense
Income tax provision
39
(148)
There are no convertible securities which would affect the denominator in calculating basic and dilutive earnings per share;
therefore, net income as presented on the consolidated statement of income will be used as the numerator. The following table
sets forth the composition of the weighted average common shares (denominator) used in the basic and dilutive per share
computation.
Year Ended December 31,
2021
2020
2019
Weighted average common shares issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,542,043
7,524,767
7,518,939
Average treasury stock shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(480,225) (480,225) (480,225)
Weighted average common shares outstanding - basic . . . . . . . . . . . . . . . . . . . . . . . . .
Dilutive effect of outstanding stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average common shares outstanding - diluted . . . . . . . . . . . . . . . . . . . . . . . .
7,061,818
—
7,061,818
7,044,542
—
7,044,542
7,038,714
74,625
7,113,339
There were a total of 1,034,525 non-qualified employee stock options (Note 14) outstanding on December 31, 2021 that had a
weighted average strike price of $27.23. Options on December 31, 2020 had an average strike price of $28.17 with a total of
841,275 options outstanding. Grants outstanding at year-end 2019 totaled to 625,800 options with an average strike price of
$29.29. Grants were included, on a weighted average basis, in the computation of diluted earnings per share for the 2019 period
for grants where the average market price of common shares exceeded the strike price of the options. These options were
excluded, on a weighted average basis, in the computation of diluted earnings per share for the 2021 and 2020 periods presented
due to the average market price of common shares being less than the strike price of the options.
62
NOTE 4 - INVESTMENT SECURITIES
The amortized cost, gross gains and losses, and fair values of investment securities at December 31, 2021 and 2020 are as
follows:
(In Thousands)
Available for sale (AFS):
2021
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
Mortgage-backed securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
State and political securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 163,406 $
113,852
47,802
1,752 $
Investment equity securities: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Total equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
1,300 $
1,300 $
Trading: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Trading investment equity securities . . . . . . . . . . . . . . . . . . . . . . . $
50 $
50 $
— $
3,500
524
4,024 $
(5) $
(694)
(321)
1,747
116,658
48,005
(1,020) $ 166,410
(49) $
(49) $
1,251
1,251
(13) $
(13) $
37
37
— $
— $
— $
— $
2020
(In Thousands)
Available for sale (AFS):
Mortgage-backed securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
State and political securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 156,294 $
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
2,118 $
102,690
51,486
23 $
5,382
828
6,233 $
2,141
— $
108,013
(59)
(207)
52,107
(266) $ 162,261
Investment equity securities: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Total equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Trading: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Trading investment equity securities . . . . . . . . . . . . . . . . . . . . . . . . $
1,300 $
1,300 $
50 $
50 $
10 $
10 $
— $
— $
(22) $
(22) $
1,288
1,288
(10) $
(10) $
40
40
The following tables show the Corporation’s gross unrealized losses and fair value, aggregated by investment category and
length of time that the individual securities have been in a continuous unrealized loss position, at December 31, 2021 and 2020.
(In Thousands)
2021
Less than Twelve Months
Twelve Months or Greater
Total
Fair
Value
Gross
Unrealized
Losses
Fair
Value
Gross
Unrealized
Losses
Fair
Value
Gross
Unrealized
Losses
Available for sale (AFS)
Mortgage-backed securities . . . . . . . . . . . . $
State and political securities . . . . . . . . . . .
Other debt securities . . . . . . . . . . . . . . . . .
Total Debt Securities AFS . . . . . . . . . . . . . $
1,747 $
34,203
21,446
57,396 $
(5) $
(398)
(301)
(704) $
— $
7,408
1,808
9,216 $
— $
(296)
(20)
(316) $
1,747 $
41,611
23,254
66,612 $
(5)
(694)
(321)
(1,020)
63
Less than Twelve Months
Twelve Months or Greater
Total
2020
(In Thousands)
Available for sale (AFS)
State and political securities . . . . . . . . . . . $
Other debt securities . . . . . . . . . . . . . . . . .
Total Debt Securities AFS . . . . . . . . . . . . . $
Fair
Value
Gross
Unrealized
Losses
Fair
Value
Gross
Unrealized
Losses
Fair
Value
Gross
Unrealized
Losses
12,311 $
5,964
18,275 $
(51) $
(74)
(125) $
900 $
4,429
5,329 $
(8) $
(133)
(141) $
13,211 $
10,393
23,604 $
(59)
(207)
(266)
At December 31, 2021 there were 96 individual securities in a continuous unrealized loss position for less than twelve months
and 15 individual securities in a continuous unrealized loss position for greater than twelve months.
The Corporation reviews its position quarterly and has asserted that at December 31, 2021 and 2020, the declines outlined in the
above table represent temporary declines and the Corporation does not intend to sell and does not believe they will be required
to sell these securities before recovery of their cost basis, which may be at maturity. The Corporation has concluded that any
impairment of its investment securities portfolio is not other than temporary but is the result of interest rate changes that are not
expected to result in the non-collection of principal and interest during the period.
The amortized cost and fair value of debt securities at December 31, 2021, by contractual maturity, are shown below. Expected
maturities may differ from contractual maturities since borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties.
(In Thousands)
Amortized Cost
Fair Value
Due in one year or less . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
12,512 $
Due after one year to five years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Due after five years to ten years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Due after ten years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
89,680
58,199
3,015
12,549
90,369
60,500
2,992
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
163,406 $
166,410
64
Total gross proceeds from sales of securities available for sale were $17,947,000, $20,767,000, and $23,799,000 for 2021,
2020, and 2019, respectively. The following table represents gross realized gains and losses on those transactions:
(In Thousands)
Gross realized gains:
Year Ended December 31,
2021
2020
2019
U.S. Government and agency securities . . . . . . . . . . . . . . . . . . . . . . . . . . . $
— $
— $
Mortgage-backed securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State and political securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
408
323
83
978
554
Total gross realized gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
731 $
1,615 $
Gross realized losses:
U.S. Government and agency securities . . . . . . . . . . . . . . . . . . . . . . . . . . . $
— $
— $
Mortgage-backed securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State and political securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
32
—
—
23
—
Total gross realized losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
32 $
23 $
Gross realized gains:
Financial institution equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Other equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total gross realized gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Gross realized losses:
Financial institution equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Other equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total gross realized losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
— $
—
— $
— $
—
— $
— $
—
— $
— $
—
— $
—
—
544
113
657
—
1
11
5
17
52
—
52
—
—
—
There were no impairment charges included in gross realized losses for the years ended December 31, 2021, 2020, and 2019.
Investment securities with a carrying value of approximately $139,435,000 and $111,247,000 at December 31, 2021 and 2020,
respectively, were pledged to secure certain deposits, repurchase agreements, and for other purposes as required by law.
Equity securities consist of Community Reinvestment Act funds along with other smaller investments in other financial
institutions. At December 31, 2021 and December 31, 2020, we had $1,251,000 and $1,288,000, respectively, in equity
securities recorded at fair value. The following is a summary of unrealized and realized gains and losses recognized in net
income on equity securities during the years ended December 31, 2021 and 2020:
(In Thousands)
2021
2020
Net (loss) gain recognized in equity securities during the period . . . . . . . . . . . . . . . $
Less: Net gains realized on the sale of equity securities during the period . . . . . . . .
Unrealized (loss) gain recognized in equity securities held at reporting date . . . . . . $
(37) $
—
(37) $
27
—
27
Net gains and losses on trading account securities are as follows for the for the years ended December 31, 2021, 2020, and
2019.
(In Thousands)
2021
2020
2019
Net gain (losses) on sales transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Net mark-to-market (losses) gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (loss) gain on trading account securities . . . . . . . . . . . . . . . . . . . . . . . . . . . $
— $
(3)
(3) $
— $
(11)
(11) $
5
14
19
There is no concentration of investments that exceed ten percent of shareholders’ equity for any individual issuer, excluding
those guaranteed by the U.S. Government.
65
NOTE 5 - FEDERAL HOME LOAN BANK STOCK
The Banks are members of the Federal Home Loan Bank (“FHLB”) of Pittsburgh and as such, are required to maintain a
minimum investment in stock of the FHLB that varies with the level of advances outstanding with the FHLB. The stock is
bought from and sold to the FHLB based upon its $100 par value. The stock does not have a readily determinable fair value
and as such is classified as restricted stock, carried at cost and evaluated for impairment as necessary. The stock’s value is
determined by the ultimate recoverability of the par value rather than by recognizing temporary declines. The determination of
whether the par value will ultimately be recovered is influenced by criteria such as the following: (a) the significance of the
decline in net assets of the FHLB as compared to the capital stock amount and the length of time this situation has persisted
(b) commitments by the FHLB to make payments required by law or regulation and the level of such payments in relation to the
operating performance (c) the impact of legislative and regulatory changes on the customer base of the FHLB and (d) the
liquidity position of the FHLB.
Management evaluated the stock and concluded that the stock was not impaired for the periods presented herein. Management
considered that the FHLB maintains regulatory capital ratios in excess of all regulatory capital requirements, liquidity appears
adequate, new shares of FHLB stock continue to change hands at the $100 par value, and the payment of dividends.
NOTE 6 - LOAN CREDIT QUALITY AND RELATED ALLOWANCE FOR LOAN LOSSES
Management segments the Banks' loan portfolio to a level that enables risk and performance monitoring according to similar
risk characteristics. Loans are segmented based on the underlying collateral characteristics. Categories include commercial,
financial, and agricultural, real estate, consumer automobile, and other consumer installment loans. Real estate loans are further
segmented into three categories: residential, commercial, and construction.
The following table presents the related aging categories of loans, by segment, as of December 31, 2021 and 2020:
(In Thousands)
Current
Past Due
30 To 89
Days
2021
Past Due 90
Days Or More
& Still Accruing
Non-Accrual
Total
Commercial, financial, and agricultural . . . $
162,571 $
139 $
— $
575 $ 163,285
Real estate mortgage:
Residential . . . . . . . . . . . . . . . . . . . . . . . .
Commercial . . . . . . . . . . . . . . . . . . . . . . .
Construction . . . . . . . . . . . . . . . . . . . . . . .
Consumer automobile loans . . . . . . . . . . . .
Other consumer installment loans . . . . . . . .
590,240
442,573
36,701
138,775
9,199
4,083
224
554
490
47
687
—
—
143
31
837
3,937
40
—
—
595,847
446,734
37,295
139,408
9,277
1,380,059 $
5,537 $
861 $
5,389
1,391,846
Net deferred loan fees and discounts . .
301
Allowance for loan losses . . . . . . . . . .
(14,176)
Loans, net . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,366,184
301
(14,176)
$ 1,377,971
66
(In Thousands)
Current
Past Due
30 To 89
Days
2020
Past Due 90
Days Or More
& Still Accruing
Non-Accrual
Total
Commercial, financial, and agricultural . . . $
163,583 $
247 $
48 $
865 $ 164,743
Real estate mortgage:
Residential . . . . . . . . . . . . . . . . . . . . . . . .
Commercial . . . . . . . . . . . . . . . . . . . . . . .
Construction . . . . . . . . . . . . . . . . . . . . . . .
Consumer automobile loans . . . . . . . . . . . .
Other consumer installment loans . . . . . . .
580,292
366,363
38,587
155,472
19,485
6,386
533
667
900
455
983
150
—
31
—
2,060
6,142
55
—
—
589,721
373,188
39,309
156,403
19,940
1,323,782 $
9,188 $
1,212 $
9,122
1,343,304
Net deferred loan fees and discounts . .
Allowance for loan losses . . . . . . . . . .
1,023
(13,803)
Loans, net . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,311,002
1,023
(13,803)
$ 1,330,524
The following table presents the interest income if interest had been recorded based on the original loan agreement terms and
rate of interest for non-accrual loans and interest income recognized on a cash basis for non-accrual loans as of December 31,
2021, 2020, and 2019:
(In Thousands)
2021
Interest Income That
Would Have Been
Recorded Based on
Original Term and Rate
Interest
Income
Recorded on
a Cash Basis
2020
Interest Income That
Would Have Been
Recorded Based on
Original Term and Rate
Interest
Income
Recorded on
a Cash Basis
2019
Interest Income That
Would Have Been
Recorded Based on
Original Term and Rate
Interest
Income
Recorded on
a Cash Basis
Year Ended December 31,
Commercial,
financial, and
agricultural . . . . . . . $
Real estate mortgage:
Residential . . . . . . .
Commercial . . . . . .
Construction . . . . . .
Consumer automobile
loans . . . . . . . . . . . . .
Other consumer
installment loans . . . .
112 $
— $
29 $
— $
166 $
29
144
3
—
—
—
—
—
—
—
21
60
1
—
—
28
—
—
—
—
158
333
4
16
2
$
288 $
— $
111 $
28 $
679 $
2
33
8
—
10
1
54
Impaired Loans
Impaired loans are loans for which it is probable the Banks will not be able to collect all amounts due according to the
contractual terms of the loan agreement. The Banks individually evaluate such loans for impairment and do not aggregate loans
by major risk classifications. The definition of “impaired loans” is not the same as the definition of “non-accrual loans,”
although the two categories overlap. The Banks may choose to place a loan on non-accrual status due to payment delinquency
or uncertain collectability, while not classifying the loan as impaired. Factors considered by management in determining
impairment include payment status and collateral value. The amount of impairment for these types of loans is determined by
the difference between the present value of the expected cash flows related to the loan, using the original interest rate, and its
recorded value, or as a practical expedient in the case of collateralized loans, the difference between the fair value of the
collateral and the recorded amount of the loan. When foreclosure is probable, impairment is measured based on the fair value
of the collateral.
Management evaluates individual loans in all of the commercial segments for possible impairment if the loan is greater than
$100,000 and if the loan is either on non-accrual status or has a risk rating of substandard or worse. Management may also
elect to measure an individual loan for impairment if less than $100,000 on a case by case basis.
67
Mortgage loans on one-to-four family properties and all consumer loans are large groups of smaller-balance homogeneous
loans and are measured for impairment collectively with the exception of loans identified as troubled debt restructurings. Loans
that experience insignificant payment delays, which are defined as 90 days or less, generally are not classified as impaired.
Management determines the significance of payment delays on a case-by-case basis taking into consideration all circumstances
surrounding the loan and the borrower including the length of the delay, the borrower’s prior payment record, and the amount
of shortfall in relation to the principal and interest owed. Interest income for impaired loans is recorded consistent to the Banks'
policy.
The following table presents the recorded investment, unpaid principal balance, and related allowance of impaired loans by
segment as of December 31, 2021 and 2020:
(In Thousands)
With no related allowance recorded:
2021
Recorded
Investment
Unpaid Principal
Balance
Related
Allowance
Commercial, financial, and agricultural . . . . . . . . . . . . . . . . . . . . . . . . . . $
355 $
355 $
Real estate mortgage:
Residential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer automobile loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other consumer installment loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,874
3,105
105
—
—
7,439
3,874
3,105
105
—
—
7,439
With an allowance recorded:
Commercial, financial, and agricultural . . . . . . . . . . . . . . . . . . . . . . . . . .
534
3,321
Real estate mortgage:
Residential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer automobile loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other consumer installment loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,178
4,814
—
—
20
1,178
4,814
—
—
20
—
—
—
—
—
—
—
2
201
800
—
—
20
6,546
9,333
1,023
Total:
Commercial, financial, and agricultural . . . . . . . . . . . . . . . . . . . . . . . . . .
889
3,676
Real estate mortgage:
Residential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer automobile loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other consumer installment loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,052
7,919
105
—
20
5,052
7,919
105
—
20
2
201
800
—
—
20
$
13,985 $
16,772 $
1,023
68
(In Thousands)
With no related allowance recorded:
2020
Recorded
Investment
Unpaid Principal
Balance
Related
Allowance
Commercial, financial, and agricultural . . . . . . . . . . . . . . . . . . . . . . . . . . $
865 $
3,652 $
Real estate mortgage:
Residential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer automobile loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other consumer installment loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,023
6,354
124
—
—
5,023
6,354
124
—
—
12,366
15,153
With an allowance recorded:
Commercial, financial, and agricultural . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
Real estate mortgage:
Residential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer automobile loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other consumer installment loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,294
3,023
—
—
—
1,294
3,023
—
—
—
—
—
—
—
—
—
—
—
224
811
—
—
—
4,317
4,317
1,035
Total:
Commercial, financial, and agricultural . . . . . . . . . . . . . . . . . . . . . . . . . .
865
3,652
Real estate mortgage:
Residential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer automobile loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other consumer installment loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,317
9,377
124
—
—
6,317
9,377
124
—
—
—
224
811
—
—
—
$
16,683 $
19,470 $
1,035
The following table presents the average recorded investment in impaired loans and related interest income recognized for
December 31, 2021, 2020, and 2019:
(In Thousands)
Average
Investment in
Impaired Loans
2021
Interest Income
Recognized on an
Accrual Basis on
Impaired Loans
Interest Income
Recognized on a
Cash Basis on
Impaired Loans
Commercial, financial, and agricultural . . . . . . . . . . . . . . . . . . . . . . $
1,345 $
13 $
Real estate mortgage:
Residential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer automobile loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other consumer installment loans . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,530
9,462
116
30
12
16,495 $
$
174
122
2
—
1
312 $
—
—
—
—
—
—
—
69
(In Thousands)
Average
Investment in
Impaired Loans
2020
Interest Income
Recognized on an
Accrual Basis on
Impaired Loans
Interest Income
Recognized on a
Cash Basis on
Impaired Loans
Commercial, financial, and agricultural . . . . . . . . . . . . . . . . . . . . . . $
1,653 $
34 $
Real estate mortgage:
Residential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer automobile loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other consumer installment loans . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,692
7,937
72
89
3
234
158
1
—
1
$
15,446 $
428 $
—
15
—
4
—
—
19
(In Thousands)
Average
Investment in
Impaired Loans
2019
Interest Income
Recognized on an
Accrual Basis on
Impaired Loans
Interest Income
Recognized on a
Cash Basis on
Impaired Loans
Commercial, financial, and agricultural . . . . . . . . . . . . . . . . . . . . . . $
Real estate mortgage:
Residential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer automobile loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other consumer installment loans . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,673 $
5 $
4,902
9,757
71
62
12
141
117
—
—
—
$
19,477 $
263 $
—
28
3
—
4
—
35
At December 31, 2021, additional funds totaling $1,000 are committed to be advanced in connection with impaired loans.
Modifications
The loan portfolio also includes certain loans that have been modified in a Troubled Debt Restructuring ("TDR"), where
economic concessions have been granted to borrowers who have experienced or are expected to experience financial
difficulties. These concessions typically result from loss mitigation activities and could include reductions in the interest rate,
payment extensions, forgiveness of principal, forbearance, or other actions. Certain TDRs are classified as nonperforming at
the time of restructure and may only be returned to performing status after considering the borrower’s sustained repayment
performance for a reasonable period, generally six months.
Loan modifications that are considered TDRs completed during the twelve months ended December 31, 2021 and 2020 were as
follows:
(In Thousands,
Except Number of Contracts)
Commercial, financial, and
agricultural . . . . . . . . . . . . . . . . .
Real estate mortgage:
Residential . . . . . . . . . . . . . . . .
Commercial . . . . . . . . . . . . . . .
Construction . . . . . . . . . . . . . .
Other consumer installment
loans . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . .
Year Ended December 31,
2021
2020
Number
of
Contracts
Pre-Modification
Outstanding
Recorded
Investment
Post-Modification
Outstanding
Recorded
Investment
Number
of
Contracts
Pre-Modification
Outstanding
Recorded
Investment
Post-Modification
Outstanding
Recorded
Investment
1 $
949 $
949
2 $
1,028 $
1,028
3
2
—
1,265
842
—
—
6 $
—
3,056 $
1,265
842
—
—
3,056
—
3
—
—
1,263
—
—
5 $
—
2,291 $
—
1,263
—
—
2,291
70
Of the six new troubled debt restructurings that were granted for the year ended December 31, 2021, two loans totaling
$842,000 were granted payment concessions and one loan totaling $124,000 was granted a fee concession.
Of the five new troubled debt restructurings that were granted for the year ended December 31, 2020, four loans totaling
$1,231,000 were granted payment concessions and one loan totaling $1,060,000 was granted a rate concession.
No loan modifications considered troubled debt restructurings made during the twelve months previous to December 31, 2020
defaulted. Loan modifications considered troubled debt restructurings made during the twelve months previous to December
31, 2021, that have defaulted during the corresponding twelve month period were as follows:
(In Thousands, Except Number of Contracts)
Year Ended December 31, 2021
Number of
Contracts
Recorded
Investment
Commercial, financial, and agricultural . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
— $
—
Real estate mortgage:
Residential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1
—
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1 $
687
—
687
Internal Risk Ratings
Management uses a ten point internal risk rating system to monitor the credit quality of the overall loan portfolio. The first six
categories are considered not criticized, and are aggregated as “Pass” rated. The criticized rating categories utilized by
management generally follow bank regulatory definitions. The Special Mention category includes assets that are currently
protected but are potentially weak, resulting in an undue and unwarranted credit risk, but not to the point of justifying a
Substandard classification. Loans in the Substandard category have well-defined weaknesses that jeopardize the liquidation of
the debt, and have a distinct possibility that some loss will be sustained if the weaknesses are not corrected. All loans greater
than 90 days past due are evaluated for Substandard classification. Loans in the Doubtful category exhibit the same weaknesses
found in the Substandard loans, however, the weaknesses are more pronounced. Such loans are static and collection in full is
improbable. However, these loans are not yet rated as loss because certain events may occur which would salvage the debt.
Loans classified Loss are considered uncollectible and charge-off is imminent.
To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay a loan as agreed,
the Banks have a structured loan rating process with several layers of internal and external oversight. Generally, consumer and
residential mortgage loans are included in the pass category unless a specific action, such as bankruptcy, repossession, or death
occurs to raise awareness of a possible credit event. An external semi-annual loan review of large commercial relationships is
performed, as well as a sample of smaller transactions. The 2021 loan review evaluated 55% of the Bank's average outstanding
commercial portfolio which can consist of outstanding loans, commercial real estate mortgages and outstanding commitments.
Detailed reviews, including plans for resolution, are performed on loans classified as substandard, doubtful, or loss on a
quarterly basis.
The following table presents the credit quality categories identified above as of December 31, 2021 and 2020:
(In Thousands)
Commercial,
Finance, and
Agricultural
Real Estate Mortgages
2021
Residential
Commercial
Construction
Consumer
automobile
Other
consumer
installment
Totals
Pass . . . . . . . . . . . . $ 160,899 $ 592,570 $ 432,158 $
36,511 $
139,408 $
9,257 $ 1,370,803
Special Mention . .
Substandard . . . . .
234
2,152
284
2,993
6,108
8,468
676
108
—
—
—
20
7,302
13,741
Total . . . . . . . . . . . $ 163,285 $ 595,847 $ 446,734 $
37,295 $
139,408 $
9,277 $ 1,391,846
71
(In Thousands)
Commercial,
Finance, and
Agricultural
Real Estate Mortgages
2020
Residential
Commercial
Construction
Consumer
automobile
Other
consumer
installment
Totals
Pass . . . . . . . . . . . $ 162,694 $ 584,599 $ 355,616 $
39,192 $
156,403 $
19,938 $ 1,318,442
Special Mention . .
Substandard . . . . .
180
1,869
556
4,566
7,973
9,599
—
117
—
—
—
2
8,709
16,153
Total . . . . . . . . . . . $ 164,743 $ 589,721 $ 373,188 $
39,309 $
156,403 $
19,940 $ 1,343,304
Allowance for Loan Losses
An allowance for loan losses (“ALL”) is maintained to absorb losses from the loan portfolio. The ALL is based on
management’s continuing evaluation of the risk characteristics and credit quality of the loan portfolio, assessment of current
economic conditions, diversification and size of the portfolio, adequacy of collateral, past and anticipated future loss
experience, and the amount of non-performing loans.
The Banks' methodology for determining the ALL is based on the requirements of ASC Section 310-10-35 for loans
individually evaluated for impairment (previously discussed) and ASC Subtopic 450-20 for loans collectively evaluated for
impairment, as well as the Interagency Policy Statements on the Allowance for Loan and Lease Losses and other bank
regulatory guidance. The total of the two components represents the Banks' ALL.
Loans that are collectively evaluated for impairment are analyzed with general allowances being made as appropriate.
Allowances are segmented based on collateral characteristics previously disclosed, and consistent with credit quality
monitoring. Loans that are collectively evaluated for impairment are grouped into two classes for evaluation. A general
allowance is determined for “Pass” rated credits, while a separate pool allowance is provided for “Criticized” rated credits that
are not individually evaluated for impairment.
For the general allowances historical loss trends are used in the estimation of losses in the current portfolio. These historical
loss amounts are modified by other qualitative factors. A historical charge-off factor is calculated utilizing a twelve quarter
moving average. However, management may adjust the moving average time frame by up to four quarters to adjust for
variances in the economic cycle. Management has identified a number of additional qualitative factors which it uses to
supplement the historical charge-off factor because these factors are likely to cause estimated credit losses associated with the
existing loan pools to differ from historical loss experience. The additional factors that are evaluated quarterly and updated
using information obtained from internal, regulatory, and governmental sources are: levels of and trends in delinquency rates
and non-accrual loans; trends in volumes and terms of loans; effects of changes in lending policies; experience, ability, and
depth of lending staff; national and economic trends and conditions; concentrations of credit from a loan type, industry, and/or
geographic standpoint; value of underlying collateral on collateral depended loans; effect of other external factors; and the
quality of the loan review system. During 2021, certain qualitative factors were increased to account for the economic changes,
continued economic uncertainty, and level of loan payment deferrals caused by the COVID-19 pandemic.
Loans in the criticized pools, which possess certain qualities or characteristics that may lead to collection and loss issues, are
closely monitored by management and subject to additional qualitative factors. Management also monitors industry loss factors
by loan segment for applicable adjustments to actual loss experience.
Management reviews the loan portfolio on a quarterly basis in order to make appropriate and timely adjustments to the ALL.
When information confirms all or part of specific loans to be uncollectible, these amounts are promptly charged off against the
ALL.
Over the last three years, various quantitative and qualitative factors indicate changes in our provision for loan losses. The
provision for commercial and agricultural loans decreased during 2021 due to levels and trends of nonaccrual loans in our
portfolio and a decline in net charge-offs. The provision for residential real estate loans remained flat as the porfolio size
increased slightly and the level of net charge-offs declined modestly. The provision for this loan type is adjusted by national
indices as well as our historical losses. The provision for commercial and construction real estate loans increased as the
economic environment has continued to remain soft as the impact of the COVID-19 pandemic and associated supply chain
issues is felt within the markets we serve. The provision for consumer automobiles decreased due to reduction in indirect loan
volume and a decrease in portfolio size. The provision for other consumer installment loans has decreased as the portfolio
declined to $9,277,000 at December 31, 2021 from $19,940,000 at December 31, 2020. The COVID-19 pandemic and
associated supply chain issues has resulted in various businesses operating at less than 100% capacity. This has caused an
72
increase in the risk profile of the commercial segment of the loan portfolio resulting in a provision shift from unallocated to the
commercial real estate mortgage segment of the loan portfolio.
The provision for commercial and agricultural loans decreased during 2020 due to levels and trends of nonaccrual loans in our
portfolio and a decline in charge-offs. The change in the provision for residential real estate loans vary based on our
observations of industry trends during 2020 in national and market area foreclosure rates and the impact of the COVID-19
pandemic. The provision for this loan type is adjusted by national indices as well as our historical losses. The provision for
commercial and construction real estate loans increased as the economic environment has softened as the impact of the
COVID-19 pandemic is felt within the markets we serve. The provision for consumer automobiles decreased slightly due to the
leveling off of indirect loan volume. The provision for other consumer installment loans has decreased as the level of charge-
offs has declined. The COVID-19 pandemic has resulted in various businesses operating at less than 100% capacity, an increase
in the unemployment rate, and an increase in the number of loans that have been granted payment deferrals. In response to the
uncertainty in both the business and consumer sectors caused by the COVID-19 pandemic and as well as the level of precision
in estimating the effects of a pandemic, a higher than normal unallocated reserve is considered necessary.
Activity in the allowance is presented for the twelve months ended December 31, 2021, 2020, and 2019:
2021
(In Thousands)
Beginning Balance $
Charge-offs . . . .
Recoveries . . . . .
Provision . . . . . .
Ending Balance . . . $
Commercial,
Finance, and
Agricultural
1,936
(37)
27
20
1,946
Real Estate Mortgages
$
Residential Commercial Construction
134
$ 3,635
$ 4,460
—
(14)
(219)
10
109
112
35
1,606
348
179
$ 5,336
$ 4,701
$
Consumer
automobile
$ 1,906
(286)
143
(352)
$ 1,411
2020
Other
consumer
installment
$
Unallocated
261 $ 1,471
—
—
(979)
492
(173)
61
(38)
111 $
Totals
13,803
(729)
462
640
14,176
$
$
$
Commercial,
Finance, and
Agricultural
Real Estate Mortgages
Residential Commercial
Construction
Other
consumer
installment
(In Thousands)
Beginning Balance . $
Charge-offs . . . . . .
Recoveries . . . . . .
Provision . . . . . . . .
Ending Balance . . . . $
1,779 $ 4,306 $
(254)
49
359
(64)
36
185
1,936 $ 4,460 $
3,210 $
(64)
—
489
3,635 $
(In Thousands)
Beginning Balance . $
Charge-offs . . . . . .
Recoveries . . . . . .
Provision . . . . . . . .
Ending Balance . . . . $
Commercial,
Finance, and
Agricultural
Real Estate Mortgages
1,680 $ 5,616 $
(347)
(2,903)
6
90
2,912
(969)
1,779 $ 4,306 $
4,047 $
(150)
1
(688)
3,210 $
Consumer
automobile
118 $ 1,780 $
(396)
—
75
11
447
5
134 $ 1,906 $
2019
Consumer
automobile
143 $ 1,328 $
(329)
—
79
10
(35)
702
118 $ 1,780 $
Unallocated
Totals
278 $
(193)
84
92
261 $
423 $ 11,894
—
(971)
—
255
2,625
1,048
1,471 $ 13,803
Other
consumer
installment
259 $
(1,228)
93
1,154
278 $
764 $ 13,837
(4,957)
—
279
—
(341)
2,735
423 $ 11,894
Residential Commercial
Construction
Unallocated
Totals
The Corporation grants commercial, industrial, residential, and installment loans to customers throughout north-central and
north-eastern Pennsylvania. Although the Corporation has a diversified loan portfolio at December 31, 2021 and 2020, a
substantial portion of its debtors’ ability to honor their contracts is dependent on the economic conditions within this region.
The amount of foreclosed residential real estate held at December 31, 2021 and December 31, 2020, totaled $339,000 and
$614,000, respectively. Consumer mortgage loans secured by residential real estate properties for which formal foreclosure
proceedings are in process at December 31, 2021 and December 31, 2020, totaled $193,000 and $51,000, respectively.
73
The Corporation has a concentration of loans at December 31, 2021 and 2020 as follows:
Owners of residential rental properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Owners of commercial rental properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021
2020
19.21 %
16.03 %
16.57 %
13.57 %
Modifications to date have included 1,450 loans with principal balances of $193,060,000; however, as of December 31, 2021,
only 5 loans totaling $379,000 remained in deferment.
The Company has processed over 444 loan applications with a value of $30,556,000 in loans under the Payroll Protection
Program of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). These loans are guaranteed by the Small
Business Administration (SBA), carry an interest rate of 1 percent, and are for a term of two years if not forgiven under the
SBA rules. As of December 31, 2021, the principal value of these loans on the balance sheet was $10,600,000.
The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio
segment and based on impairment method as of December 31, 2021 and 2020:
(In Thousands)
Allowance for Loan Losses:
Ending allowance balance
attributable to loans:
Individually evaluated for
impairment . . . . . . . . . . . . . . . . . . .
Collectively evaluated for
impairment . . . . . . . . . . . . . . . . . . .
Commercial,
Finance, and
Agricultural
Real Estate Mortgages
Residential
Commercial
Construction
Consumer
automobile
Other
consumer
installment
Unallocated
Totals
2021
$
2 $
201 $
800 $
— $
— $
20 $
— $
1,023
1,944
4,500
4,536
179
1,411
91
492
13,153
Total ending allowance balance .
$
1,946 $ 4,701 $
5,336 $
179 $
1,411 $
111 $
492 $
14,176
Loans:
Individually evaluated for
impairment . . . . . . . . . . . . . . . . . . . . . $
Collectively evaluated for
impairment . . . . . . . . . . . . . . . . . . . . .
889 $ 5,052 $
7,919 $
105 $
— $
20
$
13,985
Total ending loans balance . .
$ 163,285 $ 595,847 $ 446,734 $ 37,295 $ 139,408 $ 9,277
162,396
590,795
438,815
37,190
139,408
9,257
1,377,861
$ 1,391,846
Commercial,
Finance, and
Agricultural
Real Estate Mortgages
Residential
Commercial Construction
Consumer
automobile
Other
consumer
installment
Unallocated
Totals
2020
(In Thousands)
Allowance for Loan Losses:
Ending allowance balance
attributable to loans:
Individually evaluated for
impairment . . . . . . . . . . . . . . . . . . . $
Collectively evaluated for
impairment . . . . . . . . . . . . . . . . . . .
— $
224 $
811 $
— $
— $ — $
— $
1,035
1,936
4,236
2,824
134
1,906
261
1,471
12,768
Total ending allowance balance .
$
1,936 $ 4,460 $
3,635 $
134 $
1,906 $
261 $
1,471 $
13,803
Loans:
Individually evaluated for
impairment . . . . . . . . . . . . . . . . . . . .
$
Collectively evaluated for
impairment . . . . . . . . . . . . . . . . . . . .
865 $ 6,317 $
9,377 $
124 $
— $ —
$
16,683
Total ending loans balance . .
$ 164,743 $ 589,721 $ 373,188 $ 39,309 $ 156,403 $ 19,940
163,878
583,404
363,811
39,185
156,403
19,940
1,326,621
$ 1,343,304
74
NOTE 7 - PREMISES AND EQUIPMENT
Major classifications of premises and equipment are summarized as follows at December 31, 2021 and 2020:
(In Thousands)
2021
2020
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
6,741 $
Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finance lease right-of-use assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less accumulated depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
22,539
12,798
4,214
7,435
53,727
19,702
Net premises and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
34,025 $
6,747
22,334
12,443
3,698
5,257
50,479
17,777
32,702
Depreciation and amortization related to premises and equipment for the years ended 2021, 2020, and 2019 was $2,436,000,
$2,098,000, and $2,053,000, respectively.
NOTE 8 - GOODWILL AND OTHER INTANGIBLES
As of December 31, 2021 and 2020, goodwill had a gross carrying value of $17,380,000 and accumulated amortization of
$276,000 resulting in a net carrying amount of $17,104,000.
The gross carrying amount of goodwill is tested for impairment annually. Based on the fair value of the reporting unit,
estimated using the expected present value of future cash flows, there was no evidence of impairment of the carrying amount at
December 31, 2021 or 2020.
Identifiable intangibles are amortized to their estimated residual values over the expected useful lives. Such lives are also
periodically reassessed to determine if any amortization period adjustments are required. Since the acquisition, no such
adjustments were recorded. The identifiable intangible assets consist of a core deposit intangible and a trade name intangible
which are being amortized on an accelerated basis, and also book of business intangible that is being amortized on a straight-
line basis over the useful life of such assets. The net carrying amount of the core deposit intangible, the trade name intangible,
and the book of business intangible at December 31, 2021 was $62,000, $5,000, and $413,000 respectively, with $1,819,000,
$128,000, and $607,000 accumulated amortization as of that date.
As of December 31, 2021, the estimated future amortization expense for the core deposit and trade name intangible was:
(In Thousands)
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2026 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Core
Deposit
Intangible
Trade
Name
Intangible
Book of
Business
Intangible
Total
48 $
14
—
—
—
62 $
4 $
1
—
—
—
5 $
102 $
102
102
102
5
413 $
154
117
102
102
5
480
$
75
NOTE 9 - DEPOSITS
Time deposits of $250,000 or more totaled approximately $54,343,000 on December 31, 2021 and $40,241,000 on
December 31, 2020.
At December 31, 2021, the scheduled maturities on time deposits of $100,000 or more are as follows:
(In Thousands)
Three months or less . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Three months to six months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Six months to twelve months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Over twelve months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021
27,500
37,947
20,456
37,711
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
123,614
Total time deposit maturities are as follows at December 31, 2021:
(In Thousands)
2021
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
136,281
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2026 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
33,816
23,311
9,081
1,524
1,354
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
205,367
Total deposits at December 31, 2021 and 2020 are as follows:
(In Thousands)
2021
2020
Amount
Amount
Noninterest-bearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 494,360 $ 449,357
Savings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Super Now . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Money Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
236,312
366,399
318,877
205,367
209,924
287,775
283,742
263,645
Total deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,621,315 $ 1,494,443
76
NOTE 10 - SHORT-TERM BORROWINGS
Short-term borrowings consist of securities sold under agreements to repurchase and primarily FHLB advances, which
generally represent overnight or less than six month borrowings. In addition to the outstanding balances noted below, the
Banks also have additional lines of credit totaling $100,000,000 available from correspondent banks other than the FHLB. The
outstanding balances and related information for short-term borrowings are summarized as follows at December 31, 2021,
2020, and 2019:
2021
2020
2019
(In Thousands)
Repurchase Agreements:
Balance at year end . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Maximum amount outstanding at any month end . . . . . . . . . . . . . . . . . . . . .
Average balance outstanding during the year . . . . . . . . . . . . . . . . . . . . . . . .
Weighted-average interest rate:
5,747
9,757
7,178
At year end . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Paid during the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.12 %
0.13 %
Overnight:
Balance at year end . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Maximum amount outstanding at any month end . . . . . . . . . . . . . . . . . . . . .
Average balance outstanding during the year . . . . . . . . . . . . . . . . . . . . . . . .
Weighted-average interest rate:
At year end . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Paid during the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
— %
— %
$
$
5,244
18,468
10,669
$
4,920
10,097
5,971
0.14 %
0.20 %
0.22 %
0.18 %
—
13,778
1,991
$
—
120,540
28,926
— %
1.09 %
— %
2.70 %
We utilize securities sold under agreements to repurchase to facilitate the needs of our customers and to facilitate secured short-
term funding needs. Securities sold under agreements to repurchase are stated at the amount of cash received in connection with
the transaction. We monitor collateral levels on a continuous basis. We may be required to provide additional collateral based
on the fair value of the underlying securities. Securities pledged as collateral under repurchase agreements are maintained with
our safekeeping agents.The remaining contractual maturity of repurchase agreements in the consolidated balance sheets as of
December 31, 2021 and December 31, 2020 is presented in the following tables.
(In Thousands)
Repurchase Agreements:
2021
2020
Remaining Contractual Maturity of the
Agreements
Overnight and
Continuous
Overnight and
Continuous
State and political securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Other debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total carrying value of collateral pledged . . . . . . . . . . . . . . . . . . . . . . . . . . $
Total liability recognized for repurchase agreements . . . . . . . . . . . . . . . . . $
7,871 $
1,010
8,881 $
5,747 $
10,672
1,000
11,672
5,244
77
NOTE 11 - LONG-TERM BORROWINGS
The following represents outstanding long-term borrowings with the FHLB by contractual maturities at December 31, 2021 and
2020:
(In Thousands)
Weighted Average Interest Rate
Stated Interest Rate Range
Maturity
2021
2022
2023
2024
2025
Description
Fixed
Fixed
Fixed
Fixed
Fixed
Total Fixed
Total
(In Thousands)
Year Ending December 31,
2021
2020
From
— %
2.24 %
2.60 %
2.24 %
1.62 %
2.16 %
2.16 %
2.46 %
1.98 %
1.84 %
1.50 %
1.14 %
2.73 %
2.24 %
2.60 %
2.24 %
1.62 %
2.32 %
2.32 %
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
To
3.00 % $
2.56 %
3.10 %
2.96 %
1.88 %
2021
2020
— $ 30,000
23,000
25,000
40,000
30,000
148,000
$ 118,000 $ 148,000
23,000
25,000
40,000
30,000
118,000
Amount
Weighted
Average Rate
23,000
25,000
40,000
30,000
118,000
2.24 %
2.60 %
2.24 %
1.62 %
2.16 %
The Banks maintain a credit arrangement which includes a revolving line of credit with the FHLB. Under this credit
arrangement, at December 31, 2021, JSSB has a remaining borrowing capacity of $243,939,000 and Luzerne has a remaining
capacity of $184,759,000, which are subject to annual renewal and typically incur no service charges. Under terms of a blanket
agreement, collateral for the FHLB borrowings must be secured by certain qualifying assets of each Bank which consist
principally of first mortgage loans and state and political securities, along with other securities. Total outstanding letters of
credit at December 31, 2021 with the FHLB for JSSB are $40,200,000 while Luzerne has $0 outstanding.
78
NOTE 12 - INCOME TAXES
The following temporary differences gave rise to the net deferred tax asset position at December 31, 2021 and 2020:
(In Thousands)
Deferred tax assets:
2021
2020
Allowance for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2,997 $
Deferred compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lease liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Defined pension . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value adjustment on equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital loss carryforward . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,655
2,324
—
9
211
961
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,157
Deferred tax liabilities:
Lease right of use asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,203
Defined pension . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized gain on available for sale securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment security accretion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred loan fees and discounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
872
630
118
63
533
581
211
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,211
Deferred tax asset, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2,946 $
2,910
1,554
1,844
74
54
—
566
7,002
1,790
—
1,253
119
215
511
588
—
4,476
2,526
A valuation allowance was established on the $1,003,000 of capital loss carryforwards in 2021. There were no other valuation
allowances established at December 31, 2021 and 2020, because of the Corporation’s ability to carry back losses to recover
taxes paid in previous years and certain tax strategies, together with the anticipated future taxable income as evidenced by the
Corporation’s earning potential. The Corporation is no longer subject to federal, state, and local examinations by tax authorities
for years before 2018.
The provision or benefit for income taxes is comprised of the following for the year ended December 31, 2021, 2020, and 2019:
(In Thousands)
2021
2020
2019
Currently payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
4,153 $
3,165 $
Deferred (benefit) expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(359)
309
Total provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
3,794 $
3,474 $
2,324
814
3,138
A reconciliation between the expected income tax or benefit and the effective income tax rate on income before income tax
provision or benefit follows for the year ended December 31, 2021, 2020, and 2019:
(In Thousands)
Amount
%
Amount
%
Amount
%
Provision at expected rate . . . . . . . . . . . . . . . $
4,167
21.00 % $
3,927
21.00 % $
3,953
21.00 %
2021
2020
2019
(Decrease) increase in tax resulting from:
Tax-exempt income . . . . . . . . . . . . . . . . . .
(520)
(2.62)
(475)
(2.54)
Tax credits . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . .
Effective income tax provision and rate . . . . $
—
147
3,794
—
0.74
19.12 % $
—
22
3,474
—
0.12
18.58 % $
(547)
(184)
(84)
3,138
(2.91)
(0.98)
(0.44)
16.67 %
79
NOTE 13 - EMPLOYEE BENEFIT PLANS
Defined Benefit Pension Plan
The Corporation has a noncontributory defined benefit pension plan (the “Plan”) for all employees meeting certain age and
length of service requirements that were hired prior to January 1, 2004, at which time entrance into the Plan was frozen. The
benefit accrual for the Plan was subsequently frozen at December 31, 2014. Benefits are based primarily on years of service
and the average annual compensation during the highest five consecutive years within the final ten years of employment, until
December 31, 2014 when the benefit accrual was frozen.
The following table sets forth the obligation and funded status as of December 31, 2021 and 2020:
(In Thousands)
Change in benefit obligation:
2021
2020
Benefit obligation at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
23,553 $
21,456
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actuarial (gain) loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in actuarial assumptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
509
(269)
(896)
(974)
Benefit obligation at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
21,923 $
641
160
(887)
2,183
23,553
Change in plan assets:
Fair value of plan assets at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
23,484 $
19,901
Actual return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employer contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustment to fair value of plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of plan assets at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,785
700
(896)
—
26,073
Funded status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
4,150 $
2,967
1,500
(887)
3
23,484
(69)
Accounts recognized on balance sheet as:
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
4,150 $
(69)
Amounts not yet recognized as a component of net periodic pension cost:
Amounts recognized in accumulated other comprehensive income (loss) consist of:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
4,412 $
7,084
The accumulated benefit obligation for the Plan was $21,923,000 and $23,553,000 at December 31, 2021 and 2020,
respectively.
Components of Net Periodic Cost and Other Amounts Recognized in Other Comprehensive Income (Loss) as of December 31,
2021, 2020, and 2019 are as follows:
(In Thousands)
Net periodic pension cost:
2021
2020
2019
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of unrecognized net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net periodic (benefit) cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
— $
509
(1,542)
186
(847) $
— $
641
(1,274)
185
(448) $
—
763
(995)
187
(45)
80
Assumptions
Weighted-average assumptions used to determine benefit obligations at December 31, 2021, 2020, and 2019:
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rate of compensation increase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021
2020
2019
2.61 %
N/A
2.24 %
N/A
3.04 %
N/A
Weighted-average assumptions used to determine net periodic cost for years ended December 31, 2021, 2020, and 2019:
Discount rate
Expected long-term return on plan assets
2021
2020
2019
2.24 %
7.00 %
3.04 %
7.00 %
4.10 %
7.00 %
The expected long-term rate of return was estimated using market benchmarks by which the plan assets would outperform the
market value in the future, based on historical experience adjusted for changes in asset allocation and expectations for overall
lower future returns on similar investments compared to past periods.
Plan Assets
The Plan’s weighted-average asset allocations at December 31, 2021 and 2020 by asset category are as follows:
Asset Category
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed income securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inflation Hedges/Real Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Hedged Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021
2020
5.09 %
12.29 %
68.76 %
5.23 %
8.63 %
3.62 %
12.99 %
69.06 %
5.16 %
9.17 %
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100.00 %
100.00 %
The investment objective for the Plan is to maximize total return with tolerance for slightly above average risk, meaning the
fund is able to tolerate short-term volatility to achieve above-average returns over the long term.
Asset allocation favors equities, with target allocation of approximately 62% equity securities, 15.0% fixed income securities,
10% inflation hedges/real assets, 10% hedged strategies, and 3% cash. Due to volatility in the market, the target allocation is
not always desirable and asset allocations will fluctuate between the acceptable ranges. The equity portfolio’s exposure is
primarily in mid and large capitalization domestic equities with limited exposure to small capitalization and international
stocks.
It is management’s intent to give the investment managers flexibility, within the overall guidelines, with respect to investment
decisions and their timing. However, certain investments require specific review and approval by management. Management is
also informed of anticipated, significant modifications of any previously approved investment, or anticipated use of derivatives
to execute investment strategies.
81
The following table sets forth by level, within the fair value hierarchy detailed in Note 21 - Fair Value Measurements, the
Plan’s assets at fair value as of December 31, 2021 and 2020:
(In Thousands)
Assets:
Level I
Level II
Level III
Total
2021
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . $
1,326 $
— $
— $
Mutual funds - taxable fixed income . . . . . . . . . . . . . . .
Mutual funds - domestic equity . . . . . . . . . . . . . . . . . . .
Mutual funds - international equity . . . . . . . . . . . . . . . .
Inflation Hedges/Real Assets . . . . . . . . . . . . . . . . . . . . .
Hedged Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,205
11,422
6,505
1,364
2,251
—
—
—
—
—
—
—
—
—
—
1,326
3,205
11,422
6,505
1,364
2,251
Total assets at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . $
26,073 $
— $
— $
26,073
(In Thousands)
Assets:
Level I
Level II
Level III
Total
2020
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . $
Mutual funds - taxable fixed income . . . . . . . . . . . . . . .
Mutual funds - domestic equity . . . . . . . . . . . . . . . . . . .
Mutual funds - international equity . . . . . . . . . . . . . . . .
Inflation Hedges/Real Assets . . . . . . . . . . . . . . . . . . . . .
Hedged Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
850 $
3,051
11,325
4,889
1,214
2,155
— $
—
—
—
—
—
— $
—
—
—
—
—
850
3,051
11,325
4,889
1,214
2,155
Total assets at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . $
23,484 $
— $
— $
23,484
The following future benefit payments are expected to be paid:
(In Thousands)
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2026 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2027-2031 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,005
1,068
1,071
1,125
1,181
6,034
$
11,484
The Corporation does not expect to contribute to its Pension Plan in 2022.
401(k) Savings Plan
The Corporation also offers a 401(k) savings plan in which eligible participating employees may elect to contribute up to a
maximum percentage allowable not to exceed the limits of Code Sections 401(k), 404, and 415. The Corporation may make
matching contributions equal to a discretionary percentage that is determined by the Board of Directors. Participants are at all
times fully vested in their contributions and vest over a period of five years regarding the employer contribution. Contribution
expense was approximately $500,000, $502,000, and $490,000 for the years ended December 31, 2021, 2020, and 2019,
respectively.
Deferred Compensation Plan
The Corporation has a deferred compensation plan whereby participating directors elect to forego directors’ fees paid in cash.
Under this plan, the Corporation will make payments for a ten-year period beginning at the later of age 65 or ceasing to be a
director in most cases or at death, if earlier, at which time payments would be made to their designated beneficiaries.
82
To fund benefits under the deferred compensation plan, the Corporation has acquired bank-owned life insurance policies on the
lives of the participating directors for which insurance benefits are payable to the Corporation. The Corporation incurred
expenses related to the plan of $463,000, $431,000, and $408,000 for the years ended December 31, 2021, 2020, and 2019,
respectively. Benefits paid under the plan were approximately $57,000, $57,000, and $57,000 in 2021, 2020, and 2019,
respectively.
NOTE 14 - STOCK OPTIONS
In 2020, the Corporation adopted the 2020 Equity Incentive Plan which replaced the 2014 Equity Incentive Plan. The Equity
Incentive Plans are designed to help the Corporation attract, retain, and motivate employees and non-employee directors.
Incentive stock options, non-qualified stock options, and restricted stock may be granted as part of the plan.
On March 15, 2019, the Corporation issued 240,000 stock options with a strike price of $28.01. Of the options issued during
2019, 120,900 have a three year vesting period while the remaining 119,100 have a five year vesting period and all options
expire ten years after issuance. On March 11, 2020 a total of 238,500 options were issued by the Corporation with a strike price
of $25.34. Of the 238,500 options granted, 119,300 of the options have a three year vesting period with the remaining 119,200
options vesting in five years. On April 9, 2021 a total of 234,500 options were issued by the Corporation with a strike price of
$24.23. Of the 234,500 options granted, 156,500 of the options have a three year vesting period with the remaining 78,000
options vesting in five years.
A summary of stock option activity for the year ended December 31, 2021 is presented below:
Shares
Weighted Average
Exercise Price
Weighted Average
Remaining
Contractual Term
Aggregate
Intrinsic Value
Outstanding at December 31, 2018 . . . . . . . . . .
395,550 $
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at December 31, 2019 . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
240,000
—
(9,750)
—
625,800
238,500
—
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(23,025)
Expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at December 31, 2020 . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
841,275
234,500
—
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(41,250)
Expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Outstanding at December 31, 2021 . . . . . . . . . .
1,034,525 $
Options exercisable at December 31, 2021 . . . .
172,500 $
30.08
28.01
—
29.64
—
29.29
25.34
—
29.44
—
28.17
24.23
—
29.30
—
27.23
29.71
8.97 $
4,019,522
9.21
8.97
3,923,463
9.21
7.93
9.28
159,795
7.48 $
5.55 $
—
—
83
On December 31, 2021, a total of 1,034,525 options were outstanding. Outstanding options at December 31, 2021 and the
related vesting schedules are summarized below:
Date
Shares
Forfeited
Outstanding
Strike Price
Vesting Period
Expiration
Stock Options Granted
April 9, 2021
April 9, 2021
March 11, 2020
March 11, 2020
March 15, 2019
March 15, 2019
August 24, 2018
August 24, 2018
January 5, 2018
January 5, 2018
March 24, 2017
March 24, 2017
August 27, 2015
156,500
78,000
119,300
119,200
120,900
119,100
75,300
149,250
18,750
18,750
69,375
35,625
58,125
—
—
—
—
(14,850)
(14,400)
(11,550)
(23,100)
—
—
(11,250)
(2,250)
(26,250)
156,500 $
78,000
119,300
119,200
106,050
104,700
63,750
126,150
18,750
18,750
58,125
33,375
31,875
24.23
24.23
25.34
25.34
28.01
28.01
30.67
30.67
30.07
30.07
29.47
29.47
28.02
3 years
5 years
3 years
5 years
3 years
5 years
3 years
5 years
3 years
5 years
3 years
5 years
5 years
10 years
10 years
10 years
10 years
10 years
10 years
10 years
10 years
10 years
10 years
10 years
10 years
10 years
The fair value of stock options is estimated using the Black-Scholes option pricing model. The following is a summary of the
assumptions used in this model for the stock options granted during 2021, 2020, and 2019:
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.82 %
36.56 %
5.38 %
1.32 %
28.29 %
5.77 %
2.49 %
23.61 %
4.16 %
Expected life . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6.84 years
7.00 years
7.00 years
Weighted average grant date fair value per option . . . . . . . . . . . . . $
4.72
$
3.80
$
4.05
2021
2020
2019
The estimated fair value of options, including the effect of estimated forfeitures, is recognized as expense on a straightline basis
over the options’ vesting periods while ensuring that the cumulative amount of compensation cost recognized at least equals the
value of the vested portion of the award at that date. The Corporation determines the fair value of options granted using the
Black-Scholes option-pricing model. The risk-free interest rate is based on the United States Treasury bond with a similar term
to the expected life of the options at the grant date. Expected volatility was estimated based on the adjusted historic volatility of
the Corporation’s shares. The expected life was estimated to equal the contractual life of the options. The dividend yield rate
was based upon recent historical dividends paid on shares.
For the years ended December 31, 2021, 2020, and 2019 there was $960,000, $854,000, and $680,000 in total share-based
compensation expense, respectively. The compensation expense is recorded as part of the non-interest expenses in the
Consolidated Statement of Income.
As of December 31, 2021, total unrecognized compensation costs related to non-vested options was $1,865,000 which is
expected to be recognized over a period of 2.42 years. Exercisable stock awards at December 31, 2021 were 172,500 with a
weighted average remaining exercisable contractual life of 5.55 years.
NOTE 15 - EMPLOYEE STOCK PURCHASE PLAN
The Corporation maintains the Penns Woods Bancorp, Inc. Employee Stock Purchase Plan (“Plan”). The Plan is intended to
encourage employee participation in the ownership and economic progress of the Corporation. The Plan allows for up to
1,500,000 shares to be purchased by employees. The purchase price of the shares is 95% of fair value with an employee
eligible to purchase up to the lesser of 15% of base compensation or $12,000 in fair value annually. There were 3,850 and
3,972 shares issued under the plan for the years ended December 31, 2021 and 2020, respectively.
84
NOTE 16 - RELATED PARTY TRANSACTIONS
Certain directors and executive officers of the Corporation and the Banks, including their immediate families and companies in
which they are principal owners (more than ten percent), are indebted to the Corporation. Such indebtedness was incurred in
the ordinary course of business on the same terms and at those rates prevailing at the time for comparable transactions with
others.
A summary of loan activity with executive officers, directors, principal shareholders, and associates of such persons is listed
below for the years ended December 31, 2021 and 2020:
(In Thousands)
Beginning
Balance
New Loans
Other
Repayments
Ending Balance
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . $
14,374 $
12,956 $
— $
(11,084) $
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . .
16,246
10,546
(3,177)
(11,249)
16,246
12,366
Loan balances that are no longer considered part of a related party relationship are shown as other activity.
Deposits from related parties held by the Banks amounted to $27,669,000 at December 31, 2021 and $25,520,000 at
December 31, 2020.
NOTE 17 - OFF-BALANCE SHEET RISK
The Corporation is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the
financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of
credit. These instruments involve, to varying degrees, elements of credit, interest rate, or liquidity risk in excess of the amount
recognized in the Consolidated Balance Sheet. The contract amounts of these instruments express the extent of involvement the
Corporation has in particular classes of financial instruments.
The Corporation’s exposure to credit loss from nonperformance by the other party to the financial instruments for commitments
to extend credit and standby letters of credit is represented by the contractual amount of these instruments. The Corporation
uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.
The Corporation may require collateral or other security to support financial instruments with off-balance sheet credit risk.
Financial instruments whose contract amounts represent credit risk are as follows at December 31, 2021 and 2020:
(In Thousands)
2021
2020
Commitments to extend credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
184,364 $
198,512
Standby letters of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit exposure from the sale of assets with recourse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,027
10,248
10,120
9,182
Commitments to extend credit are legally binding agreements to lend to customers. Commitments generally have fixed
expiration dates or other termination clauses and may require payment of fees. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily represent future liquidity requirements.
The Corporation evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Corporation, on an extension of credit is based on management’s credit assessment of the
counterparty.
Standby letters of credit represent conditional commitments issued by the Corporation to guarantee the performance of a
customer to a third party. These instruments are issued primarily to support bid or performance related contracts. The coverage
period for these instruments is typically a one year period with an annual renewal option subject to prior approval by
management. Fees earned from the issuance of these letters are recognized upon expiration of the coverage period. For secured
letters of credit, the collateral is typically Bank deposit instruments or customer business assets.
85
NOTE 18 - CAPITAL REQUIREMENTS
Federal regulations require the Corporation and the Banks to maintain minimum amounts of capital. Specifically, each is
required to maintain certain minimum dollar amounts and ratios of Common Equity Tier 1, Total, and Tier 1 capital to risk-
weighted assets and of Tier 1 capital to average total assets.
In addition to the capital requirements, the Federal Deposit Insurance Corporation Improvement Act (“FDICIA”) established
five capital categories ranging from “well capitalized” to “critically undercapitalized.” Should any institution fail to meet the
requirements to be considered “adequately capitalized,” it would become subject to a series of increasingly restrictive
regulatory actions.
As of December 31, 2021 and 2020, the FDIC categorized the Banks as well capitalized under the regulatory framework for
prompt corrective action. To be classified as a well capitalized financial institution, common equity tier I risk-based, tier I
risked-based, total risk-based, and tier I leverage capital ratios must be at least 6.5%, 8%, 10%, and 5%, respectively.
The Corporation’s and the Banks' actual capital ratios (using the definitions from the prompt corrective action rules) are
presented in the following tables, which shows that the Corporation and both Banks met all regulatory capital requirements.
Consolidated Corporation
(In Thousands)
Common Equity Tier I Capital (to Risk-weighted Assets)
2021
2020
Amount
Ratio
Amount
Ratio
Actual . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
156,439
10.791 % $
147,887
11.267 %
For Capital Adequacy Purposes . . . . . . . . . . . . . . . . . . . . . . .
Minimum To Maintain Capital Conservation Buffer . . . . . . .
To Be Well Capitalized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Capital (to Risk-weighted Assets)
Actual . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
For Capital Adequacy Purposes . . . . . . . . . . . . . . . . . . . . . . .
Minimum To Maintain Capital Conservation Buffer . . . . . . .
To Be Well Capitalized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tier I Capital (to Risk-weighted Assets)
65,237
101,480
94,232
170,708
115,970
152,211
144,963
4.500 %
7.000 %
6.500 %
59,066
91,880
85,317
11.776 % $
8.000 %
10.500 %
10.000 %
159,490
105,005
137,820
131,257
4.500 %
7.000 %
6.500 %
12.151 %
8.000 %
10.500 %
10.000 %
Actual . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
156,439
10.791 % $
147,887
11.267 %
For Capital Adequacy Purposes . . . . . . . . . . . . . . . . . . . . . . .
Minimum To Maintain Capital Conservation Buffer . . . . . . .
To Be Well Capitalized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tier I Capital (to Average Assets)
86,983
123,226
115,977
6.000 %
8.500 %
8.000 %
78,754
111,568
105,005
Actual . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
156,439
8.397 % $
147,887
For Capital Adequacy Purposes . . . . . . . . . . . . . . . . . . . . . . .
To Be Well Capitalized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
74,521
93,152
4.000 %
5.000 %
70,122
87,652
6.000 %
8.500 %
8.000 %
8.436 %
4.000 %
5.000 %
86
Jersey Shore State Bank
(In Thousands)
Common Equity Tier I Capital (to Risk-weighted Assets)
2021
2020
Amount
Ratio
Amount
Ratio
Actual . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
110,682
10.337 % $
103,812
10.906 %
For Capital Adequacy Purposes . . . . . . . . . . . . . . . . . . . . . . .
Minimum To Maintain Capital Conservation Buffer . . . . . . .
To Be Well Capitalized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Capital (to Risk-weighted Assets)
Actual . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
For Capital Adequacy Purposes . . . . . . . . . . . . . . . . . . . . . . .
Minimum To Maintain Capital Conservation Buffer . . . . . . .
To Be Well Capitalized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tier I Capital (to Risk-weighted Assets)
48,183
74,952
69,598
121,094
85,662
112,431
107,078
4.500 %
7.000 %
6.500 %
42,835
66,632
61,872
11.309 % $
8.000 %
10.500 %
10.000 %
112,862
76,149
99,945
95,186
4.500 %
7.000 %
6.500 %
11.857 %
8.000 %
10.500 %
10.000 %
Actual . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
110,682
10.337 % $
103,812
10.906 %
For Capital Adequacy Purposes . . . . . . . . . . . . . . . . . . . . . . .
Minimum To Maintain Capital Conservation Buffer . . . . . . .
To Be Well Capitalized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tier I Capital (to Average Assets)
64,244
91,013
85,659
6.000 %
8.500 %
8.000 %
57,113
80,910
76,150
Actual . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
110,682
8.326 % $
103,812
For Capital Adequacy Purposes . . . . . . . . . . . . . . . . . . . . . . .
To Be Well Capitalized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
53,174
66,468
4.000 %
5.000 %
51,507
64,384
6.000 %
8.500 %
8.000 %
8.062 %
4.000 %
5.000 %
Luzerne Bank
(In Thousands)
Common Equity Tier I Capital (to Risk-weighted Assets)
Actual . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
For Capital Adequacy Purposes . . . . . . . . . . . . . . . . . . . . . . .
Minimum To Maintain Capital Conservation Buffer . . . . . . .
To Be Well Capitalized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Capital (to Risk-weighted Assets)
Actual . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
For Capital Adequacy Purposes . . . . . . . . . . . . . . . . . . . . . . .
Minimum To Maintain Capital Conservation Buffer . . . . . . .
To Be Well Capitalized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tier I Capital (to Risk-weighted Assets)
Actual . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
For Capital Adequacy Purposes . . . . . . . . . . . . . . . . . . . . . . .
Minimum To Maintain Capital Conservation Buffer . . . . . . .
To Be Well Capitalized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tier I Capital (to Average Assets)
Actual . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
For Capital Adequacy Purposes . . . . . . . . . . . . . . . . . . . . . . .
To Be Well Capitalized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021
2020
Amount
Ratio
Amount
Ratio
42,291
17,047
26,517
24,623
46,148
30,306
39,776
37,882
42,291
22,729
32,199
30,305
42,291
22,444
28,056
11.164 % $
4.500 %
7.000 %
6.500 %
12.182 % $
8.000 %
10.500 %
10.000 %
11.164 % $
6.000 %
8.500 %
8.000 %
7.537 % $
4.000 %
5.000 %
40,206
16,218
25,228
23,426
42,759
28,830
37,840
36,038
40,206
21,624
30,634
28,832
40,206
20,461
25,576
11.156 %
4.500 %
7.000 %
6.500 %
11.865 %
8.000 %
10.500 %
10.000 %
11.156 %
6.000 %
8.500 %
8.000 %
7.860 %
4.000 %
5.000 %
87
NOTE 19 - REGULATORY RESTRICTIONS
The Pennsylvania Banking Code restricts the availability of capital funds for payment of dividends by all state-chartered banks.
Accordingly, at December 31, 2021, the balance in the additional paid in capital account totaling $11,657,000 for JSSB and
$42,214,000 for Luzerne is unavailable for dividends.
The Banks are subject to regulatory restrictions, which limit the ability to loan funds to Penns Woods Bancorp, Inc. At
December 31, 2021, the regulatory lending limit amounted to approximately $25,086,000.
Cash and Due from Banks
JSSB and Luzerne had no reserve requirements by the district Federal Reserve Bank at December 31, 2021 or 2020; however, if
they did they would be reported with cash and due from banks. The required reserves are computed by applying prescribed
ratios to the classes of average deposit balances. These are held in the form of cash on hand and a balance maintained directly
with the Federal Reserve Bank.
NOTE 20 - FAIR VALUE MEASUREMENTS
The following disclosures show the hierarchical disclosure framework associated with the level of pricing observations utilized
in measuring assets and liabilities at fair value. The three broad levels of pricing observations are as follows:
Level I:
Quoted prices are available in active markets for identical assets or liabilities as of the reported date.
Level II:
Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable
as of the reported date. The nature of these assets and liabilities includes items for which quoted prices are
available but traded less frequently, and items that are fair valued using other financial instruments, the
parameters of which can be directly observed.
Level III:
Valuations derived from valuation techniques in which one or more significant inputs or significant value
drivers are unobservable.
This hierarchy requires the use of observable market data when available.
The following table presents the assets reported on the balance sheet at their fair value on a recurring basis as of December 31,
2021 and 2020, by level within the fair value hierarchy. Financial assets and liabilities are classified in their entirety based on
the lowest level of input that is significant to the fair value measurement.
(In Thousands)
Level I
Level II
Level III
Total
2021
Assets measured on a recurring basis:
Investment securities, available for sale:
Mortgage-backed securities . . . . . . . . . . . . . . . . . . . . . . $
— $
1,747 $
— $
State and political securities . . . . . . . . . . . . . . . . . . . . . .
Other debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment equity securities: . . . . . . . . . . . . . . . . . . . . . . .
—
—
116,658
48,005
Other equity securities . . . . . . . . . . . . . . . . . . . . . . . . . .
1,251
Investment securities, trading:
Other equity securities . . . . . . . . . . . . . . . . . . . . . . . . . .
37
—
—
—
—
—
—
1,747
116,658
48,005
1,251
37
88
(In Thousands)
Level I
Level II
Level III
Total
2020
Assets measured on a recurring basis:
Investment securities, available for sale:
Mortgage-backed securities . . . . . . . . . . . . . . . . . . . . . . $
— $
2,141 $
— $
State and political securities . . . . . . . . . . . . . . . . . . . . . .
Other debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment equity securities: . . . . . . . . . . . . . . . . . . . . . .
—
—
108,013
52,107
Other equity securities . . . . . . . . . . . . . . . . . . . . . . . . . .
1,288
Investment securities, trading:
Other equity securities . . . . . . . . . . . . . . . . . . . . . . . . . .
40
—
—
—
—
—
—
2,141
108,013
52,107
1,288
40
The following table presents the assets reported on the balance sheet at their fair value on a non-recurring basis as of
December 31, 2021 and 2020, by level within the fair value hierarchy. Financial assets and liabilities are classified in their
entirety based on the lowest level of input that is significant to the fair value measurement.
(In Thousands)
Assets measured on a non-recurring basis:
Impaired loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Other real estate owned . . . . . . . . . . . . . . . . . . . . . . . . . . .
Level I
Level II
Level III
Total
2021
— $
—
— $
—
12,962 $
83
12,962
83
(In Thousands)
Assets measured on a non-recurring basis:
Impaired loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Other real estate owned . . . . . . . . . . . . . . . . . . . . . . . . . . .
Level I
Level II
Level III
Total
2020
— $
—
— $
—
15,648 $
401
15,648
401
The following table provides a listing of significant unobservable inputs used in the fair value measurement process for items
valued utilizing level III techniques as of December 31, 2021 and 2020:
Quantitative Information About Level III Fair Value Measurements
2021
(In Thousands)
Fair Value
Valuation Technique(s)
Impaired loans . . . . . . . . $ 10,602
Discounted cash flow
Unobservable Inputs
Temporary reduction in
payment amount
Range
Weighted Average
3% to (70)%
(9)%
Probability of default
—%
Other real estate owned . $
83 Appraisal of collateral (1) Appraisal adjustments (1)
(20)%
2,360 Appraisal of collateral (1) Appraisal adjustments (1)
0 to (34)%
(15)%
(20)%
Quantitative Information About Level III Fair Value Measurements
2020
(In Thousands)
Fair Value
Valuation Technique(s)
Impaired loans . . . . . . . . $ 8,624
Discounted cash flow
Unobservable Inputs
Temporary reduction in
payment amount
Range
Weighted Average
17% to 6%
(18)%
Probability of default
—%
Other real estate owned . $
401 Appraisal of collateral (1) Appraisal adjustments (1)
(20)%
7,024 Appraisal of collateral (1) Appraisal adjustments (1)
0 to (30)%
(8)%
(20)%
(1) Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation
expenses.
The significant unobservable inputs used in the fair value measurement of the Corporation’s impaired loans using the
discounted cash flow valuation technique include temporary changes in payment amounts and the probability of default.
Significant increases (decreases) in payment amounts would result in significantly higher (lower) fair value measurements. The
89
probability of default is 0% for impaired loans using the discounted cash flow valuation technique because all defaulted
impaired loans are valued using the appraisal of collateral valuation technique.
The significant unobservable input used in the fair value measurement of the Corporation’s impaired loans using the appraisal
of collateral valuation technique include appraisal adjustments, which are adjustments to appraisals by management for
qualitative factors such as economic conditions and estimated liquidation expenses. The significant unobservable input used in
the fair value measurement of the Corporation’s other real estate owned are the same inputs used to value impaired loans using
the appraisal of collateral valuation technique.
NOTE 21 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The Corporation is required to disclose fair values for its financial instruments. Fair values are made at a specific point in time,
based on relevant market information and information about the financial instrument. These fair values do not reflect any
premium or discount that could result from offering for sale at one time the Corporation’s entire holdings of a particular
financial instrument. Also, it is the Corporation’s general practice and intention to hold most of its financial instruments to
maturity and not to engage in trading or sales activities. Because no market exists for a significant portion of the Corporation’s
financial instruments, fair values are based on judgments regarding future expected loss experience, current economic
conditions, risk characteristics of various financial instruments, and other factors. These fair values are subjective in nature and
involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in
assumptions can significantly affect the fair values. The carrying amounts for cash and cash equivalents, restricted investments
in bank stock, bank-owned life insurance, non-time deposits, accrued interest receivable and payable approximate fair value and
are considered Level I measurements.
Fair values have been determined by the Corporation using historical data and an estimation methodology suitable for each
category of financial instruments. The Corporation’s fair values, methods, and assumptions are set forth below for the
Corporation’s other financial instruments.
As certain assets and liabilities, such as deferred tax assets, premises and equipment, and many other operational elements of
the Corporation, are not considered financial instruments but have value, the fair value of financial instruments would not
represent the full fair value of the Corporation.
The fair values of the Corporation’s financial instruments not required to be measured or reported at fair value are as follows at
December 31, 2021 and 2020:
(In Thousands)
Financial assets:
Carrying
Value
Fair Value
Fair Value Measurements at December 31, 2021
Quoted Prices in
Active Markets for
Identical Assets
(Level I)
Significant Other
Observable Inputs
(Level II)
Significant
Unobservable Inputs
(Level III)
Loans held for sale . . . . . . . . . . . . . . . . $
3,725 $
3,725 $
3,725 $
Loans, net . . . . . . . . . . . . . . . . . . . . . . .
1,377,971
1,379,787
—
— $
—
—
1,379,787
Financial liabilities:
Time deposits . . . . . . . . . . . . . . . . . . . . $ 205,367 $ 204,512 $
— $
— $
204,512
Short-term borrowings . . . . . . . . . . . . .
5,747
5,747
Long-term borrowings . . . . . . . . . . . . .
125,963
127,679
5,747
—
—
—
—
127,679
90
(In Thousands)
Financial assets:
Carrying
Value
Fair Value
Fair Value Measurements at December 31, 2020
Quoted Prices in
Active Markets for
Identical Assets
(Level I)
Significant Other
Observable Inputs
(Level II)
Significant
Unobservable Inputs
(Level III)
Loans held for sale . . . . . . . . . . . . . . . . $
5,239 $
5,239 $
5,239 $
Loans, net . . . . . . . . . . . . . . . . . . . . . . .
1,330,524
1,339,993
—
— $
—
—
1,339,993
Financial liabilities:
Time deposits . . . . . . . . . . . . . . . . . . . . $ 263,645 $ 266,840 $
— $
— $
266,840
Short-term borrowings . . . . . . . . . . . . .
5,244
5,244
Long-term borrowings . . . . . . . . . . . . .
153,475
159,575
5,244
—
—
—
—
159,575
NOTE 22 - PARENT COMPANY ONLY FINANCIAL STATEMENTS
Condensed financial information for Penns Woods Bancorp, Inc. follows:
CONDENSED BALANCE SHEET, DECEMBER 31,
(In Thousands)
ASSETS:
2021
2020
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
680 $
1,397
Investment in subsidiaries:
Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
168,808
160,273
Non-bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,620
1,247
1,558
1,030
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
172,355 $
164,258
LIABILITIES AND SHAREHOLDERS’ EQUITY:
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
81 $
116
Shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
172,274
164,142
Total liability and shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
172,355 $
164,258
CONDENSED STATEMENT OF INCOME FOR THE YEARS ENDED DECEMBER 31,
(In Thousands)
Operating income:
2021
2020
2019
Dividends from subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
9,041 $ 11,276 $ 10,326
Equity in undistributed earnings of subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,840
5,684
6,906
Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1,848)
(1,754)
(1,560)
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 16,033 $ 15,206 $ 15,672
Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 15,803 $ 17,101 $ 19,531
91
CONDENSED STATEMENT OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31,
(In Thousands)
OPERATING ACTIVITIES:
2021
2020
2019
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 16,033 $ 15,206 $ 15,672
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed earnings of subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . .
(8,840)
(5,684)
(6,906)
Stock based compensation recognized in earnings . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
INVESTING ACTIVITIES:
Investments in subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition of minority interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
FINANCING ACTIVITIES:
960
(195)
7,958
—
(25)
(25)
854
(457)
9,919
—
—
—
680
(269)
9,177
(350)
—
(350)
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(9,041)
(9,020)
(8,876)
Issuance of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Distribution of non-controlling interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
408
(17)
247
(36)
89
—
Net cash used for financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(8,650)
(8,809)
(8,787)
NET (DECREASE) INCREASE IN CASH . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CASH, BEGINNING OF YEAR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(717)
1,397
1,110
287
CASH, END OF YEAR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
680 $
1,397 $
40
247
287
NOTE 23 - CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED)
(In Thousands, Except Per Share Data)
For the Three Months Ended
2021
March 31,
June 30,
Sept. 30,
Dec. 31,
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
14,595 $
14,406 $
14,714 $
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-interest income, excluding securities gains . . . . . . . .
Securities gains, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income tax provision . . . . . . . . . . . . . . . . .
Income tax provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,525
12,070
515
2,495
119
9,951
4,218
771
2,311
12,095
350
2,769
140
10,248
4,406
813
2,082
12,632
75
2,911
40
10,447
5,061
932
Consolidated net income . . . . . . . . . . . . . . . . . . . . . . . . . . $
3,447 $
3,593 $
4,129 $
Earnings per share - basic . . . . . . . . . . . . . . . . . . . . . . . . . $
Earnings per share - diluted . . . . . . . . . . . . . . . . . . . . . . . . $
0.49 $
0.49 $
0.51 $
0.51 $
0.58 $
0.58 $
14,699
1,778
12,921
(300)
2,835
360
10,259
6,157
1,278
4,879
0.69
0.69
92
(In Thousands, Except Per Share Data)
For the Three Months Ended
2020
March 31,
June 30,
Sept. 30,
Dec. 31,
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
16,161 $
16,044 $
15,387 $
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-interest income, excluding securities gains . . . . . . . .
Securities gains (losses), net . . . . . . . . . . . . . . . . . . . . . . .
Non-interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income tax provision . . . . . . . . . . . . . . . . .
Income tax provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,000
12,161
750
2,409
28
10,110
3,738
661
3,794
12,250
645
2,423
198
9,611
4,615
851
3,542
11,845
645
3,024
1,011
9,707
5,528
1,051
Consolidated net income . . . . . . . . . . . . . . . . . . . . . . . . . . $
3,077 $
3,764 $
4,477 $
Earnings per share - basic . . . . . . . . . . . . . . . . . . . . . . . . . $
Earnings per share - diluted . . . . . . . . . . . . . . . . . . . . . . . . $
0.44 $
0.44 $
0.53 $
0.53 $
0.63 $
0.63 $
15,046
3,079
11,967
585
2,701
374
9,640
4,817
911
3,906
0.56
0.56
NOTE 24 - REVENUE RECOGNITION
On January 1, 2018, the Corporation adopted ASU No. 2014-09 “Revenue from Contracts with Customers” (Topic 606) and all
subsequent ASUs that modified Topic 606 using the modified retrospective method, and applied the guidance to all contracts in
scope that were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are
presented under Topic 606, while prior period amounts were not adjusted and continue to be reported in accordance with our
historic accounting under Topic 605.
The core principle of Topic 606, Revenue from Contracts with Customers, is that an entity recognize revenue at an amount that
reflects the consideration to which the entity expects to be entitled in exchange for transferring goods or services to a customer.
Topic 606 requires entities to exercise more judgment when considering the terms of a contract than under Topic 605, Revenue
Recognition. Topic 606 applies to all contracts with customers to provide goods or services in the ordinary course of business,
except for contracts that are specifically excluded from its scope.
Topic 606 does not apply to revenue associated with interest income on financial instruments, including loans and securities.
Additionally, certain noninterest income streams such as certain credit and debit card fees, income from bank owned life
insurance, and gain and losses on sales of loans, equity, lending, and investment securities are out of scope of Topic 606.
Topic 606 is applicable to noninterest revenue streams such as service charges on deposit accounts, merchant income, wire
transfer income, check cashing fees, check printing fees, safe deposit box rental fees, life insurance, broker fee's, and brokerage
commissions. These revenue streams are largely transactional based and revenue is recognized upon completion of transaction.
Principal versus Agent Considerations
When more than one party is involved in providing goods or services to a customer, Topic 606 requires the Corporation to
determine whether it is the principal or an agent in these transactions by evaluating the nature of its promise to the customer.
An entity is a principal and therefore records revenue on a gross basis if it controls a promised good or service before
transferring that good or service to the customer. An entity is an agent and records as revenue the net amount it retains for its
agency services if its role is to arrange for another entity to provide the goods or services. The Corporation most commonly
acts as a principal and records revenue on a gross basis, except in certain circumstances. As an example, revenues earned from
interchange fees, in which the Corporation acts as an agent, are recorded as non-interest income, net of the related expenses
paid to the principal. Brokerage and insurance commissions are recognized when The M Group's services to the broker dealer
and investment representative are complete.
Debit Card Fees
Interchange fees are one source of debit and credit card income that is comprised of an amount merchants pay card-issuing
banks for the processing of their electronic transactions as a form of payment. ATM service charges, check card usage, and
POS debit card transactions generate interchange and debit card income. Per Topic 606 interchange and debit card transaction
93 fees are reported net of related network costs. See Note 1 - Recent Accounting Pronouncements. Prior to the adoption of Topic
606, non-interest expense included network costs. Interchange and debit card transaction fees at December 31, 2021, 2020, and
2019 are reported on a net basis of $1,511,000 $1,280,000, and $1,378,000, respectively. The below table compares gross
interchange and debit card transaction fees net network costs for 2021, 2020, and 2019:
(In Thousands)
2021
2020
2019
Debit card transaction fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2,684 $
1,775 $
Other processing service fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross interchange and card based transaction fees . . . . . . . . . . . . . . .
Network costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
236
2,920
1,409
306
2,081
801
Net interchange and card based transaction fees . . . . . . . . . . . . . . . . . $
1,511 $
1,280 $
1,876
282
2,158
780
1,378
NOTE 25 - LEASES
The following table shows finance lease right of use assets and finance lease liabilities as of December 31, 2021:
(In Thousands)
Statement of Financial Condition classification
December 31, 2021
December 31, 2020
Finance lease right of use assets Premises and equipment, net
$
Finance lease liabilities
Long-term borrowings
7,435 $
7,963
5,257
5,475
The following table shows the components of finance and operating lease expense for the year ended December 31, 2021.
(In Thousands)
Finance Lease Cost:
Amortization of right-of-use asset
Interest expense
Operating lease cost
Total Lease Cost
2021
2020
2019
$
$
474 $
199 $
257
297
212
318
1,028 $
729 $
254
224
393
871
A maturity analysis of operating and finance lease liabilities and reconciliation of the undiscounted cash flows to the total
operating lease liability is as follows:
(In Thousands)
2022
2023
2024
2025
2026
2027 and thereafter
Total undiscounted cash flows
Discount on cash flows
Total lease liability
Operating
Finance
$
291 $
265
254
257
260
2,568
3,895
(997)
2,898 $
$
420
421
427
929
387
9,277
11,861
(3,898)
7,963
The following table shows the weighted average remaining lease term and weighted average discount rate for both operating
and finance leases outstanding as of December 31, 2021.
Weighted-average term (years)
Weighted-average discount rate
Operating
Finance
17.6
3.53 %
24.4
3.20 %
94
ITEM 9
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A CONTROLS AND PROCEDURES
The Corporation, under the supervision and with the participation of the Corporation’s management, including the
Corporation’s Chief Executive Officer along with the Corporation’s President and Chief Financial Officer, conducted an
evaluation of the effectiveness as of December 31, 2021 of the design and operation of the Corporation’s disclosure controls
and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Exchange Act. Based upon that
evaluation, the Corporation’s Chief Executive Officer along with the Corporation’s President and Chief Financial Officer
concluded that the Corporation’s disclosure controls and procedures were effective as of December 31, 2021.
There have been no changes in the Corporation’s internal control over financial reporting during the fourth quarter of 2021 that
have materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.
Management’s Report on Internal Control Over Financial Reporting
Management of the Corporation is responsible for establishing and maintaining adequate internal control over financial
reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Corporation’s internal control over financial
reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
A material weakness is a significant deficiency (as defined in Public Company Accounting Oversight Board Auditing Standard
No. 2), or a combination of significant deficiencies, that results in there being more than a remote likelihood that a material
misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis by management or
employees in the normal course of performing their assigned functions.
Management assessed the effectiveness of the Corporation’s internal control over financial reporting as of December 31, 2021.
Management’s assessment did not identify any material weaknesses in the Corporation’s internal control over financial
reporting.
In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission ("COSO") in "Internal Control-Integrated Framework" issued by COSO in May 2013. Because there
were no material weaknesses discovered, management believes that, as of December 31, 2021, the Corporation’s internal
control over financial reporting was effective.
S.R. Snodgrass, P.C. (U.S. PCAOB Auditor Firm I.D.:74) an independent registered public accounting firm, has audited the
consolidated financial statements included in this Annual Report on Form 10-K.
Date: March 8, 2022
/s/ Richard A. Grafmyre
/s/ Brian L. Knepp
Chief Executive Officer
President and Chief Financial Officer
(Principal Financial Officer)
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Penns Woods Bancorp, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Penns Woods Bancorp, Inc. and subsidiaries (the
“Company”) as of December 31, 2021 and 2020; the related consolidated statements of income, comprehensive income,
changes in shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2021; and the
related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial
statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and
the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity
with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (PCAOB) and are required to be independent, with respect to the Company, in
accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to
error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over
financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting
but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Basis for Opinion
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due
to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that
were communicated or required to be communicated to the Audit Committee and that: (1) relate to accounts or disclosures that
are material to the financial statements; and (2) involved our especially challenging, subjective, or complex judgments. The
communication of critical audit matters does not alter, in any way, our opinion on the financial statements, taken as a whole,
and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or
on the accounts or disclosures to which they relate.
96 Allowance for Loan Losses (ALL) – Qualitative Factors
Description of the Matter
The Company’s loan portfolio totaled $1.4 billion as of December 31, 2021, and the associated ALL was $14.2 million. As
discussed in Notes 1 and 6 to the consolidated financial statements, determining the amount of the ALL requires significant
judgment about the collectability of loans, which includes an assessment of quantitative factors such as historical loss
experience within each risk category of loans and testing of certain commercial loans for impairment. Management applies
additional qualitative adjustments to reflect the inherent losses that exist in the loan portfolio at the balance sheet date that are
not reflected in the historical loss experience. Qualitative adjustments are made based upon changes in lending policies and
practices, economic conditions, changes in the loan portfolio mix, trends in loan delinquencies and classified loans, collateral
values, and concentrations of credit risk for the commercial loan portfolios.
We identified these qualitative adjustments within the ALL as critical audit matters because they involve a high degree of
subjectivity. In turn, auditing management’s judgments regarding the qualitative factors applied in the ALL calculation
involved a high degree of subjectivity.
How We Addressed the Matter in Our Audit
We gained an understanding of the Company’s process for establishing the ALL, including the qualitative adjustments made to
the ALL. We evaluated the design and tested the operating effectiveness of controls over the Company’s ALL process, which
included, among others, management’s review and approval controls designed to assess the need and level of qualitative
adjustments to the ALL, as well as the reliability of the data utilized to support management’s assessment.
To test the qualitative adjustments, we evaluated the appropriateness of management’s methodology and assessed whether all
relevant risks were reflected in the ALL.
Regarding the measurement of the qualitative adjustments, we evaluated the completeness, accuracy, and relevance of the data
and inputs utilized in management’s estimate. For example, we compared the inputs and data to the Company’s historical loan
performance data, third-party macroeconomic data, and peer bank data and considered the existence of new or contrary
information. We also compared the ALL to a range of historical losses to evaluate the ALL, including the reasonableness of
qualitative adjustments. Furthermore, we analyzed the changes in the components of the qualitative reserves relative to changes
in external market factors, the Company’s loan portfolio, and asset quality trends, which included the evaluation of
management’s ability to capture and assess relevant data from both external sources and internal reports.
We also utilized internal credit review specialists with knowledge to evaluate the appropriateness of management’s risk-rating
processes, to ensure that the risk ratings applied to the commercial loan portfolio were reasonable.
We have served as the Company’s auditor since 1999.
Cranberry Township, Pennsylvania
March 8, 2022
97 ITEM 9B OTHER INFORMATION
None.
PART III
ITEM 10 DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
The information appearing under the captions “The Board of Directors and its Committees,” “Election of Directors,”
“Information as to Nominees and Directors,” “Delinquent Section 16(a) Reports,” “Principal Officers of the Corporation,” and
“Certain Transactions” in the Corporation’s Proxy Statement for the Corporation’s 2022 annual meeting of shareholders (the
“Proxy Statement”) is incorporated herein by reference.
ITEM 11 EXECUTIVE COMPENSATION
Information appearing under the captions “Compensation of Directors," “Compensation Discussion and Analysis,”
“Compensation Committee Report,” “Executive Compensation,” “Grants of Plan-Based Awards,” “Outstanding Equity
Awards,” “Option Exercises and Stock Vested,” “Nonqualified Deferred Compensation,” “Retirement Plan,” “Potential Post-
Employment Payments,” and "Compensation Committee Interlocks and Insider Participation" in the Proxy Statement is
incorporated herein by reference.
ITEM 12
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The information appearing under the caption “Beneficial Ownership and Other Information Regarding Directors, Executive
Officers, and Certain Beneficial Owners” in the Proxy Statement is incorporated herein by reference.
Securities Authorized for Issuance Under Equity Compensation Plans
The following tables provide certain information regarding securities issued or issuable under the Corporation’s equity
compensation plan as of December 31, 2021:
Number of
Securities to be
issued upon
exercise of
outstanding
options,
warrants and
rights
Weighted
average
exercise price
of outstanding
options,
warrants and
rights
Number of
securities remaining
available for
issuance under
equity plans
(excluding securities
reflected in first
column)
Equity compensation plan approved by security holders .........
1,034,525 $
Equity compensation plan not approved by security holders ...
—
Total ..........................................................................................
1,034,525 $
27.23
—
27.23
515,500
—
515,500
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information appearing under the captions “Election of Directors” and “Certain Transactions” in the Proxy Statement is
incorporated herein by reference.
ITEM 14
PRINCIPAL ACCOUNTING FEES AND SERVICES
The information appearing in the Proxy Statement under the captions, “Audit Fees,” “Audit-Related Fees,” “Tax Fees,” “Other
Fees,” and “Pre-Approval of Audit and Permissible Non-Audit Services” is incorporated herein by reference.
98
PART IV
ITEM 15 EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)1. Financial Statements
The following consolidated financial statements and reports are set forth in Item 8:
Report of Independent Auditors
Consolidated Balance Sheet
Consolidated Statement of Income
Consolidated Statement of Comprehensive Income
Consolidated Statement of Changes in Shareholders’ Equity
Consolidated Statement of Cash Flows
Notes to the Consolidated Financial Statements
99 2. Financial Statement Schedules
Financial statement schedules are omitted because the required information is either not applicable, not required or is
shown in the respective financial statements or in the notes thereto.
(b) Exhibits:
(3)(i)
(3)(ii)
(4)(i)
(10)(i)
(10)(ii)
(10)(iii)
(10)(iv)
(10)(v)
(10)(vi)
(10)(vii)
(10)(viii)
(10)(ix)
(21)
(23)
(31)(i)
(31)(ii)
(32)(i)
(32)(ii)
Exhibit 101
Articles of Incorporation of the Registrant, as presently in effect (incorporated by reference to Exhibit 3(i) of
the Registrant's Annual Report on Form 10-K for the year ended December 31, 2018).
Bylaws of the Registrant (incorporated by reference to Exhibit 3(ii) of the Registrant’s Annual Report
on Form 10-K for the year ended December 31, 2020).
Description of Capital Securities
Form of First Amendment to the Jersey Shore State Bank Amendment and Restatement of the Director Fee
Agreement, dated as of October 1, 2004 (incorporated by reference to Exhibit 10.7 of the Registrant’s
Current Report on Form 8-K filed on June 29, 2006).
Employment Agreement, dated December 31, 2018, among Penns Woods Bancorp, Inc. and Brian L. Knepp
(incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed on December
31, 2018).*
Amended and Restated Employment Agreement, dated March 9, 2021, between Penns Woods Bancorp, Inc.
and Richard A. Grafmyre (incorporated by reference to Exhibit 10.1 of the Registrant's Current Report on
Form 8-K filed on March 10, 2021).*
Employment Agreement, dated February 1, 2014, among Penns Woods Bancorp, Inc., Jersey Shore State
Bank and Aron M. Carter (incorporated by reference to Exhibit 10.5 of the Registrant's Annual Report on
Form 10-K for the year ended December 31, 2016).*
Employment Agreement, dated February 1, 2014, among Penns Woods Bancorp, Inc., Jersey Shore State
Bank and Michelle M. Karas (incorporated by reference to Exhibit 10.6 of the Registrant's Annual Report on
Form 10-K for the year ended December 31, 2016).*
Supplemental Executive Retirement Plan dated as of September 25, 2020, effective September 1, 2020,
between Jersey Shore State Bank and Brian Knepp (incorporated by reference to Exhibit 10.1 of the
Registrant’s Current Report on Form 8-K filed on October 1, 2020).
Supplemental Executive Retirement Plan dated as of September 25, 2020, effective September 1, 2020,
between Jersey Shore State Bank and Aron Carter (incorporated by reference to Exhibit 10.2 of the
Registrant’s Current Report on Form 8-K filed on October 1, 2020).
Penns Woods Bancorp, Inc. 2020 Equity Incentive Plan (incorporated by reference to Appendix A to the
Registrant's definitive proxy statement filed on March 23, 2020).
Penns Woods Bancorp, Inc. 2020 Non-Employee Director Compensation Plan (incorporated by reference to
Appendix B to the Registrant's definitive proxy statement filed on March 23, 2020).
Subsidiaries of the Registrant.
Consent of Independent Certified Public Accountants.
Rule 13a-14(a)/Rule 15d-14(a) Certification of Chief Executive Officer.
Rule 13a-14(a)/Rule 15d-14(a) Certification of Principal Financial Officer.
Section 1350 Certification of Chief Executive Officer.
Section 1350 Certification of Principal Financial Officer.
Interactive data file containing the following financial statements formatted in XBRL (Extensible Business
Reporting Language): (i) the Consolidated Balance Sheet at December 31, 2021 and December 31, 2020;
(ii) the Consolidated Statement of Income for the years ended December 31, 2021, 2020, and 2019; (iii) the
Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2021, 2020, and 2019;
(iv) the Consolidated Statement of Comprehensive Income for the years ended December 31, 2021, 2020,
and 2019; (v) the Consolidated Statement of Cash Flows for the years ended December 31, 2021, 2020, and
2019; and (vi) the Notes to Consolidated Financial Statements, tagged as blocks of text. As provided in
Rule 406T of Regulation S-T, this interactive data file shall not be deemed to be “filed” for purposes of
Section 18 of the Securities Exchange Act of 1934, and shall not be deemed “filed” or part of any registration
statement or prospectus for purposes of Section 11 or 12 under the Securities Act of 1933, or otherwise
subject to liability under those sections.
* Denotes compensatory plan or arrangement.
100 EXHIBIT INDEX
(4) (i)
(21)
(23)
(31) (i)
(31) (ii)
(32) (i)
(32) (ii)
Exhibit 101
Description of Capital Securities
Subsidiaries of the Registrant.
Consent of Independent Certified Public Accountants.
Rule 13a-14(a)/Rule 15d-14(a) Certification of Chief Executive Officer.
Rule 13a-14(a)/Rule 15d-14(a) Certification of Principal Financial Officer.
Section 1350 Certification of Chief Executive Officer.
Section 1350 Certification of Principal Financial Officer.
Interactive data file containing the following financial statements formatted in XBRL (Extensible Business
Reporting Language): (i) the Consolidated Balance Sheet at December 31, 2021 and December 31, 2020;
(ii) the Consolidated Statement of Income for the years ended December 31, 2021, 2020, and 2019; (iii) the
Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2021, 2020, and 2019;
(iv) the Consolidated Statement of Comprehensive Income for the years ended December 31, 2021, 2020, and
2019; (v) the Consolidated Statement of Cash Flows for the years ended December 31, 2021, 2020, and 2019;
and (vi) the Notes to Consolidated Financial Statements, tagged as blocks of text. As provided in Rule 406T of
Regulation S-T, this interactive data file shall not be deemed to be “filed” for purposes of Section 18 of the
Securities Exchange Act of 1934, and shall not be deemed “filed” or part of any registration statement or
prospectus for purposes of Section 11 or 12 under the Securities Act of 1933, or otherwise subject to liability
under those sections.
101
Pursuant to the requirements of Section 13 or 15(d) 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.
SIGNATURES
March 8, 2022
PENNS WOODS BANCORP, INC.
/s/ Richard A. Grafmyre
Chief Executive Officer
102
Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on the dates indicated:
/s/ Richard A. Grafmyre
Richard A. Grafmyre, Chief Executive Officer and Director
(Principal Executive Officer)
/s/ Brian L. Knepp
Brian L. Knepp, President and Chief Financial Officer and Director
(Principal Financial and Accounting Officer)
/s/ R. Edward Nestlerode, Jr.
R. Edward Nestlerode, Jr., Chairman of the Board
/s/ Daniel K. Brewer
Daniel K. Brewer, Director
/s/ Michael J. Casale, Jr.
Michael J. Casale, Jr., Director
/s/ William J. Edwards
William J. Edwards, Director
/s/ James M. Furey, II
James M. Furey, II, Director
/s/ D. Michael Hawbaker
D. Michael Hawbaker, Director
/s/ Cameron W. Kephart
Cameron W. Kephart, Director
/s/ Leroy H. Keiler, III
Leroy H. Keiler, III, Director
/s/ Joseph E. Kluger
Joseph E. Kluger, Director
/s/ Charles E. Kranich, II
Charles E. Kranich, III, Director
/s/ Robert Q. Miller
Robert Q. Miller, Director
/s/ John G. Nackley
John G. Nackley, Director
/s/ Jill F. Schwartz
Jill F. Schwartz, Director
/s/ William H. Rockey
William H. Rockey, Director
/s/ Ronald A. Walko
Ronald A. Walko, Director
March 8, 2022
March 8, 2022
March 8, 2022
March 8, 2022
March 8, 2022
March 8, 2022
March 8, 2022
March 8, 2022
March 8, 2022
March 8, 2022
March 8, 2022
March 8, 2022
March 8, 2022
March 8, 2022
March 8, 2022
March 8, 2022
March 8, 2022
103
DESCRIPTION OF CAPITAL STOCK
As of March 1, 2022, Penns Woods Bancorp, Inc. (the “Corporation”) had one class of securities registered under
Section 12 of the Securities Exchange Act of 1934, as amended: common stock, $5.55 par value per share (the “Common
Stock”). The following summarizes the provisions of the Common Stock under the articles of incorporation and bylaws of the
Corporation and under the provisions of the Pennsylvania Business Corporation Law of 1988, as amended (the “PBCL”). The
summary should be read in conjunction to the complete text of the articles of incorporation and bylaws and the PBCL.
Exhibit 4(i)
Authorized Shares of Capital Stock
The authorized capital stock consists of 22,500,000 shares of Common Stock and 3,000,000 shares of preferred stock.
As of March 1, 2022, there were 7,074,044 shares of Common Stock issued and outstanding. No shares of preferred stock were
issued and outstanding as of March 1, 2022.
Common Stock
Voting Rights
Holders of Common Stock are entitled to one vote for every share having voting power on all matters submitted for
action by the shareholders. Holders of Common Stock do not have cumulative voting rights in the election of directors. The
Corporation’s articles of incorporation provide that a merger, consolidation, liquidation, or dissolution of the Corporation
requires the affirmative vote of 66-2/3% of our outstanding shares of Common Stock, in addition to any vote required by law.
This provision does not apply to any merger, consolidation, share exchange or similar transaction if (i) members of the
Corporation’s board of directors will constitute at least a majority of the of the board of directors or the surviving or new
corporation or entity immediately after the transaction and (ii) shareholders of the Corporation will hold in the aggregate voting
shares of the surviving or new corporation or entity to be outstanding immediately after completion of the transaction entitled to
cast at least a majority of the votes entitled to be cast generally for the election of directors.
Dividends and Distributions
Holders of Common Stock are entitled to receive dividends ratably if, as and when dividends are declared from time to
time by our board of directors out of funds legally available for that purpose, after payment of dividends required to be paid on
outstanding preferred stock, if any.
Ranking
Upon liquidation, dissolution or winding up, the holders of Common Stock are entitled to receive ratably the assets
available for distribution to the shareholders after payment of liabilities and accumulated and unpaid dividends and liquidation
preferences on outstanding preferred stock, if any.
No Conversion Rights; No Preemptive Rights; No Redemption
Holders of Common Stock have no preemptive or conversion rights and are not subject to further calls or assessment
by the Corporation. There are no redemption or sinking fund provisions applicable to the Common Stock. The rights,
preferences and privileges of holders of Common Stock will be subject to, and may be adversely affected by, the rights of the
holders of shares of any series of preferred stock, which our board of directors may designate and issue in the future without
further shareholder approval.
Stock Exchange Listing
The Common Stock is listed on the Nasdaq Global Select Market under the symbol, “PWOD.”
Fully Paid and Nonassessable
Outstanding shares of Common Stock are validly issued, fully-paid and nonassessable.
104
Preferred Stock
The Corporation’s articles of incorporation authorize the board of directors to fix by resolution the voting rights,
designations and preferences, priorities, qualifications, privileges, limitations, restrictions, options, conversion rights, dividend
features, retirement features, liquidation features, redemption features and other special or relative rights of the preferred stock
and any series thereof. The board of directors has full authority to issue authorized preferred stock from time to time in one or
more series, without further shareholder approval.
Anti-Takeover Provisions
Certain provisions of the Corporation’s articles of incorporation, bylaws and the PBCL may have the have the effect of
delaying, deferring, or preventing a change in control of the Corporation:
Pennsylvania Anti-Takeover Provisions
Certain anti-takeover provisions of the PBCL apply to Pennsylvania registered corporations (e.g., publicly traded
companies) including those relating to (1) control share acquisitions, (2) disgorgement of profits by certain controlling persons,
(3) business combination transactions with interested shareholders, and (4) the rights of shareholders to demand fair value for
their stock following a control transaction. Pennsylvania law allows corporations to opt-out of these anti-takeover sections
under certain circumstances, but the Corporation has not opted out of any of these anti-takeover provisions. A general summary
of these applicable anti-takeover provisions is set forth below.
Control Share Acquisitions. Pennsylvania law regarding control share acquisitions relates to the act of acquiring for the
first time voting power over voting shares (other than (i) shares owned continuously by the same natural person since January 1,
1988, (ii) shares beneficially owned by any natural person or trust, estate, foundation or similar entity to the extent such shares
were acquired solely by gift, inheritance, bequest, device or other testamentary distribution, directly or indirectly, from a natural
person who beneficially owned the shares prior to January 1, 1988 or (iii) shares acquired pursuant to a stock split, stock
dividend or similar distribution with respect to shares that have been beneficially owned continuously since their issuance by
the Corporation by the shareholder that acquired them from the Corporation or that were acquired from such shareholder
pursuant to (ii) above) equal to: (a) at least 20% but less than 33 1/3%; (b) at least 33 1/3% but less than 50%; or (c) 50% or
more of the voting power of the corporation. Once a control share acquisition has occurred, then all shares in excess of the
triggering threshold, plus shares purchased at any time with the intention of acquiring such voting power or shares purchased
within 180 days of the date the triggering threshold was exceeded, are considered control shares. Control shares cannot vote
either until their voting rights have been restored by two separate votes of the shareholders, as described below, or until they
have been transferred to a person who is not an affiliate of the transferor and does not thereby also become the holder of control
shares.
The holder of control shares may wait until the next annual or special meeting after the acquisition took place to
submit the question of the restoration of voting rights to the shareholders, or the acquiring person may accelerate the process by
agreeing to underwrite the cost of a special meeting of shareholders for that purpose. In either case, the acquiring person is
required to furnish for distribution to the shareholders an information statement containing a detailed disclosure concerning the
acquiring person, its intentions with respect to ownership of securities of the corporation and other matters. As an alternative, a
person submitting a bona fide written offer to make a control share acquisition may request prospective approval by the
shareholders of the exercise of the voting rights of the shares proposed to be acquired, provided that the control share
acquisition is consummated within 90 days after shareholder approval is obtained. Two shareholder votes are required to
approve the restoration of voting rights. First, the approval of a majority of all voting power must be obtained. Second, the
approval of a majority of all disinterested shareholders must be obtained.
For a period of 24 months after the later of (a) a control share acquisition by an acquiring person who does not
properly request consideration of voting rights, or (b) the denial of such a request or lapse of voting rights, the corporation may
redeem all the control shares at the average of the high and low public market sales price of the shares on the date notice of the
call for redemption is given by the corporation.
Disgorgement of Profits by Certain Controlling Persons. Pennsylvania law regarding disgorgement of profits by
certain controlling persons applies in the event that (a) any person or group directly or indirectly publicly discloses or causes to
be disclosed that the person or group may seek to acquire control of the corporation, or (b) a person or group acquires, offers to
acquire or directly or indirectly publicly discloses or causes to be disclosed an intent to acquire) 20% or more of the voting
power of the corporation and, in either case, sells shares within 18 months thereafter. Any profits from sales of equity securities
of the corporation received by the person or group during such 18-month period will belong to the corporation if the securities
105
that were sold were acquired during the 18-month period after or within 24 months prior to becoming a controlling person.
Business Combination Transactions with Interested Shareholders. Pennsylvania law regarding business combination
transactions with interested shareholders provides that a person who acquires the direct or indirect beneficial ownership of
shares entitled to cast at least 20% of the votes entitled to be cast for the election of directors or an affiliate or associate of the
corporation who at any time within the prior five years was the beneficial owner, directly or indirectly, of 20% of the voting
shares of the corporation is an “interested shareholder.” A corporation subject to this provision may not effect mergers or
certain other business combinations with the interested shareholder for a period of five years, unless:
•
•
•
the business combination or the acquisition of stock by means of which the interested shareholder became an interested
shareholder is approved by the corporation’s board of directors prior to such stock acquisition;
the business combination is approved by the affirmative vote of the holders of all the outstanding common shares of
the corporation; or
the business combination is approved by the affirmative vote of the holders of a majority of all shares entitled to vote,
excluding votes of shares held by the interested shareholders or their affiliates, and at the time of such vote, the
interested shareholder is the beneficial owner of at least 80% of the voting shares of the corporation. This exception
applies only if the value of the consideration to be paid by the interested shareholder in connection with the business
combination satisfies certain fair price requirements.
After the five-year restricted period, an interested shareholder of the corporation may engage in a business
combination with the corporation if (a) the business combination is approved by the affirmative vote of a majority of the shares
other than those beneficially owned by the interested shareholder and its affiliates, or (b) the merger is approved at a
shareholders meeting and certain fair price requirements are met.
Rights of Shareholders to Demand Full Value for their Stock Following Control Transaction. Under Pennsylvania law,
a control transaction is an acquisition by a person or group of the voting power over at least 20% of the voting shares of the
corporation. Subject to exceptions, if a Pennsylvania registered corporation is subject to a control transaction, the controlling
person or group must provide prompt notice of the transaction to the court and each shareholder of record holding voting
shares. Any holder of voting shares may make a written demand on the controlling person or group for payment in cash of the
fair value of each voting share at the date on which the control transaction occurs. The minimum value that a shareholder can
receive is the highest price paid per share by the controlling person or group within the 90-day period ending on and including
the date of the control transaction. If any shareholder believes the fair value of her shares is higher than the price offered by the
controlling person or group, the shareholder may file a petition with the court seeking appraisal of the shares.
Blank Check Preferred Stock
The articles of incorporation provide for the issuance of preferred stock having terms established by the Corporation’s
board of directors without shareholder approval.
Staggered Board of Directors
The articles of incorporation provide for the classification of the board of directors into three classes with each class
serving a staggered three-year term. As a result of this classification, only one third of the entire board of directors stands for
election in any one year and a minimum of two annual meetings would be required to elect a majority of the board of directors.
Calling of Special Meetings of Shareholders
Pursuant to the bylaws, special meetings of shareholders may only be called by the Chairman of the Corporation’s
board of directors, by the Corporation’s board of directors, or by the President of the Corporation.
Advance Notice Requirements for Shareholder Proposals and Director Nominations
The bylaws provide that notice of any proposal by a shareholder which the shareholder desires to submit to a vote at an
annual meeting, including any director nominations, must made by notice in writing, delivered or mailed by first class United
States mail, postage prepaid, to the Secretary of the Corporation not less than ninety (90) days nor more than one hundred and
fifty (150) days prior to any annual meeting of shareholders. The bylaws also specify requirements as to the contents of the
shareholder’s notice or nomination. If notice is not provided in accordance with these provisions, a shareholder’s proposal will
not appear on the meeting agenda.
106
Removal of Directors
Under Pennsylvania law and the Corporation’s articles of incorporation, directors can be removed from office by a
vote of shareholders only for cause.
Board of Directors May Oppose Any Take-Over Offer
The articles of incorporation provide that the board of directors may, if it deems it advisable, oppose a tender, or other
offer for the Corporation’s securities, whether the contemplated payment is in cash or in the securities of a corporation, or some
other form of consideration. When considering whether to oppose an offer, the board of directors may consider any pertinent
issues, including any or all of the following:
•
•
•
•
•
•
whether the offer price is acceptable based on the historical and present operating results or financial condition of the
Corporation;
whether a more favorable price could be obtained for the Corporation’s securities in the future;
the impact which an acquisition of the Corporation would have on the employees, depositors and customers of the
Corporation and its subsidiaries in the community which they serve;
the reputation and business practices of the offeror and its management and affiliates as they would affect the
employees, depositors and customers of the Corporation and its subsidiaries and the future value of the Corporation’s
stock;
the value of the securities (if any) which the offeror is offering in exchange for the Corporation’s securities, based on
an analysis of the worth of the Corporation as compared to the corporation or other entity whose securities are being
offered; and
any antitrust or other legal and regulatory issues that are raised by the offer.
If the board of directors determines that an offer should be rejected, it may take any lawful action to accomplish its
purpose including:
•
•
•
•
•
•
advising shareholders not to accept the offer;
litigation against the offeror;
filing complaints with governmental and regulatory authorities;
acquiring the authorized but unissued securities or treasury stock or granting options with respect thereto;
acquiring a Corporation to create an antitrust or other regulatory problem for the offeror; and
obtaining a more favorable offer from another individual or entity.
Amendments to Articles of Incorporation
Under the PBCL, an amendment to the articles of incorporation requires, except in limited cases where a greater vote
may be required, the affirmative vote of a majority of the votes cast by all shareholders entitled to vote on the matter and the
affirmative vote of a majority of the votes cast by all shareholders within each class or series of shares if such class or series is
entitled to vote on the matter as a class. The PBCL also provides that our shareholders are not entitled by statute to propose
amendments to the articles of incorporation.
The articles of incorporation provide that, in addition to any affirmative vote required by law, the approval of any
amendment to Article 13 (business combinations) of the articles of incorporation requires the affirmative vote of holders of at
least 66-2/3% of the outstanding shares of voting stock.
Amendments to Bylaws
The bylaws provide that our bylaws may be amended or repealed, in whole or in part, by the affirmative vote of a
majority of the board of directors at any regular or special meeting of the board of directors. The PBCL provides that the ability
of our board of directors to adopt, amend or repeal the bylaws is subject to the power of shareholders to change such action.
The PBCL also provides that the board of directors does not have the authority to adopt or change a bylaw on specified
subjects, including, but not limited to, authorized capital, the personal liability of directors, various matters relating to our board
of directors, and matters relating to the voting rights of shareholders.
107
Subsidiaries of the Registrant
Exhibit 21
State or Jurisdiction Under the
Law of Which Organized
Jersey Shore State Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pennsylvania
Luzerne Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pennsylvania
Woods Real Estate Development Company, Inc. . . . . . . . . . . . . . . . . . . . . . . . . .
Pennsylvania
Woods Investment Company, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Delaware
The M Group (subsidiary of the Jersey Shore State Bank) . . . . . . . . . . . . . . . . . .
United Insurance Solutions, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pennsylvania
Pennsylvania
108
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Exhibit 23
We consent to the incorporation by reference in Registration Statements File No. 333-238749, File No.
333-238748, File No. 333-205722, File No. 333-134585, File No. 333-58682 on Form S-8 of Penns
Woods Bancorp, Inc. of our report dated March 8, 2022, relating to our audit of the consolidated financial
statements, which appears in the Annual Report to Shareholders, which is incorporated in this Annual
Report on Form 10-K of Penns Woods Bancorp, Inc. for the year ended December 31, 2021.
Cranberry Township, Pennsylvania
March 8, 2022
109
Rule 13a-14(a)/Rule 15d-14(a) Certification of Chief Executive Officer
I, Richard A. Grafmyre, certify that:
1. I have reviewed this annual report on Form 10-K of Penns Woods Bancorp, Inc.;
Exhibit 31(i)
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the
periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)), and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:
a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
b. designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
c. evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
d. disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing equivalent functions):
a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize
and report financial information; and
b. any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant’s internal control over financial reporting.
Date: March 8, 2022
/s/ Richard A. Grafmyre
Richard A. Grafmyre
Chief Executive Officer
(Principal Executive Officer)
110
Rule 13a-14(a)/Rule 15d-14(a) Certification of Chief Financial Officer
I, Brian L. Knepp, certify that:
1. I have reviewed this annual report on Form 10-K of Penns Woods Bancorp, Inc.;
Exhibit 31(ii)
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)), and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
b. designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
c. evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
d. disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing equivalent functions):
a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize
and report financial information; and
b. any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant’s internal control over financial reporting.
Date: March 8, 2022
/s/ Brian L. Knepp
Brian L. Knepp
President and Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)
111
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32 (i)
In connection with the Annual Report of Penns Woods Bancorp, Inc. (the “Company”) on Form 10-K for the period ended
December 31, 2021 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Richard A.
Grafmyre, Chief Executive Officer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and result of
operations of the Company.
/s/ Richard A. Grafmyre
Richard A. Grafmyre
Chief Executive Officer
March 8, 2022
112
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32 (ii)
In connection with the Annual Report of Penns Woods Bancorp, Inc. (the “Company”) on Form 10-K for the period ended
December 31, 2021 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Brian L. Knepp,
Chief Financial Officer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that:
(1) the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and result of
operations of the Company.
/s/ Brian L. Knepp
Brian L. Knepp
President and Chief Financial Officer
March 8, 2022
113
BOARD OF DIRECTORS
Penns Woods Bancorp, Inc.
Daniel K. Brewer ........................ Certified Public Accountant, retired principal, Brewer and Company, LLC
Michael J. Casale, Jr. ................... Principal, Michael J. Casale, Jr., Esq., LLC
William J. Edwards ..................... President & Owner of JEB Environmental Technologies, Inc.
James M. Furey, II ....................... Retired Former President & Former Owner of Eastern Wood Products
Richard A. Grafmyre ................... Chief Executive Officer of the Corporation and Luzerne Bank
D. Michael Hawbaker ................. Executive Vice President of Glenn O. Hawbaker, Inc.
Leroy H. Keiler, III ..................... Leroy H. Keiler, III, Attorney at Law
Cameron W. Kephart ................... Executive Vice President, Susquehanna Transit Company & Susquehanna
Trailways LLC
Joseph E. Kluger ......................... Chairman of the Board of Luzerne Bank, Managing Principal of Hourigan,
Kluger & Quinn P.C.
Brian L. Knepp ............................ President of the Corporation & Chief Financial Officer of the Corporation,
Charles E. Kranich, II ................. President of Kranich’s Jewelers
JSSB, and Luzerne Bank
Robert Q. Miller ......................... President of Miller Brothers Auto Sales & Mor Car Rentals
John G. Nackley .......................... President & CEO of InterMetro Industries Corporation
R. Edward Nestlerode, Jr. ............ Chairman of the Board of the Corporation, President and Chief Executive
Officer of Nestlerode Contracting Co., Inc.
William H. Rockey ...................... Retired; Former Senior Vice President of the Corporation & JSSB; Former
President of First National Bank of Spring Mills
Jill F. Schwartz ............................ Senior Partner of Wyoming Weavers; President of Fortune Fabrics, Inc.;
Owner of Gosh Yarn It!
Ronald A. Walko ......................... Retired; Former President and Chief Executive Officer of the Corporation and
JSSB
Jersey Shore State Bank
Daniel K. Brewer ......................... Certified Public Accountant, retired principal, Brewer and Company, LLC
Michael J. Casale, Jr. ................... Principal, Michael J. Casale, Jr., Esq., LLC
William J. Edwards ..................... President & Owner of JEB Environmental Technologies, Inc.
James M. Furey, II ....................... Retired Former President & Former Owner of Eastern Wood Products
Richard A. Grafmyre ................... Chief Executive Officer of the Corporation and Luzerne Bank
D. Michael Hawbaker.................. Executive Vice President of Glenn O. Hawbaker, Inc.
Leroy H. Keiler, III ...................... Leroy H. Keiler, III, Attorney at Law
Cameron W. Kephart ................... Executive Vice President, Susquehanna Transit Company & Susquehanna
Trailways LLC
Brian L. Knepp ............................ President of the Corporation & Chief Financial Officer of the Corporation,
Charles E. Kranich, II .................. President of Kranich’s Jewelers
JSSB, and Luzerne Bank
Robert Q. Miller .......................... President of Miller Brothers Auto Sales & Mor Car Rentals
R. Edward Nestlerode, Jr. ............ Chairman of the Board of the Company, President and Chief Executive Officer
of Nestlerode Contracting Co., Inc.
William H. Rockey ...................... Retired; Former Senior Vice President of the Company & JSSB; Former
President of First National Bank of Spring Mills
Ronald A. Walko ......................... Retired; Former President and Chief Executive Officer of the Company and
Karen S. Young............................ President & Chief Executive Officer of JSSB
JSSB
114
Luzerne Bank
Patricia Finan Castellano ............ Health Care Consultant
James F. Clemente ...................... Managing Partner, Snyder & Clemente
Robert G. Edgerton, Jr. ............... Retired, Former President & Chief Executive Officer of Luzerne Bank
Robert Gill .................................. Partner, Thomas M. Gill & Company
Richard A. Grafmyre ................... Chief Executive Officer of the Corporation and Luzerne Bank
Joseph E. Kluger ......................... Chairman of the Board of Luzerne Bank, Managing Principal of Hourigan, Kluger
& Quinn P.C.
Brian L. Knepp ........................... President of the Corporation & Chief Financial Officer of the Corporation, JSSB,
and Luzerne Bank
Gary F. Lamont ........................... Principal, Conyngham Pass Co.; Former President of Luzerne Bank
Robert G. Lawrence .................... Partner, Lawrence, Cable and Company, LLP
John G. Nackley .......................... President and CEO of InterMetro Industries Corporation
Robert O. Neher ……………….. President, Luzerne Bank
Jill F. Schwartz ............................ Senior Partner of Wyoming Weavers; President of Fortune Fabrics, Inc.; Owner of
Angelo C. Terrana, Jr. ................. Principal, Terrana Law, P.C.
Gosh Yarn It!
115
116 Jersey Shore State Bank Locations
& Luzerne Bank Locations
CLINTON COUNTY
LYCOMING COUNTY
• MONTOURSVILLE
LOYALSOCK •
• WILLIAMSPORT
• DUBOISTOWN
• MUNCY
• MONTGOMERY
Y
JERSEY
SHORE
LOCK HAVEN
•
• MILL HALL
CENTRE COUNTY
• SNOW SHOE
BELLEFONTE •
• ZION
• SPRING MILLS
• CENTRE HALL
• STATE COLLEGE
LEWISBURG
•
• DANVILLE
UNION COUNTY
MONTOUR COUNTY
BLAIR COUNTY • ALTOONA
DALLAS
•
LAKE •
LUZERNE
• PITTSTON
• FORTY FORT
•
WILKES-BARRE
CONYNGHAM VALLEY
•
• HAZLE TWP
LUZERNE COUNTY
001CSN4E1A