Penns Woods Bancorp, Inc.
Annual Report 2023

Plain-text annual report

2023 Annual Report TABLE OF CONTENTS Letter to Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Performance Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Statement of Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Statement of Comprehensive Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Statement of Changes in Shareholder’s Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Statement of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Form 10-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 3 6 7 8 9 10 11 Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111 Dear Shareholders, 2023 was a successful year for PWOD. Strong high quality loan growth supported by well diversified funding sources produced strong earnings. These earnings were further supported through cost control and growth in efficiencies from technological investments. We continue to invest in eBanking products in order to provide a more efficient and customer friendly banking solution. We continue to benefit by conservative balance sheet management with an emphasis on acquiring high-quality assets and managing duration. This conservative approach has led to limited loan charge-offs and balance sheet impairment over the past several years. Our success is predicated upon the performance of a great team of employees who are committed to perform at the highest level. Our footprint expansion is paying dividends as markets entered over the past several years have produced significant growth and synergies leading to another year of loan growth in excess of ten percent. Funding the loan growth was an increase in total deposits driven by an increase in time deposits. We remain focused on providing economic benefit within our markets through these lending and deposit gathering efforts. As we move forward through 2024, we will remain focused on our communities. We will continue to provide funding to our local businesses and families so that they can grow and succeed, while making our communities a better place to live. Financial Highlights PWOD continued to return strong results during the past year. Highlights from the period ending December 31, 2023 include: Twelve Months Ended December 31, 2023 Twelve Months Ended December 31, 2022 % Change $16,608,000 $17,422,000 $2.34 $2.47 $1,589,493,000 $1,556,460,000 $1,204,701,000 $1,410,178,000 $1,828,318,000 $1,624,094,000 $2,204,809,000 $2,000,080,000 (4.67)% (5.26)% 2.12% (14.57)% 12.57% 10.24% 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 2013 Annual Growth Rates Tangible Book Value “TBV” + Dividends TBV + Dividends CAGR – Since YE 2013 PWOD Outperformance of 15% 2023 ROATCE(1) + Dividends 16.5% 14.9% 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) ROATCE = Return on Average Tangible Common Equity. Total Assets $ in billions Tier 1 Capital ($M) CONFIDENTIAL AND PROPRIETARY INFORMATION OF STEPHENS INC| MEMBER NYSE, SIPC $106$183$1.2$1.2$1.3$1.3$1.5$1.7$1.7$1.8$1.9$2.0$2.2201320142015201620172018201920202021202220235.5%3.3%11.0% 11.6% PWODPeers9.1%8.2%PWODPeers138.5% 123.7% 0%20%40%60%80%100%120%140%160%PWODPeers3PERFORMANCE HIGHLIGHTS Loan Composition 2023 Deposit Composition 2023 Source: Company documents. Total Loans $ in millions Total Deposits $1,839 $ in millions $1,639 $1,384 $1,354 $1,343 $1,392 $1,324 $1,220 $1,621 $1,556 $1,589 $1,494 CONFIDENTIAL AND PROPRIETARY INFORMATION OF STEPHENS INC| MEMBER NYSE, SIPC Source: Company documents. Non-Interest Bearing30%Savings13%NOW14%Money Market19%Time Deposits16%Brokered CDS8%Yield on Total Loans:4.76%CRE / TRBC:260%Commercial, Financial, and Ag.12%Resi43%CRE29%Construction2%Auto13%Other 1%Cost of Interest Bearing Deposits:2.02%Cost of Total Deposits:1.41%Cost of Funds:1.91%$189$156$165$163$190$213$622$623$590$596$708$799$372$363$373$447$501$532$44$38$39$37$43$40$25$23$20$9$10$10$133$151$156$139$186$244$0$200$400$600$800$1,000$1,200$1,400$1,600$1,800201820192020202120222023CommercialR/E ResidentialR/E CommercialR/E ConstructionInstallmentAutomobile$321$335$449$494$519$471$166$177$210$236$248$219$208$219$288$366$373$215$239$216$284$319$271$299$287$378$264$205$146$260$125$0$200$400$600$800$1,000$1,200$1,400$1,600$1,800201820192020202120222023Noninterest BearingSavingsNOWMoney MarketTime DepositsBrokered CDS4PERFORMANCE HIGHLIGHTS Accounts in thousands Estatement Accounts Internet Banking Accounts Mobile Banking Users Source: Company documents. Return on Equity (%) Return on Average Assets (%) Earnings Per Share Source: S&P Global Market Intelligence, Company documents. CONFIDENTIAL AND PROPRIETARY INFORMATION OF STEPHENS INC| MEMBER NYSE, SIPC 42.545.250.158.051.22019202020212022202318.324.125.124.226.5201920202021202220231.32.02.45.77.6201920202021202220230.85%0.90%0.79%2021202220239.9% 10.7% 9.8% 202120222023$2.27 $2.47 $2.34 2021202220235PENNS WOODS BANCORP, INC. CONSOLIDATED BALANCE SHEET (In Thousands, Except Share Data) ASSETS: Noninterest-bearing balances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest-bearing deposits in other financial institutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investment debt securities, available for sale, at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investment equity securities, at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Restricted investment in bank stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Allowance for credit 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 assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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, no par value, 3,000,000 shares authorized; no shares issued . . . . . . . . . . . . . . . . . . . . . . . . . Common stock, par value $5.55, 22,500,000 shares authorized; 8,019,219 and 7,566,810 shares issued; 7,508,994 and 7,056,585 shares outstanding Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accumulated other comprehensive loss: December 31, 2023 2022 $ 28,969 $ 8,493 37,462 27,390 12,943 40,333 190,945 1,122 24,323 3,993 1,839,764 (11,446) 1,828,318 30,250 11,044 33,867 7,815 16,450 210 2,512 4,655 11,843 193,673 1,142 19,171 3,298 1,639,731 (15,637) 1,624,094 31,844 9,481 34,452 8,656 16,450 327 2,651 6,868 7,640 $ 2,204,809 $ 2,000,080 $ 1,118,320 $ 1,037,397 519,063 1,556,460 471,173 1,589,493 145,926 252,598 3,814 2,570 18,852 2,013,253 153,349 102,783 603 2,708 16,512 1,832,415 — — 44,550 61,733 107,238 42,039 54,252 98,147 Net unrealized loss on available for sale securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Defined benefit plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Treasury stock at cost, 510,225 shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TOTAL SHAREHOLDERS' EQUITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,396) (2,754) (12,815) 191,556 (9,819) (4,139) (12,815) 167,665 $ 2,204,809 $ 2,000,080 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (Recovery) provision for loan credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Recovery for off balance sheet credit exposures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TOTAL (RECOVERY) PROVISION FOR CREDIT LOSSES . . . . . . . . . . . . . . . . . . . . . . . . . . . Year Ended December 31, 2022 2021 2023 83,291 $ 58,682 $ 53,232 5,346 517 2,441 91,595 22,131 8,401 6,099 36,631 54,964 (927) (552) (1,479) 3,634 823 1,789 64,928 3,690 1,007 2,451 7,148 3,281 655 1,246 58,414 5,545 9 3,142 8,696 57,780 49,718 1,910 — 1,910 640 — 640 NET INTEREST INCOME AFTER (RECOVERY) PROVISION FOR CREDIT LOSSES 56,443 55,870 49,078 NON-INTEREST INCOME: Service charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net debt securities (losses) gains, available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net equity securities gains (losses) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Intangible amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Goodwill impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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. . . . . . . . . . . . . . $ 2,090 (193) 15 1,063 1,046 529 575 992 1,328 930 8,375 25,062 3,168 3,392 843 1,082 2,953 1,578 684 117 — 5,617 44,496 2,103 (219) (146) 664 1,131 491 620 1,674 1,464 931 8,713 24,267 3,080 3,288 840 1,452 2,434 938 690 154 653 5,202 42,998 20,322 3,714 16,608 $ — 16,608 $ 2.34 $ 2.34 $ 21,585 4,163 17,422 $ — 17,422 $ 2.47 $ 2.47 $ 1,703 699 (40) 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 19,842 3,794 16,048 15 16,033 2.27 2.27 7,061,818 7,061,818 EARNINGS PER SHARE - BASIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ EARNINGS PER SHARE - DILUTED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC . . . . . . . . . . . . . . . . . . . . . . . WEIGHTED AVERAGE SHARES OUTSTANDING - DILUTED . . . . . . . . . . . . . . . . . . . . . 7,112,450 7,112,450 7,059,437 7,059,437 See accompanying notes to the consolidated financial statements. 7PENNS WOODS BANCORP, INC. CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (In Thousands) Year Ended December 31, 2022 2021 2023 Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 16,608 $ 17,422 $ 16,048 Other comprehensive income (loss): Unrealized gain (loss) on available for sale securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tax effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net realized loss (gain) included in net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tax effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Decrease (increase) of unrecognized pension and post-retirement items . . . . . . . . . . . . . . . Tax effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total other comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,140 (869) 193 (41) 1,754 (369) 4,808 (15,652) (2,264) 3,287 219 (46) (827) 173 (12,846) 475 (699) 147 2,674 (563) (230) Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 21,416 $ 4,576 $ 15,818 See accompanying notes to the consolidated financial statements. 8 6 5 5 , 1 9 1 $ — $ ) 5 1 8 , 2 1 ( $ ) 0 5 1 , 9 ( $ 8 3 2 , 7 0 1 $ 3 3 7 , 1 6 $ 0 5 5 , 4 4 $ 9 1 2 , 9 1 0 , 8 . s t n e m e t a t s l a i c n a n i f d e t a d i l o s n o c e h t o t s e t o n g n i y n a p m o c c a e e S L A T O T - N O N D E T A L U M U C C A R E H T O Y T I U Q E T S E R E T N I K C O T S S S O L ’ S R E D L O H E R A H S G N I L L O R T N O C Y R U S A E R T E V I S N E H E R P M O C D E N I A T E R S G N I N R A E L A N O I T I D D A N I - D I A P L A T I P A C K C O T S N O M M O C T N U O M A S E R A H S $ ) 5 1 1 , 2 1 ( $ ) 2 8 8 ( $ 9 6 7 , 2 8 $ 3 2 5 , 2 5 $ 7 4 8 , 1 4 $ 6 7 5 , 2 3 5 , 7 . C N I , P R O C N A B S D O O W S N N E P Y T I U Q E ’ S R E D L O H E R A H S N I S E G N A H C F O T N E M E T A T S D E T A D I L O S N O C ) 0 3 2 ( 0 6 9 ) 1 4 0 , 9 ( 8 4 0 , 6 1 6 4 1 , 4 6 1 7 8 1 2 3 ) 7 1 ( — 4 7 2 , 2 7 1 2 2 4 , 7 1 ) 6 4 8 , 2 1 ( ) 4 7 0 , 1 ( 1 3 2 , 1 ) 6 3 0 , 9 ( 2 8 2 1 3 ) 0 0 7 ( $ 4 5 1 ) 7 1 ( ) 2 ( — ) 0 0 7 ( ) 5 1 1 , 2 1 ( ) 2 1 1 , 1 ( ) 6 4 8 , 2 1 ( ) 0 3 2 ( 7 4 6 , 1 8 0 8 , 4 8 0 6 , 6 1 1 5 9 ) 4 6 1 , 9 ( 9 8 5 5 2 6 0 4 1 9 2 , 8 8 0 8 , 4 5 6 6 , 7 6 1 — ) 5 1 8 , 2 1 ( ) 8 5 9 , 3 1 ( 3 3 0 , 6 1 ) 1 4 0 , 9 ( 1 6 7 , 9 8 2 2 4 , 7 1 ) 6 3 0 , 9 ( 7 4 1 , 8 9 7 4 6 , 1 8 0 6 , 6 1 ) 4 6 1 , 9 ( 0 6 9 6 6 4 4 2 2 5 9 7 , 3 5 ) 4 7 0 , 1 ( 1 3 2 , 1 2 6 8 3 2 1 2 7 7 0 5 8 , 3 6 4 8 , 3 1 5 4 9 , 1 4 2 7 2 , 0 5 5 , 7 0 2 4 7 7 1 6 , 3 1 2 9 , 2 1 2 5 2 , 4 5 9 3 0 , 2 4 0 1 8 , 6 6 5 , 7 1 5 9 7 6 7 9 1 6 0 3 0 6 9 , 5 2 2 8 5 0 0 1 1 3 3 , 2 4 9 8 , 3 7 1 5 , 0 1 9 2 9 , 7 1 9 6 0 , 0 2 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 2 0 2 , 1 3 r e b m e c e D , e c n a l a B . . . . . . . . . . . . . . . . . e m o c n i t e N s s o l e v i s n e h e r p m o c r e h t O s g n i n r a e n i d e z i n g o c e r n o i t a s n e p m o c d e s a b - k c o t S . . . . . . . . . . ) e r a h s r e p 8 2 . 1 ( , d e r a l c e d s d n e d i v i D n a l p e s a h c r u p k c o t s e e y o l p m e r o f d e u s s i s e r a h s n o m m o C . . . . . . . . . . . . . . . . . . n a l p n o i t a s n e p m o c r o t c e r i d r o f d e u s s i s e r a h s n o m m o C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . t s e r e t n i g n i l l o r t n o c n o n o t s n o i t u b i r t s i D . . . . . . . . . . . . . . . . . . . . . . . . . e s a h c r u p t s e r e t n i g n i l l o r t n o c n o N . . . 1 2 0 2 , 1 3 r e b m e c e D , e c n a l a B . . . . . . . . . . . . . . . . . . . . . . . . . . . . e m o c n i t e N s s o l e v i s n e h e r p m o c r e h t O s n o i t p o f o t n e m e l t t e s h s a C s g n i n r a e n i d e z i n g o c e r n o i t a s n e p m o c d e s a b - k c o t S . . . . . . . . . ) e r a h s r e p 8 2 . 1 $ ( , d e r a l c e d s d n e d i v i D n a l p e s a h c r u p k c o t s e e y o l p m e r o f d e u s s i s e r a h s n o m m o C . . . . . . . . . . . . . . . . n a l p n o i t a s n e p m o c r o t c e r i d r o f d e u s s i s e r a h s n o m m o C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ) s e r a h s 0 0 0 , 0 3 ( k c o t s y r u s a e r t f o e s a h c r u P . . . . . . . . . . 2 2 0 2 , 1 3 r e b m e c e D , e c n a l a B 3 1 - 6 1 0 2 U S A f o n o i t p o d a f o t c e f f e e v i t a l u m u C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . e m o c n i t e N e m o c n i e v i s n e h e r p m o c r e h t O s g n i n r a e n i d e z i n g o c e r n o i t a s n e p m o c d e s a b - k c o t S . . . . . . . . . ) e r a h s r e p 8 2 . 1 $ ( , d e r a l c e d s d n e d i v i D n a l p e s a h c r u p k c o t s e e y o l p m e r o f d e u s s i s e r a h s n o m m o C . . n a l p n o i t a s n e p m o c r o t c e r i d r o f d e u s s i s e r a h s n o m m o C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . s d e e c o r p t e n , g n i r e f f o n a l p t n e m t s e v n i e r d n e d i v i D 3 2 0 2 , 1 3 r e b m e c e D , e c n a l a B t e k r a m - e h t - t a d e r e t s i g e r r o f d e u s s i s e r a h s n o m m o C ) a t a D e r a h S r e P t p e c x E , s d n a s u o h T n I ( 9 PENNS WOODS BANCORP, INC. CONSOLIDATED STATEMENT OF CASH FLOWS Year Ended December 31, 2022 2021 2023 (In Thousands) OPERATING ACTIVITIES: Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Adjustments to reconcile net income to net cash provided by operating activities: $ 16,608 $ 17,422 $ 16,048 Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amortization of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amortization of investment security discounts and premiums, net . . . . . . . . . . . . . . . . . . . . Goodwill impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (Gain) loss on sale of premises and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (Recovery) provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Stock based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Securities losses (gains), available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Originations of loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proceeds of loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gain on sale of loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net equity securities (gains) losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Security trades payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Earnings on bank-owned life insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Increase (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 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proceeds from bank-owned life insurance death benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Distribution of non-controlling interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investment in limited partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proceeds from redemption of regulatory stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purchases of regulatory stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net cash used for investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . FINANCING ACTIVITIES: 2,832 117 419 — (148) (1,479) 951 193 (39,079) 39,430 (1,046) (15) — (1,063) 497 605 18,822 24,702 28,158 (46,411) 35 (199,726) (806) 557 — (8) 1,656 — — 41,739 (46,891) (196,995) 3,466 154 1,140 653 301 1,910 1,231 219 (39,388) 40,946 (1,131) 146 (111) (664) (681) (1,720) 23,893 5,557 17,372 (66,984) — (248,130) (377) 150 120 (22) 2 — (695) 11,282 (15,922) (297,647) 3,711 191 1,142 — 18 640 960 (699) (85,938) 89,926 (2,474) 40 (1,455) (916) (359) (2,912) 17,923 17,947 20,997 (46,499) — (48,170) (1,137) 2 335 (30) 825 (25) (1,070) 3,143 (2,297) (55,979) Net increase (decrease) in interest-bearing deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net (decrease) increase in noninterest-bearing deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proceeds from long-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Repayment of long-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net (decrease) increase in short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Finance lease principal payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Distributions to non-controlling interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Issuance of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purchase of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net cash provided by financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . . . CASH AND CASH EQUIVALENTS, BEGINNING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CASH AND CASH EQUIVALENTS, ENDING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80,923 (47,890) 180,000 (30,000) (7,423) (185) (9,164) — 9,041 — 175,302 (2,871) 40,333 37,462 $ 81,869 (89,558) 45,003 24,703 — — (30,000) (23,000) 503 147,602 (165) (180) (9,041) (9,036) (17) — 408 394 — (700) 88,560 50,225 50,504 (223,529) 263,862 213,358 40,333 $ 263,862 $ See accompanying notes to the consolidated financial statements. 10Table of Contents 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, 2023 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 Table of Contents 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. [ ] If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued statements. ☐ Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐ 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 $176,799,000 at June 30, 2023. 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, 2024 7,513,898 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 May 7, 2024 are incorporated by reference in Part III hereof. 12ITEM INDEX PART I Item 1. Business Item 1A. Risk Factors Item 1B. Unresolved Staff Comments Item 1C. Cybersecurity Risk Management, Strategy and Governance Item 2. Item 3. Item 4. Properties Legal Proceedings Mine Safety Disclosures PART II Item 5. Item 6. Item 7. Item 7A. Item 8. Item 9. Market for the Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities [Reserved] Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operations Quantitative and Qualitative Disclosures About Market Risk Financial Statements and Supplementary Data Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Item 9A. Controls and Procedures Item 9B. Other Information Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections PART III Item 10. Item 11. Item 12. Item 13. Item 14. Directors, Executive Officers, and Corporate Governance Executive Compensation Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Certain Relationships and Related Transactions, and Director Independence Principal Accounting Fees and Services PART IV Item 15. Exhibits and Financial Statement Schedules Index to Exhibits Signatures PAGE 14 20 22 22 24 25 25 26 27 27 44 45 88 88 91 92 92 92 92 92 92 93 95 96 13Table of Contents 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, 2023, JSSB employed 237 persons, Luzerne employed 68 persons, and The M Group employed 3 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”). 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Table of Contents 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. 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 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. 15Table of Contents 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, 2023, the Banks had $387,295,000 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, 2023, the Banks had $23,818,000 in stock of the FHLB, which was in compliance with this requirement. 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 16Table of Contents (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 CFPB created by the Dodd-Frank Act 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 CFPB 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. 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 17Table of Contents 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, 2023, JSSB had total assets of $1,584,746,000; total shareholders’ equity of $125,428,000; and total deposits of $1,101,906,000. 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, 2023, Luzerne had total assets of $644,872,000; total shareholders’ equity of $64,913,000; and total deposits of $488,722,000. 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. 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 18Table of Contents 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-four 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 6% 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. 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 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. 19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. 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 20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 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. 21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. External events, including natural disasters, national or global health emergencies, and events of armed conflict in other countries, and terrorist threats could impact our ability to do business or otherwise adversely affect our business, operations or financial condition. Financial institutions, like other businesses, are susceptible to the effects of external events that can compromise operating and communications systems and otherwise have adverse effects. Such events, should they occur, can cause significant damage, impact the stability of our operations or facilities, result in additional expense, or impair the ability of our borrowers to repay their loans. Although we have established and regularly test disaster recovery procedures, the occurrence of any such event could have a material adverse effect on our business, operations, and financial condition. In addition, other external events, including natural disasters, health emergencies and epidemics or pandemics, such as the COVID-19 pandemic, and events of armed conflict in other parts of the world, such as the present armed conflict involving Ukraine and Russia, could adversely affect the global or regional economies resulting in unfavorable economic conditions in the United States. Any such development could have an adverse effect on our business, operations or financial condition. 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. ITEM 1C CYBERSECURITY RISK MANAGEMENT, STRATEGY AND GOVERNANCE The Corporation maintains comprehensive and continually evolving processes for assessing, identifying, and managing material risks from cybersecurity threats, including any potential unauthorized occurrence on, or conducted through, the Corporation’s information systems that may result in adverse effects on the confidentiality, integrity, or availability of such systems or any information residing on such systems. The processes relating to cybersecurity threats are integrated into the Corporation’s overall risk management processes, which are overseen by the entire board of directors and not delegated to any committee or subcommittee of the board. As part of the Corporation’s overall risk management processes, the board of directors has established both a senior management Risk Management Committee and a separate senior management Information Technology Steering Committee. Each of these Committees meets regularly and consists of the Corporation’s senior management department heads, plus the Chief Executive Officer and the President and Chief Financial Officer of the Corporation (each of whom also serves as a director of the Corporation). The Information Technology Steering Committee reports directly to the board of directors, with the Corporation’s Chief Information Officer (“CIO”) presenting to the board a detailed report on information systems and cybersecurity matters at least once annually. The board of directors also receives and reviews copies of minutes of all meetings of both the Risk Management Committee and the Information Technology Steering Committee. The Corporation’s information technology resources are managed by a separate Information Technology Department, which is responsible for identifying, assessing, and managing material risks from cybersecurity threats. The Information Technology Department is managed by the CIO, who reports to the Corporation’s President and Chief Financial Officer. The present CIO has been employed by the Corporation in the information technology area for twenty-eight years and holds an undergraduate degree in computer science. The Information Technology Department also employs a separate Information Security Officer (“ISO”), whose responsibilities include security relating to the Corporation’s information systems. The present ISO is a Certified Information Systems Security Professional and also a Certified Fraud Examiner. The ISO reports directly to the Information Technology Steering Committee and to the Chief Risk Officer. The ISO, among other duties, supervises internal employee training relating to cybersecurity risks, conducts access reviews relating to the Corporation’s information systems, and monitors implemented checks and balances relating to access to information. Information relating to cybersecurity risks and cybersecurity incidents, if any, is reported by the CIO and the ISO to both the Risk Management Committee and to the 22Table of Contents Information Technology Steering Committee, each of which Committees includes the Chief Executive Officer and the President and Chief Financial Officer who are also directors of the Corporation. The Corporation maintains an Incident Response Plan that provides documented guidelines for handling potential threats and taking appropriate measures including timely notification of cybersecurity threats and incidents to senior management and the board of directors when appropriate. The Incident Response Plan is managed by the Information Technology Department, including the ISO, and is reviewed and tested at least annually. The Corporation uses third-party vendors to assist in monitoring, detecting, and managing cyber threats, including managed security service monitoring, penetration testing and vulnerability assessment. The Risk Management Committee has established risk management guidelines for third-party vendors. The Corporation conducts due diligence reviews of third-party vendors before contracts or agreements for provision of services are signed and conducts ongoing due diligence and oversight procedures with the frequency of the procedures determined based on a risk assessment of the services provided. Generally, the Corporation’s agreements with service providers include requirements related to cybersecurity and data privacy. All such agreements are reviewed at least annually. The Corporation cannot guarantee, however, that such agreements, due diligence, and oversight procedures will prevent a cybersecurity incident from impacting information systems. Moreover, as a result of applicable laws and regulations or applicable contractual provisions, the Corporation may be held responsible for cybersecurity incidents attributed to its service providers in relation to any data that the Corporation shares with such providers. To date, the Corporation has not experienced any risks from cybersecurity threats, including as a result of any previous cybersecurity incidents, that have materially affected or are reasonably likely to materially affect the Corporation, including its business strategy, results of operations, or financial condition. As discussed under “Risk Factors” in Item 1A, however, the sophistication of cybersecurity threats continues to increase, and the preventative actions taken by the Corporation to reduce the risk of cybersecurity threats or incidents may not be sufficient in a particular circumstance. Accordingly, the Corporation may not be able to anticipate all cybersecurity breaches no matter how well designed or implemented the Corporation’s cybersecurity controls and procedures are, and the Corporation may not be able to implement effective preventive measures against such security breaches in a timely manner. 23Table of Contents ITEM 2 PROPERTIES The Corporation owns or leases its properties. Listed herewith are the locations of properties owned or leased as of December 31, 2023, 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 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 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 Bellefonte, PA 16823 Land Under Lease 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 Table of Contents 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Table of Contents 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, 2021. Price Range High Low Dividends Declared 2023 First quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 27.77 $ 21.90 $ Second quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Third quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fourth quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27.34 27.17 23.64 21.95 20.70 20.05 2022 First quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 24.67 $ 23.64 $ Second quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Third quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fourth quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24.35 24.29 26.89 22.34 22.02 23.15 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 0.32 0.32 0.32 0.32 0.32 0.32 0.32 0.32 0.32 0.32 0.32 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, 2024, the Corporation had approximately 3,632 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 2023. Period Month #1 (October 1 - October 31, 2023) Month #2 (November 1 - November 30, 2023) Month #3 (December 1 - December 31, 2023) 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Table of Contents ITEM 6 [RESERVED] 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 2023, 2022, and 2021 were $525,000, $522,000, and $449,000, respectively. 2023 vs. 2022 Reported net interest income decreased $2,816,000 to $54,964,000 for the year ended December 31, 2023 compared to the year ended December 31, 2022, as the growth in the earning asset portfolio balance and yield was more than offset by an increase in rate paid on interest-bearing liabilities. Total interest income increased $26,667,000 or $26,670,000 on a tax equivalent basis, primarily from growth in the loan portfolio balance and yield. Tax equivalent interest income on the investment portfolio increased as legacy assets matured with the proceeds reinvested predominately into short and medium term bonds carrying a higher yield than the legacy assets. The overall increase in the yield on the earning asset portfolio was driven by the impact of the rate increases enacted by the Federal Open Market Committee ("FOMC"). Interest expense increased $29,483,000 to $36,631,000 for the year ended December 31, 2023 compared to 2022. The increase in interest expense was driven by a 168 bp increase in the average rate paid on interest-bearing deposits led by a 282 bp increase in the average rate paid on time deposits coupled with an increase of $131,270,000 in average time deposit balances as deposits shifted from lower cost core deposits and the use of brokered deposits increased. Interest expense on total borrowings increased $11,042,000 as utilization of borrowings increased to supplement the funding of the loan portfolio growth. 2022 vs. 2021 Reported net interest income increased $8,062,000 to $57,780,000 for the year ended December 31, 2022 compared to the year ended December 31, 2021, as the growth in the earning asset portfolio and decline in rate paid on interest-bearing liabilities more than offset a slight decrease in the yield on the loan portfolio to 3.95% from 3.98%. Total interest income increased $6,514,000 or $6,587,000 on a tax equivalent basis, primarily from growth in the loan portfolio. Tax equivalent interest income on the investment portfolio increased as legacy assets matured with the proceeds reinvested predominately into short and medium term municipal bonds carrying a higher yield than the legacy assets. The overall increase in the yield on the earning asset portfolio was driven by the impact of the rate increases enacted by the Federal Open Market Committee ("FOMC"). Interest expense decreased $1,548,000 to $7,148,000 for the year ended December 31, 2022 compared to 2021. The decrease in interest expense was driven by a 17 bp decrease in the average rate paid on interest-bearing deposits led by a 78 bp decrease in the average rate paid on time deposits coupled with a decrease of $82,359,000 in average time deposit balances. Interest expense on total borrowings increased $307,000 as utilization of short-term borrowings increased during the second half of 2022. The increase in average short-term borrowing balances was due to FHLB long-term borrowings totaling $23,000,000 maturing during the year ended December 31, 2022. In addition, short-term borrowings provided funding for the growth in the loan portfolio. 27Table of Contents 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: 2023 2022 2021 Average Balance (1) Interest Average Rate Average Balance (1) Interest Average Rate Average Balance (1) Interest Average Rate Tax-exempt loans (3) . . . . . . . . . $ 66,863 $ 1,849 2.77 % $ 55,364 $ 1,441 2.60 % $ 46,312 $ 1,308 2.82 % All other loans (4) . . . . . . . . . . . . 1,691,742 81,830 4.84 % 1,439,550 57,544 4.00 % 1,299,321 52,199 4.02 % Total loans (2) . . . . . . . . . . . . . . . 1,758,605 83,679 4.76 % 1,494,914 58,985 3.95 % 1,345,633 53,507 3.98 % Fed funds sold — — — % 32,863 465 1.41 % 28,395 202 0.71 % Taxable securities . . . . . . . . . . . . . 189,804 7,263 3.83 % 156,584 4,455 2.88 % 148,066 4,083 2.80 % Tax-exempt securities (3) . . . . . . 23,872 654 2.74 % 44,301 1,042 2.38 % 36,993 829 2.27 % Total securities . . . . . . . . . . . . . . . 213,676 7,917 3.71 % 200,885 5,497 2.77 % 185,059 4,912 2.69 % Interest-bearing deposits . . . . . . . 10,916 524 4.80 % 74,401 503 0.68 % 201,273 242 0.12 % Total interest-earning assets . . . . . 1,983,197 92,120 4.65 % 1,803,063 65,450 3.63 % 1,760,360 58,863 3.35 % Other assets . . . . . . . . . . . . . . . . . 131,704 Total assets . . . . . . . . . . . . . . . . . . $ 2,114,901 128,213 $ 1,931,276 129,582 $ 1,889,942 Liabilities and shareholders’ equity: Savings . . . . . . . . . . . . . . . . . . . . . $ 231,000 685 0.30 % $ 247,003 138 0.06 % $ 225,637 Super Now deposits . . . . . . . . . . . 276,868 4,155 1.50 % 387,370 1,344 0.35 % Money market deposits . . . . . . . . 292,755 7,024 2.40 % 289,820 1,105 0.38 % 307,446 305,883 116 900 972 0.05 % 0.29 % 0.32 % Time deposits . . . . . . . . . . . . . . . . 293,252 10,267 3.50 % 161,982 1,103 0.68 % 244,341 3,557 1.46 % Total interest-bearing deposits . . . 1,093,875 22,131 2.02 % 1,086,175 3,690 0.34 % 1,083,307 5,545 0.51 % Short-term borrowings . . . . . . . . . 157,140 8,401 5.36 % 29,315 1,007 3.44 % 7,178 9 0.13 % Long-term borrowings . . . . . . . . . 186,094 6,099 3.28 % 110,027 2,451 2.32 % 135,474 3,142 2.32 % Total borrowings . . . . . . . . . . . . . 343,234 14,500 4.23 % 139,342 3,458 2.48 % 142,652 3,151 2.21 % Total interest-bearing liabilities . . 1,437,109 36,631 2.55 % 1,225,517 7,148 0.58 % 1,225,959 8,696 0.71 % Demand deposits . . . . . . . . . . . . . Other liabilities . . . . . . . . . . . . . . . Shareholders’ equity . . . . . . . . . . 477,828 31,243 168,721 Total liabilities and shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . $ 2,114,901 519,189 24,182 162,388 478,984 23,568 161,431 $ 1,931,276 $ 1,889,942 Interest rate spread . . . . . . . . . . . . Net interest income/margin . . . . . 2.10 % 3.05 % 2.64 % $ 55,489 2.80 % $ 58,302 3.24 % $ 50,167 2.85 % 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% see reconciliation below. 4. Fees on loans are included with interest on loans as follows: 2023 - $301,000; 2022 - $529,000; 2021 - $852,000. 28Table of Contents Reconciliation of Taxable Equivalent Net Interest Income (In Thousands) 2023 2022 2021 Total interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 91,595 $ 64,928 $ Total interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tax equivalent adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,631 54,964 525 7,148 57,780 522 58,414 8,696 49,718 449 Net interest income (fully taxable equivalent) . . . . . . . . . . . . . . . . . . . . . . . $ 55,489 $ 58,302 $ 50,167 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) Volume Rate Net Volume Rate Net Year Ended December 31, 2023 vs. 2022 2022 vs. 2021 Increase (Decrease) Due To Increase (Decrease) Due To Interest income: Loans, tax-exempt . . . . . . . . . . . . . . . . . . . . . . . . . $ 311 $ 97 $ 408 $ 168 $ (35) $ Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,046 13,240 24,286 5,356 Fed funds sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . Taxable investment securities . . . . . . . . . . . . . . . . Tax-exempt investment securities . . . . . . . . . . . . . Interest-bearing deposits . . . . . . . . . . . . . . . . . . . . (465) 1,099 (532) (432) — 1,709 144 453 (465) 2,808 (388) 21 Total interest-earning assets . . . . . . . . . . . . . . . . 11,027 15,643 26,670 Interest expense: Savings deposits . . . . . . . . . . . . . . . . . . . . . . . . . . Super Now deposits . . . . . . . . . . . . . . . . . . . . . . . . Money market deposits . . . . . . . . . . . . . . . . . . . . . Time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . Short-term borrowings . . . . . . . . . . . . . . . . . . . . . Long-term borrowings . . . . . . . . . . . . . . . . . . . . . . Total interest-bearing liabilities . . . . . . . . . . . . . (11) (487) 11 1,499 6,555 2,170 9,737 558 3,298 5,908 7,665 839 1,478 547 2,811 5,919 9,164 7,394 3,648 37 248 171 (74) 5,906 7 248 (11) (949) 106 (574) (11) 226 124 42 335 681 15 196 144 (1,505) 892 (117) (375) 133 5,345 263 372 213 261 6,587 22 444 133 (2,454) 998 (691) (1,548) 19,746 29,483 (1,173) Change in net interest income . . . . . . . . . . . . . . . . $ 1,290 $ (4,103) $ (2,813) $ 7,079 $ 1,056 $ 8,135 PROVISION FOR CREDIT LOSSES 2023 vs. 2022 The provision for credit losses is based upon management’s quarterly review of the loan portfolio. The purpose of the review is to assess loan quality, identify impaired loans, analyze delinquencies, ascertain loan growth, evaluate potential charge-offs and recoveries, and assess general economic conditions in the markets served. An external independent loan review is also performed semi-annually for the Corporation. Management remains committed to an aggressive program of problem loan identification and resolution. 29 Table of Contents 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 credit losses is adequate at December 31, 2023, future adjustments could be necessary if circumstances or economic conditions differ substantially from the assumptions used in making the initial determinations. A downturn in the local economy or employment and delays in receiving financial information from borrowers could result in increased levels of nonperforming assets and charge-offs, increased credit loss provisions and reductions in interest income. Additionally, as an integral part of the examination process, bank regulatory agencies periodically review the Banks' credit loss allowance. The banking regulators could require additions to the credit loss allowance based on their judgment of information available to them at the time of their examination. When determining the appropriate allowance level, management has attributed the allowance for credit losses to various portfolio segments; however, the allowance is available for the entire portfolio as needed. The allowance for credit losses decreased from $15,637,000 at December 31, 2022 to $11,446,000 at December 31, 2023. At December 31, 2023, the allowance for credit losses was 0.62% of total loans compared to 0.95% of total loans at December 31, 2022. The decrease in allowance was primarily due to the adoption of CECL on January 1, 2023 which decreased the reserve by $3,789,000 coupled with net recoveries of $525,000 for the period ended December 31, 2023. The provision for credit losses was a recovery of $927,000 for the year ended December 31, 2023 compared to $1,910,000 for the year ended December 31, 2022. The decrease in the provision was appropriate when considering the impact of CECL adoption, net recoveries during 2023, and gross loan growth of $200,033,000. Net recoveries of $525,000 represented 0.03% of average loans for the year ended December 31, 2023 compared to net charge-offs of $449,000 or 0.03% of average loans for the year ended December 31, 2022 which reduced the historical loss rate in the model. The provision related to the commercial, financial and agricultural segment of the loan portfolio decreased due to an increase in net recoveries of $1,332,000 coupled with the adoption of CECL. An increase occurred in the automobile segment of the loan portfolio due to portfolio growth and an increase in net charge-offs. Non-performing loans decreased due to a payoff of a non-performing loan during 2023. The majority of the non-performing 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 credit losses. Significant loan portfolio growth, impact of CECL adoption, internal loan review and analysis, level of net recoveries, and decreased level of non-performing loans noted previously, dictated a decrease in the provision for credit losses resulting in the allowance for loan losses as a percentage of gross loans to decrease. Utilizing both internal and external resources, as noted, senior management has concluded that the allowance for credit losses remains at a level adequate to provide for expected credit losses inherent in the loan portfolio. 2022 vs. 2021 The allowance for loan losses increased from $14,176,000 at December 31, 2021 to $15,637,000 at December 31, 2022. At December 31, 2022, the allowance for loan losses was 0.95% of total loans compared to 1.02% of total loans at December 31, 2021. The provision for loan losses totaled $1,910,000 for the year ended December 31, 2022 compared to $640,000 for the year ended December 31, 2021. The increase in the provision was appropriate when considering gross loan growth of $247,584,000 and negative economic outlook offset by a reduction in non-performing loans and a low level of net charge-offs during 2022. Net charge-offs of $449,000 represented 0.03% of average loans for the year ended December 31, 2022 compared to net charge-offs of $267,000 or 0.02% of average loans for the year ended December 31, 2021. The provision related to the commercial real estate mortgage segment of the loan portfolio decreased as improvement in credit metrics offset the impact of portfolio growth. An increase occurred in the automobile segment of the loan portfolio due to portfolio growth and concerns regarding the impact of inflation on the customer base. Nonperforming loans decreased $1,360,000 due to a payoff of a nonperforming loan during 2022. 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. Significant loan portfolio growth, internal loan review and analysis, level of net charge-offs, and decreased level of nonperforming loans noted previously, dictated an increase in the provision for loan losses while the allowance for loan losses as a percentage of gross loans decreased. Utilizing both internal and external resources, as noted, senior management has 30Table of Contents concluded that the allowance for loan losses remains at a level adequate to provide for probable losses inherent in the loan portfolio. NON-INTEREST INCOME 2023 vs. 2022 Total non-interest income decreased $338,000 from the year ended December 31, 2022 to December 31, 2023. Excluding net security losses, non-interest income decreased $525,000 year over year. Bank owned life insurance increased primarily due to a gain recognized on the receipt of death benefit in 2023 of $381,000. Gain on sale of loans and loan broker income decreased significantly as mortgage volume decreased due to the increase in interest rates caused by the rate increases enacted by the FOMC. Brokerage commissions decreased primarily due to the downturn and volatility the stock market which led to decreased portfolio values and associated fees. Debit card income decreased as usage declined. (In Thousands) Amount % Total Amount % Total Amount % 2023 2022 Change Service charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,090 24.96 % $ 2,103 24.14 % $ Net debt securities losses, available for sale . . . . . . Net equity securities gains (losses) . . . . . . . . . . . . . Bank owned life insurance . . . . . . . . . . . . . . . . . . . Gain on sale of loans . . . . . . . . . . . . . . . . . . . . . . . . Insurance commissions . . . . . . . . . . . . . . . . . . . . . . Brokerage commissions . . . . . . . . . . . . . . . . . . . . . Loan broker income . . . . . . . . . . . . . . . . . . . . . . . . . Debit card income . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (193) 15 1,063 1,046 529 575 992 1,328 930 (2.30) 0.18 12.69 12.49 6.32 6.87 11.84 15.86 11.09 (219) (146) 664 (2.51) (1.68) 7.62 1,131 12.98 491 620 1,674 1,464 931 5.64 7.12 19.21 16.80 10.68 (13) 26 161 399 (85) 38 (45) (682) (136) (1) (0.62) % (11.87) 110.27 60.09 (7.52) 7.74 (7.26) (40.74) (9.29) (0.11) Total non-interest income . . . . . . . . . . . . . . . . . . . $ 8,375 100.00 % $ 8,713 100.00 % $ (338) (3.88) % 2022 vs. 2021 Total non-interest income decreased $2,956,000 from the year ended December 31, 2021 to December 31, 2022. Excluding net security gains, non-interest income decreased $1,932,000 year over year. Bank owned life insurance decreased primarily due to gains recognized on the receipt of death benefits in 2021. Gain on sale of loans and loan broker income decreased significantly as mortgage volume decreased due to the increase in interest rates caused by the rate increases enacted by the FOMC during 2022. Brokerage commissions decreased primarily due to the downturn in the stock market which led to decreased portfolio values and associated fees. 2022 2021 Change (In Thousands) Amount % Total Amount % Total Amount % Service charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,103 (219) Net debt securities (losses) gains, available for sale Net equity securities losses . . . . . . . . . . . . . . . . . . . Bank owned life insurance . . . . . . . . . . . . . . . . . . . (146) 664 24.14 % $ 1,703 14.59 % $ 400 23.49 % (2.51) (1.68) 7.62 699 (40) 916 5.99 (0.35) 7.85 (918) (131.33) (106) (265.00) (252) (27.51) Gain on sale of loans . . . . . . . . . . . . . . . . . . . . . . . . 1,131 12.98 2,474 21.20 (1,343) (54.28) Insurance commissions . . . . . . . . . . . . . . . . . . . . . . Brokerage commissions . . . . . . . . . . . . . . . . . . . . . 491 620 5.64 7.12 553 851 4.74 7.29 Loan broker income . . . . . . . . . . . . . . . . . . . . . . . . . 1,674 19.21 2,164 18.55 (62) (231) (490) (11.21) (27.14) (22.64) Debit card income . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,464 931 Total non-interest income . . . . . . . . . . . . . . . . . . . $ 8,713 16.80 10.68 1,511 838 100.00 % $ 11,669 12.95 7.19 (47) 93 100.00 % $ (2,956) (3.11) 11.10 (25.33) % 31 Table of Contents NON-INTEREST EXPENSE 2023 vs. 2022 Total non-interest expenses increased $1,498,000 from the year ended December 31, 2022 to December 31, 2023. The increase in salaries and employee benefits was attributable to routine wage and benefit increases coupled with the hiring of additional commercial lenders. Occupancy and furniture and equipment expense increased primarily due to increased maintenance costs. Contributing to the decrease in Pennsylvania shares tax expense was a tax credit purchasing program that was started in 2022. Professional fees increased as internal and external audit fees increased along with an increase in general legal expenses. FDIC deposit insurance increased primarily due to an increase in the assessment rate. Other expenses increased primarily due to the level of expenses associated with the defined benefit pension plan. (In Thousands) Amount % Total Amount % Total Amount % 2023 2022 Change Salaries and employee benefits . . . . . . . . . . . . . . . $ 25,062 56.32 % $ 24,267 56.44 % $ Occupancy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Furniture and equipment . . . . . . . . . . . . . . . . . . . . Software amortization . . . . . . . . . . . . . . . . . . . . . . Pennsylvania shares tax . . . . . . . . . . . . . . . . . . . . . Professional fees . . . . . . . . . . . . . . . . . . . . . . . . . . Federal Deposit Insurance Corporation deposit insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Intangible amortization . . . . . . . . . . . . . . . . . . . . . Goodwill impairment . . . . . . . . . . . . . . . . . . . . . . 3,168 3,392 843 1,082 2,953 1,578 684 117 — 7.12 7.62 1.89 2.43 6.64 3.55 1.54 0.26 — 3,080 3,288 840 1,452 2,434 938 690 154 653 7.16 7.65 1.95 3.38 5.66 2.18 1.60 0.36 1.52 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,617 12.63 5,202 12.10 795 88 104 3 (370) 519 640 (6) (37) (653) 415 3.28 % 2.86 3.16 0.36 (25.48) 21.32 68.23 (0.87) (24.03) n/a 7.98 Total non-interest expense . . . . . . . . . . . . . . . . . $ 44,496 100.00 % $ 42,998 100.00 % $ 1,498 3.48 % 2022 vs. 2021 Total non-interest expenses increased $2,093,000 from the year ended December 31, 2021 to December 31, 2022. The increase in salaries and employee benefits was attributable to routine wage and benefit increases coupled with the hiring of additional commercial lenders. Occupancy and furniture and equipment expense decreased primarily due to a branch closure that occurred during the first quarter of 2022. Marketing expenses increased as loan product advertising levels increased. Other expenses increased primarily due to the proxy solicitation efforts related to an update to the articles of incorporation. The goodwill impairment is related to the wealth management unit (The M Group) as a decline in stock market valuations during 2022 resulted in a decreased level of net income for this entity. (In Thousands) Amount % Total Amount % Total Amount % 2022 2021 Change Salaries and employee benefits . . . . . . . . . . . . . . . $ 24,267 3,080 Occupancy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Furniture and equipment . . . . . . . . . . . . . . . . . . . . Software amortization . . . . . . . . . . . . . . . . . . . . . . Pennsylvania shares tax . . . . . . . . . . . . . . . . . . . . . Professional fees . . . . . . . . . . . . . . . . . . . . . . . . . . Federal Deposit Insurance Corporation deposit insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Intangible amortization . . . . . . . . . . . . . . . . . . . . . Goodwill impairment . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,288 840 1,452 2,434 938 690 154 653 5,202 56.44 % $ 23,014 56.26 % $ 1,253 5.44 % 7.16 7.65 1.95 3.38 5.66 2.18 1.60 0.36 1.52 12.10 3,209 3,522 868 1,350 2,432 963 545 191 — 4,811 7.85 8.61 2.12 3.30 5.95 2.35 1.33 0.47 — 11.76 (129) (234) (28) 102 2 (25) 145 (37) 653 391 (4.02) (6.64) (3.23) 7.56 0.08 (2.60) 26.61 (19.37) n/a 8.13 Total non-interest expense . . . . . . . . . . . . . . . . . $ 42,998 100.00 % $ 40,905 100.00 % $ 2,093 5.12 % 32Table of Contents INCOME TAXES 2023 vs. 2022 The provision for income taxes for the year ended December 31, 2023 resulted in an effective income tax rate of 18.28% compared to 19.29% for 2022. 2022 vs. 2021 The provision for income taxes for the year ended December 31, 2022 resulted in an effective income tax rate of 19.29% compared to 19.12% for 2021. FINANCIAL CONDITION INVESTMENTS 2023 The fair value of the investment portfolio decreased $2,748,000 from December 31, 2022 to December 31, 2023. The decrease in value is the result of a decrease 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 along with required capital allocation. This strategy is being deployed through selective purchasing of bonds that mature within ten years with an emphasis on those carrying a regulatory capital risk weighting of 0-20%. The unrealized losses within the debt securities portfolio are the result of market activity, not credit issues/ratings, as approximately 79% of the debt securities portfolio on an amortized cost basis is currently rated A or higher by either S&P or Moody’s. 2022 The fair value of the investment portfolio increased $27,117,000 from December 31, 2021 to December 31, 2022. 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 86% 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, 2023 and 2022: (In Thousands) Available for sale (AFS): 2023 2022 Change Balance % Portfolio Balance % Portfolio Amount % U.S. Government agency securities Mortgage-backed securities . . . . . . . . . . . . . State and political securities . . . . . . . . . . . . $ 3,943 15,355 115,615 Other debt securities . . . . . . . . . . . . . . . . . . 56,032 Total debt securities . . . . . . . . . . . . . . . . . . 190,945 Investment equity securities: Other equity securities . . . . . . . . . . . . . . . . . Total equity securities . . . . . . . . . . . . . . . . 1,122 1,122 2.05 % $ 8.00 2,896 1,282 1.49 % $ 0.66 1,047 14,073 36.15 % 1,097.74 % 60.20 29.17 99.42 0.58 0.58 142,809 46,686 193,673 1,142 1,142 73.30 23.96 99.41 0.59 0.59 (27,194) (19.04) % 9,346 (2,728) 20.02 % (1.41) % (20) (20) (1.75) % (1.75) % (1.41) % Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 192,067 100.00 % $ 194,815 100.00 % $ (2,748) 33 Table of Contents 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, 2023: (In Thousands) U.S. Government agency securities: One Year or Less Over One Year Through Five Years Over Five Years Through Ten Years Over Ten Years Amortized Cost Total Amortized cost . . . . . . . . . . . . . . . . . . . . . . $ 1,999 $ 1,001 $ 1,000 $ — $ 4,000 Yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.08 % 2.85 % 5.12 % — % 3.53 % Mortgage-backed securities: Amortized cost . . . . . . . . . . . . . . . . . . . . . . Yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — % 986 5.034 % 7,651 5.04 % 6,820 4.46 % 15,457 4.78 % State and political securities: Amortized cost . . . . . . . . . . . . . . . . . . . . . . 18,712 62,967 35,383 3,678 120,740 Yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.91 % 2.66 % 3.44 % 4.23 % 2.82 % Other debt securities: Amortized cost . . . . . . . . . . . . . . . . . . . . . . 17,280 13,647 27,917 Yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.12 % 2.31 % 5.23 % — — % 58,844 3.93 % Total Amount . . . . . . . . . . . . . . . . . . . . . . . . . $ 37,991 $ 78,601 $ 71,951 $ 10,498 199,041 Total Yield . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.52 % 2.63 % 4.33 % 4.38 % 3.31 % Equity Securities Investment equity amortized cost . . . . . . . . Total Investment Portfolio Value . . . . . . . . . . Total Investment Portfolio Yield . . . . . . . . . . 1,300 $ 200,341 3.29 % 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, 2023 follows: (In Thousands) Available for sale U.S. Government and agency securities . . . . . . . . . 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 $ 4,000 $ 3,943 $ — $ — $ — $ — $ — $ — $ 4,000 $ 3,943 Mortgage-backed securities . 15,457 15,355 State and political securities 116,449 111,345 — — — — Other debt securities . . . . . . 21,164 19,895 8,259 7,712 — — — — — — — — 15,457 15,355 4,291 4,270 120,740 115,615 29,421 28,425 58,844 56,032 Total debt securities . . . . . . . $ 157,070 $ 150,538 $ 8,259 $ 7,712 $ — $ — $ 33,712 $ 32,695 $ 199,041 $ 190,945 LOAN PORTFOLIO 2023 Gross loans of $1,839,764,000 at December 31, 2023 represented an increase of $200,033,000 from December 31, 2022. The residential segment increased primarily due to continued growth in home equity products. In addition the commercial real estate segment of the loan portfolio increased from the previous year as emphasis remains on this segment of the portfolio. Indirect auto lending increased as this segment of the portfolio is emphasized as its characteristics provide diversification. 34Table of Contents 2022 Gross loans of $1,639,731,000 at December 31, 2022 represented an increase of $247,584,000 from December 31, 2021. The residential segment increased primarily due to growth in home equity products. In addition the commercial real estate segment of the loan portfolio increased from the previous year as emphasis remains on this segment of the portfolio coupled with our entrance into the Altoona market during 2020. Indirect auto lending increased as supply chain issues that previously limited dealer activity lessened. The amounts of loans outstanding at the indicated dates are shown in the following table according to type of loan at December 31, 2023 and 2022: (In Thousands) Amount % Total Amount % Total Amount % Commercial, financial, and agricultural . . . . . $ 213,466 11.60 % $ 190,461 11.62 % 23,005 12.08 % 2023 2022 Change Real estate mortgage: Residential . . . . . . . . . . . . . . . . . . . . . . . . . . Commercial . . . . . . . . . . . . . . . . . . . . . . . . . Construction . . . . . . . . . . . . . . . . . . . . . . . . Consumer Automobile . . . . . . . . . . . . . . . . . . Other consumer installment loans . . . . . . . . . . Net deferred loan fees and discounts . . . . . . . 798,501 531,601 40,389 244,398 10,361 1,048 43.40 28.90 2.20 13.28 0.56 0.06 708,209 500,632 43,308 186,112 10,361 648 43.19 30.53 2.64 11.35 0.63 0.04 90,292 30,969 (2,919) 58,286 — 400 Gross loans . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,839,764 100.00 % $ 1,639,731 100.00 % 200,033 12.75 % 6.19 % (6.74) % 31.32 % — % 61.73 % 12.20 % The amounts of domestic loans at December 31, 2023 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 . . . . . . . . . . . . . . $ 498 $ 663 $ 1,792 $ 93 $ — $ 546 $ 3,592 1 through 5 years . . . . . . . . . . . 5 through 15 years . . . . . . . . . . After 15 years . . . . . . . . . . . . . . 3,833 53,335 57,428 Total floating interest rate loans . . 115,094 Loans with fixed interest rates: 1 year or less . . . . . . . . . . . . . . 1 through 5 years . . . . . . . . . . . 5 through 15 years . . . . . . . . . . After 15 years . . . . . . . . . . . . . . 3,161 58,345 30,369 6,497 3,802 70,905 614,364 689,734 1,213 4,520 26,588 76,446 Total fixed interest rate loans . . . . 98,372 108,767 6,481 158,082 313,918 480,273 730 8,169 35,541 6,888 51,328 178 2,097 21,178 23,546 1,093 6,309 4,080 5,361 — — — — 1,890 104,941 137,567 — 16,843 244,398 — 150 2,516 3,212 417 4,538 2,194 — 7,149 14,294 284,569 1,009,404 1,311,859 8,504 186,822 236,339 95,192 526,857 Total . . . . . . . . . . . . . . . . . . . $ 213,466 $ 798,501 $ 531,601 $ 40,389 $ 244,398 $ 10,361 1,838,716 Net deferred loan fees and discounts . . . . . . . . . . . . . . . . . . . . Total, net . . . . . . . . . . . . . . . . . . . . 1,048 $ 1,839,764 · · 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. 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, 2023. 35Table of Contents ALLOWANCE FOR CREDIT LOSSES 2023 The allowance for credit losses represents the amount which management estimates is adequate to provide for future expected 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 credit losses. The allowance for credit losses is established through a provision for credit losses charged to operations. The provision for credit losses is based upon management’s quarterly review of the loan portfolio. The purpose of the review is to assess loan quality, individually evaluated 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. Maintaining an appropriate allowance for credit losses is dependent on various factors, including the ability to identify potential problem loans in a timely manner. For commercial construction, residential construction, commercial and industrial, and commercial real estate, an internal credit rating process is used. Management believes that internal credit ratings are the most relevant credit quality indicator for these types of loans. The migration of loans through the various internal credit rating categories is a significant component of the allowance for credit losses methodology for these loans, which bases the probability of default on this migration. Assigning credit ratings involves judgment. The Company's loan review process provide a separate assessment of credit rating accuracy. Credit ratings may be changed based on the ongoing monitoring procedures performed by loan officers or credit administration staff or if specific loan review assessments identify a deterioration or an improvement in the loans. Management considers the performance of the loan portfolio and its impact on the allowance for credit losses. Management does not assign internal credit ratings to smaller balance, homogeneous loans, such as home equity, residential mortgage, and consumer automobile loans. For these loans, the most relevant credit quality indicator is delinquency status and management evaluates credit quality based on the aging status of the loan. Historical loss trends are used in the estimation of losses in the current portfolio. These historical loss amounts are modified by other qualitative factors. A base life time loss within the portfolio is calculated utilizing discounted cash flows driven by the charge-off and recovery data over the past ten years and certain credit quality indicators within the portfolio. Management has identified a number of additional qualitative factors which it uses to supplement the base loss lifetime rate because these factors are likely to cause estimated credit losses associated with the existing loan pools to differ from historical loss experience. The additional factors that are evaluated quarterly and updated using information obtained from internal, regulatory, and governmental sources are: national and local economic trends and conditions; trends in volumes and terms of loans; effects of changes in lending policies; experience, ability, and depth of lending staff; value of underlying collateral; and concentrations of credit from a loan type, industry and/or geographic standpoint. The allowance for credit losses decreased from $15,637,000 at December 31, 2022 to $11,446,000 at December 31, 2023. At December 31, 2023 and 2022, the allowance for credit losses to total loans was 0.62% and 0.95%, respectively. The drivers of the decrease were the change in the ACL model upon the adoption of CECL on January 1, 2023 coupled with net loan recoveries of $525,000 or 0.03% of average loans for the year ended December 31, 2023. 2022 The allowance for loan losses increased from $14,176,000 at December 31, 2021 to $15,637,000 at December 31, 2022. At December 31, 2022 and 2021, the allowance for loan losses to total loans was 0.95% and 1.02%, respectively. Net loan charge- offs of $449,000 or 0.03% of average loans for the year ended December 31, 2022 countered the impact of the provision for loan losses of $1,910,000. The allowance for loan losses increased primarily due to the significant growth in the gross loan portfolio of $247,584,000 or 17.78% from December 31, 2021 to 2022. 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. 36Table of Contents Allocation of the Allowance For Credit Losses (In Thousands) Balance at end of period applicable to: Commercial, financial, and agricultural . . . . . . . . . . . $ Real estate mortgage: Residential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consumer automobiles . . . . . . . . . . . . . . . . . . . . . . . . Other consumer installment loans . . . . . . . . . . . . . . . Unallocated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ December 31, 2023 December 31, 2022 Amount Percentage of Loans in Each Category to Total Loans Amount Percentage of Loans in Each Category to Total Loans 3,379 11.61 % $ 1,914 11.62 % 1,200 3,352 145 2,668 702 — 11,446 43.43 28.91 2.20 13.29 0.56 — 100.00 % $ 5,061 6,110 188 1,617 109 638 15,637 43.21 30.54 2.64 11.35 0.64 — 100.00 % Additional allowance for credit losses and net (charge-offs) recoveries information is presented by loan portfolio segment in the tables below. The twelve months ending December 31, 2023 was impacted by the CECL adoption reclassification entry disclosed in Note 6. Loan Credit Quality and Related Allowance for Credit Losses. (In Thousands) December 31, 2023 Amount of Allowance for Credit Losses Allocated Total loans Allowance for Credit Losses to Total Loans Ratio Net (Charge- Offs) Recoveries Average Loans Ratio of Net (Charge-Offs) Recoveries to Average Loans Commercial, financial, and agricultural . . . . . $ 3,379 $ 213,466 1.58 % $ 1,497 $ 204,817 0.73 % Real estate mortgage: Residential . . . . . . . . . . . . . . . . . . . . . . . . . . Commercial . . . . . . . . . . . . . . . . . . . . . . . . . Construction . . . . . . . . . . . . . . . . . . . . . . . . . 1,200 3,352 145 798,501 531,601 40,389 0.15 % 0.63 % 0.36 % (53) (36) — 751,379 516,248 48,786 (0.01) % (0.01) % — % Consumer automobiles . . . . . . . . . . . . . . . . . . 2,668 244,398 1.09 % (587) 227,017 (0.26) % Other consumer installment loans . . . . . . . . . . 702 10,361 6.78 % (296) 10,358 Total non-accrual loans outstanding Non-accrual loans to total loans outstanding Allowance for loan losses to non-accrual loans $ $ 11,446 $ 1,838,716 0.62 % $ 525 $ 1,758,605 998 0.05 % 1146.89 % (2.86) % 0.03 % 37 Table of Contents (In Thousands) December 31, 2022 Amount of Allowance Allocated Total loans Allowance for Credit Losses to Total Loans Ratio Net (Charge- Offs) Recoveries Average Loans Ratio of Net (Charge-Offs) Recoveries to Average Loans Commercial, financial, and agricultural . . . . . . $ 1,914 $ 190,461 1.00 % $ 165 $ 173,433 0.10 % Real estate mortgage: Residential . . . . . . . . . . . . . . . . . . . . . . . . . . . Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . Construction . . . . . . . . . . . . . . . . . . . . . . . . . . Consumer automobiles . . . . . . . . . . . . . . . . . . . Other consumer installment loans . . . . . . . . . . . Unallocated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,061 6,110 188 1,617 109 638 708,209 500,632 43,308 186,112 10,361 0.71 % 1.22 % 0.43 % 0.87 % 1.05 % 26 649,989 (150) 466,526 29 (328) (191) 44,968 150,261 9,737 — % (0.03) % 0.06 % (0.22) % (1.96) % $ 15,637 $ 1,639,083 0.95 % $ (449) $ 1,494,914 (0.03) % Total non-accrual loans outstanding $ 3,615 Non-accrual loans to total loans outstanding 0.22 % Allowance for loan losses to non-accrual loans 432.56 % (In Thousands) December 31, 2021 Amount of Allowance Allocated Total loans Allowance for Credit Losses to Total Loans Ratio Net (Charge- Offs) Recoveries Average Loans Ratio of Net (Charge-Offs) Recoveries to Average Loans Commercial, financial, and agricultural . . . . . . $ 1,946 $ 163,285 1.19 % $ (10) $ 175,631 (0.01) % 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 $ $ 4,701 5,336 179 1,411 111 492 595,847 446,734 37,295 139,408 9,277 0.79 % 1.19 % 0.48 % 1.01 % 1.20 % (107) 584,849 (0.02) % 95 10 (143) (112) 381,306 41,564 152,496 9,787 0.02 % 0.02 % (0.09) % (1.14) % 14,176 $ 1,391,846 1.02 % $ (267) $ 1,345,633 (0.02) % 5,389 0.39 % Allowance for loan losses to non-accrual loans 263.05 % The provision for all segments of the loan portfolio were impacted by the adoption of CECL on January 1, 2023. The provision for commercial and agricultural loans decreased during 2023 due to an increase in the level of net recoveries. The provision for residential real estate loans decreased primarily due to the adoption of CECL. The provision for commercial real estate loans decreased primarily due to the adoption of CECL and a minimal amount of net charge-offs. The provision for consumer automobiles increased due to increased indirect loan volume and an increase in net charge-offs. The provision for commercial and agricultural loans decreased during 2022 due to levels and trends of non-accrual loans in our portfolio and a decline in net charge-offs. The provision for residential real estate loans remained flat as the portfolio size increased but was offset by a decline in the level of net charge-offs. The provision for this loan type is adjusted by national indices as well as our historical losses. The provision for commercial real estate loans decreased primarily due to an 38 Table of Contents improvement in portfolio credit metrics. The provision for consumer automobiles increased due to increased indirect loan volume and concerns regarding the impact of inflation on the customer base. The provision for commercial and agricultural loans decreased during 2021 due to levels and trends of non-accrual loans in our portfolio and a decline in net charge-offs. The provision for residential real estate loans remained flat as the portfolio 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. NON-PERFORMING LOANS The decrease in non-performing loans during 2023 is primarily due to a payoff of a non-accrual loan. The majority of the non- performing 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 credit losses. The following table presents information concerning non-performing 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 non-accrual 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 non-performing loan may be restored to accruing status when: 1. 2. 3. Principal and interest is no longer due and unpaid; It becomes well secured and in the process of collection; and Prospects for future contractual payments are no longer in doubt. (In Thousands) Total Nonperforming Loans 90 Days Past Due Nonaccrual Total 2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,150 $ 998 $ 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,275 3,615 3,148 4,890 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 includes but is not limited to the following factors with no single factor being determinative: Economic conditions and the impact on the loan portfolio; 1. 2. Analysis of past loan charge-offs experienced by category and comparison to outstanding loans; 3. 4. Reports of examination of the loan portfolio by the Department and the FDIC. Effect of problem loans on overall portfolio quality; and DEPOSITS 2023 vs. 2022 Total average deposits decreased $33,661,000 or 2.10% from 2022 to 2023. Noninterest-bearing deposits average balance decreased $41,361,000 as deposits shifted from non-interest bearing and lower rate deposit products into time deposits. This shift in deposits, along with utilization of brokered deposits, resulted in time deposits increasing $131,270,000. The Bank had 39Table of Contents major deposit customers with a combined outstanding balances of approximately $0 and $112,228,000 at December 31, 2023 and 2022, respectively. 2022 vs. 2021 Total average deposits increased $43,073,000 or 2.76% from 2021 to 2022. Noninterest-bearing deposits average balance increased $40,205,000 as the focus was on core deposit gathering which led to a decrease in average time deposit balances of $82,359,000. The Bank had major deposit customers with a combined outstanding balances of approximately $112,228,000 and $74,874,000 million at December 31, 2022 and 2021, respectively. The average amount and the average rate paid on deposits are summarized below for the years ended December 31, 2023, 2022, and 2021: (In Thousands) 2023 2022 2021 Average Amount Rate Average Amount Rate Average Amount Rate Noninterest-bearing . . . . . . . . . . . . . . . . . . . . $ 477,828 0.00 % $ 519,189 0.00 % $ 478,984 0.00 % Savings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Super Now . . . . . . . . . . . . . . . . . . . . . . . . . . Money Market . . . . . . . . . . . . . . . . . . . . . . . . Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 231,000 276,868 292,755 293,252 0.30 1.50 2.40 3.50 247,003 387,370 289,820 161,982 0.06 0.35 0.38 0.68 225,637 307,446 305,883 244,341 0.05 0.29 0.32 1.46 Total average deposits . . . . . . . . . . . . . . . . $ 1,571,703 1.41 % $ 1,605,364 0.23 % $ 1,562,291 0.36 % The following table shows the scheduled maturities of time deposits that are in excess of the FDIC insurance limit as of December 31, 2023. (In Thousands) 2023 Due within 3 months or less . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11,195 Due after 3 months and within 6 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Due after 6 months and within 12 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Due after 12 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,986 3,519 2,522 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 20,222 As of December 31, 2023 and 2022 the Company had $436,074,000 and $617,515,000, respectively, in uninsured deposits. Included in the total uninsured deposits is a concentration of public funds which were collateralized by the Banks in the amount of $77,687,000 and $180,252,000 at December 31, 2023 and 2022, respectively. Total uninsured deposits less collateralized public funds was $358,387,000 and $437,263,000 at December 31, 2023 and 2022. SHAREHOLDERS’ EQUITY 2023 Shareholders’ equity increased $23,891,000 to $191,556,000 at December 31, 2023 compared to December 31, 2022. During the twelve months ended December 31, 2023 the Company sold 420,069 shares of common stock, for net proceeds of $8,291,000, in a registered at-the-market offering. An additional 17,929 shares for net proceeds of $406,000 were issued as part of the Dividend Reinvestment Plan during the twelve months ended December 31, 2023. Accumulated other comprehensive loss of $9,150,000 at December 31, 2023 decreased from a loss of $13,958,000 at December 31, 2022 as a result of a decrease in net unrealized loss on available for sale securities to $6,396,000 at December 31, 2023 from a net unrealized loss of $9,819,000 at December 31, 2022 coupled with a decrease in loss of $1,385,000 in the defined benefit plan obligation. The current level of shareholders’ equity equates to a book value per share of $25.51 at December 31, 2023 compared to $23.76 at December 31, 2022, and an equity to asset ratio of 8.69% at December 31, 2023 and 8.38% at December 31, 2022. Dividends declared for the twelve months ended December 31, 2023 and 2022 were $1.28 per share. 40Table of Contents 2022 Shareholders’ equity decreased $4,609,000 to $167,665,000 at December 31, 2022 compared to December 31, 2021. Accumulated other comprehensive loss of $13,958,000 at December 31, 2022 increased from a loss of $1,112,000 at December 31, 2021 as a result of a $9,819,000 net unrealized loss on available for sale securities at December 31, 2022 (compared to an unrealized gain of $2,373,000 at December 31, 2021) coupled with an increase in loss of $654,000 in the defined benefit plan obligation. The current level of shareholders’ equity equates to a book value per share of $23.76 at December 31, 2022 compared to $24.37 at December 31, 2021, and an equity to asset ratio of 8.38% at December 31, 2022 and 8.88% at December 31, 2021. Dividends declared for the twelve months ended December 31, 2022 and 2021 were $1.28 per share. 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, 2023, 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 . . . . . . . . . . . . . . 10.098 % Tier 1 capital to risk-weighted assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.098 % 9.890 % 9.890 % 10.288 % 10.288 % 7.000 % 8.500 % Total capital to risk-weighted assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.798 % 10.701 % 10.686 % 10.500 % Tier 1 capital to average assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.597 % 8.344 % 8.316 % 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 and Note 18 to the consolidated financial statements. 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 . . . . . . . . 0.79 % 9.84 % 55.18 % 7.98 % 0.90 % 10.73 % 51.87 % 8.41 % 0.85 % 9.93 % 56.39 % 8.54 % 2023 2022 2021 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, 2023, except for net loans to total deposits which was 115%. 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 41Table of Contents 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 cash on hand, maturities and sales of available for sale investment securities, loan repayments and maturities, loan sales, 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 $859,444,000 with a total credit exposure of $396,365,000 utilized, leaving $463,079,000 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 through the utilization of cash on hand, borrowing lines, sale of investments and loans, and property sale leasebacks, 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 due to the relative short duration of the loan and investment portfolios. A slight lengthening of the investment portfolio is being undertaken due to the higher yields on current investment products. The liability portfolio is being shortened with emphasis being placed on short term funding in addition to the focus on time deposits shifting towards five to ten month products. 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. The following is a rate shock forecast for the twelve month period ending December 31, 2024 assuming a static balance sheet as of December 31, 2023. 42Table of Contents (In Thousands) (300) (200) (100) Static 100 200 300 400 Net interest income . . . . . . . . . . $ 59,827 $ 62,027 $ 64,174 $ 66,144 $ 67,918 $ 69,354 $ 70,586 $ 71,763 Change from static . . . . . . . . . . . (6,317) (4,117) (1,970) Percent change from static . . . . . -9.55 % -6.22 % -2.98 % — — 1,774 3,210 4,442 5,619 2.68 % 4.85 % 6.72 % 8.50 % 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. Allowance for Credit Losses Arriving at an appropriate level of allowance for credit losses involves a high degree of judgment. Areas that require Managements judgment in calculating the ACL include cash flow assumptions such as prepayment speeds, probability of default, forecast of economic events, and other adjustments for qualitative factors. The Corporation’s allowance for credit 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 credit 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 credit 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. 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. 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, 2023, 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. 43Table of Contents 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 . . . . . . . . . . $ 1,204,701 $ — $ — $ — $ 1,204,701 Time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . Repurchase agreements . . . . . . . . . . . . . . . . . . . Short-term borrowings . . . . . . . . . . . . . . . . . . . . Long-term borrowings . . . . . . . . . . . . . . . . . . . . Operating leases . . . . . . . . . . . . . . . . . . . . . . . . . 266,948 3,631 142,295 40,175 255 111,794 5,493 — — 110,872 517 — — 95,359 539 557 — — 6,192 2,029 384,792 3,631 142,295 252,598 3,340 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 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, and other external events, such as armed conflicts in other parts of the world, that could affect regional or global economies. 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. 44 Table of Contents 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investment debt securities, available for sale, at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investment equity securities, at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Restricted investment in bank stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Allowance for credit 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 assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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, no par value, 3,000,000 shares authorized; no shares issued . . . . . . . . . . . . . . . . . . . . . . . . . Common stock, par value $5.55, 22,500,000 shares authorized; 8,019,219 and 7,566,810 shares issued; 7,508,994 and 7,056,585 shares outstanding Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accumulated other comprehensive loss: December 31, 2023 2022 $ 28,969 $ 8,493 37,462 27,390 12,943 40,333 190,945 1,122 24,323 3,993 1,839,764 (11,446) 1,828,318 30,250 11,044 33,867 7,815 16,450 210 2,512 4,655 11,843 193,673 1,142 19,171 3,298 1,639,731 (15,637) 1,624,094 31,844 9,481 34,452 8,656 16,450 327 2,651 6,868 7,640 $ 2,204,809 $ 2,000,080 $ 1,118,320 $ 1,037,397 519,063 1,556,460 471,173 1,589,493 145,926 252,598 3,814 2,570 18,852 2,013,253 153,349 102,783 603 2,708 16,512 1,832,415 — — 44,550 61,733 107,238 42,039 54,252 98,147 Net unrealized loss on available for sale securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Defined benefit plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Treasury stock at cost, 510,225 shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TOTAL SHAREHOLDERS' EQUITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,396) (2,754) (12,815) 191,556 (9,819) (4,139) (12,815) 167,665 $ 2,204,809 $ 2,000,080 See accompanying notes to the consolidated financial statements. 45Table of Contents 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (Recovery) provision for loan credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Recovery for off balance sheet credit exposures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TOTAL (RECOVERY) PROVISION FOR CREDIT LOSSES . . . . . . . . . . . . . . . . . . . . . . . . . . . Year Ended December 31, 2022 2021 2023 83,291 $ 58,682 $ 53,232 5,346 517 2,441 91,595 22,131 8,401 6,099 36,631 54,964 (927) (552) (1,479) 3,634 823 1,789 64,928 3,690 1,007 2,451 7,148 3,281 655 1,246 58,414 5,545 9 3,142 8,696 57,780 49,718 1,910 — 1,910 640 — 640 NET INTEREST INCOME AFTER (RECOVERY) PROVISION FOR CREDIT LOSSES 56,443 55,870 49,078 NON-INTEREST INCOME: Service charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net debt securities (losses) gains, available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net equity securities gains (losses) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Intangible amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Goodwill impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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. . . . . . . . . . . . . . $ 2,090 (193) 15 1,063 1,046 529 575 992 1,328 930 8,375 25,062 3,168 3,392 843 1,082 2,953 1,578 684 117 — 5,617 44,496 2,103 (219) (146) 664 1,131 491 620 1,674 1,464 931 8,713 24,267 3,080 3,288 840 1,452 2,434 938 690 154 653 5,202 42,998 20,322 3,714 16,608 $ — 16,608 $ 2.34 $ 2.34 $ 21,585 4,163 17,422 $ — 17,422 $ 2.47 $ 2.47 $ 1,703 699 (40) 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 19,842 3,794 16,048 15 16,033 2.27 2.27 7,061,818 7,061,818 EARNINGS PER SHARE - BASIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ EARNINGS PER SHARE - DILUTED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC . . . . . . . . . . . . . . . . . . . . . . . WEIGHTED AVERAGE SHARES OUTSTANDING - DILUTED . . . . . . . . . . . . . . . . . . . . . 7,112,450 7,112,450 7,059,437 7,059,437 See accompanying notes to the consolidated financial statements. 46Table of Contents (In Thousands) PENNS WOODS BANCORP, INC. CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Year Ended December 31, 2022 2021 2023 Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 16,608 $ 17,422 $ 16,048 Other comprehensive income (loss): Unrealized gain (loss) on available for sale securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tax effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net realized loss (gain) included in net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tax effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Decrease (increase) of unrecognized pension and post-retirement items . . . . . . . . . . . . . . . Tax effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total other comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,140 (869) 193 (41) 1,754 (369) 4,808 (15,652) (2,264) 3,287 219 (46) (827) 173 (12,846) 475 (699) 147 2,674 (563) (230) Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 21,416 $ 4,576 $ 15,818 See accompanying notes to the consolidated financial statements. 47 6 5 5 , 1 9 1 $ — $ ) 5 1 8 , 2 1 ( $ ) 0 5 1 , 9 ( $ 8 3 2 , 7 0 1 $ 3 3 7 , 1 6 $ 0 5 5 , 4 4 $ 9 1 2 , 9 1 0 , 8 . s t n e m e t a t s l a i c n a n i f d e t a d i l o s n o c e h t o t s e t o n g n i y n a p m o c c a e e S L A T O T - N O N D E T A L U M U C C A R E H T O Y T I U Q E T S E R E T N I K C O T S S S O L ’ S R E D L O H E R A H S G N I L L O R T N O C Y R U S A E R T E V I S N E H E R P M O C D E N I A T E R S G N I N R A E L A N O I T I D D A N I - D I A P L A T I P A C K C O T S N O M M O C T N U O M A S E R A H S $ ) 5 1 1 , 2 1 ( $ ) 2 8 8 ( $ 9 6 7 , 2 8 $ 3 2 5 , 2 5 $ 7 4 8 , 1 4 $ 6 7 5 , 2 3 5 , 7 ) 0 3 2 ( 0 6 9 ) 1 4 0 , 9 ( 8 4 0 , 6 1 6 4 1 , 4 6 1 7 8 1 2 3 ) 7 1 ( — 4 7 2 , 2 7 1 2 2 4 , 7 1 ) 6 4 8 , 2 1 ( ) 4 7 0 , 1 ( 1 3 2 , 1 ) 6 3 0 , 9 ( 2 8 2 1 3 ) 0 0 7 ( $ 4 5 1 ) 7 1 ( ) 2 ( — ) 0 0 7 ( ) 5 1 1 , 2 1 ( ) 2 1 1 , 1 ( ) 6 4 8 , 2 1 ( ) 0 3 2 ( 7 4 6 , 1 8 0 8 , 4 8 0 6 , 6 1 1 5 9 ) 4 6 1 , 9 ( 9 8 5 5 2 6 0 4 1 9 2 , 8 8 0 8 , 4 5 6 6 , 7 6 1 — ) 5 1 8 , 2 1 ( ) 8 5 9 , 3 1 ( 3 3 0 , 6 1 ) 1 4 0 , 9 ( 1 6 7 , 9 8 2 2 4 , 7 1 ) 6 3 0 , 9 ( 7 4 1 , 8 9 7 4 6 , 1 8 0 6 , 6 1 ) 4 6 1 , 9 ( 0 6 9 6 6 4 4 2 2 5 9 7 , 3 5 ) 4 7 0 , 1 ( 1 3 2 , 1 2 6 8 3 2 1 2 7 7 0 5 8 , 3 6 4 8 , 3 1 5 4 9 , 1 4 2 7 2 , 0 5 5 , 7 0 2 4 7 7 1 6 , 3 1 2 9 , 2 1 2 5 2 , 4 5 9 3 0 , 2 4 0 1 8 , 6 6 5 , 7 1 5 9 7 6 7 9 1 6 0 3 0 6 9 , 5 2 2 8 5 0 0 1 1 3 3 , 2 4 9 8 , 3 7 1 5 , 0 1 9 2 9 , 7 1 9 6 0 , 0 2 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 2 0 2 , 1 3 r e b m e c e D , e c n a l a B . . . . . . . . . . . . . . . . . e m o c n i t e N s s o l e v i s n e h e r p m o c r e h t O s g n i n r a e n i d e z i n g o c e r n o i t a s n e p m o c d e s a b - k c o t S . . . . . . . . . . ) e r a h s r e p 8 2 . 1 ( , d e r a l c e d s d n e d i v i D n a l p e s a h c r u p k c o t s e e y o l p m e r o f d e u s s i s e r a h s n o m m o C . . . . . . . . . . . . . . . . . . n a l p n o i t a s n e p m o c r o t c e r i d r o f d e u s s i s e r a h s n o m m o C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . t s e r e t n i g n i l l o r t n o c n o n o t s n o i t u b i r t s i D . . . . . . . . . . . . . . . . . . . . . . . . . e s a h c r u p t s e r e t n i g n i l l o r t n o c n o N . . . 1 2 0 2 , 1 3 r e b m e c e D , e c n a l a B . . . . . . . . . . . . . . . . . . . . . . . . . . . . e m o c n i t e N s s o l e v i s n e h e r p m o c r e h t O s n o i t p o f o t n e m e l t t e s h s a C s g n i n r a e n i d e z i n g o c e r n o i t a s n e p m o c d e s a b - k c o t S . . . . . . . . . ) e r a h s r e p 8 2 . 1 $ ( , d e r a l c e d s d n e d i v i D n a l p e s a h c r u p k c o t s e e y o l p m e r o f d e u s s i s e r a h s n o m m o C . . . . . . . . . . . . . . . . n a l p n o i t a s n e p m o c r o t c e r i d r o f d e u s s i s e r a h s n o m m o C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ) s e r a h s 0 0 0 , 0 3 ( k c o t s y r u s a e r t f o e s a h c r u P . . . . . . . . . . 2 2 0 2 , 1 3 r e b m e c e D , e c n a l a B 3 1 - 6 1 0 2 U S A f o n o i t p o d a f o t c e f f e e v i t a l u m u C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . e m o c n i t e N e m o c n i e v i s n e h e r p m o c r e h t O s g n i n r a e n i d e z i n g o c e r n o i t a s n e p m o c d e s a b - k c o t S . . . . . . . . . ) e r a h s r e p 8 2 . 1 $ ( , d e r a l c e d s d n e d i v i D n a l p e s a h c r u p k c o t s e e y o l p m e r o f d e u s s i s e r a h s n o m m o C . . n a l p n o i t a s n e p m o c r o t c e r i d r o f d e u s s i s e r a h s n o m m o C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . s d e e c o r p t e n , g n i r e f f o n a l p t n e m t s e v n i e r d n e d i v i D 3 2 0 2 , 1 3 r e b m e c e D , e c n a l a B t e k r a m - e h t - t a d e r e t s i g e r r o f d e u s s i s e r a h s n o m m o C ) a t a D e r a h S r e P t p e c x E , s d n a s u o h T n I ( . C N I , P R O C N A B S D O O W S N N E P Y T I U Q E ’ S R E D L O H E R A H S N I S E G N A H C F O T N E M E T A T S D E T A D I L O S N O C s t n e t n o C f o e l b a T 48 Table of Contents (In Thousands) OPERATING ACTIVITIES: PENNS WOODS BANCORP, INC. CONSOLIDATED STATEMENT OF CASH FLOWS Year Ended December 31, 2022 2021 2023 Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Adjustments to reconcile net income to net cash provided by operating activities: $ 16,608 $ 17,422 $ 16,048 Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amortization of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amortization of investment security discounts and premiums, net . . . . . . . . . . . . . . . . . . . . Goodwill impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (Gain) loss on sale of premises and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (Recovery) provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Stock based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Securities losses (gains), available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Originations of loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proceeds of loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gain on sale of loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net equity securities (gains) losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Security trades payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Earnings on bank-owned life insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Increase (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 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proceeds from bank-owned life insurance death benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Distribution of non-controlling interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investment in limited partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proceeds from redemption of regulatory stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purchases of regulatory stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net cash used for investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . FINANCING ACTIVITIES: 2,832 117 419 — (148) (1,479) 951 193 (39,079) 39,430 (1,046) (15) — (1,063) 497 605 18,822 24,702 28,158 (46,411) 35 (199,726) (806) 557 — (8) 1,656 — — 41,739 (46,891) (196,995) 3,466 154 1,140 653 301 1,910 1,231 219 (39,388) 40,946 (1,131) 146 (111) (664) (681) (1,720) 23,893 5,557 17,372 (66,984) — (248,130) (377) 150 120 (22) 2 — (695) 11,282 (15,922) (297,647) 3,711 191 1,142 — 18 640 960 (699) (85,938) 89,926 (2,474) 40 (1,455) (916) (359) (2,912) 17,923 17,947 20,997 (46,499) — (48,170) (1,137) 2 335 (30) 825 (25) (1,070) 3,143 (2,297) (55,979) Net increase (decrease) in interest-bearing deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net (decrease) increase in noninterest-bearing deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proceeds from long-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Repayment of long-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net (decrease) increase in short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Finance lease principal payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Distributions to non-controlling interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Issuance of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purchase of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net cash provided by financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . . . CASH AND CASH EQUIVALENTS, BEGINNING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CASH AND CASH EQUIVALENTS, ENDING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80,923 (47,890) 180,000 (30,000) (7,423) (185) (9,164) — 9,041 — 175,302 (2,871) 40,333 37,462 $ 81,869 (89,558) 45,003 24,703 — — (30,000) (23,000) 503 147,602 (165) (180) (9,041) (9,036) (17) — 408 394 — (700) 88,560 50,225 50,504 (223,529) 263,862 213,358 40,333 $ 263,862 $ See accompanying notes to the consolidated financial statements. 49Table of Contents (In Thousands) SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Transfer of loans to foreclosed real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Year Ended December 31, 2022 2021 2023 33,420 $ 3,021 770 7,196 $ 3,001 97 Right of use lease assets obtained in exchange for lessee finance lease liabilities . . . . . . . . Recognition of low-income housing tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Recognition of commitment on low-income housing project . . . . . . . . . . . . . . . . . . . . . . . . — — — Adoption of ASU 2016-13, financial instruments - credit losses non-cash impact . . . . . . . . 1,647 — 3,873 3,873 — See accompanying notes to the consolidated financial statements. 9,157 4,236 83 2,653 — — — 50Table of Contents 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-four 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, credit losses of debt 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. 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"). 51Table of Contents 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 and is not included within the investment balance. Securities are periodically reviewed for credit losses upon a number of factors, including, but not limited to, 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 credit losses. Interest on loans is recognized as income when earned on the accrual method and is not included within the loan balance. 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 Credit Losses CECL Adoption and Updated Significant Accounting Policy On January 1, 2023, the Company adopted ASU 2016-13, Financial Instruments - Credit Losses (ASC Topic 326): Measurement of Credit Losses on Financial Instruments, which replaces the incurred loss methodology, and is referred to as CECL. The measurement of expected credit losses under CECL is applicable to financial assets measured at amortized cost, including loans and HTM debt securities. It also applies to off-balance sheet (“OBS”) credit exposures (loan commitments, standby letters of credit, financial guarantees, and other similar instruments). The Company adopted CECL using the modified retrospective method for all financial assets measured at amortized cost, net of investments in leases and OBS credit exposures. Results for reporting periods beginning after January 1, 2023 are presented under CECL, while prior period results are reported in accordance with the previously applicable incurred loss methodology. The Company recorded an overall decrease of $3,789,000 to the Allowance for Credit Losses (“ACL”) on January 1, 2023 as a result of the adoption of CECL with an associated increase to retained earnings of $2,993,000 and decrease to deferred tax assets of $796,000. The Company also recorded a liability of $1,703,000 for OBS credit exposures that resulted in a decrease to retained earnings of $1,346,000 and an increase to deferred tax assets of $357,000. 52Table of Contents The discussion that follows describes the methodology for determining the ACL under the CECL model that was adopted effective January 1, 2023. The allowance methodology for prior periods is disclosed in the Company’s 2022 Annual Report on Form 10-K. The Company has elected to exclude accrued interest receivable from the measurement of its ACL. When a loan is placed on non-accrual status, any outstanding accrued interest is reversed against interest income. Loans: The ACL for loans is an estimate of the expected losses to be realized over the life of the loans in the portfolio. The ACL is determined for two distinct categories of loans: 1) loans evaluated collectively for expected credit losses and 2) loans evaluated individually for expected credit losses. The ACL also includes certain qualitative and forecast adjustments to the CECL model. Loans Evaluated Collectively: • Loans aggregated into pools based on similar risk characteristics. • • • • • • The probability of default "PD" and loss given default rate "LGD" CECL model components are determined based on loss estimates driven by historical experience at the input level. The PD model component uses "through the economic cycle transition" matrices based on the Company's historical loan and transaction data across each pool of loans. Adjustments to PD are made based on the borrowers credit score and origination. The LGD model component calculates a lifetime LGD estimate across each pool of loans utilizing a nonparametric loss curve modeling approach. Adjustments to LGD are made based on the loan-to-value at origination. Reasonable and supportable forecasts are incorporated through the utilization of qualitative factors. Cash flow assumptions are established for each loan using maturity date, amortization schedule and interest rate. A constant prepayment rate is calculated for each loan pool in the CECL model. Loans Evaluated Individually: Loans evaluated individually for expected credit losses include loans determined to be collateral- dependant or that do not share similar risk characteristics with the rest of the pool. Loans evaluated individually may have specific allocations assigned. For loans measured using the fair value of collateral, if the analysis determines that sufficient collateral value would be available for repayment of the debt, then no allocations would be assigned to those loans. Collateral could be in the form of real estate or business assets, such as accounts receivable or inventory, in the case of commercial and industrial loans. For loans secured by real estate, estimated fair values are determined through appraisals performed by third-party appraisers or third party evaluations for commercial real estate loans and our internal appraisal department for 1-4 family real estate secured loans, discounted to arrive at expected net sale proceeds. For collateral dependent loans, estimated real estate fair values are also net of estimated selling costs. When a real estate secured loan is impaired, a decision is made regarding whether an updated appraisal of the real estate is necessary. This decision is based on various considerations, including: the age of the most recent appraisal; the loan-to-value ratio based on the original appraisal; the condition of the property; the Company’s experience and knowledge of the real estate market; the purpose of the loan; market factors; payment status; the strength of any guarantors; and the existence and age of other indications of value such as broker price opinions, among others. The Company generally obtains updated evaluations for collateral dependent loans secured predominantly by real estate every 12 months. When updated evaluations are not obtained for loans secured by real estate, fair values are estimated based on the original appraisal values, as long as the original appraisal indicated an acceptable loan-to-value position and there has not been a significant deterioration in the collateral value since the original appraisal was performed. Management regularly reviews loans in the portfolio to assess credit quality indicators and to determine appropriate loan classification. For commercial loans, commercial mortgages and construction loans to commercial borrowers, an internal credit rating process is used. The Company believes that internal credit ratings are the most relevant credit quality indicator for these types of loans. The migration of loans through the various internal credit rating categories is a significant component of the ACL methodology for these loans, which bases the PD on this migration. Assigning credit ratings involves judgment. Credit ratings may be changed based on ongoing monitoring procedures, or if specific loan review assessments identify a deterioration or an improvement in the loan. The following is a summary of the Company's internal credit rating categories: 53Table of Contents • • • Pass: These loans do not currently pose undue credit risk and can range from the highest to average quality, depending on the degree of potential risk. Special Mention: These loans have a heightened credit risk, but not to the point of justifying a classification of Substandard. Loans in this category are currently acceptable, but are nevertheless potentially weak. Substandard or Lower: There exists a well-defined weakness or weaknesses that jeopardize the normal repayment of the debt. The allocation of the ACL is reviewed to evaluate its appropriateness in relation to the overall risk profile of the loan portfolio. The Company considers risk factors such as: local and national economic conditions; trends in delinquencies and non-accrual loans; the diversity of borrower industry types; and the composition of the portfolio by loan type. Qualitative and Other Adjustments to ACL: In addition to the quantitative credit loss estimates for loans evaluated collectively, qualitative factors that may not be fully captured in the quantitative results are also evaluated. These include changes in lending policy, volume of the portfolio, economy conditions, credit concentrations, level of problem loans, loan review, collateral value, and experience of credit staff. Qualitative adjustments are judgmental and are based on Management’s knowledge of the portfolio and the markets in which the Company operates. Qualitative adjustments are evaluated and approved on a quarterly basis. OBS Credit Exposures: The ACL for OBS credit exposures is recorded in other liabilities on the consolidated balance sheet. This ACL represents management’s estimate of expected losses in its unfunded loan commitments and other OBS credit exposures, such as letters of credit and credit recourse on sold residential mortgage loans. The ACL specific to unfunded commitments is determined by estimating future draws and applying the expected loss rates on those draws. Future draws are based on historical averages of utilization rates (i.e., the likelihood of draws taken). The ACL for OBS credit exposures is increased or decreased by charges or reductions to expense, through the provision for credit losses. The impact from the adoption of CECL is shown below: (In Thousands) Assets ACL on loans Pre-Adoption January 1, 2023 Adoption Impact As Reported Commercial, financial, and agricultural . . . . $ 1,914 $ 2,656 $ Real estate mortgage: Residential . . . . . . . . . . . . . . . . . . . . . . . . . Commercial . . . . . . . . . . . . . . . . . . . . . . . . Construction . . . . . . . . . . . . . . . . . . . . . . . . Consumer automobile loans . . . . . . . . . . . . . Other consumer installment loans . . . . . . . . Unallocated . . . . . . . . . . . . . . . . . . . . . . . . . . Liabilities ACL for unfunded commitments . . . . . . . . . . . 5,061 6,110 188 1,617 109 638 (3,893) (2,660) (96) 240 602 (638) 4,570 1,168 3,450 92 1,857 711 — $ 143 15,780 $ 1,703 (2,086) $ 1,846 13,694 The allowance for credit 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 credit losses is established through a provision for credit losses charged to operations. The provision for credit losses is based upon management’s quarterly review of the loan portfolio. The purpose of the review is to assess loan quality, identify individually evaluated 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. 54Table of Contents Although management believes that it uses the best information available to make such determinations and that the allowance for credit losses is adequate at December 31, 2023, future adjustments could be necessary if circumstances or economic conditions differ substantially from the assumptions used in making the initial determinations. A downturn in the local economy, 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 credit loss provisions. An integral part of the periodic regulatory examination process is the review of the adequacy of the Banks' credit 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 credit loss provisions to further supplement the allowance. 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 Loan Modifications Under GAAP, a modification is a Troubled Loan Modification (TLM) if the borrower is experiencing financial difficulties and the modification is a direct change in contractual cash flows. This excludes insignificant payment delays. ASU 2022-02 does not amend the current modification guidance other than to eliminate Troubled Debt Restructures (TDRs). An evaluation needs to be completed to determine whether the modification represents a new loan or a continuation of an existing loan. A loan modification or refinancing results in a new loan if: the terms of the new loan are at least as favorable to the lender as the terms of the other loans to similar borrowers, and the modifications to the terms of the loan are more than minor. Financial difficulties existing when: • • • • • • • • the borrower may have financial difficulties even though not currently in default with the lender; the borrower is currently delinquent on any of its debt (with or outside of the Bank); it is probable the borrower will be in payment default on any of its debt in the foreseeable future without modification; the borrower has declared or is declaring bankruptcy; there is substantial doubt as to whether the borrower will continue to be a going concern (commercial loans); the borrower has securities that have been, are in the process of, or under threat of being delisted from an exchange; the forecasted cash flows will be insufficient to service the existing debt for the foreseeable future; and without modification, the borrower cannot obtain funds from other sources at the same rate as a non-troubled borrower. A direct change in contractual cash flows includes: principal forgiveness, interest rate reduction, and term extension (other than an insignificant payment delay). Once a TLM is identified, an impairment calculation is completed. Those loans that are deemed collateral dependent loans will be measured for impairment separately, outside of the CECL model. Those that are not collateral dependent will be included in the CECL model. 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 55Table of Contents 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 Bank and The M Group. Based on the fair value of these reporting units, estimated using the expected present value of future cash flows, an impairment of goodwill was recognized in 2022 of $653,000 related to The M Group. No impairment of goodwill was recognized in 2023 or 2021. Intangible Assets The Corporation also had intangible assets of $210,000, which is net of accumulated amortization of $810,000, 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 two partnerships at December 31, 2023 that provides low income elderly housing in the Corporation’s geographic market area. The carrying value of the Corporation’s investment in the limited partnerships was $7,815,000 at December 31, 2023 and $8,656,000 at December 31, 2022. The investments will be amortized using the proportional amortization method over the period of the related tax benefits. Both partnerships have reached the level of occupancy needed to begin the ten year tax credit recognition period. There was $841,000 and $519,000 in amortization recognized in 2023 and 2022. The Corporation recognized a liability during 2022 in the amount of $3,873,000 for future equity contributions to be made to one of the partnerships, which is still outstanding at December 31, 2023. 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. 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 56Table of Contents 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. 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 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. 57Table of Contents 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 January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment. To simplify the subsequent measurement of goodwill, the FASB eliminated Step 2 from the goodwill impairment test. In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Instead, under the amendments in this Update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The Update is effective for smaller reporting companies and all other entities for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. This Update is not expected to have a significant impact on the Company’s financial statements. In January 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, March 2020, to provide temporary optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate. Entities can elect not to apply certain modification accounting requirements to contracts affected by what the guidance calls “reference rate reform” if certain criteria are met. An entity that makes this election would not have to remeasure the contracts at the modification date or reassess a previous accounting determination. Also, entities can elect various optional expedients that would allow them to continue applying hedge accounting for hedging relationships affected by reference rate reform if certain criteria are met, and can make a one-time election to sell and/or reclassify held-to-maturity debt securities that reference an interest rate affected by reference rate reform. The amendments in this ASU are effective for all entities upon issuance through December 31, 2022. In December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848, which extends the sunset (or expiration) date of Accounting Standards Codification (ASC) Topic 848 to December 31, 2024. This gives reporting entities two additional years to apply the accounting relief provided under ASC Topic 848 for matters related to reference rate reform. ASU 2022-06 is effective for all reporting entities immediately upon issuance and must be applied on a prospective basis. This Update is not expected to have a significant impact on the Company’s financial statements. In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. This ASU removes from U.S. GAAP the separation models for (1) convertible debt with a cash conversion feature and (2) convertible instruments with a beneficial conversion feature. As a result, entities will not separately present in equity an embedded conversion feature in such debt. Instead, they will account for a convertible debt instrument wholly as debt, and for convertible preferred stock wholly as preferred stock (i.e., as a single unit of account), unless (1) a convertible instrument contains features that require bifurcation as a derivative under ASC 815 or (2) a convertible debt instrument was issued at a substantial premium. This ASU requires entities to provide expanded disclosures about the terms and features of convertible instruments, how the instruments have been reported in the entity’s financial statements, and information about events, conditions, and circumstances that can affect how to assess the amount or timing of an entity’s future cash flows related to those instruments. The amendments in this ASU are effective for public business entities that are not smaller reporting companies, for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. For all other entities, this ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. The guidance may be early adopted for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. This Update is not expected to have a significant impact on the Company’s financial statements. In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820) – Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. This amendment clarifies the guidance in Topic 820, Fair Value Measurement, when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security. It also introduces new disclosure requirements for equity securities subject to contractual sale restrictions that are measured at fair value in accordance with Topic 820. The amendments are effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. Early adoption is permitted. The amendments will be applied prospectively, with any adjustments from the adoption of the amendments recognized in earnings and disclosed on the date of adoption. This Update is not expected to have a significant impact on the Company’s financial statements. 58Table of Contents In March 2023, the FASB issued ASU 2023-02, Investments – Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method. ASU 2023-02 permits reporting entities to elect to account for their tax equity investments, regardless of the tax credit program from which the income tax credits are received, using the proportional amortization method if certain conditions are met. ASU 2023-02 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2023. This Update is not expected to have a significant impact on the Company’s financial statements. In July 2023, the FASB issued ASU 2023-03, Presentation of Financial Statements (Topic 205), Income Statement-Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation-Stock Compensation (Topic 718), which amends or supersedes various SEC paragraphs within the Codification to conform to past SEC announcements and guidance issued by the SEC. The ASU does not provide any new guidance so there is no transition or effective date associated with it. This ASU did not have a significant impact on the Company’s financial statements. In August 2023, the FASB issued ASU 2023-04, Liabilities (Topic 405), which adds various SEC paragraphs to the Codification to reflect guidance included in SEC Staff Accounting Bulletin 121 on safeguarding crypto assets. The standard does not provide any new guidance so there is no transition or effective date associated with it. This ASU did not have a significant impact on the Company’s financial statements. In October 2023, the FASB issued ASU 2023-06, Disclosure Improvement: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative, which incorporates several SEC disclosure requirements into US GAAP and adds interim and annual disclosure requirements to a variety of topics in the Accounting Standards Codification, including those focusing on accounting changes, earnings per share, debt and repurchase agreements. For entities subject to the SEC disclosure requirements and those “required to file or furnish financial statements with or to the SEC in preparation for the sale of or for purposes of issuing securities that are not subject to contractual restrictions on transfer,” the US GAAP requirements will be effective when the removal of the related SEC rule is effective. Early adoption is not permitted for these entities. For all other entities, the effective date will be two years later, and early adoption is permitted. That is, financial statements issued after the effective date of each amendment are required to include on a prospective basis the related disclosure incorporated into US GAAP by this ASU. However, if the SEC does not act to remove its related requirements by June 30, 2027, any related FASB amendments will be removed from the Codification and will not be effective for any entities. In November 2023, the FASB issued ASU 2023-07, Segment Reporting (TOPIC 280): Improvements to Reportable Segment Disclosures, which requires public entities to disclose information about their reportable segments’ significant expenses on an interim and annual basis. This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. Public entities are required to adopt the changes retrospectively, recasting each prior-period disclosure for which a comparative income statement is presented in the period of adoption. This Update is not expected to have a significant impact on the Company’s financial statements. NOTE 2 - ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME The changes in accumulated other comprehensive income (loss) by component shown, net of tax and parenthesis indicating debits to net income, as of December 31, 2023, 2022, and 2021 were as follows: Twelve Months Ended December 31, 2023 Twelve Months Ended December 31, 2022 Twelve Months Ended December 31, 2021 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 . . . . . . . . . $ (9,819) $ (4,139) $ (13,958) $ 2,373 $ (3,485) $ (1,112) $ 4,714 $ (5,596) $ (882) Other comprehensive income (loss) before reclassifications . . . . . . . . . Amounts reclassified from accumulated other comprehensive income (loss) . . . . . . . . . . . . . . . . . . Net current-period other comprehensive income (loss) . 3,271 1,268 4,539 (12,365) (709) (13,074) (1,789) 1,965 176 152 117 269 173 55 228 (552) 146 (406) 3,423 1,385 4,808 (12,192) (654) (12,846) (2,341) 2,111 (230) Ending balance . . . . . . . . . . . . $ (6,396) $ (2,754) $ (9,150) $ (9,819) $ (4,139) $ (13,958) $ 2,373 $ (3,485) $ (1,112) *Amounts net of 21% tax rate 59 Table of Contents The reclassifications out of accumulated other comprehensive (loss) income shown, net of tax and parenthesis indicating debits to net income, as of December 31, 2023, 2022, and 2021 were as follows: (In Thousands) Amount Reclassified from Accumulated Other Comprehensive (Loss) Income December 31, 2023 Twelve Months Ended December 31, 2022 December 31, 2021 (193) $ 41 (152) $ (148) $ 31 (117) $ (219) $ 46 (173) $ (69) $ 14 (55) $ Affected Line Item in the Consolidated Statement of Income Net debt securities (losses) gain, net available for sale 699 (147) Income tax provision 552 (186) Other non-interest expense 40 Income tax provision (146) Details about Accumulated Other Comprehensive (Loss) Income Components Net realized (loss) gain on available for sale securities . $ Income tax effect . . . . . . . . . $ Net unrecognized pension expense . . . . . . . . . . . . . . . . $ Income tax effect . . . . . . . . . $ NOTE 3 - PER SHARE DATA 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, 2023 2022 2021 Weighted average common shares issued . . . . . . . . . . . . . . . . . . . . . . . . . . . Average treasury stock shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,622,675 7,559,306 7,542,043 (510,225) (499,869) (480,225) Weighted average common shares outstanding - basic . . . . . . . . . . . . . . . . . Dilutive effect of outstanding stock options . . . . . . . . . . . . . . . . . . . . . . . . . Weighted average common shares outstanding - diluted . . . . . . . . . . . . . . . . 7,112,450 — 7,112,450 7,059,437 — 7,059,437 7,061,818 — 7,061,818 There were a total of 1,000,000 non-qualified employee stock options (Note 14) outstanding on December 31, 2023 that had a weighted average strike price of $25.55. Options on December 31, 2022 had an average strike price of $25.34 with a total of 914,000 options outstanding. Grants outstanding at year-end 2021 totaled to 1,034,525 options with an average strike price of $27.23. These options were excluded, on a weighted average basis, in the computation of diluted earnings per share for the 2023, 2022, and 2021 periods presented due to the average market price of common shares being less than the strike price of the options. 60Table of Contents NOTE 4 - INVESTMENT SECURITIES The amortized cost, gross gains and losses, and fair values of investment securities at December 31, 2023 and 2022 are as follows: (In Thousands) Available for sale (AFS): 2023 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value U.S. Government and agency securities . . . . . . . . . . . . . . . . . . . . . $ Mortgage-backed securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . State and political securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 199,041 $ 15,457 120,740 58,844 4,000 $ 3 $ 120 162 97 382 $ 3,943 (60) $ 15,355 (222) 115,615 (5,287) (2,909) 56,032 (8,478) $ 190,945 Investment equity securities: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Total equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,300 $ 1,300 $ — $ — $ (178) $ (178) $ 1,122 1,122 2022 Gross Unrealized Gains Gross Unrealized Losses Fair Value Amortized Cost (In Thousands) Available for sale (AFS): U.S. Government and agency securities . . . . . . . . . . . . . . . . . . . . . . . $ Mortgage-backed securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . State and political securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,002 $ 1,496 151,426 50,178 Total debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 206,102 $ — $ — 157 58 215 $ (106) $ (214) (8,774) (3,550) 2,896 1,282 142,809 46,686 (12,644) $ 193,673 Investment equity securities: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Total equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,350 $ 1,350 $ — $ — $ (208) $ (208) $ 1,142 1,142 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, 2023 and 2022. Less than Twelve Months Twelve Months or Greater Total 2023 (In Thousands) Available for sale (AFS) U.S. Government and agency securities . . $ Mortgage-backed securities . . . . . . . . . . . . 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 — $ 7,559 6,051 12,976 26,586 $ 2,940 $ — $ (78) (128) (218) (424) $ 138,778 $ 984 99,405 35,449 (60) $ (144) (5,159) (2,691) (8,054) $ 165,364 $ 2,940 $ 8,543 105,456 48,425 (60) (222) (5,287) (2,909) (8,478) 61Table of Contents Less than Twelve Months Twelve Months or Greater Total 2022 Gross Fair Unrealized Value (In Thousands) Available for sale (AFS) U.S. Government and agency securities . . $ Mortgage-backed securities . . . . . . . . . . . . State and political securities . . . . . . . . . . . Other debt securities . . . . . . . . . . . . . . . . . Total Debt Securities AFS . . . . . . . . . . . . . $ 115,236 $ 2,896 $ — 95,444 16,896 Losses (106) $ — (4,797) (664) (5,567) $ Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses — $ — $ 1,282 36,283 25,144 62,709 $ 2,896 $ 1,282 131,727 42,040 (214) (3,977) (2,886) (7,077) $ 177,945 $ (106) (214) (8,774) (3,550) (12,644) At December 31, 2023 there were 27 individual securities in a continuous unrealized loss position for less than twelve months and 177 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, 2023 and 2022, the declines outlined in the above table do not represent credit losses 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 no allowance for credit losses is necessary as the unrealized losses are 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, 2023, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities since borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. (In Thousands) Amortized Cost Fair Value Due in one year or less . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 37,991 $ Due after one year to five years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Due after five years to ten years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Due after ten years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78,601 71,951 10,498 37,305 74,864 68,271 10,505 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 199,041 $ 190,945 Total gross proceeds from sales of securities available for sale were $24,702,000, $5,557,000, and $17,947,000 for 2023, 2022, and 2021, respectively. The following table represents gross realized gains and losses on those transactions: (In Thousands) Gross realized gains: Year Ended December 31, 2023 2022 2021 U.S. Government and agency securities . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Mortgage-backed securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . State and political securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — $ — 146 — — $ — 14 — Total gross realized gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 146 $ 14 $ Gross realized losses: U.S. Government and agency securities . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Mortgage-backed securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . State and political securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total gross realized losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ — $ — 339 — 339 $ — $ — 233 — 233 $ — — 408 323 731 — — 32 — 32 There were no impairment charges included in gross realized losses for the years ended December 31, 2023, 2022, and 2021. 62Table of Contents Investment securities with a carrying value of approximately $107,800,000 and $154,946,000 at December 31, 2023 and 2022, 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 exchange traded equities. At December 31, 2023 and December 31, 2022, we had $1,122,000 and $1,142,000, respectively, in equity securities recorded at fair value. The following is a summary of unrealized and realized gains and losses recognized in net income on equity securities during the years ended December 31, 2023, 2022 and 2021: (In Thousands) 2023 2022 2021 Net gain (loss) recognized in equity securities during the period . . . . . . . . . . . . . $ Less: Net (loss) gain realized on the sale of equity securities during the period . . Unrealized gain (loss) recognized in equity securities held at reporting date . . . . $ 15 $ (1) 16 $ (146) $ — (146) $ (40) — (40) 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. 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 CREDIT 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, and installment loans. Real estate loans are further segmented into three categories: residential, commercial, and construction, while installment loans are classified as either consumer automobile loans or other installment loans. 63 Table of Contents The following table presents the related aging categories of loans, by class, as of December 31, 2023 and 2022: (In Thousands) 2023 Past Due 30 To 89 Days Past Due 90 Days Or More Current Total Commercial, financial, and agricultural . . . . . . . $ 749 $ 587 $ 212,130 $ 213,466 Real estate mortgage: Residential . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . Construction . . . . . . . . . . . . . . . . . . . . . . . . . . Consumer automobile loans . . . . . . . . . . . . . . . . Other consumer installment loans . . . . . . . . . . . Net deferred loan fees and discounts . . . . . Allowance for credit losses . . . . . . . . . . . . . Loans, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,158 1,466 812 2,748 620 1,970 273 — 307 11 786,373 529,862 39,577 241,343 9,730 798,501 531,601 40,389 244,398 10,361 $ 16,553 $ 3,148 $ 1,819,015 1,838,716 1,048 (11,446) $ 1,828,318 (In Thousands) 2022 Past Due 30 To 89 Days Past Due 90 Days Or More Current Total Commercial, financial, and agricultural . . . . . . $ 94 $ 432 $ 189,935 $ 190,461 Real estate mortgage: Residential . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . Construction . . . . . . . . . . . . . . . . . . . . . . . . . . Consumer automobile loans . . . . . . . . . . . . . . . Other consumer installment loans . . . . . . . . . . . Net deferred loan fees and discounts . . . . . Allowance for loan losses . . . . . . . . . . . . . . Loans, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,472 2,564 511 2,089 152 1,644 2,719 — 80 15 701,093 495,349 42,797 183,943 10,194 708,209 500,632 43,308 186,112 10,361 $ 10,882 $ 4,890 $ 1,623,311 1,639,083 648 (15,637) $ 1,624,094 The majority of the commercial real-estate segment is 1-4 family residential or owner occupied properties. The Banks have not historically focused on non-owner occupied office buildings. As of December 31, 2023, non-mixed use non-owner occupied office building exposure is less than $20,000,000 with no loans being past due or nonperforming. The Allowance for Credit Losses ("ACL") related to loans consists of loans evaluated collectively and individually for expected credit losses. The ACL related to loans represents an estimate of expected credit losses over the expected life of the loans as of the balance sheet date and is recorded as a reduction to net loans. The ACL for off balance sheet credit exposure includes estimated losses on unfunded loan commitments, letters of credit and other off balance sheet credit exposures and is recorded in other liabilities. The total ACL is increased by charges to expense, through the provision for credit losses, and decreased by charge-offs, net of recoveries. The following table presents the components of the ACL as of December 31, 2023: 64Table of Contents (In Thousands) ACL - loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ACL - off balance sheet credit exposure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total ACL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ December 31, 2023 $ 11,446 1,342 12,788 Non-Accrual Loans December 31, 2023 Non-accrual Loans December 31, 2022 (In Thousands) With a Related ACL Without a Related ACL Total Total Non-accrual loans Commercial, financial, and agricultural . . . . . . $ Real estate mortgage: . . . . . . . . . . . . . . . . . . . . Residential . . . . . . . . . . . . . . . . . . . . . . . . . . . Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . Construction . . . . . . . . . . . . . . . . . . . . . . . . . . Consumer automobile . . . . . . . . . . . . . . . . . . . . — $ 504 $ 504 $ 21 — — — 259 214 — — 280 214 — — Other consumer installment loans . . . . . . . . . . . $ — 21 $ — 977 $ — 998 $ 432 524 2,659 — — — 3,615 Total interest income recorded on non-accrual loans at December 31, 2023 totaled $117,000. Impaired Loans The following table presents the recorded investment, unpaid principal balance, and related allowance of impaired loans by segment as of December 31, 2022: 65 Table of Contents (In Thousands) With no related allowance recorded: 2022 Recorded Investment Unpaid Principal Balance Related Allowance Commercial, financial, and agricultural . . . . . . . . . . . . . . . . . . . . . . . . . . $ 295 $ 295 $ Real estate mortgage: Residential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consumer automobile loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other consumer installment loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,388 2,588 — — — 3,388 2,588 — — — 6,271 6,271 With an allowance recorded: Commercial, financial, and agricultural . . . . . . . . . . . . . . . . . . . . . . . . . . 403 403 Real estate mortgage: Residential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consumer automobile loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other consumer installment loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 933 3,607 — — 19 933 3,607 — — — 4,962 4,943 Total: Commercial, financial, and agricultural . . . . . . . . . . . . . . . . . . . . . . . . . . 698 698 Real estate mortgage: Residential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consumer automobile loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other consumer installment loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,321 6,195 — — 19 4,321 6,195 — — — $ 11,233 $ 11,214 $ — — — — — — — 4 111 827 — — 19 961 4 111 827 — — 19 961 The following table presents the average recorded investment in impaired loans and related interest income recognized for December 31, 2022 and 2021: (In Thousands) Average Investment in Impaired Loans 2022 Interest Income Recognized on an Accrual Basis on Impaired Loans Interest Income Recognized on a Cash Basis on Impaired Loans Commercial, financial, and agricultural . . . . . . . . . . . . . . . . . . . . . . $ 765 $ 20 $ Real estate mortgage: Residential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consumer automobile loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other consumer installment loans . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,676 7,233 34 3 16 192 201 1 1 — $ 12,727 $ 415 $ — 3 26 — — — 29 66Table of Contents (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 12 174 122 2 — 1 $ 16,495 $ 312 $ — — — — — — — At December 31, 2023, additional funds totaling $2,000 are committed to be advanced in connection with individually evaluated loans. The following table presents outstanding loan balances of collateral-dependent loans by class as of December 31, 2023: (In Thousands) Real estate mortgage: Real estate Unsecured* Total Residential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,533 $ Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 Total $ 1,621 $ — $ — — $ 1,533 88 1,621 * Loan considered unsecured due to lien position on property Loan Modifications On January 1, 2023, the Corporation adopted ASU 2022-02. Loan modifications to borrowers experiencing financial difficulty reported below do not include modifications with insignificant payment delays. ASU 2022-02 lists the following factors when considering if the loan modification has insignificant payment delays: (1) the amount of the restructured payments subject to the delay is insignificant relative to the unpaid principal or collateral value of the debt and will result in an insignificant shortfall in the contractual amount due, and (2) the delay in timing of the restructured payment period is insignificant relative to the frequency of payments due under the debt, the debt’s original contractual maturity or the debt’s original expected duration. Prior to the adoption of ASU 2022-02 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 non-performing at the time of restructure and may only be returned to performing status after considering the borrower’s sustained repayment performance for a reasonable period, generally six months. There were no loan modifications to borrowers experiencing financial difficulty completed during the twelve months ended December 31, 2023. Of the one new TDRs that was granted for the year ended December 31, 2022, one loan totaling $220,000 was granted rate concessions. No loan modifications considered TDRs made during the twelve months prior to December 31, 2023 and 2022 defaulted. Loans considered modifications amounted to $5,019,000 and $7,468,000 as of December 31, 2023 and December 31, 2022, respectively. 67Table of Contents Loan modifications that are considered TDRs completed during the twelve months ended December 31, 2023, 2022, and 2021 were as follows: (In Thousands, Except Number of Contracts) Year Ended December 31, 2022 Number of Contracts Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Commercial, financial, and agricultural . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Real estate mortgage: Residential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — $ — $ 1 — — 220 — — Other consumer installment loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 1 $ — 220 $ — 220 — — — 220 Year Ended December 31, 2021 Number of Contracts Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment 1 $ 949 $ 949 3 2 — 1,265 842 — 1,265 842 — — 3,056 (In Thousands, Except Number of Contracts) Commercial, financial, and agricultural . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Real estate mortgage: Residential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other consumer installment loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 6 $ — 3,056 $ Internal Credit 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 2023 loan review evaluated 59% 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, 2023 and 2022: 68Table of Contents December 31, 2023 (In Thousands) 2023 2022 2021 2020 2019 Prior Commercial, financial, and agricultural Revolving Loans Revolving Loans Converted to Term Total Pass . . . . . . . . . . . . . . . . . . . . $ 31,190 $ 49,615 $ 35,901 $ 31,980 $ 3,123 $ 29,502 $ 29,397 $ 101 $ 210,809 Special Mention . . . . . . . . . . . Substandard or Lower . . . . . . — — 183 — 37 — 19 85 — — 138 742 223 487 — 743 600 2,057 $ 31,190 $ 49,798 $ 35,938 $ 32,084 $ 3,123 $ 30,382 $ 30,107 $ 844 $ 213,466 Current period gross write offs . . . . . . . . . . . . . . . . . . . . . Real estate mortgage: Residential $ — $ 41 $ — $ — $ — $ — $ — $ — $ 41 Pass . . . . . . . . . . . . . . . . . . . . $ 135,939 $ 134,077 $ 88,844 $ 51,378 $ 33,914 $ 148,802 $ 56,519 $ 146,055 $ 795,528 Special Mention . . . . . . . . . . . Substandard or Lower . . . . . . — — 844 — 273 — — — — — — 1,790 — — — 66 1,117 1,856 $ 135,939 $ 134,921 $ 89,117 $ 51,378 $ 33,914 $ 150,592 $ 56,519 $ 146,121 $ 798,501 Current period gross write offs . . . . . . . . . . . . . . . . . . . . . Commercial $ — $ — $ — $ — $ — $ 9 $ 73 $ — $ 82 Pass . . . . . . . . . . . . . . . . . . . . $ 55,664 $ 107,638 $ 128,094 $ 49,603 $ 24,104 $ 144,377 $ 12,338 $ 821 $ 522,639 Special Mention . . . . . . . . . . . Substandard or Lower . . . . . . — — 153 — 2,990 — — — — 59 1,891 3,869 — — — — 5,034 3,928 $ 55,664 $ 107,791 $ 131,084 $ 49,603 $ 24,163 $ 150,137 $ 12,338 $ 821 $ 531,601 Current period gross write offs . . . . . . . . . . . . . . . . . . . . . Construction $ 59 $ — $ — $ — $ — $ 3 $ — $ — $ 62 Pass . . . . . . . . . . . . . . . . . . . . $ 25,494 $ 6,837 $ 1,742 $ 1,302 $ 392 $ 4,272 $ 261 $ — $ 40,300 Special Mention . . . . . . . . . . . Substandard or Lower . . . . . . — — — — — — — — — — — 89 — — — — — 89 $ 25,494 $ 6,837 $ 1,742 $ 1,302 $ 392 $ 4,361 $ 261 $ — $ 40,389 Current period gross write offs . . . . . . . . . . . . . . . . . . . . . Consumer Automobile $ — $ — $ — $ — $ — $ — $ — $ — $ — Pass . . . . . . . . . . . . . . . . . . . . $ 119,922 $ 78,443 $ 19,567 $ 15,348 $ 7,305 $ 3,813 $ — $ — $ 244,398 Special Mention . . . . . . . . . . . Substandard or Lower . . . . . . — — — — — — — — — — — — — — — — — — $ 119,922 $ 78,443 $ 19,567 $ 15,348 $ 7,305 $ 3,813 $ — $ — $ 244,398 Current period gross write offs . . . . . . . . . . . . . . . . . . . . . Installment loans to individuals $ 30 $ 320 $ 178 $ 113 $ 8 $ 17 $ — $ — $ 666 Pass . . . . . . . . . . . . . . . . . . . . $ 2,952 $ 2,188 $ 1,177 $ 524 $ 407 $ 3,071 $ — $ 42 $ 10,361 Special Mention . . . . . . . . . . . Substandard or Lower . . . . . . — — — — — — — — — — — — — — — — — — $ 2,952 $ 2,188 $ 1,177 $ 524 $ 407 $ 3,071 $ — $ 42 $ 10,361 Current period gross write offs . . . . . . . . . . . . . . . . . . . . . $ 232 $ 47 $ 23 $ 8 $ 12 $ 34 $ 13 $ 11 $ 380 69 Table of Contents The information presented in the table above is not required for periods prior to the adoption of CECL. The following table presents the most comparable required information for the prior period, internal credit ratings for the report loan segments as of December 31, 2022: (In Thousands) Commercial, Finance, and Agricultural Real Estate Mortgages 2022 Residential Commercial Construction Consumer automobile Other consumer installment Totals Pass . . . . . . . . . . . $ 184,783 $ 705,515 $ 488,993 $ 43,209 $ 186,112 $ 10,361 $ 1,618,973 Special Mention . . Substandard . . . . . 125 5,553 266 2,428 4,526 7,113 — 99 — — — — 4,917 15,193 Total . . . . . . . . . . . $ 190,461 $ 708,209 $ 500,632 $ 43,308 $ 186,112 $ 10,361 $ 1,639,083 Activity in the allowance is presented for the twelve months ended December 31, 2023, 2022, and 2021: 2023 (In Thousands) Beginning Balance . $ Impact of adopting ASC 326 . . . . . . . . Charge-offs . . . . . . Recoveries . . . . . . Provision . . . . . . . . Ending Balance . . . . $ Commercial, Finance, and Agricultural Real Estate Mortgages Residential Commercial Construction 1,914 $ 5,061 $ 6,110 $ Consumer automobile 188 $ 1,617 $ Other consumer installment Unallocated Totals 109 $ 638 $ 15,637 2,656 (41) 1,538 (2,688) 3,379 $ 1,200 $ (3,893) (82) 29 85 (2,660) (62) 26 (62) 3,352 $ 240 (666) 79 1,398 (96) — — 53 145 $ 2,668 $ 602 (380) 84 287 702 $ (3,789) (638) (1,231) — 1,756 — (927) — — $ 11,446 2022 Commercial, Finance, and Agricultural Real Estate Mortgages Residential Commercial Construction Other consumer installment (In Thousands) Beginning Balance . $ Charge-offs . . . . . . Recoveries . . . . . . Provision . . . . . . . . Ending Balance . . . . $ 1,946 $ 4,701 $ (21) 186 (197) 1,914 $ 5,061 $ (21) 47 334 5,336 $ (154) 4 924 6,110 $ Consumer automobile 179 $ 1,411 $ — 29 (20) 188 $ 1,617 $ (386) 58 534 2021 Consumer automobile 134 $ 1,906 $ — 10 35 (286) 143 (352) 179 $ 1,411 $ Unallocated Totals 111 $ (267) 76 189 109 $ 492 $ 14,176 (849) — 400 — 146 1,910 638 $ 15,637 Unallocated Totals 261 $ (173) 61 (38) 111 $ 1,471 $ 13,803 (729) — 462 — (979) 640 492 $ 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 . . . . $ 1,936 $ 4,460 $ (37) 27 20 (219) 112 348 1,946 $ 4,701 $ 3,635 $ (14) 109 1,606 5,336 $ The shift in allocation and the changes in the provision for credit losses are primarily due to changes in the credit metrics within the loan portfolio coupled with the adoption of CECL on January 1, 2023. The provision for commercial and agricultural loans decreased during 2023 due to an increase in the level of net recoveries which had a significant impact on the ACL model's PD assumption. The reserve for residential real estate loans decreased primarily due to the adoption of CECL. The provision for commercial real estate loans decreased primarily due to the adoption of CECL and improvement in portfolio credit metrics. The provision for consumer automobiles increased due to increased indirect loan volume and an increase in net charge-offs. The provision for commercial and agricultural loans decreased during 2022 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 portfolio size increased but was offset by a decline in the level of net charge-offs. The provision for this loan type is adjusted by national 70 Table of Contents indices as well as our historical losses. The provision for commercial real estate loans decreased primarily due to an improvement in portfolio credit metrics. The provision for consumer automobiles increased due to increased indirect loan volume and concerns regarding the impact of inflation on the customer base. The Corporation grants commercial, industrial, residential, and installment loans to customers throughout north-east and central Pennsylvania. Although the Corporation has a diversified loan portfolio at December 31, 2023 and 2022, 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, 2023 and December 31, 2022, totaled $700,000 and $950,000, respectively. Consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process at December 31, 2023 and December 31, 2022, totaled $601,000 and $890,000, respectively. The Corporation has a concentration of loans at December 31, 2023 and 2022 as follows: Owners of residential rental properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Owners of commercial rental properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2023 2022 18.74 % 14.65 % 19.67 % 15.63 % 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, 2022: Commercial, Finance, and Agricultural Real Estate Mortgages Residential Commercial Construction Consumer automobile Other consumer installment Unallocated Totals 2022 (In Thousands) Allowance for Loan Losses: Ending allowance balance attributable to loans: Individually evaluated for impairment . . . . . . . . . . . . . . . . . . . $ Collectively evaluated for impairment . . . . . . . . . . . . . . . . . . . 4 $ 111 $ 827 $ — $ — $ 19 $ — $ 961 1,910 4,950 5,283 188 1,617 90 638 14,676 Total ending allowance balance . $ 1,914 $ 5,061 $ 6,110 $ 188 $ 1,617 $ 109 $ 638 $ 15,637 Loans: Individually evaluated for impairment . . . . . . . . . . . . . . . . . . . . $ Collectively evaluated for impairment . . . . . . . . . . . . . . . . . . . . 698 $ 4,321 $ 6,195 $ — $ — $ 19 $ 11,233 Total ending loans balance . . $ 190,461 $ 708,209 $ 500,632 $ 43,308 $ 186,112 $ 10,361 189,763 703,888 494,437 43,308 186,112 10,342 1,627,850 $ 1,639,083 NOTE 7 - PREMISES AND EQUIPMENT Major classifications of premises and equipment are summarized as follows at December 31, 2023 and 2022: (In Thousands) 2023 2022 Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,595 $ Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Furniture and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Finance lease right-of-use assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less accumulated depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net premises and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 22,129 13,223 4,157 6,576 52,680 22,430 30,250 $ 6,680 22,571 12,732 4,000 7,006 52,989 21,145 31,844 Depreciation and amortization related to premises and equipment for the years ended 2023, 2022, and 2021 was $1,990,000, $2,107,000, and $2,436,000, respectively. 71Table of Contents NOTE 8 - GOODWILL AND OTHER INTANGIBLES As of December 31, 2023 and 2022, goodwill had a gross carrying value of $17,380,000 and accumulated amortization of $277,000. During 2022 an impairment charge of $653,000 was recognized resulting in a net carrying amount of $16,450,000 at December 31, 2022. The impairment charge occurred due to a decline in revenue that was experienced during 2022 for The M Group. 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, 2023. 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 two book of business intangibles that are being amortized on a straight-line basis over the useful life of such assets. The net carrying amount of the book of business intangibles at December 31, 2023 was $210,000 with $810,000 accumulated amortization as of that date. As of December 31, 2023, the estimated future amortization expense for the core deposit and trade name intangible was: (In Thousands) 2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2026 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Book of Business Intangible 102 102 6 210 $ NOTE 9 - DEPOSITS Time deposits of $250,000 or more totaled approximately $50,722,000 on December 31, 2023 and $31,501,000 on December 31, 2022. Total time deposit maturities are as follows at December 31, 2023: (In Thousands) 2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2026 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2027 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2028 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2023 266,948 100,566 11,228 4,443 1,050 557 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 384,792 Total deposits at December 31, 2023 and 2022 are as follows: 72Table of Contents (In Thousands) 2023 2022 Amount Amount Noninterest-bearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 471,173 $ 519,063 Savings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Super Now . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Money Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Brokered Time Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 219,287 214,888 299,353 260,067 124,725 247,952 372,574 270,589 137,949 8,333 Total deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,589,493 $ 1,556,460 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, 2023 and 2022: (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: 2023 2022 $ 3,631 5,153 4,110 5,153 6,634 5,216 At year end . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Paid during the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.45 % 0.57 % 0.29 % 0.16 % Overnight: Balance at year end . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Maximum amount outstanding at any month end . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Average balance outstanding during the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Weighted-average interest rate: 92,295 178,010 126,742 $ 148,196 148,196 24,099 At year end . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Paid during the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.68 % 5.45 % 4.45 % 4.14 % Short-Term: 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 $ $ 50,000 50,000 26,288 5.62 % 5.59 % — — — — % — % 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, 2023 and 2022 is presented in the following tables. 73 Table of Contents (In Thousands) Repurchase Agreements: 2023 2022 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 . . . . . . . . . . . . . . . . . $ 7,976 $ — 7,976 $ 3,631 $ 6,193 972 7,165 5,153 NOTE 11 - LONG-TERM BORROWINGS The following represents outstanding long-term borrowings with the FHLB by contractual maturities at December 31, 2023 and 2022: (In Thousands) Weighted Average Interest Rate Stated Interest Rate Range Maturity 2023 2024 2025 2026 2027 2028 Description Fixed Fixed Fixed Fixed Fixed Fixed Total Fixed Total (In Thousands) Year Ending December 31, 2023 2022 From — % 2.24 % 3.97 % 4.54 % 4.30 % 3.94 % 3.77 % 3.77 % 1.84 % 1.50 % 1.14 % 4.31 % 4.05 % 3.76 % 2.60 % 2.24 % 1.62 % — % — % — % 2.14 % 2.14 % 2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2026 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2027 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2028 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ To 3.10 % $ 2.96 % 5.48 % 5.01 % 4.88 % 4.45 % 2023 2022 — $ 25,000 40,000 30,000 — — — 95,000 $ 245,000 $ 95,000 40,000 95,000 15,000 40,000 55,000 245,000 Amount Weighted Average Rate 40,000 95,000 15,000 40,000 55,000 245,000 2.24 % 3.97 % 4.54 % 4.30 % 3.94 % 3.77 % The Banks maintain a credit arrangement which includes a revolving line of credit with the FHLB. Under this credit arrangement, at December 31, 2023, JSSB has a remaining borrowing capacity of $274,524,000 and Luzerne has a remaining capacity of $188,554,000, 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, 2023 with the FHLB for JSSB are $200,000 while Luzerne has $0 outstanding. 74Table of Contents NOTE 12 - INCOME TAXES The following temporary differences gave rise to the net deferred tax asset position at December 31, 2023 and 2022: (In Thousands) Deferred tax assets: 2023 2022 Allowance for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,685 $ Deferred compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lease liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fair value adjustment on equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unrealized loss on available for sale securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-qualified Stock Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capital loss carryforward . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,838 2,317 37 1,700 668 380 174 3,314 1,788 2,203 40 2,610 883 380 202 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,799 11,420 Deferred tax liabilities: Lease right of use asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Defined pension . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investment security accretion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred loan fees and discounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,090 1,359 311 218 356 430 380 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,144 Deferred tax asset, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,655 $ 2,028 914 177 135 481 437 380 4,552 6,868 A valuation allowance was established on the $1,003,000 of capital loss carryforwards in 2021. The valuation allowance was increased by $807,000 to a total of $1,810,000 due to additional capital losses resulting when the Corporation's federal tax return was filed in October of 2022. There were no other valuation allowances established at December 31, 2021, 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 2020. The provision or benefit for income taxes is comprised of the following for the year ended December 31, 2023, 2022, and 2021: (In Thousands) 2023 2022 2021 Currently payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Deferred expense (benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,779 $ 4,671 $ 935 (508) Total provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,714 $ 4,163 $ 4,153 (359) 3,794 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, 2023, 2022, and 2021: (In Thousands) Amount % Amount % Amount % Provision at expected rate . . . . . . . . . . . . . . . $ 4,268 21.00 % $ 4,532 21.00 % $ 4,167 21.00 % 2023 2022 2021 (Decrease) increase in tax resulting from: Tax-exempt income . . . . . . . . . . . . . . . . . . Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . Effective income tax provision and rate . . . . $ (548) (6) 3,714 (2.70) (0.03) 18.27 % $ (516) 147 4,163 (2.39) (520) (2.62) 0.68 19.29 % $ 147 3,794 0.74 19.12 % 75Table of Contents 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, 2023 and 2022: (In Thousands) Change in benefit obligation: 2023 2022 Benefit obligation at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 16,544 $ 21,923 Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Actuarial loss (gain) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Change in actuarial assumptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 792 113 (916) 325 Benefit obligation at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 16,858 $ Change in plan assets: Fair value of plan assets at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 20,894 $ Actual return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Adjustment to fair value of plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fair value of plan assets at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,351 (916) — 23,329 Funded status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,471 $ 553 (209) (904) (4,819) 16,544 26,073 (4,272) (904) (3) 20,894 4,350 Accounts recognized on balance sheet as: Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,471 $ 4,350 Amounts not yet recognized as a component of net periodic pension cost: Amounts recognized in accumulated other comprehensive income (loss) consist of: Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,486 $ 5,240 The accumulated benefit obligation for the Plan was $16,858,000 and $16,544,000 at December 31, 2023 and 2022, respectively. Components of Net Periodic Cost and Other Amounts Recognized in Other Comprehensive Income (Loss) as of December 31, 2023, 2022, and 2021 are as follows: (In Thousands) Net periodic pension cost: 2023 2022 2021 Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 792 $ 553 $ Expected return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amortization of unrecognized net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,306) 148 (1,652) 69 Net periodic (benefit) cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (366) $ (1,030) $ 509 (1,542) 186 (847) Assumptions Weighted-average assumptions used to determine benefit obligations at December 31, 2023, 2022, and 2021: 76 Table of Contents Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rate of compensation increase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2023 2022 2021 4.73 % N/A 4.93 % N/A 2.61 % N/A Weighted-average assumptions used to determine net periodic cost for years ended December 31, 2023, 2022, and 2021: Discount rate Expected long-term return on plan assets 2023 2022 2021 4.93 % 7.00 % 2.61 % 7.00 % 2.24 % 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, 2023 and 2022 by asset category are as follows: Asset Category Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fixed income securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Inflation Hedges/Real Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Hedged Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2023 2022 3.91 % 14.34 % 70.96 % 5.38 % 5.41 % 4.84 % 15.05 % 66.36 % 3.92 % 9.83 % 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. The following table sets forth by level, within the fair value hierarchy detailed in Note 20 - Fair Value Measurements, the Plan’s assets at fair value as of December 31, 2023 and 2022: (In Thousands) Assets: Level I Level II Level III Total 2023 Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . $ Mutual funds - taxable fixed income . . . . . . . . . . . . . . . Mutual funds - domestic equity . . . . . . . . . . . . . . . . . . . Mutual funds - international equity . . . . . . . . . . . . . . . . Inflation Hedges/Real Assets . . . . . . . . . . . . . . . . . . . . . Hedged Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total assets at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . $ 913 $ 3,346 11,606 4,947 1,255 1,262 23,329 $ — $ — — — — — — $ — $ — — — — — — $ 913 3,346 11,606 4,947 1,255 1,262 23,329 77 Table of Contents (In Thousands) Assets: Level I Level II Level III Total 2022 Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . $ 1,012 $ — $ — $ Mutual funds - taxable fixed income . . . . . . . . . . . . . . . Mutual funds - domestic equity . . . . . . . . . . . . . . . . . . . Mutual funds - international equity . . . . . . . . . . . . . . . . Inflation Hedges/Real Assets . . . . . . . . . . . . . . . . . . . . . Hedged Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,144 8,393 5,472 819 2,054 — — — — — — — — — — Total assets at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . $ 20,894 $ — $ — $ The following future benefit payments are expected to be paid: (In Thousands) 2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2026 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2027 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2028 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2029-2032 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,012 3,144 8,393 5,472 819 2,054 20,894 1,105 1,145 1,196 1,210 1,223 6,024 $ 11,903 The Corporation does not expect to contribute to its Pension Plan in 2024. 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 $540,000, $548,000, and $500,000 for the years ended December 31, 2023, 2022, and 2021, 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. 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 $656,000, $588,000, and $463,000 for the years ended December 31, 2023, 2022, and 2021, respectively. Benefits paid under the plan were approximately $545,000, $267,000, and $57,000 in 2023, 2022, and 2021, 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. A summary of stock option activity for the year ended December 31, 2023 is presented below: 78Table of Contents Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Term Aggregate Intrinsic Value Outstanding at January 1, 2023 . . . . . . . . . . . . . 914,000 $ Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash Settlement . . . . . . . . . . . . . . . . . . . . . . . . . Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89,000 — (3,000) — Outstanding at December 31, 2023 . . . . . . . . . . 1,000,000 $ Options exercisable at December 31, 2023 . . . . 223,400 $ 25.34 27.77 — 28.01 — 25.55 26.58 7.71 $ 9.06 6.92 $ 5.68 $ — — — On December 31, 2023, a total of 1,000,000 options were outstanding. Outstanding options at December 31, 2023 and the related vesting schedules are summarized below: Date Shares Forfeited Cash Settlement Outstanding Strike Price Vesting Period Expiration Stock Options Granted January 20, 2023 January 20, 2023 January 18, 2022 January 18, 2022 April 9, 2021 April 9, 2021 March 11, 2020 March 11, 2020 March 15, 2019 March 15, 2019 August 27, 2015 59,500 29,500 156,000 78,000 156,500 78,000 119,300 119,200 120,900 119,100 58,125 — — — — — — — — (19,800) (19,200) (26,250) — — — — — — — — — — (28,875) 59,500 $ 29,500 156,000 78,000 156,500 78,000 119,300 119,200 101,100 99,900 3,000 27.77 27.77 24.10 24.10 24.23 24.23 25.34 25.34 28.01 28.01 28.02 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 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 2023, 2022, and 2021: Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expected annual dividend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Expected life . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.76 % 31.42 % 1.28 6.51 years Weighted average grant date fair value per option . . . . . . . . . . . . . $ 6.11 $ $ 1.23 % 33.50 % 1.28 6.84 years 4.28 $ $ 0.82 % 36.56 % 1.28 6.84 years 4.72 2023 2022 2021 The estimated fair value of options, including the effect of estimated forfeitures, is recognized as expense on a straight line basis over the options’ vesting periods while ensuring that the cumulative amount of compensation cost recognized at least equals the value of the vested portion of the award at that date. The 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, 2023, 2022, and 2021 there was $951,000, $1,231,000, and $960,000 in total share-based compensation expense, respectively. There was additional compensation expense of $183,000 (after-tax $145,000) associated with the voluntary cash settlement of 346,725 outstanding stock options that occurred in June of 2022. The compensation expense is recorded as part of the non-interest expenses in the Consolidated Statement of Income. 79Table of Contents As of December 31, 2023, total unrecognized compensation costs related to non-vested options was $1,190,000. Exercisable stock awards at December 31, 2023 were 223,400 with a weighted average remaining exercisable contractual life of 5.68 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 3,894, 3,617 and 3,850 shares issued under the plan for the years ended December 31, 2023, 2022 and 2021 respectively. 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, 2023 and 2022: (In Thousands) 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . 2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . Beginning Balance 12,366 11,545 New Loans Other Repayments Ending Balance 10,651 2,484 (5,266) — (6,206) $ (5,850) 11,545 8,179 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 $21,290,000 at December 31, 2023 and $19,694,000 at December 31, 2022. 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, 2023 and 2022: (In Thousands) 2023 2022 Commitments to extend credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 161,037 $ 169,365 Standby letters of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Credit exposure from the sale of assets with recourse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,969 6,995 9,915 7,358 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 80Table of Contents 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. 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, 2023 and 2022, 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. We expect to continue to emphasize growth in our commercial and consumer loan portfolios, and additional regulatory capital generated through retained earnings and other sources will be necessary to support any such continued growth. At December 31, 2023, each of the Banks were “well capitalized” as defined by applicable bank regulatory standards. Applicable regulatory capital requirements also require each Bank to maintain a “capital conservation buffer,” consisting solely of tier 1 common equity, of 2.5% above the regulatory minimum capital requirements for each of the tier 1 common equity (“CET1”), tier 1 (“Tier 1”), and total capital (“Total Capital”) ratios. As a result of the capital conservation buffer requirements, if a bank does not maintain CET1, Tier 1 and Total Capital ratios of at least 7%, 8.5%, and 10.5%, respectively, determined as of the end of each calendar quarter, the bank’s ability to make certain discretionary payments, including discretionary dividend payments, are subject to a maximum payout ratio limitation unless the FDIC approves the distribution or payment. At December 31, 2023, each of Banks exceeded the capital conservation buffer requirements for applicable capital ratios. 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. 81Table of Contents Consolidated Corporation (In Thousands) Common Equity Tier I Capital (to Risk-weighted Assets) 2023 2022 Amount Ratio Amount Ratio Actual . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 184,546 10.098 % $ 165,346 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) 82,240 127,929 118,791 197,334 146,200 191,888 182,751 4.500 % 7.000 % 6.500 % 10.798 % $ 8.000 % 10.500 % 10.000 % 74,607 116,056 107,766 181,127 132,633 174,081 165,791 Actual . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 184,546 10.098 % $ 165,346 For Capital Adequacy Purposes . . . . . . . . . . . . . . . . . . . . . . . Minimum To Maintain Capital Conservation Buffer . . . . . . . To Be Well Capitalized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tier I Capital (to Average Assets) 109,653 155,342 146,204 6.000 % 8.500 % 8.000 % 99,476 140,925 132,635 Actual . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 184,546 8.597 % $ 165,346 For Capital Adequacy Purposes . . . . . . . . . . . . . . . . . . . . . . . To Be Well Capitalized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85,865 107,332 4.000 % 5.000 % 76,585 95,731 9.973 % 4.500 % 7.000 % 6.500 % 10.925 % 8.000 % 10.500 % 10.000 % 9.973 % 6.000 % 8.500 % 8.000 % 8.636 % 4.000 % 5.000 % Jersey Shore State Bank (In Thousands) Common Equity Tier I Capital (to Risk-weighted Assets) 2023 2022 Amount Ratio Amount Ratio Actual . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 131,356 9.890 % $ 119,783 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) 59,768 92,972 86,331 142,134 106,258 139,464 132,823 4.500 % 7.000 % 6.500 % 55,109 85,725 79,602 10.701 % $ 8.000 % 10.500 % 10.000 % 131,379 97,971 128,587 122,464 Actual . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 131,356 9.890 % $ 119,783 For Capital Adequacy Purposes . . . . . . . . . . . . . . . . . . . . . . . Minimum To Maintain Capital Conservation Buffer . . . . . . . To Be Well Capitalized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tier I Capital (to Average Assets) 79,690 112,894 106,254 6.000 % 8.500 % 8.000 % 73,479 104,095 97,972 Actual . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ For Capital Adequacy Purposes . . . . . . . . . . . . . . . . . . . . . . . To Be Well Capitalized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131,356 62,970 78,713 8.344 % $ 4.000 % 5.000 % 119,783 57,155 71,444 9.781 % 4.500 % 7.000 % 6.500 % 10.728 % 8.000 % 10.500 % 10.000 % 9.781 % 6.000 % 8.500 % 8.000 % 8.383 % 4.000 % 5.000 % 82Table of Contents 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2023 2022 Amount Ratio Amount Ratio 51,974 22,734 35,363 32,837 53,984 40,415 53,044 50,518 51,974 30,311 42,941 40,415 51,974 25,000 31,249 10.288 % $ 4.500 % 7.000 % 6.500 % 10.686 % $ 8.000 % 10.500 % 10.000 % 10.288 % $ 6.000 % 8.500 % 8.000 % 8.316 % $ 4.000 % 5.000 % 43,364 19,757 30,733 28,538 47,549 35,124 46,100 43,905 43,364 26,342 37,318 35,123 43,364 21,000 26,249 9.877 % 4.500 % 7.000 % 6.500 % 10.830 % 8.000 % 10.500 % 10.000 % 9.877 % 6.000 % 8.500 % 8.000 % 8.260 % 4.000 % 5.000 % During the twelve months ended December 31, 2023, the Company sold 420,069 shares of common stock in a registered at-the- market offering pursuant to the terms of an equity distribution agreement, dated September 13, 2023 (the “Distribution Agreement”), between D.A. Davidson & Co. (the “Distribution Agent”) and the Company. Under the terms of the Distribution Agreement, the Company paid the Distribution Agent a fee in the amount of 2.75% of the gross proceeds from the sale of such shares, and realized net proceeds of $8,291,000 from the sales of shares under the Distribution Agreement for the year ended December 31, 2023. 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, 2023, the balance in the additional paid in capital account totaling $16,107,000 for JSSB and $44,104,000 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, 2023, the regulatory lending limit amounted to approximately $27,500,000. Cash and Due from Banks JSSB and Luzerne had no reserve requirements by the district Federal Reserve Bank at December 31, 2023 or 2022; 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: 83Table of Contents 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, 2023 and 2022, by level within the fair value hierarchy. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. (In Thousands) Level I Level II Level III Total 2023 Assets measured on a recurring basis: Investment securities, available for sale: U.S. Government and agency securities . . . . . . . . . . . . . $ — $ 3,943 $ — $ Mortgage-backed securities . . . . . . . . . . . . . . . . . . . . . . State and political securities . . . . . . . . . . . . . . . . . . . . . . Other debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investment equity securities: . . . . . . . . . . . . . . . . . . . . . . . — — — 15,355 115,615 56,032 Other equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . 1,122 — 2022 — — — — 3,943 15,355 115,615 56,032 1,122 Level I Level II Level III Total (In Thousands) Assets measured on a recurring basis: Investment securities, available for sale: U.S. Government and agency securities . . . . . . . . . . . . . . $ Mortgage-backed securities . . . . . . . . . . . . . . . . . . . . . . State and political securities . . . . . . . . . . . . . . . . . . . . . . Other debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investment equity securities: . . . . . . . . . . . . . . . . . . . . . . — $ 2,896 $ — $ — — — 1,282 142,809 46,686 — — — — 2,896 1,282 142,809 46,686 1,142 Other equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . 1,142 — The following table presents the assets reported on the balance sheet at their fair value on a non-recurring basis as of December 31, 2023 and 2022, by level within the fair value hierarchy. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. (In Thousands) Assets measured on a non-recurring basis: Collateral-dependent loans . . . . . . . . . . . . . . . . . . . . . . . . $ Other real estate owned . . . . . . . . . . . . . . . . . . . . . . . . . . . Level I Level II Level III Total 2023 — $ — — $ — 1,621 $ 853 1,621 853 (In Thousands) Assets measured on a non-recurring basis: Collateral-dependent loans . . . . . . . . . . . . . . . . . . . . . . . . $ Other real estate owned . . . . . . . . . . . . . . . . . . . . . . . . . . . Level I Level II Level III Total 2022 — $ — — $ — 1,923 $ 83 1,923 83 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, 2023 and 2022: 84Table of Contents Quantitative Information About Level III Fair Value Measurements 2023 (In Thousands) Collateral-dependent loans . . . . . . . . . . . . . . $ 1,621 Appraisal of collateral (1) Appraisal of collateral (1) Valuation Technique(s) Unobservable Inputs Fair Value (15)% to (24)% Range Weighted Average Other real estate owned $ 853 Appraisal of collateral (1) Appraisal of collateral (1) (20)% (31)% (20)% Quantitative Information About Level III Fair Value Measurements 2022 (In Thousands) Fair Value Valuation Technique(s) Unobservable Inputs Range Impaired loans . . . . . . . $ 1,923 Appraisal of collateral (1) Appraisal of collateral (1) (15)% to (34)% Weighted Average (14)% Other real estate owned $ 83 Appraisal of collateral (1) Appraisal of collateral (1) (20)% (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 collateral-dependent loans using the discounted cash flow valuation technique include temporary changes in payment amounts and the probability of default. Significant increases (decreases) in payment amounts would result in significantly higher (lower) fair value measurements. The probability of default is 0% for collateral-dependent loans using the discounted cash flow valuation technique because all defaulted collateral-dependent loans are valued using the appraisal of collateral valuation technique. The significant unobservable input used in the fair value measurement of the Corporation’s collateral-dependent 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 collateral- dependent 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, 2023 and 2022: 85Table of Contents (In Thousands) Financial assets: Carrying Value Fair Value Fair Value Measurements at December 31, 2023 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 . . . . . . . . . . . . . . . . $ 3,993 $ 3,993 $ 3,993 $ Loans, net . . . . . . . . . . . . . . . . . . . . . . . 1,828,318 1,806,044 — — $ — — 1,806,044 Financial liabilities: Time deposits . . . . . . . . . . . . . . . . . . . . $ 384,792 $ 382,139 $ — $ — $ 382,139 Short-term borrowings . . . . . . . . . . . . . Long-term borrowings . . . . . . . . . . . . . 145,926 252,598 145,926 251,570 145,926 — — — — 251,570 (In Thousands) Carrying Value Fair Value Fair Value Measurements at December 31, 2022 Quoted Prices in Active Markets for Identical Assets (Level I) Significant Other Observable Inputs (Level II) Significant Unobservable Inputs (Level III) Financial assets: Loans held for sale . . . . . . . . . . . . . . . . $ 3,298 $ 3,298 $ 3,298 $ Loans, net . . . . . . . . . . . . . . . . . . . . . . . 1,624,094 1,594,073 — — $ — — 1,594,073 Financial liabilities: Time deposits . . . . . . . . . . . . . . . . . . . . $ 146,282 $ 137,559 $ — $ — $ 137,559 Short-term borrowings . . . . . . . . . . . . . Long-term borrowings . . . . . . . . . . . . . 153,349 102,783 153,349 99,118 153,349 — — — — 99,118 NOTE 22 - 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. 86 Table of Contents 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 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, 2023, 2022, and 2021 are reported on a net basis of $1,328,000 $1,464,000, and $1,511,000, respectively. The below table compares gross interchange and debit card transaction fees net network costs for 2023, 2022, and 2021: (In Thousands) 2023 2022 2021 Debit card transaction fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,573 $ 2,539 $ Other processing service fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gross interchange and card based transaction fees . . . . . . . . . . . . . . . Network costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 366 2,939 1,611 357 2,896 1,432 Net interchange and card based transaction fees . . . . . . . . . . . . . . . . . $ 1,328 $ 1,464 $ 2,684 236 2,920 1,409 1,511 NOTE 23 - LEASES The following table shows finance lease right of use assets and finance lease liabilities as of December 31, 2023: (In Thousands) Statement of Financial Condition classification December 31, 2023 December 31, 2022 Finance lease right of use assets Premises and equipment, net $ Finance lease liabilities Long-term borrowings 6,576 $ 7,598 7,006 7,783 The following table shows the components of finance and operating lease expense for the year ended December 31, 2023. (In Thousands) Finance Lease Cost: Amortization of right-of-use asset Interest expense Operating lease cost Total Lease Cost 2023 2022 2021 $ $ 429 $ 429 $ 241 287 244 285 957 $ 958 $ 474 257 297 1,028 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: 87Table of Contents (In Thousands) 2024 2025 2026 2027 2028 2029 and thereafter Total undiscounted cash flows Discount on cash flows Total lease liability Operating Finance $ 255 $ 257 260 268 271 2,029 3,340 (770) 2,570 $ $ 427 929 387 388 390 8,498 11,019 (3,421) 7,598 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, 2023. Weighted-average term (years) Weighted-average discount rate Operating Finance 16.31 3.56 % 22.52 3.21 % 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, 2023 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, 2023. There have been no changes in the Corporation’s internal control over financial reporting during the fourth quarter of 2023 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, 2023. Management’s assessment did not identify any material weaknesses in the Corporation’s internal control over financial reporting. 88Table of Contents 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, 2023, 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 13, 2024 /s/ Richard A. Grafmyre /s/ Brian L. Knepp Chief Executive Officer President and Chief Financial Officer (Principal Financial Officer) 89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, 2023 and 2022; the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for the each of the three years in the period ended December 31, 2023; 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, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America. Change in Accounting Principle As discussed in Note 1 to the financial statements, the Company changed its method of accounting for credit losses effective January 1, 2023, due to the adoption of Accounting Standards Codification (ASC) Topic 326, Financial Instruments – Credit Losses. 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 (Continued) 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) involve 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. 90Allowance for Credit Losses (ACL) – Qualitative Adjustments The Company’s loan portfolio totaled $1.8 billion as of December 31, 2023, and the associated ACL was $11.5 million. As discussed in Notes 1 and 6 to the consolidated financial statements, determining the amount of the ACL requires significant judgment about the expected future losses. The ACL calculation is based on a discounted cash flows model, to identify a baseline expected loss reserve, which is then adjusted for current qualitative conditions and reasonable and supportable forecasts. Management applies these qualitative adjustments to the baseline reserve, to reflect changes in the current and forecasted environment, both internal and external, that are different from the conditions that existed during the historical loss calculation period. We identified these qualitative adjustments within the ACL as a critical audit matter because they involve a high degree of subjectivity. While the determination of these qualitative adjustments includes analysis of observable data over the historical loss period, the judgments required to assess the directionality and magnitude of adjustments are highly subjective. The primary procedures we performed to address this critical audit matter included: • • • • • Testing the design, implementation, and operating effectiveness of internal controls over the calculation of the allowance for credit losses, including the qualitative factor adjustments. Testing the completeness and accuracy of the significant data points that management uses in their evaluation of the qualitative adjustments. Testing the anchoring calculation that management completes to properly align the magnitude of the adjustments with the Company’s historical loss data. Evaluating the directional consistency and reasonableness of management’s conclusions regarding basis points applied (whether positive or negative), based on the trends identified in the underlying data. Testing the clerical accuracy of the application of the qualitative adjustments to the loan segments within the ACL calculation We have served as the Company’s auditor since 1999. Cranberry Township, Pennsylvania March 13, 2024 ITEM 9B OTHER INFORMATION Securities Trading Plans of Directors and Executive Officers During the three months ended December 31, 2023, none of our directors or executive officers adopted or terminated any contract, instruction or written plan for the purchase or sale of the Corporation's securities that was intended to satisfy the affirmation defense conditions of Rule 10b5-1(c) or any "non-Rule 10b5-1 trading arrangement" as defined in Item 408 of SEC Regulation S-K. 91Table of Contents ITEM 9C DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS Not applicable. 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,” “Principal Officers of the Corporation,” and “Certain Transactions” in the Corporation’s Proxy Statement for the Corporation’s 2024 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, 2023: 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 ......... Equity compensation plan not approved by security holders ... Total .......................................................................................... 1,000,000 $ — 1,000,000 $ 25.55 — 25.55 192,500 — 192,500 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. 92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 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. 93(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) (10)(x) (10)(xi) (10)(xii) (21) (23) (31)(i) (31)(ii) (32)(i) (32)(ii) (97) Exhibit 101 Articles of Incorporation of the Registrant, (incorporated by reference to Exhibit 3(i) of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2022). 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). Amended and Restated Employment Agreement, dated as of 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). Amended and Restated Employment Agreement, dated as of December 31, 2018, between 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). Amendment to Employment Agreement, dated July 15, 2022, between Penns Woods Bancorp, Inc. and Richard A. Grafmyre (incorporated by reference to Exhibit 10.2 of the Registrant's Current Report on Form 8-K filed on July 21, 2022).* Amendment to Employment Agreement, dated July 15, 2022, between Penns Woods Bancorp, Inc. and Brian L. Knepp (incorporated by reference to Exhibit 10.4 of the Registrant's Current Report on Form 8-K filed on July 21, 2022).* 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).* Amendment to Employment Agreement, dated December 12, 2023, between Penns Woods Bancorp, Inc. and Richard A. Grafmyre (incorporated by reference to Exhibit 10.2 of the Registrant's Current Report on Form 8-K filed on December 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. Clawback Policy Interactive data file containing the following financial statements formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheet at December 31, 2023 and December 31, 2022; (ii) the Consolidated Statement of Income for the years ended December 31, 2023, 2022, and 2021; (iii) the Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2023, 2022, and 2021; (iv) the Consolidated Statement of Comprehensive Income for the years ended December 31, 2023, 2022, and 2021; (v) the Consolidated Statement of Cash Flows for the years ended December 31, 2023, 2022, and 2021; 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. 94EXHIBIT INDEX (4)(i) (21) (23) (31)(i) (31)(ii) (32)(i) (32)(ii) (97) 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. Clawback Policy Interactive data file containing the following financial statements formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheet at December 31, 2023 and December 31, 2022; (ii) the Consolidated Statement of Income for the years ended December 31, 2023, 2022, and 2021; (iii) the Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2023, 2022, and 2021; (iv) the Consolidated Statement of Comprehensive Income for the years ended December 31, 2023, 2022, and 2021; (v) the Consolidated Statement of Cash Flows for the years ended December 31, 2023, 2022, and 2021; 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. 95Table of Contents SIGNATURES 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. March 13, 2024 PENNS WOODS BANCORP, INC. /s/ Richard A. Grafmyre Chief Executive Officer 96Table of Contents 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/ 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/ 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 March 13, 2024 March 13, 2024 March 13, 2024 March 13, 2024 March 13, 2024 March 13, 2024 March 13, 2024 March 13, 2024 March 13, 2024 March 13, 2024 March 13, 2024 March 13, 2024 March 13, 2024 97 DESCRIPTION OF CAPITAL STOCK As of March 1, 2024, 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, 2024, there were 7,513,898 shares of Common Stock issued and outstanding. No shares of preferred stock were issued and outstanding as of March 1, 2024. 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, liquidation, or dissolution of the Corporation nor any action that would result in the sale or other disposition of all or substantially all of the assets of the Corporation if any such transaction or action is approved by the affirmative vote of seventy-five percent (75%) or more of the members of the Board of Directors. This provision also 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. 98 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 99 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 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 100 not appear on the meeting agenda. 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. 101 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 102 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Exhibit 23 We consent to the incorporation by reference in Registration Statements File No. 333-273018 on Form S-3 and File Nos. 333-238749, 333-238748, 333-205722, 333-134585, and 333-58682 on Form S-8 of Penns Woods Bancorp, Inc. of our report dated March 13, 2024, relating to our audit of the consolidated financial statements and internal control over financial reporting, 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, 2023. Cranberry Township, Pennsylvania March 13, 2024 103 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 13, 2024 /s/ Richard A. Grafmyre Richard A. Grafmyre Chief Executive Officer (Principal Executive Officer) 104 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 13, 2024 /s/ Brian L. Knepp Brian L. Knepp President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) 105 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, 2023 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 13, 2024 106 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, 2023 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 13, 2024 107 Exhibit 97 PENNS WOODS BANCORP, INC. CLAWBACK POLICY Introduction The Board of Directors of the Company (the “Board”) believes that it is in the best interests of Penns Woods Bancorp, Inc. (the “Company”) to create and maintain a culture that emphasizes integrity and accountability and that reinforces the Company’s pay-for-performance compensation philosophy. The Board has therefore adopted this policy which provides for the recoupment of certain executive compensation in the event of an accounting restatement resulting from material noncompliance with financial reporting requirements under the federal securities laws (the “Policy”). This Policy is designed to comply with Section 10D of the Securities Exchange Act of 1934 (the “Exchange Act”) and Nasdaq Listing Rule 5608 (the “Clawback Listing Standards”). Administration This Policy shall be administered by the Board or, if so designated by the Board, the Compensation Committee, in which case references herein to the Board shall be deemed references to the Compensation Committee. Any determinations made by the Board shall be final and binding on all affected individuals. Covered Executives This Policy applies to the Company’s current and former executive officers, as determined by the Board in accordance with the definition in Section 10D of the Exchange Act and the Clawback Listing Standards (“Covered Executives”). Recoupment; Accounting Restatement In the event the Company is required to prepare an accounting restatement of its financial statements due to the Company’s material noncompliance with any financial reporting requirement under the securities laws, including any required accounting restatement to correct an error in previously issued financial statements that is material to the previously issued financial statements or that would result in a material misstatement if the error were corrected in the current period or left uncorrected in the current period, the Board will require reimbursement or forfeiture of any excess Incentive Compensation received by any Covered Executive during the three completed fiscal years immediately preceding the date on which the Company is required to prepare an accounting restatement. Incentive Compensation For purposes of this Policy, Incentive Compensation (“Incentive Compensation”) means any of the following, provided, however, that, such compensation is granted, earned, or vested based wholly or in part on the attainment of a financial reporting measure: • • • • • • • Annual bonuses and other short- and long-term cash incentives. Stock options. Stock appreciation rights. Restricted stock. Restricted stock units. Performance shares. Performance units. 108Financial reporting measures1 include, but are not limited to: • • • • • • • Company stock price. Total shareholder return. Revenues. Net income. Liquidity measures such as working capital or operating cash flow. Return measures such as return on equity or return on assets. Earnings measures such as earnings per share. Excess Incentive Compensation: Amount Subject to Recovery The amount to be recovered will be the excess of the Incentive Compensation paid to the Covered Executive based on the erroneous data over the Incentive Compensation that would have been paid to the Covered Executive had it been based on the restated results, as determined by the Board, without regard to any taxes paid by the Covered Executive in respect of the Incentive Compensation paid based on the erroneous data. If the Board cannot determine the amount of excess Incentive Compensation received by the Covered Executive directly from the information in the accounting restatement, then it will make its determination based on a reasonable estimate of the effect of the accounting restatement. Method of Recoupment The Board will determine, in its sole discretion, the method for recouping Incentive Compensation under this Policy which may include, without limitation: (a) (b) requiring reimbursement of cash Incentive Compensation previously paid; seeking recovery of any gain realized on the vesting, exercise, settlement, sale, transfer, or other disposition of any equity-based awards; offsetting the recouped amount from any compensation otherwise owed by the Company to the (c) Covered Executive; (d) (e) cancelling outstanding vested or unvested equity awards; and/or taking any other remedial and recovery action permitted by law, as determined by the Board. No Indemnification The Company shall not indemnify any Covered Executives against the loss of any incorrectly awarded Incentive Compensation. Interpretation The Board is authorized to interpret and construe this Policy and to make all determinations necessary, appropriate, or advisable for the administration of this Policy. It is intended that this Policy be interpreted in a manner that is consistent with the requirements of Section 10D of the Exchange Act, any applicable rules or standards adopted by the Securities and Exchange Commission, and the Clawback Listing Standards. Effective Date This Policy shall be effective as of December 1, 2023 (the “Effective Date”) and shall apply to Incentive Compensation that is received by Covered Executives on or after October 2, 2023, even if such Incentive Compensation was approved, awarded, or granted to Covered Executives prior to October 2, 2023. 1 Defined for purposes of the Clawback Listing Standards as (i) any measure determined and presented in accordance with accounting principles used in preparing financial statements or any measure derived wholly or in part from the financial statements or (ii) stock price and total shareholder return. 109Amendment; Termination The Board may amend this Policy from time to time in its discretion and shall amend this Policy as it deems necessary to reflect regulations adopted by the Securities and Exchange Commission under Section 10D of the Exchange Act and to comply with the Clawback Listing Standards and any other rules or standards adopted by a national securities exchange on which the Company’s securities are then listed. The Board may terminate this Policy at any time. Other Recoupment Rights Any right of recoupment under this Policy is in addition to, and not in lieu of, any other remedies or rights of recoupment that may be available to the Company pursuant to the terms of any similar policy in any employment agreement, equity award agreement, or similar agreement and any other legal remedies available to the Company. Relationship to Other Plans and Agreements The Board may require that any employment agreement, equity award agreement, or similar agreement entered into on or after the Effective Date, as a condition to the grant of any benefit thereunder, require a Covered Executive to agree to abide by the terms of this Policy. In the event of any inconsistency between the terms of the Policy and the terms of any employment agreement, equity award agreement, or similar agreement under which Incentive Compensation has been granted, awarded, earned or paid to a Covered Executive, whether or not deferred, the terms of the Policy shall govern. Acknowledgment The Covered Executive shall sign an acknowledgment form in the form attached hereto as Exhibit A in which they acknowledge that they have read and understand the terms of the Policy and are bound by the Policy. Impracticability The Board shall recover any excess Incentive Compensation in accordance with this Policy unless such recovery would be impracticable, as determined by the Board in accordance with Rule 10D-1 of the Exchange Act and the listing standards of the national securities exchange on which the Company’s securities are listed. Successors This Policy shall be binding and enforceable against all current and former Covered Executives and their beneficiaries, heirs, executors, administrators or other legal representatives. 110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. 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 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. Jill F. Schwartz ............................ Senior Partner of Wyoming Weavers; President of Fortune Fabrics, Inc.; Owner of Gosh Yarn It! Jersey Shore State Bank Daniel K. Brewer ......................... Certified Public Accountant, retired principal, Brewer and Company, LLC Michael J. Casale, Jr. ................... Chairman of the Board of Jersey Shore State Bank, Principal, Michael J. Casale, Jr., Esq., LLC William J. Edwards ..................... President & Owner of JEB Environmental Technologies, Inc. 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 Corporation, President and Chief Executive Karen S. Young............................ President & Chief Executive Officer of JSSB Officer of Nestlerode Contracting Co., Inc. 111 Luzerne Bank 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 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! 112 Penns Woods Bancorp, Inc. P.O. Box 967 300 Market Street Williamsport, PA 17703-0967 001CSN5790 

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