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
—
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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
—
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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.
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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
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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
$
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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