SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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

for the Quarterly Period Ended September 30, ~~2017.~~

For the Transition Period from to .

(Commission File Number)

PENNS WOODS BANCORP INC.



~~PENNSYLVANIA~~Pennsylvania		~~23-2226454~~
~~(State or other jurisdiction of~~	~~(I.R.S. Employer~~
~~incorporation or organization)~~	~~Identification No.)~~



300 Market Street, P.O. Box 967 ~~Williamsport, Pennsylvania~~		~~17703-0967~~23-2226454
(State or other jurisdiction of	Williamsport		(I.R.S. Employer Identification No.)
incorporation or organization)	Pennsylvania		17703-0967
	(Address of principal executive offices)			(Zip Code)



Large accelerated filero	☐	Accelerated filerx	☐
Non-accelerated filero	☒	~~Small~~ Smaller reporting companyo	☒
		Emerging growth companyo	☐

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. o☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ~~YES~~ o NO ý

On November 1, ~~2017~~2023 there were ~~4,688,739~~7,163,550 shares of the Registrant’s common stock outstanding.

PENNS WOODS BANCORP, INC.

INDEX TO QUARTERLY REPORT ON FORM 10-Q

Part I. FINANCIAL INFORMATION

PENNS WOODS BANCORP, INC.

CONSOLIDATED BALANCE SHEET

See accompanying notes to the unaudited consolidated financial statements.

September 30, December 31,
(In Thousands, Except Share Data) 2017 2016
ASSETS:

Noninterest-bearing balances $ 22,042
$ 26,766
Interest-bearing balances in other financial institutions 5,705
16,905
Total cash and cash equivalents 27,747
43,671

Investment securities, available for sale, at fair value 132,313
133,492
Investment securities, trading 210
58
Loans held for sale 1,734
1,953
Loans 1,189,714
1,093,681
Allowance for loan losses (12,933 ) (12,896 )
Loans, net 1,176,781
1,080,785
Premises and equipment, net 25,895
24,275
Accrued interest receivable 4,289
3,672
Bank-owned life insurance 27,827
27,332
Goodwill 17,104
17,104
Intangibles 1,543
1,799
Deferred tax asset 7,984
8,397
Other assets 6,770
6,052
TOTAL ASSETS $ 1,430,197
$ 1,348,590

LIABILITIES:

Interest-bearing deposits $ 843,166
$ 791,937
Noninterest-bearing deposits 310,830
303,277
Total deposits 1,153,996
1,095,214

Short-term borrowings 41,596
13,241
Long-term borrowings 80,998
85,998
Accrued interest payable 483
455
Other liabilities 13,455
15,433
TOTAL LIABILITIES 1,290,528
1,210,341

SHAREHOLDERS’ EQUITY:

Preferred stock, no par value, 3,000,000 shares authorized; no shares issued —
—
Common stock, par value $8.33, 15,000,000 shares authorized; 5,008,720 and 5,007,109 shares issued; 4,688,570 and 4,734,657 outstanding 41,739
41,726
Additional paid-in capital 50,142
50,075
Retained earnings 64,033
61,610
Accumulated other comprehensive loss:

Net unrealized gain (loss) on available for sale securities 73
(639 )
Defined benefit plan (4,203 ) (4,289 )
Treasury stock at cost, 320,150 and 272,452 shares (12,115 ) (10,234 )
TOTAL SHAREHOLDERS’ EQUITY 139,669
138,249
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 1,430,197
$ 1,348,590

PENNS WOODS BANCORP, INC.

CONSOLIDATED STATEMENT OF INCOME

See accompanying notes to the unaudited consolidated financial statements.

PENNS WOODS BANCORP, INC.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)


	Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands)	2023		2022		2023		2022
Net Income	$	2,224	$	5,250	$	11,053	$	12,913
Other comprehensive (loss) income:
Net unrealized loss on available for sale securities	(1,480)		(6,362)		(1,476)		(17,254)
Tax effect	311		1,336		310		3,623
Net realized loss on available for sale securities included in net income	45		156		125		168
Tax effect	(9)		(33)		(26)		(35)
Amortization of unrecognized pension loss	37		17		111		52
Tax effect	(8)		(3)		(23)		(11)
Total other comprehensive loss	(1,104)		(4,889)		(979)		(13,457)
Comprehensive income (loss)	$	1,120	$	361	$	10,074	$	(544)

~~PENNS WOODS BANCORP, INC.~~

~~CONSOLIDATED STATEMENT OF INCOME~~

Three Months Ended September 30, Nine Months Ended September 30,
(In Thousands, Except Per Share Data) 2017 2016 2017 2016
INTEREST AND DIVIDEND INCOME:

Loans, including fees $ 11,906
$ 10,541
$ 33,642
$ 31,362
Investment securities:

Taxable 553
601
1,665
1,825
Tax-exempt 319
329
940
1,203
Dividend and other interest income 170
189
592
666
TOTAL INTEREST AND DIVIDEND INCOME 12,948
11,660
36,839
35,056
INTEREST EXPENSE:

Deposits 1,058
909
2,968
2,624
Short-term borrowings 31
7
39
41
Long-term borrowings 407
497
1,220
1,481
TOTAL INTEREST EXPENSE 1,496
1,413
4,227
4,146
NET INTEREST INCOME 11,452
10,247
32,612
30,910
PROVISION FOR LOAN LOSSES 60
258
605
866
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 11,392
9,989
32,007
30,044
NON-INTEREST INCOME:

Service charges 550
585
1,637
1,678
Net securities gains, available for sale 302
253
487
1,174
Net securities (losses) gains, trading (4 ) 8
(2 ) 54
Bank-owned life insurance 166
172
499
516
Gain on sale of loans 455
658
1,316
1,691
Insurance commissions 109
198
399
604
Brokerage commissions 352
290
1,044
817
Debit card fees 514
690
1,450
1,413
Other 296
228
1,325
1,310
TOTAL NON-INTEREST INCOME 2,740
3,082
8,155
9,257
NON-INTEREST EXPENSE:

Salaries and employee benefits 4,738
4,507
14,116
13,433
Occupancy 603
544
1,855
1,630
Furniture and equipment 816
662
2,129
2,042
Software amortization 235
580
750
950
Pennsylvania shares tax 228
220
696
698
Professional fees 560
502
1,816
1,512
Federal Deposit Insurance Corporation deposit insurance 194
202
514
670
Debit card expenses 168
246
478
456
Marketing 315
173
690
568
Intangible amortization 81
90
256
276
Other 1,628
1,013
4,314
4,230
TOTAL NON-INTEREST EXPENSE 9,566
8,739
27,614
26,465
INCOME BEFORE INCOME TAX PROVISION 4,566
4,332
12,548
12,836
INCOME TAX PROVISION 1,282
1,273
3,491
3,307
NET INCOME $ 3,284
$ 3,059
$ 9,057
$ 9,529
EARNINGS PER SHARE - BASIC AND DILUTED $ 0.70
$ 0.65
$ 1.92
$ 2.01
WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC AND DILUTED 4,688,222
4,733,800
4,711,282
4,735,844
DIVIDENDS DECLARED PER SHARE $ 0.47
$ 0.47
$ 1.41
$ 1.41

~~PENNS WOODS BANCORP, INC.~~

~~CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME~~

Three Months Ended September 30, Nine Months Ended September 30,
(In Thousands) 2017 2016 2017 2016
Net Income $ 3,284
$ 3,059
$ 9,057
$ 9,529
Other comprehensive income (loss):

Change in unrealized gain (loss) on available for sale securities 437
(276 ) 1,565
3,039
Tax effect (150 ) 94
(532 ) (1,032 )
Net realized gain on available for sale securities included in net income (302 ) (253 ) (487 ) (1,174 )
Tax effect 104
86
166
398
Amortization of unrecognized pension loss 45
39
129
117
Tax effect (15 ) (13 ) (43 ) (40 )
Total other comprehensive income (loss) 119
(323 ) 798
1,308
Comprehensive income $ 3,403
$ 2,736
$ 9,855
$ 10,837

PENNS WOODS BANCORP, INC.

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

COMMON STOCK
ADDITIONAL
PAID-IN CAPITAL
RETAINED EARNINGS
ACCUMULATED OTHER
COMPREHENSIVE LOSS
TREASURY STOCK
TOTAL
SHAREHOLDERS’ EQUITY
(In Thousands, Except Per Share Data) SHARES AMOUNT
Balance, December 31, 2015 5,004,984
$ 41,708
$ 49,992
$ 58,038
$ (3,799 ) $ (9,660 ) $ 136,279
Net income

9,529

9,529
Other comprehensive income

1,308

1,308
Dividends declared, ($1.41 per share)

(6,678 )

(6,678 )
Common shares issued for employee stock purchase plan 1,617
13
58

71
Purchase of treasury stock (14,600 shares) (574 ) (574 )
Balance, September 30, 2016 5,006,601
$ 41,721
$ 50,050
$ 60,889
$ (2,491 ) $ (10,234 ) $ 139,935
Three months ended:

COMMON STOCK
ADDITIONAL
PAID-IN CAPITAL
RETAINED EARNINGS
ACCUMULATED OTHER
COMPREHENSIVE LOSS
TREASURY STOCK
TOTAL
SHAREHOLDERS’ EQUITY
(In Thousands, Except Per Share Data) SHARES AMOUNT
Balance, December 31, 2016 5,007,109
$ 41,726
$ 50,075
$ 61,610
$ (4,928 ) $ (10,234 ) $ 138,249
Net income

9,057

9,057
Other comprehensive income

798

798
Dividends declared, ($1.41 per share)

(6,634 )

(6,634 )
Common shares issued for employee stock purchase plan 1,611
13
67

80
Purchase of treasury stock (47,698 shares) (1,881 ) (1,881 )
Balance, September 30, 2017 5,008,720
$ 41,739
$ 50,142
$ 64,033
$ (4,130 ) $ (12,115 ) $ 139,669


	COMMON STOCK			ADDITIONAL PAID-IN CAPITAL		RETAINED EARNINGS		ACCUMULATED OTHER COMPREHENSIVE LOSS		TREASURY STOCK		TOTAL SHAREHOLDERS’ EQUITY
(In Thousands, Except Share And Per Share Data)	SHARES	AMOUNT
Balance, June 30, 2022	7,559,165	$	41,995	$	53,651	$	92,903	$	(9,680)	$	(12,815)	$	166,054
Net income						5,250						5,250

Other comprehensive loss								(4,889)				(4,889)
Stock-based compensation				236								236

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


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

PENNS WOODS BANCORP, INC.

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY


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

Other comprehensive loss								(979)				(979)
Stock-based compensation				715								715

Dividends declared ($0.96 per share)						(6,780)						(6,780)
Common shares issued for employee stock purchase plan	3,120	17		56								73
Director Compensation Plan	7,560	42		151								193
Registered at-the-market shares issuance, net proceeds	34,411	191		562								753
Dividend reinvestment plan	8,349	46		154								200
Balance, September 30, 2023	7,620,250	$	42,335	$	55,890	$	104,067	$	(14,937)	$	(12,815)	$	174,540


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

Other comprehensive loss								(13,457)				(13,457)
Stock-based compensation				1,004								1,004
Cash settlement of options				(1,074)								(1,074)
Dividends declared ($0.96 per share)						(6,778)						(6,778)
Common shares issued for employee stock purchase plan	2,960	17		50								67
Director Compensation Plan	9,968	57		183								240
Purchase of treasury stock (30,000 shares)										(700)		(700)

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

PENNS WOODS BANCORP, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

(UNAUDITED)


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


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

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

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




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


Transfer of loans to foreclosed real estate	770		97

Nine Months Ended September 30,
(In Thousands) 2017 2016
OPERATING ACTIVITIES:

Net Income $ 9,057
$ 9,529
Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 1,979
2,394
Amortization of intangible assets 256
276
Provision for loan losses 605
866
Accretion and amortization of investment security discounts and premiums 688
657
Net securities gains, available for sale (487 ) (1,174 )
Originations of loans held for sale (41,503 ) (50,824 )
Proceeds of loans held for sale 43,038
51,112
Gain on sale of loans (1,316 ) (1,691 )
Net securities gains, trading 2
(54 )
Proceeds from the sale of trading securities 332
3,723
Purchases of trading securities (486 ) (3,596 )
Earnings on bank-owned life insurance (499 ) (516 )
Decrease in deferred tax asset 46
952
Other, net (4,361 ) 508
Net cash provided by operating activities 7,351
12,162
INVESTING ACTIVITIES:

Proceeds from sales of available for sale securities 15,443
42,180
Proceeds from calls and maturities of available for sale securities 7,198
19,267
Purchases of available for sale securities (18,434 ) (24,040 )
Net increase in loans (97,109 ) (24,548 )
Acquisition of premises and equipment (2,849 ) (2,347 )
Proceeds from the sale of foreclosed assets 958
486
Purchase of bank-owned life insurance (34 ) (27 )
Proceeds from redemption of regulatory stock 4,844
2,644
Purchases of regulatory stock (6,994 ) (2,569 )
Net cash (used for) provided by investing activities (96,977 ) 11,046
FINANCING ACTIVITIES:

Net increase in interest-bearing deposits 51,229
40,901
Net increase in noninterest-bearing deposits 7,553
15,516
Proceeds from long-term borrowings 30,000
—
Repayment of long-term borrowings (35,000 ) —
Net increase (decrease) in short-term borrowings 28,355
(35,059 )
Dividends paid (6,634 ) (6,678 )
Issuance of common stock 80
71
Purchases of treasury stock (1,881 ) (574 )
Net cash provided by financing activities 73,702
14,177
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (15,924 ) 37,385
CASH AND CASH EQUIVALENTS, BEGINNING 43,671
22,796
CASH AND CASH EQUIVALENTS, ENDING $ 27,747
$ 60,181

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

Interest paid $ 4,199
$ 4,091
Income taxes paid 3,950
3,050
Transfer of loans to foreclosed real estate 508
83

PENNS WOODS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The consolidated financial statements include the accounts of Penns Woods Bancorp, Inc. (the “Company”) and its wholly-owned subsidiaries: Woods Investment Company, Inc., Woods Real Estate Development Company, Inc., United Insurance Solutions, LLC., Luzerne Bank, and Jersey Shore State Bank (Jersey Shore State Bank and Luzerne Bank are referred to together as the “Banks”) and Jersey Shore State Bank’s wholly-owned subsidiary, The M Group, Inc. D/B/A The Comprehensive Financial Group (“The M Group”). All significant inter-company balances and transactions have been eliminated in the consolidation.

The interim financial statements are unaudited, but in the opinion of management reflect all adjustments necessary for the fair presentation of results for such periods. The results of operations for any interim period are not necessarily indicative of results for the full year. These financial statements should be read in conjunction with the financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2022.

The accounting policies followed in the presentation of interim financial results are the same as those followed on an annual basis. These policies are presented on pages 39 through 48 of the Form 10-K for the year ended December 31, 2016.

In reference to the attached financial statements, all adjustments are of a normal recurring nature pursuant to Rule 10-01(b) (8) of Regulation S-X.

CECL Adoption and Updated Significant Accounting Policy

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

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

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

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

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

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

Loans aggregated into pools based on similar risk characteristics.

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

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

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

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

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

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

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

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

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

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

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

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



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


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


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

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

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

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

The impact from the adoption of CECL is shown below:


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

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

The changes in accumulated other comprehensive loss by component shown net of tax and parenthesis indicating debits, as of September 30, ~~2017~~2023 and ~~2016~~2022 were as follows:


	Three Months Ended September 30, 2023						Three Months Ended September 30, 2022
(In Thousands)	Net Unrealized (Loss) Gain on Available for Sale Securities		Defined Benefit Plan		Total		Net Unrealized (Loss) Gain on Available for Sale Securities		Defined Benefit Plan		Total
Beginning balance	$	(9,753)	$	(4,080)	$	(13,833)	$	(6,222)	$	(3,458)	$	(9,680)
Other comprehensive loss before reclassifications	(1,169)		—		(1,169)		(5,026)		—		(5,026)
Amounts reclassified from accumulated other comprehensive gain	36		29		65		123		14		137
Net current-period other comprehensive (loss) income	(1,133)		29		(1,104)		(4,903)		14		(4,889)

Ending balance	$	(10,886)	$	(4,051)	$	(14,937)	$	(11,125)	$	(3,444)	$	(14,569)

Three Months Ended September 30, 2017 Three Months Ended September 30, 2016
(In Thousands)
Net Unrealized Loss
on Available
for Sale Securities

Defined
Benefit
Plan
Total
Net Unrealized Gain
on Available
for Sale Securities

Defined
Benefit
Plan
Total
Beginning balance $ (16 ) $ (4,233 )
$ (4,249 ) $ 1,838
$ (4,006 ) $ (2,168 )
Other comprehensive income (loss) before reclassifications 287

—

287
(182 ) —
(182 )
Amounts reclassified from accumulated other comprehensive loss (198 )
30

(168 ) (167 ) 26
(141 )
Net current-period other comprehensive income 89

30

119
(349 ) 26
(323 )
Ending balance $ 73

$ (4,203 )
$ (4,130 ) $ 1,489
$ (3,980 ) $ (2,491 )

Nine Months Ended September 30, 2017 Nine Months Ended September 30, 2016
(In Thousands)
Net Unrealized Loss
on Available
for Sale Securities

Defined
Benefit
Plan
Total
Net Unrealized Gain on Available
for Sale Securities

Defined
Benefit
Plan
Total
Beginning balance $ (639 ) $ (4,289 ) $ (4,928 ) $ 258
$ (4,057 ) $ (3,799 )
Other comprehensive income before reclassifications 1,033
—
1,033
2,007
—
2,007
Amounts reclassified from accumulated other comprehensive loss (321 ) 86
(235 ) (776 ) 77
(699 )
Net current-period other comprehensive income 712
86
798
1,231
77
1,308
Ending balance $ 73
$ (4,203 ) $ (4,130 ) $ 1,489
$ (3,980 ) $ (2,491 )

Table of Contents


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

Ending balance	$	(10,886)	$	(4,051)	$	(14,937)	$	(11,125)	$	(3,444)	$	(14,569)

The reclassifications out of accumulated other comprehensive loss shown, net of tax and parenthesis indicating debits to net income, as of September 30, ~~2017~~2023 and ~~2016~~2022 were as follows:


Details about Accumulated Other Comprehensive Loss Components	Amount Reclassified from Accumulated Other Comprehensive Loss				Affected Line Item in the Consolidated Statement of Income
	Three Months Ended September 30, 2023		Three Months Ended September 30, 2022
Net unrealized loss on available for sale securities	$	(45)	$	(156)	Net debt securities losses, available for sale
Income tax effect	9		33		Income tax provision
Total reclassifications for the period	$	(36)	$	(123)

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


Details about Accumulated Other Comprehensive Loss Components	Amount Reclassified from Accumulated Other Comprehensive Loss						Affected Line Item in the Consolidated Statement of Income	Details about Accumulated Other Comprehensive Loss Components	Amount Reclassified from Accumulated Other Comprehensive Loss				Affected Line Item in the Consolidated Statement of Income
	Three Months Ended September 30, 2017			Three Months Ended September 30, 2016					Nine months ended September 30, 2023		Nine months ended September 30, 2022
Net unrealized (loss) gain on available for sale securities	$	302		$	253		Net securities (losses) gains, available for sale
Net unrealized losses on available for sale securities								Net unrealized losses on available for sale securities	$	(125)	$	(168)	Net debt securities losses, available for sale
Income tax effect	(104		)	(86		)	Income tax provision	Income tax effect	26		35		Income tax provision
Total reclassifications for the period	$	198		$	167			Total reclassifications for the period	$	(99)	$	(133)

Net unrecognized pension costs	(45		)	(39		)	Salaries and employee benefits	Net unrecognized pension costs	$	(111)	$	(52)	Other non-interest expense
Income tax effect	15			13			Income tax provision	Income tax effect	23		11		Income tax provision
Total reclassifications for the period	(30		)	(26		)		Total reclassifications for the period	$	(88)	$	(41)

Details about Accumulated Other Comprehensive Loss Components Amount Reclassified from Accumulated Other Comprehensive Loss
Affected Line Item
in the Consolidated
Statement of Income
Nine months ended September 30, 2017 Nine months ended September 30, 2016
Net unrealized gain on available for sale securities $ 487
$ 1,174
Net securities gains, available for sale
Income tax effect (166 ) (398 ) Income tax provision
Total reclassifications for the period $ 321
$ 776

Net unrecognized pension costs (129 ) (117 ) Salaries and employee benefits
Income tax effect 43
40
Income tax provision
Total reclassifications for the period (86 ) (77 )

~~In May 2014, the FASB issued ASU 2014-09,~~ ~~Revenue from Contracts with Customers~~ (a new revenue recognition standard). The Update’s core principle is that a company will recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, this Update specifies the accounting for certain costs to obtain or fulfill a contract with a customer and expands disclosure requirements for revenue recognition. Subsequently, the FASB issued ASU 2015-14, ~~Revenue from Contracts with Customers (Topic 606)~~. The amendments in this Update defer the effective date of ASU 2014-09 for all entities by one year. Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. All other entities should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. Because the guidance does not apply to revenue associated with financial instruments, including loans and securities, we do not expect the new standard, or any of the amendments, to result in a material change from our current accounting for revenue because the majority of the Company's financial instruments are not within the scope of Topic 606. However, we do expect that the standard will result in new disclosure requirements, which are currently being evaluated.

~~In January 2016, the FASB issued ASU 2016-01,~~ ~~Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities~~. This Update applies to all entities that hold financial assets or owe financial liabilities and is intended to provide more useful information on the recognition, measurement, presentation, and disclosure of financial instruments. Among other things, this Update (a) requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income; (b) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; (c) eliminates the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities; (d) eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (e) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (f) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; and (g) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. For all other entities, including not-for-profit entities and

employee benefit plans within the scope of Topics 960 through 965 on plan accounting, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. All entities that are not public business entities may adopt the amendments in this Update earlier as of the fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

~~In February 2016, the FASB issued ASU 2016-02,~~ ~~Leases (Topic 842)~~. The standard requires lessees to recognize the assets and liabilities that arise from leases on the balance sheet. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. A short-term lease is defined as one in which (a) the lease term is 12 months or less and (b) there is not an option to purchase the underlying asset that the lessee is reasonably certain to exercise. For short-term leases, lessees may elect to recognize lease payments over the lease term on a straight-line basis. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within those years. For all other entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2019, and for interim periods within fiscal years beginning after December 15, 2020. The amendments should be applied at the beginning of the earliest period presented using a modified retrospective approach with earlier application permitted as of the beginning of an interim or annual reporting period. The Company is currently assessing the practical expedients it may elect at adoption, but does not anticipate the amendments will have a significant impact on the financial statements. Based on the Company’s preliminary analysis of its current portfolio, the impact to the Company’s balance sheet is estimated to result in less than a 1 percent increase in assets and liabilities. The Company also anticipates additional disclosures to be provided at adoption.

~~In March 2016, the FASB issued ASU 2016-04,~~ ~~Liabilities~~ - ~~Extinguishments of Liabilities (Subtopic 405-20).~~ The standard provides that liabilities related to the sale of prepaid stored-value products within the scope of this Update are financial liabilities. The amendments in the Update provide a narrow-scope exception to the guidance in Subtopic 405-20 to require that breakage for those liabilities be accounted for consistent with the breakage guidance in Topic 606. The amendments in this Update are effective for public business entities, certain not-for-profit entities, and certain employee benefit plans for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. For all other entities, the amendments are effective for financial statements issued for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Earlier application is permitted, including adoption in an interim period. This Update is not expected to have a significant impact on the Company’s financial statements.

~~In March 2016, the FASB issued ASU 2016-08,~~ ~~Revenue from Contracts with Customers (Topic 606).~~ The amendments in this Update affect entities with transactions included within the scope of Topic 606, which includes entities that enter into contracts with customers to transfer goods or services (that are an output of the entity’s ordinary activities) in exchange for consideration. The amendments in this Update do not change the core principle of the guidance in Topic 606; they simply clarify the implementation guidance on principal versus agent considerations. The amendments in this Update are intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations. The amendments in this Update affect the guidance in ASU 2014-09, ~~Revenue from Contracts with Customers (Topic 606),~~ which is not yet effective. The effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements of Update 2014-09. ASU 2015-14, ~~Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date,~~ defers the effective date of Update 2014-09 by one year. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

~~In April 2016, the FASB issued ASU 2016-10,~~ ~~Revenue from Contracts with Customers (Topic 606).~~ The amendments in this Update affect entities with transactions included within the scope of Topic 606, which includes entities that enter into contracts with customers to transfer goods or services in exchange for consideration. The amendments in this Update do not change the core principle for revenue recognition in Topic 606. Instead, the amendments provide (1) more detailed guidance in a few areas and (2) additional implementation guidance and examples based on feedback the FASB received from its stakeholders. The amendments are expected to reduce the degree of judgment necessary to comply with Topic 606, which the FASB expects will reduce the potential for diversity arising in practice and reduce the cost and complexity of applying the guidance. The amendments in this Update affect the guidance in ASU 2014-09, ~~Revenue from Contracts with Customers (Topic 606)~~, which is not yet effective. The effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements in Topic 606 (and any other Topic amended by Update 2014-09). ASU 2015-14, ~~Revenue from Contracts with Customers (Topic 606)~~: ~~Deferral of the Effective Date~~, defers the effective date of Update 2014-09 by one year. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

~~In May 2016, the FASB issued ASU 2016-12,~~ ~~Revenue from Contracts with Customers (Topic 606)~~, which among other things clarifies the objective of the collectability criterion in Topic 606, as well as certain narrow aspects of Topic 606. The amendments in this Update affect the guidance in ASU 2014-09, ~~Revenue from Contracts with Customers (Topic 606)~~, which is not yet effective. The effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements for Topic 606 (and any other Topic amended by Update 2014-09). ASU 2015-14, ~~Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, defers the effective date of Update 2014-09 by one year. This Update is not expected to have a significant impact on the Company’s financial statements~~

In June 2016, the ~~FASB~~Financial Accounting Standards Board (“FASB”) issued ~~ASU~~Accounting Standards Update (“ASU”) 2016-13, Financial Instruments -– Credit Losses: Measurement of Credit Losses on Financial Instruments,, which changes the impairment model for most financial assets. This ~~Update is intended to improve financial reporting by requiring timelier recording of credit losses on loans and~~standard, along with several other ~~financial instruments held by financial institutions and other organizations. The underlying premise of~~subsequent codification updates, replaces the ~~Update is~~incurred loss impairment methodology in current GAAP with a methodology that ~~financial assets measured at amortized cost should be presented at the net amount~~reflects expected ~~to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The allowance for credit losses should reflect management’s current estimate of~~ credit losses that are expected to occur over the remaining life of a financial ~~asset.~~asset and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The ~~income statement will~~amendments in this update require a financial asset (or a group of financial assets) measured at amortized cost basis to be ~~effected for~~presented at the ~~measurement of credit losses for newly recognized financial assets, as well as the~~net amount expected ~~increases or decreases of~~to be collected. The new current expected credit losses that have taken place during the period. ASU 2016-13 is effective for annual and interim periods beginning after December 15, 2019, and early adoption is permitted for annual and interim periods beginning after December 15, 2018. With certain exceptions, transition to the new requirementsmodel (“CECL”) will be through a cumulative effect adjustment to opening retained earnings as of the beginning of the first reporting period in which the guidance is adopted. We expect to recognize a one-time cumulative effect adjustmentapply to the allowance for loan losses, available-for-sale and held-to-maturity debt securities, purchased financial assets with credit deterioration and certain off-balance sheet credit exposures.

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

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

an increase in its allowance for off-balance sheet credit exposures of $1,703,000. These estimates are subject to further refinements based on ongoing evaluations of our model, methodologies, and judgments, as well as prevailing economic conditions and forecasts as of the beginning of the first reporting period in which the new standard is effective, but cannot yet determine the magnitude of any such one-time adjustment or the overall impact of the new guidance on the consolidated financial statements.

~~In August 2016, the FASB issued ASU 2016-15,~~ ~~Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments~~, which addresses eight specific cash flow issues with the objective of reducing diversity in practice. Among these include recognizing cash payments for debt prepayment or debt extinguishment as cash outflows for financing activities; cash proceeds received from the settlement of insurance claims should be classified on the basis of the related insurance coverage; and cash proceeds received from the settlement of bank-owned life insurance policies should be classified as cash inflows from investing activities while the cash payments for premiums on bank-owned policies may be classified as cash outflows for investing activities, operating activities, or a combination of investing and operating activities.adoption date. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. The amendments in this Update should be applied using a retrospective transition method to each period presented. If it is impracticable to apply the amendments retrospectively for some of the issues, the amendments for those issues would be applied prospectively as of the earliest date practicable. The Company is currently evaluating the impact the adoption of ~~the standard will have on the Company’s statement of cash flows.~~

~~In October 2016, the FASB issued~~ ASU ~~2016-17,~~ ~~Consolidation (Topic 810)~~, which amends the consolidation guidance on how a reporting entity that is the single decision maker of a VIE should treat indirect interests in the entity held through related parties that are under common control with the reporting entity when determining whether it is the primary beneficiary of that VIE. The primary beneficiary of a VIE is the reporting entity that has a controlling financial interest in a VIE and, therefore, consolidates the VIE. A reporting entity has an indirect interest in a VIE if it has a direct interest in a related party that, in turn, has a direct interest in the VIE. Under the amendments, a single decision maker is not required to consider indirect interests held through related parties that are under common control with the single decision maker to be the equivalent of direct interests in their entirety. Instead, a single decision maker is required to include those interests on a proportionate basis consistent with indirect interests held through other related parties. The provisions in ASU 2016-17 are effective for public business entities for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. For all other entities, the Update is effective for fiscal years beginning after December 15, 2016, and interim periods within fiscal years beginning after December 15, 2017. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the Update in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. This Update2016-13 is not expected to have a significant impact on our regulatory capital ratios.

At adoption, the ~~Company’s financial statements.~~

~~In October 2016, the FASB issued ASU 2016-18,~~ ~~Statement of Cash Flows (Topic 230)~~, which requires that a statement of cash flows explains the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption, is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The amendments in this Update should be applied using a retrospective transition method to each period presented. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s statement of cash flows.

~~In December 2016, the FASB issued ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers. This Update, among others things, clarifies that guarantee fees within the scope of Topic 460,~~ ~~Guarantees~~, (other than product or service warranties) are not within the scope of Topic 606. The effective date and transition requirements for ASU 2016-20 are the same as the effective date and transition requirements for the new revenue recognition guidance. For public entities with a calendar year-end, the new guidance is effective in the quarter and year beginning January 1, 2018. For all other entities with a calendar year-end, the new guidance is effective in the year ending December 31, 2019, and interim periods in 2020. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.2023.

~~In January 2017, the FASB issued ASU 2017-01,~~ ~~Business Combinations (Topic 805), Clarifying the Definition of a Business~~, which provides a more robust framework to use in determining when a set of assets and activities (collectively referred to as a “set”) is a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. This screen reduces the number of transactions that need to be further evaluated. Public business entities should apply the amendments in this Update to annual periods beginning after December 15, 2017, including interim periods within those periods. All other entities should apply the amendments to annual periods beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019. The amendments in this Update should be applied prospectively on or after the effective date. This Update is not expected to have a significant impact on the Company’s financial statements.

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment. To simplify the subsequent measurement of goodwill, the FASB eliminated Step 2 from the goodwill impairment test. In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Instead, under the amendments in this Update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting ~~units~~unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. ~~A public business entity that~~The Update is ~~a U.S. Securities~~effective for smaller reporting companies and ~~Exchange Commission (“SEC”) filer should adopt the amendments in this Update~~all other entities for ~~its annual or any interim goodwill impairment tests in~~ fiscal years beginning after December 15, ~~2019. A public business entity that is not an SEC filer should adopt the amendments in this Update for its annual or any~~2022, and interim ~~goodwill impairment tests in~~periods within those fiscal years beginning after December 15, 2020. All other entities, including not-for-profit entities, that are adopting the amendments in this Update should do so for their annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2021.years. This Update is not expected to have a significant impact on the Company’s financial statements.

In ~~February 2017,~~January 2020, the FASB issued ASU ~~2017-05,~~ ~~Other Income-Gains~~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 ~~Losses~~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 ~~Derecognition of Nonfinancial Assets (Subtopic 610-20).~~ 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. This Update ~~clarify what constitutes~~did not have a significant impact on the Company’s financial ~~asset within~~statements.

In August 2020, the ~~scope~~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 ~~Subtopic 610-20. The amendments also clarify~~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 ~~should identify each distinct nonfinancial asset~~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 ~~in substance nonfinancial asset that is promised~~timing of an entity’s future cash flows related to a counterparty and to derecognize each asset when the counterparty obtains control. There is also additional guidance provided for partial sales of a nonfinancial asset and when derecognition, and the related gain or loss, should be recognized.those instruments. The amendments in this ~~Update are effective at the same time as the amendments in Update 2014-09. Therefore, for public entities, the amendments~~ASU are effective for ~~annual~~public business entities that are not smaller reporting ~~periods~~companies, for fiscal years beginning after December 15, ~~2017, including~~2021, and interim ~~reporting~~ periods within ~~that reporting period.~~those fiscal years. For all other entities, ~~the amendments in~~ this ~~Update are~~ASU is effective for ~~annual reporting periods~~fiscal years beginning after December 15, ~~2018,~~2023, and interim ~~reporting~~ periods within ~~annual reporting periods~~those fiscal years. The guidance may be early adopted for fiscal years beginning after December 15, ~~2019.~~2020, and interim periods within those fiscal years. This Update is not expected to have a significant impact on the Company’s financial ~~statements, or the Company is currently evaluating the impact the adoption.~~statements.

In March ~~2017,~~2022, the FASB issued ASU ~~2017-07,~~ ~~Compensation-Retirement Benefits (Topic 715)~~2022-02, Financial Instruments - Credit Losses (ASC 326): Troubled Debt Restructurings (TDRs) and Vintage Disclosures. The guidance amends ASC 326 to eliminate the accounting guidance for TDRs by creditors, while enhancing disclosure requirements for certain loan refinancing and restructuring activities by creditors when a borrower is experiencing financial difficulty. Specifically, rather than applying TDR recognition and measurement guidance, creditors will determine whether a modification results in a new loan or continuation of existing loan. These amendments ~~in this Update~~are intended to enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. Additionally, the amendments to ASC 326 require that an ~~employer report~~entity disclose current-period gross writeoffs by year of origination within the ~~service~~vintage disclosures, which requires that an entity disclose the amortized cost ~~component in the same line item or items as other compensation costs arising from services rendered~~basis of financing receivables by ~~the pertinent employees during the period. The other components~~credit quality indicator and class of ~~net benefit cost as defined in paragraphs 715-30-35-4 and 715-60-35-9 are required to be presented in the income statement separately from the service cost component and outside a subtotal~~financing receivable by year of income from operations, if one is presented. If a separate line item or items are used to present the other components of net benefit cost, that line item or items must be appropriately described. If a separate line item or items are not used, the line item or items used in the income statement to present the other components of net benefit cost must be disclosed.origination. The guidance is ~~effective~~only for ~~public business~~ entities ~~for annual reporting periods beginning after December 15, 2017, and interim periods within~~ that reporting period. For all other entities (including all nonprofit organizations “NPOs”), it is effective for annual periods beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019. This guidance is required to be applied on a retrospective basis for the presentation of the service cost component and the other components of net benefit cost and on a prospective basis for the capitalization of only the service cost component of net benefit cost. This Update is not expected to have ~~a significant impact on the Company’s financial statements.~~

~~In March 2017, the FASB issued ASU 2017-08,~~ ~~Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20).~~ The amendments in this Update shorten the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. For public business entities,adopted the amendments in ~~this~~ Update ~~are effective~~2016-13 for fiscal years, and interim periods within those fiscal years, beginning after December 15, ~~2018. For all other entities,~~2022. This Update did not 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, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity should apply the amendments in this Update on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. Additionally, in the period of adoption, an entity should provide disclosures about a change in accounting principle. This Update is not expected to have a significant impact on the Company’s financial statements.

~~In May 2017, the FASB issued ASU 2017-09,~~ ~~Compensation - Stock Compensation (Topic 718)~~, which affects any entity that changes the terms or conditions of a share-based payment award. This Update amends the definition of modification by qualifying that modification accounting does not apply to changes to outstanding share-based payment awards that do not affect the total fair value, vesting requirements, or equity/liability classification of the awards. The amendments in this Update are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period, for (1) public business entities for reporting periods for which financial statements have not yet been issued and (2) all other entities for reporting periods for which financial statements have not yet been made available for issuance. The amendments in this Update should be applied prospectively to an award modified on or after the adoption date. This Update is not expected to have a significant impact on the Company’s financial statements.

~~In May 2017, the FASB issued ASU 2017-10,~~ ~~Service Concession Arrangements (Topic 853)~~, which applies to the accounting by operating entities for service concession arrangements within the scope of Topic 853. The amendments in this Update clarify that the grantor (government), rather than the third-party drivers, is the customer of the operation services in all cases for service concession arrangements within the scope of Topic 853. For an entity that has not adopted Topic 606 before the issuance of this Update, the effective date and transition requirements for the amendments in this Update generally are the same as the effective date and transition requirements for Topic 606 (and any other Topic amended by ASU 2014-09, ~~Revenue from Contracts with Customers (Topic 606)). ASU 2015-14,~~ ~~Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, deferred the effective date of Update 2014-09 by one year. This Update is not expected to have a significant impact on the Company’s financial statements.~~

~~In July 2017, the FASB issued ASU 2017-11,~~ ~~Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), and Derivative and Hedging (Topic 815)~~. The amendments in Part I of this Update change the classification analysis of certain equity-linked financial instruments (or embedded features) with down-round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down-round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down-round feature. For freestanding equity classified financial instruments, the amendments require entities that present earnings per share (“EPS”) in accordance with Topic 260 to recognize the effect of the down-round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS. Convertible instruments with embedded conversion options that have down- round features are now subject to the specialized guidance for contingent beneficial conversion features (in Subtopic 470-20, ~~Debt-Debt with Conversion and Other Options), including related EPS guidance (in~~

Topic 260). The amendments in Part II of this Update recharacterize the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the Accounting Standards Codification, to a scope exception. Those amendments do not have an accounting effect. For public business entities, the amendments in Part I of this Update are effective for fiscal years,2023, and interim periods within those fiscal years, beginning after December 15, 2018. For all other entities, the amendments in Part I of this Update are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020.years. Early adoption is ~~permitted for all entities, including~~permitted. The amendments will be applied prospectively, with any adjustments from the adoption ~~in an interim period. If an entity early adopts~~of the amendments recognized in ~~an interim period, any adjustments should be reflected as~~earnings and disclosed on the date of the beginning of the fiscal year that includes that interim period. The amendments in Part I of this Update should be applied either retrospectively to outstanding financial instruments with a down-round feature by means of a cumulative-effect adjustment to the statement of financial position as of the beginning of the first fiscal year and interim period(s) in which the pending content that links to this paragraph is effective or retrospectively to outstanding financial instruments with a down-round feature for each prior reporting period presented in accordance with the guidance on accounting changes in paragraphs 250-10-45-5 through 45-10. The amendments in Part II of this Update do not require any transition guidance because those amendments do not have an accounting effect.adoption. This Update is not expected to have a significant impact on the Company’s financial statements.

In ~~August 2017,~~March 2023, the FASB issued ASU ~~2017-12,~~ ~~Derivatives~~2023-02, Investments – Equity Method and ~~Hedging~~Joint Ventures (Topic ~~850)~~,323): Accounting for Investments in Tax Credit Structures Using the ~~objective of which is~~Proportional Amortization Method. ASU 2023-02 permits reporting entities to ~~improve the financial reporting of hedging relationships~~elect to better portray the economic results of an entity’s risk management activities in its financial statements. In addition, the amendments in this Update make certain targeted improvements to simplify the application and disclosureaccount for their tax equity investments, regardless of the ~~hedge accounting guidance in current general accepted accounting principles. For public business entities,~~tax credit program from which the ~~amendments in this Update~~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, 2018, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods beginning after December 15, 2020. Early application is permitted in any period after issuance. For cash flow and net investment hedges existing at the date of adoption, an entity should apply a cumulative-effect adjustment related to eliminating the separate measurement of ineffectiveness to accumulated other comprehensive income with a corresponding adjustment to the opening balance of retained earnings as of the beginning of the fiscal year that an entity adopts the amendments in this Update. The amended presentation and disclosure guidance is required only prospectively.2023. This Update is not expected to have a significant impact on the Company’s financial statements.

In ~~September 2017,~~July 2023, the FASB issued ASU ~~2017-13,~~ ~~Revenue Recognition~~2023-03, Presentation of Financial Statements (Topic ~~605)~~205), ~~Revenue~~Income Statement-Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from ~~Contracts with Customers~~Equity (Topic ~~606)~~480), ~~Leases~~Equity (Topic ~~840)~~505), and ~~Leases~~Compensation-Stock Compensation (Topic ~~842~~): ~~Amendments to SEC Paragraphs Pursuant to the Staff Announcement at the July 20, 2017 EITF Meeting and Rescission of Prior SEC Staff Announcements and Observer Comments.~~ ~~The SEC Observer said that the SEC staff would not object if entities that are considered public business entities only because their financial statements~~718), which amends or ~~financial information is required to be included in another entity’s SEC filing use the effective dates for private companies when they adopt ASC 606,~~ ~~Revenue from Contracts with Customers, and ASC 842,~~ ~~Leases. The Update also~~ supersedes ~~certain~~various SEC paragraphs inwithin the Codification ~~related~~ to ~~previous~~conform to past SEC ~~staff~~ announcements and ~~moves other paragraphs, upon adoption of ASC 606~~guidance issued by the SEC. The ASU does not provide any new guidance so there is no transition or ~~ASC 842.~~effective date associated with it. This ~~Update is~~ASU did not ~~expected to~~ 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.

There are no convertible securities which would affect the denominator in calculating basic and dilutive earnings per share. There were a total of ~~95,000~~1,000,000 stock options, with an average exercise price of ~~$43.64,~~$25.55, outstanding on September 30, ~~2017. These~~2023. A portion of these options were included, on a weighted average basis, in the computation of diluted earnings per share for the period due to the average market price of common shares of $25.08 for the periods being greater than the strike price. There were a total of 917,000 stock options, with an average exercise price of $25.35 that were excluded, on a weighted average basis, in the computation of diluted earnings per share for the period due to the average market price of common shares of ~~$43.53~~$23.78 being less than the ~~exercise~~strike price ~~of the options. There were a total of 31,000 stock options outstanding~~ for the ~~same~~ period end in 2016 that had an average exercise price of $42.03 and were excluded from the computation of diluted earnings per share because the average market price of common shares was $41.10 for the period. 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 earnings per share computation.ending September 30, 2022.

The amortized cost, gross unrealized gains and losses, and fair values of our investment securities ~~available for sale~~portfolio at September 30, ~~2017~~2023 and December 31, ~~2016~~2022 are as follows:

December 31, 2016
Gross Gross
Amortized Unrealized Unrealized Fair
(In Thousands) Cost Gains Losses Value
Available for sale (AFS):

Mortgage-backed securities $ 9,295
$ 182
$ (164 ) $ 9,313
Asset-backed securities 109
—
—
109
State and political securities 60,777
666
(509 ) 60,934
Other debt securities 53,046
137
(2,065 ) 51,118
Total debt securities 123,227
985
(2,738 ) 121,474
Financial institution equity securities 9,566
969
—
10,535
Non-financial institution equity securities 1,667
—
(184 ) 1,483
Total equity securities 11,233
969
(184 ) 12,018
Total investment securities AFS $ 134,460
$ 1,954
$ (2,922 ) $ 133,492

~~The amortized cost and fair values of trading investment securities at September 30, 2017 and December 31, 2016 are as follows:~~

Total net trading losses of $4,000 and $2,000 for the three and nine month periods ended September 30, 2017 compared to net trading gains of $8,000 and $54,000 for the three and nine month periods ended September 30, 2016 were included in the Consolidated Statement of Income.

The following tables show the Company’s gross unrealized losses and fair value, aggregated by investment category and length of time, that the individual debt securities have been in a continuous unrealized loss position, at September 30, ~~2017~~2023 and December 31, ~~2016.~~2022.

September 30, 2017
Less than Twelve Months Twelve Months or Greater Total
Gross Gross Gross
Fair Unrealized Fair Unrealized Fair Unrealized
(In Thousands) Value Losses Value Losses Value Losses
Available for sale (AFS):
Mortgage-backed securities $ 1,048
$ (4 ) $ 2,302
$ (89 ) $ 3,350
$ (93 )
State and political securities 13,651
(120 ) 2,170
(61 ) 15,821
(181 )
Other debt securities 9,689
(145 ) 22,733
(1,056 ) 32,422
(1,201 )
Total debt securities 24,388
(269 ) 27,205
(1,206 ) 51,593
(1,475 )
Non-financial institution equity securities 1,259
(41 ) —
—
1,259
(41 )
Total equity securities 1,259
(41 ) —
—
1,259
(41 )
Total investment securities AFS $ 25,647
$ (310 ) $ 27,205
$ (1,206 ) $ 52,852
$ (1,516 )

At September 30, ~~2017,~~2023, there were a total of 3443 securities in a continuous unrealized loss position for less than twelve months and 20184 individual securities that were in a continuous unrealized loss position for twelve months or greater. No credit losses occurred for the period ended September 30, 2023.

The Company reviews its position quarterly and has determined that, at September 30, ~~2017,~~2023, the declines outlined in the above table represent temporary non-credit declines and the Company does not intend to sell, and does not believe it will be required to sell, these securities before recovery of their cost basis, which may be at maturity. The Company has concluded that the unrealized losses disclosed above are not ~~other than temporary~~credit-related but are the result of interest rate changes, sector credit ratings changes, or company-specific ratings changes that are not expected to result in the non-collection of principal and interest during the period.

The amortized cost and fair value of debt securities at September 30, ~~2017,~~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 $ 4,839
$ 4,836
Due after one year to five years 45,064
44,918
Due after five years to ten years 54,858
54,301
Due after ten years 14,605
14,775
Total $ 119,366
$ 118,830

Total gross proceeds from sales of debt securities available for sale for the ~~three and~~ nine months ended September 30, ~~2017 were $6,478,000 and $15,443,000, a decrease from~~2023 was $24,701,000, compared to $4,151,000 for the ~~2016 totals of $16,168,000 and $42,180,000.~~corresponding 2022 period.

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

Three Months Ended September 30, Nine Months Ended September 30,
(In Thousands) 2017 2016 2017 2016
Gross realized gains:

U.S. Government and agency securities $ —
$ 11
$ —
$ 11
Mortgage-backed securities —
29
69
35
State and political securities 313
146
343
784
Other debt securities 5
—
5
258
Financial institution equity securities —
68
288
150
Non-financial institution equity securities —
73
—
217
Total gross realized gains $ 318
$ 327
$ 705
$ 1,455

Gross realized losses:

U.S. Government and agency securities $ —
$ 2
$ —
$ 5
Mortgage-backed securities —
—
—
—
Asset-backed securities —
—
—
—
State and political securities 16
1
17
1
Other debt securities —
26
51
189
Financial institution equity securities —
—
—
—
Non-financial institution equity securities —
45
150
86
Total gross realized losses $ 16
$ 74
$ 218
$ 281

~~The following table represents gross realized gains and losses within the trading portfolios:~~

Three Months Ended September 30, Nine Months Ended September 30,
(In Thousands) 2017 2016 2017 2016
Gross realized gains:

Financial institution equity securities $ 3
$ —
$ 3
$ 6
Non-financial institution equity securities 4
8
12
76
Total gross realized gains $ 7
$ 8
$ 15
$ 82

Gross realized losses:

Financial institution equity securities $ —
$ —
$ —
$ 12
Non-financial institution equity securities 11
—
17
16
Total gross realized losses $ 11
$ —
$ 17
$ 28

~~There were no impairment charges included in gross realized losses for the three and nine months ended September 30, 2017 and 2016, respectively.~~

Investment securities with a carrying value of approximately ~~$98,157,000~~$114,938,000 and ~~$95,199,000~~$154,946,000 at September 30, ~~2017~~2023 and December 31, ~~2016,~~2022, respectively, were pledged to secure certain deposits, repurchase agreements, and for other purposes as required by law.

At September 30, 2023 and December 31, 2022, we had $1,072,000 and $1,142,000, respectively, in equity securities recorded at fair value. The following is a summary of unrealized and realized gains and losses recognized in net income on equity securities during the three and nine months ended September 30, 2023 and 2022:

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

The following table presents the related aging categories of loans, by ~~segment,~~class, as of September 30, ~~2017~~2023 and December 31, ~~2016:~~2022:

September 30, 2017
Past Due Past Due 90
30 To 89 Days Or More Non-
(In Thousands) Current Days & Still Accruing Accrual Total
Commercial, financial, and agricultural $ 174,993
$ 6
$ 53
$ 247
$ 175,299
Real estate mortgage:

Residential 572,303
1,929
26
1,876
576,134
Commercial 316,493
1,144
—
5,873
323,510
Construction 29,243
9
100
—
29,352
Installment loans to individuals 85,872
625
82
60
86,639
1,178,904
$ 3,713
$ 261
$ 8,056
1,190,934
Net deferred loan fees and discounts (1,220 )

(1,220 )
Allowance for loan losses (12,933 )

(12,933 )
Loans, net $ 1,164,751

$ 1,176,781

Table of Contents


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

December 31, 2016
Past Due Past Due 90
30 To 89 Days Or More Non-
(In Thousands) Current Days & Still Accruing Accrual Total
Commercial, financial, and agricultural $ 145,179
$ 785
$ 14
$ 132
$ 146,110
Real estate mortgage:

Residential 553,053
9,112
587
1,988
564,740
Commercial 296,537
786
268
8,591
306,182
Construction 33,879
771
—
—
34,650
Installment loans to individuals 43,008
202
1
45
43,256
1,071,656
$ 11,656
$ 870
$ 10,756
1,094,938
Net deferred loan fees and discounts (1,257 )

(1,257 )
Allowance for loan losses (12,896 )

(12,896 )
Loans, net $ 1,057,503

$ 1,080,785

~~Purchased~~The Allowance for Credit Losses ("ACL") related to loans ~~acquired are recorded at fair value on their purchase date without a carryover~~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 ~~related allowance~~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 ~~losses.~~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 September 30, 2023:


	September 30,
(In Thousands)	2023
ACL - loans	$	12,890
ACL - off balance sheet credit exposure	1,240
Total ACL	$	14,130

Non-Accrual Loans


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

Total interest income ~~the Banks would have~~ recorded ~~if interest had been recorded based~~ on ~~the original loan agreement terms and rate of interest for~~ non-accrual loans ~~and interest income recognized on a cash basis for non-accrual loans for the three and nine months ended~~at September 30, ~~2017 and 2016:~~2023 totaled $104,000.

Three Months Ended September 30,
2017 2016
(In Thousands)
Interest Income That
Would Have Been
Recorded Based on
Original Term and Rate

Interest
Income
Recorded on
a Cash Basis

Interest Income That
Would Have Been
Recorded Based on
Original Term and Rate

Interest
Income
Recorded on
a Cash Basis
Commercial, financial, and agricultural $ 8
$ 2
$ 1
$ —
Real estate mortgage:

Residential 29
30
57
68
Commercial 90
23
109
90
Construction —
—

—
Installment 1
1
—
—
$ 128
$ 56
$ 167
$ 158

Nine Months Ended September 30,
2017 2016
(In Thousands)
Interest Income That
Would Have Been
Recorded Based on
Original Term and Rate

Interest
Income
Recorded on
a Cash Basis

Interest Income That
Would Have Been
Recorded Based on
Original Term and Rate

Interest
Income
Recorded on
a Cash Basis
Commercial, financial, and agricultural $ 21
$ 8
$ 5
$ 1
Real estate mortgage:

Residential 123
81
113
95
Commercial 322
42
388
170
Construction —
—
—
—
Installment 3
2
—
—
$ 469
$ 133
$ 506
$ 266

Table of Contents

~~Impaired Loans~~

Impaired loans are loans for which it is probable the Banks will not be able to collect all amounts due according to the contractual terms of the loan agreement. The Banks evaluate such loans for impairment individually and does not aggregate loans by major risk classifications. The definition of “impaired loans” is not the same as the definition of “non-accrual loans,” although the two categories overlap. The Banks may choose to place a loan on non-accrual status due to payment delinquency or uncertain collectability, while not classifying the loan as impaired. Factors considered by management in determining impairment include payment status and collateral value. The amount of impairment for these types of loans is determined by the difference between the present value of the expected cash flows related to the loan, using the original interest rate, and its recorded value, or as a practical expedient in the case of collateralized loans, the difference between the fair value of the collateral and the recorded amount of the loan. When foreclosure is probable, impairment is measured based on the fair value of the collateral.

Management evaluates individual loans in all of the commercial segments for possible impairment if the loan is greater than $100,000 and if the loan is either on non-accrual status or has a risk rating of substandard. Management may also elect to measure an individual loan for impairment if less than $100,000 on a case-by-case basis.

Mortgage loans on one-to-four family properties and all consumer loans are large groups of smaller-balance homogeneous loans and are measured for impairment collectively. Loans that experience insignificant payment delays, which are defined as 90 days or less, generally are not classified as impaired. Management determines the significance of payment delays on a case-by-case basis taking into consideration all circumstances surrounding the loan and the borrower including the length of the delay, the borrower’s prior payment record, and the amount of shortfall in relation to the principal and interest owed. Interest income for impaired loans is recorded consistent with the Banks' policy on non-accrual loans.

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


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

The following table presents outstanding loan balances of collateral-dependent loans by class as of September 30, ~~2017 and December 31, 2016:~~2023:


(In Thousands)	Real estate		Unsecured*		Total

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



Total	$	330	$	332	$	662

* Loan considered unsecured due to lien position on property

September 30, 2017
Recorded Unpaid Principal Related
(In Thousands) Investment Balance Allowance
With no related allowance recorded:

Commercial, financial, and agricultural $ 1,141
$ 1,141
$ —
Real estate mortgage:

Residential 1,775
1,775
—
Commercial 2,222
2,222
—
Installment loans to individuals —
—
—
5,138
5,138
—
With an allowance recorded:

Commercial, financial, and agricultural 255
255
207
Real estate mortgage:

Residential 1,022
1,070
224
Commercial 8,433
8,529
1,629
Installment loans to individuals —
—
—
9,710
9,854
2,060
Total:

Commercial, financial, and agricultural 1,396
1,396
207
Real estate mortgage:

Residential 2,797
2,845
224
Commercial 10,655
10,751
1,629
Installment loans to individuals —
—
—
$ 14,848
$ 14,992
$ 2,060

Table of Contents

December 31, 2016
Recorded Unpaid Principal Related
(In Thousands) Investment Balance Allowance
With no related allowance recorded:

Commercial, financial, and agricultural $ 109
$ 109
$ —
Real estate mortgage:

Residential 1,584
1,584
—
Commercial 1,833
1,833
—
Installment loans to individuals —
—
—
3,526
3,526
—
With an allowance recorded:

Commercial, financial, and agricultural 132
132
74
Real estate mortgage:

Residential 1,893
1,893
437
Commercial 10,425
10,520
1,668
Installment loans to individuals —
—
—
12,450
12,545
2,179
Total:

Commercial, financial, and agricultural 241
241
74
Real estate mortgage:

Residential 3,477
3,477
437
Commercial 12,258
12,353
1,668
Installment loans to individuals —
—
—
$ 15,976
$ 16,071
$ 2,179

The following table presents the average recorded investment in impaired loans and related interest income recognized for the three and nine months ended ~~for~~ September 30, ~~2017~~2022:


		Three Months Ended September 30,
	2022
(In Thousands)			Average Investment in Impaired Loans		Interest Income Recognized on an Accrual Basis on Impaired Loans		Interest Income Recognized on a Cash Basis on Impaired Loans
Commercial, financial, and agricultural			$	711	$	5	$	—
Real estate mortgage:
Residential			4,586		47		—
Commercial			7,227		50		—
Construction			—		—		—
Consumer automobile			7		—		—
Other consumer installment loans			10		—		—
			$	12,541	$	102	$	—


		Nine Months Ended September 30,
	2022
(In Thousands)		Average Investment in Impaired Loans		Interest Income Recognized on an Accrual Basis on Impaired Loans		Interest Income Recognized on a Cash Basis on Impaired Loans
Commercial, financial, and agricultural		$	782	$	15	$	—
Real estate mortgage:
Residential		4,765		141		—
Commercial		7,492		151		—
Construction		42		1		—
Consumer automobile		3		1		—
Other consumer installment loans		15		—		—
		$	13,099	$	309	$	—

Loan Modifications

On January 1, 2023, the Corporation adopted ASU 2022-02. Loan modifications reported below do not include modifications with insignificant payment delays. ASU 2022-02 lists the following factors when considering if the loan modification has insignificant payment delays: (1) the amount of the restructured payments subject to the delay is insignificant relative to the unpaid principal or collateral value of the debt and ~~2016:~~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.

Three Months Ended September 30,
2017 2016
(In Thousands)
Average
Investment in
Impaired Loans

Interest Income
Recognized on an
Accrual Basis on
Impaired Loans

Interest Income
Recognized on a
Cash Basis on
Impaired Loans

Average
Investment in
Impaired Loans

Interest Income
Recognized on an
Accrual Basis on
Impaired Loans

Interest Income
Recognized on a
Cash Basis on
Impaired Loans
Commercial, financial, and agricultural $ 394
$ 17
$ 1
$ 346
$ 4
$ —
Real estate mortgage:

Residential 3,199
12
34
2,784
23
41
Commercial 12,885
52
23
12,383
83
16
Construction —
—
—
67
—
—
Installment loans to individuals —
—
—
—
—
—
$ 16,478
$ 81
$ 58
$ 15,580
$ 110
$ 57

~~Table of Contents~~

Nine Months Ended September 30,
2017 2016
(In Thousands)
Average
Investment in
Impaired Loans

Interest Income
Recognized on an
Accrual Basis on
Impaired Loans

Interest Income
Recognized on a
Cash Basis on
Impaired Loans

Average
Investment in
Impaired Loans

Interest Income
Recognized on an
Accrual Basis on
Impaired Loans

Interest Income
Recognized on a
Cash Basis on
Impaired Loans
Commercial, financial, and agricultural $ 324
$ 24
$ 7
$ 586
$ 12
$ 1
Real estate mortgage:

Residential 3,212
48
80
4,539
67
68
Commercial 12,635
137
42
16,988
247
96
Construction —
—
—
208
—
—
Installment loans to individuals 8
—
2
—
—
—
$ 16,179
$ 209
$ 131
$ 22,321
$ 326
$ 165

~~Currently, there is $10,000 committed to be advanced in connection with impaired loans.~~

~~Troubled Debt Restructurings~~

The ~~loan portfolio also~~ACL incorporates an estimate of lifetime expected credit losses and is recorded upon asset origination or acquisition. The starting point for the estimate of the ACL is historical loss information, which includes ~~certain loans that have been modified in a Troubled Debt Restructuring (“TDR”), where economic concessions have been granted~~losses from modifications of receivables to borrowers ~~who have experienced or are expected~~experiencing financial difficulty. The Corporation uses a probability of default/loss given default model to ~~experience~~determine the allowance for credit losses. An assessment of whether a borrower is experiencing financial ~~difficulties. These concessions typically result from loss mitigation activities and could include reductions in~~difficulty is made on the ~~interest rate, payment extensions, forgiveness~~date of principal, forbearance, or other actions. Certain TDRs are classified as nonperforming at the time of restructure and may only be returned to performing status after considering the borrower’s sustained repayment performance for a ~~reasonable period, generally six months.~~modification.

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

There were no loan modifications considered to be TDRs completed during the three and nine months ended September 30, ~~2017. Loan~~2022.

Table of Contents

There were no loan modifications ~~that are considered TDRs completed~~made during the ~~three and~~twelve months prior to September 30, 2023 that defaulted during the nine months ended September 30, ~~2016 were as follows:~~

Three Months Ended September 30,
2017 2016
(In Thousands, Except Number of Contracts)
Number
of
Contracts
Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Number
of
Contracts Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment
Commercial, financial, and agricultural —
$ —
$ —
—
$ —
$ —
Real estate mortgage:

Residential —
—
—
2
580
580
Commercial 2
375
375
—
—
—
Construction —
—
—
—
—
—
2
$ 375
$ 375
2
$ 580
$ 580

Nine Months Ended September 30,
2017 2016
(In Thousands, Except Number of Contracts)
Number
of
Contracts

Pre-Modification
Outstanding
Recorded
Investment

Post-Modification
Outstanding
Recorded
Investment

Number
of
Contracts

Pre-Modification
Outstanding
Recorded
Investment

Post-Modification
Outstanding
Recorded
Investment
Commercial, financial, and agricultural —
$ —
$ —
—
$ —
$ —
Real estate mortgage:

Residential —
—
—
4
922
922
Commercial 2
375
375
1
838
838
Construction —
—
—
—
—
—
2
$ 375
$ 375
5
$ 1,760
$ 1,760

~~Table of Contents~~

2023. There were no loan modifications considered to be ~~TDRs~~a TDR made during the twelve months previous to September 30, ~~2017~~2022 that defaulted during the nine months ended September 30, ~~2017. There were five loan~~2022.

Loans considered modifications considered TDRs made during the twelve months previous to September 30, 2016 that defaulted during the nine months ended September 30, 2016. The defaulted loan types and recorded investments at September 30, 2016 are as follows: one commercial loan with a recorded investment of $103,000, one commercial real estate loan with a recorded investment of $239,000, and three residential real estate loan with a recorded investment of $173,000.

~~Troubled debt restructurings~~ amounted to ~~$8,429,000~~$5,233,000 and ~~$9,180,000~~$7,468,000 as of September 30, ~~2017~~2023 and December 31, ~~2016.~~2022, respectively.

The amount of foreclosed residential real estate held at September 30, ~~2017~~2023 and December 31, ~~2016,~~2022, totaled ~~$458,000~~$588,000 and ~~$839,000,~~$950,000, respectively. Consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process at September 30, ~~2017~~2023 and December 31, ~~2016,~~2022, totaled ~~$458,000~~$328,000 and ~~$167,000,~~$890,000, respectively.

Internal ~~Risk~~Credit Ratings

Management uses a ten point internal ~~risk~~credit rating system to monitor the credit quality of the overall loan portfolio. The first six categories are considered not criticized, and are aggregated as “Pass” rated. The criticized rating categories utilized by management generally follow bank regulatory definitions. The special mention category includes assets that are currently protected but are potentially weak, resulting in an undue and unwarranted credit risk, but not to the point of justifying a substandard classification. Loans in the substandard category have well-defined weaknesses that jeopardize the liquidation of the debt, and have a distinct possibility that some loss will be sustained if the weaknesses are not corrected. All loans greater than 90 days past due are evaluated for substandard classification. Loans in the doubtful category exhibit the same weaknesses found in the substandard ~~loans,~~loans; however, the weaknesses are more pronounced. Such loans are static and collection in full is improbable. However, these loans are not yet rated as loss because certain events may occur which would salvage the debt. Loans classified as loss are considered uncollectible and charge-off is imminent.

To help ensure that ~~risk~~credit ratings are accurate and reflect the present and future capacity of borrowers to repay a loan as agreed, the Banks have a structured loan rating process with several layers of internal and external oversight. Generally, consumer and residential mortgage loans are included in the pass category unless a specific action, such as bankruptcy, repossession, or death occurs to raise awareness of a possible credit event. An external ~~annual~~semi-annual loan review of large commercial relationships is performed, as well as a sample of smaller transactions. ~~Confirmation~~The 2023 loan review will evaluate 55% of the ~~appropriate risk category is included in the review.~~Banks' average outstanding commercial portfolio which can consist of outstanding loans, commercial real estate mortgages and outstanding commitments. Detailed reviews, including plans for resolution, are performed on loans classified as substandard, doubtful, or loss on a quarterly basis.

Table of Contents

The following table presents the credit quality categories identified above as of September 30, ~~2017~~2023 and December 31, ~~2016:~~2022:


	September 30, 2023
(In Thousands)	2023		2022		2021		2020		2019		Prior		Revolving Loans		Revolving Loans Converted to Term		Total
Commercial, financial, and agricultural
Pass	$	34,288	$	53,560	$	42,363	$	33,239	$	9,224	$	6,756	$	29,212	$	114	$	208,756
Special Mention	—		201		42		—		—		168		223		—		634
Substandard or Lower	—		—		—		85		—		755		490		753		2,083


	$	34,288	$	53,761	$	42,405	$	33,324	$	9,224	$	7,679	$	29,925	$	867	$	211,473

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

Real estate mortgage:
Residential
Pass	$	117,468	$	218,678	$	120,137	$	70,364	$	45,930	$	17,038	$	51,814	$	129,802	$	771,231
Special Mention	—		409		274		—		—		—		—		—		683
Substandard or Lower	—		—		—		—		—		1,798		—		70		1,868


	$	117,468	$	219,087	$	120,411	$	70,364	$	45,930	$	18,836	$	51,814	$	129,872	$	773,782

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

Commercial
Pass	$	43,594	$	105,217	$	134,960	$	50,535	$	25,913	$	147,471	$	10,827	$	691	$	519,208
Special Mention	—		—		1,065		—		—		48		—		—		1,113
Substandard or Lower	—		—		—		—		63		5,282		—		—		5,345


	$	43,594	$	105,217	$	136,025	$	50,535	$	25,976	$	152,801	$	10,827	$	691	$	525,666

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

Construction
Pass	$	21,093	$	13,072	$	15,045	$	1,417	$	402	$	4,452	$	261	$	—	$	55,742
Special Mention	—		—		—		—		—		—		—		—		—
Substandard or Lower	—		—		—		—		—		91		—		—		91


	$	21,093	$	13,072	$	15,045	$	1,417	$	402	$	4,543	$	261	$	—	$	55,833

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

Consumer Automobile
Pass	$	101,214	$	85,276	$	21,969	$	17,486	$	8,716	$	5,107	$	—	$	—	$	239,768
Special Mention	—		—		—		—		—		—		—		—		—
Substandard or Lower	—		—		—		—		—		—		—		—		—


	$	101,214	$	85,276	$	21,969	$	17,486	$	8,716	$	5,107	$	—	$	—	$	239,768

Current period gross write offs	$	—	$	247	$	136	$	112	$	6	$	7	$	—	$	—	$	508

Installment loans to individuals
Pass	$	2,609	$	2,406	$	1,291	$	558	$	427	$	3,486	$	—	$	44	$	10,821
Special Mention	—		—		—		—		—		—		—		—		—
Substandard or Lower	—		—		—		—		—		—		—		—		—


	$	2,609	$	2,406	$	1,291	$	558	$	427	$	3,486	$	—	$	44	$	10,821

Current period gross write offs	$	179	$	28	$	20	$	6	$	6	$	19	$	13	$	11	$	282

September 30, 2017
Commercial, Financial, and Agricultural Real Estate Mortgages Installment Loans to Individuals
(In Thousands) Residential Commercial Construction Totals
Pass $ 170,812
$ 572,591
$ 300,679
$ 29,202
$ 86,639
$ 1,159,923
Special Mention 775
1,287
8,522
—
—
10,584
Substandard 3,712
2,256
14,309
150
—
20,427
$ 175,299
$ 576,134
$ 323,510
$ 29,352
$ 86,639
$ 1,190,934

December 31, 2016
Commercial, Financial, and Agricultural Real Estate Mortgages Installment Loans to Individuals
(In Thousands) Residential Commercial Construction Totals
Pass $ 140,497
$ 561,440
$ 277,916
$ 34,493
$ 43,256
$ 1,057,602
Special Mention 2,943
740
11,143
—
—
14,826
Substandard 2,670
2,560
17,123
157
—
22,510
$ 146,110
$ 564,740
$ 306,182
$ 34,650
$ 43,256
$ 1,094,938

Table of Contents

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


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

Allowance for ~~Loan~~Credit Losses

~~An allowance~~Maintaining an appropriate Allowance for ~~loan losses (“ALL”~~Credit Losses ("ACL") is ~~maintained~~dependent on various factors, including the ability to ~~absorb losses from~~identify potential problem loans in a timely manner. For commercial construction, residential construction, commercial and industrial, and commercial real estate, an internal credit rating process is used. Management believes that internal credit ratings are the most relevant credit quality indicator for these types of loans. The migration of loans through the various internal credit rating categories is a significant component of the ACL methodology for these loans, which bases the probability of default on this migration. Assigning credit ratings involves judgment. The Company's loan ~~portfolio. The ALL is~~review process provide a separate assessment of credit rating accuracy. Credit ratings may be changed based on ~~management’s continuing evaluation of~~ the ~~risk characteristics and~~ongoing monitoring procedures performed by loan officers or credit ~~quality~~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 ~~assessment of current economic conditions, diversification~~ and ~~size of~~its impact on the ~~portfolio, adequacy of collateral, past~~ACL. The Company does not assign internal Credit ratings to smaller balance, homogeneous loans, such as home equity, residential mortgage, and ~~anticipated future loss experience,~~consumer automobile loans. For these loans, the most relevant credit quality indicator is delinquency status and ~~the amount of non-performing loans.~~

~~The Banks' methodology for determining the ALL is~~management evaluates credit quality based on the requirements of ASC Section 310-10-35 for loans individually evaluated for impairment (previously discussed) and ASC Subtopic 450-20 for loans collectively evaluated for impairment, as well as the Interagency Policy Statements on the Allowance for Loan and Lease Losses and other bank regulatory guidance. The totalaging status of the ~~two components represents the Banks' ALL.~~loan.

Loans that are collectively evaluated for impairment are analyzed with general allowances being made as appropriate. Allowances are segmented based on collateral characteristics previously disclosed, and consistent with credit quality monitoring. Loans that are collectively evaluated for impairment are grouped into two classes for evaluation. A general allowance is determined for “Pass” rated credits, while a separate pool allowance is provided for “Criticized” rated credits that are not individually evaluated for impairment.

~~For the general allowances, historical~~Historical loss trends are used in the estimation of losses in the current portfolio. These historical loss amounts are modified by other qualitative factors. A historical charge-off factor is calculated utilizing ~~a twelve quarter moving average. However, management may adjust~~ the ~~moving average time frame by up to four quarters to adjust for variances in~~charge-off and recovery data over the ~~economic cycle.~~past ten years. Management has identified a number of additional qualitative factors which it uses to supplement the historical charge-off factor because these factors are likely to cause estimated credit losses associated with the existing loan pools to differ from historical loss experience. The additional factors that are evaluated quarterly and updated using information obtained from internal, regulatory, and governmental sources are: national and local economic trends and conditions; ~~levels of and trends in delinquency rates and non-accrual loans;~~ trends in volumes and terms of loans; effects of changes in lending policies; experience, ability, and depth of lending staff; value of underlying collateral; and concentrations of credit from a loan type, industry and/or geographic standpoint.

Loans in the criticized pools, which possess certain qualities or characteristics that may lead to collection and loss issues, are closely monitored by management and subject to additional qualitative factors. Management also monitors industry loss factors by loan segment for applicable adjustments to actual loss experience.

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

Table of Contents

Activity in the allowance is presented for the three and nine months ended September 30, ~~2017~~2023 and ~~2016:~~2022:

Three Months Ended September 30, 2017
Commercial, Financial, and Agricultural Real Estate Mortgages Installment Loans to Individuals
(In Thousands) Residential Commercial Construction Unallocated Totals
Beginning Balance $ 1,731
$ 5,337
$ 3,727
$ 172
$ 779
$ 1,363
$ 13,109
Charge-offs (68 ) (155 ) —
—
(55 ) —
(278 )
Recoveries 6
16
—
2
18
—
42
Provision (81 ) 232
300
(26 ) 144
(509 ) 60
Ending Balance $ 1,588
$ 5,430
$ 4,027
$ 148
$ 886
$ 854
$ 12,933


	Three Months Ended September 30, 2016																												Three Months Ended September 30, 2023
	Commercial, Financial, and Agricultural				Real Estate Mortgages											Installment Loans to Individuals													Commercial, Financial, and Agricultural				Real Estate Mortgages												Consumer automobile					Other consumer installment
(In Thousands)				Residential				Commercial				Construction							Unallocated				Totals			(In Thousands)						Residential				Commercial				Construction								Unallocated							Totals
Beginning Balance		$	1,273			$	5,851			$	4,001			$	143		$	277			$	972			$	12,517		Beginning Balance			$	3,019			$	1,078			$	4,191			$	178				$	2,446				$	680				$	—				$	11,592
Charge-offs	(18		)		(4		)		—				—			(67		)		—				(89		)	Charge-offs			—				—				—				—					(130)					(86)					—					(216)
Recoveries	4				8				3				1			16				—				32			Recoveries		106				22				1				—					27					27					—					183
Provision	(9		)		(550		)		642				(29		)	111				93				258			Provision		788				68				131				20				241					83					—					1,331
Ending Balance	$	1,250			$	5,305			$	4,646			$	115		$	337			$	1,065			$	12,718		Ending Balance		$	3,913			$	1,168			$	4,323			$	198			$	2,584				$	704				$	—				$	12,890


	Three Months Ended September 30, 2022
	Commercial, Financial, and Agricultural		Real Estate Mortgages						Consumer automobile		Other consumer installment
(In Thousands)			Residential		Commercial		Construction						Unallocated		Totals
Beginning Balance	$	2,108	$	4,818	$	5,395	$	199	$	1,307	$	110	$	456	$	14,393
Charge-offs	(18)		—		—		—		(57)		(85)		—		(160)
Recoveries	93		1		1		—		10		18		—		123
Provision	(114)		376		140		11		325		75		42		855
Ending Balance	$	2,069	$	5,195	$	5,536	$	210	$	1,585	$	118	$	498	$	15,211

~~Table of Contents~~


t	Nine Months Ended September 30, 2023
	Commercial, Financial, and Agricultural		Real Estate Mortgages						Consumer automobile		Other consumer installment
(In Thousands)			Residential		Commercial		Construction						Unallocated		Totals
Beginning Balance	$	1,914	$	5,061	$	6,110	$	188	$	1,617	$	109	$	638	$	15,637
Impact of adopting ASC 326	2,656		(3,893)		(2,660)		(96)		240		602		(638)		(3,789)
Charge-offs	—		(81)		(62)		—		(507)		(283)		—		(933)
Recoveries	1,067		25		26		—		66		65		—		1,249
Provision	(1,724)		56		909		106		1,168		211		—		726
Ending Balance	$	3,913	$	1,168	$	4,323	$	198	$	2,584	$	704	$	—	$	12,890


	Nine Months Ended September 30, 2022
	Commercial, Financial, and Agricultural		Real Estate Mortgages						Consumer automobile		Other consumer installment
(In Thousands)			Residential		Commercial		Construction						Unallocated		Totals
Beginning Balance	$	1,946	$	4,701	$	5,336	$	179	$	1,411	$	111	$	492	$	14,176
Charge-offs	(18)		(15)		(155)		—		(234)		(188)		—		(610)
Recoveries	138		46		3		28		32		63		—		310
Provision	3		463		352		3		376		132		6		1,335
Ending Balance	$	2,069	$	5,195	$	5,536	$	210	$	1,585	$	118	$	498	$	15,211

Nine Months Ended September 30, 2017
Commercial, Financial, and Agricultural Real Estate Mortgages Installment Loans to Individuals
(In Thousands) Residential Commercial Construction Unallocated Totals
Beginning Balance $ 1,554
$ 5,383
$ 4,975
$ 178
$ 416
$ 390
$ 12,896
Charge-offs (81 ) (540 ) —
—
(186 ) —
(807 )
Recoveries 117
51
1
7
63
—
239
Provision (2 ) 536
(949 ) (37 ) 593
464
605
Ending Balance $ 1,588
$ 5,430
$ 4,027
$ 148
$ 886
$ 854
$ 12,933

Nine Months Ended September 30, 2016
Commercial, Financial, and Agricultural Real Estate Mortgages Installment Loans to Individuals
(In Thousands) Residential Commercial Construction Unallocated Totals
Beginning Balance $ 1,532
$ 5,116
$ 4,217
$ 160
$ 243
$ 776
$ 12,044
Charge-offs (167 ) (11 ) —
—
(171 ) —
(349 )
Recoveries 56
14
8
6
73
—
157
Provision (171 ) 186
421
(51 ) 192
289
866
Ending Balance $ 1,250
$ 5,305
$ 4,646
$ 115
$ 337
$ 1,065
$ 12,718

The ~~shifts~~shift in allocation and the changes in the provision for credit losses are primarily due to changes in the credit metrics within the loan portfolio coupled with the adoption of CECL on January 1, 2023. The decrease in provision for consumer automobile loans for the three month period was driven by increased net recoveries that offset the impact of increased loan volume, while the increase in provision for the nine month period ended September 30, 2023 was driven by loan volume coupled with increased net charge-offs. The increase in provision for commercial, financial, and agricultural for the three month period was primarily the result of loan volume, while the decrease in provision for the nine month period ended September 30, 2023 was the result of improving credit metrics coupled with a large recovery during the three month period ended June 30, 2023 which effected the historical loss rate calculations. The provision for commercial real estate remained steady for the three month period and increased for the nine month period ended September 30, 2023 primarily due to growth within this segment of the loan provision is due to an increase in residential originations along with a tapering of commercial originations along with the increase in installment loan volume. Within installment loans to individuals is indirect auto lending that was started during 2016.portfolio.

The Company grants commercial, industrial, residential, and installment loans to customers primarily throughout north-east and central Pennsylvania. Although the Company has a diversified loan portfolio, a substantial portion of its debtors’ ability to honor their contracts is dependent on the economic conditions within this region.

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The Company has a concentration of the following to gross loans at September 30, ~~2017~~2023 and ~~2016:~~2022:


	September 30,
	2023		2022
Owners of residential rental properties	18.99	%	19.95	%
Owners of commercial rental properties	14.62	%	16.09	%

September 30,
2017 2016
Owners of residential rental properties 15.34 % 16.64 %
Owners of commercial rental properties 13.45 % 14.11 %

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment based on impairment method as of ~~September 30, 2017 and~~ December 31, ~~2016:~~2022:


	December 31, 2022
	Commercial, Financial, and Agricultural		Real Estate Mortgages						Consumer Automobile		Other consumer installment		Unallocated
(In Thousands)			Residential		Commercial		Construction								Totals
Allowance for Loan Losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	4	$	111	$	827	$	—	$	—	$	19	$	—	$	961
Collectively evaluated for impairment	1,910		4,950		5,283		188		1,617		90		638		14,676
Total ending allowance balance	$	1,914	$	5,061	$	6,110	$	188	$	1,617	$	109	$	638	$	15,637

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

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

September 30, 2017
Commercial, Financial, and Agricultural Real Estate Mortgages Installment Loans to Individuals Unallocated
(In Thousands) Residential Commercial Construction Totals
Allowance for Loan Losses:

Ending allowance balance attributable to loans:

Individually evaluated for impairment $ 207
$ 224
$ 1,629
$ —
$ —
$ —
$ 2,060
Collectively evaluated for impairment 1,381
5,206
2,398
148
886
854
10,873
Total ending allowance balance $ 1,588
$ 5,430
$ 4,027
$ 148
$ 886
$ 854
$ 12,933

Loans:

Individually evaluated for impairment $ 1,396
$ 2,797
$ 10,655
$ —
$ —

$ 14,848
Collectively evaluated for impairment 173,903
573,337
312,855
29,352
86,639

1,176,086
Total ending loans balance $ 175,299
$ 576,134
$ 323,510
$ 29,352
$ 86,639

$ 1,190,934

~~Table of Contents~~

December 31, 2016
Commercial, Financial, and Agricultural Real Estate Mortgages Installment Loans to Individuals Unallocated
(In Thousands) Residential Commercial Construction Totals
Allowance for Loan Losses:

Ending allowance balance attributable to loans:

Individually evaluated for impairment $ 74
$ 437
$ 1,668
$ —
$ —
$ —
$ 2,179
Collectively evaluated for impairment 1,480
4,946
3,307
178
416
390
10,717
Total ending allowance balance $ 1,554
$ 5,383
$ 4,975
$ 178
$ 416
$ 390
$ 12,896

Loans:

Individually evaluated for impairment $ 241
$ 3,477
$ 12,258
$ —
$ —

$ 15,976
Collectively evaluated for impairment 145,869
561,263
293,924
34,650
43,256

1,078,962
Total ending loans balance $ 146,110
$ 564,740
$ 306,182
$ 34,650
$ 43,256

$ 1,094,938

Note 7. Net Periodic Benefit Cost-Defined Benefit Plans

For a detailed disclosure on the Company’s pension and employee benefits plans, please refer to Note 13 of the Company’s Consolidated Financial Statements included in the Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2022.

The following sets forth the components of the net periodic ~~benefit/cost~~expense/(gain) of the domestic non-contributory defined benefit plan for the three and nine months ended September 30, ~~2017~~2023 and ~~2016,~~2022, respectively:


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

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


Amortization of net loss	37		17		111		52
Net periodic benefit	$	(91)	$	(257)	$	(273)	$	(771)

Three Months Ended September 30, Nine Months Ended September 30,
(In Thousands) 2017 2016 2017 2016
Service cost $ 41
$ 17
$ 124
$ 51
Interest cost 188
193
566
579
Expected return on plan assets (262 ) (251 ) (787 ) (753 )
Amortization of net loss 45
39
129
117
Net periodic benefit cost $ 12
$ (2 ) $ 32
$ (6 )

Employer Contributions

The Company previously disclosed in its consolidated financial statements, included in the Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2022, that it ~~expected~~does not expect to contribute ~~a minimum of $500,000~~ to its defined benefit plan in ~~2017.~~2023. As of September 30, ~~2017,~~2023, there were no contributions ~~of $500,000~~ made to the ~~plan with additional contributions~~pension plan.

Table of ~~at least $250,000 anticipated during the remainder of 2017.~~Contents

Note 8. ~~Employee~~ Stock Purchase ~~Plan~~Plans

The Company maintains an Employee Stock Purchase Plan (“Plan”). The Plan is intended to encourage employee participation in the ownership and economic progress of the Company. The Plan allows for up to ~~1,000,000~~1,500,000 shares to be purchased by employees. The purchase price of the shares is 95% of market value with an employee eligible to purchase up to the lesser of 15% of base compensation or $12,000 in market value annually. During the nine months ended September 30, ~~2017~~2023 and ~~2016,~~2022, there were ~~1,611~~3,120 and ~~1,617~~2,960 shares issued under the ~~plan, respectively.~~Plan, respectively, for total proceeds of $73,000 and $67,000.

The Company maintains the 2020 Non-Employee Director Compensation Plan ("Director Plan"). Under this Director Plan, non-employee directors who have not attained specified stock ownership levels are required to receive a portion of their annual compensation in the form of common stock (currently 50% of total annual compensation), with the ability to elect to receive up to 100% of annual compensation in the form of common stock by making a written election prior to the calendar year to which the compensation relates. The Director Plan allows for up to 100,000 shares to be issued. As of September 30, 2023, the Company has issued a total of 42,191 shares of common stock to non-employee directors under the Director Plan in lieu of otherwise payable cash compensation with 7,560 and 9,968 shares issued, respectively, with an associated expense of $193,000 and $240,000 during the nine months ended September 30, 2023 and 2022.

~~Table of Contents~~

Note 9. ~~Off Balance~~Off-Balance Sheet Risk

The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments are primarily comprised of commitments to extend credit, standby letters of credit, and credit exposure from the sale of assets with recourse. These instruments involve, to varying degrees, elements of credit, interest rate, or liquidity risk in excess of the amount recognized in the Consolidated Balance Sheet. The contract amounts of these instruments express the extent of involvement the Company has in particular classes of financial instruments.

The Company’s exposure to credit loss from nonperformance by the other party to the financial instruments for commitments to extend credit and standby letters of credit is represented by the contractual amount of these instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. The Company may require collateral or other security to support financial instruments with off-balance sheet credit risk.

Financial instruments whose contract amounts represent credit risk are as follows at September 30, ~~2017~~2023 and December 31, ~~2016:~~2022:


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

(In Thousands) September 30, 2017 December 31, 2016
Commitments to extend credit $ 270,046
$ 263,487
Standby letters of credit 9,923
6,515
Credit exposure from the sale of assets with recourse 4,699
6,341
$ 284,668
$ 276,343

Commitments to extend credit are legally binding agreements to lend to customers. Commitments generally have fixed expiration dates or other termination clauses and may require payment of fees. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future liquidity requirements. The Company evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company, on an extension of credit is based on management’s credit assessment of the counterparty.

Standby letters of credit represent conditional commitments issued by the Company to guarantee the performance of a customer to a third party. These instruments are issued primarily to support bid or performance related contracts. The coverage period for these instruments is typically a one year period with an annual renewal option subject to prior approval by management. Fees earned from the issuance of these letters are recognized upon expiration of the coverage period. For secured letters of credit, the collateral is typically Bank deposit instruments or customer business assets.

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Note 10. Fair Value Measurements

The following disclosures show the ~~hierarchal~~hierarchical disclosure framework associated with the level of pricing observations utilized in measuring assets and liabilities at fair value.



Level I:						Quoted prices are available in active markets for identical assets or liabilities as of the reported date.

Level II:						Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these assets and liabilities include items for which quoted prices are available but traded less frequently, and items that are fair valued using other financial instruments, the parameters of which can be directly observed.

Level III:						Assets and liabilities that have little to no pricing observability as of the reported date. These items do not have two-way markets and are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation.

This hierarchy requires the use of observable market data when available.

~~Table of Contents~~

The following table presents the assets reported on the Consolidated Balance Sheet at their fair value on a recurring basis as of September 30, ~~2017~~2023 and December 31, ~~2016,~~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.


	September 30, 2023
(In Thousands)	Level I		Level II		Level III		Total
Assets measured on a recurring basis:
Investment securities, available for sale:
U.S. Government and agency securities	$	—	$	3,864	$	—	$	3,864
Mortgage-backed securities	—		11,396		—		11,396

State and political securities	—		119,847		—		119,847
Other debt securities	—		49,560		—		49,560
Investment equity securities:

Equity securities	1,072		—		—		1,072

September 30, 2017
(In Thousands) Level I Level II Level III Total
Assets measured on a recurring basis:

Investment securities, available for sale:

Mortgage-backed securities $ —
$ 4,530
$ —
$ 4,530
State and political securities —
62,327
—
62,327
Other debt securities —
51,973
—
51,973
Financial institution equity securities 12,224
—
—
12,224
Non-financial institution equity securities 1,259
—
—
1,259
Investment securities, trading:
Financial institution equity securities 63
—
—
63
Non-financial institution equity securities 147
—
—
147


	December 31, 2022
(In Thousands)	Level I		Level II		Level III		Total
Assets measured on a recurring basis:
Investment securities, available for sale:
U.S. Government and agency securities	$	—	$	2,896	$	—	$	2,896
Mortgage-backed securities	—		1,282		—		1,282

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

Equity securities	1,142		—		—		1,142

December 31, 2016
(In Thousands) Level I Level II Level III Total
Assets measured on a recurring basis:

Investment securities, available for sale:

Mortgage-backed securities $ —
$ 9,313
$ —
$ 9,313
Asset-backed securities —
109
—
109
State and political securities —
60,934
—
60,934
Other debt securities —
51,118
—
51,118
Financial institution equity securities 10,535
—
—
10,535
Non-financial institution equity securities 1,483
—
—
1,483
Investment securities, trading:
Non-financial institution equity securities 58
—
—
58

The following table presents the assets reported on the Consolidated Balance Sheet at their fair value on a non-recurring basis as of September 30, ~~2017~~2023 and December 31, ~~2016,~~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.


	September 30, 2017									September 30, 2023
(In Thousands)	Level I		Level II		Level III		Total		(In Thousands)	Level I		Level II		Level III		Total
Assets measured on a non-recurring basis:									Assets measured on a non-recurring basis:
Impaired loans	$	—	$	—	$	12,788	$	12,788
Collateral dependent loans									Collateral dependent loans	$	—	$	—	$	331	$	331
Other real estate owned	—		—		108		108		Other real estate owned	—		—		853		853

December 31, 2016
(In Thousands) Level I Level II Level III Total
Assets measured on a non-recurring basis:

Impaired loans $ —
$ —
$ 13,797
$ 13,797
Other real estate owned —
—
839
839

Table of Contents


	December 31, 2022
(In Thousands)	Level I		Level II		Level III		Total
Assets measured on a non-recurring basis:
Impaired loans	$	—	$	—	$	1,923	$	1,923
Other real estate owned	—		—		83		83

The following tables present a listing of significant unobservable inputs used in the fair value measurement process for items valued utilizing level III techniques as of September 30, ~~2017~~2023 and December 31, ~~2016:~~2022:

September 30, 2023

Quantitative Information About Level III Fair Value Measurements

(In Thousands)

Fair Value

Valuation Technique(s)

Unobservable Inputs

Range

Weighted Average

Collateral dependent loans

331

Appraisal of collateral (1)

Appraisal adjustments (1)

(15)% to (24)%

(20)%

Other real estate owned

853

Appraisal of collateral (1)

Appraisal adjustments (1)

(20)%

September 30, 2017
Quantitative Information About Level III Fair Value Measurements
(In Thousands) Fair Value Valuation Technique(s) Unobservable Inputs Range Weighted Average
Impaired loans $ 5,753
Discounted cash flow Temporary reduction in payment amount 0 to (100)% (18)%
7,035

Appraisal of collateral (1)

Appraisal adjustments (1)
0 to (20)% (16)%
Other real estate owned $ 108

Appraisal of collateral (1)

Appraisal adjustments (1)
(20)% (20)%

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

December 31, 2022

Quantitative Information About Level III Fair Value Measurements

(In Thousands)

Fair Value

Valuation Technique(s)

Unobservable Inputs

Range

Weighted Average

Impaired loans

1,923

Appraisal of collateral (1)

Appraisal adjustments (1)

0% to (34)%

(14)%

Other real estate owned

Appraisal of collateral (1)

Appraisal adjustments (1)

(20)%

December 31, 2016
Quantitative Information About Level III Fair Value Measurements
(In Thousands) Fair Value Valuation Technique(s) Unobservable Inputs Range Weighted Average
Impaired loans $ 5,304
Discounted cash flow Temporary reduction in payment amount 0 to (70)% (20)%
8,493

Appraisal of collateral (1)

Appraisal adjustments (1)
0 to (20)% (15)%
Other real estate owned $ 839

Appraisal of collateral (1)

Appraisal adjustments (1)
(20)% (20)%

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

~~The discounted cash flow valuation technique is utilized to determine the fair value of performing impaired loans, while non-performing impaired loans utilize the appraisal of collateral method.~~

The significant unobservable inputs used in the fair value measurement of the Company’s impaired loans using the discounted cash flow valuation technique include temporary changes in payment amounts and the probability of default. Significant increases (decreases) in payment amounts would result in significantly higher (lower) fair value measurements. The probability of default is 0% for impaired loans using the discounted cash flow valuation technique because all defaulted impaired loans are valued using the appraisal of collateral valuation technique.

The significant unobservable input used in the fair value measurement of the Company’s impaired loans using the appraisal of collateral valuation technique include appraisal adjustments, which are adjustments to appraisals by management for qualitative factors such as economic conditions and estimated liquidation expenses. The significant unobservable input used in the fair value measurement of the Company’s other real estate owned are the same inputs used to value impaired loans using the appraisal of collateral valuation technique.

Note 11. Fair Value of Financial Instruments

The Company is required to disclose fair values for its financial instruments. Fair values are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Also, it is the Company’s general practice and intention to hold most of its financial instruments to maturity and not to engage in trading or sales activities. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These fair values are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions can significantly affect the fair values.

Fair values have been determined by the Company using historical data and an estimation methodology suitable for each category of financial instruments. The Company’s fair values ~~methods, and assumptions~~ are set forth below for the Company’s other financial instruments.

~~Table of Contents~~

As certain assets and liabilities, such as deferred tax assets, premises and equipment, and many other operational elements of the Company, are not considered financial instruments but have value, this fair value of financial instruments would not represent the full market value of the Company.

Table of Contents

The fair values of the Company’s financial instruments not recorded at fair value on a recurring or nonrecurring basis are as follows at September 30, ~~2017~~2023 and December 31, ~~2016:~~2022:


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






Loans held for sale (1)	$	4,083	$	4,083	$	4,083	$	—	$	—
Loans, net	1,805,571		1,761,944		—		—		1,761,944



Financial liabilities:

Time deposits & brokered deposits	356,244		350,456		—		—		350,456
Short-term borrowings	193,746		193,746		193,746		—		—
Long-term borrowings	217,645		238,977		—		—		238,977

Carrying Fair Fair Value Measurements at September 30, 2017
(In Thousands) Value Value Level I Level II Level III
Financial assets:

Cash and cash equivalents $ 27,747
$ 27,747
$ 27,747
$ —
$ —
Investment securities:

Available for sale 132,313
132,313
13,483
118,830
—
Trading 210
210
210
—
—
Loans held for sale 1,734
1,734
1,734
—
—
Loans, net 1,176,781
1,210,822
—
—
1,210,822
Bank-owned life insurance 27,827
27,827
27,827
—
—
Accrued interest receivable 4,289
4,289
4,289
—
—

Financial liabilities:

Interest-bearing deposits $ 843,166
$ 845,103
$ 637,841
$ —
$ 207,262
Noninterest-bearing deposits 310,830
310,830
310,830
—
—
Short-term borrowings 41,596
41,596
41,596
—
—
Long-term borrowings 80,998
80,787
—
—
80,787
Accrued interest payable 483
483
483
—
—

Carrying Fair Fair Value Measurements at December 31, 2016
(In Thousands) Value Value Level I Level II Level III
Financial assets:

Cash and cash equivalents $ 43,671
$ 43,671
$ 43,671
$ —
$ —
Investment securities:

Available for sale 133,492
133,492
12,018
121,474
—
Trading 58
58
58
—
—
Loans held for sale 1,953
1,953
1,953
—
—
Loans, net 1,080,785
1,088,122
—
—
1,088,122
Bank-owned life insurance 27,332
27,332
27,332
—
—
Accrued interest receivable 3,672
3,672
3,672
—
—

Financial liabilities:

Interest-bearing deposits $ 791,937
$ 789,401
$ 571,768
$ —
$ 217,633
Noninterest-bearing deposits 303,277
303,277
303,277
—
—
Short-term borrowings 13,241
13,241
13,241
—
—
Long-term borrowings 85,998
86,353
—
—
86,353
Accrued interest payable 455
455
455
—
—

~~Cash and Cash Equivalents, Loans Held for Sale, Accrued Interest Receivable, Short-term Borrowings, and Accrued Interest Payable:~~

(1) The ~~fair value~~financial instrument is ~~equal to~~carried at cost at, September 30, 2023 which approximate the ~~carrying value.~~

~~Investment Securities:~~

~~The~~ fair value of ~~investment securities available for sale and trading~~the instruments


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





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



Financial liabilities:

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

(1) The financial instrument is ~~equal to~~carried at cost at, December 31, 2022 which approximate the available quoted market price. If no quoted market price is available, fair value is estimated using the quoted market price for similar securities. Regulatory stocks’ fair value is equal to the carrying value.

~~Table of Contents~~

~~Loans:~~

Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type such as commercial, financial, and agricultural, commercial real estate, residential real estate, construction real estate, and installment loans to individuals. Each loan category is further segmented into fixed and adjustable rate interest terms and by performing and nonperforming categories.

~~The~~ fair value of ~~performing loans~~the instruments

The methods and assumptions used by the Company in estimating fair values of financial instruments is ~~calculated~~in accordance with ASC Topic 825, Financial Instruments, as amended by ~~discounting scheduled cash flows through the estimated maturity using estimated market discount rates that reflect the credit and interest rate risk inherent~~ASU 2016-01 which requires public entities to use exit pricing in the ~~loan. The estimate of maturity is based on the Company’s historical experience with repayments for each loan classification, modified, as required, by an estimate~~calculation of the ~~effect of current economic and lending conditions.~~above tables.

Fair value for significant nonperforming loans is based on recent external appraisals. If appraisals are not available, estimated cash flows are discounted using a rate commensurate with the risk associated with the estimated cash flows. Assumptions regarding credit risk, cash flows, and discounted rates are judgmentally determined using available market information and specific borrower information.

~~Bank-Owned Life Insurance:~~

~~The fair value is equal to the cash surrender value of the life insurance policies.~~

~~Deposits:~~

The fair value of deposits with no stated maturity, such as noninterest-bearing demand deposits, savings, NOW, and money market accounts, is equal to the amount payable on demand. The fair value of certificates of deposit is based on the discounted value of contractual cash flows.

The fair value estimates above do not include the benefit that results from the low-cost funding provided by the deposit liabilities compared to the cost of borrowing funds in the market, commonly referred to as the core deposit intangible.

~~Long Term Borrowings:~~

~~The fair value of long term borrowings is based on the discounted value of contractual cash flows.~~

~~Commitments to Extend Credit, Standby Letters of Credit, and Financial Guarantees Written:~~

There is no material difference between the notional amount and the estimated fair value of off-balance sheet items. The contractual amounts of unfunded commitments and letters of credit are presented in Note 9 (Off Balance Sheet Risk).

Note 12. Stock Options

In ~~2014,~~2020, the Company adopted the 2020 Equity Incentive Plan which replaced the 2014 Equity Incentive Plan that did not have any remaining shares available for issuance. The plans are designed to help the Company attract, retain, and motivate employees and non-employee directors. Incentive stock options, non-qualified stock options, ~~and~~ restricted stock, restricted stock units, and other equity-based awards may be granted as part of the plan.

~~On August 27, 2015,~~As of January 1, 2023, the Company had a total of 914,000 stock options outstanding. During the nine months ended as of September 30, 2023, the Company issued ~~38,750~~89,000 stock options with a strike price of ~~$42.03~~$27.77 to ~~employees that have~~ a ~~five year vesting period and~~group of employees. The options granted in 2023 all expire ten years from the grant date. ~~On March 24, 2017,~~Of the ~~Company issued 70,000 stock options in total, to a group of employees, that have a strike price of $44.21. The options granted in 2017 all expire ten years from the grant date however, of the 70,000~~89,000 grants awarded ~~46,250~~in 2023, 59,500 of the options ~~have a~~vest in three ~~year vesting period~~years while the 29,500 remaining ~~23,750~~ options vest in five years.

Stock Options Granted
Date Shares Forfeited Outstanding Strike Price Vesting Period Expiration
March 24, 2017 46,250
—
46,250
$ 44.21
3 years 10 years
March 24, 2017 23,750
—
23,750
44.21
5 years 10 years
August 27, 2015 38,750
(13,750 ) 25,000
42.03
5 years 10 years

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


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

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






August 27, 2015	58,125	(26,250)	(28,875)	3,000	28.02		5 years	10 years

A summary of stock option activity for the nine months ended September 30, 2023 is presented below:


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

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

Exercisable, end of period	223,400	$	26.58

September 30, 2017 September 30, 2016
Shares Weighted Average Exercise Price Shares Weighted Average Exercise Price
Outstanding, beginning of year 26,500
$ 42.03
34,750
$ 42.03
Granted 70,000
44.21
—
—
Exercised —
—
—
—
Forfeited (1,500 ) 42.03
(3,750 ) 42.03
Expired —
—
—
—
Outstanding, end of year 95,000
$ 43.64
31,000
$ 42.03

Exercisable, end of year —
$ —
—
$ —

The estimated fair value of options, including the effect of estimated forfeitures, is recognized as expense on a ~~straightline~~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 ~~Company determines the~~ fair value of stock options ~~granted~~is estimated using the Black-Scholes ~~option-pricing~~option pricing model. The ~~risk-free interest rate~~following is ~~based on the United States Treasury bond with~~ a ~~similar term to the expected life~~summary of the assumptions used in this model for stock options atgranted for the grant date. Expected volatility was estimated based on the adjusted historic volatility of the Company’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.nine months ended September 30, 2023:


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

Compensation expense for stock options is recognized using the fair value when the stock options are granted and is amortized over the options' vesting period. Compensation expense ~~with a corresponding increase in contributed surplus,~~ related to stock options was ~~$8,000~~$229,000 and ~~$21,000~~$715,000 for the three and nine ~~month periods~~months ended September 30, ~~2017~~2023 compared to ~~$6,000~~$236,000 and ~~$17,000~~$1,004,000 for the same periods of ~~2016.~~2022. As of September 30, ~~2017, no~~2023, a total of 223,400 stock options were exercisable and the weighted average years to expiration ~~were 9~~of these options was 5.94 years. ~~The fair value of options granted during the three and nine month periods ending September 30, 2017 was approximately zero and $2,173,000 respectively or zero and $31.04 per award.~~ Total unrecognized compensation cost for non-vested ~~shares, $99,000,~~options was $1,437,000 and will be recognized over their weighted average remaining vesting period of ~~3.56~~1.08 years.

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Note 13. Reclassification of Comparative Amounts

Certain comparative amounts for the prior period have been reclassified to conform to current period presentations. Such reclassifications had no effect on net income or shareholders’ ~~equity.~~equity

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CAUTIONARY STATEMENT FOR PURPOSES OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

This Report contains certain “forward-looking statements” including statements concerning plans, objectives, future events or performance and assumptions and other statements which are other than statements of historical fact. The Company cautions readers that the following important factors, among others, may have affected and could in the future affect the Company’s actual results and could cause the Company’s actual results for subsequent periods to differ materially from those expressed in any forward-looking statement made by or on behalf of the Company herein: (i) the effect of changes in laws and regulations, including federal and state banking laws and regulations, with which the Company must comply, and the associated costs of compliance with such laws and regulations either currently or in the future as applicable; (ii) the effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies as well as by the Financial Accounting Standards Board, or of changes in the Company’s organization, compensation and benefit plans; (iii) the effect on the Company’s competitive position within its market area of the increasing consolidation within the banking and financial services industries, including the increased competition from larger regional and out-of-state banking organizations as well as non-bank providers of various financial services; (iv) the effect of changes in interest rates; (v) the effects of external events, including natural disasters, national or global health emergencies, and events of armed conflict in other countries; or (vi) the effect of changes in the business cycle and downturns in the local, regional or national ~~economies;~~economies, including the effects of inflation,; and ~~(vi)~~(vii) the Risk Factors identified in Item 1A of the Company's Annual Report on Form 10-K for the year ended December 31, ~~2016~~2022 and in other filings made by the Company under the Securities Exchange Act of 1934.

~~Table of Contents~~

You should not put undue reliance on any forward-looking statements. These statements speak only as of the date of this Quarterly Report on Form 10-Q, even if subsequently made available by the Company on its website or otherwise. The Company undertakes no obligation to update or revise these statements to reflect events or circumstances occurring after the date of this Quarterly Report on Form 10-Q.

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

EARNINGS SUMMARY

Comparison of the Three and Nine Months Ended September 30, ~~2017~~2023 and ~~2016~~2022

Summary Results

Net income for the three and nine months ended September 30, 2023 was $2.2 million and $11.1 million, compared to $5.3 million and $12.9 million for the same periods of 2022. Results for the three and nine months ended September 30, 2023 compared to 2022 were impacted by a decrease in net interest income of $2.2 million and $1.2 million as interest expense increased significantly due to the velocity and magnitude of the rate increases enacted by the Federal Open Market Committee ("FOMC"). In addition, results were impacted by a decrease in after-tax securities losses of $77,000 (from a loss of $167,000 to a loss of $90,000) for the three month period and a decrease in after-tax securities losses of $106,000 (from a loss of $258,000 to a loss of $152,000) for the nine month period. Bank-owned life insurance income increased due to a gain on death benefit of $380,000 during the nine months ended September 30, 2023, while an after-tax loss of $201,000 related to a branch closure negatively impacted the nine months ended September 30, 2022. The provision for credit losses increased $517,000 for the three months ended September 30, ~~2017 was $3,284,000~~2023 and decreased $1.1 million for the nine months ended September 30, 2023 due to a provision of $1.4 million and $263,000, respectively, for the 2023 periods compared to ~~$3,059,000~~a provision of $835,000 and $1.3 million for the ~~same period of 2016 as after-tax securities gains increased $25,000 (from a gain of $172,000~~2022 periods. The decrease for the nine month periods was due primarily to a ~~loss~~recovery on a commercial loan during the second quarter of ~~$197,000).~~2023. The increase in the provision for credit losses for the 2023 three month period was due primarily to loan portfolio growth as loan portfolio credit metrics continue to improve and loan net charge-offs remain at a low level. Basic earnings per share for the three and nine months ended September 30, 2023 were $0.31 and $1.56, while the diluted earnings per share were $0.31 and $1.53 for the periods. Basic and diluted earnings per share for the three and nine months ended September 30, ~~2017~~2022 were $0.74 and ~~2016 were $0.70 and $0.65, respectively. Return~~$1.83. Annualized return on average assets ~~and~~was 0.41% for three months ended September 30, 2023, compared to 1.09% for the corresponding period of 2022. Annualized return on average assets was 0.70% for the nine months ended September 30, 2023, compared to 0.89% for the corresponding period of 2022. Annualized return on average equity ~~were 0.93% and 9.43%~~was 5.06% for the three months ended September 30, ~~2017~~2023, compared to ~~0.91% and 8.69%~~12.61% for the corresponding period of ~~2016. Net income from core operations (“operating earnings”)~~2022. Annualized return on average equity was $3,087,000 for the three months ended September 30, 2017 compared to $2,887,000 for the same period of 2016. Basic and diluted operating earnings per share for the three months ended September 30, 2017 were $0.66 compared to $0.61 basic and diluted for the corresponding period of 2016. Impacting the level of operating earnings were several factors including the continued shift of earning assets from the investment portfolio to the loan portfolio as the balance sheet is actively managed to reduce market risk and interest rate risk in a rising rate environment. In addition, the effective tax rate has increased due to the conclusion of the ten year tax credit generation period of several low income elderly housing projects in our market footprint in which the company participates.

~~Net income~~8.58% for the nine months ended September 30, ~~2017 was $9,057,000~~2023, compared to ~~$9,529,000~~10.48% for the corresponding period of 2022. Net income from core operations (“core earnings”), which is a non-generally accepted accounting principles (GAAP) measure of net income excluding net securities gains or losses, was $2.3 million and $11.2 million for the three and nine months ended September 30, 2023 compared to $5.4 million and $13.2 million for the same ~~period~~periods of ~~2016 as after-tax securities gains decreased $490,000 (from a gain of $810,000 to a gain of $320,000).~~2022. Basic ~~and diluted~~core earnings per share for the three and nine months ended September 30, ~~2017~~2023 was $0.32 and ~~2016 were $1.92~~$1.58, while the diluted core earnings per share was $0.32 and ~~$2.01, respectively. Return on average assets and return on average equity were 0.87% and 8.69% for the nine months ended September 30, 2017~~$1.55, compared to ~~0.95%~~$0.77 and 9.14% for the corresponding period of 2016. Net income from core operations (“operating earnings”) increased to $8,737,000 for the nine months ended September 30, 2017 compared to $8,719,000 for the same period of 2016. Basic$1.87 basic and diluted ~~operating~~core earnings per share for the ~~nine months ended September 30, 2017 were $1.85 compared to $1.84 basic and diluted for the corresponding period~~same periods of ~~2016.~~2022.

Management uses the non-GAAP measure of net income from core operations ~~or operating earnings,~~ in its analysis of the Company’s performance. This measure, as used by the Company, adjusts net income by excluding significant gains or losses that are unusual in nature. Because certain of these items and their impact on the Company’s performance are difficult to predict, management believes the presentation of financial measures excluding the impact of such items provides useful supplemental information in evaluating the operating results of the Company’s core businesses. For purposes of this Quarterly Report on Form 10-Q, net income from core operations ~~or operating earnings,~~ means net income adjusted to exclude after-tax net securities gains or ~~losses and bank-owned life insurance gains on death benefit.~~losses. These disclosures should not be viewed as a substitute for net income determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies.

Reconciliation of GAAP and Non-GAAP Financial Measures

(Dollars in Thousands, Except Per Share Data) Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
GAAP net income $ 3,284
$ 3,059
$ 9,057
$ 9,529
Less: net securities gains, net of tax 197
172
320
810
Non-GAAP operating earnings $ 3,087
$ 2,887
$ 8,737
$ 8,719

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Return on average assets (ROA) 0.93 % 0.91 % 0.87 % 0.95 %
Less: net securities gains, net of tax 0.05 % 0.05 % 0.03 % 0.08 %
Non-GAAP operating ROA 0.88 % 0.86 % 0.84 % 0.87 %


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

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


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

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Return on average equity (ROE) 9.43 % 8.69 % 8.69 % 9.14 %
Less: net securities gains, net of tax 0.56 % 0.49 % 0.31 % 0.78 %
Non-GAAP operating ROE 8.87 % 8.20 % 8.38 % 8.36 %


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

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Basic earnings per share (EPS) $ 0.70
$ 0.65
$ 1.92
$ 2.01
Less: net securities gains, net of tax 0.04
0.04
0.07
0.17
Non-GAAP basic operating EPS $ 0.66
$ 0.61
$ 1.85
$ 1.84


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

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Dilutive EPS $ 0.70
$ 0.65
$ 1.92
$ 2.01
Less: net securities gains, net of tax 0.04
0.04
0.07
0.17
Non-GAAP dilutive operating EPS $ 0.66
$ 0.61
$ 1.85
$ 1.84

Interest and Dividend Income

Interest and dividend income for the three months ended September 30, 2017 increased to $12,948,000 compared to $11,660,000 for the same period of 2016. Loan portfolio income increased due to the impact of portfolio growth, primarily in home equity products and indirect auto lending. The loan portfolio income increase was offset by a decrease in investment portfolio interest due to a slight decline in the average taxable equivalent yield as the duration in the investment portfolio continues to be shortened in order to reduce interest rate and market risk in the future. This is being undertaken primarily through the sale of long-term municipal bonds that have a maturity date of 2025 or later and securities with a call date within the next five years.

~~During the~~ nine months ended September 30, ~~2017, interest~~2023 increased $7,057,000 and ~~dividend~~$19,355,00 compared to the same periods of 2022. The increase in loan portfolio income was ~~$36,839,000,~~due to an increase ~~of $1,783,000 over~~in the ~~same period of 2016. Interest income~~average loan portfolio balance coupled with an increase in average rate earned on the ~~loan portfolio increased as the growth~~portfolio. Investment securities income has been impacted primarily by an increase in the average rate earned on the portfolio ~~was countered by a 2 bp decline~~as lower yielding legacy investments matured. The increase in ~~average yield. The investment portfolio~~dividend and other interest income ~~decreased as the portfolio size was decreased~~is due primarily to an increase in ~~order to reduce interest rate and market risk, while the yield~~dividends received on ~~the investment portfolio declined 27 bp.~~FHLB restricted stock.

Interest and dividend income composition for the three and nine months ended September 30, ~~2017~~2023 and ~~2016~~2022 was as follows:


	Three Months Ended															Three Months Ended
	September 30, 2017				September 30, 2016				Change							September 30, 2023				September 30, 2022				Change
(In Thousands)	Amount		% Total		Amount		% Total		Amount			%			(In Thousands)	Amount		% Total		Amount		% Total		Amount		%
Loans including fees	$	11,906	91.95	%	$	10,541	90.40	%	$	1,365		12.95		%	Loans including fees	$	21,720	90.80	%	$	15,051	89.25	%	$	6,669	44.31	%
Investment securities:															Investment securities:
Taxable	553		4.27		601		5.15		(48		)	(7.99	)		Taxable	1,365		5.71		949		5.63		416		43.84
Tax-exempt	319		2.46		329		2.82		(10		)	(3.04	)		Tax-exempt	114		0.48		236		1.40		(122)		(51.69)
Dividend and other interest income	170		1.32		189		1.63		(19		)	(10.05	)		Dividend and other interest income	722		3.01		628		3.72		94		14.97
Total interest and dividend income	$	12,948	100.00	%	$	11,660	100.00	%	$	1,288		11.05		%	Total interest and dividend income	$	23,921	100.00	%	$	16,864	100.00	%	$	7,057	41.85	%

Nine Months Ended
September 30, 2017 September 30, 2016 Change
(In Thousands) Amount % Total Amount % Total Amount %
Loans including fees $ 33,642
91.32 % $ 31,362
89.46 % $ 2,280
7.27
%
Investment securities:

Taxable 1,665
4.52 1,825
5.21 (160 ) (8.77 )
Tax-exempt 940
2.55 1,203
3.43 (263 ) (21.86 )
Dividend and other interest income 592
1.61 666
1.90 (74 ) (11.11 )
Total interest and dividend income $ 36,839
100.00 % $ 35,056
100.00 % $ 1,783
5.09
%

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

Interest Expense

Interest expense for the three months ended September 30, 2017 increased $83,000 to $1,496,000 compared to $1,413,000 for the same period of 2016. The increase in interest expense is the result of growth within the deposit portfolio and ~~the lengthening of the time deposit portfolio as part of a strategy to build balance sheet protection in a rising rate environment, offset by a decrease in long-term borrowing utilization.~~

~~Interest expense for the~~ nine months ended September 30, ~~2017~~2023 increased ~~$81,000 from~~$9,257,000 and $20,571,000 compared to the same ~~period~~periods of ~~2016. The reasons noted~~2022. Interest-bearing deposit interest expense increased significantly due a time deposit gathering campaign that generated funding for the ~~three month period comparison also apply~~increase in the loan portfolio. In addition, competition for deposits along with the impact of the rising rate environment contributed to the ~~nine month period.~~increase in deposit interest expense. Brokered deposits have also been utilized as a funding source to supplement in market deposit gathering efforts. Short and long-term borrowing interest expenses increased as borrowings were utilized to fund a portion of the growth in the loan portfolio.

Interest expense composition for the three and nine months ended September 30, ~~2017~~2023 and ~~2016~~2022 was as follows:


	Three Months Ended
	September 30, 2023				September 30, 2022				Change
(In Thousands)	Amount		% Total		Amount		% Total		Amount		%
Deposits	$	6,463	61.04	%	$	693	52.03	%	$	5,770	832.61	%
Short-term borrowings	2,412		22.78		26		1.95		2,386		n/m
Long-term borrowings	1,714		16.18		613		46.02		1,101		179.61
Total interest expense	$	10,589	100.00	%	$	1,332	100.00	%	$	9,257	694.97	%


	Three Months Ended															Nine Months Ended
	September 30, 2017				September 30, 2016				Change							September 30, 2023				September 30, 2022				Change
(In Thousands)	Amount		% Total		Amount		% Total		Amount			%			(In Thousands)	Amount		% Total		Amount		% Total		Amount		%
Deposits	$	1,058	70.72	%	$	909	64.33	%	$	149		16.39		%	Deposits	$	14,686	59.55	%	$	2,191	53.56	%	$	12,495	570.29	%
Short-term borrowings	31		2.07		7		0.50		24			342.86			Short-term borrowings	6,084		24.67		29		0.71		6,055		n/m
Long-term borrowings	407		27.21		497		35.17		(90		)	(18.11	)		Long-term borrowings	3,892		15.78		1,871		45.73		2,021		108.02
Total interest expense	$	1,496	100.00	%	$	1,413	100.00	%	$	83		5.87		%	Total interest expense	$	24,662	100.00	%	$	4,091	100.00	%	$	20,571	502.84��	%

Nine Months Ended
September 30, 2017 September 30, 2016 Change
(In Thousands) Amount % Total Amount % Total Amount %
Deposits $ 2,968
70.22 % $ 2,624
63.29 % $ 344
13.11
%
Short-term borrowings 39
0.92 41
0.99 (2 ) (4.88 )
Long-term borrowings 1,220
28.86 1,481
35.72 (261 ) (17.62 )
Total interest expense $ 4,227
100.00 % $ 4,146
100.00 % $ 81
1.95
%

Net Interest Margin

The net interest margin ~~(“NIM”)~~ for the three months ended September 30, 2017 was 3.57% compared to 3.37% for the corresponding period of 2016. The impact of the decreasing investment portfolio balance was offset by 9.68% growth in the balance of the average loan portfolio from September 30, 2016 to September 30, 2017. The primary funding for the loan growth was an increase in core deposits. These deposits represent a lower cost funding source than time deposits and comprise 81.94% of total deposits at September 30, 2017 compared to 79.60% at September 30, 2016. Limiting the positive impact on the net interest margin caused by the growth in core deposits was the lengthening of the time deposit portfolio.

~~The NIM for the~~ nine months ended September 30, ~~2017~~2023 was ~~3.47%~~2.65% and 2.82%, compared to ~~3.45%~~3.47% and 3.17% for the corresponding periods of 2022. The decrease in the net interest margin for the three and nine month periods was driven by an increase in the rate paid on interest-bearing liabilities of 239 and 189 basis points ("bps"), respectively. The FOMC rate increases during 2022 and 2023 contributed to the increases in rate paid on interest-bearing liabilities as the rate paid on short-term borrowings increased 429 bps and 467 bps for the three and nine month periods ended September 30, 2023 compared to the same periods of 2022. Short-term borrowings increased in volume and rate paid as this funding source was utilized to provide funding for the growth in the loan portfolio, resulting in an increase of $2.4 million and $6.1 million in expense for the three and nine month periods ended September 30, 2023 compared to the same periods of 2022. The rate paid on interest-bearing deposits increased 207 and 154 bps for the three and nine month periods ended September 30, 2023 compared to the corresponding periods of 2022 due to the FOMC rate actions and an increase in competition for deposits. The rates paid on time deposits significantly contributed to the increase in funding costs as rates paid for the three and nine month periods ended September 30, 2023 compared to the same periods of 2022 increased 328 bps and 259 bps, respectively, as deposit gathering campaigns initiated in the latter part of 2022 continued throughout 2023. In addition, the rate paid on brokered deposits increased 384 bps and 328 bps for the three and nine months ended September 30, 2023 compared to the same periods of 2022. The average balance of brokered deposits increased $97,366,000 and $50,212,000 over the three and nine month periods as they have been utilized to assist with the funding of the loan portfolio growth. Partially offsetting the

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increase in funding cost was an increase in the yield on interest-earning assets and growth in the average balance of the earning asset portfolio compared to the same periods in 2022. The average loan portfolio balance increased $276.8 million and $278.2 million for the three and nine month periods, respectively, as the average yield on the portfolio increased 87 and 76 bps for the same ~~period~~periods. The three and nine month periods ended September 30, 2023 were impacted by an increase of ~~2016. The impact of the decreasing investment portfolio balance was partially offset by growth~~113 and 101 bps in the ~~balance of~~yield earned on the ~~average loan~~securities portfolio ~~from September 30, 2016 to September 30, 2017. The rate on interest-bearing liabilities decreased slightly~~ as legacy securities matured with the ~~usage of borrowed~~ funds ~~declined.~~reinvested at higher rates.

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The following is a schedule of average balances and associated yields for the three and nine months ended September 30, ~~2017~~2023 and ~~2016:~~2022:

AVERAGE BALANCES AND INTEREST RATES
Three Months Ended September 30, 2017 Three Months Ended September 30, 2016
(In Thousands) Average Balance (1) Interest Average Rate Average Balance (1) Interest Average Rate
Assets:

Tax-exempt loans (3)
$ 53,850
$ 494
3.64 % $ 45,715
$ 452
3.93 %
All other loans 1,105,615
11,580
4.16 % 1,011,393
10,243
4.03 %
Total loans (2)
1,159,465
12,074
4.13 % 1,057,108
10,695
4.02 %

Taxable securities 83,106
674
3.24 % 93,893
725
3.09 %
Tax-exempt securities (3)
53,320
483
3.62 % 49,231
498
4.05 %
Total securities 136,426
1,157
3.39 % 143,124
1,223
3.42 %

Interest-bearing deposits 14,085
49
1.38 % 48,125
65
0.54 %

Total interest-earning assets 1,309,976
13,280
4.02 % 1,248,357
11,983
3.82 %

Other assets 101,035

101,312

Total assets $ 1,411,011

$ 1,349,669

Liabilities and shareholders’ equity:

Savings $ 157,341
15
0.04 % $ 151,464
15
0.04 %
Super Now deposits 203,531
140
0.27 % 184,440
107
0.23 %
Money market deposits 284,155
267
0.37 % 245,643
170
0.28 %
Time deposits 206,563
636
1.22 % 223,082
617
1.10 %
Total interest-bearing deposits 851,590
1,058
0.49 % 804,629
909
0.45 %

Short-term borrowings 19,127
31
0.64 % 15,748
7
0.18 %
Long-term borrowings 81,107
407
1.96 % 91,025
497
2.14 %
Total borrowings 100,234
438
1.71 % 106,773
504
1.85 %

Total interest-bearing liabilities 951,824
1,496
0.62 % 911,402
1,413
0.61 %

Demand deposits 304,244

281,586

Other liabilities 15,708

15,916

Shareholders’ equity 139,235

140,765

Total liabilities and shareholders’ equity $ 1,411,011

$ 1,349,669

Interest rate spread

3.40 %

3.21 %
Net interest income/margin
$ 11,784
3.57 %
$ 10,570
3.37 %


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

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

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

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

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

Other assets	131,451						130,576

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

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

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

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

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

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

1.Information on this table has been calculated using average daily balance sheets to obtain average balances.

2.Non-accrual loans have been included with loans for the purpose of analyzing net interest earnings.

3.Income and rates on 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 ~~34%~~ tax ~~rate.~~rate of 21% and are reconciled to the equivalent GAAP

measure below the tables.

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	AVERAGE BALANCES AND INTEREST RATES
	Nine Months Ended September 30, 2023						Nine Months Ended September 30, 2022
(In Thousands)	Average Balance (1)		Interest		Average Rate		Average Balance (1)		Interest		Average Rate
Assets:
Tax-exempt loans (3)	$	66,372	$	1,371	2.76	%	$	53,269	$	1,033	2.59	%
All other loans	1,668,596		58,488		4.69	%	1,403,504		40,893		3.90	%
Total loans (2)	1,734,968		59,859		4.61	%	1,456,773		41,926		3.85	%

Federal funds sold	—		—		—	%	43,938		465		1.41	%

Taxable securities	188,477		5,331		3.78	%	152,937		3,126		2.76	%
Tax-exempt securities (3)	25,837		519		2.69	%	45,357		752		2.24	%
Total securities	214,314		5,850		3.65	%	198,294		3,878		2.64	%

Interest-bearing balances in other financial institutions	10,619		366		4.61	%	97,520		429		0.59	%

Total interest-earning assets	1,959,901		66,075		4.41	%	1,796,525		46,698		3.48	%

Other assets	132,133						129,048

Total assets	$	2,092,034					$	1,925,573

Liabilities and shareholders’ equity:
Savings	$	233,784	456		0.26	%	$	246,063	72		0.04	%
Super Now deposits	293,636		3,026		1.38	%	388,149		721		0.25	%
Money market deposits	292,490		4,807		2.20	%	296,998		596		0.27	%
Time deposits	264,855		6,397		3.23	%	167,876		802		0.64	%
Total interest-bearing deposits	1,084,765		14,686		1.81	%	1,099,086		2,191		0.27	%

Short-term borrowings	155,136		6,084		5.26	%	6,308		29		0.59	%
Long-term borrowings	169,276		3,892		3.07	%	112,457		1,871		2.22	%
Total borrowings	324,412		9,976		4.12	%	118,765		1,900		2.14	%

Total interest-bearing liabilities	1,409,177		24,662		2.34	%	1,217,851		4,091		0.45	%

Demand deposits	484,662						519,599
Other liabilities	26,334						23,814
Shareholders’ equity	171,861						164,309

Total liabilities and shareholders’ equity	$	2,092,034					$	1,925,573
Interest rate spread (3)					2.07	%					3.03	%
Net interest income/margin (3)			$	41,413	2.82	%			$	42,607	3.17	%

1. Information on this table has been calculated using average daily balance sheets to obtain average balances.

AVERAGE BALANCES AND INTEREST RATES
Nine Months Ended September 30, 2017 Nine Months Ended September 30, 2016
(In Thousands) Average Balance (1) Interest Average Rate Average Balance (1) Interest Average Rate
Assets:

Tax-exempt loans (3) $ 46,752
$ 1,315
3.76 % $ 49,204
$ 1,432
3.89 %
All other loans 1,081,148
32,774
4.05 % 999,685
30,417
4.06 %
Total loans (2) 1,127,900
34,089
4.04 % 1,048,889
31,849
4.06 %

Taxable securities 85,417
2,039
3.18 % 95,652
2,344
3.27 %
Tax-exempt securities 50,972
1,424
3.72 % 56,291
1,823
4.32 %
Total securities 136,389
3,463
3.39 % 151,943
4,167
3.66 %

Interest-bearing deposits 27,901
218
1.04 % 38,411
147
0.51 %

Total interest-earning assets 1,292,190
37,770
3.91 % 1,239,243
36,163
3.90 %

Other assets 102,181

99,295

Total assets $ 1,394,371

$ 1,338,538

Liabilities and shareholders’ equity:

Savings $ 157,396
45
0.04 % $ 151,158
43
0.04 %
Super Now deposits 198,560
377
0.25 % 190,190
356
0.25 %
Money market deposits 278,436
713
0.34 % 234,918
471
0.27 %
Time deposits 207,331
1,833
1.18 % 221,676
1,754
1.06 %
Total interest-bearing deposits 841,723
2,968
0.47 % 797,942
2,624
0.44 %

Short-term borrowings 13,714
39
0.26 % 20,273
41
0.27 %
Long-term borrowings 79,881
1,220
2.01 % 91,025
1,481
2.14 %
Total borrowings 93,595
1,259
1.76 % 111,298
1,522
1.80 %

Total interest-bearing liabilities 935,318
4,227
0.60 % 909,240
4,146
0.61 %

Demand deposits 301,567

274,488

Other liabilities 18,455

15,775

Shareholders’ equity 139,031

139,035

Total liabilities and shareholders’ equity $ 1,394,371

$ 1,338,538

Interest rate spread

3.31 %

3.29 %
Net interest income/margin
$ 33,543
3.47 %
$ 32,017
3.45 %
2. Non-accrual loans have been included with loans for the purpose of analyzing net interest earnings.

3. Income and rates on fully taxable equivalent basis include an adjustment for the difference between annual income

from tax-exempt obligations and the taxable equivalent of such income at the standard tax rate of 21% and are reconciled to the equivalent GAAP

measure below the tables.

The following table presents the adjustment to convert net interest income to net interest income on a fully taxable equivalent basis for the three and nine months ended September 30, ~~2017~~2023 and ~~2016:~~2022:


	Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands)	2017		2016		2017		2016		(In Thousands)	2023		2022		2023		2022
Total interest income	$	12,948	$	11,660	$	36,839	$	35,056	Total interest income	$	23,921	$	16,864	$	65,678	$	46,323
Total interest expense	1,496		1,413		4,227		4,146		Total interest expense	10,589		1,332		24,662		4,091
Net interest income	11,452		10,247		32,612		30,910
Net interest income (GAAP)									Net interest income (GAAP)	13,332		15,532		41,016		42,232
Tax equivalent adjustment	332		323		931		1,107		Tax equivalent adjustment	127		146		397		375
Net interest income (fully taxable equivalent)	$	11,784	$	10,570	$	33,543	$	32,017
Net interest income (fully taxable equivalent) (NON-GAAP)									Net interest income (fully taxable equivalent) (NON-GAAP)	$	13,459	$	15,678	$	41,413	$	42,607

3837

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The following table sets forth the respective impact that both volume and rate changes have had on net interest income on a fully taxable equivalent basis for the three and nine months ended September 30, ~~2017~~2023 and ~~2016:~~2022:


	Three Months Ended September 30,						Nine months ended September 30,
	2023 vs. 2022						2023 vs. 2022
	Increase (Decrease) Due to						Increase (Decrease) Due to
(In Thousands)	Volume		Rate		Net		Volume		Rate		Net
Interest income:
Tax-exempt loans	$	64	$	4	$	68	$	267	$	71	$	338
All other loans	2,964		3,651		6,615		8,490		9,105		17,595
Federal funds sold	(218)		—		(218)		(465)		—		(465)
Taxable investment securities	274		513		787		851		1,354		2,205
Tax-exempt investment securities	(193)		38		(155)		(297)		64		(233)
Interest bearing deposits	(182)		123		(59)		(325)		262		(63)
Total interest-earning assets	2,709		4,329		7,038		8,521		10,856		19,377

Interest expense:
Savings deposits	(2)		157		155		(1)		385		384
Super Now deposits	(155)		1,042		887		(104)		2,409		2,305
Money market deposits	4		1,658		1,662		(3)		4,214		4,211
Time deposits	489		2,577		3,066		699		4,896		5,595
Short-term borrowings	2,041		345		2,386		4,533		1,522		6,055
Long-term borrowings	706		395		1,101		1,150		872		2,022
Total interest-bearing liabilities	3,083		6,174		9,257		6,274		14,298		20,572
Change in net interest income	$	(374)	$	(1,845)	$	(2,219)	$	2,247	$	(3,442)	$	(1,195)

Three Months Ended September 30, Nine Months Ended September 30,
2017 vs. 2016 2017 vs. 2016
Increase (Decrease) Due to Increase (Decrease) Due to
(In Thousands) Volume Rate Net Volume Rate Net
Interest income:

Tax-exempt loans $ 76
$ (34 ) $ 42
$ (70 ) $ (47 ) $ (117 )
All other loans 993
344
1,337
2,384
(27 ) 2,357
Taxable investment securities (86 ) 35
(51 ) (242 ) (63 ) (305 )
Tax-exempt investment securities 40
(55 ) (15 ) (163 ) (236 ) (399 )
Interest bearing deposits (68 ) 52
(16 ) (27 ) 98
71
Total interest-earning assets 955
342
1,297
1,882
(275 ) 1,607

Interest expense:

Savings deposits —
—
—
2
—
2
Super Now deposits 12
21
33
15
6
21
Money market deposits 31
66
97
99
143
242
Time deposits (47 ) 66
19
(68 ) 147
79
Short-term borrowings 2
22
24
(2 ) —
(2 )
Long-term borrowings (51 ) (39 ) (90 ) (176 ) (85 ) (261 )
Total interest-bearing liabilities (53 ) 136
83
(130 ) 211
81
Change in net interest income $ 1,008
$ 206
$ 1,214
$ 2,012
$ (486 ) $ 1,526

Provision for ~~Loan~~Credit Losses

The provision for ~~loan~~credit losses is based upon management’s quarterly review of the loan portfolio. The purpose of the review is to assess loan quality, identify impaired loans, analyze delinquencies, ascertain loan growth, evaluate potential charge-offs and recoveries, and assess general economic conditions in the markets served. An external independent loan review is also performed annually for the Banks. Management remains committed to an aggressive program of problem loan identification and resolution.

The allowance for ~~loan~~credit losses is determined by applying loss factors to outstanding loans by ~~type, excluding loans for~~type. A historical charge-off factor is calculated utilizing the charge-off and recovery data over the past ten years. Management has identified a number of additional qualitative factors which ~~a specific allowance has been determined. Loss~~it uses to supplement the historical charge-off factor because these factors are ~~based on management’s consideration of~~likely to cause estimated credit losses associated with the ~~nature of the portfolio segments, changes in mix and volume of the~~existing loan ~~portfolio, and~~pools to differ from historical ~~loan~~ loss experience. ~~In addition, management considers industry standards and trends with respect to non-performing loans and its knowledge and experience with specific lending segments.~~

Although management believes it uses the best information available to make such determinations and that the allowance for ~~loan~~credit losses is adequate at September 30, ~~2017,~~2023, future adjustments could be necessary if circumstances or economic conditions differ substantially from the assumptions used in making the initial determinations. A downturn in the local economy, increased unemployment, and delays in receiving financial information from borrowers could result in increased levels of nonperforming assets, charge-offs, loan loss provisions, and reductions in income. Additionally, as an integral part of the examination process, bank regulatory agencies periodically review the Banks' loan loss allowance. The banking agencies could require the recognition of additions to the loan loss allowance based on their judgment of information available to them at the time of their examination.

When determining the appropriate allowance level, management has attributed the allowance for ~~loan~~credit losses to various portfolio segments; however, the allowance is available for the entire portfolio as needed.

The allowance for ~~loan~~credit losses ~~increased~~decreased from ~~$12,896,000~~$15,637,000 at December 31, ~~2016~~2022 to ~~$12,933,000~~$12,890,000 at September 30, ~~2017.~~2023. The ~~increase~~decrease in ~~the~~ allowance ~~for loan losses~~ was ~~driven by growth in the loan portfolio. In addition, the increase was limited~~primarily due to the ~~payoff~~adoption of ~~a large commercial loan that had a significant specific allocation within the allowance for loan losses. The majority~~CECL on January 1, 2023 coupled with net recoveries of the loans charged-off had a specific allowance within the allowance for losses. At September 30, 2017 and December 31, 2016, the allowance for loan losses to total loans was 1.09% and 1.18%, respectively.

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~~The provision for loan losses totaled $60,000 and $258,000 for the three months ended September 30, 2017 and 2016 and $605,000 and $866,000~~$316,000 for the nine months ended September 30, ~~2017~~2023. At September 30, 2023 and ~~2016,~~December 31, 2022, the allowance for credit losses to total loans was 0.71% and 0.95%, respectively.

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

Nonperforming loans decreased to ~~$8,317,000~~$3,683,000 at September 30, ~~2017~~2023 from ~~$11,530,000~~$4,890,000 at ~~September 30, 2016.~~December 31, 2022. The majority of nonperforming loans ~~are centered on~~involve loans that are either in a secured position and have sureties with a strong underlying financial position or have been classified as impaired and have a specific allocation ~~for any impairment~~ recorded within the allowance for ~~loan~~credit losses. The ratio of nonperforming loans to total loans ~~was 0.70% and 1.08%~~ratio decreased to 0.20% at September 30, ~~2017 and 2016, respectively, and the ratio of the allowance for loan losses to nonperforming loans was 155.50% and 110.30%~~2023 from 0.37% at September 30, ~~2017~~2022 and ~~2016, respectively. Internal~~as nonperforming loans have decreased to $3,683,000 from $5,743,000 at September 30, 2022. Net loan ~~review and analysis coupled with loan growth dictated a provision for loan losses~~recoveries of ~~$605,000~~$316,000 for the nine months ended September 30, ~~2017.~~ 2023 impacted the allowance for credit losses, which was 0.71% of total loans at September 30 2023 compared to 0.97% at September 30, 2022.

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


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

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


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


(In Thousands)

Commercial, financial, and agricultural	$	3,913		$	211,473	1.85	%	$	1,067	$	202,709	0.53	%
Real estate mortgage:
Residential	1,168			773,782		0.15	%	(56)		737,749		(0.01)	%
Commercial	4,323			525,666		0.82	%	(36)		513,035		(0.01)	%
Construction	198			55,833		0.35	%	—		49,358		—	%
Consumer automobiles	2,584			239,768		1.08	%	(441)		221,802		(0.20)	%
Other consumer installment loans	704			10,821		6.51	%	(218)		10,315		(2.11)	%

	$	12,890		$	1,817,343	0.71	%	$	316	$	1,734,968	0.02	%

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

Table of Contents

Total Nonperforming Loans
(In Thousands) 90 Days Past Due
Non-accrual
Total
September 30, 2017 $ 261
$ 8,056
$ 8,317
June 30, 2017 1,329
11,169
12,498
March 31, 2017 141
10,730
10,871
December 31, 2016 870
10,756
11,626
September 30, 2016 114
11,416
11,530


	December 31, 2022
	Amount of Allowance for Loan Losses Allocated			Total loans		Allowance for Loan Losses to Total Loans Ratio		Net (Charge-Offs) Recoveries		Average Loans		Ratio of Net (Charge-Offs) Recoveries to Average Loans


(In Thousands)

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

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

Non-interest Income

Total non-interest income for the three and nine months ended September 30, ~~2017~~2023 compared to the same ~~period~~periods in ~~2016~~2022 decreased ~~$342,000 to $2,740,000.~~$208,000 and $478,000. Excluding net securities ~~gains,~~losses, non-interest income for the three ~~months ended September 30, 2017 decreased $379,000 compared to the same period in 2016. The decrease in gain on sale of loans was driven by a shift in product mix~~ and ~~decreased volume. The changes in insurance and brokerage commissions are due to a change in the product mix of consumer purchases. Debit card fees decreased due to decreased usage of debit cards.~~

~~Total non-interest income for the~~ nine months ended September 30, ~~2017~~2023 decreased $338,000 and $644,000 compared to the same ~~period~~periods in ~~2016~~2022. Gain on sale of loans and loan broker commissions decreased ~~$1,102,000. Excluding net securities gains, non-interest income decreased $359,000 compared~~as the ~~2016 period. The reasons noted~~volume of loan sales has declined as a reduction in housing inventory and higher rates has reduced mortgage activity. Bank-owned life insurance for ~~the three month period comparison also apply to~~ the nine month ~~period.~~period increased due to a gain on death benefit of $380,000 recognized during the first quarter of 2023. Debit card income declined due to volume.

Non-interest income composition for the three and nine months ended September 30, ~~2017~~2023 and ~~2016~~2022 was as follows:


	Three Months Ended
	September 30, 2023				September 30, 2022				Change
(In Thousands)	Amount		% Total		Amount		% Total		Amount		%
Service charges	$	545	29.07	%	$	559	26.84	%	$	(14)	(2.50)	%
Net debt securities losses, available for sale	(45)		(2.40)		(156)		(7.49)		111		71.15
Net equity securities losses	(36)		(1.92)		(55)		(2.64)		19		34.55

Bank-owned life insurance	170		9.07		170		8.16		—		—
Gain on sale of loans	257		13.71		294		14.11		(37)		(12.59)
Insurance commissions	136		7.25		109		5.23		27		24.77
Brokerage commissions	142		7.57		142		6.82		—		—
Loan broker commissions	241		12.85		438		21.03		(197)		(44.98)
Debit card income	320		17.07		344		16.51		(24)		(6.98)
Other	145		7.73		238		11.42		(93)		(39.08)
Total non-interest income	$	1,875	100.00	%	$	2,083	100.00	%	$	(208)	(9.99)	%

Three Months Ended
September 30, 2017 September 30, 2016 Change
(In Thousands) Amount % Total Amount % Total Amount %
Service charges $ 550
20.07 % $ 585
18.98 % $ (35 ) (5.98 )%
Net securities gains, available for sale 302
11.02
253
8.21
49
19.37
Net securities (losses) gains, trading (4 ) (0.15 ) 8
0.26
(12 ) (150.00 )
Bank-owned life insurance 166
6.06
172
5.58
(6 ) (3.49 )
Gain on sale of loans 455
16.61
658
21.35
(203 ) (30.85 )
Insurance commissions 109
3.98
198
6.42
(89 ) (44.95 )
Brokerage commissions 352
12.85
290
9.41
62
21.38
Debit card fees 514
18.76
690
22.39
(176 ) (25.51 )
Other 296
10.80
228
7.40
68
29.82
Total non-interest income $ 2,740
100.00 % $ 3,082
100.00 % $ (342 ) (11.10 )%

Table of Contents


	Nine Months Ended
	September 30, 2023				September 30, 2022				Change
(In Thousands)	Amount		% Total		Amount		% Total		Amount		%
Service charges	$	1,557	25.30	%	$	1,563	23.57	%	$	(6)	(0.38)	%
Net debt securities losses, available for sale	(125)		(2.03)		(168)		(2.53)		43		25.60
Net equity securities losses	(35)		(0.57)		(158)		(2.38)		123		77.85

Bank-owned life insurance	892		14.49		501		7.55		391		78.04
Gain on sale of loans	732		11.89		905		13.65		(173)		(19.12)
Insurance commissions	416		6.76		386		5.82		30		7.77
Brokerage commissions	448		7.28		500		7.54		(52)		(10.40)
Loan broker commissions	728		11.83		1,350		20.36		(622)		(46.07)
Debit card income	995		16.17		1,080		16.28		(85)		(7.87)
Other	546		8.88		673		10.14		(127)		(18.87)
Total non-interest income	$	6,154	100.00	%	$	6,632	100.00	%	$	(478)	(7.21)	%

Nine Months Ended
September 30, 2017 September 30, 2016 Change
(In Thousands) Amount % Total Amount % Total Amount %
Service charges $ 1,637
20.07 % $ 1,678
18.13 % $ (41 ) (2.44 )%
Net securities gains, available for sale 487
5.97
1,174
12.68
(687 ) (58.52 )
Net securities (losses) gains, trading (2 ) (0.02 ) 54
0.58
(56 ) (103.70 )
Bank-owned life insurance 499
6.12
516
5.57
(17 ) (3.29 )
Gain on sale of loans 1,316
16.14
1,691
18.27
(375 ) (22.18 )
Insurance commissions 399
4.89
604
6.52
(205 ) (33.94 )
Brokerage commissions 1,044
12.80
817
8.83
227
27.78
Debit card fees 1,450
17.78
1,413
15.26
37
2.62
Other 1,325
16.25
1,310
14.16
15
1.15
Total non-interest income $ 8,155
100.00 % $ 9,257
100.00 % $ (1,102 ) (11.90 )%

Non-interest Expense

Total non-interest expense increased ~~$827,000~~$852,000 and $1,752,000 for the three and nine months ended September 30, ~~2017~~2023 compared to the same ~~period~~periods of ~~2016.~~2022. The increase in salaries and employee benefits is ~~primarily~~ attributable to the current employment environment and routine annual wage ~~increases coupled with an increase in the cost of health insurance. Occupancy expense increased due to various maintenance projects to refresh facilities.~~increases. Furniture and equipment ~~expense~~expenses in addition to occupancy expenses have increased slightly as increased maintenance costs have been offset by a decrease in the level of depreciation. Software amortization decreases for the nine month period are due to changes in software licensing costs. Marketing costs increased as ~~an acquired building~~a time deposit gathering campaign was ~~outfitted. Software amortization~~initiated during the latter part of 2022 and throughout 2023. Pennsylvania shares tax decreased as ~~the number of vendors utilized is consolidated. Marketing expenses increased as targeted marketing was increased~~tax credits were purchased and charitable contributions were made to organizations that resulted in the ~~localities were branches will be opened in the next several months. Other non-interest expenses~~obtainment of tax credits. Professional fees increased primarily due to legal ~~expenses and a reduction~~fees. FDIC insurance expense increased due an increase in the ~~amortization of investment in limited partnerships as several of the partnerships have reached the end of their tax credit generating life and have been fully amortized.~~assessment rate.

Total non-interest expense for the nine months ended September 30, 2017 compared to the same period in 2016 increased $1,149,000. The reasons noted for the three month period comparison also apply to the nine month period.

Non-interest expense composition for the three and nine months ended September 30, ~~2017~~2023 and ~~2016~~2022 was as follows:


	Three Months Ended
	September 30, 2023				September 30, 2022				Change
(In Thousands)	Amount		% Total		Amount		% Total		Amount		%
Salaries and employee benefits	$	6,290	56.30	%	$	6,016	58.29	%	$	274	4.55	%
Occupancy	784		7.02		730		7.07		54		7.40
Furniture and equipment	867		7.76		816		7.91		51		6.25
Software amortization	237		2.12		188		1.82		49		26.06
Pennsylvania shares tax	280		2.51		334		3.24		(54)		(16.17)
Professional fees	719		6.44		626		6.07		93		14.86
Federal Deposit Insurance Corporation deposit insurance	425		3.80		260		2.52		165		63.46

Marketing	167		1.49		151		1.46		16		10.60
Intangible amortization	25		0.22		34		0.33		(9)		(26.47)
Other	1,378		12.34		1,165		11.29		213		18.28
Total non-interest expense	$	11,172	100.00	%	$	10,320	100.00	%	$	852	8.26	%

Three Months Ended
September 30, 2017 September 30, 2016 Change
(In Thousands) Amount % Total Amount % Total Amount %
Salaries and employee benefits $ 4,738
49.53 % $ 4,507
51.57 % $ 231
5.13 %
Occupancy 603
6.30
544
6.22
59
10.85
Furniture and equipment 816
8.53
662
7.58
154
23.26
Software amortization 235
2.46
580
6.64
(345 ) (59.48 )
Pennsylvania shares tax 228
2.38
220
2.52
8
3.64
Professional fees 560
5.85
502
5.74
58
11.55
Federal Deposit Insurance Corporation deposit insurance 194
2.03
202
2.31
(8 ) (3.96 )
Debit card expenses 168
1.76
246
2.81
(78 ) (31.71 )
Marketing 315
3.29
173
1.98
142
82.08
Intangible amortization 81
0.85
90
1.03
(9 ) (10.00 )
Other 1,628
17.02
1,013
11.60
615
60.71
Total non-interest expense $ 9,566
100.00 % $ 8,739
100.00 % $ 827
9.46 %


	Nine Months Ended
	September 30, 2023				September 30, 2022				Change
(In Thousands)	Amount		% Total		Amount		% Total		Amount		%
Salaries and employee benefits	$	18,778	56.06	%	$	18,421	58.02	%	$	357	1.94	%
Occupancy	2,422		7.23		2,380		7.50		42		1.76
Furniture and equipment	2,503		7.47		2,454		7.73		49		2.00
Software amortization	593		1.77		660		2.08		(67)		(10.15)
Pennsylvania shares tax	807		2.41		1,119		3.52		(312)		(27.88)
Professional fees	2,313		6.90		1,746		5.50		567		32.47
Federal Deposit Insurance Corporation deposit insurance	1,122		3.35		690		2.17		432		62.61

Marketing	594		1.77		435		1.37		159		36.55
Intangible amortization	92		0.27		119		0.37		(27)		(22.69)
Other	4,275		12.77		3,723		11.74		552		14.83
Total non-interest expense	$	33,499	100.00	%	$	31,747	100.00	%	$	1,752	5.52	%

Nine Months Ended
September 30, 2017 September 30, 2016 Change
(In Thousands) Amount % Total Amount % Total Amount %
Salaries and employee benefits $ 14,116
51.11 % $ 13,433
50.76 % $ 683
5.08 %
Occupancy 1,855
6.72
1,630
6.16
225
13.80
Furniture and equipment 2,129
7.71
2,042
7.72
87
4.26
Software amortization 750
2.72
950
3.59
(200 ) (21.05 )
Pennsylvania shares tax 696
2.52
698
2.64
(2 ) (0.29 )
Professional fees 1,816
6.58
1,512
5.71
304
20.11
Federal Deposit Insurance Corporation deposit insurance 514
1.86
670
2.53
(156 ) (23.28 )
Debit card expenses 478
1.73
456
1.72
22
4.82
Marketing 690
2.50
568
2.15
122
21.48
Intangible amortization 256
0.93
276
1.04
(20 ) (7.25 )
Other 4,314
15.62
4,230
15.98
84
1.99
Total non-interest expense $ 27,614
100.00 % $ 26,465
100.00 % $ 1,149
4.34 %

Income taxes ~~increased $9,000~~decreased $751,000 and ~~$184,000~~decreased $514,000 for the three and nine months ended September 30, ~~2017~~2023 compared to the same periods of ~~2016.~~2022. The effective tax rate for the three and nine months ended September 30, ~~2017~~2023 was ~~29.39%~~16.49% and ~~25.76%~~17.56% compared to ~~2.15%~~18.48% and ~~20.58%~~18.18% for the same periods of 2016. The primary cause of the increase in tax expense for the three and nine months ended September 30, 2017 compared to 2016 is the impact of a reduction of tax-exempt interest income within the investment portfolio as the portfolio was strategically reduced and a reduction in the amount of federal tax credits recognized from low income elderly housing partnerships. Excluding the impact of securities gains and losses, the effective tax rate for the three and nine months ended September 30, 2017 was 27.66% and 27.57% compared to 29.08% and 24.89% for the same periods of 2016.2022. The Company currently is in a deferred tax asset position. ~~Management has reviewed~~A valuation allowance was established on the ~~deferred tax asset and has determined that~~$1,810,000 of capital loss carryforwards as of December 31, 2022, which remained unchanged during the ~~asset will be utilized within the appropriate carry forward period and therefore does not require a valuation allowance.~~third quarter of 2023.

Cash and cash equivalents decreased ~~$15,924,000~~$4,743,000 from ~~$43,671,000~~$40,333,000 at December 31, ~~2016~~2022 to ~~$27,747,000~~$35,590,000 at September 30, ~~2017~~2023, primarily as a result of the following ~~activities~~activity during the nine months ended September 30, ~~2017.~~2023.

Activity regarding loans held for sale resulted in sales proceeds ~~leading~~being less than loan originations, less ~~$1,316,000~~$732,000 in realized gains, by ~~$219,000~~$785,000 for the nine months ended September 30, ~~2017.~~2023.

Gross loans increased ~~$96,033,000~~$178,730,000 since December 31, ~~2016~~2022 due primarily to an increase in ~~installment loans~~both residential and commercial real estate mortgage categories in addition to ~~individuals. The growth in installment loans was driven by~~consumer automobile ~~indirect lending. Loan growth has also picked up in our commercial, financial, and agricultural loan products.~~loans.

The allocation of the loan portfolio, by category, as of September 30, ~~2017~~2023 and December 31, ~~2016~~2022 is presented below:

~~The following table shows the amount of accrual and non-accrual TDRs at September 30, 2017 and December 31, 2016:~~

September 30, 2017 December 31, 2016
(In Thousands) Accrual Non-accrual Total Accrual Non-accrual Total
Commercial, financial, and agricultural $ 22
$ 120
$ 142
$ 109
$ 132
$ 241
Real estate mortgage:

Residential 1,199
341
1,540
1,491
541
2,032
Commercial 4,495
2,252
6,747
4,723
2,184
6,907
$ 5,716
$ 2,713
$ 8,429
$ 6,323
$ 2,857
$ 9,180

The fair value of the investment debt securities portfolio at September 30, ~~2017~~2023 decreased ~~$1,027,000~~$9,006,000 since December 31, ~~2016~~2022, while the amortized cost of the portfolio decreased ~~$2,095,000.~~$7,655,000. The decrease in the investment portfolio amortized value occurred within the state and political segment of the portfolio as principal cash flow was partially reinvested with the majority of the cash flow funding loan portfolio growth. The mortgage-backed segment increased as bonds were purchased to provide future cash flow. The other debt segment balances increased slightly as bank subordinated debt was purchased and consists primarily of corporate bonds. The portfolio continues to be actively managed in order to reduce interest rate and market risk. This is being undertaken primarily through the sale of long-term municipal bonds that have a maturity date of 2025 or later and securities with a call date within the next five years. The proceeds of the bond sales are being deployed into loans and intermediate term corporate bonds and short and intermediate term municipal bonds. The strategy to sell a portion of the long-term bond portfolio does negatively impact current earnings, but this action plays a key role in our long-term asset liability management strategy as the balance sheet is shortened in anticipation of a steadily rising rate environment. The unrealized losses within the debt securities portfolio are the result of market activity, not credit issues/ratings, as approximately ~~87.34%~~81.26% of the debt securities portfolio on an amortized cost basis is currently rated A or higher by either S&P or Moody’s.

The Company considers various factors, which include examples from applicable accounting guidance, when analyzing the available for sale portfolio for possible other than temporary impairment. The Company primarily considers the following factors in its analysis: length of time and severity of the fair value being less than carrying value; reduction of dividend paid (equities); continued payment of dividend/interest, credit rating, and financial condition of an issuer; intent and ability to hold until anticipated recovery (which may be maturity); and general outlook for the economy, specific industry, and entity in question.

The bond portion of the portfolio review is conducted with emphases on several factors. Continued payment of principal and interest is given primary importance with credit rating and financial condition of the issuer following as the next most important. Credit ratings were reviewed with the ratings of the bonds being satisfactory. Bonds that were not currently rated were discussed with a third party and/or underwent an internal financial review. The Company also monitors whether each of the investments incurred a decline in fair value from carrying value of at least 20% for twelve consecutive months or a similar decline of at least 50% for three consecutive months. Each bond is reviewed to determine whether it is a general obligation bond, which is backed by the credit and taxing power of the issuing jurisdiction, or a revenue bond, which is only payable from specified revenues. Based on the review undertaken by the Company, the Company determined that the decline in value of the various bond holdings were temporary and were the result of the general market downturns and interest rate/yield curve changes, not credit issues. The fact that almost all of such bonds are general obligation bonds further solidified the Company’s determination that the decline in the value of these bond holdings is temporary.

The fair value of the equity portfolio continues to fluctuate as the economic and political environment continues to impact stock pricing. The amortized cost of the available for sale equity securities portfolio has ~~increased $1,604,000 to $12,837,000~~remained flat at $1,300,000 for September 30, ~~2017 from $11,233,000 at~~2023 and December 31, ~~2016~~2022 while the fair value ~~increased $1,465,000~~decreased $70,000 over the same time period.

~~The equity portion~~

The distribution of credit ratings by amortized cost and fair values for the debt security portfolio at September 30, ~~2017~~2023 follows:

Total deposits ~~increased $58,782,000~~decreased $10,807,000 from December 31, ~~2016~~2022 to September 30, ~~2017. The growth was led~~2023. Time deposits increased $111,601,000 over this period to a total of $249,550,000 as deposit gathering efforts focused on time deposits as customers sought a higher return on their deposit balances. Brokered deposits increased by $98,361,000 as usage provided an ~~increase in money market~~alternative to FHLB borrowings and ~~NOW deposit accounts from December 31, 2016 to September 30, 2017 of $29,407,000 and $29,091,000, respectively. The increase in core~~supplemented funding for loan portfolio growth. Core deposits (deposits less time deposits) ~~has provided relationship driven funding for the loan~~declined as deposit balances flowed from noninterest-bearing and ~~investment portfolios. While deposit gathering efforts have centered on core deposits, the lengthening of the~~lower rate products into higher rate products such as time deposit ~~portfolio is moving forward as part~~accounts. Emphasis has been on increasing the utilization of electronic (internet and mobile) deposit banking among our customers. Utilization of internet and mobile banking products has increased due to these efforts coupled with a change in consumer behavior over the ~~strategy to build balance sheet protection in a rising rate environment. The increase in deposits is the result of our focus on building relationships, not by offering market leading rates.~~ past several years.

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

September 30, 2017 December 31, 2016 Change
(In Thousands) Amount % Total Amount % Total Amount %
Demand deposits $ 310,830
26.94 % $ 303,277
27.69 % $ 7,553
2.49 %
NOW accounts 203,744
17.66
174,653
15.95
29,091
16.66
Money market deposits 274,528
23.79
245,121
22.38
29,407
12.00
Savings deposits 156,437
13.56
153,788
14.04
2,649
1.72
Time deposits 208,457
18.05
218,375
19.94
(9,918 ) (4.54 )
Total deposits $ 1,153,996
100.00 % $ 1,095,214
100.00 % $ 58,782
5.37 %
As of September 30, 2023 and December 31, 2022 the Company had $435,931,000 and $617,515,000, respectively, in uninsured deposits. Included in the total uninsured deposits is a concentration of public funds which were collateralized by the Banks in the amount of $83,144,000 and $180,252,000 at September 30, 2023 and December 31, 2022, respectively. Total uninsured deposits less collateralized public funds was $352,787,000 at September 30, 2023 and $437,263,000 at December 31, 2022.

Total borrowed funds ~~decreased 23.53%~~increased 60.62%, or ~~$23,355,000,~~$155,259,000, to ~~$122,594,000~~$411,391,000 at September 30, ~~2017~~2023 compared to ~~$99,239,000~~$256,132,000 at December 31, ~~2016. The reduction in long-term borrowings was the result of a maturity.~~2022. The increase in ~~short-term borrowed funds supplemented deposit growth~~long term borrowings occurred as fixed rate borrowings were initiated to lock in ~~the~~interest rates and to provide matched funding for segments of the loan portfolio. Short term FHLB borrowings were utilized to provide short term funding for the loan portfolio ~~growth with overnight borrowings from the FHLB being the primary source of short-term borrowings. The decline in securities~~growth. Securities sold under ~~agreement~~agreements to repurchase ~~is due to the phasing out~~have decreased as customers balances have decreased.

Table of ~~a product the bank offers.~~Contents


	September 30, 2017				December 31, 2016				Change						September 30, 2023				December 31, 2022				Change
(In Thousands)	Amount		% Total		Amount		% Total		Amount			%		(In Thousands)	Amount		% Total		Amount		% Total		Amount		%
Short-term borrowings:														Short-term borrowings:
FHLB repurchase agreements	$	32,434	26.46	%	$	—	—	%	$	32,434		—	%	FHLB repurchase agreements	$	159,233	38.71	%	$	148,195	57.86	%	$	11,038	7.45
Short-term FHLB borrowings														Short-term FHLB borrowings	30,000		7.29		—		—		30,000		n/a
Securities sold under agreement to repurchase	9,162		7.47		13,241		13.34		(4,079		)	(30.81	)	Securities sold under agreement to repurchase	4,513		1.10		5,154		2.01		(641)		(12.44)
Total short-term borrowings	41,596		33.93		13,241		13.34		28,355			214.15		Total short-term borrowings	193,746		47.10		153,349		59.87		40,397		26.34
Long-term borrowings:														Long-term borrowings:
Long-term FHLB borrowings	80,625		65.77		85,625		86.28		(5,000		)	(5.84	)	Long-term FHLB borrowings	210,000		51.04		95,000		37.09		115,000		121.05
Long-term capital lease	373		0.30		373		0.38		—			—
Long-term finance lease														Long-term finance lease	7,645		1.86		7,783		3.04		(138)		(1.77)

Total long-term borrowings	80,998		66.07		85,998		86.66		(5,000		)	(5.81	)	Total long-term borrowings	217,645		52.90		102,783		40.13		114,862		111.75
Total borrowed funds	$	122,594	100.00	%	$	99,239	100.00	%	$	23,355		23.53	%	Total borrowed funds	$	411,391	100.00	%	$	256,132	100.00	%	$	155,259	60.62	%

The adequacy of the ~~Company��s~~Company’s capital is reviewed on an ongoing basis with reference to the size, composition, and quality of the Company’s resources and regulatory guidelines. Management seeks to maintain a level of capital sufficient to support existing assets and anticipated asset growth, maintain favorable access to capital markets, and preserve high quality credit ratings.

~~Bank holding companies~~Banking institutions are generally required to comply with ~~the Federal Reserve Board’s~~ risk-based capital ~~guidelines.~~guidelines set by bank regulatory agencies. The risk-based capital rules are designed to make regulatory capital requirements more sensitive to differences in risk profiles among banks and bank holding companies and to minimize disincentives for holding liquid assets. Specifically, each is required to maintain certain minimum dollar amounts and ratios of common equity tier I risk-based, tier I risk-based, total risk-based, and tier I leverage capital. In addition to the capital requirements, the Federal Deposit Insurance Corporation Improvements Act ~~(FDICIA)~~("FDICIA") established five capital categories for banks ranging from “well capitalized” to “critically ~~undercapitalized.”~~undercapitalized” for purposes of the FDIC's prompt corrective action rules. To be classified as “well capitalized”, under the prompt corrective action rules, common equity tier I risk-based, tier I risked-based, total risk-based, and tier I leverage capital ratios must be at least 6.5%, 8%, 10%, and 5%, respectively.

~~The Company's~~Under existing capital ~~ratios as of September 30, 2017 and December 31, 2016 were as follows:~~

September 30, 2017 December 31, 2016
(In Thousands) Amount Ratio Amount Ratio
Common Equity Tier I Capital (to Risk-weighted Assets)

Actual $ 126,491
11.781 % $ 125,804
12.620 %
For Capital Adequacy Purposes 48,316
4.500
44,849
4.500
Minimum To Maintain Capital Conservation Buffer At Reporting Date 61,737
5.750
51,078
5.125
To Be Well Capitalized 69,790
6.500
64,782
6.500
Total Capital (to Risk-weighted Assets)

Actual $ 128,801
11.996 % $ 133,393
13.380 %
For Capital Adequacy Purposes 85,896
8.000
79,732
8.000
Minimum To Maintain Capital Conservation Buffer At Reporting Date 99,317
9.250
85,961
8.625
To Be Well Capitalized 107,370
10.000
99,665
10.000
Tier I Capital (to Risk-weighted Assets)

Actual $ 126,491
11.781 % $ 125,804
12.620 %
For Capital Adequacy Purposes 64,421
6.000
59,799
6.000
Minimum To Maintain Capital Conservation Buffer At Reporting Date 77,842
7.250
66,028
6.625
To Be Well Capitalized 85,895
8.000
79,732
8.000
Tier I Capital (to Average Assets)

Actual $ 126,491
9.074 % $ 125,804
9.432 %
For Capital Adequacy Purposes 55,760
4.000
53,352
4.000
To Be Well Capitalized 69,700
5.000
66,691
5.000

~~Jersey Shore State Bank's capital ratios as of September 30, 2017 and December 31, 2016 were as follows:~~

September 30, 2017 December 31, 2016
(In Thousands) Amount Ratio Amount Ratio
Common Equity Tier I Capital (to Risk-weighted Assets)

Actual $ 88,724
10.603 % $ 86,397
11.136 %
For Capital Adequacy Purposes 37,655
4.500
34,914
4.500
Minimum To Maintain Capital Conservation Buffer At Reporting Date 48,115
5.750
39,763
5.125
To Be Well Capitalized 54,391
6.500
50,431
6.500
Total Capital (to Risk-weighted Assets)

Actual $ 89,351
10.678 % $ 90,992
11.728 %
For Capital Adequacy Purposes 66,942
8.000
62,069
8.000
Minimum To Maintain Capital Conservation Buffer At Reporting Date 77,402
9.250
66,918
8.625
To Be Well Capitalized 83,678
10.000
77,587
10.000
Tier I Capital (to Risk-weighted Assets) -

Actual $ 88,724
10.603 % $ 86,397
11.136 %
For Capital Adequacy Purposes 50,207
6.000
46,552
6.000
Minimum To Maintain Capital Conservation Buffer At Reporting Date 60,667
7.250
51,401
6.625
To Be Well Capitalized 66,943
8.000
62,069
8.000
Tier I Capital (to Average Assets)

Actual $ 88,724
8.556 % $ 86,397
8.894 %
For Capital Adequacy Purposes 41,479
4.000
38,856
4.000
To Be Well Capitalized 51,849
5.000
48,570
5.000

~~Luzerne Bank's capital ratios as of September 30, 2017 and December 31, 2016 were as follows:~~

September 30, 2017 December 31, 2016
(In Thousands) Amount Ratio Amount Ratio
Common Equity Tier I Capital (to Risk-weighted Assets)

Actual $ 31,619
9.916 % $ 31,102
10.165 %
For Capital Adequacy Purposes 14,349
4.500
13,769
4.500
Minimum To Maintain Capital Conservation Buffer At Reporting Date 18,335
5.750
15,682
5.125
To Be Well Capitalized 20,726
6.500
19,889
6.500
Total Capital (to Risk-weighted Assets)

Actual $ 33,011
10.353 % $ 33,589
10.977 %
For Capital Adequacy Purposes 25,508
8.000
24,479
8.000
Minimum To Maintain Capital Conservation Buffer At Reporting Date 29,494
9.250
26,391
8.625
To Be Well Capitalized 31,885
10.000
30,599
10.000
Tier I Capital (to Risk-weighted Assets)

Actual $ 31,619
9.916 % $ 31,102
10.165 %
For Capital Adequacy Purposes 19,132
6.000
18,359
6.000
Minimum To Maintain Capital Conservation Buffer At Reporting Date 23,118
7.250
20,272
6.625
To Be Well Capitalized 25,509
8.000
24,479
8.000
Tier I Capital (to Average Assets)

Actual $ 31,619
8.703 % $ 31,102
8.535 %
For Capital Adequacy Purposes 14,532
4.000
14,576
4.000
To Be Well Capitalized 18,166
5.000
18,220
5.000

~~In July 2013,~~rules, 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 July 2013 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 new minimum capital to risk-adjusted assets requirements for banking organizations are a common equity tier 1 capital ratio of 4.5% (6.5% to be considered “well capitalized”) ~~and~~, a tier 1 capital ratio of 6.0%~~, increased from 4.0% (and increased from 6.0% to 8.0%~~ (8.0% to be considered “well capitalized”)~~; the~~, and total capital ratio ~~remains at~~of 8.0% ~~under the new rules~~ (10.0% to be considered “well capitalized”). Under ~~the new~~existing capital rules, in order to avoid limitations on capital distributions (including dividend payments and certain discretionary bonus payments to executive officers), a banking organization must hold a capital conservation buffer comprised of common equity tier 1 capital above its minimum risk-based capital requirements in an amount greater than 2.5% of total risk-weighted assets.

The ~~new minimum~~Company's capital ~~requirements~~ratios as of September 30, 2023 and December 31, 2022 were ~~effective beginning on January 1, 2015. The~~as follows:

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

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

During the three months ended September 30, 2023, the Company sold 34,411 shares of common stock in ~~over~~ a ~~three-year period beginning January 1, 2016. The Company~~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 ~~Banks will continue to analyze these new rules and their effects on~~Company. Under the ~~business, operations and capital levels~~terms of the Distribution Agreement, the Company paid the Distribution Agent a fee in the amount of 2.75% of the gross proceeds from the sale of such shares, and realized net proceeds of $753,000 from the ~~Banks.~~sales of shares under the Distribution Agreement for the quarter ended September 30, 2023.

The asset/liability committee addresses the liquidity needs of the Company to ensure that sufficient funds are available to meet credit demands and deposit withdrawals as well as to the placement of available funds in the investment portfolio. In assessing liquidity requirements, equal consideration is given to the current position as well as the future outlook.

The following liquidity measures are monitored for compliance and were within the limits cited, ~~except for~~with the exception of net loans to total deposits that was 115%, at September 30, ~~2017:~~2023:

1. Net Loans to Total Assets, 85% maximum

2.Net Loans to Total Deposits, 100% maximum

3.Cumulative 90 day Maturity GAP %, +/- ~~20%~~15% maximum

4.Cumulative 1 Year Maturity GAP %, +/- ~~25%~~20% maximum

Fundamental objectives of the Company’s asset/liability management process are to maintain adequate liquidity while minimizing interest rate risk. The maintenance of adequate liquidity provides the Company with the ability to meet its financial obligations to depositors, loan customers, and shareholders. Additionally, it provides funds for normal operating expenditures and business opportunities as they arise. The objective of interest rate sensitivity management is to increase net interest income by managing interest sensitive assets and liabilities in such a way that they can be repriced in response to changes in market interest rates.

The Banks, like other financial institutions, must have sufficient funds available to meet liquidity needs for deposit withdrawals, loan commitments and originations, and expenses. In order to control cash flow, the Banks estimate future cash flows from deposits, loan payments, and investment security payments. The primary sources of funds are deposits, principal and interest

payments on loans and investment securities, FHLB borrowings, and brokered deposits. Management believes the Banks have adequate resources to meet their normal funding requirements.

Management monitors the Company’s liquidity on both a long and short-term basis, thereby providing management necessary information to react to current balance sheet trends. Cash flow needs are assessed and sources of funds are determined. Funding strategies consider both customer needs and economical cost. Both short and long-term funding needs are addressed by maturities and sales of available for sale and trading investment securities, loan repayments and maturities, and liquidating money market investments such as federal funds sold. The use of these resources, in conjunction with access to credit, provides core funding to satisfy depositor, borrower, and creditor needs.

Management monitors and determines the desirable level of liquidity. Consideration is given to loan demand, investment opportunities, deposit pricing and growth potential, as well as the current cost of borrowing funds. The Company has a total current maximum borrowing capacity at the FHLB of ~~$438,674,000.~~$830,316,000. In addition to this credit arrangement, the Company has additional lines of credit with correspondent banks of ~~$52,000,000.~~$100,000,000. Management believes it has sufficient liquidity to satisfy estimated short-term and long-term funding needs. FHLB borrowings totaled ~~$113,059,000~~$399,234,000 as of September 30, ~~2017.~~2023.

Interest rate sensitivity, which is closely related to liquidity management, is a function of the repricing characteristics of the Company’s portfolio of assets and liabilities. Asset/liability management strives to match maturities and rates between loan and investment security assets with the deposit liabilities and borrowings that fund them. Successful asset/liability management results in a balance sheet structure which can cope effectively with market rate fluctuations. The matching process by segments both assets and liabilities into future time periods (usually 12 months, or less) based upon when repricing can be effected. Repriceable assets are subtracted from repriceable liabilities for a specific time period to determine the “gap”, or difference. Once known, the gap is managed based on predictions about future market interest rates. Intentional mismatching, or gapping, can enhance net interest income if market rates move as predicted. However, if market rates behave in a manner contrary to predictions, net interest income will suffer. Gaps, therefore, contain an element of risk and must be prudently managed. In addition to gap management, the Company has an asset/liability management policy which incorporates a market value at risk calculation which is used to determine the effects of interest rate movements on shareholders’ equity and a simulation analysis to monitor the effects of interest rate changes on the Company’s consolidated balance sheet.

The Company currently maintains a ~~GAP~~gap position of being asset sensitive. The Company has strategically taken this position as it has previously decreased the duration of the earning asset portfolio by adding quality short and intermediate term loans such as home equity ~~loans and~~loans. The Company has added certain longer-term earning assets due to the ~~selling of long-term municipal bonds.~~significant increase in interest rates. Lengthening of the liability portfolio, ~~is being~~primarily time deposits, has been undertaken to build protection ~~in a~~during the current rising rate environment.

A market value at risk calculation is utilized to monitor the effects of interest rate changes on the Company’s balance sheet and more specifically shareholders’ equity. The Company does not manage the balance sheet structure in order to maintain compliance with this calculation. The calculation serves as a guideline with greater ~~emphases~~emphasis placed on interest rate sensitivity. Changes to calculation results from period to period are reviewed as changes in results could be a signal of future events. As of the most recent analysis, the results of the market value at risk calculation were within established guidelines due to the strategic direction being taken.


			Page
			Number

Part I		Financial Information	~~Page~~
			~~Number~~
~~Part I~~Item 1.		Financial ~~Information~~Statements	3

~~Item 1.~~			~~Financial Statements~~	3

Consolidated Balance Sheet (Unaudited) as of September 30, ~~2017~~2023 and December 31, ~~2016~~2022	3

Consolidated Statement of Income (Unaudited) for the Three and Nine Months Ended September 30, ~~2017~~2023 and ~~2016~~2022			4

Consolidated Statement of Comprehensive Income (Loss) (Unaudited) for the Three and Nine Months Ended September 30, ~~2017~~2023 and ~~2016~~2022			5

Consolidated Statement of Changes in Shareholders’ Equity (Unaudited) for the Three and Nine Months Ended September 30, ~~2017~~2023 and ~~2016~~2022			6

Consolidated Statement of Cash Flows (Unaudited) for the Nine Months Ended September 30, ~~2017~~2023 and ~~2016~~2022			78

Notes to Consolidated Financial Statements (Unaudited)			89

Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	3433

Item 3.		Quantitative and Qualitative Disclosures About Market Risk	49

Item 4.		Controls and Procedures	49

Part II		Other Information

Item 1.		Legal Proceedings	50

Item 1A.		Risk Factors	50

Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	50

Item 3.		Defaults Upon Senior Securities	50

Item 4.		Mine Safety Disclosures	50

Item 5.		Other Information	50

Item 6.		Exhibits	51

Signatures			52

~~Exhibit Index and Exhibits~~		53


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



	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Weighted average common shares outstanding - basic	4,688,222		5,006,252		4,711,282		5,005,707
Weighted average treasury stock shares	(320,150	)	(272,452	)	(296,514	)	(269,863	)
Weighted average common shares outstanding - diluted	4,368,072		4,733,800		4,414,768		4,735,844



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


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

Total cash and cash equivalents	35,590		40,333

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

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

LIABILITIES:
Interest-bearing deposits	$	1,095,760	$	1,037,397
Noninterest-bearing deposits	471,507		519,063
Total deposits	1,567,267		1,556,460

Short-term borrowings	193,746		153,349
Long-term borrowings	217,645		102,783
Accrued interest payable	2,716		603
Operating lease liability	2,619		2,708
Other liabilities	17,935		16,512
TOTAL LIABILITIES	2,001,928		1,832,415

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; 7,620,250 and 7,566,810 shares issued; 7,110,025 and 7,056,585 outstanding	42,335		42,039
Additional paid-in capital	55,890		54,252
Retained earnings	104,067		98,147
Accumulated other comprehensive loss:
Net unrealized loss on available for sale securities	(10,886)		(9,819)
Defined benefit plan	(4,051)		(4,139)
Treasury stock at cost, 510,225 shares	(12,815)		(12,815)


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



	September 30,			December 31,
(In Thousands, Except Share Data)	2017			2016
ASSETS:
Noninterest-bearing balances	$	22,042		$	26,766
Interest-bearing balances in other financial institutions	5,705			16,905
Total cash and cash equivalents	27,747			43,671

Investment securities, available for sale, at fair value	132,313			133,492
Investment securities, trading	210			58
Loans held for sale	1,734			1,953
Loans	1,189,714			1,093,681
Allowance for loan losses	(12,933		)	(12,896		)
Loans, net	1,176,781			1,080,785
Premises and equipment, net	25,895			24,275
Accrued interest receivable	4,289			3,672
Bank-owned life insurance	27,827			27,332
Goodwill	17,104			17,104
Intangibles	1,543			1,799
Deferred tax asset	7,984			8,397
Other assets	6,770			6,052
TOTAL ASSETS	$	1,430,197		$	1,348,590

LIABILITIES:
Interest-bearing deposits	$	843,166		$	791,937
Noninterest-bearing deposits	310,830			303,277
Total deposits	1,153,996			1,095,214

Short-term borrowings	41,596			13,241
Long-term borrowings	80,998			85,998
Accrued interest payable	483			455
Other liabilities	13,455			15,433
TOTAL LIABILITIES	1,290,528			1,210,341

SHAREHOLDERS’ EQUITY:
Preferred stock, no par value, 3,000,000 shares authorized; no shares issued	—			—
Common stock, par value $8.33, 15,000,000 shares authorized; 5,008,720 and 5,007,109 shares issued; 4,688,570 and 4,734,657 outstanding	41,739			41,726
Additional paid-in capital	50,142			50,075
Retained earnings	64,033			61,610
Accumulated other comprehensive loss:
Net unrealized gain (loss) on available for sale securities	73			(639		)
Defined benefit plan	(4,203		)	(4,289		)
Treasury stock at cost, 320,150 and 272,452 shares	(12,115		)	(10,234		)
TOTAL SHAREHOLDERS’ EQUITY	139,669			138,249
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	1,430,197		$	1,348,590



	Three Months Ended September 30,					Nine Months Ended September 30,
(In Thousands, Except Per Share Data)	2017			2016		2017			2016
INTEREST AND DIVIDEND INCOME:
Loans, including fees	$	11,906		$	10,541	$	33,642		$	31,362
Investment securities:
Taxable	553			601		1,665			1,825
Tax-exempt	319			329		940			1,203
Dividend and other interest income	170			189		592			666
TOTAL INTEREST AND DIVIDEND INCOME	12,948			11,660		36,839			35,056
INTEREST EXPENSE:
Deposits	1,058			909		2,968			2,624
Short-term borrowings	31			7		39			41
Long-term borrowings	407			497		1,220			1,481
TOTAL INTEREST EXPENSE	1,496			1,413		4,227			4,146
NET INTEREST INCOME	11,452			10,247		32,612			30,910
PROVISION FOR LOAN LOSSES	60			258		605			866
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES	11,392			9,989		32,007			30,044
NON-INTEREST INCOME:
Service charges	550			585		1,637			1,678
Net securities gains, available for sale	302			253		487			1,174
Net securities (losses) gains, trading	(4		)	8		(2		)	54
Bank-owned life insurance	166			172		499			516
Gain on sale of loans	455			658		1,316			1,691
Insurance commissions	109			198		399			604
Brokerage commissions	352			290		1,044			817
Debit card fees	514			690		1,450			1,413
Other	296			228		1,325			1,310
TOTAL NON-INTEREST INCOME	2,740			3,082		8,155			9,257
NON-INTEREST EXPENSE:
Salaries and employee benefits	4,738			4,507		14,116			13,433
Occupancy	603			544		1,855			1,630
Furniture and equipment	816			662		2,129			2,042
Software amortization	235			580		750			950
Pennsylvania shares tax	228			220		696			698
Professional fees	560			502		1,816			1,512
Federal Deposit Insurance Corporation deposit insurance	194			202		514			670
Debit card expenses	168			246		478			456
Marketing	315			173		690			568
Intangible amortization	81			90		256			276
Other	1,628			1,013		4,314			4,230
TOTAL NON-INTEREST EXPENSE	9,566			8,739		27,614			26,465
INCOME BEFORE INCOME TAX PROVISION	4,566			4,332		12,548			12,836
INCOME TAX PROVISION	1,282			1,273		3,491			3,307
NET INCOME	$	3,284		$	3,059	$	9,057		$	9,529
EARNINGS PER SHARE - BASIC AND DILUTED	$	0.70		$	0.65	$	1.92		$	2.01
WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC AND DILUTED	4,688,222			4,733,800		4,711,282			4,735,844
DIVIDENDS DECLARED PER SHARE	$	0.47		$	0.47	$	1.41		$	1.41



SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid	$	4,199	$	4,091
Income taxes paid	3,950		3,050
Transfer of loans to foreclosed real estate	508		83



	Nine Months Ended September 30, 2017									Nine Months Ended September 30, 2016
(In Thousands)	Net Unrealized Loss on Available for Sale Securities			Defined Benefit Plan			Total			Net Unrealized Gain on Available for Sale Securities			Defined Benefit Plan			Total
Beginning balance	$	(639	)	$	(4,289	)	$	(4,928	)	$	258		$	(4,057	)	$	(3,799	)
Other comprehensive income before reclassifications	1,033			—			1,033			2,007			—			2,007
Amounts reclassified from accumulated other comprehensive loss	(321		)	86			(235		)	(776		)	77			(699		)
Net current-period other comprehensive income	712			86			798			1,231			77			1,308
Ending balance	$	73		$	(4,203	)	$	(4,130	)	$	1,489		$	(3,980	)	$	(2,491	)


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

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

Investment equity securities:

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


	September 30, 2023
	Less than Twelve Months				Twelve Months or Greater				Total
			Gross				Gross				Gross
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
(In Thousands)	Value		Losses		Value		Losses		Value		Losses
Available for sale (AFS):
U.S. Government and agency securities	$	967	$	(33)	$	2,897	$	(104)	$	3,864	$	(137)
Mortgage-backed securities	10,263		(454)		1,125		(251)		11,388		(705)

State and political securities	19,050		(1,013)		97,522		(8,164)		116,572		(9,177)
Other debt securities	10,596		(348)		35,841		(3,413)		46,437		(3,761)
Total debt securities	$	40,876	$	(1,848)	$	137,385	$	(11,932)	$	178,261	$	(13,780)


(In Thousands)	Amortized Cost		Fair Value
Due in one year or less	$	39,163	$	38,246
Due after one year to five years	88,544		82,446
Due after five years to ten years	65,437		59,047
Due after ten years	5,303		4,928
Total	$	198,447	$	184,667



	Three Months Ended September 30,									Nine Months Ended September 30,
	2017 vs. 2016									2017 vs. 2016
	Increase (Decrease) Due to									Increase (Decrease) Due to
(In Thousands)	Volume			Rate			Net			Volume			Rate			Net
Interest income:
Tax-exempt loans	$	76		$	(34	)	$	42		$	(70	)	$	(47	)	$	(117	)
All other loans	993			344			1,337			2,384			(27		)	2,357
Taxable investment securities	(86		)	35			(51		)	(242		)	(63		)	(305		)
Tax-exempt investment securities	40			(55		)	(15		)	(163		)	(236		)	(399		)
Interest bearing deposits	(68		)	52			(16		)	(27		)	98			71
Total interest-earning assets	955			342			1,297			1,882			(275		)	1,607

Interest expense:
Savings deposits	—			—			—			2			—			2
Super Now deposits	12			21			33			15			6			21
Money market deposits	31			66			97			99			143			242
Time deposits	(47		)	66			19			(68		)	147			79
Short-term borrowings	2			22			24			(2		)	—			(2		)
Long-term borrowings	(51		)	(39		)	(90		)	(176		)	(85		)	(261		)
Total interest-bearing liabilities	(53		)	136			83			(130		)	211			81
Change in net interest income	$	1,008		$	206		$	1,214		$	2,012		$	(486	)	$	1,526


	A- to AAA				B- to BBB+				Not Rated				Total					A- to AAA					B- to BBB+				C- to CCC+				Not Rated				Total
(In Thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		(In Thousands)	Amortized Cost			Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
Available for sale (AFS):																	Available for sale (AFS):
U.S. Government and agency securities																	U.S. Government and agency securities	$	4,001		$	3,864	$	—	$	—	$	—	$	—	$	—	$	—	$	4,001	$	3,864
Mortgage-backed securities	$	4,544	$	4,530	$	—	$	—	$	—	$	—	$	4,544	$	4,530	Mortgage-backed securities	12,101		7	11,396		—		—		—		—		—		—		12,101		11,396

State and political securities	61,293		61,751		—		—		575		576		61,868		62,327		State and political securities	124,922			115,817		—		—		—		—		4,102		4,030		129,024		119,847
Other debt securities	38,422		37,917		13,478		13,059		1,054		997		52,954		51,973		Other debt securities	20,227			18,604		7,380		6,717		—		—		25,714		24,239		53,321		49,560
Total debt securities AFS	$	104,259	$	104,198	$	13,478	$	13,059	$	1,629	$	1,573	$	119,366	$	118,830	Total debt securities AFS	$	161,251		$	149,681	$	7,380	$	6,717	$	—	$	—	$	29,816	$	28,269	$	198,447	$	184,667


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


				Parallel Rate Shock in Basis Points
(In Thousands)	-300			-200			-100			Static		+100			+200			+300			+400
Net interest income	$	60,604		$	62,477		$	64,050		$	65,448	$	66,448		$	67,194		$	67,910		$	68,645
Change from static	(4,844)			(2,971)			(1,398)			—		1,000			1,746			2,462			3,197
Percent change from static	-7.40		%	-4.54		%	-2.14		%	—		1.53		%	2.67		%	3.76		%	4.88		%



Period	Total Number of Shares (or Units) Purchased	Average Price Paid per Share (or Units) Purchased			Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs		Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
Month #1 (July 1 - July 31, ~~2017)~~2023)	—	—$	—	—	—	~~342,446~~	353,000
Month #2 (August 1 - August 31, ~~2017)~~2023)	—	—			—		~~342,446~~353,000
Month #3 (September 1 - September 30, ~~2017)~~2023)	—	—			—		~~342,446~~353,000



3(i)		Articles of Incorporation of the Registrant ~~as presently in effect~~ (incorporated by reference to Exhibit 3(i) of the ~~Registrant’s Quarterly~~Registrant's Annual Report on Form ~~10-Q~~10-K for the ~~period~~year ended ~~March~~December 31, ~~2012)~~2022).
3(ii)		Bylaws of the Registrant (incorporated by reference to Exhibit 3(ii) of the ~~Registrant’s~~Registrant's Annual Report on Form 10-K for the year ended December 31, ~~2011)~~2020).
~~10(i)~~31(i)		Employment Agreement, dated October 30, 2017, by and between Penns Woods Bancorp, Inc. and Brian L. Knepp (incorporated by reference to Exhibit 10 (i) of the Registrant's Current Report on Form 8-K filed on November 2, 2017).
~~31(i)~~	Rule 13a-14(a)/Rule 15d-14(a) Certification of Chief Executive Officer.
31(ii)		Rule 13a-14(a)/Rule 15d-14(a) Certification of Chief Financial Officer.
32(i)		Section 1350 Certification of Chief Executive Officer.
32(ii)		Section 1350 Certification of Chief Financial Officer.
101		Interactive data file containing the following financial statements formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheet at September 30, ~~2017~~2023 and December 31, ~~2016;~~2022; (ii) the Consolidated Statement of Income for the three and nine months ended September 30, ~~2017~~2023 and ~~2016;~~2022; (iii) Consolidated Statement of Comprehensive Income for the three and nine months ended September 30, ~~2017~~2023 and ~~2016;~~2022; (iv) the Consolidated Statement of Shareholders’ Equity for the three and nine months ended September 30, ~~2017~~2023 and ~~2016;~~2022; (v) the Consolidated Statement of Cash Flows for the nine months ended September 30, ~~2017~~2023 and ~~2016;~~2022 and (vi) the Notes to Consolidated Financial Statements. As provided in Rule 406T of Regulation S-T, this interactive data file shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, and shall not be deemed “filed” or part of any registration statement or prospectus for purposes of Section 11 or 12 under the Securities Act of 1933, or otherwise subject to liability under those sections.
104		Cover page interactive data file (formatted as inline XBRL and contained in Exhibit 101).



		PENNS WOODS BANCORP, INC.
		(Registrant)

Date:	November ~~8, 2017~~14, 2023	/s/ Richard A. Grafmyre
		Richard A. Grafmyre, Chief Executive Officer
		(Principal Executive Officer)


Date:	November ~~8, 2017~~14, 2023	/s/ Brian L. Knepp
		Brian L. Knepp, President and Chief Financial Officer
		(Principal Financial Officer and Principal Accounting
		Officer)



~~Exhibit 31(i)~~		~~Rule 13a-14(a)/Rule 15d-14(a) Certification of Chief Executive Officer~~
~~Exhibit 31(ii)~~		~~Rule 13a-14(a)/Rule 15d-14(a) Certification of Chief Financial Officer~~
~~Exhibit 32(i)~~		~~Section 1350 Certification of Chief Executive Officer~~
~~Exhibit 32(ii)~~		~~Section 1350 Certification of Chief Financial Officer~~
~~Exhibit 101~~		Interactive data file containing the following financial statements formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheet at September 30, 2017 and December 31, 2016; (ii) the Consolidated Statement of Income for the three and nine months ended September 30, 2017 and 2016; (iii) Consolidated Statement of Comprehensive Income for the three and nine months ended September 30, 2017 and 2016; (iv) the Consolidated Statement of Shareholders’ Equity for the nine months ended September 30, 2017 and 2016; (v) the Consolidated Statement of Cash Flows for the nine months ended September 30, 2017 and 2016; and (vi) the Notes to Consolidated Financial Statements. As provided in Rule 406T of Regulation S-T, this interactive data file shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, and shall not be deemed “filed” or part of any registration statement or prospectus for purposes of Section 11 or 12 under the Securities Act of 1933, or otherwise subject to liability under those sections.