collections are dependent on the borrower’s continuing financial stability, and thus are more likely to be affected by adverse personal circumstances. Furthermore, the application of various federal and state laws, including bankruptcy and insolvency laws, may limit the amount which can be recovered on such loans.

Loan Portfolio Classification

The following table presents the loan portfolio by class at September 30, ~~2022~~2023 and December 31, ~~2021.~~2022.


(Dollars in thousands)
	September 30, 2022		December 31, 2021		September 30, 2023		December 31, 2022
Commercial, financial and agricultural	$	58,585	$	62,639	$	63,265	$	61,458
Real estate - commercial		189,860		159,806		212,816		199,206
Real estate - construction		48,108		43,281
Real estate - construction:
1-4 family residential construction						6,788		7,995
Other construction loans						46,852		42,753
Real estate - mortgage		142,149		131,754		160,036		150,290
Obligations of states and political subdivisions		19,761		16,323		19,985		18,770
Personal		3,967		4,500		4,390		4,040
Total	$	462,430	$	418,303	$	514,132	$	484,512

The following table ~~summarizes the activity in the~~discloses allowance for ~~loan losses~~credit loss activity by loan class for the three and nine months ended September 30, ~~2022 and 2021.~~2023.

(Dollars in thousands)







Obligations






Commercial,

of states

financial and

Real estate-

Real estate-

and political

Real estate-

agricultural

commercial

construction

subdivisions

mortgage

Personal

Total
Three Months Ended

September 30, 2022

Balance, beginning of period

$
286

$
934

$
1,208

$
56

$
1,294

$
35

$
3,813
Provision for loan losses

(4)

129

(123)

—

94

4

100
Charge-offs

—

—

—

—

(22)

(4)

(26)
Recoveries

—

—

—

—

18

—

18
Balance, end of period

$
282

$
1,063

$
1,085

$
56

$
1,384

$
35

$
3,905
September 30, 2021

Balance, beginning of period

$
289

$
1,435

$
924

$
33

$
1,164

$
61

$
3,906
Provision for loan losses

(9)

(104)

(81)

(5)

(54)

(4)

(257)
Charge-offs

—

—

—

—

—

(2)

(2)
Recoveries

—

36

27

—

12

3

78
Balance, end of period

$
280

$
1,367

$
870

$
28

$
1,122

$
58

$
3,725

Nine Months Ended

September 30, 2022

Balance, beginning of period

$
251

$
1,020

$
884

$
45

$
1,269

$
39

$
3,508
Provision for loan losses

31

43

201

11

61

3

350
Charge-offs

—

—

—

—

(23)

(9)

(32)
Recoveries

—

—

—

—

77

2

79
Balance, end of period

$
282

$
1,063

$
1,085

$
56

$
1,384

$
35

$
3,905
September 30, 2021

Balance, beginning of period

$
302

$
908

$
1,586

$
28

$
1,200

$
70

$
4,094
Provision for loan losses

(29)

423

(799)

—

(119)

(12)

(536)
Charge-offs

—

—

—

—

—

(10)

(10)
Recoveries

7

36

83

—

41

10

177
Balance, end of period

$
280

$
1,367

$
870

$
28

$
1,122

$
58

$
3,725


					Real estate-				Obligations
	Commercial,				construction		Real estate-		of states
(Dollars in thousands)	financial and		Real estate-		1-4 family		construction		and political		Real estate-
	agricultural		commercial		residential		other		subdivisions		mortgage		Personal		Total
Three Months Ended
September 30, 2023
Allowance for credit losses:
Balance, beginning of period	$	677	$	2,677	$	113	$	720	$	41	$	1,150	$	64	$	5,442
Provision for credit losses (1)		33		25		31		31		—		8		(7)		121
Loans charged off		—		—		—		—		—		—		(11)		(11)
Recoveries collected		—		—		—		—		—		19		15		34
Total ending allowance balance (1)	$	710	$	2,702	$	144	$	751	$	41	$	1,177	$	61	$	5,586
Nine Months Ended
September 30, 2023
Allowance for credit losses:
Beginning balance, prior to ASC 326 adoption	$	297	$	1,110	$	69	$	1,077	$	54	$	1,385	$	35	$	4,027
Impact of adopting ASC 326		337		1,204		114		(407)		(9)		(497)		15		757
Initial allowance on loans purchased with credit deterioration		—		106		—		—		—		248		—		354
Provision for credit losses (1)		76		282		(39)		81		(4)		4		11		411
Loans charged off		—		—		—		—		—		(19)		(19)		(38)
Recoveries collected		—		—		—		—		—		56		19		75
Total ending allowance balance (1)	$	710	$	2,702	$	144	$	751	$	41	$	1,177	$	61	$	5,586

(1)

Allowance/provision for credit losses in 2023 are not comparable to prior periods due to the adoptions of ASC 326.

~~Table of Contents~~

The following table summarizes loans by loan class, segregated into the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment as of September 30, 2022 and December 31, 2021.

(Dollars in thousands)







Obligations






Commercial,

of states

financial and

Real estate-

Real estate-

and political

Real estate-

agricultural

commercial

construction

subdivisions

mortgage

Personal

Total
September 30, 2022














Loans allocated by:

Individually evaluated for impairment

$
—

$
2,048

$
—

$
—

$
387

$
—

$
2,435
Acquired with credit deterioration

—

299

—

—

424

—

723
Collectively evaluated for impairment

58,585

187,513

48,108

19,761

141,338

3,967

459,272

$
58,585

$
189,860

$
48,108

$
19,761

$
142,149

$
3,967

$
462,430
Allowance for loan losses allocated by:

Individually evaluated for impairment

$
—

$
—

$
—

$
—

$
—

$
—

$
—
Acquired with credit deterioration

—

—

—

—

—

—

—
Collectively evaluated for impairment

282

1,063

1,085

56

1,384

35

3,905

$
282

$
1,063

$
1,085

$
56

$
1,384

$
35

$
3,905

December 31, 2021














Loans allocated by:

Individually evaluated for impairment

$
—

$
5,262

$
—

$
—

$
437

$
—

$
5,699
Acquired with credit deterioration

—

357

—

—

481

—

838
Collectively evaluated for impairment

62,639

154,187

43,281

16,323

130,836

4,500

411,766

$
62,639

$
159,806

$
43,281

$
16,323

$
131,754

$
4,500

$
418,303
Allowance for loan losses allocated by:

Individually evaluated for impairment

$
—

$
—

$
—

$
—

$
2

$
—

$
2
Acquired with credit deterioration

—

—

—

—

—

—

—
Collectively evaluated for impairment

251

1,020

884

45

1,267

39

3,506

$
251

$
1,020

$
884

$
45

$
1,269

$
39

$
3,508

The Company has certain loans in its portfolio that it considers to be impaired. It is the policy of the Company to recognize income on impaired loans that have been transferred to nonaccrual status on a cash basis, only to the extent that it exceeds anticipated principal balance recovery. Until an impaired loan is placed on nonaccrual status, income is recognized on the accrual basis. Collateral analysis is performed on each impaired loan at least quarterly, and results are used to determine if a specific reserve is necessary to adjust the carrying value of each individual loan down to the estimated fair value. Generally, specific reserves are carried against impaired loans based upon estimated collateral value until a confirming loss event occurs or until termination of the credit is scheduled through liquidation of the collateral or foreclosure. There were no consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process as of September 30, 2022. As of December 31, 2021, there was $85,000 in consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process. Charge-offs will occur when a confirmed loss is identified. Professional appraisals of collateral, discounted for expected selling costs, appraisal age, economic conditions and other known factors, are used to determine the charge-off amount.

Table of Contents

The following table ~~summarizes information regarding impaired loans~~discloses allowance for credit loss activity by ~~portfolio~~loan class ~~as of September 30, 2022 and December 31, 2021. One loan was determined to have insufficient collateral as of December 31, 2021, requiring the establishment of a specific reserve of $2,000.~~

(Dollars in thousands)

As of September 30, 2022

As of December 31, 2021


Recorded

Unpaid Principal

Related

Recorded

Unpaid Principal

Related

Investment

Balance

Allowance

Investment

Balance

Allowance
Impaired loans

With no related allowance recorded:












Real estate - commercial

$
2,048

$
2,499

$
—

$
5,262

$
5,720

$
—
Acquired with credit deterioration

299

350

—

357

366

—
Real estate – construction

—

—

—

—

649

—
Real estate - mortgage

387

1,010

—

368

1,054

—
Acquired with credit deterioration

424

640

—

481

660

—
With an allowance recorded:








Real estate - mortgage

$
—

$
—

$
—

$
69

$
68

$
2
Total:












Real estate - commercial

$
2,048

$
2,499

$
—

$
5,262

$
5,720

$
—
Acquired with credit deterioration

299

350

—

357

366

—
Real estate - construction

—

—

—

—

649

—
Real estate – mortgage

387

1,010

—

437

1,122

2
Acquired with credit deterioration

424

640

—

481

660

—

$
3,158

$
4,499

$
—

$
6,537

$
8,517

$
2

~~Average recorded investment of impaired loans and related interest income recognized~~ for the three and nine months ended September 30, 2022, ~~and 2021 are summarized in~~prior to the ~~tables below.~~adoption of ASC 326.

(Dollars in thousands)

Three Months Ended September 30, 2022

Three Months Ended September 30, 2021


Average

Interest

Cash Basis

Average

Interest

Cash Basis

Recorded

Income

Interest

Recorded

Income

Interest

Investment

Recognized

Income

Investment

Recognized

Income
Impaired loans

With no related allowance recorded:












Real estate - commercial

$
2,058

$
98

$
—

$
5,291

$
55

$
—
Acquired with credit deterioration

341

—

—

364

—

—
Real estate - mortgage

348

4

19

483

3

10
Acquired with credit deterioration

440

—

—

595

—

—
Total:








Real estate - commercial

$
2,058

$
98

$
—

$
5,291

$
55

$
—
Acquired with credit deterioration

341

—

—

364

—

—
Real estate - mortgage

348

4

19

483

3

10
Acquired with credit deterioration

440

—

—

595

—

—

$
3,187

$
102

$
19

$
6,733

$
58

$
10


							Obligations
	Commercial,						of states
(Dollars in thousands)	financial and		Real estate-		Real estate-		and political		Real estate-
	agricultural		commercial		construction		subdivisions		mortgage		Personal		Total
Three Months Ended
September 30, 2022
Allowance for loan losses:
Beginning balance	$	286	$	934	$	1,208	$	56	$	1,294	$	35	$	3,813
Provision for loan losses		(4)		129		(123)		—		94		4		100
Loans charged off		—		—		—		—		(22)		(4)		(26)
Recoveries collected		—		—		—		—		18		—		18
Total ending allowance balance	$	282	$	1,063	$	1,085	$	56	$	1,384	$	35	$	3,905
Nine Months Ended
September 30, 2022
Allowance for loan losses:
Beginning balance	$	251	$	1,020	$	884	$	45	$	1,269	$	39	$	3,508
Provision for loan losses		31		43		201		11		61		3		350
Loans charged off		—		—		—		—		(23)		(9)		(32)
Recoveries collected		—		—		—		—		77		2		79
Total ending allowance balance	$	282	$	1,063	$	1,085	$	56	$	1,384	$	35	$	3,905


							Obligations
	Commercial,						of states
(Dollars in thousands)	financial and		Real estate-		Real estate-		and political		Real estate-
	agricultural		commercial		construction		subdivisions		mortgage		Personal		Total
December 31, 2022
Loans allocated by:
Individually evaluated for impairment	$	—	$	2,025	$	—	$	—	$	377	$	—	$	2,402
Acquired with credit deterioration		—		334		—		—		419		—		753
Collectively evaluated for impairment		61,458		196,847		50,748		18,770		149,494		4,040		481,357
	$	61,458	$	199,206	$	50,748	$	18,770	$	150,290	$	4,040	$	484,512
Allowance for loan losses allocated by:
Individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Acquired with credit deterioration		—		—		—		—		—		—		—
Collectively evaluated for impairment		297		1,110		1,146		54		1,385		35		4,027
	$	297	$	1,110	$	1,146	$	54	$	1,385	$	35	$	4,027

There were no consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process as of September 30, 2023. As of December 31, 2022, there was $123,000 in consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process. Charge-offs will occur when a confirmed loss is identified. Professional appraisals of collateral, discounted for expected selling costs, appraisal age, economic conditions and other known factors, are used to determine the charge-off amount.

Table of Contents

Following the adoption of ASC 326 as of January 1, 2023, the definitions of impairment and related impaired loan disclosures were removed. However, under ASC 326, loans that do not share risk characteristics are not evaluated collectively and are instead individually evaluated. When management determines foreclosure is probable, expected credit losses are based on the fair value of the collateral, adjusted for selling costs as appropriate.

The following table presents the amortized cost basis of collateral-dependent loans by class of loans and collateral type as of September 30, 2023.


(Dollars in thousands)
	Real Estate
Real estate - mortgage	$	57
Total	$	57

(Dollars in thousands)

Nine Months Ended September 30, 2022

Nine Months Ended September 30, 2021


Average

Interest

Cash Basis

Average

Interest

Cash Basis

Recorded

Income

Interest

Recorded

Income

Interest

Investment

Recognized

Income

Investment

Recognized

Income
Impaired Loans

With no related allowance recorded:












Real estate - commercial

$
4,187

$
161

$
—

$
4,346

$
166

$
—
Acquired with credit deterioration

347

—

—

345

—

—
Real estate - mortgage

397

7

29

579

10

30
Acquired with credit deterioration

455

—

—

602

—

—
Total:








Real estate - commercial

$
4,187

$
161

$
—

$
4,346

$
166

$
—
Acquired with credit deterioration

347

—

—

345

—

—
Real estate - mortgage

397

7

29

579

10

30
Acquired with credit deterioration

455

—

—

602

—

—

$
5,386

$
168

$
29

$
5,872

$
176

$
30

The following table summarizes information regarding impaired loans by portfolio class as of December 31, 2022, prior to the adoption of ASC 326.


(Dollars in thousands)	As of December 31, 2022
	Recorded		Unpaid Principal		Related
	Investment		Balance		Allowance
Impaired loans
With no related allowance recorded:
Real estate - commercial	$	2,025	$	2,471	$	—
Acquired with credit deterioration		334		344		—
Real estate - mortgage		377		993		—
Acquired with credit deterioration		419		634		—
Total:
Real estate - commercial	$	2,025	$	2,471	$	—
Acquired with credit deterioration		334		344		—
Real estate – mortgage		377		993		—
Acquired with credit deterioration		419		634		—
	$	3,155	$	4,442	$	—

Average recorded investment of impaired loans and related interest income recognized for the three and nine months ended September 30, 2022 are summarized in the tables below, prior to the adoption of ASC 326.


(Dollars in thousands)	Three Months Ended September 30, 2022
	Average		Interest		Cash Basis
	Recorded		Income		Interest
	Investment		Recognized		Income
Impaired loans
With no related allowance recorded:
Real estate - commercial	$	2,058	$	98	$	—
Acquired with credit deterioration		341		—		—
Real estate - mortgage		348		4		19
Acquired with credit deterioration		440		—		—
Total:
Real estate - commercial	$	2,058	$	98	$	—
Acquired with credit deterioration		341		—		—
Real estate - mortgage		348		4		19
Acquired with credit deterioration		440		—		—
	$	3,187	$	102	$	19

Table of Contents


(Dollars in thousands)	Nine Months Ended September 30, 2022
	Average		Interest		Cash Basis
	Recorded		Income		Interest
	Investment		Recognized		Income
Impaired Loans
With no related allowance recorded:
Real estate - commercial	$	4,187	$	161	$	—
Acquired with credit deterioration		347		—		—
Real estate - mortgage		397		7		29
Acquired with credit deterioration		455		—		—
Total:
Real estate - commercial	$	4,187	$	161	$	—
Acquired with credit deterioration		347		—		—
Real estate - mortgage		397		7		29
Acquired with credit deterioration		455		—		—
	$	5,386	$	168	$	29

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

Loans on which the accrual of interest has been discontinued are designated as non-accrual loans. Accrual of interest on loans is generally discontinued when the contractual payment of principal or interest has become 90 days past due or reasonable doubt exists as to the full, timely collection of principal or interest. However, it is the Company’s policy to continue to accrue interest on loans over 90 days past due if (1) they are guaranteed or well secured and (2) there is an effective means of timely collection in process.

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

The following ~~table presents~~tables present the amortized cost basis of loans on nonaccrual status, including nonaccrual status loans ~~by classes of the loan portfolio~~with no allowance, and loans past due over 89 days still accruing as of September 30, ~~2022~~2023 and December 31, ~~2021.~~2022, respectively.


(Dollars in thousands)					Nonaccrual with				Loans Past Due
	September 30, 2022		December 31, 2021		No Allowance				Over 89 Days
Non-accrual loans:
As of September 30, 2023					for Credit Loss		Nonaccrual		Still Accruing(1)
Commercial, financial and agricultural					$	—	$	20	$	—
Real estate - mortgage	$	142	$	141		57		—		—
Total	$	142	$	141	$	57	$	20	$	—

2425

Table of Contents


(Dollars in thousands)					Loans Past Due
	Nonaccrual with				Over 89 Days
As of December 31, 2022	No Allowance		Nonaccrual		Still Accruing(1)
Commercial, financial and agricultural	$	—	$	—	$	24
Real estate - commercial		—		—		7
Real estate - mortgage		—		139		4
Personal		—		—		4
Total	$	—	$	139	$	39

(1)

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

The Company recognized $11,000 and $33,000 in interest income on nonaccrual loans during the three and nine months ended September 30, 2023, respectively.

The performance and credit quality of the loan portfolio is also monitored by analyzing the age of the loans receivable as determined by the length of time a recorded payment is past due. Past due status is determined by the contractual terms of the loan. The following tables present the classes of the loan portfolio, summarized by the past due status as of September 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively.


													Loans
													Past Due
													Greater
(Dollars in thousands)							Greater						than 89						Greater
			30‑59 Days		60‑89 Days		than 89		Total Past				Days and		30‑59 Days		60‑89 Days		Than 89 Days		Total Past
	Current		Past Due(2)		Past Due		Days		Due		Total Loans		Accruing(1)
As of September 30, 2022
As of September 30, 2023															Past Due(1)		Past Due		Past Due		Due
Commercial, financial and agricultural	$	58,560	$	—	$	25	$	—	$	25	$	58,585	$	—	$	19	$	—	$	—	$	19
Real estate - commercial		188,870		683		—		8		691		189,561		8		122		—		—		122
Real estate - construction		48,108		—		—		—		—		48,108		—
Real estate - mortgage		141,019		148		445		113		706		141,725		—		673		8		14		695
Obligations of states and political subdivisions		19,761		—		—		—		—		19,761		—
Personal		3,959		8		—		—		8		3,967		—
Subtotal		460,277		839		470		121		1,430		461,707		8
Loans acquired with credit deterioration
Real estate - commercial		299		—		—		—		—		299		—
Real estate - mortgage		424		—		—		—		—		424		—
Subtotal		723		—		—		—		—		723		—
	$	461,000	$	839	$	470	$	121	$	1,430	$	462,430	$	8
Total															$	814	$	8	$	14	$	836


													Loans
													Past Due
													Greater
(Dollars in thousands)							Greater						than 89						Greater
			30‑59 Days		60‑89 Days		than 89		Total Past				Days and		30‑59 Days		60‑89 Days		Than 89 Days		Total Past
	Current		Past Due(2)		Past Due		Days		Due		Total Loans		Accruing(1)
As of December 31, 2021
As of December 31, 2022															Past Due(1)		Past Due		Past Due		Due
Commercial, financial and agricultural	$	62,628	$	11	$	—	$	—	$	11	$	62,639	$	—	$	75	$	—	$	24	$	99
Real estate - commercial		159,396		53		—		—		53		159,449		—		—		104		7		111
Real estate - construction		43,281		—		—		—		—		43,281		—
Real estate - mortgage		130,242		440		488		103		1,031		131,273		85		205		36		142		383
Obligations of states and political subdivisions		16,323		—		—		—		—		16,323		—
Personal		4,492		8		—		—		8		4,500		—		27		1		4		32
Subtotal		416,362		512		488		103		1,103		417,465		85
Loans acquired with credit deterioration
Real estate - commercial		357		—		—		—		—		357		—
Real estate - mortgage		481		—		—		—		—		481		—
Subtotal		838		—		—		—		—		838		—
	$	417,200	$	512	$	488	$	103	$	1,103	$	418,303	$	85
Total															$	307	$	141	$	177	$	625

~~(1)~~

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

~~(2)~~(1)

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

Occasionally, the Company modifies loans to borrowers in financial difficulty by providing principal forgiveness, term extension, an other-then-insignificant payment delay or interest rate reduction. When principal forgiveness is provided, the amount of forgiveness is charged off against the allowance for credit losses. In some cases, the Company may provide multiple types of concessions on one loan. Typically, one type of concession, such as a term extension, is granted initially. If the borrower continues to experience financial difficulty, another concession, such as principal forgiveness, may be granted. There were no loans modified to borrowers experiencing financial difficulty during the three or nine months ended September 30, 2023 and, as such, there were no payment defaults on loans modified to borrowers experiencing financial difficulty during the three or nine months ended September 30, 2023.

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~~Troubled Debt Restructurings~~

~~The Company’s troubled debt restructurings are impaired loans, which may result in~~If the Company determines a ~~specific allocation and subsequent charge-off if appropriate. The amended terms~~modified loan (or a portion of a loan) has subsequently been deemed uncollectible, the loan (or a portion of the ~~restructured loans vary,~~loan) is written off. Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount and ~~may include interest rates that have been reduced, principal payments that have been reduced or deferred~~the allowance for ~~a period and/or maturity dates that have been extended.~~credit losses is adjusted by the same amount.

As of ~~September 30,~~December 31, 2022, the Company had a recorded investment in troubled debt restructurings of $2.3 million with no specific reserves or any charge-offs related to the troubled debt restructured ~~loans. As~~loans and no commitments to lend additional amounts to these customers as of December 31, 2021, the Company had a recorded investment in troubled debt restructurings of $5.6 million with no specific reserves or any charge-offs related to the troubled debt restructured loans. In the third quarter of 2022, a $3.1 million troubled debt restructured loan was paid off.2022. There were no troubled debt restructured loans in default within 12 months of restructure during the ~~three and nine months~~year ended ~~September 30,~~December 31, 2022, ~~or 2021.~~

~~The following table presents the loan~~nor were there any loans whose terms were modified, resulting in troubled debt ~~restructuring~~restructurings during the nine months ended September 30, 2021. There were no loan terms modified resulting in troubled debt restructuring during the three and nine months ended September 30, 2022, or the three months ended September 30, 2021.2022.

(Dollars in thousands)




Pre-Modification

Post-Modification


Number of

Outstanding

Outstanding

Contracts

Recorded Investment

Recorded Investment

Recorded Investment
Nine months ended September 30, 2021









Accruing troubled debt restructurings:








Real estate - commercial

1

$
2,254

$
2,254

$
1,854

1

$
2,254

$
2,254

$
1,854

Credit Quality Indicators

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

Special Mention. - Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date. Loans in this category are reviewed no less than quarterly.

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

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

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

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

The following tables present the classes of the loan portfolio summarized by the aggregate pass rating and the classified ratings of special mention, substandard and doubtful within the Company’s internal risk rating system as of September 30, 2022 and December 31, 2021, respectively.

(Dollars in thousands)

Special

As of September 30, 2022

Pass

Mention

Substandard

Doubtful

Total
Commercial, financial and agricultural

$
57,812

$
773

$
—

$
—

$
58,585
Real estate - commercial

176,300

11,102

2,458

—

189,860
Real estate - construction

46,668

1,440

—

—

48,108
Real estate - mortgage

140,901

427

821

—

142,149
Obligations of states and political subdivisions

19,761

—

—

—

19,761
Personal

3,967

—

—

—

3,967
Total

$
445,409

$
13,742

$
3,279

$
—

$
462,430

(Dollars in thousands)

Special

As of December 31, 2021

Pass

Mention

Substandard

Doubtful

Total
Commercial, financial and agricultural

$
61,372

$
577

$
690

$
—

$
62,639
Real estate - commercial

137,684

16,429

5,693

—

159,806
Real estate - construction

42,394

—

887

—

43,281
Real estate - mortgage

130,584

252

918

—

131,754
Obligations of states and political subdivisions

16,323

—

—

—

16,323
Personal

4,500

—

—

—

4,500
Total

$
392,857

$
17,258

$
8,188

$
—

$
418,303

The decline in special mention real estate – commercial loans as of September 30, 2022 compared to December 31, 2021 was largely due to a $2.9 million payoff of a special mention loan in the first quarter of 2022, as well as paydowns and the upgrade of two loan relationships to pass ratings. The decline in substandard real estate – commercial as of September 30, 2022 compared to December 31, 2021 was primarily due to the payoff of a $3.1 million substandard loan relationship in the third quarter of 2022.

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(Dollars in thousands)			Special
As of September 30, 2023	Pass		Mention		Substandard		Doubtful		Total
Commercial, financial and agricultural	$	63,104	$	142	$	19	$	—	$	63,265
Real estate - commercial		197,506		14,374		936		—		212,816
Real estate - construction:
1-4 family residential construction		6,788		—		—		—		6,788
Other construction loans		42,159		4,693		—		—		46,852
Real estate - mortgage		159,756		223		57		—		160,036
Obligations of states and political subdivisions		19,985		—		—		—		19,985
Personal		4,390		—		—		—		4,390
Total	$	493,688	$	19,432	$	1,012	$	—	$	514,132


(Dollars in thousands)			Special
As of December 31, 2022	Pass		Mention		Substandard		Doubtful		Total
Commercial, financial and agricultural	$	60,990	$	468	$	—	$	—	$	61,458
Real estate - commercial		186,977		9,802		2,427		—		199,206
Real estate - construction		50,008		740						50,748
Real estate - mortgage		149,272		222		796		—		150,290
Obligations of states and political subdivisions		18,770		—		—		—		18,770
Personal		4,040		—		—		—		4,040
Total	$	470,057	$	11,232	$	3,223	$	—	$	484,512

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Based on the most recent analysis performed, the amortized cost basis by risk category of loans by class of loan and by origination year is as follows:


													Revolving		Revolving
(Dollars in thousands)													Loans		Loans
													Amortized		Converted
As of September 30, 2023	2023		2022		2021		2020		2019		Prior		Cost Basis		to Term		Total
Commercial, financial and agricultural:
Risk Rating
Pass	$	10,032	$	6,361	$	12,451	$	5,403	$	4,141	$	1,569	$	23,147	$	—	$	63,104
Special Mention		70		—		—		—		72		—		—		—		142
Substandard		—		—		—		—		—		19		—		—		19
Doubtful		—		—		—		—		—		—		—		—		—
Total commercial, financial and agricultural loans	$	10,102	$	6,361	$	12,451	$	5,403	$	4,213	$	1,588	$	23,147	$	—	$	63,265

Commercial, financial and agricultural loans:
Current period gross write offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Real estate - commercial:
Risk Rating
Pass	$	17,355	$	58,584	$	23,947	$	16,208	$	18,052	$	59,570	$	3,789	$	1	$	197,506
Special Mention		—		—		—		9,001		421		4,952		—		—		14,374
Substandard		—		—		—		—		—		936		—		—		936
Doubtful		—		—		—		—		—		—		—		—		—
Total real estate - commercial loans	$	17,355	$	58,584	$	23,947	$	25,209	$	18,473	$	65,458	$	3,789	$	1	$	212,816

Real estate - commercial:
Current period gross write offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Real estate - construction - 1-4 family residential:
Risk Rating
Pass	$	2,818	$	3,411	$	—	$	—	$	—	$	559	$	—	$	—	$	6,788
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Total real estate - construction - 1-4 family residential loans	$	2,818	$	3,411	$	—	$	—	$	—	$	559	$	—	$	—	$	6,788

Real estate - construction - 1-4 family residential:
Current period gross write offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Real estate - construction - other:
Risk Rating
Pass	$	2,280	$	6,732	$	17,646	$	2,469	$	393	$	3,303	$	9,336	$	—	$	42,159
Special Mention		—		—		2		4,691		—		—		—		—		4,693
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Total real estate - construction - other loans	$	2,280	$	6,732	$	17,648	$	7,160	$	393	$	3,303	$	9,336	$	—	$	46,852

Real estate - construction - other:
Current period gross write offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

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													Revolving		Revolving
(Dollars in thousands)													Loans		Loans
													Amortized		Converted
As of September 30, 2023 (cont.)	2023		2022		2021		2020		2019		Prior		Cost Basis		to Term		Total
Real estate - mortgage:
Risk Rating
Pass	$	17,922	$	44,975	$	19,869	$	15,003	$	5,627	$	47,730	$	8,510	$	120	$	159,756
Special Mention		—		—		—		—		—		223		—		—		223
Substandard		—		—		—		—		—		57		—		—		57
Doubtful		—		—		—		—		—		—		—		—		—
Total real estate - mortgage loans	$	17,922	$	44,975	$	19,869	$	15,003	$	5,627	$	48,010	$	8,510	$	120	$	160,036

Real estate - mortgage:
Current period gross write offs	$	—	$	—	$	—	$	—	$	—	$	(19)	$	—	$	—	$	(19)

Obligations of states and political subdivisions:
Risk Rating
Pass	$	2,741	$	3,882	$	2,456	$	5,106	$	12	$	5,787	$	1	$	—	$	19,985
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Total Obligations of states and political subdivisions	$	2,741	$	3,882	$	2,456	$	5,106	$	12	$	5,787	$	1	$	—	$	19,985

Obligations of states and political subdivisions:
Current period gross write offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Personal:
Risk Rating
Pass	$	1,997	$	1,339	$	466	$	116	$	127	$	231	$	110	$	4	$	4,390
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Total personal loans	$	1,997	$	1,339	$	466	$	116	$	127	$	231	$	110	$	4	$	4,390

Personal:
Current period gross write offs	$	—	$	—	$	—	$	(4)	$	—	$	(15)	$	—	$	—	$	(19)

7. GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill

On September 8, 2006, the Company acquired a branch office in Richfield, PA. Goodwill associated with this transaction is carried at $2.0 million. On November 30, 2015, the Company acquired FNBPA Bancorp, Inc. and, as a result, the Company carries goodwill of $3.4 million relating to the acquisition. On April 30, 2018, the Company acquired the remainder of the outstanding common stock of Liverpool Community Bank and, as a result, the Company carries goodwill of $3.6 million relating to the acquisition. On May 12, 2023, the Company acquired a branch office (“Path Valley”) in Spring Run, Pennsylvania. Goodwill associated with this transaction is carried at $765,000.

Total goodwill at September 30, ~~2022~~2023 and December 31, ~~2021~~2022 was $9.8 million and $9.0 ~~million.~~million, respectively. Goodwill is not amortized but is tested annually for impairment as of December 31, or more frequently if certain events occur which might indicate goodwill has been impaired. There was no goodwill impairment during the nine months ended September 30, ~~2022~~2023 or September 30, ~~2021.~~2022.

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Intangible Assets

On November 30, 2015, a core deposit intangible in the amount of $303,000 associated with the FNBPA Bancorp, Inc. acquisition was recorded and is being amortized over a ten-year period using a sum of the ~~year’s~~years’ digits basis. Amortization expense recognized for the intangibles related to the FNBPA acquisition for the ~~respective~~three and nine months ended September 30, 2023 was $4,000 and $12,000, respectively, and for the three and nine months ended September 30, 2022 was $5,000 and $16,000, ~~and for the respective three and nine months ended September 30, 2021 was $6,000 and $20,000.~~respectively.

On April 30, 2018, a core deposit intangible in the amount of $289,000 associated with the Liverpool Community Bank acquisition was recorded and is being amortized over a ten-year period using a sum of the ~~year’s~~years’ digit basis. Amortization expense recognized for the intangible related to the Liverpool Community Bank acquisition for the ~~respective~~three and nine months ended September 30, 2023 was $7,000 and $21,000, respectively, and for the three and nine months ended September 30, 2022 was $9,000 and $25,000, respectively.

On May 12, 2023, a core deposit intangible in the amount of $303,000 associated with the Path Valley branch acquisition was recorded and is being amortized over a ten-year period using a sum of the years’ digit basis. Amortization expense recognized for the ~~respective~~intangible related to the Path Valley branch acquisition for the three and nine months ended September 30, ~~2021~~2023 was ~~$10,000~~$14,000 and ~~$29,000.~~$23,000, respectively, while no amortization expense was recorded for the three and nine months ended September 30, 2022.

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

(Dollars in thousands)

FNBPA

LCB

Acquisition

Acquisition

Core

Core

Deposit

Deposit

Intangible

Intangible
Beginning Balance at Acquisition Date

$
303

$
289
Amortization expense recorded prior to January 1, 2021

223

128
Amortization expense recorded in the twelve months




ended December 31, 2021

27

39
Unamortized balance as of December 31, 2021

53

122
Amortization expense recorded in the

nine months ended September 30, 2022

16

25
Unamortized balance as of September 30, 2022

$
37

$
97

Scheduled remaining amortization expense for years ended:

December 31, 2022

$
6

$
8
December 31, 2023

16

28
December 31, 2024

10

23
December 31, 2025

5

17
December 31, 2026

—

12
Thereafter

—

9


(Dollars in thousands)	Path Valley		FNBPA		LCB
	Acquisition		Acquisition		Acquisition
	Core		Core		Core
	Deposit		Deposit		Deposit
	Intangible		Intangible		Intangible
Beginning Balance at Acquisition Date	$	303	$	303	$	289
Amortization expense recorded prior to January 1, 2022		—		250		167
Amortization expense recorded in the twelve months
ended December 31, 2022		—		21		33
Unamortized balance as of December 31, 2022		—		32		89
Amortization expense recorded in the
nine months ended September 30, 2023		23		12		21
Unamortized balance as of September 30, 2023	$	280	$	20	$	68

Scheduled remaining amortization expense for years ended:
December 31, 2023	$	14	$	4	$	7
December 31, 2024		51		11		23
December 31, 2025		46		5		17
December 31, 2026		40		—		12
December 31, 2027		35		—		7
Thereafter		94		—		2

8. DEPOSITS

At September 30, 2023 and December 31, 2022, time deposits that met or exceeded the FDIC insurance limit of $250,000 were $33.0 million and $13.2 million, respectively.

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8.9. BORROWINGS

Borrowings consisted of the following as of September 30, ~~2022~~2023 and December 31, ~~2021.~~2022.


(Dollars in thousands)	September 30,		December 31,		September 30,		December 31,
	2022		2021		2023		2022
Securities sold under agreements to repurchase	$	6,869	$	4,227	$	11,638	$	7,585
Overnight advances with FHLB		9,000		—		12,000		28,125
Short-term debt with FHLB		20,000		—
Short-term debt						16,000		20,000
Long-term debt with FHLB		20,000		20,000		20,000		20,000
	$	55,869	$	24,227	$	59,638	$	75,710

Long-term debt is comprised only of Federal Home Loan Bank (“FHLB”) advances with an original maturity of one year or more. The following table summarizes the scheduled maturities of long-term debt as of September 30, ~~2022.~~2023.


(Dollars in thousands)	Scheduled		Weighted Average		Scheduled		Weighted Average
Year	Maturities		Interest Rate		Maturities		Interest Rate
2022	$	—	—	%
2023		—	—		$	—	—	%
2024		15,000	2.29			15,000	2.29
2025		5,000	2.41			5,000	2.41
2026		—	—			—	—
2027						—	—
Thereafter		—	—			—	—
	$	20,000	2.32	%	$	20,000	2.32	%

9.10. STOCK COMPENSATION PLAN

Long-Term Incentive Plan

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

The maximum number of shares of common stock that may be issued under the Plan is 300,000 shares, and ~~163,990~~162,503 shares remained available for grant as of September 30, ~~2022.~~2023. Shares of common stock issued under the Plan may be treasury shares or authorized but unissued shares. Forfeited awards are returned to the pool of shares available for grant for future awards.

Through the nine months ended September 30, ~~2022, 10,486~~2023, 11,409 restricted shares were awarded to certain officers and all directors. Each of the awards vest after three-years, with no interim vesting. As of September 30, ~~2022,~~2023, there was ~~$169,000~~$253,000 of unrecognized compensation cost related to all non-vested restricted stock awards. This cost is expected to be recognized over the vesting period through February ~~2025~~2026.

Compensation expense for stock options granted and restricted stock awarded is measured using the fair value of the award on the grant date and is recognized over the vesting period. The Company recognized stock-based compensation expense for the three and nine months ended September 30, 2023 of $35,000 and $106,000, respectively, and for the three and nine months ended September 30, 2022 of $30,000 and $146,000, respectively.

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~~of $30,000 and $146,000 for the three and nine months ended September 30, 2022, and $38,000 and $110,000 for the three and nine months ended September 30, 2021.~~

The following table presents a summary of the status of the Company’s non-vested restricted stock awards as of September 30, ~~2022, and changes~~2023. Changes during the period then ended isare presented further below:


		Weighted			Weighted
		Average			Average
		Grant Date			Grant Date
	Shares	Fair Value		Shares	Fair Value
Non-vested at January 1, 2022	22,789	$	18.48
Non-vested at January 1, 2023				20,975	$	17.10
Vested	(11,475)		18.72	(6,739)		19.05
Forfeited	(825)		17.32	—		—
Granted	10,486		15.90	11,409		16.25
Non-vested at September 30, 2022	20,975	$	17.10
Non-vested at September 30, 2023				25,645	$	16.21

No stock options were awarded during the nine months ended September 30, ~~2022.~~2023. Previously granted stock options vest over a period of three to five years and are exercisable at the grant price, which is at least the fair market value of the stock on the grant date. The Plan provides that the option price per share may not be less than the fair market value of the stock on the day the option was granted, and in no event less than the par value of such stock. Options granted under the Plan are exercisable no earlier than one year after the date of grant and expire ten years after the date of the grant. All options previously granted under the Plans are scheduled to expire by February 17, 2025.

Total options outstanding as of September 30, ~~2022~~2023 have exercise prices between ~~$17.65~~$17.72 and $17.80, with a weighted average exercise price of ~~$17.74~~$17.76 and a weighted average remaining contractual life of ~~1.66~~1.16 years.

As of September 30, ~~2022,~~2023, there was no unrecognized compensation cost related to options granted under the Plan, and no options were exercised under the Plan during the period.

A summary of the status of the outstanding stock options as of September 30, ~~2022,~~2023, and changes during the period then ended, is presented below:


		Weighted			Weighted
		Average			Average
		Exercise			Exercise
	Shares	Price		Shares	Price
Outstanding at beginning of year	71,947	$	17.78	60,347	$	17.74
Granted	—		—	—		—
Exercised	—		—	—		—
Expired	(11,600)		18.00	(9,922)		17.65
Outstanding at end of year	60,347	$	17.74	50,425	$	17.76

Employee Stock Purchase Plan

The Company has an Employee Stock Purchase Plan under which employees, through payroll deductions, may purchase shares of Company stock annually. The option price of the stock purchases is between 95% and 100% of the fair market value of the stock on the offering termination date as determined annually by the Board of Directors. The maximum number of shares which employees may purchase under the Plan is 250,000; however, the annual issuance of shares may not exceed 5,000 shares plus any unissued shares from prior offerings. There were ~~5,026~~4,230 and ~~4,944~~5,026 shares issued from treasury under this plan during the nine months ended September 30, ~~2022~~2023 and ~~2021,~~2022, respectively. As of September 30, ~~2022,~~2023, there were ~~156,650~~152,420 shares reserved for issuance under the Employee Stock Purchase Plan.

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~~10.~~11. FAIR VALUE MEASUREMENT

Fair value measurement and disclosure guidance defines fair value as the price that would be received to sell an asset or transfer a liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. The price in the principal (or most advantageous) market used to measure the fair value of the asset or liability is not adjusted for transaction costs. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities; it is not a forced transaction. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact and (iv) willing to transact. Additional guidance is provided on determining when the volume and level of activity for the asset or liability has significantly decreased. The guidance also includes ~~guidance~~instruction on identifying circumstances when a transaction may not be considered orderly.

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

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

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

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

Level 2 Inputs – Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3 Inputs – Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

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

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

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

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

Debt Securities ~~Available for Sale~~ – For debt securities ~~available for sale~~ where quoted prices are not available, fair values are calculated based on market prices of similar securities and are reported at fair value utilizing Level 2 inputs. For these securities, the Company obtains fair value measurement from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the debt securities’ terms and conditions, among other things. For debt securities ~~available for sale~~ where quoted prices or market prices of similar securities are not available, fair values are calculated using other market indicators and are reported at fair value utilizing Level 3 inputs.

Derivatives – The fair values of derivatives are based on valuation models using observable market data as of the measurement date utilizing Level 2 inputs. The Company’s derivatives ~~are~~were comprised of interest rate swaps traded in an over-the-counter market where quoted market prices ~~are~~were not always available; therefore, the fair values ~~are~~were determined using quantitative models that utilize multiple market inputs. The inputs ~~will vary~~varied based on the type of yield curves, prepayment rates and volatility factors used to value the position. Most market inputs ~~are~~were actively quoted and can be validated through external sources, including brokers, market transactions and third-party pricing services.

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

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

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

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The following tables summarize financial assets and financial liabilities measured at fair value as of September 30, ~~2022~~2023 and December 31, ~~2021~~2022 segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value. There were no assets measured at fair value on a non-recurring basis as of September 30, ~~2022~~2023 or December 31, ~~2021.~~2022.


	(Level 1)		(Level 2)		(Level 3)				(Level 1)		(Level 2)		(Level 3)
	Quoted Prices in		Significant		Significant				Quoted Prices in		Significant		Significant
(Dollars in thousands)	Active Markets		Other		Other				Active Markets		Other		Other
	for Identical		Observable		Unobservable				for Identical		Observable		Unobservable
September 30, 2022	Assets		Inputs		Inputs		Total
September 30, 2023									Assets		Inputs		Inputs		Total
Assets measured at fair value on a recurring basis:
Debt securities available for sale:
Obligations of U.S. Government agencies and corporations	$	—	$	41,950	$	—	$	41,950	$	—	$	13,727	$	—	$	13,727
Obligations of state and political subdivisions		—		7,681		—		7,681		—		6,713		—		6,713
Corporate debt securities		—		8,228		7,348		15,576		—		7,466		5,908		13,374
Mortgage-backed securities		—		222,044		—		222,044		—		32,713		—		32,713
Total debt securities available for sale	$	—	$	279,903	$	7,348	$	287,251	$	—	$	60,619	$	5,908	$	66,527
Equity securities	$	1,014	$	—	$	—	$	1,014	$	978	$	—	$	—	$	978
Mortgage servicing rights	$	—	$	—	$	96	$	96	$	—	$	—	$	84	$	84
Interest rate swaps	$	—	$	419	$	—	$	419


	(Level 1)		(Level 2)		(Level 3)				(Level 1)		(Level 2)		(Level 3)
	Quoted Prices in		Significant		Significant				Quoted Prices in		Significant		Significant
(Dollars in thousands)	Active Markets		Other		Other				Active Markets		Other		Other
	for Identical		Observable		Unobservable				for Identical		Observable		Unobservable
December 31, 2021	Assets		Inputs		Inputs		Total
December 31, 2022									Assets		Inputs		Inputs		Total
Assets measured at fair value on a recurring basis:
Debt securities available for sale:
Obligations of U.S. Government agencies and corporations	$	—	$	40,526	$	—	$	40,526	$	—	$	13,705	$	—	$	13,705
Obligations of state and political subdivisions		—		9,220		—		9,220		—		7,679		—		7,679
Corporate debt securities		—		30,476		4,520		34,996		—		8,196		7,145		15,341
Mortgage-backed securities		—		250,682		—		250,682		—		36,811		—		36,811
Total debt securities available for sale	$	—	$	330,904	$	4,520	$	335,424	$	—	$	66,391	$	7,145	$	73,536
Equity securities	$	1,124	$	—	$	—	$	1,124	$	1,056	$	—	$	—	$	1,056
Mortgage servicing rights	$	—	$	—	$	120	$	120	$	—	$	—	$	92	$	92
Interest rate swaps	$	—	$	541	$	—	$	541	$	—	$	268	$	—	$	268

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The table below presents a reconciliation of the beginning and ending balances of investment securities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three ~~and nine~~ month periods ended September 30, ~~2022~~2023 and ~~2021.~~2022.


	Three Months Ended				Nine Months Ended				Three Months Ended				Nine Months Ended
(Dollars in thousands)	September 30,				September 30,				September 30,				September 30,
	2022		2021		2022		2021		2023		2022		2023		2022
Investment Securities:
Beginning balance	$	7,788	$	4,500	$	4,520	$	2,000	$	5,908	$	7,788	$	7,145	$	4,520
Total gains (loss) included in OCI		(440)		20		(1,172)		20		—		(440)		(1,237)		(1,172)
Purchases		—		—		4,000		2,500		—		—		—		4,000
Principal payments and other		—		—		—		—		—		—		—		—
Sales		—		—		—		—		—		—		—		—
Balance, end of period	$	7,348	$	4,520	$	7,348	$	4,520	$	5,908	$	7,348	$	5,908	$	7,348

Mortgage servicing rights and assets measured at fair value on a nonrecurring basis for which Level 3 inputs have been used to determine fair value are immaterial to the Company’s consolidated financial statements.

Fair Value of Financial Instruments

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

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

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The carrying amounts and estimated fair values of the Company’s financial instruments are as follows:


	Financial Instruments								Financial Instruments
(Dollars in thousands)	September 30, 2022				December 31, 2021				September 30, 2023				December 31, 2022
	Carrying		Fair		Carrying		Fair		Carrying		Fair		Carrying		Fair
	Value		Value		Value		Value		Value		Value		Value		Value
Financial assets:				��
Cash and due from banks	$	13,325	$	13,325	$	12,928	$	12,928	$	27,377	$	27,377	$	10,856	$	10,856
Interest bearing deposits with banks		102		102		598		598		390		390		143		143
Interest bearing time deposits with banks		—		—		735		735
Securities		288,265		288,265		336,548		336,548
Debt securities available for sale										66,527		66,527		73,536		73,536
Debt securities held to maturity										202,646		189,221		209,565		209,887
Restricted investment in bank stock		3,104		N/A		2,116		N/A		2,476		N/A		3,666		N/A
Loans, net of allowance for loan losses		458,525		458,754		414,795		414,984
Loans, net of allowance for credit losses										508,546		500,250		480,485		467,667
Interest rate swaps		419		419		541		541		—		—		268		268
Accrued interest receivable		1,907		1,907		1,814		1,814		2,509		2,509		2,124		2,124

Financial liabilities:
Non-interest bearing deposits	$	202,493	$	202,493	$	182,022	$	182,022
Interest bearing deposits		515,341		512,082		526,425		528,952
Time deposits									$	195,169	$	189,481	$	142,271	$	134,417
Securities sold under agreements to repurchase		6,869		N/A		4,227		N/A		11,638		N/A		7,585		N/A
Short-term borrowings		20,000		19,995		—		—		28,000		27,901		48,125		48,122
Long-term debt		20,000		19,133		20,000		20,520		20,000		19,412		20,000		19,156
Other interest bearing liabilities		995		990		1,568		1,568		941		937		1,011		1,009
Accrued interest payable		215		215		252		252		1,091		1,091		333		333

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

The following tables present the carrying amount, fair value and placement in the fair value hierarchy of the Company’s financial instruments not previously disclosed as of September 30, ~~2022~~2023 and December 31, ~~2021.~~2022. The tables exclude financial instruments for which the carrying amount approximates fair value.


					(Level 1)		(Level 2)		(Level 3)						(Level 1)		(Level 2)		(Level 3)
					Quoted Prices in		Significant		Significant						Quoted Prices in		Significant		Significant
(Dollars in thousands)					Active Markets		Other		Other						Active Markets		Other		Other
	Carrying				for Identical		Observable		Unobservable		Carrying				for Identical		Observable		Unobservable
	Amount		Fair Value		Assets or Liabilities		Inputs		Inputs		Amount		Fair Value		Assets or Liabilities		Inputs		Inputs
September 30, 2022
Financial instruments - Assets
Loans, net of allowance for loan losses	$	458,525	$	458,754	$	—	$	—	$	458,754
Financial instruments - Liabilities
Interest bearing deposits	$	515,341	$	512,082	$	—	$	512,082	$	—
September 30, 2023
Financial instruments – Assets
Debt securities held to maturity											$	202,646	$	189,221	$	—	$	189,221	$	—
Loans, net of allowance for credit losses												508,546		500,250		—		—		500,250
Financial instruments – Liabilities
Time deposits											$	195,169	$	189,481	$	—	$	189,481	$	—
Long-term debt		20,000		19,133		—		19,133		—		20,000		19,412		—		19,412		—
Other interest bearing liabilities		995		990		—		990		—		941		937		—		937		—

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					(Level 1)		(Level 2)		(Level 3)						(Level 1)		(Level 2)		(Level 3)
					Quoted Prices in		Significant		Significant						Quoted Prices in		Significant		Significant
(Dollars in thousands)					Active Markets		Other		Other						Active Markets		Other		Other
	Carrying				for Identical		Observable		Unobservable		Carrying				for Identical		Observable		Unobservable
	Amount		Fair Value		Assets or Liabilities		Inputs		Inputs		Amount		Fair Value		Assets or Liabilities		Inputs		Inputs
December 31, 2021
Financial instruments - Assets
Interest bearing time deposits with banks	$	735	$	735	$	—	$	735	$	—
Loans, net of allowance for loan losses		414,795		414,984		—		—		414,984
Financial instruments - Liabilities
Interest bearing deposits	$	526,425	$	528,952	$	—	$	528,952	$	—
December 31, 2022
Financial instruments – Assets
Debt securities held to maturity											$	209,565	$	209,887	$	—	$	209,887	$	—
Loans, net of allowance for credit losses												480,485		467,667		—		—		467,667
Financial instruments – Liabilities
Time deposits											$	142,271	$	134,417	$	—	$	134,417	$	—
Long-term debt		20,000		20,520		—		20,520		—		20,000		19,156		—		19,156		—
Other interest bearing liabilities		1,568		1,568		—		1,568		—		1,011		1,009		—		1,009		—

~~11.~~12. COMMITMENTS, CONTINGENT LIABILITIES AND GUARANTEES

In the ordinary course of business, the Company makes commitments to extend credit to its customers through letters of credit, loan commitments and lines of credit. At September 30, ~~2022,~~2023, the Company had ~~$118.8~~$111.5 million outstanding in loan commitments and other unused lines of credit extended to its customers as compared to ~~$107.1~~$116.1 million at December 31, ~~2021.~~2022.

The Company does not issue any guarantees that would require liability recognition or disclosure, other than its letters of credit. Letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third-party. Generally, financial and performance letters of credit have expiration dates within one year of issuance, while commercial letters of credit have longer term commitments. The credit risk involved in issuing letters of credit is essentially the same as the risks that are involved in extending loan facilities to customers. The Company generally holds collateral and/or personal guarantees supporting these commitments. The Company had outstanding ~~$3.7~~$2.5 million and ~~$5.7~~$2.6 million of financial and performance letters of credit commitments as of September 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively. Commercial letters of credit as of September 30, ~~2022~~2023 and December 31, ~~2021~~2022 totaled ~~$9.9~~$9.3 million and ~~$9.5~~$9.8 million, respectively. Management believes the proceeds obtained through a liquidation of collateral and the enforcement of guarantees would be sufficient to cover the potential number of future payments required under the corresponding guarantees. The amount of the liability as of September 30, ~~2022~~2023 for payments under letters of credit issued was not material. Because these instruments have fixed maturity dates, and because many of them will expire without being drawn upon, they do not generally present any significant liquidity risk.

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

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~~12.~~13. DERIVATIVES

The Company ~~uses~~may use interest rate swap agreements as part of its asset liability management strategy to help manage its interest rate risk position. As of September 30, 2023, the Company had no interest rate swaps as the remaining cash flow hedge matured in April 2023. As of December 31, 2022, an interest rate swap with a notional amount of $20.0 million was designated as a cash flow hedge of a short-term FHLB advance. The notional amount of the interest rate ~~swaps does~~swap did not represent amounts exchanged by the parties. The amount exchanged iswas determined by reference to the notional amount and the other terms of the individual interest rate swap ~~agreements.~~

Asagreement. The aggregate fair value of the swap was $268,000 as of December 31, ~~2021, interest rate swaps~~2022 and was recorded in other assets on the Consolidated Statements of Condition, with a notional amount totaling $40.0 million, were designated as cash flow hedges, of which $20.0 million were hedges of brokered deposits, and the other $20.0 million were hedges of certain forecasted FHLB long-term advances. Based on updated funding need projections, including the proceeds from the sale of investment securities and continued core deposit growth, Juniata unwound two forward starting swaps at a gain of $1.2 million during the second quarter of 2022. The amounts previously recognizedchanges in ~~accumulated~~fair value recorded in other comprehensive income were reclassified to other non-interest income because it became probable that the forecasted hedged transactions would not occur. Also in the second quarter, an interest rate swap with a notional amount totaling $20.0 million was de-designated as a cash flow hedge on brokered deposits and designated instead, as a cash flow hedge on a short-term FHLB advance.income.

The ~~remaining interest~~Interest rate swap was determined to be fully effective during the periods presented and, as such, no amount of ineffectiveness ~~has been~~was included in net income. The aggregate fair value of the swaps is recorded in either other assets or other liabilities on the Consolidated Statements of Condition, with changes in fair value recorded in other comprehensive income. The Company expects the hedge to remain fully effective during the remaining terms of the swap.

~~The following table reflects the notional amounts and fair values of derivatives recorded on the Consolidated Statements of Condition as of September 30, 2022 and December 31, 2021.~~

(Dollars in thousands)

September 30, 2022

December 31, 2021




Fair



Fair

Value

Value

Notional

Asset

Notional

Asset
Derivatives designated as hedges:

Amount

(Liability)

Amount

(Liability)
Interest rate swap - pay fixed / receive floating on 3-month brokered deposit

$
—

$
—

$
20,000

$
52
Interest rate swap - pay fixed / receive floating on 3-month FHLB advance

20,000

419

—

—
Interest rate swaps - forward-starting on long-term FHLB advances

—

—

20,000

489

The effect of cash flow hedge accounting on accumulated other comprehensive income for the periods ended September 30, ~~2022~~2023 and December 31, ~~2021 are~~2022 were as follows:


(Dollars in thousands)	September 30, 2022					September 30, 2023
	Amount of Gain		Location of (Gain)	Amount of (Gain)		Amount of Gain		Location of Gain	Amount of Gain
	(Loss) Recognized in		Loss Reclassified	Loss Reclassified		Recognized in		Reclassified	Reclassified from
	OCI on Derivatives		from OCI into Income	from OCI into Income		OCI on Derivatives		from OCI into Income	OCI into Income
Interest rate contract	$	(7)	Interest expense on short-term borrowings and repurchase agreements	$	(115)	$	2	Interest expense on short-term borrowings and repurchase agreements	$	(269)
Swap termination gain		1,202	Other non-interest income		(1,202)
Total	$	1,195		$	(1,317)	$	2		$	(269)


(Dollars in thousands)	December 31, 2022
	Amount of Gain		Location of Gain	Amount of Gain
	Recognized in		Reclassified	Reclassified from
	OCI on Derivatives		from OCI into Income	OCI into Income
Interest rate contract	$	18	Interest expense on short-term borrowings and repurchase agreements	$	(291)
Swap termination gain		1,202	Other non-interest income		(1,202)
Total	$	1,220		$	(1,493)

The effect of cash flow hedge accounting on the Consolidated Statements of Income for the three and nine months ended September 30, 2023 and 2022 was as follows:

Amount of Gain or Loss Recognized in Income on Cash Flow Hedging Relationships


	Income (Expense)				Income (Expense)
	Three Months Ended				Nine Months Ended
(Dollars in thousands)	September 30,				September 30,
	2023		2022		2023		2022
Effects of cash flow hedging:
Gain on cash flow hedging relationships:
Amount reclassified from AOCI into income	$	—	$	99	$	269	$	115
Amount reclassified from AOCI into income for swap termination		—		(13)		—		1,202
Total	$	—	$	86	$	269	$	1,317

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14. BRANCH ACQUISITION

On May 12, 2023, the Company completed the acquisition of a branch office in Spring Run, Pennsylvania. The acquisition included real estate and deposits. The liabilities were recorded on the balance sheet at their estimated fair values as of May 12, 2023, and their results of operations of the branch have been included in the Consolidated Statement of Income since such date.

Included in the purchase price of the branch was goodwill and core deposit intangible of $765,000 and $303,000, respectively. The core deposit intangible is being amortized over a ten-year period using a sum of the years’ digit basis. The goodwill will not be amortized but will be measured annually for impairment.

The following table summarizes the estimated fair value of the assets acquired and liabilities assumed:


(Dollars in thousands)	December 31, 2021
	Amount of Gain		Location of (Gain)	Amount of (Gain)
Assets:
Cash received at settlement						$	17,384
Fixed assets							248
Goodwill							765
Core deposit intangible							303
Other assets purchased							3
	(Loss) Recognized in		Loss Reclassified	Loss Reclassified		$	18,703
Liabilities:
Deposits purchased						$	18,697
Other liabilities assumed							6
	OCI on Derivatives		from OCI into Income	from OCI into Income		$	18,703
Interest rate contracts	$	538	Interest expense on short-term borrowings and repurchase agreements	$	60
Total	$	538		$	60

The ~~effect~~estimated fair values of ~~cash flow hedge accounting on~~ the ~~Consolidated Statements~~assets and liabilities, including identifiable intangible assets, are subject to refinement. Subsequent adjustments to the estimated fair values of ~~Income~~assets and liabilities acquired, and the resulting goodwill, is allowed for a period of up to one year after the ~~three and nine months ended September 30, 2022 and 2021 is as follows:~~

~~Amount of Gain or Loss Recognized in Income on Cash Flow Hedging Relationships~~

Income (Expense)

Income (Expense)

Three Months Ended

Nine Months Ended
(Dollars in thousands)

September 30,

September 30,

2022

2021

2022

2021
Effects of cash flow hedging:

Loss on cash flow hedging relationships:

Amount reclassified from AOCI into income

$
99

$
(17)

$
115

$
(43)
Amount reclassified from AOCI into income for swap termination

(13)

—

1,202

—
Total

$
86

$
(17)

$
1,317

$
(43)

acquisition date for new information that becomes available reflecting circumstances at the acquisition date.

~~13.~~15. SUBSEQUENT EVENTS

On October ~~18, 2022,~~17, 2023, the Board of Directors declared a cash dividend of $0.22 per share to shareholders of record on November ~~15, 2022,~~16, 2023, payable on December 1, ~~2022.~~2023.

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

Forward Looking Statements:

The information contained in this Quarterly Report on Form 10-Q contains forward looking statements (as such term is defined in the Securities Exchange Act of 1934 and the regulations thereunder). These forward-looking statements may include projections of, or guidance on, the Company’s future financial performance, expected levels of future expenses, including future credit losses, anticipated growth strategies, descriptions of new business initiatives and anticipated trends in the Company’s business or financial results. When words such as "may”, "should”, "will”, "could”, "estimates”, "predicts”, "potential”, "continue”, "anticipates”, "believes”, "plans”, "expects”, "future”, "intends”, “projects”, the negative of these terms and other comparable terminology are used in this report, Juniata is making forward-looking statements. Any forward-looking statement made by the Company in this document is based only on Juniata’s current expectations, estimates and projections about future events and financial trends affecting the financial condition of its business based on information currently available to the Company and speaks only as of the date when made. Juniata undertakes no obligation to publicly update or revise forward-looking information, whether as a result of new or updated information, future events, or otherwise. Forward-looking statements are not historical facts or guarantees of future performance. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of the Company’s control, and actual results may differ materially from this forward-looking information and therefore, should not be unduly relied upon. Many factors could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements, including, but not limited to: (i) the factors set forth in the sections of Juniata’s Annual Report on Form 10-K for the year ended December 31, ~~2021,~~2022, titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in Juniata’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2023 and June 30, 2023 and factors set forth in other current and periodic reports which Juniata has or will file with the Securities and Exchange Commission, and (ii) the following factors:

●

~~short- and long-term effects of inflation and rising costs;~~

●

~~the impact of labor shortages and supply chain disruptions;~~

●

~~the impact of rising interest rates;~~

●

changes in general economic, business and political conditions, including ~~those resulting from COVID-19 or other pandemics,~~inflation, a recession or intensified international hostilities;

●

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

●

the effect of market interest rates and uncertainties, and relative balances of rate-sensitive assets to rate-sensitive liabilities, on net interest margin and net interest income;

●

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

●

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

●

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

●

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

●

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

●

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

●

the impact of increased regulatory scrutiny of the banking industry;

●

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

●

the results of regulatory examination and supervision processes;

●

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

●

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

●

the ability to implement business strategies, including business acquisition activities and organic branch, product and service expansion strategies;

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●

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

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●

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

●

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

●

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

●

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

●

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

●

acts of war or terrorism;

●

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

●

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

●

the impact of unrealized losses on debt securities on accumulated other comprehensive income and stockholders’ equity; and

●

the possibility of a ~~new COVID-19 variant~~contagion in the banking industry because of the recent bank failures and resulting emphasis on liquidity, uninsured deposits and customer and industry concentrations in the ~~related actions taken by governmental authorities and the direct and indirect impacts on the Company, its customers and third parties.~~deposit base.

Critical Accounting Policies:

Disclosure of the Company’s significant accounting policies is included in the Company’s critical accounting policies in its Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022 and in Note 2 of this document. Some of these policies require significant judgments, estimates, and assumptions to be made by management, most particularly in connection with determining the provision for ~~loan~~credit losses and the appropriate level of the allowance for ~~loan~~credit losses.

General:

The following discussion relates to the consolidated financial condition of the Company as of September 30, ~~2022,~~2023, compared to December 31, ~~2021,~~2022, and the consolidated results of operations for the three and nine months ended September 30, ~~2022,~~2023, compared to the same periods in ~~2021.~~2022. This discussion should be read in conjunction with the interim consolidated financial statements and related notes included herein.

Overview:

Juniata Valley Financial Corp. is a Pennsylvania corporation organized in 1983 to be the holding company of The Juniata Valley Bank. The Bank is a state-chartered bank headquartered in Mifflintown, Pennsylvania. Juniata Valley Financial Corp. and its subsidiary bank derive substantially all their income from banking and bank-related services, including interest earned on residential real estate, commercial mortgage, commercial and consumer loans, interest earned on investment securities and fee income from deposit services and other financial services provided to its customers.

Financial Condition:

On May 12, 2023, Juniata completed the acquisition of the former Orrstown Bank Path Valley branch office. As a result of the acquisition, Juniata added approximately $18.7 million in deposits. In addition, $765,000 in goodwill was recorded, as well as a core deposit intangible of $303,000, which is being amortized over a ten-year period using a sum of the year’s digit basis.

Total assets as of September 30, ~~2022,~~2023, were ~~$815.2~~$862.7 million, an increase of ~~$4.7~~$31.8 million, or ~~0.6%~~3.8%, compared to December 31, ~~2021.~~2022. Comparing asset balances as of September 30, ~~2022~~2023 and December 31, ~~2021,~~2022, total ~~interest bearing time~~cash and cash equivalents increased by $16.8 million, or 152.5%, due to the receipt of approximately $16.0 million in new deposits ~~with other banks decreased by $735,000, or 100.0%, as all remaining time deposits with banks matured in 2022.~~on September 29, 2023, the last business day of the month. Over the same period, total loans increased by ~~$44.1~~$29.6 million, or ~~10.5%, while debt securities available for sale decreased by $48.2 million, or 14.4%~~6.1%, primarily due to ~~a decline~~increases in ~~fair value caused~~real estate – commercial and real estate – mortgage loans, while debt securities decreased by ~~an increase in market interest rates,~~$13.9 million, or 4.9.%, as ~~well as the sales of debt securities. Cash~~cash flows ~~as well as the proceeds~~ from the ~~sales of debt securities,~~investment portfolio were used ~~to repay a $10.0 million brokered demand deposit and~~ to fund loan growth ~~in 2022. Bank owned life insurance~~ and ~~annuities decreased by $1.7 million, or 10.2%, as of September 30, 2022 compared to year-end 2021 due to~~pay down short-term debt rather than being reinvested into the passing of one active and two former directors in 2022. Additionally, accrued interest receivable and other assets increased $11.7 million, or 200.0% over the same period, primarily due to an increase in the deferred tax asset for unrealized losses on available for sale debt securities.investment portfolio. As of September 30, ~~2022, total deposits increased by $9.4 million, or 1.3%, compared to December 31, 2021, and short-term borrowings and repurchase agreements increased by $31.6 million, or 748.6%, over~~2023 the ~~same period primarily~~allowance for credit

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~~because Juniata reverted~~losses increased $1.6 million, or 38.7%, compared to ~~using $20.0~~December 31, 2022 primarily due to recording the CECL Day 1 entry of $1.1 million upon the adoption of ASU 326 on January 1, 2023.

Total deposits increased by $45.9 million, or 6.5%, as of September 30, 2023 compared to December 31, 2022, primarily due to the addition of approximately $18.7 million in ~~FHLB~~deposits from the Path Valley branch acquisition in May and the approximately $16.0 million in new deposits at the end of September. The increase in deposit funds allowed the Company to repay a portion of its short-term ~~advances~~debt, resulting in a decrease of $20.1 million, or 41.8%, in short-term debt as of September 30, 2023 compared to ~~supplement core deposits~~December 31, 2022, which was partially offset by an increase of $4.0 million, or 53.4%, in securities sold under agreements to ~~satisfy its funding needs~~repurchase due to the addition of two new relationships in ~~lieu of brokered demand deposits.~~2023.

The table below shows changes in deposit volumes by type of deposit between December 31, ~~2021~~2022 and September 30, ~~2022.~~2023. Most of the deposit growth was in time deposits which was primarily the result of the higher interest rate environment in 2023 as many customers migrated from non-interest or lower-rate interest bearing demand and savings deposits to higher-rate time deposits.


(Dollars in thousands)	September 30,		December 31,		Change				September 30,		December 31,		Change
	2022		2021		$		%		2023		2022		$		%
Deposits:
Demand, non-interest bearing	$	202,493	$	182,022	$	20,471	11.2	%	$	200,619	$	199,131	$	1,488	0.7	%
Interest bearing demand and money market		231,786		240,974		(9,188)	(3.8)			225,424		227,028		(1,604)	(0.7)
Savings		150,671		142,187		8,484	6.0			136,230		143,082		(6,852)	(4.8)
Time deposits, $250,000 and more		11,923		13,547		(1,624)	(12.0)			33,049		13,238		19,811	149.7
Other time deposits		120,961		129,717		(8,756)	(6.8)			162,120		129,033		33,087	25.6
Total deposits	$	717,834	$	708,447	$	9,387	1.3	%	$	757,442	$	711,512	$	45,930	6.5	%

As shown in the table below, total loans increased ~~$44.1~~$29.6 million, or ~~10.5%~~6.1%, between December 31, ~~2021~~2022 and September 30, ~~2022.~~2023. Juniata experienced loan growth in ~~most of its loan classes,~~all segments, except ~~for personal~~1-4 family residential construction loans, ~~and the commercial, financial and agricultural class,~~ which have declined primarily due to ~~PPP loan forgiveness payments exceeding commercial loan originations. The largest increases were in~~ the ~~real estate – commercial and mortgage classes.~~higher market interest rate environment.


(Dollars in thousands)	September 30,		December 31,		Change				September 30,		December 31,		Change
	2022		2021		$		%		2023		2022		$		%
Loans:
Commercial, financial and agricultural	$	58,585	$	62,639	$	(4,054)	(6.5)	%	$	63,265	$	61,458	$	1,807	2.9	%
Real estate - commercial		189,860		159,806		30,054	18.8
Real estate - construction		48,108		43,281		4,827	11.2
Real estate - mortgage		142,149		131,754		10,395	7.9
Real estate – commercial										212,816		199,206		13,610	6.8
Real estate – construction:
1-4 family residential construction										6,788		7,995		(1,207)	(15.1)
Other construction loans										46,852		42,753		4,099	9.6
Real estate – mortgage										160,036		150,290		9,746	6.5
Obligations of states and political subdivisions		19,761		16,323		3,438	21.1			19,985		18,770		1,215	6.5
Personal		3,967		4,500		(533)	(11.8)			4,390		4,040		350	8.7
Total loans	$	462,430	$	418,303	$	44,127	10.5	%	$	514,132	$	484,512	$	29,620	6.1	%

~~A summary of the activity in the allowance for loan losses for the nine month periods ended September 30, 2022 and 2021, respectively, is presented below.~~

(Dollars in thousands)

Nine months ended September 30,


2022

2021

Balance of allowance - January 1

$
3,508

$
4,094

Loans charged off

(32)

(10)

Recoveries of loans previously charged off

79

177

Net recoveries

47

167

Provision for loan losses

350

(536)

Balance of allowance - end of period

$
3,905

$
3,725

Ratio of net recoveries during period to average loans outstanding

(0.01)
%

(0.04)
%

While Juniata continued to experience favorable asset quality trends and net recoveries during the nine months ended September 30, 2022, qualitative risk factors, including continued uncertainty in the economic outlook caused by inflation, labor shortages and supply chain disruptions, were considered in its allowance for loan loss analysis for certain loan segments. Due to these factors, including loan growth of 10.5% during the period, the analysis resulted in a loan loss

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~~provision~~A summary of the activity in the allowance for credit losses for the nine month periods ended September 30, 2023 and 2022, respectively, is presented below.


(Dollars in thousands)	Nine months ended September 30,
	2023			2022
January 1, beginning balance, prior to ASC 326 adoption	$	4,027		$	3,508
Impact of adopting ASC 326		1,111			—
Loans charged off		(38)			(32)
Recoveries of loans previously charged off		75			79
Net recoveries		37			47
Provision for credit losses		411			350
Balance of allowance – end of period	$	5,586		$	3,905

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

Juniata adopted ASU 326 as of January 1, 2023, resulting in the recording of a $1.1 million increase to the allowance for credit losses. A credit loss expense of ~~$350,000~~$411,000 was recorded in the nine months ended September 30, ~~2022. In contrast,~~2023, compared to a provision ~~credit~~expense of ~~$536,000 was recorded~~$350,000 for the nine months ended September 30, ~~2021 resulting from~~2022.While Juniata continued to experience favorable asset quality trends, elevated qualitative risk factors were considered in evaluating the ~~removal~~allowance for credit losses due to political and economic uncertainty, national delinquency trends and the ongoing effects of the ~~additional level of risk on loans previously placed in COVID deferment~~increasing interest rate environment, as ~~those borrowers showed the ability to continue making payments under contractual debt service.~~well as loan growth.

As of September 30, 2022, fifteen loans (excluding loans acquired with existing credit deterioration) with aggregate outstanding balances of $2.4 million were individually evaluated for impairment. A collateral analysis was performed on each of the loans individually evaluated for impairment to evaluate whether a reserve was required based upon the fair value of the collateral securing such loans. Following the analysis, no specific reserve was determined to be required because there were no loans determined to have insufficient collateral at September 30, 2022.

As of September 30, ~~2022,~~2023, there were ~~$13.7~~$19.4 million of loans classified as special mention compared to ~~$17.3~~$11.2 million at December 31, ~~2021, $3.3~~2022, $1.0 million classified as substandard ~~loans~~ at September 30, ~~2022~~2023 compared to ~~$8.2~~$3.2 million at December 31, ~~2021,~~2022, and no loans classified as doubtful at either September 30, ~~2022~~2023 or December 31, ~~2021.~~2022. The increase in special mention loans as of September 30, 2023 compared to December 31, 2022 was primarily due to the downgrade of a purchased participated commercial real estate construction loan in the third quarter of 2023 and a commercial real estate construction loan that was converted to a commercial real estate mortgage loan in the second quarter of 2023. The decline in substandard loans was primarily due to the partial pay-off of a real estate-commercial loan during the first quarter of 2023, as well as the upgrade of former troubled debt restructured and formerly classified as PCI (now classified as PCD) loans upon the adoptions of ASU 2022-02 and ASU 2016-13, respectively, as these performing loans were only considered substandard at December 31, 2022 because of their PCI and TDR impaired loan classifications.

Management believes ~~that~~ the ~~reserves~~allowance for credit losses carried ~~are~~were adequate to cover ~~probable incurred~~forecasted expected credit losses related to these relationships as of September 30, ~~2022.~~2023. Management also believes the Company has sufficient liquidity and capital ~~and an adequate allowance for loan losses~~ to ~~withstand~~absorb losses that may occur but continues to closely monitor the financial strength of borrowers ~~whose~~and their ability to comply with repayment ~~terms may~~terms.

Loans on which the accrual of interest has been discontinued are designated as non-accrual loans. Accrual of interest on loans is generally discontinued when the contractual payment of principal or interest has become ~~permanently impaired.~~90 days past due or reasonable doubt exists as to the full, timely collection of principal or interest. However, it is the Company’s policy to continue to accrue interest on loans over 90 days past due if (1) they are guaranteed or well secured and (2) there is an effective means of timely collection in process.

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The following table summarizes the Bank’s non-performing loans ~~excluding loans acquired with credit deterioration,~~ on September 30, ~~2022~~2023 compared to December 31, ~~2021.~~2022.


(Dollar amounts in thousands)	September 30, 2022			December 31, 2021
(Dollars in thousands)	2022			2021			September 30, 2023			December 31, 2022
Non-performing loans
Non-accrual loans	$	142		$	141		$	77		$	139
Accruing loans past due 90 days or more		8			85			—			39
Total	$	150		$	226		$	77		$	226

Loans outstanding	$	462,430		$	418,303		$	514,132		$	484,512

Ratio of non-performing loans to loans outstanding		0.03	%		0.05	%		0.01	%		0.04	%
Ratio of non-accrual loans to loans outstanding		0.03	%		0.03	%		0.01	%		0.03	%
Allowance for loan losses to non-accrual loans		2,750.00	%		2,487.94	%
Allowance for credit losses to non-accrual loans								7,254.55	%		2,897.12	%

Total non-performing loans as of September 30, ~~2022~~2023 decreased ~~$76,000 over~~$149,000 compared to total non-performing loans as of December 31, ~~2021,~~2022, primarily due to a decline in non-accrual loans as performing PCD (formerly PCI) real estate – mortgage loans were returned to accruing status following the adoption of ASC 326, as these loans ~~past due 90 days or more.~~

~~Stockholders’ equity decreased by $36.4 million, or 51.0%, from~~were only classified as nonaccrual at December 31, ~~2021 to September 30,~~ 2022 ~~due to an increase in unrealized losses on the debt securities available for sale portfolio caused by a decline in market values resulting from changes in market interest rates.~~because of their PCI classifications.

Subsequent to September 30, ~~2022,~~2023, the following event took place:

On October ~~18, 2022,~~17, 2023, the Board of Directors declared a cash dividend of $0.22 per share to shareholders of record on November ~~15, 2022,~~16, 2023, payable on December 1, ~~2022.~~2023.

Allowance for Credit Losses (“ACL”):

Juniata adopted ASU 2016-13 – Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments as of January 1, 2023, resulting in the recording of a $1.1 million increase to the allowance for credit losses. The new current expected credit loss (“CECL”) model is based on forecasted economic scenarios as well as qualitative factors specific to Juniata. The ACL represents management’s assessment of the estimated credit losses the Company will receive over the life of the loan. ACL requires a projection of credit losses over the contract lifetime of the credit adjusted for prepayment tendencies.

Management analyzes the adequacy of the ACL regularly through reviews of the loan portfolio. Consideration is given to economic conditions, changes in interest rates and the effect of such changes on collateral values and borrowers’ ability to pay, changes in the composition of the loan portfolio and trends in past due and non-performing loan balances. The ACL is a material estimate that is susceptible to significant fluctuation and is established through a provision for credit losses based on management’s evaluation of the inherent risk in the loan portfolio. In addition to extensive in-house loan monitoring procedures, the Company utilizes an outside party to conduct an independent loan review of commercial loan and commercial real estate loan relationships. Management utilizes the results of this outside loan review to assess the effectiveness of its internal loan grading system as well as to assist in the assessment of the overall adequacy of the ACL associated with these types of loans.

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The ACL is made up of two basic components. The first component of the allowance for credit loss is the specific reserve in which the Company sets aside reserves based on the analysis of individual analyzed credits. In establishing specific reserves, the Company analyzes all substandard, doubtful and loss graded loans monthly and makes judgments about the risk of loss based on the cash flow of the borrower, the value of any collateral and the financial strength of any guarantors. If the loan is individually analyzed and cash flow dependent, then a specific reserve is established for the discount on the net present value of expected future cash flows. If the loan is individually analyzed and collateral dependent, then any shortfall is either charged off or a specific reserve is established. The Company also considers the impacts of any Small Business Administration guarantees. The specific reserve portion of the ACL was $5,000 at September 30, 2023, while there was no specific reserve at December 31, 2022.

The second component is a general reserve, which is used to record loan loss reserves for groups of homogenous loans for which the Company estimates the expected losses over the contractual lifetime of the loan, adjusted for prepayment tendencies. In addition, the future economic environment is incorporated into the projection with selected macro-economic variables to revert to the long-run historical mean after such time as management can no longer make or obtain a reasonable and supportable forecast.

Discounted cash flows (“DCF”) was selected as the appropriate method to analyze most of the Company’s loan segments, particularly loan segments with longer average lives and regular payment structures, because DCF allows for the effective incorporation of a reasonable and supportable forecast in a directionally consistent and objective manner. DCF generates cash flow projections at the instrument level where payment expectations are adjusted for prepayment and curtailment to produce an expected cash flow stream. This expected cash flow stream is compared to contractual cash flows to establish a valuation account for these loans.

The personal loan portfolio contains loans with many different payment structures, payment streams and collateral. The Weighted Average Remaining Life (“WARM”) method was deemed most appropriate for these loans. WARM uses an annual charge-off rate over several vintages to estimate credit losses. The average annual charge-off rate is applied to the contractual term adjusted for prepayments.

Additionally, the Company is using reasonable credit risk assumptions, based on an annual report produced by Moody’s, for the obligations of states and political subdivisions segment.

CECL requires a reasonable and supportable economic forecast when establishing the ACL. The Company estimates losses over a four quarter forecast period and has elected to revert historical loss experience over four quarters. The economic factors considered as part of the ACL were selected after a rigorous regression analysis and model selection process.

The quantitative general allowance was $2.4 million at September 30, 2023 and $2.5 million at January 1, 2023.

In addition to the quantitative analysis, a qualitative analysis is performed each quarter to provide additional general reserves on loan portfolios that are not individually analyzed for various factors. The overall qualitative factors are based on the following risk factors:

Lending Policy, Procedures, & Strategies - Changes in policy and/or underwriting standards as well as anticipated changes are considered, and a qualitative factor is applied in accordance with the magnitude and direction (loosening/tightening) of the change. In addition, any new loan programs are also taken into consideration when evaluating this factor.

Changes in Nature and Volume of the Portfolio - The composition of the Bank’s loan portfolio is assessed to evaluate possible risk changes arising from new or increasing types of loans, industries or collateral.

Credit & Lending Staff/Administration - The knowledge and experience of the lending and credit personnel is assessed.

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Problem Loan Trends - The level of delinquency, modifications, and extensions is used to measure the trends of the risk changes within the portfolio.

Concentrations - As an extension of the portfolio composition review, lending concentrations are monitored regularly. Concentrations may be measured by collateral, type, industry and geographical location.

Loan Review Results - Loan reviews conducted internally as well as by outside auditors or examiners are studied for indications of possible risk changes.

Collateral Values - Changes in market values of the underlying collateral are monitored on select loan types and pools. Examples could include housing, CRE or cattle prices. These variations may indicate the need for risk adjustment as future loss levels could change if liquidation becomes necessary.

Regulatory and Business Environment - The impact of government fiscal and business policy as well as the regulatory environment are monitored and may result in possible adjustments to the risk factors.

In determining how to apply the weightings for the various qualitative factors, management considered which factors were not entirely considered within the base model and assessed which factors would have the highest impact on potential loan losses. Weights and risks are consistent across various segments except for instances where the risk factor is not applicable, or the segment is more or less exposed than other segments. Risk weighting is adjusted directionally based on relevancy and the ability to quantify an impact. For example, the economy and external factors were determined to have the most significant effect on the estimated losses largely because there is evidence that economic conditions are largely correlated and can explain a significant portion of historical changes in loss. Likewise, risks that are well-controlled throughout the organization, such as managerial contingencies and loan review controls require less allocation.

The qualitative analysis resulted in a general reserve of $3.2 million at September 30, 2023, compared to $2.6 million at January 1, 2023.

The determination of the ACL is complex, and the Company makes decisions on the effects of matter that are inherently uncertain. Evaluations of the loan portfolio and individual credits require certain estimates, assumptions and judgements as to the facts and circumstances related to particular situations or credits. There may be significant changes in the ACL in future periods determined by factors prevailing at that point in time along with future forecasts.

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Comparison of the Three Months Ended September 30, ~~2022~~2023 and ~~2021~~2022

Operations Overview:

Net income for the three months ended September 30, ~~2022~~2023 was ~~$2.1~~$1.8 million, ~~an increase~~a decrease of ~~$223,000,~~$329,000, or ~~11.8%~~15.5%, compared to the three months ended September 30, ~~2021.~~2022. Basic and diluted earnings per share ~~increased 10.5%, to $0.42,~~was $0.36 for the three months ended September 30, ~~2022~~2023 compared to basic and diluted earnings per share of ~~$0.38~~$0.42 for the comparable ~~2021~~2022 period.

Annualized return on average assets for the three months ended September 30, ~~2022~~2023 was ~~1.03%~~0.85%, compared to the annualized return on average assets of ~~0.91%~~1.03% for the same period in ~~2021.~~2022. For the three months ended September 30, annualized return on average equity was 19.15% in 2023 compared to 17.90% in ~~2022 compared to 10.19% in 2021.~~2022.

Presented below are selected key ratios for the two periods:


	Three Months Ended				Three Months Ended
	September 30,				September 30,
	2022		2021		2023		2022
Return on average assets (annualized)	1.03	%	0.91	%	0.85	%	1.03	%
Return on average equity (annualized)	17.90	%	10.19	%	19.15	%	17.90	%
Average equity to average assets	5.74	%	8.94	%	4.43	%	5.74	%
Non-interest income, as a percentage of average assets (annualized)	0.63	%	0.63	%	0.62	%	0.63	%
Non-interest expense, as a percentage of average assets (annualized)	2.42	%	2.37	%	2.26	%	2.42	%

The discussion that follows further explains changes in the components of net income when comparing the three months ended September 30, ~~2022~~2023 with the three months ended September 30, ~~2021.~~2022.

Net Interest Income:

Net interest income was $5.7 million during the three months ended September 30, 2023, a decrease of $319,000, or 5.3%, compared to $6.0 million during the three months ended September 30, ~~2022, an increase of $595,000,~~2022.

Average interest earning assets increased $36.8 million, or ~~11.0%~~4.6%, ~~compared~~ to ~~$5.4~~$841.9 million during the three months ended September 30, ~~2021.~~

~~Average earning assets increased $26.5~~2023, compared to the same period in 2022, primarily due to an increase of $53.4 million, or ~~3.4%~~11.7%, in average loans, partially offset by a decline of $15.4 million, or 4.5%, in average investment securities. Average interest bearing liabilities increased by $32.3 million, or 5.7%, compared to ~~$805.1 million during~~the comparable 2022 period, primarily due to growth in average time deposits and short-term borrowings. The yields on average loans and investment securities increased by 81 basis points and 12 basis points, respectively, for the three months ended September 30, 2023 compared to the three months ended September 30, 2022 ~~compared to~~while the rates on average time deposits and short-term borrowings and other interest bearing liabilities increased by 209 basis points and 231 basis points, respectively, over the same period, ~~in 2021. The increase in average earning assets between periods was~~ primarily due to anthe 225 basis point increase ~~of $34.4 million, or 8.2%,~~ in ~~average loans, net of a $21.0 million, or 96.3%, decrease in average PPP loan balances~~market interest rates between periods. The increase in average loans was partially offset by a $1.3 million, or 0.4%, decrease in average investment securities and a $6.6 million, or 51.2%, decrease in average interest bearing deposits and federal funds sold.

The yield on earning assets increased 2363 basis points, to ~~3.39%~~4.02%, during the three months ended September 30, ~~2022~~2023 compared to same period in ~~2021,~~2022, while the cost to fund interest earning assets with interest bearing liabilities increased 6126 basis points, to ~~0.61%, over~~1.87%.

Margin compression has been prevalent throughout the ~~same period, primarily~~banking industry in 2023 due to effects of the increasing rate environment and competitive pricing pressures. Specifically, interest earning assets repriced more quickly than interest bearing liabilities, particularly deposits, as a result of the rapid and substantial increase in market interest rates ~~as both~~in recent years. As the ~~prime rate~~“gap” between the repricing of interest bearing assets and ~~federal funds target range increased by 300 basis points in the 2022 period.~~

~~During the three months ended September 30, 2022, average~~ interest bearing liabilities ~~increased by $1.7 million, or 0.3%, compared to~~closed and an emphasis on liquidity through deposits became prevalent in the ~~comparable 2021 period, mainly due to growth in average short-term borrowings, as well as savings deposits, which was partially offset by declines in~~banking industry, net interest ~~bearing demand~~income and ~~time deposits.~~net interest margin were adversely affected.

The net interest margin, on a fully tax equivalent basis, ~~increased~~decreased from ~~2.79% during the three months ended September 30, 2021 to~~ 2.99% during the three months ended September 30, ~~2022.~~2022, to 2.71% during the three months ended September 30, 2023.

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The table below shows the net interest margin on a fully tax-equivalent basis for the three months ended September 30, ~~2022~~2023 and ~~2021.~~2022.

Average Balance Sheets and Net Interest Income Analysis


	Three Months Ended						Three Months Ended												Three Months Ended						Three Months Ended
(Dollars in thousands)	September 30, 2022						September 30, 2021						Increase (Decrease) Due To (6)						September 30, 2023						September 30, 2022						Increase (Decrease) Due To (6)
	Average				Yield/		Average				Yield/								Average				Yield/		Average				Yield/
	Balance(1)		Interest		Rate		Balance(1)		Interest		Rate		Volume		Rate		Total		Balance(1)		Interest		Rate		Balance(1)		Interest		Rate		Volume		Rate		Total
ASSETS
Interest earning assets:
Loans:
Taxable loans (5)	$	426,166	$	5,075	4.72	%	$	391,359	$	4,587	4.65	%	$	405	$	83	$	488	$	480,251	$	6,724	5.55	%	$	426,166	$	5,075	4.72	%	$	639	$	1,010	$	1,649
Tax-exempt loans		28,849		211	2.91			29,241		213	2.89			(3)		1		(2)		28,206		216	3.04			28,849		211	2.91			(5)		10		5
Total loans		455,015		5,286	4.61			420,600		4,800	4.53			402		84		486		508,457		6,940	5.42			455,015		5,286	4.61			634		1,020		1,654
Investment securities:
Taxable investment securities		336,705		1,493	1.77			339,222		1,350	1.59			(10)		153		143		321,601		1,525	1.90			336,705		1,493	1.77			(67)		99		32
Tax-exempt investment securities		7,092		37	2.09			5,899		36	2.44			7		(6)		1		6,750		36	2.13			7,092		37	2.09			(2)		1		(1)
Total investment securities		343,797		1,530	1.78			345,121		1,386	1.61			(3)		147		144		328,351		1,561	1.90			343,797		1,530	1.78			(69)		100		31

Interest bearing deposits		6,310		55	3.43			8,364		8	0.36			(2)		49		47		5,084		24	1.89			6,310		55	3.43			(11)		(20)		(31)
Federal funds sold		—		—	0.01			4,571		—	0.00			—		—		—		—		—	0.01			—		—	0.00			—		—		—
Total interest earning assets		805,122		6,871	3.39			778,656		6,194	3.16			397		280		677		841,892		8,525	4.02			805,122		6,871	3.39			554		1,100		1,654

Other assets (7)		20,531						54,697												2,200						20,531
Total assets	$	825,653					$	833,353											$	844,092					$	825,653

LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest bearing liabilities:
Interest bearing demand deposits (2)	$	235,203		317	0.53		$	237,366		73	0.12		$	(1)	$	245	$	244	$	215,856		769	1.41		$	235,203		317	0.53		$	(26)	$	478	$	452
Savings deposits		153,443		20	0.05			142,294		18	0.05			2		—		2		138,685		18	0.05			153,443		20	0.05			(2)		—		(2)
Time deposits		133,824		343	1.02			148,666		464	1.24			(46)		(75)		(121)		191,642		1,500	3.11			133,824		343	1.02			147		1,010		1,157
Short-term and long-term borrowings and other interest bearing liabilities		48,508		192	1.57			40,905		235	2.28			43		(86)		(43)		57,064		558	3.88			48,508		192	1.57			34		332		366
Total interest bearing liabilities		570,978		872	0.61			569,231		790	0.55			(2)		84		82		603,247		2,845	1.87			570,978		872	0.61			153		1,820		1,973

Non-interest bearing liabilities:
Demand deposits		201,615						184,318												197,303						201,615
Other		5,689						5,334												6,123						5,689
Stockholders’ equity		47,371						74,470												37,419						47,371
Total liabilities and stockholders’ equity	$	825,653					$	833,353											$	844,092					$	825,653
Net interest income and net interest rate spread			$	5,999	2.78	%			$	5,404	2.61	%	$	399	$	196	$	595			$	5,680	2.15	%			$	5,999	2.78	%	$	401	$	(720)	$	(319)
Net interest margin on interest earning assets (3)					2.96	%					2.75	%											2.68	%					2.96	%
Net interest income and net interest margin - Tax equivalent basis (4)			$	6,065	2.99	%			$	5,470	2.79	%									$	5,747	2.71	%			$	6,065	2.99	%

Notes:

1)	Average balances were calculated using a daily average.

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

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

4)	Interest on obligations of states and municipalities is not subject to federal income tax. To make the net yield comparable on a fully taxable basis, a tax equivalent adjustment is applied against the tax-exempt income utilizing a federal tax rate of 21%.

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

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

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

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Provision for ~~Loan~~Credit Losses:

~~During~~Juniata recorded a credit loss provision of $121,000 for the three months ended September 30, ~~2022,~~2023 compared to a ~~$100,000~~ loan loss provision ~~expense was recorded, compared to a provision credit~~ of ~~$257,000 during~~$100,000 for the three months ended September 30, ~~2021. Loan growth, coupled with~~2022. On January 1, 2023, the Company adopted CECL and transitioned from the incurred loss model based on historical loss experience and economic and market conditions to the expected loss model. The CECL standard reflects expected credit losses over the expected life of the financial assets and commitments, primarily based on the DCF methodology for the majority of the loan segments, which applies the probability of default and loss given default factors to future cash flows and adjusts to the net present value to derive the required reserve. Macroeconomic conditions are incorporated into the model for unemployment and gross domestic product, in addition to model assumptions for discount rate and prepayment and curtailment speeds. While Juniata continued ~~uncertainty in the economic outlook due~~ to ~~inflation, labor shortages and supply chain disruptions, resulted in an increased loan loss provision, despite~~experience favorable asset quality trends, ~~during~~elevated qualitative risk factors including political uncertainty, national delinquency trends and the effects of the increasing interest rate environment, in addition to loan growth, were considered in evaluating the allowance for credit losses, resulting in a greater credit loss provision for the three months ended September 30, 2023, compared to the loan loss provision for the three months ended September 30, 2022.

Management regularly reviews the adequacy of the allowance for ~~loan~~credit losses and makes assessments as to specific loan impairment, charge-off expectations, general economic conditions in the Bank’s market area, specific loan quality and other factors. See the earlier discussion in the Financial Condition section explaining the information used to determine the provision.

Non-interest Income:

Non-interest income ~~during the three months ended September 30, 2022~~ was $1.3 million infor both of the three month periods ended September 30, ~~2022~~2023 and ~~2021.~~September 30, 2022. Most significantly impacting non-interest income in the comparative three month periods was a $378,000 decrease in the loss on sales and calls of securities ~~due to the execution of a balance sheet and regulatory capital management strategy,~~recorded as ~~well as a $68,000 decline~~no securities losses were recorded in the ~~value of equity securities during~~2023 period. Also impacting the comparative three ~~months ended September 30, 2022. These declines~~month periods were ~~partially offset by receipt~~decreases of $329,000 in life insurance proceeds and ~~an $83,000 increase~~$96,000 in fees derived from loan activity ~~during~~for the three months ended September 30, ~~2022~~2023 compared to the three months ended September 30, ~~2021.~~2022.

As a percentage of average assets, annualized non-interest income was 0.63% in each of the three months ended September 30, 2022 and 2021. Excluding the gain/loss on sales and calls of securities, change in fair value of equity securities and life insurance proceeds, annualized non-interest income as a percentage of average assets was 0.67%0.62% for the three months ended September 30, ~~2022~~2023 compared to ~~0.61%~~0.63% for the three months ended September 30, ~~2021.~~2022.

Non-interest Expense:

Non-interest expense was $4.8 million for the three months ended September 30, 2023, compared to $5.0 million for the three months ended September 30, 2022, ~~compared to $4.9 million for the same period in 2021, an increase~~a decrease of ~~$59,000, or 1.2%~~4.6%. Most significantly impacting non-interest expense in the comparative three month periods was a ~~$63,000 increase~~$119,000 decline in ~~FDIC insurance premiums, which was partially offset by a decline~~the amortization of ~~$44,000~~investment in ~~data processing~~low-income housing partnerships due to the completion of the amortization period for one of Juniata’s low-income housing partnership investments in January 2023. Also adding to the decrease in non-interest expense ~~primarily from a reduction in core processing expenses for~~during the three months ended September 30, ~~2022~~2023 compared to the three months ended September 30, ~~2021.~~2022 were decreases of $115,000 in employee benefits expense resulting from a decline in medical claims expenses and $113,000 in taxes, other than income, due to a decline in Pennsylvania Shares Tax expense and recording a $62,000 Pennsylvania Shares Tax refund in the 2023 period.

As a percentage of average assets, annualized non-interest expense was ~~2.42% during~~2.26% for the three months ended September 30, ~~2022~~2023 compared to ~~2.37% during~~2.42% for the three months ended September 30, ~~2021.~~2022.

Provision for ~~income taxes:~~Income Taxes:

An income tax provision of ~~$102,000~~$310,000 was recorded infor the three months ended September 30, ~~2022,~~2023 compared to an income tax provision of ~~$142,000~~$102,000 recorded ~~during~~for the three months ended September 30, ~~2021 as taxable income was lower for the 2022 period primarily due to the receipt of non-taxable life insurance proceeds during the 2022 period.~~

~~The Company~~2022. Juniata qualifies for a federal tax credit for investments in low-income housing ~~project investments, and~~partnerships. The tax credit decreased from $225,000 for the ~~tax provisions~~three months

Table of Contents

ended September 30, 2022 to $82,000 for ~~each period reflect~~ the ~~application~~three months ended September 30, 2023 due to the completion of the ~~tax credit.~~ amortization period for one of Juniata’s low-income housing partnership investments.

For the three months ended September 30, ~~2022 and 2021,~~2023, the tax credit ~~was $225,000, offsetting $327,000 and $367,000~~lowered the effective tax rate from 18.7% to 14.8% compared to the same period in ~~tax expense in the~~ 2022, ~~and 2021 periods, respectively. For the three months ended September 30, 2022,~~when the tax credit lowered the effective tax rate from 14.7% to 4.6% ~~compared to the same period in 2021, when the tax credit lowered the effective tax rate from 18.0% to 7.0%~~.

~~Table of Contents~~

Comparison of the Nine Months Ended September 30, ~~2022~~2023 and ~~2021~~2022

Operations Overview:

Net income for the nine months ended September 30, ~~2022~~2023 was ~~$6.2~~$4.9 million, ~~an increase~~a decrease of ~~$947,000,~~$1.3 million, or ~~18.0%~~20.8%, compared to the nine months ended September 30, ~~2021,~~2022, while basic and diluted earnings per share ~~increased~~decreased by ~~18.1%~~21.0%, to ~~$1.24,~~$0.98, during the ~~first~~ nine months ~~of 2022~~ended September 30, 2023 compared to basic and diluted earnings per share of ~~$1.05~~$1.24 during the comparable ~~2021~~2022 period.

Annualized return on average assets for the nine months ended September 30, ~~2022~~2023 was ~~1.01%~~0.78%, compared to ~~0.86%~~1.01% for the same period in ~~2021.~~2022. For the nine months ended September 30, annualized return on average equity was 17.63% in 2023, compared to 15.02% in ~~2022, compared to 9.47% in 2021.~~2022.

Presented below are selected key ratios for the two periods:


	Nine Months Ended				Nine Months Ended
	September 30,				September 30,
	2022		2021		2023		2022
Return on average assets (annualized)	1.01	%	0.86	%	0.78	%	1.01	%
Return on average equity (annualized)	15.02	%	9.47	%	17.63	%	15.02	%
Average equity to average assets	6.74	%	9.10	%	4.45	%	6.74	%
Non-interest income, as a percentage of average assets (annualized)	0.65	%	0.63	%	0.62	%	0.65	%
Non-interest expense, as a percentage of average assets (annualized)	2.42	%	2.35	%	2.39	%	2.42	%

The discussion that follows further explains changes in the components of net income when comparing the nine months ended September 30, ~~2022~~2023 to the nine months ended September 30, ~~2021.~~2022.

Net Interest Income:

Net interest income was ~~$18.0~~$17.1 million during the nine months ended September 30, ~~2022, an increase~~2023, a decrease of ~~$2.5 million,~~$846,000, or ~~15.6%~~4.7%, compared to ~~$15.5~~$18.0 million recorded during the nine months ended September 30, ~~2021.~~2022.

Average interest earning assets increased ~~$26.6~~$46.3 million, or ~~3.5%~~5.9%, to ~~$788.8~~$835.1 million, during the nine months ended September 30, ~~2022,~~2023, compared to the same period in ~~2021,~~2022, due primarily ~~due~~ to an increase of ~~$28.5~~$64.1 million, or ~~8.9%~~14.8%, in average loans. The increase in average loans was partially offset by a decline of $15.4 million, or 4.4%, in average investment securities as ~~well as a $5.1~~the amortization on the mortgage-backed securities portfolio was used to fund loan growth rather than being reinvested into the securities portfolio. Average interest bearing liabilities increased by $31.4 million, or ~~1.2%~~5.5%, ~~increase in average loans, net of a $22.2 million, or 85.8%, decrease in average PPP loan balances between periods.~~

~~The yield on earning assets~~ during the nine months ended September 30, 2023 compared to the comparable 2022 period, due primarily to growth in average short-term borrowings and time deposits, which were also used to fund loan growth. The yields on average loans and investment securities increased by 2450 basis points ~~to 3.41%,~~and 16 basis points, respectively, in the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022, while the costs of time deposits and short-term borrowings and other interest bearing liabilities over the same period ~~in 2021~~increased by 179 basis points and 189 basis points, respectively, primarily due to ~~several factors, including~~ the increase in market interest rates ~~driven by an increase of 300 basis points in~~as both the prime rate and federal funds target range ~~and prime rate during the current 2022 period, as well as the growth~~increased by 225 basis points between periods. The yield on earning assets increased 50 basis points, to 3.91%, in ~~taxable investment securities and the collection~~

Table of ~~$645,000 in interest on a previously charged off nonaccrual loan during~~ Contents

the nine months ended September 30, ~~2022. Over~~2023 compared to the ~~same periods,~~nine months ended September 30, 2022, while the cost to fund interest earning assets with interest bearing liabilities ~~decreased nine~~increased 112 basis points, to ~~0.51%, primarily~~1.63%.

Margin compression has been prevalent throughout the banking industry in 2023 due to effects of the ~~decline in higher cost average time deposits~~increasing rate environment and ~~long-term borrowings during the period. During the nine months ended September 30, 2022, average~~competitive pricing pressures. Specifically, interest earning assets repriced more quickly than interest bearing liabilities, ~~increased by $7.1 million, or 1.3%, compared to~~particularly deposits, as a result of the ~~comparable 2021 period, due to growth~~rapid and substantial increase in ~~average interest-bearing demand~~market interest rates in recent years. As the “gap” between the repricing of interest bearing assets and ~~savings~~interest bearing liabilities closed and an emphasis on liquidity through deposits ~~which was partially offset by decreases~~became prevalent in ~~average time deposits, long-term debt~~the banking industry, net interest income and ~~FRB advances.~~net interest margin were adversely affected.

The net interest margin, on a fully tax equivalent basis, ~~increased~~decreased from ~~2.76% during the nine months ended September 30, 2021 to~~ 3.08% during the nine months ended September 30, ~~2022.~~2022, to 2.77% during the nine months ended September 30, 2023.

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The table below shows the net interest margin on a fully tax-equivalent basis for the nine months ended September 30, ~~2022~~2023 and ~~2021.~~2022.


	Nine Months Ended						Nine Months Ended												Nine Months Ended						Nine Months Ended
(Dollars in thousands)	September 30, 2022						September 30, 2021						Increase (Decrease) Due To (6)						September 30, 2023						September 30, 2022						Increase (Decrease) Due To (6)
	Average				Yield/		Average				Yield/								Average				Yield/		Average				Yield/
	Balance(1)		Interest		Rate		Balance(1)		Interest		Rate		Volume		Rate		Total		Balance(1)		Interest		Rate		Balance(1)		Interest		Rate		Volume		Rate		Total
ASSETS
Interest earning assets:
Loans:
Taxable loans (5)	$	404,863	$	14,853	4.90	%	$	396,684	$	13,680	4.61	%	$	283	$	890	$	1,173	$	468,138	$	18,925	5.40	%	$	404,863	$	14,853	4.90	%	$	2,328	$	1,744	$	4,072
Tax-exempt loans		27,669		593	2.87			30,763		691	3.00			(70)		(28)		(98)		28,508		644	3.02			27,669		593	2.87			18		33		51
Total loans		432,532		15,446	4.77			427,447		14,371	4.50			213		862		1,075		496,646		19,569	5.27			432,532		15,446	4.77			2,346		1,777		4,123
Investment securities:
Taxable investment securities		341,864		4,479	1.75			314,501		3,543	1.50			308		628		936		326,966		4,684	1.91			341,864		4,479	1.75			(195)		400		205
Tax-exempt investment securities		7,313		117	2.13			6,165		112	2.42			21		(16)		5		6,780		109	2.14			7,313		117	2.13			(9)		1		(8)
Total investment securities		349,177		4,596	1.75			320,666		3,655	1.52			329		612		941		333,746		4,793	1.91			349,177		4,596	1.75			(204)		401		197

Interest bearing deposits		7,122		80	1.50			8,439		18	0.29			(2)		64		62		4,731		69	1.95			7,122		80	1.50			(27)		16		(11)
Federal funds sold		—		—	—			5,680		1	0.01			(1)		—		(1)		—		—	—			—		—	0.00			—		—		—
Total interest earning assets		788,831		20,122	3.41			762,232		18,045	3.17			539		1,538		2,077		835,123		24,431	3.91			788,831		20,122	3.41			2,115		2,194		4,309

Other assets (7)		30,702						54,007												1,445						30,702
Total assets	$	819,533					$	816,239											$	836,568					$	819,533

LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest bearing liabilities:
Interest bearing demand deposits (2)	$	239,399		593	0.33		$	215,489		227	0.14		$	25	$	341	$	366	$	213,549		1,798	1.13		$	239,399		593	0.33		$	(64)	$	1,269	$	1,205
Savings deposits		150,739		57	0.05			136,906		51	0.05			5		1		6		138,964		52	0.05			150,739		57	0.05			(4)		(1)		(5)
Time deposits		137,341		1,042	1.01			151,123		1,493	1.32			(136)		(315)		(451)		180,059		3,765	2.80			137,341		1,042	1.01			325		2,398		2,723
Short-term and long-term borrowings and other interest bearing liabilities		38,892		463	1.59			55,798		734	1.76			(223)		(48)		(271)		65,224		1,695	3.48			38,892		463	1.59			315		917		1,232
Total interest bearing liabilities		566,371		2,155	0.51			559,316		2,505	0.60			(329)		(21)		(350)		597,796		7,310	1.63			566,371		2,155	0.51			572		4,583		5,155

Non-interest bearing liabilities:
Demand deposits		192,661						177,646												195,499						192,661
Other		5,291						5,028												6,054						5,291
Stockholders’ equity		55,210						74,249												37,219						55,210
Total liabilities and stockholders’ equity	$	819,533					$	816,239											$	836,568					$	819,533
Net interest income and net interest rate spread			$	17,967	2.90	%			$	15,540	2.57	%	$	868	$	1,559	$	2,427			$	17,121	2.28	%			$	17,967	2.90	%	$	1,543	$	(2,389)	$	(846)
Net interest margin on interest earning assets (3)					3.05	%					2.73	%											2.74	%					3.05	%
Net interest income and net interest margin - Tax equivalent basis (4)			$	18,155	3.08	%			$	15,753	2.76	%									$	17,322	2.77	%			$	18,155	3.08	%

Notes:

1)	Average balances were calculated using a daily average.

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

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

4)	Interest on obligations of states and municipalities is not subject to federal income tax. To make the net yield comparable on a fully taxable basis, a tax equivalent adjustment is applied against the tax-exempt income utilizing a federal tax rate of 21%.

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

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

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

4754

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Provision for ~~Loan~~Credit Losses:

A ~~loan~~credit loss provision ~~expense~~ of ~~$350,000~~$411,000 was recorded ~~during~~for the nine months ended September 30, ~~2022,~~2023, compared to a loan loss provision ~~credit~~ of ~~$536,000 in~~$350,000 for the nine months ended September 30, ~~2021.~~2022. On January 1, 2023, the Company adopted CECL and transitioned from the incurred loss model based on historical loss experience and economic and market conditions to the expected loss model. The CECL standard reflects expected credit losses over the expected life of the financial assets and commitments, primarily based on the DCF methodology for the majority of the loan segments, which applies the probability of default and loss given default factors to future cash flows and adjusts to the net present value to derive the required reserve. Macroeconomic conditions are incorporated into the model for unemployment and gross domestic product, in addition to model assumptions for discount rate and prepayment and curtailment speeds. While Juniata continued to experience favorable asset quality trends, elevated qualitative risk factors, including political uncertainty, national delinquency trends and ~~net recoveries during~~the effects of the increasing interest rate environment, in addition to loan growth, were considered in evaluating the allowance for credit losses, resulting in a greater credit loss provision for the nine months ended September 30, ~~2022, elevated qualitative risk factors were considered in its allowance for loan loss analysis for certain loan segments due~~2023, compared to the uncertainty in the economy and the potential for a recession as inflation, labor shortages and supply chain disruptions remain prevalent. Additionally, loan growth of 10.5% as of September 30, 2022 compared to December 31, 2021 was also a factor in the increase in Juniata’s loan loss provision for the nine months ended September 30, 2022.

Non-interest Income:

Non-interest income was $3.9 million during the nine months ended September 30, 2023 compared to $4.0 million during the nine months ended September 30, 2022, ~~compared to $3.9 million during the nine months ended September 30, 2021, an increase~~a decrease of ~~$88,000,~~$75,000, or ~~2.3%~~1.9%.

Most significantly impacting the comparative nine month periods was a $1.5 million decline in the loss on sales and calls of securities ~~in the 2022 period~~primarily due to the execution of a balance sheet and regulatory capital management strategy in ~~which the security~~2022. The securities losses were partially offset by $1.2 million in gains from the termination of two derivatives contracts, recorded in other non-interest ~~income. See Notes 5 and 12~~income in 2022, causing the ~~Notes to Consolidated Financial Statements. Additionally, the change~~$1.1 million decline in ~~value of equity securities during~~other non-interest income for the nine months ended September 30, ~~2022 decreased by $249,000~~2023 compared to the nine months ended September 30, ~~2021 due to declines~~2022. Also impacting the comparative nine month periods were decreases of $219,000 in ~~bank stock market values, which was partially offset by increases of $119,000~~life insurance proceeds, $157,000 in fees derived from loan activity ~~and $380,000 in life insurance proceeds~~primarily due to a derivative credit adjustment of $104,000 recorded in the third quarter of 2022 ~~period.~~for a participated loan relationship with a back-to-back swap arrangement, and $95,000 in customer service fees due to a decline in overdraft fees during the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022.

As a percentage of average assets, annualized non-interest income was ~~0.65% for~~0.62% in the first nine months ~~ended September 30, 2022~~of 2023 compared to ~~0.63% for~~0.65% in the comparable ~~2021~~2022 period. Excluding the gain/loss on sales and calls of securities, change in fair value of equity securities and life insurance proceeds, annualized non-interest income as a percentage of average assets was 0.61% for the nine months ended September 30, 2023 compared to 0.84% for the nine months ended September 30, ~~2022 compared to 0.60% for the nine months ended September 30, 2021.~~2022.

Non-interest Expense:

Non-interest expense was $15.0 million during the nine months ended September 30, 2023 compared to $14.9 million during the nine months ended September 30, 2022, ~~compared to $14.4 million during the nine months ended September 30, 2021,~~ an increase of ~~$496,000,~~$94,000, or ~~3.4%~~0.6%.

Most significantly impacting non-interest expense in the comparative nine month periods was a ~~$307,000~~$332,000 increase in ~~employee compensation and benefits~~data processing expense primarily due to ~~temporary duplication~~a $238,000 breakage fee paid to Juniata’s current core service provider as Juniata plans to convert to a new core service provider in the first quarter of ~~compensation and benefits expense because of employee transitions,~~2024, as well as ~~increased medical claims expenses. Also contributing to the~~a $227,000 increase in ~~non-interest~~merger and acquisition expense ~~was~~as a ~~$76,000 increase in FDIC insurance premiums and a $42,000 decline~~result of the Path Valley branch acquisition in the ~~gain on other real estate owned for the nine months ended September 30, 2022 versus the comparable 2021 period.~~second quarter of 2023. These increases were partially offset by a ~~$71,000~~decline of $327,000 in low-income housing partnership amortization expense during the nine months ended September 30, 2023 versus the comparable 2022 period due to the completion of the 10-year amortization period in

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January 2023 for one of Juniata’s low-income housing partnership investments, as well as a $212,000 decrease in taxes, other than income, between the comparative nine month periods due to a decline in ~~data processing expense.~~Pennsylvania Shares Tax expense and recording a $62,000 Pennsylvania Shares Tax refund in the 2023 period.

As a percentage of average assets, annualized non-interest expense was 2.39% during the nine months ended September 30, 2023 compared to 2.42% during the nine months ended September 30, ~~2022 compared to 2.35% during~~2022. Excluding merger and acquisition expense, as well as the $238,000 breakage fee, annualized non-interest expense as a percentage of average assets was 2.31% for the nine months ended September 30, ~~2021.~~2023.

~~Table of Contents~~

Provision for ~~income taxes:~~Income Taxes:

An income tax provision of ~~$488,000~~$708,000 was recorded during the nine months ended September 30, ~~2022~~2023 compared to an income tax expense of ~~$302,000~~$488,000 recorded during the nine months ended September 30, ~~2021, primarily due to higher taxable income earned in the 2022 period.~~2022.

The Company qualifies for a federal tax credit for a low-income housing project investment, and the tax provisions for each period reflected the application of the tax credit. ~~For~~The tax credit decreased from $676,000 for the ~~first~~ nine months ended September 30, 2022 to $284,000 for the nine months ended September 30, 2023 due to the completion of ~~2022 and 2021,~~ the amortization period for one of Juniata’s low-income housing partnership investments. The tax ~~credits were $676,000 in both periods, offsetting $1.2 million in~~credit lowered the effective tax ~~expense recorded~~rate from 17.6% to 12.6% during the nine months ended September 30, 2023 compared to the same period in 2022, ~~and $978,000 in tax expense recorded in~~when the ~~comparable 2021 period. The~~ tax credit lowered the effective tax rate from 17.4% to 7.3% ~~during the first nine months of 2022 compared to the same period in 2021, when the tax credit lowered the effective tax rate from 17.5% to 5.4%~~.

Liquidity:

The objective of liquidity management is to ensure that sufficient funding is available, at a reasonable cost, to meet the ongoing operational cash needs of the Company and to take advantage of income producing opportunities as they arise. While the desired level of liquidity will vary depending upon a variety of factors, it is a primary goal of the Company to maintain an adequate level of liquidity in all economic environments. Principal sources of asset liquidity are provided by loans and securities maturing in one year or less, and other short-term investments, such as federal funds sold and cash and due from banks. Liability liquidity, which is more difficult to measure, can be met by attracting deposits and maintaining the core deposit base.

The Company is a member of the Federal Home Loan Bank of Pittsburgh for the purpose of providing short-term liquidity to supplement other sources of ~~liquidity liability.~~liability liquidity. During the nine months ended September 30, ~~2022,~~2023, overnight borrowings from the ~~Federal Home Loan Bank~~FHLB averaged ~~$739,000.~~$18.7 million. As of September 30, ~~2022,~~2023, the Company had ~~$29.0~~$12.0 million in short-term borrowings and $20.0 million in long-term debt with the Federal Home Loan Bank, with a remaining unused borrowing capacity of ~~$148.9~~$193.4 million with the FHLB. These credit facilities are secured by qualifying loans and investment securities held in safekeeping at the FHLB.

As of September 30, 2023, the Company had $16.0 million in short-term borrowings with the Federal Reserve’s Bank Term Funding Program (“BTFP”) with a remaining unused borrowing capacity at the Federal Reserve of $62.0 million. The Company opted to utilize this additional contingent liquidity source in order to take advantage of the program’s advantageous borrowing rate.

The Company ~~may use brokered deposits as an additional funding alternative. Brokered deposits~~also has two unsecured lines of ~~$30.0~~credit with correspondent banks totaling $16.0 million, of which no funds were ~~included in total interest-bearing deposits as of December 31, 2021. The Company had no brokered deposits as of~~drawn at September 30, ~~2022.~~2023. These lines of credit are tested periodically to ensure the availability of funds.

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

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During the first quarter of 2023, the Company increased its internal policy limit for brokered deposits to $175.0 million from $100.0 million. As of September 30, 2023, the Company had no brokered deposits.

At September 30, 2023, uninsured deposits represented 20.7% of the Company’s total deposits. This amount excludes deposits of state and political subdivisions because the Company pledges debt securities for deposits in excess of the $250,000 FDIC insurance limit in the case of those deposits.

In view of the sources previously mentioned and the steps taken by the Company through the nine months ended September 30, 2023, management believes ~~that~~ the Company’s liquidity can provide the funds needed to meet operational cash needs.

Off-Balance Sheet Arrangements:

The Company’s consolidated financial statements do not reflect various off-balance sheet arrangements that are made in the normal course of business, which may involve some liquidity risk, credit risk and interest rate risk. These commitments consist mainly of loans approved but not yet funded, unused lines of credit and outstanding letters of credit. Letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third-party. Generally, financial and performance letters of credit have expiration dates within one year of issuance, while commercial letters of credit have longer term commitments. The credit risk involved in issuing letters of credit is essentially the same as the risks that are involved in extending loan facilities to customers. The Company generally holds collateral and/or personal guarantees supporting these commitments. As of September 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the Company had ~~$3.7~~$2.5 million and ~~$5.7~~$2.6 million, respectively, of financial and performance letters of credit commitments outstanding. Commercial letters of credit as of September 30, ~~2022~~2023 and December 31, ~~2021~~2022 totaled ~~$9.9~~$9.3 million and ~~$9.5~~$9.8 million, respectively.

~~Table of Contents~~

Management believes the proceeds obtained through a liquidation of collateral and the enforcement of guarantees would be sufficient to cover the potential amount of future payments required under the corresponding letters of credit. The current amount of the liability as of September 30, ~~2022~~2023 for payments under letters of credit issued was not material. Because these instruments have fixed maturity dates, and because many of them will expire without being drawn upon, they do not generally present any significant liquidity risk.

Interest Rate Sensitivity:

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

Capital Adequacy:

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

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The Basel III risk-based capital standards require financial institutions to maintain: (a) a minimum ratio of common equity tier 1 (“CET1”) to risk-weighted assets of at least 4.5%, (b) a minimum ratio of tier 1 capital to risk-weighted assets of at least 6.0%; (c) a minimum ratio of total (that is, tier 1 plus tier 2) capital to risk-weighted assets of at least 8.0%); and (d) a minimum leverage ratio of ~~4.0%~~3.0%, calculated as the ratio of tier 1 capital balance sheet exposures plus certain off-balance sheet exposures (computed as the average for each quarter of the month-end ratios for the quarter). In addition, the rules also limit a banking organization’s capital distributions and certain discretionary bonus payments if the banking organization does not hold a “capital conservation buffer” of 2.5% above the minimum risk-based standards stated in (a) -– (c) ~~above.~~.

At September 30, ~~2022,~~2023, the Bank exceeded the regulatory requirements to be considered a "well capitalized" financial institution under Basel ~~III.~~III, as well as exceeded the capital conservation buffer of 2.5% for the risk-based capital standards stated in (a) – (c) in the paragraph above.

The Company’s principal source of funds for dividend payments is dividends received from the Bank. Certain regulatory restrictions exist regarding the ability of the Bank to transfer funds to the Company in the form of cash dividends, loans or advances. At September 30, ~~2022, $33.9~~2023, $37.1 million in undistributed earnings of the Bank, included in the consolidated stockholders’ equity, was available for distribution to the Company as dividends without prior regulatory approval, subject to regulatory capital requirements.

~~Table of Contents~~

Item 4. Controls and Procedures

Disclosure Controls and Procedures

As of September 30, ~~2022,~~2023, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as defined by the Securities Exchange Act of 1934 (“Exchange Act”), Rule 13a-15(e). Disclosure controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed in Company reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. These controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Based upon that ~~evaluations,~~evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were ~~not~~ effective because of a material weakness in our internal control over financial reporting, specifically the Company did not maintain controls over the computation of Tier 1 regulatory capital deductions related to the Bank’s investments in subordinated debt issued by other financial institutions. In the second quarter of 2022, management determined the Bank’s call reports for the quarters ended September 30, 2021, December 31, 2021, and March 31, 2022, included an error in the computation of Tier 1 regulatory capital in connection with the Bank’s investments in subordinated debt issued by other financial institutions, which was a resultas of the ~~material weakness discussed above. While the impact~~end of the error was immaterial, and the Bank was well capitalized during these periods, the material weakness could result in a misstatement of the Tier I regulatory capital that would result in a material misstatement to the annual or interim financial statements that would not be prevented or detected. As a result, management concluded a material weakness in internal control over financial reporting was present during those periods and has not been remediated as of September 30, 2022.

~~Management's Plan to Remediate Material Weakness~~

We developed a detailed plan for remediation of the material weakness, including enhancing management's review of controls over the preparation of Call Report schedule RC-R Part I regarding the limitation on subordinated debt issuedperiod covered by ~~other financial institutions. We intend to remediate~~ this material weakness as soon as possible, and we will continue to assess the effectiveness of our remediation efforts in connection with our future assessment of the effectiveness of internal control over financial reporting and disclosure controls and procedures. We estimate that we will remediate this material weakness by December 31, 2022. Until this material weakness is remediated, we plan to continue to perform additional analyses and other procedures to ensure that our consolidated financial statements are prepared in accordance with GAAP.quarterly report.

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

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

Changes in Internal Control Over Financial Reporting

There were no significant changes in the Company’s internal control over financial reporting during the fiscal quarter ended September 30, ~~2022,~~2023, that has materially affected, or is reasonably likely to materially affect, the internal controls over financial reporting.

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PART II - OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

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

Item 1A. RISK FACTORS

~~There have been no other material changes to~~Management has reviewed the risk factors that were previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022. There are no material changes in risk factors as previously disclosed in the Form 10-K except as described below.

Resent adverse developments affecting the financial services industry, such as bank failures or concerns involving liquidity of banks, may have a material adverse effect on the Company’s operations.

Recent events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions, transactional counterparties or other companies in the financial services industry or the financial services industry generally or concerns or rumors about any events of these kinds or other similar risks, have in the past and may in the future lead to market-wide liquidity problems. For example, on March 10, 2023, March 12, 2023 and May 1, 2023, the Federal Deposit Insurance Corporation took control and was appointed receiver of Silicon Valley Bank (“SVB”), Signature Bank and First Republic Bank (“First Republic”), respectively, after each bank was unable to continue its operations largely due to concerns about each bank’s liquidity position. These events exposed potential vulnerabilities in the banking sector, including liquidity concerns, debt securities in bank investment portfolios yielding lower interest rates than current market rates (when the carrying value of these securities are “marked to market”, a corresponding decrease in the bank’s capital is recorded), deposit concentrations, a decline in customer confidence in individual banks and in the banking industry in general, significant deposit outflows, difficulty in raising additional capital, market volatility and contagion risk. These factors have also caused market prices of regional bank stocks to decline.

To date, the Company has not experienced any adverse impact to current and projected business operations, financial condition and results of operations as a result of the SVB, Signature Bank, First Republic or other recent bank failures. However, we are unable to predict the extent or nature of the impacts of these evolving circumstances at this time. If, for example, other banks and financial institutions enter receivership or become insolvent in the future in response to financial conditions affecting the banking system and financial markets, the Company’s ability to access existing cash, cash equivalents and investments may be threatened. Therefore, while it is not currently possible to predict the potential impact that the failure of SVB, Signature Bank, First Republic or other bank failures could have on economic activity or the Company’s business in particular, the failure of other banks and financial institutions and the measures taken by governments, businesses and other organizations in response to these events could adversely impact the Company’s business, financial condition and results of operations.

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

The Company periodically repurchases shares of its common stock under a share repurchase program approved by the Board of Directors. In November of 2021, the Board of Directors authorized the repurchase of an additional 200,000 shares of its common stock through the Company’s share repurchase program for a total of 209,307 shares authorized to be repurchased at that time. The program will remain authorized until all approved shares are repurchased, unless terminated by the Board of Directors. As of September 30, ~~2022, 208,312~~2023, 207,743 shares remained available to purchase under that program. ~~Transactions~~There were no transactions pursuant to the repurchase program in the three month period ended September 30, ~~2022 are shown below.~~

				��
				~~Total Number of~~
	~~Total Number~~			~~Shares Purchased as~~	~~Maximum Number of~~
	~~of Shares~~	~~Average~~		~~Part of Publicly~~	~~Shares that May Yet Be~~
	~~Purchased or Restricted~~	~~Price Paid~~		~~Announced Plans or~~	~~Purchased Under the~~
~~Period~~	~~Shares Forfeited~~	~~per Share~~		~~Programs~~	~~Plans or Programs (1)~~
~~July 1-31, 2022~~	—	$	—	—	~~208,312~~
~~August 1-31, 2022~~	—		—	—	~~208,312~~
~~September 1-30, 2022~~	—			—	~~208,312~~

~~Totals~~	—			—	~~208,312~~

2023. On October 24, 2023, the Company repurchased 27,000 shares leaving 180,743 shares available to purchase under that program.

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

Item 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable

Item 4. MINE SAFETY DISCLOSURES

Not applicable

Item 5. OTHER INFORMATION

None

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Item 6. EXHIBITS


3.1				Amended and Restated Articles of Incorporation (incorporated by reference to Exhibit 3(i) to the Company’s Current Report on Form 8-K filed with the SEC on November 12, 2015)
3.2				Amended and Restated Bylaws (incorporated by reference to Exhibit ~~3.4~~3(ii) to the Company’s Current Report on Form 8-K filed with the SEC on February ~~27, 2019)~~17, 2022)
31.1				Rule 13a – 14(a)/15d – 14(a) Certification of President and Chief Executive Officer
31.2				Rule 13a – 14(a)/15d – 14(a) Certification of Chief Financial Officer
32.1				Section 1350 Certification of President and Chief Executive Officer
32.2				Section 1350 Certification of Chief Financial Officer
101.INS				XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH				Inline XBRL Taxonomy Extension Schema
101.CAL				Inline XBRL Taxonomy Extension Calculation Linkbase
101.LAB				Inline XBRL Taxonomy Extension Label Linkbase
101.PRE				Inline XBRL Taxonomy Extension Presentation Linkbase
101.DEF				Inline XBRL Taxonomy Extension Definition Linkbase
104				Cover Page Interactive Data File (embedded within the Inline XBRL document).

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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		Juniata Valley Financial Corp.
		(Registrant)

Date:	NOVEMBER ~~14, 2022~~13, 2023	By:	/s/ Marcie A. Barber
			Marcie A. Barber, President
			Chief Executive Officer
			(Principal Executive Officer)

Date:	November ~~14, 2022~~13, 2023	By:	/s/ Michael W. Wolf
			Michael W. Wolf
			Chief Financial Officer
			(Principal Accounting Officer and
			Principal Financial Officer)

5462


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

For the quarterly period ended September 30, ~~2022~~2023

OR

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


For the transition period from to
Commission File Number 000-13232
Juniata Valley Financial Corp.
(Exact name of registrant as specified in its charter)
Pennsylvania	23-2235254
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)
Bridge and Main Streets, Mifflintown, Pennsylvania	17059
(Address of principal executive offices)	(Zip Code)
(855) 582-5101
(Registrant’s telephone number, including area code)


Securities registered pursuant to Section 12(b) of the Act:

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


Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☒	Smaller reporting company ☒
	Emerging growth company ☐


Class		Outstanding as of ~~November 14, 2022~~October 31, 2023
Common Stock ($1.00 par value)		~~5,003,059~~4,991,129 shares


~~PART I - FINANCIAL INFORMATION~~

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

	~~Consolidated Statements of Financial Condition as of September 30, 2022 (Unaudited) and December 31, 2021~~	3

	~~Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2022 and 2021 (Unaudited)~~	4

	~~Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2022 and 2021 (Unaudited)~~	5

	~~Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2022 and 2021 (Unaudited)~~	6

	~~Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2022 and 2021 (Unaudited)~~	8

	~~Notes to Consolidated Financial Statements (Unaudited)~~	9

~~Item 2.~~	~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~	39

~~Item 3.~~	~~Not applicable.~~

~~Item 4.~~	~~Controls and Procedures~~	51

~~PART II - OTHER INFORMATION~~

~~Item 1.~~	~~Legal Proceedings~~	52

~~Item 1A.~~	~~Risk Factors~~	52

~~Item 2.~~	~~Unregistered Sales of Equity Securities and Use of Proceeds~~	52

~~Item 3.~~	~~Defaults upon Senior Securities~~	52

~~Item 4.~~	~~Mine Safety Disclosures~~	52

~~Item 5.~~	~~Other Information~~	52

~~Item 6.~~	~~Exhibits~~	53

	~~Signatures~~	54


	(Unaudited)
(Dollars in thousands, except share data)	September 30, 2022		December 31, 2021
ASSETS
Cash and due from banks	$	13,325	$	12,928
Interest bearing deposits with banks		102		598
Cash and cash equivalents		13,427		13,526
Interest bearing time deposits with banks		—		735
Equity securities		1,014		1,124
Debt securities available for sale		287,251		335,424
Restricted investment in bank stock		3,104		2,116
Total loans		462,430		418,303
Less: Allowance for loan losses		(3,905)		(3,508)
Total loans, net of allowance for loan losses		458,525		414,795
Premises and equipment, net		8,254		8,371
Other real estate owned		30		87
Bank owned life insurance and annuities		15,139		16,852
Investment in low income housing partnerships		1,706		2,306
Core deposit and other intangible assets		134		175
Goodwill		9,047		9,047
Mortgage servicing rights		96		120
Deferred tax asset		12,279		1,585
Accrued interest receivable and other assets		5,243		4,255
Total assets	$	815,249	$	810,518
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Deposits:
Non-interest bearing	$	202,493	$	182,022
Interest bearing		515,341		526,425
Total deposits		717,834		708,447
Short-term borrowings and repurchase agreements		35,869		4,227
Long-term debt		20,000		20,000
Other interest bearing liabilities		995		1,568
Accrued interest payable and other liabilities		5,646		4,986
Total liabilities		780,344		739,228
Commitments and contingent liabilities
Stockholders’ Equity:
Preferred stock, no par value: Authorized - 500,000 shares, none issued		—		—
Common stock, par value $1.00 per share: Authorized 20,000,000 shares; Issued - 5,151,279 shares at September 30, 2022 and December 31, 2021; Outstanding - 5,003,059 shares at September 30, 2022 and 4,988,542 shares at December 31, 2021		5,151		5,151
Surplus		24,956		25,008
Retained earnings		50,216		47,298
Accumulated other comprehensive loss		(42,880)		(3,365)
Cost of common stock in Treasury: 148,220 shares at September 30, 2022; 162,737 shares at December 31, 2021		(2,538)		(2,802)
Total stockholders’ equity		34,905		71,290
Total liabilities and stockholders’ equity	$	815,249	$	810,518


(Dollars in thousands)	Three Months Ended September 30,
	2022						2021
	Pre-Tax		Tax		Net of Tax		Pre-Tax		Tax		Net of Tax
	Amount		Effect		Amount		Amount		Effect		Amount
Net income	$	2,222	$	(102)	$	2,120	$	2,039	$	(142)	$	1,897
Other comprehensive income (loss):
Available for sale securities:
Unrealized holding losses arising during the period		(16,284)		3,419		(12,865)		(1,929)		404		(1,525)
Reclassification adjustment for losses included in net income (1) (3)		378		(79)		299		—		—		—
Unrealized gains on cash flow hedge		81		(17)		64		38		(8)		30
Reclassification adjustment for (gains) losses included in net income (2) (3)		(86)		18		(68)		17		(3)		14
Other comprehensive loss		(15,911)		3,341		(12,570)		(1,874)		393		(1,481)
Total comprehensive income (loss)	$	(13,689)	$	3,239	$	(10,450)	$	165	$	251	$	416


	Three months ended September 30, 2023
								Accumulated
	Number							Other				Total
(Dollars in thousands, except share data)	of Shares	Common				Retained		Comprehensive		Treasury		Stockholders’
	Outstanding	Stock		Surplus		Earnings		Income (Loss)		Stock		Equity
Balance, July 1, 2023	5,018,129	$	5,151	$	24,852	$	51,291	$	(42,013)	$	(2,280)	$	37,001
Net income							1,791						1,791
Other comprehensive income									412				412
Cash dividends at $0.22 per share							(1,104)						(1,104)
Stock-based compensation					35								35
Balance, September 30, 2023	5,018,129	$	5,151	$	24,887	$	51,978	$	(41,601)	$	(2,280)	$	38,135


	Nine months ended September 30, 2023
								Accumulated
	Number							Other				Total
(Dollars in thousands, except share data)	of Shares	Common				Retained		Comprehensive		Treasury		Stockholders’
	Outstanding	Stock		Surplus		Earnings		Income (Loss)		Stock		Equity
Balance, January 1, 2023	5,003,059	$	5,151	$	24,986	$	51,217	$	(41,867)	$	(2,538)	$	36,949
Cumulative effect of change in accounting principle (Note 2)							(854)						(854)
Net income							4,922						4,922
Other comprehensive income									266				266
Cash dividends at $0.66 per share							(3,307)						(3,307)
Stock-based compensation					106								106
Purchase of treasury stock	(569)										(9)		(9)
Treasury stock issued for stock plans	15,639				(205)						267		62
Balance, September 30, 2023	5,018,129	$	5,151	$	24,887	$	51,978	$	(41,601)	$	(2,280)	$	38,135


	January 1, 2023
	As Reported				Impact of
(Dollars in thousands)	Under		Pre-ASC 326		ASC 326
	ASC 326		Adoption		Adoption
Assets:
Loans
Commercial, financial and agricultural	$	634	$	297	$	337
Real estate - commercial		2,421		1,110		1,311
Real estate - construction:
1-4 family residential construction		183		69		114
Other construction loans		670		1,077		(407)
Real estate - mortgage		1,136		1,385		(249)
Obligations of states and political subdivisions		45		54		(9)
Personal		49		35		14
Allowance for credit losses on loans	$	5,138	$	4,027	$	1,111
Liabilities:
Allowance for credit losses on OBS credit exposures	$	448	$	8	$	440


			Unrealized		Unrealized
	Gains		Gains		Gains
(Dollars in thousands)	(Losses) on		(Losses) on		(Losses) on
	Cash Flow		AFS		HTM
September 30, 2023	Hedges		Securities		Securities		Total
Beginning balance, December 31, 2022	$	211	$	(6,161)	$	(35,917)	$	(41,867)
Current period other comprehensive income (loss):
Other comprehensive income before reclassification		1		(2,311)		—		(2,310)
Amounts reclassified from accumulated other comprehensive income (loss)		(212)		—		2,788		2,576
Net current period other comprehensive income (loss)		(211)		(2,311)		2,788		266
Ending balance, September 30, 2023	$	—	$	(8,472)	$	(33,129)	$	(41,601)


(Amounts in thousands, except earnings per share data)	Three Months Ended September 30,
	2023		2022
Net income	$	1,791	$	2,120
Weighted-average common shares outstanding		5,018		5,003
Basic earnings per share		0.36		0.42

Weighted-average common shares outstanding	$	5,018	$	5,003
Common stock equivalents due to effect of stock options		9		9
Total weighted-average common shares and equivalents	$	5,027	$	5,012
Diluted earnings per share	$	0.36	$	0.42
Anti-dilutive stock options outstanding		—		—


(Dollars in thousands)	September 30, 2022
					Gross		Gross
	Amortized		Fair		Unrealized		Unrealized
Debt Securities Available for Sale	Cost		Value		Gains		Losses
Type and Maturity
Obligations of U.S. Government sponsored enterprises
After one year but within five years	$	20,450	$	18,118	$	—	$	(2,332)
After five years but within ten years		28,928		23,832		—		(5,096)
		49,378		41,950		—		(7,428)
Obligations of state and political subdivisions
After one year but within five years		3,474		3,394				(80)
After five years but within ten years		3,877		3,116		—		(761)
After ten years		1,501		1,171		—		(330)
		8,852		7,681		—		(1,171)
Corporate debt securities
After one year but within five years		4,688		4,227		—		(461)
After five years but within ten years		13,000		11,349		—		(1,651)
		17,688		15,576		—		(2,112)
Mortgage-backed securities		266,030		222,044		—		(43,986)
Total	$	341,948	$	287,251	$	—	$	(54,697)


	Unrealized Losses at September 30, 2022
	Less Than 12 Months					12 Months or More					Total
(Dollars in thousands)	Number					Number					Number
	of	Fair		Unrealized		of	Fair		Unrealized		of	Fair		Unrealized
	Securities	Value		Losses		Securities	Value		Losses		Securities	Value		Losses
Obligations of U.S. Government sponsored enterprises	2	$	6,995	$	(455)	8	$	34,955	$	(6,973)	10	$	41,950	$	(7,428)
Obligations of state and political subdivisions	5		3,394		(80)	6		4,287		(1,091)	11		7,681		(1,171)
Corporate debt securities	6		10,444		(1,556)	3		5,132		(556)	9		15,576		(2,112)
Mortgage-backed securities	47		77,474		(9,061)	37		144,570		(34,925)	84		222,044		(43,986)
Total temporarily impaired securities	60	$	98,307	$	(11,152)	54	$	188,944	$	(43,545)	114	$	287,251	$	(54,697)


	Unrealized Losses at December 31, 2021
	Less Than 12 Months					12 Months or More					Total
(Dollars in thousands)	Number					Number					Number
	of	Fair		Unrealized		of	Fair		Unrealized		of	Fair		Unrealized
	Securities	Value		Losses		Securities	Value		Losses		Securities	Value		Losses
Obligations of U.S. Government sponsored enterprises	5	$	22,130	$	(752)	3	$	18,396	$	(603)	8	$	40,526	$	(1,355)
Obligations of state and political subdivisions	7		5,781		(83)	—		—		—	7		5,781		(83)
Corporate debt securities	6		10,144		(217)	—		—		—	6		10,144		(217)
Mortgage-backed securities	36		182,328		(3,504)	5		26,443		(1,388)	41		208,771		(4,892)
Total temporarily impaired securities	54	$	220,383	$	(4,556)	8	$	44,839	$	(1,991)	62	$	265,222	$	(6,547)


	Unrealized Losses at December 31, 2022
	Less Than 12 Months					12 Months or More					Total
(Dollars in thousands)	Number					Number					Number
	of	Fair		Unrealized		of	Fair		Unrealized		of	Fair		Unrealized
	Securities	Value		Losses		Securities	Value		Losses		Securities	Value		Losses
Securities available for sale
Obligations of U.S. Government sponsored enterprises	1	$	2,456	$	(44)	2	$	11,248	$	(1,751)	3	$	13,704	$	(1,795)
Obligations of state and political subdivisions	4		2,781		(20)	7		4,898		(985)	11		7,679		(1,005)
Corporate debt securities	5		9,831		(1,669)	4		5,510		(663)	9		15,341		(2,332)
Mortgage-backed securities	33		36,493		(2,630)	1		319		(38)	34		36,812		(2,668)
Total temporarily impaired securities available for sale	43	$	51,561	$	(4,363)	14	$	21,975	$	(3,437)	57	$	73,536	$	(7,800)
Securities held to maturity
Obligations of U.S. Government sponsored enterprises	1	$	3,463	$	(12)	—	$	—	$	—	1	$	3,463	$	(12)
Mortgage-backed securities	9		21,643		(392)	12		48,788		(1,040)	21		70,431		(1,432)
Total temporarily impaired securities held to maturity	10	$	25,106	$	(404)	12	$	48,788	$	(1,040)	22	$	73,894	$	(1,444)
Total	53	$	76,667	$	(4,767)	26	$	70,763	$	(4,477)	79	$	147,430	$	(9,244)


(Dollars in thousands)

September 30, 2023	AAA		Total
Securities held to maturity
Obligations of U.S. Government sponsored enterprises	$	29,283	$	29,283
Mortgage-backed securities		173,363		173,363
	$	202,646	$	202,646


Portfolio Segments	Methodology	Loss Drivers
Commercial, financial and agricultural	DCF	National unemployment
Real estate - commercial	DCF	National unemployment & national GDP
Real estate - construction:
1-4 family residential construction	DCF	National unemployment & national GDP
Other construction loans	DCF	National unemployment & national GDP
Real estate - mortgage	DCF	National unemployment & national GDP
Obligations of states and political subdivisions	DCF	Moody's report
Personal	Remaining Life	Call report loss history


(Dollars in thousands)	Three Months Ended September 30, 2022						Three Months Ended September 30, 2021
	Average		Interest		Cash Basis		Average		Interest		Cash Basis
	Recorded		Income		Interest		Recorded		Income		Interest
	Investment		Recognized		Income		Investment		Recognized		Income
Impaired loans
With no related allowance recorded:
Real estate - commercial	$	2,058	$	98	$	—	$	5,291	$	55	$	—
Acquired with credit deterioration		341		—		—		364		—		—
Real estate - mortgage		348		4		19		483		3		10
Acquired with credit deterioration		440		—		—		595		—		—
Total:
Real estate - commercial	$	2,058	$	98	$	—	$	5,291	$	55	$	—
Acquired with credit deterioration		341		—		—		364		—		—
Real estate - mortgage		348		4		19		483		3		10
Acquired with credit deterioration		440		—		—		595		—		—
	$	3,187	$	102	$	19	$	6,733	$	58	$	10


(Dollars in thousands)	Nine Months Ended September 30, 2022						Nine Months Ended September 30, 2021
	Average		Interest		Cash Basis		Average		Interest		Cash Basis
	Recorded		Income		Interest		Recorded		Income		Interest
	Investment		Recognized		Income		Investment		Recognized		Income
Impaired Loans
With no related allowance recorded:
Real estate - commercial	$	4,187	$	161	$	—	$	4,346	$	166	$	—
Acquired with credit deterioration		347		—		—		345		—		—
Real estate - mortgage		397		7		29		579		10		30
Acquired with credit deterioration		455		—		—		602		—		—
Total:
Real estate - commercial	$	4,187	$	161	$	—	$	4,346	$	166	$	—
Acquired with credit deterioration		347		—		—		345		—		—
Real estate - mortgage		397		7		29		579		10		30
Acquired with credit deterioration		455		—		—		602		—		—
	$	5,386	$	168	$	29	$	5,872	$	176	$	30


(Dollars in thousands)		Pre-Modification		Post-Modification
	Number of	Outstanding		Outstanding
	Contracts	Recorded Investment		Recorded Investment		Recorded Investment
Nine months ended September 30, 2021
Accruing troubled debt restructurings:
Real estate - commercial	1	$	2,254	$	2,254	$	1,854
	1	$	2,254	$	2,254	$	1,854