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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549

FORM 10-Q

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

for the Quarterly Period Ended September 30, 2023. 
☐Transition report pursuant to Section 13 or 15 (d) of the Exchange Act

For the Transition Period from                    to                   .

No. 0-17077
(Commission File Number)

PENNS WOODS BANCORP INC.
(Exact name of Registrant as specified in its charter) 
Pennsylvania300 Market Street, P.O. Box 96723-2226454
(State or other jurisdiction ofWilliamsport(I.R.S. Employer Identification No.)
incorporation or organization)Pennsylvania17703-0967
(Address of principal executive offices)(Zip Code)

(570) 322-1111
Registrant’s telephone number, including area code


Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stock, $5.55 par valuePWODThe Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒ NO ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ☒ NO ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.  (Check one):
 
Large accelerated filer☐Accelerated filer☐
  Non-accelerated filer☒   Smaller reporting company☒
Emerging growth company☐

If an emerging growth company, indicate by check mark if registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐ No ☒
On November 1, 2023 there were 7,163,550 shares of the Registrant’s common stock outstanding.

PENNS WOODS BANCORP, INC.

INDEX TO QUARTERLY REPORT ON FORM 10-Q

  Page
  Number
 
   
   
  
  
  
 
  
   
   
   
   
 
   
   
   
   
   
   
   
   
2
Part I.  FINANCIAL INFORMATION
Item 1.  Financial Statements
PENNS WOODS BANCORP, INC.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)

September 30,December 31,
(In Thousands, Except Share And Per Share Data)20232022
ASSETS: 
Noninterest-bearing balances$26,651 $27,390 
Interest-bearing balances in other financial institutions8,939 12,943 
Total cash and cash equivalents35,590 40,333 
Investment debt securities, available for sale, at fair value184,667 193,673 
Investment equity securities, at fair value1,072 1,142 
Restricted investment in bank stock25,289 19,171 
Loans held for sale4,083 3,298 
Loans1,818,461 1,639,731 
Allowance for credit losses(12,890)(15,637)
Loans, net1,805,571 1,624,094 
Premises and equipment, net30,746 31,844 
Accrued interest receivable10,500 9,481 
Bank-owned life insurance33,695 34,452 
Investment in limited partnerships8,275 8,656 
Goodwill16,450 16,450 
Intangibles235 327 
Operating lease right-of-use asset2,562 2,651 
Deferred tax asset6,961 6,868 
Other assets10,772 7,640 
TOTAL ASSETS$2,176,468 $2,000,080 
LIABILITIES:  
Interest-bearing deposits$1,095,760 $1,037,397 
Noninterest-bearing deposits471,507 519,063 
Total deposits1,567,267 1,556,460 
Short-term borrowings193,746 153,349 
Long-term borrowings217,645 102,783 
Accrued interest payable2,716 603 
Operating lease liability2,619 2,708 
Other liabilities17,935 16,512 
TOTAL LIABILITIES2,001,928 1,832,415 
SHAREHOLDERS’ EQUITY:  
Preferred stock, no par value, 3,000,000 shares authorized; no shares issued
— — 
Common stock, par value $5.55, 22,500,000 shares authorized; 7,620,250 and 7,566,810 shares issued; 7,110,025 and 7,056,585 outstanding
42,335 42,039 
Additional paid-in capital55,890 54,252 
Retained earnings104,067 98,147 
Accumulated other comprehensive loss:  
Net unrealized loss on available for sale securities(10,886)(9,819)
Defined benefit plan(4,051)(4,139)
Treasury stock at cost, 510,225 shares
(12,815)(12,815)
TOTAL SHAREHOLDERS' EQUITY174,540 167,665 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY$2,176,468 $2,000,080 

See accompanying notes to the unaudited consolidated financial statements.
3
PENNS WOODS BANCORP, INC.
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
Three Months Ended September 30,Nine Months Ended September 30,
(In Thousands, Except Share And Per Share Data)2023202220232022
INTEREST AND DIVIDEND INCOME:    
Loans, including fees$21,720 $15,051 $59,571 $41,709 
Investment securities:    
Taxable1,365 949 3,870 2,550 
Tax-exempt114 236 410 594 
Dividend and other interest income722 628 1,827 1,470 
TOTAL INTEREST AND DIVIDEND INCOME23,921 16,864 65,678 46,323 
INTEREST EXPENSE:    
Deposits6,463 693 14,686 2,191 
Short-term borrowings2,412 26 6,084 29 
Long-term borrowings1,714 613 3,892 1,871 
TOTAL INTEREST EXPENSE10,589 1,332 24,662 4,091 
NET INTEREST INCOME13,332 15,532 41,016 42,232 
Provision for loan credit losses1,331 855 726 1,335 
Provision (recovery) for off balance sheet credit exposures41 — (463)— 
TOTAL PROVISION FOR CREDIT LOSSES1,372 855 263 1,335 
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES11,960 14,677 40,753 40,897 
NON-INTEREST INCOME:    
Service charges545 559 1,557 1,563 
Net debt securities losses, available for sale(45)(156)(125)(168)
Net equity securities losses(36)(55)(35)(158)
Bank-owned life insurance170 170 892 501 
Gain on sale of loans257 294 732 905 
Insurance commissions136 109 416 386 
Brokerage commissions142 142 448 500 
Loan broker commissions241 438 728 1,350 
Debit card income320 344 995 1,080 
Other145 238 546 673 
TOTAL NON-INTEREST INCOME1,875 2,083 6,154 6,632 
NON-INTEREST EXPENSE:    
Salaries and employee benefits6,290 6,016 18,778 18,421 
Occupancy784 730 2,422 2,380 
Furniture and equipment867 816 2,503 2,454 
Software amortization237 188 593 660 
Pennsylvania shares tax280 334 807 1,119 
Professional fees719 626 2,313 1,746 
Federal Deposit Insurance Corporation deposit insurance425 260 1,122 690 
Marketing167 151 594 435 
Intangible amortization25 34 92 119 
Other1,378 1,165 4,275 3,723 
TOTAL NON-INTEREST EXPENSE11,172 10,320 33,499 31,747 
INCOME BEFORE INCOME TAX PROVISION2,663 6,440 13,408 15,782 
INCOME TAX PROVISION439 1,190 2,355 2,869 
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS'$2,224 $5,250 $11,053 $12,913 
EARNINGS PER SHARE - BASIC$0.31 $0.74 $1.56 $1.83 
EARNINGS PER SHARE - DILUTED$0.31 $0.74 $1.53 $1.83 
WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC 7,072,440 7,051,228 7,064,336 7,060,871 
WEIGHTED AVERAGE SHARES OUTSTANDING - DILUTED7,228,940 7,051,228 7,220,836 7,060,871 
See accompanying notes to the unaudited consolidated financial statements.
4


PENNS WOODS BANCORP, INC.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
 
 Three Months Ended September 30,Nine Months Ended September 30,
(In Thousands)2023202220232022
Net Income$2,224 $5,250 $11,053 $12,913 
Other comprehensive (loss) income:    
Net unrealized loss on available for sale securities(1,480)(6,362)(1,476)(17,254)
Tax effect311 1,336 310 3,623 
Net realized loss on available for sale securities included in net income45 156 125 168 
Tax effect(9)(33)(26)(35)
   Amortization of unrecognized pension loss37 17 111 52 
        Tax effect(8)(3)(23)(11)
Total other comprehensive loss(1,104)(4,889)(979)(13,457)
Comprehensive income (loss)$1,120 $361 $10,074 $(544)
 
See accompanying notes to the unaudited consolidated financial statements.

5

PENNS WOODS BANCORP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
(UNAUDITED)


 Three months ended:
COMMON STOCKADDITIONAL
PAID-IN CAPITAL		RETAINED EARNINGSACCUMULATED OTHER
COMPREHENSIVE LOSS 		TREASURY STOCKTOTAL
SHAREHOLDERS’ EQUITY
(In Thousands, Except Share And Per Share Data)SHARESAMOUNT
Balance, June 30, 20237,573,713 $42,077 $54,869 $104,104 $(13,833)$(12,815)$174,402 
Net income2,224 2,224 
Other comprehensive loss(1,104)(1,104)
Stock-based compensation 229 229 
Dividends declared ($0.32 per share)
(2,261)(2,261)
Common shares issued for employee stock purchase plan1,436 8 26 34 
Director Compensation Plan2,341 13 50 63 
Registered at-the-market shares issuance, net proceeds34,411 191 562 753 
Dividend reinvestment plan8,349 46 154 200 
Balance, September 30, 20237,620,250 $42,335 $55,890 $104,067 $(14,937)$(12,815)$174,540 

COMMON STOCKADDITIONAL
PAID-IN CAPITAL		RETAINED EARNINGSACCUMULATED OTHER
COMPREHENSIVE LOSS 		TREASURY STOCKTOTAL
SHAREHOLDERS’ EQUITY
(In Thousands, Except Share And Per Share Data)SHARESAMOUNT
Balance, June 30, 20227,559,165 $41,995 $53,651 $92,903 $(9,680)$(12,815)$166,054 
Net income5,250 5,250 
Other comprehensive loss(4,889)(4,889)
Stock-based compensation236 236 
Dividends declared ($0.32 per share)
(2,257)(2,257)
Common shares issued for employee stock purchase plan1,057 6 17 23 
Director Compensation Plan2,978 18 54 72 
Balance, September 30, 20227,563,200 $42,019 $53,958 $95,896 $(14,569)$(12,815)$164,489 


See accompanying notes to the unaudited consolidated financial statements.





6

PENNS WOODS BANCORP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
(UNAUDITED)


Nine months ended:

COMMON STOCKADDITIONAL
PAID-IN CAPITAL		RETAINED EARNINGSACCUMULATED OTHER
COMPREHENSIVE LOSS		TREASURY STOCKTOTAL
SHAREHOLDERS’ EQUITY
(In Thousands, Except Share And Per Share Data)SHARESAMOUNT
Balance, December 31, 20227,566,810 $42,039 $54,252 $98,147 $(13,958)$(12,815)$167,665 
Cumulative effect of adoption of ASU 2016-131,647 1,647 
Net income   11,053   11,053 
Other comprehensive loss    (979) (979)
Stock-based compensation 715 715 
Dividends declared ($0.96 per share)
   (6,780)  (6,780)
Common shares issued for employee stock purchase plan3,120 17 56    73 
Director Compensation Plan7,560 42 151193 
Registered at-the-market shares issuance, net proceeds34,411 191 562753 
Dividend reinvestment plan8,349 46 154200 
Balance, September 30, 20237,620,250 $42,335 $55,890 $104,067 $(14,937)$(12,815)$174,540 

COMMON STOCKADDITIONAL
PAID-IN CAPITAL		RETAINED EARNINGSACCUMULATED OTHER
COMPREHENSIVE LOSS 		TREASURY STOCKTOTAL
SHAREHOLDERS’ EQUITY
(In Thousands, Except Share And Per Share Data)SHARESAMOUNT
Balance, December 31, 20217,550,272 $41,945 $53,795 $89,761 $(1,112)$(12,115)$172,274 
Net income   12,913   12,913 
Other comprehensive loss  (13,457) (13,457)
Stock-based compensation1,004 1,004 
Cash settlement of options(1,074)(1,074)
Dividends declared ($0.96 per share)
   (6,778)  (6,778)
Common shares issued for employee stock purchase plan2,960 17 50    67 
Director Compensation Plan9,968 57 183 240 
Purchase of treasury stock (30,000 shares)
(700)(700)
Balance, September 30, 20227,563,200 $42,019 $53,958 $95,896 $(14,569)$(12,815)$164,489 


See accompanying notes to the unaudited consolidated financial statements.
7
PENNS WOODS BANCORP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED) 
Nine Months Ended September 30,
(In Thousands)20232022
OPERATING ACTIVITIES:  
Net Income$11,053 $12,913 
Adjustments to reconcile net income to net cash provided by operating activities:  
Depreciation and amortization2,469 2,660 
Loss on sale of premises and equipment— 275 
Amortization of intangible assets92 119 
Provision for credit losses263 1,335 
Stock based compensation715 1,004 
Accretion and amortization of investment security discounts and premiums361 932 
Net debt securities losses, available for sale125 168 
Originations of loans held for sale(27,183)(30,644)
Proceeds of loans held for sale27,130 32,789 
Gain on sale of loans(732)(905)
Net equity securities losses35 158 
Security trades payable— (111)
Earnings on bank-owned life insurance(892)(501)
Decrease (increase) in deferred tax asset191 (653)
Other, net570 (905)
Net cash provided by operating activities14,197 18,634 
INVESTING ACTIVITIES:  
Proceeds from sales of available for sale securities24,701 4,151 
Proceeds from calls and maturities of available for sale securities18,824 13,116 
Proceeds from sales of equity securities35 — 
Purchases of available for sale securities(36,356)(57,239)
Net increase in loans(181,784)(168,950)
Acquisition of premises and equipment(396)(263)
Proceeds from the sale of premises and equipment— 137 
Proceeds from the sale of foreclosed assets— 46 
Purchase of bank-owned life insurance(7)(21)
Proceeds from bank-owned life insurance death benefit1,656 2 
Investment in limited partnership— (554)
Proceeds from redemption of regulatory stock32,292 6,692 
Purchases of regulatory stock(38,410)(6,700)
Net cash used for investing activities(179,445)(209,583)
FINANCING ACTIVITIES:  
Net increase (decrease) in interest-bearing deposits58,363 (73,943)
Net (decrease) increase in noninterest-bearing deposits(47,556)43,043 
Proceeds from long-term borrowings140,000 — 
Repayment of long-term borrowings(25,000)(23,000)
Net increase in short-term borrowings40,397 25,154 
Finance lease principal payments(138)(134)
Dividends paid(6,780)(6,778)
Issuance of common stock1,219 307 
Purchases of treasury stock— (700)
Net cash provided by (used for) financing activities160,505 (36,051)
NET DECREASE IN CASH AND CASH EQUIVALENTS(4,743)(227,000)
CASH AND CASH EQUIVALENTS, BEGINNING40,333 263,862 
CASH AND CASH EQUIVALENTS, ENDING$35,590 $36,862 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:  
Interest paid$22,549 $4,315 
Cash settlement of options— 1,074 
Income taxes paid2,950 2,371 
Non-cash investing and financing activities:
Transfer of loans to foreclosed real estate770 97 
See accompanying notes to the unaudited consolidated financial statements.
8
PENNS WOODS BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 

Note 1.  Basis of Presentation
 
The consolidated financial statements include the accounts of Penns Woods Bancorp, Inc. (the “Company”) and its wholly-owned subsidiaries: Woods Investment Company, Inc., Woods Real Estate Development Company, Inc., United Insurance Solutions, LLC., Luzerne Bank, and Jersey Shore State Bank (Jersey Shore State Bank and Luzerne Bank are referred to together as the “Banks”) and Jersey Shore State Bank’s wholly-owned subsidiary, The M Group, Inc. D/B/A The Comprehensive Financial Group (“The M Group”).  All significant inter-company balances and transactions have been eliminated in the consolidation.

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

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

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

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

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

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

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

Loans Evaluated Collectively: Management believes that internal credit ratings are the most relevant credit quality indicator for these types of loans, however; the Company does not assign internal credit ratings to smaller balance, homogeneous loans, such as home equity, residential mortgage, and consumer automobile loans. For these loans, the most relevant credit quality indicator is delinquency status and management evaluates credit quality based on the aging status of the loan. In order to determine the ACL:
•
Loans aggregated into pools based on similar risk characteristics.
•
The probability of default "PD" and loss given default rate "LGD" CECL model components are determined based on loss estimates driven by historical experience at the input level.
•
The PD model component uses "through the economic cycle transition" matrices based on the Company's historical loan and transaction data across each pool of loans.
9
•
The LGD model component calculates a lifetime LGD estimate across each pool of loans utilizing a nonparametric loss curve modeling approach.
•
Reasonable and supportable forecasts are incorporated into the PD model component.
•
Cash flow assumptions are established for each loan using maturity date, amortization schedule and interest rate.
•
A constant prepayment rate is calculated for each loan pool in the CECL model.
Loans Evaluated Individually: Loans evaluated individually for expected credit losses include loans determined to be collateral-dependant.

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

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

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

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

The following is a summary of the Company's internal credit rating categories:
•
Pass: These loans do not currently pose undue credit risk and can range from the highest to average quality, depending on the degree of potential risk.
•
Special Mention: These loans have a heightened credit risk, but not to the point of justifying a classification of Substandard. Loans in this category are currently acceptable, but are nevertheless potentially weak.
•
Substandard or Lower: There exists a well-defined weakness or weaknesses that jeopardize the normal repayment of the debt.

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

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

10
OBS Credit Exposures: The ACL for OBS credit exposures is recorded in other liabilities on the consolidated balance sheet. This ACL represents management’s estimate of expected losses in its unfunded loan commitments and other OBS credit exposures, such as letters of credit and credit recourse on sold residential mortgage loans. The ACL specific to unfunded commitments is determined by estimating future draws and applying the expected loss rates on those draws. Future draws are based on historical averages of utilization rates (i.e., the likelihood of draws taken). The ACL for OBS credit exposures is increased or decreased by charges or reductions to expense, through the provision for credit losses.

The impact from the adoption of CECL is shown below:
January 1, 2023
(In Thousands)Pre-AdoptionAdoption ImpactAs Reported
Assets
ACL on loans
Commercial, financial, and agricultural$1,914 $2,656 $4,570 
Real estate mortgage:
Residential5,061 (3,893)1,168 
Commercial6,110 (2,660)3,450 
Construction188 (96)92 
Consumer automobile loans1,617 240 1,857 
Other consumer installment loans109 602 711 
Unallocated638 (638)— 
Liabilities
ACL for unfunded commitments143 1,703 1,846 
$15,780 $(2,086)$13,694 

Note 2.  Accumulated Other Comprehensive Loss

The changes in accumulated other comprehensive loss by component shown net of tax and parenthesis indicating debits, as of September 30, 2023 and 2022 were as follows:
Three Months Ended September 30, 2023Three Months Ended September 30, 2022
(In Thousands)Net Unrealized (Loss) Gain on Available
for Sale Securities		Defined
Benefit 
Plan		TotalNet Unrealized (Loss) Gain on Available
for Sale Securities		Defined
Benefit 
Plan		Total
Beginning balance$(9,753)$(4,080)$(13,833)$(6,222)$(3,458)$(9,680)
Other comprehensive loss before reclassifications(1,169)— (1,169)(5,026)— (5,026)
Amounts reclassified from accumulated other comprehensive gain36 29 65 123 14 137 
Net current-period other comprehensive (loss) income(1,133)29 (1,104)(4,903)14 (4,889)
Ending balance$(10,886)$(4,051)$(14,937)$(11,125)$(3,444)$(14,569)

11
 Nine Months Ended September 30, 2023Nine Months Ended September 30, 2022
(In Thousands)Net Unrealized (Loss) Gain on Available
for Sale Securities		Defined
Benefit 
Plan		TotalNet Unrealized Gain (Loss) on Available
for Sale Securities		Defined
Benefit 
Plan		Total
Beginning balance$(9,819)$(4,139)$(13,958)$2,373 $(3,485)$(1,112)
Other comprehensive loss before reclassifications(1,166)— (1,166)(13,631)— (13,631)
Amounts reclassified from accumulated other comprehensive gain99 88 187 133 41 174 
Net current-period other comprehensive (loss) income(1,067)88 (979)(13,498)41 (13,457)
Ending balance$(10,886)$(4,051)$(14,937)$(11,125)$(3,444)$(14,569)

The reclassifications out of accumulated other comprehensive loss shown, net of tax and parenthesis indicating debits to net income, as of September 30, 2023 and 2022 were as follows:
Details about Accumulated Other Comprehensive Loss ComponentsAmount Reclassified from Accumulated Other Comprehensive LossAffected Line Item
 in the Consolidated 
Statement of Income
Three Months Ended September 30, 2023Three Months Ended September 30, 2022
Net unrealized loss on available for sale securities$(45)$(156)Net debt securities losses, available for sale
Income tax effect9 33 Income tax provision
Total reclassifications for the period$(36)$(123)
Net unrecognized pension costs$(37)$(17)Other non-interest expense
Income tax effect8 3 Income tax provision
Total reclassifications for the period$(29)$(14)
Details about Accumulated Other Comprehensive Loss ComponentsAmount Reclassified from Accumulated Other Comprehensive LossAffected Line Item
 in the Consolidated 
Statement of Income
Nine months ended September 30, 2023Nine months ended September 30, 2022
Net unrealized losses on available for sale securities$(125)$(168)Net debt securities losses, available for sale
Income tax effect26 35 Income tax provision
Total reclassifications for the period$(99)$(133)
Net unrecognized pension costs$(111)$(52)Other non-interest expense
Income tax effect23 11 Income tax provision
Total reclassifications for the period$(88)$(41)
Note 3.  Recent Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments, which changes the impairment model for most financial assets. This standard, along with several other subsequent codification updates, replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses that are expected to occur over the remaining life of a financial asset and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The amendments in this update require a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The new current expected credit losses model (“CECL”) will apply to the allowance for loan losses, available-for-sale and held-to-maturity debt securities, purchased financial assets with credit deterioration and certain off-balance sheet credit exposures.

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

As a result of adopting this standard, the Company recorded a decrease in its allowance effective January 1, 2023, of $2,086,000. As a result, the Company recorded a decrease in its loan allowance as of January 1, 2023, of $3,789,000; as well as
12
an increase in its allowance for off-balance sheet credit exposures of $1,703,000. These estimates are subject to further refinements based on ongoing evaluations of our model, methodologies, and judgments, as well as prevailing economic conditions and forecasts as of the adoption date. The adoption of ASU 2016-13 is not expected to have a significant impact on our regulatory capital ratios.

At adoption, the Company did not have any securities classified as HTM debt securities. No allowance was recorded related to AFS debt securities at the date of adoption, January 1, 2023.

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

In January 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, March 2020, to provide temporary optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate. Entities can elect not to apply certain modification accounting requirements to contracts affected by what the guidance calls “reference rate reform” if certain criteria are met. An entity that makes this election would not have to remeasure the contracts at the modification date or reassess a previous accounting determination. Also, entities can elect various optional expedients that would allow them to continue applying hedge accounting for hedging relationships affected by reference rate reform if certain criteria are met, and can make a one-time election to sell and/or reclassify held-to-maturity debt securities that reference an interest rate affected by reference rate reform. The amendments in this ASU are effective for all entities upon issuance through December 31, 2022. This Update did not have a significant impact on the Company’s financial statements.

In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. This ASU removes from U.S. GAAP the separation models for (1) convertible debt with a cash conversion feature and (2) convertible instruments with a beneficial conversion feature. As a result, entities will not separately present in equity an embedded conversion feature in such debt. Instead, they will account for a convertible debt instrument wholly as debt, and for convertible preferred stock wholly as preferred stock (i.e., as a single unit of account), unless (1) a convertible instrument contains features that require bifurcation as a derivative under ASC 815 or (2) a convertible debt instrument was issued at a substantial premium. This ASU requires entities to provide expanded disclosures about the terms and features of convertible instruments, how the instruments have been reported in the entity’s financial statements, and information about events, conditions, and circumstances that can affect how to assess the amount or timing of an entity’s future cash flows related to those instruments. The amendments in this ASU are effective for public business entities that are not smaller reporting companies, for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. For all other entities, this ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. The guidance may be early adopted for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. This Update is not expected to have a significant impact on the Company’s financial statements.

In March 2022, the FASB issued ASU 2022-02, Financial Instruments - Credit Losses (ASC 326): Troubled Debt Restructurings (TDRs) and Vintage Disclosures. The guidance amends ASC 326 to eliminate the accounting guidance for TDRs by creditors, while enhancing disclosure requirements for certain loan refinancing and restructuring activities by creditors when a borrower is experiencing financial difficulty. Specifically, rather than applying TDR recognition and measurement guidance, creditors will determine whether a modification results in a new loan or continuation of existing loan. These amendments are intended to enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. Additionally, the amendments to ASC 326 require that an entity disclose current-period gross writeoffs by year of origination within the vintage disclosures, which requires that an entity disclose the amortized cost basis of financing receivables by credit quality indicator and class of financing receivable by year of origination. The guidance is only for entities that have adopted the amendments in Update 2016-13 for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. This Update did not have a significant impact on the Company’s financial statements.

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In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820) – Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. This amendment clarifies the guidance in Topic 820, Fair Value Measurement, when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security. It also introduces new disclosure requirements for equity securities subject to contractual sale restrictions that are measured at fair value in accordance with Topic 820. The amendments are effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. Early adoption is permitted. The amendments will be applied prospectively, with any adjustments from the adoption of the amendments recognized in earnings and disclosed on the date of adoption. This Update is not expected to have a significant impact on the Company’s financial statements.

In March 2023, the FASB issued ASU 2023-02, Investments – Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method. ASU 2023-02 permits reporting entities to elect to account for their tax equity investments, regardless of the tax credit program from which the income tax credits are received, using the proportional amortization method if certain conditions are met. ASU 2023-02 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2023. This Update is not expected to have a significant impact on the Company’s financial statements.

In July 2023, the FASB issued ASU 2023-03, Presentation of Financial Statements (Topic 205), Income Statement-Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation-Stock Compensation (Topic 718), which amends or supersedes various SEC paragraphs within the Codification to conform to past SEC announcements and guidance issued by the SEC. The ASU does not provide any new guidance so there is no transition or effective date associated with it. This ASU did not have a significant impact on the Company’s financial statements.

In August 2023, the FASB issued ASU 2023-04, Liabilities (Topic 405), which adds various SEC paragraphs to the Codification to reflect guidance included in SEC Staff Accounting Bulletin 121 on safeguarding crypto assets. The standard does not provide any new guidance so there is no transition or effective date associated with it. This ASU did not have a significant impact on the Company’s financial statements.


Note 4. Per Share Data

There are no convertible securities which would affect the denominator in calculating basic and dilutive earnings per share. There were a total of 1,000,000 stock options, with an average exercise price of $25.55, outstanding on September 30, 2023. A portion of these options were included, on a weighted average basis, in the computation of diluted earnings per share for the period due to the average market price of common shares of $25.08 for the periods being greater than the strike price. There were a total of 917,000 stock options, with an average exercise price of $25.35 that were excluded, on a weighted average basis, in the computation of diluted earnings per share for the period due to the average market price of common shares of $23.78 being less than the strike price for the period ending September 30, 2022.
 Three Months Ended September 30,Nine Months Ended September 30,
 2023202220232022
Weighted average common shares issued7,582,665 7,561,453 7,574,561 7,557,250 
Weighted average treasury stock shares(510,225)(510,225)(510,225)(496,379)
Weighted average common shares outstanding - basic7,072,440 7,051,228 7,064,336 7,060,871 
Dilutive effect of outstanding stock options156,500 — 156,500 — 
Weighted average common shares outstanding - diluted7,228,940 7,051,228 7,220,836 7,060,871 








 
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Note 5. Investment Securities
 
The amortized cost, gross unrealized gains and losses, and fair values of our investment securities portfolio at September 30, 2023 and December 31, 2022 are as follows:
 September 30, 2023
  GrossGross 
 AmortizedUnrealizedUnrealizedFair
(In Thousands)CostGainsLossesValue
Available for sale (AFS):    
U.S. Government and agency securities$4,001 $— $(137)$3,864 
Mortgage-backed securities12,101 — (705)11,396 
State and political securities129,024 — (9,177)119,847 
Other debt securities53,321 — (3,761)49,560 
Total debt securities$198,447 $— $(13,780)$184,667 
Investment equity securities:
Equity securities$1,300 $— $(228)$1,072 
 December 31, 2022
  GrossGross 
 AmortizedUnrealizedUnrealizedFair
(In Thousands)CostGainsLossesValue
Available for sale (AFS):    
U.S. Government and agency securities$3,002 $— $(106)$2,896 
Mortgage-backed securities1,496 — (214)1,282 
State and political securities151,426 157 (8,774)142,809 
Other debt securities50,178 58 (3,550)46,686 
Total debt securities$206,102 $215 $(12,644)$193,673 
Investment equity securities:
Equity securities$1,350 $— $(208)$1,142 

The following tables show the Company’s gross unrealized losses and fair value, aggregated by investment category and length of time, that the individual debt securities have been in a continuous unrealized loss position, at September 30, 2023 and December 31, 2022.
 September 30, 2023
 Less than Twelve MonthsTwelve Months or GreaterTotal
  Gross Gross Gross
 FairUnrealizedFairUnrealizedFairUnrealized
(In Thousands)ValueLossesValueLossesValueLosses
Available for sale (AFS):
U.S. Government and agency securities$967 $(33)$2,897 $(104)$3,864 $(137)
Mortgage-backed securities10,263 (454)1,125 (251)11,388 (705)
State and political securities19,050 (1,013)97,522 (8,164)116,572 (9,177)
Other debt securities10,596 (348)35,841 (3,413)46,437 (3,761)
Total debt securities$40,876 $(1,848)$137,385 $(11,932)$178,261 $(13,780)
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 December 31, 2022
 Less than Twelve MonthsTwelve Months or GreaterTotal
  Gross Gross Gross
 FairUnrealizedFairUnrealizedFairUnrealized
(In Thousands)ValueLossesValueLossesValueLosses
Available for sale (AFS):
U.S. Government and agency securities$2,896 $(106)$— $— $2,896 $(106)
Mortgage-backed securities— — 1,282 (214)1,282 (214)
State and political securities95,444 (4,797)36,283 (3,977)131,727 (8,774)
Other debt securities16,896 (664)25,144 (2,886)42,040 (3,550)
Total debt securities$115,236 $(5,567)$62,709 $(7,077)$177,945 $(12,644)