NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 — OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Penns Woods Bancorp, Inc. and its wholly owned subsidiaries, Jersey Shore State Bank (“JSSB”), Luzerne Bank ("Luzerne" and collectively with JSSB , the "Banks"), Woods Real Estate Development Co., Inc., Woods Investment Company, Inc., The M Group Inc. D/B/A The Comprehensive Financial Group (“The M Group”), a wholly owned subsidiary of JSSB and an eighty percent owned subsidiary, United Insurance Solutions, LLC, (collectively, the “Corporation”). All significant intercompany balances and transactions have been eliminated.
Nature of Business
The Banks engage in a full-service commercial banking business, making available to the community a wide range of financial services including, but not limited to, installment loans, credit cards, mortgage and home equity loans, lines of credit, construction financing, farm loans, community development loans, loans to non-profit entities and local government, and various types of demand and time deposits including, but not limited to, checking accounts, savings accounts, money market deposit accounts, certificates of deposit, and IRAs. Deposits are insured by the Federal Deposit Insurance Corporation (“FDIC”) to the extent provided by law.
The financial services are provided by the Banks to individuals, partnerships, non-profit organizations, and corporations through their twenty-seven offices located in Clinton, Lycoming, Centre, Montour, Union, Blair, and Luzerne Counties, Pennsylvania.
Woods Real Estate Development Co., Inc. engages in real estate transactions on behalf of Penns Woods Bancorp, Inc. and the Banks.
Woods Investment Company, Inc., a Delaware holding company, is engaged in investing activities.
The M Group engages in securities brokerage and financial planning services, which include the sale of life insurance products, annuities, and estate planning services.
United Insurance Solutions, LLC offers property and casualty and auto insurance products within the Corporation's market footprint.
Operations are managed and financial performance is evaluated on a corporate-wide basis. Accordingly, all financial service operations are considered by management to be aggregated in one reportable operating segment.
Use of Estimates
The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates.
Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan losses, valuation of net deferred tax assets, impairment of goodwill, other than temporary impairment of debt and equity securities, fair value of financial instruments, and the valuation of real estate acquired through, or in lieu of, foreclosure on settlement of debt.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and in banks and federal funds sold. Interest-earning deposits mature within 90 days and are carried at cost. Net cash flows are reported for loan, deposit, and short-term borrowing transactions.
Restrictions on Cash and Cash Equivalents
Based on deposit levels, the Banks must maintain cash and other reserves with the Federal Reserve Bank of Philadelphia ("FRB").
Investment Securities
Investment securities are classified at the time of purchase, based on management’s intention and ability, as securities held to maturity, securities available for sale, or securities held for trading. Debt securities acquired with the intent and ability to hold to maturity are stated at cost, adjusted for amortization of premium and accretion of discount, which are computed using the interest method and recognized as adjustments of interest income. Certain other debt securities have been classified as available for sale to serve principally as a source of liquidity. Unrealized holding gains and losses for available for sale securities are reported as a separate component of shareholders’ equity, net of tax, until realized. Equity securities are carried at fair value. Unrealized holding gains and losses for equity securities are recognized as a separate component within the income statement. Realized security gains and losses are computed using the specific identification method for debt securities and the average cost method for marketable equity securities. Interest and dividends on investment securities are recognized as income when earned.
Securities are periodically reviewed for other-than-temporary impairment based upon a number of factors, including, but not limited to, the length of time and extent to which the fair value has been less than cost, the financial condition of the underlying issuer, the ability of the issuer to meet contractual obligations, the likelihood of the security’s ability to recover any decline in its fair value, whether it is more likely than not that the Corporation would be required to sell the security before its anticipated recovery in fair value, and a review of the Corporation’s capital adequacy, interest rate risk position, and liquidity. The assessment of a security’s ability to recover any decline in fair value, the ability of the issuer to meet contractual obligations, and management’s intent and ability requires considerable judgment. A decline in value that is considered to be other-than-temporary is recorded as a loss within non-interest income in the Consolidated Statement of Income.
Fair values of investment securities are based on observed market prices. Certain investment securities do not have observed bid prices and their fair value is based on instruments with similar risk elements. Since regulatory stock is redeemable at par, the Corporation carries it at cost.
Loans
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff generally are stated at the principal amount outstanding, net of deferred fees and discounts, unamortized loan fees and costs, and the allowance for loan losses. Interest on loans is recognized as income when earned on the accrual method. The Corporation’s general policy has been to stop accruing interest on loans when it is determined a reasonable doubt exists as to the collectability of additional interest. Income is subsequently recognized only to the extent that cash payments are received provided the loan is not delinquent in payment and, in management’s judgment, the borrower has the ability and intent to make future principal payments. Otherwise, payments are applied to the unpaid principal balance of the loan. Loans are restored to accrual status if certain conditions are met, including but not limited to, the repayment of all unpaid interest and scheduled principal due, ongoing performance consistent with the contractual agreement, and the future expectation of continued, timely payments.
Loan origination and commitment fees as well as certain direct loan origination costs are being deferred and amortized as an adjustment to the related loan’s yield over the contractual lives of the related loans.
Allowance for Loan Losses
The allowance for loan losses represents the amount which management estimates is adequate to provide for probable losses inherent in its loan portfolio as of the Consolidated Balance Sheet date. The allowance method is used in providing for loan losses. Accordingly, all loan losses are charged to the allowance and all recoveries are credited to it. The allowance for loan losses is established through a provision for loan losses charged to operations. The provision for loan losses is based upon management’s quarterly review of the loan portfolio. The purpose of the review is to assess loan quality, identify impaired loans, analyze delinquencies, ascertain loan growth, evaluate potential charge-offs and recoveries, and assess general economic conditions in the markets served. An external independent loan review is also performed semi-annually for the Bank. Management remains committed to an aggressive program of problem loan identification and resolution.
The allowance is calculated by applying loss factors to outstanding loans by type, excluding loans for which a specific allowance has been determined. Loss factors are based on management’s consideration of the nature of the portfolio segments, changes in mix and volume of the loan portfolio, historical loan loss experience, and general economic conditions. In addition, management considers industry standards and trends with respect to nonperforming loans and its knowledge and experience with specific lending segments.
Although management believes that it uses the best information available to make such determinations and that the allowance for loan losses is adequate at December 31, 2020, future adjustments could be necessary if circumstances or economic
conditions differ substantially from the assumptions used in making the initial determinations. A downturn in the local economy, rising unemployment, or negative performance trends in financial information from borrowers could be indicators of subsequent increased levels of nonperforming assets and possible charge-offs, which would normally require increased loan loss provisions. An integral part of the periodic regulatory examination process is the review of the adequacy of the Banks' loan loss allowance. The regulatory agencies could require the Banks, based on their evaluation of information available at the time of their examination, to provide additional loan loss provisions to further supplement the allowance.
Impaired loans are commercial and commercial real estate loans for which it is probable the Banks will not be able to collect all amounts due according to the contractual terms of the loan agreement. The Banks individually evaluate such loans for impairment and do not aggregate loans by major risk classifications. The definition of “impaired loans” is not the same as the definition of “nonaccrual loans,” although the two categories overlap. The Banks may choose to place a loan on nonaccrual status due to payment delinquency or uncertain collectability, while not classifying the loan as impaired if the loan is not a commercial or commercial real estate loan. Factors considered by management in determining impairment include payment status and collateral value. The amount of impairment for these types of loans is determined by the difference between the present value of the expected cash flows related to the loan, using the original interest rate, and its recorded value, or as a practical expedient in the case of collateralized loans, the difference between the fair value of the collateral and the recorded amount of the loans. When foreclosure is probable, impairment is measured based on the fair value of the collateral.
Mortgage loans on one-to-four family properties and all consumer loans are large groups of smaller-balance homogeneous loans and are measured for impairment collectively. Loans that experience insignificant payment delays, which are defined as 90 days or less, generally are not classified as impaired. Management determines the significance of payment delays on a case-by-case basis taking into consideration all circumstances surrounding the loan and the borrower including the length of the delay, the borrower’s prior payment record, and the amount of shortfall in relation to the principal and interest owed.
Loan Charge-off Policies
Loans are generally fully or partially charged down to the fair value of collateral securing the asset when:
• management judges the asset to be uncollectible;
•repayment is deemed to be protracted beyond reasonable time frames;
•the asset has been classified as a loss by either the internal loan review process or external examiners;
•the borrower has filed bankruptcy and the loss becomes evident due to a lack of assets; or
•the loan is 180 days past due unless both well secured and in the process of collection.
Troubled Debt Restructurings
In situations where, for economic or legal reasons related to a borrower’s financial difficulties, management may grant a concession for other than an insignificant period of time to the borrower that would not otherwise be considered, the related loan is classified as a troubled debt restructuring ("TDR"). Management strives to identify borrowers in financial difficulty early and work with them to modify to more affordable terms before their loan reaches nonaccrual status. These modified terms may include rate reductions, principal forgiveness, payment forbearance, and other actions intended to minimize the economic loss and to avoid foreclosure or repossession of the collateral. In cases where borrowers are granted new terms that provide for a reduction of either interest or principal, management measures any impairment on the restructuring as noted above for impaired loans.
In addition to the allowance for the pooled portfolios, management has developed a separate allowance for loans that are identified as impaired through a TDR. These loans are excluded from pooled loss forecasts and a separate reserve is provided under the accounting guidance for loan impairment. Consumer loans whose terms have been modified in a TDR are also individually analyzed for estimated impairment.
Loans Held for Sale
In general, fixed rate residential mortgage loans originated by the Banks are held for sale and are carried at cost due to their short holding period, which can range from less than two weeks to a maximum of thirty days. Sold loans are not serviced by the Banks. Proceeds from the sale of loans in excess of the carrying value are accounted for as a gain. Total gains on the sale of loans are shown as a component of non-interest income within the Consolidated Statement of Income.
Foreclosed Assets
Foreclosed assets are carried at the lower of cost or fair value less estimated selling costs. Prior to foreclosure, the value of the underlying loan is written down to the fair value of the real estate to be acquired by a charge to the allowance for loan losses, if necessary. Any subsequent write-downs are charged against operating expenses. Net operating expenses and gains and losses realized from disposition are included in non-interest expense and income, respectively, within the Consolidated Statement of Income.
Premises and Equipment
Land is carried at cost. Premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed using straight-line and accelerated methods over the estimated useful lives of the related assets, which range from five to ten years for furniture, fixtures, and equipment and fifteen to forty years for buildings and improvements. Costs incurred for routine maintenance and repairs are charged to operations as incurred. Costs of major additions and improvements are capitalized.
Bank-Owned Life Insurance
The Corporation has purchased life insurance policies on certain officers and directors. Bank-owned life insurance is recorded at its cash surrender value, or the amount that can be realized. Increases in the cash surrender value are recognized as a component of non-interest income within the Consolidated Statement of Income.
Goodwill
The Corporation performs an annual impairment analysis of goodwill for its purchased subsidiaries, Luzerne and The M Group. Based on the fair value of these reporting units, estimated using the expected present value of future cash flows, no impairment of goodwill was recognized in 2020, 2019, or 2018.
Intangible Assets
At December 31, 2020, the Corporation had intangible assets of $156,000 as a result of the acquisition of Luzerne National Bank Corporation, which is net of accumulated amortization of $1,859,000. These intangible assets will continue to be amortized using the sum-of-the-years digits method of amortization over ten years. The Corporation also had intangible assets of $515,000, which is net of accumulated amortization of $505,000, as a result of the purchase of two books of business related to investment product sales. The book of business intangible is being amortized using the straight-line method over a period of ten years.
Investments in Limited Partnerships
The Corporation was a limited partner in one partnership at December 31, 2020 that will provide low income elderly housing in the Corporation’s geographic market area once construction is complete. The carrying value of the Corporation’s investment in the limited partnership was $3,944,000 at December 31, 2020 and $597,000 at December 31, 2019. The investment will be amortized over the ten-year tax credit receipt period. The partnership will be amortized once the project reaches the level of occupancy needed to begin the ten year tax credit recognition period. During 2020 the Corporation exited a partnership that provides low income elderly housing. This limited partnership had a carrying value of $33,000 at December 31, 2019 and had amortization of $33,000, $184,000, and $184,000 for 2020, 2019, and 2018, respectively.
Off-Balance Sheet Financial Instruments
In the ordinary course of business, the Corporation enters into off-balance sheet financial instruments. Those instruments consist of commitments to extend credit and standby letters of credit. When those instruments are funded or become payable, the Corporation reports the amounts in its financial statements.
Marketing Cost
Marketing costs are generally expensed as incurred.
Income Taxes
The Corporation prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Benefits from tax positions should be recognized in the financial statements only when it is more likely than not that the tax position will be sustained upon examination by the appropriate taxing authority that would have full knowledge of all relevant information. A tax position that meets the more-likely-than-not recognition threshold is measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not recognition threshold should be derecognized in the first subsequent financial reporting period in which that threshold is no longer met.
Deferred tax assets and liabilities result from temporary differences in financial and income tax methods of accounting, and are reflected at currently enacted income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. The Corporation analyzed its deferred tax asset position and determined that there was not a need for a valuation allowance due to the Corporation’s ability to generate future ordinary and capital taxable income.
The Corporation when applicable recognizes interest and penalties on income taxes as a component of income tax provision.
Earnings Per Share
The Corporation provides dual presentation of basic and diluted earnings per share. Basic earnings per share is calculated utilizing net income as reported in the numerator and weighted average shares outstanding in the denominator. The computation of diluted earnings per share differs in that the dilutive effects of any stock options are adjusted in the denominator.
Employee Benefits
Pension and employee benefits include contributions, determined actuarially, to a defined benefit retirement plan covering the eligible employees of JSSB. The plan is funded on a current basis to the extent that it is deductible under existing federal tax regulations. Pension and other employee benefits also include contributions to a defined contribution Section 401(k) plan covering eligible employees. Contributions matching those made by eligible employees are funded throughout the year. In addition, an elective contribution may be made annually at the discretion of the board of directors for the employees of JSSB with no contributions made since 2015.
The M Group Products and Income Recognition
The M Group product line is comprised primarily of annuities, life insurance, and mutual funds. The revenues generated from life insurance sales are commission only, as The M Group does not underwrite the policies. Life insurance sales include permanent and term policies with the majority of the policies written being permanent. Term life insurance policies are written for 10, 15, 20, and 30 year terms with the majority of the policies being written for 20 years. None of these products are offered as an integral part of lending activities.
Commissions from the sale of annuities are recognized at the time notice is received from the third party broker/dealer or an insurance company that the transaction has been accepted and approved, which is also the time when commission income is received.
Life insurance commissions are recognized at varying points based on the payment option chosen by the customer. Commissions from monthly and annual payment plans are recognized at the start of each annual period for the life insurance, while quarterly and semi-annual premium payments are recognized quarterly and semi-annually when the earnings process is complete. For example, semi-annual payments on the first of January and July would result in commission income recognition on the first of January and July, while payments on the first of January, April, July, and October would result in commission income recognition on those dates. The potential for chargebacks only exists for those policies on a monthly payment plan since income is recognized at the beginning of the annual coverage period versus at the time of each monthly payment. No liability is maintained for chargebacks as these are removed from income at the time of the occurrence.
Accumulated Other Comprehensive Income (Loss)
The Corporation is required to present accumulated other comprehensive income (loss) in a full set of general-purpose financial statements for all periods presented. Accumulated other comprehensive income (loss) is comprised of unrealized holding gains (losses) on the available for sale securities portfolio and the unrecognized components of net periodic benefit costs of the defined benefit pension plan.
Segment Reporting
The Corporation has determined that its only reportable segment is Community Banking.
Reclassification of Comparative Amounts
Certain items previously reported have been reclassified to conform to the current year’s reporting format. Such reclassifications did not affect net income or shareholders’ equity.
Recent Accounting Pronouncements Not Yet Adopted
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments, which changes the impairment model for most financial assets. This Update is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The underlying premise of the Update is that financial assets measured at amortized cost should be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The allowance for credit losses should reflect management’s current estimate of credit losses that are expected to occur over the remaining life of a financial asset. The income statement will be affected for the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. With certain exceptions, transition to the new requirements will be through a cumulative-effect adjustment to opening retained earnings as of the beginning of the first reporting period in which the guidance is adopted. This Update is effective for SEC filers that are eligible to be smaller reporting companies, non-SEC filers, and all other companies, to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. We expect to recognize a one-time cumulative-effect adjustment to the allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective but cannot yet determine the magnitude of any such one-time adjustment or the overall impact of the new guidance on the consolidated financial statements.
In 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 August 2018, the FASB issued ASU 2018-14, Compensation – Retirement Benefits (Topic 715-20). This Update amends ASC 715 to add, remove, and clarify disclosure requirements related to defined benefit pension and other postretirement plans. The Update eliminates the requirement to disclose the amounts in accumulated other comprehensive income expected to be recognized as part of net periodic benefit cost over the next year. The Update also removes the disclosure requirements for the effects of a one-percentage-point change on the assumed health care costs and the effect of this change in rates on service cost, interest cost, and the benefit obligation for postretirement health care benefits. This Update is effective for public business entities for fiscal years ending after December 15, 2020, and must be applied on a retrospective basis. For all other entities, this Update is effective for fiscal years ending after December 15, 2021. This Update did not have a significant impact on the Company’s financial statements.
In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Derivatives, and Hedging (Topic 815); and Financial Instruments (Topic 825), which affects a variety of topics in the Codification and applies to all reporting entities within the scope of the affected accounting guidance. ASU 2019-04 makes clarifying amendments to certain financial instrument standards. For entities that have not yet adopted ASU 2016-13, the
effective dates for the amendments related to ASU 2016-13 are the same as the effective dates in ASU 2016-13. For entities that have adopted ASU 2016-13, the amendments related to ASU 2016-13 are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. For entities that have not yet adopted ASU 2017-12 as of April 25, 2019, the effective dates for the amendments to Topic 815 are the same as the effective dates in ASU 2017-12. For entities that have adopted ASU 2017-12 as of April 25, 2019, the effective date is as of the beginning of the first annual period beginning after April 25, 2019. The amendments related to ASU 2016-01 are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company qualifies as a smaller reporting company and does not expect to early adopt these ASUs.
In May 2019, the FASB issued ASU 2019-05, Financial Instruments – Credit Losses (Topic 326), which allows entities to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost upon adoption of the new credit losses standard. To be eligible for the transition election, the existing financial asset must otherwise be both within the scope of the new credit losses standard and eligible for applying the fair value option in ASC 825-10.3. The election must be applied on an instrument-by-instrument basis and is not available for either available-for-sale or held-to-maturity debt securities. For entities that elect the fair value option, the difference between the carrying amount and the fair value of the financial asset would be recognized through a cumulative-effect adjustment to opening retained earnings as of the date an entity adopted ASU 2016-13. Changes in fair value of that financial asset would subsequently be reported in current earnings. For entities that have not yet adopted the credit losses standard, the ASU is effective when they implement the credit losses standard. For entities that already have adopted the credit losses standard, the ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company qualifies as a smaller reporting company and does not expect to early adopt ASU 2016-13.
In November 2019, the FASB issued ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, to clarify its new credit impairment guidance in ASC 326, based on implementation issues raised by stakeholders. This Update clarified, among other things, that expected recoveries are to be included in the allowance for credit losses for these financial assets; an accounting policy election can be made to adjust the effective interest rate for existing troubled debt restructurings based on the prepayment assumptions instead of the prepayment assumptions applicable immediately prior to the restructuring event; and extends the practical expedient to exclude accrued interest receivable from all additional relevant disclosures involving amortized cost basis. For entities that have not yet adopted ASU 2016-13 as of November 26, 2019, the effective dates for ASU 2019-11 are the same as the effective dates and transition requirements in ASU 2016-13. For entities that have adopted ASU 2016-13, ASU 2019-11 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company qualifies as a smaller reporting company and does not expect to early adopt these ASUs.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), to simplify the accounting for income taxes, change the accounting for certain tax transactions, and make minor improvements to the codification. This Update provides a policy election to not allocate consolidated income taxes when a member of a consolidated tax return is not subject to income tax and provides guidance to evaluate whether a step-up in tax basis of goodwill relates to a business combination in which book goodwill was recognized or was a separate transaction. The Update also changes current guidance for making an intraperiod allocation if there is a loss in continuing operations and gains outside of continuing operations, determining when a deferred tax liability is recognized after an investor in a foreign entity transitions to or from the equity method of accounting, accounting for tax law changes and year-to-date losses in interim periods, and determining how to apply the income tax guidance to franchise taxes that are partially based on income. For public business entities, the amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. This Update is not expected to have a significant impact on the Company’s financial statements.
In January 2020, the FASB issued ASU 2020-01, Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815), to clarify that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting, for the purposes of applying the measurement alternative, in accordance with Topic 321, immediately before applying or upon discontinuing the equity method. The amendments also clarify that, for the purpose of applying paragraph 815-10-15-141 (a), an entity should not consider whether, upon the settlement of the forward contract or exercise of the purchased option, individually or with existing investments, the underlying securities would be accounted for under the equity method in Topic 323 or the fair value option, in accordance with the financial instruments guidance in Topic 825. An entity also would evaluate the remaining characteristics in paragraph 815-10-15-141 to determine the accounting for those forward contracts and purchased options. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2021, 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 2020, the FASB issued ASU 2020-03, Codification Improvements to Financial Instruments. This ASU was issued to improve and clarify various financial instruments topics, including the current expected credit losses (CECL) standard issued in 2016. The ASU includes seven issues that describe the areas of improvement and the related amendments to GAAP; they are intended to make the standards easier to understand and apply and to eliminate inconsistencies, and they are narrow in scope and are not expected to significantly change practice for most entities. Among its provisions, the ASU clarifies that all entities, other than public business entities that elected the fair value option, are required to provide certain fair value disclosures under ASC 825, Financial Instruments, in both interim and annual financial statements. It also clarifies that the contractual term of a net investment in a lease under Topic 842 should be the contractual term used to measure expected credit losses under Topic 326. Amendments related to ASU 2019-04 are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is not permitted before an entity’s adoption of ASU 2016-01. Amendments related to ASU 2016-13 for entities that have not yet adopted that guidance are effective upon adoption of the amendments in ASU 2016-13. Early adoption is not permitted before an entity’s adoption of ASU 2016-13. Amendments related to ASU 2016-13 for entities that have adopted that guidance are effective for fiscal years beginning after December 15, 2019, including interim periods within those years. Other amendments are effective upon issuance of this ASU. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.
In 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. It is too early to predict whether a new rate index replacement and the adoption of the ASU will have a material 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 October 2020, the FASB issued ASU 2020-08, Codification Improvements to Subtopic 310-20, Receivables – Nonrefundable Fees and Other Costs, which clarifies that, for each reporting period, an entity should reevaluate whether a callable debt security is within the scope of ASC 310-20-35-33. For public business entities, ASU 2020-08 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early application is not permitted. For all other entities, ASU 2020-08 is effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. This Update is not expected to have a significant impact on the Company’s financial statements.
In October 2020, the FASB issued ASU 2020-09, Debt (Topic 470): Amendments to SEC Paragraphs Pursuant to SEC Release No. 33-10762, which codifies, as appropriate, the amended financial statement disclosure requirements in Regulation S-X Rules 13-01 and 13-02. The amendments are effective January 4, 2021. This Update did not have a significant impact on the Company’s financial statements.
In October 2020, the FASB issued ASU 2020-10, Codification Improvements, which makes minor technical corrections and clarifications to the ASC. The amendments in Sections B and C of the ASU are effective for annual periods beginning after December 15, 2020, for public business entities. For all other entities, the amendments are effective for annual periods beginning after December 15, 2021, and interim periods within annual periods beginning after December 15, 2022. This Update is not expected to have a significant impact on the Company’s financial statements.
In November 2020, the FASB issued ASU 2020-11, Financial Services – Insurance (Topic 944), which was made in consideration of the implications of the Coronavirus Disease 2019 (COVID-19) pandemic on an insurance entity’s ability to effectively implement the amendments in Accounting Standards Update No. 2018-12, Financial Services— Insurance: Targeted Improvements to the Accounting for Long-Duration Contracts (LDTI). The amendments in this Update defer the effective date of LDTI for all entities by one year, as (1) for public business entities that meet the definition of an SEC filer and are not SRCs, LDTI is effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years; and (2) for all other entities, LDTI is effective for fiscal years beginning after December 15, 2024, and interim periods within fiscal years beginning after December 15, 2025. This Update is not expected to have a significant impact on the Company’s financial statements.
In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848), which provides optional temporary guidance for entities transitioning away from the London Interbank Offered Rate (LIBOR) and other interbank offered rates (IBORs) to new references rates so that derivatives affected by the discounting transition are explicitly eligible for certain optional expedients and exceptions within Topic 848. ASU 2021-01 clarifies that the derivatives affected by the discounting transition are explicitly eligible for certain optional expedients and exceptions in Topic 848. ASU 2021-01 is effective immediately for all entities. Entities may elect to apply the amendments on a full retrospective basis as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or on a prospective basis to new modifications from any date within an interim period that includes or is subsequent to the date of the issuance of a final update, up to the date that financial statements are available to be issued. The amendments in this update do not apply to contract modifications made, as well as new hedging relationships entered into, after December 31, 2022, and to existing hedging relationships evaluated for effectiveness for periods after December 31, 2022, except for certain hedging relationships existing as of December 31, 2022, that apply certain optional expedients in which the accounting effects are recorded through the end of the hedging relationship. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.
Stock Split
On September 30, 2019, the Company completed a three-for-two stock split (the “Stock Split”) of the Company’s common stock. As a result of the Stock Split, on September 30, 2019, each share of the Company’s common stock issued at that time was changed into one and one-half shares of the Company’s common stock with a stated par value of $5.55 per share. All share and per share amounts in this release, including in the accompanying financial statements and information, have been restated for all periods presented to give retroactive effect to the Stock Split.
NOTE 2 - ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The changes in accumulated other comprehensive income (loss) by component shown, net of tax and parenthesis indicating debits to net income, as of December 31, 2020, 2019, and 2018 were as follows:
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended
December 31, 2020
|
|
Twelve Months Ended
December 31, 2019
|
|
Twelve Months Ended
December 31, 2018
|
(In Thousands)
|
|
Net Unrealized Gain (Loss) on Available
for Sale Securities*
|
|
Defined
Benefit
Plan*
|
|
Total*
|
|
Net Unrealized Gain (Loss) on Available
for Sale Securities*
|
|
Defined
Benefit
Plan*
|
|
Total*
|
|
Net Unrealized Gain (Loss) on Available
for Sale Securities*
|
|
Defined
Benefit
Plan*
|
|
Total*
|
Beginning balance
|
|
$
|
2,455
|
|
|
$
|
(5,232)
|
|
|
$
|
(2,777)
|
|
|
$
|
(1,360)
|
|
|
$
|
(5,276)
|
|
|
$
|
(6,636)
|
|
|
$
|
(54)
|
|
|
$
|
(4,920)
|
|
|
$
|
(4,974)
|
|
Other comprehensive income (loss) before reclassifications
|
|
3,517
|
|
|
(510)
|
|
|
3,007
|
|
|
4,321
|
|
|
(104)
|
|
|
4,217
|
|
|
(806)
|
|
|
(486)
|
|
|
(1,292)
|
|
Amounts reclassified from accumulated other comprehensive (loss) income
|
|
(1,258)
|
|
|
146
|
|
|
(1,112)
|
|
|
(506)
|
|
|
148
|
|
|
(358)
|
|
|
37
|
|
|
130
|
|
|
167
|
|
Net current-period other comprehensive income (loss)
|
|
2,259
|
|
|
(364)
|
|
|
1,895
|
|
|
3,815
|
|
|
44
|
|
|
3,859
|
|
|
(769)
|
|
|
(356)
|
|
|
(1,125)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification from
adoption of 2016-01
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(537)
|
|
|
—
|
|
|
(537)
|
|
Ending balance
|
|
$
|
4,714
|
|
|
$
|
(5,596)
|
|
|
$
|
(882)
|
|
|
$
|
2,455
|
|
|
$
|
(5,232)
|
|
|
$
|
(2,777)
|
|
|
$
|
(1,360)
|
|
|
$
|
(5,276)
|
|
|
$
|
(6,636)
|
|
The adoption of ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities requires equity securities to run through the income statement and therefore the reclassification of prior accumulated losses are reflected above.
The reclassifications out of accumulated other comprehensive income shown, net of tax and parenthesis indicating debits to net income, as of December 31, 2020, 2019, and 2018 were as follows:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands)
|
|
Amount Reclassified from Accumulated Other Comprehensive Income
|
|
|
Details about Accumulated Other Comprehensive Income Components
|
|
Twelve Months Ended
|
|
Affected Line Item
in the Consolidated
Statement of Income
|
|
December 31, 2020
|
|
December 31, 2019
|
|
December 31, 2018
|
|
Net realized gain (loss) on available for sale securities
|
|
$
|
1,592
|
|
|
$
|
640
|
|
|
$
|
(47)
|
|
|
Net debt securities gains (losses), net available for sale
|
Income tax effect
|
|
(334)
|
|
|
(134)
|
|
|
10
|
|
|
Income tax provision
|
|
|
$
|
1,258
|
|
|
$
|
506
|
|
|
$
|
(37)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrecognized pension expense
|
|
$
|
(185)
|
|
|
$
|
(187)
|
|
|
$
|
(165)
|
|
|
Other non-interest expense
|
Income tax effect
|
|
39
|
|
|
39
|
|
|
35
|
|
|
Income tax provision
|
|
|
$
|
(146)
|
|
|
$
|
(148)
|
|
|
$
|
(130)
|
|
|
|
NOTE 3 - PER SHARE DATA
There are no convertible securities which would affect the denominator in calculating basic and dilutive earnings per share; therefore, net income as presented on the consolidated statement of income will be used as the numerator. The following table sets forth the composition of the weighted average common shares (denominator) used in the basic and dilutive per share computation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
Weighted average common shares issued
|
|
7,524,767
|
|
|
7,518,939
|
|
|
7,515,606
|
|
Average treasury stock shares
|
|
(480,225)
|
|
|
(480,225)
|
|
|
(480,225)
|
|
Weighted average common shares outstanding - basic
|
|
7,044,542
|
|
|
7,038,714
|
|
|
7,035,381
|
|
Dilutive effect of outstanding stock options
|
|
—
|
|
|
74,625
|
|
|
—
|
|
Weighted average common shares outstanding - diluted
|
|
7,044,542
|
|
|
7,113,339
|
|
|
7,035,381
|
|
There were a total of 841,275 non-qualified employee stock options (Note 14) outstanding on December 31, 2020 that had a weighted average strike price of $28.17. Options on December 31, 2019 had an average strike price of $29.29 with a total of 625,800 options outstanding. Grants outstanding at year-end 2018 totaled to 395,550 options with an average strike price of $30.08. Grants were included, on a weighted average basis, in the computation of diluted earnings per share for the 2019 period for grants where the average market price of common shares exceeded the strike price of the options. These options were excluded, on a weighted average basis, in the computation of diluted earnings per share for the 2020 and 2018 periods presented due to the average market price of common shares being less than the strike price of the options.
NOTE 4 - INVESTMENT SECURITIES
The amortized cost, gross gains and losses, and fair values of investment securities at December 31, 2020 and 2019 are as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
(In Thousands)
|
|
Amortized Cost
|
|
Gross Unrealized Gains
|
|
Gross Unrealized Losses
|
|
Fair Value
|
Available for sale (AFS):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
$
|
2,118
|
|
|
$
|
23
|
|
|
$
|
—
|
|
|
$
|
2,141
|
|
|
|
|
|
|
|
|
|
|
State and political securities
|
|
102,690
|
|
|
5,382
|
|
|
(59)
|
|
|
108,013
|
|
Other debt securities
|
|
51,486
|
|
|
828
|
|
|
(207)
|
|
|
52,107
|
|
Total debt securities
|
|
$
|
156,294
|
|
|
$
|
6,233
|
|
|
$
|
(266)
|
|
|
$
|
162,261
|
|
|
|
|
|
|
|
|
|
|
Investment equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other equity securities
|
|
$
|
1,300
|
|
|
$
|
10
|
|
|
$
|
(22)
|
|
|
$
|
1,288
|
|
Total equity securities
|
|
$
|
1,300
|
|
|
$
|
10
|
|
|
$
|
(22)
|
|
|
$
|
1,288
|
|
|
|
|
|
|
|
|
|
|
Trading:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other equity securities
|
|
$
|
50
|
|
|
$
|
—
|
|
|
$
|
(10)
|
|
|
$
|
40
|
|
Trading investment equity securities
|
|
$
|
50
|
|
|
$
|
—
|
|
|
$
|
(10)
|
|
|
$
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
(In Thousands)
|
|
Amortized Cost
|
|
Gross Unrealized Gains
|
|
Gross Unrealized Losses
|
|
Fair Value
|
Available for sale (AFS):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
$
|
4,956
|
|
|
$
|
56
|
|
|
$
|
(46)
|
|
|
$
|
4,966
|
|
|
|
|
|
|
|
|
|
|
State and political securities
|
|
79,064
|
|
|
3,299
|
|
|
(77)
|
|
|
82,286
|
|
Other debt securities
|
|
61,492
|
|
|
401
|
|
|
(526)
|
|
|
61,367
|
|
Total debt securities
|
|
$
|
145,512
|
|
|
$
|
3,756
|
|
|
$
|
(649)
|
|
|
$
|
148,619
|
|
|
|
|
|
|
|
|
|
|
Investment equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other equity securities
|
|
$
|
1,300
|
|
|
$
|
—
|
|
|
$
|
(39)
|
|
|
$
|
1,261
|
|
Total equity securities
|
|
$
|
1,300
|
|
|
$
|
—
|
|
|
$
|
(39)
|
|
|
$
|
1,261
|
|
|
|
|
|
|
|
|
|
|
Trading:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other equity securities
|
|
$
|
50
|
|
|
$
|
3
|
|
|
$
|
(2)
|
|
|
$
|
51
|
|
Trading investment equity securities
|
|
$
|
50
|
|
|
$
|
3
|
|
|
$
|
(2)
|
|
|
$
|
51
|
|
|
|
|
|
|
|
|
|
|
The following tables show the Corporation’s gross unrealized losses and fair value, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position, at December 31, 2020 and 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
Less than Twelve Months
|
|
Twelve Months or Greater
|
|
Total
|
|
|
|
|
Gross
|
|
|
|
Gross
|
|
|
|
Gross
|
|
|
Fair
|
|
Unrealized
|
|
Fair
|
|
Unrealized
|
|
Fair
|
|
Unrealized
|
(In Thousands)
|
|
Value
|
|
Losses
|
|
Value
|
|
Losses
|
|
Value
|
|
Losses
|
Available for sale (AFS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and political securities
|
|
$
|
12,311
|
|
|
$
|
(51)
|
|
|
$
|
900
|
|
|
$
|
(8)
|
|
|
$
|
13,211
|
|
|
$
|
(59)
|
|
Other debt securities
|
|
5,964
|
|
|
(74)
|
|
|
4,429
|
|
|
(133)
|
|
|
10,393
|
|
|
(207)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Debt Securities AFS
|
|
$
|
18,275
|
|
|
$
|
(125)
|
|
|
$
|
5,329
|
|
|
$
|
(141)
|
|
|
$
|
23,604
|
|
|
$
|
(266)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
Less than Twelve Months
|
|
Twelve Months or Greater
|
|
Total
|
|
|
|
|
Gross
|
|
|
|
Gross
|
|
|
|
Gross
|
|
|
Fair
|
|
Unrealized
|
|
Fair
|
|
Unrealized
|
|
Fair
|
|
Unrealized
|
(In Thousands)
|
|
Value
|
|
Losses
|
|
Value
|
|
Losses
|
|
Value
|
|
Losses
|
Available for sale (AFS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,115
|
|
|
$
|
(46)
|
|
|
$
|
2,115
|
|
|
$
|
(46)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and political securities
|
|
7,958
|
|
|
(40)
|
|
|
224
|
|
|
(37)
|
|
|
8,182
|
|
|
(77)
|
|
Other debt securities
|
|
13,373
|
|
|
(216)
|
|
|
14,258
|
|
|
(310)
|
|
|
27,631
|
|
|
(526)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Debt Securities AFS
|
|
$
|
21,331
|
|
|
$
|
(256)
|
|
|
$
|
16,597
|
|
|
$
|
(393)
|
|
|
$
|
37,928
|
|
|
$
|
(649)
|
|
At December 31, 2020 there were 28 individual securities in a continuous unrealized loss position for less than twelve months and 6 individual securities in a continuous unrealized loss position for greater than twelve months.
The Corporation reviews its position quarterly and has asserted that at December 31, 2020 and 2019, the declines outlined in the above table represent temporary declines and the Corporation does not intend to sell and does not believe they will be required to sell these securities before recovery of their cost basis, which may be at maturity. The Corporation has concluded that any impairment of its investment securities portfolio is not other than temporary but is the result of interest rate changes that are not expected to result in the non-collection of principal and interest during the period.
The amortized cost and fair value of debt securities at December 31, 2020, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities since borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands)
|
|
Amortized Cost
|
|
Fair Value
|
Due in one year or less
|
|
$
|
13,518
|
|
|
$
|
13,490
|
|
Due after one year to five years
|
|
70,187
|
|
|
71,674
|
|
Due after five years to ten years
|
|
60,896
|
|
|
65,102
|
|
Due after ten years
|
|
11,693
|
|
|
11,995
|
|
Total
|
|
$
|
156,294
|
|
|
$
|
162,261
|
|
Total gross proceeds from sales of securities available for sale were $20,767,000, $23,799,000, and $19,296,000 for 2020, 2019, and 2018, respectively. The following table represents gross realized gains and losses on those transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(In Thousands)
|
|
2020
|
|
2019
|
|
2018
|
Gross realized gains:
|
|
|
|
|
|
|
U.S. Government and agency securities
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Mortgage-backed securities
|
|
83
|
|
|
—
|
|
|
27
|
|
State and political securities
|
|
978
|
|
|
544
|
|
|
19
|
|
Other debt securities
|
|
554
|
|
|
113
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross realized gains
|
|
$
|
1,615
|
|
|
$
|
657
|
|
|
$
|
49
|
|
Gross realized losses:
|
|
|
|
|
|
|
U.S. Government and agency securities
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Mortgage-backed securities
|
|
—
|
|
|
1
|
|
|
—
|
|
State and political securities
|
|
23
|
|
|
11
|
|
|
86
|
|
Other debt securities
|
|
—
|
|
|
5
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross realized losses
|
|
$
|
23
|
|
|
$
|
17
|
|
|
$
|
96
|
|
|
|
|
|
|
|
|
Gross realized gains:
|
|
|
|
|
|
|
Financial institution equity securities
|
|
$
|
—
|
|
|
$
|
52
|
|
|
$
|
—
|
|
Other equity securities
|
|
—
|
|
|
—
|
|
|
—
|
|
Total gross realized gains
|
|
$
|
—
|
|
|
$
|
52
|
|
|
$
|
—
|
|
Gross realized losses:
|
|
|
|
|
|
|
Financial institution equity securities
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Other equity securities
|
|
—
|
|
|
—
|
|
|
—
|
|
Total gross realized losses
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
There were no impairment charges included in gross realized losses for the years ended December 31, 2020, 2019, and 2018.
Investment securities with a carrying value of approximately $111,247,000 and $74,163,000 at December 31, 2020 and 2019, respectively, were pledged to secure certain deposits, repurchase agreements, and for other purposes as required by law.
Equity securities consist of Community Reinvestment Act funds along with other smaller investments in other financial institutions. At December 31, 2020 and December 31, 2019, we had $1,288,000 and $1,261,000, respectively, in equity securities recorded at fair value. The following is a summary of unrealized and realized gains and losses recognized in net income on equity securities during the years ended December 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands)
|
|
2020
|
|
2019
|
|
|
|
|
Net gain recognized in equity securities during the period
|
|
$
|
27
|
|
|
$
|
89
|
|
|
|
|
|
Less: Net gains realized on the sale of equity securities during the period
|
|
—
|
|
|
52
|
|
|
|
|
|
Unrealized gain recognized in equity securities held at reporting date
|
|
$
|
27
|
|
|
$
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gains and losses on trading account securities are as follows for the for the years ended December 31, 2020, 2019, and 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands)
|
|
2020
|
|
2019
|
|
2018
|
|
|
Net gain (losses) on sales transaction
|
|
$
|
—
|
|
|
$
|
5
|
|
|
$
|
(6)
|
|
|
|
Net mark-to-market (losses) gains
|
|
(11)
|
|
|
14
|
|
|
9
|
|
|
|
Net (loss) gain on trading account securities
|
|
$
|
(11)
|
|
|
$
|
19
|
|
|
$
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
There is no concentration of investments that exceed ten percent of shareholders’ equity for any individual issuer, excluding those guaranteed by the U.S. Government.
NOTE 5 - FEDERAL HOME LOAN BANK STOCK
The Banks are members of the Federal Home Loan Bank (“FHLB”) of Pittsburgh and as such, are required to maintain a minimum investment in stock of the FHLB that varies with the level of advances outstanding with the FHLB. The stock is bought from and sold to the FHLB based upon its $100 par value. The stock does not have a readily determinable fair value and as such is classified as restricted stock, carried at cost and evaluated for impairment as necessary. The stock’s value is determined by the ultimate recoverability of the par value rather than by recognizing temporary declines. The determination of whether the par value will ultimately be recovered is influenced by criteria such as the following: (a) the significance of the decline in net assets of the FHLB as compared to the capital stock amount and the length of time this situation has persisted (b) commitments by the FHLB to make payments required by law or regulation and the level of such payments in relation to the operating performance (c) the impact of legislative and regulatory changes on the customer base of the FHLB and (d) the liquidity position of the FHLB.
Management evaluated the stock and concluded that the stock was not impaired for the periods presented herein. Management considered that the FHLB maintains regulatory capital ratios in excess of all regulatory capital requirements, liquidity appears adequate, new shares of FHLB stock continue to change hands at the $100 par value, and the payment of dividends.
NOTE 6 - LOAN CREDIT QUALITY AND RELATED ALLOWANCE FOR LOAN LOSSES
Management segments the Banks' loan portfolio to a level that enables risk and performance monitoring according to similar risk characteristics. Loans are segmented based on the underlying collateral characteristics. Categories include commercial, financial, and agricultural, real estate, consumer automobile, and other consumer installment loans. Real estate loans are further segmented into three categories: residential, commercial, and construction.
The following table presents the related aging categories of loans, by segment, as of December 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
(In Thousands)
|
|
Current
|
|
Past Due
30 To 89
Days
|
|
Past Due 90
Days Or More
& Still Accruing
|
|
Non-Accrual
|
|
Total
|
Commercial, financial, and agricultural
|
|
$
|
163,583
|
|
|
$
|
247
|
|
|
$
|
48
|
|
|
$
|
865
|
|
|
$
|
164,743
|
|
Real estate mortgage:
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
580,292
|
|
|
6,386
|
|
|
983
|
|
|
2,060
|
|
|
589,721
|
|
Commercial
|
|
366,363
|
|
|
533
|
|
|
150
|
|
|
6,142
|
|
|
373,188
|
|
Construction
|
|
38,587
|
|
|
667
|
|
|
—
|
|
|
55
|
|
|
39,309
|
|
Consumer automobile loans
|
|
155,472
|
|
|
900
|
|
|
31
|
|
|
—
|
|
|
156,403
|
|
Other consumer installment loans
|
|
19,485
|
|
|
455
|
|
|
—
|
|
|
—
|
|
|
19,940
|
|
|
|
1,323,782
|
|
|
$
|
9,188
|
|
|
$
|
1,212
|
|
|
$
|
9,122
|
|
|
1,343,304
|
|
Net deferred loan fees and discounts
|
|
1,023
|
|
|
|
|
|
|
|
|
1,023
|
|
Allowance for loan losses
|
|
(13,803)
|
|
|
|
|
|
|
|
|
(13,803)
|
|
Loans, net
|
|
$
|
1,311,002
|
|
|
|
|
|
|
|
|
$
|
1,330,524
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
(In Thousands)
|
|
Current
|
|
Past Due
30 To 89
Days
|
|
Past Due 90
Days Or More
& Still Accruing
|
|
Non-Accrual
|
|
Total
|
Commercial, financial, and agricultural
|
|
$
|
153,737
|
|
|
$
|
249
|
|
|
$
|
30
|
|
|
$
|
2,197
|
|
|
$
|
156,213
|
|
Real estate mortgage:
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
615,580
|
|
|
4,881
|
|
|
1,529
|
|
|
1,266
|
|
|
623,256
|
|
Commercial
|
|
355,597
|
|
|
775
|
|
|
164
|
|
|
6,725
|
|
|
363,261
|
|
Construction
|
|
37,871
|
|
|
131
|
|
|
—
|
|
|
65
|
|
|
38,067
|
|
Consumer automobile loans
|
|
149,703
|
|
|
709
|
|
|
—
|
|
|
105
|
|
|
150,517
|
|
Other consumer installment loans
|
|
22,124
|
|
|
579
|
|
|
324
|
|
|
16
|
|
|
23,043
|
|
|
|
1,334,612
|
|
|
$
|
7,324
|
|
|
$
|
2,047
|
|
|
$
|
10,374
|
|
|
1,354,357
|
|
Net deferred loan fees and discounts
|
|
1,187
|
|
|
|
|
|
|
|
|
1,187
|
|
Allowance for loan losses
|
|
(11,894)
|
|
|
|
|
|
|
|
|
(11,894)
|
|
Loans, net
|
|
$
|
1,323,905
|
|
|
|
|
|
|
|
|
$
|
1,343,650
|
|
The following table presents the interest income if interest had been recorded based on the original loan agreement terms and rate of interest for non-accrual loans and interest income recognized on a cash basis for non-accrual loans as of December 31, 2020, 2019, and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
(In Thousands)
|
|
Interest Income That Would Have Been Recorded Based on
Original Term and Rate
|
|
Interest
Income
Recorded on
a Cash Basis
|
|
Interest Income That
Would Have Been
Recorded Based on
Original Term and Rate
|
|
Interest
Income
Recorded on
a Cash Basis
|
|
Interest Income That
Would Have Been
Recorded Based on
Original Term and Rate
|
|
Interest
Income
Recorded on
a Cash Basis
|
Commercial, financial, and agricultural
|
|
$
|
29
|
|
|
$
|
—
|
|
|
$
|
166
|
|
|
$
|
2
|
|
|
$
|
289
|
|
|
$
|
235
|
|
Real estate mortgage:
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
21
|
|
|
28
|
|
|
158
|
|
|
33
|
|
|
123
|
|
|
88
|
|
Commercial
|
|
60
|
|
|
—
|
|
|
333
|
|
|
8
|
|
|
405
|
|
|
212
|
|
Construction
|
|
1
|
|
|
—
|
|
|
4
|
|
|
—
|
|
|
5
|
|
|
4
|
|
Consumer automobile loans
|
|
—
|
|
|
—
|
|
|
16
|
|
|
10
|
|
|
7
|
|
|
5
|
|
Other consumer installment loans
|
|
—
|
|
|
—
|
|
|
2
|
|
|
1
|
|
|
1
|
|
|
1
|
|
|
|
$
|
111
|
|
|
$
|
28
|
|
|
$
|
679
|
|
|
$
|
54
|
|
|
$
|
830
|
|
|
$
|
545
|
|
Impaired Loans
Impaired loans are loans for which it is probable the Banks will not be able to collect all amounts due according to the contractual terms of the loan agreement. The Banks individually evaluate such loans for impairment and do not aggregate loans by major risk classifications. The definition of “impaired loans” is not the same as the definition of “non-accrual loans,” although the two categories overlap. The Banks may choose to place a loan on non-accrual status due to payment delinquency or uncertain collectability, while not classifying the loan as impaired. Factors considered by management in determining impairment include payment status and collateral value. The amount of impairment for these types of loans is determined by the difference between the present value of the expected cash flows related to the loan, using the original interest rate, and its recorded value, or as a practical expedient in the case of collateralized loans, the difference between the fair value of the collateral and the recorded amount of the loan. When foreclosure is probable, impairment is measured based on the fair value of the collateral.
Management evaluates individual loans in all of the commercial segments for possible impairment if the loan is greater than $100,000 and if the loan is either on non-accrual status or has a risk rating of substandard or worse. Management may also elect to measure an individual loan for impairment if less than $100,000 on a case by case basis.
Mortgage loans on one-to-four family properties and all consumer loans are large groups of smaller-balance homogeneous loans and are measured for impairment collectively with the exception of loans identified as troubled debt restructurings. Loans that experience insignificant payment delays, which are defined as 90 days or less, generally are not classified as impaired. Management determines the significance of payment delays on a case-by-case basis taking into consideration all circumstances surrounding the loan and the borrower including the length of the delay, the borrower’s prior payment record, and the amount of shortfall in relation to the principal and interest owed. Interest income for impaired loans is recorded consistent to the Banks' policy.
The following table presents the recorded investment, unpaid principal balance, and related allowance of impaired loans by segment as of December 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
(In Thousands)
|
|
Recorded Investment
|
|
Unpaid Principal Balance
|
|
Related Allowance
|
With no related allowance recorded:
|
|
|
|
|
|
|
Commercial, financial, and agricultural
|
|
$
|
865
|
|
|
$
|
3,652
|
|
|
$
|
—
|
|
Real estate mortgage:
|
|
|
|
|
|
|
Residential
|
|
5,023
|
|
|
5,023
|
|
|
—
|
|
Commercial
|
|
6,354
|
|
|
6,354
|
|
|
—
|
|
Construction
|
|
124
|
|
|
124
|
|
|
—
|
|
Consumer automobile loans
|
|
—
|
|
|
—
|
|
|
—
|
|
Other consumer installment loans
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
12,366
|
|
|
15,153
|
|
|
—
|
|
With an allowance recorded:
|
|
|
|
|
|
|
Commercial, financial, and agricultural
|
|
—
|
|
|
—
|
|
|
—
|
|
Real estate mortgage:
|
|
|
|
|
|
|
Residential
|
|
1,294
|
|
|
1,294
|
|
|
224
|
|
Commercial
|
|
3,023
|
|
|
3,023
|
|
|
811
|
|
Construction
|
|
—
|
|
|
—
|
|
|
—
|
|
Consumer automobile loans
|
|
—
|
|
|
—
|
|
|
—
|
|
Other consumer installment loans
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
4,317
|
|
|
4,317
|
|
|
1,035
|
|
Total:
|
|
|
|
|
|
|
Commercial, financial, and agricultural
|
|
865
|
|
|
3,652
|
|
|
—
|
|
Real estate mortgage:
|
|
|
|
|
|
|
Residential
|
|
6,317
|
|
|
6,317
|
|
|
224
|
|
Commercial
|
|
9,377
|
|
|
9,377
|
|
|
811
|
|
Construction
|
|
124
|
|
|
124
|
|
|
—
|
|
Consumer automobile loans
|
|
—
|
|
|
—
|
|
|
—
|
|
Other consumer installment loans
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
$
|
16,683
|
|
|
$
|
19,470
|
|
|
$
|
1,035
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
(In Thousands)
|
|
Recorded Investment
|
|
Unpaid Principal Balance
|
|
Related Allowance
|
With no related allowance recorded:
|
|
|
|
|
|
|
Commercial, financial, and agricultural
|
|
$
|
2,285
|
|
|
$
|
5,072
|
|
|
$
|
—
|
|
Real estate mortgage:
|
|
|
|
|
|
|
Residential
|
|
5,008
|
|
|
5,008
|
|
|
—
|
|
Commercial
|
|
5,035
|
|
|
5,035
|
|
|
—
|
|
Construction
|
|
65
|
|
|
65
|
|
|
—
|
|
Consumer automobile loans
|
|
—
|
|
|
—
|
|
|
—
|
|
Other consumer installment loans
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
12,393
|
|
|
15,180
|
|
|
—
|
|
With an allowance recorded:
|
|
|
|
|
|
|
Commercial, financial, and agricultural
|
|
—
|
|
|
—
|
|
|
—
|
|
Real estate mortgage:
|
|
|
|
|
|
|
Residential
|
|
1,168
|
|
|
1,200
|
|
|
211
|
|
Commercial
|
|
3,540
|
|
|
3,590
|
|
|
1,104
|
|
Construction
|
|
—
|
|
|
—
|
|
|
—
|
|
Consumer automobile loans
|
|
130
|
|
|
130
|
|
|
62
|
|
Other consumer installment loans
|
|
16
|
|
|
16
|
|
|
16
|
|
|
|
4,854
|
|
|
4,936
|
|
|
1,393
|
|
Total:
|
|
|
|
|
|
|
Commercial, financial, and agricultural
|
|
2,285
|
|
|
5,072
|
|
|
—
|
|
Real estate mortgage:
|
|
|
|
|
|
|
Residential
|
|
6,176
|
|
|
6,208
|
|
|
211
|
|
Commercial
|
|
8,575
|
|
|
8,625
|
|
|
1,104
|
|
Construction
|
|
65
|
|
|
65
|
|
|
—
|
|
Consumer automobile loans
|
|
130
|
|
|
130
|
|
|
62
|
|
Other consumer installment loans
|
|
16
|
|
|
16
|
|
|
16
|
|
|
|
$
|
17,247
|
|
|
$
|
20,116
|
|
|
$
|
1,393
|
|
|
|
|
|
|
|
|
The following table presents the average recorded investment in impaired loans and related interest income recognized for December 31, 2020, 2019, and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
(In Thousands)
|
|
Average
Investment in
Impaired Loans
|
|
Interest Income
Recognized on an
Accrual Basis on
Impaired Loans
|
|
Interest Income
Recognized on a
Cash Basis on
Impaired Loans
|
Commercial, financial, and agricultural
|
|
$
|
1,653
|
|
|
$
|
34
|
|
|
$
|
—
|
|
Real estate mortgage:
|
|
|
|
|
|
|
Residential
|
|
5,692
|
|
|
234
|
|
|
15
|
|
Commercial
|
|
7,937
|
|
|
158
|
|
|
—
|
|
Construction
|
|
72
|
|
|
1
|
|
|
4
|
|
Consumer automobile loans
|
|
89
|
|
|
—
|
|
|
—
|
|
Other consumer installment loans
|
|
3
|
|
|
1
|
|
|
—
|
|
|
|
$
|
15,446
|
|
|
$
|
428
|
|
|
$
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
(In Thousands)
|
|
Average
Investment in
Impaired Loans
|
|
Interest Income
Recognized on an
Accrual Basis on
Impaired Loans
|
|
Interest Income
Recognized on a
Cash Basis on
Impaired Loans
|
Commercial, financial, and agricultural
|
|
$
|
4,673
|
|
|
$
|
5
|
|
|
$
|
—
|
|
Real estate mortgage:
|
|
|
|
|
|
|
Residential
|
|
4,902
|
|
|
141
|
|
|
28
|
|
Commercial
|
|
9,757
|
|
|
117
|
|
|
3
|
|
Construction
|
|
71
|
|
|
—
|
|
|
—
|
|
Consumer automobile loans
|
|
62
|
|
|
—
|
|
|
4
|
|
Other consumer installment loans
|
|
12
|
|
|
—
|
|
|
—
|
|
|
|
$
|
19,477
|
|
|
$
|
263
|
|
|
$
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
(In Thousands)
|
|
Average
Investment in
Impaired Loans
|
|
Interest Income
Recognized on an
Accrual Basis on
Impaired Loans
|
|
Interest Income
Recognized on a
Cash Basis on
Impaired Loans
|
Commercial, financial, and agricultural
|
|
$
|
2,018
|
|
|
$
|
71
|
|
|
$
|
168
|
|
Real estate mortgage:
|
|
|
|
|
|
|
Residential
|
|
3,962
|
|
|
134
|
|
|
87
|
|
Commercial
|
|
9,524
|
|
|
235
|
|
|
194
|
|
Construction
|
|
15
|
|
|
—
|
|
|
4
|
|
Consumer automobile loans
|
|
14
|
|
|
—
|
|
|
1
|
|
Other consumer installment loans
|
|
1
|
|
|
—
|
|
|
1
|
|
|
|
$
|
15,534
|
|
|
$
|
440
|
|
|
$
|
455
|
|
At December 31, 2020, additional funds totaling $5,000 are committed to be advanced in connection with impaired loans.
Modifications
The loan portfolio also includes certain loans that have been modified in a Troubled Debt Restructuring ("TDR"), where economic concessions have been granted to borrowers who have experienced or are expected to experience financial difficulties. These concessions typically result from loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance, or other actions. Certain TDRs are classified as nonperforming at the time of restructure and may only be returned to performing status after considering the borrower’s sustained repayment performance for a reasonable period, generally six months.
Loan modifications that are considered TDRs completed during the twelve months ended December 31, 2020 and 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2020
|
|
2019
|
(In Thousands, Except Number of Contracts)
|
|
Number
of
Contracts
|
|
Pre-Modification
Outstanding
Recorded
Investment
|
|
Post-Modification
Outstanding
Recorded
Investment
|
|
Number
of
Contracts
|
|
Pre-Modification
Outstanding
Recorded
Investment
|
|
Post-Modification
Outstanding
Recorded
Investment
|
Commercial, financial, and agricultural
|
|
2
|
|
|
$
|
1,028
|
|
|
$
|
1,028
|
|
|
2
|
|
|
$
|
1,221
|
|
|
$
|
1,221
|
|
Real estate mortgage:
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
2,166
|
|
|
2,166
|
|
Commercial
|
|
3
|
|
|
1,263
|
|
|
1,263
|
|
|
2
|
|
|
2,842
|
|
|
2,842
|
|
Construction
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Other consumer installment loans
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
|
5
|
|
|
$
|
2,291
|
|
|
$
|
2,291
|
|
|
5
|
|
|
$
|
6,229
|
|
|
$
|
6,229
|
|
Of the five new troubled debt restructurings that were granted for the year ended December 31, 2020, four loans totaling $1,231,000 were granted payment concessions and one loan totaling $1,060,000 was granted a rate concession.
Of the five new troubled debt restructurings that were granted for the year ended December 31, 2019, four loans totaling $4,062,000 were granted rate concessions and one loan totaling $2,167,000 was granted a payment concession.
No loan modifications considered troubled debt restructurings made during the twelve months previous to December 31, 2020 defaulted. Loan modifications considered troubled debt restructurings made during the twelve months previous to December 31, 2019, that have defaulted during the corresponding twelve month period were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2019
|
|
(In Thousands, Except Number of Contracts)
|
|
|
|
|
|
Number of Contracts
|
|
Recorded Investment
|
|
Commercial, financial, and agricultural
|
|
|
|
|
|
2
|
|
|
$
|
1,218
|
|
|
Real estate mortgage:
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
|
|
|
—
|
|
|
—
|
|
|
Commercial
|
|
|
|
|
|
1
|
|
|
1,082
|
|
|
Total
|
|
|
|
|
|
3
|
|
|
$
|
2,300
|
|
Internal Risk Ratings
Management uses a ten point internal risk rating system to monitor the credit quality of the overall loan portfolio. The first six categories are considered not criticized, and are aggregated as “Pass” rated. The criticized rating categories utilized by management generally follow bank regulatory definitions. The Special Mention category includes assets that are currently protected but are potentially weak, resulting in an undue and unwarranted credit risk, but not to the point of justifying a Substandard classification. Loans in the Substandard category have well-defined weaknesses that jeopardize the liquidation of the debt, and have a distinct possibility that some loss will be sustained if the weaknesses are not corrected. All loans greater than 90 days past due are evaluated for Substandard classification. Loans in the Doubtful category exhibit the same weaknesses found in the Substandard loans, however, the weaknesses are more pronounced. Such loans are static and collection in full is improbable. However, these loans are not yet rated as loss because certain events may occur which would salvage the debt. Loans classified Loss are considered uncollectible and charge-off is imminent.
To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay a loan as agreed, the Banks have a structured loan rating process with several layers of internal and external oversight. Generally, consumer and residential mortgage loans are included in the pass category unless a specific action, such as bankruptcy, repossession, or death occurs to raise awareness of a possible credit event. An external semi-annual loan review of large commercial relationships is performed, as well as a sample of smaller transactions. The 2020 loan review has an aggregate commercial relationship threshold of $1,750,000 which can consist of outstanding loans, commercial real estate mortgages and outstanding commitments. Detailed reviews, including plans for resolution, are performed on loans classified as substandard, doubtful, or loss on a quarterly basis.
The following table presents the credit quality categories identified above as of December 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
Commercial, Finance, and Agricultural
|
|
Real Estate Mortgages
|
|
Consumer automobile
|
|
Other consumer installment
|
|
|
(In Thousands)
|
|
|
Residential
|
|
Commercial
|
|
Construction
|
|
|
|
Totals
|
Pass
|
|
$
|
162,694
|
|
|
$
|
584,599
|
|
|
$
|
355,616
|
|
|
$
|
39,192
|
|
|
$
|
156,403
|
|
|
$
|
19,938
|
|
|
$
|
1,318,442
|
|
Special Mention
|
|
180
|
|
|
556
|
|
|
7,973
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
8,709
|
|
Substandard
|
|
1,869
|
|
|
4,566
|
|
|
9,599
|
|
|
117
|
|
|
—
|
|
|
2
|
|
|
16,153
|
|
Total
|
|
$
|
164,743
|
|
|
$
|
589,721
|
|
|
$
|
373,188
|
|
|
$
|
39,309
|
|
|
$
|
156,403
|
|
|
$
|
19,940
|
|
|
$
|
1,343,304
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
Commercial, Finance, and Agricultural
|
|
Real Estate Mortgages
|
|
Consumer automobile
|
|
Other consumer installment
|
|
|
(In Thousands)
|
|
|
Residential
|
|
Commercial
|
|
Construction
|
|
|
|
Totals
|
Pass
|
|
$
|
149,349
|
|
|
$
|
618,350
|
|
|
$
|
348,864
|
|
|
$
|
37,931
|
|
|
$
|
150,517
|
|
|
$
|
23,039
|
|
|
$
|
1,328,050
|
|
Special Mention
|
|
3,174
|
|
|
2,436
|
|
|
5,080
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
10,690
|
|
Substandard
|
|
3,690
|
|
|
2,470
|
|
|
9,317
|
|
|
136
|
|
|
—
|
|
|
4
|
|
|
15,617
|
|
Total
|
|
$
|
156,213
|
|
|
$
|
623,256
|
|
|
$
|
363,261
|
|
|
$
|
38,067
|
|
|
$
|
150,517
|
|
|
$
|
23,043
|
|
|
$
|
1,354,357
|
|
Allowance for Loan Losses
An allowance for loan losses (“ALL”) is maintained to absorb losses from the loan portfolio. The ALL is based on management’s continuing evaluation of the risk characteristics and credit quality of the loan portfolio, assessment of current economic conditions, diversification and size of the portfolio, adequacy of collateral, past and anticipated future loss experience, and the amount of non-performing loans.
The Banks' methodology for determining the ALL is based on the requirements of ASC Section 310-10-35 for loans individually evaluated for impairment (previously discussed) and ASC Subtopic 450-20 for loans collectively evaluated for impairment, as well as the Interagency Policy Statements on the Allowance for Loan and Lease Losses and other bank regulatory guidance. The total of the two components represents the Banks' ALL.
Loans that are collectively evaluated for impairment are analyzed with general allowances being made as appropriate. Allowances are segmented based on collateral characteristics previously disclosed, and consistent with credit quality monitoring. Loans that are collectively evaluated for impairment are grouped into two classes for evaluation. A general allowance is determined for “Pass” rated credits, while a separate pool allowance is provided for “Criticized” rated credits that are not individually evaluated for impairment.
For the general allowances historical loss trends are used in the estimation of losses in the current portfolio. These historical loss amounts are modified by other qualitative factors. A historical charge-off factor is calculated utilizing a twelve quarter moving average. However, management may adjust the moving average time frame by up to four quarters to adjust for variances in the economic cycle. Management has identified a number of additional qualitative factors which it uses to supplement the historical charge-off factor because these factors are likely to cause estimated credit losses associated with the existing loan pools to differ from historical loss experience. The additional factors that are evaluated quarterly and updated using information obtained from internal, regulatory, and governmental sources are: levels of and trends in delinquency rates and non-accrual loans; trends in volumes and terms of loans; effects of changes in lending policies; experience, ability, and depth of lending staff; national and economic trends and conditions; concentrations of credit from a loan type, industry, and/or geographic standpoint; value of underlying collateral on collateral depended loans; effect of other external factors; and the quality of the loan review system. During 2020, certain qualitative factors were increased to account for the economic changes, continued economic uncertainty, and level of loan payment deferrals caused by the COVID-19 pandemic.
Loans in the criticized pools, which possess certain qualities or characteristics that may lead to collection and loss issues, are closely monitored by management and subject to additional qualitative factors. Management also monitors industry loss factors by loan segment for applicable adjustments to actual loss experience.
Management reviews the loan portfolio on a quarterly basis in order to make appropriate and timely adjustments to the ALL. When information confirms all or part of specific loans to be uncollectible, these amounts are promptly charged off against the ALL.
Over the last three years, various quantitative and qualitative factors indicate changes in our provision for loan losses. The provision for commercial and agricultural loans decreased during 2020 due to levels and trends of nonaccrual loans in our portfolio and a decline in charge-offs. The change in the provision for residential real estate loans vary based on our observations of industry trends during 2020 in national and market area foreclosure rates and the impact of the COVID-19 pandemic. The provision for this loan type is adjusted by national indices as well as our historical losses. The provision for commercial and construction real estate loans increased as the economic environment has softened as the impact of the COVID-19 pandemic is felt within the markets we serve. The provision for consumer automobiles decreased slightly due to the leveling off of indirect loan volume. The provision for other consumer installment loans has decreased as the level of charge-offs has declined. The COVID-19 pandemic has resulted in various businesses operating at less than 100% capacity, an increase in the unemployment rate, and an increase in the number of loans that have been granted payment deferrals. In response to the
uncertainty in both the business and consumer sectors caused by the COVID-19 pandemic and as well as the level of precision in estimating the effects of a pandemic, a higher than normal unallocated reserve is considered necessary.
Activity in the allowance is presented for the twelve months ended December 31, 2020, 2019, and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
Commercial, Finance, and Agricultural
|
|
Real Estate Mortgages
|
|
Consumer automobile
|
|
Other consumer installment
|
|
|
|
|
(In Thousands)
|
|
|
Residential
|
|
Commercial
|
|
Construction
|
|
|
|
Unallocated
|
|
Totals
|
Beginning Balance
|
|
$
|
1,779
|
|
|
$
|
4,306
|
|
|
$
|
3,210
|
|
|
$
|
118
|
|
|
$
|
1,780
|
|
|
$
|
278
|
|
|
$
|
423
|
|
|
$
|
11,894
|
|
Charge-offs
|
|
(64)
|
|
|
(254)
|
|
|
(64)
|
|
|
—
|
|
|
(396)
|
|
|
(193)
|
|
|
—
|
|
|
(971)
|
|
Recoveries
|
|
36
|
|
|
49
|
|
|
—
|
|
|
11
|
|
|
75
|
|
|
84
|
|
|
—
|
|
|
255
|
|
Provision
|
|
185
|
|
|
359
|
|
|
489
|
|
|
5
|
|
|
447
|
|
|
92
|
|
|
1,048
|
|
|
2,625
|
|
Ending Balance
|
|
$
|
1,936
|
|
|
$
|
4,460
|
|
|
$
|
3,635
|
|
|
$
|
134
|
|
|
$
|
1,906
|
|
|
$
|
261
|
|
|
$
|
1,471
|
|
|
$
|
13,803
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
Commercial, Finance, and Agricultural
|
|
Real Estate Mortgages
|
|
Consumer automobile
|
|
Other consumer installment
|
|
|
|
|
(In Thousands)
|
|
|
Residential
|
|
Commercial
|
|
Construction
|
|
|
|
Unallocated
|
|
Totals
|
Beginning Balance
|
|
$
|
1,680
|
|
|
$
|
5,616
|
|
|
$
|
4,047
|
|
|
$
|
143
|
|
|
$
|
1,328
|
|
|
$
|
259
|
|
|
$
|
764
|
|
|
$
|
13,837
|
|
Charge-offs
|
|
(2,903)
|
|
|
(347)
|
|
|
(150)
|
|
|
—
|
|
|
(329)
|
|
|
(1,228)
|
|
|
—
|
|
|
(4,957)
|
|
Recoveries
|
|
90
|
|
|
6
|
|
|
1
|
|
|
10
|
|
|
79
|
|
|
93
|
|
|
—
|
|
|
279
|
|
Provision
|
|
2,912
|
|
|
(969)
|
|
|
(688)
|
|
|
(35)
|
|
|
702
|
|
|
1,154
|
|
|
(341)
|
|
|
2,735
|
|
Ending Balance
|
|
$
|
1,779
|
|
|
$
|
4,306
|
|
|
$
|
3,210
|
|
|
$
|
118
|
|
|
$
|
1,780
|
|
|
$
|
278
|
|
|
$
|
423
|
|
|
$
|
11,894
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
|
Commercial, Finance, and Agricultural
|
|
Real Estate Mortgages
|
|
Consumer automobile
|
|
Other consumer installment
|
|
|
|
|
(In Thousands)
|
|
|
Residential
|
|
Commercial
|
|
Construction
|
|
|
|
Unallocated
|
|
Totals
|
Beginning Balance
|
|
$
|
1,177
|
|
|
$
|
5,679
|
|
|
$
|
4,277
|
|
|
$
|
155
|
|
|
$
|
804
|
|
|
$
|
271
|
|
|
$
|
495
|
|
|
$
|
12,858
|
|
Charge-offs
|
|
(82)
|
|
|
(276)
|
|
|
(56)
|
|
|
—
|
|
|
(246)
|
|
|
(303)
|
|
|
—
|
|
|
(963)
|
|
Recoveries
|
|
36
|
|
|
74
|
|
|
—
|
|
|
7
|
|
|
16
|
|
|
74
|
|
|
—
|
|
|
207
|
|
Provision
|
|
549
|
|
|
139
|
|
|
(174)
|
|
|
(19)
|
|
|
754
|
|
|
217
|
|
|
269
|
|
|
1,735
|
|
Ending Balance
|
|
$
|
1,680
|
|
|
$
|
5,616
|
|
|
$
|
4,047
|
|
|
$
|
143
|
|
|
$
|
1,328
|
|
|
$
|
259
|
|
|
$
|
764
|
|
|
$
|
13,837
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Corporation grants commercial, industrial, residential, and installment loans to customers throughout north-central and north-eastern Pennsylvania. Although the Corporation has a diversified loan portfolio at December 31, 2020 and 2019, a substantial portion of its debtors’ ability to honor their contracts is dependent on the economic conditions within this region.
The amount of foreclosed residential real estate held at December 31, 2020 and December 31, 2019, totaled $614,000 and $493,000, respectively. Consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process at December 31, 2020 and December 31, 2019, totaled $51,000 and $32,000, respectively.
The Corporation has a concentration of loans at December 31, 2020 and 2019 as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
Owners of residential rental properties
|
|
16.57
|
%
|
|
15.87
|
%
|
Owners of commercial rental properties
|
|
13.57
|
%
|
|
12.39
|
%
|
Modifications to date have included 1,336 loans with principal balances of $173,200,000; however, as of December 31, 2020, only 37 loans totaling $7,089,000 remained in deferment.
The Company has processed over 226 loan applications with a value of $14,211,000 in loans under the Payroll Protection Program of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). These loans are guaranteed by the Small Business Administration (SBA), carry an interest rate of 1 percent, and are for a term of two years if not forgiven under
the SBA rules.
The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of December 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
Commercial, Finance, and Agricultural
|
|
Real Estate Mortgages
|
|
Consumer automobile
|
|
Other consumer installment
|
|
Unallocated
|
|
Totals
|
(In Thousands)
|
Residential
|
|
Commercial
|
|
Construction
|
|
Allowance for Loan Losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending allowance balance attributable to loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
—
|
|
|
$
|
224
|
|
|
$
|
811
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,035
|
|
Collectively evaluated for impairment
|
|
1,936
|
|
|
4,236
|
|
|
2,824
|
|
|
134
|
|
|
1,906
|
|
|
261
|
|
|
1,471
|
|
|
12,768
|
|
Total ending allowance balance
|
|
$
|
1,936
|
|
|
$
|
4,460
|
|
|
$
|
3,635
|
|
|
$
|
134
|
|
|
$
|
1,906
|
|
|
$
|
261
|
|
|
$
|
1,471
|
|
|
$
|
13,803
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
865
|
|
|
$
|
6,317
|
|
|
$
|
9,377
|
|
|
$
|
124
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
$
|
16,683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collectively evaluated for impairment
|
|
163,878
|
|
|
583,404
|
|
|
363,811
|
|
|
39,185
|
|
|
156,403
|
|
|
19,940
|
|
|
|
|
1,326,621
|
|
Total ending loans balance
|
|
$
|
164,743
|
|
|
$
|
589,721
|
|
|
$
|
373,188
|
|
|
$
|
39,309
|
|
|
$
|
156,403
|
|
|
$
|
19,940
|
|
|
|
|
$
|
1,343,304
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
Commercial, Finance, and Agricultural
|
|
Real Estate Mortgages
|
|
Consumer automobile
|
|
Other consumer installment
|
|
Unallocated
|
|
Totals
|
(In Thousands)
|
Residential
|
|
Commercial
|
|
Construction
|
|
Allowance for Loan Losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending allowance balance attributable to loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
—
|
|
|
$
|
211
|
|
|
$
|
1,104
|
|
|
$
|
—
|
|
|
$
|
62
|
|
|
$
|
16
|
|
|
$
|
—
|
|
|
$
|
1,393
|
|
Collectively evaluated for impairment
|
|
1,779
|
|
|
4,095
|
|
|
2,106
|
|
|
118
|
|
|
1,718
|
|
|
262
|
|
|
423
|
|
|
10,501
|
|
Total ending allowance balance
|
|
$
|
1,779
|
|
|
$
|
4,306
|
|
|
$
|
3,210
|
|
|
$
|
118
|
|
|
$
|
1,780
|
|
|
$
|
278
|
|
|
$
|
423
|
|
|
$
|
11,894
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
2,285
|
|
|
$
|
6,176
|
|
|
$
|
8,575
|
|
|
$
|
65
|
|
|
$
|
130
|
|
|
$
|
16
|
|
|
|
|
$
|
17,247
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collectively evaluated for impairment
|
|
153,928
|
|
|
617,080
|
|
|
354,686
|
|
|
38,002
|
|
|
150,387
|
|
|
23,027
|
|
|
|
|
1,337,110
|
|
Total ending loans balance
|
|
$
|
156,213
|
|
|
$
|
623,256
|
|
|
$
|
363,261
|
|
|
$
|
38,067
|
|
|
$
|
150,517
|
|
|
$
|
23,043
|
|
|
|
|
$
|
1,354,357
|
|
NOTE 7 - PREMISES AND EQUIPMENT
Major classifications of premises and equipment are summarized as follows at December 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands)
|
|
2020
|
|
2019
|
Land
|
|
$
|
6,747
|
|
|
$
|
6,772
|
|
Premises
|
|
22,334
|
|
|
21,566
|
|
Furniture and equipment
|
|
12,443
|
|
|
12,043
|
|
Leasehold improvements
|
|
3,698
|
|
|
3,077
|
|
Finance lease right-of-use assets
|
|
5,257
|
|
|
5,456
|
|
Total
|
|
50,479
|
|
|
48,914
|
|
Less accumulated depreciation and amortization
|
|
17,777
|
|
|
15,985
|
|
Net premises and equipment
|
|
$
|
32,702
|
|
|
$
|
32,929
|
|
Depreciation and amortization related to premises and equipment for the years ended 2020, 2019, and 2018 was $2,098,000, $2,053,000, and $1,789,000, respectively.
NOTE 8 - GOODWILL AND OTHER INTANGIBLES
As of December 31, 2020 and 2019, goodwill had a gross carrying value of $17,380,000 and accumulated amortization of $276,000 resulting in a net carrying amount of $17,104,000.
The gross carrying amount of goodwill is tested for impairment annually. Based on the fair value of the reporting unit, estimated using the expected present value of future cash flows, there was no evidence of impairment of the carrying amount at December 31, 2020 or 2019.
Identifiable intangibles are amortized to their estimated residual values over the expected useful lives. Such lives are also periodically reassessed to determine if any amortization period adjustments are required. Since the acquisition, no such adjustments were recorded. The identifiable intangible assets consist of a core deposit intangible and a trade name intangible which are being amortized on an accelerated basis, and also book of business intangible that is being amortized on a straight-line basis over the useful life of such assets. The net carrying amount of the core deposit intangible, the trade name intangible, and the book of business intangible at December 31, 2020 was $145,000, $11,000, and $515,000 respectively, with $1,736,000, $122,000, and $505,000 accumulated amortization as of that date.
As of December 31, 2020, the estimated future amortization expense for the core deposit and trade name intangible was:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands)
|
|
Core Deposit Intangible
|
|
Trade Name Intangible
|
|
Book of Business Intangible
|
|
Total
|
|
|
|
|
|
|
|
|
|
2021
|
|
$
|
83
|
|
|
$
|
6
|
|
|
$
|
102
|
|
|
$
|
191
|
|
2022
|
|
48
|
|
|
4
|
|
|
102
|
|
|
154
|
|
2023
|
|
14
|
|
|
1
|
|
|
102
|
|
|
117
|
|
2024
|
|
—
|
|
|
—
|
|
|
102
|
|
|
102
|
|
2025
|
|
—
|
|
|
—
|
|
|
102
|
|
|
102
|
|
2026
|
|
—
|
|
|
—
|
|
|
5
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
145
|
|
|
$
|
11
|
|
|
$
|
515
|
|
|
$
|
671
|
|
NOTE 9 - DEPOSITS
Time deposits of $250,000 or more totaled approximately $40,241,000 on December 31, 2020 and $70,962,000 on December 31, 2019. Interest expense on time deposits of $100,000 or more was approximately $4,138,000, $4,159,000, and $2,238,000, for the years ended December 31, 2020, 2019, and 2018, respectively.
At December 31, 2020, the scheduled maturities on time deposits of $100,000 or more are as follows:
|
|
|
|
|
|
|
|
|
(In Thousands)
|
|
2020
|
Three months or less
|
|
$
|
16,189
|
|
Three months to six months
|
|
16,540
|
|
Six months to twelve months
|
|
48,101
|
|
Over twelve months
|
|
67,458
|
|
Total
|
|
$
|
148,288
|
|
Total time deposit maturities are as follows at December 31, 2020:
|
|
|
|
|
|
|
|
|
(In Thousands)
|
|
2020
|
2021
|
|
$
|
147,976
|
|
2022
|
|
82,279
|
|
2023
|
|
20,608
|
|
2024
|
|
9,771
|
|
2025
|
|
1,708
|
|
Thereafter
|
|
1,303
|
|
Total
|
|
$
|
263,645
|
|
Total deposits at for the years ended December 31, 2020 and 2019 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
(In Thousands)
|
|
Amount
|
|
|
|
Amount
|
|
|
|
|
|
|
Noninterest-bearing
|
|
$
|
449,357
|
|
|
|
|
$
|
334,746
|
|
|
|
|
|
|
|
Savings
|
|
209,924
|
|
|
|
|
176,732
|
|
|
|
|
|
|
|
Super Now
|
|
287,775
|
|
|
|
|
218,605
|
|
|
|
|
|
|
|
Money Market
|
|
283,742
|
|
|
|
|
216,038
|
|
|
|
|
|
|
|
Time
|
|
263,645
|
|
|
|
|
377,884
|
|
|
|
|
|
|
|
Total deposits
|
|
$
|
1,494,443
|
|
|
|
|
$
|
1,324,005
|
|
|
|
|
|
|
|
NOTE 10 - SHORT-TERM BORROWINGS
Short-term borrowings consist of securities sold under agreements to repurchase and primarily FHLB advances, which generally represent overnight or less than six month borrowings. In addition to the outstanding balances noted below, the Banks also have additional lines of credit totaling $100,000,000 available from correspondent banks other than the FHLB. The outstanding balances and related information for short-term borrowings are summarized as follows at December 31, 2020, 2019, and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands)
|
|
2020
|
|
2019
|
|
2018
|
Repurchase Agreements:
|
|
|
|
|
|
|
Balance at year end
|
|
$
|
5,244
|
|
|
$
|
4,920
|
|
|
$
|
5,662
|
|
Maximum amount outstanding at any month end
|
|
18,468
|
|
|
10,097
|
|
|
8,431
|
|
Average balance outstanding during the year
|
|
10,669
|
|
|
5,971
|
|
|
7,043
|
|
Weighted-average interest rate:
|
|
|
|
|
|
|
At year end
|
|
0.14
|
%
|
|
0.22
|
%
|
|
0.20
|
%
|
Paid during the year
|
|
0.20
|
%
|
|
0.18
|
%
|
|
0.13
|
%
|
Overnight:
|
|
|
|
|
|
|
Balance at year end
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
162,203
|
|
Maximum amount outstanding at any month end
|
|
13,778
|
|
|
120,540
|
|
|
162,203
|
|
Average balance outstanding during the year
|
|
1,991
|
|
|
28,926
|
|
|
78,043
|
|
Weighted-average interest rate:
|
|
|
|
|
|
|
At year end
|
|
—
|
%
|
|
—
|
%
|
|
2.62
|
%
|
Paid during the year
|
|
1.09
|
%
|
|
2.70
|
%
|
|
2.24
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We utilize securities sold under agreements to repurchase to facilitate the needs of our customers and to facilitate secured short-term funding needs. Securities sold under agreements to repurchase are stated at the amount of cash received in connection with the transaction. We monitor collateral levels on a continuous basis. We may be required to provide additional collateral based on the fair value of the underlying securities. Securities pledged as collateral under repurchase agreements are maintained with our safekeeping agents.The remaining contractual maturity of repurchase agreements in the consolidated balance sheets as of December 31, 2020 and December 31, 2019 is presented in the following tables.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
Remaining Contractual Maturity of the Agreements
|
(In Thousands)
|
|
Overnight and Continuous
|
|
Overnight and Continuous
|
Repurchase Agreements:
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
State and political securities
|
|
10,672
|
|
|
4,984
|
|
Other debt securities
|
|
1,000
|
|
|
1,768
|
|
Total carrying value of collateral pledged
|
|
$
|
11,672
|
|
|
$
|
6,752
|
|
|
|
|
|
|
Total liability recognized for repurchase agreements
|
|
$
|
5,244
|
|
|
$
|
4,920
|
|
|
|
|
|
|
NOTE 11 - LONG-TERM BORROWINGS
The following represents outstanding long-term borrowings with the FHLB by contractual maturities at December 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands)
|
|
|
|
Weighted Average Interest Rate
|
|
Stated Interest Rate Range
|
|
|
|
|
Description
|
|
Maturity
|
|
2020
|
|
2019
|
|
From
|
|
To
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
|
|
2020
|
|
—
|
%
|
|
1.91
|
%
|
|
1.62
|
%
|
|
2.29
|
%
|
|
$
|
—
|
|
|
$
|
43,333
|
|
Fixed
|
|
2021
|
|
2.73
|
%
|
|
2.73
|
%
|
|
2.46
|
%
|
|
3.00
|
%
|
|
30,000
|
|
|
30,000
|
|
Fixed
|
|
2022
|
|
2.24
|
%
|
|
2.24
|
%
|
|
1.98
|
%
|
|
2.56
|
%
|
|
23,000
|
|
|
23,000
|
|
Fixed
|
|
2023
|
|
2.60
|
%
|
|
2.60
|
%
|
|
1.84
|
%
|
|
3.10
|
%
|
|
25,000
|
|
|
25,000
|
|
Fixed
|
|
2024
|
|
2.24
|
%
|
|
2.35
|
%
|
|
1.50
|
%
|
|
2.96
|
%
|
|
40,000
|
|
|
35,000
|
|
Fixed
|
|
2025
|
|
1.62
|
%
|
|
—
|
%
|
|
1.14
|
%
|
|
1.88
|
%
|
|
30,000
|
|
|
—
|
|
Total Fixed
|
|
|
|
2.27
|
%
|
|
2.32
|
%
|
|
|
|
|
|
148,000
|
|
|
156,333
|
|
Total
|
|
|
|
2.27
|
%
|
|
2.32
|
%
|
|
|
|
|
|
$
|
148,000
|
|
|
$
|
156,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands)
Year Ending December 31,
|
|
Amount
|
|
Weighted Average Rate
|
2021
|
|
$
|
30,000
|
|
|
2.73
|
%
|
2022
|
|
23,000
|
|
|
2.24
|
%
|
2023
|
|
25,000
|
|
|
2.60
|
%
|
2024
|
|
40,000
|
|
|
2.24
|
%
|
Thereafter
|
|
30,000
|
|
|
1.62
|
%
|
|
|
$
|
148,000
|
|
|
2.27
|
%
|
The Banks maintain a credit arrangement which includes a revolving line of credit with the FHLB. Under this credit arrangement, at December 31, 2020, JSSB has a remaining borrowing capacity of $236,685,000 and Luzerne has a remaining capacity of $178,077,000, which are subject to annual renewal and typically incur no service charges. Under terms of a blanket agreement, collateral for the FHLB borrowings must be secured by certain qualifying assets of each Bank which consist principally of first mortgage loans and state and political securities, along with other securities. Total outstanding letters of credit at December 31, 2020 with the FHLB for JSSB are $13,000,000 while Luzerne has $582,000 outstanding.
NOTE 12 - INCOME TAXES
The following temporary differences gave rise to the net deferred tax asset position at December 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands)
|
|
2020
|
|
2019
|
Deferred tax assets:
|
|
|
|
|
Allowance for loan losses
|
|
$
|
2,910
|
|
|
$
|
2,503
|
|
Deferred compensation
|
|
1,554
|
|
|
1,451
|
|
Lease liability
|
|
1,844
|
|
|
2,100
|
|
Defined pension
|
|
74
|
|
|
327
|
|
|
|
|
|
|
Investment securities allowance
|
|
54
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
566
|
|
|
1,014
|
|
Total
|
|
7,002
|
|
|
7,413
|
|
Deferred tax liabilities:
|
|
|
|
|
Lease right of use asset
|
|
1,790
|
|
|
2,069
|
|
Unrealized gain on available for sale securities
|
|
1,253
|
|
|
653
|
|
Investment security accretion
|
|
119
|
|
|
117
|
|
Deferred loan fees and discounts
|
|
215
|
|
|
256
|
|
Depreciation
|
|
511
|
|
|
385
|
|
Amortization
|
|
588
|
|
|
595
|
|
Total
|
|
4,476
|
|
|
4,075
|
|
Deferred tax asset, net
|
|
$
|
2,526
|
|
|
$
|
3,338
|
|
No valuation allowance was established at December 31, 2020 and 2019, because of the Corporation’s ability to carry back capital losses to recover taxes paid in previous years and certain tax strategies, together with the anticipated future taxable income as evidenced by the Corporation’s earning potential. The Corporation is no longer subject to federal, state, and local examinations by tax authorities for years before 2017.
The provision or benefit for income taxes is comprised of the following for the year ended December 31, 2020, 2019, and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands)
|
|
2020
|
|
2019
|
|
2018
|
Currently payable
|
|
$
|
3,165
|
|
|
$
|
2,324
|
|
|
$
|
3,143
|
|
Deferred expense (benefit)
|
|
309
|
|
|
814
|
|
|
(324)
|
|
|
|
|
|
|
|
|
Total provision
|
|
$
|
3,474
|
|
|
$
|
3,138
|
|
|
$
|
2,819
|
|
A reconciliation between the expected income tax or benefit and the effective income tax rate on income before income tax provision or benefit follows for the year ended December 31, 2020, 2019, and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
(In Thousands)
|
|
Amount
|
|
%
|
|
Amount
|
|
%
|
|
Amount
|
|
%
|
Provision at expected rate
|
|
$
|
3,927
|
|
|
21.00
|
%
|
|
$
|
3,953
|
|
|
21.00
|
%
|
|
$
|
3,681
|
|
|
21.00
|
%
|
(Decrease) increase in tax resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax-exempt income
|
|
(475)
|
|
|
(2.54)
|
|
|
(547)
|
|
|
(2.91)
|
|
|
(633)
|
|
|
(3.61)
|
|
Tax credits
|
|
—
|
|
|
—
|
|
|
(184)
|
|
|
(0.98)
|
|
|
(177)
|
|
|
(1.01)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other, net
|
|
22
|
|
|
0.12
|
|
|
(84)
|
|
|
(0.44)
|
|
|
(52)
|
|
|
(0.30)
|
|
Effective income tax provision and rate
|
|
$
|
3,474
|
|
|
18.58
|
%
|
|
$
|
3,138
|
|
|
16.67
|
%
|
|
$
|
2,819
|
|
|
16.08
|
%
|
NOTE 13 - EMPLOYEE BENEFIT PLANS
Defined Benefit Pension Plan
The Corporation has a noncontributory defined benefit pension plan (the “Plan”) for all employees meeting certain age and length of service requirements that were hired prior to January 1, 2004, at which time entrance into the Plan was frozen. The benefit accrual for the Plan was subsequently frozen at December 31, 2014. Benefits are based primarily on years of service and the average annual compensation during the highest five consecutive years within the final ten years of employment, until December 31, 2014 when the benefit accrual was frozen.
The following table sets forth the obligation and funded status as of December 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands)
|
|
2020
|
|
2019
|
Change in benefit obligation:
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$
|
21,456
|
|
|
$
|
19,022
|
|
|
|
|
|
|
Interest cost
|
|
641
|
|
|
763
|
|
Actuarial loss
|
|
160
|
|
|
92
|
|
Benefits paid
|
|
(887)
|
|
|
(840)
|
|
|
|
|
|
|
Change in actuarial assumptions
|
|
2,183
|
|
|
2,419
|
|
Benefit obligation at end of year
|
|
$
|
23,553
|
|
|
$
|
21,456
|
|
|
|
|
|
|
Change in plan assets:
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
$
|
19,901
|
|
|
$
|
16,366
|
|
Actual return on plan assets
|
|
2,967
|
|
|
3,369
|
|
Employer contribution
|
|
1,500
|
|
|
1,000
|
|
Benefits paid
|
|
(887)
|
|
|
(841)
|
|
Adjustment to fair value of plan assets
|
|
3
|
|
|
7
|
|
Fair value of plan assets at end of year
|
|
23,484
|
|
|
19,901
|
|
Funded status
|
|
$
|
(69)
|
|
|
$
|
(1,555)
|
|
|
|
|
|
|
Accounts recognized on balance sheet as:
|
|
|
|
|
Total liabilities
|
|
$
|
(69)
|
|
|
$
|
(1,555)
|
|
|
|
|
|
|
Amounts not yet recognized as a component of net periodic pension cost:
|
|
|
|
|
Amounts recognized in accumulated other comprehensive income (loss) consist of:
|
|
|
|
|
Net loss
|
|
$
|
7,084
|
|
|
$
|
6,622
|
|
The accumulated benefit obligation for the Plan was $23,553,000 and $21,456,000 at December 31, 2020 and 2019, respectively.
Components of Net Periodic Cost and Other Amounts Recognized in Other Comprehensive Income (Loss) as of December 31, 2020, 2019, and 2018 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands)
|
|
2020
|
|
2019
|
|
2018
|
Net periodic pension cost:
|
|
|
|
|
|
|
Service cost
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Interest cost
|
|
641
|
|
|
763
|
|
|
706
|
|
Expected return on plan assets
|
|
(1,274)
|
|
|
(995)
|
|
|
(1,098)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of unrecognized net loss
|
|
185
|
|
|
187
|
|
|
165
|
|
Net periodic (benefit) cost
|
|
$
|
(448)
|
|
|
$
|
(45)
|
|
|
$
|
(227)
|
|
Assumptions
Weighted-average assumptions used to determine benefit obligations at December 31, 2020, 2019, and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
Discount rate
|
2.24
|
%
|
|
3.04
|
%
|
|
4.10
|
%
|
Rate of compensation increase
|
N/A
|
|
N/A
|
|
N/A
|
Weighted-average assumptions used to determine net periodic cost for years ended December 31, 2020, 2019, and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
Discount rate
|
3.04
|
%
|
|
4.10
|
%
|
|
3.47
|
%
|
Expected long-term return on plan assets
|
7.00
|
%
|
|
7.00
|
%
|
|
7.00
|
%
|
|
|
|
|
|
|
The expected long-term rate of return was estimated using market benchmarks by which the plan assets would outperform the market value in the future, based on historical experience adjusted for changes in asset allocation and expectations for overall lower future returns on similar investments compared to past periods.
Plan Assets
The Plan’s weighted-average asset allocations at December 31, 2020 and 2019 by asset category are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Category
|
|
2020
|
|
2019
|
Cash
|
|
3.62
|
%
|
|
5.32
|
%
|
Fixed income securities
|
|
12.99
|
%
|
|
11.25
|
%
|
Equity
|
|
69.06
|
%
|
|
67.14
|
%
|
Inflation Hedges/Real Assets
|
|
5.16
|
%
|
|
5.75
|
%
|
Hedged Strategies
|
|
9.17
|
%
|
|
10.54
|
%
|
Total
|
|
100.00
|
%
|
|
100.00
|
%
|
The investment objective for the Plan is to maximize total return with tolerance for slightly above average risk, meaning the fund is able to tolerate short-term volatility to achieve above-average returns over the long term.
Asset allocation favors equities, with target allocation of approximately 62% equity securities, 15.0% fixed income securities, 10% inflation hedges/real assets, 10% hedged strategies, and 3% cash. Due to volatility in the market, the target allocation is not always desirable and asset allocations will fluctuate between the acceptable ranges. The equity portfolio’s exposure is primarily in mid and large capitalization domestic equities with limited exposure to small capitalization and international stocks.
It is management’s intent to give the investment managers flexibility, within the overall guidelines, with respect to investment decisions and their timing. However, certain investments require specific review and approval by management. Management is also informed of anticipated, significant modifications of any previously approved investment, or anticipated use of derivatives to execute investment strategies.
The following table sets forth by level, within the fair value hierarchy detailed in Note 21 - Fair Value Measurements, the Plan’s assets at fair value as of December 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
(In Thousands)
|
|
Level I
|
|
Level II
|
|
Level III
|
|
Total
|
Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
850
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
850
|
|
Mutual funds - taxable fixed income
|
|
3,051
|
|
|
—
|
|
|
—
|
|
|
3,051
|
|
Mutual funds - domestic equity
|
|
11,325
|
|
|
—
|
|
|
—
|
|
|
11,325
|
|
Mutual funds - international equity
|
|
4,889
|
|
|
—
|
|
|
—
|
|
|
4,889
|
|
Inflation Hedges/Real Assets
|
|
1,214
|
|
|
—
|
|
|
—
|
|
|
1,214
|
|
Hedged Strategies
|
|
2,155
|
|
|
—
|
|
|
—
|
|
|
2,155
|
|
Total assets at fair value
|
|
$
|
23,484
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
23,484
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
(In Thousands)
|
|
Level I
|
|
Level II
|
|
Level III
|
|
Total
|
Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,058
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,058
|
|
Mutual funds - taxable fixed income
|
|
2,240
|
|
|
—
|
|
|
—
|
|
|
2,240
|
|
Mutual funds - domestic equity
|
|
10,797
|
|
|
—
|
|
|
—
|
|
|
10,797
|
|
Mutual funds - international equity
|
|
2,565
|
|
|
—
|
|
|
—
|
|
|
2,565
|
|
Inflation Hedges/Real Assets
|
|
1,145
|
|
|
—
|
|
|
—
|
|
|
1,145
|
|
Hedged Strategies
|
|
2,096
|
|
|
—
|
|
|
—
|
|
|
2,096
|
|
Total assets at fair value
|
|
$
|
19,901
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
19,901
|
|
The following future benefit payments are expected to be paid:
|
|
|
|
|
|
(In Thousands)
|
|
2021
|
$
|
960
|
|
2022
|
978
|
|
2023
|
1,049
|
|
2024
|
1,051
|
|
2025
|
1,102
|
|
2026-2030
|
5,940
|
|
|
$
|
11,080
|
|
The Corporation expects to contribute a minimum of $250,000 to its Pension Plan in 2021.
401(k) Savings Plan
The Corporation also offers a 401(k) savings plan in which eligible participating employees may elect to contribute up to a maximum percentage allowable not to exceed the limits of Code Sections 401(k), 404, and 415. The Corporation may make matching contributions equal to a discretionary percentage that is determined by the Board of Directors. Participants are at all times fully vested in their contributions and vest over a period of five years regarding the employer contribution. Contribution expense was approximately $502,000, $490,000, and $428,000 for the years ended December 31, 2020, 2019, and 2018, respectively.
Deferred Compensation Plan
The Corporation has a deferred compensation plan whereby participating directors elect to forego directors’ fees paid in cash. Under this plan, the Corporation will make payments for a ten-year period beginning at the later of age 65 or ceasing to be a director in most cases or at death, if earlier, at which time payments would be made to their designated beneficiaries.
To fund benefits under the deferred compensation plan, the Corporation has acquired bank-owned life insurance policies on the lives of the participating directors for which insurance benefits are payable to the Corporation. The Corporation incurred expenses related to the plan of $431,000, $408,000, and $370,000 for the years ended December 31, 2020, 2019, and 2018, respectively. Benefits paid under the plan were approximately $57,000, $57,000, and $59,000 in 2020, 2019, and 2018, respectively.
NOTE 14 - STOCK OPTIONS
In 2020, the Corporation adopted the 2020 Equity Incentive Plan which replaced the 2014 Equity Incentive Plan. The Equity Incentive Plans are designed to help the Corporation attract, retain, and motivate employees and non-employee directors. Incentive stock options, non-qualified stock options, and restricted stock may be granted as part of the plan.
On January 5, 2018 a total of 37,500 options were issued with an additional 224,550 options issued on August 24, 2018. Of the 262,050 options issued during 2018, 94,050 have a vesting period of three years and the remaining 168,000 options vest in five years. On March 15, 2019, the Corporation issued 240,000 stock options with a strike price of $28.01. Of the options issued during 2019, 120,900 have a three year vesting period while the remaining 119,100 have a five year vesting period and all options expire ten years after issuance. On March 11, 2020 a total of 238,500 options were issued by the Corporation with a strike price of $25.34. Of the 238,500 options granted, 119,300 of the options have a three year vesting period with the remaining 119,200 options vesting in five years.
A summary of stock option activity for the year ended December 31, 2020 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted Average Exercise Price
|
|
Weighted Average Remaining Contractual Term
|
|
Aggregate Intrinsic Value
|
|
|
|
Outstanding at December 31, 2017
|
|
140,250
|
|
|
29.06
|
|
|
8.79
|
|
279,365
|
|
|
|
|
Granted
|
|
262,050
|
|
|
30.58
|
|
|
9.56
|
|
|
|
|
|
Exercised
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
Forfeited
|
|
(6,750)
|
|
|
28.51
|
|
|
|
|
|
|
|
|
Expired
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2018
|
|
395,550
|
|
|
30.08
|
|
|
8.97
|
|
4,019,522
|
|
|
|
|
Granted
|
|
240,000
|
|
|
28.01
|
|
|
9.21
|
|
|
|
|
|
Exercised
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
Forfeited
|
|
(9,750)
|
|
|
29.64
|
|
|
|
|
|
|
|
|
Expired
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2019
|
|
625,800
|
|
|
29.29
|
|
|
8.43
|
|
3,923,463
|
|
|
|
|
Granted
|
|
238,500
|
|
|
25.34
|
|
|
9.20
|
|
|
|
|
|
Exercised
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
Forfeited
|
|
(23,025)
|
|
|
29.44
|
|
|
|
|
|
|
|
|
Expired
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2020
|
|
841,275
|
|
|
$
|
28.17
|
|
|
7.93
|
|
$
|
159,795
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at December 31, 2020
|
|
94,500
|
|
|
$
|
28.95
|
|
|
5.66
|
|
$
|
—
|
|
|
|
|
On December 31, 2020, a total of 841,275 options were outstanding. Outstanding options at December 31, 2020 and the related vesting schedules are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options Granted
|
Date
|
|
Shares
|
|
Forfeited
|
|
Outstanding
|
|
Strike Price
|
|
Vesting Period
|
|
Expiration
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 11, 2020
|
|
119,300
|
|
|
—
|
|
|
119,300
|
|
|
$
|
25.31
|
|
|
3 years
|
|
10 years
|
March 11, 2020
|
|
119,200
|
|
|
—
|
|
|
119,200
|
|
|
25.31
|
|
|
5 years
|
|
10 years
|
March 15, 2019
|
|
120,900
|
|
|
(5,700)
|
|
|
115,200
|
|
|
28.01
|
|
|
3 years
|
|
10 years
|
March 15, 2019
|
|
119,100
|
|
|
(5,550)
|
|
|
113,550
|
|
|
28.01
|
|
|
5 years
|
|
10 years
|
August 24, 2018
|
|
75,300
|
|
|
(5,250)
|
|
|
70,050
|
|
|
30.67
|
|
|
3 years
|
|
10 years
|
August 24, 2018
|
|
149,250
|
|
|
(10,650)
|
|
|
138,600
|
|
|
30.67
|
|
|
5 years
|
|
10 years
|
January 5, 2018
|
|
18,750
|
|
|
—
|
|
|
18,750
|
|
|
30.07
|
|
|
3 years
|
|
10 years
|
January 5, 2018
|
|
18,750
|
|
|
—
|
|
|
18,750
|
|
|
30.07
|
|
|
5 years
|
|
10 years
|
March 24, 2017
|
|
69,375
|
|
|
(9,000)
|
|
|
60,375
|
|
|
29.47
|
|
|
3 years
|
|
10 years
|
March 24, 2017
|
|
35,625
|
|
|
(2,250)
|
|
|
33,375
|
|
|
29.47
|
|
|
5 years
|
|
10 years
|
August 27, 2015
|
|
58,125
|
|
|
(24,000)
|
|
|
34,125
|
|
|
28.02
|
|
|
5 years
|
|
10 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair value of stock options is estimated using the Black-Scholes option pricing model. The following is a summary of the assumptions used in this model for the stock options granted during 2020, 2019, and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
Risk-free interest rate
|
1.32
|
%
|
|
2.49
|
%
|
|
2.68
|
%
|
Expected volatility
|
28.29
|
%
|
|
23.61
|
%
|
|
24.78
|
%
|
Expected dividend yield
|
5.77
|
%
|
|
4.16
|
%
|
|
4.38
|
%
|
Expected life
|
7.00 years
|
|
7.00 years
|
|
7.15 years
|
Weighted average grant date fair value per option
|
$
|
3.80
|
|
|
$
|
4.05
|
|
|
$
|
5.15
|
|
The estimated fair value of options, including the effect of estimated forfeitures, is recognized as expense on a straightline basis over the options’ vesting periods while ensuring that the cumulative amount of compensation cost recognized at least equals the value of the vested portion of the award at that date. The Corporation determines the fair value of options granted using the Black-Scholes option-pricing model. The risk-free interest rate is based on the United States Treasury bond with a similar term to the expected life of the options at the grant date. Expected volatility was estimated based on the adjusted historic volatility of the Corporation’s shares. The expected life was estimated to equal the contractual life of the options. The dividend yield rate was based upon recent historical dividends paid on shares.
For the years ended December 31, 2020, 2019, and 2018 there was $854,000, $680,000, and $486,000 in total share-based compensation expense, respectively. The compensation expense is recorded as part of the non-interest expenses in the Consolidated Statement of Income.
As of December 31, 2020, total unrecognized compensation costs related to non-vested options was $1,891,000 which is expected to be recognized over a period of 2.68 years. Exercisable stock awards at December 31, 2020 were 94,500 with a weighted average remaining exercisable contractual life of 5.66 years
NOTE 15 - EMPLOYEE STOCK PURCHASE PLAN
The Corporation maintains the Penns Woods Bancorp, Inc. Employee Stock Purchase Plan (“Plan”). The Plan is intended to encourage employee participation in the ownership and economic progress of the Corporation. The Plan allows for up to 1,500,000 shares to be purchased by employees. The purchase price of the shares is 95% of fair value with an employee eligible to purchase up to the lesser of 15% of base compensation or $12,000 in fair value annually. There were 3,972 and 3,414 shares issued under the plan for the years ended December 31, 2020 and 2019, respectively.
NOTE 16 - RELATED PARTY TRANSACTIONS
Certain directors and executive officers of the Corporation and the Banks, including their immediate families and companies in which they are principal owners (more than ten percent), are indebted to the Corporation. Such indebtedness was incurred in the ordinary course of business on the same terms and at those rates prevailing at the time for comparable transactions with others.
A summary of loan activity with executive officers, directors, principal shareholders, and associates of such persons is listed below for the years ended December 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands)
|
|
Beginning Balance
|
|
New Loans
|
|
Repayments
|
|
Ending Balance
|
2019
|
|
$
|
17,791
|
|
|
$
|
5,125
|
|
|
$
|
(8,542)
|
|
|
$
|
14,374
|
|
2020
|
|
14,374
|
|
|
12,956
|
|
|
(11,084)
|
|
|
16,246
|
|
Deposits from related parties held by the Banks amounted to $25,520,000 at December 31, 2020 and $18,121,000 at December 31, 2019.
NOTE 17 - OFF-BALANCE SHEET RISK
The Corporation is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit, interest rate, or liquidity risk in excess of the amount recognized in the Consolidated Balance Sheet. The contract amounts of these instruments express the extent of involvement the Corporation has in particular classes of financial instruments.
The Corporation’s exposure to credit loss from nonperformance by the other party to the financial instruments for commitments to extend credit and standby letters of credit is represented by the contractual amount of these instruments. The Corporation uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. The Corporation may require collateral or other security to support financial instruments with off-balance sheet credit risk.
Financial instruments whose contract amounts represent credit risk are as follows at December 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands)
|
|
2020
|
|
2019
|
Commitments to extend credit
|
|
$
|
198,512
|
|
|
$
|
187,778
|
|
Standby letters of credit
|
|
10,120
|
|
|
9,638
|
|
Credit exposure from the sale of assets with recourse
|
|
9,182
|
|
|
6,826
|
|
Commitments to extend credit are legally binding agreements to lend to customers. Commitments generally have fixed expiration dates or other termination clauses and may require payment of fees. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future liquidity requirements. The Corporation evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Corporation, on an extension of credit is based on management’s credit assessment of the counterparty.
Standby letters of credit represent conditional commitments issued by the Corporation to guarantee the performance of a customer to a third party. These instruments are issued primarily to support bid or performance related contracts. The coverage period for these instruments is typically a one year period with an annual renewal option subject to prior approval by management. Fees earned from the issuance of these letters are recognized upon expiration of the coverage period. For secured letters of credit, the collateral is typically Bank deposit instruments or customer business assets.
NOTE 18 - CAPITAL REQUIREMENTS
Federal regulations require the Corporation and the Banks to maintain minimum amounts of capital. Specifically, each is required to maintain certain minimum dollar amounts and ratios of Common Equity Tier 1, Total, and Tier 1 capital to risk-weighted assets and of Tier 1 capital to average total assets.
In addition to the capital requirements, the Federal Deposit Insurance Corporation Improvement Act (“FDICIA”) established five capital categories ranging from “well capitalized” to “critically undercapitalized.” Should any institution fail to meet the requirements to be considered “adequately capitalized,” it would become subject to a series of increasingly restrictive regulatory actions.
As of December 31, 2020 and 2019, the FDIC categorized the Banks as well capitalized under the regulatory framework for prompt corrective action. To be classified as a well capitalized financial institution, common equity tier I risk-based, tier I risked-based, total risk-based, and tier I leverage capital ratios must be at least 6.5%, 8%, 10%, and 5%, respectively.
The Corporation’s and the Banks' actual capital ratios (using the definitions from the prompt corrective action rules) are presented in the following tables, which shows that the Corporation and both Banks met all regulatory capital requirements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Corporation
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
(In Thousands)
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
Common Equity Tier I Capital (to Risk-weighted Assets)
|
|
|
|
|
|
|
|
|
Actual
|
|
$
|
147,887
|
|
|
11.267
|
%
|
|
$
|
140,372
|
|
|
10.674
|
%
|
For Capital Adequacy Purposes
|
|
59,066
|
|
|
4.500
|
%
|
|
59,179
|
|
|
4.500
|
%
|
Minimum To Maintain Capital Conservation Buffer
|
|
91,880
|
|
|
7.000
|
%
|
|
92,056
|
|
|
7.000
|
%
|
To Be Well Capitalized
|
|
85,317
|
|
|
6.500
|
%
|
|
85,480
|
|
|
6.500
|
%
|
Total Capital (to Risk-weighted Assets)
|
|
|
|
|
|
|
|
|
Actual
|
|
$
|
159,490
|
|
|
12.151
|
%
|
|
$
|
149,748
|
|
|
11.387
|
%
|
For Capital Adequacy Purposes
|
|
105,005
|
|
|
8.000
|
%
|
|
105,206
|
|
|
8.000
|
%
|
Minimum To Maintain Capital Conservation Buffer
|
|
137,820
|
|
|
10.500
|
%
|
|
138,083
|
|
|
10.500
|
%
|
To Be Well Capitalized
|
|
131,257
|
|
|
10.000
|
%
|
|
131,508
|
|
|
10.000
|
%
|
Tier I Capital (to Risk-weighted Assets)
|
|
|
|
|
|
|
|
|
Actual
|
|
$
|
147,887
|
|
|
11.267
|
%
|
|
$
|
140,372
|
|
|
10.674
|
%
|
For Capital Adequacy Purposes
|
|
78,754
|
|
|
6.000
|
%
|
|
78,905
|
|
|
6.000
|
%
|
Minimum To Maintain Capital Conservation Buffer
|
|
111,568
|
|
|
8.500
|
%
|
|
111,782
|
|
|
8.500
|
%
|
To Be Well Capitalized
|
|
105,005
|
|
|
8.000
|
%
|
|
105,207
|
|
|
8.000
|
%
|
Tier I Capital (to Average Assets)
|
|
|
|
|
|
|
|
|
Actual
|
|
$
|
147,887
|
|
|
8.436
|
%
|
|
$
|
140,372
|
|
|
8.514
|
%
|
For Capital Adequacy Purposes
|
|
70,122
|
|
|
4.000
|
%
|
|
65,949
|
|
|
4.000
|
%
|
To Be Well Capitalized
|
|
87,652
|
|
|
5.000
|
%
|
|
82,436
|
|
|
5.000
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jersey Shore State Bank
|
|
|
|
|
|
|
|
2020
|
|
2019
|
(In Thousands)
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
Common Equity Tier I Capital (to Risk-weighted Assets)
|
|
|
|
|
|
|
|
|
Actual
|
|
$
|
103,812
|
|
|
10.906
|
%
|
|
$
|
99,317
|
|
|
10.381
|
%
|
For Capital Adequacy Purposes
|
|
42,835
|
|
|
4.500
|
%
|
|
43,052
|
|
|
4.500
|
%
|
Minimum To Maintain Capital Conservation Buffer
|
|
66,632
|
|
|
7.000
|
%
|
|
66,970
|
|
|
7.000
|
%
|
To Be Well Capitalized
|
|
61,872
|
|
|
6.500
|
%
|
|
62,187
|
|
|
6.500
|
%
|
Total Capital (to Risk-weighted Assets)
|
|
|
|
|
|
|
|
|
Actual
|
|
$
|
112,862
|
|
|
11.857
|
%
|
|
$
|
106,093
|
|
|
11.089
|
%
|
For Capital Adequacy Purposes
|
|
76,149
|
|
|
8.000
|
%
|
|
76,539
|
|
|
8.000
|
%
|
Minimum To Maintain Capital Conservation Buffer
|
|
99,945
|
|
|
10.500
|
%
|
|
100,458
|
|
|
10.500
|
%
|
To Be Well Capitalized
|
|
95,186
|
|
|
10.000
|
%
|
|
95,674
|
|
|
10.000
|
%
|
Tier I Capital (to Risk-weighted Assets)
|
|
|
|
|
|
|
|
|
Actual
|
|
$
|
103,812
|
|
|
10.906
|
%
|
|
$
|
99,317
|
|
|
10.381
|
%
|
For Capital Adequacy Purposes
|
|
57,113
|
|
|
6.000
|
%
|
|
57,403
|
|
|
6.000
|
%
|
Minimum To Maintain Capital Conservation Buffer
|
|
80,910
|
|
|
8.500
|
%
|
|
81,321
|
|
|
8.500
|
%
|
To Be Well Capitalized
|
|
76,150
|
|
|
8.000
|
%
|
|
76,538
|
|
|
8.000
|
%
|
Tier I Capital (to Average Assets)
|
|
|
|
|
|
|
|
|
Actual
|
|
$
|
103,812
|
|
|
8.062
|
%
|
|
$
|
99,317
|
|
|
8.191
|
%
|
For Capital Adequacy Purposes
|
|
51,507
|
|
|
4.000
|
%
|
|
48,501
|
|
|
4.000
|
%
|
To Be Well Capitalized
|
|
64,384
|
|
|
5.000
|
%
|
|
60,626
|
|
|
5.000
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Luzerne Bank
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
(In Thousands)
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
Common Equity Tier I Capital (to Risk-weighted Assets)
|
|
|
|
|
|
|
|
|
Actual
|
|
$
|
40,206
|
|
|
11.156
|
%
|
|
$
|
38,340
|
|
|
10.577
|
%
|
For Capital Adequacy Purposes
|
|
16,218
|
|
|
4.500
|
%
|
|
16,312
|
|
|
4.500
|
%
|
Minimum To Maintain Capital Conservation Buffer
|
|
25,228
|
|
|
7.000
|
%
|
|
25,374
|
|
|
7.000
|
%
|
To Be Well Capitalized
|
|
23,426
|
|
|
6.500
|
%
|
|
23,562
|
|
|
6.500
|
%
|
Total Capital (to Risk-weighted Assets)
|
|
|
|
|
|
|
|
|
Actual
|
|
$
|
42,759
|
|
|
11.865
|
%
|
|
$
|
40,940
|
|
|
11.295
|
%
|
For Capital Adequacy Purposes
|
|
28,830
|
|
|
8.000
|
%
|
|
28,997
|
|
|
8.000
|
%
|
Minimum To Maintain Capital Conservation Buffer
|
|
37,840
|
|
|
10.500
|
%
|
|
38,058
|
|
|
10.500
|
%
|
To Be Well Capitalized
|
|
36,038
|
|
|
10.000
|
%
|
|
36,246
|
|
|
10.000
|
%
|
Tier I Capital (to Risk-weighted Assets)
|
|
|
|
|
|
|
|
|
Actual
|
|
$
|
40,206
|
|
|
11.156
|
%
|
|
$
|
38,340
|
|
|
10.577
|
%
|
For Capital Adequacy Purposes
|
|
21,624
|
|
|
6.000
|
%
|
|
21,749
|
|
|
6.000
|
%
|
Minimum To Maintain Capital Conservation Buffer
|
|
30,634
|
|
|
8.500
|
%
|
|
30,811
|
|
|
8.500
|
%
|
To Be Well Capitalized
|
|
28,832
|
|
|
8.000
|
%
|
|
28,999
|
|
|
8.000
|
%
|
Tier I Capital (to Average Assets)
|
|
|
|
|
|
|
|
|
Actual
|
|
$
|
40,206
|
|
|
7.860
|
%
|
|
$
|
38,340
|
|
|
8.653
|
%
|
For Capital Adequacy Purposes
|
|
20,461
|
|
|
4.000
|
%
|
|
17,723
|
|
|
4.000
|
%
|
To Be Well Capitalized
|
|
25,576
|
|
|
5.000
|
%
|
|
22,154
|
|
|
5.000
|
%
|
NOTE 19 - REGULATORY RESTRICTIONS
The Pennsylvania Banking Code restricts the availability of capital funds for payment of dividends by all state-chartered banks. Accordingly, at December 31, 2020, the balance in the additional paid in capital account totaling $11,657,000 for JSSB and $42,214,000 for Luzerne is unavailable for dividends.
The Banks are subject to regulatory restrictions, which limit the ability to loan funds to Penns Woods Bancorp, Inc. At December 31, 2020, the regulatory lending limit amounted to approximately $23,343,000.
Cash and Due from Banks
JSSB and Luzerne had no reserve requirements by the district Federal Reserve Bank at December 31, 2020 or 2019; however, if they did they would be reported with cash and due from banks. The required reserves are computed by applying prescribed ratios to the classes of average deposit balances. These are held in the form of cash on hand and a balance maintained directly with the Federal Reserve Bank.
NOTE 20 - FAIR VALUE MEASUREMENTS
The following disclosures show the hierarchical disclosure framework associated with the level of pricing observations utilized in measuring assets and liabilities at fair value. The three broad levels of pricing observations are as follows:
|
|
|
|
|
|
|
|
|
Level I:
|
|
Quoted prices are available in active markets for identical assets or liabilities as of the reported date.
|
|
|
|
Level II:
|
|
Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these assets and liabilities includes items for which quoted prices are available but traded less frequently, and items that are fair valued using other financial instruments, the parameters of which can be directly observed.
|
|
|
|
Level III:
|
|
Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
|
This hierarchy requires the use of observable market data when available.
The following table presents the assets reported on the balance sheet at their fair value on a recurring basis as of December 31, 2020 and 2019, by level within the fair value hierarchy. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
(In Thousands)
|
|
Level I
|
|
Level II
|
|
Level III
|
|
Total
|
Assets measured on a recurring basis:
|
|
|
|
|
|
|
|
|
Investment securities, available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
$
|
—
|
|
|
$
|
2,141
|
|
|
$
|
—
|
|
|
$
|
2,141
|
|
|
|
|
|
|
|
|
|
|
State and political securities
|
|
—
|
|
|
108,013
|
|
|
—
|
|
|
108,013
|
|
Other debt securities
|
|
—
|
|
|
52,107
|
|
|
—
|
|
|
52,107
|
|
Investment equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other equity securities
|
|
1,288
|
|
|
—
|
|
|
—
|
|
|
1,288
|
|
Investment securities, trading:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other equity securities
|
|
40
|
|
|
—
|
|
|
—
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
(In Thousands)
|
|
Level I
|
|
Level II
|
|
Level III
|
|
Total
|
Assets measured on a recurring basis:
|
|
|
|
|
|
|
|
|
Investment securities, available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
$
|
—
|
|
|
$
|
4,966
|
|
|
$
|
—
|
|
|
$
|
4,966
|
|
|
|
|
|
|
|
|
|
|
State and political securities
|
|
—
|
|
|
82,286
|
|
|
—
|
|
|
82,286
|
|
Other debt securities
|
|
—
|
|
|
61,367
|
|
|
—
|
|
|
61,367
|
|
Investment equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other equity securities
|
|
1,261
|
|
|
—
|
|
|
—
|
|
|
1,261
|
|
Investment securities, trading:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other equity securities
|
|
51
|
|
|
—
|
|
|
—
|
|
|
51
|
|
|
|
|
|
|
|
|
|
|
The following table presents the assets reported on the balance sheet at their fair value on a non-recurring basis as of December 31, 2020 and 2019, by level within the fair value hierarchy. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
(In Thousands)
|
|
Level I
|
|
Level II
|
|
Level III
|
|
Total
|
Assets measured on a non-recurring basis:
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
15,648
|
|
|
$
|
15,648
|
|
Other real estate owned
|
|
—
|
|
|
—
|
|
|
401
|
|
|
401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
(In Thousands)
|
|
Level I
|
|
Level II
|
|
Level III
|
|
Total
|
Assets measured on a non-recurring basis:
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
15,854
|
|
|
$
|
15,854
|
|
Other real estate owned
|
|
—
|
|
|
—
|
|
|
413
|
|
|
413
|
|
|
|
|
|
|
|
|
|
|
The following table provides a listing of significant unobservable inputs used in the fair value measurement process for items valued utilizing level III techniques as of December 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
Quantitative Information About Level III Fair Value Measurements
|
(In Thousands)
|
|
Fair Value
|
|
Valuation Technique(s)
|
|
Unobservable Inputs
|
|
Range
|
|
Weighted Average
|
Impaired loans
|
|
$
|
8,624
|
|
|
Discounted cash flow
|
|
Temporary reduction in payment amount
|
|
17% to (63)%
|
|
(18)%
|
|
|
|
|
|
|
Probability of default
|
|
—%
|
|
|
|
|
7,024
|
|
|
Appraisal of collateral (1)
|
|
Appraisal adjustments (1)
|
|
0 to (30)%
|
|
(8)%
|
Other real estate owned
|
|
$
|
401
|
|
|
Appraisal of collateral (1)
|
|
Appraisal adjustments (1)
|
|
(20)%
|
|
(20)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
Quantitative Information About Level III Fair Value Measurements
|
(In Thousands)
|
|
Fair Value
|
|
Valuation Technique(s)
|
|
Unobservable Inputs
|
|
Range
|
|
Weighted Average
|
Impaired loans
|
|
$
|
6,950
|
|
|
Discounted cash flow
|
|
Temporary reduction in payment amount
|
|
17% to (59)%
|
|
(24)%
|
|
|
|
|
|
|
Probability of default
|
|
—%
|
|
|
|
|
8,904
|
|
|
Appraisal of collateral (1)
|
|
Appraisal adjustments (1)
|
|
0 to (30)%
|
|
(9)%
|
Other real estate owned
|
|
$
|
413
|
|
|
Appraisal of collateral (1)
|
|
Appraisal adjustments (1)
|
|
(20)%
|
|
(20)%
|
(1) Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses.
The significant unobservable inputs used in the fair value measurement of the Corporation’s impaired loans using the discounted cash flow valuation technique include temporary changes in payment amounts and the probability of default.
Significant increases (decreases) in payment amounts would result in significantly higher (lower) fair value measurements. The probability of default is 0% for impaired loans using the discounted cash flow valuation technique because all defaulted impaired loans are valued using the appraisal of collateral valuation technique.
The significant unobservable input used in the fair value measurement of the Corporation’s impaired loans using the appraisal of collateral valuation technique include appraisal adjustments, which are adjustments to appraisals by management for qualitative factors such as economic conditions and estimated liquidation expenses. The significant unobservable input used in the fair value measurement of the Corporation’s other real estate owned are the same inputs used to value impaired loans using the appraisal of collateral valuation technique.
NOTE 21 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The Corporation is required to disclose fair values for its financial instruments. Fair values are made at a specific point in time, based on relevant market information and information about the financial instrument. These fair values do not reflect any premium or discount that could result from offering for sale at one time the Corporation’s entire holdings of a particular financial instrument. Also, it is the Corporation’s general practice and intention to hold most of its financial instruments to maturity and not to engage in trading or sales activities. Because no market exists for a significant portion of the Corporation’s financial instruments, fair values are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These fair values are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions can significantly affect the fair values.
Fair values have been determined by the Corporation using historical data and an estimation methodology suitable for each category of financial instruments. The Corporation’s fair values, methods, and assumptions are set forth below for the Corporation’s other financial instruments.
As certain assets and liabilities, such as deferred tax assets, premises and equipment, and many other operational elements of the Corporation, are not considered financial instruments but have value, the fair value of financial instruments would not represent the full fair value of the Corporation.
The fair values of the Corporation’s financial instruments not required to be measured or reported at fair value are as follows at December 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2020
|
(In Thousands)
|
|
Carrying Value
|
|
Fair Value
|
|
Quoted Prices in Active Markets for Identical Assets (Level I)
|
|
Significant Other Observable Inputs (Level II)
|
|
Significant Unobservable Inputs
(Level III)
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents (1)
|
|
$
|
213,358
|
|
|
$
|
213,358
|
|
|
$
|
213,358
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted investment in bank stock (1)
|
|
15,377
|
|
|
15,377
|
|
|
15,377
|
|
|
—
|
|
|
—
|
|
Loans held for sale (1)
|
|
5,239
|
|
|
5,239
|
|
|
5,239
|
|
|
—
|
|
|
—
|
|
Loans, net
|
|
1,330,524
|
|
|
1,339,993
|
|
|
—
|
|
|
—
|
|
|
1,339,993
|
|
Bank-owned life insurance (1)
|
|
33,638
|
|
|
33,638
|
|
|
33,638
|
|
|
—
|
|
|
—
|
|
Accrued interest receivable (1)
|
|
8,394
|
|
|
8,394
|
|
|
8,394
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits
|
|
$
|
1,045,086
|
|
|
$
|
1,048,281
|
|
|
$
|
781,441
|
|
|
$
|
—
|
|
|
$
|
266,840
|
|
Noninterest-bearing deposits (1)
|
|
449,357
|
|
|
449,357
|
|
|
449,357
|
|
|
—
|
|
|
—
|
|
Short-term borrowings (1)
|
|
5,244
|
|
|
5,244
|
|
|
5,244
|
|
|
—
|
|
|
—
|
|
Long-term borrowings
|
|
153,475
|
|
|
159,575
|
|
|
—
|
|
|
—
|
|
|
159,575
|
|
Accrued interest payable (1)
|
|
1,112
|
|
|
1,112
|
|
|
1,112
|
|
|
—
|
|
|
—
|
|
1) The financial instrument is carried at cost at December 31, 2020, which approximate the fair value of the instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2019
|
(In Thousands)
|
|
Carrying Value
|
|
Fair Value
|
|
Quoted Prices in Active Markets for Identical Assets (Level I)
|
|
Significant Other Observable Inputs (Level II)
|
|
Significant Unobservable Inputs (Level III)
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents (1)
|
|
$
|
48,589
|
|
|
$
|
48,589
|
|
|
$
|
48,589
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted investment in bank stock (1)
|
|
13,528
|
|
|
13,528
|
|
|
13,528
|
|
|
—
|
|
|
—
|
|
Loans held for sale (1)
|
|
4,232
|
|
|
4,232
|
|
|
4,232
|
|
|
—
|
|
|
—
|
|
Loans, net
|
|
1,343,650
|
|
|
1,346,395
|
|
|
—
|
|
|
—
|
|
|
1,346,395
|
|
Bank-owned life insurance (1)
|
|
29,253
|
|
|
29,253
|
|
|
29,253
|
|
|
—
|
|
|
—
|
|
Accrued interest receivable (1)
|
|
5,246
|
|
|
5,246
|
|
|
5,246
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits
|
|
$
|
989,259
|
|
|
$
|
990,747
|
|
|
$
|
611,374
|
|
|
$
|
—
|
|
|
$
|
379,373
|
|
Noninterest-bearing deposits (1)
|
|
334,746
|
|
|
334,746
|
|
|
334,746
|
|
|
—
|
|
|
—
|
|
Short-term borrowings (1)
|
|
4,920
|
|
|
4,920
|
|
|
4,920
|
|
|
—
|
|
|
—
|
|
Long-term borrowings
|
|
161,920
|
|
|
163,931
|
|
|
—
|
|
|
—
|
|
|
163,931
|
|
Accrued interest payable (1)
|
|
1,671
|
|
|
1,671
|
|
|
1,671
|
|
|
—
|
|
|
—
|
|
(1) The financial instrument is carried at cost at December 31, 2019, which approximate the fair value of the instruments
NOTE 22 - PARENT COMPANY ONLY FINANCIAL STATEMENTS
Condensed financial information for Penns Woods Bancorp, Inc. follows:
CONDENSED BALANCE SHEET, DECEMBER 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands)
|
|
2020
|
|
2019
|
ASSETS:
|
|
|
|
|
Cash
|
|
$
|
1,397
|
|
|
$
|
287
|
|
Investment in subsidiaries:
|
|
|
|
|
Bank
|
|
160,273
|
|
|
152,244
|
|
Non-bank
|
|
1,558
|
|
|
2,027
|
|
Other assets
|
|
1,030
|
|
|
574
|
|
Total Assets
|
|
$
|
164,258
|
|
|
$
|
155,132
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY:
|
|
|
|
|
Other liabilities
|
|
$
|
116
|
|
|
$
|
172
|
|
Shareholders’ equity
|
|
164,142
|
|
|
154,960
|
|
Total liability and shareholders’ equity
|
|
$
|
164,258
|
|
|
$
|
155,132
|
|
CONDENSED STATEMENT OF INCOME FOR THE YEARS ENDED DECEMBER 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands)
|
|
2020
|
|
2019
|
|
2018
|
Operating income:
|
|
|
|
|
|
|
Dividends from subsidiaries
|
|
$
|
11,276
|
|
|
$
|
10,326
|
|
|
$
|
9,091
|
|
|
|
|
|
|
|
|
Equity in undistributed earnings of subsidiaries
|
|
5,684
|
|
|
6,906
|
|
|
6,973
|
|
Operating expenses
|
|
(1,754)
|
|
|
(1,560)
|
|
|
(1,360)
|
|
Net income
|
|
$
|
15,206
|
|
|
$
|
15,672
|
|
|
$
|
14,704
|
|
Comprehensive income
|
|
$
|
17,101
|
|
|
$
|
19,531
|
|
|
$
|
13,579
|
|
CONDENSED STATEMENT OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands)
|
|
2020
|
|
2019
|
|
2018
|
OPERATING ACTIVITIES:
|
|
|
|
|
|
|
Net income
|
|
$
|
15,206
|
|
|
$
|
15,672
|
|
|
$
|
14,704
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
Equity in undistributed earnings of subsidiaries
|
|
(5,684)
|
|
|
(6,906)
|
|
|
(6,973)
|
|
Other, net
|
|
(494)
|
|
|
(269)
|
|
|
619
|
|
Net cash provided by operating activities
|
|
9,028
|
|
|
8,497
|
|
|
8,350
|
|
INVESTING ACTIVITIES:
|
|
|
|
|
|
|
Investments in subsidiaries
|
|
—
|
|
|
(350)
|
|
|
—
|
|
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
Dividends paid
|
|
(9,020)
|
|
|
(8,876)
|
|
|
(8,818)
|
|
Issuance of common stock
|
|
1,102
|
|
|
769
|
|
|
583
|
|
|
|
|
|
|
|
|
Net cash used for financing activities
|
|
(7,918)
|
|
|
(8,107)
|
|
|
(8,235)
|
|
NET INCREASE IN CASH
|
|
1,110
|
|
|
40
|
|
|
115
|
|
CASH, BEGINNING OF YEAR
|
|
287
|
|
|
247
|
|
|
132
|
|
CASH, END OF YEAR
|
|
$
|
1,397
|
|
|
$
|
287
|
|
|
$
|
247
|
|
NOTE 23 - CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands, Except Per Share Data)
|
|
For the Three Months Ended
|
2020
|
|
March 31,
|
|
June 30,
|
|
Sept. 30,
|
|
Dec. 31,
|
Interest income
|
|
$
|
16,161
|
|
|
$
|
16,044
|
|
|
$
|
15,387
|
|
|
$
|
15,046
|
|
Interest expense
|
|
4,000
|
|
|
3,794
|
|
|
3,542
|
|
|
3,079
|
|
Net interest income
|
|
12,161
|
|
|
12,250
|
|
|
11,845
|
|
|
11,967
|
|
Provision for loan losses
|
|
750
|
|
|
645
|
|
|
645
|
|
|
585
|
|
Non-interest income, excluding securities gains
|
|
2,409
|
|
|
2,423
|
|
|
3,024
|
|
|
2,701
|
|
Securities gains, net
|
|
28
|
|
|
198
|
|
|
1,011
|
|
|
374
|
|
Non-interest expense
|
|
10,110
|
|
|
9,611
|
|
|
9,707
|
|
|
9,640
|
|
Income before income tax provision
|
|
3,738
|
|
|
4,615
|
|
|
5,528
|
|
|
4,817
|
|
Income tax provision
|
|
661
|
|
|
851
|
|
|
1,051
|
|
|
911
|
|
Consolidated net income
|
|
$
|
3,077
|
|
|
$
|
3,764
|
|
|
$
|
4,477
|
|
|
$
|
3,906
|
|
|
|
|
|
|
|
|
|
|
Earnings per share - basic
|
|
$
|
0.44
|
|
|
$
|
0.53
|
|
|
$
|
0.63
|
|
|
$
|
0.56
|
|
Earnings per share - diluted
|
|
$
|
0.44
|
|
|
$
|
0.53
|
|
|
$
|
0.63
|
|
|
$
|
0.56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands, Except Per Share Data)
|
|
For the Three Months Ended
|
2019
|
|
March 31,
|
|
June 30,
|
|
Sept. 30,
|
|
Dec. 31,
|
Interest income
|
|
$
|
16,434
|
|
|
$
|
16,841
|
|
|
$
|
17,084
|
|
|
$
|
16,415
|
|
Interest expense
|
|
3,756
|
|
|
3,928
|
|
|
4,181
|
|
|
4,094
|
|
Net interest income
|
|
12,678
|
|
|
12,913
|
|
|
12,903
|
|
|
12,321
|
|
Provision for loan losses
|
|
360
|
|
|
315
|
|
|
360
|
|
|
1,700
|
|
Non-interest income, excluding securities gains
|
|
2,188
|
|
|
2,492
|
|
|
2,652
|
|
|
2,418
|
|
Securities gains (losses), net
|
|
66
|
|
|
(23)
|
|
|
170
|
|
|
489
|
|
Non-interest expense
|
|
9,814
|
|
|
10,059
|
|
|
9,541
|
|
|
10,294
|
|
Income before income tax provision
|
|
4,758
|
|
|
5,008
|
|
|
5,824
|
|
|
3,234
|
|
Income tax provision
|
|
812
|
|
|
759
|
|
|
1,170
|
|
|
397
|
|
Consolidated net income
|
|
$
|
3,946
|
|
|
$
|
4,249
|
|
|
$
|
4,654
|
|
|
$
|
2,837
|
|
|
|
|
|
|
|
|
|
|
Earnings per share - basic
|
|
$
|
0.56
|
|
|
$
|
0.61
|
|
|
$
|
0.66
|
|
|
$
|
0.40
|
|
Earnings per share - diluted
|
|
$
|
0.56
|
|
|
$
|
0.60
|
|
|
$
|
0.65
|
|
|
$
|
0.39
|
|
NOTE 24 - REVENUE RECOGNITION
On January 1, 2018, the Corporation adopted ASU No. 2014-09 “Revenue from Contracts with Customers” (Topic 606) and all subsequent ASUs that modified Topic 606 using the modified retrospective method, and applied the guidance to all contracts in scope that were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts were not adjusted and continue to be reported in accordance with our historic accounting under Topic 605.
The core principle of Topic 606, Revenue from Contracts with Customers, is that an entity recognize revenue at an amount that reflects the consideration to which the entity expects to be entitled in exchange for transferring goods or services to a customer. Topic 606 requires entities to exercise more judgment when considering the terms of a contract than under Topic 605, Revenue Recognition. Topic 606 applies to all contracts with customers to provide goods or services in the ordinary course of business, except for contracts that are specifically excluded from its scope.
Topic 606 does not apply to revenue associated with interest income on financial instruments, including loans and securities. Additionally, certain noninterest income streams such as certain credit and debit card fees, income from bank owned life insurance, and gain and losses on sales of investment securities are out of scope of Topic 606.
Topic 606 is applicable to noninterest revenue streams such as service charges on deposit accounts, merchant income, wire transfer income, check cashing fees, check printing fees, safe deposit box rental fees, life insurance and brokerage commissions. These revenue streams are largely transactional based and revenue is recognized upon completion of transaction.
Principal versus Agent Considerations
When more than one party is involved in providing goods or services to a customer, Topic 606 requires the Corporation to determine whether it is the principal or an agent in these transactions by evaluating the nature of its promise to the customer. An entity is a principal and therefore records revenue on a gross basis if it controls a promised good or service before transferring that good or service to the customer. An entity is an agent and records as revenue the net amount it retains for its agency services if its role is to arrange for another entity to provide the goods or services. The Corporation most commonly acts as a principal and records revenue on a gross basis, except in certain circumstances. As an example, revenues earned from interchange fees, in which the Corporation acts as an agent, are recorded as non-interest income, net of the related expenses paid to the principal. Brokerage and insurance commissions are recognized when The M Group's services to the broker dealer and investment representative are complete.
Debit Card Fees
Interchange fees are one source of debit and credit card income that is comprised of an amount merchants pay card-issuing banks for the processing of their electronic transactions as a form of payment. ATM service charges, check card usage, and POS debit card transactions generate interchange and debit card income. Per Topic 606 interchange and debit card transaction fees are reported net of related network costs. See Note 1 - Recent Accounting Pronouncements. Prior to the adoption of Topic
606, non-interest expense included network costs. Interchange and debit card transaction fees at December 31, 2020, 2019, and 2018 are reported on a net basis of $1,280,000, $1,378,000 and $1,534,000, respectively. The below table compares gross interchange and debit card transaction fees net network costs for 2020, 2019, and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands)
|
|
2020
|
|
2019
|
|
2018
|
|
Debit card transaction fees
|
|
$
|
1,775
|
|
|
$
|
1,876
|
|
|
$
|
2,117
|
|
|
Other processing service fees
|
|
306
|
|
|
282
|
|
|
275
|
|
|
Gross interchange and card based transaction fees
|
|
2,081
|
|
|
2,158
|
|
|
2,392
|
|
|
Network costs
|
|
801
|
|
|
780
|
|
|
858
|
|
|
Net interchange and card based transaction fees
|
|
$
|
1,280
|
|
|
$
|
1,378
|
|
|
$
|
1,534
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 25 - LEASES
The following table shows finance lease right of use assets and finance lease liabilities as of December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands)
|
|
Statement of Financial Condition classification
|
|
December 31, 2020
|
|
December 31, 2019
|
Finance lease right of use assets
|
|
Premises and equipment, net
|
|
$
|
5,257
|
|
|
$
|
5,456
|
|
Finance lease liabilities
|
|
Long-term borrowings
|
|
5,475
|
|
|
5,587
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table shows the components of finance and operating lease expense for the year ended December 31, 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands)
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
|
Finance Lease Cost:
|
|
|
|
|
|
|
Amortization of right-of-use asset
|
|
$
|
199
|
|
|
$
|
254
|
|
|
|
Interest expense
|
|
212
|
|
|
224
|
|
|
|
Operating lease cost
|
|
318
|
|
|
393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Lease Cost
|
|
$
|
729
|
|
|
$
|
871
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross rental expense for the twelve months ended December 31, 2018 was $541,000.
A maturity analysis of operating and finance lease liabilities and reconciliation of the undiscounted cash flows to the total operating lease liability is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands)
|
|
Operating
|
|
Finance
|
2021
|
|
$
|
291
|
|
|
$
|
282
|
|
2022
|
|
298
|
|
|
283
|
|
2023
|
|
273
|
|
|
284
|
|
2024
|
|
262
|
|
|
290
|
|
2025
|
|
265
|
|
|
300
|
|
2026 and thereafter
|
|
2,911
|
|
|
7,704
|
|
Total undiscounted cash flows
|
|
4,300
|
|
|
9,143
|
|
Discount on cash flows
|
|
(1,125)
|
|
|
(3,668)
|
|
Total lease liability
|
|
$
|
3,175
|
|
|
$
|
5,475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table shows the weighted average remaining lease term and weighted average discount rate for both operating and finance leases outstanding as of December 31, 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
|
|
Finance
|
Weighted-average term (years)
|
|
17.5
|
|
27.2
|
Weighted-average discount rate
|
|
3.47
|
%
|
|
3.76
|
%
|
|
|
|
|
|
|
|
|
|
|