MUNCY COLUMBIA FINANCIAL Corp 10-K for FY2024
MUNCY COLUMBIA FINANCIAL Corp (CCFN)
About this 10-K
MUNCY COLUMBIA FINANCIAL Corp filed this 10-K on March 7, 2025, covering the fiscal year ended December 31, 2024 (FY2024).
Headline figures
Fiscal year ended December 31, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Net income
- $19.02M
- up 461.6% from net income of $3.39M a year earlier
- Diluted EPS
- $5.33
- up 257.7% from $1.49 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year-ended
OR
| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _____________to________________
Commission file No.
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of | (I.R.S. Employer |
| incorporation or organization) | Identification Number) |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including
area code:
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol | Name of Each Exchange on Which Registered | ||
| None |
Securities registered pursuant to section 12(g) of the Act: Common Stock, par value $1.25 per share
Indicate by check mark whether the registrant
is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐
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required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐
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(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
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has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐
Accelerated filer ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
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has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or
issued its audit report.
If securities are registered pursuant to Section
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Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to § 240.10D-1(b). ☐
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is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
The aggregate market value of the registrant’s
common stock held by non-affiliates at June 30, 2024, the registrant’s most recently completed second fiscal quarter, was $
The number of shares of common stock outstanding at March 7, 2025 was .
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s proxy statement for the annual meeting of its shareholders to be held April 22, 2025 are incorporated by reference into Parts III and IV of this Annual Report on Form 10-K. Except as expressly incorporated by reference, the registrant’s definitive proxy statement shall not be deemed to be part of this report.
MUNCY COLUMBIA FINANCIAL CORPORATION
FORM 10-K
TABLE OF CONTENTS
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PART I
Item 1. Business
General
Muncy Columbia Financial Corporation (the “Corporation”) is a registered financial holding company, bank holding company, and Pennsylvania business corporation, headquartered in Bloomsburg, Pennsylvania. The Corporation has one wholly-owned bank subsidiary, Journey Bank (the “Bank”). A substantial part of the Corporation’s business consists of the management and supervision of the Bank. The Corporation’s principal source of income is dividends paid by the Bank. At December 31, 2024, the Corporation, on a consolidated basis, had approximately:
| ● | $1.6 billion in total assets; |
| ● | $1.1 billion in gross loans; |
| ● | $1.3 billion in deposits; and |
| ● | $166 million in stockholders’ equity. |
The Corporation and Bank were formed through a merger in 2023. On April 18, 2023, CCFNB Bancorp, Inc. (“CCFNB”) and Muncy Bank Financial, Inc. (“MBF”) jointly announced the signing of a definitive merger agreement to combine the two companies in a strategic merger of equals. Effective November 11, 2023, the merger was completed. Under the terms of the Merger Agreement, (i) MBF merged with and into CCFNB, with CCFNB being the surviving entity, and (ii) The Muncy Bank & Trust Company merged with and into CCFNB’s wholly-owned banking subsidiary, First Columbia Bank & Trust Co. (“First Columbia Bank”), with First Columbia Bank being the surviving bank (the “Mergers”). In connection with the Mergers, CCFNB changed its name to Muncy Columbia Financial Corporation and First Columbia Bank changed its name to Journey Bank. Total purchase consideration was $55.1 million, including 1,488,960 shares of the Corporation’s common stock issued with a value of $55,092,000 and cash of $9,000 paid for fractional shares. Holders of MBF common stock prior to the consummation of the merger held approximately 41.7% of the Corporation’s common stock outstanding immediately following the merger.
The Bank is a state-chartered, nonmember bank, whose deposits are insured by the Deposit Insurance Fund of the Federal Deposit Insurance Corporation (“FDIC”). The Bank is a full-service commercial bank providing a range of services and products, including time and demand deposit accounts, consumer, commercial and mortgage loans to individuals and small to medium-sized businesses in its Northcentral Pennsylvania market area. The Bank also operates a full-service trust department and offers brokerage services through a third-party networking agreement. At December 31, 2024, the Bank had twenty-two branch banking offices located in the Pennsylvania counties of Clinton, Columbia, Lycoming, Montour and Northumberland.
Management has determined that the Corporation has one reportable segment, “Community Banking.” All of the Corporation’s activities are interrelated, and each activity is dependent and assessed based on how each of the activities of the Corporation supports the others. The Corporation considers its branch banking offices to be a single reporting segment, because these branches have similar:
| ● | economic characteristics, |
| ● | products and services, |
| ● | operating processes, |
| ● | delivery systems, |
| ● | customer bases, and |
| ● | regulatory oversight. |
As of December 31, 2024, the Corporation had 236 employees on a full-time equivalent basis. The Corporation and the Bank are not parties to any collective bargaining agreement and employee relations are considered to be good.
The Bank
The Bank’s legal headquarters are located at 232 East Street, Bloomsburg, Columbia County, Pennsylvania 17815. The Bank is a locally managed community bank that seeks to provide personal attention and professional financial assistance to its customers. The Bank serves the needs of individuals and small to medium-sized businesses. The Bank’s business philosophy includes offering direct access to its President and other officers and providing friendly, informed and courteous service, local and timely decision making, flexible and reasonable operating procedures and consistently-applied credit policies.
Regulation and Supervision
The Corporation and the Bank operate in a highly regulated industry and are subject to a variety of statutes, regulations, and policies, as well as ongoing regulatory supervision and review. Significant federal statutes that apply to the Corporation and the Bank include the Gramm Leach Bliley Act (“GLB Act”), the Bank Holding Company Act (“BHCA”), the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), the USA Patriot Act, the Federal Reserve Act and the Federal Deposit Insurance Act. The Bank is subject primarily to the provisions of the Federal Deposit Insurance Act and, as a state-chartered financial institution, to the Pennsylvania Banking Code of 1965. In general, these statutes, regulations promulgated in accordance with these
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statutes, and interpretations of the statutes and regulations by the banking regulatory agencies establish the eligible business activities of the Corporation and the Bank, certain acquisition and merger restrictions, limitations on intercompany transactions, such as loans and dividends, and capital adequacy requirements, among other things. These laws, regulations and policies are subject to frequent change and the Corporation takes measures to comply with applicable requirements. The following summarizes some of the more significant provisions of these laws as they relate to the Corporation and the Bank. To the extent that the following information describes statutory or regulatory provisions, it is qualified in its entirety by reference to the particular statutory provisions. Any change in applicable law or regulation may have a material effect on the business and prospects of the Corporation and the Bank.
Financial and Bank Holding Company Activities
As a financial holding company, the Corporation may engage in, and acquire companies engaged in, activities that are considered “financial in nature”, as defined by the GLB Act and Federal Reserve Board interpretations. These activities include, among other things, securities underwriting, dealing and market-making, sponsoring mutual funds and investment companies, insurance underwriting and agency activities, and merchant banking. If any banking subsidiary of the Corporation ceases to be “well capitalized” or “well managed” under applicable regulatory standards, the Federal Reserve Board may, among other things, place limitations on the Corporation’s ability to conduct the broader financial activities permissible for financial holding companies or, if the deficiencies persist, require the Corporation to divest the banking subsidiary. In addition, if any banking subsidiary of the Corporation receives a Community Reinvestment Act rating of less than satisfactory, the Corporation would be prohibited from engaging in any additional activities other than those permissible for bank holding companies that are not financial holding companies. The Corporation may engage directly or indirectly in activities considered financial in nature, either de novo or by acquisition, as long as it gives the Federal Reserve Board after-the-fact notice of the new activities.
Interstate Banking and Branching
The federal banking agencies are generally authorized to approve interstate bank merger transactions. The Dodd-Frank Act amended federal banking law to permit banks to establish de novo branches in other states to the same extent as a bank chartered by that state would be so permitted. The interstate banking and branching provisions of the federal banking laws would permit the Bank to merge with banks in other states and branch into other states and would also permit banks from other states to acquire banks in the Bank’s market area and to establish de novo branches in the Bank’s market area.
Control Acquisitions
The Change in Bank Control Act prohibits a person or group of persons from acquiring “control” of a bank holding company, unless the Federal Reserve Board has been notified and has not objected to the transaction.
Under a rebuttable presumption established by the Federal Reserve Board, the acquisition of 10% or more of a class of voting stock of a bank holding company with a class of securities registered under Section 12 of the Exchange Act would, under the circumstances set forth in the presumption, constitute acquisition of control of the bank holding company. In addition, a company is required to obtain the approval of the Federal Reserve Board under the Bank Holding Company Act before acquiring 25% (5% in the case of an acquirer that is a bank holding company) or more of any class of outstanding voting stock of a bank holding company, or otherwise obtaining control or a “controlling influence” over that bank holding company.
Liability for Banking Subsidiaries
Under Federal Reserve Board policy, a bank holding company is expected to act as a source of financial and managerial strength to each of its subsidiary banks and to commit resources to their support. This support may be required at times when the bank holding company may not have the resources to provide it. Similarly, under the cross-guarantee provisions of the Federal Deposit Insurance Act, the FDIC can hold any FDIC-insured depository institution liable for any loss suffered or anticipated by the FDIC in connection with (1) the “default” of a commonly controlled FDIC-insured depository institution; or (2) any assistance provided by the FDIC to a commonly controlled FDIC-insured depository institution “in danger of default”.
Capital Requirements
The federal banking agencies approved final capital rules in July 2013 that substantially amend the existing capital rules for banks and bank holding companies. The new rules reflect, in part, certain standards initially adopted by the Basel Committee on Banking and Supervision in December 2010 (commonly known as Basel III), as well as requirements contemplated by the Dodd-Frank Act.
The new rules include a new minimum ratio of common equity tier 1 capital to risk-weighted assets of 4.5% and a common equity tier 1 capital conservation buffer of 2.5% of risk-weighted assets, raise the minimum ratio of tier 1 capital to risk-weighted assets from 4% to 6% and include a minimum leverage ratio of 4%. Both the Corporation and the Bank comply with these ratios. The new rules also implement strict eligibility criteria for regulatory capital instruments and improve the methodology for calculating risk-weighted assets to enhance risk sensitivity.
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During 2018, the FRB raised the threshold of its “Small Bank Holding Company” exemption to the application of consolidated capital requirements for qualifying small bank holding companies from $1 billion to $3 billion of consolidated assets. Consequently, qualifying bank holding companies having less than $3 billion of consolidated assets are not subject to the consolidated capital requirements unless otherwise directed by the FRB. As of December 31, 2024, the Corporation qualifies as a small bank holding company and, while it complies with the consolidated capital requirements, it is not subject to regulation in accordance with the consolidated capital requirements.
Additional information concerning the Corporation and the Bank with respect to capital requirements is incorporated by reference from Note 14, “Regulatory Matters”, of the “Notes to Consolidated Financial Statements” included under Item 8 of this report, and from the “Capital Resources” section of the “Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operations”, included under Item 7 of this report.
FDICIA
The Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”), and the regulations promulgated under FDICIA, among other things, established five capital categories for insured depository institutions – well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized – and requires federal bank regulatory agencies to implement systems for “prompt corrective action” for insured depository institutions that do not meet minimum capital requirements based on these categories. Unless a bank is well capitalized, it is subject to restrictions on its ability to offer brokered deposits and on certain other aspects of its operations. An undercapitalized bank must develop a capital restoration plan and its parent bank holding company must guarantee the bank’s compliance with the plan up to the lesser of 5% of the bank’s assets at the time it became undercapitalized and the amount needed to comply with the plan. As of December 31, 2024, the Bank was considered well capitalized based on the guidelines implemented by the bank’s regulatory agencies.
Dividend and Share Repurchase Restrictions
The Corporation is a legal entity separate and distinct from the Bank. The Corporation’s revenues (on a parent company only basis) and its ability to pay dividends to its shareholders, or repurchase shares from its shareholders, are almost entirely dependent upon the receipt of dividends from the Bank. The right of the Corporation, and consequently the rights of its creditors and shareholders to participate in any distribution of the assets or earnings of any subsidiary through the payment of such dividends or otherwise is necessarily subject to the prior claims of creditors of the subsidiary (including depositors) except to the extent that claims of the Corporation, in its capacity as a creditor, may be recognized. Additionally, the ability of the Bank to pay dividends to the Corporation is subject to Pennsylvania state law and various regulatory restrictions.
The declaration of cash dividends on the Corporation’s common stock, or the repurchase of shares of its common stock, is at the discretion of its board of directors, and any decision to declare a dividend, or repurchase shares, is based on a number of factors, including, but not limited to, earnings, prospects, financial condition, regulatory capital levels, applicable covenants under any credit agreements, notes and other contractual restrictions, Pennsylvania law, federal bank regulatory law, and other factors deemed relevant.
Deposit or Preference Statute
In the “liquidation or other resolution” of an institution by any receiver, U.S. federal law provides that deposits and certain claims for administrative expenses and employee compensation against the insured depository institution would be afforded a priority over the general unsecured claims against that institution, including federal funds and letters of credit.
Other Federal Laws and Regulations
The Corporation’s operations are subject to additional federal laws and regulations applicable to financial institutions, including, without limitation:
| ● | Privacy provisions of the GLB Act and related regulations, which require us to maintain privacy policies intended to safeguard customer financial information, to disclose the policies to our customers and to allow customers to “opt out” of having their financial service providers disclose their confidential financial information to non-affiliated third parties, subject to certain exceptions; |
| ● | Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records; |
| ● | Consumer protection rules for the sale of insurance products by depository institutions, adopted pursuant to the requirements of the GLB Act; and |
| ● | USA Patriot Act, which requires financial institutions to take certain actions to help prevent, detect and prosecute international money laundering and the financing of terrorism. |
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Sarbanes-Oxley Act of 2002
On July 30, 2002, the Sarbanes-Oxley Act of 2002 was enacted. The Sarbanes-Oxley Act represents a comprehensive revision of laws affecting corporate governance, accounting obligations and corporate reporting. The Sarbanes-Oxley Act is applicable to all companies, such as the Corporation, with equity securities registered or that file reports under the Securities Exchange Act of 1934. In particular, the Sarbanes-Oxley Act established: (i) new requirements for audit committees, including independence, expertise, and responsibilities; (ii) additional responsibilities regarding financial statements for the chief executive officer and chief financial officer; (iii) new standards for auditors and regulation of audits; (iv) increased disclosure and reporting obligations for the company and its directors and executive officers; and (v) new and increased civil and criminal penalties for violations of the securities laws. Many of the provisions were effective immediately while other provisions became effective over a period of time and are subject to rulemaking by the SEC.
FDIC Insurance and Assessments
Journey Bank is fully insured by the FDIC up to the deposit insurance limit of $250,000 per depositor, per FDIC insured institution, and per ownership category, in accordance with applicable laws and regulations. The assessment rate paid by each FDIC member institution is based on its relative risks of default as measured by regulatory capital ratios and other factors. Specifically, the assessment rate is based on the institution’s capitalization risk category and supervisory subgroup category. An institution’s capitalization risk category is based on the institution’s capitalization and supervisory ratings. An institution’s supervisory subgroup category is based on the FDIC’s assessment of the financial condition of the institution and the probability that FDIC intervention or other corrective action will be required. The FDIC may terminate insurance of deposits upon a finding that an institution has engaged in unsafe and unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC.
The base for deposit insurance assessments is average consolidated total assets less average tangible equity. Assessment rates are calculated using formulas that take into account the risk of the institution being assessed.
The FDIC may increase or decrease the assessment rate schedule in order to manage the Deposit Insurance Fund (“DIF”) to prescribed statutory target levels. An increase in the risk category for a subsidiary bank or in the assessment rates could have an adverse effect on such bank’s and, consequently, the holding company’s earnings. The FDIC may terminate deposit insurance if it determines the institution involved has engaged in or is engaging in unsafe or unsound banking practices, is in an unsafe or unsound condition, or has violated applicable laws, regulations or orders.
On May 11, 2023, the FDIC proposed a special assessment to make up for losses to the deposit insurance fund caused by the decision of bank regulators to declare a systemic exception in the failures of Silicon Valley Bank and Signature Bank. Starting with the first quarter of 2024, the FDIC would impose a special assessment on the amount of an independent bank’s estimated uninsured deposits in excess of $5 billion as of December, 2022. Banks with less than $5 billion in assets, such as Journey Bank, would not be subject to the special assessment.
Dodd-Frank Wall Street Reform and Consumer Protection Act
On July 21, 2010, the Dodd-Frank Act was signed into law. The Dodd-Frank Act is intended to affect a fundamental restructuring of federal banking regulation. Among other things, the Dodd-Frank Act creates a new Financial Stability Oversight Council to identify systemic risks in the financial system and gives federal regulators new authority to take control of and liquidate financial firms. The Dodd-Frank Act additionally creates a new independent federal regulator to administer federal consumer protection laws. To date, the following provisions of the Dodd-Frank Act are considered to be of the greatest significance to the Corporation:
| ● | expands the authority of the FRB to examine bank holding companies and their subsidiaries, including insured depository institutions; | |
| ● | requires a bank holding company to be well capitalized and well managed to receive approval of an interstate bank acquisition; | |
| ● | provides mortgage reform provisions regarding a customer’s ability to pay and making more loans subject to provisions for higher-cost loans and new disclosures; | |
| ● | created the Consumer Financial Protection Bureau (the “CFPB”) that has rulemaking authority for a wide range of consumer protection laws that apply to all banks and has broad powers to supervise and enforce consumer protection laws; | |
| ● | made permanent the $250,000 limit for federal deposit insurance at all insured depository institutions; | |
| ● | includes additional corporate governance and executive compensation requirements on companies subject to the Exchange Act; | |
| ● | permits FDIC-insured banks to pay interest on business demand deposits; | |
| ● | requires that holding companies and other companies that directly or indirectly control an insured depository institution serve as a source of financial strength; | |
| ● | created the Financial Stability Oversight Council with authority to identify institutions and practices that might pose a systemic risk; and | |
| ● | permits national and state banks to establish interstate branches to the same extent as the branch host state allows establishment of in-state branches. |
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Consumer Financial Protection Bureau and Consumer Lending Regulation. The Dodd-Frank Act created the CFPB, which is granted broad rulemaking, supervisory and enforcement powers under various federal consumer financial protection laws, including the Equal Credit Opportunity Act, Truth in Lending Act (“TILA”), Real Estate Settlement Procedures Act (“RESPA”), Fair Credit Reporting Act, Fair Debt Collection Practices Act, Consumer Financial Privacy provisions of the Gramm-Leach-Bliley Act, and certain other statutes. The CFPB has examination and primary enforcement authority with respect to depository institutions with $10 billion or more in assets. Smaller institutions are subject to rules promulgated by the CFPB but continue to be examined and supervised by federal banking regulators for consumer compliance purposes. The CFPB has authority to prevent unfair, deceptive or abusive practices in connection with the offering of consumer financial products. For example, the Dodd-Frank Act authorizes the CFPB to establish certain minimum standards for the origination of residential mortgages including, in certain circumstances, a determination of the borrower’s ability to repay. In addition, the Dodd-Frank Act allows certain borrowers to raise certain defenses to foreclosure if they receive any loan other than a “qualified mortgage” as defined by the CFPB. The Dodd-Frank Act permits states to adopt consumer protection laws and standards that are more stringent than those adopted at the federal level and, in certain circumstances, permits state attorneys general to enforce compliance with both the state and federal laws and regulations.
The CFPB’s rulemaking, examination and enforcement authority has and will continue to significantly affect financial institutions offering consumer financial products and services, including the Corporation and the Bank. These regulatory activities may limit the types of financial services and products the Bank may offer, which in turn may reduce the Corporation’s revenues.
Community Reinvestment Act
The Community Reinvestment Act requires the FDIC to evaluate the Bank’s performance in helping to meet the credit needs of the entire community it serves, including low- and moderate-income neighborhoods, consistent with safe and sound banking operations, and to take this record into consideration when evaluating certain applications, such as applications to establish, relocate or close branch offices and applications in connection with mergers and other acquisition transactions. On October 23, 2023, the FDIC and the other federal banking agencies approved changes to their CRA regulations, replacing the existing tests with four new tests and associated performance metrics. The new CRA regulations were to become effective on January 1, 2026. Early in 2024, a federal judge issued an injunction staying the effective date of the CRA regulations. The injunction has been appealed by the federal banking agencies, but remains in effect as of the date of this annual report. The effective dates will be extended for each day the injunction remains in place, pending the resolution of the lawsuit. The Bank achieved a rating of “outstanding” on its most recent CRA examination dated December 5, 2022.
Commercial Real Estate Concentrations
Lending operations of commercial banks may be subject to enhanced scrutiny by federal banking regulators based on a bank’s concentration of commercial real estate loans. On December 6, 2006, the federal banking regulators issued final guidance to remind financial institutions of the risk posed by commercial real estate, or CRE, lending concentrations, and on December 18, 2015, the federal bank regulators issued additional guidance on prudent risk management for CRE lending. CRE loans generally include land development, construction loans, and loans secured by multifamily property, and nonfarm, nonresidential real property where the primary source of repayment is derived from rental income associated with the property. The guidance prescribes the following guidelines for examiners to help identify institutions that are potentially exposed to significant CRE risk and may warrant greater supervisory scrutiny:
| ● | total reported loans for construction, land development and other land, or C&D, represent 100% or more of the institution’s total capital; or |
| ● | Total CRE loans represent 300% or more of the institution’s total capital, and the outstanding balance of the institution’s CRE loan portfolio has increased over 50% or more. |
As of December 31, 2024, the Bank did not exceed either guideline threshold.
Environmental
The Corporation has no material ongoing costs related to compliance with federal, state, or local environmental laws. From time to time, the Bank originates loans with special environmental considerations. The Bank’s lending policy outlines policies and procedures related to loans with special environmental considerations, including the need to obtain phase I/II environmental assessments. Generally, the cost of these assessments is covered by the borrower.
Future Legislation
Changes to the laws and regulations to which the Corporation and the Bank are subject can affect the operating environment of both the Corporation and the Bank in substantial and unpredictable ways. The Corporation cannot accurately predict whether those changes in laws and regulations will occur, and, if those changes occur, the ultimate effect they would have upon the financial condition or results of operations of the Corporation. This is also true of federal legislation particularly given the current volatile environment.
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Human Capital Resources
We recognize the importance of human capital resources as a cornerstone of our business. The Corporation’s key human capital management objectives are to attract and retain highly qualified individuals that fit our values and culture. The Corporation is an Equal Opportunity and Affirmative Action Employer. We recruit, employ, train, compensate, and promote without regard to race, religion, creed, color, national origin, age, gender, sexual orientation, gender identity, marital status, disability, veteran status, or any other basis protected by applicable federal, state or local law.
Available Information
The Corporation files reports, proxy and information statements and other information electronically with the SEC. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The SEC’s website address is https://www.sec.gov. The Corporation makes its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K and amendments thereto available through its website at https://www.journeybank.com. The information contained on our website is not included as a part of, or incorporated by reference in, this Annual Report on Form 10-K. These reports may also be obtained free of charge as soon as practicable after filing or furnishing them to the SEC upon request by sending an email to investorrelations@journeybank.com. Information may also be obtained via written request to Muncy Columbia Financial Corporation, Attention: Chief Financial Officer, 232 East Street, Bloomsburg, PA 17815.
Item 1A. Risk Factors
The operations and financial results of the Corporation are subject to various risks and uncertainties, including those described below. The risks and uncertainties described below are not the only ones the Corporation faces. Additional risks and uncertainties the Corporation is unaware of, or currently believes are not material, may also become important factors affecting the Corporation. If any of the following risks occur, the Corporation’s business, financial condition, operating results and prospects could be materially and adversely affected. In that event, the price of the Corporation’s common stock could decline.
Risks Relating to the Financial Services Industry
Events impacting the financial services industry may adversely affect the business of the Corporation and the market price of its common stock.
Developments and events in the financial services industry, including the well-publicized failures of several institutions in 2023 and more recently, have resulted in decreased confidence in banks among depositors, other counterparties and investors, as well as significant disruption and volatility of equity and other securities of banks in the capital markets. These events have occurred against the backdrop of a heighted interest rate environment which, among other things, has resulted in unrealized losses in longer duration securities and loans held by banks, and a corresponding decrease in shareholders’ equity and bank capital levels, impacting the dynamics in the competition for bank deposits, and may increase the risk of a potential recession. These events and developments could materially and adversely impact the business or financial condition of the Corporation, including through potential liquidity pressures, reduced net interest margins, and potential increased credit losses. These events and developments have, and could continue to, adversely impact the market price and volatility of the Corporation’s common stock. These events may also result in changes to laws or regulations governing banks and bank holding companies or result in the impositions of restrictions through supervisory or enforcement activities, including higher capital requirements, which could have a material impact on the businesses of the Corporation. The cost of resolving the failures may prompt the FDIC to increase its premiums above the recently increased levels or to issue additional special assessments.
Risks Relating to the Corporation’s Business
Changes in economic conditions, in particular an economic slowdown in central Pennsylvania, could materially and negatively affect the Corporation’s business.
The Corporation’s business is directly impacted by factors such as economic, political and market conditions, broad trends in industry and finance, legislative and regulatory changes, changes in government monetary and fiscal policies and inflation, all of which are beyond the Corporation’s control. Any deterioration in economic conditions, whether caused by national or local concerns, and in particular in Pennsylvania, could result in the following consequences, any of which could hurt the Corporation’s business materially: loan delinquencies may increase; problem assets and foreclosures may increase; demand for the Corporation’s products and services may decrease; low cost or noninterest bearing deposits may decrease; and collateral for loans made by the Corporation, especially real estate, may decline in value, reducing customers’ borrowing power and reducing the value of assets and collateral associated with the Corporation’s existing loans.
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An economic downturn or prolonged recession would likely result in further deterioration of the quality of the Corporation’s loan portfolio and reduce the Corporation’s level of deposits, which in turn would hurt its business. If the Corporation experiences an economic downturn or a prolonged economic recession occurs in the economy as a whole, borrowers will be less likely to repay their loans as scheduled. Unlike many larger institutions, the Corporation is not able to spread the risks of unfavorable local economic conditions across a large number of diversified local economies. An economic downturn could, therefore, result in losses that materially and adversely affect the Corporation’s business.
The small- and medium-sized business target market may have fewer financial resources to weather a downturn in the economy.
The Corporation targets its commercial development and marketing strategy to serve the banking and financial services needs of small- and medium-sized businesses. These businesses generally have fewer financial resources in terms of capital or borrowing capacity than larger entities. If general economic conditions negatively impact this major economic sector in the markets in which the Corporation operates, its results of operations and financial condition, as well as the value of its securities, may be adversely affected.
Competition with other financial institutions may have an adverse effect on the Corporation’s ability to retain and grow its client base, which could have a negative effect on its financial condition or results of operations.
The banking and financial services industry is very competitive and includes services offered from other banks, savings and loan associations, credit unions, mortgage companies, other lenders, and institutions offering uninsured investment alternatives. Legal and regulatory developments have made it easier for new and sometimes unregulated competitors to compete with the Corporation. The financial services industry has and is experiencing an ongoing trend towards consolidation in which fewer large national and regional banks and other financial institutions are replacing many smaller and more local banks. These larger banks and other financial institutions hold a large accumulation of assets and have significantly greater resources and a wider geographic presence or greater accessibility. In some instances, these larger entities operate without the traditional brick and mortar facilities that restrict geographic presence. Some competitors have more aggressive marketing campaigns and better brand recognition, and are able to offer more services, more favorable pricing or greater customer convenience than the Corporation. In addition, competition has increased from other banks and other financial services providers that target the Corporation’s existing or potential customers. As consolidation continues among large banks, the Corporation expects other smaller institutions to try to compete in the markets the Corporation plans to serve. This competition could reduce the Corporation’s net income by decreasing the number and size of the loans that it originates and the interest rates it charges on these loans. Additionally, these competitors may offer higher interest rates on deposits, which could decrease the deposits the Corporation attracts or require it to increase rates to retain existing deposits or attract new deposits. Increased deposit competition could adversely affect the Corporation’s ability to generate the funds necessary for lending operations which could increase its cost of funds.
The financial services industry could become even more competitive as a result of legislative, regulatory and technological changes and continued consolidation. Banks, securities firms and insurance companies can merge as part of a financial holding company, which can offer virtually any type of financial service, including banking, securities underwriting, insurance (both agency and underwriting) and merchant banking. Technological developments have allowed competitors, including some non-depository institutions, to compete more effectively in local markets and has expanded the range of financial products, services and capital available to the Corporation’s target customers. If the Corporation is unable to implement, maintain and use such technologies effectively, it may not be able to offer products or achieve cost-efficiencies necessary to compete in the industry. In addition, some of these competitors have fewer regulatory constraints and lower cost structures.
Liquidity needs could adversely affect the Corporation’s financial condition and results of operation.
The primary sources of funds of the Corporation are customer deposits and loan repayments. While scheduled loan repayments are a relatively stable source of funds, they are subject to the ability of borrowers to repay the loans. The ability of borrowers to repay loans can be adversely affected by a number of factors, including changes in economic conditions, adverse trends or events affecting business industry groups, reductions in real estate values or markets, business closings or lay-offs, inclement weather, which could be exacerbated by potential climate change, natural disasters and international instability.
Additionally, deposit levels may be affected by a number of factors, including rates paid by competitors, general interest rate levels, regulatory capital requirements, returns available to customers on alternative investments and general economic conditions. Accordingly, the Corporation may be required from time to time to rely on secondary sources of liquidity to meet withdrawal demands or otherwise fund operations. Such sources include proceeds from Federal Home Loan Bank advances, sales of investment securities and loans, and federal funds lines of credit from correspondent banks, as well as out-of-market time deposits. While the Corporation believes that these sources are currently adequate, there can be no assurance they will be sufficient to meet future liquidity demands, particularly if the Corporation continues to grow and experience increasing loan demand. The Corporation may be required to slow or discontinue loan growth, capital expenditures or other investments or liquidate assets should such sources not be adequate.
9
Changes in prevailing interest rates may reduce the Corporation’s profitability.
The Corporation’s results of operations depend in large part upon the level of its net interest income, which is the difference between interest income from interest-earning assets, such as loans and investment securities, and interest expense on interest-bearing liabilities, such as deposits and other borrowings. Depending on the terms and maturities of the Corporation’s assets and liabilities, a significant change in interest rates could have a material adverse effect on its profitability. Many factors cause changes in interest rates, including governmental monetary policies and domestic and international economic and political conditions. While the Corporation intends to manage the effects of changes in interest rates by adjusting the terms, maturities, and pricing of its assets and liabilities, its efforts may not be effective, and its financial condition and results of operations could suffer.
The Corporation may not be able to adequately anticipate and respond to changes in market interest rates.
The Corporation may be unable to anticipate changes in market interest rates, which are affected by many factors beyond its control including, but not limited to, inflation, recession, unemployment, money supply, monetary policy, and other changes that affect financial markets, both domestic and foreign. The Corporation’s net interest income is affected not only by the level and direction of interest rates, but also by the shape of the yield curve and relationships between interest sensitive instruments and key index rates, as well as balance sheet growth, customer loan and deposit preferences, and the timing of changes in these variables. In the event interest rates increase, the Corporation’s interest costs on liabilities may increase more rapidly than its income on interest earning assets, resulting in a deterioration of its net interest margin. As such, fluctuations in interest rates could have a material adverse effect on the Corporation’s financial condition and results of operations.
Significant increases in interest rates may affect customer loan demand and payment habits.
Significant increases in market interest rates, or the perception that an increase may occur, could adversely impact the Bank’s ability to generate new loans. An increase in market interest rates may also adversely impact the ability of adjustable-rate borrowers to meet repayment obligations, thereby causing nonperforming loans and loan charge-offs to increase in these mortgage products.
If the Bank’s loan growth exceeds that of its deposit growth, then the Bank may be required to obtain higher cost sources of funds.
Our growth strategy depends upon generating an increasing level of loans at the Bank while maintaining a low level of loan losses for the Bank. As the Bank’s loans grow, it is necessary for the Bank’s deposits to grow at a comparable pace in order to avoid the need for the Bank to obtain other sources of loan funds at higher costs. If the Bank’s loan growth exceeds the deposit growth, the Bank may have to obtain other sources of funds at higher costs which could adversely affect our earnings.
The Corporation’s decisions regarding allowance for credit losses and credit risk may materially and adversely affect its business.
Making loans and other extensions of credit is an essential element of the Corporation’s business. Although the Corporation seeks to mitigate risks inherent in lending by adhering to specific underwriting practices, the Corporation’s loans and other extensions of credit may not be repaid. The risk of nonpayment is affected by a number of factors, including:
| ● | the duration of the credit; | |
| ● | credit risks of a particular customer; | |
| ● | changes in economic and industry conditions; and | |
| ● | in the case of a collateralized loan, risks resulting from uncertainties about the future value of the collateral. |
The Corporation attempts to maintain an appropriate allowance for credit losses to provide for probable losses in its loan portfolio. The Corporation periodically determines the amount of the allowance based on consideration of several factors, including but not limited to:
| ● | an ongoing review of the quality, mix, and size of the Corporation’s overall loan portfolio; | |
| ● | the Corporation’s historical loan loss experience; | |
| ● | evaluation of current and future economic conditions; | |
| ● | regular reviews of loan delinquencies and loan portfolio quality; | |
| ● | ongoing review of financial information provided by borrowers; and | |
| ● | the amount and quality of collateral, including guarantees, securing the loans. |
The determination of the appropriate level of the allowance for credit losses inherently involves a high degree of subjectivity and requires the Corporation to make significant estimates of current credit risks and future trends, all of which may undergo material changes. Deterioration in economic conditions affecting borrowers, new information regarding existing loans, identification of additional problem loans and other factors, both within and outside of the Corporation’s control, may require an increase in the allowance for credit losses. In addition, regulatory agencies periodically review the Corporation’s allowance for credit losses and may require an increase in the provision for credit losses or the recognition of further loan charge-offs, based on judgments different than those of management. If charge-offs in future periods exceed the allowance for credit losses, the Corporation will need additional provisions to increase the allowance for credit losses. Any increases in the allowance for credit losses will result in a decrease in net income and, possibly, capital, and may have a material adverse effect on the Corporation’s financial condition and results of operations.
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The Corporation may have higher credit losses than it has allowed for in its allowance for credit losses.
The Corporation’s actual credit losses could exceed its allowance for credit losses and therefore its allowance for credit losses may not be adequate. Industry experience shows that a portion of loans will become delinquent and a portion of loans will require partial or entire charge-off. Regardless of the underwriting criteria utilized, losses may be experienced as a result of various factors beyond the Corporation’s control, including among other things, changes in market conditions affecting the value of loan collateral and problems affecting borrower credit.
Our reliance upon the accuracy and completeness of information about customers and counterparties could adversely affect our financial condition and results of operations.
In deciding whether to extend credit or enter into other transactions with customers and counterparties, we rely upon information furnished by or on behalf of customers and counterparties, including financial statements, credit reports and other financial information. We also may rely upon representations of those customers and counterparties, or third parties such as auditors or appraisers, as to the accuracy and completeness of that information. If this information is inaccurate, we could experience a material adverse impact on our results of operations and financial condition.
Adverse changes in the market value of securities and investments that we manage for others may negatively impact the growth level of the Bank’s non-interest income.
The Bank provides a broad range of trust and investment management services for estates, trusts, agency accounts, and individual and employer sponsored retirement plans. The market value of the securities and investments managed by the Bank may decline due to factors outside the Bank’s control. Any such adverse changes in the market value of the securities and investments could negatively impact the growth of the non-interest income generated from providing these services.
The Bank’s branch locations may be negatively affected by changes in demographics.
The Bank has strategically selected locations for bank branches based upon regional demographics. Any changes in regional demographics may impact the Bank’s ability to reach or maintain profitability at its branch locations. Changes in regional demographics may also affect the perceived benefits of certain branch locations and management may be required to reduce the number of locations of its branches.
The Corporation is subject to extensive government regulation and supervision that could interfere with its ability to conduct its business and may negatively impact its financial results, restrict its activities, have an adverse impact on its operations, and impose financial requirements or limitations on the conduct of its business.
The Corporation, primarily through the Bank, is subject to extensive federal and state regulation and supervision. Banking regulations are primarily intended to protect depositors’ funds, the Federal Deposit Insurance Fund and the safety and soundness of the banking system as a whole, not stockholders. These regulations affect the Corporation’s lending practices, capital structure, investment practices, dividend policy and growth, among other things. Congress and federal regulatory agencies continually review banking laws, regulations and policies for possible changes. Changes to statutes, regulations or regulatory policies, including changes in interpretation or implementation of statutes, regulations or policies, could affect the Corporation in substantial and unpredictable ways. Such changes could subject the Corporation to additional costs, limit the types of financial services and products it may offer, and/or limit the pricing it may charge on certain banking services, among other things. The Corporation will have to apply resources to ensure that it is in compliance with any changes to statutes, regulations or regulatory policies, including changes in interpretations or implementation, which may increase its costs of operations and adversely impact its earnings.
The Corporation faces a risk of noncompliance and enforcement action with the Bank Secrecy Act and other anti-money laundering statutes and regulations.
The Bank Secrecy Act, as amended by the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, which we refer to as the Patriot Act, and other laws and regulations require financial institutions, among other duties, to institute and maintain effective anti-money laundering programs and file suspicious activity and currency transaction reports as appropriate. The Financial Crimes Enforcement Network, established by the U.S. Treasury to administer the Bank Secrecy Act, is authorized to impose significant civil money penalties for violations of those requirements and has recently engaged in coordinated enforcement efforts with the individual federal banking regulators, as well as the U.S. Department of Justice, Drug Enforcement Administration and Internal Revenue Service. There is also increased scrutiny of compliance with the rules enforced by the Office of Foreign Assets Control, which we refer to as OFAC. Over the past several years, federal and state bank regulators also have increased their focus on compliance with Bank Secrecy Act and anti-money laundering regulations. If the Corporation’s policies, procedures and systems are deemed deficient or the policies, procedures and systems of the financial institutions that it has already acquired or may acquire in the future are deficient, it would be subject to liability, including fines and regulatory actions such as restrictions on its ability to pay dividends and the necessity to obtain regulatory approvals to proceed with certain aspects of its business plan, including its acquisition plans, which would negatively impact its business, financial condition and results of operations. Failure to maintain and implement adequate programs to combat money laundering and terrorist financing could also have serious reputational consequences for the Corporation.
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Regulations relating to privacy, information security and data protection could increase the Corporation’s costs, affect or limit how it collects and uses personal information and adversely affect its business opportunities.
The Corporation is subject to various privacy, information security and data protection laws, including requirements concerning security breach notification, and it could be negatively impacted by these laws. For example, the Corporation’s business is subject to the Financial Services Modernization Act of 1999, also known as the Gramm-Leach-Bliley Act, which, among other things: (i) imposes certain limitations on its ability to share nonpublic personal information about its customers with nonaffiliated third parties; (ii) requires that it provide certain disclosures to customers about its information collection, sharing and security practices and afford customers the right to “opt out” of any information sharing by the Corporation with nonaffiliated third parties (with certain exceptions) and (iii) requires it to develop, implement and maintain a written comprehensive information security program containing safeguards appropriately based on its size and complexity, the nature and scope of its activities, and the sensitivity of customer information it processes, as well as plans for responding to data security breaches. Various state and federal banking regulators have also enacted data security breach notification requirements with varying levels of individual, consumer, regulatory or law enforcement notification in certain circumstances in the event of a security breach. This includes increased privacy-related enforcement activity at the federal level, by the Federal Trade Commission, as well as at the state level, such as with regard to mobile applications. Moreover, legislators and regulators in the United States are increasingly adopting or revising privacy, information security and data protection laws that potentially could have a significant impact on the Corporation’s current and planned privacy, data protection and information security-related practices, the Corporation’s collection, use, sharing, retention and safeguarding of consumer or employee information, and some of its current or planned business activities. This could also increase the Corporation’s costs of compliance and business operations and could reduce income from certain business initiatives.
Compliance with current or future privacy, data protection and information security laws (including those regarding security breach notification) affecting customer or employee data to which the Corporation is subject could result in higher compliance and technology costs and could restrict its ability to provide certain products and services, which could have a material adverse effect on its business, financial condition or results of operations. The Corporation’s failure to comply with privacy, data protection and information security laws could result in potentially significant regulatory or governmental investigations or actions, litigation, fines, sanctions and damage to its reputation, which could have a material adverse effect on its business, results of operations, financial condition, and the value of its securities.
The Corporation’s use of third-party vendors and other ongoing third-party business relationships are subject to increasing regulatory requirements and attention.
The Corporation regularly uses third party vendors as part of its business. The Corporation also has substantial ongoing business relationships with other third parties. These types of third-party relationships are subject to increasingly demanding regulatory requirements and attention by the Corporation’s federal bank regulators. Regulatory guidance requires all banking organizations to enhance due diligence, ongoing monitoring and control over organizations’ third-party vendors and other ongoing third-party business relationships. The Corporation expects that its regulators will hold it responsible for any deficiencies in its oversight and control of its third-party relationships and in the performance of the parties with which it has these relationships. As a result, if the Corporation’s regulators conclude that it has not exercised adequate oversight and control over its third party vendors or other ongoing third party business relationships or that such third parties have not performed appropriately, the Corporation could be subject to enforcement actions, including civil money penalties or other administrative or judicial penalties or fines as well as requirements for customer remediation, any of which could have a material adverse effect on its business, results of operations, financial condition, and the value of its securities.
Technological advances impact the Corporation’s business; its information systems may experience an interruption or breach in security.
To conduct the Corporation’s business, it relies heavily on new technology-driven products and services, communications and information systems. The Corporation’s future success will depend, in part, on its ability to address the needs of the Corporation’s customers by using technology to provide products and services that will satisfy customer demands for convenience as well as to create additional efficiencies in operations. Any failure, interruption or breach of the security of the Corporation’s information systems could result in failures or disruptions in its customer relationship management, general ledger, deposit, loan and other systems. While the Corporation has policies and procedures designed to prevent or limit the effect of the failure, interruption or security breach of the Corporation’s information systems, there can be no assurance that the Corporation can prevent any such failures, interruptions or security breaches or, if they do occur, that they will be adequately addressed. During the normal course of the Corporation’s business, it has experienced and it expects to continue to experience attempts to breach its systems, none of which has been material to the Corporation to date, and it may be unable to protect sensitive data and the integrity of its systems. The occurrence of any failures, interruptions or security breaches of the Corporation’s information systems could damage its reputation, result in a loss of customer business, subject it to additional regulatory scrutiny, or expose it to civil litigation and possible financial liability, any of which could have a material adverse effect on its financial condition and results of operations as well as the value of its securities.
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The Corporation’s controls and procedures may fail or be circumvented.
The Corporation regularly reviews and updates its internal controls, disclosure controls and procedures, and corporate governance policies and procedures. Any system of controls, however well-designed and operated, is based in part on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the system are met. Any failure or circumvention of the Corporation’s controls and procedures or failure to comply with regulations related to controls and procedures could have a material adverse effect on its business, results of operations and financial condition.
Negative public opinion surrounding the Corporation and the financial institutions industry generally could damage its reputation and adversely impact its earnings.
Reputation risk, or the risk to the Corporation’s business, earnings and capital from negative public opinion surrounding the Corporation and the financial institutions industry generally, is inherent in its business. Negative public opinion can result from the Corporation’s actual or alleged conduct in any number of activities, including lending practices, corporate governance and acquisitions, and from actions taken by government regulators and community organizations in response to those activities. Negative public opinion regarding the banking and financial services industries generally, such as the public reaction to the recent banking failures, also can negatively affect the Corporation. Negative public opinion can adversely affect the Corporation’s ability to keep and attract clients and employees and can expose it to litigation and regulatory action. Although the Corporation takes steps to minimize reputation risk in dealing with its clients and communities, this risk will always be present given the nature of its business.
The Corporation relies heavily on its senior management team, and the unexpected loss of any of those personnel could adversely affect its operations.
The Corporation is a customer-focused and relationship-driven organization. The Corporation expects its future growth to be driven in a large part by the relationships maintained with its customers by its chief executive officer and by other senior officers. The unexpected loss of any of the Corporation’s key employees could have a material adverse effect on its business and operations, which would have an adverse effect on its business, results of operations, financial condition, and the value of its securities. While the Corporation’s and the Bank’s Executive Chairman recently retired from active day-to-day service as a member of senior management of the Corporation and the Bank, because he will continue on as Chairman of the boards of directors of both the Corporation and the Bank, the Corporation does not anticipate that his retirement will have an adverse effect on business, operations, financial condition or the value of the Corporation’s securities.
The success of the Corporation’s strategy depends on its ability to identify and retain individuals with experience and relationships in its markets.
In order to be successful, the Corporation must identify and retain experienced key management members with local expertise and relationships. Competition for qualified personnel is intense and there are a limited number of qualified persons with knowledge of and experience in the community banking industry in the Corporation’s chosen geographic markets. Even if the Corporation identifies individuals that it believes could assist the Corporation, the Corporation may be unable to recruit these individuals away from more established banks. In addition, the process of identifying and recruiting individuals with the combination of skills and attributes required is often lengthy. The Corporation’s inability to identify, recruit, and retain talented personnel could limit its growth and could materially adversely affect its business, results of operations, financial condition, and the value of its securities.
Higher FDIC deposit insurance premiums and assessments could adversely impact the Corporation’s financial condition.
The Corporation’s deposits are insured up to applicable limits by the Deposit Insurance Fund of the FDIC and are subject to deposit insurance assessments to maintain deposit insurance. As an FDIC-insured institution, the Corporation is required to pay quarterly deposit insurance premium assessments to the FDIC. Although the Corporation cannot predict what the insurance assessment rates will be, either a deterioration in its risk-based capital ratios or adjustments to the base assessment rates could have a material adverse impact on its business, financial condition, results of operations, and cash flows.
The Corporation is a holding company dependent for liquidity on payments from the Bank, our only subsidiary, which are subject to restrictions.
The Corporation is a financial holding company and depends on dividends, distributions and other payments from the Bank, our subsidiary, to fund dividend payments to shareholders and to fund all payments on obligations. The Bank is subject to laws that restrict dividend payments or authorize regulatory bodies to block or reduce the flow of funds from it to us. Restrictions or regulatory action of that kind could impede access to funds that we need to make payments on our obligations, dividend payments or stock repurchases. In addition, our right to participate in a distribution of assets upon our subsidiary’s liquidation or reorganization is subject to the prior claims of the subsidiary’s creditors.
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Commercial real estate loans may increase the Corporation’s exposure to credit risk.
A portion of the Corporation’s loan portfolio is secured by commercial real estate. Loans secured by commercial real estate are generally viewed as having more risk of default than loans secured by residential real estate or consumer loans because repayment of the loans often depends on the successful operation of the property, the income stream of the borrowers, the accuracy of the estimate of the property’s value at completion of construction, and the estimated cost of construction. Such loans are generally more risky than loans secured by residential real estate or consumer loans because those loans are typically not secured by commercial real estate collateral. An adverse development with respect to one lending relationship could expose the Corporation to a significantly greater risk of loss compared with a single-family residential mortgage loan because the Corporation typically has more than one loan with such borrowers. Additionally, these loans typically involve larger loan balances to single borrowers or groups of related borrowers compared with single-family residential mortgage loans. Therefore, the deterioration of one or a few of these loans could cause a significant decline in the related asset quality. If the Corporation’s primary market areas experience an economic slowdown, these loans represent higher risk and could result in a sharp increase in loans charged off and could require the Corporation to significantly increase its allowance for credit losses, which could have a material adverse impact on its business, financial condition, results of operations, and cash flows.
Repayment of commercial business loans is often dependent on the cash flows of the borrower, which may be unpredictable, and the collateral securing these loans may fluctuate in value.
The Corporation has commercial business loans as part of its loan portfolio. The Corporation’s commercial business loans are originated primarily based on the identified cash flow and general liquidity of the borrower and secondarily on the underlying collateral provided by the borrower and/or repayment capacity of any guarantor. The borrower’s cash flow may be unpredictable, and collateral securing these loans may fluctuate in value. Although commercial business loans are often collateralized by equipment, inventory, accounts receivable or other business assets, the liquidation of collateral in the event of default is often an insufficient source of repayment because accounts receivable may be uncollectible and inventories may be obsolete or of limited use. In addition, business assets may depreciate over time, may be difficult to appraise, and may fluctuate in value based on the success of the business. Accordingly, the repayment of commercial business loans depends primarily on the cash flow and credit worthiness of the borrower and secondarily on the underlying collateral value provided by the borrower and liquidity of the guarantor.
The Corporation is limited in the amount it can lend to one borrower.
The Corporation is limited in the amount that it can lend to a single borrower to 15% of the Bank’s capital and surplus, with an additional 10% available for certain loans meeting heightened collateral requirements. However, the Corporation generally imposes an internal limit that is more conservative than the legal maximum. The Corporation’s lending limit is significantly less than the limit for many of its competitors and may affect its ability to seek relationships with larger businesses in its market area. From time to time, the Corporation attempts to accommodate larger loans by selling participations in those loans to other financial institutions. However, the Corporation cannot ensure that it will be able to attract or maintain customers seeking larger loans or that it will be able to sell participations in such loans on terms it considers favorable. The Corporation’s inability to attract and maintain these customers or its inability to sell loan participations on favorable terms could adversely impact its business, financial condition, results of operation, and the value of its securities.
The Federal Reserve may require the Corporation to commit capital resources to support the Bank.
The Federal Reserve requires a bank holding company to act as a source of financial and managerial strength to a subsidiary bank and to commit resources to support such subsidiary bank. Under the “source of strength” doctrine, the Federal Reserve may require a bank holding company to make capital injections into a troubled subsidiary bank and may charge the bank holding company with engaging in unsafe and unsound practices for failure to commit resources to such a subsidiary bank. In addition, the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) directs the federal bank regulators to require that all companies that directly or indirectly control an insured depository institution serve as a source of financial strength for the institution. Under these requirements, in the future, the Corporation could be required to provide financial assistance to Journey Bank if it experiences financial distress.
A capital infusion may be required at times when the Corporation does not have the resources to provide it, and therefore the Corporation may be required to borrow the funds. In the event of a bank holding company’s bankruptcy, the bankruptcy trustee will assume any commitment by the holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank. Moreover, bankruptcy law provides that claims based on any such commitment will be entitled to a priority of payment over the claims of the holding company’s general unsecured creditors, including the holders of its note obligations. Thus, any borrowing that must be done by the holding company in order to make the required capital injection becomes more difficult and expensive and will adversely impact the holding company’s cash flows, financial condition, results of operations and prospects.
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The Corporation may be subject to more stringent capital requirements in the future.
From time to time, the Corporation’s banking regulators change the regulatory capital adequacy guidelines applicable to it and its banking subsidiary. In December 2010 and January 2011, the Basel Committee on Banking Supervision published the final texts of reforms on capital and liquidity generally referred to as “Basel III.” The federal regulatory agencies adopted capital rules implementing the Basel III capital framework in the United States. Under these rules, the Corporation is required to satisfy additional, more stringent, capital adequacy standards than it has in the past. The Corporation has met all of the requirements of the Basel III-based capital rules to date, but the Corporation may fail to do so in the future. In addition, these requirements could have a negative impact on the Corporation’s ability to lend, grow deposit balances, make acquisitions or make capital distributions in the form of dividends or share repurchases. Higher capital levels could also lower the Corporation’s return on equity, which may negatively impact its business, results of operations, financial condition, and the value of its securities.
The use of estimates and valuations in the preparation of the Corporation’s consolidated financial statements requires the exercise of judgment, and may be different from actual results, which could have a material adverse effect on the Corporation’s consolidated financial statements.
The Corporation makes various estimates that affect reported amounts and disclosures. Broadly, those estimates are used in measuring the fair value of certain financial instruments, establishing the provision for credit losses and estimating potential litigation liability. Market volatility may make it difficult to determine the fair value for certain of the Corporation’s assets and liabilities. Subsequent valuations, in light of factors then prevailing, may result in significant changes in the values of these financial instruments in future periods. In addition, at the time of any sales and settlements of these assets and liabilities, the price the Corporation ultimately realizes will depend on the demand and liquidity in the market at that time for that particular type of asset or liability and may be materially lower than its estimate of their current fair value. Estimates are based on available information and judgment. Therefore, actual values and results could differ from the Corporation’s estimates, and that difference could have a material adverse effect on its consolidated financial statements.
Credit losses related to investment securities, impairment charges related to goodwill, other intangible assets, or deferred tax assets could require charges to earnings, which could result in a negative impact on our results of operations.
In assessing investment securities for credit losses, we consider the extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuers, and the intent and ability to retain its investment in the issuer for a period of time sufficient to allow for an anticipated recovery in fair value in the near term. Under current accounting standards, goodwill and certain other intangible assets with indeterminate lives are no longer amortized but, instead, are assessed for impairment periodically or when impairment indicators are present. Assessment of goodwill and such other intangible assets could result in circumstances where the applicable intangible asset is deemed to be impaired for accounting purposes. Under such circumstances, the intangible asset’s impairment would be reflected as a charge to earnings in the period during which such impairment is identified. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. The impact of each of these impairment matters could have a material adverse effect on our business, results of operations and financial condition.
If we want to, or are compelled to, raise additional capital in the future, that capital may not be available when it is needed and on terms favorable to current shareholders.
Federal banking regulators require us and our banking subsidiary to maintain adequate levels of capital to support our operations. These capital levels are determined and dictated by law, regulation and banking regulatory agencies. In addition, capital levels are also determined by our management and board of directors based on capital levels that they believe are necessary to support our business operations. At December 31, 2024, all three capital ratios for us and our banking subsidiary were above “well capitalized” levels under current bank regulatory guidelines. To be “well capitalized,” banking companies generally must maintain a Tier 1 leverage ratio of at least 5%, a Tier 1 risk-based capital ratio of at least 6.5% and a Total risk-based capital ratio of at least 10%. However, our regulators may require us or our banking subsidiary to operate with higher capital levels.
Our ability to raise additional capital will depend on conditions in the capital markets at that time, which are outside of our control, and on our financial performance. Accordingly, we cannot assure you of our ability to raise additional capital on terms and time frames acceptable to us and to raise additional capital at all. If we cannot raise additional capital in sufficient amounts when needed, our ability to comply with regulatory capital requirements could be materially impaired. Additionally, the inability to raise capital in sufficient amounts may adversely affect our operations, financial conditions and results of operations. Our ability to borrow could also be impaired by factors that are nonspecific to us, such as severe disruption of the financial markets or negative news and expectations about the prospects for the financial services industry as a whole as evidenced by recent turmoil in the domestic and worldwide credit markets. If we raise capital through the issuance of additional shares of our common stock or other securities, we would likely dilute the ownership interests of current investors and could dilute the per share book value or earnings per share of our common stock. Furthermore, a capital raise through issuance of additional shares may have an adverse impact on our stock price.
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The Corporation may be adversely affected by the soundness of other financial institutions.
Financial services institutions are interrelated as a result of trading, clearing, counterparty, or other relationships. The Corporation has exposure to many different industries and counterparties, and routinely executes transactions with counterparties in the financial services industry, including commercial banks, brokers and dealers, investment banks, and other institutional clients. Many of these transactions expose the Corporation to credit risk in the event of a default by a counterparty or client. In addition, the Corporation’s credit risk may be exacerbated when the collateral held by the Corporation cannot be realized upon or is liquidated at prices not sufficient to recover the full amount of the credit or derivative exposure due to the Corporation. Any such losses could have a material adverse effect on the Corporation’s financial condition and results of operations.
The Federal Home Loan Bank of Pittsburgh’s financial condition could deteriorate.
The Bank is a member of the Federal Home Loan Bank of Pittsburgh (FHLB-Pittsburgh), which is one of 11 regional Federal Home Loan Banks. The Bank has a line of credit with the FHLB-Pittsburgh that is secured by a blanket lien on its loan portfolio. Access to this line of credit is critical if a funding need arises. However, there can be no assurance that the FHLB-Pittsburgh will be able to provide funding when needed, nor can there be assurance that the FHLB-Pittsburgh will provide funds specifically to the Bank should its financial condition deteriorate and/or regulators prevent that access. The inability to access this source of funds could have a materially adverse effect on the Corporation’s financial flexibility if alternate financing is not available at acceptable interest rates. The failure of the FHLB-Pittsburgh or the FHLB system in general, may materially impair the Corporation’s ability to meet short- and long-term liquidity needs or to meet growth plans.
The Corporation owns common stock of the FHLB-Pittsburgh to qualify for membership in the FHLB system and access services from the FHLB-Pittsburgh. The FHLB-Pittsburgh faces a variety of risks in its operations including interest rate risk, counterparty credit risk, and adverse changes in its regulatory framework. In addition, the 11 Federal Home Loan Banks are jointly liable for the consolidated obligations of the FHLB system. To the extent that one FHLB cannot meet its obligations, other FHLBs can be called upon to make required payments. Such risks affecting the FHLB-Pittsburgh could adversely impact the value of the Corporation’s investment in the common stock of the FHLB-Pittsburgh and/or affect its access to credit.
There is a risk that the Corporation may not experience the projected benefits of its recent merger.
As described in Item 1, the Corporation completed a merger with Muncy Bank Financial, Inc. during 2023, and expanded its geographic footprint in central Pennsylvania. Merger and acquisition activity involves various risks including: potential exposure to unknown or contingent liabilities of the target company, exposure to potential asset quality issues of the target company, difficulty and expense of integrating the operations and personnel of the target company, potential disruption to the Corporation’s business, potential diversion of management’s time and attention, the possible loss of key employees and customers of the target company, difficulty in estimating the value of the target company and potential changes in banking or tax laws or regulations that may affect the target company. Mergers and acquisitions may involve the payment of a premium over book and market values, and, therefore, some dilution of the Corporation’s tangible book value and net income per share of common stock may occur in connection with any such transaction. Furthermore, failure to realize the expected revenue projections, cost savings, increases in geographic or product presence, and/or other projected benefits from our recent merger could have a material adverse effect on the Corporation’s financial condition or results of operations.
Risks Related to an Investment in the Corporation’s Common Stock
There is a limited trading market in the Corporation common stock, which will hinder your ability to sell the Corporation’s common stock and may lower the market price of the stock.
Although the Corporation common stock is quoted on OTCQX, the Corporation common stock is traded only sporadically. An active trading market for shares of the Corporation common stock may never develop or be sustained. Shareholders may not be able to sell shares when they desire if a liquid trading market does not develop or sell them at a price equal to their cost basis even if a liquid trading market does develop. This limited trading market for the Corporation common stock may also result in a lower market value of the Corporation common stock.
The Corporation can provide no assurance regarding whether, and if so when, it will make dividend payments in the future.
All dividends paid by the Corporation in the future will be dependent on the Corporation’s financial condition, results of operations, and cash flows, as well as capital regulations and dividend restrictions imposed by the rules and regulations of the Pennsylvania Department of Banking and Securities (“PADOBS”), the FDIC, and the Federal Reserve. The Federal Reserve and the FDIC have issued policy statements, which provide that bank holding companies and insured banks should generally only pay dividends out of current operating earnings. The FDIC also has the authority under federal law to enjoin a bank from engaging in what in its opinion constitutes an unsafe or unsound practice in conducting its business, including the payment of a dividend under certain circumstances. The Corporation can provide no assurance regarding whether, and if so when, it will make dividend payments in the future.
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The Corporation common stock is not FDIC insured and may lose value.
Shares of the Corporation common stock are not savings accounts or deposits and are not insured or guaranteed by the FDIC, or any other governmental agency, and involve investment risk, including the possible loss of the entire value of the investment.
Item 1B. Unresolved Staff Comments
None.
Item 1C. Cybersecurity
We are exposed to various cybersecurity risks that could adversely affect our business, operations, and financial condition.
As a community bank, we rely heavily on information technology and telecommunications systems to conduct our business activities, such as processing transactions, maintaining records, communicating with customers and vendors, and providing online and mobile banking services. These systems are subject to various cybersecurity threats, such as unauthorized access, hacking, phishing, malware, ransomware, denial-of-service attacks, and other malicious or criminal activities, that could compromise the confidentiality, integrity, or availability of our systems, data, or customer information. Cybersecurity threats may originate from external sources, such as cybercriminals, hackers, terrorists, or foreign governments, or from internal sources, such as employees, contractors, or vendors. Cybersecurity threats may also target our third-party service providers, such as core processors, cloud providers, or payment processors, whose systems and data are interconnected with ours.
We have implemented various
security measures and controls to protect our systems and data from unauthorized access, use, or disclosure, such as firewalls, encryption,
authentication, backup, and recovery, both internally and with our third party managed service provider. We also have established policies
and procedures to monitor and respond to cybersecurity incidents, and to comply with applicable laws and regulations regarding cybersecurity
and data privacy. We regularly review and update our security measures and controls to address the evolving nature and
sophistication of cybersecurity threats. We also provide training and education to our employees and customers on cybersecurity awareness
and best practices. In addition, we maintain cyber liability insurance coverage to mitigate the potential financial impact of cybersecurity
incidents.
Notwithstanding our defensive
measures and processes, the threat posed by cyber-attacks is always present. Our internal systems, processes, and controls are designed
to mitigate loss from cyber-attacks. Despite our efforts, we cannot guarantee that our security measures and controls will be sufficient
or effective to prevent, detect, or mitigate all cybersecurity incidents or to protect our systems and data from unauthorized access,
use, or disclosure.
Item 2. Properties
The Corporation and its subsidiary occupy twenty-two branch properties in Clinton, Columbia, Lycoming, Montour, and Northumberland Counties in Pennsylvania, which are used principally as banking offices, as well as one ancillary facility. As of December 31, 2024, the Corporation and its subsidiary bank owned twenty-one of such properties and leased two such properties.
We consider our facilities to be suitable and adequate for our current and immediate future purposes.
Item 3. Legal Proceedings
The Corporation and the Bank are involved in various legal proceedings incidental to their business. Management believes that any such legal proceedings will not have a material adverse effect upon the Corporation’s financial condition or results of operations.
Item 4. Mine Safety Disclosures
Not applicable.
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PART II
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
The Corporation had 917 stockholders of record and 3,532,713 shares of common stock outstanding, par value of $1.25 per share, the only authorized class of common stock, outstanding as of December 31, 2024. Quotations for the Corporation’s common stock appear under the symbol “CCFN” on the OTCQX, a trading platform operated by OTC Markets Group for companies that are current in their reporting with federal banking regulators. These quotations represent inter-dealer prices and do not include retail mark- up, markdown or commission. They may not necessarily represent actual transactions. The high and low closing sale prices and dividends per share of our common stock for the four quarters of 2024 and 2023 are summarized in the following table.
| 2024: | High ($) | Low ($) | Dividends Declared ($) |
| First quarter | 35.75 | 28.98 | 0.44 |
| Second quarter | 34.75 | 29.00 | 0.44 |
| Third quarter | 35.00 | 32.00 | 0.44 |
| Fourth quarter | 44.00 | 32.60 | 0.44 |
| 2023: | High ($) | Low ($) | Dividends Declared ($) |
| First quarter | 51.00 | 42.02 | 0.42 |
| Second quarter | 44.50 | 37.50 | 0.43 |
| Third quarter | 43.55 | 35.00 | 0.43 |
| Fourth quarter | 37.50 | 33.55 | 0.43 |
We have paid cash dividends since organization of the Corporation in 1983. It is our present intention to continue the dividend payment policy, although the payment of future dividends must necessarily depend upon earnings, financial position, restrictions under applicable law and other factors relevant at the time the Board of Directors considers any declaration of dividends. Our ability to pay dividends is subject to certain legal restrictions described in Note 14, “Regulatory Matters” of the “Notes to Consolidated Financial Statements” included under Item 8 of this report, and in the “Capital Resources” section of the “Management’s Discussion and Analysis of Consolidated Financial Conditions and Results of Operations,” included under Item 7 of this report.
Effective May 14, 2024, the Corporation’s Board of Directors authorized a new treasury stock repurchase program. Under the program, the Corporation was authorized to repurchase up to 178,614 shares of the Corporation’s common stock. The Board of Directors’ authorization provides that the treasury stock repurchase program shall continue until the earlier of the date an aggregate of 178,614 shares of common stock has been purchased or May 14, 2026, or until suspended or terminated by the Board of Directors, in its sole discretion. The following table sets forth a summary of purchases by the Corporation, in the open market, of its equity securities during the fourth quarter 2024:
| Period | Total Number of Shares Purchased |
Average Price Paid per Share |
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs |
|||||||||
| October 1 - 31, 2024 | — | $ | — | — | 178,614 | ||||||||
| November 1 - 30, 2024 | 44,025 | $ | 34.46 | 44,025 | 134,589 | ||||||||
| December 1 - 31, 2024 | — | $ | — | — | 134,589 | ||||||||
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The Corporation sells shares of its $1.25 par value per share common stock to employee participants in its Employee Stock Purchase Plan. The following table summarizes the quarterly sales of shares within the past three years pursuant to the plan:
| Date of Sale | Number of Shares Sold | Offering Price | Aggregate Consideration Received | |||||||
| December 31, 2024 | 1,211 | $ | 30.52 | $ | 36,960 | |||||
| September 30, 2024 | 1,500 | 30.44 | 45,660 | |||||||
| June 30, 2024 | 1,739 | 27.97 | 48,640 | |||||||
| March 31, 2024 | 2,012 | 27.98 | 56,296 | |||||||
| December 31, 2023 | 593 | 32.09 | 19,029 | |||||||
| September 30, 2023 | 614 | 33.63 | 20,649 | |||||||
| June 30, 2023 | 460 | 38.22 | 17,581 | |||||||
| March 31, 2023 | 514 | 38.38 | 19,727 | |||||||
| December 31, 2022 | 430 | 42.05 | 18,082 | |||||||
| September 30, 2022 | 501 | 42.70 | 21,393 | |||||||
| June 30, 2022 | 387 | 46.64 | 18,050 | |||||||
| March 31, 2022 | 333 | 47.13 | 15,694 | |||||||
The shares in the table above issued on March 31, 2022, and each quarter thereafter through June 30, 2023, were issued without registration under the Securities Act of 1933, as amended, in reliance upon the exemption provided by 17 CFR 230.701.
Item 6. Reserved
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Management’s Discussion and Analysis of Financial Condition and Results of Operations, or MD&A, represents an overview of the financial condition and results of operations of the Corporation and should be read in conjunction with our consolidated financial statements and notes thereto included in Item 8, “Financial Statements and Supplementary Data” and Item 1A, “Risk Factors” of Part I to this Annual Report on Form 10-K.
The Corporation is in the business of providing customary retail, commercial banking and financial services to individuals, businesses and local governments through its 22 branch offices operated by Journey Bank, the Corporation’s wholly-owned subsidiary. The Corporation’s 22 branch offices are operated in Clinton, Columbia, Lycoming, Montour and Northumberland counties in central Pennsylvania.
CAUTIONARY STATEMENT
Certain statements in this section and elsewhere in this Annual Report on Form 10-K, other periodic reports filed by us under the Securities Exchange Act of 1934, as amended, and any other written or oral statements made by or on behalf of us may include “forward looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 which reflect our current views with respect to future events and financial performance. Such forward looking statements are based on general assumptions and are subject to various risks, uncertainties, and other factors that may cause actual results to differ materially from the views, beliefs and projections expressed in such statements. These risks, uncertainties and other factors include, but are not limited to:
| ● | Our business and financial results are affected by business and economic conditions, both generally and specifically in the mostly North Central Pennsylvania market in which we operate. | |
| ● | Changes in interest rates and valuations in the debt, equity and other financial markets. | |
| ● | Disruptions in the liquidity and other functioning of financial markets, including such disruptions in the market for real estate and other assets commonly securing financial products. | |
| ● | Actions by the Federal Reserve Board and other government agencies, including those that impact money supply and market interest rates. | |
| ● | Changes in our customers’ and suppliers’ performance in general and their creditworthiness in particular. | |
| ● | Changes in customer preferences and behavior, whether as a result of changing business and economic conditions or other factors. | |
| ● | Changes resulting from the enacted Dodd-Frank Wall Street Reform and Consumer Protection Act. | |
| ● | A continuation of recent turbulence in significant segments of the United States and global financial markets, particularly if it worsens, could impact our performance, both directly by affecting our revenues and the value of our assets and liabilities and indirectly by affecting our customers and suppliers and the economy generally. | |
| ● | Our business and financial performance could be impacted as the financial industry restructures in the current environment by changes in the competitive landscape. |
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| ● | Given current economic and financial market conditions, our forward-looking statements are subject to the risk that these conditions will be substantially different than we are currently expecting. | |
| ● | Legal and regulatory developments could have an impact on our ability to operate our businesses or our financial condition or results of operations or our competitive position or reputation. Reputational impacts, in turn, could affect matters such as business generation and retention, our ability to attract and retain management, liquidity and funding. These legal and regulatory developments could include: (a) the unfavorable resolution of legal proceedings or regulatory and other governmental inquiries; (b) increased litigation risk from recent regulatory and other governmental developments; (c) the results of the regulatory examination process, and regulators’ future use of supervisory and enforcement tools; (d) legislative and regulatory reforms, including changes to laws and regulations involving tax, pension, education and mortgage lending, the protection of confidential customer information, and other aspects of the financial institution industry; and (e) changes in accounting policies and principles. | |
| ● | Our business and operating results are affected by our ability to identify and effectively manage risks inherent in our businesses, including, where appropriate, through the effective use of third-party insurance and capital management techniques. | |
| ● | Our ability to anticipate and respond to technological changes can have an impact on our ability to respond to customer needs and to meet competitive demands. | |
| ● | Our ability to implement our business initiatives and strategies could affect our financial performance over the next several years. | |
| ● | Competition can have an impact on customer acquisition, growth and retention, as well as on our credit spreads and product pricing, which can affect market share, deposits and revenues. | |
| ● | Our business and operating results can also be affected by widespread natural disasters, terrorist activities or international hostilities, either as a result of the impact on the economy and capital and other financial markets generally or on us or on our customers and suppliers. |
The words “believe,” “expect,” “anticipate,” “project” and similar expressions signify forward looking statements. Readers are cautioned not to place undue reliance on any forward looking statements made by or on behalf of us. Any such statement speaks only as of the date the statement was made. We undertake no obligation to update or revise any forward looking statements.
The following discussion and analysis should be read in conjunction with the detailed information and consolidated financial statements, including notes thereto, included elsewhere in this report. Our consolidated financial condition and results of operations are essentially those of our subsidiary, the Bank. Therefore, the analysis that follows is directed to the performance of the Bank.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Corporation’s financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and conform to general practices within the banking industry. In the preparation of its financial statements, the Corporation is required to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses as well as the disclosure of contingent assets and liabilities. Actual results could differ from those estimates. The Corporation’s critical accounting policies are fundamental to understanding this MD&A and are more fully described in Note 1 (“Summary of Significant Accounting Policies”) within the Corporation’s Notes to the Consolidated Financial Statements which are included in Part II of this Annual Report on Form 10-K.
The Corporation defines its critical accounting policies, in accordance with U.S. GAAP. U.S. GAAP requires the Corporation to make subjective estimates and judgments about matters that are uncertain and are likely to have a material impact on its financial condition and results of operations, as well as the specific manner in which those principles are applied. Application of assumptions different than those used by the Corporation could result in material changes in the Corporation’s financial position or results of operations. The Corporation believes its policies governing the determination of the allowance for credit losses, the fair value of available-for-sale debt securities and the fair values of assets acquired and liabilities assumed in business combinations are critical accounting policies. The Corporation’s management has reviewed and approved these critical accounting policies and has discussed these policies with its Audit Committee. The Corporation believes the critical accounting policies used in the preparation of its financial statements that require significant estimates and judgments are as follows:
Allowance for Credit Losses (ACL) - Loans
As of January 1, 2023, the Corporation adopted Accounting Standards Update (“ASU”) 2016-13, Financial Instruments – Credit Losses (Topic 326): “Measurement of Credit Losses on Financial Instruments,” which replaced the current loss impairment methodology under U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to form credit loss estimates in an effort to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit. ASU 2016-13, commonly referred to as Current Expected Credit Losses (“CECL”), requires a financial asset (or a group of financial assets) to be measured at an amortized cost basis and presented at the net amount expected to be collected. The amendments in this update affect financial assets and net investment in leases that are not accounted for at fair value through net income, including such financial
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assets as loans, debt securities, trade receivables, net investments in leases, off-balance-sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. Upon adoption of ASU 2016-13 on January 1, 2023, the Corporation recorded an incremental decrease in the ACL through a cumulative effect adjustment to equity, net of tax, with subsequent adjustments charged to earnings through a provision for credit losses.
Management evaluates the credit quality of the Corporation’s loan portfolio on an ongoing basis and performs a formal review of the adequacy of the ACL on a quarterly basis. The ACL is established through a provision for credit losses charged to earnings and is maintained at a level that management considers to be an estimate of the lifetime expected credit losses of the portfolio as of the evaluation date. Loans, or portions of loans, determined by management to be uncollectible are charged off against the ACL, while recoveries of amounts previously charged off are credited to the ACL.
Determining the amount of the ACL is considered a critical accounting estimate because it requires significant judgment and the use of estimates related to the amount and timing of expected future cash flows, estimated losses on pools of homogeneous loans based on historical loss experience and reasonable and supportable forecasts, as well as consideration of current economic trends and conditions, all of which may be susceptible to significant change. Banking regulators, as an integral part of their examination of the Corporation, also review the ACL, and may require, based on information available to them at the time of their examination, that certain loan balances be charged off or require that adjustments be made to the ACL. Additionally, the ACL is determined, in part, by the composition and size of the loan portfolio.
The ACL consists of two components, a specific component and a general component. The specific component relates to loans that are individually analyzed for impairment. For such loans, an allowance is established when the discounted cash flows, collateral value or observable market price of the loan is lower than the carrying value of that loan. The general component covers all other loans and is based on historical loss experience as adjusted for qualitative factors. The general reserve component of the ACL is based on pools of performing loans segregated by loan segment. Historical loss factors are applied based on historical losses in each risk rating category to determine the appropriate reserve related to those loans.
Although the Corporation’s management uses the best information available, the level of the ACL remains an estimate which is subject to significant judgment and short-term change which could have a significant impact on the Corporation’s financial condition or results of operations. From January 1, 2024 to December 31, 2024, the level of the ACL increased from $9.3 million to $9.9 million and the ACL to total loans increased from 0.87% to 0.88%. The Corporation’s ACL is highly sensitive to the methods, assumptions and estimates underlying its calculation. See Note 1, “Summary of Significant Accounting Policies” and Note 5 “Loans and Allowance for Credit Losses” within the Corporation’s Notes to the Consolidated Financial Statements which are included in Part II of this Annual Report on Form 10-K for additional qualitative and quantitative information about the Corporation’s ACL.
Fair Value of Available-For-Sale Debt Securities
Another material estimate is the calculation of fair values of the Corporation’s debt securities. For the Corporation’s debt securities, the Corporation receives estimated fair values from an independent valuation service, or from brokers. In developing fair values, the valuation service and the brokers compare securities that have similar maturities, coupon rates, and credit ratings. Estimated fair values of debt securities may vary among brokers and other valuation services.
Business Combinations
Business combinations are accounted for by applying the acquisition method. As of acquisition date, the identifiable assets acquired and liabilities assumed are measured at fair value and recognized separately from goodwill. Results of operations of the acquired entity are included in the consolidated statement of income from the date of acquisition. The calculation of intangible assets including core deposits and the fair value of loans are based on significant judgements. Core deposit intangibles are calculated using a discounted cash flow model based on various factors including discount rate, attrition rate, interest rate, cost of alternative funds and net maintenance costs. Loans acquired in connection with acquisitions are recorded at their acquisition-date fair value. Determining the fair value of the acquired loans involves estimating the principal and interest cash flows expected to be collected on the loans and discounting those cash flows at a market rate of interest. Management considers a number of factors in evaluating the acquisition-date fair value including the remaining life of the acquired loans, delinquency status, estimated prepayments, payment options and other loan features, internal risk grade, estimated value of the underlying collateral and interest rate environment.
MERGER WITH MUNCY BANK FINANCIAL, INC.
The Corporation’s merger with Muncy Bank Financial, Inc. (“MBF”) was completed November 11, 2023. MBF was a Pennsylvania corporation that conducted its business primarily through its wholly owned subsidiary The Muncy Bank & Trust Company, which operated from a main office in Muncy, Pennsylvania, and had nine additional branches throughout Northcentral Pennsylvania.
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At the effective time of the merger, MBF’s shareholders received a fixed exchange ratio of 0.9259 shares of the Corporation’s common stock for each MBF common share they owned, except to the extent of cash received for fractional shares at $41.47 per share. Total purchase consideration was $55,101,000, including common stock with a fair value of $55,092,000 and cash of $9,000 paid for fractional shares. Holders of MBF common stock prior to the consummation of the merger held approximately 41.7% of the Corporation’s common stock outstanding immediately following the merger.
In connection with the acquisition, effective November 11, 2023, the Corporation recorded goodwill of $17.7 million and a core deposit intangible asset of $12.1 million. Assets acquired totaled $671.4 million, including gross loans valued at $504.1 million, available-for-sale debt securities valued at $93.0 million, bank-owned life insurance valued at $17.8 million and premises and equipment, net, valued at $14.9 million. Liabilities assumed totaled $634.0 million, including deposits valued at $521.3 million and borrowings valued at $105.5 million. The assets purchased and liabilities assumed in the acquisition were recorded at their preliminary estimated fair values at the time of closing and may be adjusted for up to one year subsequent to the acquisition.
For the year ended December 31, 2024, the Corporation incurred pre-tax merger-related expenses related to the MBF transaction of $241,000 compared to $3,028,000, for the year ended December 31, 2023. Merger-related expenses include voluntary severance and similar expenses as well as expenses related to conversion of MBF’s core banking system into the Corporation’s core system and legal and other professional expenses.
FINANCIAL CONDITION
Total assets at December 31, 2024, were $1.596 billion, a decrease of $43.8 million, or 2.7% from $1.640 billion at December 31, 2023. The change in total assets primarily reflected decreases in available-for-sale debt securities, restricted investment in bank stocks and deferred tax assets, net, partially offset by an increase in loans receivable. Available-for-sale debt securities decreased $90.1 million, restricted investment in bank stocks decreased $3.3 million and deferred tax assets, net, decreased $2.6 million. Gross loans receivable increased $57.5 million. Total liabilities at December 31, 2024, were $1.430 billion, a decrease of $56.4 million, or 3.8% from $1.486 billion at December 31, 2023. Deposit balances increased by $141.8 million, short-term borrowings decreased $184.1 million and long-term borrowings decreased $14.9 million since December 31, 2023.
Total average assets increased 51.3% from $1.053 billion for the year ended December 31, 2023, to $1.593 billion for the year ended December 31, 2024, primarily related to the MBF merger. Average earning assets were $1.491 billion for the year ended December 31, 2024 and $1.009 billion for the year ended December 31, 2023. Average interest-bearing liabilities were $1.159 billion for the year ended December 31, 2024 and $763.4 million for the year ended December 31, 2023.
Available-for-sale debt securities decreased $90.1 million to $323.2 million at December 31, 2024 from $413.3 million at December 31, 2023. During the year ended December 31, 2024, the Corporation sold available-for-sale debt securities with a total market value of $51.7 million, the proceeds of which were primarily utilized to paydown short-term FHLB borrowings. Securities sold included $35.6 million of US government agency securities, $15.5 million of mortgaged-backed securities and $563,000 of collateralized mortgage obligations. In addition to the securities sold, the Corporation received proceeds from paydowns, calls and maturities of available-for-sale debt securities of $55.3 million during the year ended December 31, 2024. Partially offsetting these changes was an increase in fair value of available-for-sale debt securities of $1.4 million and purchases of $14.9 million for the year ended December 31, 2024.
Restricted investment in bank stocks decreased $3.3 million to $7.1 million at December 31, 2024 from $10.4 million at December 31, 2023. This decrease is directly attributable to the decrease in required FHLB stock holdings due to the paydown in short and long-term FHLB borrowings.
Deferred tax assets, net, decreased $2.6 million to $10.0 million at December 31, 2024 from $12.6 million at December 31, 2023. This decrease is primarily related to decreases in deferred tax assets, net, related to core deposit intangibles and purchase accounting adjustments for the year ended December 31, 2024.
Gross loans not held for sale increased 5.4% to $1.126 billion at December 31, 2024 from $1.068 billion at December 31, 2023. This increase is related to strong loan demand during the year ended December 31, 2024.
Interest-bearing deposits increased $148.1 million to $1.033 billion at December 31, 2024 from $884.7 million at December 31, 2023. Noninterest-bearing deposits decreased 2.4% from $266.0 million at December 31, 2023 to $259.7 million at December 31, 2024. The increase in interest-bearing deposits during the year ended December 31, 2024 was a result of a strategic initiative to reposition customer repurchase agreements, which are classified as short-term borrowings, into core deposit accounts. The Bank anticipates a continued migration of customer repurchase accounts from short-term borrowings to interest bearing deposits moving into 2025. The decrease in noninterest-bearing deposits was a result of the migration of noninterest-bearing deposit accounts into interest bearing products for the year ended December 31, 2024.
Short-term borrowings decreased $184.1 million to $68.4 million at December 31, 2024 from $252.5 million at December 31, 2023. This change was primarily related to the migration of customer repurchase agreements as well as a paydown in short-term FHLB borrowings during the year as discussed above.
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Long-term borrowings were $55.5 million at December 31, 2024 compared to $70.5 million at December 31, 2023. This decrease is primarily related to $15.2 million in long-term borrowing maturities during the year ended December 31, 2024.
Total stockholder’s equity increased by $12.6 million, or 8.2%, from $153.8 million at December 31, 2023, to $166.4 million at December 31, 2024. The increase is primarily attributable to earnings, net of cash dividends, along with a decrease in accumulated other comprehensive loss due to changes in the fair values of available-for-sale debt securities. Accumulated other comprehensive loss amounted to $13.9 million as of December 31, 2024 and $15.0 million as of December 31, 2023. These increases were partially offset by an increase in treasury stock of $1.5 million related to a repurchase during the year ended December 31, 2024.
The loan-to-deposit ratio is a key measurement of liquidity. Our loan-to-deposit ratio decreased from 92.0% as of December 31, 2023 to 86.4% as of December 31, 2024 due to the asset/liability mix changes noted above, and remains within internal policy limits.
It is our opinion that the asset/liability mix and the interest rate risk associated with the balance sheet are within manageable parameters. Constant monitoring using asset/liability reports and interest rate risk scenarios are in place along with quarterly asset/liability management meetings on the committee level by the Bank’s Board of Directors. Additionally, the Bank’s Asset/Liability Committee meets quarterly with an investment consultant and works with independent third parties regularly to review key assumptions and other metrics used in the modeling software.
Securities
The Corporation’s investment securities portfolio provides a source of liquidity needed to meet expected loan demand and interest income to increase profitability. Additionally, the investment securities portfolio is used to meet pledging requirements to secure public deposits, customer repurchase agreements and for other purposes. Debt securities are classified as either available-for-sale or held-to-maturity at the time of purchase based on management’s intent. Available-for-sale securities are carried at fair value, with unrealized holding gains and losses reported as a component of stockholders’ equity in accumulated other comprehensive income (loss), net of tax, while held-to-maturity securities are carried at amortized cost. At December 31, 2024 and December 31, 2023, all debt securities were classified as available-for-sale. Equity securities with readily determinable fair values are carried at fair value, with gains and losses due to fluctuations in market value included in the Consolidated Statements of Income. Securities with limited marketability and/or restrictions, such as FHLB of Pittsburgh stock, are carried at cost. Decisions to purchase or sell investment securities are based upon management’s current assessment of long- and short-term economic and financial conditions, including the interest rate environment and asset/liability management, liquidity and tax-planning strategies.
At December 31, 2024, the investment portfolio was comprised principally of available-for-sale debt securities including, fixed-rate, taxable and tax-exempt obligations of state and political subdivisions and fixed-rate and floating-rate securities issued by U.S. government or U.S. government-sponsored agencies, which include agencies, mortgage-backed securities and collateralized mortgage obligations, or CMOs. Additionally, the Corporation holds equity investments in the stock of certain publicly traded bank holding companies. Except for U.S. government and government-sponsored agencies, there were no securities of any individual issuer that exceeded 10.0% of stockholders’ equity as of December 31, 2024.
The majority of the Corporation’s debt securities are fixed-rate instruments and inherently subject to interest rate risk, as the value of fixed-rate securities fluctuates with changes in interest rates. Generally, a security’s value reacts inversely with changes in interest rates. Available-for-sale securities are carried at fair value, with unrealized gains or losses reported in the accumulated other comprehensive income or loss component of stockholder’s equity, net of deferred income taxes. At December 31, 2024, the Corporation reported a net unrealized loss, included in accumulated other comprehensive loss, of $13.9 million, net of deferred income taxes of $3.7 million, a decrease of $1.1 million compared to the net unrealized holding loss of $15.0 million, net of deferred income taxes of $4.0 million, at December 31, 2023. Any future changes in interest rates could result in changes in the fair value of the Corporation’s securities portfolio and capital position. However, accumulated other comprehensive income and loss related to available-for-sale debt securities is excluded from regulatory capital and does not have an impact on the Corporation’s regulatory capital ratios.
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The following table presents the carrying value of available-for-sale debt securities, at fair value at December 31, 2024 and December 31, 2023:
| December 31, 2024 | December 31, 2023 | ||||||||||||
| (In Thousands) | Amortized Cost |
Fair Value |
Amortized Cost |
Fair Value |
|||||||||
| AVAILABLE-FOR-SALE DEBT SECURITIES: | |||||||||||||
| Obligation of U.S.Government Corporations and Agencies: | |||||||||||||
| Mortgage-backed | $ | 128,631 | $ | 113,707 | $ | 145,196 | $ | 131,340 | |||||
| Collateralized mortgage obligations | 6,752 | 7,046 | 8,515 | 9,018 | |||||||||
| Other | 123,500 | 119,454 | 197,325 | 187,712 | |||||||||
| Obligations of state and political subdivisions | 81,680 | 82,762 | 81,033 | 84,956 | |||||||||
| Other debt securites | 274 | 279 | 267 | 276 | |||||||||
| Total available-for-sale debt securities | $ | 340,837 | $ | 323,248 | $ | 432,336 | $ | 413,302 | |||||
| Aggregate Unrealized Loss | $ | (17,589) | $ | (19,034) | |||||||||
| Aggregate Unrealized Loss as a % of Amortized Cost | (5.2%) | (4.4%) | |||||||||||
The following table presents the weighted-average yields on available-for-sale debt securities by major category and maturity period at December 31, 2024. Yields are calculated on the basis of the amortized cost and weighted for the scheduled maturity of each security. Because mortgage-backed securities and collateralized mortgage obligations are not due at a single maturity date, they are not included in the maturity categories in the following summary.
| (Dollars In Thousands) | Within One Year |
Yield | One- Five Years |
Yield | Five- Ten Years |
Yield | After Ten Years |
Yield | Total | Yield | |||||||||||||||||||||
| AVAILABLE-FOR-SALE DEBT SECURITIES: | |||||||||||||||||||||||||||||||
| Obligation of U.S.Government Corporations and Agencies: | |||||||||||||||||||||||||||||||
| Other | $ | 57,000 | 0.77% | $ | 66,500 | 1.18% | $ | — | — | $ | — | — | $ | 123,500 | 0.99% | ||||||||||||||||
| Obligations of state and political subdivisions | 1,321 | 3.77% | 6,176 | 3.92% | 27,805 | 4.13% | 46,378 | 4.65% | 81,680 | 4.40% | |||||||||||||||||||||
| Other debt securities | 98 | 5.24% | 89 | 5.78% | 87 | 5.00% | — | — | 274 | 5.34% | |||||||||||||||||||||
| Sub-total | $ | 58,419 | 1.00% | $ | 72,765 | 1.53% | $ | 27,892 | 4.43% | $ | 46,378 | 4.65% | $ | 205,454 | 2.48% | ||||||||||||||||
| Mortgage-backed securities | 128,631 | 2.11% | |||||||||||||||||||||||||||||
| Collateralized mortgage obligations | 6,752 | 5.12% | |||||||||||||||||||||||||||||
| Total | $ | 340,837 | 2.32% | ||||||||||||||||||||||||||||
Marketable Equity Securities
At December 31, 2024 and December 31, 2023, the Corporation held $1.4 and $1.3 million, 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, 2024 and 2023:
| For the Years Ended December 31, |
|||||||
| (In Thousands) | 2024 | 2023 | |||||
| Net gains (losses) recognized during the period on marketable equity securities | $ | 60 | $ | (119) | |||
| Less: Net gains (losses) recognized during the period on marketable equity securities sold during the period | — | — | |||||
| Unrealized gains (losses) recognized during the period on marketable equity securities still held at the reporting date | $ | 60 | $ | (119) | |||
See Note 4 within the Corporation’s Notes to the Consolidated Financial Statements which are included in this Annual Report on Form 10-K for more information regarding Corporation’s investment portfolio as of December 31, 2024.
24
Loans
Gross loans receivable increased 5.4% from $1.068 billion at December 31, 2023 to $1.126 billion at December 31, 2024. The percentage distribution in the loan portfolio is shown in the tables below:
| December 31, 2024 | December 31, 2023 | ||||||||||||
| (In Thousands) | Amount | % | Amount | % | |||||||||
| Commercial and industrial | $ | 93,445 | 8.3% | $ | 94,278 | 8.8% | |||||||
| Commercial real estate: | |||||||||||||
| Commercial mortgages | 325,882 | 28.9% | 326,152 | 30.5% | |||||||||
| Student housing | 45,808 | 4.1% | 33,650 | 3.1% | |||||||||
| Residential real estate | 638,952 | 56.7% | 589,284 | 55.2% | |||||||||
| Consumer and other | 21,850 | 1.9% | 25,065 | 2.3% | |||||||||
| Gross loans | $ | 1,125,937 | 100.0% | $ | 1,068,429 | 100.0% | |||||||
Loan concentrations are considered to exist when there are amounts loaned to a number of borrowers engaged in similar activities that would cause them to be similarly impacted by economic or other conditions. Our lending activity is heavily concentrated in the geographic market areas we serve. This geographic concentration subjects our loan portfolio to the general economic conditions within the state. The risks created by this concentration have been considered by management and are monitored on an ongoing basis. As of December 31, 2024 and December 31, 2023, there were no concentrations of loans exceeding 10% of total loans other than the categories of loans disclosed in the table above. We believe our loan portfolio is diversified relative to industry concentrations across the various loan portfolio categories.
Banking regulators have established guidelines of less than 100% of tier 1 capital plus allowance for credit losses in construction lending and less than 300% of tier 1 capital plus allowance for credit losses in commercial real estate lending that management monitors as part of the risk management process. The construction concentration ratio is a percentage of the outstanding construction and land development loans to total tier 1 capital plus allowance for credit losses. The commercial real estate concentration ratio is a percentage of the outstanding balance of non-owner occupied commercial real estate, multifamily, and construction and land development loans to tier 1 capital plus allowance for credit losses. At December 31, 2024, the Bank’s exposure to commercial real estate was well below these guidelines.
As of December 31, 2024, commercial real estate loans totaled $371.7 million or 33.0% of total gross loans. Of this amount commercial mortgage loans represented $325.9 million or 28.9% of total gross loans and student housing loans represented $45.8 million or 4.1% of total gross loans. The following table presents the distribution of commercial mortgage loans and related percentage of the total loan portfolio as of December 31, 2024 and December 31, 2023:
| December 31, 2024 | December 31, 2023 | ||||||||||||
| (In Thousands) | Amount | % | Amount | % | |||||||||
| Commercial mortgages: | |||||||||||||
| Commercial construction | $ | 24,664 | 2.2% | $ | 22,530 | 2.1% | |||||||
| Multifamily | 74,463 | 6.6% | 70,750 | 6.6% | |||||||||
| Owner occupied nonfarm nonresidential | 101,697 | 9.0% | 100,095 | 9.4% | |||||||||
| Non-owner occupied nonfarm nonresidential | 83,882 | 7.4% | 95,403 | 8.9% | |||||||||
| Other commercial | 41,176 | 3.7% | 37,374 | 3.5% | |||||||||
| Total commercial mortgages | $ | 325,882 | 28.9% | $ | 326,152 | 30.5% | |||||||
The following table presents the maturity distribution and interest rate information of the loan portfolio by major category as of December 31, 2024:
| As of December 31, 2024 | |||||||||||||||||||||||||||||||||||
| Fixed-Rate Loans | Variable- or Adjustable-Rate Loans | All Loans | |||||||||||||||||||||||||||||||||
| 1 Year | 1-5 | 5-15 | >15 | 1 Year | 1-5 | 5-15 | >15 | ||||||||||||||||||||||||||||
| (In Thousands) | or Less | Years | Years | Years | Total | or Less | Years | Years | Years | Total | Total | ||||||||||||||||||||||||
| Commercial and industrial | $ | 4,969 | $ | 18,161 | $ | 15,478 | $ | 132 | $ | 38,740 | $ | 5,473 | $ | 3,730 | $ | 22,627 | $ | 22,875 | $ | 54,705 | $ | 93,445 | |||||||||||||
| Commercial real estate: | |||||||||||||||||||||||||||||||||||
| Commercial mortgages | 3,271 | 3,079 | 16,343 | 1,187 | 23,880 | 6,760 | 8,438 | 73,142 | 213,662 | 302,002 | 325,882 | ||||||||||||||||||||||||
| Student housing | 1,292 | - | 2,069 | - | 3,361 | - | 4,742 | 16,207 | 21,498 | 42,447 | 45,808 | ||||||||||||||||||||||||
| Residential real estate | 4,972 | 7,936 | 62,455 | 43,273 | 118,636 | 5,250 | 4,243 | 51,536 | 459,287 | 520,316 | 638,952 | ||||||||||||||||||||||||
| Consumer and other | 865 | 6,480 | 2,473 | 1,282 | 11,100 | 117 | 272 | 3,383 | 6,978 | 10,750 | 21,850 | ||||||||||||||||||||||||
| Total | $ | 15,369 | $ | 35,656 | $ | 98,818 | $ | 45,874 | $ | 195,717 | $ | 17,600 | $ | 21,425 | $ | 166,895 | $ | 724,300 | $ | 930,220 | $ | 1,125,937 | |||||||||||||
See Note 5 within the Corporation’s Notes to the Consolidated Financial Statements which are included in this Annual Report on Form 10-K for more information regarding the Corporation’s loan portfolio as of December 31, 2024.
25
Asset Quality
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are stated at the amount of unpaid principal, net of deferred loan fees and costs, and reduced by the allowance for credit losses. The allowance for credit losses is established through a provision for credit losses charged to earnings.
The Corporation has established and consistently applies loan policies and procedures designed to foster sound underwriting and credit monitoring practices. Credit risk is managed through the efforts of loan officers, the Chief Credit Officer, the loan review function, as well as oversight from the Board of Directors. Management continually evaluates its credit risk management practices to ensure problems in the loan portfolio are addressed in a timely manner, although, as is the case with any financial institution, a certain degree of credit risk is dependent in part on local and general economic conditions that are beyond management’s control. Under the Corporation’s risk rating system, loans are rated pass, special mention, substandard, doubtful, or loss, with all categories reviewed regularly as part of the risk management practices.
Non-performing loans are monitored on an ongoing basis as part of the Corporation’s loan review process. Additionally, work-outs for non-performing loans and foreclosed assets held for sale are actively monitored through the Bank’s Credit Department. A potential loss on a non-performing asset is generally determined by comparing the outstanding loan balance to the fair market value of the pledged collateral, less estimated cost to sell.
Management actively manages non-performing loans in an effort to mitigate loss to the Corporation by working with customers to develop strategies to resolve borrower difficulties, through sale or liquidation of collateral, foreclosure and other appropriate means. In addition, management monitors employment and economic conditions within its market area, as weakening of conditions could result in real estate devaluations and an increase in loan delinquencies, which could negatively impact asset quality and cause an increase in the provision for credit losses.
The following table presents information about non-performing assets, as of December 31, 2024 and December 31, 2023:
Non-performing Assets
| December 31, | December 31, | |||||
| (dollars in thousands) | 2024 | 2023 | ||||
| Non-accrual loans | $ | 10,047 | $ | 4,012 | ||
| Loans past due 90 days or more and still accruing | - | 294 | ||||
| Total non-performing loans | 10,047 | 4,306 | ||||
| Foreclosed assets held for sale | 70 | 170 | ||||
| Total non-performing assets | $ | 10,117 | $ | 4,476 | ||
| Non-performing loans as a percentage of total loans, gross | 0.89% | 0.40% | ||||
| Non-performing assets as a percentage of total assets | 0.63% | 0.27% | ||||
| Allowance for credit losses as a percentage of total loans, gross | 0.88% | 0.87% | ||||
| Allowance for credit losses to non-performing assets | 97.44% | 207.82% | ||||
Total non-performing assets amounted to $10,117,000, or 0.63% of total assets at December 31, 2024, as compared to $4,476,000, or 0.27% of total assets at December 31, 2023. For the year ended December 31, 2024, the Corporation experienced increases in non-accrual loans in all major loan classifications, however, the most significant increases were in commercial real estate and residential real estate loans which increased $1,415,000 and $3,785,000, respectively.
Increases in residential real estate non-accrual loans were generally applicable to a homogenous population of well secured loans collateralized by 1-4 family residential properties. With respect to commercial real estate non-accrual loans, the Corporation has experienced a limited number of large commercial relationships that have required significant monitoring and workout efforts. As a result, these relationships may significantly impact the total amount of allowance required on individual loans and may significantly impact the provision for credit losses and the amount of total charge-offs reported in any one period.
Management believes it has been conservative in its decisions concerning identification of loans requiring individual evaluation for credit loss, estimates of loss, and nonaccrual status; however, the actual losses realized from these relationships could vary materially from the allowances calculated as of December 31, 2024. Management continues to closely monitor its loan relationships for credit losses and will adjust its estimates of loss and decisions concerning nonaccrual status, if appropriate.
26
Allowance for Credit Losses
The allowance for credit losses was $9.9 million at December 31, 2024, compared to $9.3 million at December 31, 2023. The allowance equaled 0.88% of total loans, net of unearned fees and costs and unamortized fair value adjustments, at December 31, 2024 as compared to 0.87% of total loans at December 31, 2023. The allowance for credit losses is analyzed quarterly and reviewed by the Corporation’s Board of Directors. No concentration or apparent deterioration in classes of loans or pledged collateral was evident. Regular loan meetings with the Corporation’s Board of Directors reviewed new loans over specified thresholds. Delinquent loans, loan exceptions and certain large loans are addressed by the full Board no less than monthly to determine compliance with policies.
The following tables present the allocation of the allowance for credit losses as of December 31, 2024 and December 31, 2023:
| December 31, 2024 | December 31, 2023 | |||||||||
| (dollars in thousands) | Allowance for Credit Losses |
Percent of Allowance | Percent of Loans to Gross Loans |
Allowance for Credit Losses |
Percent of Allowance | Percent of Loans to Gross Loans | ||||
| Commercial and industrial | $ | 931 | 9.4% | 8.3% | $ | 801 | 8.6% | 8.8% | ||
| Commercial real estate | 6,869 | 69.7% | 33.0% | 6,847 | 73.6% | 33.7% | ||||
| Residential real estate | 1,850 | 18.8% | 56.7% | 1,474 | 15.8% | 55.2% | ||||
| Consumer and other | 208 | 2.1% | 1.9% | 180 | 1.9% | 2.3% | ||||
| Total | $ | 9,858 | 100.0% | 100.0% | $ | 9,302 | 100.0% | 100.0% | ||
See Note 1 and 5 within the Corporation’s Notes to the Consolidated Financial Statements which are included in this Annual Report on Form 10-K for more information regarding the Corporation’s allowance for credit losses as of December 31, 2024.
Deposits
Deposits are the primary source of funds for the Corporation’s lending and investing activities. The Corporation provides a range of deposit services to businesses and individuals, including noninterest-bearing checking accounts, interest-bearing checking accounts, savings accounts, money market accounts and time deposits. These accounts generally earn interest at rates the Corporation establishes based on market factors and the anticipated amount and timing of funding needs. The establishment or continuity of a core deposit relationship can be a factor in loan pricing decisions. While the Corporation’s primary focus is on establishing customer relationships to attract core deposits, at times, the Corporation may use brokered deposits and other wholesale deposits to supplement its funding sources. As of December 31, 2024, the Corporation held no brokered deposits.
The following tables summarize the average balances outstanding and average interest rates for each major category of deposits for years ended December 31, 2024 and 2023, respectively:
| For the Years Ended | ||||||||||||
| December 31, 2024 | December 31, 2023 | |||||||||||
| Average | Average | Average | Average | Balance Change | ||||||||
| (In Thousands) | Balance | Rate | Balance | Rate | Amount | % | ||||||
| Non-interest bearing | $ | 261,935 | - | % | $ | 186,934 | — | % | $ | 75,001 | 40.1 | % |
| Savings | 198,175 | 0.03 | 167,611 | 0.03 | 30,564 | 18.2 | ||||||
| Interest-bearing demand deposits | 324,602 | 2.02 | 165,347 | 0.31 | 159,255 | 96.3 | ||||||
| Money market deposits | 109,584 | 2.08 | 54,190 | 1.44 | 55,394 | 102.2 | ||||||
| Time deposits | 341,740 | 3.95 | 155,863 | 2.33 | 185,877 | 119.3 | ||||||
| Total deposits | $ | 1,236,036 | 1.81 | % | $ | 729,945 | 0.68 | % | $ | 506,091 | 69.3 | % |
The Corporation believes its deposit product offerings are properly structured to attract and retain core low-cost deposit relationships. The average cost of interest-bearing deposits for the years ended December 31, 2024, and 2023, was 2.30% and 0.91%, respectively. The increased cost was primarily attributable to the increases in rates and increased pricing competition.
At December 31, 2024, estimated uninsured deposits, or the portion of deposit accounts which exceeded the Federal Deposit Corporation insurance limit, totaled $353.2 million. Of this amount, $202.0 million was collateralized by securities pledged by the Corporation or letters of credit issued through the Federal Home Loan Bank of Pittsburgh. Time deposits of $250,000 or more totaled approximately $100.3 million at December 31, 2024.
See Note 7 within the Corporation’s Notes to the Consolidated Financial Statements which are included in this Annual Report on Form 10-K for more information regarding the Corporation’s deposits as of December 31, 2024.
27
Borrowings
Short-term borrowings consist primarily of securities sold under agreements to repurchase and periodic overnight or short-term Federal Home Loan Bank advances. Average short-term borrowings amounted to 10.3% and 25.9% of total interest-bearing liabilities for the years ended December 31, 2024 and 2023, respectively. This change was primarily related to the migration of customer repurchase agreements as well as a paydown in short-term FHLB borrowings during 2024 as discussed above.
Long-term borrowings consist of advances due to the FHLB - Pittsburgh. Under terms of a blanket agreement, the loans are secured by certain qualifying assets of the Bank which consist principally of first mortgage loans. The carrying value of these collateralized items was $822.1 million at December 31, 2024. The Bank has lines of credit with the Federal Reserve Bank Discount Window, FHLB – Pittsburgh, and Atlantic Community Bankers Bank in the aggregate amount of $588.0 million at December 31, 2024. The unused portion of these lines of credit was $486.6 million at December 31, 2024.
See Note 8 within the Corporation’s Notes to the Consolidated Financial Statements which are included in this Annual Report on Form 10-K for more information regarding the Corporation’s borrowings as of December 31, 2024.
Capital Resources
Management believes, as of December 31, 2024, that Journey Bank meets all capital adequacy requirements to which it is subject. Management annually performs stress testing on its regulatory capital levels and expects Journey Bank to maintain capital levels that exceed the regulatory standards for well-capitalized institutions for the next 12 months and for the foreseeable future.
Future dividend payments and repurchases of common stock will depend upon maintenance of a strong financial condition, future earnings and capital and regulatory requirements. In addition, Journey Bank is subject to restrictions on the amount of dividends that may be paid without approval of banking regulatory authorities. Further, although Muncy Columbia Financial Corporation is not subject to the specific consolidated capital requirements, its ability to pay dividends, repurchase stock or engage in other activities may be limited by the Federal Reserve if it fails to hold sufficient capital commensurate with its overall risk profile.
The following table reflects the Bank’s actual capital amounts and ratios at December 31, 2024 and 2023:
| Journey Bank | Minimum Required For Capital Adequacy Purposes | Minimum Required For Capital Adequacy Purposes with Conservation Buffer | Minimum Required To Be Well Capitalized Under Prompt Corrective Action Regulations | |||||||||||||
| (Dollars in Thousands) | Amount | Ratio | Ratio | Ratio | Ratio | |||||||||||
| December 31, 2024 | ||||||||||||||||
| Total capital (to risk-weighted assets) | $ | 152,703 | 16.03% | 8.00% | 10.50% | 10.00% | ||||||||||
| Tier I capital (to risk-weighted assets) | 143,417 | 15.06% | 6.00% | 8.50% | 8.00% | |||||||||||
| Tier I common equity (to risk-weighted assets) | 143,417 | 15.06% | 4.50% | 7.00% | 6.50% | |||||||||||
| Tier I capital (to average assets) | 143,417 | 9.10% | 4.00% | 4.00% | 5.00% | |||||||||||
| Total risk-weighted assets | 952,452 | |||||||||||||||
| Total average assets | 1,576,746 | |||||||||||||||
| Journey Bank | Minimum Required For Capital Adequacy Purposes | Minimum Required For Capital Adequacy Purposes with Conservation Buffer | Minimum Required To Be Well Capitalized Under Prompt Corrective Action Regulations | |||||||||||||
| (Dollars in Thousands) | Amount | Ratio | Ratio | Ratio | Ratio | |||||||||||
| December 31, 2023 | ||||||||||||||||
| Total capital (to risk-weighted assets) | $ | 138,382 | 14.49% | 8.00% | 10.50% | 10.00% | ||||||||||
| Tier I capital (to risk-weighted assets) | 129,053 | 13.52% | 6.00% | 8.50% | 8.00% | |||||||||||
| Tier I common equity (to risk-weighted assets) | 129,053 | 13.52% | 4.50% | 7.00% | 6.50% | |||||||||||
| Tier I capital (to average assets) | 129,053 | 8.03% | 4.00% | 4.00% | 5.00% | |||||||||||
| Total risk-weighted assets | 954,878 | |||||||||||||||
| Total average assets | 1,607,661 | |||||||||||||||
28
RESULTS OF OPERATIONS
Net income in 2024 amounted to $19.0 million, or $5.33 per share, an increase of $15.6 million compared to $3.4 million, or $1.49 per share, in 2023. The increase in net income for 2024 compared to 2023 was primarily attributable to a significant increase in net interest income along with nonrecurring expenses associated with the MBF merger in 2023. Pretax merger-related expenses recorded in 2023 were $3.0 million, compared to $241,000 in 2024. Also, during the fourth quarter 2023, the Corporation recorded a one-time pretax provision for credit losses of $2.9 million for acquired non-PCD loans.
Net interest income increased $27.2 million, or 116.9% to $50.5 million in 2024, from $23.3 million in 2023. Non-interest income was $10.4 million in 2024, an increase of $3.3 million, or 45.7%, from $7.1 million in 2023, which primarily related to increases in service charges and fees, earnings on bank-owned life insurance, interchange fees and other non-interest income. Non-interest expense was $37.7 million in 2024, an increase of $13.6 million, or 56.2%, from $24.1 million in 2023, which was primarily related to increases in expenses following the MBF merger.
The annualized return on average assets was 1.19% in 2024 compared to 0.32% in 2023. The annualized return on average equity was 11.88% in 2024 compared to 3.48% in 2023. The Corporation declared and paid dividends to holders of common stock of $1.76 per share in 2024 and $1.71 per share in 2023.
Net Interest Income
Net interest income is the difference between (i) interest income, interest and fees on interest-earning assets, and (ii) interest expense, interest paid on deposits and borrowed funds. Net interest income represents the largest component of the Corporation’s operating income and, as such, is the primary determinant of profitability. Net interest income is impacted by variations in the volume, rate and composition of earning assets and interest-bearing liabilities, changes in general market interest rates and the level of non-performing assets. Interest income is shown on a fully tax-equivalent basis using the corporate statutory tax rate of 21.0% in 2024 and 2023.
Tax-equivalent net interest income increased $28.0 million, or 119.0%, to $51.6 million in 2024 compared to $23.6 million in 2023. The increase in tax-equivalent net interest income was due to an increase in tax-equivalent interest income reflecting higher earning asset volumes and yields, partially offset by an increase in interest expense which resulted primarily from an increase in interest-bearing deposits and increased cost of funds. Tax-equivalent net interest margin, a key measurement used in the banking industry to measure income from earning assets relative to the cost to fund those assets, is calculated by dividing tax-equivalent net interest income by average interest-earning assets. The Corporation’s tax-equivalent net interest margin increased 112 basis points to 3.46% in 2024 compared to 2.34% in 2023, which was largely caused by increases in yields on earning assets outpacing the increase in cost of funds. Additionally, interest rate spread, the difference between the average yield on interest-earning assets, shown on a fully tax-equivalent basis, and the average cost of interest-bearing liabilities, increased 101 basis points to 2.86% in 2024 compared to 1.85% in 2023.
Tax-equivalent interest income increased $44.2 million, or 114.4%, to $82.9 million in 2024 from $38.7 million in 2023, which was largely caused by significant growth in average earning assets, coupled with an increase in the tax-equivalent yield on average earning assets. Average earning assets increased $482.1 million, or 47.8%, to $1.5 billion in 2024 from $1.0 billion in 2023, resulting in a corresponding increase to tax-equivalent interest income of $27.1 million. Specifically, average loans increased $493.7 million, or 79.3%, to $1.1 billion in 2024 from $622.5 million in 2023, which reflected the MBF merger as well as strong organic loan growth. Taxable investment securities averaged $291.0 million in 2024, a decrease of $63.5 million, or 17.9%, compared to $354.4 million in 2023, and tax-exempt securities averaged $78.9 million in 2024, an increase of $55.4 million, or 235.9%, compared to $23.5 million in 2023, which contributed to an increase of $1.5 million in tax-equivalent interest income. The tax-equivalent yield on earning assets increased 173 basis points to 5.56% in 2024 from 3.83% in 2023, which resulted in a corresponding increase in tax-equivalent interest income of $17.1 million. The Corporation’s tax-equivalent yield on loans increased 144 basis points to 6.58% in 2024 compared to 5.14% in 2023, resulting in a corresponding increase in tax-equivalent interest income of $15.7 million, due primarily to net accretion of loan fair value adjustments recorded in conjunction with the MBF merger as well as the continued repricing of existing variable rate loans in the Corporation’s portfolio. Meanwhile, the tax-equivalent yield on investment securities increased 79 basis points to 2.49% in 2024 from 1.70% in 2023 and caused a corresponding increase to tax-equivalent interest income of $1.3 million.
Interest expense increased $16.2 million, or 107.3%, to $31.3 million in 2024 from $15.1 million in 2023, which was primarily from an increase in funding costs, coupled with an increase in average deposits resulting from the MBF merger. Average borrowed funds, which is largely comprised of customer repurchase agreements and FHLB of Pittsburgh advances, averaged $184.5 million in 2024, a decrease of $35.9 million from $220.4 million in 2023. Lower volumes of average borrowed funds resulted in a corresponding decrease in interest expense of $1.7 million. Total average interest-bearing deposits increased $431.1 million, or 79.4%, to $974.1 million for 2024, compared to $543.0 million for 2023, which resulted in a corresponding increase in interest expense of $5.6 million. The Corporation experienced higher funding costs in 2023 and 2024 as a result of rising market rates and increased competition. For the year ended December 31, 2024, the Corporation’s cost of funds increased 72 basis points to 2.70% from 1.98% for the year ended December 31, 2023, which resulted in a corresponding increase in interest expense of $12.3 million.
29
The following Average Balance Sheet and Rate Analysis tables presents the average assets, actual income or expense and the average yield on assets, liabilities and stockholders’ equity for the years ended December 31, 2024 and 2023.
AVERAGE BALANCE SHEET AND RATE ANALYSIS
YEARS ENDED DECEMBER 31,
| 2024 | 2023 | ||||||||||||||||||
| (In Thousands) | Average Balance | Interest | Average Rate | Average Balance | Interest | Average Rate | |||||||||||||
| ASSETS: | (1) | (1) | |||||||||||||||||
| Tax-exempt loans | $ | 41,875 | $ | 1,889 | 4.51% | $ | 31,729 | $ | 1,136 | 3.58% | |||||||||
| All other loans | 1,074,344 | 71,513 | 6.66% | 590,814 | 30,885 | 5.23% | |||||||||||||
| Total loans (2)(3)(4) | 1,116,219 | 73,402 | 6.58% | 622,543 | 32,021 | 5.14% | |||||||||||||
| Taxable securities | 290,951 | 5,063 | 1.74% | 354,436 | 5,348 | 1.51% | |||||||||||||
| Tax-exempt securitites (3) | 78,907 | 4,145 | 5.25% | 23,490 | 1,061 | 4.52% | |||||||||||||
| Total securities | 369,858 | 9,208 | 2.49% | 377,926 | 6,409 | 1.70% | |||||||||||||
| Federal funds sold | — | — | 0.00% | 3 | — | 0.00% | |||||||||||||
| Interest-bearing deposits in other banks | 5,339 | 288 | 5.39% | 8,875 | 228 | 2.57% | |||||||||||||
| Total interest-earning assets | 1,491,416 | 82,898 | 5.56% | 1,009,347 | 38,658 | 3.83% | |||||||||||||
| Other assets | 102,048 | 43,765 | |||||||||||||||||
| TOTAL ASSETS | $ | 1,593,464 | $ | 1,053,112 | |||||||||||||||
| LIABILITIES: | |||||||||||||||||||
| Savings | $ | 198,175 | 61 | 0.03% | $ | 167,611 | 51 | 0.03% | |||||||||||
| Now deposits | 324,602 | 6,564 | 2.02% | 165,347 | 506 | 0.31% | |||||||||||||
| Money market deposits | 109,584 | 2,270 | 2.07% | 54,190 | 779 | 1.44% | |||||||||||||
| Time deposits | 341,740 | 13,507 | 3.95% | 155,863 | 3,628 | 2.33% | |||||||||||||
| Total interest-bearing deposits | 974,101 | 22,402 | 2.30% | 543,011 | 4,964 | 0.91% | |||||||||||||
| Short-term borrowings | 119,908 | 5,741 | 4.79% | 197,827 | 9,119 | 4.61% | |||||||||||||
| Long-term borrowings | 64,633 | 3,135 | 4.85% | 22,575 | 1,002 | 4.44% | |||||||||||||
| Total borrowings | 184,541 | 8,876 | 4.81% | 220,402 | 10,121 | 4.59% | |||||||||||||
| Total interest-bearing liabilities | 1,158,642 | 31,278 | 2.70% | 763,413 | 15,085 | 1.98% | |||||||||||||
| Noninterest-bearing deposits | 261,935 | 186,934 | |||||||||||||||||
| Other liabilities | 12,752 | 5,538 | |||||||||||||||||
| Stockholders’ equity | 160,135 | 97,227 | |||||||||||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 1,593,464 | $ | 1,053,112 | |||||||||||||||
| Interest rate spread (6) | 2.86% | 1.85% | |||||||||||||||||
| Net interest income/margin (5) | $ | 51,620 | 3.46% | $ | 23,573 | 2.34% | |||||||||||||
| (1) | Average volume information was compared using daily averages for interest-earning and bearing accounts. |
| (2) | Interest on loans includes loan fee income. |
| (3) | Tax exempt interest revenue is shown on a tax-equivalent basis using a statutory federal income tax rate of 21 percent for 2024 and 2023. |
| (4) | Nonaccrual loans have been included with loans for the purpose of analyzing net interest earnings. |
| (5) | Net interest margin is computed by dividing annualized tax-equivalent net interest income by total interest earning assets. |
| (6) | Interest rate spread represents the difference between the average rate earned on interest-earning assets and the average rate paid on interest-bearing liabilities. |
30
| Reconcilement of Taxable Equivalent Net Interest Income | |||||||
| For the Years Ended December 31, | |||||||
| 2024 | 2023 | ||||||
| (In Thousands) | |||||||
| Total interest income | $ | 81,743 | $ | 38,347 | |||
| Total interest expense | 31,278 | 15,085 | |||||
| Net interest income | 50,465 | 23,262 | |||||
| Tax equivalent adjustment | 1,155 | 311 | |||||
| Net interest income | |||||||
| (fully taxable equivalent) | $ | 51,620 | $ | 23,573 | |||
Rate/Volume Analysis
To enhance the understanding of the effects of volumes (the average balance of earning assets and costing liabilities) and average interest rate fluctuations on the Consolidated Balance Sheets as it pertains to net interest income, the table below reflects these changes for the years ended December 31, 2024 versus December 31, 2023:
| Years Ended December 31, | ||||||||||||
| 2024 vs 2023 | ||||||||||||
| Increase (Decrease) | ||||||||||||
| Due to | ||||||||||||
| (In Thousands) | Volume | Rate | Net | |||||||||
| Interest income: | ||||||||||||
| Loans, tax-exempt | $ | 363 | $ | 390 | $ | 753 | ||||||
| Loans | 25,277 | 15,351 | 40,628 | |||||||||
| Taxable investment securities | (958 | ) | 673 | (285 | ) | |||||||
| Tax-exempt investment securities | 2,503 | 581 | 3,084 | |||||||||
| Federal funds sold | — | — | — | |||||||||
| Interest bearing deposits | (91 | ) | 151 | 60 | ||||||||
| Total interest-earning assets | 27,094 | 17,146 | 44,240 | |||||||||
| Interest expense: | ||||||||||||
| Savings | 9 | 1 | 10 | |||||||||
| NOW deposits | 487 | 5,571 | 6,058 | |||||||||
| Money market deposits | 796 | 695 | 1,491 | |||||||||
| Time deposits | 4,327 | 5,552 | 9,879 | |||||||||
| Short-term borrowings | (3,592 | ) | 214 | (3,378 | ) | |||||||
| Long-term borrowings, FHLB | 1,867 | 266 | 2,133 | |||||||||
| Total interest-bearing liabilities | 3,894 | 12,299 | 16,193 | |||||||||
| Change in net interest income | $ | 23,200 | $ | 4,847 | $ | 28,047 | ||||||
Provision for Credit Losses - Loans
For the year ended December 31, 2024, the Corporation recorded a $847,000 provision for credit losses on loans compared to $2.6 million for the year ended December 31, 2023. The provision for 2024 primarily reflects an increase in volume in the loan portfolio along with changes in qualitative factors related to the nature of the loan portfolio, volume and severity of past due loans, loan grade migration, changes in lending staff and changes in lending policies and procedures. The provision for 2023 was primarily as a result of a $2.9 million one-time provision related to purchased non-PCD loans acquired as part of the MBF merger, as well as a net credit due to other factors.
See Note 1 and 5 within the Corporation’s Notes to the Consolidated Financial Statements which are included in this Annual Report on Form 10-K for more information regarding the Corporation’s allowance for credit losses as of December 31, 2024.
31
Non-interest Income
Total non-interest income increased $3.3 million or 45.7% to $10.4 million for the year ended December 31, 2024, compared to $7.1 million for the year ended December 31, 2023. Service charges and fees increased $638,000 due to an increased number of accounts and increased transaction volumes due to the MBF merger. Interchange fees increased $801,000 or 43.6% due to an increase in the volume of transactions due to the MBF merger and continued increase in electronic payments. Earnings on bank-owned life insurance increased $425,000 or 84.5% from $503,000 to $928,000 due to an increase in cash surrender values related to the MBF merger. Other non-interest income increased $930,000 or 92.4% due primarily to incentives received in conjunction with the launch of a debit card reissuance project, a governmental grant recorded in conjunction with the completion of a solar energy project, increases in merchant services income and secondary market mortgage servicing fees.
| For the Years Ended | |||||||||||||||||||||
| December 31, 2024 | December 31, 2023 | Change | |||||||||||||||||||
| (In Thousands) | Amount | % Total | Amount | % Total | Amount | % | |||||||||||||||
| Service charges and fees | $ | 2,732 | 26.3 | % | $ | 2,094 | 29.4 | % | $ | 638 | 30.5 | % | |||||||||
| Interchange fees | 2,640 | 25.4 | 1,839 | 25.8 | 801 | 43.6 | |||||||||||||||
| Gain on sale of loans | 413 | 4.0 | 276 | 3.9 | 137 | 49.6 | |||||||||||||||
| Earnings on bank-owned life insurance | 928 | 8.9 | 503 | 7.1 | 425 | 84.5 | |||||||||||||||
| Brokerage | 807 | 7.8 | 636 | 8.9 | 171 | 26.9 | |||||||||||||||
| Trust | 943 | 9.1 | 885 | 12.4 | 58 | 6.6 | |||||||||||||||
| Gains (losses) on marketable equity securities | 60 | 0.6 | (119 | ) | (1.7 | 179 | 150.4 | ||||||||||||||
| Realized losses on available-for-sale debt securities, net | (85 | ) | (0.8 | — | — | (85 | ) | (100.0 | |||||||||||||
| Other non-interest income | 1,937 | 18.7 | 1,007 | 14.2 | 930 | 92.4 | |||||||||||||||
| Total non-interest income | $ | 10,375 | 100.0 | % | $ | 7,121 | 100.0 | % | $ | 3,254 | 45.7 | % | |||||||||
Non-interest Expense
Total non-interest expense increased $13.6 million or 56.2% from $24.1 million for the year ended December 31, 2023, to $37.7 million for the year ended December 31, 2024. The MBF merger has contributed significantly to increases in all components of non-interest expense. Salaries and employee benefits increased $7.4 million, occupancy increased $1.1 million, Pennsylvania shares tax increased $576,000, data processing and telecommunications increased $2.0 million and other non-interest expense increased $1.6 million. All of these increases relate to the closing of the MBF merger on November 11, 2023. Merger-related expenses totaled $241,000 for the year ended December 31, 2024, compared to $3.0 million for the year ended December 31, 2023. Amortization of intangibles totaled $2.2 million for the year ended December 31, 2024, compared to $183,000 for the year ended December 31, 2023 with the increase being due primarily to amortization of the core deposit intangible related to the MBF merger.
One standard to measure non-interest expense is to express annualized non-interest expense as a percentage of average total assets. For the year ended December 31, 2024 this percentage was 2.53% compared to 2.39% for the year ended December 31, 2023.
| For the Years Ended | |||||||||||||||||||||
| December 31, 2024 | December 31, 2023 | Change | |||||||||||||||||||
| (In Thousands) | Amount | % Total | Amount | % Total | Amount | % | |||||||||||||||
| Salaries and employee benefits | $ | 19,027 | 50.5 | % | $ | 11,618 | 48.2 | % | $ | 7,409 | 63.8 | % | |||||||||
| Occupancy | 2,459 | 6.5 | 1,391 | 5.8 | 1,068 | 76.8 | |||||||||||||||
| Furniture and equipment | 1,665 | 4.4 | 1,192 | 4.9 | 473 | 39.7 | |||||||||||||||
| Pennsylvania shares tax | 941 | 2.5 | 365 | 1.5 | 576 | 157.8 | |||||||||||||||
| Professional fees | 1,522 | 4.0 | 1,280 | 5.3 | 242 | 18.9 | |||||||||||||||
| Director’s fees | 618 | 1.6 | 326 | 1.4 | 292 | 89.6 | |||||||||||||||
| Federal deposit insurance | 820 | 2.2 | 478 | 2.0 | 342 | 71.5 | |||||||||||||||
| Data processing and telecommunications | 3,595 | 9.5 | 1,559 | 6.5 | 2,036 | 130.6 | |||||||||||||||
| Automated teller machine and interchange | 671 | 1.8 | 340 | 1.4 | 331 | 97.4 | |||||||||||||||
| Merger-related expenses | 241 | 0.6 | 3,028 | 12.6 | (2,787 | ) | (92.0 | ||||||||||||||
| Amortization of intangibles | 2,202 | 5.8 | 183 | 0.8 | 2,019 | 100.0 | |||||||||||||||
| Other non-interest expense | 3,901 | 10.6 | 2,350 | 9.6 | 1,551 | 66.0 | |||||||||||||||
| Total non-interest expense | $ | 37,662 | 100.0 | % | $ | 24,110 | 100.0 | % | $ | 13,552 | 56.2 | % | |||||||||
32
LIQUIDITY
The Bank’s liquidity, represented by cash and due from banks, is a product of its operating, investing and financing activities. The Bank’s primary sources of funds are deposits, securities sold under agreements to repurchase, principal repayments of securities and outstanding loans, funds provided from operations, and day-to-day FHLB – Pittsburgh borrowings. In addition, the Bank invests excess funds in short-term interest-earning assets such as overnight deposits or U.S. agency securities, which provide liquidity to meet lending requirements. While scheduled payments from the amortization of loans and securities and short-term investments are relatively predictable sources of funds, general interest rates, economic conditions and competition greatly influence deposit flows and repayments on loans and mortgage-backed securities.
The Bank strives to maintain sufficient liquidity to fund operations, loan demand and to satisfy fluctuations in deposit levels. The Bank is required to have enough investments that qualify as liquid assets in order to maintain sufficient liquidity to ensure safe and sound banking operations. Liquidity may increase or decrease depending upon the availability of funds and comparative yields on investments in relation to the return on loans. The Bank attempts to maintain adequate but not excessive liquidity, and liquidity management is both a daily and long-term function of its business management. The Bank manages its liquidity in accordance with a board of directors-approved asset liability policy and liquidity contingency plan, which are administered by its asset-liability committee (“ALCO”). ALCO reports interest rate sensitivity, liquidity, capital and investment-related matters on a quarterly basis to the Bank’s board of directors.
The Bank reviews cash flow projections regularly and updates them in order to maintain liquid assets at levels believed to meet the requirements of normal operations, including loan commitments and potential deposit outflows from maturing certificates of deposit and savings withdrawals. While deposits and securities sold under agreements to repurchase are its primary source of funds, when needed it is also able to generate cash through borrowings from the FHLB. At December 31, 2024, the Bank had remaining available capacity with FHLB, subject to certain collateral restrictions, of $468.0 million.
Liquidity management is required to ensure that adequate funds will be available to meet anticipated and unanticipated deposit withdrawals, debt service payments, investment commitments, commercial and consumer loan demand, and ongoing operating expenses. Funding sources include principal repayments on loans, sale of assets, growth in time and core deposits, short and long-term borrowings, investment securities coming due, loan prepayments and repurchase agreements. Regular loan payments are a dependable source of funds, while the sale of investment securities, deposit growth and loan prepayments are significantly influenced by general economic conditions and the level of interest rates.
The statement of cash flows presents the change in cash and cash equivalents from operating, investing and financing activities. Cash and due from banks and interest-bearing deposits in other banks, which comprise cash and cash equivalents, are the Corporation’s most liquid assets. Cash and cash equivalents totaled $17.4 million at December 31, 2024, a decrease of $1.0 million, or 5.4%, from $18.4 million at December 31, 2023, as net cash inflows from operating and investing activities were less than net cash outflows from financing activities.
Net cash inflows from investing activities provided $48.5 million of cash and cash equivalents during the year ended December 31, 2024. Accounting for the majority of the net cash inflows was $107.1 million related to proceeds from sales, paydowns, calls and maturities of available-for-sale debt securities. This was partially offset by purchases of available-for-sale debt securities of $14.9 million and a net increase in loans and leases of $47.4 million, which reflected strong loan demand. Financing activities used $66.4 million in net cash, which resulted primarily from a decrease in short-term borrowings, consisting of customer repurchase agreements and short-term FHLB borrowings, of $184.1 million. These outflows were offset by a $140.6 million increase in deposits. These changes were primarily related to a strategic initiative to reposition customer repurchase agreements into core deposit accounts. Operating activities include net income, adjusted for the effects of non-cash transactions including, among others, depreciation and amortization and the provision for credit losses, and is the primary source of cash flows from operations. For the year ended December 31, 2024, operating activities provided the Corporation with $16.9 million in net cash, which primarily reflected net income of $19.0 million.
The Corporation regularly analyzes its ability to generate adequate amounts of cash to meet its short and long-term cash requirements and plans. As part of its quarterly asset liability management procedures, the Corporation performs liquidity cash flow forecasts in various base level and stress scenarios to monitor future cash needs. As of December 31, 2024, the Corporation is expected to maintain a level cash balance over the next 12 months. The Corporation has not identified any known demands, commitments, events or uncertainties that would result or that are reasonably likely to result in its liquidity position materially increasing or decreasing over the next 12 months. The Corporation’s long-term cash needs are regularly analyzed through its strategic planning process, which includes a detailed review of liquidity and funding needs.
We manage liquidity on a daily basis. We believe that our liquidity is sufficient to meet present and future financial obligations and commitments on a timely basis. However, see potential liquidity risk factors at Item 1A – Risk Factors and refer to the Consolidated Statements of Cash Flows contained in this Annual Report on Form 10-K.
33
INTEREST RATE RISK MANAGEMENT
Interest rate risk management involves managing the extent to which interest-sensitive assets and interest-sensitive liabilities are matched. Interest rate sensitivity is the relationship between market interest rates and earnings volatility due to the repricing characteristics of assets and liabilities. The Bank’s net interest income is affected by changes in the level of market interest rates. In order to maintain consistent earnings performance, the Bank seeks to manage, to the extent possible, the repricing characteristics of its assets and liabilities.
One major objective of the Bank when managing the rate sensitivity of its assets and liabilities is to stabilize net interest income. The management of and authority to assume interest rate risk is the responsibility of the Bank’s ALCO, which is comprised of senior management and Board members. ALCO meets quarterly to monitor the ratio of interest sensitive assets to interest sensitive liabilities. The process to review interest rate risk is a regular part of management of the Bank. Consistent policies and practices of measuring and reporting interest rate risk exposure, particularly regarding the treatment of noncontractual assets and liabilities, are in effect. In addition, there is an annual process to review the interest rate risk policy with the Board of Directors which includes limits on the impact to earnings from shifts in interest rates.
The ratio between assets and liabilities repricing in specific time intervals is referred to as an interest rate sensitivity gap. Interest rate sensitivity gaps can be managed to take advantage of the slope of the yield curve as well as forecasted changes in the level of interest rate changes.
To manage the interest sensitivity position, an asset/liability model called “gap analysis” is used to monitor the difference in the volume of the Bank’s interest sensitive assets and liabilities that mature or reprice within given periods. A positive gap (asset sensitive) indicates that more assets reprice during a given period compared to liabilities, while a negative gap (liability sensitive) has the opposite effect. The Bank employs computerized net interest income simulation modeling to assist in quantifying interest rate risk exposure. This process measures and quantifies the impact on net interest income through varying interest rate changes and balance sheet compositions. The use of this model assists the ALCO to gauge the effects of the interest rate changes on interest sensitive assets and liabilities in order to determine what impact these rate changes will have upon our net interest spread. At December 31, 2024, our cumulative gap positions were within the internal risk management guidelines.
In addition to gap analysis, the Bank uses net interest income simulations and economic value of equity (“EVE”) simulations as the primary tools in measuring and managing the Bank’s position and considers balance sheet forecasts, the Bank’s liquidity position, the economic environment, anticipated direction of interest rates and the Bank’s earnings sensitivity to changes in these rates in its modeling. In addition, ALCO has established policy tolerance limits for acceptable negative changes in net interest income. Furthermore, as part of its ongoing monitoring, ALCO requires annual back testing of modeling results, which involves after-the-fact comparisons of projections with the Bank’s actual performance to measure the validity of assumptions used in the modeling techniques.
The following table illustrates the simulated impact of parallel and instantaneous interest rate shocks of +100, +200, +300, -100, -200, and -300 basis points on net interest income and the change in economic value over a one-year time horizon from the December 31, 2024 levels:
| Rates +100 | Rates +200 | Rates +300 | Rates -100 | Rates -200 | Rates -300 | |||||||||||||||||||
| Simulation Results | Policy Limit | Simulation Results | Policy Limit | Simulation Results | Policy Limit | Simulation Results | Policy Limit | Simulation Results | Policy Limit | Simulation Results | Policy Limit | |||||||||||||
| Earnings at risk: | ||||||||||||||||||||||||
| Percent change in net interest income | 6.66% | -10.00% | 0.46% | -15.00% | -6.07% | -20.00% | 16.19% | -10.00% | 18.41% | -15.00% | 20.51% | -20.00% | ||||||||||||
| Economic value at risk: | ||||||||||||||||||||||||
| Percent change in economic value of equity | -6.96% | -15.00% | -15.14% | -25.00% | -24.11% | -30.00% | 3.65% | -15.00% | 4.95% | -25.00% | 4.95% | -30.00% | ||||||||||||
Model results from the simulation at December 31, 2024 indicated that the Bank was projected to see an increase in net interest income over a one-year horizon in any of the rate shock scenarios, with the exception of the +300 scenario, which showed a 6.07% decrease. The percent change in EVE is expected to decrease in all rates up scenarios and increase in all rates down scenarios. All modeled exposures to net interest income and EVE for the next twelve-month horizon are within internal ALCO policy guidelines.
This analysis does not represent a forecast for the Bank and should not be relied upon as being indicative of expected operating results. These simulations are based on numerous assumptions, including but not limited to, the nature and timing of interest rate levels, prepayments on loans and securities, deposit decay rates, pricing decisions on loans and deposits, reinvestment/replacements of asset and liability cash flows, and other factors. While assumptions reflect current economic and local market conditions, the Bank cannot make any assurances as to the predictive nature of these assumptions, including changes in interest rates, customer preferences, competition and liquidity needs, or what actions ALCO might take in responding to these changes.
34
It is our opinion that the asset/liability mix and the interest rate risk associated with the balance sheet is within manageable parameters. Additionally, the Bank’s ALCO meets quarterly with an asset liability management consultant.
IMPACT OF INFLATION AND CHANGING PRICES
The preparation of financial statements in conformity with U.S. GAAP requires management to measure the Corporation’s financial position and operating results primarily in terms of historic dollars. Changes in the relative value of money due to inflation or recession are generally not considered. The primary effect of inflation on the Corporation’s operations is primarily related to increases in operating expenses. Management considers changes in interest rates to impact our financial condition and results of operations to a far greater degree than changes in prices due to inflation. Although interest rates are greatly influenced by changes in the inflation rate, they do not necessarily change at the same rate or in the same magnitude as the inflation rate. The Corporation manages interest rate risk in several ways. There can be no assurance that the Corporation will not be materially adversely affected by future changes in interest rates, as interest rates are highly sensitive to many factors that are beyond its control. Additionally, inflation may adversely impact the financial condition of the Corporation’s borrowers and could impact their ability to repay their loans, which could negatively affect the Corporation’s asset quality through higher delinquency rates and increased charge-offs. Management will carefully consider the impact of inflation and rising interest rates on the Corporation’s borrowers in managing credit risk related to the loan portfolio.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
The information called for by this item can be found at Item 7 of this report on Form 10-K under the caption “Interest Rate Risk Management” and is incorporated in its entirety by reference under this Item 7A.
35
Item 8. Financial Statements and Supplementary Data
Muncy Columbia Financial Corporation
Consolidated Balance Sheets
| December 31, | ||||||||
| (In Thousands, Except Share and Per Share Data) | 2024 | 2023 | ||||||
| ASSETS | ||||||||
| Cash and due from banks | $ | $ | ||||||
| Interest-bearing deposits in other banks | ||||||||
| Total cash and cash equivalents | ||||||||
| Interest-bearing time deposits | ||||||||
| Available-for-sale debt securities, at fair value | ||||||||
| Marketable equity securities, at fair value | ||||||||
| Restricted investment in bank stocks, at cost | ||||||||
| Loans held for sale | ||||||||
| Loans receivable | ||||||||
| Allowance for credit losses | ( | ) | ( | ) | ||||
| Loans, net | ||||||||
| Premises and equipment, net | ||||||||
| Foreclosed assets held for sale | ||||||||
| Accrued interest receivable | ||||||||
| Bank-owned life insurance | ||||||||
| Investment in limited partnerships | ||||||||
| Deferred tax asset, net | ||||||||
| Goodwill | ||||||||
| Other intangible assets, net | ||||||||
| Other assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES | ||||||||
| Interest-bearing deposits | $ | $ | ||||||
| Noninterest-bearing deposits | ||||||||
| Total deposits | ||||||||
| Short-term borrowings | ||||||||
| Long-term borrowings | ||||||||
| Accrued interest payable | ||||||||
| Other liabilities | ||||||||
| TOTAL LIABILITIES | ||||||||
| STOCKHOLDERS’ EQUITY | ||||||||
| Common stock, par value $ per share; shares authorized; issued and outstanding at December 31, 2024; issued and outstanding at December 31, 2023; | ||||||||
| Additional paid-in capital | ||||||||
| Retained earnings | ||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Treasury stock, at cost; shares at December 31, 2024 and shares at December 31, 2023 | ( | ) | ( | ) | ||||
| TOTAL STOCKHOLDERS’ EQUITY | ||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | $ | ||||||
See accompanying notes to the consolidated financial statements.
36
Muncy Columbia Financial Corporation
Consolidated Statements of Income
| For the Years Ended | ||||||||
| December 31, | ||||||||
| (In Thousands, Except Share and Per Share Data) | 2024 | 2023 | ||||||
| INTEREST AND DIVIDEND INCOME | ||||||||
| Interest and fees on loans: | ||||||||
| Taxable | $ | $ | ||||||
| Tax-exempt | ||||||||
| Interest and dividends on investment securities: | ||||||||
| Taxable | ||||||||
| Tax-exempt | ||||||||
| Dividend and other interest income | ||||||||
| Federal funds sold | ||||||||
| Deposits in other banks | ||||||||
| TOTAL INTEREST AND DIVIDEND INCOME | ||||||||
| INTEREST EXPENSE | ||||||||
| Deposits | ||||||||
| Short-term borrowings | ||||||||
| Long-term borrowings | ||||||||
| TOTAL INTEREST EXPENSE | ||||||||
| NET INTEREST INCOME | ||||||||
| Provision for credit losses - loans | ||||||||
| Recovery of credit losses - off balance sheet credit exposures | ( | ) | ( | ) | ||||
| TOTAL PROVISION FOR CREDIT LOSSES | ||||||||
| NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES | ||||||||
| NON-INTEREST INCOME | ||||||||
| Service charges and fees | ||||||||
| Interchange fees | ||||||||
| Gain on sale of loans | ||||||||
| Earnings on bank-owned life insurance | ||||||||
| Brokerage | ||||||||
| Trust | ||||||||
| Gains (losses) on marketable equity securities | ( | ) | ||||||
| Realized losses on available-for-sale debt securities, net | ( | ) | ||||||
| Other non-interest income | ||||||||
| TOTAL NON-INTEREST INCOME | ||||||||
| NON-INTEREST EXPENSE | ||||||||
| Salaries and employee benefits | ||||||||
| Occupancy | ||||||||
| Furniture and equipment | ||||||||
| Pennsylvania shares tax | ||||||||
| Professional fees | ||||||||
| Director’s fees | ||||||||
| Federal deposit insurance | ||||||||
| Data processing and telecommunications | ||||||||
| Automated teller machine and interchange | ||||||||
| Merger-related expenses | ||||||||
| Amortization of intangibles | ||||||||
| Other non-interest expense | ||||||||
| TOTAL NON-INTEREST EXPENSE | ||||||||
| INCOME BEFORE INCOME TAX PROVISION | ||||||||
| INCOME TAX PROVISION | ||||||||
| NET INCOME | $ | $ | ||||||
| EARNINGS PER SHARE - BASIC AND DILUTED | $ | $ | ||||||
| WEIGHTED AVERAGE SHARES OUTSTANDING | ||||||||
See accompanying notes to the consolidated financial statements.
37
Muncy Columbia Financial Corporation
Consolidated Statements of Comprehensive Income
| For the Years Ended | ||||||||
| December 31, | ||||||||
| (In Thousands) | 2024 | 2023 | ||||||
| Net Income | $ | $ | ||||||
| Other comprehensive income: | ||||||||
| Unrealized holding gains on available-for-sale debt securities | ||||||||
| Tax effect | ( | ) | ( | ) | ||||
| Net realized losses included in net income | ||||||||
| Tax effect | ( | ) | ||||||
| Other comprehensive income, net | ||||||||
| Comprehensive income | $ | $ | ||||||
See accompanying notes to the consolidated financial statements.
38
Muncy Columbia Financial Corporation
Consolidated Statements of Changes in Stockholders’ Equity
| Accumulated | ||||||||||||||||||||||||||||
| (In Thousands Except Share and Per | Common Stock | Additional Paid-In | Retained | Other Comprehensive | Treasury | Total Stockholders’ | ||||||||||||||||||||||
| Share Data) | Shares | Amount | Capital | Earnings | Loss | Stock | Equity | |||||||||||||||||||||
| Balance, December 31, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||
| Net income | — | |||||||||||||||||||||||||||
| Other comprehensive income | — | |||||||||||||||||||||||||||
| Common stock issuance under employee stock purchase plan | ||||||||||||||||||||||||||||
| Recognition of employee stock purchase plan expense | — | |||||||||||||||||||||||||||
| Purchase of treasury stock (44,025 shares) | — | ( | ) | ( | ) | |||||||||||||||||||||||
| Cash dividends ($ per share) | — | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance, December 31, 2024 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||
| Balance, December 31, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||
| Net income | — | |||||||||||||||||||||||||||
| Other comprehensive income | — | |||||||||||||||||||||||||||
| Common stock issuance under employee stock purchase plan | ||||||||||||||||||||||||||||
| Recognition of employee stock purchase plan expense | — | |||||||||||||||||||||||||||
| Cash dividends ($ per share) | — | ( | ) | ( | ) | |||||||||||||||||||||||
| Shares issued for acquisition of Muncy Bank Financial, Inc. | ||||||||||||||||||||||||||||
| Cumulative effect of adoption of ASU 2016-13 | — | |||||||||||||||||||||||||||
| Balance, December 31, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||
See accompanying notes to the consolidated financial statements.
39
Muncy Columbia Financial Corporation
Consolidated Statements of Cash Flows
| For the Years Ended | ||||||||
| December 31, | ||||||||
| (In Thousands) | 2024 | 2023 | ||||||
| OPERATING ACTIVITIES | ||||||||
| Net Income | $ | $ | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Provision for credit losses | ||||||||
| Depreciation and amortization of premises and equipment | ||||||||
| Accretion of loan fair value adjustments, net | ( | ) | ( | ) | ||||
| Amortization of deposit fair value adjustments, net | ||||||||
| (Gains) losses on marketable equity securities | ( | ) | ||||||
| Realized losses on available-for-sale debt securities, net | ||||||||
| (Accretion) amortization of investment securities, net | ( | ) | ||||||
| Losses on sale of foreclosed assets held for sale, net | ||||||||
| Deferred income taxes | ( | ) | ||||||
| Gain on sale of loans | ( | ) | ( | ) | ||||
| Proceeds from sale of mortgage loans | ||||||||
| Originations of mortgage loans held for resale | ( | ) | ( | ) | ||||
| Amortization of intangibles | ||||||||
| Amortization of investment in limited partnerships | ||||||||
| Decrease (increase) in accrued interest receivable | ( | ) | ||||||
| Earnings on bank-owned life insurance | ( | ) | ( | ) | ||||
| Gain on settlement of bank-owned life insurance claims | ( | ) | ||||||
| (Decrease) increase in accrued interest payable | ( | ) | ||||||
| Other, net | ||||||||
| Net cash provided by operating activities | ||||||||
| INVESTING ACTIVITIES | ||||||||
| Net cash and cash equivalents provided by business combination | ||||||||
| Available-for-sale debt securities: | ||||||||
| Purchases | ( | ) | ( | ) | ||||
| Proceeds from sales | ||||||||
| Proceeds from paydowns, calls and maturities | ||||||||
| Proceeds from maturities of interest-bearing time deposits | ||||||||
| Purchase of bank-owned life insurance | ( | ) | ( | ) | ||||
| Proceeds from redemption of restricted investment in bank stocks | ||||||||
| Purchase of restricted investment in bank stocks | ( | ) | ( | ) | ||||
| Net increase in loans | ( | ) | ( | ) | ||||
| Proceeds from sale of foreclosed assets held for sale | ||||||||
| Purchase of investment in limited partnership | ( | ) | ||||||
| Acquisition of customer relationship intangibles | ( | ) | ||||||
| Acquisition of premises and equipment | ( | ) | ( | ) | ||||
| Net cash provided by investing activities | ||||||||
| FINANCING ACTIVITIES | ||||||||
| Net increase (decrease) in deposits | ( | ) | ||||||
| Net (decrease) increase in short-term borrowings | ( | ) | ||||||
| Proceeds from long-term borrowings | ||||||||
| Repayment of long-term borrowings | ( | ) | ( | ) | ||||
| Purchase of treasury stock | ( | ) | ||||||
| Proceeds from issuance of common stock | ||||||||
| Cash dividends paid | ( | ) | ( | ) | ||||
| Net cash used for financing activities | ( | ) | ( | ) | ||||
| NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS | ( | ) | ||||||
| CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | ||||||||
| CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | ||||||||
| Interest paid | $ | $ | ||||||
| Income taxes paid | ||||||||
| Loans transferred to foreclosed assets held for sale | ||||||||
| Loans held for sale transferred to loans | ||||||||
| Bank-owned life insurance death benefit receivable | ||||||||
See Note 2 for additional information on the noncash effects of business combination
See accompanying notes to the consolidated financial statements.
40
MUNCY COLUMBIA FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Muncy Columbia Financial Corporation (the “Corporation”) are in accordance with the accounting principles generally accepted in the United States of America and conform to common practices within the banking industry. The more significant policies follow:
Principles of Consolidation
The consolidated financial statements include the accounts of Muncy Columbia Financial Corporation and its wholly-owned subsidiary, Journey Bank (the “Bank”). All significant inter-company balances and transactions have been eliminated in consolidation.
Nature of Operations
The Corporation is a financial holding company that provides full-service banking, including trust and financial services, through the Bank, to individuals and corporate customers. The Bank has twenty-two offices covering five Counties in Northcentral Pennsylvania. As discussed further in Note 2, in 2023 the Corporation expanded its operations by acquiring Muncy Bank Financial, Inc. The Corporation and Bank are subject to the regulation of the Pennsylvania Department of Banking, the Federal Deposit Insurance Corporation, and the Federal Reserve Bank of Philadelphia.
Procuring deposits and making loans are the major lines of business. The deposits are mainly deposits of individuals and small businesses and include various types of checking accounts, statement savings, money market accounts, interest checking accounts, individual retirement accounts, and certificates of deposit. The Bank also offers non-insured “Repo sweep” accounts which are collateralized by pledged securities. Lending products include commercial, consumer, and mortgage loans. Trust services include administration of various estates, pension plans, self-directed IRA’s and other services. Financial services are offered through a third-party brokerage arrangement. These services include a full line of stocks, bonds and other non-insured financial products which are offered through the Bank’s investment center.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) 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 these consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant changes include the allowance for credit losses, fair values of available-for-sale debt securities based on estimates from independent valuation services or from brokers and the fair values of assets acquired and liabilities assumed in business combinations. Assumptions and factors used in the estimates are evaluated on an annual basis or whenever events or changes in circumstances indicate that the previous assumptions and factors have changed. The result of the analysis could result in adjustments to the estimates.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and in banks and federal funds sold. Interest-earning deposits have original maturities of 90 days or less. Net cash flows are reported for loan, deposit, and short-term borrowing transactions.
Interest-Bearing Time Deposits
Interest-bearing time deposits have original maturities in excess of one year and are carried at cost.
Available-for-Sale Debt Securities
Debt securities classified as available-for-sale are carried at fair value with unrealized gains and losses, net of the related tax effects, reflected as a separate component of stockholders’ equity. 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. Debt securities which are held principally as a source of liquidity are classified as available-for-sale. Debt securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized gains and losses included in current earnings. Realized security gains and losses are computed using the specific identification method. The Corporation does not hold any held-to-maturity or trading securities as of December 31, 2024 and 2023. Interest and dividends on investment securities are recognized as income when earned.
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Allowance for Credit Losses – Available-for-Sale Debt Securities
The Bank measures expected credit losses on available-for-sale debt securities when the Bank does not intend to sell, or when it is not more likely than not that it will be required to sell, the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For available-for-sale debt securities that do not meet the aforementioned criteria, the Bank evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, the Bank considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this evaluation indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, equal to the amount that the fair value is less than the amortized cost basis. Economic forecast data is utilized to calculate the present value of expected cash flows. The Bank obtains its forecast data through a subscription to a widely recognized and relied upon company who publishes various forecast scenarios. Management evaluates the various scenarios to determine a reasonable and supportable scenario, and utilizes a single scenario in the model. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income.
The allowance for credit losses on available-for-sale debt securities is included within investment securities available-for-sale on the Consolidated Balance Sheets. Changes in the allowance for credit losses are recorded within provision for credit losses on the Consolidated Statements of Income. Losses are charged against the allowance for credit losses when the Bank believes the collectability of an available-for-sale security is in jeopardy or when either of the criteria regarding intent or requirement to sell is met.
Accrued interest receivable
on available-for-sale debt securities totaled $
Marketable Equity Securities
Marketable equity securities are carried at fair value with unrealized and realized gains and losses included in net income.
Restricted Investment in Bank Stocks
Restricted investment in bank
stocks represent required investments in the common stock of correspondent banks and consists of common stock of the Federal Home Loan
Bank of Pittsburgh (“FHLB”) of $
Loans Held for Sale
Mortgage loans originated and intended for sale in the secondary market are carried at the lower of aggregate cost or estimated fair value, as determined by outstanding commitments from investors. Net unrealized losses, if any, are recorded as a valuation allowance and charged to earnings.
Mortgage loans held for sale are generally sold with servicing rights retained; the mortgage servicing rights are recognized as assets upon the sale. See further information for accounting for these assets under “Mortgage Servicing Rights.” Gains and losses on sales of mortgage loans are based on the difference between the selling price and the carrying value of the related loan sold.
Loans Receivable
Loans receivable that management has the intent and ability to hold for the foreseeable future or until maturity or payoff generally are reported at unpaid principal balance, net of unamortized deferred loan fees and costs, and an allowance for credit losses. Interest on fixed rate real estate loans and most business loans is accrued using a 360-day year. Interest on other loans is accrued over the term of each loan generally using the simple interest method based on a 365-day year. The Corporation recognizes nonrefundable loan origination fees and certain direct loan origination costs over the life of the related loans as an adjustment of loan yield using the interest method.
42
A loan is considered past due when a required payment is not received by the scheduled due date and is considered delinquent when it is 30 days or more past due. Loans are placed on nonaccrual status when principal or interest is past due 90 days or more and the collection of interest is doubtful, except for residential mortgage loans secured by 1-4 family dwellings. Residential mortgage loans are placed on nonaccrual status when it is established that funds are not available for repayment. Interest accrued but not collected as of the date of placement on nonaccrual status is reversed and charged against current income. While a loan is classified as nonaccrual and the future collectability of the recorded loan balance is doubtful, collections of interest and principal are generally applied as a reduction to the principal outstanding. Generally, loans are restored to accrual status when the obligation is brought current, has performed in accordance with the contractual terms for a reasonable period of time (generally six months) and the ultimate collectability of the total contractual principal and interest is no longer in doubt.
Purchased Credit Deteriorated (“PCD”) Loans
The Corporation purchased loans in connection with its acquisition of Muncy Bank Financial, Inc. in 2023, some of which had, at the acquisition date, experienced more than insignificant credit deterioration since origination. The Corporation considers several factors as indicators that an acquired loan has evidence of deterioration in credit quality. These factors include loans classified as nonaccrual, loans with a risk rating of watch or worse, loans past due 30 days and over and still accruing, loans that are current but were more than 60 days past due at least once since origination and loans that are current but were delinquent 30 days, more than 3 times, since origination. PCD loans are recorded at the amount paid. An allowance for credit losses is determined on a collective basis and is allocated to individual loans. The sum of the loan’s purchase price and allowance for credit losses becomes its initial amortized cost basis. The difference between the initial amortized costs basis and the par value of the loan is noncredit discount or premium, which is amortized into interest income over the life of the loan. Subsequent changes to the allowance for credit losses are recorded through the provision for credit losses.
Allowance for Credit Losses – Loans
The allowance for credit losses (“ACL”) is a valuation reserve established and maintained by charges against income and is deducted from the amortized cost basis of loans to present the net amount expected to be collected on the loans. Loans, or portions thereof, are charged off against the ACL when they are deemed uncollectible. Expected recoveries do not exceed the aggregate of the amounts previously charged-off and expected to be charged-off.
The ACL is an estimate of expected credit losses, measured over the contractual life of a loan that considers our historical loss experience, current conditions and forecasts of future economic conditions. Determination of an appropriated ACL inherently subjective and may have significant changes from period to period.
The methodology for determining the ACL has two main components: evaluation of expected credit losses for certain groups of homogeneous loans that share similar risk characteristics and evaluation of loans that do not share risk characteristics with other loans.
The allowance for credit losses is measured on a collective (pool) basis when similar risk characteristics exist. The Bank has identified the following portfolio segments and measures the allowance for credit losses using the following methods:
| ● | Residential real estate | |
| ● | Commercial real estate | |
| ● | Commercial and industrial | |
| ● | Consumer and other |
Historical credit loss experience is the basis for the estimation of expected credit losses. We apply historical loss rates to pools of loans with similar risk characteristics. After consideration of the historic loss calculation, management may apply qualitative adjustments to reflect the current conditions and reasonable and supportable forecasts not already reflected in the historical loss information at the balance sheet date. Our reasonable and supportable forecast adjustment is based on various economic forecasts, unemployment forecast and management judgment. For periods beyond our reasonable and supportable forecast, we revert to historical loss rates utilizing a straight-line method over a one-year reversion period.
The Bank has elected to exclude
accrued interest receivable from the measurement of its ACL totaling $
The ACL for individual loans begins with the use of normal credit review procedures to identify whether a loan no longer shares similar risk characteristics with other pooled loans and therefore, should be individually assessed. We evaluate all commercial loans that meet the following criteria: (1) when it is determined that foreclosure is probable; or (2) substandard, doubtful and
43
nonperforming loans when repayment is expected to be provided substantially through the operation or sale of the collateral; or (3) when it is determined by management that a loan does not share similar risk characteristics with other loans. Specific reserves are established based on the following three acceptable methods for measuring the ACL: (1) the present value of expected future cash flows discounted at the loan’s original effective interest rate; (2) the loan’s observable market price; or (3) the fair value of the collateral when the loan is collateral dependent. Our individual loan evaluations consist primarily of the fair value of collateral method because most of our loans are collateral dependent. Collateral values are discounted to consider dispositions costs when appropriate. A specific reserve is established or a charge-off is taken if the fair value of the loan is less than the loan balance.
Allowance for Credit Losses – Off-Balance Sheet Credit Exposures
Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial letters of credit. The Corporation’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for off-balance sheet loan commitments is represented by the contractual amount of those instruments. Such financial instruments are recorded when they are funded.
The Corporation records an allowance for credit losses on off-balance sheet credit exposures, unless the commitments to extend credit are unconditionally cancelable, through a charge to provision for unfunded commitments in the Corporation’s Consolidated Statements of Income. The allowance for credit losses on off-balance sheet credit exposures is estimated by loan segment at each balance sheet date under the current expected credit loss model, taking into consideration the likelihood that funding will occur. The allowance for off-balance sheet exposures is included in other liabilities in the Corporation’s Consolidated Balance Sheets and the related credit loss expense is recorded in the Consolidated Statements of Income.
Mortgage Servicing Rights
When mortgage loans are sold with servicing retained, servicing rights are initially recorded at fair value with the income statement effect recorded in gains on sale of loans. Fair value is based on market prices for comparable mortgage servicing contracts, when available or alternatively, is based on a valuation model that calculates the present value of estimated future net servicing income. All classes of servicing assets are subsequently measured using the amortization method which requires servicing rights to be amortized into non-interest income in proportion to, and over the period of, the estimated future net servicing income of the underlying loans. Mortgage servicing rights are reported in other assets on the Consolidated Balance Sheets. Servicing rights are evaluated for impairment annually based upon the fair value of the rights as compared to the carrying amount. Significant inputs to the fair value of mortgage servicing rights include expected net servicing income to be received, the expected life of the underlying loans and the discount rate. No impairment losses on mortgage servicing rights were recorded for the years ended December 31, 2024 and 2023.
Total loans serviced for
the benefit of others amounted to $
Transfers of Financial Assets
Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Corporation, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Corporation does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.
Foreclosed Assets Held for Sale
Foreclosed assets are held for sale and are initially recorded at fair value less cost to sell at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed by management and assets are carried at the lower of the carrying amount or fair value less cost to sell. Net operating expenses and gains and losses realized from disposition are included in non-interest expense and income, respectively, within the Consolidated Statements of Income.
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Premises and Equipment
Land is carried at cost. Premises and equipment are stated at cost less accumulated depreciation computed principally on the straight-line method over the estimated useful lives of the assets. Maintenance and minor repairs are charged to operations as incurred. The cost and accumulated depreciation of the premises and equipment retired or sold are eliminated from the property accounts at the time of retirement or sale, and the resulting gain or loss is reflected in current operations.
Intangible Assets – Goodwill
Goodwill arises from business
combinations and is determined as the excess of the fair value of the consideration transferred over the fair value of the net assets
acquired and liabilities assumed as of the acquisition date. The Corporation has recorded net goodwill of $
Intangible Assets – Other
The Corporation’s other
intangible assets consist of core deposit and customer relationship intangibles. These intangibles are being amortized on a sum of the
years digits method over
The estimated amortization expense of the other intangible assets over their remaining life is as follows:
| (In Thousands): | Core Deposit Intangible |
Customer Relationship Intangible |
Total | ||||||||||
| 2025 | $ | $ | $ | ||||||||||
| 2026 | |||||||||||||
| 2027 | |||||||||||||
| 2028 | |||||||||||||
| 2029 | |||||||||||||
| Thereafter | |||||||||||||
| Total | $ | $ | $ | ||||||||||
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, and gains received upon the death of an insured, are recognized as a component of non-interest income within the Consolidated Statements of Income. The policies can be liquidated, if necessary, with tax costs associated. However, the Corporation intends to hold these policies and accordingly, the Corporation has not provided for deferred income taxes on the earnings from the increase in cash surrender value.
Investments in Limited Partnerships
The Corporation is a limited
partner in six partnerships at December 31, 2024 that provide low income housing in the Corporation’s geographic market area. The
investments are accounted for under the proportional amortization method. The proportional amortization method results in the cost of
the investments being amortized in proportion to the income tax credits and other income tax benefits received, with the amortization
of the investments and the income tax credits being presented net in the Consolidated Statements of Income as a component of income tax
expense. The amount of tax credits allocated to the Corporation was $
45
Income Taxes
The provision for income taxes is based on the results of operations, adjusted primarily for tax-exempt income. Certain items of income and expense are reported in different periods for financial reporting and tax return purposes. Deferred tax assets and liabilities are determined based on the differences between the consolidated financial statement and income tax basis of assets and liabilities measured by using the enacted tax rates and laws expected to be in effect when the timing differences are expected to reverse. Deferred tax expense or benefit is based on the difference between deferred tax asset or liability from period to period.
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, the projected future taxable income and tax planning strategies in making this assessment. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized.
A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded.
The Corporation and the Bank are subject to U.S. federal income tax and Commonwealth of Pennsylvania tax. The Corporation and the Bank file a consolidated federal income tax return. The Corporation is also required to file a separate state income tax return. With limited exceptions, the Corporation is no longer subject to examination by Federal or State taxing authorities for years prior to 2021. At December 31, 2024 and December 31, 2023 the Corporation did not have any unrecognized tax benefits. The Corporation does not expect the amount of any unrecognized tax benefits to significantly increase in the next twelve months. The Corporation recognizes interest related to income tax matters as interest expense and penalties related to income tax matters as other noninterest expense. At December 31, 2024 and December 31, 2023, the Corporation does not have any amounts accrued for interest and/or penalties.
Basic earnings per share are calculated by dividing net income by the weighted average number of shares of common stock outstanding at the end of each period. Diluted earnings per share are calculated by increasing the denominator for the assumed conversion of all potentially dilutive securities. The Corporation does not have any securities which have or will have a dilutive effect, so accordingly, basic and diluted per share data are the same. Treasury shares are not deemed outstanding for earnings per share calculations.
Cash Flow Information
For purposes of reporting consolidated cash flows, cash and cash equivalents include cash on hand and due from banks, interest-bearing deposits in other banks and federal funds sold. The Corporation considers cash classified as interest-bearing deposits with other banks as a cash equivalent because they are represented by cash accounts essentially on a demand basis. Federal funds are also included as a cash equivalent because they are generally purchased and sold for one-day periods.
Treasury Stock
The purchase of the Corporation’s common stock is recorded at cost. At the date of subsequent reissue, the treasury stock account is reduced by the cost of such stock on a last-in first-out basis.
Trust Assets and Income
Property held by the Corporation in a fiduciary or agency capacity for its customers is not included in the accompanying consolidated financial statements because such items are not assets of the Corporation and the Bank. Trust Department income is generally recognized on a cash basis and is not materially different than if it was reported on an accrual basis.
Advertising Costs
It is the Corporation’s
policy to expense advertising costs in the period in which they are incurred. Advertising expenses for the years ended December 31, 2024
and 2023 were approximately $
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Comprehensive Income
The Corporation is required to present comprehensive income and its components in a full set of general-purpose financial statements for all periods presented. The Corporation’s other comprehensive income is composed exclusively of the net unrealized gains and losses attributable to available-for-sale debt securities.
Revenue Recognition
Under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 606, management determined that the primary sources of revenue associated with financial instruments, including interest income on loans and investments, along with certain noninterest revenue sources including investment security gains, loan servicing charges, gains on the sale of loans, and earnings on bank owned life insurance are not within the scope of Topic 606. The Corporation’s largest sources of noninterest income within the scope of Topic 606 are as follows:
| ● | Trust and Brokerage fees – Trust and investment advisory income is primarily comprised of fees earned from the management and administration of trusts and customer investment portfolios. The Corporation’s performance obligation is generally satisfied over a period of time and the resulting fees are billed monthly or quarterly, based upon the month end market value of the assets under management. Payment is generally received after month end through a direct charge to customers’ accounts. Other performance obligations (such as delivery of account statements to customers) are generally considered immaterial to the overall transactions price. Commissions on transactions are recognized on a trade-date basis as the performance obligation is satisfied at the point in time in which the trade is processed. | |
| ● | Service charges and fees – The Corporation has contracts with its deposit account customers where fees are charged if certain parameters are not met. These agreements can be cancelled at any time by either the Corporation or the deposit customer. Revenue from these transactions is recognized on a monthly basis as the Corporation has an unconditional right to the fee consideration. The Corporation also has transaction fees related to specific transactions or activities resulting from a customer request or activity that include overdraft fees, online banking fees, interchange fees, ATM fees and other transaction fees. All these fees are attributed to specific performance obligations of the Corporation where revenue is recognized at a defined point in time upon the completion of the requested service/transaction. | |
| ● | Interchange fees – The Corporation issues debit cards to consumer and business customers with checking deposit accounts. Debit card and ATM transactions are processed via electronic systems that involve several parties. The Corporation’s debit card and ATM transaction processing is executed via contractual arrangements with payment processing networks, a processor and a settlement bank. As described above, all deposit liabilities are considered to have one-day terms and therefore interchange revenue from customers’ use of their debit cards to initiate transactions are recognized in income at the time when the services are provided and related fees received in the Corporation’s deposit account with the settlement bank. Incremental costs associated with ATM and interchange processing are recognized as expense when incurred within noninterest expense in the Consolidated Statements of Income. |
Segment Reporting
Management has determined that the Corporation has one reportable segment, “Community Banking.” All of the Corporation’s activities are interrelated, and each activity is dependent and assessed based on how each of the activities of the Corporation supports the others.
The Community Banking segment derives revenues from traditional banking and related financial services to individual, business and government customers. Through its branch, remote capture, internet banking, telephone, mobile banking, and automated teller machine network, the Bank offers a full array of commercial and retail financial services, including the taking of time, savings, and demand deposits; the making of commercial, consumer and mortgage loans; and the providing of other financial services. The Bank also performs personal, corporate, pension and fiduciary services as well as offers diverse investment products through its investment center. The Corporation does not have intra-entity sales or transfers other than dividends paid to the Corporation from the Bank.
The accounting policies of the Community Banking segment are the same as those described in the summary of significant accounting policies above. The Corporation’s chief operating decision maker is the Chief Executive Officer. The Chief Executive Officer assesses performance for the Community Banking segment and decides how to allocate resources based on net income that is reported on the Consolidated Statements of Income. The measure of segment assets is reported on the Consolidated Balance Sheets as total assets.
The Chief Executive Officer uses net income to evaluate income generated from segment assets (return on average assets) in determining appropriate strategic initiatives and balance sheet management practices. Net income is used to monitor budget versus actual results. The Chief Executive Officer also uses net income in peer analysis by benchmarking the Corporation’s competitors. The peer analysis along with the monitoring of budgeted versus actual results are used in assessing performance of the segment and in establishing management’s strategic outlook.
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Reclassifications
Certain amounts in the consolidated financial statements of the prior years have been reclassified to conform to presentations used in the 2024 consolidated financial statements. Such reclassifications had no effect on the Corporation’s consolidated financial condition or net income.
Adoption of New Accounting Standards
In June 2016, the FASB issued ASU No. , “Financial Instruments – Credit Losses (Topics 326): Measurement of Credit Losses on Financial Instruments” and subsequent related updates. This ASU replaces the incurred loss methodology for recognizing credit losses and requires businesses and other organizations to measure the current expected credit losses (CECL) on financial assets measured at amortized cost, including loans and held-to-maturity securities, net investment in leases, off-balance sheet credit exposures such as unfunded commitments, and other financial instruments. In addition, ASC 326 requires credit losses on available-for-sale debt securities to be presented as an allowance rather than as a write-down when management does not intend to sell or believes that it is not more likely than not they will be required to sell. This guidance became effective on January 1, 2023 for the Corporation.
The Corporation adopted this
guidance, and subsequent related updates, using the modified retrospective approach for all financial assets measured at amortized cost,
including loans, available-for-sale debt securities and unfunded commitments. On January 1, 2023, the Corporation recorded a cumulative
effect increase to retained earnings of $
The Corporation adopted the provisions of ASC 326 related to presenting other-than-temporary impairment on available-for-sale debt securities prior to January 1, 2023 using the prospective transition approach, though no such changes had been recorded on the securities held by the Corporation as of the date of adoption.
The Corporation expanded the pooling utilized under the legacy incurred loss method to include additional segmentation based on risk. The impact of the change from the incurred loss model to the current expected credit loss model is detailed below.
| Assets: | ||||||||||
| January 1, 2023 | ||||||||||
| (In Thousands) | Pre-ASC 326 Adoption |
Impact of ASC 326 Adoption |
As Reported Under ASC 326 |
|||||||
| Assets: | ||||||||||
| Allowance for Credit Losses - Loans | ||||||||||
| Residential Real Estate | $ | $ | ( |
) | $ | |||||
| Commercial Real Estate | ||||||||||
| Commercial and Industrial | ( |
) | ||||||||
| Consumer and other | ( |
) | ||||||||
| Unallocated | ( |
) | ||||||||
| $ | $ | ( |
) | $ | ||||||
| Liabilities: | ||||||||||
| Allowance for Credit Losses on | ||||||||||
| Off-Balance Sheet Credit Exposure | $ | $ | ( |
) | $ | |||||
In March 2022, the FASB issued ASU No. 2022-02, “Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures.” The amendments eliminate the accounting guidance for troubled debt restructurings by creditors that have adopted CECL and enhance the disclosure requirements for modifications of receivables made with borrowers experiencing financial difficulty. In addition, the amendments require disclosure of current period gross write-offs by year of origination for financing receivables and net investments in leases in the existing vintage disclosures. This ASU became effective on January 1, 2023 for the Corporation. The adoption of this ASU resulted in updated disclosures within our financial statements but otherwise did not have a material impact on the Corporation’s consolidated financial statements.
48
In March 2023, the FASB issued Accounting Standards Update (“ASU”) No. 2023-02, Investments – Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method. ASU 2023-02 is intended to improve the accounting for investments in tax credit structures. ASU 2023-02 allows entities to elect to account for qualifying tax equity investments using the proportional amortization method, regardless of the program giving rise to the related income tax credits. Previously, this method was only available for qualifying tax equity investments in low-income housing tax credit structures. The guidance is effective for fiscal years beginning after December 15, 2023. The adoption of this ASU resulted in updated disclosures within our financial statements but otherwise did not have a material impact on the Corporation’s consolidated financial statements.
In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. ASU 2023-07 expands segment disclosure requirements for public entities to require disclosure of significant segment expenses and other segment items on an annual and interim basis and to provide in interim periods all disclosures about a reportable segment’s profit or loss and assets that are currently required annually. This guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The adoption of this ASU resulted in updated disclosures within our financial statements but otherwise did not have a material impact on the Corporation’s consolidated financial statements.
Recently Issued But Not Yet Effective Accounting Standards
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which improves the transparency of income tax disclosures by requiring (1) consistent categories and greater disaggregation of information in the rate reconciliation and (2) income taxes paid disaggregated by jurisdiction. ASU No. 2023-09 is effective for public business entities for annual periods beginning after December 15, 2024. The ASU may be adopted on a prospective or retrospective basis and early adoption is permitted. The Corporation is currently evaluating the impact the new guidance will have on related disclosures related to income taxes.
In November 2024, the FASB issued ASU 2024-03, Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures, which requires disclosure, in the notes to financial statements, of specified information about certain costs and expenses. In January 2025, the FASB issued ASU 2025-01, Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures, which clarifies the effective date of ASU 2024-03, which is effective for public business entities for annual periods beginning after December 15, 2026, and interim periods beginning after December 15, 2027. Early adoption is permitted. The Corporation is currently evaluating the impact the new guidance will have on relevant disclosures.
2. BUSINESS COMBINATION
On April 18, 2023, CCFNB Bancorp, Inc. (“CCFNB”) and Muncy Bank Financial, Inc. (“MBF”) jointly announced the signing of a definitive merger agreement to combine the two companies in a strategic merger of equals. Effective November 11, 2023, the merger was completed. Under the terms of the Merger Agreement, (i) MBF merged with and into CCFNB, with CCFNB being the surviving entity, and (ii) The Muncy Bank & Trust Company merged with and into CCFNB’s wholly-owned banking subsidiary, First Columbia Bank & Trust Co. (“First Columbia Bank”), with First Columbia Bank being the surviving bank (the “Mergers”). In connection with the Mergers, CCFNB changed its name to Muncy Columbia Financial Corporation and First Columbia Bank changed its name to Journey Bank.
At the effective time of the
merger, MBF’s shareholders received a fixed exchange ratio of shares of the Corporation’s common stock for each MBF
common share they owned, except to the extent of cash received for fractional shares at $ per share. Total purchase consideration
was $
MBF was a Pennsylvania corporation that conducted its business primarily through its wholly owned subsidiary The Muncy Bank & Trust Company, which operated from a main office in Muncy, Pennsylvania, and had nine additional branches throughout Northcentral Pennsylvania.
As a result of the acquisition, the Corporation issued common shares. The shares were issued with a value of $ per share, which was based on the closing price of the Corporation’s stock on November 10, 2023.
49
The following table summarizes the consideration paid for MBF and the amounts of the assets acquired and liabilities assumed recognized at the acquisition date of November 11, 2023:
| (In Thousands, Except Share and Per Share Data) | |||||||
| Purchase price consideration | |||||||
| Muncy Columbia Financial Corporation shares issued | |||||||
| Per share value assigned to shares issued | $ | ||||||
| Total purchase price assigned to shares issued | $ | ||||||
| Cash paid in lieu of fractional shares | |||||||
| Fair value of total consideration transferred | $ |
| (In Thousands) | |||||
| Total purchase price consideration | $ | ||||
| Recognized amounts of identifiable assets acquired and liabilities assumed | |||||
| Cash and cash equivalents | $ | ||||
| Interest-bearing time deposits | |||||
| Available-for-sale debt securities | |||||
| Restricted investment in bank stocks | |||||
| Loans gross | |||||
| Allowance credit losses | ( |
) | |||
| Loans, net | |||||
| Premises and equipment, net | |||||
| Accrued interest receivable | |||||
| Core deposit intangible | |||||
| Deferred tax asset | |||||
| Other assets | |||||
| Total identifiable assets acquired | |||||
| Deposits | |||||
| Interest-bearing | |||||
| Noninterest-bearing | |||||
| Borrowings | |||||
| Accrued interest payable | |||||
| Other liabilities | |||||
| Total liabilities assumed | |||||
| Total identifiable net assets | |||||
| Goodwill resulting from the merger | $ | ||||
The Corporation determined that this acquisition constitutes a business combination and therefore was accounted for using the acquisition method of accounting. Accordingly, as of the date of the acquisition, the Corporation recorded the assets acquired, liabilities assumed and consideration paid at fair value. The $ million excess of the consideration paid over the fair value of assets acquired was recorded as goodwill and is not amortizable or deductible for tax purposes. The amount of goodwill arising from the acquisition consists largely of the synergies and economies of scale expected from combining the operations of the Corporation with MBF.
The fair value of the common shares issued was determined based on the closing market price of the Corporation’s common shares on November 10, 2023. While the valuation of the acquired assets and liabilities is substantially complete, fair value estimates are subject to adjustment during the provisional period, which may last up to twelve months subsequent to the acquisition date. During this period, the Corporation may obtain additional information to refine the valuations and adjust the recorded fair value, although such adjustments are not expected to be significant. Valuations subject to adjustments include, but are not limited to, the fair value of acquired loans, deposits, land and building, core deposit intangible and other assets and liabilities.
The following is a description of the valuation methodologies used to estimate the fair values of major categories of assets acquired and liabilities assumed. The Corporation used an independent valuation specialist to assist with the determination of fair values for certain acquired assets and assumed liabilities.
| ● | Cash and cash equivalents - The estimated fair value was determined to approximate the carrying amount of these assets. | |
| ● | Available-for-sale debt securities - The estimated fair value of the investment portfolio was based on quoted market prices, dealer quotes, and pricing obtained from independent pricing services. |
50
| ● | Loans - The estimated fair value of loans were based on a discounted cash flow methodology applied on a pooled basis for nonpurchased credit-deteriorated (“non-PCD”) loans, accruing purchased credit-deteriorated loans and on an individual basis for nonaccruing purchased credit-deteriorated (“PCD”) loans. The valuation considered underlying characteristics including loan type, term, rate, payment schedule and credit rating. The discounted cash flow methodology involved assumptions and judgements as to credit risk, expected lifetime losses, environmental factors, collateral values, discount rates, expected payments and expected prepayments. | |
| ● | Premises and equipment - The estimated fair value of land and buildings were determined by independent market-based appraisals. | |
| ● | Core deposit intangible - The core deposit intangible was valued utilizing a discounting cash flow method approach, which recognizes the cost savings represented by the expense of maintaining the core deposit base (net of deposit fee income) versus the cost of an alternative funding source. The valuation incorporates assumptions related to account retention, discount rates, deposit interest rates, deposit maintenance costs and alternative funding rates. | |
| ● | Time deposits - The estimated fair value of time deposits was determined using a discounted cash flow approach incorporating a discount rate equal to current market interest rates offered on time deposits with similar terms and maturities. | |
| ● | Borrowings - The estimated fair value of short-term borrowings were determined to approximate carrying value. The estimated fair value of long-term borrowings from the FHLB were determined using a discounted cash flow approach incorporating a discount rate equal to current market interest rates offered on borrowings with similar terms and maturities. |
Acquired loans are classified into two categories: PCD loans and non-PCD loans. PCD loans are defined as a loan or group of loans that have experienced more than insignificant credit deterioration since origination. Non-PCD loans will have an allowance established on acquisition date, which is recognized as an expense through provision for credit losses. For PCD loans, an allowance is recognized on day 1 by adding it to the fair value of the loan, which is the “Day 1 amortized cost”. There is no provision for credit loss expense recognized on PCD loans because the initial allowance is established by grossing-up the amortized cost of the PCD loan.
A
Day 1 allowance for credit losses on non-PCD loans of $
The following table provides details related to the fair value of acquired PCD loans:
| (In Thousands) | Unpaid principal balance |
PCD Allowance for Credit Loss at Acquisition |
(Discount) Premium on Acquired Loans |
Fair Value of PCD Loans at Acquisition | ||||||||||
| Commercial and industrial | $ | $ | ( |
) | $ | ( |
) | $ | ||||||
| Commercial real estate | ( |
) | ( |
) | ||||||||||
| Residential real estate | ( |
) | ( |
) | ||||||||||
| Consumer and other | ( |
) | ||||||||||||
| Total | $ | $ | ( |
) | $ | ( |
) | $ | ||||||
The following table provides details related to the fair value and Day 1 provision related to the acquired non-PCD loans:
| (In Thousands) | Unpaid principal balance |
(Discount) Premium on Acquired Loans |
Fair Value of Non-PCD Loans at Acquisition |
Day 1Provision for Credit Losses- Non-PCD Loans | |||||||||
| Commercial and industrial | $ | $ | ( |
) | $ | $ | |||||||
| Commercial real estate | ( |
) | |||||||||||
| Residential real estate | ( |
) | |||||||||||
| Consumer and other | ( |
) | |||||||||||
| Total | $ | $ | ( |
) | $ | $ | |||||||
Amounts recognized separately
from the acquisition include primarily legal fees, investment banking fees, system conversion costs, severance costs and contract termination
costs. These costs were included in merger-related expenses within non-interest expense on the Consolidated Statements of Income and amounted
to $
Results of operations for MBF prior to the acquisition date are not included in the Consolidated Statements of Income for the year ended December 31, 2023. The core processing systems, including general ledger, of the Corporation and MBF were merged on November 11, 2023. As such, MBF net interest income and net income from November 11, 2023 through December 31, 2023, which are included in the Corporation’s Consolidated Statements of Income, are not uniquely identifiable.
51
The following table presents pro forma information as if the acquisition of MBF had occurred on January 1, 2022. The table below has been prepared for comparative purposes only and is not necessarily indicative of the actual results that would have been attained had the acquisition occurred as of the beginning of the periods presented, nor is it indicative of future results. Furthermore, the unaudited proforma information does not reflect management’s estimate of any revenue-enhancing opportunities nor anticipated cost savings as a result of the integration and consolidation of the acquisition. Merger and acquisition integration costs have been removed and amortization of fair value adjustments are included in the numbers below.
| Year Ended December 31, | |||||||
| (In Thousands, Except Per Share Data) | 2023 | 2022 | |||||
| Net interest income | $ | $ | |||||
| Non-interest income | |||||||
| Net income | |||||||
| Pro forma earnings per share - basic and diluted | $ | $ | |||||
3. ACCUMULATED OTHER COMPREHENSIVE LOSS
The following table presents the changes in accumulated other comprehensive loss by component, net of the tax, for the years ended December 31, 2024 and 2023:
| (In Thousands) | Unrealized Loss on Available-for-Sale Debt Securities (a) | ||
| Balance, December 31, 2022 | $ | ( | |
| Other comprehensive income before reclassifications, net of tax | | ||
| Amounts reclassified from accumulated other comprehensive loss, net of tax | |||
| Net change in accumulated other comprehensive loss | | ||
| Balance, December 31, 2023 | ( | ||
| Other comprehensive income before reclassifications, net of tax | | ||
| Amounts reclassified from accumulated other comprehensive loss, net of tax | | ||
| Net change in accumulated other comprehensive loss | | ||
| Balance, December 31, 2024 | $ | ( | |
| (a) |
The following table presents the amounts reclassified out of accumulated other comprehensive loss by component, net of tax, for the years ended December 31, 2024 and 2023:
| (In Thousands) Details about accumulated other comprehensive loss |
Amounts Reclassified from Accumulated Other Comprehensive Loss (a) | |||||||
| 2024 | 2023 | |||||||
| Net realized losses on available-for-sale debt securities | $ | ( |
) | $ | - | |||
| Income tax effect | |
— | ||||||
| $ | ( |
) | $ | - | ||||
| (a) |
52
4. SECURITIES
The amortized cost, related estimated fair value, and unrealized gains and losses of available-for-sale debt securities were as follows at December 31, 2024 and December 31, 2023:
| December 31, 2024 | |||||||||||||||
| Gross | Gross | ||||||||||||||
| Amortized | Unrealized | Unrealized | Fair | ||||||||||||
| (In Thousands) | Cost | Gains | Losses | Value | |||||||||||
| Obligation of U.S. Government Corporations and Agencies: | |||||||||||||||
| Mortgage-backed | $ | $ | $ | ( |
) | $ | |||||||||
| Collateralized mortgage obligations | |||||||||||||||
| Other | ( |
) | |||||||||||||
| Obligations of state and political subdivisions | ( |
) | |||||||||||||
| Other debt securities | |||||||||||||||
| Total available-for-sale debt securities | $ | $ | $ | ( |
) | $ | |||||||||
| December 31, 2023 | |||||||||||||||
| Gross | Gross | ||||||||||||||
| Amortized | Unrealized | Unrealized | Fair | ||||||||||||
| (In Thousands) | Cost | Gains | Losses | Value | |||||||||||
| Obligation of U.S. Government Corporations and Agencies: | |||||||||||||||
| Mortgage-backed | $ | $ | $ | ( |
) | $ | |||||||||
| Collateralized mortgage obligations | |||||||||||||||
| Other | ( |
) | |||||||||||||
| Obligations of state and political subdivisions | ( |
) | |||||||||||||
| Other debt securities | |||||||||||||||
| Total available-for-sale debt securities | $ | $ | $ | ( |
) | $ | |||||||||
Securities available-for-sale
with an aggregate fair value of $
The amortized cost and estimated fair value of investment securities, by expected maturity, are shown below at December 31, 2024. Expected maturities on debt securities will differ from contractual maturities, because some borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
| Amortized | |||||||
| (In Thousands) | Cost | Fair Value | |||||
| Due in one year or less | $ | $ | |||||
| Due after one year to five years | |||||||
| Due after five years to ten years | |||||||
| Due after ten years | |||||||
| Sub-total | |||||||
| Mortgage-backed securities | |||||||
| Collateralized mortgage obligations | |||||||
| Total debt securities | $ | $ | |||||
The Corporation’s mortgage-backed securities and collateralized mortgage obligations have stated maturities that may differ from actual maturities due to borrowers’ ability to prepay obligations. Cash flows from such investments are dependent upon the performance of the underlying mortgage loans and are generally influenced by the level of interest rates. In the table above, mortgage-backed securities and collateralized mortgage obligations are shown in one period.
53
The following table presents the gross proceeds received, and gross realized gains and losses, on sales of available-for-sale debt securities for the years ended December 31, 2024 and 2023. Gains and losses realized on sales of available-for-sale debt securities are included in non-interest income in the Consolidated Statements of Income.
| For the Years Ended December 31, | |||||||
| (In Thousands) | 2024 | 2023 | |||||
| Gross proceeds received on sales | $ | $ | |||||
| Gross realized gains | |||||||
| Gross realized losses | ( |
) | |||||
The following summary shows the gross unrealized losses and fair value, aggregated by investment category of those individual securities for which an allowance for credit losses has not been recorded that have been in a continuous unrealized loss position for less than or more than 12 months as of December 31, 2024 and December 31, 2023:
| December 31, 2024 | ||||||||||||||||||||||||
| 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 | ||||||||||||||||||
| Obligations of U.S. Government Corporations and Agencies: | ||||||||||||||||||||||||
| Mortgage-backed | $ | $ | ( |
) | $ | $ | ( |
) | $ | $ | ( |
) | ||||||||||||
| Other | ( |
) | ( |
) | ||||||||||||||||||||
| Obligations of state and political subdivisions | ( |
) | ( |
) | ( |
) | ||||||||||||||||||
| Total | $ | $ | ( |
) | $ | $ | ( |
) | $ | $ | ( |
) | ||||||||||||
| December 31, 2023 | ||||||||||||||||||||||||
| Less than Twelve Months | Twelve Months or Greater | Total | ||||||||||||||||||||||
| Gross | Gross | Gross | ||||||||||||||||||||||
| Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
| (In Thousands) | Value | Losses | Value | Losses | Value | Losses | ||||||||||||||||||
| Obligations of U.S. Government Corporations and Agencies: | ||||||||||||||||||||||||
| Mortgage-backed | $ | $ | ( |
) | $ | $ | ( |
) | $ | $ | ( |
) | ||||||||||||
| Other | ( |
) | ( |
) | ||||||||||||||||||||
| Obligations of state and political subdivisions | ( |
) | ( |
) | ( |
) | ||||||||||||||||||
| Total | $ | $ | ( |
) | $ | $ | ( |
) | $ | $ | ( |
) | ||||||||||||
At December 31, 2024, the
Corporation had a total of
At December 31, 2024, the
Corporation had a total of
At December 31, 2024, unrealized losses on debt securities have not been recognized into income because the issuers bonds are of high credit quality (rated BBB or higher), management does not intend to sell and it is likely that management will not be required to sell the securities prior to their anticipated recovery, and the decline in fair value is largely due to changes in interest rates and other market conditions. The fair value is expected to recover as the bonds approach maturity.
As of December 31, 2024 and 2023, no allowance for credit loss (“ACL”) was required for debt securities. The Bank does not have the intent to sell and does not believe it will be more likely than not to be required to sell any of these securities prior to a recovery of their fair value to amortized cost, which may be at maturity.
As of December 31, 2024, all debt securities were rated above investment grade. Based on the payment status, rating and management’s evaluation of these securities, no ACL was required for the debt securities as of December 31, 2024. As of December 31, 2024, the underlying issuers continue to make timely principal and interest payments on the securities.
54
Equity securities with a readily determinable fair value are stated at fair value with realized and unrealized gains and losses reported in income. At December 31, 2024 and 2023, the Corporation had $1,355,000 and $1,295,000, respectively, in marketable equity securities recorded at fair value. The following is a summary of unrealized and realized gains and losses recognized in net income on marketable equity securities during the years ended December 31, 2024 and 2023:
| For the Years | ||||||||
| Ended December 31, | ||||||||
| (In Thousands) | 2024 | 2023 | ||||||
| Net gains (losses) recognized during the period on marketable equity securities | $ | $ | ( |
) | ||||
| Less: Net gains (losses) recognized during the period on marketable equity securities sold during the period | ||||||||
| Unrealized gains (losses) recognized during the period on marketable equity securities still held at the reporting date | $ | $ | ( |
) | ||||
5. LOANS AND ALLOWANCE FOR CREDIT LOSSES
Loans that management has
the intent and ability to hold for the foreseeable future or until maturity or payoff are stated at their outstanding unpaid principal
balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment to yield (interest
income) over the life of the loan. Deferred fees and costs amounted to $
The segments of the Corporation’s loan portfolio are disaggregated into classes that allow management to monitor risk and performance. The loan classes used are consistent with the internal reports evaluated by the Corporation’s management and Board of Directors to monitor risk and performance within the various segments of its loan portfolio.
Major classifications of loans at December 31, 2024 and December 31, 2023 consisted of:
| (In Thousands) | December 31, 2024 | December 31, 2023 | ||||||
| Commercial and industrial | $ | $ | ||||||
| Commercial real estate: | ||||||||
| Commercial mortgages | ||||||||
| Student housing | ||||||||
| Residential real estate | ||||||||
| Consumer and other | ||||||||
| Gross loans | $ | $ | ||||||
Allowance for Credit Losses and Recorded Investment in Financial Receivables
The allowance for credit losses is measured on a collective (pool) basis when similar risk characteristics exist. The Corporation has aligned our segmentation to internal loan reports. The Corporation has identified the following portfolio segments:
| ● | Commercial and Industrial |
| ● | Commercial Real Estate |
| ● | Residential Real Estate |
| ● | Consumer and other |
The following table presents the activity in the allowance for credit losses by portfolio segment for the years ended December 31, 2024 and 2023:
| For the Year Ended December 31, 2024 | ||||||||||||||||||||
| Commercial | Residential | |||||||||||||||||||
| Commercial and | Real | Real | Consumer | |||||||||||||||||
| (In Thousands) | Industrial | Estate | Estate | and Other | Total | |||||||||||||||
| Balance, December 31, 2023 | $ | $ | $ | $ | $ | |||||||||||||||
| Provision charged to operations | ||||||||||||||||||||
| Loans charged off | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||
| Recoveries | — | |||||||||||||||||||
| Balance, December 31, 2024 | $ | $ | $ | $ | $ | |||||||||||||||
55
| For the Year Ended December 31, 2023 | ||||||||||||||||||||||||
| Commercial | Residential | |||||||||||||||||||||||
| Commercial and | Real | Real | Consumer | |||||||||||||||||||||
| (In Thousands) | Industrial | Estate | Estate | and Other | Unallocated | Total | ||||||||||||||||||
| Balance, December 31, 2022 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Impact of adopting ASC 326 | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||
| Allowance for credit loss on PCD acquired loans | ||||||||||||||||||||||||
| Provision for credit losses - acquisition day 1 non-PCD | ||||||||||||||||||||||||
| Provision (credit) charged to operations | ( |
) | ( |
) | ||||||||||||||||||||
| Loans charged off | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||
| Recoveries | ||||||||||||||||||||||||
| Balance, December 31, 2023 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
The cumulative loss rate used as the basis for the estimate of credit losses is comprised of the Corporation’s historical loss experience. As of December 31, 2024, the Corporation expects that the markets in which it operates will experience no significant changes in economic conditions based primarily on housing indexes, interest rate stabilization, and a steady unemployment rate. Management adjusts historical loss experience as needed based upon economic expectations. No reversion adjustments were necessary, as the starting point for the Corporation’s estimate was a cumulative loss rate covering the expected contractual term of the loan portfolio.
For the year ended December
31, 2024, the Corporation recorded a $
Historical credit loss experience is the basis for the estimation of expected credit losses. The Corporation applies historical loss rates to pools of loans with similar risk characteristics. After consideration of the historic loss calculation, management can apply qualitative adjustments to reflect the current conditions and reasonable and supportive forecasts not already captured in the historical loss information at the balance sheet date.
In accordance with Accounting Standards Codification (“ASC”) 326, the Corporation will evaluate individual loans for expected credit losses when those loans do not share similar risk characteristics with loans evaluated using a collective (pooled) basis. Loans will not be included in both collective and individual analysis. The individual analysis will establish a specific reserve for loans in scope.
Specific reserves are established based on the following three acceptable methods for measuring the ACL:1) the present value of expected future cash flows discounted at the loan’s original interest rate; 2) the loan’s observable market price; 3) the fair value of the collateral when the loan is collateral dependent. The method is selected on a loan-by-loan basis with the evaluation of the need and amount of a specific allocation of the allowance being made on a quarterly basis.
The need for an updated appraisal on collateral dependent loans is determined on a case-by-case basis. The useful life of an appraisal or evaluation will vary depending upon the circumstances of the property and the economic conditions in the marketplace. A new appraisal is not required if there is an existing appraisal which, along with other information, is sufficient to determine a reasonable value for the property and to support an appropriate and adequate allowance for credit losses. At a minimum, annual documented reevaluation of the property is completed by the Bank’s Chief Credit Officer to support the value of the property.
When receiving an appraisal associated with an existing real estate collateral dependent transaction, the Bank’s Chief Credit Officer must determine if there have been material changes to the underlying assumptions in the appraisal which affect the original estimate of value. Some of the factors that could cause material changes to reported values include:
| ● | the passage of time; |
| ● | the volatility of the local market; |
| ● | the availability of financing; |
| ● | natural disasters; |
| ● | the inventory of competing properties; |
| ● | new improvements to, or lack of maintenance of, the subject property or competing properties upon physical inspection by the Bank; |
| ● | changes in underlying economic and market assumptions, such as material changes in current and projected vacancy, absorption rates, capitalization rates, lease terms, rental rates, sales prices, concessions, construction overruns and delays, zoning changes, etc.; and/or |
| ● | environmental contamination. |
56
The value of the property is adjusted to appropriately reflect the above listed factors and the value is discounted to reflect the value impact of a forced distressed sale, any outstanding senior liens, any outstanding unpaid real estate taxes, transfer taxes and closing costs that would occur with sale of the real estate. If the Chief Credit Officer determines that a reasonable value cannot be derived based on the available information, a new appraisal is ordered. The determination of the need for a new appraisal rests with the Chief Credit Officer and not the originating account officer.
The following table summarizes the loan portfolio and allowance for credit losses as of December 31, 2024 and December 31, 2023:
| December 31, 2024 | ||||||||||||||||||||
| Commercial | Residential | |||||||||||||||||||
| Commercial and | Real | Real | Consumer | |||||||||||||||||
| (In Thousands) | Industrial | Estate | Estate | and Other | Total | |||||||||||||||
| Loans: | ||||||||||||||||||||
| Individually evaluated | $ | $ | $ | $ | $ | |||||||||||||||
| Collectively evaluated | ||||||||||||||||||||
| Total loans | $ | $ | $ | $ | $ | |||||||||||||||
| Allowance for credit losses: | ||||||||||||||||||||
| Individually evaluated | $ | $ | $ | $ | $ | |||||||||||||||
| Collectively evaluated | ||||||||||||||||||||
| Total allowance for credit losses | $ | $ | $ | $ | $ | |||||||||||||||
| December 31, 2023 | ||||||||||||||||||||
| Commercial | Residential | |||||||||||||||||||
| Commercial and | Real | Real | Consumer | |||||||||||||||||
| (In Thousands) | Industrial | Estate | Estate | and Other | Total | |||||||||||||||
| Loans: | ||||||||||||||||||||
| Individually evaluated | $ | $ | $ | $ | $ | |||||||||||||||
| Collectively evaluated | ||||||||||||||||||||
| Total loans | $ | $ | $ | $ | $ | |||||||||||||||
| Allowance for credit losses: | ||||||||||||||||||||
| Individually evaluated | $ | $ | $ | $ | $ | |||||||||||||||
| Collectively evaluated | ||||||||||||||||||||
| Total allowance for credit losses | $ | $ | $ | $ | $ | |||||||||||||||
As of December 31, 2024 and
2023, the amortized cost basis of individually evaluated loans that were deemed to be collateral dependent was $
Age Analysis of Past-Due Loans Receivable
The performance and credit quality of the loan portfolio is also monitored by analyzing the age of the loans receivable as determined by the length of time a recorded payment is past due. The following table presents the classes of the loan portfolio summarized by the past-due status as of December 31, 2024 and 2023:
57
| December 31, 2024 | ||||||||||||||||||||||||
| 30-59 | 60-89 | |||||||||||||||||||||||
| Days | Days | 90+ Days | Total | Total | ||||||||||||||||||||
| (In Thousands) | Current | Past Due | Past Due | Past Due | Past Due | Loans | ||||||||||||||||||
| Commercial and Industrial | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Commercial Real Estate | ||||||||||||||||||||||||
| Residential Real Estate | ||||||||||||||||||||||||
| Consumer and other | ||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | |||||||||||||||||||
| December 31, 2023 | ||||||||||||||||||||||||
| 30-59 | 60-89 | |||||||||||||||||||||||
| Days | Days | 90+ Days | Total | Total | ||||||||||||||||||||
| (In Thousands) | Current | Past Due | Past Due | Past Due | Past Due | Loans | ||||||||||||||||||
| Commercial and Industrial | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Commercial Real Estate | ||||||||||||||||||||||||
| Residential Real Estate | ||||||||||||||||||||||||
| Consumer and other | ||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | |||||||||||||||||||
Non-performing Loans
The following tables present the amortized cost basis of loans on nonaccrual status and loans past due over 90 days still accruing interest as of December 31, 2024 and 2023:
| December 31, 2024 | ||||||||||||||||||||
| (In Thousands) | Nonaccrual with no ACL | Nonaccrual with ACL | Total Nonaccrual | Loans Past Due over 90 Days Still Accruing | Total Nonperforming | |||||||||||||||
| Commercial and Industrial | $ | $ | $ | $ | $ | |||||||||||||||
| Commercial Real Estate | ||||||||||||||||||||
| Residential Real Estate | ||||||||||||||||||||
| Consumer and other | ||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | |||||||||||||||
| December 31, 2023 | ||||||||||||||||||||
| (In Thousands) | Nonaccrual with no ACL | Nonaccrual with ACL | Total Nonaccrual | Loans Past Due over 90 Days Still Accruing | Total Nonperforming | |||||||||||||||
| Commercial and Industrial | $ | $ | $ | $ | $ | |||||||||||||||
| Commercial Real Estate | ||||||||||||||||||||
| Residential Real Estate | ||||||||||||||||||||
| Consumer and other | ||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | |||||||||||||||
Credit Quality Indicators
The Bank categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Bank analyzes loans individually to classify the loans as to credit risk. This analysis includes non-homogeneous loans, such as commercial real estate, commercial construction, and commercial and industrial loans. This analysis is performed on a quarterly basis. The Bank uses the following definitions for risk ratings:
Pass. Loans which are protected by the current net worth and paying capacity of the obligor or by the value of the underlying collateral.
58
Special Mention. Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.
Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.
Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.
Based on the most recent analysis performed, the following table presents the recorded investment in non-homogenous loans by internal risk rating system as of December 31, 2024 and 2023:
| December 31, 2024 | ||||||||||||||||||||||||||||||||
| Revolving | ||||||||||||||||||||||||||||||||
| Loans | ||||||||||||||||||||||||||||||||
| Term Loans Amortized Cost Basis by Origination Period | Amortized | |||||||||||||||||||||||||||||||
| (In Thousands) | 2024 | 2023 | 2022 | 2021 | 2020 | Prior | Cost Basis | Total | ||||||||||||||||||||||||
| Commercial and Industrial | ||||||||||||||||||||||||||||||||
| Risk Rating | ||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||
| Doubtful | ||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Current period gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Commercial Real Estate | ||||||||||||||||||||||||||||||||
| Risk Rating | ||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||
| Doubtful | ||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Current period gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Total | ||||||||||||||||||||||||||||||||
| Risk Rating | ||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||
| Doubtful | ||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Current period gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
59
| December 31, 2023 | ||||||||||||||||||||||||||||||||
| Revolving | ||||||||||||||||||||||||||||||||
| Loans | ||||||||||||||||||||||||||||||||
| Term Loans Amortized Cost Basis by Origination Period | Amortized | |||||||||||||||||||||||||||||||
| (In Thousands) | 2023 | 2022 | 2021 | 2020 | 2019 | Prior | Cost Basis | Total | ||||||||||||||||||||||||
| Commercial and Industrial | ||||||||||||||||||||||||||||||||
| Risk Rating | ||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||
| Doubtful | ||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Current period gross charge-offs | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||
| Commercial Real Estate | ||||||||||||||||||||||||||||||||
| Risk Rating | ||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||
| Doubtful | ||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Current period gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Total | ||||||||||||||||||||||||||||||||
| Risk Rating | ||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||
| Doubtful | ||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Current period gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
60
The Bank monitors the credit risk profile by payment activity for residential real estate, consumer, and other loan classes. Loans past due 90 days or more and loans on nonaccrual status are considered non-performing. Non-performing loans are reviewed quarterly. The following table presents the amortized cost in residential real estate, and consumer and other loans based on payment activity as of December 31, 2024 and 2023:
| December 31, 2024 | ||||||||||||||||||||||||||
| Revolving Loans |
||||||||||||||||||||||||||
| Term Loans Amortized Cost Basis by Origination Period | Amortized | |||||||||||||||||||||||||
| (In Thousands) | 2024 | 2023 | 2022 | 2021 | 2020 | Prior | Cost Basis | Total | ||||||||||||||||||
| Residential Real Estate | ||||||||||||||||||||||||||
| Payment Performance | ||||||||||||||||||||||||||
| Performing | $ | $ | $ | $ | $ | $ | $ | $ | 632,017 | |||||||||||||||||
| Nonperforming | 6,936 | |||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | 638,952 | |||||||||||||||||
| Current period gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | 68 | |||||||||||||||||
| Consumer and Other | ||||||||||||||||||||||||||
| Payment Performance | ||||||||||||||||||||||||||
| Performing | $ | $ | $ | $ | $ | $ | $ | $ | 21,681 | |||||||||||||||||
| Nonperforming | 169 | |||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | 21,850 | |||||||||||||||||
| Current period gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | 92 | |||||||||||||||||
| Total | ||||||||||||||||||||||||||
| Payment Performance | ||||||||||||||||||||||||||
| Performing | $ | $ | $ | $ | $ | $ | $ | $ | 653,698 | |||||||||||||||||
| Nonperforming | 7,105 | |||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | 660,802 | |||||||||||||||||
| Current period gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | 160 | |||||||||||||||||
| December 31, 2023 | ||||||||||||||||||||||||||
| Revolving Loans |
||||||||||||||||||||||||||
| Term Loans Amortized Cost Basis by Origination Period | Amortized | |||||||||||||||||||||||||
| (In Thousands) | 2023 | 2022 | 2021 | 2020 | 2019 | Prior | Cost Basis | Total | ||||||||||||||||||
| Residential Real Estate | ||||||||||||||||||||||||||
| Payment Performance | ||||||||||||||||||||||||||
| Performing | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Nonperforming | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Current period gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Consumer and Other | ||||||||||||||||||||||||||
| Payment Performance | ||||||||||||||||||||||||||
| Performing | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Nonperforming | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Current period gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Total | ||||||||||||||||||||||||||
| Payment Performance | ||||||||||||||||||||||||||
| Performing | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Nonperforming | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Current period gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
61
Modifications to Borrowers Experiencing Financial Difficulty
Occasionally, the Bank may consider modifying loans to borrowers in financial distress by providing term extension, other-than-significant payment delay or interest rate reduction. In some cases, the Bank provides multiple types of concessions on one loan. Typically, one type of concession, such as an interest rate reduction, is granted initially. If the borrower continues to experience financial difficulty, another concession, such as term extension, may be granted.
For the years ended December 31, 2024 and 2023, the Bank did not grant any loan modifications to borrowers experiencing financial difficulty.
The carrying amount of foreclosed
residential real estate properties held as a result of obtaining physical possession were $
Concentrations of Credit Risk
Most of the Corporation’s lending activity occurs within the Bank’s primary market area which encompasses Clinton, Columbia, Lycoming, Montour and Eastern Northumberland counties in Northcentral Pennsylvania. The majority of the Corporation’s loan portfolio consists of commercial and consumer real estate loans. As of December 31, 2024 and 2023, there were no concentrations of loans related to any single industry in excess of 10% of total loans.
6. PREMISES AND EQUIPMENT
A summary of premises and equipment at December 31, 2024 and 2023 is as follows:
| (In Thousands) | 2024 | 2023 | |||||
| Land | $ | $ | |||||
| Construction in process | |||||||
| Premises | |||||||
| Furniture and equipment | |||||||
| Leasehold improvements | |||||||
| Total | |||||||
| Less accumulated depreciation and amortization | |||||||
| Total | $ | $ | |||||
Depreciation amounted to $
7. DEPOSITS
Major classifications of deposits at December 31, 2024 and 2023 consisted of:
| (In Thousands) | 2024 | 2023 | |||||
| Demand deposits | $ | $ | |||||
| Interest-bearing demand deposits | |||||||
| Savings | |||||||
| Money market | |||||||
| Time deposits | |||||||
| Total deposits | $ | $ | |||||
62
The following is a schedule reflecting scheduled maturities of time deposits at December 31, 2024:
| (In Thousands) | ||||
| 2025 | $ | |||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| Thereafter | ||||
| Total | $ |
Time deposits of $250,000
or more totaled approximately $
8. BORROWED FUNDS
Short-Term Borrowings
Short-term borrowings include
repurchase agreements with customers and advances from the FHLB. As of December 31, 2024, the Bank was approved by the FHLB for borrowings
of up to $
| December 31, 2024 | ||||||||||||||||
| (In Thousands) | Ending Balance |
Average Balance |
Maximum Month End Balance |
Average Rate During Year |
Weighted Average Rate At Period End |
|||||||||||
| Securities sold under agreements to repurchase | $ | $ | $ | % | % | |||||||||||
| Other short-term borrowings | % | % | ||||||||||||||
| Total | $ | $ | $ | % | % | |||||||||||
| December 31, 2023 | ||||||||||||||||
| (In Thousands) | Ending Balance |
Average Balance |
Maximum Month End Balance |
Average Rate During Year |
Weighted Average Rate At Period End |
|||||||||||
| Securities sold under agreements to repurchase | $ | $ | $ | % | % | |||||||||||
| Other short-term borrowings | % | % | ||||||||||||||
| Total | $ | $ | $ | % | % | |||||||||||
The Corporation utilizes 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.
63
The remaining contractual maturity of repurchase agreements in the Consolidated Balance Sheets as of December 31, 2024 and 2023 is presented in the following tables:
| Remaining Contractual Maturity of the Agreements | ||||||||||||||||||||
| Overnight and | Greater than | |||||||||||||||||||
| (In Thousands) | Continuous | Up to 30 Days | 30-90 Days | 90 Days | Total | |||||||||||||||
| December 31, 2024 | ||||||||||||||||||||
| Securities sold under agreements to repurchase: | ||||||||||||||||||||
| Obligation of U.S. Government Corporations and Agencies: | ||||||||||||||||||||
| Mortgage-backed | $ | $ | $ | $ | $ | |||||||||||||||
| Collateralized mortgage obligations | ||||||||||||||||||||
| Other | ||||||||||||||||||||
| Obligation of state and political subdivisions | ||||||||||||||||||||
| Total borrowings | $ | $ | $ | $ | $ | |||||||||||||||
| Gross amount of recognized liabilities for repurchase agreements | $ | |||||||||||||||||||
| Amounts related to agreements not included in offsetting disclosure above | $ | — | ||||||||||||||||||
| Remaining Contractual Maturity of the Agreements | ||||||||||||||||||||
| Overnight and | Greater than | |||||||||||||||||||
| (In Thousands) | Continuous | Up to 30 Days | 30-90 Days | 90 Days | Total | |||||||||||||||
| December 31, 2023 | ||||||||||||||||||||
| Securities sold under agreements to repurchase: | ||||||||||||||||||||
| Obligation of U.S. Government Corporations and Agencies: | ||||||||||||||||||||
| Mortgage-backed | $ | $ | $ | $ | $ | |||||||||||||||
| Other | ||||||||||||||||||||
| Total borrowings | $ | $ | $ | $ | $ | |||||||||||||||
| Gross amount of recognized liabilities for repurchase agreements | $ | |||||||||||||||||||
| Amounts related to agreements not included in offsetting disclosure above | $ | — | ||||||||||||||||||
The fair value of securities
pledged to secure repurchase agreements may decline. The Corporation manages this risk by having a policy to pledge securities valued
at
Long-Term Borrowings
Long-term FHLB borrowings consisted of the following at December 31, 2024 and 2023:
| (In Thousands) | December 31, 2024 | December 31, 2023 | ||||||
| Loans maturing in 2024 with a weighted-average rate of |
$ | $ | ||||||
| Loans maturing in 2025 with a weighted-average rate of |
||||||||
| Loans maturing in 2026 with a weighted-average rate of |
||||||||
| Loans maturing in 2027 with a weighted-average rate of |
||||||||
| Loans maturing in 2028 with a weighted-average rate of |
||||||||
| Total long-term FHLB borrowings; weighted average rate of |
||||||||
| Unamortized fair value adjustments | ( |
) | ( |
) | ||||
| Total long-term borrowings | $ | $ | ||||||
64
9. STOCKHOLDERS’ EQUITY AND STOCK PURCHASE PLANS
The Amended Articles of Incorporation
contain a provision that permits the Corporation to issue warrants for the purchase of shares of common stock, par value per share
(the “Common Stock”), at below market prices in the event any person or entity acquires
The Corporation offers employees
a stock purchase plan. The maximum number of shares of the Common Stock to be issued under this plan is 100,000. In addition, the Corporation
may choose to purchase shares on the open market to facilitate this plan. The plan allows participating employees to elect quarterly
deductions of at least
| Average Per Share | |||||||||||||
| Employees’ | Market Value | ||||||||||||
| Year Issued | Number of Shares | Purchase Price | of Shares | ||||||||||
| 2024 | $ | $ | |||||||||||
| 2023 | $ | $ | |||||||||||
10. INCOME TAXES
The provision for income tax expense consisted of the following components for the years ended December 31, 2024 and 2023:
| For the Years Ended December 31, | ||||||||
| (In Thousands) | 2024 | 2023 | ||||||
| Currently payable | $ | $ | ||||||
| Deferred tax (benefit) | ( |
|||||||
| Total income tax provision | $ | $ | ||||||
A reconciliation between the expected statutory income tax rate and the effective income tax rate on income before income taxes is as follows for the years ended December 31, 2024 and 2023:
| 2024 | 2023 | |||||||||||||||
| (In Thousands) | Amount | % | Amount | % | ||||||||||||
| Provision at statutory rate | $ | % | $ | % | ||||||||||||
| Tax-exempt income | ( |
) | - |
% | ( |
) | - |
% | ||||||||
| Bank-owned life insurance income-net | ( |
) | - |
% | ( |
) | - |
% | ||||||||
| Tax credit from limited partnerships less amortization, net | ( |
) | - |
% | ( |
) | - |
% | ||||||||
| Energy tax credit | ( |
) | - |
% | % | |||||||||||
| Non-deductible expenses | % | % | ||||||||||||||
| Other, net | ( |
) | - |
% | ( |
) | - |
% | ||||||||
| Effective income tax and rate | $ | % | $ | % | ||||||||||||
65
The net deferred tax asset recorded by the Corporation consisted of the following tax effects of temporary timing differences at December 31, 2024 and 2023:
| (In Thousands) | 2024 | 2023 | ||||||
| Deferred tax assets: | ||||||||
| Allowance for credit losses | $ | $ | ||||||
| Purchase accounting adjustments on loans | ||||||||
| Purchase accounting adjustments on securities | ||||||||
| Purchase accounting adjustments on premises and equipment | ||||||||
| Allowance for off balance sheet losses | ||||||||
| Deferred compensation and director’s fees | ||||||||
| Investment in limited partnerships | ||||||||
| Unrealized losses on available-for-sale debt securities | ||||||||
| Operating lease liability | ||||||||
| Other | ||||||||
| Total | ||||||||
| Deferred tax liabilities: | ||||||||
| Loan fees and costs | ( |
) | ( |
) | ||||
| Bond accretion | ( |
) | ( |
) | ||||
| Premises and equipment | ( |
) | ( |
) | ||||
| Core deposit intangibles | ( |
) | ( |
) | ||||
| Purchase accounting adjustments on deposits and borrowings | ( |
) | ( |
) | ||||
| Mortgage servicing rights | ( |
) | ( |
) | ||||
| Right of use assets | ( |
) | ( |
) | ||||
| Other | ( |
) | ( |
) | ||||
| Total | ( |
) | ( |
) | ||||
| Deferred tax asset, net | $ | $ | ||||||
It is anticipated that all tax assets shown above will be realized and accordingly no valuation allowance was provided. 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 50% 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. There is currently no liability for uncertain tax positions and no known unrecognized tax benefits. With limited exceptions, the Corporation is no longer subject to examination by Federal or State taxing authorities for years prior to 2021.
11. RELATED PARTY TRANSACTIONS
Certain directors and executive officers of the Corporation and the Bank, as well as their associates, family relationships and companies in which they are principal owners (i.e., at least 10% ownership), were indebted to the Bank at December 31, 2024 and 2023. These loans were made on substantially the same terms and conditions, including interest rates and collateral, as those prevailing at the time for comparable transactions with unrelated parties. These loans did not present more than the normal risk of collectability nor present other unfavorable features. A summary of the activity on these related party loans consisted of the following:
Schedule of Related Party Transactions
| Beginning | Other | Ending | ||||||||||||||||||
| (In Thousands) | Balance | Additions | Payments | Changes | Balance | |||||||||||||||
| 2024 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||
| 2023 | ( | ) | ||||||||||||||||||
Loans represent funds drawn
and outstanding at the date of the accompanying consolidated financial statements. In the table above, other changes represent transfers
out of the related party category. Commitments by the Bank to related parties on loan commitments and standby letters of credit for 2024
and 2023 presented an off-balance sheet risk to the extent of undisbursed funds in the amount of $
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Deposits from related parties held by the Bank amounted to $17,629,000 and $21,857,000 at December 31, 2024 and 2023, respectively.
12. EMPLOYEE BENEFIT AND DEFERRED COMPENSATION PLANS
EMPLOYEE BENEFIT PLANS
The Bank maintains a 401K
salary deferral profit sharing plan for the benefit of its employees. Under the salary deferral component, employees may elect to contribute
a percentage of compensation up to the maximum amount allowable not to exceed the limits of IRS Code Section 401(K). The Corporation matches
DEFERRED COMPENSATION PLANS
Directors
During 2003, the directors
were given the option of receiving or deferring their directors’ fees under a non-qualified deferred compensation plan which allows
the director to defer such fees until the year following the expiration of the directors’ term. Payments are then made over specified
terms under these arrangements up to a ten-year period. Interest is to accrue on these deferred fees at a 5-year certificate of deposit
rate, which was
Total directors’ fees,
including amounts currently paid for the years ended December 31, 2024 and 2023 were $
During 2008, the directors
were given the option of receiving or deferring their entire or partial directors’ fees under a non-qualified deferred compensation
plan with the same features as the above plan. The interest rate that was paid was
Officers
The Bank sponsors non-qualified,
non-funded supplemental retirement plans, for its executives, for which the Corporation has purchased cost recovery life insurance on
the lives of the participants. The participant is the insured person under the policy and the Bank is the owner and beneficiary. The amount
of the coverage is designed to provide sufficient revenues to cover all costs of the plans if assumptions made as to mortality experience,
policy earnings, and other factors are realized. The Corporation incurred expenses related to the supplemental retirement plans of $
SPLIT-DOLLAR LIFE INSURANCE
The Bank provides endorsed
split-dollar life insurance benefits to certain executives and directors. These benefits are accounted for under ASC Topic 715 “Compensation
– Retirement Benefits”. This pronouncement requires recognition of a liability for postretirement benefits provided through
an endorsed split-dollar life insurance arrangement. The Bank incurred expenses related to these endorsed split-dollar life insurance
arrangements of $
13. OPERATING LEASE COMMITMENTS AND CONTINGENCIES
The Corporation leases two office locations under operating leases. The Corporation has elected to account for the variable nonlease components, such as common area maintenance charges, utilities, real estate taxes, and insurance, separately from the lease component. Such variable nonlease components are reported in net occupancy expense on the Consolidated Statements of Income when paid. These variable nonlease components were excluded from the calculation of the present value of the remaining lease payments, therefore, they are not included in the right-of-use assets and lease liabilities reported on the Consolidated Balance Sheets.
67
As of December 31, 2024 and
2023, the Corporation had recorded right-of-use assets in for operating leases of $
Certain of the Corporation’s leases contain options to renew the lease after the initial term. Management considers the Corporation’s historical pattern of exercising renewal options on leases and the positive performance of the leased locations, when determining whether it is reasonably certain that the leases will be renewed. If management concludes that there is reasonable certainty about the renewal option, it is included in the calculation of the remaining term of each applicable lease. The discount rate utilized in calculating the present value of the remaining lease payments for each lease was the Federal Home Loan Bank of Pittsburgh advance rate corresponding to the remaining maturity of the lease as of January 1, 2019. The following table presents the weighted-average remaining lease term and discount rate for the leases outstanding at December 31, 2024 and 2023.
| 2024 | 2023 | ||
| Weighted-average remaining term (years) | |||
| Weighted-average discount rate |
The following table presents the undiscounted cash flows due related to operating leases as of December 31, 2024, along with a reconciliation to the discounted amount recorded on the Consolidated Balance Sheets:
| Undiscounted cash flows due (In thousands): | |||||
| 2025 | $ | ||||
| 2026 | |||||
| 2027 | |||||
| 2028 | |||||
| 2029 | |||||
| Thereafter | |||||
| Total undiscounted cash flows | |||||
| Discount on cash flows | ( |
) | |||
| Total lease liabilities | $ | ||||
Under Topic 842, the lessee can elect to not record on the Consolidated Balance Sheets a lease whose term is twelve months or less and does not include a purchase option that the lessee is reasonably certain to exercise. As of December 31, 2024, the Corporation had no leases that had a term of twelve months or less.
Rental expense under operating
leases totaled approximately $
In the normal course of business, the Corporation is subject to pending and threatened litigation in which claims for monetary damages are asserted. In management’s opinion, the Corporation’s financial position and results of operations would not be materially affected by the outcome of these legal proceedings.
14. REGULATORY MATTERS
In August 2018, the Federal Reserve Board issued an interim final rule that expanded applicability of the Board’s small bank holding company policy statement. The interim final rule raised the policy statement’s asset threshold from $1 billion to $3 billion in total consolidated assets for a bank holding company or savings and loan holding company that: (1) is not engaged in significant nonbanking activities; (2) does not conduct significant off-balance sheet activities; and (3) does not have a material amount of debt or equity securities, other than trust-preferred securities, outstanding. The interim final rule provides that, if warranted for supervisory purposes, the Federal Reserve may exclude a company from the threshold increase. Management believes the Corporation meets the conditions of the Federal Reserve’s small bank holding company policy statement and is therefore excluded from consolidated capital requirements at December 31, 2024.
The Bank is subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and prompt corrective action regulations involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgements by regulators. Failure to meet capital requirements can initiate regulatory action. The net unrealized gain or loss on available-for-sale debt securities is not included in computing regulatory capital. Management believes as of December 31, 2024, the Bank meets all capital adequacy requirements to which it is subject.
68
Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. At December 31, 2024 and 2023, the most recent regulatory notifications categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the institution’s category.
Current quantitative measures established by regulation to ensure capital adequacy require Journey Bank to maintain minimum amounts and ratios (set forth in the table below) of Total capital, Tier I capital, and Tier I common equity (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined). The following tables present summary information regarding the Bank’s risk-based capital and related ratios at December 31, 2024 and 2023:
| Journey Bank | Minimum Required For Capital Adequacy Purposes | Minimum Required For Capital Adequacy Purposes with Conservation Buffer | Minimum Required To Be Well Capitalized Under Prompt Corrective Action Regulations | ||||||||
| (Dollars in Thousands) | Amount | Ratio | Ratio | Ratio | Ratio | ||||||
| December 31, 2024 | |||||||||||
| Total capital (to risk-weighted assets) | $ | |
|||||||||
| Tier I capital (to risk-weighted assets) | |||||||||||
| Tier I common equity (to risk-weighted assets) | |||||||||||
| Tier I capital (to average assets) | |||||||||||
| Total risk-weighted assets | |||||||||||
| Total average assets | |||||||||||
| Journey Bank | Minimum Required For Capital Adequacy Purposes | Minimum Required For Capital Adequacy Purposes with Conservation Buffer | Minimum Required To Be Well Capitalized Under Prompt Corrective Action Regulations | ||||||||
| (Dollars in Thousands) | Amount | Ratio | Ratio | Ratio | Ratio | ||||||
| December 31, 2023 | |||||||||||
| Total capital (to risk-weighted assets) | $ | |
|||||||||
| Tier I capital (to risk-weighted assets) | |||||||||||
| Tier I common equity (to risk-weighted assets) | |||||||||||
| Tier I capital (to average assets) | |||||||||||
| Total risk-weighted assets | |||||||||||
| Total average assets | |||||||||||
15. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONCENTRATIONS OF CREDIT 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, standby letters of credit and commercial letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the Consolidated Balance Sheets. The contract or notional amounts of those instruments reflect the extent of involvement the Corporation has in particular classes of financial instruments. The Corporation does not engage in trading activities with respect to any of its financial instruments with off-balance sheet risk.
The Corporation may require collateral or other security to support financial instruments with off-balance sheet credit risk. The contract or notional amounts at December 31, 2024 and 2023 were as follows:
| (In Thousands) | 2024 | 2023 | |||||
| Financial instruments whose contract amounts represents credit risk: | |||||||
| Commitments to extend credit | $ | $ | |||||
| Standby letters of credit | |||||||
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Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Because many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Corporation evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Corporation upon extension of credit, is based on management’s credit evaluation of the counter-party. Collateral held varies but may include accounts receivable, inventory, property, plant, equipment and income-producing commercial properties.
Standby letters of credit
and commercial letters of credit are conditional commitments issued by the Corporation to guarantee payment to a third party when a customer
either fails to repay an obligation or fails to perform some non-financial obligation. The credit risk involved in issuing letters of
credit is essentially the same as that involved in extending loan facilities to customers. The Corporation holds collateral supporting
those commitments for which collateral is deemed necessary. The extent of collateral held for those commitments at December 31, 2024 varied
from
The Corporation’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and letters of credit is represented by the contractual notional amount of those instruments. The Corporation uses the same credit policies in making commitments and conditional obligations, as it does for on-balance sheet instruments.
The Corporation granted commercial,
consumer and residential loans to customers primarily within Pennsylvania. Of the total loan portfolio,
As
of December 31, 2024, the total reserve for unfunded commitments was $
16. PARENT COMPANY ONLY FINANCIAL INFORMATION
Condensed financial information for Muncy Columbia Financial Corporation (Parent Company only) was as follows:
| BALANCE SHEETS | December 31, | |||||||
| (In Thousands) | 2024 | 2023 | ||||||
| Assets | ||||||||
| Cash | $ | $ | ||||||
| Investment in subsidiary | ||||||||
| Available-for-sale debt securities | ||||||||
| Marketable equity securities | ||||||||
| Other assets | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity | ||||||||
| Accrued expenses and other liabilities | $ | $ | ||||||
| Total Liabilities | ||||||||
| Stockholders’ Equity | ||||||||
| Common stock | ||||||||
| Additional paid-in capital | ||||||||
| Retained earnings | ||||||||
| Accumulated other comprehensive loss | ( |
) | ( |
) | ||||
| Treasury stock | ( |
) | ( |
) | ||||
| Total Stockholders’ Equity | ||||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | ||||||
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Condensed Income Statement
| STATEMENTS OF INCOME | Years Ended December 31, | |||||||
| (In Thousands) | 2024 | 2023 | ||||||
| Income | ||||||||
| Dividends from subsidiary bank | $ | $ | ||||||
| Interest & dividends - other | ||||||||
| Gains (losses) on marketable equity securities | ( |
) | ||||||
| Realized losses on available-for-sale debt securities, net | ( |
) | ||||||
| Total Income | ||||||||
| Operating expenses | ||||||||
| Income Before Taxes and Equity in Undistributed | ||||||||
| Applicable income tax | ( |
) | ( |
) | ||||
| Income Before Equity in Undistributed Net Income of Subsidiary | ||||||||
| Equity in undistributed income of subsidiary | ||||||||
| Net Income | $ | $ | ||||||
Condensed Cash Flow Statement
| STATEMENTS OF CASH FLOWS | Years Ended December 31, | |||||||
| (In Thousands) | 2024 | 2023 | ||||||
| Operating Activities: | ||||||||
| Net income | $ | $ | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| (Gains) losses on marketable equity securities | ( |
) | ||||||
| Realized losses on available-for-sale debt securities | ||||||||
| Equity in undistributed net income of subsidiary | ( |
) | ( |
) | ||||
| Deferred income taxes | ( |
) | ||||||
| Increase in other assets | ( |
) | ( |
) | ||||
| Other, net | ||||||||
| Net Cash Provided By Operating Activities | ||||||||
| Investing Activities: | ||||||||
| Net cash and cash equivalents provided by business combination | ||||||||
| Proceeds from sales of available-for-sale debt securities | ||||||||
| Net Cash Provided By Investing Activities | ||||||||
| Financing Activities: | ||||||||
| Acquisition of treasury stock | ( |
) | ||||||
| Proceeds from issuance of common stock | ||||||||
| Cash dividends | ( |
) | ( |
) | ||||
| Net Cash Used In Financing Activities | ( |
) | ( |
) | ||||
| (Decrease) Increase in Cash and Cash Equivalents | ( |
) | ||||||
| Cash and Cash Equivalents at Beginning of Year | 1,037 | 962 | ||||||
| Cash and Cash Equivalents at End of Year | $ | 853 | $ | 1,037 | ||||
17. FAIR VALUE MEASUREMENTS AND FAIR VALUES OF FINANCIAL INSTRUMENTS
The Corporation establishes a hierarchal disclosure framework associated with the level of pricing observability utilized in measuring assets and liabilities at fair value. The standard describes three levels of inputs that may be used to measure fair values:
| Level I: | Quoted prices are available in active markets for identical assets or liabilities as of the reported date. | |
| Level II: | Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these assets and liabilities include items for which quoted prices are available but traded less frequently, and items that are fair valued using other financial instruments of which can be directly observed. | |
| Level III: | Assets and liabilities that have little to no pricing observability as of the reported date. These items do not have two-way markets and are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgement or estimation. |
This hierarchy requires the use of observable market data available.
71
The following table presents the assets reported on the Consolidated Balance Sheets at their fair value on a recurring basis as of December 31, 2024 and December 31, 2023, 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.
| December 31, 2024 | ||||||||||||||||
| (In Thousands) | Level I | Level II | Level III | Total | ||||||||||||
| Obligation of US Government Corporations and Agencies | ||||||||||||||||
| Mortgage-backed | $ | $ | $ | $ | ||||||||||||
| Collateralized mortgage obligations | ||||||||||||||||
| Other | ||||||||||||||||
| Obligations of state and political subdivisions | ||||||||||||||||
| Other debt securities | ||||||||||||||||
| Total available-for-sale debt securities | $ | $ | $ | $ | ||||||||||||
| Marketable equity securities | $ | $ | $ | $ | ||||||||||||
| Real estate loans held for sale | $ | $ | $ | $ | ||||||||||||
| December 31, 2023 | ||||||||||||||||
| (In Thousands) | Level I | Level II | Level III | Total | ||||||||||||
| Obligation of US Government Corporations and Agencies | ||||||||||||||||
| Mortgage-backed | $ | $ | $ | $ | ||||||||||||
| Collateralized mortgage obligations | ||||||||||||||||
| Other | ||||||||||||||||
| Obligations of state and political subdivisions | ||||||||||||||||
| Other debt securities | ||||||||||||||||
| Total available-for-sale debt securities | $ | $ | $ | $ | ||||||||||||
| Marketable equity securities | $ | $ | $ | $ | ||||||||||||
| Real estate loans held for sale | $ | $ | $ | $ | ||||||||||||
The fair values of equity securities classified as Level I are derived from quoted market prices in active markets; these assets consist entirely of stocks held in other banks. The fair values of all debt securities classified as Level II are obtained from nationally-recognized third-party pricing agencies. The fair values are derived primarily from cash flow models, which include assumptions for interest rates, credit losses, and prepayment speeds. The significant inputs utilized in the cash flow models are based on market data obtained from sources independent of the Corporation (observable inputs) and are therefore classified as Level II within the fair value hierarchy. The fair values of real estate loans held for sale classified as Level II are derived from observable pricing inputs for similar assets in active markets.
The following table presents the assets measured on a nonrecurring basis on the Consolidated Balance Sheets at their fair value as of December 31, 2024 and 2023, 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.
| December 31, 2024 | ||||||||||||||||
| (In Thousands) | Level I | Level II | Level III | Total | ||||||||||||
| Assets Measured on a Non-recurring Basis: | ||||||||||||||||
| Loans individually evaluated for credit loss | $ | $ | $ | $ | ||||||||||||
| Foreclosed assets held for sale | ||||||||||||||||
| Total nonrecurring fair value measurements | $ | $ | $ | $ | ||||||||||||
| December 31, 2023 | ||||||||||||||||
| (In Thousands) | Level I | Level II | Level III | Total | ||||||||||||
| Assets Measured on a Non-recurring Basis: | ||||||||||||||||
| Loans individually evaluated for credit loss | $ | $ | $ | $ | ||||||||||||
72
Loans are individually evaluated for credit loss when they do not share similar risk characteristics as similar loans within their loan pool. Foreclosed assets held for sale consist of real estate acquired by foreclosure. Loans individually evaluated for credit loss are reviewed and evaluated on at least a quarterly basis for individual reserve requirements and adjusted accordingly. The following table provides a listing of significant unobservable inputs used in the fair value measurement process for items valued utilizing level III techniques on a nonrecurring basis as of December 31, 2024 and 2023:
| December 31, 2024 | |||||||||||
| Quantitative Information about Level III Fair Value Measurements | |||||||||||
| (In Thousands) | Fair Value Estimate | Valuation Technique | Unobservable Input | Range | Weighted Average | ||||||
| Loans individually evaluated for credit loss: | |||||||||||
| Commercial Real Estate | $ | Discounted cash flows | Charge-off rates | ||||||||
| Commercial Real Estate | Sales comparison | Discount to appraised value | |||||||||
| Residential Real Estate | Sales comparison | Discount to appraised value | |||||||||
| Total loans individually evaluated for credit loss | $ | ||||||||||
| Foreclosed assets held for sale: | |||||||||||
| Residential Real Estate | $ | Sales comparison | Discount to appraised value | N/A | |||||||
| December 31, 2023 | |||||||||||
| Quantitative Information about Level III Fair Value Measurements | |||||||||||
| (In Thousands) | Fair Value Estimate | Valuation Technique | Unobservable Input | Range | Weighted Average | ||||||
| Loans individually evaluated for credit loss: | |||||||||||
| Commercial Real Estate | $ | Discounted cash flows | Charge-off rates | ||||||||
At December 31, 2024 and 2023, the carrying values and fair values of financial instruments that are not recorded at fair value on the Consolidated Balance Sheets are presented in the table below:
| December 31, 2024 | ||||||||||||||||||||
| Carrying | ||||||||||||||||||||
| (In Thousands) | Amount | Fair Value | Level I | Level II | Level III | |||||||||||||||
| Financial assets: | ||||||||||||||||||||
| Cash and cash equivalents | $ | $ | $ | $ | $ | |||||||||||||||
| Interest-bearing time deposits | ||||||||||||||||||||
| Restricted equity securities | ||||||||||||||||||||
| Loans, net | ||||||||||||||||||||
| Accrued interest receivable | ||||||||||||||||||||
| Mortgage servicing rights | ||||||||||||||||||||
| Financial liabilities: | ||||||||||||||||||||
| Interest-bearing deposits | $ | $ | $ | $ | $ | |||||||||||||||
| Noninterest-bearing deposits | ||||||||||||||||||||
| Short-term borrowings | ||||||||||||||||||||
| Long-term borrowings | ||||||||||||||||||||
| Accrued interest payable | ||||||||||||||||||||
| December 31, 2023 | ||||||||||||||||||||
| Carrying | ||||||||||||||||||||
| (In Thousands) | Amount | Fair Value | Level I | Level II | Level III | |||||||||||||||
| Financial assets: | ||||||||||||||||||||
| Cash and cash equivalents | $ | $ | $ | $ | $ | |||||||||||||||
| Interest-bearing time deposits | ||||||||||||||||||||
| Restricted equity securities | ||||||||||||||||||||
| Loans, net | ||||||||||||||||||||
| Accrued interest receivable | ||||||||||||||||||||
| Mortgage servicing rights | ||||||||||||||||||||
| Financial liabilities: | ||||||||||||||||||||
| Interest-bearing deposits | $ | $ | $ | $ | $ | |||||||||||||||
| Noninterest-bearing deposits | ||||||||||||||||||||
| Short-term borrowings | ||||||||||||||||||||
| Long-term borrowings | ||||||||||||||||||||
| Accrued interest payable | ||||||||||||||||||||
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Fair value is defined as a financial instrument which could be exchanged in a current transaction between willing parties other than in a forced or liquidation sale. If a quoted market price is available for a financial instrument, the estimated fair value would be calculated based upon the market price per trading unit of the instrument, but focuses on the exit price of the asset and liability.
If no readily available market exists, the fair value estimates for financial instruments should be based upon management’s judgment regarding current economic conditions, interest rate risk, expected cash flows, future estimate losses, and other factors as determined through various option pricing formulas. As many of these assumptions result from judgments made by management based upon estimates that are inherently uncertain, the resulting estimated fair values may not be indicative of the amount realizable in the sale of a particular financial instrument. In addition, changes in assumptions on which the estimate fair values are based may have a significant impact on the resulting estimated fair values.
18. SUBSEQUENT EVENT
On February 12, 2025, the Corporation filed a Current Report on Form 8-K announcing the retirement of its Executive Chairman. The Corporation and the Bank entered into an Employment Separation Agreement and Release dated February 11, 2025 (the “Separation Agreement”) with Robert J. Glunk, Executive Chairman of the Corporation and the Bank, and the Bank entered into a Fourth Amendment to Supplemental Executive Retirement Plan (the “Amendment”) with Mr. Glunk. The Separation Agreement and Amendment were approved by the boards of directors of the Corporation and the Bank on February 11, 2025. The material terms of the Separation Agreement and Amendment are described below.
Pursuant to the Separation
Agreement, Mr. Glunk’s employment agreement will be terminated and his last day of active employment with the Company and the Bank
will be February 28, 2025 (the “Termination Date”). He will be paid his salary pursuant to the terms of his employment agreement
through the Termination Date. In consideration of the termination of his employment agreement, the Separation Agreement provides for Mr.
Glunk to be paid $
74
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of Muncy Columbia Financial Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Muncy Columbia Financial Corporation and subsidiary (the “Company”) as of December 31, 2024 and 2023; the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for the years then ended; and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent, with respect to the Company, in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the Audit Committee and that: (1) relate to accounts or disclosures that are material to the financial statements; and (2) involve our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter, in any way, our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
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Allowance for Credit Losses (ACL) – Loans
The Company’s loan portfolio totaled $1.1 billion as of December 31, 2024, and the associated ACL was $9.9 million. As described in Notes 1 and 5 to the consolidated financial statements, the determination of the ACL requires significant judgement about the expected future losses, which is based on baseline lifetime loss rates, which are calculated using either a discounted cash flow model or a probability of default methodology, and then adjusted as applicable for current qualitative conditions and the forecasted environment, based upon both internal and external factors that are different from the conditions that existed during the historical loss calculation period.
We identified the adjustments to the historical loss factor components of the allowance for credit losses as a critical audit matter, as auditing the underlying adjustments required significant auditor judgment, as amounts determined by management rely on analysis that is highly subjective and includes significant estimation uncertainty.
The primary procedures we performed to address this critical audit matter included:
| • | Testing the design, implementation, and operating effectiveness of internal controls over the calculation of the allowance for credit losses |
| • | Testing the completeness and accuracy of the significant data points that management uses in their modeling of the ACL |
| • | Evaluating the directional consistency and reasonableness of management’s conclusions regarding assessment of qualitative factors based on the trends identified in the underlying supporting data |
| • | Testing the valuations for individually evaluated loans by evaluating assumptions on repayment and verifying the mathematical accuracy of calculations |
We have served as the Company’s auditor since 2014.
/s/
March 7, 2025
76
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None
Item 9A. Controls and Procedures
Our Chief Executive Officer (CEO) and Chief Financial Officer (CFO) have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended), based on their evaluation of these controls and procedures as of the end of the period covered by this Report, were effective as of such date at the reasonable assurance level as discussed below to ensure that information required to be disclosed by us in the reports we file under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and that such information is accumulated and communicated to our management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Our management, including the CEO and CFO, does not expect that our disclosure controls and internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. In addition, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls.
The CEO and CFO have evaluated the changes to our internal controls over financial reporting that occurred during our fiscal Quarter Ended December 31, 2024, as required by Rules 13a-15(d) and 15d-15(d) under the Securities Exchange Act of 1934, as amended. There were no significant changes in the Corporation’s internal control over financial reporting that occurred during the period covered by this report that have materially affected, or that are reasonably likely to affect, our internal control over financial reporting.
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting for Muncy Columbia Financial Corporation (the “Corporation”). Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States and is not intended to provide absolute assurance that a misstatement of the Corporation’s financial statements would be prevented or detected.
Internal control over financial reporting includes those policies and procedures that pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Corporation; provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Corporation are only being made in accordance with authorizations of management and directors of the Corporation; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Corporation’s assets that could have a material effect on the financial statements.
Any control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. The design of a control system inherently has limitations and the benefits of controls must be weighed against their costs. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. Therefore, no assessment of a cost-effective system of internal controls can provide absolute assurance that all control issues and instances of fraud, if any, will be detected.
As of December 31, 2024, management of the Corporation conducted an assessment of the effectiveness of the Corporation’s internal control over financial reporting based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation under the criteria in the Framework, management concluded that the Corporation’s system of internal control over financial reporting was effective as of December 31, 2024.
| /s/ Lance O. Diehl | /s/ Joseph K. O’Neill, Jr., CPA | |||
| Lance O. Diehl | Joseph K. O’Neill, Jr., CPA | |||
| President and Chief Executive Officer | Executive Vice President and Chief Financial Officer | |||
77
Item 9B. Other Information
| (a) | There was no information the Corporation was required to disclose in a report on Form 8-K during the fourth quarter of 2024 that was not disclosed. |
| (b) | During the three months ended December 31, 2024, |
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not Applicable
78
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Information concerning Directors, Executive Officers and Corporate Governance is incorporated herein by reference to disclosure under the heading “Proposal No. 1 – Election of Five (5) Directors to Class 2,” and the captions “Information as to Nominees and Directors,” “Executive Officers of the Company and Significant Employees of Journey Bank,” and “Corporate Governance” and under the heading “Proposal No. 2 – Ratification of Approval of the Independent Registered Public Accounting Firm,” of the Corporation’s proxy statement dated March 7, 2025 for the annual meeting of stockholders to be held on April 22, 2025.
The Corporation’s Board of Directors has adopted a Code of Conduct and Ethics for the Corporation’s employees, officers and directors. The provisions of the Code of Conduct and Ethics are available on the Corporation’s website at https://ir.journeybank.com/governance/governance-documents/default.aspx.
The Corporation’s Board of Directors has adopted an Insider Trading Policy that prohibits the directors, officers, employees, agents, independent advisors and consultants of the Corporation and the Bank, and their related persons, from purchasing or selling any of the Corporation’s securities or the securities of any other company while in possession of material nonpublic information about the Corporation or any other company, as applicable. The policy prohibits such persons from communicating such nonpublic information to any other person, except to persons who need to know such information for purposes of Corporation business. The policy contains anti-hedging provisions that prohibit directors and officers of the Corporation and the Bank from purchasing financial instruments or engaging in transactions that are designed to hedge or offset any decrease in the market value of equity securities of the Corporation, including, without limitation, puts, calls, prepaid variable forward contracts, equity swaps, collars, exchange funds and other derivative securities or transactions with economic consequences comparable to the foregoing.
Item 11. Executive Compensation
Information concerning director and executive compensation is incorporated herein by reference to disclosure under the headings “Proposal No. 1 – Election of Five (5) Directors to Class 2” and the captions “Director Compensation” and “Executive Compensation” of the Corporation’s proxy statement dated March 7, 2025 for the annual meeting of stockholders to be held on April 22, 2025.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information concerning security ownership of certain beneficial owners and management is incorporated herein by reference to disclosure under the heading “Proposal No. 1 – Election of Five (5) Directors to Class 2” and the caption “Share Ownership of Directors, Named Executive Officers and Certain Beneficial Owners” of the Corporation’s proxy statement dated March 7, 2025 for the annual meeting of stockholders to be held on April 22, 2025.
Item 13. Certain Relationships and Related Transactions, Director Independence
Information concerning loans and deposit balances with Directors and Executive Officers is provided in Note 11 to the Consolidated Financial Statements, which is included in Part II, Item 8 of this Annual Report on Form 10-K. Additional information, including information concerning director independence, is incorporated herein by reference to disclosure appearing under heading “Proposal No. 1 – Election of Five (5) Directors to Class 2” and the captions “Director Independence” and “Transactions with Directors and Executive Officers” of the Corporation’s proxy statement dated March 7, 2025 for the annual meeting of stockholders to be held on April 22, 2025.
Item 14. Principal Accounting Fees and Services
Information concerning services provided by the Corporation’s independent auditor S.R. Snodgrass P.C., the audit committee’s pre-approval policies and procedures for such services, and fees paid by the Corporation to that firm, is incorporated herein by reference to disclosure under the heading “Proposal No. 2 – Ratification of Approval of the Independent Registered Public Accounting Firm” of the Corporation’s proxy statement dated March 7, 2025 for the annual meeting of stockholders to be held on April 22, 2025.
79
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) The following documents are filed as part of this report:
(1) The following financial statements are filed herewith in Item 8:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2024 and 2023
Consolidated Statements of Income for the Years Ended December 31, 2024 and 2023
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2024 and 2023
Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2024 and 2023
Consolidated Statements of Cash Flows for the Years Ended December 31, 2024 and 2023
Notes to Consolidated Financial Statements
(2) All financial statement schedules are omitted because the required information is either not applicable, not required or is shown in the respective financial statement or in the notes thereto, which are incorporated by reference at subsection (a)(1) of this item.
(3) Refer to the Exhibit Index following the signature page of this report, which is incorporated herein by reference.
(b) See item 15(a) (3)
(c) None.
80
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Muncy Columbia Financial Corporation
(Registrant)
| By: | /s/ Lance O. Diehl | Date: March 7, 2025 |
|
Lance O. Diehl President and Chief Executive Officer |
||
| By: | /s/ Joseph K. O’Neill, Jr. | Date: March 7, 2025 |
|
Joseph K. O’Neill, Jr. Executive Vice President and Chief Financial Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
81
BOARD OF DIRECTORS
| By: | /s/ Todd M. Arthur | Date: March 7, 2025 | ||
| Todd M. Arthur | ||||
| By: | /s/ Lance O. Diehl | Date: March 7, 2025 | ||
| Lance O. Diehl | ||||
| By: | /s/ Robert W. Dillon | Date: March 7, 2025 | ||
| Robert W. Dillon | ||||
| By: | /s/ Robert J. Glunk | Date: March 7, 2025 | ||
| Robert J. Glunk | ||||
| By: | /s/ Robert P. Hager | Date: March 7, 2025 | ||
| Robert P. Hager | ||||
| By: | /s/ Willard H. Kile, Jr. | Date: March 7, 2025 | ||
| Willard H. Kile, Jr. | ||||
| By: | /s/ Brian D. Klingerman | Date: March 7, 2025 | ||
| Brian D. Klingerman | ||||
| By: | /s/ J. Howard Langdon | Date: March 7, 2025 | ||
| J. Howard Langdon | ||||
| By: | /s/ W. Bruce McMichael, Jr. | Date: March 7, 2025 | ||
| W. Bruce McMichael, Jr. | ||||
| By: | /s/ Steven H. Shannon | Date: March 7, 2025 | ||
| Steven H. Shannon | ||||
| By: | /s/ Stephen M. Tasselli | Date: March 7, 2025 | ||
| Stephen M. Tasselli | ||||
| By: | /s/ Bonnie M. Tompkins | Date: March 7, 2025 | ||
| Bonnie M. Tompkins | ||||
| By: | /s/ Edwin A. Wenner | Date: March 7, 2025 | ||
| Edwin A. Wenner | ||||
| By: | /s/ Brenda R. H. Williams | Date: March 7, 2025 | ||
| Brenda R. H. Williams |
82
INDEX TO EXHIBITS
The following exhibits are filed herewith, or, as indicated, incorporated by reference as a part of this report.
83
84
EXHIBIT 4.2
Description of Registrant’s Common Stock
General
As of December 31, 2024, the Corporation has 15,000,000 shares of authorized common stock, par value $1.250 per share, and 3,532,713 shares issued and outstanding. All outstanding shares of the Corporation’s common stock are duly authorized, fully paid, validly issued and non-assessable.
Dividends.
Holders of shares of the Corporation’s common stock are entitled to receive dividends when and as declared by the Corporation’s board of directors out of funds legally available therefore. The Corporation’s ability to pay dividends is dependent on its earnings and financial condition and subject to certain restrictions imposed by state and federal laws.
Voting Rights.
The holders of the Corporation’s common stock have exclusive voting rights in the Corporation. They elect the Corporation’s board of directors and act on other matters as are required to be presented to them under Pennsylvania law, the Corporation’s articles of incorporation, or as are otherwise presented to them by the board of directors. Generally, each holder of the Corporation’s common stock is entitled to one vote per share and does not have any right to cumulate votes in the election of directors.
Liquidation or Dissolution.
In the unlikely event of liquidation, dissolution or winding up of the Corporation, the holders of its common stock would be entitled to receive, after payment or provision for payment of all its debts and liabilities, all of the assets of the Corporation available for distribution.
Preemptive Rights.
Holders of the common stock of the Corporation will not be entitled to preemptive rights with respect to any shares that may be issued. The common stock is not subject to redemption.
Listing.
The Corporation common stock is quoted on OTCQX under the symbol “CCFN.” The transfer agent for the Corporation common stock is EQ Shareowner Services (Equiniti).
Restrictions on Acquisition of the Corporation
The following discussion is a general summary of the material provisions of Pennsylvania law, the Corporation’s articles of incorporation and bylaws and certain other regulatory provisions that may be deemed to have an “anti-takeover” effect. The following description is necessarily general and is not intended to be a complete description of the document or regulatory provision in question.
Authorized but Unissued Stock.
The authorized but unissued shares of common stock will be available for future issuance without shareholder approval. These additional shares may be used for a variety of corporate purposes, including future private or public offerings to raise additional capital, corporate acquisitions, and employee benefit plans. The existence of authorized but unissued and unreserved shares of common stock may enable the board of directors to issue shares to persons friendly to current management, which could render more difficult or discourage any attempt to obtain control of the Corporation by means such as a proxy contest, tender offer, or merger, and thereby protect the continuity of the Corporation’s management.
No Cumulative Voting.
The Corporation’s articles of incorporation do not provide for cumulative voting for the election of directors.
Shareholder Nominations and Proposals.
The Corporation’s articles of incorporation provide that any shareholder desiring to make a nomination for the election of directors or a proposal for new business at an annual meeting of shareholders must submit written notice to the Corporation not later than January 15 preceding the date of the annual meeting at which the nominee is to be a candidate, and not later than 75 days prior to the anniversary date of the previous year’s annual meeting in connection with a proposal for new business.
Classified Board of Directors
The Corporation’s articles of incorporation provide that the directors will be divided into three classes, as nearly equal in number as possible, with each class serving a three year term with the term of one class expiring each year. A classified board of directors has the effect of moderating the pace of change in board membership by requiring two annual elections to replace a majority of the Corporation’s board of directors.
Bylaw Amendments.
The Corporation’s articles of incorporation provide that the power to make, alter and amend the Corporation’s bylaws is vested in the board of directors, subject to the right of the shareholders to change such action by the affirmative vote of a majority of the outstanding shares of common and preferred stock (as of December 31, 2024, there were no issued and outstanding shares of the Corporation’s preferred stock). The Corporation’s bylaws provide that the bylaws may be altered, amended or repealed by a majority vote of the board of directors at any regular meeting or at any special meeting called and convened for that purpose, subject to the power of the shareholders to change such action by the affirmative vote of the holders of a majority of the outstanding shares.
Approval of Certain Transactions.
Under the Corporation’s articles of incorporation, any merger, consolidation, liquidation or dissolution of the Corporation, or any action that would result in the sale or disposition of all or substantially all of the Corporation’s assets, is subject to a heightened shareholder vote standard, requiring the affirmative vote of the holders of at least 66 2/3% of the outstanding shares of common and preferred stock of the Corporation Additionally, the provision in the Corporation’s articles of incorporation that sets forth this requirement may not be amended unless the amendment is approved by 66 2/3% of the common and preferred stock of the Corporation.
Control Events
Under the Corporation’s articles of incorporation, when any person is determined by the board of directors to be the beneficial owner of 25 percent or more of the outstanding shares of common stock or preferred stock of the Corporation, then the board may issue on a pro rata basis to shareholders who are not affiliated with the substantial shareholder warrants to purchase additional shares of common stock at a purchase price equal to 50 percent of the average transaction price of all purchases and sales of the Corporation’s common stock during the previous 12 month period. Such warrants are to be issued without consideration, are not assignable, and are to expire six months from the date of issuance. The board of directors may determine in its sole discretion the number of shares of common stock that may be purchased pursuant to warrants.
Change in Control Law and Regulations.
Under the Change in Bank Control Act, a federal law, no person may acquire control of an FDIC-insured bank or its parent holding company unless the Federal Reserve Board has been given 60 days’ prior written notice and has not issued a notice disapproving the proposed acquisition. The Federal Reserve Board takes into consideration certain factors, including the financial and managerial resources of the acquirer and the competitive effects of the acquisition. In addition, federal regulations provide that no company may acquire control of a bank without the prior approval of the Federal Reserve Board. Any company that acquires such control becomes a “bank holding company” subject to registration, examination and regulation by the Federal Reserve Board. Control, as defined under federal law, means ownership, control of or holding irrevocable proxies representing more than 25% of any class of voting stock, control in any manner of the election of a majority of the company’s directors, or a determination by the Federal Reserve Board that the acquirer has the power to direct, or directly or indirectly exercise a controlling influence over, the management or policies of the institution. Acquisition of more than 10% of any class of a bank holding company’s voting stock constitutes a rebuttable determination of control under the regulations under certain circumstances including where the issuer has registered securities under Section 12 of the Securities Exchange Act of 1934 or no other person will own, control or hold with power to vote a greater percentage of that class of voting securities. Federal Reserve Board regulations provide that parties seeking to rebut control will be provided an opportunity to do so in writing.
Exhibit 19
MUNCY COLUMBIA FINANCIAL CORPORATION
INSIDER TRADING POLICY
(Adopted March 12, 2024)
| I. | BACKGROUND AND PURPOSE |
One of the principal purposes of the federal securities laws is to prohibit so called “insider trading.” The Securities Exchange Act of 1934 and regulations promulgated thereunder restrict transactions in publicly traded securities by individuals who possess “inside” information. Inside information is generally defined as material non-public information about a company or its securities, such as information that would be used by an investor in making decisions to trade1 the company’s securities. Any person who possesses material non-public information about a company having publicly traded securities is prohibited from:
| ■ | purchasing or selling the securities while aware of material non-public information regarding the company; and |
| ■ | disclosing material non-public information to others who may then trade in the company’s securities (otherwise known as “tipping”). |
The prohibitions against insider trading apply to trades, tips and recommendations by virtually any person, if the information involved is “material” and “non-public.” These terms are defined in this Policy below. The prohibitions apply to any director, officer or employee of the company and any Related Persons2 of a director, officer or employee who buys or sells securities on the basis of material non-public information. This Policy provides a framework to prevent even the appearance of improper conduct on the part of anyone employed by or associated with Muncy Columbia Financial Corporation (the “Company”) and Journey Bank (the “Bank”). All references in this Policy to the Company shall include the Bank unless otherwise specified.
| II. | STATEMENT OF POLICY |
It is the Policy of the Company that its employees, officers and directors and their Related Persons will comply at all times with all provisions of the Securities Exchange Act of 1934, as amended, and regulations promulgated thereunder, related to insider trading.
The Board of Directors of the Company has adopted this Policy as a standard for the trading of the Company’s securities and the securities of other publicly traded companies while in possession of material non-public information to prevent insider trading and to help such persons avoid the severe consequences associated with violations of insider trading laws.
Where doubt as to materiality or non-public status of information exists, such information will be treated as material non-public information.
1 “Trade” or “trading” refers to the purchase or sale of securities (i.e., common stock, preferred stock, options to acquire common stock or preferred stock, etc.) and includes making an election to participate in, or terminate participation in, or to increase or decrease an existing election to participate in, a stock purchase or dividend reinvestment plan.
2 “Related Person” means a spouse, minor children and anyone living in your household; partnerships in which you are a general partner; trusts of which you are a trustee; and estates of which you are an executor.
| III. | OVERSIGHT AND DELEGATION OF AUTHORITY |
The Board of Directors shall be responsible for the oversight of compliance with this Policy. The Board hereby delegates the responsibility for day-to-day operating matters associated with this Policy to the Bank’s Senior Executive Vice President of Finance and Risk Management and/or his designee(s).
Duties of the Bank’s Senior Executive Vice President of Finance and Risk Management in relation to this Policy include, but are not limited to, the following:
| ■ | ensuring that copies of this Policy are provided to all directors, officers and employees and, by such persons, to their respective Related Persons; |
| ■ | ensuring that the Company obtains and maintains written acknowledgement from directors, officers and employees that they have read and understood this Policy; |
| ■ | overseeing responses to questions from individual directors, officers and employees; |
| ■ | ensuring periodic training is provided to directors, officers and employees; and |
| ■ | ensuring that relevant files on compliance with and implementation of this Policy are maintained. |
| IV. | OPERATING STANDARDS |
| 1. | Applicability |
This Policy applies to all transactions in the Company’s securities, including common stock, options, warrants and any other securities that the Company may issue, such as preferred stock, notes, bonds and convertible securities as well as to derivative securities relating to any of the Company’s securities, whether or not issued by the Company.
This Policy applies to all directors, officers, employees, agents, independent advisors and consultants of the Company and their respective Related Persons. The persons to whom this Policy applies are referred to herein as “Covered Persons.”
| 2. | General Policy: No Trading or Causing Trading While In Possession of Material Non-public Information. |
| a. | No Covered Person may purchase or sell any Company security, whether or not issued by the Company, while in possession of material non-public information about the Company. (The terms “material” and “non-public” are defined below.) |
| b. | No Covered Person who knows of any material non-public information about the Company may communicate that information to any other person, including family and friends, without prior authorization from the Bank’s Senior Executive Vice President for Finance and Risk Management and/or his designee(s). |
| c. | In addition, no Covered Person may purchase or sell any security of any other company while in possession of material non-public information about that company that was obtained in the course of his or her involvement with the Company. No Covered Person who knows of any such material non-public information may communicate that information to any other person, including family and friends, except to persons in the Company who need to know it for purposes of Company business. |
| Insider Trading Policy | Page 2 |
| d. | For compliance purposes, you should never trade, tip or recommend securities (or otherwise cause the purchase or sale of securities) while in possession of information that you have reason to believe is material and non-public unless you first consult with, and obtain the advance approval of, the Bank’s Senior Executive Vice President for Finance and Risk Management and/or his designee(s). |
| e. | All directors, executive officers and certain designated employees must “pre clear” all trading in securities of the Company in accordance with the procedures set forth below. |
| 3. | Definitions |
| a. | Materiality – Insider trading restrictions come into play only if the information you possess is “material.” Materiality, however, involves a relatively low threshold. “Material information” is information which would reasonably be expected to either (i) affect the price of the securities of the company to which it pertains or (ii) be important to an investor in deciding whether to buy, sell or hold a security of the company to which it pertains. Material information can include both favorable and unfavorable information. |
Information dealing with the following subjects is reasonably likely to be found material in certain situations:
| i. | significant changes in the company’s prospects; |
| ii. | significant write-downs in assets or increases in reserves; |
| iii. | developments regarding significant litigation or government agency investigations; |
| iv. | liquidity issues; |
| v. | changes in earnings estimates or unusual gains/losses; |
| vi. | major changes in the company’s management or board of directors; |
| vii. | changes in dividend policy; |
| viii. | extraordinary borrowings; |
| ix. | award or loss of a significant contract; |
| x. | proposals, plans or agreements, even if preliminary, involving mergers, acquisitions, divestitures, recapitalizations, strategic alliances, licensing arrangements, or purchases or sales of substantial assets; |
| xi. | significant regulatory events or major changes in accounting methods or policies; |
| xii. | cybersecurity risks and incidents, including vulnerabilities and breaches; |
| xiii. | public offerings or private placements; and |
| xiv. | pending statistical reports (examples: consumer price index, money supply, retail figures, interest rate developments). |
Material information is not limited to historical facts but may also include projections and forecasts. With respect to a future event, such as a merger, acquisition or new product, the point at which negotiations or product development are determined to be material is determined by balancing the probability that the event will occur against the magnitude of the effect the event would have on a company’s operations or stock price should it occur. Information concerning an event that would have a significant impact on share price may be material even if the possibility of the event occurring is small. When in doubt, presume information is material. Consult the Bank’s Senior Executive Vice President for Finance and Risk Management and/or his designee(s) before making any decisions to disclose such information (other than to persons in the Company who need to know it for purposes of Company business) or to trade in or recommend securities to which the information relates.
| Insider Trading Policy | Page 3 |
| b. | Non-public Information – Insider trading prohibitions come into play only when the information possessed is material and “non-public.” The fact that information has been disclosed to a few members of the public does not make it public for insider trading purposes. To be “public” the information must have been released in a manner that reaches investors generally, and the investor must be given time to analyze the information. Even after a public disclosure of information pertaining to the Company, you must wait until the close of business on the second full trading day after the information was publicly disclosed before the information can be treated as public. |
Non-public information may include:
| i. | information available to a select group of analysts, brokers or institutional investors; |
| ii. | undisclosed facts that are the subjects of rumors, even if the rumors are widely circulated; and |
| iii. | information that has been entrusted to the Company on a confidential basis until a public announcement of the information has been made and enough time has passed for the market to respond to the announcement (generally, two full trading days). |
| V. | ADDITIONAL RULES APPLICABLE TO ALL DIRECTORS, EXECUTIVE OFFICERS AND CERTAIN DESIGNATED EMPLOYEES |
All directors, executive officers and certain employees designated from time to time by the Bank’s Senior Executive Vice President for Finance and Risk Management and/or his designee(s) must check with the Bank’s Senior Executive Vice President for Finance and Risk Management and/or his designee(s) before trading to determine whether a blackout period is in effect. If you have any questions regarding whether a blackout period is in effect, or whether you are a designated employee, consult the Bank’s Senior Executive Vice President for Finance and Risk Management and/or his designee(s).
| 1. | Blackout periods |
All directors, executive officers and designated employees are generally prohibited from trading in the Company’s securities during blackout periods.
| a. | Quarterly Blackout Periods – Trading in the Company’s securities is prohibited during the period beginning at the close of the market fifteen (15) days before the end of each fiscal quarter and ending at the close of business on the second trading day following the date the Company’s financial results for the fiscal quarter are publicly disclosed. |
| b. | Special Blackout Periods – From time to time, other types of material non-public information regarding the Company (such as negotiation of mergers, acquisitions or dispositions or new product developments) may be pending and not be publicly disclosed. While such material non-public information is pending, the Company may impose special blackout periods during which directors, executive officers and designated employees are prohibited from trading in the Company’s securities. If the Company imposes a special blackout period, it will notify the persons affected. |
| Insider Trading Policy | Page 4 |
The Bank’s Senior Executive Vice President for Finance and Risk Management and/or his designee(s) will notify all directors, executive officers and designated employees of the commencement and subsequent lifting, expiration or termination of all blackout periods by email, text or telephone. Notwithstanding such notifications, each director, executive officer and designated person is personally responsible not to trade while in possession of material nonpublic information or during a blackout period and, accordingly is required to pre-clear transactions in accordance with the procedures set forth below.
| 2. | Trading Windows |
Directors, executive officers and designated employees are permitted to trade in the Company’s securities when no blackout period is in effect. Generally, this means that such persons generally can trade during the period beginning at the close of business on the second trading day following the date the Company’s financial results for the preceding fiscal quarter are publicly disclosed and ending at the close of the market fifteen days before the end of each fiscal quarter. However, even during this trading window, a director, executive officer and designated employee who is in possession of any material non-public information should not trade in the Company’s securities until the information has been made publicly available or is no longer material. In addition, the Company may close this trading window if a special blackout period is imposed and will re-open the trading window once the special blackout period has ended.
| 3. | Pre-clearance of Securities Transactions |
| a. | Because directors, executive officers and designated employees are likely to obtain material non-public information on a regular basis, the Company requires all such persons to refrain from trading, even during a trading window, without first pre-clearing transactions with the Bank’s Senior Executive Vice President for Finance and Risk Management or Chief Financial Officer. |
| b. | Unless otherwise specified by regulation, no director, executive officer or designated employee may, directly or indirectly, purchase or sell (or otherwise make any transfer, gift, pledge or loan of) any Company security at any time without first pre-clearing such transactions with the Bank’s Senior Executive Vice President for Finance and Risk Management or Chief Financial Officer. These procedures also apply to transactions by the Related Persons of a director, executive officer or designated employee and to any transaction by an entity over which the director, executive officer or designated employee has control. |
| c. | The Bank’s Senior Executive Vice President for Finance and Risk Management and Chief Financial Officer will record the date each request is received and the date and time each request is cleared or clearance is denied, or otherwise keep a suitable record of clearance and denial. |
| d. | If a proposed transaction receives clearance, the transaction must be executed within two (2) business days of receipt of clearance. Transactions not executed within the two (2) business days time period become subject to pre-clearance again. If a person requests clearance and clearance is denied, the transaction may not be executed and the person should not inform any other person that clearance has been denied. |
| e. | Notwithstanding that a transaction has been cleared, each Covered Person is personally responsible to not trade while in possession of material non-public information or during a blackout period and, accordingly, may not execute the transaction if he or she becomes aware of material non-public information or that a blackout period has been imposed before the transaction has been executed. |
| Insider Trading Policy | Page 5 |
| 4. | Section 16(b) Of The Securities Exchange Act of 1934 - Short-Swing Profits |
| a. | Section 16(b) of the Securities Exchange Act of 1934 (the “1934 Act”) contains a prohibition against so-called “short-swing” profits. Under this provision, directors and executive officers (collectively, the “Section 16 Insiders”) cannot purchase and sell, or sell and purchase, the Company’s equity securities within a period of six months before or six months after an opposite-way transaction without disgorging to the Company “profits” obtained in the short-swing transaction. A person who engages in a prohibited set of transactions will be liable to the Company for any profits earned or losses avoided. The Company cannot waive this liability. |
| b. | For example, if a Section 16 Insider buys 1,000 shares of the Company’s common stock on January 1 at $15 per share and, within six months, sells the shares for $20 per share, he or she will be liable to the Company for the total profit of $5,000. Similarly, if 1,000 shares are sold on January 1 for $15 per share and within six months the same number of shares of the Company’s common stock are purchased for $10 per share, the officer will have “avoided” a loss of $5,000 and he or she will be liable to the Company for that amount. |
| c. | Application of the prohibition on short-swing profits is strictly mechanical. All transactions occurring within any six-month period are matched. Transactions are matched in the manner resulting in the maximum forfeiture of short-swing profits. Possession of material nonpublic information is not a prerequisite for liability under Section 16(b) of the 1934 Act. |
| d. | The first six-month period begins to run on the date of the first transaction after the person becomes a Section 16 Insider. A person who ceases to be a Section 16 Insider will still be subject to Section 16(b) of the 1934 Act until six months after the last nonexempt purchase or sale that was effected while the person was a Section 16 Insider. |
| e. | The prohibition applies to all purchases and sales. This includes shares held directly and shares held in “street name” accounts. In addition, purchases and sales of equity securities by immediate family members and, in certain cases, equity securities held by corporations, partnerships, trusts and IRAs may also be matched with sales and purchases by an insider. |
| f. | For purposes of Section 16(b): |
| i. | a “purchase” is deemed to include writing a “put option” with respect to the Company’s securities and the expiration of the option unexercised is deemed to constitute a “sale”; and |
| ii. | a “sale” includes the writing of a “call” option and the expiration of the option unexercised is deemed to constitute a “purchase.” |
| iii. | Before writing put or call options with respect to the Company’s equity securities, a Section 16 Insider should consult with the Bank’s Senior Executive Vice President for Finance and Risk Management. |
| VI. | Prohibited Transactions |
| 1. | Generally |
Covered Persons, including Related Persons, are prohibited from engaging in the following transactions in the Company’s securities unless advance approval is received from the Bank’s Senior Executive Vice President for Finance and Risk Management and/or his designee(s):
| Insider Trading Policy | Page 6 |
| a. | Short sales: Covered Persons may not sell the Company’s securities short or sell short against the box; |
| i. | “Selling short” occurs when you sell a security you do not own. Selling short typically takes place when there is an expectation that the price of the shares will go down. |
| ii. | “Selling short against the box” occurs when you have sufficient shares to cover any sales but, nevertheless, choose to borrow the shares delivered at settlement. The effect of “selling short against the box” on the market price of stock will be the same as a short sale. |
| iii. | This prohibition applies to all sales, whether of shares held directly or shares held in street name accounts through a broker or dealer. |
| b. | Options trading: Covered Persons may not buy or sell puts or calls or other derivative securities on the Company’s securities; |
| c. | Trading on Margin/Pledging as Collateral: Directors and executive officers may not hold Company securities in a margin account or pledge Company securities as collateral for any loan, except that, (i) such limitation shall not apply to Company securities pledged as collateral for any loan prior to February 13, 2024, (ii) such limitation shall not apply to Company securities pledged as collateral for any loan on or after February 13, 2024, provided that the total securities pledged by any such person on or after February 13, 2024 (inclusive of securities pledged by such person before February 13, 2024) does not exceed one percent (1%) of the then outstanding securities of the Company, and (iii) after February 13, 2024, the Board of Directors may in its discretion approve in advance any pledge of Company securities as collateral for a loan in a particular case (other than a purpose loan within the meaning of Federal Reserve Regulation U) after taking into consideration the magnitude of the number and market value of shares proposed to be pledged in relation to the number of outstanding shares and the market value and trading volume of outstanding shares (generally, the aggregate shares pledged should not exceed 3% of shares outstanding on the date of the pledge), the percentage of shares proposed to be pledged to the total shares owned by the pledgor, the amount of shares proposed to be pledged in relation to the total shares then pledged by other directors and executive officers, and all other factors deemed relevant by the Board of Directors. Although the Board of Directors believes that permitting limited pledging of Company securities to serve as collateral for a bona fide loan in appropriate circumstances will encourage directors and executive officers to purchase and retain shares, the Board of Directors will not approve any pledge of Company securities as part of a hedging or monetization strategy designed to or otherwise having the effect of hedging or offsetting any decrease in the market value of Company securities; and |
| d. | Hedging: Covered Persons may not enter into hedging or monetization transactions or similar arrangements with respect to Company securities. |
| 2. | Additional rules applicable to proposed acquisitions |
Whenever the Company is actively considering a particular company for a material acquisition or for another material business relationship or whenever another company is considering acquiring the Company, all of the Company’s employees involved in, or aware of, due diligence or other planning for or attention to the acquisition or business relationship (“Knowledge Holding Employees”) are, together with their respective Related Persons, prohibited from trading in any of the Company’s securities and
| Insider Trading Policy | Page 7 |
any securities of the other company. If you are a Knowledge Holding Employee, you must contact the Bank’s Senior Executive Vice President for Finance and Risk Management or Chief Financial Officer before trading to determine whether such acquisition or business relationship would be considered “material” and result in a trading blackout with respect to the Company’s securities or the securities of any other company. The Bank’s Senior Executive Vice President for Finance and Risk Management and/or Chief Financial Officer will announce when any such trading blackout has terminated.
| VII. | PENALTIES |
Violations of Insider Trading Laws
Penalties for trading on or communicating material non-public information can be severe, both for individuals involved in such unlawful conduct and their employers and supervisors. Penalties may include jail terms, criminal fines, civil penalties and civil enforcement injunctions. Given the severity of the potential penalties, compliance with this Policy is mandatory.
| a. | Legal Penalties – A person who violates insider trading laws by engaging in transactions in a company’s securities when he/she has material non-public information can be sentenced to a substantial jail term and required to pay a penalty of several times the amount of profits gained or losses averted. |
The SEC also has the authority to seek disgorgement of profits, a civil penalty against the insider or tippee of up to three times the amount of profit gained or loss averted and an injunction against future violations. The SEC also may impose liability on a company and any “controlling person” of an insider trading violator for up to the greater of $1,000,000 or three times the amount of profit gained or losses averted by insider trading if the company or a “controlling person” is found to have recklessly disregarded the likelihood that a controlled person would engage in violation and failed to take steps to prevent the action before it occurred. The offending company or “controlling person” may also receive a criminal penalty of up to $2,500,000. The SEC is authorized to pay rewards of up to 10% of a penalty recovered to persons providing information leading to the imposition of a penalty. In addition, insiders or tippees who trade on inside information may receive a jail term of up to 20 years and a criminal fine of up to $25 million. Finally, private parties may bring civil complaints or actions against any person purchasing or selling a security while in possession of material non-public information.
| b. | Company-imposed Penalties – Covered Persons who violate this Policy may be subject to disciplinary action by the Company, including dismissal for cause. |
| VIII. | EXCEPTIONS |
| a. | Transactions Under Company Plans |
Purchases of Company common stock pursuant to the Company’s open market Dividend Reinvestment and Stock Purchase Plan and the Company’s Employee Stock Purchase Plan are not subject to the prohibitions of this Policy or any blackout periods provided that:
| i. | A decision to participate in or to withdraw from participation in either Plan may not be made during a blackout period or when the person otherwise is in possession of material non-public information about the Company; and |
| ii. | A person may not make any change in the amount to be withheld from his or her pay under the Employee Stock Purchase Plan or make any voluntary cash contribution to the Dividend Reinvestment and Stock Purchase Plan during a blackout period or when the person otherwise is in possession of material non-public information about the Company. |
| Insider Trading Policy | Page 8 |
| b. | 10b5-1 Plans |
These trading restrictions do not apply to transactions under a pre-existing written plan, contract, instruction, or arrangement under Rule 10b5-1 under the Securities Exchange Act of 1934 (an “Approved 10b5-1 Plan”) that:
| i. | has been reviewed and approved at least 7 business days in advance of the adoption of such Approved 10b5-1 Plan by the Bank’s Senior Executive Vice President of Finance and Risk Management and/or his designee(s) (or, if an existing Approved 10b5-1 Plan is to be revised or amended, such revisions or amendments have been reviewed and approved by the Bank’s Senior Executive Vice President of Finance and Risk Management and/or his designee(s) at least 7 business days in advance of such revisions or amendment); |
| ii. | was entered into in good faith by the Covered Person at a time when the Covered Person was not in possession of material nonpublic information about the Company, with such representation also included in the Approved 10b5-1 Plan; and |
| iii. | gives a third party the discretionary authority to execute such purchases and sales, outside the control of the Covered Person, so long as such third party does not possess any material nonpublic information about the Company; or explicitly specifies the security or securities to be purchased or sold, the number of shares, the prices and/or dates of transactions, or other formula(s) describing such transactions. |
Each Approved 10b5-1 Plan will require a “cooling off” period before trades under the Approved 10b5-1 Plan can begin.
| i. | Section 16 Insiders cannot begin trading under an Approved 10b5-1 Plan until the later of (i) 90 days after the adoption of the Approved 10b5-1 Plan, or (ii) two business days after the disclosure of the Company’s financial results for the fiscal quarter in which the Approved 10b5-1 Plan was adopted or modified in the applicable Annual Report on Form 10-K or Quarterly Report on Form 10-Q. In any case, the cooling off period will not exceed 120 days after adoption of the Approved 10b5-1 Plan. |
| ii. | For all other persons who are not a Section 16 Insider, trading under an Approved 10b5-1 Plan cannot begin until 30 days after the adoption of the 10b5-1 Plan. |
In order to assist the Company with its ongoing disclosure obligations regarding the use of SEC Rule 10b5-1 by its Section 16 Insiders, each Section 16 Insider must provide to the Company the following information concurrently with adoption of the Approved 10b5-1 Plan and any changes thereto:
| i. | Whether the Section 16 Insider adopted or terminated an Approved 10b5-1 Plan or non-SEC Rule 10b5-1 trading arrangement. |
| ii. | Whether the trading arrangement is intended to satisfy the affirmative defense provided in SEC Rule 10b5-1(c). |
| iii. | A description of the material terms of the trading arrangement, other than terms with respect to price, such as: |
| 1. | the name and title of the Section 16 Insider; |
| 2. | the date of adoption or termination of the trading arrangement; |
| 3. | the duration of the trading arrangement; and |
| 4. | the aggregate number of securities to be sold or purchased under the trading arrangement. |
| iv. | With respect to reporting of any transaction in the Company’s securities or derivatives thereof, whether such transaction was pursuant to an Approved 10b5-1 Plan. |
| Insider Trading Policy | Page 9 |
| IX. | PERIODIC REVIEW | AUDIT |
Internal Audit, or an independent audit firm approved by the Audit Committee, shall periodically conduct an independent review of compliance with this Policy along with its accompanying operating procedures. Audit findings and recommendations shall be provided in writing and shall be accompanied by appropriate work papers that support the findings and recommendations. Depending on the nature of a particular finding, the Bank’s Senior Executive Vice President of Finance and Risk Management and/or his designee(s) shall review the written report and oversee the implementation of any improvements or corrective actions resulting from the findings. The report along with all findings and management’s responses for corrective action will be reported to the Audit Committee of the Board and such review noted in the minutes.
| X. | ACKNOWLEDGEMENT AND CERTIFICATION |
All Covered Persons will be required to (i) acknowledge receipt of this Policy, (ii) acknowledge that they have shared this Policy with their Related Persons, and (iii) affirm their intent, and the intent of their Related Persons, to be governed by the Policy. Covered Persons hired/engaged after February 13, 2024 will be required to execute such acknowledgement/intent at the time of hire or engagement.
| Insider Trading Policy | Page 10 |
EXHIBIT 21.1
Subsidiaries of Muncy Columbia Financial Corporation:
Journey Bank
EXHIBIT 23
Consent of Independent REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statements File No. 333-274565 on Form S-8 of Muncy Columbia Financial Corporation of our report dated March 7, 2025, relating to our audit of the consolidated financial statements, which appears in the Annual Report to Stockholders, which is incorporated in this Annual Report on Form 10-K of Muncy Columbia Financial Corporation for the year ended December 31, 2024.
/s/ S.R. Snodgrass, P.C.
Cranberry Township, Pennsylvania
March 7, 2025
EXHIBIT 31.1
Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer
I, Lance O. Diehl, certify that:
| 1. | I have reviewed this annual report on Form 10-K of Muncy Columbia Financial Corporation; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a – 15 (f) and 15d – 15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and, |
| 5. | The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions): |
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: | March 7, 2025 | /s/ Lance O. Diehl | |
| Lance O. Diehl | |||
| President and Chief Executive Officer | |||
| (Principal Executive Officer) |
EXHIBIT 31.2
Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer
I, Joseph K. O’Neill, Jr., certify that:
| 1. | I have reviewed this annual report on Form 10-K of Muncy Columbia Financial Corporation; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a–15 (f) and 15d–15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions): |
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: | March 7, 2025 | /s/ Joseph K. O’Neill, Jr. | |
| Joseph K. O’Neill, Jr. | |||
| Executive Vice President and Chief Financial Officer | |||
| (Principal Financial Officer) |
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. § 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Muncy Columbia Financial Corporation (the “Corporation”) on Form 10-K for the year-ended December 31, 2024, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Lance O. Diehl, President and Chief Executive Officer of the Corporation, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
| 1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| 2. | The information contained in the Report fairly represents, in all material respects, the financial condition and result of operations of the Corporation for the dates and periods covered by the Report. |
| 3. | This certificate is being made for the exclusive purpose of compliance by the Principal Executive Officer of the Corporation with the requirements of section 906 of the Sarbanes-Oxley Act of 2002, and may not be used by any person or for any reason other than as specifically required by law. |
| Date: March 7, 2025 | /s/ Lance O. Diehl | ||
| Lance O. Diehl | |||
| President and Chief Executive Officer | |||
| (Principal Executive Officer) | |||
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. § 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Muncy Columbia Financial Corporation (the “Corporation”) on Form 10-K for the year-ended December 31, 2024, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Joseph K. O’Neill, Jr., the Chief Financial Officer of the Corporation, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
| 1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| 2. | The information contained in the Report fairly represents, in all material respects the financial condition and result of operations of the Corporation for the dates and periods covered by the Report. |
| 3. | This certificate is being made for the exclusive purpose of compliance by the Principal Financial Officer of the Corporation with the requirements of section 906 of the Sarbanes-Oxley Act of 2002, and may not be used by any person or for any reason other than as specifically required by law. |
| Date: March 7, 2025 | /s/ Joseph K. O’Neill, Jr. | ||
| Joseph K. O’Neill, Jr. | |||
| Executive Vice President and Chief Financial Officer | |||
| (Principal Financial Officer) | |||
Exhibit 99.1
