introduction

This MD&A and related financial data are presented to assist in understanding and assessing the financial position and results of operations of the Company and the Bank, as of
December 31, 2020 and 2019, and for the years ended December 31, 2020 and 2019. This section should be read in conjunction with the consolidated financial statements and accompanying footnotes.

Critical accounting policies

Note 2 to the Company's consolidated financial statements (incorporated by
reference in Item 8 of the Form 10-K) lists significant accounting policies used
in the development and presentation of its financial statements. This discussion
and analysis, the significant accounting policies, and other financial statement
disclosures identify and address key variables and other qualitative and
quantitative factors that are necessary for an understanding and evaluation of
the Company and its results of operations.

Material estimates that are particularly susceptible to significant change in
the near term relate to the determination of the allowance for loan losses, the
valuation of deferred tax assets, the determination of other-than-temporary
impairment on securities, the determination of goodwill impairment and the fair
value of financial instruments. Please refer to the discussion of the allowance
for loan losses calculation under "Allowance for Loan Losses and Non-performing
Assets" in the "Financial Condition" section.

The deferred income taxes reflect temporary differences in the recognition of
the revenue and expenses for tax reporting and financial statement purposes,
principally because certain items are recognized in different periods for
financial reporting and tax return purposes. Although realization is not
assured, the Company believes it is more likely than not that all deferred tax
assets will be realized.

In estimating other-than-temporary impairment losses on securities, the Company
considers 1) the length of time and extent to which the fair value has been less
than cost and 2) the financial condition of the issuer. The Company does not
have the intent to sell these securities and it is more likely than not that it
will not sell the securities before recovery of their cost basis. The Company
believes that any unrealized losses at December 31, 2020 and 2019 represent
temporary impairment of the securities.

The fair value of financial instruments is based on market prices, when available. For cases where a quoted price is not available, fair values ​​are based on observable market-based parameters, as well as unobservable parameters. Such an assessment is applied consistently over time.

In connection with the acquisition of Delaware in 2016, we recorded goodwill in
the amount of $1.6 million, representing the excess of amounts paid over the
fair value of the net assets of the institution acquired at the date of
acquisition. In connection with the acquisition of UpState.in July 2020, we
recorded goodwill in the amount of $18.0 million, representing the excess of
amounts paid over the fair value of the net assets of the institution acquired
at the date of acquisition. .Goodwill is tested annually and deemed impaired
when the carrying value of goodwill exceeds its implied fair value.

FINANCIAL CONDITION

Total assets

Total assets as of December 31, 2020 were $1.852 billion compared to
$1.231 billion as of year-end 2019, an increase of $621.3 million. The increase
in assets was primarily attributable to the $438.8 million of assets acquired
from UpState.

Loans Receivable

As of December 31, 2020, loans receivable totaled $1.411 billion compared to
$924.6 million as of year-end 2019, an increase of $486.2 million. Commercial
loans, including commercial real estate, grew $376.9 million, while retail loans
increased $109.3 million during the year. The growth includes the $413.5 million
of loans acquired from UpState and the $68.1 million of Paycheck Protection
Program ("PPP") loans originated prior to the merger date.

The Bank's loan products include loans for personal and business use. Personal
lending includes mortgage lending to finance principal residences and, to a
lesser extent, second home dwellings. The Bank's loan products include
fixed-rate mortgage products with terms up to 30 years which may be sold in the
secondary market through the Federal National Mortgage Association ("Fannie
Mae") or the FHLB, or held in the Bank's portfolio to the extent consistent with
our asset/liability management strategies. Fixed-rate home equity loans are
originated on terms up to 180 months. Home equity lines of credit tied to the
prime rate are also offered. The Bank also offers indirect dealer financing of
automobiles (new and used), boats, and recreational vehicles through a limited
network of dealers in Northeast Pennsylvania and the Southern Tier of New York.
At December 31, 2020, there were $147.2 million of indirect loans in the

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portfolio. In connection with the acquisition of UpState, the Company acquired
approximately $413.5 million in loans, including $37.3 million in residential
real estate loans, $289.0 million in commercial real estate loans, $92.0 million
in commercial, financial and agricultural loans, and $2.3 million in consumer
loans. As of December 31, 2020, the approximate outstanding balance of these
acquired loans was $390.8 million. In connection with the acquisition of
Delaware, the Company acquired approximately $116.7 million in loans, including
$68.7 million in residential real estate loans, $22.5 million in commercial real
estate loans, $13.6 million in commercial, financial and agricultural loans,
$6.5 million in consumer loans and $5.4 in construction loans. As of
December 31, 2020, the approximate outstanding balance of these acquired loans
was $47.1 million.

Commercial loans and commercial mortgages are provided to local small and
mid-sized businesses at a variety of terms and rate structures. Commercial
lending activities include lines of credit, revolving credit, term loans,
mortgages, various forms of secured lending and a limited amount of letter of
credit facilities. The rate structure may be fixed, immediately repricing tied
to the prime rate or adjustable at set intervals. Also included in commercial
loans are municipal finance lending in which the Bank has been active in recent
years. Municipal lending includes both general obligations of local taxing
authorities and revenue obligations of specific revenue producing projects such
as sewer authorities and educational units. At December 31, 2020, the Bank had
approximately $125.3 million in loans on commercial rentals, as well as
$117.8 million of loans outstanding on residential rentals, which are its
largest lending concentrations.

As a qualified Small Business Administration ("SBA") lender, the Bank originated
$95.0 million of PPP loans in loans in 2020, including loans originated by USNY
Bank prior to the acquisition date.

The Bank's construction lending has primarily involved lending for commercial
construction projects and for single-family residences. All loans for the
construction of speculative sale homes have a loan-to-value ratio of not more
than 80%. For both commercial and single-family projects, loan proceeds are
disbursed during the construction phase according to a draw schedule based on
the stage of completion. Construction projects are inspected by contracted
inspectors or bank personnel. Construction loans are underwritten on the basis
of the estimated value of the property as completed. For commercial projects,
the Bank typically also provides the permanent financing after the construction
period, as a commercial mortgage.

The Bank also, from time to time, originates loans secured by undeveloped land.
Land loans granted to individuals have a term of up to five years. Land loans
granted to developers may have an interest only period during development. The
substantial majority of land loans have a loan-to-value ratio not exceeding 75%.
The Bank has limited its exposure to land loans but may expand its lending on
raw land, as market conditions allow, to qualified borrowers experienced in the
development and sale of raw land.

Loans involving construction financing and loans on raw land have a higher level
of risk than loans for the purchase of existing homes since collateral values,
land values, development costs and construction costs can only be estimated at
the time the loan is approved. The Bank has sought to minimize its risk in
construction lending and in lending for the purchase of raw land by offering
such financing primarily to builders and developers to whom the Bank has loaned
funds in the past and to persons who have previous experience in such projects.
The Bank also limits construction lending and loans on raw land to its market
area, with which management is familiar.

Adjustable-rate loans decrease the risks associated with changes in interest
rates by periodically repricing, but involve other risks because as interest
rates increase, the underlying payments by the borrower increase, thus
increasing the potential for payment default. At the same time, the
marketability of the underlying collateral may be adversely affected by higher
interest rates. Upward adjustment of the contractual interest rate may also be
limited by the maximum periodic interest rate adjustment permitted in certain
adjustable-rate mortgage loan documents, and, therefore is potentially limited
in effectiveness during periods of rapidly rising interest rates. These risks
have not had an adverse effect on the Bank.

The Bank's adjustable-rate loan portfolio includes approximately $41.5 million
in loan participations indexed to the London Interbank Offered Rate ("LIBOR")
which is expected to be phased out by June 30, 2023. The Bank anticipates that
the terms of LIBOR-based loans, which have not matured prior to the phase-out of
LIBOR will be negotiated to incorporate a to-be-determined substitute reference
rate. The Bank must rely on the lead bank to renegotiate the terms of loans in
which the Bank has a participation. There can be no assurance that the lead bank
will be able to successfully renegotiate the loans in which the Bank has
participations or that the substitute reference rate will perform as
satisfactorily as LIBOR.

Consumer lending, including indirect financing, provides benefits to the Bank's
asset/liability management program by reducing the Bank's exposure to interest
rate changes, due to their generally shorter terms. Such loans may entail
additional credit risks compared to owner-occupied residential mortgage lending
especially when unsecured or secured by collateral such as automobiles that
depreciate rapidly.

Commercial lending including real-estate related loans entail significant
additional risks when compared with residential real estate and consumer
lending. For example, commercial loans typically involve larger loan balances to
single borrowers or groups of related borrowers. The payment experience on such
loans typically is dependent on the successful operation of the project and
these risks can be significantly impacted by the cash flow of the borrowers and
market conditions for commercial office, retail, and warehouse

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space. In periods of decreasing cash flows, the commercial borrower may permit a
lapse in general maintenance of the property causing the value of the underlying
collateral to deteriorate. The liquidation of commercial property is often more
costly and may involve more time to sell than residential real estate. The Bank
offsets such factors with requiring more owner equity, a lower loan to value
ratio and by obtaining the personal guaranties of the principals. In addition, a
majority of the Bank's commercial real estate portfolio is owner-occupied
property.

Commercial loans and leases are considered to have a higher degree of credit
risk than secured real estate lending. The repayment of unsecured commercial
business loans is wholly dependent on the success of the borrower's business,
while secured commercial business loans may be secured by collateral that may
not be readily marketable in the event of default. Municipal financing includes
lending to local taxing authorities and revenue-producing projects. Such loans
may constitute the general obligation of the taxing authority or may rely on a
specific revenue source which is responsible for the repayment of the debt.
General obligations are considered to carry a lower level of risk than other
loan types since they are backed by the full faith and credit of the taxing
authority. Revenue obligations are backed solely by revenues generated by the
project financed and repayment may be affected by the success of the project.

Due to the type and nature of the collateral, consumer lending generally
involves more credit risk when compared with residential real estate lending.
Consumer lending collections are typically dependent on the borrower's
continuing financial stability, and thus, are more likely to be adversely
affected by job loss, divorce, illness and personal bankruptcy. In most cases,
any repossessed collateral for a defaulted consumer loan will not provide an
adequate source of repayment of the outstanding loan balance. The remaining
deficiency is usually turned over to a collection agency.

There are additional risks associated with indirect lending since we must rely
on the dealer to provide accurate information to us and accurate disclosures to
the borrowers. These loans are principally done on a non-recourse basis. We seek
to mitigate these risks by only dealing with dealers with whom we have a
long-standing relationship.

The Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank
Act") prohibits lenders from making residential mortgages unless the lender
makes a reasonable and good faith determination that the borrower has a
reasonable ability to repay the mortgage loan according to its terms. A borrower
may recover statutory damages equal to all finance charges and fees paid within
three years of a violation of the ability-to-repay rule and may raise a
violation as a defense to foreclosure at any time. As authorized by the
Dodd-Frank Act, the Consumer Financial Protection Bureau ("CFPB") has adopted
regulations defining "qualified mortgages" that are presumed to comply with the
Dodd-Frank Act's ability-to-repay rules. Under the CFPB regulations, qualified
mortgages must satisfy the following criteria: (i) no negative amortization,
interest-only payments, balloon payments, or term greater than 30 years; (ii) no
points or fees in excess of 3% of the loan amount for loans over $100,000; (iii)
borrower's income and assets are verified and documented; and (iv) the
borrower's debt-to-income ratio generally may not exceed 43%. Qualified
mortgages are conclusively presumed to comply with the ability-to-pay rule
unless the mortgage is a "higher cost" mortgage, in which case the presumption
is rebuttable. Under the Economic Growth, Regulatory Relief, and Consumer
Protection Act ("EGRRCPA"), enacted in 2018, residential mortgages originated
for portfolio by insured depository institutions, like the Bank, with less than
$10 billion in total consolidated assets will be treated as qualified mortgages;
provided that the mortgage terms do not include interest-only payments or
negative amortization, total points and fees do not exceed 3% of the loan
amount, prepayment penalties are not in excess of those permitted for qualified
mortgages under Regulation Z and the lender has considered and documented the
debt, income and financial resources of the borrower.

The Bank has established various lending limits for its officers and also
maintains an Officer Loan Committee to approve higher loan amounts. The Officer
Loan Committee is comprised of the President and Chief Executive Officer, Chief
Lending Officer and other Bank officers. The Officer Loan Committee has the
authority to approve all loans up to set limits based on the type of loan and
the collateral. Requests in excess of these limits must be submitted to the
Directors' Loan Committee or Board of Directors for approval. Additionally, the
President and Chief Executive Officer, and the Chief Lending Officer and other
officers have the authority to approve secured and unsecured loans up to amounts
approved by the Board of Directors and maintained in the Bank's Loan Policy.
Notwithstanding individual lending authority, certain loan policy exceptions
must be submitted to the Officer Loan Committee for approval.

Risk insurance coverage is required on all properties securing loans made by the Bank. Flood insurance is also required, if applicable.

Loan applicants are notified of the credit decision by letter. If the loan is
approved, the loan commitment specifies the terms and conditions of the proposed
loan including the amount, interest rate, amortization term, a brief description
of the required collateral, and the required insurance coverage. The borrower
must provide proof of fire, flood (if applicable) and casualty insurance on the
property serving as collateral and title insurance, and these applicable
insurances must be maintained during the full term of the loan.

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Below are selected data relating to the composition of the Bank’s loan portfolio on the dates indicated.

                                                              As of December 31,
                             2020                 2019                2018                2017                2016
                           $          %         $         %         $         %         $         %         $         %
                                                            (dollars in thousands)
Real
Estate-Residential    $   263,127    18.6   $ 229,781    24.9   $ 235,523    27.7   $ 235,759    30.8   $ 237,177    33.2
Real
Estate-Commercial         579,104    41.0     391,327    42.3     374,790    44.1     342,934    44.9     320,187    44.8
Real
Estate-Agricultural        66,334     4.7           -       -           -       -           -       -           -       -
Real
Estate-Construction        21,005     1.5      17,732     1.9      17,445       2      17,228     2.3      19,709     2.8
Commercial loans          283,741    20.1     134,150    14.5     110,542      13      97,461    12.7      85,508      12
Other agricultural
loans                      40,929     2.9           -       -           -       -           -       -           -       -
Consumer loans            158,049    11.2     151,686    16.4     112,002   

13.2 70 953 9.3 51 524 7.2

                        1,412,289   100.0     924,676   100.0     850,302   100.0     764,335   100.0     714,105   100.0
Deferred fees, net        (1,557)                (95)               (120)               (243)               (216)
Allowance for loan
losses                   (13,150)             (8,509)             (8,452)             (7,634)             (6,463)
Loans receivable,
net                   $ 1,397,582           $ 916,072           $ 841,730           $ 756,458           $ 707,426


The following table sets forth maturities and interest rate sensitivity for
selected categories of loans as of December 31, 2020. Scheduled repayments are
reported in the maturity category in which payment is due. Demand loans, loans
having no stated schedule of repayments and no stated maturity and overdrafts
are reported as due in one year or less.

                            One Year    After One to       Over
                             or Less     Five Years     Five Years     Total
                                          (dollars in thousands)
Commercial loans            $  35,679  $      149,620  $     98,442  $ 283,741
Real Estate - Construction      3,042           1,433        16,530     21,005
Total                       $  38,721  $      151,053  $    114,972  $ 304,746

Loans with fixed rates      $  11,952  $      139,470  $     67,409  $ 218,831
Loans with floating rates      30,837          17,770        37,308     85,915
Total                       $  42,789  $      157,240  $    104,717  $ 304,746

allowance for loan losses

The allowance for loan losses totaled $13,150,000 as of December 31, 2020 and
represented 0.93% of total loans receivable compared to $8,509,000 and 0.92% of
total loans as of year-end 2019. Net charge-offs for 2020 totaled $809,000 and
represented 0.07% of average loans compared to $1,193,000 and 0.13% of average
loans in 2019.

Management assesses the adequacy of the allowance for loan losses on a quarterly
basis. The process includes a review of the risks inherent in the loan
portfolio. It also includes an analysis of impaired loans and a historical
review of losses. Other factors considered in the analysis include:
concentrations of credit in specific industries in the commercial portfolio, the
local and regional economic conditions, trends in delinquencies, internal risk
rating classifications, total loan growth in the portfolio and fluctuations in
large balance credits. During 2020, the Company added qualitative factors for
Covid-19 related industries and for loans which have received deferral of
payment due to Covid-19 factors. For loans acquired, including those that are
not deemed impaired at acquisition, credit discounts representing the principal
losses expected over the life of the loan are a component of the initial fair
value. Subsequent to the purchase date, the methods utilized to estimate the
required allowance for credit losses for these loans is similar to originated
loans; however, the Company records a provision for loan losses only when the
required allowance exceeds any remaining credit discounts.

The Company has limited exposure to higher-risk loans. The Company does not
originate option ARM products, interest only loans, sub-prime loans or loans
with initial teaser rates in its residential real estate portfolio. The Company
has $9.7 million of junior lien home equity loans. For 2020, there were no
charge-offs for this portfolio.

As of December 31, 2020, the Company considered its concentration of credit risk
profile to be acceptable. The highest concentrations are in commercial rentals
and the residential rentals categories.

During 2020, the Company recognized an increase in its adversely classified
loans due primarily to loan balances acquired from UpState. The loans were
accounted for in accordance with ASC 310-30, and were appropriately recorded at
fair value after recording a specific loan fair value adjustment of $6,937,000.
The Company assesses a loss factor against the classified loans, which is

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based on prior experience. Classified loans that are considered impaired are
measured on a loan-by-loan basis. The Company values such loans by either the
present value of expected cash flows, the loan's obtainable market price or the
fair value of collateral if the loan is collateral dependent.

At December 31, 2020, the recorded investment in impaired loans, not requiring
an allowance for loan losses, was $2,662,000 (net of charge-offs against the
allowance for loan losses of $652,000). The recorded investment in impaired
loans, requiring an allowance for loan losses, was $0. At December 31, 2019, the
recorded investment in impaired loans not requiring an allowance for loan
losses, was $143,000 (net of charge-offs of $251,000). The recorded investment
in impaired loans, requiring an allowance for loan losses, was $2,001,000 (net
of charge-offs of $0).

Following its analysis, after applying these factors, management considers the provision from December 31, 2020, adequate. However, there can be no assurance that the allowance for loan losses will be sufficient to cover material losses that may be incurred in the future.

The following table presents information relating to the Bank’s allowance for loan losses for the years indicated:

                                         As of December 31,
                    2020          2019          2018          2017          2016
                                       (dollars in thousands)
Total loans
receivable net
of deferred
fees             $ 1,410,732   $   924,581   $   850,182   $   764,092   $  

713 889

Average loans
receivable         1,177,773       885,742       800,957       737,765       626,907

Allowance
balance at
beginning of
period           $     8,509   $     8,452   $     7,634   $     6,463   $     7,298

Charge-offs:
Commercial and
agricultural            (18)         (911)         (246)             -          (15)
Real Estate -
residential,
commercial,
agricultural
and
construction           (493)         (102)         (480)       (1,013)       (2,834)
Consumer               (431)         (420)         (263)         (207)         (102)

Total                  (942)       (1,433)         (989)       (1,220)       (2,951)

Recoveries:
Commercial and
agricultural              44           173             8             -             -
Real Estate -
residential,
commercial,
agricultural
and
construction              45            24            42           165            21
Consumer                  44            43            32            26            45

Total                    133           240            82           191            66

Net
Charge-offs            (809)       (1,193)         (907)       (1,029)       (2,885)

Provision
Expense                5,450         1,250         1,725         2,200         2,050
Allowance
balance at end
of period        $    13,150   $     8,509   $     8,452   $     7,634   $     6,463

Allowance for
loan losses as
a percent of
total loans
outstanding             0.93 %        0.92 %        0.99 %        1.00 %        0.91 %

Net loans
charged off as
a percent of
average loans
outstanding             0.07 %        0.13 %        0.11 %        0.14 %        0.46 %


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The following table sets forth the allocation of the Bank's allowance for loan
losses by loan category and the percent of loans in each category to total loans
at the date indicated. The allocation is made for analytical purposes and is not
necessarily indicative of the categories in which credit losses may occur. The
total allowance is available to absorb losses from any type of loan.

                                                             As of December 31,
                      2020                    2019                   2018                   2017                   2016
                            % of                   % of                   % of                   % of                   % of
                           Loans                  Loans                  Loans                  Loans                  Loans
                          to Total               to Total               to Total               to Total               to Total
                Amount     Loans       Amount     Loans       Amount     Loans       Amount     Loans       Amount     Loans
                                                           (dollars in thousands)
Real estate
-
residential    $  1,960       18.6 %   $ 1,552       24.9 %   $ 1,328       27.7 %   $ 1,272       30.8 %   $ 1,092       33.2 %
Real estate
- commercial      8,004       41.0       4,687       42.3       5,455       44.1       5,265       44.9       4,623       44.8
Real estate
-
agricultural          -        4.7           -          -           -          -           -          -           -          -
Real estate
-
construction        150        1.5          95        1.9          93      

2 90 2.3 78 2.8 Commercial 1,360 20.1 949 14.5 712

  13         463       12.7         307         12
Other
agricultural
loans                 -        2.9           -          -           -          -           -          -           -          -

Consumer 1,676 11.2 1,226 16.4 864 13.2 544 9.3 363 7.2 Total $ 13,150 100% $ 8,509 100% $ 8,452

        100 %   $ 7,634        100 %   $ 6,463        100 %


As a result of the acquisition of UpState, the Company added $107.3 million of
agricultural loans to the loan portfolio. These loans are included in the
outstanding balance information, but do not require an allocation of the
allowance for loan losses since they were recorded at fair value in accordance
with ASC 310-20 and ASC 310-30.

Additional information about the allowance for loan losses at December 31, 2020
is presented under "Item 1. Business" of this Annual Report on Form 10-K, as
well as in Note 2 and Note 4 to the audited consolidated financial statements.

Non-performing assets

Non-performing assets consist of non-performing loans and real estate owned as a
result of foreclosure, which is held for sale. Loans are placed on non-accrual
status when management believes that a borrower's financial condition is such
that collection of interest is doubtful. Commercial and real estate related
loans are generally placed on non-accrual when interest is 90 days delinquent.
When loans are placed on non-accrual, unpaid interest credited to income in the
current year is reversed and unpaid interest accrued in prior years is charged
against the allowance for loan losses.

As of December 31, 2020, non-performing loans totaled $3,391,000 and represented
0.24% of total loans compared to $795,000 or 0.09% as of December 31, 2019. The
increase in the level of non-performing loans reflects the addition of $939,000
of loans acquired from UpState that experienced a deterioration in credit
quality subsequent to the acquisition date. Based on management's analysis, the
Company added $5,450,000 to the allowance for loan losses for the year ended
December 31, 2020 compared to $1,250,000 in 2019.

Foreclosed real estate owned totaled $965,000 as of December 31, 2020 and
$1,556,000 as of December 31, 2019. During 2020, one property with a carrying
value of $591,000 was disposed of through a sale. The Company recorded a net
gain of $12,000 from the sale of the property.

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The following table sets forth information regarding non-accrual loans,
foreclosed real estate owned and loans 90 days or more delinquent on which the
Bank was accruing interest at the dates indicated. At December 31, 2020, 2019,
2018, 2017, and 2016, the Company also had $75,000, $99,000, $1.1 million,
$1.1 million, and $1.5 million, respectively, in troubled debt restructurings.
For the year ended December 31, 2020, interest income that would have been
recorded on loans accounted for on a non-accrual basis under the original terms
of such loans was $727,000 of which $148,000 was recognized. For those loans
classified as troubled debt restructurings, interest income that would have been
recorded under the original terms of the loans for fiscal year 2020 was $16,000
of which $0 was recognized. Of those loans classified as troubled debt
restructurings at December 31, 2020, one loan with a balance of $75,000 is
included in non-accrual loans.

                                                  As of December 31,
                                 2020        2019        2018        2017        2016
                                                (dollars in thousands)
Non-accrual loans:
Real Estate loans
Residential                    $     571   $     567   $     798   $   1,706   $   1,136
Commercial                         1,674          99         342         277         762
Agricultural                         676           -           -           -           -
Construction                           -           -           -           -          28
Commercial                            22          50           -           -           -
Other agricultural loans             263           -           -           -           -
Consumer loans                       185          79           -           -           -
Total non-accrual loans*           3,391         795       1,140       1,983       1,926

Accruing loans which are
contractually past-due 90
days or more                           -           -           -         496           1

Total non-performing loans         3,391         795       1,140       2,479       1,927
Foreclosed real estate               965       1,556       1,115       1,661       5,302
Total non-performing assets    $   4,356   $   2,351   $   2,255   $   4,140   $   7,229
Purchased credit impaired
loans (a)                      $   9,281   $     696   $       -   $       -   $       -
Allowance for loan losses      $  13,150   $   8,509   $   8,452   $   7,634   $   6,463
Coverage of non-performing
loans (a) (b)                        388 %     1,070 %       741 %       308 %       335 %
Total non-performing loans
to total loans                      0.24 %      0.09 %      0.13 %      0.32 %      0.27 %
Total non-performing loans
to total assets                     0.18 %      0.06 %       0.1 %      0.22 %      0.17 %
Total non-performing assets
to total assets                     0.24 %      0.19 %      0.19 %      0.37 %      0.65 %


*Includes non-accrual TDRs of $75,000, $99,000, $110,000, $144,000, and $477,000
as of December 31, 2020, 2019, 2018, 2017 and 2016, respectively. The Company
also had $0, $0, $977,000, $996,000, and $1.0 million in accruing TDRs,
respectively, on those dates.

(a) Purchased impaired loans are loans obtained in acquisition transactions that
as of the acquisition date were specifically identified as displaying signs of
credit deterioration and for which the Company did not expect to collect all
contractually required principal and interest payments. Those loans were
impaired at the date of acquisition, were recorded at estimated fair value and
were generally delinquent in payments. The Company estimated the timing and
amount of expected cash flows in excess of the estimated fair value and
established an accretable discount on the acquisition date relating to these
impaired loans that is recognized in interest income.

(b) For loans acquired with specific evidence of deterioration in credit quality, a specific credit fair value adjustment is established at the acquisition date and will not impact the allowance for loan losses. unless the actual losses exceed the established fair value adjustment.

The recorded investment in impaired loans, not requiring an allowance for loan
losses was $2,662,000 (net of a charge-off against the allowance for loan losses
of $652,000) and $143,000 (net of a charge-off against the allocation for loan
losses of $251,000) at December 31, 2020 and 2019, respectively. The recorded
investment in impaired loans, requiring an allowance for loan losses was $0 at
December 31, 2020. The recorded investment in impaired loans, requiring an
allowance for loan losses was $2.0 million (net of a charge-off against the
allowance for loan losses of $0) at December 31, 2019. The specific reserve
related to impaired loans was $0 for 2020 and $417,000 for 2019. For the years
ended December 31, 2020 and 2019, the average recorded investment in these
impaired loans was $2,121,000 and $1,036,000, respectively, and the interest
income recognized on these impaired loans was $14,000 and $233,000,
respectively. In connection with the UpState acquisition, the Company acquired
loans with deteriorated credit quality with an unpaid balance of $15.4 million,
which are being carried at their fair value of $8,616,000. In connection with
prior acquisitions, the Company acquired loans with deteriorated credit quality
with an unpaid balance of $2.6 million, which are being carried at their fair
value of $665,000.

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As of December 31, 2020, there were no loans not previously disclosed in the
above table, where known information about possible credit problems of borrowers
causes management to have serious doubts as to the ability of such borrowers to
comply with the present loan repayment terms.

Troubled debt restructured loans are those loans whose terms have been
renegotiated to provide a reduction or deferral of principal or interest as a
result of financial difficulties experienced by the borrower, who could not
obtain comparable terms from alternate financing sources. During 2020, there
were no new loan relationships identified as troubled debt restructures.

Management has instituted an internal loan review program, whereby weaker
credits are classified as special mention, substandard, doubtful or loss. When a
loan is classified as substandard or doubtful, management is required to
establish a valuation reserve for loan losses in an amount that is deemed
prudent. When management classifies a loan as a loss asset, a reserve equal to
100% of the loan balance is required to be established or the loan is to be
charged-off. The allowance for loan losses is composed of an allowance for both
inherent risk associated with lending activities and particular problem assets.

An asset is considered substandard if it is inadequately protected by the paying
capacity and net worth of the obligor or the collateral pledged, if any.
Substandard assets include those characterized by the distinct possibility that
the Bank will sustain some loss if the deficiencies are not corrected. Assets
classified as doubtful have all of the weaknesses inherent in those classified
substandard, with the added characteristic that the weaknesses present make
collection or liquidation in full, highly questionable and improbable, on the
basis of currently existing facts, conditions, and values. Assets classified as
loss are those considered uncollectible and of such little value that their
continuance as assets without the establishment of a loss reserve is not
warranted. Assets which do not currently expose the insured institution to a
sufficient degree of risk to warrant classification in one of the aforementioned
categories but possess credit deficiencies or potential weaknesses are required
to be designated special mention by management.

Management's evaluation of the classification of assets and the adequacy of the
allowance for loan losses is reviewed by the Board on a regular basis and by the
regulatory agencies as part of their examination process.

The following table shows, on the dates indicated, the assets classified by the Bank in accordance with its asset classification system:

                                As of December 31,
                   2020      2019      2018      2017      2016
                                  (In thousands)
Special mention  $ 14,680  $ 12,516  $  8,000  $  9,696  $  6,317
Substandard        13,021     3,157     6,620     5,536     4,346
Doubtful                -         -         -         -         -
Loss                    -         -         -         -         -
Total            $ 27,701  $ 16,319  $ 14,620  $ 15,232  $ 10,663


During the twelve-months ended December 31, 2020, over 1,200 of our loan
customers had requested loan payment deferrals or payments of interest only on
loans totaling $274.2 million. In accordance with interagency guidance issued in
March 2020, these short-term deferrals are not considered troubled debt
restructurings ("TDRs") unless the borrower was previously experiencing
financial difficulty.

Additional information on non-performing assets at December 31, 2020 is presented under the heading “Item 1. Business” of this annual report on Form 10-K, as well as in Note 4 to the audited consolidated financial statements.

Securities

The securities portfolio consists of U.S. Government agencies, mortgage-backed
securities issued by government sponsored entities, municipal obligations, and
corporate debt. The Company classifies its investments into two categories: held
to maturity (HTM) and available for sale (AFS). The Company does not have
trading securities. Securities classified as HTM are those in which the Company
has the ability and the intent to hold the security until contractual maturity.
As of December 31, 2020, there were no securities carried in the HTM portfolio.
Securities classified as AFS are eligible to be sold due to liquidity needs or
interest rate risk management. These securities are adjusted to and carried at
their fair value with any unrealized gains or losses recorded net of deferred
income taxes, as an adjustment to capital and reported in the equity section of
the Consolidated Balance Sheet as other comprehensive income. As of December 31,
2020, $226.6 million of securities were so classified and carried at their fair
value, with unrealized gains, net of tax, of $4,096,000 included in accumulated
other comprehensive income as a component of stockholders' equity. The Company
considers its investment portfolio a source of earnings and liquidity.
Investment securities may also be pledged to secure public deposits and customer
repurchase agreements.

As of December 31, 2020, the average life of the portfolio was 3.5 years. The
Company has maintained a relatively short average life in the portfolio in order
to generate cash flow to support loan growth and maintain liquidity levels.
Purchases for the year

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totaled $ 82.4 million, while the deadlines and the main reductions totaled
$ 58.9 million and the sales proceeds were $ 24.5 million. The purchases were funded primarily by cash flow generated by the portfolio and excess overnight liquidity.

The carrying value of the securities portfolio at December 31 is as follows:

                                         2020                       2019
                                              (dollars in thousands)
                                Carrying       % of         Carrying       % of
                                  Value      portfolio        Value      portfolio

Government of the United States agencies $ 3,969 1.8% $ –

     - %
States and political
subdivisions                        73,091        32.3 %        71,305        33.9 %
Corporate obligations                3,032         1.3 %         4,100         2.0 %
Mortgage-backed securities -
government sponsored entities      146,494        64.6 %       134,800        64.1 %
Total                          $   226,586       100.0 %   $   210,205       100.0 %

The amortized cost and fair values ​​of the securities, all of which are classified as available for sale, on the dates indicated are as follows:

                                        As of December 31,
                                    2020       2019       2018
                                          (in thousands)

Government of the United States agencies $ 3,998 – $ – $ – Government and political subdivisions 70 672 70 015 99 218 Corporate bonds

                 3,019      4,097      8,896

Mortgage Backed Securities – Government Sponsored Entities 143,712 135,646 142,197
Total titles

                  $ 221,401  $ 209,758  $ 250,311

Fair value of securities $ 226,586 $ 210,205 $ 243,277


The following table sets forth certain information regarding carrying values,
weighted average yields, and maturities of the Company's securities portfolio as
of December 31, 2020. Yields on tax-exempt securities are stated on a fully
taxable equivalent basis using a Federal tax rate of 21%. Actual maturities may
differ from contractual maturities as certain instruments have call features
which allow prepayment of obligations. Maturity on the mortgage-backed
securities is based upon contractual terms, the average life may differ as a
result of changes in cash flow.

                                                        After One                  After Five                                     Total Investment
                          One Year or Less          Through Five Years          Through Ten Years         After Ten Years            Securities
                         Carrying    Average      Carrying        Average      Carrying     Average     Carrying    Average      Carrying    Average
                          Value       Yield        Value           Yield         Value       Yield        Value      Yield        Value       Yield
                                                                           (dollars in thousands)
U.S. Government
agencies                $        -         - %   $        -             - %   $     3,969      1.03 %   $       -         - %   $    3,969      1.03 %
State and political
subdivision                  2,500      2.93          5,510          3.00          19,707      2.74        45,374      3.03         73,091      2.95
Corporate obligations        3,032      2.04              -             -               -         -             -         -          3,032      2.04
Mortgage-backed
securities-government
sponsored entities               -         -              -             -               -         -       146,494      1.52        146,494      1.52

Total Investment
Securities              $    5,532      2.44 %   $    5,510          3.00 %   $    23,676      2.45 %   $ 191,868      1.88 %   $  226,586      1.98 %


The portfolio had no adjustable-rate instruments as of December 31, 2020 and
2019. The portfolio contained no private label mortgage-backed securities,
collateralized debt obligations (CDOs), or trust preferred securities, and no
off-balance sheet derivatives were in use. As of December 31, 2020, the
portfolio did not contain any step-up bonds. The mortgage-backed securities
portfolio includes pass-through bonds and collateralized mortgage obligations
(CMO's) issued by Fannie Mae, Freddie Mac and the Government National Mortgage
Association (GNMA).

The Company evaluates the securities in its portfolio for
other-than-temporary-impairment (OTTI) as fair value declines below cost. In
estimating OTTI, management considers (1) the length of time and the extent of
the decline in fair value and (2) the financial

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condition and near-term prospects of the issuer. As of December 31, 2020, the
Company held six investment securities in a loss position, which had a combined
unrealized loss of $56,000. Management believes that these losses are
principally due to changes in interest rates and represent temporary impairment
as the Company does not have the intent to sell these securities and it is more
likely than not that it will not have to sell the securities before recovery of
their cost basis. No impairment charges were recognized in 2020 or 2019.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company uses fair value measurements to record fair value adjustments to
certain financial instruments and determine fair value disclosures (see Note 16
of Notes to the Consolidated Financial Statements).

Approximately $226.6 million, which represents 12.2% of total assets at
December 31, 2020, consisted of financial instruments recorded at fair value on
a recurring basis. This amount consists entirely of the Company's available for
sale securities portfolio. The Company uses valuation methodologies involving
market-based or market-derived information, collectively Level 1 and 2
measurements, to measure fair value. There were no transfers into or out of
Level 3 for any instruments for the years ended December 31, 2020 and 2019.

The Company utilizes a third party provider to perform valuations of the
investments. Methods used to perform the valuations include: pricing models that
vary based on asset class, available trade and bid information, actual
transacted prices, and proprietary models for valuations of state and municipal
obligations. In addition, the Company has a sample of fixed-income securities
valued by another independent source. The Company does not adjust values
received from its providers, unless it is evident that fair value measurement is
not consistent with the Company's policies.

The Company also utilizes a third party provider to provide the fair value of
certain loan servicing rights. Fair value for the purpose of this measurement is
defined as the amount at which the asset could be exchanged in a current
transaction between willing parties, other than in a forced liquidation. The
fair value of mortgage servicing rights as of December 31, 2020 and 2019 was
$476,000 and $226,000, respectively.

DEPOSITS

The Bank provides a full range of deposit products to its retail and business
customers. These include interest-bearing and noninterest bearing transaction
accounts, statement savings and money market accounts. Certificate of deposit
terms range up to five years for retail instruments. As of December 31, 2020,
the Bank has $18,845,000 of brokered deposits obtained through internet listing
services, and $10,292,000 of broker deposits which were secured through Cede &
Co. All of these brokered deposits were acquired from UpState. The Bank has no
current brokered deposits through its participation in the Certificate of
Deposit Account Registry Service ("CDARS"). The Bank participates in the Jumbo
CD ($100,000 and over) markets with local municipalities and school districts
which are typically priced on a competitive bid basis. Other services the Bank
offers its customers include cash management, direct deposit, Remote Deposit
Capture, mobile deposit capture, PopMoney® mobile payments and Automated
Clearing House (ACH) activity. The Bank operates thirty-one automated teller
machines and is affiliated with the MoneyPass® ATM network. Internet banking
including bill-pay is offered through the website at www.waynebank.com. Other
services, such as eStatements and mobile banking are available online.

The following table sets forth information regarding deposit categories of the
Company.

                                               Years Ended December 31,
                               2020                       2019                      2018
                              Average                    Average                   Average
                        Balance     Rate Paid      Balance    Rate Paid    
 Balance    Rate Paid
                                                (dollars in thousands)
Noninterest-bearing
demand                $   297,175           - %   $ 213,165           - %   $ 208,222           - %
Interest-bearing
demand                    123,172        0.13        95,333        0.16        91,782        0.10
Money Market              185,214        0.28       134,579        0.38       142,147        0.26
Savings                   200,042        0.06       170,167        0.06       178,203        0.05
Time                      457,844        1.27       356,282        1.79       322,768        1.27
Total                 $ 1,263,447                 $ 969,526                 $ 943,122


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The following table indicates the amount of term deposits of the Bank of $ 100,000
or more depending on the time remaining until maturity from December 31, 2020.

                                     Amount
Maturity Period                  (in thousands)
Within three months             $         80,453
Over three through six months             82,906
Over six through twelve months            87,609
Over twelve months                       106,627
                                $        357,595


Total deposits as of December 31, 2020, totaled $1.535 billion, an increase of
$577.9 million from year-end 2019. Deposit growth included $411.4 million of
deposits acquired from UpState. Organic growth included $120.0 million in
non-maturity interest-bearing deposits, and $75.0 million in non-interest
bearing demand deposits. The large increases recorded in 2020 reflect the cash
inflow from economic stimulus related to the Covid-19 pandemic. Time deposits
decreased $31.3 million, net of acquired deposits.

Time deposits over $250,000, which consist principally of school district funds,
other public funds and short-term deposits from large commercial customers with
maturities generally less than one year, totaled $205,376,000 million as of
December 31, 2020, compared to $133.9 million at year-end 2019. These deposits
are subject to competitive bid and the Company bases its bid on current interest
rates, loan demand, investment portfolio structure and the relative cost of
other funding sources.

As of December 31, 2020, non-interest bearing demand deposits totaled
$359.6 million compared to $207.3 million at year-end 2019. Cash management
accounts in the form of securities sold under agreements to repurchase included
in short-term borrowings, totaled $63.3 million at year end 2020 compared to
$30.5 million as of December 31, 2019. These balances represent commercial and
municipal customers' funds invested in overnight securities. The Company
considers these accounts as a source of core funding.

LOANS

The following table sets forth information concerning the Bank's short-term
borrowings (those with original maturities within one year) which consist
principally of securities sold under agreements to repurchase, short-term
fixed-rate FHLB advances and federal funds purchased during the periods
indicated. Securities sold under repurchase agreements consist of commercial and
municipal customers' funds invested in overnight securities for cash management
purposes.

                                                           Years Ended December 31,
                                                         2020         2019        2018
                                                            (dollars in thousands)
Short-term borrowings:
Average balance during the year                        $  57,014    $ 48,945    $ 41,963
Maximum month-end balance during the year              $  69,294    $ 62,256    $ 53,046
Average interest rate during the year                       0.55 %      0.96 %      0.77 %
Total short-term borrowings at end of the year         $  63,303    $ 62,256    $ 53,046
Weighted average interest rate at the end of the year       0.43 %      1.30 %      1.27 %


Other borrowings consist of long-term borrowings with the Federal Home Loan Bank
of Pittsburgh. These borrowings, which are more fully described in Note 7 of
Notes to the Consolidated Financial Statements, totaled $42.5 million and
$56.4 million as of December 31, 2020 and 2019, respectively.

RESULTS OF OPERATIONS

summary

Net income for the Company for the year ended December 31, 2020 was $15,080,000,
which was $865,000 higher than the $14,215,000 earned in 2019. Earnings per
share on a fully diluted basis were $2.09 for 2020 compared to $2.25 in 2019.
The return on average assets for the year was 0.97% with a return on average
equity of 9.06%, compared to 1.18% and 10.83%, respectively, in 2019. Net
interest income increased $11,870,000, which offset a $4,200,000 increase in the
provision for loan losses and the $7,129,000 increase in other expenses. The
variances reflect the results of the acquisition of UpState.

Net interest income (fully taxable equivalent, or fte) totaled $51,359,000,
which was an increase of $11,747,000 from the 2019 total. Average loans
outstanding increased $292.0 million in 2020, which resulted in an increase in
fte interest income of $12,197,000. Total average securities decreased
$29.5 million in 2020 as proceeds were utilized to fund loan growth, resulting
in a $1,140,000 decrease in fte interest income on securities. Average
interest-bearing deposits increased $209.9 million, but decreasing interest
rates

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on certificates of deposit resulted in a $529,000 reduction in interest expense.
The cost of borrowed funds decreased $170,000 compared to the prior year due
primarily to a lower cost of borrowings. The resulting fte net interest spread
increased eight basis points to 3.36% in 2020 as a 20 basis point reduction in
the yield earned was offset by a 28 basis point decrease in the cost of funds.
All variances include the impact from the acquisition of UpState.

Loans receivable increased $486.2 million from the prior year-end. Loan growth
included a $376.9 million increase in commercial loans, including a
$189.1 million increase in commercial, financial and agriculture loans, and a
$187.8 million increase in commercial real estate loans. Retail loans increased
$109.3 million in 2020 due to a $66.3 million increase in real estate loans
secured by farmland and a $6.0 million increase in indirect auto and marine
financing. Residential mortgage loans and construction loans also increased
$36.6 million, net. Total non-performing loans increased from $795,000, or 0.09%
of total loans at the end of 2019, to $3,391,000, or 0.24% of total loans on
December 31, 2020. Net charge-offs totaled $809,000 in 2020, which was a
decrease from the $1,193,000 recorded in 2019. Based on management's analysis,
the Company determined that it would be appropriate to allocate $5,450,000 to
the allowance for loan losses in 2020, which resulted in an increase in the
ratio of the allowance for loan losses to total loans outstanding of 0.93% in
2020 compared to 0.92% on December 31, 2019. The allowance for loan losses
represented 388% of total non-performing loans on December 31, 2020 compared to
1,070% as of December 31, 2019.

Total other income for the year ended December 31, 2020 totaled $7,780,000
compared to $6,778,000 in the prior year, an increase of $1,002,000. Gains on
the sale of loans and investment securities increased $175,000 in the aggregate,
while service charges and fees increased $665,000. The increase reflects the
benefits derived from the acquisition of UpState.

Other expenses were $34,440,000 in 2020 compared to $27,311,000 for the similar
period in 2019, an increase of $7,129,000. Salaries and benefits costs increased
$2,466,000 in 2020, while data processing costs increased $588,000. Occupancy
and equipment costs rose $429,000, and merger related costs increase $2,049,000.
All other operating expenses increased $1,597,000, net. The increases reflect
the cost of operating four new community offices acquired from UpState. Income
tax expense for the year totaled $3,286,000, which was an increase of $678,000
from the prior year. The effective tax rate in 2020 was 17.9% compared to 15.5%
in 2019.

The following table shows the change in net income (in thousands):

Net income 2019                            $  14,215
Net interest income                           11,870
Provision for loan losses                    (4,200)

Net capital gains on disposals of loans and securities 175 Other income

                                     827
Salaries and employee benefits               (2,466)
Occupancy, furniture and equipment             (429)
Data processing and related operations         (588)
Merger related expenses                      (2,049)
Other expenses                               (1,597)
Income tax expense                             (678)
Net income 2020                            $  15,080


NET INTEREST INCOME

Net interest income is the most significant source of revenue for the Company
and represented 86.6% of total revenue for the year ended December 31, 2020. Net
interest income (fte) totaled $51,359,000 for the year ended December 31, 2020
compared to $39,612,000 for 2019, an increase of $11,747,000. The resulting fte
net interest spread and net interest margin were 3.36% and 3.55%, respectively,
in 2020 compared to 3.28% and 3.53%, respectively, in 2019.

Interest income (fte) for the year ended December 31, 2020 totaled $59,338,000
compared to $48,290,000 in 2019. The fte yield on average earning assets was
4.10%, decreasing 20 basis points from the 4.30% reported last year. The
tax-equivalent yield on total loans decreased 15 basis points to 4.63% in 2020,
while average loans outstanding increased $292.0 million, resulting in an
increase in interest income (fte) from loans of $12.2 million. The yield on
securities decreased 19 basis points in 2020 due primarily to lower yields on
new purchases. Average securities outstanding decreased $29.5 million as cash
flow from the portfolio was utilized to fund loan growth, and interest income
(fte) from the portfolio decreased $1.1 million.

Interest expense was $7,979,000 in 2020 which resulted in an average cost of
interest-bearing liabilities of 0.74% compared to total interest expense of
$8,678,000 in 2019 with an average cost of 1.02%. Total interest-bearing
deposits cost was 0.68% in 2020, which was a decrease of 26 basis points over
the prior year. The decrease in cost was due primarily to time certificates of
deposit that repriced to current market rates upon maturity, resulting in a
decrease in the interest rate paid from 1.79% in 2019 to 1.27% in 2020.
Borrowing costs also decreased in 2020, reflecting the lower interest rate
environment.

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PROVISION FOR LOAN LOSSES

The provision for loan losses was $5,450,000 in 2020 compared to $1,250,000 in
2019. The increased provision for loan losses recorded in 2020 reflects the
economic impact from the COVID-19 pandemic and the qualitative factors that are
utilized to establish a subjective assessment of the adequacy of the allowance
for loan losses. Qualitative factors specific to the pandemic that were
developed in 2020 added $2.2 million to the required allowance for loan losses,
while the factor related to a deteriorating economy resulted in a $2.3 million
additional provision for loan losses.

Management assesses the adequacy of the allowance for loan losses on a quarterly
basis. The process includes a review of the risks inherent in the loan
portfolio. It also includes an analysis of impaired loans and a historical
review of losses. Other factors considered in the analysis include:
concentrations of credit in specific industries in the commercial portfolio, the
local and regional economic conditions, trends in delinquencies, internal risk
rating classifications, total loan growth in the portfolio and fluctuations in
large balance credits. For loans acquired, including those that are not deemed
impaired at acquisition, credit discounts representing the principal losses
expected over the life of the loan are a component of the initial fair value.
Subsequent to the purchase date, the methods utilized to estimate the required
allowance for credit losses for these loans is similar to originated loans;
however, the Company records a provision for loan losses only when the required
allowance exceeds any remaining credit discounts.

OTHER INCOME

Total other income was $7,780,000 for the year ended December 31, 2020 compared
to $6,778,000 in 2019, an increase of $1,002,000. Gains on the sale of loans and
investment securities increased $175,000 in the aggregate, while loan related
service charges and fees increased $725,000. The increase in loan related fees
reflects activity resulting from the acquisition of UpState. All other items of
other income increased $102,000, net.

Other income (in thousands of dollars)

For the year ended the 31st of December

                                                         2020     2019
Service charges on deposit accounts                     $   377  $   336
ATM Fees                                                    457      384
Overdraft Fees                                              985    1,380
Safe deposit box rental                                     102       94
Loan related service fees                                 1,416      691
Debit card                                                1,656    1,424
Fiduciary activities                                        682      610
Commissions on mutual funds & annuities                     122      141
Gains on sales of loans                                     527      169

Profits and income from life insurance held by banks 845 830 Other income

                                                540      465
                                                          7,709    6,524
Net realized gains on sales of securities                    71      254

Total                                                   $ 7,780  $ 6,778


OTHER EXPENSES

Other expenses totaled $34,440,000 for the year ended December 31, 2020 compared
to $27,311,000 in the prior year. The $7,129,000 increase in costs reflects the
additional costs related to the operations of the four new community offices
acquired from UpState, as well as the $2,049,000 of merger related costs.
Salaries and employee benefits costs increased $2,466,000 in 2020, while
occupancy and equipment costs increased $429,000 and data processing expenses
increased $588,000. All other operating expenses increased $1,597,000, net. The
Company's efficiency ratio, which measures total other expenses as a percentage
of net interest income (fte) plus other income, was 58.2% in 2020 compared to
58.9% in 2019.

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Other expenses (in thousands of dollars)

For the year ended the 31st of December

                                                             2020      2019
Salaries                                                   $ 10,903  $  9,208
Employee benefits                                             6,218     5,447
Occupancy                                                     3,128     2,936
Furniture and equipment                                       1,020       783
Data processing and related operations                        2,457     

1,869

Federal Deposit Insurance Corporation insurance assessment      399       153
Advertising                                                     385       267
Professional fees                                             1,062     1,113
Postage and telephone                                           983       834
Office supplies                                                 555       396
Taxes, other than income                                        997       751
Foreclosed real estate                                           53        45
Amortization of intangible assets                               114       101
Merger related                                                2,049         -
Other                                                         4,117     3,408
Total                                                      $ 34,440  $ 27,311


INCOME TAXES

Income tax expense for the year ended December 31, 2020 totaled $3,286,000,
which resulted in an effective tax rate of 17.9%, compared to $2,608,000 and
15.5% for 2019. The higher effective tax rate reflects the increase in taxable
income.

CAPITAL AND DIVIDENDS

Total stockholders' equity as of December 31, 2020, was $194.8 million, compared
to $137.4 million as of year-end 2019. The increase was due primarily to the
$45.3 million increase resulting from the acquisition of Upstate. Earnings
retention net of a $7.8 million reduction resulting from cash dividends
declared, also contributed to the increase. As of December 31, 2020 the Company
had a leverage capital ratio of 8.71%, a Tier 1 risk-based capital ratio and a
common equity Tier 1 risk-based capital ratio of 11.65%, and a total risk-based
capital ratio of 12.62%, compared to 10.33%, 13.08% and 13.98%, respectively, at
December 31, 2019.

NON-GAAP FINANCIAL MEASURES

This Annual Report contains or references tax-equivalent interest income and net
interest income, which are non-GAAP financial measures. Tax-equivalent interest
income and net interest income are derived from GAAP interest income and net
interest income using a marginal tax rate of 21%. We believe the presentation of
interest income and net interest income on a tax-equivalent basis ensures
comparability of interest income and net interest income arising from both
taxable and tax-exempt sources and is consistent with industry practice.

The following table reconciles net interest income to net interest income on a
tax-equivalent basis:

(dollars in thousands)               Years ended December 31,
                                     2020                   2019
Net interest income             $       50,476            $ 38,606
Tax-equivalent basis adjustment
using a 21% marginal tax rate              883               1,006
Net interest income on a fully
taxable equivalent basis        $       51,359              39,612


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AVERAGE CONSOLIDATED BALANCE SHEET WITH INTEREST AND RESULTING RATES

(equivalent tax base, in thousands of dollars)

Year Ended
December 31                         2020                                  2019
                       Average                  Average       Average                 Average
                       Balance      Interest     Rate         Balance     Interest     Rate
                          (2)           (1)                      (2)          (1)
ASSETS
Interest-earning
assets:
Interest-bearing
deposits with banks  $    65,812   $       72      0.11 %   $     3,469   $      81      2.33 %
Securities available
for sale:
Taxable                  150,019        2,914      1.94         148,825       3,277      2.20
Tax-exempt                53,502        1,801      3.37          84,225       2,578      3.06
Total securities
available for sale       203,521        4,715      2.32         233,050       5,855      2.51
Loans receivable
(3)(4)                 1,177,773       54,551      4.63         885,741      42,354      4.78
Total
interest-earning
assets                 1,447,106       59,338      4.10       1,122,260      48,290      4.30
Noninterest earning
assets:
Cash and due from
banks                     18,693                                 14,630
Allowance for loan
losses                  (10,388)                                (8,465)
Other assets             100,144                                 80,828
Total noninterest
earning assets           108,449                                 86,993
TOTAL ASSETS         $ 1,555,555                            $ 1,209,253
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing
liabilities:
Interest-bearing
demand and money
market               $   308,386          683      0.22     $   229,912         655      0.28
Savings                  200,042          112      0.06         170,167         100      0.06
Time                     457,844        5,815      1.27         356,282       6,384      1.79
Total
interest-bearing
deposits                 966,272        6,610      0.68         756,361       7,139      0.94
Short-term
borrowings                57,014          325      0.57          48,945         468      0.96
Other borrowings          50,286        1,044      2.08          43,743       1,071      2.45
Total
interest-bearing
liabilities            1,073,572        7,979      0.74         849,049       8,678      1.02
Noninterest-bearing
liabilities:
Noninterest-bearing
demand deposits          297,175                                213,165
Other liabilities         18,381                                 15,767
Total
noninterest-bearing
liabilities              315,556                                228,932
Stockholders' equity     166,427                                131,272
TOTAL LIABILITIES
AND STOCKHOLDERS'
EQUITY               $ 1,555,555                            $ 1,209,253

Net Interest
Income/spread
(tax equivalent
basis)                                 51,359      3.36 %                    39,612      3.28 %
Tax-equivalent basis
adjustment                              (883)                               (1,006)
Net Interest Income                $   50,476                             $  38,606
Net interest margin
(tax equivalent
basis)                                             3.55 %                                3.53 %

(1) Interest and yields are presented on a tax equivalent basis using a marginal tax rate of 21%.

(2) Average balances were calculated on the basis of daily balances.

(3) Loan balances include unrecorded loans and are net of unearned income.

(4) Loan returns include the effect of amortization of purchased credit brands and deferred charges net of costs.

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                                       25

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Contents

RATE / VOLUME ANALYSIS

The following table shows the fully taxable equivalent effect of variations in volumes and rates on interest income and expenses.

                                                Increase/(Decrease)
(dollars in thousands)                         2020 compared to 2019
                                                  Variance due to
                                            Volume     Rate        Net
INTEREST-EARNING ASSETS:
Interest-bearing deposits                  $    133  $   (142)  $     (9)
Securities available for sale:
Taxable                                          23      (386)      (363)
Tax-exempt securities                         (956)        179      (777)
Total securities available for sale           (933)      (207)    (1,140)
Loans receivable                             13,913    (1,716)     12,197
Total interest-earning assets                13,113    (2,065)     11,048

INTEREST-BEARING LIABILITIES Interest-bearing demand and money market 193 (165) 28 Savings

                                          12          -         12
Time                                          1,477    (2,046)      (569)
Total interest-bearing deposits               1,682    (2,211)      (529)
Short-term borrowings                            52      (195)      (143)
Other borrowings                                146      (173)       (27)
Total interest-bearing liabilities            1,880    (2,579)      (699)

Net interest income (tax base) $ 11,233 $ 514 $ 11,747

Changes in net interest income that could not be specifically identified as a change in rate or volume were allocated proportionally to changes in volume and changes in rate.

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