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Mifflinburg Bancorp, Inc . 2017 Annual Report

2017 Annual Report Report...To Our Shareholders, I am pleased to report to you, Mifflinburg Ban-corp, Inc.’s 2017 financial performance. We continued steady growth with total assets

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Page 1: 2017 Annual Report Report...To Our Shareholders, I am pleased to report to you, Mifflinburg Ban-corp, Inc.’s 2017 financial performance. We continued steady growth with total assets

Mifflinburg Bancorp, Inc.

2017 Annual Report

Page 2: 2017 Annual Report Report...To Our Shareholders, I am pleased to report to you, Mifflinburg Ban-corp, Inc.’s 2017 financial performance. We continued steady growth with total assets

TABLE OF CONTENTS

1

2

3

5

6

7

8

9

10

Letter from the President

Statistical Information

Independent Auditors’ Report

Consolidated Balance Sheets

Consolidated Statements of Income

Consolidated Statements of Comprehensive Income

Consolidated Statements of Changes in Stockholders’ Equity

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

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Page 3: 2017 Annual Report Report...To Our Shareholders, I am pleased to report to you, Mifflinburg Ban-corp, Inc.’s 2017 financial performance. We continued steady growth with total assets

To Our Shareholders,

I am pleased to report to you, Mifflinburg Ban-corp, Inc.’s 2017 financial performance. We continued steady growth with total assets in-creasing 4.3% to $425 million compared to $407 million in 2016. The primary driver of this growth was a 4.65% increase in net loans to $299 million giving us a stable loan to asset ratio of 70.4% compared to $285 million and 70.1% respectively in 2016. The loan growth was funded with increases in deposits and re-purchase agreements of $17.6 million or 5.3%. We also added $250,000 to the provision for loan losses maintaining a strong allowance for loan loss to total loans coverage of 1.32%. Our credit quality is solid with a 0.70% delinquen-cy ratio of noncurrent loans to total loans as we continue our prudent lending practices.

Through the majority of 2017, our earnings were on a record pace as was illustrated in our quarterly financial reports. In fact, our income before taxes in 2017 was $5,904,000 compared to $5,460,000 in 2016, representing an 8.1% increase in pretax earnings. On December 22, 2017, the Tax Cuts and Jobs Act was signed into law, which reduced the federal corporate income tax rate from 34% to 21%, effective January 1, 2018. In accordance with generally accepted accounting principles, the enactment of this new tax legislation required the corpo-ration to revalue its deferred tax assets at the new corporate statutory rate of 21%, resulting in a onetime adjustment. The additional adjust-ment to Mifflinburg Bancorp, Inc. is a onetime tax charge of $486,000 leaving us with 2017 year ending Net Income of $3,952,000, a Re-turn on Assets (ROA) of 0.93% and earnings per share (EPS) of $4.22 compared to 2016 net income of $4,183,000, ROA of 1.05% and EPS of $4.24. Without this one-time charge, ROA would have been 1.05% and EPS would have been $4.74. We expect the new tax rate will significantly lower our effective taxes going forward and benefit the corporation.

Early in 2017 we relocated our New Berlin Of-fice to Route 304. This leased facility has better access and parking as well as a drive through and drive up ATM. We have seen a dramatic increase in over the counter transactions and ATM usage demonstrating an improvement in visibility and convenience for our customers.

This past summer we welcomed Robert Pierce as our newest Director. He was appointed to fill the board seat of John Griffith who, after 20 years of dedicated service to our organiza-tion, has reached the corporation’s mandatory retirement age. Robert, a Mifflinburg resident, is the Chief Financial Officer of Baylor-Hamm Companies which most notably controls the Country Cupboard, Inc. complex. He is a li-censed CPA in Pennsylvania and Virginia and worked in public accounting for over fifteen years before joining the Baylor-Hamm Com-panies. He supports our community as the Chair of the Evangelical Community Hospital Audit Committee and member of their Finance Committee. He is also the Treasurer of the Sunrise Rotary Club, and a PIAA basketball official. Robert complements our Board bring-ing additional, independent financial expertise and enhancing an already strong local presence and reputation.

We continue to look for strategic areas for growth and opportunities to strengthen our market presence and convenience to our cus-tomers. As a local, community based bank, the wants and needs of our customers always come first. It is our goal to make sure our cus-tomers have financial peace of mind.

1

Letter from the President

Jeffrey J. KapsarPresident & CEO

Sincerely,

Page 4: 2017 Annual Report Report...To Our Shareholders, I am pleased to report to you, Mifflinburg Ban-corp, Inc.’s 2017 financial performance. We continued steady growth with total assets

2

$3.89$4.00

$4.11$4.24 $4.22

$3.00

$3.25

$3.50

$3.75

$4.00

$4.25

$4.50

2013 2014 2015 2016 2017

$ pe

r sha

re

EARNINGS PER SHARE

$3,855$3,960

$4,063

$4,183

$3,952

$2,950

$3,150

$3,350

$3,550

$3,750

$3,950

$4,150

$4,350

2013 2014 2015 2016 2017

x 1,

000

NET INCOME

10.38%10.18%

9.90%9.66% 9.45%

6.00%

6.50%

7.00%

7.50%

8.00%

8.50%

9.00%

9.50%

10.00%

10.50%

11.00%

2013 2014 2015 2016 2017

RETURN ON AVERAGE EQUITY

1.14%1.09% 1.07%

1.05%

0.93%

0.60%

0.70%

0.80%

0.90%

1.00%

1.10%

1.20%

1.30%

2013 2014 2015 2016 2017

RETURN ON AVERAGE ASSETS

$349,026

$377,959$387,596

$407,144$424,553

$250,000

$270,000

$290,000

$310,000

$330,000

$350,000

$370,000

$390,000

$410,000

$430,000

$450,000

2013 2014 2015 2016 2017

x 1,

000

TOTAL ASSETS

$1.81 $1.86 $1.95

$2.05

$2.20

1.35

1.45

1.55

1.65

1.75

1.85

1.95

2.05

2.15

2.25

2013 2014 2015 2016 2017

$ pe

r sha

re

DIVIDEND PAYOUT HISTORY

(Excludes Special dividend of $1.00 in 2013.)

EARNINGS PER SHARE NET INCOME

DIVIDEND PAYOUT HISTORY RETURN ON AVERAGE EQUITY

TOTAL ASSETSRETURN ON AVERAGE ASSETS

Page 5: 2017 Annual Report Report...To Our Shareholders, I am pleased to report to you, Mifflinburg Ban-corp, Inc.’s 2017 financial performance. We continued steady growth with total assets

3

Independent Auditors’ Report

Board of Directors and Stockholdersof Mifflinburg Bancorp, Inc.

We have audited the accompanying consolidated financial statements of Mifflinburg Bancorp, Inc.and its subsidiary, which comprise the consolidated balance sheet as of December 31, 2017, and the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for the year then ended, and the related notes to the consolidated financial statements.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors' Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

Page 6: 2017 Annual Report Report...To Our Shareholders, I am pleased to report to you, Mifflinburg Ban-corp, Inc.’s 2017 financial performance. We continued steady growth with total assets

4

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Mifflinburg Bancorp, Inc. and its subsidiary as of December 31, 2017, and the results of their operations and their cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.

Other Matter

The consolidated financial statements of Mifflinburg Bancorp, Inc. and its subsidiary for the year ended December 31, 2016, were audited by another auditor whose report dated March 15, 2017, expressed an unmodified opinion on those statements.

Williamsport, PennsylvaniaMarch 12, 2018

Page 7: 2017 Annual Report Report...To Our Shareholders, I am pleased to report to you, Mifflinburg Ban-corp, Inc.’s 2017 financial performance. We continued steady growth with total assets

Mifflinburg Bancorp, Inc. and Subsidiary

Consolidated Balance Sheets (in thousands, except share and per share data)

See accompanying notes to consolidated financial statements. 5

December 31, 2017 2016

Assets Cash and due from banks $ 5,463 $ 3,581

Interest-bearing demand deposits 894 494

Federal funds sold 1,514 -

Cash and cash equivalents 7,871 4,075

Interest-bearing time deposits 18,969 19,738

Securities available-for-sale, at fair value 76,379 75,339

Investments in restricted stock, at cost 1,551 1,395

Loans 302,727 289,428

Allowance for loan losses (3,983) (3,946)

Net loans 298,744 285,482

Premises and equipment, net 7,505 7,314

Accrued interest receivable 1,037 971

Foreclosed assets held for sale 48 -

Bank owned life insurance 10,222 9,973

Net deferred tax asset 786 1,562 Other assets 1,441 1,295

Total Assets $ 424,553 $ 407,144

Liabilities and Stockholders' Equity

Liabilities

Deposits:

Noninterest-bearing $ 54,557 $ 52,380

Interest-bearing 285,170 275,194

Total deposits 339,727 327,574

Repurchase agreements 11,154 5,701

Federal Home Loan Bank advances 27,314 26,993

Accrued interest payable 532 467

Other liabilities 3,791 3,746

Total Liabilities 382,518 364,481

Stockholders' Equity Common stock, par value $1.00 per share; authorized 5,000,000 shares;

issued 1,080,000 shares; outstanding 936,251 and 983,251 shares at December 31, 2017 and 2016, respectively 1,080 1,080

Capital surplus 2,810 2,773

Retained earnings 44,833 42,934

Accumulated other comprehensive income 416 3

Treasury stock at cost: 2017: 143,749 shares; 2016: 96,749 shares (7,104) (4,127)

Total Stockholders' Equity 42,035 42,663

Total Liabilities and Stockholders' Equity $ 424,553 $ 407,144

Page 8: 2017 Annual Report Report...To Our Shareholders, I am pleased to report to you, Mifflinburg Ban-corp, Inc.’s 2017 financial performance. We continued steady growth with total assets

Mifflinburg Bancorp, Inc. and Subsidiary

Consolidated Statements of Income (in thousands, except per share data)

See accompanying notes to consolidated financial statements. 6

Years Ended December 31, 2017 2016

Interest and Dividend Income Interest and fees on loans $ 13,057 $ 12,124

Interest-bearing deposits in banks 355 306

Federal funds sold 24 22

Securities:

Taxable 351 357

Exempt from federal income tax 1,086 948

Dividends 177 146

Total Interest and Dividend Income 15,050 13,903

Interest Expense

Deposits 2,054 1,658

Federal Home Loan Bank advances 578 503

Other borrowings 13 3

Total Interest Expense 2,645 2,164

Net interest income 12,405 11,739

Provision for Loan Losses 250 355

Net Interest Income after Provision for Loan Losses 12,155 11,384

Other Income Service charges on deposit accounts 524 520

Mortgage banking activities 219 289

Trust department income 146 158

Commissions from investment product sales 70 118

Net gain on sale of securities 51 29

Earnings on bank owned life insurance 347 370

Other 617 630

Total Other Income 1,974 2,114

Other Expenses

Salaries and employee benefits 4,964 4,755

Net occupancy and equipment expense 849 786

Data processing fees 471 440

State shares tax 355 339

FDIC deposit insurance 133 160 Other 1,453 1,558

Total Other Expenses 8,225 8,038

Income before income taxes 5,904 5,460

Income Taxes 1,952 1,277

Net Income $ 3,952 $ 4,183

Earnings Per Share $ 4.22 $ 4.24

Page 9: 2017 Annual Report Report...To Our Shareholders, I am pleased to report to you, Mifflinburg Ban-corp, Inc.’s 2017 financial performance. We continued steady growth with total assets

Mifflinburg Bancorp, Inc. and Subsidiary

Consolidated Statements of Comprehensive Income (in thousands)

See accompanying notes to consolidated financial statements. 7

Years Ended December 31, 2017 2016

Net Income $ 3,952 $ 4,183

Other Comprehensive Income (Loss)

Unrealized holding gains (losses) on available-for-sale securities, net of income taxes of $230 and $(279), respectively 447 (543)

Reclassification adjustment for gain on sale of available-for-sale securities realized in net income, net of income taxes $(17) and $(10), respectively

(a) (b) (34) (19)

Other comprehensive income (loss) 413 (562)

Total Comprehensive Income $ 4,365 $ 3,621

(a) Amounts are included in net gain on sale of securities on the consolidated statements of income as a separate

element of other income. (b) Income tax amounts are included in income taxes on the consolidated statements of income.

Page 10: 2017 Annual Report Report...To Our Shareholders, I am pleased to report to you, Mifflinburg Ban-corp, Inc.’s 2017 financial performance. We continued steady growth with total assets

Mifflinburg Bancorp, Inc. and Subsidiary

Consolidated Statements of Changes in Stockholders’ Equity (in thousands, except per share data)

See accompanying notes to consolidated financial statements. 8

Common Stock

Capital Surplus

Retained Earnings

Accumulated Other

Comprehen-sive Income

Treasury Stock Total

Balance, January 1, 2016 $ 1,080 $ 2,726 $ 40,773 $ 565 $ (3,688) $ 41,456

Net income - - 4,183 - - 4,183 Other comprehensive loss, net

of income taxes - - - (562) - (562) Purchase of 9,391 shares of

treasury stock - - - - (567) (567) Sale of 3,000 shares of treasury

stock - 47 - - 128 175 Cash dividends declared ($2.05

per share) - - (2,022) - - (2,022)

Balance, December 31, 2016 1,080 2,773 42,934 3 (4,127) 42,663

Net income - - 3,952 - - 3,952 Other comprehensive income,

net of income taxes - - - 413 - 413 Purchase of 50,000 shares of

treasury stock - - - - (3,125) (3,125) Sale of 3,000 shares of treasury

stock - 37 - - 148 185 Cash dividends declared ($2.20

per share) - - (2,053) - - (2,053)

Balance, December 31, 2017 $ 1,080 $ 2,810 $ 44,833 $ 416 $ (7,104) $ 42,035

Page 11: 2017 Annual Report Report...To Our Shareholders, I am pleased to report to you, Mifflinburg Ban-corp, Inc.’s 2017 financial performance. We continued steady growth with total assets

Mifflinburg Bancorp, Inc. and Subsidiary

Consolidated Statements of Cash Flows (in thousands)

See accompanying notes to consolidated financial statements. 9

Years Ended December 31, 2017 2016

Cash Flows from Operating Activities Net income $ 3,952 $ 4,183 Adjustments to reconcile net income to net cash provided by

operating activities: Depreciation 372 326 Net amortization of discounts and premiums on securities 226 281 Deferred income tax expense (benefit) 563 (82) Provision for loan losses 250 355 Increase in accrued interest receivable (66) (31) Increase in accrued interest payable 65 15 Net loss on sale of foreclosed real estate 17 1 Increase in cash surrender value of bank owned life insurance (249) (275) Net gain on sale of securities (51) (29) (Gain) loss on disposition of premises and equipment (3) 28 Gain on life insurance proceeds - (5) Origination of loans held for sale (5,394) (9,223) Proceeds from loans sold 5,613 9,512 Gain on sale of loans (219) (289) Other assets and liabilities, net (101) 304

Net Cash Provided by Operating Activities 4,975 5,071

Cash Flows from Investing Activities

Securities available-for-sale: Purchases (18,318) (26,602) Proceeds from paydowns, maturities and calls 14,993 13,993 Proceeds from sales 2,736 1,879

Net increase in loans (13,729) (8,645) Proceeds from sale of foreclosed real estate 152 19 Decrease (increase) of interest-bearing time deposits 769 (1,885) Proceeds from life insurance - 458 (Increase) decrease in restricted stock (156) 399 Proceeds from disposition of premises and equipment 3 1 Purchases of premises and equipment (563) (565)

Net Cash Used in Investing Activities (14,113) (20,948)

Cash Flows from Financing Activities

Net increase in deposits 12,153 36,707 Proceeds from Federal Home Loan Bank advances 5,500 7,855 Repayment of Federal Home Loan Bank advances (5,179) (18,388) Net increase (decrease) in repurchase agreements 5,453 (2,284) Net decrease in federal funds purchased - (5,692) Purchase of treasury stock (3,125) (567) Sale of treasury stock 185 175 Dividends paid on common stock (2,053) (2,022)

Net Cash Provided by Financing Activities 12,934 15,784

Net increase (decrease) in cash and cash equivalents 3,796 (93)

Cash and Cash Equivalents, Beginning of Year 4,075 4,168

Cash and Cash Equivalents, End of Year $ 7,871 $ 4,075

Supplementary Cash Flows Information

Interest paid $ 2,580 $ 2,149 Income taxes paid $ 1,360 $ 1,315

Transfer of loans to foreclosed real estate $ 217 $ 20

Page 12: 2017 Annual Report Report...To Our Shareholders, I am pleased to report to you, Mifflinburg Ban-corp, Inc.’s 2017 financial performance. We continued steady growth with total assets

Mifflinburg Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements

10

1. Description of Business and Summary of Significant Accounting Policies Mifflinburg Bancorp, Inc. (the Company) is a Pennsylvania corporation organized as the holding company of Mifflinburg Bank and Trust Company (the Bank). The Bank is a state chartered commercial bank located in Mifflinburg, Pennsylvania, whose principal sources of revenues are derived from its commercial, mortgage, residential real estate, and consumer loan financing as well as a variety of deposit services provided to customers serviced by its six offices. Milestone Insurance Services, LLC (Milestone) was formed in 2003 and is a wholly-owned subsidiary of the Bank. Milestone is licensed to sell title insurance. The Company is supervised by the Board of Governors of the Federal Reserve System while the Bank is subject to regulation and supervision by the Federal Deposit Insurance Corporation and the Pennsylvania Department of Banking and Securities. A summary of significant accounting and reporting policies applied in the presentation of the accompanying consolidated financial statements follows. Basis of Presentation The accounting policies followed by the Company and the Bank and the methods of applying these policies conform with accounting principles generally accepted in the United States of America and with general practices within the banking industry. Use of Estimates In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and require disclosure of contingent assets and liabilities as of the date of the consolidated balance sheets and revenues and expenses for the period. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, the evaluation of other-than-temporary impairment of securities available-for-sale and the valuation of deferred income tax assets. Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company and the Bank (including the accounts of Milestone), its wholly-owned subsidiary. All significant intercompany balances and transactions have been eliminated. The entire business of the Company is managed as one operating segment. Subsequent Events The Company has evaluated events and transactions occurring subsequent to the balance sheet date of December 31, 2017 for items that should potentially be recognized or disclosed in these consolidated financial statements. The evaluation was conducted through March 12, 2018, the date these consolidated financial statements were available to be issued. Cash and Cash Equivalents For purposes of the consolidated statements of cash flows, the Company defines cash equivalents as cash and due from banks, interest-bearing demand deposits and federal funds sold. Federal funds are generally sold for one day periods.

Page 13: 2017 Annual Report Report...To Our Shareholders, I am pleased to report to you, Mifflinburg Ban-corp, Inc.’s 2017 financial performance. We continued steady growth with total assets

Mifflinburg Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements

11

Interest-Bearing Time Deposits Interest-bearing time deposits have original maturities in excess of one year and are carried at cost. Securities Debt securities and equity 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. Securities classified as available-for-sale are those debt and equity securities that the Company intends to hold for an indefinite period of time, but not necessarily to maturity in the case of debt securities. Any decision to sell a security classified as available-for-sale would be based on various factors, including significant movements in interest rates, changes in the maturity mix of the Company's assets and liabilities, liquidity needs, regulatory capital considerations, and other similar factors. Premium amortization and discount accretion are recorded using the interest method over each security's expected life. The Company follows current accounting guidance related to recognition and presentation of other-than-temporary impairment. The guidance specifies that if the Company does not have the intent to sell a debt security prior to recovery and it is more likely than not that it will not have to sell the debt security prior to recovery, the security would not be considered other-than-temporarily impaired unless there is a credit loss. When the Company does not intend to sell the security, and it is more likely than not, the Company will not have to sell the security before the recovery of its cost basis, it will recognize the credit component of an other-than-temporary impairment of a debt security in earnings and the remaining portion in other comprehensive income. The Company has not recognized any other-than-temporary impairment losses in the years ended December 31, 2017 or 2016. Realized gains and losses on sales of securities represent the differences between net proceeds and cost determined on the average cost method for equity securities and the specific identification method for all other securities. Investments in Restricted Stock Investments in restricted stock represent required investments in the common stock of correspondent banks and consist of common stock of the Federal Home Loan Bank of Pittsburgh (FHLB) of $1,506,000 and $1,350,000 at December 31, 2017 and 2016, respectively, and other correspondent banks of $45,000 as of December 31, 2016 and 2017. As a member of the FHLB, the Bank is required to maintain an investment in FHLB restricted stock based on mortgage loans, advances and other criteria. As no active market exists for this stock, it is carried at cost. All FHLB stock is pledged as collateral for FHLB advances. The Company evaluated its holding of FHLB stock for impairment and deemed the stock to not be impaired at December 31, 2017 and 2016. In making this determination, management concluded that recovery of total outstanding par value, which equals the carrying value, is expected. The decision was based upon review of financial information the FHLB has made publically available.

Page 14: 2017 Annual Report Report...To Our Shareholders, I am pleased to report to you, Mifflinburg Ban-corp, Inc.’s 2017 financial performance. We continued steady growth with total assets

Mifflinburg Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements

12

Mortgage Banking Mortgage loans originated and intended for sale in the secondary market at the time of origination are carried at the lower of aggregate cost or estimated fair value, as determined by aggregate outstanding commitments from investors or current investor yield requirements. All sales are made without recourse. Loans are generally sold with the mortgage servicing rights retained by the Company, the mortgage service rights are recognized as assets upon the sale. See further information for accounting for these assets under “Mortgage Servicing Rights.” Gains or losses on sales of mortgage loans are recognized based on the difference between the selling price and the carrying value of the related mortgage loans sold. Loans Receivable Loans receivable 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 balances, net of an allowance for loan losses and any deferred fees or costs. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the yield (interest income) of the related loans. The Company is generally amortizing these amounts over the contractual life of the loan. The loans receivable portfolio is segmented into commercial and consumer loans. Commercial loans consist of the following classes: commercial (including commercial, agricultural and state and municipal), and commercial real estate (including commercial, construction and land development and farmland). Consumer loans consist of the following classes: residential mortgage, home equity, consumer automobile and other consumer. For all classes of loans receivable, the accrual of interest is generally discontinued when the contractual payment of principal or interest has become 90 days past due or management has serious doubts about further collectability of principal or interest, even though the loan is currently performing. A loan may remain on accrual status if it is in the process of collection and is either guaranteed or well secured. When a loan is placed on nonaccrual status, 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. Interest received on nonaccrual loans including impaired loans generally is either applied against principal or reported as interest income, according to management's judgment as to the collectability of principal. 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. The past due status of all classes of loans receivable is determined based on contractual due dates for loan payments.

Page 15: 2017 Annual Report Report...To Our Shareholders, I am pleased to report to you, Mifflinburg Ban-corp, Inc.’s 2017 financial performance. We continued steady growth with total assets

Mifflinburg Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements

13

Allowance for Loan Losses The allowance for loan losses (allowance) represents management's estimate of losses inherent in the loan portfolio as of the consolidated balance sheet date and is recorded as a reduction to loans. The allowance for loan losses is increased by the provision for loan losses, and decreased by charge-offs, net of recoveries. Loans deemed to be uncollectible are charged against the allowance for loan losses, and subsequent recoveries, if any, are credited to the allowance. All, or part, of the principal balance of loans receivable are charged off to the allowance as soon as it is determined that the repayment of all, or part, of the principal balance is highly unlikely. Non-residential consumer loans are generally charged off no later than 120 days past due on a contractual basis, earlier in the event of bankruptcy, or if there is an amount deemed uncollectible. Because all identified losses are immediately charged off, no portion of the allowance for loan losses is restricted to any individual loan or groups of loans, and the entire allowance is available to absorb any and all loan losses. The allowance for loan losses is maintained at a level considered adequate to provide for losses that can be reasonably anticipated. Management performs a quarterly evaluation of the adequacy of the allowance. The allowance is based on the Company's past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower's ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions and other relevant factors. This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant revision as more information becomes available. The allowance consists of specific, general and unallocated components. The specific component relates to loans that are classified as impaired. For loans that are classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers pools of loans by loan class including commercial loans not considered impaired, as well as smaller balance homogeneous loans, such as residential real estate, home equity and other consumer loans. These pools of loans are evaluated for loss exposure based upon historical loss rates for each of these categories of loans, adjusted for qualitative factors. These qualitative risk factors include:

1. Lending policies and procedures, including underwriting standards and collection, charge-off, and recovery practices.

2. National, regional, and local economic and business conditions as well as the condition of various market segments.

3. Nature and volume of the portfolio and terms of loans. 4. Experience, ability, and depth of lending management and staff. 5. Volume and severity of past due, classified and nonaccrual loans as well as and other loan

modifications. 6. Quality of the Company's loan review system, and the degree of oversight by the

Company's Board of Directors. 7. Existence and effect of any concentrations of credit and changes in the level of such

concentrations. 8. Other factors, such as trends in loan ratings, loan mix, and subprime loans as a percentage

to total loans.

Page 16: 2017 Annual Report Report...To Our Shareholders, I am pleased to report to you, Mifflinburg Ban-corp, Inc.’s 2017 financial performance. We continued steady growth with total assets

Mifflinburg Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements

14

Each factor is assigned a value to reflect improving, stable or declining conditions based on management's best judgment using relevant information available at the time of the evaluation. Adjustments to the factors are supported through documentation of changes in conditions in a narrative accompanying the allowance calculation. Commercial lending, including commercial real estate loans generally present a higher level of risk than residential mortgage loans. This greater risk is due to several factors, including the concentration of principal in a limited number of loans and borrowers, the effect of general economic conditions on income producing properties and the increased difficulty of evaluating and monitoring these types of loans. Furthermore, the repayment of loans secured by commercial and industrial real estate is typically dependent upon the successful operation of the related real estate project or business. If the cash flow from the project is reduced, the borrower's ability to repay the loan may be impaired. Consumer loans may entail greater credit risk than do residential mortgage loans, particularly in the case of consumer loans which are unsecured or are secured by rapidly depreciable assets, such as automobiles. Home equity loans also entail greater risk than residential mortgage loans due to being in a junior lien position. In such cases, any repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment of the outstanding loan balance as a result of the greater likelihood of damage, loss or depreciation. In addition, consumer loan collections are dependent on the borrower's continuing financial stability, and thus are more likely to be affected by adverse personal circumstances. Furthermore, the application of various federal and state laws, including bankruptcy and insolvency laws, may limit the amount which can be recovered on such loans. An unallocated component is maintained to cover uncertainties that could affect management's estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio. A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower's prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis for commercial loans and commercial real estate loans by either the present value of expected future cash flows discounted at the loan's effective interest rate or the fair value of the collateral if the loan is collateral dependent. An allowance for loan losses is established for an impaired loan if its carrying value exceeds its estimated fair value. The estimated fair values of substantially all of the Company's impaired loans are measured based on the estimated fair value of the loan's collateral.

Page 17: 2017 Annual Report Report...To Our Shareholders, I am pleased to report to you, Mifflinburg Ban-corp, Inc.’s 2017 financial performance. We continued steady growth with total assets

Mifflinburg Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements

15

For commercial loans secured by real estate, estimated fair values are determined primarily through third-party appraisals. When a real estate secured loan becomes impaired, a decision is made regarding whether an updated certified appraisal of the real estate is necessary. This decision is based on various considerations, including the age of the most recent appraisal, the loan-to-value ratio based on the original appraisal and the condition of the property. Appraised values may be discounted to arrive at the estimated selling price of the collateral, which is considered to be the estimated fair value. The discounts also include estimated costs to sell the property. For commercial loans secured by non-real estate collateral, such as accounts receivable, inventory and equipment, estimated fair values are determined based on the borrower's financial statements, inventory reports, accounts receivable agings or equipment appraisals or invoices. Indications of value from these sources are generally discounted based on the age of the financial information or the quality of the assets. Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Company does not separately identify individual residential mortgage loans, home equity loans and other consumer loans for impairment disclosures, unless such loans are the subject of a troubled debt restructuring agreement. Loans whose terms are modified are classified as troubled debt restructurings if the Company grants such borrowers concessions for economic or legal reasons and it is deemed that those borrowers are experiencing financial difficulty. Concessions granted under a troubled debt restructuring generally involve a temporary or permanent reduction in interest rate, a modified rate that is below the market rate given the associated credit risk, an extension of a loan's stated maturity date or payment modifications to better match the timing of cash flows due under the restructured terms with the cash flows from the borrowers’ operations. Loan modifications are intended to minimize the economic loss and to avoid foreclosure or repossession of the collateral. Non-accrual troubled debt restructurings are restored to accrual status if principal and interest payments, under the modified terms, are current for a reasonable period of time, generally six consecutive months after modification. Loans classified as troubled debt restructurings are designated as impaired. The Company identifies loans for potential restructure primarily through direct communication with the borrower and evaluation of the borrower’s financial statements, revenue projections, tax returns, and credit reports. Even if the borrower is not presently in default, management will consider the likelihood that cash flow shortages, adverse economic conditions, and negative trends may result in a payment default in the near future.

Page 18: 2017 Annual Report Report...To Our Shareholders, I am pleased to report to you, Mifflinburg Ban-corp, Inc.’s 2017 financial performance. We continued steady growth with total assets

Mifflinburg Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements

16

The allowance calculation methodology includes further segregation of loan classes into risk rating categories. The borrower's overall financial condition, repayment sources, guarantors and value of collateral, if appropriate, are evaluated annually for commercial and commercial real estate loans or when credit deficiencies arise, such as delinquent loan payments, for commercial and consumer loans. Credit quality risk ratings include regulatory classifications of special mention, substandard, doubtful and loss. Loans classified as special mention have potential weaknesses that deserve management's close attention. If uncorrected, the potential weaknesses may result in deterioration of the repayment prospects. Loans classified substandard have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They include loans that are inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified doubtful have all the weaknesses inherent in loans classified substandard with the added characteristic that collection or liquidation in full, on the basis of current conditions and facts, is highly improbable. Loans classified as a loss are considered uncollectible and are charged to the allowance for loan losses. Loans not classified are rated pass. In addition, Federal and State regulatory agencies, as an integral part of their examination process, periodically review the Company's allowance for loan losses and may require the Company to recognize additions to the allowance based on their judgments about information available to them at the time of their examination, which may not be currently available to management. Based on management's comprehensive analysis of the loan portfolio, management believes the current level of the allowance for loan losses is adequate at December 31, 2017. Foreclosed Real Estate Foreclosed real estate consists of real estate acquired in settlement of foreclosed loans and is initially recorded at fair value less estimated costs to sell at the time of transfer from loans to foreclosed real estate, establishing a new cost basis. Subsequent to the transfer, foreclosed real estate is carried at the lower of the adjusted cost or fair value less costs to sell. Additional write-downs are charged against operating expenses. Costs related to the acquisition and holding of foreclosed real estate are charged to operations when incurred. The fair value of real estate acquired through foreclosure is generally determined by reference to an outside appraisal. Premises and Equipment Premises and equipment are stated at cost less accumulated depreciation. Repairs and maintenance expenditures are expensed as incurred. The costs of major additions and improvements are capitalized. When premises or equipment are retired or sold, the remaining cost and accumulated depreciation are removed from the accounts and any gain or loss is credited or charged to income. Depreciation is computed using straight-line and accelerated methods over the estimated useful lives of the assets. Premises and equipment are reviewed by management at least annually for potential impairment and whenever events or circumstances indicate that carrying amounts may not be recoverable.

Page 19: 2017 Annual Report Report...To Our Shareholders, I am pleased to report to you, Mifflinburg Ban-corp, Inc.’s 2017 financial performance. We continued steady growth with total assets

Mifflinburg Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements

17

Bank Owned Life Insurance The Bank invests in bank owned life insurance (BOLI) as a source of funding for employee and director benefit expenses. BOLI involves the purchasing of life insurance by the Bank on a chosen group of employees. The Bank is the owner and beneficiary of the policies. This life insurance investment is carried at the cash surrender value of the underlying policies. Income from the increase in the cash surrender value of the policies is included with other income on the statement of income. The policies can be liquidated, if necessary, with tax costs associated. However, the Company intends to hold these policies and accordingly, the Company has not provided for deferred income taxes on the earnings from the increase in cash surrender value. The Company accounts for certain benefit plans under Accounting Standards Codification (ASC) Topic 715 related to "Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split Dollar Life Insurance Agreements." This pronouncement requires recognition of a liability for postretirement benefits provided through an endorsed split-dollar life insurance arrangement. The liability for post-retirement benefits under these arrangements was $361,000 and $371,000 at December 31, 2017 and 2016, respectively. Income in the years ended December 31, 2017 and 2016 was $10,000 and $32,000, respectively. Mortgage Servicing Rights Mortgage servicing rights are recognized as assets upon the sale of a mortgage loan. A portion of the cost of the loan is allocated to the servicing right based upon relative fair value. Servicing rights are reported in other assets and are amortized over the estimated period of future servicing income to be received on the underlying mortgage loans. The carrying amount of mortgage servicing rights was $255,000 at December 31, 2017 and 2016. Any related amortization expense is netted against loan servicing fee income and is reflected in the income statement in other income. Amortization expense was $26,000 and $43,000 for the years ended December 31, 2017 and 2016, respectively. Servicing rights are evaluated for impairment based upon estimated fair value as compared to unamortized book value. The Company retains the servicing rights on certain mortgage loans sold to the FHLB and Fannie Mae and receives mortgage banking fee income based upon the principal balance outstanding. Total loans serviced for the FHLB and Fannie Mae amounted to $51,622,000 and $51,633,000 at December 31, 2017 and 2016, respectively. These mortgage loans sold and serviced by the Company are not reflected in the Company’s consolidated balance sheets. 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 Company, (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 Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity. Advertising Expenses Advertising costs are expensed as incurred and totaled $128,000 in 2017 and $121,000 in 2016.

Page 20: 2017 Annual Report Report...To Our Shareholders, I am pleased to report to you, Mifflinburg Ban-corp, Inc.’s 2017 financial performance. We continued steady growth with total assets

Mifflinburg Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements

18

Income Taxes Current income tax accounting guidance results in two components of income tax expense: current and deferred. Current income tax expense reflects taxes to be paid or refunded for the current period by applying the provisions of the enacted tax law to the taxable income or excess of deductions over revenues. The Company determines deferred income taxes using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is based on the tax effects of the differences between the book and tax bases of assets and liabilities, and enacted changes in tax rates and laws are recognized in the period in which they occur. Deferred income tax expense results from changes in certain deferred tax assets and liabilities between periods. Deferred tax assets are reduced by a valuation allowance if, based on the weight of evidence available, it is more likely than not that some portion or all of a deferred tax asset will not be realized. The Company accounts for uncertain tax positions if it is more likely than not, based on the technical merits, that the tax position will be realized or sustained upon examination. The term more likely than not means a likelihood of more than 50 percent; the terms examined and upon examination also include resolution of the related appeals or litigation processes, if any. A tax position that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than 50 percent likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. The determination of whether or not a tax position has met the more-likely-than-not recognition threshold considers the facts, circumstances, and information available at the reporting date and is subject to management's judgment. The Company recognizes interest and penalties on income taxes as a component of income tax expense. Earnings Per Share The Company does not have any common stock equivalents and, therefore, presents only basic earnings per share, which represents net income divided by the weighted average shares outstanding during the period. The weighted average shares outstanding during 2017 and 2016 were 935,725 and 987,095, respectively. Treasury Stock The acquisition of treasury stock is recorded under the cost method. The subsequent disposition or sale of the treasury stock is recorded using the average cost method. Off-Balance Sheet Financial Instruments In the ordinary course of business, the Bank has entered into off-balance sheet financial instruments consisting of commitments to extend credit and letters of credit. Such financial instruments are recorded on the consolidated balance sheets as they are funded.

Page 21: 2017 Annual Report Report...To Our Shareholders, I am pleased to report to you, Mifflinburg Ban-corp, Inc.’s 2017 financial performance. We continued steady growth with total assets

Mifflinburg Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements

19

Comprehensive Income Accounting principles generally accepted in the United States of America require that recognized revenue, expenses, gains, and losses be included in net income. Although certain changes in assets and liabilities, such as unrealized gains and losses on securities available-for-sale, are reported as a separate component of the equity section of the balance sheet, such items, along with net income are components of comprehensive income and reflected in the consolidated statements of comprehensive income. The only other comprehensive income (loss) items that the Company presently has are unrealized gains or losses on securities available-for-sale. Trust Assets Assets held by the Bank in a fiduciary or agency capacity for its customers are not included in the consolidated financial statements since such items are not assets of the Company. Trust income is recorded on a cash basis, which is not materially different from the accrual basis. Trust assets under management as of December 31, 2017 and 2016 totaled $34 and $31 million, respectively. Reclassifications Certain amounts in prior year’s consolidated financial statements are reclassified when necessary to conform to the current year’s presentation. Such reclassifications, if any, had no impact on stockholders’ equity or net income.

Recent Accounting Standards

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers, which provides a principles-based framework for revenue recognition under U.S. GAAP. The core principle of the five-step revenue recognition framework is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Several additional ASUs have been issued subsequent to ASU 2014-09 to provide clarifying guidance related to various revenue recognition areas and to defer the effective date of the standard by a year, making it applicable for the Company in 2018. More than 86% of the Company’s revenue comes from net interest income and is explicitly out of the scope of ASU 2014-09. The Company’s largest sources of noninterest revenue which are subject to the guidance include Trust department income, service charges on deposit accounts and interchange revenue from debit card transactions. Management has evaluated the Company’s noninterest revenue streams and determined that the adoption of ASU 2014-09 using the modified retrospective method will have no material effect on the Company’s revenue recognition practices. Additionally, the ASU requires expanded disclosures to help users of financial statements better understand the nature, amount, timing, and uncertainty of revenue that is recognized. Management is in the process of reviewing the expanded disclosure requirements that will be effective in 2018.

Page 22: 2017 Annual Report Report...To Our Shareholders, I am pleased to report to you, Mifflinburg Ban-corp, Inc.’s 2017 financial performance. We continued steady growth with total assets

Mifflinburg Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements

20

In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Liabilities. This makes significant changes in U.S. GAAP related to certain aspects of recognition, measurement, presentation and disclosure of financial instruments. The changes provided for in this Update that are applicable to the Company are as follows: (1) require equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income; however, an entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer; (2) for equity investments without readily determinable fair values, require a qualitative assessment to identify impairment, and if a qualitative assessment indicates that impairment exists, requiring an entity to measure the investment at fair value; (3) eliminate the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (4) require public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (5) require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments (at December 31, 2017 and 2016, the Company has no liabilities for which the fair value measurement option has been elected); (6) require separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; and (7) clarify that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. The amendments in this Update will become effective for the Company for 2018. Amendments are to be applied by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The amendments related to equity securities without readily determinable fair values should be applied prospectively. At December 31, 2017, the Company’s investments in marketable equity securities was $3,082,000 and the net unrealized gain related to these securities was $776,000. Management is in the process of reviewing the changes in disclosure requirements that will become effective in 2018.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The core principle of Topic 842 is that a lessee should recognize the assets and liabilities that arise from leases. Specifically, a lessee should recognize on the balance sheet a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee would be permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and liabilities. Topic 842 would not significantly change the recognition, measurement and presentation of expenses and cash flows arising from a lease by a lessee from current U.S. GAAP; however, the principal change from current GAAP is that lease assets and liabilities arising from operating leases would be recognized on the balance sheet. Topic 842 provides several other changes or clarifications to existing GAAP, and will require qualitative disclosures, along with quantitative disclosures, so that financial statement users can understand more about the nature of an entity’s leasing activities. In transition, Topic 842 provides that lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified

Page 23: 2017 Annual Report Report...To Our Shareholders, I am pleased to report to you, Mifflinburg Ban-corp, Inc.’s 2017 financial performance. We continued steady growth with total assets

Mifflinburg Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements

21

retrospective approach, including optional practical expedients. An entity that elects to apply the practical expedients will, in effect, continue to account for leases that commence before the effective date in accordance with previous GAAP unless the lease is modified, except that lessees will be required to recognize a right-of-use asset and a lease liability for all operating leases at each reporting date based on the present value of the remaining minimum rental payments that were tracked and disclosed under previous GAAP. Topic 842 will become effective for the Company for 2019. The Company is in the early stages of evaluating the potential impact of adopting this amendment.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326). This ASU will result in significant changes in the Company’s accounting for credit losses related to loans receivable and investment securities. A summary of significant provisions of this ASU is as follows:

The ASU requires that a financial asset (or a group of financial assets) measured at amortized cost basis be presented, net of a valuation allowance for credit losses, at an amount expected to be collected on the financial asset(s), and that the income statement include the measurement of credit losses for newly recognized financial assets as well as changes in expected losses on previously recognized financial assets. The provisions of this ASU require measurement of expected credit losses based on relevant information including past events, historical experience, current conditions, and reasonable and supportive forecasts that affect the collectability of the asset. The provisions of this ASU differ from current U.S. GAAP in that current U.S. GAAP generally delays recognition of the full amount of credit losses until the loss is probable of occurring.

The amendments in the Update retain many of the disclosure requirements related to credit quality in current U.S. GAAP, updated to reflect the change from an incurred loss methodology to an expected credit loss methodology.

In addition, the Update requires that disclosure of credit quality indicators in relation to the amortized cost of financing receivables, a current requirement, be further disaggregated by year of origination.

This ASU requires that credit losses on available-for-sale debt securities be presented as an allowance rather than as a write-down, and limits the amount of the allowance for credit losses to the amount by which the fair value is below amortized cost. For purchased available-for-sale securities with a more-than-insignificant amount of credit deterioration since origination, the ASU requires an allowance be determined in a manner similar to other available-for-sale debt securities; however, the initial allowance would be added to the purchase price, with only subsequent changes in the allowance recorded in credit loss expense, and interest income recognized at the effective rate excluding the discount embedded in the purchase price related to estimated credit losses at acquisition.

This ASU will be effective for the Company in 2021. Earlier adoption is permitted beginning in 2019. The Company will record the effect of implementing this ASU through a cumulative-effect adjustment through retained earnings as of the beginning of the reporting period in which Topic 326 is effective.

The Company is in the early stages of evaluating the potential impact of adopting this amendment.

Page 24: 2017 Annual Report Report...To Our Shareholders, I am pleased to report to you, Mifflinburg Ban-corp, Inc.’s 2017 financial performance. We continued steady growth with total assets

Mifflinburg Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements

22

In June 2016, the FASB issued ASU 2016-15, Statement of Cash Flows. This Update provides clarification regarding eight specific cash flow issues with the objective of reducing diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. For the Company, the amendments in this Update are effective beginning in 2018. The amendments in this Update should be applied using a retroactive transition method to each period presented. The Company anticipates there will be no adjustments to the Consolidated Statements of Cash Flows, as previously reported, as a result of the clarifications provided in the Update.

In March 2017, the FASB issued ASU 2017-08, Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20). This Update will shorten the amortization period for certain callable debt securities held at a premium. Under current U.S. GAAP, entities generally amortize the premium over the contractual life of the instrument. This Update requires the premium be amortized to the earliest call date. Discounts will continue to be amortized to maturity. This ASU will become effective for the Company for 2019, and the impact of adoption is not expected to be significant.

In February 2018, the FASB issued ASU 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220). The amendments in this Update allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act, which was enacted in December 2017. Consequently, the amendments eliminate the stranded tax effects resulting from the reduction in corporate tax rates. However, because the amendments only related to the reclassification of the income tax effects of the Tax Cuts and Jobs Act, the underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations is not affected. The amendments in this Update also require certain disclosures about the stranded tax effects. The Company expects to adopt the amendments in this Update in 2018. The anticipated amount of the reclassification from accumulated other comprehensive income to retained earnings is $82,000.

2. Securities Available-for-Sale The amortized cost and fair value of securities available-for-sale are as follows at December 31 (in thousands): 2017 2016

Amortized

Cost

Gross Unrealized

Gains

Gross Unrealized

Losses Fair

Value Amortized

Cost

Gross Unrealized

Gains

Gross Unrealized

Losses Fair

Value

U.S. government agencies $ 11,465 $ 3 $ (76) $ 11,392 $ 11,795 $ 13 $ (59) $ 11,749 Taxable state and municipal 801 5 (3) 803 1,593 8 - 1,601 Tax exempt state and

municipal 54,209 260 (354) 54,115 50,228 217 (662) 49,783 U.S. government sponsored

enterprise mortgage-backed securities 4,778 23 (58) 4,743 6,590 37 (47) 6,580

Corporate securities 2,189 56 (1) 2,244 2,928 58 (1) 2,985

Total debt securities 73,442 347 (492) 73,297 73,134 333 (769) 72,698 Equity securities 2,306 796 (20) 3,082 2,200 471 (30) 2,641

Total securities available-for-sale $ 75,748 $ 1,143 $ (512) $ 76,379 $ 75,334 $ 804 $ (799) $ 75,339

Page 25: 2017 Annual Report Report...To Our Shareholders, I am pleased to report to you, Mifflinburg Ban-corp, Inc.’s 2017 financial performance. We continued steady growth with total assets

Mifflinburg Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements

23

The amortized cost and estimated fair value of debt securities available-for-sale at December 31, 2017, by expected maturity for mortgage-backed securities and debt securities with call features and by contractual maturity for all other securities, are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties (in thousands).

Amortized

Cost Fair Value

Due in one year or less $ 16,419 $ 16,368 Due after one year through three years 20,307 20,326 Due after three years through five years 16,188 16,149 Due after five years through ten years 12,153 12,089 Due after ten years 8,375 8,365

Total $ 73,442 $ 73,297

The following table shows the Company's securities' gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at December 31 (in thousands): December 31, 2017 Less than 12 Months 12 Months or Longer Total

Fair Value Unrealized

Losses Fair Value Unrealized

Losses Fair Value Unrealized

Losses

U.S. government

agencies $ 3,284 $ 15 $ 7,662 $ 61 $ 10,946 $ 76 Taxable state and

municipal 497 3 - - 497 3 Tax-exempt state and

municipal 16,726 134 6,949 220 23,675 354 U.S. government

sponsored enterprise mortgage-backed securities 1,592 14 2,053 44 3,645 58

Corporate securities 749 1 - - 749 1

Total debt securities 22,848 167 16,664 325 39,512 492 Equity securities 71 5 142 15 213 20

Total securities available-for-sale $ 22,919 $ 172 $ 16,806 $ 340 $ 39,725 $ 512

Page 26: 2017 Annual Report Report...To Our Shareholders, I am pleased to report to you, Mifflinburg Ban-corp, Inc.’s 2017 financial performance. We continued steady growth with total assets

Mifflinburg Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements

24

December 31, 2016 Less than 12 Months 12 Months or Longer Total

Fair Value Unrealized

Losses Fair Value Unrealized

Losses Fair Value Unrealized

Losses

U.S. government

agencies $ 10,241 $ 59 $ - $ - $ 10,241 $ 59 Tax-exempt state and

municipal 30,723 662 - - 30,723 662 U.S. government

sponsored enterprise mortgage-backed securities 4,473 47 - - 4,473 47

Corporate securities - - 499 1 499 1

Total debt securities 45,437 768 499 1 45,936 769 Equity securities 271 20 144 10 415 30

Total securities available-for-sale $ 45,708 $ 788 $ 643 $ 11 $ 46,351 $ 799

At December 31, 2017, the $172,000 unrealized loss (less than 12 months) was attributed to 70 different securities. The $340,000 unrealized loss (12 months or more) was attributed to 42 different securities. None of the unrealized losses are individually significant. Management believes, based upon an evaluation of the issuers of the debt securities, that the unrealized losses on debt securities were the result of fluctuations in market interest rates subsequent to purchase and not a result of credit risk. Management has the intent and ability to hold investments and does not believe it will have to sell the securities until the earlier of maturity or market price recovery, accordingly, no debt securities are deemed to be other-than-temporarily impaired. The Company's equity securities with unrealized losses are comprised of common stock in varying industries. The Company has established different parameters for evaluating equity securities for other-than-temporary impairment. These parameters include, but are not limited to, the length of time in an unrealized loss position and the amount of the unrealized loss. At December 31, 2017, no equity securities are deemed to be other-than-temporarily impaired. Below is a summary of gross gains and gross losses realized on the sale of securities available-for-sale for the years ended December 31 (in thousands): 2017 2016

Gross gains $ 106 $ 110

Gross losses $ (55) $ (81)

Securities with a carrying value of $60,688,000 and $56,759,000 at December 31, 2017 and 2016, respectively, were pledged to secure public deposits and for other purposes as required by law.

Page 27: 2017 Annual Report Report...To Our Shareholders, I am pleased to report to you, Mifflinburg Ban-corp, Inc.’s 2017 financial performance. We continued steady growth with total assets

Mifflinburg Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements

25

3. Loans Major categories of loans are summarized as follows as of December 31 (in thousands): 2017 2016

Commercial $ 58,388 $ 56,603 Commercial real estate 129,015 115,932 Residential mortgage 95,696 95,741 Home equity 4,683 3,745 Consumer, automobile 13,055 15,172 Consumer, other 2,193 2,560

303,030 289,753 Less: net deferred loan fees (303) (325)

Total loans net of deferred loan fees 302,727 289,428 Less: allowance for loan losses (3,983) (3,946)

Net Loans $ 298,744 $ 285,482

In the normal course of business, loans are extended to directors, executive officers, and their affiliates. A summary of loan activity for those directors, executive officers, and their affiliates is as follows (in thousands):

December 31, 2016 New Loans Repayments

December 31, 2017

$ 3,401 $ 1,891 $ (2,172) $ 3,120

December 31, 2015 New Loans Repayments

December 31, 2016

$ 3,488 $ 400 $ (487) $ 3,401

The Bank grants commercial, residential, and personal loans to customers primarily in Union, Centre, and Snyder Counties, Pennsylvania. Although the Bank has a diversified loan portfolio, a significant portion of its debtors' ability to honor their contracts is dependent on the economic conditions within this region. Additionally, approximately 19% and 16% of the Bank's loans at December 31, 2017 and 2016, respectively, are to individuals and corporations in the agricultural business. The Bank has entered into a best efforts agreement to sell residential mortgages to the Federal Home Loan Bank of Pittsburgh. The maximum to be sold under the agreement is $75 million, and $48 million has been sold under this agreement as of December 31, 2017.

Page 28: 2017 Annual Report Report...To Our Shareholders, I am pleased to report to you, Mifflinburg Ban-corp, Inc.’s 2017 financial performance. We continued steady growth with total assets

Mifflinburg Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements

26

4. Allowance for Loan Losses The following table presents the classes of loan portfolio summarized by the aggregate pass rating and the classified ratings of special mention, substandard and doubtful within the Company's internal risk rating system as of December 31 (in thousands):

December 31, 2017 Pass Special Mention

Sub- standard Doubtful Loss Total

Commercial $ 56,211 $ 2,177 $ - $ - $ - $ 58,388 Commercial real estate 122,404 2,864 2,981 766 - 129,015 Residential mortgage 95,039 246 310 101 - 95,696 Home equity 4,620 63 - - - 4,683 Consumer, automobile 13,055 - - - - 13,055 Consumer, other 2,154 - 39 - - 2,193

Total $ 293,483 $ 5,350 $ 3,330 $ 867 $ - $ 303,030

December 31, 2016 Pass Special Mention

Sub- standard Doubtful Loss Total

Commercial $ 56,273 $ 97 $ 233 $ - $ - $ 56,603 Commercial real estate 109,834 3,368 2,730 - - 115,932 Residential mortgage 94,978 314 449 - - 95,741 Home equity 3,678 67 - - - 3,745 Consumer, automobile 15,172 - - - - 15,172 Consumer, other 2,518 - 42 - - 2,560

Total $ 282,453 $ 3,846 $ 3,454 $ - $ - $ 289,753

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 and nonaccrual as of December 31 (in thousands):

December 31, 2017 30-89 Days Past Due

Greater than 90

Days and Accruing

Non- accrual

Total Past Due and

Non- accrual Current

Total Loans

Receivables

Commercial $ 20 $ 10 $ - $ 30 $ 58,358 $ 58,388 Commercial real estate - - 766 766 128,249 129,015 Residential mortgage 374 - 341 715 94,981 95,696 Home equity 63 - - 63 4,620 4,683 Consumer, automobile 643 127 - 770 12,285 13,055 Consumer, other 23 13 - 36 2,157 2,193

Total $ 1,123 $ 150 $ 1,107 $ 2,380 $ 300,650 $ 303,030

Page 29: 2017 Annual Report Report...To Our Shareholders, I am pleased to report to you, Mifflinburg Ban-corp, Inc.’s 2017 financial performance. We continued steady growth with total assets

Mifflinburg Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements

27

December 31, 2016 30-89 Days Past Due

Greater than 90

Days and Accruing

Non- accrual

Total Past Due and

Non- accrual Current

Total Loans

Receivables

Commercial $ 164 $ 30 $ - $ 194 $ 56,409 $ 56,603 Commercial real estate 383 - 838 1,221 114,711 115,932 Residential mortgage 857 - 495 1,352 94,389 95,741 Home equity - - - - 3,745 3,745 Consumer, automobile 725 46 - 771 14,401 15,172 Consumer, other 10 - - 10 2,550 2,560

Total $ 2,139 $ 76 $ 1,333 $ 3,548 $ 286,205 $ 289,753

The following tables summarize the activity in the allowance for loan losses by loan class for the years ended December 31, 2017 and 2016 and information in regards to the allowance for loan losses and the recorded investment in loans receivable by loan class as of December 31, 2017 and 2016 (in thousands):

December 31, 2017 Beginning Balance Charge-offs Recoveries Provisions

Ending Balance

Commercial $ 564 $ - $ 6 $ 12 $ 582 Commercial real estate 1,937 - - 170 2,107 Residential mortgage 924 (30) - 40 934 Home equity 35 - - 9 44 Consumer, automobile 246 (224) 57 133 212 Consumer, other 33 (33) 11 19 30 Unallocated 207 - - (133) 74

Total $ 3,946 $ (287) $ 74 $ 250 $ 3,983

December 31, 2016 Beginning Balance Charge-offs Recoveries Provisions

Ending Balance

Commercial $ 333 $ (5) $ - $ 236 $ 564 Commercial real estate 1,543 (127) - 521 1,937 Residential mortgage 816 (21) - 129 924 Home equity 21 - - 14 35 Consumer, automobile 1,083 (78) 38 (797) 246 Consumer, other 19 (47) 5 56 33 Unallocated 11 - - 196 207

Total $ 3,826 $ (278) $ 43 $ 355 $ 3,946

Page 30: 2017 Annual Report Report...To Our Shareholders, I am pleased to report to you, Mifflinburg Ban-corp, Inc.’s 2017 financial performance. We continued steady growth with total assets

Mifflinburg Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements

28

Allowance for Loan Losses Loans Receivable

Ending Balance December 31,2017 Ending Balance December 31,2017

Individually Evaluated

Collectively Evaluated

Total

Individually Evaluated

Collectively Evaluated

Total

Commercial $ - $ 582 $ 582 $ - $ 58,388 $ 58,388 Commercial real estate 882 1,225 2,107 6,449 122,566 129,015 Residential mortgage - 934 934 - 95,696 95,696 Home equity - 44 44 - 4,683 4,683 Consumer, automobile - 212 212 - 13,055 13,055 Consumer, other - 30 30 - 2,193 2,193 Unallocated - 74 74 - - -

Total $ 882 $ 3,101 $ 3,983 $ 6,449 $ 296,581 $ 303,030

Allowance for Loan Losses Loans Receivable

Ending Balance December 31,2016 Ending Balance December 31,2016

Individually Evaluated

Collectively Evaluated

Total

Individually Evaluated

Collectively Evaluated

Total

Commercial $ - $ 564 $ 564 $ - $ 56,603 $ 56,603 Commercial real estate 847 1,090 1,937 4,658 111,274 115,932 Residential mortgage - 924 924 - 95,741 95,741 Home equity - 35 35 - 3,745 3,745 Consumer, automobile - 246 246 - 15,172 15,172 Consumer, other - 33 33 - 2,560 2,560 Unallocated - 207 207 - - -

Total $ 847 $ 3,099 $ 3,946 $ 4,658 $ 285,095 $ 289,753

The following table summarizes information in regards to impaired loans by loan portfolio class as of December 31, 2017 and 2016 (in thousands).

December 31, 2017 Recorded

Investment

Unpaid Principal Balance

Related Allowance

Average Recorded

Investment

Interest Income

Recognized

With no related allowance recorded:

Commercial real estate $ 4,742 $ 4,971 $ - $ 4,362 $ 240 With an allowance recorded:

Commercial real estate 1,707 1,707 882 1,748 88

Total:

Commercial real estate $ 6,449 $ 6,678 $ 882 $ 6,110 $ 328

Page 31: 2017 Annual Report Report...To Our Shareholders, I am pleased to report to you, Mifflinburg Ban-corp, Inc.’s 2017 financial performance. We continued steady growth with total assets

Mifflinburg Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements

29

December 31, 2016 Recorded

Investment

Unpaid Principal Balance

Related Allowance

Average Recorded

Investment

Interest Income

Recognized

With no related allowance recorded:

Commercial real estate $ 1,368 $ 1,598 $ - $ 1,615 $ 48 With an allowance recorded:

Commercial real estate 3,290 3,290 847 3,269 191

Total:

Commercial real estate $ 4,658 $ 4,888 $ 847 $ 4,884 $ 239

The loan portfolio also includes certain loans that have been modified in a troubled debt restructuring (TDR), where economic concessions have been granted to borrowers who have experienced or expected to experience financial difficulties. These concessions typically result from loss mitigation activities and could include reductions in interest rate, payment extensions, forgiveness of principal, forbearance, or other actions. Certain TDRs are classified as nonperforming at the time of restructure and may only be returned to performing status after considering the borrower’s sustained repayment performance for a reasonable period, generally six months. A summary of TDRs that occurred during 2017 and 2016 is as follows (in thousands):

2017

2016

Number of

Loans

Post-Modification

recorded Investment

Number of Loans

Post-Modification

recorded Investment

Commercial: Extended maturity date and reduced monthly payment 1 $ 22 - $ - Interest rate and monthly payment reduction 2 104 - - Commercial real estate: Extended maturity date and reduced monthly payment 1 1,125 - -

Total 4 $ 1,251 - $ -

There were no differences between the outstanding contractual amounts and the recorded investments in receivables from TDRs that occurred in 2017 and 2016. For 2017 and 2016, there were no defaults on loans for which modifications considered to be TDRs were entered into within the previous 12 months. The Company has not allocated any specific allowance for the above TDRs at December 31, 2017.

Page 32: 2017 Annual Report Report...To Our Shareholders, I am pleased to report to you, Mifflinburg Ban-corp, Inc.’s 2017 financial performance. We continued steady growth with total assets

Mifflinburg Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements

30

At December 31, 2017 the carrying amount of foreclosed residential real estate properties held as a result of obtaining physical possession (included in Foreclosed asset held for sale) was $0. At December 31, 2017 there was one residential real estate loan with a total of $101,000 in the process of foreclosure. At December 31, 2016 there were two residential real estate loans with a total of $232,000 in the process of foreclosure.

5. Premises and Equipment Major classifications of premises and equipment are summarized as follows at December 31 (in thousands): December 31, 2017 2016

Land $ 1,678 $ 1,678 Construction in process 495 310 Buildings 8,079 7,988 Furniture and fixtures 3,188 2,927 Automobiles 151 151

Total 13,591 13,054 Less accumulated depreciation (6,086) (5,740)

Net $ 7,505 $ 7,314

Total depreciation expense was $372,000 and $326,000 for the years ended December 31, 2017 and 2016, respectively. One Bank branch is leased under an operating lease. Rental expense for the lease was $12,000 for the year ended 12/31/2017. Future minimum lease payments are $12,000 annually through 12/31/2023, for a total of $72,000.

Page 33: 2017 Annual Report Report...To Our Shareholders, I am pleased to report to you, Mifflinburg Ban-corp, Inc.’s 2017 financial performance. We continued steady growth with total assets

Mifflinburg Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements

31

6. Deposits Aggregate time deposits in denominations of $250,000 or more were $23,334,000 and $19,599,000 at December 31, 2017 and 2016, respectively. A summary of the maturity of time deposits as of December 31, 2017 is as follows (in thousands): Year Ending December 31,

2018 $ 37,734 2019 33,051 2020 17,336 2021 10,531 2022 2,603

Total $ 101,255

As of December 31, 2017 and 2016, deposits from related parties total $2,710,000 and $2,428,000, respectively.

7. Securities Sold Under Agreements to Repurchase The Company enters into agreements under which it sells securities subject to an obligation to repurchase the same or similar securities. Under these arrangements, the Company may transfer legal control over the assets but still retain effective control through an agreement that both entitles and obligates the Company to repurchase the assets. As a result, these repurchase agreements are accounted for as collateralized financing agreements (i.e., secured borrowings) and not as a sale and subsequent repurchase of securities. The obligation to repurchase the securities is reflected as a liability in the Company’s consolidated balance sheets, while the securities underlying the repurchase agreements remain in the respective investment securities asset accounts. In other words, there is no offsetting or netting of the investment securities assets with the repurchase agreement liabilities. The following table presents the liabilities subject to an enforceable master netting arrangement or repurchase agreements as of December 31, 2017 and 2016 (dollars in thousands):

Gross Amounts Not Offset in

the Balance Sheets

December 31, 2017

Gross Amounts of Recognized Liabilities

Gross Amounts

Offset in the Balance Sheets

Net Amounts of Liabilities Presented

in the Balance Sheets

Financial Instruments

Cash Collateral Pledged Net Amount

Repurchase agreements:

Commercial customers (a) $ 11,154 $ - $ 11,154 $ 11,154 $ - $ -

Page 34: 2017 Annual Report Report...To Our Shareholders, I am pleased to report to you, Mifflinburg Ban-corp, Inc.’s 2017 financial performance. We continued steady growth with total assets

Mifflinburg Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements

32

Gross Amounts Not Offset in

the Balance Sheets

December 31, 2016

Gross Amounts of Recognized Liabilities

Gross Amounts

Offset in the Balance Sheets

Net Amounts of Liabilities Presented

in the Balance Sheets

Financial Instruments

Cash Collateral Pledged Net Amount

Repurchase agreements:

Commercial customers (a) $ 5,701 $ - $ 5,701 $ 5,701 $ - $ -

(a) As of December 31, 2017 and 2016, the fair value of securities pledged in connection with repurchase

agreements was $11,190 and $5,757, respectively.

8. Federal Funds Purchased Federal funds purchased amounted to $ - as of December 31, 2017 and 2016, respectively. The Bank maintains a federal funds borrowing agreement with Atlantic Community Bankers Bank with an available borrowing capacity of $8 million. This agreement is subject to annual renewal, incurs no service charges, and is unsecured.

9. Federal Home Loan Bank Advances The Bank maintains a borrowing agreement with the FHLB of Pittsburgh with an available funding capacity of approximately $132 million as of December 31, 2017. This agreement is subject to annual renewal, incurs no service charges, and is secured by FHLB stock and a blanket security agreement on outstanding residential mortgage loans. Federal Home Loan Bank advances consist of separate loans with the Federal Home Loan Bank of Pittsburgh as of December 31 as follows (dollars in thousands): 2017 2016

Amount

Weighted Average

Rate Amount

Weighted Average

Rate

FHLB fixed-rate advances

maturing: 2017 $ - - % $ 5,179 1.16 % 2018 6,681 1.49 5,181 1.48 2019 5,310 1.59 5,310 1.59 2020 5,287 1.60 4,287 1.53 2021 6,190 1.77 4,190 1.67 2022 3,049 1.79 2,049 1.64 2023 697 1.73 697 1.73 2024 100 1.61 100 1.61

Total $ 27,314 $ 26,993

Page 35: 2017 Annual Report Report...To Our Shareholders, I am pleased to report to you, Mifflinburg Ban-corp, Inc.’s 2017 financial performance. We continued steady growth with total assets

Mifflinburg Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements

33

10. Income Taxes The provision for income taxes consists of the following (in thousands): Year Ended December 31, 2017 2016

Current tax expense $ 1,389 $ 1,359 Deferred tax expense (benefit) 563 (82)

Total Provision $ 1,952 $ 1,277

The tax effects of deductible and taxable temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31 are as follows (in thousands): December 31, 2017 2016

Deferred tax assets:

Allowance for loan losses $ 784 $ 1,257 Deferred compensation 476 768

Total 1,260 2,025

Deferred tax liabilities:

Net unrealized gains on securities 132 1 Premises and equipment 167 216 Deferred loan origination fees, net 110 185 Other 65 61

Total 474 463

Net Deferred Tax Asset $ 786 $ 1,562

A reconciliation between the expected statutory income tax rate of 34% and the effective income tax rate on income before income taxes is as follows (dollars in thousands): 2017 2016

Amount Percentage Amount Percentage

Provision at statutory rate $ 2,007 34.0 % $ 1,856 34.0 % Tax-exempt interest (489) (8.3) (452) (8.3) Nondeductible interest expense 28 0.5 22 0.4 Bank owned life insurance (85) (1.4) (94) (1.7) Effect of tax rate change 486 8.2 - - Other, net 5 0.1 (55) (1.0) Applicable Income Taxes and

Effective Rates $ 1,952 33.1 % $ 1,277 23.4 %

In 2017, the Company recognized a reduction in the carrying value of the net deferred tax asset of $486,000 as result of the December 2017 enactment of a reduction in the federal corporate

Page 36: 2017 Annual Report Report...To Our Shareholders, I am pleased to report to you, Mifflinburg Ban-corp, Inc.’s 2017 financial performance. We continued steady growth with total assets

Mifflinburg Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements

34

income tax rate to 21% effective January 1, 2018, from the 34% marginal tax rate in effect throughout 2017 and 2016.

11. Employee Benefits Plans Section 401(k) Plan The Bank sponsors a contributory defined contribution Section 401(k) plan covering substantially all employees who have completed one year of service, have worked 1,000 hours and have attained age twenty-one. The plan permits employees to make pretax contributions which are matched by the Bank up to four percent of the employee's compensation. The Bank's contributions were $113,000 and $114,000 in 2017 and 2016, respectively. Contributions made by the Bank vest immediately. The Bank has a profit sharing employer contribution component to the 401(k) Plan. The profit sharing employer contribution is made at the discretion of management and the Board of Directors based upon current year earnings. The Bank's contributions were $32,000 and $42,000 in 2017 and 2016, respectively. Contributions made by the Bank vest ratably beginning after the second year of service and are fully vested after an employee completes six years of service. Employee Stock Option Plan The Bank sponsors an Employee Stock Option Plan (ESOP) covering substantially all employees who have completed one year of service, have worked 1,000 hours and have attained age twenty-one. Contributions to the plan are permitted based upon management’s discretion. The Bank's contributions were $185,000 and $175,000 in 2017 and 2016, respectively. Contributions made by the Bank vest ratably beginning after the second year of service and are fully vested after an employee completes six years of service. Deferred Directors' Compensation The Bank maintains deferred compensation plans with directors through which the payments of the directors' fees are deferred. The future liability of these agreements, which is payable in ten annual installments, was financed through the purchase of life insurance contracts. The present value of the future liability of the plans at December 31, 2017 and 2016 was $1,194,000 and $1,245,000, respectively, and is included in other liabilities in the consolidated balance sheets. The related expenses amounted to $69,000 and $71,000 for the years ended 2017 and 2016, respectively.

Page 37: 2017 Annual Report Report...To Our Shareholders, I am pleased to report to you, Mifflinburg Ban-corp, Inc.’s 2017 financial performance. We continued steady growth with total assets

Mifflinburg Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements

35

Bank Owned Life Insurance The Bank holds bank-owned life insurance (BOLI) with a cash value of $10,222,000 and $9,973,000 at December 31, 2017 and 2016, respectively. The Plan provides that the Bank and the Executives share in the rights to the death benefits of bank owned split-dollar life insurance policies (the "BOLI Policies") and provides for additional compensation to the executives and directors, equal to any income tax consequences related to the Supplemental Plan until retirement. The amount of the BOLI Policies has been calculated so that the projected increases in their cash surrender value will substantially offset the Bank's expense related to the Supplemental Plans. In addition, the BOLI Policies are intended to provide the directors with $100,000 of supplemental life insurance and the executive officers with supplemental life insurance equal to three times salary. Neither the insurance company nor the Company has guaranteed any minimum cash value. The cash surrender value increased by $249,000 and $178,000 in 2017 and 2016, respectively. During 2016 $458,000 of cash surrender value was received due to the death of a former director. Supplemental Retirement Plans The Bank has an unfunded, non-qualified supplemental executive retirement plan (SERP) for certain key Executives. The SERP is designed to provide certain executives, upon attaining age 65, with projected annual distributions. The liability of the SERP at December 31, 2017 and 2016 was $1,031,000 and $971,000, respectively, and is included in other liabilities in the consolidated balance sheets. The related expense amounted to $113,000 and $113,000 for the years ended December 31, 2017 and 2016, respectively. The Bank offsets the cost of these plans through the purchase of bank-owned life insurance as noted above.

12. Regulatory Matters Cash and Due from Banks Included in cash and due from banks are required reserves of $550,000 and $376,000 at December 31, 2017 and 2016, respectively, required by the Federal Reserve Bank. The required reserves are computed by applying prescribed ratios to the various classes of average deposit accounts. The reserves are held in the form of cash. Deposits with correspondent financial institutions are insured up to $250,000 per institution. The Company maintains cash and cash equivalents with certain correspondent financial institutions in excess of the insured amount. Regulatory Capital Requirements The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. The final rules implementing BASEL Committee on Banking Supervisor’s Capital Guidance for U.S. banks (BASEL III rules) became effective for the Company on January 1, 2015, with full compliance with all of the requirements being phased in over a multi-year schedule and fully phased in by January 1, 2019. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measurement of its assets, liabilities, and certain off-balance sheet items calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgements about components, risk weighting and other factors.

Page 38: 2017 Annual Report Report...To Our Shareholders, I am pleased to report to you, Mifflinburg Ban-corp, Inc.’s 2017 financial performance. We continued steady growth with total assets

Mifflinburg Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements

36

Quantitative measures established by regulation to ensure capital adequacy require the maintenance of minimum amounts and ratios (set forth on the follow table) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets. Tier 1 capital to average assets, and common equity Tier 1 capital to risk-weighted assets. Management believes, as of December 31, 2017, that the Bank meets all capital adequacy requirements to which it is subject. The Federal Reserve Bank has established capital guidelines for bank holding companies. These guidelines allow holding companies with less than $500 million in assets an exemption from regulatory capital requirements. Mifflinburg Bancorp, Inc. meets the eligibility criteria and is exempt from all regulatory capital requirements. The following table reflects the Bank's capital ratios at December 31 (dollars in thousands):

December 31, 2017 Actual

For Capital Adequacy Purposes

Minimum Capital Adequacy with Capital

Buffer

To be Well Capitalized under Prompt Corrective

Action Provisions

Amount Ratio Amount Ratio

Amount

Ratio Amount Ratio

Total capital (to risk-weighted assets) $ 42,243 14.12% $ 23,935 8.00%

$ 27,675

9.25% $ 29,919 10.00%

Common equity tier 1 capital (to risk-weighted assets) $ 38,500 12.87% $ 13,464 4.50%

$ 17,204

5.75% $ 19,447 6.50% Tier 1 capital (to risk-

weighted assets) $ 38,500 12.87% $ 17,952 6.00%

$ 21,691 7.25% $ 23,935 8.00%

Tier 1 capital (to average assets) $ 38,500 9.10% $ 16,915 4.00%

N/A

N/A $ 21,144 5.00%

December 31, 2016 Actual

For Capital Adequacy Purposes

Minimum Capital Adequacy with Capital

Buffer

To be Well Capitalized under Prompt Corrective

Action Provisions

Amount Ratio Amount Ratio

Amount

Ratio Amount Ratio

Total capital (to risk-weighted assets) $ 43,840 15.23% $ 23,027 8.00%

$ 24,826

8.625% $ 28,784 10.00%

Common equity tier 1 capital (to risk-weighted assets) $ 40,238 13.98% $ 12,953 4.50%

$ 14,752

5.125% $ 18,709 6.50% Tier 1 capital (to risk-

weighted assets) $ 40,238 13.98% $ 17,270 6.00%

$ 19,069 6.625% $ 23,027 8.00%

Tier 1 capital (to average assets) $ 40,238 9.90% $ 16,265 4.00%

N/A

N/A $ 20,331 5.00%

Dividends Banking regulations limit the amount of dividends that may be paid by the Bank to the Company without prior regulatory approval and are subject to the minimum capital ratio requirements noted above.

Page 39: 2017 Annual Report Report...To Our Shareholders, I am pleased to report to you, Mifflinburg Ban-corp, Inc.’s 2017 financial performance. We continued steady growth with total assets

Mifflinburg Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements

37

13. Commitments and Standby Letters of Credit In the normal course of business, the Bank makes various commitments which are not reflected in the accompanying consolidated financial statements. The Bank offers such products to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve to varying degrees elements of credit, interest rate, or liquidity risk in excess of the amount recognized in the consolidated balance sheet. The Bank's maximum exposure to credit loss from nonperformance by the other party to the financial instruments for commitments to extend credit and standby letters of credit is represented by the contractual amount of these instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments. The Bank evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained if deemed necessary by the Bank on extension of credit is based on management's credit assessment of the counterparty. Financial instruments whose contract amounts represent credit risk at December 31 are as follows (in thousands): December 31, 2017 2016

Commitments to extend credit $ 55,948 $ 67,736 Standby letters of credit 1,199 742

Commitments to extend credit are legally binding agreements to lend to customers as long as there are no violations of the agreements. Commitments generally have fixed expiration dates or other termination clauses and may require payment of fees. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future liquidity requirements. Outstanding letters of credit written are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. The majority of these standby letters of credit expire within the next twelve months. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending other loan commitments. The Bank requires collateral supporting these letters of credit as deemed necessary. The current amount of the liability as of December 31, 2017 and 2016 for guarantees under standby letters of credit is not material.

Page 40: 2017 Annual Report Report...To Our Shareholders, I am pleased to report to you, Mifflinburg Ban-corp, Inc.’s 2017 financial performance. We continued steady growth with total assets

Mifflinburg Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements

38

14. Parent Company Statements The following is condensed financial information for Mifflinburg Bancorp Inc. on a parent company only basis (in thousands): Condensed Balance Sheets December 31, 2017 2016

Assets:

Cash and cash equivalents $ 386 $ 224 Investment in subsidiaries 38,756 39,950 Securities available-for-sale 3,081 2,641

Total Assets $ 42,223 $ 42,815

Liabilities and Stockholders’ Equity:

Other liabilities $ 25 $ 2 Deferred tax liability 163 150 Stockholders’ equity 42,035 42,663

Total Liabilities and Stockholders’ Equity $ 42,223 $ 42,815

Condensed Income Statements December 31, 2017 2016

Income:

Equity in undistributed earnings of subsidiaries $ 1,740 $ 2,161 Dividends from subsidiaries 2,053 2,022 Dividend income 85 63 Net gain on sale of securities 70 15

Total Income 3,948 4,261

Operating expenses 72 76

Income before income taxes 3,876 4,185

Income tax (benefit) expense (76) 2

Net Income $ 3,952 $ 4,183

Page 41: 2017 Annual Report Report...To Our Shareholders, I am pleased to report to you, Mifflinburg Ban-corp, Inc.’s 2017 financial performance. We continued steady growth with total assets

Mifflinburg Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements

39

Condensed Statements of Cash Flows December 31, 2017 2016

Cash Flows From Operating Activities:

Net income $ 3,952 $ 4,183 Equity in undistributed earnings of subsidiaries (1,740) (2,161) Net gain on sale of securities (70) (15) Equity in distributed earnings of subsidiaries 3,127 794 Other, net (78) 10

Net Cash Provided By Operating Activities 5,191 2,811

Cash Flows From Investing Activities: Security purchases (876) (1,529)

Proceeds from security sales 840 1,146

Net Cash Used In Investing Activities (36) (383)

Cash Flows From Financing Activities: Acquisition of treasury stock (3,125) (567) Sale of treasury stock 185 175 Dividends paid (2,053) (2,022)

Net Cash Used In Financing Activities (4,993) (2,414)

Net Increase in Cash and Cash Equivalents 162 14 Cash and Cash Equivalents, Beginning of Year 224 210

Cash and Cash Equivalents, End of Year $ 386 $ 224

15. Fair Value Measurements Management uses its best judgment in estimating the fair value of the Company's financial instruments; however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts the Company could have realized in a sales transaction on the dates indicated. The estimated fair value amounts have been measured as of their respective year-ends and have not been re-evaluated or updated for purposes of these consolidated financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported at each year-end. ASC Topic 820, “Fair Value Measurements”, defines fair value as the price that would be received to sell the asset or transfer the liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. Additional guidance is provided on determining when the volume and level of activity for the asset or liability has significantly decreased. The standard also includes guidance on identifying circumstances when a transaction may not be considered orderly.

Page 42: 2017 Annual Report Report...To Our Shareholders, I am pleased to report to you, Mifflinburg Ban-corp, Inc.’s 2017 financial performance. We continued steady growth with total assets

Mifflinburg Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements

40

Fair value measurement guidance establishes a fair value hierarchy that prioritizes the inputs to valuation methods used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:

Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. Level 2 - Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability. Level 3 - Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported with little or no market activity).

An asset's or liability's level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. For financial assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used at December 31, 2017 and 2016 are as follows (in thousands):

December 31, 2017 Total

Quoted Prices in Active

Markets for Identical Assets

(Level 1)

Significant Other

Observable Inputs

(Level 2)

Significant Unobservable

Inputs (Level 3)

Securities available-for-sale:

U.S. government agencies $ 11,392 $ - $ 11,392 $ - Taxable state and municipal 803 - 803 - Tax-exempt state and

municipal 54,115 - 54,115 - U.S. government sponsored

enterprise mortgage-backed securities 4,743 - 4,743 -

Corporate securities 2,244 - 2,244 - Equity securities 3,082 3,082 - -

Total Securities Available-for-

Sale $ 76,379 $ 3,082 $ 73,297 $ -

Page 43: 2017 Annual Report Report...To Our Shareholders, I am pleased to report to you, Mifflinburg Ban-corp, Inc.’s 2017 financial performance. We continued steady growth with total assets

Mifflinburg Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements

41

December 31, 2016 Total

Quoted Prices in Active

Markets for Identical Assets

(Level 1)

Significant Other

Observable Inputs

(Level 2)

Significant Unobservable

Inputs (Level 3)

Securities available-for-sale:

U.S. government agencies $ 11,749 $ - $ 11,749 $ - Taxable state and municipal 1,601 - 1,601 - Tax-exempt state and

municipal 49,783 - 49,783 - U.S. government sponsored

enterprise mortgage-backed securities 6,580 - 6,580 -

Corporate securities 2,985 - 2,985 - Equity securities 2,641 2,641 - -

Total Securities Available-for-

Sale $ 75,339 $ 2,641 $ 72,698 $ -

For financial assets measured at fair value on a nonrecurring basis, the fair value measurements by level within the fair value hierarchy used at December 31, 2017 and 2016 are as follows (in thousands):

December 31, 2017 Total

Quoted Prices in Active

Markets for Identical Assets

(Level 1)

Significant Other

Observable Inputs

(Level 2)

Significant Unobservable

Inputs (Level 3)

Impaired loans, net 825 - - 825 Foreclosed assets held for sale 48 - - 48

Total Non-Recurring Fair Value Measure $ 873 $ - $ - $ 873

December 31, 2016

Impaired loans, net $ 2,443 $ - $ - $ 2,443

Page 44: 2017 Annual Report Report...To Our Shareholders, I am pleased to report to you, Mifflinburg Ban-corp, Inc.’s 2017 financial performance. We continued steady growth with total assets

Mifflinburg Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements

42

The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis and for which Level 3 inputs were utilized to determine fair value at December 31, 2017 and 2016 (in thousands):

December 31, 2017 Fair Value Valuation Technique

Unobservable Input

Range (Weighted Average)

Impaired loans, net $ 825

Appraisal of

collateral Appraisal

adjustments 0 - 80%

(45)%

Liquidation

expenses 0 - 5%

(3)% Foreclosed assets held for sale $ 48

Appraisal of

collateral Appraisal

adjustments 0 - 80%

(22)%

Liquidation

expenses 0 - 10%

(7)%

December 31, 2016 Fair Value Valuation Technique

Unobservable Input

Range (Weighted Average)

Impaired loans, net $ 2,443

Appraisal of

collateral Appraisal

adjustments 0 - 80%

(27)%

Liquidation

expenses 0 - 5%

(4)%

The Company had no financial liabilities measured at fair value on a nonrecurring basis as of December 31, 2017 or 2016. The following information should not be interpreted as an estimate of the fair value of the entire Company since the fair value calculation is only provided for a limited portion of the Company's assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Company's disclosures and those of other companies may not be meaningful. The following methods and assumptions were used to estimate the fair values of certain of the Company's financial instruments at December 31, 2017 and 2016. Cash and Cash Equivalents (Carried at Cost) The carrying amounts reported in the consolidated balance sheets for cash and short-term instruments approximate those assets' fair values. Interest-Bearing Time Deposits (Carried at Cost) Fair values for fixed-rate time certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered in the market on certificates to a schedule of aggregated expected monthly maturities on time deposits. The Bank generally purchases amounts below the insured limit, limiting the amount of credit risk on these time deposits.

Page 45: 2017 Annual Report Report...To Our Shareholders, I am pleased to report to you, Mifflinburg Ban-corp, Inc.’s 2017 financial performance. We continued steady growth with total assets

Mifflinburg Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements

43

Securities Available-for-Sale (Carried at Fair Value) The fair value of securities available-for-sale are determined by obtaining quoted market prices on nationally recognized securities exchanges (Level 1), or matrix pricing (Level 2), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities' relationship to other benchmark quoted prices. Investments in Restricted Stock (Carried at Cost) The carrying amount of investments in restricted stock approximates fair value, and considers the limited marketability of such securities. Net Loans (Carried at Cost) The fair values of loans are estimated using discounted cash flow analyses, using market rates at the balance sheet date that reflect the credit and interest rate-risk inherent in the loans. Projected future cash flows are calculated based upon contractual maturity or call dates, projected repayments and prepayments of principal. Generally, for variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. Impaired Loans (Generally Carried at Fair Value) Loans for which the Company has measured impairment are generally based on the fair value of the loan's collateral. Fair value is generally determined based upon independent third-party appraisals of the properties, or discounted cash flows based upon the expected proceeds. These assets are included as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements. The fair value consisted of the loan balances of $1,707,000 less specific allowances of $882,000 as of December 31, 2017. The fair value consisted of the loan balances of $3,290,000 less specific allowances of $847,000 as of December 31, 2016. Accrued Interest Receivable and Payable (Carried at Cost) The carrying amount of accrued interest receivable and accrued interest payable approximates its fair value. Mortgage Servicing Rights (Carried at Lower of Cost or Fair Value) The Company considers mortgage servicing rights to be immaterial and has determined that fair value approximates carrying value.

Page 46: 2017 Annual Report Report...To Our Shareholders, I am pleased to report to you, Mifflinburg Ban-corp, Inc.’s 2017 financial performance. We continued steady growth with total assets

Mifflinburg Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements

44

Deposits (Carried at Cost) The fair values disclosed for demand deposits (e.g., interest and noninterest checking, passbook savings and money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e. their carrying amounts). Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered in the market on certificates to a schedule of aggregated expected month-ly maturities on time deposits. Repurchase Agreements (Carried at Cost) The carrying amount of repurchase agreements approximates their fair value. FHLB Advances (Carried at Cost) Fair values of FHLB advances are estimated using discounted cash flow analysis, based on quoted prices for new FHLB advances with similar credit risk characteristics, terms and remaining maturity. These prices obtained from this active market represent a market value that is deemed to represent the transfer price if the liability were assumed by a third party. Off-Balance Sheet Financial Instruments (Disclosed at Cost) Fair values for the Company's off-balance sheet financial instruments (lending commitments and letters of credit) are based on fees currently charged in the market to enter into similar agreements, taking into account, the remaining terms of the agreements and the counterparties' credit standing. The contractual amounts of unfunded commitments and letters of credit are presented in Note 13. The estimated fair values (in thousands) of the Company's financial instruments were as follows at December 31, 2017 and 2016.

December 31, 2017 Carrying

Value Fair

Value Level 1 Level 2 Level 3

Financial assets:

Cash and cash equivalents $ 7,871 $ 7,871 $ 7,871 $ - $ - Interest-bearing time deposits 18,969 18,908 - 18,908 - Securities available-for-sale 76,379 76,379 3,082 73,297 - Investments in restricted stock 1,551 1,551 - 1,551 - Net loans 298,744 300,244 - - 300,244 Accrued interest receivable 1,037 1,037 - 1,037 - Mortgage servicing rights 255 255 - - 255

Financial liabilities:

Deposits 339,727 340,916 - 340,916 - Repurchase agreements 11,154 11,154 - 11,154 - FHLB advances 27,314 26,960 - 26,960 - Accrued interest payable 532 532 - 532 -

Off-balance sheet financial instruments:

Commitments to extend credit and letters of credit - - - - -

Page 47: 2017 Annual Report Report...To Our Shareholders, I am pleased to report to you, Mifflinburg Ban-corp, Inc.’s 2017 financial performance. We continued steady growth with total assets

Mifflinburg Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements

45

December 31, 2016 Carrying

Value Fair

Value Level 1 Level 2 Level 3

Financial assets:

Cash and cash equivalents $ 4,075 $ 4,075 $ 4,075 $ - $ - Interest-bearing time deposits 19,738 20,207 - 20,207 - Securities available-for-sale 75,339 75,339 2,641 72,698 - Investments in restricted stock 1,395 1,395 - 1,395 - Net loans 285,482 286,414 - - 286,414 Accrued interest receivable 971 971 - 971 - Mortgage servicing rights 255 255 - - 255

Financial liabilities:

Deposits 327,574 328,712 - 328,712 - Repurchase agreements 5,701 5,701 - 5,701 - FHLB advances 26,993 26,740 - 26,740 - Accrued interest payable 467 467 - 467 -

Off-balance sheet financial instruments:

Commitments to extend credit and letters of credit - - - - -

Page 48: 2017 Annual Report Report...To Our Shareholders, I am pleased to report to you, Mifflinburg Ban-corp, Inc.’s 2017 financial performance. We continued steady growth with total assets

YEAR AT A GLANCE

Page 49: 2017 Annual Report Report...To Our Shareholders, I am pleased to report to you, Mifflinburg Ban-corp, Inc.’s 2017 financial performance. We continued steady growth with total assets

250 East Chestnut Street, Mifflinburg1110 North Fairground Road, Lewisburg 500 Market Street, LewisburgRoute 45, P.O. Box 438, Millheim7874 State Route 304, New Berlin Routes 11&15, Shamokin Dam

(570) 966-1041 Toll Free: (888) 966-6282 www.mbtc.com

Locations

Member FDIC

Directors Mifflinburg Bancorp Inc. and Mifflinburg Bank & Trust Company

Robert K. LynchD. Roger ShuckRobert E. ValentineW. Gale ReishJohn D. Griffith

Thomas E. Boop, Chairman

Jeffrey J. Kapsar, Vice Chairman

John R. Showers, Secretary

Richard J. DrzewieckiRobert C. MusserRobert S. PierceBetsy K. Robertson

DIRECTORS EMERITUS

Mifflinburg Bank and Trust Company Officers

Jeffrey J. Kapsar- President and Chief Executive Officer

Thomas L. Eberhart- Sr. Vice President and Chief Operating Officer

Garry R. Benfer- Sr. Vice President of Loan Administration

Thomas C. Graver, Jr.- CPA, Sr. Vice President and Chief Financial Officer

Thomas E. Beck- CPA, Sr. Vice President of Internal Audit and Compliance

Andrea L. Long- PHR, Vice President and Director of Human Resources