CB Financial Services, Inc. 10-Q

Item 1. Financial Statements. CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited) June 30, 2022 December 31, 2021 (Dollars in thousands, except per share and share data) ASSETS Cash and Due From Banks: Interest Bearing $ 49,961 $ 63,968 Non-Interest Bearing 31,160 55,706 Total Cash and Due From Banks 81,121 119,674 Securities: Available-for-Sale Debt Securities, at Fair Value 210,845 222,108 Equity Securities, at Fair Value 2,660 2,866 Total Securities 213,505 224,974 Loans, Net of Allowance for Loan Losses of $ 12,833 and $ 11,582 at June 30, 2022 and December 31, 2021, Respectively 1,015,136 1,009,214 Premises and Equipment, Net 18,196 18,399 Bank-Owned Life Insurance 25,610 25,332 Goodwill 9,732 9,732 Intangible Assets, Net 4,404 5,295 Accrued Interest Receivable and Other Assets 18,757 12,859 TOTAL ASSETS $ 1,386,461 $ 1,425,479 LIABILITIES Deposits: Non-Interest Bearing Demand Deposits 389,127 385,775 NOW Accounts 265,347 272,518 Money Market Accounts 185,308 192,125 Savings Accounts 250,226 239,482 Time Deposits 125,182 136,713 Total Deposits 1,215,190 1,226,613 Short-Term Borrowings 32,178 39,266 Other Borrowings 17,618 17,601 Accrued Interest Payable and Other Liabilities 7,703 8,875 TOTAL LIABILITIES 1,272,689 1,292,355 STOCKHOLDERS' EQUITY Preferred Stock, No Par Value; 5,000,000 Shares Authorized — — Common Stock, $ 0.4167 Par Value; 35,000,000 Shares Authorized, 5,702,433 Shares Issued and 5,128,333 and 5,260,672 Shares Outstanding at June 30, 2022 and December 31, 2021, Respectively 2,376 2,367 Capital Surplus 83,614 83,294 Retained Earnings 58,225 57,534 Treasury Stock, at Cost ( 574,100 and 420,321 Shares at June 30, 2022 and December 31, 2021, Respectively) ( 13,015 ) ( 9,144 ) Accumulated Other Comprehensive Loss ( 17,428 ) ( 927 ) TOTAL STOCKHOLDERS' EQUITY 113,772 133,124 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,386,461 $ 1,425,479 The accompanying notes are an integral part of these consolidated financial statements 1 Table of Contents CONSOLIDATED STATEMENTS OF INCOME (LOSS) (UNAUDITED) Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 (Dollars in thousands, except share and per share data) INTEREST AND DIVIDEND INCOME Loans, Including Fees $ 9,733 $ 9,936 $ 19,284 $ 20,082 Investment Securities: Taxable 988 635 1,893 1,281 Tax-Exempt 57 74 123 152 Dividends 20 24 42 44 Other Interest and Dividend Income 160 151 232 249 TOTAL INTEREST AND DIVIDEND INCOME 10,958 10,820 21,574 21,808 INTEREST EXPENSE Deposits 604 827 1,134 1,774 Short-Term Borrowings 18 24 37 47 Other Borrowings 173 35 347 76 TOTAL INTEREST EXPENSE 795 886 1,518 1,897 NET INTEREST AND DIVIDEND INCOME 10,163 9,934 20,056 19,911 Provision (Recovery) For Loan Losses 3,784 ( 1,200 ) 3,784 ( 1,200 ) NET INTEREST INCOME AFTER PROVISION (RECOVERY) FOR LOAN LOSSES 6,379 11,134 16,272 21,111 NONINTEREST INCOME Service Fees 559 614 1,085 1,160 Insurance Commissions 1,369 1,209 3,167 2,804 Other Commissions 179 173 268 338 Net Gain on Sales of Loans — 31 — 117 Net (Loss) Gain on Securities ( 199 ) 11 ( 206 ) 458 Net Gain on Purchased Tax Credits 14 17 28 35 Net Loss on Disposal of Fixed Assets — ( 3 ) ( 8 ) ( 3 ) Income from Bank-Owned Life Insurance 142 136 278 273 Other Income 41 31 106 211 TOTAL NONINTEREST INCOME 2,105 2,219 4,718 5,393 NONINTEREST EXPENSE Salaries and Employee Benefits 4,539 5,076 9,104 9,970 Occupancy 776 1,024 1,462 1,734 Equipment 182 311 392 577 Data Processing 446 607 931 1,125 FDIC Assessment 128 249 337 499 PA Shares Tax 240 225 480 490 Contracted Services 348 750 935 1,437 Legal and Professional Fees 389 419 541 608 Advertising 115 193 231 333 Other Real Estate Owned (Income) ( 37 ) ( 26 ) ( 75 ) ( 64 ) Amortization of Intangible Assets 446 503 891 1,035 Intangible Assets Impairment — 1,178 — 1,178 Writedown of Fixed Assets — 2,268 — 2,268 Other Expense 838 945 1,837 1,927 TOTAL NONINTEREST EXPENSE 8,410 13,722 17,066 23,117 Income Before Income Tax (Benefit) Expense 74 ( 369 ) 3,924 3,387 Income Tax (Benefit) Expense ( 44 ) ( 146 ) 759 765 NET INCOME (LOSS) $ 118 $ ( 223 ) $ 3,165 $ 2,622 EARNINGS (LOSS) PER SHARE Basic $ 0.02 $ ( 0.04 ) $ 0.61 $ 0.48 Diluted 0.02 ( 0.04 ) 0.61 0.48 WEIGHTED AVERAGE SHARES OUTSTANDING Basic 5,147,846 5,432,234 5,172,881 5,433,298 Diluted 5,156,975 5,432,234 5,189,144 5,438,401 The accompanying notes are an integral part of these consolidated financial statements 2 Table of Contents CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (UNAUDITED) Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 (Dollars in thousands) Net Income (Loss) $ 118 $ ( 223 ) $ 3,165 $ 2,622 Other Comprehensive (Loss) Income: Change in Unrealized (Loss) Income on Investment Securities Available-for-Sale ( 8,680 ) 922 ( 21,032 ) ( 1,929 ) Income Tax Effect 1,870 ( 199 ) 4,531 413 Reclassification Adjustment for Gain on Sale of Debt Securities Included in Net Income (1) — — — ( 225 ) Income Tax Effect (2) — — — 48 Other Comprehensive (Loss) Income, Net of Income Tax Effect ( 6,810 ) 723 ( 16,501 ) ( 1,693 ) Total Comprehensive (Loss) Income $ ( 6,692 ) $ 500 $ ( 13,336 ) $ 929 (1) Reported in Net (Loss) Gain on Securities on the Consolidated Statements of Income. (2) Reported in Income Tax (Benefit) Expense on the Consolidated Statements of Income. The accompanying notes are an integral part of these consolidated financial statements 3 Table of Contents CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED) Three Months Ended June 30, 2022 Shares Issued Common Stock Capital Surplus Retained Earnings Treasury Stock Accumulated Other Comprehensive Loss Total Stockholders' Equity (Dollars in thousands, except share and per share data) March 31, 2022 5,701,758 $ 2,376 $ 83,422 $ 59,343 $ ( 12,367 ) $ ( 10,618 ) $ 122,156 Comprehensive Loss: Net Income — — — 118 — — 118 Other Comprehensive Loss — — — — — ( 6,810 ) ( 6,810 ) Restricted Stock Awards Granted 1,000 — — — — — — Restricted Stock Awards Forfeited ( 325 ) — 43 — ( 43 ) — — Stock-Based Compensation Expense — — 149 — — — 149 Exercise of Stock Options — — — — — — — Treasury stock purchased, at cost ( 27,439 shares) — — — — ( 605 ) — ( 605 ) Dividends Paid ($ 0.24 Per Share) — — — ( 1,236 ) — — ( 1,236 ) June 30, 2022 5,702,433 $ 2,376 $ 83,614 $ 58,225 $ ( 13,015 ) $ ( 17,428 ) $ 113,772 Three Months Ended June 30, 2021 Shares Issued Common Stock Capital Surplus Retained Earnings Treasury Stock Accumulated Other Comprehensive Income Total Stockholders' Equity (Dollars in thousands, except share and per share data) March 31, 2021 5,680,993 $ 2,367 $ 82,844 $ 52,673 $ ( 5,094 ) $ 986 $ 133,776 Comprehensive Income: Net Loss — — — ( 223 ) — — ( 223 ) Other Comprehensive Income — — — — — 723 723 Stock-Based Compensation Expense — — 125 — — — 125 Treasury Stock Purchased, at cost ( 25,297 shares) — — — — ( 561 ) — ( 561 ) Dividends Paid ($ 0.24 Per Share) — — — ( 1,304 ) — — ( 1,304 ) June 30, 2021 5,680,993 $ 2,367 $ 82,969 $ 51,146 $ ( 5,655 ) $ 1,709 $ 132,536 The accompanying notes are an integral part of these consolidated financial statements 4 Table of Contents Six Months Ended June 30, 2022 Shares Issued Common Stock Capital Surplus Retained Earnings Treasury Stock Accumulated Other Comprehensive Loss Total Stockholders' Equity (Dollars in thousands, except share and per share data) December 31, 2021 5,680,993 $ 2,367 $ 83,294 $ 57,534 $ ( 9,144 ) $ ( 927 ) $ 133,124 Comprehensive Loss: Net Income — — — 3,165 — — 3,165 Other Comprehensive Loss — — — — — ( 16,501 ) ( 16,501 ) Restricted Stock Awards Granted 21,765 9 ( 9 ) — — — — Restricted Stock Awards Forfeited ( 325 ) — 47 — ( 47 ) — — Stock-Based Compensation Expense — — 279 — — — 279 Exercise of Stock Options — — 3 — 164 — 167 Treasury stock purchased, at cost ( 159,279 shares) — — — — ( 3,988 ) — ( 3,988 ) Dividends Paid ($ 0.48 Per Share) — — — ( 2,474 ) — — ( 2,474 ) June 30, 2022 5,702,433 $ 2,376 $ 83,614 $ 58,225 $ ( 13,015 ) $ ( 17,428 ) $ 113,772 Six Months Ended June 30, 2021 Shares Issued Common Stock Capital Surplus Retained Earnings Treasury Stock Accumulated Other Comprehensive Income Total Stockholders' Equity (Dollars in thousands, except share and per share data) December 31, 2020 5,680,993 $ 2,367 $ 82,723 $ 51,132 $ ( 5,094 ) $ 3,402 $ 134,530 Comprehensive Income: Net Income — — — 2,622 — — 2,622 Other Comprehensive Loss — — — — — ( 1,693 ) ( 1,693 ) Restricted Stock Awards Forfeited — — — — — — — Restricted Stock Awards Granted — — — — — — — Stock-Based Compensation Expense — — 246 — — — 246 Exercise of Stock Options — — — — — — — Treasury Stock Purchased, at cost ( 25,297 shares) — — — — ( 561 ) — ( 561 ) Dividends Paid ($ 0.48 Per Share) — — — ( 2,608 ) — — ( 2,608 ) June 30, 2021 5,680,993 $ 2,367 $ 82,969 $ 51,146 $ ( 5,655 ) $ 1,709 $ 132,536 The accompanying notes are an integral part of these consolidated financial statements 5 Table of Contents CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Six Months Ended June 30, 2022 2021 (Dollars in thousands) OPERATING ACTIVITIES Net Income $ 3,165 $ 2,622 Adjustments to Reconcile Net Income to Net Cash Provided By Operating Activities Net Amortization on Securities 36 32 Depreciation and Amortization 1,282 1,256 Provision (Recovery) for Loan Losses 3,784 ( 1,200 ) Intangible Asset Impairment — 1,178 Writedown on Fixed Assets — 2,268 Lease Impairment — 227 Loss (Gain) on Securities 206 ( 458 ) Gain on Purchased Tax Credits ( 28 ) ( 35 ) Income from Bank-Owned Life Insurance ( 278 ) ( 273 ) Proceeds From Mortgage Loans Sold — 3,916 Originations of Mortgage Loans for Sale — ( 9,134 ) Gain on Sale of Loans — ( 117 ) Gain on Sale of Other Real Estate Owned and Repossessed Assets ( 1 ) — Noncash Expense for Stock-Based Compensation 279 246 Decrease in Accrued Interest Receivable 36 266 Net Loss on Disposal of Fixed Assets 8 3 Decrease (Increase) in Taxes Payable ( 2,462 ) 247 Payments on Operating Leases — ( 170 ) Decrease in Accrued Interest Payable ( 42 ) ( 146 ) Refund of Federal and State Income Taxes — 1,311 Other, Net ( 725 ) ( 11 ) NET CASH PROVIDED BY OPERATING ACTIVITIES 5,260 2,028 INVESTING ACTIVITIES Investment Securities Available for Sale: Proceeds From Principal Repayments and Maturities 17,021 20,412 Purchases of Securities ( 26,826 ) ( 97,142 ) Proceeds from Sale of Securities — 11,930 Net (Increase) Decrease in Loans ( 9,576 ) 31,497 Purchase of Premises and Equipment ( 262 ) ( 2,240 ) Proceeds From Sale of Other Real Estate Owned 37 — Decrease in Restricted Equity Securities 599 243 NET CASH USED IN INVESTING ACTIVITIES ( 19,007 ) ( 35,300 ) FINANCING ACTIVITIES Net (Decrease) Increase in Deposits ( 11,423 ) 41,489 Net (Decrease) Increase in Short-Term Borrowings ( 7,088 ) 8,051 Principal Payments on Other Borrowed Funds — ( 2,000 ) Cash Dividends Paid ( 2,474 ) ( 2,608 ) Treasury Stock, Purchases at Cost ( 3,988 ) ( 561 ) Exercise of Stock Options 167 — NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES ( 24,806 ) 44,371 (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ( 38,553 ) 11,099 CASH AND DUE FROM BANKS AT BEGINNING OF YEAR 119,674 160,911 CASH AND DUE FROM BANKS AT END OF PERIOD $ 81,121 $ 172,010 The accompanying notes are an integral part of these consolidated financial statements 6 Table of Contents CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Six Months Ended June 30, 2022 2022 2021 (Dollars in thousands) SUPPLEMENTAL CASH FLOW INFORMATION: Cash Paid For: Interest on Deposits and Borrowings (Including Interest Credited to Deposits of $ 1,166 and $ 1,916 , Respectively) $ 1,560 $ 2,044 Income Taxes 2,832 1,160 SUPPLEMENTAL NONCASH DISCLOSURE: Transfer of Loans to Loans Held for Sale — 11,409 Transfer of Premises and Equipment to Premises and Equipment Held for Sale and Other Assets — 1,075 Transfer of Deposits to Deposits Held for Sale — 102,557 Right of Use Asset Recognized 1,284 — Lease Liability Recognized 1,284 — The accompanying notes are an integral part of these consolidated financial statements 7 Table of Contents NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Note 1. Summary of Significant Accounting Policies Principles of Consolidation and Basis of Presentation The accompanying consolidated financial statements include the accounts of CB Financial Services, Inc. (“CB Financial”) and its wholly owned subsidiary, Community Bank (the “Bank”), and the Bank’s wholly-owned subsidiary, Exchange Underwriters, Inc. (“Exchange Underwriters”). CB Financial, the Bank and Exchange Underwriters are collectively referred to as the “Company”. All intercompany transactions and balances have been eliminated in consolidation. The accompanying unaudited interim financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and with general practice within the banking industry. Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading in any material respect. In preparing financial statements in conformity with GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the Consolidated Statements of Financial Condition and income and expenses for the reporting period. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to determination of the allowance for losses on loans, the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans, other-than-temporary impairment evaluations of securities, goodwill and intangible assets impairment, and the valuation of deferred tax assets. In the opinion of management, the accompanying unaudited interim financial statements include all adjustments considered necessary for a fair presentation of the Company’s financial position and results of operations at the dates and for the periods presented. All these adjustments are of a normal, recurring nature, and they are the only adjustments included in the accompanying unaudited interim financial statements. These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. Interim results are not necessarily indicative of results for a full year. The Company evaluated subsequent events through the date the consolidated financial statements were filed with the SEC and incorporated into the consolidated financial statements the effect of all material known events determined by Accounting Standards Codification ("ASC") 855, Subsequent Events , to be recognizable events. Nature of Operations The Company derives substantially all its income from banking and bank-related services which include interest income on commercial, commercial mortgage, residential real estate and consumer loan financing, as well as interest and dividend income on securities, insurance commissions, and fees generated from deposit services to its customers. The Company provides banking services through its subsidiary, Community Bank, a Pennsylvania-chartered commercial bank headquartered in Carmichaels, Pennsylvania. The Bank is a community-oriented institution offering residential and commercial real estate loans, commercial and industrial loans, and consumer loans as well as a variety of deposit products for individuals and businesses in its market area. After the consolidation of six branches and the sale of two branches in 2021, the Bank operates 11 branches in Greene, Allegheny, Washington, Fayette and Westmoreland Counties in southwestern Pennsylvania, and three branches in Marshall and Ohio Counties in West Virginia. Property and casualty, commercial liability, surety and other insurance products are offered through Exchange Underwriters, a full-service, independent insurance agency. Critical Accounting Policies; Use of Critical Accounting Estimates There were no material changes in our critical accounting policies during the six months ended June 30, 2022. See Note 1 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC, for additional information regarding our critical accounting policies. Recent Accounting Standards In September 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments . ASU 2016-13 amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities. For assets held at amortized cost basis, ASU 2016-13 eliminates the probable initial recognition threshold in current GAAP; and instead requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. For available-for-sale debt securities, credit losses should be measured in a manner similar to current GAAP; however, this ASU requires that credit losses be presented as an allowance rather than as a write-down. ASU 2016-13 affects companies holding financial assets and net investment in leases that are not accounted for at 8 Table of Contents fair value through net income. The ASU 2016-13 amendments affect loans, debt securities, trade receivables, net investments in leases, off balance-sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. ASU 2016-13 was originally effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted. In November 2019, the FASB approved a delay of the required implementation date of ASU 2016-13 for smaller reporting companies, including the Company, resulting in a required implementation date for the Company of January 1, 2023. Early adoption will continue to be permitted. In preparation for the implementation of this ASU, the Company has formed a cross-functional team, contracted with a third-party software provider, and is consulting with a third-party professional advisory service to assist in the model development. The Company plans to assess the overall impact by running the existing and new allowance models in parallel prior to the period of implementation. The Company expects to recognize a one-time adjustment to the allowance for loan losses upon adoption, but cannot yet determine the magnitude of the one-time adjustment or the overall impact of the new guidance on the Company’s consolidated financial condition or results of operation. Note 2. Earnings (Loss) Pe r Share There are no convertible securities which would affect the numerator in calculating basic and diluted earnings per share; therefore, net income as presented on the Consolidated Statements of Income is used as the numerator. The following table sets forth the composition of the weighted-average common shares (denominator) used in the basic and diluted earnings per share computation. Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 (Dollars in thousands, except share and per share data) Net Income (Loss) $ 118 $ ( 223 ) $ 3,165 $ 2,622 Weighted-Average Basic Common Shares Outstanding 5,147,846 5,432,234 5,172,881 5,433,298 Dilutive Effect of Common Stock Equivalents (Stock Options and Restricted Stock) 9,129 — 16,263 5,103 Weighted-Average Diluted Common Shares and Common Stock Equivalents Outstanding 5,156,975 5,432,234 5,189,144 5,438,401 Earnings (Loss) Per Share: Basic $ 0.02 $ ( 0.04 ) $ 0.61 $ 0.48 Diluted 0.02 ( 0.04 ) 0.61 0.48 The dilutive effect on weighted average diluted common shares outstanding is the result of outstanding stock options and nonvested restricted stock. The following table presents for the periods indicated (a) options to purchase shares of common stock that were outstanding but not included in the computation of earnings per share because the options’ exercise price was greater than the average market price of the common shares for the period, and (b) shares of restricted stock awards that were not included in the computation of diluted earnings per share because the hypothetical repurchase of shares under the treasury stock method exceeded the weighted average nonvested restricted awards, therefore the effects would be anti-dilutive. Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Stock Options 156,118 216,662 156,118 201,662 Restricted Stock 37,940 76,070 37,940 33,610 9 Table of Contents Note 3. Securities The following table presents the amortized cost and fair value of securities available-for-sale at the dates indicated: June 30, 2022 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value (Dollars in thousands) Available-for-Sale Debt Securities: U.S. Government Agencies $ 53,992 $ — $ ( 6,938 ) $ 47,054 Obligations of States and Political Subdivisions 16,219 69 ( 207 ) 16,081 Mortgage-Backed Securities - Government-Sponsored Enterprises 50,088 21 ( 3,086 ) 47,023 Collateralized Mortgage Obligations - Government Sponsored Enterprises 103,279 1 ( 11,443 ) 91,837 Corporate Debt 9,481 — ( 631 ) 8,850 Total Available-for-Sale Debt Securities 233,059 91 ( 22,305 ) 210,845 Equity Securities: Mutual Funds 912 Other 1,748 Total Equity Securities 2,660 Total Securities $ 213,505 December 31, 2021 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value (Dollars in thousands) Available-for-Sale Debt Securities: U.S. Government Agencies $ 53,992 $ 2 $ ( 1,433 ) $ 52,561 Obligations of States and Political Subdivisions 17,951 1,004 — 18,955 Mortgage-Backed Securities - Government-Sponsored Enterprises 55,373 1,468 ( 282 ) 56,559 Collateralized Mortgage Obligations - Government Sponsored Enterprises 88,493 164 ( 2,074 ) 86,583 Corporate Debt 7,481 — ( 31 ) 7,450 Total Available-for-Sale Debt Securities 223,290 2,638 ( 3,820 ) 222,108 Equity Securities: Mutual Funds 990 Other 1,876 Total Equity Securities 2,866 Total Securities $ 224,974 10 Table of Contents The following tables show the Company’s gross unrealized losses and fair value, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position, at the dates indicated: June 30, 2022 Less than 12 months 12 Months or Greater Total Number of Securities Fair Value Gross Unrealized Losses Number of Securities Fair Value Gross Unrealized Losses Number of Securities Fair Value Gross Unrealized Losses (Dollars in thousands) U.S. Government Agencies 3 $ 10,806 $ ( 1,191 ) 10 $ 36,248 $ ( 5,747 ) 13 $ 47,054 $ ( 6,938 ) Obligations of States and Political Subdivisions 26 11,210 ( 207 ) — — — 26 11,210 ( 207 ) Mortgage Backed Securities- Government Sponsored Enterprises 30 36,095 ( 2,627 ) 1 3,147 ( 459 ) 31 39,242 ( 3,086 ) Collateralized Mortgage Obligations - Government Sponsored Enterprises 20 91,648 ( 11,443 ) — — — 20 91,648 ( 11,443 ) Corporate Debt 3 8,850 ( 631 ) — — — 3 8,850 ( 631 ) Total 82 $ 158,609 $ ( 16,099 ) 11 $ 39,395 $ ( 6,206 ) 93 $ 198,004 $ ( 22,305 ) December 31, 2021 Less than 12 months 12 Months or Greater Total Number of Securities Fair Value Gross Unrealized Losses Number of Securities Fair Value Gross Unrealized Losses Number of Securities Fair Value Gross Unrealized Losses (Dollars in thousands) U.S. Government Agencies 5 $ 17,729 $ ( 269 ) 7 $ 31,830 $ ( 1,164 ) 12 $ 49,559 $ ( 1,433 ) Obligations of States and Political Subdivisions — — — — — — — — — Mortgage Backed Securities- Government Sponsored Enterprises 8 28,772 ( 282 ) — — — 8 28,772 ( 282 ) Collateralized Mortgage Obligations - Government Sponsored Enterprises 10 77,560 ( 2,074 ) — — — 10 77,560 ( 2,074 ) Corporate Debt 2 7,450 ( 31 ) — — — 2 7,450 ( 31 ) Total 25 $ 131,511 $ ( 2,656 ) 7 $ 31,830 $ ( 1,164 ) 32 $ 163,341 $ ( 3,820 ) For debt securities, the Company does not believe that any individual unrealized loss as of June 30, 2022 or December 31, 2021, represents an other-than-temporary impairment. The Company performs a review of the entire securities portfolio on a quarterly basis to identify securities that may indicate an other-than-temporary impairment. The Company’s management considers the length of time and the extent to which the fair value has been less than cost, and the financial condition of the issuer. The 11 Table of Contents securities that are temporarily impaired at June 30, 2022 and December 31, 2021 relate principally to changes in market interest rates subsequent to the acquisition of the specific securities. The Company does not intend to sell, and it is not more likely than not that it will be required to sell any of the securities in an unrealized loss position before recovery of its amortized cost or maturity of the security. Securities available-for-sale with a fair value of $ 195.3 million and $ 121.0 million at June 30, 2022 and December 31, 2021, respectively, are pledged to secure public deposits, short-term borrowings and for other purposes as required or permitted by law. The following table presents the scheduled maturities of debt securities as of the date indicated: June 30, 2022 Amortized Cost Fair Value (Dollars in thousands) Due in One Year or Less $ 1,095 $ 1,099 Due after One Year through Five Years 10,557 9,706 Due after Five Years through Ten Years 74,036 67,103 Due after Ten Years 147,371 132,937 Total $ 233,059 $ 210,845 The following table presents the gross realized gain and loss on sales of debt securities, as well as gain and loss on equity securities from both sales and market adjustments for the periods indicated. All gains and losses presented in the table below are reported in Net (Loss) Gain on Securities on the Consolidated Statements of Income. Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 (Dollars in thousands) Debt Securities Gross Realized Gain $ — $ — $ — $ 225 Gross Realized Loss — — — — Net Gain on Debt Securities $ — $ — $ — $ 225 Equity Securities Net Unrealized (Loss) Gain Recognized on Securities Held $ ( 199 ) $ 11 $ ( 206 ) $ 233 Net Realized Gain Recognized on Securities Sold — — — Net (Loss) Gain on Equity Securities $ ( 199 ) $ 11 $ ( 206 ) $ 233 Net (Loss) Gain on Securities $ ( 199 ) $ 11 $ ( 206 ) $ 458 As of June 30, 2022 and December 31, 2021, securities available to be pledged have a fair value of $ 202.0 million and $ 214.7 million, respectively, and are inclusive of collateral currently pledged for public funds and sweep deposits. Note 4. Loans and Allowance for Loan Losses The Company’s loan portfolio is segmented to enable management to monitor risk and performance. Real estate loans are further segregated into three classes. Residential mortgages include those secured by residential properties and include home equity loans, while commercial mortgages consist of loans to commercial borrowers secured by commercial real estate. Construction loans typically consist of loans to build commercial buildings and acquire and develop residential real estate. The commercial and industrial segment consists of loans to finance the activities of commercial customers. The consumer segment consists primarily of indirect auto loans as well as personal installment loans and personal or overdraft lines of credit. Residential mortgage loans are typically longer-term loans and, therefore, generally present greater interest rate risk than the consumer and commercial loans. Under certain economic conditions, housing values may decline, which may increase the risk that the collateral values are not sufficient. Commercial real estate loans generally present a higher level of credit risk than loans secured by residences. 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 12 Table of Contents economic conditions on income-producing properties, and the increased difficulty in evaluating and monitoring these types of loans. Furthermore, the repayment of commercial real estate loans is typically dependent upon the successful operation of the related real estate project. If the cash flow from the project is reduced (for example, if leases are not obtained or renewed, a bankruptcy court modifies a lease term, or a major tenant is unable to fulfill its lease obligations), the borrower’s ability to repay the loan may be impaired. Construction loans are originated to individuals to finance the construction of residential dwellings and are also originated for the construction of commercial properties, including hotels, apartment buildings, housing developments, and owner-occupied properties used for businesses. Construction loans generally provide for the payment of interest only during the construction phase, which is usually 12 to 18 months. At the end of the construction phase, the loan generally converts to a permanent residential or commercial mortgage loan. Construction loan risks include overfunding in comparison to the plans, untimely completion of work, and leasing and stabilization after project completion. Commercial and industrial loans are generally secured by business assets, inventories, accounts receivable, etc., which present collateral risk. Consumer loans generally have higher interest rates and shorter terms than residential mortgage loans; however, they have additional credit risk due to the type of collateral securing the loan. The following table presents the classifications of loans as of the dates indicated. June 30, 2022 December 31, 2021 Amount Percent Amount Percent (Dollars in thousands) Real Estate: Residential $ 325,138 31.6 % $ 320,798 31.4 % Commercial 426,105 41.5 392,124 38.5 Construction 41,277 4.0 85,028 8.3 Commercial and Industrial 65,907 6.4 89,010 8.7 Consumer 148,921 14.5 122,152 12.0 Other 20,621 2.0 11,684 1.1 Total Loans 1,027,969 100.0 % 1,020,796 100.0 % Allowance for Loan Losses ( 12,833 ) ( 11,582 ) Loans, Net $ 1,015,136 $ 1,009,214 Payroll Protection Program ("PPP") loans decreased $ 20.7 million to $ 3.9 million at June 30, 2022 compared to $ 24.5 million at December 31, 2021. Net unamortized PPP loan origination fees as of June 30, 2022 and December 31, 2021 were $ 144,000 and $ 678,000 , respectively. $ 130,000 and $ 534,000 of net PPP loan origination fees were earned for the three and six months ended June 30, 2022, respectively, compared to $ 489,000 and $ 1.0 million for the three and six months ended June 30, 2021, respectively. All PPP loans are classified as commercial and industrial loans held for investment. No allowance for loan loss was allocated to the PPP loan portfolio due to the Bank complying with the lender obligations that ensure SBA guarantee. Total unamortized net deferred loan fees were $ 1.4 million and $ 1.9 million at June 30, 2022 and December 31, 2021, respectively. The Company uses an eight-point internal risk rating system to monitor the credit quality of the overall loan portfolio. The first four categories are not considered criticized and are aggregated as “pass” rated. The criticized rating categories used by management generally follow bank regulatory definitions. The special mention category includes assets that are currently protected but are below average quality, resulting in an undue credit risk, but not to the point of justifying a substandard classification. Loans in the substandard category have well-defined weaknesses that jeopardize the liquidation of the debt and have a distinct possibility that some loss will be sustained if the weaknesses are not corrected. Loans classified as doubtful have all the weaknesses inherent in loans classified as 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 loss are considered uncollectible and of such little value that continuance as an asset is not warranted. 13 Table of Contents The following table presents loans summarized by the aggregate Pass and the criticized categories of Special Mention, Substandard and Doubtful within the internal risk rating system as of the dates indicated. At June 30, 2022 and December 31, 2021, there were no loans in the criticized category of Loss within the internal risk rating system. June 30, 2022 Pass Special Mention Substandard Doubtful Total (Dollars in Thousands) Real Estate: Residential $ 322,442 $ 771 $ 1,925 $ — $ 325,138 Commercial 382,048 32,284 11,773 — 426,105 Construction 35,974 4,971 332 — 41,277 Commercial and Industrial 52,573 12,754 117 463 65,907 Consumer 148,841 — 80 — 148,921 Other 20,559 62 — — 20,621 Total Loans $ 962,437 $ 50,842 $ 14,227 $ 463 $ 1,027,969 December 31, 2021 Pass Special Mention Substandard Doubtful Total (Dollars in Thousands) Real Estate: Residential $ 317,964 $ 845 $ 1,989 $ — $ 320,798 Commercial 355,895 27,168 9,061 — 392,124 Construction 69,441 13,035 2,552 — 85,028 Commercial and Industrial 72,584 14,463 1,451 512 89,010 Consumer 122,136 — 16 — 122,152 Other 11,616 68 — — 11,684 Total Loans $ 949,636 $ 55,579 $ 15,069 $ 512 $ 1,020,796 The following table presents the classes of the loan portfolio summarized by the aging categories of performing loans and nonaccrual loans as of the dates indicated. June 30, 2022 Loans Current 30-59 Days Past Due 60-89 Days Past Due 90 Days Or More Past Due Total Past Due Non- Accrual Total Loans (Dollars in Thousands) Real Estate: Residential $ 323,350 $ 311 $ 135 $ — $ 446 $ 1,342 $ 325,138 Commercial 424,098 15 — — 15 1,992 426,105 Construction 41,277 — — — — — 41,277 Commercial and Industrial 65,417 9 — — 9 481 65,907 Consumer 148,536 269 36 — 305 80 148,921 Other 20,621 — — — — — 20,621 Total Loans $ 1,023,299 $ 604 $ 171 $ — $ 775 $ 3,895 $ 1,027,969 14 Table of Contents December 31, 2021 Loans Current 30-59 Days Past Due 60-89 Days Past Due 90 Days Or More Past Due Total Past Due Non- Accrual Total Loans (Dollars in Thousands) Real Estate: Residential $ 317,583 $ 1,805 $ 17 $ — $ 1,822 $ 1,393 $ 320,798 Commercial 389,522 544 — — 544 2,058 392,124 Construction 85,028 — — — — — 85,028 Commercial and Industrial 87,407 107 — — 107 1,496 89,010 Consumer 121,636 419 81 — 500 16 122,152 Other 11,684 — — — — — 11,684 Total Loans $ 1,012,860 $ 2,875 $ 98 $ — $ 2,973 $ 4,963 $ 1,020,796 Additional interest income that would have been recorded if the loans that were nonaccrual at June 30, 2022 were current was $ 43,000 and $ 94,000 for the three and six months ended June 30, 2022, respectively, and $ 135,000 and $ 196,000 for the three and six months ended June 30, 2021, respectively. 15 Table of Contents The following table sets forth the amounts and categories of nonperforming assets at the dates indicated. Included in nonperforming loans and assets are troubled debt restructurings (“TDRs”), which are loans whose contractual terms have been restructured in a manner which grants a concession to a borrower experiencing financial difficulties. Nonaccrual TDRs are included in their specific loan category in the nonaccrual loans section. Nonperforming loans do not include loans modified under Section 4013 of the CARES Act and interagency guidance as further explained below. June 30, 2022 December 31, 2021 (Dollars in Thousands) Nonaccrual Loans: Real Estate: Residential $ 1,342 $ 1,393 Commercial 1,992 2,058 Construction — — Commercial and Industrial 481 1,496 Consumer 80 16 Total Nonaccrual Loans 3,895 4,963 Accruing Loans Past Due 90 Days or More: Consumer — — Total Accruing Loans Past Due 90 Days or More — — Total Nonaccrual Loans and Accruing Loans Past Due 90 Days or More 3,895 4,963 Troubled Debt Restructurings, Accruing: Real Estate Residential 593 613 Commercial 1,337 1,674 Commercial and Industrial 11 16 Total Troubled Debt Restructurings, Accruing 1,941 2,303 Total Nonperforming Loans 5,836 7,266 Other Real Estate Owned: Residential — 36 Commercial — — Total Other Real Estate Owned — 36 Total Nonperforming Assets $ 5,836 $ 7,302 Nonperforming Loans to Total Loans 0.57 % 0.71 % Nonperforming Assets to Total Assets 0.42 0.51 The recorded investment of residential real estate loans for which formal foreclosure proceedings were in process according to applicable requirements of the local jurisdiction was $ 728,000 and $ 571,000 at June 30, 2022 and December 31, 2021, respectively. As of June 30, 2022, the Company had no TDR loans in forbearance. There were no modifications to troubled debt restructurings during the three months ended June 30, 2022. As of December 31, 2021, there was one TDR loan in forbearance. 16 Table of Contents The following table presents a summary of the loans considered to be impaired as of the dates indicated. June 30, 2022 Quarter Ended Year to Date Recorded Investment Related Allowance Unpaid Principal Balance Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized (Dollars in thousands) With No Related Allowance Recorded: Real Estate: Residential $ 1,105 $ 1,109 $ 1,111 $ 12 $ 1,117 $ 23 Commercial 11,447 11,560 11,539 156 10,411 228 Construction 332 332 436 11 2,141 38 Commercial and Industrial 128 134 136 25 1,032 30 Total With No Related Allowance Recorded $ 13,012 $ — $ 13,135 $ 13,222 $ 204 $ 14,701 $ 319 With A Related Allowance Recorded: Real Estate: Residential $ — $ — $ — $ — $ — $ — $ — Commercial 1,662 86 1,662 1,676 11 2,817 11 Construction — — — — — — — Commercial and Industrial 463 244 718 476 17 488 19 Total With A Related Allowance Recorded $ 2,125 $ 330 $ 2,380 $ 2,152 $ 28 $ 3,305 $ 30 Total Impaired Loans: Real Estate: Residential $ 1,105 $ — $ 1,109 $ 1,111 $ 12 $ 1,117 $ 23 Commercial 13,109 86 13,222 13,215 167 13,228 239 Construction 332 — 332 436 11 2,141 38 Commercial and Industrial 591 244 852 612 42 1,520 49 Total Impaired Loans $ 15,137 $ 330 $ 15,515 $ 15,374 $ 232 $ 18,006 $ 349 17 Table of Contents December 31, 2021 Recorded Investment Related Allowance Unpaid Principal Balance Average Recorded Investment Interest Income Recognized (Dollars in thousands) With No Related Allowance Recorded: Real Estate: Residential $ 1,133 $ 1,137 $ 1,158 $ 46 Commercial 9,733 9,787 27,207 927 Construction 540 540 887 34 Commercial and Industrial 1,979 2,286 3,230 49 Total With No Related Allowance Recorded $ 13,385 $ — $ 13,750 $ 32,482 $ 1,056 With A Related Allowance Recorded: Real Estate: Residential $ — $ — $ — $ — $ — Commercial 266 195 266 421 19 Construction 2,013 104 2,013 169 7 Commercial and Industrial — — — 1,316 29 Total With A Related Allowance Recorded $ 2,279 $ 299 $ 2,279 $ 1,906 $ 55 Total Impaired Loans Real Estate: Residential $ 1,133 $ — $ 1,137 $ 1,158 $ 46 Commercial 9,999 195 10,053 27,628 946 Construction 2,553 104 2,553 1,056 41 Commercial and Industrial 1,979 — 2,286 4,546 78 Total Impaired Loans $ 15,664 $ 299 $ 16,029 $ 34,388 $ 1,111 The recorded investment of loans evaluated for impairment decreased $ 527,000 at June 30, 2022 compared to December 31, 2021 and was primarily related to commercial real estate loans. The following tables present the activity in the allowance for loan losses summarized by primary segments and segregated into the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for potential impairment at the dates and for the periods indicated. Real Estate Residential Real Estate Commercial Real Estate Construction Commercial and Industrial Consumer Other Unallocated Total (Dollars in thousands) March 31, 2022 $ 1,472 $ 6,326 $ 704 $ 1,130 $ 1,292 $ — $ 671 $ 11,595 Charge-offs ( 15 ) ( 2,712 ) ( 20 ) ( 2,747 ) Recoveries 126 57 18 201 Provision (Recovery) 71 ( 303 ) ( 233 ) 3,874 212 163 3,784 June 30, 2022 $ 1,654 $ 6,023 $ 471 $ 2,349 $ 1,502 $ — $ 834 $ 12,833 18 Table of Contents Real Estate Residential Real Estate Commercial Real Estate Construction Commercial and Industrial Consumer Other Unallocated Total (Dollars in thousands) December 31, 2021 $ 1,420 $ 5,960 $ 1,249 $ 1,151 $ 1,050 $ — $ 752 $ 11,582 Charge-offs ( 32 ) ( 2,712 ) ( 40 ) ( 2,784 ) Recoveries 128 68 55 251 Provision (Recovery) 138 63 ( 778 ) 3,842 437 82 3,784 June 30, 2022 $ 1,654 $ 6,023 $ 471 $ 2,349 $ 1,502 $ — $ 834 $ 12,833 June 30, 2022 Real Estate Residential Real Estate Commercial Real Estate Construction Commercial and Industrial Consumer Other Unallocated Total (Dollars in thousands) Individually Evaluated for Impairment $ — $ 86 $ — $ 244 $ — $ — $ — $ 330 Collectively Evaluated for Potential Impairment $ 1,654 $ 5,937 $ 471 $ 2,105 $ 1,502 $ — $ 834 $ 12,503 December 31, 2021 Real Estate Residential Real Estate Commercial Real Estate Construction Commercial and Industrial Consumer Other Unallocated Total (Dollars in thousands) Individually Evaluated for Impairment $ — $ 195 $ 104 $ — $ — $ — $ — $ 299 Collectively Evaluated for Potential Impairment $ 1,420 $ 5,765 $ 1,145 $ 1,151 $ 1,050 $ — $ 752 $ 11,283 Real Estate Residential Real Estate Commercial Real Estate Construction Commercial and Industrial Consumer Other Unallocated Total (Dollars in thousands) March 31, 2021 $ 1,975 $ 5,917 $ 939 $ 1,543 $ 1,103 $ — $ 1,248 $ 12,725 Charge-offs — — — — ( 25 ) — — ( 25 ) Recoveries 4 — — 10 30 — — 44 Provision (Recovery) ( 391 ) ( 335 ) 197 ( 401 ) ( 167 ) — ( 103 ) ( 1,200 ) June 30, 2021 $ 1,588 $ 5,582 $ 1,136 $ 1,152 $ 941 $ — $ 1,145 $ 11,544 19 Table of Contents Real Estate Residential Real Estate Commercial Real Estate Construction Commercial and Industrial Consumer Other Unallocated Total (Dollars in thousands) December 31, 2020 $ 2,249 $ 6,010 $ 889 $ 1,423 $ 1,283 $ — $ 917 $ 12,771 Charge-offs — — — — ( 120 ) — — ( 120 ) Recoveries 13 — — 22 58 — — 93 Provision (Recovery) ( 674 ) ( 428 ) 247 ( 293 ) ( 280 ) — 228 ( 1,200 ) June 30, 2021 $ 1,588 $ 5,582 $ 1,136 $ 1,152 $ 941 $ — $ 1,145 $ 11,544 June 30, 2021 Real Estate Residential Real Estate Commercial Real Estate Construction Commercial and Industrial Consumer Other Unallocated Total (Dollars in thousands) Individually Evaluated for Impairment $ — $ 261 $ — $ 62 $ — $ — $ — $ 323 Collectively Evaluated for Potential Impairment $ 1,588 $ 5,321 $ 1,136 $ 1,090 $ 941 $ — $ 1,145 $ 11,221 The following table presents the major classifications of loans summarized by individually evaluated for impairment and collectively evaluated for potential impairment as of the dates indicated. At June 30, 2022 and December 31, 2021, commercial and industrial loans include $ 3.9 million and $ 24.5 million, respectively, of PPP loans collectively evaluated for potential impairment. No allowance for loan loss was allocated to the PPP loan portfolio due to the Bank complying with the lender obligations that ensure SBA guarantee. June 30, 2022 Real Estate Residential Real Estate Commercial Real Estate Construction Commercial and Industrial Consumer Other Total (Dollars in thousands) Individually Evaluated for Impairment $ 1,105 $ 13,109 $ 332 $ 591 $ — $ — $ 15,137 Collectively Evaluated for Potential Impairment 324,033 412,996 40,945 65,316 148,921 20,621 1,012,832 Total Loans $ 325,138 $ 426,105 $ 41,277 $ 65,907 $ 148,921 $ 20,621 $ 1,027,969 20 Table of Contents December 31, 2021 Real Estate Residential Real Estate Commercial Real Estate Construction Commercial and Industrial Consumer Other Total (Dollars in thousands) Individually Evaluated for Impairment $ 1,133 $ 9,999 $ 2,553 $ 1,979 $ — $ — $ 15,664 Collectively Evaluated for Potential Impairment 319,665 382,125 82,475 87,031 122,152 11,684 1,005,132 Total Loans $ 320,798 $ 392,124 $ 85,028 $ 89,010 $ 122,152 $ 11,684 $ 1,020,796 The following table presents changes in the accretable discount on the loans acquired at fair value at the dates indicated. Accretable Discount (Dollars in Thousands) December 31, 2021 $ 726 Accretable Yield ( 130 ) June 30, 2022 $ 596 Note 5. Short-Term Borrowings Borrowings with original maturities of one year or less are classified as short-term and may consist of borrowings with the Federal Home Loan Bank ("FHLB"), securities sold under agreements to repurchase or borrowings on revolving lines of credit with the Federal Reserve Bank or other correspondent banks. Securities sold under repurchase agreements are comprised of customer repurchase agreements, which are overnight sweep accounts with next-day maturities utilized by commercial customers to earn interest on their funds. Securities are pledged as collateral under these agreements in an amount at least equal to the outstanding balance and the collateral pledging requirements are monitored on a daily basis. The following table sets forth the components of short-term borrowings as of the dates indicated. June 30, 2022 December 31, 2021 Amount Weighted Average Rate Amount Weighted Average Rate (Dollars in thousands) Securities Sold Under Agreements to Repurchase: Balance at Period End $ 32,178 0.26 % $ 39,266 0.17 % Average Balance Outstanding During the Period 36,000 0.21 43,988 0.22 Maximum Amount Outstanding at any Month End 39,219 52,777 Securities Collaterizing the Agreements at Period-End: Carrying Value 57,934 59,867 Market Value 51,898 59,339 Note 6. Fair Value Disclosure FASB ASC 820 “Fair Value Measurement” defines fair value and provides the framework for measuring fair value and required disclosures about fair value measurements. Fair value is defined as the price that would be received for an asset or paid to transfer a liability in an orderly transaction between market participants in the principal or most advantageous market for the asset or liability at the transaction date. ASC 820 establishes a fair value hierarchy that prioritizes the inputs used in valuation methods to determine fair value. 21 Table of Contents The three levels of fair value hierarchy are as follows: Level 1 – Fair value is based on unadjusted quoted prices in active markets that are accessible to the Company for identical assets. These generally provide the most reliable evidence and are used to measure fair value whenever available. Level 2 – Fair value is based on significant inputs, other than Level 1 inputs, that are observable either directly or indirectly for substantially the full term of the asset through corroboration with observable market data. Level 2 inputs include quoted market prices in active markets for similar assets, quoted market prices in markets that are not active for identical or similar assets, and other observable inputs. Level 3 – Fair value is based on significant unobservable inputs. Examples of valuation methodologies that would result in Level 3 classification include option pricing models, discounted cash flows, and other similar techniques. This hierarchy requires the use of observable market data when available. The level in the fair value hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement. The following table presents the financial assets measured at fair value on a recurring basis and reported on the Consolidated Statements of Financial Condition as of the dates indicated, by level within the fair value hierarchy. The majority of the Company’s securities are included in Level 2 of the fair value hierarchy. Fair values for Level 2 securities were primarily determined by a third-party pricing service using both quoted prices for similar assets, when available, and model-based valuation techniques that derive fair value based on market-corroborated data, such as instruments with similar prepayment speeds and default interest rates. The standard inputs that are normally used include benchmark yields of like securities, reportable trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data including market research publications. There were no transfers into or out of Level 3 during the six months ended June 30, 2022 or year ended December 31, 2021. Fair Value Hierarchy June 30 2022 December 31 2021 (Dollars in thousands) Securities: Available-for-Sale Debt Securities U.S. Government Agencies Level 2 $ 47,054 $ 52,561 Obligations of States and Political Subdivisions Level 2 16,081 18,955 Mortgage-Backed Securities - Government-Sponsored Enterprises Level 2 47,023 56,559 Collateralized Mortgage Obligations - Government Sponsored Enterprises Level 2 91,837 86,583 Corporate Debt Level 2 8,850 7,450 Total Available-for-Sale Debt Securities 210,845 222,108 Equity Securities Mutual Funds Level 1 912 990 Other Level 1 1,748 1,876 Total Equity Securities 2,660 2,866 Total Securities $ 213,505 $ 224,974 22 Table of Contents The following table presents the financial assets on the Consolidated Statements of Financial Condition measured at fair value on a nonrecurring basis as of the dates indicated by level within the fair value hierarchy for only those nonrecurring assets that had a fair value below the carrying amount. The table also presents the significant unobservable inputs used in the fair value measurements. Financial Asset Fair Value Hierarchy June 30, 2022 Valuation Techniques Significant Unobservable Inputs Range Weighted Average (Dollars in thousands) Impaired Loans Individually Assessed Level 3 $ 1,795 Appraisal of Collateral (1) Appraisal Adjustments (2) 0 % to 50 % 16.5 % Financial Asset Fair Value Hierarchy December 31, 2021 Valuation Techniques Significant Unobservable Inputs Range Weighted Average (Dollars in thousands) Impaired Loans Individually Assessed Level 3 $ 1,980 Appraisal of Collateral (1) Appraisal Adjustments (2) 0 % to 50 % 15.8 % Mortgage Servicing Rights Level 3 141 Discounted Cash Flow Discount Rate 9 % to 11 % 10.2 % Prepayment Speed 12 % to 27 % 16.0 % OREO Level 3 36 Appraisal of Collateral (1) Liquidation Expenses (2) 10 % to 30 % 26.6 % (1) Fair value is generally determined through independent appraisals of the underlying collateral, which may include various Level 3 inputs, which are not identifiable. (2) Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range and weighted average of appraisal adjustments and liquidation expense are presented as a percent of the appraisal. Impaired loans are evaluated when a loan is identified as impaired and valued at the lower of cost or fair value at that time. Impaired loans that are collateral dependent are written down to fair value through the establishment of specific reserves. Fair value is measured based on the value of the collateral securing these loans and is classified as Level 3 in the fair value hierarchy. At June 30, 2022 and December 31, 2021, the fair value of impaired loans consists of the loan balances of $ 2.1 million and $ 2.3 million, respectively, less their specific valuation allowances of $ 330,000 and $ 299,000 , respectively. The fair value of mortgage servicing rights ("MSRs") is determined by calculating the present value of estimated future net servicing cash flows, considering expected mortgage loan prepayment rates, discount rates, servicing costs and other economic factors, which are determined based on current market conditions. The expected rate of mortgage loan prepayments is the most significant factor driving the value of MSRs. MSRs are considered impaired if the carrying value exceeds fair value. Since the valuation model includes significant unobservable inputs as listed above, MSRs are classified as Level 3. MSRs are reported in Other Assets in the Consolidated Statements of Financial Condition and are amortized into mortgage servicing income in Other Income in the Consolidated Statements of Income (Loss). OREO properties are evaluated at the time of acquisition and recorded at fair value, less estimated selling costs. After acquisition, OREO is recorded at the lower of cost or fair value, less estimated selling costs. The fair value of an OREO property is determined from a qualified independent appraisal and is classified as Level 3 in the fair value hierarchy. Financial instruments are defined as cash, evidence of an ownership in an entity, or a contract which creates an obligation or right to receive or deliver cash or another financial instrument from/to a second entity on potentially favorable or unfavorable terms. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. If no readily available market exists, the fair value estimates for financial instruments should be based upon management’s judgment regarding current economic conditions, interest rate risk, expected cash flows, future estimated losses and other factors, as determined through various option pricing formulas or simulation modeling. As many of these assumptions result from judgments made by management based upon estimates which are inherently uncertain, the resulting estimated fair values may not be indicative of the amount realizable in the sale of a particular financial instrument. In addition, changes in the assumptions on which the estimated fair values are based may have significant impact on the resulting estimated fair values. As certain assets such as deferred tax assets and premises and equipment are not considered financial instruments, the estimated fair value of financial instruments would not represent the full value of the Company. 23 Table of Contents The following table presents the estimated fair values of the Company’s financial instruments at the dates indicated. June 30, 2022 December 31, 2021 Fair Value Hierarchy Carrying Value Fair Value Carrying Value Fair Value (Dollars in thousands) Financial Assets: Cash and Due From Banks: Interest Bearing Level 1 $ 49,961 $ 49,961 $ 63,968 $ 63,968 Non-Interest Bearing Level 1 31,160 31,160 55,706 55,706 Securities See Above 213,505 213,505 224,974 224,974 Loans, Net Level 3 1,015,136 994,753 1,009,214 1,039,980 Restricted Stock Level 2 2,804 2,804 3,403 3,403 Mortgage Servicing Rights Level 3 683 982 730 773 Accrued Interest Receivable Level 2 3,314 3,314 3,350 3,350 Financial Liabilities: Deposits Level 2 1,215,190 1,212,509 1,226,613 1,227,653 Short-Term Borrowings Level 2 32,178 32,167 39,266 39,266 Other Borrowed Funds FHLB Borrowings Level 2 3,000 3,000 3,000 3,000 Subordinated Debt Level 2 14,618 13,947 14,601 15,000 Accrued Interest Payable Level 2 444 444 486 486 Note 7. Commitments and Contingent Liabilities The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business primarily to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby and performance letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the Consolidated Statements of Financial Condition. The contract amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments. The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby and performance letters of credit written is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments. Commitments and conditional obligations are evaluated the same as on-balance-sheet instruments but do not have a corresponding reserve recorded. The Company’s opinion on not implementing a corresponding reserve for off-balance-sheet instruments is supported by historical factors of no losses recorded due to these items. The Company is continually evaluating these items for credit quality and any future need for the corresponding reserve. 24 Table of Contents The following table presents the unused and available credit balances of financial instruments whose contracts represent credit risk at the dates indicated. June 30, 2022 December 31, 2021 (Dollars in thousands) Standby Letters of Credit $ 110 $ 110 Performance Letters of Credit 1,675 2,873 Construction Mortgages 43,650 55,597 Personal Lines of Credit 7,101 7,055 Overdraft Protection Lines 5,484 5,709 Home Equity Lines of Credit 22,999 21,187 Commercial Lines of Credit 78,929 83,316 Total Commitments $ 159,948 $ 175,847 Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee by the customer. Because many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the counterparty. Collateral held varies, but may include accounts receivable, inventory, property, plant and equipment, and income-producing commercial properties. Performance letters of credit represent conditional commitments issued by the Company to guarantee the performance of a customer to a third party. These instruments are issued primarily to support bid or performance-related contracts. The coverage period for these instruments is typically a one-year period with an annual renewal option subject to prior approval by management. Fees earned from the issuance of these letters are recognized upon expiration of the letter. For secured letters of credit, the collateral is typically Company deposit instruments or customer business assets. Note 8. Leases The Company evaluates contracts at commencement to determine if a lease is present. The Company’s lease contracts are all classified as operating leases and create operating right-of-use (“ROU”) assets and corresponding lease liabilities on the Consolidated Statements of Financial Condition. The leases are primarily ROU assets of land and building for branch and loan production locations. ROU assets are reported in Accrued Interest Receivable and Other Assets and the related lease liabilities in Accrued Interest Payable and Other Liabilities on the Consolidated Statements of Financial Condition. The following tables present the lease expense, ROU assets, weighted average term, discount rate and maturity analysis of lease liabilities for operating leases for the periods and dates indicated. Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 (Dollars in thousands) Operating Lease Expense $ 89 $ 88 $ 171 $ 183 Short-Term Lease Expense 1 9 1 17 Variable Lease Expense 7 8 14 16 Total Lease Expense $ 97 $ 105 $ 186 $ 216 25 Table of Contents June 30, 2022 December 31, 2021 (Dollars in thousands) Operating Leases: ROU Assets $ 1,807 $ 674 Weighted Average Lease Term in Years 8.77 7.33 Weighted Average Discount Rate 2.56 % 2.51 % June 30, 2022 (Dollars in thousands) Maturity Analysis: Due in One Year $ 239 Due After One Year to Two Years 292 Due After Two Years to Three Years 260 Due After Three Years to Four Years 225 Due After Four to Five Years 195 Due After Five Years 1,064 Total $ 2,275 Less: Present Value Discount 280 Lease Liabilities $ 1,995 During the six months ended June 30, 2022, the Company entered into a new lease agreement for the McMurray, PA branch, for a 10-year term ending March 31, 2032, as well as a new lease agreement for the Waynesburg branch, for a 5-year term ending July 31, 2027. The increase to the operating Right of Use Asset and corresponding lease liability is approximately $ 1.3 million. 26 Table of Contents Note 9. Other Noninterest Expense The details of other noninterest expense for the Company’s Consolidated Statements of Income (Loss) for the periods indicated are as follows: Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 (Dollars in thousands) Non-Employee Compensation $ 139 $ 141 $ 270 $ 290 Printing and Supplies 46 65 127 164 Postage 33 115 137 178 Telephone 119 140 258 328 Charitable Contributions 39 21 80 35 Dues and Subscriptions 39 37 97 88 Loan Expenses 124 110 250 202 Meals and Entertainment 38 26 68 60 Travel 34 28 73 50 Training 13 7 31 24 Bank Assessment 47 44 94 88 Insurance 69 59 131 119 Miscellaneous 98 152 221 301 Total Other Noninterest Expense $ 838 $ 945 $ 1,837 $ 1,927 Note 10. Segment and Related Information At June 30, 2022, the Company’s business activities were comprised of two operating segments, which are community banking and insurance brokerage services. CB Financial is the parent company of the Bank and Exchange Underwriters, a wholly owned subsidiary of the Bank. Exchange Underwriters has an independent board of directors from the Company and is managed separately from the banking and related financial services that the Company offers. Exchange Underwriters is an independent insurance agency that offers property, casualty, commercial liability, surety and other insurance products. 27 Table of Contents The following is a table of selected financial data for the Company’s subsidiaries and consolidated results at the dates and for the periods indicated. Community Bank Exchange Underwriters, Inc. CB Financial Services, Inc. Net Eliminations Consolidated (Dollars in thousands) June 30, 2022 Assets $ 1,385,888 $ 4,782 $ 128,432 $ ( 132,641 ) $ 1,386,461 Liabilities 1,275,170 1,674 14,660 ( 18,815 ) 1,272,689 Stockholders' Equity 110,718 3,108 113,772 ( 113,826 ) 113,772 December 31, 2021 Assets $ 1,425,588 $ 5,110 $ 147,829 $ ( 153,048 ) $ 1,425,479 Liabilities 1,299,325 1,731 14,705 ( 23,406 ) 1,292,355 Stockholders' Equity 126,263 3,379 133,124 ( 129,642 ) 133,124 Three Months Ended June 30, 2022 Interest and Dividend Income $ 10,940 $ 2 $ 1,255 $ ( 1,239 ) $ 10,958 Interest Expense 640 — 155 — 795 Net Interest and Dividend Income 10,300 2 1,100 ( 1,239 ) 10,163 Provision for Loan Losses 3,784 — — — 3,784 Net Interest and Dividend Income After Provision for Loan Losses 6,516 2 1,100 ( 1,239 ) 6,379 Noninterest Income (Loss) 903 1,369 ( 167 ) — 2,105 Noninterest Expense 7,420 985 5 — 8,410 Undistributed Net Income (Loss) of Subsidiary 273 — ( 897 ) 624 — Income Before Income Tax Expense (Benefit) 272 386 31 ( 615 ) 74 Income Tax Expense (Benefit) ( 70 ) 113 ( 87 ) — ( 44 ) Net Income (Loss) $ 342 $ 273 $ 118 $ ( 615 ) $ 118 Six Months Ended June 30, 2022 Interest and Dividend Income $ 21,535 $ 3 $ 2,534 $ ( 2,498 ) $ 21,574 Interest Expense 1,208 — 310 — 1,518 Net Interest and Dividend Income 20,327 3 2,224 ( 2,498 ) 20,056 Provision for Loan Losses 3,784 — — — 3,784 Net Interest and Dividend Income After Provision for Loan Losses 16,543 3 2,224 ( 2,498 ) 16,272 Noninterest Income (Loss) 1,680 3,166 ( 128 ) — 4,718 Noninterest Expense 15,065 1,992 9 — 17,066 Undistributed Net Income of Subsidiary 834 — 955 ( 1,789 ) — Income Before Income Tax Expense (Benefit) 3,992 1,177 3,042 ( 4,287 ) 3,924 Income Tax Expense (Benefit) 540 343 ( 124 ) — 759 Net Income (Loss) $ 3,452 $ 834 $ 3,166 $ ( 4,287 ) $ 3,165 28 Table of Contents Community Bank Exchange Underwriters, Inc. CB Financial Services, Inc. Net Eliminations Consolidated (Dollars in thousands) Three Months Ended June 30, 2021 Interest and Dividend Income $ 10,798 $ 1 $ 5,825 $ ( 5,804 ) $ 10,820 Interest Expense 886 — — — 886 Net Interest and Dividend Income 9,912 1 5,825 ( 5,804 ) 9,934 (Recovery) Provision for Loan Losses ( 1,200 ) — — — ( 1,200 ) Net Interest and Dividend Income After (Recovery) Provision for Loan Losses 11,112 1 5,825 ( 5,804 ) 11,134 Noninterest Income 1,002 1,209 8 — 2,219 Noninterest Expense 12,757 962 3 — 13,722 Undistributed Net Income (Loss) of Subsidiary 177 — ( 6,050 ) 5,873 — (Loss) Income Before Income Tax Expense (Benefit) ( 466 ) 248 ( 220 ) 69 ( 369 ) Income Tax (Benefit) Expense ( 220 ) 71 3 — ( 146 ) Net (Loss) Income $ ( 246 ) $ 177 $ ( 223 ) $ 69 $ ( 223 ) Six Months Ended June 30, 2021 Interest and Dividend Income $ 21,768 $ 3 $ 7,145 $ ( 7,108 ) $ 21,808 Interest Expense 1,897 — — — 1,897 Net Interest and Dividend Income 19,871 3 7,145 ( 7,108 ) 19,911 (Recovery) Provision for Loan Losses ( 1,200 ) — — — ( 1,200 ) Net Interest and Dividend Income After (Recovery) Provision for Loan Losses 21,071 3 7,145 ( 7,108 ) 21,111 Noninterest Income 2,345 2,800 248 — 5,393 Noninterest Expense 21,147 1,964 6 — 23,117 Undistributed Net Income (Loss) of Subsidiary 585 — ( 4,750 ) 4,165 — Income Before Income Tax Expense 2,854 839 2,637 ( 2,943 ) 3,387 Income Tax Expense 496 254 15 — 765 Net Income (Loss) $ 2,358 $ 585 $ 2,622 $ ( 2,943 ) $ 2,622 29 Table of Contents Note 11. Stock Based Compensation The following table presents stock option information for the period indicated. Number of Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Life in Years Outstanding Options at December 31, 2021 207,641 $ 24.01 4.8 Granted 89,465 25.79 Exercised ( 7,500 ) 22.25 Forfeited ( 3,088 ) 26.87 Outstanding Options at June 30, 2022 286,518 $ 24.58 5.4 Exercisable Options at June 30, 2022 188,353 $ 24.33 3.6 Number of Shares Weighted Average Exercise Price Weighted Average Remaining Service Period in Years Nonvested Options at June 30, 2022 98,165 $ 25.07 9.0 Summary of Significant Assumptions for Newly Issued Stock Options Expected Term in Years 6.5 Expected Volatility 28.7 % Expected Dividends $ 0.96 Risk Free Rate of Return 1.60 % Weighted Average Grant Date Fair Value (per share) $ 4.86 The following table presents restricted stock award information for the period indicated Number of Shares Weighted Average Grant Date Fair Value Price Weighted Average Remaining Service Period in Years Nonvested Restricted Stock at December 31, 2021 56,140 $ 23.90 5.3 Granted 21,765 26.07 Vested ( 120 ) 23.60 Forfeited ( 2,325 ) 23.80 Nonvested Restricted Stock at June 30, 2022 75,460 $ 24.53 4.2 The Company recognizes expense over a five-year vesting period for the restricted stock awards and stock options. Stock-based compensation expense related to restricted stock awards and stock options was $ 149,000 and $ 125,000 for the three months ended June 30, 2022 and 2021, and $ 279,000 and $ 246,000 for the six months ended June 30, 2022 and 2021, respectively. As of June 30, 2022 and December 31, 2021, total unrecognized compensation expense was $ 436,718 and $ 65,000 , respectively, related to stock options, and $ 1.6 million and $ 1.3 million, respectively, related to restricted stock awards. Intrinsic value represents the amount by which the fair value of the underlying stock at June 30, 2022 and December 31, 2021 exceeds the exercise price of the stock options. The intrinsic value of stock options was $ 190,016 and $ 296,000 at June 30, 2022 and December 31, 2021, respectively. At June 30, 2022 and December 31, 2021, respectively, there were 358,235 and 500,000 shares available under the Plan to be issued in connection with the exercise of stock options, and 143,294 and 200,000 shares that may be issued as restricted stock awards or units. Restricted stock awards or units may be issued above this amount provided that the number of shares reserved for stock options is reduced by two and one-half shares for each restricted stock award or unit share granted. 30 Table of Contents Note 12. Subsequent Events The Company evaluated subsequent events through the date the consolidated financial statements were filed with the SEC and incorporated into the consolidated financial statements the effect of all material known events determined by Accounting Standards Codification ("ASC") 855, Subsequent Events , to be recognizable events .