What changed in this filing

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Item 9A. Controls and Procedures

2023-03-10 compared with 2022-03-11 · 266 added, 375 removed, 1440 unchanged (31% of the section changed)

2 unchanged sentences

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2022.

The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.

disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.

Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

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PRINCIPAL ACCOUNTANT FEES AND SERVICES

Our independent registered public accounting firm for 2021 is BKD, LLP , Pittsburgh, Pennsylvania , Auditor Firm ID 686 .

Our independent registered public accounting firm for 2020 was Baker Tilly US, LLP , Pittsburgh, Pennsylvania , Auditor Firm ID 23 .

Our independent registered public accounting firm for 2022 is FORVIS, LLP (formerly BKD, LLP) , Pittsburgh, Pennsylvania , Auditor Firm ID 686 .

Our independent registered public accounting firm for 2021 was BKD, LLP, Pittsburgh, Pennsylvania, Auditor Firm ID 686 .

Information required by this item is incorporated by reference in the Proxy Statement for the 2023 Annual Meeting.

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The financial statements filed as a part of this Form 10-K are:

(A) Reports of Independent Registered Public Accounting Firms;

(A) Report of Independent Registered Public Accounting Firm;

(B) Consolidated Statements of Financial Condition at December 31, 2022 and 2021;

(D) Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2021 and 2020;

(D) Consolidated Statements of Comprehensive (Loss) Income for the Years Ended December 31, 2022 and 2021;

(E) Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2022 and 2021;

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4.1 Form of Stock Certificate of CB Financial Services, Inc.

4.2 Description of Registrant's Securitie s (3)

4.2 Description of Registrant's Securities (3)

10.1 Employment Agreement by and between Community Bank and John H.

Montgomery (4)

10.2 Employment Agreement by and between Community Bank and Ralph Burchianti ( 5 )

10.2 Executive Consultant Agreement by and between Community Bank and Ralph Burchianti (5)

10.3 Employment Agreement by and between Community Bank and Jamie L.

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10.17 Subordinated Note Purchase Agreement (13)

10.18 Employment Agreement by and between Community Bank and Jennifer L.

21 Subsidiaries

23.1 Consent of BKD, LLP

23.2 Consent of Baker Tilly US, LLP

23.1 Consent of F ORVIS , LLP

31.1 Certification required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

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101.0 The following materials for the year ended December 31, 2022, formatted in XBRL (Extensible Business Reporting Language):

(i) the Consolidated Statements of Financial Condition, (ii) the Consolidated Statements of Income (Loss), (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Changes in Stockholders’ Equity, (v) the Consolidated Statements of Cash Flows and (vi) the Notes to the Audited Consolidated Financial Statements.

(i) the Consolidated Statements of Financial Condition, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive (Loss) Income, (iv) the Consolidated Statements of Changes in Stockholders’ Equity, (v) the Consolidated Statements of Cash Flows and (vi) the Notes to the Audited Consolidated Financial Statements.

104 Cover Page Interactive Data File (embedded in Inline XBRL contained in Exhibit 101)

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(4) Incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on August 14, 2020.

(5) Incorporated herein by reference to Exhibit 10.3 to the Company’s Form 10-K for the year ended December 31, 2014, filed on March 26, 2015.

(5) Incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K , filed on February 21, 2023.

(6) Incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on May 24, 2020.

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/s/ Roberta Robinson Olejasz By:

/s/ William G.

Roberta Robinson Olejasz William G.

Roberta Robinson Olejasz John M.

Director Director

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March 10, 2023

Pollock John M.

Director Director

March 11, 2022 Date:

March 10, 2023

CONSOLIDATED FINANCIAL STATEMENTS

Report s of Independent Registered Public Accounting Firm

Consolidated Statement s of Financial Condition at December 31, 2021 and 2020

Consolidated Statement s of Operations for the Years Ended December 31, 2021 and 2020

Consolidated Statement s of Comprehensive Income (Loss) for the Years Ended December 31, 2021 and 2020

Consolidated Statement s of Changes in Stockholders’ Equity for the Years Ended December 31, 2021 and 2020

Consolidated Statement s of Cash Flows for the Years Ended December 31, 2021 and 2020

Report of Independent Registered Public Accounting Firm

Consolidated Statements of Financial Condition at December 31, 2022 and 2021

Consolidated Statements of Income for the Years Ended December 31, 2022 and 2021

Consolidated Statements of Comprehensive (Loss) Income for the Years Ended December 31, 2022 and 2021 62

Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2022 and 2021

Consolidated Statements of Cash Flows for the Years Ended December 31, 2022 and 2021

Notes to Consolidated Financial Statements

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Carmichaels, Pennsylvania

Opinion on the Financial Statements

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated statement of financial condition of CB Financial Services, Inc.

(Company) as of December 31, 2021, the related consolidated statements of income (loss), comprehensive income (loss), changes in stockholders’ equity and cash flows for the year ended December 31, 2021, and the related notes (collectively referred to as the financial statements).

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2021, and the results of its operations and its cash flows for the year ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

(Company) as of December 31, 2022 and 2021, and the related consolidated statements of income, comprehensive (loss) income, stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2022, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audit.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audit provides a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Allowance for Loan Losses

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We identified the valuation of the ALLL as a critical audit matter.

Auditing the allowance for loan losses involved significant judgement and complex review as there is a high degree of subjectivity in evaluating management’s estimate, such as evaluating management's assessment of economic conditions and other environmental factors, evaluating the adequacy of specific allowances associated with impaired loans and assessing the appropriateness of loan grades.

Auditing the allowance for loan losses involved significant judgement and complex review as there is a high degree of subjectivity in evaluating management’s estimate, such as

evaluating management's assessment of economic conditions and other environmental factors, evaluating the adequacy of specific allowances associated with impaired loans and assessing the appropriateness of loan grades.

Our audit procedures related to the estimated allowance for loan losses included:

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Evaluating the overall reasonableness of qualitative factor adjustments to historical loss, and the appropriateness of their direction and magnitude and the Company’s support for the direction and magnitude compared to previous years.

FORVIS, LLP (Formerly, BKD, LLP)

We have served as the Company’s auditor since 2021.

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March 10, 2023

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors of

CB Financial Services, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated statement of financial condition of CB Financial Services, Inc.

and Subsidiary (the Company) as of December 31, 2020, and the related consolidated statements of operations, comprehensive loss, changes in stockholders' equity, and cash flows, for the year then ended, and the related notes (collectively referred to as the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company's consolidated financial statements based on our audit.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.

Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audit provides a reasonable basis for our opinion.

/s/ Baker Tilly US, LLP

We served as the Company's auditor from 2006 to 2021.

Pittsburgh, Pennsylvania

March 17, 2021

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

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Common Stock, $ 0.4167 Par Value;

35,000,000 Shares Authorized, 5,680,993 Shares Issued and 5,260,672 and 5,434,374 Shares Outstanding, Respectively

35,000,000 Shares Authorized, 5,708,433 and 5,680,993 Shares Issued and 5,100,189 and 5,260,672 Shares Outstanding, Respectively

Capital Surplus 83,953 83,294

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( 13,797 ) ( 9,144 )

Accumulated Other Comprehensive Income ( 927 ) 3,402

Accumulated Other Comprehensive Loss ( 26,241 ) ( 927 )

TOTAL STOCKHOLDERS' EQUITY 110,155 133,124

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The accompanying notes are an integral part of these consolidated financial statements

CONSOLIDATED STATEMENTS OF INCOME (LOSS)

CONSOLIDATED STATEMENTS OF INCOME

Year Ended December 31, 2022 2021

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NET INTEREST AND DIVIDEND INCOME 42,935 40,152

(Recovery) Provision For Loan Losses ( 1,125 ) 4,000

NET INTEREST AND DIVIDEND INCOME AFTER (RECOVERY) PROVISION FOR LOAN LOSSES 41,277 37,904

Provision (Recovery) For Loan Losses 3,784 ( 1,125 )

NET INTEREST AND DIVIDEND INCOME AFTER PROVISION (RECOVERY) FOR LOAN LOSSES 39,151 41,277

NONINTEREST INCOME

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Net Gain on Sales of Loans — 1,143

Net Gain on Securities 526 233

Net (Loss) Gain on Securities ( 168 ) 526

Net Gain on Purchased Tax Credits 57 70

Gain on Sale of Branches — 5,203

Net Loss on Disposal of Premises and Equipment ( 3 ) ( 61 )

Net Gain (Loss) on Disposal of Premises and Equipment 431 ( 3 )

Income from Bank-Owned Life Insurance 561 553

Other Income (Loss) 320 ( 274 )

Other Income 176 320

TOTAL NONINTEREST INCOME 9,820 16,280

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TOTAL NONINTEREST EXPENSE 34,891 42,862

INCOME (LOSS) BEFORE INCOME TAX EXPENSE 14,695 ( 9,392 )

INCOME BEFORE INCOME TAX EXPENSE 14,080 14,695

Income Tax Expense 2,833 3,125

NET INCOME (LOSS) $ 11,570 $ ( 10,640 )

EARNINGS (LOSS) PER SHARE

NET INCOME $ 11,247 $ 11,570

EARNINGS PER SHARE

Basic $ 2.19 $ 2.15

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The accompanying notes are an integral part of these consolidated financial statements

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

Year Ended December 31, 2022 2021

(Dollars in Thousands)

Net Income (Loss) $ 11,570 $ ( 10,640 )

Other Comprehensive Income:

Change in Unrealized (Loss) Gain on Available-for-Sale Debt Securities ( 5,288 ) 1,446

Net Income $ 11,247 $ 11,570

Other Comprehensive Loss:

Change in Unrealized Loss on Available-for-Sale Debt Securities ( 32,266 ) ( 5,288 )

Income Tax Effect 6,952 1,136

Reclassification Adjustment for Gain on Sale of Debt Securities Included in Net Income (Loss) (1)

( 225 ) ( 489 )

Reclassification Adjustment for Gain on Sale of Debt Securities Included in Net Income (1)

Income Tax Effect (2)

Other Comprehensive (Loss) Income, Net of Income Tax Effect ( 4,329 ) 756

Total Comprehensive Income (Loss) $ 7,241 $ ( 9,884 )

(1) Reported in Net Gain on Securities on the Consolidated Statements of Income (Loss).

(2) Reported in Income Tax Expense on the Consolidated Statements of Income (Loss).

Other Comprehensive Loss, Net of Income Tax Effect ( 25,314 ) ( 4,329 )

Total Comprehensive (Loss) Income $ ( 14,067 ) $ 7,241

(1) Reported in Net (Loss) Gain on Securities on the Consolidated Statements of Incom e.

(2) Reported in Income Tax Expense on the Consolidated Statements of Income.

The accompanying notes are an integral part of these consolidated financial statements

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December 31, 2020 5,680,993 $ 2,367 $ 82,723 $ 51,132 $ ( 5,094 ) $ 3,402 $ 134,530

Net Loss — — — ( 10,640 ) — — ( 10,640 )

Other Comprehensive Income — — — — — 756 756

Net Income — — — 11,570 — — 11,570

Other Comprehensive Loss — — — — — ( 4,329 ) ( 4,329 )

Restricted Stock Awards Forfeited — — 9 — ( 9 ) — —

Restricted Stock Awards Granted — — ( 869 ) — 869 — —

Stock-Based Compensation Expense — — 566 — — — 566

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Restricted Stock Awards Forfeited ( 325 ) — 81 — ( 81 ) — —

Restricted Stock Awards Granted 27,765 12 ( 12 ) — — — —

Stock-Based Compensation Expense — — 600 — — — 600

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OPERATING ACTIVITIES

Net (Loss) Income $ 11,570 $ ( 10,640 )

Adjustments to Reconcile Net Income (Loss) to Net Cash Provided By Operating Activities:

Net Income $ 11,247 $ 11,570

Adjustments to Reconcile Net Income to Net Cash Provided By Operating Activities:

Net Amortization on Securities 66 52

Depreciation and Amortization 2,704 2,435

(Recovery) Provision for Loan Losses ( 1,125 ) 4,000

Provision (Recovery) for Loan Losses 3,784 ( 1,125 )

Other Intangible Asset Impairment — 1,178

Goodwill Impairment — 18,693

Writedown on Premises and Equipment — 2,293

Lease Impairment — 227

Gain on Securities ( 526 ) ( 233 )

Loss (Gain) on Securities 168 ( 526 )

Gain on Sale of Branches — ( 5,203 )

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Noncash Expense for Stock-Based Compensation 600 566

Decrease (Increase) in Accrued Interest Receivable 522 ( 575 )

Loss on Disposal of Premises and Equipment 3 61

Decrease in Deferred Income Tax ( 248 ) ( 237 )

Increase (Decrease) in Taxes Payable 1,888 ( 858 )

Payments on Operating Leases — ( 515 )

(Increase) Decrease in Accrued Interest Receivable ( 633 ) 522

(Gain) Loss on Disposal of Premises and Equipment ( 431 ) 3

Increase (Decrease) in Deferred Income Tax 535 ( 248 )

(Decrease) Increase in Taxes Payable ( 5 ) 1,888

Decrease in Accrued Interest Payable ( 131 ) ( 281 )

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Proceeds from Loans Sold — 12,371

Net Decrease (Increase) in Loans 12,737 ( 89,594 )

Net (Increase) Decrease in Loans ( 31,385 ) 12,737

Purchase of Premises and Equipment ( 509 ) ( 2,385 )

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Proceeds From Sales of Other Real Estate Owned 37 325

Decrease (Increase) in Restricted Equity Securities 582 ( 328 )

Decrease in Restricted Equity Securities 654 582

NET CASH USED IN INVESTING ACTIVITIES ( 28,307 ) ( 60,138 )

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Sale of Deposits, Net of Purchase Premium — ( 97,596 )

(Decrease) Increase in Short-Term Borrowings ( 1,789 ) 10,484

Decrease in Short-Term Borrowings ( 31,206 ) ( 1,789 )

Principal Payments on Other Borrowed Funds ( 3,000 ) ( 5,000 )

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Exercise of Stock Options 220 98

NET CASH PROVIDED BY FINANCING ACTIVITIES 5,846 103,513

(DECREASE) INCREASE IN CASH AND DUE FROM BANKS ( 41,237 ) 80,694

NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES ( 1,818 ) 5,846

DECREASE IN CASH AND DUE FROM BANKS ( 15,974 ) ( 41,237 )

CASH AND DUE FROM BANKS AT BEGINNING OF THE YEAR 119,674 160,911

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Real Estate Acquired in Settlement of Loans $ — $ 73

Non-cash Transaction for Income Tax Receivable — 1,311

Right of Use ("ROU") Asset Recognized 1,556 —

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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 and sale of two branches in 2021 and consolidation of two branches in 2020, the Bank operates from 11 offices in Greene, Allegheny, Washington, Fayette and Westmoreland Counties in southwestern Pennsylvania and three offices in Marshall and Ohio Counties in West Virginia.

After the consolidation of one branch in 2022, and consolidation of six and sale of two branches in 2021, the Bank operates from 10 offices in Greene, Allegheny, Washington, Fayette and Westmoreland Counties in southwestern Pennsylvania and three offices 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.

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Material estimates that are particularly susceptible to significant change in the near term relate to fair value of securities available for sale, 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, the valuation of deferred tax assets and the evaluation of goodwill and core deposit intangible impairment.

Risks and Uncertainties

In March 2020, the World Health Organization declared the outbreak of COVID-19 a global pandemic.

Since then, the COVID-19 pandemic has continued to evolve and mutate, including through its variants, and has adversely affected, and may continue to adversely affect, local, national and global economic activity.

Actions taken to help mitigate the spread of COVID-19 include restrictions on travel, localized quarantines, and government-mandated closures of certain businesses.

While some of these restrictions have been eliminated or relaxed, these same or new restrictions may be implemented again.

Although vaccines for COVID-19 have largely been made available in the U.S., the ultimate efficacy of the vaccines will depend on various factors, including, without limitation, the number of people who receive the vaccines as well as the vaccines’ effectiveness against contracting and spreading COVID-19 and any of its existing or new variants.

The spread of the outbreak has caused significant disruptions to the U.S.

economy, significant reductions in the targeted federal funds rate by the Federal Open Market Committee, and has disrupted the financial industry and real estate markets in the areas in which the Company operates, and it may continue to do so.

Our net interest income is influenced by both the pricing and mix of our interest-earning assets and our interest-bearing liabilities which, in turn, are impacted by such external factors as the monetary policy of the Federal Open Market Committee.

We are unable to predict changes in market interest rates, including the targeted federal funds interest rate, which are affected by many factors beyond our control.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted to, among other provisions, provide emergency assistance for individuals, families and businesses affected by the COVID-19 pandemic.

On December 27, 2020, the Consolidated Appropriations Act (2021) was enacted and provides an additional $900 billion in pandemic-related relief aimed to bolster the economy, provide relief to small businesses and the unemployed, deliver additional stimulus checks to individuals and provide funding for COVID-19 testing and the administration of vaccines while also extending certain provisions of the original CARES Act stimulus package.

Although the CARES Act and Consolidated

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Appropriations Act provided some relief to individuals, families and businesses, the negative impact of COVID-19 remains.

The reduction in interest rates and other effects of the COVID-19 pandemic may continue to materially and adversely affect the Company's financial condition and results of operations in future periods.

It is unknown how long the adverse conditions associated with the COVID-19 pandemic will last and what the complete financial effect will be to the Company.

It is possible that estimates made in the financial statements could be materially and adversely impacted as a result of these conditions, including estimates regarding the allowance for loan losses, impairment of loans, impairment of securities and additional impairment of goodwill.

As the vaccine rollout continues, the Company continues to operate while taking steps to ensure the safety of employees and clients;

however, COVID-19 could potentially create widespread business continuity issues for the Company.

The extent to which the COVID-19 pandemic may continue to impact the Company’s business, financial condition and results of operations in future periods will depend on future developments, including the scope and duration of the pandemic and additional actions taken by governmental authorities and other third parties in response to the pandemic, as well as further actions the Company may take as may be required by government authorities or that the Company determines is in the best interests of its employees and clients.

There is no certainty that such measures will be sufficient to mitigate the risks posed by the pandemic.

Revenue Recognition

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In addition, the Company earns interchange fees from debit/credit cardholder transactions conducted through the applicable payment networks.

Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with the transaction processing services provided to the cardholder.

Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

recognized daily, concurrently with the transaction processing services provided to the cardholder.

The Company currently does not offer a cardholder rewards program.

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These fees fulfill the contract/agreement between the Company and the wealth management firm.

Check sales are recognized as customers contact the Company for

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

check supplies or the customer initiates the check order through the Company website to our third-party check company.

Check sales are recognized as customers contact the Company for check supplies or the customer initiates the check order through the Company website to our third-party check company.

These commissions are recognized as the third-party check company satisfies the contract of providing check stock to our customers.

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Debt securities acquired with the intent and the ability to hold to maturity are stated at cost adjusted for amortization of premium and accretion of discount, which are computed using a level yield method and recognized as adjustments to interest income.

Unrealized holding gains and losses for available-for-sale debt securities are reported as a separate component of stockholders’ equity, net of tax, until realized.

Equity securities are measured at fair value with the change in fair value recognized in Net Gain on Securities within the noninterest income category in the Consolidated Statements of Income (Loss).

Unrealized holding gains and losses for available-for-sale debt securities are reported as a

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

separate component of stockholders’ equity, net of tax, until realized.

Equity securities are measured at fair value with the change in fair value recognized in Net Gain on Securities within the noninterest income category in the Consolidated Statements of Income.

Realized securities gains and losses, if any, are computed using the specific identification method.

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The amount of the total other-than-temporary impairment related to credit loss is recognized in earnings.

The amount of other-than-temporary impairment related to other factors is recognized in other comprehensive income (loss).

The amount of other-than-temporary impairment related to other factors is recognized in other comprehensive loss.

Common stock of the Federal Home Loan Bank (“FHLB”) and of Atlantic Community Bankers’ Bank (“ACBB”) represent ownership in organizations that are wholly owned by other financial institutions.

These restricted equity securities are accounted for based on industry guidance in ASC Sub-Topic 325-20, which requires the investment to be carried at cost and

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

evaluated for impairment based on the ultimate recoverability of the par value.

These restricted equity securities are accounted for based on industry guidance in ASC Sub-Topic 325-20, which requires the investment to be carried at cost and evaluated for impairment based on the ultimate recoverability of the par value.

Included in accrued interest and other assets are FHLB stock of $ 2.7 million and $ 3.3 million at December 31, 2022 and 2021, respectively, and ACBB stock of $ 85,000 at December 31, 2022 and 2021.

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however, they have additional credit risk due to the type of collateral securing the loan.

Accrual of interest on loans is generally discontinued when it is determined that a reasonable doubt exists as to the collectability of principal, interest, or both.

Accrual of interest on loans is generally discontinued when it is determined that a reasonable doubt exists as to the collectability of principal and interest or when a loan becomes contractually past due by 90 days or more with respect to principal or interest.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

When a loan is placed on non-accrual status, any accrued but uncollected interest is reversed from current income.

Payments received on nonaccrual loans are applied against principal.

11 unchanged sentences

TDRs typically are the result of loss mitigation activities whereby concessions are granted to minimize loss and avoid foreclosure or repossession of collateral.

The Company evaluates the

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

probability that the borrower will be in payment default on any of its debt in the foreseeable future without modification.

The Company evaluates the probability that the borrower will be in payment default on any of its debt in the foreseeable future without modification.

To make this determination a credit review is performed to assess the ability of the borrower to meet their obligations.

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A loan may be removed from nonaccrual TDR status if it has performed according to its modified terms for at least six consecutive months.

Section 4013 of the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") and regulatory guidance promulgated by federal banking regulators provide temporary relief from accounting and financial reporting requirements for TDRs regarding certain short-term loan modifications related to COVID-19.

Specifically, the CARES Act provides that the Bank may elect to suspend the requirements under GAAP for certain loan modifications that would otherwise be categorized as a TDR and suspend any determination that such loan modifications would be considered a TDR, including the related impairment for accounting purposes.

Any modification involving a loan that was not more than 30 days past due as of December 31, 2019 and that occurs beginning on March 1, 2020 and ends on the earlier of January 1, 2022 (as extended by the Consolidated Appropriations Act, 2021) or the date that is 60 days after the termination date of the national emergency related to the COVID-19 outbreak qualify for this exception, including a forbearance arrangement, interest rate modification, repayment plan or any other similar arrangement that defers or delays the payment of principal or interest.

Bank regulatory agencies released an interagency statement that offers practical expedients for modifications that occur in response to the COVID-19 pandemic, but it differs with the CARES Act in certain areas.

The expedients require a lender to conclude that a borrower is not experiencing financial difficulty if either short-term (e.g., six months or less) modifications are made, such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant related to loans in which the borrower is less than 30 days past due on its contractual payments at the time a modification program is implemented or the modification or deferral program is mandated by the federal government or a state government.

The bank regulatory agencies have subsequently confirmed that their guidance could be applicable for loans that do not qualify for favorable accounting treatment under Section 4013 of the CARES Act.

Both Section 4013 of the CARES Act and the interagency statement can be applied to a second modification that occurs after the first modification provided that the second modification does not qualify as a TDR under Section 4013 of the CARES Act or the interagency statement.

In its evaluation of whether a payment deferral qualifies as short-term under the interagency statement, an entity should assess multiple payment deferrals collectively (i.e., the cumulative deferrals cannot exceed six months).

The Bank offered forbearance options for borrowers impacted by COVID-19 that provided a short-term delay in payment by primarily allowing:

(a) deferral of three to six months of payments;

or (b) for consumer loans not secured by a real estate mortgage, three months of interest-only payments that also extends the maturity date of the loan by three months .

During the forbearance period, the borrower was not considered delinquent for credit bureau reporting purposes.

The Company elected the practical expedients related to TDRs that are available in the CARES Act and interagency guidance as an entity-wide accounting policy and did not consider any of the forbearance agreements TDRs, delinquent, or nonaccrual.

The performance and credit quality of the loan portfolio are also monitored by analyzing the age of the loans receivable as determined by the length of time a recorded payment is past due.

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Management performs a quarterly evaluation of the adequacy of the allowance based on potential losses in the current loan portfolio, which includes an assessment of economic conditions, changes in the nature and volume of the loan portfolio, loan loss experience, volume and severity of past due, classified and nonaccrual loans as well as other loan modifications, quality of the Company’s loan review system, the degree of oversight by the Company’s board of directors, existence and effect of any concentrations of credit and changes in the level of such concentrations, effect of external factors, such as competition and legal and regulatory requirements, and other relevant factors.

While management uses the best information available to make such evaluations, future adjustments to the allowance may be necessary if economic conditions

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

differ substantially from the assumptions used in making evaluations.

While management uses the best information available to make such evaluations, future adjustments to the allowance may be necessary if economic conditions differ substantially from the assumptions used in making evaluations.

Additions are made to the allowance through periodic provisions charged to income and recovery of principal and interest on loans previously charged-off.

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Generally, management considers all substandard, doubtful, and loss-rated loans, nonaccrual loans, and TDRs for impairment.

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.

Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

The maximum period without payment that typically can occur before a loan is considered for impairment is 90 days.

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Impaired loans are not returned to accrual status until all amounts due, both principal and interest, are current and a sustained payment history has been demonstrated.

The general allowance component covers pools of homogeneous loans by loan class.

The general allowance component covers pools of loans by loan class.

Management determines historical loss experience for each segment of loans using the five-year rolling average of the net charge-off data within each segment.

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Although the Company had a diversified loan portfolio at December 31, 2022 and 2021, a substantial portion of its debtors’ ability to honor their contracts is determined by the economic environment of these counties within the tri-state region footprint.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Premises and Equipment

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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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Real Estate Owned

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Direct costs incurred in the foreclosure process and subsequent holding costs incurred on such properties are recorded as expenses of current operations.

Real estate owned was $ 36,000 and $ 208,000 at December 31, 2021 and 2020, respectively.

Real estate owned was none and $ 36,000 at December 31, 2022 and 2021, respectively.

The Company accounts for income taxes in accordance with income tax accounting guidance in ASC Topic 740, Income Taxes .

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The Company has assigned 100 % of the goodwill to the Community Banking reporting unit.

Determining the fair value of a reporting unit under the goodwill impairment test is judgmental and often involves the use of significant estimates and assumptions.

In 2019, the Company adopted Accounting Standards Update (“ASU”) 2017-04 whereby the Company applies a one-step quantitative test and records the amount of goodwill impairment as the excess of a reporting unit's carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit.

The Company has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount.

If, after assessing the totality of events or circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing a step one impairment test is unnecessary.

An entity also has the option to bypass the qualitative assessment for any reporting unit and proceed directly to the first step of impairment testing.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company recorded goodwill impairment of $ 18.7 million for the year ended December 31, 2020 and did no t record any goodwill impairment for the year ended December 31, 2021.

In assessing the impairment, the Company has the the option to perform either a qualitative analysis to determine whether it is necessary to perform the goodwill impairment test, or the Company may elect to perform a quantitative goodwill impairment test.

Under the qualitative assessment, the Company assesses the existence of events or circumstances to determine whether it is more-likely-than-not that the fair value of the reporting unit is less than its carrying amount, including, goodwill.

If this is more likely than not, the goodwill impairment test is used to identify potential goodwill impairment and measure the amount of a goodwill impairment loss to be recognized, if any.

The estimated fair value of the community banking reporting unit is compared to its carrying value, including goodwill.

If the estimated fair value of the reporting unit exceeds its carrying amount, the goodwill of the reporting unit is not considered impaired, and no impairment loss is recognized.

However, if the carrying amount of the reporting unit exceeds its fair value, an impairment loss is recognized based on the excess of the a reporting unit's carrying value over its fair value.

The Company did no t record any goodwill impairment for the years ended December 31, 2022 and 2021.

Intangible assets represent purchased assets that lack physical substance but can be distinguished from goodwill because of contractual or other legal rights.

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There were no events or changes in circumstances indicating impairment of other intangible assets at December 31, 2022.

The Company recorded impairment related to core deposit intangible of $ 1.2 million for the year ended December 31, 2021.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Future events could cause us to conclude that goodwill or other intangibles have become impaired, which would result in recording an impairment.

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The fees are based on contractual percentage of the outstanding principal or a fixed amount per loan and are recorded as income when earned.

The amortization of MSRs is netted against servicing fee income in Other Income (Loss) within the noninterest income category in the Consolidated Statements of Income (Loss).

The amortization of MSRs is netted against servicing fee income in Other Income within the noninterest income category in the Consolidated Statements of Income.

MSRs are evaluated for impairment based on the estimated fair value of the MSRs.

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At the date of subsequent reissue, the treasury stock account is reduced by the cost of such stock on the average cost basis, with any excess proceeds being credited to capital surplus.

Comprehensive Income (Loss)

Comprehensive income (loss) consists of net income (loss) and other comprehensive income.

Other comprehensive income is comprised of unrealized holding gains on available-for-sale debt securities, net of tax.

Comprehensive (Loss) Income

Comprehensive (loss) income consists of net income and other comprehensive loss.

Other comprehensive loss is comprised of unrealized holding losses and reclassification adjustment for gain on sale of available-for-sale debt securities, net of tax.

Earnings Per Share

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however, no awards may be granted under the 2021 Plan on or after the day immediately prior to the ten-year anniversary of the effective date of the 2021 Plan.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

participants under the 2021 Plan is equal to 500,000 shares of Company common stock (the “Share Limit”).

Awards may be granted under the 2021 Plan as incentive and non-statutory stock options, restricted stock awards, restricted stock units or any combination thereof, The maximum number of shares of Company common stock that may be delivered to participants under the 2021 Plan is equal to 500,000 shares of Company common stock (the “Share Limit”).

Shares of Company common stock subject to the Share Limit may be issued pursuant to grants of stock options, restricted stock awards or restricted stock units, provided, however that the Share Limit is reduced, on a one-for-one basis, for each share of common stock subject to a stock option grant, and on a two and one-half-for-one basis for each share of common stock issued pursuant to restricted stock awards or restricted stock unit awards.

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Employees and directors of the Company or its subsidiaries are eligible to receive awards under the 2021 Equity Incentive Plan, except that non-employees may not be granted incentive stock options.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In 2015, the Company’s stockholders approved the 2015 Equity Incentive Plan (the “2015 Plan”), which has similar characteristics to the 2021 Plan.

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The Company routinely performs assessments of the recoverability of long-lived assets when events or changes in circumstances indicate that their carrying values may not be recoverable and are in excess of their fair value, less estimated costs to sell.

If estimated recoverable amounts are lower than carrying values, assets are considered impaired and reduced to fair value with the recognized impairment charges recorded in noninterest expense in the Consolidated Statements of (Loss) Income.

Long-lived assets are tested for impairment individually or as part of an asset group.

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• An accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset (asset group).

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

• A current-period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset (asset group).

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If indicators of impairment are present, the Company performs a recoverability test comparing the sum of the estimated undiscounted cash flows attributable to the long-lived asset or asset group in question to the carrying amount of the long-lived asset or asset group.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Step 3—Measurement of an Impairment Loss

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ASC 360 prohibits the subsequent reversal of an impairment loss for an asset held and used.

Reclassifications

Certain comparative amounts for prior periods may have been reclassified to conform to the current year presentation.

Such reclassifications did not affect net income or stockholders’ equity.

Recent Accounting Standards

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In March 2020, the Financial Accounting Standard Board (“FASB”) issued ASU 2020-04, Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting.

Facilitation of the Effects of Reference Rate Reform on Financial Reporting, as amended.

This ASU provides temporary optional guidance to ease the potential burden in accounting for reference rate reform.

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The Company is in the process of implementing fallback language for loans or working with lead participating banks and expects to adopt the LIBOR transition relief allowed by the optional expedient under this standard.

As of December 31, 2021, the Company has identified approximately $ 160.0 million in

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

outstanding loan balances and a $ 5.0 million corporate debt security tied to the LIBOR reference rate.

As of December 31, 2022, the Company has identified approximately $ 129.0 million in outstanding loan balances and a $ 5.0 million corporate debt security tied to the LIBOR reference rate.

The Company has not yet made any contract modifications.

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and (v) employee stock ownership plans and investments in qualified affordable housing projects accounted for using the equity method.

For public business entities, the amendments in ASU 2019-12 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020.

For public business entities, the amendments in ASU 2019-12 are effective for fiscal years, and

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

interim periods within those fiscal years, beginning after December 15, 2020.

The adoption of this ASU did not have a material impact on the Company's consolidated statements of financial condition or results of operation.

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ASU 2016-13 affects companies holding financial assets and net investment in leases that are not accounted for at 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.

The ASU 2016-13 amendments affect loans, HTM 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) PER SHARE

The Company has adopted ASU No.

2016-13 (Topic 326) effective January 1, 2023 using the modified retrospective approach for all financial assets measured at amortized costs and unfunded commitments..

The Company has largely completed its assessment of related processes, internal controls, and data sources and has developed, documented, and validated discounted cash flow (DCF) model utilizing a third-party software provider.

Our allowance for credit losses (“ACL”) estimate uses DCF model and estimation techniques based on historical loss experience, current borrower characteristics, current conditions, forecasts of future economic conditions and other relevant factors.

The Company will use models and other loss estimation techniques that are responsive to changes in forecasted economic conditions to interpret borrower and economic factors in order to estimate the ACL.

The Company also applies qualitative factors to account for information that may not be reflected in quantitatively derived results.

Qualitative factors include:

changes in lending policies and procedures;

changes in the nature and volume of the loan portfolio;

changes in management;

changes in the quality of the Bank’s loan review process;

the existence of any concentrations of credit and other external factors to ensure the ACL reflects our expected credit losses.

The Company expects its ACL estimate to be sensitive to various factors such as current economic conditions.

The ACL includes off-balance sheet credit exposures (OBS) such as unfunded loan commitments.

While the Company continues to analyze and evaluate the impact of the adoption of this guidance on the Company’s consolidated financial statements, based upon the Company’s fourth quarter parallel run, assessment of the composition, characteristics and credit quality of the Company's loan portfolio, as well as the economic conditions in effect as of the adoption date - January 1, 2023, management estimates the adoption of ASC 326 will result in will result in a decrease of approximately $ 3.4 million to the Company’s ACL related to loans receivable and increase of approximately $ 700,000 in ACL for unfunded commitments.

Net impact of the adopting ASC 326, will result in approximately $ 2.1 million increase to retained earnings, net of deferred taxes.

The adjustment recorded upon adoption to record the ACL may fall outside of management’s estimate based on material changes in the economic forecast and conditions and composition of the loan portfolio used in calculating the allowance for credit losses upon adoption.

In December 2018, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation (“FDIC”) and the Office of Comptroller of the Currency (“OCC”) approved a final rule to address changes to credit loss accounting under GAAP, including banking organizations’ adoption of the CECL methodology.

The final rule provides banking organizations the option to phase-in, over a three-year period, the day-one adverse effects on regulatory capital that may result from the adoption of the new accounting standard.

The Company does not expect to use the phase in option upon adoption of this is ASU.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2— EARNINGS PER SHARE

There are no convertible securities, which would affect the numerator in calculating basic and diluted earnings per share;

therefore, net income (loss) as presented on the Consolidated Statements of Income (Loss) is used as the numerator.

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.

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(Dollars in Thousands, Except Share and Per Share Data)

Net Income (Loss) $ 11,570 $ ( 10,640 )

Net Income $ 11,247 $ 11,570

Weighted-Average Basic Common Shares Outstanding 5,136,670 5,382,441

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Weighted-Average Diluted Common Shares and Common Stock Equivalents Outstanding 5,149,312 5,392,729

Earnings (Loss) Per Share:

Earnings Per Share:

Basic $ 2.19 $ 2.15

Diluted 2.18 2.15

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The dilutive effect on weighted average diluted common shares outstanding is the result of outstanding stock options and nonvested restricted stock.

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Restricted Stock 38,140 17,100

When there is a net loss for the period, the exercise or conversion of any potential shares increases the number of shares in the denominator and results in a lower loss per share.

In that situation, the potential shares are antidilutive and not included in the Company's loss per share calculation.

Therefore, if there is a net loss, diluted loss per share is the same as basic loss per share.

NOTE 3— SECURITIES

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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

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Government Agencies 1 $ 2,600 $ ( 400 ) 12 $ 42,034 $ ( 8,959 ) 13 $ 44,634 $ ( 9,359 )

Obligations of States and Political Subdivisions 34 13,342 ( 711 ) — — — 34 13,342 ( 711 )

Mortgage-Backed Securities - Government Sponsored Enterprises 34 19,433 ( 1,018 ) 8 21,994 ( 3,900 ) 42 41,427 ( 4,918 )

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Government Agencies 5 $ 17,729 $ ( 269 ) 7 $ 31,830 $ ( 1,164 ) 12 $ 49,559 $ ( 1,433 )

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 )

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For debt securities, the Company does not believe any individual unrealized loss as of December 31, 2022 or 2021, represents an other-than-temporary impairment.

The securities that are temporarily impaired at December 31, 2022 and 2021, relate principally to changes in interest rates subsequent to the acquisition of the specific securities.

The Company does not intend to sell or 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.

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 $ 175.6 million and $ 121.0 million at December 31, 2022 and 2021, respectively, are pledged to secure public deposits, short-term borrowings and for other purposes as required or permitted by law.

The scheduled maturities of securities available-for-sale are summarized as follows.

Actual maturities will differ from contractual maturities because borrowers may have the right to call or prepay debt obligations with or without prepayment

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Actual maturities will differ from contractual maturities because borrowers may have the right to call or prepay debt obligations with or without prepayment penalties.

Mortgage-backed securities and collateralized mortgage obligations are classified in the table below based on their contractual maturity date;

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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 Gain on Securities on the Consolidated Statements of Income (Loss).

All gains and losses presented in the table below are reported in Net Gain on Securities on the Consolidated Statements of Income.

Year Ended December 31, 2022 2021

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Equity Securities

Net Unrealized Gain (Loss) Recognized on Securities Held $ 295 $ ( 267 )

Net Unrealized (Loss) Gain Recognized on Securities Held $ ( 168 ) $ 295

Net Realized Gain Recognized on Securities Sold — 6

Net Gain (Loss) on Equity Securities $ 301 $ ( 256 )

Net Gain on Securities $ 526 $ 233

In 2021, the gross realized gain on the sale of debt securities of $ 225,000 was to recognize gains on higher-interest mortgage-backed securities that were paying down quicker than expected.

Net (Loss) Gain on Equity Securities $ ( 168 ) $ 301

Net (Loss) Gain on Securities $ ( 168 ) $ 526

In 2022, there were no gross realized gains or losses on the sale of debt securities.

In 2021, the realized gain on the sale of debt securities was recognized to mitigate investment-credit risk and to reinvest in higher yielding, longer-term investments as well as to mitigate call risk in a declining interest rate environment.

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Loans, Net $ 1,037,054 $ 1,009,214

The CARES Act was signed into law on March 27, 2020 and provided over $2.0 trillion in emergency economic relief to individuals and businesses impacted by the COVID-19 pandemic, which included authorizing the Small Business Administration (“SBA”) to temporarily guarantee loans under a new 7(a) loan program called the Paycheck Protection Program (“PPP”).

On April 16, 2020, the original $349 billion funding cap was reached.

On April 23, 2020, the Paycheck Protection Program and Health Care Enhancement Act (the “PPP Enhancement Act”) was signed into law and included an additional $484 billion in COVID-19 relief, including allocating an additional $310 billion to replenish the PPP.

PPP was designed to help small businesses keep their workforce employed and cover expenses during the COVID-19 crisis.

Under the PPP, participating SBA and other qualifying lenders originated loans to eligible businesses that are fully guaranteed by the SBA as to principal and accrued interest, have more favorable terms than traditional SBA loans and may be forgiven if the proceeds are used by the borrower for certain eligible purposes.

PPP loans have an interest rate of 1% per annum.

Loans issued prior to June 5, 2020 have a term to maturity of two-years and loans issued after June 5, 2020 have a term to maturity of five-years.

The PPP Flexibility Act of 2020 extended the deferral period for borrower payments of principal, interest, and fees on all PPP loans to the date that the SBA remits the borrower’s loan forgiveness amount to the lender (or, if the borrower does not apply for loan forgiveness, 10 months after the end of the borrower’s loan forgiveness covered period).

Previously the deferral period could end after six months.

In 2020, the Bank received a processing fee from the SBA ranging from 1 % to 5 % depending on the size of the loan, which was offset by a 0.75 % third-party servicing agent fee.

The SBA reopened the PPP in January 2021 and began accepting applications for both First Draw and Second Draw PPP Loans.

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For PPP loans made in 2021, the processing fee from the SBA was the lesser of 50% or $2,500 for loans up to $50,000, 5% for loans greater than $50,000 and up to $350,000, 3% for loans greater than $350,000 and less than $2.0 million and 1% for loans of at least $2.0 million.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents PPP loan activity segregated by loans originated in 2020 and 2021.

2020 2021 Total

Number of Loans Principal Balance Net Deferred Origination Fees Number of Loans Principal Balance Net Deferred Origination Fees Number of Loans Principal Balance Net Deferred Origination Fees

PPP Loans Remaining

Number of Loans Principal Balance Net Deferred Origination Fees

(Dollars in Thousands)

December 31, 2020 507 $ 55,096 $ 1,133

PPP Loans Originated 218 34,617 1,268

PPP Loan Forgiveness Through December 31, 2021

605 69,374 2,152 97 11,027 478 702 80,401 2,630

PPP Loan Forgiveness ( 570 ) ( 63,958 ) ( 1,558 )

Principal Payments or Net Deferred Origination Fees Recognized on Unforgiven PPP Loans — ( 554 ) ( 165 )

PPP Loans Remaining at December 31, 2021

34 $ 1,613 $ 17 121 $ 23,588 $ 661 155 $ 25,201 $ 678

PPP Loans Remaining, Net of Deferred Fees at December 31, 2021

$ 1,596 $ 22,927 $ 24,523

Net deferred origination fees on PPP loans totaled $ 3.5 million, of which $ 1.7 million and $ 1.1 million was recognized during the years ended December 31, 2021 and 2020.

December 31, 2021 155 $ 25,201 $ 678

PPP Loans Originated — $ — $ —

PPP Loan Forgiveness ( 145 ) ( 25,038 ) ( 671 )

Principal Payments or Net Deferred Origination Fees Recognized on Unforgiven PPP Loans — ( 32 ) ( 2 )

December 31, 2022 10 $ 131 $ 5

Net deferred origination fees recognized on PPP loans totaled $ 673,000 and $ 1.7 million during the years ended December 31, 2022 and 2021.

All PPP loans are classified as commercial and industrial loans.

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Total unamortized net deferred loan fees were $ 1.2 million and $ 1.9 million at December 31, 2022 and 2021, respectively.

$ 678,000 and $ 1.1 million of net deferred PPP loan origination fees were unearned as of December 31, 2021 and 2020.

$ 5,000 and $ 678,000 of net deferred PPP loan origination fees were unearned as of December 31, 2022 and 2021.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 dates indicated.

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Total Loans $ 991,155 $ 43,804 $ 14,499 $ 415 $ 1,049,873

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, Pass Special

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Total Loans $ 949,636 $ 55,579 $ 15,069 $ 512 $ 1,020,796

The decrease of $ 12.0 million in the substandard category as of December 31, 2021 compared to December 31, 2020 was mainly from the sale or full payoff in the current year of two of the Bank’s nonperforming commercial real estate loans that were secured by hotels totaling $ 6.7 million and a $ 1.9 million commercial and industrial loan.

The decrease of $ 11.8 million in the special mention category as of December 31, 2022 compared to December 31, 2021 was mainly from commercial real estate and commercial and industrial loan upgrades and payoffs, and a $ 2.7 million commercial and industrial loan charge-off.

The following tables present the classes of the loan portfolio summarized by the aging categories of performing loans and nonaccrual loans as of the dates indicated:

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Total Loans $ 1,041,404 $ 4,371 $ 100 $ — $ 4,471 $ 3,998 $ 1,049,873

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Current 30-59

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Total Loans $ 1,012,860 $ 2,875 $ 98 $ — $ 2,973 $ 4,963 $ 1,020,796

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The decrease in nonaccrual commercial real estate loans at December 31, 2021 compared to December 31, 2020 is primarily related to the sale and full payoff in the current year of two of the Bank’s nonperforming commercial real estate loans that were secured by hotels totaling $ 6.7 million.

The decrease in nonaccrual commercial and industrial loans at December 31, 2022 compared to December 31, 2021 is primarily related to the payoff in the current year of a client relationship that included two nonperforming commercial and industrial loans for $ 1.5 million

Total unrecorded interest income related to nonaccrual loans was $ 203,000 and $ 122,000 for the year ended December 31, 2022 and 2021, respectively.

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Construction — — — 830 36

Commercial and Industrial 7 3 7 253 1

Total With A Related Allowance Recorded $ 1,615 $ 24 $ 1,615 $ 2,037 $ 116

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Commercial $ 266 $ 195 $ 266 $ 421 $ 19

Construction 2,013 104 2,013 169 7

Commercial and Industrial — — — 1,316 29

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Total Impaired Loans $ 15,664 $ 299 $ 16,029 $ 34,388 $ 1,111

The recorded investment of loans evaluated for impairment decreased $ 28.5 million at December 31, 2021 compared to December 31, 2020 and was largely related to commercial real estate loans.

The recorded investment of loans evaluated for impairment decreased $ 575,000 at December 31, 2022 compared to December 31, 2021 and was largely related to commercial real estate loans.

This was primarily the result in the current period of no longer separately evaluating for impairment certain commercial real estate loans secured by hotels that have manageable loan-to-value ratios and exhibited an ability to cash flow during the COVID-19 pandemic.

At December 31, 2020, there were 31 loans in forbearance totaling $ 24.1 million for borrowers impacted by the COVID-19 pandemic, including $ 19.8 million of commercial real estate loans.

All loans exited forbearance in 2021 except a $ 1.9 million commercial real estate loan secured by a hotel, which was considered a troubled debt restructuring upon providing an additional forbearance period and modified payment terms.

The loan was substandard rated at December 31, 2021 and 2020, respectively, and designated as a nonaccrual loan in 2021.

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 $ 571,000 and $ 806,000 at December 31, 2021 and 2020, respectively.

At December 31, 2021, there was one loan in forbearance for a $ 1.9 million commercial real estate loan secured by a hotel, which was considered a troubled debt restructuring upon providing an additional forbearance period and modified payment terms.

The loan was substandard rated at December 31, 2022 and 2021, respectively, and is designated as a nonaccrual loan.

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 $ 1.4 million and $ 571,000 at December 31, 2022 and 2021, respectively.

The concessions granted for the TDRs in the portfolio primarily consist of, but are not limited to, modification of payment or other terms and extension of maturity date.

Loans classified as TDRs consisted of 12 and 15 loans totaling $ 4.0 million and $ 4.7 million as of December 31, 2022 and 2021, respectively.

During the year ended December 31, 2021, a $ 3,000 residential real estate loan, a $ 698,000 commercial real estate loan, and an $ 8,000 commercial and industrial loan previously modified in TDRs paid off.

During the year ended December 31, 2020, two residential real estate loans totaling $ 83,000 and a $ 1,000 commercial and industrial loan previously modified in TDRs paid off.

During the year ended December 31, 2022, a $ 39,000 residential real estate loan and two commercial real estate loans of $ 270,000 previously modified in TDRs paid off.

During the year ended December 31, 2021, one residential real estate loans totaling $ 3,000 and a $ 8,000 commercial and industrial loan previously modified in TDRs paid off.

No TDRs subsequently defaulted during the years ended December 31, 2022 and 2021, respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents information at the time of modification related to loans modified as TDRs during the periods indicated.

Year Ended December 31, 2021 Number

Contracts Pre-

Investment Post-

Investment Related

(Dollars in Thousands)

Commercial 1 $ 1,958 $ 1,958 $ —

Total 1 $ 1,958 $ 1,958 $ —

No loans were modified into a TDR during the year ended December 31, 2022.

The following table presents information at the time of modification related to loans modified as TDRs during the period indicated.

Year Ended December 31, 2021 Number

3 unchanged sentences

(Dollars in Thousands)

Residential 1 $ 234 $ 234 $ —

Commercial 1 $ 1,958 $ 1,958 $ —

Commercial and Industrial 1 38 38 —

Total 1 $ 1,958 $ 1,958 $ —

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Recoveries 145 — — 117 86 — — 348

Provision for Loan Losses (Recovery) ( 833 ) ( 10 ) 360 ( 315 ) ( 162 ) — ( 165 ) ( 1,125 )

Provision (Recovery) for Loan Losses 541 ( 150 ) ( 747 ) 3,757 532 — ( 149 ) 3,784

December 31, 2022 $ 2,074 $ 5,810 $ 502 $ 2,313 $ 1,517 $ — $ 603 $ 12,819

1 unchanged sentence

Collectively Evaluated for Potential Impairment $ 2,074 $ 5,789 $ 502 $ 2,310 $ 1,517 $ — $ 603 $ 12,795

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Residential Real

6 unchanged sentences

Recoveries 17 — — 43 142 — — 202

Provision for Loan Losses (Recovery) 285 3,703 604 ( 1,022 ) 33 — 397 4,000

(Recovery) Provision for Loan Losses ( 833 ) ( 10 ) 360 ( 315 ) ( 162 ) — ( 165 ) ( 1,125 )

December 31, 2021 $ 1,420 $ 5,960 $ 1,249 $ 1,151 $ 1,050 $ — $ 752 $ 11,582

1 unchanged sentence

Collectively Evaluated for Potential Impairment $ 1,420 $ 5,765 $ 1,145 $ 1,151 $ 1,050 $ — $ 752 $ 11,283

Prior to 2020, management determined historical loss experience for each segment of loans using a two-year rolling average of the net charge-off data within each loan segment, which was then used in combination with qualitative factors to calculate the general allowance component that covers pools of homogeneous loans that are not specifically evaluated for impairment.

Starting in 2020, the Company began using a five-year rolling average of the net charge-off data within each segment.

This change was driven by no net charge-off experience in the commercial real estate and commercial and industrial segments in the prior two-year rolling period as of March 31, 2020, which the Company determined did not represent the inherent risks in those segments.

In the first quarter of 2018, the Company incurred $ 1.4 million of commercial and industrial charge-offs, however this period would have been removed from the look back period as of March 31, 2020 if continuing to use a two-year history.

In addition, moving to a five-year history is expected to improve the calculation moving forward by capturing economic ebbs and flows over a longer period while also not heavily weighting one period of charge-off activity.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following tables present the major classifications of loans summarized by individually evaluated for impairment and collectively evaluated for potential impairment as of December 31, 2022 and 2021:

25 unchanged sentences

Balance at December 31, 2022

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Certain directors and executive officers of the Company, including family members or companies in which they are principal owners, are loan customers of the Company.

5 unchanged sentences

Balance, December 31 $ 17,418 $ 15,639

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5— PREMISES AND EQUIPMENT

9 unchanged sentences

Premises and Equipment, Net $ 17,844 $ 18,399

Depreciation and amortization expense on premises and equipment was $ 1.0 million and $ 1.1 million for the years ended December 31, 2021 and 2020, respectively.

Depreciation and amortization expense on premises and equipment was $ 1.0 million and $ 950,000 for the years ended December 31, 2022 and 2021, respectively.

Branch Optimization and Operational Efficiency Initiatives and Impairment of Long-Lived Assets

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The divestiture of two branches in December 2021 resulted in the sale of $ 102.8 million of deposits, $ 6.1 million of loans and $ 795,000 of premises and equipment and the recognition of a $ 5.2 million pre-tax gain on sale from a 5.0 % premium paid by Citizens Bank on the assumed deposits.

The branch optimization initiative reduced the Bank's branch network to 14 branches

The branch optimization initiative reduced the Bank's branch network to 14 branches as of December 31, 2021.

As a result of the events and changes in circumstances associated with the branch optimization initiatives whereby six branches were consolidated and two others were divested, the Company performed assessments of the recoverability of long-lived assets to determine whether their carrying values may not be recoverable.

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• For the six locations that were consolidated:

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

◦ Three locations were written down to the fair value of the land based on the appraised value due to plans to raze the buildings.

4 unchanged sentences

• For the two branches that were divested, the fair value of the premises and equipment was determined using the contractual terms of the Agreement, whereby the premises and equipment were purchased at the acquisition date for $ 795,000 based on the Company's net book value, net of a $ 338,000 contractual discount.

For the year ended December 31, 2021, the Company recognized $ 2.3 million in charges on the premises and equipment as a Writedown on Premises and Equipment in the Consolidated Statements of Income (Loss).

For the year ended December 31, 2021, the Company recognized $ 2.3 million in charges on the premises and equipment as a Writedown on Premises and Equipment in the Consolidated Statements of Income.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The branch optimization and operational efficiency initiatives resulted in $ 7.5 million of restructuring-related and other expenses for the year ended December 31, 2021.

1 unchanged sentence

NOTE 6— GOODWILL AND INTANGIBLE ASSETS

The COVID-19 pandemic that has impacted the U.S.

and most of the world along with the government response to curtail the spread of the virus beginning in March 2020 impacted our market area, resulting in significant adverse effects on macroeconomic conditions and a substantial decrease in stock market valuations for most companies in the banking sector, including the Company.

In light of the adverse circumstances resulting from COVID-19, management determined it was necessary to quantitatively evaluate goodwill for impairment at September 30, 2020.

Determining the fair value of a reporting unit under a quantitative goodwill impairment test is judgmental and involves the use of significant estimates and assumptions.

The methodology used to assess impairment was a combination of the income approach (i.e.

discounted cash flow (“DCF”) method) and the market approach (i.e.

Guideline Public Company ("GPC") method) to determine the fair value.

In the application of the income approach, the Company determined the fair value of the reporting unit using a DCF analysis.

The income approach uses valuation techniques to convert future earnings or cash flows to present value to arrive at a value that is indicated by market expectations about future amounts.

The income approach relies on Level 3 inputs along with a market-derived cost of capital when measuring fair value.

Fair value is determined by converting anticipated benefits into a present single value.

Once the benefit or benefits are selected, an appropriate discount or capitalization rate is applied to each benefit.

These rates are calculated using the appropriate measure for the size and type of company, using financial models and market data as required.

The discount rate was derived based on the modified capital asset pricing model.

The discount rate applied is comprised of a risk-free rate of return, an equity risk premium, a size premium and a factor covering the systemic market risk and a company specific risk premium.

The values for the factors applied are determined primarily using external sources of information.

The discount rate was estimated at 13.3 %.

Using the discount rate derived from the above components, the Company subtracted an expected sustainable long-term growth estimate of 3.0 % given expected growth in the geographic market and the overall long-term economy to arrive at a capitalization rate of 10.3 %.

The DCF model also used prospective financial information.

For purposes of the impairment test, the Company’s financial plans for the remainder of 2020 through 2024 were updated for the projected impact of COVID-19 on the net revenue growth and asset utilization.

Estimating future earnings and capital requirements involves judgment and the consideration of past and current performance and overall macroeconomic and regulatory environments.

The market approach uses observable prices and other relevant information that is generated by market transactions involving identical or comparable assets or liabilities.

The fair value measure is based on the value that those transactions indicate.

Under the market approach, the Company utilized Level 1 and 2 inputs when measuring fair value.

In the application of the market approach, the GPC method of appraisal is based on the premise that pricing multiples of publicly traded companies can be used as a tool to be applied in valuing a closely held entity.

A value multiple or ratio relates a stock’s market price to the reported accounting data such as revenue, earnings, and book value.

These ratios provide an objective basis for measuring the market’s perception of a stock’s fair value.

Value ratios generally reflect the trends in growth, performance and stability of the financial results of operations.

In this way, the business and financial risks exhibited by an industry or group of companies can be viewed

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

in relation to market values.

Value ratios also reflect the market’s outlook for the economy as a whole.

Guideline companies provide a reasonable basis for comparison to the relative investment characteristics of the company being valued.

Utilizing publicly traded companies located in Pennsylvania and surrounding states with assets between $1.0 billion and $2.5 billion and return on assets greater than 0.5%, the Company analyzed the relationships between the guideline companies' asset size, profitability, asset quality and capital ratios and applied a control premium of 34 % to the selected guideline company multiples.

The control premium is management's estimate of how much a market participant would be willing to pay over the fair market value in consideration of synergies and other benefits that flow from control of the entity.

The Company also considered the GPC method using trading activity of publicly traded companies that are most similar to the Company.

While the banking industry typically has a sufficient level of mergers and acquisitions activity to rely on this method under the market approach, there were only seven transactions involving target institutions with assets greater than $1 billion announced since March 1, 2020 (post-COVID) through the September 30, 2020 assessment date.

Of these, only two had closed.

Therefore, the Company was unable to rely on this method in our analysis.

The Company then placed equal consideration on the results of the income and market approaches to determine the concluded fair value of the reporting unit.

The weighting is judgmental and is based on the perceived level of appropriateness of the valuation methodology.

Estimating the fair value involves the use of estimates and significant judgments that are based on a number of factors including actual operating results.

If current conditions change from those expected, it is reasonably possible that the judgments and estimates described above could change in future periods and require management to further evaluate goodwill for impairment.

As a result of the quantitative goodwill impairment test and in connection with the preparation of the consolidated financial statements, the Company concluded that goodwill was impaired.

Accordingly, the Company recorded a goodwill impairment charge of $ 18.7 million for the year ended December 31, 2020 as the Company's estimated fair value was less than its book value.

This was a non-cash charge to earnings and had no impact on regulatory capital, cash flows or liquidity position.

The Company performed qualitative assessments for the annual goodwill impairment tests completed as of October 31, 2021 and 2020, respectively to determine if there was a material change in the quantitative assessment that was performed at September 30, 2020 or other triggering events to indicate whether any further quantitative testing for impairment was necessary.

The Company determined there were not significant changes in macroeconomic conditions, stock price performance, overall financial performance and other relevant or entity-specific events that it is not more likely than not that goodwill was further impaired.

The following table presents the changes in the Company's carrying amount of goodwill at the dates indicated.

(Dollars in Thousands)

December 31, 2019

Goodwill Impairment ( 18,693 )

December 31, 2020 and 2021

The Company's Consolidated Balance Sheets include goodwill of $ 9.7 million as of December 31, 2022 and 2021, respectively, all of which relates to Community Banking segment.

Intangible Assets

The following table presents a summary of intangible assets subject to amortization at the dates indicated.

December 31, Gross Carrying Amount Accumulated Amortization Impairment Net Carrying Value Gross Carrying Amount Accumulated Amortization Net Carrying Value

December 31, Gross Carrying Amount Accumulated Amortization Net Carrying Value Gross Carrying Amount Accumulated Amortization Impairment Net Carrying Value

(Dollars in Thousands)

4 unchanged sentences

In 2018, the Company recorded a core deposit intangible asset related to the acquisition of these two branches as part of the merger with First West Virginia Bancorp, Inc.

As a result of signing the Agreement and the sale of a portion of the

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

deposits associated with the remaining core deposit intangible, the Company performed an evaluation to determine whether the core deposit intangible was impaired.

As a result of signing the Agreement and the sale of a portion of the deposits associated with the remaining core deposit intangible, the Company performed an evaluation to determine whether the core deposit intangible was impaired.

As a result of the evaluation, the Company determined the carrying amount of the core deposit intangible was impaired $ 1.2 million.

The Company recorded the impairment in Intangible Asset and Goodwill Impairment on the Consolidated Statements of Income (Loss).

The Company recorded the impairment in Intangible Asset and Goodwill Impairment on the Consolidated Statements of Income.

Amortization of intangible assets totaled $ 1.8 million and $ 1.9 million for the years ended December 31, 2022 and 2021, respectively.

4 unchanged sentences

Total Estimated Intangible Asset Amortization Expense $ 3,513

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7— DEPOSITS

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government agencies, mortgage-backed securities, and collateralized mortgage obligations 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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table sets forth the components of short-term borrowings for the years indicated.

13 unchanged sentences

This arrangement is subject to annual renewal and is secured by a blanket security agreement on $ 602.5 million of residential and commercial mortgage loans and the Bank’s investment in FHLB stock.

Under this arrangement the Bank had available a variable rate line of credit in the amount of $ 150.0 million as of December 31, 2021 and 2020, of which, there was no outstanding balance as of December 31, 2021 and 2020.

Under this arrangement the

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Bank had available a variable rate line of credit in the amount of $ 150.0 million as of December 31, 2022 and 2021, of which, there was no outstanding balance as of December 31, 2022 and 2021.

Fixed rate, long-term advances from the FHLB with remaining maturities are as follows at the dates indicated:

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The Bank maintains a Borrower-In-Custody of Collateral line of credit agreement with the Federal Reserve Bank (“FRB”) for $ 119.0 million that requires monthly certification of collateral, is subject to annual renewal and is secured by $ 172.9 million of commercial and consumer indirect auto loans.

The Bank also maintains multiple line of credit arrangements with various unaffiliated banks totaling $ 50.0 million and $ 60.0 million as of December 31, 2021 and 2020, respectively, of which no draws had been taken.

The Company is not a party to any credit arrangements.

The Bank also maintains multiple line of credit arrangements with various unaffiliated banks totaling $ 50.0 million as of December 31, 2022 and 2021, respectively, of which no draws are outstanding other than the subordinated debt disclosed below.

Subordinated Debt

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The 2031 Note is an unsecured subordinated obligation of the Company and may be repaid in whole or in part, without penalty, on any interest payment date on or after December 15, 2026 and at any time upon the occurrence of certain events.

The 2031 Note initially bears a fixed interest rate of 3.875 % per year to, but excluding, December 15, 2026 and thereafter at a floating rate equal to the then-current three-month term SOFR plus 280 basis

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The 2031 Note qualifies as Tier 2 capital under regulatory guidelines.

The 2031 Note is recorded on the Consolidated Statements of Financial Condition in Other Borrowed Funds, net of remaining debt issuance costs.

At December 31, 2021, the principal balance and unamortized debt issuance costs for the 2031 Note were $ 15.0 million and $ 399,000 , respectively.

At December 31, 2022 and 2021, the principal balance and unamortized debt issuance costs for the 2031 Note were $ 15.0 million, and $ 362,000 and $ 399 ,000, respectively.

NOTE 10— INCOME TAXES

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Net Unrealized Loss on Securities 7,206 254

Net Unrealized Loss on Equity Securities — 71

Stock-Based Compensation Expense 70 66

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Right of Use Asset Impairment 60 43

Purchase Accounting Adjustments - Fixed Assets

Restructuring Costs 139 238

4 unchanged sentences

Depreciation 1,402 1,425

Net Unrealized Gain on Securities — 933

Net Unrealized Gain on Equity Securities 1 37

Mortgage Servicing Rights 136 157

Accrued Payroll 3 —

ROU Asset 464 194

1 unchanged sentence

Purchase Accounting Adjustments - Fixed Assets — 25

Purchase Accounting Adjustments - Certificates of Deposit — —

Goodwill 74 74

Gross Deferred Tax Liabilities 2,945 3,164

Net Deferred Tax Assets (Liabilities) $ 1,369 $ ( 66 )

Net Deferred Tax Assets $ 8,856 $ 1,369

Deferred taxes at December 31, 2022 and 2021, are included in Accrued Interest Receivable and Other Assets in the accompanying Consolidated Statements of Financial Condition.

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As of December 31, 2022 and 2021, total unrecognized compensation expense was $ 429,715 and $ 65,000 , respectively, related to stock options, and $ 1.4 million and $ 1.3 million related to restricted stock awards.

At December 31, 2021, the unrecognized compensation expense related to stock options and restricted stock is expected to be recognized over the weighted average remaining vesting period of 3.67 years and 3.96 years, respectively.

The Company accrued tax benefit for non-qualified stock options of $ 5,000 and $ 11,000 for the years ended December 31, 2021 and 2020, respectively.

At December 31, 2022, the unrecognized compensation expense related to stock options and restricted stock is expected to be recognized over the weighted average remaining vesting period of 4.92 years.

In conjunction with non-qualified stock options, the Company recognized a tax benefit due to an exercise of non-qualified stock options for $ 2,000 for the year ended December 31, 2022, compared to the accrued tax benefit of $ 5,000 for the year ended December 31, 2021.

In the current year, there was an exercise of non-qualified stock options with a tax expense of $ 4,000 partially offset by the benefit of $ 2,000 .

Intrinsic value represents the amount by which the fair value of the underlying stock at December 31, 2022 and 2021, exceeds the exercise price of the stock options.

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At December 31, 2022, there were 333,335 shares of common stock available and reserved under the 2021 Plan to be issued of which a maximum of 333,335 shares may be issued as stock options and 133,334 shares may be issued as restricted stock awards or units based on the terms of the Plan whereby the Share Limit is reduced, on a one-for-one basis, for each share of common stock subject to a stock option grant, and on a two and one-half-for-one basis for each share of common stock issued pursuant to restricted stock awards or units.

At December 31, 2021, no shares have been granted under the 2021 Plan.

At December 31, 2020, under the 2015 Plan, 19,723 and 22,144 shares were available to be issued in connection with the exercise of stock options and restricted stock awards or units, respectively.

At December 31, 2022, 27,765 restricted shares and 104,465 options have been granted under the 2021 Plan.

At December 31, 2021, under the 2021 Plan, 500,000 or 200,000 shares,were available to be issued in connection with the exercise of stock options and restricted stock awards or units;

and under the 2015 Plan, no shares were available to issue.

The 2015 Plan shall remain in effect as long as any awards are outstanding, but as a result of the approval of the 2021 Plan, no more awards can be granted under the 2015 Plan.

1 unchanged sentence

Number of Shares Weighted Average Exercise Price Weighted Average Remaining Contractual

Life in Years Number of Shares Weighted Average Exercise Price Weighted Average Remaining Contractual

Life in Years

Outstanding Options at December 31, 2020 218,683 $ 23.91 5.8

Outstanding Options at Beginning of Year 207,641 $ 24.01 4.8 218,683 $ 23.91 5.8

Granted 104,465 25.31 — —

Exercised ( 15,500 ) 21.54 ( 8,600 ) 21.29

Forfeited ( 12,858 ) 26.43 ( 2,442 ) 24.18

Outstanding Options at December 31, 2021 207,641 24.01 4.8

Exercisable Options at December 31, 2021 187,015 $ 24.17 4.4

Outstanding Options at End of Year 283,748 24.52 5.6 207,641 24.01 4.8

Exercisable Options at End of Year 174,683 $ 24.42 3.5 187,015 $ 24.17 4.4

Number of Shares Weighted Average Exercise Price Weighted Average Remaining Service Period in Years

Nonvested Options December 31, 2020

Vested ( 17,816 ) 26.43

38,442 $ 24.40 8.0

Granted — $ —

Exercised ( 17,816 ) $ 26.43

Forfeited — $ —

Nonvested Options December 31, 2021 20,626 $ 22.64 7.8

Granted 104,465 25.31

Vested ( 9,354 ) 24.42

Forfeited ( 6,672 ) 26.01

Nonvested Options at December 31, 2022 109,065 $ 24.67 9.1

The following table presents restricted stock award data for the period indicated.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Number of Shares Weighted Average Grant Date Fair Value Price Weighted Average Remaining Service Period in Years

Nonvested at December 31, 2020 76,190 $ 24.08 6.3

Granted — — 0.0

Vested ( 19,600 ) 24.67 5.2

Forfeited ( 450 ) 20.38

Nonvested Restricted Stock at December 31, 2021 56,140 $ 23.90 5.3

Granted 27,765 25.29 4.3

Vested ( 16,065 ) 24.60 4.2

1 unchanged sentence

Nonvested Restricted Stock at December 31, 2022 64,125 $ 24.32 4.3

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 12— COMMITMENTS AND CONTINGENT LIABILITIES

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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.

The coverage period for these instruments is typically a one-year period with an annual renewal option subject to prior approval by

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fees earned from the issuance of these letters are recognized upon expiration of the letter.

6 unchanged sentences

Repurchases are made at management’s discretion at prices management considers to be attractive and in the best interests of both the Company and its stockholders, subject to various factors, including but not limited to, the availability of stock, general market conditions, the trading price of the stock, alternative uses for capital, and the Company’s financial performance.

As of December 31, 2021, the Company had repurchased 177,156 shares at an average price of $ 23.24 per share for a total of $ 4.1 million.

On February 15, 2022, the Company completed this stock repurchase program.

In connection with the program, the Company repurchased a total of 308,996 shares of the Company’s common stock at an average price of $ 24.27 per share.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In April 2022, the Company authorized a new repurchase program of $ 10.0 million of its outstanding shares of common stock.

As of December 31, 2022 the Company had repurchased 62,178 shares at an average price of $ 22.47 per share for a total of $ 1.4 million.

The plan is set to expire on May 1, 2023 and has a remaining value of $ 8.6 million to repurchase.

On January 26, 2023, the Company's Board of Directors declared a cash dividend of $ 0.25 per outstanding share of common stock, which was paid on February 28, 2023.

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In addition, PPP loans received a zero-percent risk weight under the regulatory capital rules regardless of whether they were pledged as collateral to the Federal Reserve Bank's PPP lending facility, but were included in the Bank's leverage ratio requirement due to the Bank not pledging the loans as collateral to the PPP lending facility.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents the Bank’s regulatory capital amounts and ratios, as well as the minimum amounts and ratios

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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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

11 unchanged sentences

Weighted Average Discount Rate 2.87 % 2.51 %

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2022

7 unchanged sentences

Due After Five Years 888

Total $ 2,339

Present Value Discount 251

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Based on the analysis, the Company concluded that the ROU asset for this branch was fully impaired as of June 30, 2021, resulting in a remaining ROU carrying value of zero and the recognition of a $ 227,000 impairment for year ended December 31, 2021.

The impairment was recognized in Occupancy expense on the Consolidated Statements of Income (Loss).

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The impairment was recognized in Occupancy expense on the Consolidated Statements of Income.

NOTE 15— MORTGAGE SERVICING RIGHTS

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December 31, 2022 $ 633 $ — $ 633

Amortization of MSRs and the period change in the valuation allowance are reported in Other Income on the Consolidated Statements of Income (Loss).

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Amortization of MSRs and the period change in the valuation allowance are reported in Other Income on the Consolidated Statements of Income.

Real estate loans serviced for others, which are not included in the Consolidated Statements of Financial Condition, totaled $ 83.4 million and $ 96.6 million at December 31, 2022 and 2021, respectively.

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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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

including market research publications.

There were no transfers from Level 1 to Level 2 and no transfers into or out of Level 3 during the years ended December 31, 2022 and 2021, respectively.

13 unchanged sentences

Total Securities $ 190,058 $ 224,974

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents the financial assets measured at fair value on a nonrecurring basis on the Consolidated Statements of Financial Condition as of the dates indicated by level within the fair value hierarchy.

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0 % to 8 % 7.2 %

MSRs Level 3 141 Discounted Cash Flow Discount Rate 9 % to 11 % 10.2 %

Prepayment Speed 12 % to 24 % 16.0 %

OREO Level 3 36 Appraisal of Collateral (1)

Liquidation Expenses (2)

10 % to 30 % 26.6 %

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Financial Asset Fair Value Hierarchy December 31,

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NOTE 17— OTHER NONINTEREST EXPENSE

The details for other noninterest expense for the Company’s Consolidated Statements of Income (Loss) are as follows:

The details for other noninterest expense for the Company’s Consolidated Statements of Income are as follows:

Year Ended December 31, 2022 2021

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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 124,879 $ 147,829

Statements of Income (Loss)

Statements of Income

Year Ended December 31, 2022 2021

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Net Interest and Dividend Income 4,403 9,709

Net Gain (Loss) on Securities 329 ( 279 )

Net (Loss) Gain on Securities ( 54 ) 329

Noninterest Expense 19 12

Income Before Undistributed Net Income (Loss) of Subsidiary and Income Tax Expense (Benefit) 10,026 3,655

Undistributed Net Income (Loss) of Subsidiary 1,607 ( 14,342 )

Income (Loss) Before Income Tax Expense (Benefit) 11,633 ( 10,687 )

Income Tax Expense (Benefit) 63 ( 47 )

NET INCOME (LOSS) $ 11,570 $ ( 10,640 )

Income Before Undistributed Net Income of Subsidiary and Income Tax Expense (Benefit) 4,330 10,026

Undistributed Net Income of Subsidiary 6,778 1,607

Income Before Income Tax (Benefit) Expense 11,108 11,633

Income Tax (Benefit) Expense ( 139 ) 63

NET INCOME $ 11,247 $ 11,570

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3 unchanged sentences

OPERATING ACTIVITIES

Net Income (Loss) $ 11,570 $ ( 10,640 )

Adjustments to Reconcile Net Income (Loss) to Net Cash Provided By Operating Activities:

Undistributed Net (Income) Loss of Subsidiary ( 1,607 ) 14,342

Net Income $ 11,247 $ 11,570

Adjustments to Reconcile Net Income to Net Cash Provided By Operating Activities:

Undistributed Net Income of Subsidiary ( 6,778 ) ( 1,607 )

Noncash Expense for Stock-Based Compensation 600 566

(Gain) Loss on Equity Securities ( 329 ) 279

Loss (Gain) on Equity Securities 55 ( 329 )

Other, net 290 ( 423 )

9 unchanged sentences

Exercise of Stock Options 220 98

NET PROVIDED BY (CASH USED) IN FINANCING ACTIVITIES 5,388 ( 7,181 )

INCREASE (DECREASE) IN CASH AND DUE FROM BANKS 15,101 ( 2,981 )

NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES ( 9,465 ) 5,388

(DECREASE) INCREASE IN CASH AND DUE FROM BANKS ( 4,051 ) 15,101

CASH AND DUE FROM BANKS AT BEGINNING OF THE YEAR 18,567 3,466

CASH AND DUE FROM BANKS AT END OF THE YEAR $ 14,516 $ 18,567

The Parent Company's Statements of Comprehensive Income (Loss) and Statements of Changes in Stockholders' Equity are identical to the Consolidated Statements of Comprehensive Income (Loss) and the Consolidated Statements of Changes in Stockholders' Equity and are not presented.

The Parent Company's Statements of Comprehensive (Loss) Income and Statements of Changes in Stockholders' Equity are identical to the Consolidated Statements of Comprehensive (Loss) Income and the Consolidated Statements of Changes in Stockholders' Equity and are not presented.

NOTE 19— SEGMENT REPORTING AND RELATED INFORMATION

22 unchanged sentences

Net Interest and Dividend Income 43,473 6 4,403 ( 4,947 ) 42,935

(Recovery) Provision for Loan Losses ( 1,125 ) — — — ( 1,125 )

Provision (Recovery) for Loan Losses 3,784 — — — 3,784

Net Interest and Dividend Income After (Recovery) Provision for Loan Losses 39,689 6 4,403 ( 4,947 ) 39,151

Noninterest Income 10,338 5,613 329 — 16,280

Noninterest Income (Loss) 3,867 6,007 ( 54 ) — 9,820

Noninterest Expense 30,737 4,135 19 — 34,891

1 unchanged sentence

Income Before Income Tax Expense 14,134 1,878 11,108 ( 13,040 ) 14,080

Income Tax Expense 2,588 474 63 — 3,125

Income Tax (Benefit) Expense 2,409 563 ( 139 ) — 2,833

Net Income $ 11,725 $ 1,315 $ 11,247 $ ( 13,040 ) $ 11,247

3 unchanged sentences

Net Interest and Dividend Income 40,113 6 9,709 ( 9,676 ) 40,152

Provision for Loan Losses 4,000 — — — 4,000

Net Interest and Dividend Income After Provision for Loan Losses 37,839 4 3,945 ( 3,884 ) 37,904

Noninterest Income (Loss) 4,924 4,826 ( 279 ) — 9,471

(Recovery) Provision for Loan Losses ( 1,125 ) — — — ( 1,125 )

Net Interest and Dividend Income After (Recovery) Provision for Loan Losses 41,238 6 9,709 ( 9,676 ) 41,277

Noninterest Income 10,338 5,613 329 — 16,280

Noninterest Expense 38,810 4,040 12 — 42,862

Undistributed Net Income (Loss) of Subsidiary 780 — ( 14,342 ) 13,562 —

(Loss) Income Before Income Tax Expense (Benefit) ( 9,455 ) 1,072 ( 10,687 ) 9,678 ( 9,392 )

Income Tax Expense (Benefit) 1,003 292 ( 47 ) — 1,248

Net (Loss) Income $ ( 10,458 ) $ 780 $ ( 10,640 ) $ 9,678 $ ( 10,640 )

Undistributed Net Income of Subsidiary 1,105 — 1,607 ( 2,712 ) —

Income Before Income Tax Expense 13,871 1,579 11,633 ( 12,388 ) 14,695

Income Tax Expense 2,588 474 63 — 3,125

Net Income $ 11,283 $ 1,105 $ 11,570 $ ( 12,388 ) $ 11,570

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures