What changed in this filing

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Item 1. Financial Statements

2023-05-12 compared with 2022-11-09 · 293 added, 342 removed, 643 unchanged (50% of the section changed)

1 unchanged sentence

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Unaudited) September 30,

(Unaudited) March 31,

2023 December 31,

7 unchanged sentences

Total Securities 189,025 190,058

Loans, Net of Allowance for Loan Losses of $ 12,854 and $ 11,582 at September 30, 2022 and December 31, 2021, Respectively

Loans, Net of Allowance for Credit Losses of $ 10,270 and $ 12,819 at March 31, 2023 and December 31, 2022, Respectively

1,061,595 1,037,054

6 unchanged sentences

$ 1,430,708 $ 1,408,938

Non-Interest Bearing Demand Deposits 407,107 385,775

Non-Interest Bearing Demand Deposit Accounts $ 350,911 $ 390,405

NOW Accounts 359,051 311,825

4 unchanged sentences

Short-Term Borrowings

18,108 39,266

Other Borrowings

7 unchanged sentences

Common Stock, $ 0.4167 Par Value;

35,000,000 Shares Authorized, 5,702,433 Shares Issued and 5,096,672 Shares Outstanding at September 30, 2022, with 5,680,993 and 5,260,672 Shares Issued and Outstanding at December 31, 2021.

35,000,000 Shares Authorized, 5,730,908 Shares Issued and 5,116,830 Shares Outstanding at March 31, 2023, with 5,708,433 and 5,100,189 Shares Issued and Outstanding at December 31, 2022.

Capital Surplus

2 unchanged sentences

68,834 63,861

Treasury Stock, at Cost ( 605,761 and 420,321 Shares at September 30, 2022 and December 31, 2021, Respectively)

Treasury Stock, at Cost ( 614,078 and 608,244 Shares at March 31, 2023 and December 31, 2022, Respectively)

( 13,927 ) ( 13,797 )

7 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

(Dollars in thousands, except share and per share data)

13 unchanged sentences

NET INTEREST AND DIVIDEND INCOME 11,583 9,893

Provision (Recovery) For Loan Losses — — 3,784 ( 1,200 )

NET INTEREST INCOME AFTER PROVISION (RECOVERY) FOR LOAN LOSSES 11,015 10,010 27,285 31,121

Provision For Credit Losses - Loans 80 —

Provision For Credit Losses - Unfunded Commitments — —

NET INTEREST AND DIVIDEND INCOME AFTER PROVISION FOR CREDIT LOSSES 11,503 9,893

NONINTEREST INCOME

3 unchanged sentences

Net Gain on Sales of Loans 2 —

Net (Loss) Gain on Securities ( 46 ) 24 ( 252 ) 482

Net Loss on Securities ( 232 ) ( 7 )

Net Gain on Purchased Tax Credits 7 14

1 unchanged sentence

Income from Bank-Owned Life Insurance 140 136

Net Gain on Bank-Owned Life Insurance Claims 302 —

Other Income 69 65

12 unchanged sentences

Amortization of Intangible Assets 445 445

Intangible Assets Impairment — — — 1,178

Writedown of Fixed Assets — 2 — 2,270

Other Expense 945 999

1 unchanged sentence

Income Before Income Tax Expense

4,927 2,435 8,851 5,822

Income Tax Expense 1,129 803

7 unchanged sentences

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

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (UNAUDITED)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

(Dollars in thousands)

Net Income $ 4,156 $ 3,047

Other Comprehensive (Loss) Income:

Change in Unrealized (Loss) Income on Investment Securities Available-for-Sale ( 11,753 ) ( 733 ) ( 32,785 ) ( 2,662 )

Income Tax Effect 2,533 158 7,064 571

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

— — — ( 225 )

Other Comprehensive Income (Loss):

Change in Unrealized Gain (Loss) on Investment Securities Available-for-Sale 2,580 ( 12,351 )

Income Tax Effect ( 557 ) 2,660

Other Comprehensive (Loss), Net of Income Tax Effect ( 9,220 ) ( 575 ) ( 25,721 ) ( 2,268 )

Total Comprehensive (Loss) Income $ ( 5,291 ) $ 1,408 $ ( 18,627 ) $ 2,337

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

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

Other Comprehensive Income (Loss), Net of Income Tax Effect 2,023 ( 9,691 )

Total Comprehensive Income (Loss) $ 6,179 $ ( 6,644 )

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

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)

Three Months Ended September 30, 2022 Shares Issued Common Stock Capital Surplus Retained Earnings Treasury Stock Accumulated Other Comprehensive Loss Total Stockholders' Equity

(Dollars in thousands, except share and per share data)

June 30, 2022 5,702,433 $ 2,376 $ 83,614 $ 58,225 $ ( 13,015 ) $ ( 17,428 ) $ 113,772

Comprehensive Loss:

Net Income — — — 3,929 — — 3,929

Other Comprehensive Loss — — — — — ( 9,220 ) ( 9,220 )

Restricted Stock Awards Granted — — — — — — —

Restricted Stock Awards Forfeited — — 34 — ( 34 ) — —

Stock-Based Compensation Expense — — 145 — — — 145

Exercise of Stock Options — — — ( 2 ) — ( 2 )

Treasury stock purchased, at cost ( 30,271 shares)

— — — — ( 694 ) — ( 694 )

Dividends Paid ($ 0.24 Per Share)

— — — ( 1,224 ) — — ( 1,224 )

September 30, 2022 5,702,433 $ 2,376 $ 83,793 $ 60,930 $ ( 13,745 ) $ ( 26,648 ) $ 106,706

Three Months Ended September 30, 2021 Shares Issued Common Stock Capital Surplus Retained Earnings Treasury Stock Accumulated Other Comprehensive Income Total Stockholders' Equity

Three Months Ended March 31, 2023 Shares Issued Common Stock Capital Surplus Retained Earnings Treasury Stock Accumulated Other Comprehensive Loss Total Stockholders' Equity

(Dollars in thousands, except share and per share data)

June 30, 2021 5,680,993 $ 2,367 $ 82,969 $ 51,146 $ ( 5,655 ) $ 1,709 $ 132,536

December 31, 2022 5,708,433 $ 2,379 $ 83,953 $ 63,861 $ ( 13,797 ) $ ( 26,241 ) $ 110,155

Adoption of Accounting Standard ASU 2016-13 — — — 2,092 — — 2,092

Balance as of January 1, 2023, adjusted 5,708,433 $ 2,379 $ 83,953 $ 65,953 $ ( 13,797 ) $ ( 26,241 ) $ 112,247

Comprehensive Income:

Net Income — — — 4,156 — — 4,156

Other Comprehensive Loss — — — — — ( 575 ) ( 575 )

Other Comprehensive Income — — — — — 2,023 2,023

Restricted Stock Awards Granted 22,475 9 ( 9 ) — — — —

Stock-Based Compensation Expense — — 174 — — — 174

Exercise of Stock Options — — ( 8 ) — 62 — 54

Treasury stock purchased, at cost ( 5,834 shares)

2 unchanged sentences

— — — ( 1,275 ) — — ( 1,275 )

September 30, 2021 5,680,993 $ 2,367 $ 83,130 $ 51,839 $ ( 7,483 ) $ 1,134 $ 130,987

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

Nine Months Ended September 30, 2022 Shares Issued Common Stock Capital Surplus Retained Earnings Treasury Stock Accumulated Other Comprehensive Loss Total Stockholders' Equity

March 31, 2023 5,730,908 $ 2,388 $ 84,118 $ 68,834 $ ( 13,927 ) $ ( 24,218 ) $ 117,195

Three Months Ended March 31, 2022 Shares Issued Common Stock Capital Surplus Retained Earnings Treasury Stock Accumulated Other Comprehensive Loss Total Stockholders' Equity

(Dollars in thousands, except share and per share data)

3 unchanged sentences

Other Comprehensive Loss — — — — — ( 9,691 ) ( 9,691 )

Restricted Stock Awards Granted 21,765 9 ( 9 ) — — — —

Restricted Stock Awards Forfeited — — 4 — ( 4 ) — —

Stock-Based Compensation Expense — — 424 — — — 424

Exercise of Stock Options — — 3 — 162 — 165

Treasury stock purchased, at cost ( 189,550 shares)

— — — — ( 4,682 ) — ( 4,682 )

Dividends Paid ($ 0.72 Per Share)

— — — ( 3,698 ) — — ( 3,698 )

September 30, 2022 5,702,433 $ 2,376 $ 83,793 $ 60,930 $ ( 13,745 ) $ ( 26,648 ) $ 106,706

Nine Months Ended September 30, 2021 Shares Issued Common Stock Capital Surplus Retained Earnings Treasury Stock Accumulated Other Comprehensive Income Total Stockholders' Equity

(Dollars in thousands, except share and per share data)

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

Comprehensive Income:

Net Income — — — 4,605 — — 4,605

Other Comprehensive Loss — — — — — ( 2,268 ) ( 2,268 )

Restricted Stock Awards Granted 20,765 9 ( 9 ) — — — —

Stock-Based Compensation Expense — — 130 — — — 130

4 unchanged sentences

— — — ( 1,238 ) — — ( 1,238 )

September 30, 2021 5,680,993 $ 2,367 $ 83,130 $ 51,839 $ ( 7,483 ) $ 1,134 $ 130,987

March 31, 2022 5,701,758 $ 2,376 $ 83,422 $ 59,343 $ ( 12,367 ) $ ( 10,618 ) $ 122,156

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

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Nine Months Ended September 30, 2022 2021

Three Months Ended March 31, 2023 2022

(Dollars in thousands)

4 unchanged sentences

Depreciation and Amortization 710 637

Provision (Recovery) for Loan Losses 3,784 ( 1,200 )

Intangible Asset Impairment — 1,178

Writedown on Fixed Assets — 2,270

Lease Impairment — 227

Loss (Gain) on Securities 252 ( 482 )

Provision for Credit Losses 80 —

Loss on Securities 232 7

Gain on Purchased Tax Credits ( 7 ) ( 14 )

7 unchanged sentences

Net (Gain) Loss on Disposal of Fixed Assets ( 11 ) 8

(Increase) Decrease in Taxes Payable ( 947 ) 295

Increase (Decrease) in Accrued Interest Payable 29 ( 277 )

Refund of Federal and State Income Taxes — 1,311

Increase in Taxes Payable 1,129 956

Increase in Accrued Interest Payable 109 60

Other, Net 810 ( 1,640 )

4 unchanged sentences

Purchases of Securities — ( 26,826 )

Proceeds from Sale of Securities — 11,967

Net (Increase) Decrease in Loans ( 15,865 ) 223

1 unchanged sentence

Proceeds from Disposal of Premises and Equipment 36 —

Proceeds From a Claim on Bank-Owned Life Insurance 1,392 —

Proceeds From Sale of Other Real Estate Owned — 37

Decrease in Restricted Equity Securities 619 533

(Increase) Decrease in Restricted Equity Securities 223 ( 26 )

NET CASH USED IN INVESTING ACTIVITIES ( 11,059 ) ( 18,450 )

1 unchanged sentence

Net Increase in Deposits 13,017 23,700

Net (Decrease) Increase in Short-Term Borrowings ( 21,158 ) 12,260

Principal Payments on Other Borrowed Funds — ( 2,000 )

Net Decrease in Short-Term Borrowings ( 7,939 ) ( 47 )

Cash Dividends Paid ( 1,275 ) ( 1,238 )

2 unchanged sentences

NET CASH PROVIDED BY FINANCING ACTIVITIES 3,673 19,199

INCREASE IN CASH AND CASH EQUIVALENTS 3,127 12,612

(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ( 155 ) 3,914

CASH AND DUE FROM BANKS AT BEGINNING OF YEAR 103,700 119,674

2 unchanged sentences

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Nine Months Ended September 30, 2022 2022 2021

Three Months Ended March 31, 2023 2022

(Dollars in thousands)

3 unchanged sentences

$ 2,552 $ 486

Income Taxes 3,247 1,524

SUPPLEMENTAL NONCASH DISCLOSURE:

Transfer of Loans to Loans Held for Sale — 10,056

Transfer of Premises and Equipment to Premises and Equipment Held for Sale and Other Assets — 1,075

Transfer of Deposits to Deposits Held for Sale — 102,647

Proceeds receivable from claims on bank-owned life insurance 1,392 —

Other Real Estate Acquired in Settlement of Loans 248 —

Syndicated Loans Purchased not Settled 8,943 —

Right of Use Asset Recognized 77 1,175

23 unchanged sentences

The Bank is a community-oriented institution offering residential and commercial real estate loans, commercial and industrial loans, and consumer loans as well as a variety of deposit products for individuals and businesses in its market area.

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

The Bank operates 10 branches in Greene, Allegheny, Washington, Fayette and Westmoreland Counties in southwestern Pennsylvania, and three branches in Marshall and Ohio Counties in West Virginia.

Property and casualty, commercial liability, surety and other insurance products are offered through Exchange Underwriters, a full-service, independent insurance agency.

1 unchanged sentence

Use of Critical Accounting Estimates

There were no material changes in our critical accounting policies during the nine months ended September 30, 2022.

See Note 1 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC, for additional information regarding our critical accounting policies.

The disclosures below supplements the accounting policies previously disclosed in Note 1 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC.

The updates reflect the adoption of Financial Accounting Standard Board ("FASB") ASU 2016-13, Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments , referred to as ASC 326 or, more commonly, referred to as Current Expected Credit Losses (CECL).

Allowance for Credit Losses (ACL)

On January 1, 2023, the Company adopted ASU 2016-13, which replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss methodology.

The Company adopted ASU 2016-13 using a modified retrospective approach.

Results for reporting periods beginning after January 1, 2023 are presented under Topic 326, while prior period amounts continue to be reported in accordance with previously applicable GAAP.

The adoption resulted in a decrease of $ 3.4 million to the Company’s ACL related to loans receivable (ACL - Loans) and an increase of $ 718,000 in ACL

for unfunded commitments (ACL - Unfunded Commitments).

The net impact resulted in a $ 2.1 million increase to retained earnings, net of deferred taxes.

The allowance for credit losses represents the estimated amount considered necessary to cover lifetime expected credit losses inherent in financial assets at the balance sheet date.

The measurement of expected credit losses is applicable to loans receivable and securities measured at amortized cost.

It also applies to off-balance sheet credit exposures such as loan commitments and unused lines of credit.

The allowance is established through a provision for credit losses that is charged against income.

The methodology for determining the allowance for credit losses is considered a critical accounting policy by management because of the high degree of judgment involved, the subjectivity of the assumptions used, and the potential for changes in the forecasted economic environment that could result in changes to the amount of the recorded allowance for credit losses.

The allowance for credit losses is reported separately as a contra-asset on the consolidated statement of financial condition.

The expected credit loss for unfunded loan commitments is reported on the Consolidated Statement of Financial Condition in other liabilities while the provision for credit losses related to unfunded commitments is reported in provision for credit losses - unfunded commitments in the Consolidated Statements of Income.

Allowance for Credit Losses on Loans Receivable

The allowance for credit losses on loans is deducted from the amortized cost basis of the loan to present the net amount expected to be collected.

Expected losses are evaluated and calculated on a collective, or pooled, basis for those loans which share similar risk characteristics.

At each reporting period, the Company evaluates whether loans within a pool continue to exhibit similar risk characteristics.

If the risk characteristics of a loan change, such that they are no longer similar to other loans in the pool, the Company will evaluate the loan with a different pool of loans that share similar risk characteristics.

If the loan does not share risk characteristics with other loans, the Company will evaluate the loan on an individual basis.

The Company evaluates the pooling methodology at least annually.

Loans are charged off against the allowance for credit losses when the Company believes the balances to be uncollectible.

Expected recoveries do not exceed the aggregate of amounts previously charged off or expected to be charged off.

The Company has chosen to segment its portfolio consistent with the manner in which it manages credit risk.

Such segments include residential mortgage, commercial real estate mortgages, construction, commercial business, consumer and other.

For most segments the Company calculates estimated credit losses using a probability of default and loss given default methodology, the results of which are applied to the aggregated discounted cash flow of each individual loan within the segment.

The point in time probability of default and loss given default are then conditioned by macroeconomic scenarios to incorporate reasonable and supportable forecasts that affect the collectability of the reported amount.

The Company estimates the allowance for credit losses on loans via a quantitative analysis which considers relevant available information from internal and external sources related to past events and current conditions, as well as the incorporation of reasonable and supportable forecasts.

The Company evaluates a variety of factors including third party economic forecasts, industry trends and other available published economic information in arriving at its forecasts.

After the reasonable and supportable forecast period, the Company reverts, on a straight-line basis, to average historical losses.

Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate.

The contractual term excludes expected extensions, renewals, and modifications unless either of the following applies:

management has a reasonable expectation at the reporting date that a restructurings will be executed with an individual borrower or the renewal option is included in the original or modified contract at the reporting date and are not unconditionally cancellable by the Company.

Also included in the allowance for credit losses on loans are qualitative reserves to cover losses that are expected but, in the Company’s assessment, may not be adequately represented in the quantitative analysis or the forecasts described above.

Factors that the Company considers include changes in lending policies and procedures, business conditions, the nature and size of the portfolio, portfolio concentrations, the volume and severity of past due loans and non-accrual loans, and the effect of external factors such as competition, legal and regulatory requirements, among others.

Furthermore, the Company considers the inherent uncertainty in quantitative models that are built upon historical data.

Individually Evaluated Loans

On a case-by-case basis, the Company may conclude that a loan should be evaluated on an individual basis based on its disparate risk characteristics.

When the Company determines that a loan no longer shares similar risk characteristics with other loans in the portfolio, the allowance will be determined on an individual basis using the present value of expected cash flows or, for collateral-dependent loans, the fair value of the collateral as of the reporting date, less estimated selling costs, as applicable.

If the fair value of the collateral is less than the amortized cost basis of the loan, the Company will charge off the difference between the fair value of the collateral, less costs to sell at the reporting date and the amortized cost basis of the loan.

Allowance for Credit Losses on Off-Balance Sheet Commitments

The Company is required to include unfunded commitments that are expected to be funded in the future within the allowance calculation, other than those that are unconditionally cancellable.

To arrive at that reserve, the reserve percentage for each applicable segment is applied to the unused portion of the expected commitment balance and is multiplied by the expected funding rate.

To determine the expected funding rate, the Company uses a historical utilization rate for each segment.

As noted above, the allowance for credit losses on unfunded loan commitments is included in other liabilities on the Consolidated Statement of Financial Condition and the related credit expense is recorded in provision for credit losses - unfunded commitments in the Consolidated Statements of Income.

Allowance for Credit Losses on Available for Sale Securities

For available for sale securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis.

If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income.

For securities available for sale that do not meet the above criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors.

In making this assessment, the Company considers the extent to which fair value is less than amortized cost, any changes to the rating by a rating agency, and adverse conditions related to the security, among other factors.

If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security.

If the present value of the cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost.

Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income (loss), net of tax.

The Company elected the practical expedient of zero loss estimates for securities issued by U.S.

government entities and agencies.

These securities are either explicitly or implicitly guaranteed by the U.S.

government, are highly rated by major agencies and have a long history of no credit losses.

Changes in the allowance for credit losses are recorded as provision for, or reversal of, credit loss expense.

Losses are charged against the allowance when management believes the uncollectibility of an available for sale security is confirmed or when either of the criteria regarding intent or requirement to sell is met.

Accrued Interest Receivable

The Company made an accounting policy election to exclude accrued interest receivable from the amortized cost basis of loans and available for sale securities.

Accrued interest receivable on loans is reported as a component of accrued interest receivable and other assets on the Consolidated Statement of Financial Condition, totaled $ 3.5 million at March 31, 2023 and is excluded from the estimate of credit losses.

Accrued interest receivable on available of sale securities, also a component of accrued interest receivable and other assets on the Consolidated Statement of Financial Condition, totaled $ 534,000 , at March 31, 2023 and is excluded from the estimate of credit losses.

Recent Accounting Standards

In September 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments .

ASU 2016-13 amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities.

For assets held at amortized cost basis, ASU 2016-13 eliminates the probable initial recognition threshold in current GAAP;

and instead requires an entity to reflect its current estimate of all expected credit losses.

The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected.

For available-for-sale debt securities, credit losses should be measured in a manner similar to current GAAP;

however, this ASU requires that credit losses be presented as an allowance rather than as a write-down.

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

fair value through net income.

The ASU 2016-13 amendments affect loans, debt securities, trade receivables, net investments in leases, off balance-sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash.

ASU 2016-13 was originally effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted.

In November 2019, the FASB approved a delay of the required implementation date of ASU 2016-13 for smaller reporting companies, including the Company, resulting in a required implementation date for the Company of January 1, 2023.

Early adoption will continue to be permitted.

In preparation for the implementation of this ASU, the Company has formed a cross-functional team, contracted with a third-party software provider, and is consulting with a third-party professional advisory service to assist in the model development.

The Company plans to assess the overall impact by running the existing and new allowance models in parallel prior to the period of implementation.

The Company expects to recognize a one-time adjustment to the allowance for loan losses upon adoption, but cannot yet determine the magnitude of the one-time adjustment or the overall impact of the new guidance on the Company’s consolidated financial condition or results of operation.

The FASB issued ASU 2022-22, Financial Instruments – Credit Losses (Topic 326):

Troubled Debt Restructurings and Vintage Disclosures .

This ASU eliminates the TDR recognition and measurement guidance, and instead, requires that an entity evaluate (consistent with the accounting for other loan modifications) whether a modification represents a new loan or a continuation of an existing loan.

In addition, this ASU enhances existing disclosure requirements and introduces new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty.

For public business entities, this ASU requires that an entity disclose current-period gross write-offs by year of origination for financing receivables and net investment in leases within the scope of Subtopic 326-20.

Gross write-off information must be included in the vintage disclosures required for public business entities in accordance with paragraph 326-20-50-6, which requires that en entity disclose the amortized cost basis for financing receivables by credit quality indicator and class of financing receivable by year of origination.

For entities that have adopted the amendments in updated 2016-13, the amendments in this update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

For entities that have not yet adopted the amendments in update 2016-13, the effective dates for the amendments in this update are the same as the effective dates in Update 2016-13.

The Company has not yet adopted the accounting standard as ASU 2016-13 has not been adopted.

Management continues to evaluate the impact of its future adoption of this guidance on the Company's consolidated financial statements.

In December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848):

Deferral of the Sunset Date of Topic 848 that extends the period of time preparers can utilize the reference rate reform relief guidance.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848):

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.

The new guidance provides optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference the London Inter-bank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued.

The elective guidance in the ASU applies to modifications of contract terms that will directly replace, or have the potential to replace, an affected rate with another interest rate index, as well as certain contemporaneous modifications of other contract terms related to the replacement of an affected rate.

The ASU notes that changes in contract terms that are made to effect the reference rate reform transition are considered related to the replacement of a reference rate if they are not the result of a business decision that is separate from or in addition to changes to the terms of a contract to effect that transition.

The optional expedient allows companies to account for the modification as if it was not substantial (i.e., do not treat as an extinguishment of debt).

To ensure the relief in Topic 848 covers the period of time during which a significant number of modifications may take place, ASU 2022-06 defers the sunset date of Topic 848 from December 31, 2022 to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848.

For all entities, the amendments in ASU 2022-06 are effective upon issuance.

As of March 31, 2023, the Company has identified approximately $ 126.0 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.

The Company is currently evaluating the potential impact of this guidance on its consolidated statements of financial statements and results of operations.

Earnings Pe r Share

3 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

(Dollars in thousands, except share and per share data)

3 unchanged sentences

Dilutive Effect of Common Stock Equivalents (Stock Options and Restricted Stock)

11,766 17,096 14,744 7,803

Weighted-Average Diluted Common Shares and Common Stock Equivalents Outstanding

2 unchanged sentences

$ 0.81 $ 0.59

0.77 0.37 1.37 0.85

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

1 unchanged sentence

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Stock Options 224,076 155,138

1 unchanged sentence

The following table presents the amortized cost and fair value of securities available-for-sale at the dates indicated:

September 30, 2022

March 31, 2023

(Dollars in thousands)

28 unchanged sentences

The following tables show the Company’s gross unrealized losses and fair value, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position, at the dates indicated:

September 30, 2022

March 31, 2023

Less than 12 months

23 unchanged sentences

82 $ 62,435 $ ( 5,857 ) 32 $ 124,925 $ ( 27,591 ) 114 $ 187,360 $ ( 33,448 )

For debt securities, the Company does not believe that any individual unrealized loss as of September 30, 2022 or December 31, 2021, represents an other-than-temporary impairment.

The Company performs a review of the entire securities portfolio on a quarterly basis to identify securities that may indicate an other-than-temporary impairment.

For debt securities, the Company does not believe that any individual unrealized loss as of March 31, 2023 or December 31, 2022, represents a credit related impairment.

The Company performs a review of the entire securities portfolio on a quarterly basis to identify securities that may indicate a credit related impairment.

The Company’s management considers the length of time and the extent to which the fair value has been less than cost, and the financial condition of the issuer.

The securities that are temporarily impaired at September 30, 2022 and December 31, 2021 relate principally to changes in market interest rates subsequent to the acquisition of the specific securities.

The unrealized losses on securities

at March 31, 2023 and December 31, 2022 relate principally to changes in market interest rates subsequent to the acquisition of the specific securities.

The Company does not intend to sell, and it is 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 $ 179.6 million and $ 121.0 million at September 30, 2022 and December 31, 2021, respectively, are pledged to secure public deposits, short-term borrowings and for other purposes as required or permitted by law.

Total securities available to be pledged have a fair value of $ 182.8 million at September 30, 2022 and $ 214.7 million at December 31, 2021.

Total securities available to be pledged have a fair value of $ 179.1 million at March 31, 2023 and $ 179.0 million at December 31, 2022 of which securities with a fair value of $ 172.9 million and $ 175.6 million at March 31, 2023 and December 31, 2022, respectively, were pledged to secure uninsured public deposits, short-term borrowings and for other purposes as required or permitted by law.

The following table presents the scheduled maturities of debt securities as of the date indicated:

September 30, 2022

March 31, 2023

(Dollars in thousands)

1 unchanged sentence

Due after One Year through Five Years

23,554 21,204

Due after Five Years through Ten Years

3 unchanged sentences

$ 217,427 $ 186,559

The following table presents the gross realized gain and loss on sales of debt securities, as well as gain and loss on equity securities from both sales and market adjustments for the periods indicated.

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

The following table presents the gain and loss on equity securities from both realized sales and unrealized market adjustments for the periods indicated.

There were no realized gain or loss on sales of debt securities for the periods indicated, All gains and losses presented in the table below are reported in Net Loss on Securities on the Consolidated Statements of Income.

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

(Dollars in thousands)

Debt Securities

Gross Realized Gain $ — $ — $ — $ 225

Gross Realized Loss — — — —

Net Gain on Debt Securities $ — $ — $ — $ 225

Equity Securities

Net Unrealized (Loss) Gain Recognized on Securities Held $ ( 46 ) $ 18 $ ( 252 ) $ 251

Net Unrealized Loss Recognized on Securities Held $ ( 232 ) $ ( 7 )

Net Realized Gain Recognized on Securities Sold — —

Net (Loss) Gain on Equity Securities $ ( 46 ) $ 24 $ ( 252 ) $ 257

Net (Loss) Gain on Securities $ ( 46 ) $ 24 $ ( 252 ) $ 482

Loans and Allowance for Loan Losses

Net Loss on Equity Securities $ ( 232 ) $ ( 7 )

Net Loss on Securities $ ( 232 ) $ ( 7 )

Loans and Allowance for Credit Losses

The Company’s loan portfolio is segmented to enable management to monitor risk and performance.

10 unchanged sentences

If the cash flow from the project is reduced (for example, if leases are not obtained or renewed, a bankruptcy court modifies a lease term, or a major tenant is unable to fulfill its lease obligations), the borrower’s ability to repay the loan may be impaired.

Construction loans are originated to individuals to finance the construction of residential dwellings and are also originated for the construction of commercial properties, including hotels, apartment buildings, housing developments, and owner-occupied properties used for businesses.

properties used for businesses.

Construction loans generally provide for the payment of interest only during the construction phase, which is usually 12 to 18 months.

1 unchanged sentence

Construction loan risks include overfunding in comparison to the plans, untimely completion of work, and leasing and stabilization after project completion.

Commercial and industrial loans are generally secured by business assets, inventories, accounts receivable, etc., which present collateral risk.

Commercial and industrial loans are generally secured by inventories, accounts receivable, and other business assets, which present collateral risk.

Consumer loans generally have higher interest rates and shorter terms than residential mortgage loans;

1 unchanged sentence

The following table presents the classifications of loans as of the dates indicated.

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

(Dollars in thousands)

7 unchanged sentences

1,071,865 1,049,873

Allowance for Loan Losses

( 12,854 ) ( 11,582 )

Allowance for Credit Losses ( 10,270 ) ( 12,819 )

$ 1,061,595 $ 1,037,054

Payroll Protection Program ("PPP") loans decreased $ 23.8 million to $ 768,000 at September 30, 2022 compared to $ 24.5 million at December 31, 2021.

Net unamortized PPP loan origination fees as of September 30, 2022 and December 31, 2021 were $ 27,000 and $ 678,000 , respectively.

Additionally, $ 117,000 and $ 651,000 of net PPP loan origination fees were earned for the three and nine months ended September 30, 2022, respectively, compared to $ 380,000 and $ 1.4 million for the three and nine months ended September 30, 2021, respectively.

All PPP loans are classified as commercial and industrial loans held for investment.

No allowance for loan loss was allocated to the PPP loan portfolio due to the Bank complying with the lender obligations that ensure SBA guarantee.

Total unamortized net deferred loan fees were $ 1.3 million and $ 1.9 million at September 30, 2022 and December 31, 2021, respectively.

Included in total loans above are unamortized net deferred loan fees of $ 1.3 million and $ 1.2 million at March 31, 2023 and December 31, 2022, respectively.

The Company uses an eight-point internal risk rating system to monitor the credit quality of the overall loan portfolio.

5 unchanged sentences

Loans classified as Loss are considered uncollectible and of such little value that continuance as an asset is not warranted.

The following table presents loans summarized by the aggregate Pass and the criticized categories of Special Mention, Substandard and Doubtful within the internal risk rating system as of the dates indicated.

At September 30, 2022 and December 31, 2021, there were no loans in the criticized category of Loss within the internal risk rating system.

September 30, 2022

(Dollars in Thousands)

$ 325,702 $ 344 $ 2,202 $ — $ 328,248

386,294 34,743 11,479 — 432,516

48,065 1,109 328 — 49,502

The following table presents the Company’s loans by year of origination, loan segmentation and risk indicator summarized by the aggregate Pass and the criticized categories of Special Mention, Substandard and Doubtful within the internal risk rating system as of March 31, 2023.

There were no loans in the criticized category of loss.

Classified Loans by Origination Year (as of March 31, 2023)

(dollars in thousands) 2023 2022 2021 2020 2019 Prior Revolving Loans Amortized Cost Basis Total

Pass $ 7,837 $ 42,965 $ 44,803 $ 60,872 $ 41,078 $ 118,135 $ 14,247 $ 329,937

Special Mention — — 519 12 — 421 — 952

Substandard — — 168 — — 1,783 — 1,951

Doubtful — — — — — — — —

Loss — — — — — — — —

Total 7,837 42,965 45,490 60,884 41,078 120,339 14,247 332,840

Pass 17,003 76,891 88,230 50,562 54,631 123,778 1,846 412,941

Special Mention — — 1,519 3,005 5,171 18,451 — 28,146

Substandard — — — — 1,649 10,034 — 11,683

Doubtful — — — — — — — —

Loss — — — — — — — —

Total 17,003 76,891 89,749 53,567 61,451 152,263 1,846 452,770

Pass 2,492 11,332 14,902 7,714 — — 1,055 37,495

Special Mention — 673 1,047 — — — — 1,720

Substandard — — — — — 307 — 307

Doubtful — — — — — — — —

Loss — — — — — — — —

Total 2,492 12,005 15,949 7,714 — 307 1,055 39,522

Commercial and Industrial

52,765 8,897 95 439 62,196

150,502 — 113 — 150,615

19,805 60 — — 19,865

Pass 15,853 18,397 10,020 6,483 4,079 3,877 10,265 68,974

Special Mention — — — 22 7 7,396 2,700 10,125

Substandard — — — 11 — — — 11

Doubtful — — — — — 391 — 391

Loss — — — — — — — —

Total 15,853 18,397 10,020 6,516 4,086 11,664 12,965 79,501

Pass 13,116 62,753 34,584 15,872 7,089 8,395 4,081 145,890

Special Mention — — — — — — — —

Substandard — 77 — — — 114 — 191

Doubtful — — — — — — — —

Loss — — — — — — — —

Total 13,116 62,830 34,584 15,872 7,089 8,509 4,081 146,081

Pass — 13,810 51 710 1,365 4,313 851 21,100

Special Mention — — — — — 51 — 51

Substandard — — — — — — — —

Doubtful — — — — — — — —

Loss — — — — — — — —

Total — 13,810 51 710 1,365 4,364 851 21,151

Total Loans $ 56,301 $ 226,898 $ 195,843 $ 145,263 $ 115,069 $ 297,446 $ 35,045 $ 1,071,865

Gross Charge Offs (1)

$ — $ 22 $ 7 $ — $ — $ 8 $ 16 $ 53

(1) Gross charge-offs for the three months ended March 31, 2023, were related to consumer loans.

There were no other charge-offs for the other loan categories in the current period.

The following table presents the Company’s loan segmentation and risk indicator summarized by the aggregate Pass and the criticized categories of Special Mention, Substandard and Doubtful within the internal risk rating system as of December 31, 2022, prior to the adoption of ASU 2016-13:

December 31, 2022

9 unchanged sentences

The following table presents the classes of the loan portfolio summarized by the aging categories of performing loans and nonaccrual loans as of the dates indicated.

September 30, 2022

March 31, 2023

(Dollars in Thousands)

17 unchanged sentences

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

Additional interest income that would have been recorded if the loans that were nonaccrual at September 30, 2022 were current was $ 56,000 and $ 142,000 for the three and nine months ended September 30, 2022, respectively, and $ 33,000 and $ 136,000 for the three and nine months ended September 30, 2021, respectively.

The following table sets forth the amounts and categories of nonperforming assets at the dates indicated.

Included in nonperforming loans and assets are troubled debt restructurings (“TDRs”), which are loans whose contractual terms have been restructured in a manner which grants a concession to a borrower experiencing financial difficulties.

Nonaccrual TDRs are included in their specific loan category in the nonaccrual loans section.

September 30,

2022 December 31,

Additional interest income that would have been recorded if the loans that were nonaccrual at March 31, 2023 were current was $ 33,000 for the three months ended March 31, 2023, and $ 79,000 for the three months ended March 31, 2022.

The following table sets forth the amounts for amortized cost basis of loans on nonaccrual status, loans past due 90 days still accruing, and categories of nonperforming assets at the date indicated.

March 31, 2023

Nonaccrual With No ACL Nonaccrual With ACL Loans Past Due 90 Days Still Accruing Total Nonperforming Loans

(Dollars in Thousands)

1 unchanged sentence

$ 1,378 $ — $ — $ 1,378

3,442 — — 3,442

Commercial and Industrial

Total Nonaccrual Loans

$ 5,413 $ — $ — 5,413

Other Real Estate Owned:

Total Other Real Estate Owned

Total Nonperforming Assets

No interest income on nonaccrual loans was recognized during the three months ended March 31, 2023.

In conjunction with the adoption of ASU 2016-13, ASU 2022-02 was adopted and eliminates the troubled debt restructurings ("TDR") recognition and measurement.

With the elimination of TDRs, ASU 2022-02 requires that all modifications and refinancing, including those with borrowers that are experiencing financial difficulty are subject to the modification guidance in ASC 310-20.

Loan modifications could meet the definition of a new loan if certain terms of the loan are modified to the benefit of the lender and the modification to the terms of the loan are more than minor.

Both of these criteria have to be met to define the modification as a new loan.

If a loan modification meets the criteria of new loan, then the new loan should include the remaining net investment in the original loan, additional funds advanced, fees received, and direct loan origination costs with the refinancing or restructuring.

Additionally, the effective interest rate should be recalculated based on the amortized cost basis of the new loan and reassess contractual cash flow.

For the three months ended March 31, 2023, there were no new loan modifications to borrowers experiencing financial difficulty in the past 12 months under the current guidance.

The following table sets forth the amounts and categories of nonperforming assets at the dates indicated as of December 31, 2022, prior to the adoption of ASU 2016-13.

Included in nonperforming loans and assets are TDRs, which are loans whose contractual terms have been restructured in a manner which grants a concession to a borrower experiencing financial difficulties.

Nonaccrual TDRs are included in their specific loan category in the nonaccrual loans section.

(Dollars in Thousands)

Nonaccrual Loans:

Commercial and Industrial

Total Nonaccrual Loans

Accruing Loans Past Due 90 Days or More:

5 unchanged sentences

Total Nonperforming Loans

Other Real Estate Owned:

Total Other Real Estate Owned

Total Nonperforming Assets

$ 5,880 $ 7,302

Nonperforming Loans to Total Loans

0.56 % 0.71 %

Nonperforming Assets to Total Assets

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 $ 944,456 and $ 571,000 at September 30, 2022 and December 31, 2021, respectively.

As of September 30, 2022, the Company had no TDR loans in forbearance.

There were no modifications to troubled debt restructurings during the three months ended September 30, 2022.

As of December 31, 2021, there was no TDR loan in forbearance.

The following table presents a summary of the loans considered to be impaired as of the dates indicated.

September 30, 2022

Quarter Ended Year to Date

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 $ 855 ,000 and $ 1.4 million at March 31, 2023 and December 31, 2022, respectively.

The activity in the ACL - Loans is summarized below by primary segments as of March 31, 2023 :

(Dollars in thousands)

With No Related Allowance Recorded:

$ 1,053 $ 1,058 $ 1,057 $ 14 $ 1,110 $ 37

11,140 11,255 11,254 121 10,681 289

328 328 331 5 430 13

Commercial and Industrial

104 104 115 2 906 47

Total With No Related Allowance Recorded

$ 12,625 $ — $ 12,745 $ 12,757 $ 142 $ 13,127 $ 386

With A Related Allowance Recorded:

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

Impact of ASC 326 - Loans 137 ( 3,244 ) 488 ( 1,057 ) 774 120 ( 603 ) ( 3,385 )

— — — — ( 53 ) — — ( 53 )

13 — — 758 38 — — 809

(Recovery) Provision for Credit Losses - Loans ( 68 ) 490 ( 185 ) ( 17 ) ( 178 ) 38 — 80

March 31, 2023 $ 2,156 $ 3,056 $ 805 $ 1,997 $ 2,098 $ 158 $ — $ 10,270

The Company’s allowance for credit losses on unfunded commitments is recognized as a liability (accrued interest payable and other liabilities on the Consolidated Statement of Financial Condition), with adjustments to the reserve recognized in provision for credit losses - unfunded commitments on the Consolidated Statement of Income.

The Company’s activity in the allowance for credit losses on unfunded commitments for the periods ended was as follows:

(in thousands) Allowance for Credit Losses

Balance at December 31, 2022 $ —

Impact of CECL adoption 718

Provision for credit losses —

Balance at March 31, 2023 $ 718

Loans that do not share risk characteristics are evaluated on an individual basis.

For loans that are individually evaluated and collateral dependent, financial loans where the Company has determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and the Company expects repayment of the financial asset to be provided substantially through the operation or sale of the collateral, the ACL - Loans is measured based on the difference between the fair value of the collateral and the amortized cost basis of the asset as of the measurement date.

During the three months ended March 31, 2023, there were no loans that required a credit loss to be individually assigned.

The following tables present the activity in the allowance for credit losses summarized by primary segments and segregated into the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for potential impairment at the dates and for the periods indicated, prior to the adoption of ASU 2016-13.

December 31, 2022

(Dollars in thousands)

Individually Evaluated for Impairment

$ — $ 21 $ — $ 3 $ — $ — $ — $ 24

Commercial and Industrial

Collectively Evaluated for Potential Impairment

$ 2,074 $ 5,789 $ 502 $ 2,310 $ 1,517 $ — $ 603 $ 12,795

Total With A Related Allowance Recorded

(Dollars in thousands)

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

( 17 ) — — — ( 20 ) — — ( 37 )

Total Impaired Loans:

2 — — 11 37 — — 50

Provision (Recovery) 67 366 ( 545 ) ( 32 ) 225 — ( 81 ) —

March 31, 2022 $ 1,472 $ 6,326 $ 704 $ 1,130 $ 1,292 $ — $ 671 $ 11,595

March 31, 2022

(Dollars in thousands)

Individually Evaluated for Impairment

$ — $ — $ 84 $ 96 $ — $ — $ — $ 180

Collectively Evaluated for Potential Impairment

$ 1,472 $ 6,326 $ 620 $ 1,034 $ 1,292 $ — $ 671 $ 11,415

Commercial and Industrial

The following table presents the major classifications of loans summarized by individually evaluated for impairment and collectively evaluated for potential impairment as of the dates indicated, prior to the adoption of ASU 2016-13.

At December 31, 2022, commercial and industrial loans include $ 126,000 of PPP loans collectively evaluated for potential impairment.

No allowance for loan loss was allocated to the PPP loan portfolio due to the Bank complying with the lender obligations that ensure SBA guarantee.

December 31, 2022

(Dollars in thousands)

Individually Evaluated for Impairment

$ 1,042 $ 13,217 $ 318 $ 512 $ — $ — $ 15,089

Total Impaired Loans

Collectively Evaluated for Potential Impairment

329,683 423,588 44,605 69,532 146,927 20,449 1,034,784

Total Loans $ 330,725 $ 436,805 $ 44,923 $ 70,044 $ 146,927 $ 20,449 $ 1,049,873

The following table presents changes in the accretable discount on the loans acquired at fair value at the dates indicated.

Accretable Discount

(Dollars in Thousands)

December 31, 2022 $ 487

Accretable Yield

March 31, 2023 $ 426

Pre Adoption of ASC 326 – Impaired Loans

For periods prior to the adoption of CECL, loans were considered impaired when, based on current information and events, it was probable the Company would be unable to collect all amounts due in accordance with the original contractual terms of the loan agreement, including scheduled principal and interest payments.

The following table presents a summary of the loans considered to be impaired as of the date indicated.

December 31, 2022

(Dollars in thousands)

9 unchanged sentences

$ 1,608 $ 21 $ 1,608 $ 954 $ 79

266 195 266 421 19

Construction — — — 830 36

Commercial and Industrial

— — — 1,316 29

Total With A Related Allowance Recorded

8 unchanged sentences

$ 15,089 $ 24 $ 15,523 $ 15,187 $ 770

The recorded investment of loans evaluated for impairment decreased $ 964,000 at September 30, 2022 compared to December 31, 2021 and was primarily related to commercial real estate loans.

The following tables present the activity in the allowance for loan losses summarized by primary segments and segregated into the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for potential impairment at the dates and for the periods indicated.

(Dollars in thousands)

June 30, 2022 $ 1,654 $ 6,023 $ 471 $ 2,349 $ 1,502 $ — $ 834 $ 12,833

— — — — ( 46 ) — — ( 46 )

16 — — 38 13 — — 67

Provision (Recovery) 148 ( 24 ) 94 ( 211 ) 89 — ( 96 ) —

September 30, 2022 $ 1,818 $ 5,999 $ 565 $ 2,176 $ 1,558 $ — $ 738 $ 12,854

(Dollars in thousands)

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

( 33 ) — — ( 2,712 ) ( 85 ) — — ( 2,830 )

143 — — 106 69 — — 318

Provision (Recovery) 288 39 ( 684 ) 3,631 524 — ( 14 ) 3,784

September 30, 2022 $ 1,818 $ 5,999 $ 565 $ 2,176 $ 1,558 $ — $ 738 $ 12,854

September 30, 2022

(Dollars in thousands)

Individually Evaluated for Impairment

$ — $ 68 $ 146 $ — $ — $ — $ — $ 214

Collectively Evaluated for Potential Impairment

$ 1,818 $ 5,931 $ 419 $ 2,176 $ 1,558 $ — $ 738 $ 12,640

December 31, 2021

(Dollars in thousands)

Individually Evaluated for Impairment

$ — $ 195 $ 104 $ — $ — $ — $ — $ 299

Collectively Evaluated for Potential Impairment

$ 1,420 $ 5,765 $ 1,145 $ 1,151 $ 1,050 $ — $ 752 $ 11,283

(Dollars in thousands)

June 30, 2021 $ 1,588 $ 5,582 $ 1,136 $ 1,152 $ 941 $ — $ 1,145 $ 11,544

— — — — ( 19 ) — — ( 19 )

2 — — 11 43 — — 56

(Recovery) Provision ( 98 ) 347 ( 71 ) ( 21 ) ( 12 ) — ( 145 ) —

September 30, 2021 $ 1,492 $ 5,929 $ 1,065 $ 1,142 $ 953 $ — $ 1,000 $ 11,581

(Dollars in thousands)

December 31, 2020 $ 2,249 $ 6,010 $ 889 $ 1,423 $ 1,283 $ — $ 917 $ 12,771

— — — — ( 139 ) — — ( 139 )

15 — — 33 101 — — 149

(Recovery) Provision ( 772 ) ( 81 ) 176 ( 314 ) ( 292 ) — 83 ( 1,200 )

September 30, 2021 $ 1,492 $ 5,929 $ 1,065 $ 1,142 $ 953 $ — $ 1,000 $ 11,581

September 30, 2021

(Dollars in thousands)

Individually Evaluated for Impairment

$ — $ 199 $ — $ — $ — $ — $ — $ 199

Collectively Evaluated for Potential Impairment

$ 1,492 $ 5,730 $ 1,065 $ 1,142 $ 953 $ — $ 1,000 $ 11,382

The following table presents the major classifications of loans summarized by individually evaluated for impairment and collectively evaluated for potential impairment as of the dates indicated.

At September 30, 2022 and December 31, 2021, commercial and industrial loans include $ 768,000 and $ 24.5 million, respectively, of PPP loans collectively evaluated for potential impairment.

No allowance for loan loss was allocated to the PPP loan portfolio due to the Bank complying with the lender obligations that ensure SBA guarantee.

September 30, 2022

(Dollars in thousands)

Individually Evaluated for Impairment

$ 1,053 $ 12,776 $ 328 $ 543 $ — $ — $ 14,700

Collectively Evaluated for Potential Impairment

327,195 419,740 49,174 61,653 150,615 19,865 1,028,242

$ 328,248 $ 432,516 $ 49,502 $ 62,196 $ 150,615 $ 19,865 $ 1,042,942

December 31, 2021

(Dollars in thousands)

Individually Evaluated for Impairment

$ 1,133 $ 9,999 $ 2,553 $ 1,979 $ — $ — $ 15,664

Collectively Evaluated for Potential Impairment

319,665 382,125 82,475 87,031 122,152 11,684 1,005,132

Total Loans $ 320,798 $ 392,124 $ 85,028 $ 89,010 $ 122,152 $ 11,684 $ 1,020,796

The following table presents changes in the accretable discount on the loans acquired at fair value at the dates indicated.

Accretable Discount

(Dollars in Thousands)

December 31, 2021 $ 726

Accretable Yield

September 30, 2022 $ 548

The recorded investment of loans evaluated for impairment decreased $ 1.4 million at March 31, 2023 compared to December 31, 2022 and was primarily related to commercial real estate loans.

Short-Term Borrowings

3 unchanged sentences

The following table sets forth the components of short-term borrowings as of the dates indicated.

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Amount Weighted

1 unchanged sentence

(Dollars in thousands)

Federal Funds Purchased:

Average Balance Outstanding During the Period $ 2 5.40 % $ — — %

Maximum Amount Outstanding at any Month End — —

Securities Sold Under Agreements to Repurchase:

22 unchanged sentences

The standard inputs that are normally used include benchmark yields of like securities, reportable trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data including market research publications.

There were no transfers into or out of Level 3 during the nine months ended September 30, 2022 or year ended December 31, 2021.

2022 December 31

There were no transfers into or out of Level 3 during the three months ended March 31, 2023 or year ended December 31, 2022.

March 31, 2023 December 31, 2022

(Dollars in thousands)

17 unchanged sentences

The table also presents the significant unobservable inputs used in the fair value measurements.

Financial Asset Fair Value Hierarchy September 30,

Financial Asset Fair Value Hierarchy March 31,

2023 Valuation

1 unchanged sentence

(Dollars in thousands)

Impaired Loans Individually Assessed Level 3 $ 1,861 Appraisal of Collateral (1)

Appraisal Adjustments (2)

OREO Level 3 248 Appraisal of Collateral (1)

Liquidation Expenses (2)

10 % to 30 % 26.6 %

3 unchanged sentences

(Dollars in thousands)

Impaired Loans Individually Assessed Level 3 $ 1,980 Appraisal of Collateral (1)

Individually Evaluated Loans Level 3 $ 1,591 Appraisal of Collateral (1)

Appraisal Adjustments (2)

0 % to 8 % 7.2 %

Mortgage Servicing Rights Level 3 141 Discounted Cash Flow Discount Rate 9 % to 11 % 10.1 %

Prepayment Speed 6 % to 36 % 7.5 %

OREO Level 3 36 Appraisal of Collateral (1)

Liquidation Expenses (2)

10 % to 30 % 26.6 %

(1) Fair value is generally determined through independent appraisals of the underlying collateral, which may include various Level 3 inputs, which are not identifiable.

1 unchanged sentence

The range and weighted average of appraisal adjustments and liquidation expense are presented as a percent of the appraisal.

Impaired loans are evaluated when a loan is identified as impaired and valued at the lower of cost or fair value at that time.

Impaired loans that are collateral dependent are written down to fair value through the establishment of specific reserves.

Expected credit losses on individually evaluated loans deemed to be collateral dependent are valued based upon the lower of amortized cost or fair value of the underlying collateral less costs to sell.

Fair value is measured based on the value of the collateral securing these loans and is classified as Level 3 in the fair value hierarchy.

At September 30, 2022 and December 31, 2021, the fair value of impaired loans consists of the loan balances of $ 2.1 million and $ 2.3 million, respectively, less their specific valuation allowances of $ 214,000 and $ 299,000 , respectively.

At March 31, 2023, the Company did not have any loans that would be required to be remeasured.

At December 31, 2022, the fair value of individually evaluated loans consists of the loan balances of $ 1.6 million less their specific valuation allowances of $ 24,000 .

The fair value of mortgage servicing rights ("MSRs") is determined by calculating the present value of estimated future net servicing cash flows, considering expected mortgage loan prepayment rates, discount rates, servicing costs and other economic factors, which are determined based on current market conditions.

3 unchanged sentences

MSRs are reported in Other Assets in the Consolidated Statements of Financial Condition and are amortized into mortgage servicing income in Other Income in the Consolidated Statements of Income.

At March 31, 2023 and December 31, 2022, the Company did not have any MSRs that would be required to be remeasured.

OREO properties are evaluated at the time of acquisition and recorded at fair value, less estimated selling costs.

8 unchanged sentences

The following table presents the estimated fair values of the Company’s financial instruments at the dates indicated.

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

(Dollars in thousands)

29 unchanged sentences

The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.

Commitments and conditional obligations are evaluated the same as on-balance-sheet instruments but do not have a corresponding reserve recorded.

The Company’s opinion on not implementing a corresponding reserve for off-balance-sheet instruments is supported by historical factors of no losses recorded due to these items.

The Company is continually evaluating these items for credit quality and any future need for the corresponding reserve.

The following table presents the unused and available credit balances of financial instruments whose contracts represent credit risk at the dates indicated.

September 30,

2023 December 31,

29 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

(Dollars in thousands)

3 unchanged sentences

Total Lease Expense $ 84 $ 89

September 30,

2023 December 31,

4 unchanged sentences

Weighted Average Discount Rate 2.87 % 2.87 %

September 30,

(Dollars in thousands)

9 unchanged sentences

Lease Liabilities $ 2,013

During the nine months ended September 30, 2022, the Company entered into a new lease agreement for the McMurray, PA branch, for a 10-year term ending March 31, 2032, as well as a new lease agreement for the Waynesburg branch, for a 5-year term ending July 31, 2027.

The increase to the operating Right of Use Asset and corresponding lease liability is approximately $ 1.3 million.

There were no new lease agreements entered into during the three months ended March 31, 2023.

During the three months ended March 31, 2022, the Company entered into a new lease agreement for the McMurray, PA branch, for a 10-year term ending March 31, 2032.

Other Noninterest Expense

1 unchanged sentence

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

(Dollars in thousands)

7 unchanged sentences

Meals and Entertainment 15 30

Travel 43 27 116 77

Training 33 18

4 unchanged sentences

Segment and Related Information

At September 30, 2022, the Company’s business activities were comprised of two operating segments, which are community banking and insurance brokerage services.

At March 31, 2023, the Company’s business activities were comprised of two operating segments, which are community banking and insurance brokerage services.

CB Financial is the parent company of the Bank and Exchange Underwriters, a wholly owned subsidiary of the Bank.

6 unchanged sentences

(Dollars in thousands)

September 30, 2022

March 31, 2023

Assets $ 1,432,201 $ 5,638 $ 132,069 $ ( 139,200 ) $ 1,430,708

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Stockholders' Equity 107,727 3,589 110,155 ( 111,316 ) 110,155

Three Months Ended September 30, 2022

Interest and Dividend Income $ 12,267 $ 1 $ 1,246 $ ( 1,227 ) $ 12,287

Interest Expense 1,117 — 155 — 1,272

Net Interest and Dividend Income 11,150 1 1,091 ( 1,227 ) 11,015

Provision for Loan Losses — — — — —

Net Interest and Dividend Income After Provision for Loan Losses 11,150 1 1,091 ( 1,227 ) 11,015

Noninterest Income (Loss) 1,343 1,406 ( 10 ) — 2,739

Noninterest Expense 7,741 1,082 4 — 8,827

Undistributed Net Income (Loss) of Subsidiary 230 — 2,807 ( 3,037 ) —

Income Before Income Tax Expense (Benefit) 4,982 325 3,884 ( 4,264 ) 4,927

Income Tax Expense (Benefit) 948 95 ( 45 ) — 998

Net Income $ 4,034 $ 230 $ 3,929 $ ( 4,264 ) $ 3,929

Nine Months Ended September 30, 2022

Three Months Ended March 31, 2023

Interest and Dividend Income $ 14,223 $ 2 $ 1,294 $ ( 1,275 ) $ 14,244

1 unchanged sentence

Net Interest and Dividend Income 11,717 2 1,139 ( 1,275 ) 11,583

Provision for Loan Losses 3,784 — — — 3,784

Net Interest and Dividend Income After Provision for Loan Losses 27,693 4 3,312 ( 3,724 ) 27,285

Provision for Credit Losses 80 — — — 80

Net Interest and Dividend Income After Provision for Credit Losses 11,637 2 1,139 ( 1,275 ) 11,503

Noninterest Income (Loss) 1,100 1,956 ( 246 ) — 2,810

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(Dollars in thousands)

Three Months Ended September 30, 2021

Three Months Ended March 31, 2022

Interest and Dividend Income $ 10,596 $ 1 $ 1,279 $ ( 1,260 ) $ 10,616

1 unchanged sentence

Net Interest and Dividend Income 10,029 1 1,123 ( 1,260 ) 9,893

Provision for Loan Losses — — — — —

Net Interest and Dividend Income After Provision for Loan Losses 9,992 1 1,311 ( 1,294 ) 10,010

Provision for Credit Losses — — — — —

Net Interest and Dividend Income After Provision for Credit Losses 10,029 1 1,123 ( 1,260 ) 9,893

Noninterest Income 777 1,797 39 — 2,613

1 unchanged sentence

Undistributed Net Income of Subsidiary 561 — 1,852 ( 2,413 ) —

Income Before Income Tax Expense 2,341 176 1,990 ( 2,072 ) 2,435

Income Tax Expense 393 52 7 — 452

Net Income $ 1,948 $ 124 $ 1,983 $ ( 2,072 ) $ 1,983

Nine Months Ended September 30, 2021

Interest and Dividend Income $ 32,536 $ 4 $ 8,456 $ ( 8,402 ) $ 32,594

Interest Expense 2,673 — — — 2,673

Net Interest and Dividend Income 29,863 4 8,456 ( 8,402 ) 29,921

(Recovery) for Loan Losses ( 1,200 ) — — — ( 1,200 )

Net Interest and Dividend Income After (Recovery) for Loan Losses 31,063 4 8,456 ( 8,402 ) 31,121

Noninterest Income 3,319 3,995 277 — 7,591

Noninterest Expense 29,898 2,983 9 — 32,890

Undistributed Net Income (Loss) of Subsidiary 710 — ( 4,096 ) 3,386 —

Income Before Income Tax Expense 5,194 1,016 4,628 ( 5,016 ) 5,822

Income Tax Expense 888 306 23 — 1,217

Net Income $ 4,306 $ 710 $ 4,605 $ ( 5,016 ) $ 4,605

Income Before Income Tax Expense (Benefit) 3,722 791 3,010 ( 3,673 ) 3,850

Income Tax Expense (Benefit) 610 230 ( 37 ) — 803

Net Income (Loss) $ 3,112 $ 561 $ 3,047 $ ( 3,673 ) $ 3,047

Stock Based Compensation

6 unchanged sentences

Forfeited ( 747 ) ( 28.02 )

Outstanding Options at September 30, 2022 271,748 $ 24.56 5.4

Exercisable Options at September 30, 2022 177,683 $ 24.32 3.6

Outstanding Options at March 31, 2023 344,476 $ 24.06 6.2

Exercisable Options at March 31, 2023 189,749 $ 24.53 3.7

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

Nonvested Options at September 30, 2022 94,065 $ 25.02 9.0

Nonvested Options at March 31, 2023 154,727 $ 23.49 9.3

Summary of Significant Assumptions for Newly Issued Stock Options

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Forfeited — —

Nonvested Restricted Stock at September 30, 2022 73,070 $ 24.61 4.2

Nonvested Restricted Stock at March 31, 2023 82,512 $ 23.60 4.3

The Company recognizes expense over a five-year vesting period for the restricted stock awards and stock options.

Stock-based compensation expense related to restricted stock awards and stock options was $ 145,000 and $ 169,000 for the three months ended September 30, 2022 and 2021, and $ 424,000 and $ 415,000 for the nine months ended September 30, 2022 and 2021, respectively.

As of September 30, 2022 and December 31, 2021, total unrecognized compensation expense was $ 386,945 and $ 65,000 , respectively, related to stock options, and $ 1.4 million and $ 1.3 million, respectively, related to restricted stock awards.

Intrinsic value represents the amount by which the fair value of the underlying stock at September 30, 2022 and December 31, 2021 exceeds the exercise price of the stock options.

The intrinsic value of stock options was $ 32,280 and $ 296,000 at September 30, 2022 and December 31, 2021, respectively.

At September 30, 2022 and December 31, 2021, respectively, there were 362,175 and 500,000 shares available under the Plan to be issued in connection with the exercise of stock options, and 144,870 and 200,000 shares that may be issued as restricted stock awards or units.

Stock-based compensation expense related to restricted stock awards and stock options was $ 174,000 and $ 130,000 for the three months ended March 31, 2023 and 2022.

As of March 31, 2023 and December 31, 2022, total unrecognized compensation expense was $ 673,000 and $ 430,000 , respectively, related to stock options, and $ 1.8 million and $ 1.4 million, respectively, related to restricted stock awards.

Intrinsic value represents the amount by which the fair value of the underlying stock at March 31, 2023 and December 31, 2022 exceeds the exercise price of the stock options.

The intrinsic value of stock options was $ 28,000 and $ 25,000 at March 31, 2023 and December 31, 2022, respectively.

At March 31, 2023 and December 31, 2022, respectively, there were 215,672 and 333,335 shares available under the Plan to be issued in connection with the exercise of stock options, and 86,269 and 133,334 shares that may be issued as restricted stock awards or units.

Restricted stock awards or units may be issued above this amount provided that the number of shares reserved for stock options is reduced by two and one-half shares for each restricted stock award or unit share granted.

2 unchanged sentences

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-Q

Item 1. Financial Statements