CB Financial Services, Inc. 10-Q

Item 1. Financial Statements. CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited) June 30, 2023 December 31, 2022 (Dollars in thousands, except per share and share data) ASSETS Cash and Due From Banks: Interest-Earning $ 60,287 $ 82,957 Noninterest-Earning 17,806 20,743 Total Cash and Due From Banks 78,093 103,700 Securities: Available-for-Sale Debt Securities, at Fair Value 179,061 187,360 Equity Securities, at Fair Value 2,366 2,698 Total Securities 181,427 190,058 Loans, Net of Allowance for Credit Losses of $ 10,666 and $ 12,819 at June 30, 2023 and December 31, 2022, Respectively 1,090,488 1,037,054 Premises and Equipment, Net 18,582 17,844 Bank-Owned Life Insurance 25,082 25,893 Goodwill 9,732 9,732 Intangible Assets, Net 2,622 3,513 Accrued Interest Receivable and Other Assets 26,707 21,144 TOTAL ASSETS $ 1,432,733 $ 1,408,938 LIABILITIES Deposits: Noninterest-Bearing Demand Accounts $ 316,098 $ 390,405 Interest-Bearing Demand Accounts 374,654 311,825 Money Market Accounts 185,814 209,125 Savings Accounts 217,267 248,022 Time Deposits 169,482 109,126 Total Deposits 1,263,315 1,268,503 Short-Term Borrowings — 8,060 Other Borrowings 34,658 14,638 Accrued Interest Payable and Other Liabilities 18,171 7,582 TOTAL LIABILITIES 1,316,144 1,298,783 STOCKHOLDERS' EQUITY Preferred Stock, No Par Value; 5,000,000 Shares Authorized — — Common Stock, $ 0.4167 Par Value; 35,000,000 Shares Authorized, 5,733,408 Shares Issued and 5,111,678 Shares Outstanding at June 30, 2023, with 5,708,433 and 5,100,189 Shares Issued and Outstanding at December 31, 2022. 2,389 2,379 Capital Surplus 84,325 83,953 Retained Earnings 70,314 63,861 Treasury Stock, at Cost ( 621,730 and 608,244 Shares at June 30, 2023 and December 31, 2022, Respectively) ( 14,100 ) ( 13,797 ) Accumulated Other Comprehensive Loss ( 26,339 ) ( 26,241 ) TOTAL STOCKHOLDERS' EQUITY 116,589 110,155 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,432,733 $ 1,408,938 The accompanying notes are an integral part of these consolidated financial statements 1 Table of Contents CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 (Dollars in thousands, except share and per share data) INTEREST AND DIVIDEND INCOME Loans, Including Fees $ 13,426 $ 9,733 $ 25,797 $ 19,284 Investment Securities: Taxable 950 988 1,914 1,893 Tax-Exempt 42 57 83 123 Dividends 25 20 49 42 Other Interest and Dividend Income 760 160 1,605 232 TOTAL INTEREST AND DIVIDEND INCOME 15,203 10,958 29,448 21,574 INTEREST EXPENSE Deposits 3,842 604 6,346 1,134 Short-Term Borrowings 3 18 5 37 Other Borrowings 238 173 393 347 TOTAL INTEREST EXPENSE 4,083 795 6,744 1,518 NET INTEREST AND DIVIDEND INCOME 11,120 10,163 22,704 20,056 Provision For Credit Losses - Loans 492 3,784 572 3,784 Recovery For Credit Losses - Unfunded Commitments ( 60 ) — ( 60 ) — NET INTEREST AND DIVIDEND INCOME AFTER PROVISION (RECOVERY) FOR CREDIT LOSSES 10,688 6,379 22,192 16,272 NONINTEREST INCOME Service Fees 448 559 892 1,085 Insurance Commissions 1,511 1,369 3,434 3,167 Other Commissions 224 179 368 268 Net Loss on Sales of Loans ( 5 ) — ( 3 ) — Net Loss on Securities ( 100 ) ( 199 ) ( 332 ) ( 206 ) Net Gain on Purchased Tax Credits 7 14 14 28 Net Gain (Loss) on Disposal of Fixed Assets — — 11 ( 8 ) Income from Bank-Owned Life Insurance 139 142 280 278 Net Gain on Bank-Owned Life Insurance Claims 1 — 303 — Other Income 44 41 113 106 TOTAL NONINTEREST INCOME 2,269 2,105 5,080 4,718 NONINTEREST EXPENSE Salaries and Employee Benefits 5,231 4,539 10,310 9,104 Occupancy 789 776 1,490 1,462 Equipment 283 182 501 392 Data Processing 718 446 1,575 931 FDIC Assessment 224 128 376 337 PA Shares Tax 195 240 455 480 Contracted Services 434 348 581 935 Legal and Professional Fees 246 389 428 541 Advertising 75 115 154 231 Other Real Estate Owned (Income) ( 35 ) ( 37 ) ( 72 ) ( 75 ) Amortization of Intangible Assets 446 446 891 891 Other Expense 895 838 1,841 1,837 TOTAL NONINTEREST EXPENSE 9,501 8,410 18,530 17,066 Income Before Income Tax Expense (Benefit) 3,456 74 8,742 3,924 Income Tax Expense (Benefit) 699 ( 44 ) 1,827 759 NET INCOME $ 2,757 $ 118 $ 6,915 $ 3,165 EARNINGS PER SHARE Basic $ 0.54 $ 0.02 $ 1.35 $ 0.61 Diluted 0.54 0.02 1.35 0.61 WEIGHTED AVERAGE SHARES OUTSTANDING Basic 5,111,987 5,147,846 5,110,799 5,172,881 Diluted 5,116,134 5,156,975 5,118,396 5,189,144 The accompanying notes are an integral part of these consolidated financial statements 2 Table of Contents CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED) Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 (Dollars in thousands) Net Income $ 2,757 $ 118 $ 6,915 $ 3,165 Other Comprehensive Loss: Change in Unrealized Loss on Investment Securities Available-for-Sale ( 2,704 ) ( 8,680 ) ( 124 ) ( 21,032 ) Income Tax Effect 583 1,870 26 4,531 Other Comprehensive Loss, Net of Income Tax Effect ( 2,121 ) ( 6,810 ) ( 98 ) ( 16,501 ) Total Comprehensive Income (Loss) $ 636 $ ( 6,692 ) $ 6,817 $ ( 13,336 ) The accompanying notes are an integral part of these consolidated financial statements 3 Table of Contents CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED) Three Months Ended June 30, 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) March 31, 2023 5,730,908 $ 2,388 $ 84,118 $ 68,834 $ ( 13,927 ) $ ( 24,218 ) $ 117,195 Comprehensive Income: Net Income — — — 2,757 — — 2,757 Other Comprehensive Loss — — — — — ( 2,121 ) ( 2,121 ) Restricted Stock Awards Granted 2,500 1 ( 1 ) — — — — Restricted Stock Awards Forfeited — — 21 — ( 21 ) — — Stock-Based Compensation Expense — — 187 — — — 187 Exercise of Stock Options — — — — 45 — 45 Treasury stock purchased, at cost ( 8,792 shares) — — — — ( 197 ) — ( 197 ) Dividends Paid ($ 0.25 Per Share) — — — ( 1,277 ) — — ( 1,277 ) June 30, 2023 5,733,408 $ 2,389 $ 84,325 $ 70,314 $ ( 14,100 ) $ ( 26,339 ) $ 116,589 Three Months Ended June 30, 2022 Shares Issued Common Stock Capital Surplus Retained Earnings Treasury Stock Accumulated Other Comprehensive Loss Total Stockholders' Equity (Dollars in thousands, except share and per share data) March 31, 2022 5,701,758 $ 2,376 $ 83,422 $ 59,343 $ ( 12,367 ) $ ( 10,618 ) $ 122,156 Comprehensive Loss: Net Income — — — 118 — — 118 Other Comprehensive Loss — — — — — ( 6,810 ) ( 6,810 ) Restricted Stock Awards Forfeited ( 325 ) — 43 — ( 43 ) — — Restricted Stock Awards Granted 1,000 — — — — — — Stock-Based Compensation Expense — — 149 — — — 149 Treasury Stock Purchased, at cost ( 27,439 shares) — — — — ( 605 ) — ( 605 ) Dividends Paid ($ 0.24 Per Share) — — — ( 1,236 ) — — ( 1,236 ) June 30, 2022 5,702,433 $ 2,376 $ 83,614 $ 58,225 $ ( 13,015 ) $ ( 17,428 ) $ 113,772 The accompanying notes are an integral part of these consolidated financial statements 4 Table of Contents Six Months Ended June 30, 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) 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 at January 1, 2023, adjusted 5,708,433 $ 2,379 $ 83,953 $ 65,953 $ ( 13,797 ) $ ( 26,241 ) $ 112,247 Comprehensive Income: Net Income — — — 6,915 — — 6,915 Other Comprehensive Loss — — — — — ( 98 ) ( 98 ) Restricted Stock Awards Granted 24,975 10 ( 10 ) — — — — Restricted Stock Awards Forfeited — — 21 — ( 21 ) — — Stock-Based Compensation Expense — — 361 — — — 361 Exercise of Stock Options — — — — 45 — 45 Treasury stock purchased, at cost ( 14,478 shares) — — — — ( 327 ) — ( 327 ) Dividends Paid ($ 0.50 Per Share) — — — ( 2,554 ) — — ( 2,554 ) June 30, 2023 5,733,408 $ 2,389 $ 84,325 $ 70,314 $ ( 14,100 ) $ ( 26,339 ) $ 116,589 Six Months Ended June 30, 2022 Shares Issued Common Stock Capital Surplus Retained Earnings Treasury Stock Accumulated Other Comprehensive Loss Total Stockholders' Equity (Dollars in thousands, except share and per share data) December 31, 2021 5,680,993 $ 2,367 $ 83,294 $ 57,534 $ ( 9,144 ) $ ( 927 ) $ 133,124 Comprehensive Loss: Net Income — — — 3,165 — — 3,165 Other Comprehensive Loss — — — — — ( 16,501 ) ( 16,501 ) Restricted Stock Awards Forfeited ( 325 ) — 47 — ( 47 ) — — Restricted Stock Awards Granted 21,765 9 ( 9 ) — — — — Stock-Based Compensation Expense — — 279 — — — 279 Exercise of Stock Options — — 3 — 164 — 167 Treasury Stock Purchased, at cost ( 159,279 shares) — — — — ( 3,988 ) — ( 3,988 ) Dividends Paid ($ 0.48 Per Share) — — — ( 2,474 ) — — ( 2,474 ) June 30, 2022 5,702,433 $ 2,376 $ 83,614 $ 58,225 $ ( 13,015 ) $ ( 17,428 ) $ 113,772 The accompanying notes are an integral part of these consolidated financial statements 5 Table of Contents CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Six Months Ended June 30, 2023 2022 (Dollars in thousands) OPERATING ACTIVITIES Net Income $ 6,915 $ 3,165 Adjustments to Reconcile Net Income to Net Cash Provided By Operating Activities Net Amortization on Securities 40 36 Depreciation and Amortization 1,420 1,282 Provision for Credit Losses - Loans 572 3,784 Recovery for Credit Losses - Unfunded Commitments ( 60 ) — Loss on Securities 332 206 Gain on Purchased Tax Credits ( 14 ) ( 28 ) Income from Bank-Owned Life Insurance ( 280 ) ( 278 ) Proceeds From Mortgage Loans Sold 269 — Originations of Mortgage Loans for Sale ( 266 ) — Loss on Sale of Loans 3 — Gain on Sale of Other Real Estate Owned and Repossessed Assets — ( 1 ) Noncash Expense for Stock-Based Compensation 361 279 (Increase) Decrease in Accrued Interest Receivable ( 561 ) 36 Net (Gain) Loss on Disposal of Fixed Assets ( 11 ) 8 Decrease in Taxes Payable ( 839 ) ( 2,462 ) Increase (Decrease) in Accrued Interest Payable 963 ( 42 ) Other, Net ( 308 ) ( 725 ) NET CASH PROVIDED BY OPERATING ACTIVITIES 8,536 5,260 INVESTING ACTIVITIES Investment Securities Available for Sale: Proceeds From Principal Repayments and Maturities 8,135 17,021 Purchases of Securities — ( 26,826 ) Net Increase in Loans ( 45,113 ) ( 9,576 ) Purchase of Premises and Equipment ( 1,345 ) ( 262 ) Proceeds from Disposal of Premises and Equipment 36 — Proceeds From a Claim on Bank-Owned Life Insurance 731 — Proceeds From Sale of Other Real Estate Owned — 37 (Increase) Decrease in Restricted Equity Securities ( 503 ) 599 NET CASH USED IN INVESTING ACTIVITIES ( 38,059 ) ( 19,007 ) FINANCING ACTIVITIES Net Decrease in Deposits ( 5,188 ) ( 11,423 ) Net Decrease in Short-Term Borrowings ( 8,060 ) ( 7,088 ) Proceeds From Other Borrowed Funds 20,000 — Cash Dividends Paid ( 2,554 ) ( 2,474 ) Treasury Stock, Purchases at Cost ( 327 ) ( 3,988 ) Exercise of Stock Options 45 167 NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 3,916 ( 24,806 ) DECREASE IN CASH AND CASH EQUIVALENTS ( 25,607 ) ( 38,553 ) CASH AND DUE FROM BANKS AT BEGINNING OF YEAR 103,700 119,674 CASH AND DUE FROM BANKS AT END OF PERIOD $ 78,093 $ 81,121 The accompanying notes are an integral part of these consolidated financial statements 6 Table of Contents CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Six Months Ended June 30, 2023 2022 (Dollars in thousands) SUPPLEMENTAL CASH FLOW INFORMATION: Cash Paid For: Interest on Deposits and Borrowings (Including Interest Credited to Deposits of $ 5,462 and $ 1,166 , Respectively) $ 5,781 $ 1,560 SUPPLEMENTAL NONCASH DISCLOSURE: Proceeds receivable from claims on bank-owned life insurance 664 — Other Real Estate Acquired in Settlement of Loans 166 — Syndicated Loans Purchased and Sold not Settled, net 6,976 — Right of Use Asset Recognized — 1,284 Lease Liability Recognized — 1,284 The accompanying notes are an integral part of these consolidated financial statements 7 Table of Contents NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Note 1. Summary of Significant Accounting Policies Principles of Consolidation and Basis of Presentation The accompanying consolidated financial statements include the accounts of CB Financial Services, Inc. (“CB Financial”) and its wholly owned subsidiary, Community Bank (the “Bank”), and the Bank’s wholly-owned subsidiary, Exchange Underwriters, Inc. (“Exchange Underwriters”). CB Financial, the Bank and Exchange Underwriters are collectively referred to as the “Company”. All intercompany transactions and balances have been eliminated in consolidation. The accompanying unaudited interim financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and with general practice within the banking industry. Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading in any material respect. In preparing financial statements in conformity with GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the Consolidated Statements of Financial Condition and income and expenses for the reporting period. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to determination of the allowance for credit losses on loans, the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans, impairment evaluations of securities, goodwill and intangible assets impairment, and the valuation of deferred tax assets. In the opinion of management, the accompanying unaudited interim financial statements include all adjustments considered necessary for a fair presentation of the Company’s financial position and results of operations at the dates and for the periods presented. All these adjustments are of a normal, recurring nature, and they are the only adjustments included in the accompanying unaudited interim financial statements. These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. Interim results are not necessarily indicative of results for a full year. Nature of Operations The Company derives substantially all its income from banking and bank-related services which include interest income on commercial, commercial mortgage, residential real estate and consumer loan financing, as well as interest and dividend income on securities, insurance commissions, and fees generated from deposit services to its customers. The Company provides banking services through its subsidiary, Community Bank, a Pennsylvania-chartered commercial bank headquartered in Carmichaels, Pennsylvania. The Bank is a community-oriented institution offering residential and commercial real estate loans, commercial and industrial loans, and consumer loans as well as a variety of deposit products for individuals and businesses in its market area. 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. Critical Accounting Policies; Use of Critical Accounting Estimates The disclosures below supplement 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 ACL 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 8 Table of Contents 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 ACL. The ACL 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. ACL on Loans Receivable The ACL 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 ACL 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 ACL 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 restructuring 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 ACL 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 estimated costs to sell at the reporting date, and the amortized cost basis of the loan. 9 Table of Contents ACL 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 ACL 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. ACL 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 ACL 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 ACL 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 ACL 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 $ 4.0 million at June 30, 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 June 30, 2023 and is excluded from the estimate of credit losses. Recent Accounting Standards 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 June 30, 2023, the Company has identified approximately $ 16.2 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. 10 Table of Contents Note 2. Earnings Pe r Share There are no convertible securities which would affect the numerator in calculating basic and diluted earnings per share; therefore, net income as presented on the Consolidated Statements of Income is used as the numerator. The following table sets forth the composition of the weighted-average common shares (denominator) used in the basic and diluted earnings per share computation. Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 (Dollars in thousands, except share and per share data) Net Income $ 2,757 $ 118 $ 6,915 $ 3,165 Weighted-Average Basic Common Shares Outstanding 5,111,987 5,147,846 5,110,799 5,172,881 Dilutive Effect of Common Stock Equivalents (Stock Options and Restricted Stock) 4,147 9,129 7,597 16,263 Weighted-Average Diluted Common Shares and Common Stock Equivalents Outstanding 5,116,134 5,156,975 5,118,396 5,189,144 Earnings Per Share: Basic $ 0.54 $ 0.02 $ 1.35 $ 0.61 Diluted 0.54 0.02 1.35 0.61 The dilutive effect on weighted average diluted common shares outstanding is the result of outstanding stock options and nonvested restricted stock. The following table presents for the periods indicated (a) options to purchase shares of common stock that were outstanding but not included in the computation of earnings per share because the options’ exercise price was greater than the average market price of the common shares for the period, and (b) shares of restricted stock awards that were not included in the computation of diluted earnings per share because the hypothetical repurchase of shares under the treasury stock method exceeded the weighted average nonvested restricted awards, therefore the effects would be anti-dilutive. Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Stock Options 339,123 156,118 339,123 156,118 Restricted Stock 58,527 37,940 51,727 37,940 11 Table of Contents Note 3. Securities The following table presents the amortized cost and fair value of securities available-for-sale at the dates indicated: June 30, 2023 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value (Dollars in thousands) Available-for-Sale Debt Securities: U.S. Government Agencies $ 53,994 $ — $ ( 8,612 ) $ 45,382 Obligations of States and Political Subdivisions 13,810 — ( 598 ) 13,212 Mortgage-Backed Securities - Government-Sponsored Enterprises 43,226 — ( 4,818 ) 38,408 Collateralized Mortgage Obligations - Government Sponsored Enterprises 92,117 — ( 17,418 ) 74,699 Corporate Debt 9,486 — ( 2,126 ) 7,360 Total Available-for-Sale Debt Securities 212,633 — ( 33,572 ) 179,061 Equity Securities: Mutual Funds 875 Other 1,491 Total Equity Securities 2,366 Total Securities $ 181,427 December 31, 2022 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value (Dollars in thousands) Available-for-Sale Debt Securities: U.S. Government Agencies $ 53,993 $ — $ ( 9,359 ) $ 44,634 Obligations of States and Political Subdivisions 14,053 — ( 711 ) 13,342 Mortgage-Backed Securities - Government-Sponsored Enterprises 46,345 — ( 4,918 ) 41,427 Collateralized Mortgage Obligations - Government Sponsored Enterprises 96,930 — ( 17,288 ) 79,642 Corporate Debt 9,487 — ( 1,172 ) 8,315 Total Available-for-Sale Debt Securities 220,808 — ( 33,448 ) 187,360 Equity Securities: Mutual Funds 875 Other 1,823 Total Equity Securities 2,698 Total Securities $ 190,058 12 Table of Contents The following tables show the Company’s gross unrealized losses and fair value, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position, at the dates indicated: June 30, 2023 Less than 12 months 12 Months or Greater Total Number of Securities Fair Value Gross Unrealized Losses Number of Securities Fair Value Gross Unrealized Losses Number of Securities Fair Value Gross Unrealized Losses (Dollars in thousands) U.S. Government Agencies — $ — $ — 13 $ 45,382 $ ( 8,612 ) 13 $ 45,382 $ ( 8,612 ) Obligations of States and Political Subdivisions 23 9,343 ( 413 ) 10 3,869 ( 185 ) 33 13,212 ( 598 ) Mortgage Backed Securities- Government Sponsored Enterprises 24 13,333 ( 781 ) 18 25,075 ( 4,037 ) 42 38,408 ( 4,818 ) Collateralized Mortgage Obligations - Government Sponsored Enterprises 1 59 ( 1 ) 20 74,640 ( 17,417 ) 21 74,699 ( 17,418 ) Corporate Debt — — — 3 7,360 ( 2,126 ) 3 7,360 ( 2,126 ) Total 48 $ 22,735 $ ( 1,195 ) 64 $ 156,326 $ ( 32,377 ) 112 $ 179,061 $ ( 33,572 ) December 31, 2022 Less than 12 months 12 Months or Greater Total Number of Securities Fair Value Gross Unrealized Losses Number of Securities Fair Value Gross Unrealized Losses Number of Securities Fair Value Gross Unrealized Losses (Dollars in thousands) U.S. Government Agencies 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 ) Collateralized Mortgage Obligations - Government Sponsored Enterprises 12 25,395 ( 3,393 ) 10 54,247 ( 13,895 ) 22 79,642 ( 17,288 ) Corporate Debt 1 1,665 ( 335 ) 2 6,650 ( 837 ) 3 8,315 ( 1,172 ) Total 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 June 30, 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 unrealized losses on securities at June 30, 2023 and December 31, 2022 relate principally to changes in market interest rates subsequent to the acquisition of the specific securities. 13 Table of Contents 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. Total securities available to be pledged have a fair value of $ 171.7 million at June 30, 2023 and $ 179.0 million at December 31, 2022 of which securities with a fair value of $ 171.4 million and $ 175.6 million at June 30, 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: June 30, 2023 Amortized Cost Fair Value (Dollars in thousands) Due in One Year or Less $ — $ — Due after One Year through Five Years 26,527 23,478 Due after Five Years through Ten Years 57,391 49,177 Due after Ten Years 128,715 106,406 Total $ 212,633 $ 179,061 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 June 30, Six Months Ended June 30, 2023 2022 2023 2022 (Dollars in thousands) Equity Securities Net Unrealized Loss Recognized on Securities Held $ ( 100 ) $ ( 199 ) $ ( 332 ) $ ( 206 ) Net Realized Gain Recognized on Securities Sold — — — — Net Loss on Equity Securities $ ( 100 ) $ ( 199 ) $ ( 332 ) $ ( 206 ) Net Loss on Securities $ ( 100 ) $ ( 199 ) $ ( 332 ) $ ( 206 ) Note 4. Loans and Allowance for Credit Losses The Company’s loan portfolio is segmented to enable management to monitor risk and performance. Real estate loans are further segregated into three classes. Residential mortgages include those secured by residential properties and include home equity loans, while commercial mortgages consist of loans to commercial borrowers secured by commercial real estate. Construction loans typically consist of loans to build commercial buildings and acquire and develop residential real estate. The commercial and industrial segment consists of loans to finance the activities of commercial customers. The consumer segment consists primarily of indirect auto loans as well as personal installment loans and personal or overdraft lines of credit. Residential mortgage loans are typically longer-term loans and, therefore, generally present greater interest rate risk than the consumer and commercial loans. Under certain economic conditions, housing values may decline, which may increase the risk that the collateral values are not sufficient. Commercial real estate loans generally present a higher level of credit risk than loans secured by residences. This greater risk is due to several factors, including the concentration of principal in a limited number of loans and borrowers, the effect of general economic conditions on income-producing properties, and the increased difficulty in evaluating and monitoring these types of loans. Furthermore, the repayment of commercial real estate loans is typically dependent upon the successful operation of the related real estate project. If the cash flow from the project is reduced (for example, if leases are not obtained or renewed, a bankruptcy court modifies a lease term, or a major tenant is unable to fulfill its lease obligations), the borrower’s ability to repay the loan may be impaired. Construction loans are originated to individuals to finance the construction of residential dwellings and are also originated for the construction of commercial properties, including hotels, apartment buildings, housing developments, and owner-occupied properties used for businesses. Construction loans generally provide for the payment of interest only during the construction 14 Table of Contents phase, which is usually 12 to 18 months. At the end of the construction phase, the loan generally converts to a permanent residential or commercial mortgage loan. Construction loan risks include overfunding in comparison to the plans, untimely completion of work, and leasing and stabilization after project completion. Commercial and industrial loans are generally secured by 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; however, they have additional credit risk due to the type of collateral securing the loan. The following table presents the classifications of loans as of the dates indicated. June 30, 2023 December 31, 2022 (Dollars in thousands) Real Estate: Residential $ 338,493 $ 330,725 Commercial 458,614 436,805 Construction 44,523 44,923 Commercial and Industrial 102,266 70,044 Consumer 134,788 146,927 Other 22,470 20,449 Total Loans 1,101,154 1,049,873 Allowance for Credit Losses ( 10,666 ) ( 12,819 ) Loans, Net $ 1,090,488 $ 1,037,054 Net unamortized PPP loan origination fees as of June 30, 2023 and December 31, 2022 were $ 1,000 and $ 5,000 , respectively. Additionally, $ 1,000 and $ 4,000 of net PPP loan origination fees were earned for the three and six months ended June 30, 2023, respectively, compared to $ 130,000 and $ 534,000 for the three and six months ended June 30, 2022, respectively. All PPP loans are classified as commercial and industrial loans held for investment. No allowance for credit 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 $ 1.1 million and $ 1.2 million at June 30, 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. The first four categories are not considered criticized and are aggregated as “pass” rated. The criticized rating categories used by management generally follow bank regulatory definitions. The special mention category includes assets that are currently protected but are below average quality, resulting in an undue credit risk, but not to the point of justifying a substandard classification. Loans in the substandard category have well-defined weaknesses that jeopardize the liquidation of the debt and have a distinct possibility that some loss will be sustained if the weaknesses are not corrected. Loans classified as doubtful have all the weaknesses inherent in loans classified as substandard with the added characteristic that collection or liquidation in full, on the basis of current conditions and facts, is highly improbable. Loans classified as Loss are considered uncollectible and of such little value that continuance as an asset is not warranted. 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 June 30, 2023. There were no loans in the criticized category of loss. 15 Table of Contents Classified Loans by Origination Year (as of June 30, 2023) (dollars in thousands) 2023 2022 2021 2020 2019 Prior Revolving Loans Amortized Cost Basis Total Real Estate: Residential Pass $ 18,613 $ 45,643 $ 43,464 $ 60,025 $ 40,379 $ 113,249 $ 14,213 $ 335,586 Special Mention — — 514 — — 411 — 925 Substandard — — 154 — — 1,828 — 1,982 Doubtful — — — — — — — — Loss — — — — — — — — Total 18,613 45,643 44,132 60,025 40,379 115,488 14,213 338,493 Commercial Pass 33,675 76,166 92,455 50,075 49,195 116,799 1,732 420,097 Special Mention — — 1,496 2,970 5,576 15,509 — 25,551 Substandard — — — — 4,521 8,445 — 12,966 Doubtful — — — — — — — — Loss — — — — — — — — Total 33,675 76,166 93,951 53,045 59,292 140,753 1,732 458,614 Construction Pass 7,694 15,531 10,184 7,784 — — 937 42,130 Special Mention — 1,249 850 — — 1 — 2,100 Substandard — — — — — 293 — 293 Doubtful — — — — — — — — Loss — — — — — — — — Total 7,694 16,780 11,034 7,784 — 294 937 44,523 Commercial and Industrial Pass 22,732 17,719 9,665 6,188 3,756 930 30,027 91,017 Special Mention — — — 18 5 3,314 3,533 6,870 Substandard — — — — — 4,012 — 4,012 Doubtful — — — — — 367 — 367 Loss — — — — — — — — Total 22,732 17,719 9,665 6,206 3,761 8,623 33,560 102,266 Consumer Pass 14,617 57,770 31,372 13,857 5,940 6,939 4,091 134,586 Special Mention — — — — — — — — Substandard — 77 20 2 — 103 — 202 Doubtful — — — — — — — — Loss — — — — — — — — Total 14,617 57,847 31,392 13,859 5,940 7,042 4,091 134,788 Other Pass — 15,312 47 685 1,337 4,189 851 22,421 Special Mention — — — — — 49 — 49 Substandard — — — — — — — — Doubtful — — — — — — — — Loss — — — — — — — — Total — 15,312 47 685 1,337 4,238 851 22,470 Total Loans $ 97,331 $ 229,467 $ 190,221 $ 141,604 $ 110,709 $ 276,438 $ 55,384 $ 1,101,154 Gross Charge Offs $ — $ 92 $ 21 $ — $ — $ 105 $ 16 $ 234 16 Table of Contents 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 Pass Special Mention Substandard Doubtful Total (Dollars in Thousands) Real Estate: Residential $ 327,531 $ 1,180 $ 2,014 $ — $ 330,725 Commercial 395,168 29,680 11,957 — 436,805 Construction 42,693 1,912 318 — 44,923 Commercial and Industrial 58,562 10,977 90 415 70,044 Consumer 146,807 — 120 — 146,927 Other 20,394 55 — — 20,449 Total Loans $ 991,155 $ 43,804 $ 14,499 $ 415 $ 1,049,873 The following table presents the classes of the loan portfolio summarized by the aging categories of performing loans and nonaccrual loans as of the dates indicated. June 30, 2023 Loans Current 30-59 Days Past Due 60-89 Days Past Due 90 Days Or More Past Due Total Past Due Non- Accrual Total Loans (Dollars in Thousands) Real Estate: Residential $ 334,719 $ 2,155 $ 144 $ — $ 2,299 $ 1,475 $ 338,493 Commercial 456,563 — — — — 2,051 458,614 Construction 44,105 418 — — 418 — 44,523 Commercial and Industrial 101,899 — — — — 367 102,266 Consumer 133,915 590 81 — 671 202 134,788 Other 22,470 — — — — — 22,470 Total Loans $ 1,093,671 $ 3,163 $ 225 $ — $ 3,388 $ 4,095 $ 1,101,154 December 31, 2022 Loans Current 30-59 Days Past Due 60-89 Days Past Due 90 Days Or More Past Due Total Past Due Non- Accrual Total Loans (Dollars in Thousands) Real Estate: Residential $ 325,591 $ 3,451 $ 34 $ — $ 3,485 $ 1,649 $ 330,725 Commercial 434,933 58 — — 58 1,814 436,805 Construction 44,923 — — — — — 44,923 Commercial and Industrial 69,621 8 — — 8 415 70,044 Consumer 145,887 854 66 — 920 120 146,927 Other 20,449 — — — — — 20,449 Total Loans $ 1,041,404 $ 4,371 $ 100 $ — $ 4,471 $ 3,998 $ 1,049,873 17 Table of Contents Additional interest income that would have been recorded if the loans that were nonaccrual at June 30, 2023 were current was $ 61,000 and $ 86,000 for the three and six months ended June 30, 2023, respectively, and $ 43,000 and $ 94,000 for the three and six months ended June 30, 2022, respectively. 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. June 30, 2023 Nonaccrual With No ACL Nonaccrual With ACL Loans Past Due 90 Days Still Accruing Total Nonperforming Assets (Dollars in Thousands) Nonaccrual Loans: Real Estate: Residential $ 1,475 $ — $ — $ 1,475 Commercial 2,051 — — 2,051 Commercial and Industrial 367 — — 367 Consumer 202 — — 202 Total Nonaccrual Loans $ 4,095 $ — $ — 4,095 Other Real Estate Owned: Residential 129 Commercial 37 Total Other Real Estate Owned 166 Total Nonperforming Assets $ 4,261 No interest income on nonaccrual loans was recognized during the three and six months ended June 30, 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 and six months ended June 30, 2023, there were no new loan modifications to borrowers experiencing financial difficulty in the past 12 months under the current guidance. 18 Table of Contents 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. December 31, 2022 (Dollars in Thousands) Nonaccrual Loans: Real Estate: Residential $ 1,649 Commercial 1,814 Commercial and Industrial 415 Consumer 120 Total Nonaccrual Loans 3,998 Accruing Loans Past Due 90 Days or More: Total Accruing Loans Past Due 90 Days or More — Total Nonaccrual Loans and Accruing Loans Past Due 90 Days or More 3,998 Troubled Debt Restructurings, Accruing: Real Estate Residential 534 Commercial 1,260 Commercial and Industrial 7 Total Troubled Debt Restructurings, Accruing 1,801 Total Nonperforming Loans 5,799 Total Nonperforming Assets $ 5,799 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 $ 756 ,000 and $ 1.4 million at June 30, 2023 and December 31, 2022, respectively. The activity in the ACL - Loans is summarized below by primary segments for the periods indicated: Real Estate Residential Real Estate Commercial Real Estate Construction Commercial and Industrial Consumer Other Unallocated Total (Dollars in thousands) March 31, 2023 $ 2,156 $ 3,056 $ 805 $ 1,997 $ 2,098 $ 158 $ — $ 10,270 Charge-offs ( 97 ) — — — ( 51 ) — — ( 148 ) Recoveries 1 23 — 8 20 — — 52 Provision (Recovery) for Credit Losses - Loans 296 137 133 135 ( 219 ) 10 — 492 June 30, 2023 $ 2,356 $ 3,216 $ 938 $ 2,140 $ 1,848 $ 168 $ — $ 10,666 19 Table of Contents Real Estate Residential Real Estate Commercial Real Estate Construction Commercial and Industrial Consumer Other Unallocated Total (Dollars in thousands) December 31, 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 ) Charge-offs ( 97 ) — — — ( 104 ) — — ( 201 ) Recoveries 14 23 — 766 58 — — 861 Provision (Recovery) for Credit Losses - Loans 228 627 ( 52 ) 118 ( 397 ) 48 — 572 June 30, 2023 $ 2,356 $ 3,216 $ 938 $ 2,140 $ 1,848 $ 168 $ — $ 10,666 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 March 31, 2023 $ 718 Impact of CECL adoption — Recovery for credit losses - unfunded commitments ( 60 ) Balance at June 30, 2023 $ 658 (in thousands) Allowance for Credit Losses Balance at December 31, 2022 $ — Impact of CECL adoption 718 Recovery for credit losses - unfunded commitments ( 60 ) Balance at June 30, 2023 $ 658 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 20 Table of Contents value of the collateral and the amortized cost basis of the asset as of the measurement date. During the three and six months ended June 30, 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 Real Estate Residential Real Estate Commercial Real Estate Construction Commercial and Industrial Consumer Other Unallocated Total (Dollars in thousands) Individually Evaluated for Impairment $ — $ 21 $ — $ 3 $ — $ — $ — $ 24 Collectively Evaluated for Potential Impairment $ 2,074 $ 5,789 $ 502 $ 2,310 $ 1,517 $ — $ 603 $ 12,795 Real Estate Residential Real Estate Commercial Real Estate Construction Commercial and Industrial Consumer Other Unallocated Total (Dollars in thousands) March 31, 2022 $ 1,472 $ 6,326 $ 704 $ 1,130 $ 1,292 $ — $ 671 $ 11,595 Charge-offs ( 15 ) — — ( 2,712 ) ( 20 ) — — ( 2,747 ) Recoveries 126 — — 57 18 — — 201 Provision (Recovery) 71 ( 303 ) ( 233 ) 3,874 212 — 163 3,784 June 30, 2022 $ 1,654 $ 6,023 $ 471 $ 2,349 $ 1,502 $ — $ 834 $ 12,833 Real Estate Residential Real Estate Commercial Real Estate Construction Commercial and Industrial Consumer Other Unallocated Total (Dollars in thousands) December 31, 2021 $ 1,420 $ 5,960 $ 1,249 $ 1,151 $ 1,050 $ — $ 752 $ 11,582 Charge-offs ( 32 ) — — ( 2,712 ) ( 40 ) — — ( 2,784 ) Recoveries 128 — — 68 55 — — 251 Provision (Recovery) 138 63 ( 778 ) 3,842 437 — 82 3,784 June 30, 2022 $ 1,654 $ 6,023 $ 471 $ 2,349 $ 1,502 $ — $ 834 $ 12,833 21 Table of Contents June 30, 2022 Real Estate Residential Real Estate Commercial Real Estate Construction Commercial and Industrial Consumer Other Unallocated Total (Dollars in thousands) Individually Evaluated for Impairment $ — $ 86 $ — $ 244 $ — $ — $ — $ 330 Collectively Evaluated for Potential Impairment $ 1,654 $ 5,937 $ 471 $ 2,105 $ 1,502 $ — $ 834 $ 12,503 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. December 31, 2022 Real Estate Residential Real Estate Commercial Real Estate Construction Commercial and Industrial Consumer Other Total (Dollars in thousands) Individually Evaluated for Impairment $ 1,042 $ 13,217 $ 318 $ 512 $ — $ — $ 15,089 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 ( 122 ) June 30, 2023 $ 365 Pre Adoption of ASC 326 – Impaired Loans 22 Table of Contents 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 Recorded Investment Related Allowance Unpaid Principal Balance Average Recorded Investment Interest Income Recognized (Dollars in thousands) With No Related Allowance Recorded: Real Estate: Residential $ 1,042 $ — $ 1,047 $ 1,085 $ 51 Commercial 11,609 — 11,766 10,928 549 Construction 318 — 318 403 19 Commercial and Industrial 505 — 777 734 35 Total With No Related Allowance Recorded $ 13,474 $ — $ 13,908 $ 13,150 $ 654 With A Related Allowance Recorded: Real Estate: Commercial $ 1,608 $ 21 $ 1,608 $ 954 $ 79 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 Total Impaired Loans Real Estate: Residential $ 1,042 $ — $ 1,047 $ 1,085 $ 51 Commercial 13,217 21 13,374 11,882 628 Construction 318 — 318 1,233 55 Commercial and Industrial 512 3 784 987 36 Total Impaired Loans $ 15,089 $ 24 $ 15,523 $ 15,187 $ 770 The recorded investment of loans evaluated for impairment decreased $ 15.1 million at June 30, 2023 compared to December 31, 2022 and was primarily related to commercial real estate loans. Note 5. Fair Value Disclosure FASB ASC 820 “Fair Value Measurement” defines fair value and provides the framework for measuring fair value and required disclosures about fair value measurements. Fair value is defined as the price that would be received for an asset or paid to transfer a liability in an orderly transaction between market participants in the principal or most advantageous market for the asset or liability at the transaction date. ASC 820 establishes a fair value hierarchy that prioritizes the inputs used in valuation methods to determine fair value. The three levels of fair value hierarchy are as follows: Level 1 – Fair value is based on unadjusted quoted prices in active markets that are accessible to the Company for identical assets. These generally provide the most reliable evidence and are used to measure fair value whenever available. Level 2 – Fair value is based on significant inputs, other than Level 1 inputs, that are observable either directly or indirectly for substantially the full term of the asset through corroboration with observable market data. Level 2 inputs include quoted market prices in active markets for similar assets, quoted market prices in markets that are not active for identical or similar assets, and other observable inputs. 23 Table of Contents Level 3 – Fair value is based on significant unobservable inputs. Examples of valuation methodologies that would result in Level 3 classification include option pricing models, discounted cash flows, and other similar techniques. This hierarchy requires the use of observable market data when available. The level in the fair value hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement. The following table presents the financial assets measured at fair value on a recurring basis and reported on the Consolidated Statements of Financial Condition as of the dates indicated, by level within the fair value hierarchy. The majority of the Company’s securities are included in Level 2 of the fair value hierarchy. Fair values for Level 2 securities were primarily determined by a third-party pricing service using both quoted prices for similar assets, when available, and model-based valuation techniques that derive fair value based on market-corroborated data, such as instruments with similar prepayment speeds and default interest rates. The standard inputs that are normally used include benchmark yields of like securities, reportable trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data including market research publications. There were no transfers into or out of Level 3 during the six months ended June 30, 2023 or year ended December 31, 2022. Fair Value Hierarchy June 30, 2023 December 31, 2022 (Dollars in thousands) Securities: Available-for-Sale Debt Securities U.S. Government Agencies Level 2 $ 45,382 $ 44,634 Obligations of States and Political Subdivisions Level 2 13,212 13,342 Mortgage-Backed Securities - Government-Sponsored Enterprises Level 2 38,408 41,427 Collateralized Mortgage Obligations - Government Sponsored Enterprises Level 2 74,699 79,642 Corporate Debt Level 2 7,360 8,315 Total Available-for-Sale Debt Securities 179,061 187,360 Equity Securities Mutual Funds Level 1 875 875 Other Level 1 1,491 1,823 Total Equity Securities 2,366 2,698 Total Securities $ 181,427 $ 190,058 The following table presents the financial assets on the Consolidated Statements of Financial Condition measured at fair value on a nonrecurring basis as of the dates indicated by level within the fair value hierarchy for only those nonrecurring assets that had a fair value below the carrying amount. The table also presents the significant unobservable inputs used in the fair value measurements. Financial Asset Fair Value Hierarchy June 30, 2023 Valuation Techniques Significant Unobservable Inputs Range Weighted Average (Dollars in thousands) OREO Level 3 $ 122 Appraisal of Collateral (1) Liquidation Expenses (2) 10 % to 50 % 36.6 % Financial Asset Fair Value Hierarchy December 31, 2022 Valuation Techniques Significant Unobservable Inputs Range Weighted Average (Dollars in thousands) Individually Evaluated Loans Level 3 $ 1,591 Appraisal of Collateral (1) Appraisal Adjustments (2) 0 % to 8 % 7.2 % (1) Fair value is generally determined through independent appraisals of the underlying collateral, which may include various Level 3 inputs, which are not identifiable. (2) Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range and weighted average of appraisal adjustments and liquidation expense are presented as a percent of the appraisal. 24 Table of Contents 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 June 30, 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 consisted of 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. The expected rate of mortgage loan prepayments is the most significant factor driving the value of MSRs. MSRs are considered impaired if the carrying value exceeds fair value. Since the valuation model includes significant unobservable inputs as listed above, MSRs are classified as Level 3. MSRs are reported in Other Assets in the Consolidated Statements of Financial Condition and are amortized into mortgage servicing income in Other Income in the Consolidated Statements of Income. At June 30, 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. After acquisition, OREO is recorded at the lower of cost or fair value, less estimated selling costs. The fair value of an OREO property is determined from a qualified independent appraisal and is classified as Level 3 in the fair value hierarchy. Financial instruments are defined as cash, evidence of an ownership in an entity, or a contract which creates an obligation or right to receive or deliver cash or another financial instrument from/to a second entity on potentially favorable or unfavorable terms. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. If no readily available market exists, the fair value estimates for financial instruments should be based upon management’s judgment regarding current economic conditions, interest rate risk, expected cash flows, future estimated losses and other factors, as determined through various option pricing formulas or simulation modeling. As many of these assumptions result from judgments made by management based upon estimates which are inherently uncertain, the resulting estimated fair values may not be indicative of the amount realizable in the sale of a particular financial instrument. In addition, changes in the assumptions on which the estimated fair values are based may have significant impact on the resulting estimated fair values. As certain assets such as deferred tax assets and premises and equipment are not considered financial instruments, the estimated fair value of financial instruments would not represent the full value of the Company. The following table presents the estimated fair values of the Company’s financial instruments at the dates indicated. June 30, 2023 December 31, 2022 Fair Value Hierarchy Carrying Value Fair Value Carrying Value Fair Value (Dollars in thousands) Financial Assets: Cash and Due From Banks: Interest-Earning Level 1 $ 60,287 $ 60,287 $ 82,957 $ 82,957 Noninterest-Earning Level 1 17,806 17,806 20,743 20,743 Securities See Above 181,427 181,427 190,058 190,058 Loans, Net Level 3 1,090,488 1,051,815 1,037,054 1,011,098 Restricted Stock Level 2 3,252 3,252 2,749 2,749 Mortgage Servicing Rights Level 3 585 998 633 1,000 Accrued Interest Receivable Level 2 4,544 4,544 3,983 3,983 Financial Liabilities: Deposits Level 2 1,263,315 1,259,640 1,268,503 1,264,846 Short-Term Borrowings Level 2 — — 8,060 8,060 Other Borrowed Funds FHLB Borrowings Level 2 20,000 19,922 — — Subordinated Debt Level 2 14,658 12,355 14,638 13,490 Accrued Interest Payable Level 2 1,318 1,318 355 355 25 Table of Contents Note 6. Commitments and Contingent Liabilities The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business primarily to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby and performance letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the Consolidated Statements of Financial Condition. The contract amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments. The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby and performance letters of credit written is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments. The following table presents the unused and available credit balances of financial instruments whose contracts represent credit risk at the dates indicated. June 30, 2023 December 31, 2022 (Dollars in thousands) Standby Letters of Credit $ 110 $ 110 Performance Letters of Credit 838 1,064 Construction Mortgages 43,464 45,722 Personal Lines of Credit 7,355 6,824 Overdraft Protection Lines 4,947 5,241 Home Equity Lines of Credit 23,459 22,784 Commercial Lines of Credit 65,250 74,921 Total Commitments $ 145,423 $ 156,666 Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee by the customer. Because many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the counterparty. Collateral held varies, but may include accounts receivable, inventory, property, plant and equipment, and income-producing commercial properties. Performance letters of credit represent conditional commitments issued by the Company to guarantee the performance of a customer to a third party. These instruments are issued primarily to support bid or performance-related contracts. The coverage period for these instruments is typically a one-year period with an annual renewal option subject to prior approval by management. Fees earned from the issuance of these letters are recognized upon expiration of the letter. For secured letters of credit, the collateral is typically Company deposit instruments or customer business assets. 26 Table of Contents Note 7. Leases The Company evaluates contracts at commencement to determine if a lease is present. The Company’s lease contracts are all classified as operating leases and create operating right-of-use (“ROU”) assets and corresponding lease liabilities on the Consolidated Statements of Financial Condition. The leases are primarily ROU assets of land and building for branch and loan production locations. ROU assets are reported in Accrued Interest Receivable and Other Assets and the related lease liabilities in Accrued Interest Payable and Other Liabilities on the Consolidated Statements of Financial Condition. The following tables present the lease expense, ROU assets, weighted average term, discount rate and maturity analysis of lease liabilities for operating leases for the periods and dates indicated. Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 (Dollars in thousands) Operating Lease Expense $ 77 $ 89 $ 154 $ 171 Short-Term Lease Expense — 1 — 1 Variable Lease Expense 8 7 15 14 Total Lease Expense $ 85 $ 97 $ 169 $ 186 June 30, 2023 December 31, 2022 (Dollars in thousands) Operating Leases: ROU Assets $ 1,801 $ 1,926 Weighted Average Lease Term in Years 7.80 8.13 Weighted Average Discount Rate 2.87 % 2.87 % June 30, 2023 (Dollars in thousands) Maturity Analysis: Due in One Year $ 360 Due After One Year to Two Years 331 Due After Two Years to Three Years 233 Due After Three Years to Four Years 236 Due After Four to Five Years 225 Due After Five Years 776 Total $ 2,161 Less: Present Value Discount 223 Lease Liabilities $ 1,938 There were no new lease agreements entered into during the six months ended June 30, 2023. During the six months ended June 30, 2022, the Company entered into a new lease agreement for the McMurray, PA branch, for a 10-year term ending March 31, 2032, as well as a new lease agreement for the Waynesburg branch, for a 5-year term ending July 31, 2027. 27 Table of Contents Note 8. Other Noninterest Expense The details of other noninterest expense for the Company’s Consolidated Statements of Income for the periods indicated are as follows: Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 (Dollars in thousands) Non-Employee Compensation $ 151 $ 139 $ 302 $ 270 Printing and Supplies 70 46 124 127 Postage 59 33 162 137 Telephone 124 119 268 258 Charitable Contributions 24 39 58 80 Dues and Subscriptions 43 39 121 97 Loan Expenses 90 124 147 250 Meals and Entertainment 27 38 41 68 Travel 52 34 106 73 Training 17 13 51 31 Bank Assessment 46 47 98 94 Insurance 83 69 156 131 Miscellaneous 109 98 207 221 Total Other Noninterest Expense $ 895 $ 838 $ 1,841 $ 1,837 28 Table of Contents Note 9. Segment and Related Information At June 30, 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. Exchange Underwriters has an independent board of directors from the Company and is managed separately from the banking and related financial services that the Company offers. Exchange Underwriters is an independent insurance agency that offers property, casualty, commercial liability, surety and other insurance products. The following is a table of selected financial data for the Company’s subsidiaries and consolidated results at the dates and for the periods indicated. Community Bank Exchange Underwriters, Inc. CB Financial Services, Inc. Net Eliminations Consolidated (Dollars in thousands) June 30, 2023 Assets $ 1,432,181 $ 5,576 $ 131,258 $ ( 136,282 ) $ 1,432,733 Liabilities 1,317,617 2,337 14,669 ( 18,479 ) 1,316,144 Stockholders' Equity 114,564 3,239 116,589 ( 117,803 ) 116,589 December 31, 2022 Assets $ 1,409,510 $ 5,585 $ 124,879 $ ( 131,036 ) $ 1,408,938 Liabilities 1,301,783 1,996 14,724 ( 19,720 ) 1,298,783 Stockholders' Equity 107,727 3,589 110,155 ( 111,316 ) 110,155 Three Months Ended June 30, 2023 Interest and Dividend Income $ 15,182 $ 2 $ 1,297 $ ( 1,278 ) $ 15,203 Interest Expense 3,926 — 157 — 4,083 Net Interest and Dividend Income 11,256 2 1,140 ( 1,278 ) 11,120 Provision for Credit Losses - Loans 492 — — — 492 Recovery for Credit Losses - Unfunded Commitments ( 60 ) — — — ( 60 ) Net Interest and Dividend Income After Provision for Credit Losses 10,824 2 1,140 ( 1,278 ) 10,688 Noninterest Income (Loss) 810 1,545 ( 86 ) — 2,269 Noninterest Expense 8,457 1,044 — — 9,501 Undistributed Net Income of Subsidiary 357 — 1,656 ( 2,013 ) — Income Before Income Tax Expense (Benefit) 3,534 503 2,710 ( 3,291 ) 3,456 Income Tax Expense (Benefit) 600 146 ( 47 ) — 699 Net Income $ 2,934 $ 357 $ 2,757 $ ( 3,291 ) $ 2,757 Six Months Ended June 30, 2023 Interest and Dividend Income $ 29,405 $ 3 $ 2,593 $ ( 2,553 ) $ 29,448 Interest Expense 6,433 — 311 — 6,744 Net Interest and Dividend Income 22,972 3 2,282 ( 2,553 ) 22,704 Provision for Credit Losses - Loans 572 — — — 572 Recovery for Credit Losses - Unfunded Commitments ( 60 ) — — — ( 60 ) Net Interest and Dividend Income After Provision for Credit Losses 22,460 3 2,282 ( 2,553 ) 22,192 Noninterest Income (Loss) 1,911 3,501 ( 332 ) — 5,080 Noninterest Expense 16,382 2,143 5 — 18,530 Undistributed Net Income of Subsidiary 965 — 4,842 ( 5,807 ) — Income Before Income Tax Expense (Benefit) 8,954 1,361 6,787 ( 8,360 ) 8,742 Income Tax Expense (Benefit) 1,559 396 ( 128 ) — 1,827 Net Income $ 7,395 $ 965 $ 6,915 $ ( 8,360 ) $ 6,915 29 Table of Contents Community Bank Exchange Underwriters, Inc. CB Financial Services, Inc. Net Eliminations Consolidated (Dollars in thousands) Three Months Ended June 30, 2022 Interest and Dividend Income $ 10,940 $ 2 $ 1,255 $ ( 1,239 ) $ 10,958 Interest Expense 640 — 155 — 795 Net Interest and Dividend Income 10,300 2 1,100 ( 1,239 ) 10,163 Provision for Credit Losses 3,784 — — — 3,784 Net Interest and Dividend Income After Provision for Credit Losses 6,516 2 1,100 ( 1,239 ) 6,379 Noninterest Income (Loss) 903 1,369 ( 167 ) — 2,105 Noninterest Expense 7,420 985 5 — 8,410 Undistributed Net Income (Loss) of Subsidiary 273 — ( 897 ) 624 — Income Before Income Tax (Benefit) Expense 272 386 31 ( 615 ) 74 Income Tax (Benefit) Expense ( 70 ) 113 ( 87 ) — ( 44 ) Net Income $ 342 $ 273 $ 118 $ ( 615 ) $ 118 Six Months Ended June 30, 2022 Interest and Dividend Income $ 21,535 $ 3 $ 2,534 $ ( 2,498 ) $ 21,574 Interest Expense 1,208 — 310 — 1,518 Net Interest and Dividend Income 20,327 3 2,224 ( 2,498 ) 20,056 Provision for Loan Losses 3,784 — — — 3,784 Net Interest and Dividend Income After Provision for Loan Losses 16,543 3 2,224 ( 2,498 ) 16,272 Noninterest Income 1,680 3,166 ( 128 ) — 4,718 Noninterest Expense 15,065 1,992 9 — 17,066 Undistributed Net Income of Subsidiary 834 — 955 ( 1,789 ) — Income Before Income Tax Expense (Benefit) 3,992 1,177 3,042 ( 4,287 ) 3,924 Income Tax Expense (Benefit) 540 343 ( 124 ) — 759 Net Income $ 3,452 $ 834 $ 3,166 $ ( 4,287 ) $ 3,165 30 Table of Contents Note 10. Stock Based Compensation The following table presents stock option information for the period indicated. Number of Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Life in Years Outstanding Options at December 31, 2022 283,748 $ 24.52 5.6 Granted 68,975 21.63 Exercised ( 2,000 ) 22.25 Forfeited ( 2,600 ) 25.25 Outstanding Options at June 30, 2023 348,123 $ 23.95 6.0 Exercisable Options at June 30, 2023 189,549 $ 24.54 3.5 Number of Shares Weighted Average Exercise Price Weighted Average Remaining Service Period in Years Nonvested Options at June 30, 2023 158,574 $ 23.25 9.1 Summary of Significant Assumptions for Newly Issued Stock Options Expected Term in Years 6.5 Expected Volatility 29.5 % Expected Dividends $ 1.00 Risk Free Rate of Return 3.63 % Weighted Average Grant Date Fair Value (per share) $ 4.37 The following table presents restricted stock award information for the period indicated Number of Shares Weighted Average Grant Date Fair Value Price Weighted Average Remaining Service Period in Years Nonvested Restricted Stock at December 31, 2022 64,125 $ 24.32 4.3 Granted 24,975 21.66 Vested ( 4,408 ) 26.00 Forfeited ( 860 ) 24.36 Nonvested Restricted Stock at June 30, 2023 83,832 $ 23.44 4.1 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 $ 187,000 and $ 149,000 for the three months ended June 30, 2023 and 2022. Stock based compensation was $ 361,000 and $ 279,000 for the six months ended June 30, 2023 and 2022. As of June 30, 2023 and December 31, 2022, total unrecognized compensation expense was $ 650,000 and $ 430,000 , respectively, related to stock options, and $ 1.7 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 June 30, 2023 and December 31, 2022 exceeds the exercise price of the stock options. The intrinsic value of stock options was $ 35,000 and $ 25,000 at June 30, 2023 and December 31, 2022, respectively. At June 30, 2023 and December 31, 2022, respectively, there were 203,775 and 333,335 shares available under the Plan to be issued in connection with the exercise of stock options, and 81,510 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. 31 Table of Contents Note 11. Subsequent Events The Company evaluated subsequent events through the date the consolidated financial statements were filed with the SEC and incorporated into the consolidated financial statements the effect of all material known events determined by Accounting Standards Codification ("ASC") 855, Subsequent Events , to be recognizable events .