What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2024-03-13 compared with 2023-03-10 · 514 added, 480 removed, 1226 unchanged (45% of the section changed)

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OTHER INFORMATION

During the three months ended December 31, 2023, none of the Company's directors or executive officers adopted or terminated any contract, instruction or written plan for the purchase or sale of the Company's securities that was intended to satisfy the affirmative defense conditions of SEC rule 10b5-1(c) or any "non-Rule 10b5-1 trading arrangement" (as such term is defined in Item 408 of SEC Regulation S-K.

DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

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PRINCIPAL ACCOUNTANT FEES AND SERVICES

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

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

Our independent registered public accounting firm for 2023 is FORVIS, LLP , Pittsburgh, Pennsylvania , Auditor Firm ID 686 .

Information required by this item is incorporated by reference in the Proxy Statement for the 2024 Annual Meeting.

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

(D) Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2023 and 2022;

(E) Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2023 and 2022;

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

A sset Purchase Agreement among World Insurance Associates, LLC, Ex c hange Underwriters, Inc.

and Community Bank (15)

21 Subsidiaries

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32.1 Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

CB Financ ial Services, Inc., C lawback Policy

101.0 The following materials for the year ended December 31, 2023, formatted in XBRL (Extensible Business Reporting Language):

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(13) Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on December 10, 2021.

(14) Incorporated by reference to Exhibit 10.18 to the Company's Form 10-K for the year ended December 31, 2022, filed on March 10, 2023.

(15) Incorporated herein by reference to Exhibit 2 to the Company's Current Report on Form 8-K, filed on December 1, 2023.

FORM 10-K SUMMARY

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/s/ Jonathan A.

Baily Jonathan A.

Director Director

March 10, 2023 Date:

March 10, 2023

/s/ Richard B.

/s/ Ralph Burchianti

Boyer Ralph Burchianti

Bedway Ralph Burchianti

Director Senior Executive Vice President and

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March 13, 2024

/s/ Joseph N.

Headlee John J.

/s/ Roberta Robinson Olejasz

LaCarte Roberta Robinson Olejasz

Director Director

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March 13, 2024

/s/ Roberta Robinson Olejasz By:

Roberta Robinson Olejasz John M.

Pollock John M.

Director Director

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March 13, 2024

March 10, 2023

CONSOLIDATED FINANCIAL STATEMENTS

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Consolidated Statements of Income for the Years Ended December 31, 2023 and 2022

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

Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2023 and 2022

Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2023 and 2022

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Report of Independent Registered Public Accounting Firm

To the Stockholders, Board of Directors and Audit Committee

CB Financial Services, Inc.

To the Shareholders, Board of Directors, and Audit Committee

CB Financials Services, Inc.

Carmichaels, Pennsylvania

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

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

(Company) as of December 31, 2023 and 2022, and the related consolidated statements of income, comprehensive income (loss), changes in stockholders’ equity, and cash flows for the years ended December 31, 2023 and 2022, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

Change in Accounting Principle

As discussed in Note 1 and Note 4 to the consolidated financial statements, in 2023, the entity changed its method of accounting for credit losses on financial instruments due to the adoption of Accounting Standards Codification Topic 326:

Financial Instruments – Credit Losses .

Basis for Opinion

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

Allowance for Loan Losses

As described in Note 4 to the financial statements, the Company’s allowance for loan and lease losses (ALLL) was $12.8 million at December 31, 2022.

The Company also describes in Note 1 of the financial statements the "Allowance for Loan Losses" accounting policy around this estimate.

The allowance for loan losses is evaluated on a regular basis by management and is based on management’s periodic review of the collectability of loans in light of historical experiences, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions.

The allowance consists of specific, general and unallocated components.

The specific component relates to loans that are classified as impaired and an allowance is established when the discounted cash flows (or collateral value) of the impaired loan is lower than the carrying value of that loan.

The general component covers non-classified loans and is based on historical loss experience adjusted for qualitative factors.

The unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable losses.

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

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

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

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

Testing the design effectiveness of internal controls, including those related to technology, over the ALLL including data completeness and accuracy, classifications of loans by loan segment, historical loss data, the calculation of a loss rate, the establishment of qualitative adjustments, grading and risk classification of loans, establishment of specific reserves on impaired loans, and management’s review controls over the ALLL balance as a whole.

Testing clerical and computational accuracy of the formulas within the Company’s ALLL calculation.

Testing of completeness and accuracy of the underlying data utilized in the ALLL, including reports used in management review controls over the ALLL.

Testing of the loan review function and the reasonableness of loan grades determined.

Specifically, utilizing internal loan review professionals to assist us in evaluating the appropriateness of loan grades and to assess the reasonableness of specific impairments on impaired loans.

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

FORVIS, LLP (Formerly, BKD, LLP)

Allowance for Credit Losses (ACL) – Qualitative Adjustments

As described in Notes 1 and 4 to the consolidated financial statements and referred to in the change in accounting principle explanatory paragraph above, the Company adopted ASC 326 as of January 1, 2023, which among other things, required the Company to recognize expected credit losses over the contractual lives of financial assets carried at amortized costs, including loans receivables, utilizing the Current Expected Credit Losses (“CECL”) methodology.

As of December 31, 2023, the allowance for credit losses (ACL) balance was $9,707,000.

Estimates of expected credit losses are based on relevant information about current conditions, past events, and reasonable and supportable forward-looking forecasts regarding collectability of the reported amounts.

The Company utilized a discounted cash-flow model derived from historical data to construct a loss rate for each identified loan segment.

Due to the Company's loss history not being sufficient and relevant

enough to predict future losses, the Company also utilized peer data from a peer group.

The loss rates are then adjusted, for reasonable and supportable forecasts of relevant economic indicators as well as other environmental factors based on the risks present for each portfolio segment.

The environmental factors (“qualitative adjustments”) include consideration of economic conditions and portfolio trends.

We have identified auditing the qualitative adjustments as a critical audit matter as management’s determination of the qualitative adjustments used in the ACL is subjective and involves significant management judgments;

and our audit procedures related to the qualitative adjustments involved a high degree of auditor judgment and required significant audit effort, including the need to involve more experienced audit personnel.

The primary procedures we performed to address this critical audit matter included:

• Substantively testing management's determination of the qualitative adjustments used in the ACL estimate, including:

◦ Testing management’s process for developing the qualitative adjustments, which included assessing the relevance and reliability of data used to develop the qualitative adjustments, including evaluating their judgments and assumptions for reasonableness.

Among other procedures, our evaluation considered evidence from internal and external sources.

◦ Analytically evaluating the qualitative adjustments for directional consistency, testing for reasonableness, and obtaining evidence for significant changes.

◦ Testing the mathematical accuracy of the qualitative adjustments applied to the loan segments in the ACL calculation.

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

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Cash and Due From Banks:

Interest Bearing $ 82,957 $ 63,968

Non-Interest Bearing 20,743 55,706

Interest-Earning $ 62,442 $ 82,957

Noninterest-Earning 5,781 20,743

Total Cash and Due From Banks 68,223 103,700

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Total Securities 207,095 190,058

Loans (Net of Allowance for Loan Losses of $ 12,819 and $ 11,582 at December 31, 2022 and 2021, Respectively)

Loans (Net of Allowance for Credit Losses of $ 9,707 and $ 12,819 at December 31, 2023 and 2022, Respectively)

1,100,689 1,037,054

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TOTAL ASSETS $ 1,456,091 $ 1,408,938

Demand Deposits $ 390,405 $ 385,775

NOW Accounts 311,825 272,518

Noninterest-Bearing Demand Accounts $ 277,747 $ 390,405

Interest-Bearing Demand Accounts 362,994 311,825

Money Market Accounts 201,074 209,125

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Short-Term Borrowings 32 63

Other Borrowed Funds 693 182

Other Borrowings 1,207 693

TOTAL INTEREST EXPENSE 17,672 4,781

NET INTEREST AND DIVIDEND INCOME 44,553 42,935

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

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

(Recovery) Provision For Credit Losses - Loans ( 284 ) 3,784

Recovery For Credit Losses - Unfunded Commitments ( 218 ) —

NET INTEREST AND DIVIDEND INCOME AFTER (RECOVERY) PROVISION FOR CREDIT LOSSES 45,055 39,151

NONINTEREST INCOME

Service Fees on Deposits 2,160 2,331

Service Fees 1,819 2,160

Insurance Commissions 5,839 5,934

Other Commissions 521 669

Net Gain on Sales of Loans — 1,143

Net (Loss) Gain on Securities ( 168 ) 526

Net Loss on Securities ( 10,199 ) ( 168 )

Net Gain on Purchased Tax Credits 29 57

Gain on Sale of Branches — 5,203

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

Gain on Sale of Subsidiary 24,578 —

Net Gain on Disposal of Premises and Equipment 11 431

Income from Bank-Owned Life Insurance 576 561

Net Gain on Bank-Owned Life Insurance Claims 303 —

Other Income 535 176

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Amortization of Intangible Assets 1,766 1,782

Goodwill and Intangible Assets Impairment — 1,178

Writedown on Premises and Equipment — 2,293

Other 3,844 3,899

Other Expense 3,735 3,844

TOTAL NONINTEREST EXPENSE 38,782 34,891

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

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Year Ended December 31, 2023 2022

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Net Income $ 22,550 $ 11,247

Other Comprehensive Loss:

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

Other Comprehensive Income (Loss):

Change in Unrealized Gain (Loss) on Available-for-Sale Debt Securities 2,012 ( 32,266 )

Income Tax Effect ( 433 ) 6,952

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

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

Income Tax Effect (2)

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

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

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

Other Comprehensive Income (Loss), Net of Income Tax Effect 9,494 ( 25,314 )

Total Comprehensive Income (Loss) $ 32,044 $ ( 14,067 )

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

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

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

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

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

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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

Net Income — — — 22,550 — — 22,550

Other Comprehensive Loss — — — — — ( 25,314 ) ( 25,314 )

Other Comprehensive Income — — — — — 9,494 9,494

Restricted Stock Awards Forfeited ( 780 ) ( 1 ) 51 — ( 50 ) — —

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Depreciation and Amortization 2,737 2,704

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

Other Intangible Asset Impairment — 1,178

Writedown on Premises and Equipment — 2,293

Lease Impairment — 227

Loss (Gain) on Securities 168 ( 526 )

Gain on Sale of Branches — ( 5,203 )

(Recovery) Provision for Credit Losses - Loans ( 284 ) 3,784

Recovery for Credit Losses - Unfunded Commitments ( 218 ) —

Loss on Securities 10,199 168

Gain on Sale of Subsidiary ( 24,578 ) —

Gain on Purchased Tax Credits ( 29 ) ( 57 )

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Originations of Mortgage Loans for Sale ( 2,365 ) —

Gain on Sales of Loans — ( 1,143 )

(Gain) Loss on Sales of Other Real Estate Owned ( 1 ) ( 80 )

Gain on Sales of Other Real Estate Owned ( 13 ) ( 1 )

Noncash Expense for Stock-Based Compensation 1,125 600

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

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

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

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

Decrease in Accrued Interest Payable ( 131 ) ( 281 )

Increase in Accrued Interest Receivable ( 1,103 ) ( 633 )

Valuation Adjustment on Real Estate Owned

Gain on Disposal of Premises and Equipment ( 11 ) ( 431 )

Increase in Deferred Income Tax 382 535

Increase (Decrease) in Taxes Payable 3,985 ( 5 )

Decrease (Increase) in Accrued Interest Payable 1,459 ( 131 )

Other, Net ( 1,538 ) ( 3,134 )

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Proceeds from Sales of Securities 69,285 —

Proceeds from Loans Sold — 12,371

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

Net Increase in Loans ( 63,517 ) ( 31,385 )

Purchase of Premises and Equipment ( 3,293 ) ( 509 )

Proceeds from Disposal of Premises and Equipment 47 480

Proceeds from Sale of Subsidiary 26,924 —

Proceeds From a Claim on Bank-Owned Life Insurance 731 —

Proceeds From Sales of Other Real Estate Owned 142 37

Decrease in Restricted Equity Securities 654 582

(Increase) Decrease in Restricted Equity Securities ( 596 ) 654

NET CASH USED IN INVESTING ACTIVITIES ( 54,727 ) ( 28,307 )

FINANCING ACTIVITIES

Net Increase in Deposits 41,890 104,843

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

Net (Decrease) Increase in Deposits ( 1,344 ) 41,890

Decrease in Short-Term Borrowings ( 8,060 ) ( 31,206 )

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

Proceeds from Issuance of Subordinated Debt, Net of Debt Issuance Costs — 14,601

Proceeds from Other Borrowed Funds 20,000 —

Cash Dividends Paid ( 5,111 ) ( 4,920 )

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Exercise of Stock Options 372 220

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

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 5,014 ( 1,818 )

DECREASE IN CASH AND DUE FROM BANKS ( 35,477 ) ( 15,974 )

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

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

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

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

On December 1, 2023, the Company announced that the Bank and EU entered into an Asset Purchase Agreement with World Insurance Associates, LLC ("World") pursuant to which EU sold substantially all of its assets to World for a purchase price of $ 30.5 million cash plus possible additional earn-out payments.

The sale of assets was completed on December 8, 2023 and resulted in a pre-tax gain of $ 24.6 million.

This transaction did not meet the criteria for discontinued operations reporting.

The Company has evaluated events and transactions occurring subsequent to the balance sheet date of December 31, 2023 through the date the consolidated financial statements are being issued for items that should potentially be recognized or disclosed in these consolidated financial statements.

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Actual results could differ significantly from those estimates.

Material estimates that are particularly susceptible to significant change in the near term relate to fair value of securities available for sale, determination of the allowance for losses on loans, the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans, other-than-temporary impairment evaluations of securities, the valuation of deferred tax assets and the evaluation of goodwill and core deposit intangible impairment.

Material estimates that are particularly susceptible to significant change in the near term relate to fair value of securities available for sale, determination of the allowance for credit losses, the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans, impairment evaluations of securities, the valuation of deferred tax assets and the evaluation of goodwill and core deposit intangible impairment.

Revenue Recognition

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The services fees are automatically withdrawn from the customer’s account balance per their account agreement with the Company.

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

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

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

The Company currently does not offer a cardholder rewards program.

Insurance Commissions :

EU derives commission and fee income from direct and agency bill insurance policies.

Direct bill policies are invoiced directly from the insurance company provider to the customer.

Once the customer remits payment for the policy, the insurance company provider then remits the commission or fee income to EU on a monthly basis.

Agency bill policies are invoiced from EU, the insurance underwriting agency, to the customer.

EU records the insurance company policy payable and the commission or fee income earned on the policy.

As all insurance policies are contracts with customers, each policy has different terms and conditions.

EU utilizes a report from their core insurance data processing program, The Agency Manager (“TAM”), that captures all in-force policies that are active in the system and annualizes the commission over the life of each individual contract.

The report then provides an overall commission and fee income total for the monthly reporting financial statement period.

This income is then compared to the amount of direct and agency bill income recorded in TAM for the reporting month and an adjustment to income is made according to the report.

This is the income recognized for the portion of the insurance contract that has been earned by EU and subsequently the Company.

EU derived commission and fee income from direct and agency bill insurance policies.

Direct bill policies were invoiced directly from the insurance company provider to the customer.

Once the customer remitted payment for the policy, the insurance company provider then remitted the commission or fee income to EU on a monthly basis.

Agency bill policies were invoiced from EU, the insurance underwriting agency, to the customer.

EU recorded the insurance company policy payable and the commission or fee income earned on the policy.

As all insurance policies were contracts with customers, each policy had different terms and conditions.

EU utilized a report from their core insurance data processing program that captured all in-force policies that were active in the system and annualized the commission over the life of each individual contract.

The report provided an overall commission and fee income total for the monthly reporting financial statement period.

This income was then compared to the amount of direct and agency bill income recorded in the core insurance data processing system for the reporting month and an adjustment to income was made according to the report.

This was the income recognized for the portion of the insurance contract that had been earned by EU and subsequently the Company.

Other Commissions :

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The safe deposit box income is automatically withdrawn from the customer’s deposit account on a monthly basis as this revenue is earned by the contract.

Gains (Losses) on Sales of Other Real Estate Owned ("OREO") :

Gains (Losses) on Sales of OREO :

The Company records a gain or loss from the sale of OREO when control of the property transfers to the buyer, which generally occurs at the time of an executed deed.

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

The Company has evaluated the provisions of ASC Topic 280, Segment Reporting, and determined that segment reporting information related to EU (Insurance Brokerage Services segment) is required to be presented because the segment has adopted a board of directors that conducts board meetings independent from the Company.

In addition, the segment comprises a significant amount to total noninterest income, even though the segment is less than 10% of the combined assets of the Company.

The Company has evaluated the provisions of ASC Topic 280, Segment Reporting, and determined that segment reporting information related to EU (Insurance Brokerage Services segment) is required to be presented because the segment had adopted a board of directors that conducted board meetings independent from the Company.

In addition, the segment comprised a significant amount to total noninterest income, even though the segment is less than 10% of the combined assets of the Company.

See Note 19 – Segment Reporting and Related Information for more information.

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Securities are classified at the time of purchase, based on management’s intentions and ability, as securities held to maturity or securities available-for-sale.

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

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

as adjustments to interest income.

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

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

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

Interest and dividends on securities are recognized as income when earned.

Declines in the fair value of individual securities below amortized cost that are other-than-temporary result in write-downs of the individual securities to their fair value.

In estimating other-than-temporary impairment of securities, securities are evaluated on at least a quarterly basis to determine whether a decline in their value is other-than-temporary.

In estimating other-than temporary impairment losses, management considers (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) whether or not the Company intends to sell or expect that it is more likely than not that it will be required to sell the security before an anticipated recovery in fair value.

Once a decline in value for a debt security is determined to be other than temporary, the other-than-temporary impairment is separated in (a) the amount of total other-than-temporary impairment related to a decrease in cash flows expected to be collected from the debt security (the credit loss) and (b) the amount of other-than-temporary impairment related to all other factors.

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

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

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 loss ("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.

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

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

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

Included in accrued interest receivable and other assets are FHLB stock of $ 3.3 million and $ 2.7 million at December 31, 2023 and 2022, respectively, and ACBB stock of $ 85,000 at December 31, 2023 and 2022.

The Company periodically evaluates its FHLB restricted stock for possible impairment based on, among other things, the capital adequacy of the FHLB and its overall financial condition.

1 unchanged sentence

In addition, the Company has ample liquidity and does not require redemption of its FHLB stock in the foreseeable future.

Loans Receivable and Allowance for Loan Losses

Loans receivable that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are stated at the principal amount outstanding, net of deferred loan fees and the allowance for loan losses.

Loans Receivables

The Company grants commercial, residential, and other consumer loans to customers at its branch locations throughout southwestern Pennsylvania in Greene, Washington, Allegheny, Fayette and Westmoreland Counties and in the panhandle of West Virginia in Marshall and Ohio Counties.

Although the Company had a diversified loan portfolio at December 31, 2023 and 2022, a substantial portion of its debtors’ ability to honor their contracts is determined by the economic environment of these counties within the tri-state region footprint.

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

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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 as well as Payroll Protection Program ("PPP") loans.

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.

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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 are originated to individuals to

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

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

Payments received on nonaccrual loans are applied against principal.

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

In the normal course of business, the Company modifies loan terms for various reasons.

These reasons may include a retention strategy to compete in the current interest rate environment, and to extend a loan term and re-amortize to better match the loan’s payment stream with the borrower’s cash flows.

A modified loan is considered a troubled debt restructuring (“TDR”) when the Company has determined that the borrower is experiencing financial difficulties and the Company grants a concession to the borrower, except for an insignificant delay in payment.

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

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

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

When the Company restructures a loan for a troubled borrower, the loan terms (i.e., interest rate, payment, amortization period and/or maturity date) are modified in such a way to enable the borrower to cover the modified debt service payments based on current financials and cash flow adequacy.

If the hardship is thought to be temporary, then modified terms are offered only for that time period.

Where possible, the Company obtains additional collateral and/or secondary payment sources at the time of the restructure.

To date, the Company has not forgiven any principal as a restructuring concession.

The Company will not offer modified terms if it believes that modifying the loan terms will only delay an inevitable permanent default.

All loans designated as TDRs are considered impaired loans and may be in either accruing or non-accruing status.

The Company’s policy for recognizing interest income on TDRs does not differ from its overall policy for interest recognition.

TDRs are considered to be in payment default if, subsequent to modification, the loans are transferred to nonaccrual status.

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

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

The past due status of all classes of loans receivable is determined based on contractual due dates for loan payments.

For performing loans acquired in a merger, the excess of expected cash flows over the estimated fair value, at acquisition, is referred to as the accretable discount and is recognized into interest income over the remaining life of the loan.

The difference between contractually required payments at acquisition and the cash flows expected to be collected at acquisition is referred to as the nonaccretable discount.

The nonaccretable discount represents estimated future credit losses expected to be incurred over the life of the loan.

Subsequent decreases to the expected cash flows require an evaluation to determine the need for an allowance.

Subsequent improvements in expected cash flows result in the reversal of a corresponding amount of the nonaccretable discount, which is then reclassified as accretable discount that is recognized into interest income over the remaining life of the loan using the interest method.

The evaluation of the amount of future cash flows that is expected to be collected is performed in a similar manner as that used to determine our allowance.

Charge-offs of the principal amount on acquired loans would be first applied to the nonaccretable discount portion of the fair value adjustment.

Loan origination and commitment fees as well as certain direct loan origination costs are deferred and the net amount either accreted or amortized as an adjustment to the related loan’s yield over the contractual lives of the related loans.

Allowance for Credit Losses (ACL)

On January 1, 2023, the Company adopted ASU 2016-13, Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments, which replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss methodology ("CECL").

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 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

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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 nonaccrual 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.

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.

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Allowance for Loan Losses

Prior to the adoption of ASU 2016-13, the Company calculated the allowance for loan losses ("allowance"), using an incurred loan loss methodology.

The following policy related to the allowance in prior periods.

The allowance for loan losses (“allowance”) is maintained at a level considered adequate to provide for losses that can be reasonably anticipated.

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

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

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

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

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

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consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

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

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

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

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

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

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An unallocated component, which is a part of the general allowance component, is maintained to cover uncertainties that could affect the Company’s estimate of probable losses.

Loans that were acquired in previous mergers, were recorded at fair value with no carryover of the related allowance for credit losses.

The fair value of the acquired loans was estimated by management with the assistance of a third-party valuation specialist.

The difference between contractually required payments at acquisition and the cash flows expected to be collected at acquisition is referred to as the nonaccretable discount.

The nonaccretable discount represents estimated future credit losses expected to be incurred over the life of the loan.

Subsequent decreases to the expected cash flows require an evaluation to determine the need for an allowance.

The evaluation of the amount of future cash flows that is expected to be collected is performed in a similar manner as that used to determine our allowance.

Charge-offs of the principal amount on acquired loans would be first applied to the nonaccretable discount portion of the fair value adjustment.

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

Our allowance is sensitive to a number of inputs, most notably the qualitative factors and historical loss experience by loan segment.

Given the dynamic relationship between the inputs, it is difficult to estimate the impact of a change in any one individual variable on the allowance.

Although management believes that it uses the best information available to establish the allowance, future adjustments to the allowance may be necessary and results of operations could be adversely affected if circumstances differ substantially from the assumptions used in making the determinations.

Because future events affecting borrowers and collateral value cannot be predicted with certainty, there can be no assurance that the existing allowance is adequate or that increases will not be necessary should the quality of assets deteriorate as a result of the factors discussed previously.

Any increase in the allowance may adversely affect our financial condition and results of operations.

Changes in factors underlying the assessment could have a material impact on the amount of the allowance that is necessary and the amount of provision to be charged against earnings.

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Premises and Equipment

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However, the Company intends to hold these policies and, accordingly, the Company has not provided for deferred income taxes on the earnings from the increase in cash surrender value.

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Real Estate Owned

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

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

Real estate owned was $ 162,000 and $ 0 at December 31, 2023 and 2022, respectively.

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

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Deferred income tax expense results from changes in deferred tax assets and liabilities between periods.

Deferred tax assets are recognized if it is more likely than not, based on the technical merits, that the tax position will be realized or sustained upon examination, the term more likely than not means a likelihood of more than 50%;

the terms examined and upon examination also include resolution of the related appeals or litigation processes, if any.

Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates.

A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized.

A tax position that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information.

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Deferred tax assets are reduced by a valuation allowance if, based on the weight of evidence available, it is more likely than not that some portion or all of a deferred tax asset will not be realized.

The Company recognizes interest and penalties on income taxes as a component of income tax expense.

The Company recognizes interest accrued related to unrecognized tax benefits in noninterest income and penalties in noninterest expense.

Goodwill and Intangible Assets

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

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

However, if the carrying

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

The Company did no t record any goodwill impairment for the years ended December 31, 2023 and 2022.

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Estimates and assumptions are used in determining the fair value of other intangible assets.

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

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

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There were no events or changes in circumstances indicating impairment of other intangible assets at December 31, 2023 and 2022.

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

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If it is later determined that all or a portion of the temporary impairment no longer exists for a particular tranche, the valuation allowance is reduced.

Derivatives and Hedging Activities

The Company accounts for derivative instruments and hedging activities in accordance with FASB ASC Topic 815, Derivatives and Hedging.

All derivatives are evaluated at inception as to whether or not they are hedging or non-hedging activities, and appropriate documentation is maintained to support the final determination.

The Company recognizes all derivatives as either assets or liabilities on the Consolidated Statements of Financial Condition and measures those instruments at fair value.

For derivatives designated as fair value hedges, changes in the fair value of the derivative and the hedged item related to the hedged risk are recognized in earnings.

Any hedge ineffectiveness would be recognized in the income statement line item pertaining to the hedged item.

For derivatives designated as cash flow hedges, changes in fair value of the effective portion of the cash flow hedges are reported in other comprehensive income (loss) ("OCI").

When the cash flows associated with the hedged items are realized, the gain or loss included in OCI is recognized in the Consolidated Statement of Income.

When the Company purchases a portion of a commercial loan that has an existing interest rate swap, it enters into a Risk Purchase Agreement ("RPA") with the counterparty and assumes the credit risk of the loan customer related to the swap.

Any fee paid to the Company as a result of the RPA is offset by credit risk of the counterparties and is recognized in the income statement.

Credit risk on the RPA is determined after considering the risk rating, probability of default and loss given default of the counterparties.

Treasury Stock

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

Comprehensive (Loss) Income

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

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

Comprehensive Income (Loss)

Comprehensive income (loss) consists of net income and OCI.

OCI is comprised of unrealized holding gains or losses and reclassification adjustment for gains or losses on sale of available-for-sale debt securities, net of tax.

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Earnings Per Share

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

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

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

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

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

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Step 3—Measurement of an Impairment Loss

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Recent Accounting Standards

In August 2021, the Financial Accounting Standard Board (“FASB”) issued Accounting Standards Update ("ASU") 2021-06, Presentation of Financial Statements (Topic 205), Financial Services—Depository and Lending (Topic 942), and Financial Services—Investment Companies (Topic 946):

Amendments to SEC Paragraphs Pursuant to SEC Final Rule Releases No.

33-10786, Amendments to Financial Disclosures about Acquired and Disposed Businesses, and No.

33-10835, Update of Statistical Disclosures for Bank and Savings and Loan Registrants.

This ASU incorporates recent SEC rule changes into the FASB Codification, including SEC Final Rule Releases No.

33-10786, Amendments to Financial Disclosures about Acquired and Disposed Businesses, and No.

33-10835, Update of Statistical Disclosures for Bank and Savings and Loan Registrants.

The SEC rule changes update and expand the statistical disclosures that bank and savings and loan registrants provide to investors, in light of changes in this sector over the past 30 years.

The rules also eliminate certain disclosure items that are duplicative of other SEC rules and requirements of U.S.

The rules replace Industry Guide 3, Statistical Disclosure by Bank Holding Companies, with updated disclosure requirements in a new subpart of Regulation S-K.

The rules are intended to help ensure that investors have access to more meaningful, relevant information to facilitate their investment and voting decisions.

The amendments are effective prospectively for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022.

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

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

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.

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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).

The ASU is intended to help stakeholders during the global market-wide reference rate transition period.

ASU 2020-04 is effective for all entities as of March 12, 2020 through December 31, 2022.

The Company has formed a cross-functional team to lead the transition from LIBOR to a planned adoption of an alternate index.

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

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

The Company has not yet made any contract modifications.

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

In December 2019, FASB issued ASU 2019-12, Income Taxes (Topic 740);

Simplifying the Accounting for Income Taxes .

ASU 2019-12 provides amendments intended to reduce the cost and complexity in accounting for income taxes while maintaining or improving the usefulness of the information provided to users of financial statements.

ASU 2019-12 removes the following exceptions from ASC 740, Income Taxes:

(i) exceptions to the incremental approach for intraperiod tax allocation;

(ii) exceptions to accounting for basis differences when a foreign subsidiary becomes an equity method investment or a foreign equity method investment become a subsidiary;

and (iii) exception in interim period income tax accounting for year-to-date losses that exceed anticipated losses.

ASU 2019-12 provides the following amendments that simplify and improve guidance with Topic 740:

(i) franchise taxes that are based partially on income;

(ii) transactions that result in a step up in the tax basis of goodwill;

(iii) separate financial statements of legal entities that are not subject to tax;

(iv) enacted changes in tax laws in interim periods;

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

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

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

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

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

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

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

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 has adopted ASU No.

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

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

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

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

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

Qualitative factors include:

changes in lending policies and procedures;

changes in the nature and volume of the loan portfolio;

changes in management;

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

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

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

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

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

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

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

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

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

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

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 December 31, 2023, the Company does not have any instruments tied to the LIBOR reference rate.

The adoption of this guidance is not expected to have a material effect on the Company's consolidated statements of financial statements and results of operations.

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In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures .

This ASU enhances disclosures about significant segment expenses.

The amendments (1) require that a public entity disclose, on an annual and interim basis, significant segment expenses that are regularly provided to the chief operating decision maker (CODM) and included within each reported measure of profit or loss, (2) require that a public entity disclose, on an annual and interim basis, an amount for other segment items by reportable segment and a description of its composition, (3) require that a public entity provide all annual disclosures about a reportable segment's profit or loss currently required by GAAP in interim period as well, (4) clarify that if the CODM uses more than one measure of a segment's profit or loss in assessing segment performance and deciding how to allocate resources, an entity may report one or more of those additional measures of segment profit, (5) require that a public entity disclose the title and position of the CODM and an explanation of how the CODM uses the reported measure of segment profit or loss in assessing segment performance and deciding how to allocate resources and (6) require that a public entity that has a single reportable segment provide all the disclosures required by the amendments in the ASU and all existing segment disclosures.

This ASU is effective for public entities for fiscal years beginning after December 31, 2024.

The Company does not expect the adoption of the ASU to have a material effect on the Company's consolidated statements of financial statements and results of operations.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures .

This ASU requires that public entities on an annual basis (1) disclose specific categories in the rate reconciliation and (2) provide additional information for reconciling items that meet a quantitative threshold.

The ASU requires all entities to disclose on an annual basis (1) the amount of income taxes paid, disaggregated by federal, state and foreign taxes and (2) the amount of income taxes paid disaggregated by individual jurisdictions in which income taxes paid is equal or greater than five percent of total income taxes paid.

The ASU also requires that all entities disclose (1) income (loss) from continuing operations before income tax expense (or benefit) disaggregated between domestic or foreign and (2) income tax expense (or benefit) from continuing operations disaggregated by federal (national), state and foreign.

This ASU is effective for public entities for annual period beginning after December 15, 2024.

The Company does not expect the adoption of the ASU to have a material effect on the Company's consolidated statements of financial statements and results of operations.

NOTE 2— EARNINGS PER SHARE

16 unchanged sentences

Restricted Stock 49,447 38,140

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3— SECURITIES

7 unchanged sentences

Collateralized Mortgage Obligations - Government-Sponsored Enterprises 120,655 227 ( 15,752 ) 105,130

Collateralized Loan Obligations 29,862 — ( 58 ) 29,804

Corporate Debt 9,484 — ( 1,765 ) 7,719

4 unchanged sentences

Total Securities $ 207,095

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair

5 unchanged sentences

Collateralized Mortgage Obligations - Government-Sponsored Enterprises 96,930 — ( 17,288 ) 79,642

Collateralized Loan Obligations — — — —

Corporate Debt 9,487 — ( 1,172 ) 8,315

4 unchanged sentences

Total Securities $ 190,058

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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:

11 unchanged sentences

Collateralized Mortgage Obligations - Government-Sponsored Enterprises 1 5,603 ( 29 ) 21 71,796 ( 15,723 ) 22 77,399 ( 15,752 )

Collateralized Loan Obligations 1 2,910 ( 58 ) — — — 1 2,910 ( 58 )

Corporate Debt — — — 3 7,719 ( 1,765 ) 3 7,719 ( 1,765 )

9 unchanged sentences

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 )

2 unchanged sentences

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

The unrealized losses on securities at December 31, 2023 and 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 not more likely than not that it will be required to sell, any of the securities in an unrealized loss position before recovery of its amortized cost or maturity of the security.

2 unchanged sentences

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

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

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

however, regular principal payments and prepayments of principal are received on a monthly basis.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, Amortized

6 unchanged sentences

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

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

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

Year Ended December 31, 2023 2022

3 unchanged sentences

Gross Realized Loss ( 10,089 ) —

Net Gain on Debt Securities $ — $ 225

Net Loss on Debt Securities $ ( 10,089 ) $ —

Equity Securities

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

Net Unrealized Loss Recognized on Securities Held $ ( 110 ) $ ( 168 )

Net Realized Gain Recognized on Securities Sold — —

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

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

Net Loss on Equity Securities $ ( 110 ) $ ( 168 )

Net Loss on Securities $ ( 10,199 ) $ ( 168 )

In 2023, there were $ 10.1 million gross realized losses on the sale of debt securities as a result of the Company implementing a balance sheet repositioning strategy of its portfolio of available-for-sale securities.

The Company sold $ 69.3 million in market value of its lower-yielding U.S government agency, mortgage-backed and municipal securities with an average yield of 1.89 % and purchased $ 69.3 million of higher-yielding mortgage-backed and collateralized mortgage obligation securities with an average yield of 5.49 %.

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

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

NOTE 4— LOANS AND RELATED 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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4— LOANS AND RELATED ALLOWANCE FOR LOAN LOSSES

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

At the end of the construction phase, the loan generally converts to a permanent residential or commercial mortgage loan.

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

Commercial and industrial loans are generally secured by 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 summarizes the major classifications of loans as of the dates indicated:

8 unchanged sentences

Total Loans $ 1,110,396 $ 1,049,873

Allowance for Loan Losses ( 12,819 ) ( 11,582 )

Allowance for Credit Losses ( 9,707 ) ( 12,819 )

Loans, Net $ 1,100,689 $ 1,037,054

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

Second Draw PPP Loans were available for certain eligible borrowers that previously received a PPP loan.

A Second Draw PPP Loan has the same general terms as the First Draw PPP Loan.

A borrower was generally eligible for a Second Draw PPP Loan if the borrower previously received a First Draw PPP Loan and will or had used the full amount only for authorized uses, had no more than 300 employees, and demonstrated at least a 25% reduction in gross receipts between comparable quarters in 2019 and 2020.

For most borrowers, the maximum amount of a Second Draw PPP Loan was 2.5x average monthly 2019 or 2020 payroll costs up to $2.0 million.

Loan payments are deferred for borrowers who apply for loan forgiveness until the SBA remits the borrower's loan forgiveness amount to the lender.

If a borrower does not apply for loan forgiveness, payments are deferred 10 months after the end of the covered period for the borrower’s loan forgiveness (either 8 weeks or 24 weeks).

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

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

PPP Loans Remaining

Number of Loans Principal Balance Net Deferred Origination Fees

(Dollars in Thousands)

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

PPP Loans Originated 218 34,617 1,268

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

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

December 31, 2021 155 $ 25,201 $ 678

PPP Loans Originated — $ — $ —

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

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

December 31, 2022 10 $ 131 $ 5

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

All PPP loans are classified as commercial and industrial loans.

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 $ 1.2 million and $ 1.9 million at December 31, 2022 and 2021, respectively.

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

Total unamortized net deferred loan fees were $ 1.0 million and $ 1.2 million at December 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.

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 December 31, 2023.

There were no loans in the criticized category of Loss.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents loans summarized by the aggregate pass and the criticized categories of special mention, substandard and doubtful within the internal risk rating system as of dates indicated.

At December 31, 2022 and 2021, there were no loans in the criticized category of loss.

December 31, Pass Special

Mention Substandard Doubtful Total

(Dollars in Thousands)

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

Classified Loans by Origination Year (at December 31, 2023)

(Dollars in Thousands) 2023 2022 2021 2020 2019 Prior Revolving Loans Amortized Cost Basis Total

Pass $ 33,579 $ 49,903 $ 44,749 $ 58,344 $ 38,008 $ 104,931 $ 14,932 $ 344,446

Special Mention — 1,034 507 — — 345 — 1,886

Substandard — — — — — 1,476 — 1,476

Doubtful — — — — — — — —

Loss — — — — — — — —

Total 33,579 50,937 45,256 58,344 38,008 106,752 14,932 347,808

Pass 56,466 72,006 85,285 49,356 49,442 112,749 2,017 427,321

Special Mention 1,206 5,485 9,030 2,445 2,730 10,281 — 31,177

Substandard — — — — 2,717 5,939 — 8,656

Doubtful — — — — — — — —

Loss — — — — — — — —

Total 57,672 77,491 94,315 51,801 54,889 128,969 2,017 467,154

Pass 13,322 12,469 2,932 540 — — — 29,263

Special Mention 4,489 2,153 663 6,548 — — — 13,853

Substandard — — — — — — — —

Doubtful — — — — — — — —

Loss — — — — — — — —

Total 17,811 14,622 3,595 7,088 — — — 43,116

Commercial and Industrial

Consumer 146,807 — 120 — 146,927

Other 20,394 55 — — 20,449

Pass 31,609 16,334 8,652 5,556 3,366 2,875 32,172 100,564

Special Mention — — — 12 — 3,215 3,250 6,477

Substandard — — — — — 4,237 — 4,237

Doubtful — — — — — — — —

Loss — — — — — — — —

Total 31,609 16,334 8,652 5,568 3,366 10,327 35,422 111,278

Pass 12,726 49,027 25,528 10,365 3,786 4,715 5,408 111,555

Special Mention — — — — — — — —

Substandard — — — 24 — 64 — 88

Doubtful — — — — — — — —

Loss — — — — — — — —

Total 12,726 49,027 25,528 10,389 3,786 4,779 5,408 111,643

Pass 4,047 17,248 41 646 1,278 3,701 851 27,812

Special Mention — 1,585 — — — — — 1,585

Substandard — — — — — — — —

Doubtful — — — — — — — —

Loss — — — — — — — —

Total 4,047 18,833 41 646 1,278 3,701 851 29,397

Total Loans $ 157,444 $ 227,244 $ 177,387 $ 133,836 $ 101,327 $ 254,528 $ 58,630 $ 1,110,396

Gross Charge Offs $ — $ 163 $ 44 $ 18 $ 2 $ 314 $ 48 $ 589

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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, Pass Special

8 unchanged sentences

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

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

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

13 unchanged sentences

Total Loans $ 1,103,523 $ 4,406 $ 227 $ — $ 4,633 $ 2,240 $ 1,110,396

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Current 30-59

12 unchanged sentences

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

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

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

A summary of the loans considered impaired and evaluated for impairment as of the dates indicated are as follows:

Investment Related

Allowance Unpaid

Balance Average

Investment Interest

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Additional interest income that would have been recorded if the loans that were nonaccrual at December 31, 2023 were current was $ 150,000 and $ 203,000 for the years ended December 31, 2023 and 2022, respectively.

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

December 31, 2023

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

(Dollars in Thousands)

With No Related Allowance Recorded:

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:

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:

Residential $ 1,042 $ — $ 1,047 $ 1,085 $ 51

Commercial 13,217 21 13,374 11,882 628

Construction 318 — 318 1,233 55

Nonaccrual Loans:

$ 1,476 $ — $ — $ 1,476

Commercial and Industrial

Total Impaired Loans $ 15,089 $ 24 $ 15,523 $ 15,187 $ 770

Total Nonaccrual Loans

$ 2,240 $ — $ — 2,240

Other Real Estate Owned:

Total Other Real Estate Owned

Total Nonperforming Assets

No interest income on nonaccrual loans was recognized during the year ended December 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 year ended December 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 as of December 31, 2022, prior to 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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Investment Related

Allowance Unpaid

Balance Average

Investment Interest

(Dollars in Thousands)

With No Related Allowance Recorded:

Residential $ 1,133 $ — $ 1,137 $ 1,158 $ 46

Commercial 9,733 — 9,787 27,207 927

Construction 540 — 540 887 34

Commercial and Industrial 1,979 — 2,286 3,230 49

Total With No Related Allowance Recorded $ 13,385 $ — $ 13,750 $ 32,482 $ 1,056

With A Related Allowance Recorded:

Commercial $ 266 $ 195 $ 266 $ 421 $ 19

Construction 2,013 104 2,013 169 7

Nonaccrual Loans:

Commercial and Industrial

Total With A Related Allowance Recorded $ 2,279 $ 299 $ 2,279 $ 1,906 $ 55

Total Impaired Loans:

Residential $ 1,133 $ — $ 1,137 $ 1,158 $ 46

Commercial 9,999 195 10,053 27,628 946

Construction 2,553 104 2,553 1,056 41

Total Nonaccrual Loans

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

Troubled Debt Restructurings, Accruing:

Commercial and Industrial

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

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

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

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

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

The recorded investment of residential real estate loans for which formal foreclosure proceedings were in process according to applicable requirements of the local jurisdiction was $ 1.4 million and $ 571,000 at December 31, 2022 and 2021, respectively.

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

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

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

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

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

Year Ended December 31, 2021 Number

Contracts Pre-

Investment Post-

Investment Related

(Dollars in Thousands)

Commercial 1 $ 1,958 $ 1,958 $ —

Total 1 $ 1,958 $ 1,958 $ —

Loans acquired in connection with the previous mergers were recorded at their estimated fair value at the acquisition date and did not include a carryover of the allowance for loan losses because the determination of the fair value of acquired loans incorporated credit risk assumptions.

The loans acquired with evidence of deterioration in credit quality since origination for which it was probable that all contractually required payments would not be collected were not significant to the consolidated financial statements of the Company.

The activity in the allowance for loan loss 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 as of December 31, 2022 and 2021 is summarized below:

Total Troubled Debt Restructurings, Accruing

Total Nonperforming Loans

Total Nonperforming 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 $ 907 ,000 and $ 1.4 million at December 31, 2023 and 2022, respectively.

The activity in the ACL - Loans is summarized below by primary segments for the year ended December 31, 2023.

Residential Real

4 unchanged sentences

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 ( 219 ) — — — ( 370 ) — — ( 589 )

Recoveries 43 32 — 876 195 — — 1,146

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

Provision (Recovery) for Credit Losses - Loans

1,094 32 ( 351 ) ( 439 ) ( 749 ) 129 — ( 284 )

December 31, 2023 $ 3,129 $ 2,630 $ 639 $ 1,693 $ 1,367 $ 249 $ — $ 9,707

Individually Evaluated for Impairment $ — $ 21 $ — $ 3 $ — $ — $ — $ 24

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

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 year ended was as follows:

(Dollars in Thousands)

Allowance for Credit Losses

Balance at December 31, 2022 $ —

Impact of CECL Adoption 718

Recovery for Credit Losses - Unfunded Commitments ( 218 )

Balance at December 31, 2023 $ 500

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 year ended December 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.

Residential Real

10 unchanged sentences

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

December 31, Real

7 unchanged sentences

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

December 31, Real

Residential Real

Commercial Real

Construction Commercial

Industrial Consumer Other Total

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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Investment Related

Allowance Unpaid

Balance Average

Investment Interest

(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

With No Related Allowance Recorded:

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:

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:

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

17 unchanged sentences

(Dollars in Thousands)

Land $ 2,344 $ 2,380

Land and Land Improvements $ 2,749 $ 2,344

Building 19,812 19,374

5 unchanged sentences

Premises and Equipment, Net $ 19,704 $ 17,844

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

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

In 2021, the Company announced the implementation of branch optimization and operational efficiency strategic initiatives to improve the Bank’s financial performance and operations in order to position the Bank for continued profitable growth through the optimization of its branch network while expanding technology and infrastructure investments in its remaining locations.

The decision was the result of a comprehensive internal study that measured branch performance by comparing financial and non-financial indicators to growth opportunities, while evolving changes in consumer preferences, largely driven by the global pandemic, led to an acceleration of branch optimization efforts.

The Bank also completed a comprehensive review of its branch network and operating environment to identify solutions to improve operating performance.

This review prioritized profitability, efficiency, infrastructure and client experience improvements, automation in operations, and digital marketing and technology investments and the Bank is in process of implementing operational efficiencies related to individualized processes within its branch network and operating environment.

The Bank has substantially completed these initiatives through the consolidation of six branches that was completed on June 30, 2021.

In addition, CB Financial, Community Bank, and Citizens Bank of West Virginia, Inc.

(“Citizens Bank”) executed a Purchase and Assumption Agreement (the “Agreement”) pursuant to which Citizens Bank agreed to purchase certain loans and other assets, and assume certain deposits and other liabilities, of the branch offices of Community Bank located in Buckhannon, West Virginia, and New Martinsville, West Virginia.

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

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

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

Utilizing guidance in ASC 360, the Company performed the three step process to identify, recognize and measure the impairment of the long-lived assets.

• For the six locations that were consolidated:

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

◦ Two locations were marketed for sale and were written down to fair value based on the appraised value.

One of these locations was subsequently donated resulting in a $ 230,000 charitable donation.

◦ One location was leased.

Refer to Note 14 for further discussion of the impairment of the right of use asset associated with the operating lease.

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

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

The expenses include the aforementioned $ 2.3 million writedown on premises and equipment and $ 1.2 million impairment of intangible assets associated with the branch sales (refer to Note 6 for further information), as well as $ 4.1 million of expenses related to contracted services, employee severance costs, branch lease impairment (refer to Note 14 for further information), professional fees, data processing fees, charitable donations, legal and other expenses for the year ended December 31, 2021.

Depreciation and amortization expense on premises and equipment was $ 1.4 million and $ 1.0 million for the years ended December 31, 2023 and 2022, respectively.

NOTE 6— GOODWILL AND INTANGIBLE ASSETS

2 unchanged sentences

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

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

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

(Dollars in Thousands)

2 unchanged sentences

Total Intangible Assets $ 11,860 $ ( 10,902 ) $ 958 $ 13,660 $ ( 10,147 ) $ 3,513

On June 10, 2021, an Agreement was executed with Citizens Bank pursuant to which Citizens Bank agreed to assume certain deposits of the branch offices of Community Bank located in Buckhannon, West Virginia, and in New Martinsville, West Virginia.

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

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

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

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

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

On December 1, 2023, the sale of EU was completed, resulting in the removal of the customer list intangible, net of accumulated amortization, of $ 789,000 .

Amortization of intangible assets totaled $ 1.8 million for the years ended December 31, 2023 and 2022, respectively.

The estimated amortization expense of intangible assets assumes no activities, such as acquisitions, which would result in additional amortizable intangible assets.

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government agencies, mortgage-backed securities, and collateralized mortgage obligations are pledged as collateral under these agreements in an amount at least equal to the outstanding balance and the collateral pledging requirements are monitored on a daily basis.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

2 unchanged sentences

(Dollars in Thousands)

Federal Funds Purchased:

Average Balance Outstanding During the Period $ 485 5.72 % $ — — %

Maximum Amount Outstanding at any Month End — —

FHLB Borrowings:

Average Balance Outstanding During the Period 114 2.63 % — — %

Maximum Amount Outstanding at any Month End 20,833 —

Securities Sold Under Agreements to Repurchase:

9 unchanged sentences

This arrangement is subject to annual renewal and is secured by a blanket security agreement on $ 677.2 million of residential and commercial mortgage loans and the Bank’s investment in FHLB stock.

Under this arrangement the

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Under this arrangement the Bank had available a variable rate line of credit in the amount of $ 150.0 million as of December 31, 2023 and 2022, of which, there was no outstanding balance as of December 31, 2023 and 2022.

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

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The Bank maintains a Borrower-In-Custody of Collateral line of credit agreement with the Federal Reserve Bank (“FRB”) for $ 103.8 million that requires monthly certification of collateral, is subject to annual renewal and is secured by $ 142.9 million of commercial and consumer indirect auto loans.

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

The Bank also maintains multiple line of credit arrangements with various

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

unaffiliated banks totaling $ 50.0 million as of December 31, 2023 and 2022, respectively, of which no draws are outstanding other than the subordinated debt disclosed below.

Subordinated Debt

9 unchanged sentences

(Dollars in Thousands)

Current Payable $ 3,368 $ 3,373

Deferred Benefit ( 535 ) ( 248 )

Current Expense $ 7,353 $ 3,368

Deferred Expense (Benefit) 382 ( 535 )

Total Provision $ 7,735 $ 2,833

4 unchanged sentences

Deferred Tax Assets:

Allowance for Loan Losses $ 2,762 $ 2,507

Non-Accrual Loan Interest 54 65

Allowance for Credit Losses $ 2,175 $ 2,762

Nonaccrual Loan Interest 57 54

Amortization of Intangibles — 105

Unrealized Loss of AFS - Merger Tax Adjustment 731 789

Purchase Accounting Adjustments 53 349

Postretirement Benefits 18 20

Net Unrealized Loss on Securities 7,206 254

Net Unrealized Loss on Debt Securities 4,599 7,206

Net Unrealized Loss on Equity Securities 22 —

Stock-Based Compensation Expense 98 70

1 unchanged sentence

Accrued Payroll 260 —

Purchase Accounting Adjustments - Acquired Loans 105 156

Lease Liability 380 450

Right of Use Asset Impairment — 60

Purchase Accounting Adjustments - Fixed Assets

Restructuring Costs 88 139

1 unchanged sentence

Deferred Tax Liabilities:

Amortization of Intangibles 73 —

Deferred Origination Fees and Costs 313 277

5 unchanged sentences

ROU Asset 357 464

Purchase Accounting Adjustments - Core Deposit Intangible 549 948

Purchase Accounting Adjustments - Fixed Assets — 25

Purchase Accounting Adjustments - Certificates of Deposit — —

Goodwill — 74

16 unchanged sentences

As of December 31, 2023 and 2022, there were no unrecognized tax benefits.

The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses.

The Company recognizes interest accrued related to unrecognized tax benefits in noninterest income and penalties in noninterest expense.

There were no interest or penalties accrued at December 31, 2023 and 2022.

7 unchanged sentences

Equity Incentive Plan

Details of the restricted stock award and stock option grants under the 2021 Equity Incentive Plan are summarized for the year ended December 31, 2022 as follows.

The Company did not grant restricted stock awards or stock options for the year ended December 31, 2021.

Details of the restricted stock award and stock option grants under the 2021 Equity Incentive Plan are summarized for the years ended December 31, 2023 and 2022 as follows.

Number of Restricted Shares Granted 40,225 27,765

10 unchanged sentences

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 $ 600,000 and $ 566,000 for the years ended

Stock-based compensation expense related to restricted stock awards and stock options was $ 1.1 million and $ 600,000 for the years ended December 31, 2023 and 2022, respectively.

As of December 31, 2023 and 2022, total unrecognized compensation expense was

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2022 and 2021, respectively.

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

$ 505,000 and $ 430,000 , respectively, related to stock options, and $ 1.4 million related to restricted stock awards for both periods.

At December 31, 2023, the unrecognized compensation expense related to stock options and restricted stock is expected to be recognized over the weighted average remaining vesting period of 4.13 years.

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

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

In conjunction with non-qualified stock options, the Company did not recognize any tax benefit due to exercises of non-qualified stock options for the year ended December 31, 2023, compared to a tax benefit of $ 2,000 recognized for the year ended December 31, 2022.

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

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

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Granted 104,465 $ 25.31

Exercised ( 17,816 ) $ 26.43

Vested ( 9,354 ) $ 24.42

Forfeited ( 6,672 ) $ 26.01

4 unchanged sentences

Nonvested Options at December 31, 2023 134,242 $ 23.58 8.5

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

Granted 27,765 25.29 4.3

35 unchanged sentences

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

1 unchanged sentence

The Company recorded no liability associated with standby letters of credit as of December 31, 2023 and 2022.

NOTE 13— STOCKHOLDERS'S EQUITY AND REGULATORY CAPITAL

NOTE 13— STOCKHOLDERS' EQUITY AND REGULATORY CAPITAL

In June 2021, the Company authorized a program to repurchase up to $ 7.5 million of its outstanding shares of common stock.

5 unchanged sentences

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

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

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

The program expired on May 1, 2023.

In connection with the program, the Company repurchased a total of 74,656 shares of the Company's common stock at an average price of $ 22.38 per share.

On January 31, 2024, the Company's Board of Directors declared a cash dividend of $ 0.25 per outstanding share of common stock, which was paid on February 29, 2024.

5 unchanged sentences

As of December 31, 2023 and 2022, the Bank was considered "well capitalized" under the regulatory framework for prompt corrective action.

At December 31, 2022 and 2021, the Bank's capital ratios were not affected by loans modified in accordance with Section 4013 of the CARES Act.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

29 unchanged sentences

Operating $ 308 $ 350

Short-term — 34

Variable 30 28

19 unchanged sentences

Lease Liabilities $ 1,785

Impairment of ROU Assets

ROU assets from operating leases are subject to the impairment guidance in ASC 360, Property, Plant, and Equipment, and are reviewed for impairment when indicators of impairment are present.

ASC 360 requires three steps to identify, recognize and measure impairment.

If indicators of impairment are present (Step 1), the Company performs a recoverability test (Step 2) comparing the sum of the estimated undiscounted cash flows attributable to the ROU asset in question to the carrying amount.

If the undiscounted cash flows used in the recoverability test are less than the carrying amount, the Company estimates the fair value of the ROU asset and recognizes an impairment loss when the carrying amount exceeds the estimated fair value (Step 3).

At June 30, 2021, the Company consolidated six branches as part of its branch optimization initiative.

One of the branches was leased and the Company performed the three-step evaluation as outlined above to determine whether the operating lease was impaired.

As part of the recoverability test, the Company elected to exclude operating lease liabilities from the carrying amount of the asset group.

The undiscounted future cash flows used in the recoverability test were based on assumptions made by the Company rather than market participant assumptions.

Since an election was made to exclude operating lease liabilities from the asset or asset group, all future cash lease payments for the lease were also excluded.

In addition, the Company elected to exclude operating lease liabilities from the estimated fair value, consistent with the recoverability test When determining the fair value of the ROU asset, the Company estimated what market participants would pay to lease the asset.

The ROU asset was valued assuming its highest and best use in its current form.

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

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

NOTE 15— MORTGAGE SERVICING RIGHTS

11 unchanged sentences

December 31, 2023 $ 540 $ — $ 540

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Real estate loans serviced for others, which are not included in the Consolidated Statements of Financial Condition, totaled $ 76.7 million and $ 83.4 million at December 31, 2023 and 2022, respectively.

NOTE 16— DERIVATIVES AND HEDGING ACTIVITIES

Derivatives Not Designated as Hedging Instruments

The Company has three risk participation agreements with financial institution counterparties for interest rate swaps related to loans in which we are a participant.

The risk participation agreements provide credit protection to the financial institution should the borrower fail to perform on its interest rate derivative contract with the financial institution.

Derivatives Designated as Hedging Instruments

In October 2023, the Company entered into an interest rate swap contract that is designated as a fair value hedge to mitigate the risk of interest rate increases and the subsequent impact on the associated fixed rate mortgages.

This contract matures on October 17, 2026, has a notional amount of $ 75.0 million and is benchmarked to SOFR.

The Company expects the hedge to remain effective during the remaining term of the swap.

The following table depicts the credit value and fair value adjustments recorded related to the notional amount of derivatives outstanding and risk participation agreements with other financial institutions.

These adjustments are included in Accrued Interest and Other Liabilities on the Company's Consolidated Statement of Financial Condition.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2023 December 31, 2022

(Dollars in Thousands)

Derivatives not Designated as Hedging Instruments

Risk Participation Agreements:

Credit Value Adjustment $ ( 94 ) $ —

Notional Amount 9,119 —

Derivatives Designated as Hedging Instruments

Interest rate swaps:

Fair Value Adjustment ( 1,777 ) —

Notional Amount 75,000 —

NOTE 17— FAIR VALUE DISCLOSURE

11 unchanged sentences

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.

including market research publications.

The Company uses derivative instruments, including interest rate swaps and risk participation agreements, and the fair value of such instruments are calculated using accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative, considering the contractual terms of each derivative, and uses observable market-based inputs, such as interest rate curves and implied volatilities.

Credit valuation adjustments are incorporated to appropriately reflect nonperformance risk and the respective counterparties' nonperformance risk in calculating fair value measurements.

These instruments are clasified as Level 2.

There were no transfers from Level 1 to Level 2 and no transfers into or out of Level 3 during the years ended December 31, 2023 and 2022, respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, Fair Value Hierarchy 2023 2022

5 unchanged sentences

Collateralized Mortgage Obligations - Government-Sponsored Enterprises Level 2 105,130 79,642

Collateralized Loan Obligations Level 2 29,804 —

Corporate Debt Level 2 7,719 8,315

5 unchanged sentences

Total Securities $ 207,095 $ 190,058

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Total Assets $ 207,095 $ 190,058

Derivative Financial Liabilities

Interest Rate Swaps Level 2 $ 1,777 $ —

Risk Participation Agreements Level 2 94 —

Total Liabilities $ 1,871 $ —

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

6 unchanged sentences

(Dollars in Thousands)

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

Appraisal Adjustments (2)

OREO Level 3 — Appraisal of Collateral (1)

Liquidation Expenses (2)

100 % to 100 % 100.0 %

5 unchanged sentences

0 % to 8 % 7.2 %

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

Prepayment Speed 6 % to 36 % 16.0 %

OREO Level 3 36 Appraisal of Collateral (1)

Liquidation Expenses (2)

10 % to 30 % 26.6 %

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

1 unchanged sentence

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

At December 31, 2022 and 2021, the fair value of impaired loans consists of the loan balance of $ 1.6 million and $ 2.3 million less their specific valuation allowances of $ 24,000 and $ 299,000 , respectively.

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

At December 31, 2022, the fair value of impaired loans consists of the loan balance $ 1.6 million less a specific valuation allowance of $ 24,000 .

The fair value of 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.

2 unchanged sentences

Since the valuation model includes significant unobservable inputs as listed above, MSRs are classified as Level 3.

At December 31, 2023 and 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.

1 unchanged sentence

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.

At December 31, 2023, OREO measured at fair value less costs to sell had no carrying value, which consisted of the outstanding balance of $ 37,000 less write-downs of $ 37,000 .

At December 31, 2022, the Company did not have any OREO that would be required to be remeasured.

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.

3 unchanged sentences

In addition, changes in the assumptions on which the estimated fair values are based may have significant impact on the resulting estimated fair values.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The estimated fair values of the Company’s financial instruments at the dates indicated are as follows:

3 unchanged sentences

Cash and Due From Banks:

Interest Bearing Level 1 $ 82,957 $ 82,957 $ 63,968 $ 63,968

Non-Interest Bearing Level 1 20,743 20,743 55,706 55,706

Interest-Earning Level 1 $ 62,442 $ 62,442 $ 82,957 $ 82,957

Noninterest-Earning Level 1 5,781 5,781 20,743 20,743

Securities See Above 207,095 207,095 190,058 190,058

9 unchanged sentences

Subordinated Debt Level 2 14,678 13,378 14,638 13,490

Derivative Liabilities Level 2 1,871 1,871 — —

Accrued Interest Payable Level 2 1,814 1,814 355 355

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 18— OTHER NONINTEREST EXPENSE

16 unchanged sentences

TOTAL OTHER NONINTEREST EXPENSE $ 3,735 $ 3,844

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 19— CONDENSED FINANCIAL STATEMENTS OF PARENT COMPANY

13 unchanged sentences

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 154,698 $ 124,879

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Statements of Income

5 unchanged sentences

Net Interest and Dividend Income 4,573 4,403

Net (Loss) Gain on Securities ( 54 ) 329

Net Loss on Securities ( 122 ) ( 54 )

Noninterest Expense 18 19

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

Income Before Undistributed Net Income of Subsidiary and Income Tax Benefit 4,433 4,330

Undistributed Net Income of Subsidiary 18,046 6,778

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

Income Tax (Benefit) Expense ( 139 ) 63

Income Before Income Tax Benefit 22,479 11,108

Income Tax Benefit ( 71 ) ( 139 )

NET INCOME $ 22,550 $ 11,247

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Statements of Cash Flows

6 unchanged sentences

Noncash Expense for Stock-Based Compensation 1,125 600

Loss (Gain) on Equity Securities 55 ( 329 )

Loss on Equity Securities 122 55

Other, net ( 425 ) 290

NET CASH PROVIDED BY OPERATING ACTIVITIES 5,326 5,414

INVESTING ACTIVITIES

Purchases of Equity Securities — ( 100 )

Proceeds from Sales of Equity Securities — 36

NET CASH USED IN INVESTING ACTIVITIES — ( 64 )

FINANCING ACTIVITIES

3 unchanged sentences

Exercise of Stock Options 372 220

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

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

NET CASH USED IN FINANCING ACTIVITIES ( 5,542 ) ( 9,465 )

DECREASE IN CASH AND DUE FROM BANKS ( 216 ) ( 4,051 )

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

CASH AND DUE FROM BANKS AT END OF THE YEAR $ 14,300 $ 14,516

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

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

NOTE 20— SEGMENT REPORTING AND RELATED INFORMATION

2 unchanged sentences

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.

Exchange Underwriters was an independent board of directors from the Company and was managed separately from the banking and related financial services that the Company offers.

EU was an independent insurance agency that offered property, casualty, commercial liability, surety and other insurance products.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The sale of assets was completed on December 8, 2023 and resulted in a pre-tax gain of $ 24.6 million.

Assets remaining in the EU subsidiary at December 31, 2023 consisted primarily of cash received from the sale of assets.

The EU subsidiary will be dissolved with the remaining assets and liabilities being transferred to the Bank during 2024.

The following table represents selected financial data for the Company’s subsidiaries and consolidated results for 2023 and 2022.

15 unchanged sentences

Net Interest and Dividend Income 45,085 6 4,573 ( 5,111 ) 44,553

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

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

Recovery for Credit Losses - Loans ( 284 ) — — — ( 284 )

Recovery for Credit Losses - Unfunded Commitments ( 218 ) — — — ( 218 )

Net Interest and Dividend Income After Recovery for Credit Losses 45,587 6 4,573 ( 5,111 ) 45,055

Noninterest Income (Loss) ( 6,280 ) 30,414 ( 122 ) — 24,012

1 unchanged sentence

Undistributed Net Income of Subsidiary 18,986 — 18,046 ( 37,032 ) —

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

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

Income Before Income Tax Expense (Benefit) 23,579 26,370 22,479 ( 42,143 ) 30,285

Income Tax Expense (Benefit) 422 7,384 ( 71 ) — 7,735

Net Income $ 23,157 $ 18,986 $ 22,550 $ ( 42,143 ) $ 22,550

3 unchanged sentences

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

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

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

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

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

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

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

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

Undistributed Net Income of Subsidiary 1,315 — 6,778 ( 8,093 ) —

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

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

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

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

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

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

What changed 10-K

Item 9A. Controls and Procedures