CB Financial Services, Inc. 10-K

ITEM 9A. CONTROLS AND PROCEDURES (a) Evaluation of Disclosure Controls and Procedures Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2023. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be 52 disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost benefit relationship of possible controls and procedures. Based upon their evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the SEC (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) is accumulated and communicated to our management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosures. (b) Internal Control Over Financial Reporting The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting. The internal control process has been designed under our supervision to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s consolidated financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United States of America. Management conducted an assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2023, utilizing the framework established in the 2013 Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on management’s assessment, the Company concluded that the Company’s internal control over financial reporting was effective as of December 31, 2023, based on that framework. (c) Changes to Internal Control Over Financial Reporting There have been no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) of the Exchange Act) that occurred during the three months ended December 31, 2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. ITEM 9B. 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. ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS Not Applicable. PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Information required by this item is incorporated by reference in the Proxy Statement for the 2024 Annual Meeting. ITEM 11. EXECUTIVE COMPENSATION Information required by this item is incorporated by reference in the Proxy Statement for the 2024 Annual Meeting. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS Information required by this item is incorporated by reference in the Proxy Statement for the 2024 Annual Meeting. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE Information required by this item is incorporated by reference in the Proxy Statement for the 2024 Annual Meeting. 53 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES 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. PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a)(1) Financial Statements The financial statements filed as a part of this Form 10-K are: (A) Report of Independent Registered Public Accounting Firm; (B) Consolidated Statements of Financial Condition at December 31, 2023 and 2022; (C) Consolidated Statements of Income for the Years Ended December 31, 2023 and 2022; (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; (F) Consolidated Statements of Cash Flows for the Years Ended December 31, 2023 and 2022; and (G) Notes to Consolidated Financial Statements. (a)(2) Financial Statement Schedules All financial statement schedules have been omitted as the required information is inapplicable or has been included in the Notes to Consolidated Financial Statements. (a)(3) Exhibits 3.1 Amended and Restated Articles of Incorporation of CB Financial Services, Inc. (1) 3.2 Bylaws of CB Financial Services, Inc. (2) 4.1 Form of Stock Certificate of CB Financial Services, Inc. (1) 4.2 Description of Registrant's Securities (3) 10.1 Employment Agreement by and between Community Bank and John H. Montgomery (4) 10.2 Executive Consultant Agreement by and between Community Bank and Ralph Burchianti (5) 10.3 Employment Agreement by and between Community Bank and Jamie L. Prah (6) 10.4 Employment Agreement by and among Community Bank, Exchange Underwriters, Inc., and Richard B. Boyer dated April 14, 2014 (1) 10.8 Split Dollar Life Insurance Agreement by and between Community Bank and John H. Montgomery, dated November 2, 2020 (7) 10.9 Split Dollar Life Insurance Agreement by and between Community Bank and Ralph Burchianti dated April 1, 2005 (1) 10.10 Split Dollar Life Insurance Agreement dated as of June 1, 2002, by and between First Federal Savings Bank and Richard B. Boyer (8) 10.11 Amendment dated as of July 19, 2002, to the Life Insurance Endorsement Method Split Dollar Plan Agreement by and between First Federal Savings Bank and Richard B. Boyer (9) 10.12 Amendment dated as of September 13, 2005, to the Life Insurance Endorsement Method Split Dollar Plan Agreement by and between First Federal Savings Bank and Richard B. Boyer (10) 10.15 CB Financial Services, Inc., 2015 Equity Incentive Plan (11) 10.16 CB Financial Services, Inc., 2021 Equity Incentive Plan (12) 10.17 Subordinated Note Purchase Agreement (13) 10.18 Employment Agreement by and between Community Bank and Jennifer L. George (14) 10.19 A sset Purchase Agreement among World Insurance Associates, LLC, Ex c hange Underwriters, Inc. and Community Bank (15) 21 Subsidiaries 23.1 Consent of F ORVIS , LLP 31.1 Certification required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 Certification required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1 Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 97 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): (i) the Consolidated Statements of Financial Condition, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive (Loss) Income, (iv) the Consolidated Statements of Changes in Stockholders’ Equity, (v) the Consolidated Statements of Cash Flows and (vi) the Notes to the Audited Consolidated Financial Statements. 104 Cover Page Interactive Data File (embedded in Inline XBRL contained in Exhibit 101) 54 (1) Incorporated herein by reference to the Exhibits to the Company’s Registration Statement on Form S-4 filed with the Securities and Exchange Commission on June 13, 2014 (File No. 333-196749). (2) Incorporated herein by reference to Exhibit 3.2 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on May 20, 2021. (3) Incorporated herein by reference to Exhibit 4.2 to the Company’s Form 10-K for the year ended December 31, 2020, filed on March 17, 2021. (4) Incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on August 14, 2020. (5) Incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K , filed on February 21, 2023. (6) Incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on May 24, 2020. (7) Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on November 6, 2020. (8) Incorporated herein by reference to Exhibit 10.11 to FedFirst Financial Corporation’s Registration Statement on Form SB-2, as amended (File No. 333-121405), initially filed on December 17, 2004. (9) Incorporated herein by reference to Exhibit 10.2 to FedFirst Financial Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2008, filed on May 9, 2008. (10) Incorporated herein by reference to Exhibit 10.4 to FedFirst Financial Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2008, filed on May 9, 2008. (11) Incorporated herein by reference to Appendix A to the Company’s Definitive Proxy Statement, filed on April 16, 2015. (12) Incorporated herein by reference to Appendix A to the Company’s Definitive Proxy Statement, filed on April 9, 2021. (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. ITEM 16. FORM 10-K SUMMARY Not applicable. 55 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. CB FINANCIAL SERVICES, INC. Date: March 13, 2024 By: /s/ John H. Montgomery John H. Montgomery President and Chief Executive Officer (Principal Executive Officer) Pursuant to the requirements of the Securities Exchange of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. By: /s/ John H. Montgomery By: /s/ Jamie L. Prah John H. Montgomery Jamie L. Prah President and Chief Executive Officer and Executive Vice President and Chief Financial Officer Director (Principal Financial Officer) Date: March 13, 2024 Date: March 13, 2024 By: /s/ Mark E. Fox By: /s/ Charles R. Guthrie Mark E. Fox Charles R. Guthrie, CPA Director (Chairman of the Board) Director (Vice Chairman of the Board) Date: March 13, 2024 Date: March 13, 2024 By: /s/ Jonathan A. Bedway By: /s/ Ralph Burchianti Jonathan A. Bedway Ralph Burchianti Director Senior Executive Vice President and Date: March 13, 2024 Chief Credit Officer and Director Date: March 13, 2024 By: /s/ John J. LaCarte By: /s/ Roberta Robinson Olejasz John J. LaCarte Roberta Robinson Olejasz Director Director Date: March 13, 2024 Date: March 13, 2024 By: /s/ David F. Pollock By: /s/ John M. Swiatek David F. Pollock John M. Swiatek Director Director Date: March 13, 2024 Date: March 13, 2024 56 CONSOLIDATED FINANCIAL STATEMENTS Contents Page Report of Independent Registered Public Accounting Firm 58 Consolidated Statements of Financial Condition at December 31, 2023 and 2022 60 Consolidated Statements of Income for the Years Ended December 31, 2023 and 2022 61 Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2023 and 2022 62 Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2023 and 2022 63 Consolidated Statements of Cash Flows for the Years Ended December 31, 2023 and 2022 64 Notes to Consolidated Financial Statements 66 57 Report of Independent Registered Public Accounting Firm To the Shareholders, Board of Directors, and Audit Committee CB Financials Services, Inc. Carmichaels, Pennsylvania Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated statement of financial condition of CB Financial Services, Inc. (Company) as of December 31, 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 These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Allowance for 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 58 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. FORVIS, LLP We have served as the Company’s auditor since 2021. Pittsburgh, Pennsylvania March 13, 2024 59 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION December 31, 2023 2022 (Dollars in Thousands, Except Per Share and Share Data) ASSETS Cash and Due From Banks: Interest-Earning $ 62,442 $ 82,957 Noninterest-Earning 5,781 20,743 Total Cash and Due From Banks 68,223 103,700 Securities: Available-for-Sale Debt Securities, at Fair Value 204,507 187,360 Equity Securities, at Fair Value 2,588 2,698 Total Securities 207,095 190,058 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 Premises and Equipment, Net 19,704 17,844 Bank-Owned Life Insurance 25,378 25,893 Goodwill 9,732 9,732 Intangible Assets, Net 958 3,513 Accrued Interest Receivable and Other Assets 24,312 21,144 TOTAL ASSETS $ 1,456,091 $ 1,408,938 LIABILITIES Deposits: Noninterest-Bearing Demand Accounts $ 277,747 $ 390,405 Interest-Bearing Demand Accounts 362,994 311,825 Money Market Accounts 201,074 209,125 Savings Accounts 194,703 248,022 Time Deposits 230,641 109,126 Total Deposits 1,267,159 1,268,503 Short-Term Borrowings — 8,060 Other Borrowed Funds 34,678 14,638 Accrued Interest Payable and Other Liabilities 14,420 7,582 TOTAL LIABILITIES 1,316,257 1,298,783 STOCKHOLDERS' EQUITY Preferred Stock, No Par Value; 5,000,000 Shares Authorized — — Common Stock, $ 0.4167 Par Value; 35,000,000 Shares Authorized, 5,759,378 and 5,708,433 Shares Issued and 5,119,543 and 5,100,189 Shares Outstanding, Respectively 2,400 2,379 Capital Surplus 85,334 83,953 Retained Earnings 83,392 63,861 Treasury Stock, at Cost ( 639,835 and 608,244 Shares, Respectively) ( 14,545 ) ( 13,797 ) Accumulated Other Comprehensive Loss ( 16,747 ) ( 26,241 ) TOTAL STOCKHOLDERS' EQUITY 139,834 110,155 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,456,091 $ 1,408,938 The accompanying notes are an integral part of these consolidated financial statements 60 CONSOLIDATED STATEMENTS OF INCOME Year Ended December 31, 2023 2022 (Dollars in Thousands, Except Per Share and Share Data) INTEREST AND DIVIDEND INCOME Loans, Including Fees $ 54,650 $ 41,933 Securities: Taxable 4,017 3,852 Tax-Exempt 157 213 Dividends 106 91 Other Interest and Dividend Income 3,295 1,627 TOTAL INTEREST AND DIVIDEND INCOME 62,225 47,716 INTEREST EXPENSE Deposits 16,433 4,025 Short-Term Borrowings 32 63 Other Borrowings 1,207 693 TOTAL INTEREST EXPENSE 17,672 4,781 NET INTEREST AND DIVIDEND INCOME 44,553 42,935 (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 1,819 2,160 Insurance Commissions 5,839 5,934 Other Commissions 521 669 Net Loss on Securities ( 10,199 ) ( 168 ) Net Gain on Purchased Tax Credits 29 57 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 TOTAL NONINTEREST INCOME 24,012 9,820 NONINTEREST EXPENSE Salaries and Employee Benefits 21,903 18,469 Occupancy 2,998 3,047 Equipment 1,064 739 Data Processing 3,014 2,152 Federal Deposit Insurance Corporation Assessment 754 638 Pennsylvania Shares Tax 889 979 Contracted Services 1,166 1,628 Legal and Professional Fees 1,182 1,237 Advertising 426 527 Other Real Estate Owned (Income) ( 115 ) ( 151 ) Amortization of Intangible Assets 1,766 1,782 Other Expense 3,735 3,844 TOTAL NONINTEREST EXPENSE 38,782 34,891 INCOME BEFORE INCOME TAX EXPENSE 30,285 14,080 Income Tax Expense 7,735 2,833 NET INCOME $ 22,550 $ 11,247 EARNINGS PER SHARE Basic $ 4.41 $ 2.19 Diluted 4.40 2.18 WEIGHTED AVERAGE SHARES OUTSTANDING Basic 5,113,978 5,136,670 Diluted 5,122,916 5,149,312 The accompanying notes are an integral part of these consolidated financial statements 61 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) Year Ended December 31, 2023 2022 (Dollars in Thousands) Net Income $ 22,550 $ 11,247 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 Loss on Sale of Debt Securities Included in Net Income (1) 10,089 — Income Tax Effect (2) ( 2,174 ) — 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. The accompanying notes are an integral part of these consolidated financial statements 62 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY Shares Issued Common Stock Capital Surplus Retained Earnings Treasury Stock Accumulated Other Comprehensive Income (Loss) Total (Dollars in Thousands, Except Per Share and Share Data) December 31, 2021 5,680,993 $ 2,367 $ 83,294 $ 57,534 $ ( 9,144 ) $ ( 927 ) $ 133,124 Net Income — — — 11,247 — — 11,247 Other Comprehensive Loss — — — — — ( 25,314 ) ( 25,314 ) Restricted Stock Awards Forfeited ( 325 ) — 81 — ( 81 ) — — Restricted Stock Awards Granted 27,765 12 ( 12 ) — — — — Stock-Based Compensation Expense — — 600 — — — 600 Exercise of Stock Options — — ( 10 ) — 230 — 220 Treasury Stock Purchased, at Cost ( 195,033 shares) — — — — ( 4,802 ) — ( 4,802 ) Dividends Declared ($ 0.96 per share) — — — ( 4,920 ) — — ( 4,920 ) 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 Income — — — — — 9,494 9,494 Restricted Stock Awards Forfeited ( 780 ) ( 1 ) 51 — ( 50 ) — — Restricted Stock Awards Granted 40,225 17 ( 17 ) — — — — Stock-Based Compensation Expense — — 1,125 — — — 1,125 Exercise of Stock Options 11,500 5 222 — 145 — 372 Treasury Stock Purchased, at Cost ( 30,478 shares) — — — — ( 843 ) — ( 843 ) Dividends Declared ($ 1.00 per share) — — — ( 5,111 ) — — ( 5,111 ) December 31, 2023 5,759,378 $ 2,400 $ 85,334 $ 83,392 $ ( 14,545 ) $ ( 16,747 ) $ 139,834 The accompanying notes are an integral part of these consolidated financial statements 63 CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, 2023 2022 (Dollars in Thousands) OPERATING ACTIVITIES Net Income $ 22,550 $ 11,247 Adjustments to Reconcile Net Income to Net Cash Provided By Operating Activities: Net Amortization on Securities 30 66 Depreciation and Amortization 2,737 2,704 (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 ) Income from Bank-Owned Life Insurance ( 576 ) ( 561 ) Proceeds From Mortgage Loans Sold 2,365 — Originations of Mortgage Loans for Sale ( 2,365 ) — Gain on Sales of Other Real Estate Owned ( 13 ) ( 1 ) Noncash Expense for Stock-Based Compensation 1,125 600 Increase in Accrued Interest Receivable ( 1,103 ) ( 633 ) Valuation Adjustment on Real Estate Owned 119 — 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 ) NET CASH PROVIDED BY OPERATING ACTIVITIES 14,236 14,151 INVESTING ACTIVITIES Securities Available for Sale: Proceeds From Principal Repayments and Maturities 15,759 29,242 Purchases of Securities ( 100,209 ) ( 26,826 ) Proceeds from Sales of Securities 69,285 — 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 (Increase) Decrease in Restricted Equity Securities ( 596 ) 654 NET CASH USED IN INVESTING ACTIVITIES ( 54,727 ) ( 28,307 ) FINANCING ACTIVITIES 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 Other Borrowed Funds 20,000 — Cash Dividends Paid ( 5,111 ) ( 4,920 ) Treasury Stock, Purchases at Cost ( 843 ) ( 4,802 ) Exercise of Stock Options 372 220 NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 5,014 ( 1,818 ) DECREASE IN CASH AND DUE FROM BANKS ( 35,477 ) ( 15,974 ) CASH AND DUE FROM BANKS AT BEGINNING OF THE YEAR 103,700 119,674 CASH AND DUE FROM BANKS AT END OF THE YEAR $ 68,223 $ 103,700 The accompanying notes are an integral part of these consolidated financial statements 64 Year Ended December 31, 2023 2022 (Dollars in Thousands) SUPPLEMENTAL CASH FLOW INFORMATION: Cash Paid for: Interest on Deposits and Borrowings (Including Interest Credited to Deposit Accounts of $ 15,048 and $ 4,144 , Respectively) $ 16,213 $ 4,912 Income Taxes 2,885 3,247 SUPPLEMENTAL NONCASH DISCLOSURE: Real Estate Acquired in Settlement of Loans $ 410 $ — Right of Use ("ROU") Asset Recognized — 1,556 Lease Liability Recognized — 1,556 The accompanying notes are an integral part of these consolidated financial statements 65 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1— SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation and Basis of Presentation The accompanying consolidated financial statements include the accounts of CB Financial Services, Inc., and its wholly owned subsidiary, Community Bank (the “Bank”), and the Bank’s wholly owned subsidiary, Exchange Underwriters, Inc. (“Exchange Underwriters” or “EU”). CB Financial Services, Inc., Community Bank and Exchange Underwriters, Inc. are collectively referred to as the “Company.” All intercompany transactions and balances have been eliminated in consolidation. Nature of Operations The Company derives substantially all its income from banking and bank-related services which include interest income on commercial, commercial mortgage, residential real estate and consumer loan financing, as well as interest and dividend income on securities, insurance commissions, and fees generated from deposit services to its customers. The Company provides banking services through its subsidiary, Community Bank, a Pennsylvania-chartered commercial bank headquartered in Carmichaels, Pennsylvania. The Bank is a community-oriented institution offering residential and commercial real estate loans, commercial and industrial loans, and consumer loans as well as a variety of deposit products for individuals and businesses in its market area. The Bank operates 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. Use of Estimates The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and with general practice within the banking industry. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the Consolidated Statements of Financial Condition, and income and expenses for the period. 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 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 Income on loans and securities is recognized as earned on the accrual method. Gains and losses on sales of mortgages are based on the difference between the selling price and the carrying value of the related mortgage sold. The Company generally fully satisfies its performance obligations on its contracts with customers as services are rendered and the transaction prices are typically fixed; charged either on a periodic basis or based on activity. Because performance obligations are satisfied as services are rendered and the transaction prices are fixed, there is little judgment involved in applying Accounting Standards Codification ("ASC") Topic 606 that significantly affects the determination of the amount and timing of revenue from contracts with customers. The Company’s revenue from contracts with customers within the scope of ASC Topic 606 is recognized within Noninterest Income with the exception of Other Real Estate Owned (“OREO”) Income, which is accounted for in Noninterest Expense. The following narrative describes the Company’s revenue streams accounted for under the guidance of ASC Topic 606: Service Fees : The Company earns fees from its deposit customers for transaction-based, account maintenance, and overdraft services. Transaction-based fees include services fees for ATM usage, stop payment charges, statement production, ACH and wire transfers, which are recognized into income at the occurrence of an executed transaction and the point in time the Company fulfills the customer’s request. Account maintenance fees, which are primarily based on monthly maintenance activities, are earned over the course of the month, and satisfy the Company’s performance obligation. Overdraft fees are recognized as the overdrafts on customer’s accounts are incurred. 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 66 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS networks. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with the transaction processing services provided to the cardholder. The Company currently does not offer a cardholder rewards program. Insurance Commissions : 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 : The Company earns other commissions, such as wealth management referral fees, check sales and safe deposit box rentals to customers. The wealth management referral fees are earned as a referral when a bank customer initiates a customer relationship with an associated wealth management firm. These fees fulfill the contract/agreement between the Company and the wealth management firm. Check sales are recognized as customers contact the Company for check supplies or the customer initiates the check order through the Company website to our third-party check company. These commissions are recognized as the third-party check company satisfies the contract of providing check stock to our customers. Safe deposit box rental income is recognized on a monthly basis, per each contract agreement with our customers. 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 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. It is not common policy that the Company will finance an OREO property with the buyer. It is the Company’s practice to sell loan collateral recognized as an OREO property to free the Company of any additional loss exposure. Operating Segments An operating segment is defined as a component of an enterprise that engages in business activities which generate revenue and incur expense, and the operating results of which are reviewed by management. 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 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. Cash and Due From Banks The Company has defined cash and due from banks as cash on hand and those amounts due from depository institutions, interest-bearing deposits with other banks with original maturities of less than 90 days, and federal funds sold. The Company maintains cash deposits in other depository institutions that occasionally exceed the amount of deposit insurance available. Management periodically assesses the financial condition of these institutions and believes that the risk of any possible credit loss is minimal. Generally, the Company is required to maintain average reserve balances in vault cash with the Federal Reserve Bank based upon outstanding balances of deposit transaction accounts. However, as announced on March 15, 2020, the Federal Reserve Board reduced reserve requirement ratios to zero percent, effective March 26, 2020, in light of the shift to an ample reserves regime. This action eliminates the need to maintain balances in accounts at the Federal Reserve Bank to satisfy reserve requirements, thereby freeing up liquidity in the banking system to support lending. Therefore, at December 31, 2023, and 2022, there were no reserve requirements with the Federal Reserve Bank. Securities 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 67 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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. 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 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. The Company believes its holdings in the stock are ultimately recoverable at par value at December 31, 2023, and, therefore, determined that FHLB stock was not impaired. In addition, the Company has ample liquidity and does not require redemption of its FHLB stock in the foreseeable future. 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. 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 credit losses. The Company’s loan portfolio is segmented to enable management to monitor risk and performance. The 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. Other loan primarily consist of municipal loans to local governments. 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 risk than loans secured by residences. This greater risk is due to several factors, including the concentration of principal in a limited number of loans and borrowers, the effect of general economic conditions on income-producing properties, and the increased difficulty in evaluating and monitoring these types of loans. Furthermore, the repayment of commercial real estate loans is typically dependent upon the successful operation of the related real estate project. If the cash flow from the project is reduced (for example, if leases are not obtained or renewed, a bankruptcy court modifies a lease term, or a major tenant is unable to fulfill its lease obligations), the borrower’s ability to repay the loan may be impaired. Construction loans are originated to individuals to 68 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. At the end of the construction phase, the loan generally converts to a permanent residential or commercial mortgage loan. Construction loan risks include overfunding in comparison to the plans, untimely completion of work, and leasing and stabilization after project completion. Commercial and industrial loans are generally secured by business assets, inventories, accounts receivable, etc., which present collateral risk. Consumer loans generally have higher interest rates and shorter terms than residential mortgage loans; however, they have additional credit risk due to the type of collateral securing the loan. 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. 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. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current, and current and future payments are reasonably assured. 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 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 69 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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. 70 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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, 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. Additions are made to the allowance through periodic provisions charged to income and recovery of principal and interest on loans previously charged-off. Losses of principal are charged directly to the allowance when a loss occurs or when a determination is made that the specific loss is probable. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revisions as more information becomes available. The allowance consists of specific and general components. The specific component relates to loans that are classified as impaired. A loan is considered impaired when, based upon current information and events, it is probable that the Company will be unable to collect all amounts due for principal and interest according to the original contractual terms of the loan agreement. Generally, management considers all substandard, doubtful, and loss-rated loans, nonaccrual loans, and TDRs for impairment. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. The maximum period without payment that typically can occur before a loan is considered for impairment is 90 days. Impairment is measured based on the present value of expected future cash flows discounted at a loan’s effective interest rate, or as a practical expedient, the observable market price, or, if the loan is collateral dependent, the fair value of the underlying collateral. When the measurement of an impaired loan is less than the recorded investment in the loan, the impairment is recorded in a specific valuation allowance. This specific valuation allowance is periodically adjusted for significant changes in the amount or timing of expected future cash flows, observable market price or fair value of the collateral. The specific valuation allowance, or allowance for impaired loans, is part of the total allowance for loan losses. Cash payments received on impaired loans that are considered nonaccrual are recorded as a direct reduction of the recorded investment in the loan. When the recorded investment has been fully collected, receipts are recorded as recoveries to the allowance for loan losses until the previously charged-off principal is fully recovered. Subsequent amounts collected are recognized as interest income. If no charge-off exists, then once the recorded investment has been fully collected, any future amounts collected would be recognized as interest income. Impaired loans are not returned to accrual status until all amounts due, both principal and interest, are current and a sustained payment history has been demonstrated. The general allowance component covers pools of homogeneous loans by loan class. 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. Qualitative and environmental factors are also considered that are likely to cause estimated credit losses associated with the Bank’s existing portfolio to differ from historical loss experience, and include levels and trends in delinquency and impaired loans; levels and trends in net charge-offs, trends in volume and terms of loans; change in underwriting, policies, procedures, practices and key personnel; national and local economic trends; industry conditions, and effects of changes in high-risk credit circumstances. The qualitative and environmental factors are reviewed on a quarterly basis to ensure they are reflective of current conditions in the portfolio and economy. 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. 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. 71 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Premises and Equipment Premises and equipment are stated at cost, less accumulated depreciation. Depreciation is principally computed on the straight-line method over the estimated useful lives of the related assets, which range from three to seven years for furniture, fixtures and equipment, and 27.5 to 40 years for building premises. Leasehold improvements are amortized over the shorter of their estimated useful lives or their respective lease terms, which range from seven to fifteen years . Expenditures for maintenance and repairs are charged to expense when incurred while costs of major additions and improvements are capitalized. Bank-Owned Life Insurance The Company is the owner and beneficiary of bank-owned life insurance (“BOLI”) policies on certain employees. The earnings from the BOLI policies are recognized as a component of noninterest income. The BOLI policies are an asset that can be liquidated, if necessary, with associated tax costs. 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. Real Estate Owned Real estate owned acquired in settlement of foreclosed loans is carried as a component of Other Assets at the lower of cost or fair value, less estimated cost to sell. Prior to foreclosure, the estimated collectible value of the collateral is evaluated to determine if a partial charge-off of the loan balance is necessary. After transfer to real estate owned, any subsequent write-downs are charged against noninterest expense. 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 $ 162,000 and $ 0 at December 31, 2023 and 2022, respectively. Income Taxes The Company accounts for income taxes in accordance with income tax accounting guidance in ASC Topic 740, Income Taxes . The income tax accounting guidance results in two components of income tax expense: current and deferred. Current income tax expense reflects taxes to be paid or refunded for the current period by applying the provisions of the enacted tax law to the taxable income or excess of deductions over revenues. The Company determines deferred income taxes using the balance sheet method. Under this method, the net deferred tax asset or liability is based on the tax effects of the differences between book and tax basis of assets and liabilities, and enacted changes in tax rates and laws are recognized in the period in which they occur. Deferred income tax expense results from changes in deferred tax assets and liabilities between periods. 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. The determination of whether a tax position has met the more-likely-than-not recognition threshold considers the facts, circumstances and information available at the reporting date, and is subject to management’s judgment. 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 accrued related to unrecognized tax benefits in noninterest income and penalties in noninterest expense. Goodwill and Intangible Assets Goodwill represents the excess of the cost of an acquisition over the fair value of the net assets acquired. Deemed to have an indefinite life and not subject to amortization, goodwill is instead tested for impairment at the reporting unit level at least annually on October 31 or more frequently if triggering events occur or impairment indicators exist. The Company operates two reporting units – Community Banking segment and Insurance Brokerage Services segment. The Company has assigned 100 % of the goodwill to the Community Banking reporting unit. In assessing the impairment, the Company has the the option to perform either a qualitative analysis to determine whether it is necessary to perform the goodwill impairment test, or the Company may elect to perform a quantitative goodwill impairment test. Under the qualitative assessment, the Company assesses the existence of events or circumstances to determine whether it is more-likely-than-not that the fair value of the reporting unit is less than its carrying amount, including, goodwill. If this is more likely than not, the goodwill impairment test is used to identify potential goodwill impairment and measure the amount of a goodwill impairment loss to be recognized, if any. The estimated fair value of the community banking reporting unit is compared to its carrying value, including goodwill. If the estimated fair value of the reporting unit exceeds its carrying amount, the goodwill of the reporting unit is not considered impaired, and no impairment loss is recognized. However, if the carrying 72 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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. Intangible assets represent purchased assets that lack physical substance but can be distinguished from goodwill because of contractual or other legal rights. Intangible assets that have finite lives, such as core deposit intangibles acquired in mergers, customer relationship intangibles and renewal lists, are amortized over their estimated useful lives and subject to periodic impairment testing at last annually. The amortization expense represents the estimated decline in value of the underlying asset. Core deposit intangibles are primarily amortized over 6.5 to 9.3 years on the straight-line method. Customer renewal lists are amortized over their estimated useful lives of 9.5 years. We monitor other intangibles for impairment and evaluate carrying amounts, as necessary. 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, 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. Any resulting impairment could have a material adverse impact on the Company’s financial condition and results of operations. Refer to Note 6—Goodwill and Intangible Assets for additional details. Mortgage Servicing Rights (“MSRs”) The Company has agreements for the express purpose of selling loans in the secondary market. The Company maintains all servicing rights for these loans. MSRs are recognized when commitments are made to fund a loan to be sold and are recorded by allocating total costs incurred between the loan and servicing rights based on their relative fair values. MSRs are amortized in proportion to sold mortgages that are serviced and are included in Accrued Interest Receivable and Other Assets on the accompanying Consolidated Statements of Financial Condition. Servicing fee income is recorded for fees earned for servicing loans. The fees are based on contractual percentage of the outstanding principal or a fixed amount per loan and are recorded as income when earned. The amortization of MSRs is netted against servicing fee income in Other Income within the noninterest income category in the Consolidated Statements of Income. MSRs are evaluated for impairment based on the estimated fair value of the MSRs. MSRs are stratified by certain risk characteristics, primarily loan term and note rate. If temporary impairment exists within a risk stratification tranche, a valuation allowance is established through a charge to income equal to the amount by which the carrying value exceeds the estimated fair value. 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 The purchase of the Company’s common stock is recorded at cost. At the date of subsequent reissue, the treasury stock account is reduced by the cost of such stock on the average cost basis, with any excess proceeds being credited to capital surplus. Comprehensive Income (Loss) Comprehensive income (loss) consists of net income 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. 73 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Earnings Per Share The Company provides dual presentation of basic and diluted earnings per share. Basic earnings per share is calculated utilizing the reported net income as the numerator and weighted average shares outstanding as the denominator. The computation of diluted earnings per share differs in that the denominator is adjusted for the dilutive effects of any options and convertible securities. Treasury shares are not deemed outstanding for earnings per share calculations. Stock-Based Compensation In 2021, the Company’s stockholders approved the 2021 Equity Incentive Plan (the “2021 Plan”). The purpose of the 2021 Plan is to provide officers, employees and directors of the Company and the Bank with additional incentives to promote the growth and performance of the Company and to further align their interests with those of the Company’s stockholders through the ownership of additional common stock of the Company. In addition, the 2021 Plan provides the Company with flexibility to continue to attract and retain highly qualified officers and directors by offering a competitive compensation program that is linked to the performance of the Company's common stock. The effective date of the 2021 Plan was May 19, 2021, which was the date the 2021 Plan satisfied the applicable stockholder approval requirement. The 2021 Plan will remain in effect as long as any awards under it are outstanding; however, no awards may be granted under the 2021 Plan on or after the day immediately prior to the ten-year anniversary of the effective date of the 2021 Plan. Awards may be granted under the 2021 Plan as incentive and non-statutory stock options, restricted stock awards, restricted stock units or any combination thereof, The maximum number of shares of Company common stock that may be delivered to participants under the 2021 Plan is equal to 500,000 shares of Company common stock (the “Share Limit”). Shares of Company common stock subject to the Share Limit may be issued pursuant to grants of stock options, restricted stock awards or restricted stock units, provided, however that the Share Limit is reduced, on a one-for-one basis, for each share of common stock subject to a stock option grant, and on a two and one-half-for-one basis for each share of common stock issued pursuant to restricted stock awards or restricted stock unit awards. If any award granted under the 2021 Plan expires, terminates, is canceled or is forfeited without being settled or exercised or is settled without the issuance of shares of common stock, shares of Company common stock subject to such award will be made available for future grant under the 2021 Plan. If any shares are surrendered or tendered to pay the exercise price of a stock option, such shares will not again be available for grant under the 2021 Plan. In addition, shares of common stock withheld in payment for purposes of satisfying tax withholding obligations with respect to an award do not become available for re-issuance under the 2021 Plan. 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. In 2015, the Company’s stockholders approved the 2015 Equity Incentive Plan (the “2015 Plan”), which has similar characteristics to the 2021 Plan. The effective date of the 2015 Plan was May 20, 2015. The 2015 Plan shall remain in effect as long as any awards are outstanding, but as a result of the approval of the 2021 Plan, no more awards can be granted under the 2015 Plan. The 2015 Plan reserved an aggregate number of shares, of which two-thirds of the shares ( 271,431 ) could be issued as stock options and one-third of the shares ( 135,715 ) could be be issued as restricted stock awards or units. ASC Topic 718, Compensation – Stock Compensation, requires recognizing the compensation cost in the financial statements for stock-based payment transactions. Stock option expense is measured based on the grant date fair value of the stock options issued. The per share fair value of stock options granted is calculated using the Black-Scholes-Merton option pricing model, using assumptions for expected life, expected dividend yield, risk-free interest rate and an expected volatility. The Company uses the simplified method to determine the expected term because it does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term. The stock option exercise price is equal to the market value on the date of grant. Restricted stock award expense is measured based on the market price of the Company’s common stock at the date of the grant. Unrecognized compensation expense is recognized ratably over the remaining service period, generally defined as the vesting period, for all nonvested restricted stock awards and stock options. Restricted stock awards and stock options are typically granted with a five year vesting period at a vesting rate of 20 % per year. The contractual life of stock options is typically 10 years from the date of grant. Advertising Costs Advertising costs are expensed as incurred. Impairment of Long-Lived Assets The Company routinely performs assessments of the recoverability of long-lived assets when events or changes in circumstances indicate that their carrying values may not be recoverable and are in excess of their fair value, less estimated costs to sell. If estimated recoverable amounts are lower than carrying values, assets are considered impaired and reduced to fair value with the recognized impairment charges recorded in noninterest expense in the Consolidated Statements of Income. 74 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Long-lived assets are tested for impairment individually or as part of an asset group. An asset group is the unit of accounting for long-lived assets to be held and used, which represents the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. The Company follows ASC 360, Property, Plant and Equipment, which requires three steps to identify, recognize and measure the impairment of a long-lived asset (asset group) to be held and used: Step 1 – Consider whether Indicators of Impairment are Present. The following are examples of such events or changes in circumstances. • A significant decrease in the market price of a long-lived asset (asset group). • A significant adverse change in the extent or manner in which a long-lived asset (asset group) is being used or in its physical condition. • A significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset (asset group), including an adverse action or assessment by a regulator. • An accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset (asset group). • A current-period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset (asset group). • A current expectation that, more likely than not, a long-lived asset (asset group) will be sold or otherwise disposed of significantly before the end of its previously estimated useful life. The term more likely than not refers to a level of likelihood that is more than 50 percent. Step 2—Test for Recoverability 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. Step 3—Measurement of an Impairment Loss If the undiscounted cash flows used in the recoverability test are less than the carrying amount of the long-lived asset (asset group), the Company estimates the fair value of the long-lived asset or asset group and recognizes an impairment loss when the carrying amount of the long-lived asset or asset group exceeds the estimated fair value. An impairment loss is allocated to the long-lived assets of the group on a pro rata basis using the relative carrying amounts of those assets, except that the loss allocated to an individual long-lived asset of the group must not reduce the carrying amount of that asset below its fair value whenever the fair value is determinable without undue cost and effort. ASC 360 prohibits the subsequent reversal of an impairment loss for an asset held and used. Recent Accounting Standards In December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848 that extends the period of time preparers can utilize the reference rate reform relief guidance. In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, as amended. This ASU provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference the London Inter-bank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued. The elective guidance in the ASU applies to modifications of contract terms that will directly replace, or have the potential to replace, an affected rate with another interest rate index, as well as certain contemporaneous modifications of other contract terms related to the replacement of an affected rate. The ASU notes that changes in contract terms that are made to effect the reference rate reform transition are considered related to the replacement of a reference rate if they are not the result of a business decision that is separate from or in addition to changes to the terms of a contract to effect that transition. The optional expedient allows companies to account for the modification as if it was not substantial (i.e., do not treat as an extinguishment of debt). To ensure the relief in Topic 848 covers the period of time during which a significant number of modifications may take place, ASU 2022-06 defers the sunset date of Topic 848 from December 31, 2022 to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848. For all entities, the amendments in ASU 2022-06 are effective upon issuance. As of 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. 75 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 There are no convertible securities, which would affect the numerator in calculating basic and diluted earnings per share; therefore, net income as presented on the Consolidated Statements of Income is used as the numerator. The following table sets forth the composition of the weighted-average common shares (denominator) used in the basic and diluted earnings per share computation. Year Ended December 31, 2023 2022 (Dollars in Thousands, Except Share and Per Share Data) Net Income $ 22,550 $ 11,247 Weighted-Average Basic Common Shares Outstanding 5,113,978 5,136,670 Dilutive Effect of Common Stock Equivalents (Stock Options and Restricted Stock) 8,938 12,642 Weighted-Average Diluted Common Shares and Common Stock Equivalents Outstanding 5,122,916 5,149,312 Earnings Per Share: Basic $ 4.41 $ 2.19 Diluted 4.40 2.18 The dilutive effect on weighted average diluted common shares outstanding is the result of outstanding stock options and nonvested restricted stock. The following table presents as of the periods indicated (a) options to purchase shares of common stock that were outstanding but not included in the computation of earnings per share because the options' exercise price was greater than the average market price of the common shares for the period, and (b) shares of restricted stock awards that were not included in the computation of diluted earnings per share because the hypothetical repurchase of shares under the treasury stock method exceeded the weighted average nonvested restricted awards, therefore the effects would be anti-dilutive. Year Ended December 31, 2023 2022 Stock Options 328,444 163,348 Restricted Stock 49,447 38,140 76 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 3— SECURITIES The amortized cost and fair value of securities available-for-sale as of the dates indicated are as follows: 2023 December 31, Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value (Dollars in Thousands) Available-for-Sale Debt Securities: U.S. Government Agencies $ 4,995 $ — $ ( 1,046 ) $ 3,949 Obligations of States and Political Subdivisions 3,481 5 ( 113 ) 3,373 Mortgage-Backed Securities - Government-Sponsored Enterprises 57,377 141 ( 2,986 ) 54,532 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 Total Available-for-Sale Debt Securities $ 225,854 $ 373 $ ( 21,720 ) $ 204,507 Equity Securities: Mutual Funds 888 Other 1,700 Total Equity Securities 2,588 Total Securities $ 207,095 2022 December 31, Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value (Dollars in Thousands) Available-for-Sale Debt Securities: U.S. Government Agencies $ 53,993 $ — $ ( 9,359 ) $ 44,634 Obligations of States and Political Subdivisions 14,053 — ( 711 ) 13,342 Mortgage-Backed Securities - Government-Sponsored Enterprises 46,345 — ( 4,918 ) 41,427 Collateralized Mortgage Obligations - Government-Sponsored Enterprises 96,930 — ( 17,288 ) 79,642 Collateralized Loan Obligations — — — — Corporate Debt 9,487 — ( 1,172 ) 8,315 Total Available-for-Sale Debt Securities $ 220,808 $ — $ ( 33,448 ) $ 187,360 Equity Securities: Mutual Funds 875 Other 1,823 Total Equity Securities 2,698 Total Securities $ 190,058 77 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: 2023 Less than 12 months 12 Months or Greater Total December 31, Number of Securities Fair Value Gross Unrealized Losses Number of Securities Fair Value Gross Unrealized Losses Number of Securities Fair Value Gross Unrealized Losses (Dollars in Thousands) U.S. Government Agencies — $ — $ — 1 $ 3,949 $ ( 1,046 ) 1 $ 3,949 $ ( 1,046 ) Obligations of States and Political Subdivisions — — — 6 2,823 ( 113 ) 6 2,823 ( 113 ) Mortgage-Backed Securities - Government-Sponsored Enterprises — — — 8 17,135 ( 2,986 ) 8 17,135 ( 2,986 ) 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 ) Total 2 $ 8,513 $ ( 87 ) 39 $ 103,422 $ ( 21,633 ) 41 $ 111,935 $ ( 21,720 ) 2022 Less than 12 months 12 Months or Greater Total December 31, Number of Securities Fair Value Gross Unrealized Losses Number of Securities Fair Value Gross Unrealized Losses Number of Securities Fair Value Gross Unrealized Losses (Dollars in Thousands) U.S. Government Agencies 1 $ 2,600 $ ( 400 ) 12 $ 42,034 $ ( 8,959 ) 13 $ 44,634 $ ( 9,359 ) Obligations of States and Political Subdivisions 34 13,342 ( 711 ) — — — 34 13,342 ( 711 ) Mortgage-Backed Securities - Government-Sponsored Enterprises 34 19,433 ( 1,018 ) 8 21,994 ( 3,900 ) 42 41,427 ( 4,918 ) Collateralized Mortgage Obligations - Government-Sponsored Enterprises 12 25,395 ( 3,393 ) 10 54,247 ( 13,895 ) 22 79,642 ( 17,288 ) Corporate Debt 1 1,665 ( 335 ) 2 6,650 ( 837 ) 3 8,315 ( 1,172 ) Total 82 $ 62,435 $ ( 5,857 ) 32 $ 124,925 $ ( 27,591 ) 114 $ 187,360 $ ( 33,448 ) For debt securities, the Company does not believe that any individual unrealized loss as of 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. Securities available-for-sale with a fair value of $ 157.3 million and $ 175.6 million at December 31, 2023 and 2022, respectively, are pledged to secure public deposits, short-term borrowings and for other purposes as required or permitted by law. The scheduled maturities of securities available-for-sale are summarized as follows. Actual maturities will differ from contractual maturities because borrowers may have the right to call or prepay debt obligations with or without prepayment penalties. 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. 78 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2023 December 31, Amortized Cost Fair Value (Dollars in Thousands) Due in One Year or Less $ — $ — Due after One Year through Five Years 811 790 Due after Five Years through Ten Years 44,094 42,029 Due after Ten Years 180,949 161,688 Total $ 225,854 $ 204,507 The following table presents the gross realized gain and loss on sales of debt securities, as well as gain and loss on equity securities from both sales and market adjustments for the periods indicated. All gains and losses presented in the table below are reported in Net Loss on Securities on the Consolidated Statements of Income. Year Ended December 31, 2023 2022 (Dollars in Thousands) Debt Securities Gross Realized Gain $ — $ — Gross Realized Loss ( 10,089 ) — Net Loss on Debt Securities $ ( 10,089 ) $ — Equity Securities Net Unrealized Loss Recognized on Securities Held $ ( 110 ) $ ( 168 ) Net Realized Gain Recognized on Securities Sold — — 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. 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. 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. 79 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Construction loans are originated to individuals to finance the construction of residential dwellings and are also originated for the construction of commercial properties, including hotels, apartment buildings, housing developments, and owner-occupied properties used for businesses. Construction loans generally provide for the payment of interest only during the construction phase, which is usually 12 to 18 months. At the end of the construction phase, the loan generally converts to a permanent residential or commercial mortgage loan. Construction loan risks include overfunding in comparison to the plans, untimely completion of work, and leasing and stabilization after project completion. Commercial and industrial loans are generally secured by 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: December 31, 2023 2022 (Dollars in Thousands) Real Estate: Residential $ 347,808 $ 330,725 Commercial 467,154 436,805 Construction 43,116 44,923 Commercial and Industrial 111,278 70,044 Consumer 111,643 146,927 Other 29,397 20,449 Total Loans $ 1,110,396 $ 1,049,873 Allowance for Credit Losses ( 9,707 ) ( 12,819 ) Loans, Net $ 1,100,689 $ 1,037,054 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. 80 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Classified Loans by Origination Year (at December 31, 2023) (Dollars in Thousands) 2023 2022 2021 2020 2019 Prior Revolving Loans Amortized Cost Basis Total Real Estate: Residential 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 Commercial 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 Construction 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 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 Consumer 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 Other 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 81 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: 2022 December 31, Pass Special Mention Substandard Doubtful Total (Dollars in Thousands) Real Estate: Residential $ 327,531 $ 1,180 $ 2,014 $ — $ 330,725 Commercial 395,168 29,680 11,957 — 436,805 Construction 42,693 1,912 318 — 44,923 Commercial and Industrial 58,562 10,977 90 415 70,044 Consumer 146,807 — 120 — 146,927 Other 20,394 55 — — 20,449 Total Loans $ 991,155 $ 43,804 $ 14,499 $ 415 $ 1,049,873 The following tables present the classes of the loan portfolio summarized by the aging categories of performing loans and nonaccrual loans as of the dates indicated: 2023 December 31, Loans Current 30-59 Days Past Due 60-89 Days Past Due 90 Days Or More Past Due Total Past Due Non- Accrual Total Loans (Dollars in Thousands) Real Estate: Residential $ 342,852 $ 3,339 $ 141 $ — $ 3,480 $ 1,476 $ 347,808 Commercial 466,794 — — — — 360 467,154 Construction 43,116 — — — — — 43,116 Commercial and Industrial 110,905 57 — — 57 316 111,278 Consumer 110,459 1,010 86 — 1,096 88 111,643 Other 29,397 — — — — — 29,397 Total Loans $ 1,103,523 $ 4,406 $ 227 $ — $ 4,633 $ 2,240 $ 1,110,396 2022 December 31, Loans Current 30-59 Days Past Due 60-89 Days Past Due 90 Days Or More Past Due Total Past Due Non- Accrual Total Loans (Dollars in Thousands) Real Estate: Residential $ 325,591 $ 3,451 $ 34 $ — $ 3,485 $ 1,649 $ 330,725 Commercial 434,933 58 — — 58 1,814 436,805 Construction 44,923 — — — — — 44,923 Commercial and Industrial 69,621 8 — — 8 415 70,044 Consumer 145,887 854 66 — 920 120 146,927 Other 20,449 — — — — — 20,449 Total Loans $ 1,041,404 $ 4,371 $ 100 $ — $ 4,471 $ 3,998 $ 1,049,873 82 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) Nonaccrual Loans: Real Estate: Residential $ 1,476 $ — $ — $ 1,476 Commercial 360 — — 360 Commercial and Industrial 316 — — 316 Consumer 88 — — 88 Total Nonaccrual Loans $ 2,240 $ — $ — 2,240 Other Real Estate Owned: Residential 162 Commercial — Total Other Real Estate Owned 162 Total Nonperforming Assets $ 2,402 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. 83 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2022 (Dollars in Thousands) Nonaccrual Loans: Real Estate: Residential $ 1,649 Commercial 1,814 Commercial and Industrial 415 Consumer 120 Total Nonaccrual Loans 3,998 Accruing Loans Past Due 90 Days or More: Total Accruing Loans Past Due 90 Days or More — Total Nonaccrual Loans and Accruing Loans Past Due 90 Days or More 3,998 Troubled Debt Restructurings, Accruing: Real Estate Residential 534 Commercial 1,260 Commercial and Industrial 7 Total Troubled Debt Restructurings, Accruing 1,801 Total Nonperforming Loans 5,799 Total Nonperforming Assets $ 5,799 The recorded investment of residential real estate loans for which formal foreclosure proceedings were in process according to applicable requirements of the local jurisdiction was $ 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. Real Estate Residential Real Estate Commercial Real Estate Construction Commercial and Industrial Consumer Other Unallocated Total (Dollars in Thousands) December 31, 2022 $ 2,074 $ 5,810 $ 502 $ 2,313 $ 1,517 $ — $ 603 $ 12,819 Impact of ASC 326 - Loans 137 ( 3,244 ) 488 ( 1,057 ) 774 120 ( 603 ) ( 3,385 ) Charge-offs ( 219 ) — — — ( 370 ) — — ( 589 ) Recoveries 43 32 — 876 195 — — 1,146 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 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 84 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. Real Estate Residential Real Estate Commercial Real Estate Construction Commercial and Industrial Consumer Other Unallocated Total (Dollars in Thousands) December 31, 2021 $ 1,420 $ 5,960 $ 1,249 $ 1,151 $ 1,050 $ — $ 752 $ 11,582 Charge-offs ( 32 ) — — ( 2,712 ) ( 151 ) — — ( 2,895 ) Recoveries 145 — — 117 86 — — 348 (Recovery) Provision for Loan Losses 541 ( 150 ) ( 747 ) 3,757 532 — ( 149 ) 3,784 December 31, 2022 $ 2,074 $ 5,810 $ 502 $ 2,313 $ 1,517 $ — $ 603 $ 12,819 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 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. 2022 December 31, Real Estate Residential Real Estate Commercial Real Estate Construction Commercial and Industrial Consumer Other Total (Dollars in Thousands) Individually Evaluated for Impairment $ 1,042 $ 13,217 $ 318 $ 512 $ — $ — $ 15,089 Collectively Evaluated for Potential Impairment 329,683 423,588 44,605 69,532 146,927 20,449 1,034,784 Total Loans $ 330,725 $ 436,805 $ 44,923 $ 70,044 $ 146,927 $ 20,449 $ 1,049,873 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. 85 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2022 December 31, Recorded Investment Related Allowance Unpaid Principal Balance Average Recorded Investment Interest Income Recognized (Dollars in Thousands) With No Related Allowance Recorded: Real Estate: Residential $ 1,042 $ — $ 1,047 $ 1,085 $ 51 Commercial 11,609 — 11,766 10,928 549 Construction 318 — 318 403 19 Commercial and Industrial 505 — 777 734 35 Total With No Related Allowance Recorded $ 13,474 $ — $ 13,908 $ 13,150 $ 654 With A Related Allowance Recorded: Real Estate: Commercial $ 1,608 $ 21 $ 1,608 $ 954 $ 79 Construction — — — 830 36 Commercial and Industrial 7 3 7 253 1 Total With A Related Allowance Recorded $ 1,615 $ 24 $ 1,615 $ 2,037 $ 116 Total Impaired Loans: Real Estate: Residential $ 1,042 $ — $ 1,047 $ 1,085 $ 51 Commercial 13,217 21 13,374 11,882 628 Construction 318 — 318 1,233 55 Commercial and Industrial 512 3 784 987 36 Total Impaired Loans $ 15,089 $ 24 $ 15,523 $ 15,187 $ 770 The following table presents changes in the accretable discount on the loans acquired at fair value for the dates indicated. Accretable Discount (Dollars in Thousands) Balance at December 31, 2021 $ 726 Accretable Yield ( 239 ) Balance at December 31, 2022 487 Accretable Yield ( 244 ) Balance at December 31, 2023 $ 243 Certain directors and executive officers of the Company, including family members or companies in which they are principal owners, are loan customers of the Company. Such loans are made in the normal course of business, and summarized as follows: 2023 2022 (Dollars in Thousands) Balance, January 1 $ 17,418 $ 15,639 Additions 407 4,650 Payments ( 2,221 ) ( 2,871 ) Balance, December 31 $ 15,604 $ 17,418 86 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 5— PREMISES AND EQUIPMENT Major classifications of premises and equipment are summarized as follows: 2023 2022 (Dollars in Thousands) Land and Land Improvements $ 2,749 $ 2,344 Building 19,812 19,374 Leasehold Improvements 661 749 Furniture, Fixtures, and Equipment 11,637 10,201 Fixed Assets in Process 1,840 1,645 Total Premises and Equipment 36,699 34,313 Less: Accumulated Depreciation and Amortization ( 16,995 ) ( 16,469 ) Premises and Equipment, Net $ 19,704 $ 17,844 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 Goodwill The Company's Consolidated Balance Sheets include goodwill of $ 9.7 million as of December 31, 2023 and 2022, respectively, all of which relates to Community Banking segment. Intangible Assets The following table presents a summary of intangible assets subject to amortization at the dates indicated. 2023 2022 December 31, Gross Carrying Amount Accumulated Amortization Net Carrying Value Gross Carrying Amount Accumulated Amortization Net Carrying Value (Dollars in Thousands) Core Deposit Intangible $ 11,860 $ ( 10,902 ) $ 958 $ 11,860 $ ( 9,310 ) $ 2,550 Customer List — — — 1,800 ( 837 ) 963 Total Intangible Assets $ 11,860 $ ( 10,902 ) $ 958 $ 13,660 $ ( 10,147 ) $ 3,513 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. Estimated amortization expense of intangible assets in subsequent fiscal years is as follows. Amount (Dollars in Thousands) 2024 $ 958 2025 — 2026 — 2027 — 2028 — 2029 and Thereafter — Total Estimated Intangible Asset Amortization Expense $ 958 87 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 7— DEPOSITS The following table shows the maturities of time deposits for the next five years and beyond. December 31, 2023 (Dollars in Thousands) One Year or Less $ 136,016 Over One Through Two Years 79,649 Over Two Through Three Years 6,951 Over Three Through Four Years 3,377 Over Four Through Five Years 2,758 Over Five Years 1,890 Total $ 230,641 The balance in time deposits that meet or exceed the FDIC insurance limit of $250,000 totaled $ 44.6 million and $ 30.8 million as of December 31, 2023 and 2022, respectively. The aggregate amount of demand deposits that are overdrawn and have been reclassified as loans was $ 276,000 and $ 613,000 as of December 31, 2023 and 2022, respectively. Certain directors and executive officers of the Company, including family members or companies in which they are principal owners, are deposit customers of the Company. The total deposits of directors and executive officers was $ 3.0 million and $ 5.7 million as of December 31, 2023 and 2022, respectively. NOTE 8— SHORT-TERM BORROWINGS Borrowings with original maturities of one year or less are classified as short-term and may consist of borrowings with the FHLB, securities sold under agreements to repurchase or borrowings on revolving lines of credit with the Federal Reserve Bank or other correspondent banks. Securities sold under repurchase agreements are comprised of customer repurchase agreements, which are overnight sweep accounts with next-day maturities utilized by commercial customers to earn interest on their funds. U.S. 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. 88 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table sets forth the components of short-term borrowings for the years indicated. 2023 2022 December 31, Amount Weighted Average Rate Amount Weighted Average Rate (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: Balance at Period End $ — — % $ 8,060 0.19 % Average Balance Outstanding During the Period 332 0.60 % 27,381 0.23 % Maximum Amount Outstanding at any Month End 121 39,219 Securities Collateralizing the Agreements at Period-End: Carrying Value $ — $ 10,947 Market Value — 9,396 NOTE 9— OTHER BORROWED FUNDS FHLB, Federal Reserve Bank, and Fed Fund Borrowing Arrangements The Bank maintained a credit arrangement with the FHLB with a maximum borrowing limit of approximately $ 478.9 million and $ 435.3 million as of December 31, 2023 and 2022, respectively, and available borrowing capacity of $ 438.3 million at December 31, 2023. 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 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: 2023 2022 December 31, Amount Weighted Average Rate Amount Weighted Average Rate (Dollars in Thousands) Due in One Year $ — — % $ — — % Due After One Year to Two Years 20,000 4.92 — — Due After Two Years to Three Years — — — — Total $ 20,000 4.92 % $ — — As an alternative to pledging securities, the FHLB periodically provides standby letters of credit on behalf of the Bank to secure certain public deposits in excess of the level insured by the FDIC. If the FHLB is required to make payment for a beneficiary’s draw, the payment amount is converted into a collateralized advance to the Bank. Standby letters of credit issued on our behalf by the FHLB to secure public deposits were $ 18.9 million and $ 26.2 million as of December 31, 2023 and 2022. 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 89 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 In December 2021, the Company entered into a term loan in the principal amount of $ 15.0 million, evidenced by a term note which matures on December 15, 2031 ("2031 Note"). The 2031 Note is an unsecured subordinated obligation of the Company and may be repaid in whole or in part, without penalty, on any interest payment date on or after December 15, 2026 and at any time upon the occurrence of certain events. The 2031 Note initially bears a fixed interest rate of 3.875 % per year to, but excluding, December 15, 2026 and thereafter at a floating rate equal to the then-current three-month term SOFR plus 280 basis points. The 2031 Note qualifies as Tier 2 capital under regulatory guidelines. The 2031 Note is recorded on the Consolidated Statements of Financial Condition in Other Borrowed Funds, net of remaining debt issuance costs. At December 31, 2023 and 2022, the principal balance and unamortized debt issuance costs for the 2031 Note were $ 15.0 million, and $ 322,000 and $ 362 ,000, respectively. NOTE 10— INCOME TAXES Reconciliation of income tax provision for the periods indicated are as follows: Year Ended December 31, 2023 2022 (Dollars in Thousands) Current Expense $ 7,353 $ 3,368 Deferred Expense (Benefit) 382 ( 535 ) Total Provision $ 7,735 $ 2,833 90 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The tax effects of deductible and taxable temporary differences that gave rise to significant portions of the net deferred tax assets and liabilities are as follows: December 31, 2023 2022 (Dollars in Thousands) Deferred Tax Assets: Allowance for Credit Losses $ 2,175 $ 2,762 Nonaccrual Loan Interest 57 54 Amortization of Intangibles — 105 Purchase Accounting Adjustments 53 349 Postretirement Benefits 18 20 Net Unrealized Loss on Debt Securities 4,599 7,206 Net Unrealized Loss on Equity Securities 22 — Stock-Based Compensation Expense 98 70 Gas Lease - Deferred Revenue 4 37 Accrued Payroll 260 — OREO 8 — Lease Liability 380 450 Right of Use Asset Impairment — 60 Restructuring Costs 88 139 Other 24 — Gross Deferred Tax Assets 7,786 11,252 Deferred Tax Liabilities: Amortization of Intangibles 73 — Deferred Origination Fees and Costs 313 277 Discount Accretion 41 34 Depreciation 1,588 1,402 Net Unrealized Gain on Equity Securities — 1 Mortgage Servicing Rights 115 136 Accrued Payroll — 3 ROU Asset 357 464 Goodwill — 74 Other — 5 Gross Deferred Tax Liabilities 2,487 2,396 Net Deferred Tax Assets $ 5,299 $ 8,856 Deferred taxes at December 31, 2023 and 2022, are included in Accrued Interest Receivable and Other Assets in the accompanying Consolidated Statements of Financial Condition. 91 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A reconciliation of the federal income tax expense at statutory income tax rates and the actual income tax expense on income before taxes for the periods indicated is as follows: 2023 2022 Year Ended December 31, Amount Percent of Pre-tax Income Amount Percent of Pre-tax Income (Dollars in Thousands) Provision at Statutory Rate $ 6,360 21.0 % $ 2,957 21.0 % State Taxes (Net of Federal Benefit) 2,014 6.7 222 1.6 Tax-Free Income ( 262 ) ( 0.9 ) ( 192 ) ( 1.4 ) BOLI Income ( 121 ) ( 0.4 ) ( 122 ) ( 0.9 ) Stock Options - ISO 44 0.1 25 0.2 Goodwill Impairment — — — — Other ( 300 ) ( 1.0 ) ( 57 ) ( 0.4 ) Actual Tax Expense and Effective Rate $ 7,735 25.5 % $ 2,833 20.1 % The Company’s federal, Pennsylvania and West Virginia income tax returns are no longer subject to examination by applicable tax authorities for years before 2020. As of December 31, 2023 and 2022, there were no unrecognized tax benefits. 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. NOTE 11— EMPLOYEE BENEFITS Savings and Profit Sharing Plan The Company maintains a Cash or Deferred Profit-sharing Section 401(k) Plan with contributions matching those by eligible employees for the first 4 % of an employee’s contribution at the rate of $ 0.25 on the dollar. All employees who are over the age of 18 and completed three months of employment are eligible to participate in the plan. The Company made contributions of $ 302,000 and $ 233,000 for the years ended December 31, 2023 and 2022, respectively, to this plan. The 401(k) Plan includes a “safe harbor” provision and a discretionary retirement contribution. The Company made contributions of $ 485,000 and $ 404,000 for the “safe harbor” provision and discretionary retirement contribution for the years ended December 31, 2023 and 2022, respectively. Equity Incentive Plan 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. 2023 2022 Number of Restricted Shares Granted 40,225 27,765 Weighted Average Grant Date Common Stock Price $ 22.11 $ 25.29 Restricted Shares Market Value Before Tax $ 889,000 $ 702,000 Number of Stock Options Granted 78,975 104,465 Stock Options Market Value Before Tax $ 358,000 $ 510,000 Summary of Significant Assumptions for Newly Issued Stock Options Expected Life in Years 6.5 6.5 Expected Dividend Yield 4.56 % 3.79 % Risk-free Interest Rate 3.74 % 1.97 % Expected Volatility 29.56 % 28.82 % Weighted Average Grant Date Fair Value $ 4.54 $ 4.88 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 $ 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 92 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS $ 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 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. The intrinsic value of outstanding stock options was $ 335,000 and $ 25,000 at December 31, 2023 and 2022, respectively. At December 31, 2023, there were 161,464 shares of common stock available and reserved under the 2021 Plan to be issued of which a maximum of 161,464 shares may be issued as stock options and 64,586 shares may be issued as restricted stock awards or units based on the terms of the Plan whereby the Share Limit is reduced, on a one-for-one basis, for each share of common stock subject to a stock option grant, and on a two and one-half-for-one basis for each share of common stock issued pursuant to restricted stock awards or units. At December 31, 2023, 40,225 restricted shares and 78,975 options have been granted under the 2021 Plan. At December 31, 2022, under the 2021 Plan, 333,335 or 133,334 shares,were available to be issued in connection with the exercise of stock options and restricted stock awards or units; and under the 2015 Plan, no shares were available to issue. The 2015 Plan shall remain in effect as long as any awards are outstanding, but as a result of the approval of the 2021 Plan, no more awards can be granted under the 2015 Plan. The following table presents stock option data for the period indicated: 2023 2022 Number of Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Life in Years Number of Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Life in Years Outstanding Options at Beginning of Year 283,748 $ 24.52 5.6 207,641 $ 24.01 4.8 Granted 78,975 21.93 104,465 25.31 Exercised ( 18,000 ) 20.63 ( 15,500 ) 21.54 Forfeited ( 7,279 ) 24.95 ( 12,858 ) 26.43 Outstanding Options at End of Year 337,444 24.11 5.6 283,748 24.52 5.6 Exercisable Options at End of Year 203,202 $ 24.46 3.6 174,683 $ 24.42 3.5 Number of Shares Weighted Average Exercise Price Weighted Average Remaining Service Period in Years Nonvested Options December 31, 2021 20,626 $ 22.64 7.8 Granted 104,465 $ 25.31 Vested ( 9,354 ) $ 24.42 Forfeited ( 6,672 ) $ 26.01 Nonvested Options December 31, 2022 109,065 $ 24.67 9.1 Granted 78,975 21.93 Vested ( 48,313 ) 24.46 Forfeited ( 5,485 ) 24.37 Nonvested Options at December 31, 2023 134,242 $ 23.58 8.5 93 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 Restricted Stock at December 31, 2021 56,140 $ 23.90 5.3 Granted 27,765 25.29 4.3 Vested ( 16,065 ) 24.60 4.2 Forfeited ( 3,715 ) 24.01 Nonvested Restricted Stock at December 31, 2022 64,125 $ 24.32 4.3 Granted 40,225 22.11 4.4 Vested ( 32,773 ) 24.07 3.7 Forfeited ( 2,800 ) 24.15 Nonvested Restricted Stock at December 31, 2023 68,777 $ 23.16 3.8 NOTE 12— COMMITMENTS AND CONTINGENT LIABILITIES The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business primarily to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby and performance letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the Consolidated Statements of Financial Condition. The contract amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments. The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby and performance letters of credit written is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments. Commitments and conditional obligations are evaluated the same as on-balance-sheet instruments but do not have a corresponding reserve recorded. The Company’s opinion on not implementing a corresponding reserve for off-balance-sheet instruments is supported by historical factors of no losses recorded due to these items. The Company is continually evaluating these items for credit quality and any future need for the corresponding reserve. The unused and available credit balances of financial instruments whose contracts represent credit risk are as follows: December 31, 2023 2022 (Dollars in Thousands) Standby Letters of Credit $ 110 $ 110 Performance Letters of Credit 895 1,064 Construction Mortgages 47,034 45,722 Personal Lines of Credit 7,185 6,824 Overdraft Protection Lines 2,025 5,241 Home Equity Lines of Credit 24,176 22,784 Commercial Lines of Credit 64,667 74,921 Total $ 146,092 $ 156,666 Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Because many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the counterparty. Collateral held varies, but may include accounts receivable, inventory, property, plant and equipment, and income-producing commercial properties. Performance letters of credit represent conditional commitments issued by the Company to guarantee the performance of a customer to a third party. These instruments are issued primarily to support bid or performance-related contracts. The coverage 94 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. For secured letters of credit, the collateral is typically Company deposit instruments or customer business assets. The Company recorded no liability associated with standby letters of credit as of December 31, 2023 and 2022. 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. Under the program, repurchases may be transacted in the open-market or in negotiated private transactions and are conducted pursuant to a trading plan adopted in accordance with limitations set forth in Rule 10b5-1 of the Securities and Exchange Commission. The Rule 10b5-1 repurchase plan allows the Company to repurchase its shares during periods when it would normally not be active in the market due to its internal trading blackout period. Repurchases are made at management’s discretion at prices management considers to be attractive and in the best interests of both the Company and its stockholders, subject to various factors, including but not limited to, the availability of stock, general market conditions, the trading price of the stock, alternative uses for capital, and the Company’s financial performance. On February 15, 2022, the Company completed this stock repurchase program. In connection with the program, the Company repurchased a total of 308,996 shares of the Company’s common stock at an average price of $ 24.27 per share. In April 2022, the Company authorized a new repurchase program of $ 10.0 million of its outstanding shares of common stock. 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. The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can result in certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, each must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Under the Regulatory Capital Rules, in order to avoid limitations on capital distributions (including dividend payments and certain discretionary bonus payments to executive officers), a banking organization must hold a capital conservation buffer comprised of common equity Tier I capital above its minimum risk-based capital requirements in an amount greater than 2.5% of total risk-weighted assets. As of December 31, 2023 and 2022, the Bank was considered "well capitalized" under the regulatory framework for prompt corrective action. 95 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table presents the Bank’s regulatory capital amounts and ratios, as well as the minimum amounts and ratios required to be well capitalized at the dates indicated. 2023 2022 December 31, Amount Ratio Amount Ratio (Dollars in Thousands) Common Equity Tier 1 Capital (to Risk-Weighted Assets) Actual $ 143,654 13.64 % $ 121,188 12.33 % For Capital Adequacy Purposes 47,385 4.50 44,221 4.50 To Be Well Capitalized 68,445 6.50 63,875 6.50 Tier I Capital (to Risk-Weighted Assets) Actual 143,654 13.64 121,188 12.33 For Capital Adequacy Purposes 63,180 6.00 58,961 6.00 To Be Well Capitalized 84,240 8.00 78,615 8.00 Total Capital (to Risk-Weighted Assets) Actual 153,861 14.61 133,478 13.58 For Capital Adequacy Purposes 84,240 8.00 78,615 8.00 To Be Well Capitalized 105,300 10.00 98,269 10.00 Tier I Leverage Capital (to Adjusted Total Assets) Actual 143,654 10.19 121,188 8.66 For Capital Adequacy Purposes 56,385 4.00 55,969 4.00 To Be Well Capitalized 70,481 5.00 69,962 5.00 NOTE 14— OPERATING LEASES The Company evaluates all contracts at commencement to determine if a lease is present. In accordance with ASC Topic 842, leases are defined as either operating or finance leases. The Company's lease contracts are classified as operating leases and create operating ROU assets and corresponding lease liabilities on the Consolidated Statements of Financial Condition. The leases are primarily ROU assets of land and building for branch and loan production locations. ROU assets are reported in Accrued Interest Receivable and Other Assets and the related lease liabilities in Accrued Interest Payable and Other Liabilities on the Consolidated Statements of Financial Condition. The following tables present the lease expense, ROU assets, weighted average term, discount rate and maturity analysis of lease liabilities for operating leases for the periods and dates indicated. Year Ended December 31, 2023 2022 (Dollars in Thousands) Operating $ 308 $ 350 Variable 30 28 Total Lease Expense $ 338 $ 378 December 31, 2023 2022 (Dollars in Thousands) Operating Leases: ROU Assets $ 1,673 $ 1,926 Weighted Average Lease Term in Years 7.50 8.13 Weighted Average Discount Rate 2.86 % 2.87 % 96 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 (Dollars in Thousands) Maturity Analysis: Due in One Year $ 355 Due After One Year to Two Years 272 Due After Two Years to Three Years 233 Due After Three Years to Four Years 233 Due After Four to Five Years 204 Due After Five Years 684 Total $ 1,981 Less: Present Value Discount 196 Lease Liabilities $ 1,785 NOTE 15— MORTGAGE SERVICING RIGHTS The following table presents MSR activity and net carrying values for the periods indicated. Servicing Rights Valuation Allowance Net Carrying Value (Dollars in Thousands) December 31, 2021 $ 829 $ ( 99 ) $ 730 Additions — — — Amortization ( 196 ) — ( 196 ) Valuation Allowance Adjustment — 99 99 December 31, 2022 $ 633 $ — $ 633 Additions — — — Amortization ( 93 ) — ( 93 ) Valuation Allowance Adjustment — — — December 31, 2023 $ 540 $ — $ 540 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. 97 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 ASC Topic 820 “Fair Value Measurement” defines fair value and provides the framework for measuring fair value and required disclosures about fair value measurements. Fair value is defined as the price that would be received for an asset or paid to transfer a liability in an orderly transaction between market participants in the principal or most advantageous market for the asset or liability at the transaction date. ASC 820 establishes a fair value hierarchy that prioritizes the inputs used in valuation methods to determine fair value. The three levels of fair value hierarchy are as follows: Level 1 - Fair value is based on unadjusted quoted prices in active markets that are accessible to the Company for identical assets. These generally provide the most reliable evidence and are used to measure fair value whenever available. Level 2 - Fair value is based on significant inputs, other than Level 1 inputs, that are observable either directly or indirectly for substantially the full term of the asset through corroboration with observable market data. Level 2 inputs include quoted market prices in active markets for similar assets, quoted market prices in markets that are not active for identical or similar assets, and other observable inputs. Level 3 - Fair value is based on significant unobservable inputs. Examples of valuation methodologies that would result in Level 3 classification include option pricing models, discounted cash flows, and other similar techniques. This hierarchy requires the use of observable market data when available. The level in the fair value hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement. The 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. 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. 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. 98 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, Fair Value Hierarchy 2023 2022 (Dollars in Thousands) ASSETS Available-for-Sale Debt Securities U.S. Government Agencies Level 2 $ 3,949 $ 44,634 Obligations of States and Political Subdivisions Level 2 3,373 13,342 Mortgage-Backed Securities - Government-Sponsored Enterprises Level 2 54,532 41,427 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 Total Available-for-Sale Debt Securities 204,507 187,360 Equity Securities Mutual Funds Level 1 888 875 Other Level 1 1,700 1,823 Total Equity Securities 2,588 2,698 Total Securities $ 207,095 $ 190,058 Total Assets $ 207,095 $ 190,058 LIABILITIES 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. The table also presents the significant unobservable inputs used in the fair value measurements. Impaired loans that are collateral dependent are written down to fair value through the establishment of specific reserves. Techniques used to value the collateral that secure the impaired loans include quoted market prices for identical assets classified as Level 1 inputs or observable inputs, employed by certified appraisers, for similar assets classified as Level 2 inputs. In cases where valuation techniques included inputs that are unobservable and are based on estimates and assumptions developed by management based on the best information available under each circumstance, the asset valuation is classified as Level 3 inputs. Financial Asset Fair Value Hierarchy December 31, 2023 Valuation Technique Significant Unobservable Inputs Range Weighted Average (Dollars in Thousands) OREO Level 3 — Appraisal of Collateral (1) Liquidation Expenses (2) 100 % to 100 % 100.0 % Financial Asset Fair Value Hierarchy December 31, 2022 Valuation Technique Significant Unobservable Inputs Range Weighted Average (Dollars in Thousands) Impaired Loans Individually Assessed Level 3 $ 1,591 Appraisal of Collateral (1) Appraisal Adjustments (2) 0 % to 8 % 7.2 % (1) Fair value is generally determined through independent appraisals of the underlying collateral, which may include various Level 3 inputs, which are not identifiable. (2) Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range and weighted average of appraisal adjustments and liquidation expense are presented as a percent of the appraisal. 99 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, 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. The expected rate of mortgage loan prepayments is the most significant factor driving the value of MSRs. MSRs are considered impaired if the carrying value exceeds fair value. Since the valuation model includes significant unobservable inputs as listed above, MSRs are classified as Level 3. 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. After acquisition, OREO is recorded at the lower of cost or fair value, less estimated selling costs. The fair value of an OREO property is determined from a qualified independent appraisal and is classified as Level 3 in the fair value hierarchy. 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. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. If no readily available market exists, the fair value estimates for financial instruments should be based upon management’s judgment regarding current economic conditions, interest rate risk, expected cash flows, future estimated losses and other factors, as determined through various option pricing formulas or simulation modeling. As many of these assumptions result from judgments made by management based upon estimates that are inherently uncertain, the resulting estimated fair values may not be indicative of the amount realizable in the sale of a particular financial instrument. In addition, changes in the assumptions on which the estimated fair values are based may have significant impact on the resulting estimated fair values. The estimated fair values of the Company’s financial instruments at the dates indicated are as follows: 2023 2022 December 31, Fair Value Hierarchy Carrying Value Fair Value Carrying Value Fair Value (Dollars in Thousands) Financial Assets: Cash and Due From Banks: Interest-Earning Level 1 $ 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 Loans, Net Level 3 1,100,689 1,051,722 1,037,054 1,011,098 Restricted Stock Level 2 3,345 3,345 2,749 2,749 Mortgage Servicing Rights Level 3 540 974 633 1,000 Accrued Interest Receivable Level 2 5,086 5,086 3,983 3,983 Financial Liabilities: Deposits Level 2 1,267,159 1,263,574 1,268,503 1,264,846 Short-term Borrowings Level 2 — — 8,060 8,060 Other Borrowed Funds FHLB Borrowings Level 2 20,000 19,962 — — 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 1,814 355 355 100 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 18— OTHER NONINTEREST EXPENSE The details for other noninterest expense for the Company’s Consolidated Statements of Income are as follows: Year Ended December 31, 2023 2022 (Dollars in Thousands) Non-employee Compensation $ 580 $ 570 Printing and Supplies 238 250 Postage 286 339 Telephone 524 518 Charitable Contributions 118 173 Dues and Subscriptions 213 174 Loan Expenses 257 538 Meals and Entertainment 155 143 Travel 236 173 Training 72 61 Bank Assessment 192 194 Insurance 326 275 Miscellaneous 538 436 TOTAL OTHER NONINTEREST EXPENSE $ 3,735 $ 3,844 NOTE 19— CONDENSED FINANCIAL STATEMENTS OF PARENT COMPANY Financial information pertaining only to CB Financial Services, Inc., is as follows: Statements of Financial Condition December 31, 2023 2022 (Dollars in Thousands) ASSETS Cash and Due From Banks $ 14,300 $ 14,516 Equity Securities, at Fair Value 1,700 1,822 Investment in Community Bank 137,359 107,727 Other Assets 1,339 814 TOTAL ASSETS $ 154,698 $ 124,879 LIABILITIES AND STOCKHOLDERS' EQUITY Other Borrowings $ 14,678 $ 14,638 Other Liabilities 186 86 Stockholders' Equity 139,834 110,155 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 154,698 $ 124,879 101 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Statements of Income Year Ended December 31, 2023 2022 (Dollars in Thousands) Interest and Dividend Income $ 84 $ 78 Dividend from Bank Subsidiary 5,111 4,947 Interest Expense 622 622 Net Interest and Dividend Income 4,573 4,403 Net Loss on Securities ( 122 ) ( 54 ) Noninterest Expense 18 19 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 22,479 11,108 Income Tax Benefit ( 71 ) ( 139 ) NET INCOME $ 22,550 $ 11,247 Statements of Cash Flows Year Ended December 31, 2023 2022 (Dollars in Thousands) OPERATING ACTIVITIES Net Income $ 22,550 $ 11,247 Adjustments to Reconcile Net Income to Net Cash Provided By Operating Activities: Undistributed Net Income of Subsidiary ( 18,046 ) ( 6,778 ) Noncash Expense for Stock-Based Compensation 1,125 600 Loss on Equity Securities 122 55 Other, net ( 425 ) 290 NET CASH PROVIDED BY OPERATING ACTIVITIES 5,326 5,414 FINANCING ACTIVITIES Net Proceeds from Other Borrowings 40 37 Cash Dividends Paid ( 5,111 ) ( 4,920 ) Treasury Stock, Purchases at Cost ( 843 ) ( 4,802 ) Exercise of Stock Options 372 220 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 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 At December 31, 2023, the Company’s business activities were comprised of two operating segments, which are community banking and insurance brokerage services. CB Financial Services, Inc. is the parent company of the Bank and Exchange Underwriters, a wholly owned subsidiary of the Bank. 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. 102 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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. 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. Community Bank Exchange Underwriters, Inc. CB Financial Services, Inc. Net Eliminations Consolidated (Dollars in Thousands) December 31, 2023 Assets $ 1,452,469 $ 28,830 $ 154,698 $ ( 179,906 ) $ 1,456,091 Liabilities 1,315,110 7,571 14,864 ( 21,288 ) 1,316,257 Stockholders' Equity 137,359 21,259 139,834 ( 158,618 ) 139,834 December 31, 2022 Assets $ 1,409,510 $ 5,585 $ 124,879 $ ( 131,036 ) $ 1,408,938 Liabilities 1,301,783 1,996 14,724 ( 19,720 ) 1,298,783 Stockholders' Equity 107,727 3,589 110,155 ( 111,316 ) 110,155 Year Ended December 31, 2023 Interest and Dividend Income $ 62,135 $ 6 $ 5,195 $ ( 5,111 ) $ 62,225 Interest Expense 17,050 — 622 — 17,672 Net Interest and Dividend Income 45,085 6 4,573 ( 5,111 ) 44,553 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 Noninterest Expense 34,714 4,050 18 — 38,782 Undistributed Net Income of Subsidiary 18,986 — 18,046 ( 37,032 ) — 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 Year Ended December 31, 2022 Interest and Dividend Income $ 47,632 $ 6 $ 5,025 $ ( 4,947 ) $ 47,716 Interest Expense 4,159 — 622 — 4,781 Net Interest and Dividend Income 43,473 6 4,403 ( 4,947 ) 42,935 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 (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 ) $ 11,247 103