What changed in this filing

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Item 1. Financial Statements

2024-05-10 compared with 2023-11-13 · 232 added, 347 removed, 686 unchanged (46% of the section changed)

1 unchanged sentence

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Unaudited) September 30,

(Unaudited) March 31,

2024 December 31,

7 unchanged sentences

Total Securities 232,276 207,095

Loans, Net of Allowance for Credit Losses of $ 10,848 and $ 12,819 at September 30, 2023 and December 31, 2022, Respectively

Loans Held for Sale 200 —

Loans, Net of Allowance for Credit Losses of $ 9,582 and $ 9,707 at March 31, 2024 and December 31, 2023, Respectively

1,086,761 1,100,689

12 unchanged sentences

Total Deposits 1,262,494 1,267,159

Short-Term Borrowings

Other Borrowings

7 unchanged sentences

Common Stock, $ 0.4167 Par Value;

35,000,000 Shares Authorized, 5,742,408 Shares Issued and 5,120,678 Shares Outstanding at September 30, 2023, with 5,708,433 and 5,100,189 Shares Issued and Outstanding at December 31, 2022.

35,000,000 Shares Authorized, 5,783,788 Shares Issued and 5,142,901 Shares Outstanding at March 31, 2024, with 5,759,378 and 5,118,713 Shares Issued and Outstanding at December 31, 2023.

Capital Surplus

2 unchanged sentences

86,308 83,392

Treasury Stock, at Cost ( 621,730 and 608,244 Shares at September 30, 2023 and December 31, 2022, Respectively)

Treasury Stock, at Cost ( 640,887 and 640,665 Shares at March 31, 2024 and December 31, 2023, Respectively)

( 14,550 ) ( 14,545 )

7 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

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

13 unchanged sentences

NET INTEREST AND DIVIDEND INCOME 11,591 11,583

Provision For Credit Losses - Loans 291 — 863 3,784

(Recovery) Provision For Credit Losses - Loans ( 143 ) 80

Provision For Credit Losses - Unfunded Commitments 106 —

NET INTEREST AND DIVIDEND INCOME AFTER PROVISION FOR CREDIT LOSSES 10,311 11,015 32,502 27,285

NET INTEREST AND DIVIDEND INCOME AFTER NET (RECOVERY) PROVISION FOR CREDIT LOSSES 11,628 11,503

NONINTEREST INCOME

2 unchanged sentences

Other Commissions 62 144

Net Loss on Sales of Loans — — ( 3 ) —

Net Gain on Sales of Loans 22 2

Net Loss on Securities ( 166 ) ( 232 )

Net Gain on Purchased Tax Credits 12 7

Net Gain on Disposal of Fixed Assets — 439 11 431

Net Gain on Disposal of Premises and Equipment 274 11

Income from Bank-Owned Life Insurance 148 140

7 unchanged sentences

Data Processing 692 857

FDIC Assessment 189 147 565 484

PA Shares Tax 217 240 672 721

Federal Deposit Insurance Corporation Assessment 129 152

Pennsylvania Shares Tax 297 260

Contracted Services 281 147

6 unchanged sentences

Income Before Income Tax Expense

3,236 4,927 11,978 8,851

Income Tax Expense 920 1,129

7 unchanged sentences

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

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (UNAUDITED)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

Three Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

(Dollars in thousands)

Net Income $ 4,196 $ 4,156

Other Comprehensive Loss:

Change in Unrealized Loss on Investment Securities Available-for-Sale ( 4,248 ) ( 11,753 ) ( 4,372 ) ( 32,785 )

Other Comprehensive (Loss) Income:

Change in Unrealized (Loss) Gain on Investment Securities Available-for-Sale ( 1,628 ) 2,580

Income Tax Effect 295 ( 557 )

Other Comprehensive Loss, Net of Income Tax Effect ( 3,332 ) ( 9,220 ) ( 3,430 ) ( 25,721 )

Total Comprehensive (Loss) Income

$ ( 660 ) $ ( 5,291 ) $ 6,156 $ ( 18,627 )

Other Comprehensive (Loss) Income, Net of Income Tax Effect ( 1,333 ) 2,023

Total Comprehensive Income $ 2,863 $ 6,179

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

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)

Three Months Ended September 30, 2023 Shares Issued Common Stock Capital Surplus Retained Earnings Treasury Stock Accumulated Other Comprehensive Loss Total Stockholders' Equity

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

June 30, 2023 5,733,408 $ 2,389 $ 84,325 $ 70,314 $ ( 14,100 ) $ ( 26,339 ) $ 116,589

Comprehensive Loss:

Net Income — — — 2,672 — — 2,672

Other Comprehensive Loss — — — — — ( 3,332 ) ( 3,332 )

Restricted Stock Awards Granted 9,000 4 ( 4 ) — — — —

Stock-Based Compensation Expense — — 196 — — — 196

Dividends Paid ($ 0.25 Per Share)

— — — ( 1,279 ) — — ( 1,279 )

September 30, 2023 5,742,408 $ 2,393 $ 84,517 $ 71,707 $ ( 14,100 ) $ ( 29,671 ) $ 114,846

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

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

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

Comprehensive Loss:

Net Income — — — 3,929 — — 3,929

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

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

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

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

Treasury Stock Purchased, at cost ( 30,271 shares)

— — — — ( 694 ) — ( 694 )

Dividends Paid ($ 0.24 Per Share)

— — — ( 1,224 ) — — ( 1,224 )

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

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

Nine Months Ended September 30, 2023 Shares Issued Common Stock Capital Surplus Retained Earnings Treasury Stock Accumulated Other Comprehensive Loss Total Stockholders' Equity

Three Months Ended March 31, 2024 Shares Issued Common Stock Capital Surplus Retained Earnings Treasury Stock Accumulated Other Comprehensive Loss Total Stockholders' Equity

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

December 31, 2023 5,759,378 $ 2,400 $ 85,334 $ 83,392 $ ( 14,545 ) $ ( 16,747 ) $ 139,834

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

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

Comprehensive Income:

4 unchanged sentences

Stock-Based Compensation Expense — — 178 — — — 178

Exercise of Stock Options — — — — 45 — 45

Treasury stock purchased, at cost ( 222 shares)

2 unchanged sentences

— — — ( 1,280 ) — — ( 1,280 )

September 30, 2023 5,742,408 $ 2,393 $ 84,517 $ 71,707 $ ( 14,100 ) $ ( 29,671 ) $ 114,846

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

March 31, 2024 5,783,788 $ 2,411 $ 85,501 $ 86,308 $ ( 14,550 ) $ ( 18,080 ) $ 141,590

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

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

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

Comprehensive Loss:

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

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

Comprehensive Income:

Net Income — — — 4,156 — — 4,156

Other Comprehensive Loss — — — — — ( 25,721 ) ( 25,721 )

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

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

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

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

Exercise of Stock Options — — 3 — 162 — 165

Treasury Stock Purchased, at cost ( 5,834 shares)

2 unchanged sentences

— — — ( 1,275 ) — — ( 1,275 )

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

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

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

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Nine Months Ended September 30, 2023 2022

Three Months Ended March 31, 2024 2023

(Dollars in thousands)

2 unchanged sentences

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

Net Amortization on Securities 56 48

Net (Accretion) Amortization on Securities ( 212 ) 22

Depreciation and Amortization 718 710

Provision for Credit Losses - Loans 863 3,784

Recovery (Provision) for Credit Losses - Loans ( 143 ) 80

Provision for Credit Losses - Unfunded Commitments 106 —

2 unchanged sentences

Income from Bank-Owned Life Insurance ( 148 ) ( 140 )

Gain on Bank-Owned Life Insurance Death Benefit Claims ( 915 ) —

Proceeds From Mortgage Loans Sold 994 140

Originations of Mortgage Loans for Sale ( 972 ) ( 138 )

Loss on Sale of Loans 3 —

Gain on Sale of Loans ( 22 ) ( 2 )

Gain on Sale of Other Real Estate Owned and Repossessed Assets ( 7 ) —

1 unchanged sentence

Increase in Accrued Interest Receivable ( 162 ) ( 33 )

Valuation adjustment on real estate owned 119 —

Gain on Disposal of Fixed Assets ( 11 ) ( 431 )

Decrease in Taxes Payable ( 632 ) ( 947 )

Gain on Disposal of Premises and Equipment ( 274 ) ( 11 )

Decrease in Deferred Income Tax ( 300 ) —

Increase in Taxes Payable 925 1,129

Increase in Accrued Interest Payable 399 109

5 unchanged sentences

Purchases of Securities ( 19,770 ) —

Net Increase in Loans ( 55,546 ) ( 24,480 )

Net Decrease (Increase) in Loans 24,482 ( 15,865 )

Purchase of Premises and Equipment ( 970 ) ( 204 )

2 unchanged sentences

Proceeds From Sale of Other Real Estate Owned 169 —

(Increase) Decrease in Restricted Equity Securities ( 517 ) 619

NET CASH USED IN INVESTING ACTIVITIES ( 44,381 ) ( 25,771 )

Decrease in Restricted Equity Securities 177 223

NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 8,158 ( 11,059 )

FINANCING ACTIVITIES

2 unchanged sentences

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

Proceeds From Other Borrowed Funds 20,000 —

Cash Dividends Paid ( 1,280 ) ( 1,275 )

Treasury Stock, Purchases at Cost ( 5 ) ( 130 )

Exercise of Stock Options 45 165

NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES ( 5,950 ) 3,673

(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ( 51,103 ) 3,127

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 5,468 ( 155 )

CASH AND DUE FROM BANKS AT BEGINNING OF YEAR 68,223 103,700

2 unchanged sentences

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Nine Months Ended September 30, 2023 2022

Three Months Ended March 31, 2024 2023

(Dollars in thousands)

5 unchanged sentences

SUPPLEMENTAL NONCASH DISCLOSURE:

Proceeds Receivable from Claims on Bank-Owned Life Insurance 2,679 1,392

Other Real Estate Acquired in Settlement of Loans — 248

Securities Purchased Not Settled 10,075 —

Syndicated Loans Purchased and Sold Not Settled, net 10,550 8,943

23 unchanged sentences

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

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

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

The Bank operates 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 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.

Critical Accounting Policies;

1 unchanged sentence

The disclosures below supplement the accounting policies previously disclosed in Note 1 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the SEC.

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

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

Allowance for Credit Losses (ACL)

5 unchanged sentences

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

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.

49 unchanged sentences

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

Accrued interest receivable on loans is reported as a component of accrued interest receivable and other assets on the Consolidated Statement of Financial Condition, totaled $ 4.0 million at September 30, 2023 and is excluded from the estimate of credit losses.

Accrued interest receivable on available of sale securities, also a component of accrued interest receivable and other assets on the Consolidated Statement of Financial Condition, totaled $ 534,000 , at September 30, 2023 and is excluded from the estimate of credit losses.

Accrued interest receivable on loans is reported as a component of accrued interest receivable and other assets on the Consolidated Statement of Financial Condition, totaled $ 4.1 million at March 31, 2024 and $ 4.3 million at December 31, 2023 and is excluded from the estimate of credit losses.

Accrued interest receivable on available of sale securities, also a component of accrued interest receivable and other assets on the Consolidated Statement of Financial Condition, totaled $ 1.1 million at March 31, 2024 and $ 947,000 at December 31, 2023 and is excluded from the estimate of credit losses.

Recent Accounting Standards

10 unchanged sentences

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

As of September 30, 2023, the Company has identified one $ 5.0 million corporate debt security tied to the LIBOR reference rate.

The Company has not yet made any contract modifications.

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

As of March 31, 2024, 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 condition 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.

Earnings Pe r Share

3 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

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

3 unchanged sentences

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

11,520 11,766 6,056 14,744

Weighted-Average Diluted Common Shares and Common Stock Equivalents Outstanding

2 unchanged sentences

$ 0.82 $ 0.81

0.52 0.77 1.87 1.37

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

1 unchanged sentence

Three Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

Stock Options 315,566 224,076

1 unchanged sentence

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

September 30, 2023

March 31, 2024

(Dollars in thousands)

7 unchanged sentences

Collateralized Mortgage Obligations - Government-Sponsored Enterprises 118,532 — ( 16,592 ) 101,940

Collateralized Loan Obligations 59,708 2 ( 106 ) 59,604

Corporate Debt 9,482 — ( 1,726 ) 7,756

13 unchanged sentences

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

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

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

4 unchanged sentences

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

September 30, 2023

March 31, 2024

Less than 12 months

6 unchanged sentences

Mortgage Backed Securities- Government-Sponsored Enterprises 3 22,180 ( 163 ) 8 16,509 ( 3,159 ) 11 38,689 ( 3,322 )

— — — 42 35,768 ( 5,830 ) 42 35,768 ( 5,830 )

Collateralized Mortgage Obligations - Government-Sponsored Enterprises 4 32,507 ( 364 ) 21 69,432 ( 16,228 ) 25 101,939 ( 16,592 )

Collateralized Loan Obligations 2 8,558 ( 106 ) — — — 2 8,558 ( 106 )

Corporate Debt — — — 3 7,756 ( 1,726 ) 3 7,756 ( 1,726 )

9 unchanged sentences

Mortgage Backed Securities- Government-Sponsored Enterprises — — — 8 17,135 ( 2,986 ) 8 17,135 ( 2,986 )

34 19,433 ( 1,018 ) 8 21,994 ( 3,900 ) 42 41,427 ( 4,918 )

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 )

2 $ 8,513 $ ( 87 ) 39 $ 103,422 $ ( 21,633 ) 41 $ 111,935 $ ( 21,720 )

For debt securities, the Company does not believe that any individual unrealized loss as of September 30, 2023 or December 31, 2022, represents a credit related impairment.

For debt securities, the Company does not believe that any individual unrealized loss as of March 31, 2024 or December 31, 2023, represents a credit related impairment.

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

The unrealized losses on securities at September 30, 2023 and December 31, 2022 relate principally to changes in market interest rates subsequent to the acquisition of the specific securities.

The unrealized losses on securities at March 31, 2024 and December 31, 2023 relate principally to changes in market interest rates subsequent to the acquisition of the specific securities.

The Company does not intend to sell, and it is more likely than not that it will be required to sell any of the securities in an unrealized loss position before recovery of its amortized cost or maturity of the security.

Total securities available to be pledged have a fair value of $ 163.1 million at September 30, 2023 and $ 179.0 million at December 31, 2022 of which securities with a fair value of $ 152.1 million and $ 175.6 million at September 30, 2023 and December 31, 2022, respectively, were pledged to secure uninsured public deposits, short-term borrowings and for other purposes as required or permitted by law.

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

September 30, 2023

Total securities available to be pledged have a fair value of $ 212.0 million at March 31, 2024 and $ 196.8 million at December 31, 2023 of which securities with a fair value of $ 165.8 million and $ 157.3 million at March 31, 2024 and December 31, 2023, respectively, were pledged to secure uninsured public deposits, borrowings or 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.

March 31, 2024

(Dollars in thousands)

1 unchanged sentence

Due after One Year through Five Years

31,868 27,619

Due after Five Years through Ten Years

4 unchanged sentences

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

There were no realized gain or loss on sales of debt securities for the periods indicated.

There was no realized gain or loss on sales of debt securities for the periods indicated.

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

Three Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

(Dollars in thousands)

15 unchanged sentences

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.

Furthermore, the repayment of commercial real estate loans is typically dependent upon the successful operation of the

related real estate project.

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

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

Construction loans generally provide for the payment of interest only during the construction

phase, which is usually 12 to 18 months.

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.

4 unchanged sentences

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

September 30, 2023 December 31, 2022

March 31, 2024 December 31, 2023

(Dollars in thousands)

9 unchanged sentences

$ 1,086,761 $ 1,100,689

There were $ 5,000 of net PPP loan origination fees earned for the nine months ended September 30, 2023, compared to $ 651,000 for the nine months ended September 30, 2022.

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

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

Total unamortized net deferred loan fees were $ 1.1 million and $ 1.2 million at September 30, 2023 and December 31, 2022, respectively.

Total unamortized net deferred loan fees were $ 897,000 and $ 1.0 million at March 31, 2024 and December 31, 2023, respectively.

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

5 unchanged sentences

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

The following table presents 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 September 30, 2023.

The following tables present 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 the dates indicated.

There were no loans in the criticized category of Loss.

Classified Loans by Origination Year (as of September 30, 2023)

Classified Loans by Origination Year (as of March 31, 2024)

(dollars in thousands) 2024 2023 2022 2021 2020 Prior Revolving Loans Amortized Cost Basis Total

38 unchanged sentences

Gross Charge Offs $ — $ — $ 26 $ 1 $ 6 $ 13 $ 17 $ 63

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

December 31, 2022

(Dollars in Thousands)

$ 327,531 $ 1,180 $ 2,014 $ — $ 330,725

395,168 29,680 11,957 — 436,805

42,693 1,912 318 — 44,923

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

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

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

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

Substandard — — — — — 1,476 — 1,476

Doubtful — — — — — — — —

Loss — — — — — — — —

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

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

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

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

Doubtful — — — — — — — —

Loss — — — — — — — —

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

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

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

Substandard — — — — — — — —

Doubtful — — — — — — — —

Loss — — — — — — — —

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

Commercial and Industrial

58,562 10,977 90 415 70,044

146,807 — 120 — 146,927

20,394 55 — — 20,449

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

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

September 30, 2023

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

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

Substandard — — — — — 4,237 — 4,237

Doubtful — — — — — — — —

Loss — — — — — — — —

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

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

Special Mention — — — — — — — —

Substandard — — — 24 — 64 — 88

Doubtful — — — — — — — —

Loss — — — — — — — —

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

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

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

Substandard — — — — — — — —

Doubtful — — — — — — — —

Loss — — — — — — — —

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

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

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

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:

March 31, 2024

(Dollars in Thousands)

17 unchanged sentences

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

Additional interest income that would have been recorded if the loans that were nonaccrual at September 30, 2023 were current was $ 41,000 and $ 127,000 for the three and nine months ended September 30, 2023, respectively, and $ 56,000 and $ 142,000 for the three and nine months ended September 30, 2022, respectively.

Additional interest income that would have been recorded if the loans that were nonaccrual at March 31, 2024 were current was $ 20,000 for the three months ended March 31, 2024, and $ 33,000 for the three months ended March 31, 2023.

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

September 30, 2023

March 31, 2024

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

2 unchanged sentences

$ 1,727 $ — $ — $ 1,727

1,133 — — 1,133

Construction — — — —

Commercial and Industrial

4 unchanged sentences

Total Nonperforming Assets

No interest income on nonaccrual loans was recognized during the three and nine months ended September 30, 2023.

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

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

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

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

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

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

For the three and nine months ended September 30, 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 the adoption of ASU 2016-13.

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

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

December 31, 2023

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

(Dollars in Thousands)

Nonaccrual Loans:

$ 1,476 $ — $ — $ 1,476

Commercial and Industrial

Total Nonaccrual Loans

Accruing Loans Past Due 90 Days or More:

Total Accruing Loans Past Due 90 Days or More

Total Nonaccrual Loans and Accruing Loans Past Due 90 Days or More

Troubled Debt Restructurings, Accruing:

Commercial and Industrial

Total Troubled Debt Restructurings, Accruing

Total Nonperforming Loans

$ 2,240 $ — $ — 2,240

Other Real Estate Owned:

Total Other Real Estate Owned

Total Nonperforming Assets

The recorded investment of residential real estate loans for which formal foreclosure proceedings were in process according to applicable requirements of the local jurisdiction was $ 900 ,000 and $ 1.4 million at September 30, 2023 and December 31, 2022, respectively.

No interest income on nonaccrual loans was recognized during the three months ended March 31, 2024 and March 31, 2023.

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.

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

For the three months ended March 31, 2024 and March 31, 2023, there were no new loan modifications to borrowers experiencing financial difficulty.

The recorded investment of residential real estate loans for which formal foreclosure proceedings were in process according to applicable requirements of the local jurisdiction was $ 1.4 million and $ 907,000 at March 31, 2024 and December 31, 2023, respectively.

The activity in the ACL - Loans is summarized below by primary segments for the periods indicated:

(Dollars in thousands)

June 30, 2023 $ 2,356 $ 3,216 $ 938 $ 2,140 $ 1,848 $ 168 $ 10,666

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

( 1 ) — — ( 12 ) ( 50 ) — ( 63 )

1 unchanged sentence

Provision (Recovery) for Credit Losses - Loans ( 307 ) 318 231 ( 137 ) ( 260 ) 12 ( 143 )

September 30, 2023 $ 2,899 $ 3,329 $ 1,040 $ 1,919 $ 1,444 $ 217 $ 10,848

March 31, 2024 $ 2,832 $ 2,948 $ 870 $ 1,587 $ 1,084 $ 261 $ 9,582

Residential Real

Commercial Real

Construction Commercial

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 )

( 206 ) — — — ( 272 ) — — ( 478 )

41 32 — 862 94 — — 1,029

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

Charge-offs — — — — ( 53 ) — — ( 53 )

Recoveries 13 — — 758 38 — — 809

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

September 30, 2023 $ 2,899 $ 3,329 $ 1,040 $ 1,919 $ 1,444 $ 217 $ — $ 10,848

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

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

1 unchanged sentence

(in thousands) Allowance for Credit Losses

Balance at June 30, 2023

Impact of CECL adoption —

Balance at December 31, 2023

Provision for Credit Losses - Unfunded Commitments 106

Balance at September 30, 2023 $ 773

Balance at March 31, 2024 $ 606

(in thousands) Allowance for Credit Losses

2 unchanged sentences

Provision for Credit Losses - Unfunded Commitments —

Balance at September 30, 2023 $ 773

Balance at March 31, 2023 $ 718

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

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

value of the collateral and the amortized cost basis of the asset as of the measurement date.

During the three and nine months ended September 30, 2023, there were no loans that required a credit loss to be individually assigned.

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

December 31, 2022

(Dollars in thousands)

Individually Evaluated for Impairment

$ — $ 21 $ — $ 3 $ — $ — $ 24

Collectively Evaluated for Potential Impairment

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

(Dollars in thousands)

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

— — — — ( 46 ) — — ( 46 )

16 — — 38 13 — — 67

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

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

(Dollars in thousands)

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

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

143 — — 106 69 — — 318

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

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

September 30, 2022

(Dollars in thousands)

Individually Evaluated for Impairment

$ — $ 68 $ 146 $ — $ — $ — $ — $ 214

Collectively Evaluated for Potential Impairment

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

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

December 31, 2022

(Dollars in thousands)

Individually Evaluated for Impairment

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

Collectively Evaluated for Potential Impairment

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

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

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

Accretable Discount

(Dollars in Thousands)

December 31, 2022 $ 487

Accretable Yield

September 30, 2023 $ 304

Pre Adoption of ASC 326 – Impaired Loans

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

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

December 31, 2022

During the three months ended March 31, 2024 and March 31, 2023, there were no loans that required a credit loss to be individually assigned.

Derivatives and Hedging Activities

Derivatives Not Designated as Hedging Instruments

The Company has four risk participation agreements with financial institution counterparties for interest rate swaps related to loans in which it is 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 Payable and Other Liabilities on the Company's Consolidated Statement of Financial Condition.

March 31, 2024 December 31, 2023

(Dollars in Thousands)

With No Related Allowance Recorded:

$ 1,042 $ — $ 1,047 $ 1,085 $ 51

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:

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

Construction — — — 830 36

Commercial and Industrial

Total With A Related Allowance Recorded

$ 1,615 $ 24 $ 1,615 $ 2,037 $ 116

Total Impaired Loans

$ 1,042 $ — $ 1,047 $ 1,085 $ 51

13,217 21 13,374 11,882 628

Construction 318 — 318 1,233 55

Commercial and Industrial

512 3 784 987 36

Total Impaired Loans

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

The recorded investment of loans evaluated for impairment decreased $ 15.1 million at September 30, 2023 compared to December 31, 2022 and was primarily related to commercial real estate loans.

Derivatives not Designated as Hedging Instruments

Risk Participation Agreements:

Credit Value Adjustment $ ( 103 ) $ ( 94 )

Notional Amount 16,588 9,119

Derivatives Designated as Hedging Instruments

Interest rate swaps:

Fair Value Adjustment ( 644 ) ( 1,777 )

Notional Amount 75,000 75,000

Fair Value Disclosure

FASB ASC 820 “Fair Value Measurement” defines fair value and provides the framework for measuring fair value and required disclosures about fair value measurements.

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.

9 unchanged sentences

The level in the fair value hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement.

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

The majority of the Company’s securities are included in Level 2 of the fair value hierarchy.

1 unchanged sentence

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

There were no transfers into or out of Level 3 during the nine months ended September 30, 2023 or year ended December 31, 2022.

September 30, 2023 December 31, 2022

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 into or out of Level 3 during the three months ended March 31, 2024 or year ended December 31, 2023.

March 31, 2024 December 31, 2023

(Dollars in thousands)

3 unchanged sentences

Obligations of States and Political Subdivisions Level 2

12,674 13,342

Mortgage-Backed Securities - Government-Sponsored Enterprises Level 2

2 unchanged sentences

101,940 105,130

Collateralized Loan Obligations Level 2 59,604 29,804

Corporate Debt Level 2 7,756 7,719

5 unchanged sentences

Total Securities $ 232,276 $ 207,095

Total Assets $ 232,276 $ 207,095

Derivative Financial Liabilities

Interest Rate Swaps Level 2 $ 644 $ 1,777

Risk Participation Agreements Level 2 103 94

Total Liabilities $ 747 $ 1,871

The following table presents the financial assets on the Consolidated Statements of Financial Condition measured at fair value on a nonrecurring basis as of the dates indicated by level within the fair value hierarchy for only those nonrecurring assets that had a fair value below the carrying amount.

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

Financial Asset Fair Value Hierarchy September 30,

Financial Asset Fair Value Hierarchy December 31,

2023 Valuation

4 unchanged sentences

100 % to 100 % 100.0 %

Financial Asset Fair Value Hierarchy December 31,

2022 Valuation

Techniques Significant Unobservable Inputs Range Weighted Average

(Dollars in thousands)

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

Appraisal Adjustments (2)

0 % to 8 % 7.2 %

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

1 unchanged sentence

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

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

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

At September 30, 2023, the Company did not have any loans that would be required to be remeasured.

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

Collateral dependent 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 March 31, 2024 and December 31, 2023, the Company did not have any loans that would be required to be remeasured.

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

2 unchanged sentences

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

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

At September 30, 2023 and December 31, 2022, the Company did not have any MSRs that would be required to be remeasured.

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

At March 31, 2024 and December 31, 2023, the Company did not have any MSRs that would be required to be remeasured.

Other real estate owned ("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.

As of September 30, 2023, OREO measured at fair value less costs to sell had no net carrying value, which consisted of the outstanding balance of $ 37,000 less write-downs of $ 37,000 .

As of March 31, 2024 the Company did not have any OREO that would be required to be remeasured.

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

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.

5 unchanged sentences

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

September 30, 2023 December 31, 2022

March 31, 2024 December 31, 2023

(Dollars in thousands)

7 unchanged sentences

232,276 232,276 207,095 207,095

Loans Held for Sale Level 2 200 200 — —

1,086,761 1,045,267 1,100,689 1,051,722

6 unchanged sentences

1,262,494 1,259,793 1,267,159 1,263,574

Short-Term Borrowings Level 2

— — 8,060 8,060

Other Borrowed Funds

1 unchanged sentence

Subordinated Debt Level 2 14,688 13,307 14,678 13,378

Derivative Liabilities Level 2 747 747 1,871 1,871

Accrued Interest Payable

7 unchanged sentences

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

The Company maintains an ACL on unfunded commitments to provide for the risk of loss inherent in these arrangements.

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.

The ACL on unfunded loan commitments is included in other liabilities on the Consolidated Statement of Financial Condition and the related expense is recorded in provision for credit losses - unfunded commitments in the Consolidated Statement of Income.

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

September 30,

2024 December 31,

23 unchanged sentences

For secured letters of credit, the collateral is typically Company deposit instruments or customer business assets.

The Company evaluates contracts at commencement to determine if a lease is present.

The Company recorded no liability associated with standby letters of credit as of March 31, 2024 and December 31, 2023.

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 all classified as operating leases and create operating right-of-use (“ROU”) assets and corresponding lease liabilities on the Consolidated Statements of Financial Condition.

3 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

(Dollars in thousands)

Operating Lease Expense $ 77 $ 77

Short-Term Lease Expense — — — —

Variable Lease Expense 8 7

Total Lease Expense $ 85 $ 84

September 30,

2024 December 31,

4 unchanged sentences

Weighted Average Discount Rate 4.04 % 2.86 %

September 30,

(Dollars in thousands)

9 unchanged sentences

Lease Liabilities $ 2,749

There were no new lease agreements entered into during the nine months ended September 30, 2023.

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

Other Noninterest Expense

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

Three Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

(Dollars in thousands)

Non-Employee Compensation $ 146 $ 139 $ 448 $ 410

Printing and Supplies 50 63 174 190

Postage 58 163 221 300

Telephone 128 132 396 390

Charitable Contributions 32 39 90 120

Dues and Subscriptions 37 24 159 121

Loan Expenses 56 209 203 459

Meals and Entertainment 40 33 81 101

Travel 62 43 167 116

Training 13 10 64 41

Bank Assessment 47 47 145 141

Insurance 86 70 243 201

Miscellaneous 123 91 327 309

Total Other Noninterest Expense $ 878 $ 1,063 $ 2,718 $ 2,899

On March 29, 2024, the Bank completed the sale and leaseback of a branch office located in Rostraver, Pennsylvania for a sales price of $ 1.1 million.

As a result, the Bank recorded a pre-tax net gain of $ 274,000 .

Concurrently, the Bank entered into a lease agreement with the purchaser under which the Bank will lease the property for an initial term of 20 years with specified renewal options.

The lease agreement includes a 2.0 % annual rent escalation during the initial term and renewal terms, if exercised.

The Bank recorded an operating lease ROU asset and corresponding lease liability of $ 1.0 million.

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

Segment and Related Information

At September 30, 2023, the Company’s business activities were comprised of two operating segments, which are community banking and insurance brokerage services.

At March 31, 2024, the Company’s business activities were comprised of one operating segment, which is community banking.

In prior reporting periods, the Company's business activities were comprised of two operating segments, community banking and insurance brokerage services.

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

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

Exchange Underwriters is an independent insurance agency that offers property, casualty, commercial liability, surety and other insurance products.

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

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

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 March 31, 2024 and 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 is a table of selected financial data for the Company’s subsidiaries and consolidated results at the dates and for the periods indicated:

3 unchanged sentences

(Dollars in thousands)

September 30, 2023

March 31, 2024

Assets $ 1,471,305 $ 28,771 $ 156,604 $ ( 183,591 ) $ 1,473,089

5 unchanged sentences

Stockholders' Equity 137,359 21,259 139,834 ( 158,618 ) 139,834

Three Months Ended September 30, 2023

Interest and Dividend Income $ 15,853 $ 1 $ 1,298 $ ( 1,278 ) $ 15,874

Interest Expense 5,002 — 155 — 5,157

Net Interest and Dividend Income 10,851 1 1,143 ( 1,278 ) 10,717

Provision for Credit Losses - Loans 291 — — — 291

Provision for Credit Losses - Unfunded Commitments 115 — — — 115

Net Interest and Dividend Income After Provision for Credit Losses 10,445 1 1,143 ( 1,278 ) 10,311

Noninterest Income (Loss) 1,006 1,436 ( 30 ) — 2,412

Noninterest Expense 8,344 1,137 6 — 9,487

Undistributed Net Income of Subsidiary 214 — 1,529 ( 1,743 ) —

Income Before Income Tax Expense (Benefit) 3,321 300 2,636 ( 3,021 ) 3,236

Income Tax Expense (Benefit) 514 86 ( 36 ) — 564

Net Income $ 2,807 $ 214 $ 2,672 $ ( 3,021 ) $ 2,672

Nine Months Ended September 30, 2023

Three Months Ended March 31, 2024

Interest and Dividend Income $ 17,965 $ — $ 1,301 $ ( 1,280 ) $ 17,986

1 unchanged sentence

Net Interest and Dividend Income 11,725 — 1,146 ( 1,280 ) 11,591

Provision for Credit Losses - Loans 863 — — — 863

Recovery for Credit Losses - Loans ( 143 ) — — — ( 143 )

Provision for Credit Losses - Unfunded Commitments 106 — — — 106

Net Interest and Dividend Income After Provision for Credit Losses 32,904 5 3,423 ( 3,830 ) 32,502

Net Interest and Dividend Income After Net Recovery for Credit Losses 11,762 — 1,146 ( 1,280 ) 11,628

Noninterest Income (Loss) 2,074 — ( 158 ) — 1,916

4 unchanged sentences

Net Income $ 4,430 $ — $ 4,196 $ ( 4,430 ) $ 4,196

Community Bank Exchange Underwriters, Inc.

CB Financial Services, Inc.

Net Eliminations Consolidated

(Dollars in thousands)

Three Months Ended September 30, 2022

Three Months Ended March 31, 2023

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

9 unchanged sentences

Net Income $ 4,462 $ 608 $ 4,156 $ ( 5,070 ) $ 4,156

Nine Months Ended September 30, 2022

Interest and Dividend Income $ 33,802 $ 4 $ 3,779 $ ( 3,724 ) $ 33,861

Interest Expense 2,325 — 467 — 2,792

Net Interest and Dividend Income 31,477 4 3,312 ( 3,724 ) 31,069

Provision for Credit Losses 3,784 — — — 3,784

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

Noninterest Income (Loss) 3,023 4,572 ( 136 ) — 7,459

Noninterest Expense 22,806 3,074 13 — 25,893

Undistributed Net Income of Subsidiary 1,064 — 3,762 ( 4,826 ) —

Income Before Income Tax Expense (Benefit) 8,974 1,502 6,925 ( 8,550 ) 8,851

Income Tax Expense (Benefit) 1,488 438 ( 169 ) — 1,757

Net Income $ 7,486 $ 1,064 $ 7,094 $ ( 8,550 ) $ 7,094

Stock Based Compensation

6 unchanged sentences

Forfeited ( 3,128 ) 24.14

Outstanding Options at September 30, 2023 348,123 $ 23.95 5.8

Exercisable Options at September 30, 2023 192,549 $ 24.45 3.3

Outstanding Options at March 31, 2024 428,266 $ 23.67 5.6

Exercisable Options at March 31, 2024 233,957 $ 24.32 3.3

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

Nonvested Options at September 30, 2023 155,574 $ 23.34 8.8

Nonvested Options at March 31, 2024 194,309 $ 22.90 8.3

Summary of Significant Assumptions for Newly Issued Stock Options

10 unchanged sentences

Forfeited ( 1,650 ) 22.48

Nonvested Restricted Stock at September 30, 2023 91,832 $ 23.36 3.9

Nonvested Restricted Stock at March 31, 2024 84,824 $ 22.78 3.2

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 $ 196,000 and $ 145,000 for the three months ended September 30, 2023 and 2022.

Stock based compensation was $ 557,000 and $ 424,000 for the nine months ended September 30, 2023 and 2022.

As of September 30, 2023 and December 31, 2022, total unrecognized compensation expense was $ 609,000 and $ 430,000 , respectively, related to stock options, and $ 1.7 million and $ 1.4 million, respectively, related to restricted stock awards.

Intrinsic value represents the amount by which the fair value of the underlying stock at September 30, 2023 and December 31, 2022 exceeds the exercise price of the stock options.

The intrinsic value of stock options was $ 47,000 and $ 25,000 at September 30, 2023 and December 31, 2022, respectively.

At September 30, 2023 and December 31, 2022, respectively, there were 181,275 and 333,335 shares available under the Plan to be issued in connection with the exercise of stock options, and 72,510 and 133,334 shares that may be issued as restricted stock awards or units.

Stock-based compensation expense related to restricted stock awards and stock options was $ 178,000 and $ 174,000 for the three months ended March 31, 2024 and 2023.

As of March 31, 2024 and December 31, 2023, total unrecognized compensation expense was $ 905,000 and $ 505,000 , respectively, related to stock options, and $ 1.8 million and $ 1.4 million, respectively, related to restricted stock awards.

Intrinsic value represents the amount by which the fair value of the underlying stock at March 31, 2024 and December 31, 2023 exceeds the exercise price of the stock options.

The intrinsic value of stock options was $ 27,000 and $ 335,000 at March 31, 2024 and December 31, 2023, respectively.

At March 31, 2024 and December 31, 2023, respectively, there were 6,489 and 161,464 shares available under the Plan to be issued in connection with the exercise of stock options, and 2,596 and 64,586 shares that may be issued as restricted stock awards or units.

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

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The Company evaluated subsequent events through the date the consolidated financial statements were filed with the SEC and incorporated into the consolidated financial statements the effect of all material known events determined by Accounting Standards Codification ("ASC") 855, Subsequent Events , to be recognizable events.

The following item was deemed to be a subsequent event by the Company.

On October 12, 2023, the Bank received email notification from one of its third-party vendors (the "Vendor") that the Vendor used MOVEit Transfer ("MOVEit"), a managed file transfer software developed and maintained by Progress Software Corporation ("PSC"), to transfer information in connection with processing of Bank customer accounts and item processing of Bank customer accounts, including check images, deposit slips, remote deposit capture files, and reports.

The Vendor informed the Bank that its review indicates that the affected files included the following data elements for some or all of the affected Bank customers and accounts:

name, business name, address, state, telephone number, date of birth, full social security number, tax ID number, account number, and routing number.

The Bank estimates that approximately 33 % of its customers and approximately 26 % of customer accounts are affected by the Vendor incident.

The Bank has notified the affected customers in writing about the Vendor incident.

PSC recently disclosed a zero-day vulnerability, a previously unknown flaw, in MOVEit that could enable malicious actors to gain unauthorized access to sensitive files and information.

MOVEit is the subject of a widely reported cybersecurity event impacting numerous private organizations and governmental agencies.

The Vendor, and not the Bank itself, uses MOVEit, and the Vendor has informed the Bank that it has rectified the vulnerability that allowed the incident to occur.

The Bank, along with numerous other financial institutions, uses the Vendor for certain regulatory compliance and operational support services, including account hosting and transaction processing.

The Vendor has notified law enforcement and its regulators about the Vendor incident.

The Bank has notified its primary banking regulators about the Vendor incident, and will continue to keep them informed.

The Company has incurred certain expenses relating to the Vendor incident, and may incur additional expenses.

While the Company continues to evaluate the full scope and impact of the Vendor incident, the Company does not currently believe the Vendor incident will have a material adverse effect on the Bank's business and operations or the Company's consolidated financial statements.

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

What changed 10-Q

Item 1. Financial Statements