CB Financial Services, Inc. 10-Q

Item 1. Financial Statements. CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited) June 30, 2024 December 31, 2023 (Dollars in thousands, except per share and share data) ASSETS Cash and Due From Banks: Interest-Earning $ 133,796 $ 62,442 Noninterest-Earning 8,804 5,781 Total Cash and Due From Banks 142,600 68,223 Securities: Available-for-Sale Debt Securities, at Fair Value 266,378 204,507 Equity Securities, at Fair Value 2,391 2,588 Total Securities 268,769 207,095 Loans Held for Sale 632 — Loans, Net of Allowance for Credit Losses of $ 9,527 and $ 9,707 at June 30, 2024 and December 31, 2023, Respectively 1,069,167 1,100,689 Premises and Equipment, Net 20,326 19,704 Bank-Owned Life Insurance 23,910 25,378 Goodwill 9,732 9,732 Intangible Assets, Net 353 958 Accrued Interest Receivable and Other Assets 24,770 24,312 TOTAL ASSETS $ 1,560,259 $ 1,456,091 LIABILITIES Deposits: Noninterest-Bearing Demand Accounts $ 269,964 $ 277,747 Interest-Bearing Demand Accounts 324,688 362,994 Money Market Accounts 229,998 201,074 Savings Accounts 179,081 194,703 Time Deposits 346,037 230,641 Total Deposits 1,349,768 1,267,159 Other Borrowings 34,698 34,678 Accrued Interest Payable and Other Liabilities 32,911 14,420 TOTAL LIABILITIES 1,417,377 1,316,257 STOCKHOLDERS' EQUITY Preferred Stock, No Par Value; 5,000,000 Shares Authorized — — Common Stock, $ 0.4167 Par Value; 35,000,000 Shares Authorized, 5,783,588 Shares Issued and 5,141,911 Shares Outstanding at June 30, 2024, with 5,759,378 and 5,118,713 Shares Issued and Outstanding at December 31, 2023. 2,410 2,400 Capital Surplus 85,718 85,334 Retained Earnings 87,673 83,392 Treasury Stock, at Cost ( 641,677 and 640,665 Shares at June 30, 2024 and December 31, 2023, Respectively) ( 14,568 ) ( 14,545 ) Accumulated Other Comprehensive Loss ( 18,351 ) ( 16,747 ) TOTAL STOCKHOLDERS' EQUITY 142,882 139,834 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,560,259 $ 1,456,091 The accompanying notes are an integral part of these consolidated financial statements 1 Table of Contents CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 (Dollars in thousands, except share and per share data) INTEREST AND DIVIDEND INCOME Loans, Including Fees $ 14,670 $ 13,426 $ 29,508 $ 25,797 Investment Securities: Taxable 2,844 950 5,148 1,914 Tax-Exempt — 42 — 83 Dividends 27 25 54 49 Other Interest and Dividend Income 1,398 760 2,216 1,605 TOTAL INTEREST AND DIVIDEND INCOME 18,939 15,203 36,926 29,448 INTEREST EXPENSE Deposits 7,065 3,842 13,056 6,346 Short-Term Borrowings — 3 — 5 Other Borrowings 404 238 808 393 TOTAL INTEREST EXPENSE 7,469 4,083 13,864 6,744 NET INTEREST AND DIVIDEND INCOME 11,470 11,120 23,062 22,704 Provision (Recovery) For Credit Losses - Loans 12 492 ( 130 ) 572 (Recovery) Provision For Credit Losses - Unfunded Commitments ( 48 ) ( 60 ) 57 ( 60 ) NET INTEREST AND DIVIDEND INCOME AFTER NET (RECOVERY) PROVISION FOR CREDIT LOSSES 11,506 10,688 23,135 22,192 NONINTEREST INCOME Service Fees 354 448 769 892 Insurance Commissions 1 1,511 3 3,434 Other Commissions 22 224 84 368 Net Gain (Loss) on Sales of Loans 9 ( 5 ) 30 ( 3 ) Net Loss on Securities ( 31 ) ( 100 ) ( 197 ) ( 332 ) Net Gain on Purchased Tax Credits 12 7 25 14 Net Gain on Disposal of Premises and Equipment — — 274 11 Income from Bank-Owned Life Insurance 147 139 295 280 Net Gain on Bank-Owned Life Insurance Claims — 1 915 303 Other Income 174 44 406 113 TOTAL NONINTEREST INCOME 688 2,269 2,604 5,080 NONINTEREST EXPENSE Salaries and Employee Benefits 4,425 5,231 9,001 10,310 Occupancy 940 789 1,689 1,490 Equipment 298 283 562 501 Data Processing 1,011 718 1,703 1,575 Federal Deposit Insurance Corporation Assessment 161 224 290 376 Pennsylvania Shares Tax 297 195 595 455 Contracted Services 390 434 671 581 Legal and Professional Fees 208 246 420 428 Advertising 78 75 206 154 Other Real Estate Owned (Income) 37 ( 35 ) 14 ( 72 ) Amortization of Intangible Assets 264 446 605 891 Other Expense 875 895 1,656 1,841 TOTAL NONINTEREST EXPENSE 8,984 9,501 17,412 18,530 Income Before Income Tax Expense 3,210 3,456 8,327 8,742 Income Tax Expense 560 699 1,480 1,827 NET INCOME $ 2,650 $ 2,757 $ 6,847 $ 6,915 EARNINGS PER SHARE Basic $ 0.52 $ 0.54 $ 1.33 $ 1.35 Diluted 0.51 0.54 1.33 1.35 WEIGHTED AVERAGE SHARES OUTSTANDING Basic 5,142,139 5,111,987 5,136,021 5,110,799 Diluted 5,152,657 5,116,134 5,151,188 5,118,396 The accompanying notes are an integral part of these consolidated financial statements 2 Table of Contents CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 (Dollars in thousands) Net Income $ 2,650 $ 2,757 $ 6,847 $ 6,915 Other Comprehensive Loss: Change in Unrealized Loss on Investment Securities Available-for-Sale ( 344 ) ( 2,704 ) ( 1,972 ) ( 124 ) Income Tax Effect 73 583 368 26 Other Comprehensive Loss, Net of Income Tax Effect ( 271 ) ( 2,121 ) ( 1,604 ) ( 98 ) Total Comprehensive Income $ 2,379 $ 636 $ 5,243 $ 6,817 The accompanying notes are an integral part of these consolidated financial statements 3 Table of Contents CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED) Three Months Ended June 30, 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) March 31, 2024 5,783,788 $ 2,411 $ 85,501 $ 86,308 $ ( 14,550 ) $ ( 18,080 ) $ 141,590 Comprehensive Income: Net Income — — — 2,650 — — 2,650 Other Comprehensive Loss — — — — — ( 271 ) ( 271 ) Restricted Stock Awards Forfeited ( 200 ) ( 1 ) 19 — ( 18 ) — — Stock-Based Compensation Expense — — 198 — — — 198 Dividends Paid ($ 0.25 Per Share) — — — ( 1,285 ) — — ( 1,285 ) June 30, 2024 5,783,588 $ 2,410 $ 85,718 $ 87,673 $ ( 14,568 ) $ ( 18,351 ) $ 142,882 Three Months Ended June 30, 2023 Shares Issued Common Stock Capital Surplus Retained Earnings Treasury Stock Accumulated Other Comprehensive Loss Total Stockholders' Equity (Dollars in thousands, except share and per share data) March 31, 2023 5,730,908 $ 2,388 $ 84,118 $ 68,834 $ ( 13,927 ) $ ( 24,218 ) $ 117,195 Comprehensive Income: Net Income — — — 2,757 — — 2,757 Other Comprehensive Loss — — — — — ( 2,121 ) ( 2,121 ) Restricted Stock Awards Forfeited — — 21 — ( 21 ) — — Restricted Stock Awards Granted 2,500 1 ( 1 ) — — — — Stock-Based Compensation Expense — — 187 — — — 187 Exercise of Stock Options — — — — 45 — 45 Treasury Stock Purchased, at cost ( 8,792 shares) — — — — ( 197 ) — ( 197 ) Dividends Paid ($ 0.25 Per Share) — — — ( 1,277 ) — — ( 1,277 ) June 30, 2023 5,733,408 $ 2,389 $ 84,325 $ 70,314 $ ( 14,100 ) $ ( 26,339 ) $ 116,589 The accompanying notes are an integral part of these consolidated financial statements 4 Table of Contents Six Months Ended June 30, 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 Comprehensive Income: Net Income — — — 6,847 — — 6,847 Other Comprehensive Loss — — — — — ( 1,604 ) ( 1,604 ) Restricted Stock Awards Granted 25,410 11 ( 11 ) — — — — Restricted Stock Awards Forfeited ( 1,200 ) ( 1 ) 19 — ( 18 ) — — Stock-Based Compensation Expense — — 376 — — — 376 Exercise of Stock Options — — — — — — — Treasury stock purchased, at cost ( 222 shares) — — — — ( 5 ) — ( 5 ) Dividends Paid ($ 0.50 Per Share) — — — ( 2,566 ) — — ( 2,566 ) June 30, 2024 5,783,588 $ 2,410 $ 85,718 $ 87,673 $ ( 14,568 ) $ ( 18,351 ) $ 142,882 Six Months Ended June 30, 2023 Shares Issued Common Stock Capital Surplus Retained Earnings Treasury Stock Accumulated Other Comprehensive Loss Total Stockholders' Equity (Dollars in thousands, except share and per share data) December 31, 2022 5,708,433 $ 2,379 $ 83,953 $ 63,861 $ ( 13,797 ) $ ( 26,241 ) $ 110,155 Adoption of Accounting Standard ASU 2016-13 — — — 2,092 — — 2,092 Balance at January 1, 2023, adjusted 5,708,433 2,379 83,953 65,953 ( 13,797 ) ( 26,241 ) 112,247 Comprehensive Income: Net Income — — — 6,915 — — 6,915 Other Comprehensive Loss — — — — — ( 98 ) ( 98 ) Restricted Stock Awards Forfeited — — 21 — ( 21 ) — — Restricted Stock Awards Granted 24,975 10 ( 10 ) — — — — Stock-Based Compensation Expense — — 361 — — — 361 Exercise of Stock Options — — — — 45 — 45 Treasury Stock Purchased, at cost ( 14,478 shares) — — — — ( 327 ) — ( 327 ) Dividends Paid ($ 0.50 Per Share) — — — ( 2,554 ) — — ( 2,554 ) June 30, 2023 5,733,408 $ 2,389 $ 84,325 $ 70,314 $ ( 14,100 ) $ ( 26,339 ) $ 116,589 The accompanying notes are an integral part of these consolidated financial statements 5 Table of Contents CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Six Months Ended June 30, 2024 2023 (Dollars in thousands) OPERATING ACTIVITIES Net Income $ 6,847 $ 6,915 Adjustments to Reconcile Net Income to Net Cash Provided By Operating Activities Net (Accretion) Amortization on Securities ( 403 ) 40 Depreciation and Amortization 1,400 1,420 (Recovery) Provision for Credit Losses - Loans ( 130 ) 572 Provision (Recovery) for Credit Losses - Unfunded Commitments 57 ( 60 ) Loss on Securities 197 332 Gain on Purchased Tax Credits ( 25 ) ( 14 ) Income from Bank-Owned Life Insurance ( 295 ) ( 280 ) Gain on Bank-Owned Life Insurance Death Benefit Claims ( 915 ) — Proceeds From Mortgage Loans Sold 1,631 269 Originations of Mortgage Loans for Sale ( 2,233 ) ( 266 ) (Gain) Loss on Sale of Loans ( 30 ) 3 Gain on Sale of Other Real Estate Owned and Repossessed Assets 30 — Noncash Expense for Stock-Based Compensation 376 361 Increase in Accrued Interest Receivable ( 568 ) ( 561 ) Gain on Disposal of Premises and Equipment ( 274 ) ( 11 ) Decrease in Deferred Income Tax ( 522 ) — Decrease in Taxes Payable ( 2,557 ) ( 839 ) Increase in Accrued Interest Payable 983 963 Other, Net ( 1,475 ) ( 308 ) NET CASH PROVIDED BY OPERATING ACTIVITIES 2,094 8,536 INVESTING ACTIVITIES Investment Securities Available for Sale: Proceeds From Principal Repayments and Maturities 6,784 8,135 Purchases of Securities ( 62,669 ) — Net Decrease (Increase) in Loans 46,295 ( 45,113 ) Purchase of Premises and Equipment ( 2,189 ) ( 1,345 ) Proceeds from Disposal of Premises and Equipment 988 36 Proceeds From a Claim on Bank-Owned Life Insurance 2,678 731 Proceeds From Sale of Other Real Estate Owned 132 — Decrease (Increase) in Restricted Equity Securities 226 ( 503 ) NET CASH USED IN INVESTING ACTIVITIES ( 7,755 ) ( 38,059 ) FINANCING ACTIVITIES Net Increase (Decrease) in Deposits 82,609 ( 5,188 ) Net Decrease in Short-Term Borrowings — ( 8,060 ) Proceeds From Other Borrowed Funds — 20,000 Cash Dividends Paid ( 2,566 ) ( 2,554 ) Treasury Stock, Purchases at Cost ( 5 ) ( 327 ) Exercise of Stock Options — 45 NET CASH PROVIDED BY FINANCING ACTIVITIES 80,038 3,916 INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 74,377 ( 25,607 ) CASH AND DUE FROM BANKS AT BEGINNING OF YEAR 68,223 103,700 CASH AND DUE FROM BANKS AT END OF PERIOD $ 142,600 $ 78,093 The accompanying notes are an integral part of these consolidated financial statements 6 Table of Contents CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Six Months Ended June 30, 2024 2023 (Dollars in thousands) SUPPLEMENTAL CASH FLOW INFORMATION: Cash Paid For: Interest on Deposits and Borrowings (Including Interest Credited to Deposits of $ 12,070 and $ 5,462 , Respectively) $ 12,881 $ 5,781 Income Taxes 4,222 — SUPPLEMENTAL NONCASH DISCLOSURE: Proceeds Receivable from Claims on Bank-Owned Life Insurance — 664 Other Real Estate Acquired in Settlement of Loans 151 166 Securities Purchased Not Settled 7,556 — Syndicated Loans Purchased and Sold Not Settled, net 14,672 6,976 Right of Use Asset Recognized 1,452 — Lease Liability Recognized 1,452 — The accompanying notes are an integral part of these consolidated financial statements 7 Table of Contents NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Note 1. Summary of Significant Accounting Policies Principles of Consolidation and Basis of Presentation The accompanying consolidated financial statements include the accounts of CB Financial Services, Inc. (“CB Financial”) and its wholly owned subsidiary, Community Bank (the “Bank”), and the Bank’s wholly-owned subsidiary, Exchange Underwriters, Inc. (“Exchange Underwriters”). CB Financial, the Bank and Exchange Underwriters are collectively referred to as the “Company”. All intercompany transactions and balances have been eliminated in consolidation. The accompanying unaudited interim financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and with general practice within the banking industry. Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading in any material respect. In preparing financial statements in conformity with GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the Consolidated Statements of Financial Condition and income and expenses for the reporting period. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to determination of the allowance for credit losses on loans, the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans, impairment evaluations of securities, goodwill and intangible assets impairment, and the valuation of deferred tax assets. In the opinion of management, the accompanying unaudited interim financial statements include all adjustments considered necessary for a fair presentation of the Company’s financial position and results of operations at the dates and for the periods presented. All these adjustments are of a normal, recurring nature, and they are the only adjustments included in the accompanying unaudited interim financial statements. These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. Interim results are not necessarily indicative of results for a full year. Nature of Operations The Company derives substantially all its income from banking and bank-related services which include interest income on commercial, commercial mortgage, residential real estate and consumer loan financing, as well as interest and dividend income on securities, insurance commissions, and fees generated from deposit services to its customers. The Company provides banking services through its subsidiary, Community Bank, a Pennsylvania-chartered commercial bank headquartered in Carmichaels, Pennsylvania. The Bank is a community-oriented institution offering residential and commercial real estate loans, commercial and industrial loans, and consumer loans as well as a variety of deposit products for individuals and businesses in its market area. The Bank operates nine 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; Use of Critical Accounting Estimates The disclosures below supplement the accounting policies 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. Allowance for Credit Losses (ACL) On January 1, 2023, the Company adopted ASU 2016-13, which replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss methodology. The Company adopted ASU 2016-13 using a modified retrospective approach. Results for reporting periods beginning after January 1, 2023 are presented under Topic 326, while prior period amounts continue to be reported in accordance with previously applicable GAAP. The adoption resulted in a decrease of $ 3.4 million to the Company’s ACL related to loans receivable (ACL - Loans) and an increase of $ 718,000 in ACL for unfunded commitments (ACL - Unfunded Commitments). The net impact resulted in a $ 2.1 million increase to retained earnings, net of deferred taxes. The ACL represents the estimated amount considered necessary to cover lifetime expected credit losses inherent in financial assets at the balance sheet date. The measurement of expected credit losses is applicable to loans receivable and securities 8 Table of Contents 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 account on the Consolidated Statement of Financial Condition. The expected credit loss for unfunded loan commitments is reported on the Consolidated Statement of Financial Condition in other liabilities while the provision for credit losses related to unfunded commitments is reported in provision for credit losses - unfunded commitments in the Consolidated Statements of Income. ACL on Loans Receivable The ACL on loans is deducted from the amortized cost basis of the loan to present the net amount expected to be collected. Expected losses are evaluated and calculated on a collective, or pooled, basis for those loans which share similar risk characteristics. At each reporting period, the Company evaluates whether loans within a pool continue to exhibit similar risk characteristics. If the risk characteristics of a loan change, such that they are no longer similar to other loans in the pool, the Company will evaluate the loan with a different pool of loans that share similar risk characteristics. If the loan does not share risk characteristics with other loans, the Company will evaluate the loan on an individual basis. The Company evaluates the pooling methodology at least annually. Loans are charged off against the ACL when the Company believes the balances to be uncollectible. Expected recoveries do not exceed the aggregate of amounts previously charged off or expected to be charged off. The Company has chosen to segment its portfolio consistent with the manner in which it manages credit risk. Such segments include residential mortgage, commercial real estate mortgages, construction, commercial business, consumer and other. For most segments, the Company calculates estimated credit losses using a probability of default and loss given default methodology, the results of which are applied to the aggregated discounted cash flow of each individual loan within the segment. The point in time probability of default and loss given default are then conditioned by macroeconomic scenarios to incorporate reasonable and supportable forecasts that affect the collectability of the reported amount. The Company estimates the ACL on loans via a quantitative analysis which considers relevant available information from internal and external sources related to past events and current conditions, as well as the incorporation of reasonable and supportable forecasts. The Company evaluates a variety of factors including third party economic forecasts, industry trends and other available published economic information in arriving at its forecasts. After the reasonable and supportable forecast period, the Company reverts, on a straight-line basis, to average historical losses. Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate. The contractual term excludes expected extensions, renewals, and modifications unless either of the following applies: management has a reasonable expectation at the reporting date that a restructuring will be executed with an individual borrower or the renewal option is included in the original or modified contract at the reporting date and are not unconditionally cancellable by the Company. Also included in the ACL on loans are qualitative reserves to cover losses that are expected but, in the Company’s assessment, may not be adequately represented in the quantitative analysis or the forecasts described above. Factors that the Company considers include changes in lending policies and procedures, business conditions, the nature and size of the portfolio, portfolio concentrations, the volume and severity of past due loans and non-accrual loans, and the effect of external factors such as competition, legal and regulatory requirements, among others. Furthermore, the Company considers the inherent uncertainty in quantitative models that are built upon historical data. Individually Evaluated Loans On a case-by-case basis, the Company may conclude that a loan should be evaluated on an individual basis based on its disparate risk characteristics. When the Company determines that a loan no longer shares similar risk characteristics with other loans in the portfolio, the allowance will be determined on an individual basis using the present value of expected cash flows or, for collateral-dependent loans, the fair value of the collateral as of the reporting date, less estimated selling costs, as applicable. If the fair value of the collateral is less than the amortized cost basis of the loan, the Company will charge off the difference between the fair value of the collateral, less estimated costs to sell at the reporting date, and the amortized cost basis of the loan. 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. 9 Table of Contents ACL on Available-for-Sale Securities For available-for-sale securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For securities available-for-sale that do not meet the above criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, the Company considers the extent to which fair value is less than amortized cost, any changes to the rating by a rating agency, and adverse conditions related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of the cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an ACL is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost. Any impairment that has not been recorded through an ACL is recognized in other comprehensive income (loss), net of tax. The Company elected the practical expedient of zero loss estimates for securities issued by U.S. government entities and agencies. These securities are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major agencies and have a long history of no credit losses. Changes in the ACL are recorded as provision for, or reversal of, credit loss expense. Losses are charged against the allowance when management believes the uncollectibility of an available for sale security is confirmed or when either of the criteria regarding intent or requirement to sell is met. Accrued Interest Receivable The Company made an accounting policy election to exclude accrued interest receivable from the amortized cost basis of loans and available for sale securities. Accrued interest receivable on loans is reported as a component of accrued interest receivable and other assets on the Consolidated Statement of Financial Condition, totaled $ 4.1 million at June 30, 2024 and $ 4.7 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 $ 1.5 million at June 30, 2024 and $ 947,000 at December 31, 2023 and is excluded from the estimate of credit losses. Recent Accounting Standards In December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848 that extends the period of time preparers can utilize the reference rate reform relief guidance. In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, as amended. This ASU provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference the London Inter-bank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued. The elective guidance in the ASU applies to modifications of contract terms that will directly replace, or have the potential to replace, an affected rate with another interest rate index, as well as certain contemporaneous modifications of other contract terms related to the replacement of an affected rate. The ASU notes that changes in contract terms that are made to effect the reference rate reform transition are considered related to the replacement of a reference rate if they are not the result of a business decision that is separate from or in addition to changes to the terms of a contract to effect that transition. The optional expedient allows companies to account for the modification as if it was not substantial (i.e., do not treat as an extinguishment of debt). To ensure the relief in Topic 848 covers the period of time during which a significant number of modifications may take place, ASU 2022-06 defers the sunset date of Topic 848 from December 31, 2022 to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848. For all entities, the amendments in ASU 2022-06 are effective upon issuance. As of June 30, 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 periods 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 condition and results of operations. 10 Table of Contents Note 2. Earnings Pe r Share There are no convertible securities which would affect the numerator in calculating basic and diluted earnings per share; therefore, net income as presented on the Consolidated Statements of Income is used as the numerator. The following table sets forth the composition of the weighted-average common shares (denominator) used in the basic and diluted earnings per share computation: Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 (Dollars in thousands, except share and per share data) Net Income $ 2,650 $ 2,757 $ 6,847 $ 6,915 Weighted-Average Basic Common Shares Outstanding 5,142,139 5,111,987 5,136,021 5,110,799 Dilutive Effect of Common Stock Equivalents (Stock Options and Restricted Stock) 10,518 4,147 15,167 7,597 Weighted-Average Diluted Common Shares and Common Stock Equivalents Outstanding 5,152,657 5,116,134 5,151,188 5,118,396 Earnings Per Share: Basic $ 0.52 $ 0.54 $ 1.33 $ 1.35 Diluted 0.51 0.54 1.33 1.35 The dilutive effect on weighted average diluted common shares outstanding is the result of outstanding stock options and nonvested restricted stock. The following table presents for the periods indicated (a) options to purchase shares of common stock that were outstanding but not included in the computation of earnings per share because the options’ exercise price was greater than the average market price of the common shares for the period, and (b) shares of restricted stock awards that were not included in the computation of diluted earnings per share because the hypothetical repurchase of shares under the treasury stock method exceeded the weighted average nonvested restricted awards, therefore the effects would be anti-dilutive. Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Stock Options 402,297 339,123 300,597 339,123 Restricted Stock 11,154 58,527 — 51,727 11 Table of Contents Note 3. Securities The following table presents the amortized cost and fair value of securities available-for-sale at the dates indicated: June 30, 2024 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value (Dollars in thousands) Available-for-Sale Debt Securities: U.S. Government Agencies $ 4,996 $ — $ ( 1,093 ) $ 3,903 Obligations of States and Political Subdivisions 3,488 — ( 154 ) 3,334 Mortgage-Backed Securities - Government-Sponsored Enterprises 55,819 — ( 3,450 ) 52,369 Collateralized Mortgage Obligations - Government-Sponsored Enterprises 115,957 — ( 16,973 ) 98,984 Collateralized Loan Obligations 99,956 58 ( 205 ) 99,809 Corporate Debt 9,481 — ( 1,502 ) 7,979 Total Available-for-Sale Debt Securities 289,697 58 ( 23,377 ) 266,378 Equity Securities: Mutual Funds 874 Other 1,517 Total Equity Securities 2,391 Total Securities $ 268,769 December 31, 2023 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 12 Table of Contents The following tables show the Company’s gross unrealized losses and fair value, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position, at the dates indicated: June 30, 2024 Less than 12 months 12 Months or Greater Total Number of Securities Fair Value Gross Unrealized Losses Number of Securities Fair Value Gross Unrealized Losses Number of Securities Fair Value Gross Unrealized Losses (Dollars in thousands) U.S. Government Agencies — $ — $ — 1 $ 3,903 $ ( 1,093 ) 1 $ 3,903 $ ( 1,093 ) Obligations of States and Political Subdivisions 1 543 ( 3 ) 6 2,791 ( 151 ) 7 3,334 ( 154 ) Mortgage Backed Securities- Government-Sponsored Enterprises 4 26,375 ( 333 ) 8 16,042 ( 3,117 ) 12 42,417 ( 3,450 ) Collateralized Mortgage Obligations - Government-Sponsored Enterprises 4 31,944 ( 685 ) 21 67,040 ( 16,288 ) 25 98,984 ( 16,973 ) Collateralized Loan Obligations 5 37,617 ( 205 ) — — — 5 37,617 ( 205 ) Corporate Debt — — — 3 7,979 ( 1,502 ) 3 7,979 ( 1,502 ) Total 14 $ 96,479 $ ( 1,226 ) 39 $ 97,755 $ ( 22,151 ) 53 $ 194,234 $ ( 23,377 ) December 31, 2023 Less than 12 months 12 Months or Greater Total Number of Securities Fair Value Gross Unrealized Losses Number of Securities Fair Value Gross Unrealized Losses Number of Securities Fair Value Gross Unrealized Losses (Dollars in thousands) U.S. Government Agencies — $ — $ — 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 ) 13 Table of Contents For debt securities, the Company does not believe that any individual unrealized loss as of June 30, 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 June 30, 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 $ 249.8 million at June 30, 2024 and $ 196.8 million at December 31, 2023 of which securities with a fair value of $ 171.1 million and $ 157.3 million at June 30, 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. June 30, 2024 Amortized Cost Fair Value (Dollars in thousands) Due in One Year or Less $ — $ — Due after One Year through Five Years 758 732 Due after Five Years through Ten Years 53,054 51,125 Due after Ten Years 235,885 214,521 Total $ 289,697 $ 266,378 The following table presents the gain and loss on equity securities from both realized sales and unrealized market adjustments 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 June 30, Six Months Ended June 30, 2024 2023 2024 2023 (Dollars in thousands) Equity Securities Net Unrealized Loss Recognized on Securities Held $ ( 31 ) $ ( 100 ) $ ( 197 ) $ ( 332 ) Net Realized Gain Recognized on Securities Sold — — — — Net Loss on Equity Securities $ ( 31 ) $ ( 100 ) $ ( 197 ) $ ( 332 ) Net Loss on Securities $ ( 31 ) $ ( 100 ) $ ( 197 ) $ ( 332 ) Note 4. Loans and Allowance for Credit Losses The Company’s loan portfolio is segmented to enable management to monitor risk and performance. Real estate loans are further segregated into three classes. Residential mortgages include those secured by residential properties and include home equity loans, while commercial mortgages consist of loans to commercial borrowers secured by commercial real estate. Construction loans typically consist of loans to build commercial buildings and acquire and develop residential real estate. The commercial and industrial segment consists of loans to finance the activities of commercial customers. The consumer segment consists primarily of indirect auto loans as well as personal installment loans and personal or overdraft lines of credit. Residential mortgage loans are typically longer-term loans and, therefore, generally present greater interest rate risk than the consumer and commercial loans. Under certain economic conditions, housing values may decline, which may increase the risk that the collateral values are not sufficient. Commercial real estate loans generally present a higher level of credit risk than loans secured by residences. This greater risk is due to several factors, including the concentration of principal in a limited number of loans and borrowers, the effect of general economic conditions on income-producing properties, and the increased difficulty in evaluating and monitoring these types of loans. Furthermore, the repayment of commercial real estate loans is typically dependent upon the successful operation of the 14 Table of Contents 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. At the end of the construction phase, the loan generally converts to a permanent residential or commercial mortgage loan. Construction loan risks include overfunding in comparison to the plans, untimely completion of work, and leasing and stabilization after project completion. Commercial and industrial loans are generally secured by inventories, accounts receivable, and other business assets, which present collateral risk. Consumer loans generally have higher interest rates and shorter terms than residential mortgage loans; however, they have additional credit risk due to the type of collateral securing the loan. The following table presents the classifications of loans as of the dates indicated: June 30, 2024 December 31, 2023 (Dollars in thousands) Real Estate: Residential $ 342,689 $ 347,808 Commercial 458,724 467,154 Construction 44,038 43,116 Commercial and Industrial 112,395 111,278 Consumer 90,357 111,643 Other 30,491 29,397 Total Loans 1,078,694 1,110,396 Allowance for Credit Losses ( 9,527 ) ( 9,707 ) Loans, Net $ 1,069,167 $ 1,100,689 Total unamortized net deferred loan fees were $ 870,000 and $ 1.0 million at June 30, 2024 and December 31, 2023, respectively. The Company uses a nine-point internal risk rating system to monitor the credit quality of the overall loan portfolio. The first five 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 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. 15 Table of Contents Classified Loans by Origination Year (as of June 30, 2024) (dollars in thousands) 2024 2023 2022 2021 2020 Prior Revolving Loans Amortized Cost Basis Total Real Estate: Residential Pass $ 9,154 $ 32,764 $ 49,307 $ 43,623 $ 57,115 $ 133,401 $ 14,694 $ 340,058 Special Mention — — 1,017 — — — — 1,017 Substandard — — — — — 1,614 — 1,614 Doubtful — — — — — — — — Loss — — — — — — — — Total 9,154 32,764 50,324 43,623 57,115 135,015 14,694 342,689 Commercial Pass 17,417 52,058 67,282 89,031 47,060 151,911 2,204 426,963 Special Mention — 1,180 5,407 4,582 289 10,187 — 21,645 Substandard — — — — 2,103 8,013 — 10,116 Doubtful — — — — — — — — Loss — — — — — — — — Total 17,417 53,238 72,689 93,613 49,452 170,111 2,204 458,724 Construction Pass 842 16,694 12,031 438 — — — 30,005 Special Mention — 4,322 2,561 269 6,881 — — 14,033 Substandard — — — — — — — — Doubtful — — — — — — — — Loss — — — — — — — — Total 842 21,016 14,592 707 6,881 — — 44,038 Commercial and Industrial Pass 21,683 26,361 14,639 6,080 4,932 5,185 23,047 101,927 Special Mention — — — — 5 3,385 3,250 6,640 Substandard — — — — — 3,828 — 3,828 Doubtful — — — — — — — — Loss — — — — — — — — Total 21,683 26,361 14,639 6,080 4,937 12,398 26,297 112,395 Consumer Pass 709 11,044 40,451 19,765 7,497 5,504 5,285 90,255 Special Mention — — — — — — — — Substandard — — — 22 22 58 — 102 Doubtful — — — — — — — — Loss — — — — — — — — Total 709 11,044 40,451 19,787 7,519 5,562 5,285 90,357 Other Pass — 4,044 18,957 34 612 4,749 558 28,954 Special Mention — — 1,537 — — — — 1,537 Substandard — — — — — — — — Doubtful — — — — — — — — Loss — — — — — — — — Total — 4,044 20,494 34 612 4,749 558 30,491 Total Loans $ 49,805 $ 148,467 $ 213,189 $ 163,844 $ 126,516 $ 327,835 $ 49,038 $ 1,078,694 Gross Charge Offs $ — $ 24 $ 81 $ 11 $ 36 $ 24 $ 42 $ 218 16 Table of Contents 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 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 17 Table of Contents 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: June 30, 2024 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 $ 338,638 $ 2,625 $ — $ — $ 2,625 $ 1,426 $ 342,689 Commercial 458,395 — — — — 329 458,724 Construction 44,038 — — — — — 44,038 Commercial and Industrial 112,395 — — — — — 112,395 Consumer 88,995 1,106 154 — 1,260 102 90,357 Other 30,491 — — — — — 30,491 Total Loans $ 1,072,952 $ 3,731 $ 154 $ — $ 3,885 $ 1,857 $ 1,078,694 December 31, 2023 Loans Current 30-59 Days Past Due 60-89 Days Past Due 90 Days Or More Past Due Total Past Due Non- Accrual Total Loans (Dollars in Thousands) Real Estate: Residential $ 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 Additional interest income that would have been recorded if the loans that were nonaccrual at June 30, 2024 were current was $ 21,000 and $ 40,000 for the three and six months ended June 30, 2024, respectively, and $ 61,000 and $ 86,000 for the three and six months ended June 30, 2023, respectively. 18 Table of Contents The following table sets forth the amounts for amortized cost basis of loans on nonaccrual status, loans past due 90 days still accruing, and categories of nonperforming assets at the date indicated. June 30, 2024 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 $ 1,426 $ — $ — $ 1,426 Commercial 329 — — 329 Construction — — — — Commercial and Industrial — — — — Consumer 102 — — 102 Total Nonaccrual Loans $ 1,857 $ — $ — 1,857 Other Real Estate Owned: Residential 151 Commercial — Total Other Real Estate Owned 151 Total Nonperforming Assets $ 2,008 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 three and six months ended June 30, 2024 and June 30, 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. 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 a reassessment of contractual cash flow. For the three and six months ended June 30, 2024 and June 30, 2023, there were no new loan modifications to borrowers experiencing financial difficulty. 19 Table of Contents 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 $ 1.0 million and $ 907,000 at June 30, 2024 and December 31, 2023, respectively. The activity in the ACL - Loans is summarized below by primary segments for the periods indicated: Real Estate Residential Real Estate Commercial Real Estate Construction Commercial and Industrial Consumer Other Total (Dollars in thousands) March 31, 2024 $ 2,832 $ 2,948 $ 870 $ 1,587 $ 1,084 $ 261 $ 9,582 Charge-offs — — — — ( 156 ) — ( 156 ) Recoveries 2 — — 46 41 — 89 Provision (Recovery) for Credit Losses - Loans 10 134 ( 126 ) ( 148 ) 162 ( 20 ) 12 June 30, 2024 $ 2,844 $ 3,082 $ 744 $ 1,485 $ 1,131 $ 241 $ 9,527 Real Estate Residential Real Estate Commercial Real Estate Construction Commercial and Industrial Consumer Other Total (Dollars in thousands) March 31, 2023 $ 2,156 $ 3,056 $ 805 $ 1,997 $ 2,098 $ 158 $ 10,270 Charge-offs ( 97 ) — — — ( 51 ) — ( 148 ) Recoveries 1 23 — 8 20 — 52 Provision (Recovery) for Credit Losses - Loans 296 137 133 135 ( 219 ) 10 492 June 30, 2023 $ 2,356 $ 3,216 $ 938 $ 2,140 $ 1,848 $ 168 $ 10,666 Real Estate Residential Real Estate Commercial Real Estate Construction Commercial and Industrial Consumer Other Total (Dollars in thousands) December 31, 2023 $ 3,129 $ 2,630 $ 639 $ 1,693 $ 1,367 $ 249 $ 9,707 Charge-offs — — — ( 12 ) ( 206 ) — ( 218 ) Recoveries 11 — — 89 68 — 168 Provision (Recovery) for Credit Losses - Loans ( 296 ) 452 105 ( 285 ) ( 98 ) ( 8 ) ( 130 ) June 30, 2024 $ 2,844 $ 3,082 $ 744 $ 1,485 $ 1,131 $ 241 $ 9,527 20 Table of Contents Real Estate Residential Real Estate Commercial Real Estate Construction Commercial and Industrial Consumer Other Unallocated Total (Dollars in thousands) December 31, 2022 $ 2,074 $ 5,810 $ 502 $ 2,313 $ 1,517 $ — $ 603 $ 12,819 Impact of ASC 326 - Loans 137 ( 3,244 ) 488 ( 1,057 ) 774 120 ( 603 ) ( 3,385 ) Charge-offs ( 97 ) — — — ( 104 ) — — ( 201 ) Recoveries 14 23 — 766 58 — — 861 Provision (Recovery) 228 627 ( 52 ) 118 ( 397 ) 48 — 572 June 30, 2023 $ 2,356 $ 3,216 $ 938 $ 2,140 $ 1,848 $ 168 $ — $ 10,666 The Company’s allowance for credit losses on unfunded commitments is recognized as a liability (accrued interest payable and other liabilities on the Consolidated Statement of Financial Condition), with adjustments to the reserve recognized in provision for credit losses - unfunded commitments on the Consolidated Statement of Income. The Company’s activity in the allowance for credit losses on unfunded commitments for the periods indicated was as follows: (in thousands) Allowance for Credit Losses Balance at March 31, 2024 $ 605 Recovery for Credit Losses - Unfunded Commitments ( 48 ) Balance at June 30, 2024 $ 557 (in thousands) Allowance for Credit Losses Balance at March 31, 2023 $ 718 Impact of CECL Adoption — Recovery for Credit Losses - Unfunded Commitments ( 60 ) Balance at June 30, 2023 $ 658 (in thousands) Allowance for Credit Losses Balance at December 31, 2023 $ 500 Provision for Credit Losses - Unfunded Commitments 57 Balance at June 30, 2024 $ 557 (in thousands) Allowance for Credit Losses Balance at December 31, 2022 $ — Impact of CECL Adoption 718 Recovery for Credit Losses - Unfunded Commitments ( 60 ) Balance at June 30, 2023 $ 658 21 Table of Contents 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 six months ended June 30, 2024 and June 30, 2023, there were no loans that required a credit loss to be individually assigned. Note 5. 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. June 30, 2024 December 31, 2023 (Dollars in Thousands) Derivatives not Designated as Hedging Instruments Risk Participation Agreements: Credit Value Adjustment $ ( 91 ) $ ( 94 ) Notional Amount 16,374 9,119 Derivatives Designated as Hedging Instruments Interest rate swaps: Fair Value Adjustment ( 345 ) ( 1,777 ) Notional Amount 75,000 75,000 Note 6. 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. 22 Table of Contents 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 classified as Level 2. There were no transfers into or out of Level 3 during the six months ended June 30, 2024 or year ended December 31, 2023. 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: Fair Value Hierarchy June 30, 2024 December 31, 2023 (Dollars in thousands) ASSETS Available-for-Sale Debt Securities U.S. Government Agencies Level 2 $ 3,903 $ 3,949 Obligations of States and Political Subdivisions Level 2 3,334 3,373 Mortgage-Backed Securities - Government-Sponsored Enterprises Level 2 52,369 54,532 Collateralized Mortgage Obligations - Government Sponsored Enterprises Level 2 98,984 105,130 Collateralized Loan Obligations Level 2 99,809 29,804 Corporate Debt Level 2 7,979 7,719 Total Available-for-Sale Debt Securities 266,378 204,507 Equity Securities Mutual Funds Level 1 874 888 Other Level 1 1,517 1,700 Total Equity Securities 2,391 2,588 Total Securities $ 268,769 $ 207,095 Total Assets $ 268,769 $ 207,095 LIABILITIES Derivative Financial Liabilities Interest Rate Swaps Level 2 $ 345 $ 1,777 Risk Participation Agreements Level 2 91 94 Total Liabilities $ 436 $ 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. 23 Table of Contents Financial Asset Fair Value Hierarchy December 31, 2023 Valuation Techniques Significant Unobservable Inputs Range Weighted Average (Dollars in thousands) OREO Level 3 $ — Appraisal of Collateral (1) Liquidation Expenses (2) 100 % to 100 % 100.0 % (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. 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 June 30, 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. 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 June 30, 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 June 30, 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. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. If no readily available market exists, the fair value estimates for financial instruments should be based upon management’s judgment regarding current economic conditions, interest rate risk, expected cash flows, future estimated losses and other factors, as determined through various option pricing formulas or simulation modeling. As many of these assumptions result from judgments made by management based upon estimates which are inherently uncertain, the resulting estimated fair values may not be indicative of the amount realizable in the sale of a particular financial instrument. In addition, changes in the assumptions on which the estimated fair values are based may have significant impact on the resulting estimated fair values. As certain assets such as deferred tax assets and premises and equipment are not considered financial instruments, the estimated fair value of financial instruments would not represent the full value of the Company. 24 Table of Contents The following table presents the estimated fair values of the Company’s financial instruments at the dates indicated. June 30, 2024 December 31, 2023 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 $ 133,796 $ 133,796 $ 62,442 $ 62,442 Noninterest-Earning Level 1 8,804 8,804 5,781 5,781 Securities See Above 268,769 268,769 207,095 207,095 Loans Held for Sale Level 2 632 632 — — Loans, Net Level 3 1,069,167 1,024,258 1,100,689 1,051,722 Restricted Stock Level 2 3,119 3,119 3,345 3,345 Mortgage Servicing Rights Level 3 497 923 540 974 Accrued Interest Receivable Level 2 5,654 5,654 5,086 5,086 Financial Liabilities: Deposits Level 2 1,349,768 1,349,024 1,267,159 1,263,574 Other Borrowed Funds FHLB Borrowings Level 2 20,000 19,872 20,000 19,962 Subordinated Debt Level 2 14,698 13,313 14,678 13,378 Derivative Liabilities Level 2 436 436 1,871 1,871 Accrued Interest Payable Level 2 2,797 2,797 1,814 1,814 Note 7. Commitments and Contingent Liabilities The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business primarily to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby and performance letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the Consolidated Statements of Financial Condition. The contract amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments. The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby and performance letters of credit written is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments. The 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. 25 Table of Contents The following table presents the unused and available credit balances of financial instruments whose contracts represent credit risk at the dates indicated: June 30, 2024 December 31, 2023 (Dollars in thousands) Standby Letters of Credit $ 75 $ 110 Performance Letters of Credit 795 895 Construction Loans 45,887 47,034 Personal Lines of Credit 7,151 7,185 Overdraft Protection Lines 4,536 2,025 Home Equity Lines of Credit 26,254 24,176 Commercial Lines of Credit 64,815 64,667 Total Commitments $ 149,513 $ 146,092 Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee by the customer. Because many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the counterparty. Collateral held varies, but may include accounts receivable, inventory, property, plant and equipment, and income-producing commercial properties. Performance letters of credit represent conditional commitments issued by the Company to guarantee the performance of a customer to a third party. These instruments are issued primarily to support bid or performance-related contracts. The coverage period for these instruments is typically a one-year period with an annual renewal option subject to prior approval by management. Fees earned from the issuance of these letters are recognized upon expiration of the letter. For secured letters of credit, the collateral is typically Company deposit instruments or customer business assets. The Company recorded no liability associated with standby letters of credit as of June 30, 2024 and December 31, 2023. Note 8. 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 all classified as operating leases and create operating right-of-use (“ROU”) assets and corresponding lease liabilities on the Consolidated Statements of Financial Condition. The leases are primarily ROU assets of land and building for branch and loan production locations. ROU assets are reported in Accrued Interest Receivable and Other Assets and the related lease liabilities in Accrued Interest Payable and Other Liabilities on the Consolidated Statements of Financial Condition. The following tables present the lease expense, ROU assets, weighted average term, discount rate and maturity analysis of lease liabilities for operating leases for the periods and dates indicated. Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 (Dollars in thousands) Operating Lease Expense $ 99 $ 77 $ 176 $ 154 Variable Lease Expense 8 8 16 15 Total Lease Expense $ 107 $ 85 $ 192 $ 169 26 Table of Contents June 30, 2024 December 31, 2023 (Dollars in thousands) Operating Leases: ROU Assets $ 2,989 $ 1,673 Weighted Average Lease Term in Years 11.07 7.50 Weighted Average Discount Rate 4.15 % 2.86 % June 30, 2024 (Dollars in thousands) Maturity Analysis: Due in One Year $ 505 Due After One Year to Two Years 408 Due After Two Years to Three Years 409 Due After Three Years to Four Years 405 Due After Four to Five Years 336 Due After Five Years 1,962 Total $ 4,025 Less: Present Value Discount 952 Lease Liabilities $ 3,073 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. On April 8, 2024, the Bank entered into a lease agreement under which the Bank will lease retail property located in Uniontown, Pennsylvania. The lease agreement is for an initial term of five years with specified renewal options. The lease agreement includes a 2.5 % 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 $ 410,000 . There were no new lease agreements which commenced during the six months ended June 30, 2023. Note 9. Segment and Related Information At June 30, 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 ("EU"), a wholly owned subsidiary of the Bank. EU had 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. 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 June 30, 2024 and December 31, 2023 consisted primarily of cash received from the sale of assets. The EU subsidiary is expected to be merged into the Bank, with the remaining assets and liabilities being transferred to the Bank during 2024. 27 Table of Contents The following is a table of selected financial data for the Company’s subsidiaries and consolidated results at the dates and for the periods indicated: Community Bank Exchange Underwriters, Inc. CB Financial Services, Inc. Net Eliminations Consolidated (Dollars in thousands) June 30, 2024 Assets $ 1,558,458 $ 26,233 $ 157,615 $ ( 182,047 ) $ 1,560,259 Liabilities 1,418,052 4,974 14,733 ( 20,382 ) 1,417,377 Stockholders' Equity 140,406 21,259 142,882 ( 161,665 ) 142,882 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 Three Months Ended June 30, 2024 Interest and Dividend Income $ 18,919 $ — $ 1,306 $ ( 1,286 ) $ 18,939 Interest Expense 7,314 — 155 — 7,469 Net Interest and Dividend Income 11,605 — 1,151 ( 1,286 ) 11,470 Provision for Credit Losses - Loans 12 — — — 12 Recovery for Credit Losses - Unfunded Commitments ( 48 ) — — — ( 48 ) Net Interest and Dividend Income After Net Recovery for Credit Losses 11,641 — 1,151 ( 1,286 ) 11,506 Noninterest Income (Loss) 714 — ( 26 ) — 688 Noninterest Expense 8,978 — 6 — 8,984 Undistributed Net Income of Subsidiary — — 1,500 ( 1,500 ) — Income Before Income Tax Expense (Benefit) 3,377 — 2,619 ( 2,786 ) 3,210 Income Tax Expense (Benefit) 591 — ( 31 ) — 560 Net Income $ 2,786 $ — $ 2,650 $ ( 2,786 ) $ 2,650 Six Months Ended June 30, 2024 Interest and Dividend Income $ 36,884 $ — $ 2,608 $ ( 2,566 ) $ 36,926 Interest Expense 13,554 — 310 — 13,864 Net Interest and Dividend Income 23,330 — 2,298 ( 2,566 ) 23,062 Recovery for Credit Losses - Loans ( 130 ) — — — ( 130 ) Provision for Credit Losses - Unfunded Commitments 57 — — — 57 Net Interest and Dividend Income After Net Recovery for Credit Losses 23,403 — 2,298 ( 2,566 ) 23,135 Noninterest Income (Loss) 2,787 — ( 183 ) — 2,604 Noninterest Expense 17,401 — 11 — 17,412 Undistributed Net Income of Subsidiary — — 4,650 ( 4,650 ) — Income Before Income Tax Expense (Benefit) 8,789 — 6,754 ( 7,216 ) 8,327 Income Tax Expense (Benefit) 1,573 — ( 93 ) — 1,480 Net Income $ 7,216 $ — $ 6,847 $ ( 7,216 ) $ 6,847 28 Table of Contents Community Bank Exchange Underwriters, Inc. CB Financial Services, Inc. Net Eliminations Consolidated (Dollars in thousands) Three Months Ended June 30, 2023 Interest and Dividend Income $ 15,182 $ 2 $ 1,297 $ ( 1,278 ) $ 15,203 Interest Expense 3,926 — 157 — 4,083 Net Interest and Dividend Income 11,256 2 1,140 ( 1,278 ) 11,120 Provision for Credit Losses - Loans 492 — — — 492 Recovery for Credit Losses - Unfunded Commitments ( 60 ) — — — ( 60 ) Net Interest and Dividend Income After Net Provision for Credit Losses 10,824 2 1,140 ( 1,278 ) 10,688 Noninterest Income (Loss) 810 1,545 ( 86 ) — 2,269 Noninterest Expense 8,457 1,044 — — 9,501 Undistributed Net Income of Subsidiary 357 — 1,656 ( 2,013 ) — Income Before Income Tax Expense (Benefit) 3,534 503 2,710 ( 3,291 ) 3,456 Income Tax Expense (Benefit) 600 146 ( 47 ) — 699 Net Income $ 2,934 $ 357 $ 2,757 $ ( 3,291 ) $ 2,757 Six Months Ended June 30, 2023 Interest and Dividend Income $ 29,405 $ 3 $ 2,593 $ ( 2,553 ) $ 29,448 Interest Expense 6,433 — 311 — 6,744 Net Interest and Dividend Income 22,972 3 2,282 ( 2,553 ) 22,704 Provision for Credit Losses - Loans 572 — — — 572 Recovery for Credit Losses - Unfunded Commitments ( 60 ) — — — ( 60 ) Net Interest and Dividend Income After Net Provision for Credit Losses 22,460 3 2,282 ( 2,553 ) 22,192 Noninterest Income (Loss) 1,911 3,501 ( 332 ) — 5,080 Noninterest Expense 16,382 2,143 5 — 18,530 Undistributed Net Income of Subsidiary 965 — 4,842 ( 5,807 ) — Income Before Income Tax Expense (Benefit) 8,954 1,361 6,787 ( 8,360 ) 8,742 Income Tax Expense (Benefit) 1,559 396 ( 128 ) — 1,827 Net Income $ 7,395 $ 965 $ 6,915 $ ( 8,360 ) $ 6,915 29 Table of Contents Note 10. Stock Based Compensation The following table presents stock option information for the period indicated. Number of Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Life in Years Outstanding Options at December 31, 2023 337,444 $ 24.11 5.6 Granted 93,950 22.12 Exercised — — Forfeited ( 20,097 ) 24.96 Outstanding Options at June 30, 2024 411,297 $ 23.61 6.0 Exercisable Options at June 30, 2024 217,323 $ 24.32 3.5 Number of Shares Weighted Average Exercise Price Weighted Average Remaining Service Period in Years Nonvested Options at June 30, 2024 193,974 $ 22.82 8.8 Summary of Significant Assumptions for Newly Issued Stock Options Expected Term in Years 6.5 Expected Volatility 30.4 % Expected Dividends $ 1.00 Risk Free Rate of Return 3.98 % Weighted Average Grant Date Fair Value (per share) $ 4.81 The following table presents restricted stock award information for the period indicated: Number of Shares Weighted Average Grant Date Fair Value Price Weighted Average Remaining Service Period in Years Nonvested Restricted Stock at December 31, 2023 68,777 $ 23.16 3.8 Granted 25,410 22.12 Vested ( 8,033 ) 24.00 Forfeited ( 1,990 ) 22.63 Nonvested Restricted Stock at June 30, 2024 84,164 $ 22.78 3.3 The Company recognizes expense over a five-year vesting period for the restricted stock awards and stock options. Stock-based compensation expense related to restricted stock awards and stock options was $ 198,000 and $ 187,000 for the three months ended June 30, 2024 and 2023. Stock-based compensation expense was $ 376,000 and $ 361,000 for the six months ended June 30, 2024 and 2023. As of June 30, 2024 and December 31, 2023, total unrecognized compensation expense was $ 799,000 and $ 505,000 , respectively, related to stock options, and $ 1.6 million and $ 1.4 million, respectively, related to restricted stock awards. Intrinsic value represents the amount by which the fair value of the underlying stock at June 30, 2024 and December 31, 2023 exceeds the exercise price of the stock options. The intrinsic value of stock options was $ 165,000 and $ 335,000 at June 30, 2024 and December 31, 2023, respectively. At June 30, 2024 there were 287,500 shares of common stock available and reserved under the 2024 Plan to be issued as restricted stock awards or units based on the terms of the Plan. At June 30, 2024, no shares have been granted under the 2024 Plan. Under the 2021 Plan, there were 161,464 shares available at December 31, 2023 to be issued in connection with the exercise of stock 30 Table of Contents options, and 64,586 shares to be issued as restricted stock awards or units. The 2021 Plan shall remain in effect as long as any awards are outstanding, but as a result of the approval of the 2024 Plan, no more awards can be granted under the 2021 Plan. Note 11. Subsequent Events The Company evaluated subsequent events through the date the consolidated financial statements were filed with the SEC and incorporated into the consolidated financial statements the effect of all material known events determined by Accounting Standards Codification ("ASC") 855, Subsequent Events , to be recognizable events.