CB Financial Services, Inc. 10-Q

Item 1. Financial Statements. CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited) September 30, 2024 December 31, 2023 (Dollars in thousands, except per share and share data) ASSETS Cash and Due From Banks: Interest-Earning $ 138,570 $ 62,442 Noninterest-Earning 8,755 5,781 Total Cash and Due From Banks 147,325 68,223 Securities: Available-for-Sale Debt Securities, at Fair Value 268,245 204,507 Equity Securities, at Fair Value 2,636 2,588 Total Securities 270,881 207,095 Loans Held for Sale 428 — Loans, Net of Allowance for Credit Losses of $ 9,479 and $ 9,707 at September 30, 2024 and December 31, 2023, Respectively 1,056,276 1,100,689 Premises and Equipment, Net 20,838 19,704 Bank-Owned Life Insurance 24,057 25,378 Goodwill 9,732 9,732 Intangible Assets, Net 88 958 Accrued Interest Receivable and Other Assets 32,116 24,312 TOTAL ASSETS $ 1,561,741 $ 1,456,091 LIABILITIES Deposits: Noninterest-Bearing Demand Accounts $ 267,022 $ 277,747 Interest-Bearing Demand Accounts 326,505 362,994 Money Market Accounts 220,789 201,074 Savings Accounts 172,354 194,703 Time Deposits 367,150 230,641 Total Deposits 1,353,820 1,267,159 Other Borrowings 34,708 34,678 Accrued Interest Payable and Other Liabilities 24,073 14,420 TOTAL LIABILITIES 1,412,601 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, 5,789,438 Shares Issued and 5,129,921 Shares Outstanding at September 30, 2024, with 5,759,378 and 5,118,713 Shares Issued and Outstanding at December 31, 2023. 2,413 2,400 Capital Surplus 86,072 85,334 Retained Earnings 89,607 83,392 Treasury Stock, at Cost ( 659,517 and 640,665 Shares at September 30, 2024 and December 31, 2023, Respectively) ( 15,042 ) ( 14,545 ) Accumulated Other Comprehensive Loss ( 13,910 ) ( 16,747 ) TOTAL STOCKHOLDERS' EQUITY 149,140 139,834 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,561,741 $ 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 September 30, Nine Months Ended September 30, 2024 2023 2024 2023 (Dollars in thousands, except share and per share data) INTEREST AND DIVIDEND INCOME Loans, Including Fees $ 14,945 $ 14,049 $ 44,453 $ 39,846 Investment Securities: Taxable 3,289 940 8,437 2,853 Tax-Exempt — 41 — 124 Dividends 28 25 82 74 Other Interest and Dividend Income 1,511 819 3,727 2,424 TOTAL INTEREST AND DIVIDEND INCOME 19,773 15,874 56,699 45,321 INTEREST EXPENSE Deposits 7,892 4,750 20,948 11,097 Short-Term Borrowings — — — 5 Other Borrowings 407 407 1,215 800 TOTAL INTEREST EXPENSE 8,299 5,157 22,163 11,902 NET INTEREST AND DIVIDEND INCOME 11,474 10,717 34,536 33,419 Provision (Recovery) For Credit Losses - Loans 25 291 ( 105 ) 863 (Recovery) Provision For Credit Losses - Unfunded Commitments ( 66 ) 115 ( 9 ) 54 NET INTEREST AND DIVIDEND INCOME AFTER NET (RECOVERY) PROVISION FOR CREDIT LOSSES 11,515 10,311 34,650 32,502 NONINTEREST INCOME Service Fees 451 466 1,220 1,359 Insurance Commissions 1 1,436 4 4,870 Other Commissions 104 94 188 462 Net Gain (Loss) on Sales of Loans 18 — 49 ( 3 ) Net Gain (Loss) on Securities 245 ( 37 ) 49 ( 369 ) Net Gain on Purchased Tax Credits 12 7 37 22 Gain on Sale of Subsidiary 138 — 138 — Net Gain on Disposal of Premises and Equipment — — 274 11 Income from Bank-Owned Life Insurance 147 145 442 425 Net Gain on Bank-Owned Life Insurance Claims — — 915 303 Other Income 117 301 523 413 TOTAL NONINTEREST INCOME 1,233 2,412 3,839 7,493 NONINTEREST EXPENSE Salaries and Employee Benefits 4,561 5,369 13,563 15,679 Occupancy 755 698 2,444 2,188 Equipment 280 265 842 766 Data Processing 772 714 2,476 2,289 Federal Deposit Insurance Corporation Assessment 177 189 467 565 Pennsylvania Shares Tax 265 217 860 672 Contracted Services 431 286 1,102 868 Legal and Professional Fees 297 320 717 748 Advertising 141 114 348 268 Other Real Estate Owned (Income) 2 ( 8 ) 16 ( 80 ) Amortization of Intangible Assets 264 445 870 1,336 Other Expense 837 878 2,492 2,718 TOTAL NONINTEREST EXPENSE 8,782 9,487 26,197 28,017 Income Before Income Tax Expense 3,966 3,236 12,292 11,978 Income Tax Expense 747 564 2,227 2,392 NET INCOME $ 3,219 $ 2,672 $ 10,065 $ 9,586 EARNINGS PER SHARE Basic $ 0.63 $ 0.52 $ 1.96 $ 1.88 Diluted 0.60 0.52 1.89 1.87 WEIGHTED AVERAGE SHARES OUTSTANDING Basic 5,137,586 5,115,026 5,136,546 5,112,223 Diluted 5,346,750 5,126,546 5,328,610 5,118,279 The accompanying notes are an integral part of these consolidated financial statements 2 Table of Contents CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED) Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 (Dollars in thousands) Net Income $ 3,219 $ 2,672 $ 10,065 $ 9,586 Other Comprehensive Income (Loss): Change in Unrealized Gain (Loss) on Investment Securities Available-for-Sale 5,644 ( 4,248 ) 3,672 ( 4,372 ) Income Tax Effect ( 1,203 ) 916 ( 835 ) 942 Other Comprehensive Income (Loss), Net of Income Tax Effect 4,441 ( 3,332 ) 2,837 ( 3,430 ) Total Comprehensive Income (Loss) $ 7,660 $ ( 660 ) $ 12,902 $ 6,156 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 September 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) June 30, 2024 5,783,588 $ 2,410 $ 85,718 $ 87,673 $ ( 14,568 ) $ ( 18,351 ) $ 142,882 Comprehensive Income: Net Income — — — 3,219 — — 3,219 Other Comprehensive Income — — — — — 4,441 4,441 Stock-Based Compensation Expense — — 215 — — — 215 Exercise of Stock Options 5,850 3 139 — ( 148 ) — ( 6 ) Treasury stock purchased, at cost ( 18,220 shares) — — — — ( 326 ) — ( 326 ) Dividends Paid ($ 0.25 Per Share) — — — ( 1,285 ) — — ( 1,285 ) September 30, 2024 5,789,438 $ 2,413 $ 86,072 $ 89,607 $ ( 15,042 ) $ ( 13,910 ) $ 149,140 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 The accompanying notes are an integral part of these consolidated financial statements 4 Table of Contents Nine Months Ended September 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 — — — 10,065 — — 10,065 Other Comprehensive Income — — — — — 2,837 2,837 Restricted Stock Awards Granted 25,410 11 ( 11 ) — — — — Restricted Stock Awards Forfeited ( 1,200 ) ( 1 ) 19 — ( 18 ) — — Stock-Based Compensation Expense — — 591 — — — 591 Exercise of Stock Options 5,850 3 139 — ( 148 ) — ( 6 ) Treasury stock purchased, at cost ( 18,442 shares) — — — — ( 331 ) — ( 331 ) Dividends Paid ($ 0.75 Per Share) — — — ( 3,850 ) — — ( 3,850 ) September 30, 2024 5,789,438 $ 2,413 $ 86,072 $ 89,607 $ ( 15,042 ) $ ( 13,910 ) $ 149,140 Nine 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) 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 — — — 9,586 — — 9,586 Other Comprehensive Loss — — — — — ( 3,430 ) ( 3,430 ) Restricted Stock Awards Forfeited — — 21 — ( 21 ) — — Restricted Stock Awards Granted 33,975 14 ( 14 ) — — — — Stock-Based Compensation Expense — — 557 — — — 557 Exercise of Stock Options — — — — 45 — 45 Treasury Stock Purchased, at cost ( 14,478 shares) — — — — ( 327 ) — ( 327 ) Dividends Paid ($ 0.75 Per Share) — — — ( 3,832 ) — — ( 3,832 ) September 30, 2023 5,742,408 $ 2,393 $ 84,517 $ 71,707 $ ( 14,100 ) $ ( 29,671 ) $ 114,846 The accompanying notes are an integral part of these consolidated financial statements 5 Table of Contents CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Nine Months Ended September 30, 2024 2023 (Dollars in thousands) OPERATING ACTIVITIES Net Income $ 10,065 $ 9,586 Adjustments to Reconcile Net Income to Net Cash Provided By Operating Activities Net (Accretion) Amortization on Securities ( 564 ) 56 Depreciation and Amortization 1,973 2,133 (Recovery) Provision for Credit Losses - Loans ( 105 ) 863 (Recovery) Provision for Credit Losses - Unfunded Commitments ( 9 ) 54 (Gain) Loss on Securities ( 49 ) 369 Gain on Purchased Tax Credits ( 37 ) ( 22 ) Income from Bank-Owned Life Insurance ( 442 ) ( 425 ) Gain on Bank-Owned Life Insurance Death Benefit Claims ( 915 ) — Proceeds From Mortgage Loans Sold 3,696 269 Originations of Mortgage Loans for Sale ( 4,075 ) ( 266 ) (Gain) Loss on Sale of Loans ( 49 ) 3 Loss (Gain) on Sale of Other Real Estate Owned and Repossessed Assets 30 ( 13 ) Noncash Expense for Stock-Based Compensation 591 557 Increase in Accrued Interest Receivable ( 1,160 ) ( 600 ) Valuation adjustment on real estate owned — 119 Gain on Disposal of Premises and Equipment ( 274 ) ( 11 ) Increase in Deferred Income Tax 1,035 — Decrease in Taxes Payable ( 4,314 ) ( 632 ) Increase in Accrued Interest Payable 1,364 1,390 Other, Net ( 1,600 ) 4,236 NET CASH PROVIDED BY OPERATING ACTIVITIES 5,161 17,666 INVESTING ACTIVITIES Investment Securities Available for Sale: Proceeds From Principal Repayments and Maturities 10,722 12,357 Purchases of Securities ( 70,224 ) — Net Decrease (Increase) in Loans 50,551 ( 55,546 ) Purchase of Premises and Equipment ( 3,045 ) ( 1,594 ) Proceeds from Disposal of Premises and Equipment 988 46 Proceeds From a Claim on Bank-Owned Life Insurance 2,678 731 Investment in Low Income Housing Tax Credit ( 604 ) — Proceeds From Sale of Other Real Estate Owned 132 142 Decrease (Increase) in Restricted Equity Securities 269 ( 517 ) NET CASH USED IN INVESTING ACTIVITIES ( 8,533 ) ( 44,381 ) FINANCING ACTIVITIES Net Increase (Decrease) in Deposits 86,661 ( 32,214 ) Net Decrease in Short-Term Borrowings — ( 8,060 ) Proceeds From Other Borrowed Funds — 20,000 Cash Dividends Paid ( 3,850 ) ( 3,832 ) Treasury Stock, Purchases at Cost ( 331 ) ( 327 ) Exercise of Stock Options ( 6 ) 45 NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 82,474 ( 24,388 ) INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 79,102 ( 51,103 ) CASH AND DUE FROM BANKS AT BEGINNING OF YEAR 68,223 103,700 CASH AND DUE FROM BANKS AT END OF PERIOD $ 147,325 $ 52,597 The accompanying notes are an integral part of these consolidated financial statements 6 Table of Contents CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Nine Months Ended September 30, 2024 2023 (Dollars in thousands) SUPPLEMENTAL CASH FLOW INFORMATION: Cash Paid For: Interest on Deposits and Borrowings (Including Interest Credited to Deposits of $ 19,726 and $ 9,923 , Respectively) $ 20,799 $ 10,511 Income Taxes 6,372 2,570 SUPPLEMENTAL NONCASH DISCLOSURE: Other Real Estate Acquired in Settlement of Loans 150 248 Syndicated Loans Purchased and Sold Not Settled, net 6,000 ( 1,967 ) Right of Use Asset Recognized 1,419 — Unfunded Commitment in Low Income Housing Tax Credit 5,396 — 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 included 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 Unfunded 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 $ 4.0 million at September 30, 2024 and $ 4.1 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 $ 2.2 million at September 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 September 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 March 2023, the FASB issued ASU 2023-02, Investments - Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method. This ASU expanded the use of the proportional amortization method of accounting - previously allowed only for investments in low-income housing tax credit structures - to equity investments in other tax credit structures that meet certain criteria. Common tax credit programs that investors access via tax equity structures and that may now be eligible for application of the proportional amortization method include: new markets tax credits, historic rehabilitation tax credit programs and renewable energy tax credit programs. This ASU took effect in reporting periods beginning after December 15, 2023, with early adoption permitted. The adoption of this ASU on January 1, 2024, did not have a material impact on the Company's consolidated financial statements. 10 Table of Contents In November 2023, the FASB issued ASU 2023-07, Segment Reporting - Improvements to Reportable Segment Disclosures (Topic 820), to improve reportable segment disclosures by requiring public entities to disclose significant expense categories and amounts for each reportable segment, where significant expense categories are defined as those that are regularly reported to an entity's chief operating decision-maker and included in a segment's reported measures of profit or loss. For public companies, the requirements will become effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The adoption of this ASU is not expected to have a material effect on the Company's consolidated financial statements. 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. 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 September 30, Nine Months Ended September 30, 2024 2023 2024 2023 (Dollars in thousands, except share and per share data) Net Income $ 3,219 $ 2,672 $ 10,065 $ 9,586 Weighted-Average Basic Common Shares Outstanding 5,137,586 5,115,026 5,136,546 5,112,223 Dilutive Effect of Common Stock Equivalents (Stock Options and Restricted Stock) 209,164 11,520 192,064 6,056 Weighted-Average Diluted Common Shares and Common Stock Equivalents Outstanding 5,346,750 5,126,546 5,328,610 5,118,279 Earnings Per Share: Basic $ 0.63 $ 0.52 $ 1.96 $ 1.88 Diluted 0.60 0.52 1.89 1.87 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 September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Stock Options 275,208 339,123 292,308 339,123 Restricted Stock — 25,352 — 60,727 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: September 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 $ — $ ( 874 ) $ 4,122 Obligations of States and Political Subdivisions 3,492 18 ( 37 ) 3,473 Mortgage-Backed Securities - Government-Sponsored Enterprises 54,676 826 ( 2,525 ) 52,977 Collateralized Mortgage Obligations - Government-Sponsored Enterprises 113,518 334 ( 13,617 ) 100,235 Collateralized Loan Obligations 99,758 41 ( 226 ) 99,573 Corporate Debt 9,480 — ( 1,615 ) 7,865 Total Available-for-Sale Debt Securities 285,920 1,219 ( 18,894 ) 268,245 Equity Securities: Mutual Funds 906 Other 1,730 Total Equity Securities 2,636 Total Securities $ 270,881 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: September 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 $ 4,122 $ ( 874 ) 1 $ 4,122 $ ( 874 ) Obligations of States and Political Subdivisions — — — 5 2,373 ( 37 ) 5 2,373 ( 37 ) Mortgage Backed Securities- Government-Sponsored Enterprises — — — 8 16,127 ( 2,525 ) 8 16,127 ( 2,525 ) Collateralized Mortgage Obligations - Government-Sponsored Enterprises 1 8,469 ( 50 ) 21 67,645 ( 13,567 ) 22 76,114 ( 13,617 ) Collateralized Loan Obligations 10 68,851 ( 226 ) — — — 10 68,851 ( 226 ) Corporate Debt — — — 3 7,865 ( 1,615 ) 3 7,865 ( 1,615 ) Total 11 $ 77,320 $ ( 276 ) 38 $ 98,132 $ ( 18,618 ) 49 $ 175,452 $ ( 18,894 ) 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 September 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 September 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 $ 260.3 million at September 30, 2024 and $ 196.8 million at December 31, 2023 of which securities with a fair value of $ 175.1 million and $ 157.3 million at September 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. September 30, 2024 Amortized Cost Fair Value (Dollars in thousands) Due in One Year or Less $ — $ — Due after One Year through Five Years 736 732 Due after Five Years through Ten Years 53,033 51,595 Due after Ten Years 232,151 215,918 Total $ 285,920 $ 268,245 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 Gain (Loss) on Securities on the Consolidated Statements of Income. Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 (Dollars in thousands) Equity Securities Net Unrealized Gain (Loss) Recognized on Securities Held $ 245 $ ( 37 ) $ 49 $ ( 369 ) Net Realized Gain Recognized on Securities Sold — — — — Net Gain (Loss) on Equity Securities $ 245 $ ( 37 ) $ 49 $ ( 369 ) Net Gain (Loss) on Securities $ 245 $ ( 37 ) $ 49 $ ( 369 ) 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 14 Table of Contents loans. Furthermore, the repayment of commercial real estate loans is typically dependent upon the successful operation of the related real estate project. If the cash flow from the project is reduced (for example, if leases are not obtained or renewed, a bankruptcy court modifies a lease term, or a major tenant is unable to fulfill its lease obligations), the borrower’s ability to repay the loan may be impaired. Construction loans are originated to individuals to finance the construction of residential dwellings and are also originated for the construction of commercial properties, including hotels, apartment buildings, housing developments, and owner-occupied properties used for businesses. Construction loans generally provide for the payment of interest only during the construction 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: September 30, 2024 December 31, 2023 (Dollars in thousands) Real Estate: Residential $ 338,926 $ 347,808 Commercial 464,354 467,154 Construction 43,515 43,116 Commercial and Industrial 108,554 111,278 Consumer 80,004 111,643 Other 30,402 29,397 Total Loans 1,065,755 1,110,396 Allowance for Credit Losses ( 9,479 ) ( 9,707 ) Loans, Net $ 1,056,276 $ 1,100,689 Total unamortized net deferred loan fees were $ 714,000 and $ 1.0 million at September 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 September 30, 2024) (dollars in thousands) 2024 2023 2022 2021 2020 Prior Revolving Loans Amortized Cost Basis Total Real Estate: Residential Pass $ 12,708 $ 33,695 $ 48,771 $ 42,753 $ 55,615 $ 125,276 $ 17,625 $ 336,443 Special Mention — — 1,009 — — — — 1,009 Substandard — — — — — 1,474 — 1,474 Doubtful — — — — — — — — Loss — — — — — — — — Total 12,708 33,695 49,780 42,753 55,615 126,750 17,625 338,926 Commercial Pass 32,514 53,022 68,152 83,744 46,497 147,497 2,729 434,155 Special Mention 5,718 1,167 3,479 4,541 283 7,191 — 22,379 Substandard — — 301 — 2,102 5,417 — 7,820 Doubtful — — — — — — — — Loss — — — — — — — — Total 38,232 54,189 71,932 88,285 48,882 160,105 2,729 464,354 Construction Pass 2,220 16,251 14,165 144 — — — 32,780 Special Mention — 3,585 — 269 6,881 — — 10,735 Substandard — — — — — — — — Doubtful — — — — — — — — Loss — — — — — — — — Total 2,220 19,836 14,165 413 6,881 — — 43,515 Commercial and Industrial Pass 33,510 25,975 13,012 5,776 4,613 4,887 17,476 105,249 Special Mention — — — — — 3,305 — 3,305 Substandard — — — — — — — — Doubtful — — — — — — — — Loss — — — — — — — — Total 33,510 25,975 13,012 5,776 4,613 8,192 17,476 108,554 Consumer Pass 679 9,992 36,061 17,232 6,124 4,423 5,352 79,863 Special Mention — — — — — — — — Substandard — — — 21 21 99 — 141 Doubtful — — — — — — — — Loss — — — — — — — — Total 679 9,992 36,061 17,253 6,145 4,522 5,352 80,004 Other Pass — 4,042 19,014 30 593 4,652 558 28,889 Special Mention — — 1,513 — — — — 1,513 Substandard — — — — — — — — Doubtful — — — — — — — — Loss — — — — — — — — Total — 4,042 20,527 30 593 4,652 558 30,402 Total Loans $ 87,349 $ 147,729 $ 205,477 $ 154,510 $ 122,729 $ 304,221 $ 43,740 $ 1,065,755 Gross Charge Offs $ — $ 26 $ 182 $ 36 $ 36 $ 24 $ 73 $ 377 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: September 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 $ 334,928 $ 2,145 $ 567 $ — $ 2,712 $ 1,286 $ 338,926 Commercial 458,865 4,869 — — 4,869 620 464,354 Construction 43,515 — — — — — 43,515 Commercial and Industrial 108,554 — — — — — 108,554 Consumer 78,995 842 26 — 868 141 80,004 Other 30,402 — — — — — 30,402 Total Loans $ 1,055,259 $ 7,856 $ 593 $ — $ 8,449 $ 2,047 $ 1,065,755 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 September 30, 2024 were current was $ 16,000 and $ 58,000 for the three and nine months ended September 30, 2024, respectively, and $ 41,000 and $ 127,000 for the three and nine months ended September 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. September 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 $ 1,286 $ — $ — $ 1,286 Commercial 620 — — 620 Construction — — — — Commercial and Industrial — — — — Consumer 141 — — 141 Total Nonaccrual Loans $ 2,047 $ — $ — 2,047 Other Real Estate Owned: Residential 150 Commercial — Total Other Real Estate Owned 150 Total Nonperforming Assets $ 2,197 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 nine months ended September 30, 2024 and September 30, 2023. 19 Table of Contents 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 nine months ended September 30, 2024 and September 30, 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 $ 1.3 million and $ 907,000 at September 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) June 30, 2024 $ 2,844 $ 3,082 $ 744 $ 1,485 $ 1,131 $ 241 $ 9,527 Charge-offs — — — — ( 159 ) — ( 159 ) Recoveries — — — 45 41 — 86 (Recovery) Provision for Credit Losses - Loans ( 226 ) 621 ( 51 ) ( 248 ) ( 90 ) 19 25 September 30, 2024 $ 2,618 $ 3,703 $ 693 $ 1,282 $ 923 $ 260 $ 9,479 Real Estate Residential Real Estate Commercial Real Estate Construction Commercial and Industrial Consumer Other Total (Dollars in thousands) June 30, 2023 $ 2,356 $ 3,216 $ 938 $ 2,140 $ 1,848 $ 168 $ 10,666 Charge-offs ( 109 ) — — — ( 168 ) — ( 277 ) Recoveries 27 9 — 96 36 — 168 Provision (Recovery) for Credit Losses - Loans 625 104 102 ( 317 ) ( 272 ) 49 291 September 30, 2023 $ 2,899 $ 3,329 $ 1,040 $ 1,919 $ 1,444 $ 217 $ 10,848 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 ) ( 365 ) — ( 377 ) Recoveries 13 — — 132 109 — 254 (Recovery) Provision for Credit Losses - Loans ( 524 ) 1,073 54 ( 531 ) ( 188 ) 11 ( 105 ) September 30, 2024 $ 2,618 $ 3,703 $ 693 $ 1,282 $ 923 $ 260 $ 9,479 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 ( 206 ) — — — ( 272 ) — — ( 478 ) Recoveries 41 32 — 862 94 — — 1,029 Provision (Recovery) for Credit Losses - Loans 853 731 50 ( 199 ) ( 669 ) 97 — 863 September 30, 2023 $ 2,899 $ 3,329 $ 1,040 $ 1,919 $ 1,444 $ 217 $ — $ 10,848 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, 2024 and September 30, 2023, there were no loans that required a credit loss to be individually assigned. 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 June 30, 2024 $ 557 Recovery for Credit Losses - Unfunded Commitments ( 66 ) Balance at September 30, 2024 $ 491 (in thousands) Allowance for Credit Losses Balance at June 30, 2023 $ 658 Provision for Credit Losses - Unfunded Commitments 115 Balance at September 30, 2023 $ 773 (in thousands) Allowance for Credit Losses Balance at December 31, 2023 $ 500 Recovery for Credit Losses - Unfunded Commitments ( 9 ) Balance at September 30, 2024 $ 491 (in thousands) Allowance for Credit Losses Balance at December 31, 2022 $ — Impact of CECL Adoption 719 Provision for Credit Losses - Unfunded Commitments 54 Balance at September 30, 2023 $ 773 21 Table of Contents 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. September 30, 2024 December 31, 2023 (Dollars in Thousands) Derivatives not Designated as Hedging Instruments Risk Participation Agreements: Credit Value Adjustment $ ( 118 ) $ ( 94 ) Notional Amount 16,303 9,119 Derivatives Designated as Hedging Instruments Interest rate swaps: Fair Value Adjustment ( 1,853 ) ( 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 nine months ended September 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 September 30, 2024 December 31, 2023 (Dollars in thousands) ASSETS Available-for-Sale Debt Securities U.S. Government Agencies Level 2 $ 4,122 $ 3,949 Obligations of States and Political Subdivisions Level 2 3,473 3,373 Mortgage-Backed Securities - Government-Sponsored Enterprises Level 2 52,977 54,532 Collateralized Mortgage Obligations - Government Sponsored Enterprises Level 2 100,235 105,130 Collateralized Loan Obligations Level 2 99,573 29,804 Corporate Debt Level 2 7,865 7,719 Total Available-for-Sale Debt Securities 268,245 204,507 Equity Securities Mutual Funds Level 1 906 888 Other Level 1 1,730 1,700 Total Equity Securities 2,636 2,588 Total Securities $ 270,881 $ 207,095 Total Assets $ 270,881 $ 207,095 LIABILITIES Derivative Financial Liabilities Interest Rate Swaps Level 2 $ 1,853 $ 1,777 Risk Participation Agreements Level 2 118 94 Total Liabilities $ 1,971 $ 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 September 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 September 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 September 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. September 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 $ 138,570 $ 138,570 $ 62,442 $ 62,442 Noninterest-Earning Level 1 8,755 8,755 5,781 5,781 Securities See Above 270,881 270,881 207,095 207,095 Loans Held for Sale Level 2 428 428 — — Loans, Net Level 3 1,056,276 1,041,567 1,100,689 1,051,722 Restricted Stock Level 2 3,076 3,076 3,345 3,345 Mortgage Servicing Rights Level 3 481 836 540 974 Accrued Interest Receivable Level 2 6,246 6,246 5,086 5,086 Financial Liabilities: Deposits Level 2 1,353,820 1,354,983 1,267,159 1,263,574 Other Borrowed Funds FHLB Borrowings Level 2 20,000 20,018 20,000 19,962 Subordinated Debt Level 2 14,708 14,037 14,678 13,378 Derivative Liabilities Level 2 1,971 1,971 1,871 1,871 Accrued Interest Payable Level 2 3,178 3,178 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: September 30, 2024 December 31, 2023 (Dollars in thousands) Standby Letters of Credit $ 75 $ 110 Performance Letters of Credit 795 895 Construction Loans 40,014 47,034 Personal Lines of Credit 6,926 7,185 Overdraft Protection Lines 4,452 2,025 Home Equity Lines of Credit 27,219 24,176 Commercial Lines of Credit 100,251 64,667 Total Commitments $ 179,732 $ 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 September 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 September 30, Nine Months Ended September 30, 2024 2023 2024 2023 (Dollars in thousands) Operating Lease Expense $ 139 $ 77 $ 315 $ 231 Variable Lease Expense 10 7 26 22 Total Lease Expense $ 149 $ 84 $ 341 $ 253 26 Table of Contents September 30, 2024 December 31, 2023 (Dollars in thousands) Operating Leases: ROU Assets $ 2,849 $ 1,673 Weighted Average Lease Term in Years 11.11 7.50 Weighted Average Discount Rate 4.16 % 2.86 % September 30, 2024 (Dollars in thousands) Maturity Analysis: Due in One Year $ 495 Due After One Year to Two Years 421 Due After Two Years to Three Years 403 Due After Three Years to Four Years 384 Due After Four to Five Years 312 Due After Five Years 1,873 Total $ 3,888 Less: Present Value Discount 938 Lease Liabilities $ 2,950 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 for the operation of a full-service branch office 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 nine months ended September 30, 2023. Note 9. Segment and Related Information At September 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 September 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 2025. 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) September 30, 2024 Assets $ 1,559,417 $ 26,182 $ 164,038 $ ( 187,896 ) $ 1,561,741 Liabilities 1,412,694 4,818 14,898 ( 19,809 ) 1,412,601 Stockholders' Equity 146,723 21,364 149,140 ( 168,087 ) 149,140 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 September 30, 2024 Interest and Dividend Income $ 19,752 $ — $ 1,306 $ ( 1,285 ) $ 19,773 Interest Expense 8,144 — 155 — 8,299 Net Interest and Dividend Income 11,608 — 1,151 ( 1,285 ) 11,474 Provision for Credit Losses - Loans 25 — — — 25 Recovery for Credit Losses - Unfunded Commitments ( 66 ) — — — ( 66 ) Net Interest and Dividend Income After Net Recovery for Credit Losses 11,649 — 1,151 ( 1,285 ) 11,515 Noninterest Income 874 146 213 — 1,233 Noninterest Expense 8,777 — 5 — 8,782 Undistributed Net Income of Subsidiary 106 — 1,876 ( 1,982 ) — Income Before Income Tax Expense 3,852 146 3,235 ( 3,267 ) 3,966 Income Tax Expense 691 40 16 — 747 Net Income $ 3,161 $ 106 $ 3,219 $ ( 3,267 ) $ 3,219 Nine Months Ended September 30, 2024 Interest and Dividend Income $ 56,636 $ — $ 3,914 $ ( 3,851 ) $ 56,699 Interest Expense 21,698 — 465 — 22,163 Net Interest and Dividend Income 34,938 — 3,449 ( 3,851 ) 34,536 Recovery for Credit Losses - Loans ( 105 ) — — — ( 105 ) Recovery for Credit Losses - Unfunded Commitments ( 9 ) — — — ( 9 ) Net Interest and Dividend Income After Recovery for Credit Losses 35,052 — 3,449 ( 3,851 ) 34,650 Noninterest Income 3,662 146 31 — 3,839 Noninterest Expense 26,178 — 19 — 26,197 Undistributed Net Income of Subsidiary 106 — 6,526 ( 6,632 ) — Income Before Income Tax Expense (Benefit) 12,642 146 9,987 ( 10,483 ) 12,292 Income Tax Expense (Benefit) 2,265 40 ( 78 ) — 2,227 Net Income $ 10,377 $ 106 $ 10,065 $ ( 10,483 ) $ 10,065 28 Table of Contents Community Bank Exchange Underwriters, Inc. CB Financial Services, Inc. Net Eliminations Consolidated (Dollars in thousands) 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 Interest and Dividend Income $ 45,257 $ 5 $ 3,889 $ ( 3,830 ) $ 45,321 Interest Expense 11,436 — 466 — 11,902 Net Interest and Dividend Income 33,821 5 3,423 ( 3,830 ) 33,419 Provision for Credit Losses - Loans 863 — — — 863 Provision for Credit Losses - Unfunded Commitments 54 — — — 54 Net Interest and Dividend Income After Provision for Credit Losses 32,904 5 3,423 ( 3,830 ) 32,502 Noninterest Income (Loss) 2,918 4,937 ( 362 ) — 7,493 Noninterest Expense 24,725 3,281 11 — 28,017 Undistributed Net Income of Subsidiary 1,179 — 6,372 ( 7,551 ) — Income Before Income Tax Expense (Benefit) 12,276 1,661 9,422 ( 11,381 ) 11,978 Income Tax Expense (Benefit) 2,074 482 ( 164 ) — 2,392 Net Income $ 10,202 $ 1,179 $ 9,586 $ ( 11,381 ) $ 9,586 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 ( 6,230 ) 24.25 Forfeited ( 21,816 ) 25.12 Outstanding Options at September 30, 2024 403,348 $ 23.58 5.7 Exercisable Options at September 30, 2024 212,034 $ 24.21 3.2 Number of Shares Weighted Average Exercise Price Weighted Average Remaining Service Period in Years Nonvested Options at September 30, 2024 190,973 $ 22.89 8.6 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 ( 10,833 ) 23.18 Forfeited ( 1,990 ) 22.63 Nonvested Restricted Stock at September 30, 2024 81,364 $ 22.84 3.0 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 $ 215,000 and $ 196,000 for the three months ended September 30, 2024 and 2023. Stock-based compensation expense was $ 591,000 and $ 557,000 for the nine months ended September 30, 2024 and 2023. As of September 30, 2024 and December 31, 2023, total unrecognized compensation expense was $ 761,000 and $ 505,000 , respectively, related to stock options, and $ 1.5 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, 2024 and December 31, 2023 exceeds the exercise price of the stock options. The intrinsic value of stock options was $ 1.8 million and $ 335,000 at September 30, 2024 and December 31, 2023, respectively. At September 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 September 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 options, and 64,586 shares to be issued as restricted stock awards or units. The 2021 Plan shall remain in effect 30 Table of Contents 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. Variable Interest Entities The Company has an investment interest in the following non-consolidated entity that meets the definition of a variable interest entity ("VIE"). Low Income Housing Tax Credit Investments The Company makes equity investments in an entity that sponsors affordable housing and other community development projects that qualify for the Low Income Housing Tax Credit ("LIHTC") program pursuant to Section 42 of the Internal Revenue Code. The purpose of this investment is not only to assist the Bank in meeting its responsibilities under the Community Reinvestment Act, but also to provide an investment return, primarily through the realization of tax benefits. The LIHTC partnership is managed by unrelated general partners that have the power to direct the activities which most significantly affect the performance of the partnership. The Company is therefore not the primary beneficiary of the LIHTC partnership and accordingly, does not consolidate this VIE. The Company's funding requirements are limited to its invested capital and any additional unfunded commitments for future equity contributions. The Company's maximum exposure to loss as a result of its involvement is limited to the carrying amounts of the investments, including the unfunded commitments. The investment in the LIHTC partnership is included in Accrued Interest Receivable and Other Assets and unfunded commitments are included in Accrued Interest Payable and Other Liabilities on the Consolidated Statements of Financial Condition. The Company currently expects to fund these commitments by the end of 2035. The following table presents the balances of the Company's LIHTC investments and related unfunded commitments: September 30, 2024 December 31, 2023 (Dollars in thousands) Low Income Housing Tax Credit Investments $ 6,000 $ — Less: Amortization — — Net Low Income Housing Tax Credit Investments $ 6,000 $ — Unfunded Commitments $ 5,396 $ — The Company accounts for qualifying LIHTC investments under the proportional amortization method. Under this method, an entity amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits received and recognizes the net investment performance as a component of income tax expense. During the three and nine month periods ended September 30, 2024 and 2023, there were no tax credits, other tax benefits or investment amortization recognized as the investment fund is not yet closed. Note 12. 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.