CSB Bancorp, Inc. 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. REPORT ON MANAGEMENT’S ASSESSMENT OF INTERNAL CONTROL OVER FINANCIAL REPORTING The management of CSB Bancorp, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934, as amended. The Company’s internal control over financial reporting is designed to provide reasonable assurance that our published financial statements are fairly presented, in all material respects, in conformity with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Management conducted the required assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2024. Management’s assessment did not identify any material weaknesses in the Company’s internal control over financial reporting. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in the 2013 Internal Control-Integrated Framework. Based upon this assessment, management believes that the Company’s internal control over financial reporting is effective as of December 31, 2024. Eddie L. Steiner Paula J. Meiler President, Senior Vice President, Chief Executive Officer Chief Financial Officer 31 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and the Board of Directors of CSB Bancorp, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of CSB Bancorp, Inc. and subsidiaries (the “Company”) as of December 31, 2024 and 2023; the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for the years then ended; and the related notes to the consolidated financial statements ( collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent, with respect to the Company, in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. 32 Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the Audit Committee and that: (1) relate to accounts or disclosures that are material to the financial statements; and (2) involve our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter, in any way, our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Allowance for Credit Losses (ACL) – Qualitative Adjustments Description of the Matter The Company’s loan portfolio totaled $738 million as of December 31, 2024, and the associated ACL was $7.6 million. As discussed in Notes 1 and 3 to the consolidated financial statements, determining the amount of the ACL requires significant judgment about the expected future losses, which is based on a baseline lifetime loss rate, calculated using a weighted-average remaining maturities method, which is then adjusted for current qualitative conditions and reasonable and supportable forecasts. Management applies these qualitative adjustments to the baseline lifetime loss rate to reflect changes in the current and forecasted environment, both internal and external, that are different from the conditions that existed during the historical loss calculation period. We identified these qualitative adjustments within the ACL as critical audit matters because they involve a high degree of subjectivity. While the determination of these qualitative adjustments includes analysis of observable data over the historical loss period, the judgments required to assess the directionality and magnitude of adjustments is highly subjective. Auditing these complex judgments and assumptions involved especially challenging auditor judgment due to the nature of audit evidence and the nature and extent of effort required to address these matters. How we addressed the matter in our audit The primary procedures we performed to address this critical audit matter included: • Testing the design, implementation, and operating effectiveness of internal controls over the calculation of the allowance for credit losses, including the qualitative factor adjustments. • Testing the completeness and accuracy of the significant data points that management uses in their evaluation of the qualitative adjustments. • Testing the anchoring calculation that management completes to properly align the magnitude of the adjustments with the Company's historical loss data. • Evaluating the directional consistency and reasonableness of management's conclusions regarding basis points applied (whether positive or negative) based on the trends identified in the underlying data. • Testing the mathematical accuracy of the application of the qualitative adjustments to the loan segments within the ACL calculation. We have served as the Company’s auditor since 2005. Cranberry Township, Pennsylvania March 14, 2025 33 CONSOLIDATED B ALANCE SHEETS December 31, 2024 and 2023 (Dollars in thousands, except per share data) 2024 2023 ASSETS Cash and cash equivalents Cash and due from banks $ 21,287 $ 24,463 Interest-earning deposits in other banks 52,222 39,614 Total cash and cash equivalents 73,509 64,077 Securities Available-for-sale, at fair value 125,434 140,080 Held-to-maturity; fair value of $ 172,603 in 2024 and $ 194,730 in 2023 ($ 0 credit loss allowance for 2024 and 2023) 204,309 226,279 Equity securities 266 259 Restricted stock, at cost 1,520 1,535 Total securities 331,529 368,153 Loans held for sale 283 — Loans 737,641 701,404 Less allowance for credit losses 7,595 6,607 Net loans 730,046 694,797 Premises and equipment, net 14,069 13,002 Goodwill 4,728 4,728 Bank owned life insurance 28,225 25,410 Accrued interest receivable and other assets 9,111 8,522 TOTAL ASSETS $ 1,191,500 $ 1,178,689 LIABILITIES AND SHAREHOLDERS’ EQUITY LIABILITIES Deposits Noninterest-bearing $ 281,358 $ 301,697 Interest-bearing 763,529 725,730 Total deposits 1,044,887 1,027,427 Short-term borrowings 25,683 35,843 Other borrowings 1,266 1,754 Allowance for credit losses on off-balance sheet commitments 524 736 Accrued interest payable and other liabilities 4,305 4,990 Total liabilities 1,076,665 1,070,750 SHAREHOLDERS’ EQUITY Common stock, $ 6.25 par value. Authorized 9,000,000 shares; issued 2,980,602 shares; and outstanding 2,650,089 shares in 2024 and 2,669,938 in 2023 18,629 18,629 Additional paid-in capital 9,815 9,815 Retained earnings 103,105 97,297 Treasury stock at cost: 330,513 shares in 2024, 310,664 shares in 2023 ( 8,294 ) ( 7,532 ) Accumulated other comprehensive loss ( 8,420 ) ( 10,270 ) Total shareholders’ equity 114,835 107,939 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 1,191,500 $ 1,178,689 These consolidated financial statements should be read in connection with the accompanying notes to the consolidated financial statements. 34 CONSOLIDATED STATEMENTS OF INCOME Years Ended December 31, 2024 and 2023 (Dollars in thousands, except per share data) 2024 2023 INTEREST AND DIVIDEND INCOME Loans, including fees $ 41,539 $ 35,707 Taxable securities 7,315 7,803 Nontaxable securities 342 399 Other 2,405 2,107 Total interest and dividend income 51,601 46,016 INTEREST EXPENSE Deposits 14,404 9,499 Short-term borrowings 315 336 Other borrowings 29 40 Total interest expense 14,748 9,875 NET INTEREST INCOME 36,853 36,141 CREDIT LOSS EXPENSE Provision for credit loss expense - loans 7,244 198 Provision (recovery) for credit loss expense - off-balance sheet commitments ( 213 ) 244 Total provision for credit loss expense 7,031 442 NET INTEREST INCOME AFTER CREDIT LOSS EXPENSE 29,822 35,699 NONINTEREST INCOME Service charges on deposit accounts 1,156 1,209 Trust services 1,219 1,013 Debit card interchange fees 2,115 2,107 Credit card fees 643 701 Gain on sale of loans, net 281 161 Earnings on bank owned life insurance 814 702 Unrealized gain on equity securities 8 15 Other income 866 836 Total noninterest income 7,102 6,744 NONINTEREST EXPENSES Salaries and employee benefits 13,623 13,673 Occupancy expense 1,172 1,138 Equipment expense 863 792 Professional and director fees 1,565 1,471 Financial institutions tax 864 767 Marketing and public relations 561 549 Software expense 1,709 1,651 Debit card expense 755 682 FDIC insurance expense 538 514 Other expenses 2,939 2,823 Total noninterest expenses 24,589 24,060 INCOME BEFORE INCOME TAXES 12,335 18,383 Federal income tax provision 2,323 3,627 NET INCOME $ 10,012 $ 14,756 Weighted average shares outstanding - basic and diluted 2,661,308 2,679,902 Earnings per share - basic and diluted $ 3.76 $ 5.51 These consolidated financial statements should be read in connection with the accompanying notes to the consolidated financial statements. 35 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Years Ended December 31, 2024 and 2023 (Dollars in thousands) 2024 2023 Net income $ 10,012 $ 14,756 Other comprehensive income Unrealized gain on available-for-sale securities arising during the period 2,166 3,168 Amortization of held-to-maturity discount resulting from transfer 176 187 Income tax effect at 21 % ( 492 ) ( 706 ) Other comprehensive income 1,850 2,649 Total comprehensive income $ 11,862 $ 17,405 These consolidated financial statements should be read in connection with the accompanying notes to the consolidated financial statements. 36 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDE RS’ EQUITY Years Ended December 31, 2024 and 2023 (Dollars in thousands, except per share data) Common Stock Additional Paid-In Capital Retained Earnings Treasury Stock Accumulated Other Comprehensive Loss Total BALANCE AT DECEMBER 31, 2022 $ 18,629 $ 9,815 $ 86,502 $ ( 6,107 ) $ ( 12,919 ) $ 95,920 Net income — — 14,756 — — 14,756 Cumulative effect of adoption of ASU 2016-13 — — 52 — — 52 Other comprehensive income — — — — 2,649 2,649 Purchase of 37,638 treasury shares — — — ( 1,425 ) — ( 1,425 ) Cash dividends declared, $ 1.50 per share — — ( 4,013 ) — — ( 4,013 ) BALANCE AT DECEMBER 31, 2023 $ 18,629 $ 9,815 $ 97,297 $ ( 7,532 ) $ ( 10,270 ) $ 107,939 Net income — — 10,012 — — 10,012 Other comprehensive income — — — — 1,850 1,850 Purchase of 19,849 treasury shares — — — ( 762 ) — ( 762 ) Cash dividends declared, $ 1.58 per share — — ( 4,204 ) — — ( 4,204 ) BALANCE AT DECEMBER 31, 2024 $ 18,629 $ 9,815 $ 103,105 $ ( 8,294 ) $ ( 8,420 ) $ 114,835 These consolidated financial statements should be read in connection with the accompanying notes to the consolidated financial statements. 37 CONSOLIDATED STATEM ENTS OF CASH FLOWS Years Ended December 31, 2024 and 2023 (Dollars in thousands) 2024 2023 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 10,012 $ 14,756 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of premises, equipment and software 941 921 Deferred income tax expense 118 293 Provision for credit loss expense 7,244 198 Gain on sale of loans, net ( 281 ) ( 161 ) Security amortization, net of accretion 677 828 Secondary market loan sale proceeds 9,023 4,891 Originations of secondary market loans held-for-sale ( 9,113 ) ( 4,725 ) Earnings on bank-owned life insurance ( 814 ) ( 702 ) Effects of changes in operating assets and liabilities: Net deferred loan (fees) costs ( 222 ) 138 Accrued interest receivable ( 105 ) ( 350 ) Accrued interest payable 100 253 Other assets and liabilities ( 1,915 ) ( 715 ) Net cash provided by operating activities $ 15,665 $ 15,625 CASH FLOWS FROM INVESTING ACTIVITIES Securities: Proceeds from repayments, available-for-sale $ 31,732 $ 17,102 Proceeds from repayments, held-to-maturity 21,840 20,993 Purchases, available-for-sale ( 15,290 ) ( 4,457 ) Redemption of restricted stock 15 1,895 Loan (originations) and payments, net ( 42,271 ) ( 74,242 ) Purchases of premises and equipment ( 1,960 ) ( 424 ) Purchases of software ( 145 ) ( 2 ) Purchase of bank owned life insurance ( 2,000 ) — Sale of property — 9 Net cash used in investing activities $ ( 8,079 ) $ ( 39,126 ) These consolidated financial statements should be read in connection with the accompanying notes to the consolidated financial statements. 38 CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) Years Ended December 31, 2024 and 2023 (Dollars in thousands) 2024 2023 CASH FLOWS FROM FINANCING ACTIVITIES Net change in deposits $ 17,460 $ 4,010 Net change in short-term borrowings ( 10,160 ) 3,293 Repayment of other borrowings ( 488 ) ( 707 ) Cash dividends paid ( 4,204 ) ( 4,013 ) Purchase of treasury stock ( 762 ) ( 1,425 ) Net cash provided by financing activities $ 1,846 $ 1,158 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 9,432 ( 22,343 ) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 64,077 86,420 CASH AND CASH EQUIVALENTS AT END OF YEAR $ 73,509 $ 64,077 SUPPLEMENTAL DISCLOSURES Cash paid during the year for: Interest $ 14,647 $ 9,622 Income taxes 2,775 4,165 These consolidated financial statements should be read in connection with the accompanying notes to the consolidated financial statements. 39 NOTE 1 – SUMMARY OF SIG NIFICANT ACCOUNTING POLICIES CSB Bancorp, Inc. (the “Company” or “CSB”) was incorporated in 1991 in the State of Ohio and is a registered bank holding company. The Company’s wholly owned subsidiaries are The Commercial and Savings Bank of Millersburg, Ohio (the “Bank”) and CSB Investment Services, LLC. The Company, through its subsidiaries, operates in the commercial banking industry. The Bank, an Ohio-chartered bank organized in 1879, provides financial services through its sixteen Banking Centers located in Holmes, Stark, Tuscarawas and Wayne counties and a loan production office in Medina. These communities are the source of a substantial majority of the Bank’s deposit, loan, and trust activities. The majority of the Bank’s income is derived from commercial and retail lending activities, and investments in securities. Its primary deposit products are checking, savings, and term certificate accounts. Its primary lending products are residential real estate, commercial real estate, commercial, and installment loans. Substantially, all loans are secured by specific items of collateral including business assets, consumer assets, and real estate. Commercial loans are expected to be repaid with cash flow from business operations. Real estate loans are secured by both residential and commercial real estate. Significant accounting policies followed by the Company are presented below. BUSINESS SEGMENTS The Company's operations have been evaluated for segment reporting and management has determined operations are managed along two operating segments, consisting of banking operations and trust services. The Company derives its banking operations revenue from business and consumer customers through loan and deposit products. However, these components are not separately reviewed and all expenses are not segregated from the rest of the Company's operations and therefore are not reportable as segments. The Company's chief operating decision maker is the senior management team, which includes the CEO, President, CFO, Chief Risk Officer, Senior Loan Officer and Senior Operations Officer. While the chief operating decision maker uses financial information related to the banking operations and trust services segments to analyze business performance and allocate resources, the trust services segment does not meet the quantitative threshold under GAAP to be considered a reportable segment. Trust services revenue and net income are less than 4 % of total Company revenue or net income. As such, these operating segments are aggregated into a single reportable operating segment in the Consolidated Financial Statements. USE OF ESTIMATES IN PREPARING FINANCIAL STATEMENTS In preparing the Consolidated Financial Statements, in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions affecting the reported amounts of assets and liabilities as of the date of the Consolidated Balance Sheets and reported amounts of revenues and expenses during each reporting period. Actual results could differ from those estimates. The most significant estimates susceptible to change in the near term relate to management’s determination of the allowance for credit losses and the fair value of financial instruments. PRINCIPLES OF CONSOLIDATION The Consolidated Financial Statements include the accounts of the Company and its wholly owned subsidiaries. All significant inter-company balances and transactions have been eliminated in consolidation. The Bank has a trust department and the assets held by the Bank in fiduciary or agency capacities for its customers are not included in the Consolidated Balance Sheets as such items are not assets of the Bank. CASH AND CASH EQUIVALENTS For purposes of the Consolidated Statements of Cash Flows, cash and cash equivalents include cash on hand and amounts due from banks which mature overnight or within ninety days . DEBT SECURITIES At the time of purchase all debt securities are evaluated and designated as available-for-sale (AFS) or held-to-maturity (HTM). Securities designated as AFS are carried at fair value with unrealized gains and losses on such securities, net of applicable income taxes, recognized as other comprehensive income or loss. HTM securities are recorded at amortized cost. Securities transferred from AFS to HTM are carried at their fair value on the date of transfer. On December 31, 2024 , 62 % of the total investment portfolio was classified as HTM. The amortized cost of debt securities is adjusted for the accretion of discounts to maturity and the amortization of premiums to the earlier of a bond’s call date or maturity based on the interest method. Such amortization and accretion are included in interest and dividends on securities. Gains and losses on sales of securities are accounted for on a trade date basis, using the specific identification method, and are included in noninterest income. EQUITY SECURITIES Equity securities are held at fair value. Holding gains and losses are recorded in income. Dividends on equity securities are recognized as income when earned. 40 RESTRICTED STOCK Investments in FHLB and Federal Reserve Bank stock are classified as restricted stock, carried at cost, and evaluated for impairment. The Bank is required to maintain an investment in common stock of the FHLB and Federal Reserve Bank because the Bank is a member of the FHLB and the Federal Reserve System. LOANS Loans that management has the intent and ability to hold for the foreseeable future, until maturity, or pay-off, generally are stated at their outstanding principal amount, adjusted for charge-offs, the allowance for credit losses, and any deferred loan fees or costs on originated loans. Interest is accrued based upon the daily outstanding principal balance. Loan origination fees and certain direct origination costs are capitalized and recognized as an adjustment of the yield over the life of the related loan. Interest income is not reported when full repayment is in doubt, typically when the loan is individually evaluated, or payments are past due over 90 days. All interest accrued but not collected for loans placed on nonaccrual or charged-off is reversed and charged against interest income. The interest on these loans is accounted for on a cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. At origination, a determination is made whether a loan will be held in the Bank’s portfolio or is intended for sale in the secondary market. Mortgage loans held for sale are recorded at the lower of the aggregate cost or fair value. Generally, these loans are held for sale for less than three (3) days. The Bank recognizes gains and losses on sales of the loans held for sale when the sale is completed. ALLOWANCE FOR CREDIT LOSSES The ACL is a valuation reserve established and maintained by charges against operating income and is deducted from the amortized cost basis of loans to present the net amount expected to be collected on the loans. Loans, or portions thereof, are charged off against the ACL when they are deemed uncollectible. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off. The ACL is an estimate of expected credit losses, measured over the contractual life of a loan (adjusted for expected prepayment), that considers our historical loss experience, current conditions and forecasts of future economic conditions. Determination of an appropriate ACL is inherently subjective and may have significant changes from period to period. The methodology for determining the ACL has two main components: evaluation of expected credit losses for certain groups of homogeneous loans that share similar risk characteristics and evaluation of individual loans that do not share risk characteristics with other loans. The ACL for homogeneous loans is calculated using a life-time loss rate methodology with both a quantitative and a qualitative analysis that is applied on a quarterly basis. The ACL model is comprised of eight distinct portfolio segments: 1) Commercial and Industrial or C&I, 2) Commercial Real Estate, or CRE, 3) Commercial Lessors of Buildings, 4) Construction, 5) Consumer Mortgage, 6) Home Equity Line of Credit or HELOC, 7) Consumer Installment, and 8) Consumer Indirect loans. Each segment has a distinct set of risk characteristics monitored by management. Historical credit loss experience is the basis for the estimation of expected credit losses. We apply historical loss rates to pools of loans with similar risk characteristics. After consideration of the historic loss calculation, management applies qualitative adjustments to reflect the current conditions and reasonable and supportable forecasts not already reflected in the historical loss information at the balance sheet date. Our reasonable and supportable forecast adjustment is based on the unemployment forecast and management judgment. For periods beyond our two-year reasonable and supportable forecast, we revert to the historical loss rate. The qualitative adjustments for current conditions are based upon changes in lending policies and practices, change in economic conditions, change in nature of the portfolio, experience and ability of lending staff, problem loan trends, quality of the bank’s loan review system, value of underlying collateral for collateral dependent loans, the existence of and changes in concentrations, and other external factors. These modified historical loss rates are multiplied by the outstanding principal balance of each loan to calculate a required reserve. A similar process is employed to calculate a reserve assigned to the portion of off-balance sheet commitments that we expect to fund, specifically unfunded loan commitments, and any needed reserve is recorded in other liabilities. The ACL for individual loans begins with the use of normal credit review procedures to identify whether a loan no longer shares similar risk characteristics with other pooled loans and therefore, should be individually assessed. We evaluate all commercial loans greater than $ 500 thousand that meet the following criteria: 1) when it is determined that foreclosure is probable, 2) substandard, doubtful and nonperforming loans when repayment is expected to be provided substantially through the operation or sale of the collateral, and 3) when it is determined by management that a loan does not share similar risk characteristics with other loans. Collateral values are discounted to consider disposal costs when appropriate. A specific reserve is established or a charge-off is taken if the fair value of the loan is less than the loan balance. Although we believe our process for determining the ACL appropriately considers all the factors that would likely result in credit losses, the process includes subjective elements and may be susceptible to significant change. To the extent actual losses are higher than management estimates, additional provision for credit losses could be required and could adversely affect our earnings or financial position in future periods. 41 The ACL for off-balance sheet commitments is estimated on the likelihood and amount of funding under the same criteria used for loans under the ACL. The ACL for off-balance sheet commitments is recorded in other liabilities in the Consolidated Balance Sheets. HTM Securities - Any expected credit loss is recorded through the ACL on HTM securities and is deducted from the amortized cost basis on the balance sheet. The majority of HTM securities are 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 rating agencies, and have a long history of no credit losses. Therefore, there is no credit loss expectation on these securities. AFS Securities - The AFS securities portfolio is evaluated on a quarterly basis for indicators of credit loss. Management reviews the amount of unrealized loss, the credit rating history, market trends of similar security classes, time remaining to maturity, and the source of principal and interest payments to identify securities which could potentially have a credit loss. For those securities that management intends to sell before the recovery of their amortized cost basis, the difference between fair value and amortized cost is considered to have a credit loss and is recognized in provision for credit loss expense and the amortized cost is written down to the realizable value through a charge-off. For those AFS securities that management does not intend to sell prior to expected recovery of the amortized cost basis, the credit portion is recognized through the ACL on AFS securities, while the noncredit portion is recognized through the accumulated other comprehensive income or loss included in shareholders' equity. Non-credit related impairment is a result of other factors, including changes in interest rates. OTHER REAL ESTATE OWNED Other real estate acquired through or in lieu of foreclosure is initially recorded at fair value, less estimated costs to sell, and any loan balance in excess of fair value is charged to the allowance for credit losses. Subsequent valuations are periodically performed, and write-downs are included in noninterest expenses, as well as expenses related to maintenance of the properties. Gains or losses upon sale are recorded through noninterest income. There was no other real estate owned on December 31, 2024 or 2023 . PREMISES AND EQUIPMENT Premises and equipment are stated at cost, less accumulated depreciation and amortization. Land is carried at cost. Depreciation and amortization are determined based on the estimated useful lives of the individual assets (typically 20 to 40 years for buildings and 3 to 10 years for equipment) and is computed using the straight-line method. Leasehold improvements are amortized over the useful life of the asset, or lease term, whichever is shorter. Expenses for maintenance and repairs are charged against income as incurred. Costs of major additions and improvements are capitalized. GOODWILL Goodwill is not amortized but is tested for impairment at least annually in the fourth quarter or more frequently if indicators of impairment are present. The evaluation for impairment involves comparing the current fair value of the reporting unit to the carrying value, including goodwill. If the current fair value of a reporting unit exceeds the carrying value, no additional testing is required, and an impairment loss is not recorded. The Company uses market capitalization and multiples of tangible book value methods, based on observable bank acquisitions in the state of Ohio, to determine the estimated current fair value of its reporting unit. Based on this analysis no impairment was recorded in 2024 or 2023 . MORTGAGE SERVICING RIGHTS Mortgage servicing rights (“MSRs”) represent the right to service loans for third party investors. MSRs are recognized at fair value as a separate asset upon the sale of mortgage loans to a third-party investor with the servicing rights retained by the Company. Originated MSRs are recorded at allocated fair value at the time of the sale of the loans to the third-party investor. MSRs are amortized in proportion to and over the estimated period of net servicing income. MSRs are carried at amortized cost, less a valuation allowance for impairment, if any. MSRs are evaluated on a discounted earnings basis to determine the present value of future earnings of the underlying serviced mortgages. All assumptions are reviewed annually, or more frequently if necessary, and adjusted to reflect current and anticipated market conditions. BANK-OWNED LIFE INSURANCE The cash surrender value of bank-owned life insurance policies is included as an asset on the Consolidated Balance Sheets and any increases in the cash surrender value are recorded as noninterest income on the Consolidated Statements of Income. In the event of the death of an individual insured under these policies, the Company would receive a death benefit, which would be recorded as noninterest income. REPURCHASE AGREEMENTS Substantially all securities sold under repurchase agreements represent amounts advanced by various customers. Securities owned by the Bank are pledged to secure those obligations. Repurchase agreements are not deposits and are not covered by federal deposit insurance. 42 ADVERTISING COSTS All advertising costs are expensed as incurred. Advertising expenses amounted to $ 187 thousand, $ 196 thousand for the years ended 2024 and 2023 , respectively. FEDERAL INCOME TAXES The Company and its subsidiaries file a consolidated federal tax return. Deferred income taxes are recorded on temporary differences between financial statement and income tax reporting. Temporary differences are differences between the amounts of assets and liabilities reported for financial statement purposes and their respective tax bases. Deferred tax assets are recognized for temporary differences deductible in future years’ tax returns and for operating loss and tax credit carry forwards. Deferred tax assets are reduced by a valuation allowance if it is deemed more likely than not that some or all of the deferred tax assets will not be realized. Deferred tax liabilities are recognized for temporary differences taxable in future years’ tax returns. The Bank, domiciled in Ohio, is not currently subject to state and local income taxes. COMPREHENSIVE INCOME The Company includes recognized revenue, expenses, gains, and losses in net income. Although certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale securities, are reported as a separate component of the equity section of the Consolidated Balance Sheets, net of tax, these items along with net income are components of comprehensive income. The unrealized loss on securities transferred from AFS to HTM at the date of transfer, is amortized over the remaining life of the securities as part of comprehensive income. TRANSFERS OF FINANCIAL ASSETS Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions constraining it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity. PER SHARE DATA Earnings per share is computed based on the weighted average number of shares of common stock outstanding during each year. The company currently maintains a simple capital structure, thus, there are no dilutive effects on earnings per share. The weighted average number of common shares outstanding for earnings per share computations was as follows: (Dollars in thousands, except per share data) 2024 2023 Weighted average common shares issued 2,980,602 2,980,602 Average treasury shares ( 319,294 ) ( 300,700 ) Total weighted average common shares outstanding basic and diluted 2,661,308 2,679,902 Net income $ 10,012 $ 14,756 Earnings per share, basic and diluted 3.76 5.51 S UBSEQUENT EVENTS The Company has evaluated subsequent events through the date these financial statements were issued. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic740): Improvements to Income Tax Disclosure . This new guidance is intended to enhance the transparency and decision usefulness of income tax disclosures. The amendments in this Update address investor requests for more transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information. This Update also includes certain other amendments to improve the effectiveness of income tax disclosures. It is effective for public business entities for annual periods beginning after December 15, 2024. This update is not expected to have a significant impact on the Company's financial statements. 43 ACCOUNTING PRONOUNCEMENTS ADOPTED IN 2024 In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures , which requires public entities to disclose information about their reportable segments' significant expenses on an interim and annual basis. This ASU became effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Public entities are required to adopt the changes retrospectively, recasting each prior-period disclosure for which a comparative income statement is presented in the period of adoption . Upon adoption the Company expanded its disclosures regarding reportable segments, which are included above in Note 1 to the Consolidated Financial Statements. RECLASSIFICATION OF COMPARATIVE AMOUNTS Certain comparative amounts from the prior years have been reclassified to conform to current year classifications. Such classifications had no effect on net income or shareholders’ equity. NOTE 2 – SECURITIES Securities consisted of the following on December 31: (Dollars in thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Allowance for Credit Losses Fair Value 2024 Available-for-sale U.S. Treasury securities $ 13,487 $ 8 $ ( 81 ) $ — $ 13,414 U.S. Government agencies 6,000 — ( 302 ) — 5,698 Mortgage-backed securities of government agencies 69,746 30 ( 7,078 ) — 62,698 Asset-backed securities of government agencies 404 — ( 6 ) — 398 State and political subdivisions 15,051 — ( 805 ) — 14,246 Corporate bonds 30,048 5 ( 1,073 ) — 28,980 Total available-for-sale 134,736 43 ( 9,345 ) — 125,434 Held-to-maturity U.S. Treasury securities 7,854 — ( 621 ) — 7,233 Mortgage-backed securities of government agencies 193,937 — ( 30,862 ) — 163,075 State and political subdivisions 2,518 — ( 223 ) — 2,295 Total held-to-maturity 204,309 — ( 31,706 ) — 172,603 Equity securities 185 81 — — 266 Restricted stock 1,520 — — — 1,520 Total securities $ 340,750 $ 124 $ ( 41,051 ) $ — $ 299,823 2023 Available-for-sale U.S. Treasury securities $ 18,110 $ — $ ( 421 ) $ — $ 17,689 U.S. Government agencies 14,000 — ( 848 ) — 13,152 Mortgage-backed securities of government agencies 72,279 98 ( 7,332 ) — 65,045 Asset-backed securities of government agencies 548 — ( 25 ) — 523 State and political subdivisions 17,476 — ( 890 ) — 16,586 Corporate bonds 29,135 6 ( 2,056 ) — 27,085 Total available-for-sale 151,548 104 ( 11,572 ) — 140,080 Held-to-maturity U.S. Treasury securities 10,305 — ( 798 ) — 9,507 Mortgage-backed securities of government agencies 213,425 — ( 30,534 ) — 182,891 State and political subdivisions 2,549 2 ( 219 ) — 2,332 Total held-to-maturity 226,279 2 ( 31,551 ) — 194,730 Equity securities 185 74 — — 259 Restricted stock 1,535 — — — 1,535 Total securities $ 379,547 $ 180 $ ( 43,123 ) $ — $ 336,604 44 The amortized cost and fair value of debt securities on December 31, 2024, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. (Dollars in thousands) Amortized Cost Fair Value Available-for-sale Due in one year or less $ 30,196 $ 29,883 Due after one through five years 21,157 20,331 Due after five through ten years 16,821 15,489 Due after ten years 66,562 59,731 Total debt securities available-for-sale $ 134,736 $ 125,434 Held-to-maturity Due in one year or less $ 2,484 $ 2,420 Due after one through five years 3,305 3,087 Due after five through ten years 4,706 4,142 Due after ten years 193,814 162,954 Total debt securities held-to-maturity $ 204,309 $ 172,603 Securities with a carrying value of approximately $ 134 million and $ 126 million were pledged on December 31, 2024, and 2023 respectively, to secure public deposits, as well as other deposits and borrowings as required or permitted by law. Restricted stock primarily consists of investments in FHLB and Federal Reserve Bank stock. The Bank’s investment in FHLB stock amounted to $ 1.0 million on December 31, 2024, and 2023 . Federal Reserve Bank stock was $ 471 thousand on December 31, 2024, and 2023. There were no proceeds from sales of debt securities for the years ended December 31, 2024 and 2023 . Unrealized gains recognized on equity securities on the consolidated statements of income were $ 8 thousand and $ 15 thousand, respectively for the years ended December 31, 2024 and 2023. The Bank monitors the credit quality of held-to-maturity debt securities primarily through utilizing their credit rating. The Bank monitors the credit rating on a quarterly basis. There are no nonperforming held-to-maturity securities. As of December 31, 2024 , no ACL was required for any held-to-maturity security. The majority of the securities are explicitly or implicitly guaranteed by the United States government, and any estimate of expected credit losses would be insignificant to the Bank. The following table summarizes the amortized cost of held-to maturity debt securities at December 31, 2024, aggregated by credit quality indicator: (Dollars in thousands) U.S. Treasury securities Mortgage- backed securities of government agencies State and political subdivisions December 31, 2024 Credit rating: AAA / AA / A $ 7,854 $ 193,937 $ 2,518 BBB / BB / B — — — Lower than B — — — Non-rated — — — Total $ 7,854 $ 193,937 $ 2,518 45 The following table presents gross unrealized losses, fair value of securities, aggregated by investment category, and length of time individual available-for-sale securities have been in a continuous unrealized loss position, on December 31 2024 and 2023: Less Than 12 Months 12 Months or More Total (Dollars in thousands) Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value 2024 Available-for-sale U.S. Treasury securities $ — $ — $ ( 81 ) $ 8,949 $ ( 81 ) $ 8,949 U.S. Government agencies — — ( 302 ) 5,698 ( 302 ) 5,698 Mortgage-backed securities of government agencies ( 88 ) 12,944 ( 6,990 ) 45,063 ( 7,078 ) 58,007 Asset-backed securities of government agencies — — ( 6 ) 398 ( 6 ) 398 State and political subdivisions ( 19 ) 1,446 ( 786 ) 12,800 ( 805 ) 14,246 Corporate bonds — — ( 1,073 ) 27,473 ( 1,073 ) 27,473 Total temporarily impaired available-for-sale securities $ ( 107 ) $ 14,390 $ ( 9,238 ) $ 100,381 $ ( 9,345 ) $ 114,771 2023 Available-for-sale U.S. Treasury securities $ — $ — $ ( 421 ) $ 17,689 $ ( 421 ) $ 17,689 U.S. Government agencies — — ( 848 ) 13,152 ( 848 ) 13,152 Mortgage-backed securities of government agencies ( 3 ) 1,909 ( 7,329 ) 52,144 ( 7,332 ) 54,053 Asset-backed securities of government agencies — — ( 25 ) 523 ( 25 ) 523 State and political subdivisions ( 28 ) 1,783 ( 862 ) 14,263 ( 890 ) 16,046 Corporate bonds — — ( 2,056 ) 26,586 ( 2,056 ) 26,586 Total temporarily impaired available-for-sale securities $ ( 31 ) $ 3,692 $ ( 11,541 ) $ 124,357 $ ( 11,572 ) $ 128,049 There were 112 available-for-sale securities in an unrealized loss position on December 31, 2024 , 104 of which were in a continuous loss position for twelve (12) months or more. Each quarter the Company conducts a comprehensive security-level impairment assessment on the securities portfolio. Management believes the Company will fully recover the cost of these securities. Unrealized losses on the Company’s fixed-rate debt securities are a result of interest rate increases. U.S. Treasury securities and investments in securities of U.S. government sponsored agency bonds comprise $ 82 million of total AFS securities. The remaining $ 43 million of non-agency debt securities is made up of Corporate Bonds and debt securities of State and Political Subdivisions. For non-agency debt securities, the Company verified the current credit ratings remain above investment grade. Non-rated debt securities total $ 10 million. Annually, management reviews the credit profile of each non-rated issue and assesses whether any impairment to the contractually obligated cash flow is likely to occur. Based on these reviews, management has concluded the underlying creditworthiness for each security remains sufficient to maintain required payment obligations and, therefore, no allowance for credit losses has been recorded. Management believes the value will recover as the securities approach maturity or market interest rates decline. 46 NOTE 3 – LOANS Loans consisted of the following on December 31: (Dollars in thousands) 2024 2023 Commercial and industrial $ 144,376 $ 152,125 Commercial real estate 190,514 190,702 Commercial lessors of buildings 101,168 82,687 Construction 64,262 49,214 Consumer mortgage 177,578 166,891 Home equity line of credit 44,971 43,269 Consumer installment 9,645 10,636 Consumer indirect 5,276 5,957 Total loans 737,790 701,481 Allowance for credit losses ( 7,595 ) ( 6,607 ) Deferred loan fees, net ( 149 ) ( 77 ) Net Loans $ 730,046 $ 694,797 Loan Origination/Risk Management The Company has certain lending policies and procedures in place designed to maximize loan income within an acceptable level of risk. Management reviews and the Board of Directors approves these policies and procedures on a regular basis. A reporting system supplements the review process by providing management with frequent reports related to loan production, loan quality, concentrations of credit, loan delinquencies, and non-performing and potential problem loans. Diversification in the loan portfolio is a means of managing risk associated with fluctuations in economic conditions. Commercial and industrial loans are underwritten after evaluating and understanding the borrower’s ability to operate profitably and prudently expand their business. Underwriting standards are designed to promote relationship banking rather than transactional banking. The Company’s management examines current and occasionally projected cash flows to determine the ability of the borrower to repay their obligations as agreed. Commercial loans are primarily made based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. However, the cash flows of borrowers may not be as expected and the collateral securing these loans may fluctuate in value. Most commercial loans are secured by the assets being financed or other business assets, such as accounts receivable or inventory, and generally incorporate a personal guarantee; however, some short-term loans may be made on an unsecured basis. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers. Commercial real estate loans are subject to underwriting standards and processes similar to commercial and industrial loans, in addition to those of real estate loans. These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Commercial real estate lending typically involves higher loan principal amounts, and the repayment of these loans is largely dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. Commercial real estate loans may be adversely affected by conditions in the real estate markets or in the general economy. The properties securing the Company’s commercial real estate portfolio are diverse in terms of type. This diversity helps reduce the Company’s exposure to adverse economic events that affect any single industry. Management monitors and evaluates commercial real estate loans based on collateral, geography, and risk grade criteria. With respect to loans to developers and builders secured by non-owner occupied properties, the Company generally requires the borrower to have had an existing relationship with the Company and have a proven record of success. Construction and land development loans are underwritten utilizing independent appraisal reviews, lease rates, and financial analysis of developers and property owners. Construction and land development loans are generally based upon estimates of costs and value associated with the completed project. These estimates may be inaccurate. Construction and land development loans often involve the disbursement of substantial funds with repayment substantially dependent on the success of the project. Sources of repayment for these types of loans may be pre-committed permanent loans from approved long-term lenders, sales of developed property, or permanent financing from the Company. These loans are closely monitored by on-site inspections and are considered to have higher risk than other real estate loans due to their ultimate repayment being sensitive to interest rate changes, governmental regulation of real property, general economic conditions, and the availability of long-term financing. The Company originates consumer loans utilizing a judgmental underwriting process. Policies and procedures are developed and modified, as needed, by management to monitor and manage consumer loan risk. This activity, coupled with relatively small loan amounts spread across many individual borrowers, minimizes risk. The Company engages an independent loan review vendor that reviews and validates the credit risk program on a periodic basis. Results of these reviews are presented to management and the Audit Committee. The loan review process complements and reinforces the risk identification and assessment decisions made by lenders and credit personnel, as well as the Company’s policies and procedures. 47 Concentrations of Credit Nearly all the Company’s lending activity occurs within the State of Ohio, including the five counties of Holmes, Medina, Stark, Tuscarawas, and Wayne, as well as surrounding counties. The majority of the Company’s loan portfolio consists of commercial and industrial and commercial real estate loans. Credit concentrations, including commitments, as determined using North American Industry Classification Codes (NAICS), to the three largest industries compared to total loans at December 31, 2024 , included $ 77 million, or 10 % of total loans to lessors of non-residential buildings; $ 37 million, or 5 %, of total loans to animal food producers; and $ 30 million, or 4 % of total loans to construction, and equipment rental and leasing. The Company has less than 2 % of total loans outstanding to loans secured by commercial office space. These loans are generally secured by real property and equipment, with repayment expected from operational cash flow. Credit evaluation is based on a review of cash flow coverage of principal and interest payments, and the adequacy of the collateral received. The top ten collateral exposures in commercial real estate and commercial lessors of buildings at December 31, 2024 are as follows: Industrial, manufacturing and production $ 56 million; warehouse $ 39 million; healthcare facilities $ 27 million; residential investment property $ 27 million; retail strip center $ 17 million; auto repair $ 15 million; retail store $ 13 million; senior housing $ 12 million; hotels $ 11 million; nonfarm/nonresidential $ 10 million. Allowance for Credit Losses The following table details activity in the allowance for credit losses ("ACL") by portfolio segment for the years ended December 31, 2024, and 2023. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories. During 2024, the increase in the provision for credit loss expense for commercial and industrial and commercial real estate loans was primarily related to one loan relationship which is in process of court liquidation. This relationship has been charged down by $ 6.2 million which resulted in an increase in the historical loss rates applied to the loans in each of these categories. The decrease in the provision for consumer mortgages and home equity loans was primarily due to the stable economy and collateral values, with very few historical losses in these categories. The increase in the provision for consumer installment and consumer indirect loans is due to the increase in historical losses in this portfolio. During 2023, ACL balances were affected by the adoption of ASC 326 which changed the methodology for calculating the allowance for credit losses. These changes resulted in the addition of three new loan categories. In addition to the new methodology changes, the decrease in the commercial real estate provision was primarily related to the payoff of one large loan relationship with a specific allocation and the improvement of other specifically evaluated loans. The decrease in the provision for commercial and industrial loans was primarily due to the recovery of a prior loan charge off. The increase in the provision for commercial lessors of buildings relates to the increase in loans graded special mention. The increase in provision for consumer mortgages primarily relates to increased loan volume. The increase in the consumer indirect category is due to the increase in charge-offs in this portfolio. 48 Summary of Allowance for Credit Losses on Loans The following table details activity in the allowance for credit losses on loans during the year ended December 31: (Dollars in thousands) Beginning ACL Balance Charge-offs Recoveries Provision for Credit Losses (Recovery) Ending ACL Balance December 31, 2024 Commercial and industrial $ 1,737 $ ( 5,671 ) $ 74 $ 6,779 $ 2,919 Commercial real estate 1,637 ( 598 ) 1 641 1,681 Commercial lessors of buildings 1,200 — — ( 59 ) 1,141 Construction 333 — — 169 502 Consumer mortgage 1,107 — 10 ( 305 ) 812 Home equity line of credit 288 — — ( 83 ) 205 Consumer installment 76 ( 65 ) 17 64 92 Consumer indirect 229 ( 60 ) 36 38 243 Total $ 6,607 $ ( 6,394 ) $ 138 $ 7,244 $ 7,595 Beginning ALL Balance Impact of Adopting ASC 326 Charge-offs Recoveries Provision for Credit Losses (Recovery) Ending ACL Balance December 31, 2023 Commercial and industrial $ 1,110 $ 658 $ — $ 181 $ ( 212 ) $ 1,737 Commercial real estate 2,760 ( 541 ) — 9 ( 591 ) 1,637 Commercial lessors of buildings — 974 — — 226 1,200 Construction 803 ( 515 ) — — 45 333 Consumer mortgage 1,268 ( 580 ) — 1 418 1,107 Home equity line of credit — 201 — — 87 288 Consumer installment 233 ( 183 ) ( 46 ) 20 52 76 Consumer indirect — 91 ( 66 ) 31 173 229 Unallocated 664 ( 664 ) — — — — Total $ 6,838 $ ( 559 ) $ ( 112 ) $ 242 $ 198 $ 6,607 49 Age Analysis of Past-Due Loans Receivable and Nonperforming Loans The performance and credit quality of the loan portfolio is also monitored by analyzing the age of the loans receivable as determined by the length of time a recorded payment is past due. The following table presents the classes of the loan portfolio summarized by the past-due status. (Dollars in thousands) Current 30-59 Days Past Due 60-89 Days Past Due 90 Days + Past Due Total Past Due Total Loans December 31, 2024 Commercial and industrial $ 144,274 $ 46 $ 56 $ — $ 102 $ 144,376 Commercial real estate 190,514 — — — — 190,514 Commercial lessors of buildings 101,168 — — — — 101,168 Construction 64,262 — — — — 64,262 Consumer mortgage 176,403 633 56 486 1,175 177,578 Home equity line of credit 44,595 376 — — 376 44,971 Consumer installment 9,637 5 3 — 8 9,645 Consumer indirect 5,238 27 11 — 38 5,276 Total Loans $ 736,091 $ 1,087 $ 126 $ 486 $ 1,699 $ 737,790 December 31, 2023 Commercial and industrial $ 151,964 $ 111 $ 50 $ — $ 161 $ 152,125 Commercial real estate 190,702 — — — — 190,702 Commercial lessors of buildings 82,687 — — — — 82,687 Construction 49,214 — — — — 49,214 Consumer mortgage 166,411 307 173 — 480 166,891 Home equity line of credit 42,955 33 281 — 314 43,269 Consumer installment 10,602 25 9 — 34 10,636 Consumer indirect 5,821 52 84 — 136 5,957 Total Loans $ 700,356 $ 528 $ 597 $ — $ 1,125 $ 701,481 The following table presents the amortized cost basis of loans on nonaccrual status and loans past due over 90 days still accruing interest as of December 31: (Dollars in thousands) Nonaccrual with no ACL Nonaccrual with ACL Total Nonaccrual Loans Past Due Over 90 Days Still Accruing Total Nonperforming December 31, 2024 Commercial and industrial $ 413 $ 36 $ 449 $ — $ 449 Commercial real estate 497 4 501 — 501 Commercial lessors of buildings — 3 3 — 3 Construction — — — — — Consumer mortgage — 80 80 486 566 Home equity line of credit — 71 71 — 71 Consumer installment — 48 48 — 48 Consumer indirect — 67 67 — 67 Total Loans $ 910 $ 309 $ 1,219 $ 486 $ 1,705 December 31, 2023 Commercial and industrial $ — $ 59 $ 59 $ — $ 59 Commercial real estate — 62 62 — 62 Commercial lessors of buildings — 15 15 — 15 Construction — — — — — Consumer mortgage — 172 172 — 172 Home equity line of credit — — — — — Consumer installment — 49 49 — 49 Consumer indirect — 39 39 — 39 Total Loans $ — $ 396 $ 396 $ — $ 396 50 Interest income recognized on nonaccrual loans as of December 31, 2024 was $ 6 thousand on commercial real estate loans, $ 33 thousand on consumer mortgage loans, and $ 2 thousand on commercial & industrial loans. Several consumer mortgage loans on nonaccrual are at an amortized cost basis of $ 0 and all payments are being recognized as interest income when received. Collateral-Dependent Financial Assets When loan repayment is expected to be provided substantially through the operation or sale of collateral and the borrower is experiencing financial difficulty, expected credit losses are based on the fair value of the collateral. The class of loan represents the primary collateral type associated with the loan. There were no collateral dependent loans as of December 31, 2023. The following table presents the amortized cost basis of collateral dependent loans by class of loan: Type of Collateral (Dollars in thousands) Real Estate Blanket Liens December 31, 2024 Commercial and industrial $ — $ 413 Commercial real estate 501 — Total collateral dependent loans $ 501 $ 413 Credit Quality Indicators The Company categorizes commercial and commercial real estate loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes commercial and commercial real estate loans individually by classifying the loans as to credit risk. This analysis includes commercial loans with an outstanding exposure balance greater than $ 500 thousand. This analysis is performed on an annual basis. The Company uses the following definitions for risk ratings: Pass. Loans classified as pass (Cash Secured, Exceptional, Acceptable, Monitor or Pass Watch) may exhibit a wide array of characteristics but at a minimum represent an acceptable risk to the Bank. Borrowers in this rating may have leveraged but acceptable balance sheet positions, satisfactory asset quality, stable to favorable sales and earnings trends, acceptable liquidity, and adequate cash flow. Loans are considered fully collectable and require an average amount of administration. While generally adhering to credit policy, these loans may exhibit occasional exceptions that do not result in undue risk to the Bank. Borrowers are generally capable of absorbing setbacks, financial and otherwise, without the threat of failure. Special Mention. Loans classified as special mention have a material weakness deserving of management’s close attention. If left uncorrected, these weaknesses may result in deterioration of the repayment prospects for the loan or of the Bank’s credit position at some future date. Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses jeopardizing the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, values, highly questionable, and improbable. 51 Loans not meeting the criteria above that are analyzed individually as part of the above-described process are considered to be pass rated loans. Based on the most recent analysis performed, the following tables present the recorded investment in non-homogeneous loans by internal risk rating system: Term Loans Amortized Costs Basis by Origination Year (Dollars in thousands) 2024 2023 2022 2021 2020 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Total December 31, 2024 Commercial and industrial: Pass $ 20,361 $ 20,376 $ 14,446 $ 7,291 $ 2,920 $ 6,576 $ 44,566 $ — $ 116,536 Special mention — 869 2,227 812 161 — 1,987 — 6,056 Substandard — 8,479 1 4,170 650 109 1,107 7,269 — 21,784 Doubtful — — — — — — — — — Total $ 20,361 $ 29,724 $ 20,843 $ 8,753 $ 3,190 $ 7,683 $ 53,822 $ — $ 144,376 YTD gross charge-offs $ — $ 1,393 $ — $ 10 $ — $ — $ 4,268 $ — $ 5,671 Commercial real estate: Pass $ 15,216 $ 25,238 $ 39,541 $ 41,742 $ 13,049 $ 25,258 $ 154 $ — $ 160,198 Special Mention — — 1,245 5,216 2,013 9,701 — — 18,175 Substandard 345 1,252 196 2,211 6 8,131 — — 12,141 Doubtful — — — — — — — — — Total $ 15,561 $ 26,490 $ 40,982 $ 49,169 $ 15,068 $ 43,090 $ 154 $ — $ 190,514 YTD gross charge-offs $ — $ 598 $ — $ — $ — $ — $ — $ — $ 598 Commercial lessors of buildings: Pass $ 22,287 $ 23,003 $ 21,576 $ 15,206 $ 3,043 $ 13,792 $ 384 $ — $ 99,291 Special Mention — — — 180 — — — — 180 Substandard — — 557 94 949 59 38 — 1,697 Doubtful — — — — — — — — — Total $ 22,287 $ 23,003 $ 22,133 $ 15,480 $ 3,992 $ 13,851 $ 422 $ — $ 101,168 YTD gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Commercial construction: Pass $ 12,420 $ 9,588 $ 8,084 $ 818 $ 845 $ 431 $ 2,239 $ — $ 34,425 Special Mention — — — — — — — — — Substandard — 20,500 2 — — — 74 — — 20,574 Doubtful — — — — — — — — — Total $ 12,420 $ 30,088 $ 8,084 $ 818 $ 845 $ 505 $ 2,239 $ — $ 54,999 YTD gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Total Pass $ 70,284 $ 78,205 $ 83,647 $ 65,057 $ 19,857 $ 46,057 $ 47,343 $ — $ 410,450 Special Mention — 869 3,472 6,208 2,174 9,701 1,987 — 24,411 Substandard 345 30,231 1, 2 4,923 2,955 1,064 9,371 7,307 — 56,196 Doubtful — — — — — — — — — Total $ 70,629 $ 109,305 $ 92,042 $ 74,220 $ 23,095 $ 65,129 $ 56,637 $ — $ 491,057 YTD gross charge-offs $ — $ 1,991 $ — $ 10 $ — $ — $ 4,268 $ — $ 6,269 1 Balances include $ 1.9 million USDA guarantee. 2 Balances include $ 16.4 million USDA guarantee. 52 Term Loans Amortized Costs Basis by Origination Year (Dollars in thousands) 2023 2022 2021 2020 2019 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Total December 31, 2023 Commercial and industrial: Pass $ 32,037 $ 25,996 $ 12,196 $ 5,207 $ 3,388 $ 7,112 $ 45,423 $ — $ 131,359 Special mention 76 225 522 33 33 65 3,872 — 4,826 Substandard 782 2,968 1,021 1,017 106 1,416 8,630 — 15,940 Doubtful — — — — — — — — — Total $ 32,895 $ 29,189 $ 13,739 $ 6,257 $ 3,527 $ 8,593 $ 57,925 $ — $ 152,125 YTD gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Commercial real estate: Pass $ 22,206 $ 38,696 $ 54,830 $ 12,233 $ 19,543 $ 21,938 $ 647 $ — $ 170,093 Special Mention 241 1,380 2,292 2,496 — 322 — — 6,731 Substandard 1,150 — 888 — 466 11,374 — — 13,878 Doubtful — — — — — — — — — Total $ 23,597 $ 40,076 $ 58,010 $ 14,729 $ 20,009 $ 33,634 $ 647 $ — $ 190,702 YTD gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Commercial lessors of buildings: Pass $ 18,353 $ 22,762 $ 15,455 $ 6,429 $ 3,543 $ 8,934 $ 360 $ — $ 75,836 Special Mention — 436 1,687 — 3,578 — — — 5,701 Substandard — — — 989 — 161 — — 1,150 Doubtful — — — — — — — — — Total $ 18,353 $ 23,198 $ 17,142 $ 7,418 $ 7,121 $ 9,095 $ 360 $ — $ 82,687 YTD gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Commercial construction: Pass $ 24,119 $ 14,855 $ 576 $ 272 $ 281 $ 256 $ — $ — $ 40,359 Special Mention — 258 43 635 — — — — 936 Substandard — — — 30 80 — — — 110 Doubtful — — — — — — — — — Total $ 24,119 $ 15,113 $ 619 $ 937 $ 361 $ 256 $ — $ — $ 41,405 YTD gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Total Pass $ 96,715 $ 102,309 $ 83,057 $ 24,141 $ 26,755 $ 38,240 $ 46,430 $ — $ 417,647 Special Mention 317 2,299 4,544 3,164 3,611 387 3,872 — 18,194 Substandard 1,932 2,968 1,909 2,036 652 12,951 8,630 — 31,078 Doubtful — — — — — — — — — Total $ 98,964 $ 107,576 $ 89,510 $ 29,341 $ 31,018 $ 51,578 $ 58,932 $ — $ 466,919 YTD gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — 53 The Company monitors the credit risk profile by payment activity for the loan classes listed below. Loans past due 90 days or more and loans on nonaccrual status are considered nonperforming. The following table presents the amortized cost in residential consumer loans based on payment activity: Term Loans Amortized Costs Basis by Origination Year (Dollars in thousands) 2024 2023 2022 2021 2020 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Total December 31, 2024 Consumer mortgage: Performing $ 21,807 $ 28,296 $ 31,939 $ 32,540 $ 28,571 $ 33,859 $ — $ — $ 177,012 Nonperforming — — 359 76 51 80 — — 566 Total $ 21,807 $ 28,296 $ 32,298 $ 32,616 $ 28,622 $ 33,939 $ — $ — $ 177,578 YTD gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Consumer construction: Performing $ 7,511 $ 657 $ 810 $ 159 $ 86 $ 40 $ — $ — $ 9,263 Nonperforming — — — — — — — — — Total $ 7,511 $ 657 $ 810 $ 159 $ 86 $ 40 $ — $ — $ 9,263 YTD gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Home equity line of credit: Performing $ — $ — $ — $ — $ — $ — $ 44,865 $ 35 $ 44,900 Nonperforming — — — — — — 71 — 71 Total $ — $ — $ — $ — $ — $ — $ 44,936 $ 35 $ 44,971 YTD gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Consumer installment: Performing $ 3,660 $ 3,427 $ 1,630 $ 443 $ 209 $ 165 $ 63 $ — $ 9,597 Nonperforming — 6 3 3 — 36 — — 48 Total $ 3,660 $ 3,433 $ 1,633 $ 446 $ 209 $ 201 $ 63 $ — $ 9,645 YTD gross charge-offs $ 3 $ 23 $ 20 $ 5 $ 4 $ 10 $ — $ — $ 65 Consumer indirect: Performing $ 766 $ 611 $ 923 $ 499 $ 484 $ 1,926 $ — $ — $ 5,209 Nonperforming — 18 — — — 49 — — 67 Total $ 766 $ 629 $ 923 $ 499 $ 484 $ 1,975 $ — $ — $ 5,276 YTD gross charge-offs $ — $ — $ — $ — $ — $ 60 $ — $ — $ 60 Total Performing $ 33,744 $ 32,991 $ 35,302 $ 33,641 $ 29,350 $ 35,990 $ 44,928 $ 35 $ 245,981 Nonperforming — 24 362 79 51 165 71 — 752 Total $ 33,744 $ 33,015 $ 35,664 $ 33,720 $ 29,401 $ 36,155 $ 44,999 $ 35 $ 246,733 Total YTD gross charge-offs $ 3 $ 23 $ 20 $ 5 $ 4 $ 70 $ — $ — $ 125 54 Term Loans Amortized Costs Basis by Origination Year (Dollars in thousands) 2023 2022 2021 2020 2019 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Total December 31, 2023 Consumer mortgage: Performing $ 24,521 $ 34,798 $ 35,802 $ 32,259 $ 8,931 $ 30,408 $ — $ — $ 166,719 Nonperforming — — — — — 172 — — 172 Total $ 24,521 $ 34,798 $ 35,802 $ 32,259 $ 8,931 $ 30,580 $ — $ — $ 166,891 YTD gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Consumer construction: Performing $ 5,463 $ 1,477 $ 264 $ 483 $ 81 $ 41 $ — $ — $ 7,809 Nonperforming — — — — — — — — — Total $ 5,463 $ 1,477 $ 264 $ 483 $ 81 $ 41 $ — $ — $ 7,809 YTD gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Home equity line of credit: Performing $ — $ — $ — $ — $ — $ — $ 43,223 $ 46 $ 43,269 Nonperforming — — — — — — — — — Total $ — $ — $ — $ — $ — $ — $ 43,223 $ 46 $ 43,269 YTD gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Consumer installment: Performing $ 5,705 $ 3,067 $ 981 $ 513 $ 118 $ 184 $ 68 $ — $ 10,636 Nonperforming — — — — — — — — — Total $ 5,705 $ 3,067 $ 981 $ 513 $ 118 $ 184 $ 68 $ — $ 10,636 YTD gross charge-offs $ 2 $ 12 $ 19 $ 5 $ 2 $ 6 $ — $ — $ 46 Consumer indirect: Performing $ 858 $ 1,086 $ 622 $ 568 $ 607 $ 2,128 $ — $ — $ 5,869 Nonperforming — 3 — — 81 4 — — 88 Total $ 858 $ 1,089 $ 622 $ 568 $ 688 $ 2,132 $ — $ — $ 5,957 YTD gross charge-offs $ — $ — $ — $ — $ — $ 66 $ — $ — $ 66 Total Performing $ 36,547 $ 40,428 $ 37,669 $ 33,823 $ 9,737 $ 32,761 $ 43,291 $ 46 $ 234,302 Nonperforming — 3 — — 81 176 — — 260 Total $ 36,547 $ 40,431 $ 37,669 $ 33,823 $ 9,818 $ 32,937 $ 43,291 $ 46 $ 234,562 Total YTD gross charge-offs $ 2 $ 12 $ 19 $ 5 $ 2 $ 72 $ — $ — $ 112 Consumer mortgages are substantially secured by one to four family owner occupied properties and consumer indirect loans are substantially secured by recreational vehicles. All nonperforming consumer loans are evaluated when placed on nonaccrual status and may be charged down based on the fair value of the collateral less cost to sell, if that value is lower than the outstanding balance. Modifications to Borrowers Experiencing Financial Difficulty Occasionally, the Bank modifies loans to borrowers in financial distress by providing principal forgiveness, term extension, and other-than-insignificant payment delay or interest rate reduction. When principal forgiveness is provided, the amount of forgiveness is charged-off against the allowance for credit losses. In some cases, the Bank may provide multiple types of concessions on one loan. Typically, one type of concession, such as a term extension, is granted initially. If the borrower continues to experience financial difficulty, another concession, such as principal forgiveness, may be granted. There were no modifications of loans to borrowers in financial distress completed during the year ended December 31, 2024 and 2023. Real Estate Loans in Foreclosure There was no other real estate owned on December 31, 2024, or 2023 . Mortgage loans in the process of foreclosure were $ 74 thousand on December 31, 2024 and $ 8 thousand on December 31, 2023 . Repossessed assets were $ 14 thousand on December 31, 2024, and there were no repossessed assets on December 31, 2023. Mortgage Servicing Rights For the years ended December 31, 2024 and 2023 , the Company had outstanding MSRs of $ 621 thousand and $ 600 thousand, respectively. The capitalized additions of servicing rights are included in net gain on sale of loans on the Consolidated Statements of Income. No valuation allowance was recorded on December 31, 2024 or 2023, as the fair value of the MSRs approximates their carrying value. On December 31, 2024 , the Company had $ 122 million residential mortgage loans sold with servicing retained as compared to $ 124 million sold with servicing retained on December 31, 2023. 55 Total loans serviced for others including commercial loans, approximated $ 136 million and $ 132 million on December 31, 2024, and 2023, respectively. The following summarizes mortgage servicing rights capitalized and amortized during each year: (Dollars in thousands) 2024 2023 Beginning of year $ 600 $ 621 Capitalized additions 88 47 Amortization ( 67 ) ( 68 ) Valuation allowance — — End of year $ 621 $ 600 NOTE 4 – PREMISES AND EQUIPMENT Premises and equipment consisted of the following on December 31: (Dollars in thousands) 2024 2023 Land and improvements $ 2,561 $ 2,540 Buildings and improvements 15,993 14,698 Furniture and equipment 7,234 6,642 Leasehold improvements 340 329 Premises and equipment, cost 26,128 24,209 Accumulated depreciation ( 12,059 ) ( 11,207 ) Premises and equipment, net $ 14,069 $ 13,002 Depreciation expense amounted to $ 879 thousand and $ 826 thousand for the years ended December 31, 2024, and 2023 , respectively. NOTE 5 – LEASES Operating leases in which the Company is the lessee are recorded as operating lease Right of Use (“ROU”) assets and operating lease liabilities, included in other assets and other liabilities, respectively, on the consolidated balance sheets. The Company does not currently have any finance leases. Operating lease ROU assets represent the right to use an underlying asset during the lease term and operating lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease expense, which is comprised of amortization of the ROU asset and the implicit interest accreted on the operating lease liability, is recognized on a straight-line basis over the lease term and is recorded in occupancy and equipment expense in the Consolidated Statements of Income. The leases relate to bank branches with remaining lease terms of generally 2 to 5 years . Certain lease arrangements contain extension options which are typically 2 to 5 years at the then fair market rental rates. If these extension options are considered reasonably certain of exercise, they are included in the lease term. As of December 31, 2024 , operating lease ROU assets were $ 203 thousand, and lease liabilities were $ 196 thousand. These amounts are included in other assets and other liabilities on the Consolidated Balance Sheets. For the years ended December 31, 2024, and 2023 , CSB recognized $ 123 thousand, and $ 112 thousand in operating lease cost respectively, which are included in occupancy expense on the Consolidated Statements of Income. The following table summarizes other information related to our operating leases: December 31, 2024 December 31, 2023 Weighted-average remaining lease term - operating leases in years 1.80 2.80 Weighted-average discount rate - operating leases 2.69 % 2.69 % 56 The following table presents aggregate lease maturities and obligations: (Dollars in thousands) December 31, 2024 2025 $ 72 2026 79 2027 45 2028 10 2029 — 2030 and thereafter — Total lease payments 206 Less: interest 10 Present value of lease liabilities $ 196 NOTE 6 – INTEREST-BEARING DEPOSITS Interest-bearing deposits on December 31 were as follows: (Dollars in thousands) 2024 2023 Demand $ 218,866 $ 256,621 Savings 301,410 277,529 Time deposits: $250,000 and greater 80,384 59,347 Other 162,869 132,233 Total interest-bearing deposits $ 763,529 $ 725,730 On December 31, 2024, stated maturities of time deposits were as follows: (Dollars in thousands) 2025 $ 212,968 2026 24,539 2027 4,851 2028 554 2029 341 Total $ 243,253 NOTE 7 – BORROWINGS Short-term borrowings Short-term borrowings include overnight repurchase agreements, federal funds purchased, and short-term advances through the FHLB. The outstanding balances and related information for short-term borrowings are summarized as follows: (Dollars in thousands) 2024 2023 Balance at year-end $ 25,683 $ 35,843 Average balance outstanding 27,266 32,478 Maximum month-end balance 34,750 37,479 Weighted-average rate at year-end 1.03 % 1.18 % Weighted-average rate during the year 1.15 1.03 Average balances outstanding during the year represent daily average balances; average interest rates represent interest expense divided by the related average balances. 57 The following table provides additional detail regarding the collateral pledged to secure repurchase agreements accounted for as secured borrowings: Remaining Contractual Maturity Overnight and Continuous (Dollars in thousands) December 31, 2024 December 31, 2023 Securities of U.S. Government agencies and mortgage-backed securities of government agencies pledged, fair value $ 25,745 $ 36,002 Repurchase agreements 25,683 35,843 Other borrowings The following table sets forth information concerning other borrowings: Maturity Range Weighted Average Interest Stated Interest Rate Range At December 31, (Dollars in thousands) From To Rate From To 2024 2023 Fixed-rate amortizing 6/1/2032 6/1/2037 1.98 % 1.95 % 2.01 % $ 1,266 $ 1,754 Maturities of other borrowings on December 31, 2024, are summarized as follows for the years ended December 31: (Dollars in thousands) Amount Weighted Average Rate 2025 $ 349 1.98 % 2026 262 1.98 2027 195 1.98 2028 144 1.98 2029 106 1.98 2030 and beyond 210 1.99 Total other borrowings $ 1,266 1.98 % Monthly principal and interest payments, as well as 20 % principal curtailments on the borrowings’ anniversary dates are due on the fixed-rate amortizing borrowings. FHLB borrowings are secured by a blanket collateral agreement on all one-to-four family residential real estate loans. On December 31, 2024 , the Company had the capacity to borrow an additional $ 126 million from the FHLB. NOTE 8 – INCOME TAXES Income tax expense was as follows: (Dollars in thousands) 2024 2023 Current $ 2,205 $ 3,334 Deferred 118 293 Total income tax provision $ 2,323 $ 3,627 Effective tax rates were 18.8 % and 19.7 % for 2024 and 2023 and differ from the federal statutory rate of 21 % applied to income before taxes due to the following: (Dollars in thousands) 2024 2023 Expected provision using statutory federal income tax rate $ 2,590 $ 3,860 Effect of bond and loan tax-exempt income ( 112 ) ( 104 ) Bank owned life insurance income ( 171 ) ( 147 ) Other 16 18 Total income tax provision $ 2,323 $ 3,627 58 The tax effects of temporary differences that give rise to deferred tax assets and deferred tax liabilities on December 31 were as follows: (Dollars in thousands) 2024 2023 Allowance for credit losses $ 1,693 $ 1,485 Unrealized loss on securities 2,238 2,730 Other 177 225 Deferred tax assets 4,108 4,440 Premises and equipment ( 564 ) ( 554 ) Federal Home Loan Bank stock dividends ( 93 ) ( 95 ) Deferred loan fees ( 335 ) ( 312 ) Prepaid expenses ( 129 ) ( 205 ) Other ( 727 ) ( 640 ) Deferred tax liabilities ( 1,848 ) ( 1,806 ) Net deferred tax asset $ 2,260 $ 2,634 There is currently no liability for uncertain tax positions and no known unrecognized tax benefits. The Company recognizes, when applicable, interest and penalties related to unrecognized tax benefits in the provision for income taxes in the Consolidated Statements of Income. With few exceptions, the Company is no longer subject to U.S. federal, state, or local income tax examinations by tax authorities for years prior to 2021. NOTE 9 – EMPLOYEE BENEFITS The Company sponsors a contributory 401(k) profit-sharing plan (the “Plan”) covering substantially all employees who meet certain age and service requirements. The Plan permits investment in the Company’s common stock subject to various limitations and provides for discretionary profit sharing and matching contributions. The discretionary profit-sharing contribution is determined annually by the Board of Directors and amounted to 2.25 % in 2024 and 3.25 % in 2023 of each eligible participant’s compensation. The Plan provides for a 100 % Company match up to a maximum of 4 % of eligible compensation. The Company auto enrolls all eligible new hires into the Plan. Expense under the Plan amounted to approximately $ 520 thousand and $ 809 thousand for 2024 and 2023, respectively. The Company sponsors a non-qualified deferred compensation plan covering eligible officers. Expense under the plan amounted to $ 7 thousand and $ 6 thousand in 2024 and 2023 , respectively. NOTE 10 – FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK The Bank is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments are primarily loan commitments to extend credit and letters of credit. These instruments involve, to varying degrees, elements of credit risk in excess of the amounts recognized in the Consolidated Balance Sheets. The contract amount of these instruments reflects the extent of involvement the Bank has in these financial instruments. The Bank’s exposure to credit loss in the event of the nonperformance by the other party to the financial instruments for loan commitments to extend credit and letters of credit is represented by the contractual amounts of these instruments. The Bank uses the same credit policies in making loan commitments as it does for on-balance sheet loans. The following financial instruments whose contract amount represents credit risk were outstanding on December 31: (Dollars in thousands) 2024 2023 Commitments to extend credit $ 285,090 $ 277,553 Letters of credit 3,979 4,379 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. Consumer commitments generally have fixed expiration dates and commercial commitments are generally due on demand and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. The Company evaluates each customer’s credit worthiness 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 customer. Collateral held varies, but may include residential real estate, accounts receivable, recognized inventory, property, plant and equipment, and income-producing commercial properties. 59 Letters of credit are written conditional commitments issued by the Company to guarantee the performance of a customer to a third party and are reviewed for renewal at expiration. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers. The Company requires collateral supporting these commitments when deemed appropriate. The Company had $ 524 thousand allowance for credit losses for unfunded loan commitments as of December 31, 2024 , and $ 736 thousand as of December 31, 2023 . The decrease in the ACL for unfunded loan commitments was primarily due the removal of a specific allocation to a substandard relationship that is no longer outstanding and a decrease in unfunded commitments on commercial construction loans as of December 31, 2024. NOTE 11 – RELATED-PARTY TRANSACTIONS In the ordinary course of business, loans are made by the Bank to executive officers, directors, their immediate family members, and their related business interests consistent with Federal Reserve Regulation O, SEC Regulation S-X, and GAAP definition of related parties. The following is an analysis of activity of related-party loans for the years ended December 31: (Dollars in thousands) 2024 2023 Balance at beginning of year $ 305 $ 332 New loans and advances 7 23 Repayments, including loans sold 25 50 Balance at end of year $ 287 $ 305 Deposits from executive officers, directors, their immediate family members, and their related business interests on December 31, 2024, and 2023 were approximately $ 18.4 million and $ 9.3 million. NOTE 12 – REGULATORY MATTERS The Company (on a consolidated basis) and Bank are subject to various regulatory capital requirements administered by the federal and state banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s and Bank’s financial performance. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and Bank must meet specific capital guidelines involving quantitative measures of the assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Company and Bank to maintain minimum amounts and ratios (set forth in the following table) of Total capital, Tier 1 capital and Common equity tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital to average assets (as defined). Management believes as of December 31, 2024 and 2023, the Company and Bank met or exceeded all capital adequacy requirements to which they are subject. As of December 31, 2024, the most recent notification from federal and state banking agencies categorized the Bank as “well capitalized” under the regulatory framework for prompt corrective action. To be categorized as “well capitalized” an institution must maintain minimum Total risk-based, Tier 1 risk-based, Common equity Tier 1, and Tier 1 leverage ratios as set forth in the following tables. There are no known conditions or events since that notification that Management believes have changed the Bank’s category. 60 The actual capital amounts and ratios of the Company and Bank as of December 31 are presented in the following tables: Actual Minimum Required For Capital Adequacy Purposes Minimum Required To Be Well Capitalized Under Prompt Corrective Action (Dollars in thousands) Amount Ratio Amount Ratio Amount Ratio 2024 Total capital to risk-weighted assets Consolidated $ 126,646 16.4 % $ 61,891 8.0 % $ 77,364 10.0 % Bank 125,774 16.3 61,855 8.0 77,319 10.0 Tier 1 capital to risk-weighted assets Consolidated 118,527 15.3 46,419 6.0 61,891 8.0 Bank 117,655 15.2 46,391 6.0 61,855 8.0 Common equity tier 1 capital to risk-weighted assets Consolidated 118,527 15.3 34,814 4.5 50,287 6.5 Bank 117,655 15.2 34,793 4.5 50,257 6.5 Tier 1 leverage ratio Consolidated 118,527 9.7 48,644 4.0 60,805 5.0 Bank 117,655 9.7 48,627 4.0 60,783 5.0 2023 Total capital to risk-weighted assets Consolidated $ 120,824 16.3 % $ 59,480 8.0 % $ 74,349 10.0 % Bank 120,184 16.2 59,446 8.0 74,308 10.0 Tier 1 capital to risk-weighted assets Consolidated 113,481 15.3 44,610 6.0 59,480 8.0 Bank 112,841 15.2 44,585 6.0 59,446 8.0 Common equity tier 1 capital to risk-weighted assets Consolidated 113,481 15.3 33,457 4.5 48,327 6.5 Bank 112,841 15.2 33,439 4.5 48,300 6.5 Tier 1 leverage ratio Consolidated 113,481 9.6 47,340 4.0 59,175 5.0 Bank 112,841 9.5 47,324 4.0 59,155 5.0 The Company’s primary source of funds with which to pay dividends, are dividends received from the Bank. The payment of dividends by the Bank to the Company is subject to restrictions by its regulatory agencies. These restrictions generally limit dividends to current year net income and prior two-years ’ net retained earnings. Also, dividends may not reduce capital levels below the minimum regulatory requirements disclosed in the prior table. Under these provisions, on January 1, 2025, the Bank could dividend $ 24.3 million to the Company. The Company does not anticipate the financial need to obtain regulatory approval to pay dividends. Federal law prevents the Company from borrowing from the Bank unless loans are secured by specific obligations. Further, such secured loans are limited to an amount not exceeding ten percent of the Bank’s common stock and capital surplus. 61 NOTE 13 – CONDENSED PARENT COMPANY FINANCIAL INFORMATION A summary of condensed financial information of the parent company as of December 31, 2024, and 2023, and for each of the two years in the period ended December 31, 2024, follows: (Dollars in thousands) 2024 2023 CONDENSED BALANCE SHEETS ASSETS Cash deposited with subsidiary bank $ 496 $ 271 Investment in subsidiary bank 113,963 107,299 Equity securities 266 259 Other assets 207 174 TOTAL ASSETS $ 114,932 $ 108,003 LIABILITIES AND SHAREHOLDERS’ EQUITY Total liabilities $ 97 $ 64 Total shareholders’ equity 114,835 107,939 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 114,932 $ 108,003 (Dollars in thousands) 2024 2023 CONDENSED STATEMENTS OF COMPREHENSIVE INCOME Dividends on securities $ 11 $ 9 Dividends from subsidiary 5,500 5,200 Unrealized gain on equity securities 8 15 Other income 4 — Total income 5,523 5,224 Operating expenses 407 391 Income before taxes and undistributed equity income of subsidiary 5,116 4,833 Income tax benefit 82 74 Equity earnings in subsidiary, net of dividends 4,814 9,849 NET INCOME $ 10,012 $ 14,756 COMPREHENSIVE INCOME $ 11,862 $ 17,405 (Dollars in thousands) 2024 2023 CONDENSED STATEMENTS OF CASH FLOWS Cash flows from operating activities Net income $ 10,012 $ 14,756 Adjustments to reconcile net income to net cash provided by operating activities: Equity earnings in subsidiary, net of dividends ( 4,814 ) ( 9,849 ) Unrealized gain on equity securities ( 8 ) ( 15 ) Change in other assets and liabilities 1 12 Net cash provided by operating activities 5,191 4,904 Cash flows from financing activities Cash dividends paid ( 4,204 ) ( 4,013 ) Purchase of treasury stock ( 762 ) ( 1,425 ) Net cash used in financing activities ( 4,966 ) ( 5,438 ) Increase (decrease) in cash 225 ( 534 ) Cash at beginning of year 271 805 Cash at end of year $ 496 $ 271 62 NOTE 14 – FAIR VALUE MEASUREMENTS The Company provides disclosures about assets and liabilities carried at fair value. The framework provides a fair value hierarchy prioritizing the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and lowest priority to unobservable inputs. The three broad levels of the fair value hierarchy are described below: Level I: Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets the Company has the ability to access. Level II: Inputs to the valuation methodology include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in inactive markets; inputs other than quoted prices observable for the asset or liability; inputs derived principally from or corroborated by observable market data by or other means including certified appraisals. If the asset or liability has a specified (contractual) term, the Level II input must be observable for substantially the full term of the asset or liability. Level III: Inputs to the valuation methodology are unobservable and significant to the fair value measurement. The following table presents the assets reported on the consolidated statements of financial condition at their fair value on a recurring basis as of December 31, 2024, and December 31, 2023 , by level within the fair value hierarchy. No liabilities were carried at fair value. As required by the accounting standards, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Equity securities with readily determinable values and U.S. Treasury Notes are valued at the closing price reported on the active market on which the individual securities are traded. Obligations of U.S. government agencies, mortgage-backed securities, asset-backed securities, obligations of states and political subdivisions and corporate bonds are valued at observable market data for similar assets. Equity securities without readily determinable values are carried at amortized cost, adjusted for impairment and observable price changes. (Dollars in thousands) Level I Level II Level III Total Assets: December 31, 2024 Securities available-for-sale U.S. Treasury securities $ — $ 13,414 $ — $ 13,414 U.S. Government agencies — 5,698 — 5,698 Mortgage-backed securities of government agencies — 62,698 — 62,698 Asset-backed securities of government agencies — 398 — 398 State and political subdivisions — 14,246 — 14,246 Corporate bonds — 28,980 — 28,980 Total available-for-sale securities $ — $ 125,434 $ — $ 125,434 Equity securities $ 221 $ — $ — $ 221 Assets: December 31, 2023 Securities available-for-sale U.S. Treasury securities $ — $ 17,689 $ — $ 17,689 U.S. Government agencies — 13,152 — 13,152 Mortgage-backed securities of government agencies — 65,045 — 65,045 Asset-backed securities of government agencies — 523 — 523 State and political subdivisions — 16,586 — 16,586 Corporate bonds — 27,085 — 27,085 Total available-for-sale securities $ — $ 140,080 $ — $ 140,080 Equity securities $ 213 $ — $ — $ 213 63 NOTE 15 – FAIR VALUES OF FINANCIAL INSTRUMENTS The estimated fair values of recognized financial instruments carried at amortized cost as of December 31 were as follows: 2024 Carrying Total Fair (Dollars in thousands) Value Level I Level II Level III Value Financial assets Securities held-to-maturity $ 204,309 $ — $ 172,603 $ — $ 172,603 Loans held for sale 283 290 — — 290 Net loans 730,046 — — 691,816 691,816 Mortgage servicing rights 621 — — 621 621 Financial liabilities Deposits $ 1,044,887 $ 801,634 $ — $ 242,413 $ 1,044,047 Other borrowings 1,266 — — 1,111 1,111 2023 Carrying Total Fair (Dollars in thousands) Value Level I Level II Level III Value Financial assets Securities held-to-maturity $ 226,279 $ — $ 194,730 $ — $ 194,730 Net loans 694,797 — — 663,510 663,510 Mortgage servicing rights 600 — — 600 600 Financial liabilities Deposits $ 1,027,427 835,847 — 193,126 1,028,973 Other borrowings 1,754 $ — $ — $ 1,546 $ 1,546 Other financial instruments carried at amortized cost include cash and cash equivalents, restricted stock, bank-owned life insurance, accrued interest receivable, short-term borrowings, and accrued interest payable, all of which have a level 1 fair value that approximates their carrying value. NOTE 16 – ACCUMULATED OTHER COMPREHENSIVE LOSS The following table presents the changes in accumulated other comprehensive loss by component net of tax for the years ended December 31, 2024, and 2023: (Dollars in thousands) Pretax Tax Effect After-Tax BALANCE AS OF DECEMBER 31, 2022 $ ( 16,354 ) $ 3,435 $ ( 12,919 ) Unrealized holding gain on available-for-sale securities arising during the period 3,168 ( 666 ) 2,502 Amortization of held-to-maturity discount resulting from transfer 187 ( 40 ) 147 Total other comprehensive income 3,355 ( 706 ) 2,649 BALANCE AS OF DECEMBER 31, 2023 $ ( 12,999 ) $ 2,729 $ ( 10,270 ) Unrealized holding gain on available-for-sale securities arising during the period 2,166 ( 455 ) 1,711 Amortization of held-to-maturity discount resulting from transfer 176 ( 37 ) 139 Total other comprehensive income 2,342 ( 492 ) 1,850 BALANCE AS OF DECEMBER 31, 2024 $ ( 10,657 ) $ 2,237 $ ( 8,420 ) NOTE 17 – CONTINGENT LIABILITIES In the normal course of business, the Company is subject to pending and threatened legal actions. Although, the Company is not able to predict the outcome of such actions, after reviewing pending and threatened actions, management believes that the outcome of any or all such actions will not have a material adverse effect on the results of operations or shareholders’ equity of the Company. 64 The Company has an employment agreement with an officer. Upon the occurrence of certain types of termination of employment, the Company may be required to make specified severance payments if termination occurs within a specified period of time, generally two years from the date of the agreement, or pursuant to certain change in control transactions. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None.