What changed in this filing

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Item 1. Financial Statements

2023-05-12 compared with 2022-11-10 · 280 added, 381 removed, 577 unchanged (53% of the section changed)

3 unchanged sentences

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

September 30,

Cash and due from banks

1 unchanged sentence

Cash and cash equivalents

Securities available for sale, at fair value

Loans receivable

Allowance for loan losses

Net loans receivable

Securities available for sale, at fair value (net of allowance for credit losses of $ 0 )

Loans receivable, net of allowance for credit losses of $ 19,445 and $ 16,999 )

Regulatory stock, at cost

3 unchanged sentences

Foreclosed real estate owned

Deferred tax assets, net

Other intangibles

26 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

INTEREST INCOME

6 unchanged sentences

NET INTEREST INCOME

PROVISION FOR LOAN LOSSES

PROVISION FOR CREDIT LOSS EXPENSE

NET INTEREST INCOME AFTER

PROVISION FOR LOAN LOSSES

PROVISION FOR CREDIT LOSSES

Service charges and fees

1 unchanged sentence

Net realized gains on sales of securities

Gain on sale of loans, net

Gain on sales of foreclosed real estate owned

20 unchanged sentences

Three Months Ended

September 30,

Other comprehensive (loss) income

Investment securities available for sale:

Unrealized holding loss

Reclassification of investment securities gains

recognized in net income

Other comprehensive (loss)

Comprehensive (Loss) Income

Nine Months Ended

September 30,

Other comprehensive (loss) income

Other comprehensive income (loss)

Investment securities available for sale:

Unrealized holding (loss) gain

Unrealized holding gains (losses)

Reclassification of investment securities gains

recognized in net income

Other comprehensive (loss)

Comprehensive (Loss) Income

Other comprehensive income (loss)

Comprehensive Income (Loss)

See accompanying notes to the unaudited consolidated financial statements.

1 unchanged sentence

Consolidated Statements of Changes in Stockholders’ Equity (unaudited)

Nine Months Ended September 30, 2022 and 2021

Three Months Ended March 31, 2023 and 2022

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

3 unchanged sentences

Balance, December 31, 2022

Other comprehensive loss

Other comprehensive income

Cash dividends declared ($ 0.29 per share)

Acquisition of treasury stock

Cumulative effect of adoption of ASU 2016-13

Compensation expense related to restricted stock

1 unchanged sentence

Compensation expense related to stock options

Balance, September 30, 2022

Balance, March 31, 2023

Treasury Stock

8 unchanged sentences

Compensation expense related to stock options

Balance, September 30, 2021

NORWOOD FINANCIAL CORP

Consolidated Statements of Changes in Stockholders’ Equity (unaudited)

Three Months Ended September 30, 2022 and 2021

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

Treasury Stock

Comprehensive

Income (Loss)

Balance, June 30, 2022

Other comprehensive loss

Cash dividends declared ($ 0.28 per share)

Acquisition of treasury stock

Compensation expense related to restricted stock

Stock options exercised

Compensation expense related to stock options

Balance, September 30, 2022

Treasury Stock

Comprehensive

Balance, June 30, 2021

Other comprehensive loss

Cash dividends declared ($ 0.26 per share)

Acquisition of treasury stock

Compensation expense related to restricted stock

Stock options exercised

Compensation expense related to stock options

Balance, September 30, 2021

Balance, March 31, 2022

See accompanying notes to the unaudited consolidated financial statements.

2 unchanged sentences

(dollars in thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

CASH FLOWS FROM OPERATING ACTIVITIES

Adjustments to reconcile net income to net cash provided by operating activities:

Provision for loan losses

Provision for credit losses

Amortization of intangible assets

5 unchanged sentences

Net amortization of loan fees

Net gain on sale of loans

Loans originated for sale

Proceeds from sale of loans originated for sale

Compensation expense related to stock options

Compensation expense related to restricted stock

(Increase) decrease in accrued interest receivable

Decrease in accrued interest receivable

Increase (decrease) in accrued interest payable

6 unchanged sentences

Redemption of regulatory stock

Net (increase) decrease in loans

Proceeds from bank-owned life insurance policies

Net increase in loans

Purchase of bank-owned life insurance

Purchase of premises and equipment

Proceeds from sales of bank premises and fixed assets

Proceeds from sales of foreclosed real estate owned

4 unchanged sentences

Repayments of other borrowings

Proceeds from other borrowings

Stock options exercised

1 unchanged sentence

Cash dividends paid

Net cash (used in) provided by financing activities

(Decrease) increase in cash and cash equivalents

Net cash provided by financing activities

Decrease in cash and cash equivalents

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

3 unchanged sentences

(dollars in thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

Supplemental Disclosures of Cash Flow Information

15 unchanged sentences

The financial statements reflect, in the opinion of management, all normal, recurring adjustments necessary to present fairly the consolidated financial position and results of operations of the Company.

The operating results for the three-month and nine-month periods ended September 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022 or any other future interim period.

The operating results for the three-months ended March 31, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023 or any other future interim period.

Accounting Pronouncements Adopted in 2023

In June 2016, the FASB issued ASU No.

2016-13, "

Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments"

and subsequent related updates.

This ASU replaces the incurred loss methodology for recognizing credit losses and requires the Company to measure the current expected credit losses (CECL) on financial assets measured at amortized cost, including loans, off-balance sheet credit exposures such as unfunded commitments, and other financial instruments.

In addition, ASC 326 requires credit losses on available-for-sale debt securities to be presented as an allowance rather than as a write-down when management does not intend to sell or believes that it is not more likely than not they will be required to sell.

This guidance became effective on January 1, 2023 for the Bank.

The results reported for periods beginning after January 1, 2023 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable accounting standards.

The Bank adopted this guidance, and subsequent related updates, using the modified retrospective approach for all financial assets measured at amortized cost, including loans, available-for-sale debt securities and unfunded commitments.

On January 1, 2023, the Bank recorded a cumulative effect decrease to retained earnings of $ 1,751,000 related to loans, $ 260,000 related to unfunded commitments, and $ 0 related to available-for-sale securities.

The Bank adopted the provisions of ASC 326 related to financial assets purchased with credit deterioration (PCD) that were previously classified as purchased credit impaired (PCI) and accounted for under ASC 310-30 using the prospective transition approach.

In accordance with the standard, management did not reassess whether PCI assets met the criteria of PCD assets as of the date of adoption.

On January 1, 2023, the amortized cost basis of the PCD assets were adjusted to reflect the addition of $ 250,000 of the allowance for credit losses (ACL).

The Bank adopted the provisions of ASC 326 related to presenting other-than-temporary impairment on available-for-sale debt securities prior to January 1, 2023 using the prospective transition approach, though no such charges had been recorded on the securities held by the Bank as of the date of adoption.

The impact of the change from the incurred loss model to the current expected credit loss model is detailed below (in thousands).

January 1, 2023

Adoption Impact

ACL on debt securities available for sale

Residential real estate

Commercial real estate

Commercial loans

Other agricultural loans

ACL for unfunded commitments

Purchased Credit Deteriorated (“PCD”) Loans

The Bank has purchased loans, some of which have experienced more than insignificant credit deterioration since origination.

A loan is considered a PCD loan if, at acquisition, it is probable that the Company will be unable to collect all contractually required payments receivable.

PCD loans are recorded at the amount paid.

An allowance for credit losses is determined using the same methodology as other loans held for investment.

The initial allowance for credit losses determined on a collective basis is allocated to individual loans.

The sum of the loan’s purchase price and allowance for credit losses becomes its initial amortized cost basis.

The difference between the initial amortized cost basis and the par value of the loan is a noncredit discount or premium, which is amortized into interest income over the life of the loan.

Subsequent changes to the allowance for credit losses are recorded through credit loss expense.

Allowance for Credit Losses - Loans

The allowance for credit losses is a valuation reserve established and maintained by charges against 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, 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 loans that do not share risk characteristics with other loans.

The allowance for credit losses is measured on a collective (pool) basis when similar risk characteristics exist.

The Company’s loan portfolio is segmented by loan types that have similar risk characteristics and behave similarly during economic cycles.

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 a preferred group of macroeconomic indicators used to create projections of economic conditions, obtained from the St.

Louis Federal Reserve economic database.

The Company selected nine metrics which was correlated with the bank and its peer group’s historical loss patterns.

The adjustments are then weighted for relevance before applying to each pool.

Future macroeconomic forecast adjustments are then obtained using and eight-quarter moving average for each metric for the reasonable and supportable period.

Each quarter, management reviews the recommended adjustment factors and applies any additional adjustments based on local and current conditions

The Bank has elected to exclude accrued interest receivable from the measurement of its ACL.

When a loan is placed on non-accrual status, any outstanding accrued interest is reversed against interest income.

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 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, (3) when it is determined by management that a loan does not share similar risk characteristics with other loans.

Specific reserves are established based on the following three acceptable methods for measuring the ACL:

1) the present value of expected future cash flows discounted at the loan’s original effective interest rate;

2) the loan’s observable market price;

or 3) the fair value of the collateral when the loan is collateral dependent.

Our individual loan evaluations consist primarily of the fair value of collateral method because most of our loans are collateral dependent.

Collateral values are discounted to consider disposition 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.

Allowance for Credit Losses on Off-Balance Sheet Credit Exposures

The Bank estimates expected credit losses over the contractual period in which the Bank is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Bank.

The allowance for credit losses on off-balance sheet credit exposures is adjusted through credit loss expense.

The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life.

Allowance for Credit Losses – Available for Sale Securities

The Bank measures expected credit losses on available-for-sale debt securities when the Bank does not intend to sell, or when it is not more likely than not that it will be required to sell, the security before recovery of its amortized cost basis.

If either of the criteria regarding intent or requirement to sell is met, the security's amortized cost basis is written down to fair value through income.

For available-for-sale debt securities that do not meet the aforementioned criteria, the Bank evaluates whether the decline in fair value has resulted from credit losses or other factors.

In making this assessment, the Bank considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors.

If this evaluation indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security.

If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, equal to the amount that the fair value is less than the amortized cost basis.

Economic forecast data is utilized to calculate the present value of expected cash flows.

The Bank obtains its forecast data through a subscription to a widely recognized and relied upon company who publishes various forecast scenarios.

Management evaluates the various scenarios to determine a reasonable and supportable scenario, and utilizes a single scenario in the model.

Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income.

The allowance for credit losses on available-for-sale debt securities is included within Investment securities available-for-sale on the consolidated balance sheet.

Changes in the allowance for credit losses are recorded within Provision for credit losses on the consolidated statement of income.

Losses are charged against the allowance when the Bank believes the collectability of an available-for-sale security is in jeopardy or when either of the criteria regarding intent or requirement to sell is met.

Accrued interest receivable on available-for-sale debt securities totaled $ 1,762,000 at March 31, 2023 and is included within accrued interest receivable on the consolidated balance sheet.

This amount is excluded from the estimate of expected credit losses.

Available-for-sale debt securities are typically classified as nonaccrual when the contractual payment of principal or interest has become 90 days past due or management has serious doubts about the further collectability of principal or interest.

When available-for-sale debt securities are placed on nonaccrual status, unpaid interest credited to income is reversed .

Revenue Recognition

Under ASC Topic 606, management determined that the primary sources of revenue emanating from interest and dividend income on loans and investments along with noninterest revenue resulting from investment security gains, loan servicing, gains on the sale of loans sold and earnings on bank-owned life insurance are not within the scope of this Topic.

The following presents noninterest income, segregated by revenue streams in-scope and out-of-scope of Topic 606, for the three and nine months ended September 30:

The following presents noninterest income, segregated by revenue streams in-scope and out-of-scope of Topic 606, for the three months ended March 31:

Three months ended

September 30,

(dollars in thousands)

13 unchanged sentences

Loan servicing fees

Gains on sales of loans

Earnings on and proceeds from bank-owned life insurance

1 unchanged sentence

Total Noninterest Income

Nine months ended

September 30,

(dollars in thousands)

Noninterest Income

In-scope of Topic 606:

Service charges on deposit accounts

Overdraft fees

Safe deposit box rental

Loan related service fees

Debit card fees

Fiduciary activities

Commissions on mutual funds and annuities

Gains on sales of other real estate owned

Noninterest Income ( in-scope of Topic 606 )

Out-of-scope of Topic 606:

Net realized gains on sales of securities

Loan servicing fees

Gains on sales of loans

Earnings on and proceeds from bank-owned life insurance

Noninterest Income ( out-of-scope of Topic 606 )

Total Noninterest Income

Earnings Per Share

5 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

Weighted average shares outstanding

4 unchanged sentences

Diluted EPS weighted average shares outstanding

For the three and nine month periods ended September 30, 2022, there were 108,100 stock options that were anti-dilutive and thereby excluded from the earnings per share calculations based upon the closing price of the Company’s common stock of $ 26.58 per share as of September 30, 2022.

For the three and nine month periods ended September 30, 2021, there were 110,100 stock options that were anti-dilutive and thereby excluded from the earnings per share calculations based upon the closing price of Norwood common stock of $ 25.50 per share as of September 30, 2021.

For the three month period ended March 31, 2023, there were 110,350 stock options that were anti-dilutive and thereby excluded from the earnings per share calculations based upon the closing price of the Company’s common stock of $ 29.42 per share as of March 31, 2023.

For the three month period ended March 31, 2022, there were 74,350 stock options that were anti-dilutive and thereby excluded from the earnings per share calculations based upon the closing price of Norwood common stock of $ 28.59 per share as of March 31, 2022.

Stock-Based Compensation

During the nine-month period ended September 30, 2022, no stock options were granted.

As of September 30, 2022, there was $ 67,000 of total unrecognized compensation cost related to non-vested options granted in 2021 under the 2014 Equity Incentive Plan, which will be fully amortized by December 31, 2022.

Compensation costs related to stock options amounted to $ 201,000 and $ 160,000 during the nine-month periods ended September 30, 2022 and 2021, respectively.

A summary of the Company’s stock option activity for the nine-month period ended September 30, 2022 is as follows:

During the three-month period ended March 31, 2023, 2,500 stock options were granted.

As of March 31, 2023, there was $ 287,000 of total unrecognized compensation cost related to non-vested options granted in 2022 and 2023 under the 2014 Equity Incentive Plan, which will be fully amortized by December 31, 2023.

Compensation costs related to stock options amounted to $ 96,000 and $ 67,000 during the three-month periods ended March 31, 2023 and 2022, respectively.

A summary of the Company’s stock option activity for the three-month period ended March 31, 2023 is as follows:

Average Exercise

3 unchanged sentences

Outstanding at January 1, 2023

Outstanding at September 30, 2022

Exercisable at September 30, 2022

Outstanding at March 31, 2023

Exercisable at March 31, 2023

Intrinsic value represents the amount by which the market price of the stock on the measurement date exceeded the exercise price of the option.

The market price was $ 26.58 per share as of September 30, 2022 and $ 25.99 per share as of December 31, 2021.

A summary of the Company’s restricted stock activity for the nine-month periods ended September 30, 2022 and 2021 is as follows:

The market price was $ 29.42 per share as of March 31, 2023 and $ 33.44 per share as of December 31, 2022.

A summary of the Company’s restricted stock activity for the three-month periods ended March 31, 2023 and 2022 is as follows:

Weighted-Average

3 unchanged sentences

Non-vested, January 1,

Non-vested, September 30,

The expected future compensation expense relating to the 39,530 shares of non-vested restricted stock outstanding as of September 30, 2022 is $ 875,000 .

Non-vested, March 31,

The expected future compensation expense relating to the 44,460 shares of non-vested restricted stock outstanding as of March 31, 2023 is $ 1,180,000 .

This cost will be recognized over the remaining vesting period of 3.5 years.

Compensation costs related to restricted stock amounted to $ 272,000 and $ 251,000 during the nine-month periods ended September 30, 2022 and 2021, respectively.

Compensation costs

related to restricted stock amounted to $ 114,000 and $ 82,000 during the three-month periods ended March 31, 2023 and 2022, respectively.

Accumulated Other Comprehensive Income (Loss)

The following table presents the changes in accumulated other comprehensive income (loss) (in thousands) by component net of tax for the three and nine months ended September 30, 2022 and 2021:

The following table presents the changes in accumulated other comprehensive income (loss) (in thousands) by component net of tax for the three months ended March 31, 2023 and 2022:

Unrealized gains (losses) on

5 unchanged sentences

Total other comprehensive loss

Balance as of September 30, 2022

Balance as of March 31, 2023

Unrealized gains (losses) on

5 unchanged sentences

Total other comprehensive loss

Balance as of September 30, 2021

Unrealized gains (losses) on

available for sale

securities (a)

Balance as of June 30, 2022

Other comprehensive loss before reclassification

Amount reclassified from accumulated other comprehensive loss

Total other comprehensive loss

Balance as of September 30, 2022

Unrealized gains (losses) on

available for sale

securities (a)

Balance as of June 30, 2021

Other comprehensive income before reclassification

Amount reclassified from accumulated other comprehensive loss

Total other comprehensive income

Balance as of September 30, 2021

Balance as of March 31, 2022

(a) All amounts are net of tax.

Amounts in parentheses indicate debits.

The following table presents significant amounts reclassified out of each component of accumulated other comprehensive income (loss) (in thousands) for the three and nine months ended September 30, 2022 and 2021:

The following table presents significant amounts reclassified out of each component of accumulated other comprehensive income (loss) (in thousands) for the three months ended March 31, 2023 and 2022:

Amount Reclassified

4 unchanged sentences

Three months ended

September 30,

Details about other comprehensive income

2 unchanged sentences

Income tax expense

Nine months ended

September 30,

Unrealized gains on available for sale securities

Net realized gains on sales of securities

Income tax expense

(a) Amounts in parentheses indicate debits to net income

7 unchanged sentences

(in thousands)

September 30,

Commitments to grant loans

11 unchanged sentences

The Bank, generally, holds collateral and/or personal guarantees supporting these commitments.

Management believes that the proceeds obtained through a liquidation of collateral and the enforcement of guarantees would be sufficient to cover the potential amount of future payments

required under the corresponding guarantees.

The current amount of the liability as of September 30, 2022 for guarantees under standby letters of credit issued is not material.

The amortized cost, gross unrealized gains and losses, and fair value of securities available for sale were as follows:

September 30, 2022

Management believes that the proceeds obtained through a liquidation of collateral and the enforcement of guarantees would be sufficient to cover the potential amount of future payments required under the corresponding guarantees.

The current amount of the liability as of March 31, 2023 for guarantees under standby letters of credit issued is not material.

The amortized cost, gross unrealized gains and losses, approximate fair value, and allowance for credit losses of securities available for sale were as follows:

March 31, 2023

(In Thousands)

9 unchanged sentences

Available for Sale:

Treasury securities

Government agencies

States and political subdivisions

Corporate obligations

Mortgage-backed securities-government

1 unchanged sentence

Total debt securities

The following tables show the Company’s investments’ gross unrealized losses and fair value aggregated by length of time that individual securities have been in a continuous unrealized loss position (in thousands):

September 30, 2022

The following tables summarize debt securities available for sale in an loss position for which an allowance for credit losses has not been recorded, aggregated by security type and length of time that individual securities have been in a continuous unrealized loss position (in thousands):

March 31, 2023

Less than 12 Months

17 unchanged sentences

Mortgage-backed securities-government sponsored entities

At September 30, 2022, the Company had 270 debt securities in an unrealized loss position in the less than twelve months category and 86 debt securities in the twelve months or more category.

At March 31, 2023, the Company had 62 debt securities in an unrealized loss position in the less than twelve months category and 277 debt securities in the twelve months or more category.

In Management’s opinion the unrealized losses reflect changes in interest rates subsequent to the acquisition of specific securities.

No other-than-temporary-impairment charges were recorded in 2022.

Management believes that all unrealized losses represent temporary impairment of the securities as the Company does not have the intent to sell the securities and it is more likely than not that it will not have to sell the securities before recovery of its cost basis.

The amortized cost and fair value of debt securities as of September 30, 2022 by contractual maturity are shown below.

The Company concluded that the decline in the value of these securities was not indicative of a credit loss.

The Company did not recognize any credit losses on these available for sale debt securities for the three months ended March 31, 2023, or other-than-temporary impairment charges for the three months ended March 31, 2022.

The Company does not have the intent to sell the securities and it is more likely than not that it will not have to sell the securities before recovery of its cost basis.

The amortized cost and fair value of debt securities as of March 31, 2023 by contractual maturity are shown below.

Expected maturities may differ from contractual maturities because borrowers may have the right to prepay obligations with or without call or prepayment penalties.

8 unchanged sentences

Gross realized gains and gross realized losses on sales of securities available for sale were as follows (in thousands):

Ended September 30,

Ended March 31,

Gross realized gains

2 unchanged sentences

Proceeds from sales of securities

Securities with a carrying value of $ 365,210,000 and $ 339,769,000 at September 30, 2022 and December 31, 2021, respectively, were pledged to secure public deposits, securities sold under agreements to repurchase and for other purposes as required or permitted by law.

Securities with a carrying value of $ 373,184,000 and $ 378,472,000 at March 31, 2023 and December 31, 2022, respectively, were pledged to secure public deposits, securities sold under agreements to repurchase and for other purposes as required or permitted by law.

Loans Receivable and Allowance for Loan Losses

Set forth below is selected data relating to the composition of the loan portfolio at the dates indicated (dollars in thousands):

September 30, 2022

March 31, 2023

December 31, 2022

5 unchanged sentences

Total loans receivable

Allowance for loan losses

Allowance for credit losses

Net loans receivable

During 2020 and 2021 the Company participated in the Paycheck Protection Program (“PPP”), administered directly by the United States Small Business Administration (“SBA”).

The PPP provides loans to small businesses who were affected by economic

conditions as a result of COVID-19 to provide cash-flow assistance to employers who maintain their payroll (including healthcare and certain related expenses), mortgage interest, rent, leases, utilities and interest on existing debt during the COVID-19 emergency.

As of September 30, 2022 and December 31, 2021, the Company had outstanding principal balances of $ 755,000 and $ 15.2 million, respectively, in PPP loans.

The PPP loans are fully guaranteed by the SBA and may be eligible for forgiveness by the SBA to the extent that the proceeds are used to cover eligible payroll costs, interest costs, rent, and utility costs over a period of up to 24 weeks after the loan is made as long as certain conditions are met regarding employee retention and compensation levels.

PPP loans deemed eligible for forgiveness by the SBA will be repaid by the SBA to the Company.

PPP loans are included in the commercial loan category.

In accordance with the SBA terms and conditions on these PPP loans, the Company received approximately $ 5.1 million in fees associated with the processing of these loans.

Upon funding of the loan, these fees were deferred and will be amortized over the life of the loan as an adjustment to yield in accordance with FASB ASC 310-20-25-2.

As of September 30, 2022, the carrying value of these unamortized loan fees was $ 20,000 .

The following table presents information regarding loans acquired and accounted for in accordance with ASC 310-30 (in thousands):

September 30, 2022

December 31, 2021

Outstanding Balance

Carrying Amount

As a result of the acquisition of UpState New York Bancorp, Inc.

(“UpState”), the Company added $ 15,410,000 of loans that were accounted for in accordance with ASC 310-30.

Based on a review of the loans acquired by the Company’s senior lending management, which included an analysis of credit deterioration of the loans since origination, the Company recorded a specific credit fair value adjustment of $ 6,937,000 .

For loans that were acquired with specific evidence of deterioration in credit quality, loan losses will be accounted for through a reduction of the specific reserve and will not impact the allowance for loan losses until actual losses exceed the allotted reserves.

For loans acquired without a deterioration of credit quality, losses incurred will result in adjustments to the allowance for loan losses through the allowance for loan loss adequacy calculation.

Changes in the accretable yield for purchased credit impaired loans for the nine-months ended September 30, 2022 and 2021, were as follows (in thousands):

Balance at beginning of period

Reclassification and other

Balance at end of period

Loans acquired with credit deterioration of $ 15,410,000 and accounted for in accordance with ASC 310-30 were individually evaluated to estimate credit losses and a net recovery amount for each loan.

The net cash flows for each loan were then discounted to present value using a risk-adjusted market rate.

The table below presents the components of the purchase accounting adjustments:

(In Thousands)

Contractually required principal and interest

Non-accretable discount

Expected cash flows

Accretable discount

Estimated fair value

The Company maintains a loan review system, which allows for a periodic review of our loan portfolio and the early identification of potential impaired loans.

Such system takes into consideration, among other things, delinquency status, size of loans, type and market value of collateral and financial condition of the borrowers.

Specific loan loss allowances are established for identified losses based on a review of such information.

A loan evaluated for impairment is considered to be impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement.

All loans identified as impaired are evaluated independently.

We do not aggregate such loans for evaluation purposes.

Impairment is measured on a loan-by-loan basis for commercial and construction loans by the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral-dependent.

Large groups of smaller balance homogeneous loans are collectively evaluated for impairment.

Accordingly, the Company does not separately identify individual consumer and residential mortgage loans for impairment disclosures, unless such loans are part of a larger relationship that is impaired, or are classified as a troubled debt restructuring.

Foreclosed assets acquired in settlement of loans are carried at fair value less estimated costs to sell and are included in foreclosed real estate owned on the Consolidated Balance Sheets.

As of September 30, 2022 and December 31, 2021, foreclosed real estate owned totaled $ 346,000 and $ 1,742,000 , respectively.

During the nine months ended September 30, 2022, there were no additions to the foreclosed real estate category.

The Co mpany disposed of a parcel of one property that was previously transferred to foreclosed real estate owned with a carrying value of $ 364,000 , and disposed of another property with a carrying value of $ 1,032,000 through the sale of the property.

As of September 30, 2022, the Company has initiated formal foreclosure proceedings on four properties classified as consumer residential mortgages with an aggregate carrying value of $ 160,000 .

The following table shows the amount of loans in each category that were individually and collectively evaluated for impairment at the dates indicated:

As of March 31, 2023 and December 31, 2022, foreclosed real estate owned totaled $ 346,000 and $ 346,000 , respectively.

During the three months ended March 31, 2023, there were no additions or deletions to the foreclosed real estate category.

As of March 31, 2023, the Company has initiated formal foreclosure proceedings on four properties classified as consumer residential mortgages with an aggregate carrying value of $ 244,000 .

The following table shows the amount of loans in each category that were individually and collectively evaluated for credit loss:

Real Estate Loans

September 30, 2022

March 31, 2023

(In thousands)

Individually evaluated for impairment

Loans acquired with deteriorated credit quality

Collectively evaluated for impairment

Individually evaluated

Collectively evaluated

The following table shows the amount of loans in each category that were individually and collectively evaluated for impairment at the dates indicated:

Real Estate Loans

5 unchanged sentences

The following table includes the recorded investment and unpaid principal balances for impaired loans with the associated allowance amount, if applicable.

September 30, 2022

(in thousands)

With no related allowance recorded:

Commercial Loans

Total Impaired Loans

December 31, 2022

8 unchanged sentences

Total Impaired Loans

The following table presents the average recorded investment in impaired loans and the related amount of interest income recognized during the three-month periods ended September 30, 2022 and 2021, respectively (in thousands):

Average Recorded

Interest Income

Real Estate Loans:

Commercial Loans

Other agricultural loans

The following table presents the average recorded investment in impaired loans and the related amount of interest income recognized during the nine-month periods ended September 30, 2022 and 2021, respectively (in thousands):

The following table presents the average recorded investment in impaired loans and the related amount of interest income recognized during the three-month period ended March 31, 2022 (in thousands):

Average Recorded

2 unchanged sentences

Commercial Loans

Other agricultural loans

Troubled debt restructured loans are those loans whose terms have been renegotiated to provide a reduction or deferral of principal or interest as a result of financial difficulties experienced by the borrower, who could not obtain comparable terms from alternate financing sources.

As of September 30, 2022 and December 31, 2021, the Company had no troubled debt restructured loans to report.

For the nine-month period ended September 30, 2022 and 2021, there were no new loans identified as troubled debt restructurings.

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

2 unchanged sentences

The Special Mention category includes assets that are currently protected but are potentially weak, resulting in an undue and unwarranted credit risk, but not to the point of justifying a Substandard classification.

Loans in the Substandard category have well-defined weaknesses that jeopardize the liquidation of the debt, and have a

distinct possibility that some loss will be sustained if the weaknesses are not corrected.

Loans in the Substandard category have well-defined weaknesses that jeopardize the liquidation of the debt, and have a distinct possibility that some loss will be sustained if the weaknesses are not corrected.

All loans greater than 90 days past due are considered Substandard.

5 unchanged sentences

Loan Review also annually reviews relationships of $ 1,500,000 and over to assign or re-affirm risk ratings.

Loans in the Substandard categories that are collectively evaluated for impairment are given separate consideration in the determination of the allowance.

The following table presents the classes of the loan portfolio summarized by the aggregate Pass and the criticized categories of Special Mention, Substandard, Doubtful and Loss within the internal risk rating system as of September 30, 2022 and December 31, 2021 (in thousands):

September 30, 2022

Commercial real estate loans

Real estate - agricultural

Commercial loans

Other agricultural loans

December 31, 2021

Commercial real estate loans

Real estate - agricultural

Commercial loans

Other agricultural loans

For residential real estate loans, construction loans and consumer loans, the Company evaluates credit quality based on the performance of the individual credits.

The following table presents the recorded investment in the loan classes based on payment activity as of September 30, 2022 and December 31, 2021 (in thousands):

Nonperforming

September 30, 2022

Residential real estate loans

Consumer loans to individuals

Nonperforming

December 31, 2021

Residential real estate loans

Consumer loans to individuals

Management further monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio 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 aging categories of performing loans and nonaccrual loans as of September 30, 2022 and December 31, 2021 (in thousands):

The following table presents the classes of the loan portfolio summarized by the aging categories of performing loans and nonaccrual loans as of March 31, 2023 and December 31, 2022 (in thousands):

31-60 Days Past Due

2 unchanged sentences

Total Past Due and Non-Accrual

Purchased Credit-Impaired

September 30, 2022

March 31, 2023

Real Estate loans

6 unchanged sentences

Total Past Due and Non-Accrual

Purchased Credit-Impaired

Purchased Credit Impaired Loans

December 31, 2022

3 unchanged sentences

Consumer loans

Management reviews the loan portfolio on a quarterly basis using a defined, consistently applied process in order to make appropriate and timely adjustments to the allowance for loan losses.

Management reviews the loan portfolio on a quarterly basis using a defined, consistently applied process in order to make appropriate and timely adjustments to the allowance for credit losses.

When information confirms all or part of specific loans to be uncollectible, these amounts are promptly charged off against the allowance.

As of September 30, 2022, the allocation of the allowance includes an allocation for loans secured by farmland and other agricultural loans.

As of September 30 2022, the Company has also continued to incorporate qualitative factors related to the pandemic to capture some of the risk associated with higher-risk industries, although the factor has been reduced from the December 31, 2021 level.

The qualitative factor related to the deferral of payments due to COVID-19 has been eliminated.

At September 30, 2022, the allowance for loan losses includes $ 583,000 of COVID related factors, compared to $ 2.3 million at December 31, 2021.

The 2022 allowance for loan losses excludes Paycheck Protection Program loans which are fully guaranteed by the Small Business Association as well as loans acquired from UpState which were recorded at fair value.

The following table presents the allowance for loan losses by the classes of the loan portfolio:

The following table presents the allowance for credit losses by the classes of the loan portfolio:

(In thousands)

3 unchanged sentences

Beginning balance, December 31, 2022

Provision for loan losses

Ending balance, September 30, 2022

Impact of adopting ASC 326

Provision for credit losses

Ending balance, March 31, 2023

Ending balance individually evaluated

‎ for impairment

Ending balance collectively evaluated

‎ for impairment

(In thousands)

2 unchanged sentences

Other Agricultural

Beginning balance, June 30, 2022

Provision for loan losses

Ending balance, September 30, 2022

(In thousands)

Residential Real Estate

Commercial Real Estate

Other Agricultural

Beginning balance, December 31, 2021

Provision for loan losses

Ending balance, September 30, 2021

Ending balance, March 31, 2022

Ending balance individually evaluated

2 unchanged sentences

‎ for impairment

(In thousands)

Residential Real Estate

The cumulative loss rate used as the basis for the estimate of credit losses is comprised of the Company’s historical loss experience.

The Company chose to apply qualitative factors based on “quantitative metrics” which link the quantifiable metrics to historical changes in the qualitative factor categories.

The Company also chose to apply economic projections to the model.

A select group of economic indicators was utilized which was then correlated to the historical loss experience of the Company and its peers.

Based on the correlation results, the economic adjustments are then weighted for relevancy and applied to the individual loan pools.

The following table presents the carrying value of loans on nonaccrual status and loans past due over 90 days still accruing interest (in thousands):

Loans Past Due

Still Accruing

Nonperforming

March 31, 2023

Real Estate loans

Commercial loans

Other agricultural loans

Consumer loans

Based on the most recent analysis performed, the following table presents the recorded investment in non-homogenous pools by internal risk rating systems (in thousands):

Term Loans Amortized Costs Basis by Origination Year

March 31, 2023

Commercial real estate

Other Agricultural

Beginning balance, June 30, 2021

Provision for loan losses

Ending balance, September 30, 2021

The Company’s primary business activity as of September 30, 2022 was with customers located in northeastern Pennsylvania and the New York counties of Delaware, Sullivan, Ontario, Otsego and Yates.

Special Mention

Commercial real estate

Current period gross charge-offs

Real Estate - Agriculture

Special Mention

Real Estate - Agriculture

Current period gross charge-offs

Commercial loans

Special Mention

Commercial loans

Current period gross charge-offs

Other agricultural loans

Special Mention

Other agricultural loans

Current period gross charge-offs

Special Mention

December 31, 2022

Commercial real estate loans

Real estate - agricultural

Commercial loans

Other agricultural loans

The Company monitors the credit risk profile by payment activity for residential and consumer loan classes.

Loans past due over 90 days and loans on nonaccrual status are considered nonperforming.

Nonperforming loans are reviewed monthly.

The following table presents the carrying value of residential and consumer loans based on payment activity (in thousands):

Term Loans Amortized Costs Basis by Origination Year

March 31, 2023

Residential real estate

Payment Performance

Nonperforming

Residential real estate

Current period gross charge-offs

Payment Performance

Nonperforming

Current period gross charge-offs

Consumer loans to individuals

Payment Performance

Nonperforming

Consumer loans to individuals

Current period gross charge-offs

Payment Performance

Nonperforming

For residential real estate loans, construction loans and consumer loans, the Company evaluates credit quality based on the performance of the individual credits.

The following table presents the recorded investment in the loan classes based on payment activity as of December 31, 2022 (in thousands):

Nonperforming

December 31, 2022

Residential real estate loans

Consumer loans to individuals

Occasionally, the Bank modifies loans to borrowers in financial distress by providing principal forgiveness, term extension, an 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 provides 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.

During the period ended March 31, 2023, there were no modifications made to borrowers experiencing financial difficulty.

The Company’s primary business activity as of March 31 2023 was with customers located in northeastern Pennsylvania and the New York counties of Delaware, Sullivan, Ontario, Otsego and Yates.

Accordingly, the Company has extended credit primarily to commercial entities and individuals in this area whose ability to repay their loans is influenced by the region’s economy.

As of September 30, 2022, the Company considered its concentration of credit risk to be acceptable.

As of March 31, 2023, the Company considered its concentration of credit risk to be acceptable.

The highest concentrations are in commercial rentals with $ 142.3 million of loans outstanding, or 9.3 % of total loans outstanding, and residential rentals with loans outstanding of $ 116.00 million, or 7.6 % of loans outstanding.

For the nine months ended September 30, 2022, the Company did not recognize any charge offs on loans in the named concentrations.

For the three months ended March 31, 2023, the Company did not recognize any charge offs on loans in the named concentrations.

Operating Leases

The Company leases eight office locations under operating leases.

The Company leases seven office locations under operating leases.

Several assumptions and judgments were made when applying the requirements of Topic 842 to the Company’s existing lease commitments, including the allocation of consideration in the contracts between lease and nonlease components, determination of the lease term, and determination of the discount rate used in calculating the present value of the lease payments.

2 unchanged sentences

These variable nonlease components were excluded from the calculation of the present value of the remaining lease payments, therefore, they are not included in other assets and other liabilities on the Consolidated Balance Sheets.

The lease cost associated with the operating leases for the nine-month periods ended September 30, 2022 and 2021, amounted to $ 454,000 and $ 441,000 respectively.

The lease cost associated with the operating leases for the three-month periods ended March 31, 2023 and 2022, amounted to $ 176,000 and $ 148,000 respectively.

Certain of the Company’s leases contain options to renew the lease after the initial term.

2 unchanged sentences

The discount rate utilized in calculating the present value of the remaining lease payments for each lease was the Federal Home Loan Bank of Pittsburgh advance rate corresponding to the remaining maturity of the lease.

The following table presents the weighted-average remaining lease term and discount rate for the leases outstanding at September 30, 2022.

The following table presents the weighted-average remaining lease term and discount rate for the leases outstanding at March 31, 2023.

Weighted-average remaining term

Weighted-average discount rate

The following table presents the undiscounted cash flows due related to operating leases as of September 30, 2022, along with a reconciliation to the discounted amount recorded on the Consolidated Balance Sheets:

The following table presents the undiscounted cash flows due related to operating leases as of March 31, 2023, along with a reconciliation to the discounted amount recorded on the Consolidated Balance Sheets:

Undiscounted cash flows due (in thousands)

15 unchanged sentences

Assets and Liabilities Required to be Measured and Reported at Fair Value on a Recurring Basis

For financial assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used at September 30, 2022 and December 31, 2021 are as follows:

For financial assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used at March 31, 2023 and December 31, 2022 are as follows:

Fair Value Measurement Using

Reporting Date

September 30, 2022

March 31, 2023

(In thousands)

24 unchanged sentences

Interest Rate Swaps:

The fair value of interest rate swaps is based upon the present value of the expected future cash flows using the LIBOR swap curve, the basis for the underlying interest rate.

The fair value of interest rate swaps is based upon the present value of the expected future cash flows using the Secured Overnight Financing Rate (“SOFR”) swap curve, the basis for the underlying interest rate.

To price interest rate swaps, cash flows are first projected for each payment date using the fixed rate for the fixed side of the swap and the forward rates for the floating side of the swap.

These swap cash flows are then discounted to time zero using LIBOR zero-coupon interest rates.

These swap cash flows are then discounted to time zero using SOFR zero-coupon interest rates.

The sum of the present value of both legs is the fair market value of the interest rate swap.

2 unchanged sentences

Assets and Liabilities Required to be Measured and Reported at Fair Value on a Non-Recurring Basis

For financial assets measured at fair value on a nonrecurring basis, the fair value measurements by level within the fair value hierarchy used at September 30, 2022 and December 31, 2021 are as follows:

For financial assets measured at fair value on a nonrecurring basis, the fair value measurements by level within the fair value hierarchy used at March 31, 2023 and December 31, 2022 are as follows:

Fair Value Measurement Using Reporting Date

(In thousands)

September 30, 2022

Impaired Loans

March 31, 2023

Individually analyzed loans held for investment

Foreclosed Real Estate Owned

2 unchanged sentences

Foreclosed Real Estate Owned

Impaired loans (generally carried at fair value):

Individually analyzed loans held for investment:

The Company measures impairment generally based on the fair value of the loan’s collateral.

Fair value is generally determined based upon independent third-party appraisals of the properties, or discounted cash flows based upon the lowest level of input that is significant to the fair value measurements.

As of September 30, 2022, the fair value investment in impaired loans was $ 12,000 which included one loan relationship that did not require a valuation allowance since the estimated realizable value of the collateral exceeded the recorded investment in the loan.

As of September 30, 2022, the Company has not recognized charge-offs against the allowance for loan losses on any of these impaired loans.

As of March 31, 2023, the fair value of individually analyzed loans held for investment was $ 354,000 which included one loan relationships with a carrying value of $ 15,000 that required an ACL of $ 1,000 since the estimated realizable value of the collateral did not support the recorded investment in the loan, and three loan relationships that did not require an ACL since the estimated realizable value of the collateral exceeded the recorded investment in the loan.

As of March 31, 2023, the Company has recognized charge-offs against the allowance for credit losses on these individually analyzed loans held for investment in the amount of $ 112,000 .

As of December 31, 2022, the fair value investment in impaired loans totaled $ 413,000 which included three loan relationships with a carrying value of $ 413,000 that did not require a valuation allowance since either the estimated realizable value of the collateral or the discounted cash flows exceeded the recorded investment in the loan.

2 unchanged sentences

As of December 31, 2022, the Company has recognized charge-offs against the allowance for loan losses on this impaired loan in the amount of $ 0 over the life of the loan.

Foreclosed real estate owned (carried at fair value):

Foreclosed real estate owned:

Real estate properties acquired through loan foreclosures, or by deed in lieu of loan foreclosure are to be sold and are carried at fair value less estimated cost to sell.

8 unchanged sentences

Range (Weighted Average)

September 30, 2022

Impaired loans

March 31, 2023

Individually analyzed loans held for investment

Appraisal of collateral(1)

26 unchanged sentences

Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Company’s disclosures and those of other companies may not be meaningful.

The following methods and assumptions were used to estimate the fair values of the Company’s financial instruments at September 30, 2022 and December 31, 2021.

The following methods and assumptions were used to estimate the fair values of the Company’s financial instruments at March 31, 2023 and December 31, 2022.

Loans receivable (carried at cost):

11 unchanged sentences

These prices obtained from this active market represent a fair value that is deemed to represent the transfer price if the liability were assumed by a third party.

The estimated fair values of the Bank’s financial instruments not required to be measured or reported at fair value were as follows at September 30, 2022 and December 31, 2021.

The estimated fair values of the Bank’s financial instruments not required to be measured or reported at fair value were as follows at March 31, 2023 and December 31, 2022.

(In thousands)

Fair Value Measurements at September 30, 2022

Fair Value Measurements at March 31, 2023

Carrying Amount

38 unchanged sentences

There was no effect on earnings in any periods presented.

At September 30, 2022 and December 31, 2021, based upon the swap contract values, the company pledged cash in the amount of $ 350,000 as collateral for its interest rate swaps with a third-party financial institution.

The fair value of the swaps as of September 30, 2022 and December 31, 2021 was $ 1,548,000 and $ 235,000 , respectively.

At March 31, 2023 and December 31, 2022, based upon the swap contract values, the company pledged cash in the amount of $ 350,000 as collateral for its interest rate swaps with a third-party financial institution.

The fair value of the swaps as of March 31, 2023 and December 31, 2022 was $ 1,252,000 and $ 1,464,000 , respectively.

Summary information regarding these derivatives is presented below

1 unchanged sentence

Notional Amount

September 30, 2022

March 31, 2023

December 31, 2022

1 unchanged sentence

Interest Rate Received

September 30, 2022

March 31, 2023

December 31, 2022

13 unchanged sentences

Balance Sheet Location

September 30, 2022

March 31, 2023

Interest rate derivatives

4 unchanged sentences

New and Recently Adopted Accounting Pronouncements

New Accounting Pronouncements Not Yet Adopted

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses:

Measurement of Credit Losses on Financial Instruments , which changes the impairment model for most financial assets.

This Update is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations.

The underlying premise of the Update is that financial assets measured at amortized cost should be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis.

The allowance for credit losses should reflect management’s current estimate of credit losses that are expected to occur over the remaining life of a financial asset.

The income statement will be affected for the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period.

With certain exceptions, transition to the new requirements will be through a cumulative-effect adjustment to opening retained earnings as of the beginning of the first reporting period in which the guidance is adopted.

This Update is effective for SEC filers that are eligible to be smaller reporting companies, non-SEC filers, and all other companies, to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

We expect to recognize a one-time cumulative-effect adjustment to the allowance for loan losses as of the beginning

of the first reporting period in which the new standard is effective but cannot yet determine the magnitude of any such one-time adjustment or the overall impact of the new guidance on the consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment .

To simplify the subsequent measurement of goodwill, the FASB eliminated Step 2 from the goodwill impairment test.

In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination.

Instead, under the amendments in this Update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount.

An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value;

however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.

The Update is effective for smaller reporting companies and all other entities for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years.

This Update is not expected to have a significant impact on the Company’s financial statements

In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Derivatives, and Hedging (Topic 815);

and Financial Instruments (Topic 825), which affects a variety of topics in the Codification and applies to all reporting entities within the scope of the affected accounting guidance.

ASU 2019-04 makes clarifying amendments to certain financial instrument standards.

For entities that have not yet adopted ASU 2016-13, the effective dates for the amendments related to ASU 2016-13 are the same as the effective dates in ASU 2016-13.

For entities that have adopted ASU 2016-13, the amendments related to ASU 2016-13 are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.

For entities that have not yet adopted ASU 2017-12 as of April 25, 2019, the effective dates for the amendments to Topic 815 are the same as the effective dates in ASU 2017-12.

For entities that have adopted ASU 2017-12 as of April 25, 2019, the effective date is as of the beginning of the first annual period beginning after April 25, 2019.

The amendments related to ASU 2016-01 are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.

The Company qualifies as a smaller reporting company and does not expect to early adopt these ASUs.

In May 2019, the FASB issued ASU 2019-05, Financial Instruments – Credit Losses (Topic 326) , which allows entities to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost upon adoption of the new credit losses standard.

To be eligible for the transition election, the existing financial asset must otherwise be both within the scope of the new credit losses standard and eligible for applying the fair value option in ASC 825-10.3.

The election must be applied on an instrument-by-instrument basis and is not available for either available-for-sale or held-to-maturity debt securities.

For entities that elect the fair value option, the difference between the carrying amount and the fair value of the financial asset would be recognized through a cumulative-effect adjustment to opening retained earnings as of the date an entity adopted ASU 2016-13.

Changes in fair value of that financial asset would subsequently be reported in current earnings.

For entities that have not yet adopted the credit losses standard, the ASU is effective when they implement the credit losses standard.

For entities that already have adopted the credit losses standard, the ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.

The Company qualifies as a smaller reporting company and does not expect to early adopt ASU 2016-13.

In November 2019, the FASB issued ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments – Credit Losses , to clarify its new credit impairment guidance in ASC 326, based on implementation issues raised by stakeholders.

This Update clarified, among other things, that expected recoveries are to be included in the allowance for credit losses for these financial assets;

an accounting policy election can be made to adjust the effective interest rate for existing troubled debt restructurings based on the prepayment assumptions instead of the prepayment assumptions applicable immediately prior to the restructuring event;

and extends the practical expedient to exclude accrued interest receivable from all additional relevant disclosures involving amortized cost basis.

For entities that have not yet adopted ASU 2016-13 as of November 26, 2019, the effective dates for ASU 2019-11 are the same as the effective dates and transition requirements in ASU 2016-13.

For entities that have adopted ASU 2016-13, ASU 2019-11 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.

The Company qualifies as a smaller reporting company and does not expect to early adopt these ASUs.

In March 2020, the FASB issued ASU 2020-03 , Codification Improvements to Financial Instruments.

This ASU was issued to improve and clarify various financial instruments topics, including the current expected credit losses (CECL) standard issued in 2016.

The ASU includes seven issues that describe the areas of improvement and the related amendments to GAAP;

they are intended to make the standards easier to understand and apply and to eliminate inconsistencies, and they are narrow in scope and are not expected to significantly change practice for most entities.

Among its provisions, the ASU clarifies that all entities, other than public business entities that elected the fair value option, are required to provide certain fair value disclosures under ASC 825, Financial Instruments , in both interim and annual financial statements.

It also clarifies that the contractual term of a net investment in a lease under Topic 842 should be the contractual term used to measure expected credit losses under Topic 326.

Amendments related to ASU 2019-04 are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.

Early adoption is not permitted before an entity’s adoption of ASU 2016-01.

Amendments related to ASU 2016-13 for entities that have not yet adopted that guidance

are effective upon adoption of the amendments in ASU 2016-13.

Early adoption is not permitted before an entity’s adoption of ASU 2016-13.

Amendments related to ASU 2016-13 for entities that have adopted that guidance are effective for fiscal years beginning after December 15, 2019, including interim periods within those years.

Other amendments are effective upon issuance of this ASU.

The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

In January 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting, March 2020 , to provide temporary optional expedients and exceptions to the U.S.

GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate.

Entities can elect not to apply certain modification accounting requirements to contracts affected by what the guidance calls “reference rate reform” if certain criteria are met.

An entity that makes this election would not have to remeasure the contracts at the modification date or reassess a previous accounting determination.

Also, entities can elect various optional expedients that would allow them to continue applying hedge accounting for hedging relationships affected by reference rate reform if certain criteria are met, and can make a one-time election to sell and/or reclassify held-to-maturity debt securities that reference an interest rate affected by reference rate reform.

The amendments in this ASU are effective for all entities upon issuance through December 31, 2022.

It is too early to predict whether a new rate index replacement and the adoption of the ASU will have a material impact on the Company’s financial statements.

In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848) , which provides optional temporary guidance for entities transitioning away from the London Interbank Offered Rate (LIBOR) and other interbank offered rates (IBORs) to new references rates so that derivatives affected by the discounting transition are explicitly eligible for certain optional expedients and exceptions within Topic 848.

ASU 2021-01 clarifies that the derivatives affected by the discounting transition are explicitly eligible for certain optional expedients and exceptions in Topic 848.

ASU 2021-01 is effective immediately for all entities.

Entities may elect to apply the amendments on a full retrospective basis as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or on a prospective basis to new modifications from any date within an interim period that includes or is subsequent to the date of the issuance of a final update, up to the date that financial statements are available to be issued.

The amendments in this update do not apply to contract modifications made, as well as new hedging relationships entered into, after December 31, 2022, and to existing hedging relationships evaluated for effectiveness for periods after December 31, 2022, except for certain hedging relationships existing as of December 31, 2022, that apply certain optional expedients in which the accounting effects are recorded through the end of the hedging relationship.

The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

In March 2022, the FASB issued ASU 2022-02, Financial Instruments - Credit Losses (ASC 326):

Troubled Debt Restructurings (TDRs) and Vintage Disclosures .

The guidance amends ASC 326 to eliminate the accounting guidance for TDRs by creditors, while enhancing disclosure requirements for certain loan refinancing and restructuring activities by creditors when a borrower is experiencing financial difficulty.

Specifically, rather than applying TDR recognition and measurement guidance, creditors will determine whether a modification results in a new loan or continuation of existing loan.

These amendments are intended to enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty.

Additionally, the amendments to ASC 326 require that an entity disclose current-period gross write-offs by year of origination within the vintage disclosures, which requires that an entity disclose the amortized cost basis of financing receivables by credit quality indicator and class of financing receivable by year of origination.

The guidance is only for entities that have adopted the amendments in Update 2016-13 for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022.

Early adoption using prospective application, including adoption in an interim period where the guidance should be applied as of the beginning of the fiscal year.

The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848)”.

The ASU provided optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met.

The amendment only applies to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of the reference rate reform.

The ASU is effective as of March 12, 2020 through December 31, 2022.

Furthermore, in December 2022, the FASB issued ASU 2022-06, “Deferral of the Sunset Date of Reference Rate Reform (Topic 848)” .

This ASU extends the sunset date of ASC Topic 848 (Reference Rate Reform) to December 31, 2024, in response to the United Kingdom’s Financial Conduct Authority (FCA) extension of the intended cessation date of LIBOR in the United States.

The Company evaluated the impact of this standard, and believes that its adoption will not have a material impact on the Company’s consolidated financial condition or results of operations.

In March 2023, the FASB issued ASU No.

2023-02, "

Investments—Equity Method and Joint Ventures (Topic 323):

Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method (a consensus of the Emerging Issues Task Force) ".

The ASU allows entities to elect the proportional amortization method, on a tax-credit-program-by-tax-credit-program basis, for all equity investments in tax credit programs meeting the eligibility criteria in Accounting Standards Codification (ASC) 323-740-25-1.

While the ASU does not significantly alter the existing eligibility criteria, it does provide clarifications to address existing interpretive issues.

It also prescribes specific information reporting entities must disclose about tax credit investments each period.

This ASU is effective for reporting periods beginning after December 15, 2023, for public business entities, or January 1, 2024 for the Company.

The Company does not expect the adoption of this ASU to have a material impact on the Company's financial statements.

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

What changed 10-Q

Item 1. Financial Statements